e10vq
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended July 31, 2005
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-6089
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MISSOURI
(State or other jurisdiction of
incorporation or organization)
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44-0607856
(I.R.S. Employer
Identification No.) |
4400 Main Street
Kansas City, Missouri 64111
(Address of principal executive offices, including zip code)
(816) 753-6900
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No o
The number of shares outstanding of the registrants Common Stock, without par value, at the
close of business on August 31, 2005 was 324,650,475 shares.
H&R BLOCK
Form 10-Q for the Period Ended July 31, 2005
Table of Contents
H&R BLOCK
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CONDENSED CONSOLIDATED BALANCE SHEETS
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|
(in 000s, except share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2005 |
|
|
April 30, 2005 |
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(Unaudited) |
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ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
632,801 |
|
|
$ |
1,100,213 |
|
Cash and
cash equivalents restricted |
|
|
416,981 |
|
|
|
516,909 |
|
Marketable
securities trading |
|
|
77,085 |
|
|
|
11,790 |
|
Receivables from customers, brokers, dealers and clearing
organizations, net |
|
|
585,214 |
|
|
|
590,226 |
|
Receivables, less allowance for doubtful accounts
of $46,752 and $38,879 |
|
|
404,501 |
|
|
|
418,788 |
|
Prepaid expenses and other current assets |
|
|
473,831 |
|
|
|
432,708 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
2,590,413 |
|
|
|
3,070,634 |
|
|
|
|
|
|
|
|
|
|
Residual
interests in securitizations available-for-sale |
|
|
193,207 |
|
|
|
205,936 |
|
Beneficial
interest in Trusts trading |
|
|
185,539 |
|
|
|
215,367 |
|
Mortgage servicing rights |
|
|
188,708 |
|
|
|
166,614 |
|
Property and equipment, at cost less accumulated depreciation
and amortization of $677,989 and $658,425 |
|
|
328,684 |
|
|
|
330,150 |
|
Intangible assets, net |
|
|
232,242 |
|
|
|
247,092 |
|
Goodwill, net |
|
|
1,018,632 |
|
|
|
1,015,947 |
|
Other assets |
|
|
279,756 |
|
|
|
287,543 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
5,017,181 |
|
|
$ |
5,539,283 |
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|
|
|
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|
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Liabilities: |
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|
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|
|
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Current portion of long-term debt |
|
$ |
25,854 |
|
|
$ |
25,545 |
|
Accounts payable to customers, brokers and dealers |
|
|
871,715 |
|
|
|
950,684 |
|
Accounts payable, accrued expenses and other current liabilities |
|
|
497,215 |
|
|
|
564,749 |
|
Accrued salaries, wages and payroll taxes |
|
|
161,661 |
|
|
|
318,644 |
|
Accrued income taxes |
|
|
346,568 |
|
|
|
349,298 |
|
|
|
|
|
|
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Total current liabilities |
|
|
1,903,013 |
|
|
|
2,208,920 |
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|
|
|
|
|
|
|
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Long-term debt |
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|
923,145 |
|
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|
923,073 |
|
Other noncurrent liabilites |
|
|
368,028 |
|
|
|
430,919 |
|
|
|
|
|
|
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Total liabilities |
|
|
3,194,186 |
|
|
|
3,562,912 |
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|
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Stockholders equity: |
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|
Common stock, no par, stated value $.01 per share,
800,000,000 shares authorized, 435,890,796 shares
issued at July 31, 2005 and April 30, 2005 |
|
|
4,359 |
|
|
|
4,359 |
|
Additional paid-in capital |
|
|
601,348 |
|
|
|
598,388 |
|
Accumulated other comprehensive income |
|
|
63,731 |
|
|
|
68,718 |
|
Retained earnings |
|
|
3,123,924 |
|
|
|
3,188,785 |
|
Less cost of 106,780,588 and 104,649,850 shares of
common stock in treasury |
|
|
(1,970,367 |
) |
|
|
(1,883,879 |
) |
|
|
|
|
|
|
|
Total stockholders equity |
|
|
1,822,995 |
|
|
|
1,976,371 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
5,017,181 |
|
|
$ |
5,539,283 |
|
|
|
|
|
|
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|
See Notes to Condensed Consolidated Financial Statements
-1-
H&R BLOCK
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CONDENSED CONSOLIDATED STATEMENTS OF
INCOME AND COMPREHENSIVE INCOME
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(Unaudited, amounts in 000s,
except per share amounts) |
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|
|
|
|
|
|
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|
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|
|
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Restated |
|
Three months ended July 31, |
|
2005 |
|
|
2004 |
|
|
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Revenues: |
|
|
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|
|
|
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Service revenues |
|
$ |
315,128 |
|
|
$ |
248,588 |
|
Other revenues: |
|
|
|
|
|
|
|
|
Gains on sales of mortgage assets, net |
|
|
236,431 |
|
|
|
183,360 |
|
Interest income |
|
|
49,253 |
|
|
|
39,720 |
|
Product and other revenues |
|
|
14,181 |
|
|
|
14,883 |
|
|
|
|
|
|
|
|
|
|
|
614,993 |
|
|
|
486,551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Operating expenses: |
|
|
|
|
|
|
|
|
Cost of services |
|
|
343,218 |
|
|
|
290,975 |
|
Cost of other revenues |
|
|
123,357 |
|
|
|
78,395 |
|
Selling, general and administrative |
|
|
189,252 |
|
|
|
160,196 |
|
|
|
|
|
|
|
|
|
|
|
655,827 |
|
|
|
529,566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(40,834 |
) |
|
|
(43,015 |
) |
Interest expense |
|
|
12,435 |
|
|
|
17,793 |
|
Other income, net |
|
|
7,400 |
|
|
|
2,008 |
|
|
|
|
|
|
|
|
Loss before taxes |
|
|
(45,869 |
) |
|
|
(58,800 |
) |
Income tax benefit |
|
|
(17,545 |
) |
|
|
(22,058 |
) |
|
|
|
|
|
|
|
Net loss |
|
$ |
(28,324 |
) |
|
$ |
(36,742 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share |
|
$ |
(.09 |
) |
|
$ |
(.11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per share |
|
$ |
.11 |
|
|
$ |
.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Comprehensive income (loss): |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(28,324 |
) |
|
$ |
(36,742 |
) |
Change in
unrealized gain on available - for - sale securities, net |
|
|
(5,811 |
) |
|
|
21,470 |
|
Change in foreign currency translation adjustments |
|
|
824 |
|
|
|
(330 |
) |
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
$ |
(33,311 |
) |
|
$ |
(15,602 |
) |
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements
-2-
H&R BLOCK
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
(Unaudited, amounts in 000s) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated |
|
Three months ended July 31, |
|
2005 |
|
|
2004 |
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(28,324 |
) |
|
$ |
(36,742 |
) |
Adjustments to reconcile net loss to net cash
used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
44,085 |
|
|
|
38,908 |
|
Accretion of residual interests in securitizations |
|
|
(30,777 |
) |
|
|
(28,677 |
) |
Impairments of residual interests in securitizations |
|
|
12,415 |
|
|
|
2,609 |
|
Additions to
trading securities residual interests
in securitizations |
|
|
(101,002 |
) |
|
|
|
|
Proceeds from net interest margin transactions, net |
|
|
40,371 |
|
|
|
|
|
Additions to mortgage servicing rights |
|
|
(49,306 |
) |
|
|
(28,493 |
) |
Amortization and impairment of mortgage servicing rights |
|
|
27,212 |
|
|
|
18,334 |
|
Net change in beneficial interest in Trusts |
|
|
29,828 |
|
|
|
(1,433 |
) |
Other, net of acquisitions |
|
|
(255,017 |
) |
|
|
(479,838 |
) |
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(310,515 |
) |
|
|
(515,332 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Cash received from residual interests in securitizations |
|
|
24,031 |
|
|
|
38,826 |
|
Purchases of property and equipment, net |
|
|
(30,330 |
) |
|
|
(22,714 |
) |
Payments made for business acquisitions, net of cash acquired |
|
|
(3,452 |
) |
|
|
(806 |
) |
Other, net |
|
|
7,935 |
|
|
|
8,300 |
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
(1,816 |
) |
|
|
23,606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Repayments of commercial paper |
|
|
|
|
|
|
(314,836 |
) |
Proceeds from issuance of commercial paper |
|
|
|
|
|
|
419,700 |
|
Dividends paid |
|
|
(36,537 |
) |
|
|
(33,636 |
) |
Acquisition of treasury shares |
|
|
(131,642 |
) |
|
|
(347,395 |
) |
Proceeds from issuance of common stock |
|
|
32,318 |
|
|
|
12,375 |
|
Other, net |
|
|
(19,220 |
) |
|
|
(127 |
) |
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(155,081 |
) |
|
|
(263,919 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(467,412 |
) |
|
|
(755,645 |
) |
Cash and cash equivalents at beginning of the period |
|
|
1,100,213 |
|
|
|
1,072,745 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of the period |
|
$ |
632,801 |
|
|
$ |
317,100 |
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements
-3-
|
|
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
|
(Unaudited) |
1. |
|
Basis of Presentation |
|
|
|
The condensed consolidated balance sheet as of July 31, 2005, the condensed consolidated
statements of income and comprehensive income for the three months ended July 31, 2005 and 2004,
and the condensed consolidated
statements of cash flows for the three months ended July 31, 2005 and 2004 have been prepared by
the Company, without audit. In the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to present fairly the financial position, results of
operations and cash flows at July 31, 2005 and for all periods presented have been made. |
H&R Block, the Company, we, our and us are used interchangeably to refer to H&R
Block, Inc. or to H&R Block, Inc. and its subsidiaries, as appropriate to the context.
Certain reclassifications have been made to prior year amounts to conform to the current year
presentation. These reclassifications had no effect on our results of operations or stockholders
equity as previously reported. Adjustments related to the restatement of previously issued
financial statements are detailed in note 2.
On June 8, 2005, our Board of Directors declared a two-for-one stock split of the Companys
Common Stock in the form of a 100% stock distribution, effective August 22, 2005, to shareholders
of record as of the close of business on August 1, 2005. All share and per share amounts in this
document have been adjusted to reflect the retroactive effect of the stock split.
Certain information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the United States have been
condensed or omitted. These condensed consolidated financial statements should be read in
conjunction with the financial statements and notes thereto included in our April 30, 2005 Annual
Report to Shareholders on Form 10-K/A.
Operating revenues of the Tax Services and Business Services segments are seasonal in nature
with peak revenues occurring in the months of January through April. Therefore, results for interim
periods are not indicative of results to be expected for the full year.
We file our federal and state income tax returns on a calendar year basis. The condensed
consolidated income statements reflect the effective tax rates expected to be applicable for the
respective full fiscal years.
2. |
|
Restatement of Previously Issued Financial Statements |
|
|
|
On June 7, 2005, management and the Audit Committee of the Board of Directors determined that
restatement of our previously issued consolidated financial statements, including financial
statements for the three months ended July 31, 2004 was appropriate as a result of the errors noted
below. All amounts listed are pretax, unless otherwise noted. |
|
|
|
An error in calculating the gain on sale of residual interests in fiscal year 2003. This
error was corrected by deferring a portion of the gain on sale of residual interests as of
the transaction date in fiscal year 2003 and recognizing revenue from the sale as interest
income from accretion of residual interests in subsequent periods. Interest income from
accretion increased $3.0 million for the three months ended July 31, 2004. This correction
also decreased impairments of residual interests $0.8 million and increased comprehensive
income $2.4 million for the three months ended July 31, 2004. |
|
|
|
|
An error in the calculation of an incentive compensation accrual at our Mortgage Services
segment as of April 30, 2004. This error resulted in an overstatement of compensation expense
for the three months ended July 31, 2004 of $12.1 million. |
|
|
|
|
An error in accounting for leased properties related to rent holidays and mandatory rent
escalation in our Tax Services, Mortgage Services and Investment Services segments. Rent
expense was understated for the three months ended July 31, 2004 by $0.2 million. |
|
|
|
|
An error from the capitalization of certain branch office costs at our Investment Services
segment, which should have been expensed as incurred. This error resulted in an
understatement of occupancy expenses and an overstatement of depreciation expense and capital
expenditures of a net understatement of operating expenses of $0.1 million for the three months ended July 31, 2004. |
-4-
|
§ |
|
Errors related to accounting for acquisitions at our Business Services and Investment
Services segments, the largest of which was the acquisition of OLDE in fiscal year 2000.
Amortization of customer relationships was understated by
$1.8 million and the provision for income taxes was overstated
by $3.7 million for the three months
ended July 31, 2004. |
Notes 4, 5, 7, 11, and 13 have been restated to reflect the above described adjustments.
The following is a summary of the impact of the restatement on our condensed consolidated
statement of income and comprehensive income for the three months ended July 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s, except per share amounts) |
|
|
|
As Previously |
|
|
|
|
|
|
|
Three months ended July 31, 2004 |
|
Reported (1) |
|
|
Adjustments |
|
|
Restated |
|
|
Gain on sale of mortgage assets, net |
|
$ |
182,534 |
|
|
$ |
826 |
|
|
$ |
183,360 |
|
Interest income |
|
|
36,706 |
|
|
|
3,014 |
|
|
|
39,720 |
|
Total revenues |
|
|
482,711 |
|
|
|
3,840 |
|
|
|
486,551 |
|
Total operating expenses |
|
|
539,490 |
|
|
|
(9,924 |
) |
|
|
529,566 |
|
Operating loss |
|
|
(56,779 |
) |
|
|
13,764 |
|
|
|
(43,015 |
) |
Loss before taxes |
|
|
(72,564 |
) |
|
|
13,764 |
|
|
|
(58,800 |
) |
Income tax benefit |
|
|
(28,481 |
) |
|
|
6,423 |
|
|
|
(22,058 |
) |
Net loss |
|
|
(44,083 |
) |
|
|
7,341 |
|
|
|
(36,742 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share |
|
$ |
(.13 |
) |
|
$ |
0.02 |
|
|
$ |
(.11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
unrealized gain on marketable securities, net |
|
$ |
23,843 |
|
|
$ |
(2,373 |
) |
|
$ |
21,470 |
|
Comprehensive income |
|
|
(20,570 |
) |
|
|
4,968 |
|
|
|
(15,602 |
) |
|
|
|
(1) |
|
Amounts presented as previously reported have been reclassified to conform to
current year presentation. See discussion of reclassifications in note 1. |
The following is a summary of the impact of the restatement on our condensed
consolidated statement of cash flows for the three months ended July 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s) |
|
|
|
As Previously |
|
|
|
|
|
|
|
Three months ended July 31, 2004 |
|
Reported (1) |
|
|
Adjustments |
|
|
Restated |
|
|
Net loss |
|
$ |
(44,083 |
) |
|
$ |
7,341 |
|
|
$ |
(36,742 |
) |
Depreciation and amortization |
|
|
37,137 |
|
|
|
1,771 |
|
|
|
38,908 |
|
Accretion of residual interests in securitizations |
|
|
(25,663 |
) |
|
|
(3,014 |
) |
|
|
(28,677 |
) |
Impairment of residual interests in securitizations |
|
|
3,435 |
|
|
|
(826 |
) |
|
|
2,609 |
|
Other, net of acquisitions |
|
|
(474,367 |
) |
|
|
(5,471 |
) |
|
|
(479,838 |
) |
Net cash provided by operating activities |
|
|
(515,133 |
) |
|
|
(199 |
) |
|
|
(515,332 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment, net |
|
|
(22,913 |
) |
|
|
199 |
|
|
|
(22,714 |
) |
Net cash provided by (used in) investing activities |
|
|
23,407 |
|
|
|
199 |
|
|
|
23,606 |
|
|
|
|
(1) |
|
Amounts presented as previously reported have been reclassified to conform to
current year presentation. See discussion of reclassifications in note 1. |
The restatement had no impact on our cash flows from financing activities as
previously reported.
3. |
|
Earnings (Loss) Per Share |
|
|
|
Basic earnings (loss) per share is computed using the weighted average shares outstanding during
each period. The dilutive effect of potential common shares is included in diluted earnings (loss)
per share except in those periods with a loss. Diluted earnings per share excludes the impact of
shares of common stock issuable upon the lapse of certain restrictions or the exercise of options
to purchase 33.7 million shares and 37.0 million shares of stock for the three months ended July
31, 2005 and 2004, respectively, as the effect would be antidilutive due to the net loss recorded
during the periods. |
The weighted average shares outstanding for the three months ended July 31,
2005 decreased to 330.7 million from 337.3 million last year, primarily due to our purchases of
treasury shares. The effect of these purchases was partially offset by the issuance of treasury
shares related to our stock-based compensation plans.
-5-
During the three months ended July 31, 2005 and 2004, we issued 2.5 million shares and 1.2
million shares, respectively, of common stock pursuant to the exercise of stock options, employee
stock purchases and awards of restricted shares, in accordance with our stock-based compensation
plans.
During the three months ended July 31, 2005, we acquired 4.6 million shares of our common
stock, of which 4.4 million shares were purchased from third parties with the remaining shares
swapped or surrendered to us, at an aggregate cost of $131.6 million. During the three months ended
July 31, 2004, we
acquired 14.9 million shares of our common stock, of which 14.8 million shares were purchased from
third parties with the remaining shares swapped or surrendered to us, at an aggregate cost of
$347.4 million.
4. |
|
Mortgage Banking Activities |
|
|
|
Activity related to available-for-sale residual interests in securitizations consists of the following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s) |
|
|
|
|
|
|
|
|
Restated |
|
Three months ended July 31, |
|
2005 |
|
|
2004 |
|
|
Balance, beginning of period |
|
$ |
205,936 |
|
|
$ |
210,973 |
|
Additions from net interest margin (NIM) transactions |
|
|
2,109 |
|
|
|
|
|
Cash received |
|
|
(24,031 |
) |
|
|
(38,826 |
) |
Accretion |
|
|
30,777 |
|
|
|
28,677 |
|
Impairments of fair value |
|
|
(11,875 |
) |
|
|
(2,609 |
) |
Other |
|
|
(330 |
) |
|
|
|
|
Changes in unrealized holding gains, net |
|
|
(9,379 |
) |
|
|
35,067 |
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
193,207 |
|
|
$ |
233,282 |
|
|
|
|
|
|
|
|
We sold $10.8 billion and $6.7 billion of mortgage loans in whole loan sales to
warehouse trusts (Trusts) or other buyers during the three months ended July 31, 2005 and 2004,
respectively, with gains totaling $222.8 million and $185.3 million, respectively, recorded on
these sales.
Trading residual interests valued at $101.0 million were recorded in connection with the
securitizations of mortgage loans during the three months ended July 31, 2005, with net cash
proceeds of $40.4 million received in connection with NIM transactions. Total net additions to
residual interests from net interest margin (NIM) transactions for the three months ended July 31,
2005 were $2.1 million. We did not complete any securitizations or NIM transactions during the
three months ended July 31, 2004.
At July 31, 2005, we had $58.0 million in residual interests classified as trading securities.
These residual interests are the result of the initial securitization of mortgage loans and are
expected to be securitized in a NIM transaction during our second quarter. Trading residuals are
included in marketable securities trading on the condensed consolidated balance sheet with
mark-to-market adjustments and impairments included in gains on sales of mortgage assets on the
condensed consolidated income statement. Such adjustments resulted in
a gain of $3.5 million for the three months
ended July 31, 2005. There were no such trading securities recorded as of April 30, 2005.
Cash flows of $24.0 million and $38.8 million were received from the securitization trusts for
the three months ended July 31, 2005 and 2004, respectively. Cash received on residual interests is
included in investing activities in the condensed consolidated statements of cash flows.
Aggregate net unrealized gains on residual interests, which had not yet been accreted into
income, totaled $105.9 million at July 31, 2005 and $115.4 million at April 30, 2005. These
unrealized gains are recorded net of deferred taxes in other comprehensive income, and may be
recognized in income in future periods either through accretion or upon further securitization or
sale of the related residual interest.
Activity related to mortgage servicing rights (MSRs) consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s) |
|
|
Three months ended July 31, |
|
2005 |
|
|
2004 |
|
|
Balance, beginning of period |
|
$ |
166,614 |
|
|
$ |
113,821 |
|
Additions |
|
|
49,306 |
|
|
|
28,493 |
|
Amortization |
|
|
(26,892 |
) |
|
|
(18,334 |
) |
Impairment |
|
|
(320 |
) |
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
188,708 |
|
|
$ |
123,980 |
|
|
|
|
|
|
|
|
-6-
Estimated amortization of MSRs for fiscal years 2006 through 2010 is $80.2 million,
$67.6 million, $29.1 million, $9.4 million and $2.2 million, respectively.
The key weighted average assumptions we used to estimate the cash flows and values of the
residual interests initially recorded during the three months ended July 31, 2005 are as follows:
|
|
|
|
|
|
Three months ended |
|
July 31, 2005 |
|
Estimated credit losses |
|
|
2.70 |
% |
Discount rate |
|
|
21.57 |
% |
Variable returns to third-party
beneficial interest holders |
|
LIBOR forward curve at closing |
The key weighted average assumptions we used to estimate the cash flows and values
of the residual interests and MSRs at July 31, 2005 and April 30, 2005 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2005 |
|
April 30, 2005 |
|
Estimated
credit losses residual interests |
|
|
2.98 |
% |
|
|
3.03 |
% |
Discount
rate residual interests |
|
|
19.31 |
% |
|
|
21.01 |
% |
Discount
rate MSRs |
|
|
15.00 |
% |
|
|
12.80 |
% |
Variable returns to third-party
beneficial interest holders |
|
LIBOR forward curve at valuation date |
We originate both adjustable and fixed rate mortgage loans. A key assumption used to
estimate the cash flows and values of the residual interests is average annualized prepayment
speeds. Prepayment speeds include voluntary prepayments, involuntary prepayments and scheduled
principal payments. Prepayment rate assumptions are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior to |
|
Months Outstanding Without |
|
|
Penalty |
|
Prepayment Penalty |
|
|
Expiration |
|
Zero - 3 |
|
Remaining Life |
|
Adjustable rate mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
With prepayment penalties |
|
|
30 |
% |
|
|
70 |
% |
|
|
43 |
% |
Without prepayment penalties |
|
|
36 |
% |
|
|
53 |
% |
|
|
41 |
% |
Fixed rate mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
With prepayment penalties |
|
|
29 |
% |
|
|
47 |
% |
|
|
40 |
% |
For fixed rate mortgages without prepayment penalties, we use an average prepayment
rate of 35% over the life of the loans. Prepayment rate is projected based on actual paydown
including voluntary, involuntary and scheduled principal payments.
Expected static pool credit losses are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Loans Securitized in Fiscal Year |
|
|
Prior to 2002 |
|
2002 |
|
2003 |
|
2004 |
|
2005 |
|
2006 |
|
As of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2005 |
|
|
4.53 |
% |
|
|
2.53 |
% |
|
|
2.03 |
% |
|
|
2.20 |
% |
|
|
2.86 |
% |
|
|
2.70 |
% |
April 30, 2005 |
|
|
4.52 |
% |
|
|
2.53 |
% |
|
|
2.08 |
% |
|
|
2.30 |
% |
|
|
2.83 |
% |
|
|
|
|
April 30, 2004 |
|
|
4.46 |
% |
|
|
3.58 |
% |
|
|
4.35 |
% |
|
|
3.92 |
% |
|
|
|
|
|
|
|
|
Static pool credit losses are calculated by summing the actual and projected future
credit losses and dividing them by the original balance of each pool of assets.
-7-
At July 31, 2005, the sensitivities of the current fair value of the residual
interests and MSRs to 10% and 20% adverse changes in the above key assumptions are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in 000s) |
|
|
Residential Mortgage Loans |
|
|
|
NIM |
|
|
Beneficial Interest |
|
|
Trading |
|
|
Servicing |
|
|
|
Residuals |
|
|
in Trusts |
|
|
Residual |
|
|
Asset |
|
|
Carrying amount/fair value |
|
$ |
193,207 |
|
|
$ |
185,539 |
|
|
$ |
57,982 |
|
|
$ |
188,708 |
|
Weighted average remaining life (in years) |
|
|
1.3 |
|
|
|
2.3 |
|
|
|
2.0 |
|
|
|
1.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepayments (including defaults): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adverse 10%
$ impact on fair value |
|
$ |
458 |
|
|
$ |
(9,933 |
) |
|
$ |
(2,407 |
) |
|
$ |
(26,926 |
) |
Adverse 20%
$ impact on fair value |
|
|
13,807 |
|
|
|
(15,078 |
) |
|
|
2,540 |
|
|
|
(44,709 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adverse 10%
$ impact on fair value |
|
$ |
(36,108 |
) |
|
$ |
(7,360 |
) |
|
$ |
(1,743 |
) |
|
|
Not applicable |
|
Adverse 20%
$ impact on fair value |
|
|
(64,062 |
) |
|
|
(14,540 |
) |
|
|
(3,435 |
) |
|
|
Not applicable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adverse 10%
$ impact on fair value |
|
$ |
(4,490 |
) |
|
$ |
(4,629 |
) |
|
$ |
(1,473 |
) |
|
$ |
(2,634 |
) |
Adverse 20%
$ impact on fair value |
|
|
(8,734 |
) |
|
|
(9,059 |
) |
|
|
(2,870 |
) |
|
|
(5,205 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable interest rates (LIBOR forward curve): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adverse 10%
$ impact on fair value |
|
$ |
(11,240 |
) |
|
$ |
(40,538 |
) |
|
$ |
(2,211 |
) |
|
|
Not applicable |
|
Adverse 20%
$ impact on fair value |
|
|
(23,873 |
) |
|
|
(81,169 |
) |
|
|
(4,962 |
) |
|
|
Not applicable |
|
These sensitivities are hypothetical and should be used with caution. Changes
in fair value based on a 10% variation in assumptions generally cannot be extrapolated because the
relationship of the change in assumption to the change in fair value may not be linear. Also in
this table, the effect of a variation of a particular assumption on the fair value is calculated
without changing any other assumptions. It is likely that changes in one factor may result in
changes in another, which might magnify or counteract the sensitivities.
Mortgage loans that have been securitized at July 31, 2005 and April 30, 2005, past due sixty
days or more and the related credit losses incurred are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s) |
|
|
|
|
Total Principal |
|
|
Principal Amount of |
|
|
|
|
|
|
Amount of Loans |
|
|
Loans 60 Days or |
|
|
Credit Losses |
|
|
|
Outstanding |
|
|
More Past Due |
|
|
(net of recoveries) |
|
|
|
July 31, |
|
|
April 30, |
|
|
July 31, |
|
|
April 30, |
|
|
Three months ended |
|
|
|
2005 |
|
|
2005 |
|
|
2005 |
|
|
2005 |
|
|
July 31, 2005 |
|
|
April 30, 2005 |
|
|
Securitized mortgage
loans |
|
$ |
11,140,672 |
|
|
$ |
10,300,805 |
|
|
$ |
1,058,989 |
|
|
$ |
1,128,376 |
|
|
$ |
23,545 |
|
|
$ |
21,641 |
|
Mortgage loans in
warehouse Trusts |
|
|
6,759,723 |
|
|
|
6,742,387 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
$ |
17,900,395 |
|
|
$ |
17,043,192 |
|
|
$ |
1,058,989 |
|
|
$ |
1,128,376 |
|
|
$ |
23,545 |
|
|
$ |
21,641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5. |
|
Goodwill and Intangible Assets |
|
|
|
Changes in the carrying amount of goodwill for the three months ended July 31, 2005 consist of the following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s) |
|
|
|
April 30, 2005 |
|
|
Additions |
|
|
Other |
|
|
July 31, 2005 |
|
|
Tax Services |
|
$ |
360,781 |
|
|
$ |
3,291 |
|
|
$ |
38 |
|
|
$ |
364,110 |
|
Mortgage Services |
|
|
152,467 |
|
|
|
|
|
|
|
|
|
|
|
152,467 |
|
Business Services |
|
|
328,745 |
|
|
|
81 |
|
|
|
(725 |
) |
|
|
328,101 |
|
Investment Services |
|
|
173,954 |
|
|
|
|
|
|
|
|
|
|
|
173,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goodwill |
|
$ |
1,015,947 |
|
|
$ |
3,372 |
|
|
$ |
(687 |
) |
|
$ |
1,018,632 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We test goodwill for impairment annually at the beginning of our fourth quarter, or
more frequently if events occur indicating it is more likely than not the fair value of a reporting
units net assets has been reduced below its carrying value. No such impairment or events
indicating impairment were identified within any of our segments during the three months ended July
31, 2005. Our evaluation of impairment
-8-
is dependent upon various assumptions,
including assumptions regarding projected operating results and cash flows of reporting units. Actual results could differ materially from
our projections and those differences could alter our conclusions regarding the fair value of a
reporting unit and its goodwill.
Intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s) |
|
|
|
|
|
July 31, 2005 |
|
|
April 30, 2005 |
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
Carrying |
|
|
Accumulated |
|
|
|
|
|
|
Carrying |
|
|
Accumulated |
|
|
|
|
|
|
Amount |
|
|
Amortization |
|
|
Net |
|
|
Amount |
|
|
Amortization |
|
|
Net |
|
|
Tax Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
|
$ |
23,717 |
|
|
$ |
(8,027 |
) |
|
$ |
15,690 |
|
|
$ |
23,717 |
|
|
$ |
(7,207 |
) |
|
$ |
16,510 |
|
Noncompete agreements |
|
|
17,677 |
|
|
|
(13,074 |
) |
|
|
4,603 |
|
|
|
17,677 |
|
|
|
(11,608 |
) |
|
|
6,069 |
|
Business Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
|
|
130,707 |
|
|
|
(71,179 |
) |
|
|
59,528 |
|
|
|
130,585 |
|
|
|
(68,433 |
) |
|
|
62,152 |
|
Noncompete agreements |
|
|
27,633 |
|
|
|
(11,876 |
) |
|
|
15,757 |
|
|
|
27,796 |
|
|
|
(11,274 |
) |
|
|
16,522 |
|
Trade name
amortizing |
|
|
1,450 |
|
|
|
(1,013 |
) |
|
|
437 |
|
|
|
1,450 |
|
|
|
(995 |
) |
|
|
455 |
|
Trade name
non-amortizing |
|
|
55,637 |
|
|
|
(4,868 |
) |
|
|
50,769 |
|
|
|
55,637 |
|
|
|
(4,868 |
) |
|
|
50,769 |
|
Investment Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
|
|
293,000 |
|
|
|
(207,542 |
) |
|
|
85,458 |
|
|
|
293,000 |
|
|
|
(198,385 |
) |
|
|
94,615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets |
|
$ |
549,821 |
|
|
$ |
(317,579 |
) |
|
$ |
232,242 |
|
|
$ |
549,862 |
|
|
$ |
(302,770 |
) |
|
$ |
247,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets for the three months ended July 31, 2005 and 2004
was $15.2 million and $15.1 million, respectively. Estimated amortization of intangible assets for
fiscal years 2006 through 2010 is $60.6 million, $51.5 million, $34.4 million, $11.7 million and
$9.8 million, respectively.
6. |
|
Derivative Instruments
A summary of our derivative instruments as of July 31, 2005 and April 30, 2005, and gains or losses
incurred during the three months ended July 31, 2005 and 2004 follows. We enter into derivative
instruments to reduce risks relating to mortgage loans we originate and sell, and therefore all
gains or losses are included in gains on sales of mortgage assets, net in the condensed
consolidated income statements. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s) |
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) in the Three |
|
|
|
Asset (Liability) Balance at |
|
|
Months Ended July 31, |
|
|
|
July 31, 2005 |
|
|
April 30, 2005 |
|
|
2005 |
|
|
2004 |
|
|
Interest rate swaps |
|
$ |
19,661 |
|
|
$ |
(1,325 |
) |
|
$ |
25,543 |
|
|
$ |
|
|
Interest rate caps |
|
|
|
|
|
|
12,458 |
|
|
|
640 |
|
|
|
|
|
Rate-lock equivalents |
|
|
(292 |
) |
|
|
801 |
|
|
|
(1,093 |
) |
|
|
1,484 |
|
Prime short sales |
|
|
790 |
|
|
|
(805 |
) |
|
|
996 |
|
|
|
(808 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
20,159 |
|
|
$ |
11,129 |
|
|
$ |
26,086 |
|
|
$ |
676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We generally use interest rate swaps and forward loan sale commitments to reduce
interest rate risk associated with non-prime loans. We generally enter into interest rate swap
arrangements related to existing loan applications with rate-lock commitments and for rate-lock
commitments we expect to make in the next 30 days. Interest rate swaps represent an agreement to
exchange interest rate payments, effectively converting our fixed financing costs into a floating
rate. These contracts increase in value as rates rise and decrease in value as rates fall.
We generally enter into interest rate caps or swaps to mitigate interest rate risk associated
with mortgage loans that will be securitized and residual interests that are classified as trading
securities because they will be sold in a subsequent NIM transaction. These instruments enhance the
marketability of the securitization and NIM transactions. An interest rate cap represents a right
to receive cash if interest rates rise above a contractual strike rate, its value therefore
increases as interest rates rise. The interest rate used in our interest rate caps is based on
LIBOR.
We enter into forward loan commitments to sell our non-prime mortgage loans to manage interest
rate risk. Forward loan sale commitments for non-prime loans are not considered derivative
instruments and therefore cannot be recorded in our financial statements. The notional value and
the contract value of
-9-
the forward commitments at July 31, 2005 were $3.9 billion. Most of our
forward commitments give us the option to under- or over-deliver by five to ten percent.
We, in the normal course of business, enter into commitments with our customers to fund both
non-prime and prime mortgage loans for specified periods of time at locked-in interest rates.
These derivative instruments represent commitments to fund loans (rate-lock equivalents). The
fair value of non-prime loan commitments is calculated using a binomial option model, however we do
not initially record an asset for non-prime commitments to fund loans. The fair value of prime loan
commitments is calculated based on the current market pricing of short sales of FNMA, FHLMC and
GNMA mortgage-backed securities and the coupon rates of the eligible loans.
We sell short FNMA, FHLMC and GNMA mortgage-backed securities to reduce our risk related to
our commitments to fund fixed-rate prime loans. The position on certain or all of the fixed-rate
mortgage loans is closed approximately 10-15 days prior to standard Public Securities Association
(PSA) settlement dates.
None of our derivative instruments qualify for hedge accounting treatment as of July 31, 2005
or April 30, 2005.
7. |
|
Stock-Based Compensation
|
|
|
|
Effective May 1, 2003, we adopted the fair value recognition provisions of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123), under the
prospective transition method as described in Statement of Financial Accounting Standards No. 148,
Accounting for Stock-Based Compensation Transition and Disclosure. Had compensation cost for
all stock-based compensation plan grants been determined in accordance with the fair value
accounting method prescribed under SFAS 123, our net loss and loss per share would have been as
follows: |
|
|
|
|
|
|
|
|
|
|
|
(in 000s, except per share amounts) |
|
|
|
|
|
|
|
Restated |
|
Three months ended July 31, |
|
2005 |
|
|
2004 |
|
|
Net loss as reported |
|
$ |
(28,324 |
) |
|
$ |
(36,742 |
) |
Add: Stock-based compensation expense included in
reported net loss, net of related tax effects |
|
|
5,765 |
|
|
|
3,100 |
|
Deduct: Total stock-based compensation expense
determined under fair value method for all
awards, net of related tax effects |
|
|
(8,309 |
) |
|
|
(5,781 |
) |
|
|
|
|
|
|
|
Pro forma net loss |
|
$ |
(30,868 |
) |
|
$ |
(39,423 |
) |
|
|
|
|
|
|
|
Basic and diluted loss per share: |
|
|
|
|
|
|
|
|
As reported |
|
$ |
(.09 |
) |
|
$ |
(.11 |
) |
Pro forma |
|
|
(.09 |
) |
|
|
(.12 |
) |
8. |
|
Supplemental Cash Flow Information
During the three months ended July 31, 2005, we paid $35.3 million and $13.8 million for income
taxes and interest, respectively. During the three months ended July 31, 2004, we paid $183.4
million and $12.5 million for income taxes and interest, respectively. |
The following transactions were treated as non-cash investing activities in the condensed
consolidated statement of cash flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s) |
Three months ended July 31, |
|
2005 |
|
2004 |
|
Residual interest mark-to-market
|
|
$ |
12,942 |
|
|
$ |
53,473 |
|
Additions to residual interests
|
|
|
2,109 |
|
|
|
|
|
9. |
|
Commitments and Contingencies |
|
|
|
We maintain two unsecured committed lines of credit (CLOCs)
for working capital, to support our commercial paper program
and for general corporate purposes. The two CLOCs are from a consortium of thirty-one banks. The
first $1.0 billion CLOC is subject to annual renewal in August 2005, has a one-year term-out
provision with a maturity date in August 2006. The second
$1.0 billion CLOC has a maturity date of August 2009. |
-10-
These lines are subject to various affirmative and
negative covenants, including a minimum net worth covenant. These CLOCs were undrawn at July 31,
2005. Subsequent to July 31, 2005, the first CLOC expired and was replaced with a new $1.0 billion
CLOC, which expires in August 2010. Also subsequent to July 31, 2005, the second CLOC was extended,
and now expires in August 2010.
We offer guarantees under our Peace of Mind (POM) program to tax clients whereby we will
assume the cost of additional taxes attributable to tax return preparation errors for which we are
responsible. We defer all revenues and direct costs associated with these guarantees, recognizing
these amounts over the term of the guarantee based upon historic and actual payment of claims.
Changes in the deferred revenue liability are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s) |
|
Three months ended July 31, |
|
2005 |
|
|
2004 |
|
|
Balance, beginning of period |
|
$ |
130,762 |
|
|
$ |
123,048 |
|
Amounts deferred for new guarantees issued |
|
|
408 |
|
|
|
369 |
|
Revenue recognized on previous deferrals |
|
|
(23,900 |
) |
|
|
(22,613 |
) |
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
107,270 |
|
|
$ |
100,804 |
|
|
|
|
|
|
|
|
We have commitments to fund mortgage loans to customers as long as there is no
violation of any condition established in the contract. Commitments generally have fixed expiration
dates or other termination clauses. The commitments to fund loans amounted to $4.7 billion and $3.9
billion at July 31, 2005 and April 30, 2005, respectively. External market forces impact the
probability of commitments being exercised, and therefore, total commitments outstanding do not
necessarily represent future cash requirements.
We have entered into whole loan sale agreements with investors in the normal course of
business, which include standard representations and warranties customary to the mortgage banking
industry. Violations of these representations and warranties may require us to repurchase loans
previously sold. A liability has been established related to the potential loss on repurchase of
loans previously sold of $41.8 million and $41.2 million at July 31, 2005 and April 30, 2005,
respectively, based on historical experience. Repurchased loans are normally sold in subsequent
sale transactions.
Option One Mortgage Corporation provides a guarantee up to a maximum amount equal to
approximately 10% of the aggregate principal balance of mortgage loans held by the Trusts before
ultimate disposition of the loans. This guarantee would be called upon in the event adequate
proceeds were not available from the sale of the mortgage loans to satisfy the payment obligations
of the Trusts. No losses have been sustained on this commitment since its inception. The total
principal amount of Trust obligations outstanding as of July 31, 2005 and April 30, 2005 was
$6.7 billion. The fair value of mortgage loans held by the Trusts as of
July 31, 2005 and April 30, 2005 was $6.9 billion and $6.8 billion, respectively.
We have various contingent purchase price obligations in connection with prior acquisitions.
In many cases, contingent payments to be made in connection with these acquisitions are not subject
to a stated limit. We estimate the potential payments (undiscounted) total approximately $5.9
million and $5.1 million as of July 31, 2005 and
April 30, 2005, respectively. Our estimate is based on current financial
conditions. Should actual results differ materially from our assumptions, the potential payments
will differ from the above estimate. Such payments, if and when paid, would be recorded as
additional cost of the acquired business, generally goodwill.
We have contractual commitments to fund certain franchises requesting draws on Franchise
Equity Lines of Credit (FELCs). Our commitment to fund FELCs as of July 31, 2005 and April 30, 2005
totaled $71.6 million and $68.9 million, respectively. We have a receivable of $40.7 million and
$39.0 million, which represents the amounts drawn on the FELCs, as of July 31, 2005 and April 30,
2005, respectively.
We routinely enter into contracts that include embedded indemnifications that have
characteristics similar to guarantees, including obligations to protect counter parties from losses
arising from the following: (a) tax, legal and other risks related to the purchase or disposition
of businesses; (b) penalties and interest assessed by Federal and state taxing authorities in
connection with tax returns prepared for clients; (c) indemnification of our directors and
officers; and (d) third-party claims relating to various arrangements in the normal course of
business. Typically, there is no stated maximum payment related to these indemnifications, and the
term of indemnities may vary and in many cases is limited only by the
-11-
applicable statute of
limitations. The likelihood of any claims being asserted against us and the ultimate liability
related to any such claims, if any, is difficult to predict. While we cannot provide assurance that
such claims will not be successfully asserted, we believe the fair value of these guarantees and
indemnifications is not material as of July 31, 2005.
10. |
|
Litigation Commitments and Contingencies |
|
|
|
We have been involved in a number of class actions and putative class action cases since 1990
regarding our RAL programs. These cases are based on a variety of legal theories and allegations.
These theories and allegations include, among others, that (i) we improperly did not disclose
license fees we received from RAL lending banks for RALs they make to our clients, (ii) we owe and
breached a fiduciary duty to our clients and (iii) the RAL program violates laws such as state
credit service organization laws and the federal Racketeer Influenced and Corrupt Organizations
(RICO) Act. Although we have successfully defended many RAL cases, we incurred a pretax expense of
$43.5 million in fiscal year 2003 in connection with settling one RAL case. Several of the RAL
cases are still pending and the amounts claimed in some of them are very substantial. The ultimate
cost of this litigation could be substantial. We intend to continue defending the RAL cases
vigorously, although there are no assurances as to their outcome. |
As discussed in our Form 8-K dated May 9, 2005, we initially recorded litigation reserves of
approximately $38.0 million, after taxes in connection with a proposed settlement of Lynne A.
Carnegie, et al. v. Household International, Inc., H&R Block, Inc., et al., (formerly Joel E.
Zawikowski, et al. v. Beneficial National Bank, H&R Block, Inc., Block Financial Corporation, et
al.). In negotiating the proposed settlement and in determining the amount of consideration we were
willing to pay under the proposed settlement, we ascribed significant value to the expanded class
of plaintiffs to be covered by the proposed settlement and settlement terms that reduced the
likelihood of future claims being made against us regarding our RAL programs. As a result of the
May 26, 2005 court ruling to deny the settlement offer, we reversed our legal reserves to amounts
representing our assessment of our probable loss.
We are also parties to claims and lawsuits pertaining to our electronic tax return filing
services and our POM guarantee program associated with income tax preparation services. These
claims and lawsuits include actions by individual plaintiffs, as well as cases in which plaintiffs
seek to represent a class of similarly situated customers. The amounts claimed in these claims and
lawsuits are substantial in some instances, and the ultimate liability with respect to such
litigation and claims is difficult to predict. We intend to continue defending these cases
vigorously, although there are not assurances as to their outcome.
In addition to the aforementioned types of cases, we are parties to claims and lawsuits that
we consider to be ordinary, routine disputes incidental to our business (Other Claims and
Lawsuits), including claims and lawsuits concerning the preparation of customers income tax
returns, the fees charged customers for various services, investment products, relationships with
franchisees, contract disputes and civil actions, arbitrations, regulatory inquiries and class
actions arising out of our business as a broker-dealer and as a servicer of mortgage loans. We
believe we have meritorious defenses to each of the Other Claims and Lawsuits and are defending them vigorously. Although we cannot provide assurance we will ultimately prevail
in each instance, we believe that amounts, if any, required to be paid in the discharge of
liabilities or settlements pertaining to Other Claims and Lawsuits will not have a material adverse
effect on our consolidated financial statements. Regardless of outcome, claims and litigation can
adversely affect us due to defense costs, diversion of management,
attention and time, and publicity related to such
matters.
It is our policy to accrue for amounts related to legal matters if it is probable that a
liability has been incurred and the amount of the liability can be reasonably estimated. Many of
the various legal proceedings are covered in whole or in part by insurance. Any receivable for
insurance recoveries is recorded separately from the corresponding litigation reserve, and only if
recovery is determined to be probable. Receivables for insurance recoveries at July 31, 2005 were
immaterial.
-12-
11. |
|
Segment Information |
|
|
|
Information concerning our operations by reportable operating segment is as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s) |
|
|
|
|
|
|
|
Restated |
|
Three months ended July 31, |
|
2005 |
|
|
2004 |
|
|
Revenues: |
|
|
|
|
|
|
|
|
Tax Services |
|
$ |
57,191 |
|
|
$ |
50,447 |
|
Mortgage Services |
|
|
360,438 |
|
|
|
271,973 |
|
Business Services |
|
|
126,846 |
|
|
|
109,102 |
|
Investment Services |
|
|
67,983 |
|
|
|
53,581 |
|
Corporate |
|
|
2,535 |
|
|
|
1,448 |
|
|
|
|
|
|
|
|
|
|
$ |
614,993 |
|
|
$ |
486,551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income (loss): |
|
|
|
|
|
|
|
|
Tax Services |
|
$ |
(144,506 |
) |
|
$ |
(112,646 |
) |
Mortgage Services |
|
|
134,468 |
|
|
|
109,025 |
|
Business Services |
|
|
(6,765 |
) |
|
|
(10,045 |
) |
Investment Services |
|
|
(7,552 |
) |
|
|
(20,343 |
) |
Corporate |
|
|
(21,514 |
) |
|
|
(24,791 |
) |
|
|
|
|
|
|
|
Loss before taxes |
|
$ |
(45,869 |
) |
|
$ |
(58,800 |
) |
|
|
|
|
|
|
|
12. |
|
New Accounting Pronouncements |
|
|
|
Exposure Drafts Amendments of SFAS 140 |
|
|
|
In August 2005, the Financial Accounting Standards Board (FASB) issued three exposure drafts which
amend Statement of Financial Accounting Standards No. 140, Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities. The final standards are scheduled to be
issued in the first quarter of calendar year 2006. |
The first exposure draft seeks to clarify the derecognition requirements for financial assets
and the initial measurement of interests related to transferred financial assets that are held by a
transferor. Our current off-balance sheet warehouse facilities (the Trusts) in our Mortgage
Services segment would be required to be consolidated in our financial statements based on the
provisions of the exposure draft. We will continue to monitor the status of the exposure draft and
consider what changes, if any, could be made to the structure of the Trusts to continue to
derecognize mortgage loans transferred to the Trusts. At
July 31, 2005, the Trusts held loans
totaling $6.7 billion, which we would be required to consolidate into our financial statements
under the provisions of this exposure draft.
The second exposure draft would require mortgage servicing rights to be initially valued at
fair value. This provision would not have a material impact to our financial statements. In
addition, this exposure draft would permit us to choose to continue to amortize mortgage servicing
rights in proportion to and over the period of estimated net servicing income, as currently
required under SFAS 140, or report mortgage servicing rights at fair value at each reporting date
and report changes in fair value in earnings in the period in which
the changes occur. We have not yet determined how we would elect to account for mortgage servicing rights under this
provision or the potential impact to the financial statements.
The third exposure draft, among other things, would establish a requirement to evaluate
beneficial interests in securitized financial assets to identify interests that are free-standing
derivatives or that are hybrid financial instruments that contain an embedded derivative requiring
bifurcation. Alternatively, this exposure draft would permit fair value remeasurement for any
hybrid financial instrument that contains an embedded derivative that otherwise would require
bifurcation. Our residual interests in securitizations typically have interests in derivative
instruments embedded within the securitization trusts. We have not yet determined if these
embedded derivatives meet the criteria for bifurcation as outlined in the exposure draft.
American
Jobs Creation Act
In
October 2004, the American Jobs Creation Act (the Act) was signed
into law. The Act introduces a one-time deduction for dividends
received from the repatriation of certain foreign earnings, provided
certain criteria are met. We have begun our evaluation of the effects
of the Act, but do not expect to be able to complete this evaluation
until additional clarifying language on key elements of the Act is
issued. As of July 31, 2005, we have not provided deferred taxes
on foreign earnings because we intended to indefinitely reinvest such
earnings outside the United States. Whether we will ultimately take
advantage of this provision depends on our review of the Act and any
additional guidance provided and we are therefore currently uncertain
as to the impact, if any, this matter will have on our consolidated
financial statements, and are unable to estimate the amount of
earnings we may repatriate.
13. |
|
Condensed Consolidating Financial Statements |
|
|
|
Block Financial Corporation (BFC) is an indirect, wholly owned consolidated subsidiary of the
Company. BFC is the Issuer and the Company is the Guarantor of the Senior Notes issued on October
21, 1997, April 13, 2000 and October 26, 2004. These condensed consolidating financial statements
have been |
-13-
prepared using the equity method of accounting. Earnings of subsidiaries are, therefore,
reflected in the Companys investment in subsidiaries account. The elimination entries eliminate investments in subsidiaries,
related stockholders equity and other intercompany balances and transactions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Income Statements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s) |
|
Three months ended |
|
H&R Block, Inc. |
|
|
BFC |
|
|
Other |
|
|
|
|
|
|
Consolidated |
|
July 31, 2005 |
|
(Guarantor) |
|
|
(Issuer) |
|
|
Subsidiaries |
|
|
Elims |
|
|
H&R Block |
|
|
Total revenues |
|
$ |
|
|
|
$ |
460,640 |
|
|
$ |
157,665 |
|
|
$ |
(3,312 |
) |
|
$ |
614,993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service revenues |
|
|
|
|
|
|
109,353 |
|
|
|
233,776 |
|
|
|
89 |
|
|
|
343,218 |
|
Cost of other revenues |
|
|
|
|
|
|
120,900 |
|
|
|
2,457 |
|
|
|
|
|
|
|
123,357 |
|
Selling, general and administrative |
|
|
|
|
|
|
91,188 |
|
|
|
101,465 |
|
|
|
(3,401 |
) |
|
|
189,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
|
|
|
|
321,441 |
|
|
|
337,698 |
|
|
|
(3,312 |
) |
|
|
655,827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
|
|
|
|
139,199 |
|
|
|
(180,033 |
) |
|
|
|
|
|
|
(40,834 |
) |
Interest expense |
|
|
|
|
|
|
11,810 |
|
|
|
625 |
|
|
|
|
|
|
|
12,435 |
|
Other income, net |
|
|
(45,869 |
) |
|
|
|
|
|
|
7,400 |
|
|
|
45,869 |
|
|
|
7,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes |
|
|
(45,869 |
) |
|
|
127,389 |
|
|
|
(173,258 |
) |
|
|
45,869 |
|
|
|
(45,869 |
) |
Income taxes (benefit) |
|
|
(17,545 |
) |
|
|
48,386 |
|
|
|
(65,931 |
) |
|
|
17,545 |
|
|
|
(17,545 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(28,324 |
) |
|
$ |
79,003 |
|
|
$ |
(107,327 |
) |
|
$ |
28,324 |
|
|
$ |
(28,324 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
H&R Block, Inc. |
|
|
BFC |
|
|
Other |
|
|
|
|
|
|
Consolidated |
|
July 31, 2004 (Restated) |
|
(Guarantor) |
|
|
(Issuer) |
|
|
Subsidiaries |
|
|
Elims |
|
|
H&R Block |
|
|
Total revenues |
|
$ |
|
|
|
$ |
328,603 |
|
|
$ |
161,215 |
|
|
$ |
(3,267 |
) |
|
$ |
486,551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services |
|
|
|
|
|
|
93,265 |
|
|
|
197,664 |
|
|
|
46 |
|
|
|
290,975 |
|
Cost of other revenues |
|
|
|
|
|
|
76,981 |
|
|
|
1,414 |
|
|
|
|
|
|
|
78,395 |
|
Selling, general and administrative |
|
|
|
|
|
|
72,188 |
|
|
|
91,321 |
|
|
|
(3,313 |
) |
|
|
160,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
|
|
|
|
242,434 |
|
|
|
290,399 |
|
|
|
(3,267 |
) |
|
|
529,566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
|
|
|
|
86,169 |
|
|
|
(129,184 |
) |
|
|
|
|
|
|
(43,015 |
) |
Interest expense |
|
|
|
|
|
|
16,802 |
|
|
|
991 |
|
|
|
|
|
|
|
17,793 |
|
Other income, net |
|
|
(58,800 |
) |
|
|
|
|
|
|
2,008 |
|
|
|
58,800 |
|
|
|
2,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes |
|
|
(58,800 |
) |
|
|
69,367 |
|
|
|
(128,167 |
) |
|
|
58,800 |
|
|
|
(58,800 |
) |
Income taxes (benefit) |
|
|
(22,058 |
) |
|
|
25,569 |
|
|
|
(47,627 |
) |
|
|
22,058 |
|
|
|
(22,058 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(36,742 |
) |
|
$ |
43,798 |
|
|
$ |
(80,540 |
) |
|
$ |
36,742 |
|
|
$ |
(36,742 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-14-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s) |
|
|
|
H&R Block, Inc. |
|
|
BFC |
|
|
Other |
|
|
|
|
|
|
Consolidated |
|
July 31, 2005 |
|
(Guarantor) |
|
|
(Issuer) |
|
|
Subsidiaries |
|
|
Elims |
|
|
H&R Block |
|
|
Cash & cash equivalents |
|
$ |
|
|
|
$ |
148,287 |
|
|
$ |
484,514 |
|
|
$ |
|
|
|
$ |
632,801 |
|
Cash &
cash equivalents restricted |
|
|
|
|
|
|
403,171 |
|
|
|
13,810 |
|
|
|
|
|
|
|
416,981 |
|
Receivables from customers,
brokers and dealers, net |
|
|
|
|
|
|
585,214 |
|
|
|
|
|
|
|
|
|
|
|
585,214 |
|
Receivables, net |
|
|
176 |
|
|
|
248,677 |
|
|
|
155,648 |
|
|
|
|
|
|
|
404,501 |
|
Intangible assets and goodwill, net |
|
|
|
|
|
|
414,838 |
|
|
|
836,036 |
|
|
|
|
|
|
|
1,250,874 |
|
Investments in subsidiaries |
|
|
4,840,942 |
|
|
|
215 |
|
|
|
506 |
|
|
|
(4,840,942 |
) |
|
|
721 |
|
Other assets |
|
|
|
|
|
|
1,458,040 |
|
|
|
268,135 |
|
|
|
(86 |
) |
|
|
1,726,089 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
4,841,118 |
|
|
$ |
3,258,442 |
|
|
$ |
1,758,649 |
|
|
$ |
(4,841,028 |
) |
|
$ |
5,017,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accts. payable to customers,
brokers and dealers |
|
$ |
|
|
|
$ |
871,715 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
871,715 |
|
Long-term debt |
|
|
|
|
|
|
896,799 |
|
|
|
26,346 |
|
|
|
|
|
|
|
923,145 |
|
Other liabilities |
|
|
2 |
|
|
|
525,312 |
|
|
|
874,012 |
|
|
|
|
|
|
|
1,399,326 |
|
Net intercompany advances |
|
|
3,018,121 |
|
|
|
(652,914 |
) |
|
|
(2,365,121 |
) |
|
|
(86 |
) |
|
|
|
|
Stockholders equity |
|
|
1,822,995 |
|
|
|
1,617,530 |
|
|
|
3,223,412 |
|
|
|
(4,840,942 |
) |
|
|
1,822,995 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity |
|
$ |
4,841,118 |
|
|
$ |
3,258,442 |
|
|
$ |
1,758,649 |
|
|
$ |
(4,841,028 |
) |
|
$ |
5,017,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
H&R Block, Inc. |
|
|
BFC |
|
|
Other |
|
|
|
|
|
|
Consolidated |
|
April 30, 2005 |
|
(Guarantor) |
|
|
(Issuer) |
|
|
Subsidiaries |
|
|
Elims |
|
|
H&R Block |
|
|
Cash & cash equivalents |
|
$ |
|
|
|
$ |
162,983 |
|
|
$ |
937,230 |
|
|
$ |
|
|
|
$ |
1,100,213 |
|
Cash &
cash equivalents restricted |
|
|
|
|
|
|
488,761 |
|
|
|
28,148 |
|
|
|
|
|
|
|
516,909 |
|
Receivables from customers,
brokers and dealers, net |
|
|
|
|
|
|
590,226 |
|
|
|
|
|
|
|
|
|
|
|
590,226 |
|
Receivables, net |
|
|
101 |
|
|
|
199,990 |
|
|
|
218,697 |
|
|
|
|
|
|
|
418,788 |
|
Intangible assets and goodwill, net |
|
|
|
|
|
|
421,036 |
|
|
|
842,003 |
|
|
|
|
|
|
|
1,263,039 |
|
Investments in subsidiaries |
|
|
4,878,783 |
|
|
|
210 |
|
|
|
449 |
|
|
|
(4,878,783 |
) |
|
|
659 |
|
Other assets |
|
|
|
|
|
|
1,407,082 |
|
|
|
243,007 |
|
|
|
(640 |
) |
|
|
1,649,449 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
4,878,884 |
|
|
$ |
3,270,288 |
|
|
$ |
2,269,534 |
|
|
$ |
(4,879,423 |
) |
|
$ |
5,539,283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accts. payable to customers,
brokers and dealers |
|
$ |
|
|
|
$ |
950,684 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
950,684 |
|
Long-term debt |
|
|
|
|
|
|
896,591 |
|
|
|
26,482 |
|
|
|
|
|
|
|
923,073 |
|
Other liabilities |
|
|
2 |
|
|
|
532,562 |
|
|
|
1,156,583 |
|
|
|
8 |
|
|
|
1,689,155 |
|
Net intercompany advances |
|
|
2,902,511 |
|
|
|
(653,908 |
) |
|
|
(2,250,521 |
) |
|
|
1,918 |
|
|
|
|
|
Stockholders equity |
|
|
1,976,371 |
|
|
|
1,544,359 |
|
|
|
3,336,990 |
|
|
|
(4,881,349 |
) |
|
|
1,976,371 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity |
|
$ |
4,878,884 |
|
|
$ |
3,270,288 |
|
|
$ |
2,269,534 |
|
|
$ |
(4,879,423 |
) |
|
$ |
5,539,283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-15-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statements of Cash Flows |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s) |
|
Three months ended |
|
H&R Block, Inc. |
|
|
BFC |
|
|
Other |
|
|
|
|
|
|
Consolidated |
|
July 31, 2005 |
|
(Guarantor) |
|
|
(Issuer) |
|
|
Subsidiaries |
|
|
Elims |
|
|
H&R Block |
|
|
Net cash provided by (used in)
operating activities: |
|
$ |
15,721 |
|
|
$ |
(38,381 |
) |
|
$ |
(287,855 |
) |
|
$ |
|
|
|
$ |
(310,515 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash received on residuals |
|
|
|
|
|
|
24,031 |
|
|
|
|
|
|
|
|
|
|
|
24,031 |
|
Purchase property & equipment |
|
|
|
|
|
|
(9,255 |
) |
|
|
(21,075 |
) |
|
|
|
|
|
|
(30,330 |
) |
Payments for business acquisitions |
|
|
|
|
|
|
(2,994 |
) |
|
|
(458 |
) |
|
|
|
|
|
|
(3,452 |
) |
Net intercompany advances |
|
|
120,140 |
|
|
|
|
|
|
|
|
|
|
|
(120,140 |
) |
|
|
|
|
Other, net |
|
|
|
|
|
|
330 |
|
|
|
7,605 |
|
|
|
|
|
|
|
7,935 |
|
|
|
|
|
|
|
|
|
|
aaaaaa aaaaaaaaa |
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities |
|
|
120,140 |
|
|
|
12,112 |
|
|
|
(13,928 |
) |
|
|
(120,140 |
) |
|
|
(1,816 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid |
|
|
(36,537 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36,537 |
) |
Acquisition of treasury shares |
|
|
(131,642 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(131,642 |
) |
Proceeds from common stock |
|
|
32,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,318 |
|
Net intercompany advances |
|
|
|
|
|
|
994 |
|
|
|
(121,134 |
) |
|
|
120,140 |
|
|
|
|
|
Other, net |
|
|
|
|
|
|
10,579 |
|
|
|
(29,799 |
) |
|
|
|
|
|
|
(19,220 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities |
|
|
(135,861 |
) |
|
|
11,573 |
|
|
|
(150,933 |
) |
|
|
120,140 |
|
|
|
(155,081 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash |
|
|
|
|
|
|
(14,696 |
) |
|
|
(452,716 |
) |
|
|
|
|
|
|
(467,412 |
) |
Cash beginning of period |
|
|
|
|
|
|
162,983 |
|
|
|
937,230 |
|
|
|
|
|
|
|
1,100,213 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash end of period |
|
$ |
|
|
|
$ |
148,287 |
|
|
$ |
484,514 |
|
|
$ |
|
|
|
$ |
632,801 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
H&R Block, Inc. |
|
|
BFC |
|
|
Other |
|
|
|
|
|
|
Consolidated |
|
July 31, 2004 (Restated) |
|
(Guarantor) |
|
|
(Issuer) |
|
|
Subsidiaries |
|
|
Elims |
|
|
H&R Block |
|
|
Net cash used in operating
activities: |
|
$ |
(8,544 |
) |
|
$ |
(56,220 |
) |
|
$ |
(450,568 |
) |
|
$ |
|
|
|
$ |
(515,332 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash received on residuals |
|
|
|
|
|
|
38,826 |
|
|
|
|
|
|
|
|
|
|
|
38,826 |
|
Purchase property & equipment |
|
|
|
|
|
|
(6,630 |
) |
|
|
(16,084 |
) |
|
|
|
|
|
|
(22,714 |
) |
Net intercompany advances |
|
|
377,200 |
|
|
|
|
|
|
|
|
|
|
|
(377,200 |
) |
|
|
|
|
Other, net |
|
|
|
|
|
|
1,273 |
|
|
|
6,221 |
|
|
|
|
|
|
|
7,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities |
|
|
377,200 |
|
|
|
33,469 |
|
|
|
(9,863 |
) |
|
|
(377,200 |
) |
|
|
23,606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of commercial paper |
|
|
|
|
|
|
(314,836 |
) |
|
|
|
|
|
|
|
|
|
|
(314,836 |
) |
Proceeds from commercial paper |
|
|
|
|
|
|
419,700 |
|
|
|
|
|
|
|
|
|
|
|
419,700 |
|
Dividends paid |
|
|
(33,636 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33,636 |
) |
Acquisition of treasury shares |
|
|
(347,395 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(347,395 |
) |
Proceeds from common stock |
|
|
12,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,375 |
|
Net intercompany advances |
|
|
|
|
|
|
(25,880 |
) |
|
|
(351,320 |
) |
|
|
377,200 |
|
|
|
|
|
Other, net |
|
|
|
|
|
|
|
|
|
|
(127 |
) |
|
|
|
|
|
|
(127 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities |
|
|
(368,656 |
) |
|
|
78,984 |
|
|
|
(351,447 |
) |
|
|
377,200 |
|
|
|
(263,919 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash |
|
|
|
|
|
|
56,233 |
|
|
|
(811,878 |
) |
|
|
|
|
|
|
(755,645 |
) |
Cash beginning of period |
|
|
|
|
|
|
133,188 |
|
|
|
939,557 |
|
|
|
|
|
|
|
1,072,745 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash end of period |
|
$ |
|
|
|
$ |
189,421 |
|
|
$ |
127,679 |
|
|
$ |
|
|
|
$ |
317,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-16-
|
|
|
ITEM 2. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
RESULTS OF OPERATIONS
H&R Block is a diversified company delivering tax services and financial advice, investment
and mortgage services, and business and consulting services. For 50 years, we have been developing
relationships with millions of tax clients and our strategy is to expand on these relationships.
Our Tax Services segment provides income tax return preparation services, electronic filing
services and other services and products related to income tax return preparation to the general
public in the United States, Canada, Australia and the United Kingdom. We also offer investment
services through H&R Block Financial Advisors, Inc. (HRBFA). Our Mortgage Services segment offers a
full range of home mortgage services through Option One Mortgage Corporation (OOMC) and H&R Block
Mortgage Corporation (HRBMC). RSM McGladrey Business Services, Inc. (RSM) is a national accounting,
tax and consulting firm primarily serving mid-sized businesses.
Our
Mission
To help our clients achieve their financial objectives
by serving as their tax and financial partner.
Key to achieving our mission is the enhancement of client experiences through consistent
delivery of valuable services and advice. Operating through multiple lines of business allows us to
better meet the changing financial needs of our clients.
The accompanying Managements Discussion and Analysis of Financial Condition and Results of
Operations reflects the restatement of previously issued financial statements, as discussed in note
2 to our condensed consolidated financial statements. The analysis that follows should be read in
conjunction with the tables below and the condensed consolidated income statements found on page 2.
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
H&R Block, Inc. Operating Results |
|
(in 000s, except per share amounts) |
|
|
|
|
|
|
|
Restated |
|
Three months ended July 31, |
|
2005 |
|
|
2004 |
|
|
Revenues: |
|
|
|
|
|
|
|
|
Tax Services |
|
$ |
57,191 |
|
|
$ |
50,447 |
|
Mortgage Services |
|
|
360,438 |
|
|
|
271,973 |
|
Business Services |
|
|
126,846 |
|
|
|
109,102 |
|
Investment Services |
|
|
67,983 |
|
|
|
53,581 |
|
Corporate |
|
|
2,535 |
|
|
|
1,448 |
|
|
|
|
|
|
|
|
|
|
$ |
614,993 |
|
|
$ |
486,551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income (loss): |
|
|
|
|
|
|
|
|
Tax Services |
|
$ |
(144,506 |
) |
|
$ |
(112,646 |
) |
Mortgage Services |
|
|
134,468 |
|
|
|
109,025 |
|
Business Services |
|
|
(6,765 |
) |
|
|
(10,045 |
) |
Investment Services |
|
|
(7,552 |
) |
|
|
(20,343 |
) |
Corporate |
|
|
(21,514 |
) |
|
|
(24,791 |
) |
|
|
|
|
|
|
|
|
|
|
(45,869 |
) |
|
|
(58,800 |
) |
Income tax benefit |
|
|
(17,545 |
) |
|
|
(22,058 |
) |
|
|
|
|
|
|
|
Net loss |
|
$ |
(28,324 |
) |
|
$ |
(36,742 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share |
|
$ |
(.09 |
) |
|
$ |
(.11 |
) |
|
|
|
|
|
|
|
OVERVIEW
A summary of our results compared to the prior year is as follows:
|
§ |
|
Diluted loss per share for the three months ended July 31, 2005 was $0.09 compared to $0.11 in the prior year. |
|
|
§ |
|
Tax Services pretax loss totaled $144.5 million compared to $112.6 million in the prior
year. The higher losses were primarily due to off-season costs related to offices added
during fiscal year 2005, costs incurred for new offices to be opened in the coming tax season
and costs associated with Small Business Resources (SBR). |
-17-
|
§ |
|
Mortgage Services revenues and pretax income increased $88.5 million and $25.4 million,
respectively, compared to the prior year. These increases are due to
a 59.7% increase in
origination volumes, partially offset by a decline in our gross margin. |
|
|
§ |
|
Business Services revenues increased $17.7 million for the three months ended July 31,
2005, primarily due to a higher number of chargeable hours and a higher billed rate per hour
in our accounting, tax and consulting business. The pretax loss improved $3.3 million for the
current quarter primarily due to revenue growth. |
|
|
§ |
|
Investment Services pretax loss for the three months ended July 31, 2005 was $7.6
million, compared to $20.3 million and $14.5 million in the prior year and preceding quarter,
respectively. This improvement is primarily due to our actions implemented during the fourth quarter of
fiscal year 2005 to reduce costs and enhance performance. |
TAX SERVICES
This
segment primarily consists of our income tax preparation businesses retail, online and
software.
|
|
|
|
|
|
|
|
|
Tax Services Operating Results |
|
|
|
|
|
(in 000s) |
|
|
|
|
|
|
|
Restated |
|
Three months ended July 31, |
|
2005 |
|
|
2004 |
|
|
Service revenues: |
|
|
|
|
|
|
|
|
Tax preparation and related fees |
|
$ |
23,637 |
|
|
$ |
19,044 |
|
Online tax services |
|
|
633 |
|
|
|
700 |
|
Other services |
|
|
28,334 |
|
|
|
24,337 |
|
|
|
|
|
|
|
|
|
|
|
52,604 |
|
|
|
44,081 |
|
Royalties |
|
|
2,396 |
|
|
|
1,612 |
|
Software sales |
|
|
1,193 |
|
|
|
1,383 |
|
RAL participation fees |
|
|
271 |
|
|
|
164 |
|
Other |
|
|
727 |
|
|
|
3,207 |
|
|
|
|
|
|
|
|
Total revenues |
|
|
57,191 |
|
|
|
50,447 |
|
|
|
|
|
|
|
|
Cost of services: |
|
|
|
|
|
|
|
|
Compensation and benefits |
|
|
40,897 |
|
|
|
30,684 |
|
Occupancy |
|
|
59,313 |
|
|
|
50,328 |
|
Depreciation |
|
|
10,169 |
|
|
|
8,978 |
|
Other |
|
|
37,192 |
|
|
|
31,228 |
|
|
|
|
|
|
|
|
|
|
|
147,571 |
|
|
|
121,218 |
|
Cost of software sales |
|
|
2,885 |
|
|
|
3,167 |
|
Selling, general and administrative |
|
|
51,241 |
|
|
|
38,708 |
|
|
|
|
|
|
|
|
Total expenses |
|
|
201,697 |
|
|
|
163,093 |
|
|
|
|
|
|
|
|
Pretax loss |
|
$ |
(144,506 |
) |
|
$ |
(112,646 |
) |
|
|
|
|
|
|
|
Three months ended July 31, 2005 compared to July 31, 2004
Tax Services revenues increased $6.7 million, or 13.4%, for the three months ended July 31, 2005
compared to the prior year.
Tax preparation and related fees increased $4.6 million, or 24.1%, for the current quarter.
This increase is primarily due to an increase in the average fee per U.S. client served, coupled
with an increase in U.S. clients served in offices. The average fee per U.S. client served
increased 9.1% over last year, and U.S. clients served in company-owned offices increased 5.9%.
Additionally, the extension of the Canadian tax season into the month of May resulted in a $1.7
million increase to our current quarter revenues.
Other service revenues increased $4.0 million primarily as a result of additional revenues
associated with Express IRAs and POM guarantees.
Total expenses increased $38.6 million, or 23.7%. Cost of services for the three months ended
July 31, 2005 increased $26.4 million, or 21.7%, from the prior year. Our real estate expansion
efforts have contributed to a total increase of $7.3 million across all cost of services
categories. Compensation and benefits increased $10.2 million primarily due to an increase in the
number of off-season support staff needed for our new offices, the addition of SBR costs in the
current year and related payroll taxes. Occupancy expenses increased $9.0 million, or 17.9%,
primarily as a result of higher rent expenses, due
-18-
to an 11.5% increase in company-owned offices
under lease and a 6.0% increase in the average rent. Utilities and real estate taxes related to these new offices also contributed to the increase. Other cost of service expenses
increased $6.0 million primarily due to $4.2 million of additional expenses associated with our POM
program.
Selling, general and administrative expenses increased $12.5 million over the prior year
primarily due to a $5.5 million increase in legal expenses, $2.9 million in additional costs from
corporate shared services and $1.7 million in additional consulting expenses.
The pretax loss was $144.5 million for the three months ended July 31, 2005 compared to a
prior year loss of $112.6 million.
Due to the seasonal nature of this segments business, operating results for the three months
ended July 31, 2005 are not comparable to the three months ended April 30, 2005 and are not
indicative of the expected results for the entire fiscal year.
Fiscal 2006 outlook
Our fiscal
year 2006 outlook for the Tax Services segment is unchanged from the discussion in our
April 30, 2005 Form 10-K/A.
RAL Litigation
We have been named as a defendant in a number of lawsuits alleging that we engaged in wrongdoing
with respect to the RAL program. We believe we have strong defenses to the various RAL cases and
will vigorously defend our position. Nevertheless, the amounts claimed by the plaintiffs are, in
some instances, very substantial, and there can be no assurances as to the ultimate outcome of the
pending RAL cases, or as to the impact of the RAL cases on our financial statements. See additional
discussion of RAL Litigation in note 10 to the condensed consolidated financial statements and in
Part II, Item 1, Legal Proceedings.
-19-
MORTGAGE SERVICES
This segment is primarily engaged in the origination of non-prime mortgage loans through an
independent broker network, the origination of prime and non-prime mortgage loans through a retail
office network, the sale and securitization of mortgage loans and residual interests, and the
servicing of non-prime loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Services Operating Statistics |
|
|
|
|
|
|
|
|
|
(dollars in 000s) |
|
|
|
|
|
|
|
Restated |
|
|
|
|
Three months ended |
|
July 31, 2005 |
|
|
July 31, 2004 |
|
|
April 30, 2005 |
|
|
Volume of loans originated: |
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale (non-prime) |
|
$ |
9,537,227 |
|
|
$ |
5,981,104 |
|
|
$ |
8,090,274 |
|
Retail:Non-prime |
|
|
950,806 |
|
|
|
620,126 |
|
|
|
807,269 |
|
Prime |
|
|
399,596 |
|
|
|
215,287 |
|
|
|
380,946 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
10,887,629 |
|
|
$ |
6,816,517 |
|
|
$ |
9,278,489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan characteristics: |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average FICO score (1) |
|
|
623 |
|
|
|
609 |
|
|
|
618 |
|
Weighted average interest rate for borrowers (1) |
|
|
7.52 |
% |
|
|
7.21 |
% |
|
|
7.45 |
% |
Weighted average loan-to-value (1) |
|
|
81.1 |
% |
|
|
78.0 |
% |
|
|
79.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Origination
margin (% of origination volume): (2) |
|
|
|
|
|
|
|
|
|
|
|
|
Loan sale premium |
|
|
2.33 |
% |
|
|
3.18 |
% |
|
|
2.64 |
% |
Residual cash flows from beneficial
interest in Trusts |
|
|
0.47 |
% |
|
|
0.65 |
% |
|
|
0.55 |
% |
Gain on derivative instruments |
|
|
0.24 |
% |
|
|
0.01 |
% |
|
|
0.19 |
% |
Loan sale repurchase reserves |
|
|
(0.15 |
%) |
|
|
(0.17 |
%) |
|
|
(0.08 |
%) |
Retained mortgage servicing rights |
|
|
0.45 |
% |
|
|
0.42 |
% |
|
|
0.46 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
3.34 |
% |
|
|
4.09 |
% |
|
|
3.76 |
% |
Cost of acquisition |
|
|
(0.48 |
%) |
|
|
(0.61 |
%) |
|
|
(0.51 |
%) |
Direct origination expenses |
|
|
(0.57 |
%) |
|
|
(0.75 |
%) |
|
|
(0.60 |
%) |
|
|
|
|
|
|
|
|
|
|
Net gain on
sale gross margin
(3) |
|
|
2.29 |
% |
|
|
2.73 |
% |
|
|
2.65 |
% |
Other revenues |
|
|
|
% |
|
|
0.01 |
% |
|
|
0.03 |
% |
Other cost of origination |
|
|
(1.37 |
%) |
|
|
(1.47 |
%) |
|
|
(1.54 |
%) |
|
|
|
|
|
|
|
|
|
|
Net margin |
|
|
0.92 |
% |
|
|
1.27 |
% |
|
|
1.14 |
% |
|
|
|
|
|
|
|
|
|
|
Total cost of origination |
|
|
1.94 |
% |
|
|
2.22 |
% |
|
|
2.14 |
% |
Total cost of origination and acquisition |
|
|
2.42 |
% |
|
|
2.83 |
% |
|
|
2.65 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan delivery: |
|
|
|
|
|
|
|
|
|
|
|
|
Loan sales |
|
$ |
10,843,006 |
|
|
$ |
6,744,056 |
|
|
$ |
9,322,150 |
|
Execution price (4) |
|
|
2.50 |
% |
|
|
4.12 |
% |
|
|
2.48 |
% |
|
|
|
(1) |
|
Represents non-prime production. |
|
(2) |
|
See Reconciliation of Non-GAAP Financial
Information on page 31. |
|
(3) |
|
Defined as gain on sale of mortgage loans (including gain or loss on derivatives,
mortgage servicing rights and net of direct origination and acquisition expenses) divided by
origination volume. |
|
(4) |
|
Defined as total premium received divided by total balance of loans delivered to
third-party investors or securitization vehicles (excluding mortgage servicing rights and the
effect of loan origination expenses). |
-20-
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Services Operating Results |
|
|
|
|
|
|
|
|
|
(in 000s) |
|
|
|
|
|
|
|
Restated |
|
|
|
|
Three months ended |
|
July 31, 2005 |
|
|
July 31, 2004 |
|
|
April 30, 2005 |
|
|
Components of gains on sales: |
|
|
|
|
|
|
|
|
|
|
|
|
Gain on mortgage loans |
|
$ |
222,760 |
|
|
$ |
185,293 |
|
|
$ |
227,633 |
|
Gain on derivatives |
|
|
26,086 |
|
|
|
676 |
|
|
|
18,027 |
|
Gain on sales of residual interests |
|
|
|
|
|
|
|
|
|
|
15,396 |
|
Impairment of residual interests |
|
|
(12,415 |
) |
|
|
(2,609 |
) |
|
|
(5,068 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
236,431 |
|
|
|
183,360 |
|
|
|
255,988 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
Accretion residual interests |
|
|
30,777 |
|
|
|
28,677 |
|
|
|
41,363 |
|
Other interest income |
|
|
2,768 |
|
|
|
1,440 |
|
|
|
3,902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,545 |
|
|
|
30,117 |
|
|
|
45,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan servicing revenue |
|
|
90,269 |
|
|
|
58,166 |
|
|
|
79,366 |
|
Other |
|
|
193 |
|
|
|
330 |
|
|
|
222 |
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
360,438 |
|
|
|
271,973 |
|
|
|
380,841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services |
|
|
64,392 |
|
|
|
49,861 |
|
|
|
61,590 |
|
Cost of other revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits |
|
|
80,283 |
|
|
|
45,906 |
|
|
|
74,777 |
|
Occupancy |
|
|
12,629 |
|
|
|
8,009 |
|
|
|
10,868 |
|
Other |
|
|
22,878 |
|
|
|
18,280 |
|
|
|
20,729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115,790 |
|
|
|
72,195 |
|
|
|
106,374 |
|
Selling, general and administrative |
|
|
45,788 |
|
|
|
40,892 |
|
|
|
49,764 |
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
225,970 |
|
|
|
162,948 |
|
|
|
217,728 |
|
|
|
|
|
|
|
|
|
|
|
Pretax income |
|
$ |
134,468 |
|
|
$ |
109,025 |
|
|
$ |
163,113 |
|
|
|
|
|
|
|
|
|
|
|
Three
months ended July 31, 2005 compared to July 31,
2004
Mortgage Services revenues increased $88.5 million, or 32.5%, for the three months ended July 31,
2005 compared to the prior year. Revenues increased as a result of increased origination volumes,
servicing revenue and gains on derivatives.
The following table summarizes the key drivers of gains on sales of mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars
in 000s) |
|
Three months ended July 31, |
|
2005 |
|
|
2004 |
|
|
Application process: |
|
|
|
|
|
|
|
|
Total number of applications |
|
|
109,929 |
|
|
|
74,492 |
|
Number of sales associates (1) |
|
|
3,692 |
|
|
|
3,117 |
|
Closing ratio (2) |
|
|
60.1 |
% |
|
|
59.0 |
% |
Originations: |
|
|
|
|
|
|
|
|
Total number of originations |
|
|
66,041 |
|
|
|
43,926 |
|
Weighted average interest rate for borrowers (WAC) |
|
|
7.52 |
% |
|
|
7.21 |
% |
Average loan size |
|
$ |
165 |
|
|
$ |
155 |
|
Total originations |
|
$ |
10,887,629 |
|
|
$ |
6,816,517 |
|
Non-prime origination ratio |
|
|
96.3 |
% |
|
|
96.8 |
% |
Direct origination and acquisition expenses, net |
|
$ |
114,224 |
|
|
$ |
92,489 |
|
Revenue (loan value): |
|
|
|
|
|
|
|
|
Net gain on
sale gross margin (3) |
|
|
2.29 |
% |
|
|
2.73 |
% |
|
(1) Includes all direct sales and back office sales support associates. |
|
(2)
Percentage of loans funded divided by total applications in the period. |
|
(3) Defined as gain on sale of mortgage loans (including gain or loss on derivatives,
mortgage servicing rights and net of direct origination and acquisition expenses) divided by
origination volume. |
Gains on sales of mortgage loans increased $37.5 million, primarily as a result of
increased origination volume, partially offset by a decline in our gross margin. Originations
increased 59.7% over the prior year, due to increased productivity of our account executives and
support staff, new product introductions, increased applications and a higher closing ratio. Market
interest rates, based on the two-year swap, increased from an average
of 3.03% last year to 4.06% in the current quarter. However, our WAC increased only 31 basis points, up to 7.52% from
7.21% in the prior year. Because our
-21-
WAC was not more aligned with market rates, our gross margin declined 44 basis points, to 2.29% from 2.73% last year. To mitigate
the risk of short-term changes in market interest rates, we use interest rate swaps and forward
loan sale commitments. During the current quarter, we recorded a net $26.1 million in gains,
compared to $0.7 million in the prior year, related to our various derivative instruments. See note
6 to the condensed consolidated financial statements. We also recorded a $4.0 million favorable
mark-to-market adjustment for our residual interests classified as trading securities during the
current quarter.
During the first quarter of fiscal year 2006, our residual interests
performed better than expected in
our internal valuation models, with lower credit losses than originally modeled,
partially offset by higher interest rates. We recorded favorable pretax mark-to-market adjustments,
which increased the fair value of our residual interests $16.0 million during the quarter. These
adjustments were recorded, net of write-downs of $3.0 million and deferred taxes of $4.9 million,
in other comprehensive income and will be accreted into income throughout the remaining life of
those residual interests. Offsetting these write-ups were impairments of $12.4 million, which were
recorded in gains on sales of mortgage assets. Future changes in interest rates or other
assumptions, based on market conditions or actual loan pool performance, could cause additional
adjustments to the fair value of the residual interests and could cause changes to the accretion of
these residual interests in future periods. Favorable mark-to-market adjustments on low original
value residuals will generally not be accreted into revenues until the residual interest begins to
cash flow.
The following table summarizes the key drivers of loan servicing revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars
in 000s) |
|
Three months ended July 31, |
|
2005 |
|
|
2004 |
|
|
Average servicing portfolio: |
|
|
|
|
|
|
|
|
With related MSRs |
|
$ |
49,635,474 |
|
|
$ |
37,524,221 |
|
Without related MSRs |
|
|
20,070,745 |
|
|
|
10,012,639 |
|
|
|
|
|
|
|
|
|
|
$ |
69,706,219 |
|
|
$ |
47,536,860 |
|
|
|
|
|
|
|
|
Number of loans serviced |
|
|
451,310 |
|
|
|
344,659 |
|
Average delinquency rate |
|
|
4.28 |
% |
|
|
5.01 |
% |
Weighted average FICO score |
|
|
619 |
|
|
|
612 |
|
Value of MSRs |
|
$ |
188,708 |
|
|
$ |
123,980 |
|
Loan servicing revenues increased $32.1 million, or 55.2%, compared to the prior
year. The increase reflects a higher loan servicing portfolio. The average servicing portfolio for
the three months ended July 31, 2005 increased $22.2 billion, or 46.6%, to $69.7 billion.
Total expenses for the three months ended July 31, 2005, increased $63.0 million, or 38.7%,
over the prior year. Cost of services increased $14.5 million as a result of a higher average
servicing portfolio during the current quarter. Cost of other revenues increased $43.6 million,
primarily due to $34.4 million in increased compensation and benefits as a result of an 18.4%
increase in sales associates, coupled with related increases in payroll taxes and origination-based
incentives. Occupancy expenses increased $4.6 million, or 57.7%, primarily as a result of a 13.0%
increase in branch offices. Other expenses increased $4.6 million primarily as a result of $2.3
million in additional costs for our annual sales meeting, coupled with increases in consulting and
outsourced services.
Selling, general and administrative expenses increased $4.9 million due to $7.6 million in
additional retail marketing costs, partially offset by a $2.1 million decrease in consulting
expenses.
Pretax income increased $25.4 million to $134.5 million for the three months ended July 31,
2005.
Three months ended July 31, 2005 compared to April 30, 2005
Mortgage Services revenues decreased $20.4 million, or 5.4%, for the three months ended July 31,
2005, compared to the fourth quarter of fiscal year 2005. Revenues decreased primarily due to a
$15.4 million gain on sale of previously securitized residual interests recorded in the fourth
quarter.
-22-
The following table summarizes the key drivers of gains on sales of mortgage loans:
|
|
|
|
|
|
|
|
|
(dollars in 000s) |
Three months ended |
|
July 31, 2005 |
|
|
April 30, 2005 |
|
|
Application process: |
|
|
|
|
|
|
|
|
Total number of applications |
|
|
109,929 |
|
|
|
103,202 |
|
Number of sales associates (1) |
|
|
3,692 |
|
|
|
3,526 |
|
Closing ratio (2) |
|
|
60.1 |
% |
|
|
57.0 |
% |
Originations: |
|
|
|
|
|
|
|
|
Total number of originations |
|
|
66,041 |
|
|
|
58,777 |
|
Weighted average interest rate for borrowers (WAC) |
|
|
7.52 |
% |
|
|
7.45 |
% |
Average loan size |
|
$ |
165 |
|
|
$ |
158 |
|
Total originations |
|
$ |
10,887,629 |
|
|
$ |
9,278,489 |
|
Non-prime origination ratio |
|
|
96.3 |
% |
|
|
95.9 |
% |
Direct origination and acquisition expenses, net |
|
$ |
114,224 |
|
|
$ |
103,123 |
|
Revenue (loan value): |
|
|
|
|
|
|
|
|
Net gain on
sale gross margin (3) |
|
|
2.29 |
% |
|
|
2.65 |
% |
|
|
|
(1) |
|
Includes all direct sales and back office sales support associates. |
|
(2) |
|
Percentage of loans funded divided by total applications in the period. |
|
(3) |
|
Defined as gain on sale of mortgage loans (including gain or loss on derivatives,
mortgage servicing rights and net of direct origination and acquisition expenses) divided by
origination volume. |
Gains on sales of mortgage loans decreased $4.9 million primarily as a result of
increased price competition and poorer execution in the secondary market. Market interest rates
have increased to 4.06% from 3.96% in the preceding quarter. However, our WAC increased 7 basis
points, from 7.45% to 7.52%. To mitigate the risk of short-term changes in market interest
rates, we use interest rate swaps and forward loan sale commitments. Primarily as a result of
interest rate changes, during the current quarter, we recorded a net $26.1 million in gains,
compared to $18.0 million in the fourth quarter, related to our various derivative instruments.
Loan origination volumes increased 17.3% from the fourth quarter primarily due to increased
productivity of our account executives and support staff. We also recorded a $4.0 million favorable
mark-to-market adjustment for our residual interests classified as trading securities during the
current quarter.
Impairments of residual interests in securitizations of $12.4 million were recognized during
the first quarter, compared to $5.1 million in the fourth
quarter of fiscal year 2005. This was primarily due
to a decline in value of older residuals based on loan performance.
The following table summarizes the key drivers of loan servicing revenues:
|
|
|
|
|
|
|
|
|
(dollars in 000s) |
Three months ended |
|
July 31, 2005 |
|
|
April 30, 2005 |
|
|
Average servicing portfolio: |
|
|
|
|
|
|
|
|
With related MSRs |
|
$ |
49,635,474 |
|
|
$ |
45,493,695 |
|
Without related MSRs |
|
|
20,070,745 |
|
|
|
17,540,643 |
|
|
|
|
|
|
|
|
|
|
$ |
69,706,219 |
|
|
$ |
63,034,338 |
|
|
|
|
|
|
|
|
Number of loans serviced |
|
|
451,310 |
|
|
|
435,290 |
|
Average delinquency rate |
|
|
4.28 |
% |
|
|
4.43 |
% |
Weighted average FICO score |
|
|
619 |
|
|
|
624 |
|
Value of MSRs |
|
$ |
188,708 |
|
|
$ |
166,614 |
|
Loan servicing revenues increased $10.9 million, or 13.7%, compared to the fourth
quarter. The increase reflects a higher loan servicing portfolio. The average servicing portfolio
for the three months ended July 31, 2005 increased $6.7 billion, or 10.6%.
Total expenses increased $8.2 million compared to the fourth quarter. Cost of other revenues
increased $9.4 million, primarily due to $5.5 million in increased compensation and benefits as a
result of a 4.7% increase in sales associates, coupled with related increases in payroll taxes and
origination-based incentives. Other expenses increased $2.1 million for the current quarter,
primarily due to $3.5 million in additional costs for our annual sales meeting, partially offset by
a $2.0 million decrease in consulting expenses.
-23-
Selling, general and administrative expenses decreased $4.0 million due to a decline of $3.9
million in incentive compensation resulting from lower profitability.
Pretax income decreased $28.6 million, or 17.6%, for the three months ended July 31, 2005
compared to the preceding quarter.
Fiscal 2006 outlook
We continue to expect loan origination growth will exceed 20 percent over the previous year,
however, we now expect our margins will continue to decline in the second quarter. We believe margins in the 90 to 115 basis point range are achievable for the third and fourth
quarters, but expect full year margins will likely be at the low end or below the 90 to 115 basis
point range.
BUSINESS SERVICES
This segment offers middle-market companies accounting, tax and consulting services, wealth
management, retirement resources, payroll and benefits services, corporate finance and financial
process outsourcing.
Business
Services Operating Statistics
|
|
|
|
|
|
|
|
|
Three months ended July 31, |
|
2005 |
|
|
2004 |
|
|
Accounting, tax and consulting: |
|
|
|
|
|
|
|
|
Chargeable hours |
|
|
597,202 |
|
|
|
537,035 |
|
Chargeable hours per person |
|
|
270 |
|
|
|
269 |
|
Net billed rate per hour |
|
$ |
134 |
|
|
$ |
126 |
|
Average margin per person |
|
$ |
17,321 |
|
|
$ |
16,327 |
|
|
|
|
|
|
|
|
|
|
Business Services Operating Results
|
(in 000s) |
|
|
|
|
|
|
|
Restated |
|
Three months ended July 31, |
|
2005 |
|
|
2004 |
|
|
Service revenues: |
|
|
|
|
|
|
|
|
Accounting, tax and consulting |
|
$ |
83,828 |
|
|
$ |
74,551 |
|
Capital markets |
|
|
15,472 |
|
|
|
15,780 |
|
Payroll, benefits and retirement services |
|
|
8,277 |
|
|
|
4,671 |
|
Other services |
|
|
9,882 |
|
|
|
5,759 |
|
|
|
|
|
|
|
|
|
|
|
117,459 |
|
|
|
100,761 |
|
Other |
|
|
9,387 |
|
|
|
8,341 |
|
|
|
|
|
|
|
|
Total revenues |
|
|
126,846 |
|
|
|
109,102 |
|
|
|
|
|
|
|
|
Cost of services: |
|
|
|
|
|
|
|
|
Compensation and benefits |
|
|
71,647 |
|
|
|
64,103 |
|
Occupancy |
|
|
8,163 |
|
|
|
4,531 |
|
Other |
|
|
10,810 |
|
|
|
11,806 |
|
|
|
|
|
|
|
|
|
|
|
90,620 |
|
|
|
80,440 |
|
Selling, general and administrative |
|
|
42,991 |
|
|
|
38,707 |
|
|
|
|
|
|
|
|
Total expenses |
|
|
133,611 |
|
|
|
119,147 |
|
|
|
|
|
|
|
|
Pretax loss |
|
$ |
(6,765 |
) |
|
$ |
(10,045 |
) |
|
|
|
|
|
|
|
Three months ended July 31, 2005 compared to July 31, 2004
Business Services revenues for the three months ended July 31, 2005 increased $17.7 million, or
16.3%, from the prior year. This increase was primarily due to a $9.3 million increase in
accounting, tax and consulting revenues resulting from an 11.2% increase in chargeable hours and a
6.3% increase in the net billed rate per hour. The increase in chargeable hours is primarily due to
favorable market conditions for all of our core services and strong demand for consulting and risk
management services.
Payroll, benefits and retirement services revenues increased $3.6 million, or 77.2%, primarily
due to acquisitions completed during the third and fourth quarters of fiscal year 2005. Other
service revenues increased $4.1 million as a result of growth in wealth management services and
acquisitions completed in the fourth quarter of fiscal year 2005 in our financial process
outsourcing business.
-24-
Total expenses increased $14.5 million, or 12.1%, for the three months ended July 31, 2005
compared to the prior year. Cost of services increased $10.2 million, primarily due to a $7.5
million increase in compensation and benefits. Acquisitions completed in the third and fourth
quarters of fiscal year 2005 and increases in the number of personnel and the average wage per
employee, which is being driven by marketplace competition for professional staff, were the primary
drivers for this increase. Occupancy expenses increased $3.6 million, or 80.2%, due primarily to
acquisitions completed in the third and fourth quarters of fiscal year 2005.
Selling, general and administrative expenses increased $4.3 million primarily due to
additional costs associated with our business development initiatives and acquisitions completed in
the third and fourth quarters of fiscal year 2005.
The pretax loss for the three months ended July 31, 2005 was $6.8 million compared to $10.0
million in the prior year.
Due to the seasonal nature of this segments business, operating results for the three months
ended July 31, 2005 are not comparable to the three months ended April 30, 2005 and are not
indicative of the expected results for the entire fiscal year.
Fiscal 2006 outlook
Our fiscal year 2006 outlook for our Business Services segment is consistent with the discussion in
our April 30, 2005 Form 10-K/A, except for the announcement to
acquire American Express Tax and
Business Services. On August 1, 2005 we announced a definitive agreement to acquire the American
Express Tax & Business Services division. This acquisition is expected to close by the end of
September, with operating results of the acquired business reported in this segment beginning
October 1. Our early indication is that this acquisition will be accretive by two cents per diluted
share in fiscal year 2006, after expected integration costs.
INVESTMENT SERVICES
This segment is primarily engaged in offering advice-based brokerage services and investment
planning. Our integration of investment advice and new service offerings are allowing us to shift
our focus from a transaction-based client relationship to a more advice-based focus.
Investment
Services Operating Statistics
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
July 31, 2005 |
|
|
July 31, 2004 |
|
|
April 30, 2005 |
|
|
Customer trades (1) |
|
|
226,378 |
|
|
|
205,948 |
|
|
|
241,327 |
|
Customer daily average trades |
|
|
3,593 |
|
|
|
3,269 |
|
|
|
3,892 |
|
Average revenue per trade (2) |
|
$ |
126.71 |
|
|
$ |
119.71 |
|
|
$ |
127.73 |
|
Customer accounts: (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
Traditional brokerage |
|
|
431,046 |
|
|
|
454,147 |
|
|
|
431,749 |
|
Express IRAs |
|
|
379,432 |
|
|
|
337,583 |
|
|
|
380,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
810,478 |
|
|
|
791,730 |
|
|
|
812,288 |
|
|
|
|
|
|
|
|
|
|
|
Ending balance of assets under
administration (billions) |
|
$ |
30.0 |
|
|
$ |
26.6 |
|
|
$ |
27.8 |
|
Average assets per traditional
brokerage account |
|
$ |
68,870 |
|
|
$ |
58,132 |
|
|
$ |
63,755 |
|
Average margin balances (millions) |
|
$ |
573 |
|
|
$ |
598 |
|
|
$ |
603 |
|
Average customer payable balances (millions) |
|
$ |
841 |
|
|
$ |
1,012 |
|
|
$ |
936 |
|
Number of advisors |
|
|
985 |
|
|
|
997 |
|
|
|
1,010 |
|
|
Included in the numbers above are the following relating to fee-based accounts: |
Customer household accounts |
|
|
7,985 |
|
|
|
7,668 |
|
|
|
7,668 |
|
Average revenue per account |
|
$ |
2,235 |
|
|
$ |
1,848 |
|
|
$ |
2,841 |
|
Ending balance of assets under
administration (millions) |
|
$ |
2,126 |
|
|
$ |
1,547 |
|
|
$ |
1,975 |
|
Average assets per active account |
|
$ |
266,222 |
|
|
$ |
201,198 |
|
|
$ |
260,238 |
|
|
|
|
(1) |
|
Includes only trades on which revenues are earned (revenue trades). Revenues
are earned on both transactional and annuitized trades. |
|
(2) |
|
Calculated as total trade revenues divided by revenue trades. |
|
(3) |
|
Includes only accounts with a positive balance. |
-25-
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Services Operating Results
|
(in 000s) |
|
|
|
|
|
|
|
Restated |
|
|
|
|
Three months ended |
|
July 31, 2005 |
|
|
July 31, 2004 |
|
|
April 30, 2005 |
|
|
Service revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Transactional revenue |
|
$ |
22,835 |
|
|
$ |
19,952 |
|
|
$ |
23,922 |
|
Annuitized revenue |
|
|
22,271 |
|
|
|
18,533 |
|
|
|
23,272 |
|
|
|
|
|
|
|
|
|
|
|
Production revenue |
|
|
45,106 |
|
|
|
38,485 |
|
|
|
47,194 |
|
Other service revenue |
|
|
8,207 |
|
|
|
6,262 |
|
|
|
9,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,313 |
|
|
|
44,747 |
|
|
|
56,611 |
|
|
|
|
|
|
|
|
|
|
|
|
Margin interest revenue |
|
|
14,093 |
|
|
|
8,760 |
|
|
|
12,925 |
|
Less: interest expense |
|
|
(1,254 |
) |
|
|
(299 |
) |
|
|
(1,184 |
) |
|
|
|
|
|
|
|
|
|
|
Net interest revenue |
|
|
12,839 |
|
|
|
8,461 |
|
|
|
11,741 |
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
577 |
|
|
|
74 |
|
|
|
262 |
|
|
|
|
|
|
|
|
|
|
|
Total revenues (1) |
|
|
66,729 |
|
|
|
53,282 |
|
|
|
68,614 |
|
|
|
|
|
|
|
|
|
|
|
Cost of services: |
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits |
|
|
30,535 |
|
|
|
28,848 |
|
|
|
31,644 |
|
Occupancy |
|
|
5,165 |
|
|
|
5,789 |
|
|
|
5,668 |
|
Depreciation |
|
|
1,034 |
|
|
|
1,064 |
|
|
|
1,015 |
|
Other |
|
|
3,901 |
|
|
|
3,755 |
|
|
|
3,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,635 |
|
|
|
39,456 |
|
|
|
41,982 |
|
Selling, general and administrative |
|
|
33,646 |
|
|
|
34,169 |
|
|
|
41,120 |
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
74,281 |
|
|
|
73,625 |
|
|
|
83,102 |
|
|
|
|
|
|
|
|
|
|
|
Pretax loss |
|
$ |
(7,552 |
) |
|
$ |
(20,343 |
) |
|
$ |
(14,488 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Total revenues, less interest expense. |
Three months ended July 31, 2005 compared to July 31, 2004
Investment Services revenues, net of interest expense, for the three months ended July 31, 2005
increased $13.4 million, or 25.2%, over the prior year.
Production revenue increased $6.6 million, or 17.2%, over the prior year. Transactional
revenue, which is based on individual securities transactions, increased $2.9 million, or 14.4%,
from the prior year due primarily to a 4.7% increase in transactional
trading volume and a 10.6%
increase in average revenue per transactional trade. Annuitized revenue, which is based on sales of mutual funds,
insurance, fee based products and unit investment trusts, increased $3.7 million, or 20.2%, due to
increased sales of mutual funds and annuities. Annualized productivity averaged approximately
$180,000 per advisor during the current quarter compared to $155,000 per advisor in the prior year.
Increased productivity was primarily due to minimum production standards we put into place during
the fourth quarter of fiscal year 2005 which caused an increase in production per advisor across
all advisor classes, with 164 advisors increasing their production. These standards also resulted in 74 low-producing advisors leaving the company
and we expect this trend to continue throughout the remainder of the fiscal year.
Margin interest revenue increased $5.3 million, or 60.9%, from the prior year, as a result of
higher interest rates earned.
Total expenses increased $0.7 million, or 0.9%. Cost of services increased $1.2 million, or
3.0%, primarily as a result of $1.7 million of additional compensation and benefits. This increase
is primarily due to higher production revenues, partially offset by cost containment measures
implemented in the fourth quarter of fiscal year 2005.
The
pretax loss for Investment Services for the first quarter of fiscal
year 2006 was $7.6
million compared to the prior year loss of $20.3 million.
Three months ended July 31, 2005 compared to April 30, 2005
Investment Services revenues, net of interest expense, for the three months ended July 31, 2005
decreased $1.9 million, or 2.7% compared to the preceding quarter.
Production revenue decreased $2.1 million, or 4.4%, over the
preceding quarter. Transactional
revenue decreased $1.1 million, or 4.5%, compared to the
preceding quarter, primarily due to lower
underwriting commissions. Annuitized revenues declined $1.0 million, or 4.3%, due to the timing in
recognition of certain fee-based revenues.
-26-
Margin interest revenue increased $1.2 million, or 9.0%, from the preceding quarter, which is
primarily a result of higher interest rates earned, partially offset by lower margin balances.
Total expenses decreased $8.8 million, or 10.6%. Cost of services decreased $1.3 million, or
3.2%, principally due to a $1.1 million decline in compensation and benefits, primarily resulting
from lower production revenues.
Selling, general and administrative expenses decreased $7.5 million, or 18.2%, primarily due
to fourth quarter severance expenses, gains on the disposition of certain assets during the first
quarter, reduced back-office headcount relating to cost containment efforts and a decline in legal
expenses. These decreases were partially offset by increased bonuses associated with improved
performance.
The pretax loss for the Investment Services segment was $7.6 million, compared to a loss of
$14.5 million in the fourth quarter of fiscal year 2005.
Fiscal 2006 outlook
Our fiscal year 2006 outlook for our Investment Services segment is unchanged from the discussion
in our April 30, 2005 Form 10-K/A.
CORPORATE
This segment consists primarily of corporate support departments, which provide services to our
operating segments. These support departments consist of marketing, information technology,
facilities, human resources, executive, legal, finance, government relations and corporate
communications. Support department costs are generally allocated to our operating segments. Our
captive insurance and franchise financing subsidiaries are also included within this segment,
as was our small business initiatives subsidiary in the first half of fiscal year 2005.
|
|
|
|
|
|
|
|
|
Corporate Operating Results
|
(in 000s) |
|
|
|
|
|
|
|
Restated |
|
Three months ended July 31, |
|
2005 |
|
|
2004 |
|
|
Operating revenues |
|
$ |
5,006 |
|
|
$ |
4,433 |
|
Eliminations |
|
|
(2,471 |
) |
|
|
(2,985 |
) |
|
|
|
|
|
|
|
Total revenues |
|
|
2,535 |
|
|
|
1,448 |
|
|
|
|
|
|
|
|
|
Corporate expenses: |
|
|
|
|
|
|
|
|
Interest expense |
|
|
13,794 |
|
|
|
16,224 |
|
Other |
|
|
17,462 |
|
|
|
11,166 |
|
|
|
|
|
|
|
|
|
|
|
31,256 |
|
|
|
27,390 |
|
|
|
|
|
|
|
|
Shared services: |
|
|
|
|
|
|
|
|
Information technology |
|
|
26,452 |
|
|
|
25,178 |
|
Marketing |
|
|
4,441 |
|
|
|
3,571 |
|
Finance |
|
|
11,795 |
|
|
|
8,807 |
|
Other |
|
|
20,889 |
|
|
|
20,229 |
|
|
|
|
|
|
|
|
|
|
|
63,577 |
|
|
|
57,785 |
|
|
|
|
|
|
|
|
Allocation of shared services |
|
|
(63,629 |
) |
|
|
(57,804 |
) |
Other income, net |
|
|
7,155 |
|
|
|
1,132 |
|
|
|
|
|
|
|
|
Pretax loss |
|
$ |
(21,514 |
) |
|
$ |
(24,791 |
) |
|
|
|
|
|
|
|
Three months ended July 31, 2005 compared to July 31, 2004
Corporate expenses increased $3.9 million primarily due an increase of $1.7 million in losses at
our captive insurance subsidiary, $1.5 million in additional
consulting, accounting and auditing expenses related to the
restatement of our previously issued financial statements and $2.1 million in increased costs from
finance shared services. These increases were partially offset by a decline of $2.4 million in
interest expense.
Finance department expenses increased $3.0 million, primarily due to $2.3 million of
additional consulting expenses and increases in compensation expenses.
Other income increased $6.0 million primarily as a result of a $3.4 million gain recognized on
the sale of an investment.
The pretax loss was $21.5 million, compared with last years first quarter loss of $24.8
million.
-27-
Due to the nature of this segment, the three months ended July 31, 2005 are not comparable to
the three months ended April 30, 2005 and are not indicative of the expected results for the entire
fiscal year.
FINANCIAL CONDITION
These comments should be read in conjunction with the condensed consolidated balance sheets
and condensed consolidated statements of cash flows found on pages 1 and 3, respectively.
CAPITAL RESOURCES & LIQUIDITY BY SEGMENT
Our sources of capital include cash from operations, issuances of common stock and debt. We use
capital primarily to fund working capital requirements, pay dividends, repurchase our shares and
acquire businesses.
Cash From Operations. Cash used in operations totaled $310.5 million and $515.3 million for
the three months ended July 31, 2005 and 2004, respectively. The decrease in cash used in operating
activities is primarily due to a decline in income tax payments. Income tax payments totaled $35.3
million during the
current year, a decrease of $148.1 million from the prior year. A change in a tax
accounting method in the prior year resulted in the acceleration of taxable income within our Mortgage
Services segment.
Issuance of Common Stock. We issue shares of common stock, in accordance with our stock-based
compensation plans, out of treasury shares. Proceeds from the issuance of common stock totaled
$32.3 million and $12.4 million for the three months ended July 31, 2005 and 2004, respectively.
Dividends. Dividends paid totaled $36.5 million and $33.6 million for the three months ended
July 31, 2005 and 2004, respectively. On June 8, 2005, our Board of Directors declared a
two-for-one stock split of the Companys Common Stock in the form of a 100% stock distribution,
effective August 22, 2005, to shareholders of record as of the close of business on August 1, 2005.
All share and per share amounts in this document have been adjusted to reflect the retroactive
effect of the stock split.
Share Repurchases. On June 9, 2004, our Board of Directors approved an authorization to
repurchase 15 million shares. During the three months ended July 31, 2005, we repurchased 2.2
million (pre-split) shares pursuant to these authorizations at an aggregate price of $126.1 million
or an average price of $56.78 per share (pre-split). There are 12.9 million shares remaining under
this authorization at July 31, 2005. We plan to continue to purchase shares on the open market in
accordance with these authorizations, subject to various factors including the price of the stock,
the availability of excess cash, our ability to maintain liquidity and financial flexibility,
securities laws restrictions, targeted capital levels and other investment opportunities available.
Restricted Cash. We hold certain cash balances that are restricted as to use.
Cash and cash equivalents restricted totaled $417.0 million at July 31, 2005 compared to $516.9
million at April 30, 2005. Investment Services held $388.0 million of this total segregated in a
special reserve account for the exclusive benefit of customers. Restricted cash of $13.8 million at
July 31, 2005 held by Business Services is related to funds held to pay payroll taxes on behalf of
its customers. Restricted cash held by Mortgage Services totaled $15.2 million and is held for
outstanding commitments to fund mortgage loans.
Segment Cash Flows. A condensed consolidating statement of cash flows by segment for the three
months ended July 31, 2005 follows. Generally, interest is not charged on intercompany activities
between segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s) |
|
|
Tax |
|
|
Mortgage |
|
|
Business |
|
|
Investment |
|
|
|
|
|
|
Consolidated |
|
|
|
Services |
|
|
Services |
|
|
Services |
|
|
Services |
|
|
Corporate |
|
|
H&R Block |
|
|
Cash provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations |
|
$ |
(225,613 |
) |
|
$ |
(42,759 |
) |
|
$ |
21,213 |
|
|
$ |
(11,317 |
) |
|
$ |
(52,039 |
) |
|
$ |
(310,515 |
) |
Investing |
|
|
(5,573 |
) |
|
|
16,006 |
|
|
|
(7,821 |
) |
|
|
3,410 |
|
|
|
(7,838 |
) |
|
|
(1,816 |
) |
Financing |
|
|
(26,486 |
) |
|
|
|
|
|
|
(2,497 |
) |
|
|
10,579 |
|
|
|
(136,677 |
) |
|
|
(155,081 |
) |
Net intercompany |
|
|
251,778 |
|
|
|
48,319 |
|
|
|
(10,481 |
) |
|
|
1,429 |
|
|
|
(291,045 |
) |
|
|
|
|
Net intercompany activities are excluded from investing and financing activities
within the segment cash flows. We believe that by excluding intercompany activities, the cash flows
by segment more clearly depicts the cash generated and used by each segment. Had intercompany
activities been included, those
-28-
segments in a net lending situation would have been included in
investing activities, and those in a net borrowing situation would have been included in financing
activities.
Tax Services. Tax Services has historically been our largest provider of annual operating cash
flows. The seasonal nature of Tax Services generally results in a large positive operating cash
flow in the fourth quarter. Tax Services used $225.6 million in its current three-month operations
to cover off-season costs and working capital requirements. This segment also used $26.5 million in
financing activities, primarily related to book overdrafts.
Mortgage Services. This segment primarily generates cash as a result of the sale and
securitization of mortgage loans and residual interests, and as its residual interests begin to
cash flow. Mortgage Services used $42.8 million in cash from operating activities primarily due to
$58.0 million in trading residuals held at July 31, 2005 that had not yet been securitized in a NIM
transaction. Cash flows from investing activities consist of $24.0 million in cash receipts on
residual interests, partially offset by $8.3 million in capital expenditures.
Gains on sales. Gains on sales of mortgage assets totaled $236.4 million, with
the cash received primarily recorded as operating activities. The percentage of cash proceeds we
receive from our capital market transactions, which are included within the gains on sales of
mortgage assets, is reconciled below. The decline in the percentage of cash proceeds is due to the
$58.0 million in trading residuals recorded at July 31, 2005, which we expect to securitize in a
NIM transaction during our second quarter.
|
|
|
|
|
|
|
|
|
(in 000s) |
|
|
|
|
|
|
Restated |
|
Three months ended July 31, |
|
2005 |
|
|
2004 |
|
|
Cash proceeds: |
|
|
|
|
|
|
|
|
Whole loans sold by the Trusts |
|
$ |
154,802 |
|
|
$ |
218,064 |
|
Residual cash flows from beneficial interest in Trusts |
|
|
58,790 |
|
|
|
40,378 |
|
Loans securitized |
|
|
60,382 |
|
|
|
|
|
Derivative instruments |
|
|
6,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
280,168 |
|
|
|
258,442 |
|
|
|
|
|
|
|
|
Non-cash: |
|
|
|
|
|
|
|
|
Retained mortgage servicing rights |
|
|
49,306 |
|
|
|
28,493 |
|
Additions to balance sheet (1) |
|
|
60,091 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109,397 |
|
|
|
28,493 |
|
|
|
|
|
|
|
|
Portion of gain on sale related to capital market transactions |
|
|
389,565 |
|
|
|
286,935 |
|
|
|
|
|
|
|
|
|
Other items included in gain on sale: |
|
|
|
|
|
|
|
|
Changes in beneficial interest in Trusts |
|
|
(29,534 |
) |
|
|
2,598 |
|
Impairments to fair value of residual interests |
|
|
(12,415 |
) |
|
|
(2,609 |
) |
Net change in fair value of derivative instruments |
|
|
19,892 |
|
|
|
676 |
|
Direct origination and acquisition expenses, net |
|
|
(114,224 |
) |
|
|
(92,489 |
) |
Loan sale repurchase reserves |
|
|
(16,853 |
) |
|
|
(11,751 |
) |
|
|
|
|
|
|
|
|
|
|
(153,134 |
) |
|
|
(103,575 |
) |
|
|
|
|
|
|
|
Reported gains on sales of mortgage assets |
|
$ |
236,431 |
|
|
$ |
183,360 |
|
|
|
|
|
|
|
|
Percent of gain on sale related to capital
market transactions received as cash (2) |
|
|
72 |
% |
|
|
90 |
% |
|
|
|
(1) |
|
Includes residual interests and interest rate caps. |
|
(2) |
|
Cash proceeds divided by portion of gain on sale related to capital market
transactions. |
Warehouse Funding. To finance our prime originations, we utilize an on-balance
sheet warehouse facility with capacity up to $25 million. This annual facility bears interest at
one-month LIBOR plus 140 to 200 basis points. As of July 31, 2005 and April 30, 2005 the balance
outstanding under this facility was $10.3 million and $4.4 million, respectively.
To fund our non-prime originations, we utilize six off-balance sheet warehouse Trusts. The
facilities used by the Trusts had a total capacity of $10.0 billion as of July 31, 2005. Amounts
drawn on the facilities by the Trusts totaled $6.7 billion at July 31, 2005. See additional
discussion below in Off-Balance Sheet Financing Arrangements.
We believe the sources of liquidity available to the Mortgage Services segment are sufficient
for its needs.
-29-
Business Services. Business Services funding requirements are largely related to receivables
for completed work and work in process. We provide funding sufficient to cover their working
capital needs. This segment provided $21.2 million in operating cash flows during the first three
months of the year. Business Services used $7.8 million in investing activities related to
acquisitions and capital expenditures.
Investment Services. Investment Services, through HRBFA, is subject to regulatory requirements
intended to ensure the general financial soundness and liquidity of broker-dealers.
At July 31, 2005, HRBFAs net capital of $119.8 million, which was 19.1% of aggregate debit
items, exceeded its minimum required net capital of $12.5 million by $107.3 million.
In the first three months of fiscal year 2005, Investment Services used $11.3 million in its
operating activities primarily due to working capital requirements,
including the timing of cash deposits that are
restricted for the benefit of customers. Cash provided by financing activities consists primarily
of financing of book overdrafts.
Liquidity needs relating to client trading and margin-borrowing activities are met primarily
through cash balances in client brokerage accounts and working capital. We believe these sources of
funds will continue to be the primary sources of liquidity for Investment Services. Stock loans
have historically been used as a secondary source of funding and could be used in the future, if
warranted.
Pledged securities at July 31, 2005 totaled $55.5 million, an excess of $5.3 million over the
margin requirement. Pledged securities at the end of fiscal year 2005 totaled $44.6 million, an
excess of $7.9 million over the margin requirement.
We believe the funding sources for Investment Services are stable. Liquidity risk within this
segment is primarily limited to maintaining sufficient capital levels to obtain securities lending
liquidity to support margin borrowing by customers.
OFF-BALANCE SHEET FINANCING ARRANGEMENTS
Substantially all non-prime mortgage loans we originate are sold daily to the Trusts. The Trusts
purchase the loans from us utilizing six warehouse facilities that were arranged by us, bear
interest at one-month LIBOR plus 45 to 400 basis points and expire on various dates during the
year. In July 2005, the warehouse facilities were increased from $9.0 billion to $10.0 billion.
In
August 2005, the FASB issued three exposure drafts which amend
Statement of Financial Accounting Standards No. 140, Accounting
for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. See discussion in note 12 to the condensed
consolidated financial statements.
There have been no other material changes in our off-balance sheet financing arrangements from
those reported at April 30, 2005 in our Annual Report on Form 10-K/A.
COMMERCIAL PAPER ISSUANCE
We
maintain two unsecured CLOCs for working capital, to support our commercial paper program and for general corporate
purposes. Subsequent to July 31, 2005, the first CLOC expired and was replaced with a new $1.0
billion CLOC, which expires in August 2010. Also subsequent to July 31, 2005, the second CLOC was
extended, and now expires in August 2010.
There have been no other material changes in our commercial paper program from those reported
at April 30, 2005 in our Annual Report on Form 10-K/A.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
There have been no material changes in our contractual obligations and commercial commitments from
those reported at April 30, 2005 in our Annual Report on Form 10-K/A.
REGULATORY ENVIRONMENT
There have been no material changes in our regulatory environment from those reported at April 30,
2005 in our Annual Report on Form 10-K/A.
FORWARD-LOOKING INFORMATION
In this report, and from time to time throughout the year, we share our expectations for our future
performance. These forward-looking statements are based upon current information, expectations,
estimates and projections regarding the Company, the industries and markets in which we operate,
and our assumptions and beliefs at that time. These statements speak only as of the date on which
they are made, are not guarantees of future performance, and involve certain risks, uncertainties
and
-30-
assumptions, which are difficult to predict. Therefore, actual outcomes and results could
materially differ from what is expressed, implied or forecast in these forward-looking statements.
Words such as believe, will, plan, expect, intend, estimate, approximate, and similar
expressions may identify such forward-looking statements.
There have been no material changes in our risk factors from those reported at April 30, 2005
in our Annual Report on Form 10-K/A.
RECONCILIATION
OF NONGAAP FINANCIAL INFORMATION
We report our financial results in accordance with generally accepted accounting principles (GAAP).
However, we believe certain non-GAAP performance measures and ratios used in managing the business
may provide additional meaningful comparisons between current year results and prior periods, by
excluding certain items that do not represent results from our basic operations. Reconciliations to
GAAP financial measures are provided below. These non-GAAP financial measures should be viewed in
addition to, not as an alternative for, our reported GAAP results.
|
|
|
|
|
|
|
|
|
|
|
|
|
Origination Margin
|
(dollars in 000s) |
|
|
|
|
|
|
|
Restated |
|
|
|
|
Three months ended |
|
July 31, 2005 |
|
|
July 31, 2004 |
|
|
April 30, 2005 |
|
|
Total expenses |
|
$ |
225,970 |
|
|
$ |
162,948 |
|
|
$ |
217,728 |
|
Add: Expenses netted against
gain on sale revenues |
|
|
114,222 |
|
|
|
92,489 |
|
|
|
103,123 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services |
|
|
64,392 |
|
|
|
49,861 |
|
|
|
61,590 |
|
Cost of acquisition |
|
|
52,306 |
|
|
|
41,700 |
|
|
|
47,428 |
|
Allocated support departments |
|
|
5,831 |
|
|
|
5,346 |
|
|
|
5,768 |
|
Other |
|
|
6,255 |
|
|
|
7,200 |
|
|
|
7,528 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
211,408 |
|
|
$ |
151,330 |
|
|
$ |
198,537 |
|
|
|
|
|
|
|
|
|
|
|
Divided by origination volume |
|
$ |
10,887,629 |
|
|
$ |
6,816,517 |
|
|
$ |
9,278,489 |
|
Total cost of origination |
|
|
1.94 |
% |
|
|
2.22 |
% |
|
|
2.14 |
% |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in our market risks from those reported at April 30, 2005
in our Annual Report on Form 10-K/A.
ITEM 4. CONTROLS AND PROCEDURES
We have established disclosure controls and procedures (Disclosure Controls) to ensure that
information required to be disclosed in the Companys reports filed under the Securities Exchange
Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods
specified in the U.S. Securities and Exchange Commissions rules and forms. Disclosure Controls are
also designed to ensure that such information is accumulated and communicated to management,
including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Our Disclosure Controls were designed to provide reasonable assurance that the controls and
procedures would meet their objectives. Our management, including the Chief Executive Officer and
Chief Financial Officer, does not expect that our Disclosure Controls will prevent all error and
all fraud. A control system, no matter how well designed and operated, can provide only reasonable
assurance of achieving the designed control objectives and management is required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because
of the inherent limitations in all control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within the Company have been
detected. These inherent limitations include the realities that judgments in decision-making can be
faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusions of two or more people, or
by management override of the control. Because of the inherent limitations in a
-31-
cost-effective,
maturing control system, misstatements due to error or fraud may occur and not be detected.
As of the end of the period covered by this Form 10-Q, we evaluated the effectiveness of the
design and operation of our Disclosure Controls. The controls evaluation was done under the
supervision and with the participation of management, including our Chief Executive Officer and
Chief Financial Officer. Based on this evaluation, our Chief Executive Officer and Chief Financial
Officer have concluded that our Disclosure Controls and procedures were not effective as of the end
of the period covered by this Quarterly Report on Form 10-Q because of the material weakness
described below.
As disclosed most recently in our Annual Report on Form 10-K/A for the year ended April 30,
2005, management had identified a material weakness in our accounting for income taxes.
Specifically, the Company did not maintain sufficient resources in the corporate tax function to
accurately identify, evaluate and report, in a timely manner, non-routine and complex transactions.
In addition, the Company had not completed the requisite historical analysis and related
reconciliations to ensure tax balances were appropriately stated prior to the completion of the
Companys April 30, 2005 internal control activities. In order to remediate this material weakness,
management completed the requisite historical analysis including creation of the necessary tax
basis balance sheets and current and deferred reconciliations required and related internal control
testing to ensure propriety of all tax related financial statement account balances as of the Form
10-K/A filing date. The Company believes it has established appropriate controls and procedures and
created the appropriate tax account analysis and support subsequent to April 30, 2005. In addition,
management has engaged a third-party firm to assist us in performing a comprehensive evaluation of
the corporate tax function, including resource requirements, to identify and implement additional
improvements to ensure compliance with the controls and procedures that have been put in place to
remediate deficiencies previously identified.
Other than the changes outlined above, there were no changes that materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information below should be read in conjunction with the information included in note 10
to our condensed consolidated financial statements.
RAL LITIGATION
We reported in current reports on Form 8-K, previous quarterly reports on Form 10-Q and in our
annual report on Form 10-K/A for the year ended April 30, 2005, certain events and information
regarding lawsuits throughout the country regarding our refund anticipation loan programs
(collectively, RAL Cases). The RAL Cases have involved a variety of legal theories asserted by
plaintiffs. These theories include allegations that, among other things: disclosures in the RAL
applications were inadequate, misleading and untimely; the RAL interest rates were usurious and
unconscionable; we did not disclose that we would receive part of the finance charges paid by the
customer for such loans; breach of state laws on credit service organizations; breach of contract,
unjust enrichment, unfair and deceptive acts or practices; violations of the federal Racketeer
Influenced and Corrupt Organizations Act; violations of the federal Fair Debt Collection Practices
Act; and breach of fiduciary duty to our customers in connection with the RAL
program.
The amounts claimed in the RAL Cases have been very substantial in some instances. We have
successfully defended against numerous RAL Cases, although several of the RAL Cases are still
pending. Of the RAL Cases that are no longer pending, some were dismissed on our motions for
dismissal or summary judgment, and others were dismissed voluntarily by the plaintiffs after denial
of class certification. Other cases were settled, with one settlement resulting in a pretax expense
of $43.5 million in fiscal year 2003 (the Texas RAL Settlement).
We believe we have meritorious defenses to the RAL Cases and we intend to defend the remaining
RAL Cases vigorously. There can be no assurances, however, as to the outcome of the pending RAL
Cases individually or in the aggregate. Likewise, there can be no assurances regarding the impact
of the RAL Cases on our financial statements. We have accrued our best estimate of the probable
loss related to the
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RAL Cases. The following is updated information regarding the pending RAL Cases
that are class actions or putative class actions in which developments occurred during of after the
three months ended July 31, 2005:
Lynne A. Carnegie, et al. v. Household International, Inc., H&R Block, Inc., et al., (formerly
Joel E. Zawikowski, et al. v. Beneficial National Bank, H&R Block, Inc., Block Financial
Corporation, et al.) Case No. 98 C 2178, United States District Court for the Northern District of
Illinois, Eastern Division, instituted on April 18, 1998. In March 2004, the court either dismissed
or decertified all of the plaintiffs claims other than part of one count alleging violations of
the racketeering and conspiracy provisions of the Racketeer Influenced and Corrupt Organizations
Act. On May 9, 2005, the parties agreed to a settlement, subject to court approval. The settlement
agreement provided for (i) the defendants to pay $110 million in cash and $250 million face value
in freely transferable rebate coupons and (ii) all persons who applied for and obtained a RAL
through an H&R Block office or certain lenders from January 1, 1987 through April 29, 2005 (the
Carnegie Settlement Class) to release all claims against us regarding RALs or certain services
provided in connection with RALs. The settlement agreement also specified required business
practices, procedures, disclosures and forms for use in making RALs and barred members of the
Carnegie Settlement Class from commencing any other claims or actions against us regarding RALs
made pursuant to such practices, procedures, disclosures and forms (the Forward Looking
Protections). In negotiating the settlement, we ascribed significant value to the Forward-Looking
Protections and the expanded class of plaintiffs to be covered by the settlement in determining the
amount of consideration we were willing to pay in settling the case. On May 26, 2005, the court
denied approval of the proposed settlement. As discussed in our Form 8-K dated May 9, 2005, we
initially recorded litigation reserves of approximately $38.0 million, after taxes, based on the
May 9, 2005 proposed settlement. As a result of the May 26, 2005 court ruling to deny the
settlement, we reversed our legal reserves to amounts representing our assessment of our probable
loss. This class action case is scheduled to go to trial in February 2006. We intend to continue
defending the case vigorously, but there are no assurances as to its outcome.
Deandra D. Cummins, et al. v. H&R Block, Inc., et al., Case No. 03-C-134 in the Circuit Court
of Kanawha County, West Virginia, instituted on January 22, 2003. Summary judgment motions will be
heard and ruled upon on September 30, 2005. The case is scheduled to go to trial on October 17,
2005.
PEACE OF MIND LITIGATION
Lorie J. Marshall, et al. v. H&R Block Tax Services, Inc., et al., Civil Action 2003L000004, in the
Circuit Court of Madison County, Illinois, is a class action case filed on January 18, 2002, that
was granted class certification on August 27, 2003. Plaintiffs claims consist of five counts
relating to the Peace of Mind (POM) program under which the applicable tax return preparation
subsidiary assumes liability for additional tax
assessments attributable to tax return preparation error. The plaintiffs allege that the sale of
POM guarantees constitutes (i) statutory fraud by selling insurance without a license, (ii) an
unfair trade practice, by omission and by cramming (i.e., charging customers for the guarantee
even though they did not request it or want it), and (iii) a breach of fiduciary duty. In August
2003, the court certified the plaintiff classes consisting of all persons who from January 1, 1997
to final judgment (i) were charged a separate fee for POM by H&R Block or a defendant H&R Block
class member; (ii) reside in certain class states and were charged a separate fee for POM by H&R
Block or a defendant H&R Block class member not licensed to sell insurance; and (iii) had an
unsolicited charge for POM posted to their bills by H&R Block or a defendant H&R Block class
member. Persons who received the POM guarantee through an H&R Block Premium office and persons who
reside in Alabama are excluded from the plaintiff class. The court also certified a defendant class
consisting of any entity with names that include H&R Block or HRB, or are otherwise affiliated
or associated with H&R Block Tax Services, Inc., and that sold or sells the POM product. The trial
court subsequently denied the defendants motion to certify class certification issues for
interlocutory appeal. Discovery is proceeding. No trial date has been set.
There is one other putative class action pending against us in Texas that involves the POM
guarantee. This case is being tried before the same judge that presided over the Texas RAL
Settlement, involves the same plaintiffs attorneys that are involved in the Marshall litigation
in Illinois, and contains similar allegations. No class has been certified in this case.
We believe the claims in the POM action are without merit, and we intend to defend them
vigorously. The amounts claimed in the POM actions are substantial, however, and there can be no
assurances as to
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the outcome of these pending actions individually or in the aggregate. Likewise,
there can be no assurances regarding the impact of these actions on our consolidated financial
statements.
OTHER CLAIMS AND LITIGATION
As reported in a current report on Form 8-K dated November 8, 2004, the NASD brought charges
against HRBFA regarding the sale by HRBFA of Enron debentures in 2001. A hearing for this matter is
scheduled for May 2006. Two private civil actions subsequently were filed against HRBFA concerning
the matter raised in the NASDs charges. Both of these private actions subsequently were dismissed
without prejudice, although one of the actions has since been refiled. We intend to defend the NASD
charges and related private action vigorously, although there can be no assurances regarding the
outcome and resolution of the matter.
As part of an industry-wide review, the IRS is investigating tax-planning strategies that
certain RSM clients utilized during fiscal years 2000 through 2003. Specifically, the IRS is
examining these strategies to determine whether RSM complied with tax shelter registration and
listing regulations and whether such strategies were appropriate. If the IRS were to determine that
these strategies were inappropriate, clients that utilized the strategies could face penalties and
interest for underpayment of taxes. Some of these clients are seeking or may attempt to seek
recovery from RSM. While there can be no assurance regarding the
outcome of these matters, we do not
believe its resolution will have a material adverse effect on our operations or consolidated
financial statements.
As reported in current report on Form 8-K dated December 12, 2003, the SEC informed our
outside counsel on December 11, 2003 that the Commission had issued a Formal Order of Investigation
concerning our disclosures in and before November 2003 regarding RAL litigation to which we were
and are a party. There can be no assurances as to the outcome and resolution of this matter.
We have from time to time been party to claims and lawsuits not discussed herein arising out
of our business operations. These claims and lawsuits include actions by individual plaintiffs, as
well as cases in which plaintiffs seek to represent a class of similarly situated customers. The
amounts claimed in these claims and lawsuits are substantial in some instances, and the ultimate
liability with respect to such litigation and claims is difficult to predict. Some of these claims
and lawsuits pertain to RALs, the electronic filing of customers income tax returns and the POM
guarantee program. We believe we have meritorious defenses to each of these claims, and we are
defending or intend to defend them vigorously, although there is no assurance as to their outcome.
In addition to the aforementioned types of cases, we are parties to claims and lawsuits that
we consider to be ordinary, routine litigation incidental to our business, including claims and
lawsuits (Other Claims) concerning investment products, the preparation of customers income tax
returns, the fees charged customers for various products and services, losses incurred by customers
with respect to their investment accounts, relationships with franchisees, denials of mortgage
loans, contested mortgage foreclosures, other aspects of
the mortgage business, intellectual property disputes, and contract disputes. We believe we have
meritorious defenses to each of the Other Claims, and we are defending them
vigorously. While we cannot provide assurance that we will ultimately prevail in each instance, we
believe the amount, if any, we are required to pay in the discharge of liabilities or settlements
in these Other Claims will not have a material adverse effect on our consolidated financial
statements.
-34-
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
A summary of our purchases of H&R Block common stock during the first quarter of fiscal year
2006, excluding the impact of the stock split, is as follows:
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|
|
|
|
(shares in 000s) |
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|
|
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|
|
|
|
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Total Number of Shares |
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|
Maximum Number |
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|
|
Total |
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Average |
|
|
Purchased as Part of |
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|
of Shares that May |
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|
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Number of Shares |
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Price Paid |
|
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Publicly Announced |
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Be Purchased Under |
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|
Purchased (1) |
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|
per Share |
|
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Plans or Programs (2) |
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|
the Plans or Programs (2) |
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May 1 May 31 |
|
|
427 |
|
|
$ |
49.54 |
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|
425 |
|
|
|
14,679 |
|
June 1 June 30 |
|
|
12 |
|
|
$ |
57.70 |
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|
1 |
|
|
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14,678 |
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July 1 July 31 |
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|
1,877 |
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$ |
58.50 |
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|
1,795 |
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|
12,883 |
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(1) |
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Of the total number of shares purchased, 95,411 shares were purchased in
connection with the funding of employee income tax withholding obligations arising upon the
exercise of stock options or the lapse of restrictions on restricted shares. |
|
(2) |
|
On June 11, 2003 and June 9, 2004, our Board of Directors approved the repurchase of
20 million shares and 15 million shares, respectively, of H&R Block, Inc. common stock. These
authorizations have no expiration dates. |
ITEM 6. EXHIBITS
10.1 |
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Sale and Servicing Agreement dated as of June 1, 2005 among Option One Mortgage
Corporation, Option One Loan Warehouse Corporation, Option One Owner Trust 2005-6 and Wells
Fargo Bank, N.A. |
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10.2 |
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Note Purchase Agreement dated as of June 1, 2005 among Option One Loan Warehouse
Corporation, Option One Owner Trust 2005-6 and Lehman Brothers Bank. |
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10.3 |
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Indenture dated as of June 1, 2005 between Option One Owner Trust 2005-6 and Wells Fargo
Bank, N.A. |
|
10.4 |
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Amendment Number 1 to Second Amended and Restated Sale and Servicing Agreement dated March 8,
2005 among Option One Mortgage Corporation, Option One Loan Warehouse Corporation, Option One
Owner Trust 20012 and Wells Fargo Bank, N.A. |
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10.5 |
|
Amendment Number Five to Amended and Restated Note Purchase Agreement dated November 25,
2003 among Option One Loan Warehouse Corporation, Option One Owner
Trust 20012 and Bank of
America, N.A. |
|
10.6 |
|
Amendment Number One to Second Amended and Restated Sale and Servicing Agreement dated as
of April 29, 2005 among Option One Owner Trust 2001-1A, Option One Loan Warehouse
Corporation, Option One Mortgage Corporation and Wells Fargo Bank N.A. |
|
10.7 |
|
Amendment Number One to Second Amended and Restated Sale and Servicing Agreement dated as
of April 29, 2005 among Option One Owner Trust 2001-1B, Option One Loan Warehouse
Corporation, Option One Mortgage Corporation and Wells Fargo Bank N.A. |
|
10.8 |
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Description of Executive Officer Cash Compensation. |
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31.1 |
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Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2 |
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Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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32.1 |
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Certification by Chief Executive Officer furnished pursuant to 18 U.S.C. 1350, as adopted
by Section 906 of the Sarbanes-Oxley Act of 2002. |
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32.2 |
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Certification by Chief Financial Officer furnished pursuant to 18 U.S.C. 1350, as adopted
by Section 906 of the Sarbanes-Oxley Act of 2002. |
-35-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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H&R BLOCK, INC. |
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Mark A. Ernst |
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Chairman of the Board, President |
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and Chief Executive Officer |
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September 8, 2005 |
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William L. Trubeck |
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Executive Vice President and |
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Chief Financial Officer |
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September 8, 2005 |
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exv10w1
Exhibit 10.1
SALE AND SERVICING AGREEMENT
among
OPTION ONE OWNER TRUST 2005-6
as Issuer
and
OPTION ONE LOAN WAREHOUSE CORPORATION
as Depositor
and
OPTION ONE MORTGAGE CORPORATION
as Loan Originator and Servicer
and
WELLS FARGO BANK, N.A.
as Indenture Trustee
Dated as of June 1, 2005
OPTION ONE OWNER TRUST 2005-6
MORTGAGE-BACKED NOTES
TABLE OF CONTENTS
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Page |
ARTICLE I DEFINITIONS |
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6 |
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Section 1.01
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Definitions
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6 |
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Section 1.02
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Other Definitional Provisions
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31 |
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ARTICLE II CONVEYANCE OF THE TRUST ESTATE; ADDITIONAL NOTE PRINCIPAL BALANCES |
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32 |
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Section 2.01
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Conveyance of the Trust Estate; Additional Note Principal Balances
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32 |
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Section 2.02
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Ownership and Possession of Loan Files
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33 |
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Section 2.03
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Books and Records; Intention of the Parties
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34 |
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Section 2.04
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Delivery of Loan Documents
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35 |
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Section 2.05
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Acceptance by the Indenture Trustee of the Loans; Certain Substitutions and
Repurchases; Certification by the Custodian
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35 |
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Section 2.06
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Conditions to Transfer
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37 |
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Section 2.07
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Termination of Revolving Period
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39 |
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Section 2.08
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Correction of Errors
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40 |
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ARTICLE III REPRESENTATIONS AND WARRANTIES |
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40 |
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Section 3.01
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Representations and Warranties of the Depositor
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40 |
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Section 3.02
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Representations and Warranties of the Loan Originator
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42 |
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Section 3.03
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Representations, Warranties and Covenants of the Servicer
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45 |
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Section 3.04
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Reserved
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47 |
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Section 3.05
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Representations and Warranties Regarding Loans
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47 |
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Section 3.06
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Purchase and Substitution
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48 |
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Section 3.07
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Dispositions
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50 |
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Section 3.08
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Servicer Put; Servicer Call
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53 |
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Section 3.09
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Modification of Underwriting Guidelines
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53 |
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ARTICLE IV ADMINISTRATION AND SERVICING OF THE LOANS |
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54 |
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Section 4.01
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Servicers Servicing Obligations
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54 |
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Section 4.02
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Financial Statements
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54 |
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ARTICLE V ESTABLISHMENT OF TRUST ACCOUNTS; TRANSFER OBLIGATION |
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55 |
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Section 5.01
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Collection Account and Distribution Account
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55 |
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Section 5.02
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Payments to Securityholders
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59 |
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Section 5.03
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Trust Accounts; Trust Account Property
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60 |
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Section 5.04
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Advance Account
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62 |
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Section 5.05
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Transfer Obligation Account
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63 |
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Section 5.06
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Transfer Obligation
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64 |
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Page |
ARTICLE VI STATEMENTS AND REPORTS; SPECIFICATION OF TAX MATTERS |
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65 |
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Section 6.01
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Statements
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65 |
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Section 6.02
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Specification of Certain Tax Matters
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68 |
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Section 6.03
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Valuation of Loans, Hedge Value and Retained Securities Value; Market Value
Agent
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68 |
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ARTICLE VII HEDGING; FINANCIAL COVENANTS |
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69 |
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Section 7.01
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Hedging Instruments
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69 |
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Section 7.02
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Financial Covenants
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70 |
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ARTICLE VIII THE SERVICER |
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71 |
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Section 8.01
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Indemnification; Third Party Claims
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71 |
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Section 8.02
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Merger or Consolidation of the Servicer
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73 |
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Section 8.03
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Limitation on Liability of the Servicer and Others
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73 |
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Section 8.04
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Servicer Not to Resign; Assignment
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73 |
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Section 8.05
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Relationship of Servicer to Issuer and the Indenture Trustee
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74 |
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Section 8.06
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Servicer May Own Securities
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74 |
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Section 8.07
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Indemnification of the Indenture Trustee and the Noteholder Agent
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74 |
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ARTICLE IX SERVICER EVENTS OF DEFAULT |
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75 |
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Section 9.01
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Servicer Events of Default
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75 |
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Section 9.02
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Appointment of Successor
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77 |
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Section 9.03
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Waiver of Defaults
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78 |
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Section 9.04
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Accounting Upon Termination of Servicer
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78 |
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ARTICLE X TERMINATION; PUT OPTION |
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79 |
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Section 10.01
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Termination
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79 |
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Section 10.02
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Optional Termination
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79 |
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Section 10.03
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Notice of Termination
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80 |
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Section 10.04
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Put Option
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80 |
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ARTICLE XI MISCELLANEOUS PROVISIONS |
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80 |
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Section 11.01
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Acts of Securityholders
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80 |
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Section 11.02
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Amendment
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80 |
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Section 11.03
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Recordation of Agreement
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81 |
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Section 11.04
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Duration of Agreement
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81 |
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Section 11.05
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Governing Law
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81 |
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Section 11.06
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Notices
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82 |
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Section 11.07
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Severability of Provisions
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82 |
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Section 11.08
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No Partnership
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Section 11.09
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Counterparts
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Section 11.10
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Successors and Assigns
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83 |
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Section 11.11
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Headings
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83 |
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Section 11.12
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Actions of Securityholders
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83 |
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Section 11.13
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Non-Petition Agreement
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83 |
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Section 11.14
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Holders of the Securities
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84 |
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Section 11.15
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Due Diligence Fees, Due Diligence
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84 |
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Section 11.16
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No Reliance
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85 |
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Section 11.17
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Confidential Information
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85 |
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Section 11.18
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Conflicts
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86 |
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Section 11.19
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Limitation on Liability
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Section 11.20
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No Agency
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EXHIBITS |
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EXHIBIT A Form of Notice of Additional Note Principal Balance |
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EXHIBIT B Form of Servicers Remittance Report to Indenture Trustee |
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EXHIBIT C Form of S&SA Assignment |
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EXHIBIT D Loan Schedule |
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EXHIBIT E Representations and Warranties Regarding the Loans |
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EXHIBIT F Servicing Addendum |
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EXHIBIT G Capital Adequacy Test |
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AMENDED AND RESTATED SALE AND SERVICING AGREEMENT
This Sale and Servicing Agreement is entered into effective as of June 1, 2005, among OPTION
ONE OWNER TRUST 2005-6, a Delaware statutory trust (the Issuer
or the Trust), OPTION ONE LOAN WAREHOUSE CORPORATION, a Delaware corporation, as Depositor
(in such capacity, the Depositor), OPTION ONE MORTGAGE CORPORATION, a California corporation
(Option One), as Loan Originator (in such capacity, the Loan Originator) and as Servicer (in
such capacity, the Servicer), and WELLS FARGO BANK, N.A., a national banking association, as
Indenture Trustee on behalf of the Noteholders (in such capacity, the Indenture Trustee).
W I T N E S S E T H:
In consideration of the mutual agreements herein contained, the Issuer, the Depositor, the
Loan Originator, the Servicer and the Indenture Trustee hereby agree as follows for the benefit of
each of them and for the benefit of the holders of the Securities:
ARTICLE I
DEFINITIONS
Section 1.01
Definitions.
Whenever used in this Agreement, the following words and phrases, unless the context otherwise
requires, shall have the meanings specified in this Article. Unless otherwise specified, all
calculations of interest described herein shall be made on the basis of a 360-day year and the
actual number of days elapsed in each Accrual Period.
Accepted Servicing Practices: The Servicers normal servicing practices in servicing and
administering similar mortgage loans for its own account, which in general will conform to the
mortgage servicing practices of prudent mortgage lending institutions which service for their own
account mortgage loans of the same type as the Loans in the jurisdictions in which the related
Mortgaged Properties are located and will give due consideration to the Noteholders reliance on
the Servicer.
Accrual Period: With respect to the Notes, the period commencing on and including the
preceding Payment Date (or, in the case of the first Payment Date, the period commencing on and
including the first Transfer Date (which first Transfer Date is the first date on which the Note
Principal Balance is greater than zero)) and ending on the day preceding the related Payment Date.
Act or Securities Act: The Securities Act of 1933, as amended.
Additional LIBOR Margin: As defined in the Pricing Letter.
Additional Note Principal Balance: With respect to each Transfer Date, the aggregate Sales
Prices of all Loans conveyed on such date.
- 6 -
Adjustment Date: With respect to each ARM, the date set forth in the related Promissory Note
on which the Loan Interest Rate on such ARM is adjusted in accordance
with the terms of the related Promissory Note.
Administration Agreement: The Administration Agreement, dated as of June 1, 2005, between the
Issuer and the Administrator.
Administrator: Option One Mortgage Corporation, in its capacity as Administrator under the
Administration Agreement.
Advance Account: The account established and maintained pursuant to Section 5.04.
Affiliate: With respect to any specified Person, any other Person controlling or controlled by
or under common control with such specified Person. For the purposes of this definition, control
when used with respect to any specified Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise, and the terms controlling and controlled have meanings
correlative to the foregoing.
Agreement: This Agreement, as the same may be amended and supplemented from time to time.
ALTA: The American Land Title Association and its successors in interest.
Appraised Value: With respect to any Loan, and the related Mortgaged Property, the lesser of:
(i) the lesser of (a) the value thereof as determined by an appraisal made for the originator
of the Loan at the time of origination of the Loan by an appraiser who met the minimum requirements
of Fannie Mae or Freddie Mac and (b) the value thereof as determined by a review appraisal process
which may include an automated appraisal consistent with the Underwriting policies and guidelines
conducted by the Loan Originator in the event any such review appraisal determines an appraised
value more than 10% lower than the value thereof, in the case of a Loan with a Loan-to-Value Ratio
less than or equal to 80%, or more than 5% lower than the value thereof, in the case of a Loan with
a Loan-to-Value Ratio greater than 80%, as determined by the appraisal referred to in clause (i)(a)
above; and
(ii) the purchase price paid for the related Mortgaged Property by the Borrower with the
proceeds of the Loan; provided, however, that in the case of a refinanced Loan (which is a Loan the
proceeds of which were not used to purchase the related Mortgaged Property) or a Loan originated in
connection with a lease option purchase if the lease option purchase price was set 12 months or
more prior to origination, such value of the Mortgaged Property is based solely upon clause (i)
above.
ARM: Any Loan, the Loan Interest Rate with respect to which is subject to adjustment during
the life of such Loan.
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Assignment: An LPA Assignment or S&SA Assignment.
Assignment of Mortgage: With respect to any Loan, an assignment of the related Mortgage in
blank or to Wells Fargo Bank, N.A., as custodian or trustee under the applicable custodial
agreement or trust agreement, and notice of transfer or equivalent instrument in recordable form,
sufficient under the laws of the jurisdiction wherein the related Mortgaged Property is located to
reflect the assignment and pledge of such Mortgage.
Basic Documents: This Agreement, the Administration Agreement, the Custodial Agreement, the
Indenture, the Loan Purchase and Contribution Agreement, the Master Disposition Confirmation
Agreement, the Note Purchase Agreement, the Trust Agreement, each Hedging Instrument, if any, and,
as and when required to be executed and delivered, the Assignments.
Borrower: The obligor or obligors on a Promissory Note.
Business Day: Any day other than (i) a Saturday or Sunday, or (ii) a day on which banking
institutions in New York City, California, Maryland, Minnesota, Pennsylvania, Delaware or in the
city in which the corporate trust office of the Indenture Trustee is located or the city in which
the Servicers servicing operations are located are authorized or obligated by law or executive
order to be closed.
Certificateholder: A holder of a Trust Certificate.
Change of Control: As defined in the Indenture.
Clean-up Call Date: The first Payment Date occurring after the end of the Revolving Period
and the date on which the Note Principal Balance declines to 10% or less of the aggregate Note
Principal Balance as of the end of the Revolving Period.
Closing Date: June 30, 2005.
Code: The Internal Revenue Code of 1986, as amended from time to time, and the regulations
promulgated by the United States Treasury thereunder.
Collateral Percentage: As defined in the Pricing Letter.
Collateral Value: As defined in the Pricing Letter.
Collection Account: The account designated as such, established and maintained by the Servicer
in accordance with Section 5.01(a)(1) hereof.
Combined LTV or CLTV: With respect to any Second Lien Loan, the ratio of the outstanding
Principal Balance on the related date of origination of (a) (i) such Loan plus (ii) the loan
constituting the first lien, to (b) the lesser of (x) the Appraised Value of the Mortgaged Property
at origination or (y) if the Mortgaged Property was purchased within 12 months of the origination
of the Loan, the purchase price of the Mortgaged Property, expressed as a percentage.
- 8 -
Commission: The Securities and Exchange Commission.
Convertible Loan: A Loan that by its terms and subject to certain conditions contained in the
related Mortgage or Promissory Note allows the Borrower to convert the adjustable Loan Interest
Rate on such Loan to a fixed Loan Interest Rate.
Credit Score: With respect to each Borrower, the credit score for such Borrower from a
nationally recognized credit repository; provided, however, in the event that a credit score for
such Borrower was obtained from two repositories, the Credit Score shall be the lower of the two
scores; provided, further, in the event that a credit score for such Borrower was obtained from
three repositories, the Credit Score shall be the middle score of the three scores.
Custodial Agreement: The custodial agreement dated as of June 1, 2005, among the Issuer, the
Servicer, the Indenture Trustee and the Custodian, providing for the retention of the Custodial
Loan Files by the Custodian on behalf of the Indenture Trustee.
Custodial Loan File: As defined in the Custodial Agreement.
Custodian: The custodian named in the Custodial Agreement, which custodian shall not be
affiliated with the Servicer, the Loan Originator, the Depositor or any Subservicer. Wells Fargo
Bank, N.A., a national banking association, shall be the initial Custodian pursuant to the terms of
the Custodial Agreement.
Custodian Fee: For any Payment Date, the fee payable to the Custodian on such Payment Date as
set forth in the Custodian Fee Notice for such Payment Date, which fee shall be calculated in
accordance with the separate fee letter between the Custodian and the Servicer.
Custodian Fee Notice: For any Payment Date, the written notice provided by the Custodian to
the Servicer and the Indenture Trustee pursuant to Section 6.01, which notice shall specify the
amount of the Custodian Fee payable on such Payment Date.
Daily Interest Accrual Amount: With respect to each day and the related Accrual Period,
interest accrued at the Note Interest Rate with respect to such Accrual Period on the Note
Principal Balance as of the preceding Business Day after giving effect to all changes to the Note
Principal Balance on or prior to such preceding Business Day.
Deemed Cured: With respect to the occurrence of a Performance Trigger or Rapid Amortization
Trigger, when the condition that originally gave rise to the occurrence of such trigger has not
continued for 20 consecutive days, or if the occurrence of such Performance Trigger or Rapid
Amortization Trigger has been waived in writing by the Noteholder Agent.
Default: Any occurrence that is, or with notice or the lapse of time or both would become, an
Event of Default.
Defaulted Loan: With respect to any Determination Date, any Loan, including, without
limitation, any Liquidated Loan with respect to which any of the following has occurred as of the
end of the related Remittance Period: (a) foreclosure or similar proceedings have been
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commenced; or (b) the Servicer or any Subservicer has determined in good faith and in accordance
with the servicing standard set forth in Section 4.01 of the Servicing Addendum that such Loan is
in default or imminent default.
Deleted Loan: A Loan replaced or to be replaced by one or more Qualified Substitute Loans.
Delinquent: A Loan is Delinquent if any Monthly Payment due thereon is not made by the close
of business on the day such Monthly Payment is required to be paid. A Loan is 30 days Delinquent
if any Monthly Payment due thereon has not been received by the close of business on the
corresponding day of the month immediately succeeding the month in which such Monthly Payment was
required to be paid or, if there is no such corresponding day (e.g., as when a 30-day month follows
a 31-day month in which a payment was required to be paid on the 31st day of such month), then on
the last day of such immediately succeeding month. The determination of whether a Loan is 60 days
Delinquent, 90 days Delinquent, etc., shall be made in like manner.
Delivery: When used with respect to Trust Account Property means:
(a) with respect to bankers acceptances, commercial paper, negotiable certificates of deposit
and other obligations that constitute instruments within the meaning of Section 9-102(a)(47) of
the UCC and are susceptible of physical delivery (except with respect to Trust Account Property
consisting of certificated securities (as defined in Section 8-102(a)(4) of the UCC)), physical
delivery to the Indenture Trustee or its custodian (or the related Securities Intermediary)
endorsed to the Indenture Trustee or its custodian (or the related Securities Intermediary) or
endorsed in blank (and if delivered and endorsed to the Securities Intermediary, by continuous
credit thereof by book-entry to the related Trust Account);
(b) with respect to a certificated security (i) delivery of such certificated security
endorsed to, or registered in the name of, the Indenture Trustee or endorsed in blank to its
custodian or the related Securities Intermediary and the making by such Securities Intermediary of
appropriate entries in its records identifying such certificated securities as credited to the
related Trust Account, or (ii) by delivery thereof to a clearing corporation (as defined in
Section 8-102(a)(5) of the UCC) and the making by such clearing corporation of appropriate entries
in its records crediting the securities account of the related Securities Intermediary by the
amount of such certificated security and the making by such Securities Intermediary of appropriate
entries in its records identifying such certificated securities as credited to the related
Trust Account (all of the Trust Account Property described in
Subsections (a) and (b), Physical Property);
and, in any event, any such Physical Property in registered form shall be in the
name of the Indenture Trustee or its nominee or custodian (or the related Securities Intermediary);
and such additional or alternative procedures as may hereafter become appropriate to effect the
complete transfer of ownership of any such Trust Account Property to the Indenture Trustee or its
nominee or custodian, consistent with changes in applicable law or regulations or the
interpretation thereof;
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(c) with respect to any security issued by the U.S. Treasury, Fannie Mae or Freddie Mac that
is a book-entry security held through the Federal Reserve System pursuant to federal book-entry
regulations, the following procedures, all in accordance with applicable law, including applicable
federal regulations and Articles 8 and 9 of the UCC: the making by a Federal Reserve Bank of an
appropriate entry crediting such Trust Account Property to an account of the related Securities
Intermediary or the securities intermediary that is (x) also a participant pursuant to applicable
federal regulations and (y) is acting as securities intermediary on behalf of the Securities
Intermediary with respect to such Trust Account Property; the making by such Securities
Intermediary or securities intermediary of appropriate entries in its records crediting such
book-entry security held through the Federal Reserve System pursuant to federal book-entry
regulations and Articles 8 and 9 of the UCC to the related Trust Account; and such additional or
alternative procedures as may hereafter become appropriate to effect complete transfer of ownership
of any such Trust Account Property to the Indenture Trustee or its nominee or custodian, consistent
with changes in applicable law or regulations or the interpretation thereof; and
(d) with respect to any item of Trust Account Property that is an uncertificated security (as
defined in Section 8-102(a)(18) of the UCC) and that is not governed by clause (c) above,
registration in the records of the issuer thereof in the name of the related Securities
Intermediary, and the making by such Securities Intermediary of appropriate entries in its records
crediting such uncertificated security to the related Trust Account.
Designated Depository Institution: With respect to an Eligible Account, an institution whose
deposits are insured by the Bank Insurance Fund or the Savings Association Insurance Fund of the
FDIC, the long-term deposits of which shall be rated A or better by S&P or A2 or better by Moodys
and the short-term deposits of which shall be rated P-1 or better by Moodys and A-1 or better by
S&P, unless otherwise approved in writing by the Noteholder Agent and which is any of the
following: (A) a federal savings and loan association duly organized, validly existing and in good
standing under the federal banking laws, (B) an institution duly organized, validly existing and in
good standing under the applicable banking laws of any state, (C) a national banking
association duly organized, validly existing and in good standing under the federal banking
laws, (D) a principal subsidiary of a bank holding company or (E) approved in writing by the
Noteholder Agent and, in each case acting or designated by the Servicer as the depository
institution for the Eligible Account; provided, however, that any such institution or association
shall have combined capital, surplus and undivided profits of at least $50,000,000.
Depositor: Option One Loan Warehouse Corporation, a Delaware corporation, and any successors
thereto.
Determination Date: With respect to any Payment Date occurring on the 10th day of a month, the
last calendar day of the month immediately preceding the month of such Payment Date, and with
respect to any other Payment Date, as mutually agreed by the Servicer and the Noteholders.
Disposition: A Securitization, Whole Loan Sale transaction, or other disposition of Loans.
- 11 -
Disposition Agent: Lehman Brothers Bank and its successors and assigns acting at the
direction, and as agent, of the Majority Noteholders.
Disposition Participant: As applicable, with respect to a Disposition, any depositor with
respect to such Disposition, the Disposition Agent, the Majority Noteholders, the Issuer, the
Servicer, the related trustee and the related custodian, any nationally recognized credit rating
agency, the related underwriters, the related placement agent, the related credit enhancer, the
related whole-loan purchaser, the related purchaser of securities and/or any other party necessary
or, in the good faith belief of any of the foregoing, desirable to effect a Disposition.
Disposition Proceeds: With respect to a Disposition, (x) the proceeds of the Disposition
remitted to the Trust in respect of the Loans transferred on the date of and with respect to such
Disposition, including without limitation, any cash and Retained Securities created in any related
Securitization less all costs, fees and expenses incurred in connection with such Disposition,
including, without limitation, all amounts deposited into any reserve accounts upon the closing
thereof plus or minus (y) the net positive or net negative value of all Hedging Instruments
terminated in connection with such Disposition minus (z) all other amounts agreed upon in writing
by the Noteholder Agent, the Trust and the Servicer.
Distribution Account: The account established and maintained pursuant to Section 5.01(a)(2)
hereof.
Due Date: The day of the month on which the Monthly Payment is due from the Borrower with
respect to a Loan.
Due Diligence Fees: Shall have the meaning provided in Section 11.15 hereof.
Eligible Account: At any time, a deposit account or a securities account which is: (i)
maintained with a Designated Depository Institution; (ii) fully insured by either the Bank
Insurance Fund or the Savings Association Insurance Fund of the FDIC; (iii) a trust account (which
shall be a segregated trust account) maintained with the corporate trust department of a federal
or state chartered depository institution or trust company with trust powers and acting in its
fiduciary capacity for the benefit of the Indenture Trustee and the Issuer, which depository
institution or trust company shall have capital and surplus of not less than $50,000,000; or (iv)
with the prior written consent of the Noteholder Agent, any other deposit account or a securities
account.
Eligible Servicer: (a) Option One or (b) any other Person to which the Majority Noteholders
may consent in writing.
Escrow Payments: With respect to any Loan, the amounts constituting ground rents, taxes,
assessments, water rates, sewer rents, municipal charges, fire, hazard, liability and other
insurance premiums, condominium charges, and any other payments required to be escrowed by the
related Borrower with the lender or servicer pursuant to the Mortgage or any other document.
Event of Default: Either a Servicer Event of Default or an Event of Default under the
Indenture.
- 12 -
Exceptions: The meaning set forth in the Custodial Agreement.
Exceptions Report: The meaning set forth in the Custodial Agreement.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Fannie Mae: The Federal National Mortgage Association and any successor thereto.
FDIC: The Federal Deposit Insurance Corporation and any successor thereto.
Fidelity Bond: As described in Section 4.10 of the Servicing Addendum.
Final Put Date: The Put Date following the end of the Revolving Period on which the Majority
Noteholders (or the Market Value Agent on their behalf) exercises the Put Option with respect to
the entire outstanding Note Principal Balance.
Final Recovery Determination: With respect to any defaulted Loan or any Foreclosure Property,
a determination made by the Servicer that all Mortgage Insurance Proceeds, Liquidation Proceeds and
other payments or recoveries which the Servicer, in its reasonable good faith judgment, expects to
be finally recoverable in respect thereof have been so recovered. The Servicer shall maintain
records, prepared by a servicing officer of the Servicer, of each Final Recovery Determination.
First Lien Loan: A Loan secured by the lien on the related Mortgaged Property, subject to no
prior liens on such Mortgaged Property.
First Payment Default Loan: A Loan with respect to which the first Monthly
Payment due following either the date of origination of such Loan or the related Transfer Date
is not paid by the related Borrower and received by the Servicer within 45 days after date on which
it is or was due.
Foreclosed Loan: As of any Determination Date, any Loan that as of the end of the preceding
Remittance Period has been discharged as a result of (i) the completion of foreclosure or
comparable proceedings by the Servicer on behalf of the Issuer; (ii) the acceptance of the deed or
other evidence of title to the related Mortgaged Property in lieu of foreclosure or other
comparable proceeding; or (iii) the acquisition of title to the related Mortgaged Property by
operation of law.
Foreclosure Property: Any real property securing a Foreclosed Loan that has been acquired by
the Servicer on behalf of the Issuer through foreclosure, deed in lieu of foreclosure or similar
proceedings in respect of the related Loan.
Freddie Mac: The Federal Home Loan Mortgage Corporation and any successor thereto.
GAAP: Generally Accepted Accounting Principles as in effect in the United States.
Gross Margin: With respect to each ARM, the fixed percentage amount set forth in the related
Promissory Note.
- 13 -
Hedge Funding Requirement: With respect to any day, all amounts required to be paid or
delivered by the Issuer under any Hedging Instrument, whether in respect of payments thereunder or
in order to meet margin, collateral or other requirements thereof. Such amounts shall be calculated
by the Market Value Agent and the Indenture Trustee shall be notified of such amount by the Market
Value Agent.
Hedge Value: With respect to any Business Day and a specific Hedging Instrument, the positive
amount, if any, that is equal to the amount that would be paid to the Issuer in consideration of an
agreement between the Issuer and an unaffiliated third party, that would have the effect of
preserving for the Issuer the net economic equivalent, as of such Business Day, of all payment and
delivery requirements payable to and by the Issuer under such Hedging Instrument until the
termination thereof, as determined by the Market Value Agent in accordance with Section 6.03
hereof.
Hedging Counterparty: A Person (i) (A) the long-term and commercial paper or short-term
deposit ratings of which are acceptable to the Majority Noteholders and (B) which shall agree in
writing that, in the event that any of its long-term or commercial paper or short-term deposit
ratings cease to be at or above the levels deemed acceptable by the Majority Noteholders, it shall
secure its obligations in accordance with the request of the Majority Noteholders, (ii) that has
entered into a Hedging Instrument and (iii) that is acceptable to the Majority Noteholders.
Hedging Instrument: Any interest rate cap agreement, interest rate floor agreement, interest
rate swap agreement or other interest rate hedging agreement entered into by the Issuer with a
Hedging Counterparty, and which requires the Hedging Counterparty to deposit all amounts payable
thereby directly to the Collection Account. Each Hedging Instrument shall meet the requirements set
forth in Article VII hereof with respect thereto.
Indenture: The Indenture dated as of June 1, 2005, between the Issuer and the Indenture
Trustee and all supplements and amendments thereto.
Indenture Trustee: Wells Fargo Bank, N.A., a national banking association, as Indenture
Trustee under the Indenture, or any successor indenture trustee under the Indenture.
Indenture Trustee Fee: An annual fee of $5,000 payable by the Servicer in accordance with a
separate fee agreement between the Indenture Trustee and the Servicer and Section 5.01 hereof.
Independent: When used with respect to any specified Person, such Person (i) is in fact
independent of the Loan Originator, the Servicer, the Depositor or any of their respective
Affiliates, (ii) does not have any direct financial interest in, or any material indirect financial
interest in, the Loan Originator, the Servicer, the Depositor or any of their respective Affiliates
and (iii) is not connected with the Loan Originator, the Depositor, the Servicer or any of their
respective Affiliates, as an officer, employee, promoter, underwriter, trustee, partner, director
or Person performing similar functions; provided, however, that a Person shall not fail to be
Independent of the Loan Originator, the Depositor, the Servicer or any of their respective
Affiliates merely because such Person is the beneficial owner of 1% or less of any class of
- 14 -
securities issued by the Loan Originator, the Depositor, the Servicer or any of their respective
Affiliates, as the case may be.
Independent Accountants: A firm of nationally recognized certified public accountants which is
independent according to the provisions of SEC Regulation S-X, Article 2.
Index: With respect to each ARM, the index set forth in the related Promissory Note for the
purpose of calculating the Loan Interest Rate thereon.
Interest Carry-Forward Amount: With respect to any Payment Date, the excess, if any, of (A)
the Interest Payment Amount for such Payment Date plus the Interest Carry-Forward Amount for the
prior Payment Date over (B) the amount in respect of interest that is actually paid from the
Distribution Account on such Payment Date in respect of the interest for such Payment Date.
Interest Payment Amount: With respect to any Payment Date, the sum of the Daily Interest
Accrual Amounts for all days in the related Accrual Period.
LIBOR Business Day: Any day on which banks in the City of London are open and conducting
transactions in United States dollars.
LIBOR Determination Date: With respect to each Accrual Period, each day during such Accrual
Period.
LIBOR Margin: As defined in the Pricing Letter.
Lien: With respect to any asset, (a) any mortgage, lien, pledge, charge, security interest,
hypothecation, option or encumbrance of any kind in respect of such asset or (b) the interest of a
vendor or lessor under any conditional sale agreement, financing lease or other title retention
agreement relating to such asset.
Lifetime Cap: The provision in the Promissory Note for each ARM which limits the maximum Loan
Interest Rate over the life of such ARM.
Lifetime Floor: The provision in the Promissory Note for each ARM which limits the minimum
Loan Interest Rate over the life of such ARM.
Liquidated Loan: As defined in Section 4.03(c) of the Servicing Addendum.
Liquidated Loan Losses: With respect to any Determination Date, the difference between (i) the
aggregate Principal Balances as of such date of all Loans that became Liquidated Loans and (ii) all
Liquidation Proceeds allocable to principal received on or prior to such date.
Liquidation Proceeds: With respect to a Liquidated Loan, any cash amounts received in
connection with the liquidation of such Liquidated Loan, whether through trustees sale,
foreclosure sale or other disposition, any cash amounts received in connection with the management
of the Mortgaged Property from Defaulted Loans, any proceeds from Primary Insurance Policies and
any other amounts required to be deposited in the Collection Account
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pursuant to Section 5.01(b)(1) hereof, in each case other than Mortgage Insurance Proceeds and
Released Mortgaged Property Proceeds. Liquidation Proceeds shall also include any awards or
settlements in respect of the related Mortgage Property, whether permanent or temporary, partial or
entire, by exercise of the power of eminent domain or condemnation.
Loan: Any loan sold to the Trust hereunder and pledged to the Indenture Trustee, which loan
includes, without limitation, (i) a Promissory Note or Lost Note Affidavit and related Mortgage and
(ii) all right, title and interest of the Loan Originator in and to the Mortgaged Property covered
by such Mortgage. The term Loan shall be deemed to include the related Promissory Note or Lost Note
Affidavit, related Mortgage, all other Loan Documents and related Foreclosure Property, if any.
Loan Documents: With respect to a Loan, the documents comprising the Loan File for such Loan.
Loan File: With respect to each Loan, the Custodial Loan File and the Servicers Loan File.
Loan Interest Rate: With respect to each Loan, the annual rate of interest borne by the
related Promissory Note, as shown on the Loan Schedule, and, in the case of an ARM, as the same may
be periodically adjusted in accordance with the terms of such Loan.
Loan Originator: Option One and its permitted successors and assigns.
Loan Originator Call: The optional purchase by the Loan Originator of a Loan pursuant to
Section 3.08(b) hereof.
Loan Pool: As of any date of determination, the pool of all Loans conveyed to the Issuer
pursuant to this Agreement on all Transfer Dates up to and including such date of determination,
which Loans have not been released from the Lien of the Indenture pursuant to the terms of the
Basic Documents, together with the rights and obligations of a holder thereof, and the payments
thereon and proceeds therefrom received on and after the applicable Transfer Cut-off Date, as
identified from time to time on the Loan Schedule.
Loan Purchase and Contribution Agreement: The Third Amended and Restated Loan Purchase and
Contribution Agreement, between Option One, as seller, and the Depositor, as purchaser, dated as of
June 1, 2005, and all supplements and amendments thereto.
Loan Schedule: The schedule of Loans conveyed to the Issuer on the Closing Date and on each
Transfer Date and delivered to the Noteholder Agent and the Custodian in the form of a
computer-readable transmission specifying the information set forth on Exhibit D hereto and, with
respect to Wet Funded Loans, Exhibit C to the Custodial Agreement.
Loan-to-Value Ratio or LTV: With respect to any First Lien Loan, the ratio of the original
outstanding principal amount of such Loan to the Appraised Value of the Mortgaged Property at
origination.
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Lost Note Affidavit: With respect to any Loan as to which the original Promissory Note has
been permanently lost or destroyed and has not been replaced, an affidavit from the Loan Originator
certifying that the original Promissory Note has been lost, misplaced or destroyed (together with a
copy of the related Promissory Note and indemnifying the Issuer against any loss, cost or liability
resulting from the failure to deliver the original Promissory Note) in the form of Exhibit L
attached to the Custodial Agreement
LPA Assignment: The Assignment of Loans from Option One to the Depositor under the Loan
Purchase and Contribution Agreement.
Majority Certificateholders: Has the meaning set forth in the Trust Agreement.
Majority Noteholders: The holder or holders of in excess of 50% of the Note Principal Balance.
In the event of the release of the Lien of the Indenture in accordance with the terms thereof, the
Majority Noteholders shall mean the Majority Certificateholders.
Market Value: The market value of a Loan as of any Business Day as determined by the Market
Value Agent in accordance with Section 6.03 hereof.
Market Value Agent: Lehman Brothers Bank or an Affiliate thereof designated by Lehman Brothers
Bank in writing to the parties hereto and, in either case, its successors in interest.
Master Disposition Confirmation Agreement: The Fourth Amended and Restated Master Disposition
Confirmation Agreement, dated as of June 1, 2005, by and among Option One, the Depositor, the
Delaware statutory trusts listed on Schedule I thereto and each of the Lenders listed on Schedule
II thereto.
Maturity Date: With respect to the Notes, as set forth in the Indenture or such later date as
may be agreed in writing by the Majority Noteholders.
Maximum Note Principal Balance: As defined in Section 1.01 of the Note Purchase Agreement.
Monthly Advance: The aggregate of the advances made by the Servicer on any Remittance Date
pursuant to Section 4.14 of the Servicing Addendum.
Monthly Payment: The scheduled monthly payment of principal and/or interest required to be
made by a Borrower on the related Loan, as set forth in the related Promissory Note.
Monthly Remittance Amount: With respect to each Remittance Date, the sum, without duplication,
of (i) the aggregate payments on the Loans collected by the Servicer pursuant to Section
5.01(b)(1)(i) during the immediately preceding Remittance Period and (ii) the aggregate of amounts
deposited into the Collection Account pursuant to Section 5.01(b)(1)(ii) through 5.01(b)(1)(xi)
during the immediately preceding Remittance Period.
Moodys: Moodys Investors Service, Inc., or any successor thereto.
- 17 -
Mortgage: With respect to any Loan, the mortgage, deed of trust or other instrument securing
the related Promissory Note, which creates a first or second lien on the fee in real property
and/or a first or second lien on the leasehold estate in real property securing the Promissory Note
and the assignment of rents and leases related thereto.
Mortgage Insurance Policies: With respect to any Mortgaged Property or Loan, the insurance
policies required pursuant to Section 4.08 of the Servicing Addendum.
Mortgage Insurance Proceeds: With respect to any Mortgaged Property, all amounts collected in
respect of Mortgage Insurance Policies and not required either pursuant to applicable law or the
related Loan Documents to be applied to the restoration of the related Mortgaged Property or paid
to the related Borrower.
Mortgaged Property: With respect to a Loan, the related Borrowers fee and/or leasehold
interest in the real property (and/or all improvements, buildings, fixtures, building equipment and
personal property thereon (to the extent applicable) and all additions, alterations and
replacements made at any time with respect to the foregoing) and all other collateral securing
repayment of the debt evidenced by the related Promissory Note.
Net Liquidation Proceeds: With respect to any Payment Date, Liquidation Proceeds received
during the prior Remittance Period, net of any reimbursements to the Servicer made from such
amounts for any unreimbursed Servicing Compensation and Servicing Advances (including
Nonrecoverable Servicing Advances) made and any other fees and expenses paid in connection with the
foreclosure, inspection, conservation and liquidation of the related Liquidated Loans or
Foreclosure Properties pursuant to Section 4.03 of the Servicing Addendum.
Net Loan Losses: With respect to any Defaulted Loan that is subject to a modification pursuant
to Section 4.01 of the Servicing Addendum, an amount equal to the portion of the Principal Balance,
if any, released in connection with such modification.
Net Worth: With respect to any Person, the excess of total assets of such Person, over total
liabilities of such Person, determined in accordance with GAAP.
Nonrecoverable Monthly Advance: Any Monthly Advance previously made or proposed to be made
with respect to a Loan or Foreclosure Property that, in the good faith business judgment of the
Servicer, as evidenced by an Officers Certificate of a Servicing Officer delivered to the
Noteholder Agent, will not, or, in the case of a proposed Monthly Advance, would not be, ultimately
recoverable from the related late payments, Mortgage Insurance Proceeds, Liquidation Proceeds or
condemnation proceeds on such Loan or Foreclosure Property as provided herein.
Nonrecoverable Servicing Advance: With respect to any Loan or any Foreclosure Property, (a)
any Servicing Advance previously made and not reimbursed from late collections, condemnation
proceeds, Liquidation Proceeds, Mortgage Insurance Proceeds or the Released Mortgaged Property
Proceeds on the related Loan or Foreclosure Property or (b) a Servicing Advance proposed to be made
in respect of a Loan or Foreclosure Property either of which, in
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the good faith business judgment of the Servicer, as evidenced by an Officers Certificate of a
Servicing Officer delivered to the Noteholder Agent, would not be ultimately recoverable.
Nonutilization Fee: As defined in the Pricing Letter.
Note: The meaning assigned thereto in the Indenture.
Noteholder: The meaning assigned thereto in the Indenture.
Noteholder Agent: Lehman Brothers Bank and its successors and assigns acting at the direction,
and as agent, of the Majority Noteholders.
Note Interest Rate: With respect to each Accrual Period, a per annum interest rate equal to
One-Month LIBOR for the related LIBOR Determination Date plus the LIBOR Margin and, if applicable,
the Additional LIBOR Margin for such Accrual Period.
Note Principal Balance: With respect to the Notes, as of any date of determination (a) the sum
of the Additional Note Principal Balances purchased on or prior to such date pursuant to the Note
Purchase Agreement less (b) all amounts previously distributed in respect of principal of the Notes
on or prior to such day.
Note Purchase Agreement: The Note Purchase Agreement among the Purchaser, the Noteholder
Agent, the Issuer and the Depositor, dated as of June 1, 2005, and any amendments thereto.
Note Redemption Amount: As of any Determination Date, an amount without
duplication equal to the sum of (i) the then outstanding Note Principal Balance of the Notes, plus
the Interest Payment Amount for the related Payment Date, (ii) any Trust Fees and Expenses due and
unpaid on the related Payment Date, (iii) any Servicing Advance Reimbursement Amount as of such
Determination Date and (iv) all amounts due to Hedging Counterparties in respect of the termination
of all related Hedging Instruments.
Officers Certificate: A certificate signed by a Responsible Officer of the Depositor, the
Loan Originator, the Servicer or the Issuer, in each case, as required by this Agreement.
One-Month LIBOR: With respect to each Accrual Period, the rate determined by
the Noteholder Agent on the related LIBOR Determination Date on the basis of the offered rate
for one-month U.S. dollar deposits, as such rate appears on Telerate Page 3750 as of 11:00 a.m.
(London time) on such LIBOR Determination Date; provided that if such rate does not appear on
Telerate Page 3750, the rate for such date will be determined on the basis of the offered rates of
the Reference Banks for one-month U.S. dollar deposits, as of 11:00 a.m. (London time) on such
LIBOR Determination Date. In such event, the Noteholder Agent will request the principal London
office of each of the Reference Banks to provide a quotation of its rate. If on such LIBOR
Determination Date, two or more Reference Banks provide such offered quotations, One-Month LIBOR
for the related Accrual Period shall be the arithmetic mean of all such offered quotations (rounded
to the nearest whole multiple of 1/16%). If on such LIBOR Determination Date, fewer than two
Reference Banks provide such offered quotations,
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One-Month LIBOR for the Accrual Period shall be the higher of (i) LIBOR as determined on the
previous LIBOR Determination Date and (ii) the Reserve Interest Rate. Notwithstanding the
foregoing, if, under the priorities described above, One-Month LIBOR for a LIBOR Determination Date
would be based on One-Month LIBOR for the previous LIBOR Determination Date for the third
consecutive LIBOR Determination Date, the Noteholder Agent shall select an alternative comparable
index (over which the Noteholder Agent has no control), used for determining one-month Eurodollar
lending rates that is calculated and published (or otherwise made available) by an independent
party.
Opinion of Counsel: A written opinion of counsel who may be employed by the Servicer, the
Depositor, the Loan Originator or any of their respective Affiliates.
Option One: Option One Mortgage Corporation, a California corporation.
Overcollateralization Shortfall: With respect to any Business Day, an amount equal to the
positive difference, if any, between (a) the Note Principal Balance on such Business Day and (b)
the aggregate Collateral Value of all Loans in the Loan Pool as of such Business Day; provided,
however, that on (A) the termination of the Revolving Period, (B) the occurrence of a Rapid
Amortization Trigger, (C) the Payment Date on which the Trust is to be terminated pursuant to
Section 10.02 hereof or (D) the Final Put Date, the Overcollateralization Shortfall shall be equal
to the Note Principal Balance. Notwithstanding anything to the contrary herein, in no event shall
the Overcollateralization Shortfall, with respect to any Business Day, exceed the Note Principal
Balance as of such date. If as of such Business Day, no Rapid Amortization Trigger or Default under
this Agreement or the Indenture shall be in effect, the Overcollateralization Shortfall shall be
reduced (but in no event to an amount below zero) by all or any portion of the aggregate Hedge
Value as of such Payment Date as the Majority Noteholders may, in their sole discretion, designate
in writing.
Owner Trustee: means Wilmington Trust Company, a Delaware banking corporation, not in its
individual capacity but solely as Owner Trustee under this Agreement, and any successor owner
trustee under the Trust Agreement.
Owner Trustee Fee: The annual fee of $4,400 payable in equal monthly installments to the
Servicer pursuant to Section 5.01(c)(3)(i) which shall in turn pay such amount annually to the
Owner Trustee on the anniversary of the Closing Date occurring each year during the term of this
Agreement.
Paying Agent: The meaning assigned thereto in the Indenture.
Payment Date: Each of, (i) the 10th day of each calendar month commencing on the first such
10th day to occur after the first Transfer Date, or if any such day is not a Business Day, the
first Business Day immediately following such day, (ii) any day a Loan is sold pursuant to the
terms hereof, (iii) a Put Date as specified by the Majority Noteholders pursuant to Section 10.05
of the Indenture and (iv) an additional Payment Date pursuant to Section 5.01(c)(4)(i) and
5.01(c)(4)(iii). From time to time, the Majority Noteholders and the Issuer may agree, upon written
notice to the Owner Trustee and the Indenture Trustee, to additional Payment Dates in accordance
with Section 5.01(c)(4)(ii).
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Payment Statement: As defined in Section 6.01(b) hereof.
Percentage Interest: As defined in the Trust Agreement.
Performance Trigger: Shall exist if, as of any Determination Date, the aggregate Principal
Balance of all Loans that are equal to or greater than 30 days Delinquent as of such Determination
Date (including Defaulted Loans and Foreclosed Loans) divided by the Pool Principal Balance as of
such Determination Date is greater than or equal to 10%, provided, however, that a Performance
Trigger shall not occur if such percentage is reduced to less than 10% within one Business Day of
such Determination Date as the result of the exercise of a Servicer Call.
Periodic Cap: With respect to each ARM Loan and any Rate Change Date therefor, the annual
percentage set forth in the related Promissory Note, which is the maximum annual percentage by
which the Loan Interest Rate for such Loan may increase or decrease (subject to the Lifetime Cap or
the Lifetime Floor) on such Rate Change Date from the Loan Interest Rate in effect immediately
prior to such Rate Change Date.
Permitted Investments: Each of the following:
(a) Direct general obligations of the United States or the obligations of any agency or
instrumentality of the United States fully and unconditionally guaranteed, the timely payment or
the guarantee of which constitutes a full faith and credit obligation of the United States.
(b) Federal Housing Administration debentures rated Aa2 or higher by Moodys and AA or better
by S&P.
(c) Freddie Mac senior debt obligations rated Aa2 or higher by Moodys and AA or better by
S&P.
(d) Federal Home Loan Banks consolidated senior debt obligations rated Aa2 or higher by
Moodys and AA or better by S&P.
(e) Fannie Mae senior debt obligations rated Aa2 or higher by Moodys.
(f) Federal funds, certificates or deposit, time and demand deposits, and
bankers acceptances (having original maturities of not more than 365 days) of any domestic bank,
the short-term debt obligations of which have been rated A-1 or better by S&P and P-1 or better by
Moodys.
(g) Investment agreements approved by the Noteholder Agent provided:
(1) The agreement is with a bank or insurance company which has an unsecured, uninsured and
unguaranteed obligation (or claims-paying ability) rated Aa2 or better by Moodys and AA or better
by S&P, and
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(2) Monies invested thereunder may be withdrawn without any penalty, premium or charge upon
not more than one days notice (provided such notice may be amended or canceled at any time prior
to the withdrawal date), and
(3) The agreement is not subordinated to any other obligations of such insurance company or
bank, and
(4) The same guaranteed interest rate will be paid on any future deposits made pursuant to
such agreement, and
(5) The Indenture Trustee and the Noteholder Agent receive an opinion of counsel that such
agreement is an enforceable obligation of such insurance company or bank.
(h) Commercial paper (having original maturities of not more than 365 days) rated A-1 or
better by S&P and P-1 or better by Moodys.
(i) Investments in money market funds rated AAAM or AAAM-G by S&P and Aaa or P-1 by Moodys.
(j) Investments approved in writing by the Noteholder Agent;
provided that no instrument described above is permitted to evidence either the right to receive
(a) only interest with respect to obligations underlying such instrument or (b) both principal and
interest payments derived from obligations underlying such instrument and the interest and
principal payments with respect to such instrument provided a yield to maturity at par greater than
120% of the yield to maturity at par of the underlying
obligations; and provided, further, that no instrument described above may be purchased at a price
greater than par if such instrument may be prepaid or called at a price less than its purchase
price prior to stated maturity; and provided, further, that, with respect to any instrument
described above, such instrument qualifies as a permitted investment within the meaning of
Section 860G(a)(5) of the Code and the regulations thereunder.
Person: Any individual, corporation, partnership, joint venture, limited liability company,
association, joint-stock company, trust, national banking association, unincorporated organization
or government or any agency or political subdivision thereof.
Physical Property: As defined in clause (b) of the definition of Delivery above.
Pool Principal Balance: With respect to any Determination Date, the aggregate Principal
Balances of the Loans as of such Determination Date.
Prepaid Installment: With respect to any Loan, any installment of principal thereof and
interest thereon received prior to the scheduled Due Date for such installment, intended by the
Borrower as an early payment thereof and not as a Prepayment with respect to such Loan.
Prepayment: Any payment of principal of a Loan which is received by the Servicer in advance of
the scheduled due date for the payment of such principal (other than the principal
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portion of any Prepaid Installment), and the proceeds of any Mortgage Insurance Policy which are to
be applied as a payment of principal on the related Loan shall be deemed to be Prepayments for all
purposes of this Agreement.
Preservation Expenses: Expenditures made by the Servicer in connection with a foreclosed Loan
prior to the liquidation thereof, including, without limitation, expenditures for real estate
property taxes, hazard insurance premiums, property restoration or preservation.
Pricing Letter: The pricing letter among the Issuer, the Depositor, Option One and the
Indenture Trustee, dated the date hereof and any amendments thereto.
Primary Insurance Policy: A policy of primary mortgage guaranty insurance issued by a
Qualified Insurer pursuant to Section 4.06 of the Servicing Addendum.
Principal Balance: With respect to any Loan or related Foreclosure Property, (i) at the
Transfer Cut-off Date, the Transfer Cut-off Date Principal Balance and (ii) with respect to any
other date of determination, the outstanding unpaid principal balance of the Loan as of the end of
the preceding Remittance Period (after giving effect to all payments received thereon and the
allocation of any Net Loan Losses with respect thereto for a Defaulted Loan prior to the end of
such Remittance Period); provided, however, that any Liquidated Loan shall be deemed to have a Principal Balance of zero.
Proceeding: Any suit in equity, action at law or other judicial or administrative proceeding.
Promissory Note: With respect to a Loan, the original executed promissory note or other
evidence of the indebtedness of the related Borrower or Borrowers.
Purchaser: The meaning set forth in the Note Purchase Agreement.
Put/Call Loan: Any (i) Loan that has become 30 or more days (but less than 60 days)
Delinquent, (ii) Loan that has become 60 or more days (but less than 90 days) Delinquent, (iii)
Loan that has become 90 or more days Delinquent, (iv) Loan that is a Defaulted Loan, (v) Loan that
has been in default for a period of 30 days or more (other than a Loan referred to in clause (i),
(ii), (iii) or (iv) hereof), (vi) Loan that does not meet criteria established by independent
rating agencies or surety agency conditions for Dispositions which criteria have been established
at the related Transfer Date and may be modified only to match changed criteria of independent
rating agencies or surety agents, or (vii) Loan that is inconsistent with the intended tax status
of a Securitization.
Put Date: Any date on which all or a portion of the Notes are to be purchased by the Issuer as
a result of the exercise of the Put Option.
Put Option: The right of the Majority Noteholders to require the Issuer to repurchase all or a
portion of the Notes in accordance with Section 10.04 of the Indenture.
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QSPE Affiliate: Any of Option One Owner Trust 2001-1A, Option One Owner Trust 2001-1B, Option
One Owner Trust 2002-3, Option One Owner Trust 2003-4, Option One Owner Trust 2003-5, Option One
Owner Trust 2005-6 or any other Affiliate which is a qualified special purpose entity in
accordance with Financial Accounting Standards Boards Statement No. 140 or 125.
Qualified Insurer: An insurance company duly qualified as such under the laws of the states in
which the Mortgaged Property is located, duly authorized and licensed in such states to transact
the applicable insurance business and to write the insurance provided and that meets the
requirements of Fannie Mae and Freddie Mac.
Qualified Substitute Loan: A Loan or Loans substituted for a Deleted Loan pursuant to Section
3.06 hereof, which (i) has or have been approved in writing by the Majority Noteholders and (ii)
complies or comply as of the date of substitution with each representation and warranty set forth
in Exhibit E and is or are not 30 or more days Delinquent as of the date of substitution for such
Deleted Loan or Loans.
Rapid Amortization Trigger: Shall exist, as of any Determination Date, if the aggregate
Principal Balance of all Loans that are Delinquent greater than or equal to 30
days (including Defaulted Loans and Foreclosed Loans) as of such Determination Date is greater
than or equal to 15% of the Pool Principal Balance; provided, however, that a Rapid Amortization
Trigger shall not occur if such percentage is reduced to less than 15% within one Business Day of
such Determination Date as a result of the exercise of a Servicer Call. A Rapid Amortization
Trigger shall continue to exist until it is Deemed Cured.
Rate Change Date: The date on which the Loan Interest Rate of each ARM is subject to
adjustment in accordance with the related Promissory Note.
Rating Agencies: S&P and Moodys or such other nationally recognized credit rating agencies
as may from time to time be designated in writing by the Majority Noteholders in their sole
discretion.
Record Date: With respect to each Payment Date, the close of business of the immediately
preceding Business Day.
Reference Banks: Deutsche Bank AG, Barclays Bank PLC, The Tokyo Mitsubishi Bank and National
Westminster Bank PLC and their successors in interest; provided, however, that if the Noteholder
Agent determines that any of the foregoing banks are not suitable to serve as a Reference Bank,
then any leading banks selected by the Noteholder Agent with the approval of the Issuer, which
approval shall not be unreasonably withheld, which are engaged in transactions in Eurodollar
deposits in the international Eurocurrency market (i) with an established place of business in
London and (ii) which have been designated as such by the Noteholder Agent with the approval of the
Issuer, which approval shall not be unreasonably withheld.
Refinanced Loan: A Loan the proceeds of which were not used to purchase the related Mortgaged
Property.
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Released Mortgaged Property Proceeds: With respect to any Loan, proceeds received by the
Servicer in connection with (i) a taking of an entire Mortgaged Property by exercise of the power
of eminent domain or condemnation or (ii) any release of part of the Mortgaged Property from the
lien of the related Mortgage, whether by partial condemnation, sale or otherwise; which proceeds in
either case are not released to the Borrower in accordance with applicable law and/or Accepted
Servicing Practices.
Remittance Date: The Business Day immediately preceding each Payment Date.
Remittance Period: With respect to any Payment Date, the period commencing
immediately following the Determination Date for the preceding Payment Date (or, in the case of the
initial Payment Date, commencing immediately following the initial Transfer Cut-off Date) and
ending on and including the related Determination Date.
Repurchase Price: With respect to a Loan the sum of (i), the Principal Balance thereof as of
the date of purchase or repurchase, plus (ii) all accrued and unpaid interest on such Loan to the
date of purchase or repurchase computed at the applicable Loan Interest Rate, plus (iii) the amount
of any unreimbursed Servicing Advances made by the Servicer with respect to such Loan (after
deducting therefrom any amounts received in respect of such purchased or repurchased Loan and being
held in the Collection Account for future distribution to the extent such amounts represent
recoveries of principal not yet applied to reduce the related Principal Balance or interest (net of
the Servicing Fee) for the period from and after the date of repurchase). The Repurchase Price
shall be (i) increased by the net negative value or (ii) decreased by the net positive value of all
Hedging Instruments terminated with respect to the purchase of such Loan. To the extent the
Servicer does not reimburse itself for amounts, if any, in respect of the Servicing Advance
Reimbursement Amount pursuant to Section 5.01(c)(1) hereof, with respect to such Loan, the
Repurchase Price shall be reduced by such amounts.
Reserve Interest Rate: With respect to any LIBOR Determination Date, the rate per annum that
the Noteholder Agent determines to be either (i) the arithmetic mean (rounded to the nearest whole
multiple of 1/16%) of the one-month U.S. dollar lending rates which New York City banks selected by
the Noteholder Agent are quoting on the relevant LIBOR Determination Date to the principal London
offices of leading banks in the London interbank market or (ii) in the event that the Noteholder
Agent can determine no such arithmetic mean, the lowest one-month U.S. dollar lending rate which
New York City banks selected by the Noteholder Agent are quoting on such LIBOR Determination Date
to leading European banks.
Responsible Officer: When used with respect to the Indenture Trustee or Custodian, any officer
within the corporate trust office of such Person, including any Vice President, Assistant Vice
President, Secretary, Assistant Secretary or any other officer of such Person customarily
performing functions similar to those performed by any of the above designated officers and also,
with respect to a particular matter, any other officer to whom such matter is referred because of
such officers knowledge of and familiarity with the particular subject. When used with respect to
the Issuer, any officer of the Owner Trustee who is authorized to act for the Owner Trustee in
matters relating to the Issuer and who is identified on the list of Authorized Officers delivered
by the Owner Trustee to the Indenture Trustee on the date hereof (as such list
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may be modified or supplemented from time to time thereafter) and, so long as the Administration
Agreement is in effect, any Vice President or more senior officer of the Administrator who is
authorized to act for the Administrator in matters relating to the Issuer and to be acted upon by
the Administrator pursuant to the Administration Agreement and who is identified on the list of
Responsible Officers delivered by the Administrator to the Owner Trustee on the date hereof (as
such list may be modified or supplemented from time to time thereafter). When used with respect to
the Depositor, the Loan Originator or the Servicer, the President, any Vice President, or the
Treasurer.
Retained Securities: With respect to a Securitization, any subordinated securities issued or
expected to be issued, or excess collateral value retained or expected to be retained, in
connection therewith to the extent the Depositor, the Loan Originator or an Affiliate thereof
retains, instead of sells, such securities.
Retained Securities Value: With respect to any Business Day and a Retained Security, the
market value thereof as determined by the Market Value Agent in accordance with Section 6.03(d)
hereof.
Revolving Period: With respect to the Notes, the period commencing on June 30, 2005 and ending
on the earlier of (i) 364 days after such date, and (ii) the date on which the Revolving Period is
terminated pursuant to Section 2.07.
Sales Price: For any Transfer Date, the sum of the Collateral Values with respect to each Loan
conveyed on such Transfer Date as of such Transfer Date.
S&SA Assignment: An Assignment, in the form of Exhibit C hereto, of Loans and other property
from the Depositor to the Issuer pursuant to this Agreement.
Second Lien Loan: A Loan secured by the lien on the Mortgaged Property, subject to one Senior
Lien on such Mortgaged Property.
Securities: The Notes and the Trust Certificates.
Securities Intermediary: A securities intermediary as defined in Section 8-102(a)(14) of the
UCC that is holding a Trust Account for the Indenture Trustee as the sole entitlement holder as
defined in Section 8-102(a)(7) of the UCC.
Securitization: A sale or transfer of Loans by the Issuer at the direction of the Majority
Noteholders to any other Person in order to effect one or a series of structured-finance
securitization transactions, including but not limited to transactions involving the issuance of
securities which may be treated for federal income tax purposes as indebtedness of Option One or
one or more of its wholly-owned subsidiaries.
Securityholder: Any Noteholder or Certificateholder.
Senior Lien: With respect to any Second Lien Loan, the mortgage loan having a senior priority
lien on the related Mortgaged Property.
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Servicer: Option One, in its capacity as the servicer hereunder, or any successor appointed
as herein provided.
Servicer Event of Default: As described in Section 9.01 hereof.
Servicer Put: The mandatory repurchase by the Servicer, at the option of the Majority
Noteholders, of a Loan pursuant to Section 3.08(a) hereof.
Servicers Fiscal Year: May 1st of each year through April 30th of
the following year.
Servicers Loan File: With respect to each Loan, the file held by the Servicer, consisting of
all documents (or electronic images thereof) relating to such Loan, including, without limitation,
copies of all of the Loan Documents included in the related Custodial Loan File.
Servicers Remittance Report: A report prepared and computed by the Servicer in substantially
the form of Exhibit B attached hereto.
Servicing Addendum: The terms and provisions set forth in Exhibit F attached hereto relating
to the administration and servicing of the Loans.
Servicing Advance Reimbursement Amount: With respect to any Determination Date, the amount of
any Servicing Advances that have not been reimbursed as of such date, including Nonrecoverable
Servicing Advances.
Servicing Advances: As defined in Section 4.14(b) of the Servicing Addendum.
Servicing Compensation: The Servicing Fee and other amounts to which the Servicer is entitled
pursuant to Section 4.15 of the Servicing Addendum.
Servicing Fee: As to each Loan (including any Loan that has been foreclosed and for which the
related Mortgaged Property has become a Foreclosure Property, but excluding any Liquidated Loan),
the fee payable monthly to the Servicer, which shall be the product of 0.50% (50 basis points), or
such other lower amount as shall be mutually agreed to in writing by the Majority Noteholders and
the Servicer, and the Principal Balance of such Loan as of the beginning of the related Remittance
Period, divided by 12. The Servicing Fee shall only be payable to the extent interest is collected
on a Loan.
Servicing Officer: Any officer of the Servicer or Subservicer involved in, or responsible for,
the administration and servicing of the Loans whose name and specimen signature appears on a list
of servicing officers annexed to an Officers Certificate furnished by the Servicer or the
Subservicer, respectively, on the date hereof to the Issuer and the Indenture Trustee, on behalf of
the Noteholders, as such list may from time to time be amended.
S&P: Standard & Poors Rating Services, a division of The McGraw-Hill
Companies, Inc.
State: Means any one of the states of the United States of America or the District of
Columbia.
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Subservicer: Any Person with which the Servicer has entered into a Subservicing Agreement and
which is an Eligible Servicer and satisfies any requirements set forth in Section 4.22 of the
Servicing Addendum in respect of the qualifications of a Subservicer.
Subservicing Account: An account established by a Subservicer pursuant to a Subservicing Agreement, which account must be an Eligible Account.
Subservicing Agreement: Any agreement between the Servicer and any Subservicer relating to
subservicing and/or administration of any or all Loans as provided in Section 4.22 in the Servicing
Addendum.
Subsidiary: With respect to any Person, any corporation, partnership or other entity of which
at least a majority of the securities or other ownership interests having by the terms thereof
ordinary voting power to elect a majority of the board of directors or other persons performing
similar functions of such corporation, partnership or other entity (irrespective of whether or not
at the time securities or other ownership interests of any other class or classes of such
corporation, partnership or other entity shall have or might have voting power by reason of the
happening of any contingency) is at the time directly or indirectly owned or controlled by such
Person or one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of
such Person.
Substitution Adjustment: As to any date on which a substitution occurs pursuant to Section
2.05 or Section 3.06 hereof, the amount, if any, by which (a) the aggregate principal balance of
any Qualified Substitute Loans (after application of principal payments received on or before the
related Transfer Cut-off Date) is less than (b) the aggregate of the Principal Balances of the
related Deleted Loans as of the first day of the month in which such substitution occurs.
Tangible Net Worth: With respect to any Person, as of any date of determination, the
consolidated Net Worth of such Person and its Subsidiaries, less (i) the consolidated net book
value of all assets of such Person and its Subsidiaries (to the extent reflected as
an asset in the balance sheet of such Person or any Subsidiary at such date) which will be
treated as intangibles under GAAP, including, without limitation, such items as deferred financing
expenses, net leasehold improvements, good will, trademarks, trade names, service marks,
copyrights, patents, licenses and unamortized debt discount and expense; provided, that residual
securities issued by such Person or its Subsidiaries shall not be treated as intangibles for
purposes of this definition; (ii) any loans outstanding to any officer or director of Option One or
its Affiliates; and (iii) any receivables from H&R Block, Inc.
Termination Price: As of any Determination Date, an amount without duplication equal to the
greater of (A) the Note Redemption Amount and (B) the sum of (i) the Principal Balance of each Loan
included in the Trust as of the end of the preceding Remittance Period; (ii) all unpaid interest
accrued on the Principal Balance of each such Loan at the related Loan Interest Rate to the end of
the preceding Remittance Period; and (iii) the aggregate fair market value of each Foreclosure
Property included in the Trust as of the end of the preceding Remittance Period, as determined by
an Independent appraiser acceptable to the Majority Noteholders as of a date not more than 30 days
prior to such Payment Date.
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Transfer Cut-off Date: With respect to each Loan, (i) the first day of the month in which the
Transfer Date with respect to such Loan occurs or if originated in such month, the date of
origination or (ii) in the case of a purchase from a QSPE Affiliate, unless otherwise specified in
the confirmation delivered in accordance with the Master Disposition Confirmation Agreement in
connection with such purchase, the related Transfer Date.
Transfer Cut-off Date Principal Balance: As to each Loan, its Principal Balance as of the
opening of business on the Transfer Cut-off Date (after giving effect to any payments received on
the Loan before the Transfer Cut-off Date).
Transfer Date: With respect to each Loan, the day such Loan is either (i) sold and conveyed
to the Depositor by the Loan Originator pursuant to the Loan Purchase and Contribution Agreement
and to the Issuer by the Depositor pursuant to Section 2.01 hereof or (ii) sold to the Issuer
pursuant to the Master Disposition Confirmation Agreement, which results in an increase in the Note
Principal Balance by the related Additional Note Principal Balance. With respect to any Qualified
Substitute Loan, the Transfer Date shall be the day such Loan is conveyed to the Trust pursuant to
Section 2.05 or 3.06.
Transfer Obligation: The obligation of the Loan Originator under Section 5.06 hereof to make
certain payments in connection with Dispositions and other related matters.
Transfer Obligation Account: The account designated as such, established and maintained
pursuant to Section 5.05 hereof.
Transfer Obligation Target Amount: With respect to any Payment Date, the cumulative total of
all withdrawals pursuant to Section 5.05(e), 5.05(f), 5.05(g), and 5.05(h) hereof from the Transfer
Obligation Account to but not including such Payment Date minus any amount withdrawn from the
Transfer Obligation Account to return to the Loan Originator pursuant to Section 5.05(i)(i).
Trust: Option One Owner Trust 2005-6, the Delaware statutory trust created pursuant to the
Trust Agreement.
Trust Agreement: The Trust Agreement dated as of June 1, 2005 between the Depositor and the
Owner Trustee.
Trust Account Property: The Trust Accounts, all amounts and investments held from time to
time in the Trust Accounts and all proceeds of the foregoing.
Trust Accounts: The Distribution Account, the Collection Account and the Transfer Obligation
Account.
Trust Certificate: The meaning assigned thereto in the Trust Agreement.
Trust Estate: Shall mean the assets subject to this Agreement, the Trust Agreement and the
Indenture and assigned to the Trust, which assets consist of: (i) such Loans as from time to time
are subject to this Agreement as listed in the Loan Schedule, as the same may be amended
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or supplemented on each Transfer Date and by the removal of Deleted Loans and Unqualified Loans and
by the addition of Qualified Substitute Loans, together with the Servicers Loan Files and the
Custodial Loan Files relating thereto and all proceeds thereof, (ii) the Mortgages and security
interests in the Mortgaged Properties, (iii) all payments in respect of interest and principal with
respect to each Loan received on or after the related Transfer Cut-off Date, (iv) such assets as
from time to time are identified as Foreclosure Property, (v) such assets and funds as are from
time to time deposited in the Distribution Account, Collection Account and the Transfer Obligation
Account, including, without limitation, amounts on deposit in such accounts that are invested in
Permitted Investments, (vi) lenders rights under all Mortgage Insurance Policies and to any
Mortgage Insurance Proceeds, (vii) Net Liquidation Proceeds and Released Mortgaged Property
Proceeds, (viii) all right, title and interest of the Trust (but none of the obligations) in and to
the obligations of Hedging Counterparties under Hedging Instruments and (ix) all right, title and
interest of each of the Depositor, the Loan Originator and the Trust in and under the Basic
Documents including, without limitation, the obligations of the Loan Originator under the Loan
Purchase and Contribution Agreement and/or the Master Disposition Confirmation Agreement, and all
proceeds of any of the foregoing.
Trust Fees and Expenses: As of each Payment Date, an amount equal to the Servicing
Compensation, the Owner Trustee Fee, the Indenture Trustee Fee and the
Custodian Fee, if any, and any expenses of the Servicer, the Owner Trustee, the Indenture
Trustee or the Custodian.
UCC: The Uniform Commercial Code as in effect from time to time in the State of New York.
UCC Assignment: A form UCC 2 or UCC 3 statement meeting the requirements of the Uniform
Commercial Code of the relevant jurisdiction to reflect an assignment of a secured partys interest
in collateral.
UCC-1 Financing Statement: A financing statement meeting the requirements of the Uniform
Commercial Code of the relevant jurisdiction.
Underwriting Guidelines: The underwriting guidelines (including the loan origination
guidelines) of the Loan Originator, as the same may be amended from time to time with notice to the
Noteholder Agent.
Unfunded Transfer Obligation: With respect to any date of determination, an amount equal to
the greater of:
(A) the sum of (i) 10% of the aggregate Sales Prices of all Loans owned by the
Issuer at the close of business on the immediately preceding day minus all payments actually made
by the Loan Originator in respect of the Unfunded Transfer Obligation pursuant to Section 5.06 with
respect to such Loans since the related Transfer Dates plus (ii) 10% of the aggregate Sales Prices
of all Loans purchased by the Issuer on such date of determination; and
(B) 10% of the average daily Sales Prices (as of the related Transfer Date) of all Loans owned by the Issuer over the 90
day period immediately preceding such date of determination minus all payments actually made by the
Loan Originator in respect of the Unfunded Transfer Obligation pursuant to Section 5.06 with
respect to such Loans.
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Unfunded Transfer Obligation Percentage: As of any date of determination, an amount equal to
(x) the Unfunded Transfer Obligation as of such date, divided by (y) 100% of the aggregate
Collateral Values as of the related Transfer Date of all Loans in the Loan Pool.
Unqualified Loan: As defined in Section 3.06(a) hereof.
Wet Funded Custodial File Delivery Date: With respect to a Wet Funded Loan, the fifteenth
Business Day after the related Transfer Date, provided that if a Default or Event of Default shall
have occurred, the Wet Funded Custodial File Delivery Date shall be the earlier of
(x) such fifteenth Business Day and (y) the fifth day after the occurrence of such
event.
Wet Funded Loan: A Loan for which the Custodian has not received the related
Custodial Loan File as of the related Transfer Date and for which the Custodian has
issued a Wet Funded Trust Receipt with respect thereto.
Whole Loan Sale: A Disposition of Loans pursuant to a whole-loan sale.
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Section 1.02 |
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Other Definitional Provisions. |
(a) Any agreement, instrument or statute defined or referred to herein or in any instrument or
certificate delivered in connection herewith means such agreement, instrument or statute as from
time to time amended, modified or supplemented and includes (in the case of agreements or
instruments) references to all attachments thereto and instruments incorporated therein; references
to a Person are also to its permitted successors and assigns.
(b) All terms defined in this Agreement shall have the defined meanings when used in any
certificate or other document made or delivered pursuant hereto unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other document made or delivered
pursuant hereto or thereto, accounting terms not defined in this Agreement or in any such
certificate or other document, and accounting terms partly defined in this Agreement or in any such
certificate or other document to the extent not defined, shall have the respective meanings given
to them under GAAP. To the extent that the definitions of accounting terms in this Agreement or in
any such certificate or other document are inconsistent with the meanings of such terms under GAAP,
the definitions contained in this Agreement or in any such certificate or other document shall
control.
(d) The words hereof, herein, hereunder and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular provision of this
Agreement; Article, Section, Schedule and Exhibit references contained in this Agreement are
references to Articles, Sections, Schedules and Exhibits in or to this Agreement unless otherwise
specified; and the term including shall mean including without limitation.
(e) The definitions contained in this Agreement are applicable to the singular as well as the
plural forms of such terms and to the masculine as well as to the feminine and neuter genders of
such terms.
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ARTICLE II
CONVEYANCE OF THE TRUST ESTATE; ADDITIONAL NOTE PRINCIPAL BALANCES
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Section 2.01 |
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Conveyance of the Trust Estate; Additional Note Principal Balances. |
(a) (i) On the terms and conditions of this Agreement, on each
Transfer Date during the Revolving Period, the Depositor agrees to offer for sale and to sell
a portion of each of the Loans and contribute to the capital stock of the Issuer the balance of
each of the Loans and deliver the related Loan Documents to or at the direction of the Issuer. To
the extent the Issuer has or is able to obtain sufficient funds under the Note Purchase Agreement
and the Notes for the purchase thereof, the Issuer agrees to purchase such Loans offered for sale
by the Depositor. On the terms and conditions of this Agreement and the Master Disposition
Confirmation Agreement, on each Transfer Date during the Revolving Period, the Issuer may acquire
Loans from another QSPE Affiliate of the Loan Originator to the extent the Issuer has or is able to
obtain sufficient funds for the purchase thereof.
(ii) In consideration of the payment of the Additional Note Principal Balance
pursuant to Section 2.06 hereof and as a contribution to the assets of the Issuer,
the Depositor as of the related Transfer Date and concurrently with the execution
and delivery hereof, hereby sells, transfers, assigns, sets over and otherwise
conveys to the Issuer, without recourse, but subject to the other terms and
provisions of this Agreement, all of the right, title and interest of the Depositor
in and to the Trust Estate.
(iii) During the Revolving Period, on each Transfer Date, subject to the
conditions precedent set forth in Section 2.06 and in accordance with the
procedures set forth in Section 2.01(c), the Depositor, pursuant to an S&SA
Assignment, will assign to the Issuer without recourse all of its respective right,
title and interest, in and to the Loans and all proceeds thereof listed on the Loan
Schedule attached to such S&SA Assignment, including all interest and principal
received by the Loan Originator, the Depositor or the Servicer on or with respect
to the Loans on or after the related Transfer Cut-off Date, together with all
right, title and interest in and to the proceeds of any related Mortgage Insurance
Policies and all of the Depositors rights, title and interest in and to (but none
of its obligations under) the Loan Purchase and Contribution Agreement and all
proceeds of the foregoing.
(iv) The foregoing sales, transfers, assignments, set overs and conveyances do
not, and are not intended to, result in a creation or an assumption by the Issuer
of any of the obligations of the Depositor, the Loan Originator or any other Person
in connection with the Trust Estate or under any agreement or instrument relating
thereto except as specifically set forth herein.
(b) As of the Closing Date and as of each Transfer Date, the Issuer acknowledges (or will
acknowledge pursuant to the S&SA Assignment) the conveyance to it of the Trust Estate, including
all rights, title and interest of the Depositor and any QSPE Affiliate in
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and to the Trust Estate, receipt of which is hereby acknowledged by the Issuer. Concurrently with
such delivery, as of the Closing Date and as of each Transfer Date,
pursuant to the Indenture the Issuer pledges the Trust Estate to the Indenture Trustee. In
addition, concurrently with such delivery and in exchange therefor, the Owner Trustee, pursuant to
the instructions of the Depositor, has executed (not in its individual capacity, but solely as
Owner Trustee on behalf of the Issuer) and caused the Trust Certificates to be authenticated and
delivered to or at the direction of the Depositor.
(c) (i) Pursuant to and subject to the Note Purchase Agreement, the Issuer may, at its sole
option, from time to time request advances on any Transfer Date of Additional Note Principal
Balances.
(ii) Notwithstanding anything to the contrary herein, in no event shall the
Purchaser be required to advance Additional Note Principal Balances on a Transfer
Date if the conditions precedent to a transfer of the Loans under Section 2.06 and
the conditions precedent to the purchase of Additional Note Principal Balances set
forth in Section 3.01 of the Note Purchase Agreement have not been fulfilled.
(iii) The Servicer shall appropriately note such Additional Note Principal
Balance (and the increased Note Principal Balance) in the next succeeding Payment
Statement; provided, however, that failure to make any such notation in such
Payment Statement or any error in such notation shall not adversely affect any
Noteholders rights with respect to its Note Principal Balance and its right to
receive interest and principal payments in respect of the Note Principal Balance
held by such Noteholder. Each Noteholder shall record on the schedule attached to
such Noteholders Note, the date and amount of any Additional Note Principal
Balance advanced by it; provided, that failure to make such recordation on such
schedule or any error in such schedule shall not adversely affect any Noteholders
rights with respect to its Note Principal Balance and its right to receive interest
payments in respect of the Note Principal Balance held by such Noteholder.
(iv) Absent manifest error, the Note Principal Balance of each Note as set
forth in the Noteholders records shall be binding upon the Noteholders and the
Trust, notwithstanding any notation made by the Servicer in its Payment Statement
pursuant to the preceding paragraph.
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Section 2.02 |
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Ownership and Possession of Loan Files. |
With respect to each Loan, as of the related Transfer Date the ownership of the related
Promissory Note, the related Mortgage and the contents of the related Servicers Loan File and
Custodial Loan File shall be vested in the Trust for the benefit of the Securityholders, although
possession of the Servicers Loan File on behalf of and for the benefit of the Securityholders
shall remain with the Servicer, and the Custodian shall take possession of the Custodial Loan Files
as contemplated in Section 2.05 hereof.
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Section 2.03 |
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Books and Records; Intention of the Parties. |
(a) As of each Transfer Date, the sale of each of the Loans conveyed by the Depositor on such
Transfer Date shall be reflected on the balance sheets and other financial statements of the
Depositor and the Loan Originator, as the case may be, as a sale of assets and a contribution to
capital by the Loan Originator and the Depositor, as applicable, under GAAP. Each of the Servicer
and the Custodian shall be responsible for maintaining, and shall maintain, a complete set of books
and records for each Loan which shall be clearly marked to reflect the ownership of each Loan, as
of the related Transfer Date, by the Issuer and for the benefit of the Securityholders.
(b) It is the intention of the parties hereto that, other than for federal, state and local
income or franchise tax purposes (as to which no treatment is herein contemplated), the transfers
and assignments of the Trust Estate on the initial Closing Date, on each Transfer Date and as
otherwise contemplated by the Basic Documents and the Assignments shall constitute a sale of the
Trust Estate including, without limitation, the Loans and all other property comprising the Trust
Estate specified in Section 2.01(a) hereof, from the Depositor to the Issuer and such property
shall not be property of the Depositor. The parties hereto shall treat the Notes as indebtedness
for federal, state and local income and franchise tax purposes.
(c) Each transfer and assignment contemplated by this Agreement shall constitute a sale in
part, and a contribution to capital in part, of the Loans from the Depositor to the Issuer. Upon
the consummation of those transactions the Loans shall be owned by and the property of the Issuer,
and not owned by or otherwise the property of, the Depositor for any purpose including without
limitation any bankruptcy, receivership, insolvency, liquidation, conservatorship or similar
proceeding relating to either the Depositor or the Issuer or any property of either. The parties
hereto hereby acknowledge that the Issuer and its creditors are relying, and its subsequent
transferees and their creditors will rely, on such sales and contributions being recognized as
such. If (A) any transfer and assignment contemplated hereby is subsequently determined for any
reason under any circumstances to constitute a transfer to secure a loan rather than a sale in
part, and a contribution in part, of the Loans or (B) any Loan is otherwise held to be property of
the Depositor, then this Agreement (i) is and shall be a security agreement within the meaning of
Articles 8 and 9 of the applicable Uniform Commercial Code and (ii) shall constitute a grant by the
Depositor to the Issuer of a security interest in all of the Depositors right, title and other
interest in and to the Loans and the proceeds and other distributions and payments and general
intangibles and other rights and benefits in respect thereof. For purposes of perfecting that
security interest under any applicable Uniform Commercial Code, the possession by, and notices and
other communications with respect thereto to and from, the Issuer or any agent thereof, of money,
notes and other documents evidencing ownership of and other rights with respect to the Loans shall
be possession by the secured party or purchaser and required notices and other communications to
and from applicable financial intermediaries, bailees and other agents.
(d) The Depositor at its expense shall take such actions as may be necessary or reasonably
requested by the Issuer to ensure the perfection, and priority to
all other security interests, of the security interest described in the preceding paragraph
including without
- 34 -
limitation the execution and delivery of such financing statements and amendments thereto,
continuation statements and other documents as the Issuer may reasonably request.
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Section 2.04 |
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Delivery of Loan Documents. |
(a) The Loan Originator shall, prior to the related Transfer Date (or, in the case of each Wet
Funded Loan, the related Wet Funded Custodial File Delivery Date), in accordance with the terms and
conditions set forth in the Custodial Agreement, deliver or cause to be delivered to the Custodian,
as the designated agent of the Indenture Trustee, a Loan Schedule and each of the documents
constituting the Custodial Loan File with respect to each Loan. The Loan Originator shall assure
that (i) in the event that any Wet Funded Loan is not closed and funded to the order of the
appropriate Borrower on the day funds are provided to the Loan Originator by the Purchaser, on
behalf of the Issuer, such funds shall be promptly returned to the Purchaser, on behalf of the
Issuer and (ii) in the event that any Wet Funded Loan is subject to a recission, all funds received
in connection with such recission shall be promptly returned to the Purchaser, on behalf of the
Issuer.
(b) The Loan Originator shall, on the related Transfer Date (or in the case of a Wet Funded
Loan, on or before the related Wet Funded Custodial File Delivery Date), deliver or cause to be
delivered to the Servicer the related Servicers Loan File (i) for the benefit of, and as agent
for, the Noteholders and (ii) for the benefit of the Indenture Trustee, on behalf of the
Noteholders, for so long as the Notes are outstanding; after the Notes are not outstanding, the
Servicers Loan File shall be held in the custody of the Servicer for the benefit of, and as agent
for, the Certificateholders.
(c) The Indenture Trustee shall cause the Custodian to take and maintain continuous physical
possession of the Custodial Loan Files in the State of California (or upon prior written notice
from the Custodian to the Loan Originator and the Noteholder Agent and delivery of an Opinion of
Counsel with respect to the continued perfection of the Indenture Trustees security interest, in
the State of Minnesota or Utah) and, in connection therewith, shall act solely as agent for the
Noteholders in accordance with the terms hereof and not as agent for the Loan Originator, the
Servicer or any other party.
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Section 2.05 |
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Acceptance by the Indenture Trustee of the Loans; Certain Substitutions and
Repurchases; Certification by the Custodian. |
(a) The Indenture Trustee declares that it will cause the Custodian to hold the Custodial Loan
Files and any additions, amendments, replacements or supplements to the documents contained
therein, as well as any other assets included in
the Trust Estate and delivered to the Custodian, in trust, upon and subject to the conditions
set forth herein. The Indenture Trustee further agrees to cause the Custodian to execute and
deliver such certifications as are required under the Custodial Agreement and to otherwise direct
the Custodian to perform all of its obligations with respect to the Custodial Loan Files in strict
accordance with the terms of the Custodial Agreement.
(b) (i) With respect to any Loans which are set forth as exceptions in the Exceptions Report,
the Loan Originator shall cure such exceptions by delivering such missing
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documents to the Custodian or otherwise curing the defect no later than, in the case of (x) a
non-Wet Funded Loan, five (5) Business Days, or (y) in the case of a Wet Funded Loan one (1)
Business Day after the Wet Funded Custodial File Delivery Date, in each case, following the receipt
of the first Exceptions Report listing such exception with respect to such Loan.
(ii) In the event that, with respect to any Loan, the Loan Originator does not comply
with the document delivery requirements of this Section 2.05 and such failure has a
material adverse effect on the value or enforceability of any Loan, or the interests of the
Securityholders in any Loan (without limiting the foregoing, if any of the documents listed
on schedule I attached hereto is not delivered in accordance with the requirements set
forth in the Basic Documents, such failure shall be deemed to have a material adverse
effect on the interests of the Securityholders in such Loans), the Loan Originator shall
repurchase such Loan within one (1) Business Day of notice thereof from the Indenture
Trustee or the Noteholder Agent at the Repurchase Price thereof with respect to such Loan
by depositing such Repurchase Price in the Collection Account. In lieu of such a
repurchase, the Depositor and Loan Originator may comply with the substitution provisions
of Section 3.06 hereof. The Loan Originator shall provide the Servicer, the Indenture
Trustee, the Issuer and the Noteholder Agent with a certification of a Responsible Officer
on or prior to such repurchase or substitution indicating that the Loan Originator intends
to repurchase or substitute such Loan.
(iii) It is understood and agreed that the obligation of the Loan Originator to
repurchase or substitute any such Loan pursuant to this Section 2.05(b) shall constitute
the sole remedy with respect to such failure to comply with the foregoing delivery
requirements.
(c) In performing its reviews of the Custodial Loan Files pursuant to the Custodial Agreement,
the Custodian shall have no responsibility to determine the genuineness of any document contained
therein and any signature thereon. The Custodian shall not have any responsibility for determining
whether any document is valid and binding, whether the text of any assignment or endorsement is in
proper or recordable form, whether any document has been recorded in accordance with the
requirements of any applicable jurisdiction, or whether a blanket assignment is permitted in any
applicable jurisdiction.
(d) The Servicers Loan File shall be held in the custody of the Servicer (i) for the benefit
of, and as agent for, the Noteholders and (ii) for the benefit of the Indenture Trustee, on behalf
of the Noteholders, for so long as the Notes are outstanding; after the Notes are not outstanding,
the Servicers Loan File shall be held in the custody of the Servicer for the benefit of, and as
agent for, the Certificateholders. It is intended that, by the Servicers agreement pursuant to
this Section 2.05(d), the Indenture Trustee shall be deemed to have possession of the Servicers
Loan Files for purposes of Section 9-313 of the Uniform Commercial Code of the state in which such
documents or instruments are located. The Servicer shall promptly report to the Indenture Trustee
any failure by it to hold the Servicers Loan File as herein provided and shall promptly take
appropriate action to remedy any such failure. In acting as custodian of such documents and
instruments, the Servicer agrees not to assert any legal or beneficial ownership interest in the
Loans or such documents or instruments. Subject to Section 8.01(d), the Servicer
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agrees to indemnify the Securityholders and the Indenture Trustee, their officers, directors,
employees, agents and control persons as such term is used under the Act and under the Securities
Exchange Act of 1934, as amended for any and all liabilities, obligations, losses, damages,
payments, costs or expenses of any kind whatsoever which may be imposed on, incurred by or asserted
against the Securityholders or the Indenture Trustee as the result of the negligence or willful
misfeasance by the Servicer relating to the maintenance and custody of such documents or
instruments which have been delivered to the Servicer; provided, however, that the Servicer will
not be liable for any portion of any such amount resulting from the negligence or willful
misconduct of any Securityholders or the Indenture Trustee; and provided, further, that the
Servicer will not be liable for any portion of any such amount resulting from the Servicers
compliance with any instructions or directions consistent with this Agreement issued to the
Servicer by the Indenture Trustee or the Majority Noteholders. The Indenture Trustee shall have no
duty to monitor or otherwise oversee the Servicers performance as custodian of the Servicer Loan
File hereunder.
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Section 2.06 |
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Conditions to Transfer. |
(a) In the case of Wet Funded Loans, by 12:00 p.m. (New York City time) on the related
Transfer Date, the Issuer shall give notice to the Noteholder Agent of such upcoming Transfer Date
and shall deliver or cause to be delivered to the Noteholder Agent: (i) an estimate of the number
of Loans and aggregate Principal Balance of such Loans to be transferred on such Transfer Date (ii)
a funding request amount and (iii) a Wet Funded Loan Schedule in computer-readable form with
respect to the Loans requested to be transferred on such Transfer Date.
(b) In the case of non-Wet Funded Loans, two (2) Business Days prior to each Transfer Date,
the Issuer shall give notice to the Noteholder Agent of such upcoming Transfer Date and by no later
than 12:00 p.m. (New York City time) on the Business Day preceding each Transfer Date, the Issuer
shall deliver or cause to be
delivered to the Noteholder Agent: (i) an estimate of the number of Loans and aggregate
Principal Balance of such Loans to be transferred on such Transfer Date (ii) a funding request
amount and (iii) a final Loan Schedule in computer-readable form with respect to the Loans
requested to be transferred on such Transfer Date.
(c) On each Transfer Date, the Depositor or the applicable QSPE Affiliate shall convey to the
Issuer, the Loans and the other property and rights related thereto described in the related S&SA
Assignment, and the Issuer, only upon the satisfaction of each of the conditions set forth below on
or prior to such Transfer Date, shall deposit or cause to be deposited cash in the amount of the
Additional Note Principal Balance received from the Purchaser in the Advance Account in respect
thereof, and the Paying Agent shall, promptly after such deposit, withdraw the amount deposited in
respect of applicable Additional Note Principal Balance from the Advance Account, and distribute
such amount to or at the direction of the Depositor or the applicable QSPE Affiliate.
(d) As of the Closing Date and each Transfer Date:
(i) the Depositor, the QSPE Affiliate and the Servicer, as applicable,
shall have delivered to the Issuer and the Noteholder Agent duly executed Assignments,
which shall have attached thereto a Loan Schedule setting forth the
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appropriate information with respect to all Loans conveyed on such Transfer Date and shall
have delivered to the Noteholder Agent a computer readable transmission of such Loan
Schedule;
(ii) the Depositor shall have deposited, or caused to be deposited, in the Collection
Account all collections received with respect to each of the Loans on and after the
applicable Transfer Cut-off Date;
(iii) as of such Transfer Date, none of the Loan Originator, the Depositor or the
QSPE Affiliate, as applicable, shall (A) be insolvent, (B) be made insolvent by its
respective sale of Loans or (C) have reason to believe that its insolvency is imminent;
(iv) the Revolving Period shall not have terminated;
(v) as of such Transfer Date (after giving effect to the sale of Loans on
such Transfer Date), there shall be no Overcollateralization Shortfall;
(vi) Reserved;
(vii) each of the representations and warranties made by the Loan
Originator contained in Exhibit E with respect to the Loans shall be true and correct in
all material respects as of the related Transfer Date with the same effect as if then made
and the proviso set forth in Section 3.05 with respect to Loans sold by a QSPE Affiliate
shall not be applicable to any Loans, and the Depositor or the QSPE Affiliate, as
applicable, shall have performed all obligations to be performed by it under the Basic
Documents on or prior to such Transfer Date;
(viii) the Depositor or the QSPE Affiliate shall, at its own expense, within one
Business Day following the Transfer Date, indicate in its computer files that the Loans
identified in each S&SA Assignment have been sold to the Issuer pursuant to this Agreement
and the S&SA Assignment;
(ix) the Depositor or the QSPE Affiliate shall have taken any action requested by the
Indenture Trustee, the Issuer or the Noteholders required to maintain the ownership
interest of the Issuer in the Trust Estate;
(x) no selection procedures believed by the Depositor or the QSPE Affiliate to be
adverse to the interests of the Noteholders shall have been utilized in selecting the
Loans to be conveyed on such Transfer Date;
(xi) the Depositor shall have provided the Issuer, the Indenture Trustee and the
Noteholder Agent no later than two Business Days prior to such date a notice of Additional
Note Principal Balance in the form of Exhibit A hereto;
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(xii) after giving effect to the Additional Note Principal Balance associated
therewith, the Note Principal Balance will not exceed the Maximum Note Principal
Balance;
(xiii) all conditions precedent to the Depositors purchase of Loans pursuant
to the Loan Purchase and Contribution Agreement shall have been fulfilled as of
such Transfer Date and, in the case of purchases from a QSPE Affiliate, all
conditions precedent to the Issuers purchase of Loans pursuant to the Master
Disposition Confirmation Agreement shall have been fulfilled as of such Transfer
Date;
(xiv) all conditions precedent to the Noteholders purchase of Additional Note
Principal Balance pursuant to the Note Purchase Agreement shall have been fulfilled
as of such Transfer Date; and
(xv) with respect to each Loan acquired from any QSPE Affiliate that has a
limited right of recourse to the Loan Originator under the terms of the applicable
loan purchase agreement, the Loan Originator has not been required to pay any
amount to or on behalf of such QSPE Affiliate that lowered the recourse to the Loan
Originator available to such QSPE Affiliate below the maximum recourse to the Loan
Originator available to
such QSPE Affiliate under the terms of the related loan purchase contract
providing for recourse by that QSPE Affiliate to the Loan Originator.
(e) In the case of Wet Funded Loans, by no later than 9:00 p.m. (New York City time) on the
related Transfer Date, the Issuer shall deliver or cause to be delivered to the Purchaser the
related Loan Schedule as finalized, in computer-readable form acceptable to the Purchaser.
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Section 2.07 |
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Termination of Revolving Period. |
Upon the occurrence of (i) an Event of Default or Default or (ii) the Unfunded Transfer
Obligation Percentage equals 4% or less or (iii) Option One or any of its Affiliates shall default
under, or fail to perform as requested under, or shall otherwise materially breach the terms of any
repurchase agreement, loan and security agreement or similar credit facility or agreement entered
into by Option One or any of its Affiliates, including without limitation, the Sale and Servicing
Agreement, dated as of April 1, 2001, among the Option One Owner Trust 2001-1A, the Depositor,
Option One and the Indenture Trustee, the Sale and Servicing Agreement, dated as of April 1, 2001,
among the Option One Owner Trust 2001-1B, the Depositor, Option One and the Indenture Trustee, the
Sale and Servicing Agreement, dated as of July 2, 2002, among the Option One Owner Trust 2002-3,
the Depositor, Option One and the Indenture Trustee and the Sale and Servicing Agreement, dated as
of August 8, 2003, among the Option One Owner Trust 2003-4, the Depositor, Option One and the
Indenture Trustee, and such default, failure or breach shall entitle any counterparty to declare
the Indebtedness thereunder to be due and payable prior to the maturity thereof. The Initial
Noteholder may, in any such case, in its sole discretion, terminate the Revolving Period.
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Section 2.08 |
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Correction of Errors. |
The parties hereto who have relevant information shall cooperate to reconcile any errors in
calculating the Sales Price from and after the Closing Date. In the event that an error in the
Sales Price is discovered by either party, including without limitation, any error due to
miscalculations of Market Value where insufficient information has been provided with respect to a
Loan to make an accurate determination of Market Value as of any applicable Transfer Date, any
miscalculations of Principal Balance, accrued interest, Overcollateralization Shortfall or
aggregate unreimbursed Servicing Advances attributable to the applicable Loan, or any prepayments
not properly credited, such party shall give prompt notice to the other parties hereto, and the
party that shall have benefited from such error shall promptly remit to the other, by wire transfer
of immediately available funds, the amount of such error with no interest thereon.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
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Section 3.01 |
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Representations and Warranties of the Depositor. |
The Depositor hereby represents, warrants and covenants to the other parties hereto and the
Securityholders that as of the Closing Date and as of each Transfer Date:
(a) The Depositor is a corporation duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization and has, and had at all relevant times, full power
to own its property, to carry on its business as currently conducted, to enter into and perform its
obligations under each Basic Document to which it is a party;
(b) The execution and delivery by the Depositor of each Basic Document to which the Depositor
is a party and its performance of and compliance with all of the terms thereof will not violate the
Depositors organizational documents or constitute a default (or an event which, with notice or
lapse of time, or both, would constitute a default) under, or result in the breach or acceleration
of, any material contract, agreement or other instrument to which the Depositor is a party or which
are applicable to the Depositor or any of its assets;
(c) The Depositor has the full power and authority to enter into and consummate the
transactions contemplated by each Basic Document to which the Depositor is a party, has duly
authorized the execution, delivery and performance of each Basic Document to which it is a party
and has duly executed and delivered each Basic Document to which it is a party; each Basic Document
to which it is a party, assuming due authorization, execution and delivery by the other party or
parties thereto, constitutes a valid, legal and binding obligation of the Depositor, enforceable
against it in accordance with the terms thereof, except as such enforcement may be limited by
bankruptcy, insolvency, reorganization, receivership, moratorium or other similar laws relating to
or affecting the rights of creditors generally, and by general equity principles (regardless of
whether such enforcement is considered in a proceeding in equity or at law);
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(d) The Depositor is not in violation of, and the execution and delivery by the Depositor of
each Basic Document to which the Depositor is a party and its performance and compliance with the
terms of each Basic Document to which the Depositor is a party will not constitute a violation with
respect to, any order or decree of any court or any order or regulation of any federal, state,
municipal or governmental agency having jurisdiction, which violation would materially and
adversely affect the condition (financial or otherwise) or operations of the Depositor or any of
its properties or materially and adversely affect the performance of any of its duties hereunder;
(e) There are no actions or proceedings against, or investigations of, the Depositor currently
pending with regard to which the Depositor has received service of process and no action or
proceeding against, or investigation of, the Depositor is, to the knowledge of the Depositor,
threatened or otherwise pending before any court, administrative agency or other tribunal that (A)
if determined adversely to the Depositor,
have a reasonable possibility of prohibiting or preventing its entering into any of the Basic
Documents to which it is a party or render the Securities invalid, (B) seek to prevent the issuance
of the Securities or the consummation of any of the transactions contemplated by any of the Basic
Documents to which it is a party or (C) if determined adversely to the Depositor, would prohibit or
materially and adversely affect the performance by the Depositor of its obligations under, or the
validity or enforceability of, any of the Basic Documents to which it is a party or the Securities
provided, however, that insofar as this representation relates to the Loan Originators
satisfaction of its financial covenants, there is also a reasonable possibility of an adverse
determination of such action, proceeding or investigation having such effect;
(f) No consent, approval, authorization or order of any court or governmental agency or body
is required for the execution, delivery and performance by the Depositor of, or compliance by the
Depositor with, any of the Basic Documents to which the Depositor is a party or the Securities, or
for the consummation of the transactions contemplated by any of the Basic Documents to which the
Depositor is a party, except for such consents, approvals, authorizations and orders, if any, that
have been obtained prior to such date;
(g) The Depositor is solvent, is able to pay its debts as they become due and has capital
sufficient to carry on its business and its obligations hereunder; it will not be rendered
insolvent by the execution and delivery of any of the Basic Documents to which it is a party or the
assumption of any of its obligations thereunder; no petition of bankruptcy (or similar insolvency
proceeding) has been filed by or against the Depositor;
(h) The Depositor did not transfer the Loans sold thereon by the Depositor to the Trust with
any intent to hinder, delay or defraud any of its creditors; nor will the Depositor be rendered
insolvent as a result of such sale;
(i) The Depositor had good title to, and was the sole owner of, each Loan sold thereon by the
Depositor free and clear of any lien other than any such lien released simultaneously with the sale
contemplated herein, and, immediately upon each transfer and assignment herein contemplated, the
Depositor will have delivered to the Trust good title to, and
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the Trust will be the sole owner of, each Loan transferred by the Depositor thereon free and clear
of any lien;
(j) The Depositor acquired title to each of the Loans sold thereon by the Depositor in good
faith, without notice of any adverse claim;
(k) None of the Basic Documents to which the Depositor is a party, nor any Officers
Certificate, statement, report or other document prepared by the Depositor and furnished or to be
furnished by it pursuant to any of the Basic Documents to which it is a party or in connection with
the transactions contemplated thereby contains any untrue statement of material fact or omits to
state a material fact necessary to make
the statements contained herein or therein not misleading;
(l) The Depositor is not required to be registered as an investment company, under the
Investment Company Act of 1940, as amended;
(m) The transfer, assignment and conveyance of the Loans by the Depositor thereon pursuant to
this Agreement is not subject to the bulk transfer laws or any similar statutory provisions in
effect in any applicable jurisdiction;
(n) The Depositors principal place of business and chief executive offices are located at
Irvine, California or at such other address as shall be designated by such party in a written
notice to the other parties hereto;
(o) The Depositor covenants that during the continuance of this Agreement it will comply in
all respects with the provisions of its organizational documents in effect from time to time; and
(p) The representations and warranties set forth in (h), (i), (j) and (m) above were true and
correct (with respect to the applicable QSPE Affiliate) with respect to each Loan transferred to
the Trust by any QSPE Affiliate at the time such Loan was transferred to a QSPE Affiliate.
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Section 3.02 |
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Representations and Warranties of the Loan Originator. |
The Loan Originator hereby represents and warrants to the other parties hereto and the
Securityholders that as of the Closing Date and as of each Transfer Date:
(a) The Loan Originator is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization and (i) is duly qualified, in good standing
and licensed to carry on its business in each state where any Mortgaged Property related to a Loan
sold by it is located and (ii) is in compliance with the laws of any such jurisdiction, in both
cases, to the extent necessary to ensure the enforceability of such Loans in accordance with the
terms thereof and had at all relevant times, full corporate power to originate such Loans, to own
its property, to carry on its business as currently conducted and to enter into and perform its
obligations under each Basic Document to which it is a party;
- 42 -
(b) The execution and delivery by the Loan Originator of each Basic Document to which it is a
party and its performance of and compliance with the terms thereof will not violate the Loan
Originators articles of organization or by-laws or constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default) under, or result in the breach or
acceleration of, any contract, agreement or other instrument to which the Loan Originator is a
party or which may be applicable to the Loan Originator or any of its assets;
(c) The Loan Originator has the full power and authority to enter into
and consummate all transactions contemplated by the Basic Documents to be consummated by it,
has duly authorized the execution, delivery and performance of each Basic Document to which it is a
party and has duly executed and delivered each Basic Document to which it is a party; each Basic
Document to which it is a party, assuming due authorization, execution and delivery by each of the
other parties thereto, constitutes a valid, legal and binding obligation of the Loan Originator,
enforceable against it in accordance with the terms hereof, except as such enforcement may be
limited by bankruptcy, insolvency, reorganization, receivership, moratorium or other similar laws
relating to or affecting the rights of creditors generally, and by general equity principles
(regardless of whether such enforcement is considered in a proceeding in equity or at law);
(d) The Loan Originator is not in violation of, and the execution and delivery of each Basic
Document to which it is a party by the Loan Originator and its performance and compliance with the
terms of each Basic Document to which it is a party will not constitute a violation with respect
to, any order or decree of any court or any order or regulation of any federal, state, municipal or
governmental agency having jurisdiction, which violation would materially and adversely affect the
condition (financial or otherwise) or operations of the Loan Originator or its properties or
materially and adversely affect the performance of its duties under any Basic Document to which it
is a party;
(e) There are no actions or proceedings against, or investigations of, the Loan Originator
currently pending with regard to which the Loan Originator has received service of process and no
action or proceeding against, or investigation of, the Loan Originator is, to the knowledge of the
Loan Originator, threatened or otherwise pending before any court, administrative agency or other
tribunal that (A) if determined adversely to the Loan Originator, would prohibit its entering into
any Basic Document to which it is a party or render the Securities invalid, (B) seek to prevent the
issuance of the Securities or the consummation of any of the transactions contemplated by any Basic
Document to which it is a party or (C) if determined adversely to the Loan Originator, would have a
reasonable possibility of prohibiting or preventing or materially and adversely affecting the sale
of the Loans to the Depositor, the performance by the Loan Originator of its obligations under, or
the validity or enforceability of, any Basic Document to which it is a party or the Securities;
provided, however, that insofar as this representation relates to the Loan Originators
satisfaction of its financial covenants, there is also a reasonable possibility of an adverse
determination of such action, proceeding or investigation having such effect;
(f) No consent, approval, authorization or order of any court or governmental agency or body
is required for: (1) the execution, delivery and performance by the Loan
- 43 -
Originator of, or compliance by the Loan Originator with, any Basic Document to which it is a
party, (2) the issuance of the Securities, (3) the sale and contribution of the Loans,
or (4) the consummation of the transactions required of it by any Basic Document to which it is a
party, except such as shall have been obtained before such date;
(g) Immediately prior to the sale of any Loan to the Depositor, the Loan Originator had good
title to the Loans sold by it on such date without notice of any adverse claim;
(h) The information, reports, financial statements, exhibits and schedules furnished in
writing by or on behalf of the Loan Originator to the Purchaser in connection with the negotiation,
preparation or delivery of the Basic Documents to which it is a party or delivered pursuant
thereto, when taken as a whole, do not contain any untrue statement of material fact or omit to
state any material fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. All written information furnished after the date hereof
by or on behalf of the Loan Originator to the Noteholder Agent or any Noteholder in connection with
the Basic Documents to which it is a party and the transactions contemplated thereby will be true,
complete and accurate in every material respect, or (in the case of projections) based on
reasonable estimates, on the date as of which such information is stated or certified.
(i) The Loan Originator is solvent, is able to pay its debts as they become due and has
capital sufficient to carry on its business and its obligations under each Basic Document to which
it is a party; it will not be rendered insolvent by the execution and delivery of this Agreement or
by the performance of its obligations under each Basic Document to which it is a party; no petition
of bankruptcy (or similar insolvency proceeding) has been filed by or against the Loan Originator
prior to the date hereof;
(j) The Loan Originator has transferred the Loans transferred by it on or prior to such
Transfer Date without any intent to hinder, delay or defraud any of its creditors;
(k) The Loan Originator has received fair consideration and reasonably equivalent value in
exchange for the Loans sold by it on such Transfer Date to the Depositor;
(l) The Loan Originator has not dealt with any broker or agent or other Person who might be
entitled to a fee, commission or compensation in connection with the transaction contemplated by
this Agreement;
(m) The Loan Originator is in compliance with each of its financial covenants set forth in
Section 7.02; and
(n) The Loan Originators principal place of business and chief executive offices are located
at Irvine, California or at such other address as shall be designated by such party in a written
notice to the other parties hereto.
It is understood and agreed that the representations and warranties set forth in this Section
3.02 shall survive delivery of the respective Custodial Loan Files to
the Custodian (as the
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agent of the Indenture Trustee) and shall inure to the benefit of the Securityholders, the
Depositor, the Servicer, the Indenture Trustee, the Owner Trustee and the Issuer. Upon discovery by
the Loan Originator, the Depositor, the Servicer, the Indenture Trustee or the Trust of a breach of
any of the foregoing representations and warranties that materially and adversely affects the value
of any Loan or the interests of the Securityholders in any Loan or in the Securities, the party
discovering such breach shall give prompt written notice (but in no event later than two Business
Days following such discovery) to the other parties. The obligations of the Loan Originator set
forth in Sections 2.05 and 3.06 hereof to cure any breach or to substitute for or repurchase an
affected Loan shall constitute the sole remedies available hereunder to the Securityholders, the
Depositor, the Servicer, the Indenture Trustee or the Trust respecting a breach of the
representations and warranties contained in this Section 3.02. The fact that the Noteholder Agent
or any Noteholder has conducted or has failed to conduct any partial or complete due diligence
investigation of the Loan Files shall not affect the Securityholders rights to demand repurchase or
substitution as provided under this Agreement.
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Section 3.03 |
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Representations, Warranties and Covenants of the Servicer. |
The Servicer hereby represents and warrants to and covenants with the other parties hereto and
the Securityholders that as of the Closing Date and as of each Transfer Date:
(a) The Servicer is a corporation duly organized, validly existing and in good standing under
the laws of the State of California and (i) is duly qualified, in good standing and licensed to
carry on its business in each state where any Mortgaged Property is located, and (ii) is in
compliance with the laws of any such state, in both cases, to the extent necessary to ensure the
enforceability of the Loans in accordance with the terms thereof and to perform its duties under
each Basic Document to which it is a party and had at all relevant times, full corporate power to
own its property, to carry on its business as currently conducted, to service the Loans and to
enter into and perform its obligations under each Basic Document to which it is a party;
(b) The execution and delivery by the Servicer of each Basic Document to which it is a party
and its performance of and compliance with the terms thereof will not violate the Servicers
articles of incorporation or by-laws or constitute a default (or an event which, with notice or
lapse of time, or both, would constitute a default) under, or result in the breach or acceleration
of, any material contract, agreement or other instrument to which the Servicer is a party or which
are applicable to the Servicer or any of its assets;
(c) The Servicer has the full power and authority to enter into and consummate all
transactions contemplated by each Basic Document to which it is a party, has duly authorized the
execution, delivery and performance of each Basic Document to which it is a party and has duly
executed and delivered each Basic Document to which it
is a party. Each Basic Document to which it is a party, assuming due authorization, execution
and delivery by each of the other parties thereto, constitutes a valid, legal and binding
obligation of the Servicer, enforceable against it in accordance with the terms hereof, except as
such enforcement may be limited by bankruptcy, insolvency, reorganization, receivership, moratorium
or other similar laws relating to or affecting the rights of creditors generally, and by general
equity principles (regardless of whether such enforcement is considered in a proceeding in equity
or at law);
- 45 -
(d) The Servicer is not in violation of, and the execution and delivery of each Basic Document
to which it is a party by the Servicer and its performance and compliance with the terms of each
Basic Document to which it is a party will not constitute a violation with respect to, any order or
decree of any court or any order or regulation of any federal, state, municipal or governmental
agency having jurisdiction, which violation would materially and adversely affect the condition
(financial or otherwise) or operations of the Servicer or materially and adversely affect the
performance of its duties under any Basic Document to which it is a party;
(e) There are no actions or proceedings against, or investigations of, the Servicer currently
pending with regard to which the Servicer has received notice or service of process; and no action
or proceeding against, or investigation of, the Servicer is, to the knowledge of the Servicer,
threatened or otherwise pending before any court, administrative agency or other tribunal or local,
state or federal body or agency that (A) if determined adversely to the Servicer, would prohibit
its entering into any Basic Document to which it is a party, (B) seek to prevent the consummation
of any of the transactions contemplated by any Basic Document to which it is a party, (C) if
determined adversely to the Servicer, would have a reasonable possibility of prohibiting or
materially and adversely affect the performance by the Servicer of its obligations under, or the
validity or enforceability of, any Basic Document to which it is a party or the Securities;
provided, however, that insofar as this representation relates to the Loan Originators
satisfaction of its financial covenants, there is also a reasonable possibility of an adverse
determination of such action, proceeding or investigation having such effect, or (D)allege that the
Servicer has engaged in practices, with respect to any of the Loans, that are predatory, abusive,
deceptive or otherwise wrongful under an applicable statute, regulation or ordinance or that are
otherwise actionable and that have a reasonable possibility of adverse determination;
(f) No consent, approval, authorization or order of any court or governmental agency or body
is required for the execution, delivery and performance by the Servicer of, or compliance by the
Servicer with, any Basic Document to which it is a party or the Securities, or for the consummation
of the transactions contemplated by any Basic Document to which it is a party, except for such
consents, approvals, authorizations and orders, if any, that have been obtained prior to such date;
(g) The information, reports, financial statements, exhibits and schedules furnished in
writing by or on behalf of the Servicer to the Majority Noteholders
in connection with the negotiation, preparation or delivery of the Basic Documents to which it
is a party or delivered pursuant thereto, when taken as a whole, do not contain any untrue
statement of material fact or omit to state any material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not misleading. All written
information furnished after the date hereof by or on behalf of the Servicer to the Majority
Noteholders in connection with the Basic Documents to which it is a party and the transactions
contemplated thereby will be true, complete and accurate in every material respect, or (in the case
of projections) based on reasonable estimates, on the date as of which such information is stated
or certified.
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(h) The Servicer is solvent and will not be rendered insolvent as a result of the performance
of its obligations pursuant to under the Basic Documents to which it is a party;
(i) The Servicer acknowledges and agrees that the Servicing Compensation represents reasonable
compensation for the performance of its services hereunder and that the entire Servicing
Compensation shall be treated by the Servicer, for accounting purposes, as compensation for the
servicing and administration of the Loans pursuant to this Agreement;
(j) The Servicer is in compliance with each of its financial covenants set forth in Section
7.02;
(k) Each Subservicer is an Eligible Servicer and the Servicer covenants to cause each
Subservicer to be an Eligible Servicer; and
(l) The Servicer has not engaged in any practice or activity with respect to the Loans, or any
other loans, that is predatory, abusive, deceptive or otherwise wrongful under the statutes,
regulations and ordinances, if any, that are applicable to the particular loans, or that is
otherwise actionable.
It is understood and agreed that the representations, warranties and covenants set forth in
this Section 3.03 shall survive delivery of the respective Custodial Loan Files to the Indenture
Trustee or the Custodian on its behalf and shall inure to the benefit of the Depositor, the
Securityholders, the Indenture Trustee and the Issuer. Upon discovery by the Loan Originator, the
Depositor, the Servicer, the Indenture Trustee, the Owner Trustee or the Issuer of a breach of any
of the foregoing representations, warranties and covenants that materially and adversely affects
the value of any Loan or the interests of the Securityholders therein or in the Securities, the
party discovering such breach shall give prompt written notice (but in no event later than two
Business Days following such discovery) to the other parties. The fact that the Noteholder Agent or
any Noteholder has conducted or has failed to conduct any partial or complete due diligence
investigation shall not affect the Securityholders, rights to exercise their remedies as provided
under this Agreement.
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Section 3.05 |
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Representations and Warranties Regarding Loans. |
The Loan Originator makes each of the representations and warranties set forth on Exhibit E
hereto with respect to each Loan, provided, however, that with respect to each Loan proposed to be
transferred to the Issuer by a QSPE Affiliate, to the extent that the Loan Originator has at the
time of such transfer actual knowledge of any facts or circumstances that would render any of such
representations and warranties materially false, the Loan Originator shall notify the Noteholder
Agent of such facts or circumstances and, in such event, shall have no obligation to make such
materially false representation and warranty and the Issuer shall not purchase such Loan.
In addition, the Loan Originator represents and warrants with respect to each Loan sold by a
QSPE Affiliate that the Loan Originator has not been required to pay any amount
- 47 -
to or on behalf of such QSPE Affiliate that lowered the recourse to the Loan Originator available
to such QSPE Affiliate below the maximum recourse to the Loan Originator available to such QSPE
Affiliate under the terms of any loan purchase agreement providing for recourse by that QSPE
Affiliate to the Loan Originator.
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Section 3.06 |
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Purchase and Substitution. |
(a) It is understood and agreed that the representations and warranties set forth in Exhibit E
hereto shall survive the conveyance of the Loans to the Indenture Trustee on behalf of the Issuer,
and the delivery of the Securities to the Securityholders. Upon discovery by the Depositor, the
Servicer, the Loan Originator, the Custodian, the Issuer, the Indenture Trustee or any
Securityholder of a breach of any of such representations and warranties or the representations and
warranties of the Loan Originator set forth in Section 3.02 which materially and adversely affects
the value or enforceability of any Loan or the interests of the Securityholders in any Loan
(notwithstanding that such representation and warranty was made to the Loan Originators best
knowledge) or which constitutes a breach of the representations and warranties set forth in Exhibit
E, the party discovering such breach shall give prompt written notice to the others. The Loan
Originator shall within five Business Days of the earlier of the Loan Originators discovery or the
Loan Originators receiving notice of any breach of a representation or warranty, promptly cure
such breach in all material respects. If within five Business Days after the earlier of the Loan
Originators discovery of such breach or the Loan Originators receiving notice thereof such breach
has not been remedied by the Loan Originator and such breach materially and adversely affects the
interests of the Securityholders in the related Loan (an Unqualified Loan), the Loan Originator
shall promptly upon receipt of written instructions from the Majority Noteholders either (i) remove
such Unqualified Loan from the Trust (in which case it shall become a Deleted Loan) and substitute
one or more Qualified Substitute Loans in the manner and subject to the conditions set forth in
this Section 3.06 or (ii) purchase such Unqualified Loan at a purchase price equal to the
Repurchase Price with respect to such Unqualified Loan by depositing or causing to be deposited
such Repurchase Price in
the Collection Account.
Any substitution of Loans pursuant to this Section 3.06(a) shall be accompanied by payment by
the Loan Originator of the Substitution Adjustment, if any, (x) if no Overcollateralization
Shortfall exists on the date of such substitution (after giving effect to such substitution),
remitted to the Noteholders in accordance with Section 5.01(c)(4)(i) or (y) otherwise to be
deposited in the Collection Account pursuant to Section 5.01(b)(1) hereof.
(b) As to any Deleted Loan for which the Loan Originator substitutes a Qualified Substitute
Loan or Loans, the Loan Originator shall effect such substitution by delivering to the Indenture
Trustee and the Noteholder Agent a certification executed by a Responsible Officer of the Loan
Originator to the effect that the Substitution Adjustment, if any, has been (x) if no
Overcollateralization Shortfall exists on the date of such substitution (after giving effect to
such substitution), remitted to the Noteholders in accordance with Section 5.01(c)(4)(i), or (y)
otherwise deposited in the Collection Account. As to any Deleted Loan for which the Loan Originator
substitutes a Qualified Substitute Loan or Loans, the Loan Originator
- 48 -
shall effect such substitution by delivering to the Custodian the documents constituting the
Custodial Loan File for such Qualified Substitute Loan or Loans.
The Servicer shall deposit in the Collection Account all payments received in connection with
each Qualified Substitute Loan after the date of such substitution. Monthly Payments received with
respect to Qualified Substitute Loans on or before the date of substitution will be retained by the
Loan Originator. The Trust will be entitled to all payments received on the Deleted Loan on or
before the date of substitution and the Loan Originator shall thereafter be entitled to retain all
amounts subsequently received in respect of such Deleted Loan. The Loan Originator shall give
written notice to the Issuer, the Servicer (if the Loan Originator is not then acting as such), the
Indenture Trustee and the Noteholder Agent that such substitution has taken place and the Servicer
shall amend the Loan Schedule to reflect (i) the removal of such Deleted Loan from the terms of
this Agreement and (ii) the substitution of the Qualified Substitute Loan. The Servicer shall
promptly deliver to the Issuer, the Loan Originator, the Indenture Trustee and the Noteholder
Agent, a copy of the amended Loan Schedule. Upon such substitution, such Qualified Substitute Loan
or Loans shall be subject to the terms of this Agreement in all respects, and the Loan Originator
shall be deemed to have made with respect to such Qualified Substitute Loan or Loans, as of the
date of substitution, the covenants, representations and warranties set forth in Exhibit E hereto.
On the date of such substitution, the Loan Originator will (x) if no Overcollateralization
Shortfall exists as of the date of substitution (after giving effect to such substitution), remit
to the Noteholders as provided in Section 5.01(c)(4)(i) or (y) otherwise deposit into the
Collection Account, in each case an amount equal to the related Substitution Adjustment, if any. In
addition, on the date of such substitution, the Servicer shall cause the Indenture Trustee to
release the Deleted Loan from the lien of the Indenture and the Servicer will cause such
Qualified Substitute Loan to be pledged to the Indenture Trustee under the Indenture as part
of the Trust Estate.
(c) With respect to all Unqualified Loans or other Loans repurchased by the Loan Originator
pursuant to this Agreement, upon the deposit of the Repurchase Price therefor into the Collection
Account or the conveyance of one or more Qualified Substitute Loans and payment of any Substitution
Adjustment, (i) the Issuer shall assign to the Loan Originator, without representation or warranty,
all of the Issuers right, title and interest in and to such Unqualified Loan, which right, title
and interest were conveyed to the Issuer pursuant to Section 2.01 hereof and (ii) the Indenture
Trustee shall assign to the Loan Originator, without recourse, representation or warranty, all the
Indenture Trustees right, title and interest in and to such Unqualified Loans or Loans, which
right, title and interest were conveyed to the Indenture Trustee pursuant to Section 2.01 hereof
and the Indenture. The Issuer and the Indenture Trustee shall, at the expense of the Loan
Originator, take any actions as shall be reasonably requested by the Loan Originator to effect the
repurchase of any such Loans and to have the Custodian return the Custodial Loan File of the
Deleted Loan to the Servicer.
(d) It is understood and agreed that the obligations of the Loan Originator set forth in this
Section 3.06 to cure, purchase or substitute for an Unqualified Loan constitute the sole remedies
hereunder of the Depositor, the Issuer, the Indenture Trustee, the Owner Trustee and the
Securityholders respecting a breach of the representations and warranties contained in Sections
3.02 hereof and in Exhibit E hereto. Any cause of action against the Loan Originator
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relating to or arising out of a defect in a Custodial Loan File or against the Loan Originator
relating to or arising out of a breach of any representations and warranties made in Sections 3.02
hereof and in Exhibit E hereto shall accrue as to any Loan upon (i) discovery of such defect or
breach by any party and notice thereof to the Loan Originator or notice thereof by the Loan
Originator to the Indenture Trustee, (ii) failure by the Loan Originator to cure such defect or
breach or purchase or substitute such Loan as specified above, and (iii) demand upon the Loan
Originator, as applicable, by the Issuer or the Majority Noteholders for all amounts payable in
respect of such Loan.
(e) Neither the Issuer nor the Indenture Trustee shall have any duty to conduct any
affirmative investigation other than as specifically set forth in this Agreement as to the
occurrence of any condition requiring the repurchase or substitution of any Loan pursuant to this
Section or the eligibility of any Loan for purposes of this Agreement.
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Section 3.07 |
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Dispositions. |
(a) The Majority Noteholders may at any time, and from time to time, require that the Issuer
redeem all or any portion of the Note Principal Balance of the Notes by paying the Note Redemption
Amount with respect to the Note Principal Balance to be redeemed in accordance with Section 10.04.
In connection with any such redemption, the Issuer shall effect Dispositions at the direction of
the Majority
Noteholders in accordance with this Agreement, including in accordance with this Section 3.07.
(b) (i) In consideration of the consideration received from the Depositor under the Loan
Purchase and Contribution Agreement, the Loan Originator hereby agrees and covenants that in
connection with each Disposition it shall effect the following:
(A) make such representations and warranties concerning the Loans as of the
cut-off date of the related Disposition to the Disposition Participants as may be
necessary to effect the Disposition and such additional representations and
warranties as may be necessary, in the reasonable opinion of any of the Disposition
Participants, to effect such Disposition; provided, that, to the extent that the
Loan Originator has at the time of the Disposition actual knowledge of any facts or
circumstances that would render any of such representations and warranties
materially false, the Loan Originator may notify the Disposition Participants of
such facts or circumstances and, in such event, shall have no obligation to make
such materially false representation and warranty;
(B) supply such information, opinions of counsel, letters from law and/or
accounting firms and other documentation and certificates regarding the origination
of the Loans as any Disposition Participant shall reasonably request to effect a
Disposition and enter into such indemnification agreements customary for such
transaction relating to or in connection with the Disposition as the Disposition
Participants may reasonably require;
(C) make itself available for and engage in good faith consultation with the Disposition
Participants concerning information to be contained in any document,
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agreement, private placement memorandum, or filing with the Securities and Exchange
Commission relating to the Loan Originator or the Loans in connection with a
Disposition and shall use reasonable efforts to compile any information and prepare
any reports and certificates, into a form, whether written or electronic, suitable
for inclusion in such documentation;
(D) to implement the foregoing and to otherwise effect a Disposition, enter into,
or arrange for its Affiliates to enter into insurance and indemnity agreements,
underwriting or placement agreements, servicing agreements, purchase agreements and
any other documentation which may reasonably be required of or reasonably deemed
appropriate by the Disposition Participants in order to effect a Disposition; and
(E) take such further actions as may be reasonably necessary to effect the
foregoing;
provided, that notwithstanding anything to the contrary, (a) the Loan Originator shall have no
liability for the Loans arising from or relating to the ongoing ability of the related Borrowers to
pay under the Loans; (b) none of the indemnities hereunder shall constitute an unconditional
guarantee by the Loan Originator of collectability of the Loans; (c) the Loan Originator shall have
no obligation with respect to the financial inability of any Borrower to pay principal, interest or
other amount owing by such Borrower under a Loan; and (d) the Loan Originator shall only be
required to enter into documentation in connection with Dispositions that is consistent with the
prior public securitizations of affiliates of the Loan Originator, provided that to the extent an
Affiliate of any Noteholder acts as depositor or performs a similar function in a Securitization,
additional indemnities and informational representations and warranties are provided which are
consistent with those in the Basic Documents and may upon request of the Loan Originator be set
forth in a separate agreement between such Affiliate of the Noteholder and the Loan Originator.
(ii) In the event of any Disposition to the Loan Originator or any of its
Affiliates (except in connection with a Securitization or a Disposition to a QSPE
Affiliate), the purchase price paid by the Loan Originator or any such Affiliate
shall be the fair market value of the Loans subject to such Disposition (as
determined by the Market Value Agent based upon recent sales of comparable loans or
such other objective criteria as may be approved for determining fair market
value by a Big Four national accounting firm).
(iii) As long as no Event of Default or Default shall have occurred and be
continuing under this Agreement or the Indenture, the Servicer may continue to
service the Loans included in any Disposition subject to any applicable
term-to-term servicing provisions in Section 9.01(c) and subject to any required
amendments to the related servicing provisions as may be necessary to effect the
related Disposition including but not limited to the obligation to make recoverable
principal and interest advances on the Loans.
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After the termination of the Revolving Period, the Issuer shall effect one or more
Dispositions at the direction of the Disposition Agent, and the Loan Originator and the Depositor
agree to use commercially reasonable efforts to effectuate such Dispositions.
(c) The Issuer shall effect Dispositions at the direction of the Majority Noteholders in
accordance with the terms of this Agreement and the Basic Documents. In connection therewith, the
Trust agrees to assist the Loan Originator in such Dispositions and accordingly it shall, at the
request and direction of the Majority Noteholders:
(i) transfer, deliver and sell all or a portion of the Loans, as of the
cut-off dates of the related Dispositions, to such Disposition
Participants as may be necessary to effect the Dispositions; provided, that
any such sale shall be for fair market value, as determined by the Market Value
Agent in its reasonable discretion;
(ii) deposit the cash Disposition Proceeds into the Distribution Account
pursuant to Section 5.01(c)(2)(D);
(iii) to the extent that a Securitization creates any Retained Securities, to
accept such Retained Securities as a part of the Disposition Proceeds in accordance
with the terms of this Agreement; and
(iv) take such further actions, including executing and delivering documents,
certificates and agreements, as may be reasonably necessary to effect such
Dispositions.
(d) The Servicer hereby covenants that it will take such actions as may be reasonably
necessary to effect Dispositions as the Disposition Participants may request and direct, including
without limitation providing the Loan Originator such information as may be required to make
representations and warranties required hereunder, and covenants that it will make such
representations and warranties regarding its servicing of the Loans hereunder as of the Cut-off
Date of the related Disposition as reasonably required by the Disposition Participants.
(e) [Reserved.]
(f) The Majority Noteholders may effect Whole Loan Sales upon written
notice to the Servicer of its intent to cause the Issuer to effect a Whole Loan Sale at least 5
Business Days in advance thereof. The Disposition Agent shall serve as agent for Whole Loan Sales
and will receive a reasonable fee for such services provided that no such fee shall be payable if
(i) the Loan Originator or its Affiliates purchase such Loans and (ii) no Event of Default or
Default shall have occurred. The Loan Originator or its Affiliates may concurrently bid to purchase
Loans in a Whole Loan Sale; provided, however, that neither the Loan Originator nor any such
Affiliates shall pay a price in excess of the fair market value thereof (as determined by the
Market Value Agent based upon recent sales of comparable loans or such other objective criteria as
may be approved for determining fair market value by a Big Four national accounting firm). In
the event that the Loan Originator does not bid in any such Whole Loan Sale, it shall have a right
of first refusal to purchase the Loans offered for sale at the price offered
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by the highest bidder. The Disposition Agent shall conduct any Whole Loan Sale subject to the Loan
Originators right of first refusal and shall promptly notify the Loan Originator of the amount of
the highest bid. The Loan Originator shall have five (5) Business Days following its receipt of
such notice to exercise its right of first refusal by notifying the Disposition Agent in writing.
(g) Except as otherwise expressly set forth under this Section 3.07, the parties rights and
obligations under this Section 3.07 shall continue notwithstanding the occurrence of an Event of
Default.
(h) The Disposition Participants (and the Majority Noteholders to the extent directing the
Disposition Participants) shall be independent contractors to the Issuer and shall have no
fiduciary obligations to the Issuer or any of its Affiliates. In that connection, the Disposition
Participants shall not be liable for any error of judgment made in good faith and shall not be
liable with respect to any action they take or omits to take in good faith in the performance of
their duties.
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Section 3.08 |
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Servicer Put; Servicer Call. |
(a) Servicer Put. The Loan Originator shall promptly purchase, upon the written demand of the
Majority Noteholders, any Put/Call Loan; provided, however, that the Loan Originator may (if it is
at that time the Servicer), upon receipt of such demand, elect to repurchase such Put/Call Loan
pursuant to (b) below, in which case such repurchase shall be deemed a Servicer Call.
(b) Servicer Call. The Servicer may repurchase any Put/Call Loan at any time. Such Servicer
Calls shall be solely at the option of the Servicer. Prior to exercising a Servicer Call, the
Servicer shall deliver written notice to the Majority Noteholders and the Indenture Trustee which
notice shall identify each Loan to be purchased and the Repurchase Price therefor; provided,
however, that the Servicer may irrevocably waive its right to repurchase any Put/Call Loan as soon
as reasonably practicable following its receipt of notice of the occurrence of any event or events
giving rise to such Loan being a Put/Call Loan.
(c) In connection with each Servicer Put, the Loan Originator shall deposit into the
Collection Account the Repurchase Price for the Loans to be repurchased. In connection with each
Servicer Call, the Servicer shall deposit into the Collection Account the Repurchase Price for the
Loans to be purchased. The aggregate Repurchase Price of all Loans transferred pursuant to Section
3.08(a) as of any date shall in no event exceed the Unfunded Transfer Obligation at the time of the
related Servicer Put.
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Section 3.09 |
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Modification of Underwriting Guidelines. |
The Loan Originator shall give the Noteholders prompt written notification of any modification
or change to the Underwriting Guidelines. If the Noteholder Agent object in writing to any
modification or change to the Underwriting Guidelines within 15 days after receipt of such notice,
no Loans may be conveyed to the Issuer pursuant to this Agreement unless such Loans have been
originated pursuant to the Underwriting Guidelines without giving
- 53 -
effect to such modification or change. Notwithstanding anything contained in this Agreement to the
contrary, any Loan conveyed to the Issuer pursuant to this Agreement pursuant to a modification or
change to the Underwriting Guidelines that has been
rejected by the Noteholders or which the Noteholders did not receive notice of, such Loan shall be
deemed an Unqualified Loan and be repurchased or substituted for in accordance with Section 3.06.
ARTICLE IV
ADMINISTRATION AND SERVICING OF THE LOANS
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Section 4.01 |
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Servicers Servicing Obligations. |
The Servicer, as independent contract servicer, shall service and administer the Loans in
accordance with the terms and provisions set forth in the Servicing Addendum, which Servicing
Addendum is incorporated herein by reference.
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Section 4.02 |
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Financial Statements. |
(a) So long as the Notes remain outstanding, the Servicer shall furnish to the Noteholders:
(i) annual consolidated audited financial statements of the Servicer and its
Affiliates no later than 105 days after the Servicers Fiscal Year;
(ii) quarterly unaudited statements of the Servicer no later than 60 days
after quarter-end;
(iii) monthly unaudited statements of the Servicer no later than 45 days after
month-end;
(iv) on a timely basis, (i) quarterly and annual consolidating financial
statements reflecting material intercompany adjustments, (ii) all form 10-K,
registration statements and other corporate finance filings made with the SEC
(other than 8-K filings), provided, however, that the Servicer shall provide the
Noteholders a copy of the Servicers annual SEC Form 10-K filing no later than 105
days after year-end, and (iii) any other financial information that the Noteholders
may reasonably request; and
(v) monthly portfolio performance data with respect to the mortgage loans the
Servicer services, including, without limitation, any outstanding delinquencies,
prepayments in whole or in part, and repurchases by the Servicer.
(b) Any and all financial statements set forth in Section 4.02(a)(i)-(iv) above shall be
prepared in accordance with GAAP.
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ARTICLE V
ESTABLISHMENT OF TRUST ACCOUNTS; TRANSFER OBLIGATION
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Section 5.01 |
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Collection Account and Distribution Account. |
(a) (1) Establishment of Collection Account. The Servicer, for the benefit of the Noteholders,
shall cause to be established and maintained one or more Collection Accounts (collectively, the
Collection Account), which shall be separate Eligible Accounts entitled Option One Owner Trust
2005-6 Collection Account, Wells Fargo Bank, N.A., as Indenture Trustee, for the benefit of the
Option One Owner Trust 2005-6 Mortgage-Backed Notes. The Collection Account shall be maintained
with a depository institution and shall satisfy the requirements set forth in the definition of
Eligible Account. Funds in the Collection Account shall be invested in accordance with Section 5.03
hereof. Net investment earnings shall not be considered part of funds available in the Collection
Account.
(2) Establishment of Distribution Account. The Servicer, for the benefit of the Noteholders,
shall cause to be established and maintained, one or more Distribution Accounts (collectively, the
Distribution Account), which shall be separate Eligible Accounts, entitled Option One Owner
Trust 2005-6 Distribution Account, Wells Fargo Bank, N.A., as Indenture Trustee, for the benefit of
the Option One Owner Trust 2005-6 Mortgage-Backed Notes. The Distribution Account shall be
maintained with a depository institution and shall satisfy the requirements set forth in the
definition of Eligible Account. Funds in the Distribution Account shall be invested in accordance
with Section 5.03 hereof. The Servicer may, at its option, maintain one account to serve as both
the Distribution Account and the Collection Account, in which case, the account shall be entitled
Option One Owner Trust 2005-6 Collection/Distribution Account, Wells Fargo Bank, N.A., as
Indenture Trustee, for the benefit of the Option One Owner Trust 2005-6 Mortgage-Backed Notes. If
the Servicer makes such an election, all references herein or in any other Basic Document to either
the Collection Account or the Distribution Account shall mean the Collection/Distribution Account
described in the preceding sentence.
(3) The Servicer will inform the Indenture Trustee of the location of any accounts held in the
Indenture Trustees name, including any location to which an account is transferred.
(b) Deposits to Collection Account. The Servicer shall deposit or cause to be deposited
(without duplication):
(i) all payments on or in respect of each Loan collected on or after the
related Transfer Cut-off Date (net, in each case, of any Servicing Compensation
retained therefrom) within two (2) Business Days after receipt thereof;
(ii) all Net Liquidation Proceeds within two (2) Business Days after receipt
thereof;
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(iii) all Mortgage Insurance Proceeds within two (2) Business Days after receipt
thereof;
(iv) all Released Mortgaged Property Proceeds within two (2) Business Days after
receipt thereof;
(v) any amounts payable in connection with the repurchase of any Loan and the amount
of any Substitution Adjustment pursuant to Sections 2.05 and 3.06 hereof concurrently with
payment thereof;
(vi) any Repurchase Price payable in connection with a Servicer Call pursuant to
Section 3.08 hereof concurrently with payment thereof;
(vii) the deposit of the Termination Price under Section 10.02 hereof concurrently
with payment thereof;
(viii) Nonutilization Fees;
(ix) [Reserved];
(x) any payments received under Hedging Instruments or the return of
amounts by the Hedging Counterparty pledged pursuant to prior Hedge Funding
Requirements in accordance with the last sentence of this Section 5.01(b)(1); and
(xi) any Repurchase Price payable in connection with a Servicer Put remitted
by the Loan Originator pursuant to Section 3.08.
Except as otherwise expressly provided in Section 5.01(c)(4)(i), the Servicer agrees that it
will cause the Loan Originator, Borrower or other appropriate Person paying such amounts, as the
case may be, to remit directly to the Servicer for deposit into the Collection Account all amounts
referenced in clauses (i) through (xi) to the extent such amounts are in excess of a Monthly
Payment on the related Loan. To the extent the Servicer receives any such amounts, it will deposit
them into the Collection Account on the same Business Day as receipt thereof.
(c) Withdrawals From Collection Account; Deposits to Distribution Account.
(1) Withdrawals From Collection Account Reimbursement Items. The
Paying Agent shall periodically but in any event on each Determination Date, make the following
withdrawals from the Collection Account prior to any other withdrawals, in no particular order of
priority:
(i) to withdraw any amount not required to be deposited in the Collection Account or deposited
therein in error, including Servicing Compensation;
(ii) to withdraw the Servicing Advance Reimbursement Amount; and
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(iii) to clear and terminate the Collection Account in connection with the termination of this
Agreement.
(2) Deposits to Distribution Account Payment Dates.
(A) On the Business Day prior to each Payment Date, the Paying Agent shall
deposit into the Distribution Account such amounts as are required from the Transfer
Obligation Account pursuant to Sections 5.05(e), 5.05(f), 5.05(g) and 5.05(h).
(B) After making all withdrawals specified in Section 5.01(c)(1) above, on each Remittance
Date, the Paying Agent (based on information provided by the Servicer for such Payment
Date), shall withdraw the Monthly Remittance Amount (or, with respect to an additional
Payment Date pursuant to Section 5.01(c)(4)(ii), all amounts on deposit in the Collection
Account on such date up to the amount necessary to make the payments due on the related
Payment Date in accordance with Section 5.01(c)(3)) from the Collection Account not later
than 5:00 P.M., New York City time and deposit such amount into the Distribution Account.
(C) [Reserved].
(D) The Servicer shall deposit or cause to be deposited in the Distribution
Account any cash Disposition Proceeds pursuant to Section 3.07. To the extent the
Servicer receives such amounts, it will deposit them into the Distribution Account
on the same Business Day as receipt thereof.
(3) Withdrawals From Distribution Account Payment Dates. On each Payment Date, to the extent
funds are available in the Distribution Account, the Paying Agent (based on the information
provided by the Servicer contained in the Servicers Remittance Report for such Payment Date) shall
make withdrawals therefrom for application in the following order of priority:
(i) to distribute on such Payment Date the following amounts in the following
order: (a) to the Indenture Trustee, an amount equal to the Indenture Trustee Fee
and all unpaid Indenture Trustee Fees from prior Payment Dates and all amounts
owing to the Indenture Trustee pursuant to Section 6.07 of the Indenture and not
paid by the Servicer or the Depositor
up to an amount not to exceed $25,000 per annum, (b) to the Custodian, an
amount equal to the Custodian Fee and all unpaid Custodian Fees from prior Payment
Dates, (c) to the Servicer, an amount equal to the Servicing Compensation and all
unpaid Servicing Compensation from prior Payment Dates and all Nonrecoverable
Servicing Advances not previously reimbursed (to the extent not retained from
collections or remitted to the Servicer pursuant to Section 5.01(c)) and (d) to the
Servicer, in trust for the Owner Trustee, an amount equal to the Owner Trustee Fee
and all unpaid Owner Trustee Fees from prior Payment Dates;
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(ii) to distribute on such Payment Date, the Hedge Funding Requirement to the
appropriate Hedging Counterparties;
(iii) to the holders of the Notes pro rata, the sum of the Interest Payment Amount
for such Payment Date and the Interest Carry-Forward Amount for the preceding Payment
Date;
(iv) to the holders of the Notes pro rata, the Overcollateralization Shortfall for
such Payment Date; provided, however, that if (a) a Rapid Amortization Trigger shall have
occurred and not been Deemed Cured or (b) an Event of Default under the Indenture or
Default shall have occurred, the holders of the Notes shall receive, in respect of
principal, all remaining amounts on deposit in the Distribution Account;
(v) to the Purchaser, the Nonutilization Fee for such Payment Date, to the extent
payable, together with any Nonutilization Fees unpaid from any prior Payment Dates;
(vi) to the appropriate Person, amounts in respect of Issuer/Depositor Indemnities
(as defined in the Trust Agreement) and Due Diligence Fees until such amounts are paid in
full;
(vii) to the Transfer Obligation Account, all remaining amounts until the balance
therein equals the Transfer Obligation Target Amount;
(viii) to the Indenture Trustee all amounts owing to the Indenture Trustee pursuant
to Section 6.07 of the Indenture and not paid pursuant to clause
(i) above; and
(ix) to the holders of the Trust Certificates, subject to Section 5.2(b) of
the Trust Agreement, all amounts remaining therein; provided, however, if the Owner
Trustee has notified the Paying Agent that any amounts are due and owing to it and
remain unpaid, then first to the Owner Trustee, such
amounts.
(4) (i) If the Loan Originator or the Servicer, as applicable, repurchases, purchases or
substitutes a Loan pursuant to Section 2.05, 3.06, 3.08(a), 3.08(b) or 3.08(c), then the
Noteholders and the Issuer shall deem such date to be an additional Payment Date and the Issuer
shall provide written notice to the Indenture Trustee and the Paying Agent of such additional
Payment Date at least one Business Day prior to such Payment Date. On such additional Payment Date,
the Loan Originator or the Servicer, in satisfaction of its obligations under 2.05, 3.06, 3.08(a)
3.08(b) or 3.08(c) and in satisfaction of the obligations of the Issuer and the Paying Agent to
distribute such amounts to the Noteholders pursuant to Section 5.01(c), shall remit to the
Noteholders, on behalf of the Issuer and the Paying Agent, an amount equal to the Repurchase Prices
and any Substitution Adjustments (as applicable) to be paid by the Loan Originator or the Servicer
by 12:00 p.m. New York City time, as applicable, under such Section, on such Payment Date, and the
Note Principal Balance will be reduced accordingly. Such amounts shall be deemed deposited into the
Collection Account and the Distribution Account, as
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applicable, and such amounts will be deemed distributed pursuant to the terms of Section 5.01(c).
Upon notice of an additional Payment Date to the Paying Agent and the Indenture Trustee as provided
above, the Paying Agent shall provide the Loan Originator or the Servicer (as applicable)
information necessary so that remittances to the Noteholders pursuant to this clause (4)(i) may be
made by the Loan Originator or the Servicer, as applicable, in compliance with Section 5.02(a)
hereof.
(ii) To the extent that there is deposited in the Collection Account or the
Distribution Account any amounts referenced in Section 5.01(b)(1)(vii) and
5.01(c)(2)(D), the Majority Noteholders and the Issuer may agree, upon reasonable
written notice to the Paying Agent and the Indenture Trustee, to additional Payment
Dates. The Issuer and the Majority Noteholders shall give the Paying Agent and the
Indenture Trustee at least one (1) Business Days written notice prior to such
additional Payment Date and such notice shall specify each amount in Section
5.01(c) to be withdrawn from the Collection Account and Distribution Account on
such day.
(iii) To the extent that there is deposited in the Distribution Account any
amounts referenced in Section 5.05(f), the Majority Noteholders may, in their sole
discretion, establish an additional Payment Date by written notice delivered to the
Paying Agent and the Indenture Trustee at least one Business Day prior to such
additional Payment Date. On such additional Payment Date, the Paying Agent shall
pay the sum of the Overcollateralization Shortfall to the Noteholders in respect of
principal on the Notes.
Notwithstanding that the Notes have been paid in full, the Indenture Trustee, the Paying Agent
and the Servicer shall continue to maintain the Distribution
Account hereunder until this Agreement has been terminated.
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Section 5.02 |
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Payments to Securityholders. |
(a) All distributions made on the Notes on each Payment Date or pursuant to Section 5.04(b) of
the Indenture will be made on a pro rata basis among the Noteholders of record of the Notes on the
next preceding Record Date based on the Percentage Interest represented by their respective Notes,
without preference or priority of any kind, and, except as otherwise provided in the next
succeeding sentence, shall be made by wire transfer of immediately available funds to the account
of such Noteholder, if such Noteholder shall own of record Notes having a Percentage Interest (as
defined in the Indenture) of at least 20% and shall have so notified the Paying Agent and the
Indenture Trustee five (5) Business Days prior to the related Record Date, and otherwise by check
mailed to the address of such Noteholder appearing in the Notes Register. The final distribution on
each Note will be made in like manner, but only upon presentment and surrender of such Note at the
location specified in the notice to Noteholders of such final distribution.
(b) All distributions made on the Trust Certificates on each Payment Date or pursuant to
Section 5.04(b) of the Indenture will be made in accordance with the Percentage Interest among the
holders of the Trust Certificates of record on the next preceding Record Date
- 59 -
based on their Percentage Interests (as defined in the Trust Agreement) on the date of
distribution, without preference or priority of any kind, and, except as otherwise provided in the
next succeeding sentence, shall be made by wire transfer of immediately available funds to the
account of each such holder, if such holder shall own of record a Trust Certificate in an original
denomination aggregating at least 25% of the Percentage Interests and shall have so notified the
Paying Agent and the Indenture Trustee five (5) Business Days prior to the related Record Date, and
otherwise by check mailed to the address of such Certificateholder appearing in the Certificate
Register. The final distribution on each Trust Certificate will be made in like manner, but only
upon presentment and surrender of such Trust Certificate at the location specified in the notice to
holders of the Trust Certificates of such final distribution. Any amount distributed to the holders
of the Trust Certificates on any Payment Date shall not be subject to any claim or interest of the
Noteholders. In the event that at any time there shall be more than one Certificateholder, the
Indenture Trustee shall be entitled to reasonable additional compensation from the Servicer for any
increase in its obligations hereunder.
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Section 5.03 |
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Trust Accounts; Trust Account Property. |
(a) Control of Trust Accounts. Each of the Trust Accounts established hereunder has been
pledged by the Issuer to the Indenture Trustee under the Indenture and shall be subject to the lien
of the Indenture. Amounts distributed from each Trust Account in accordance with the terms of this
Agreement shall be released for the benefit of the Securityholders from the Trust Estate upon such
distribution thereunder or hereunder. The Indenture Trustee shall possess all right, title and
interest in and to all
funds on deposit from time to time in the Trust Accounts and in all proceeds thereof
(including all income thereon) and all such funds, investments, proceeds and income shall be part
of the Trust Account Property and the Trust Estate. If, at any time, any Trust Account ceases to be
an Eligible Account, the Indenture Trustee shall, within ten Business Days (or such longer period,
not to exceed 30 calendar days, with the prior written consent of the Majority Noteholders) (i)
establish a new Trust Account as an Eligible Account, (ii) terminate the ineligible Trust Account,
and (iii) transfer any cash and investments from such ineligible Trust Account to such new Trust
Account.
With respect to the Trust Accounts, the Issuer and the Indenture Trustee agree, that each such
Trust Account shall be subject to the control (in accordance with Section 9-104 of the Uniform
Commercial Code) of the Indenture Trustee for the benefit of the Noteholders, and, except as may be
consented to in writing by the Majority Noteholders, or provided in the related Blocked Account
Agreement, the Indenture Trustee shall have sole signature and withdrawal authority with respect
thereto.
The Servicer (unless it is also the Paying Agent) shall not be entitled to make any
withdrawals or payments from the Trust Accounts.
(b) (1) Investment of Funds. Funds held in the Collection Account, the Distribution Account
and the Transfer Obligation Account may be invested (to the extent practicable and consistent with
any requirements of the Code) in Permitted Investments, as directed by the Servicer prior to the
occurrence of an Event of Default and by the Majority
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Noteholders thereafter, in writing or facsimile transmission confirmed in writing by the Servicer
or Majority Noteholders, as applicable. In the event the Indenture Trustee has not received such
written direction, such Funds shall be invested in any Permitted Investment described in clause (i)
of the definition of Permitted Investments. In any case, funds in the Collection Account, the
Distribution Account and the Transfer Obligation Account must be available for withdrawal without
penalty, and any Permitted Investments must mature or otherwise be available for withdrawal, one
Business Day prior to the next Payment Date and shall not be sold or disposed of prior to its
maturity subject to Subsection (b)(2) of this Section. All interest and any other investment
earnings on amounts or investments held in the Collection Account, the Distribution Account and the
Transfer Obligation Account shall be paid to the Servicer immediately upon receipt by the Indenture
Trustee. All Permitted Investments in which funds in the Collection Account, the Distribution
Account or the Transfer Obligation Account are invested must be held by or registered in the name
of Wells Fargo Bank, N.A., as Indenture Trustee, in trust for the Option One Owner Trust 2005-6
Mortgage-Backed Notes.
(2) Insufficiency and Losses in Trust Accounts. If any amounts are needed for disbursement
from the Collection Account, the Distribution Account or the Transfer Obligation Account held by or
on behalf of the Indenture Trustee
and sufficient uninvested funds are not available to make such disbursement, the Indenture
Trustee shall cause to be sold or otherwise converted to cash a sufficient amount of the
investments in the Collection Account, the Distribution Account or the Transfer Obligation Account,
as the case may be. The Indenture Trustee shall not be liable for any investment loss or other
charge resulting therefrom, unless such loss or charge is caused by the failure of the Indenture
Trustee to perform in accordance with written directions provided pursuant to this Section 5.03.
If any losses are realized in connection with any investment in the Collection Account, the
Distribution Account or the Transfer Obligation Account pursuant to this Agreement during a period
in which the Servicer has the right to direct investments pursuant to Section 5.03(b), then the
Servicer shall deposit the amount of such losses (to the extent not offset by income from other
investments in the Collection Account, the Distribution Account or the Transfer Obligation Account,
as the case may be) into the Collection Account, the Distribution Account or the Transfer
Obligation Account, as the case may be, immediately upon the realization of such loss. All interest
and any other investment earnings on amounts held in the Collection Account, the Distribution
Account and the Transfer Obligation Account shall be taxed to the Issuer and for federal and state
income tax purposes the Issuer shall be deemed to be the owner of the Collection Account, the
Distribution Account and/or the Transfer Obligation Account, as the case may be.
(c) Subject to Section 6.01 of the Indenture, the Indenture Trustee shall not in any way be
held liable by reason of any insufficiency in any Trust Account held by the Indenture Trustee
resulting from any investment loss on any Permitted Investment included therein.
(d) With respect to the Trust Account Property, the Indenture Trustee acknowledges and agrees
that:
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(1) any Trust Account Property that is held in deposit accounts or securities
accounts shall be held solely in the Eligible Accounts, subject to the last
sentence of Subsection (a) of this Section 5.03; and each such Eligible Account
shall be subject to the control (in accordance with Section 9-104 of the Uniform
Commercial Code) of the Indenture Trustee; and, without limitation on the
foregoing, the Indenture Trustee shall have sole signature authority with respect
thereto;
(2) any Trust Account Property that constitutes Physical Property shall be
delivered to the Indenture Trustee in accordance with paragraphs (a) and (b) of the
definition of Delivery in Section 1.01 hereof and shall be held, pending maturity
or disposition, solely by the Indenture Trustee or a securities intermediary (as
such term is defined in Section 8-102(a)(14) of the UCC) acting solely for the
Indenture Trustee;
(3) any Trust Account Property that is a book-entry security held
through the Federal Reserve System pursuant to federal book-entry regulations shall
be delivered in accordance with paragraph (c) of the definition of Delivery in
Section 1.01 hereof and shall be maintained by the Indenture Trustee, pending
maturity or disposition, through continued book-entry registration of such Trust
Account Property as described in such paragraph; and
(4) any Trust Account Property that is an uncertificated security under Article 8
of the UCC and that is not governed by clause (3) above shall be delivered to the
Indenture Trustee in accordance with paragraph (d) of the definition of Delivery
in Section 1.01 hereof and shall be maintained by the Indenture Trustee, pending
maturity or disposition, through continued registration of the Indenture Trustees
(or its nominees) ownership of such security.
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Section 5.04 |
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Advance Account. |
(a) The Servicer shall cause to be established and maintained in its name, an Advance Account
(the Advance Account), with respect to which a Blocked Account Agreement acceptable to the
Purchaser shall be duly executed. The Advance Account shall be a separate Eligible Account. The
Advance Account shall be maintained with a financial institution acceptable to the Purchaser and
shall be maintained for and on behalf of the Purchaser, entitled Lehman Brothers Bank, for the
benefit of the Issuer, Re: Custodial Agreement dated as of June 1, 2005. Amounts in the Advance
Account may not be invested.
(b) Deposits and Withdrawals. Amounts in respect of the transfer of Additional Note Principal
Balances and Loans shall be deposited into and withdrawn from the Advance Account as provided in
Sections 2.01(c) and 2.06 hereof and Section 3.01 of the Note Purchase Agreement. Any amounts on
deposit in the Advance Account but not applied on any Transfer Date shall remain in the Advance
Account and may be applied to any subsequent transfer of Additional Note Principal Balances and
Loans, subject to the conditions set forth in Sections 2.01(c) and 2.06 hereof and Section 3.01 of
the Note Purchase Agreement.
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Section 5.05 |
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Transfer Obligation Account. |
(a) The Servicer, for the benefit of the Noteholders, shall cause to be established and
maintained in the name of the Indenture Trustee a Transfer Obligation Account (the Transfer
Obligation Account), which shall be a separate Eligible Account and may be interest-bearing,
entitled Option One Owner Trust 2005-6 Transfer Obligation Account, Wells Fargo Bank, N.A., as
Indenture Trustee, in trust for the Option One Owner Trust 2005-6 Mortgage-Backed Notes. The
Indenture Trustee shall have no monitoring or calculation obligation with respect to withdrawals
from the Transfer Obligation Account. Amounts in the Transfer Obligation Account shall be invested
in accordance with Section 5.03.
(b) In accordance with Section 5.06, the Loan Originator shall deposit into the Transfer
Obligation Account any amounts as may be required thereby.
(c) On each Payment Date, the Paying Agent will deposit in the Transfer Obligation Account any
amounts required to be deposited therein pursuant to Section 5.01(c)(3)(vii).
(d) On the date of each Disposition, the Paying Agent shall withdraw from the Transfer
Obligation Account such amount on deposit therein in respect of the payment of Transfer Obligations
as may be requested by the Disposition Agent in writing to effect such Disposition.
(e) On each Payment Date, the Paying Agent shall withdraw from the Transfer Obligation Account
and deposit into the Distribution Account on such Payment Date the lesser of (x) the amount then on
deposit in the Transfer Obligation Account and (y) the Interest Carry-Forward Amount as of such
date.
(f) If with respect to any Business Day there exists an Overcollateralization Shortfall, the
Paying Agent, upon the written direction of the Majority Noteholders, shall withdraw from the
Transfer Obligation Account and deposit into the Distribution Account on such Business Day the
lesser of (x) the amount then on deposit in the Transfer Obligation Account and (y) the amount of
such Overcollateralization Shortfall as of such date.
(g) If with respect to any Payment Date there shall exist a Hedge Funding Requirement, the
Paying Agent, upon the written direction of the Servicer or the Majority Noteholders, shall
withdraw from the Transfer Obligation Account and deposit into the Distribution Account on the
Business Day prior to such Payment Date the lesser of (x) the amount then on deposit in the
Transfer Obligation Account (after making all other required withdrawals therefrom with respect to
such Payment Date) and (y) the amount of such Hedge Funding Requirement as of such date.
(h) In the event of the occurrence of an Event of Default under the Indenture, the Paying
Agent shall withdraw all remaining funds from the Transfer Obligation Account and apply such funds
in satisfaction of the Notes as provided in Section 5.04(b) of the Indenture.
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(i) (i) The Paying Agent shall return to the Loan Originator all amounts on deposit in the
Transfer Obligation Account (after making all other withdrawals pursuant to this Section 5.05)
until the Majority Noteholders provide written notice to the Indenture Trustee (with a copy to the
Loan Originator and the Servicer) of the occurrence of a default or event of default (however
defined) under any Basic Document with respect to the Issuer, the Depositor, the Loan Originator or
any of their Affiliates and (ii) upon the date of the termination of this Agreement pursuant to
Article X, the Paying Agent shall withdraw any remaining amounts from the Transfer Obligation
Account and remit all such amounts to the Loan Originator.
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Section 5.06 |
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Transfer Obligation. |
(a) In consideration of the transactions contemplated by the Basic Documents, the Loan
Originator agrees and covenants with the Depositor that:
(i) In connection with each Disposition it shall fund, or cause to be funded,
reserve funds, pay credit enhancer fees, pay, or cause to be paid, underwriting
fees, fund any negative difference between the cash Disposition Proceeds and the
aggregate Note Principal Balance at the time of such Disposition, and make, or
cause to be made, such other payments as may be, in the reasonable opinion of the
Disposition Agent, commercially reasonably necessary to effect Dispositions, in
each case to the extent that Disposition Proceeds are insufficient to pay such
amounts;
(ii) In connection with Hedging Instruments, on the Business Day prior to each
Payment Date, it shall deliver to the Servicer for deposit into the Transfer
Obligation Account any Hedge Funding Requirement (to the extent amounts available
on the related Payment Date pursuant to Section 5.01 are insufficient to make such
payment), when, as and if due to any Hedging Counterparty;
(iii) If any Interest Carry-Forward Amount shall occur, it shall deposit into
the Transfer Obligation Account any such Interest Carry-Forward Amount on or before
the Business Day preceding such related Payment Date;
(iv) If on any Business Day there exists an Overcollateralization Shortfall,
upon the written direction of the Majority Noteholders, it shall on such Business
Day deposit into the Transfer Obligation Account the full amount of the
Overcollateralization Shortfall as of such date, provided, that in the event that
notice of such Overcollateralization Shortfall is provided to the Loan Originator
after 3:00 p.m. New York City time, the Loan Originator shall make such deposit on
the following Business Day;
(v) If on any applicable Payment Date, the amount available to pay the
Nonutilization Fee is insufficient, it shall deposit the amount of such shortfall
on the Business Day prior to such Payment Date; and
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(vi) Notwithstanding anything to the contrary herein, in the event of the
occurrence of an Event of Default under the Indenture, the Loan Originator shall
promptly deposit into the Transfer Obligation Account the entire amount of the
Unfunded Transfer Obligation;
provided, that notwithstanding anything to the contrary contained herein, the Loan Originators
cumulative payments under or in respect of the Transfer Obligations (after subtracting therefrom
any amounts returned to the Loan Originator pursuant to Section 5.05(i)(i)) together with the
Servicers payments in respect of any Servicer Puts shall not in the aggregate exceed the Unfunded
Transfer Obligation.
(b) The Loan Originator agrees that the Noteholders, as ultimate assignee of the rights of the
Depositor under this Agreement and the other Basic Documents, may enforce the rights of the
Depositor directly against the Loan Originator.
ARTICLE VI
STATEMENTS AND REPORTS; SPECIFICATION OF TAX MATTERS
(a) No later than 12:00 noon (New York City time) on each Remittance Date, the Servicer shall
deliver to the Indenture Trustee and the Noteholders by electronic transmission, the receipt and
legibility of which shall be confirmed by telephone, and with hard copy thereof to be delivered no
later than one (1) Business Day after such Remittance Date, the Servicers Remittance Report,
setting forth the date of such Report (day, month and year), the name of the Issuer (i.e., Option
One Owner Trust 2005-6), and the date of this Agreement, all in substantially the form set out in
Exhibit B hereto. Furthermore, on each Remittance Date, the Servicer shall deliver to the Indenture
Trustee and the Noteholders a data file providing, with respect to each Loan in the Loan Pool as of
the last day of the related Remittance Period (i) if such Loan is an ARM, the current Loan Interest
Rate; (ii) the Principal Balance with respect to such Loan; (iii) the date of the last Monthly
Payment paid in full; and (iv) such other information as may be reasonably requested by the
Noteholder Agent and the Indenture Trustee. In addition, no later than 12:00 noon (New York City
time) on the 15th day of each calendar month (or if such day is not a Business Day, the preceding
Business Day), the Custodian shall prepare and provide to the Servicer and the Indenture Trustee by
facsimile, the Custodian Fee Notice for the Payment Date falling in such calendar month.
(b) No later than 12:00 noon (New York City time) on each Remittance Date, the Servicer shall
prepare (or cause to be prepared) and provide to the Indenture Trustee electronically, receipt
confirmed by telephone, and each Noteholder, a statement (the Payment Statement), stating each
date and amount of a purchase of Additional Note Principal Balance (day, month and year), the name
of the Issuer (i.e., Option One Owner Trust 2005-6), the date of this Agreement, restating all of
the information set forth in the Loan Schedule for all Loans as of such Remittance Date and the
following information:
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(1) the aggregate amount of collections in respect of principal of the Loans received by the
Servicer during the preceding Remittance Period;
(2) the aggregate amount of collections in respect of interest on the Loans received by the
Servicer during the preceding Remittance Period;
(3) all Mortgage Insurance Proceeds received by the Servicer during the preceding Remittance
Period and not required to be applied to restoration or repair of the related Mortgaged Property or
returned to the Borrower under applicable law or pursuant to the terms of the applicable Mortgage
Insurance Policy;
(4) all Net Liquidation Proceeds deposited by the Servicer into the Collection Account during
the preceding Remittance Period;
(5) all Released Mortgaged Property Proceeds deposited by the Servicer into the Collection
Account during the preceding Remittance Period;
(6) the aggregate amount of all Servicing Advances made by the Servicer during the preceding
Remittance Period;
(7) the aggregate of all amounts deposited into the Distribution Account in respect of the
repurchase of Unqualified Loans and the repurchase of Loans pursuant to Section 2.05 hereof during
the preceding Remittance Period;
(8) the aggregate Principal Balance of all Loans for which a Servicer Call was exercised
during the preceding Remittance Period;
(9) the aggregate Principal Balance of all Loans for which a Servicer Put was exercised during
the preceding Remittance Period;
(10) the aggregate amount of all payments received under Hedging Instruments during the
preceding Remittance Period;
(11) the aggregate amount of all withdrawals from the Distribution Account pursuant to Section
5.01(c)(1)(i) hereof during the preceding Remittance Period;
(12) the aggregate amount of cash Disposition Proceeds received during the preceding
Remittance Period;
(13) withdrawals from the Collection Account in respect of the Servicing Advance Reimbursement
Amount with respect to the related Payment Date;
(14) [reserved];
(15) the number and aggregate Principal Balance of all Loans that are
(i) 30-59 days Delinquent, (ii) 60- 89 days Delinquent, (iii) 90 or more days Delinquent as of the
end of the related Remittance Period;
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(16) the aggregate amount of Liquidated Loan Losses incurred (i) during the preceding
Remittance Period, and (ii) during the preceding three Remittance Periods;
(17) the aggregate of the Principal Balances of all Loans in the Loan Pool as of the end of
the related Remittance Period;
(18) the aggregate amount of all deposits into the Distribution Account from the Transfer
Obligation Account pursuant to Sections 5.05(e), 5.05(f), 5.05(g), and 5.05(h) on the related
Payment Date;
(19) the aggregate amount of distributions in respect of Servicing Compensation to the
Servicer, and unpaid Servicing Compensation from prior Payment Dates for the related Payment Date;
(20) the aggregate amount of distributions in respect of Indenture Trustee Fees and unpaid
Indenture Trustee Fees from prior Payment Dates for the related Payment Date;
(21) the aggregate amount of distributions in respect of the Custodian Fee and unpaid
Custodian Fees from prior Payment Dates for the related Payment Date;
(22) the aggregate amount of distributions in respect of the Owner Trustee Fees and unpaid
Owner Trustee Fees from prior Payment Dates and for the related Payment Date;
(23) the Unfunded Transfer Obligation and Overcollateralization Shortfall on such Payment Date
for the related Payment Date;
(24) the aggregate amount of distributions to the Transfer Obligation Account for the related
Payment Date;
(25) the aggregate amount of distributions in respect of Trust/Depositor Indemnities for the
related Payment Date;
(26) the aggregate amount of distributions to the holders of the Trust Certificates for the
related Payment Date;
(27) the Note Principal Balance of the Notes as of the last day of the related Remittance
Period (without taking into account any Additional Note Principal Balance between the last day of
such Remittance Period and the related Payment Date) before and after giving effect to
distributions made to the holders of the Notes for such Payment Date;
(28) the Pool Principal Balance as of the end of the preceding Remittance Period; and
(29) whether a Performance Trigger or a Rapid Amortization
Trigger shall exist with respect to such Payment Date.
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Such Payment Statement shall also be provided on the Remittance Date to the Noteholders and
Indenture Trustee in the form of a data file in a form mutually agreed to by and between the
Noteholders, the Indenture Trustee and the Servicer. The Indenture Trustee shall have no duty to
monitor the occurrence of a Performance Trigger, Rapid Amortization Trigger or any events resulting
in withdrawals from the Transfer Obligation Account.
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Section 6.02 |
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Specification of Certain Tax Matters. |
The Paying Agent shall comply with all requirements of the Code and applicable state and local
law with respect to the withholding from any distributions made to any Securityholder of any
applicable withholding taxes imposed thereon and with respect to any applicable reporting
requirements in connection therewith, giving due effect to any applicable exemptions from such
withholding and effective certifications or forms provided by the recipient. Any amounts withheld
pursuant to this Section 6.02 shall be deemed to have been distributed to the Securityholders, as
the case may be, for all purposes of this Agreement. The Indenture Trustee shall have no
responsibility for preparing or filing any tax returns.
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Section 6.03 |
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Valuation of Loans, Hedge Value and Retained Securities Value; Market Value Agent. |
(a) The Noteholders hereby irrevocably appoint, and the Issuer hereby consents to the
appointment of, the Market Value Agent as agent on behalf of the Noteholders to determine the
Market Value of each Loan, the Hedge Value of each Hedging Instrument and the Retained Securities
Value of all Retained Securities.
(b) Except as otherwise set forth in Section 3.07, on each Business Day, the Market Value
Agent shall determine the Market Value of each Loan, for the purposes of the Basic Documents, in
its sole discretion exercised in good faith. In determining the Market Value of each Loan, the
Market Value Agent may consider any information that it may deem relevant, including, without
limitation, the expected proceeds of the sale of such Loan following the occurrence and
continuation of an Event of Default. The Market Value Agents determination, in its sole
discretion, of Market Value shall be conclusive and binding upon the parties hereto, absent
manifest error (including without limitation, any error contemplated in Section 2.08).
(c) On each Business Day the Market Value Agent shall determine in its sole judgment the Hedge
Value of each Hedging Instrument as of such Business Day. In making such determination the Market
Value Agent may rely exclusively on quotations provided by the Hedging Counterparty, by leading
dealers in instruments similar to such Hedging Instrument, which leading dealers may include the
Market Value
Agent and its Affiliates and such other sources of information as the Market Value Agent may
deem appropriate.
On each Business Day, the Market Value Agent shall determine in its sole judgment the Retained
Securities Value of the Retained Securities, if any, expected to be issued pursuant to such
Securitization as of the closing date of such Securitization. In making such determination the
Market Value Agent may rely exclusively on quotations provided by leading dealers in instruments
similar to such Retained Securities, which leading dealers may include the
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Market Value Agent and its Affiliates and such other sources of information as the Market Value
Agent may deem appropriate.
ARTICLE VII
HEDGING; FINANCIAL COVENANTS
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Section 7.01 |
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Hedging Instruments. |
(a) On each Transfer Date, the Trust shall enter into such Hedging Instruments as the Market
Value Agent, on behalf of the Noteholders, shall determine are necessary in order to hedge the
interest rate risk with respect to the Loans being purchased on such Transfer Date. The Market
Value Agent shall determine, in its sole discretion, whether any Hedging Instrument conforms to the
requirements of Section 7.01(b), (c) and (d).
(b) Each Hedging Instrument shall expressly provide that in the event of a Disposition or
other removal of the Loan from the Trust, such portion of the Hedging Instrument shall terminate as
the Disposition Agent deems appropriate to facilitate the hedging of the risks specified in Section
7.01(a). In the event that the Hedging Instrument is not otherwise terminated, it shall contain
provisions that allow the position of the Trust to be assumed by an Affiliate of the Trust upon the
liquidation of the Trust. The terms of the assignment documentation and the credit quality of the
successor to the Trust shall be subject to the Hedging Counterpartys approval.
(c) Any Hedging Instrument that provides for any payment obligation on the part of the Issuer
must (i) be without recourse to the assets of the Issuer, (ii) contain a non-petition covenant
provision in the form of Section 11.13, (iii) limit payment dates thereunder to Payment Dates and
(iv) contain a provision limiting any cash payments due on any day under such Hedging Instrument
solely to funds available therefor in the Collection Account on such day pursuant to Section
5.01(c)(3)(ii) hereof and funds available therefor in the Transfer Obligation Account.
(d) Each Hedging Instrument must (i) provide for the direct payment of any amounts thereunder
to the Collection Account pursuant to Section 5.01(b)(1)(x), (ii) contain an assignment of all of
the Issuers rights (but none of its obligations) under
such Hedging Instrument to the Indenture Trustee and shall include an express consent to the
Hedging Counterparty to such assignment, (iii) provide that in the event of the occurrence of an
Event of Default, such Hedging Instrument shall terminate upon the direction of the Majority
Noteholders, (iv) prohibit the Hedging Counterparty from setting-off or netting other
obligations of the Issuer or its Affiliates against such Hedging Counterpartys payment obligations
thereunder, (v) provide that the appropriate portion of the Hedging Instrument will terminate upon
the removal of the related Loans from the Trust Estate and (vi) have economic terms that are fixed
and not subject to alteration after the date of assumption or execution.
(e) If agreed to by the Majority Noteholders, the Issuer may pledge its assets in order to
secure its obligations in respect of Hedge Funding Requirements, provided that such
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right shall be limited solely to Hedging Instruments for which an Affiliate of the Initial
Noteholder is a Hedging Counterparty.
(f) The aggregate notional amount of all Hedging Instruments shall not exceed the Note
Principal Balance as of the date on which each Hedging Instrument is entered into by the Issuer and
a Hedging Counterparty.
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Section 7.02 |
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Financial Covenants. |
(a) Each of the Loan Originator and the Servicer shall maintain a minimum Tangible Net Worth
$425 million as of any day.
(b) Each of the Loan Originator and the Servicer shall maintain a ratio of 1.0 or greater at
any time pursuant to the Capital Adequacy Test, attached as Exhibit G hereto.
(c) Neither the Loan Originator nor the Servicer may exceed a maximum non-warehouse leverage
ratio (the ratio of (i) the sum of (A) all funded debt (excluding debt from H&R Block, Inc. or any
of its Affiliates and all non-recourse debt) less (B) 91% of its mortgage loan inventory held for
sale less (C) 90% of servicing advance receivables (determined and valued in accordance with GAAP)
to (ii) Tangible Net Worth) of 0.50x at any time. Any direct or indirect debt provided by H&R
Block, Inc. will be subject to a subordination agreement; or, if H&R Block, Inc. does not enter
into a subordination agreement, the maximum permitted non-warehouse leverage ratio including debt
from H&R Block, Inc. will be 1.0x at any time, provided, that no more than 0.5x of such
non-warehouse leverage ratio can be funded by entities not affiliated with Option One or H&R Block,
Inc.
(d) Each of the Loan Originator and the Servicer shall maintain a minimum liquidity facility
(defined as a committed, unsecured, non-amortizing liquidity facility from H&R Block, Inc. not to
mature (scheduled or accelerated) prior to the Maturity Date) in an amount no less than $150
million. Such facility from H&R Block,
Inc. cannot contain covenants or termination events more restrictive than the covenants or
termination events contained in the Basic Documents.
(e) Each of the Loan Originator and the Servicer shall maintain a minimum Net Income
(defined and determined in accordance with GAAP) of at least $1 based on the total of the current
quarter combined with the previous three quarters
(f) Each of the Loan Originator and the Servicer, on a quarterly basis, shall provide the
Noteholder Agent with an Officers Certificate stating that the Loan Originator or the Servicer, as
the case may be, is in compliance with the financial covenants set forth in this Section 7.02 and
the details of such compliance.
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ARTICLE VIII
THE SERVICER
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Section 8.01 |
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Indemnification; Third Party Claims. |
(a) The Servicer shall indemnify the Loan Originator, the Owner Trustee, the Trust, the
Depositor, the Indenture Trustee and the Noteholders, their respective officers, directors,
employees, agents and control persons, as such term is used under the Act and under the
Securities Exchange Act of 1934 as amended (each a Servicer Indemnified Party) and hold harmless
each of them against any and all claims, losses, damages, penalties, fines, forfeitures, reasonable
legal fees and related costs, judgments, and other costs and expenses resulting from any claim,
demand, defense or assertion based on or grounded upon, or resulting from, a breach of any of the
Servicers representations and warranties and covenants contained in this Agreement or in any way
relating to the failure of the Servicer to perform its duties and service the Loans in compliance
with the terms of this Agreement except to the extent such loss arises out of such Servicer
Indemnified Partys gross negligence or willful misconduct; provided, however, that if the Servicer
is not liable pursuant to the provisions of Section 8.01(b) hereof for its failure to perform its
duties and service the Loans in compliance with the terms of this Agreement, then the provisions of
this Section 8.01 shall have no force and effect with respect to such failure.
(b) None of the Loan Originator, the Depositor or the Servicer or any of their respective
Affiliates, directors, officers, employees or agents shall be under any liability to the Owner
Trustee, the Issuer, the Indenture Trustee or the Securityholders for any action taken, or for
refraining from the taking of any action, in good faith pursuant to this Agreement, or for errors
in judgment; provided, however, that this provision shall not protect the Loan Originator, the
Depositor, the Servicer or any of their respective Affiliates, directors, officers, employees,
agents against the remedies provided herein for the breach of any warranties, representations or
covenants made herein, or against any expense or liability specifically required to be borne by
such party without right of reimbursement pursuant to the terms hereof, or against any expense or
liability which would otherwise be imposed by reason of misfeasance, bad faith or negligence in the
performance of the respective duties of the Servicer, the Depositor or the Loan Originator, as
the case may be. The Loan Originator, the Depositor, the Servicer and any of their respective
Affiliates, directors, officers, employees, agents may rely in good faith on any document of any
kind which, prima facie, is properly executed and submitted by any Person respecting any matters
arising hereunder.
(c) The Loan Originator agrees to indemnify and hold harmless the Depositor and the
Noteholders, as the ultimate assignees from the Depositor (each an Originator Indemnified Party,
together with the Servicer Indemnified Parties, the Indemnified Parties), from and against any
loss, liability, expense, damage, claim or injury arising out of or based on (i) any breach of any
representation, warranty or covenant of the Loan Originator, the Servicer or their Affiliates, in
any Basic Document, including, without limitation, the origination or prior servicing of the Loans
by reason of any acts, omissions, or alleged acts or omissions arising out of activities of the
Loan Originator, the Servicer or their Affiliates, and (ii) any untrue statement
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by the Loan Originator, the Servicer or its Affiliates of any material fact or any such Persons
failure to state a material fact necessary to make such statements not misleading with respect to
any such Persons statements contained in any Basic Document, including, without limitation, any
Officers Certificate, statement, report or other document or information prepared by any such
Person and furnished or to be furnished by it pursuant to or in connection with the transactions
contemplated thereby and not corrected prior to completion of the relevant transaction including,
without limitation, such written information as may have been and may be furnished in connection
with any due diligence investigation with respect to the Loans or any such Persons business,
operations or financial condition, including reasonable attorneys fees and other costs or expenses
incurred in connection with the defense of any actual or threatened action, proceeding or claim;
provided that the Loan Originator shall not indemnify an Originator Indemnified Party to the extent
such loss, liability, expense, damage or injury is due to either an Originator Indemnified Partys
willful misfeasance, bad faith or negligence or by reason of an Originator Indemnified Partys
reckless disregard of its obligations hereunder; provided, further, that the Loan Originator shall
not be so required to indemnify an Originator Indemnified Party or to otherwise be liable hereunder
or under any provision of the Basic Documents to an Originator Indemnified Party for any losses in
respect of the performance of the Loans, the insolvency, bankruptcy, delinquency, creditworthiness
and similar characteristics of the Borrowers under the Loans, the uncollectability of any
principal, interest, and any other charges (including late fees) under such loans, changes in the
market value of the Loans or other similar investment risks associated with the Loans arising from
a breach of any representation or warranty set forth in Exhibit E hereto, the sole remedy for the
breach of which is provided in Section 3.06 hereof. The provisions of this indemnity shall run
directly to and be enforceable by an Originator Indemnified Party subject to the limitations
hereof.
(d) With respect to a claim subject to indemnity hereunder made by any Person against an
Indemnified Party (a Third Party Claim), such Indemnified Party
shall notify the related indemnifying parties (each an Indemnifying Party) in writing of the
Third Party Claim within a reasonable time after receipt by such Indemnified Party of written
notice of the Third Party Claim unless the Indemnifying Parties shall have previously obtained
actual knowledge thereof. Thereafter, the Indemnified Party shall deliver to the Indemnifying
Parties, within a reasonable time after the Indemnified Partys receipt thereof, copies of all
notices and documents (including court papers) received by the Indemnified Party relating to the
Third Party Claim. No failure to give such notice or deliver such documents shall effect the rights
to indemnity hereunder. Each Indemnifying Party shall promptly notify the Indenture Trustee and the
Indemnified Party (if other than the Indenture Trustee) of any claim of which it has been notified
and shall promptly notify the Indenture Trustee and the Indemnified Party (if applicable) of its
intended course of action with respect to any claim.
(e) If a Third Party Claim is made against an Indemnified Party, while maintaining control
over its own defense, the Indemnified Party shall cooperate and consult fully with the Indemnifying
Party in preparing such defense, and the Indemnified Party may defend the same in such manner as it
may deem appropriate, including settling such claim or litigation after giving notice to the
Indemnifying Party of such terms and the Indemnifying Party will promptly reimburse the Indemnified
Party upon written request; provided, however, that the Indemnified Party may not settle any claim
or litigation without the consent of the Indemnifying
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Party; provided, further, that the Indemnifying Party shall have the right to reject the selection
of counsel by the Indemnified Party if the Indemnifying Party reasonably determines that such
counsel is inappropriate in light of the nature of the claim or litigation and shall have the right
to assume the defense of such claim or litigation if the Indemnifying Party determines that the
manner of defense of such claim or litigation is unreasonable.
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Section 8.02 |
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Merger or Consolidation of the Servicer. |
The Servicer shall keep in full effect its existence, rights and franchises as a corporation,
and will obtain and preserve its qualification to do business as a foreign corporation and maintain
such other licenses and permits in each jurisdiction necessary to protect the validity and
enforceability of each Basic Document to which it is a party and each of the Loans and to perform
its duties under each Basic Document to which it is a party; provided, however, that the Servicer
may merge or consolidate with any other corporation upon the satisfaction of the conditions set
forth in the following paragraph.
Subject to the prior written consent of the Majority Noteholders, any Person into which the
Servicer may be merged or consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Servicer shall be a party, or any Person succeeding to the business of
the Servicer, shall be the successor of the Servicer, as applicable hereunder, without the
execution or filing of any paper or any further act on the part of any of the parties hereto,
anything herein to the contrary notwithstanding. The Servicer shall send notice of any such merger,
conversion, consolidation or succession to the Indenture Trustee and the Issuer.
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Section 8.03 |
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Limitation on Liability of the Servicer and Others. |
The Servicer and any director, officer, employee or agent of the Servicer may rely on any
document of any kind which it in good faith reasonably believes to be genuine and to have been
adopted or signed by the proper authorities respecting any matters arising hereunder. Subject to
the terms of Section 8.01 hereof, the Servicer shall have no obligation to appear with respect to,
prosecute or defend any legal action which is not incidental to the Servicers duty to service the
Loans in accordance with this Agreement.
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Section 8.04 |
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Servicer Not to Resign; Assignment. |
The Servicer shall not resign from the obligations and duties hereby imposed on it except (a)
with the consent of the Majority Noteholders or (b) upon determination that its duties hereunder
are no longer permissible under applicable law. Any such determination pursuant to clause (b) of
the preceding sentence permitting the resignation of the Servicer shall be evidenced by an
Independent opinion of counsel to such effect delivered (at the expense of the Servicer) to the
Indenture Trustee and the Majority Noteholders. No resignation of the Servicer shall become
effective until a successor servicer, appointed pursuant to the provisions of Section 9.02 hereof
shall have assumed the Servicers responsibilities, duties, liabilities (other than those
liabilities arising prior to the appointment of such successor) and obligations under this
Agreement.
Except as expressly provided herein, the Servicer shall not assign or transfer any of its
rights, benefits or privileges hereunder to any other Person, or delegate to or subcontract
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with, or authorize or appoint any other Person to perform any of the duties, covenants or
obligations to be performed by the Servicer hereunder and any agreement, instrument or act
purporting to effect any such assignment, transfer, delegation or appointment shall be void.
The Servicer agrees to cooperate with any successor Servicer in effecting the transfer of the
Servicers servicing responsibilities and rights hereunder pursuant to the first paragraph of this
Section 8.04, including, without limitation, the transfer to such successor of all relevant records
and documents (including any Loan Files in the possession of the Servicer) and all amounts received
with respect to the Loans and not otherwise permitted to be retained by the Servicer pursuant to
this Agreement. In addition, the Servicer, at its sole cost and expense, shall prepare, execute and
deliver any and all documents and instruments to the successor Servicer including all Loan Files in
its possession and do or accomplish all other acts necessary or appropriate to effect such
termination and transfer of servicing responsibilities.
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Section 8.05 |
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Relationship of Servicer to Issuer and the Indenture Trustee. |
The relationship of the Servicer (and of any successor to the Servicer as servicer under this
Agreement) to the Issuer, the Owner Trustee and the Indenture Trustee
under this Agreement is intended by the parties hereto to be that of an independent contractor
and not of a joint venturer, agent or partner of the issuer, the Owner Trustee or the Indenture
Trustee.
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Section 8.06 |
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Servicer May Own Securities. |
Each of the Servicer and any Affiliate of the Servicer may in its individual or any other
capacity become the owner or pledgee of Securities with the same rights as it would have if it were
not the Servicer or an Affiliate thereof except as otherwise specifically provided herein;
provided, however, that at any time that Option One or any of its Affiliates is the Servicer,
neither the Servicer nor any of its Affiliates (other than an Affiliate which is a corporation
whose purpose is limited to holding securities and related activities and which cannot incur
recourse debt) may be a Noteholder. Securities so owned by or pledged to the Servicer or such
Affiliate shall have an equal and proportionate benefit under the provisions of this Agreement,
without preference, priority, or distinction as among all of the Securities; provided, however,
that any Securities owned by the Servicer or any Affiliate thereof, during the time such Securities
are owned by them, shall be without voting rights for any purpose set forth in this Agreement
unless the Servicer or such Affiliate owns all outstanding Securities of the related class. The
Servicer shall notify the Indenture Trustee promptly after it or any of its Affiliates becomes the
owner or pledgee of a Security.
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Section 8.07 |
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Indemnification of the Indenture Trustee and the Noteholder Agent. |
The Servicer agrees to indemnify the Indenture Trustee and its employees, officers, directors
and agents, and reimburse its reasonable out-of-pocket expenses in accordance with Section 6.07 of
the Indenture as if it was a signatory thereto. The Servicer agrees to indemnify the Noteholder
Agent in accordance with Section 9.01 of the Note Purchase Agreement as if it were signatory
thereto.
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ARTICLE IX
SERVICER EVENTS OF DEFAULT
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Section 9.01 |
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Servicer Events of Default. |
(a) In case one or more of the following Servicer Events of Default shall occur and be
continuing, that is to say:
(1) any failure by Servicer to deposit into the Collection Account or the Distribution Account
or any failure by the Servicer to make payments therefrom in accordance with Section 5.01; or
(2) any failure on the part of the Servicer duly to observe or perform in any material respect
any other of the material covenants or agreements on the part of the Servicer, contained in any
Basic Document to which it is a party, which
continues unremedied for a period of 30 days (or, in the case of payment of insurance
premiums, for a period of 15 days) after the date on which written notice of such failure,
requiring the same to be remedied, shall have been given to the Servicer by any other party hereto
or to the Servicer (with copy to each other party hereto), by Holders of 25% of the Percentage
Interests of the Notes or the Trust Certificates; or
(3) any breach on the part of the Servicer of any representation or warranty contained in any
Basic Document to which it is a party that materially and adversely affects the interests of any of
the parties hereto or any Securityholder and which continues unremedied for a period of 30 days
after the date on which notice of such breach, requiring the same to be remedied, shall have been
given to the Servicer by any other party hereto or to the Servicer (with copy to each other party
hereto), by the Noteholder Agent or Holders of 25% of the Percentage Interests (as defined in the
Indenture) of the Notes; or
(4) there shall have been commenced before a court or agency or supervisory authority having
jurisdiction in the premises an involuntary proceeding against the Servicer under any present or
future federal or state bankruptcy, insolvency or similar law for the appointment of a conservator,
receiver, liquidator, trustee or similar official in any bankruptcy, insolvency, readjustment of
debt, marshaling of assets and liabilities or similar proceedings, or for the winding-up or
liquidation of its affairs, which action shall not have been dismissed for a period of 60 days; or
(5) the Servicer shall consent to the appointment of a conservator, receiver, liquidator,
trustee or similar official in any bankruptcy, insolvency, readjustment of debt, marshaling of
assets and liabilities or similar proceedings of or relating to it or of or relating to all or
substantially all of its property; or
(6) the Servicer (or the Loan Originator if the Servicer is not Option One) fails to comply
with the Financial Covenants; or
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(7) the Servicer ceases to be a 100% indirect wholly-owned subsidiary of H&R Block Inc.; or
(8) the Servicer shall admit in writing its inability to pay its debts generally as they
become due, file a petition to take advantage of any applicable bankruptcy, insolvency or
reorganization statute, make an assignment for the benefit of its creditors, voluntarily suspend
payment of its obligations, or take any corporate action in furtherance of the foregoing.
Then, and in each and every such case, so long as a Servicer Event of Default shall not have
been remedied, the Indenture Trustee or the Majority Noteholders, by notice in writing to the
Servicer may, in addition to whatever rights such Person may have at law or in equity to damages,
including injunctive relief and specific performance, may terminate all the rights and obligations
of the Servicer under this Agreement and in and to the Loans and the proceeds thereof, as servicer
under this Agreement. Upon
receipt by the Servicer of such written notice, all authority and power of the Servicer under
this Agreement, whether with respect to the Loans or otherwise, shall, subject to Section 9.02
hereof, pass to and be vested in a successor servicer, and the successor servicer is hereby
authorized and empowered to execute and deliver, on behalf of the Servicer, as attorney-in-fact or
otherwise, any and all documents and other instruments and do or cause to be done all other acts or
things necessary or appropriate to effect the purposes of such notice of termination, including,
but not limited to, the transfer and endorsement or assignment of the Loans and related documents.
The Servicer agrees to cooperate with the successor servicer in effecting the termination of the
Servicers responsibilities and rights hereunder, including, without limitation, the transfer to
the successor servicer for administration by it of all amounts which shall at the time be credited
by the Servicer to each Collection Account or thereafter received with respect to the Loans.
(b) Upon the occurrence of (i) an Event of Default or Default under any of the Basic
Documents, (ii) a Servicer Event of Default under this Agreement, (iii) a Rapid Amortization
Trigger or (iv) an event that shall have a reasonable possibility of materially impairing the
ability of the Servicer to service and administer the Loans in accordance with the terms and
provisions set forth in the Basic Documents (each, a Term Event), the Servicers right to service
the Loans pursuant to the terms of this Agreement shall be in effect for an initial period
commencing on the date on which such Term Event occurred and shall automatically terminate at 5:00
p.m., New York City time, on the last Business Day of the calendar month in which such Term Event
occurred (the Initial Term). Thereafter, the Initial Term shall be extendible in the sole
discretion of the Majority Noteholders by written notice (each, a Servicer Extension Notice) of
the Noteholders for successive one-month terms (each such term ending at 5:00 p.m., New York City
time, on the last business day of the related month). Following a Term Event, the Servicer hereby
agrees that the Servicer shall be bound for the duration of the Initial Term and the term covered
by any such Servicer Extension Notice to act as the Servicer pursuant to this Agreement. Following
a Term Event, the Servicer agrees that if, as of 3:00 p.m. New York City time on the last Business
Day of any month, the Servicer shall not have received a Servicer Extension Notice from the
Majority Noteholders, the Servicer shall give written notice of such non-receipt to the Noteholders
by 4:00 p.m. New York City time. Following a Term Event, the failure of the Noteholders, to deliver
a Servicer Extension Notice by 5:00 p.m. New
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York City time shall result in the automatic and immediate termination of the Servicer (the
Termination Date). Notwithstanding these time frames, the Servicer and the Noteholders shall
comply with all applicable laws in connection with such transfer and the Servicer shall continue to
service the Loans until completion of such transfer.
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Section 9.02 |
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Appointment of Successor. |
On and after the date the Servicer receives a notice of termination pursuant to Section 9.01
hereof or is automatically terminated pursuant to Section 9.01(c) hereof, or the Owner Trustee
receives the resignation of the Servicer evidenced by an Opinion of Counsel or accompanied by the
consents required by Section 8.04 hereof, or the Servicer
is removed as servicer pursuant to this Article IX or Section 4.01 of the Servicing Addendum,
then, the Majority Noteholders shall appoint a successor servicer to be the successor in all
respects to the Servicer in its capacity as Servicer under this Agreement and the transactions set
forth or provided for herein and shall be subject to all the responsibilities, duties and
liabilities relating thereto placed on the Servicer by the terms and provisions hereof; provided,
however, that the successor servicer shall not be liable for any actions of any servicer prior to
it.
The successor servicer shall be obligated to make Servicing Advances hereunder. As
compensation therefor, the successor servicer appointed pursuant to the following paragraph, shall
be entitled to all funds relating to the Loans which the Servicer would have been entitled to
receive from the Collection Account pursuant to Section 5.01 hereof as if the Servicer had
continued to act as servicer hereunder, together with other Servicing Compensation in the form of
assumption fees, late payment charges or otherwise as provided in Section 4.15 of the Servicing
Addendum. The Servicer shall not be entitled to any termination fee if it is terminated pursuant to
Section 9.01 hereof but shall be entitled to any accrued and unpaid Servicing Compensation to the
date of termination.
Any collections received by the Servicer after removal or resignation shall be endorsed by it
to the Indenture Trustee and remitted directly to the successor servicer. The compensation of any
successor servicer appointed shall be the Servicing Fee, together with other Servicing Compensation
provided for herein. The Indenture Trustee, the Issuer, any Custodian, the Servicer and any such
successor servicer shall take such action, consistent with this Agreement, as shall be reasonably
necessary to effect any such succession. Any costs or expenses incurred by the Indenture Trustee in
connection with the termination of the Servicer and the succession of a successor servicer shall be
an expense of the outgoing Servicer and, to the extent not paid thereby, an expense of such
successor servicer. The Servicer agrees to cooperate with the Indenture Trustee and any successor
servicer in effecting the termination of the Servicers servicing responsibilities and rights
hereunder and shall promptly provide the successor servicer all documents and records reasonably
requested by it to enable it to assume the Servicers functions hereunder and shall promptly also
transfer to the successor servicer all amounts which then have been or should have been deposited
in any Trust Account maintained by the Servicer or which are thereafter received with respect to
the Loans. Upon the occurrence of an Event of Default, the Majority Noteholders shall have the
right to order the Servicers Loan Files and all other files of the Servicer relating to the Loans
and all other records of the Servicer and all documents relating to the Loans which are then or may
thereafter come into the
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possession of the Servicer or any third party acting for the Servicer to be delivered to such
custodian or servicer as it selects and the Servicer shall deliver to such custodian or servicer
such assignments as the Majority Noteholders shall request. No successor servicer shall be held
liable by reason of any failure to make, or any delay in making, any distribution hereunder or any
portion thereof caused by (i) the failure of the Servicer to
deliver, or any delay in delivering, cash, documents or records to it or (ii) restrictions imposed
by any regulatory authority having jurisdiction over the Servicer hereunder. No appointment of a
successor to the Servicer hereunder shall be effective until written notice of such proposed
appointment shall have been provided to the Majority Noteholders, the Indenture Trustee, the Issuer
and the Depositor, the Noteholders and the Issuer shall have consented in writing thereto.
In connection with such appointment and assumption, the Majority Noteholders may make such
arrangements for the compensation of such successor servicer out of payments on the Loans as they
and such successor servicer shall agree.
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Section 9.03 |
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Waiver of Defaults. |
The Majority Noteholders may waive any events permitting removal of the Servicer as servicer
pursuant to this Article IX. Upon any waiver of a past default, such default shall cease to exist
and any Servicer Event of Default arising therefrom shall be deemed to have been remedied for every
purpose of this Agreement. No such waiver shall extend to any subsequent or other default or impair
any right consequent thereto except to the extent expressly so waived.
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Section 9.04 |
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Accounting Upon Termination of Servicer. |
Upon termination of the Servicer under this Article IX, the Servicer shall, at its own
expense:
(a) deliver to its successor or, if none shall yet have been appointed, to the Indenture
Trustee the funds in any Trust Account maintained by the Servicer;
(b) deliver to its successor or, if none shall yet have been appointed, to the Custodian all
Loan Files and related documents and statements held by it hereunder and a Loan portfolio computer
transmission or disk;
(c) deliver to its successor or, if none shall yet have been appointed, to the Indenture
Trustee and to the Issuer and the Securityholders a full accounting of all funds, including a
statement showing the Monthly Payments collected by it and a statement of monies held in trust by
it for payments or charges with respect to the Loans; and
(d) execute and deliver such instruments and perform all acts reasonably requested in order to
effect the orderly and efficient transfer of servicing of the Loans to its successor and to more
fully and definitively vest in such successor all rights, powers, duties, responsibilities,
obligations and liabilities of the Servicer under this Agreement.
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ARTICLE X
TERMINATION; PUT OPTION
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Section 10.01 |
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Termination. |
(a) This Agreement shall terminate upon either: (A) the later of (i) the satisfaction and
discharge of the Indenture and the provisions thereof, including payment to the Noteholders of all
amounts due and owing in accordance with the provisions hereof or (ii) the disposition of all funds
with respect to the last Loan and the remittance of all funds due hereunder and the payment of all
amounts due and payable, including, in both cases, without limitation, indemnification payments
payable pursuant to any Basic Document to the Indenture Trustee, the Owner Trustee, the Issuer, the
Servicer and the Custodian, written notice of the occurrence of either of which shall be provided
to the Indenture Trustee by the Servicer; or (B) the mutual consent of the Servicer, the Depositor
and all Securityholders in writing and delivered to the Indenture Trustee by the Servicer.
(b) The Securities shall be subject to an early redemption or termination at the option of the
Servicer and the Majority Noteholders in the manner and subject to the provisions of Section 10.02
and 10.04 of this Agreement.
(c) Except as provided in this Article X, none of the Depositor, the Servicer nor any
Certificateholder or Noteholder shall be entitled to revoke or terminate the Trust.
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Section 10.02 |
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Optional Termination. |
The Servicer may, at its option, effect an early termination of the Trust on any Payment Date
on or after the Clean-up Call Date. The Servicer shall effect such early termination by providing
notice thereof to the Indenture Trustee and Owner Trustee and by purchasing all of the Loans at a
purchase price, payable in cash, equal to or greater than the Termination Price. The expense of any
Independent appraiser required in connection with the calculation and payment of the Termination
Price under this Section 10.02 shall be a nonreimbursable expense of the Servicer.
Any such early termination by the Servicer shall be accomplished by depositing into the
Collection Account on the third Business Day prior to the Payment Date on which the purchase is to
occur the amount of the Termination Price to be paid. The Termination Price and any amounts then on
deposit in the Collection Account (other than any amounts withdrawable pursuant to Section
5.01(c)(1) hereof) shall be deposited in the Distribution Account and distributed by the Indenture
Trustee pursuant to Section 5.01(c)(3) of this Agreement and Section 9.1 of the Trust Agreement on
the next succeeding Payment Date; and any amounts received with respect to the Loans and
Foreclosure Properties subsequent to the final Payment Date shall belong to the purchaser thereof.
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Section 10.03 |
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Notice of Termination. |
Notice of termination of this Agreement or of early redemption and termination of the Issuer
pursuant to Section 10.01 shall be sent by the Indenture Trustee to the Noteholders in accordance
with Section 10.02 of the Indenture.
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Section 10.04 |
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Put Option. |
The Majority Noteholders may, at their option, effect a put of the entire outstanding Note
Principal Balance, or any portion thereof, to the Trust on any date by exercise of the Put Option.
The Majority Noteholders shall effect such put by providing notice thereof in accordance with
Section 10.05 of the Indenture.
Unless otherwise agreed by the Majority Noteholders, on the third Business Day prior to the
Put Date, the Issuer shall deposit the Note Redemption Amount into the Distribution Account and, if
the Put Date occurs after the termination of the Revolving Period and constitutes a put of the
entire outstanding Note Principal Balance, any amounts then on deposit in the Collection Account
(other than any amounts withdrawable pursuant to Section 5.01(c)(1) hereof) shall be deposited in
the Distribution Account and distributed by the Paying Agent pursuant to Section 5.01(c)(3) of this
Agreement on the Put Date; and any amounts received with respect to the Loans and Foreclosure
Properties subsequent to the Put Date shall belong to the Issuer.
ARTICLE XI
MISCELLANEOUS PROVISIONS
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Section 11.01 |
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Acts of Securityholders. |
Except as otherwise specifically provided herein and except with respect to Section 11.02(b),
whenever action, consent or approval of the Securityholders is required under this Agreement, such
action, consent or approval shall be deemed to have been taken or given on behalf of, and shall be
binding upon, all Securityholders if the Majority Noteholders agree to take such action or give
such consent or approval.
(a) This Agreement may be amended from time to time by the Depositor, the Servicer, the Loan
Originator, the Indenture Trustee and the Issuer by written agreement with notice thereof to the
Securityholders, without the consent of any of the Securityholders, to cure any error or ambiguity,
to correct or supplement any provisions hereof which may be defective or inconsistent with any
other provisions hereof or to add any other provisions with respect to matters or questions arising
under this Agreement; provided, however, that such action will not adversely affect in any material
respect the interests of the Securityholders, as evidenced by an Opinion of Counsel to such effect
provided at the expense of the party requesting such Amendment.
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(b) This Agreement may also be amended from time to time by the Depositor, the Servicer, the
Loan Originator, the Indenture Trustee and the Issuer by written agreement, with the prior written
consent of the Majority Noteholders, for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of this Agreement, or of modifying in any manner the
rights of the Securityholders; provided, however, that no such amendment shall (i) reduce in any
manner the amount of, or delay the timing of, collections of payments on Loans or distributions
which are required to be made on any Security, without the consent of the holders of 100% of the
Securities, (ii) adversely affect in any material respect the interests of any of the holders of
the Securities in any manner other than as described in clause (i), without the consent of the
holders of 100% of the Securities, or (iii) reduce the percentage of the Securities, the consent of
which is required for any such amendment, without the consent of the holders of 100% of the
Securities.
(c) It shall not be necessary for the consent of Securityholders under this Section to approve
the particular form of any proposed amendment, but it shall be sufficient if such consent shall
approve the substance thereof.
Prior to the execution of any amendment to this Agreement, the Issuer and the Indenture
Trustee shall be entitled to receive and rely upon an Opinion of Counsel stating that the execution
of such amendment is authorized or permitted by this Agreement. The Issuer and the Indenture
Trustee may, but shall not be obligated to, enter into any such amendment which affects the
Issuers own rights, duties or immunities of the Issuer or the Indenture Trustee, as the case may
be, under this Agreement.
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Section 11.03 |
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Recordation of Agreement. |
To the extent permitted by applicable law, this Agreement, or a memorandum thereof if
permitted under applicable law, is subject to recordation in all appropriate public offices for
real property records in all of the counties or other comparable jurisdictions in which any or all
of the Mortgaged Property is situated, and in any other appropriate public recording office or
elsewhere, such recordation to be effected by the Servicer at the Securityholders expense on
direction of the Majority Noteholders but only when accompanied by an Opinion of Counsel to the
effect that such recordation materially and beneficially affects the interests of the
Securityholders or is necessary for the administration or servicing of the Loans.
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Section 11.04 |
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Duration of Agreement. |
This Agreement shall continue in existence and effect until terminated as herein provided.
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Section 11.05 |
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Governing Law. |
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH
SUCH LAWS (INCLUDING SECTION 5-1401 OF THE GENERAL
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OBLIGATIONS LAW BUT OTHERWISE WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW).
All demands, notices and communications hereunder shall be in writing and shall be deemed to
have been duly given if (i) delivered personally, mailed by overnight mail, certified mail or
registered mail, postage prepaid, or (ii) transmitted by telecopy, upon telephone confirmation of
receipt thereof, as follows: (I) in the case of the Depositor, to Option One Loan Warehouse
Corporation, 3 Ada, Irvine, California 92618, or such other addresses or telecopy or telephone
numbers as may hereafter be furnished to the Securityholders and the other parties hereto in
writing by the Depositor; (II) in the case of the Trust, to Option One Owner Trust 2005-6, c/o
Wilmington Trust Company, One Rodney Square North, 1100 North Market Street, Wilmington, Delaware
19890, Attention: Corporate Trust Administration, telecopy number: (302) 636-4144, telephone
number: (302) 636-1000, or such other address or telecopy or telephone numbers as may hereafter be
furnished to the Noteholders and the other parties hereto in writing by the Trust; (III) in the
case of the Loan Originator, to Option One Mortgage Corporation, 3 Ada, Irvine, California 92618,
Attention: William ONeill, telecopy number: (949) 790-7540, telephone number: (949) 790-7504 or
such other addresses or telecopy or telephone numbers as may hereafter be furnished to the
Securityholders and the other parties hereto in writing by the Loan Originator; (IV) in the case of
the Servicer, to Option One Mortgage Corporation 3 Ada, Irvine, California 92618, Attention:
William ONeill, telecopy number: (949) 790-7540, telephone number: (949) 790-7504 or such other
addresses or telecopy or telephone numbers as may hereafter be furnished to the Securityholders and
the other parties hereto in writing by the Servicer; and (V) in the case of the Indenture Trustee,
at P.O. Box 98, Columbia, Maryland 21046, Attention: Option One Owner Trust 2005-6, with a copy to
it at the Corporate Trust Office, as defined in the Indenture, any such notices shall be deemed to
be effective with respect to any party hereto upon the receipt of such notice or telephone
confirmation thereof by such party, except; provided, that notices to the Securityholders shall be
effective upon mailing or personal delivery.
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Section 11.07 |
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Severability of Provisions. |
If any one or more of the covenants, agreements, provisions or terms of this Agreement shall
be held invalid for any reason whatsoever, then such covenants, agreements, provisions or terms
shall be deemed severable from the remaining covenants, agreements, provisions or terms of this
Agreement and shall in no way affect the validity or enforceability of the other covenants,
agreements, provisions or terms of this Agreement.
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Section 11.08 |
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No Partnership. |
Nothing herein contained shall be deemed or construed to create any partnership or joint
venture between the parties hereto and the services of the Servicer shall be rendered as an
independent contractor.
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Section 11.09 |
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Counterparts. |
This Agreement may be executed in one or more counterparts and by the different parties hereto
on separate counterparts, each of which, when so executed, shall be deemed to be an original; such
counterparts, together, shall constitute one and the same Agreement.
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Section 11.10 |
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Successors and Assigns. |
This Agreement shall inure to the benefit of and be binding upon the Servicer, the Loan
Originator, the Depositor, the Indenture Trustee, the Issuer and the Securityholders and their
respective successors and permitted assigns.
The headings of the various Sections of this Agreement have been inserted for convenience of
reference only and shall not be deemed to be part of this Agreement.
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Section 11.12 |
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Actions of Securityholders. |
(a) Any request, demand, authorization, direction, notice, consent, waiver or other action
provided by this Agreement to be given or taken by Securityholders may be embodied in and evidenced
by one or more instruments of substantially similar tenor signed by such Securityholders in person
or by an agent duly appointed in writing; and except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered to the Depositor,
the Servicer, the Loan Originator or the Issuer. Proof of execution of any such instrument or of a
writing appointing any such agent shall be sufficient for any purpose of this Agreement and
conclusive in favor of the Depositor, the Servicer, the Loan Originator and the Issuer if made in
the manner provided in this Section 11.12.
(b) The fact and date of the execution by any Securityholder of any such instrument or writing
may be proved in any reasonable manner which the Depositor, the Servicer, the Loan Originator or
the Issuer may deem sufficient.
(c) Any request, demand, authorization, direction, notice, consent, waiver or other act by a
Securityholder shall bind every holder of every Security issued upon the registration of transfer
thereof or in exchange therefor or in lieu thereof, in respect of anything done, or omitted to be
done, by the Depositor, the Servicer, the Loan Originator or the Issuer in reliance thereon,
whether or not notation of such action is made upon such Security.
(d) The Depositor, the Servicer, the Loan Originator or the Issuer may require additional
proof of any matter referred to in this Section 11.12 as it shall deem necessary.
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Section 11.13 |
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Non-Petition Agreement. |
Notwithstanding any prior termination of any Basic Document, the Loan Originator, the
Servicer, the Depositor and the Indenture Trustee each severally and not jointly covenants that it
shall not, prior to the date which is one year and one day after the payment in
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full of the all of the Notes, acquiesce, petition or otherwise, directly or indirectly, invoke or
cause the Trust or the Depositor to invoke the process of any governmental authority for the
purpose of commencing or sustaining a case against the Issuer or Depositor under any Federal or
state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee,
trustee, custodian, sequestrator or other similar official of the Issuer or Depositor or any
substantial part of their respective property or ordering the winding up or liquidation of the
affairs of the Issuer or the Depositor.
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Section 11.14 |
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Holders of the Securities. |
(a) Any sums to be distributed or otherwise paid hereunder or under this Agreement to the
holders of the Securities shall be paid to such holders pro rata based on their Percentage
Interests;
(b) Where any act or event hereunder is expressed to be subject to the consent or approval of
the holders of the Securities, such consent or approval shall be capable of being given by the
holder or holders evidencing in the aggregate not less than 51% of the Percentage Interests.
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Section 11.15 |
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Due Diligence Fees, Due Diligence. |
The Loan Originator acknowledges that the Majority Noteholders have the right to perform
continuing due diligence reviews with respect to the Loans, for purposes of verifying compliance
with the representations, warranties and specifications made hereunder, or otherwise, and the Loan
Originator agrees that upon reasonable prior notice (with no notice being required upon the
occurrence of an Event of Default) to the Loan Originator, the Majority Noteholders, the Indenture
Trustee and Custodian or its authorized representatives will be permitted during normal business
hours to examine, inspect, and make copies and extracts of, the Loan Files and any and all
documents, records, agreements, instruments or information relating to such Loans in the possession
or under the control of the Servicer and the Indenture Trustee. The Loan Originator also shall make
available to the Majority Noteholders a knowledgeable financial or accounting officer for the
purpose of answering questions respecting the Loan Files and the Loans and the financial condition
of the Loan Originator. Without limiting the generality of the foregoing, the Loan Originator
acknowledges that the Majority
Noteholders may purchase Notes based solely upon the information provided by the Loan
Originator to the Majority Noteholders in the Loan Schedule and the representations, warranties and
covenants contained herein, and that the Majority Noteholders, at their option, have the right at
any time to conduct a partial or complete due diligence review on some or all of the Loans securing
such purchase, including without limitation ordering new credit reports and new appraisals on the
related Mortgaged Properties and otherwise re-generating the information used to originate such
Loan. The Majority Noteholders may underwrite such Loans or engage a mutually agreed upon third
party underwriter to perform such underwriting. The Loan Originator agrees to cooperate with the
Majority Noteholders and any third party underwriter in connection with such underwriting,
including, but not limited to, providing the Majority Noteholders and any third party underwriter
with access to any and all documents, records, agreements, instruments or information relating to
such Loans in the possession, or under the control, of the Servicer. The Loan Originator further
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agrees that the Loan Originator shall reimburse the Majority Noteholders for any and all reasonable
out-of-pocket costs and expenses incurred by the Majority Noteholders in connection with the
Majority Noteholderss activities pursuant to this Section 11.15 hereof, not to exceed $80,000 per
year (the Due Diligence Fees). In addition to the obligations set forth in Section 11.17 of this
Agreement, the Majority Noteholders agree (on behalf of themselves and their Affiliates, directors,
officers, employees and representatives) to use reasonable precaution to keep confidential, in
accordance with its customary procedures for handling confidential information and in accordance
with safe and sound practices, and not to disclose to any third party, any non-public information
supplied to it or otherwise obtained by it hereunder with respect to the Loan Originator or any of
its Affiliates (including, but not limited to, the Loan File); provided, however, that nothing
herein shall prohibit the disclosure of any such information to the extent required by statute,
rule, regulation or judicial process; provided, further that, unless specifically prohibited by
applicable law or court order, the Majority Noteholders shall, prior to disclosure thereof, notify
the Loan Originator of any request for disclosure of any such non-public information. The Majority
Noteholders further agree not to use any such non-public information for any purpose unrelated to
this Agreement and that the Majority Noteholders shall not disclose such non-public information to
any third party underwriter in connection with a potential Disposition without obtaining a written
agreement from such third party underwriter to comply with the confidentiality provisions of this
Section 11.15.
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Section 11.16 |
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No Reliance. |
Each of the Loan Originator, the Depositor, the Servicer and the Issuer hereby acknowledges
that it has not relied on the Noteholder Agent, the Noteholders or any of their officers,
directors, employees, agents and control persons as such term is used under the Act and under the
Securities Exchange Act of 1934, as amended, for any tax, accounting, legal or other professional
advice in connection with the transactions contemplated by the Basic Documents, that each of the
Loan Originator, the Depositor,
the Servicer and the Issuer has retained and been advised by such tax, accounting, legal and
other professionals as it has deemed necessary in connection with the transactions contemplated by
the Basic Documents and that neither the Noteholder Agent nor the Noteholders makes any
representation or warranty, and shall have no liability with respect to, the tax, accounting or
legal treatment or implications relating to the transactions contemplated by the Basic Documents.
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Section 11.17 |
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Confidential Information. |
In addition to the confidentiality requirements set forth in Section 11.15 of the Agreement,
each Noteholder, as well as the Indenture Trustee and the Disposition Agent (each of said parties
singularly referred to herein as a Receiving Party and collectively referred to herein as the
Receiving Parties), agrees to hold and treat all Confidential Information (as defined below) in
confidence and in accordance with this Section. Such Confidential Information will not, without the
prior written consent of the Servicer and the Loan Originator, be disclosed or used by such
Receiving Parties or their subsidiaries, Affiliates, directors, officers, members, employees,
agents or controlling persons (collectively, the Information Recipients) other than for the
purpose of making a decision to purchase or sell Notes or taking any other permitted
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action under this Agreement or any other Basic Document. Each Receiving Party agrees to disclose
Confidential Information only to its Information Recipients who need to know it for the purpose of
making a decision to purchase or sell Notes or the taking of any other permitted action under this
Agreement or any other Basic Document (including in connection with the servicing of the Loans and
in connection with any servicing transfers) and who are informed by such Receiving Party of its
confidential nature and who agree to be bound by the terms of this Section 11.17. Disclosure that
is not in violation of the Right to Financial Privacy Act, the Gramm-Leach-Bliley Act or other
applicable law by such Receiving Party of any Confidential Information at the request of its
outside auditors or governmental regulatory authorities in connection with an examination of a
Receiving Party by any such authority shall not constitute a breach of its obligations under this
Section 11.17 and shall not require the prior consent of the Servicer and the Loan Originator.
Each Receiving Party shall be responsible for any breach of this Section 11.17 by its
Information Recipients. The Noteholders may use Confidential Information for internal due diligence
purposes in connection with their analysis of the transactions contemplated by the Basic Documents.
The Disposition Agent may disclose Confidential Information to the Disposition Participants as
required to effect Dispositions. This Section 11.17 shall terminate upon the occurrence of an Event
of Default; provided, however, that such termination shall not relieve the Receiving Parties or
their respective Information Recipients from the obligation to comply with the Gramm-Leach-Bliley
Act or other applicable law with respect to their use or disclosure of Confidential Information
following the occurrence of an Event of Default.
As used herein, Confidential Information means non-public personal information (as defined
in the Gramm-Leach-Bliley Act and its enabling regulations issued by the Federal Trade Commission)
regarding Borrowers. Confidential Information shall not include information which (i) is or becomes
generally available to the public other than as a result of a disclosure by a Receiving Party or
any Information Recipients; (ii) was available to a Receiving Party on a non-confidential basis
prior to its disclosure to such Receiving Party by the Servicer or the Loan Originator; (iii) is
required to be disclosed by a governmental authority or related governmental agencies or as
otherwise required by law; or (iv) becomes available to a Receiving Party on a non-confidential
basis from a Person other than the Servicer or the Loan Originator who, to the best knowledge of
such Receiving Party, is not otherwise bound by a confidentiality agreement with the Servicer or
the Loan Originator and is not otherwise prohibited from transmitting the information to such
Receiving Party.
Notwithstanding anything contained in the Basic Documents to the contrary, in the event of the
conflict between the terms of this Agreement and any other Basic Document, the terms of this
Agreement shall control.
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Section 11.19 |
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Limitation on Liability. |
It is expressly understood and agreed by the parties hereto that (a) this Agreement is
executed and delivered by Wilmington Trust Company, not individually or personally, but solely as
Owner Trustee of Option One Owner Trust 2005-6, in the exercise of the powers and
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authority conferred and vested in it, (b) each of the representations, undertakings and agreements
herein made on the part of the Issuer is made and intended not as personal representations,
undertakings and agreements by Wilmington Trust Company but is made and intended for the purpose
for binding only the Issuer, (c) nothing herein contained shall be construed as creating any
liability on Wilmington Trust Company, individually or personally, to perform any covenant either
expressed or implied contained herein, all such liability, if any, being expressly waived by the
parties hereto and by any Person claiming by, through or under the parties hereto and (d) under no
circumstances shall Wilmington Trust Company be personally liable for the payment of any
indebtedness or expenses of the Issuer or be liable for the breach or failure of any obligation,
representation, warranty or covenant made or undertaken by the Issuer under this Agreement or any
other related documents.
Nothing contained herein or in the Basic Documents shall be construed to create an agency or
fiduciary relationship between the Noteholder Agent, any Noteholder or the Majority Noteholders or
any of their Affiliates and the Issuer, the Depositor, the Loan Originator or the Servicer. None of
the Noteholder Agent, any Noteholder, the Majority Noteholders or any of their Affiliates shall be
liable for any acts or actions affected in connection with a disposition of Loans, including
without limitation, any
Securitization pursuant to Section 3.06, any Servicer Put or Servicer Call pursuant to Section
3.08 hereof nor any Whole Loan Sale pursuant to Section 3.10 hereof.
(SIGNATURE PAGE FOLLOWS)
- 87 -
IN WITNESS WHEREOF, the Issuer, the Depositor, the Servicer, the Indenture Trustee and the
Loan Originator have caused their names to be signed by their respective officers thereunto duly
authorized, as of the day and year first above written, to this SALE AND SERVICING AGREEMENT.
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OPTION ONE OWNER TRUST 2005-6, |
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By: |
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Wilmington Trust
Company not in its individual capacity but solely as Owner Trustee |
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By: |
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Title: |
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OPTION ONE LOAN
WAREHOUSE CORPORATION, as Depositor |
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OPTION ONE MORTGAGE CORPORATION, as Loan Originator and
Servicer |
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WELLS FARGO BANK, N.A., as Indenture Trustee |
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Schedule I
(i) the original executed Mortgage Note or alternatively, if the original executed Mortgage
Note has been lost, a lost note affidavit and indemnity with a copy of such Mortgage Note;
(ii) an original or a copy of the Mortgage, in each case (unless the particular item has been
sent for recording but has not been returned from the applicable recording office) with evidence of
recording indicated thereon; or
(iii) the original or a copy of the policy or certificate of lenders title insurance issued
in connection with such Mortgage Loan (or, if the policy has not yet been issued, an original or
copy of a written commitment marked-up at the closing of such Mortgage Loan, interim binder or
the pro forma title insurance policy, in each case evidencing a binding commitment to issue such
policy).
EXHIBIT A
FORM OF NOTICE OF ADDITIONAL NOTE PRINCIPAL BALANCE
[LETTERHEAD OF OPTION ONE LOAN WAREHOUSE CORPORATION]
Option One Owner Trust 2005-6
c/o Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Attention: Corporate Trust Administration
Wells Fargo Bank, N.A.
9062 Old Annapolis Road
Columbia, Maryland 21045
Attention: Option One Owner Trust 2005-6
Lehman Brothers Bank
745 Seventh Avenue
New York, New York 10019
Re: Option One Owner Trust 2005-6 Mortgage-Backed Notes
Reference is made to the Sale and Servicing Agreement, dated as of June 1, 2005 (the Sale and
Servicing Agreement), among Option One Owner Trust 2005-6, as Issuer, Option One Loan Warehouse
Corporation, as Depositor, Option One Mortgage Corporation, as Loan Originator and Servicer, and
Wells Fargo Bank, N.A., as Indenture Trustee. Capitalized terms not defined herein shall have the
meanings assigned to such terms in the Sale and Servicing Agreement.
The undersigned , a duly appointed of Option One Loan Warehouse Corporation, acting in such capacity, hereby requests an advance of Additional Note
Principal Balance in an amount of $ , such amount to be advanced on , 200_, a Business Day at least
two Business Days from the date hereof.
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Very truly yours, |
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OPTION ONE LOAN WAREHOUSE |
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CORPORATION |
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A-1
EXHIBIT B
FORM OF SERVICERS REMITTANCE REPORT TO INDENTURE TRUSTEE
Trial Balance Information Report P139
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Investor |
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Pymt |
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Interest |
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Collection Activity Information Report S215
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Payoff Activity Information Report S214
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B-1
EXHIBIT C
FORM OF S&SA ASSIGNMENT
ASSIGNMENT NO. ___OF LOANS (S&SA Assignment), dated , (the Transfer Date), by OPTION ONE LOAN WAREHOUSE CORPORATION, (the Depositor) to OPTION ONE
OWNER TRUST 2005-6 (the Issuer) pursuant to the Sale and Servicing Agreement referred to below.
WITNESSETH:
WHEREAS, the Depositor and the Issuer are parties to the Sale and Servicing Agreement dated as
of June 1, 2005 (the Sale and Servicing Agreement) among the Depositor, the Issuer, the Servicer,
the Loan Originator and the Indenture Trustee on behalf of the Noteholders, hereinafter as such
agreement may have been, or may from time to time be, amended, supplemented or otherwise modified;
WHEREAS, pursuant to the Sale and Servicing Agreement, the Depositor wishes to sell, convey,
transfer and assign Loans to the Issuer in exchange for cash consideration, the Trust Certificates
and other good and valid consideration the receipt and sufficiency of which is hereby acknowledged;
and
WHEREAS, the Issuer is willing to acquire such Loans subject to the terms and conditions
hereof and of the Sale and Servicing Agreement;
NOW THEREFORE, the Depositor and the Issuer hereby agree as follows:
1. Defined Terms. All capitalized terms defined in the Sale and Servicing Agreement and used
herein shall have such defined meanings when used herein, unless otherwise defined herein.
2. Designation of Loans. The Depositor does hereby deliver herewith a Loan Schedule containing
a true and complete list of each Loan to be conveyed on the Transfer Date. Such list is marked as
Schedule A to this S&SA Assignment and is hereby incorporated into and made a part of this S&SA
Assignment.
3. Conveyance of Loans. The Depositor hereby sells, transfers, assigns and conveys to the
Issuer, without recourse, all of the right, title and interest of the Depositor in and to the Loans
and all proceeds thereof listed on the Loan Schedule attached hereto, including all interest and
principal received by the Depositor or the Servicer on or with respect to the Loans on or after the
related Transfer Cut-off Date, together with all right, title and interest in and to the proceeds
of any related Mortgage Insurance Policies.
4. Issuer Acknowledges Assignment. As of the Transfer Date, pursuant to this S&SA Assignment
and Section 2.01(a) of the Sale and Servicing Agreement, the Issuer acknowledges its receipt of the
Loans listed on the attached Loan Schedule and all other related property in the Trust Estate.
5. Acceptance of Rights But Not Obligations. The foregoing sale, transfer, assignment, set
over and conveyance does not, and is not intended to, result in a creation or an assumption by the
Issuer of any obligation of the Depositor, the Loan Originator or any other Person in connection
with this S&SA Assignment or under any agreement or instrument relating thereto except as
specifically set forth herein.
6. Depositor Acknowledges Receipt of Sales Price. The Depositor hereby acknowledges receipt of
the Sales Price or that is otherwise distributed at its direction.
7. Conditions Precedent. The conditions precedent in Section 2.06(a) of the Sale and Servicing
Agreement have been satisfied.
8.
Limitation of Liability. Section 11.19 of the Sale and Servicing Agreement is incorporated
by reference.
9. Counterparts. This S&SA Assignment may be executed in any number of counterparts all of
which taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have caused this S&SA Assignment to be duly executed and
delivered by their respective duly authorized officers on the day and year first above written.
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OPTION ONE LOAN WAREHOUSE CORPORATION, |
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as Depositor |
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By: |
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Name: |
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OPTION ONE OWNER TRUST 2005-6, |
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as Issuer |
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By: Wilmington Trust Company not in its individual capacity but solely as Owner Trustee |
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By: |
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Title: |
C-3
EXHIBIT D
LOAN SCHEDULE
The Loan Schedule shall set forth the following information with respect to each Loan (other
than Wet Funded Loans):
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(1) |
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the Loan Originators Loan identifying number; |
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(2) |
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the
Mortgagors name and social security number; |
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(3) |
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the street address of the Mortgaged Property, including the state and zip code; |
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(4) |
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the
Promissory Note date; |
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(5) |
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the occupancy status of the Mortgaged Property and a code indicating
whether the Mortgaged Property was represented by the Mortgagor as being owner-occupied on the date
of origination; |
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(6) |
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the type of Residential Dwelling constituting the Mortgaged Property; |
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(7) |
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the
months to maturity at origination, based on the original amortization schedule; |
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(8) |
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the
loan-to-value ratio at origination; |
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(9) |
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the rate of interest in effect on the Transfer Cut-off
Date; |
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(10) |
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the date on which the first monthly payment was due, and, if different, the date on
which monthly payments are due as of the Transfer Cut-off Date; |
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(11) |
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the amount paid-through date
and the next payment date;
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(12) |
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the stated maturity date; |
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(13) |
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the amount of the monthly payment
due at origination; |
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(14) |
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the amount of the principal and interest payment due on the first due date
after the Transfer Cut-off Date; |
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(15) |
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the interest paid-through date; |
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(16) |
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the last monthly payment date on which any portion of the monthly payment was
applied to the reduction of principal; |
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(17) |
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the original principal balance; |
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(18) |
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the unpaid
principal balance as of the close of business on the Transfer Cut-off Date; |
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(19) |
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the unpaid
principal balance as of the last day of the immediately preceding month; |
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(20) |
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a code indicating
whether the interest rate on the Loan is fixed or adjustable; |
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(21) |
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if the Loan is an
adjustable-rate loan, the initial adjustment date thereunder, including the look-back period; |
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(22) |
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if the Loan is an adjustable-rate loan, the gross margin over the applicable interest rate index; |
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(23) |
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a code indicating the purpose of the Loan, as indicated by the Mortgagor (i.e., purchase
financing, rate/term refinancing or cash-out refinancing); |
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(24) |
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(if the Loan is an adjustable-rate
loan, the maximum interest rate; |
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(25) |
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if the Loan is an adjustable-rate loan, the minimum interest
rate; |
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(26) |
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if the Loan is an adjustable-rate loan, the index, [ARM code], adjustment frequency,
spread and caps; |
D-1
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(27) |
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the interest rate at origination; |
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(28) |
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if the Loan is an adjustable-rate loan, the periodic rate cap and the maximum adjustment in
the interest rate that may be made on the first adjustment date immediately following the Transfer
Cut-off Date; |
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(29) |
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a code indicating the documentation program (i.e., full documentation, limited
documentation or stated income); |
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(30) |
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if the Loan is an adjustable-rate loan, the applicable
interest rate index to which the gross margin is added, including the source of such index; |
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(31) |
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if
the Loan is an adjustable-rate loan, the first adjustment date thereunder to occur after the
Transfer Cut-off Date; |
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(32) |
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the risk grade; |
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(33) |
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any risk upgrade; |
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(34) |
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the appraised value of the
Mortgaged Property at origination; |
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(35) |
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if different from the appraised value, the dollar value of
the review appraisal of the Mortgaged Property at origination; |
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(36) |
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the sale price of the Mortgaged
Property, if applicable; |
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(37) |
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the product type code (e.g., 3/27, 2/28, balloon, etc.); |
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(38) |
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a code indicating whether the Loan is a first-lien loan or a second-lien loan; |
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(39) |
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if the
Loan is a second-lien loan, the outstanding principal balance of the first lien on the date of
origination of such Loan and the monthly payment and maturity date of the first-lien loan; |
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(40) |
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if
the Loan is a second-lien loan, the combined loan-to-value ratio of such Loan and the first lien to
which it is subject, as of the origination date of such Loan; |
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(41) |
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whether such Loan is 30 days or
more Delinquent; |
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(42) |
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the prepayment penalty code; |
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(43) |
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the prepayment penalty term;
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(44) |
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the late
charge; |
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(45) |
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the rounding code (next highest or nearest 0.125%); |
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(46) |
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the applicable loan grade and
the Mortgagors FICO score, if any; and |
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(47) |
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the Mortgagors debt-to-income ratio. |
D-2
The Loan Schedule to be delivered with respect to Wet Funded Loans shall set forth the
following information:
MBMS Long Format 97 w\ Mersflag
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Start |
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length/ |
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End |
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Field |
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Pos |
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width |
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Pos |
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Dec |
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Definition |
Loanidp
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1 |
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13 |
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13 |
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0 |
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Previous loan number/(Old loan number or Investor loan number) |
Lname
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14 |
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35 |
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48 |
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0 |
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Primary borrowers name/ (Last, First Middle) |
Casenum
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49 |
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13 |
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61 |
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0 |
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FHA or VA case number |
Closed
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62 |
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6 |
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67 |
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0 |
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Date the loan closed/ (mmddyy) |
Firstdue
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68 |
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6 |
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73 |
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0 |
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Date first pymt on loan was due/ (mmddyy) |
Issuer
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74 |
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4 |
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77 |
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0 |
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User defined issuer code/(leave blank pad with spaces) |
Loanid
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78 |
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13 |
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90 |
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0 |
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Loan number/ (Servicer loan number) |
Maturity
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91 |
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6 |
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96 |
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0 |
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Maturity date of the loan/ (mmddyy) |
Rate
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97 |
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9 |
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105 |
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0 |
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Interest rate on note/ (X 1000 to remove
decimal (7.125% is 7125) |
Lnamount
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10611 |
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116 |
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0 |
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Original loan amount/ (X 100 to remove
decimal (100000.00 is 1000000) |
PI
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11710 |
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126 |
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0 |
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Orig principal plus interest/ (X 100 to remove
decimal (1000.00 is 100000) |
Poolnum
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12710 |
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136 |
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0 |
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Pool number/ (Agency pool number or private
investor code CPI) |
State
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1372 |
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138 |
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0 |
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Property State abbreviation/ (e.g., NY) |
City
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13915 |
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153 |
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0 |
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Property City |
Zip
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1545 |
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158 |
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0 |
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Property Zip code |
Address
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15935 |
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193 |
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0 |
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Property address/ (Number and street name) |
Sid
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19423 |
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216 |
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0 |
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Barcode ID (leave blank pad with
spaces) |
Armadj
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2176 |
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222 |
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0 |
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1st Adjustment Date (mmddyy) |
Armconv
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2231 |
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223 |
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0 |
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Convertible Account (Y/N) |
Armround
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2246 |
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229 |
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0 |
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Percent Rounded (X 100000 to remove decimal
(7.12500% is 712500) |
Armacap
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2305 |
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234 |
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0 |
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Annual Cap (X 1000 to remove decimal
(10.125% is 10125) |
Armlcap
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2355 |
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239 |
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0 |
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Lifetime Cap (X 1000 to remove decimal
(10.125% is 10125) |
Armmargin
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2404 |
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243 |
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0 |
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Margin (X 1000 to remove decimal (7.125% is
7125) |
D-3
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Start |
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length/ |
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End |
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Field |
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Pos |
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width |
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Pos |
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Dec |
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Definition |
Armfloor
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2445 |
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248 |
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0 |
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Floor (X 1000 to remove decimal (10.125% is
10125) |
Mersmin
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24918 |
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266 |
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0 |
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Mers Min |
Mersflag
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2671 |
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267 |
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0 |
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Mersflag |
Filler
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268 |
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33 |
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300 |
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0 |
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Filler field/ (Pad with spaces) |
D-4
EXHIBIT E
REPRESENTATIONS AND WARRANTIES REGARDING THE LOANS
The Loan Originator hereby represents and warrants to the other parties to the Sale and
Servicing Agreement and the Securityholders, with respect to each such Loan as of the related
Transfer Date (except as otherwise expressly agreed in writing by the Majority Noteholders):
(i) The information set forth in the related Loan Schedule and the information contained on
the electronic data file delivered to the Initial Noteholder is complete, true and correct;
(ii) All payments required to be made up to the close of business on the Transfer Date for
such Loan under the terms of the Promissory Note have been made; the Loan Originator has not
advanced funds, or induced, solicited or knowingly received any advance of funds from a party other
than the owner of the related Mortgaged Property, directly or indirectly, for the payment of any
amount required by the Promissory Note or Mortgage; and there has been no delinquency, exclusive of
any period of grace, in any payment by the Borrower thereunder during the last twelve months;
(iii) There are no delinquent taxes, ground rents, water charges, sewer rents, assessments,
insurance premiums, leasehold payments, including assessments payable in future installments or
other outstanding charges affecting the related Mortgaged Property;
(iv) The terms of the Promissory Note and the Mortgage have not been impaired, waived, altered
or modified in any respect and the Promissory Note and the Mortgage have note been satisfied,
canceled, rescinded or subordinated in whole or in part. No instrument of waiver, alteration,
modification, release, cancellation, rescission or satisfaction has been executed, and no Borrower
has been released, in whole or in part;
(v) The Promissory Note and the Mortgage are not subject to any right of rescission, set-off,
counterclaim or defense, including the defense of usury, nor will the operation of any of the terms
of the Promissory Note or the Mortgage, or the
exercise of any right thereunder, render either the Promissory Note or the Mortgage
unenforceable, in whole or in part, or subject to any right of rescission, set-off, counterclaim or
defense, including the defense of usury and no such right of rescission, set-off, counterclaim or
defense has been asserted with respect thereto;
(vi) All buildings upon the Mortgaged Property are insured by an insurer acceptable to Fannie
Mae or Freddie Mac against loss by fire, hazards of extended coverage and such other hazards as are
customary in the area where the Mortgaged Property is located, pursuant to insurance policies
conforming to the requirements of the Servicing Addendum, in an amount sufficient to avoid the
application of any co-insurance provisions. All such insurance policies contain a standard
mortgagee clause naming the Loan Originator, its successors and assigns as mortgagee and all
premiums thereon have been paid. If the Mortgaged Property is in an area identified on a Flood
Hazard Map or Flood Insurance Rate Map issued by the Federal Emergency Management Agency as having
special flood hazards (and such flood insurance has
E-1
been made available) a flood insurance policy meeting the requirements of the current guidelines of
the Federal Insurance Administration is in effect which policy conforms to the requirements of
Fannie Mae and Freddie Mac. The Mortgage obligates the Borrower thereunder to maintain all such
insurance at the Borrowers cost and expense, and on the Borrowers failure to do so, authorizes
the holder of the Mortgage to maintain such insurance at Borrowers cost and expense and to seek
reimbursement therefor from the Borrower;
(vii) Any and all requirements of any federal, state or local law including, without
limitation, usury, truth in lending, real estate settlement procedures, consumer credit protection,
equal credit opportunity, fair housing or disclosure laws applicable to the origination and
servicing of the Loans have been complied with;
(viii) The Mortgage has not been satisfied, canceled, subordinated or rescinded, in whole or in part, and the Mortgaged Property has not been released from the lien of
the Mortgage, in whole or in part, nor has any instrument been executed that would effect any such
satisfaction, cancellation, subordination, rescission or release;
(ix) The Mortgage is a valid, existing and enforceable first lien (or, with respect to Loans
identified as Second Lien Loans on the Loan Schedule, second lien) on the Mortgaged Property,
including all improvements on the Mortgaged Property subject only to (a) the lien of current real
property taxes and assessments not yet due and payable, (b) covenants, conditions and restrictions,
rights of way, easements and other
matters of the public record as of the date of recording being acceptable to mortgage lending
institutions generally and specifically referred to in the lenders title insurance policy
delivered to the originator of the Loan and which do not adversely affect the Appraised Value of
the Mortgaged Property, (c) other matters to which like properties are commonly subject which do
not materially interfere with the benefits of the security intended to be provided by the Mortgage
or the use, enjoyment, value or marketability of the related Mortgaged Property and (d) the first
lien on the Mortgaged Property, in the case of the Second Lien Loans. Any security agreement,
chattel mortgage or equivalent document related to and delivered in connection with the Loan
establishes and creates a valid, existing and enforceable first or second lien and first or second
priority security interest on the property described therein and the Loan Originator has full right
to sell and assign the same to the Depositor and the Issuer. The Mortgaged Property was not, as of
the date of origination of the Loan, subject to a mortgage, deed of trust, deed to secure debt or
other security instrument creating a lien subordinate to the lien of the Mortgage;
(x) The Promissory Note and the related Mortgage are genuine and each is the legal, valid and
binding obligation of the maker thereof, enforceable in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency or reorganization;
(xi) All parties to the Promissory Note and the Mortgage had legal capacity to enter into the
Loan and to execute and deliver the Promissory Note and the Mortgage, and the Promissory Note and
the Mortgage have been duly and properly executed by such parties. The Borrower is a natural
person;
E-2
(xii) The proceeds of the Loan have been fully disbursed to or for the account of the Borrower
and there is no obligation for the mortgagee to advance additional funds thereunder and any and all
requirements as to completion of any on-site or off-site improvement and as to disbursements of any
escrow funds therefor have been complied with. All costs, fees and expenses incurred in making or
closing the Loan and the recording of the Mortgage have been paid, and the Borrower is not entitled
to any refund of any amounts paid or due to the Loan Originator pursuant to the Promissory Note or
Mortgage;
(xiii) The Loan Originator has good title to and is the sole legal, beneficial and equitable
owner of the Promissory Note and the Mortgage and has full right to transfer and sell the Loan to
the Depositor and the Issuer free and clear of any encumbrance, equity, lien, pledge, charge, claim
or security interest;
(xiv) All parties which have had any interest in the Loan, whether as mortgagee, assignee,
pledgee or otherwise, are (or, during the period in which they held and disposed of such interest,
were) in compliance with any and all applicable doing business and licensing requirements of the
laws of the state wherein the Mortgaged Property is located;
(xv) The Loan is covered by either (i) a lenders title insurance
policy (which, in the case of an ARM has an adjustable rate mortgage endorsement) commercially
acceptable to prudent mortgage lending institutions, issued by a title insurer licensed and
qualified to do business in the jurisdiction where the Mortgaged Property is located, insuring
(subject to the exceptions contained in (ix)(a) and (b) above) the Loan Originator, its successors
and assigns as to the first or second priority lien of the Mortgage in the original principal
amount of the Loan and, with respect to any ARM, against any loss by reason of the invalidity or
unenforceability of the lien resulting from the provisions of the Mortgage providing for adjustment
in the Loan Interest Rate and Monthly Payment or (ii) if generally acceptable in the jurisdiction
where the Mortgaged Property is located, an attorneys opinion of title given by an attorney
licensed to practice law in the jurisdiction where the Mortgaged Property is located. Additionally,
such lenders title insurance policy affirmatively insures ingress and egress to and from the
Mortgaged Property, and against encroachments by or upon the Mortgaged Property or any interest
therein. The Loan Originator is the sole insured of such lenders title insurance policy, and such
lenders title insurance policy is in full force and effect and will be in full force and effect,
and the issuer will be insured thereunder, upon the consummation of the transactions contemplated
by this Agreement. No claims have been made under such lenders title insurance policy, and no
prior holder of the related Mortgage, including the Loan Originator, has done, by act or omission,
anything which would impair the coverage or enforceability of such lenders title insurance policy
or the accuracy of such attorneys opinion of title.
(xvi) There is no default, breach, violation or event of acceleration existing under the
Mortgage or the Promissory Note and no event which, with the passage of time or with notice and the
expiration of any grace or cure period, would constitute a default, breach, violation or event of
acceleration other than a payment delinquency specified in (ii) above, and neither the Loan
Originator nor any affiliate has not waived any default, breach, violation or event of
acceleration;
E-3
(xvii) There are no mechanics or similar liens or claims which have been filed for work,
labor or material (and no rights are outstanding that under law could give rise to such lien)
affecting the related Mortgaged Property which are or may be liens prior to, or equal or coordinate
with, the lien of the related Mortgage;
(xviii) All improvements which were considered in determining the Appraised Value of the related Mortgaged Property lay wholly within the boundaries and building
restriction lines of the Mortgaged Property, and no improvements on adjoining
properties encroach upon the Mortgaged Property;
(xix) The Loan was originated by the Loan Originator or by a savings and loan association, a
savings bank, a commercial bank or similar banking institution which is supervised and examined by
a federal or state authority, or by a mortgagee approved as such by the Secretary of HUD;
(xx) Payments on the Loan commenced no more than two months after the proceeds of the Loan
were disbursed. The Loan bears interest at the Loan Interest Rate. With respect to each Loan unless
otherwise stated on the Loan Schedule, the Promissory Note is payable on the first day of each
month in Monthly Payments, which, in the case of each fixed-rate Loan except for Balloon Loans, are
sufficient to fully amortize the original principal balance over the original term thereof and to
pay interest at the related Loan Interest Rate, and, in the case of each ARM, are changed on each
Adjustment Date in accordance with the terms of the related Promissory Note or subsequent
modifications, if any, and in any case, are sufficient to fully amortize the original principal
balance over the original term thereof and to pay interest at the related Loan Interest Rate. The
Promissory Note does not permit negative amortization. No Loan is a Convertible Mortgage Loan;
(xxi) The origination and collection practices used by the Loan Originator with respect to
each Promissory Note and Mortgage have been in all respects legal, proper, prudent and customary in
the mortgage origination and servicing industry. The Loan has been serviced by the Loan Originator
and any predecessor servicer in accordance with the terms of the Promissory Note. With respect to
escrow deposits and Escrow Payments, if any, all such payments are in the possession of, or under
the control of, the Loan Originator and there exist no deficiencies in connection therewith for
which customary arrangements for repayment thereof have not been made. No escrow deposits or Escrow
Payments or other charges or payments due the Loan Originator have been capitalized under any
Mortgage or the related Promissory Note and no such escrow deposits or Escrow Payments are being
held by the Loan Originator for any work on a Mortgaged Property which has not been completed;
(xxii) The Mortgaged Property is free of material damage and waste and there is no proceeding
pending for the total or partial condemnation thereof;
(xxiii) The Mortgage contains an enforceable provision for the acceleration of the payment of
the unpaid principal balance of the Loan in the event that the Mortgaged Property is sold or
transferred without the prior written consent of the mortgagee thereunder. The Mortgage and related
Promissory Note contain customary and enforceable provisions such as to render the rights and
remedies of the holder thereof adequate for the realization against the
E-4
Mortgaged Property of the benefits of the security provided thereby, including, (a) in the case of
a Mortgage designated as a deed of trust, by trustees sale, and (b) otherwise by judicial
foreclosure. The Mortgaged Property has not been subject to any bankruptcy proceeding or
foreclosure proceeding and the Borrower has not filed for protection under
applicable bankruptcy laws. No material litigation or lawsuit relating to the Loan is pending.
There is no homestead or other exemption available to the Borrower which would interfere with the
right to sell the Mortgaged Property at a trustees sale or the right to foreclose the Mortgage.
The Borrower has not notified the Loan Originator and the Loan Originator has no knowledge of any
relief requested or allowed to the Borrower under the Soldiers and Sailors Civil Relief Act of
1940;
(xxiv) The Loan was underwritten in accordance with the underwriting standards of the Loan
Originator in effect at the time the Loan was originated; and the Promissory Note and Mortgage are
on forms acceptable to prudent mortgage lending institutions in the secondary market;
(xxv) The Promissory Note is not and has not been secured by any collateral except the lien of
the corresponding Mortgage on the Mortgaged Property and the security interest of any applicable
security agreement or chattel mortgage referred to in (ix) above;
(xxvi) The Loan File contains an appraisal of the related Mortgaged Property which satisfied
the standards of Fannie Mae or Freddie Mac and was made and signed, prior to the approval of the
Loan application, by a qualified appraiser, duly appointed by the Loan Originator, who had no
interest, direct or indirect in the Mortgaged Property or in any loan made on the security thereof,
whose compensation is not affected by the approval or disapproval of the Loan and who met the
minimum qualifications of Fannie Mae or Freddie Mac. Each appraisal of the Loan was made in
accordance with the relevant provisions of the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989;
(xxvii) In the event the Mortgage constitutes a deed of trust, a trustee, duly qualified under
applicable law to serve as such, has been properly designated and currently so serves and is named
in the Mortgage, and no fees or expenses are or will become payable by the Issuer to the trustee
under the deed of trust, except in connection with a trustees sale after default by the Borrower;
(xxviii) No Loan contains provisions pursuant to which Monthly Payments are (a) paid or
partially paid with funds deposited in any separate account established by the Loan Originator, the
Borrower, or anyone on behalf of the Borrower, (b) paid by any source other than the Borrower or
(c) contains any other similar provisions which may constitute a buydown provision. The Loan is
not a graduated payment mortgage loan and the Loan does not have a shared appreciation or other
contingent interest feature;
(xxix) The Borrower has executed a statement to the effect that the Borrower has received all
disclosure materials required by applicable law with respect to the making of fixed rate mortgage
loans in the case of fixed-rate Loans, and adjustable rate mortgage loans in the case of ARMs and
rescission materials with respect to Refinanced Loans, and such statement is and will remain in the
Loan File;
(xxx) No Loan was made in connection with (a) the construction or rehabilitation of a
Mortgaged Property or (b) facilitating the trade-in or exchange of a Mortgaged Property;
(xxxi) The Loan Originator has no knowledge of any circumstances or condition with respect to
the Mortgage, the Mortgaged Property, the Borrower or the Borrowers credit standing that can
reasonably be expected to cause the Loan to be an unacceptable investment, cause the Loan to become
delinquent, or adversely affect the value of the Loan;
(xxxii) Each Loan listed on the Loan Schedule as being subject to a Primary Mortgage Insurance
Policy is and will be subject to a Primary Mortgage Insurance Policy, issued by a Qualified
Insurer, which insures that portion of the Loan in excess of the portion of the Appraised Value of
the Mortgaged Property required by Fannie Mae. All provisions of such Primary Insurance Policy have
been and are being complied with, such policy is in full force and effect, and all premiums due
thereunder have been paid. Any Mortgage subject to any such Primary Insurance Policy obligates the
Borrower thereunder to maintain such insurance and to pay all premiums and charges in connection
therewith. The Loan Interest Rate for the Loan does not include any such insurance premium;
(xxxiii) The Mortgaged Property is lawfully occupied under applicable law; all inspections,
licenses and certificates required to be made or issued with respect to all occupied portions of
the Mortgaged Property and, with respect to the use and occupancy of the same, including but not
limited to certificates of occupancy, have been made or obtained from the appropriate authorities;
(xxxiv) No error, omission, misrepresentation, negligence, fraud or similar occurrence with
respect to a Loan has taken place on the part of any person, including without limitation the
Borrower, any appraiser, any builder or developer, or any other party involved in the origination
of the Loan or in the application of any insurance in relation to such Loan;
(xxxv) The Assignment of Mortgage is in recordable form and is acceptable for recording under
the laws of the jurisdiction in which the Mortgaged Property is located;
(xxxvi) Any principal advances made to the Borrower prior to the Transfer Cut-off Date have
been consolidated with the outstanding principal amount secured by the Mortgage, and the secured
principal amount, as consolidated, bears a single interest rate and single repayment term. The lien
of the Mortgage securing the consolidated principal amount is expressly insured as having first or
second lien priority by a title insurance policy, an endorsement to the policy insuring the
mortgagees consolidated interest or by other title evidence acceptable to Fannie Mae and Freddie
Mac. The consolidated principal amount does not exceed the original principal amount of the Loan;
(xxxvii) Except as set forth on the Loan Schedule, no Loan has a balloon
payment feature;
(xxxviii) If the residential dwelling on the Mortgaged Property is a condominium unit or a
unit in a planned unit development (other than a de minimis planned unit
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development) such condominium or planned unit development project meets the eligibility
requirements of Fannie Mae and Freddie Mac;
(xxxix) Interest on each Loan is calculated on the basis of a 360-day year consisting of
twelve 30-day months;
(xl) The Mortgaged Property is in material compliance with all applicable environmental laws
pertaining to environmental hazards including, without limitation, asbestos, and neither the Loan
Originator nor, to the Loan Orginators knowledge, the related Borrower has received any notice of
any violation or potential violation of such law;
(xli) A Trust Receipt reflecting that no Fatal Exceptions exist with respect to the related
Custodial Loan File shall be certified by the Custodian on or before the 15th day following the
related Transfer;
(xlii) The Loan constitutes a qualified mortgage within the meaning of Section 860G(a)(3) of
the Code;
(xliii) The Loan was not intentionally selected by the Loan Originator in a manner intended to
adversely affect the Initial Noteholder or the Trust;
(xliv) With
respect to Second Lien Loans, either (a) no consent for the Loan is required by the
holder of the related first lien or (b) such consent has been obtained and is contained in the
Mortgage File;
(xlv) No Loan is a High Cost Home Loan as defined in the Georgia Fair Lending Act, as
amended. No Loan secured by owner occupied real property or an owner occupied manufactured home
located in the State of Georgia was originated (or modified) on or after October 1, 2002 through
and including March 6, 2003; and
(xlvi) The Loan has been acquired, serviced, collected and otherwise dealt with by the Loan
Originator and any affiliate of the Loan Originator in compliance with all applicable federal,
state and local laws and regulations, including, but not limited to, all applicable predatory and
abusive lending laws and the terms of the related Promissory Note and Mortgage. No Loan is subject
to any federal, state or local law or ordinance that would result in such Loan being ineligible for
inclusion in a rated securitization transaction under the criteria of any rating agency as in
effect as of the application date.
(xlvii) Any and all requirements of any federal, state or local law
including, without limitation, usury, truth in lending, real estate settlement procedures,
predatory and abusive lending, consumer credit protection, equal credit opportunity, fair housing
or disclosure laws applicable to the origination and servicing of mortgage loans of a type similar
to the Loans have been complied with in all material respects;
(xlviii) No Loan is (a) subject to the provisions of the Homeownership and Equity Protection
Act of 1994 as amended (HOEPA), (b) a high cost mortgage loan, covered mortgage loan or
predatory mortgage loan or any similarly classified loan using
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different terminology, no matter how defined under any federal, state or local law imposing
heightened regulatory scrutiny or assignee liability to holders of such mortgage loans, or (c) a
High Cost Loan or Covered Loan, as applicable (as such terms are defined in the current Standard &
Poors LEVELS® Glossary Revised, Appendix E);
(xlix) No predatory, abusive, or deceptive lending practices, including but not limited to,
the extension of credit to a mortgagor without regard for the mortgagors ability to repay the Loan
and the extension of credit to a mortgagor which has no apparent benefit to the mortgagor, were
employed by the Loan Originator in connection with the origination of the Loan. Except with respect
to escrow deposits, each Points and Fees Loan is in compliance with the anti-predatory lending
eligibility for purchase requirements of the Fannie Mae selling guide; and
(l) Points, fees and charges related to each Loan (whether or not financed, assessed,
collected or to be collected in connection with the origination and servicing of each Loan) were
disclosed in writing to the mortgagor in accordance with applicable state and federal law and
regulation. Unless otherwise disclosed on the related Loan Schedule, no mortgagor was charged
points and fees (whether or not financed) in an amount greater than 5% of the principal amount of
the related Loan, such 5% limitation is calculated in accordance with Fannie Maes anti-predatory
lending requirements as set forth in the Fannie Mae selling guide.
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EXHIBIT F
SERVICING ADDENDUM
Section 4.01 Duties of the Servicer.
The Servicer, as independent contract servicer, shall service and administer the Loans in
accordance with this Agreement and shall have full power and authority, acting alone, to do or
cause to be done any and all things in connection with such servicing and administration which the
Servicer may deem necessary or desirable and consistent with the terms of this Agreement.
The duties of the Servicer shall include collecting and posting of all payments, responding to
inquiries of Borrowers or by federal, state or local government authorities with respect to the
Loans, investigating delinquencies, reporting tax information to Borrowers in accordance with its
customary practices and accounting for collections and furnishing monthly and annual statements to
the Indenture Trustee and the Initial Noteholder, with respect to distributions, making Servicing
Advances and Monthly Advances pursuant hereto. The Servicer shall follow its customary standards,
policies and procedures in performing its duties as Servicer. The Servicer shall cooperate with the
Indenture Trustee and furnish to the Indenture Trustee with reasonable promptness information in
its possession as may be necessary or appropriate to enable the Indenture Trustee to perform its
tax reporting duties hereunder, if any.
The Servicer shall give prompt notice to the Indenture Trustee and the Initial Noteholder of
any Proceeding, of which the Servicer has actual knowledge, to (i) assert a claim against the Trust
or (ii) assert jurisdiction over the Trust.
In the event of a Disposition or other removal of a Loan from the Trust Estate, the Servicers
obligations under this Agreement shall be terminated with respect to such Loan.
The Servicer agrees that in the event that any Notes are outstanding after the applicable
Maturity Date, the Majority Noteholders may appoint a successor servicer in accordance with the
provisions of Section 9.02. The Majority Noteholders may, by written notice to the Servicer and the
Indenture Trustee, elect to have the Servicer continue its duties hereunder after such Maturity
Date.
Consistent with the terms of this Agreement, the Servicer may waive, modify or vary any term
of any Loan or consent to the postponement of strict compliance with any such term or in any manner
grant indulgence to any Borrower if in the Servicers reasonable and prudent determination such
waiver, modification, postponement or indulgence is not materially adverse to the Issuer or the
Noteholders; provided, however, that the Servicer shall not permit any modification with respect to
any Loan that would change the Loan Interest Rate, defer or forgive the payment thereof or of any
principal or interest payments, reduce the outstanding principal amount (except for actual payments
of principal), make additional advances of additional principal or extend the final maturity date
on such Loan. Without limiting the generality of the foregoing, the Servicer shall continue, and is
hereby authorized and empowered, to execute and deliver on behalf of itself, and the Issuer, all
instruments of satisfaction or cancellation, or of partial or full release, discharge and all other
comparable instruments, with respect to the Loans
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and with respect to the Mortgaged Property. If reasonably required by the Servicer, the Issuer
shall furnish the Servicer with any powers of attorney and other documents necessary or appropriate
to enable the Servicer to carry out its servicing and administrative duties under this Agreement.
The Servicer shall service and administer the Loans in accordance with Accepted Servicing
Practices.
Section 4.02 Collection of Loan Payments.
Continuously from the date hereof until the principal and interest on all Loans are paid in
full, the Servicer shall proceed diligently to collect all payments due under each Loan when the
same shall become due and payable and shall, to the extent such procedures shall be consistent with
this Agreement and the terms and provisions of any related Primary Insurance Policy, follow such
collection procedures as it follows with respect to mortgage loans comparable to the Loans and held
for its own account. Further, the Servicer shall take special care in ascertaining and estimating
annual ground rents, taxes, assessments, water rates, fire and hazard insurance premiums, mortgage
insurance premiums, and all other charges that, as provided in the Mortgage, will become due and
payable to the end that the installments payable by the Borrowers will be sufficient to pay such
charges as and when they become due and payable.
Section 4.03 Realization Upon Defaulted Loans.
(a) The Servicer shall use its best efforts, consistent with the procedures that the Servicer
would use in servicing loans for its own account, to foreclose upon or otherwise comparably convert
the ownership of such Mortgaged Properties as come into and continue in default and as to which no
satisfactory arrangements can be made for collection of delinquent payments pursuant to Section
4.01. The Servicer shall use its best efforts to realize upon Defaulted Loans in such a manner as
will maximize the receipt of principal and interest by the Issuer, taking into account, among other
things, the timing of foreclosure proceedings; provided, however, that the Servicer shall not sell
any Defaulted Loan unless it has been directed to do so by the Majority Noteholder. The foregoing
is subject to the provisions that, in any case in which Mortgaged Property shall have suffered
damage, the Servicer shall not be required to expend its own funds toward the restoration of such
property in excess of $2,000 unless it shall determine in its discretion (i) that such restoration
will increase the proceeds of liquidation of the related Loan to the Issuer after reimbursement to
itself for such expenses, and (ii) that such expenses will be recoverable by the Servicer through
Mortgage Insurance Proceeds or Liquidation Proceeds from the related Mortgaged Property. In the
event that any payment due under any Loan is not paid when the same becomes due and payable, or in
the event the Borrower fails to perform any other covenant or obligation under the Loan and such
failure continues beyond any applicable grace period, the Servicer shall take such action as it
shall deem to be in the best interest of the Issuer and the Noteholders. The Servicer shall notify
the Issuer and the Noteholders in writing of the commencement of foreclosure proceedings. In such
connection, the Servicer shall be responsible for all costs and expenses incurred by it in any such
proceedings; provided, however, that it shall be entitled to reimbursement thereof from the related
Mortgaged Property.
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(b) Notwithstanding the foregoing provisions of this Section 4.03, with respect to any Loan as
to which the Servicer has received actual notice of, or has actual knowledge of, the presence of
any toxic or hazardous substance on the related Mortgaged Property the Servicer shall not either
(i) obtain title to such Mortgaged Property as a
result of or in lieu of foreclosure or otherwise, or (ii) otherwise acquire possession of, or
take any other action, with respect to, such Mortgaged Property if, as a result of any such action,
the Issuer would be considered to hold title to, to be a mortgagee-in-possession of, or to be an
owner or operator of such Mortgaged Property within the meaning of the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended from time to time, or any comparable
law, unless the Servicer has also previously determined, based on its reasonable judgment and a
prudent report prepared by a Person who regularly conducts environmental audits using customary
industry standards, that:
(1) such Mortgaged Property is in compliance with applicable environmental laws or,
if not, that it would be in the best economic interest of the Issuer and the
Noteholders to take such actions as are necessary to bring the Mortgaged Property
into compliance therewith; and
(2) there are no circumstances present at such
Mortgaged Property relating to the use, management or disposal of any hazardous
substances, hazardous materials, hazardous wastes, or petroleum-based materials for
which investigation, testing, monitoring, containment, clean-up or remediation
could be required under any federal, state or local law or regulation, or that if
any such materials are present for which such action could be required, that it
would be in the best economic interest of the Issuer and the Noteholders to take
such actions with respect to the affected Mortgaged Property.
The cost of the environmental audit report contemplated by this Section 4.03 shall be advanced
by the Servicer, subject to the Servicers right to be reimbursed therefor from the Collection
Account as provided in Section 5.01(c).
If the Servicer determines, as described above, that it is in the best economic interest of
the Issuer and the Noteholders to take such actions as are necessary to bring any such Mortgaged
Property into compliance with applicable environmental laws, or to take such action with respect to
the containment, clean-up or remediation of hazardous substances, hazardous materials, hazardous
wastes, or petroleum-based materials affecting any such Mortgaged Property, then the Servicer shall
take such action as it deems to be in the best economic interest of the Issuer and the Noteholders.
The cost of any such compliance, containment, cleanup or remediation shall be advanced by the
Servicer, subject to the Servicers right to be reimbursed therefor from the Collection Account as
provided in Section 5.01(c).
(c) The Servicer shall determine, with respect to each Defaulted Loan, when it has recovered,
whether through trustees sale, foreclosure sale or otherwise, all amounts it expects to recover
from or on account of such defaulted Loan, whereupon such Loan shall become a Liquidated Loan and
shall promptly deliver to the Initial Noteholder a related liquidation report with respect to such
Liquidated Loan.
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Section 4.04 Establishment of Escrow Accounts; Deposits in Escrow Accounts.
The Servicer shall segregate and hold all funds collected and received pursuant to each Loan
which constitute Escrow Payments separate and apart from any of its own funds and general assets
and shall establish and maintain one or more Escrow Accounts, in accordance with the related
Mortgage and applicable law.
The Servicer shall deposit in the Escrow Account or Accounts within two (2) Business Days
after receipt, and retain therein, (i) all Escrow Payments collected on account of the Loans, for
the purpose of effecting timely payment of any such items as required under the terms of this
Agreement, and (ii) all Mortgage Insurance Proceeds which are to be applied to the restoration or
repair of any Mortgaged Property. The Servicer shall make withdrawals therefrom only to effect such
payments as are required under this Agreement, and for such other purposes as shall be as set forth
or in accordance with Section 4.06. The Servicer shall be entitled to retain any interest paid on
funds deposited in the Escrow Account by the depository institution other than interest on escrowed
funds required by law to be paid to the Borrower and, to the extent required by law, the Servicer
shall pay interest on escrowed funds to the Borrower notwithstanding that the Escrow Account is
non-interest bearing or that interest paid thereon is insufficient for such purposes.
Section 4.05 Permitted Withdrawals From Escrow Account.
Withdrawals from the Escrow Account may be made by the Servicer (i) to effect timely payments
of ground rents, taxes, assessments, water rates, hazard insurance premiums, Primary Insurance
Policy premiums, if applicable, and comparable items, (ii) to reimburse the Servicer for any
Servicing Advance made by the Servicer with respect to a related Loan but only from amounts
received on the related Loan which represent late payments or collections of Escrow Payments
thereunder, (iii) to refund to the Borrower any funds as may be determined to be overages, (iv) for
transfer to the Collection Account in accordance with the terms of this Agreement, (v) for
application to restoration or repair of the Mortgaged Property, (vi) to pay to the Servicer, or to
the Borrower to the extent required by law, any interest paid on the funds deposited in the Escrow
Account, or (vii) to clear and terminate the Escrow Account on the termination of this Agreement.
Section 4.06 Payment of Taxes, Insurance and Other Charges; Maintenance of Primary
Insurance Policies; Collections Thereunder.
With respect to each Loan, the Servicer shall maintain accurate records reflecting the status
of ground rents, taxes, assessments, water rates and other charges which are or may become a lien
upon the Mortgaged Property and the status of Primary Insurance Policy premiums and fire and hazard
insurance coverage and shall obtain, from time to time, all bills for the payment of such charges,
including insurance renewal premiums and shall effect payment thereof prior to the applicable
penalty or termination date and at a time appropriate for securing maximum discounts allowable,
employing for such purpose deposits of the Borrower in the Escrow Account which shall have been
estimated
and accumulated by the Servicer in amounts sufficient for such purposes, as allowed under the
terms of the Mortgage and applicable law. To the extent that the Mortgage does not provide for
Escrow Payments, the Servicer shall determine
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that any such insurance premium payments are made by the Borrower at the time they first become due
and any such tax payments are made in time to avoid loss of the Mortgaged Property in a tax sale.
The Servicer assumes full responsibility for the timely payment of all such bills and shall effect
payments of all such bills prior to the termination of any such insurance coverage or loss of any
such Mortgaged Property in a tax sale irrespective of the Borrowers faithful performance in the
payment of same or the making of the Escrow Payments and shall make advances from its own funds to
effect such payments.
The Servicer shall maintain in full force and effect, a Primary Insurance Policy, issued by a
Qualified Insurer, with respect to each Loan for which such coverage is required. Such coverage
shall be maintained until the Loan-to-Value Ratio of the related Loan is reduced to that amount for
which Fannie Mae no longer requires such insurance to be maintained. The Servicer will not cancel
or refuse to renew any Primary Insurance Policy, if any, in effect on the Closing Date that is
required to be kept in force under this Agreement unless a replacement Primary Insurance Policy, if
any, for such canceled or non-renewed policy is obtained from and maintained with a Qualified
Insurer. The Servicer shall not take any action which would result in non-coverage under any
applicable Primary Insurance Policy of any loss which, but for the actions of the Servicer, would
have been covered thereunder. In connection with any assumption or substitution agreement entered
into or to be entered into pursuant to Section 4.12, the Servicer shall promptly notify the insurer
under the related Primary Insurance Policy, if any, of such assumption or substitution of liability
in accordance with the terms of such policy and shall take all actions which may be required by
such insurer as a condition to the continuation of coverage under the Primary Insurance Policy, if
any. If such Primary Insurance Policy is terminated as a result of such assumption or substitution
of liability, the Servicer shall obtain a replacement Primary Insurance Policy as provided above.
In connection with its activities as servicer, the Servicer agrees to prepare and present, on
behalf of itself, the Issuer and the Noteholders, claims to the insurer under any Primary Insurance
Policy in a timely fashion in accordance with the terms of such policies and, in this regard, to
take such action as shall be necessary to permit recovery under any Primary Insurance Policy
respecting a defaulted Loan. Pursuant to Section 5.01, any amounts collected by the Servicer under
any Primary Insurance Policy shall be deposited in the Collection Account.
Section 4.07 Transfer of Accounts.
The Servicer may transfer the Collection Account or the Escrow Account to a different
depository institution from time to time. Such transfer shall be made only upon obtaining the
consent of the Initial Noteholder, which consent shall not be unreasonably withheld or delayed. In
any case, the Collection Account and the Escrow Account shall be an Eligible Account.
Section 4.08 Maintenance of Hazard Insurance.
The Servicer shall cause to be maintained for each Loan fire and hazard insurance with
extended coverage as is customary in the area where the Mortgaged Property is located in an amount
which is at least equal to the lesser of (i) 100% of the maximum insurable value of the
improvements securing the Loan or (ii) the outstanding principal balance of the Loan, in each case
in an amount not less than such amount as is necessary to prevent the Borrower and/or the
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Issuer from becoming a co- insurer. If the Mortgaged Property is in an area identified on a Flood
Hazard Boundary Map or Flood Insurance Rate Map issued by the Flood Emergency Management Agency as
having special flood hazards and such flood insurance has been made available, the Servicer will
cause to be maintained a flood insurance policy meeting the requirements of the current guidelines
of the Federal Insurance Administration with a generally acceptable insurance carrier, in an amount
representing coverage not less than the lesser of (i) the outstanding principal balance of the Loan
or (ii) the maximum amount of insurance which is available under the National Flood Insurance Act
of 1968 or the Flood Disaster Protection Act of 1973, as amended. The Servicer also shall maintain
on any Foreclosure Property, fire and hazard insurance with extended coverage in an amount which is
at least equal to the lesser of (i) 100% of the maximum insurable value of the improvements which
are a part of such property and (ii) the outstanding principal balance of the related Loan at the
time it became a Foreclosure Property, liability insurance and, to the extent required and
available under the National Flood Insurance Act of 1968 or the Flood Disaster Protection Act of
1973, as amended, flood insurance in an amount as provided above. Pursuant to Section 5.01, any
amounts collected by the Servicer under any such policies other than amounts to be deposited in the
Escrow Account and applied to the restoration or repair of the Mortgaged Property or Foreclosure
Property, or released to the Borrower in accordance with the Servicers normal servicing
procedures, shall be deposited in the Collection Account, subject to withdrawal pursuant to Section
5.01. Any cost incurred by the Servicer in maintaining any such insurance shall not, for the
purpose of calculating distributions to the Issuer or the Noteholders, be added to the unpaid
principal balance of the related Loan, notwithstanding that the terms of such Loan so permit. It is
understood and agreed that no earthquake or other additional insurance need be required by the
Servicer or the Borrower or maintained on property acquired in respect of the Loan, other than
pursuant to such applicable laws and regulations as shall at any time be in force and as shall
require such additional insurance. All such policies shall be endorsed with standard mortgagee
clauses with loss payable to the Servicer, or upon the direction of the Initial Noteholder to the
Indenture Trustee, and shall provide for at least thirty days prior written notice of any
cancellation, reduction in the amount of, or material change in, coverage to the Servicer. The
Servicer shall not interfere with the Borrowers freedom of choice in selecting either his
insurance carrier or agent, provided, however, that the Servicer shall not accept any such
insurance policies from insurance companies unless such companies currently reflect a General
Policy Rating of B:III or better in Bests Key Rating Guide and are licensed to do business in the
state wherein the property subject to the policy is located.
Section 4.09 Maintenance of Mortgage Impairment Insurance Policy.
In the event that the Servicer shall obtain and maintain a mortgage impairment or blanket
policy issued by an issuer that has a Best rating of B:III insuring against hazard losses on all of
Mortgaged Properties securing the Loans, then, to the extent such policy provides coverage in an
amount equal to the amount required pursuant to Section 4.08 and otherwise complies with all other
requirements of Section 4.08, the Servicer shall conclusively be deemed to have satisfied its
obligations as set forth in Section 4.08, it being understood and agreed that such policy may
contain a deductible clause, in which case the Servicer shall, in the event that there shall not
have been maintained on the related Mortgaged Property or Foreclosure Property a policy complying
with Section 4.08, and there shall have been one or more losses which would have been covered
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by such policy, deposit in the Collection Account the amount not otherwise payable under the
blanket policy because of such deductible clause. In connection with its activities as servicer of
the Loans, the Servicer agrees to prepare and present, on behalf of the Issuer and the Noteholders,
claims under any such blanket policy in a timely fashion in accordance with the terms of such
policy. Upon request of the Initial Noteholder, the Servicer shall cause to be delivered to the
Noteholders a certified true copy of such policy and a statement from the insurer thereunder that
such policy shall in no event be terminated or materially modified without thirty days prior
written notice to the Issuer and the Noteholders.
Section 4.10 Fidelity Bond, Errors and Omissions Insurance.
The Servicer shall maintain, at its own expense, a blanket fidelity bond and an errors and
omissions insurance policy, with broad coverage with financially responsible companies on all
officers, employees or other persons acting in any capacity with regard to the Loans to handle
funds, money, documents and papers relating to the Loans. The fidelity bond and errors and
omissions insurance shall be in the form of the Mortgage Bankers Blanket Bond and shall protect
and insure the Servicer against losses, including forgery, theft, embezzlement, fraud, errors and
omissions and negligent acts of such persons. Such fidelity bond shall also protect and insure the
Servicer against losses in connection with the failure to maintain any insurance policies required
pursuant to this Agreement and the release or satisfaction of a Loan without having obtained
payment in full of the indebtedness secured thereby. No provision of this Section 4.10 requiring
the fidelity bond and errors and omissions insurance shall diminish or relieve the Servicer from
its duties and obligations as set forth in this Agreement. The minimum coverage under any such bond
and insurance policy shall be at least equal to the corresponding amounts required by Fannie Mae in
the Fannie Mae Servicing Guide or by Freddie Mac in the Freddie Mac Sellers and Servicers Guide.
Upon request of the Initial Noteholder, the Servicer shall cause to be delivered to the Noteholders
a certified true copy of the fidelity bond and insurance policy and a statement from the surety and
the insurer that such fidelity bond or insurance policy shall in no event be terminated or
materially modified without thirty days prior written notice to the Initial Noteholder.
Section 4.11 Title, Management and Disposition of Foreclosure Property.
In the event that title to the Mortgaged Property is acquired in foreclosure or by deed in
lieu of foreclosure, the deed or certificate of sale shall be taken in the name of the person
designated by the Issuer, or in the event such person is not authorized or permitted to hold title
to real property in the state where the Foreclosure Property is located, or would be adversely
affected under the doing business or tax laws of such state by so holding title, the deed or
certificate of sale shall be taken in the name of such Person or Persons as shall be consistent
with an opinion of counsel obtained by the Servicer from an attorney duly licensed to practice law
in the state where the Foreclosure Property is located. Any Person or Persons holding such title
other than the Issuer shall acknowledge in writing that such title is being held as nominee for the
benefit of the Issuer and the Noteholders.
The Servicer shall either itself or through an agent selected by the Servicer, manage,
conserve, protect and operate each Foreclosure Property (and may temporarily rent the same) in the
same manner that it manages, conserves, protects and operates other foreclosed property for
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its own account, and in the same manner that similar property in the same locality as the
Foreclosure Property is managed. If a REMIC election is or is to be made with respect to the
arrangement under which the Mortgage Loans and any Foreclosure Property are held, the Servicer
shall manage, conserve, protect and operate each Foreclosure Property in a manner which does not
cause such Foreclosure Property to fail to qualify as foreclosure property within the meaning of
Section 860G(a)(8) of the Code or result in the receipt by such REMIC of any income from
non-permitted assets within the meaning of Section 860F(a)(2)(B) of the Code or any net income
from foreclosure property within the meaning of Section 860G(c)(2) of the Code. The Servicer shall
cause each Foreclosure Property to be inspected promptly upon the acquisition of title thereto and
shall cause each Foreclosure Property to be inspected at least annually thereafter. The Servicer
shall make or cause to be made a written report of each such inspection. Such reports shall be
retained in the Loan File and copies thereof shall be forwarded by the Servicer to the Issuer. The
Servicer shall use its best efforts to dispose of the Foreclosure Property as soon as possible. The
Servicer shall report monthly to the Issuer and the Noteholders as to the progress being made in
selling such Foreclosure Property, and if, with the written consent of the Initial Noteholder, a
purchase money mortgage is taken in connection with such sale, such purchase money mortgage shall
name the Servicer as mortgagee, and a separate servicing agreement between the Servicer and the
Issuer shall be entered into with respect to such purchase money mortgage. Notwithstanding the
foregoing, if a REMIC election is made with respect to the arrangement under which the Loans and
the Foreclosure Property are held, such Foreclosure Property shall be disposed of within three
years after the end of the tax year in which such property becomes Foreclosure Property or such
other period as may be permitted under Section 860G(a)(8) of the Code.
The final sale by the Servicer of any Foreclosure Property (REO Disposition) shall be
carried out by the Servicer at such price and upon such terms and conditions as the Servicer deems
to be in the best interest of the Issuer and the Noteholders only with the prior written consent of
the Initial Noteholder. If as of the date title to any Foreclosure Property was acquired by the
Issuer there were outstanding unreimbursed Servicing Advances with respect to the Foreclosure
Property, the Servicer, upon an REO Disposition of such Foreclosure Property, shall be entitled to
reimbursement for any related unreimbursed Servicing Advances from Liquidation Proceeds received in
connection with such REO Disposition. The Net Liquidation Proceeds from the REO Disposition shall
be deposited in the Collection Account promptly following receipt thereof for distribution on the
succeeding Payment Date in accordance with Section 5.01.
Section 4.12 Assumption Agreements.
The Servicer shall, to the extent it has knowledge of any conveyance or prospective conveyance
by any Borrower of the Mortgaged Property (whether by absolute conveyance or by contract of sale,
and whether or not the Borrower remains or is to remain liable under the Promissory Note and/or the
Mortgage), exercise its rights to accelerate the maturity of such Loan under any due-on-sale
clause applicable thereto; provided, however, that the Servicer shall not exercise any such rights
if prohibited by law from doing so or if the exercise of such rights would impair or threaten to
impair any recovery under the related Primary Insurance Policy, if any, and shall not be required
to exercise such rights if the transferee of the Mortgaged Property would qualify for an assumption
or substitution under the Servicers underwriting guidelines. If the
F-8
Servicer reasonably believes it is unable under applicable law to enforce such due-on-sale
clause, the Servicer shall enter into an assumption agreement with the person to whom the Mortgaged
Property has been conveyed or is proposed to be conveyed, pursuant to which such person becomes
liable under the Promissory Note and, to the extent permitted by applicable state law, the Borrower
remains liable thereon. Where an assumption is allowed pursuant to this Section 4.12, the Servicer,
with the prior written consent of the insurer under the Primary Insurance Policy, if any, is
authorized to enter into a substitution of liability agreement with the person to whom the
Mortgaged Property has been conveyed or is proposed to be conveyed pursuant to which the original
Borrower is released from liability and such Person is substituted as Borrower and becomes liable
under the related Promissory Note. Any such substitution of liability agreement shall be in lieu of
an assumption agreement.
In connection with any such assumption or substitution of liability, the Servicer shall follow
the underwriting practices and procedures of prudent mortgage lenders in the state in which the
related Mortgaged Property is located. With respect to an assumption or substitution of liability,
Loan Interest Rate, the amount of the Monthly Payment, and the final maturity date of such
Promissory Note may not be changed. The Servicer shall notify the Issuer and the Noteholders that
any such substitution of liability or assumption agreement has been completed and shall forward to
the Custodian the original of any
such substitution of liability or assumption agreement, which document shall be added to the
related Loan File and shall, for all purposes, be considered a part of such Loan File to the same
extent as all other documents and instruments constituting a part thereof. Any fee collected by the
Servicer for entering into an assumption or substitution of liability agreement shall be deemed
additional Servicing Compensation.
Notwithstanding the foregoing paragraphs of this Section or any other provision of this
Agreement, the Servicer shall not be deemed to be in default, breach or any other violation of its
obligations hereunder by reason of any assumption of a Loan by operation of law or any assumption
which the Servicer may be restricted by law from preventing, for any reason whatsoever. For
purposes of this Section 4.12, the term assumption is deemed to also include a sale of the
Mortgaged Property subject to the Mortgage that is not accompanied by an assumption or substitution
of liability agreement.
Section 4.13 Satisfaction of Mortgages and Release of Loan Files.
Upon the payment in full of any Loan, or the receipt by the Servicer of a notification that
payment in full will be escrowed in a manner customary for such purposes, the Servicer will
immediately notify the Issuer and the Initial Noteholder by a certification of a servicing officer
of the Servicer (a Servicing Officer), which certification shall include a statement to the
effect that all amounts received or to be received in connection with such payment which are
required to be deposited in the Collection Account pursuant to Section 5.01 have been or will be so
deposited, and shall request execution of any document necessary to satisfy the Loan and delivery
to it of the portion of the Loan File held by Custodian. Upon receipt of a Request for Release and
Receipt (as defined in the Custodial Agreement), the Custodian shall promptly release the related
mortgage documents to the Servicer in accordance with the Custodial Agreement and the Servicer
shall prepare and process any satisfaction or release. No expense incurred in connection with any
instrument of satisfaction or deed of reconveyance shall be chargeable to the Collection Account or
the Issuer.
F-9
In the event the Servicer satisfies or releases a Mortgage without having obtained payment in
full of the indebtedness secured by the Mortgage or should it otherwise prejudice any right the
Issuer or the Noteholders may have under the mortgage instruments, the Servicer, upon written
demand, shall remit to the Issuer the then outstanding principal balance of the related Loan by
deposit thereof in the Collection Account. The Servicer shall maintain the fidelity bond insuring
the Servicer against any loss it may sustain with respect to any Loan not satisfied in accordance
with the procedures set forth herein.
From time to time and as appropriate for the servicing or foreclosure of the Loan, including
for this purpose collection under any Primary Insurance Policy, the Custodian shall, upon request
of the Servicer and delivery to the Custodian of a servicing receipt signed by a Servicing Officer,
release the requested portion of the Loan File held by the Custodian to the Servicer. Such
servicing receipt shall obligate the Servicer to return the
related Mortgage documents to the Custodian when the need therefor by the Servicer no longer
exists, unless the Loan has been liquidated and the Liquidation Proceeds relating to the Loan have
been deposited in the Collection Account or the Loan File or such document has been delivered to an
attorney, or to a public trustee or other public official as required by law, for purposes of
initiating or pursuing legal action or other proceedings for the foreclosure of the Mortgaged
Property either judicially or non judicially, and the Servicer has delivered to the Custodian a
certificate of a Servicing Officer certifying as to the name and address of the Person to which
such Loan File or such document was delivered and the purpose or purposes of such delivery. Upon
receipt of a certificate of a Servicing Officer stating that such Loan was liquidated, the
servicing receipt shall be released by the Custodian to the Servicer.
Section 4.14 Advances by the Servicer.
(a) Not later than the close of business on the Business Day preceding each Remittance Date,
the Servicer shall deposit in the Collection Account an amount equal to all payments not previously
advanced by the Servicer, whether or not deferred pursuant to Section 4.01, of principal (due after
the Transfer Cut-off Date) and interest not allocable to the period prior to the Transfer Cut-off
Date, at the Loan Interest Rate net of the Servicing Fee, which were due on a Loan and delinquent
at the close of business on the related Remittance Date; provided, however, that the Servicer shall
not be required to deposit such amount if the amount on deposit in the Collection Account on that
Remittance Date (exclusive of any Monthly Advance required to be effected pursuant to this Section
4.14) is at least sufficient to fund in full the items described in Sections 5.01(c)(3)(i) through
5.01(c)(3)(vi) hereof on the related Payment Date, and, if the amount on deposit in the Collection
Account is less than the sum of such items, the Servicer shall only be required to deposit an
amount equal to the shortfall. The obligation of the Servicer to make such Monthly Advances is
mandatory, notwithstanding any other provision of this Agreement, and, with respect to any Loan or
Foreclosure Property, shall continue until a Final Recovery Determination in connection therewith;
provided that, notwithstanding anything herein to the contrary, no Monthly Advance shall be
required to be made hereunder by the Servicer if such Monthly Advance would, if made, constitute a
Nonrecoverable Monthly Advance. The determination by the Servicer that it has made a Nonrecoverable
Monthly Advance or that any proposed Monthly Advance, if made, would constitute a Nonrecoverable
F-10
Monthly Advance, shall be evidenced by an Officers Certificate delivered to the Issuer and the
Indenture Trustee.
(b) The Servicer will pay all out-of-pocket costs and expenses incurred in the performance of
its servicing obligations including, but not limited to, the cost of (i) Preservation Expenses,
(ii) any enforcement or judicial proceedings, including foreclosures, (iii) inspection fees and
expenses and (iv) the management and liquidation of Foreclosure Property but is only required to
pay such costs and expenses to the extent the Servicer reasonably believes such costs and expenses
will increase Net Liquidation
Proceeds on the related Loan. Each such amount so paid will constitute a Servicing Advance.
The Servicer may recover Servicing Advances (x) from the Borrowers to the extent permitted by the
Loans, from Liquidation Proceeds realized upon the liquidation of the related Loan and (y) as
provided in Sections 5.01(c)(1)(ii) or 5.01(c)(3)(ix) hereof. In no case may the Servicer recover
Servicing Advances from principal and interest payments on any Loan or from any amounts relating to
any other Loan except as provided pursuant to Sections 5.01(c)(1)(ii) or 5.01(c)(3)(ix) hereof.
Section 4.15 Servicing Compensation.
As compensation for its services hereunder, the Servicer shall, subject to Section 5.01(c), be
entitled to withdraw from the Collection Account or to retain from interest payments on the Loans
the amounts provided for as the Servicers Servicing Fee. Additional servicing compensation in the
form of assumption fees, non-sufficient fund fees, modification fees, substitution fees and other
ancillary income, as provided in Section 4.12, and late payment charges or otherwise shall be
retained by the Servicer to the extent not required to be deposited in the Collection Account. The
Servicer shall be required to pay all expenses incurred by it in connection with its servicing
activities hereunder and shall not be entitled to reimbursement therefor except as specifically
provided for.
Section 4.16 Notification of Adjustments.
On each Adjustment Date, the Servicer shall make interest rate adjustments for each ARM in
compliance with the requirements of the related Mortgage and Promissory Note. The Servicer shall
execute and deliver the notices required by each Mortgage and Promissory Note regarding interest
rate adjustments. The Servicer also shall provide timely notification to the Noteholders of all
applicable data and information regarding such interest rate adjustments and the Servicers methods
of implementing such interest rate adjustments. Upon the discovery by the Servicer or the any
Noteholder that the Servicer has failed to adjust a Loan Interest Rate or a Monthly Payment
pursuant to the terms of the related Promissory Note and Mortgage, the Servicer shall immediately
deposit in the Collection Account from its own funds the amount of any interest loss caused thereby
without reimbursement therefor.
Section 4.17 Statement as to Compliance.
The Servicer will deliver to the Issuer, the Indenture Trustee and the Initial Noteholder not
later than 90 days following the end of each fiscal year of the Servicer, which as of the Closing
Date ends on April 30, an Officers Certificate stating, as to each signatory thereof, that (i) a
review of the activities of the Servicer during the preceding year and of performance under
F-11
this Agreement has been made under such officers supervision and (ii) to the best of such
officers knowledge, based on such review, the Servicer has fulfilled all of its obligations under
this Agreement throughout such year, or, if there has been a default in the fulfillment of any such
obligation, specifying each such default known to such officer and the nature and status thereof.
Section 4.18 Independent Public Accountants Servicing Report.
Not later than 90 days following the end of each fiscal year of the Servicer, the Servicer at
its expense shall cause a firm of independent public accountants (which may also render other
services to the Servicer) which is a member of the American Institute of Certified Public
Accountants to furnish a statement to the Issuer, the Indenture Trustee and the Initial Noteholder
to the effect that such firm has examined certain documents and records relating to the servicing
of the Loans under this Agreement and that, on the basis of such examination conducted
substantially in compliance with the Uniform Single Attestation Program for Mortgage Bankers, such
firm confirms that such servicing has been conducted in compliance with such pooling and servicing
agreements except for such significant exceptions or errors in records that, in the opinion of such
firm, the Uniform Single Attestation Program for Mortgage Bankers requires it to report.
Section 4.19 Access to Certain Documentation
The Servicer shall provide to the Office of Thrift Supervision, the FDIC and any other federal
or state banking or insurance regulatory authority that may exercise authority over the Issuer or
any Noteholder access to the documentation regarding the Loans serviced by the Servicer required by
applicable laws and regulations. Such access shall be afforded without charge, but only upon
reasonable request and during normal business hours at the offices of the Servicer. In addition,
access to the documentation will be provided to the Issuer or any Noteholder and any Person
identified to the Servicer by the Issuer or any Noteholder without charge, upon reasonable request
during normal business hours at the offices of the Servicer.
Section 4.20 Reports and Returns to be Filed by the Servicer.
The Servicer shall file information reports with respect to the receipt of mortgage interest
received in a trade or business, reports of foreclosures and abandonments of any Mortgaged Property
and information returns relating to cancellation of indebtedness income with respect to any
Mortgaged Property as required by Sections 6050H, 6050J and 6050P of the Code. Such reports shall
be in form and substance sufficient to meet the reporting requirements imposed by such Sections
6050H, 6050J and 6050P of the Code.
Section 4.21 Compliance with REMIC Provisions.
If a REMIC election has been made with respect to the arrangement under which the Loans and
Foreclosure Property are held, the Servicer shall not take any action, cause the REMIC to take any
action or fail to take (or fail to cause to be taken) any action that, under the REMIC Provisions,
if taken or not taken, as the case may be, could (i) endanger the status of the REMIC as a REMIC or
(ii) result in the imposition of a tax upon the REMIC (including but not limited to the tax on
prohibited transactions as defined in Section 860F(a)(2) of the Code and
F-12
the tax on contributions to a REMIC set forth in Section 860G(d) of the Code) unless the Servicer
has received an Opinion of Counsel (at the expense of the party seeking to
take such action) to the effect that the contemplated action will not endanger such REMIC status or
result in the imposition of any such tax.
Section 4.22 Subservicing Agreements Between Servicer and Subservicers.
The Servicer may enter into Subservicing Agreements for any servicing and administration of
Loans with any institution which is in compliance with the laws of each state necessary to enable
it to perform its obligations under such Subservicing Agreement and is an Eligible Servicer. The
Servicer shall give notice to the Indenture Trustee and the Initial Noteholder of the appointment
of any Subservicer which is not an Affiliate of the Servicer and shall furnish to the Indenture
Trustee and the Initial Noteholder a copy of the Subservicing Agreement (along with any
modifications thereto) between the Servicer and any Subservicer that is not an Affiliate of the
Servicer. For purposes of this Agreement, the Servicer shall be deemed to have received payments on
Loans when any Subservicer has received such payments. Any such Subservicing Agreement shall be
consistent with and not violate the provisions of this Agreement.
Section 4.23 Successor Subservicers.
Upon notice to the Indenture Trustee and the Initial Noteholder (except if the Subservicer is
an Affiliate of the Servicer), the Servicer shall be entitled to terminate any Subservicing
Agreement in accordance with the terms and conditions of such Subservicing Agreement and to either
itself directly service the related Loans or enter into a Subservicing Agreement with a successor
Subservicer which qualifies under Section 4.22.
Section 4.24 Liability of Servicer.
The Servicer shall not be relieved of its obligations under this Agreement notwithstanding any
Subservicing Agreement or any of the provisions of this Agreement relating to agreements or
arrangements between the Servicer and a Subservicer or otherwise, and the Servicer shall be
obligated to the same extent and under the same terms and conditions as if it alone were servicing
and administering the Loans. The Servicer shall be entitled to enter into any agreement with a
Subservicer for indemnification of the Servicer by such Subservicer and nothing contained in such
Subservicing Agreement shall be deemed to limit or modify this Agreement. The Trust shall not
indemnify the Servicer for any losses due to the Servicers negligence.
Section 4.25 No Contractual Relationship Between Subservicer and Indenture Trustee or the
Securityholders.
Any Subservicing Agreement and any other transactions or services relating to the Loans
involving a Subservicer shall be deemed to be between the Subservicer and the Servicer alone and no
party hereto nor the Securityholders shall be deemed parties thereto and shall have no claims,
rights, obligations, duties or liabilities with respect to any Subservicer except as set forth in
Section 4.26.
F-13
Section 4.26 Assumption or Termination of Subservicing Agreement by Successor
Servicer.
In connection with the assumption of the responsibilities, duties and liabilities and of the
authority, power and rights of the Servicer hereunder by a successor Servicer pursuant to Section
9.02, it is understood and agreed that the Servicers rights and obligations under any Subservicing
Agreement then in force between the servicer and a Subservicer may be assumed or terminated by the
successor Servicer at its option without the payment of any fee (notwithstanding any contrary
provision in any Subservicing Agreement).
The Servicer shall, upon request of the successor Servicer, but at the expense of the
Servicer, deliver to the assuming party documents and records relating to each Subservicing
Agreement and an accounting of amounts collected and held by it and otherwise use its best
reasonable efforts to effect the orderly and efficient transfer of the Subservicing Agreements to
the assuming party, without the payment of any fee by the successor Servicer, notwithstanding any
contrary provision in any Subservicing Agreement.
Section 4.27 No Predatory Practices
The Servicer shall not engage in any practices or activity, with respect to any of the Loans,
that is predatory, abusive, deceptive or otherwise wrongful under an applicable statute, regulation
or ordinance or that is otherwise actionable.
F-14
EXHIBIT G
CAPITAL ADEQUACY TEST
*For each field multiply the HRB% by the Balance Sheet Amount for Required Capital
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|
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|
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|
|
|
|
|
|
HRB TEST |
|
Balance Sheet |
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|
Required Capital |
|
Unrestricted Cash and Equivalents |
|
|
0 |
% |
|
|
|
|
|
|
|
|
Restricted Cash |
|
|
0 |
% |
|
|
|
|
|
|
|
|
Loans Held for Sale |
|
|
9 |
% |
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|
|
|
|
|
|
Servicing Advances |
|
|
10 |
% |
|
|
|
|
|
|
|
|
Beneficial Interests in trusts |
|
|
10 |
% |
|
|
|
|
|
|
|
|
Subprime Mortgage NIM Residual Interest |
|
|
60 |
% |
|
|
|
|
|
|
|
|
Real Estate Held for Sale |
|
|
10 |
% |
|
|
|
|
|
|
|
|
Furniture and Equipment |
|
|
0 |
% |
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|
|
|
|
|
|
|
Mortgage Servicing Rights |
|
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25 |
% |
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|
|
|
|
|
|
Prepaid Expenses and Other Assets |
|
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10 |
% |
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|
|
|
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Accrued interest receivable |
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10 |
% |
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Receivable from H&R Block |
|
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0 |
% |
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|
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Intangibles and goodwill |
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|
100 |
% |
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Deferred Tax Assets |
|
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10 |
% |
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|
|
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Derivative Assets |
|
|
10 |
% |
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Total Required Capital |
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F-15
exv10w2
Exhibit 10.2
NOTE PURCHASE AGREEMENT
AMONG
OPTION ONE OWNER TRUST 2005-6
AS ISSUER
AND
OPTION ONE LOAN WAREHOUSE CORPORATION
AS DEPOSITOR
LEHMAN BROTHERS BANK
AS NOTEHOLDER AGENT
AND
LEHMAN BROTHERS BANK
AS PURCHASER
DATED AS OF JUNE 1, 2005
OPTION ONE OWNER TRUST 2005-6
MORTGAGE-BACKED NOTES
TABLE OF CONTENTS
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Page |
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ARTICLE I DEFINITIONS |
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1 |
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SECTION 1.01 Certain Defined Terms |
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1 |
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SECTION 1.02 Other Definitional Provisions |
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2 |
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ARTICLE II COMMITMENT; CLOSING AND PURCHASES OF ADDITIONAL NOTE PRINCIPAL BALANCES |
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3 |
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SECTION 2.01 Commitment |
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3 |
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SECTION 2.02 Closing |
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4 |
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ARTICLE III TRANSFER DATES |
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4 |
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SECTION 3.01 Transfer Dates |
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4 |
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ARTICLE IV CONDITIONS PRECEDENT TO EFFECTIVENESS OF COMMITMENT |
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6 |
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SECTION 4.01 Subject to Conditions Precedent |
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6 |
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ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE ISSUER AND THE DEPOSITOR |
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8 |
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SECTION 5.01 Issuer |
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8 |
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SECTION 5.02 Securities Act |
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11 |
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SECTION 5.03 No Fee |
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11 |
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SECTION 5.04 Information |
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11 |
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SECTION 5.05 The Purchased Notes |
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11 |
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SECTION 5.06 Use of Proceeds |
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11 |
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SECTION 5.07 The Depositor |
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11 |
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SECTION 5.08 Taxes, etc |
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11 |
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SECTION 5.09 Financial Condition |
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12 |
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ARTICLE VI REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE PURCHASER |
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12 |
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SECTION 6.01 Organization |
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12 |
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SECTION 6.02 Authority, etc |
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12 |
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SECTION 6.03 Securities Act |
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12 |
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SECTION 6.04 Conflicts With Law |
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13 |
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SECTION 6.05 Conflicts With Agreements, etc |
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13 |
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ARTICLE VII COVENANTS OF THE ISSUER AND THE DEPOSITOR |
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13 |
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SECTION 7.01 Information from the Issuer |
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13 |
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SECTION 7.02 Access to Information |
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14 |
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SECTION 7.03 Ownership and Security Interests; Further Assurances |
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14 |
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SECTION 7.04 Covenants |
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14 |
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SECTION 7.05 Amendments |
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14 |
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SECTION 7.06 With Respect to the Exempt Status of the Purchased Notes |
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14 |
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ARTICLE VIII ADDITIONAL COVENANTS |
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15 |
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SECTION 8.01 Legal Conditions to Closing |
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15 |
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SECTION 8.02 Expenses |
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15 |
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SECTION 8.03 Mutual Obligations |
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15 |
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SECTION 8.04 Restrictions on Transfer |
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16 |
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SECTION 8.05 [Reserved] |
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16 |
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SECTION 8.06 Information Provided by the Noteholder Agent |
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16 |
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-i-
TABLE OF CONTENTS
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Page |
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ARTICLE IX INDEMNIFICATION |
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16 |
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SECTION 9.01 Indemnification of Purchaser |
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16 |
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SECTION 9.02 Procedure and Defense |
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16 |
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ARTICLE X MISCELLANEOUS |
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17 |
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SECTION 10.01 Amendments |
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17 |
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SECTION 10.02 Notices |
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17 |
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SECTION 10.03 No Waiver; Remedies |
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17 |
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SECTION 10.04 Binding Effect; Assignability |
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18 |
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SECTION 10.05 Provision of Documents and Information |
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18 |
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SECTION 10.06 GOVERNING LAW; JURISDICTION |
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18 |
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SECTION 10.07 No Proceedings |
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19 |
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SECTION 10.08 Execution in Counterparts |
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19 |
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SECTION 10.09 No Recourse Purchaser and Depositor |
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19 |
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SECTION 10.10 Survival |
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19 |
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SECTION 10.11 Tax Characterization |
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20 |
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SECTION 10.12 Conflicts |
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20 |
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SECTION 10.13 Limitation on Liability |
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20 |
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Schedule I Information for Notices |
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-ii-
NOTE PURCHASE AGREEMENT
NOTE PURCHASE AGREEMENT dated as of June 1, 2005 (the Note Purchase Agreement), among OPTION
ONE OWNER TRUST 2005-6 (the Issuer), OPTION ONE LOAN WAREHOUSE CORPORATION (the Depositor),
LEHMAN BROTHERS BANK (the Noteholder Agent), and LEHMAN BROTHERS BANK (the Purchaser).
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 Certain Defined Terms. Capitalized terms used herein without definition shall
have the meanings set forth in the Indenture and the Sale and Servicing Agreement (as defined
below). Additionally, the following terms shall have the following meanings:
Closing shall have the meaning set forth in Section 2.02.
Closing Date shall have the meaning set forth in Section 2.02.
Commitment means the commitment of the Purchaser to purchase Additional Note Principal
Balances pursuant to Section 2.01.
Exchange Act shall mean the Securities Exchange Act of 1934, as amended.
Governmental Actions means any and all consents, approvals, permits, orders, authorizations,
waivers, exceptions, variances, exemptions or licenses of, or registrations, declarations or
filings with, any Governmental Authority required under any Governmental Rules.
Governmental Authority means the United States of America, any state or other political
subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government and having jurisdiction over the applicable
Person.
Governmental Rules means any and all laws, statutes, codes, rules, regulations, ordinances,
orders, writs, decrees and injunctions, of any Governmental Authority and any and all legally
binding conditions, standards, prohibitions, requirements and judgments of any Governmental
Authority.
Indemnified Party means the Purchaser and any of its officers, directors, employees, agents,
representatives, assignees and Affiliates and any Person who controls the Purchaser or its
Affiliates within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act.
Indenture means the Indenture dated as of June 1, 2005 between the Issuer as Issuer and
Wells Fargo Bank, N.A. as Indenture Trustee.
Investment Company Act shall have the meaning provided in Section 5.01(i).
Lien means, with respect to any asset, (a) any mortgage, lien, pledge, charge, security
interest, hypothecation, option or encumbrance of any kind in respect of such asset or (b) the
interest of a vendor or lessor under any conditional sale agreement, financing lease or other title
retention agreement relating to such asset.
Loan Originator means Option One Mortgage Corporation, a California corporation.
Maximum Note Principal Balance has the meaning set forth in the Pricing Letter.
Pricing Letter means the pricing letter among the Issuer, the Depositor, Option One and the
Indenture Trustee, dated the date hereof and any amendments thereto.
Purchased Notes means the Option One Owner Trust 2005-6 Mortgage-Backed Notes issued by the
Issuer pursuant to the Indenture.
Purchaser means Lehman Brothers Bank and its permitted successors and assigns or an
Affiliate thereof identified in writing by Lehman Brothers Bank to the Indenture Trustee and the
other parties hereto, subject to the consent of the Loan Originator, which may not be unreasonably
withheld or delayed.
Sale and Servicing Agreement means the Sale and Servicing Agreement dated as of June 1,
2005, among the Issuer, the Depositor, the Loan Originator, the Servicer and Wells Fargo Bank, N.A.
as the Indenture Trustee, as the same may be amended, modified or supplemented from time to time.
Servicer means Option One Mortgage Corporation or its permitted successors and assigns.
SECTION 1.02 Other Definitional Provisions.
(a) All terms defined in this Note Purchase Agreement shall have the defined meanings when
used in any certificate or other document made or delivered pursuant hereto unless otherwise
defined therein.
(b) As used herein and in any certificate or other document made or delivered pursuant hereto
or thereto, accounting terms not defined in Section 1.01, and accounting terms partially defined in
Section 1.01 to the extent not defined, shall have the respective meanings given to them under
generally accepted accounting principles. To the extent that the definitions of accounting terms
herein are inconsistent with the meanings of such terms under generally accepted accounting
principles, the definitions contained herein shall control.
(c) The words hereof, herein and hereunder and words of similar import when used in this
Note Purchase Agreement shall refer to this Note Purchase Agreement as a whole and not to any
particular provision of this Note Purchase Agreement; and Section, subsection, Schedule and Exhibit
references contained in this Note Purchase Agreement are
2
references to Sections, subsections, schedules and Exhibits in or to this Note Purchase Agreement
unless otherwise specified.
ARTICLE II
COMMITMENT; CLOSING AND PURCHASES OF
ADDITIONAL NOTE PRINCIPAL BALANCES
SECTION 2.01 Commitment.
(a) (i) At any time during the Revolving Period at least two Business Days prior to a proposed
Transfer Date in the case of loans other than Wet Funded Loans and one Business Day in the case of
a Wet Funded Loan, to the extent that the aggregate outstanding Note Principal Balance (after
giving effect to the proposed purchase) is less than the Maximum Note Principal Balance, and
subject to the terms and conditions hereof and in accordance with the other Basic Documents, the
Issuer may request that the Purchaser purchase Additional Note Principal Balances (each such
request, a Purchase Request). Each Purchase Request shall identify the proposed Transfer Date,
an estimate of the number of Loans and aggregate Principal Balance of the Loans that will be
purchased by the Issuer on such Transfer Date. On the identified Transfer Date, the Purchaser
agrees to purchase the Additional Note Principal Balance requested in the Purchase Request, subject to the terms and conditions and in reliance upon the covenants,
representations and warranties set forth herein and in the other Basic Documents.
(b) (i) Notwithstanding any other provision of this Agreement, and in order to reduce the
number of fund transfers among the parties hereto, the Issuer, the Noteholder Agent and the
Purchaser agrees that the Noteholder Agent may (but shall not be obligated to), and the Issuer and
the Purchaser hereby irrevocably authorizes the Noteholder Agent to fund, on behalf of the
Purchaser, purchases of Additional Note Principal Balances pursuant to this Section 2.01; provided,
however, that the Noteholder Agent shall in no event fund such purchase of Additional Note
Principal Balances if the Noteholder Agent shall have determined pursuant to Section 3.01(b) that
one or more of the conditions precedent contained in Section 3.01(a) will not be satisfied on the
day of the proposed purchase of Additional Note Principal Balances. If the Issuer gives a Purchase
Request requesting a purchase of Additional Note Principal Balances and the Noteholder Agent elects
not to fund such proposed purchase of Additional Note Principal Balances on behalf of the
Purchaser, then promptly after receipt of the Purchase Request requesting such purchase of
Additional Note Principal Balances, the Noteholder Agent shall notify the Purchaser of the
specifics contained in such Purchase Request and that it will not fund such Purchase Request on
behalf of the Purchaser. If the Noteholder Agent notifies the Purchaser that it will not fund a
requested purchase of Additional Note Principal Balances on behalf of the Purchaser, the Purchaser
shall purchase the Additional Note Principal Balance pursuant to Section 2.01(a), by remitting the
required funds to the Issuer pursuant to and in accordance with Section 3.01(c) hereof. If the
Noteholder Agent elects to fund a requested purchase of Additional Note Principal Balances, the
Noteholder Agent will remit the required funds for such Purchase Request to the Issuer pursuant to
and in accordance with Section 3.01(c) hereof.
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(ii) If the Noteholder Agent has notified the Purchaser that the Noteholder Agent, on behalf
of the Purchaser, will fund a particular purchase of Additional Note Principal Balances pursuant to
Section 2.01(b)(i), the Noteholder Agent may assume that the Purchaser has made such amount
available to the Noteholder Agent on such day and the Noteholder Agent, in its sole discretion,
may, but shall not be obligated to, cause a corresponding amount to be made available to the Issuer
on such day. If the Noteholder Agent makes such corresponding amount available to the Issuer and
such corresponding amount is not in fact made available to the Noteholder Agent by the Purchaser,
the Noteholder Agent shall be entitled to recover such corresponding amount on demand from the
Purchaser together with interest thereon, for each day from the date such payment was due until the
date such amount is paid to the Noteholder Agent, at the Note Interest Rate. During the period in
which the Purchaser has not paid such corresponding amount to the Noteholder Agent, notwithstanding
anything to the contrary contained in this Agreement or any other Basic Document, the amount so
advanced by the Noteholder Agent to the Issuer shall, for all purposes hereof, be a purchase of
Additional Note Principal Balances made by the Noteholder Agent for its own account. Upon any such
failure by the Purchaser to pay the Noteholder Agent, the Noteholder Agent shall promptly
thereafter notify the Issuer of such failure and the Issuer shall immediately pay such corresponding amount to the Noteholder Agent for its own account.
(iii) Nothing in this Section 2.01(b) shall be deemed to relieve the Purchaser from its
obligations to fulfill its Commitment hereunder or to prejudice any rights that the Noteholder
Agent or the Issuer may have against the Purchaser as a result of any default by the Purchaser
hereunder. The Issuer shall have no obligation under or arising out of this Section 2.01(b).
SECTION
2.02 Closing. The closing (the Closing) of the execution of the Basic Documents and
issuance of the Notes shall take place at 10:00 a.m. at the offices of Thacher Proffitt & Wood, Two
World Financial Center, New York, New York 10281 on June 1, 2005, or if the conditions to closing
set forth in Article IV of this Note Purchase Agreement shall not have been satisfied or waived by
such date, as soon as practicable after such conditions shall have been satisfied or waived, or at
such other time, date and place as the parties shall agree upon (the date of the Closing being
referred to herein as the Closing Date).
ARTICLE III
TRANSFER DATES
SECTION
3.01 Transfer Dates.
(a) Subject to the conditions and terms set forth herein and in Section 2.06 of the Sale and
Servicing Agreement with respect to each Transfer Date, the Issuer may request, and the Purchaser
agrees to purchase Additional Note Principal Balances from the Issuer from time to time in
accordance with, and upon the satisfaction, as of the applicable Transfer Date, of each of the
following additional conditions:
(i) With respect to each Transfer Date, each condition set forth in Section 2.06 of the Sale
and Servicing Agreement shall have been satisfied;
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(ii) Each of the representations and warranties of the Issuer, the Servicer, the Loan
Originator and the Depositor made in the Basic Documents shall be true and correct in all material
respects as of such date (except to the extent they expressly relate to an earlier or later time);
(iii) The Issuer, the Servicer, the Loan Originator and the Depositor shall be in material
compliance with all of their respective covenants contained in the Basic Documents and the
Purchased Notes;
(iv) No Event of Default and no Default shall have occurred or shall be occurring;
(v) With respect to each Transfer Date, the Purchaser shall have
received evidence reasonably satisfactory to it of the completion of all recordings, registrations,
and filings as may be necessary or, in the reasonable opinion of the Purchaser, desirable to
perfect or evidence the assignments required to be effected on such Transfer Date in accordance
with the Sale and Servicing Agreement including, without limitation, the assignment of the Loans
and the proceeds thereof;
(vi) Each Loan (i) has been originated in accordance with the Underwriting Guidelines and (ii)
is not abusive or predatory; and
(vii) With respect to the first Transfer Date, the Purchaser shall have completed its initial
due diligence review with respect to the Loans and the Loan Originator and determined, in the
Purchasers sole discretion, that both the Loans and the origination, servicing and business
practices of the Loan Originator are reasonably acceptable to the Purchaser.
(b) The price paid by the Purchaser on each Transfer Date for the Additional Note Principal
Balance purchased on such Transfer Date shall be equal to the amount of such Additional Note
Principal Balance and shall be remitted not later than 3:30 p.m. (New York City time) on the
Transfer Date by wire transfer of immediately available funds to the Advance Account.
(c) The Purchaser shall record on the schedule attached to the Purchased Notes, the date and
amount of any Additional Note Principal Balance purchased by it;
provided, that failure to make
such recordation on such schedule or any error in such schedule shall not adversely affect the
Purchasers rights with respect to its Note Principal Balance and any right to receive interest
payments in respect of the Note Principal Balance actually held. Absent manifest error, the Note
Principal Balance of the Purchased Notes as set forth in the Purchasers records shall be binding
upon the parties hereto, notwithstanding any notation or record made or kept by any other party
hereto.
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ARTICLE IV
CONDITIONS PRECEDENT TO
EFFECTIVENESS OF COMMITMENT
SECTION 4.01 Subject to Conditions Precedent. The effectiveness of the Commitment hereunder
is subject to the satisfaction at the time of the Closing of the following conditions (any or all
of which may be waived by the Purchaser in its sole discretion):
(a) Performance by the Issuer, the Depositor, the Servicer and the Loan Originator. All the
terms, covenants, agreements and conditions of the Basic Documents to be complied with and
performed by the Issuer, the Depositor, the Servicer and the Loan Originator on or before the
Closing Date shall have been complied with and performed in all material respects.
(b) Representations and Warranties. Each of the representations and
warranties of the Issuer, the Depositor, the Servicer and the Loan Originator made in the
Basic Documents shall be true and correct in all material respects as of the Closing Date (except
to the extent they expressly relate to an earlier or later time).
(c) Officers Certificate. The Purchaser shall have received, in form and substance reasonably
satisfactory to the Purchaser, an Officers Certificate from the Loan Originator, the Depositor and
the Servicer and a certificate of an Authorized Officer of the Issuer, dated the Closing Date,
certifying to the satisfaction of the conditions set forth in the preceding paragraphs (a) and (b).
(d) Opinions of Counsel to the Issuer, the Loan Originator, the Servicer and the Depositor.
Counsel to the Issuer, the Loan Originator, the Servicer and the Depositor shall have delivered to
the Purchaser favorable opinions, dated as of the Closing Date and reasonably satisfactory in form
and substance to the Purchaser and its counsel. In addition to the foregoing, the Loan Originator
shall have caused its counsel to deliver to the Purchaser a favorable opinion to the effect that
the Issuer will not be treated as an association (or publicly traded partnership) taxable as a
corporation or as a taxable mortgage pool, for federal income tax purposes.
(e) Opinions of Counsel to the Indenture Trustee. Counsel to the Indenture Trustee shall have
delivered to the Purchaser a favorable opinion, dated as of the Closing Date and reasonably
satisfactory in form and substance to the Purchaser and its counsel.
(f) Opinions of Counsel to the Owner Trustee. Delaware counsel to the Owner Trustee of the
Issuer and the Depositor shall have delivered to the Purchaser favorable opinions regarding the
formation, existence and standing of the Issuer and the Depositor and of the Issuers and the
Depositors execution, authorization and delivery of each of the Basic Documents to which it is a
party and such other matters as the Purchaser may reasonably request, dated as of the Closing Date
and reasonably satisfactory in form and substance to the Purchaser and its counsel.
6
(g) Filings and Recordations. The Purchaser shall have received evidence reasonably
satisfactory to it of (i) the completion of all recordings, registrations, and filings as may be
necessary or, in the reasonable opinion of the Purchaser, desirable to perfect or evidence the
assignment by the Loan Originator to the Depositor of the Loan Originators ownership interest in
the Trust Estate including, without limitation, the Loans conveyed pursuant to the Loan Purchase
Agreement and the proceeds thereof, (ii) the completion of all recordings, registrations and
filings as may be necessary or, in the reasonable opinion of the Purchaser, desirable to perfect or
evidence the assignment by the Depositor to the Issuer of the Depositors ownership interest in the
Trust Estate including, without limitation, the Loans and the proceeds thereof and (iii) the
completion of all recordings, registrations, and filings as may be necessary or, in the reasonable
opinion of the Purchaser, desirable to perfect or evidence the grant of a first priority perfected
security interest in the Issuers ownership interest in the Trust Estate including,
without limitation, the Loans, in favor of the Indenture Trustee, subject to no Liens prior to
the Lien of the Indenture.
(h) Documents. The Purchaser shall have received a duly executed counterpart of each of the
Basic Documents, in form acceptable to the Purchaser, the Purchased Notes and each and every
document or certification delivered by any party in connection with any of the Basic Documents or
the Purchased Notes, and each such document shall be in full force and effect.
(i) Actions or Proceedings. No action, suit, proceeding or investigation by or before any
Governmental Authority shall have been instituted to restrain or prohibit the consummation of, or
to invalidate, any of the transactions contemplated by the Basic Documents, the Purchased Notes and
the documents related thereto in any material respect.
(j) Approvals and Consents. All Governmental Actions of all Governmental Authorities required
with respect to the transactions contemplated by the Basic Documents, the Purchased Notes and the
documents related thereto shall have been obtained or made.
(k) Accounts. The Purchaser shall have received evidence reasonably satisfactory to it that
each Trust Account has each been established in accordance with the terms of the Sale and Servicing
Agreement.
(l) Fees and Expenses. The fees and expenses payable by the Issuer and the Depositor pursuant
to Section 8.02(b) shall have been paid.
(m) Other Documents. The Issuer, the Loan Originator, the Depositor and the Servicer shall
have furnished to the Purchaser such other opinions, information, certificates and documents as the
Purchaser may reasonably request.
(n) Proceedings in Contemplation of Sale of Purchased Notes. All actions and proceedings
undertaken by the Issuer, the Loan Originator, the Depositor and the Servicer in connection with
the issuance and sale of the Purchased Notes as herein contemplated shall be reasonably
satisfactory in all respects to the Purchaser and its counsel.
7
(o) Financial Covenants. The Loan Originator and the Servicer shall be in compliance with the
financial covenants set forth in Section 7.02 of the Sale and Servicing Agreement.
(p) Trust Accounts Control Agreements. The Purchaser shall have received control agreements
relating to the Trust Accounts reasonably satisfactory to the Purchaser.
(q) Underwriting Guidelines. The Purchaser shall have received a
copy of the current Underwriting Guidelines.
(r) Fees. The Loan Originator shall have paid all fees, costs and expenses of the Purchaser
required to be paid by the Loan Originator on or before the Closing Date.
If any condition specified in this Section 4.01 shall not have been fulfilled when and as
required to be fulfilled through no fault of the Purchaser, this Agreement may be terminated by the
Purchaser by notice to the Loan Originator at any time at or prior to the Closing Date, and the
Purchaser shall incur no liability as a result of such termination.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
THE ISSUER AND THE DEPOSITOR
The Issuer and the Depositor hereby jointly and severally make the following representations
and warranties to the Purchaser, as of the Closing Date, and as of each Transfer Date and the
Purchaser shall be deemed to have relied on such representations and warranties in making (or
committing to make) purchases of Additional Note Principal Balances on each Transfer Date:
SECTION 5.01 Issuer.
(a) The Issuer has been duly organized and is validly existing and in good standing as a
statutory trust under the laws of the State of Delaware, with requisite trust power and authority
to own its properties and to transact the business in which it is now engaged, and is duly
qualified to do business and is in good standing (or is exempt from such requirements) in each
State of the United States where the nature of its business requires it to be so qualified and the
failure to be so qualified and in good standing would, individually or in the aggregate, have a
material adverse effect on (a) the interests of the Purchaser, (b) the legality, validity or
enforceability of this Agreement or any other Transaction Document or the rights or remedies of the
Purchaser or the Indenture Trustee hereunder or thereunder, (c) the ability of the Issuer to
perform its obligations under this Agreement or any other Transaction Document, (d) the Indenture
Trustees security interest in the Collateral generally or in any Loan or other item of Collateral
or (e) the enforceability or recoverability of any of the Loans (a Material Adverse Effect).
(b) The issuance, sale, assignment and conveyance of the Purchased Notes and the Additional
Note Principal Balances, the performance of the Issuers obligations under
8
each Basic Document to which it is a party and the consummation of the transactions
therein contemplated will not conflict with or result in a breach of any of the terms or provisions
of, or constitute a default under, or result in the creation or imposition of any Lien (other than
any Lien created by the Basic Documents), charge or encumbrance upon any of the property or assets
of the Issuer or any of its Affiliates pursuant to the terms of, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which it or any of its Affiliates is
bound or to which any of its property or assets is subject, nor will such action result in any
violation of the provisions of its organizational documents or any Governmental Rule applicable to
the Issuer, in each case which could be expected to have a Material Adverse Effect.
(c) No Governmental Action which has not been obtained is required by or with respect to the
Issuer in connection with the execution and delivery to the Purchaser of the Purchased Notes. No
Governmental Action which has not been obtained is required by or with respect to the Issuer in
connection with the execution and delivery of any of the Basic Documents to which the Issuer is a
party or the consummation by the Issuer of the transactions contemplated thereby except for any
requirements under state securities or blue sky laws in connection with any transfer of the
Purchased Notes.
(d) The Issuer possesses all material licenses, certificates, authorizations or permits issued
by the appropriate state, federal or foreign regulatory agencies or bodies necessary to conduct the
business now operated by it, and has not received any notice of proceedings relating to the
revocation or modification of any such license, certificate, authorization or permit which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would materially
and adversely affect its condition, financial or otherwise, or its earnings, business affairs or
business prospects.
(e) Each of the Basic Documents to which the Issuer is a party has been duly authorized,
executed and delivered by the Issuer and is a valid and legally binding obligation of the Issuer,
enforceable against the Issuer in accordance with its terms, subject to enforcement of bankruptcy,
insolvency, reorganization, moratorium and other similar laws of general applicability relating to
or affecting creditors rights and to general principles of equity.
(f) The execution, delivery and performance by the Issuer of each of its obligations under
each of the Basic Documents to which it is a party will not result in a breach or violation of any
of the terms and provisions of, or constitute a default under, any agreement or instrument to which
the Issuer is a party or by which the Issuer is bound or to which any of its properties are subject
or of any statute, order or regulation applicable to the Issuer of any court, regulatory body,
administrative agency or governmental body having jurisdiction over the Issuer or any of its
properties, in each case which could be expected to have a Material Adverse Effect.
(g) The Issuer is not in violation of its organizational documents or in default under any
agreement, indenture or instrument which would have a Material Adverse Effect. The Issuer is not a
party to, bound by or in breach or violation of any indenture or other agreement or instrument, or
subject to or in violation of any statute, order or regulation of any court, regulatory body, administrative agency or governmental body
having jurisdiction over the Issuer that could, individually or in the aggregate, be expected to
have a Material Adverse Effect.
9
(h) There are no actions or proceedings against, or investigations of, the Issuer pending, or,
to the knowledge of the Issuer threatened, before any Governmental Authority, court, arbitrator,
administrative agency or other tribunal (i) asserting the invalidity of any of the Basic Documents,
or (ii) seeking to prevent the issuance of the Purchased Notes or the consummation of any of the
transactions contemplated by the Basic Documents or the Purchased Notes, or (iii) that, if
adversely determined, could, individually or in the aggregate, be expected to have a Material
Adverse Effect.
(i) Neither this Agreement, the other Basic Documents nor any transaction contemplated herein
or therein shall result in a violation of, or give rise to an obligation on the part of the
Purchaser to register, file or give notice under, Regulations T, U or X of the Federal Reserve
Board or any other regulation issued by the Federal Reserve Board pursuant to the Exchange Act, in
each case as in effect on the Closing Date.
(j) The Issuer has all necessary power and authority to execute and deliver the Purchased
Notes. Each Purchased Note has been duly and validly authorized by the Issuer and, from and after
the date on which such Purchased Note is executed by the Issuer and authenticated by the Indenture
Trustee in accordance with the terms of the Indenture and delivered to and paid for by the
Purchaser in accordance with the terms of this Agreement, shall be validly issued and outstanding
and shall constitute a valid and legally binding obligation of the Issuer that is entitled to the
benefits of the Indenture and enforceable against the Issuer in accordance with its terms, except
as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors rights generally and by general principles of equity, regardless
of whether enforceability is considered in a proceeding in equity or at law.
(k) The Issuer is not, and neither the issuance and sale of the Purchased Notes to the
Purchaser nor the activities of the Issuer pursuant to the Basic Documents, shall render the Issuer
an investment company or under the control of an investment company as such terms are defined
in the Investment Company Act of 1940, as amended (the Investment Company Act).
(l) It is not necessary to qualify the Indenture under the Trust Indenture Act of 1939, as
amended.
(m) The Issuer is solvent and has adequate capital for its business and undertakings.
(n) The chief executive offices of the Issuer are located at Option One Owner Trust 2005-6, c/o Wilmington Trust Company, as Owner Trustee, One Rodney Square North, 1100 North
Market Street, Wilmington, Delaware 19890, or, with the consent of the Purchaser, such other
address as shall be designated by the Issuer in a written notice to the other parties hereto.
(o) There are no contracts, agreements or understandings between the Issuer and any Person
granting such Person the right to require the filing at any time of a registration statement under
the Act with respect to the Purchased Notes.
10
(p) No Default or Event of Default exists.
SECTION 5.02 Securities Act. Assuming the accuracy of the representations and warranties of
and compliance with the covenants of the Purchaser, contained herein, the sale of the Purchased
Notes and the sale of Additional Note Principal Balances pursuant to this Agreement are each exempt
from the registration and prospectus delivery requirements of the Act. In the case of the offer or
sale of the Purchased Notes, no form of general solicitation or general advertising was used by the
Issuer, any Affiliates of the Issuer or any person acting on its or their behalf, including, but
not limited to, advertisements, articles, notices or other communications published in any
newspaper, magazine or similar medium or broadcast over television or radio, or any seminar or
meeting whose attendees have been invited by any general solicitation or general advertising.
Neither the Issuer, any Affiliates of the Issuer nor any Person acting on its or their behalf has
offered or sold, nor will the Issuer or any Person acting on its behalf offer or sell directly or
indirectly, the Purchased Notes or any other security in any manner that, assuming the accuracy of
the representations and warranties and the performance of the covenants given by the Purchaser and
compliance with the applicable provisions of the Indenture with respect to each transfer of the
Purchased Notes, would render the issuance and sale of the Purchased Notes as contemplated hereby a
violation of Section 5 of the Securities Act or the registration or qualification requirements of
any state securities laws, nor has any such Person authorized, nor will it authorize, any Person to
act in such manner.
SECTION 5.03 No Fee. Neither the Issuer, nor the Depositor, nor any of their Affiliates has
paid or agreed to pay to any Person any compensation for soliciting another to purchase the
Purchased Notes.
SECTION 5.04 Information. The information provided pursuant to Section 7.01(a) hereof will,
at the date thereof, be true and correct in all material respects.
SECTION 5.05 The Purchased Notes. The Purchased Notes have been duly and validly authorized,
and, when executed and authenticated in accordance with the terms of the Indenture, and delivered
to and paid for in accordance with this Note Purchase Agreement, will be duly and validly issued
and outstanding and will be entitled to the benefits of the Indenture.
SECTION 5.06 Use of Proceeds. No proceeds of a purchase hereunder will be used (i) for a
purpose that violates or would be inconsistent with Regulations T, U or X promulgated by the Board
of Governors of the Federal Reserve System from time to time or (ii) to acquire any security in any
transaction in violation of Section 13 or 14 of the Exchange Act.
SECTION 5.07 The Depositor. The Depositor hereby makes to the Purchaser each of the
representations, warranties and covenants set forth in Section 3.01 of the Sale and Servicing
Agreement as of the Closing Date and as of each Transfer Date (except to the extent that any such
representation, warranty or covenant is expressly made as of another date).
SECTION 5.08 Taxes, etc. Any taxes, fees and other charges of Governmental Authorities
applicable to the Issuer and the Depositor, except for franchise or income taxes, in connection
with the execution, delivery and performance by the Issuer and the Depositor of each Basic Document
to which they are parties, the issuance of the Purchased Notes or otherwise
11
applicable to the Issuer or the Depositor in connection with the Trust Estate have been paid or
will be paid by the Issuer or the Depositor, as applicable, at or prior to the Closing Date or
Transfer Date, to the extent then due.
SECTION 5.09 Financial Condition. On the date hereof and on each Transfer Date, neither the
Issuer nor the Depositor is or will be insolvent or the subject of any voluntary or involuntary
bankruptcy proceeding.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
WITH RESPECT TO THE PURCHASER
The Purchaser hereby makes the following representations and warranties, as to itself, to the
Issuer and the Depositor on which the same are relying in entering into this Note Purchase
Agreement.
SECTION 6.01 Organization. The Purchaser has been duly organized and is validly existing and
in good standing under the laws of the jurisdiction of its organization with power and authority to
own its properties and to transact the business in which it is now engaged.
SECTION 6.02 Authority, etc. The Purchaser has all requisite power and authority to enter
into and perform its obligations under this Note Purchase Agreement and to consummate the
transactions herein contemplated. The execution and delivery by the Purchaser of this Note Purchase
Agreement and the consummation by the Purchaser of the transactions contemplated hereby have been
duly and validly authorized by all necessary organizational action on the part of the Purchaser. This Note Purchase
Agreement has been duly and validly executed and delivered by the Purchaser and constitutes a
legal, valid and binding obligation of the Purchaser, enforceable against the Purchaser in
accordance with its terms, subject as to enforcement to bankruptcy, reorganization, insolvency,
moratorium and other similar laws of general applicability relating to or affecting creditors
rights and to general principles of equity. Neither the execution and delivery by the Purchaser of
this Note Purchase Agreement nor the consummation by the Purchaser of any of the transactions
contemplated hereby, nor the fulfillment by the Purchaser of the terms hereof, will conflict with,
or violate, result in a breach of or constitute a default under any term or provision of the
Purchasers organizational documents or any Governmental Rule applicable to the Purchaser.
SECTION 6.03 Securities Act. The Purchaser hereby represents and warrants to the Issuer, the
Depositor and the Servicer as of the date of this Agreement, as follows:
(a) The Purchaser has such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of the purchase of an interest in the Note. The
Purchaser (i) is (A) a qualified institutional buyer as defined under Rule 144A promulgated under
the Securities Act of 1933, as amended (the 1933 Act), acting for its own account or the accounts
of other qualified institutional buyers as defined under Rule 144A, or (B) an accredited
investor within the meaning of Regulation D promulgated under
12
the 1933 Act, and (ii) is aware that the Issuer intends to rely on the exemption from registration
requirements under the 1933 Act provided by Rule 144A or Regulation D, as applicable.
(b) The Purchaser understands that neither the Note nor interests in the Note have been
registered or qualified under the 1933 Act, nor under the securities laws of any state, and
therefore neither the Note nor interests in the Note can be resold unless they are registered or
qualified thereunder or unless an exemption from registration or qualification is available.
(c) It is the intention of the Purchaser to acquire interests in the Note (a) for investment
for its own account, or (b) for resale to qualified institutional buyers in transactions under
Rule 144A, and not in any event with the view to, or for resale in connection with, any
distribution thereof. The Purchaser understands that the Note and interests therein have not been
registered under the 1933 Act by reason of a specific exemption from the registration provisions of
the 1933 Act which depends upon, among other things, the bona fide nature of the Purchasers
investment intent (or intent to resell only in Rule 144A transactions) as expressed herein.
SECTION 6.04 Conflicts With Law. The execution, delivery and performance by the Purchaser of
its obligations under this Note Purchase Agreement will not result in a breach or violation of any
of the terms or provisions of, or constitute a
default under, any agreement or instrument to which the Purchaser is a party or by which the
Purchaser is bound or of any statute, order or regulation applicable to the Purchaser of any court,
regulatory body, administrative agency or governmental body having jurisdiction over the Purchaser,
in each case which could be expected to have a material adverse effect on the transactions
contemplated therein.
SECTION 6.05 Conflicts With Agreements, etc. The Purchaser is not in violation of its
organizational documents or in default under any agreement, indenture or instrument the effect of
which violation or default would be materially adverse to the Purchaser in the performance of its
obligations or duties under any of the Basic Documents to which it is a party. The Purchaser is not
a party to, bound by or in breach or violation of any indenture or other agreement or instrument,
or subject to or in violation of any statute, order or regulation of any court, regulatory body,
administrative agency or governmental body having jurisdiction over the Purchaser that materially
and adversely affects, the ability of the Purchaser to perform its obligations under this Note
Purchase Agreement.
ARTICLE VII
COVENANTS OF THE ISSUER AND THE DEPOSITOR
SECTION 7.01 Information from the Issuer. So long as the Purchased Notes remain outstanding,
the Issuer and the Depositor shall each furnish to the Purchaser:
(a) the financial information required to be delivered by the Servicer under Section 4.02(a)
of the Sale and Servicing Agreement;
(b) such information (including financial information), documents, records or reports with
respect to the Trust Estate, the Loans, the Issuer, the Loan Originator, the Servicer or the
Depositor as the Purchaser may from time to time reasonably request;
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(c) as soon as possible and in any event within two (2) Business Days after the occurrence
thereof, notice of each Event of Default under the Sale and Servicing Agreement or the Indenture,
and each Default; and
(d) promptly and in any event within 30 days after the occurrence thereof, written notice of a
change in address of the chief executive office of the Issuer, the Loan Originator or the
Depositor.
SECTION 7.02 Access to Information. So long as the Purchased Notes remain outstanding, each of
the Issuer and the Depositor shall, at any time and from time to time during regular business
hours, or at such other reasonable times upon reasonable notice to the Issuer or the Depositor, as
applicable, permit the Purchaser, or its agents or representatives to:
(a) examine all books, records and documents (including computer tapes and disks) in the
possession or under the control of the Issuer or the Depositor relating to the Loans or the Basic
Documents as may be requested, and
(b) visit the offices and property of the Issuer and the Depositor for the purpose of
examining such materials described in clause (a) above.
Except as provided in Section 10.05, information obtained by the Purchaser pursuant to this
Section 7.02 and Section 7.01 herein shall be held in confidence in accordance with and to the
extent provided in Sections 11.15 and 11.17 of the Sale and Servicing Agreement as if it
constituted Confidential Information (as defined therein).
SECTION 7.03 Ownership and Security Interests; Further Assurances. The Depositor will take
all action necessary to maintain the Issuers ownership interest in the Loans and the other items
sold pursuant to Article II of the Sale and Servicing Agreement. The Issuer will take all action
necessary to maintain the Indenture Trustees security interest in the Loans and the other items
pledged to the Indenture Trustee pursuant to the Indenture.
The Issuer and the Depositor agree to take any and all acts and to execute any and all
further instruments reasonably necessary or requested by the Purchaser to more fully effect the
purposes of this Note Purchase Agreement.
SECTION 7.04 Covenants. The Issuer and the Depositor shall each duly observe and perform each
of their respective covenants set forth in each of the Basic Documents to which they are parties.
SECTION 7.05 Amendments. Neither the Issuer nor the Depositor shall make, or permit any Person
to make, any amendment, modification or change to, or provide any waiver under any Basic Document
to which the Issuer or the Depositor, as applicable, is a party without the prior written consent
of the Purchaser.
SECTION 7.06 With Respect to the Exempt Status of the Purchased Notes.
(a) Neither the Issuer nor the Depositor, nor any of their respective Affiliates, nor any
Person acting on their behalf will, directly or indirectly, make offers or sales of any
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security, or solicit offers to buy any security, under circumstances that would require the
registration of the Purchased Notes under the Securities Act.
(b) Neither the Issuer nor the Depositor, nor any of their Affiliates, nor any Person acting
on their behalf will engage in any form of general solicitation or general advertising (within the
meaning of Regulation D promulgated under the Securities Act) in connection with any offer or sale of the Purchased Notes.
(c) On or prior to any Transfer Date, the Issuer and the Depositor will furnish or cause to be
furnished to the Purchaser and any subsequent purchaser therefrom of Additional Note Principal
Balance, if the Purchaser or any such subsequent purchaser so request, a letter from each Person
furnishing a certificate or opinion on the Closing Date as described in Section 4.01 hereof or on
or before any such Transfer Date in which such Person shall state that such subsequent purchaser
may rely upon such original certificate or opinion as though delivered and addressed to such
subsequent purchaser and made on and as of the Closing Date or such Transfer Date, as the case may
be, except for such exceptions set forth in such letter as are attributable to events occurring
after the Closing Date or such Transfer Date.
ARTICLE VIII
ADDITIONAL COVENANTS
SECTION 8.01 Legal Conditions to Closing. The parties hereto will take all reasonable action
necessary to obtain (and will cooperate with one another in obtaining) any consent, authorization,
permit, license, franchise, order or approval of, or any exemption by, any Governmental Authority
or any other Person, required to be obtained or made by it in connection with any of the
transactions contemplated by this Note Purchase Agreement.
SECTION 8.02 Expenses.
(a) The Issuer and the Depositor jointly and severally covenant that, whether or not the
Closing takes place, except as otherwise expressly provided herein, all reasonable costs and
expenses incurred in connection with this Note Purchase Agreement and the transactions contemplated
hereby shall be paid by the Issuer or the Depositor.
(b) The Issuer and the Depositor jointly and severally covenant to pay as and when billed by
the Purchaser, and subject to the applicable limit set forth in Section 11.15 of the Sale and
Servicing Agreement, all of the reasonable out-of-pocket costs and expenses incurred in connection
with the consummation and administration of the transactions contemplated hereby and in the other
Basic Documents including, without limitation, (i) all reasonable fees, disbursements and expenses
of counsel to the Purchaser, (ii) all reasonable fees and expenses of the Indenture Trustee and the
Owner Trustee and their counsel and (iii) all reasonable fees and expenses of the Custodian and its
counsel.
SECTION 8.03 Mutual Obligations. On and after the Closing, each party hereto will do, execute
and perform all such other acts, deeds and documents as the other party may from time to time
reasonably require in order to carry out the intent of this Note Purchase Agreement.
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SECTION 8.04 Restrictions on Transfer. The Purchaser agrees that it will comply with the
restrictions on transfer of the Purchased Notes set forth in the Indenture and resell the Purchased
Notes only in compliance with such restrictions.
SECTION 8.05 [Reserved].
SECTION 8.06 Information Provided by the Noteholder Agent. The Noteholder Agent hereby
covenants to determine One-Month LIBOR in accordance with the definition thereof in the Basic
Documents and shall give notice to the Indenture Trustee, the Issuer and the Depositor of the
Interest Payment Amount on each Determination Date. The Noteholder Agent shall cause the Market
Value Agent to give notice to the Indenture Trustee, the Issuer and the Depositor of any Hedge
Funding Requirement on or before the Determination Date related to any Payment Date. In addition,
on each Determination Date, the Noteholder Agent hereby covenants to give notice to the Indenture
Trustee, the Issuer and the Depositor of (i) the Issuer/Depositor Indemnities (as defined in the
Trust Agreement), (ii) Due Diligence Fees and (iii) the Collateral Value for each Loan for the
related Payment Date.
ARTICLE IX
INDEMNIFICATION
SECTION 9.01 Indemnification of Purchaser. Each of the Issuer and the Depositor hereby agree
to, jointly and severally, indemnify and hold harmless each Indemnified Party against any and all
losses, claims, damages, liabilities, reasonable expenses or judgments (including reasonable
accounting fees and reasonable legal fees and other reasonable expenses incurred in connection with
this Note Purchase Agreement or any other Basic Document and any action, suit or proceeding or any
claim asserted) (collectively, Losses), as incurred (payable promptly upon written request), for
or on account of or arising from or in connection with any information prepared by and furnished or
to be furnished by any of the Issuer, the Loan Originator or the Depositor pursuant to or in
connection with the transactions contemplated hereby including, without limitation, such written
information as may have been and may be furnished in connection with any due diligence
investigation with respect to the business, operations, financial condition of the Issuer, the Loan
Originator, the Depositor or with respect to the Loans, to the extent such information contains any
untrue statement of material fact or omits to state a material fact necessary to make the
statements contained therein in the light of the circumstances under which such statements were
made not misleading, except with respect to any such information used by such Indemnified Party in
violation of the Basic Documents or as a result of an Indemnified Partys gross negligence or
willful misconduct which results in such Losses. The indemnities contained in this Section 9.01
will be in addition to any liability which the Issuer or the Depositor may otherwise have pursuant
to this Note Purchase Agreement and any other Basic Document.
SECTION 9.02 Procedure and Defense. In case any action or proceeding (including any
governmental or regulatory investigation or proceeding) shall be instituted involving any
Indemnified Party in respect of which indemnity may be
sought pursuant to Section 9.01, such Indemnified Party shall promptly notify the Issuer and
the Depositor in writing and, upon request of the Indemnified Party, the Issuer and the Depositor
shall assume the defense thereof, including the employment of counsel reasonably satisfactory to
such Indemnified Party to
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represent such Indemnified Party and any others the indemnifying party may designate and shall pay
the reasonable fees and disbursements of such counsel related to such proceeding; provided that
failure to give such notice or deliver such documents shall not affect the rights to indemnity
hereunder unless such failure materially prejudices the rights of the Indemnified Party. The
Indemnified Party will have the right to employ its own counsel in any such action in addition to
the counsel of the Issuer and/or the Depositor, but the reasonable fees and expenses of such
counsel will be at the expense of such Indemnified Party, unless (i) the employment of counsel by
the Indemnified Party at its expense has been authorized in writing by the Depositor or the Issuer,
(ii) the Depositor or the Issuer has not in fact employed counsel to assume the defense of such
action within a reasonable time after receiving notice of the commencement of the action or (iii)
the named parties to any such action or proceeding (including any impleaded parties) include the
Depositor or the Issuer and one or more Indemnified Parties, and the Indemnified Parties shall have
been advised by counsel that there may be one or more legal defenses available to them which are
different from or additional to those available to the Depositor or the Issuer. Reasonable expenses
of counsel to any Indemnified Party for which the Issuer and the Depositor are responsible
hereunder shall be reimbursed by the Issuer and the Depositor as they are incurred. The Issuer and
the Depositor shall not be liable for any settlement of any proceeding affected without its written
consent, but if settled with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the Indemnified Party from and against any loss or liability
by reason of such settlement or judgment. Neither the Issuer nor the Depositor will, without the
prior written consent of the Indemnified Party, effect any settlement of any pending or threatened
proceeding in respect of which any Indemnified Party is or could have been a party and indemnity
could have been sought hereunder by such Indemnified Party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability on claims that are the subject
matter of such proceeding.
ARTICLE X
MISCELLANEOUS
SECTION 10.01 Amendments. No amendment or waiver of any provision of this Note Purchase
Agreement shall in any event be effective unless the same shall be in writing and signed by all of
the parties hereto, and then such amendment, waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
SECTION 10.02 Notices. All notices and other communications provided for hereunder shall,
unless otherwise stated herein, be in writing (including
telecopies) and mailed, telecopied (with a copy delivered by overnight courier) or delivered,
as to each party hereto, at its address as set forth in Schedule I hereto or at such other address
as shall be designated by such party in a written notice to the other parties hereto. All such
notices and communications shall be deemed effective upon receipt thereof, and in the case of
telecopies, when receipt is confirmed by telephone.
SECTION 10.03 No Waiver; Remedies. No failure on the part of any party hereto to exercise,
and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any right hereunder preclude any other or further
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exercise thereof or the exercise of any other right. The remedies herein provided are cumulative
and not exclusive of any remedies provided by law.
SECTION 10.04 Binding Effect; Assignability.
(a) This Note Purchase Agreement shall be binding upon and inure to the benefit of the Issuer,
the Depositor and the Purchaser and their respective permitted successors and assigns (including
any subsequent holders of the Purchased Notes); provided, however, neither the Issuer nor the
Depositor shall have any right to assign their respective rights hereunder or interest herein (by
operation of law or otherwise) without the prior written consent of the Purchaser.
(b) The Purchaser may, in the ordinary course of its business and in accordance with the Basic
Documents and applicable law, including applicable securities laws, at any time sell to one or more
Persons (each, a Participant), participating interests in all or a portion of its rights and
obligations under this Note Purchase Agreement. Notwithstanding any such sale by the Purchaser of
participating interests to a Participant, the Purchasers rights and obligations under this Note
Purchase Agreement shall remain unchanged, the Purchaser shall remain solely responsible for the
performance thereof, and the Issuer and the Depositor shall continue to deal solely and directly
with the Purchaser and shall have no obligations to deal with any Participant in connection with
the Purchasers rights and obligations under this Note Purchase Agreement.
(c) This Note Purchase Agreement shall create and constitute the continuing obligation of the
parties hereto in accordance with its terms, and shall remain in full force and effect until such
time as all amounts payable with respect to the Purchased Notes shall have been paid in full.
SECTION 10.05 Provision of Documents and Information. Each of the Issuer and the Depositor
acknowledges and agrees that the Purchaser is permitted to provide to any subsequent purchaser,
permitted assignees and Participants, opinions, certificates, documents and other information
relating to the Issuer, the Depositor and the Loans delivered to the Purchaser pursuant to this
Note Purchase Agreement provided that with respect to Confidential Information, such subsequent
purchaser, permitted assignees
and Participants agree to be bound by Section 8.05 hereof.
SECTION 10.06 GOVERNING LAW; JURISDICTION. THIS NOTE PURCHASE AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS OTHER THAN SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW. EACH OF THE
PARTIES TO THIS NOTE PURCHASE AGREEMENT HEREBY AGREES TO THE JURISDICTION OF THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND ANY APPELLATE COURT HAVING JURISDICTION TO
REVIEW THE JUDGMENTS THEREOF. EACH OF THE PARTIES HEREBY WAIVES ANY OBJECTION BASED ON FORUM NON
CONVENIENS AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER IN ANY OF THE
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AFOREMENTIONED COURTS AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY SUCH COURT.
SECTION 10.07 No Proceedings. Until the date that is one year and one day after the last day
on which any amount is outstanding under this Note Purchase Agreement, the Depositor and the
Purchaser hereby covenant and agree that they will not institute against the Issuer or the
Depositor, or join in any institution against the Issuer or the Depositor of, any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings, or other proceedings under any
United States federal or state bankruptcy or similar law.
SECTION 10.08 Execution in Counterparts. This Note Purchase Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts, each of which when
so executed shall be deemed to be an original and all of which when taken together shall constitute
one and the same agreement.
SECTION 10.09 No Recourse Purchaser and Depositor.
(a) The obligations of the Purchaser under this Note Purchase Agreement, or any other
agreement, instrument, document or certificate executed and delivered by or issued by the Purchaser
or any officer thereof are solely the partnership or corporate obligations of the Purchaser, as the
case may be. No recourse shall be had for payment of any fee or other obligation or claim arising
out of or relating to this Note Purchase Agreement or any other agreement, instrument, document or
certificate executed and delivered or issued by the Purchaser or any officer thereof in connection
therewith, against any stockholder, limited partner, employee, officer, director or incorporator of
the Purchaser.
(b) The obligations of the Depositor under this Note Purchase
Agreement, or any other agreement, instrument, document or certificate executed and delivered
by or issued by the Depositor or any officer thereof are solely the partnership or corporate
obligations of the Depositor, as the case may be. No recourse shall be had for payment of any fee
or other obligation or claim arising out of or relating to this Note Purchase Agreement or any
other agreement, instrument, document or certificate executed and delivered or issued by the
Purchaser or any officer thereof in connection therewith, against any stockholder, limited partner,
employee, officer, director or incorporator of the Depositor.
(c) The Purchaser, by accepting the Purchased Notes, acknowledges that such Purchased Notes
represent an obligation of the Issuer and do not represent an interest in or an obligation of the
Loan Originator, the Servicer, the Depositor, the Administrator, the Owner Trustee, the Indenture
Trustee or any Affiliate thereof and no recourse may be had against such parties or their assets,
except as may be expressly set forth or contemplated in this Agreement, the Purchased Notes or the
Basic Documents.
SECTION 10.10 Survival. All representations, warranties, covenants, guaranties and
indemnifications contained in this Note Purchase Agreement and in any document, certificate or
statement delivered pursuant hereto or in connection herewith shall survive the sale, transfer or
repayment of the Purchased Notes.
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SECTION 10.11 Tax Characterization. Each party to this Note Purchase Agreement (a)
acknowledges and agrees that it is the intent of the parties to this Note Purchase Agreement that
for all purposes, including federal, state and local income, single business and franchise tax
purposes, the Purchased Notes will be treated as evidence of indebtedness secured by the Loans and
proceeds thereof and the trust created under the Indenture will not be characterized as an
association (or publicly traded partnership) taxable as a corporation, (b) agrees to treat the
Purchased Notes for federal, state and local income and franchise tax purposes as indebtedness and
(c) agrees that the provisions of all Basic Documents shall be construed to further these
intentions of the parties.
SECTION 10.12 Conflicts. Notwithstanding anything contained herein to the contrary, in the
event of the conflict between the terms of the Sale and Servicing Agreement and this Note Purchase
Agreement, the terms of the Sale and Servicing Agreement shall control.
SECTION 10.13 Limitation on Liability. It is expressly understood and agreed by the parties
hereto that (a) this Note Purchase Agreement is executed and delivered by Wilmington Trust Company,
not individually or personally, but solely as Owner Trustee of Option One Owner Trust 2005-6, in
the exercise of the powers and authority conferred and vested in it, (b) each of the
representations, undertakings and agreements herein made on the part of the Issuer is made and
intended not as personal representations, undertakings and agreements by Wilmington Trust Company
but is made and intended for the purpose for binding only the Issuer, (c) nothing herein contained
shall be construed as creating any liability on Wilmington Trust Company, individually or
personally, to perform any covenant either expressed or implied contained herein, all such
liability, if any, being expressly waived by the parties hereto and by any Person claiming by,
through or under the parties hereto and (d) under no circumstances shall Wilmington Trust Company
be personally liable for the payment of any indebtedness or expenses of the Issuer or be liable for
the breach or failure of any obligation, representation, warranty or covenant made or undertaken by
the Issuer under this Note Purchase Agreement or any other related documents.
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IN WITNESS WHEREOF, the parties have caused this Note Purchase Agreement to be executed by
their respective officers hereunto duly authorized, as of the date first above written.
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OPTION ONE OWNER TRUST 2005-6 |
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By:
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Wilmington Trust Company not in its
individual capacity but solely as owner trustee |
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By: |
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Name: |
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OPTION ONE LOAN WAREHOUSE CORPORATION |
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By: |
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Name: |
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LEHMAN BROTHERS BANK, |
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as Purchaser |
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By: |
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Name: |
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LEHMAN BROTHERS BANK, |
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as Noteholder Agent |
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Note Purchase Agreement 2005-6
Schedule I
Information for Notices
1. if to the Issuer:
Option One Owner Trust 2005-6
c/o Wilmington Trust Company
as Owner Trustee
One Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Attention: Corporate Trust Administration
Telecopy: (302) 636-4144
Telephone: (302) 636-1000
with a copy to:
Option One Mortgage Corporation
3 Ada Road
Irvine, California 92618
Attention: William ONeill
Telecopy number: (949) 790-7540
Telephone number: (949) 790-7504
2. if to the Depositor:
Option One Loan Warehouse Corporation
3 Ada Road
Irvine, California 92618
Attention: William ONeill
Telecopy number: (949) 790-7540
Telephone number: (949) 790-7504
3. if to the Purchaser:
Lehman Brothers Bank
745 7th Avenue
New York, NY 10019
Attention: Don Kutch
Telecopy number: (646) 758-1964
Telephone number: (212) 526-5810
4. if to the Noteholder Agent:
Lehman Brothers Bank
745 7th Avenue
New York, NY 10019
Attention: Don Kutch
Telecopy number: (646) 758-1964
Telephone number: (212) 526-5810
Schedule I
exv10w3
Exhibit 10.3
INDENTURE
between
OPTION ONE OWNER TRUST 2005-6
as Issuer
and
WELLS FARGO BANK, N.A.
as Indenture Trustee
Dated as of June 1, 2005
OPTION ONE OWNER TRUST 2005-6
MORTGAGE-BACKED NOTES
TABLE OF CONTENTS
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ARTICLE I
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DEFINITIONS
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Section 1.01.
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Definitions
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Section 1.02.
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Rules of Construction
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ARTICLE II
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GENERAL PROVISIONS WITH RESPECT TO THE NOTES
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Section 2.01.
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Method of Issuance and Form of Notes
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Section 2.02.
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Execution, Authentication, Delivery and Dating
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Section 2.03.
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Registration; Registration of Transfer and Exchange
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Section 2.04.
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Mutilated, Destroyed, Lost or Stolen Notes
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Section 2.05.
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Persons Deemed Noteholders
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Section 2.06.
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Payment of Principal and/or Interest
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Section 2.07.
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Cancellation
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Section 2.08.
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Conditions Precedent to the Authentication of the Notes
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Section 2.09.
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Release of Collateral
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Section 2.10.
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Additional Note Principal Balance
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Section 2.11.
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Tax Treatment
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Section 2.12.
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Limitations on Transfer of the Notes
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ARTICLE III
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COVENANTS
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Section 3.01.
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Payment of Principal and/or Interest
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Section 3.02.
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Maintenance of Office or Agency
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Section 3.03.
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Money for Payments to Be Held in Trust
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Section 3.04.
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Existence
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Section 3.05.
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Protection of Collateral
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Section 3.06.
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Negative Covenants
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Section 3.07.
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Performance of Obligations; Servicing of Loans
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Section 3.08.
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Reserved
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Section 3.09.
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Annual Statement as to Compliance
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Section 3.10.
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Covenants of the Issuer
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Section 3.11.
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Servicers Obligations
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Section 3.12.
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Restricted Payments
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Section 3.13.
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Treatment of Notes as Debt for All Purposes
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Section 3.14.
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Notice of Events of Default
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Section 3.15.
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Further Instruments and Acts
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ARTICLE IV
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SATISFACTION AND DISCHARGE
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Section 4.01.
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Satisfaction and Discharge of Indenture
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Section 4.02.
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Application of Trust Money
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Section 4.03.
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Repayment of Moneys Held by Paying Agent
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ARTICLE V
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REMEDIES
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Section 5.01.
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Events of Default
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Section 5.02.
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Acceleration of Maturity; Rescission and Annulment
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Section 5.03.
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Collection of Indebtedness and
Suits for Enforcement by Indenture Trustee
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Section 5.04.
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Remedies; Priorities
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Section 5.05.
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Optional Preservation of the Collateral
|
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30 |
|
Section 5.06.
|
|
Limitation of Suits
|
|
|
31 |
|
Section 5.07.
|
|
Unconditional Rights of Noteholders to Receive Principal and/or Interest
|
|
|
31 |
|
Section 5.08.
|
|
Restoration of Rights and Remedies
|
|
|
32 |
|
Section 5.09.
|
|
Rights and Remedies Cumulative
|
|
|
32 |
|
Section 5.10.
|
|
Delay or Omission Not a Waiver
|
|
|
32 |
|
Section 5.11.
|
|
Control by Noteholders
|
|
|
32 |
|
Section 5.12.
|
|
Waiver of Past Defaults
|
|
|
33 |
|
Section 5.13.
|
|
Undertaking for Costs
|
|
|
33 |
|
Section 5.14.
|
|
Waiver of Stay or Extension Laws
|
|
|
33 |
|
Section 5.15.
|
|
Action on Notes
|
|
|
34 |
|
Section 5.16.
|
|
Performance and Enforcement of Certain Obligations
|
|
|
34 |
|
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|
|
|
|
|
|
ARTICLE VI
|
|
|
|
|
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|
|
THE INDENTURE TRUSTEE
|
|
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|
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|
|
|
Section 6.01.
|
|
Duties of Indenture Trustee
|
|
|
34 |
|
Section 6.02.
|
|
Rights of Indenture Trustee
|
|
|
36 |
|
Section 6.03.
|
|
Individual Rights of Indenture Trustee
|
|
|
36 |
|
Section 6.04.
|
|
Indenture Trustees Disclaimer
|
|
|
36 |
|
Section 6.05.
|
|
Notices of Default
|
|
|
37 |
|
Section 6.06.
|
|
Reports by Indenture Trustee to Holders
|
|
|
37 |
|
Section 6.07.
|
|
Compensation and Indemnity
|
|
|
37 |
|
Section 6.08.
|
|
Replacement of Indenture Trustee
|
|
|
38 |
|
Section 6.09.
|
|
Successor Indenture Trustee by Merger
|
|
|
39 |
|
Section 6.10.
|
|
Section 6.10
|
|
|
39 |
|
Section 6.11.
|
|
Eligibility
|
|
|
40 |
|
ii
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Page |
ARTICLE VII
|
|
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|
|
|
|
|
NOTEHOLDERS LISTS AND REPORTS
|
|
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|
|
|
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|
Section 7.01.
|
|
Issuer to Furnish Indenture Trustee Names and Addresses of Noteholders
|
|
|
40 |
|
Section 7.02.
|
|
Preservation of Information
|
|
|
40 |
|
Section 7.03.
|
|
144A Information
|
|
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41 |
|
|
|
|
|
|
|
|
ARTICLE VIII
|
|
|
|
|
|
|
|
ACCOUNTS, DISBURSEMENTS AND RELEASES
|
|
|
|
|
|
|
|
Section 8.01.
|
|
Collection of Money
|
|
|
41 |
|
Section 8.02.
|
|
Trust Accounts; Distributions
|
|
|
41 |
|
Section 8.03.
|
|
General Provisions Regarding Trust Accounts
|
|
|
42 |
|
Section 8.04.
|
|
The Paying Agent
|
|
|
42 |
|
Section 8.05.
|
|
Release of Collateral
|
|
|
43 |
|
Section 8.06.
|
|
Opinion of Counsel
|
|
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43 |
|
|
|
|
|
|
|
|
ARTICLE IX
|
|
|
|
|
|
|
|
SUPPLEMENTAL INDENTURES
|
|
|
|
|
|
|
|
Section 9.01.
|
|
Supplemental Indentures Without the Consent of the Noteholders
|
|
|
43 |
|
Section 9.02.
|
|
Supplemental Indentures with Consent of Noteholders
|
|
|
44 |
|
Section 9.03.
|
|
Execution of Supplemental Indentures
|
|
|
46 |
|
Section 9.04.
|
|
Effect of Supplemental Indentures
|
|
|
46 |
|
Section 9.05.
|
|
Reference in Notes to Supplemental Indentures
|
|
|
46 |
|
|
|
|
|
|
|
|
ARTICLE X
|
|
|
|
|
|
|
|
REDEMPTION OF NOTES; PUT OPTION
|
|
|
|
|
|
|
|
Section 10.01.
|
|
Redemption
|
|
|
46 |
|
Section 10.02.
|
|
Form of Redemption Notice
|
|
|
46 |
|
Section 10.03.
|
|
Notes Payable on Redemption Date
|
|
|
47 |
|
Section 10.04.
|
|
Put Option
|
|
|
47 |
|
Section 10.05.
|
|
Form of Put Option Notice
|
|
|
47 |
|
Section 10.06.
|
|
Notes Payable on Put Date
|
|
|
47 |
|
|
|
|
|
|
|
|
ARTICLE XI
|
|
|
|
|
|
|
|
MISCELLANEOUS
|
|
|
|
|
|
|
|
Section 11.01.
|
|
Compliance Certificates and Opinions, etc
|
|
|
48 |
|
Section 11.02.
|
|
Form of Documents Delivered to Indenture Trustee
|
|
|
48 |
|
Section 11.03.
|
|
Acts of Noteholders
|
|
|
49 |
|
iii
|
|
|
|
|
|
|
|
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|
|
Page |
Section 11.04.
|
|
Notices, etc., to Indenture Trustee and Issuer
|
|
|
49 |
|
Section 11.05.
|
|
Notices to Noteholders; Waiver
|
|
|
50 |
|
Section 11.06.
|
|
Effect of Headings and Table of Contents
|
|
|
50 |
|
Section 11.07.
|
|
Successors and Assigns
|
|
|
51 |
|
Section 11.08.
|
|
Separability
|
|
|
51 |
|
Section 11.09.
|
|
Benefits of Indenture
|
|
|
51 |
|
Section 11.10.
|
|
Legal Holidays
|
|
|
51 |
|
Section 11.11.
|
|
GOVERNING LAW
|
|
|
51 |
|
Section 11.12.
|
|
Counterparts
|
|
|
51 |
|
Section 11.13.
|
|
Recording of Indenture
|
|
|
51 |
|
Section 11.14.
|
|
Trust Obligation
|
|
|
51 |
|
Section 11.15.
|
|
No Petition
|
|
|
52 |
|
Section 11.16.
|
|
Inspection
|
|
|
52 |
|
Section 11.17.
|
|
Limitation on Liability
|
|
|
52 |
|
iv
EXHIBITS
|
|
|
EXHIBIT A
|
|
Form of Notes |
EXHIBIT B-1
|
|
Form of Transferor Affidavit (144A) |
EXHIBIT B-2
|
|
Form of Transferee Affidavit (Accredited Investor) |
EXHIBIT B-3
|
|
Form of Transfer Affidavit |
EXHIBIT C
|
|
Form of Securities Legend |
v
INDENTURE
INDENTURE dated as of June 1, 2005 (the Indenture), between OPTION ONE OWNER TRUST 2005-6, a
Delaware statutory trust, as Issuer (the Issuer), and WELLS FARGO BANK, N.A., as Indenture
Trustee (the Indenture Trustee).
W I T N E S S E T H T H A T:
In consideration of the mutual covenants herein contained, the Issuer has duly authorized the
execution and delivery of this Indenture to provide for the issuance of Notes, issuable as provided
in this Indenture. All covenants and agreements made by the Issuer herein are for the benefit and
security of the Noteholders.
GRANTING CLAUSE
Subject to the terms of this Indenture, the Issuer hereby Grants on the Closing Date, to the
Indenture Trustee, as Indenture Trustee for the benefit of the Noteholders, all of the Issuers
right, title and interest, whether now owned or hereafter acquired, in and to: (i) such Loans as
from time to time are subject to the Sale and Servicing Agreement as listed in the Loan Schedule,
as the same may be amended or supplemented on each Transfer Date and by the removal of Deleted
Loans and Unqualified Loans and by the addition of Qualified Substitute Loans, together with the
Servicers Loan Files and the Custodial Loan Files relating thereto and all proceeds thereof, (ii)
the Mortgages and security interests in the Mortgaged Properties, (iii) all payments in respect of
interest and principal with respect to each Loan received on or after the related Transfer Cut-off
Date, (iv) such assets as from time to time are identified as Foreclosure Property, (v) such assets
and funds as are from time to time deposited in or credited to the Distribution Account, Collection
Account and the Transfer Obligation Account, including, without limitation, amounts on deposit in
or credited to such accounts that are invested in Permitted Investments (including, without
limitation, all security entitlements (as defined in Section 8-102(17) of the UCC) of the Issuer
therein), (vi) lenders rights under all Mortgage Insurance Policies and to any Mortgage Insurance
Proceeds, (vii) Net Liquidation Proceeds and Released Mortgaged Property Proceeds, (viii) all
right, title and interest of the Trust (but none of the obligations) in and to the obligations of
Hedging Counterparties under Hedging Instruments; (ix) all right, title and interest of each of the
Depositor, the Loan Originator and the Trust in and under the Basic Documents including, without
limitation, the obligations of the Loan Originator under the Loan Purchase and Contribution
Agreement and/or the Master Disposition Confirmation Agreement, and all proceeds of any of the
foregoing, (x) all right, title and interest of the Issuer in and to the Sale and Servicing
Agreement, including the Issuers right to cause the Loan Originator to repurchase Loans from the
Issuer under certain circumstances described therein, (xi) all other property of the Trust from
time to time and (xii) all present and future claims, demands, causes of action and choses in
action in respect of any or all of the foregoing and all payments on or under and all proceeds of
every kind and nature whatsoever in respect of any or all of the foregoing, including all
proceeds of the conversion thereof, voluntary or involuntary, into cash or other liquid
property, all cash and noncash proceeds (each as defined in Section 9-102(a) of the UCC), accounts,
accounts receivable, notes, drafts, acceptances, chattel paper, checks, deposit accounts, insurance
proceeds, payment intangibles, securities accounts, condemnation awards, rights to payment of any
and every kind and other forms of obligations
and receivables, instruments and other property which at any time constitute all or part of or are
included in the proceeds of any of the foregoing (collectively, the Collateral).
The foregoing Grant is made in trust to secure the payment of principal of and interest on,
and any other amounts owing in respect of, the Notes, and to secure compliance with the provisions
of this Indenture, all as provided in this Indenture.
The Indenture Trustee, as Indenture Trustee on behalf of the Noteholders, acknowledges such
Grant, accepts the trusts hereunder and agrees to perform its duties required in this Indenture to
the best of its ability to the end that the interests of the Noteholders may adequately and
effectively be protected.
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. (a) Except as otherwise specified herein, the following
terms have the respective meanings set forth below for all purposes of this Indenture.
Act has the meaning specified in Section 11.03(a) hereof.
Additional Note Principal Balance has the meaning set forth in the Sale and
Servicing Agreement.
Administration Agreement means the Administration Agreement dated as of June 1,
2005, between the Issuer and the Administrator.
Administrator means Option One Mortgage Corporation, or any successor Administrator
under the Administration Agreement.
Authorized Officer means, with respect to the Issuer, any officer of the Owner
Trustee who is authorized to act for the Owner Trustee in matters relating to the Issuer and who is
identified on the list of Authorized Officers delivered by the Owner Trustee to the Indenture
Trustee on the Closing Date (as such list may be modified or supplemented from time to time
thereafter) and, so long as the Administration Agreement is in effect, any Vice President or more
senior officer of the Administrator who is authorized to act for the Administrator in matters
relating to the Issuer and to be acted upon by the Administrator pursuant to the Administration
Agreement and who is identified on the list of Authorized Officers delivered by the Administrator
to the Indenture Trustee on the Closing Date (as such list may be modified or supplemented
from time to time thereafter).
Basic Documents has the meaning set forth in the Sale and Servicing
Agreement.
Certificate of Trust means the certificate of trust of the Issuer substantially in
the form of Exhibit C to the Trust Agreement.
2
Change of Control means the acquisition by any Person, or two or more Persons acting
in concert, of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and
Exchange Commission under the Securities Exchange Act of 1934) of outstanding shares of voting
stock of the Loan Originator at any time if after giving effect to such acquisition (i) such Person
or Persons owns twenty percent (20%) or more of such outstanding voting stock or (ii) H&R Block,
Inc. does not own more than fifty percent (50%) of such outstanding shares of voting stock.
Clean-up Call Date has the meaning set forth in the Sale and Servicing
Agreement.
Closing means June 30, 2005.
Collateral has the meaning specified in the Granting Clause of this
Indenture.
Commission means the Securities and Exchange Commission.
Corporate Trust Office means the principal office of the Indenture Trustee at which
at any particular time its corporate trust business shall be administered, which office at date of
execution of this Indenture is located, for note transfer purposes, at Sixth Street and Marquette
Avenue, Minneapolis, Minnesota 55479, Attention: Option One Owner Trust 2005-6, telecopy number:
(612) 667-6282, telephone number: (800) 344-5128, and for all other purposes, at 9062 Old Annapolis
Road, Columbia, Maryland 21045, Attention: Option One Owner Trust 2005-6, telecopy number: (410)
715-2380, telephone number: (410) 884-2000, or at such other address as the Indenture Trustee may
designate from time to time by notice to the Noteholders and the Issuer, or the principal corporate
trust office of any successor Indenture Trustee at the address designated by such successor
Indenture Trustee by notice to the Noteholders and the Issuer.
Default means any occurrence that is, or with notice or the lapse of time or both
would become, an Event of Default.
Depositor shall mean Option One Loan Warehouse Corporation, a Delaware corporation;
in its capacity as depositor under the Sale and Servicing Agreement, or any successor in interest
thereto.
Depository Institution means any depository institution or trust company, including
the Indenture Trustee, that (a) is incorporated under the laws of the
United States of America or any State thereof, (b) is subject to supervision and examination
by federal or state banking authorities and (c) has outstanding unsecured commercial paper or other
short-term unsecured debt obligations that are rated at a rating to which the Majority Noteholders
consent in writing.
Event of Default has the meaning specified in Section 5.01 hereof.
Exchange Act means the Securities Exchange Act of 1934, as amended.
3
Executive Officer means, with respect to (i) the Depositor, the Servicer, the Loan
Originator or any Affiliate of any of them, the President, any Vice President or the Treasurer of
such corporation; and with respect to any partnership, any general partner thereof, (ii) the Note
Registrar, any Responsible Officer of the Indenture Trustee, (iii) any other corporation, the Chief
Executive Officer, Chief Operating Officer, Chief Financial Officer, President, Executive Vice
President, any Vice President, the Secretary or the Treasurer of such entity and (iv) any
partnership, any general partner thereof.
Grant means mortgage, pledge, bargain, sell, warrant, alienate, remise, release,
convey, assign, transfer, create and grant a lien upon and a security interest in and right of
set-off against, deposit, set over and confirm pursuant to this Indenture. A Grant of the
Collateral or of any other agreement or instrument shall include all rights, powers and options
(but none of the obligations) of the granting party thereunder, including the immediate and
continuing right to claim for, collect, receive and give receipt for principal and interest
payments in respect of the Collateral and all other moneys payable thereunder, to give and receive
notices and other communications, to make waivers or other agreements, to exercise all rights and
options, to bring Proceedings in the name of the granting party or otherwise, and generally to do
and receive anything that the granting party is or may be entitled to do or receive thereunder or
with respect thereto.
Holder means the Person in whose name a Note is registered on the Note Register.
ICA Owner means beneficial owner as such term is used in Section 3(c)(1) of the
Investment Company Act of 1940, as amended (other than any persons who are excluded from such term
or from the 100-beneficial owner test of Section 3(c)(1) by law or regulations adopted by the
Securities and Exchange Commission).
Indenture means this Indenture and any amendments hereto.
Indenture Trustee means Wells Fargo Bank, N.A., a national banking association, as
Indenture Trustee under this Indenture, or any successor Indenture Trustee hereunder.
Issuer means Option One Owner Trust 2005-6.
Issuer Order and Issuer Request mean a written order or request signed in
the name of the Issuer by any one of its Authorized Officers and delivered to
the Indenture Trustee.
Loan Originator means Option One Mortgage Corporation, a California corporation.
Majority Certificateholders has the meaning set forth in the Sale and Servicing
Agreement.
Maturity Date means, with respect to the Notes, 364 days after the commencement of
the Revolving Period.
4
Maximum Note Principal Balance has the meaning set forth in the Note Purchase
Agreement.
Note means any Note authorized by and authenticated and delivered under
this
Indenture.
Note Interest Rate means for each Accrual Period, a per annum interest rate equal to
One-Month LIBOR for the related LIBOR Determination Date plus the LIBOR Margin and, if applicable,
the Default LIBOR Margin for such Accrual Period.
Note Principal Balance has the meaning set forth in the Sale and
Servicing
Agreement.
Note Purchase Agreement means the Note Purchase Agreement dated as of June 1, 2005,
among the Issuer, Lehman Brothers Bank, as Noteholder Agent, Lehman Brothers Bank, as purchaser.
Note Redemption Amount has the meaning set forth in the Sale and
Servicing Agreement.
Note Register and Note Registrar have the respective meanings specified in
Section 2.03 hereof.
Noteholder means the Person in whose name a Note is registered on the Note Register.
Officers Certificate means a certificate signed by any Authorized Officer of the
Issuer or the Administrator, under the circumstances described in, and otherwise complying with,
the applicable requirements of Section 11.01 hereof, and delivered to the Indenture Trustee. Unless
otherwise specified, any reference in this Indenture to an Officers Certificate shall be to an
Officers Certificate of any Authorized Officer of the Issuer or the Administrator.
Opinion of Counsel means one or more written opinions of counsel who
may, except as otherwise expressly provided in this Indenture, be an employee of or counsel to
the Issuer, and which opinion or opinions shall be addressed to the Indenture Trustee, as Indenture
Trustee, and shall comply with any applicable requirements of Section 11.01 hereof and
shall be in form and substance satisfactory to the Noteholder Agent.
Outstanding means, with respect to any Note and as of the date of determination, any
Note theretofore authenticated and delivered under this Indenture except:
(i) Notes theretofore canceled by the Note Registrar or delivered to the Note Registrar for
cancellation;
(ii) Notes or portions thereof the payment for which money in the necessary amount has
theretofore been deposited with the Indenture Trustee or any Paying Agent in trust for the
Noteholders (provided, however, that if such Notes are to be redeemed, notice of such
5
redemption has been duly given pursuant to this Indenture or provision for such notice satisfactory
to the Indenture Trustee has been made); and
(iii) Notes in exchange for or in lieu of which other Notes have been authenticated and
delivered pursuant to this Indenture unless proof satisfactory to the Indenture Trustee is
presented that any such Notes are held by a bona fide purchaser; provided, however, that in
determining whether the Noteholders representing the requisite Percentage Interests of the
Outstanding Notes have given any request, demand, authorization, direction, notice, consent or
waiver hereunder or under any Basic Document, Notes owned by the Issuer, any other obligor upon the
Notes, the Depositor or any Affiliate of any of the foregoing Persons shall be disregarded and
deemed not to be Outstanding, except that, in determining whether the Indenture Trustee shall be
protected in relying upon any such request, demand, authorization, direction, notice, consent or
waiver, only Notes that the Indenture Trustee actually knows to be owned in such manner shall be
disregarded. Notes owned in such manner that have been pledged in good faith may be regarded as
Outstanding if the pledgee certifies to the Indenture Trustee (y) that the pledgee has the right so
to act with respect to such Notes and (z) that the pledgee is not the Issuer, any other obligor
upon the Notes, the Depositor or any Affiliate of any of the foregoing Persons.
Owner Trustee means Wilmington Trust Company, not in its individual capacity but
solely as Owner Trustee under the Trust Agreement, or any successor Owner Trustee under the Trust
Agreement.
Paying Agent means (unless the Paying Agent is the Servicer) a Person that meets the
eligibility standards for the Indenture Trustee specified in
Section 6.11 hereof and is authorized
by the Issuer to make payments to and distributions from the Collection Account and the
Distribution Account, including payment of principal of or
interest on the Notes on behalf of the Issuer. The initial Paying Agent shall be the Servicer;
provided that if the Servicer is terminated as Paying Agent for any reason, the Indenture Trustee
shall be the Paying Agent until another Paying Agent is appointed by the Noteholder Agent pursuant
to Section 8.04 herein. The Indenture Trustee shall be entitled to reasonable additional
compensation for assuming the role of Paying Agent.
Payment Date has the meaning set forth in the Sale and Servicing
Agreement.
Percentage Interest means, with respect to any Note and as of any date of
determination, the percentage equal to a fraction, the numerator of which is the principal balance
of such Note as of such date of determination and the denominator of which is the Note Principal
Balance.
Person has the meaning set forth in the Sale and Servicing Agreement.
Predecessor Note means, with respect to any particular Note, every previous Note
evidencing all or a portion of the same debt as that evidenced by such particular Note; and, for
the purpose of this definition, any Note authenticated and delivered under Section 2.04 hereof in
lieu of a mutilated, lost, destroyed or stolen Note shall be deemed to evidence the same debt as
the mutilated, lost, destroyed or stolen Note.
6
Proceeding means any suit in equity, action at law or other judicial or
administrative proceeding.
Record Date has the meaning set forth in the Sale and Servicing
Agreement.
Redemption Date means in the case of a redemption of the Notes pursuant to Section
10.01 hereof, the Payment Date specified by the Servicer pursuant to such Section 10.01.
Registered Holder means the Person in the name of which a Note is registered on the
Note Register on the applicable Record Date.
Revolving Period has the meaning set forth in the Sale and Servicing Agreement.
Sale Agents has the meaning assigned to such term in Section 5.11 hereof.
Sale and Servicing Agreement means the Sale and Servicing Agreement dated as of June
1, 2005, among the Issuer, the Depositor, the Loan Originator and Servicer, and the Indenture
Trustee on behalf of the Noteholders.
Servicer means Option One Mortgage Corporation, in its capacity as servicer under
the Sale and Servicing Agreement, and any successor servicer thereunder.
State means any one of the States of the United States of America or the District of
Columbia.
Termination Price has the meaning set forth in the Sale and Servicing Agreement.
Transfer Date has the meaning set forth in the Sale and Servicing
Agreement.
Trust Agreement means the Trust Agreement dated as of June 1, 2005, between the
Depositor and the Owner Trustee.
Trust Certificate has the meaning assigned to such term in Section 1.1 of the Trust
Agreement.
Trust Indenture Act means the Trust Indenture Act of 1939 as in force on the date
hereof, unless otherwise specifically provided.
(b) Except as otherwise specified herein or as the context may otherwise require, capitalized
terms used but not otherwise defined herein have the respective meanings set forth in the Sale and
Servicing Agreement for all purposes of this Indenture.
Section 1.02. Rules of Construction. Unless the context otherwise requires:
(i) a term has the meaning assigned to it;
7
(ii) an accounting term not otherwise defined has the meaning assigned to it in accordance
with GAAP;
(iii) or is not exclusive;
(iv) including means including without limitation;
(v) words in the singular include the plural and words in the plural include the
singular; and
(vi) any agreement, instrument or statute defined or referred to herein or in any instrument
or certificate delivered in connection herewith means such agreement, instrument or statute as from
time to time amended, modified or supplemented (as provided in such agreements) and includes (in
the case of agreements or instruments) references to all attachments thereto and instruments
incorporated therein; references to a Person are also to its permitted successors and assigns.
8
ARTICLE II
GENERAL PROVISIONS WITH RESPECT TO THE NOTES
Section 2.01. Method of Issuance and Form of Notes.
(a) The Notes shall be designated generally as the Option One Owner Trust 2005-6
Mortgage-Backed Notes of the Issuer. Each Note shall bear upon its face the designation so
selected for the Notes. All Notes shall be identical in all respects except for the denominations
thereof. All Notes issued under this Indenture shall be in all respects equally and ratably
entitled to the benefits thereof without preference, priority or distinction on account of the
actual time or times of authentication and delivery, all in accordance with the terms and
provisions of this Indenture.
The Notes may be typewritten, printed, lithographed or engraved or produced by any
combination of these methods, all as determined by the officers executing such Notes, as evidenced
by their execution of such Notes.
Each Note shall be dated the date of its authentication.
The terms of the Notes shall be set forth in this Indenture.
The Notes shall be in definitive form and shall bear a legend substantially in the form of
Exhibit C attached hereto.
Section 2.02. Execution, Authentication, Delivery and Dating. The Notes shall be
executed on behalf of the Issuer by an Authorized Officer of the Owner Trustee or the
Administrator. The signature of any such Authorized Officer on the Notes may be manual or
facsimile.
Notes bearing the manual or facsimile signature of individuals who were at any time
Authorized Officers of the Owner Trustee or the Administrator shall bind the Issuer,
notwithstanding that such individuals or any of them have ceased to hold such offices prior to the
authentication and delivery of such Notes or did not hold such offices at the date of such Notes.
Subject to the satisfaction of the conditions set forth in Section 2.08 hereof, the
Indenture Trustee shall upon Issuer Order authenticate and deliver the Notes.
The Notes that are authenticated and delivered by the Indenture Trustee to or upon the order
of the Issuer on the Closing Date shall be dated as of such Closing Date. All other Notes that are
authenticated after the Closing Date for any other purpose under the Indenture shall be dated the
date of their authentication. The Notes shall be issued in such denominations as may be agreed by
the Issuer and the Noteholder Agent.
No Note shall be entitled to any benefit under this Indenture or be valid or obligatory for
any purpose, unless there appears on such Note a certificate of
authentication substantially in the form provided for herein executed by the Indenture
Trustee by the manual signature of one of its authorized signatories, and such certificate upon
any Note shall be
9
conclusive evidence, and the only evidence, that such Note has been duly authenticated and
delivered hereunder.
Section 2.03. Registration; Registration of Transfer and Exchange. The Issuer shall
cause to be kept a register (the Note Register) in which, subject to such reasonable
regulations as it may prescribe, the Issuer shall provide for the registration of Notes and the
registration of transfers of Notes. The Indenture Trustee initially shall be the Note Registrar
for the purpose of registering Notes and transfers of Notes as herein provided. Upon any
resignation of any Note Registrar, the Issuer shall promptly appoint a successor or, if it elects
not to make such an appointment, assume the duties of the Note Registrar.
If a Person other than the Indenture Trustee is appointed by the Issuer as Note Registrar,
the Issuer will give the Indenture Trustee prompt written notice of the appointment of such Note
Registrar and of the location, and any change in the location, of the Note Register, and the
Indenture Trustee shall have the right to inspect the Note Register at all reasonable times and to
obtain copies thereof, and the Indenture Trustee shall have the right to rely upon a certificate
executed on behalf of the Note Registrar by an Executive Officer thereof as to the names and
addresses of the Noteholders and the principal amounts and number of the Notes.
Upon surrender for registration of transfer of any Note at the office or agency of the Issuer
to be maintained as provided in Section 3.02 hereof, the Issuer shall execute, and the
Indenture Trustee shall authenticate and the Noteholder shall obtain from the Indenture Trustee,
in the name of the designated transferee or transferees, one or more new Notes in any authorized
denominations, of a like aggregate Note Principal Balance.
At the option of the Holder, Notes may be exchanged for other Notes in any authorized
denominations, of a like aggregate principal amount, upon surrender of the Notes to be exchanged
at such office or agency. Whenever any Notes are so surrendered for exchange, the Issuer shall
execute, and the Indenture Trustee shall authenticate and the Noteholder shall obtain from the
Indenture Trustee, the Notes which the Noteholder making the exchange is entitled to receive.
All Notes issued upon any registration of transfer or exchange of Notes shall be the valid
obligations of the Issuer, evidencing the same debt, and entitled to the same benefits under this
Indenture, as the Notes surrendered upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or exchange shall be duly
endorsed by, or be accompanied by a written instrument of transfer in the form attached to the
form of Note attached as Exhibit A hereto duly executed by the Holder thereof or such Holders
attorney duly authorized in writing,
with such signature guaranteed by an eligible guarantor institution meeting the
requirements of the Securities Transfer Agents Medallion Program (STAMP).
No service charge shall be made to a Noteholder for any registration of transfer or exchange
of Notes, but the Issuer may require payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any registration of transfer or
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exchange of Notes, other than exchanges pursuant to Section 9.05 hereof not involving any
transfer.
The preceding provisions of this Section 2.03 notwithstanding, the Issuer shall not
be required to make, and the Note Registrar need not register, transfers or exchanges of Notes
selected for redemption or of any Note for a period of 15 days preceding the due date for any
payment with respect to such Note.
Section 2.04. Mutilated, Destroyed, Lost or Stolen Notes. If (i) any mutilated Note is
surrendered to the Indenture Trustee, or the Indenture Trustee receives evidence to its
satisfaction of the destruction, loss or theft of any Note, and (ii) there is delivered to the
Issuer and Indenture Trustee such security or indemnity as may reasonably be required by it to hold
the Issuer and the Indenture Trustee, as applicable, harmless, then, in the absence of notice to
the Issuer, the Note Registrar or the Indenture Trustee that such Note has been acquired by a bona
fide purchaser, an Authorized Officer of the Owner Trustee or the Administrator on behalf of the
Issuer shall execute, and upon its written request the Indenture Trustee shall authenticate and
deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Note, a
replacement Note; provided, however, that if any such destroyed, lost or stolen Note, but not a
mutilated Note, shall have become or within seven days shall be due and payable, or shall have been
called for redemption, instead of issuing a replacement Note, the Issuer may pay such destroyed,
lost or stolen Note when so due or payable or upon the Redemption Date without surrender thereof.
If, after the delivery of such replacement Note or payment of a destroyed, lost or stolen Note
pursuant to the proviso to the preceding sentence, a bona fide purchaser of the original Note in
lieu of which such replacement Note was issued presents for payment such original Note, the Issuer
shall be entitled to recover such replacement Note (or such payment) from the Person to which it
was delivered or any Person taking such replacement Note from such Person to which such replacement
Note was delivered or any assignee of such Person, except a bona fide purchaser, and the Issuer and
the Indenture Trustee shall be entitled to recover upon the security or indemnity provided therefor
to the extent of any loss, damage, cost or expense incurred by the Issuer or the Indenture Trustee
in connection therewith.
Upon the issuance of any replacement Note under this Section 2.04, the Issuer may
require the payment by the Holder of such Note of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other reasonable expenses
(including the fees and expenses of the Indenture Trustee) connected therewith.
Every replacement Note issued pursuant to this Section 2.04 in replacement of any
mutilated, destroyed, lost or stolen Note shall constitute an original additional contractual
obligation of the Issuer, whether or not the mutilated, destroyed, lost or stolen Note shall be at
any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture
equally and proportionately with any and all other Notes duly issued hereunder.
The provisions of this Section 2.04 are exclusive and shall preclude (to the extent
lawful) all other rights and remedies with respect to the replacement or payment of mutilated,
destroyed, lost or stolen Notes.
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Section 2.05. Persons Deemed Noteholders. Prior to due presentment for registration of
transfer of any Note, the Issuer, the Indenture Trustee and any agent of the Issuer or the
Indenture Trustee may treat the Person in the name of which any Note is registered (as of the day
of determination) as the Noteholder for the purpose of receiving payments of principal of and
interest, if any, on such Note and for all other purposes whatsoever, whether or not such Note be
overdue, and none of the Issuer, the Indenture Trustee or any agent of the Issuer or the Indenture
Trustee shall be affected by notice to the contrary.
Section 2.06. Payment of Principal and/or Interest.
(a) The Notes shall accrue interest at the Note Interest Rate, and such interest shall be
payable on each Payment Date, subject to Section 3.01 hereof. Any installment of interest or
principal, if any, payable on any Note that is punctually paid or duly provided for by the Issuer
on the applicable Payment Date shall be paid to the Person in the name of which such Note (or one
or more Predecessor Notes) is registered on the next preceding Record Date based on the Percentage
Interest represented by its respective Note, without preference or priority of any kind, and,
except as otherwise provided in the next succeeding sentence, shall be made by wire transfer of
immediately available funds to the account of such Noteholder, if such Noteholder shall own of
record Notes having a Percentage Interest of at least 20% and shall have so notified the Paying
Agent and the Indenture Trustee, and otherwise by check mailed to the address of such Noteholder
appearing in the Note Register no less than five days preceding the related Record Date. The final
installment of principal payable with respect to such Note shall be payable as provided in
Section 2.06(b) below. The funds represented by any such checks returned undelivered shall
be held in accordance with Section 3.03 hereof.
(b) The principal of each Note shall be payable in installments on each Payment Date as
provided in Sections 5.01 and 5.02 of the Sale and Servicing Agreement and Section 5.04(b)
hereof. Notwithstanding the foregoing, the entire unpaid principal amount of the Notes shall be
due and payable, if not previously paid, on the earlier of (i) the Maturity Date, (ii) the
Redemption Date, (iii) the Final Put Date and (iv) the date on which an Event of Default shall
have occurred and be continuing, if the Indenture Trustee or the Majority Noteholders shall have
declared the Notes to be immediately due and payable in the manner provided in Section
5.02 hereof.
All principal payments on the Notes shall be made pro rata to the Noteholders based on their
respective Percentage Interests. The Paying Agent shall notify the Person in the name of which a
Note is registered at the close of business on the Record Date preceding the Payment Date on which
the Issuer expects that the final installment of principal of and interest on such Note will be
paid. Such notice shall be mailed or transmitted by facsimile prior to such final Payment Date and
shall specify that such final installment will be payable only upon presentation and surrender of
such Note and shall specify the place where such Note may be presented and surrendered for payment
of such installment. Notices in connection with redemptions of Notes shall be provided to
Noteholders as set forth in Section 10.02 hereof.
Section 2.07. Cancellation. All Notes surrendered for payment, registration of
transfer, exchange or redemption shall, if surrendered to any Person other than the Indenture
Trustee, be delivered to the Indenture Trustee and shall promptly be canceled by the Indenture
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Trustee. The Issuer may at any time deliver to the Indenture Trustee for cancellation any Notes
previously authenticated and delivered hereunder which the Issuer may have acquired in any manner
whatsoever, and all Notes so delivered shall promptly be canceled by the Indenture Trustee. No
Notes shall be authenticated in lieu of or in exchange for any Notes canceled as provided in this
Section 2.07, except as expressly permitted by this Indenture. All canceled Notes may be
held or disposed of by the Indenture Trustee in accordance with its standard retention or disposal
policy as in effect at the time unless the Issuer shall direct by an Issuer Order that they be
destroyed or returned to it; provided, however, that such Issuer Order is timely and the Notes have
not been previously disposed of by the Indenture Trustee.
Section 2.08. Conditions Precedent to the Authentication of the Notes. The Notes may
be authenticated by the Indenture Trustee upon receipt by the Indenture Trustee of the following:
(a) An Issuer Order authorizing authentication of such Notes by the Indenture Trustee;
(b) All of the items of Collateral which are to be delivered pursuant to the Basic Documents
to the Indenture Trustee or its designee by the related Closing Date shall have been delivered;
(c) An executed counterpart of each Basic Document;
(d) One or more Opinions of Counsel addressed to the Indenture Trustee to the effect that:
(i) all conditions precedent provided for in this Indenture relating to the
authentication of the Notes have been complied with;
(ii) the Owner Trustee has power and authority to execute, deliver and perform its
obligations under the Trust Agreement;
(iii) the Issuer has been duly formed, is validly existing as a statutory trust under
the laws of the State of Delaware, 12 Del. C. Section 3801
et seq., and has power,
authority and legal right to execute and deliver this Indenture, the Note Purchase
Agreement, the Custodial Agreement, the Administration Agreement and the Sale and Servicing
Agreement;
(iv) assuming due authorization, execution and delivery hereof by the Indenture
Trustee, the Indenture is a valid, legal and binding obligation of the Issuer, enforceable
in accordance with its terms, subject to bankruptcy, insolvency, reorganization,
arrangement, moratorium, fraudulent or preferential conveyance and other similar laws of
general application affecting the rights of creditors generally and to general principles
of equity (regardless of whether such enforcement is considered in a Proceeding in equity
or at law);
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(v) the Notes, when executed and authenticated as provided herein and delivered against
payment therefor, will be the valid, legal and binding obligations of the Issuer pursuant to the
terms of this Indenture, entitled to the benefits of this Indenture, and will be enforceable in
accordance with their terms, subject to bankruptcy, insolvency, reorganization, arrangement,
moratorium, fraudulent or preferential conveyance and other similar laws of general application
affecting the rights of creditors generally and to general principles of equity (regardless of
whether such enforcement is considered in a Proceeding in equity or at law);
(vi) Reserved;
(vii) this Indenture is not required to be qualified under the Trust Indenture Act;
(viii) no authorization, approval or consent of any governmental body having jurisdiction in
the premises which has not been obtained by the Issuer is required to be obtained by the Issuer for
the valid issuance and delivery of the Notes, except that no opinion need be expressed with respect
to any such authorizations, approvals or consents as may be required under any state securities or
blue sky laws; and
(ix) any other matters that the Indenture Trustee may reasonably request.
(e) An Officers Certificate complying with the requirements of Section 11.01 hereof
and stating that:
(i) the Issuer is not in Default under this Indenture and the issuance of the Notes
applied for will not result in any breach of any of the terms, conditions or provisions
of, or constitute a default under, the Trust Agreement, any indenture, mortgage, deed of
trust or other agreement or instrument to which the Issuer is a party or by which it is
bound, or any order of any court or administrative agency entered in any Proceeding to
which the Issuer is a party or by which it may be bound or to which it may be subject, and
that all conditions
precedent provided in this Indenture relating to the authentication and delivery of
the Notes applied for have been complied with;
(ii) the Issuer is the owner of all of the Loans, has not assigned any interest or
participation in the Loans (or, if any such interest or participation has been assigned,
it has been released) and has the right to Grant all of the Loans to the Indenture
Trustee;
(iii) the Issuer has Granted to the Indenture Trustee all of its right, title and
interest in and to the Collateral, and has delivered or caused the same to be delivered to
the Indenture Trustee; and
(iv) all conditions precedent provided for in this Indenture relating to the
authentication of the Notes have been complied with.
Section 2.09. Release of Collateral. (a) Except as otherwise provided by the terms of
the Basic Documents, the Indenture Trustee shall release the Collateral from the lien of
14
this Indenture only upon receipt of an Issuer Request accompanied by the written consent of the
Noteholder Agent in accordance with the procedures set forth in the Custodial Agreement.
(b) The Indenture Trustee shall, if requested by the Servicer, temporarily release or cause
the Custodian temporarily to release to the Servicer the Custodial Loan File pursuant to the
provisions of Section 5(b) of the Custodial Agreement upon compliance by the Servicer with
the provisions thereof; provided, however, that the Custodians records shall indicate the
Issuers pledge to the Indenture Trustee under the Indenture.
Section 2.10. Additional Note Principal Balance. In the event of payment of Additional
Note Principal Balance by the Noteholders as provided in Section 2.01 (c) of the Sale and
Servicing Agreement, each Noteholder shall, and is hereby authorized to, record on the schedule
attached to its Note the date and amount of any Additional Note Principal Balance advanced by it,
and each repayment thereof; provided that failure to make any such recordation on such schedule or
any error in such schedule shall not adversely affect any Noteholders rights with respect to its
Additional Note Principal Balance and its right to receive interest payments in respect of the
Additional Note Principal Balance held by such Noteholder.
Absent manifest error, the Note Principal Balance of each Note as set forth in the notations
made by the related Noteholder on such Note shall be binding upon the Indenture Trustee and the
Issuer; provided that failure by a Noteholder to make such recordation on its Note or any error in
such notation shall not adversely affect any Noteholders rights with respect to its Note
Principal Balance and its right to receive principal and interest payments in respect thereof.
Section 2.11. Tax Treatment. The Issuer has entered into this Indenture,
and the Notes will be issued, with the intention that for all purposes, including federal,
state and local income, single business and franchise tax purposes, the Notes will qualify as
indebtedness of the Issuer secured by the Collateral. The Issuer, by entering into this Indenture,
and each Noteholder, by its acceptance of a Note, agrees to treat the Notes for all purposes,
including federal, state and local income, single business and franchise tax purposes, as
indebtedness of the Issuer. The Indenture Trustee will have no responsibility for filing or
preparing any tax returns.
Section 2.12. Limitations on Transfer of the Notes.
(a) The Notes have not been and will not be registered under the Securities Act and will not
be listed on any exchange. No transfer of a Note shall be made unless such transfer is made
pursuant to an effective registration statement under the Securities Act and all applicable state
securities laws or is exempt from the registration requirements under the Securities Act and such
state securities laws. In order to assure compliance with the Securities Act and state securities
laws, any transfer of a Note shall be made (A) in reliance on Rule 144A under the Securities Act,
in which case, the Indenture Trustee shall require that the transferor deliver a certification
substantially in the form of Exhibit B-1 hereto and that the transferee deliver a
certification substantially in the form of Exhibit B-3 hereto, or (B) to an institutional
accredited investor within the meaning of Rule 501(a)(1), (2), (3) or (7) of Regulation D under
the Securities Act that is not a qualified institutional buyer, in which case the Indenture
Trustee shall require that the transferee deliver a certification substantially in the form of
Exhibit B-2
15
hereto. The Indenture Trustee shall not make any transfer or re-registration of the Notes if after
such transfer or re-registration, there would be more than five Noteholders. Each Noteholder shall,
by its acceptance of a Note, be deemed to have represented and warranted that the number of ICA
Owners with respect to all of its Notes shall not exceed four.
(b) The Note Registrar shall not register the transfer of any Note unless the Indenture
Trustee has received a certificate from the transferee to the effect that either (i) the transferee
is not an employee benefit plan or other retirement plan or arrangement subject to Title I of the
Employee Retirement Income Security Act of 1974, as amended, or Section 4975 of the Internal
Revenue Code of 1986, as amended (each, a Plan), and is not acting on behalf of or investing the
assets of a Plan or (ii) if the transferee is a Plan or is acting on behalf of or investing the
assets of a Plan, either that no prohibited transaction within the meaning of Section 406(a) of
ERISA or Section 4975 of the Code would occur upon the transfer of the Note or that the conditions
for exemptive relief under a prohibited transaction exemption has been satisfied, including, but
not limited to, Prohibited Transaction Class Exemption (PTCE) 96-23 (relating to transactions
effected by an in-house asset manager), PTCE 95-60 (relating to transactions involving insurance
company general accounts), PTCE 91-38 (relating to transactions involving bank collective
investment funds), PTCE 90-1 (relating to transactions involving insurance company pooled separate
accounts) and PTCE 84-14 (relating to transactions effected by a qualified professional asset
manager).
ARTICLE III
COVENANTS
Section 3.01. Payment of Principal and/or Interest. The Issuer will duly and
punctually pay (or will cause to be paid duly and punctually) the principal of and interest on the
Notes in accordance with the terms of the Notes, this Indenture and the Sale and Servicing
Agreement. Amounts properly withheld under the Code by any Person from a payment to any Noteholder
of interest and/or principal shall be considered as having been paid by the Issuer to such
Noteholder for all purposes of this Indenture. The Notes shall be non-recourse obligations of the
Issuer and shall be limited in right of payment to amounts available from the Collateral, as
provided in this Indenture. The Issuer shall not otherwise be liable for payments on the Notes. If
any other provision of this Indenture shall be deemed to conflict with the provisions of this
Section 3.01, the provisions of this Section 3.01 shall control.
Section 3.02. Maintenance of Office or Agency. The Indenture Trustee shall maintain at
the Corporate Trust Office an office or agency where Notes may be surrendered for registration of
transfer or exchange and where notices and demands to or upon the Issuer in respect of the Notes
and this Indenture may be served. The Indenture Trustee shall give prompt written notice to the
Issuer of the location, and of any change in the location, of any such office or agency.
Section 3.03. Money for Payments to Be Held in Trust. As provided in Section
8.02(a) and (b) hereof, all payments of amounts due and payable with respect to any
Notes that are to be made from amounts withdrawn from the Distribution Account pursuant to
Section 8.02(c) hereof shall be made on behalf of the Issuer by the Indenture Trustee or by
the Paying Agent, and
16
no amounts so withdrawn from the Distribution Account for payments of Notes shall be paid over to
the Issuer except as provided in this Section 3.03.
Any Paying Agent shall be appointed by the Noteholder Agent with written notice thereof to
the Indenture Trustee. The Issuer shall not appoint any Paying Agent (other than the Indenture
Trustee or Servicer) which is not, at the time of such appointment, a Depository Institution.
The Issuer will cause each Paying Agent other than the Indenture Trustee to execute and
deliver to the Indenture Trustee an instrument in which such Paying Agent shall agree with the
Indenture Trustee (and if the Indenture Trustee acts as Paying Agent, it hereby so agrees),
subject to the provisions of this Section 3.03, that such Paying Agent will:
(i) hold all sums held by it for the payment of amounts due with respect to the Notes
in trust for the benefit of the Persons entitled thereto until such sums shall be paid to
such Persons or otherwise disposed of as herein provided and pay such sums to such Persons
as herein provided;
(ii) give the Indenture Trustee notice of any Default by the Issuer (or any other
obligor upon the Notes) of which it has actual knowledge in the making of any payment
required to be made with respect to the Notes;
(iii) at any time during the continuance of any such Default, upon the written
request of the Majority Noteholders or the Indenture Trustee, forthwith pay to the
Indenture Trustee all sums so held in trust by such Paying Agent;
(iv) immediately resign as a Paying Agent and forthwith pay to the Indenture Trustee
all sums held by it in trust for the payment of Notes if at any time it ceases to meet the
standards required to be met by a Paying Agent at the time of its appointment; and
(v) comply with all requirements of the Code with respect to the withholding from any
payments made by it on any Notes of any applicable withholding taxes imposed thereon and
with respect to any applicable reporting requirements in connection therewith; provided,
however, that with respect to withholding and reporting requirements applicable to
original issue discount (if any) on the Notes, the Issuer shall have first provided the
calculations pertaining thereto to the Indenture Trustee.
The Issuer may at any time, for the purpose of obtaining the satisfaction and discharge of
this Indenture or for any other purpose, by Issuer Order direct any Paying Agent to pay to the
Indenture Trustee all sums held in trust by such Paying Agent, such sums to be held by the
Indenture Trustee upon the same trusts as those upon which the sums were held by such Paying
Agent; and upon such payment by any Paying Agent to the Indenture Trustee, such Paying Agent shall
be released from all further liability with respect to such money.
Subject to applicable laws with respect to escheat of funds or abandoned property, any money
held by the Indenture Trustee or any Paying Agent in trust for the payment of any
17
amount due with respect to any Note and remaining unclaimed for two years after such amount has
become due and payable shall be discharged from such trust and be paid to the Issuer on Issuer
Request; and the Holder of such Note shall thereafter, as an unsecured general creditor, look only
to the Issuer for payment thereof (but only to the extent of the amounts so paid to the Issuer),
and all liability of the Indenture Trustee or such Paying Agent with respect to such trust money
shall thereupon cease; provided, however, that the Indenture Trustee or such Paying Agent, before
being required to make any such repayment, shall at the expense and direction of the Issuer cause
to be published, once in a newspaper of general circulation in the City of New York customarily
published in the English language on each Business Day, notice that such money remains unclaimed
and that, after a date specified therein, which shall not be less than 30 days from the date of
such publication, any unclaimed balance of such money then remaining will be repaid to the Issuer.
The Indenture Trustee shall also adopt and
employ any other reasonable means of notification of such repayment (including, but not limited
to, mailing notice of such repayment to Noteholders whose Notes have been called but have not been
surrendered for redemption or whose right to or interest in moneys due and payable but not claimed
at the last address of record for each such Noteholder determinable from the records of the
Indenture Trustee or of any Paying Agent). Any costs and expenses of the Indenture Trustee and the
Paying Agent incurred in the holding of such funds shall be charged against such funds. Monies so
held shall not bear interest.
Section 3.04. Existence. (a) Subject to subparagraph (b) of this Section 3.04,
the Issuer will keep in full effect its existence, rights and franchises as a statutory trust under
the laws of the State of Delaware (unless it becomes, or any successor Issuer hereunder is or
becomes, organized under the laws of any other State or of the United States of America, in which
case the Issuer will keep in full effect its existence, rights and franchises under the laws of
such other jurisdiction) and will obtain and preserve its qualification to do business in each
jurisdiction in which such qualification is or shall be necessary to protect the validity and
enforceability of this Indenture, the Notes and the Collateral. The Issuer shall comply in all
respects with the covenants contained in the Trust Agreement, including without limitation, the
special purpose entity set forth in Section 4.1 thereof.
(b) Any successor to the Owner Trustee appointed pursuant to Section 10.2 of the
Trust Agreement shall be the successor Owner Trustee under this Indenture without the execution or
filing of any paper, instrument or further act to be done on the part of the parties hereto.
(c) Upon any consolidation or merger of or other succession to the Owner Trustee, the Person
succeeding to the Owner Trustee under the Trust Agreement may exercise every right and power of
the Owner Trustee under this Indenture with the same effect as if such Person had been named as
the Owner Trustee herein.
Section 3.05. Protection of Collateral. The Issuer will from time to time execute and
deliver all such reasonable supplements and amendments hereto and all such financing statements,
continuation statements, instruments of further assurance and other instruments, and will take such
other action necessary or advisable to:
18
(i) provide further assurance with respect to the Grant of all or any portion of the
Collateral;
(ii) maintain or preserve the lien and security interest (and the priority thereof) of this
Indenture or carry out more effectively the purposes hereof;
(iii) perfect, publish notice of or protect the validity of any Grant made or to be made by
this Indenture;
(iv) enforce any rights with respect to the Collateral; and
(v) preserve and defend title to the Collateral and the rights of the Indenture
Trustee and the Noteholders in such Collateral against the claims of all Persons and parties.
The Issuer hereby designates the Administrator, its agent and attorney-in-fact to execute any
financing statement, continuation statement or other instrument required to be executed pursuant
to this Section 3.05.
Section 3.06. Negative Covenants. Without the written consent of the Majority
Noteholders, so long as any Notes are Outstanding, the Issuer shall not:
(i) except as expressly permitted by the Basic Documents, sell, transfer, exchange or
otherwise dispose of any of the properties or assets of the Issuer, including those
included in any part of the Trust Estate, unless directed to do so by the Noteholders as
permitted herein;
(ii) claim any credit on, or make any deduction from the principal or interest
payable in respect of, the Notes (other than amounts properly withheld from such payments
under the Code) or assert any claim against any present or former Noteholder by reason of
the payment of the taxes levied or assessed upon any part of the Trust Estate;
(iii) engage in any business or activity other than as expressly permitted by this
Indenture and the other Basic Documents, other than in connection with, or relating to,
the issuance of Notes pursuant to this Indenture, or amend this Indenture as in effect on
the Closing Date other than in accordance with Article IX hereof;
(iv) issue any debt obligations except under this Indenture;
(v) incur or assume any indebtedness or guaranty any indebtedness of any Person, except for
such indebtedness as may be incurred by the Issuer in connection with the issuance of the Notes
pursuant to this Indenture;
(vi) dissolve or liquidate in whole or in part or merge or consolidate with any other Person;
19
(vii) (A) permit the validity or effectiveness of this Indenture to be impaired, or permit the
lien of this Indenture to be amended, hypothecated, subordinated, terminated or discharged, or
permit any Person to be released from any covenants or obligations with respect to the Notes except
as may expressly be permitted hereby, (B) except as provided in the Basic Documents, permit any
lien, charge, excise, claim, security interest, mortgage or other encumbrance to be created on or
extend to or otherwise arise upon or burden the Trust Estate or any part thereof or any interest
therein or the proceeds thereof (other than tax liens, mechanics liens and other liens that arise
by operation of law, in each case, on any Mortgaged Property and arising solely as a result of an
action or omission of the related Borrowers) or (C) except as provided in the Basic Documents,
permit any Person other than itself, the Owner Trustee and the Noteholders to have any right, title
or interest in the Trust Estate;
(viii) remove the Administrator without the prior written consent of the Majority Noteholders;
or
(ix) take any other action or fail to take any action which may cause the Trust to be taxable
as (a) an association pursuant to Section 7701 of the Code and the corresponding regulations, or
(b) as a taxable mortgage pool pursuant to Section 7701(i) of the Code.
Section 3.07. Performance of Obligations; Servicing of Loans. (a) The Issuer will not
take any action and will use its best efforts not to permit any action to be taken by others that
would release any Person from any of such Persons material covenants or obligations under any
instrument or agreement included in the Collateral or that would result in the amendment,
hypothecation, subordination, termination or discharge of, or impair the validity or effectiveness
of, any such instrument or agreement, except as expressly provided in the Basic Documents or such
other instrument or agreement.
(b) The Issuer may contract with or otherwise obtain the assistance of other Persons
(including, without limitation, the Administrator under the Administration Agreement) to assist it
in performing its duties under this Indenture, and any performance of such duties by a Person
identified to the Indenture Trustee in an Officers Certificate of the Issuer shall be deemed to
be action taken by the Issuer. Initially, the Issuer has contracted with the Servicer and the
Administrator to assist the Issuer in performing its duties under this Indenture.
(c) The Issuer will punctually perform and observe all of its obligations and agreements
contained in this Indenture, in the Basic Documents and in the instruments and agreements included
in the Collateral, including but not limited to (i) filing or causing to be filed all UCC
financing statements and continuation statements required to be filed by the terms of this
Indenture and the Sale and Servicing Agreement and (ii) recording or causing to be recorded all
Mortgages, Assignments of Mortgage, all intervening Assignments of Mortgage and all assumption and
modification agreements required to be recorded by the terms of the Sale and Servicing Agreement,
in accordance with and within the time periods provided for in this Indenture and/or the Sale and
Servicing Agreement, as applicable. Except as otherwise expressly provided therein, the Issuer
shall not waive, amend, modify, supplement or terminate any Basic
20
Document or any provision thereof without the consent of the Indenture Trustee and the Majority
Noteholders.
(d) If the Issuer shall have knowledge of the occurrence of a Servicing Event of Default, the
Issuer shall promptly notify the Indenture Trustee and the Noteholder Agent thereof, and shall
specify in such notice the action, if any, the Issuer is taking with respect to such default. If a
Servicing Event of Default shall arise from the failure of the Servicer to perform any of its
duties or obligations under the Sale and Servicing Agreement with respect to the Loans, the Issuer
shall take all reasonable steps
available to it to remedy such failure.
(e) Reserved.
(f) Upon any termination of the Servicers rights and powers pursuant to the Sale and
Servicing Agreement, the Issuer shall promptly notify the Indenture Trustee. As soon as a successor
servicer is appointed, the Issuer shall notify the Indenture Trustee of such appointment,
specifying in such notice the name and address of such successor servicer.
(g) Without derogating from the absolute nature of the assignment granted to the Indenture
Trustee under this Indenture or the rights of the Indenture Trustee hereunder, the Issuer agrees
(i) that it will not, without the prior written consent of the Indenture Trustee, amend, modify,
waive, supplement, terminate or surrender, or agree to any amendment, modification, supplement,
termination, waiver or surrender of, the terms of any Collateral (except to the extent otherwise
permitted by the Sale and Servicing Agreement) or the Basic Documents, or waive timely performance
or observance by the Servicer or the Depositor under the Sale and Servicing Agreement; and (ii)
that any such amendment shall not (A) increase or reduce in any manner the amount of, or accelerate
or delay the timing of, distributions that are required to be made for the benefit of the
Noteholders or (B) reduce the aforesaid percentage of the Notes that is required to consent to any
such amendment, without the consent of Noteholders evidencing 100% Percentage Interests of the
Outstanding Notes. If any such amendment, modification, supplement or waiver shall so be consented
to by the Indenture Trustee, the Issuer agrees, promptly following a request by the Indenture
Trustee to do so, to execute and deliver, in its own name and at its own expense, such agreements,
instruments, consents and other documents as the Indenture Trustee may deem necessary or
appropriate in the circumstances.
Section 3.08. Reserved.
Section 3.09. Annual Statement as to Compliance. So long as the Notes are Outstanding,
the Issuer will deliver to the Indenture Trustee, within 120 days after the end of each fiscal year
of the Issuer (commencing with the fiscal year beginning on May 1, 2005), an Officers Certificate
stating, as to the Authorized Officer signing such Officers Certificate, that:
(i) a review of the activities of the Issuer during such year and of its performance
under this Indenture has been made under such Authorized Officers supervision; and
(ii) to the best of such Authorized Officers knowledge, based on such review, the
Issuer has materially complied with all conditions and covenants under this Indenture
21
throughout such year, or, if there has been a default in its compliance with any such
condition or covenant, specifying each such default known to such
Authorized Officer and the nature and status thereof.
Section 3.10. Covenants of the Issuer. All covenants of the Issuer in this Indenture
are covenants of the Issuer and are not covenants of the Owner Trustee. The Owner Trustee is, and
any successor Owner Trustee under the Trust Agreement will be, entering into this Indenture solely
as Owner Trustee under the Trust Agreement and not in its respective individual capacity, and in no
case whatsoever shall the Owner Trustee or any such successor Owner Trustee be personally liable
on, or for any loss in respect of, any of the statements, representations, warranties or
obligations of the Issuer hereunder, as to all of which the parties hereto agree to look solely to
the property of the Issuer.
Section 3.11. Servicers Obligations. The Issuer shall cause the Servicer to comply
with the Sale and Servicing Agreement.
Section 3.12. Restricted Payments. The Issuer shall not, directly or indirectly, (i)
pay any dividend or make any distribution (by reduction of capital or otherwise), whether in cash,
property, securities or a combination thereof, to the Owner Trustee or any owner of a beneficial
interest in the Issuer or otherwise with respect to any ownership or equity interest or security in
or of the Issuer or to the Servicer, (ii) redeem, purchase, retire or otherwise acquire for value
any such ownership or equity interest or security or (iii) set aside or otherwise segregate any
amounts for any such purpose; provided, however, that the Issuer may make, or cause to be made, (x)
distributions to the Servicer, the Indenture Trustee, the Owner Trustee and the Noteholders and the
holders of the Trust Certificates as contemplated by, and to the extent funds are available for
such purpose under, the Sale and Servicing Agreement or the Trust Agreement and (y) payments to the
Administrator pursuant to Section 4 of the Administration Agreement. The Issuer will not, directly
or indirectly, make or cause to be made payments to or distributions from the Distribution Account
except in accordance with this Indenture and the Basic Documents.
Section 3.13. Treatment of Notes as Debt for All Purposes. The Issuer shall, and shall
cause the Administrator to, treat the Notes as indebtedness for all purposes.
Section 3.14. Notice of Events of Default. The Issuer shall give the Indenture Trustee
and the Noteholder Agent prompt written notice of each Event of Default hereunder and each default
on the part of the Servicer or the Loan Originator of their respective obligations under any of the
Basic Documents.
Section 3.15. Further Instruments and Acts. Upon request of the Indenture Trustee, the
Issuer will execute and deliver such further instruments and do such further acts as may be
reasonably necessary or proper to carry out more effectively the purpose of this Indenture.
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ARTICLE IV
SATISFACTION AND DISCHARGE
Section 4.01. Satisfaction and Discharge of Indenture. This Indenture shall cease to
be of further effect with respect to the Notes (except as to (i) rights of registration of transfer
and exchange, (ii) substitution of mutilated, destroyed, lost or stolen Notes, (iii) rights of
Noteholders to receive payments of principal thereof and interest thereon, (iv) Sections 3.03,
3.04 and 3.10 hereof, (v) the rights, obligations and immunities of the Indenture
Trustee hereunder (including the rights of the Indenture Trustee under Section 6.07 hereof
and the obligations of the Indenture Trustee under Section 4.02 hereof) and (vi) the rights
of Noteholders as beneficiaries hereof with respect to the property so deposited with the Indenture
Trustee payable to all or any of them), and the Indenture Trustee, on demand of and at the expense
of the Issuer, shall execute proper instruments satisfactory to it, and prepared and delivered to
it by the Issuer, acknowledging satisfaction and discharge of this Indenture with respect to the
Notes, when all of the following have occurred:
(A) either
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(1) |
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all Notes theretofore authenticated and delivered (other than (i)
Notes that have been destroyed, lost or stolen and that have been replaced
or paid as provided in Section 2.04 hereof and (ii) Notes for the
payment of which money has theretofore been deposited in trust or
segregated and held in trust by the Issuer and thereafter repaid to the
Issuer or discharged from such trust, as provided in Section 3.03
hereof) shall have been delivered to the Indenture Trustee for
cancellation; or |
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(2) |
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all Notes not theretofore delivered to the Indenture Trustee for
cancellation: |
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a. |
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shall have become due and payable, or |
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b. |
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are to be called for redemption within one year under
arrangements satisfactory to the Indenture Trustee for the giving
of notice of redemption by the Indenture Trustee in the name, and
at the expense, of the Issuer, |
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c. |
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and the Issuer, in the case of clause a. or b. above, has
irrevocably deposited or caused irrevocably to be deposited with
the Indenture Trustee cash or direct obligations of or obligations
guaranteed by the United States of America (which will mature
prior to the date such amounts are payable), in trust for such
purpose, in an amount sufficient to pay and |
23
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discharge the entire indebtedness on such Notes
not theretofore delivered to the Indenture
Trustee for cancellation when due to the
applicable Maturity Date or the Redemption Date
(if Notes shall have been called for redemption
pursuant to Section 10.01 hereof), as
the case may be; and |
(B) the latest of (a) the payment in full of all outstanding obligations
under the Notes, (b) the payment in full of all unpaid Trust Fees and Expenses
and (c) the date on which the Issuer has paid or caused to be paid all other sums
payable hereunder by the Issuer; and
(C) the Issuer shall have delivered to the Indenture Trustee an Officers
Certificate and an Opinion of Counsel, each meeting the applicable requirements
of Section 11.01 hereof and, subject to Section 11.02 hereof,
each stating that all conditions precedent herein provided for, relating to the
satisfaction and discharge of this Indenture with respect to the Notes, have been
complied with.
Section 4.02. Application of Trust Money. All moneys deposited with the Indenture
Trustee pursuant to Sections 3.03 and 4.01 hereof shall be held in trust and applied by it,
in accordance with the provisions of the Notes and this Indenture, to the payment, either directly
or through any Paying Agent, as the Indenture Trustee may determine, to the Noteholders for the
payment or redemption of which such moneys have been deposited with the Indenture Trustee, of all
sums due and to become due thereon for principal and/or interest; but such moneys need not be
segregated from other funds except to the extent required herein or in the Sale and Servicing
Agreement or required by law.
Section 4.03. Repayment of Moneys Held by Paying Agent. In connection with the
satisfaction and discharge of this Indenture with respect to the Notes, all moneys then held by any
Paying Agent other than the Indenture Trustee under the provisions of this Indenture with respect
to such Notes shall, upon demand of the Issuer, be paid to the Indenture Trustee to be held and
applied according to Section 3.03 hereof and thereupon such Paying Agent shall be released
from all further liability with respect to such moneys.
ARTICLE V
REMEDIES
Section 5.01. Events of Default. wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental body):
(a) notwithstanding any insufficiency of funds in the Distribution Account for payment
thereof on the related Payment Date, default in the payment of any interest on any Note when the
same becomes due and payable; or
24
(b) notwithstanding any insufficiency of funds in the Distribution Account for payment thereof
on the related Payment Date, default in the payment of any installment of the Overcollateralization
Shortfall of any Note (i) on any Payment Date or (ii) on the Maturity Date, or, to the extent that
there are funds available in the Distribution Account therefor, default in the payment of any
installment of the principal of any Note from such available funds, as a result of the occurrence
of a Rapid Amortization Trigger; or
(c) the occurrence of a Servicer Event of Default; or
(d) default in the observance or performance of any covenant or agreement of the Issuer made
in any Basic Document to which it is a party (other than a covenant or agreement, a default in the
observance or performance of which is elsewhere in this Section 5.01 specifically dealt
with), or any representation or warranty of the Issuer made in any Basic Document to which it is a
party or in any certificate or other writing delivered pursuant thereto or in connection therewith
proving to have been incorrect in any material respect as of the time when the same shall have been
made, and such default shall continue or not be cured, or the circumstance or condition in respect
of which such misrepresentation or warranty was incorrect shall not have been eliminated or
otherwise cured, for a period of 30 days after there shall have been given, by registered or
certified mail, to the Issuer by the Indenture Trustee, or to the Issuer, the Depositor and the
Indenture Trustee by Noteholders evidencing at least 25% Percentage Interests of the Outstanding
Notes, a written notice specifying such default or incorrect representation or warranty and
requiring it to be remedied and stating that such notice is a notice of Default hereunder; or
(e) default in the observance or performance of any covenant or agreement of the Depositor or
the Loan Originator made in any Basic Document to which it is a party or any representation or
warranty of the Depositor (except as otherwise expressly provided in the Basic Documents with
respect to representations and warranties regarding the Loans) or Loan Originator made in any Basic
Document to which they are a party, proving to have been incorrect in any material respect as of
the time when the same shall have been made, and such default shall continue or not be cured, or
the circumstance or condition in respect of which such misrepresentation or warranty was incorrect
shall not have been eliminated or otherwise cured, for a period of 30 days (or five days in the
case of the failure of the Loan Originator to make a payment in respect of the Transfer Obligation)
after there shall have been given, by registered or certified mail, to the Issuer and the Depositor
by the Indenture Trustee, or to the Issuer, the Depositor and the Indenture Trustee by Noteholders
evidencing at least 25% Percentage Interests of the Outstanding Notes, a written notice specifying
such Default or incorrect representation or warranty and requiring it to be remedied and stating
that such notice is a notice of Default hereunder; or
(f) default in the observance or performance of any covenant or agreement of the Loan
Originator or any direct or indirect subsidiary (other than any domestic or offshore entities
established for the purpose of issuing net interest margin securities) made in any repurchase
agreement, loan and security agreement or other similar credit facility agreement entered into by
the Loan Originator or any such subsidiary and any third party for borrowed funds in excess of
$30,000,000, including any default which entitles any party to require acceleration or prepayment
of any indebtedness thereunder; or
25
(g) the filing of a decree or order for relief by a court having jurisdiction over the Issuer,
the Depositor or the Loan Originator or all or substantially all of the Collateral in an
involuntary case under any applicable federal or state bankruptcy, insolvency or other similar law
now or hereafter in effect, or the appointing of a receiver, liquidator, assignee, custodian,
trustee, sequestrator or similar official of the Issuer, the Depositor or the Loan Originator or
for all or substantially all of the Collateral, or the ordering of the winding-up or liquidation of
the affairs of the Issuer, the Depositor or the Loan Originator, and such decree or order shall
remain unstayed and in effect for a period of 60 consecutive days; or
(h) the commencement by the Issuer, the Depositor or the Loan Originator of a voluntary case
under any applicable federal or state bankruptcy, insolvency or other similar law now or hereafter
in effect, or the consent by the Issuer, the Depositor or the Loan Originator to the entry of an
order for relief in an involuntary case under any such law, or the consent by the Issuer to the
appointment or taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Issuer, the Depositor or the Loan Originator or for any
substantial part of the Collateral, or the making by the Issuer, the Depositor or the Loan
Originator of any general assignment for the benefit of creditors, or the failure by the Issuer,
the Depositor or the Loan Originator generally to pay its respective debts as such debts become
due, or the taking of any action by the Issuer, the Depositor or the Loan Originator in furtherance
of any of the foregoing; or
(i) a Change of Control of the Loan Originator; or
(j) the Notes shall be Outstanding on the day after the end of the Revolving Period.
The Issuer shall deliver to the Indenture Trustee, within five days after the occurrence
thereof, written notice in the form of an Officers Certificate of any event which with the giving
of notice and the lapse of time would become an Event of Default under clauses (d) or (e) above,
the status of such event and what action the Issuer or the Depositor, as applicable, is taking or
proposes to take with respect thereto.
Section 5.02. Acceleration of Maturity; Rescission and Annulment. If an Event of
Default should occur and be continuing, then and in every such case the Indenture Trustee, at the
direction or upon the prior written consent of the Majority Noteholders, may declare all the Notes
to be immediately due and payable, by a notice in
writing to the Issuer (and to the Indenture Trustee if given by Noteholders), and upon any
such declaration, the unpaid principal amount of such Notes, together with accrued and unpaid
interest thereon through the date of acceleration, shall become immediately due and payable.
At any time after such declaration of acceleration of maturity has been made and before a
judgment or decree for payment of the moneys due has been obtained by the Indenture Trustee as
hereinafter in this Article V provided, the Majority Noteholders, by written notice to the
Issuer and the Indenture Trustee, may rescind and annul such declaration and its consequences if:
26
(a) the Issuer has paid or deposited with the Indenture Trustee a sum sufficient to pay:
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1. |
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all payments of principal of and/or interest on all Notes and all other amounts that would
then be due hereunder or upon such Notes if the Event of Default giving rise to such acceleration had
not occurred; and |
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2. |
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all sums paid or advanced by the Indenture Trustee hereunder and the reasonable
compensation, expenses, disbursements and advances of the Indenture Trustee and its agents and counsel;
and |
(b) all Events of Default, other than the nonpayment of the principal of the Notes that has
become due solely by such acceleration, have been cured or waived as
provided in Section 5.12
hereof. No such rescission shall affect any subsequent default or impair any right consequent
thereto.
Section 5.03. Collection of Indebtedness and Suits for Enforcement by Indenture
Trustee. (a) The Issuer covenants that if (i) default is made in the payment of any interest on
any Note when the same becomes due and payable, and such default continues for a period of five
days, or (ii) default is made in the payment of the principal of or any installment of the
principal of any Note when the same becomes due and payable, the Issuer will, upon demand of the
Indenture Trustee, pay to the Indenture Trustee, for the benefit of the Noteholders, the whole
amount then due and payable on such Notes for principal and/or interest, with interest upon the
overdue principal and, to the extent payment at such rate of interest shall be legally enforceable,
upon overdue installments of interest at the rate borne by the Notes and in addition thereto such
further amount as shall be sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Indenture Trustee and its
agents and counsel.
(b) In case the Issuer shall fail forthwith to pay such amounts upon such demand, the
Indenture Trustee shall at the direction of the Majority Noteholders, subject to Section
5.06(c) institute a Proceeding for the collection of the sums so due and unpaid, and may
prosecute such Proceeding to judgment or final decree, and may enforce the same against the Issuer
or other obligor upon such Notes and collect in the manner provided by law out of the property of
the Issuer or other obligor upon such Notes, wherever situated, the moneys adjudged or decreed to
be payable.
(c) If an Event of Default occurs and is continuing, the Indenture Trustee shall at the
direction of the Majority Noteholders, as more particularly provided in Section 5.04
hereof, subject to Section 5.06(c) hereof, proceed to protect and enforce its rights and
the rights of the Noteholders by such appropriate Proceedings as the Indenture Trustee shall deem
most effective to protect and enforce any such rights, whether for the specific enforcement of any
covenant or agreement in this Indenture or
in aid of the exercise of any power granted herein, or to enforce any other proper remedy or
legal or equitable right vested in the Indenture Trustee by this Indenture or by law.
27
(d) In case there shall be pending, relative to the Issuer or any other obligor upon the Notes
or any Person having or claiming an ownership interest in the Collateral, Proceedings under Title
11 of the United States Code or any other applicable federal or state bankruptcy, insolvency or
other similar law, or in case a receiver, assignee or trustee in bankruptcy or reorganization,
liquidator, sequestrator or similar official shall have been appointed for or taken possession of
the Issuer or its property or such other obligor or Person, or in case of any other comparable
judicial Proceedings relative to the Issuer or other obligor upon the Notes, or to the creditors or
property of the Issuer or such other obligor, the Indenture Trustee, irrespective of whether the
principal of any Notes shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Indenture Trustee shall have made any demand pursuant to
the provisions of this Section 5.03, shall be entitled and empowered by intervention in
such Proceedings or otherwise:
(i) to file and prove a claim or claims for the whole amount of principal and/or
interest owing and unpaid in respect of the Notes and to file such other papers or
documents as may be necessary or advisable in order to have the claims of the Indenture
Trustee (including any claim for reasonable compensation to the Indenture Trustee, each
predecessor Indenture Trustee, and its agents, attorneys and counsel, and for reimbursement
of all expenses and liabilities incurred, and all advances made, by the Indenture Trustee
and each predecessor Indenture Trustee, except as a result of negligence or bad faith) and
of the Noteholders allowed in such Proceedings;
(ii) unless prohibited by applicable law and regulations, to vote on behalf of the
Noteholders in any election of a trustee, a standby trustee or Person performing similar
functions in any such Proceedings;
(iii) to collect and receive any moneys or other property payable or deliverable on
any such claims and to distribute all amounts received with respect to the claims of the
Noteholders and the Indenture Trustee on their behalf; and
(iv) to file such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Indenture Trustee or the Noteholders allowed
in any judicial proceedings relative to the Issuer, its creditors
and its property; and any trustee, receiver, liquidator, custodian or other similar
official in any such Proceeding is hereby authorized by each of such Noteholders to make
payments to the Indenture Trustee and, in the event that the Indenture Trustee shall
consent to the making of payments directly to such Noteholders, to pay to the Indenture
Trustee such amounts as shall be sufficient to cover reasonable compensation to the
Indenture Trustee, each predecessor Indenture Trustee and their respective agents,
attorneys and counsel, and all other expenses and liabilities incurred and all advances
made by the Indenture Trustee and each predecessor Indenture Trustee except as a result of
negligence or bad faith.
(e) Nothing herein contained shall be deemed to authorize the Indenture Trustee to authorize
or consent to or vote for or accept or adopt on behalf of any Noteholder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any
Holder thereof or to authorize the Indenture Trustee to vote in respect of the claim of any
28
Noteholder in any such proceeding except, as aforesaid, to vote for the election of a trustee in
bankruptcy or similar Person.
(f) All rights of action and of asserting claims under this Indenture, or under any of the
Notes, may be enforced by the Indenture Trustee without the possession of any of the Notes or the
production thereof in any trial or other Proceedings relative thereto, and any such action or
Proceedings instituted by the Indenture Trustee shall be brought in its own name as trustee of an
express trust, and any recovery of judgment, subject to the payment of the expenses, disbursements
and compensation of the Indenture Trustee, each predecessor Indenture Trustee and their respective
agents, attorneys and counsel, shall be for the ratable benefit of the Noteholders.
(g) In any Proceedings brought by the Indenture Trustee (and also any Proceedings involving
the interpretation of any provision of this Indenture to which the Indenture Trustee shall be a
party), the Indenture Trustee shall be held to represent all the Noteholders, and it shall not be
necessary to make any Noteholder a party to any such Proceedings.
Section 5.04. Remedies; Priorities. (a) If an Event of Default shall have occurred
and be continuing, the Indenture Trustee, at the direction of the Majority Noteholders shall, do
one or more of the following (subject to Section 5.05 hereof):
(i) institute Proceedings in its own name and as trustee of an express trust for the
collection of all amounts then payable on the Notes or under this Indenture with respect
thereto, whether by declaration or otherwise, enforce any judgment obtained, and collect
from the Issuer and any other obligor upon such Notes moneys adjudged due;
(ii) institute Proceedings from time to time for the complete or partial foreclosure
of this Indenture with respect to the Collateral;
(iii) exercise any remedies of a secured party under the UCC and take any other
appropriate action to protect and enforce the rights and remedies of the Indenture Trustee
or the Noteholders; and
(iv) sell the Collateral or any portion thereof or rights or interest therein in a
commercially reasonable manner, at one or more public or private sales called and
conducted in any manner permitted by law; provided, however, that the Indenture Trustee
may not sell or otherwise liquidate the Collateral following an Event of Default, unless
(A) the Holders of 100% Percentage Interests of the Outstanding Notes consent thereto, (B) the
proceeds of such sale or liquidation distributable to the Noteholders are sufficient to discharge
in full all amounts then due and unpaid upon such Notes for principal and/or interest or (C) the
Indenture Trustee determines that the Collateral will not continue to provide sufficient funds for
the payment of principal of and interest on the Notes as they would have become due if the Notes
had not been declared due and payable, and the Indenture Trustee obtains the consent of Holders of
not less than 66-2/3% Percentage Interests of the Outstanding Notes. In determining such
sufficiency or insufficiency with respect to clause (B) and (C) of this subsection (a)(iv), the
Indenture Trustee may, but
29
need not, obtain and rely upon an opinion of an Independent investment banking or
accounting firm of national reputation as to the feasibility of such proposed action and as
to the sufficiency of the Collateral for such purpose.
(b) If the Indenture Trustee collects any money or property pursuant to this Article
V, it shall pay out the money or property in the following order:
FIRST: in the following order of priority: (a) to the Indenture Trustee, an amount
equal to all unreimbursed Indenture Trustee Fees and indemnities and any other amounts
payable to the Indenture Trustee pursuant to the Basic Documents and to the Indenture
Trustee or Sale Agents, as applicable, all reasonable fees and expenses incurred by them
and their agents and representatives in connection with the enforcement of the remedies
provided for in this Article V, (b) to the Custodian, an amount equal to all unpaid
Custodian Fees and indemnities and any other amounts payable to the Custodian pursuant to
the Basic Documents, (c) to the Owner Trustee, an amount equal to all unreimbursed Owner
Trustee Fees and indemnities and any other amounts payable to the Owner Trustee pursuant to
the Basic Documents, and (d) to the Servicer, an amount equal to (i) all unreimbursed
Servicing Compensation and (ii) all unreimbursed Nonrecoverable Servicing Advances;
SECOND: the Hedge Funding Requirement to the appropriate Hedging Counterparties;
THIRD: to the Noteholders pro rata, all amounts in respect of interest
due and owing under the Notes;
FOURTH: to the Noteholders pro rata, all amounts in respect of unpaid
principal of the Notes;
FIFTH: to the Purchasers or any other Indemnified Party (as each such term is defined
in the Note Purchase Agreement), amounts in respect of Issuer/Depositor Indemnities (as
defined in the Trust Agreement) and amounts in respect of Due Diligence Fees (as set forth
in Section 11.15 of the Sale and Servicing Agreement) until such amounts are paid
in full;
SIXTH: to the Owner Trustee, for any amounts to be distributed pro rata to the holders
of the Trust Certificates pursuant to the Trust Agreement.
The Indenture Trustee may fix a record date and payment date for any payment to be made to the
Noteholders pursuant to this Section 5.04. At least 15 days before such record date, the
Indenture Trustee shall mail to each Noteholder and the Issuer a notice that states the record
date, the payment date and the amount to be paid.
Section 5.05. Optional Preservation of the Collateral. If the Notes have been
declared to be due and payable under Section 5.02 hereof following an Event of Default and
such declaration and its consequences have not been rescinded and annulled, the Indenture Trustee
may, but need not, elect to maintain possession of the Collateral. It is the desire of the parties
30
hereto and the Noteholders that there be at all times sufficient funds for the payment of principal
of and interest on the Notes, and the Indenture Trustee shall take such desire into account when
determining whether or not to maintain possession of the Collateral. In determining whether to
maintain possession of the Collateral, the Indenture Trustee may, but need not, obtain and rely
upon an opinion of an Independent investment banking or accounting firm of national reputation as
to the feasibility of such proposed action and as to the sufficiency of the Collateral for such
purpose.
Section 5.06. Limitation of Suits. No Noteholder shall have any right to institute any
Proceeding, judicial or otherwise, with respect to this Indenture or for the appointment of a
receiver or trustee, or for any other remedy hereunder, unless:
(a) such Noteholder has previously given written notice to the Indenture Trustee of a
continuing Event of Default;
(b) the Noteholders evidencing not less than 25% Percentage Interests of the Outstanding
Notes have made written request to the Indenture Trustee to institute such Proceeding in respect
of such Event of Default in its own name as Indenture Trustee hereunder;
(c) such Noteholder or Noteholders have offered to the Indenture Trustee reasonable indemnity
against the costs, expenses and liabilities to be incurred in complying with such request;
(d) the Indenture Trustee for 30 days after its receipt of such notice,
request and offer of indemnity has failed to institute such Proceeding; and
(e) no direction inconsistent with such written request has been given to the Indenture
Trustee during such 30-day period by the Majority Noteholders.
It is understood and intended that no one or more Noteholders shall have any right in any
manner whatever by virtue of, or by availing of, any provision of this Indenture to affect,
disturb or prejudice the rights of any other Noteholders or to obtain or to seek to obtain
priority or preference over any other Noteholders or to enforce any right under this Indenture,
except in the manner herein provided.
In the event the Indenture Trustee shall receive conflicting or inconsistent requests and
indemnity from two or more groups of Noteholders, neither of which evidences Percentage Interests
of the Outstanding Notes greater than 50%, the Indenture Trustee in its sole discretion may
determine what action, if any, shall be taken, notwithstanding any other provisions of this
Indenture and shall have no obligation or liability to any such group of Noteholders for such
action or inaction.
Section 5.07. Unconditional Rights of Noteholders to Receive Principal and/or Interest.
Notwithstanding any other provisions in this Indenture, any Noteholder shall have the right, which
is absolute and unconditional, to receive payment of the principal of and interest, if any, on such
Note on or after the applicable Maturity Date thereof expressed in such Note or in this Indenture
(or, in the case of redemption, on or after the Redemption Date) and to institute suit
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for the enforcement of any such payment, and such right shall not be impaired without the consent
of such Noteholder.
Section 5.08. Restoration of Rights and Remedies. If the Indenture Trustee or any
Noteholder has instituted any Proceeding to enforce any right or remedy under this Indenture and
such Proceeding has been discontinued or abandoned for any reason or has been determined adversely
to the Indenture Trustee or to such Noteholder, then and in every such case the Issuer, the
Indenture Trustee and the Noteholders shall, subject to any determination in such Proceeding, be
restored severally and respectively to their former positions hereunder, and thereafter all rights
and remedies of the Indenture Trustee and the Noteholders shall continue as though no such
Proceeding had been instituted.
Section 5.09. Rights and Remedies Cumulative. No right or remedy herein conferred upon
or reserved to the Indenture Trustee or to the Noteholders is intended to be exclusive of any other
right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative
and in addition to every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right
or remedy.
Section 5.10. Delay or Omission Not a Waiver. No delay or omission of the Indenture
Trustee or any Noteholder to exercise any right or remedy accruing upon
any Default or Event of Default shall impair any such right or remedy or constitute a waiver
of any such Default or Event of Default or an acquiescence therein. Every right and remedy given by
this Article V or by law to the Indenture Trustee or to the Noteholders may be exercised from time
to time, and as often as may be deemed expedient, by the Indenture Trustee or by the Noteholders,
as the case may be.
Section 5.11. Control by Noteholders. The Majority Noteholders shall have the right to
direct the time, method and place of conducting any Proceeding for any remedy available to the
Indenture Trustee with respect to the Notes or exercising any trust or power conferred on the
Indenture Trustee; provided, however, that:
(a) such direction shall not be in conflict with any rule of law or with this Indenture;
(b) subject to the express terms of Section 5.04(a)(iv) hereof, any direction to the
Indenture Trustee to sell or liquidate the Collateral shall be by Noteholders representing
Percentage Interests of the Outstanding Notes of not less than 100%;
(c) if the conditions set forth in Section 5.05 hereof have been satisfied and the
Indenture Trustee elects to retain the Collateral pursuant to such Section, then any direction to
the Indenture Trustee by Noteholders representing Percentage Interests of the Outstanding Notes of
less than 100% to sell or liquidate the Collateral shall be of no force and effect; and
(d) the Indenture Trustee may take any other action deemed proper by the Indenture Trustee
that is not inconsistent with such direction.
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In connection with any sale of the Collateral in accordance with paragraph (c) above, the
Majority Noteholders may, in their sole discretion appoint agents to effect the sale of the
Collateral (such agents, Sale Agents), which Sale Agents may be Affiliates of any
Noteholder. The Sale Agents shall be entitled to reasonable compensation in connection with such
activities from the proceeds of such sale.
Notwithstanding the rights of the Noteholders set forth in this Section 5.11, subject
to Section 6.01 hereof, the Indenture Trustee need not take any action that it determines
might involve it in liability or might materially adversely affect the rights of any Noteholders
not consenting to such action.
Section 5.12. Waiver of Past Defaults. The Majority Noteholders may waive any past
Default or Event of Default and its consequences, except a Default (a) in the payment of principal
of or interest on any of the Notes or (b) in respect of a covenant or provision hereof that cannot
be modified or amended without the consent of each Noteholder. In the case of any such waiver, the
Issuer, the Indenture Trustee and Noteholders shall be restored to their former positions and
rights hereunder, respectively; but no such waiver shall extend to any subsequent or other Default
or impair any right consequent thereto.
Upon any such waiver, such Default shall cease to exist and be deemed to have been cured and
not to have occurred, and any Event of Default arising therefrom shall be deemed to have been
cured and not to have occurred, for every purpose of this Indenture; but no such waiver shall
extend to any subsequent or other Default or Event of Default or impair any right consequent
thereto.
Section 5.13. Undertaking for Costs. All parties to this Indenture agree, and each
Noteholder by such Noteholders acceptance thereof shall be deemed to have agreed, that any court
may in its discretion require, in any suit for the enforcement of any right or remedy under this
Indenture, or in any suit against the Indenture Trustee for any action taken, suffered or omitted
by it as Indenture Trustee, the filing by any party litigant in such suit of an undertaking to pay
the costs of such suit, and that such court may in its discretion assess reasonable costs,
including reasonable attorneys fees, against any party litigant in such suit, having due regard to
the merits and good faith of the claims or defenses made by such party litigant; but the provisions
of this Section 5.13 shall not apply to (a) any suit instituted by the Indenture Trustee,
(b) any suit instituted by any Noteholder, or group of Noteholders, in each case holding in the
aggregate Percentage Interests of the Outstanding Notes of more than 10% or (c) any suit instituted
by any Noteholder for the enforcement of the payment of principal of or interest on any Note on or
after the respective due dates expressed in such Note and in this Indenture (or, in the case of
redemption, on or after the Redemption Date).
Section 5.14. Waiver of Stay or Extension Laws. The Issuer covenants (to the extent
that it may lawfully do so) that it will not at any time insist upon, or plead or in any manner
whatsoever, claim or take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, that may affect the covenants or the performance of this
Indenture; and the Issuer (to the extent that it may lawfully do so) hereby expressly waives all
benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the
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execution of any power herein granted to the Indenture Trustee, but will suffer and permit the
execution of every such power as though no such law had been enacted.
Section 5.15. Action on Notes. The Indenture Trustees right to seek and recover
judgment on the Notes or under this Indenture shall not be affected by the seeking, obtaining or
application of any other relief under or with respect to this Indenture. Neither the lien of this
Indenture nor any rights or remedies of the Indenture Trustee or the Noteholders shall be impaired
by the recovery of any judgment by the Indenture Trustee against the Issuer or by the levy of any
execution under such judgment upon any portion of the Collateral or upon any of the assets of the
Issuer. Any money or property collected by the Indenture Trustee shall be applied in accordance
with Section 5.04(b) hereof.
Section 5.16. Performance and Enforcement of Certain Obligations.
(a) Promptly following a request from the Indenture Trustee to do so
and at the Administrators expense, the Issuer shall take all such lawful action as the
Indenture Trustee may request to compel or secure the performance and observance by the Loan
Originator and the Servicer, as applicable, of each of their obligations to the Issuer under or in
connection with the Sale and Servicing Agreement or the Loan Purchase and Contribution Agreement,
and to exercise any and all rights, remedies, powers and privileges lawfully available to the
Issuer under or in connection with the Sale and Servicing Agreement to the extent and in the
manner directed by the Indenture Trustee, including the transmission of notices of default on the
part of the Loan Originator or the Servicer thereunder and the institution of legal or
administrative actions or proceedings to compel or secure performance by the Loan Originator or
the Servicer of each of their obligations under the Sale and Servicing Agreement and the Loan
Purchase and Contribution Agreement.
(b) If an Event of Default has occurred and is continuing, the Indenture Trustee may, and at
the direction (which direction shall be in writing or by telephone, confirmed in writing promptly
thereafter) of the Majority Noteholders shall, subject to
Section 5.06(c) exercise all rights,
remedies, powers, privileges and claims of the Issuer against the Loan Originator or the Servicer
under or in connection with the Sale and Servicing Agreement or the Loan Purchase and Contribution
Agreement, including the right or power to take any action to compel or secure performance or
observance by the Loan Originator or the Servicer, as the case may be, of each of their
obligations to the Issuer thereunder and to give any consent, request, notice, direction,
approval, extension, or waiver under the Sale and Servicing Agreement, and any right of the Issuer
to take such action shall be suspended.
ARTICLE VI
THE INDENTURE TRUSTEE
Section 6.01. Duties of Indenture Trustee. (a) If an Event of Default has occurred and
is continuing, the Indenture Trustee shall exercise the rights and powers vested in it by this
Indenture and use the same degree of care and skill in their exercise as a prudent person would
exercise or use under the circumstances in the conduct of such persons own affairs.
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(b) Except during the continuance of an Event of Default:
(i) the Indenture Trustee shall undertake to perform such duties and only such duties
as are specifically set forth in this Indenture and no implied covenants or obligations
shall be read into this Indenture against the Indenture Trustee; and
(ii) in the absence of bad faith on its part, the Indenture Trustee may conclusively
rely, as to the truth of the statements and the correctness of the opinions expressed
therein, upon certificates or opinions furnished to the Indenture Trustee and conforming to
the requirements of this Indenture; provided, however, that the Indenture Trustee shall
examine the certificates and opinions to determine whether or not they conform to the
requirements of this Indenture to
the extent specifically set forth herein.
(c) The Indenture Trustee may not be relieved from liability for its own negligent action, its
own negligent failure to act or its own willful misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of this Section
6.01;
(ii) the Indenture Trustee shall not be liable for any error of judgment made in good
faith by a Responsible Officer unless it is proved that the Indenture Trustee was negligent
in ascertaining the pertinent facts;
(iii) the Indenture Trustee shall not be liable with respect to any action it takes or
omits to take in good faith in accordance with a direction received by it pursuant to
Section 5.11 hereof; and
(iv) Reserved.
(d) Reserved.
(e) The Indenture Trustee shall not be liable for interest on any money received by it and
held in a Trust Account except as may be provided in the Sale and Servicing Agreement or as the
Indenture Trustee may agree in writing with the Issuer.
(f) Money held in trust by the Indenture Trustee shall be segregated from other funds except
to the extent permitted by law or the terms of this Indenture or the Sale and Servicing Agreement.
(g) No provision of this Indenture shall require the Indenture Trustee to expend or risk its
own funds or otherwise incur financial liability in the performance of any of its duties hereunder
or in the exercise of any of its rights or powers, if it shall have reasonable grounds to believe
that repayment of such funds or adequate indemnity against such risk or liability is not reasonably
assured to it; provided, however, that the Indenture Trustee shall not refuse or fail to perform
any of its duties hereunder solely as a result of nonpayment of its normal fees and expenses and
provided, further, that nothing in this Section 6.01(g) shall be construed to limit the
exercise by the Indenture Trustee of any right or remedy permitted under this Indenture
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or otherwise in the event of the Issuers failure to pay the Indenture Trustees fees and expenses
pursuant to Section 6.07 hereof.
(h) Every provision of this Indenture relating to the conduct or affecting the liability of or
affording protection to the Indenture Trustee shall be subject to the provisions of this
Section 6.01.
(i) The Indenture Trustee shall not be required to take notice or be
deemed to have notice or knowledge of any Event of Default (other than an Event of Default
pursuant to Section 5.01 (a) or (b) hereof) unless a Responsible Officer of the
Indenture Trustee shall have received written notice thereof or otherwise shall have actual
knowledge thereof. In the absence of receipt of notice or such knowledge, the Indenture Trustee may
conclusively assume that there is no Event of Default.
Section 6.02. Rights of Indenture Trustee. (a) The Indenture Trustee may rely on any
document believed by it to be genuine and to have been signed or presented by the proper person.
The Indenture Trustee need not investigate any fact or matter stated in the document.
(b) Before the Indenture Trustee acts or refrains from acting, it may require an Officers
Certificate or an Opinion of Counsel. The Indenture Trustee shall not be liable for any action it
takes or omits to take in good faith in reliance on an Officers Certificate or Opinion of
Counsel.
(c) The Indenture Trustee may execute any of the trusts or powers hereunder or perform any
duties hereunder either directly or by or through agents or attorneys or a custodian or nominee.
(d) The Indenture Trustee shall not be liable for (i) any action it takes or omits to take in
good faith which it believes to be authorized or within its rights or powers; provided, however,
that such action or omission by the Indenture Trustee does not constitute willful misconduct,
negligence or bad faith; or (ii) any action or inaction on the part of the Custodian.
(e) The Indenture Trustee may consult with counsel, and the advice or opinion of counsel with
respect to legal matters relating to this Indenture and the Notes shall be full and complete
authorization and protection from liability in respect to any action taken, omitted or suffered by
it hereunder in good faith and in accordance with the advice or opinion of such counsel.
Section 6.03. Individual Rights of Indenture Trustee. The Indenture Trustee in its
individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal
with the Issuer or its Affiliates with the same rights it would have if it were not Indenture
Trustee. Any Paying Agent, Note Registrar, co-registrar or co-paying agent may do the same with
like rights. However, the Indenture Trustee must comply with Section 6.11 hereof.
Section 6.04. Indenture Trustees Disclaimer. The Indenture Trustee shall not be
responsible for and makes no representation as to the validity or adequacy of this Indenture or the
Notes, shall not be accountable for the Issuers use of the proceeds from the Notes, or responsible
36
for any statement of the Issuer in the Indenture or in any document issued in connection with the
sale of the Notes or in the Notes other than the Indenture Trustees certificate of authentication.
Section 6.05. Notices of Default. If a Default occurs and is continuing and if it is
actually known to a Responsible Officer of the Indenture Trustee, the Indenture Trustee shall mail
to each Noteholder and each party to the Master Disposition Confirmation Agreement notice of the
Default within two Business Days after it receives actual notice of such occurrence.
Section 6.06. Reports by Indenture Trustee to Holders. The Indenture Trustee shall
deliver to each Noteholder such information specifically requested by each Noteholder and in the
Indenture Trustees possession and as may be reasonably required to enable such Noteholder to
prepare its federal and state income tax returns.
Section 6.07. Compensation and Indemnity. As compensation for its services hereunder,
the Indenture Trustee shall be entitled to receive, on each Payment Date, the Indenture Trustees
Fee pursuant to Section 8.02(c) hereof (which compensation shall not be limited by any law
on compensation of a trustee of an express trust) and shall be entitled to reimbursement by the
Servicer for all reasonable out-of-pocket expenses incurred or made by it, including costs of
collection, in addition to the compensation for its services. Such expenses shall include the
reasonable compensation and expenses, disbursements and advances of the Indenture Trustees agents,
counsel, accountants and experts. The Issuer agrees to cause the Servicer to indemnify the
Indenture Trustee, the Paying Agent and their officers, directors, employees and agents against any
and all loss, liability or expense (including reasonable attorneys fees) incurred by it or them in
connection with the administration of this trust and the performance of its or their duties under
the Basic Documents. The Indenture Trustee shall notify the Issuer and the Servicer promptly of any
claim for which it may seek indemnity. Failure by the Indenture Trustee so to notify the Issuer and
the Servicer shall not relieve the Issuer or the Servicer of its or their obligations hereunder.
The Issuer shall, or shall cause the Servicer to, defend any such claim; provided, however, that if
the defendants with respect to any such claim include the Issuer and/or the Servicer and the
Indenture Trustee, and the Indenture Trustee shall have reasonably concluded that there may be
legal defenses available to it which are different from or in addition to those defenses available
to the Issuer or the Servicer, as the case may be, the Indenture Trustee shall have the right, at
the expense of the Servicer, to select separate counsel to assert such legal defenses and to
otherwise defend itself against such claim. Neither the Issuer nor the Servicer need reimburse any
expense or indemnify against any loss, liability or expense incurred by the Indenture Trustee
through the Indenture Trustees own willful misconduct, negligence or bad faith.
The Issuers payment obligations to the Indenture Trustee pursuant to this Section
6.07 shall survive the discharge of this Indenture and the termination or resignation of the
Indenture Trustee. When the Indenture Trustee incurs expenses after the occurrence of a Default
specified in Section 5.01(f) or (g) hereof with respect to the Issuer, the
expenses are intended to constitute expenses of administration under Title 11 of the United States
Code or any other applicable federal or state bankruptcy, insolvency or similar law.
Notwithstanding anything in this Section 6.07 to the contrary, all amounts due the
Indenture Trustee hereunder shall be payable in the first instance by the Servicer and, if not
paid by the Servicer within 60 days after payment is requested from the Servicer by the Indenture
37
Trustee, in accordance with the priorities set forth in Section 5.01 of the Sale and
Servicing Agreement.
Section 6.08. Replacement of Indenture Trustee. No resignation or removal of the
Indenture Trustee and no appointment of a successor Indenture Trustee shall become effective until
the acceptance of appointment by the successor Indenture Trustee pursuant to this Section
6.08. The Indenture Trustee may resign at any time by so notifying the Issuer. The Majority
Noteholders may remove the Indenture Trustee (with the consent of the Majority Certificateholders,
not to be unreasonably withheld) by so notifying the Indenture Trustee and may appoint a successor
Indenture Trustee; provided, that all of the reasonable costs and expenses incurred by the
Indenture Trustee in connection with such removal shall be reimbursed to it prior to the
effectiveness of such removal. The Issuer shall remove the Indenture Trustee if:
(a) the Indenture Trustee fails to comply with Section 6.11 hereof;
(b) the Indenture Trustee is adjudged a bankrupt or insolvent;
(c) a receiver or other public officer takes charge of the Indenture Trustee or its property;
or
(d) the Indenture Trustee otherwise becomes incapable of acting.
If the Indenture Trustee resigns or is removed or if a vacancy exists in the office of
Indenture Trustee for any reason (the Indenture Trustee in such event being referred to herein as
the retiring Indenture Trustee), the Issuer shall promptly appoint a successor Indenture Trustee.
A successor Indenture Trustee shall deliver a written acceptance of its appointment to the
retiring Indenture Trustee and to the Issuer. Thereupon the resignation or removal of the retiring
Indenture Trustee shall become effective, and the successor Indenture Trustee shall have all the
rights, powers and duties of the Indenture Trustee under this Indenture. The successor Indenture
Trustee shall mail a notice of its succession to Noteholders. The retiring Indenture Trustee shall
promptly transfer all property held by it as Indenture Trustee to the successor Indenture Trustee.
If a successor Indenture Trustee does not take office within 60 days after the retiring
Indenture Trustee resigns or is removed, the retiring Indenture Trustee, the Issuer or the Majority
Noteholders may petition any court of competent jurisdiction for the appointment of a successor
Indenture Trustee.
If the Indenture Trustee fails to comply with Section 6.11 hereof, any Noteholder may
petition any court of competent jurisdiction for the removal of the
Indenture Trustee and the appointment of a successor Indenture Trustee.
Notwithstanding
the replacement of the Indenture Trustee pursuant to this
Section 6.08, the
Issuers and the Administrators obligations under Section 6.07 hereof shall continue for
the benefit of the retiring Indenture Trustee.
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Section 6.09. Successor Indenture Trustee by Merger. If the Indenture Trustee
consolidates with, merges or converts into, or transfers all or substantially all its corporate
trust business or assets to, another corporation or banking association, the resulting, surviving
or transferee corporation without any further act shall be the successor Indenture Trustee;
provided, however, that such corporation or banking association shall otherwise be qualified and
eligible under Section 6.11 hereof. The Indenture Trustee shall provide the Majority
Noteholders prior written notice of any such transaction.
In case at the time such successor or successors by merger, conversion or consolidation to
the Indenture Trustee shall succeed to the trusts created by this Indenture any of the Notes shall
have been authenticated but not delivered, any such successor to the Indenture Trustee may adopt
the certificate of authentication of any predecessor trustee, and deliver such Notes so
authenticated; and in case at that time any of the Notes shall not have been authenticated, any
successor to the Indenture Trustee may authenticate such Notes either in the name of any
predecessor hereunder or in the name of the successor to the Indenture Trustee; and in all such
cases such certificates shall have the full force which it is anywhere in the Notes or in this
Indenture provided that the certificate of the Indenture Trustee shall have.
Section 6.10.
Appointment of Co-Indenture Trustee or Separate Indenture
Trustee.
(a) Notwithstanding any other provisions of this Indenture, at any time, for the purpose of
meeting any legal requirement of any jurisdiction in which any part of the Collateral may at the
time be located, the Indenture Trustee shall have the power and may execute and deliver all
instruments to appoint one or more Persons to act as a co-trustee or co-trustees, or separate
trustee or separate trustees, of all or any part of the Trust, and to vest in such Person or
Persons, in such capacity and for the benefit of the Noteholders, such title to the Collateral, or
any part hereof, and, subject to the other provisions of this Section 6.10, such powers,
duties, obligations, rights and trusts as the Indenture Trustee may consider necessary or
desirable. No co-trustee or separate trustee hereunder shall be required to meet the terms of
eligibility as a successor trustee under Section 6.11 hereof and no notice to Noteholders
of the appointment of any co-trustee or separate trustee shall be required under Section
6.08 hereof.
(b) Every separate trustee and co-trustee shall, to the extent permitted by law, be appointed
and act subject to the following provisions and conditions:
(i) all rights, powers, duties and obligations conferred or imposed
upon the Indenture Trustee shall be conferred or imposed upon and exercised or
performed by the Indenture Trustee and such separate trustee or co-trustee jointly (it
being understood that such separate trustee or co-trustee is not authorized to act
separately without the Indenture Trustee joining in such act), except to the extent that
under any law of any jurisdiction in which any particular act or acts are to be performed
the Indenture Trustee shall be incompetent or unqualified to perform such act or acts, in
which event such rights, powers, duties and obligations (including the holding of title to
the Collateral or any portion thereof in any such jurisdiction) shall be exercised and
performed singly by such separate trustee or co-trustee, but solely at the direction of
the Indenture Trustee;
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(ii) no trustee hereunder shall be personally liable by reason of any act or omission
of any other trustee hereunder; and
(iii) the Indenture Trustee may at any time accept the resignation of or remove any
separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Indenture Trustee shall be deemed to
have been given to each of the then separate trustees and co-trustees, as effectively as if given
to each of them. Every instrument appointing any separate trustee or co-trustee shall refer to
this Indenture and the conditions of this Article VI. Each separate trustee and
co-trustee, upon its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, jointly with the Indenture Trustee, subject
to all the provisions of this Indenture, specifically including every provision of this Indenture
relating to the conduct of, affecting the liability of, or affording protection to, the Indenture
Trustee. Every such instrument shall be filed with the Indenture Trustee.
(d) Any separate trustee or co-trustee may at any time constitute the Indenture Trustee its
agent or attorney-in-fact with full power and authority, to the extent not prohibited by law, to
do any lawful act under or in respect of this Indenture on its behalf and in its name. If any
separate trustee or co-trustee shall die, become incapable of acting, resign or be removed, all of
its estates, properties, rights, remedies and trusts shall vest in and be exercised by the
Indenture Trustee, to the extent permitted by law, without the appointment of a new or successor
trustee.
Section 6.11. Eligibility. The Indenture Trustee shall (i) have a combined capital and
surplus of at least $50,000,000 as set forth in its most recent published annual report of
condition or (ii) otherwise be acceptable in writing to the Majority Noteholders.
ARTICLE VII
NOTEHOLDERS LISTS AND REPORTS
Section 7.01. Issuer to Furnish Indenture Trustee Names and Addresses of Noteholders.
The Issuer will furnish or cause to be furnished to the Indenture Trustee (a) not more than five
days after the earlier of (i) each Record Date and (ii) three months
after the last Record Date, a list, in such form as the Indenture Trustee may reasonably
require, of the names and addresses of the Noteholders as of such Record Date, (b) at such other
times as the Indenture Trustee may request in writing, within 30 days after receipt by the Issuer
of any such request, a list of similar form and content as of a date not more than 10 days prior to
the time such list is furnished; provided, however, that so long as the Indenture Trustee is the
Note Registrar, no such list shall be required to be furnished.
Section 7.02. Preservation of Information. The Indenture Trustee shall preserve, in as
current a form as is reasonably practicable, the names and addresses of the Noteholders contained
in the most recent list furnished to the Indenture Trustee as provided in Section 7.01
hereof and the names and addresses of Noteholders received by the Indenture Trustee in its capacity
as Note Registrar. The Indenture Trustee may destroy any list furnished to it as provided in such
Section 7.01 upon receipt of a new list so furnished.
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Section 7.03. 144A Information.
(a) To permit
compliance with the Securities Act in connection with the sale of the Notes sold in reliance on
Rule 144A, the Issuer shall furnish to the Indenture Trustee the information required to
be delivered under Rule 144A(d)(4) under the Securities Act, if the Issuer is neither a
reporting company under Section 13 or Section 15(d) of the United States Securities Exchange
Act of 1934, as amended, nor exempt from reporting pursuant to Rule 12g3-2(b) under
the Exchange Act.
(b) The Indenture
Trustee, to the extent it has any such information in its possession, shall provide to any
Noteholder and any prospective transferee designated by any such Noteholder information regarding
the Notes and the Loans and such other information as shall be necessary to satisfy the condition
to eligibility set forth in Rule 144A(d)(4) under the Securities Act for transfer of any
such Note without registration thereof under the Securities Act pursuant to the registration
exemption provided by Rule 144A under the Securities Act.
ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
Section 8.01.
Collection of Money. General. Except as otherwise expressly provided
herein, the Indenture Trustee may demand payment or delivery of, and shall receive and collect,
directly and without intervention or assistance of any intermediary, all money and other property
payable to or receivable by the Indenture Trustee pursuant to this Indenture. The Indenture Trustee
shall apply all such money received by it as provided in this Indenture. Except as otherwise
expressly provided in this Indenture, if any default occurs in the making of any payment or
performance under any agreement or instrument that is part of the Collateral, the Indenture Trustee
may take such action as may be appropriate to enforce such payment or performance, including the
institution and prosecution of appropriate Proceedings. Any such action shall be without prejudice
to any right to claim a Default or Event of Default under this Indenture and any
right to proceed thereafter as provided in Article V hereof.
Section 8.02. Trust Accounts; Distributions. (a) On or prior to the Closing Date, the
Issuer shall cause the Servicer to establish and maintain, in the name of the Indenture Trustee for
the benefit of the Noteholders, or on behalf of the Owner Trustee for the benefit of the
Securityholders, the Trust Accounts as provided in the Sale and Servicing Agreement. The Servicer
shall deposit amounts into each of the Trust Accounts in accordance with the terms hereof, the Sale
and Servicing Agreement and the Payment Statements.
(b) Collection Account. With respect to the Collection Account, the Paying Agent shall
make such withdrawals and distributions as specified in Section 5.01(c)(1) of the Sale and
Servicing Agreement in accordance with the terms thereof.
(c) Distribution Account. With respect to the Distribution Account, the Paying
Agent shall make (i) such deposits as specified in Sections 5.01(c)(2)(A),
5.01(c)(2)(B), 5.05(e), 5.05(f), 5.05(g),
and 5.05(h) of the Sale
and Servicing Agreement and (ii) such
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withdrawals and distributions as specified in Section 5.01(c)(3) of the Sale and Servicing
Agreement in accordance with the terms thereof.
(d) Transfer Obligation Account. With respect to the Transfer Obligation Account, the Paying
Agent shall make (i) such deposits as specified in Section 5.01(c)(3)(vii) of the Sale and
Servicing Agreement and (ii) such withdrawals and distributions as specified in Sections
5.05(d), 5.05(e), 5.05(f), 5.05(g), 5.05(h), and
5.05(i) of the Sale and Servicing Agreement in accordance with the terms thereof.
(e) Reserved.
(f) Advance
Account. With respect to the Advance Account, the Issuer shall cause the Servicer
to make such withdrawals specified in Section 2.06 of the Sale and Servicing Agreement.
Section 8.03. General Provisions Regarding Trust Accounts. (a) All or a portion of the
funds in the Collection Account and the Transfer Obligation Account shall be invested in Permitted
Investments in accordance with the provisions of Section 5.03(b) of the Sale and Servicing
Agreement. The Indenture Trustee will not make any investment of any funds or sell any investment
held in the Collection Account or the Transfer Obligation Account (other than in Permitted
Investments in accordance with Section 5.03(b) of the Sale and Servicing Agreement) unless
the security interest Granted and perfected in such account will continue to be perfected in such
investment or the proceeds of such sale, in either case without any further action by any Person,
as evidenced by an Opinion of Counsel delivered to the Indenture Trustee by the Noteholder Agent or
the Servicer, as the case may be.
(b) Subject to Section 6.01 (c) hereof, the Indenture Trustee shall not in any way be
held liable by reason of any insufficiency in the Collection Account or the Transfer Obligation
Account resulting from any loss on any Eligible Investment included therein.
(c) If (i) the Noteholder Agent or the Servicer, as the case may be, shall have failed to
give investment directions for any funds on deposit in the Collection Account or the Transfer
Obligation Account to the Indenture Trustee by 2:00 p.m. New York City time (or such other time as
may be agreed by the Issuer and Indenture Trustee) on any Business Day unless the Servicer is then
acting as Paying Agent with respect to such accounts or (ii) a Default or Event of Default shall
have occurred and be continuing with respect to the Notes but the Notes shall not have been
declared due and payable pursuant to Section 5.02 hereof or (iii) if such Notes shall have
been declared due and payable following an Event of Default, amounts collected or receivable from
the Collateral are being applied in accordance with Section 5.05 hereof as if there had
not been such a declaration, then the Indenture Trustee shall, to the fullest extent practicable,
invest and reinvest funds in the Collection Account and the Transfer Obligation Account in one or
more Permitted Investments specified in item (3) in the definition thereof.
Section 8.04. The Paying Agent. The initial Paying Agent shall be the Servicer. The
Paying Agent may be removed by the Noteholder Agent in its sole discretion at any time. Upon
removal of the Paying Agent, the Noteholder Agent will appoint a successor Paying Agent within 30
days; provided that the Indenture Trustee will be the Paying Agent until such successor
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is appointed. Upon receiving written notice from the Noteholder Agent that the Paying Agent has
been terminated, the Indenture Trustee will immediately terminate the Paying Agents access to any
and all Trust Accounts.
Section 8.05. Release of Collateral. (a) Subject to the payment of its reasonable fees
and expenses pursuant to Section 6.07 hereof, the Indenture Trustee may, and when required
by the provisions of this Indenture shall, execute instruments acceptable to it and prepared and
delivered to it by the Issuer to release property from the lien of this Indenture, or convey the
Indenture Trustees interest in the same, without recourse, representation or warranty in a manner
as provided in the Custodial Agreement and under circumstances that are not inconsistent with the
provisions of this Indenture and the other Basic Documents. No party relying upon an instrument
executed by the Indenture Trustee as provided in this Article VIII shall be bound to
ascertain the Indenture Trustees authority, inquire into the satisfaction of any conditions
precedent or see to the application of any moneys.
(b) The Indenture Trustee shall, at such time as there are no Notes Outstanding and all sums
due to the Noteholders (and their Affiliates), the Noteholder Agent, the Sales Agents, the
Indenture Trustee, the Owner Trustee and the Custodian under the Basic Documents have been paid,
release any remaining portion of the Collateral that secured the Notes from the lien of this
Indenture and release to the Issuer
or any other Person entitled thereto any funds then on deposit in the Trust Accounts. At such
time as the lien of this Indenture is released, the Indenture Trustee shall cause a termination
statement to be filed in any jurisdiction where a UCC financing statement has been filed hereunder
with respect to the Collateral. The Indenture Trustee shall release property from the lien of this
Indenture pursuant to this subsection (b) only upon receipt of an Issuer Request accompanied by an
Officers Certificate and an Opinion of Counsel meeting the applicable requirements of Section
11.01 hereof.
Section 8.06. Opinion of Counsel. Except to the extent specifically permitted by
the terms of the Basic Documents, the Indenture Trustee shall receive at least seven Business Days
prior notice when requested by the Issuer to take any action pursuant to Section 8.05(a)
hereof, accompanied by copies of any instruments involved, and the Indenture Trustee may also
require, as a condition to such action, an Opinion of Counsel, in form and substance satisfactory
to the Indenture Trustee, from the Issuer concluding that all conditions precedent to the taking of
such action have been complied with and such action will not materially and adversely impair the
security for the Notes or the rights of the Noteholders in contravention of the provisions of this
Indenture; provided, however, that such Opinion of Counsel shall not be required to express an
opinion as to the fair value of the Collateral. Counsel rendering any such opinion may rely,
without independent investigation, on the accuracy and validity of any certificate or other
instrument delivered to the Indenture Trustee in connection with any such action.
ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 9.01. Supplemental Indentures Without the Consent of the Noteholders. Without
the consent of any Noteholder but with prior notice to the Majority Noteholders, the Issuer and the
Indenture Trustee, at any time and from time to time, may enter into one or more
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indentures supplemental hereto, in form satisfactory to the Indenture Trustee, for any of the
following purposes:
(i) to correct or amplify the description of any property at any time subject to the
lien of this Indenture, or better to assure, convey and confirm unto the Indenture Trustee
any property subject or required to be subjected to the lien of this Indenture, or to
subject to the lien of this Indenture additional property;
(ii) to evidence the succession, in compliance with the applicable provisions hereof,
of another Person to the Issuer, and the assumption by any such successor of the covenants
of the Issuer herein and in the Notes contained;
(iii) to add to the covenants of the Issuer, for the benefit of the Noteholders, or
to surrender any right or power herein conferred upon the Issuer;
(iv) to convey, transfer, assign, mortgage or pledge any property to or with the
Indenture Trustee;
(v) to cure any ambiguity, to correct or supplement any provision herein or in any
supplemental indenture that may be inconsistent with any other provision herein or in any
supplemental indenture or to make any other provisions with respect to matters or
questions arising under this Indenture or in any supplemental indenture; provided,
however, that such action shall not adversely affect the interests of the Noteholders; or
(vi) to evidence and provide for the acceptance of the appointment hereunder by a
successor trustee with respect to the Notes and to add to or change any of the provisions
of this Indenture as shall be necessary to facilitate the administration of the trusts
hereunder by more than one trustee, pursuant to the requirements of Article VI hereof.
The Indenture Trustee is hereby authorized to join in the execution of any such supplemental
indenture and to make any further appropriate agreements and stipulations that may be therein
contained.
Section 9.02. Supplemental Indentures with Consent of Noteholders. The Issuer and the
Indenture Trustee, when authorized by an Issuer Order, also may, with the consent of the Majority
Noteholders, by Act of such Noteholders delivered to the Issuer and the Indenture Trustee, enter
into an indenture or indentures supplemental hereto for the purpose of adding any provisions to, or
changing in any manner or eliminating any of the provisions of, this Indenture or of modifying in
any manner the rights of any Noteholder under this Indenture; provided, however, that no such
supplemental indenture shall, without the consent of each Noteholder affected thereby:
(a) change the date of payment of any installment of principal of or interest on any Note, or
reduce the principal balance thereof, the interest rate thereon or the Termination Price with
respect thereto, change the provisions of this Indenture relating to the application of
collections on, or the proceeds of the sale of, the Collateral to payment of principal of or
interest
44
on the Notes, or change any place of payment where, or the coin or currency in which, any Note or
the interest thereon is payable, or impair the right to institute suit for the enforcement of the
provisions of this Indenture requiring the application of funds available therefor, as provided in
Article V hereof, to the payment of any such amount due on the Notes on or after the
respective due dates thereof (or, in the case of redemption, on or after the Redemption Date);
(b) reduce the Percentage Interest, the consent of the Holders of which is required for any
such supplemental indenture, or the consent of the Holders of which is required for any waiver of
compliance with certain provisions of this Indenture or certain defaults hereunder and their
consequences provided for in this Indenture;
(c) modify or alter the provisions of the definition of the term Outstanding or Percentage
Interest;
(d) reduce the Percentage Interest of the Outstanding Notes, the consent of the Holders of
which is required to direct the Indenture Trustee to direct the Issuer to sell or liquidate the
Collateral pursuant to Section 5.04 hereof;
(e) modify any provision of this Section 9.02 except to increase any percentage
specified herein or to provide that certain additional provisions of this Indenture or the Basic
Documents cannot be modified or waived without the consent of the Holder of each Outstanding Note
affected thereby;
(f) modify any of the provisions of this Indenture in such manner as to affect the calculation
of the amount of any payment of interest or principal due on any Note on any Payment Date
(including the calculation of any of the individual components of such calculation) or to adversely
affect the rights of the Noteholders to the benefit of any provisions for the mandatory redemption
of the Notes contained herein; or
(g) permit the creation of any lien ranking prior to or on a parity with the lien of this
Indenture with respect to any part of the Collateral or, except as otherwise permitted or
contemplated herein, terminate the lien of this Indenture on any property at any time subject
hereto or deprive any Noteholder of the security provided by the lien of this Indenture.
The Indenture Trustee may in its discretion determine whether or not any Notes would be
affected by any supplemental indenture and any such determination shall be conclusive upon each
Noteholder, whether theretofore or thereafter authenticated and delivered hereunder. The Indenture
Trustee shall not be liable for any such determination made in good faith.
In connection with requesting the consent of the Noteholders pursuant to this Section 9.02,
the Indenture Trustee shall mail to the Noteholders to which such amendment or supplemental
indenture relates a notice prepared by the Issuer setting forth in general terms the substance of
such supplemental indenture. It shall not be necessary for any Act of Noteholders under this
Section 9.02 to approve the particular form of any proposed supplemental indenture, but it shall be
sufficient if such Act shall approve the substance thereof.
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Section 9.03. Execution of Supplemental Indentures. In executing, or permitting the
additional trusts created by, any supplemental indenture permitted by this Article IX or
the modification thereby of the trusts created by this Indenture, the Indenture Trustee shall be
entitled to receive, and subject to Sections 6.01 and 6.02 hereof, shall be fully
protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental
indenture is authorized or permitted by this Indenture. The Indenture Trustee may, but shall not be
obligated to, enter into any such supplemental indenture that affects the Indenture Trustees own
rights, duties, liabilities or immunities under this Indenture or otherwise.
Section 9.04. Effect of Supplemental Indentures. Upon the execution of any
supplemental indenture pursuant to the provisions hereof, this Indenture shall be and shall be
deemed to be modified and amended in accordance therewith with respect to the Notes affected
thereby, and the respective rights, limitations of rights, obligations, duties, liabilities and
immunities under this Indenture of the Indenture Trustee, the Issuer and the Noteholders shall
thereafter be determined, exercised and enforced hereunder subject in all respects to such
modifications and amendments, and all the terms and conditions of any such supplemental indenture
shall be and be deemed to be part of the terms and conditions of this Indenture for any and all
purposes.
Section 9.05. Reference in Notes to Supplemental Indentures. Notes authenticated and
delivered after the execution of any supplemental indenture pursuant to this Article IX
may, and if required by the Indenture Trustee shall, bear a notation in form approved by the
Indenture Trustee as to any matter provided for in such supplemental indenture. If the Issuer or
the Indenture Trustee shall so determine, new Notes so modified as to conform, in the opinion of
the Indenture Trustee and the Issuer, to any such supplemental indenture may be prepared and
executed by the Issuer and authenticated and delivered by the Indenture Trustee in exchange for
Outstanding Notes.
ARTICLE X
REDEMPTION OF NOTES; PUT OPTION
Section 10.01. Redemption. The Servicer may, at its option, effect an early redemption
of the Notes on any Payment Date on or after the Clean-up Call Date. The Servicer shall effect such
early termination in the manner specified in and subject to the provisions of Section 10.02
of the Sale and Servicing Agreement.
The Servicer shall furnish the Indenture Trustee with notice of any such redemption in order
to facilitate the Indenture Trustees compliance with its obligation to notify the Noteholders of
such redemption in accordance with Section 10.02 hereof.
Section 10.02. Form of Redemption Notice. Notice of redemption under
Section 10.01 hereof shall be by first-class mail, postage prepaid, or by
facsimile mailed or transmitted not later than 10 days prior to the applicable
Redemption Date to each Noteholder, as of the close of business on the Record Date
preceding the applicable Redemption Date, at such Noteholders address or facsimile
number appearing in the Note Register.
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All notices of redemption shall state:
(i) the Redemption Date;
(ii) that on the Redemption Date Noteholders shall receive the Note Redemption
Amount; and
(iii) the place where such Notes are to be surrendered for payment of the Termination
Price (which shall be the office or agency of the Issuer to be maintained as provided in
Section 3.02 hereof).
Notice of redemption of the Notes shall be given by the Indenture Trustee in the name of the
Issuer and at the expense of the Servicer. Failure to give to any Noteholder notice of redemption,
or any defect therein, shall not impair or affect the validity of the redemption of any other
Note.
Section 10.03. Notes Payable on Redemption Date. The Notes to be redeemed shall,
following notice of redemption as required by Section 10.02 hereof (in the case of
redemption pursuant to Section 10.01) hereof, on the Redemption Date become due and payable
at the Note Redemption Amount and (unless the Issuer shall default in the payment of the Note
Redemption Amount) no interest shall accrue thereon for any period after the date to which accrued
interest is calculated for purposes of calculating the Note Redemption Amount. The Issuer may not
redeem the Notes unless all outstanding obligations under the Notes have been paid in full.
Section 10.04. Put Option. The Majority Noteholders may, at their option, put all or
any portion of the Note Principal Balance of the Notes to the Issuer on any date upon giving notice
in the manner set forth in Section 10.05. On each Put Date, the Issuer shall purchase the
Note Principal Balance in the manner specified in and subject to the provisions of Section
10.04 of the Sale and Servicing Agreement.
Section 10.05. Form of Put Option Notice. Notice of exercise of a Put Option under
Section 10.04 hereof shall be given by the Majority Noteholders (including to the Indenture
Trustee) by first-class mail, postage prepaid, or by facsimile mailed or transmitted not later than
5 days prior to the date on which the Notes shall be repurchased by the Issuer.
Section 10.06. Notes Payable on Put Date. The Note Principal Balance to be put to the
Issuer shall, following notice of the exercise of the Put Option as required by Section
10.05 hereof, on the Put Date become due and payable at the Note Redemption Amount and (unless
the Issuer shall default in the payment of the Note Redemption Amount) no interest shall accrue
thereon for any period after the date to which accrued interest is calculated for purposes of
calculating the Note Redemption Amount.
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ARTICLE XI
MISCELLANEOUS
Section 11.01. Compliance Certificates and Opinions, etc. Upon any application or
request by the Issuer to the Indenture Trustee to take any action under any provision of this
Indenture (except with respect to the Servicers servicing activity in the ordinary course of its
business), the Issuer shall furnish to the Indenture Trustee (i) an Officers Certificate stating
that all conditions precedent, if any, provided for in this Indenture relating to the proposed
action have been complied with and (ii) an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with.
Every certificate or opinion with respect to compliance with a condition or covenant provided
for in this Indenture shall include:
|
(1) |
|
a statement that each signatory of such certificate or opinion has
read or has caused to be read such covenant or condition and the
definitions herein relating thereto; |
|
|
(2) |
|
a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based; |
|
|
(3) |
|
a statement that, in the opinion of each such signatory, such
signatory has made such examination or investigation as is necessary to
enable such signatory to express an informed opinion as to whether or not
such covenant or condition has been complied with; and |
|
|
(4) |
|
a statement as to whether, in the opinion of each such signatory, such
condition or covenant has been complied with. |
Section 11.02. Form of Documents Delivered to Indenture Trustee. In any case where
several matters are required to be certified by, or covered by an opinion of, any specified Person,
it is not necessary that all such matters be certified by, or covered by the opinion of, only one
such Person, or that they be so certified or covered by only one document, but one such Person may
certify or give an opinion with respect to some matters and one or more other such Persons as to
other matters, and any such Person may certify or give an opinion as to such matters in one or
several documents.
Any certificate or opinion of an Authorized Officer of the Issuer may be based, insofar as it
relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless
such officer knows, or in the exercise of reasonable care should know, that the certificate or
opinion or representations with respect to the matters upon which such officers certificate or
opinion is based are erroneous. Any such certificate of an Authorized Officer or Opinion of Counsel may be based, insofar as it
relates to factual matters, upon a certificate or
48
opinion of, or representations by, an officer or officers of the Servicer, the Loan Originator,
the Issuer or the Administrator, stating that the information with respect to such factual matters
is in the possession of the Servicer, the Loan Originator, the Issuer or the Administrator, unless
such counsel knows, or in the exercise of reasonable care should know, that the certificate or
opinion or representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more applications, requests,
consents, certificates, statements, opinions or other instruments under this Indenture, they may,
but need not, be consolidated and form one instrument.
Whenever in this Indenture, in connection with any application or certificate or report to
the Indenture Trustee, it is provided that the Issuer shall deliver any document as a condition of
the granting of such application, or as evidence of the Issuers compliance with any term hereof,
it is intended that the truth and accuracy, at the time of the granting of such application or at
the effective date of such certificate or report (as the case may be), of the facts and opinions
stated in such document shall in such case be conditions precedent to the right of the Issuer to
have such application granted or to the sufficiency of such certificate or report. The foregoing
shall not, however, be construed to affect the Indenture Trustees right to rely upon the truth
and accuracy of any statement or opinion contained in any such document as provided in Article VI
hereof.
Section 11.03. Acts of Noteholders. (a) Any request, demand, authorization, direction,
notice, consent, waiver or other action provided by this Indenture to be given or taken by
Noteholders may be embodied in and evidenced by one or more instruments of substantially similar
tenor signed by such Noteholders in person or by agents duly appointed in writing; and except as
herein otherwise expressly provided, such action shall become effective when such instrument or
instruments are delivered to the Indenture Trustee, and, where it is hereby expressly required, to
the Issuer. Such instrument or instruments (and the action embodied therein and evidenced thereby)
are herein sometimes referred to as the Act of the Noteholders signing such instrument or
instruments. Proof of execution of any such instrument or of a writing appointing any such agent
shall be sufficient for any purpose of this Indenture and (subject to Section 6.01 hereof)
conclusive in favor of the Indenture Trustee and the Issuer, if made in the manner provided in this
Section 11.03.
(b) The fact and date of the execution by any Person of any such instrument or writing may be
proved in any manner that the Indenture Trustee deems sufficient.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent, waiver or other action by
any Noteholder shall bind the Holder of every Note issued
upon the registration thereof or in exchange therefor or in lieu thereof, in respect of
anything done, omitted or suffered to be done by the Indenture Trustee or the Issuer in reliance
thereon, whether or not notation of such action is made upon such Note.
Section 11.04. Notices, etc., to Indenture Trustee and Issuer. Any request, demand,
authorization, direction, notice, consent, waiver or Act of Noteholders or other
49
documents provided or permitted by this Indenture shall be in writing and if such request, demand,
authorization, direction, notice, consent, waiver or act of Noteholders is to be made upon, given
or furnished to or filed with:
(i) the Indenture Trustee by any Noteholder or by the Issuer shall be sufficient for
every purpose hereunder if made, given, furnished or filed in writing (including by
facsimile) to or with the Indenture Trustee at P.O. Box 98, Columbia, Maryland 21046,
Attention: Option One Owner Trust 2005-6, with a copy to it at its Corporate Trust Office,
or
(ii) the Issuer by the Indenture Trustee or by any Noteholder shall be sufficient for
every purpose hereunder if in writing and made, given, furnished, filed or transmitted via
facsimile to the Issuer at: Option One Owner Trust 2005-6, c/o Wilmington Trust Company as
Owner Trustee, One Rodney Square North, 1100 North Market Street, Wilmington, Delaware
19890, Attention: Corporate Trust Department, telecopy number: (302) 636-4144, telephone
number: (302) 636-1000, or at any other address or facsimile number previously furnished
in writing to the Indenture Trustee by the Issuer or the Administrator. The Issuer shall
promptly transmit any notice received by it from the Noteholders to the Indenture Trustee.
Section 11.05.
Notices to Noteholders; Waiver. Where this Indenture provides for
notice to Noteholders of any event, such notice shall be sufficiently given (unless otherwise
herein expressly provided) if in writing and mailed, first-class, postage prepaid to each
Noteholder affected by such event, at his address as it appears on the Note Register, not later
than the latest date, and not earlier than the earliest date, prescribed for the giving of such
notice. In any case where notice to Noteholders is given by mail, neither the failure to mail such
notice nor any defect in any notice so mailed to any particular Noteholder shall affect the
sufficiency of such notice with respect to other Noteholders, and any notice that is mailed in the
manner herein provided shall conclusively be presumed to have duly been given.
Where this Indenture provides for notice in any manner, such notice may be waived in writing
by any Person entitled to receive such notice, either before or after the event, and such waiver
shall be the equivalent of such notice. Waivers of notice by Noteholders shall be filed with the
Indenture Trustee but such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service as a result of a strike, work
stoppage or similar activity, it shall be impractical to mail notice of any
event to Noteholders when such notice is required to be given pursuant to any provision of
this Indenture, then any manner of giving such notice as shall be satisfactory to the Indenture
Trustee shall be deemed to be a sufficient giving of such notice.
Section 11.06. Effect of Headings and Table of Contents. The Article and Section
headings herein and the Table of Contents are for convenience only and shall not affect the
construction hereof.
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Section 11.07. Successors and Assigns. All covenants and agreements in this Indenture
and the Notes by the Issuer shall bind its successors and assigns, whether so expressed or not. All
agreements of the Indenture Trustee in this Indenture shall bind its successors, co-trustees and
agents.
Section 11.08. Separability. In case any provision in this Indenture or in the Notes
shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
Section 11.09. Benefits of Indenture. Nothing in this Indenture or in the Notes,
express or implied, shall give to any Person, other than the parties hereto and their successors
hereunder, and the Noteholders, and any other party secured hereunder, and any other Person with an
ownership interest in any part of the Collateral, any benefit or any legal or equitable right,
remedy or claim under this Indenture.
Section 11.10. Legal Holidays. In any case where the date on which any payment is due
shall not be a Business Day, then (notwithstanding any other provision of the Notes or this
Indenture) payment need not be made on such date, but may be made on the next succeeding Business
Day with the same force and effect as if made on the date on which nominally due, and no interest
shall accrue for the period from and after any such nominal date.
Section 11.11. GOVERNING LAW. THIS INDENTURE SHALL BE CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, OTHER THAN
SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 11.12. Counterparts. This Indenture may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
Section 11.13. Recording of Indenture. If this Indenture is subject to recording in
any appropriate public recording offices, such recording is to be effected by the Issuer and at its
expense accompanied by an Opinion of Counsel (which may be counsel to the Indenture Trustee or any
other counsel reasonably acceptable to the
Indenture Trustee; provided, however, that the expense of such Opinion of Counsel shall in no
event be an expense of the Indenture Trustee) to the effect that such recording is necessary either
for the protection of the Noteholders or any other Person secured hereunder or for the enforcement
of any right or remedy granted to the Indenture Trustee under this Indenture.
Section 11.14. Trust Obligation. No recourse may be taken, directly or indirectly,
with respect to the obligations of the Issuer, the Owner Trustee or the Indenture Trustee on the
Notes or, except as expressly provided for in Article VI hereof, under this Indenture or
any certificate or other writing delivered in connection herewith or therewith, against (i) the
Indenture Trustee or the Owner Trustee in its individual capacity, (ii) any owner of a beneficial
interest in the Issuer or (iii) any partner, owner, beneficiary, agent, officer, director,
employee, agent or
51
control person within the meaning of the Securities Act and the Exchange Act, of the Indenture
Trustee or the Owner Trustee in its individual capacity, any holder of a beneficial interest in the
Issuer, the Owner Trustee or the Indenture Trustee or of any successor or assign of the Indenture
Trustee or the Owner Trustee in its individual capacity, except as any such Person may expressly
have agreed (it being understood that the Indenture Trustee and the Owner Trustee have no such
obligations in their individual capacity) and except that any such partner, owner or beneficiary of
the Issuer shall be fully liable, to the extent provided by applicable law, for any unpaid
consideration for stock, unpaid capital contribution or failure to pay any installment or call
owing to such entity. For all purposes of this Indenture, in the performance of any duties or
obligations of the Issuer hereunder, the Owner Trustee shall be subject to, and entitled to the
benefits of, the terms and provisions of Articles VI, VII and VIII of the Trust Agreement.
Section 11.15. No Petition. The Indenture Trustee, by entering into this Indenture,
and each Noteholder, by accepting a Note, hereby covenant and agree that they will not at any time
institute against the Depositor or the Issuer, or join in any institution against the Depositor or
the Issuer of, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings,
or other proceedings under any United States federal or state bankruptcy or similar law, in
connection with any obligations relating to the Notes, this Indenture or any of the Basic
Documents.
Section 11.16. Inspection. The Issuer agrees that, on reasonable prior notice, it will
permit any representative of the Indenture Trustee, during the Issuers normal business hours, to
examine all the books of account, records, reports and other papers of the Issuer, to make copies
and extracts therefrom, to cause such books to be audited by Independent certified public
accountants, and to discuss the Issuers affairs, finances and accounts with the Issuers officers,
employees, and Independent certified public accountants, all at such reasonable times and as often
as may reasonably be requested and at the expense of the Servicer. The Indenture Trustee shall and
shall cause its representatives to hold in confidence all such information except to the extent
disclosure may be required by law (and all reasonable applications for confidential treatment are
unavailing) and except to the extent that the Indenture Trustee may reasonably determine that such
disclosure is consistent with its obligations hereunder.
Section 11.17. Limitation on Liability. It is expressly understood and agreed by the
parties hereto that (a) this Indenture is executed and delivered by Wilmington Trust Company, not
individually or personally, but solely as Owner Trustee of Option One Owner Trust 2005-6, in the
exercise of the powers and authority conferred and vested in it, (b) each of the representations,
undertakings and agreements herein made on the part of the Issuer is made and intended not as
personal representations, undertakings and agreements by Wilmington Trust Company but is made and
intended for the purpose for binding only the Issuer, (c) nothing herein contained shall be
construed as creating any liability on Wilmington Trust Company, individually or personally, to
perform any covenant either expressed or implied contained herein, all such liability, if any,
being expressly waived by the parties hereto and by any Person claiming by, through or under the
parties hereto and (d) under no circumstances shall Wilmington Trust Company be personally liable
for the payment of any indebtedness or expenses of the Issuer or be liable for the breach or
failure of any obligation, representation, warranty or covenant made or undertaken by the Issuer
under this Indenture or any other related documents.
52
IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused this Indenture to be duly
executed by their respective officers, thereunto duly authorized and duly attested, all as of the
day and year first above written.
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OPTION ONE OWNER TRUST 2005-6 |
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Wilmington Trust Company not in its |
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individual capacity but solely as Owner |
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Trustee |
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By: |
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Name: |
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Title: |
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WELLS FARGO BANK, N.A., as Indenture |
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Trustee |
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By: |
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Name: |
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Title: |
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STATE OF
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)ss.: |
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COUNTY OF |
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BEFORE ME, the undersigned authority, a Notary Public in and for said county and state, on
this day personally appeared ________, known to me to be the person and officer whose name is subscribed to
the foregoing instrument and acknowledged to me that the same was the act of the said Wilmington
Trust Company, a Delaware banking corporation, not in its individual capacity, but solely as Owner
Trustee on behalf of OPTION ONE OWNER TRUST 2005-6, a Delaware statutory trust, and that such person
executed the same as the act of said statutory trust for the purpose and consideration therein
expressed, and in the capacities therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this ___day of June, 2005.
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Notary Public |
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(Seal) |
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My commission expires: |
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STATE OF
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COUNTY OF |
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BEFORE ME, the undersigned authority, a Notary Public in and for said county and state, on
this day personally appeared ___, known to me to be the person and officer whose
name is subscribed to the foregoing instrument and acknowledged to me that the same was the act of
WELLS FARGO BANK, N.A., and that such person executed the same as the act of said corporation for
the purpose and consideration therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this ___day of June, 2005.
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Notary Public |
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My commission expires: |
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EXHIBIT A
FORM OF NOTE
THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE LESS THAN THE MAXIMUM NOTE
PRINCIPAL BALANCE SHOWN ON THE FACE HEREOF. ANY PURCHASER OF THIS NOTE MAY ASCERTAIN THE
OUTSTANDING PRINCIPAL AMOUNT HEREOF BY INQUIRY OF THE INDENTURE TRUSTEE.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE 1933 ACT), OR
ANY STATE SECURITIES
LAWS. NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION,
UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH
NOTE ONLY (A) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE 1933
ACT, (B) FOR SO LONG AS THIS NOTE IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE 1933 ACT,
TO A PERSON IT REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER AS DEFINED IN RULE 144A
UNDER THE 1933 ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE
144A OR (C) TO AN INSTITUTIONAL ACCREDITED INVESTOR WITHIN THE MEANING OF SUBPARAGRAPH (a)(1),
(2),(3) OR (7) OF RULE 501 UNDER THE 1933 ACT THAT IS ACQUIRING THE NOTE FOR ITS OWN ACCOUNT, OR
FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT
WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE 1933
ACT, IN EACH CASE IN COMPLIANCE WITH THE REQUIREMENTS OF THE INDENTURE AND APPLICABLE STATE
SECURITIES LAWS.
THIS NOTE MAY NOT BE TRANSFERRED UNLESS THE INDENTURE TRUSTEE HAS RECEIVED A CERTIFICATE FROM THE
TRANSFEREE TO THE EFFECT THAT EITHER (I) THE TRANSFEREE IS NOT AN EMPLOYEE BENEFIT PLAN OR OTHER
RETIREMENT PLAN OR ARRANGEMENT SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF
1974, AS AMENDED, OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (EACH, A
PLAN), AND IS NOT ACTING ON BEHALF OF OR INVESTING THE ASSETS OF A PLAN OR (II) IF THE TRANSFEREE
IS A PLAN OR IS ACTING ON BEHALF OF OR INVESTING THE ASSETS OF A PLAN, EITHER THAT NO PROHIBITED
TRANSACTION WITHIN THE MEANING OF SECTION 406(a) OF
A-1
ERISA OR SECTION 4975 OF THE CODE WOULD OCCUR UPON THE TRANSFER OF THE NOTE OR THAT THE CONDITIONS
FOR EXEMPTIVE RELIEF UNDER A PROHIBITED TRANSACTION EXEMPTION HAS BEEN SATISFIED INCLUDING BUT NOT
LIMITED TO, PROHIBITED TRANSACTION CLASS EXEMPTION (PTCE) 96-23 (RELATING TO TRANSACTIONS
EFFECTED BY AN IN-HOUSE ASSET MANAGER), PTCE
95-60 (RELATING TO TRANSACTIONS INVOLVING INSURANCE COMPANY GENERAL ACCOUNTS), PTCE 91-38 (RELATING
TO TRANSACTIONS INVOLVING BANK COLLECTIVE INVESTMENT FUNDS), PTCE 90-1 (RELATING TO TRANSACTIONS
INVOLVING INSURANCE COMPANY POOLED SEPARATE ACCOUNTS) AND PTCE 84-14 (RELATING TO TRANSACTIONS
EFFECTED BY A QUALIFIED PROFESSIONAL ASSET MANAGER).
A-2
Maximum Note Principal Balance: $___
Initial Percentage Interest:___%
No.___
OPTION ONE OWNER TRUST 2005-6
MORTGAGE-BACKED NOTES
OPTION ONE OWNER TRUST 2005-6, a Delaware statutory trust (the Issuer), for value received,
hereby promises to pay to ___, or registered assigns (the
Noteholder), the principal sum of ___($___) or so
much thereof as may be advanced and outstanding hereunder and to pay interest on such principal sum
or such part thereof as shall remain unpaid from time to time, at the rate and at the times
provided in the Sale and Servicing Agreement and the Indenture. Principal of this Note is payable
on each Payment Date in an amount equal to the result obtained by multiplying (i) the Percentage
Interest of this Note by (ii) the principal amount distributed in respect of such Payment Date.
The Outstanding Note Principal Balance of this Note bears interest at the Note Interest Rate.
On each Payment Date amounts in respect of interest on this Note will be paid in an amount equal to
the result obtained by multiplying (i) the Percentage Interest of this Note by (ii) the aggregate
amount paid in respect of interest on the Notes with respect to such Payment Date.
Capitalized terms used but not defined herein have the meanings set forth in the Indenture
(the Indenture), dated as of June 1, 2005 between the Issuer and Wells Fargo Bank, N.A.,
as Indenture Trustee (the Indenture Trustee) or, if not defined therein, the Sale and
Servicing Agreement (the Sale and Servicing Agreement), dated as of June 1, 2005 among
the Issuer, the Depositor, the Loan Originator and Servicer, and the Indenture Trustee on behalf of
the Noteholders.
By its acceptance of this Note, each Noteholder covenants and agrees, until the earlier of (a)
the termination of the Revolving Period and (b) the Maturity Date, on each Transfer Date to advance
amounts in respect of Additional Note Principal Balance hereunder to the Issuer, subject to and in
accordance with the terms of the Indenture, the Sale and Servicing Agreement and the Note Purchase
Agreement.
In the event of an advance of Additional Note Principal Balance by the
Noteholders as provided in Section 2.01(c) of the Sale and Servicing Agreement, each
Noteholder shall, and is hereby authorized to, record on the schedule attached to its Note the date
and amount of any Additional Note Principal Balance advanced by it, and each repayment thereof;
provided that failure to make any such recordation on such schedule or any error in such schedule
shall not adversely affect any Noteholders rights with respect to its Additional Note Principal
Balance and its right to receive interest payments in respect of the Additional Note Principal
Balance held by such Noteholder.
A-3
Absent manifest error, the Note Principal Balance of each Note as set forth in the notations
made by the related Noteholder on such Note shall be binding upon the Indenture Trustee and the
Issuer; provided that failure by a Noteholder to make such recordation on its Note or any error in
such notation shall not adversely affect any Noteholders rights with respect to its Note Principal
Balance and its right to receive principal and interest payments in respect thereof.
The Servicer may, at its option, effect an early redemption of the Notes for an amount equal
to the Note Redemption Amount on any Payment Date on or after the Clean-up Call Date. The Servicer
shall effect such early termination by providing notice thereof to the Indenture Trustee and Owner
Trustee and by purchasing all of the Loans at a purchase price, payable in cash, equal to the
Termination Price.
Reference is hereby made to the further provisions of this Note set forth on the reverse
hereof, which further provisions shall for all purposes have the same effect as if set forth at
this place.
The statements in the legend set forth above are an integral part of the terms of this Note
and by acceptance hereof each Holder of this Note agrees to be subject to and bound by the terms
and provisions set forth in such legend.
Unless the Certificate of authentication hereon shall have been executed by an authorized
officer of the Indenture Trustee, by manual signature, this Note shall not entitle the Noteholder
hereof to any benefit under the Indenture or the Sale and Servicing Agreement and/or be valid for
any purpose.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK AND WITHOUT GIVING
EFFECT TO THE CONFLICT OF LAW PROVISIONS THEREOF OTHER THAN SECTION 5-1401 OF THE GENERAL
OBLIGATIONS LAW.
A-4
IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed, manually or in
facsimile, by its Authorized Officer, as of the date set forth below.
Date: June ____, 2005
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OPTION ONE OWNER TRUST 2005-6 |
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By: |
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Wilmington Trust Company, not in its |
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individual capacity but solely as Owner |
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Trustee under the Trust Agreement |
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By: |
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Authorized Signatory |
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INDENTURE TRUSTEES CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the within-mentioned Indenture.
Date: June ____, 2005
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WELLS FARGO BANK, N.A., not in its individual |
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capacity but solely as Indenture Trustee |
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By: |
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Authorized Signatory |
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A-5
[Reverse of Note]
This Note is one of the duly authorized Notes of the Issuer, designated as its Mortgage-Backed
Notes (herein called the Notes), all issued under the Indenture. Reference is hereby made
to the Indenture and all indentures supplemental thereto, and the Sale and Servicing Agreement for
a statement of the respective rights and obligations thereunder of the Issuer, the Indenture
Trustee and the Noteholders. To the extent that any provision of this Note contradicts or is
inconsistent with the provisions of the Indenture or the Sale and Servicing Agreement, the
provisions of the Indenture or the Sale and Servicing Agreement, as applicable, shall control and
supersede such contradictory or inconsistent provision herein. The Notes are subject to all terms
of the Indenture and the Sale and Servicing Agreement.
The principal of and interest on this Note are payable in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of public and private
debts. All payments made by the Issuer with respect to this Note shall be applied in accordance
with the Indenture and the Sale and Servicing Agreement.
The entire unpaid principal amount of this Note shall be due and payable on the earlier of the
Maturity Date, the Redemption Date and the Final Put Date, if any,
pursuant to Articles X of the
Sale and Servicing Agreement and the Indenture.
Notwithstanding the foregoing, the entire unpaid principal amount of the Notes shall be due
and payable on the date on which an Event of Default shall have occurred and be continuing and the
Indenture Trustee, at the direction or upon the prior written consent of the Majority Noteholders,
has declared the Notes to be immediately due and payable in the manner provided in Section
5.02 of the Indenture. All principal payments on the Notes shall be made pro rata to the
Noteholders entitled thereto.
The Collateral secures this Note and all other Notes equally and ratably without prejudice,
priority or distinction between any Note and any other Note. The Notes are non-recourse obligations
of the Issuer and are limited in right of payment to amounts available from the Collateral, as
provided in the Indenture. The Issuer shall not otherwise be liable for payments on the Notes, and
none of the owners, agents, officers, directors, employees, or successors or assigns of the Issuer
shall be personally liable for any amounts payable, or performance due, under the Notes or the
Indenture.
Any installment of interest or principal on this Note shall be paid on the applicable Payment
Date to the Person in whose name this Note (or one or more Predecessor Notes) is registered in the
Note Register as of the close of business on the related Record Date by wire transfer in
immediately available funds to the account specified in writing by the related Noteholder to the
extent provided by the Indenture and otherwise by check mailed to the Noteholder.
Any reduction in the principal amount of this Note (or any one or more Predecessor Notes)
effected by any payments made on any Payment Date shall be binding upon all future Holders of this
Note and of any Note issued upon the registration of transfer hereof or in exchange hereof or in
lieu hereof, whether or not noted hereon. Any increase in the principal
A-6
amount of this Note (or any one or more Predecessor Notes) effected by payments to the Issuer of
Additional Note Principal Balances shall be binding upon the Issuer and shall inure to the benefit
of all future Holders of this Note and of any Note issued upon the registration of transfer hereof
or in exchange hereof or in lieu hereof, whether or not noted hereon.
As provided in the Indenture and subject to certain limitations set forth therein, the
transfer of this Note may be registered on the Note Register upon surrender of this Note for
registration of transfer at the office or agency designated by the Issuer pursuant to the
Indenture, duly endorsed by, or accompanied by a written instrument of transfer in the form
attached hereto duly executed by, the Holder hereof or such Holders attorney duly authorized in
writing, with such signature guaranteed by an eligible guarantor institution meeting the
requirements of the Securities Transfer Agents Medallion Program (STAMP), and thereupon one or
more new Notes of authorized denominations and in the same aggregate principal amount will be
issued to the designated transferee or transferees. No service charge will be charged for any
registration of transfer or exchange of this Note, but the Issuer may require the Noteholder to pay
a sum sufficient to cover any tax or other governmental charge that may be imposed in connection
with any such registration of transfer or exchange.
Each Noteholder, by acceptance of a Note or a beneficial interest in a Note, covenants and
agrees that no recourse may be taken, directly or indirectly, with respect to the obligations of
the Issuer, the Owner Trustee or the Indenture Trustee on the Notes or under the Indenture or any
certificate or other writing delivered in connection therewith, against (i) the Indenture Trustee
or the Owner Trustee in its individual capacity, (ii) any owner of a beneficial interest in the
Issuer or (iii) any partner, owner, beneficiary, agent, officer, director, employee or control
person within the meaning of the 1933 Act and the Exchange Act of the Indenture Trustee or the
Owner Trustee in its individual capacity, any holder of a beneficial interest in the Issuer, the
Owner Trustee or the Indenture Trustee or of any successor or assign of the Indenture Trustee or
the Owner Trustee in its individual capacity, except as any such Person may have expressly agreed
and except that any such partner, owner or beneficiary shall be fully liable, to the extent
provided by applicable law, for any unpaid consideration for stock, unpaid capital contribution or
failure to pay any installment or call owing to such entity.
Each Noteholder, by acceptance of a Note or a beneficial interest in a Note, covenants and
agrees by accepting the benefits of the Indenture that such Noteholder will not at any time
institute against the Issuer, or join in any institution against the Issuer of, any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings under any United States federal
or state bankruptcy or similar law in connection with any obligations relating to the Notes or the
Basic Documents.
The Issuer has entered into the Indenture and this Note is issued with the intention that, for
federal, state and local income, single business and franchise tax purposes, the Notes will qualify
as indebtedness of the Issuer secured by the Collateral. Each Noteholder, by acceptance of a Note,
agrees to treat the Notes for federal, state and local income, single business and franchise tax
purposes as indebtedness of the Issuer. Each Noteholder, by its acceptance of a Note, represents
and warrants that the number of ICA Owners with respect to all of its Notes shall not exceed four.
A-7
Prior to the due presentment for registration of transfer of this Note, the Issuer, the
Indenture Trustee and any agent of the Issuer or the Indenture Trustee may treat the Person in
whose name this Note (as of the day of determination or as of such other date as may be specified
in the Indenture) is registered as the owner hereof for all purposes, whether or not this Note be
overdue, and none of the Issuer, the Indenture Trustee or any such agent shall be affected by
notice to the contrary.
The Indenture permits, with certain exceptions as therein provided, the amendment thereof and
the modification of the rights and obligations of the Issuer and the rights of the Holders of the
Notes under the Indenture at any time by the Issuer with the consent of the Majority Noteholders.
The Indenture also contains provisions permitting the Noteholders representing specified Percentage
Interests of the Outstanding Notes, on behalf of all of the Noteholders, to waive compliance by the
Issuer with certain provisions of the Indenture and certain past defaults under the Indenture and
their
consequences. Any such consent or waiver by the Holder of this Note (or any one or more
Predecessor Notes) shall be conclusive and binding upon such Holder and upon all future Holders of
this Note and of any Note issued upon the registration of transfer hereof or in exchange hereof or
in lieu hereof whether or not notation of such consent or waiver is made upon this Note. The
Indenture also permits the Indenture Trustee to amend or waive certain terms and conditions set
forth in the Indenture without the consent of any Noteholder.
The term Issuer as used in this Note includes any successor to the Issuer under the
Indenture.
The Notes are issuable only in registered form in denominations as provided in the Indenture,
subject to certain limitations therein set forth.
No reference herein to the Indenture and no provision of this Note or of the Indenture shall
alter or impair the obligation of the Issuer, which is absolute and unconditional, to pay the
principal of and interest on this Note at the times, place and rate, and in the coin or currency
herein prescribed.
Anything herein to the contrary notwithstanding, except as expressly provided in the Basic
Documents, none of the Issuer in its individual capacity, the Owner Trustee in its individual
capacity, any owner of a beneficial interest in the Issuer, or any of their respective partners,
beneficiaries, agents, officers, directors, employees or successors or assigns shall be personally
liable for, nor shall recourse be had to any of them for, the payment of principal of or interest
on this Note or performance of, or omission to perform, any of the covenants, obligations or
indemnifications contained in the Indenture. The Holder of this Note by its acceptance hereof
agrees that, except as expressly provided in the Basic Documents, in the case of an Event of
Default under the Indenture, the Holder shall have no claim against any of the foregoing for any
deficiency, loss or claim therefrom; provided, however, that nothing contained herein shall be
taken to prevent recourse to, and enforcement against, the assets of the Issuer for any and all
liabilities, obligations and undertakings contained in the Indenture or in this Note.
A-8
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee:
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto:
(name and address of assignee)
the within Note and all rights thereunder, and hereby irrevocably constitutes and appoints,
attorney, to transfer said Note on the books kept for registration thereof, with full power of
substitution in the premises.
Dated:____________
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*/ |
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Signature Guaranteed: |
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*/ |
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*/ |
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NOTICE: The signature to this assignment must correspond with the name of the registered owner as
it appears on the face of the within Note in every particular, without alteration, enlargement or
any change whatever. Such signature must be guaranteed by an eligible guarantor institution
meeting the requirements of STAMP. |
A-9
Schedule to Note
dated as of June, 2005
of OPTION ONE OWNER TRUST 2005-6
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Date of advance |
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Amount of |
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of Additional |
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advance of |
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Note Principal |
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Additional Note |
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Percentage |
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Aggregate Note |
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Balance |
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Principal Balance |
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Interest |
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Principal Balance |
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Balance of Note |
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% |
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A-10
EXHIBIT B-1
FORM OF RULE 144A TRANSFEROR CERTIFICATE
Wells Fargo Bank, N.A.
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
Attention: Corporate Trust Services Option One Owner Trust 2005-6
Re: Option One Owner Trust 2005-6
Reference is hereby made to the Indenture dated as of June 1, 2005 (the Indenture) between
Option One Owner Trust 2005-6 (the Trust) and Wells Fargo Bank, N.A. (the Indenture Trustee).
Capitalized terms used but not defined herein shall have the meanings given to them in the Sale and
Servicing Agreement dated as of June 1, 2005 among the Trust, Option One Loan Warehouse Corporation
(the
Depositor), Option One Mortgage Corporation (the Servicer and the Loan Originator) and
the Indenture Trustee.
The undersigned (the Transferor) has requested a transfer of $ ___current
principal balance Notes to [insert name of transferee].
In connection with such request, and in respect of such Notes, the Transferor hereby certifies
that such Notes are being transferred in accordance with (i) the transfer restrictions set forth in
the Indenture and the Notes and (ii) Rule 144A under the Securities Act of 1933, as amended to a
purchaser that the Transferor reasonably believes is a qualified institutional buyer within the
meaning of Rule 144A purchasing for its own account or for the account of a qualified
institutional buyer, which purchaser is aware that the sale to it is being made in reliance upon
Rule 144A, in a transaction meeting the requirements of Rule 144A and in accordance with any
applicable securities laws of any state of the United States or any other applicable jurisdiction.
This certificate and the statements contained herein are made for your benefit and the benefit
of the Depositor.
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[Name of Transferor] |
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Dated: __________, ____________
B-1-1
EXHIBIT B-2
FORM OF TRANSFEREE CERTIFICATE FOR
INSTITUTIONAL ACCREDITED INVESTOR
Wells Fargo Bank, N.A.
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
Attention: Corporate Trust Services Option One Owner Trust 2005-6
Re: Option One Owner Trust 2005-6
In connection with our proposed purchase of $ ___Note Principal Balance
Mortgage-Backed Notes (the Offered Notes) issued by Option One Owner Trust 2005-6, we confirm
that:
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We understand that the Offered Notes have not been, and will not be, registered under the
Securities Act of 1933, as amended (the 1933 Act) or any state securities laws, and may not be
sold except as permitted in the following sentence. We agree, on our own behalf and on behalf of
any accounts for which we are acting as hereinafter
stated, that if we should sell any Offered Notes we will do so only (A) pursuant to a registration
statement which has been declared effective under the 1933 Act, (B) for so long as the Offered
Notes are eligible for resale pursuant to Rule 144A under the 1933 Act, to a Person we reasonably
believe is a qualified institutional buyer as defined in Rule 144A that purchases for its own
account or for the account of a qualified institutional buyer to whom notice is given that the
transfer is being made in reliance on Rule 144A or (C) to an institutional accredited investor
within the meaning of subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the 1933 Act (an
Institutional Accredited Investor) that is acquiring the Offered Notes for its own account, or
for the account of such an Institutional Accredited Investor, for investment purposes and not with
a view to, or for offer or sale in connection with, any distribution in violation of the 1933 Act,
in each case in compliance with the requirements of the Indenture dated as of June 1, 2005 between
Option One Owner Trust 2005-6 and Wells Fargo Bank, N.A., as Indenture Trustee, and applicable
state securities laws; and we further agree, in the capacities stated above, to provide to any
person purchasing any of the Offered Notes from us a notice advising such purchaser that resales of
the Offered Notes are restricted as stated herein. |
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We understand that, in connection with any proposed resale of any Offered Notes to an
Institutional Accredited Investor, we will be required to furnish to the Indenture Trustee and the
Depositor a certification from such transferee as provided in Section 2.12 of the Indenture to
confirm that the proposed sale is being made pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the 1933 Act and applicable state securities laws. We
further understand that the Offered Notes purchased by us will bear a legend to the foregoing
effect. |
B-2-1
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We are acquiring the Offered Notes for investment purposes and not with a view to, or for offer
or sale in connection with, any distribution in violation of the 1933 Act. We have such knowledge
and experience in financial and business matters as to be capable of evaluating the merits and
risks of our investment in the Offered Notes, and we and any account for which we are acting are
each able to bear the economic risk of such investment. |
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We are an Institutional Accredited Investor and we are acquiring the Offered Notes purchased by
us for our own account or for one or more accounts (each of which is an Institutional Accredited
Investor) as to each of which we exercise sole investment discretion. |
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We have received such information as we deem necessary in order to make our investment
decision. |
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We either (i) are not, and are not acquiring the Offered Notes on behalf of or with the assets
of, an employee benefit plan or other retirement plan or arrangement subject to Title I of ERISA or
Section 4975 of the Code, or (ii) are, or are acquiring the Offered Notes on behalf of or with the
assets of, an employee benefit plan or other retirement plan
or arrangement subject to Title I of ERISA of Section 4975 of the Code and either no prohibited
transaction within the meaning of Section 406(a) of ERISA or Section 4975 of the Code will occur
upon the transfer of the Note or the conditions for exemptive relief under a prohibited transaction
exemption has been satisfied, including but not limited to, Prohibited Transaction Class Exemption
(PTCE) 96-23 (relating to transactions effected by an in-house asset manager), PTCE 95-60
(relating to transactions involving insurance company general accounts), PTCE 91-38 (relating to
transactions involving bank collective investment funds), PTCE 90-1 (relating to transactions
involving insurance company pooled separate accounts), and PTCE 84-14 (relating to transactions
effected by a qualified professional asset manager). |
Terms used in this letter which are not otherwise defined herein have the respective meanings
assigned thereto in the Indenture.
You and the Depositor are entitled to rely upon this letter and are irrevocably authorized to
produce this letter or a copy hereof to any interested party in any administrative or legal
proceeding or official inquiry with respect to the matters covered hereby.
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[Name of Transferor] |
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Dated: _____, _______
B-2-2
EXHIBIT B-3
FORM OF RULE 144A TRANSFEREE CERTIFICATE
Wells Fargo Bank, N.A.
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
Attention: Corporate Trust Services Option One Owner Trust 2005-6
Re: Option One Owner Trust 2005-6
1. The undersigned is the ___of ___(the Investor), a [corporation duly
organized] and existing under the laws of ___on behalf of which he makes this
affidavit.
2. The Investor either (i) is not, and is not acquiring the Option One Owner Trust 2005-6
Notes (the Notes) on behalf of or with the assets of, an employee benefit
plan or other retirement plan or arrangement subject to Title I of ERISA or Section 4975 of
the Code, or (ii) is, or is acquiring the Notes on behalf of or with the assets of, an employee
benefit plan or other retirement plan or arrangement subject to Title I of ERISA of Section 4975 of
the Code and either no prohibited transaction within the meaning of Section 406(a) of ERISA or
Section 4975 of the Code would occur upon the transfer of the Note or the conditions for exemptive
relief under a prohibited transaction exemption has been satisfied, including but not limited to,
Prohibited Transaction Class Exemption (PTCE) 96-23 (relating to transactions effected by an
in-house asset manager), PTCE 95-60 (relating to transactions involving insurance company general
accounts), PTCE 91-38 (relating to transactions involving bank collective investment funds), PTCE
90-1 (relating to transactions involving insurance company pooled separate accounts), and PTCE
84-14 (relating to transactions effected by a qualified professional asset manager).
3. The Investor understands that the Notes have not been, and will not be, registered under
the Securities Act of 1933, as amended (the 1933 Act) or any state securities laws, and may not
be sold except as permitted in the following sentence. The Investor agrees, on its own behalf and
on behalf of any accounts for which it is acting as hereinafter stated, that if it should sell any
Notes it will do so only (A) pursuant to a registration statement which has been declared effective
under the 1933 Act, (B) for so long as the Notes are eligible for resale pursuant to Rule 144A
under the 1933 Act, to a Person it reasonably believes is a qualified institutional buyer as
defined in Rule 144A that purchases for its own account or for the account of a qualified
institutional buyer to whom notice is given that the transfer is being made in reliance on Rule
144A or (C) to an institutional accredited investor within the meaning of subparagraph (a) (1),
(2), (3) or (7) of Rule 501 under the 1933 Act (an Institutional Accredited Investor) that is
acquiring the Notes for its own account, or for the account of such an Institutional Accredited
Investor, for investment purposes and not with a view to, or for offer or sale in connection with,
any distribution in violation of the 1933 Act, in each case in compliance with the requirements of
the Indenture dated as of June 1, 2005 between Option One Owner Trust 2005-6 and Wells Fargo Bank,
N.A., as Indenture Trustee, and applicable state securities laws; and the Investor further agrees,
in the capacities stated above, to provide to any person purchasing any of the
B-3-1
Notes from it a notice advising such purchaser that resales of the Notes are restricted as stated
herein.
[FOR TRANSFERS IN RELIANCE UPON RULE 144A]
4. The Investor is a qualified institutional buyer (as such term is defined under Rule 144A
under the Securities Act of 1933, as amended (the 1933 Act), and is acquiring the Notes for its
own account or as a fiduciary or agent for others (which others also are qualified institutional
buyers). The Investor is familiar with Rule 144A under the 1933 Act, and is aware that the
transferor of the Notes and other parties intend to rely on the statements made herein and the
exemption from the registration requirements of the 1933 Act provided by Rule 144A.
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[Name of Transferor] |
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Dated:
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B-3-2
EXHIBIT C
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE 1933 ACT), OR
ANY STATE SECURITIES LAWS. NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE
OF SUCH REGISTRATION, UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH
NOTE ONLY (A) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE 1933
ACT, (B) FOR SO LONG AS THIS NOTE IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE 1933 ACT,
TO A PERSON IT REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER AS DEFINED IN RULE 144A
UNDER THE 1933 ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE
144A OR (C) TO AN INSTITUTIONAL ACCREDITED INVESTOR WITHIN THE MEANING OF SUBPARAGRAPH (A) (1),
(2), (3) OR (7) OF RULE 501 UNDER THE 1933 ACT THAT IS ACQUIRING THE NOTE FOR ITS OWN ACCOUNT, OR
FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT
WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE 1933
ACT, IN EACH CASE IN COMPLIANCE WITH THE REQUIREMENTS OF THE INDENTURE AND APPLICABLE STATE
SECURITIES LAWS.
THIS NOTE MAY NOT BE TRANSFERRED UNLESS THE INDENTURE TRUSTEE HAS RECEIVED A CERTIFICATE FROM THE
TRANSFEREE TO THE EFFECT THAT EITHER (I) THE TRANSFEREE IS NOT AN EMPLOYEE BENEFIT PLAN OR OTHER
RETIREMENT PLAN OR ARRANGEMENT SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF
1974, AS AMENDED, OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (EACH, A
PLAN), AND IS NOT ACTING ON BEHALF OF OR INVESTING THE ASSETS OF A PLAN OR (II) IF THE TRANSFEREE
IS A PLAN, OR IS ACTING ON BEHALF OF OR INVESTING THE ASSETS OF A PLAN, THE CONDITIONS FOR
EXEMPTIVE RELIEF UNDER AT LEAST ONE OF THE
FOLLOWING PROHIBITED TRANSACTION CLASS EXEMPTIONS HAVE BEEN SATISFIED: PROHIBITED TRANSACTION CLASS
EXEMPTION (PTCE) 96-23 (RELATING TO TRANSACTIONS EFFECTED BY AN IN-HOUSE ASSET MANAGER), PTCE
95-60 (RELATING TO TRANSACTIONS INVOLVING INSURANCE COMPANY GENERAL ACCOUNTS), PTCE 91-38 (RELATING
TO TRANSACTIONS INVOLVING BANK COLLECTIVE INVESTMENT FUNDS), PTCE 90-1 (RELATING TO TRANSACTIONS
INVOLVING INSURANCE COMPANY POOLED SEPARATE ACCOUNTS) AND PTCE 84-14 (RELATING TO TRANSACTIONS
EFFECTED BY A QUALIFIED PROFESSIONAL ASSET MANAGER).
C-1
exv10w4
Exhibit 10.4
AMENDMENT NUMBER ONE
to the
SECOND AMENDED AND RESTATED SALE AND SERVICING AGREEMENT,
Dated as of March 8, 2005,
among
OPTION ONE OWNER TRUST 2001-2,
OPTION ONE LOAN WAREHOUSE CORPORATION,
OPTION ONE MORTGAGE CORPORATION
and
WELLS FARGO BANK N.A.
This AMENDMENT NUMBER ONE (this Amendment) is made and is effective as of this 30th day of
June, 2005 (the Effective Date), among Option One Owner Trust 2001-2 (the Issuer), Option One
Loan Warehouse Corporation (the Depositor), Option One Mortgage Corporation (the Loan
Originator and the Servicer) and Wells Fargo Bank N.A., as Indenture Trustee (the Indenture
Trustee), to the Second Amended and Restated Sale and Servicing Agreement, dated as of March 8,
2005 (the Sale and Servicing Agreement), among the Issuer, the Depositor, the Loan Originator,
the Servicer and the Indenture Trustee.
RECITALS
WHEREAS, the parties hereto desire to amend the Sale and Servicing Agreement subject to the
terms and conditions of this Amendment.
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and the mutual covenants herein contained, the parties hereto hereby agree as
follows:
SECTION 1. Defined Terms. Any terms capitalized but not otherwise defined herein
shall have the respective meanings set forth in the Sale and Servicing Agreement.
SECTION 2. Amendments. As of the Effective Date, the following amendments shall be in
full force and effect.
(a) Section 1.01 of the Sale and Servicing Agreement is hereby amended by deleting in its
entirety the definition of Collateral Value and replacing such definition with the
following:
Collateral Value: (I) With respect to the Advance Note and each Business Day, 100% of the
Note Principal Balance of the Advance Note on such day and (II) with respect to each Loan
and each Business Day, an amount equal to the positive difference, if any, between (a) the
lesser of (1) the Collateral Percentage of the Market Value of such Loan, and (2) 100% of
the Principal Balance of such Loan (other than a Scratch & Dent Loan which shall be 75% of
the Principal Balance thereof) each as of such Business Day, less (b) the aggregate
unreimbursed Servicing Advances attributable to such Loan as of the most recent
Determination Date; provided, however, that the Collateral Value shall be zero with respect
to the Advance Note following the occurrence of an Advance Note Event of
Default and with respect to each Loan (1) that the Loan Originator is required to repurchase
pursuant to Section 2.05 or Section 3.06 hereof or (2) which is a Loan of the type specified
in subparagraphs (i)-(xi) hereof and which is in excess of the limits permitted under
subparagraphs(i)-(xi) hereof, or (3) which remains pledged to the Indenture Trustee later
than 180 days after its related Transfer Date, or (4) which has been released from the
possession of the Custodian to the Servicer or any Loan Originator for a period in excess of
21 days or exceed the 50 Loan limit for released Loans set forth in the Custodial Agreement,
or (5) that is a Loan which is 60 or more days Delinquent or a Foreclosed Loan, or (6) that
is a Mixed Use Loan, or (7) that is a Wet Funded Loan and the related Loan Documents have not
been delivered to the Custodian within fifteen (15) calendar days after the date of
conveyance of such Loan to the Issuer hereunder, or (8) that is a Scratch and Dent Loan that
has not been liquidated within 90 days after the determination of such deficiency, or (9)
that has an original Principal Balance greater than $1,500,000 or (10) that is a Scratch and
Dent Loan for which a description of the related deficiency has not been reported to the
Initial Noteholder within one Business Day of the related Transfer Date or (11) that has a
Fatal Exception; provided, further, that (A)
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the aggregate Collateral Value of Loans which are Second Lien Loans may not exceed 12%
of the Maximum Note Principal Balance; provided, that the aggregate Collateral Value of
Second Lien Loans exclusive of any Second Lien Loans that are Piggy-Backed Loans may not
exceed 5% of the Maximum Note Principal Balance; |
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the aggregate Collateral Value of Loans that are High LTV Loans may not exceed 10% of
the Maximum Note Principal Balance; |
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the aggregate Collateral Value of Loans which are 30 to 59 days Delinquent as of the
related Determination Date may not exceed 5% of the Maximum Note Principal Balance; |
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the aggregate Collateral Value of Loans with an original Principal Balance greater than
$350,000 but less than $500,000 may not exceed 20% of the Maximum Note Principal Balance; |
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the aggregate Collateral Value of Loans with an original Principal Balance greater than
$500,000 may not exceed 12% of the Maximum Note Principal Balance; |
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he aggregate Collateral Value of Loans which are classified as CC quality Loans may not
exceed 5% of the Maximum Note Principal Balance; |
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the aggregate Collateral Value of Loans which are classified as C or CC quality Loans
may not exceed 8% of the Maximum Note Principal Balance; |
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the aggregate Collateral Value of Loans which are Scratch and Dent Loans may not in the
aggregate exceed 5% of the Maximum Note Principal Balance; |
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the aggregate Collateral Value of Loans that are Wet Funded Loans may not exceed 50% of
the Maximum Note Principal Balance; |
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the aggregate Collateral Value of Loans that conform to Fannie Mae, Freddie Mac or
Ginnie Mae underwriting guidelines may not exceed 20% of the Maximum Note Principal
Balance, and the interest rates of such Loans shall be sufficiently hedged to the
satisfaction of the Initial Noteholder; |
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the aggregate Collateral Value of Loans which are Interest-Only Loans may not in
the aggregate exceed 30% of the Maximum Note Principal Balance and |
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the aggregate Collateral Value of Advance Receivables shall in no event exceed
$112 million. |
(B) each Loan shall be counted in each applicable category in (A) above and may be counted
in 2 or more categories in (A) above at the same time; provided that once the Collateral
Value of any Loan equals zero, it shall not be counted in any category listed in (A)
above.
(c) Section 1.01 of the Sale and Servicing Agreement is hereby amended by adding the
following definitions:
Document Exception Loan: A non-Wet Funded Loan which is included on the Exceptions Report
but does not have a Fatal Exception and is within the 30 day cure period in Section 2.05(b)(ii).
Interest-Only Loan: A Loan which, by its terms, requires the related Borrower to make
monthly payments of only accrued interest for the certain period of time following origination.
After such interest-only period, the loan terms provide that the Borrowers monthly payment will
be recalculated to cover both interest and principal so that such Loan will amortize fully on or
prior to its final payment date.
Fatal Exception: A non-Wet Funded Loan that does not have (i) the documents referenced in
Section 2(b)(i), (iii), (iv), (v) and (vi) of the Custodial Agreement and (ii) some evidence that
a title insurance policy has been issued or a commitment to issue such policy, in the Custodial
Loan File and which are listed on the Fatal Exception Report.
Fatal Exception Report: A report which shall be included in the Exceptions Report provided
by the Custodian, that will clearly identify any Loan with a Fatal Exception.
(d) Section 1.01 of the Sale and Servicing Agreement is hereby amended by deleting the
definition of High LTV Loans in its entirety and replacing it with the following:
High LTV Loans: First Lien Loans with an LTV greater than or equal to 95% and less than or
equal to 100%.
(e) Section 1.01 of the Sale and Servicing Agreement is hereby amended by inserting the
following after the words underwriting deficiencies on the second line of the definition of
Scratch and Dent Loan:
(other than a Fatal Exception or Document Exception Loan)
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(f) Section 2.05 of the Sale and Servicing Agreement is hereby amended by deleting clause
(b)(i) in its entirety and replacing it with the following:
With respect to (i) any non-Wet Funded Loan which has a Fatal Exception in the Exceptions
Report, the Loan Originator shall cure such exceptions by delivering such missing documents to the
Custodian or otherwise curing the defect no later than one Business Day, (ii) any non-Wet Funded
Loans which are set forth as exceptions in the Exceptions Report (other than Fatal Exceptions) (a
Non-Fatal Exception), the Loan Originator shall cure such exceptions by delivering such missing
documents to the Custodian or otherwise curing the defect within 30 days of the Transfer Date;
provided; however, that if such Non-Fatal Exception is not cured within 30 days of the Transfer
Date, such Loan shall be a Scratch and Dent Loan for purposes of this Agreement or (iii) any Wet
Funded Loans which are set forth as exceptions in the Exceptions Report, the Loan Originator shall
cure such exceptions by delivering such missing documents to the Custodian or otherwise curing the
defect no later than one Business Day after the Wet Funded Custodial File Delivery Date, in each
case, following the receipt of the first Exceptions Report listing such exception with respect to
such Loan.
(g) Exhibit E of the Sale and Servicing Agreement is hereby amended by deleting clause (20) in
its entirety and replacing it with the following:
Except with respect to Interest-Only Loans, principal payments on the Loan commenced no more
than two months after the proceeds of the Loan were disbursed. The Loan bears interest at the Loan
Interest Rate. With respect to each Loan, the Promissory Note is payable on the first day of each
month in Monthly Payments, which, (A) in the case of a fixed rate Loan other than a Balloon Loan,
are sufficient to fully amortize the original principal balance over the original term thereof and
to pay interest at the related Loan Interest Rate, (B) in the case of an ARM Loan other than a
Balloon Loan, are changed on each Adjustment Date, and in any case, are sufficient to fully
amortize the original principal balance over the original term thereof and to pay interest at the
related Loan Interest Rate and (C) in the case of a Balloon Loan, are based on a fifteen (15) or
thirty (30) year amortization schedule, as set forth in the related Promissory Note, and a final
monthly payment substantially greater than the preceding monthly payment which is sufficient to
amortize the remaining principal balance of the Balloon Loan and to pay interest at the related
Loan Interest Rate. No Balloon Loan has an original stated maturity of less than seven (7) years.
The Promissory Note does not permit negative amortization. No Loan is a Convertible Mortgage
Loan;
SECTION
3. Representations. In order to induce the parties hereto to execute and
deliver this Amendment, each of the Issuer, the Depositor and the Loan Originator hereby jointly
and severally represents to the other parties hereto and the Noteholders that as of the date
hereof, after giving effect to this Amendment, (a) all of its respective representations and
warranties in the Note Purchase Agreement and the other Basic Documents are true and correct, and
(b) it is otherwise in full compliance with all of the terms and conditions of the Sale and
Servicing Agreement.
SECTION 4. Limited Effect. Except as expressly amended and modified by this Amendment,
the Sale and Servicing Agreement shall continue in full force and effect in accordance with its
terms. Reference to this Amendment need not be made in the Sale and Servicing Agreement or any
other instrument or document executed in connection therewith or
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herewith, or in any certificate, letter or communication issued or made pursuant to, or with
respect to, the Sale and Servicing Agreement, any reference in any of such items to the Sale and
Servicing Agreement being sufficient to refer to the Sale and Servicing Agreement as amended
hereby.
SECTION 5. Fees and Expenses. The Issuer and the Depositor jointly and severally
covenant to pay as and when billed by the Initial Noteholder all of the reasonable out-of-pocket
costs and expenses incurred in connection with the transactions contemplated hereby and in the
other Basic Documents including, without limitation, (i) all reasonable fees, disbursements and
expenses of counsel to the Initial Noteholder, (ii) all reasonable fees and expenses of the
Indenture Trustee and Owner Trustee and their counsel and (iii) all reasonable fees and expenses
of the Custodian and its counsel.
SECTION 6. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICT OF LAWS DOCTRINE
APPLIED IN SUCH STATE.
SECTION 7. Counterparts. This Amendment may be executed by each of the parties hereto
on any number of separate counterparts, each of which shall be an original and all of which taken
together shall constitute one and the same instrument.
SECTION 8. Limitation on Liability. It is expressly understood and agreed by the
parties hereto that (a) this Amendment is executed and delivered by Wilmington Trust Company, not
individually or personally, but solely as Owner Trustee of Option One Owner Trust 2001-2 in the
exercise of the powers and authority conferred and vested in it, (b) each of the representations,
undertakings and agreements herein made on the part of the Issuer is made and intended not as
personal representations, undertakings and agreements by Wilmington Trust Company but is made and
intended for the purpose for binding only the Issuer, (c) nothing herein contained shall be
construed as creating any liability on Wilmington Trust Company, individually or personally, to
perform any covenant either expressed or implied contained herein, all such liability, if any,
being expressly waived by the parties hereto and by any Person
claiming by, through or under the
parties hereto and (d) under no circumstances shall Wilmington Trust Company be personally liable
for the payment of any indebtedness or expenses of the Issuer or be liable for the breach or
failure of any obligation, representation, warranty or covenant made or undertaken by the Issuer
under this Amendment or any other related documents.
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and
delivered by their duly authorized officers as of the day and year first above written.
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OPTION ONE OWNER TRUST 2001-2
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By: Wilmington Trust Company, not in its individual capacity but solely as owner trustee |
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By: |
/s/
Mary Kay Pupillo |
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Name: Title: |
Mary Kay Pupillo
Assistant Vice President |
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OPTION ONE LOAN WAREHOUSE CORPORATION
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By: |
/s/ Charles R. Fulton
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Name: |
Charles R. Fulton |
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Title: |
Assistant Secretary |
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OPTION ONE MORTGAGE CORPORATION
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By: |
/s/ Charles R. Fulton
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Name: |
Charles R. Fulton |
|
|
Title: |
Vice President |
|
|
|
WELLS FARGO BANK N.A., as Indenture
Trustee
|
|
|
By: |
/s/ Reid C. Denny
|
|
|
Name: |
Reid C. Denny |
|
|
Title: |
Vice President |
|
[Signature Page to Amendment One to the Second Amended and Restated Sale and Servicing Agreement]
6
exv10w5
Exhibit 10.5
AMENDMENT NUMBER FIVE
to the
AMENDED AND RESTATED NOTE PURCHASE AGREEMENT,
dated as of November 25, 2003
among
OPTION ONE OWNER TRUST 2001-2,
OPTION ONE LOAN WAREHOUSE CORPORATION
and
BANK OF AMERICA, N.A.
This AMENDMENT NUMBER FIVE (this Amendment) is made and is effective as of this 30th day of
June, 2005 (the Effective Date), among Option One Owner Trust 2001-2 (the Issuer), Option One
Loan Warehouse Corporation (the Depositor) and Bank of America, N.A. (BofA, and in its
capacity as Purchaser, the Purchaser) to the Amended and Restated Note Purchase Agreement, dated
as of November 25, 2003, as amended (the Note Purchase Agreement), among the Issuer, the
Depositor and the Purchaser.
RECITALS
WHEREAS, the Issuer has requested that the Purchaser agree to amend the Note Purchase
Agreement to extend the time period with respect to the increase of the Maximum Note Principal
Balance from $2,000,000,000 to $3,000,000,000, to September 30, 2005 and $2,500,000,000 thereafter
and the Purchaser has agreed to make such amendments, subject to the terms and conditions of this
Amendment.
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and the mutual covenants herein contained, the parties hereto hereby agree as
follows:
SECTION 1. Defined Terms. Any capitalized terms used but not otherwise defined herein shall
have the respective meanings set forth in the Note Purchase Agreement.
SECTION 2. Amendment. As of the Effective Date, the definition of Maximum Note Principal
Balance in Section 1.01 is hereby deleted in its entirety and replaced with the following:
Maximum Note Principal Balance means, from the Effective Date to and including September 30,
2005, an amount equal to $3,000,000,000, less any reductions pursuant to Section 2.06 of the Sale
and Servicing Agreement. After September 30, 2005 such term shall mean an amount equal to
$2,500,000,000, less any reductions pursuant to Section 2.06 of the Sale and Servicing Agreement.
SECTION 3. Representations. To induce the Purchaser to execute and deliver this Amendment,
each of the Issuer and the Depositor hereby represents to the Purchaser that as of the date hereof,
after giving effect to this Amendment, (a) all of its respective representations and warranties in
the Note Purchase Agreement and the other Basic Documents are true and
1
correct,
and (b) it is otherwise in full compliance with all of the terms and conditions of the
Note Purchase Agreement.
SECTION
4. Fees and Expenses. The Issuer and the Depositor jointly and severally covenant to
pay as and when billed by the Purchaser all of the reasonable out-of-pocket costs and expenses
incurred in connection with the transactions contemplated hereby and in the other Basic Documents
including, without limitation, (i) all reasonable fees, disbursements and expenses of counsel to
the Purchaser, (ii) all reasonable fees and expenses of the Indenture Trustee and Owner Trustee
and their counsel and (iii) all reasonable fees and expenses of the Custodian and its counsel.
SECTION 5. Limited Effect. Except as expressly amended and modified by this Amendment, the
Note Purchase Agreement shall continue in full force and effect in accordance with its terms.
Reference to this Amendment need not be made in the Note Purchase Agreement or any other
instrument or document executed in connection therewith, or in any certificate, letter or
communication issued or made pursuant to, or with respect to, the Note Purchase Agreement, any
reference in any of such items to the Note Purchase Agreement being sufficient to refer to the
Note Purchase Agreement as amended hereby.
SECTION 6. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICT OF LAWS DOCTRINE APPLIED IN
SUCH STATE.
SECTION 7. Counterparts. This Amendment may be executed by each of the parties hereto in any
number of separate counterparts, each of which when so executed shall be an original and all of
which taken together shall constitute one and the same instrument.
SECTION 8. Limitation on Liability. It is expressly understood and agreed by the parties
hereto that (a) this Amendment is executed and delivered by Wilmington Trust Company, not
individually or personally, but solely as Owner Trustee of Option One Owner Trust 2001-2 in the
exercise of the powers and authority conferred and vested in it, (b) each of the representations,
undertakings and agreements herein made on the part of the Issuer is made and intended not as
personal representations, undertakings and agreements by Wilmington Trust Company but is made and
intended for the purpose for binding only the Issuer, (c) nothing herein contained shall be
construed as creating any liability on Wilmington Trust Company, individually or personally, to
perform any covenant either expressed or implied contained herein, all such liability, if any,
being expressly waived by the parties hereto and by any Person claiming by, through or under the
parties hereto and (d) under no circumstances shall Wilmington Trust Company be personally liable
for the payment of any indebtedness or expenses of the Issuer or be liable for the breach or
failure of any obligation, representation, warranty or covenant made or undertaken by the Issuer
under this Amendment or any other related documents.
2
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and
delivered by their duly authorized officers as of the day and year first above
written.
|
|
|
|
|
|
OPTION ONE OWNER TRUST 2001-2
|
|
|
By: Wilmington Trust Company, not in its individual capacity but solely as owner trustee
|
|
|
|
By: |
/s/ Mary Kay Pupillo |
|
|
Name: Title: |
Mary Kay Pupillo
Assistant Vice President |
|
|
|
OPTION ONE LOAN WAREHOUSE CORPORATION
|
|
|
By: |
/s/ Charles R. Fulton
|
|
|
Name: |
Charles R. Fulton |
|
|
Title: |
Assistant Secretary |
|
|
|
BANK OF AMERICA, N.A.
|
|
|
By: |
/s/ Garrett Dolt
|
|
|
Name: |
GARRETT DOLT |
|
|
Title: |
PRINCIPAL |
|
[Signature Page to Amendment Five to the Amended and Restated Note Purchase Agreement]
3
exv10w6
Exhibit 10.6
AMENDMENT NUMBER ONE
to the
SECOND AMENDED AND RESTATED SALE AND SERVICING AGREEMENT,
Dated as of April 29, 2005,
among
OPTION ONE OWNER TRUST 2001-1 A,
OPTION ONE LOAN WAREHOUSE CORPORATION,
OPTION ONE MORTGAGE CORPORATION
and
WELLS FARGO BANK N.A.
This AMENDMENT NUMBER ONE (this Amendment) is made and is effective as of this
29th day of June, 2005, among Option One Owner Trust 2001-1A (the Issuer), Option One
Loan Warehouse Corporation (the Depositor), Option One Mortgage Corporation (the Loan
Originator and the Servicer) and Wells Fargo Bank N.A., as Indenture Trustee (the
Indenture Trustee), to the Second Amended and Restated Sale and Servicing Agreement,
dated as of April 29, 2005 (as so amended, the Sale and Servicing Agreement), among the
Issuer, the Depositor, the Loan Originator, the Servicer and the Indenture Trustee, as
otherwise amended.
RECITALS
WHEREAS, the parties hereto desire to amend the Sale and Servicing Agreement subject
to the terms and conditions of this Amendment.
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and the mutual covenants herein contained, the parties
hereto hereby agree as follows:
SECTION
1. Defined Terms. Any terms capitalized but not otherwise defined
herein shall have the respective meanings set forth in the Sale and Servicing Agreement.
SECTION
2. Amendments. Effective as of June 29, 2005 the following
amendments shall be in full force and effect.
|
(i) |
|
Section 1.01 of the Sale and Servicing Agreement is hereby amended by
adding the following definitions: |
Interest-Only Loan is a Loan which, by its terms, requires the related
Borrower to make monthly payments of only accrued interest for the certain period
of time following origination. After such interest-only period, the loan terms
provide that the Borrowers monthly payment will be recalculated to cover both
interest and principal so that such Loan will amortize fully on or prior to its
final payment date.
40/30 Loan is a Loan which, by its terms, matures in 30 years, and requires
the related borrower to make monthly payments during such term calculated on
the basis of a 40-year amortization schedule, and accordingly provides for a higher single
payment at maturity.
|
(ii) |
|
Paragraph (xx) of Exhibit E to the Sale and Servicing Agreement is
hereby amended in its entirety to read as follows: |
(xx) Except for Interest-Only Loans, Principal payments on the Loan commenced no more
than two months after the proceeds of the Loan were disbursed. The Loan bears interest at
the Loan Interest Rate. With respect to each Loan unless otherwise stated on the Loan
Schedule, the Promissory Note is payable on the first day of each month in Monthly Payments
which, except for Balloon Loans, are sufficient to fully amortize the original principal
balance over the original term thereof and to pay interest at the related Loan Interest
Rate, and, in the case of each ARM, are changed on each Adjustment Date. The Promissory Note
does not permit negative amortization. No Loan is a Convertible Mortgage Loan;
|
(iii) |
|
Paragraph (xxxvii) of Exhibit E to the Sale and Servicing Agreement is
hereby amended in its entirety to read as follows: |
(xxxvii) Except for 40/30 Loans and as set forth on the Loan Schedule, no Loan has a
balloon payment feature;
SECTION
3. Representations. In order to induce the parties hereto to execute and
deliver this Amendment, each of the Issuer, the Depositor and the Loan Originator hereby jointly
and severally represents to the other parties hereto and the Noteholders that as of the date
hereof, after giving effect to this Amendment, (a) all of its respective representations and
warranties in the Note Purchase Agreement and the other Basic Documents are true and correct, and
(b) it is otherwise in full compliance with all of the terms and conditions of the Sale and
Servicing Agreement.
SECTION
4. Limited Effect. Except as expressly amended and modified by this
Amendment, the Sale and Servicing Agreement shall continue in full force and effect in accordance
with its terms. Reference to this Amendment need not be made in the Sale and Servicing Agreement
or any other instrument or document executed in connection therewith or herewith, or in any
certificate, letter or communication issued or made pursuant to, or with respect to, the Sale and
Servicing Agreement, any reference in any of such items to the Sale and Servicing Agreement being
sufficient to refer to the Sale and Servicing Agreement as amended hereby.
SECTION 5. Fees and Expenses. The Issuer and the Depositor jointly and severally
covenant to pay as and when billed by the Initial Noteholder all of the reasonable out-of-pocket
costs and expenses incurred in connection with the transactions contemplated hereby and in the
other Basic Documents including, without limitation, (i) all reasonable fees, disbursements and
expenses of counsel to the Initial Noteholder, (ii) all reasonable fees and expenses of the
Indenture Trustee and Owner Trustee and their counsel and (iii) all reasonable fees and expenses
of the Custodian and its counsel.
2
SECTION 6. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICT OF LAWS DOCTRINE
APPLIED IN SUCH STATE.
SECTION 7. Counterparts. This Amendment may be executed by each of the parties hereto on any
number of separate counterparts, each of which shall be an original and all of which taken
together shall constitute one and the same instrument.
SECTION
8. Limitation on Liability. It is expressly understood and agreed by the
parties hereto that (a) this Amendment is executed and delivered by Wilmington Trust Company, not
individually or personally, but solely as Owner Trustee of Option One
Owner Trust 2001-1A in the
exercise of the powers and authority conferred and vested in it, (b) each of the representations,
undertakings and agreements herein made on the part of the Issuer is made and intended not as
personal representations, undertakings and agreements by Wilmington Trust Company but is made and
intended for the purpose for binding only the Issuer, (c) nothing herein contained shall be
construed as creating any liability on Wilmington Trust Company, individually or personally, to
perform any covenant either expressed or implied contained herein, all such liability, if any,
being expressly waived by the parties hereto and by any Person claiming by, through or under the
parties hereto and (d) under no circumstances shall Wilmington Trust Company be personally liable
for the payment of any indebtedness or expenses of the Issuer or be liable for the breach or
failure of any obligation, representation, warranty or covenant made or undertaken by the Issuer
under this Amendment or any other related documents.
3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered
by their duly authorized officers as of the day and year first above written.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPTION ONE OWNER TRUST 2001-1A |
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
Wilmington Trust Company, not in its
|
|
|
|
|
individual capacity but solely as owner
trustee |
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Mary Kay Pupillo |
|
|
|
|
|
|
|
|
|
|
|
Name: Mary Kay Pupillo |
|
|
|
|
Title: Assistant Vice President |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPTION ONE LOAN WAREHOUSE
CORPORATION |
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Charles R. Fulton |
|
|
|
|
|
|
|
|
|
|
|
Name: Charles R. Fulton |
|
|
|
|
Title: Assistant Secretary |
|
|
|
|
|
|
|
|
|
|
|
OPTION ONE MORTGAGE CORPORATION |
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Charles R. Fulton |
|
|
|
|
|
|
|
|
|
|
|
Name: Charles R. Fulton |
|
|
|
|
Title: Vice President |
|
|
|
|
|
|
|
|
|
|
|
WELLS FARGO BANK N.A., as Indenture Trustee |
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Darron C. Woodus |
|
|
|
|
|
|
|
|
|
|
|
Name: Darron C. Woodus |
|
|
|
|
Title: Assistant Vice President |
|
|
[Signature Page to Amendment One to the Second Amended and Restated Sale and Servicing
Agreement]
4
exv10w7
Exhibit 10.7
AMENDMENT NUMBER ONE
to the
SECOND AMENDED AND RESTATED SALE AND SERVICING AGREEMENT,
Dated as of April 29, 2005,
among
OPTION ONE OWNER TRUST 2001-IB,
OPTION ONE LOAN WAREHOUSE CORPORATION,
OPTION ONE MORTGAGE CORPORATION
and
WELLS FARGO BANK N.A.
This AMENDMENT NUMBER ONE (this Amendment) is made and is effective as of this
29th day of June, 2005, among Option One Owner Trust 2001-1B (the Issuer), Option
One Loan Warehouse Corporation (the Depositor), Option One Mortgage Corporation (the
Loan Originator and the Servicer) and Wells Fargo Bank N.A., as Indenture Trustee
(the Indenture Trustee), to the Second Amended and Restated Sale and Servicing
Agreement, dated as of April 29, 2005 (as so amended, the Sale and Servicing
Agreement), among the Issuer, the Depositor, the Loan Originator, the Servicer and
the Indenture Trustee, as otherwise amended.
RECITALS
WHEREAS, the parties hereto desire to amend the Sale and Servicing Agreement
subject to the terms and conditions of this Amendment.
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, and the mutual covenants herein contained, the
parties hereto hereby agree as follows:
SECTION
1. Defined Terms. Any terms capitalized but not otherwise defined
herein shall have the respective meanings set forth in the Sale and Servicing
Agreement.
SECTION
2. Amendments. Effective as of June 29, 2005 the following
amendments shall be in full force and effect.
|
(i) |
|
Section 1.01 of the Sale and Servicing Agreement is hereby
amended by adding the following definitions: |
Interest-Only Loan is a Loan which, by its terms, requires the related
Borrower to make monthly payments of only accrued interest for the certain
period of time following origination. After such interest-only period, the loan
terms provide that the Borrowers monthly payment will be recalculated to cover
both interest and principal so that such Loan will amortize fully on or prior to
its final payment date.
40/30 Loan is a Loan which, by its terms, matures in 30 years, and
requires the related borrower to make monthly payments during such term
calculated on
the basis of a 40-year amortization schedule, and accordingly provides for a higher single
payment at maturity.
|
(ii) |
|
Paragraph (xx) of Exhibit E to the Sale and Servicing Agreement is
hereby amended in its entirety to read as follows: |
(xx) Except for Interest-Only Loans, Principal payments on the Loan commenced no
more than two months after the proceeds of the Loan were disbursed. The Loan bears interest
at the Loan Interest Rate. With respect to each Loan unless otherwise stated on the Loan
Schedule, the Promissory Note is payable on the first day of each month in Monthly Payments
which, except for Balloon Loans, are sufficient to fully amortize the original principal
balance over the original term thereof and to pay interest at the related Loan Interest
Rate, and, in the case of each ARM, are changed on each Adjustment Date. The Promissory Note
does not permit negative amortization. No Loan is a Convertible Mortgage Loan;
|
(iii) |
|
Paragraph (xxxvii) of Exhibit E to the Sale and Servicing Agreement is
hereby amended in its entirety to read as follows: |
(xxxvii) Except for 40/30 Loans and as set forth on the Loan Schedule, no Loan has a
balloon payment feature;
SECTION
3. Representations. In order to induce the parties hereto to execute and
deliver this Amendment, each of the Issuer, the Depositor and the Loan Originator hereby jointly
and severally represents to the other parties hereto and the Noteholders that as of the date
hereof, after giving effect to this Amendment, (a) all of its respective representations and
warranties in the Note Purchase Agreement and the other Basic Documents are true and correct, and
(b) it is otherwise in full compliance with all of the terms and conditions of the Sale and
Servicing Agreement.
SECTION
4. Limited Effect. Except as expressly amended and modified by this
Amendment, the Sale and Servicing Agreement shall continue in full force and effect in accordance
with its terms. Reference to this Amendment need not be made in the Sale and Servicing Agreement
or any other instrument or document executed in connection therewith or herewith, or in any
certificate, letter or communication issued or made pursuant to, or with respect to, the Sale and
Servicing Agreement, any reference in any of such items to the Sale and Servicing Agreement being
sufficient to refer to the Sale and Servicing Agreement as amended hereby.
SECTION 5. Fees and Expenses. The Issuer and the Depositor jointly and severally
covenant to pay as and when billed by the Initial Noteholder all of the reasonable out-of-pocket
costs and expenses incurred in connection with the transactions contemplated hereby and in the
other Basic Documents including, without limitation, (i) all reasonable fees, disbursements and
expenses of counsel to the Initial Noteholder, (ii) all reasonable fees and expenses of the
Indenture Trustee and Owner Trustee and their counsel and (iii) all reasonable fees and expenses
of the Custodian and its counsel.
2
SECTION
6. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICT OF LAWS DOCTRINE
APPLIED IN SUCH STATE.
SECTION 7. Counterparts. This Amendment may be executed by each of the parties hereto
on any number of separate counterparts, each of which shall be an original and all of which taken
together shall constitute one and the same instrument.
SECTION 8. Limitation on Liability. It is expressly understood and agreed by the
parties hereto that (a) this Amendment is executed and delivered by Wilmington Trust Company, not
individually or personally, but solely as Owner Trustee of Option One Owner Trust 2001-1B in the
exercise of the powers and authority conferred and vested in it, (b) each of the representations,
undertakings and agreements herein made on the part of the Issuer is made and intended not as
personal representations, undertakings and agreements by Wilmington Trust Company but is made and
intended for the purpose for binding only the Issuer, (c) nothing herein contained shall be
construed as creating any liability on Wilmington Trust Company, individually or personally, to
perform any covenant either expressed or implied contained herein, all such liability, if any,
being expressly waived by the parties hereto and by any Person claiming by, through or under the
parties hereto and (d) under no circumstances shall Wilmington Trust Company be personally liable
for the payment of any indebtedness or expenses of the Issuer or be liable for the breach or
failure of any obligation, representation, warranty or covenant made or undertaken by the Issuer
under this Amendment or any other related documents.
3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and
delivered by their duly authorized officers as of the day and year first above written.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPTION ONE OWNER TRUST 2001-1B |
|
|
|
|
|
|
|
|
|
|
|
By: Wilmington Trust Company, not in its
individual capacity but solely as owner trustee |
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Mary Kay Pupillo |
|
|
|
|
|
|
|
|
|
|
|
Name: Mary Kay Pupillo |
|
|
|
|
Title: Assistant Vice President |
|
|
|
|
|
|
|
|
|
|
|
OPTION ONE LOAN WAREHOUSE CORPORATION |
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Charles R. Fulton |
|
|
|
|
|
|
|
|
|
|
|
Name: Charles R. Fulton |
|
|
|
|
Title: Assistant Secretary |
|
|
|
|
|
|
|
|
|
|
|
OPTION ONE MORTGAGE CORPORATION |
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Charles R. Fulton |
|
|
|
|
|
|
|
|
|
|
|
Name: Charles R. Fulton |
|
|
|
|
Title: Vice President |
|
|
|
|
|
|
|
|
|
|
|
WELLS FARGO BANK N.A., as Indenture Trustee |
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Darron C. Woodus |
|
|
|
|
|
|
|
|
|
|
|
Name: Darron C. Woodus |
|
|
|
|
Title: Assistant Vice President |
|
|
[Signature Page to Amendment One to the Second Amended and Restated Sale and Servicing
Agreement]
4
exv10w8
Exhibit 10.8
SUMMARY SHEET FOR
EXECUTIVE OFFICER COMPENSATION
Annual Incentive (Short-Term) Compensation Earned in Fiscal 2005
The amounts of the short-term incentive compensation awards for the Companys Named Executive
Officers (as defined in Item 402(a)(3) of Regulation S-K) for the fiscal year ended April 30, 2005
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Award based |
|
|
|
|
|
|
upon objective |
|
|
|
|
|
|
performance |
|
Discretionary |
Name |
|
Position |
|
goals |
|
award |
Mark A. Ernst
|
|
Chairman of the
Board, President
and Chief Executive
Officer
|
|
|
217,140 |
|
|
|
181,500 |
|
Jeffery W. Yabuki
|
|
Executive Vice
President and Chief
Operating Officer
|
|
|
80,408 |
|
|
|
64,766 |
|
Robert E. Dubrish
|
|
President and Chief
Executive Officer,
Option One Mortgage
Corporation
|
|
|
142,241 |
|
|
|
61,100 |
|
Steven Tait
|
|
President, RSM
McGladrey Business
Services, Inc.
|
|
|
302,784 |
|
|
|
74,700 |
|
Nicholas J. Spaeth
|
|
Senior Vice
President and Chief
Legal Officer
|
|
|
63,168 |
|
|
|
38,400 |
|
Long-Term Incentive Compensation Awarded in Fiscal 2006
Long-term incentive compensation awards under the Companys 2003 Long-Term Executive Compensation
Plan were granted on June 30, 2005 to the Named Executive Officers in the following amounts:
|
|
|
|
|
|
|
|
|
|
|
Securities |
|
|
Shares of |
|
Name |
|
Underlying Options |
|
|
Restricted Stock |
|
Mark A. Ernst |
|
|
130,000 |
|
|
|
15,000 |
|
Jeffery W. Yabuki |
|
|
80,000 |
|
|
|
8,000 |
|
Robert E. Dubrish |
|
|
70,000 |
|
|
|
7,000 |
|
Steven Tait |
|
|
50,000 |
|
|
|
7,000 |
|
Nicholas J. Spaeth |
|
|
25,000 |
|
|
|
5,000 |
|
The options and restricted stock vest in annual equal installments over three years following
the date of grant or award. The grant of options and award of shares of restricted stock were made
pursuant to the terms of the 2003 Long-Term Executive Compensation Plan and the terms of the
individual award agreements.
Fiscal 2006 Base Salary Increases
The following table sets for the annual base salaries of the Named Executive Officers for fiscal
years 2005 and 2006:
|
|
|
|
|
|
|
|
|
Name |
|
2005 |
|
|
2006 |
|
Mark A. Ernst |
|
|
825,000 |
|
|
|
860,000 |
|
Jeffery W. Yabuki |
|
|
470,000 |
|
|
|
550,000 |
|
Robert E. Dubrish |
|
|
470,000 |
|
|
|
490,000 |
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Steven Tait |
|
|
415,000 |
|
|
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425,000 |
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Nicholas J. Spaeth |
|
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400,000 |
|
|
|
412,000 |
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Performance Criteria for Fiscal 2006 Short-Term Incentive Compensation
The Companys short-term incentive compensation consists of an objective incentive compensation
component based upon annual financial targets tied to business unit or overall corporate results
(the Financial STI Component) and a discretionary incentive compensation component based on the
achieving pre-established individual or strategic objectives (the Discretionary STI Component).
The Financial STI Component will constitute 80% of targeted short-term incentive compensation for
fiscal year 2006, with the Discretionary STI Component constituting the remaining 20% of targeted
short-term incentive compensation.
Fiscal year 2006 performance criteria under the Financial STI Component will vary among business
segments, but generally will consist of the following: (i) the degree to which the Company attains
targeted year-over-year growth in diluted earnings per share; (ii) year-over-year growth in retail
tax services clients; (iii) year-over-year reduction in mortgage origination costs as a percentage
of mortgage origination volume; (iv) year-over-year increase in mortgage origination volume; (v)
year-over-year increase in business segment pre-tax earnings; and (vi) business segment
year-over-year growth. Under the Financial STI Component, participants can earn more or less than
the target award (from 0% to 200% of the target award) depending upon how actual results compare to
the pre-established performance targets.
Payments under the Discretionary STI Component for fiscal year 2006 will be based upon achievement
of strategic and individual performance objectives that support the Companys priorities. Actual
incentive payouts under the Discretionary Objective STI Component could be from 0% to 200% of the
target award.
exv31w1
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Mark A. Ernst, Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of H&R Block, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principals;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth
quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrants
ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrants internal control over financial reporting.
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Date: September 8, 2005
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/s/ Mark A. Ernst
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Mark A. Ernst
Chief Executive Officer |
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H&R Block, Inc. |
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exv31w2
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, William L. Trubeck, Chief Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of H&R Block, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principals;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth
quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrants
ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrants internal control over financial reporting.
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Date: September 8, 2005
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/s/ William L. Trubeck
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William L. Trubeck
Chief Financial Officer |
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H&R Block, Inc. |
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exv32w1
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of H&R Block, Inc. (the Company) on Form 10-Q for
the period ending July 31, 2005 as filed with the Securities and Exchange Commission on the date
hereof (the Report), I, Mark A. Ernst, Chief Executive Officer of the Company, certify pursuant
to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
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(1) |
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The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and |
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(2) |
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The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company. |
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/s/ Mark A. Ernst
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Mark A. Ernst |
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Chief Executive Officer
H&R Block, Inc. September 8, 2005 |
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exv32w2
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of H&R Block, Inc. (the Company) on Form 10-Q for
the period ending July 31, 2005 as filed with the Securities and Exchange Commission on the date
hereof (the Report), I, William L. Trubeck, Chief Financial Officer of the Company, certify
pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
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(1) |
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The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and |
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(2) |
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The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company. |
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/s/ William L. Trubeck
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William L. Trubeck |
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Chief Financial Officer
H&R Block, Inc. September 8, 2005 |
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