Document:

Exhibit 10.3

 

EXECUTION COPY

 

Funding 1 Swap

 

SCHEDULE

to the

Master Agreement

 

dated
as of 14th June, 2002

 

 

between

 

(1)                                  HALIFAX
PLC (“Party
A”);

 

(2)                                  PERMANENT
FUNDING (No.1) LIMITED (“Party B”); and

 

(3)                                  THE BANK OF NEW YORK (the “Security  Trustee”, which expression
will include its successors and assigns and which has agreed to become a party
to this Agreement solely for the purpose of taking the benefit of Parts 5(b)
and 5(k) of this Schedule and assuming the obligations under the final
paragraph of Part 5(f) of this Schedule).

 

This Agreement amends and restates the 1992 ISDA
Master Agreement (Funding 1 Swap) dated as of 14th June, 2002 between Party A,
Party B and the Security Trustee, as amended and supplemented from time to
time.

 

Part 1.               Termination Provisions

 

(a)                                  “Specified Entity”
means in relation to Party A for the purpose of:-

 

Section 5(a)(v), none

 

Section 5(a)(vi), none

 

Section 5(a)(vii), none

 

Section 5(b)(iv), none

 

and in relation to Party B for the
purpose of:-

 

Section 5(a)(v), none

 

Section 5(a)(vi), none

 

Section 5(a)(vii), none

 

Section 5(b)(iv), none

 

(b)                                 “Specified Transaction”
will have the meaning specified in Section 14 of this Agreement.

 

(c)                                  The “Cross Default”
provisions of Section 5(a)(vi), will not apply to Party A and will
not apply to Party B.

 

1

 

(d)                                 The “Credit Event Upon
Merger” provisions of Section 5(b)(iv) will not apply to
Party A and will not apply to Party B.

 

(e)                                  The “Automatic Early
Termination” provision of Section 6(a) will not apply to
Party A and will not apply to Party B.

 

(f)                                    Payments on Early
Termination. 
For the purposes of Section 6(e) of this Agreement:

 

(i)                                     Market Quotation will apply.

 

(ii)                                  The Second Method will apply.

 

(g)                                 “Termination Currency”
means Sterling.

 

(h)                                 “Additional Termination
Event”  will apply.  In addition to the Additional Termination
Events set forth in Part 5(f)(vii) of this Schedule, the following will
constitute an Additional Termination Event:

 

The Additional Tax Representation (as defined in Part
2(b) of this Schedule), proves to have been incorrect or misleading in any
material respect with respect to one or more Transactions (each an “Affected
Transaction” for the purpose of this Additional Termination Event)  when
made or repeated or deemed to have been made or repeated.

 

For the
purpose of the foregoing Termination Event, the Affected Party will be Party A
only.

 

2

 

Part 2.               Tax Representations

 

(a)                                  Payer Representations.  For the purpose of
Section 3(e) of this Agreement, Party A and Party B each make the
following representation:

 

It is not required by any applicable law,
as modified by the practice of any relevant governmental revenue authority, of
any Relevant Jurisdiction to make any deduction or withholding for or on
account of any Tax from any payment (other than interest under
Section 2(e), 6(d)(ii) or 6(e) of this Agreement) to be made by it to the
other party under this Agreement.  In
making this representation, it may rely on (i) the accuracy of any
representations made by the other party pursuant to Section 3(f) of this
Agreement, (ii) the satisfaction of the agreement contained in
Section 4(a)(i) or 4(a)(iii) of this Agreement and the accuracy and
effectiveness of any document provided by the other party pursuant to
Section 4(a)(i) or 4(a)(iii) of this Agreement and (iii) the satisfaction
of the agreement of the other party contained in Section 4(d) of this
Agreement, except that it will not be a breach of this representation where
reliance is placed on clause (ii) and the other party does not deliver a
form or document under Section 4(a)(iii) by reason of material prejudice
to its legal or commercial position.

 

(b)                                 Payee Representations. For the purpose of Section 3(f) of the Agreement, Party A makes
the following representation (the “Additional Tax Representation”):

 

(i)                                     it is a party to each Transaction solely for the purposes of a trade
(or part of a trade) carried on by it in the United Kingdom through a branch or
agency; or

 

(ii)                                  it is resident in the United Kingdom or in a jurisdiction with which
the United Kingdom has a double tax treaty which makes provision, whether for
relief or otherwise, in relation to interest.

 

For the purpose of Section 3(f) of the Agreement,
Party B does not make any representation.

 

3

 

Part 3.               Agreement
to Deliver Documents

 

For the purpose of Sections 4(a)(i) and 4(a)(ii)
of this Agreement, each party agrees to deliver the following documents, as
applicable:

 

(a)                                  Tax forms, documents or certificates to be delivered are: none

 

(b)                                 Other documents to be delivered are:

 

	
  Party
  required

  to deliver

  Document

  	
   

  	
  Form/Document/

  Certificate

  	
   

  	
  Date
  by which

  to be delivered

  	
   

  	
  Covered
  by

  Section 3(d)

  Representation

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Party
  A and

  Party B

  	
   

  	
  Appropriate
  evidence of

  its signatory’s authority

  	
   

  	
  On
  signing of

  this Agreement

  	
   

  	
  Yes

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Party
  B

  	
   

  	
  Certified
  copy of

  board resolution

  	
   

  	
  On
  signing of

  this Agreement

  	
   

  	
  Yes

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Party
  A

  	
   

  	
  Legal
  opinion in form

  and substance satisfactory

  to Party B

  	
   

  	
  On
  signing of

  this Agreement

  	
   

  	
  No

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Party
  B

  	
   

  	
  Legal
  opinion

  from Allen &

  Overy

  	
   

  	
  On
  signing of

  this Agreement

  	
   

  	
  No

  

 

4

 

Part 4.               Miscellaneous

 

(a)                                  Addresses for Notices.  For the purpose of
Section 12(a) of this Agreement:

 

	
  Address
  for notices or communications to Party A:

  
	
   

  
	
  Address:

  	
   

  	
  Trinity
  Road

  
	
   

  	
   

  	
  Halifax

  
	
   

  	
   

  	
  West
  Yorkshire

  
	
   

  	
   

  	
  HX1
  2RG

  
	
   

  	
   

  	
   

  
	
  Attention:

  	
   

  	
  Mortgage
  Securitisation Manager

  
	
   

  	
   

  	
   

  
	
  Facsimile
  No.:

  	
   

  	
  01422
  391777

  
	
   

  	
   

  	
   

  
	
  With
  a copy to:

  	
   

  	
  HBOS
  Treasury Services plc

  
	
   

  	
   

  	
  33
  Old Broad Street

  
	
   

  	
   

  	
  London

  
	
   

  	
   

  	
  EC2N
  1HZ

  
	
   

  	
   

  	
   

  
	
  Attention:

  	
   

  	
  Head
  of Capital Markets and Securitisation

  
	
   

  	
   

  	
   

  
	
  Facsimile
  No.:

  	
   

  	
  020
  7574 8784

  
	
   

  	
   

  	
   

  
	
  Address
  for notices or communications to Party B:

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  Blackwell
  House

  
	
   

  	
   

  	
  Guildhall
  Yard

  
	
   

  	
   

  	
  London

  
	
   

  	
   

  	
  EC2V
  5AE

  
	
   

  	
   

  	
   

  
	
  Attention:

  	
   

  	
  The
  Secretary

  
	
   

  	
   

  	
   

  
	
  Facsimile
  No.:

  	
   

  	
  020
  7566 0975

  
	
   

  	
   

  	
   

  
	
  With
  a copy to:

  	
   

  	
  (i)
  HBOS Treasury Services plc:

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  33
  Old Broad Street

  
	
   

  	
   

  	
  London

  
	
   

  	
   

  	
  EC2N
  1HZ

  
	
   

  	
   

  	
   

  
	
  Attention:

  	
   

  	
  Head
  of Capital Markets and Securitisation

  
	
   

  	
   

  	
   

  
	
  Facsimile
  No.:

  	
   

  	
  020
  7574 8784

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (ii)
  the Security Trustee:

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  The
  Bank of New York

  
	
   

  	
   

  	
  One
  Canada Square

  
	
   

  	
   

  	
  London

  
	
   

  	
   

  	
  E14
  5AL

  
	
   

  	
   

  	
   

  
	
  Attention:

  	
   

  	
  Global Structured Finance - Corporate Trust

  

 

 

5

 

	
  Facsimile
  No.:

  	
   

  	
  020 7964 6061/6399

  

 

(b)                                 Process Agent. For the purpose of Section 13(c) of this Agreement:

 

Party A appoints as its Process
Agent:  None.

 

Party B appoints as its Process
Agent:  None.

 

(c)                                  Offices.  The provisions of
Section 10(a) will apply to this Agreement.

 

(d)                                 Multibranch Party.  For the purpose of
Section 10(c) of this Agreement:

 

Party A is not a Multibranch Party.

 

Party B is not a Multibranch Party.

 

(e)                                  Calculation Agent.  The Calculation Agent is
Party A.

 

(f)                                    Credit Support Document.  Details of any Credit
Support Document:

 

In respect of Party A:                              None.

 

In respect of Party B:                                None.

 

(g)                                 Credit Support Provider.  Credit Support Provider
means in relation to Party A, none.

 

Credit Support Provider means in relation
to Party B, none.

 

(h)                                 Governing Law.  This Agreement will be
governed by and construed in accordance with English law.

 

(i)                                     Netting of Payments.  Subparagraph (ii) of
Section 2(c) of this Agreement will apply to Transactions entered into
under this Agreement unless otherwise specified in a Confirmation.

 

(j)                                     “Affiliate”
will have the meaning specified in Section 14 of this Agreement.

 

6

 

Part 5.               Other Provisions

 

(a)                                  No Set-Off

 

(i)                                    All payments under this Agreement will be made without set-off or
counterclaim, except as expressly provided for in Section 6.

 

(ii)                                 Section 6(e) will be amended by the deletion of the following
sentence:

 

“The amount, if any, payable in respect of an Early
Termination Date and determined pursuant to this Section will be subject
to any Set-off.”

 

(b)                                 Security Interest

 

Notwithstanding
Section 7, Party A hereby agrees and consents to the assignment by
way of security by Party B of its interests under this Agreement (without
prejudice to, and after giving effect to, any contractual netting provision
contained in this Agreement) to the Security Trustee (or any successor thereto)
pursuant to and in accordance with the Funding 1 Deed of Charge and acknowledges
notice of such assignment.  Each of the
parties hereby confirms and agrees that the Security Trustee will not be liable
for any of the obligations of Party B hereunder.

 

(c)                                  Disapplication of Certain
Events of Default

 

Section 5(a)(ii),
Section 5(a)(iii), Section 5(a)(iv), Section 5(a)(v),
Section 5(a)(vii)(2), (5), (6), (7) and (9) and Section 5(a)(viii)
will not apply in respect of Party B.

 

Section 5(a)(vii)(8)
will not apply in respect of Party B to the extent that it applies to
Section 5(a)(vii) (2), (5), (6), (7) and (9).

 

(d)                                 Disapplication of Certain
Termination Events

 

The
“Tax Event” and “Tax Event Upon Merger” provisions of Section 5(b)(ii) and
5(b)(iii) will not apply to Party A or to Party B.

 

(e)                                  Additional Event of
Default

 

The
following will constitute an additional Event of Default with respect to
Party B:

 

An
Intercompany Loan Acceleration Notice is served on Party B (which will be
the Defaulting Party).

 

“Intercompany
Loan
Acceleration
Notice” will have the meaning ascribed to that term in the relevant
Intercompany Loan Agreement.

 

(f)                                    Ratings Event

 

(i)                                    In the event that the short-term, unsecured and unsubordinated debt
obligations of Party A (or its successor) or any Credit Support Provider from
time to time in respect of Party A cease to be rated at least as high as “A-1+”
by Standard & Poor’s Rating Services, a division of The McGraw-Hill
Companies, Inc. (“S&P”) and, as a result of such
cessation, the then current rating of the Issuer Notes is downgraded or placed
under review for possible downgrade by S&P (an “Initial S&P  Rating Event”),
then Party A will, within 30 days of the occurrence of such Initial S&P
Rating Event, at its own cost either:

 

7

 

 

(A)                               put in place an appropriate mark-to-market collateral agreement
(which may be based on the credit support documentation published by ISDA, or
otherwise, and relates to collateral in the form of cash or securities or both)
in support of its obligations under this Agreement provided that (x) Party A
will be deemed to have satisfied the requirements of S&P if the amount of
collateral agreed to be provided in the form of cash and/or securities (the “Collateral
Amount”)
is determined on a basis which satisfies (but is no more onerous than) the criteria
of S&P published on 17th December, 2003, which enables entities rated lower
than a specified level to participate in structured finance transactions which,
through collateralisation, are rated at a higher level  (the “S&P  Criteria”) and (y) the Collateral
Amount will not be required to exceed such amount as would be required (in
accordance with the S&P Criteria) to maintain or restore the rating of the
Issuer Notes at or to the level they would have been at immediately prior to
such Initial S&P Rating Event;

 

(B)                                 transfer all of its rights and obligations with respect to this
Agreement to a replacement third party satisfactory to the Security Trustee
(whose consent will be given if S&P confirms that such transfer would
maintain the ratings of the Issuer Notes by S&P at, or restore the rating
of the Issuer Notes by S&P to, the level it would have been at immediately
prior to such Initial S&P Rating Event);

 

(C)                                 obtain a guarantee of its rights and obligations with respect to
this Agreement from a third party satisfactory to the Security Trustee (whose
consent will be given if S&P confirms that such guarantee would maintain
the rating of the Issuer Notes at, or restore the rating of the Issuer Notes
to, the level it would have been at immediately prior to such Initial S&P
Rating Event); or

 

(D)                                take such other action as Party A may agree with S&P as will
result in the rating of the Issuer Notes following the taking of such action
being maintained at, or restored to, the level it would have been at immediately
prior to such Initial S&P Rating Event.

 

If any of paragraphs (i)(B), (i)(C) or
(i)(D) above are satisfied at any time, all collateral (or the equivalent
thereof, as appropriate) transferred by Party A pursuant to paragraph (i)(A)
will be transferred to Party A and Party A will not be required to transfer any
additional collateral.

 

(ii)                                  In the event that the short-term, unsecured and unsubordinated debt
obligations of Party A (or its successor) or any Credit Support Provider from
time to time in respect of Party A cease to be rated at least as high as “A-3”
by S&P and, as a result of such downgrade, the then current rating of the
Issuer Notes may in the reasonable opinion of S&P be downgraded or placed
under review for possible downgrade (such event, a “Subsequent S&P Rating Event”),
then Party A will, within 30 days of the occurrence of such Subsequent S&P
Rating Event, at its own cost either:

 

(A)                              transfer all of its rights and obligations with respect to this
Agreement to a replacement third party satisfactory to the Security Trustee
(whose consent will be given if S&P confirms that such transfer would
maintain the rating of the Issuer Notes by S&P at, or restore the rating of
the Issuer Notes by S&P to, the level it would have been at immediately prior
to such Subsequent S&P Rating Event);

 

(B)                                take such other action as Party A may agree with S&P as will
result in the rating of the Issuer Notes following the taking of such action
being maintained at, or restored to, the level it would have been at immediately
prior to such Subsequent S&P Rating Event; or

 

8

 

(C)                                obtain a guarantee of its rights and obligations with respect to
this Agreement from a third party satisfactory to the Security Trustee (whose consent
will be given if S&P confirms that such guarantee would maintain the rating
of the Issuer Notes at, or restore the rating of the Issuer Notes to, the level
it would have been at immediately prior to such Subsequent S&P Rating
Event),

 

and, if, at the time a
Subsequent S&P Rating Event occurs, Party A has provided collateral
pursuant to a mark-to-market collateral arrangement put in place pursuant to
paragraph (i)(A) above following an Initial S&P Rating Event, it will
continue to post collateral notwithstanding the occurrence of a Subsequent
S&P Rating Event until such time as any of paragraphs (ii)(A), (ii)(B) or
(ii)(C) above have been satisfied.

 

If any of paragraphs (ii)(A), (ii)(B) or (ii)(C) above
are satisfied at any time, all collateral (or the equivalent thereof, as
appropriate) transferred by Party A pursuant to paragraph (i)(A) above will be
transferred to Party A and Party A will not be required to transfer any
additional collateral.

 

(iii)                              In the event that:

 

(A)                               the long-term, unsecured and unsubordinated debt obligations of
Party A (or its successor) or any Credit Support Provider in respect of Party A
cease to be rated at least as high as “A1” (or its equivalent) by Moody’s; or

 

(B)                                 the short-term, unsecured and unsubordinated debt obligations of
Party A (or its successor) or any Credit Support Provider in respect of Party A
cease to be rated at least as high as “Prime-1” (or its equivalent) by Moody’s,

 

(such cessation being an “Initial
Moody’s Rating Event”), then Party A will, within 30 days of the
occurrence of such Initial Moody’s Rating Event, at its own cost either:

 

(1)                                  transfer all of its rights and obligations with respect to this
Agreement to either (x) a replacement third party with the Required Ratings (as
defined below) domiciled in the same legal jurisdiction as Party A or Party B,
or (y) a replacement third party as agreed with Moody’s;

 

(2)                                   procure another person to become co-obligor in respect of the
obligations of Party A under this Agreement, which co-obligor may be either (x)
a person with the Required Ratings (as defined below) domiciled in the same
legal jurisdiction as Party A or Party B, or (y) such other person as agreed
with Moody’s;

 

(3)                                  take
such other action as agreed with Moody’s; or

 

(4)                                   put in place a mark-to-market collateral agreement in a form and
substance acceptable to Moody’s (which may be based on the credit support
documentation published by ISDA, or otherwise, and relates to collateral in the
form of cash or securities or both) in support of its obligations under this
Agreement which complies with the Moody’s Criteria (as defined below) or such
other requirements as may be agreed with Moody’s.

 

If any of paragraphs (iii)(1), (iii)(2) or (iii)(3)
above are satisfied at any time, all collateral (or the equivalent thereof, as
appropriate) transferred by Party A pursuant to paragraph (iii)(4)

 

9

 

will be transferred to Party A and Party A will not be
required to transfer any additional collateral.

 

(iv)                             In the event that:

 

(A)                               the long-term, unsecured and unsubordinated debt obligations of
Party A (or its successor) or any Credit Support Provider in respect of Party A
cease to be rated as high as “Baa2” (or its equivalent) by Moody’s; or

 

(B)                                 the short-term, unsecured and unsubordinated debt obligations of
Party A (or its successor) or any Credit Support Provider in respect of Party A
cease to be rated as high as “Prime-2” (or its equivalent) by Moody’s,

 

(such cessation being a “Subsequent
Moody’s Rating Event”), then Party A will:

 

(1)                                  on a best efforts basis within 30 days of the occurrence of such
Subsequent Moody’s Rating Event, at its own cost, attempt either to:

 

(aa)                            transfer all of its rights and obligations with respect to this
Agreement to either (x) a replacement third party with the Required Ratings (as
defined below) domiciled in the same legal jurisdiction as Party A or Party B,
or (y) a replacement third party as agreed with Moody’s;

 

(bb)                          procure another person to become co-obligor in respect of the
obligations of Party A under this Agreement, which co-obligor may be either (x)
a person with the Required Ratings (as defined below) domiciled in the same
legal jurisdiction as Party A or Party B, or (y) such other person as agreed
with Moody’s; or

 

(cc)                            take such other action agreed with Moody’s; and

 

(2)                                  within the later of 10 days of the occurrence of such Subsequent
Moody’s Rating Event and 30 days of the occurrence of an Initial Moody’s Rating
Event, put in place, at its own cost, pending compliance with paragraph
(iv)(1)(aa), (iv)(1)(bb) or (iv)(1)(cc) above, a mark-to-market collateral
agreement in a form and substance acceptable to Moody’s (which may be based on
the credit support documentation published by ISDA, or otherwise, and relates
to collateral in the form of cash or securities or both) in support of its
obligations under this Agreement which complies with the Moody’s Criteria (as
defined below) or such other requirements as may be agreed with Moody’s, provided that, if, at the time a Subsequent
Moody’s Rating Event occurs, Party A is required to post collateral following
an Initial Moody’s Rating Event, it will continue to post collateral
notwithstanding the occurrence of a Subsequent Moody’s Rating Event.

 

If any of paragraphs (iv)(1)(aa), (bb) or (cc) are
satisfied at any time, all collateral (or the equivalent thereof, as
appropriate) transferred by Party A pursuant to paragraph (iv)(2) will be
transferred to Party A and Party A will not be required to transfer any
additional collateral.

 

For the
purposes of paragraphs (iii) and (iv) of this Part 5(f), “Required Ratings” means, in
respect of the relevant entity, its short-term, unsecured and unsubordinated
debt obligations are rated at least as high as “Prime-1” and its long-term,
unsecured and unsubordinated debt obligations are rated at least as high as
“A1”, or such other ratings as may be agreed with Moody’s from time to time.

 

10

 

“Moody’s
Criteria” means that the Collateral Amount will equal:

 

(a)                                  102 per cent. of the mark-to-market value of the outstanding
Transactions as determined by Party A in good faith on a weekly basis if the
long-term, unsecured and unsubordinated debt obligations of Party A (or its
successor) or any Credit Support Provider in respect of Party A are downgraded
below “A1”;

 

(b)                                 if the long-term, unsecured and unsubordinated debt obligations or
short-term, unsecured and unsubordinated debt obligations of Party A (or its
successor) or any Credit Support Provider in respect of Party A are downgraded
below “A2” or “Prime-1” by Moody’s, the sum of:

 

(i)                                     102 per cent. of the mark-to-market value of the outstanding
Transactions determined by Party A in good faith on a weekly basis; and

 

(ii)                                  the sum of:

 

(A)                              the aggregate of the amounts, determined in respect of each class
and series of Issuer Notes, equal to the Outstanding Principal Balance of that
class and series of Issuer Notes at the time of determination multiplied by the
weighted average life of that class and series of Issuer Notes, as at the date
of determination (expressed in days) divided by 365 (such aggregate, the “Buffer
Notional”) multiplied by the product of 0.2 per cent. and the Fixed
Rate Ratio; and

 

(B)                                the Buffer Notional multiplied by the product of 0.1 per cent. and
the sum of:

 

(aa)                            the
Variable Rate Ratio; and

 

(bb)                          the Tracker
Ratio; and

 

(c)                                  if the long-term, unsecured and unsubordinated debt obligations or
short-term, unsecured and unsubordinated debt obligations of Party A (or its
successor) or any Credit Support Provider in respect of Party A are downgraded
below “Baa2” or “Prime-2” by Moody’s, the sum of:

 

(i)                                     102 per cent. of the mark-to-market value of the outstanding
Transactions determined by Party A in good faith on a weekly basis; and

 

(ii)                                  the sum of:

 

(A)                              the Buffer Notional multiplied by the product of 0.4 per cent. and
the Fixed Rate Ratio; and

 

(B)                                the Buffer Notional multiplied by the product of 0.2 per cent. and
the sum of:

 

(aa)                            the
Variable Rate Ratio; and

 

(bb)                          the Tracker Ratio.

 

For the
purposes of determining the Buffer Notional, Party A will calculate the
weighted average life of each series and class of Issuer Notes using (1) such
assumptions as will reflect the then current expectations of Party A and/or be
based upon such circumstances as Party A may, in good faith, determine
applicable; and, notwithstanding for the avoidance of doubt (1) above, assuming
(2) that

 

11

 

the
relevant Issuer will not exercise its call option to redeem such Issuer Notes
in full on the Step-up Date, if any, in respect of such Issuer Notes.

 

In relation to paragraphs (ii)(4) and (iii)(2) above,
Party A will, upon receipt of reasonable notice from Moody’s demonstrate to
Moody’s the calculation by Party A of the mark-to-market value of the
outstanding Transactions. In relation to paragraph (iii)(2) above, Party A
will, at its own cost, on receipt of reasonable notice from Moody’s (which, for
the avoidance of doubt, will be no less than 30 days) arrange an audit of the
methodology used by Party A in the calculation of the mark-to-market value of
the outstanding Transactions.

 

(v)                                In the event that the short-term, unsecured and unsubordinated debt
obligations of Party A (or its successor) or any Credit Support Provider from
time to time in respect of Party A cease to be rated at least as high as “F1”
(or its equivalent) by Fitch Ratings Ltd (“Fitch”) and, as a result of such cessation,
the then current rating of the Issuer Notes is downgraded or placed under
review for possible downgrade by Fitch (an “Initial Fitch Rating Event”)
then Party A will, on a reasonable efforts basis within 30 days of the
occurrence of such Initial Fitch Rating Event, at its own cost, either:

 

(A)                              put in place an appropriate mark-to-market collateral agreement in a
form and substance acceptable to Fitch (which may be based on the credit
support documentation published by ISDA, or otherwise, and relates to
collateral in the form of cash or securities or both to be posted on a weekly basis)
in support of its obligations under this Agreement provided that (x) Party A will be deemed to have satisfied the
requirements of Fitch if the Collateral Amount is determined on a basis which
is no more onerous than the Fitch Criteria (as defined below), and (y) the
Collateral Amount will not be required to exceed such amount as would be
required (in accordance with the Fitch Criteria) to maintain or restore the
rating of the Issuer Notes at or to the level it would have been at immediately
prior to such Initial Fitch Rating Event;

 

(B)                                transfer all of its rights and obligations with respect to this
Agreement to a replacement third party satisfactory to the Security Trustee
(whose consent will be given if Fitch confirms that such transfer would maintain
the rating of the Issuer Notes by Fitch at, or restore the rating of the Issuer
Notes by Fitch to, the level it would have been at immediately prior to such
Initial Fitch Rating Event);

 

(C)                                obtain a guarantee of its rights and obligations with respect to
this Agreement from a third party satisfactory to the Security Trustee (whose
consent will be given if Fitch confirms that such guarantee would maintain the
rating of the Issuer Notes at, or restore the rating of the Issuer Notes to,
the level it would have been at immediately prior to such Initial Fitch Rating
Event); or

 

(D)                               take such other action as Party A may agree with Fitch as will
result in the rating of the Issuer Notes following the taking of such action
being maintained at, or restored to, the level it would have been at
immediately prior to such Initial Fitch Rating Event.

 

If any of paragraphs (v)(B), (v)(C) or
(v)(D) above are satisfied at any time, all collateral (or the equivalent
thereof, as appropriate) transferred by Party A pursuant to paragraph (v)(A)
above will be transferred to Party A and Party A will not be required to
transfer any additional collateral.

 

12

 

(vi)                             In the event that the short-term, unsecured and unsubordinated debt
obligations of Party A (or its successor) or any Credit Support Provider from
time to time in respect of Party A cease to be rated at least as high as “F2”
(or its equivalent) by Fitch and, as a result of such cessation, the then
current rating of the Issuer Notes is downgraded or placed under review for
possible downgrade by Fitch (a “Subsequent Fitch Rating Event”) then Party
A will:

 

(A)                              on a reasonable efforts basis within 30 days of the occurrence of
such Subsequent Fitch Rating Event, at its own cost, attempt either to:

 

(1)                                 transfer all of its rights and obligations with respect to this
Agreement to a replacement third party satisfactory to the Security Trustee
(whose consent will be given if Fitch confirms that such transfer would
maintain the rating of the Issuer Notes by Fitch at, or restore the rating of
the Issuer Notes by Fitch to, the level it would have been at immediately prior
to such Subsequent Fitch Rating Event);

 

(2)                                 obtain a guarantee of its rights and obligations with respect to
this Agreement from a third party satisfactory to the Security Trustee (whose
consent will be given if Fitch confirms that such guarantee would maintain the
rating of the Issuer Notes at, or restore the rating of the Issuer Notes to,
the level it would have been at immediately prior to such Subsequent Fitch
Rating Event); or

 

(3)                                 take such other action as Party A may agree with Fitch as will
result in the rating of the Issuer Notes following the taking of such action
being maintained at, or restored to, the level it would have been at
immediately prior to such Subsequent Fitch Rating Event; and

 

(B)                                within 10 days of the occurrence of such Subsequent Fitch Rating
Event, put in place, at its own cost, pending compliance with paragraph
(vi)(A)(1), (vi)(A)(2) or (vi)(A)(3) above, an appropriate mark-to-market
collateral agreement in a form and substance acceptable to Fitch (which may be
based on the credit support documentation published by ISDA, or otherwise, and
relates to collateral in the form of cash or securities or both to be posted on
a weekly basis) in support of its obligations under this Agreement provided that (x) Party A will be deemed to have
satisfied the requirements of Fitch if the Collateral Amount is determined on a
basis which is no more onerous than the Fitch Criteria (as defined below), and
(y) the Collateral Amount will not be required to exceed such amount as would
be required (in accordance with the Fitch Criteria) to maintain or restore the
rating of the Issuer Notes at or to the level it would have been at immediately
prior to such Subsequent Fitch Rating Event, and provided that, if, at the time a Subsequent Fitch Rating Event occurs,
Party A is required to post collateral following an Initial Fitch Rating Event,
it will continue to post collateral notwithstanding the occurrence of a
Subsequent Fitch Rating Event.

 

If any of paragraphs (vi)(A)(1), (2) or (3) above are
satisfied at any time, all collateral (or the equivalent thereof, as
appropriate) transferred by Party A pursuant to paragraph (vi)(B) above will be
transferred to Party A and Party A will not be required to transfer any
additional collateral.

 

“Fitch Criteria” means that the Collateral
Amount will equal the sum of:

 

(a)                                  100 per cent. of the mark-to-market
value of the outstanding Transactions as determined by Party A in good faith on
a weekly basis; and

 

13

 

(b)                                 the product of:

 

(i)                                     the aggregate of the amounts, determined in respect of each class
and series of Issuer Notes, equal to the
Outstanding Principal Balance of such class and series of Issuer Notes as at
the date of determination multiplied by the number of days remaining
from the date of the determination to the Expected Repayment Date (as defined
below) in respect of such class and series of Issuer Notes divided by 365, and

 

(ii)                                  0.1 per cent. multiplied by the Fixed
Rate Ratio.

 

“Expected
Repayment Date” means in respect of each class and series of Issuer
Notes the earlier of the Step Up Date of such class and series of Issuer Notes
and the Final Maturity Date of such class and series of Issuer Notes.

 

(vii)                          (A)                              If Party A does not take any of the measures described in paragraph
(i) above, such failure will not be or give rise to an Event of Default but
will constitute an Additional Termination Event with respect to Party A which
will be deemed to have occurred on the thirtieth day following the S&P
Rating Event with Party A as the sole Affected Party and all Transactions as
Affected Transactions.

 

(B)                                If, at the time a Subsequent S&P Rating Event occurs, Party A
has provided collateral pursuant to a
mark-to-market collateral arrangement put in place pursuant to paragraph (i)(A)
above and fails to continue to post collateral pending compliance with
any of paragraphs (ii)(A), (ii)(B) or (ii)(C) above, such failure will not be
or give rise to an Event of Default but will constitute an Additional
Termination Event with respect to Party A and will be deemed to have occurred
on the later of the tenth day following such Subsequent S&P Rating Event
and the thirtieth day following the Initial S&P Rating Event with Party A
as the sole Affected Party and all Transactions as Affected Transactions.  Further,
it will constitute an Additional Termination Event with respect to Party A if,
even if it is posting collateral as required by paragraph (ii) above and
notwithstanding Section 5(a)(ii), Party A does not take any of the
measures described in paragraphs (ii)(A), (ii)(B) or (ii)(C) above.  Such Additional Termination Event will be
deemed to have occurred on the thirtieth day following the Subsequent S&P
Rating Event with Party A as the sole Affected Party and all Transactions as
Affected Transactions.

 

(C)                                If Party A does not take any of the measures described in paragraph
(iii)(1), (2), (3) or (4) above, such failure will not be or give rise to an
Event of Default but will constitute an Additional Termination Event with
respect to Party A and will be deemed to have occurred on the thirtieth day
following the occurrence of such Initial Moody’s Rating Event with Party A as
the sole Affected Party and all Transactions as Affected Transactions.

 

(D)                               If Party A does not take the measures described in paragraph (iv)(2)
above, such failure will give rise to an Event of Default with respect to Party
A and will be deemed to have occurred on the tenth day following such
Subsequent Moody’s Rating Event with Party A as the Defaulting Party.  Further,
it will constitute an Additional Termination Event with respect to Party A if,
even after satisfying the requirements of paragraph (iv)(2) above, Party A has
failed, having applied best efforts, to either transfer as described in
paragraph (iv)(1)(aa), find a co-obligor as described in paragraph (iv)(1)(bb)
or take such other action as described in paragraph (iv)(1)(cc).  Such Additional Termination Event will be
deemed to have occurred on the thirtieth

 

14

 

day following such Subsequent Moody’s Rating Event  with
Party A as the sole Affected Party and all Transactions as Affected
Transactions.

 

(E)                                 If Party A does not take the measures described in paragraph (v)
above, such failure will not be or give rise to an Event of Default but will
constitute an Additional Termination Event with respect to Party A which will
be deemed to have occurred on the thirtieth day following the Initial Fitch
Rating Event with Party A as the sole Affected Party and all Transactions as
Affected Transactions.

 

(F)                                 If Party A does not take the measures described in paragraph (vi)(B)
above, such failure will give rise to an Event of Default with respect to Party
A and will be deemed to have occurred on the tenth day following such
Subsequent Fitch Rating Event with Party A as the Defaulting Party.  Further,
it will constitute an Additional Termination Event with respect to Party A if,
even after satisfying the requirements of paragraph (vi)(B) above, Party A has
failed, within 30 days following such Subsequent Fitch Rating Event, to either
transfer as described in paragraph (vi)(A)(1), find a co-obligor as
described in paragraph (vi)(A)(2) or take such other action as described in
paragraph (vi)(A)(3).  Such Additional Termination Event will be
deemed to have occurred on the thirtieth day following such Subsequent
Fitch Rating Event with Party A as the sole Affected Party and all Transactions
as Affected Transactions.

 

(G)                                In the event that Party B were to designate an Early Termination
Date and there would be a payment due to Party A, Party B may only designate
such an Early Termination Date in respect of an Additional Termination Event
under this Part 5(f) if Party B has found a replacement counterparty willing to
enter into a new transaction on terms that reflect as closely as reasonably
possible, as determined by Party B in its sole and absolute discretion, the
economic, legal and credit terms of the Terminated Transactions with Party A,
and Party B has obtained the prior written consent of the Security Trustee.

 

Each of
Party B and the Security Trustee will use their reasonable endeavours to co-operate
with Party A in putting in place such credit support documentation, including
agreeing to such arrangements in such documentation as may satisfy S&P,
Moody’s and/or Fitch, as applicable, with respect to the operation and
management of the collateral and entering into such documents as may reasonably
be requested by Party A in connection with the provision of such collateral.

 

(g)                                 Additional
Representation

 

Section 3
is amended by the addition at the end thereof of the following additional
representations (provided that the representation in Section 3(h) will be
made by Party A only):

 

“(g)                            No Agency.  It is entering into this
Agreement, including each Transaction, as principal and not as agent of any
person or entity.

 

(h)                                  Pari Passu.  Its obligations under this
Agreement rank pari passu with all of its other unsecured, unsubordinated
obligations except those obligations preferred by operation of law.”

 

15

 

(h)                                 Recording of
Conversations

 

Each
party to this Agreement acknowledges and agrees to the tape recording of
conversations between the parties to this Agreement whether by one or other or
both of the parties.

 

(i)                                     Relationship between the
Parties

 

The
Agreement is amended by the insertion after Section 14 of an additional
Section 15, reading in its entirety as follows:

 

“15.                           Relationship
between the Parties

 

Each
party will be deemed to represent to the other party on the date on which it
enters into a Transaction that (absent a written agreement between the parties
that expressly imposes affirmative obligations to the contrary for that
Transaction):

 

(a)                                  Non Reliance.  It is acting for its own
account, and it has made its own independent decisions to enter into that
Transaction and as to whether that Transaction is appropriate or proper for it
based upon advice from such advisers as it has deemed necessary.  It is not relying on any communication
(written or oral) of the other party as investment advice or as a
recommendation to enter into that Transaction, it being understood that
information and explanations related to the terms and conditions of a
Transaction will not be considered investment advice or a recommendation to
enter into that Transaction.  No communication
(written or oral) received from the other party will be deemed to be an
assurance or guarantee as to the expected results of that Transaction.

 

(b)                                 Assessment and
Understanding. 
It is capable of assessing the merits of and understanding (on its own
behalf or through independent professional advice), and understands and
accepts, the terms, conditions and risks of that Transaction.  It is also capable of assuming, and assumes,
the financial and other risks of that Transaction.

 

(c)                                  Status of Parties.  The other party is not
acting as a fiduciary for or an adviser for it in respect of that Transaction.”

 

(j)                                     Tax

 

The
Agreement is amended by deleting Section 2(d) in its entirety and
replacing it with the following:

 

“(d)         Deduction
or Withholding for Tax

 

(i)                                     Requirement to Withhold

 

All payments under this Agreement will be made without
any deduction or withholding for or on account of any Tax unless such deduction
or withholding is required (including, for the avoidance of doubt, if such
deduction or withholding is required in order for the payer to obtain relief
from Tax) by any applicable law, as modified by the practice of any relevant
governmental revenue authority, then in effect. If a party (“X”)
is so required to deduct or withhold, then that party (the “Deducting Party”):

 

(1)                                  will promptly notify the other party (“Y”) of such requirement;

 

(2)                                  will pay to the relevant authorities the full amount required to be
deducted or withheld (including the full amount required to be deducted or
withheld from any

 

16

 

Gross Up Amount (as defined below) paid by the
Deducting Party to Y under this Section 2(d)) promptly upon the earlier of
determining that such deduction or withholding is required or receiving notice
that such amount has been assessed against Y;

 

(3)                                  will promptly forward to Y an official receipt (or a certified
copy), or other documentation reasonably acceptable to Y, evidencing such
payment to such authorities; and

 

(4)                                  if X is Party A, X will promptly pay in addition to the payment to
which Party B is otherwise entitled under this Agreement, such additional
amount (the “Gross Up Amount”)
as is necessary to ensure that the net amount actually received by Party B will
equal the full amount which Party B would have received had no such deduction
or withholding been required.

 

(ii)                                  Liability

 

If:

 

(1)                                  X is required by any applicable law, as modified by the practice of
any relevant governmental revenue authority, to make any deduction or
withholding for or on account of any Tax; and

 

(2)                                  X does not so deduct or withhold; and

 

(3)                                  a liability resulting from such Tax is assessed directly against X,

 

then, except to the extent that Y has satisfied or
then satisfies the liability resulting from such Tax, (A) where X is Party B,
Party A will promptly pay to Party B the amount of such liability (the “Liability Amount”)
(including any related liability for interest and together with an amount equal
to the Tax payable by Party B on receipt of such amount but including any
related liability for penalties only if Party A has failed to comply with or
perform any agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d)) and
Party B will promptly pay to the relevant government revenue authority the
amount of such liability (including any related liability for interest and
penalties) and (B) where X is Party A and Party A would have been required to
pay a Gross Up Amount to Party B, Party A will promptly pay to the relevant
government revenue authority the amount of such liability (including any
related liability for interest and penalties).

 

(iii)                               Tax Credit etc.

 

Where Party A pays an amount in accordance with
Section 2(d)(i)(4) above, Party B undertakes as follows:

 

(1)                                  to the extent that Party B obtains any Tax credit, allowance,
set-off or repayment from the tax authorities of any jurisdiction relating to
any deduction or withholding giving rise to such payment, it will pay to Party
A as soon as practical after receipt of the same so much of the cash benefit
(as calculated below) relating thereto which it has received as will leave
Party B in substantially the same (but in any event no worse) position as Party
B would have been in if no such deduction or withholding had been required;

 

(2)                                  the “cash benefit” will, in the case of credit, allowance or set-off,
be the additional amount of Tax which would have been payable by Party B in the
jurisdiction referred

 

17

 

to in (1) above but for the obtaining by it of the
said Tax credit, allowance or set-off and, in the case of a repayment, will be
the amount of the repayment together, in either case, with any related interest
or similar payment obtained by Party B; and

 

(3)                                  it will use all reasonable endeavours to obtain any Tax credit,
allowance, set-off or repayment as soon as is reasonably practicable and it
will, upon request by Party A, supply Party A with a reasonably detailed
explanation of its calculation of the amount of any such Tax credit, allowance,
set-off or repayment and of the date on which the same is received.”

 

(k)                                  Security, Enforcement and
Limited Recourse

 

Party A
agrees with Party B and the Security Trustee to be bound by the terms of the
Funding 1 Deed of Charge and, in particular, confirms that: (A) no sum will be
payable by or on behalf of Party B to it except in accordance with the
provisions of the Funding 1 Deed of Charge; and (B) it will not take any steps
for the winding up, dissolution or reorganisation or for the appointment of a
receiver, administrator, administrative receiver, trustee, liquidator,
sequestrator or similar officer of Party B or of any or all of its revenues and
assets nor participate in any ex parte proceedings nor seek to enforce any
judgment against Party B, subject to the provisions of the Funding 1 Deed of
Charge.

 

In
relation to all sums due and payable by Party B to Party A, Party A agrees that
it will have recourse only to Funding 1 Revenue Receipts and Funding 1
Principal Receipts, but always subject to the order of priority of payments set
out in the Third Issuer Cash Management Agreement and the Third Issuer Deed of
Charge.

 

(l)                                     Condition Precedent

 

Section 2(a)(iii)
will be amended by the deletion of the words “a Potential Event of Default” in
respect of obligations of Party A only.

 

(m)                               Representations

 

Section 3(b)
will be amended by the deletion of the words “or Potential Event of Default” in
respect of the representation given by Party B only.

 

(n)                                 Additional Definitions

 

Words
and expressions defined in the Amended and Restated Master Definitions and
Construction Schedule (the “Master Schedule”) signed on or about the
date of this Agreement and any other Master Definitions and Construction
Schedule, each as amended, varied or supplemented from time to time (together
the “Master
Definitions Schedule”) will, except so far as the context otherwise
requires, have the same meaning in this Agreement.  The rules of interpretation set out in the Master Definitions
Schedule will apply to this Agreement.

 

(o)                                Modifications to close-out provisions

 

Upon the
occurrence of an Event of Default with respect to Party A or an Additional
Termination Event which entitles Party B to terminate any Affected Transaction
pursuant to Section 6(b) of the Agreement, Party B will be entitled (but
not obliged in the event that it does not designate an Early Termination Date)
to proceed in accordance with Section 6 of this Agreement, subject to the
following:

 

(i)                                     For the purposes of
Section 6(d)(i), Party B’s obligation with respect to the extent of

 

18

 

information to
be provided with its calculations is limited to information Party B has already
received in writing and provided Party B is able to release this information
without breaching the provisions of any law applicable to, or any contractual
restriction binding upon, Party B.

 

(ii)                                  The following amendments will
be deemed to be made to the definition of “Market Quotation”:

 

(A)                              the word “firm” will be added
before the word “quotations” in the second line; and

 

(B)                                the words “, provided that
such documentation would either be the same as this Agreement and the existing
confirmations hereto (and the long-term, unsecured and unsubordinated debt
obligations of the Reference Market-maker are rated not less than “A+” by
S&P and “A1” by Moody’s and the short-term, unsecured and unsubordinated
debt obligations of the Reference Market-maker are rated not less than
“Prime-1” by Moody’s and “F1” by Fitch (or, if such Reference Market-maker is
not rated by a Rating Agency, at such equivalent rating that is acceptable to
such Rating Agency)) or the Rating Agencies have confirmed in writing that such
proposed documentation will not adversely impact the ratings of the Notes” will
be added after “agree” in the sixteenth line; and

 

(C)                                the last sentence will be
deleted and replaced with the following:

 

“If, on the last date set for delivery of
quotations, exactly two quotations are provided, the Market Quotation will be
either (a) the lower of the two quotations where there would be a sum payable
by Party A to Party B, or (b) the higher of the two quotations where there
would be a sum payable by Party B to Party A. 
If only one quotation is provided on such date, Party B may, in its
discretion, accept such quotation as the Market Quotation and, if Party B does
not accept such quotation (or if no quotation has been provided), it will be
deemed that the Market Quotation in respect of the Terminated Transaction
cannot be determined.  If no quotation
has been provided, it will be deemed that the Market Quotation in respect of
the Terminated Transaction cannot be determined.”

 

(iii)                               For the purpose of the
definition of “Market Quotation”, and without limitation of the general rights
of Party B under the Agreement:

 

(A)                              Party B will undertake to use its reasonable efforts to obtain at
least three firm quotations as soon as reasonably practicable after the Early
Termination Date and in any event within the time period specified pursuant to
Part 5(o)(iii)(C) below;

 

(B)                                Party A will, for the purposes of Section 6(e), be permitted to
obtain on behalf of Party B quotations from Reference Market-makers;

 

(C)                                If no quotations have been obtained within 6 Local Business Days
after the occurrence of the Early Termination Date or such longer period as
Party B may specify in writing to Party A, then it will be deemed that the
Market Quotation in respect of the Terminated Transaction cannot be determined;

 

(D)                               Party B will be deemed to have discharged its obligations under Part
5(o)(iii)(A) above if it promptly requests, in writing, Party A (such request
to be made within two Local Business Days after the occurrence of the Early
Termination Date) to obtain on behalf of Party B quotations from Reference
Market-makers.  Party A agrees to act in
accordance with such request; and

 

19

 

(E)                                 Party B will not be obliged to consult with Party A as to the day
and time of obtaining any quotations.

 

(p)                                 Transfer Policy

 

Subject
to the constraints otherwise provided by Section 7 of this Agreement, but
without prejudice to Section 6(b)(ii) as amended in this Schedule, Party A
may transfer all (but not part only) of its interests and obligations in and
under this Agreement to another entity (a “Transferee”) with the prior written consent
of the Note Trustee, provided that:

 

(i)                                     the Transferee’s short-term, unsecured
and unsubordinated debt obligations are then rated not less than “A-1+” by
S&P, “Prime-1” by Moody’s and “F1” by Fitch and its long-term, unsecured
and unsubordinated debt obligations are then rated not less than “A+” by
S&P, “A1” by Moody’s and “A+” by Fitch (or its equivalent by any substitute
rating agency) or such Transferee’s obligations under this Agreement are
guaranteed by an entity whose short-term, unsecured and unsubordinated debt
obligations are then rated not less than 
“A-1+” by S&P, “Prime-1” by Moody’s and “F1” by Fitch and whose
long-term, unsecured and unsubordinated debt obligations are then rated not
less “AA-” by S&P, “A1” by Moody’s and “A+” by Fitch (or its equivalent by
any substitute rating agency);

 

(ii)                                  the Ratings Agencies have confirmed that the transfer will not
result in the then current rating of the Issuer Notes being downgraded;

 

(iii)                               the Transferee will not, as a result of such transfer, be required
on the next succeeding Scheduled Payment Date to withhold or deduct on account
of any Tax (except in respect of default interest) amounts in excess of that
which Party A would, on the next succeeding Scheduled Payment Date have been
required to so withhold or deduct unless the Transferee would be required to
make additional payments pursuant to Section 2(d)(i)(4) corresponding to
such excess;

 

(iv)                              a Termination Event or Event of Default does not occur as a result
of such transfer;

 

(v)                                 no additional amount will be payable by Party B to Party A or the
Transferee on the next succeeding Scheduled Payment Date as a result of such
transfer; and

 

(vi)                              the Transferee confirms in writing that it will accept all of the
interests and obligations in and under this Agreement which are to be
transferred to it in accordance with the terms of this provision.

 

With
respect to paragraph (iii) above, each party agrees to make such Payee Tax
Representations and Payer Tax Representations as may reasonably be requested by
the other party in order to reasonably satisfy such other party that such
withholding or deduction will not occur.

 

Following the transfer, all references to Party
A will be deemed to be references to the Transferee.

 

20

 

Funding 1 Swap
Confirmation

 

	
  From:

  	
   

  	
  Halifax
  plc

  
	
   

  	
   

  	
  Trinity
  Road

  
	
   

  	
   

  	
  Halifax

  
	
   

  	
   

  	
  West
  Yorkshire

  
	
   

  	
   

  	
  HX1
  2RG

  
	
   

  	
   

  	
   

  
	
  To:

  	
   

  	
  Permanent
  Funding (No. 1) Limited

  
	
   

  	
   

  	
  Blackwell
  House

  
	
   

  	
   

  	
  Guildhall
  Yard

  
	
   

  	
   

  	
  London

  
	
   

  	
   

  	
  EC2V
  5AE

  
	
   

  	
   

  	
   

  
	
  Attention:

  	
   

  	
  The
  Secretary

  
	
   

  	
   

  	
   

  
	
  To:

  	
   

  	
  The
  Bank of New York

  
	
   

  	
   

  	
  One
  Canada Square

  
	
   

  	
   

  	
  London

  
	
   

  	
   

  	
  E14
  5AL

  
	
   

  	
   

  	
   

  
	
  Attention:

  	
   

  	
  Global Structured Finance - Corporate Trust

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  25th
  November, 2003

  

 

 

Dear
Sirs,

 

Confirmation - Funding 1
Swap

 

This
confirmation hereby amends and replaces the confirmation entered into between
us, you and the Security Trustee on 14th June, 2002, as amended and restated on
6th March, 2003 (the Previous Confirmation).

 

This
confirmation constitutes a “Confirmation” as referred to in the 1992 ISDA
Master Agreement (Multicurrency-Cross Border) dated as of 14th June, 2002 as
amended and restated by us, you and the Security Trustee on 6th March, 2003 and
the date hereof and as amended and supplemented from time to time (the Agreement).  As of the date hereof, all rights and obligations
of the parties to the Previous Confirmation shall cease to exist and shall be
replaced in their entirety by the rights and obligations arising pursuant to
this Confirmation.

 

The
purpose of this letter (the Confirmation) is to confirm the terms and conditions
of the Swap Transaction entered into between us on the Trade Date specified
below.

 

The
definitions and provisions contained in the 2000 ISDA Definitions as published
by the International Swaps and Derivatives Association, Inc. (the Definitions)
are incorporated into this Confirmation.

 

In the
event of any inconsistency between any of the following, the first listed shall
govern: (i) this Confirmation; (ii) the Master Definitions Schedule; and (iii)
the Definitions.

 

21

 

The
following expressions shall, for the purpose of this Confirmation, have the
following meanings:

 

Average Fixed Rate Loan
Balance means, in respect of a Calculation
Period, the average daily aggregate Outstanding Principal Balance of the Fixed
Rate Loans during the relevant Calculation Period as notified by the Cash
Manager in accordance with the Cash Management Agreement.

 

Average Loan Balance means, in respect of a Calculation Period, the sum of the Average
Fixed Rate Loan Balance, the Average Variable Rate Loan Balance and the Average
Tracker Rate Loan Balance.

 

Average Tracker Rate Loan
Balance means, in respect of a Calculation
Period, the average daily aggregate Outstanding Principal Balance of the
Tracker Rate Loans during the relevant Calculation Period as notified by the
Cash Manager in accordance with the provisions of the Cash Management
Agreement.

 

Average Variable Rate Loan
Balance means, in respect of a Calculation
Period, the average daily aggregate Outstanding Principal Balance of the
Variable Rate Loans during the relevant Calculation Period as notified by the
Cash Manager in accordance with the provisions of the Cash Management
Agreement.

 

Blended Rate means, in respect of a Calculation Period, a rate of interest equal
to the sum of (i) the Weighted Average Fixed Rate for such Calculation Period
multiplied by the Fixed Rate Ratio for such Calculation Period; (ii) the
Variable Rate Swap SVR for such Calculation Period multiplied by the Variable
Rate Ratio for such Calculation Period and (iii) the Tracker Swap Rate for such
Calculation Period multiplied by the Tracker Ratio for such Calculation Period.

 

Blended Spread means, in respect of a Calculation Period, a percentage equal to the
sum of (i) the Fixed Rate Spread multiplied by the Fixed Rate Ratio for such
Calculation Period; (ii) the Variable Rate Spread multiplied by the Variable
Rate Ratio for such Calculation Period and (iii) the Tracker Spread multiplied
by the Tracker Ratio for such Calculation Period.

 

Calculation Date means the first day (or if not a London Business Day, the next
succeeding London Business Day) of each month and any other day on which
Funding 1 acquires a further interest in the Trust Property from and including
the Calculation Date immediately preceding the Effective Date.

 

Calculation Period means, each period from and including the Closing Date to but
excluding the first Calculation Date and thereafter the period from and
including one Calculation Date to but excluding the next following Calculation
Date.

 

Calculation Period Funding
1 Amount means, in respect of  a Calculation
Period, an amount in Sterling equal to the amount produced by applying the
Blended Rate for such Calculation Period to the Notional Amount, such amount to
be calculated by the Calculation Agent on the basis of the actual number of
days in such Calculation Period, divided by 365.

 

Calculation Period Swap
Provider Amount means, in respect of  a Calculation
Period, an amount in Sterling which is equal to the amount produced by applying
a rate equal to the Three Month LIBOR prevailing on the first day of such
Calculation Period plus the Blended Spread to the Notional Amount for such
Calculation Period, such amount to be calculated by the Calculation Agent on
the basis of the actual number of days in such Calculation Period, divided by
365.

 

First Issuer means Permanent Financing (No. 1) PLC.

 

Fixed Rate Ratio means, in respect of a Calculation Period, the Average Fixed Rate
Loan Balance divided by the Average Loan Balance.

 

22

 

Fixed Rate Spread means 0.34 per cent. per annum.

 

Funding 1 Amount means, in respect of an Interest Period, an amount equal to the sum
of each of the Calculation Period Funding 1 Amounts calculated in respect of
the Calculation Periods which end on a date falling within such Interest
Period.

 

Intercompany Loans means, the First Issuer Intercompany Loan entered into between
Funding 1, the First Issuer and the Security Trustee, the Second Issuer
Intercompany Loan entered into between Funding 1, the Second Issuer, and the
Security Trustee and any New Intercompany Loan.

 

Interest Payment Date means each Funding 1 Interest Payment Date.

 

Interest Period means the period from (and including) the Second Issuer Closing Date
to (but excluding) the Interest Payment Date falling in June 2003 and
thereafter from (and including) one Interest Payment Date to (but excluding)
the next succeeding Interest Payment Date.

 

Notional Amount means in respect of a Calculation Period, an amount in Sterling
equal to:

 

(a)                        the Outstanding Principal Balance of the Intercompany Loans on the
first day of the relevant Calculation Period, less

 

(b)                       the balance of the Principal Deficiency Ledger attributable to the
Intercompany Loans on the first day of the relevant Calculation Period, less

 

(c)                        the amount of the Principal Receipts in the Funding 1 GIC Account
attributable to the Intercompany Loans on the first day of the relevant
Calculation Period.

 

The
Notional Amount shall be determined on the first day of the relevant
Calculation Period after any changes made on such date to the Outstanding
Principal Balance of the Intercompany Loans, the balance of the Principal
Deficiency Ledger attributable to the Intercompany Loans and the amount of Principal
Receipts in the Funding 1 GIC Account have become effective.

 

Reference Lenders means Abbey National plc, HSBC Bank plc, Lloyds TSB plc, Nationwide
Building Society, National Westminster Bank Plc, Northern Rock plc and Woolwich
plc (or their respective successors) and such additional or replacement
residential mortgage lenders as shall be determined by the Calculation Agent
and Reference
Lender means any one of them.

 

Second Issuer means Permanent Financing (No. 2) PLC.

 

Swap Provider Amount means, in respect of an Interest Period, an amount equal to the sum
of each of the Calculation Period Swap Provider Amounts calculated in respect
of the Calculation Periods which end on a date falling within such Interest
Period.

 

Three Month LIBOR means the weighted average of the rates of interest (excluding
spreads) applicable to any outstanding Intercompany Loan.

 

Tracker Ratio means, in respect of a Calculation Period, the Average Tracker Rate
Loan Balance divided by the Average Loan Balance.

 

Tracker Spread means -0.07 per cent. per annum.

 

23

 

Tracker Swap Rate means, in respect of a Calculation Period, a rate of interest,
linked to the Bank of England repo rate, as determined by the Cash Manager in
accordance with the provisions of the Cash Management Agreement.

 

Variable Rate Ratio means, in respect of a Calculation Period, the Average Variable
Rate Loan Balance divided by the Average Loan Balance.

 

Variable Rate Spread means 1.90 per cent. per annum.

 

Variable Rate Swap SVR means, in respect of a Calculation Period, the rate of interest
equal to the average of the standard variable rate or its equivalent charged to
existing borrowers on residential mortgage loans as published from time to time
after excluding the highest and lowest rate, of the Reference Lenders, as
determined by the Cash Manager in good faith and notified to the Calculation
Agent from time to time in accordance with the Cash Management Agreement.

 

Weighted Average Fixed
Rate means, in respect of a Calculation
Period, the weighted average (by Outstanding Principal Balance) of the fixed
rates of interest charged to borrowers of Fixed Rate Loans during the relevant
Calculation Period as notified by the Cash Manager in accordance with the
provisions of the Cash Management Agreement.

 

1.                                       This Confirmation supplements, forms part of, and is subject to, the
Agreement. All provisions contained in the Agreement govern this Confirmation
except as expressly modified below.

 

2.                                       The terms of the Transaction to which this Confirmation relates are
as follows:

 

	
  Party A:

  	
   

  	
  Halifax
  plc

  
	
   

  	
   

  	
   

  
	
  Party B:

  	
   

  	
  Permanent
  Funding (No. 1) Limited

  
	
   

  	
   

  	
   

  
	
  Trade Date:

  	
   

  	
  14th
  June, 2002

  
	
   

  	
   

  	
   

  
	
  Termination Date:

  	
   

  	
  The
  date on which the amount outstanding under the Intercompany Loans is reduced
  to zero.

  
	
   

  	
   

  	
   

  
	
  Effective Date:

  	
   

  	
  14th
  June, 2002

  
	
   

  	
   

  	
   

  
	
  Business Day centres

  for all Payments:

  	
   

  	
  London

  
	
   

  	
   

  	
   

  
	
  Calculation of

  	
   

  	
   

  
	
  Amounts:

  	
   

  	
  On
  each Interest Payment Date, the Calculation Agent shall calculate the Swap
  Provider Amount and the Funding 1 Amount for the then current Interest
  Period, and forthwith notify Party A, Party B and the Cash Manager of the
  amounts so determined and of the net amount determined as set out below.

  
	
   

  	
   

  	
   

  
	
  Payments:

  	
   

  	
  If in
  relation to any Interest Payment Date:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (i)

  	
  the
  Swap Provider Amount for the relevant Interest Period exceeds the Funding 1
  Amount for the relevant Interest Period, Party A shall pay the amount of such
  excess to Party B on such Interest Payment Date;

  

 

24

 

	
   

  	
   

  	
  (ii)

  	
  the
  Funding 1 Amount for the relevant Interest Period exceeds the Swap Provider
  Amount for the relevant Interest Period, Party B shall pay the amount of such
  excess to Party A on such Interest Payment Date;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (iii)

  	
  the
  Swap Provider Amount for the relevant Interest Period is equal to the Funding
  1 Amount for the relevant Interest Period, no amount shall be due and payable
  by either party hereunder in relation to such Interest Payment Date.

  
	
   

  	
   

  	
   

  	
   

  
	
  Calculation Agent:

  	
   

  	
   

  	
  Halifax
  plc acting in its capacity of Servicer pursuant to the Servicing Agreement or
  of Cash Manager pursuant to the Cash Management Agreement, as the case may
  be.

  

 

3.                                       Miscellaneous:

 

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

 

4.                                       Account
Details:

 

	
  Payments
  to Party A:

  	
   

  	
  Bank:

  	
   

  	
  Halifax
  plc

  
	
   

  	
   

  	
   

  	
   

  	
  Domestic
  Banking

  
	
   

  	
   

  	
   

  	
   

  	
  Trinity
  Road

  
	
   

  	
   

  	
   

  	
   

  	
  Halifax

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Sort
  Code:

  	
   

  	
  11-99-06

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Account
  Number:

  	
   

  	
  00000000

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Account
  Name:

  	
   

  	
  Halifax
  CHAPS Funding

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Beneficiary
  Name:

  	
   

  	
  Securitisation
  E/04101-06

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Payments
  to Party B:

  	
   

  	
  Bank:

  	
   

  	
  The
  Governor and Company of the Bank of Scotland

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Account
  Number:

  	
   

  	
  00998318

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Sort
  Code:

  	
   

  	
  12-24-55

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Account
  Name:

  	
   

  	
  Permanent
  Funding (No. 1) Ltd - Transaction Account

  

 

5.                                       Notice
Details:

 

	
  Party
  A:

  	
   

  	
  Halifax
  plc

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  Trinity
  House

  
	
   

  	
   

  	
  Halifax

  
	
   

  	
   

  	
  West
  Yorkshire HX1 2RG

  

 

25

 

	
  Facsimile
  Number:

  	
   

  	
  +44 (0) 1422 391777

  
	
   

  	
   

  	
   

  
	
  Attention:

  	
   

  	
  Head
  of Mortgage Securitisation

  
	
   

  	
   

  	
   

  
	
  with a copy to:-

  	
   

  	
  HBOS Treasury Services plc,

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  33 Old Broad Street

  
	
   

  	
   

  	
  London

  
	
   

  	
   

  	
  EC2N 1HZ

  
	
   

  	
   

  	
   

  
	
  Facsimile Number:

  	
   

  	
  020 7574 8784

  
	
   

  	
   

  	
   

  
	
  Attention:

  	
   

  	
  Head of Capital Markets and Securitisation

  
	
   

  	
   

  	
   

  
	
  Party
  B:

  	
   

  	
  Permanent
  Funding (No. 1) Limited

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  Blackwell
  House

  
	
   

  	
   

  	
  Guildhall
  Yard

  
	
   

  	
   

  	
  London

  
	
   

  	
   

  	
  EC2V
  5AE

  
	
   

  	
   

  	
   

  
	
  Facsimile
  Number:

  	
   

  	
  020
  7566 0975

  
	
   

  	
   

  	
   

  
	
  Attention:

  	
   

  	
  The
  Secretary

  
	
   

  	
   

  	
   

  
	
  With
  a copy to:-

  	
   

  	
  (i)
  HBOS Treasury Services plc

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  33 Old Broad Street

  
	
   

  	
   

  	
  London

  
	
   

  	
   

  	
  EC2N 1HZ

  
	
   

  	
   

  	
   

  
	
  Facsimile Number:

  	
   

  	
  020 7574 8784

  
	
   

  	
   

  	
   

  
	
  Attention:

  	
   

  	
  Head of Capital Markets and Securitisation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (ii)
  the Security Trustee:

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
  The
  Bank of New York

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  One
  Canada Square

  
	
   

  	
   

  	
  London

  
	
   

  	
   

  	
  E14
  5AL

  
	
   

  	
   

  	
   

  
	
  Facsimile
  Number:

  	
   

  	
  020 7964 6061/6399

  
	
   

  	
   

  	
   

  
	
  Attention:

  	
   

  	
  Global Structured Finance - Corporate Trust

  

 

26

 

	
  Yours
  faithfully,

  
	
   

  
	
  HALIFAX PLC

  
	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  
	
  Title:

  
	
   

  
	
   

  
	
  Confirmed
  as of the date first written:

  
	
   

  
	
  PERMANENT FUNDING (NO.
  1) LIMITED

  
	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  
	
  Title:

  
	
   

  
	
  THE BANK OF NEW YORK

  
	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  
	
  Title:

  

 

27Exhibit 10.5.1

 

EXECUTION COPY

 

AMENDED AND RESTATED MASTER DEFINITIONS AND

CONSTRUCTION SCHEDULE

 

 

DATED 12th March, 2004

 

PERMANENT FUNDING (NO. 1) LIMITED

 

PERMANENT MORTGAGES TRUSTEE LIMITED

 

 

 

 

London

ICM:744616.6

 

1

 

CONTENTS

 

Clause

 

	
  1.

  	
  Definitions

  	
   

  
	
  2.

  	
  Interpretation
  and Construction

  	
   

  
	
  3.

  	
  Amendments

  	
   

  
	
  4.

  	
  Governing Law

  	
   

  
	
   

  	
   

  	
   

  
	
  Signatories

  	
   

  

 

 

1.                                      DEFINITIONS

 

In any
agreement, instrument or deed expressly and specifically incorporating by
reference this Master Definitions and Construction Schedule, the undersigned
hereby agree that the following words and expressions shall, unless otherwise
defined therein or unless the context otherwise requires, have the following
meanings:

 

A Principal Deficiency Sub-Ledger means one of four sub-ledgers
of the Principal Deficiency Ledger corresponding to the Term A Advances which
will be established and maintained pursuant to Clause 4.3(b) of the Cash
Management Agreement;

 

AA Principal Deficiency Sub-Ledger means one of four sub-ledgers
of the Principal Deficiency Ledger corresponding to the Term AA Advances which
will be established and maintained pursuant to Clause 4.3(b) of the Cash
Management Agreement;

 

AAA Principal Deficiency Sub-Ledger means one of four sub-ledgers
of the Principal Deficiency Ledger corresponding to the Term AAA Advances,
which will be established and maintained pursuant to Clause 4.3(b) of the Cash
Management Agreement;

 

Accession Undertaking means a form of deed of accession to the
Funding 1 Deed of Charge substantially in the form set out in Schedule 2 to the
Funding 1 Deed of Charge;

 

Account Bank means the bank at which the Mortgages Trustee GIC
Account, the Funding 1 GIC Account, and the Funding 1 Transaction Account are
maintained from time to time, being as at the Closing Date, The Governor and
Company of the Bank of Scotland situated at 116 Wellington Street, Leeds LS1
4LT and thereafter such other Authorised Entity as Funding 1 may choose with
the prior written approval of the Security Trustee or as the Mortgages Trustee
may choose with the prior written consent of the Beneficiaries;

 

Accrued Interest means as at any date (the determination
date) on or after the date hereof and in relation to any Loan,
interest on such Loan (not being interest which is currently payable on the
determination date) which has accrued from and including the Monthly Payment
Day immediately prior to the determination date to and including the
determination date;

 

Act means the Data Protection Act
1998;

 

Additional Funding 1 Liquidity Facility Provider has the meaning given in Clause
10.6(a) of the Funding 1 Deed of Charge;

 

Additional Funding 1 Security means the security created under or
pursuant to the Second Supplemental Funding 1 Deed of Charge;

 

Adjusted Reserve Fund Level means the sum of:

 

(a)                                  the amount standing to the
credit of the General Reserve Fund; and

 

(b)                                 the amount (if any) then
outstanding in respect of item (b) of the relevant Funding 1 Pre-Enforcement
Principal Priority of Payments;

 

Advance means the aggregate of the amount advanced by the
First Start-up Loan Provider to Funding 1 on the Initial Closing Date pursuant
to the First Start-up Loan Agreement, the amount advanced by the Second
Start-up Loan Provider to Funding 1 on the Second Issuer

 

1

 

Closing Date pursuant to the Second
Start-up Loan Agreement, the amount advanced by the Third Start-up Loan
Provider to Funding 1 on the Third Issuer Closing Date, the amount advanced by
the Fourth Start-up Loan Provider to Funding 1 on the Fourth Issuer Closing
Date and the amount advanced by the Start-up Loan Provider or any New Start-up
Loan Provider on the New Issuer Closing Date pursuant to any New Start-up Loan
Agreement, or such part of such amount as shall be outstanding from time to
time;

 

Amended and Restated Master Definitions and Construction
Schedule,
Master
Definitions Schedule and Master Definitions and Construction Schedule means
this schedule as amended and restated from time to time;

 

Alternative Insurance Recommendations means the recommendations
contained in the Offer Conditions provided by the Seller to Borrowers who elect
to arrange independent buildings insurance for their Properties;

 

Annualised CPR means the result of:

 

 

where “M” is expressed as a percentage and
determined as at the most recent Normal Calculation Date as indicated in the
definition of Anticipated Cash Accumulation Period;

 

Anticipated Cash Accumulation Period means on any Normal
Calculation Date, the anticipated number of months required to accumulate
sufficient Principal Receipts to pay the Relevant Accumulation Amount in
relation to the relevant Cash Accumulation Advance, which will be equal to:

 

 

calculated in months and rounded up to the
nearest whole number, where:

 

J =           the
Relevant Accumulation Amount;

 

K =          the
aggregate principal amount outstanding on that Normal Calculation Date of:

 

(a)                                  each Bullet Term Advance and
Scheduled Amortisation Term Advance that was not fully repaid on its relevant
Scheduled Repayment Date; and

 

(b)                                 each other Bullet Term Advance
and Scheduled Amortisation Instalment, the Scheduled Repayment Date of which
falls on or before the Scheduled Repayment Date of the relevant Bullet Term
Advance or Scheduled Amortisation Instalment;

 

L =                               the amount of any available
cash already standing to the credit of the Cash Accumulation Ledger at the
start of that Normal Calculation Date plus the aggregate amount of Cash
Accumulation Requirement paid to Funding 1 since the previous Funding 1
Interest Payment Date;

 

M =                          means:

 

(a)                                  on any date prior to or
including the 12th Normal Calculation Date to occur following the Initial
Closing Date, the sum of each Monthly CPR on the

 

2

 

Normal Calculation Dates which have
occurred since the Initial Closing Date divided by the number of those
Calculation Dates; and

 

(b)                                 on any subsequent date, the
sum of each Monthly CPR on the 12 most recent Normal Calculation Dates which
have occurred prior to that date divided by 12;

 

N =          0.85;
and

 

O =                             the aggregate Outstanding
Principal Balance of the Loans comprising the Trust Property on the previous
Normal Calculation Date (or, if none, the Initial Closing Date);

 

in Arrears or in  arrears means, in respect of a Mortgage
Account, that one or more Monthly Payments in respect of such Mortgage Account
have become due and unpaid by a Borrower;

 

Arrears of Interest means, in respect of a Loan on a given
date, interest, principal (if applicable) and expenses which are due and
payable on that date;

 

Asset Trigger Event means the event that occurs when there is
an amount being debited to the AAA Principal Deficiency Sub-Ledger;

 

Assignment of Halifax Mortgage Re Limited MIG Policies means an assignment of the
Halifax Mortgage Re Limited MIG Policies substantially in the form set out in
Schedule 8 to the Mortgage Sale Agreement;

 

Assignment of Third Party Rights means an assignment of
Related Security and rights of action against third parties substantially in
the form set out in Schedule 7 to the Mortgage Sale Agreement;

 

Auditors means KPMG Audit Plc of 1 Canada Square, Canary
Wharf, London E14 5AG or such other internationally independent firm of
auditors selected from time to time by, (in the case of the Mortgages Trustee),
the Mortgages Trustee and the Security Trustee, or (in the case of Funding 1),
Funding 1 and the Security Trustee;

 

Authorised Entity means (a) any entity the short term
unsecured, unsubordinated and unguaranteed debt of which is rated at least A-1+
by S&P, P-1 by Moody’s, and F1+ by Fitch or (b) any other entity approved
in writing by the Security Trustee and the Rating Agencies, in each case being
an institution authorised to carry on banking business (including accepting
deposits) under the Financial Services and Markets Act 2000;

 

Authorised Investments means:

 

(a)                                  Sterling gilt-edged
securities; and

 

(b)                                 Sterling demand or time
deposits, certificates of deposit and short-term debt obligations (including
commercial paper) provided that in all cases such investments have a maturity
date of 90 days or less and mature on or before the next following Funding 1
Interest Payment Date and the short-term unsecured, unguaranteed and
unsubordinated debt obligations of the issuing or guaranteeing entity or the
entity with which the demand or time deposits are made (being an authorised
person under the Financial Services and Markets Act 2000) are rated at least
A-1+ by Standard & Poor’s, P-1 by Moody’s and F1+ by Fitch or their
equivalents by three other internationally recognised rating agencies;

 

3

 

Authorised Signatory means any authorised signatory referred to
in, as applicable, the Funding 1 Transaction Account Mandate, the Funding 1 GIC
Account Mandate and the Mortgages Trustee GIC Account Mandate;

 

Average Fixed Rate Loan Balance has the meaning given in the
Funding 1 Swap Agreement;

 

Average Tracker Rate Loan Balance has the meaning given in the
Funding 1 Swap Agreement;

 

Average Variable Rate Loan Balance has the meaning given in the
Funding 1 Swap Agreement;

 

BACS means the Bankers’ Automated Clearing Service as
amended from time to time or any scheme replacing the same;

 

Bank Account Agreement means the agreement entered into on the
Initial Closing Date between the Account Bank, the Mortgages Trustee, Funding
1, the Cash Manager and the Security Trustee which governs the operation of the
Bank Accounts (excluding the Funding 1 Liquidity Stand-by Account) (as the same
may be amended and/or supplemented from time to time);

 

Bank Accounts means the Mortgages Trustee GIC Account,
the Funding 1 GIC Account, the Funding 1 Transaction Account, the Funding 1
Liquidity Facility Stand-by Account and any additional or replacement bank
accounts opened in the name of either the Mortgages Trustee and/or Funding 1 from
time to time with the prior written consent of the Security Trustee and the
Rating Agencies;

 

BBB Principal Deficiency Sub-Ledger means one of four sub-ledgers
of the Principal Deficiency Ledger corresponding to the Term BBB Advances which
will be established and maintained pursuant to Clause 4.3(b) of the Cash
Management Agreement;

 

Beneficiaries means both Funding 1 and the Seller together, as
beneficiaries of the Mortgages Trust, and shall include any other beneficiary
of the Mortgages Trust from time to time pursuant to the terms of the Mortgages
Trust Deed;

 

Borrower means, in relation to a Loan, the individual or
individuals specified as such in the relevant Mortgage Terms together with the
individual or individuals (if any) from time to time assuming an obligation to
repay such Loan or any part of it;

 

Buildings Policies means:

 

(a)                                  all buildings insurance
policies relating to freehold or heritable Properties which have been taken out
in the name of the relevant Borrower (and, in the case of the Halifax Policies,
the Seller) in accordance with the applicable Mortgage Terms or the Alternative
Insurance Recommendations; and

 

(b)                                 all landlord’s buildings
insurance policies relating to leasehold Properties including Properties in
Scotland held under a long lease;

 

Bullet Accumulation Liability means, on any Funding 1 Interest Payment
Date prior to any payment under item (d) of the Funding 1 Pre-Enforcement
Principal Priority of Payments, the aggregate of each Relevant Accumulation
Amount at that time of each Bullet Term Advance which is within a Cash
Accumulation Period;

 

4

 

Bullet Accumulation Shortfall means at any time that the Cash
Accumulation Ledger Amount is less than the Bullet Accumulation Liability;

 

Bullet Term Advance means any term advance where the full
amount of principal in respect of that term advance is scheduled for repayment
on a single Funding 1 Interest Payment Date (being the Scheduled Repayment
Date);

 

Business Day means a day which is a London Business Day, a New
York Business Day and a TARGET Business Day;

 

Calculation Date means the first day (or, if not a London
Business Day, the next succeeding London Business Day) of each month or the
date on which Funding 1 acquires a further interest in the Trust Property;

 

Calculation Period means the period from and including a
Calculation Date to but excluding the next following Calculation Date;

 

Calendar Year means a year from the beginning of 1st January to the
end of 31st December;

 

Capitalised Arrears means, in relation to a Loan at any date
(the determination
date), the amount (if any) at such date of any Arrears of Interest
in respect of which, at the determination date, each of the following
conditions have been satisfied:

 

(a)           the
Seller has, by arrangement with the relevant Borrower, agreed to capitalise
such Arrears of Interest; and

 

(b)                                 such Arrears of Interest have
been capitalised and added, in the accounts of the Seller (or, if the
determination date occurs after the Initial Closing Date, the Mortgages
Trustee), to the principal amount outstanding in respect of such Loan;

 

Capitalised Expenses means, in relation to a Loan, the amount
of any expense, charge, fee, premium or payment (excluding, however, any
Arrears of Interest) capitalised and added to the principal amount outstanding
in respect of such Loan in accordance with the relevant Mortgage Terms
(including for the avoidance of doubt, any High Loan-to-Value Fee);

 

Capitalised Interest means the amount of interest that would have
been paid on a Loan if not for the Borrower under that Loan taking a Payment
Holiday;

 

Cash means cash and/or amounts standing to the credit of a
bank account, as the context shall require;

 

Cash Accumulation Advance means a Bullet Term Advance or a Scheduled
Amortisation Instalment which is within a Cash Accumulation Period;

 

Cash Accumulation Ledger means the ledger established and
maintained by the Cash Manager pursuant to Clause 4.3(a) of the Cash Management
Agreement;

 

Cash Accumulation Ledger Amount means, at any time, the
amount standing to the credit of the Cash Accumulation Ledger at that time
(immediately prior to any drawing to be applied on that Interest Payment Date
and prior to any payment under item (h) of the Funding 1 Pre-Enforcement Principal
Priority of Payments);

 

5

 

Cash Accumulation Liability means, on any Funding 1 Interest Payment
Date, prior to any payment under item (d) of the Funding 1 Pre-Enforcement
Principal Priority of Payments, the sum of:

 

(a)           the
Bullet Accumulation Liability at that time; and

 

(b)                                 the aggregate of each Relevant
Accumulation Amount at that time of each Scheduled Amortisation Instalment
which is within a Cash Accumulation Period;

 

Cash Accumulation Period means the period beginning on
the earlier of:

 

(a)                                  the commencement of the
Anticipated Cash Accumulation Period relating to the Relevant Accumulation
Amount; and

 

(b)                                 in respect of an Original
Bullet Term Advance, six months prior to the Scheduled Repayment Date of that
Original Bullet Term Advance and, in respect of an Original Scheduled
Amortisation Instalment, three months prior to the Scheduled Repayment Date of
that Original Scheduled Amortisation Instalment;

 

and ending
when Funding 1 has fully repaid the Bullet Term Advance or Scheduled
Amortisation Instalment, as applicable;

 

Cash Accumulation Requirement means on a Calculation Date:

 

(a)                                  the outstanding principal
amounts in relation to each Cash Accumulation Advance;

 

(b)                                 plus amounts due in paragraphs
2.2(a) and 2.2(b) of the Funding 1 Pre-Enforcement Principal Priority of
Payments;

 

(c)                                  less the amount standing to
the credit of the Cash Accumulation Ledger at the last Funding 1 Interest
Payment Date (which amount was not distributed on that Funding 1 Interest
Payment Date to the Issuer with the relevant Cash Accumulation Requirement);

 

(d)                                 less the sum of the Cash
Accumulation Requirement paid to Funding 1 on a previous Distribution Date
during the relevant Interest Period;

 

Cash Accumulation Shortfall means, at any time, that the Cash
Accumulation Ledger Amount is less than the Cash Accumulation Liability;

 

Cash Management Agreement means the cash management agreement entered
into on the Initial Closing Date between the Cash Manager, the Mortgages Trustee,
Funding 1, and the Security Trustee (as the same may be amended and/or
supplemented from time to time);

 

Cash Management Services means the cash management services set out
in the Cash Management Agreement;

 

Cash Manager means Halifax acting, pursuant to the Cash Management
Agreement, as agent for the Mortgages Trustee, Funding 1 and the Security
Trustee inter
alia to manage all cash transactions and maintain certain ledgers on
behalf of the Mortgages Trustee, Funding 1 and the Security Trustee (which
expression shall include such other person as may be appointed from time to
time as Cash Manager pursuant to the Cash Management Agreement);

 

6

 

Cash Manager Termination Event has the meaning given in Clause 13.1
of the Cash Management Agreement;

 

Certificate of Title means a solicitor’s, licensed conveyancer’s
or (in Scotland) qualified conveyancer’s report or certificate of title
obtained by or on behalf of the Seller in respect of each Property substantially
in the form of the pro-forma set out in the Standard Documentation;

 

Class A Notes means the Class A First Issuer Notes, the
Class A Second Issuer Notes, the Class A Third Issuer Notes, the Class A Fourth
Issuer Notes and any class A notes issued by any New Issuer;

 

Clearing Agency means an agency registered under
provisions of section 17A of the United States Securities Exchange Act of 1934;

 

Clearing Corporation means a corporation within the meaning of
the New York Uniform Commercial Code;

 

Clearstream, Luxembourg means Clearstream Banking,
société anonyme;

 

Closing Date means the Initial Closing Date (or the First Issuer
Closing Date), the Second Issuer Closing Date, the Third Issuer Closing Date,
the Fourth Issuer Closing Date and any New Issuer Closing Date;

 

Collection Account means the collection account in the name
of the Servicer which is from time to time used for the purpose of collecting,
directly or indirectly, monies due in respect of the Loans and/or the Related
Security forming part of the Trust Property;

 

Completion means the completion of the sale and purchase of the
relevant Portfolio pursuant to and in accordance with Clause 3 or 4
(as applicable) of the Mortgage Sale Agreement;

 

Convention means the Modified Following Business Day Convention
as defined in the 2000 ISDA Definitions published by the International Swaps
and Derivatives Associations;

 

Corporate Services Agreements means, together, the Funding 1 Corporate
Services Agreement, the First Issuer Corporate Services Agreement, the Second
Issuer Corporate Services Agreement, the Third Issuer Corporate Services
Agreement, the Fourth Issuer Corporate Services Agreement and the Mortgages
Trustee Corporate Services Agreement;

 

CPR means on any Calculation Date the annualised
principal repayment rate of all the Loans comprised in the Trust Property
during the previous Calculation Period calculated as follows:

 

 

where “R’’ equals the result (expressed as a
percentage) of the total Principal Receipts received during the period of one
month (or, if shorter, from and including the Closing Date) ending on that
Calculation Date divided by the aggregate Outstanding Principal Balance of the
Loans comprised in the Trust Property as at the first day of that period;

 

Current Funding 1 Share means the amount of Trust Property
beneficially owned by Funding 1 from time to time, as determined in accordance
with Clause
8 of the Mortgages Trust Deed;

 

7

 

Current Funding 1 Share Percentage means the percentage share of
Funding 1 in the Trust Property from time to time, as determined in accordance
with Clause
8 of the Mortgages Trust Deed;

 

Current Seller Share means the amount of Trust Property,
beneficially owned by the Seller from time to time, as determined in accordance
with Clause
8 of the Mortgages Trust Deed;

 

Current Seller Share Percentage means the percentage share of
the Seller in the Trust Property from time to time as determined in accordance
with Clause
8 of the Mortgages Trust Deed;

 

Current Swap Excluded Termination Amount means, in relation to an
Issuer  Swap Agreement, an amount equal
to:

 

(a)                                  the amount of any termination
payment due and payable to the relevant Issuer Swap Provider as a result of an
Issuer Swap Provider Default or following an Issuer Swap Provider Downgrade
Termination Event;

 

less

 

(b)                                 the amount, if any, received
by the relevant Issuer from a replacement swap provider upon entry by that
Issuer into an agreement with such replacement swap provider to replace such
swap agreement which has terminated as a result of an Issuer Swap Provider
Default or following an Issuer Swap Provider Downgrade Termination Event.

 

Customer Files means the file or files relating to each
Loan containing, inter alia:

 

(a)                                  all material correspondence
relating to that Loan; and

 

(b)                                 the completed mortgage
documentation applicable to the Loan (other than the Title Deeds) including the
Valuation Report and the solicitor’s or licensed conveyancer’s Certificate of
Title,

 

whether original documentation, electronic
form or otherwise;

 

Data Controller means the Mortgages Trustee and the
Beneficiaries;

 

Data Processor means the Servicer;

 

Data Processor Agreement means the agreement entered into by, inter alios,
the Data Controllers and the Data Processor dated 25th November, 2003 pursuant
to which the Data Controllers appointed the Data Processor to process data on
their respective behalfs;

 

Data Subject has the same meanings as
assigned to that term in the Act;

 

D.D. Date means the date of delivery to the Account Bank or
BACS (as the case may be) of such instructions as may be necessary from time to
time for the debit of a Borrower’s account in respect of which there is a
direct debit mandate;

 

Deed of Accession means, as applicable, the First Deed of
Accession, the Second Deed of Accession, the Third Deed of Accession and any
New Deed of Accession;

 

8

 

Deed of Accession  and Release Supplemental to the Funding 1 Deed of
Charge means the deed so named dated 31st July, 2002;

 

Deed of Consent means a deed whereby a person in or
intended to be in occupation of a Property situated in England and Wales agrees
with the Seller to postpone his or her interest (if any) in the Property so
that it ranks after the interest created by the relevant Mortgage;

 

Deed of Postponement means a deed or agreement whereby a
mortgagee of or the heritable creditor in relation to a Property agrees with
the Seller to postpone its mortgage or standard security (as applicable) over
the Property so that the sums secured by it will rank for repayment after the
sums secured by the relevant Mortgage;

 

Deedstore Loan means a type of Loan product that gives
the Borrower the option to leave a small balance owing on the loan account so
that the relevant Title Deeds can continue to be lodged with Halifax;

 

Deemed AAA Rating means the deemed rating of a Term Advance
Rating where the corresponding Notes are rated, on the Closing Date thereof,
A-1+ by S&P, P-1 by Moody’s and F1+ by Fitch;

 

Delayed Cashback means in relation to any Loan, the
agreement by the Seller to pay an amount to the relevant Borrower after a
specified period of time following completion of the relevant Loan;

 

Designated Interest Period has the meaning given to it in Clause 8.3
of the Funding 1 Liquidity Facility Agreement;

 

Direct Debiting Scheme means the scheme for the manual or
automated debiting of bank accounts operated in accordance with the detailed
rules of certain members of the Association for Payment Clearing Services;

 

Distribution Date means the date which is two London
Business Days after each Calculation Date, being the date that the Mortgages
Trustee shall distribute the Mortgages Trust Available Revenue Receipts and the
Mortgages Trust Available Principal Receipts to Funding 1 and the Seller;

 

Double Taxation Treaty means any convention between the
government of the United Kingdom and any other government for the avoidance of
double taxation;

 

Drawdown Date means, in respect of:

 

(a)                                  the First Issuer Intercompany
Loan, the Initial Closing Date;

 

(b)                                 the Second Issuer Intercompany
Loan, the Second Issuer Closing Date;

 

(c)                                  the Third Issuer Intercompany
Loan, the Third Issuer Closing Date;

 

(d)                                 the Fourth Issuer Intercompany
Loan, the Fourth Issuer Closing Date; and

 

(e)                                  any New Intercompany Loan, the
date on which the New Term Advances thereunder are made;

 

9

 

Drawdown Notice means, in respect of an Intercompany Loan,
a notice delivered by Funding 1 to the Issuer and the Security Trustee
requesting a drawing under that Intercompany Loan Agreement;

 

DTC means The Depository Trust Company;

 

Early Repayment Fee means any fee (other than a Redemption Fee)
which a Borrower is required to pay in the event that the Borrower is in default
or his or her Loan becomes repayable for any other mandatory reason or he or
she repays all or any part of the relevant Loan before a specified date;

 

Eligible General Reserve Fund Principal Repayments means:

 

(a)                                  prior to the occurrence of a
Trigger Event:

 

(i)                                     repayments of principal which
are then due and payable in respect of the Original Bullet Term Advances; and

 

(ii)                                  repayments of principal in
respect of Original Scheduled Amortisation Term Advances on their respective
final maturity dates only; and

 

(b)                                 on or after the occurrence of
a Non-Asset Trigger Event but prior to the occurrence of an Asset Trigger
Event, repayments of principal in respect of Original Bullet Term Advances and
Original Scheduled Amortisation Term Advances on their respective final
maturity dates only,

 

in each case prior to the service of an
Intercompany Loan Acceleration Notice on Funding 1 and taking into account any
allocation of principal to meet any deficiency in Funding 1’s Available Revenue
Receipts;

 

Eligible Liquidity Facility Principal Repayments means:

 

(a)                                  prior to the occurrence of a
Trigger Event:

 

(i)                                     repayments of principal which
are then due and payable in respect of the Original Bullet Term Advances; and

 

(ii)                                  repayments of principal in
respect of Original Scheduled Amortisation Term Advances on their respective
Final Repayment Dates only; and

 

(b)                                 on or after the occurrence of
a Non-Asset Trigger Event but prior to the occurrence of an Asset Trigger
Event, repayments of principal in respect of Original Bullet Term Advances and
Original Scheduled Amortisation Term Advances on their respective Final
Repayment Dates,

 

in each case prior to the service of an Intercompany
Loan Acceleration Notice on Funding 1 and taking into account any allocation of
principal to meet any deficiency in Funding 1’s Available Revenue Receipts.

 

Following the occurrence of an Asset
Trigger Event, the Funding 1 Liquidity Facility will not be available to repay
principal in respect of Original Bullet Term Advances or Original Scheduled Term
Advances;

 

Eligible Liquidity Fund Principal Repayments means:

 

10

 

(a)                                  prior to the occurrence of a
Trigger Event:

 

(i)                                     repayments of principal which
are then due and payable in respect of the Original Bullet Term Advances; and

 

(ii)                                  repayments of principal in
respect of Original Scheduled Amortisation Term Advances on their respective
Final Repayment Dates only; and

 

(b)                                 on or after the occurrence of
a Non-Asset Trigger Event but prior to the occurrence of an Asset Trigger
Event, repayments of principal in respect of Original Bullet Term Advances and
Original Scheduled Amortisation Term Advances on their respective Final
Repayment Dates,

 

in each case prior to the service of an Intercompany
Loan Acceleration Notice on Funding 1 and taking into account any allocation of
principal to meet any deficiency in Funding 1’s Available Revenue Receipts;

 

Encumbrance has the same meaning as Security Interest;

 

Enforcement Procedures means the procedures for the enforcement
of Mortgages undertaken by the Servicer from time to time in accordance with
the Seller’s Policy;

 

English Loan means a Loan which is secured by an English Mortgage;

 

English Mortgage means a Mortgage secured over a property
in England or Wales;

 

Euroclear means Euroclear Bank S.A./N.V., as operator of the
Euroclear System or the successor for the time being to such business;

 

Exchange Act means the United States Securities Exchange Act of
1934, as amended;

 

Exhibit means the exhibit to the Mortgage Sale Agreement
which sets out details of the Provisional Portfolio and the Standard
Documentation;

 

Extension  Request has the meaning given in Clause
2.3(a) of the Funding 1 Liquidity Facility Agreement;

 

Facility Office means the office through which the Funding
1 Liquidity Facility Provider (or any replacement liquidity facility provider)
will perform all or any of its obligations under the Funding 1 Liquidity
Facility Agreement;

 

Final Repayment Date means the final repayment date of each
Term Advance, as specified in the relevant Issuer Master Definitions and
Construction Schedule;

 

Financial Year means the 12 month period ending on the
last day of the calendar year;

 

First Deed of Accession means the first deed of accession to the
Funding 1 Deed of Charge entered into on the Second Issuer Closing Date between
Funding 1, the First Issuer, the Second Issuer, the Corporate Services
Provider, the Account Bank, the Security Trustee, the Seller, the First
Start-up Loan Provider, the Second Start-up Loan Provider, the Cash Manager,
the Funding 1 Swap Provider and the Funding 1 Liquidity Facility Provider as
supplemented, amended and/or restated from time to time;

 

11

 

First Deed of Amendment to the Intercomany Loan Terms and
Conditions means the first deed of amendment to the Intercompany Loan Terms and
Conditions entered into on the Third Issuer Closing Date between Funding 1, the
First Issuer, the Second Issuer, the Security Trustee and the Agent Bank;

 

First Issuer means 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;

 

First Issuer Closing Date or the Initial Closing Date means 14th June,
2002;

 

First Issuer Intercompany Loan Agreement means the First Issuer
Intercompany Loan Confirmation and the Intercompany Loan Terms and Conditions
together entered into on the Initial Closing Date by the First Issuer, Funding
1 and the Security Trustee (as the same may be amended and/or supplemented from
time to time);

 

First Issuer Security means security created by the First Issuer
pursuant to the First Issuer Deed of Charge in favour of the First Issuer
Secured Creditors;

 

First Start-up Loan means the start-up loan that the First
Start-up Loan Provider made available to Funding 1 pursuant to the First
Start-up Loan Agreement;

 

First Start-up Loan Agreement means the agreement entered into on the
Initial Closing Date between Funding 1, the First Start-up Loan Provider and
the Security Trustee relating to the provision of the First Start-up Loan to
Funding 1 (as the same may be amended and/or supplemented from time to time);

 

First Start-up Loan Provider means Halifax in its capacity as provider
of the First Start-up Loan;

 

Fitch means Fitch Ratings Limited;

 

Fixed Rate Loans means those Loans to the extent that and
for such time that the interest rate payable by the Borrower on all or part of
the Outstanding Principal Balance does not vary and is fixed for a certain
period of time by the Seller;

 

Flexible Draw Capacity means an amount equal to the excess of (a)
the maximum amount that Borrowers may draw under Flexible Loans included in the
Trust Property (whether or not drawn) over (b) the aggregate principal balance
of actual Flexible Loan advances in the Trust Property on the relevant
Calculation Date;

 

Flexible Loan means a type of Loan product that typically
incorporates features that give the Borrower options to, among other things,
make further drawings on the loan account and/or to overpay or underpay
interest and principal in a given month;

 

Flexible Loan Conditions means Mortgage Conditions applicable to
any Flexible Loan;

 

Flexible Loan Drawing means any further drawing of monies made
by a Borrower under a Flexible Loan other than the Initial Advance;

 

Fourth Issuer means Permanent Financing (No. 4) PLC (registered
number 4988201), a public limited company incorporated under the laws of
England and Wales, whose registered office is at Blackwell House, Guildhall
Yard, London EC2V 5AE;

 

12

 

Fourth Issuer Closing Date means on or about 12th March, 2004;

 

Fourth Issuer Intercompany Loan Agreement means the Fourth Issuer
Intercompany Loan Confirmation and the Intercompany Loan Terms and Conditions
together entered into on the Fourth Issuer Closing Date by the Fourth Issuer,
Funding 1 and the Security Trustee (as the same may be amended and/or
supplemented from time to time);

 

Fourth Issuer Security means the security created by the Fourth
Issuer pursuant to the Fourth Issuer Deed of Charge in favour of the Fourth
Issuer Secured Creditors;

 

Fourth Start-up Loan means the start-up loan that the Fourth
Start-up Loan Provider has made available to Funding 1 pursuant to the Fourth
Start-up Loan Agreement;

 

Fourth Start-up Loan Agreement means the agreement entered into on the
Fourth Issuer Closing Date between Funding 1, the Fourth Start-up Loan Provider
and the Security Trustee relating to the provision of the Fourth Start-up Loan
to Funding 1 (as the same may be amended and/or supplemented from time to
time);

 

Fourth Start-up Loan Provider means Halifax in its capacity as provider
of the Fourth Start-up Loan;

 

Freedom of Agency Indemnity Policy means the freedom of agency
indemnity policy written by Royal & Sun Alliance Insurance PLC in favour of
the Seller and any endorsements or extensions thereto as issued from time to
time, or any such similar alternative or replacement policy or policies as may
in future be issued in favour of the Seller;

 

FSMA 2000 or FSMA means the Financial Services and
Markets Act 2000 (as amended from time to time);

 

Funding 1 means Permanent Funding (No. 1) Limited (registered
number 4267660), a limited company incorporated under the laws of England and
Wales, whose registered office is at Blackwell House, Guildhall Yard, London
EC2V 5AE;

 

Funding 1 Agreements or Funding 1 Transaction Documents means each
of the Transaction Documents to which Funding 1 is a party (as the same may be
amended, varied and/or supplemented from time to time) including (but not
limited to) the Master Definitions and Construction Schedule the Servicing
Agreement, the Mortgages Trust Deed, the Halifax Deed and Power of Attorney,
the Funding 1 Deed of Charge (including, for the avoidance of doubt the Second
Supplemental Funding 1 Deed of Charge), the Funding 1 Swap Agreement, the
Funding 1 Corporate Services Agreement, the Funding 1 Liquidity Facility
Agreement, each Intercompany Loan Agreement, the First Deed of Amendment to the
Intercompany Loan Terms and Conditions, the Cash Management Agreement, the Bank
Account Agreement, the Funding 1 Guaranteed Investment Contract, each Start-up
Loan Agreement, the Mortgage Sale Agreement, each Scottish Declaration of
Trust, the Seller Power of Attorney, the Insurance Acknowledgements, the
Insurance Endorsements and all other agreements referred to therein or
otherwise referred to as “Funding 1 Agreements” in each Accession Undertaking entered
into by, inter
alios, Funding 1 and the Security Trustee, from time to time;

 

Funding 1 Available Principal Receipts means on the day falling four
Business Days prior to each Funding 1 Interest Payment Date, an amount equal to
the aggregate of:

 

(a)                                  all Funding 1 Principal
Receipts received by Funding 1 during the Interest Period ending on the
relevant Funding 1 Interest Payment Date;

 

13

 

(b)                                 all other Funding 1 Principal
Receipts standing to the credit of the Cash Accumulation Ledger which are to be
applied on the next Funding 1 Interest Payment Date to repay a Bullet Term
Advance and/or, subject to Rule 1 as set out in paragraph 2.2(a) of Part II of
Schedule 3 to the Funding 1 Deed of Charge, a Scheduled Amortisation
Instalment, or to make a payment under items (a) (b) or (c) of the Funding 1
Pre-Enforcement Principal Priority of Payments and, if such Funding 1 Interest
Payment Date occurs on or after a Trigger Event, the remainder of such receipts
standing to the credit of the Cash Accumulation Ledger;

 

(c)                                  the amounts (if any) to be
credited to the Principal Deficiency Ledger pursuant to paragraphs (g), (i),
(k) and (m) in the Funding 1 Pre-Enforcement Revenue Priority of Payments on
the relevant Funding 1 Interest Payment Date;

 

(d)                                 in so far as available for and
needed to make Eligible Liquidity Facility Principal Repayments, any amounts
available to be drawn under the Funding 1 Liquidity Facility (but less any
amounts applied or to be applied on the relevant date in payment of interest
and other revenue expenses as set out in paragraphs (a) to (f), (h) and (l) of
the Funding 1 Pre-Enforcement Revenue Priority of Payments plus any amounts
which will be repaid to the Funding 1 Liquidity Facility Provider under item
(a) of the relevant priority of payments (relating to the allocation of Funding
1 Available Principal Receipts) on the next Funding 1 Interest Payment Date
(i.e. occurring at the end of such period of four Business Days) to the extent
that such repayment is available to be redrawn on that Funding 1 Interest
Payment Date); and

 

(e)                                  in so far as available for and
needed to make Eligible General Reserve Fund Principal Repayments, the amount
that would then be standing to the credit of the General Reserve Ledger (but
less any amounts applied or to be applied on the relevant date in payment of
interest and other revenue expenses as set out in paragraphs (a) to (n)
(inclusive) of the Funding 1 Pre-Enforcement Revenue Priority of Payments plus
any amounts which will be credited to the General Reserve Ledger under item (b)
of the relevant priority of payments (relating to the allocation of Funding 1
Available Principal Receipts) on the next Funding 1 Interest Payment Date (i.e.
occurring at the end of such period of four Business Days),

 

(f)                                    in so far as available for and
needed to make Eligible Liquidity Reserve Fund Principal Repayments, the amount
that would then be standing to the credit of the Liquidity Reserve Ledger (but
less any amounts applied or to be applied on the relevant date in payment of
interest and other revenue expenses as set out in paragraphs (a) to (f)
(inclusive) and (h), (j) and (l) of the Funding 1 Pre-Enforcement Revenue
Priority of Payments plus any amounts which will be credited to the Liquidity
Reserve Ledger under item (c) of the relevant priority of payments (relating to
the allocation of Funding 1 Available Principal Receipts) on the next Funding 1
Interest Payment Date (i.e. occurring at the end of such period of four Business
Days),

 

less

 

(g)                                 the amounts to be applied on
the relevant Funding 1 Interest Payment Date to pay paragraphs (a) to (f)
(inclusive), (h), (j) and (l) of the Funding 1 Pre-Enforcement Revenue Priority
of Payments;

 

Funding 1 Available Revenue Receipts means for each Funding 1
Interest Payment Date, an amount calculated on the day falling four Business
Days prior to such Funding 1 Interest Payment Date, and equal to the aggregate
of:

 

14

 

(a)                                  all Mortgages Trust Available
Revenue Receipts distributed or to be distributed to Funding 1 during the then
current Interest Period;

 

(b)                                 any amounts paid or to be paid
by the Seller to Funding 1 during the then current Interest Period in
consideration of the seller acquiring a further interest in the Trust Property;

 

(c)                                  other net income of Funding 1
including all amounts of interest received on the Funding 1 GIC Account, the
Funding 1 Transaction Account and/or Authorised Investments and amounts
received by Funding 1 under the Funding 1 Swap Agreement (other than any early
termination amount received by Funding 1 under the Funding 1 Swap Agreement),
in each case to be received during the then current Interest Period; and

 

(d)                                 the amounts then standing to
the credit of the General Reserve Ledger,

 

(e)                                  if a Liquidity Reserve Fund
Rating Event has occurred and is continuing, and there are no amounts standing
to the credit of the General Reserve Ledger, the amounts then standing to the
credit of the Liquidity Reserve Ledger and available to be drawn, to the extent
necessary to pay the items in paragraphs (a) to (f), (h), (j) and (l) in the
Funding 1 Pre-enforcement Revenue Priority of Payments; and

 

(f)                                    if a Liquidity Reserve Fund
Rating Event has occurred but is no longer continuing due to an increase in the
Seller’s Rating since the preceding Funding Interest Payment Date, and Funding
1 elects to terminate the Liquidity Reserve Fund, all amounts standing to the
credit of the Liquidity Reserve Ledger,

 

less:

 

(a)                                  any payment made by the Seller
to Funding 1 during the then current Interest Period of the amount outstanding
under an Intercompany Loan; and

 

(b)                                 the proceeds of any New
Intercompany Loan received by Funding 1 during the then current Interest
Period;

 

Funding 1 Bank Accounts means the Funding 1 GIC Account, the
Funding 1 Transaction Account, the Funding 1 Liquidity Facility Stand-by
Account and such other bank account(s) held in the name of Funding 1 with the
approval of the Security Trustee from time to time;

 

Funding 1 Charged Property means the property charged by Funding 1
pursuant to the Funding 1 Deed of Charge and includes, for the avoidance of
doubt, the property charged by Funding 1 pursuant to the Second Supplemental
Funding 1 Deed of Charge;

 

Funding 1 Corporate Services Agreement means in respect of Holdings,
Funding 1 and the Post-Enforcement Call Option Holder, the agreement dated on
the Initial Closing Date and made between the Funding 1 Corporate Services
Provider, the Share Trustee, Holdings, Funding 1, the Post-Enforcement Call
Option Holder, Halifax and the Security Trustee for the provision by the
Funding 1 Corporate Services Provider of certain corporate services and
personnel to Funding 1, Holdings and the Post-Enforcement Call Option Holder (as
the same may be amended and/or supplemented from time to time);

 

Funding 1 Corporate Services Fee Letter means the letter dated the
date of the Funding 1 Corporate Services Agreement between, inter alios,
Funding 1, PECOH, Holdings, the

 

15

 

Security Trustee and the Funding 1
Corporate Services Provider, setting out the amount of fees payable to the
Funding 1 Corporate Services Provider by Funding 1;

 

Funding 1 Corporate Services Provider means Structured Finance
Management Limited or such other person or persons for the time being acting as
corporate services provider to Funding 1, Holdings and the Post-Enforcement
Call Option Holder under the Funding 1 Corporate Services Agreement;

 

Funding 1 Deed of Charge means the deed of charge entered into on
the Initial Closing Date between Funding 1, the First Issuer, the Corporate
Services Provider, the Account Bank, the Security Trustee, the Seller, the
First Start-up Loan Provider, the Cash Manager, the Funding 1 Swap Provider and
the Funding 1 Liquidity Facility Provider, as supplemented and amended by the
Deed of Accession and Release Supplemental to the Funding 1 Deed of Charge, the
Second Supplemental Funding 1 Deed of Charge and as supplemented and amended by
the First Deed of Accession, the Second Deed of Accession and the Third Deed of
Accession and as the same may be further supplemented, amended and/or restated
or varied from time to time;

 

Funding 1 GIC Account means the account in the name of Funding 1
and the Security Trustee (sort code 12-24-55, account number 00998203) held at
the Account Bank and maintained subject to the terms of the Funding 1
Guaranteed Investment Contract, the Bank Account Agreement and the Funding 1
Deed of Charge or such additional or replacement account as may for the time
being be in place with the prior consent of the Security Trustee;

 

Funding 1 GIC Account Agreement has the same meaning as Funding 1
Guaranteed Investment Contract;

 

Funding 1 GIC Account Mandate means the bank account mandate between
Funding 1 and the Account Bank relating to the operation of the Funding 1 GIC
Account;

 

Funding 1 GIC Balance means, on any day during an Interest
Period, the amount standing to the credit of the Funding 1 GIC Account as at
the opening of business on such day;

 

Funding 1 GIC Provider means The Governor and Company of the Bank
of Scotland acting pursuant to the Funding 1 Guaranteed Investment Contract and
or such other person for the time being acting as provider of a guaranteed
investment contract to Funding 1;

 

Funding 1 GIC Rate means the rate of interest accruing on the
balance standing to the credit of the Funding 1 GIC Account equal to a rate of
three month LIBOR less 0.25 per cent. per annum;

 

Funding 1 Guaranteed Investment Contract or Funding 1 GIC Account Agreement means
the guaranteed investment contract entered into on the Initial Closing Date
between Funding 1, the Funding 1 GIC Provider, the Cash Manager and the
Security Trustee, in relation to interest to be earned on the Funding 1 GIC
Balance (as the same may be amended and/or supplemented from time to time);

 

Funding 1 Income Deficit means the amount of the shortfall between
Funding 1 Available Revenue Receipts and the amounts required to pay items (a)
to (f) (inclusive), (h), (j), and (i) of the Funding 1 Pre-Enforcement Revenue
Priority of Payments

 

Funding 1 Interest Payment Date means the 10th day of
September, December, March and June in each year (or, if such day is not a
Business Day, the next succeeding Business Day);

 

16

 

Funding 1 Ledgers means the Funding 1 Principal Ledger, the
Funding 1 Revenue Ledger, the General Reserve Ledger, the Liquidity Reserve
Ledger, the Principal Deficiency Ledger, the Intercompany Loan Ledger, the Cash
Accumulation Ledger and the Funding 1 Liquidity Facility Ledger;

 

Funding 1 Liquidity Documents means the Funding 1 Liquidity Facility
Agreement, a Novation Certificate or any other document designated as such by
the Funding 1 Liquidity Facility Provider and Funding 1;

 

Funding 1 Liquidity Drawing means a Funding 1 Liquidity Facility
Drawing or a Funding 1 Liquidity Facility Stand-by Drawing as the context so
requires;

 

Funding 1 Liquidity Facility means the sterling advances facility made in
respect of certain of the payment obligations of Funding 1 arising out of the
First Issuer Intercompany Loan Agreement, and/or the Second Issuer Intercompany
Loan Agreement and/or the Third Issuer Intercompany Loan Agreement and/or the
Fourth Issuer Intercompany Loan made available by the Funding 1 Liquidity
Facility Provider to Funding 1 under the Funding 1 Liquidity Facility Agreement
and drawable by way of Funding 1 Liquidity Facility Drawings and/or Funding 1
Liquidity Facility Stand-by Drawings;

 

Funding 1 Liquidity Facility Agreement means the liquidity facility
agreement made on the Initial Closing Date as amended and restated on the
Second Issuer Closing Date, the Third Issuer Closing Date and as further
amended and restated on the Fourth Issuer Closing Date and from time to time
between Funding 1, the Funding 1 Liquidity Facility Provider, the Cash Manager
and the Security Trustee pursuant to which the Funding 1 Liquidity Facility
Provider agreed to provide Funding 1, from time to time during the Funding 1
Liquidity Facility Commitment Period, with advances for the purposes specified
therein, subject to and in accordance with the terms thereof (as the same may
be further amended and/or supplemented from time to time);

 

Funding 1 Liquidity Facility Commitment means, as at the Fourth Issuer
Closing Date, £150,000,000, or such other amount as may be calculated in
accordance with Clause 2.2 (Facility Limits) and/or Clause 7.2 (Voluntary
Cancellation) of the Funding 1 Liquidity Facility Agreement from time to time;

 

Funding 1 Liquidity Facility Commitment Period means, subject to Clause 2.3
of the Funding 1 Liquidity Facility Agreement, the period from and including
the Initial Closing Date up to and excluding the Funding 1 Liquidity Facility
Commitment Termination Date;

 

Funding 1 Liquidity Facility Commitment Termination Date means, subject to being
extended in accordance with Clause 2.3 of the Funding 1 Liquidity
Facility Agreement, the date falling 364 days after the  Initial Closing Date or, if such date is not
a Business Day, the preceding Business Day or, if earlier, the date on which
the Funding 1 Liquidity Facility Commitment is reduced to zero pursuant to the
provisions of the Funding 1 Liquidity Facility Agreement;

 

Funding 1 Liquidity Facility Default means an event specified as
such in Clause
16.1 of the Funding 1 Liquidity Facility Agreement;

 

Funding 1 Liquidity Facility Drawdown Date means the date of the advance
of a Funding 1 Liquidity Facility Drawing or a Funding 1 Liquidity Facility
Stand-by Drawing which date shall be an Funding 1 Interest Payment Date;

 

17

 

Funding 1 Liquidity Facility Drawdown Notice means a notice substantially
in the form set out in Schedule 3 to the Funding 1 Liquidity Facility
Agreement;

 

Funding 1 Liquidity Facility Drawing means a drawing (other than a
Funding 1 Liquidity Facility Stand-by Drawing) made or to be made under the
Funding 1 Liquidity Facility;

 

Funding 1 Liquidity Facility Interest Period means, with respect to a
Funding 1 Liquidity Facility Loan, each successive period beginning on (and
including) an Funding 1 Interest Payment Date and ending on (but excluding) the
next following Funding 1 Interest Payment Date except that the first Funding 1
Liquidity Facility Interest Period shall start on the Funding 1 Liquidity
Facility Drawdown Date for that Funding 1 Liquidity Facility Loan and end on
the day before the next following Funding 1 Interest Payment Date;

 

Funding 1 Liquidity Facility Ledger means a ledger to be
maintained by the Cash Manager pursuant to Clause 4.3 of the Cash Management
Agreement;

 

Funding 1 Liquidity Facility Loan means the aggregate principal
amount of all Funding 1 Liquidity Facility Drawings and Funding 1 Liquidity
Facility Stand-by Drawings for the time being advanced and outstanding under
the Funding 1 Liquidity Facility;

 

Funding 1 Liquidity Facility Margin means nought point five per
cent. (0.50%) per annum;

 

Funding 1 Liquidity Facility Provider means JPMorgan Chase Bank,
acting through its office at 125 London Wall, London EC2Y 5AJ and/or such other
bank or banks with at least the Requisite Ratings which agrees to provide a
liquidity facility to Funding 1 on substantially similar terms to the Funding 1
Liquidity Facility Agreement;

 

Funding 1 Liquidity Facility Request means a request substantially
in the form set out in Schedule 3 to the Funding 1 Liquidity Facility Agreement
made by Funding 1 for a Funding 1 Liquidity Facility Drawing or a Funding 1
Liquidity Facility Stand-by Drawing pursuant to a Funding 1 Liquidity Drawdown
Notice;

 

Funding 1 Liquidity Facility Stand-by Account means an account to be opened
in the name of Funding 1 with the Funding 1 Liquidity Facility Provider or, if
the Funding 1 Liquidity Facility Provider ceases to have the Requisite Ratings,
the Funding 1 Account Bank or, if the Funding 1 Account Bank ceases to have the
Requisite Ratings, a bank which has the Requisite Ratings;

 

Funding 1 Liquidity Facility Stand-by Deposit means the amount standing to
the credit of the Funding 1 Liquidity Facility Stand-by Account from time to
time together with interest on such deposit;

 

Funding 1 Liquidity Facility Stand-by Drawing means a drawing (other than a
Funding 1 Liquidity Facility Drawing) made or to be made under the Funding 1
Liquidity Facility Agreement;

 

Funding 1 Liquidity Principal Shortfall means as applicable, at any
time, the amount by which:

 

(a)                                  prior to the occurrence of a
Trigger Event, the aggregate amount of Funding 1’s obligation to repay when due
and payable:

 

(i)                                     the principal amount due and
payable in respect of the relevant Original Bullet Term Advances on their
respective Scheduled Repayment Dates (and

 

18

 

to the extent not repaid on such Scheduled
Repayment Dates, on each Funding 1 Interest Payment Date thereafter); and

 

(ii)                                  the principal amount due and
payable in respect of the relevant Original Scheduled Amortisation Term
Advances on their respective Final Repayment Dates;

 

(b)                                 following the occurrence of a
Non-Asset Trigger Event but prior to the occurrence of an Asset Trigger Event,
the aggregate amount of Funding 1’s obligation to repay when due and payable:

 

(i)                                     the principal amount due and
payable in respect of the relevant Original Bullet Term Advances on their
respective Final Repayment Dates; and

 

(ii)                                  the principal amount due and
payable in respect of the relevant Original Scheduled Amortisation Term
Advances on their respective Final Repayment Dates; or

 

exceeds the sum of:

 

(A)                              the Funding 1 Available
Principal Receipts

 

less:

 

(B)                                amounts (if any) ranking prior
to the applicable payment described in paragraph (a) or  (b) above in the Funding 1
Pre-Enforcement Principal Priority of Payments at that date;

 

Funding 1 Liquidity Revenue Shortfall means at any time, the amount
by which the aggregate of Funding 1’s obligations in respect of items listed in
paragraph
2.2 (a) to (f), (h) (j) and (l) of the Funding 1
Pre-Enforcement Revenue Priority of Payments exceeds the amount of Funding 1 Available
Revenue Receipts.

 

Funding 1 Liquidity Shortfall means a Funding 1 Liquidity Revenue
Shortfall and/or a Funding 1 Liquidity Principal Shortfall, as applicable;

 

Funding 1 Liquidity Subordinated Amounts means the sum of (a) any
additional amounts due to any withholding taxes and increased costs on the
provision of the Funding 1 Liquidity Facility and (b) any additional costs
incurred by the Funding 1 Liquidity Facility Provider to comply with the
requirements of the Bank of England, the Financial Services Authority and/or
the European Central Bank and/or changes to the capital adequacy rules
applicable to the Funding 1 Liquidity Facility Provider and Funding 1;

 

Funding 1 Post-Enforcement Priority of Payments means the order of priority in
which the Security Trustee will apply all monies following an Intercompany Loan
Event of Default and enforcement of the Funding 1 Security (as set out in Part
III of Schedule 3 to the Funding 1 Deed of Charge);

 

Funding 1 Power of Attorney means the Security Power of Attorney;

 

Funding 1 Pre-Enforcement Principal Priority of Payments means the order in which,
prior to enforcement of the Funding 1 Security, the Cash Manager will apply the
Funding 1 Available Principal Receipts on each Funding 1 Interest Payment Date,
as set out in Part II of Schedule 3 to the Funding 1 Deed of Charge;

 

19

 

Funding 1 Pre-Enforcement Revenue Priority of Payments means the order of priority
in which Funding 1 Available Revenue Receipts will be applied prior to the
enforcement of the Funding 1 Security as set out in Part I of Schedule 3 to the
Funding 1 Deed of Charge;

 

Funding 1 Principal Ledger means the ledger on which receipts and
payments of Funding 1 Principal Receipts will be recorded by the Cash Manager;

 

Funding 1 Principal Priority of Payments means the order of priority
for the application of Funding 1 Available Principal Receipts, prior to
enforcement of the Funding 1 Security, set out in each Intercompany Loan
Agreement and in Part II of Schedule 3 to the Funding 1 Deed of Charge;

 

Funding 1 Principal Receipts means the Funding 1 Share of Principal
Receipts received by Funding 1 from the Mortgages Trustee on each Distribution
Date;

 

Funding 1 Priority of Payments means, as applicable, the Funding 1
Post-Enforcement Priority of Payments, the Funding 1 Pre-Enforcement Revenue
Priority of Payments and/or, as the case may be, the Funding 1 Principal
Priorities of Payment;

 

Funding 1 Revenue Ledger means the ledger on which the Cash Manager
will record all monies received by Funding 1 during an Interest Period other
than the Funding 1 Principal Receipts;

 

Funding 1 Revenue Receipts means the Funding 1 Share of Mortgages
Trust Available Revenue Receipts received by Funding 1 from the Mortgages
Trustee on each Distribution Date;

 

Funding 1 Secured Creditors means the Security Trustee, the Funding 1
Swap Provider, the Cash Manager, the Funding 1 Liquidity Facility Provider, the
Account Bank, the First Issuer, the Second Issuer, the Third Issuer, the Fourth
Issuer, the Seller, the Corporate Services Provider, the First Start-up Loan
Provider, the Second Start-up Loan Provider, the Third Start-up Loan Provider,
the Fourth Start-up Loan Provider, the Funding 1 GIC Provider and such other
creditors of Funding 1 who may accede to the Funding 1 Deed of Charge from time
to time pursuant to an Accession Undertaking (including, for the avoidance of
doubt, any New Issuer);

 

Funding 1 Secured Obligations means the moneys and liabilities which
Funding 1 covenants and undertakes in Clause 2 of the Funding 1 Deed of Charge to
pay or discharge and all claims, demands or damages for breach of any such
covenant, and references to Funding 1 Secured Obligations includes references
to any of them;

 

Funding 1 Security means the security granted by Funding 1 to
the Security Trustee under and pursuant to the terms of the Funding 1 Deed of
Charge;

 

Funding 1 Share means, prior to the first Calculation
Date, the Initial Funding 1 Share and thereafter means the Current Funding 1
Share;

 

Funding 1 Share Percentage means, prior to the first Calculation
Date, the Initial Funding 1 Share Percentage and thereafter means the Current
Funding 1 Share Percentage;

 

Funding 1 Share/Seller Share Ledger means the ledger to be
maintained by the Cash Manager (in accordance with the Cash Management
Agreement and the Mortgages Trust Deed), on behalf of the Mortgages Trustee and
the Beneficiaries, to record the Current

 

20

 

Funding 1 Share, the Current Funding 1
Share Percentage, the Current Seller Share and the Current Seller Share
Percentage of the Trust Property;

 

Funding 1 Swap means the swap documented under the
Funding 1 Swap Agreement which enables Funding 1 to hedge against the possible
variance between the Mortgages Trustee Variable Base Rate payable on the
Variable Rate Loans, the fixed rates of interest payable on the Fixed Rate
Loans and the rates of interest payable on the Tracker Rate Loans and a LIBOR
based rate for three-month sterling deposits;

 

Funding 1 Swap Agreement means the ISDA Master Agreement and
schedule relating to the Funding 1 Swap entered into on the Initial Closing
Date (as amended and restated on the Second Issuer Closing Date on the Third
Issuer Closing Date and as further amended and restated on the Fourth Issuer
Closing Date and from time to time) and any confirmation documented thereunder
from time to time, each between Funding 1, the Funding 1 Swap Provider and the
Security Trustee (as the same may be further amended and/or restated from time
to time);

 

Funding 1 Swap Excluded Termination Amount means in relation to the
Funding 1 Swap Agreement an amount equal to:

 

(a)                                  the amount of any termination
payment due and payable to the Funding 1 Swap Provider as a result of a Funding
1 Swap Provider Default or a Funding 1 Swap Provider Downgrade Termination
Event;

 

less

 

(b)                                 the amount, if any, received
by Funding 1 from a replacement swap provider upon entry by Funding 1 into an
agreement with such replacement swap provider to replace the Funding 1 Swap
Agreement which has terminated as a result of such Funding 1 Swap Provider
Default or following the occurrence of such Funding 1 Swap Provider Downgrade
Termination Event;

 

Funding 1 Swap Provider means Halifax acting in its capacity as
the Funding 1 Swap Provider pursuant to the Funding 1 Swap Agreement;

 

Funding 1 Swap Provider Default means the occurrence of an
Event of Default (as defined in the Funding 1 Swap Agreement) where the Funding
1 Swap Provider is the Defaulting Party (as defined in the Funding 1 Swap
Agreement);

 

Funding 1 Swap Provider Downgrade Termination Event means the occurrence of an
Additional Termination Event (as defined in the Funding 1 Swap Agreement)
following the failure by the Funding 1 Swap Provider to comply with the
requirements of the ratings downgrade provisions set out in the Funding 1 Swap
Agreement;

 

Funding 1 Transaction Account means the account in the name of Funding 1
(account no. 00998318, sort code 12-24-55) held with the Account Bank and
maintained subject to the terms of the Bank Account Agreement and the Funding 1
Deed of Charge or such other account as may for the time being be in place with
the prior consent of the Security Trustee and designated as such;

 

Funding 1 Transaction Account Mandate means the bank account
mandate between Funding 1 and the Account Bank relating to the operation of the
Funding 1 Transaction Account;

 

21

 

Funding 1 Transaction Documents has the same meaning as
“Funding 1 Agreements”;

 

Funding 2 means Permanent Funding (No. 2) PLC (registered
number 4441772), a public limited company incorporated under the laws of
England and Wales, whose registered office is at Blackwell House, Guildhall
Yard, London EC2V 5AE;

 

Further Advance means, in relation to a Loan, any advance
of further money to the relevant Borrower following the making of the Initial
Advance which is secured by the same Mortgage as the Initial Advance but does
not include the amount of any retention advanced to the relevant Borrower as
part of the Initial Advance after completion of the Mortgage and does not
include a Flexible Loan Drawing nor a Home Cash Reserve Advance;

 

Future Trust Property means any or all New Portfolios to be sold
to the Mortgages Trustee on any Sale Date;

 

General Reserve Fund means the fund established from the
proceeds of the First Start-up Loan Agreement, the Second Start-up Loan, the
Third Start-up Loan and any New Start-up Loan Agreement which may be used by
Funding 1 to meet any deficit in Revenue Receipts or Principal Receipts;

 

General Reserve Fund Required Amount means £330,000,000;

 

General Reserve Fund  Threshold means the lesser of:

 

(a)                                  the General Reserve Fund
Required Amount, and

 

(b)                                 the highest amount which the
Adjusted Reserve Fund Level has been since the first Funding 1 Interest Payment
Date upon which interest is due and payable in respect of Term Advances made
upon the Closing Date relating to the then most recent issue of Issuer Notes;

 

General Reserve Ledger means the ledger established and
maintained by the Cash Manager pursuant to Clause 4.3(b) of the Cash Management
Agreement;

 

Halifax means Halifax plc (registered number 02367076), a
public limited company incorporated under the laws of England and Wales, whose
registered office is at Trinity Road, Halifax, West Yorkshire HX1 2RG;

 

Halifax Collection Account Amounts means all amounts from time
to time standing to the credit of the Collection Account to the extent that
such amounts represent payments into the Collection Account of sums derived or
resulting from mortgage loans originated by Halifax which have not been sold to
the Mortgages Trustee pursuant to the Mortgage Sale Agreement;

 

Halifax Deed and Power of Attorney means the deed and power of
attorney made by Halifax in favour of Funding 1 and its successors and assigns,
on the Initial Closing Date, pursuant to the Mortgages Trust Deed;

 

Halifax Insurance Policies means:

 

(a)                                  the MIG Policies;

 

(b)                                 the Properties in Possession
Cover;

 

(c)                                  the Freedom of Agency
Indemnity Policy;

 

22

 

(d)                                 the Halifax Policies; and

 

(e)                                  the Search Indemnity Policy;

 

Halifax Intermediary means Halifax General Insurance Services
Limited and/or such other person as may be authorised to issue Buildings
Policies to Borrowers on behalf of the Halifax Policies Insurer;

 

Halifax Policies means those of the Buildings Policies
which are issued to Borrowers by the Seller and/or a Halifax Intermediary on
behalf of the Halifax Policies Insurer;

 

Halifax Policies Insurer means in relation to policies issued
before 1st January, ,2004 Royal & Sun Alliance Insurance plc and in
relation to policies or renewals issued after 1st January, 2004, St Andrew’s
Insurance and/or any other insurer who agrees with the Seller to issue
buildings insurance policies to Borrowers from time to time as a consequence of
an introduction or intermediation by a Halifax Intermediary;

 

Halifax Variable Base Rate means the standard variable rate of
interest or if the Seller has more than one standard variable rate of interest,
the relevant standard variable rate of interest set by the Seller which applies
to the Variable Rate Loans beneficially owned by the Seller on the Seller’s
residential mortgage book;

 

High Loan-to-Value Fee means any fee incurred by a Borrower as a
result of taking out a loan with an LTV Ratio in excess of a certain percentage
specified in the Offer Conditions;

 

Holding Company means a holding company within the meaning
of section 736 of the Companies Act 1985;

 

Holdings means Permanent Holdings Limited (registered number
4267664), a limited company incorporated under the laws of England and Wales,
whose registered office is at Blackwell House, Guildhall Yard, London EC2V 5AE;

 

Home Cash Reserve Advance means, in relation to a Loan, an advance
of further money in a sum of not less than £25,005 to the relevant Borrower
following the making of the Initial Advance which is secured by the same
Mortgage as the Initial Advance and against which sum the Borrower can make
drawings of not less than £1,000 at any time;

 

Home Cash Reserve Drawing means any drawing of monies made by a
Borrower under a Home Cash Reserve Advance;

 

Home Improvement Loan means a type of Further Advance product
that can only be used by the Borrower for the purposes of making repairs,
alterations and/or improvements to the relevant Property;

 

Home Owner Loan means a type of Further Advance product
that is a regulated agreement under section 8 of the Consumer Credit Act 1974
and which can be used by the Borrower for any purpose, including but not
limited to, the purchase of a car;

 

HVR 1 means the Variable Mortgage Rate set by the Seller
which applies to certain loans beneficially owned by the Seller on the Seller’s
residential mortgage book;

 

HVR 2 means the second Variable Base Rate that was made
available to Borrowers between 1st March, 2001 and 1st February, 2002;

 

23

 

ICTA means the Income and Corporation Taxes Act 1988;

 

Initial Advance means, in respect of any Loan, the
original principal amount advanced by the Seller including any retention(s)
advanced to the relevant Borrower after the date of the Mortgage but excluding
any (a) High Loan-to-Value Fee, (b) Further Advance, (c) Flexible Loan Drawing,
(d) Home Cash Reserve Advance and (e) Early Repayment Fee relating to any such
Loan;

 

Initial Closing Date means 14th June, 2002;

 

Initial Closing Trust Property means the Initial Portfolio assigned by
the Seller to the Mortgages Trustee on the Initial Closing Date;

 

Initial Funding 1 Share means the share of Funding 1 in the Trust
Property on the Initial Closing Date, being an amount equal to £3,500,000,035;

 

Initial Funding 1 Share Percentage means the percentage share of
Funding 1 in the Trust Property on the Initial Closing Date being 35 per cent.;

 

Initial Loans means the portfolio of residential first
mortgage loans assigned by the Seller to the Mortgages Trustee on the Initial
Closing Date pursuant to the Mortgage Sale Agreement;

 

Initial Portfolio means the Provisional Portfolio other than
any Loan and its Related Security redeemed in full on or before the Initial
Closing Date;

 

Initial Related Security means the Related Security assigned by the
Seller to the Mortgages Trustee on the Initial Closing Date pursuant to the
Mortgage Sale Agreement;

 

Initial Relevant Screen Rate has the meaning given in Condition 4(C);

 

Initial Seller Share means the share of the Seller in the Trust
Property on the Initial Closing Date being an amount equal to £6,500,000,065;

 

Initial Seller Share Percentage means the percentage share of
the Seller in the Trust Property on the Initial Closing Date being 65 per
cent.;

 

Initial Trust Property means the sum of £100 (one hundred pounds)
that SFM Offshore Limited (as the Share Trustee of the Mortgages Trustee)
settled on trust and held on trust absolutely as to both capital and income by
the Mortgages Trustee for the benefit of the Seller and Funding 1 pursuant to Clause 2.1
of the Mortgages Trust Deed;

 

Insolvency Event in respect of the Seller, the Servicer, the
Cash Manager, or any Issuer Cash Manager (each, for the purposes of this
definition, a Relevant Entity) means:

 

(a)                                  an order is made or an
effective resolution passed for the winding up, bankruptcy, liquidation or
sequestration of the Relevant Entity;

 

(b)                                 the Relevant Entity ceases or
threatens to cease to carry on its business or stops payment or threatens to
stop payment of its debts or is deemed unable to pay its debts within the
meaning of section 123(a), (b), (c) or (d) of the Insolvency Act 1986 (as
amended) or becomes unable to pay its debts as they fall due or the value of
its assets falls to less than the amounts of its liabilities (taking into
account, for both these purposes, contingent and prospective liabilities) or
otherwise becomes insolvent; and

 

24

 

(c)                                  proceedings (including, but
not limited to, presentation of an application for an administration order, the
filing of documents with the court for the appointment of an administrator or
the service of a notice of intention to appoint an administrator) are initiated
against the Relevant Entity under any applicable liquidation, administration,
winding up, sequestration, insolvency, bankruptcy, composition, reorganisation
(other than a reorganisation where the Relevant Entity is solvent) or other
similar laws, save where such proceedings are being contested in good faith; or
an administrative or other receiver, administrator, trustee or other similar
official is appointed in relation to the whole or any substantial part of the
undertaking or assets of the Relevant Entity or the appointment of an
administrator takes effect; or a distress, execution or diligence or other
process shall be levied or enforced upon or sued out against the whole or any
substantial part of the undertaking or assets of the Relevant Entity and in any
of the foregoing cases it is not discharged within 15 London Business Days; or
if the Relevant Entity initiates or consents to judicial proceedings relating
to itself under any applicable liquidation, administration, winding up,
sequestration, bankruptcy, composition, insolvency, reorganisation or other
similar laws or makes a conveyance, assignment or assignation for the benefit
of, or enters into any composition with, its creditors generally or takes steps
with a view to obtaining a moratorium in respect of any indebtedness;

 

Insurance Acknowledgements means a letter from the relevant insurer
substantially in the form set out in Schedule 11 to the Mortgage Sale Agreement
or such other form as the relevant insurer shall require in respect of (a) the
MIG Policies numbers GECM-UK-003 and GECM-UK-004 issued by GE Mortgage
Insurance Limited and (b) the MIG Policies numbers 227001, 227001(A), 227002,
227003 and 227006;

 

Insurance Endorsements means an endorsement from the relevant
insurer substantially in the form set out in Schedule 10 to the Mortgage Sale
Agreement or such other form as the relevant insurer shall require in respect of
(a) each of the MIG Policies excluding the Halifax Mortgage Re Limited MIG
Policies, (b) the Freedom of Agency Indemnity Policy, (c) the Search Indemnity
Policy, (d) Halifax Policies and (e) the insurance policy maintained by the
Seller in respect of the Title Deeds stored by the Seller;

 

Insurance Policies means the Buildings Policies and the
Halifax Insurance Policies and Insurance Policy shall be construed
accordingly;

 

Intercompany Loan Acceleration Notice means a notice served by the
Security Trustee on Funding 1 following the occurrence of an Intercompany Loan
Event of Default, pursuant to Clause 14.10 of the Intercompany Loan Terms
and Conditions;

 

Intercompany Loan Agreements means the First Issuer Intercompany Loan
Agreement, the Second Issuer Intercompany Loan Agreement, the Third Issuer
Intercompany Loan Agreement, the Fourth Issuer Intercompany Loan Agreement and
any New Intercompany Loan Agreement and Intercompany Loan Agreement means any one
of them;

 

Intercompany Loan Confirmation means a document substantially in the form
set out in Schedule 3 to the Intercompany Loan Terms and Conditions confirming
the principal terms of each Intercompany Loan Agreement between Funding 1 and
the relevant Issuer;

 

Intercompany Loan Determination Date means the first day of the
relevant Interest Period;

 

Intercompany Loan Events of Default means the occurrence of an
event of default as specified in Clause 14 of the Intercompany Loan Terms
and Conditions;

 

25

 

Intercompany Loan Ledger means a ledger maintained by the Cash
Manager to record payments of interest and repayments of principal made on each
of the current Term Advances and any New Term Advances under any Intercompany
Loans;

 

Intercompany Loans means the loan made available pursuant to
an Intercompany Loan Agreement;

 

Intercompany Loan Terms and Conditions means the standard terms and
conditions incorporated into each Intercompany Loan Agreement, signed for the
purposes of identification on  the
Initial Closing Date by Funding 1, the Security Trustee and the Agent Bank as
amended and restated on 25th November, 2003;

 

Interest Period means the period from (and including) a
Funding 1 Interest Payment Date (or in respect of the first Interest Period,
the relevant Closing Date) to (but excluding) the next following (or first)
Funding 1 Interest Payment Date;

 

Irrecoverable VAT means any amount in respect of VAT
incurred by a party to the Transaction Documents (for the purposes of this
definition, a Relevant Party) as part of a payment in respect of which it is
entitled to be indemnified under the relevant Transaction Documents to the
extent that the Relevant Party does not or will not receive and retain a credit
or repayment of such VAT as input tax (as that expression is defined in section
24(1) of the Value Added Tax Act 1994) for the prescribed accounting period (as
that expression is used in section 25(1) of the Value Added Tax Act 1994) to
which such input tax relates;

 

Issuer means the First Issuer, the Second Issuer, the Third
Issuer, the Fourth Issuer or, as the context may require, any New Issuer;

 

Issuer Account Bank means the First Issuer Account Bank, the
Second Issuer Account Bank, the Third Issuer Account Bank, the Fourth Issuer
Account Bank and/or, as the context requires, the bank at which the accounts of
any New Issuer are maintained;

 

Issuer Accounts means any of the First Issuer Accounts,
the Second Issuer Accounts, the Third Issuer Accounts, the Fourth Issuer
Accounts or, as the context may require, any accounts held by any New Issuer;

 

Issuer Agreements means those agreements to which any Issuer
is party (including, for the avoidance of doubt, in the case of the First
Issuer, the First Issuer Transaction Documents, in the case of the Second Issuer,  the Second Issuer Transaction Documents, in
the case of the Third Issuer, the Third Issuer Transaction Documents, in the
case of the Fourth Issuer, the Fourth Issuer Transaction Documents and any, in
the case of any New Issuer, New Issuer Transaction Documents);

 

Issuer Master Definitions and Construction Schedule means, as the context so
requires, the First Issuer Master Definitions and Construction Schedule dated
the Initial Closing Date, the Second Issuer Master Definitions and Construction
Schedule dated the Second Issuer Closing Date and the Third Issuer Master
Definitions and Construction Schedule dated the Third Issuer Closing Date, the
Fourth Issuer Master Definitions and Construction Schedule dated the Fourth
Issuer Closing Date each signed for the purposes of identification by Allen
& Overy and Sidley Austin Brown & Wood, and/or each other master
definitions and construction schedule which relates to a New Issuer;

 

Issuer Notes includes all of the Class A First Issuer Notes, the
Class B First Issuer Notes, Class C First Issuer Notes, the Class A Second
Issuer Notes, the Class B Second Issuer Notes, the Class C Second Issuer Notes,
the Class A Third Issuer Notes, the Class B Third Issuer Notes, the Class C
Third Issuer

 

26

 

Notes the Class A Fourth Issuer Notes, the
Class B Fourth Issuer Notes, the Class M Fourth Issuer Notes, the Class C
Fourth Issuer Notes and, as the context may require, any New Notes;

 

Issuer Security means the security created by the First
Issuer pursuant to the First Issuer Deed of Charge in favour of the First
Issuer Secured Creditors, the security created by the Second Issuer pursuant to
the Second Issuer Deed of Charge in favour of the Second Issuer Secured
Creditors, the security created by the Third Issuer pursuant to the Third
Issuer Deed of Charge in favour of the Third Issuer Secured Creditors, the
security created by the Fourth Issuer pursuant to the Fourth Issuer Deed of
Charge in favour of the Fourth Issuer Secured Creditors, and/or, as the context
may require, security created by any New Issuers;

 

Issuer Swap Agreements means, the First Issuer Swap Agreements
and/or the Second Issuer Swap Agreements and/or the Third Issuer Swap
Agreements and/or the Fourth Issuer Agreement and Issuer Swap Agreement means
any one of them;

 

Issuer Swap Provider means the First Issuer Swap Providers
and/or the Second Issuer Swap Providers and/or the Third Issuer Swap Providers
and/or the Fourth Issuer Swap providers and/or any New Issuer Swap Providers;

 

Issuer Swap Provider Default means an Event of Default where the
relevant Issuer Swap Provider is the defaulting party (as defined in the
relevant Issuer Swap Agreement);

 

Issuer Swap Provider Downgrade Termination Event means the occurrence of an
additional termination event following the failure by a First Issuer Swap
Provider and/or a Second Issuer Swap Provider and/or a Third Issuer Swap
Provider and/or a Fourth Issuer Swap Provider to comply with the requirements
of the ratings down grade provisions (as set out in the relevant swap
agreement);

 

Large Loan Discount means the discount which allows a Borrower
to pay interest at a discretionary discount to the standard variable rate of
interest charged on Variable Rate Loans in, or to be included in, the Mortgages
Trust (other than the Tracker Rate Loans) based on the aggregate size of the
Loans under the Mortgage Account (a) at origination or (b) when a Further
Advance is made;

 

Law includes common or customary law and any
constitution, decree, judgment, legislation, order, ordinance, regulation,
statute, treaty or other legislative measure in any jurisdiction and any
present or future directive, regulation, guideline, practice, concession,
request or requirement whether or not having the force of law issued by any
governmental body, agency or department or any central bank or other fiscal,
monetary, taxation, regulatory, self regulatory or other authority or agency;

 

Lending Criteria means the criteria contained in Schedule 4
to the Mortgage Sale Agreement or such other criteria as would be acceptable to
a reasonable, prudent mortgage lender;

 

LIBOR means:

 

(a)                                  in relation to any Funding 1
Liquidity Facility Drawing or, as the case may be, Funding 1 Liquidity Facility
Stand-by Drawing:

 

(i)                                     the display rate per annum of
the offered quotation for deposits in the currency of the relevant Funding 1
Liquidity Drawing or unpaid sum for a period equal to the required period which
appears on Moneyline Telerate

 

27

 

Page 3750 or Moneyline Telerate Page 3740
(as appropriate) at or about 11.00 a.m. on the relevant Quotation Date; or

 

(ii)                                  if the display rate cannot be
determined under paragraph (a) above, the rate determined by the Funding 1
Liquidity Facility Provider to be the arithmetic mean (rounded, if necessary,
to the nearest five decimal places with the midpoint rounded upwards) of the
rates notified to the Liquidity Facility Provider by each of the Reference
Banks quoting (provided that at least two Reference Banks are quoting) as the
rate at which such Reference Bank is offering deposits in the required currency
and for the required period in an amount comparable to that amount to prime
banks in the London inter-bank market at or about 11.00 a.m. on the relevant
Quotation Date for such period;

 

for the
purposes of this definition:

 

Quotation Date means, in relation to any
Interest Period for which an interest rate is to be determined under the
Funding 1 Liquidity Facility Agreement, the day on which quotations would
ordinarily be given by banks in the London inter-bank market for deposits in
the relevant currency for delivery on the first day of that Interest Period;
provided that if, for any such period, quotations would ordinarily be given on
more than one date, the Quotation Date for that period shall be the last of
those dates;

 

Reference Banks means the principal London
office of each of ABN AMRO Bank N.V., Barclays Bank PLC, Citibank, N.A. and the
Royal Bank of Scotland plc or any bank that replaces any of them; and

 

Moneyline Telerate Page
3750
means the display designated as Page 3750; and Moneyline Telerate Page 3740
means the display designated as Page 3740, in each case on the Moneyline
Telerate Service (or such other pages as may replace Page 3750 or Page 3740 on
that service or such other service as may be nominated by the British Bankers’
Association (including the Reuters Screen) as the information vendor for the
purposes of displaying British Bankers’ Association Interest Settlement Rates
for deposits in the currency concerned);

 

(b)                                 in relation to the Mortgages
Trustee GIC Rate, the Funding 1 GIC Rate and the rate of interest payable on
the Start-up Loans, LIBOR as determined in accordance with the Intercompany
Loan Agreements;

 

Liquidity Reserve Fund means the fund established pursuant to the
Funding 1 Deed of Charge in the event that a Liquidity Reserve Fund Rating
Event occurs;

 

Liquidity Reserve Fund Rating Event means the Seller’s long-term,
unsecured, unsubordinated and unguaranteed debt obligations are rated below A-
by S&P, A3 by Moody’s or A- by Fitch (unless the relevant Rating Agency
confirms that its then current ratings of the Fourth Issuer Notes will not be
adversely affected as a consequence of a ratings downgrade of the Seller);

 

Liquidity Reserve Ledger means the ledger that shall be maintained
by the Cash Manager pursuant to the Cash Management Agreement to record the
balance from time to time of the Liquidity Reserve Fund;

 

Liquidity Reserve Required Amount means, on any Interest
Payment Date, an amount equal to 3 per cent. of the aggregate outstanding
balance of the Fourth Issuer Notes on that date;

 

28

 

Loan means each loan referenced by its loan identifier
number and comprising the aggregate of all principal sums, interest, costs,
charges, expenses and other monies (including all further advances including
Further Advances) due or owing with respect to that loan under the relevant
Mortgage Terms by a Borrower on the security of a Mortgage from time to time
outstanding or, as the context may require, the Borrower’s obligations in
respect of the same;

 

Loan Repurchase Notice means a notice in the form set out in
Schedule 6 to the Mortgage Sale Agreement;

 

Loan Warranties means the Representations and Warranties;

 

London Business Day means a day (other than a Saturday or
Sunday) on which banks are generally open for business in London;

 

London Stock Exchange means the London Stock Exchange plc;

 

Loss Amount means the amount of any costs, expenses, losses or
other claims suffered or incurred by, as applicable, the Mortgages Trustee
and/or Funding 1 in connection with any recovery of interest on the Loans to
which the Seller, the Mortgages Trustee or Funding 1 was not entitled or could
not enforce as a result of any of the matters referred to in paragraphs (a),
(b), (c) or (d) of Clause 7.3 of the Mortgage Sale Agreement;

 

Losses means all realised losses on the Loans;

 

Losses Ledger means the ledger of such name maintained by the Cash
Manager pursuant to the Cash Management Agreement to record the Losses;

 

LTV ratio or loan-to-value ratio means the ratio
(expressed as a percentage) of the outstanding balance of a Loan to the value
of the Mortgaged Property securing that Loan;

 

LTV Test means a test which assigns a credit enhancement value
to each loan in the portfolio based on its current loan-to-value ratio and the
amount of mortgage indemnity cover on that loan.  The weighted average credit enhancement value for the portfolio
is then determined;

 

Managers has the meaning given to it in the relevant Issuer
Master Definitions and Construction Schedule;

 

Mandate means the Funding 1 Transaction Account Mandate, the
Funding 1 GIC Account Mandate and/or the Mortgages Trustee GIC Account Mandate,
as the case may be;

 

Mandatory Liquid Asset Cost means the cost imputed to the Funding 1
Liquidity Facility Provider of compliance with:

 

(a)                                  cash and special deposit
requirements of the Bank of England and/or the banking supervision or other
costs imposed by the Financial Services Authority, as determined in accordance
with Schedule 2 of the Funding 1 Liquidity Facility Agreement; and

 

(b)                                 any reserve asset requirements
of the European Central Bank;

 

MHA Documentation means an affidavit, consent or
renunciation granted in terms of the Matrimonial Homes (Family Protection)
(Scotland) Act 1981 in connection with a Scottish Mortgage or the Property
secured thereby;

 

29

 

MIG Policies means the mortgage indemnity guarantee policies
written by General Accident Fire and Life Assurance Corporation PLC, GE Capital
Mortgage (UK) Limited, Royal & Sun Alliance Insurance Plc and Halifax
Mortgage Re Limited in favour of the Seller, or any other mortgage indemnity
guarantee policy as may be effected from time to time to cover the Seller in
respect of New Loans and their Related Security, such other mortgage indemnity
guarantee policy to provide such level of cover as would be acceptable to a
reasonable, prudent mortgage lender at the date of such other policy;

 

Minimum Seller Share means an amount included in the Current
Seller Share which is calculated in accordance with Clause 9.2 of the Mortgages
Trust Deed and which, as at the Fourth Issuer Closing Date, will be
£1,406,739,244;

 

Monthly CPR on any Normal Calculation Date means the total
Principal Receipts received during the period of one month (or, if shorter,
from and including the Initial Closing Date) ending on that Normal Calculation
Date divided by the aggregate Outstanding Principal Balance of the Loans
comprised in the Trust Property as at the immediately preceding Normal
Calculation Date;

 

Monthly Payment means the amount which the relevant
Mortgage Terms require a Borrower to pay on each Monthly Payment Day in respect
of that Borrower’s Loan;

 

Monthly Payment Day means the date on which interest (and
principal in relation to a repayment mortgage) is due to be paid by a Borrower
on a Loan or, if any such day is not a business day, the next following
business day;

 

Moody’s means Moody’s Investors Service Limited and includes
any successor to its rating business;

 

Mortgage Account means all Loans secured on the same
Property and thereby forming a single mortgage account;

 

Mortgage Conditions or Loan Conditions means the terms and
conditions applicable to a Loan as contained in the Seller’s “Mortgage
Conditions” booklet applicable from time to time;

 

Mortgagee means the person for the time being entitled to
exercise the rights of the mortgagee or heritable creditor (as applicable)
under a Mortgage;

 

Mortgage Sale Agreement means the mortgage sale agreement dated
the Initial Closing Date and made between the Seller, Funding 1, the Mortgages
Trustee and the Security Trustee in relation to the assignment of the Initial
Portfolio and the sale of any New Portfolio to the Mortgages Trustee from time
to time, as amended and restated on the Second Issuer Closing Date, the Third
Issuer Closing Date and as further amended and restated on the Fourth Issuer
Closing Date and from time to time;

 

Mortgage Terms means all the terms and conditions
applicable to a Loan, including without limitation the applicable Mortgage
Conditions and Offer Conditions;

 

Mortgages means first fixed charges by way of legal mortgage (in
relation to English Loans) and first ranking standard securities (in relation
to Scottish Loans) sold by the Seller to the Mortgages Trustee pursuant to the
Mortgage Sale Agreement, which secure the repayment of the relevant Loans and a Mortgage
means any one of them;

 

Mortgages Trust means the trust of the Trust Property as
to both capital and income, including the Initial Trust Property, held by the
Mortgages Trustee on trust absolutely for

 

30

 

Funding 1 (as to the Funding 1 Share) and
the Seller (as to the Seller Share) pursuant to the Mortgages Trust Deed;

 

Mortgages Trust Available Principal Receipts means the Principal Receipts
available to the Mortgages Trustee to distribute in accordance with Clause 11
of the Mortgages Trust Deed;

 

Mortgages Trust Available Revenue Receipts means an amount equal to the
aggregate of the following amounts, as calculated on each Calculation Date:

 

(a)                                  Revenue Receipts on the Loans
(but excluding Principal Receipts); and

 

(b)                                 interest payable to the
Mortgages Trustee on the Mortgages Trustee GIC Account; less

 

(c)                                  Third Party Amounts,

 

which amounts may be paid daily from monies
on deposit in the Mortgages Trustee GIC Account;

 

Mortgages Trust Deed means the mortgages trust deed made
between the Mortgages Trustee, Funding 1, the Seller and SFM Offshore Limited
on 13th June, 2002, as amended and restated on the Second Issuer Closing Date,
the Third Issuer Closing Date and as further amended and restated on the Fourth
Issuer Closing Date and from time to time;

 

Mortgages Trustee means Permanent Mortgages Trustee Limited
(registered number 83116), a private company with limited liability
incorporated in Jersey, Channel Island, whose registered office is at 47
Esplanade, St. Helier, Jersey JE1 0BD, Channel Islands;

 

Mortgages Trustee Collection Account Amounts means all amounts from time
to time standing to the credit of the Collection Account to the extent that
such amounts represent payments into the Collection Account of sums derived or
resulting from mortgage loans originated by Halifax which have been sold to the
Mortgages Trustee pursuant to the Mortgage Sale Agreement;

 

Mortgages Trustee Corporate Services Agreement means the agreement dated the
Initial Closing Date and made between the Mortgages Trustee Corporate Services
Provider, the Mortgages Trustee and the Security Trustee for the provision by
the Mortgages Trustee Corporate Services Provider of certain corporate services
and personnel to the Mortgages Trustee;

 

Mortgages Trustee Corporate Services Fee Letter means the letter dated the
date of the Mortgages Trustee Corporate Services Agreement between the
Mortgages Trustee, the Mortgages Trustee Corporate Services Provider and the
Security Trustee, setting out the amount of fees payable to the Mortgages
Trustee Corporate Services Provider by the Mortgages Trustee;

 

Mortgages Trustee Corporate Services Provider means SFM Offshore Limited or
such other person or persons for the time being acting as corporate services
provider to the Mortgages Trustee under the Mortgages Trustee Corporate
Services Agreement;

 

Mortgages Trustee GIC Account means the account in the name of the
Mortgages Trustee (sort code 12-24-55, account number 00998406) maintained with
the Account Bank pursuant to the Bank Account Agreement and the Mortgages
Trustee Guaranteed Investment Contract, or such additional or replacement bank
account of the Mortgages Trustee as may for the time

 

31

 

being be in place with the prior consent of
the Security Trustee which is subject to a Guaranteed Investment Contract;

 

Mortgages Trustee GIC Account Agreement has the same meaning as Mortgages
Trustee Guaranteed Investment Contract;

 

Mortgages Trustee GIC Account Mandate means the bank account
mandate between the Mortgages Trustee and the Account Bank relating to the
operation of the Mortgages Trustee GIC Account;

 

Mortgages Trustee GIC Balance means, on any day during an Interest
Period, the amount standing to the credit of the Mortgages Trustee GIC Account
as at the opening of business on such day;

 

Mortgages Trustee GIC Provider means The Governor and Company of the Bank
of Scotland acting pursuant to the Mortgages Trustee Guaranteed Investment Contract
or its successor or assignee and any provider of a replacement Mortgages
Trustee GIC Account;

 

Mortgages Trustee GIC Rate means the rate of interest accruing on the
balance standing to the credit of the Mortgages Trustee GIC Account equal to a
rate of three month LIBOR less 0.25 per cent. per annum;

 

Mortgages Trustee Guaranteed Investment Contract or Mortgages Trustee GIC Account Agreement
means the guaranteed investment contract entered into on the Initial Closing
Date between the Mortgages Trustee, the Mortgages Trustee GIC Provider, the
Cash Manager and the Security Trustee in relation to interest to be earned on
the Mortgages Trustee GIC Balance (as the same may be amended and/or
supplemented from time to time);

 

Mortgages Trustee Ledgers means the Principal Ledger, the Revenue
Ledger, the Losses Ledger and the Funding 1 Share/Seller Share Ledger;

 

Mortgages Trustee Tracker Rate means the rate of interest (before
applying any cap or minimum rate) which is set by the Servicer from time to
time in respect of Tracker Rate Loans pursuant to Clause 4.1 of the Servicing
Agreement;

 

Mortgages Trustee Variable Base Rate means the variable base rates
which apply to the Variable Rate Loans in the Portfolio as set, other than in
limited circumstances, by the Servicer, as set out in Clause 4.1 of the Servicing
Agreement;

 

Mortgages Trust Principal Priority of Payments means the order in which the
Cash Manager applies Principal Receipts on the Loans on each Distribution Date
to each of Funding 1 and the Seller, depending on whether a Trigger Event has
occurred, as set out in Clause 11 of the Mortgages Trust Deed;

 

Mortgages Trust Revenue Priority of Payments means the order in which the
Cash Manager applies the Mortgages Trust Available Revenue Receipts on each Distribution
Date, as set out in Clause 10 of the Mortgages Trust Deed;

 

New Bullet Term Advance means any term advance made under a New
Intercompany Loan Agreement where the full amount of principal on such term
advance is scheduled for repayment on a single interest payment date (other
than the final repayment date);

 

New Deed of Accession means any new deed of accession to the
Funding 1 Deed of Charge entered into on any New Issuer Closing Date
between Funding 1, each Issuer, the Corporate

 

32

 

Services Provider, the Account Bank, the
Security Trustee, the Seller, each Start-up Loan Provider, the Cash Manager,
the Funding 1 Swap Provider and the Funding 1 Liquidity Facility Provider as
supplemented, amended and/or restated from time to time;

 

New Funding 1 Secured Creditor means such other creditor of Funding 1 who
accedes to the Funding 1 Deed of Charge from time to time including pursuant to
an Accession Undertaking;

 

New Funding 1 Swap means a new swap under the existing
Funding 1 Swap Agreement;

 

New Intercompany Loan means a loan of the proceeds of any issue
of New Notes, such loan being advanced to Funding 1 by a New Issuer pursuant to
the terms of a New Intercompany Loan Agreement;

 

New Intercompany Loan Agreement means a new intercompany loan
agreement entered into between Funding 1 and a New Issuer in relation to a New
Intercompany Loan;

 

New Intercompany Loan Confirmation means a new Intercompany Loan
Confirmation confirming the terms of the New Intercompany Loan Agreement;

 

New Issuer means a new wholly owned subsidiary of Holdings,
which is established to issue New Notes and to make a New Intercompany Loan to
Funding 1;

 

New Issuer Closing Date means the date of any new issue of New
Notes by a New Issuer;

 

New Issuer Security means security created by any New Issuer;

 

New Issue Swap Provider means any entity who enters into a hedging
arrangement with a New Issuer;

 

New Issuer Transaction Document means any document or
agreement to which any New Issuer is a party (together the New Issuer Transaction Documents);

 

New Liquidity Facility Provider means a new liquidity
facility provider to Funding 1 and/or, as the context may require, to the
Issuer(s);

 

New Loans means Loans, other than the Initial Loans, which the
Seller may sell, to the Mortgages Trustee after the Initial Closing Date
pursuant to the Mortgage Sale Agreement;

 

New Loan Type means on any date a type of Loan:

 

(a)                                  which has one or more features
(including, without limitation, relating to the applicable lending criteria
used to originate such type of Loan, the purpose of such type of Loan, the
manner of calculating interest or fixing the interest rate in relation to such
type of Loan and/or the terms for repayment of principal in relation to such
type of Loan) which mean that such type of Loan is generally regarded as a
distinct category of mortgage loan within the UK mortgage industry and/or by
one of more of the Rating Agencies; and

 

(b)                                 where no such type of Loan is
at that date, or has previously been, comprised in the Mortgages Trust,

 

33

 

(and such types include Flexible Loans,
HomeOwner Loans, Deedstore Loans, capped rate loans, buy-to-let loans,
right-to-buy loans, limited recourse loans, equity release loans and drawdown
loans as at the Initial Closing Date);

 

New Notes means the notes issued and/or to be issued by the New
Issuers to investors;

 

New Portfolio means in each case the portfolio of Loans and their
Related Security (other than any Loans and their Related Security which have
been redeemed in full prior to the Sale Date or which do not otherwise comply
with the terms of Clause 4 of the Mortgage Sale Agreement as
at the Sale Date), particulars of which are set out in the relevant New
Portfolio Notice or in a document stored upon electronic media (including, but
not limited to, a CD-ROM), and all right, title, interest and benefit of the
Seller in and to:

 

(a)                                  all payments of principal and
interest (including, for the avoidance of doubt, all Accrued Interest, Arrears
of Interest, Capitalised Expenses and Capitalised Arrears) and other sums due
or to become due in respect of such Loans and their Related Security including,
without limitation, the right to demand, sue for, recover and give receipts for
all principal monies, interest and costs and the right to sue on all covenants
and any undertakings made or expressed to be made in favour of the Seller under
the applicable Mortgage Terms;

 

(b)                                 subject where applicable to
the subsisting rights of redemption of Borrowers, all Deeds of Consent, Deeds
of Postponement, MHA Documentation and all third party guarantees and any other
collateral security for the repayment of the relevant New Loans secured by the
relevant New Mortgages;

 

(c)                                  the right to exercise all the
powers of the Seller in relation thereto;

 

(d)                                 all the estate and interest in
the relevant Properties vested in the Seller;

 

(e)                                  each relevant Certificate of
Title and Valuation Report and any right of action of the Seller against any
solicitor, licensed conveyancer, qualified conveyancer, valuer or other person
in connection with any report, valuation, opinion, certificate or other
statement of fact or opinion given in connection with such Loans and their
Related Security, or any part thereof or affecting the decision of the Seller
to make or offer to make any such Loan or part thereof;

 

(f)                                    the proceeds of all claims to
which the Seller is entitled under the Buildings Policies and the Properties in
Possession Cover;

 

(g)                                 the MIG Policies, so far as
they relate to the New Loans comprised in the relevant portfolio of Loans and
their Related Security, including the right to receive the proceeds of any
claims; and

 

(h)                                 all proceeds from the
enforcement of such Loans and their Related Security;

 

New Portfolio Notice means a notice in the form set out in
Schedule 12 to the Mortgage Sale Agreement served in accordance with the terms
of the Mortgage Sale Agreement;

 

New Related Security means the Related Security for the New
Loans (including any Mortgages) sold to the Mortgages Trustee by the Seller;

 

34

 

New Scheduled Amortisation Term Advance means any Term Advance made
under a New Intercompany Loan Agreement which is referred to as a Scheduled Amortisation
Term Advance in the offering document or prospectus relating to any relevant
New Issuer;

 

New Start-up Loan means a loan issued to Funding 1 under a
New Start-up Loan Agreement;

 

New Start-up Loan Agreement means a loan agreement under which the
Start-up Loan Provider or a New Start-up Loan Provider shall provide Funding 1
with a New Start-up Loan for the purposes of meeting the costs of the New Issue
and/or further funding the Reserve Fund, if required;

 

New Start-up Loan Provider means an entity who shall supply a New
Start-up Loan to Funding 1;

 

New Term Advance means an advance of funds by a New Issuer
to Funding 1 under the terms of a New Intercompany Loan Agreement, which
advance is funded by a corresponding class of New Notes;

 

New York Business Day means a day (other than a Saturday or a
Sunday) on which banks are generally open for business (including dealings in
foreign currency) in the city of New York;

 

Non-Asset Trigger Event means the occurrence of any of the
following events on a Calculation Date:

 

(a)                                  an Insolvency Event occurs in
relation to the Seller on or about that Calculation Date;

 

(b)                                 the role of the Seller as
Servicer under the Servicing Agreement is terminated and a new Servicer is not
appointed within 60 days of such termination;

 

(c)                                  as at the Calculation Date
immediately preceding the relevant Calculation Date the Current Seller Share is
equal to or less than the Minimum Seller Share; or

 

(d)                                 on any Calculation Date, the
Outstanding Principal Balance of Loans comprising the Trust Property at that
date (i) during the period from and including the Fourth Issuer Closing Date up
to and excluding the Funding 1 Interest Payment date in June 2006 is less than
£21,500,000,000 or (ii) during the period from and including the Funding 1
Interest Payment in June 2006 Date to but excluding the Interest Payment Date
in June 2008 is less than £15,750,000,000

 

Normal Calculation Date means the first day (or, if not a London
Business Day, the next succeeding London Business Day) of each month;

 

Note Acceleration Notice means a First Issuer Note Acceleration
Notice, a Second Issuer Note Acceleration Notice, a Third Issuer Note
Acceleration Notice, a Fourth Issuer Note Acceleration Notice or such other
acceleration notice served in relation to the Notes pursuant to the relevant
terms and conditions thereof;

 

Note Determination Date means two Business Days prior to each
Funding 1 Interest Payment Date;

 

Note Event of Default means the occurrence of an event of
default by the relevant Issuer as specified in the relevant Conditions of the
Notes (including a First Issuer Note Event of

 

35

 

Default, a Second Issuer Note Event of
Default, a Third Issuer Note Event of Default and a Fourth Issuer Note Event of
Default);

 

Notes means the First Issuer Notes, the Second Issuer
Notes, the Third Issuer Notes, the Fourth Issuer Notes and/or as the context
may require, any New Notes;

 

Note Trustee means The Bank of New York, acting through its
offices at 48th Floor, One Canada Square, London E14 5AL or such other person
or companies as may from time to time be appointed as Note Trustee (or
co-trustee) pursuant to the First Issuer Trust Deed and/or the Second Issuer
Trust Deed and/or the Third Issuer Trust Deed and/or the Fourth Issuer Trust
Deed;

 

Notice of Extension has the meaning given to it in Clause
2.3(c) of the Funding 1 Liquidity Facility Agreement;

 

Novation Certificate means a certificate to effect a novation
of the Funding 1 Liquidity Facility under the Funding 1 Liquidity Facility
Agreement, substantially in the form set out in Schedule 4 to the Funding 1
Liquidity Facility Agreement;

 

Offer Conditions means the terms and conditions applicable
to a specified Loan as set out in the relevant offer letter to the Borrower;

 

Original Bullet Term Advance means a Term Advance which at any time has
been a Bullet Term Advance (even if such Term Advance has subsequently become a
Pass-Through Term Advance);

 

Original Pass-Through Term Advance means a Term Advance which,
at the time it was advanced, was a Pass-Through Term Advance;

 

Original Scheduled Amortisation Instalment means that part of a Term
Advance which at any time has been a Scheduled Amortisation Instalment (even if
such Term Advance has subsequently become a Pass-Through Term Advance);

 

Original Scheduled Amortisation Term Advance means a Term Advance which at
any time has been a Scheduled Amortisation Term Advance (even if such Term
Advance has subsequently become a Pass-Through Term Advance);

 

Outstanding Principal Balance:

 

(a)                                  in relation to a Loan at any
date (the determination
date), means the aggregate principal balance of the Loan at such
date (but avoiding double counting) including:

 

(i)                                     the Initial Advance;

 

(ii)                                  Capitalised Expenses;

 

(iii)                               Capitalised Arrears; and

 

(iv)                              in increase in the principal
amount due under that Loan due to the Borrower making Flexible Drawings and/or
taking Payment Holidays or making Underpayments,

 

in each
case relating to such Loan less any prepayment, repayment or payment of the
foregoing made on or prior to the determination date;

 

36

 

(b)                                 in relation to an Intercompany
Loan at any date, means the unpaid principal balance of that Intercompany Loan
at that date (including any capitalised arrears) or, as the context so
requires, of a Term Advance made under that Intercompany Loan; and

 

(c)                                  in relation to any Notes at
any date, means the unpaid principal balance of those Notes, or, as the context
so requires, any series and/or class of such Notes as at that date;

 

Overpayment means a payment by a Borrower in an amount greater
than the Monthly Payment then due on the Loan;

 

Pass-Through Repayment Restrictions means, at any time on a
Funding 1 Interest Payment Date, no amount may be applied in repayment of any
Original Pass-Through Term Advance unless:

 

(a)                                  the sum of the Cash
Accumulation Ledger Amount and the amount of Funding 1 Available Principal
Receipts after the application of items (a), (b) and (c) and before item (d) of
the Funding 1 Pre-Enforcement Principal Priority of Payments,

 

is
greater than or equal to

 

(b)                                 the sum of the Cash
Accumulation Liability and the aggregate amount of all Original Pass-Through
Term Advances which are due and payable as at that time;

 

Pass-Through Term Advance means a Term Advance which has no
Scheduled Repayment Date(s) other than a Final Repayment Date; or if a Trigger
Event occurs or, the relevant Issuer Security and/or Funding 1 Security is
enforced, the Bullet Term Advance or the Scheduled Amortisation Term Advance
will be deemed to be a Pass-Through Term Advance;

 

Payable Pass-Through Term Advances in relation to the
Intercompany Loan has the meaning given in Part II of Schedule 3 to the Funding
1 Deed of Charge;

 

Payment Holiday means the period of time that a Borrower
under a Loan refrains from making payments of interest and principal on his
Loan as expressly permitted by the terms of the Borrower’s Loan;

 

Perfection means the perfection of certain matters relating to
the sale and purchase of the Portfolio as contemplated in, pursuant to and in
accordance with Clause 6 of the Mortgage Sale Agreement;

 

Personal Data means any information of what
ever nature satisfying the definition of ‘personal data’ in the Act that , by
whatever means, is provided to the Data Processor by the Data Controller, is
accessed by the Data Processor on the authority of the Data Controller or is
otherwise received by the Data Processor on the Data Controller’s behalf, for
the purposes of the Processing specified in Clause 3.1(a) of the Data
Processor Agreement dated on or about the Closing Date and made between the
Data Controller and the Data Processor;

 

Portfolio means the Initial Portfolio and any New Portfolio
(other than any Loan and its Related Security which has been redeemed in full
or repurchased by the Seller pursuant to Clause 8 of the Mortgage Sale Agreement);

 

Post-Enforcement Call Option Holder means Permanent PECOH Limited
(registered number 4267666), a limited company incorporated under the laws of
England and Wales, whose registered office is at Blackwell House, Guildhall
Yard, London EC2V 5AE;

 

37

 

Potential Intercompany Loan Event of Default means the occurrence of any
event which with the giving of notice, any relevant certificate, the lapse of
time or fulfilment of any other condition (or any combination of the foregoing)
would become an Intercompany Loan Event of Default;

 

Potential Note Event of Default means the occurrence of an
event which with the giving of notice, any relevant certificate, the lapse of
time or fulfilment of any other conditions (or any combination of the
foregoing), would become a Note Event of Default;

 

Principal Deficiency means any losses arising in relation to a
Loan in the Portfolio which causes a shortfall in the amount available to pay
principal on the Term Advances;

 

Principal Deficiency Ledger means the ledger of such name maintained
by the Cash Manager pursuant to the Cash Management Agreement, comprising, as
at the date hereof, four sub-ledgers, the AAA Principal Deficiency Sub-Ledger,
the AA Principal Deficiency Sub-Ledger, the A Principal Deficiency Sub-Ledger
and the BBB Principal Deficiency Sub-Ledger, but which may comprise additional
sub ledgers as required;

 

Principal Deficiency Sub-Ledger means singly or together (as
the context requires) the AAA Principal Deficiency Sub-Ledger, the AA Principal
Deficiency Sub-Ledger, the A Principal Deficiency Sub-Ledger, the BBB Principal
Deficiency Sub-Ledger and/or such additional principal deficiency sub ledgers
that may be established from time to time after the Initial Closing Date;

 

Principal Issuers has the meaning given in Clause 5.4
of the Funding 1 Deed of Charge;

 

Principal Ledger means the ledger of such name maintained
by the Cash Manager, pursuant to the Cash Management Agreement and Clause 14
of the Mortgages Trust Deed to record the Principal Receipts on the Loans and
distributions of such Principal Receipts to the Beneficiaries;

 

Principal Payment Rate or PPR means the average monthly rolling
principal payment rate on the Loans for the 12 months immediately preceding the
relevant Distribution Date calculated on each such date by:

 

(a)                                  dividing (i) the aggregate
Principal Receipts received in relation to the Loans during the immediately
preceding month on such calculation date by (ii) the aggregate Outstanding
Principal Balance of the Loans or the previous calculation date;

 

(b)                                 aggregating the result of the
calculation in (a) above with the results of the equivalent calculation made on
each of the eleven most recent calculation dates during the relevant 12 month
period; and

 

(c)                                  dividing the result of the
calculation in (b) above by 12;

 

Principal Receipts means any payment in respect of principal
received in respect of any Loan (including payments pursuant to any Insurance
Policies), whether as all or part of a Monthly Payment in respect of such Loan,
on redemption (including partial redemption) of such Loan, on enforcement of
such Loan (including the proceeds of sale of the relevant Property) or on the
disposal of such Loan plus on any Monthly Payment Date an amount equal to the
amount (if any) by which arrears in respect of the Loans comprised in the
Portfolio on the relevant Closing Date exceeds such arrears on such Monthly
Payment Date (without double counting but including principal received or
treated as received after completion of the enforcement procedures);

 

38

 

Principal Term Advances has the meaning given in Clause 5.4
of the Funding 1 Deed of Charge;

 

Processing has the meaning given to it in the Act;

 

Product Switch means a variation to the financial terms
or conditions included in the Mortgage Terms applicable to a Loan other than:

 

(a)                                  any variation agreed with a
Borrower to control or manage arrears on a Loan;

 

(b)                                 any variation to the interest
rate as a result of Borrowers being linked to HVR2;

 

(c)                                  any variation in the maturity
date of a Loan unless, while the First Issuer Intercompany Loan, the Second
Issuer Intercompany Loan, the Third Issuer Intercompany Loan and/or Fourth
Issuer Intercompany Loan is outstanding, it is extended beyond June, 2040;

 

(d)                                 any variation imposed by
statute;

 

(e)                                  any variation of the rate of
interest payable in respect of the loan where that rate is offered to the
Borrowers of more than 10 per cent. of the outstanding principal amount of
loans in the Trust Property in any Interest Period; or

 

(f)                                    any variation in the frequency
with which the interest payable in respect of the Loan is charged;

 

Properties in Possession Cover means in relation to policies issued
before 1st January, 2004, the properties in possession cover written by Royal
& Sun Alliance Insurance PLC and in relation to policies or renewals issued
on or after 1st January, 2004, the properties in possession cover written by St
Andrew’s Insurance, in favour of the Seller and any endorsements or extensions
thereto as issued from time to time, or any such similar alternative or
replacement policy or policies as may in future be issued in favour of the
Seller;

 

Property means a freehold, heritable or leasehold property (or
in Scotland a property held under a long lease) which is subject to a Mortgage;

 

Provisional Portfolio means the portfolio of Loans and their
Related Security, particulars of which are set out in Part 1 of the Exhibit to
the Mortgage Sale Agreement or in a document stored upon electronic media
(including, but not limited to, a CD-ROM), and all right, title, interest and
benefit of the Seller in and to:

 

(a)                                  all payments of principal and
interest (including, for the avoidance of doubt, all Accrued Interest, Arrears
of Interest, Capitalised Expenses and Capitalised Arrears) and other sums due
or to become due in respect of such Loans and Related Security including,
without limitation, the right to demand, sue for, recover and give receipts for
all principal monies, interest and costs and the right to sue on all covenants
made or expressed to be made in favour of the Seller under the applicable Mortgage
Terms;

 

(b)                                 subject where applicable to
the subsisting rights of redemption of Borrowers, all Deeds of Consent, Deeds
of Postponement or any collateral security for the repayment of the relevant
Loans secured by the Mortgages;

 

(c)                                  the right to exercise all the
powers of the Seller in relation thereto;

 

39

 

(d)                                 all the estate and interest in
the Properties vested in the Seller;

 

(e)                                  each Certificate of Title and
Valuation Report and any right of action of the Seller against any solicitor,
valuer or other person in connection with any report, valuation, opinion,
certificate or other statement of fact or opinion given in connection with such
Loans and Related Security, or any part thereof or affecting the decision of
the Seller to make or offer to make any such Loan or part thereof;

 

(f)                                    all rights, title and
interests of the Seller (including, without limitation, the proceeds of all
claims) to which the Seller is entitled under the Buildings Policies and the
Properties in Possession Cover; and

 

(g)                                 the MIG Policies, so far as
they relate to the Loans comprised in that portfolio of Loans and their Related
Security, including the right to receive the proceeds of any claim;

 

Purchase Price is the sum of £3,500,000,000 paid by
Funding 1 to the Seller in consideration of the Seller’s assignment of the
Initial Portfolio (together with any Accrued Interest and Arrears of Interest
as at the Initial Closing Date) to the Mortgages Trustee and the Funding 1
Share thereof;

 

Qualifying Lender means a lender which is (on a date that
any payment of interest to it under the Funding 1 Liquidity Documents falls
due):

 

(a)                                  (i)            a bank (as defined for the purpose of section 349 ICTA);
or

 

(ii)                                  in respect of an advance made
under a Funding 1 Liquidity Document by a person that was a bank (as defined
for the purpose of section 349 as above) at the time that such advance was
made, a person, which is within the charge to United Kingdom corporation tax as
regards any payments of interest received by it under the Funding 1 Liquidity
Documents and is the beneficial owner of that interest at the time the interest
is paid; or

 

(b)                                 (i)            a company resident in the United Kingdom for United
Kingdom tax purposes; or

 

(ii)                                  a partnership each member of
which is:

 

(aa)                            a company resident in the
United Kingdom for United Kingdom tax purposes; or

 

(bb)                          a company not so resident in
the United Kingdom which carries on a trade in the United Kingdom through a
permanent establishment and which brings into account in computing its
chargeable profits (within the meaning of Section 11(2) ICTA) the whole of any
share of interest payable under a Funding 1 Liquidity Document that falls to it
by reason by Sections 114 and 115 ICTA;

 

(iii)                               a company not so resident in
the United Kingdom which carries on a trade in the United Kingdom through a
permanent establishment and which brings into account payments of interest made
to it under a Funding 1 Liquidity Document in computing its chargeable profits
(within the meaning given by section 11(2) ICTA),

 

40

 

which,
in each case, is beneficially entitled to the relevant  payment of interest made to it under the
Funding 1 Liquidity Documents at the time the interest is paid; or

 

(c)                                  a Treaty Lender; or

 

(d)                                 a building society authorised
under the Building Societies Act 1986 and entitled to receive interest without
deduction or withholding on account of United Kingdom Tax to which the Income
Tax (Building Societies) (Dividends and Interest) Regulations 1990 (or other
regulations made under sub-section 477A(1) of the Income and Corporation Taxes
Act 1988) apply;

 

Quarterly CPR on any date means the average of the three most
recent CPRs;

 

Rating Agencies means S&P, Moody’s and Fitch;

 

Reasonable, Prudent Mortgage Lender means a reasonably prudent
prime residential mortgage lender lending to borrowers in England, Wales and
Scotland who generally satisfy the lending criteria of traditional sources of
residential mortgage capital;

 

Receiver means any person or persons appointed (and any
additional person or persons appointed or substituted) as an administrative
receiver, receiver, manager, or receiver and manager of the Funding 1 Charged
Property by the Security Trustee pursuant to Clause 13.1 of the Funding 1
Deed of Charge;

 

Redemption Fee means the standard redemption fee charged
to the Borrower by the Seller where the Borrower makes a repayment of the full
outstanding principal of a Loan;

 

Reference Banks means the principal London office of each
of ABN AMRO Bank N.V., Barclays Bank PLC, Citibank, N.A. and the Royal Bank of
Scotland plc and/or such other bank as may be appointed agent bank from time to
time pursuant to the Fourth Issuer Paying Agent and Agent Bank Agreement or, as
the context may require, the Third Issuer Paying Agent and Agent Bank
Agreement, the Second Issuer Paying Agent and Agent Bank Agreement or First
Issuer Paying Agent and Agent Bank Agreement;

 

Registered Land means land in England and Wales, title to
which is, or is required to be, registered at H.M. Land Registry;

 

Registered Transfer means a deed of transfer of a Mortgage or
Mortgages over Registered Land substantially in the form set out in Schedule 2
to the Mortgage Sale Agreement with such modifications as may be required from
time to time;

 

Related Security means, in relation to a Loan, the security
for the repayment of that Loan including the relevant Mortgage and all other
matters applicable thereto acquired as part of the Portfolio sold to the
Mortgage Trustee pursuant to Clause 2.1 or Clause 4.1 of the Mortgage
Sale Agreement including (without limitation):

 

(a)                                  the benefit of all affidavits,
consents, renunciations, guarantees, indemnities, waivers and postponements
(including, without limitation, Deeds of Consent, Deeds of Postponement and MHA
Documentation) from occupiers and other persons having an interest in or rights
in connection with the relevant Property;

 

(b)                                 each right of action of the
Seller against any person (including, without limitation, any valuer, licensed
or qualified conveyancer, solicitor and any registrar or registry) in
connection with any report, valuation, opinion, certificate or other statement
of fact

 

41

 

or opinion (including, without limitation,
each Certificate of Title and Valuation Report) given or received in connection
with all or part of any Loan and its Related Security or affecting the decision
of the Seller to make or offer to make all or part of the relevant Loan; and

 

(c)                                  the benefit of (including,
without limitation, the rights as the insured person under and as notations of
interest on, returns of premium and proceeds of claims under) insurance and
assurance policies (including, the Buildings Policies and MIG Policies)
deposited, charged, obtained, or held in connection with the relevant Loan,
Mortgage and/or Property and Loan Files;

 

(but excluding, for the avoidance of doubt,
the Properties in Possession Cover in respect of which the Mortgages Trustee,
Funding 1 and the Security Trustee have received the Insurance
Acknowledgement);

 

Relevant Accumulation Amount means the amount of funds to be
accumulated over a Cash Accumulation Period in order to repay a Bullet Term
Advance or a Scheduled Amortisation Instalment on its Scheduled Repayment Date;

 

Relevant Event means, in relation to the Funding 1
Liquidity Facility Provider:

 

(a)                                  the downgrade on any day of
the Funding 1 Liquidity Facility Provider’s short-term, unsecured,
unsubordinated and unguaranteed debt to below the Requisite Ratings; or

 

(b)                                 the refusal by the Funding 1
Liquidity Facility Provider, to grant an extension of the Funding 1 Liquidity
Facility Commitment Period, in accordance with Clause 2.3 of the Funding 1
Liquidity Facility Agreement;

 

Relevant Screen Rate in relation to each Intercompany Loan
means (a) in respect of the first Interest Period, the Initial Relevant Screen
Rate specified in the relevant Intercompany Loan Confirmation; and (b) in
respect of subsequent Interest Periods, means the arithmetic mean of offered
quotations for three-month Sterling deposits in the London inter-bank market
displayed on the Dow-Jones/Telerate Monitor at Telerate Page No. 3750; in each
case, displayed on the above mentioned page of the Dow-Jones/Telerate Monitor
(or such replacement page on that service which displays the information) or,
if that service ceases to display the information, such other screen service as
may be determined by Funding 1 with the approval of the Security Trustee
(rounded upwards, if necessary, to five decimal places);

 

Relevant Share Calculation Date means the Calculation Date at
the start of the most recently completed Calculation Period;

 

Repayment Date has the meaning given to it in Clause
2.3(d) of the Funding 1 Liquidity Facility Agreement;

 

Repayment Requirement means on a Calculation Date, the amount,
if any, by which the aggregate of all amounts that will be payable by Funding 1
on the next Funding 1 Interest Payment Date as described in paragraphs 2.1 (d)
to (f) (inclusive) of Part II of Schedule 3 to the Funding 1 Deed of Charge on
the basis:

 

(a)                                  that there would be no
deferral in relation to Term Advances pursuant to Rule (1) set out in paragraph
2.2(a) of Part II of Schedule 3;

 

(b)                                 that where Rule (2) or Rule
(3) as set out in paragraph 2.2(a) of Part II of Schedule 3 applies to an
Intercompany Loan, the amount so payable by Funding 1 in respect of

 

42

 

Term Advances (other than Bullet Term
Advances and Scheduled Amortisation Instalments) under that Intercompany Loan
shall be treated as the lesser of (A) the amount due and payable in respect of
those Term Advances, and (B) the product of (i) the Funding 1 Share Percentage
as at the start of the most recently ended Calculation Period (provided
that if during the most recently ended Calculation Period Loans and their
Related Security are sold to the Mortgages Trustee or Funding 1 has acquired
part of the Seller Share of the Trust Property from the Seller, then the
Funding 1 Share Percentage will be calculated for purposes of this paragraph as
the weighted average of the Funding 1 Share Percentages as of the first day of
such Calculation Period and as of the date immediately after such sale or
acquisition, (ii) the aggregate amount of principal receipts received by the
mortgages trustee during the most recently ended Calculation Period (iii) the
Outstanding Principal Balance of Intercompany Loan A (in the case of Rule (2))
or Intercompany Loan B (in the case of Rule (3)), divided by the aggregate
outstanding principal balance of all Intercompany Loans, each as of the most
recent Funding 1 Interest Payment Date;

 

(c)                                  that Term Advances will be
treated as due and payable if they are already due and payable, or would become
due and payable on or before the next Funding 1 Interest Payment Date if all
Principal Receipts were paid to Funding 1 on that Calculation Date; and

 

(d)                                 excluding amounts due and
payable in respect of Bullet Term Advances and Scheduled Amortisation
Instalments,

 

exceeds
the sum of:

 

(e)                                  the amounts standing to the
credit of the Funding 1 Principal Ledger as at the last Funding 1 Interest
Payment Date (which amount was not distributed on that Funding 1 Interest
Payment Date to the First Issuer); and

 

(f)                                    the sum of each Repayment
Requirement amount paid to Funding 1 on a previous Distribution Date during the
relevant interest period;

 

Representations and Warranties means the representations and warranties
set out in Schedule 1 to the Mortgage Sale Agreement;

 

Requisite Rating means in respect of the Funding 1
Liquidity Facility Provider as provider of the Funding 1 Liquidity Facility, a
rating of P-1 by Moody’s, F1 by Fitch and A+ by S&P;

 

Reserve Funds means the General Reserve Fund and the Liquidity
Reserve Fund;

 

Revenue Ledger means the ledger maintained by the Cash
Manager pursuant to the Cash Management Agreement and Clause 14 of the Mortgages
Trust Deed to record Revenue Receipts received by the Mortgage Trustee and
payment of the same to Beneficiaries;

 

Revenue Receipts means each payment received in respect of
any Loan, whether as all or part of a Monthly Payment in respect of such Loan,
on redemption (including partial redemption) of such Loan, on enforcement of
such Loan (including the proceeds of sale of such Loan), on the disposal of
such Loan or otherwise (including payments pursuant to any Insurance Policy)
which in any such case is not a Principal Receipt in respect of such Loan;

 

S&P and Standard & Poor’s means Standard &
Poor’s Rating Services, a division of The McGraw-Hill Companies, Inc. and
includes any successor to its rating business;

 

43

 

Sale Date means the date on which any New Portfolio is sold to
the Mortgages Trustee in accordance with Clause 4 of the Mortgage Sale Agreement;

 

Sasine Transfer means, in relation to Properties situated
in Scotland title to which is recorded in the General Register of Sasines, each
assignation of the relevant Scottish Loans and their related Scottish Mortgages
in the relevant form set out in Schedule 14 to the Mortgage Sale Agreement with
such modifications as may be required from time to time;

 

Scheduled Amortisation Instalment means that part of a
Scheduled Amortisation Term Advance which is payable on each of the Scheduled
Repayment Dates of that Term Advance;

 

Scheduled Amortisation Repayment Restrictions means at any time on a
Funding 1 Interest Payment Date:

 

(a)                                  where there is not a Bullet
Accumulation Shortfall at that time, the total amount withdrawn from the Cash
Accumulation Ledger on that Funding 1 Interest Payment Date for repayment of
the relevant Scheduled Amortisation Instalments shall not exceed the Cash
Accumulation Ledger Amount less the Bullet Accumulation Liability at that time;
and

 

(b)                                 where there is a Bullet
Accumulation Shortfall at that time:

 

(i)                                     no amount may be withdrawn
from the Cash Accumulation Ledger on that Funding 1 Interest Payment Date to be
applied in repayment of the relevant Scheduled Amortisation Instalments; and

 

(ii)                                  no amount may be applied in
repayment of the relevant Scheduled Amortisation Instalments unless:

 

(A)                              the sum of the Cash
Accumulation Ledger Amount and the amount of Funding 1 Available Principal
Receipts after the application of items (a), (b) and (c) and before item (d) of
the Funding 1 Pre-Enforcement Principal Priority of Payments,

 

is
greater than or equal to

 

(B)                                the sum of the Bullet
Accumulation Liability and the aggregate amount of Scheduled Amortisation
Instalments which are due and payable as at that time;

 

Scheduled Amortisation Term Advance means the Second Issuer
Series 3 Term AAA Advance, the Third Issuer Series 3 Term AAA Advance, the
Third Issuer Series 4 Term AAA Advances and any New Scheduled Amortisation Term
Advance;

 

Scheduled Repayment Date in relation to a Term Advance means its
Scheduled Repayment Date(s), as defined in the relevant Issuer Master
Definitions and Construction Schedule relating to the corresponding class of
Issuer Notes;

 

Scottish Declaration of Trust means each declaration of trust entered
into among the Seller, the Mortgage Trustee and Funding 1 pursuant to Clauses
4.5(a)(vi) of the Mortgage Sale Agreement substantially in the form set out in
Schedule 15 to the Mortgage Sale Agreement;

 

Scottish Loan means a Loan secured by a standard security over a
Property located in Scotland;

 

44

 

Scottish Mortgage means a Mortgage securing a Scottish Loan;

 

Scottish Transfers means each Sasine Transfer and each SLR
Transfer;

 

Scottish Trust Property means the aggregate of all Scottish Trust
Property as defined in each relevant Scottish Declaration of Trust;

 

Search Indemnity Policy means the search indemnity policy written
by Royal & Sun Alliance Insurance PLC in favour of the Seller and any endorsements
or extensions thereto as issued from time to time, or any such similar
alternative or replacement policy or policies as may in future be issued in
favour of the Seller;

 

SEC or Securities and Exchange Commission means
the United States Securities and Exchange Commission;

 

Second Issuer means 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;

 

Second Issuer Closing Date means on or about 6th March, 2003;

 

Second Issuer Intercompany Loan Agreement means the Second Issuer
Intercompany Loan Confirmation and the Intercompany Loan Terms and Conditions
together entered into on the Second Issuer Closing Date by the Second Issuer,
Funding 1 and the Security Trustee (as the same may be amended and/or
supplemented from time to time);

 

Second Issuer Security means the security created by the Second
Issuer pursuant to the Second Issuer Deed of Charge in favour of the Second
Issuer Secured Creditors;

 

Second Start-up Loan means the start-up loan that the Second
Start-up Loan Provider has made available to Funding 1 pursuant to the Second
Start-up Loan Agreement;

 

Second Start-up Loan Agreement means the agreement entered into on the
Second Issuer Closing Date between Funding 1, the Second Start-up Loan Provider
and the Security Trustee relating to the provision of the Second Start-up Loan
to Funding 1 (as the same may be amended and/or supplemented from time to
time);

 

Second Start-up Loan Provider means Halifax in its capacity as provider
of the Second Start-up Loan;

 

Second Supplemental Funding 1 Deed of Charge means the second supplemental
Funding 1 deed of charge entered into on or around the date of Fourth Issuer
Closing Date between Funding 1, the First Issuer, the Second Issuer, the Third
Issuer, the Fourth Issuer, the Security Trustee, the Mortgages Trustee, the
Cash Manager, the Account Bank, the Funding 1 GIC Provider, the Funding 1 Swap
Provider, the First Start-up Loan Provider, the Second Start-up Loan Provider,
the Third Start-up Loan Provider and the Fourth Start-up Loan Provider, the
Funding 1 Liquidity Facility Provider and the Funding 1 Corporate Services
Provider and the Seller;

 

Secured Amounts means any and all of the moneys and
liabilities which an Issuer covenants to pay or discharge under of the relevant
Issuer Deed of Charge and all other amounts owed by it to the Beneficiaries
under and pursuant to the relevant Transaction Documents;

 

Securities Act means the United States Securities Act of
1933, as amended;

 

45

 

Security Interest or Encumbrance means any mortgage, sub
mortgage, standard security, charge, sub charge, pledge, lien (other than a
lien arising in the ordinary course of business or by operation of law)
assignation in security or other encumbrance or security interest howsoever
created or arising;

 

Security Power of Attorney means the power of attorney granted by
Funding 1 in favour of the Security Trustee under the Funding 1 Deed of Charge
on the Initial Closing Date substantially in the form set out in Schedule 1 to
the Funding 1 Deed of Charge;

 

Security Trustee means The Bank of New York, acting through
its offices at 48th Floor, One Canada Square, London E14 5AL or such other
persons or companies as may from time to time be appointed as Security Trustee
(or co-trustee) pursuant to the term of the First Issuer Deed of Charge and/or
the Second Issuer Deed of Charge and /or the Third Issuer Deed of Charge and/or
the Fourth Issuer Deed of Charge and/or the Funding 1 Deed of Charge;

 

Seller means Halifax;

 

Seller Bank Accounts means the bank account(s) of the Seller
into which monies may be paid from time to time pursuant to the terms of the
Mortgages Trust Deed, details of which will be given to the Mortgages Trustee
and Funding 1;

 

Seller Power of Attorney means the power of attorney granted by the
Seller in favour of Funding 1, the Mortgages Trustee and the Security Trustee
on the Initial Closing Date and on the Fourth Issuer Closing Date,
substantially in the form set out in Schedule 5 to the Mortgage Sale Agreement;

 

Seller Share means, only in respect of the period prior to the
first Distribution Date, the Initial Seller Share and thereafter means the
Current Seller Share;

 

Seller Share Percentage means, only in respect of the period prior
to the first Distribution Date, the Initial Seller Share Percentage and
thereafter means the Current Seller Share Percentage;

 

Seller’s Policy means the originating, underwriting,
administration, arrears and enforcement policy applied by the Seller from time
to time to loans and the security for their repayment which are beneficially
owned solely by the Seller;

 

Servicer means Halifax, or such other person as may from time
to time be appointed as servicer of the Portfolio pursuant to the Servicing
Agreement;

 

Servicer Termination Event means any of the events listed in Clause 21
of the Servicing Agreement;

 

Services has the meaning set out in Clause 3.1(a) of the
Servicing Agreement;

 

Servicing Agreement means the agreement entered into on the
Initial Closing Date between the Servicer, the Mortgages Trustee, the Security
Trustee, Funding 1 and the Seller (as amended and restated on the Second Issuer
Closing Date, the Third Issuer Closing Date and as further amended and restated
on the Fourth Issuer Closing Date and from time to time) pursuant to which the
Servicer agrees to administer the Loans and their Related Security comprised in
the Portfolio (as the same may be further amended and/or supplemented from time
to time);

 

46

 

Share Trustee means, in respect of Holdings, SFM Corporate Services
Limited of Blackwell House, Guildhall Yard, London EC2V 5AE; and in respect of
Mortgages Trustee, SFM Offshore Limited of 47 Esplanade, St. Helier, Jersey JE1
0BD, Channel Islands;

 

SLR Transfer means, in relation to Properties situated in Scotland
title to which is registered or is in the course of being registered in the
Land Register of Scotland, each assignation of the relevant Scottish Loans and
their related Scottish Mortgages in the relevant form set out in Schedule 12 to
the Mortgage Sale Agreement with such modifications as may be required from
time to time;

 

standard security means a standard security as defined in
Part II of the Conveyancing and Feudal Reform (Scotland) Act 1970;

 

Standard Documentation means the standard documentation, a list
of which is set out in Part 2 of the Exhibit to the Mortgage Sale Agreement and
copies of which have been initialled on behalf of the parties thereto for the
purposes of identification, or any update or replacement therefor as the Seller
may from time to time introduce acting in accordance with the standards of a
reasonable, prudent mortgage lender;

 

St Andrew’s Insurance means St Andrew’s Insurance, a non-life
insurance company incorporated on 15th September, 2003 whose offices are at St
Andrew’s House, Portsmouth Road, Esher, Surrey;

 

Start-up Loan Agreements means the First Start-up Loan Agreement,
the Second Start-up Loan Agreement, the Third Start up Loan Agreement, the
Fourth Start-up Loan Agreement and any New Start-up Loan Agreements and Start-up
Loan Agreement means any of them;

 

Start-up Loan Providers means the First Start-up Loan Provider,
the Second Start-up Loan Provider, the Third Start-up Loan Provider, the Fourth
Start-up Loan Provider or, as the context may require, any New Start-up Loan
Provider and Start-up Loan Provider means any of them;

 

Start-up Loans means the First Start-up Loan, the Second
Start-up Loan, the Third Start-up Loan, the Fourth Start-up Loan and any New
Start-up Loan;

 

Step-up Date means:

 

(a)                                  in respect of any Intercompany
Loan, the Funding 1 Interest Payment Date on which the interest rate payable in
respect of the relevant Term Advances made thereunder increases by a
pre-determined amount; and

 

(b)                                 in respect of any Notes, the
date on which the interest rate payable by the Issuer in respect of those Notes
increases by a pre-determined amount;

 

Subsidiary means a subsidiary as defined in section 736 of the
Companies Act 1985;

 

TARGET Business Day means a day on which the Trans-European
Automated Real-time Gross settlement Express (TARGET) system is open;

 

Tax Credit means a credit against Tax obtained on the Funding 1
Liquidity Facility Provider’s overall net income which the Funding 1 Liquidity
Facility Provider is able to identify as attributable to a specific Tax
Payment;

 

47

 

Tax Payment means a payment made by Funding 1 to the Funding 1
Liquidity Facility Provider as per Clause 10.1 of the Funding 1 Liquidity
Facility Agreement;

 

Taxes means all present and future taxes, levies, imposts,
duties (other than stamp duty), fees, deductions, withholdings or charges of
any nature whatsoever and wheresoever imposed, including, without limitation,
income tax, corporation tax, value added tax or other tax in respect of added
value and any franchise, transfer, sales, gross receipts, use, business,
occupation, excise, personal property, real property or other tax imposed by
any national, local or supranational taxing or fiscal authority or agency
together with any penalties, fines or interest thereon and Tax and Taxation shall be construed accordingly;

 

Term AAA Advances means the First Issuer Term AAA Advances,
the Second Issuer Term AAA Advances, the Third Issuer Term AAA Advances, the
Fourth Issuer Term AAA Advance and any term AAA advances made by any New
Issuer;

 

Term Advance Rating means the designated rating of each Term
Advance which reflects the rating assigned to the corresponding class of Notes
used to fund each such Term Advance on the relevant Closing Date of that Term
Advance;

 

Term Advances has the meaning given in each Issuer Master
Definitions and Construction Schedule as prefixed by the definition of each
respective Issuer (being by way of example the

 

Third Deed of Accession means the third deed of accession to the
Funding 1 Deed of Charge entered into on the Fourth Issuer Closing Date
between Funding 1, the First Issuer, the Second Issuer, the Third Issuer, the
Fourth Issuer the Corporate Services Provider, the Account Bank, the Security
Trustee, the Seller, the First Start-up Loan Provider, the Second Start-up Loan
Provider, the Third Start-up Loan Provider, the Fourth Start-up Loan Provider
the Cash Manager, the Funding 1 Swap Provider and the Funding 1 Liquidity
Facility Provider as supplemented, amended and/or restated from time to time;

 

Third Issuer means Permanent Financing (No. 3) PLC (registered
number 4907355), a public limited company incorporated under the laws of
England and Wales, whose registered office is at Blackwell House, Guildhall
Yard, London EC2V 5AE;

 

Third Issuer Closing Date means 25th November, 2003;

 

Third Issuer Intercompany Loan Agreement means the Third Issuer
Intercompany Loan Confirmation and the Intercompany Loan Terms and Conditions
together entered into on the Third Issuer Closing Date by the Third Issuer,
Funding 1 and the Security Trustee (as the same may be amended and/or
supplemented from time to time);

 

Third Issuer Security means the security created by the Third
Issuer pursuant to the Third Issuer Deed of Charge in favour of the Third
Issuer Secured Creditors;

 

Third Party Amounts includes:

 

(a)                                  amounts under a direct debit
which are repaid to the bank making the payment if such a bank is unable to
recoup that amount itself from the customer’s account;

 

(b)                                 payments by Borrowers of any
fees and other charges which are due to the Seller; or

 

(c)                                  recoveries in respect of
amounts deducted from Loans as described in paragraphs (i) to (iv) of Clause
8.4(a) of the Mortgages Trust Deed, which will belong to and be paid
to Funding 1 and/or the Seller as described therein;

 

48

 

Third Party Collection Agent means an entity that shall act as
collection agent for the Mortgages Trustee and the Beneficiaries under the
Direct Debiting Scheme or any successor to that scheme pursuant to Clause
5.1(a)(i) of the Servicing Agreement;

 

Third Start-up Loan means the start-up loan that the Third
Start-up Loan Provider has made available to Funding 1 pursuant to the Third
Start-up Loan Agreement;

 

Third Start-up Loan Agreement means the agreement  entered into on the Third Issuer Closing
Date between Funding 1, the Third Start-up Loan Provider and the Security
Trustee relating to the provision of the Third Start-up Loan to Funding 1 (as
the same may be amended and/or supplemented from time to time);

 

Third Start-up Loan Provider means Halifax in its capacity as provider
of the Third Start-up Loan;

 

Title Deeds means, in relation to each Loan and its Related
Security and the Property relating thereto, all conveyancing deeds, MHA
Documentation and all other documents which make up the title to the Property
and the security for the Loan and all searches and enquiries undertaken in
connection with the grant by the Borrower of the related Mortgage;

 

Total Property means at any time the aggregate amount
standing to the credit of the Collection Account and held by Halifax on trust
for the Issuer, the Mortgages Trustee and Halifax, subject to and in accordance
with the Bank Agreement;

 

Tracker Rate means the rate of interest applicable to a Tracker
Rate Loan (before applying any cap or minimum rate);

 

Tracker Rate Loan means those Loans to the extent that and
for such period that their Mortgage Terms provide that they are subject to an
interest rate which is linked to a variable interest rate other than the
Variable Base Rates.  For example, the
rate on a Tracker Rate Loan may be set at a margin above sterling LIBOR or
above rates set by the Bank of England;

 

Tracker Swap Rate means a rate linked to the Bank of England
repo rate, as shall be determined by the Cash Manager in accordance with the
provisions of the Cash Management Agreement;

 

Transaction Documents means the Funding 1 Agreements, the First
Issuer Transaction Documents, the Second Issuer Transaction Documents, the
Third Issuer Transaction Documents, the Fourth Issuer Transaction Documents and
any documents and agreements to which any New Issuer is a party, the Mortgages
Trustee Guaranteed Investment Contract and all other documents and agreements
referred to therein;

 

Treaty Lender means a person who is resident (as such term is
defined in the appropriate Double Taxation Treaty) in a country with which the
United Kingdom has a Double Taxation Treaty giving residents of that country
complete exemption from United Kingdom taxation on interest and does not carry
on business in the United Kingdom through a permanent establishment with which
any payment under the Funding 1 Liquidity Documents is effectively connected;

 

Trigger Event means an Asset Trigger Event and/or a Non-Asset
Trigger Event, as the case may be;

 

Trust Corporation means a corporation entitled by rules made
under the Public Trustee Act 1906 to carry out the functions of a custodian
trustee;

 

49

 

Trust Indenture Act means the United States Trust Indenture
Act of 1939, as amended;

 

Trust Property means:

 

(a)                                  the Initial Trust Property,
the Initial Closing Trust Property and any Future Trust Property (together with
the proceeds of sale of any of them) including, without limitation, the
Mortgage Trustee’s whole right, title and beneficial interest in and to all
Scottish Trust Property pursuant to any relevant Scottish Declaration of Trust;
but excludes any Loans that have been repaid or which have been repurchased by
the Seller pursuant to the Mortgage Sale Agreement or other actual adjustments
and, for the avoidance of doubt, which are not deemed adjustments to the Trust
Property as set out in the Mortgages Trust Deed;

 

(b)                                 any increase in the
Outstanding Principal Balance of a Loan due to Borrowers taking Payment Holidays
or making Underpayments or making drawings under any Flexible Loans;

 

(c)                                  any interest and principal
paid by Borrowers on their Loans;

 

(d)                                 any other amounts received
from Borrowers under their Loans or in respect of their Loans and Related
Security (but excluding Third Party Amounts);

 

(e)                                  rights under the Insurance
Policies that are sold to the Mortgages Trustee or which the Mortgages Trustee
has the benefit of; and

 

(f)                                    amounts on deposit (and
interest earned on those amounts) in the Mortgages Trustee GIC Account;

 

less

 

(g)                                 any losses in relation to
Loans and any actual reductions (and for the avoidance of doubt, not deemed
reductions) occurring in respect of the Loans as set out in Clause
8.4(a) of the Mortgages Trust Deed ; and

 

(h)                                 allocations of Mortgages Trust
Available Principal Receipts to the Beneficiaries in accordance with Clause 11
of the Mortgages Trust Deed;

 

UK Non-Bank Lender means a lender within the meaning of
paragraph (b) of the definition of Qualifying Lender;

 

Uncured Funding 1 Revenue Shortfall has the meaning given to it
in Part 1 of Schedule 3 to the Funding 1 Deed of Charge;

 

Underpayment means a payment made by a Borrower in an amount less
than the Monthly Payment then due on the Loan being a sum not exceeding the
aggregate of any previous Overpayments;

 

United Kingdom means The United Kingdom of Great Britain
and Northern Ireland;

 

United States means The United States of America;

 

Unregistered Land means land in England and Wales title to
which is not, and is not required to be, registered at H.M. Land Registry;

 

50

 

Unregistered Transfer means a deed of transfer of a Mortgage or
Mortgages over Unregistered Land substantially in the form set out in Schedule
3 to the Mortgage Sale Agreement with such modifications as may be required
from time to time;

 

Valuation Report means the valuation report or reports for
mortgage purposes, in the form of the pro-forma contained in the Standard
Documentation, obtained by the Seller from a Valuer in respect of each Property
or a valuation report in respect of a valuation made using a methodology which
would be acceptable to a reasonable prudent mortgage lender and which has been
approved by the Director of Group Property and Survey of the Seller (or his
successor);

 

Valuer means an Associate or Fellow of the Royal Institution
of Chartered Surveyors or the Incorporated Society of Valuers and Auctioneers
who was at the relevant times either a member of a firm which was on the list
of Valuers approved by or on behalf of the Seller from time to time or an
Associate or Fellow of the Royal Institute of Chartered Surveyors or the
Incorporated Society of Valuers and Auctioneers employed in-house by the Seller
acting for the Seller in respect of the valuation of a Property;

 

Variable Base Rates means HVR 1, HVR 2 or the Mortgages
Trustee Variable Base Rate, as applicable;

 

Variable Mortgage Rate means the rate of interest which
determines the amount of interest payable each month on a Variable Rate Loan;

 

Variable Rate Loans means those Loans to the extent that and
for such period that their Mortgage Terms provide that they are subject to a
rate of interest which may at any time be varied in accordance with the
relevant Mortgage Terms (and shall, for the avoidance of doubt, exclude Loans
during the period that they are Fixed Rate Loans or Tracker Rate Loans);

 

WAFF means the weighted average repossession frequency in
respect of the Portfolio; and

 

WALS means the weighted average loss severity in respect
of the Portfolio.

 

2.                                      INTERPRETATION AND CONSTRUCTION

 

Any
reference in any Transaction Document or in any document to which this Master
Definitions and Construction Schedule is expressed to be incorporated or apply
to:

 

affiliate of any person shall be construed as a reference to
the ultimate holding company of that person or an entity of which that person
or its ultimate holding company (a) has direct or indirect control or (b) owns
directly or indirectly more than fifty per cent. (50%) of the share capital or
similar rights of ownership;

 

the assets of any person shall be construed as
a reference to the whole or any part of its business, undertakings, property,
intellectual property, shares, securities, debts, accounts, revenues (including
any right to receive revenues), goodwill, shareholdings and uncalled capital
including premium whether now or hereafter acquired and any other assets
whatsoever;

 

an authorisation includes an authorisation,
consent, approval, resolution, licence, exemption, filing or registration;

 

disposal shall be construed as any sale, lease, transfer,
conveyance, assignment, assignation, licence, sub-licence or other disposal and
dispose
shall be construed accordingly;

 

51

 

a guarantee means any guarantee, bond,
indemnity, letter of credit, third party security or other legally binding
assurance against financial loss granted by one person in respect of any
indebtedness of another person, or any agreement to assume any indebtedness of
any other person or to supply funds or to invest in any manner whatsoever in
such other person by reason of, or otherwise in relation to, indebtedness of
such other person;

 

indebtedness shall be construed so as to include any obligation
(whether incurred as principal or as surety or guarantor) for the payment or
repayment of money, whether present or future, actual or contingent;

 

a month is a reference to a period starting
on one day in a calendar month and ending on the numerically corresponding day
in the next calendar month save that, where any such period would otherwise end
on a day which is not a business day, it shall end on the next business day,
unless that day falls in the calendar month succeeding that in which it would
otherwise have ended, in which case it shall end on the preceding business day
Provided that, if a period starts on the last business day in a calendar month
or if there is no numerically corresponding day in the month in which that
period ends, that period shall end on the last business day in that later month
(and references to months shall be construed accordingly);

 

a regulation includes any regulation, rule,
official directive, request or guideline (whether or not having the force of
law) of any governmental, inter-governmental or supranational body, agency,
department or regulatory, self-regulatory or other authority or organisation;

 

set-off shall be deemed to inclde analogous rights in other
relevant jurisdictions;

 

VAT means value added tax imposed by the United Kingdom
as referred to in the Value Added Tax Act 1994 and legislation (whether
delegated or otherwise) replacing the same or supplemental thereto or in any
primary or subordinate legislation promulgated by the European Union or any
official body or agency thereof, and any similar turnover tax replacing or
introduced in addition to any of the same;

 

a wholly-owned subsidiary of a company or
corporation shall be construed as a reference to any company or corporation
which has no other members except that other company or corporation and that
other company’s or corporation’s wholly-owned subsidiaries or persons acting on
behalf of that other company or corporation or its wholly-owned subsidiaries;
and

 

the winding-up, dissolution or administration
of a company or corporation shall be construed so as to include any equivalent
or analogous proceedings under the law of the jurisdiction in which such
company or corporation is incorporated or any jurisdiction in which such
company or corporation carries on business including the seeking of
liquidation, winding-up, bankruptcy, reorganisation, dissolution,
administration, arrangement, adjustment, protection or relief of debtors.

 

2.1                                 £, sterling or pounds  sterling denotes the lawful
currency for the time being of the United Kingdom and e or Euro denotes the single
currency introduced at the start of the third stage of European Economic
Monetary Union pursuant to the Treaty of Rome of 25th March, 1957, as amended
by, inter
alia, the Single European Act of 1986 and the Treaty of European
Union of 7th February, 1992 and the Treaty of Amsterdam of 2nd October, 1997
establishing the European Community, as further amended from time to time.

 

2.2                                 In this Amended and Restated
Master Definitions and Construction Schedule and in any of the Transaction
Documents in which this Master Definitions and Construction Schedule is
expressed to be incorporated or to which this Master Definitions and
Construction Schedule is expressed to apply:

 

52

 

(a)                                  words denoting the singular
number only shall include the plural number also and vice versa;

 

(b)                                 words denoting one gender only
shall include the other genders;

 

(c)                                  words denoting persons only
shall include firms and corporations and vice versa;

 

(d)                                 references to any statutory
provision shall be deemed also to refer to any statutory modification or
re-enactment thereof or any statutory instrument, order or regulation made
thereunder or under any such re-enactment;

 

(e)                                  references to any agreement or
other document (including any of the Transaction Documents) shall be deemed
also to refer to such agreement or document as amended, varied, supplemented or
novated from time to time;

 

(f)                                    clause, paragraph and schedule
headings are for ease of reference only;

 

(g)                                 reference to a statute shall
be construed as a reference to such statute as the same may have been, or may
from time to time be, amended or re-enacted to the extent such amendment or
re-enactment is substantially to the same effect as such statute on the date
hereof;

 

(h)                                 reference to a time of day
shall be construed as a reference to London time (unless otherwise specified);
and

 

(i)                                     references to any person shall
include references to his successors, transferees and assigns and assignees and
any person deriving title under or through him.

 

2.3                                 Any definition that appears in
the Funding 1 Agreements or the Mortgages Trustee Guarantee Investment Contract
that does not appear in this Amended and Restated Master Definitions and
Construction Schedule, shall have the meaning given in the relevant Issuer
Master Definitions and Construction Schedule or each Issuer Master Definitions
and Construction Schedule, as the context so requires.

 

2.4                                 Terms used in
any Transaction Document which incorporates both this Amended and Restated
Master Definitions and Construction Schedule and an Issuer Master Definitions
and Construction Schedule, unless otherwise defined in therein or unless the context
otherwise requires, shall, in the event of conflict between this Amended
and Restated Master Definitions and Construction Schedule and an Issuer Master
Definitions and Construction Schedule, be construed in accordance with the
relevant Issuer Master Definitions and Construction Schedule.

 

3.                                      AMENDMENTS

 

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

 

4.                                      COUNTERPARTS

 

This
Amended and Restated Master Definitions and Construction Schedule may be signed
in any number of counterparts each of which, when signed, shall constitute one
and the same instrument.

 

53

 

5.                                      GOVERNING LAW

 

This
Amended and Restated Master Definitions and Construction Schedule is governed
by the laws of England (provided that any terms of this Amended and Restated
Master Definitions and Construction Schedule which are particular to Scots law
shall be construed in accordance with the laws of Scotland).

 

54

 

SIGNATORIES

 

	
  Funding 1 Liquidity Facility Provider

  	
   

  
	
   

  	
   

  
	
  SIGNED by

  	
  )

  
	
  for and on behalf of

  	
  )

  
	
  JPMORGAN CHASE BANK

  	
  )

  
	
   

  	
   

  
	
   

  	
   

  
	
  Seller,
  Servicer, Beneficiary, Cash Manager, Issuer Cash Manager, Funding 1 Swap
  Provider and Start-up Loan Providers

  
	
   

  	
   

  
	
  SIGNED by

  	
  )

  
	
  for and on behalf of

  	
  )

  
	
  HALIFAX plc

  	
  )

  
	
   

  	
   

  
	
   

  	
   

  
	
  Funding 1 and Beneficiary

  	
   

  
	
   

  	
   

  
	
  SIGNED by

  	
  )

  
	
  for and on behalf of

  	
  )

  
	
  PERMANENT FUNDING (NO. 1) LIMITED

  	
  )

  
	
   

  	
   

  
	
   

  	
   

  
	
  Mortgages Trustee

  	
   

  
	
   

  	
   

  
	
  SIGNED by

  	
  )

  
	
  for and on behalf of

  	
  )

  
	
  PERMANENT MORTGAGES

  	
  )

  
	
  TRUSTEE LTD

  	
  )

  
	
   

  	
   

  
	
   

  	
   

  
	
  Share Trustee  and Mortgages Trustee
  Corporate Services Provider

  
	
   

  	
   

  
	
  SIGNED by

  	
  )

  
	
  for and on behalf of

  	
  )

  
	
  SFM OFFSHIRE LIMITED

  	
  )

  
	
   

  	
   

  
	
   

  	
   

  
	
  The Fourth Issuer

  	
   

  
	
   

  	
   

  
	
  SIGNED by

  	
  )

  
	
  for and on behalf of

  	
  )

  
	
  PERMANENT FINANCING (NO.  4) PLC

  	
  )

  

 

55

 

	
  The Third Issuer

  	
   

  
	
   

  	
   

  
	
  SIGNED by

  	
  )

  
	
  for and on behalf of

  	
  )

  
	
  PERMANENT FINANCING (NO.  3) PLC

  	
  )

  
	
   

  	
   

  
	
   

  	
   

  
	
  The Second Issuer

  	
   

  
	
   

  	
   

  
	
  SIGNED by

  	
  )

  
	
  for and on behalf of

  	
  )

  
	
  PERMANENT FINANCING (NO. 2) PLC

  	
  )

  
	
   

  	
   

  
	
   

  	
   

  
	
  The First Issuer

  	
   

  
	
   

  	
   

  
	
  SIGNED by

  	
  )

  
	
  for and on behalf of

  	
  )

  
	
  PERMANENT FINANCING (NO. 1) PLC

  	
  )

  
	
   

  	
   

  
	
   

  	
   

  
	
  Funding 1 Corporate Services Provider and
  Issuer Corporate Services Provider

  
	
   

  	
   

  
	
  SIGNED by

  	
  )

  
	
  for and on behalf of

  	
  )

  
	
  STRUCTURED FINANCE

  	
  )

  
	
  MANAGEMENT LIMITED

  	
  )

  
	
   

  	
   

  
	
   

  	
   

  
	
  Permanent Holdings Limited

  	
   

  
	
   

  	
   

  
	
  SIGNED by

  	
  )

  
	
  for and on behalf of

  	
  )

  
	
  PERMANENT HOLDINGS LIMITED

  	
  )

  
	
   

  	
   

  
	
   

  	
   

  
	
  Permanent PECOH Limited

  	
   

  
	
   

  	
   

  
	
  SIGNED by

  	
  )

  
	
  for and on behalf of

  	
  )

  
	
  PERMANENT PECOH LIMITED

  	
  )

  

 

56

 

	
  The First Issuer Security Trustee, the
  Second Issuer Security Trustee, the Third Issuer Security Trustee, the Fourth
  Issuer Security Trustee and the Security Trustee

  
	
   

  	
   

  
	
  SIGNED by

  	
  )

  
	
  THE BANK OF NEW YORK

  	
  )

  
	
  for and on behalf of

  	
  )

  
	
   

  	
   

  
	
   

  	
   

  
	
  The First Issuer Note Trustee, the Second
  Issuer Note Trustee, the Third Issuer Note Trustee and the Fourth Issuer Note
  Trustee

  
	
   

  	
   

  
	
  SIGNED by

  	
  )

  
	
  THE BANK OF NEW YORK

  	
  )

  
	
  for and on behalf of

  	
  )

  
	
   

  	
   

  
	
   

  	
   

  
	
  Agent Bank, Principal Paying Agent,
  Registrar and Transfer Agent for the First Issuer Notes the Second Issuer
  Notes, the Third Issuer Notes  and the
  Fourth Issuer Notes

  
	
   

  	
   

  
	
  SIGNED by

  	
  )

  
	
  for and on behalf of CITIBANK, N.A.

  	
  )

  
	
   

  	
   

  
	
   

  	
   

  
	
  Account Bank, Issuer Account Bank,
  Mortgage Trustee GIC Provider and Funding 1 GIC Provider

  
	
   

  	
   

  
	
  SIGNED by

  	
  )

  
	
  for and on behalf of THE GOVERNOR AND

  	
  )

  
	
  COMPANY OF THE BANK OF

  	
  )

  
	
  SCOTLAND

  	
  )

  
	
   

  	
   

  
	
   

  	
   

  
	
  U.S. Paying Agent for the First Issuer
  Notes, the Second Issuer Notes, the Third Issuer Notes and the Fourth Issuer
  Notes

  
	
   

  	
   

  
	
  SIGNED by

  	
  )

  
	
  for and on behalf of

  	
  )

  
	
  CITIBANK, N.A., NEW YORK BRANCH

  	
  )

  
	
   

  	
   

  
	
   

  	
   

  
	
  Series 4 First Issuer Swap Provider,
  Series 1 Third Issuer Swap Provider and Series 2 Third Issuer Swap Provider

  
	
   

  	
   

  
	
  SIGNED by

  	
  )

  
	
  for and on behalf of

  	
  )

  
	
  CREDIT SUISSE FIRST BOSTON

  	
  )

  
	
  INTERNATIONAL

  	
  )

  

 

57

 

	
  Series 3 First Issuer Swap Provider,
  Series 4 Second Issuer Dollar Swap Provider, Series 4 Second Issuer Euro Swap
  Provider, Series 3 Third Issuer Swap Provider, Series 5 Third Issuer Currency
  Swap Provider, Series 3 Fourth Issuer Swap Provider

  
	
   

  	
   

  
	
  SIGNED by

  	
  )

  
	
  for and on behalf of

  	
  )

  
	
  BANQUE AIG, LONDON BRANCH

  	
  )

  
	
   

  	
   

  
	
   

  	
   

  
	
  Series 1 First Issuer Swap Provider,
  Series 2 First Issuer Swap Provider, Series 2 Second Issuer Swap Provider and
  Series 4 Third Issuer Swap Provider

  
	
   

  	
   

  
	
  SIGNED by

  	
  )

  
	
  for and on behalf of

  	
  )

  
	
  JPMORGAN CHASE BANK

  	
  )

  
	
   

  	
   

  
	
   

  	
   

  
	
  Series 1 Second Issuer Swap Provider and
  Series 3 Second Issuer Swap Provider

  
	
   

  	
   

  
	
  SIGNED by

  	
  )

  
	
  for and on behalf of

  	
  )

  
	
  CDC IXIS CAPITAL MARKETS

  	
  )

  
	
   

  	
   

  
	
   

  	
   

  
	
  Interest Rate  Swap Provider for the Series 5 Class A Third Issuer Notes and
  the Series 5 Class A1 Fourth Issuer 
  Notes

  
	
   

  	
   

  
	
  SIGNED by

  	
  )

  
	
  for and on behalf of

  	
  )

  
	
  HBOS TREASURY SERVICES PLC

  	
  )

  
	
   

  	
   

  
	
   

  	
   

  
	
  Series 2 Fourth Issuer Swap Provider and
  the Series 4 Fourth Issuer Swap Provider

  
	
   

  	
   

  
	
  SIGNED by

  	
  )

  
	
  for and on behalf of

  	
  )

  
	
  CITIBANK, N.A., LONDON BRANCH

  	
  )

  
	
   

  	
   

  
	
   

  	
   

  
	
  Series 1 Fourth Issuer Swap Provider

  	
   

  
	
   

  	
   

  
	
  SIGNED by

  	
  )

  
	
  for and on behalf of

  	
  )

  
	
  WESTLB AG, LONDON BRANCH

  	
  )

  

 

58

 

	
  Series 
  5 Class A1 Fourth Issuer Swap Provider

  
	
   

  	
   

  
	
  SIGNED by

  	
  )

  
	
  for and on behalf of

  	
  )

  
	
  SWISS RE FINANCIAL PRODUCTS

  	
  )

  
	
  CORPORATION

  	
  )

  

 

59

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