Document:

Exhibit 4.1

 

CONFORMED COPY

 

FIRST DEED OF AMENDMENT
TO THE INTERCOMPANY

LOAN TERMS AND
CONDITIONS

 

 

DATED 25th November, 2003

 

 

PERMANENT FUNDING (NO. 1) LIMITED

 

and

 

PERMANENT FINANCING (NO. 1) PLC

 

and

 

PERMANENT FINANCING (NO. 2) PLC

 

and

 

THE BANK OF NEW YORK

 

and

 

CITIBANK, N.A.

 

 

	
  

  
	
   

  
	
  London

  
	
  ICM:7338503

  

 

 

CONTENTS

 

	
  Clause

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  1.

  	
  Interpretation

  	
   

  
	
  2.

  	
  Amendments
  To The Original Intercompany Loan Terms and Conditions

  	
   

  
	
  3.

  	
  Amendments

  	
   

  
	
  4.

  	
  Exclusion of Third
  Party Rights

  	
   

  
	
  5.

  	
  Counterparts and
  Severability

  	
   

  
	
  6.

  	
  Governing Law and
  Jurisdiction

  	
   

  
	
   

  	
   

  
	
  Signatories

  	
   

  

 

Appendix

 

 

THIS FIRST DEED OF AMENDMENT TO THE INTERCOMPANY LOAN TERMS
AND CONDITIONS is made on 25th November, 2003

 

BETWEEN:

 

(1)                                  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
(Funding
1);

 

(2)                                  PERMANENT FINANCING (NO. 1) PLC (registered number 4416192),
a public limited company incorporated under the laws of England and Wales,
whose registered office is at Blackwell House, Guildhall Yard, London EC2V 5AE
(the First
Issuer);

 

(3)                                  PERMANENT FINANCING (NO. 2) PLC (registered number 4623188),
a public limited company incorporated under the laws of England and Wales,
whose registered office is at Blackwell House, Guildhall Yard, London EC2V 5AE
(the Second
Issuer);

 

(4)                                  THE BANK OF NEW YORK, whose principal office is at
One Canada Square, London E14 5AL  in its capacity as Security Trustee; and

 

(5)                                  CITIBANK, N.A., acting through its office is
at 5 Carmelite Street, London EC4Y 0PA and acting in its capacity as the Agent
Bank.

 

WHEREAS:

 

(A)                              On 14th June, 2002 the First
Issuer made a loan to Funding 1 on the terms set out in the terms and
conditions signed for the purposes of identification by Funding 1, the Agent
Bank and the Security Trustee on 14th June, 2002 (the Original  Intercompany Loan Terms and Conditions)
and a separate intercompany loan confirmation dated 14th June, 2002 (the First Issuer
Intercompany Loan Confirmation (together the First Issuer Intercompany Loan Agreement).

 

(B)                                On 6th March, 2003 the Second
Issuer made a loan to Funding 1 on the terms set out in the Original Intercompany
Loan Terms and Conditions and a separate intercompany loan confirmation dated
6th March, 2003 (the Second Issuer Intercompany Loan Confirmation
(together the Second Issuer Intercompany Loan Agreement).

 

(C)                                From time to time Funding 1
may enter into new intercompany loan agreements with New Issuers on the terms
set out in the Intercompany Loan Terms and Conditions (as amended and restated
in the manner set out in this Deed and from time to time) and the relevant new
intercompany loan confirmation (each a New Intercompany Loan Confirmation and
together with the Intercompany Loan Terms and Conditions a New Intercompany Loan Agreement).

 

(D)                               The parties to the First
Intercompany Loan Agreement and the Second Intercompany Loan Agreement have
agreed to amend and restate the Original Intercompany Loan Terms and Conditions
as set out herein.

 

 

NOW THIS DEED WITNESSES as follows:

 

1.                                      INTERPRETATION

 

1.1                                 The amended and restated master definitions
and construction schedule signed by, amongst others, the parties to this Deed
and dated 25th November, 2003 (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) are 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, 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                                 The Intercompany Loan Terms and Conditions
as amended and restated pursuant to this Deed will be referred to as the First
Amended and Restated Intercompany Loan Terms and Conditions and/or the
Intercompany Loan Terms and Conditions, as the context so requires.

 

2.                                      AMENDMENTS TO THE ORIGINAL
INTERCOMPANY LOAN TERMS AND CONDITIONS

 

2.1                                 Upon execution of this Deed by the parties
hereto, the Original Intercompany Loan Terms and Conditions shall be and hereby
are amended and restated in the form set out in the form of Appendix 1 hereto
and the First Issuer Intercompany Loan Agreement and the Second Intercompany
Loan Agreement will be deemed to be amended so that references to the
Intercompany Loan Terms and Conditions signed by Funding 1, the Security
Trustee and the Agent Bank for the purposes of identification on 14th June,
2002, shall be construed as the Intercompany Terms and Conditions as amended
and restated by this Deed.

 

3.                                      AMENDMENTS

 

Subject to Clause 25.8 of the Funding 1
Deed of Charge (Supplemental Provisions Regarding the Security Trustee), any
amendments to this Deed will be made only with the prior written consent of
each party to this Deed.

 

4.                                      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.

 

5.                                      COUNTERPARTS AND SEVERABILITY

 

5.1                                 This Deed may be executed in any number of
counterparts (manually or by facsimile) and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the same
instrument.

 

5.2                                 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.

 

 

6.                                      GOVERNING LAW AND JURISDICTION

 

6.1                                 This Deed is governed by the laws of
England.

 

6.2                                 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 forum
for the maintenance or hearing of such action or proceeding.

 

DULY EXECUTED AND DELIVERED AS A DEED by each of the parties hereto
or on its behalf on the date appearing on page 1.

 

 

 

SIGNATORIES

 

Funding 1

 

	
  EXECUTED as a DEED by

  	
  )

  
	
  PERMANENT FUNDING (NO.
  1)

  	
  )

  
	
  LIMITED acting by two

  	
  )

  
	
  directors/a
  director and the secretary

  	
  )

  

 

Director: DAVID BALAI

 

Director: JAMES GARNER SMITH MACDONALD

 

 

First Issuer

 

	
  EXECUTED as a DEED by

  	
  )

  
	
  PERMANENT FINANCING (NO.
  1)

  	
  )

  
	
  PLC acting by two

  	
  )

  
	
  directors/a
  director and the secretary

  	
  )

  

 

Director: DAVID BALAI

 

Director: JAMES GARNER SMITH MACDONALD

 

 

Second Issuer

 

	
  EXECUTED as a DEED by

  	
  )

  
	
  PERMANENT FINANCING (NO.
  2)

  	
  )

  
	
  PLC acting by two

  	
  )

  
	
  directors/a
  director and the secretary

  	
  )

  

 

Director: DAVID BALAI

 

Director: JAMES GARNER SMITH MACDONALD

 

 

Agent Bank

 

	
  EXECUTED as a DEED on behalf of

  	
   

  
	
  CITIBANK, N.A., a company incorporated in

  	
  )

  
	
  the
  United States of America,

  	
  )

  
	
  in
  its capacity as Agent Bank

  	
  )

  
	
  by

  	
  )GEORGIA
  MITCHELL

  

 

being a person who, in accordance with the
laws

of that
territory, is acting under the authority

of the company

 

 

Security
Trustee

 

	
  EXECUTED as a DEED by

  	
  )KATE RUSSELL

  
	
  THE BANK OF NEW YORK

  	
  )

  
	
  acting
  by its attorney in the presence of

  	
  )

  

 

Witness: M. AFSHAR

 

Name: M. AFSHAR

 

Address: ALLEN & OVERY, LONDON

 

 

APPENDIX 1

 

AMENDED AND RESTATED INTERCOMPANY LOAN TERMS AND
CONDITIONS

 

 

INTERCOMPANY LOAN TERMS
AND CONDITIONS

 

 

PERMANENT FUNDING (NO. 1) LIMITED

 

 

CONTENTS

 

	
  Clause

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  1.

  	
  Interpretation

  	
   

  
	
  2.

  	
  The Term
  Advances

  	
   

  
	
  3.

  	
  Purpose

  	
   

  
	
  4.

  	
  Limited
  Recourse

  	
   

  
	
  5.

  	
  Utilisation of the
  Term Advances

  	
   

  
	
  6.

  	
  Interest

  	
   

  
	
  7.

  	
  Repayment

  	
   

  
	
  8.

  	
  Prepayment

  	
   

  
	
  9.

  	
  Taxes

  	
   

  
	
  10.

  	
  Illegality

  	
   

  
	
  11.

  	
  Mitigation

  	
   

  
	
  12.

  	
  Representations
  and Warranties of Funding 1

  	
   

  
	
  13.

  	
  Covenants

  	
   

  
	
  14.

  	
  Default

  	
   

  
	
  15.

  	
  Default Interest and
  Indemnity

  	
   

  
	
  16.

  	
  Payments

  	
   

  
	
  17.

  	
  Entrenched
  Provisions

  	
   

  
	
  18.

  	
  Further
  Provisions

  	
   

  
	
  19.

  	
  Redenomination

  	
   

  
	
  20.

  	
  Governing Law

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  1.

  	
  Amended and
  Restated Intercompany Loan Terms And Conditions

  	
   

  
	
  2.

  	
  Notice of Drawdown
  of a Term Advance

  	
   

  
	
  3.

  	
  Solvency
  Certificate

  	
   

  
	
  4.

  	
  Form of
  Relevant Intercompany Loan Confirmation

  	
   

  
	
   

  	
   

  	
   

  
	
  Signatories

  

 

 

TERMS AND CONDITIONS MADE ON 14th June, 2002 and signed on the front page
hereof for the purposes of identification by Permanent Funding (No. 1) Limited,
Citibank, N.A., London Branch (in its capacity as Agent Bank) and State Street
Bank and Trust Company (in its capacity as Security Trustee).

 

WHEREAS:

 

(A)                              On 14th June, 2002 Permanent
Financing (No. 1) PLC (the First Issuer) shall make a loan to
Permanent Funding (No. 1) Limited (Funding 1) on the terms set out in these
terms and conditions (the Intercompany Loan Terms and Conditions) and
the separate intercompany loan confirmation dated 14th June, 2002 (the First Issuer
Intercompany Loan Confirmation (together the First Issuer Intercompany Loan Agreement).

 

(B)                                From time to time Funding 1
may enter into new intercompany loan agreements with New Issuers which shall be
made on the terms set out in these Intercompany Loan Terms and Conditions (as
the same may be amended from time to time in the manner set out herein) and the
relevant new intercompany loan confirmation (each a New Intercompany Loan Confirmation
and together with the Intercompany Loan Terms and Conditions a New
Intercompany Loan Agreement).

 

1.                                      INTERPRETATION

 

1.1                                 Terms used but not otherwise defined in
these Intercompany Loan Terms and Conditions shall, except where the context
otherwise requires and save where otherwise defined in these Intercompany Loan
Terms and Conditions or the relevant Intercompany Loan Agreement, have the
meanings given to them in the master definitions and construction schedule
dated 25th November, 2003 and signed by the parties to the Transaction
Documents (as the same may be amended, varied or supplemented from time to time
with the consent of the parties to the Transaction Documents) (the Master
Definitions and Construction Schedule) and these Intercompany Loan
Terms and Conditions shall be construed accordingly.  References in these Intercompany Loan Terms and Conditions to the
Intercompany Loan Agreement shall include references to these Intercompany Loan
Terms and Conditions as incorporated into the Intercompany Loan Agreement by
way of reference and shall be construed accordingly.

 

2.                                      THE TERM ADVANCES

 

2.1                               Conditions precedent

 

Save as the Issuer and the Security Trustee
may otherwise agree, the Term Advances will not be available for utilisation
unless:

 

(a)                                  Funding 1 and the Issuer have
signed an Intercompany Loan Confirmation (substantially in the form set out in
Schedule 3 to these Intercompany Loan Terms and Conditions);

 

(b)                                 the Security Trustee has
confirmed to Funding 1 that it or its advisers have received all of the
information and documents listed in Schedule 1 to the Intercompany Loan
Confirmation in form and substance satisfactory to the Security Trustee; and

 

(c)                                  the conditions set out in
Clause 5.1 (Drawdown conditions relating to the Term Advances) have been
satisfied.

 

1

 

2.2                               New Intercompany Loan
Agreements

 

Funding 1 may at any time, by written notice
to the Security Trustee and the Rating Agencies, enter into a New Intercompany
Loan Agreement with a New Issuer and draw additional term advances thereunder
(each a New
Term Advance). Each New Term Advance will be financed by the issue
of New Notes by the New Issuer, and will only be permitted if the following
conditions precedent are satisfied on the relevant Drawdown Date:

 

(a)                                  the proceeds of the New
Intercompany Loan are used by Funding 1 in accordance with Clause 3.1 (Purpose
and application of the Term Advances) hereof;

 

(b)                                 each of the Rating Agencies
confirms in writing to the Security Trustee that there will not, as a result of
the New Issuer issuing any New Notes or Funding 1 entering into any additional
agreements as a result of entering into the New Intercompany Loan, be any
adverse effect on the then current ratings by the Rating Agencies of the
existing Notes of any Issuer, the proceeds of which have been advanced to
Funding 1 pursuant to, inter alia, these Intercompany Loan Terms
and Conditions;

 

(c)                                  no Intercompany Loan Event of
Default under any Intercompany Loan Agreement is continuing or unwaived at the
relevant Drawdown Date;

 

(d)                                 the Principal Deficiency
Ledger does not have a debit balance as at the relevant Drawdown Date; and

 

(e)                                  any other relevant conditions
precedent specified in the Intercompany Loan Confirmation.

 

3.                                      PURPOSE

 

3.1                               Purpose and application of the
Term Advances

 

The Term Advances shall be used by Funding
1 either:

 

(a)                                  to pay the Seller (in whole or
in part) for New Loans to be assigned to the Mortgages Trustee pursuant to the
terms of the Mortgage Sale Agreement (which shall increase the Funding 1 Share
of the Trust Property); and/or

 

(b)                                 to acquire a portion of the
Current Seller Share of the Trust Property from the Seller pursuant to the
terms of the Mortgages Trust Deed; and/or

 

(c)                                  to refinance the existing debt
of Funding 1, including any existing Intercompany Loan.

 

3.2                               Application of amounts

 

Without prejudice to the obligations of
Funding 1 under this Clause 3, neither the Security Trustee nor any of the
Funding 1 Secured Creditors shall be obliged to concern themselves as to the
application of amounts drawn by Funding 1 under the Intercompany Loan
Agreement.

 

2

 

4.                                      LIMITED RECOURSE

 

4.1                               Recourse limited to available
funds

 

Each of the Issuer and the Security Trustee
agree that the liability of Funding 1 in respect of its obligations to repay
principal and pay interest or any other amounts due under the Intercompany Loan
Agreement or for any breach of any other representation, warranty, covenant or
undertaking of Funding 1 under the Intercompany Loan Agreement, shall be
limited to amounts standing to the credit of the Funding 1 Transaction Account
and the Funding 1 GIC Account from time to time (including, for the avoidance
of doubt, amounts received by Funding 1 in respect of the Funding 1 Share of
the Trust Property and from the Funding 1 Swap Provider); provided that the
application of such amounts to the discharge of Funding 1’s obligations under
an Intercompany Loan Agreement shall be subject to the terms of the Funding 1
Deed of Charge and the relevant Funding 1 Priority of Payments in all cases.

 

4.2                               Shortfall on Final Repayment
Date in respect of certain Term Advances

 

(a)                                  Clause 4.2(b) will only apply to those Term
Advances specified in the Intercompany Loan Confirmation.

 

(b)                                 On the Final Repayment Date of an
Intercompany Loan, the amount of interest and principal due and payable on the
Term AA Advances or Term BBB Advances of that Intercompany Loan shall be an
amount equal to the sum available to pay all outstanding interest and/or
principal amounts due (including interest and principal amounts deferred and
unpaid) on such Term Advance after paying amounts of a higher order of priority
in accordance with the relevant Funding 1 Priority of Payments.  To the extent that on the Final Repayment
Date of an Intercompany Loan there is a shortfall between the amount available
to pay such interest and principal on the Term AA Advances or Term BBB Advances
of that Intercompany Loan and the amount required to pay such interest and
principal on such Term Advance, then shall shortfall shall be extinguished on
the Final Repayment Date of such Term Advance and Funding 1 shall have no
further liability therefor.

 

5.                                      UTILISATION OF THE TERM ADVANCES

 

5.1                               Drawdown conditions relating
to the Term Advances

 

Save as otherwise provided in the
Intercompany Loan Agreement, the Term Advances will be made available by the
Issuer to Funding 1 on the Closing Date if:

 

(a)                                  the Notes have been issued by
the Issuer and the subscription proceeds have been received by or on behalf of
the Issuer;

 

(b)                                 not later than 2.00 p.m.
(London time) on the Closing Date (or such later time as may be agreed in
writing by Funding 1, the Issuer and the Security Trustee), the Issuer and the
Security Trustee have received from Funding 1 a Drawdown Notice requesting a
drawing under the Intercompany Loan Agreement, receipt of which shall (subject
to the terms of the Intercompany Loan Agreement and to the issue of the Notes
by the Issuer) oblige Funding 1 to borrow the whole of the amount requested in
the Drawdown Notice on the date stated in the Drawdown Notice (which shall be
the Closing Date) upon the terms and subject to the conditions contained in the
Intercompany Loan Agreement;

 

(c)                                  Funding 1 has confirmed in the
relevant Drawdown Notice that:

 

3

 

(i)                                     no Intercompany Loan Event of
Default has occurred and is continuing unremedied (if capable of remedy) or
unwaived or would result from the making of the Term Advances;

 

(ii)                                  the representations set out in
Clause 12 (Representations and Warranties of Funding 1) are true on and as of
the Closing Date by reference to the facts and circumstances then existing;

 

(d)                                 the aggregate principal amount
of the Term Advances to be drawn on the Drawdown Date would not exceed the
amount available for drawing under the Intercompany Loan Agreement as at the
relevant Drawdown Date; and

 

(e)                                  Funding 1 has delivered a
solvency certificate substantially in the form set out in Schedule 2 to these
Intercompany Loan Terms and Conditions.

 

5.2                               Single drawing of the Term
Advances

 

Each of the Term Advances will only be
available for drawing in one amount by Funding 1 on the Drawdown Date subject
to satisfaction of the matters specified in Clause 2.1 (Conditions precedent)
and Clause 5.1 (Drawdown conditions relating to the Term Advances).

 

6.                                      INTEREST

 

6.1                               Interest Periods

 

(a)                                  The first Interest Period will commence on
(and include) the Drawdown Date of the Term Advances and end on (but exclude)
the first Funding 1 Interest Payment Date falling thereafter.  Each subsequent Interest Period shall
commence on (and include) a Funding 1 Interest Payment Date and end on (but
exclude) the next following Funding 1 Interest Payment Date.

 

(b)                                 Whenever it is necessary to compute an
amount of interest in respect of the Term Advances for any period (including
any Interest Period), such interest shall be calculated on the basis of actual
days elapsed in a 365 day year.

 

6.2                               Determination of Term Advance
Rates of Interest

 

(a)                                  The rate of interest payable in respect of
each Term Advance (each a Term Advance Rate of Interest and together
the Term
Advance Rates of Interest) shall be determined on the basis of the
provisions set out below:

 

(i)                                     On the first Term Advance Interest Determination Date
(being the first day of the Interest Period for which the rate will apply) of
the Term Advances, the Agent Bank will determine the Term Advance Rates of
Interest in accordance with the provisions of the Intercompany Loan
Confirmation;

 

(ii)                                  on each subsequent Term Advance Interest
Determination Date, the Agent Bank will determine the Relevant Screen Rate  in respect of each Term Advance as at or
about 11.00 a.m. (London time) on the Term Advance Interest Determination Date
in question.  If the Relevant Screen
Rate is unavailable, the Agent Bank will request the principal London office of
each of the Reference Banks to provide the Agent Bank with its offered
quotation to leading banks for three-month Sterling deposits of £10,000,000 in
the London inter-bank market as at or about 11.00 a.m. (London time)

 

4

 

on the
Term Advance Interest Determination Date and the Term Advance Rates of Interest
for the relevant Interest Period shall be the aggregate of (A) the Relevant
Margin (as defined in the relevant Intercompany Loan Confirmation) for the Term
Advances and (B) the Relevant Screen Rate for the Term Advances or, if the
Relevant Screen Rate is unavailable, the linear interpolation of the arithmetic
mean of such offered quotations for three-month Sterling deposits (rounded
upwards, if necessary, to five decimal places); and

 

(iii)                               if on any Term Advance Interest
Determination Date, the Relevant Screen Rate is unavailable and only two or
three of the Reference Banks provide offered quotations, the Term Advance Rates
of Interest for the relevant Interest Period shall be determined in accordance
with the provisions of sub-paragraph (i) or, as the case may be, (ii) above on
the basis of the offered quotations of those Reference Banks providing such
quotations.  If, on any such Term
Advance Interest Determination Date, only one or none of the Reference Banks
provide the Agent Bank with such an offered quotation, the Agent Bank shall
forthwith consult with the Security Trustee and the Issuer for the purposes of
agreeing two banks (or, where one only of the Reference Banks provided such a quotation,
one additional bank) to provide such a quotation or quotations to the Agent
Bank (which bank or banks are in the opinion of the Security Trustee suitable
for such purpose) and the Term Advance Rates of Interest for the Interest
Period in question shall be determined, as aforesaid, on the basis of the
offered quotations of such banks as so agreed (or, as the case may be, the
offered quotations of such bank as so agreed and the relevant Reference
Bank).  If no such bank or banks is or
are so agreed or such bank or banks as so agreed does or do not provide such a
quotation or quotations, then the Term Advance Rates of Interest for the
relevant Interest Period shall be the Term Advance Rates of Interest in effect
for the last preceding Interest Period to which sub-paragraph (i) or
sub-paragraph (ii), as the case may be, shall have applied but taking account
of any change in the Relevant Margin.

 

There will be no maximum or minimum Term
Advance Rate of Interest.

 

(b)                                 The Agent Bank shall, as soon as practicable
after 11.00 a.m. (London time) on each Term Advance Interest Determination
Date, determine and notify the Issuer, Funding 1, the Cash Manager and the
Security Trustee of (i) the Term Advance Rates of Interest applicable to the
relevant Interest Period and (ii) the sterling amount (the Interest Amount) payable in
respect of such Interest Period in respect of the Outstanding Principal Balance
of each Term Advance.  The Interest
Amount in respect of each Term Advance shall be determined by applying the relevant
Term Advance Rate of Interest to the Outstanding Principal Balance of the
relevant Term Advance, multiplying the sum by 365 days and rounding the
resultant figure to the nearest pence (half a pence being rounded upwards).

 

(c)                                  If the Agent Bank does not at any time for
any reason determine the Term Advance Rate of Interest and/or calculate the
Interest Amount for any of the Term Advances in accordance with the foregoing
paragraphs, the Security Trustee shall (i) determine the Term Advance Rate of Interest
at such rate as (having such regard as it shall think fit to the procedure
described above) it shall deem fair and reasonable in all the circumstances
and/or (as the case may be) (ii) calculate the Interest Amount for each Term
Advance in the manner specified in Clause 6.2(a) and any such determination
and/or calculation shall be deemed to have been made by the Agent Bank.

 

(d)                                 All notifications, opinions,
determinations, certificates, calculations, quotations and decisions given,
expressed, made or obtained for the purposes of this Clause 6, whether by the

 

5

 

Reference
Banks (or any of them) or any other bank or the Agent Bank or the Security
Trustee shall (in the absence of wilful default, bad faith or manifest error)
be binding on Funding 1, the Issuer, the Cash Manager, the Reference Banks,
such bank, the Agent Bank, the Security Trustee and (in such absence as
aforesaid) no liability to Funding 1 shall attach to the Issuer, the Reference
Banks, such bank, the Agent Bank, the Security Trustee or the Cash Manager in
connection with the exercise or non-exercise by them or any of them of their
powers, duties and discretions hereunder.

 

7.                                      REPAYMENT

 

7.1                               Repayment on Funding 1
Interest Payment Dates

 

Each Term Advance shall be repaid in
instalments on the Funding 1 Interest Payment Dates and in the amounts
specified in the Intercompany Loan Confirmation.

 

7.2                               Term Advance Ratings determine
order of repayment

 

(a)                                  Unless otherwise specified in the Intercompany
Loan Confirmation, each Term Advance shall be repaid (as to both interest and
principal) in accordance with the Term Advance Rating of that Term Advance,
such that, to the extent that amounts are due and payable on more than one Term
Advance on any Funding 1 Interest Payment Date, the Term Advance with the
highest Term Advance Rating shall be repaid (as to both interest and principal)
ahead of the Term Advances with the next highest Term Advance Rating, down to
the Term Advances with the lowest Term Advance Rating being repaid (as to both
interest and principal) only after all of the Term Advances with higher Term
Advance Ratings have been repaid.

 

(b)                                 The Term Advances shall be funded by the
issue of a class or classes of Notes to be issued by the Issuer.  The Term Advance Ratings shall be determined
by the rating assigned by the Rating Agencies to the relevant class of Notes on
the Closing Date.  If the ratings
assigned to a class of Notes by any Rating Agency changes after the Closing
Date, then that shall not affect the designated Term Advance Ratings. If the
ratings assigned to two or more Term Advances (including any New Term Advances)
are the same, then those Term Advances and New Term Advances will be repaid (as
to both interest and principal) pro rata and pari passu (but subject to
the relevant Schedule Repayment Dates and permitted repayment dates
thereof).  If the ratings assigned to a
class of Notes by the Rating Agencies are not consistent, then the affected
Term Advance will reflect all the ratings assigned to it and Funding 1 will
make payments on such Term Advance after making payments on Term Advances with
a Term Advance Rating equivalent to or higher than the highest of the ratings
assigned to the affected Term Advance and before Term Advances with a Term
Advance Rating equivalent to or lower than the lowest of the ratings assigned
to the affected Term Advance (unless otherwise agreed with the Security Trustee
and the Rating Agencies).

 

(c)                                  The Term Advance Ratings for each Term
Advance are specified in the Intercompany Loan Confirmation.

 

8.                                      PREPAYMENT

 

8.1                               Prepayment for taxation or
other reasons

 

If:

 

(a)                                  the total Interest Amount in
relation to the Intercompany Loan for any Interest Period ceases to be
receivable (on account of any present or future Taxes, duties, assessments or
governmental charges of whatever nature); or

 

6

 

(b)                                 a Term Advance becomes illegal
as described in Clause 10 (Illegality); or

 

(c)                                  the Issuer is required to
deduct or withhold from any payment of principal, interest or premium in
respect of its Notes any amount for or on account of Tax,

 

then, without prejudice to the obligations
of Funding 1 under Clause 10 (Illegality) and subject to Clause 11
(Mitigation), Funding 1 may, on any Funding 1 Interest Payment Date having
given not more than 60 days and not less than 30 days’ (or such shorter period
as may be required by any relevant law in the case of any Term Advance which
becomes illegal pursuant to Clause 10 (Illegality)) prior written notice to the
Issuer and the Security Trustee (or on or before the latest date permitted by
the relevant law in the case of Clause 10 (Illegality)) and while the relevant
circumstances continue, prepay all but not some only of all of the Term
Advances without penalty or premium but subject to Clause 15 (Default Interest
and Indemnity).

 

8.2                               Application of monies

 

The Issuer hereby agrees to apply any
amounts received by way of prepayment pursuant to Clauses 7.1 (Repayment on
Funding 1 Interest Payment Dates) and 8.1 (Prepayment for taxation or other
reasons) in making prepayments under the Notes.

 

8.3                               Funding 1 Ledgers

 

Funding 1 shall maintain, or cause to be
maintained, the Funding 1 Ledgers in accordance with the Cash Management Agreement.

 

9.                                      TAXES

 

9.1                               No gross up

 

All payments by Funding 1 under the
Intercompany Loan Agreement shall be made without any deduction or withholding
for or on account of and free and clear of, any Taxes, except to the extent
that Funding 1 is required by law to make payment subject to any Taxes.

 

9.2                               Tax receipts

 

All Taxes required by law to be deducted or
withheld by Funding 1 from any amounts paid or payable under the Intercompany
Loan Agreement shall be paid by Funding 1 when due and Funding 1 shall, within
30 days of the payment being made, deliver to the Issuer evidence satisfactory
to that Issuer (including all relevant Tax receipts) that the payment has been
duly remitted to the appropriate authority.

 

10.                               ILLEGALITY

 

If, at any time, it is unlawful for the
Issuer to make, fund or allow to remain outstanding a Term Advance made or to
be made by it under the Intercompany Loan Agreement, then the Issuer shall,
promptly after becoming aware of the same, deliver to Funding 1, the Security
Trustee and the Rating Agencies a legal opinion to that effect from reputable
counsel and if the Issuer so requires, Funding 1 shall promptly to the extent
necessary to cure such illegality prepay all the Term Advances subject to and
in accordance with the provisions of Clause 8.1 (Prepayment for taxation or
other reasons).

 

7

 

11.                               MITIGATION

 

If circumstances arise in respect of the
Issuer which would, or would upon the giving of notice, result in:

 

(a)                                  the prepayment of the Term
Advances pursuant to Clause 10 (Illegality);

 

(b)                                 a withholding or deduction
from the amount to be paid by Funding 1 on account of Taxes, pursuant to Clause
9 (Taxes),

 

then, without in any way limiting, reducing
or otherwise qualifying the obligations of Funding 1 under this Agreement, the
Issuer shall:

 

(i)                                     promptly upon becoming aware
of the circumstances, notify the Security Trustee,  Funding 1 and the Rating Agencies; and

 

(ii)                                  upon written request from
Funding 1, take such steps as may be practical to mitigate the effects of those
circumstances including (without limitation) the assignment of all its rights
under the Intercompany Loan Agreement to, and assumption of all its obligations
under that Intercompany Loan Agreement by, another company satisfactory to the
Security Trustee, which is willing to participate in the relevant Term Advances
in its place and which is not subject to (a) and/or (b) above,

 

provided that no such transfer or
assignment and transfer may be permitted unless the Rating Agencies confirm in
writing to the Issuer and the Security Trustee that there will be no
downgrading of the then current rating of the Notes of any Issuer as a result
and Funding 1 indemnifies the Issuer and the Security Trustee for any
reasonable costs and expenses properly incurred as a result of such transfer or
assignment.

 

12.                               REPRESENTATIONS AND WARRANTIES OF
FUNDING 1

 

12.1                        Representations and warranties

 

Funding 1 makes the representations and
warranties set out in this Clause 12 to the Issuer and the Security Trustee (as
trustee for each of the Funding 1 Secured Creditors).

 

12.2                        Status

 

(a)                                  It is a limited liability company duly
incorporated, validly existing and registered under the laws of the
jurisdiction in which it is incorporated, capable of being sued in its own
right and not subject to any immunity from any proceedings.

 

(b)                                 It has the power to own its property and
assets and to carry on its business as it is being conducted.

 

12.3                        Powers and authority

 

It has the power to enter into, perform and
deliver, and has taken all necessary corporate and other action to authorise
the execution, delivery and performance by it of each of the Transaction
Documents to which it is a party.

 

8

 

12.4                        Legal validity

 

Each Transaction Document to which it is or
will be a party constitutes or when executed in accordance with its terms will
constitute, a legal, valid and binding obligation enforceable in accordance
with its terms, subject to general equitable principles, insolvency,
liquidation and other laws affecting creditors rights generally.

 

12.5                        Non-conflict

 

The execution by it of each of the
Transaction Documents to which it is a party and the exercise by it of its
rights and the performance of its obligations under such Transaction Documents
including, without limitation, borrowing pursuant to the terms of the
Intercompany Loan Agreement or granting any security contemplated by the
Transaction Documents will not:

 

(a)                                  result in the existence or
imposition of nor oblige it to create any Security Interest in favour of any
person (other than the Funding 1 Secured Creditors) over all or any of its
present or future revenues or assets;

 

(b)                                 conflict with any document
which is binding upon it or any of its assets;

 

(c)                                  conflict with its
constitutional documents; or

 

(d)                                 conflict with any law,
regulation or official or judicial order of any government, governmental body
or court, domestic or foreign, having jurisdiction over it.

 

12.6                        No litigation

 

No litigation, arbitration or
administrative proceedings are current or, to its knowledge, pending or
threatened.

 

12.7                        No default

 

No Intercompany Loan Event of Default is
continuing unremedied (if capable of remedy) or unwaived or would result from
the making of any Term Advance.

 

12.8                        Authorisations

 

All governmental consents, licences and
other approvals and authorisations required or desirable in connection with the
entry into, performance, validity and enforceability of, and the transactions
contemplated by, the Transaction Documents have been obtained or effected (as
appropriate) and are in full force and effect.

 

12.9                        Registration requirements

 

Except for due registration of the Funding
1 Deed of Charge under Section 395 of the Companies Act 1985, it is not necessary
that the Funding 1 Deed of Charge or the Intercompany Loan Agreement be filed,
recorded or enrolled with any authority or that, except for registration fees
payable to the Registrar of Companies in respect of the Security Documents, any
stamp, registration or similar tax be paid on or in respect thereof.

 

9

 

12.10                 Ranking of security

 

The security conferred by the Funding 1
Deed of Charge constitutes a first priority security interest of the type
described in the Funding 1 Deed of Charge, over the security assets referred
to, in the Funding 1 Deed of Charge and the security assets are not subject to
any prior or pari passu Security Interests.

 

12.11                 No other business

 

(a)                                  It has not traded or carried on any
business since its date of incorporation or engaged in any activity whatsoever
that is not incidental to or necessary in connection with any of the activities
in which the Transaction Documents provide or envisage that it will engage.

 

(b)                                 It is not party to any material agreements
other than the Transaction Documents.

 

12.12                 Ownership

 

(a)                                  Its entire issued share capital is legally
and beneficially owned and controlled by Holdings.

 

(b)                                 Its shares are fully paid.

 

12.13                 Good title as to assets

 

Funding 1 is and will remain the absolute
beneficial owner of the Funding 1 Share and absolute legal and beneficial owner
of all other assets charged or assigned by the Funding 1 Deed of Charge to
which it is a party.

 

12.14                 Tax

 

(a)                                  It is tax resident and legally domiciled in
its jurisdiction of incorporation.

 

(b)                                 It has no branch, business establishment or
other fixed establishment outside the United Kingdom.

 

12.15                 Repetition

 

The representations in this Clause 12 shall
survive the execution of the Intercompany Loan Agreement and the making of each
Term Advance under the Intercompany Loan Agreement, and shall be repeated by
Funding 1 on each Funding 1 Interest Payment Date after the date of the
Intercompany Loan Agreement by reference to the facts and circumstances then
subsisting.

 

13.                               COVENANTS

 

13.1                        Duration

 

The undertakings in this Clause 13 remain
in force from the date of the Intercompany Loan Agreement for so long as any
amount is or may be outstanding under the Intercompany Loan Agreement.

 

13.2                        Information

 

Funding 1 shall supply to the Security
Trustee and the Rating Agencies:

 

(a)                                  as soon as the same are
available its audited accounts for that Financial Year; and

 

10

 

(b)                                 promptly, such other
information in connection with the matters contemplated by the Transaction
Documents as the Security Trustee or the Rating Agencies may reasonably
request.

 

13.3                        Notification of Default

 

Funding 1 shall notify the Issuer and the
Security Trustee of any Intercompany Loan Event of Default (and the steps, if
any, being taken to remedy it) promptly upon its occurrence.

 

13.4                        Authorisations

 

Funding 1 shall promptly:

 

(a)                                  obtain, maintain and comply
with the terms of; and

 

(b)                                 upon request, supply certified
copies to the Issuer and the Security Trustee of,

 

any authorisation required under any law or
regulation to enable it to perform its obligations under, or for the validity
or enforceability of, any Transaction Document to which it is a party.

 

13.5                        Pari passu ranking

 

Funding 1 shall procure that its
obligations under the Transaction Documents do and will rank at least pari passu
with all its other present and future unsecured obligations, except for
obligations mandatorily preferred by law applying to companies generally.

 

13.6                        Negative pledge

 

Funding 1 shall not create or permit to
subsist any security interest (including but not limited to any mortgage,
standard security, charge (whether legal or equitable), assignment by way of
security, pledge, lien, hypothecation or other security interest securing any
obligation of any person (including, without limitation, any trust or
arrangement having the effect of providing security)) over or in respect of any
of its assets (unless arising by operation of law) other than as provided
pursuant to the Transaction Documents.

 

13.7                        Disposals

 

Funding 1 shall not either in a single
transaction or in a series of transactions, whether related or not and whether
voluntarily or involuntarily, sell, transfer, lease or otherwise dispose of all
or any part of its assets, properties or undertakings or any interest, estate,
rights, title or benefits therein, other than as provided for pursuant to the
Transaction Documents.

 

13.8                        Mergers and acquisitions

 

(a)                                  Funding 1 shall not, without the consent of
the Issuer and the Security Trustee, enter into any amalgamation, demerger,
merger or reconstruction.

 

(b)                                 Funding 1 shall not acquire any assets or
business or make any investments other than as contemplated in the Transaction
Documents.

 

11

 

13.9                        Lending and borrowing

 

(a)                                  Save as contemplated by the Transaction
Documents, Funding 1 shall not make any loans or provide any other form of
credit to any person.

 

(b)                                 Funding 1 shall not give any guarantee or
indemnity to or for the benefit of any person in respect of any obligation of
any other person or enter into any document under which Funding 1 assumes any
liability of any other person.

 

(c)                                  Funding 1 shall not incur any indebtedness
in respect of any borrowed money other than under the Transaction Documents.

 

13.10                 Shares and dividends

 

Funding 1 shall not:

 

(a)                                  declare or pay any dividend or
make any other distribution in respect of any of its shares other than in
accordance with the Funding 1 Deed of Charge;

 

(b)                                 issue any further shares or
alter any rights attaching to its issued shares as at the date hereof; or

 

(c)                                  repay or redeem any of its
share capital.

 

13.11                 Change of business

 

(a)                                  Funding 1 shall not carry on any business
or engage in any activity other than as contemplated by the Transaction
Documents.

 

(b)                                 Funding 1 shall not have any subsidiaries
or subsidiary undertakings as defined in the Companies Act 1985.

 

(c)                                  Funding 1 shall not have any employees or
own any premises.

 

13.12                 Tax

 

(a)                                  Funding 1 shall join with the Issuer in
making a group income election under section 247 of the Income and Corporation
Taxes Act 1988 in relation to any such payments as are referred to in section
247(4) of that Act and which are made under the Intercompany Loan Agreement by
Funding 1 to the Issuer and Funding 1 will ensure that no steps will be taken
(whether by act, omission or otherwise) by it which would reasonably be
expected to lead to the revocation or invalidation of the aforementioned
election.  Funding 1 shall immediately
notify the Issuer and the Security Trustee if it becomes aware that the
aforementioned election has ceased to be in full force and effect or if
circumstances arise, of which it is aware, which would be reasonably likely to
result in that election ceasing to be in full force and effect.

 

(b)                                 Funding 1 shall not apply to become part of
any group for the purposes of section 43 of the Value Added Tax Act 1994 with
the Issuer unless required to do so by law.

 

13.13                 United States Activities

 

Funding 1 will not engage in any activities
in the United States (directly or through agents), will not derive any income
from United States sources as determined under United States income tax
principles and will not hold any property if doing so would cause it to be
engaged

 

12

 

or deemed to be engaged in a trade or
business within the United States as determined under United States tax
principles.

 

14.                               DEFAULT

 

14.1                        Intercompany Loan Events of
Default

 

Each of the events set out in Clauses 14.2
to 14.9 (inclusive) is an Intercompany Loan Event of Default (whether or not
caused by any reason whatsoever outside the control of Funding 1 or any other
person).

 

14.2                        Non-payment

 

Subject to Clause 4.1 (Recourse limited to
available funds), Funding 1 does not pay on the due date or for a period of
three London Business Days after such due date any amount payable by it under
any Intercompany Loan Agreement at the place at and in the currency in which it
is expressed to be payable.

 

14.3                        Breach of other obligations

 

Funding 1 does not comply in any material
respect with any of its obligations under the Transaction Documents (other than
those referred to in Clause 14.2 (Non-payment)) and such non-compliance, if capable
of remedy, is not remedied promptly and in any event within twenty London
Business Days of Funding 1 becoming aware of the non-compliance or receipt of a
notice from the Security Trustee requiring Funding 1’s non-compliance to be
remedied.

 

14.4                        Misrepresentation

 

A representation, warranty or statement
made or repeated in or in connection with any Transaction Document or in any
document delivered by or on behalf of Funding 1 under or in connection with any
Transaction Document is incorrect in any material respect when made or deemed
to be made or repeated.

 

14.5                        Insolvency

 

Any corporate action is taken by Funding 1,
or any legal proceedings are started, for the winding-up, dissolution,
administration or appointment of a liquidator, receiver, administrator,
administrative receiver, trustee or similar officer of Funding 1 or of any or
all of Funding 1’s revenues and assets or any documents are filed with the
court for the appointment of an administrator of Funding 1 or any formal notice
of intention to appoint an administrator of Funding 1 is served or any
application is made or petition is lodged for the making of an administration
order in relation to Funding 1 .

 

14.6                        Creditors’ process

 

Any attachment, sequestration, distress or
execution affects any asset of Funding 1 and is not discharged within twenty
London Business Days.

 

14.7                        Unlawfulness

 

It is or becomes unlawful for Funding 1 to
perform any of its obligations under any Transaction Document.

 

13

 

14.8                        The Funding 1 Deed of Charge

 

The Funding 1 Deed of Charge is not, or is
alleged by Funding 1 not to be, binding on or enforceable against Funding 1 or
effective to create the security intended to be created by it.

 

14.9                        Ownership

 

The entire issued share capital of Funding
1 ceases to be legally and beneficially owned and controlled by Holdings.

 

14.10                 Acceleration

 

Upon the occurrence of an Intercompany Loan
Event of Default which is continuing unremedied and/or has not been waived, the
Security Trustee may by written notice to Funding 1 (the Intercompany Loan Acceleration Notice)
which is copied to each of the Funding 1 Secured Creditors and the Mortgages
Trustee:

 

(a)                                  declare the Term Advances
under each or any Intercompany Loan Agreement to be immediately due and payable
(whereupon the same shall, subject to Clause 14.11 (Repayment of Term Loan on
acceleration)), become so payable together with accrued interest thereon and
any other sums then owed by Funding 1 under the relevant Intercompany Loan
Agreement or Agreements; and/or

 

(b)                                 declare the Term Advances
under each or any Intercompany Loan Agreement to be due and payable on demand
of the Security Trustee.

 

14.11                 Repayment of Term Loan on acceleration

 

Upon the Security Trustee declaring the Term
Advances to be immediately due and payable pursuant to Clause 14.10(a)
(Acceleration), the amount due and payable in respect of the Term Advances
shall be calculated on the basis described in Clause 8.1 (Prepayment for
taxation or other reasons).

 

15.                               DEFAULT INTEREST AND INDEMNITY

 

15.1                        Default Loan Interest Periods

 

If any sum due and payable by Funding 1
under the Intercompany Loan Agreement is not paid on the due date for payment
in accordance with the relevant provision of the Intercompany Loan Agreement or
if any sum due and payable by Funding 1 under any judgment or decree of any
court in connection with the Intercompany Loan Agreement is not paid on the
date of such judgment or decree, the period beginning on such due date or, as
the case may be, the date of such judgment or decree and ending on the date
upon which the obligation of Funding 1 to pay such sum (the balance thereof for
the time being unpaid being herein referred to as an unpaid sum) is discharged
shall be divided into successive periods, each of which (other than the first)
shall start on the last day of the preceding such period and the duration of
each of which shall (except as otherwise provided in this Clause 15) be
selected by the Security Trustee having regard to when such unpaid sum is
likely to be paid.

 

15.2                        Default interest

 

During each such period relating to an
unpaid sum as is mentioned in this Clause 15 an unpaid sum shall bear interest
at the rate per annum which the Issuer, acting reasonably, determines and
certifies to Funding 1 and the Security Trustee, will be sufficient to enable
it

 

14

 

to pay interest and other costs and
indemnities on or in respect of any amount which the Issuer does not pay as a
result of a non-payment under the Intercompany Loan Agreement, and/or any
drawing made by it under the Liquidity Facility Agreement, as a result of such
unpaid sum not being paid to it.

 

15.3                        Payment of default interest

 

Any interest which shall have accrued under
Clause 15.2 (Default interest) in respect of an unpaid sum shall be due and
payable and shall be paid by Funding 1 at the end of the period by reference to
which it is calculated or on such other date or dates as the Security Trustee
may specify by written notice to Funding 1.

 

15.4                        Broken periods

 

Funding 1 shall forthwith on demand
indemnify the Issuer against any loss or liability that the Issuer incurs as a
consequence of any payment of principal being received from any source
otherwise than on a Funding 1 Interest Payment Date or an overdue amount being
received otherwise than on its due date.

 

15.5                        Funding 1’s payment indemnity

 

Funding 1 undertakes to indemnify the
Issuer:

 

(a)                                  against any cost, claim, loss,
expense (including legal fees) or liability together with any amount in respect
of Irrecoverable VAT thereon (other than by reason of the negligence or wilful
default by the Issuer), which it may sustain or incur as a consequence of the
occurrence of any Intercompany Loan Event of Default or any default by Funding
1 in the performance of any of the obligations expressed to be assumed by it in
any of the Transaction Documents (other than by reason of negligence or wilful
default on the part of the Issuer or prior breach by the Issuer of the terms of
any of the Transaction Documents to which it is a party);

 

(b)                                 against any loss it may suffer
as a result of its funding a Term Advance requested by Funding 1 under the
Intercompany Loan Agreement (which shall include the amounts referred to in
clause 6 of the Intercompany Loan Confirmation) but not made; and

 

(c)                                  against any other loss or
liability (other than by reason of the negligence or default of the Issuer or
breach by the Issuer of the terms of any of the Transaction Documents to which
it is a party (except where such breach is caused by the prior breach of
Funding 1) or loss of profit) it may suffer by reason of having made the
Term Advances available or entering into the Intercompany Loan Agreement or
enforcing any security granted pursuant to the Funding 1 Deed of Charge.

 

16.                               PAYMENTS

 

16.1                        Payment

 

(a)                                  Subject to Clause 4 (Limited Recourse),
interest and principal shall be paid on the Term Advances for value by Funding
1 to the Issuer Transaction Account specified by the Issuer in the Intercompany
Loan Confirmation on each Funding 1 Interest Payment Date and the relevant
irrevocable payment instruction for such payment shall be given by Funding 1 by
no later than noon to the Cash Manager under the Cash Management Agreement
(with a copy to the Issuer and the Security Trustee) on the Intercompany Loan
Determination Date immediately before the relevant Funding 1 Interest Payment
Date.

 

15

 

(b)                                 On each date on which the Intercompany Loan
Agreement requires an amount to be paid by Funding 1 under that Intercompany
Loan Agreement, Funding 1 shall, unless the Intercompany Loan Agreement
specifies otherwise, make the same available to the Issuer in accordance with
the terms of the Intercompany Loan Agreement and by payment in Sterling in
immediately available, freely transferable, cleared funds to the Issuer
Transaction Account specified in the Intercompany Company Loan Confirmation or,
if the Intercompany Loan Agreement specifies otherwise, to the relevant account
or to such other account as the Issuer (with the consent of the Security
Trustee) may notify to Funding 1 for this purpose.

 

16.2                        Alternative payment
arrangements

 

If, at any time, it shall become
impracticable (by reason of any action of any governmental authority or any
change in law, exchange control regulations or any similar event) for Funding 1
to make any payments under the Intercompany Loan Agreement in the manner
specified in Clause 16.1 (Payment), then Funding 1 shall make such alternative
arrangements for the payment direct to the Issuer of amounts due under the
Intercompany Loan Agreement as are acceptable to the Security Trustee (acting
reasonably).

 

16.3                        No set-off

 

Subject to the terms of the Intercompany
Loan Confirmation, all payments required to be made by Funding 1 under the
Intercompany Loan Agreement shall be calculated without reference to any
set-off or counterclaim and shall be made free and clear of and without any
deduction for or on account of any set-off or counterclaim.

 

17.                               ENTRENCHED PROVISIONS

 

Each of Funding 1, the Issuer and the
Security Trustee acknowledge and agree that Funding 1 may from time to time
enter into New Intercompany Loan Agreements subject to the provisions of Clause
2 (The Term Advances) of this Agreement. 
If Funding 1 intends to enter into a New Intercompany Loan Agreement
then the provisions of this Agreement may be varied (with the consent of the
parties to this Agreement) in the Intercompany Loan Confirmation to the extent
necessary to reflect the terms of that New Intercompany Loan PROVIDED THAT no
variation shall be made to any of the following terms without the prior written
consent of the Funding 1 Secured Creditors and the Rating Agencies:

 

(a)                                  the Funding 1 Interest Payment
Dates;

 

(b)                                 the determination of the Term
Advance Rates of Interest (other than the Relevant Margin);

 

(c)                                  Clause 4 (Limited Recourse);

 

(d)                                 Clause 7 (Repayment); and

 

(e)                                  Clause 9 (Taxes).

 

18.                               FURTHER PROVISIONS

 

18.1                        Evidence of indebtedness

 

In any proceeding, action or claim relating
to the Intercompany Loan Agreement a statement as to any amount due to the
Issuer under the Intercompany Loan Agreement which is certified as being
correct by an officer of the Security Trustee shall, unless otherwise provided
in the

 

16

 

Intercompany Loan Agreement, be prima facie
evidence that such amount is in fact due and payable.

 

18.2                        Rights cumulative, waivers

 

The respective rights of the Issuer and the
Security Trustee under the Intercompany Loan Agreement:

 

(a)                                  may be exercised as often as
necessary;

 

(b)                                 are cumulative and not
exclusive of its rights under the general law; and

 

(c)                                  may be waived only in writing
and specifically.

 

Delay in exercising or non-exercise of any
such right is not a waiver of that right.

 

18.3                        Severability

 

If a provision of the Intercompany Loan
Agreement is or becomes illegal, invalid or unenforceable in any jurisdiction,
that shall not affect:

 

(a)                                  the validity or enforceability
in that jurisdiction of any other provision of the Intercompany Loan Agreement;
or

 

(b)                                 the validity or enforceability
in other jurisdictions of that or any other provision of the Intercompany Loan
Agreement.

 

18.4                        Notices

 

Any notices to be given pursuant to the
Intercompany Loan Agreement to any of the parties thereto shall be in writing
and 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 5.00 p.m. (London time) 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 post and shall be sent to such
addresses as are set out in the Intercompany Loan Confirmation 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 18.4.

 

18.5                        Variation

 

Subject to Clause 17 (Entrenched
Provisions), no variation of any provision(s) of the Intercompany Loan
Agreement shall be effective unless it is in writing and signed by (or by a
person duly authorised by) each of the parties to the Intercompany Loan
Agreement.

 

18.6                        Security Trustee

 

The Security Trustee shall have no
responsibility for any of the obligations of the Issuer or any other party to
the Intercompany Loan Agreements (other than itself).  For the avoidance of doubt, the parties to the Intercompany Loan
Agreement acknowledge that the rights and obligations of the Security Trustee under
the Intercompany Loan Agreements are governed by the Funding 1 Deed of Charge.

 

17

 

18.7                        Counterparts

 

The Intercompany Loan Agreement may be
signed (manually or by facsimile) and delivered in more than one counterpart
all of which, taken together, shall constitute one and the same Agreement.

 

18.8                        Third Party Rights

 

The Intercompany Loan Agreement does not
create any right under the Contracts (Rights of Third Parties) Act 1999 which
is enforceable by any person who is not a party to the Intercompany Loan
Agreement.

 

19.                               REDENOMINATION

 

Each obligation under this Agreement which
has been denominated in sterling shall be redenominated in Euro in accordance
with EMU legislation upon such redenomination of the Notes.

 

20.                               GOVERNING LAW

 

The Intercompany Loan Agreement is governed
by English law.

 

21.                               SUBMISSION
TO JURISDICTION

 

Each party to the Intercompany Loan
Agreement hereby irrevocably submits to the non-exclusive jurisdiction of the
English courts in any action or proceeding arising out of or relating to the
Intercompany Loan 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 the Intercompany
Loan 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.

 

18

 

SCHEDULE 2

 

NOTICE OF DRAWDOWN OF A
TERM ADVANCE

 

From:      Permanent
Funding (No. 1) Limited (Funding 1)

 

To:          [     ]
(the Issuer)

 

Copy:     The
Bank of New York (the Security Trustee)

 

Dear Sirs,

 

1.                                       We refer to the agreement
between, inter
alios, ourselves, the Issuer and the Security Trustee (as from time
to time amended, varied, novated or supplemented (the Intercompany Loan Agreement))
dated [          ] whereby an
Intercompany Loan was made available to Funding 1.  Terms defined in the Intercompany Loan Agreement shall have the
same meaning in this notice.

 

2.                                       We hereby give you notice
that, pursuant to the Intercompany Loan Agreement and upon the terms and
subject to the conditions contained therein, we wish a [describe Term Advance] to be
made to us as follows:

 

(a)                                  Amount:
£[     ] of which £[     ] is
to be retained by you by way of set off against our obligation to reimburse
such amount to you on the Closing Date under [clause 6.1] (Fee for provision of
Term Advance) of the Intercompany Loan Confirmation.

 

(b)                                 Drawdown Date:
[          ]

 

3.                                       We confirm that no
Intercompany Loan Event of Default has occurred and is continuing which has not
been waived, or would result from the making of such Term Advance.

 

4.                                       We confirm that the principal
amount of the Term Advance requested does not exceed the amount available under
the Intercompany Loan Agreement as at [relevant Drawdown Date].

 

5.                                       The net proceeds of this
drawdown should be credited to our account numbered
[          ] with
[          ].

 

Yours faithfully,

 

 

for and on behalf of

Permanent
Funding (No. 1) Limited

 

19

 

SCHEDULE 3

 

SOLVENCY CERTIFICATE

 

Permanent Funding (No. 1) Limited (the Company)

 

To:          [•]

 

 

(the Issuer)

 

The Bank of New York (the Security
Trustee)

 

We the undersigned HEREBY CERTIFY, that (i)
having made all appropriate searches and investigations of the Company’s books
and records and the Company’s accounts (both management and those required by
law); and (ii) the officers of the Company having duly considered the provisions
of the insolvency laws of the United Kingdom (including, without limitation,
the provisions of sections 123 and 238 to 241 and 423 of the Insolvency Act
1986 (the Act)):

 

(a)                                  the Company is not unable to pay its debts
within the meaning of section 123 of the Act and would not become unable to do
so in consequence of entering into the Transaction Documents to which it is a
party or making any drawing or granting any security under the Transaction
Documents to which it is a party, and the Company’s assets currently exceed its
liabilities (taking into account its actual, contingent and prospective
liabilities) and will continue to do so notwithstanding the entry into by it of
the Transaction Documents and the making of any drawing or the granting of any security
under the Transaction Documents to which it is a party;

 

(b)                                 no execution or other process issued on a
judgment, decree or order of any court in favour of a creditor of the Company
remains unsatisfied in whole or in part;

 

(c)                                  to the best of our knowledge and belief no
corporate action has been taken or is pending, no other steps have been taken
and no legal proceedings have been commenced or are threatened or are pending
for (i) the winding-up, liquidation, dissolution, administration or reorganisation
of the Company and no documents have been filed with the court for the
appointment of an administrator and no notice of intention to appoint an
administrator has been served; or (ii) the Company to enter into any
composition or arrangement with its creditors generally; or (iii) the
appointment of a receiver, administrative receiver, trustee or similar officer
in respect of the Company or any of its property, undertaking or assets.  No event equivalent to any of the foregoing
has occurred in or under the laws of any relevant jurisdiction;

 

(d)                                 no steps have been
taken by the Company with a view to obtaining a moratorium in respect of any
indebtedness of the Company or for the purpose of proposing a company voluntary
arrangement.  No event equivalent to any of the foregoing
has occurred in or under the laws of any relevant jurisdiction;

 

(e)                                  neither the entry into of the Transaction
Documents to which it is a party nor the making of any drawing nor granting of
security under the Transaction Documents to which it is a party would be a
transaction at an undervalue within the meaning of section 238 of the Act,
since the value of any consideration received by the Company as a result of
such drawing and/or 

 

20

 

grant
of security would not be significantly less than the value of any consideration
provided by the Company under the Transaction Documents to which it is a party;

 

(f)                                    the entry into of the Transaction Documents
to which it is a party, any drawing made by the Company under or pursuant to
the Transaction Documents to which it is a party, and any security granted by
the Company under or pursuant to the Transaction Documents to which it is a
party will be entered into or made, as the case may be, by the Company, in good
faith and for the purpose of carrying on its business, and there are reasonable
grounds for believing that such entry into of such Transaction Documents, such
drawings and grants of security would benefit the Company; and

 

(g)                                 in entering into the Transaction Documents
to which it is a party, making a drawing under or pursuant to the Transaction
Documents to which it is a party and/or granting security under or pursuant to
the Transaction Documents to which it is a party the Company has no desire to
give a preference to any person as contemplated by section 239 of the Act nor
is it the purpose of the Company to put assets beyond the reach of a person who
is making, or may at some time make, a claim against the Company or of
otherwise prejudicing the interests of such a person in relation to the claim
which he is making or may make.

 

Terms defined in the Master Definitions and
Construction Schedule signed by the parties to the Transaction Documents  and dated 25th November, 2003 shall have the
same respective meanings when used in this Certificate.

 

DATED •

 

Signed for and on behalf of Permanent
Funding (No. 1) Limited

 

 

	
   

  	
   

  
	
  Director

  
	
   

  
	
   

  	
   

  
	
  Director/Secretary

  

 

21

 

SCHEDULE 4

 

FORM OF RELEVANT INTERCOMPANY LOAN CONFIRMATION

 

 

LOAN CONFIRMATION

 

INTERCOMPANY LOAN AGREEMENT

 

 

DATED •

 

 

PERMANENT FUNDING (NO.
1) LIMITED

as Funding 1

 

 

•

as Relevant Issuer

 

 

STATE STREET BANK AND
TRUST COMPANY

as Security Trustee

 

 

CITIBANK, N.A., LONDON
BRANCH

as Agent Bank

 

 

	
  

  
	
   

  
	
  London

  

 

22

 

THIS AGREEMENT is dated •

 

BETWEEN:

 

(6)                                  PERMANENT FUNDING (NO. 1) LIMITED (registered in England and
Wales No. 4267660) whose registered office is at Blackwell House, Guildhall
Yard, London EC2V 5AE (Funding 1);

 

(7)                                  [Relevant Issuer] (registered in England and
Wales No. •) whose registered office is at Blackwell House,
Guildhall Yard, London EC2V 5AE (the [Relevant 
Issuer]);

 

(8)                                  STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust
company organised under the laws of the Commonwealth of Massachusetts of the
United States of America with a branch office at 1 Canada Square, Canary Wharf,
London  E14 5AF, acting in its capacity
as Security Trustee; and

 

(9)                                  CITIBANK N.A., LONDON BRANCH, whose offices are at 5
Carmelite Street, London EC4Y 0PA, acting in its capacity as Agent Bank.

 

IT IS AGREED as follows:

 

1.                                      INTERPRETATION

 

1.1                                 The Master Definitions and
Construction Schedule signed for the purposes of identification by Allen &
Overy and Sidley Austin Brown & Wood on 13th June, 2002 (as the same may be
amended, varied or supplemented from time to time with the consent of the
parties hereto) and the [Relevant Issuer] Master Definitions and Construction
Schedule signed for the purposes of identification by Allen & Overy and
Sidley Austin Brown & Wood on 13th June, 2002 (as the same may be amended,
varied or supplemented from time to time with the consent of the parties
hereto) are expressly and specifically incorporated into this Agreement and,
accordingly, the expressions defined in the Master Definitions and Construction
Schedule and/or the [Relevant Issuer] Master Definitions and Construction
Schedule (as so amended, varied or supplemented) 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 and the
[Relevant Issuer] Master Definitions and Construction Schedule.  In the event of a conflict between the
Master Definitions and Construction Schedule and the [Relevant Issuer] Master Definitions
and Construction Schedule, the [Relevant Issuer] Master Definitions and
Construction Schedule shall prevail.

 

1.2                                 Unless the context otherwise
requires, references in the Intercompany Loan Term and Conditions to:

 

[complete as appropriate]

 

2.                                      INTERCOMPANY LOAN TERMS AND
CONDITIONS

 

Each of the parties to this Agreement agree
that the Intercompany Loan Terms and Conditions signed by Funding 1 and the
Security Trustee for the purposes of identification on 14th June, 2002 and the
provisions set out therein shall form part of this Agreement and shall be
binding on the parties to this Agreement as if they had expressly been set out
herein.  References in this Agreement to
this
Agreement shall be construed accordingly.

 

23

 

3.                                      THE TERM ADVANCES

 

3.1                               Term Advances

 

[describe the term advances]

 

3.2                               [Term Advance Rating]

 

The Term Advance Rating in respect of the
[Term AAA Advances] shall be •, in respect of the [Term AA Advances]
shall be • and the Term Advance Rating in respect of the [Term
BBB Advances] shall be •.

 

3.3                               [Conditions  Precedent]

 

Save as the [Relevant Issuer] and the
Security Trustee may otherwise agree, the Term Advances will not be available
for utilisation unless the Security Trustee has confirmed to Funding 1 that it
or its advisers have received all the information and documents listed in 0 in
form and substance satisfactory to the Security Trustee.

 

4.                                      INTEREST

 

[Set out interest rate, interest periods and payment
dates]

 

5.                                      REPAYMENT

 

5.1                                 [Describe, inter alios:

 

Repayment subject to terms of the Funding 1 Deed of Charge;

 

Repayment of relevant Term Advances prior to the occurrence
of a Trigger Event and prior to the service on Funding 1 of an Intercompany
Loan Acceleration Notice or the service on each Issuer of a Note Acceleration
Notice;

 

Repayment of relevant Term Advances following the occurrence
of a Non-Asset Trigger Event but prior to 
the service on Funding 1 of an Intercompany Loan Acceleration Notice or
the service on each Issuer of a Note Acceleration Notice;

 

Repayment of the relevant Terms Advances following the
occurrence of an Asset Trigger Event but prior to  the service on Funding 1 of an Intercompany Loan Acceleration
Notice or the service on each Issuer of a Note Acceleration Notice;

 

Repayment following of relevant Term Advances following the
service on each Issuer of a Note Acceleration Notice bur prior to the service
on Funding 1 of an Intercompany Loan Acceleration Notice;

 

Repayment following the service on Funding 1 of an
Intercompany Loan Acceleration Notice].

 

5.2                               [Acknowledgement of New Intercompany
Loans

 

The [Relevant Issuer] hereby acknowledges
and agrees that from time to time Funding 1 may enter into New Intercompany
Loans with New Issuers and that the obligation of Funding 1 to repay this
Intercompany Loan and any New Intercompany Loan will depend on the Term Advance
Rating of the individual Term Advances made to Funding 1 under the respective

 

24

 

Intercompany Loans.  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.]

 

6.                                      CERTAIN FEES, ETC.

 

[describe payment and provision, including
set-off,  for fees and indemnities]

 

7.                                      APPLICATION OF CERTAIN
PROVISIONS

 

The provisions set out in Clause 4.2
(Shortfall on Final Repayment Date in respect of certain Term Advances) of the
Intercompany Loan Terms and Conditions shall apply to:  [describe Term Advances]

 

8.                                      ADDRESSES

 

The addresses referred to in [Clause 15.4]
of the Intercompany Loan Terms and Conditions are as follows:

 

The Security Trustee:

 

	
  For the attention of:

  	
   

  	
  Corporate Trust

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  State Street Bank and Trust Company,

  
	
   

  	
   

  	
  1
  Canada Square, Canary Wharf, London E14 5AF

  
	
   

  	
   

  	
   

  
	
  Facsimile:

  	
   

  	
  +44 (0) 20 7416 2548

  

 

 

 

The [Relevant Issuer]:

 

	
  For the attention of:

  	
   

  	
  [The Secretary]

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  [Relevant Issuer]

  
	
   

  	
   

  	
   

  
	
  Facsimile:

  	
   

  	
  [+44 (0) 20 7556 0975]

  
	
   

  	
   

  	
   

  
	
  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 Securitisations

  

 

25

 

Funding 1:

 

	
  For the attention of:

  	
   

  	
  The Secretary

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  Permanent Funding (No. 1) Limited

  
	
   

  	
   

  	
   

  
	
  Facsimile:

  	
   

  	
  +44 (0) 20 7556 0975

  
	
  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 Securitisations

  
	
   

  	
   

  	
   

  
	
  Rating Agencies:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Moody’s:

  	
   

  	
  2 Minster Court, Mincing Lane, London
  EC3R 7XB

  
	
  For
  the attention of:

  	
   

  	
  Nicholas
  Lindstrom

  
	
  Telephone:

  	
   

  	
  +44
  (0) 20 7772 5332

  
	
  Fax:

  	
   

  	
  +44
  (0) 20 7772 5400

  
	
   

  	
   

  	
   

  
	
  S&P:

  	
   

  	
  Garden House, 18 Finsbury Circus, London
  EC2M 7BP

  
	
  For
  the attention of:

  	
   

  	
  Andre
  Vollman

  
	
  Telephone:

  	
   

  	
  +44
  (0) 20 7826 3855

  
	
  Fax:

  	
   

  	
  +44
  (0) 20 7826 3598

  
	
   

  	
   

  	
   

  
	
  Fitch:

  	
   

  	
  Eldon House, 2 Eldon Street, London EC2M
  7UA

  
	
  For
  the attention of:

  	
   

  	
  European
  Structured Finance

  
	
  Telephone:

  	
   

  	
  +44
  (0) 20 7417 4355

  
	
  Fax:

  	
   

  	
  +44
  (0) 20 7417 6262

  

 

26Exhibit 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;

 

6

 

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.

 

8

 

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.

 

20

 

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

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