Exhibit 4.2


 


EXECUTION COPY


 


AMENDED AND RESTATED MORTGAGES TRUST DEED


 


 


DATED 12th
March, 2004 


 


 


HALIFAX PLC


 


and


 


PERMANENT
FUNDING (NO. 1) LIMITED


 


and


 


PERMANENT
MORTGAGES TRUSTEE LIMITED


 


and


 


SFM OFFSHORE
LIMITED


 


 


	
  

  
	
   

  
	
  LONDON

  



 

















 


CONTENTS


 


	
  Clause

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  1.

  	
  Definitions and
  Construction

  	
   

  
	
  2.

  	
  Creation of Mortgages Trust

  	
   

  
	
  3.

  	
  Conditions Precedent

  	
   

  
	
  4.

  	
  Acquisition
  by Funding 1 of an Increased Interest in the Trust Property

  	
   

  
	
  5.

  	
  Initial
  Funding 1 Share and Initial Seller Share

  	
   

  
	
  6.

  	
  Acquisition
  by Seller of an Interest Relating to Capitalised Interest

  	
   

  
	
  7.

  	
  Payment
  by the Seller to Funding 1 of the Amount Outstanding under an Intercompany
  Loan

  	
   

  
	
  8.

  	
  Adjustment
  of Funding 1 Share Percentage and Seller Share Percentage on Calculation
  Dates

  	
   

  
	
  9.

  	
  Minimum Seller Share

  	
   

  
	
  10.

  	
  Allocation
  and Distribution of Revenue Receipts

  	
   

  
	
  11.

  	
  Allocation
  and Distribution of Principal Receipts

  	
   

  
	
  12.

  	
  Allocation of Losses

  	
   

  
	
  13.

  	
  Funding
  2 becomes a Beneficiary of the Mortgages Trust

  	
   

  
	
  14.

  	
  Ledgers

  	
   

  
	
  15.

  	
  Costs and
  Expenses of the Mortgages Trustee

  	
   

  
	
  16.

  	
  Directions from
  Beneficiaries

  	
   

  
	
  17.

  	
  Transfers

  	
   

  
	
  18.

  	
  Covenants of the
  Mortgages Trustee

  	
   

  
	
  19.

  	
  Power to Delegate

  	
   

  
	
  20.

  	
  Powers of Investment

  	
   

  
	
  21.

  	
  Other
  Provisions regarding the Mortgages Trustee

  	
   

  
	
  22.

  	
  No Retirement of
  Mortgages Trustee

  	
   

  
	
  23.

  	
  Termination

  	
   

  
	
  24.

  	
  Further Assurances

  	
   

  
	
  25.

  	
  Amendments

  	
   

  
	
  26.

  	
  Non Petition Covenant

  	
   

  
	
  27.

  	
  No Partnership or Agency

  	
   

  
	
  28.

  	
  Calculations

  	
   

  
	
  29.

  	
  No Waiver; Remedies

  	
   

  
	
  30.

  	
  Execution in
  Counterparts; Severability

  	
   

  
	
  31.

  	
  Tax

  	
   

  
	
  32.

  	
  Confidentiality

  	
   

  
	
  33.

  	
  Exclusion of Third
  Party Rights

  	
   

  
	
  34.

  	
  Addresses for Notices

  	
   

  
	
  35.

  	
  Governing
  Law and Submission to Jurisdiction

  	
   

  
	
  36.

  	
  Exclusion of Trustee Act
  2000

  	
   

  
	
   

  	
   

  	
   

  
	
  Signatories

  	
   

  



 

















 


THIS AMENDED AND RESTATED MORTGAGES TRUST DEED is made on 12th March, 2004
between:


 


(1)                                  HALIFAX plc (registered number
2367076), 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 capacities as Seller, Beneficiary and Cash Manager;


 


(2)                                  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 a Beneficiary;


 


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


 


(4)                                  SFM
OFFSHORE LIMITED (registered number 76015) a private limited company
incorporated under the laws of Jersey whose registered office is at 47 Esplanade,
St Helier, Jersey JE1 0BD, Channel Islands, in its capacity as Share Trustee of
the Mortgages Trustee.


 


WHEREAS:


 


(A)                              The Mortgages Trust was constituted by the
Share Trustee of the Mortgages Trustee in favour of Funding 1 and the Seller on
the terms and subject to the conditions set out in the Mortgages Trust
Deed  (as amended and/or restated by
this Deed and from time to time, the Mortgages Trust Deed).


 


(B)                                The Mortgages Trustee holds the Trust
Property as bare trustee for the Beneficiaries upon, with and subject to the
trusts, powers and provisions of the Mortgages Trust Deed.


 


(C)                                The Seller carries on the business of,
inter alia, originating residential first mortgage loans to individual
Borrowers in the United Kingdom and of managing and administering such mortgage
loans.  The Seller assigned the Initial
Portfolio to the Mortgages Trustee on 14th June, 2002 and (from time to time)
has sold and may sell New Portfolios to the Mortgages Trustee, pursuant to the
terms of the Mortgage Sale Agreement. 
The Initial Portfolio is, and any New Portfolios are and shall be, held
by the Mortgages Trustee (in relation to Scottish Loans, in its capacity as
trustee under a Scottish Declaration of Trust) on trust for the Beneficiaries
upon, with and subject to the trusts, powers and provisions of the Mortgages
Trust Deed.


 


(D)                               The parties to the Mortgages Trust Deed
have agreed to amend and restate the terms of the Mortgages Trust Deed as set
out herein.


 


NOW THIS DEED WITNESSES:


 


1.                                      DEFINITIONS AND CONSTRUCTION


 


1.1                                 The amended and restated
master definitions and construction schedule signed by, amongst others, the
parties to this Deed 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 Deed) (the Master Definitions and Construction Schedule) is expressly and
specifically incorporated into this Deed and, accordingly, the expressions
defined in the Master Definitions and Construction Schedule (as so amended,
varied or supplemented from time to time) shall,


 


1

















 


except where the context otherwise requires
and save where otherwise defined herein, have the same meanings in this Deed,
including the Recitals hereto and this Deed shall be construed in accordance
with the interpretation provisions set out in Clause 2 of the Master
Definitions and Construction Schedule.


 


1.2                                 This Deed amends and restates
the Mortgages Trust Deed made on 13th June, 2002 as amended and restated on 6th
March, 2003 and as further amended and restated on 25th November, 2003 (the Principal
Deed).  As of the date of
this Deed, any future rights or obligations (excluding such obligations accrued
to the date of this Deed) of a party under the Principal Deed shall be extinguished
and shall instead be governed by this Deed.


 


2.                                      CREATION OF MORTGAGES TRUST


 


2.1                               Initial Trust Property


 


On 13th
June, 2002 the Share Trustee of the Mortgages Trustee settled on trust the
Initial Trust Property to be held on trust absolutely as to both capital and
income by the Mortgages Trustee for the benefit, as tenants in common, of the
Seller as to the Initial Seller Share Percentage and Funding 1 as to the
Initial Funding 1 Share Percentage.


 


2.2                               Initial Closing Trust Property


 


Pursuant
to the provisions of the Mortgage Sale Agreement, the Seller assigned the
Initial Closing Trust Property to the Mortgages Trustee on the Initial Closing
Date.


 


2.3                               Future Trust Property


 


From
time to time and pursuant to the Mortgage Sale Agreement, the Seller has sold
and intends to sell the Future Trust Property to the Mortgages Trustee.


 


2.4                               Trust Property


 


Subject
to Clause
3, the Mortgages Trustee shall hold the Trust Property as to both
capital and income on trust absolutely for Funding 1 (as to the Funding 1
Share) and for the Seller (as to the Seller Share) as tenants in common upon,
with and subject to all the trusts, powers and provisions of this Deed.


 


3.                                      CONDITIONS PRECEDENT


 


3.1                                 The Initial Trust Property is
held by the Mortgages Trustee on the Mortgages Trust.


 


3.2                                 The Initial Closing Trust
Property shall be held by the Mortgages Trustee on the Mortgages Trust upon the
satisfaction of the following conditions precedent:


 


(a)                                  due execution and delivery of
the Mortgage Sale Agreement as amended and restated by all parties to it;


 


(b)                                 due execution and delivery of
this Deed by all parties to it; and


 


(c)                                  in respect of the Funding 1
Share of the Trust Property only, payment of the Purchase Price by Funding 1 to
the Seller.


 


3.3                                 The Initial Closing Trust
Property and any Future Trust Property shall be held by the Mortgages Trustee
on the Mortgages Trust subject to satisfaction of the conditions set out in


 


2

















 


Clause 4.1 of the Mortgage Sale Agreement for the sale of New
Loans and their New Related Security to the Mortgages Trustee.


 


4.                                      ACQUISITION BY FUNDING 1 OF AN
INCREASED INTEREST IN THE TRUST PROPERTY


 


4.1                               Offer to pay


 


On not
more than 60 days’ written notice nor less than 20 days’ written notice, Funding
1 may offer to make a payment to the Seller so as to increase Funding 1’s share
of the Trust Property and to cause a corresponding decrease in the Seller’s
share of the Trust Property on the date specified in that notice.  Such offer may only be accepted if the
following conditions precedent are satisfied on such date:


 


(a)                                  no deficiency is recorded on
the Principal Deficiency Ledger as at the most recent Funding 1 Interest
Payment Date;


 


(b)                                 no Note Event of Default or
Intercompany Loan Event of Default shall have occurred which is continuing or
unwaived as at the relevant date;


 


(c)                                  the Security Trustee is not
aware that the increase in the Funding 1 Share of the Trust Property (or the
corresponding decrease in the  Seller
Share of the Trust Property) would adversely affect the then current credit
ratings by the Rating Agencies (or any of them) of the Notes;


 


(d)                                 the Notes have been issued by
the relevant Issuer, the subscription proceeds received on behalf of the
relevant Issuer and advanced by the relevant Issuer to Funding 1 pursuant to an
Intercompany Loan Agreement, the proceeds of which will be applied by Funding 1
to make the payment referred to in the notice on the relevant date;


 


(e)                                  Funding 1 has entered into, if
necessary, a New Start-up Loan and a New Funding 1 Swap and adjustments have
been made, if required, to the General Reserve Fund;


 


(f)                                    receipt of a solvency
certificate executed by an authorised signatory of the Seller in form and
content acceptable to the Mortgages Trustee, Funding 1 and the Security
Trustee;


 


(g)                                 as at the relevant date, the
aggregate Outstanding Principal Balance of Loans constituting the Trust
Property, in respect of which the aggregate amount in arrears is more than
three times the monthly payment then due, is less than 5 per cent. of the
aggregate Outstanding Principal Balance of all Loans constituting the Trust
Property;


 


(h)                                 the Seller has not received
written notice that the short term, unsecured, unguaranteed and unsubordinated
debt obligations of the Seller are not rated at least P-1 by Moody’s, A-1 by
Standard and Poor’s and F1 by Fitch at the time of, and immediately following,
the payment made by Funding 1 on the relevant date;


 


(i)                                     the product of the WAFF and
WALS for the Loans constituting the Trust Property calculated on the relevant
date in the same way as for the Initial Portfolio (or as agreed by the Servicer
and the Rating Agencies from time to time) does not exceed the product of the
WAFF and WALS for the Loans constituting the Trust Property calculated on the
most recent previous Closing Date, plus 0.25 per cent.;


 


3

















 


(j)                                     the loan-to-value ratio of
Loans in the Trust Property, after application of the LTV Test on the relevant
date, does not exceed the loan-to-value ratio (based on the LTV Test) of Loans
in the Trust Property on the most recent previous Closing Date plus 0.25 per
cent.; and


 


(k)                                  the General Reserve Fund has
not been debited on or before the relevant date for the purposes of curing a
Principal Deficiency in respect of the Term Advances in circumstances where the
General Reserve Fund has not been replenished by a corresponding amount by the
relevant date.


 


Funding
1 may not make a payment to the Seller in consideration of an increased share of
the Trust Property if, as at the relevant date, the Step-up Date in respect of
any Note has been reached and the Issuer who issued that Note has not exercised
its option to redeem that Note as at the relevant date in accordance with the
Terms and Conditions of that Note.  For
the avoidance of doubt, this prohibition on Funding 1 making a payment to the
Seller in consideration of an increased share of the Trust Property shall
remain in effect only so long as any such Note remains outstanding and, upon,
its redemption, Funding 1 may again make a payment to the Seller in
consideration of an increased share of the Trust Property.


 


4.2                               Completion of assignment


 


If an
offer is made by Funding 1 in accordance with Clause 4.1 above and that
offer is accepted by the Seller, Funding 1 shall, subject to satisfaction of
the conditions precedent set out in Clause 4.1 above, pay to the Seller an
amount equal to the increase in the Funding 1 share of the Trust Property, the
Funding 1 Share of the Trust Property shall increase by a corresponding amount
and the Seller Share of the Trust Property shall decrease by the same amount.


 


4.3                               Audit of Loans constituting
the Trust Property


 


If the
short term, unsecured, unguaranteed and unsubordinated debt obligations of the
Seller fall below A-1 by Standard & Poor’s, P-1 by Moody’s and/or F1 by
Fitch, then the Beneficiaries shall appoint a firm of independent auditors
(approved by the Rating Agencies) to determine whether the Loans and their
Related Security (or any part of them) constituting the Trust Property complied
with the representations and warranties set out in Schedule 1 of the Mortgage
Sale Agreement as at the date such Loans were sold to the Mortgages
Trustee.  The costs of such independent
auditors shall be borne by the Beneficiaries pro rata according to their
respective current percentage shares in the Trust Property.


 


5.                                      INITIAL FUNDING 1 SHARE AND
INITIAL SELLER SHARE


 


5.1                               Initial Funding 1 Share


 


The
Initial Funding 1 Share of the Trust Property was £35.00 as at 13th June, 2002
and £3,500,000,035 as at the Initial Closing Date.  The Initial Funding 1 Share Percentage was the Initial Funding 1
Share expressed as a percentage of the Trust Property as at the Initial Closing
Date, such percentage being 35 per cent.


 


5.2                               Initial Seller Share


 


The
Initial Seller Share of the Trust Property was the total amount of the Trust
Property minus the Initial Funding 1 Share as at 13th June, 2002.  As at the Initial Closing Date, the Initial
Seller Share was £6,500,000,065 and the Initial Seller Share Percentage was
equal to


 


4

















 


100 per
cent. minus the Initial Funding 1 Share Percentage, such percentage being 65
per cent.


 


6.                                      ACQUISITION BY SELLER OF AN
INTEREST RELATING TO CAPITALISED INTEREST


 


6.1                                 Any increase in the
Outstanding Principal Balance of a Loan due to Capitalised Interest will be
allocated to the Funding 1 Share of the Trust Property and to the Seller Share
of the Trust Property, based on respectively the Funding 1 Share Percentage and
the Seller Share Percentage in the Trust Property as calculated on the most
recent Calculation Date.


 


6.2                                 Prior to an Insolvency Event
occurring in respect of the Seller, on each Distribution Date the Seller shall
make a cash payment to Funding 1 in an amount equal to Funding 1’s share of the
Capitalised Interest in respect of those Loans that are subject to Payment
Holidays.  As a result of making such
payment the Seller Share of the Trust Property will increase by an amount equal
to the amount paid to Funding 1 for Funding 1’s Share of the Capitalised
Interest and Funding 1’s Share of the Trust Property will decrease by a
corresponding amount.  The cash payment
shall be made in accordance with Clause 6.4 below.


 


6.3                                 If an Insolvency Event occurs
in respect of the Seller, then the Seller may acquire from Funding 1 its share
of the Capitalised Interest in the same manner as is contemplated in Clause 6.2,
but it is not obliged to do so.


 


6.4                                 In respect of the cash payment
to be made by the Seller pursuant to Clause 6.2, the Seller hereby directs the
Mortgages Trustee to deduct from the Seller’s Share of the Mortgages Trust
Available Revenue Receipts (allocated to the Seller pursuant to Clause 10.2
of this Deed) an amount equal to such cash payment and to pay the same to
Funding 1 in satisfaction of the Seller’s obligations under Clause 6.2.  To the extent that the Seller’s Share of the
Mortgages Trust Available Revenue Receipts is less than the amount required to
be paid by it pursuant to Clause 6.2, then the Seller shall pay an
amount equal to the shortfall directly to Funding 1 from its own resources.


 


7.                                      PAYMENT BY THE SELLER TO FUNDING 1
OF THE AMOUNT OUTSTANDING UNDER AN INTERCOMPANY LOAN


 


7.1                               Conditions precedent to
acceptance of offer


 


On each
occasion that the Seller offers to make a payment to Funding 1 of the amount
outstanding under an Intercompany Loan (referred to in this Clause 7
as the relevant
Intercompany Loan), then Funding 1 may accept that offer but only
if:


 


(a)                                  the Security Trustee has
received written confirmation from each of the Rating Agencies that the then
current ratings of the Notes would not be adversely affected by Funding 1
accepting the offer;


 


(b)                                 Funding 1 would receive the
payment from the Seller on a Funding 1 Interest Payment Date; and


 


(c)                                  Funding 1 will apply the
proceeds of the payment to repay the relevant Intercompany Loan and the
relevant Issuer has confirmed to Funding 1 that on that Funding 1 Interest
Payment Date it will use the proceeds of the relevant payment to repay the
corresponding classes of Notes.


 


5

















 


7.2                               Adjustment to shares if offer
accepted


 


If
Funding 1 accepts the offer as described in Clause 7.1 above, then the
Funding 1 Share of the Trust Property shall decrease by an amount corresponding
to the amount paid by the Seller and the Seller Share of the Trust Property
shall increase by the same amount.


 


8.                                      ADJUSTMENT OF FUNDING 1 SHARE
PERCENTAGE AND SELLER SHARE PERCENTAGE ON CALCULATION DATES


 


8.1                               Distribution


 


On each
Calculation Date, excluding, for the avoidance of doubt, the Initial Closing
Date, the Funding 1 Share Percentage and the Seller Share Percentage will be
recalculated by the Cash Manager (on behalf of the Mortgages Trustee and the
Beneficiaries) based on the aggregate Outstanding Principal Balance of the
Loans constituting the Trust Property (as adjusted from time to time) as at the
close of business on the London Business Day immediately preceding that
Calculation Date.  On each Distribution
Date, the Mortgages Trustee will distribute Principal Receipts and Revenue
Receipts in accordance with Clauses 10 and 11 hereof.


 


8.2                               Current Funding 1 Share
Percentage


 


On each
Calculation Date (the relevant Calculation Date) or on the date
that the Mortgages Trust terminates, the Current Funding 1 Share Percentage
will be recalculated and the recalculated amount will take effect from the next
Distribution Date.  The “Current Funding
1 Share Percentage” will be an amount, expressed as a percentage (calculated to
an accuracy of five decimal places (rounded upwards), equal to:


 





 


where,


 


A =                           the Current Funding 1 Share as calculated
on the immediately preceding Calculation Date (or, in the case of the first
Calculation Date, the Initial Funding 1 Share as at the Initial Closing Date);


 


B =                             the amount of any Principal Receipts to be
distributed to Funding 1 on the Distribution Date immediately following the
relevant Calculation Date in accordance with the provisions described in Clause 11
below;


 


C =                             the amount of any Losses sustained on the
Loans in the period from the last Calculation Date to the relevant Calculation
Date and the amount of any reductions occurring in respect of the Loans as
described in paragraphs (i) to (iv) of Clause 8.4(a), in each case allocated to
Funding 1 in the Calculation Period ending on the relevant Calculation Date;


 


D =                            an amount equal to any consideration to be
paid by Funding 1 to the Seller in relation to any New Loans to be sold to the
Mortgages Trustee on the relevant Calculation Date;


 


E =                              an amount equal to any consideration to be
paid by Funding 1 to the Seller in relation to any acquisition by Funding 1
from the Seller on the relevant Calculation Date of an interest in the Trust
Property;


 


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F =                              an amount equal to any Capitalised Interest
accruing on a Loan due to Borrowers taking payment holidays or which has been
allocated to Funding 1 since the immediately preceding Calculation Date, less
the amount to be paid by the Seller on the relevant Distribution Date to
acquire an interest in the Trust Property in accordance with Clause 6 above;
and


 


G =                             the aggregate Outstanding Principal Balance
of all the Loans constituting the Trust Property as at the relevant Calculation
Date including after making the distributions, allocations and additions
referred to in (B), (C), (D), (E) and (F) above, and after taking account of
any distributions of Principal Receipts to Funding 1 and the Seller, the amount
of any Losses allocated to Funding 1 and the Seller, the amount of any increase
in the balances of the loans constituting the Trust Property due to
capitalisation of insurance premiums due by Borrowers or Borrowers taking
Payment Holidays under Loans, the adjustments referred to in paragraphs (i) to
(iv) (inclusive) of Clause 8.4(a) below and the amount of any
other additions or subtractions to the Trust Property.


 


8.3                               Current Funding 1 Share


 


The
“Current Funding 1 Share” will be an amount equal to:


 


A - B - C + D
+ E + F


 


where
“A”, “B”, “C”, “D”, “E” and “F” have the meanings specified in Clause 8.2
above.


 


8.4                               Adjustments to Trust Property


 


(a)                                  On each relevant Calculation
Date, the aggregate Outstanding Principal Balance of the Loans constituting the
Trust Property shall be reduced or, as the case may be, deemed to be reduced
for the purposes of the calculation set out in “G” above, if any of the
following events has occurred during the Calculation Period immediately
preceding the relevant Calculation Date:


 


(i)                                     any Borrower exercises a right
of set-off in relation to Loans constituting part of the  Trust Property so that the amount of
principal and/or interest owing under a loan is reduced but no corresponding
amount is received by the Mortgages Trustee in which event the total amount of
Trust Property shall be reduced by an amount equal to the amount set-off;
and/or


 


(ii)                                  a Loan or its Related Security
(i) is in breach of the Loan Warranties in the Mortgage Sale Agreement, (ii) is
the subject of a Further Advance or (iii) is the subject of a Product Switch in
the circumstances set out in Clause 8.4 of the Mortgage Sale  Agreement or other obligation of the Seller
to repurchase, and if the Seller fails to repurchase the Loan or Loans under
the relevant Mortgage Account and their Related Security as required by the
terms of the Mortgage Sale Agreement, then the Trust Property shall be deemed
to be reduced for the purposes of the calculation of “G” in Clause 8.2
above by an amount equal to the Outstanding Principal Balance of the relevant
Loan or Loans under the relevant Mortgage Account together with Arrears of
Interest and Accrued Interest; and/or


 


(iii)                               the Seller would be required
to repurchase a Loan and its Related Security in accordance with the terms of
the Mortgage Sale Agreement, but such Loan and its Related Security are not
capable of repurchase, in which case the Trust Property shall be deemed to be
reduced for the purposes of the calculation of “G” in Clause 8.2 above by an amount
equal to the Outstanding Principal Balance of the relevant Loan


 


7

















 


or Loans under the relevant Mortgage
Account together with Arrears of Interest and Accrued Interest; and/or


 


(iv)                              the Seller materially breaches
any other material warranty under the Mortgage Sale Agreement and/or (for so
long as it is the Servicer) the Servicing Agreement, in which event the
aggregate Outstanding Principal Balance of Loans constituting the Trust
Property shall be deemed for the purposes of the calculation of “G” in Clause 8.2
above to be reduced by an amount equivalent to all losses, costs, liabilities,
claims, expenses and damages incurred by the Beneficiaries as a result of such
breach.


 


(b)                                 The reductions and deemed
reductions set out in paragraph (i) to (iv) (inclusive) of Clause 8.4(a) above shall be
made on the relevant Calculation Date first to the Seller’s Share (including
the Minimum Seller Share) of the Trust Property only, and thereafter shall be
made to the Funding 1 Share of the Trust Property.


 


(c)                                  If at any time after the
Initial Closing Date the Mortgages Trustee holds, or there is held to its
order, or it receives, or there is received to its order any property,
interest, right or benefit relating to any Loan and its Related Security which
is or has been subject to any reduction or deemed reduction pursuant to
paragraphs (i) to (iv) (inclusive) of Clause 8.4(a) above, then such property,
interest, right or benefit shall constitute a Revenue Receipt under the
relevant Loan.  Such Revenue Receipt
shall belong to Funding 1 (but only if and to the extent that the related
reductions were applied against the Funding 1 Share of the Trust Property) and
thereafter shall belong to the Seller.


 


8.5                               Current Seller Share
Percentage


 


On each
Calculation Date, the “Current Seller Share Percentage” will be an amount
calculated to the accuracy of five decimal places equal to:


 


100% - Current
Funding 1 Share Percentage.


 


8.6                               Current Seller Share


 


The
“Current Seller Share” will be an amount equal to:


 


Outstanding
Principal Balance of all the Loans in the Trust Property on the relevant

Calculation Date - Current Funding 1 Share.


 


8.7                               Funding 1 Share/Seller Share


 


Neither
the Funding 1 Share nor the Seller Share may be reduced below zero.  At all times the Funding 1 Share Percentage
and the Seller Share Percentage shall be equal to 100 per cent. of the Trust
Property.


 


9.                                      MINIMUM SELLER SHARE


 


9.1                               Initial Minimum Seller Share


 


The
Seller Share of the Trust Property includes an amount equal to the Minimum
Seller Share.  Unless and until the
Funding 1 Share of the Trust Property is in an amount equal to zero or an Asset
Trigger Event occurs, the Seller will not be entitled to receive Principal
Receipts which would reduce the Seller Share of the Trust Property to an amount
less than the Minimum Seller Share and the Seller consents and directs the
Mortgages Trustee accordingly.


 


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9.2                               Fluctuation of Minimum Seller
Share on each Calculation Date


 


At the
Initial Closing Date, the Minimum Seller Share was £500,000,000.  The amount of the Minimum Seller Share will
be recalculated on each Calculation Date in accordance with the following
formula:


 


X + Y +
Z


 


where:


 


X =                             5% of the aggregate Outstanding Principal
Balance of all Loans comprised in the Trust Property;


 


Y =                              the product of: (p x q) x r where:


 


p =                               8%;


 


q =                               the Flexible Draw Capacity, being an amount
equal to the excess of (i) the maximum amount that Borrowers are entitled to
draw under Flexible Loans included in the Trust Property (whether or not drawn)
over (ii) the aggregate principal balance of actual Flexible Loan advances made
to Borrowers in the Trust Property on the relevant Calculation Date (but
excluding the Initial Advances made thereunder); and


 


r =                                  3; and


 


Z =                              the aggregate sum of reductions deemed made
(if any) in accordance with paragraphs (ii), (iii) and (iv) of Clause
8.4(a).


 


9.3                               Recalculation of Minimum
Seller Share following occurrence of exceptional events


 


Prior
to the occurrence of a Trigger Event:


 


(a)                                  the calculation of the Minimum
Seller Share in accordance with Clause 9.2 above will be recalculated or
increased (in consultation with the relevant Rating Agencies) if the Seller
merges or otherwise combines its business with another bank or other financial
institution so as to increase the risks associated with Borrowers holding
deposits in Halifax accounts and such merger or combination would adversely
affect the then current ratings of the Notes and such adverse effect on the
then current ratings of the Notes would be avoided if the Minimum Seller Share
was so recalculated or increased;


 


(b)                                 the calculation of the Minimum
Seller Share in accordance with Clause 9.2 above will be recalculated or
increased (in consultation with the relevant Rating Agencies) if notice has
been received from one or more of the Rating Agencies that the then current
ratings of the Notes would be downgraded and that such downgrade would be
avoided if the Minimum Seller Share was so recalculated or increased;


 


(c)                                  the amount of the Minimum
Seller Share as calculated in accordance with Clause 9.2 above will be
decreased  (and the calculation thereof
amended accordingly) from time to time at the request of the Seller or Funding
1 (acting reasonably) provided that the Security Trustee has received written
confirmation from each of the Rating Agencies that there would be no adverse
effect on the then current ratings of the Notes as a result thereof.


 


9

















 


10.                               ALLOCATION AND DISTRIBUTION OF
REVENUE RECEIPTS


 


10.1                        Allocation and Distribution of
Third Party Amounts


 


Pursuant
to the Cash Management Agreement, the Cash Manager (at the direction of the
Mortgages Trustee on behalf of the Beneficiaries at their direction and with
their consent) will deduct, as and when identified, Third Party Amounts from
the Revenue Receipts standing to the credit of the Mortgages Trustee GIC
Account, and pay over the same to the proper recipients thereof.  The Mortgages Trustee and the Beneficiaries
hereby consent to such deductions.


 


10.2                        Allocation and Distribution of
Mortgages Trust Available Revenue Receipts


 


On each
Distribution Date the Cash Manager (at the direction of the Mortgages Trustee
and on behalf of the Beneficiaries at their direction and with their consent)
will allocate and distribute Mortgages Trust Available Revenue Receipts as
follows:


 


(a)                                  firstly, in or towards
satisfaction pari passu and pro rata according to the respective
amounts thereof of:


 


(i)                                     any costs, charges,
liabilities and expenses then due or to become due to the Mortgages Trustee
under the provisions of this Deed or any terms agreed by the Mortgages Trustee
with the Seller and Funding 1 in writing together with VAT thereon as provided
herein (if payable); and


 


(ii)                                  any amounts due and payable by
the Mortgages Trustee to third parties in respect of the Mortgages Trust and
incurred without breach by the Mortgages Trustee of the documents to which it
is a party and for which payment has not been provided for elsewhere),
(including amounts due to H.M Customs and Excise and/or to the Inland Revenue
or any other taxation authority which has jurisdiction over the Trust Property
or the Mortgages Trustee in respect of any stamp, issue, registration,
documentary and other fees, duties and taxes (including interest and penalties)
payable by the Mortgages Trustee in connection with (i) the execution and
delivery of this Deed; (ii) any action to be taken by or on behalf of the
Mortgages Trustee to enforce or to resolve any doubt concerning or, for any other
purpose in relation to, the Mortgages Trust Deed; and (iii) any such tax which
is primarily due from either or both of the Seller and Funding 1 in their
capacities as Beneficiaries (and, for the avoidance of doubt, only in such
capacities) in circumstances where the Mortgages Trustee has made a payment of
such tax (or part thereof) by reason of a failure by the Seller or Funding 1 to
discharge their primary liability in respect of such tax);


 


(b)                                 secondly, in or towards
satisfaction of any remuneration then due and payable or to become due and
payable during the following Calculation Period to the Servicer and any costs,
charges, liabilities and expenses then due or to become due to the Servicer
under the provisions of the Servicing Agreement, together with VAT thereon as
provided therein (if payable);


 


(c)                                  thirdly, to allocate and pay
to Funding 1 an amount equal to the lesser of:


 


(x)                                   an amount determined by multiplying the
total amount of the remaining Mortgages Trust Available Revenue Receipts by the
Funding 1 Share 


 


10

















 


Percentage
of the Trust Property (as determined on the Relevant Share Calculation Date);
and


 


(y)                                 the aggregate of Funding 1’s obligations on
the immediately succeeding Funding 1 Interest Payment Date as set out under the
Funding 1 Pre-Enforcement Revenue Priority of Payments or, as the case may be,
the Funding 1 Post-Enforcement Priority of Payments (but excluding any
principal amount due under any Intercompany Loan and/or items (j) and (k) of
the Funding 1 Post-Enforcement Priority of Payments), less (in each case only
to the extent that such amounts of interest or income would not otherwise be
payable under the Intercompany Loan or, as applicable, the Notes, on the
succeeding Interest Payment Date) the sum of (i) the interest or other income
credited or to be credited to Funding 1’s Bank Accounts on the immediately
succeeding Funding 1 Interest Payment Date and (ii) all other income (not
derived from the distribution of Revenue Receipts under the Mortgages Trust)
which will constitute Funding 1 Available Revenue Receipts on the succeeding
Funding 1 Interest Payment Date;


 


(d)                                 fourthly, to allocate and
distribute to the Mortgages Trustee and/or Funding 1 (as applicable), an amount
equal to any Loss Amount suffered or incurred by it or them (as applicable);
and


 


(e)                                  fifthly, to allocate and
distribute to the Seller an amount equal to (if positive) the Mortgages Trust
Available Revenue Receipts less the amount of such Mortgages Trust Available
Revenue Receipts applied and/or allocated under paragraphs (a) to (d) above.


 


11.                               ALLOCATION AND DISTRIBUTION OF
PRINCIPAL RECEIPTS


 


11.1                        Allocation and Distribution of
Principal Receipts


 


(a)                                  On each Calculation Date (the relevant
Calculation Date), prior to distributing any Principal Receipts, the
Cash Manager shall ascertain:


 


(i)                                     the amount of Mortgages Trust
Available Principal Receipts;


 


(ii)                                  whether the Distribution Date
immediately succeeding the relevant Calculation Date is within a Cash Accumulation
Period relating to a Bullet Term Advance or a Scheduled Amortisation Instalment
(the Cash Accumulation Period being calculated separately for each Bullet Term
Advance and Scheduled Amortisation Instalment); and


 


(iii)                               Funding 1’s Cash Accumulation
Requirement and Repayment Requirement.


 


(b)                                 On each Distribution Date, the
Cash Manager (at the direction of the Mortgages Trustee acting on behalf of the
Beneficiaries at their direction and with their consent) shall then allocate
and distribute Principal Receipts as provided in this Clause 11.


 


11.2                        Allocation and Distribution of
Principal Receipts prior to the occurrence of a Trigger Event


 


On each
Distribution Date where no Trigger Event has occurred on or before the
immediately preceding Calculation Date, the Cash Manager shall allocate and
distribute Mortgages Trust Available Principal Receipts as follows:


 


11

















 


(a)                                  firstly, where Funding 1 has
no Cash Accumulation Requirement and no Repayment Requirement on that
Distribution Date, to allocate the Mortgages Trust Available Principal Receipts
to the Seller until the Seller Share of the Trust Property (as calculated on
the Relevant Share Calculation Date) is equal to the Minimum Seller Share;


 


(b)                                 secondly, if Funding 1 has a
Cash Accumulation Requirement on that Distribution Date, to allocate the
Mortgages Trust Available Principal Receipts to Funding 1 in an amount up to
but not exceeding Funding 1’s Cash Accumulation Requirement on that
Distribution Date;


 


(c)                                  thirdly, if Funding 1 has a
Repayment Requirement on that Distribution Date, to allocate the Mortgages
Trust Available Principal Receipts to Funding 1 in an amount up to but not
exceeding Funding 1’s Repayment Requirement on that Distribution Date; and


 


(d)                                 fourthly, to allocate the
remainder of the Mortgages Trust Available Principal Receipts, if any, to the
Seller until the Seller Share of the Trust Property (as calculated on the
Relevant Share Calculation Date) is equal to the Minimum Seller Share.


 


11.3                        Allocation and Distribution of
Principal Receipts on or after the occurrence of a Non-Asset Trigger Event but
prior to the occurrence of an Asset Trigger Event


 


On each
Distribution Date where a Non-Asset Trigger Event has occurred on or before the
immediately preceding Calculation Date and an Asset Trigger Event has not
occurred on or before that Calculation Date, all Mortgages Trust Available
Principal Receipts shall be allocated and distributed to Funding 1 until the
Funding 1 Share of the Trust Property (as calculated on the relevant Share
Calculation Date) is zero and shall thereafter be allocated and paid to the
Seller.


 


11.4                        Allocation and Distribution of
Principal Receipts on or after the occurrence of an Asset Trigger Event


 


On each
Distribution Date where an Asset Trigger Event has occurred on or before the
immediately preceding Calculation Date, all Mortgages Trust Available Principal
Receipts shall be allocated and distributed pari passu and pro rata between Funding 1
and the Seller according to the Current Funding 1 Share Percentage of the Trust
Property (as calculated on the Relevant Share Calculation Date) and the Current
Seller Share Percentage of the Trust Property (as calculated on the Relevant
Share Calculation Date) respectively until, in the case of Funding 1, the
Funding 1 Share of the Trust Property is zero (and, for the avoidance of doubt,
such payments may reduce the Current Seller Share to an amount less than the
Minimum Seller Share).  When the Funding
1 Share of the Trust Property is zero, the remaining Mortgages Trust Available
Principal Receipts (if any) shall be allocated to the Seller.


 


12.                               ALLOCATION OF LOSSES


 


Subject
as provided in this Deed (and in particular, Clause 8), all Losses
sustained on the Loans during a Calculation Period shall be applied in reducing
pro rata
both the Funding 1 Share and the Seller Share of the Trust Property. Funding
1’s share and the Seller’s share of the Losses shall be determined by
multiplying the Losses in the relevant Calculation Period by the Current
Funding 1 Share Percentage, (as calculated on the Relevant Share Calculation
Date), the product of which shall be allocated to Funding 1, and the remainder
of such Losses


 


12

















 


shall
be allocated to the Seller, on each Calculation Date, in each case prior to
calculating the allocation of Mortgages Trustee Available Principal Receipts on
that Calculation Date.


 


13.                               FUNDING 2 BECOMES A BENEFICIARY OF
THE MORTGAGES TRUST


 


On not
more than 60 days’ written notice nor less than 20 days’ written notice to the
Mortgages Trustee, Funding 1 and the Seller may direct the Mortgages Trustee to
add Funding 2 as a beneficiary to the Mortgages Trust.  The Mortgages Trustee shall include Funding
2 as a beneficiary of the Mortgages Trust if Funding 1 (or the Security
Trustee) notifies the Mortgages Trustee in writing that the following
conditions precedent are satisfied on the date of such inclusion:


 


(a)                                  that the Security Trustee has
received written confirmation from each of the Rating Agencies that the
inclusion of Funding 2 as a beneficiary of the Mortgages Trust would not have
an adverse effect on the then current ratings of the Notes;


 


(b)                                 no deficiency is recorded on
the Principal Deficiency Ledger as at the most recent Funding 1 Interest
Payment Date;


 


(c)                                  no Note Event of Default or
Intercompany Loan Event of Default shall have occurred which is continuing or
unwaived as at the relevant Distribution Date;


 


(d)                                 requisite amendments have been
made to the Transaction Documents to enable the inclusion of Funding 2 as a
beneficiary to the Mortgages Trust (including, without limitation, changes to
the way in which the Mortgages Trustee will allocate Mortgages Trust Revenue
Receipts and Mortgages Trust Principal Receipts under this Deed); and


 


(e)                                  the General Reserve Fund has
not been debited on or before the relevant Distribution Date for the purposes
of curing a Principal Deficiency in respect of the Term Advances in
circumstances where the General Reserve Fund has not been replenished by a
corresponding amount by the date.


 


14.                               LEDGERS


 


The
Mortgages Trustee shall maintain, or shall procure that there are maintained,
the following Mortgages Trustee Ledgers:


 


(a)                                  the Principal Ledger, which
shall record all receipts of Principal Receipts and distribution of the same to
Funding 1 and the Seller;


 


(b)                                 the Revenue Ledger, which
shall record all receipts of Revenue Receipts and distribution of the same to
Funding 1 and the Seller;


 


(c)                                  the Losses Ledger, which shall
record Losses in relation to the Loans; and


 


(d)                                 the Funding 1 Share/Seller
Share Ledger which shall record the Current Funding 1 Share, the Current Seller
Share of the Trust Property, the Current Funding 1 Share Percentage and the
Current Seller Share Percentage.


 


15.                               COSTS AND EXPENSES OF THE
MORTGAGES TRUSTEE


 


The
Mortgages Trustee shall be entitled to charge and be remunerated for the work
undertaken by it as trustee of the trusts created by this Deed.  The remuneration shall be on


 


13

















 


such
terms (if any) as the Mortgages Trustee may from time to time agree with the
Seller and Funding 1 in writing. Funding 1 and the Seller shall indemnify the
Mortgages Trustee from time to time with such regularity as is reasonably
agreed between the parties, of the documentable costs and expenses directly and
properly incurred by the Mortgages Trustee in performing its obligations
hereunder together with any amounts in respect of Irrecoverable VAT incurred in
respect of such costs and expenses.  The
cost of such indemnity shall be paid in accordance with the priority of
payments set out in Clause 10.2 of this Deed.


 


16.                               DIRECTIONS FROM BENEFICIARIES


 


16.1                           On the Initial Closing Date,
the Mortgages Trustee entered into the Servicing Agreement, the Cash Management
Agreement, the Mortgage Sale Agreement, the Mortgages Trustee Guaranteed
Investment Contract and the Bank Account Agreement.


 


16.2                           Subject to Clause 16.4 below,
the Mortgages Trustee covenants with the Seller and Funding 1 that the
Mortgages Trustee shall take all necessary steps and do everything which both
Funding 1 and the Seller (acting together) may reasonably request or direct it
to do in order to give effect to the terms of this Deed or the other
Transaction Documents to which the Mortgages Trustee is a party.


 


16.3                           Funding 1 and the Seller
covenant with each other that neither shall direct or request the Mortgages
Trustee to do any act or thing which breaches the terms of, or is otherwise
expressly dealt with (such that the Mortgages Trustee has no discretion) by,
any of the Transaction Documents.


 


16.4                           The Mortgages Trustee will not
be bound and shall have no power to take any proceedings, actions or steps
under or in connection with any of this Deed or the other Transaction Documents
to which it is a party unless:


 


(a)                                  it shall have been directed to
do so by the Beneficiaries or it is required to do so under any express
provision of this Deed or the other Transaction Documents (but subject to Clause 16.2
in respect of conflict of directions); and


 


(b)                                 it shall have been indemnified
to its satisfaction against all liabilities, proceedings, claims and demands to
which it may be or become liable and all costs, charges and expenses which may
be incurred by it in connection therewith and the terms of such indemnity may
include the provision of a fighting fund, non-recourse loan or other similar
arrangement.


 


16.5                        Covenant of the Mortgages
Trustee


 


Subject
to Clause
16.2, the Mortgages Trustee covenants with each of the Seller and
Funding 1 to exercise all of its rights arising under the Trust Property
(including without limitation any rights of enforcement) for the benefit of and
on behalf of the Beneficiaries.


 


17.                               TRANSFERS


 


17.1                        Funding 1 shall not assign


 


Subject
to the terms of the Transaction Documents (including for the avoidance of
doubt, the Funding 1 Deed of Charge and the Second Supplemental Funding 1 Deed
of Charge) and the right of Funding 1 (or the Security Trustee or a Receiver on
its behalf) to sell the Funding 1 Share of the Trust Property following the
service of an Intercompany Loan Enforcement Notice (which right is hereby
conferred), Funding 1 covenants with the Seller that it shall not,


 


14

















 


and
shall not purport to, sell, assign, transfer, convey, charge, declare a trust
over, create any beneficial interest in, or otherwise dispose of the Funding 1
Share in the Trust Property and/or its rights under this Deed, or any of
Funding 1’s rights, title and interest or benefit in the Trust Property and/or
this Deed to or in favour of a third party.


 


17.2                        Seller shall not assign


 


Subject
to the terms of the Transaction Documents, the Seller covenants with Funding 1
that it shall not, and shall not purport to, sell, assign, transfer, convey,
charge, declare a trust over, create any beneficial interest in, or otherwise
dispose of the Seller Share in the Trust Property and/or its rights under this
Deed or any of the Seller’s rights, title and interest or benefit in the Trust
Property and/or this Deed to or in favour of a third party, without the prior
consent of Funding 1 (such consent not to be unreasonably withheld).


 


17.3                        Transfers to Funding 2


 


Subject
to Clause
13, the parties hereby acknowledge that Funding 2 may become a
beneficiary to the Mortgages Trust after the Initial Closing Date and if it is
to become a such a beneficiary then the Seller and/or Funding 1 shall be
entitled to sell, assign, transfer, convey, charge, declare a trust over,
create a beneficial interest in, or otherwise dispose of their respective
shares in the Trust Property to Funding 2 or, as the case may be, Funding 1 or
the Seller.


 


18.                               COVENANTS OF THE MORTGAGES TRUSTEE


 


Save
with the prior written consent of the Beneficiaries or as provided in or
envisaged by this Deed and the other Transaction Documents to which the
Mortgages Trustee is a party, the Mortgages Trustee shall not, so long as it is
acting as Mortgages Trustee hereunder:


 


(a)                                  Negative Pledge


 


create
or permit to subsist any mortgage, standard security, pledge, lien, charge,
assignation in security or other security interest whatsoever (unless arising
by operation of law), upon the whole or any part of its assets (including any
uncalled capital) or its undertakings, present or future;


 


(b)                                  Disposal of Assets


 


transfer,
sell, lend, part with or otherwise dispose of, or deal with, or grant any
option or present or future right to acquire any of its assets or undertakings
or any interest, estate, right, title or benefit therein or thereto or agree or
attempt or purport to do so;


 


(c)                                  Equitable Interest


 


permit
any person other than the Beneficiaries to have any equitable or beneficial
interest in any of its assets or undertakings or any interest, estate, right,
title or benefit therein;


 


(d)                                  Bank Accounts


 


have an
interest in any bank account, other than as set out in the Transaction
Documents;


 


15

















 


(e)                                  Restrictions on Activities


 


carry
on any business other than as described in this Deed and the Mortgage Sale
Agreement;


 


(f)                                    Borrowings


 


incur
any indebtedness in respect of borrowed money whatsoever or give any guarantee
or indemnity in respect of any such indebtedness;


 


(g)                                 Merger


 


consolidate
or merge with any other person or convey or transfer its properties or assets
substantially as an entirety to any other person;


 


(h)                                 Employees or premises


 


have
any employees or premises or subsidiaries;


 


(i)                                    Further shares


 


issue
any further shares;


 


(j)                                    Acquisitions


 


acquire
any assets other than pursuant to the terms of the Mortgage Sale Agreement and
this Mortgages Trust Deed (whereby any New Portfolio shall be held by the
Mortgages Trustee subject to the Mortgages Trust); or


 


(k)                                United States activities


 


engage
in any activities in the United States (directly or through agents) or derive
any income from United States sources as determined under United States income
tax principles or hold any property if doing so would cause it to be engaged or
deemed to be engaged in a trade or business within the United States as
determined under United States tax principles.


 


19.                               POWER TO DELEGATE


 


19.1                        Power to delegate


 


Subject
to Clause
19.2, the Mortgages Trustee may (notwithstanding any rule of law or
equity to the contrary) delegate (revocably or irrevocably and for a limited or
unlimited period of time) the performance of all or any of its obligations and
the exercise of all or any of its powers under this Deed or imposed or
conferred on it by law or otherwise to any person or body of persons
fluctuating in number selected by it and any such delegation may be by power of
attorney or in such other manner as the Mortgages Trustee may think fit and may
be made upon such terms and conditions (including the power to sub-delegate) as
the Mortgages Trustee may think fit.


 


19.2                        No further appointments


 


Notwithstanding
the provisions of Clause 19.1, the Mortgages Trustee shall
not appoint any agent, attorney or other delegate having power to act in
respect of the Trust Property unless it


 


16

















 


is
directed in writing to do so by the Beneficiaries.  The appointment of any agent, attorney or other delegate shall
terminate immediately upon the occurrence of a Trigger Event.


 


20.                               POWERS OF INVESTMENT


 


Save as
expressly provided for in this Deed, the Mortgages Trustee Guaranteed
Investment Contract and the Bank Account Agreement, the Mortgages Trustee shall
have no further or other powers of investment with respect to the Trust
Property and neither the Trustee Act 2000 nor any other provision relating to
trustee powers of investment implied by statute or general law shall apply to
the Mortgages Trust and, for the avoidance of doubt, the statutory power to
accumulate income conferred on trustees by Section 31 of the Trustee Act 1925
is expressly excluded.


 


21.                               OTHER PROVISIONS REGARDING THE
MORTGAGES TRUSTEE


 


21.1                        No action to impair Trust
Property


 


Except
for actions expressly authorised by this Deed, the Mortgages Trustee shall take
no action reasonably likely to impair the interests of the Beneficiaries in any
Trust Property now existing or hereafter created or to impair the value of any
Loan or its Related Security subject to the Mortgages Trust.


 


21.2                        Litigation


 


The
Mortgages Trustee must not prosecute or defend any legal or other proceedings
anywhere in the world (at the cost of the Trust Property) unless it obtains
legal or other advice that it is in the interests of the Beneficiaries to do
so.


 


21.3                        No Implied Duties


 


The
duties and obligations of the Mortgages Trustee under the Mortgages Trust shall
be determined solely by the express provisions of this Deed (but without
prejudice to the duties and obligations of the Mortgages Trustee under any of
the other Transaction Documents).  The
Mortgages Trustee shall not be liable under this Deed except for the
performance of such duties and obligations as shall be specifically set forth
in this Deed.  No implied covenants or
obligations shall be read into this Deed against the Mortgages Trustee, and the
permissible right of the Mortgages Trustee to do things set out in this Deed
shall not be construed as a duty.


 


21.4                        No Liability


 


Neither
the Mortgages Trustee, Funding 1 (in its capacity as a Beneficiary hereunder)
nor the Seller (in its capacity as a Beneficiary hereunder) shall be liable to
each other, in the absence of wilful default, negligence or breach of the terms
of this Deed, in respect of any loss or damage which arises out of the exercise
or attempted or purported exercise or failure to exercise any of their
respective powers.


 


21.5                        Reliance on Certificates


 


The
Mortgages Trustee may rely on and shall be protected in acting on, or in
refraining from acting in accordance with, any resolution, officer’s
certificate, certificate of auditors or any other certificate, statement,
instrument, opinion, report, notice, request, consent, order, appraisal, bond
or other paper or document believed by it to be genuine and to have been signed
or presented to it pursuant to the Transaction Documents by the proper party or
parties.


 


17

















 


21.6                        Reliance on Third Parties


 


The
Mortgages Trustee may, in relation to these presents, act on the opinion or
advice of or a certificate or any information obtained from any lawyer, banker,
valuer, broker, accountant, financial adviser, securities dealer, merchant
bank, computer consultant or other expert in the United Kingdom or elsewhere
and shall not, provided that it shall not have acted fraudulently or in breach
of any of the provisions of the Transaction Documents, be responsible for any
loss occasioned by so acting.  Any such
opinion, advice, certificate or information may be sent or obtained by letter,
telemessage, telex, cable or facsimile device and the Mortgages Trustee shall
not be liable for acting on any opinion, advice, certificate or information
purporting to be so conveyed although the same shall contain some error or
shall not be authentic, provided that such error or lack of authenticity shall
not be manifest.


 


22.                               NO RETIREMENT OF MORTGAGES TRUSTEE


 


22.1                        No Retirement


 


The
Mortgages Trustee shall not, and shall not purport to, retire as the trustee of
the Mortgages Trust or appoint any additional trustee of the Mortgages Trust
and shall have no power to retire or appoint any additional trustee under the
Trustee Act 1925 or otherwise.


 


22.2                        No Replacement


 


Neither
the Seller nor Funding 1 shall at any time remove or purport to remove and/or
replace the Mortgages Trustee as the trustee of the Mortgages Trust.


 


22.3                        No Termination


 


Prior
to the payment by Funding 1 of all amounts owing under the Intercompany Loan
Agreements and under the Transaction Documents, neither the Seller nor Funding
1 shall at any time, except in accordance with the provisions of Clauses 16
and 23,
terminate or purport to terminate the Mortgages Trust and, in particular, but
without prejudice to the generality of the foregoing, the Seller and Funding 1
shall not in reliance on their absolute beneficial interests in the Trust
Property call for the transfer to them or vesting in them of the legal estate
in all or any part of the Trust Property.


 


23.                               TERMINATION


 


The
Mortgages Trust shall terminate in respect of the Trust Property (if any then
remains) upon the later to occur of:


 


(a)                                  the date upon which the
Funding 1 Share of the Trust Property is zero; and


 


(b)                                 any other date agreed in
writing by Funding 1 and the Seller.


 


24.                               FURTHER ASSURANCES


 


The
parties 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 Deed.


 


18

















 


25.                               AMENDMENTS


 


25.1                        Amendments and Waivers


 


Without
prejudice to Clause 25.8 of the Funding 1 Deed of Charge, no amendment or
waiver of any provision of this Deed nor consent to any departure by any of the
parties therefrom shall in any event be effective unless the same shall be in
writing and signed by each of the parties to this Deed.  In the case of a waiver or consent, such
waiver or consent shall be effective only in the specific instance and as
against the party or parties giving it for the specific purpose for which it is
given.


 


25.2                        Entire Agreement


 


This
Deed contains a final and complete integration of all prior expressions by the
parties with respect to the subject matter of this Deed and constitutes the
entire agreement among the parties with respect to the subject matter of this
Deed superseding all prior oral or written understandings other than the other
Transaction Documents.


 


26.                               NON PETITION COVENANT


 


The
Seller hereby agrees that it shall not institute against either Funding 1 or
the Mortgages Trustee any winding-up, administration, insolvency or similar
proceedings so long as any sum is outstanding under any Intercompany Loan
Agreement for the duration of one year plus one day since the last day on which
any such sum was outstanding.


 


27.                               NO PARTNERSHIP OR AGENCY


 


Nothing
in this Deed shall be taken to constitute or create a partnership between any
of the parties to this Deed or to make or appoint the Seller the agent of
Funding 1 (or vice versa).


 


28.                               CALCULATIONS


 


In the
absence of manifest error, any determination or calculation made by or on
behalf of the Mortgages Trustee in connection with the provisions of this Deed
shall be deemed to be conclusive.


 


29.                               NO WAIVER; REMEDIES


 


No
failure on the part of any party to this Deed to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any right or remedy preclude any other or
further exercise thereof or the exercise of any other right or remedy.  The remedies in this Deed are cumulative and
not exclusive of any remedies provided by law.


 


30.                               EXECUTION IN COUNTERPARTS;
SEVERABILITY


 


30.1                        Severability


 


Where
any provision in or obligation under this Deed shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and enforceability of
the remaining provisions or obligations under this Deed, or of such provision
or obligation in any other jurisdiction, shall not be affected or impaired
thereby.


 


19

















 


31.                               TAX


 


31.1                           Any payment by Funding 1 to
the Seller to increase its share of the Trust Property shall be inclusive of
value added tax (if any).


 


31.2                           Any payment by the Seller to
Funding 1 which would increase its share of the Trust Property shall be
exclusive of VAT (if any).


 


31.3                           Any stamp duty or stamp duty
reserve tax in respect of any increase in Funding 1’s share of the Trust
Property shall be payable by the Seller.


 


32.                               CONFIDENTIALITY


 


32.1                        General Obligation of
Confidentiality


 


Unless
otherwise required by applicable law, and subject to Clause 32.2 below, each of
the parties agrees not to disclose to any person any information relating to
the business, finances or other matters of a confidential nature of or relating
to any other party to this Deed or any of the Transaction Documents which it
may have obtained as a result of having entered into this Deed or otherwise.


 


32.2                        Exceptions


 


The
provisions of Clause 32.1 above shall not apply:


 


(a)                                  to the disclosure of any
information to any person who is a party to any of the Transaction Documents as
expressly permitted by the Transaction Documents;


 


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


 


(c)                                  to the extent that the
recipient is required to disclose the same pursuant to any law or order of any
court or pursuant to any direction or requirement (whether or not having the
force of law) of any central bank or any governmental or other regulatory or
Taxation authority;


 


(d)                                 to the disclosure of any
information to professional advisers who receive the same under a duty of
confidentiality;


 


(e)                                  to the disclosure of any
information with the consent of the parties to this Deed;


 


(f)                                    to the disclosure to the
Rating Agencies or any of them of such information as may be requested by any
of them for the purposes of setting or reviewing the rating assigned to the
Notes (or any of them), provided that no information which would disclose the
identity of a Borrower shall be disclosed to the Rating Agencies or any of
them;


 


(g)                                 to the disclosure of any
information disclosed to a prospective assignee of Funding 1 (provided that it
is disclosed on the basis that the recipient will hold it confidential); or


 


(h)                                 to any disclosure for the
purposes of collecting in or enforcing the Trust Property or any of it.


 


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33.                               EXCLUSION OF THIRD PARTY RIGHTS


 


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


 


34.                               ADDRESSES FOR NOTICES


 


Any
notices to be given pursuant to this Deed will be sufficiently served if sent
by prepaid first class post, by hand or facsimile transmission and will 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 (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 Seller, to
Halifax plc, at 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 (020) 7574 8784) for the
attention of Head of Capital Markets and Securitisation;


 


(b)                                 in the case of the Mortgages
Trustee, to Permanent Mortgages Trustee Limited, 47 Esplanade, St Helier,
Jersey JE1 0BD, Channel Islands (facsimile number +44 (0) 1534 726391) for the
attention of the Company 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 and Securitisation;


 


(c)                                  in the case of Funding 1, to
Permanent Funding (No. 1) 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 (020) 7574 8784) for the attention of
Head of Capital Markets and Securitisation;


 


(d)                                 in each case with a copy to
The Bank of New York, One Canada Square, London E14 5AL, (facsimile number +44
(020) 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 33.


 


35.                               GOVERNING LAW AND SUBMISSION TO
JURISDICTION


 


35.1                        Governing Law


 


This
Deed is governed by English law.


 


35.2                        Submission to Jurisdiction


 


Each
party to this Deed hereby irrevocably submits to the non-exclusive jurisdiction
of the English courts in any action or proceeding arising out of or relating to
this Deed, 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 Deed hereby irrevocably
waives, to the fullest extent it may possibly do so, any defence or claim that
the English courts are an inconvenient


 


21

















 


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 service of process.


 


36.                               EXCLUSION OF TRUSTEE ACT 2000


 


The
Trustee Act 2000 is hereby excluded to the maximum extent permissible, to the
intent that it shall not apply to the trusts constituted by this Deed and that
the parties shall be in the same position as they would be had that Act not
come into force.


 


IN WITNESS of which this Deed has been executed by the
parties hereto as a deed which has been delivered on the date first appearing
on page one.


 


22

















 


SIGNATORIES


 


	
  EXECUTED as a DEED by

  	
  )

  	
   

  
	
  HALIFAX plc

  	
  )

  	
   

  
	
  as Seller, Cash Manager

  	
  )

  	
   

  
	
  and Beneficiary

  	
  )

  	
   

  
	
  acting by its attorney

  	
  )

  	
   

  
	
  in the presence of

  	
  )

  	
  (as attorney for HALIFAX PLC)

  
	
   

  	
   

  	
   

  
	
  Witness:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  EXECUTED as a DEED by

  	
  )

  	
   

  
	
  PERMANENT FUNDING (NO. 1)

  	
  )

  	
   

  
	
  LIMITED as Beneficiary

  	
  )

  	
   

  
	
  acting by

  	
  )

  	
   

  



 


 


	
   

  	
   

  	
   

  
	
  Director

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Director/Secretary

  	
   

  	
   

  



 


 


	
  EXECUTED as a DEED on behalf of

  	
  )

  
	
  PERMANENT MORTGAGES TRUSTEE

  	
  )

  
	
  LIMITED, a company incorporated in Jersey,

  	
  )

  
	
  Channel Islands, by

  	
  )

  
	
  being a person who, in

  	
  )

  
	
  accordance with the laws of that territory is acting

  	
  )

  
	
  under the authority of the company, in the presence

  	
  )

  
	
  of:

  	
  )

  



 


 


Witness:


 


Name:


 


Address:


 


23

















 


	
  EXECUTED as a DEED by

  	
  )

  	
   

  
	
  SFM OFFSHORE

  	
  )

  	
   

  
	
  LIMITED as Share Trustee of the

  	
  )

  	
   

  
	
  Mortgages Trustee

  	
  )

  	
   

  
	
  acting by its attorney

  	
  )

  	
   

  
	
  in the presence of:

  	
  )

  	
  (as attorney for SFM OFFSHORE)

  
	
   

  	
   

  	
  LIMITED)

  



 


 


Witness:


 


Name:


 


Address:


 


24