Table of Contents
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended January 31, 2007
OR
| o | 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
H&R Block, Inc.
(Exact name of registrant as specified in its charter)
| MISSOURI | 44-0607856 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
One H&R Block Way
Kansas City, Missouri 64105
(Address of principal executive offices, including zip code)
Kansas City, Missouri 64105
(Address of principal executive offices, including zip code)
(816) 854-3000
(Registrant’s telephone number, including area code)
(Registrant’s 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 large accelerated filer, an accelerated filer or
a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in
Rule 12b-2 of the Exchange Act. (Check one)
Large accelerated filer þ Accelerated filer o Non-accelerated filer 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 þ
The number of shares outstanding of the registrant’s Common Stock, without par value, at the close
of business on February 28, 2007 was 322,926,550 shares.
Form 10-Q for the Period Ended January 31, 2007
Table of Contents
Table of Contents
CONDENSED CONSOLIDATED BALANCE SHEETS
| (amounts in 000s, except share amounts) | ||||||||
| January 31, 2007 | April 30, 2006 | |||||||
| (Unaudited) | ||||||||
ASSETS |
||||||||
Cash and cash equivalents |
$ | 1,082,666 | $ | 677,204 | ||||
Cash and cash equivalents — restricted |
432,524 | 385,623 | ||||||
Receivables from customers, brokers, dealers and clearing
organizations, net |
424,874 | 496,577 | ||||||
Receivables, less allowance for doubtful accounts
of $54,974 and $64,480 |
2,376,846 | 482,144 | ||||||
Prepaid expenses and other current assets |
202,309 | 152,701 | ||||||
Current assets of discontinued operations, held for sale |
988,060 | 594,187 | ||||||
Total current assets |
5,507,279 | 2,788,436 | ||||||
Mortgage loans held for investment, net |
1,069,626 | — | ||||||
Property and equipment, at cost less accumulated depreciation
and amortization of $645,913 and $627,181 |
392,706 | 356,812 | ||||||
Intangible assets, net |
184,290 | 219,494 | ||||||
Goodwill, net |
982,598 | 947,985 | ||||||
Other assets |
386,986 | 375,395 | ||||||
Noncurrent assets of discontinued operations, held for sale |
836,493 | 1,301,013 | ||||||
Total assets |
$ | 9,359,978 | $ | 5,989,135 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
Liabilities: |
||||||||
Commercial paper and other short-term borrowings |
$ | 2,926,421 | $ | — | ||||
Current portion of long-term debt |
512,333 | 506,992 | ||||||
Accounts payable to customers, brokers and dealers |
684,475 | 781,303 | ||||||
Customer banking deposits |
1,632,875 | — | ||||||
Accounts payable, accrued expenses and other current liabilities |
496,084 | 612,181 | ||||||
Accrued salaries, wages and payroll taxes |
249,243 | 270,303 | ||||||
Accrued income taxes |
71,079 | 505,690 | ||||||
Current liabilities of discontinued operations, held for sale |
497,749 | 216,967 | ||||||
Total current liabilities |
7,070,259 | 2,893,436 | ||||||
Long-term debt |
416,183 | 417,539 | ||||||
Other noncurrent liabilities |
343,362 | 530,361 | ||||||
Total liabilities |
7,829,804 | 3,841,336 | ||||||
Stockholders’ equity: |
||||||||
Common stock, no par, stated value $.01 per share,
800,000,000 shares authorized, 435,890,796 shares
issued at January 31, 2007 and April 30, 2006 |
4,359 | 4,359 | ||||||
Additional paid-in capital |
662,297 | 653,053 | ||||||
Accumulated other comprehensive income |
6,975 | 21,948 | ||||||
Retained earnings |
3,015,880 | 3,492,059 | ||||||
Less cost of 113,071,487 and 107,377,858 shares of
common stock in treasury |
(2,159,337 | ) | (2,023,620 | ) | ||||
Total stockholders’ equity |
1,530,174 | 2,147,799 | ||||||
Total liabilities and stockholders’ equity |
$ | 9,359,978 | $ | 5,989,135 | ||||
See Notes to Condensed Consolidated Financial Statements
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
| (Unaudited, amounts in 000s, | ||||||||||||||||
| except per share amounts) | ||||||||||||||||
| Three months ended January 31, | Nine months ended January 31, | |||||||||||||||
| 2007 | 2006 | 2007 | 2006 | |||||||||||||
Revenues: |
||||||||||||||||
Service revenues |
$ | 758,005 | $ | 706,159 | $ | 1,420,029 | $ | 1,214,895 | ||||||||
Other revenues: |
||||||||||||||||
Product and other revenues |
160,894 | 135,332 | 192,064 | 167,775 | ||||||||||||
Interest income |
36,217 | 18,762 | 92,429 | 51,311 | ||||||||||||
| 955,116 | 860,253 | 1,704,522 | 1,433,981 | |||||||||||||
Operating expenses: |
||||||||||||||||
Cost of services |
587,873 | 559,082 | 1,377,919 | 1,175,869 | ||||||||||||
Cost of other revenues |
69,962 | 40,281 | 115,002 | 59,176 | ||||||||||||
Selling, general and administrative |
269,393 | 297,401 | 592,155 | 586,700 | ||||||||||||
| 927,228 | 896,764 | 2,085,076 | 1,821,745 | |||||||||||||
Operating income (loss) |
27,888 | (36,511 | ) | (380,554 | ) | (387,764 | ) | |||||||||
Interest expense |
(12,066 | ) | (12,211 | ) | (36,292 | ) | (37,031 | ) | ||||||||
Other income, net |
3,031 | 3,708 | 15,097 | 13,951 | ||||||||||||
Income (loss) from continuing operations
before tax benefit |
18,853 | (45,014 | ) | (401,749 | ) | (410,844 | ) | |||||||||
Income tax benefit |
(6,112 | ) | (14,766 | ) | (172,726 | ) | (158,391 | ) | ||||||||
Net income (loss) from continuing operations |
24,965 | (30,248 | ) | (229,023 | ) | (252,453 | ) | |||||||||
Net income (loss) from discontinued operations |
(85,217 | ) | 42,361 | (119,066 | ) | 155,323 | ||||||||||
Net income (loss) |
$ | (60,252 | ) | $ | 12,113 | $ | (348,089 | ) | $ | (97,130 | ) | |||||
Basic earnings (loss) per share: |
||||||||||||||||
Net income (loss) from continuing operations |
$ | 0.08 | $ | (0.09 | ) | $ | (0.71 | ) | $ | (0.77 | ) | |||||
Net income (loss) from discontinued operations |
(0.27 | ) | 0.13 | (0.37 | ) | 0.47 | ||||||||||
Net income (loss) |
$ | (0.19 | ) | $ | 0.04 | $ | (1.08 | ) | $ | (0.30 | ) | |||||
Basic shares |
322,350 | 327,289 | 322,588 | 328,017 | ||||||||||||
Diluted earnings (loss) per share: |
||||||||||||||||
Net income (loss) from continuing operations |
$ | 0.08 | $ | (0.09 | ) | $ | (0.71 | ) | $ | (0.77 | ) | |||||
Net income (loss) from discontinued operations |
(0.26 | ) | 0.13 | (0.37 | ) | 0.47 | ||||||||||
Net income (loss) |
$ | (0.18 | ) | $ | 0.04 | $ | (1.08 | ) | $ | (0.30 | ) | |||||
Diluted shares |
326,048 | 327,289 | 322,588 | 328,017 | ||||||||||||
Dividends per share |
$ | 0.14 | $ | 0.13 | $ | 0.40 | $ | 0.36 | ||||||||
Comprehensive income (loss): |
||||||||||||||||
Net income (loss) |
$ | (60,252 | ) | $ | 12,113 | $ | (348,089 | ) | $ | (97,130 | ) | |||||
Change in unrealized gain on
available-for-sale securities, net |
(14,350 | ) | (3,002 | ) | (15,194 | ) | (32,466 | ) | ||||||||
Change in foreign currency
translation adjustments |
(268 | ) | (7,820 | ) | 221 | (2,611 | ) | |||||||||
Comprehensive income (loss) |
$ | (74,870 | ) | $ | 1,291 | $ | (363,062 | ) | $ | (132,207 | ) | |||||
See Notes to Condensed Consolidated Financial Statements
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| (Unaudited, amounts in 000s) | ||||||||
| Nine months ended January 31, | 2007 | 2006 | ||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (348,089 | ) | $ | (97,130 | ) | ||
Adjustments to reconcile net loss to net
cash used in operating activities: |
||||||||
Depreciation and amortization |
119,909 | 111,396 | ||||||
Tax benefits from stock-based compensation |
(12,314 | ) | 19,967 | |||||
Excess tax benefits from stock-based compensation |
(2,379 | ) | — | |||||
Change in participation in tax client loans receivable |
(1,691,351 | ) | (843,146 | ) | ||||
Net cash provided by (used in) operating activities of
discontinued operations |
573,201 | (478,015 | ) | |||||
Other, net of acquisitions |
(1,417,241 | ) | (407,464 | ) | ||||
Net cash used in operating activities |
(2,778,264 | ) | (1,694,392 | ) | ||||
Cash flows from investing activities: |
||||||||
Mortgage loans originated or purchased for investment, net |
(1,073,012 | ) | — | |||||
Purchases of property and equipment, net |
(129,905 | ) | (134,328 | ) | ||||
Payments made for business acquisitions, net of cash acquired |
(24,670 | ) | (209,816 | ) | ||||
Net cash provided by investing activities of
discontinued operations |
18,322 | 72,247 | ||||||
Other, net |
30,542 | 17,625 | ||||||
Net cash used in investing activities |
(1,178,723 | ) | (254,272 | ) | ||||
Cash flows from financing activities: |
||||||||
Repayments of commercial paper |
(4,901,618 | ) | (2,632,444 | ) | ||||
Proceeds from issuance of commercial paper |
6,397,656 | 4,678,392 | ||||||
Repayments of other short-term borrowings |
(889,722 | ) | — | |||||
Proceeds from other short-term borrowings |
2,320,105 | 550,000 | ||||||
Customer deposits |
1,632,875 | — | ||||||
Dividends paid |
(128,088 | ) | (118,665 | ) | ||||
Acquisition of treasury shares |
(188,562 | ) | (260,078 | ) | ||||
Excess tax benefits from stock-based compensation |
2,379 | — | ||||||
Proceeds from exercise of stock options |
19,183 | 95,930 | ||||||
Net cash provided by financing activities of
discontinued operations |
172,301 | — | ||||||
Other, net |
(74,060 | ) | (9,349 | ) | ||||
Net cash provided by financing activities |
4,362,449 | 2,303,786 | ||||||
Net increase in cash and cash equivalents |
405,462 | 355,122 | ||||||
Cash and cash equivalents at beginning of the period |
677,204 | 1,072,299 | ||||||
Cash and cash equivalents at end of the period |
$ | 1,082,666 | $ | 1,427,421 | ||||
Supplementary cash flow data: |
||||||||
Income taxes paid |
$ | 378,377 | $ | 224,774 | ||||
Interest paid |
103,252 | 62,980 | ||||||
See Notes to Condensed Consolidated Financial Statements
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The condensed consolidated balance sheet as of January 31, 2007, the condensed consolidated
statements of income and comprehensive income for the three and nine months ended January 31, 2007
and 2006, and the condensed consolidated statements of cash flows for the nine months ended January
31, 2007 and 2006 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 January 31, 2007 and for all periods
presented have been made. The preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
“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.
In March 2006, the Office of Thrift Supervision (OTS) approved the charter of H&R Block Bank
(HRB Bank). HRB Bank commenced operations on May 1, 2006, at which time we realigned certain
segments of our business to reflect a new management reporting structure. The previously reported
Investment Services segment and HRB Bank were combined in the Consumer Financial Services segment.
On November 6, 2006 we announced we would evaluate strategic alternatives for Option One
Mortgage Corporation (OOMC), including a possible sale or other transaction through the public
markets. On January 20, 2007, our Board of Directors approved
the plan to sell OOMC and its wholly-owned subsidiary, H&R Block
Mortgage Corporation (HRBMC). As of January 31, 2007, we met the criteria requiring us to present the assets and
liabilities of OOMC and HRBMC, as
held-for-sale and the related financial results as discontinued operations in the condensed
consolidated financial statements for all periods presented.
Certain information and footnote disclosures normally included in financial statements
prepared in accordance with U.S. generally accepted accounting principles 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, 2006 Annual Report to Shareholders
on Form 10-K.
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.
2. Earnings (Loss) Per Share
Basic and diluted 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 per
share except in those periods with a loss from continuing operations. The computations of basic and
diluted earnings (loss) per share from continuing operations are as follows:
| (in 000s, except per share amounts) | ||||||||||||||||
| Three months ended January 31, | Nine months ended January 31, | |||||||||||||||
| 2007 | 2006 | 2007 | 2006 | |||||||||||||
Net income (loss) from continuing operations |
$ | 24,965 | $ | (30,248 | ) | $ | (229,023 | ) | $ | (252,453 | ) | |||||
Basic weighted average common shares |
322,350 | 327,289 | 322,588 | 328,017 | ||||||||||||
Potential dilutive shares from stock options
and restricted stock |
3,696 | — | — | — | ||||||||||||
Convertible preferred stock |
2 | — | — | — | ||||||||||||
Dilutive weighted average common shares |
326,048 | 327,289 | 322,588 | 328,017 | ||||||||||||
Earnings (loss) per share from continuing operations: |
||||||||||||||||
Basic |
$ | 0.08 | $ | (0.09 | ) | $ | (0.71 | ) | $ | (0.77 | ) | |||||
Diluted |
0.08 | (0.09 | ) | (0.71 | ) | (0.77 | ) | |||||||||
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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 28.0 million shares
for the nine months ended January 31, 2007 and 29.3 million shares of stock for the three and nine
months ended January 31, 2006, as the effect would be antidilutive due to the net loss from
continuing operations during each period.
The weighted average shares outstanding for the three and nine months ended
January 31, 2007 decreased to 322.4 million and 322.6 million, respectively, from 327.3 million and
328.0 million last year, primarily due to 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.
During the nine months ended January 31, 2007 and 2006, we issued 2.8 million and 6.3 million
shares of common stock, respectively, pursuant to the exercise of stock options, employee stock
purchases and awards of nonvested shares, in accordance with our stock-based compensation plans.
During the nine months ended January 31, 2007, we acquired 8.5 million shares of our common
stock, of which 8.1 million shares were purchased from third parties with the remaining shares
swapped or surrendered to us, at an aggregate cost of $188.6 million. During the nine months ended
January 31, 2006, we acquired 9.2 million shares of our common stock, of which 9.0 million shares
were purchased from third parties with the remaining shares swapped or surrendered to us, at an
aggregate cost of $260.1 million.
3. Receivables
Receivables consist of the following:
| (in 000s) | ||||||||||||
| January 31, 2007 | January 31, 2006 | April 30, 2006 | ||||||||||
Participation in tax client loans |
$ | 1,733,155 | $ | 900,230 | $ | 41,804 | ||||||
Business Services accounts receivable |
330,157 | 312,087 | 336,532 | |||||||||
Receivables for tax-related fees |
119,186 | 115,906 | 23,154 | |||||||||
Loans to franchisees |
62,962 | 60,185 | 45,062 | |||||||||
Royalties from franchisees |
68,153 | 50,575 | 793 | |||||||||
Software receivables |
20,662 | 18,938 | 17,700 | |||||||||
Other |
97,545 | 70,367 | 81,579 | |||||||||
| 2,431,820 | 1,528,288 | 546,624 | ||||||||||
Allowance for doubtful accounts |
(54,974 | ) | (34,144 | ) | (64,480 | ) | ||||||
| $ | 2,376,846 | $ | 1,494,144 | $ | 482,144 | |||||||
4. Goodwill and Intangible Assets
Changes in the carrying amount of goodwill for the nine months ended January 31, 2007 consist of
the following:
| (in 000s) | ||||||||||||||||
| April 30, 2006 | Additions | Other | January 31, 2007 | |||||||||||||
Tax Services |
$ | 376,515 | $ | 9,902 | $ | (162 | ) | $ | 386,255 | |||||||
Business Services |
397,516 | 28,619 | (3,746 | ) | 422,389 | |||||||||||
Consumer Financial Services |
173,954 | — | — | 173,954 | ||||||||||||
Total |
$ | 947,985 | $ | 38,521 | $ | (3,908 | ) | $ | 982,598 | |||||||
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
unit’s net assets has been reduced below its carrying value. No such events were identified within
any of our segments during the nine months ended January 31, 2007. Goodwill totaling $152.5 million
is included in assets held for sale on our condensed consolidated balance sheets.
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Intangible assets consist of the following:
| (in 000s) | ||||||||||||||||||||||||
| January 31, 2007 | April 30, 2006 | |||||||||||||||||||||||
| Gross | Gross | |||||||||||||||||||||||
| Carrying | Accumulated | Carrying | Accumulated | |||||||||||||||||||||
| Amount | Amortization | Net | Amount | Amortization | Net | |||||||||||||||||||
Tax Services: |
||||||||||||||||||||||||
Customer relationships |
$ | 30,900 | $ | (13,602 | ) | $ | 17,298 | $ | 27,257 | $ | (10,842 | ) | $ | 16,415 | ||||||||||
Noncompete agreements |
20,329 | (18,038 | ) | 2,291 | 18,879 | (17,686 | ) | 1,193 | ||||||||||||||||
Trade name |
25 | — | 25 | — | — | — | ||||||||||||||||||
Business Services: |
||||||||||||||||||||||||
Customer relationships |
157,129 | (91,665 | ) | 65,464 | 153,844 | (81,178 | ) | 72,666 | ||||||||||||||||
Noncompete agreements |
33,460 | (16,739 | ) | 16,721 | 32,534 | (14,300 | ) | 18,234 | ||||||||||||||||
Trade name — amortizing |
4,050 | (2,849 | ) | 1,201 | 4,050 | (1,823 | ) | 2,227 | ||||||||||||||||
Trade name — non-amortizing |
55,637 | (4,868 | ) | 50,769 | 55,637 | (4,868 | ) | 50,769 | ||||||||||||||||
Consumer Financial Services: |
||||||||||||||||||||||||
Customer relationships |
293,000 | (262,479 | ) | 30,521 | 293,000 | (235,010 | ) | 57,990 | ||||||||||||||||
Total intangible assets |
$ | 594,530 | $ | (410,240 | ) | $ | 184,290 | $ | 585,201 | $ | (365,707 | ) | $ | 219,494 | ||||||||||
Amortization of intangible assets for the three and nine months ended January 31,
2007 was $16.4 million and $45.7 million, respectively. Amortization of intangible assets for the
three and nine months ended January 31, 2006 was $16.7 million and $47.3 million, respectively.
Estimated amortization of intangible assets for fiscal years 2007 through 2011 is $58.3 million,
$40.9 million, $17.7 million, $15.1 million and $13.6 million, respectively.
In October 2005, we acquired all outstanding common stock of American Express Tax and Business
Services, Inc. for an aggregate purchase price of $190.7 million. The purchase price is subject to
certain contractual post-closing adjustments, which may or may not reduce the final purchase price.
These adjustments have not been finalized and any future adjustment would be made to goodwill.
During the nine months ended January 31, 2007, we adjusted deferred tax balances initially recorded
in connection with this acquisition resulting in an increase of $17.7 million to goodwill.
5. Stock-Based Compensation
Beginning May 1, 2006, we adopted Statement of Financial Accounting Standards No. 123 (revised
2004), “Share-Based Payment,” (SFAS 123R) under the modified prospective approach. Under SFAS 123R,
we continue to measure and recognize the fair value of stock-based compensation consistent with our
past practice under Statement of Financial Accounting Standards No. 123, “Accounting for
Stock-Based Compensation,” which we adopted on May 1, 2003 under the prospective transition method.
The adoption of SFAS 123R did not have a material impact on our consolidated financial statements.
The following is a comparison of reported and pro forma results had compensation cost for all
stock-based compensation grants been determined in accordance with SFAS 123 for the three and nine
months ended January 31, 2006.
| (in 000s, except per share amounts) | ||||||||
| Three months ended | Nine months ended | |||||||
| January 31, 2006 | January 31, 2006 | |||||||
Net income (loss) as reported |
$ | 12,113 | $ | (97,130 | ) | |||
Add: Stock-based compensation expense included in
reported net income (loss), net of related tax effects |
9,916 | 21,927 | ||||||
Deduct: Total stock-based compensation expense determined under
fair value method for all awards, net of related tax effects |
(12,460 | ) | (29,558 | ) | ||||
Pro forma net income (loss) |
$ | 9,569 | $ | (104,761 | ) | |||
Basic and diluted earnings (loss) per share: |
||||||||
As reported |
$ | 0.04 | $ | (0.30 | ) | |||
Pro forma |
0.03 | (0.32 | ) | |||||
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Stock-based compensation expense of $13.7 million and $35.5 million and the related
tax benefits of $4.7 million and $12.1 million are included in our results for the three and nine
months ended January 31, 2007.
SFAS 123R requires the reclassification, in the statement of cash flows, of the excess tax
benefits from stock-based compensation from operating cash flows to financing. As a result, we
classified $2.4 million as a cash inflow from financing activities rather than as an operating
activity for the nine months ended January 31, 2007.
We have four stock-based compensation plans which have been approved by our shareholders. As
of January 31, 2007, we had approximately 25.6 million shares reserved for future awards under
these plans. We issue shares from our treasury stock to satisfy the exercise or release of
stock-based awards.
Our 2003 Long-Term Executive Compensation Plan provides for awards of options (both incentive
and nonqualified), nonvested shares, performance nonvested share units and other stock-based awards
to employees. These awards entitle the holder to shares or the right to purchase shares of common
stock as the award vests, typically over a three-year period with one-third vesting each year.
Nonvested shares receive dividends during the vesting period and performance nonvested share units
receive cumulative dividends at the end of the vesting period. We measure the fair value of options
on the grant date or modification date using the Black-Scholes option valuation model. We measure
the fair value of nonvested shares and performance nonvested share units based on the closing price
of our common stock on the grant date. Generally, we expense the grant-date fair value, net of
estimated forfeitures, over the vesting period on a straight-line basis. Upon adoption of SFAS
123R, awards granted to employees who are of retirement age, or reach retirement age at least one
year after the grant date but prior to the end of the service period of the award, are expensed
over the shorter of the two periods. Options are granted at a price equal to the fair market value
of our common stock on the grant date and have a contractual term of ten years.
Our 1999 Stock Option Plan for Seasonal Employees provides for awards of nonqualified options
to employees. These awards are granted to seasonal employees in our Tax Services segment and
entitle the holder to the right to purchase shares of common stock as the award vests, typically
over a two-year period. We measure the fair value of options on the grant date using the
Black-Scholes option valuation model. We expense the grant-date fair value, net of estimated
forfeitures, over the service period. Options are granted at a price equal to the fair market value
of our common stock on the grant date, are exercisable during September through November in each of
the two years following the calendar year of the grant and have a contractual term of 29 months.
Our 1989 Stock Option Plan for Outside Directors provides for awards of nonqualified options
to outside directors. These awards entitle the holder to the right to purchase shares of common
stock. We measure the fair value of options on the grant date using the Black-Scholes option
valuation model. These awards vest immediately upon issuance and are therefore fully expensed on
the grant date. Options are granted at a price equal to the fair market value of our common stock
on the grant date and have a contractual term of ten years.
Our 2000 Employee Stock Purchase Plan (ESPP) provides employees the option to purchase shares
of our Common Stock through payroll deductions. The purchase price of the stock is 90% of the lower
of either the fair market value of our Common Stock on the first trading day within the Option
Period or on the last trading day of the Option Period. The Option Periods are six-month periods
beginning on January 1 and July 1 each year. We measure the fair value of options on the grant date
utilizing the Black-Scholes option valuation model in accordance with FASB Technical Bulletin 97-1,
“Accounting under Statement 123 for Certain Employee Stock Purchase Plans with a Look-Back Option.”
We expense the grant-date fair value over the six-month vesting period.
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A summary of options for the nine months ended January 31, 2007 is as follows:
| (in 000s, except per share amounts) | ||||||||||||||||
| Weighted Average | ||||||||||||||||
| Weighted Average | Remaining | Aggregate | ||||||||||||||
| Shares | Exercise Price | Contractual Term | Intrinsic Value | |||||||||||||
Outstanding, beginning of period |
26,048 | $ | 21.40 | |||||||||||||
Granted |
5,036 | 23.84 | ||||||||||||||
Exercised |
(1,246 | ) | 15.52 | |||||||||||||
Forfeited or expired |
(4,201 | ) | 23.82 | |||||||||||||
Outstanding, end of period |
25,637 | 21.77 | 5 years | $ | 101,483 | |||||||||||
Exercisable, end of period |
18,821 | $ | 20.66 | 4 years | $ | 97,171 | ||||||||||
Exercisable and expected to vest |
24,535 | 21.63 | 5 years | 100,784 | ||||||||||||
The total intrinsic value of options exercised during the nine months ended January
31, 2007 and 2006 was $9.6 million and $41.0 million, respectively. We utilize the Black-Scholes
option pricing model to value our options on the grant date. We estimated the expected volatility
using our historical stock price data. We also used historical exercise and forfeiture behaviors to
estimate the options expected term and our forfeiture rate. The following assumptions were used to
value options during the periods:
| Nine months ended January 31, | 2007 | 2006 | ||||||
Options — management and director: |
||||||||
Expected volatility |
21.70% - 29.06 | % | 26.40% - 27.81 | % | ||||
Expected term |
4-7 years | 5 years | ||||||
Dividend yield |
2.15% - 2.62 | % | 1.71% - 2.15 | % | ||||
Risk-free interest rate |
4.33% - 5.10 | % | 3.65% - 4.30 | % | ||||
Weighted-average fair value |
$ | 5.15 | $ | 7.39 | ||||
Options — seasonal: |
||||||||
Expected volatility |
20.05 | % | 23.28 | % | ||||
Expected term |
2 years | 2 years | ||||||
Dividend yield |
2.26 | % | 1.71 | % | ||||
Risk-free interest rate |
5.11 | % | 3.61 | % | ||||
Weighted-average fair value |
$ | 3.17 | $ | 4.16 | ||||
ESPP options: |
||||||||
Expected volatility |
26.30 | % | 24.52 | % | ||||
Expected term |
0.5 years | 0.5 years | ||||||
Dividend yield |
2.26 | % | 1.71 | % | ||||
Risk-free interest rate |
5.24 | % | 3.37 | % | ||||
Weighted-average fair value |
$ | 4.20 | $ | 4.99 | ||||
A summary of nonvested shares and performance nonvested share units for the nine
months ended January 31, 2007 is as follows:
| (shares in 000s) | ||||||||
| Weighted Average | ||||||||
| Shares | Grant Date Fair Value | |||||||
Outstanding, beginning of period |
2,455 | $ | 25.27 | |||||
Granted |
1,205 | 23.42 | ||||||
Released |
(1,040 | ) | 24.94 | |||||
Forfeited |
(306 | ) | 24.85 | |||||
Outstanding, end of period |
2,314 | 24.93 | ||||||
The total fair value of shares vesting during the nine months ended January 31, 2007
and 2006 was $24.6 million and $17.2 million, respectively. Upon the grant of nonvested shares and
performance nonvested share units, unearned compensation cost is recorded as an offset to
additional paid in capital and is amortized as compensation expense over the vesting period. As of
January 31, 2007, we had $47.6 million of total unrecognized compensation cost related to these
shares. This cost is expected to be recognized over a weighted-average period of two years.
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6. Regulatory Requirements
Registered Broker-Dealer
HRBFA is subject to regulatory requirements intended to ensure the general financial soundness and
liquidity of broker-dealers. At January 31, 2007, HRBFA’s net capital of $126.1 million, which was
27.7% of aggregate debit items, exceeded its minimum required net capital of $9.1 million by $117.0
million.
Pledged securities at January 31, 2007 totaled $38.7 million, an excess of $2.6 million over
the margin requirement.
Banking
HRB Bank is subject to various regulatory capital guidelines and requirements administered by
Federal banking agencies. Failure to meet minimum capital requirements can trigger certain
mandatory and possibly additional discretionary actions by regulators that, if undertaken, could
have a direct material effect on HRB Bank’s operations. Under these capital adequacy guidelines and
the regulatory framework for prompt corrective action, HRB Bank must meet specific capital
guidelines that involve quantitative measures of HRB Bank’s assets, liabilities and certain
off-balance sheet items as calculated under regulatory accounting practices. HRB Bank’s capital
amounts and classification are also subject to qualitative judgments by the regulators about
components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require HRB Bank to
maintain minimum amounts and ratios of capital to assets. As shown in the table below, at December
31, 2006, the most recent date of reporting to Federal banking agencies, HRB Bank is categorized as
“well capitalized” for regulatory purposes, which is the highest classification. There are no
conditions or events since December 31, 2006 that management believes have changed HRB Bank’s
category. At January 31, 2007, management believes that HRB Bank meets all capital adequacy
requirements to which it is subject. However, events beyond management’s control, such as
fluctuations in interest rates or a downturn in the economy in areas in which HRB Bank’s loans or
securities are concentrated, could adversely affect future earnings and consequently, HRB Bank’s
ability to meet its future capital requirements.
HRB Bank’s capital amounts and ratios as of December 31, 2006 are presented in the table
below:
| (dollars in 000s) | ||||||||||||||||
| Minimum Required to | ||||||||||||||||
| Qualify as Well | ||||||||||||||||
| Actual | Capitalized | |||||||||||||||
| Amount | Ratio | Amount | Ratio | |||||||||||||
Tier 1 capital to adjusted
total assets (leverage) |
$ | 163,670 | 17.4 | % | $ | 46,900 | 5.0 | % | ||||||||
Total risk-based capital to total
risk-weighted assets |
$ | 165,714 | 36.0 | % | $ | 46,071 | 10.0 | % | ||||||||
Additionally, H&R Block, Inc. is now subject to a three percent minimum ratio of
adjusted tangible capital to adjusted total assets, as defined by the OTS. As of January 31, 2007 our ratio of adjusted tangible capital to adjusted total assets was approximately 1%.
We fell below the minimum required ratio due to losses in our mortgage operations and seasonal
fluctuations in our consolidated balance sheet. We notified the OTS of our failure to meet this
requirement and the OTS requested that we provide a plan and expected timeframe for regaining
compliance. We provided the OTS a corrective action plan stating our belief that our noncompliance
would be remedied by February 28, 2007. We have agreed to provide the OTS with the calculation of
this ratio as of February 28, 2007, although it is normally
required only at the end of our fiscal quarters. We
have not received further requests from the OTS as of the date of this filing. We believe we have
the ability to meet the required minimum ratio on an ongoing basis.
7. Commitments and Contingencies
We entered into a $3.0 billion line of credit agreement with HSBC Finance Corporation (HSBC
Finance) effective January 2, 2007 for use as an alternate funding source for the purchase of
refund
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anticipation
loan (RAL) participations. This line is subject to various covenants that are substantially similar to our primary unsecured committed lines of credit (CLOCs), and is secured by
our RAL participations. The balance outstanding on this facility at January 31, 2007 was $1.4
billion.
We
entered into a $300.0 million committed line of credit agreement with BNP Paribas for
the period January 2 through February 23, 2007 to cover our peak liquidity needs. This line is
subject to various covenants that are substantially similar to those of our primary unsecured
CLOCs. There was no balance outstanding on this line at January 31, 2007.
Our Canadian commercial paper issuances are supported by a credit facility provided by one
bank in scheduled amounts ranging from $1.0 million to
$225.0 million (Canadian) based on anticipated operational needs. The Canadian CLOC was renewed in
November 2006 for an additional 364 days.
Changes in the deferred revenue liability related to our Peace of Mind (POM) program are as
follows:
| (in 000s) | ||||||||
| Nine months ended January 31, | 2007 | 2006 | ||||||
Balance, beginning of period |
$ | 141,684 | $ | 130,762 | ||||
Amounts deferred for new guarantees issued |
20,971 | 20,533 | ||||||
Revenue recognized on previous deferrals |
(59,085 | ) | (55,932 | ) | ||||
Balance, end of period |
$ | 103,570 | $ | 95,363 | ||||
The following table summarizes certain of our other contractual obligations and commitments:
| (in 000s) | ||||||||
| As of | January 31, 2007 | April 30, 2006 | ||||||
Commitment to fund Franchise Equity Lines of Credit |
$ | 82,203 | $ | 75,909 | ||||
Media advertising purchase obligation |
48,006 | — | ||||||
Contingent business acquisition obligations |
16,319 | 24,482 | ||||||
On November 1, 2006 we entered into an agreement to purchase $57.2 million in media
advertising between November 1, 2006 and June 30, 2009. During our third quarter, we purchased $9.2
million in advertising for our retail tax business, leaving a remaining commitment of $48.0 million
at January 31, 2007. We expect to make payments totaling $19.4 million, $20.6 million and $17.2
million during fiscal years 2007, 2008 and 2009, respectively.
HRB Bank is a member of the Federal Home Loan Bank (FHLB) of Des Moines, which extends credit
to member banks based on eligible collateral. At January 31, 2007, HRB Bank had FHLB advance
capacity of $594.0 million, and there was no outstanding balance on this facility.
We routinely enter into contracts that include embedded indemnifications that have
characteristics similar to guarantees, including obligations to protect counterparties 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 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 January 31, 2007.
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8. Litigation and Related Contingencies
We have been named as a defendant in numerous lawsuits throughout the country regarding our refund
anticipation loan programs (the “RAL Cases”). The RAL Cases have involved a variety of legal
theories asserted by plaintiffs. These theories include allegations that, among others, (i)
disclosures in the RAL applications were inadequate, misleading and untimely; (ii) the RAL interest
rates were usurious and unconscionable; (iii) we did not disclose that we would receive part of the
finance charges paid by the customer for such loans; (iv) untrue, misleading or deceptive
statements in marketing RALs; (v) breach of state laws on credit service organizations; (vi) breach
of contract,
unjust enrichment, unfair and deceptive acts or practices; (vii) violations of the federal
Racketeer Influenced and Corrupt Organizations Act; (viii) violations of the federal Fair Debt
Collection Practices Act and unfair competition regarding debt collection activities; and (ix) we
owe, and breached, a 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, some of which 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 have been settled, with one settlement resulting in a pretax
expense of $43.5 million in fiscal year 2003 and the combined pretax expense for such settlements
in fiscal year 2006 totaling $70.2 million.
Other putative RAL class action cases and a state attorney general lawsuit are still pending,
with the amounts claimed on a collective basis being very substantial. The ultimate cost of this
litigation could be substantial. We believe we have meritorious defenses to the remaining RAL Cases
and we intend to defend them vigorously. There can be no assurances, however, as to the outcome of
the pending RAL Cases individually or in the aggregate or the associated impact on our financial
statements.
We are also a party to claims, lawsuits and investigations pertaining to our electronic tax
return filing services, our Peace of Mind guarantee program, our Express IRA product, tax planning
services and RSM EquiCo business valuation services. These claims, lawsuits and investigations
include actions by state attorneys general, individual plaintiffs, and 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 no assurances as to their outcome.
We and certain of our current and former directors and officers are party to a putative class
action alleging violations of certain securities laws. The putative securities class action
currently alleges, among other things, deceptive, material and misleading financial statements,
failure to prepare financial statements in accordance with generally accepted accounting principles
and concealment of the potential for lawsuits stemming from the allegedly fraudulent nature of our
operations. The amount claimed in the putative securities class action is substantial, and the
ultimate liability is difficult to predict. We intend to continue defending this case vigorously,
although there are no assurances as to its 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, tax planning services, the fees charged customers for various services, investment
products, relationships with franchisees, contract disputes, employment matters and civil actions,
arbitrations, regulatory inquiries and investigations and class actions arising out of our business
as a broker-dealer and provider of investment products 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.
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9. Segment Information
Information concerning our operations by reportable operating segment is as follows:
| (in 000s) | ||||||||||||||||
| Three months ended January 31, | Nine months ended January 31, | |||||||||||||||
| 2007 | 2006 | 2007 | 2006 | |||||||||||||
Revenues: |
||||||||||||||||
Tax Services |
$ | 628,051 | $ | 548,494 | $ | 776,183 | $ | 686,498 | ||||||||
Business Services |
215,895 | 235,840 | 650,129 | 529,491 | ||||||||||||
Consumer Financial Services |
107,511 | 73,176 | 267,888 | 211,177 | ||||||||||||
Corporate |
3,659 | 2,743 | 10,322 | 6,815 | ||||||||||||
| $ | 955,116 | $ | 860,253 | $ | 1,704,522 | $ | 1,433,981 | |||||||||
Pretax income (loss): |
||||||||||||||||
Tax Services |
$ | 59,333 | $ | (6,332 | ) | $ | (261,257 | ) | $ | (293,702 | ) | |||||
Business Services |
(1,425 | ) | (1,035 | ) | (34,734 | ) | (9,943 | ) | ||||||||
Consumer Financial Services |
10,959 | (7,668 | ) | 5,572 | (23,126 | ) | ||||||||||
Corporate |
(50,014 | ) | (29,979 | ) | (111,330 | ) | (84,073 | ) | ||||||||
Income (loss) of continuing
operations before taxes |
$ | 18,853 | $ | (45,014 | ) | $ | (401,749 | ) | $ | (410,844 | ) | |||||
HRB Bank commenced operations on May 1, 2006, at which time we realigned certain
segments of our business to reflect a new management reporting structure. The previously reported
Investment Services segment and HRB Bank are now reported in the Consumer Financial Services
segment. Presentation of prior-year results reflects the new segment alignment.
The Consumer Financial Services segment is primarily engaged in offering advice-based
brokerage services and investment planning through HRBFA and full-service banking through HRB Bank.
HRBFA offers traditional brokerage services, as well as annuities, insurance, fee-based accounts,
online account access, equity research and focus lists, model portfolios, asset allocation
strategies, and other investment tools and information. HRB Bank offers traditional banking
services including checking and savings accounts, home equity lines of credit, individual
retirement accounts, certificates of deposit and prepaid debit card accounts. HRB Bank also
purchases loans from OOMC, HRBMC and other lenders to hold for investment purposes. All
intersegment transactions are eliminated in consolidation.
As of January 31, 2007, we met the criteria requiring us to present the assets and liabilities
of OOMC and its wholly-owned subsidiary, HRBMC, as held-for-sale and the related financial results
as discontinued operations in the condensed consolidated financial statements for all periods
presented. See note 11 for additional information.
10. New Accounting Pronouncements
In February 2007, Statement of Financial Accounting Standards No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115,”
(SFAS 159), was issued. This standard allows a company to irrevocably elect fair value as the
initial and subsequent measurement attribute for certain financial assets and financial liabilities
on a contract-by-contract basis, with changes in fair value recognized in earnings. The provisions
of this standard are effective as of the beginning of our fiscal year 2009. We are currently
evaluating what effect the adoption of SFAS 159 will have on our consolidated financial statements.
In September 2006, Statement of Financial Accounting Standards No. 157, “Fair Value
Instruments,” (SFAS 157), was issued. The provisions of this standard include guidelines about the
extent to which companies measure assets and liabilities at fair value, the effect of fair value
measurements on earnings, risk-adjusted fair value and establishes a fair value hierarchy that
prioritizes the information used in developing assumptions when valuing an asset or liability. The
provisions of this standard are effective as of the beginning of our fiscal year 2009. We are
currently evaluating what effect the adoption of SFAS 157 will have on our consolidated financial
statements.
In September 2006, Staff Accounting Bulleting No. 108, “Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial Statements” (SAB 108), was
issued. SAB 108 provides guidance on how prior year misstatements should be quantified when
determining if current year financial statements are materially misstated. These provisions are
effective for the current fiscal year, with earlier interim period adoption permitted. We are
currently evaluating what effect the adoption of SAB 108 will have on our consolidated financial
statements.
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In June 2006, FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN
48), was issued. The interpretation requires that a tax position meet a “more-likely-than-not”
recognition threshold for the benefit of the uncertain tax position to be recognized in the
financial statements and provides guidance on the measurement of the benefit. The interpretation
also requires interim period estimated tax benefits of uncertain tax positions to be accounted for
in the period of change rather than as a component of the annual effective tax rate. The provisions
of this standard are effective as of the beginning of our fiscal year 2008. We are currently
evaluating what effect the adoption of FIN 48 will have on our consolidated financial statements.
In June 2006, Emerging Issues Task Force Issue No. 06-3, “How Sales Taxes Collected from
Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement
(That Is, Gross Versus Net Presentation)” (EITF 06-3) was issued. EITF 06-3 requires disclosure of
the presentation of taxes on either a gross (included in revenues and costs) or a net (excluded
from revenues) basis as an accounting policy decision. The provisions of this standard are
effective for interim and annual reporting periods beginning after December 15, 2006. We do not
expect the adoption of EITF 06-3 to have a material impact on our consolidated financial
statements.
In March 2006, Statement of Financial Accounting Standards No. 156, “Accounting for Servicing
of Financial Assets — An Amendment of FASB Statement No. 140,” (SFAS 156), was issued. The
provisions of this standard require mortgage servicing rights to be initially valued at fair value.
SFAS 156 allows servicers to choose to subsequently measure their servicing rights at fair value or
to continue using the “amortization method” under SFAS 140. The provisions of this standard are
effective as of the beginning of our fiscal year 2008. We are currently evaluating what effect the
adoption of SFAS 156 will have on our consolidated financial statements.
In February 2006, Statement of Financial Accounting Standards No. 155, “Accounting for Certain
Hybrid Instruments — An Amendment of FASB Statements No. 133 and 140” (SFAS 155), was issued. The
provisions of this standard establish a requirement to evaluate interests in securitized financial
assets to identify interests that are freestanding derivatives or that are hybrid financial
instruments that contain an embedded derivative requiring bifurcation. The standard permits a
hybrid financial instrument to be accounted for in its entirety if the holder irrevocably elects to
measure the hybrid financial instrument at fair value, with changes in fair value recognized
currently in earnings. The provisions of this standard are effective as of the beginning of our
fiscal year 2008. Our residual interests typically have interests in derivative instruments
embedded within the securitization trusts. If we elect to account for our residual interests on a
fair value basis, changes in fair value will impact earnings in the period in which the change
occurs. We are currently evaluating what effect the adoption of SFAS 155 will have on our
consolidated financial statements.
11. Discontinued Operations
Financial Statement Presentation
On November 6, 2006, we announced we would evaluate strategic alternatives for OOMC, including a
possible sale or other transaction through the public markets. On
January 20, 2007, our Board of Directors approved the plan to
sell OOMC and its wholly-owned subsidiary, HRBMC. As of January 31,
2007, we met the criteria requiring us to present the assets and
liabilities of OOMC and HRBMC as held-for-sale and the related financial results as discontinued
operations in the condensed consolidated financial statements. The financial statements for all
periods presented have been reclassified to present discontinued operations as well. Based upon
non-binding correspondence received from interested parties in
connection with the planned sale, we currently believe we will recover
our recorded investment in net assets held for sale. This process is not complete and the ultimate
outcome may differ materially from our current expectations.
Overhead costs previously allocated to these businesses, which totaled $3.1 million and $9.4
million for the three and nine months ended January 31, 2007, respectively, and $2.7 million and
$7.8 million for the three and nine months ended January 31, 2006, respectively, are included in
continuing operations. OOMC was previously reported in our Mortgage Services segment and HRBMC was
reported in our Consumer Financial Services segment.
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The major classes of assets and liabilities reported as held-for-sale are as follows:
| (in 000s) | ||||||||
| January 31, 2007 | April 30, 2006 | |||||||
Cash and cash equivalents |
$ | 120,454 | $ | 25,600 | ||||
Mortgage loans held for sale |
363,016 | 236,399 | ||||||
Prepaid expenses and other current assets |
504,590 | 332,188 | ||||||
Current assets of discontinued operations |
$ | 988,060 | $ | 594,187 | ||||
Beneficial interest in Trusts |
$ | 175,220 | $ | 188,014 | ||||
Residual interests in securitizations |
110,594 | 159,058 | ||||||
Mortgage servicing rights |
263,140 | 272,472 | ||||||
Mortgage loans held for investment |
— | 407,538 | ||||||
Goodwill, net |
152,467 | 152,467 | ||||||
Other assets |
135,072 | 121,464 | ||||||
Noncurrent assets of discontinued operations |
$ | 836,493 | $ | 1,301,013 | ||||
Accounts payable, accrued expenses and deposits |
$ | 450,553 | $ | 156,324 | ||||
Other liabilities |
47,196 | 60,643 | ||||||
Current liabilities of discontinued operations |
$ | 497,749 | $ | 216,967 | ||||
The financial results of discontinued operations are as follows:
| (in 000s) | ||||||||||||||||
| Three months ended January 31, | Nine months ended January 31, | |||||||||||||||
| 2007 | 2006 | 2007 | 2006 | |||||||||||||
Revenue |
$ | 56,146 | $ | 296,494 | $ | 410,760 | $ | 942,802 | ||||||||
Income (loss) before income tax (benefit) |
(161,982 | ) | 70,422 | (222,831 | ) | 257,254 | ||||||||||
Income tax (benefit) |
(76,765 | ) | 28,061 | (103,765 | ) | 101,931 | ||||||||||
Net income (loss) from discontinued operations |
$ | (85,217 | ) | $ | 42,361 | $ | (119,066 | ) | $ | 155,323 | ||||||
Mortgage Banking Activities
Trading residuals valued at $231.9 million were securitized in net interest margin (NIM)
transactions during the current year, with net cash proceeds of $192.5 million received in
connection with NIM transactions. In the prior year, trading residuals valued at $234.5 million
were securitized with net cash proceeds of $195.2 million received on the transactions. There were
no residual interests classified as trading securities as of January 31, 2007 or April 30, 2006.
Cash received on trading residual interests is included in operating activities of discontinued
operations in the condensed consolidated statements of cash flows.
Cash flows from available-for-sale residual interests of $13.1 million and $74.9 million were
received from the securitization trusts for the nine months ended January 31, 2007 and 2006,
respectively, and is included in investing activities of discontinued operations in the condensed
consolidated statements of cash flows.
The following transactions were treated as non-cash investing activities in the condensed
consolidated statement of cash flows:
| (in 000s) | ||||||||
| Nine months ended January 31, | 2007 | 2006 | ||||||
Residual interest mark-to-market |
$ | 2,861 | $ | 38,930 | ||||
Additions to residual interests |
39,379 | 39,378 | ||||||
Aggregate unrealized gains on available-for-sale residual interests not yet accreted
into income totaled $19.3 million at January 31, 2007 and $44.1 million at April 30, 2006. 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.
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Activity related to mortgage servicing rights (MSRs) consists of the following:
| (in 000s) | ||||||||
| Nine months ended January 31, | 2007 | 2006 | ||||||
Balance, beginning of period |
$ | 272,472 | $ | 166,614 | ||||
Additions |
134,216 | 196,245 | ||||||
Amortization and impairment of fair value |
(143,548 | ) | (100,490 | ) | ||||
Balance, end of period |
$ | 263,140 | $ | 262,369 | ||||
Estimated amortization of MSRs for fiscal years 2007 through 2011 is $44.1 million,
$121.7 million, $58.3 million, $25.4 million and $9.0 million, respectively.
The key weighted average assumptions we used to estimate the cash flows and values of the
residual interests initially recorded during the nine months ended January 31, 2007 and 2006 are as
follows:
| Nine months ended January 31, | 2007 | 2006 | ||||||
Estimated credit losses |
3.24 | % | 2.85 | % | ||||
Discount rate |
21.91 | % | 20.34 | % | ||||
Variable returns to third-party
beneficial interest holders |
LIBOR forward curve at closing date | |||||||
The key weighted average assumptions we used to estimate the cash flows and values
of the residual interests and MSRs at January 31, 2007 and April 30, 2006 are as follows:
| January 31, 2007 | April 30, 2006 | |||||||
Estimated credit losses |
3.22 | % | 3.07 | % | ||||
Discount rate — residual interests |
24.32 | % | 21.98 | % | ||||
Discount rate — MSRs |
18.00 | % | 18.00 | % | ||||
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 and MSRs is average annualized
prepayment speeds. Prepayment speeds include voluntary prepayments, involuntary prepayments and
scheduled principal payments. Prepayment rate assumptions used during the current fiscal quarter
are as follows:
| Months Outstanding After | ||||||||||||
| Prior to Initial | Initial Rate Reset Date | |||||||||||
| Rate Reset Date | Zero - 3 | Remaining Life | ||||||||||
Adjustable rate mortgage loans: |
||||||||||||
With prepayment penalties |
31 | % | 71 | % | 38 | % | ||||||
Without prepayment penalties |
37 | % | 54 | % | 34 | % | ||||||
Fixed rate mortgage loans: |
||||||||||||
With prepayment penalties |
29 | % | 45 | % | 34 | % | ||||||
For fixed rate mortgages without prepayment penalties, we use an average prepayment
rate of 30% 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 | 2007 | ||||||||||||||||||||||
As of: |
||||||||||||||||||||||||||||
January 31, 2007 |
5.12 | % | 2.41 | % | 2.12 | % | 2.35 | % | 2.21 | % | 3.59 | % | 3.26 | % | ||||||||||||||
April 30, 2006 |
4.75 | % | 2.69 | % | 2.13 | % | 2.18 | % | 2.48 | % | 3.05 | % | — | |||||||||||||||
April 30, 2005 |
4.52 | % | 2.53 | % | 2.08 | % | 2.30 | % | 2.83 | % | — | — | ||||||||||||||||
April 30, 2004 |
4.46 | % | 3.58 | % | 4.35 | % | 3.92 | % | — | — | — | |||||||||||||||||
-15-
Table of Contents
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.
At January 31, 2007, 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 presented in the following
table. These sensitivities are hypothetical and should be used with caution. As the figures
indicate, 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 of the retained interest is calculated without changing any other assumptions; in reality,
changes in one factor may result in changes in another, which might magnify or counteract the
sensitivities.
| (dollars in 000s) | ||||||||||||
| Residential Mortgage Loans | ||||||||||||
| Available-for-Sale | Beneficial Interest | |||||||||||
| Residuals | in Trusts | MSRs | ||||||||||
Carrying amount/fair value |
$ | 110,594 | $ | 175,220 | $ | 263,140 | ||||||
Weighted average remaining life (in years) |
3.2 | 2.2 | 1.3 | |||||||||
Prepayments (including defaults): |
||||||||||||
Adverse 10% — $impact on fair value |
$ | (7,772 | ) | $ | (5,447 | ) | $ | (21,890 | ) | |||
Adverse 20% — $impact on fair value |
(5,687 | ) | (8,402 | ) | (41,755 | ) | ||||||
Credit losses: |
||||||||||||
Adverse 10% — $impact on fair value |
$ | (32,323 | ) | $ | (6,302 | ) | Not applicable | |||||
Adverse 20% — $impact on fair value |
(57,732 | ) | (11,571 | ) | Not applicable | |||||||
Discount rate: |
||||||||||||
Adverse 10% — $impact on fair value |
$ | (5,522 | ) | $ | (4,491 | ) | $ | (6,869 | ) | |||
Adverse 20% — $impact on fair value |
(10,594 | ) | (8,797 | ) | (13,444 | ) | ||||||
Variable interest rates (LIBOR forward curve): |
||||||||||||
Adverse 10% — $impact on fair value |
$ | 988 | $ | (40,717 | ) | Not applicable | ||||||
Adverse 20% — $impact on fair value |
1,972 | (82,550 | ) | Not applicable | ||||||||
Increases in prepayment rates related to available-for-sale residuals can generate a
positive impact to fair value when reductions in estimated credit losses and increases in
prepayment penalties exceed the adverse impact to accretion from accelerating the life of the
available-for-sale residual interest.
Mortgage loans that have been securitized and mortgage loans held for sale at January 31, 2007
and April 30, 2006, 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) | ||||||||||||||||||||||
| January 31, | April 30, | January 31, | April 30, | Three months ended | ||||||||||||||||||||
| 2007 | 2006 | 2007 | 2006 | January 31, 2007 | April 30, 2006 | |||||||||||||||||||
Securitized mortgage
loans |
$ | 12,445,576 | $ | 10,046,032 | $ | 1,252,052 | $ | 1,012,414 | $ | 41,925 | $ | 35,307 | ||||||||||||
Mortgage loans in
warehouse Trusts |
5,982,538 | 7,845,834 | — | — | — | — | ||||||||||||||||||
Mortgage loans held
for sale |
432,949 | 255,224 | 316,348 | 98,906 | 135,924 | 33,504 | ||||||||||||||||||
Total loans |
$ | 18,861,063 | $ | 18,147,090 | $ | 1,568,400 | $ | 1,111,320 | $ | 177,849 | $ | 68,811 | ||||||||||||
-16-
Table of Contents
Derivative Instruments
A summary of our derivative instruments as of January 31, 2007 and April 30, 2006, and gains or
losses incurred during the three and nine months ended January 31, 2007 and 2006 is as follows:
| (in 000s) | ||||||||||||||||||||||||
| Asset (Liability) Balance at | Gain (Loss) for the Three | Gain (Loss) for the Nine | ||||||||||||||||||||||
| January 31, | April 30, | Months Ended January 31, | Months Ended January 31, | |||||||||||||||||||||
| 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | |||||||||||||||||||
Rate-lock equivalents |
$ | (3,563 | ) | $ | (317 | ) | $ | (9,237 | ) | $ | 34 | $ | (5,207 | ) | $ | (705 | ) | |||||||
Forward loan sale
commitments |
— | 1,961 | (2,493 | ) | — | — | — | |||||||||||||||||
Put options on Eurodollar
futures |
2,119 | 3,282 | 400 | — | (1,657 | ) | — | |||||||||||||||||
Prime short sales |
(301 | ) | 777 | (131 | ) | (1,266 | ) | 864 | 221 | |||||||||||||||
Interest rate swaps |
6,262 | 8,831 | 46,640 | 6,292 | 26,372 | 91,578 | ||||||||||||||||||
Interest rate caps |
— | — | — | — | — | 802 | ||||||||||||||||||
| $ | 4,517 | $ | 14,534 | $ | 35,179 | $ | 5,060 | $ | 20,372 | $ | 91,896 | |||||||||||||
The notional amount of interest rate swaps to which we were a party at January 31,
2007 and April 30, 2006 was $7.7 billion and $8.8 billion, respectively, with a weighted average
duration at each date of 1.9 years. At January 31, 2007 we had no forward loan sale commitments. At
April 30, 2006 the notional value and the contract value of our forward loan sale commitments was
$3.1 billion.
None of our derivative instruments qualify for hedge accounting treatment as of January 31,
2007 or April 30, 2006.
Commitments and Contingencies
The following table summarizes certain of our contractual obligations and commitments related to
our discontinued operations:
| (in 000s) | ||||||||
| As of | January 31, 2007 | April 30, 2006 | ||||||
Commitment to fund mortgage loans |
$ | 3,558,184 | $ | 4,032,045 | ||||
Commitment to sell mortgage loans |
— | 3,052,688 | ||||||
In the normal course of business, we maintain recourse with standard representations
and warranties customary to the mortgage banking industry. Violations of these representations and
warranties, such as early payment defaults by borrowers, may require us to repurchase loans
previously sold. Repurchased loans are normally sold in subsequent sale transactions. The following
table summarizes our loan repurchase activity:
| (dollars in 000s) | ||||||||||||||||||||
| Three months ended | Nine months ended | Fiscal year ended | ||||||||||||||||||
| January 31, | January 31, | April 30, | ||||||||||||||||||
| 2007 | 2006 | 2007 | 2006 | 2006 | ||||||||||||||||
Loans repurchased from loan sales |
$ | 403,502 | $ | 104,774 | $ | 812,293 | $ | 223,258 | $ | 297,606 | ||||||||||
Repurchase reserves added
during period |
$ | 111,122 | $ | 13,076 | $ | 251,083 | $ | 49,547 | $ | 64,098 | ||||||||||
Repurchase reserves added as a
percent of originations |
1.77 | % | 0.15 | % | 1.18 | % | 0.15 | % | 0.18 | % | ||||||||||
We established a liability, related to the potential loss we expect to incur on
repurchase of loans previously sold and premium recapture, totaling $44.8 million and $33.4 million
at January 31, 2007 and April 30, 2006, respectively. On an ongoing basis, we monitor the adequacy
of our repurchase liability, which is established upon the initial sale of the loans, and is
included in current liabilities held for sale in the condensed consolidated balance sheets. During
the nine months ended January 31, 2007, we experienced higher early payment defaults, resulting in
an increase in actual and expected loan repurchase activity. As a result, we increased our reserves
accordingly. In establishing our reserves, we’ve assumed all loans that are currently delinquent
and
subject to contractual repurchase terms will be repurchased, and that 6% of loans previously sold
but not yet subject to contractual repurchase terms will be repurchased. Based on historical
experience, we assumed 10% of all loans we repurchase will cure with no loss incurred, and of those
that do not cure, we assumed an average 29% loss severity for loans on balance sheet as of January
31, 2007.
-17-
Table of Contents
During the third quarter, we amended our warehouse facility with Citigroup Global Markets
Realty Corp (Citigroup) to split OOMC’s existing warehouse financing arrangement with Citigroup
into two separate warehouse facilities, one of which is an on-balance
sheet facility with capacity of $500.0 million and the other
an off-balance sheet facility. Loans totaling $172.3 million were held on the on-balance sheet line
at January 31, 2007, with the related loans and liability reported in assets and liabilities held
for sale.
OOMC has guaranteed 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 by
the Trusts. This obligation can be called upon in the event adequate proceeds are not available
from the sale of the mortgage loans to satisfy the current or ultimate 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 January 31, 2007, April 30, 2006 and January 31, 2006
was $5.9 billion, $7.8 billion and $11.2 billion, respectively. The fair value of mortgage loans
held by the Trusts as of January 31, 2007, April 30, 2006 and January 31, 2006 was $5.9 billion,
$7.9 billion and $11.4 billion, respectively. Under the warehouse agreements, we may be required to
provide funds in the event of declining loan values, but only to the extent of the 10% guaranteed amount. At January 31, 2007,
April 30, 2006 and January 31, 2006 funds provided totaled $164.2 million, $19.7 million and $54.6 million, respectively, and were applied to reduce the Trusts' payment obligations.
As of January 31, 2007, OOMC did not meet the “minimum net income” financial
covenant contained in eight of its warehouse facilities. This covenant requires OOMC to maintain a
cumulative minimum net income of at least $1 for the four consecutive fiscal quarters ended January
31, 2007. On January 24, 2007, OOMC obtained waivers of the minimum net income financial covenants
through April 27, 2007 from each of the applicable warehouse facility providers. We anticipate
that OOMC will not meet this financial covenant at April 30, 2007, however we believe we will be
able to obtain waivers for that date from a sufficient number of warehouse providers to allow OOMC
to continue its off-balance sheet financing activities. If OOMC cannot obtain the waivers,
warehouse facility providers would have the right to terminate their future funding
obligations under the applicable warehouse facilities, terminate OOMC’s right to service the loans
remaining in the applicable warehouse or request funding of the 10% guarantee mentioned above. While this termination could adversely impact OOMC’s ability to fund new loans, we believe this risk is mitigated by options available to H&R Block.
Restructuring Charge
During fiscal year 2006, we initiated a restructuring plan to reduce costs within our mortgage
operations. On November 6, 2006, we announced an additional restructuring plan, also within our
mortgage operations, which will be recorded primarily during our third and fourth quarters. Charges
incurred during the current quarter related to the additional restructuring plan totaled $6.5
million and are included in “other adjustments” in the table below. Changes in our restructuring
charge liability during the nine months ended January 31, 2007 are as follows:
| (in 000s) | ||||||||||||||||
| Accrual Balance | Cash | Other | Accrual Balance as of | |||||||||||||
| as of April 30, 2006 | Payments | Adjustments | January 31, 2007 | |||||||||||||
Employee severance costs |
$ | 1,737 | $ | (3,626 | ) | $ | 3,179 | $ | 1,290 | |||||||
Contract termination costs |
5,821 | (3,864 | ) | 5,709 | 7,666 | |||||||||||
| $ | 7,558 | $ | (7,490 | ) | $ | 8,888 | $ | 8,956 | ||||||||
The remaining liability related to this restructuring charge is included in
liabilities held for sale on our condensed consolidated balance sheet and relates to lease
obligations for vacant space resulting from branch office closings and employee severance costs.
-18-
Table of Contents
12. Subsequent Event
Effective February 5, 2007, we acquired the assets and assumed certain liabilities of a group of
commercial tax preparation software providers for an aggregate purchase price of $65.8 million. The
purchase price is subject to a post-closing adjustment based upon determination of the final
February 5, 2007 net asset value. The assets and liabilities related to this acquisition will be
included in our Tax Services segment.
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 April 13,
2000 and October 26, 2004. These condensed consolidating financial statements have been prepared
using the equity method of accounting. Earnings of subsidiaries are, therefore, reflected in the
Company’s investment in subsidiaries account. The elimination entries eliminate investments in
subsidiaries, related stockholder’s equity and other intercompany balances and transactions.
Condensed Consolidating Income Statements
| (in 000s) | ||||||||||||||||||||
| Three months ended | H&R Block, Inc. | BFC | Other | Consolidated | ||||||||||||||||
| January 31, 2007 | (Guarantor) | (Issuer) | Subsidiaries | Elims | H&R Block | |||||||||||||||
Total revenues |
$ | — | $ | 255,407 | $ | 703,198 | $ | (3,489 | ) | $ | 955,116 | |||||||||
Cost of services |
— | 46,651 | 541,254 | (32 | ) | 587,873 | ||||||||||||||
Cost of other revenues |
— | 60,453 | 9,509 | — | 69,962 | |||||||||||||||
Selling, general and administrative |
— | 94,184 | 177,087 | (1,878 | ) | 269,393 | ||||||||||||||
Total expenses |
— | 201,288 | 727,850 | (1,910 | ) | 927,228 | ||||||||||||||
Operating income (loss) |
— | 54,119 | (24,652 | ) | (1,579 | ) | 27,888 | |||||||||||||
Interest expense |
— | (11,811 | ) | (255 | ) | — | (12,066 | ) | ||||||||||||
Other income, net |
18,853 | (3,958 | ) | 6,989 | (18,853 | ) | 3,031 | |||||||||||||
Income (loss) from continuing
operations before tax (benefit) |
18,853 | 38,350 | (17,918 | ) | (20,432 | ) | 18,853 | |||||||||||||
Income tax (benefit) |
(6,112 | ) | 28,043 | (33,378 | ) | 5,335 | (6,112 | ) | ||||||||||||
Net income from continuing
operations |
24,965 | 10,307 | 15,460 | (25,767 | ) | 24,965 | ||||||||||||||
Net loss from discontinued
operations |
(85,217 | ) | (87,293 | ) | — | 87,293 | (85,217 | ) | ||||||||||||
Net income (loss) |
$ | (60,252 | ) | $ | (76,986 | ) | $ | 15,460 | $ | 61,526 | $ | (60,252 | ) | |||||||
| Three months ended | H&R Block, Inc. | BFC | Other | Consolidated | ||||||||||||||||
| January 31, 2006 | (Guarantor) | (Issuer) | Subsidiaries | Elims | H&R Block | |||||||||||||||
Total revenues |
$ | — | $ | 196,137 | $ | 667,754 | $ | (3,638 | ) | $ | 860,253 | |||||||||
Cost of services |
— | 53,787 | 505,266 | 29 | 559,082 | |||||||||||||||
Cost of other revenues |
— | 19,655 | 20,626 | — | 40,281 | |||||||||||||||
Selling, general and administrative |
— | 86,186 | 212,497 | (1,282 | ) | 297,401 | ||||||||||||||
Total expenses |
— | 159,628 | 738,389 | (1,253 | ) | 896,764 | ||||||||||||||
Operating income (loss) |
— | 36,509 | (70,635 | ) | (2,385 | ) | (36,511 | ) | ||||||||||||
Interest expense |
— | (11,810 | ) | (401 | ) | — | (12,211 | ) | ||||||||||||
Other income, net |
(45,014 | ) | — | 3,708 | 45,014 | 3,708 | ||||||||||||||
Income (loss) from continuing
operations before tax (benefit) |
(45,014 | ) | 24,699 | (67,328 | ) | 42,629 | (45,014 | ) | ||||||||||||
Income tax (benefit) |
(14,766 | ) | 10,393 | (24,210 | ) | 13,817 | (14,766 | ) | ||||||||||||
Net income (loss) from
continuing operations |
(30,248 | ) | 14,306 | (43,118 | ) | 28,812 | (30,248 | ) | ||||||||||||
Net income from discontinued
operations |
42,361 | 40,925 | — | (40,925 | ) | 42,361 | ||||||||||||||
Net income (loss) |
$ | 12,113 | $ | 55,231 | $ | (43,118 | ) | $ | (12,113 | ) | $ | 12,113 | ||||||||
-19-
Table of Contents
| Nine months ended | H&R Block, Inc. | BFC | Other | Consolidated | ||||||||||||||||
| January 31, 2007 | (Guarantor) | (Issuer) | Subsidiaries | Elims | H&R Block | |||||||||||||||
Total revenues |
$ | — | $ | 540,530 | $ | 1,173,192 | $ | (9,200 | ) | $ | 1,704,522 | |||||||||
Cost of services |
— | 139,531 | 1,238,387 | 1 | 1,377,919 | |||||||||||||||
Cost of other revenues |
— | 99,040 | 15,962 | — | 115,002 | |||||||||||||||
Selling, general and administrative |
— | 192,512 | 404,340 | (4,697 | ) | 592,155 | ||||||||||||||
Total expenses |
— | 431,083 | 1,658,689 | (4,696 | ) | 2,085,076 | ||||||||||||||
Operating income (loss) |
— | 109,447 | (485,497 | ) | (4,504 | ) | (380,554 | ) | ||||||||||||
Interest expense |
— | (35,429 | ) | (863 | ) | — | (36,292 | ) | ||||||||||||
Other income, net |
(401,749 | ) | 5 | 15,092 | 401,749 | 15,097 | ||||||||||||||
Income (loss) from continuing
operations before tax (benefit) |
(401,749 | ) | 74,023 | (471,268 | ) | 397,245 | (401,749 | ) | ||||||||||||
Income tax (benefit) |
(172,726 | ) | 45,114 | (215,904 | ) | 170,790 | (172,726 | ) | ||||||||||||
Net income (loss) from
continuing operations |
(229,023 | ) | 28,909 | (255,364 | ) | 226,455 | (229,023 | ) | ||||||||||||
Net loss from discontinued
operations |
(119,066 | ) | (124,067 | ) | — | 124,067 | (119,066 | ) | ||||||||||||
Net loss |
$ | (348,089 | ) | $ | (95,158 | ) | $ | (255,364 | ) | $ | 350,522 | $ | (348,089 | ) | ||||||
| Nine months ended | H&R Block, Inc. | BFC | Other | Consolidated | ||||||||||||||||
| January 31, 2006 | (Guarantor) | (Issuer) | Subsidiaries | Elims | H&R Block | |||||||||||||||
Total revenues |
$ | — | $ | 406,294 | $ | 1,038,594 | $ | (10,907 | ) | $ | 1,433,981 | |||||||||
Cost of service revenues |
— | 146,755 | 1,028,953 | 161 | 1,175,869 | |||||||||||||||
Cost of other revenues |
— | 30,545 | 28,631 | — | 59,176 | |||||||||||||||
Selling, general and administrative |
— | 181,419 | 408,996 | (3,715 | ) | 586,700 | ||||||||||||||
Total expenses |
— | 358,719 | 1,466,580 | (3,554 | ) | 1,821,745 | ||||||||||||||
Operating income (loss) |
— | 47,575 | (427,986 | ) | (7,353 | ) | (387,764 | ) | ||||||||||||
Interest expense |
— | (35,431 | ) | (1,600 | ) | — | (37,031 | ) | ||||||||||||
Other income, net |
(410,844 | ) | — | 13,951 | 410,844 | 13,951 | ||||||||||||||
Income (loss) from continuing
operations before tax (benefit) |
(410,844 | ) | 12,144 | (415,635 | ) | 403,491 | (410,844 | ) | ||||||||||||
Income tax (benefit) |
(158,391 | ) | 4,518 | (159,996 | ) | 155,478 | (158,391 | ) | ||||||||||||
Net income (loss) from
continuing operations |
(252,453 | ) | 7,626 | (255,639 | ) | 248,013 | (252,453 | ) | ||||||||||||
Net income from discontinued
operations |
155,323 | 150,883 | — | (150,883 | ) | 155,323 | ||||||||||||||
Net income (loss) |
$ | (97,130 | ) | $ | 158,509 | $ | (255,639 | ) | $ | 97,130 | $ | (97,130 | ) | |||||||
-20-
Table of Contents
Condensed Consolidating Balance Sheets
| (in 000s) | ||||||||||||||||||||
| H&R Block, Inc. | BFC | Other | Consolidated | |||||||||||||||||
| January 31, 2007 | (Guarantor) | (Issuer) | Subsidiaries | Elims | H&R Block | |||||||||||||||
Cash & cash equivalents |
$ | — | $ | 778,197 | $ | 304,469 | $ | — | $ | 1,082,666 | ||||||||||
Cash & cash equivalents – restricted |
— | 419,000 | 13,524 | — | 432,524 | |||||||||||||||
Receivables from customers,
brokers and dealers, net |
— | 424,874 | — | — | 424,874 | |||||||||||||||
Receivables, net |
569 | 1,845,236 | 531,041 | — | 2,376,846 | |||||||||||||||
Mortgage loans held for investment |
— | 1,069,626 | — | — | 1,069,626 | |||||||||||||||
Intangible assets and goodwill, net |
— | 207,117 | 959,771 | — | 1,166,888 | |||||||||||||||
Investments in subsidiaries |
4,710,589 | — | 498 | (4,710,589 | ) | 498 | ||||||||||||||
Assets held for sale |
— | 1,824,553 | — | — | 1,824,553 | |||||||||||||||
Other assets |
— | 243,759 | 737,737 | 7 | 981,503 | |||||||||||||||
Total assets |
$ | 4,711,158 | $ | 6,812,362 | $ | 2,547,040 | $ | (4,710,582 | ) | $ | 9,359,978 | |||||||||
Short-term borrowings |
$ | — | $ | 2,909,425 | $ | 16,996 | $ | — | $ | 2,926,421 | ||||||||||
Accts. payable to customers,
brokers and dealers |
— | 684,475 | — | — | 684,475 | |||||||||||||||
Customer deposits |
— | 1,632,875 | — | — | 1,632,875 | |||||||||||||||
Long-term debt |
— | 398,177 | 18,006 | — | 416,183 | |||||||||||||||
Liabilities held for sale |
— | 497,749 | — | — | 497,749 | |||||||||||||||
Other liabilities |
2 | 778,273 | 893,790 | 36 | 1,672,101 | |||||||||||||||
Net intercompany advances |
3,180,982 | (1,763,237 | ) | (1,417,716 | ) | (29 | ) | — | ||||||||||||
Stockholders’ equity |
1,530,174 | 1,674,625 | 3,035,964 | (4,710,589 | ) | 1,530,174 | ||||||||||||||
Total liabilities and
stockholders’ equity |
$ | 4,711,158 | $ | 6,812,362 | $ | 2,547,040 | $ | (4,710,582 | ) | $ | 9,359,978 | |||||||||
| H&R Block, Inc. | BFC | Other | Consolidated | |||||||||||||||||
| April 30, 2006 | (Guarantor) | (Issuer) | Subsidiaries | Elims | H&R Block | |||||||||||||||
Cash & cash equivalents |
$ | — | $ | 134,407 | $ | 542,797 | $ | — | $ | 677,204 | ||||||||||
Cash & cash equivalents – restricted |
— | 368,999 | 16,624 | — | 385,623 | |||||||||||||||
Receivables from customers,
brokers and dealers, net |
— | 496,577 | — | — | 496,577 | |||||||||||||||
Receivables, net |
161 | 107,079 | 374,904 | — | 482,144 | |||||||||||||||
Intangible assets and goodwill, net |
— | 234,727 | 932,752 | — | 1,167,479 | |||||||||||||||
Investments in subsidiaries |
5,237,611 | — | 456 | (5,237,611 | ) | 456 | ||||||||||||||
Assets held for sale |
— | 1,895,200 | — | — | 1,895,200 | |||||||||||||||
Other assets |
— | 421,026 | 463,966 | (540 | ) | 884,452 | ||||||||||||||
Total assets |
$ | 5,237,772 | $ | 3,658,015 | $ | 2,331,499 | $ | (5,238,151 | ) | $ | 5,989,135 | |||||||||
Accts. payable to customers,
brokers and dealers |
$ | — | $ | 781,303 | $ | — | $ | — | $ | 781,303 | ||||||||||
Long-term debt |
— | 398,001 | 19,538 | — | 417,539 | |||||||||||||||
Liabilities held for sale |
— | 216,967 | — | — | 216,967 | |||||||||||||||
Other liabilities |
2 | 825,644 | 1,599,881 | — | 2,425,527 | |||||||||||||||
Net intercompany advances |
3,089,971 | (355,358 | ) | (2,734,567 | ) | (46 | ) | — | ||||||||||||
Stockholders’ equity |
2,147,799 | 1,791,458 | 3,446,647 | (5,238,105 | ) | 2,147,799 | ||||||||||||||
Total liabilities and
stockholders’ equity |
$ | 5,237,772 | $ | 3,658,015 | $ | 2,331,499 | $ | (5,238,151 | ) | $ | 5,989,135 | |||||||||
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Condensed Consolidating Statements of Cash Flows
| (in 000s) | ||||||||||||||||||||
| Nine months ended | H&R Block, Inc. | BFC | Other | Consolidated | ||||||||||||||||
| January 31, 2007 | (Guarantor) | (Issuer) | Subsidiaries | Elims | H&R Block | |||||||||||||||
Net cash provided by (used in)
operating activities: |
$ | 32,882 | $ | (1,589,010 | ) | $ | (1,222,136 | ) | $ | — | $ | (2,778,264 | ) | |||||||
Cash flows from investing: |
||||||||||||||||||||
Mortgage loans originated for
investment, net |
— | (1,073,012 | ) | — | — | (1,073,012 | ) | |||||||||||||
Purchase property & equipment |
— | (3,407 | ) | (126,498 | ) | — | (129,905 | ) | ||||||||||||
Payments for business acquisitions |
— | — | (24,670 | ) | — | (24,670 | ) | |||||||||||||
Net intercompany advances |
247,754 | — | — | (247,754 | ) | — | ||||||||||||||
Investing cash flows from
discontinued operations |
— | 18,322 | — | — | 18,322 | |||||||||||||||
Other, net |
— | 3,955 | 26,587 | — | 30,542 | |||||||||||||||
Net cash provided by (used in)
investing activities |
247,754 | (1,054,142 | ) | (124,581 | ) | (247,754 | ) | (1,178,723 | ) | |||||||||||
Cash flows from financing: |
||||||||||||||||||||
Repayments of commercial paper |
— | (4,893,093 | ) | (8,525 | ) | — | (4,901,618 | ) | ||||||||||||
Proceeds from commercial paper |
— | 6,372,135 | 25,521 | — | 6,397,656 | |||||||||||||||
Repayments of short-term borrowings |
— | (889,722 | ) | — | — | (889,722 | ) | |||||||||||||
Proceeds from short-term borrowings |
— | 2,320,105 | — | — | 2,320,105 | |||||||||||||||
Customer deposits |
— | 1,632,875 | — | — | 1,632,875 | |||||||||||||||
Dividends paid |
(128,088 | ) | — | — | — | (128,088 | ) | |||||||||||||
Acquisition of treasury shares |
(188,562 | ) | — | — | — | (188,562 | ) | |||||||||||||
Proceeds from stock options |
19,183 | — | — | — | 19,183 | |||||||||||||||
Excess tax benefits on stock-based
compensation |
2,379 | — | — | — | 2,379 | |||||||||||||||
Net intercompany advances |
— | (1,413,234 | ) | 1,165,480 | 247,754 | — | ||||||||||||||
Financing cash flows from
discontinued operations |
— | 172,301 | — | — | 172,301 | |||||||||||||||
Other, net |
14,452 | (14,425 | ) | (74,087 | ) | — | (74,060 | ) | ||||||||||||
Net cash provided by (used in)
financing activities |
(280,636 | ) | 3,286,942 | 1,108,389 | 247,754 | 4,362,449 | ||||||||||||||
Net increase (decrease) in cash |
— | 643,790 | (238,328 | ) | — | 405,462 | ||||||||||||||
Cash – beginning of period |
— | 134,407 | 542,797 | — | 677,204 | |||||||||||||||
Cash – end of period |
$ | — | $ | 778,197 | $ | 304,469 | $ | — | $ | 1,082,666 | ||||||||||
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| Nine months ended | H&R Block, Inc. | BFC | Other | Consolidated | ||||||||||||||||
| January 31, 2006 | (Guarantor) | (Issuer) | Subsidiaries | Elims | H&R Block | |||||||||||||||
Net cash provided by (used in)
operating activities: |
$ | 43,228 | $ | (1,198,372 | ) | $ | (539,248 | ) | $ | — | $ | (1,694,392 | ) | |||||||
Cash flows from investing: |
||||||||||||||||||||
Purchase property & equipment |
— | 1,226 | (135,554 | ) | — | (134,328 | ) | |||||||||||||
Payments for business acquisitions |
— | (3,140 | ) | (206,676 | ) | — | (209,816 | ) | ||||||||||||
Net intercompany advances |
229,755 | — | — | (229,755 | ) | — | ||||||||||||||
Investing cash flows from
discontinued operations |
— | 72,247 | — | — | 72,247 | |||||||||||||||
Other, net |
— | 328 | 17,297 | — | 17,625 | |||||||||||||||
Net cash provided by (used in)
investing activities |
229,755 | 70,661 | (324,933 | ) | (229,755 | ) | (254,272 | ) | ||||||||||||
Cash flows from financing: |
||||||||||||||||||||
Repayments of commercial paper |
— | (2,610,432 | ) | (22,012 | ) | — | (2,632,444 | ) | ||||||||||||
Proceeds from commercial paper |
— | 4,636,188 | 42,204 | — | 4,678,392 | |||||||||||||||
Proceeds from short-term borrowings |
— | 550,000 | — | — | 550,000 | |||||||||||||||
Dividends paid |
(118,665 | ) | — | — | — | (118,665 | ) | |||||||||||||
Acquisition of treasury shares |
(260,078 | ) | — | — | — | (260,078 | ) | |||||||||||||
Proceeds from common stock |
95,930 | — | — | — | 95,930 | |||||||||||||||
Net intercompany advances |
— | (1,335,289 | ) | 1,105,534 | 229,755 | — | ||||||||||||||
Other, net |
9,830 | 5,642 | (24,821 | ) | — | (9,349 | ) | |||||||||||||
Net cash provided by (used in)
financing activities |
(272,983 | ) | 1,246,109 | 1,100,905 | 229,755 | 2,303,786 | ||||||||||||||
Net increase in cash |
— | 118,398 | 236,724 | — | 355,122 | |||||||||||||||
Cash – beginning of period |
— | 135,069 | 937,230 | — | 1,072,299 | |||||||||||||||
Cash – end of period |
$ | — | $ | 253,467 | $ | 1,173,954 | $ | — | $ | 1,427,421 | ||||||||||
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ITEM 2. MANAGEMENT’S 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
banking services, and business and consulting services. For more than 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 primarily in the United States, Canada and Australia. RSM McGladrey Business
Services, Inc. (RSM) is a national accounting, tax and business consulting firm primarily serving
midsized businesses. Our Consumer Financial Services segment offers investment services through H&R
Block Financial Advisors, Inc. (HRBFA) and full-service banking through H&R Block Bank (HRB Bank).
On November 6, 2006 we announced we would evaluate strategic alternatives for Option One
Mortgage Corporation (OOMC), including a possible sale or other transaction through the public
markets. On January 20, 2007, our Board of Directors approved
the plan to sell OOMC and its wholly-owned subsidiary, H&R Block
Mortgage Corporation (HRBMC). As of January 31, 2007, we met the criteria requiring us to present the assets and
liabilities of OOMC and HRBMC as
held-for-sale and the related financial results as discontinued operations in the condensed
consolidated financial statements for all periods presented.
Our Mission
To help our clients achieve their financial objectives
by serving as their tax and financial partner.
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.
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TAX SERVICES
This segment primarily consists of our income tax preparation businesses – retail, online and
software.
Tax Services — Operating Statistics (U.S. only)
| (in 000s, except average charge) | ||||||||
| Period November 1 through January 31, | 2007 | 2006 | ||||||
Clients served: |
||||||||
Company-owned operations |
2,507 | 2,390 | ||||||
Franchise operations |
1,485 | 1,406 | ||||||
Instant Money Advance Loans (IMALs) only (1) |
344 | — | ||||||
Total retail operations |
4,336 | 3,796 | ||||||
Digital tax solutions |
1,279 | 1,157 | ||||||
| 5,615 | 4,953 | |||||||
Net average fee per retail client: (2)
|
||||||||
Company-owned operations |
$ | 169.47 | $ | 157.48 | ||||
Franchise operations |
147.42 | 135.51 | ||||||
| $ | 161.27 | $ | 149.35 | |||||
Offices: |
||||||||
Company-owned |
6,669 | 6,387 | ||||||
Company-owned shared locations (3) |
1,488 | 1,473 | ||||||
Total company-owned offices |
8,157 | 7,860 | ||||||
Franchise |
3,784 | 3,703 | ||||||
Franchise shared locations (3) |
843 | 602 | ||||||
Total franchise offices |
4,627 | 4,305 | ||||||
| 12,784 | 12,165 | |||||||
| (1) | Clients who received an IMAL but have not yet returned for tax preparation and/or e-filing services. | |
| (2) | Calculated as net tax preparation fees divided by retail clients served, excluding IMAL-only clients. | |
| (3) | Shared locations include offices located within Wal-Mart, Sears and other third-party businesses. |
Tax Services – Operating Results
| (in 000s) | ||||||||||||||||
| Three months ended January 31, | Nine months ended January 31, | |||||||||||||||
| 2007 | 2006 | 2007 | 2006 | |||||||||||||
Service revenues: |
||||||||||||||||
Tax preparation fees |
$ | 437,473 | $ | 389,040 | $ | 507,467 | $ | 452,862 | ||||||||
Other services |
47,673 | 32,516 | 113,912 | 93,747 | ||||||||||||
| 485,146 | 421,556 | 621,379 | 546,609 | |||||||||||||
Royalties |
59,631 | 53,706 | 67,012 | 60,263 | ||||||||||||
Loan participation fees and
related revenue |
55,409 | 42,616 | 55,709 | 42,893 | ||||||||||||
Other |
27,865 | 30,616 | 32,083 | 36,733 | ||||||||||||
Total revenues |
628,051 | 548,494 | 776,183 | 686,498 | ||||||||||||
Cost of services: |
||||||||||||||||
Compensation and benefits |
224,336 | 189,053 | 329,479 | 283,562 | ||||||||||||
Occupancy |
89,014 | 79,516 | 226,841 | 201,112 | ||||||||||||
Depreciation |
10,777 | 11,132 | 29,740 | 31,629 | ||||||||||||
Other |
63,205 | 55,185 | 153,607 | 134,217 | ||||||||||||
| 387,332 | 334,886 | 739,667 | 650,520 | |||||||||||||
Provision for RAL litigation |
— | 71,700 | — | 71,700 | ||||||||||||
Other, selling, general
and administrative |
181,386 | 148,240 | 297,773 | 257,980 | ||||||||||||
Total expenses |
568,718 | 554,826 | 1,037,440 | 980,200 | ||||||||||||
Pretax income (loss) |
$ | 59,333 | $ | (6,332 | ) | $ | (261,257 | ) | $ | (293,702 | ) | |||||
Three months ended January 31, 2007 compared to January 31, 2006
Tax Services’ revenues increased $79.6 million, or 14.5%, for the three months ended January 31,
2007 compared to the prior year.
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Tax preparation fees increased $48.4 million, or 12.4%, for the current quarter. This increase
is primarily due to an increase of 7.6% in the net average fee per U.S. retail client served and a
4.9% increase in tax returns prepared and/or e-filed in company-owned offices. Results for our
third quarter represent only a small portion of the tax season and are not indicative of the
results we expect for the entire fiscal year. We do not expect to maintain this level of client
growth throughout the remainder of the tax season.
Other service revenues increased $15.2 million, or 46.6%, primarily due to $12.8 million in
additional license fees earned from bank products.
Royalty revenue increased $5.9 million, or 11.0%, due to an 8.8% increase in the net average
fee and a 5.6% increase in tax returns prepared and/or e-filed in franchise offices.
Loan participation fees and related revenues increased $12.8 million during the current
quarter, primarily due to the introduction of our IMAL, an early-season loan product, which
increased our participation revenues $12.1 million.
Other revenues decreased $2.8 million, or 9.0%, primarily due to the elimination of revenues
associated with our supply sales to franchises. Our franchises now order directly from the
supplier, which resulted in a reduction of $12.6 million in revenues in the current quarter. This
decline was partially offset by customer fees earned in connection with an agreement with HRB Bank
for our new H&R Block Emerald Prepaid MasterCard program, under which this segment shares in the
revenues and expenses associated with the program.
Total expenses increased $13.9 million, or 2.5%, for the three months ended January 31, 2007.
Cost of services increased $52.4 million, or 15.7%, from the prior year. Our real estate expansion
efforts have contributed to a total increase of $5.0 million across all cost of services
categories. Compensation and benefits increased $35.3 million, or 18.7%, primarily due to higher
wages associated with increased revenues, costs associated with our earlier office openings and
initiatives addressing operational readiness for the tax season. Occupancy expenses increased $9.5
million, or 11.9%, primarily as a result of higher rent expenses due to a 4.8% increase in
company-owned offices under lease and a 5.6% increase in the average rent. Other cost of services
increased $8.0 million, or 14.5%, due to higher claims expenses associated with our POM guarantees.
Other, selling, general and administrative expenses increased $33.1 million, or 22.4%,
primarily due to an $18.0 million increase in marketing expenses, $11.9 million in additional
corporate shared services and $7.5 million in additional bad debt expenses. These increases were
partially offset by a decline of $11.2 million in cost of supply sales to franchises, as previously
discussed.
Higher overall expenses were partially offset by the $71.7 million of litigation settlement
charges and related legal fees recorded in the prior year.
Pretax income for the three months ended January 31, 2007 totaled $59.3 million, compared to a
loss of $6.3 million in the prior year.
Nine months ended January 31, 2007 compared to January 31, 2006
Tax Services’ revenues increased $89.7 million, or 13.1%, for the nine months ended January 31,
2007 compared to the prior year.
Tax preparation fees increased $54.6 million, or 12.1%, for the current period. This increase
is primarily due to an increase of 7.6% in the net average fee per U.S. retail client served and a
4.9% increase in tax returns prepared and/or e-filed in company-owned offices during the current
tax season. These results represent only a small portion of the tax season and are not indicative
of the results we expect for the entire fiscal year. We do not expect to maintain this level of
client growth throughout the remainder of the tax season.
Other service revenues increased $20.2 million, or 21.5%, primarily due to $14.1 million in
additional license fees earned from bank products, coupled with an increase in the recognition of
deferred fee revenue from our POM guarantees, which resulted from an increase in claims.
Royalty revenue increased $6.7 million, or 11.2%, due to an 8.8% increase in the net average
fee and a 5.6% increase in tax returns prepared and/or e-filed in franchise offices during the
current tax season.
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Loan participation fees and related revenues increased $12.8 million during the current year,
primarily due to the introduction of our IMAL, an early-season loan product, which increased our
participation revenues $12.1 million.
Other revenues decreased $4.7 million, or 12.7%, primarily due to the revenues associated with
our supply sales to franchises. Our franchises now order directly from the supplier, which resulted
in a reduction of $15.0 million in revenues in the current year, and was partially offset by
customer fees earned in connection with an agreement with HRB Bank for our new H&R Block Emerald
Prepaid MasterCard program, under which this segment shares in the revenues and expenses associated
with the program.
Total expenses increased $57.2 million, or 5.8%, for the nine months ended January 31, 2007.
Cost of services increased $89.1 million, or 13.7%, from the prior year. Our real estate expansion
efforts have contributed to a total increase of $17.2 million across all cost of services
categories. Compensation and benefits increased $45.9 million, or 16.2%, primarily due to higher
wages associated with increased revenues, costs associated with our earlier office openings and
initiatives addressing operational readiness for the tax season. Occupancy expenses increased $25.7
million, or 12.8%, primarily as a result of higher rent expenses due to a 7.9% increase in
company-owned offices under lease and a 4.7% increase in the average rent. Other cost of services
increased $19.4 million, or 14.4%, due to increases in claims expenses associated with our POM
guarantee, travel expenses and additional corporate shared services for information technology
projects.
Other, selling, general and administrative expenses increased $39.8 million, or 15.4%,
primarily due to an increase of $18.5 million in marketing expenses, coupled with increases of
$16.0 million, $7.7 million and $5.2 million in corporate shared services, bad debt expense and
corporate wages, respectively. These increases were partially offset by a decline of $14.8 million
in cost of supply sales to franchises, as previously discussed.
Higher overall expenses were partially offset by $71.7 million of litigation settlement
charges and related legal fees recorded in the prior year.
The pretax loss of $261.3 million for the nine months ended January 31, 2007 compared to a
loss of $293.7 million in the prior year.
RAL Litigation
We are named as a defendant in putative class-action lawsuits and a pending state attorney general
lawsuit alleging that we engaged in wrongdoing with respect to the RAL program. We believe we have
meritorious defenses to these lawsuits and will vigorously defend our position. Nevertheless, the
amounts claimed in these lawsuits are, in some instances, very substantial. In fiscal year 2006,
we entered into settlement agreements regarding several RAL Cases, with the combined pretax expense
for such settlements totaling $70.2 million. There can be no assurances as to the ultimate outcome
of the remaining pending RAL Cases, or as to their impact on our financial statements. See
additional discussion of RAL Litigation in note 8 to the consolidated financial statements and in
Part II, Item 1, “Legal Proceedings.”
BUSINESS SERVICES
This segment offers middle-market companies accounting, tax and consulting services, wealth
management, retirement resources and corporate finance.
Business Services – Operating Statistics
| Three months ended January 31, | Nine months ended January 31, | |||||||||||||||
| 2007 | 2006 | 2007 | 2006 | |||||||||||||
Accounting, tax and consulting: |
||||||||||||||||
Chargeable hours |
1,024,572 | 1,107,398 | 3,245,598 | 2,467,355 | ||||||||||||
Chargeable hours per person |
305 | 314 | 894 | 895 | ||||||||||||
Net billed rate per hour |
$ | 147 | $ | 145 | $ | 146 | $ | 141 | ||||||||
Average margin per person |
$ | 23,216 | $ | 25,154 | $ | 67,997 | $ | 65,567 | ||||||||
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Business Services – Operating Results
| (in 000s) | ||||||||||||||||
| Three months ended January 31, | Nine months ended January 31, | |||||||||||||||
| 2007 | 2006 | 2007 | 2006 | |||||||||||||
Service revenues: |
||||||||||||||||
Accounting, tax and consulting |
$ | 162,618 | $ | 187,154 | $ | 515,014 | $ | 392,772 | ||||||||
Capital markets |
6,818 | 13,567 | 36,925 | 44,394 | ||||||||||||
Payroll, benefits and
retirement services |
21,478 | 8,796 | 36,880 | 25,690 | ||||||||||||
Other services |
12,584 | 16,898 | 28,391 | 37,893 | ||||||||||||
| 203,498 | 226,415 | 617,210 | 500,749 | |||||||||||||
Other |
12,397 | 9,425 | 32,919 | 28,742 | ||||||||||||
Total revenues |
215,895 | 235,840 | 650,129 | 529,491 | ||||||||||||
Cost of services: |
||||||||||||||||
Compensation and benefits |
107,135 | 130,490 | 371,166 | 297,031 | ||||||||||||
Occupancy |
18,533 | 18,339 | 57,370 | 37,514 | ||||||||||||
Other |
29,861 | 29,519 | 78,081 | 59,955 | ||||||||||||
| 155,529 | 178,348 | 506,617 | 394,500 | |||||||||||||
Amortization of intangible assets |
6,160 | 5,157 | 15,165 | 12,765 | ||||||||||||
Other, selling, general
and administrative |
55,631 | 53,370 | 163,081 | 132,169 | ||||||||||||
Total expenses |
217,320 | 236,875 | 684,863 | 539,434 | ||||||||||||
Pretax loss |
$ | (1,425 | ) | $ | (1,035 | ) | $ | (34,734 | ) | (9,943 | ) | |||||
Three months ended January 31, 2007 compared to January 31, 2006
Business Services’ revenues for the three months ended January 31, 2007 decreased $19.9 million, or
8.5%, from the prior year, primarily due to a $24.5 million decline in our accounting, tax and
consulting revenues. Accounting, tax and consulting revenues declined primarily as a result of a
change in organizational structure between the businesses we acquired from American Express Tax and
Business Services, Inc. (AmexTBS) and the attest firms that, while not affiliates of our company,
also serve our clients. As a result, we no longer record the revenues and expenses associated with
leasing employees in these offices to the attest firms.
Capital markets revenues decreased $6.7 million, or 49.7%, from the prior year due to a
decline in demand for our valuation services.
Payroll, benefits and retirement services revenues increased $12.7 million from the prior year
primarily due to fees received upon conversion of certain clients to another service provider in
connection with the wind-down of our payroll business.
Other service revenues decreased $4.3 million primarily due to a decline in revenue in our
financial process outsourcing business.
Total expenses decreased $19.6 million, or 8.3%, for the three months ended January 31, 2007
compared to the prior year. Cost of services decreased $22.8 million, due to a decrease in
compensation and benefits. Compensation and benefits decreased $23.4 million, primarily due to the
change in organizational structure of the AmexTBS offices, as discussed above.
The pretax loss for the three months ended January 31, 2007 of $1.4 million compares to a
pretax loss of $1.0 million in the prior year.
Nine months ended January 31, 2007 compared to January 31, 2006
Business Services’ revenues for the nine months ended January 31, 2007 increased $120.6 million, or
22.8%, from the prior year. This increase was due to $122.2 million in additional accounting, tax
and consulting revenues, primarily resulting from the acquisition of AmexTBS.
Capital markets revenues decreased $7.5 million, or 16.8%, from the prior year due to a
decline in demand for our valuation services, partially offset by an increase in the number of
capital market transactions.
Payroll, benefits and retirement services increased $11.2 million, or 43.6%, from the prior
year primarily due to fees received upon conversion of certain clients to another service provider
in connection with the wind-down of our payroll business.
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Other service revenues decreased $9.5 million primarily due to a decline in revenue from our
financial process outsourcing business.
Total expenses increased $145.4 million, or 27.0%, for the nine months ended January 31, 2007
compared to the prior year. Cost of services increased $112.1 million, primarily due to increases
in compensation and benefits and occupancy expenses. Compensation and benefits increased $74.1
million, primarily due to the AmexTBS acquisition. Increases in the number of personnel and the
average wage per employee, driven by marketplace competition for professional staff, also
contributed to the increase. Occupancy expenses and other expenses increased $19.9 million and
$18.1 million, respectively, primarily due to the AmexTBS acquisition.
Selling, general and administrative expenses increased $30.9 million primarily due to
acquisitions and additional costs associated with our business development and marketing
initiatives.
The pretax loss for the nine months ended January 31, 2007 of $34.7 million compares to a
pretax loss of $9.9 million in the prior year.
CONSUMER FINANCIAL SERVICES
This segment is primarily engaged in offering advice-based brokerage services and investment
planning through HRBFA, and full-service banking through HRB Bank. HRBFA, and HRB Bank, our
“Block-branded” businesses, are focused on increasing client loyalty and retention by offering
expanded financial services to our retail tax clients. HRBFA offers traditional brokerage services,
as well as annuities, insurance, fee-based accounts, online account access, equity research and
focus lists, model portfolios, asset allocation strategies, and other investment tools and
information. HRB Bank offers traditional banking services including checking and savings accounts,
home equity lines of credit, individual retirement accounts, certificates of deposit and prepaid
debit card accounts. HRBFA utilizes HRB Bank for certain FDIC-insured deposits for its clients and
HRB Bank also purchases loans from OOMC, HRBMC and other lenders to hold for investment purposes.
In the event that HRB Bank can no longer purchase loans from OOMC and HRBMC, the main source of
future loan purchases would be other third-party loan originators.
Consumer Financial Services – Operating Statistics
| Three months ended January 31, | Nine months ended January 31, | |||||||||||||||
| 2007 | 2006 | 2007 | 2006 | |||||||||||||
Broker-dealer: |
||||||||||||||||
Traditional brokerage accounts (1) |
394,767 | 426,699 | 394,767 | 426,699 | ||||||||||||
New traditional brokerage accounts
funded by HRB Tax clients |
2,270 | 2,947 | 7,425 | 10,871 | ||||||||||||
Cross-service revenue as a percent
of total production revenue |
14.8 | % | 14.2 | % | 16.1 | % | 15.7 | % | ||||||||
Average assets per traditional
brokerage account |
$ | 81,774 | $ | 72,914 | $ | 81,774 | $ | 72,914 | ||||||||
Average margin balances (millions) |
$ | 390 | $ | 529 | $ | 414 | $ | 554 | ||||||||
Average client payable
balances (millions) |
$ | 630 | $ | 769 | $ | 626 | $ | 801 | ||||||||
Number of advisors |
911 | 956 | 911 | 956 | ||||||||||||
Banking: |
||||||||||||||||
Efficiency ratio (2) |
36 | % | N/A | 37 | % | N/A | ||||||||||
Annualized net interest margin (3) |
2.52 | % | N/A | 2.79 | % | N/A | ||||||||||
Annualized return on average assets (4) |
2.63 | % | N/A | 1.96 | % | N/A | ||||||||||
Total assets (millions) |
$ | 1,814 | N/A | $ | 1,814 | N/A | ||||||||||
Loans purchased from
affiliates (millions) |
$ | 278 | N/A | $ | 1,002 | N/A | ||||||||||
| (1) | Includes only accounts with a positive balance. | |
| (2) | Defined as non-interest expense divided by revenue net of interest expense. See “Reconciliation of Non-GAAP Financial Information” at the end of Part I, Item 2. | |
| (3) | Defined as annualized net interest revenue divided by average assets. See “Reconciliation of Non-GAAP Financial Information” at the end of Part I, Item 2. | |
| (4) | Defined as annualized pretax banking income divided by average assets. See “Reconciliation of Non-GAAP Financial Information” at the end of Part I, Item 2. |
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Consumer Financial Services – Operating Results
| (in 000s) | ||||||||||||||||
| Three months ended January 31, | Nine months ended January 31, | |||||||||||||||
| 2007 | 2006 | 2007 | 2006 | |||||||||||||
Service revenues: |
||||||||||||||||
Financial advisor production revenue |
$ | 52,843 | $ | 48,378 | $ | 145,306 | $ | 139,878 | ||||||||
Other |
15,844 | 8,169 | 33,424 | 24,440 | ||||||||||||
| 68,687 | 56,547 | 178,730 | 164,318 | |||||||||||||
Net interest revenue on: |
||||||||||||||||
Margin lending |
13,278 | 14,158 | 40,173 | 40,460 | ||||||||||||
Banking activities |
6,188 | — | 14,309 | — | ||||||||||||
| 19,466 | 14,158 | 54,482 | 40,460 | |||||||||||||
Provision
for loan loss reserves |
(1,684 | ) | — | (3,386 | ) | — | ||||||||||
Other |
7,175 | 682 | 7,764 | 1,993 | ||||||||||||
Total revenues (1) |
93,644 | 71,387 | 237,590 | 206,771 | ||||||||||||
Cost of services: |
||||||||||||||||
Compensation and benefits |
35,145 | 35,901 | 99,467 | 99,112 | ||||||||||||
Occupancy |
5,112 | 5,283 | 15,020 | 15,635 | ||||||||||||
Other |
4,494 | 5,626 | 14,852 | 16,102 | ||||||||||||
| 44,751 | 46,810 | 129,339 | 130,849 | |||||||||||||
Amortization of intangible assets |
9,157 | 9,157 | 27,469 | 27,469 | ||||||||||||
Selling, general and administrative |
28,777 | 23,088 | 75,210 | 71,579 | ||||||||||||
Total expenses |
82,685 | 79,055 | 232,018 | 229,897 | ||||||||||||
Pretax income (loss) |
$ | 10,959 | $ | (7,668 | ) | $ | 5,572 | $ | (23,126 | ) | ||||||
| (1) | Total revenues, less interest expense and loan loss reserves on mortgage loans held for investment. |
Three months ended January 31, 2007 compared to January 31, 2006
Consumer Financial Services’ revenues, net of interest expense and provision for loan loss reserves, for the
three months ended January 31, 2007 increased $22.3 million, or 31.2%, from the prior year.
Financial advisor production revenue, which consists primarily of fees earned on assets under
administration and commissions on client trades, was up $4.5 million, or 9.2%, from the prior year
primarily due to higher revenues from closed end funds. The following table summarizes the key
drivers of production revenue:
| Three months ended January 31, | 2007 | 2006 | ||||||
Client trades |
234,417 | 255,879 | ||||||
Average revenue per trade |
$ | 139.25 | $ | 113.83 | ||||
Ending balance of assets under
administration (billions) |
$ | 32.6 | $ | 31.4 | ||||
Annualized productivity per advisor |
$ | 237,000 | $ | 201,000 | ||||
Other service revenues increased $7.7 million, or 94.0%, primarily due to $4.2
million in underwriting fees and $3.2 million resulting from positive sweep account rate variances
during the current quarter.
Net interest revenue on banking activities totaled $6.2 million for the three
months ended January 31, 2007. The following table summarizes the key drivers of net interest
revenue on banking activities:
| (in 000s) | ||||||||
| Average Balance | Average Rate Earned (Paid) | |||||||
Loans |
$ | 817,578 | 6.91 | % | ||||
Investments |
$ | 136,999 | 5.31 | % | ||||
Deposits |
$ | 787,160 | (4.77 | )% | ||||
Other revenues increased $6.5 million primarily due to revenues earned from our new H&R Block Emerald Prepaid MasterCard program.
Total segment expenses increased $3.6 million, or 4.6%, from the prior year.
Selling, general and administrative expenses increased $5.7 million, or 24.6%, primarily due to the
expenses of HRB Bank, which opened May 1, 2006.
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Pretax income for Consumer Financial Services for the three months ended January 31, 2007 was
$11.0 million compared to the prior year loss of $7.7 million.
Nine months ended January 31, 2007 compared to January 31, 2006
Consumer Financial Services’ revenues, net of interest expense and provision for loan loss reserves, for the nine
months ended January 31, 2007 increased $30.8 million, or 14.9%, from the prior year.
Financial advisor production revenue, which consists primarily of fees earned on assets under
administration and commissions on client trades, increased $5.4 million, or 3.9%, over the prior
year due to higher annuitized revenues, which were partially offset by fewer client trades. The
following table summarizes the key drivers of production revenue:
| Nine months ended January 31, | 2007 | 2006 | ||||||
Client trades |
673,754 | 715,519 | ||||||
Average revenue per trade |
$ | 124.86 | $ | 120.94 | ||||
Ending balance of assets under
administration (billions) |
$ | 32.6 | $ | 31.4 | ||||
Annualized productivity per advisor |
$ | 207,000 | $ | 187,000 | ||||
Other service revenues increased $9.0 million, or 36.8%, primarily due to $6.7
million resulting from positive sweep account rate variances, coupled with $1.4 million in
underwriting fees.
Net interest revenue on banking activities totaled $14.3 million for the nine
months ended January 31, 2007. The following table summarizes the key drivers of net interest
revenue on banking activities:
| (in 000s) | ||||||||
| Average Balance | Average Rate Earned (Paid) | |||||||
Loans |
$ | 603,051 | 6.92 | % | ||||
Investments |
$ | 65,596 | 5.24 | % | ||||
Deposits |
$ | 509,394 | (5.01 | %) | ||||
Other
revenues increased $5.8 million primarily due to revenues earned from our new H&R Block Emerald Prepaid MasterCard program.
Total segment expenses increased $2.1 million, or 0.9%, over the prior year.
Selling, general and administrative expenses increased $3.6 million, or 5.1%, primarily due to the
expenses of HRB Bank.
Pretax income for Consumer Financial Services for the nine months ended January 31, 2007 was
$5.6 million compared to the prior year loss of $23.1 million.
CORPORATE, ELIMINATIONS AND INCOME TAXES ON CONTINUING OPERATIONS
The pretax loss recorded in our corporate operations for the three months ended January 31, 2007
was $50.0 million compared to $30.0 million in the prior year. The higher loss is primarily due to
$7.2 million of additional operating interest expense resulting from increased borrowings to cover
operating losses coupled with higher interest rates, increases in legal, consulting and
compensation costs. These increases were also the main drivers of the higher pretax loss for the
nine-month period.
Income taxes for continuing operations included one-time benefits of $13.6 million during the
three months ended January 31, 2007. These benefits related to a permanent deduction for our
investment in a foreign subsidiary in the amount of
$5.7 million, coupled with net adjustments primarily of our prior year estimated tax provision to
tax liabilities in the 2005 tax returns as
ultimately filed and tax reserves in the amount of $7.9 million. Excluding these one-time benefits, our tax rate for
continuing operations would have been approximately 40%, consistent with our expectations for the
full fiscal year.
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DISCONTINUED OPERATIONS
Discontinued operations includes OOMC and HRBMC, mortgage businesses primarily engaged in the
origination and acquisition of non-prime and prime mortgage loans, the sale and securitization of
mortgage loans and residual interests, and the servicing of non-prime loans. Income statement
data presented below is net of eliminations of intercompany activities.
Discontinued Operations — Operating Statistics
| (in 000s) | ||||||||||||||||
| Three months ended January 31, | Nine months ended January 31, | |||||||||||||||
| 2007 | 2006 | 2007 | 2006 | |||||||||||||
Volume of loans originated: |
||||||||||||||||
Non-prime |
$ | 5,991,533 | $ | 8,608,590 | $ | 20,404,065 | $ | 31,287,507 | ||||||||
Prime |
268,866 | 343,897 | 826,917 | 1,173,417 | ||||||||||||
| $ | 6,260,399 | $ | 8,952,487 | $ | 21,230,982 | $ | 32,460,924 | |||||||||
Loan characteristics: (1) |
||||||||||||||||
Weighted average FICO score |
612 | 621 | 612 | 625 | ||||||||||||
Weighted average interest rate
for borrowers (WAC) |
8.46 | % | 8.27 | % | 8.64 | % | 7.71 | % | ||||||||
Weighted average loan-to-value |
82.2 | % | 80.0 | % | 82.4 | % | 80.6 | % | ||||||||
Origination margin (% of origination volume): (2) |
||||||||||||||||
Loan sale premium |
0.39 | % | 1.43 | % | 1.16 | % | 1.39 | % | ||||||||
Residual cash flows from beneficial
interest in Trusts |
0.36 | % | 0.81 | % | 0.41 | % | 0.54 | % | ||||||||
Gain on derivative instruments |
0.57 | % | 0.06 | % | 0.10 | % | 0.28 | % | ||||||||
Loan sale repurchase reserves |
(1.77 | %) | (0.15 | %) | (1.18 | %) | (0.15 | %) | ||||||||
Retained mortgage servicing rights |
0.66 | % | 0.67 | % | 0.63 | % | 0.60 | % | ||||||||
| 0.21 | % | 2.82 | % | 1.12 | % | 2.66 | % | |||||||||
Cost of acquisition |
(0.19 | %) | (0.27 | %) | (0.13 | %) | (0.39 | %) | ||||||||
Direct origination expenses |
(0.49 | %) | (0.69 | %) | (0.51 | %) | (0.60 | %) | ||||||||
Net gain on sale – gross margin (2) |
(0.47 | %) | 1.86 | % | 0.48 | % | 1.67 | % | ||||||||
Other cost of origination |
(1.56 | %) | (1.43 | %) | (1.50 | %) | (1.32 | %) | ||||||||
Other |
(0.37 | %) | (0.04 | %) | (0.06 | %) | (0.01 | %) | ||||||||
Net margin |
(2.40 | %) | 0.39 | % | (1.08 | %) | 0.34 | % | ||||||||
Total cost of origination (3) |
2.05 | % | 2.12 | % | 2.01 | % | 1.92 | % | ||||||||
Total cost of origination
and acquisition |
2.24 | % | 2.39 | % | 2.14 | % | 2.31 | % | ||||||||
Loan delivery: |
||||||||||||||||
Loan sales: |
||||||||||||||||
Third-party buyers |
$ | 6,052,256 | $ | 8,924,788 | $ | 20,492,913 | $ | 32,265,319 | ||||||||
HRB Bank |
278,486 | — | 1,001,610 | — | ||||||||||||
| $ | 6,330,742 | $ | 8,924,788 | $ | 21,494,523 | $ | 32,265,319 | |||||||||
Execution price (4) |
1.23 | % | 0.51 | % | 1.45 | % | 1.68 | % | ||||||||
| (1) | Represents non-prime production. | |
| (2) | 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. | |
| (3) | See “Reconciliation of Non-GAAP Financial Information” at the end of Part I, Item 2. | |
| (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). |
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Discontinued Operations — Operating Results
| (in 000s) | ||||||||||||||||
| Three months ended January 31, | Nine months ended January 31, | |||||||||||||||
| 2007 | 2006 | 2007 | 2006 | |||||||||||||
Components of gains on sales: |
||||||||||||||||
Gain on mortgage loans |
$ | 46,533 | $ | 174,475 | $ | 333,317 | $ | 499,466 | ||||||||
Gain on derivatives |
35,179 | 5,060 | 20,372 | 91,896 | ||||||||||||
Loan sale repurchase reserves |
(111,122 | ) | (13,076 | ) | (251,083 | ) | (49,547 | ) | ||||||||
Gain on sales of residual interests |
7,296 | — | 7,296 | 28,675 | ||||||||||||
Impairment of residual interests |
(43,557 | ) | (8,562 | ) | (73,059 | ) | (29,175 | ) | ||||||||
| (65,671 | ) | 157,897 | 36,843 | 541,315 | ||||||||||||
Interest income |
11,928 | 32,313 | 41,325 | 104,027 | ||||||||||||
Loan servicing revenue |
109,833 | 106,065 | 332,336 | 296,720 | ||||||||||||
Other |
56 | 219 | 256 | 740 | ||||||||||||
Total revenues |
56,146 | 296,494 | 410,760 | 942,802 | ||||||||||||
Cost of services |
77,040 | 83,076 | 235,353 | 215,279 | ||||||||||||
Cost of other revenues |
79,698 | 104,499 | 223,908 | 343,707 | ||||||||||||
Selling, general and administrative |
61,390 | 38,497 | 174,330 | 126,562 | ||||||||||||
Total expenses |
218,128 | 226,072 | 633,591 | 685,548 | ||||||||||||
Pretax income (loss) |
$ | (161,982 | ) | $ | 70,422 | $ | (222,831 | ) | $ | 257,254 | ||||||
Three months ended January 31, 2007 compared to January 31, 2006
Revenues of discontinued operations decreased $240.3 million, or 81.1%, for the three months ended
January 31, 2007 compared to the prior year.
The following table summarizes the key drivers of loan origination volumes and related gains
on sales of mortgage loans:
| (dollars in 000s) | ||||||||
| Three months ended January 31, | 2007 | 2006 | ||||||
Application process: |
||||||||
Total number of applications |
58,686 | 75,103 | ||||||
Number of sales associates (1) |
2,146 | 3,486 | ||||||
Closing ratio (2) |
48.3 | % | 61.4 | % | ||||
Originations: |
||||||||
Total number of loans originated |
28,357 | 46,134 | ||||||
WAC |
8.46 | % | 8.27 | % | ||||
Average loan size |
$ | 221 | $ | 194 | ||||
Total volume of loans originated |
$ | 6,260,399 | $ | 8,952,487 | ||||
Direct origination and acquisition expenses, net |
$ | 42,288 | $ | 85,974 | ||||
Revenue (loan value): |
||||||||
Net gain on sale – gross margin (3) |
(0.47 | %) | 1.86 | % | ||||
| (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 and gains on derivative activities decreased $97.8
million, primarily due to lower origination volumes and lower loan sale premiums.
Premium on loan sales decreased due to moderating demand by loan buyers and unfavorable
interest rates, partially offset by a higher WAC. Market interest rates, based on the two-year
swap, increased from an average of 4.83% last year to 5.12% in the current quarter. Our WAC only
increased 19 basis points, up to 8.46% from 8.27% in the prior year.
To mitigate the risk of short-term changes in market interest rates related to our loan
originations, including our rate-lock equivalents and beneficial interest in Trusts, we use
interest rate swaps, put options on Eurodollar futures and forward loan sale commitments. We
generally enter into interest rate swap arrangements related to existing loan applications and
applications we expect to receive prior to our next anticipated change in rates charged to
borrowers. During the quarter, we recorded a net $35.2 million in gains, compared to $5.1 million
in the prior year, related to our various derivative instruments. The increase for the current
quarter was caused by market
interest rates, based on the two-year swap, increasing 27 basis points compared to an increase of
11 basis points during the prior year quarter. See note 11 to the condensed consolidated financial
statements.
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Table of Contents
The value of MSRs recorded in the current quarter decreased to 66 basis points from 67 basis
points in the prior year due to changes in our assumptions used to value MSRs and other factors.
This decrease, coupled with a decline in origination volumes, resulted in a net decrease of $18.6
million in gains on sales of mortgage loans. See additional discussion of our MSR assumptions in
Item 1, note 11 to the condensed consolidated financial statements and in Item 2, “Critical
Accounting Policies.”
During the quarter we continued to experience higher early payment defaults, resulting in an
increase in actual and expected loan repurchase activity. As a result, we recorded total loss
provisions of $111.1 million during the three months ended January 31, 2007 compared to $13.1
million in the prior year. The provision recorded in the current quarter consists of $18.3 million
recorded on loans sold during the current quarter and, due primarily to increases in our estimated
loss severity assumption, also included $92.8 million related to loans sold in prior quarters. Loss
provisions as a percent of loan volumes increased 162 basis points over the prior year. See
additional discussion of our reserves and repurchase obligations in note 11 to our condensed
consolidated financial statements.
During the current quarter, we recorded impairments of $43.6 million in gains on sales of
mortgage assets primarily due to recent market conditions and
significant declines in the value of mortgage loans, including the
value of non-performing loans. As a result, we performed a detailed evaluation of the underlying collateral. This change resulted in additional impairment of residual interests of $29.2 million
for the quarter.
We also recorded favorable pretax mark-to-market adjustments in other
comprehensive income, which increased the fair value of our residual interests $6.3 million during
the quarter. These adjustments were recorded net of write-downs of $11.6 million and deferred taxes
of $2.0 million, and will be accreted into income throughout the remaining life of those residual
interests. 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.
In the current year we also recorded a $7.3 million gain on the sale of residual interests.
Interest income decreased $20.4 million from the prior year. This decrease is primarily due to
lower accretion resulting from the sale of previously securitized residual interests during fiscal
year 2006 and lower write-ups to residual interest balances, coupled with the write-off of accrued
interest related to delinquent loans.
The following table summarizes the key metrics related to our loan servicing business:
| (dollars in 000s) | ||||||||
| Three months ended January 31, | 2007 | 2006 | ||||||
Average servicing portfolio: |
||||||||
With related MSRs |
$ | 63,809,435 | $ | 59,344,676 | ||||
Without related MSRs |
6,412,788 | 21,046,638 | ||||||
| $ | 70,222,223 | $ | 80,391,314 | |||||
Ending servicing portfolio: |
||||||||
With related MSRs |
$ | 63,942,819 | $ | 60,787,507 | ||||
Without related MSRs |
3,589,355 | 15,994,170 | ||||||
| $ | 67,532,174 | $ | 76,781,677 | |||||
Number of loans serviced |
395,390 | 466,026 | ||||||
Average delinquency rate |
11.22 | % | 5.58 | % | ||||
Weighted average FICO score |
621 | 621 | ||||||
Weighted average interest rate (WAC) of portfolio |
8.14 | % | 7.63 | % | ||||
Carrying value of MSRs |
$ | 263,140 | $ | 262,369 | ||||
Loan servicing revenues increased $3.8 million, or 3.6%, compared to the prior year.
The increase reflects an increase in late fee income on delinquent loans and, to a lesser extent, a
higher annualized rate earned on our servicing portfolio. The annualized rate earned on our entire
servicing portfolio was 39 basis points for the current quarter, compared to 34 basis points in the
prior year. These increases were partially offset by a decline in our average servicing portfolio,
which decreased 12.6%, to $70.2 billion.
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Total expenses for the three months ended January 31, 2007 declined $7.9 million, or 3.5%,
from the prior year. Cost of services decreased $6.0 million primarily due to lower headcount,
partially offset by increased amortization of MSRs.
Cost of other revenues decreased $24.8 million, primarily due to $27.3 million in lower
compensation and benefits as a result of the restructuring in the prior year.
Selling, general and administrative expenses increased $22.9 million due primarily to
severance and our ongoing restructuring plans, coupled with retention bonuses and higher consulting
expenses.
The pretax loss for the three months ended January 31, 2007 was $162.0 million compared to
income of $70.4 million in the prior year.
Nine months ended January 31, 2007 compared to January 31, 2006
Revenues of discontinued operations decreased $532.0 million, or 56.4%, for the nine months ended
January 31, 2007 compared to the prior year.
The following table summarizes the key drivers of loan origination volumes and related gains
on sales of mortgage loans:
| (dollars in 000s) | ||||||||
| Nine months ended January 31, | 2007 | 2006 | ||||||
Application process: |
||||||||
Total number of applications |
203,198 | 290,476 | ||||||
Number of sales associates (1) |
2,146 | 3,486 | ||||||
Closing ratio (2) |
50.5 | % | 61.8 | % | ||||
Originations: |
||||||||
Total number of loans originated |
102,544 | 179,439 | ||||||
WAC |
8.64 | % | 7.71 | % | ||||
Average loan size |
$ | 207 | $ | 181 | ||||
Total volume of loans originated |
$ | 21,230,982 | $ | 32,460,924 | ||||
Direct origination and acquisition expenses, net |
$ | 135,442 | $ | 321,177 | ||||
Revenue (loan value): |
||||||||
Net gain on sale – gross margin (3) |
0.48 | % | 1.67 | % | ||||
| (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 and gains on derivative activities decreased $237.7
million from the prior year. This decrease resulted primarily from lower origination volumes and
lower loan sale premiums.
Premium on loan sales decreased due to moderating demand by loan buyers and unfavorable
interest rates, partially offset by a higher WAC. Market interest rates, based on the two-year
swap, increased from an average of 4.45% last year to 5.29% in the current year. Our WAC increased
93 basis points, up to 8.64% from 7.71% in the prior year. These changes caused our premium on loan
sales to decrease 23 basis points, to 1.16% from 1.39% last year.
During the current year, we recorded a net $20.4 million in gains, compared to $91.9 million
in the prior year, related to our various derivative instruments. The decline for the current year
was caused by market interest rates, based on the two-year swap, declining 10 basis points compared
to an increase of 93 basis points during the prior year. See note 11 to the condensed consolidated
financial statements.
The value of MSRs recorded in the current year increased to 63 basis points from 60 basis
points in the prior year due to changes in our assumptions used to value MSRs and other factors.
However, this increase was offset by a decline in origination volumes, which resulted in a net
decrease of $62.0 million in gains on sales of mortgage loans. See additional discussion of our MSR
assumptions in note 11 to the condensed consolidated financial statements and in Item 2, “Critical
Accounting Policies.”
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During the current year we experienced higher early payment defaults, resulting in an increase
in actual and expected loan repurchase activity. As a result, we recorded total loss provisions of
$251.1 million during the nine months ended January 31, 2007 compared to $49.5 million in the prior
year. The provision recorded in the current year consists of $130.7 million recorded on loans sold
during the current period and $120.4 million related to loans sold in prior periods. Loss
provisions as a percent of loan volumes increased 103 basis points over the prior year. See
additional discussion of our reserves and repurchase obligations in note 11 to our condensed
consolidated financial statements.
During the current year, we recorded impairments of $73.1 million in gains on sales of
mortgage assets primarily due to higher credit losses and interest
rates. Additionally, recent market conditions resulted in significant
declines in the value of mortgage loans, including the value of
non-performing loans. As a result, we performed a detailed evaluation of the underlying collateral.
This change resulted in additional impairment of residual interests of $29.2 million.
We also recorded favorable pretax
mark-to-market adjustments in other comprehensive income, which increased the fair value of our
residual interests $18.1 million during the current year. These adjustments were recorded net of
write-downs of $15.3 million and deferred taxes of $1.1 million, and will be accreted into income
throughout the remaining life of those residual interests. We also recorded gains of $7.3 million
and $28.7 million in gains on the sale of residual interests for the nine months ended January 31,
2007 and 2006, respectively.
Interest income decreased $62.7 million from the prior year. This decrease is primarily due to
lower accretion resulting from the sale of previously securitized residual interests during fiscal
year 2006 and lower write-ups to residual interest balances, coupled with the write-off of accrued
interest related to delinquent loans.
The following table summarizes the key metrics related to our loan servicing business:
| (dollars in 000s) | ||||||||
| Nine months ended January 31, | 2007 | 2006 | ||||||
Average servicing portfolio: |
||||||||
With related MSRs |
$ | 63,794,782 | $ | 54,784,155 | ||||
Without related MSRs |
8,728,890 | 21,210,097 | ||||||
| $ | 72,523,671 | $ | 75,994,252 | |||||
Ending servicing portfolio: |
||||||||
With related MSRs |
$ | 63,942,819 | $ | 60,787,507 | ||||
Without related MSRs |
3,589,355 | 15,994,170 | ||||||
| $ | 67,532,174 | $ | 76,781,677 | |||||
Number of loans serviced |
395,390 | 466,026 | ||||||
Average delinquency rate |
9.03 | % | 4.76 | % | ||||
Weighted average FICO score |
621 | 621 | ||||||
Weighted average interest rate (WAC) of portfolio |
8.04 | % | 7.51 | % | ||||
Carrying value of MSRs |
$ | 263,140 | $ | 262,369 | ||||
Loan servicing revenues increased $35.6 million, or 12.0%, compared to the prior
year. The increase reflects an increase in late fee income on delinquent loans and, to a lesser
extent, a higher annualized rate earned on our servicing portfolio. The annualized rate earned on
our entire servicing portfolio was 37 basis points for the current year, compared to 34 basis
points in the prior year. These increases were partially offset by a decline in our average
servicing portfolio, which decreased 4.6%, to $72.5 billion.
Total expenses for the nine months ended January 31, 2007 declined $52.0 million, or 7.6%,
from the prior year. Cost of services increased $20.1 million primarily as a result of increased
amortization of MSRs.
Cost of other revenues decreased $119.8 million, primarily due to our ongoing restructuring
plans.
Selling, general and administrative expenses increased $47.8 million due primarily to
severance and our ongoing restructuring plans, coupled with retention bonuses and higher consulting
expenses.
The pretax loss for the nine months ended January 31, 2007 was $222.8 million compared to
income of $257.3 million in the prior 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.
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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 operating activities from continuing operations for the
first nine months of fiscal 2007 totaled $2.8 billion, compared with $1.7 billion for the same
period of the prior fiscal year. The change was due primarily to $882.7 million in additional
receivables, resulting from higher RAL and IMAL balances, an increase of $153.6 million in income
tax payments and an increase of $40.3 million in interest payments.
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
$19.2 million and $95.9 million for the nine months ended January 31, 2007 and 2006, respectively.
Dividends. Dividends paid totaled $128.1 million and $118.7 million for the nine months ended
January 31, 2007 and 2006, respectively.
Share Repurchases. On June 7, 2006, our Board approved an additional authorization to
repurchase 20.0 million shares. During the nine months ended January 31, 2007, we repurchased 8.1
million shares pursuant to this authorization and a prior authorization at an aggregate price of
$180.9 million or an average price of $22.22 per share. There are 22.4 million shares remaining
under these authorizations at January 31, 2007. We plan to continue to purchase shares on the open
market in accordance with this authorization, subject to various factors including the price of the
stock, the availability of excess cash, our ability to maintain liquidity and financial
flexibility, securities law restrictions, targeted capital levels and other investment
opportunities available.
Debt. We plan to refinance our $500.0 million in Senior Notes, which are due in
April 2007.
Restricted Cash. We hold certain cash balances that are restricted as to use.
Cash and cash equivalents — restricted totaled $432.5 million at January 31, 2007 compared to
$385.6 million at April 30, 2006. Consumer Financial Services held $369.0 million of this total
segregated in a special reserve account for the exclusive benefit of its broker-dealer clients.
Restricted cash of $13.3 million at January 31, 2007 held by Business Services is related to funds
held to pay payroll taxes on behalf of its clients. We also held $50.3 million in restricted cash
related to our $3.0 billion line of credit with HSBC Finance Corporation (HSBC Finance).
Segment Cash Flows. A condensed consolidating statement of cash flows by segment for the nine
months ended January 31, 2007 follows. Generally, interest is not charged on intercompany
activities between segments.
| (in 000s) | ||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||
| Tax | Business | Financial | Discontinued | Consolidated | ||||||||||||||||||||
| Services | Services | Services | Corporate | Operations | H&R Block | |||||||||||||||||||
Cash provided
by (used in): |
||||||||||||||||||||||||
Operations |
$ | (2,107,883 | ) | $ | 30,295 | $ | (64,345 | ) | $ | (1,090,466 | ) | $ | 454,135 | $ | (2,778,264 | ) | ||||||||
Investing |
(47,843 | ) | (24,129 | ) | (1,079,768 | ) | (45,305 | ) | 18,322 | (1,178,723 | ) | |||||||||||||
Financing |
(47,517 | ) | (12,387 | ) | 1,618,450 | 2,631,602 | 172,301 | 4,362,449 | ||||||||||||||||
Net intercompany |
2,224,965 | 2,669 | (238,894 | ) | (1,764,227 | ) | (224,513 | ) | — | |||||||||||||||
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 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 $2.1 billion in its current nine-month operations to
cover off-season costs and working capital requirements. This segment used $47.8 million in
investing
activities primarily related to capital expenditures and acquisitions, and used $47.5 million in
financing activities related to book overdrafts.
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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 $30.3 million in operating cash flows during the first nine
months of the year. Business Services used $24.1 million in investing activities primarily related
to capital expenditures and acquisitions and used $12.4 million in financing activities primarily due to payments on
acquisition debt.
Consumer Financial Services. In the first nine months of fiscal year
2007, Consumer Financial Services used $64.3 million in cash from its operating activities
primarily due to the timing of cash deposits that are restricted for the benefit of its
broker-dealer clients. The segment also used $1.1 billion in investing activities primarily for the
purchase of mortgage loans held for investment and provided $1.6 billion in financing activities
due primarily to FDIC-insured deposits held at HRB Bank.
HRB Bank is a member of the FHLB of Des Moines, which extends credit to member banks based on
eligible collateral. At January 31, 2007, HRB Bank had FHLB advance capacity of $594.0 million, and
no amount was outstanding on this facility.
We believe the funding sources for Consumer Financial 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 clients.
Discontinued Operations. These operations primarily generate cash as a result of the
sale and securitization of mortgage loans and residual interests, and as residual interests begin
to cash flow. Our discontinued operations provided $454.1 million in cash from operating activities
primarily due to loan sales exceeding loan originations during the nine months ended January 31,
2007. Cash flows provided by investing activities consist primarily of $38.3 million in cash
receipts on available-for-sale residual interests. Operating cash
flows of discontinued operations in the table above includes the net
loss from discontinued operations of $119.1 million.
To finance our prime mortgage loan originations, we utilize an on-balance sheet
warehouse facility with capacity up to $25 million. As of January 31, 2007 and April 30, 2006, the
balance outstanding under this facility was $4.7 million and $1.6 million, respectively.
See discussion of changes in the off-balance sheet arrangements of our discontinued operations
below.
OFF-BALANCE SHEET FINANCING ARRANGEMENTS
During the three months ended January 31, 2007, total warehouse capacity was increased from $16.0
billion to $16.5 billion. Also during the third quarter, as reported in current report on Form 8-K
dated January 31, 2007, we amended our warehouse facility with Citigroup Global Markets Realty Corp
(Citigroup) to split OOMC’s existing warehouse financing arrangement with Citigroup into two
separate warehouse facilities, one of which is an on-balance sheet facility with capacity of $500.0 million and the other an
off-balance sheet facility. Loans totaling $172.3 million were held on the on-balance sheet line at
January 31, 2007, with the related loans and liability reported in assets and liabilities held for
sale. At January 31, 2007, our total off-balance sheet capacity was $16.0 billion, $14.5 billion of which was committed.
As of January 31, 2007, OOMC did not meet the “minimum net income” financial covenant
contained in eight of its committed warehouse facilities. This covenant requires OOMC to maintain a
cumulative minimum net income of at least $1 for the four consecutive fiscal quarters ended January
31, 2007. On January 24, 2007, OOMC obtained waivers of the minimum net income financial covenants
through April 27, 2007 from each of the applicable warehouse facility providers. The parties to
the waivers were OOMC, Option One Mortgage Capital Corporation, Option One Loan Warehouse
Corporation, Option One Owner Trust 2001-1A; Option One Owner Trust 2001-2; Option One Owner Trust
2003-4, Option One Owner Trust 2003-5; Option One Owner Trust 2005-6; Option One Owner Trust
2005-7; Option One Owner Trust 2005-8; Option One Owner Trust 2005-9; Wells Fargo Bank National
Association (as indenture trustee) and each of the following warehouse facility providers: Bank of
America, N.A.; JPMorgan Chase Bank, N.A.; Park Avenue Receivables Company LLC; Falcon Asset
Securitization Company LLC; JPMorgan Chase Bank, N.A.; Citigroup
Global Markets Realty Corp.; DB Structured Products, Inc.; Gemini Securitization Corp., LLC;
Greenwich Capital Financial Products, Inc.; HSBC Securities (USA) Inc.; HSBC Bank USA, N.A.; Lehman
Brothers Bank; and Merrill Lynch Bank USA.
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Certain parties to the warehouse facilities have other relationships with us. Each of the
warehouse facility providers (or their affiliates) are lending parties pursuant to credit
facilities maintained by Block Financial Corporation (BFC), as borrower, and H&R Block, Inc., as
guarantor, with various lenders. In addition, certain of the HSBC warehouse facility providers and
their affiliates are parties to various agreements with us which (i) an HSBC affiliate originates
RALs and IMALs and issues RACs to eligible clients of H&R Block company-owned and franchise offices
and clients who utilize tax preparation products or services through other H&R Block distribution
channels, (ii) BFC purchases participation interests in RALs and IMALs originated by certain HSBC
affiliates, (iii) certain HSBC affiliates service RALs and IMALs in which BFC purchases
participation interests and (iv) an HSBC affiliate provides a revolving credit facility to BFC for
funding BFC’s purchases of participation interests in RALs.
We anticipate that OOMC will not meet
this financial covenant at April 30, 2007, however we
believe we will be able to obtain waivers for that date from a sufficient number of warehouse
providers to allow OOMC to continue its off-balance sheet financing activities. If OOMC can not
obtain the waivers, warehouse facility providers would have the right to terminate
their future funding obligations under the applicable warehouse
facilities, terminate OOMC’s right
to service the loans remaining in the applicable warehouse or request funding of the 10% guarantee.
See note 11 to our condensed consolidated financial statements. While this termination could adversely impact OOMC’s
ability to fund new loans, we believe this risk is mitigated by
options available to H&R Block.
Other than the changes outlined above, there have been no material changes in our off-balance
sheet financing arrangements from those reported at April 30, 2006 in our Annual Report on Form
10-K.
COMMERCIAL PAPER ISSUANCE AND SHORT-TERM BORROWINGS
We entered into a $3.0 billion line of credit agreement with HSBC Finance effective January 2, 2007
for use as an alternate funding source for the purchase of RAL participations. This line is subject
to various covenants that are substantially similar to our primary unsecured committed lines of
credit (CLOCs), and is secured by our RAL participations. The balance outstanding on this facility
at January 31, 2007 was $1.4 billion.
We entered into a $300.0 million committed line of credit agreement with BNP Paribas for
the period January 2 through February 23, 2007 to cover our peak liquidity needs. This line is
subject to various covenants that are substantially similar to our primary unsecured CLOCs. There
was no balance outstanding on this line at January 31, 2007.
Our Canadian commercial paper issuances are supported by a credit facility provided by one
bank in scheduled amounts ranging from $1.0 million to $225.0 million (Canadian) based on anticipated operational needs. The Canadian CLOC was renewed in
November 2006 for an additional 364 days.
Other than the changes outlined above, there have been no material changes in our commercial
paper program and short-term borrowings from those reported at April 30, 2006 in our Annual Report
on Form 10-K.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
There have been no material changes in our contractual obligations and commercial commitments from
those reported at April 30, 2006 in our Annual Report on Form 10-K.
REGULATORY ENVIRONMENT
In March 2006, the OTS approved the federal savings bank charter of HRB Bank. HRB Bank commenced
operations on May 1, 2006, at which time H&R Block, Inc. became a savings and loan holding company.
As a savings and loan holding company, H&R Block, Inc. is subject to regulation by the OTS. Federal
savings banks are subject to extensive regulation and examination by the OTS, their primary federal
regulator, as well as the Federal Deposit Insurance Corporation (FDIC). HRB Bank is subject to
various OTS capital requirements and H&R Block, Inc. is now subject to a three percent minimum
ratio of adjusted tangible capital to adjusted total assets, as defined by the OTS. As of January
31, 2007, our ratio of adjusted tangible capital to adjusted total
assets was approximately 1%. We fell below the minimum required ratio due to losses in our mortgage
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operations and seasonal fluctuations in our consolidated balance sheet. We notified the OTS of our
failure to meet this requirement and the OTS requested that we provide a plan and expected
timeframe for regaining compliance. We have provided a corrective plan and indicated that we
believed our noncompliance would be remedied by February 28, 2007. We have agreed to provide the
OTS with the calculation of this ratio as of February 28, 2007, although it is normally required
only on a quarterly basis. We have not received further requests from the OTS as of the date of
this filing.
A banking institution’s capital category depends upon where its capital levels are in relation
to relevant capital measures, which include a risk-based capital measure, a leverage ratio capital
measure, a tangible equity ratio measure, and certain other factors. See note 6 to the condensed
consolidated financial statements for additional discussion of regulatory capital requirements and
classifications.
HRB Bank is an indirect wholly-owned subsidiary of H&R Block, Inc. and is insured by the FDIC.
If an insured institution fails, claims for administrative expenses of the receiver and for
deposits in U.S. branches (including claims of the FDIC as subrogee of the failed institution) have
priority over the claims of general unsecured creditors. In addition, the FDIC has authority to
require H&R Block, Inc. to reimburse it for losses it incurs in connection with the failure of HRB
Bank or with the FDIC’s provision of assistance to a banking subsidiary that is in danger of
failure.
Other than the items discussed above, there have been no material changes in our regulatory
environment from those reported at April 30, 2006 in our Annual Report on Form 10-K.
CRITICAL ACCOUNTING POLICIES
The following discussion is an update to previous disclosure regarding certain of our critical
accounting policies and should be read in conjunction with the complete critical accounting
policies disclosures included in our Annual Report on Form 10-K for the year ended April 30, 2006.
For all of our critical accounting policies, we caution that future events rarely develop precisely
as forecasted, and estimates routinely require adjustment and may require material adjustment.
Gains on Sales of Mortgage Assets
We sell substantially all of the non-prime mortgage loans we originate to warehouse trusts (the
‘Trusts”) which are qualifying special purpose entities (QSPEs), with servicing rights generally
retained. Prime mortgage loans are sold in loan sales, servicing released, to third-party buyers.
Gains on sales of mortgage assets are recognized when control of the assets is surrendered (when
loans are sold to third-party buyers, including the Trusts) and are based on the difference between
net proceeds received (cash proceeds less recourse obligations) and the allocated cost of the
assets sold. We determine the allocated cost of assets sold based on the relative fair values of
net proceeds (i.e. the loans sold), retained MSRs and the beneficial interest in Trusts, which
represents our residual interest in the ultimate expected outcome from the disposition of the loans
by the Trusts.
The following is an example of a hypothetical gain on sale calculation:
| (in 000s) | ||||
Acquisition cost of underlying mortgage loans |
$ | 1,000,000 | ||
Fair values: |
||||
Net proceeds |
$ | 999,000 | ||
Cash received |
(4,000 | ) | ||
Less recourse obligation |
$ | 995,000 | ||
Beneficial interest in Trusts |
20,000 | |||
MSRs |
7,000 | |||
| $ | 1,022,000 | |||
Computation of gain on sale: |
||||
Net proceeds |
$ | 995,000 | ||
Less allocated cost ($995,000 / $1,022,000 x $1,000,000) |
973,581 | |||
Recorded gain on sale |
$ | 21,419 | ||
Recorded beneficial interest in Trusts ($20,000 / $1,022,000 x $1,000,000) |
$ | 19,570 | ||
Recorded value of MSRs ($7,000 / $1,022,000 x $1,000,000) |
$ | 6,849 | ||
Recorded liability for recourse obligation |
$ | 4,000 | ||
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Variations in the assumptions we use affect the estimated fair values and the
reported net gains on sales. Gains on sales of mortgage loans totaled $333.3 million and $499.5
million for nine months ended January 31, 2007 and 2006, respectively.
Our recourse obligation relates to potential losses that could be incurred related to the
repurchase of sold loans or indemnification of losses as a result of early payment defaults or
breaches of other representations and warranties customary to the mortgage banking industry.
The substantial majority of loan repurchases or indemnification for losses occurs within nine
months from the date the loans are sold. We estimate the fair value of the recourse liability at
the time the loan is sold. Provisions for losses are charged to gain on sale of mortgage loans and
credited to the recourse liability, while actual losses are charged to the liability. We evaluate,
and adjust if necessary, the fair value of the recourse obligation quarterly based on current
information and trends in underlying loan performance. The amount of losses we expect to incur
related to the repurchase of sold loans depends primarily on the frequency of early payment
defaults, the rate at which defaulted loans subsequently become current on payments (“cure rate”),
the propensity of the buyer of the loans to demand recourse under the loan sale agreement and the
severity of loss incurred on loans which have been repurchased. The frequency of early payment
defaults, cure rates and loss severity may vary depending on the creditworthiness of the borrower
and economic factors such as home price appreciation and interest rates. To the extent actual
losses related to repurchase activity are different from our estimates, the fair value of our
recourse obligation will increase or decrease.
During the nine months ended January 31, 2007, we experienced higher early payment defaults,
resulting in an increase in actual and expected loan repurchase activity. As a result, we recorded
total loss provisions of $251.1 million during the nine months ended January 31, 2007 compared to
$49.5 million in the prior year. Loss provisions recorded in the current year consist of $130.7
million recorded on loans sold during the current year and $120.4 million related to loans sold in
prior periods. At January 31, 2007, we assumed that substantially all loans that failed to make
timely payments according to contractual early payment default provisions will be repurchased, and
that 6% of loans will be repurchased from sales that have not yet reached the contractual date upon
which repurchases can be determined. Based on historical experience and review of current early
payment default, cure rate and loss severity trends, we assumed 10% of all loans we repurchase from
whole loan sale transactions will cure with no loss incurred, and of those that do not cure, we
assumed an average 17% loss severity for loans on which we hold a first lien position. During the
three months ended January 31, 2007, we increased our estimated loss severity for on-balance sheet
loans from an average of 17% to 29%. We recorded $92.8 million in reserves related to loans sold in
prior quarters due to higher severity assumptions, higher loss frequency and a decrease in our
estimated cure rate.
Based on our analysis as of January 31, 2007, we estimated our liability for recourse
obligations to be $44.8 million. The sensitivity of the recourse liability to 10% and 20% adverse
changes in loss assumptions is $4.5 million and $9.0 million, respectively.
Valuation of MSRs
MSRs are recorded when we sell loans to third-parties with the servicing of those loans retained.
At the time of the loan sale, we determine and record on our balance sheet the allocated historical
cost of the MSRs attributable to loans sold, as illustrated above. These MSRs are amortized into
expense over the estimated life of the underlying loans. MSRs are carried at the lower of cost or
market (LOCOM). On a quarterly basis, MSRs are assessed to determine if our carrying value exceeds
fair value. Fair value is estimated using a discounted cash flow approach by stratifying the MSRs
based on underlying loan characteristics, including the calendar year the loans are sold. To the
extent fair value is less than carrying value we record an impairment charge and adjust the
carrying value of the MSRs.
A market price of our MSRs is not readily available because non prime MSRs are not actively
traded in the marketplace. Therefore, the fair value of our MSRs is estimated using a discounted
cash flow approach, using valuation methods and assumptions we believe incorporate assumptions
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used
by market participants. Certain of these assumptions are subjective and require a high level of
management judgment. MSR valuation assumptions are reviewed and approved by management on a
quarterly basis. In determining the assumptions to be used to value MSRs, we review the historical
performance of our MSRs, including back-testing of the performance of certain individual
assumptions (comparison of actual results to those expected). In addition, we periodically review
third-party valuations of certain of our MSRs and peer group MSR valuation surveys to assess the
reasonableness of our valuation assumptions and resulting fair value estimates.
Critical assumptions used in our discounted cash flow model include mortgage prepayment
speeds, discount rates, costs to service and ancillary income. Variations in our assumptions could
materially affect the estimated fair values. Changes to our assumptions are made when current
trends and market data indicate that new trends have developed. Certain assumptions, such as
ancillary interest income, may change from quarter to quarter as market conditions and projected
interest rates change. Other assumptions, such as expected prepayment speeds, discount rates and
costs of servicing may change less frequently as they are less sensitive to near-term market
conditions.
Prepayment speeds may be affected by economic factors such as home price appreciation, market
interest rates, the availability of other credit products to our borrowers and customer payment
patterns. Prepayment speeds include the impact of all borrower prepayments including full payoffs,
additional principal payments and the impact of loans paid off due to foreclosure liquidations. As
market interest rates decline, prepayment speeds will generally increase as customers refinance
existing mortgages under more favorable interest rate terms. As prepayment speeds increase,
anticipated cash flows will generally decline resulting in a potential reduction, or impairment, to
the fair value of the capitalized MSRs. Alternatively, an increase in market interest rates may
cause a decrease in prepayment speeds, and an increase in fair value of MSRs. Many of our loans
include prepayment penalties during the first two to three years. Prepayment penalties tend to
lower prepayment speeds during the early life of our loans, regardless of market interest rate
movements, therefore decreasing the sensitivity of expected prepayment speeds to changes in
interest rates. Prepayment speeds are estimated based on historical experience and third-party
market sources. Changes are made as necessary to ensure such estimates reflect current market
conditions specific to our individual MSR stratas.
Discount rates are determined by reviewing market rates used by market participants. These
rates may vary based on economic factors such as market perception of risk and changes in the
risk-free interest rates. Changes are made as necessary to ensure such estimates reflect current
market conditions for MSR assets.
Costs to service includes the cost to process loan payments, make payments to bondholders,
collect delinquent accounts and administrative foreclosure activities. Market trends and changes to
underlying expenses are evaluated to determine if updates to assumptions are necessary. The
economic factors affecting costs to service include unemployment rates, the housing market and the
cost of labor. Higher unemployment rates may lead to higher delinquency and foreclosure rates
resulting in higher costs to service loans. The housing market, including home price appreciation
rates, impacts sale prices for homes in foreclosure and our borrowers’ ability to refinance or sell
their properties in the event that they can no longer afford their homes, thus impacting
delinquencies and foreclosures.
Ancillary fees and income include late charges, non-sufficient funds fees, collection fees and
interest earning funds held in deposit. These fees could be impacted by state legislation efforts,
customer behavior, fee waiver policies and industry trends.
During the period from May 1, 2005 to the current quarter ended January 31, 2007, assumptions
used in valuing MSRs have been updated. The significant changes and their impact, both in dollars
and basis points of loans sold during the quarter of initial implementation, are outlined below
beginning with the most recent changes.
| (dollars in 000s) | ||||||||
| Description | Change | Impact | Quarter Implemented | |||||
Prepayment rates |
Further stratification of | $4,428 or | January 31, 2007 | |||||
| prepayment rates | 8 basis points | |||||||
Ancillary fees |
Decreased average number | ($3,677) or | July 31, 2006 | |||||
| of days of interest collected | (5) basis points | |||||||
| related to prepayments | ||||||||
Discount rate |
15% to 18% | ($2,555) or | January 31, 2006 | |||||
| (3) basis points | ||||||||
Costs to service |
Decreased the number of days | $12,893 or | October 31, 2005 | |||||
| of interest paid to investors | 11 basis points | |||||||
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During the period ended January 31, 2007 we updated our assumptions related to loan
prepayment rates to further stratify by vintage year, loan type, and loans with and without
prepayment penalties. We also updated assumptions surrounding investor remittances during the
current period. The net impact of the changes outlined above and other less significant changes
made during the current quarter was an increase of approximately 4 basis points for MSRs initially
recorded in the current quarter. During the period ended July 31, 2006, we updated our assumption
related to the average number of days of interest collected on funds received as a result of
prepayments (Ancillary fees on the table above). We decreased the average number of days of
interest collected following a review of the servicing portfolio data. During the quarter ended
January 31, 2006, we increased the discount rate assumption (Discount rate on the table above) used
to determine the fair value of MSRs from 15% to 18% as a result of an analysis of third party data
including rates used by other market participants. During the quarter ended October 31, 2005, we
updated our assumption for number of days of interest paid to investors (Costs to service on the
table above) on monthly loan prepayments upon the completion of a review of the historical
performance of the servicing portfolio. The cumulative net impact of the changes outlined above and
other less significant changes made during the period from January 31, 2006 to January 31, 2007 was
an increase of approximately 5 basis points for MSRs initially recorded in the current quarter
compared to the prior year quarter.
The changes outlined above are applied not only when we determine the allocated historical
cost of MSRs, but are also used in our evaluation of the fair value of the MSR portfolio in
conjunction with our impairment review. The changes in assumptions primarily impact the recognition
of our initial MSR value through calculation of the gain on sale of mortgage assets. Because MSRs
are recorded at LOCOM, we are unable to adjust our MSR portfolio value upward, thus have not
recognized the positive impact of the assumption changes on the MSR portfolio as a whole.
MSRs with a book value of $263.1 million are included in our condensed consolidated balance
sheet at January 31, 2007. While changes in any assumption could impact the value of our MSRs, the
primary drivers of significant changes to the value of our MSRs are prepayment speeds, discount
rates, costs to service and ancillary fees. Below is a table showing the effect of a variation of a
particular assumption on the fair value of our MSRs without changing any other assumptions. In
reality, changes in one factor may result in changes in another, which might magnify or counteract
the sensitivities.
| Assumption | Impact on Fair Value | |||
Prepayments (including defaults): |
||||
Adverse 10% – % impact on fair value |
(8 | %) | ||
Adverse 20% – % impact on fair value |
(16 | %) | ||
Discount rate: |
||||
Adverse 10% – % impact on fair value |
(3 | %) | ||
Adverse 20% – %$impact on fair value |
(5 | %) | ||
Ancillary Fees and Income: |
||||
Adverse 10% – %impact on fair value |
(4 | %) | ||
Adverse 20% – % impact on fair value |
(8 | %) | ||
Costs to service: |
||||
Adverse 10% – % impact on fair value |
(4 | %) | ||
Adverse 20% – % impact on fair value |
(9 | %) | ||
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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 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.
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 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.
RECONCILIATION OF NON-GAAP 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.
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.
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Banking Ratios
| (dollars in 000s) | ||||||||
| Three months ended | Nine months ended | |||||||
| January 31, 2007 | January 31, 2007 | |||||||
Efficiency Ratio: |
||||||||
Total Consumer Financial Services expenses |
$ | 96,552 | $ | 262,316 | ||||
Less: Interest and non-banking expenses |
(91,983 | ) | (254,572 | ) | ||||
Non-interest banking expenses |
$ | 4,569 | $ | 7,744 | ||||
Total Consumer Financial Services revenues |
$ | 107,511 | $ | 267,888 | ||||
Less: Non-banking revenues and interest expense |
(94,800 | ) | (246,714 | ) | ||||
Banking revenue – net of interest expense |
$ | 12,711 | $ | 21,174 | ||||
| 36 | % | 37 | % | |||||
Net Interest Margin (annualized): |
||||||||
Net banking interest revenue |
$ | 6,188 | $ | 14,309 | ||||
Net banking interest revenue (annualized) |
$ | 24,752 | $ | 19,079 | ||||
Divided by average assets |
$ | 982,633 | $ | 682,798 | ||||
| 2.52 | % | 2.79 | % | |||||
Return on Average Assets (annualized): |
||||||||
Total Consumer Financial
Services pretax income |
$ | 10,959 | $ | 5,572 | ||||
Less: Non-banking pretax income (loss) |
4,505 | (15,614 | ) | |||||
Pretax banking income |
$ | 6,454 | $ | 10,042 | ||||
Pretax banking income (annualized) |
$ | 25,816 | $ | 13,389 | ||||
Divided by average assets |
$ | 982,633 | $ | 682,798 | ||||
| 2.63 | % | 1.96 | % | |||||
Origination Margin
| (dollars in 000s) | ||||||||||||||||
| Three months ended January 31, | Nine months ended January 31, | |||||||||||||||
| 2007 | 2006 | 2007 | 2006 | |||||||||||||
Total expenses |
$ | 218,128 | $ | 226,072 | $ | 633,591 | $ | 685,548 | ||||||||
Add: Expenses netted against
gain on sale revenues |
42,288 | 85,974 | 135,442 | 321,177 | ||||||||||||
Less: |
||||||||||||||||
Cost of services |
(77,040 | ) | (83,076 | ) | (235,353 | ) | (215,279 | ) | ||||||||
Cost of acquisition |
(12,005 | ) | (24,305 | ) | (28,809 | ) | (127,201 | ) | ||||||||
Allocated support departments |
(3,883 | ) | (3,581 | ) | (12,034 | ) | (9,799 | ) | ||||||||
Other |
(38,874 | ) | (11,291 | ) | (66,819 | ) | (29,891 | ) | ||||||||
| $ | 128,613 | $ | 189,793 | $ | 426,018 | $ | 624,555 | |||||||||
Divided by origination volume |
$ | 6,260,399 | $ | 8,952,487 | $ | 21,230,982 | $ | 32,460,924 | ||||||||
Total cost of origination |
2.05 | % | 2.12 | % | 2.01 | % | 1.92 | % | ||||||||
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The sensitivities of certain financial instruments to changes in interest rates as of January
31, 2007 are presented below. The following table represents hypothetical instantaneous and
sustained parallel shifts in interest rates and should not be relied on as an indicator of future
expected results.
| (in 000s) | ||||||||||||||||||||||||||||
| Carrying Value at | Basis Point Change | |||||||||||||||||||||||||||
| January 31, 2007 | -300 | -200 | -100 | +100 | +200 | +300 | ||||||||||||||||||||||
Mortgage loans held for investment |
$ | 1,069,626 | $ | 39,780 | $ | 32,367 | $ | 21,417 | $ | (23,870 | ) | $ | (49,735 | ) | $ | (78,685 | ) | |||||||||||
Mortgage loans held for sale |
363,016 | 15,707 | 10,157 | 4,916 | (4,915 | ) | (9,913 | ) | (14,606 | ) | ||||||||||||||||||
There have been no other material changes in our market risks from those reported at
April 30, 2006 in our Annual Report on Form 10-K.
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ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
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 and procedures. The controls evaluation was done
under the supervision and with the participation of management. Based on this evaluation
we 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 due to a material weakness in internal controls in financial
reporting identified related to the valuation of certain residual
interests in securitizations. We believe this material weakness has
been remediated as of March 12, 2007, and that the remediation is reflected in the information contained in this Form 10-Q.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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 8 to
our condensed consolidated financial statements.
RAL LITIGATION
We reported in our annual report on Form 10-K for the year ended April 30, 2006, certain events and
information regarding lawsuits throughout the country regarding the 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; untrue, misleading
or deceptive statements in marketing RALs; 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 unfair competition regarding debt collection activities; and that we
owe, and breached, a 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, some of which 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 have been settled, with one settlement resulting in a pretax
expense of $43.5 million in fiscal year 2003 (the “Texas RAL Settlement”) and other settlements
resulting in a combined pretax expense in fiscal year 2006 of $70.2 million (the “2006
Settlements”).
We believe we have meritorious defenses to the remaining RAL Cases and we intend to defend
them 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 RAL Cases. The following is updated information regarding the pending RAL Cases that
are attorney general actions or class actions or putative class actions:
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. This case constitutes one of the 2006
Settlements. On April 19, 2006, we entered into a settlement agreement regarding this case,
subject to final court approval. The settlement was approved by the court on August 28, 2006. One
objector filed an appeal, which was dismissed on March 1, 2007. Unless a Petition for Certiorari
is filed by the objector and granted by the United States Supreme Court, the settlement is final.
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Sandra J. Basile, et al. v. H&R Block, Inc., et al, April Term 1992 Civil Action No. 3246 in
the Court of Common Pleas, First Judicial District Court of Pennsylvania, Philadelphia County,
instituted on April 23, 1993. The court decertified the class on December 31, 2003. The
Pennsylvania appellate court subsequently reversed the trial court’s decertification decision. On
September 26, 2006, the Pennsylvania Supreme Court reversed the appellate court’s reversal of the
trial court’s decision to decertify the class. The plaintiff is seeking further review by the
appellate court.
Deadra 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. The court approved the settlement
of this case on June 8, 2006, and the settlement is now final.
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, although plaintiffs have indicated that they plan to seek a trial in July 2007.
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, although plaintiffs have indicated that they plan to seek a trial in July 2007.
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 actions 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 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.
EXPRESS IRA LITIGATION
On March 15, 2006, the New York Attorney General filed a lawsuit in the Supreme Court of the State of New York, County of New York (Index No. 06/401110) entitled The People of New York v. H&R Block, Inc. and H&R Block Financial Advisors, Inc. The complaint alleged fraudulent business practices, deceptive acts and practices, common law fraud and breach of fiduciary duty with respect to the Express IRA product and sought equitable relief, disgorgement of profits, damages and restitution, civil penalties and punitive damages. On December 1, 2006, the Supreme Court of the State of New York issued a ruling that dismissed the New York Attorney General’s lawsuit in its entirety on procedural grounds but granted leave to amend and refile the lawsuit. The amended complaint has been filed and alleges causes of action similar to those claimed in the original complaint and seeks equitable relief, disgorgement of profits, damages and restitution, civil penalties and punitive damages. We intend to defend this case vigorously, but there are no assurances as to its outcome.
On March 15, 2006, the New York Attorney General filed a lawsuit in the Supreme Court of the State of New York, County of New York (Index No. 06/401110) entitled The People of New York v. H&R Block, Inc. and H&R Block Financial Advisors, Inc. The complaint alleged fraudulent business practices, deceptive acts and practices, common law fraud and breach of fiduciary duty with respect to the Express IRA product and sought equitable relief, disgorgement of profits, damages and restitution, civil penalties and punitive damages. On December 1, 2006, the Supreme Court of the State of New York issued a ruling that dismissed the New York Attorney General’s lawsuit in its entirety on procedural grounds but granted leave to amend and refile the lawsuit. The amended complaint has been filed and alleges causes of action similar to those claimed in the original complaint and seeks equitable relief, disgorgement of profits, damages and restitution, civil penalties and punitive damages. We intend to defend this case vigorously, but there are no assurances as to its outcome.
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In addition to the New York Attorney General action, a number of civil actions were filed
against us concerning the Express IRA matter, the first of which was filed on March 17, 2006. All
of the civil actions pending in federal court have been consolidated by the panel for
Multi-District Litigation into a single action styled In re H&R Block, Inc. Express IRA Marketing
Litigation in the United States District Court for the Western District of Missouri. We intend to
defend these cases vigorously, but there are no assurances as to their outcome.
SECURITIES AND SHAREHOLDER DERIVATIVE LITIGATION
On March 17, 2006, the first of three putative class actions alleging violations of certain securities laws are were filed against the Company and certain of its current and former officers and directors (the “Securities Class Action Cases”). In addition, on April 5, 2006, the first of nine shareholder derivative actions purportedly brought on behalf of the Company (which is named as a “nominal defendant”) were filed against certain of the Company’s current and former directors and officers (the “Derivative Cases”). The Securities Class Action Cases alleged, among other things, deceptive, material and misleading financial statements, failure to prepare financial statements in accordance with generally accepted accounting principles and concealment of the potential for lawsuits stemming from the allegedly fraudulent nature of the Company’s operations. The actions seek unspecified damages and equitable relief. The Derivative Cases generally involved allegations of breach of fiduciary duty, abuse of control, gross mismanagement, waste and unjust enrichment pertaining to (i) the Company’s restatement of financial results due to errors in determining the Company’s state effective income tax rate and (ii) certain of the Company’s products and other business activities. On September 20, 2006, the United States District Court for the Western District of Missouri ordered all of the Securities Class Action Cases and the Derivative Cases consolidated into a single action styled In re H&R Block Securities Litigation. The court will appoint a lead plaintiff who will then file a consolidated complaint. We intend to defend this litigation vigorously, but there are no assurances as to its outcome.
On March 17, 2006, the first of three putative class actions alleging violations of certain securities laws are were filed against the Company and certain of its current and former officers and directors (the “Securities Class Action Cases”). In addition, on April 5, 2006, the first of nine shareholder derivative actions purportedly brought on behalf of the Company (which is named as a “nominal defendant”) were filed against certain of the Company’s current and former directors and officers (the “Derivative Cases”). The Securities Class Action Cases alleged, among other things, deceptive, material and misleading financial statements, failure to prepare financial statements in accordance with generally accepted accounting principles and concealment of the potential for lawsuits stemming from the allegedly fraudulent nature of the Company’s operations. The actions seek unspecified damages and equitable relief. The Derivative Cases generally involved allegations of breach of fiduciary duty, abuse of control, gross mismanagement, waste and unjust enrichment pertaining to (i) the Company’s restatement of financial results due to errors in determining the Company’s state effective income tax rate and (ii) certain of the Company’s products and other business activities. On September 20, 2006, the United States District Court for the Western District of Missouri ordered all of the Securities Class Action Cases and the Derivative Cases consolidated into a single action styled In re H&R Block Securities Litigation. The court will appoint a lead plaintiff who will then file a consolidated complaint. We intend to defend this litigation vigorously, but there are no assurances as to its outcome.
OTHER CLAIMS AND LITIGATION
As reported previously, the NASD brought charges against HRBFA regarding the sale by HRBFA of Enron
debentures in 2001. A hearing for this matter commenced in May 2006, was recessed until October
2006 and is scheduled to continue through August 2007. We intend to defend the NASD charges
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 reporting and listing
regulations and whether such strategies were abusive as defined by the IRS. If the IRS were to
determine that RSM did not comply with the tax shelter reporting and listing regulations, it might
assess fines or penalties against RSM. Moreover, if the IRS were to determine that the tax planning
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. There can be no assurance regarding the outcome of and resolution of this
matter.
We have from time to time been party to investigations, claims and lawsuits not discussed
herein arising out of our business operations. These investigations, claims and lawsuits include
actions by state attorneys general, individual plaintiffs, and 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 investigations, claims and lawsuits pertain to RALs,
the electronic filing of customers’ income tax returns, the POM guarantee program, and our Express
IRA program and other investment products and RSM EquiCo business valuation services. 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.
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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, employment matters 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.
ITEM 1A. RISK FACTORS
Consumer Financial Services. H&R Block, Inc. is a savings and loan holding company, and HRB
Bank is a federal savings bank, which is subject to regulation by the OTS and FDIC. Federal and
state laws and regulations govern numerous matters including: changes in the ownership or control
of banks and bank holding companies; maintenance of adequate capital and the financial condition of
a financial institution; permissible types, amounts and terms of extensions of credit and
investments; permissible non-banking activities; the level of reserves against deposits; and
restrictions on dividend payments. If we do not comply with these regulations, it could result in
regulatory actions and negative publicity, which could adversely affect our results of operations.
Other than the items discussed above, there have been no material changes in our risk factors
from those reported at April 30, 2006 in our Annual Report on Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
A summary of our purchases of H&R Block common stock during the third quarter of fiscal year
2007 is as follows:
| (shares in 000s) | ||||||||||||||||
| Total Number of Shares | Maximum Number | |||||||||||||||
| Total | Average | Purchased as Part of | of Shares that May | |||||||||||||
| Number of Shares | Price Paid | Publicly Announced | Be Purchased Under | |||||||||||||
| Purchased (1) | per Share | Plans or Programs (2) | the Plans or Programs (2) | |||||||||||||
November 1 – November 30 |
65 | $ | 23.20 | — | 22,352 | |||||||||||
December 1 – December 31 |
2 | $ | 23.71 | — | 22,352 | |||||||||||
January 1 – January 31 |
19 | $ | 23.38 | — | 22,352 | |||||||||||
| (1) | We purchased 86,092 shares in connection with the funding of employee income tax withholding obligations arising upon the exercise of stock options or the lapse of restrictions on nonvested shares. | |
| (2) | On June 9, 2004, our Board of Directors approved the repurchase of 15.0 million shares of H&R Block, Inc. common stock. On June 7, 2006, our Board approved an additional authorization to repurchase 20.0 million shares. These authorizations have no expiration date. |
ITEM 6. EXHIBITS
| 10.1 | Omnibus Amendment and Consent Agreement dated as of December 29, 2006 among Option One Owner Trust 2001-1A, Option One Mortgage Corporation, Option One Mortgage Capital Corporation, Option One Loan Warehouse Corporation, Wells Fargo National Bank, National Association and Greenwich Capital Financial Products, Inc. | ||
| 10.2 | Amendment Number Five to Second Amended and Restated Sale and Servicing Agreement dated as of September 7, 2006, among Option One Owner Trust 2001-2, Option One Loan Warehouse Corporation, Option One Mortgage Corporation and Wells Fargo Bank N.A. | ||
| 10.3 | Amendment Number Nine to Amended and Restated Indenture dated as of December 15, 2006, among Option One Owner Trust 2001-2 and Wells Fargo Bank, N.A. | ||
| 10.4 | Omnibus Amendment and Consent Agreement dated as of December 29, 2006 among Option One Owner Trust 2001-2, Option One Mortgage Corporation, Option One Mortgage Capital Corporation, Option One Loan Warehouse Corporation, Wells Fargo National Bank, National Association and Bank of America N.A. |
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| 10.5 | Waiver and Amendment dated January 24, 2007, among Option One Owner Trust 2001-2, Option One Mortgage Corporation, Option One Mortgage Capital Corporation, Option One Loan Warehouse Corporation, Well Fargo Bank, National Association and Bank of America, N.A. | ||
| 10.6 | Second Amended and Restated Sale and Servicing Agreement dated as of January 19, 2007, among Option One Mortgage Corporation, Option One Owner Trust 2002-3 and Wells Fargo Bank N.A. | ||
| 10.7 | Second Amended and Restated Note Purchase Agreement dated as of January 19, 2007, among Option One Loan Warehouse Corporation, Option One Owner Trust 2002-3 and UBS Real Estate Securities, Inc. | ||
| 10.8 | Indenture dated as of January 19, 2007 between Option One Owner Trust 2002-3 and Wells Fargo Bank, N.A. | ||
| 10.9 | Omnibus Amendment and Consent Agreement dated as of December 29, 2006 among Option One Owner Trust 2003-4, Option One Mortgage Corporation, Option One Mortgage Capital Corporation, Option One Loan Warehouse Corporation, Wells Fargo National Bank, National Association, Falcon Asset Securitization Company LLC, Park Avenue Receivables Company LLC and JPMorgan Chase Bank N.A. | ||
| 10.10 | Waiver dated January 24, 2007, among Option One Owner Trust 2003-4, Option One Mortgage Corporation, Option One Mortgage Capital Corporation, Option One Loan Warehouse Corporation, Wells Fargo Bank, National Association, Falcon Asset Securitization Company LLC, Park Avenue Receivables Company LLC and JPMorgan Chase Bank N.A. | ||
| 10.11 | Amendment Number Two to Amended and Restated Sale and Servicing Agreement dated as of November 10, 2006, among Option One Owner Trust 2003-5, Option One Loan Warehouse Corporation, Option One Mortgage Corporation and Wells Fargo Bank, N.A. | ||
| 10.12 | Amendment Number Two to Note Purchase Agreement dated as of November 10, 2006, among Option One Owner Trust 2003-5, Option One Loan Warehouse Corporation and Citigroup Global Markets Realty Corp. | ||
| 10.13 | Omnibus Amendment and Consent Agreement dated as of December 29, 2006 among Option One Owner Trust 2003-5, Option One Mortgage Corporation, Option One Mortgage Capital Corporation, Option One Loan Warehouse Corporation, Wells Fargo National Bank, National Association and Citigroup Global Markets Realty Corp. | ||
| 10.14 | Omnibus Amendment dated as of January 1, 2007, among Option One Owner Trust 2003-5, Option One Mortgage Corporation, Option One Mortgage Capital Corporation, Option One Loan Warehouse Corporation, Wells Fargo Bank, National Association and Citigroup Global Markets Realty Corp. | ||
| 10.15 | Omnibus Amendment Number Four dated as of July 12, 2006, among Option One Owner Trust 2005-6, Option One Loan Warehouse Corporation, Option One Mortgage Corporation, Wells Fargo Bank, N.A. and Lehman Brothers Bank. | ||
| 10.16 | Omnibus Amendment and Consent Agreement dated as of December 29, 2006, among Option One Owner Trust 2005-6, Option One Mortgage Corporation, Option One Mortgage Capital Corporation, Option One Loan Warehouse Corporation, Wells Fargo Bank, National Association and Lehman Brothers Bank. | ||
| 10.17 | Omnibus Amendment and Consent Agreement dated as of December 29, 2006, among Option One Owner Trust 2005-7, Option One Mortgage Corporation, Option One Mortgage Capital Corporation, Option One Loan Warehouse Corporation, Wells Fargo National Bank, National Association, HSBC Bank USA, N.A., Bryant Park Funding LLC and HSBC Securities (USA) Inc. | ||
| 10.18 | Omnibus Amendment and Consent Agreement dated as of December 29, 2006, among Option One Owner Trust 2005-8, Option One Mortgage Corporation, Option One Mortgage Capital Corporation, Option One Loan Warehouse Corporation, Wells Fargo National Bank, National Association and Merrill Lynch Bank USA. | ||
| 10.19 | Omnibus Amendment and Consent Agreement dated as of December 29, 2006, among Option One Owner Trust 2005-9, Option One Mortgage Corporation, Option One Mortgage Capital |
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| Corporation, Option One Loan Warehouse Corporation, Wells Fargo National Bank, National Association, DB Structured Products, Inc., Gemini Securitization Corp., LLC, Aspen Funding Corp. and Newport Funding Corp. | |||
| 10.20 | Supplemental Indenture No. 2 dated as of January 16, 2007, between Option One Owner Trust 2005-9 and Wells Fargo Bank, N.A. | ||
| 10.21 | Amendment Number One to Sale and Servicing Agreement dated as of January 16, 2007, among Option One Owner Trust 2005-9, Option One Loan Warehouse Corporation, Option One Mortgage Corporation and Wells Fargo Bank, N.A. | ||
| 10.22 | Sale and Servicing Agreement dated as of January 1, 2007, among Option One Loan Warehouse Corporation, Option One Mortgage Corporation, Option One Mortgage Capital Corporation, Option One Owner Trust 2007-5A and Wells Fargo Bank, N.A. | ||
| 10.23 | Note Purchase Agreement dated as of January 1, 2007, among Option One Loan Warehouse Corporation, Option One Owner Trust 2007-5A and Citigroup Global Markets Realty Corp. | ||
| 10.24 | Indenture dated as of January 1, 2007, between Option One Owner Trust 2007-5A and Wells Fargo Bank, N.A. | ||
| 10.25 | Joinder and First Amendment to Program Contracts dated as of November 10, 2006, among HSBC Bank USA, National Association; HSBC Trust Company (Delaware), N.A.; HSBC Taxpayer Financial Services Inc.; Beneficial Franchise Company Inc.; Household Tax Masters Acquisition Corporation; H&R Block Services, Inc.; H&R Block Tax Services, Inc.; H&R Block Enterprises, Inc.; H&R Block Eastern Enterprises, Inc.; H&R Block Digital Solutions, LLC; H&R Block and Associates, L.P.; HRB Royalty, Inc.; HSBC Finance Corporation; H&R Block, Inc.; and Block Financial Corporation.* | ||
| 10.26 | Second Amendment to Program Contracts dated as of November 13, 2006, among HSBC Bank USA, National Association; HSBC Trust Company (Delaware), N.A.; HSBC Taxpayer Financial Services Inc.; Beneficial Franchise Company Inc.; H&R Block Services, Inc.; H&R Block Tax Services, Inc.; H&R Block Enterprises, Inc.; H&R Block Eastern Enterprises, Inc.; H&R Block Digital Solutions, LLC; H&R Block and Associates, L.P.; HRB Royalty, Inc.; HSBC Finance Corporation; and H&R Block, Inc.* | ||
| 10.27 | First Amended and Restated HSBC Refund Anticipation Loan and IMA Participation Agreement dated as of November 13, 2006 among Block Financial Corporation; HSBC Bank USA, National Association; HSBC Trust Company (Delaware), National Association; and HSBC Taxpayer Financial Services, Inc.* | ||
| 10.28 | First Amended and Restated HSBC Settlement Products Servicing Agreement dated as of November 13, 2006, among HSBC Bank USA, National Association; HSBC Taxpayer Financial Services, Inc.; HSBC Trust Company (Delaware), N.A.; and Block Financial Corporation.* | ||
| 10.29 | Credit and Guarantee Agreement dated January 2, 2007, among Block Financial Corporation, H&R Block, Inc. and HSBC Finance Corporation.* | ||
| 10.30 | First Amendment dated as of November 28, 2006 to Five-Year Credit and Guarantee Agreement among Block Financial Corporation, H&R Block, Inc., JPMorgan Chase Bank and various financial institutions. | ||
| 10.31 | First Amendment dated as of November 28, 2006 to Amended and Restated Five-Year Credit and Guarantee Agreement among Block Financial Corporation, H&R Block, Inc., JPMorgan Chase Bank and various financial institutions. | ||
| 10.32 | Separation and Release Agreement between HRB Management, Inc. and Nicholas J. Spaeth.** | ||
| 31.1 | Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
| 31.2 | Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
| 32.1 | 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. | ||
| 32.2 | 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. |
| * | Confidential Information has been omitted from this exhibit and filed separately with the Commission pursuant to a confidential treatment request under Rule 24b-2. | |
| ** | Indicates management contract, compensatory plan or arrangement. |
-51-
Table of Contents
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.
H&R BLOCK, INC. |
 |
Mark A. Ernst |
Chairman of the Board, President |
and Chief Executive Officer |
March 14, 2007 |
 |
William L. Trubeck |
Executive Vice President and |
Chief Financial Officer |
March 14, 2007 |
 |
Jeffrey E. Nachbor |
Senior Vice President and |
Corporate Controller |
March 14, 2007 |
-52-
Exhibit 10.1
OMNIBUS AMENDMENT AND CONSENT AGREEMENT
This OMNIBUS AMENDMENT AND CONSENT AGREEMENT (the “Amendment and Consent”) dated as of December 29, 2006 is by and among Option One
Owner Trust 2001-1A (the “Issuer”), Option One Mortgage Corporation (“OOMC”), in its capacity
as loan originator (in such capacity, the “Loan Originator”) and as servicer (in such
capacity, the “Servicer”), Option One Mortgage Capital Corporation (“Capital”),
Option One Loan Warehouse Corporation (the “Depositor”), Wells Fargo Bank, National
Association, as indenture trustee (the “Indenture Trustee”), and Greenwich Capital Financial
Products, Inc. (the “Purchaser”). Capitalized terms used herein but not specifically defined
herein shall have the meanings given to such terms in the Sale and Servicing Agreement (as
defined below) or Indenture (as defined below).
PRELIMINARY STATEMENTS:
A. The Issuer, OOMC, as servicer and as the loan originator, the Depositor and the
Indenture Trustee are parties to that certain Second Amended and Restated Sale and Servicing
Agreement dated as of April 29, 2005 (as amended, the “Sale and Servicing Agreement”).
B. The Issuer and the Indenture Trustee are parties to that certain Amended and Restated
Indenture dated as of November 25, 2003 (as amended, the “Indenture”).
C. The Purchaser, the Issuer, OOMC, as servicer and the Indenture Trustee, as both
indenture trustee and custodian, are parties to that certain Custodial Agreement dated as of
April 1, 2001 (as amended, the “Custodial Agreement”).
D. OOMC intends to transfer and assign to its wholly-owned subsidiary, Capital, and
Capital intends to accept and assume from OOMC, a portion of OOMC’s business.
E. OOMC has requested that the Depositor, the Purchaser, the Issuer and the Indenture
Trustee consent to certain amendments to the Sale and Servicing Agreement, the Indenture and
the Custodial Agreement, upon the terms and subject to the conditions set forth herein.
F. OOMC, Capital and Depositor have requested that the Purchaser, the Issuer and the
Indenture Trustee (a) consent to, promptly after the date hereof, the conversion of the
Depositor from a Delaware corporation to a Delaware limited liability company (the “Depositor
Conversion”) and (b) agree to promptly enter into after the date hereof a Fifth Amended and
Restated Loan Purchase and Contribution Agreement, dated as of December 29, 2006 (the
“Proposed Fifth Amended and Restated LPA”), between Capital, as seller, and Depositor,
as purchaser (to reflect the terms of this Amendment and Consent).
G. OOMC has requested that all references to “Loan Originator” in any of the Basic
Documents be defined to mean both OOMC and Capital, jointly and severally, unless otherwise
specifically set forth therein. OOMC has further requested that the definition of “Loan
Purchase and Contribution Agreement” in any of the Basic Documents be defined to mean each
of: (i) the Loan Purchase Agreement between OOMC, as seller, and Capital, as purchaser, dated as
of December 29, 2006 and all supplements and amendments thereto and (ii) the Proposed Fifth
Amended and Restated LPA, and all supplements and amendments thereto.
H. In consideration of the consent of the Depositor, the Purchaser, the Issuer and the
Indenture Trustee, OOMC has agreed to be held jointly and severally liable for the Transfer
Obligation on the terms set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Amendments to the Sale and Servicing Agreement. Effective as of December
29, 2006 or such later date as OOMC shall designate (the “Effective Date”) and subject to
the satisfaction of the conditions precedent set forth in Section 9 hereof, the Sale and Servicing
Agreement is hereby amended as follows:
(a) The definition of “Loan Originator” set forth in Section 1.01 of the Sale and Servicing
Agreement is hereby amended to provide as follows:
“Loan Originator: Each of Option One and Option One Capital, and their respective
successors and assigns, jointly and severally.”
(b) The definition of “Loan Purchase and Contribution Agreement” set forth in Section 1.01 of
the Sale and Servicing Agreement is hereby amended to provide as follows:
“Loan Purchase and Contribution Agreement: Each of: (i) the Loan Purchase Agreement
between Option One, as loan originator, and Option One Capital, as transferee, dated as of
December 29, 2006 and all supplements and amendments thereto and (ii) the Fifth Amended and
Restated Loan Purchase and Contribution Agreement, between Option One Capital, as loan
originator, and Depositor, as depositor, dated as of December 29, 2006, and all supplements
and amendments thereto.”
(c) The following definition of
“Option One Capital” is hereby added to Section 1.01 of
the Sale and Servicing Agreement:
“Option One Capital: Option One Mortgage Capital Corporation, a Delaware corporation.”
(d) The definition of “Revolving Period” in Section 1.01 of the Sale and Servicing Agreement
is hereby deleted in its entirety and replaced with the following:
“Revolving Period: With respect to the Notes, the period commencing on April 28, 2006
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.”
(e) Section 2.03(d) of the Sale and Servicing Agreement is hereby amended by
substituting the following language:
- 2 -
“(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 limitation the execution and delivery of such financing statements and
amendments thereto, continuation statements and other documents as the Issuer may
reasonably request.”
(f) Section 2.07(iv) of the Sale and Servicing Agreement is hereby amended by
substituting the following language:
“(iv) Option One, Option One Capital or any of their Affiliates 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, Option One Capital or any of their Affiliates, including
without limitation, the Sale and Servicing Agreement, dated as of April 1, 2001, among the
Option One Owner Trust 2001-1 A, 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
2001-2, 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 Facility Administrator, 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, the Sale and Servicing Agreement, dated as of June 1, 2005,
among Option One Owner Trust 2005-6, the Depositor, Option One and the Indenture Trustee,
the Sale and Servicing Agreement, dated as of September 1, 2005, among the Option One Owner
Trust 2005-7, the Depositor, Option One and the Indenture Trustee, the Sale and Servicing
Agreement, dated as of October 1, 2005 among Option One Owner Trust 2005-8, the Depositor,
Option One and the Indenture Trustee and the Sale and Servicing Agreement, dated as of
December 30, 2005 among Option One Owner Trust 2005-9, 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.”
(g) Subsection (e) of Section 3.02 of the Sale and Servicing Agreement is hereby
amended by deleting the words “whether Loan Seller satisfies the Financial Covenants” and in their
place inserting the words “whether, in the case of Option One only, Option One satisfies the
Financial Covenants.”
(h) Subsection (m) of Section 3.02 of the Sale and Servicing Agreement is hereby amended
and restated in its entirety as follows:
“(m) Option One is in compliance with the Financial Covenants; and”
(i) Subsection (k) of Section 3.02 of the Sale and Servicing Agreement is hereby
amended and restated in its entirety as follows:
- 3 -
“(k) Option One has received fair consideration and reasonably equivalent value in
exchange for the Loans sold by it to Option One Capital and Option One Capital has
received fair consideration and reasonably equivalent value in exchange for the Loans sold
by it on such Transfer Date to the Depositor;
(j) Section 5.06 of the Sale and Servicing Agreement is hereby amended by adding the
following subsection:
“(c) With respect to the obligations of the Loan Originator pursuant to this Section
5.06, Option One shall be obligated to make payments hereunder only if Option One Capital
does not make such payments prior to the time any such payment is required to be made. If
Option One Capital does not make any such payment prior to the time such payment is
required to be made, Option One shall be required to make such payment not later than the
time such payment is required to be made.”
(k) Section 7.02 of the Sale and Servicing Agreement is hereby amended by substituting
“Option One” for “the Loan Originator.”
(l) Subsection (a)(8) of Section 9.01 of the Sale and Servicing Agreement is hereby
amended and restated in its entirety as follows:
“(8) Option One fails to comply with any of the Financial Covenants; or”
(m) Section 11.06 of the Sale and Servicing Agreement is hereby amended by deleting
clause (3) thereof and replacing such clause with the following:
“(3) in the case of the Loan Originator, (A) if to Option One, to Option One Mortgage
Corporation, 3 Ada, Irvine, California 92618, Attention: William O’Neill, telecopy number:
(949) 790-7540, telephone number: (949) 790-7504 or (B) if to Option One Capital, to Option
One Mortgage Capital Corporation, 3 Ada Road, Irvine, California 92618, Attention: Chief
Financial Officer, telecopy number: (949) 790-7514, telephone number: (949) 790-3600 ext
35524 or, in either case, to such other addresses or telecopy or telephone numbers as may
hereafter be furnished to the Securityholders and the other parties hereto in writing by
Option One or Option One Capital;
SECTION 2. Amendments to the Indenture. Effective as of the Effective Date and
subject to the satisfaction of the conditions precedent set forth in Section 9 hereof, the
Indenture is hereby amended as follows:
The definition of “Loan Originator” set forth in Section 1.01 (a) of the Indenture is hereby
amended to provide as follows:
“Loan Originator: has the meaning given to such term in the Sale and Servicing
Agreement.”
The definition of “Sale and Servicing Agreement” set forth in Section 1.01 (a) of the
Indenture is hereby amended to provide as follows:
- 4 -
“Sale and Servicing Agreement: means the Second Amended and Restated Sale and
Servicing Agreement dated as of April 29, 2005, among the Issuer, Depositor, Loan
Originator and Servicer, and Indenture Trustee.”
SECTION 3. Amendments to the Custodial Agreement. Effective as of the Effective
Date and subject to the satisfaction of the conditions precedent set forth in Section 9 hereof,
the Custodial Agreement is hereby amended as follows:
(a) The second recital of the Custodial Agreement is hereby amended to provide as
follows:
“WHEREAS, the Servicer is to service such Loans pursuant to the terms and conditions
of a Sale and Servicing Agreement, dated the date hereof (the “Sale and Servicing
Agreement”), among the Company, the Depositor, the Servicer and Loan Originator, and the
Indenture Trustee, on behalf of the Company and the Noteholders; and”
(b) The definition of “Loan Originator” set forth in Section 1 of the Custodial Agreement is
hereby amended to provide as follows:
“Loan Originator: As defined in the Sale and Servicing Agreement.”
(c) The definition of “Loan Purchase and Contribution Agreement” set forth in Section
1 of the Custodial Agreement is hereby amended to provide as follows:
“Loan Purchase and Contribution Agreement: As defined in the Sale and Servicing
Agreement.”
SECTION 4. Consent to the Depositor Conversion and Proposed Fifth Amended and Restated
LPA. Each of the parties hereto consents to (a) the Depositor Conversion and (b) the Proposed
Fifth Amended and Restated LPA to amend and restate that certain Fourth Amended and Restated Loan
Purchase and Contribution Agreement, dated as of September 1, 2005, between OOMC, as seller, and
the Depositor, as purchaser (to reflect the terms of this Amendment and Consent, including the
substitution of Capital for OOMC as the Loan Originator).
SECTION 5. Representations and Warranties. Each of the parties hereto represents
and warrants that this Amendment and Consent, and the Sale and Servicing Agreement, Indenture and
Custodial Agreement, each as amended by this Amendment and Consent, constitute legal, valid and
binding obligations of such Person enforceable against such Person in accordance with their terms,
except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the
enforcement of creditors’ rights generally and general equitable principles. Each of OOMC, Capital
and the Depositor represent to the Purchaser that as of the date hereof, after giving effect to
this Amendment and Consent, (a) all of their respective representations and warranties in the Basic
Documents are true and correct, and (b) such party is in full compliance with all of the terms and
conditions of the Basic Documents.
- 5 -
SECTION 6. Reference to and the Effect on the Sale and Servicing Agreement, the
Indenture and the Custodial Agreement.
(a) On and after the Effective Date, each reference in the Sale and Servicing Agreement to
“this Agreement”, “hereunder”, “hereof’, “herein” or words of like import referring to the Sale and
Servicing Agreement and each reference to the Sale and Servicing Agreement in any certificate
delivered in connection therewith, shall mean and be a reference to the Sale and Servicing
Agreement as amended hereby.
(b) Each of the parties hereto hereby agrees that, except as specifically amended above, the
Sale and Servicing Agreement is hereby ratified and confirmed and shall continue to be in full
force and effect and enforceable, except as such enforcement may be limited by applicable
bankruptcy, insolvency, reorganization or other similar laws relating to or limiting creditors’
rights generally and general equitable principles.
(c) On and after the Effective Date, each reference in the Indenture to “this Indenture”,
“hereunder”, “hereof”, “herein” or words of like import referring to the Indenture and each
reference to the Indenture in any certificate delivered in connection therewith, shall mean and be
a reference to the Indenture as amended hereby.
(d) Each of the parties hereto hereby agrees that, except as specifically amended above, the
Indenture is hereby ratified and confirmed and shall continue to be in full force and effect and
enforceable, except as such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws relating to or limiting creditors’ rights generally and
general equitable principles.
(e) On and after the Effective Date, each reference in the Custodial Agreement to “this
Agreement”, “hereunder”, “hereof”, “herein” or words of like import referring to the Custodial
Agreement and each reference to the Custodial Agreement in any certificate delivered in
connection therewith, shall mean and be a reference to the Custodial Agreement as amended
hereby.
(f) Each of the parties hereto hereby agrees that, except as specifically amended above, the
Custodial Agreement is hereby ratified and confirmed and shall continue to be in full force and
effect and enforceable, except as such enforcement may be limited by applicable bankruptcy,
insolvency, reorganization or other similar laws relating to or limiting creditors’ rights
generally and general equitable principles.
SECTION 7. Execution in Counterparts. This Amendment and Consent may be executed in
any number of counterparts and by different parties hereto in separate counterparts, each of which
when so executed and delivered shall be deemed to be an original and all of which taken together
shall constitute but one and the same agreement.
SECTION 8. Governing Law. This Amendment and Consent shall be construed in
accordance with, and governed by the laws of the State of New York, without giving effect to its
conflicts of law provisions.
- 6 -
SECTION 9. Conditions of Effectiveness. This Amendment and Consent shall become
effective as of the date hereof upon the receipt by the Purchaser of this Amendment and Consent
duly executed by all of the parties hereto.
- 7 -
IN WITNESS WHEREOF, the parties have executed this Amendment and Consent as of the day
and year first above written.
| OPTION ONE OWNER TRUST 2001-1 A, as Issuer |
||||||
| By: | Wilmington Trust Company, not in its individual capacity, but solely as Owner Trustee |
|||||
| By: Name: |
/s/ Mary Kay Pupillo
|
|||||
| Title: | Assistant Vice President | |||||
| OPTION ONE LOAN WAREHOUSE | ||||||
| CORPORATION, as Depositor | ||||||
| By: Name: |
/s/ Philip Laren
|
|||||
| Title: | Vice President | |||||
| OPTION ONE MORTGAGE | ||||||
| CORPORATION, as Loan Originator and as Servicer | ||||||
| By: Name: |
/s/ Philip Laren
|
|||||
| Title: | Senior Vice President | |||||
| OPTION ONE MORTGAGE CAPITAL CORPORATION | ||||||
| By: Name: |
/s/ Philip Laren
|
|||||
| Title: | Vice President | |||||
Signature Page to Omnibus Amendment
| WELLS FARGO BANK, | ||||||
| NATIONAL ASSOCIATION, | ||||||
| as Indenture Trustee | ||||||
| By: Name: |
/s/ Darron C. Woodus
|
|||||
| Title: | Assistant Vice President | |||||
Signature Page to Omnibus Amendment
| GREENWICH CAPITAL FINANCIAL PRODUCTIONS, INC., as Purchaser |
||||
| By: | /s/ Anthony Palmisano | |||
| Name: | Anthony Palmisano | |||
| Title: | Managing Director | |||
Signature Page to Omnibus Amendment
Exhibit 10.2
AMENDMENT NUMBER FIVE
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.
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 FIVE (this “Amendment”) is made and is effective as of this 7th
day of September, 2006 (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, as amended (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, as more
expressly set forth herein.
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.
(A) As of the Effective Date, the definition of “Collateral Value” in Section 1.01 of the
Sale and Servicing Agreement is hereby amended by deleting clause (ii) thereof in its
entirety and replacing it with the following:
(ii) As of September 7, 2006, and continuing until September 27, 2006, the aggregate
Collateral Value of Loans that are High LTV Loans may not exceed 20% of the Maximum
Note Principal Balance. On September 28, 2006, and continuing thereafter, the
aggregate Collateral Value of Loans that are High LTV Loans shall not exceed 10% of
the Maximum Note Principal Balance;
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
1
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.
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 (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW).
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.
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: | ||||||
| Name: | ||||||
| Title: | ||||||
| OPTION ONE LOAN WAREHOUSE CORPORATION | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
| OPTION ONE MORTGAGE CORPORATION | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
| WELLS FARGO BANK N.A., as Indenture Trustee | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
[Signature Page to Amendment Five to the Second Amended and Restated Sale and Servicing Agreement ]
3
Exhibit 10.3
AMENDMENT NUMBER NINE
to the
AMENDED AND RESTATED INDENTURE,
dated as of November 25, 2003,
between
OPTION ONE OWNER TRUST 2001-2
and
WELLS FARGO BANK, N.A.
to the
AMENDED AND RESTATED INDENTURE,
dated as of November 25, 2003,
between
OPTION ONE OWNER TRUST 2001-2
and
WELLS FARGO BANK, N.A.
This AMENDMENT NUMBER NINE (this “Amendment”) is made and is effective as of this
15th day of December, 2006, between Option One Owner Trust 2001-2 (the “Issuer”)
and Wells Fargo Bank, N.A., as Indenture Trustee (the “Indenture Trustee”), to the Amended and
Restated Indenture, dated as of November 25, 2003 (the “Indenture”), between the Issuer and
the Indenture Trustee.
RECITALS
WHEREAS, the parties hereto desire to amend the Indenture 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 Indenture.
SECTION 2. Amendment. Effective as of December 15, 2006 and notwithstanding
anything to the contrary in Amendment Number Eight, dated December 16, 2005, to the Indenture,
Section 1.01 of the Indenture is hereby amended by deleting in its entirety the definition of
“Maturity Date” and replacing it with the following:
“Maturity Date” means, with respect to the Notes, March 15, 2007.
SECTION 3. Representations. In order to induce the parties hereto to execute and
deliver this Amendment, the Issuer hereby represents to the Indenture Trustee 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 Indenture 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 Indenture and the other Basic Documents.
SECTION 4. Limited Effect. Except as expressly amended and modified by this
Amendment, the Indenture shall continue in full force and effect in accordance with its terms.
Reference to this Amendment need not be made in the Indenture 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 Indenture, any reference in
any of such items to the Indenture being sufficient to refer to the Indenture as amended
hereby.
SECTION 5. Fees and Expenses. The Issuer covenants 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 and (ii) all reasonable fees and expenses of the Indenture Trustee 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.
[signature page follows]
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: | Assistant Vice President | |||||
| WELLS FARGO BANK, N.A., as Indenture Trustee | ||||||
| By: | /s/ [ILLEGIBLE] | |||||
| Name: | ||||||
| Title: | Vice President | |||||
[Signature Page to Amendment Nine to Amended and Restated Indenture]
3
Exhibit 10.4
OMNIBUS AMENDMENT AND CONSENT AGREEMENT
This OMNIBUS AMENDMENT AND CONSENT AGREEMENT (the
“Amendment and Consent”) dated as of December 29,2006 is by and among Option One
Owner Trust 2001-2 (the “Issuer”) Option One
Mortgage Corporation (“OQMC”), in its capacity
as loan originator (in such capacity, the “Loan Originator”) and as servicer (in such
capacity, the “Servicer”), Option One Mortgage
Capital Corporation (“Capital”), Option One
Loan Warehouse Corporation (the “Depositor”), Wells Fargo Bank, National Association
(successor to Wells Fargo Bank Minnesota, National Association), as indenture trustee (the
“Indenture Trustee”), and Bank of America, N.A. (the
“Purchaser”). Capitalized terms
used herein but not specifically defined herein shall have the meanings given to such terms
in the Sale and Servicing Agreement (as defined below) or Indenture (as defined below).
PRELIMINARY STATEMENTS:
A. The Issuer, OOMC, as the Servicer and as the Loan Originator, the Depositor and the
Indenture Trustee are parties to that certain Second Amended and Restated Sale and Servicing
Agreement dated as of March 8, 2005 (as amended, the “Sale and Servicing Agreement”).
B. The Issuer and the Indenture Trustee are parties to that certain Amended and Restated
Indenture dated as of November 25, 2003 (as amended, the
“Indenture”).
C. The Purchaser, the Issuer, OOMC, as the Servicer and the Indenture Trustee, as both
Indenture Trustee and custodian, are parties to that certain Custodial Agreement dated as of
April 1, 2001 (as amended, the “Custodial Agreement”).
D. OOMC intends to transfer and assign to its wholly-owned subsidiary, Capital, and
Capital intends to accept and assume from OOMC, a portion of OOMC’s business.
E. OOMC has requested that the Depositor, the Purchaser, the Issuer and the Indenture
Trustee consent to certain amendments to the Sale and Servicing Agreement, the Indenture and
the Custodial Agreement, upon the terms and subject to the conditions set forth herein.
F. OOMC, Capital and Depositor have requested that the Purchaser, the Issuer and the
Indenture Trustee (a) consent to, promptly after the date hereof, the conversion of the
Depositor from a Delaware corporation to a Delaware limited liability
company (the “Depositor Conversion”) and (b) agree to promptly enter into after the date hereof a Fifth- Amended and
Restated Loan Purchase and Contribution Agreement, dated as of December 29, 2006 (the
“Proposed Fifth Amended and Restated LPA”), between Capital, as seller, and Depositor,
as purchaser (to reflect the terms of this Amendment and Consent).
G. OOMC has requested that all references to “Loan Originator” in any of the Basic
Documents be defined to mean both OOMC and Capital, jointly and severally, unless otherwise
specifically set forth therein. OOMC has further requested that the definition of “Loan
Purchase and Contribution Agreement” in any of the Basic Documents be defined to mean each of:
(i) the Loan Purchase Agreement between OOMC, as seller, and Capital, as purchaser, dated
as of December 29, 2006 and all supplements and amendments thereto and (ii) the Proposed Fifth
Amended and Restated LPA, and all supplements and amendments thereto.
H. In consideration of the consent of the Depositor, the Purchaser, the Issuer and the
Indenture Trustee, OOMC has agreed to be held jointly and severally liable for the Transfer
Obligation on the terms set forth herein.
NOW, THEREFORE, the parties hereto agree as follows::
SECTION 1. Amendments to the Sale and Servicing Agreement. Effective as of December
29, 2006 or such later date as OOMC shall designate (the
“Effective Date”) and subject to the
satisfaction of the conditions precedent set forth in Section 9 hereof, the Sale and Servicing
Agreement is hereby amended as follows:
(a) The definition of “Loan Originator” set forth in Section 1.01 of the Sale and Servicing
Agreement is hereby amended to provide as follows:
“Loan Originator: Each of Option One and Option One Capital, and their respective
successors and assigns, jointly and severally.”
(b) The definition of “Loan Purchase and Contribution Agreement” set forth in Section 1.01 of
the Sale and Servicing Agreement is hereby amended to provide as follows:
“Loan Purchase and Contribution Agreement: Each of: (i) the Loan Purchase Agreement
between Option One, as loan originator, and Option One Capital, as transferee, dated as of
December 29,2006 and all supplements and amendments thereto and (ii) the Fifth Amended and
Restated Loan Purchase and Contribution Agreement, between Option One Capital, as loan
originator, and Depositor, as depositor, dated as of December 29,2006, and all supplements
and amendments thereto.”
(c) The following definition of “Option One Capital” is hereby added to Section 1.01 of
the Sale and Servicing Agreement:
“Option One Capital: Option One Mortgage Capital Corporation, a Delaware corporation.”
(d) The definition of “QSPE Affiliate” in Section 1.01 is hereby amended in its entirety to
provide as follows:
“QSPE Affiliate: Any of Option One Owner Trust 2001 -1 A, Option One Owner Trust
2002-3, Option One Owner Trust 2003-4, Option One Owner Trust 2003-5, Option One Owner Trust
2005-6, Option One Owner Trust 2005-7, Option One Owner Trust 2005-8, Option One Owner Trust
2005-9, or any other Affiliate which is a ‘qualified special purpose entity’ in accordance
with Financial Accounting Standards Board’s Statement No.. 140.”
(e) Section 2,03(d) of the Sale and Servicing Agreement is hereby amended by adding the
following language at the end thereof:
-2-
“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 limitation the execution and delivery of such financing statements and amendments
thereto, continuation statements and other documents as the Issuer may reasonably request.”
(f) Subsection (k) of Section 3.02 of the Sale and Servicing Agreement is hereby amended and
restated in its entirety as follows:
”(k) Option One has received fair consideration and reasonably equivalent value in
exchange for the Loans sold by it to Option One Capital and 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;
(g) Section 5..06 of the Sale and Servicing Agreement is hereby amended by adding the
following subsection:
”(c) With respect to the obligations of the Loan Originator pursuant to this Section
5..06, Option One shall be obligated to make payments hereunder only if Option One Capital
does not make such payments prior to the time any such payment is required to be made.. If
Option One Capital does not make any such payment prior to the time such payment is
required to be made, Option One shall be required to make such payment not later than the
time such payment is required to be made.”
(h) Section 7.02 of the Sale and Servicing Agreement is hereby amended by substituting
“Option One” for “the Loan Originator” in each and every place where such term appears in such
section.
(i) Section 9..01(a)(6) of the Sale and Servicing Agreement is hereby amended
and restated in its entirety as follows:
”(6) Option One fails to comply with the Financial Covenants; or”
(j) Section 11.06 of the Sale and Servicing Agreement is hereby amended by deleting
clause (3) thereof and replacing such clause with the following:
”(3) in the case of the Loan Originator, (A) if to Option One, to Option One Mortgage
Corporation, 3 Ada, Irvine, California 92618, Attention: William O’Neill, telecopy number:
(949) 790-7540, telephone number: (949) 790-7504 or (B) if to Option One Capital, to Option
One Mortgage Capital Corporation, 3 Ada Road, Irvine, California 92618, Attention: Chief
Financial Officer, telecopy number: (949) 790-7.514, telephone number: (949) 790-3600 ext
35.524 or, in either case, to such other addresses or telecopy or telephone numbers as may
hereafter be furnished to the Securityholders and the other parties hereto in writing by
Option One or Option One Capital;”
-3-
SECTION 2. Amendments to the Indenture. Effective as of the Effective Date
and subject to the satisfaction of the conditions precedent set forth in Section 9 hereof, the
Indenture is hereby amended as follows:
(a) The definition of “Loan Originator” set forth in Section 1.01 (a) of the Indenture is
hereby amended to provide as follows:
” ‘Loan Originator’ has the meaning given to such term in the Sale and
Servicing Agreement.”
(b) The definition of “Sale and Servicing Agreement” set forth in Section 1.01 (a) of the
Indenture is hereby amended to provide as follows:
” ‘Sale and Servicing Agreement’ means the Second Amended and Restated Sale
and Servicing Agreement dated as of March 8,200.5, by and among the Issuer, the Depositor,
the Servicer, the Loan Originator and the Indenture Trustee on behalf of the Noteholders,
as amended from time to time.”
SECTIONS. Amendments to the Custodial Agreement. Effective as of the Effective Date
and subject to the satisfaction of the conditions precedent set forth in Section 9 hereof, the
Custodial Agreement is hereby amended as follows:
(a) The definition of “Loan Originator” set forth in Section 1 of the Custodial Agreement is
hereby amended to provide as follows:
“Loan Originator: As defined in the Sale and Servicing Agreement.”
(b) The definition of “Loan Purchase and Contribution Agreement” set forth in Section
1 of the Custodial Agreement is hereby amended to provide as follows:
“Loan Purchase and Contribution Agreement: As defined in the Sale and
Servicing Agreement.”
SECTION 4. Consent to the Depositor Conversion and Proposed Fifth Amended and Restated
LPA. Each of the parties hereto consents to (a) the Depositor Conversion and (b) the Proposed
Fifth Amended and Restated LPA to amend and restate that certain Fourth Amended and Restated Loan
Purchase and Contribution Agreement, dated as of September 1, 2005, between OOMC, as seller, and
Depositor, as purchaser (to reflect the terms of this Amendment and Consent, including the
substitution of Capital for OOMC as the Loan Originator).
SECTION 5. Representations and Warranties. Each of the parties hereto represents
and warrants that this Amendment and Consent, and the Sale and
Servicing Agreement, Indenture and Custodial Agreement, each as amended by this Amendment and Consent, constitute legal,
valid and Finding obligations of suclTPerson enforceable against such Person in accordance with
their terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws
affecting the enforcement of creditors’ rights generally and general equitable principles. Each of
OOMC, Capital and the Depositor represent to the Purchaser that as of the date hereof, after giving
effect to this Amendment and Consent, (a) all of their respective representations and
-4-
warranties in the Basic Documents are true and correct,’ and (b) such party is in full compliance
with all of the terms and conditions of the Basic Documents.
SECTION 6. Reference to and the Effect on the Sale and Servicing Agreement, the
Indenture and the Custodial Agreement.
(a) On and after the Effective Date, each reference in the Sale and Servicing Agreement to
“this Agreement”, “hereunder”, “hereof, “herein” or words of like import referring to the Sale and
Servicing Agreement and each reference to the Sale and Servicing Agreement in any certificate
delivered in connection therewith, shall mean and be a reference to the Sale and Servicing
Agreement as amended hereby.
(b) Each of the parties hereto hereby agrees that, except as specifically amended above, the
Sale and Servicing Agreement is hereby ratified and confirmed and shall continue to be in full
force and effect and enforceable, except as such enforcement may be limited by applicable
bankruptcy, insolvency, reorganization or other similar laws relating to or limiting creditors’
rights generally and general equitable principles.
(c) On and after the Effective Date, each reference in the Indenture to “this Indenture”,
“hereunder”, “hereof, “herein” or words of like import referring to the Indenture and each
reference to the Indenture in any certificate delivered in connection therewith, shall mean and be
a reference to the Indenture as amended hereby.
(d) Each of the parties hereto hereby agrees that, except as specifically amended above, the
Indenture is hereby ratified and confirmed and shall continue to be in full force and effect and
enforceable, except as such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws relating to or limiting creditors’ rights generally and
general equitable principles.
(e) On and after the Effective Date, each reference in the Custodial Agreement to “this
Agreement”, “hereunder”, “hereof, “herein” or words of like import referring to the Custodial
Agreement and each reference to the Custodial Agreement in any certificate delivered in
connection therewith, shall mean and be a reference to the Custodial Agreement as amended
hereby.
(f) Each of the parties hereto hereby agrees that, except as specifically amended above, the
Custodial Agreement is hereby ratified and confirmed and shall continue to be in full force and
effect and enforceable, except as such enforcement may be limited by applicable bankruptcy,
insolvency, reorganization or other similar laws relating to or limiting creditors’ rights
generally and general equitable principles.
SECTION 7. Execution in Counterparts. This Amendment and Consent may be executed in
any number of counterparts and by different parties hereto in separate counterparts, each of which
when so executed and delivered shall be deemed to be an original and all of which taken together
shall constitute but one and the same agreement.
-5-
SECTION 8.. Governing Law. This Amendment and Consent shall be construed in
accordance with, and governed by the laws of the State of New York, without giving effect to its
conflicts of law provisions.
SECTION 9.. Conditions of Effectiveness. This Amendment and Consent shall become
effective as of the date hereof upon the receipt by the Purchaser of this Amendment and Consent
duly executed by all of the parties hereto.
[remainder of page intentionally left blank]
-6-
IN WITNESS WHEREOF, the parties have executed this Amendment and Consent as of the day
and year first above written.
| OPTION ONE OWNER TRUST 2001-2, as Issuer |
||||||
| By: | Wilmington Trust Company, not in its individual capacity, but solely as Owner Trustee |
|||||
| By: | /s/ Jennifer A. Luce | |||||
| Name: | ||||||
| Title: | Sr. Financial Services Officer | |||||
| OPTION ONE LOAN WAREHOUSE CORPORATION, as Depositor | ||||||
| By: | /s/ Philip Laren | |||||
| Name: | ||||||
| Title: | Vice President | |||||
| OPTION ONE MORTGAGE CORPORATION, as Loan Originator and as Servicer | ||||||
| By: | /s/ Philip Laren | |||||
| Name: | ||||||
| Title: | Senior Vice President | |||||
| OPTION ONE MORTGAGE CAPITAL CORPORATION | ||||||
| By: | /s/ Philip Laren | |||||
| Name: | ||||||
| Title: | Vice President | |||||
Signature Page to Omnibus Amendment
| WELLS FARGO BANK, | ||||||
| NATIONAL ASSOCIATION, | ||||||
| as Indenture Trustee | ||||||
| By: | /s/ Darron C. Woodus | |||||
| Name: | ||||||
| Title: | Assistant Vice President | |||||
Signature
Page to Omnibus Amendment
| BANK OF AMERICA, N.A., as Purchaser | ||||||
| By: | /s/ Gregory S. Lettwich | |||||
| Name: | ||||||
| Title: | Principal | |||||
Signature Page to Omnibus Amendment
Exhibit 10.5
WAIVER AND AMENDMENT
THIS WAIVER (the “Waiver”) is entered into as of January _, 2007 by and among OPTION
ONE OWNER TRUST 2001-2 (the “Issuer”), OPTION ONE MORTGAGE CORPORATION (“OOMC”) and OPTION
ONE MORTGAGE CAPITAL CORPORATION (“OOMCC,” and together with OOMC, the “Loan Originator”)
and OOMC as servicer (in such capacity, the “Servicer”), OPTION ONE LOAN WAREHOUSE
CORPORATION (the “Depositor,” and together with the Loan Originator and Depositor, the “OO
Entities”), WELLS FARGO BANK, NATIONAL ASSOCIATION, as indenture trustee (the “Indenture
Trustee”) and the MAJORITY NOTEHOLDERS party hereto. Capitalized terms used herein and not
otherwise defined shall have the meanings ascribed to them in the Sale and Servicing
Agreement referred to below.
PRELIMINARY STATEMENTS
A. The Issuer, OOMC, OOMCC, the Depositor and the Indenture Trustee are
parties to that certain Second Amended and Restated Sale and Servicing Agreement dated as
of March 8, 2005 (as amended, restated, supplemented or otherwise modified from time to
time, the “Sale and Servicing Agreement”) and the Basic Documents as defined therein.
B. Pursuant to the Sale and Servicing Agreement, the definition of “Financial
Covenants” includes an obligation on the part of OOMC to 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 (the “Minimum Income
Covenant”).Pursuant to the Basic Documents, OOMC periodically represents and warrants its compliance
with the Minimum Income Covenant. In addition, under the Basic Documents, a failure by
OOMC to satisfy the Minimum Income Covenant, if not waived, could be or become a Default,
Event of Default or Servicing Event of Default, as those terms are used in the Basic
Documents,or could result in a termination of the Revolving Period.
C. OOMC now believes that the Minimum Income Covenant will not be
satisfied as of the quarter ending January 31, 2007. The Issuer has requested that the
Majority Noteholders temporarily waive the Minimum Income Covenant and, subject to the terms
hereof, the Majority Noteholders have agreed to temporarily waive the Minimum Income Covenant on
and subject to the terms and conditions hereinafter set forth.
D. The parties also wish to waive the document delivery requirements for
Wet Funded Loans, as more specifically provided herein
NOW, THEREFORE, in consideration of the premises set forth above, and other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. Accuracy of Preliminary Statements. The OO Entities agree and represent
that the foregoing Preliminary Statements are true and correct in all respects.
2. Temporary Waiver with Respect to the Minimum Income Covenant.
Effective as of the date first above written and subject to the satisfaction of the
condition
precedent set forth in Section 4 below, the Majority Noteholders hereby agree to waive, until
April 27, 2007 only, the Minimum Income Covenant.
3. Amendment with Respect to the Document Delivery Requirement for Wet
Funded Loans. Until the termination of the Sale and Servicing Agreement, the term
“Wet Funded Custodial File Delivery Date” shall be deemed to be defined as follows: “With respect
to a Wet Funded Loan, the fifteenth Business Day after the related Transfer Date, or if earlier,
the twentieth calendar 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 or twentieth calendar day, whichever is earlier and (y) the
second Business Day after the occurrence of such event.” In addition, for such period, the phrase
“within fifteen (15) calendar days” in the definition of “Collateral Value” in the Sale and
Servicing Agreement, in clause (7) of the proviso in the first sentence of such definition,
shall be replaced with “within fifteen (15) Business Days (or, if earlier, twenty (20) calendar days)”.
4. Condition Precedent. This Waiver shall become effective and be deemed
effective as of the date first above written upon (i) receipt by OOMC of an executed
counterpart of this Waiver from each of the Issuer, the Depositor, the Majority Noteholders and the
Indenture Trustee and (ii) receipt by the Majority Noteholders of confirmation from OOMC that each Note
Purchaser, Purchaser, Initial Noteholder Agent or Note Agent, as applicable, in connection
with each of the Trusts listed on Schedule I hereto, has executed a waiver in substantially similar
form as this Waiver, regarding the failure by OOMC to satisfy the Minimum Income Covenant as of
the quarter ending January 31, 2007.
5. Condition to Continuing Effectiveness. This Waiver shall continue to be
effective for the period stated in Section 2 above, but only so long as no other Event of
Default (other than with respect to the Minimum Income Covenant) has occurred. Upon the occurrence
of any Event of Default other than with respect to the Minimum Income Covenant, this Waiver
shall immediately cease to be effective.
6. Covenants, Representations and Warranties of the Issuer, OOMC,
OOMCC and the Depositor.
(a) Upon the effectiveness of this Waiver, each of the Issuer, OOMC (in its
capacities as Servicer and Loan Originator), OOMCC and the Depositor hereby reaffirms all
covenants, representations and warranties made by the Issuer, OOMC, OOMCC and the
Depositor, as applicable, in the Sale and Servicing Agreement, to the extent the same are not
modified hereby and agrees that all such covenants, representations and warranties shall be
deemed to have been re-made as of the effective date of this Waiver.
(b) Each of the Issuer, OOMC, OOMCC and the Depositor hereby represents
and warrants that this Waiver constitutes the legal, valid and binding obligation of the
Issuer, OOMC, OOMCC and the Depositor, as applicable, enforceable against the Issuer, OOMC,
OOMCC and the Depositor, as applicable, in accordance with its terms. The execution, delivery
and performance by the Issuer, OOMC, OOMCC and the Depositor of this Waiver: (i) are
within the Issuer’s, OOMC’s, OOMCC’s and the Depositor’s power; (ii) have been duly
authorized by all necessary or proper corporate action; (iii) are not in contravention of any
2
provision of the Issuer’s, OOMC’s, OOMCC’s or the Depositor’s certificate of incorporation, bylaws
or other organizational documents; (iv) will not violate any law applicable to the Issuer, OOMC,
OOMCC or the Depositor, as applicable; (v) will not conflict with or result in the breach or
termination of, constitute a default under or accelerate any performance required by, any
indenture, mortgage, deed of trust, lease, agreement or other instrument to which the Issuer, OOMC,
OOMCC or the Depositor is a party or by which the Issuer, OOMC, OOMCC or the Depositor or any of
their respective property is bound; (vi) will not result in the creation or imposition of any Lien
upon any of the property of the Issuer, OOMC, OOMCC or the Depositor, as applicable; and (vii) do
not require the consent or approval of any governmental authority or any other Person, except those
which were duly obtained, made or complied with prior to the date of this Waiver.
7. Reference to and Effect on the Sale and Servicing Agreement.
(a) Upon the effectiveness of this Waiver, each reference in the Sale and
Servicing Agreement and in each of the other Basic Documents to “this Agreement,”
“hereunder,” “hereof,” “herein,” or words of like import shall mean and be a reference to the
Sale and Servicing Agreement as modified hereby, and each reference to the Sale and Servicing
Agreement in any other document, instrument or agreement executed and/or delivered in
connection with the Sale and Servicing Agreement shall mean and be a reference to the Sale and
Servicing Agreement as modified hereby.
(b) Except as specifically modified hereby, the Sale and Servicing Agreement,
each of the other Basic Documents and all other documents, instruments and agreements
executed and/or delivered in connection therewith shall remain in full force and effect and
are hereby ratified and confirmed.
(c) Except as expressly provided in Section 2 hereof, the execution, delivery
and effectiveness of this Waiver shall not operate as a waiver of any right, power or remedy
of the Majority Noteholders under the Sale and Servicing Agreement or any of the other Basic
Documents, nor constitute a waiver of, amendment of, consent to or other modification of any
other term, provision, Event of Default, or of any term or provision of any other Basic
Document, or of any transaction or further or future action of the Issuer which would require
the consent of the Majority Noteholders under the Sale and Servicing Agreement. Without limiting
the generality of the foregoing, the execution, delivery and effectiveness of this Waiver
shall not entitle the Issuer to a waiver of any existing or hereafter arising Event of Default (other
than with respect to the Minimum Income Covenant), nor shall the Majority Noteholders’ execution and
delivery of this Waiver establish a course of dealing between the Majority Noteholders and the
Issuer or in any other way obligate the Majority Noteholders to hereafter provide any waiver
or extension to the Issuer for the payment or performance by the Issuer of its obligations under
the Sale and Servicing Agreement and the Basic Documents prior to the enforcement by the
Majority Noteholders of any of their respective rights and remedies under the Sale and
Servicing Agreement and the other Basic Documents.
8. GOVERNING LAW. THIS WAIVER SHALL BE GOVERNED BY,
AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK (WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES).
3
9.
Execution in Counterparts. This Waiver may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when
so executed and delivered shall be deemed to be an original and all of which taken together shall
constitute but one and the same instrument.
constitute but one and the same instrument.
10. Headings. Section headings in this Waiver are included herein for
convenience or reference only and shall not constitute a part of this Waiver for any other
purpose.
11. Liability. It is expressly understood and agreed by the parties that (a) this
Waiver is executed and delivered by Wilmington Trust Company, not individually or personally,
but solely as Owner Trustee, in the exercise of the powers and authority conferred and vested
in it, pursuant to the Trust Agreement, (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 of binding the Issuer with respect thereto, (c) nothing herein contained shall be
construed as creating any liability on Wilmington Trust Company, individually or personally,
to perform any covenant either expressly or impliedly contained herein, and the right to claim
any and 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 hereunder or under any other related
documents.
12. Direction of Majority Noteholders. By their signature(s) below, the Majority
Noteholders hereby authorize and direct the Indenture Trustee to sign this Waiver.
[Signature Page Follows]
4
IN WITNESS WHEREOF, the parties hereto have caused this Waiver to be executed by
their respective officers thereto duly authorized as of the date first written above.
| OPTION ONE OWNER TRUST 2001-2, as Issuer | ||||||
| By: | Wilmington Trust Company, not in its individual capacity, but solely as Owner Trustee |
|||||
| By: Name: |
/s/ Mary Kay Pupillo
|
|||||
| Title: | Assistant Vice President | |||||
| OPTION ONE MORTGAGE CORPORATION, | ||||||
| as Loan Originator and as Servicer | ||||||
| By: | /s/ Charles R. Fulton | |||||
| Name: | ||||||
| Title: | Vice President | |||||
| OPTION ONE MORTGAGE CAPITAL | ||||||
| CORPORATION, as Loan Originator | ||||||
| By: | /s/ Charles R. Fulton | |||||
| Name: | ||||||
| Title: | Vice President | |||||
| OPTION ONE LOAN WAREHOUSE CORPORATION, as Depositor |
||||||
| By: | /s/ Charles R. Fulton | |||||
| Name: | Charles R. Fulton | |||||
| Title: | Assistant Secretary | |||||
| WELLS FARGO BANK, NATIONAL | ||||||
| ASSOCIATION, as Indenture Trustee | ||||||
| By: | /s/ Joshna Kelly | |||||
| Name: | Joshna Kelly | |||||
| Title: | Vice President | |||||
| THE MAJORITY NOTEHOLDERS: |
||||||
| BANK OF AMERICA, N. A. | ||||||
| By: | /s/ [ILLEGIBLE] | |||||
| Name: | [ILLEGIBLE] | |||||
| Title: | [ILLEGIBLE] | |||||
5
SCHEDULE I
List of Owner Trusts
Option One Owner Trust 2001-1A
Option One Owner Trust 2002-3
Option One Owner Trust 2003-4
Option One Owner Trust 2003-5
Option One Owner Trust 2005-6
Option One Owner Trust 2005-7
Option One Owner Trust 2005-8
Option One Owner Trust 2005-9
6
Exhibit 10.6
EXECUTION COPY
SECOND AMENDED AND RESTATED
SALE AND SERVICING AGREEMENT
SALE AND SERVICING AGREEMENT
among
OPTION ONE OWNER TRUST 2002-3
as Issuer
as Issuer
and
OPTION ONE LOAN WAREHOUSE CORPORATION
as Depositor
as Depositor
and
OPTION ONE MORTGAGE CORPORATION
as Loan Originator and Servicer
as Loan Originator and Servicer
OPTION ONE MORTGAGE CAPITAL CORPORATION
as Loan Originator
as Loan Originator
and
WELLS FARGO BANK, N.A.
as Indenture Trustee
as Indenture Trustee
Dated as of January 19, 2007
OPTION ONE OWNER TRUST 2002-3
MORTGAGE-BACKED NOTES
MORTGAGE-BACKED NOTES
ARTICLE I DEFINITIONS |
5 | |||
Section 1.01 Definitions |
5 | |||
Section 1.02 Other Definitional Provisions |
31 | |||
ARTICLE II CONVEYANCE OF THE TRUST ESTATE; ADDITIONAL NOTE PRINCIPAL BALANCES |
31 | |||
Section 2.01 Conveyance of the Trust Estate; Additional Note Principal Balances |
31 | |||
Section 2.02 Ownership and Possession of Loan Files |
33 | |||
Section 2.03 Books and Records; Intention of the Parties |
33 | |||
Section 2.04 Delivery of Loan Documents |
34 | |||
Section 2.05 Acceptance by the Indenture Trustee of the Loans; Certain Substitutions
and Repurchases; Certification by the Custodian |
35 | |||
Section 2.06 Conditions to Transfer |
37 | |||
Section 2.07 Termination of Revolving Period |
39 | |||
Section 2.08 Correction of Error |
39 | |||
ARTICLE III REPRESENTATIONS, WARRANTIES AND COVENANTS |
40 | |||
Section 3.01 Representations, Warranties and Covenants of the Depositor |
40 | |||
Section 3.02 Representations, Warranties and Covenants of the Loan Originator |
42 | |||
Section 3.03 Representations, Warranties and Covenants of the Servicer |
45 | |||
Section 3.04 Reserved |
47 | |||
Section 3.05 Representations and Warranties Regarding Loans |
47 | |||
Section 3.06 Purchase and Substitution |
47 | |||
Section 3.07 Disposition |
49 | |||
Section 3.08 Loan Originator Put; Servicer Call |
52 | |||
Section 3.09 Modification of Underwriting Guidelines |
53 | |||
ARTICLE IV ADMINISTRATION AND SERVICING OF THE LOANS |
53 | |||
Section 4.01 Servicer’s Servicing Obligations |
53 | |||
Section 4.02 Financial Statements |
53 | |||
ARTICLE V ESTABLISHMENT OF TRUST ACCOUNTS; TRANSFER OBLIGATION |
54 | |||
Section 5.01 Collection Account and Distribution Account |
54 | |||
Section 5.02 Payments to Securityholders |
58 | |||
Section 5.03 Trust Accounts; Trust Account Property |
59 |
Section 5.04 Advance Account |
61 | |||
Section 5.05 Transfer Obligation Account |
62 | |||
Section 5.06 Transfer Obligation |
63 | |||
ARTICLE VI STATEMENTS AND REPORTS; SPECIFICATION OF TAX MATTERS |
64 | |||
Section 6.01 Statements |
64 | |||
Section 6.02 Specification of Certain Tax Matters |
67 | |||
Section 6.03 Valuation of Loans, Retained Securities Value; Market Value Agent |
67 | |||
ARTICLE VII FINANCIAL COVENANTS |
68 | |||
Section 7.01 [reserved] |
68 | |||
Section 7.02 Financial Covenants |
69 | |||
ARTICLE VIII THE SERVICER |
70 | |||
Section 8.01 Indemnification; Third Party Claims |
70 | |||
Section 8.02 Merger or Consolidation of the Servicer |
72 | |||
Section 8.03 Limitation on Liability of the Servicer and Others |
72 | |||
Section 8.04 Servicer Not to Resign; Assignment |
72 | |||
Section 8.05 Relationship of Servicer to Issuer and the Indenture Trustee |
73 | |||
Section 8.06 Servicer May Own Securities |
73 | |||
Section 8.07 Indemnification of the Indenture Trustee and Majority Noteholders |
73 | |||
ARTICLE IX SERVICER EVENTS OF DEFAULT |
74 | |||
Section 9.01 Servicer Events of Default |
74 | |||
Section 9.02 Appointment of Successor |
76 | |||
Section 9.03 Waiver of Defaults |
77 | |||
Section 9.04 Accounting Upon Termination of Servicer |
77 | |||
ARTICLE X TERMINATION; PUT OPTION |
77 | |||
Section 10.01 Termination |
77 | |||
Section 10.02 Optional Termination |
78 | |||
Section 10.03 Notice of Termination |
78 | |||
Section 10.04 Put Option |
78 | |||
ARTICLE XI MISCELLANEOUS PROVISIONS |
79 | |||
Section 11.01 Acts of Securityholders |
79 |
ii
Section 11.02 Amendment |
79 | |||
Section 11.03 Recordation of Agreement |
80 | |||
Section 11.04 Duration of Agreement |
80 | |||
Section 11.05 Governing Law |
80 | |||
Section 11.06 Notices |
80 | |||
Section 11.07 Severability of Provisions |
81 | |||
Section 11.08 No Partnership |
81 | |||
Section 11.09 Counterparts |
81 | |||
Section 11.10 Successors and Assigns |
81 | |||
Section 11.11 Headings |
81 | |||
Section 11.12 Actions of Securityholders |
82 | |||
Section 11.13 Non-Petition Agreement |
82 | |||
Section 11.14 Holders of the Securities |
82 | |||
Section 11.15 Due Diligence Fees, Due Diligence |
83 | |||
Section 11.16 No Reliance |
84 | |||
Section 11.17 Confidential Information |
84 | |||
Section 11.18 Conflicts |
85 | |||
Section 11.19 Limitation on Liability |
85 | |||
Section 11.20 Third Party Beneficiary |
86 | |||
Section 11.21 No Agency |
86 |
iii
EXHIBITS
EXHIBIT A
|
Form of Notice of Additional Note Principal Balance | |
EXHIBIT B
|
Form of Servicer’s Remittance Report to Indenture Trustee | |
EXHIBIT C
|
Form of S&SA Assignment | |
EXHIBIT D
|
Loan Schedule | |
EXHIBIT E
|
Representations and Warranties Regarding the Loans | |
EXHIBIT F
|
Servicing Addendum | |
EXHIBIT G
|
Capital Adequacy Test |
iv
SECOND AMENDED AND RESTATED SALE AND SERVICING AGREEMENT
This Second Amended and Restated Sale and Servicing Agreement (this “Agreement”) is entered
into effective as of January 19, 2007, among OPTION ONE OWNER TRUST 2002-3, 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 a Loan Originator (in such capacity, a “Loan Originator”) and as
Servicer (in such capacity, the “Servicer”), OPTION ONE MORTGAGE CAPITAL CORPORATION, a Delaware
corporation (“Option One Capital”), as a Loan Originator (a “Loan Originator”), and WELLS FARGO
BANK, N.A., a national banking association, as Indenture Trustee on behalf of the Noteholders (in
such capacity, the “Indenture Trustee”). This Agreement amends and restates in its entirety the
Amended and Restated Sale and Servicing Agreement by and among the Issuer, the Depositor, Option
One and the Indenture Trustee dated as of March 18, 2005.
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 Servicer’s 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 and comply in all material respects with all applicable laws, rules, regulations and
orders.
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.
1
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.
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 July 2, 2002, between the
Issuer and Option One, as the Administrator and Servicer.
Administrator: Option One, 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 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 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.
2
ARM: Any Loan, the Loan Interest Rate with respect to which is subject to adjustment during
the life of such Loan.
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.
Balloon Loan: A Mortgage Loan having an original term to maturity that is shorter than the
related amortization term.
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 Pricing Letter, the Trust Agreement, 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 Servicer’s 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 on
which the Note Principal Balance has declined to 10% or less of the aggregate Note Principal
Balance as of the end of the Revolving Period.
Closing Date: January 19, 2007.
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.
3
Combined LTV or CLTV: With respect to any Second Lien Loan, the ratio, expressed as a
percentage, 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.
Commission: The Securities and Exchange Commission.
Condominium Mortgage Loan: A Mortgage Loan secured by a lien on a condominium unit.
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 July 2, 2002, among the Issuer, the
Servicer, the Indenture Trustee (in the capacity of Facility Administrator) 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 hereof, 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.
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
4
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;
5
(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 Moody’s
and the short-term deposits of which shall be rated P-1 or better by Moody’s and A-1 or better by
S&P, unless otherwise approved in writing by the Initial Noteholder 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 Initial Noteholder
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 (including, without limitation, any limited liability company into which it is converted).
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.
6
Disposition Agent: UBS Real Estate Securities Inc. 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 minus (y) all other amounts agreed upon in writing by the Initial Noteholder, 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 Initial Noteholder, any other deposit account or a securities
account.
Eligible Servicer: Either (a) Option One for so long as Option One (i) is an approved
seller-servicer by Fannie Mae or Freddie Mac and (ii) has a GAAP Net Worth of at least
$200,000,000, (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.
7
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.
Fatal Exception: With respect to a Mortgage Loan, (i) any variance from the requirements of
Section 2(b)(i), (ii), (iii), (iv) (v), (vi) or (viii) of the Custodial Agreement with respect to
the Custodial Loan File (giving effect to the Issuer’s right to deliver certified copies in lieu of
original documents in certain circumstances); or (ii) that the documents in the Custodial Loan File
referred to in the preceding clause (i) have been reviewed by the Custodian in accordance with the
Review Procedures in Exhibit K to the Custodial Agreement and do not appear on their face to be
regular or to relate to such Mortgage Loan.
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) exercise the Put Option with respect to the
entire outstanding Note Principal Balance, if the Majority Noteholders (or the Market Value Agent
on their behalf) elects to exercise the Put Option.
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 30 days after the 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.
8
Gross Margin: With respect to each ARM, the fixed percentage amount set forth in the related
Promissory Note.
Indenture: The Indenture dated as of January 19, 2007, 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
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 of the Loan Originator 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.
Initial Noteholder: UBS Real Estate Securities Inc. and its successors and assigns.
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 any unpaid portion of the Interest Payment
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 Only Mortgage Loan: A Mortgage Loan for which an interest-only payment feature is
allowed during the period prior to the first Adjustment 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.
9
LIBOR Determination Date: With respect to each Accrual Period, the first day of 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 during
the applicable period and (ii) all Liquidation Proceeds allocable to principal received during the
applicable period with respect to such Loans.
Liquidation Proceeds: With respect to a Liquidated Loan, any cash amounts received in
connection with the liquidation of such Liquidated Loan, whether through trustee’s 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 pursuant to Section 5.01(b)
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 Servicer’s Loan File.
10
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: Each of Option One and Option One Capital, and their respective successors
and assigns, jointly and severally.
Loan Originator Put: The mandatory repurchase by the Loan Originator, at the option of the
Majority Noteholders, of a Loan pursuant to Section 3.08(a) 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: Each of: (i) the Loan Purchase and Contribution
Agreement between Option One, as seller, and Option One Capital, as purchaser, dated as of December
29, 2006 and all supplements and amendments thereto and (ii) the Fifth Amended and Restated Loan
Purchase and Contribution Agreement, between Option One Capital, as seller, and Depositor, as
purchaser, dated as of December 29, 2006, 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 Initial Noteholder 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 N 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.
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 M 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: As defined 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.
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Make-Whole Premium: As defined in the Pricing Letter.
Manufactured Home: A unit of manufactured housing which meets the requirements of Section
25(e)(10) of the Code, including, without limitation, any such unit that is legally classified as
real property under applicable state law.
Manufactured Housing Loan: A loan or installment sales contract secured, in whole or in part,
by a Manufactured Home.
Market Value: As of any date in respect of a Loan, the price at which such Loan could readily
be sold as determined in the Market Value Agent’s sole discretion using its reasonable business
judgment, taking into account the level of interest rates, the financial condition of the Note
Issuer, the characteristics of the collateral and general market conditions, which price may be
determined to be zero.
Market Value Agent: UBS Real Estate Securities Inc. or an Affiliate thereof designated by UBS
Real Estate Securities Inc. in writing to the parties hereto and, in either case, its successors in
interest.
Master Disposition Confirmation Agreement: The Fifth Amended and Restated Master Disposition
Confirmation Agreement, dated as of December 29, 2006, 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, as amended and supplemented from time to time.
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 the Pricing Letter.
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)(i) during the immediately preceding Remittance Period and (ii) the aggregate of
amounts deposited into the Collection Account pursuant to Section 5.01(b)(ii) through 5.01(b)(xi)
during the immediately preceding Remittance Period.
Moody’s: Moody’s Investors Service, Inc., or any successor thereto.
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.
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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 Borrower’s 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.
Non-Owner Occupied Loan: A Mortgage Loan secured by a Mortgaged Property which is not
occupied by the related Borrower as such Borrower’s primary residence.
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 Officer’s Certificate of a Servicing Officer delivered to the Initial
Noteholder, 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 the good faith business judgment
of the Servicer, as evidenced by an Officer’s Certificate of a Servicing Officer delivered to the
Initial Noteholder, would not be ultimately recoverable.
Note: As defined in the Indenture.
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Noteholder: As defined in the Indenture.
Note Interest Rate: As defined in the Pricing Letter.
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 Second Amended and Restated Note Purchase Agreement among the
Purchaser, the Issuer and the Depositor, dated as of January 19, 2007, 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, plus any Interest Carry-Forward for any previous Payment Date
that has not theretofore been paid, (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) any other amounts then due to the Noteholders hereunder.
Officer’s 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 Initial
Noteholder on the basis of the offered rate for one-month U.S. dollar deposits, as such rate
appears on the BTMM (Bloomberg Screen) (or such other screen as may replace such screen) on the
related LIBOR Determination Date; provided that if such rate does not appear on the BTMM (Bloomberg
Screen) (or such other screen as may replace such screen), the rate for such date will be
determined on the basis of the rates offered to the Reference Bank for one-month U.S. dollar
deposits by prime banks in the London interbank Eurodollar market on such LIBOR Determination Date.
One-Month LIBOR shall be reset by the Initial Noteholder as described above and the Initial
Noteholder’s determination of One-Month LIBOR shall be conclusive upon the parties absent manifest
error on the part of the Initial Noteholder.
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.
Option One Capital: Option One Mortgage Capital Corporation, a Delaware 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 Payment Date on which the
Trust is to be terminated pursuant to Section 10.02 hereof or (C) the Final Put Date, the
Overcollateralization Shortfall shall be equal to the Note Principal Balance. Notwithstanding
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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.
Owner Trustee: 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 $4,000 payable in equal monthly installments to the
Servicer pursuant to Section 5.01(c)(3)(i) which the Servicer shall in turn pay annually to the
Owner Trustee on the anniversary of the Closing Date occurring each year during the term of this
Agreement.
Paying Agent: As defined 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).
Payment Statement: As defined in Section 6.01(b) hereof.
Percentage Interest: As defined in the Trust Agreement.
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 Moody’s and AA or better
by S&P.
(c) Freddie Mac senior debt obligations rated Aa2 or higher by Moody’s and AA or better by
S&P.
(d) Federal Home Loan Banks’ consolidated senior debt obligations rated Aa2 or higher by
Moody’s and AA or better by S&P.
15
(e) Fannie Mae senior debt obligations rated Aa2 or higher by Moody’s.
(f) Federal funds, certificates or deposit, time and demand deposits, and bankers’ acceptances
(having original maturities of not more than 30 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 Moody’s.
(g) Investment agreements approved by the Initial Noteholder 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 Moody’s and AA or better
by S&P, and
(2) Monies invested thereunder may be withdrawn without any penalty, premium or charge upon
not more than one day’s 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 Initial Noteholder 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 Moody’s.
(i) Investments in money market funds rated AAAM or AAAM-G by S&P and Aaa or P-1 by Moody’s.
(j) Investments approved in writing by the Initial Noteholder;
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.
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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 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 Amended and Restated Pricing Side Letter among the Issuer, the Depositor,
Option One Capital, the Initial Noteholder and the Indenture Trustee, dated January 19, 2007 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: As defined in the Note Purchase Agreement.
Put/Call Loan: Any (i) Loan that has become 90 or more days Delinquent, (ii) Defaulted Loan,
(iii) Loan that has been in default for a period of 30 days or more (other than a Loan
17
referred to in clause (i)), (iv) 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 (v) 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.
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, Option One Owner Trust 2005-7, Option One Owner Trust 2005-8, Option One Owner
Trust 2005-9, or any other Affiliate of Option One which is a “qualified special purpose entity” in
accordance with Financial Accounting Standards Board’s 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 (iii) is or are not 30 or more days Delinquent as of the date of substitution for
such Deleted Loan or Loans.
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 Moody’s 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 Bank: The principal office in London, England of UBS Real Estate Securities Inc.
Refinanced Loan: A Loan the proceeds of which were not used to purchase the related Mortgaged
Property.
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
18
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, (ii) all accrued and unpaid interest on such Loan to the date
of purchase or repurchase computed at the applicable Loan Interest Rate, (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) and (iv) the amount of any damages
incurred by the Purchaser as a result of the violation of any Loan of any predatory or abusive
lending law. 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.
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 officer’s 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 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 Security or 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.
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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 the Closing Date and
ending on the earlier of (i) January 18, 2008, and (ii) the date on which the Revolving Period is
terminated pursuant to Section 2.07 hereof.
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.
Servicer: Option One, in its capacity as the servicer hereunder, or any successor appointed
as herein provided.
Servicer Call: The optional purchase by the Servicer of a Loan pursuant to Section 3.08(b)
hereof.
Servicer Event of Default: As described in Section 9.01 hereof.
Servicer’s Fiscal Year: May 1st of each year through April 30th of the following year.
Servicer’s 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.
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Servicer’s 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 the related 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 Officer’s 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 & Poor’s Rating Services, a division of The McGraw-Hill Companies, Inc.
State: Any one of the states of the United States of America or the District of Columbia.
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
21
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, goodwill, 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.
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
22
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 hereof.
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 and after
the date of this Second Amended and Restated Sale and Servicing Agreement, 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 2002-3, the Delaware statutory trust created pursuant to the
Trust Agreement.
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, the Advance Account and the
Transfer Obligation Account.
Trust Agreement: The Trust Agreement dated as of July 2, 2002 between the Depositor and the
Owner Trustee.
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 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 Servicer’s 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) (iii) all
guarantees, indemnities, warranties, insurance (and proceeds and refunds of premiums in respect
thereof) or other agreements or arrangements of any kind from time to time supporting or securing
payment of such Loan or performance of any obligation with respect thereto, whether pursuant to the
Loan Documents related to such Loan or otherwise; (v) such assets as from time to time are
identified as Foreclosure Property, (vi) such assets and funds as are from time to time deposited
in the Distribution Account, Collection Account, Advance Account and the Transfer Obligation
Account, including, without limitation, amounts on deposit in such accounts that are invested in
Permitted Investments, (vii) lenders’ rights under all Mortgage Insurance Policies and to any
Mortgage Insurance Proceeds, (viii) Net Liquidation Proceeds and Released Mortgaged
23
Property Proceeds, 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 party’s 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
Initial Noteholder.
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 hereof 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 aggregate 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.
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 later of the
fifteenth Business Day or the twentieth calendar 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 or twentieth calendar day and (y) the fifth
day after the occurrence of such event.
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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 Trust Receipt with
respect to the Wet Funded Loan, in substantially the form of Exhibit O attached to the Custodial
Agreement.
Whole Loan Sale: A Disposition of Loans pursuant to a whole-loan sale.
Section 1.02 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.
(f) Wells Fargo Bank, N.A. is the current name of the entity previously named Wells Fargo Bank
Minnesota, National Association. Any references to Wells Fargo Bank Minnesota, National Association
in this agreement or in any other agreement related to this agreement shall be construed to mean
Wells Fargo Bank, N.A.
25
ARTICLE II
CONVEYANCE OF THE TRUST ESTATE; ADDITIONAL
NOTE PRINCIPAL BALANCES
NOTE PRINCIPAL BALANCES
Section 2.01 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 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; any portion of
the value of such Loan not paid in cash shall be deemed a contribution of capital by the Depositor
to the Issuer. 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 hereof 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 and
any prepayment charges 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 Depositor’s 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.
26
(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,
as applicable, all rights, title and interest of the Depositor and any QSPE Affiliate in 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 4.01 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 Noteholder’s 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 Noteholder’s 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
Noteholder’s 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
Noteholder’s 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.
Section 2.02 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 Servicer’s Loan File and
Custodial Loan File shall be vested in the Trust for the benefit of the Securityholders, although
possession of the Servicer’s 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.
27
Section 2.03 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, 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 be the property of the
Issuer, and not owned by or otherwise be 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 Depositor’s 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 or the Initial Noteholder to ensure the perfection, and priority to all
other security interests, of the security interest described in the preceding paragraph including
without 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 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 ensure
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 rescission, all funds
received in connection with such rescission 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 Servicer’s 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
Servicer’s 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 Initial Noteholder and delivery of an Opinion of
Counsel with respect to the continued perfection of the Indenture Trustee’s 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.
| Section 2.05 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 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.
29
(ii) In the event that, with respect to any Loan, the Loan Originator does not comply
with the document delivery requirements of Section 2.04 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, the Loan Originator shall repurchase such Loan within one (1)
Business Day of notice thereof from the Indenture Trustee or the Initial Noteholder 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 Initial Noteholder 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 Servicer’s 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 Servicer’s 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 Servicer’s agreement pursuant to
this Section 2.05(d), the Indenture Trustee shall be deemed to have possession of the Servicer’s
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 Servicer’s 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 the exceptions in Section 8.01(a) hereof and
the procedure in Section 8.01(d) hereof, the Servicer 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
30
amount resulting from the Servicer’s 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 Servicer’s performance
as custodian of the Servicer Loan File hereunder.
Section 2.06 Conditions to Transfer.
(a) In the case of Wet Funded Loans, by 11:00 a.m. (New York City time) on the related
Transfer Date, the Issuer shall give notice to the Initial Noteholder of such upcoming Transfer
Date and shall deliver or cause to be delivered to the Initial Noteholder: (i) an estimate of the
number of Loans and aggregate Principal Balance of such Loans to be transferred on such Transfer
Date and (ii) a funding request amount. By no later than 4:00 p.m. (New York City time) on each
Transfer Date, the Issuer shall deliver or cause to be delivered to the Initial Noteholder 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 Initial Noteholder of such upcoming Transfer Date and by no
later than 4:00 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 Initial Noteholder: (i) an estimate of the
number of Loans and aggregate Principal Balance of such Loans to be transferred on such Transfer
Date and (ii) a funding request amount. By no later than 8:00 a.m. (New York City time) on each
Transfer Date, the Issuer shall deliver or cause to be delivered to the Initial Noteholder 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 Initial Noteholder duly executed Assignments,
which shall have attached thereto a Loan Schedule setting forth the appropriate
information with respect to all Loans conveyed on such Transfer Date and shall have
delivered to the Initial Noteholder 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;
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(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) in the case of non-Wet Funded Loans, the Issuer shall have delivered the
Custodial Loan File to the Custodian in accordance with the Custodial Agreement and
the Initial Noteholder shall have received a Trust Receipt by 4:30 p.m. New York
City time, reflecting such delivery; provided that, in the event that any Additional
Note Principal Balance is to be paid earlier than 8:00 a.m. New York City time on
the Transfer Date, the Trust Receipt must be received by the Initial Noteholder
prior to 6:00 p.m. New York City time on the Business Day prior to such Transfer
Date; and provided further that no Additional Note Principal Balance shall be paid
as to a Loan that has a Fatal Exception, as indicated on the Custodian’s
certification provided pursuant to the Custodial Agreement;
(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 hereof 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 and the Servicer shall, at its own
expense, within one (1) Business Day following the Transfer Date, indicate in their
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 Initial Noteholder no later than two (2) 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 Depositor’s 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 Issuer’s 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.
Section 2.07 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) either (a) the aggregate Principal Balance of all
Loans that are 30 to 59 days Delinquent as of such Determination Date divided by the Pool Principal
Balance as of such Determination Date is greater than 5% (unless such percentage is reduced to less
than 5% within three Business Days of such Determination Date as a result of the exercise of a
Servicer Call) or (b) the aggregate Principal Balance of all Loans that are 60 to 89 days
Delinquent as of such Determination Date divided by the Pool Principal Balance as of such
Determination Date is greater than 2% (unless such percentage is reduced to less than 2% within
three Business Days of such Determination Date as a result of the exercise of a Servicer Call) or
(iv) Option One, Option One Capital or any of their Affiliates 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, Option
One Capital or any of their 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 July 2, 2002,
among the Option One Owner Trust 2002-3, the Depositor, Option One and the Facility Administrator,
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, the Sale and Servicing Agreement,
dated as of June 1, 2005, among Option One Owner Trust 2005-6, the Depositor, Option One and the
Indenture Trustee, the Sale and Servicing Agreement, dated as of September 1, 2005, among the
Option One Owner Trust 2005-7, the Depositor, Option One and
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the Indenture Trustee, the Sale and Servicing Agreement, dated as of October 1, 2005 among
Option One Owner Trust 2005-8, the Depositor, Option One and the Indenture Trustee and the Sale and
Servicing Agreement, dated as of December 30, 2005 among Option One Owner Trust 2005-9, the
Depositor, Option One and the Indenture Trustee, in each case as amended from time to time, 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.
Section 2.08 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, WARRANTIES AND COVENANTS
Section 3.01 Representations, Warranties and Covenants 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
Depositor’s 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
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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);
(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 Originator’s 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
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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 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 Officer’s
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 Depositor’s 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;
(p) The representations and warranties set forth in (h), (i), (j) and (m) above were true and
correct with respect to each Loan transferred to the Trust by any QSPE Affiliate at the time such
Loan was transferred to such QSPE Affiliate by the Depositor; and
(q) Whenever the Depositor becomes aware that a claim is being asserted against Depositor in a
judicial, administrative or arbitration forum, the Depositor shall promptly notify the Initial
Noteholder of the existence and general nature of such claim.
Section 3.02 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;
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(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
Originator’s 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 reasonably be expected to
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 Originator’s satisfaction of its financial covenants contained
in any Basic Document, 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 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
37
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 such Loan 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 Initial Noteholder 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) Option One has received fair consideration and reasonably equivalent value in exchange for
the Loans sold by it to Option One Capital and the Loan Originator has received fair consideration
and reasonably equivalent value in exchange for the Loans sold by it to 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) Option One is in compliance with each of its financial covenants set forth in Section
7.02;
(n) The Loan Originator’s 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; and
(o) Whenever the Loan Originator becomes aware that a claim is being asserted against the Loan
Originator in a judicial, administrative or arbitration forum, in which the amount of claimed
damages exceeds $5 million (and without regard to the Loan Originator’s judgment as to the
likelihood of actual recovery of such amount or any amount), the Loan Originator shall promptly
notify the Initial Noteholder of the existence and general nature of such claim.
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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 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 Issuer 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 (2)
Business Days following such discovery) to the other parties and to the Initial Noteholder. 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, the Owner
Trustee or the Issuer respecting a breach of the representations and warranties contained in this
Section 3.02, but shall be cumulative with, and not exclusive of, any remedies provided in any
other Basic Document with respect to breaches of the Loan Originator’s representations and
warranties set forth therein. The fact that the Initial Noteholder 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.
Section 3.03 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 Servicer’s
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
39
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 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 Originator’s
satisfaction of its financial covenants under any of the Basic Documents, 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 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;
40
(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;
(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;
(m) Whenever the Servicer becomes aware that a claim is being asserted against Servicer in a
judicial, administrative or arbitration forum, in which the amount of claimed damages exceeds $5
million (and without regard to the Servicer’s judgment as to the likelihood of actual recovery of
such amount or any amount), the Servicer shall promptly notify the Initial Noteholder of the
existence and general nature of such claim;
(n) Whenever the Servicer, the Depositor or the Loan Originator becomes aware of a failure on
the part of such company 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, such company shall notify the Initial Noteholder of the existence and general
nature of such failure; and
(o) Whenever the Servicer, the Depositor or the Loan Originator becomes aware of a breach on
the part of such company of any representation or warranty contained in any Basic Document to which
it is a party, such company shall notify the Initial Noteholder of the existence and general nature
of such breach.
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, the Owner 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 (2) Business Days following such discovery) to the other parties
and to the Initial Noteholder, and the Servicer shall take appropriate action to correct the
breach. The fact that the Initial Noteholder or any Noteholder has conducted or has failed to
conduct any
41
partial or complete due diligence investigation shall not affect the Securityholders, rights
to exercise their remedies as provided under this Agreement.
Section 3.04 Reserved.
Section 3.05 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 Initial
Noteholder 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 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.
Section 3.06 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 Originator’s 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 and to the
Initial Noteholder. The Loan Originator shall within five Business Days of the earlier of the Loan
Originator’s discovery or the Loan Originator’s 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 Originator’s discovery of such breach or the Loan Originator’s
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 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.
42
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) 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 Initial Noteholder 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 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 Initial Noteholder 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 Initial
Noteholder, 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 Issuer’s 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
43
Trustee’s 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 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 knowledge thereof by the Loan Originator
(whereupon the Loan Originator shall be obligated to give notice thereof to the Indenture Trustee
and the Initial Noteholder) and either (ii) failure by the Loan Originator to cure such defect or
breach or purchase or substitute such Loan as specified above or (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.
Section 3.07 Disposition.
(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
44
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,
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
45
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(b) 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.
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 five (5) Business Days
46
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 and be continuing. If no Default or Event of Default shall have occurred and be
continuing, 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 by the highest bidder, but not less than
100% of the outstanding principal balance plus accrued interest. The Disposition Agent shall
conduct any Whole Loan Sale subject to the Loan Originator’s 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 omit to take in good faith in the performance of
their duties.
| Section 3.08 Loan Originator Put; Servicer Call. |
(a) Loan Originator 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
Call 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 Loan Originator 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
47
3.08(a) as of any date shall in no event exceed the Unfunded Transfer Obligation at the time
of the related Loan Originator Put.
Section 3.09 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 Initial Noteholder objects in writing to any
modification or change to the Underwriting Guidelines within fifteen (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 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 that was originated pursuant to a
modification or change to the Underwriting Guidelines that has been rejected by the Noteholders or
of which the Noteholders did not receive notice, shall be deemed an Unqualified Loan and shall be
repurchased or substituted for in accordance with Section 3.06.
ARTICLE IV
ADMINISTRATION AND SERVICING OF THE LOANS
Section 4.01 Servicer’s 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. The Servicer shall timely deliver any reports and
other information necessary for the Indenture Trustee to prepare reports the Indenture Trustee is
required to prepare under the Basic Documents on the basis of reports or other information to be
provided by the Servicer.
Section 4.02 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 Servicer’s Fiscal Year;
(ii) quarterly unaudited statements of the Servicer no later than 60 days after quarter-end,
accompanied by a certification to the effect that such statements were prepared in accordance with
generally accepted accounting principles consistently applied (with customary exceptions for
year-end adjustments), and as to the absence of any Default or Event of Default (or if a Default or
Event of Default exists, identifying it with reasonable specificity and stating the Servicer’s plan
for curing it);
(iii) monthly unaudited statements of the Servicer no later than 45 days after month-end;
48
(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 H&R Block, Inc.’s 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 provided pursuant to this Section 4.02 shall be prepared
in accordance with GAAP, and, in the case of audited statements shall be accompanied by an
unqualified auditor’s report.
ARTICLE V
ESTABLISHMENT OF TRUST ACCOUNTS; TRANSFER OBLIGATION
Section 5.01 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 2002-3 Collection Account, Wells Fargo Bank, N.A., as Indenture Trustee,
for the benefit of the Option One Owner Trust 2002-3 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.
(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 2002-3 Distribution Account, Wells Fargo Bank, N.A., as Indenture Trustee, for the benefit of
the Option One Owner Trust 2002-3 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 2002-3 Collection/Distribution Account, Wells Fargo Bank, N.A., as
Indenture Trustee, for the benefit of the Option One Owner Trust 2002-3 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.
49
(3) The Servicer will inform the Indenture Trustee of the location of any accounts held in the
Indenture Trustee’s 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) to the Collection Account:
(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;
(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) from the Servicer’s own funds, any Make-Whole Premiums; and
(ix) any Repurchase Price payable in connection with a Loan Originator Put
remitted by the Loan Originator pursuant to Section 3.08 hereof.
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 (ix). 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:
50
(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 except to the extent that an
Overcollateralization Shortfall would result from such withdrawal; and
(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 Servicer’s 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, (x) an amount equal to the Servicing
Compensation and all unpaid Servicing Compensation from prior Payment Dates (to the extent not
retained from collections or remitted to the Servicer pursuant to Section 5.01(c)) and (y) all
Nonrecoverable Servicing Advances not previously reimbursed except to the extent that an
Overcollateralization Shortfall would result from such payment, and (d) to the
51
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;
(ii) [reserved]
(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 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, any Make-Whole Premium for such Payment Date, to the extent payable,
together with any Make-Whole Premiums 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 by the Servicer or Depositor or 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 (1) Business Day prior to such Payment Date. On such additional Payment
Date, the Loan Originator or the Servicer, in satisfaction of its obligations under Section 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 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
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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)(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 Day’s 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), an additional Payment Date shall be deemed to have been established on such
date (or if that fact is not recognized by 4:30 PM, then on the next following Business Day). 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.
Section 5.02 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 Note Register on the related Record Date.
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 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
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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.
Section 5.03 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 (10) Business Days (or
such longer period, not to exceed thirty (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 and reinvested (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 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 (a) 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 (1) 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 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
54
in the name of “Wells Fargo Bank, N.A., as Indenture Trustee, in trust for the Option One
Owner Trust 2002-3 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:
(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 the first paragraph 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 UCC) 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;
55
(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 Trustee’s
(or its nominee’s) ownership of such security.
Section 5.04 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 “Option One Mortgage Corporation
on behalf of UBS Real Estate Securities Inc., for the benefit of the Issuer, Re: Custodial
Agreement dated as of July 2, 2002.” 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.
Section 5.05 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 2002-3 Transfer Obligation Account, Wells Fargo Bank, N.A., as
Indenture Trustee, in trust for the Option One Owner Trust 2002-3 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 hereof.
(b) In accordance with Section 5.06 hereof, 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) hereof.
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(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, after taking all other funds into account.
(f) If with respect to any Business Day there exists an Overcollateralization Shortfall which
has not been remitted directly to the Noteholders pursuant to Section 5.06 hereof, 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) [reserved]
(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.
(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)
whenever funds remain on deposit, 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.
Section 5.06 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) [reserved]
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(iii) If any Interest Carry-Forward Amount is projected to 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, it
shall on such Business Day either (A) remit such Overcollateralization Shortfall
Amount to the Paying Agent for immediate payment to the Noteholders (in which case
such day shall be deemed an additional Payment Date) or (B) if so directed by the
Majority Noteholders, 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
remittance or deposit on the following Business Day;
(v) If on any applicable Payment Date, the amount available to pay the
Make-Whole Premium is insufficient, the Loan Originator, from its own funds, shall
deposit the amount of such shortfall on the Business Day prior to such Payment Date;
(vi) If the amount available to pay an Indemnified Party against any Losses (as
such terms are defined in the Note Purchase Agreement) is insufficient, the Loan
Originator shall promptly deposit the amount of such shortfall; and
(vii) 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 Originator’s
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 Loan
Originator’s payments in respect of any Loan Originator 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.
(c) With respect to the obligations of the Loan Originator pursuant to this Section 5.06,
Option One shall be obligated to make payments hereunder only if Option One Capital does not make
such payments prior to the time any such payment is required to be made. If Option One Capital
does not make any such payment prior to the time such payment is required to be made, Option One
shall be required to make such payment not later than the time such
payment is required to be made. ]
58
ARTICLE VI
STATEMENTS AND REPORTS; SPECIFICATION OF TAX MATTERS
Section 6.01 Statements.
(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 Initial Noteholder 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 Servicer’s Remittance Report,
setting forth the date of such Report (day, month and year), the name of the Issuer (i.e., “Option
One Owner Trust 2002-3”), 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 Noteholder 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 Initial Noteholder and the Indenture Trustee. In addition, no later than 12:00 noon (New
York City time) on the fifteenth (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 2002-3”), 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:
(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;
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(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 3.06 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 Loan Originator Put was exercised
during the preceding Remittance Period;
(10) [reserved]
(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;
(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;
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(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) the Unfunded Transfer Obligation Percentage as of the related Payment Date.
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 any events resulting in withdrawals from the Transfer Obligation Account.
Section 6.02 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 Valuation of Loans, Retained Securities Value; Market Value Agent.
(a) The Issuer hereby irrevocably appoints the Market Value Agent to determine the Market
Value of each Loan and the Retained Securities Value of all Retained Securities, in accordance with
subsections (b) and (c) below.
(b) The Market Value Agent shall determine the Market Value of each Loan in its sole judgment.
In determining the Market Value of each Loan, the Market Value Agent may consider any information
that it may deem relevant and shall base such determination primarily on the lesser of its estimate
of the projected proceeds from such Loan’s inclusion in (i) a Securitization (inclusive of the
projected Retained Securities Value of any Retained Securities to be issued in connection with such
Securitization) and (ii) a Whole Loan Sale, in each case net of such Loan’s ratable share of all
costs and fees associated with such Disposition, including, without limitation, any costs of
issuance, sale, underwriting and funding reserve accounts. The Market Value Agent’s determination,
in its sole judgment, 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
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 Market Value Agent and
its Affiliates and such other sources of information as the Market Value Agent may deem
appropriate.
ARTICLE VII
FINANCIAL COVENANTS
Section 7.01 [reserved]
Section 7.02 Financial Covenants.
(a) Each of Option One and the Servicer shall maintain a minimum Tangible Net Worth of $425
million as of any day.
(b) Each of Option One 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 Option One 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
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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 Option One 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 or
cash of $20 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 Option One 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, commencing with the quarter ending April 30, 2007.
(f) Each of Option One and the Servicer, on a quarterly basis, shall provide the Initial
Noteholder with an Officer’s Certificate stating that Option One 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.
(g) Each of Option One and the Servicer shall possess sufficient net capital and liquid assets
(or ability to access the same) to satisfy its debts and other obligations as they become due in
the normal course of business.
ARTICLE VIII
THE SERVICER
Section 8.01 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
Servicer’s 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 Party’s 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. The provisions of
this indemnity shall run directly to and be enforceable by a Servicer Indemnified Party subject to
the limitations hereof.
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(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 by the Loan
Originator, the Servicer or its Affiliates of any material fact or any such Person’s failure to
state a material fact necessary to make such statements not misleading with respect to any such
Person’s statements contained in any Basic Document, including, without limitation, any Officer’s
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 Person’s 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 Party’s willful
misfeasance, bad faith or negligence or by reason of an Originator Indemnified Party’s 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 (provided such
uncollectability was not due to an error on the part of the Loan Originator or any affiliate of the
Loan Originator), 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.
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(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 Party’s 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 Party.
Section 8.02 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 an Eligible Servicer and 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 proposed merger, conversion, consolidation or succession to the Indenture
Trustee and the Issuer.
Section 8.03 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,
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prosecute or defend any legal action which is not incidental to the Servicer’s duty to service
the Loans in accordance with this Agreement.
Section 8.04 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 Servicer’s 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 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
Servicer’s 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.
Section 8.05 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.
Section 8.06 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
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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.
Section 8.07 Indemnification of the Indenture Trustee and the Noteholders.
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 Noteholders
and the Initial Noteholder in accordance with Section 9.01 of the Note Purchase Agreement as if it
were signatory thereto.
ARTICLE IX
SERVICER EVENTS OF DEFAULT
Section 9.01 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 hereof;
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 thirty (30) days
(or, in the case of payment of insurance premiums, for a period of fifteen (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 thirty (30)
days after the date on which written 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 Initial Noteholder 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
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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 be an
Eligible Servicer or to comply with the financial covenants set forth in Section 7.02; or
(7) the Servicer ceases to be a 100% direct or indirect wholly-owned subsidiary of H&R Block
Inc.;
(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; or
(9) the Servicer ceases to be an approved servicer for Fannie Mae or Freddie Mac, and that
status continues unremedied for a period of 30 days.
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 Servicer’s 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, or (iii) an event shall occur or
circumstances otherwise arise which, in the Initial Noteholder’s sole determination, exercised in
good
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faith, may 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 Servicer’s 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 Majority 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 Majority Noteholders by 4:00 p.m. New
York City time. Following a Term Event, the failure of the Majority Noteholders to deliver a
Servicer Extension Notice by 5:00 p.m. New 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.
Section 9.02 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.
As compensation for making Servicing Advances, 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
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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 Servicer’s
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 Servicer’s
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 Servicer’s 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 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 Majority 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.
Section 9.03 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.
Section 9.04 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;
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(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 by
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.
ARTICLE X
TERMINATION; PUT OPTION
Section 10.01 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
Initial Noteholder, 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.
Section 10.02 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 by purchasing all of the Loans at a purchase price, payable in
cash, equal to or greater than the Termination Price. The Servicer shall effect such early
termination by providing notice thereof to the Indenture Trustee and Owner Trustee not later than
the time of payment of the purchase 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.
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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 Servicer, as
purchaser thereof.
Section 10.03 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.
Section 10.04 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
Section 11.01 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.
Section 11.02 Amendment.
(a) 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
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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 affected thereby, (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 affected thereby, 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.
(b) 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
Issuer’s own rights, duties or immunities of the Issuer or the Indenture Trustee, as the case may
be, under this Agreement.
Section 11.03 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.
Section 11.04 Duration of Agreement.
This Agreement shall continue in existence and effect until terminated as herein provided.
Section 11.05 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 OBLIGATIONS LAW BUT OTHERWISE WITHOUT GIVING
EFFECT TO PRINCIPLES OF CONFLICTS OF LAW). With respect to all legal proceedings arising out of or
relating to this Agreement or the transactions contemplated hereby, each party irrevocably submits
to the non-exclusive jurisdiction of the courts of the State of New York and the United States
District
73
Court located in the Borough of Manhattan, City of New York, and each party irrevocably waives
any objection which it may have at any time to the laying of venue of any suit, action or
proceeding arising out of or relating hereto brought in any such court, irrevocably waives any
claim that any such suit, action or proceeding brought in any such court has been brought in any
inconvenient forum and further irrevocably waives the right to object, with respect to such claim,
suit, action or proceeding brought in any such court, that such court does not have jurisdiction
over such party, provided that service of process is made by any lawful means. Nothing in this
Section 11.05 shall affect the right of any party hereto or its assignees, or of any Noteholder or
its assignees, to bring any other action or proceeding against any party hereto or its property in
the courts of other jurisdictions.
Section 11.06 Notices.
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 2002-3, 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, (A) if to Option One, to Option One Mortgage
Corporation, 3 Ada, Irvine, California 92618, Attention: Matthew Engel, telecopy number: (949)
(866)715-8329 telephone number: (949) 790-8128 or (B) if to Option One Capital, to Option One
Mortgage Capital Corporation, 3 Ada Road, Irvine, California 92618, Attention: Chief Financial
Officer, telecopy number: (866)715-8329, telephone number: (949) 790-8128 or, in either case, to
such other addresses or telecopy or telephone numbers as may hereafter be furnished to the
Securityholders and the other parties hereto in writing by Option One or Option One Capital;
(IV) in the case of the Servicer, to Option One Mortgage Corporation 3 Ada, Irvine, California
92618, Attention: Matthew Engel, telecopy number: (866)715-8329, telephone number: (949)
790-8128 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, to Wells Fargo Bank, N.A., 9062 Old Annapolis Road,
Columbia, Maryland 21045, Attention: Corporate Trust Services — Option One Owner Trust 2002-3, with
a copy to it at the Corporate Trust Office, as defined in the Indenture, any
74
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; provided, that notices to the
Securityholders shall be effective upon mailing or personal delivery.
Section 11.07 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.
Section 11.08 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.
Section 11.09 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.
Section 11.10 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.
Section 11.11 Headings.
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.
Section 11.12 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.
75
(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.
Section 11.13 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 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.
Section 11.14 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 of the
Notes or the Certificates, as applicable.
Section 11.15 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
76
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 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 Noteholders’s activities
pursuant to this Section 11.15 hereof (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. Without limiting
the foregoing, non-public information shall not include information which (i) is or becomes
generally available to the public other than as a result of a disclosure; (ii) was available to the
Majority Noteholders on a non-confidential basis prior to its disclosure to such Majority
Noteholders 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 the Majority Noteholders on a non-confidential basis from a Person other than
the Servicer or the Loan Originator who, to the best knowledge of such Majority Noteholders, 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 Majority Noteholders.
77
Section 11.16 No Reliance.
Each of the Loan Originator, the Depositor, the Servicer and the Issuer hereby acknowledges
that it has not relied on the Initial Noteholder, 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 Initial Noteholder 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.
Section 11.17 Confidential Information.
In addition to the confidentiality requirements set forth in Section 11.15 of this 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 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.
78
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. Without limiting the generality of the foregoing, the parties acknowledge and
agree that this Agreement and other Basic Documents (other than the Pricing Letter) will be filed
with the Securities and Exchange Commission as exhibits to filings of the Loan Originator’s parent
corporation under the Securities Exchange Act of 1934.
Section 11.18 Conflicts.
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.
Section 11.19 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 2002-3, 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 Agreement or any other related documents.
Section 11.20 No Agency.
Nothing contained herein or in the Basic Documents shall be construed to create an agency or
fiduciary relationship between the Initial Noteholder, 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 Initial Noteholder, 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 3.07 hereof, any Loan
79
Originator Put or Servicer Call pursuant to Section 3.08 hereof nor any Whole Loan Sale
pursuant to Section 3.07 hereof.
(SIGNATURE PAGE FOLLOWS)
80
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 SECOND AMENDED AND RESTATED SALE
AND SERVICING AGREEMENT.
| OPTION ONE OWNER TRUST 2002-3, | ||||||
| By: | Wilmington Trust Company, | |||||
| not in its individual capacity | ||||||
| but solely as Owner Trustee | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
| OPTION ONE LOAN WAREHOUSE CORPORATION, as Depositor |
||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
| OPTION ONE MORTGAGE CORPORATION, as Loan Originator and Servicer |
||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
| WELLS FARGO BANK, NA, as Indenture Trustee |
||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
81
Exhibit 10.7
EXECUTION COPY
SECOND AMENDED AND RESTATED
NOTE PURCHASE AGREEMENT
NOTE PURCHASE AGREEMENT
among
OPTION ONE OWNER TRUST 2002-3
as Issuer,
as Issuer,
OPTION ONE LOAN WAREHOUSE CORPORATION
as Depositor
as Depositor
and
UBS REAL ESTATE SECURITIES INC.
as Purchaser
as Purchaser
Dated as of January 19, 2007
OPTION ONE OWNER TRUST 2002-3
MORTGAGE-BACKED NOTES
MORTGAGE-BACKED NOTES
TABLE OF CONTENTS
| Page | ||||||||||
| ARTICLE I | DEFINITIONS | 1 | ||||||||
| SECTION 1.01 | Certain Defined Terms | 1 | ||||||||
| SECTION 1.02 | Other Definitional Provisions | 2 | ||||||||
| ARTICLE II | COMMITMENT; CLOSING AND PURCHASES OF ADDITIONAL NOTE PRINCIPAL BALANCES | 3 | ||||||||
| SECTION 2.01 | Commitment | 3 | ||||||||
| SECTION 2.02 | Closing | 3 | ||||||||
| ARTICLE III | TRANSFER DATES | 3 | ||||||||
| SECTION 3.01 | Transfer Dates | 3 | ||||||||
| SECTION 3.02 | Limitation on Purchases; Illegality | 5 | ||||||||
| ARTICLE IV | CONDITIONS PRECEDENT TO EFFECTIVENESS OF COMMITMENT | 6 | ||||||||
| SECTION 4.01 | Subject to Conditions Precedent | 6 | ||||||||
| ARTICLE V | REPRESENTATIONS AND WARRANTIES OF THE ISSUER AND THE DEPOSITOR | 8 | ||||||||
| SECTION 5.01 | Issuer | 8 | ||||||||
| SECTION 5.02 | Securities Act | 12 | ||||||||
| SECTION 5.03 | No Fee | 12 | ||||||||
| SECTION 5.04 | Information | 12 | ||||||||
| SECTION 5.05 | The Purchased Notes | 12 | ||||||||
| SECTION 5.06 | Use of Proceeds | 12 | ||||||||
| SECTION 5.07 | The Depositor | 12 | ||||||||
| SECTION 5.08 | Taxes, etc | 13 | ||||||||
| SECTION 5.09 | Financial Condition | 13 | ||||||||
| ARTICLE VI | REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE PURCHASER | 13 | ||||||||
| SECTION 6.01 | Organization | 13 | ||||||||
| SECTION 6.02 | Authority, etc | 13 | ||||||||
| SECTION 6.03 | Securities Act | 13 | ||||||||
| SECTION 6.04 | Conflicts With Law | 14 | ||||||||
| SECTION 6.05 | Conflicts With Agreements, etc | 14 | ||||||||
| ARTICLE VII | COVENANTS OF THE ISSUER AND THE DEPOSITOR | 14 | ||||||||
| SECTION 7.01 | Information from the Issuer | 14 | ||||||||
| SECTION 7.02 | Access to Information | 15 | ||||||||
| SECTION 7.03 | Ownership and Security Interests; Further Assurances | 15 | ||||||||
| SECTION 7.04 | Covenants | 15 | ||||||||
| SECTION 7.05 | Amendments | 15 | ||||||||
| SECTION 7.06 | With Respect to the Exempt Status of the Purchased Notes | 16 | ||||||||
i
TABLE OF
CONTENTS
| Page | ||||||||||
| SECTION 7.07 | Affirmative Covenants | 16 | ||||||||
| SECTION 7.08 | Negative Covenants | 19 | ||||||||
| ARTICLE VIII | ADDITIONAL COVENANTS | 20 | ||||||||
| SECTION 8.01 | Legal Conditions to Closing | 20 | ||||||||
| SECTION 8.02 | Expenses | 20 | ||||||||
| SECTION 8.03 | Mutual Obligations | 21 | ||||||||
| SECTION 8.04 | Restrictions on Transfer | 21 | ||||||||
| SECTION 8.05 | [Reserved] | 21 | ||||||||
| SECTION 8.06 | Information Provided by the Purchaser | 21 | ||||||||
| ARTICLE IX | INDEMNIFICATION | 21 | ||||||||
| SECTION 9.01 | Indemnification of the Purchaser | 21 | ||||||||
| SECTION 9.02 | Procedure and Defense | 21 | ||||||||
| ARTICLE X | MISCELLANEOUS | 22 | ||||||||
| SECTION 10.01 | Amendments | 22 | ||||||||
| SECTION 10.02 | Notices | 22 | ||||||||
| SECTION 10.03 | No Waiver; Remedies | 22 | ||||||||
| SECTION 10.04 | Binding Effect; Assignability | 23 | ||||||||
| SECTION 10.05 | Provision of Documents and Information | 23 | ||||||||
| SECTION 10.06 | GOVERNING LAW; JURISDICTION | 23 | ||||||||
| SECTION 10.07 | No Proceedings | 24 | ||||||||
| SECTION 10.08 | Execution in Counterparts | 24 | ||||||||
| SECTION 10.09 | No Recourse—Purchaser and Depositor | 24 | ||||||||
| SECTION 10.10 | Survival | 24 | ||||||||
| SECTION 10.11 | Waiver of Set-Off | 25 | ||||||||
| SECTION 10.12 | Tax Characterization | 25 | ||||||||
| SECTION 10.13 | Conflicts | 25 | ||||||||
| SECTION 10.14 | Service of Process | 25 | ||||||||
| SECTION 10.15 | [Reserved] | 25 | ||||||||
| SECTION 10.16 | Limitation on Liability | 25 | ||||||||
| SECTION 10.17 | Binding Effect; Third-Party Beneficiaries | 25 | ||||||||
| SECTION 10.18 | Merger and Integration | 26 | ||||||||
| SECTION 10.19 | No Petition | 26 | ||||||||
| SECTION 10.20 | Cooperation | 26 | ||||||||
| SECTION 10.21 | Time | 26 | ||||||||
| SECTION 10.22 | Headings | 26 | ||||||||
| SECTION 10.23 | Exhibits | 26 | ||||||||
| SECTION 10.24 | Counterparts | 26 | ||||||||
| Schedule I — | Information for Notices | |||||||||
ii
SECOND AMENDED AND RESTATED NOTE PURCHASE AGREEMENT
SECOND AMENDED AND RESTATED NOTE PURCHASE AGREEMENT, dated as of January 19, 2007 (the “Note
Purchase Agreement”), among OPTION ONE OWNER TRUST 2002-3 (the “Issuer”), OPTION ONE LOAN WAREHOUSE
CORPORATION (the “Depositor”), and UBS REAL ESTATE SECURITIES INC. (“UBS” and in its capacity as
the purchaser, 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 UBS Real Estate Securities Inc. and any of its officers,
directors, employees, agents, representatives, assignees and Affiliates and any Person who controls
UBS Real Estate Securities Inc. or their 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 January 19, 2007, 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(k).
“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 and
Option One Mortgage Capital Corporation, a Delaware corporation, or either of them.
“Maximum Note Principal Balance” has the meaning set forth in the Pricing Letter.
“Pricing Letter” means the pricing letter among the Issuer, the Depositor, UBS Real
Estate Securities Inc., Option One and the Indenture Trustee, dated the date hereof and any
amendments thereto.
“Purchased Notes” means the Option One Owner Trust 2002-3 Mortgage-Backed Notes issued
by the Issuer pursuant to the Indenture.
“Purchaser” means UBS and its permitted successors and assigns.
“Sale and Servicing Agreement” means the Second Amended and Restated Sale and
Servicing Agreement dated as of January 19, 2007, among the Issuer, the Depositor, the Loan
Originators, 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 references to Sections, subsections and
schedules in or to this Note Purchase Agreement unless otherwise specified.
2
ARTICLE II
COMMITMENT; CLOSING AND PURCHASES OF
ADDITIONAL NOTE PRINCIPAL BALANCES
ADDITIONAL NOTE PRINCIPAL BALANCES
SECTION 2.01 Commitment.
(a) At any time during the Revolving Period at least two Business Days prior to a proposed
Transfer Date in the case of a Loan that is not a Wet Funded Loan, or by 11:00 AM, New York City
time on a proposed Transfer Date, 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.
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 Manatt,
Phelps & Phillips LLP, Costa Mesa, California on January 19, 2007, 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;
(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);
3
(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 and the Loan Purchase 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” as defined in or in violation of any applicable statutes,
regulations, ordinances or in any other way that would be otherwise actionable by the Borrower or
any Governmental Authority;
(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
Purchaser’s sole discretion, that both the Loans and the origination, servicing and business
practices of the Loan Originator are reasonably acceptable to the Purchaser;
(viii) The Purchaser shall have received, in form and substance reasonably satisfactory to the
Purchaser, an Officer’s Certificate from the Loan Originator, dated the Closing Date, certifying to
the satisfaction of the conditions set forth in the preceding paragraphs (i), (ii), (iii), (iv) and
(vi);
(ix) All information provided by the Issuer to the Purchaser concerning each of the Loans to
be Pledged on such Transfer Date or date of substitution shall be true and correct in all material
respects as of such Transfer Date or date of substitution;
(x) All corporate and legal proceedings and all instruments in connection with such Transfer
Date or date of substitution, or otherwise in connection with this Agreement and the transactions
contemplated hereby, shall be reasonably satisfactory in form and substance to the Purchaser, and
the Purchaser shall have received from the Issuer copies of all documents (including records of
corporate proceedings) relevant to the transactions herein contemplated as the Purchaser may
reasonably have requested. Such documents shall include, in addition to the documents listed in
Section 4.01, a certificate of the Secretary or Assistant Secretary of the Issuer certifying the
names and signatures of the officers authorized on its behalf to execute this Agreement and any
other documents to be delivered by it hereunder on such Transfer Date or date of substitution; and
(xi) The Purchaser shall have received the most recent available standard servicing or loan
reports in summary form, if any, with respect to all of the Pledged Loans.
(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
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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
Purchaser’s 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 Purchaser’s records shall be binding
upon the parties hereto, notwithstanding any notation or record made or kept by any other party
hereto.
(d) The Purchaser shall determine in its reasonable discretion whether each of the above
conditions have been met in accordance with the Sale and Servicing Agreement and its determination
shall be binding on the parties hereto.
SECTION 3.02 Limitation on Purchases; Illegality. Anything to the contrary
notwithstanding, if, on or prior to the determination of any One-Month LIBOR:
(a) The Purchaser determines, which determination shall be conclusive, that quotations of
interest rates for the relevant deposits referred to in the definition of “One-Month LIBOR” in
Section 1.01 of the Sale and Servicing Agreement are not being provided in the relevant amounts or
for the relevant maturities for purposes of determining rates of interest for the Purchased Notes
as provided herein; or
(b) The Purchaser determines, which determination shall be conclusive (and based on such
information as Majority Noteholders shall have given to the Purchaser), that the relevant rate of
interest referred to in the definition of “One-Month LIBOR” in Section 1.01 of the Sale and
Servicing Agreement upon the basis of which the rate of interest for the Purchased Notes is to be
determined is not adequate to cover the cost to the Majority Noteholders of making or maintaining
Loans; or
(c) It becomes unlawful for the Purchaser to honor its obligation to purchase Notes hereunder
or for any Noteholder to maintain its investment in Notes issued hereunder, in each case, using
One-Month LIBOR;
then the Purchaser shall give the Issuer prompt notice thereof and at the Issuer’s option, upon
notice to the Purchaser, the Issuer may either immediately prepay all the Purchased Notes
outstanding and terminate this Note Purchase Agreement or pay interest on the Purchased Notes at a
rate per annum equal to the Federal Funds Rate plus 2.00%.
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ARTICLE IV
CONDITIONS PRECEDENT TO
EFFECTIVENESS OF COMMITMENT
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) Officer’s Certificate. The Purchaser shall have received, in form and substance
reasonably satisfactory to the Purchaser, an Officer’s 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 Issuer’s and the
Depositor’s 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.
(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 Originator’s ownership interest in
6
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 Depositor’s 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 Issuer’s 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 reasonably 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) Due Diligence. The Purchaser shall have completed its due diligence review with
respect to the Loans, as provided for in Section 11.15 of the Sale and Servicing Agreement.
(j) 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.
(k) 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.
(l) 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.
(m) Fees and Expenses. The fees and expenses payable by the Issuer and the Depositor
pursuant to Section 8.02(b) hereof shall have been paid.
(n) 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.
(o) 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.
(p) 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.
7
(q) Trust Accounts Control Agreements. The Purchaser shall have received control
agreements relating to the Trust Accounts reasonably satisfactory to the Purchaser.
(r) Underwriting Guidelines. The Purchaser shall have received a copy of the current
Underwriting Guidelines.
(s) Fees. The Loan Originator shall have paid all fees, costs and expenses of the
Purchaser required, by the terms of the Basic Documents, 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 Note Purchase 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
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 and on
each date on which any Collateral is released to it or substituted by it:
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 Note Purchase Agreement or any other Basic 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 Note Purchase Agreement or any other Basic Document,
(d) the Indenture Trustee’s 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 Issuer’s obligations under 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
8
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 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.
(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
9
adversely determined, could, individually or in the aggregate, be expected to have a Material
Adverse Effect.
(i) Neither this Note Purchase 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 Note Purchase 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 2002-3,
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.
(p) No Default or Event of Default exists.
(q) The Issuer holds good and indefeasible title to, and is the sole owner of, all right,
title and interest in and to the Collateral (including any and all Loans and the related Other
Assets given as security for any of the Issuer’s obligations hereunder), free and clear of all
Liens, participations and rights of others (except for the Lien created by this Agreement), and on
each date this representation is made, the Purchaser has a first priority Lien with respect to the
Collateral and no further action in the nature of delivery of possession or filing, including any
filing of any
10
document (other than the filing of a UCC-1 financing statement with the Secretary of the State
of California naming the Issuer as “debtor” and the Purchaser as “secured party” and describing the
Collateral as the “collateral” therein, but only if such filing has not previously been made), is
required to establish and (insofar as a security interest may be perfected by filing or possession)
perfect the Lien with respect to the Collateral in favor of the Purchaser against all third parties
in any jurisdiction.
(r) The Issuer’s Chief Executive Office is located at 3 Ada, Irvine, CA 92618. The Custodial
Loan Files concerning the Loans are held in the offices of the Custodian under the Custodial
Agreement in the State of California.
(s) The Issuer’s’s federal taxpayer identification number is 3543125.
(t) There are no delinquent federal, state, city, county, or other taxes relating to any of
the Issuer, the Depositor, any other transferor of loans to the Issuer, or the Loan Originator
except those taxes (i) that are being contested by such Person in good faith, (ii) that are not
material in amount, (iii) with respect to which payment has been stayed by a court of competent
jurisdiction, (iv) that relate to a Mortgage Property, or (v) that would not have a Material
Adverse Effect.
(u) The transactions contemplated by this Agreement are in the ordinary course of business of
the Issuer. The Issuer will engage in each acquisition of Loans under the Sale and Servicing
Agreement or pursuant to the Disposition Agreement as a principal and not as an agent.
(v) The Issuer 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. The Issuer will not be rendered
insolvent by the execution and delivery of this Agreement or the performance of its obligations
hereunder. No petition of bankruptcy (or similar insolvency proceeding) has been filed by or
against the Issuer.
(w) In incurring any obligation or making any “transfer” (as defined in Section 101 of the
Bankruptcy Code) of property or any interest therein pursuant to this Agreement (whether in
connection with a purchase of Notes hereunder or otherwise), the Issuer does not intend to hinder,
delay or defraud any Person to which the Issuer is or will become, on or after the date on which
such obligation is incurred or such transfer is made, indebted.
(x) With respect to any obligation incurred by the Issuer or any “transfer” (as defined in
Section 101 of the Bankruptcy Code) of property or any interest therein made by the Issuer pursuant
to this Agreement (whether in connection with a purchase of Notes hereunder or otherwise), (i) the
Issuer has received “reasonably equivalent value” within the meaning of Section 548(a)(1)(B)(i) of
the Bankruptcy Code for such obligation or transfer, (ii) the Issuer is not and will not become
“insolvent” within the meaning of Section 101(32) of the Bankruptcy Code at the time of or as a
result of incurring such obligation or making such transfer, (iii) the Issuer is not engaged in,
and is not about to engage in, any business or transaction for which the any property remaining
with the Issuer constitutes “unreasonably small capital” within the meaning of Section
548(a)(1)(B)(ii)(II) of the Bankruptcy Code, and (iv) the Issuer does not intend to incur, and does
not believe that it will incur, “debts” within the meaning of Section 101(12) of the Bankruptcy
Code that would be beyond the Issuer’s ability to pay as such debts matured.
11
(y) With respect to any “transfer” (as defined in Section 101 of the Bankruptcy Code) of
property or any interest therein made by the Issuer pursuant to this Agreement (including the
Issuer’s Grant to the Purchaser of a Lien with respect to Loans in exchange for a purchase of Notes
hereunder from the Issuer to finance its purchase of such Loans), such transfer is intended as a
“contemporaneous exchange for new value” given to the Issuer within the meaning of Section
547(c)(1) of the Bankruptcy Code.
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 Note Purchase
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, any Affiliates of 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 the
Issuer 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 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
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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
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
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 to enforcement of 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 Purchaser’s organizational documents or any Governmental Rule applicable
to the Purchaser.
SECTION 6.03 Securities Act. The Purchaser hereby represents and warrants to the
Issuer and the Depositor as of the date of this Note Purchase 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.
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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 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 Purchaser’s
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;
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(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;
(c) as soon as possible and in any event within one (1) Business Day 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 not later than the effective time 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 Issuer’s 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 Trustee’s 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 a party.
SECTION 7.05 Amendments. Neither the Issuer nor the Depositor shall make, nor 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.
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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 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.
SECTION 7.07 Affirmative Covenants
Until (i) the Revolving Period has ended, (ii) all Obligations have been paid in full and
(iii) all other obligations of the Issuer under the Basic Documents have been performed in full,
the Issuer and the Depositor, each covenants and agrees that it will do all of the following:
(a) Continue to engage in the business now conducted by it and preserve and maintain in full
force and effect its existence and all permits, licenses, approvals, consents, rights, privileges,
and franchises necessary or desirable in the conduct or transaction of its business or the
ownership of its properties.
(b) Pay and discharge, or cause the Servicer to pay and discharge, all taxes, levies, liens,
and other charges on its assets and on the Collateral that, in each case, in any manner would
create any lien or charge upon the Collateral.
(c) Comply in all material respects with all laws, ordinances, rules, and regulations of any
federal, state, municipal, or other public authority having jurisdiction over the Issuer or any of
its assets.
(d) Advise the Purchaser in writing at least thirty (30) days prior to the opening of any new
chief executive office or the closing of any such office and of any change in the Issuer’s name or
the places where the books and records pertaining to the Collateral are kept.
(e) Maintain records with respect to the Collateral and the conduct and operation of its
business in conformity with general standards in the subprime mortgage loan servicing industry and
with no less a degree of prudence than if the Collateral were held by the Issuer for its
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own account, and furnish the Purchaser, upon reasonable request by the Purchaser, with
information with respect to the Collateral.
(f) Provide, or cause the Servicer to provide, to the Purchaser a magnetic tape, floppy disk
or electronic transmission, as the Purchaser shall elect from time to time, containing the
Servicer’s standard monthly remittance report, which report shall be in substantially the form
required under the Sale and Servicing Agreement .
(g) Pay, discharge, or otherwise satisfy before they become delinquent all material
obligations of whatever nature, except when (i) the failure to pay, discharge or satisfy such
obligations before they become delinquent is consistent with Accepted Servicing Practices or (ii)
the amount or validity thereof is currently being contested in good faith by appropriate
proceedings and the Issuer has established adequate reserves with respect thereto and no liens have
attached to any portion of the Collateral.
(h) Promptly, and in any event within one Business Day of the occurrence thereof, notify the
Purchaser in writing of (i) the occurrence of any event of default by any Person under any
indenture, mortgage, deed of trust, agreement, or other instrument or contractual obligation to
which the Issuer or any Affiliate of the Issuer is a party or by which its properties may be bound
or affected, if such occurrence could reasonably be expected to have a Material Adverse Effect, or
(ii) the occurrence of any Default or Event of Default.
(i) At all times be wholly-owned (i) directly, by the Depositor, and (ii) indirectly, by the
Loan Originator.
(j) Cause the Loans to be serviced and administered by the Servicer (including any
Subservicers) in substantial compliance with Accepted Servicing Practices and, at all times,
enforce the obligations of the Servicer (including any Subservicers) under the Sale and Servicing
Agreement.
(k) Cause each of its agents (including the Servicer) to agree to hold in trust and to
deposit, in accordance with its normal and customary practices and procedures, all Collections
received from time to time in respect of the Pledged Loans (net of Servicing Fees and ancillary
amounts that are payable to the Servicer under the Sale and Servicing Agreement) to the Collection
Account maintained pursuant to the Facility Administration Agreement or to such other account or
accounts as may be specified and maintained by the Purchaser or its designee from time to time.
(l) Comply in all material respects with the terms of both the Custodial Agreement and the
Indenture.
(m) Except as otherwise permitted in the Sale and Servicing Agreement, agree to any material
modification of any Loan only with the prior written consent of the Purchaser.
(n) Deliver all Custodial Loan Files to the Custodian as provided in the Custodial Agreement.
(o) Cause each service provider engaged by the Issuer that is an Affiliate of the Issuer to
agree and covenant that such service provider shall not, prior to a date which is one year
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and one day after the payment in full of all Obligations (i) petition or otherwise invoke,
directly or indirectly, the process of any Governmental Authority for the purpose of (A) commencing
or sustaining a case against the Issuer under any federal or state bankruptcy, insolvency or
similar law or (B) appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or
other similar official of the Issuer or any substantial part of its property or (C) ordering the
winding up or liquidation of the affairs of the Issuer, or (ii) acquiesce to any of the foregoing.
(p) Use the funds derived from issuing and selling the Notes solely to purchase Loans and
other Collateral from the Depositor (or any other transferor).
(q) Permit representatives of the Purchaser, at the Purchaser’s expense (except as otherwise
provided herein with respect to any due diligence activities undertaken by or for the Purchaser) at
any reasonable time prior to the occurrence of an Event of Default and at the Issuer’s expense at
any time thereafter, to (i) visit and inspect any of the Issuer’s properties and examine and make
copies of or abstracts from any of its books and records in any way relating to the Collateral or
to the Issuer’s compliance with the provisions of this Agreement or any other Basic Document at any
reasonable time and as often as may reasonably be desired by the Purchaser (but, prior to the
occurrence of any Default or Event of Default, only upon not less than five Business Days’ prior
notice), and (ii) discuss the business, operations, properties, assets and financial and other
condition of the Issuer with the Issuer’s officers and employees of the Issuer and with its
independent certified public accountants (it being agreed that the Issuer shall cause such
officers, employees and accountants to be available for such purposes and to cooperate fully with
such representatives); provided, however, that the results of any such visit, inspection,
examination, discussion or audit, to the extent such results are proprietary and non-public, shall
be kept confidential by the Purchaser and its Affiliates except (x) as may be required by law or
regulation or by any governmental agency or regulatory body having authority over the Purchaser or
its Affiliates, (y) to the extent that such information may be communicated to the legal counsel,
auditors and other advisers of the Purchaser or its Affiliates, and (z) in connection with any
legal or other proceedings for the enforcement of any right, remedy, power or privilege of the
Purchaser under any Basic Document or for the protection of the Purchaser’s interests thereunder.
(r) Promptly give the Purchaser written notice upon becoming aware that the Issuer is not in
compliance in all material respects with ERISA or that any Lien exists on any of the Pledged Loans
under ERISA.
(s) Keep proper books of record and account in which full, true and correct entries in
conformity with GAAP and all requirements of law shall be made of all dealings and transactions in
relation to its business and activities.
(t) Supply the Purchaser with bring-down good standing certificates, legal opinions, officer’s
certificates and similar such items, promptly upon the Purchaser’s reasonable request. The
Purchaser will not, however, request such items more frequently than once in any period of 90
consecutive days unless either a Default or an Event of Default shall have occurred and be
continuing.
(u) Within ten (10) days of the initial Transfer Date, file all material instruments and
documents (including UCC-1 financing statements and continuation statements) required to be
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filed to create in favor of the Purchaser a perfected Lien with respect to the Collateral
shall have been duly prepared (and, if applicable executed or acknowledged) by the Issuer and
delivered to the Purchaser in the proper form for filing in each office in each relevant
jurisdiction.
SECTION 7.08 Negative Covenants.
Until (i) the Revolving Period has ended, (ii) all Obligations have been paid in full and
(iii) all other obligations of the Issuer under the Basic Documents have been performed in full,
the Issuer covenants and agrees that it will not:
(a) Create, incur, assume, or suffer to exist, any Lien with respect to any of the Collateral
whether now owned or existing or hereafter acquired or arising, other than liens in favor of the
Indenture Trustee, or permit any financing statement (except any financing statements in favor of
the Indenture Trustee) or assignment (except for any assignments in favor of the Purchaser) to be
on file in any public office with respect thereto.
(b) Sell, lease, license, transfer, assign, convey, dispose of, alienate, terminate or
relinquish any of the Issuer’s right, title or interest in or to the Collateral, except as
specifically provided herein.
(c) Either (i) merge with or into or consolidate with any other Person, regardless of whether
the Issuer is the surviving entity in such merger or consolidation, or transfer all or
substantially all of its assets to any other Person to accomplish a similar purpose, or (ii) wind
up, liquidate, or dissolve, or (iii) agree to do any of the foregoing.
(d) Without obtaining the prior written approval of the Purchaser in each case, either (i)
amend, supplement or otherwise modify (or agree to amend, supplement or otherwise modify) the
Issuer’s charter, bylaws or other organizational documents (unless such amendment, supplement or
other modification cannot reasonably be expected to have a Material Adverse Effect) or (ii) amend,
supplement or otherwise modify (or agree to amend, supplement or otherwise modify, or, to the
extent its consent is required therefor, consent to any amendment or supplement to or modification
of) the Sale and Servicing Agreement or any other Basic Document, or any other document, instrument
or agreement in any way relating to the transactions contemplated hereunder or thereunder.
(e) Change its name, chief executive office, or location where its books and records are kept
with respect to the Collateral, on less than thirty (30) days’ prior written notice to the
Purchaser; or., except with the Purchaser’s prior written consent, change its structure or
ownership.
(f) Prior to pledging the affected Loans hereunder, approve any proposed amendments,
supplements or other modifications to the Underwriting Standards that are material in nature
without first providing the Purchaser with a copy of such proposed modifications; provided
that if, within 15 Business Days after receipt of a copy thereof, the Purchaser informs the
Issuer that it disapproves of one or more of such proposed modifications, “Underwriting Standards”
shall mean, for purposes of this Agreement and the other Basic Documents, the Underwriting
Standards previously in effect, modified only to the extent of such modifications as have not been
disapproved by the Purchaser.
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(g) Use the proceeds of the purchase of Notes made pursuant to this Agreement, directly or
indirectly, for the purpose of purchasing or carrying any margin stock or for the purpose of
reducing or retiring any debt which was originally incurred to purchase or carry margin stock or
for any other purpose which might constitute the Advances under this Agreement as being “purpose
credit” within the meaning of Regulation G, T, U or X of the Board of Governors of the Federal
Reserve System.
(h) Incur or otherwise become liable for any debt obligation for money borrowed (other than
debt arising under this Agreement), or for any other (i.e., debt arising for reasons other than
money borrowed) material debt obligations other than amounts owed to the Depositor (or any other
transferor of loans to the Issuer) in consideration of assets purchased by the Issuer under the
Sale and Servicing Agreement or pursuant to the Disposition Agreement), without first obtaining the
specific written consent of the Purchaser (which consent may be given or withheld in the
Purchaser’s sole discretion).
(i) Attempt to assign this Agreement or any rights hereunder without first obtaining the
specific written consent of the Purchaser (which consent may be given or withheld in the
Purchaser’s sole discretion).
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, subject to the applicable limit on Due Diligence Fees 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, including, but not limited to, legal fees for the
protection of the Purchaser’s interests, and (iii) all reasonable fees and expenses of the
Custodian and its counsel.
(c) The Issuer’s and Depositor’s obligations under this Section 8.02 shall survive the
termination of this Agreement.
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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 any other party hereto may from
time to time reasonably require in order to carry out the intent of this Note Purchase Agreement.
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 will resell the
Purchased Notes only in compliance with such restrictions.
SECTION 8.05 [Reserved].
SECTION 8.06 Information Provided by the Purchaser. The Purchaser 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 Purchaser shall cause the Market Value Agent to give notice
to the Indenture Trustee, the Issuer and the Depositor of any Hedge Funding Requirement (if any) on
or before the Determination Date related to any Payment Date. In addition, on each Determination
Date, the Purchaser 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 the 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 Party’s
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
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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 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
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any single or partial exercise of any right hereunder preclude any other or further 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 Purchaser’s 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 Purchaser’s 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 7.02
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 TO THIS NOTE PURCHASE AGREEMENT
HEREBY WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS AND ANY OBJECTION TO VENUE OF ANY ACTION
INSTITUTED HEREUNDER IN ANY OF THE AFOREMENTIONED COURTS AND CONSENTS TO
23
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 the Purchaser, or join in any institution against the Issuer or the Depositor or the
Purchaser 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 Depositor 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 Note Purchase 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 and the termination of this Note Purchase Agreement.
24
SECTION 10.11 Waiver of Set-Off. All payments due to Noteholders hereunder and under
any of the Basic Documents, including without limitation all payments on account of principal,
interest and fees, if any, shall be made to the Noteholders, without set-off, recoupment or
counterclaim, and each of the Depositor and the Issuer hereby waive any and all right of set-off,
recoupment or counterclaim hereunder or under any of the Basic Documents.
SECTION 10.12 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 10.13 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 10.14 Service of Process. Each of the Depositor and the Issuer agrees that
until such time as the Purchased Notes have been paid in full, each such party shall have appointed
an agent registered with the Secretary of State of the State of New York, with an office in the
County of New York in the State of New York, as its true and lawful attorney and duly authorized
agent for acceptance of service of legal process. Each of the Depositor and the Issuer agrees that
service of such process upon such person shall constitute personal service of such process upon it.
SECTION 10.15 [Reserved].
SECTION 10.16 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
2002-3, 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.
SECTION 10.17 Binding Effect; Third-Party Beneficiaries. This Agreement shall inure
to the benefit of and be binding upon the parties hereto and their respective successors and
permitted assigns. Each of the Noteholders other than the Purchaser shall be deemed to be an
25
express third-party beneficiary of this Agreement and shall be entitled to enforce the terms
hereof as if it were a party hereto.
SECTION 10.18 Merger and Integration. This Agreement and the other Basic Documents
set forth the entire understanding of the parties relating to the subject matter hereof, and all
prior understandings, written or oral, are superseded by this Agreement and the other Basic
Documents.
SECTION 10.19 No Petition. Neither the Issuer nor the Purchaser shall petition or
otherwise invoke the process of any court or government authority for the purpose of commencing or
sustaining a case against the Issuer or the Purchaser 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 the Purchaser or any substantial part of
their respective property, or ordering the winding up or liquidation of the affairs of the Issuer
or the Purchaser.
SECTION 10.20 Cooperation. The Issuer agrees to cooperate and to cause its Affiliates
(including the Servicer) to cooperate with the Purchaser, consistent with the terms hereof, to the
extent necessary or appropriate to effectuate any sale or financing of any of the Purchased Notes
by the Purchaser, including by making available or providing access (as appropriate) to the
Purchaser or its designee the Custodial Loan Files and Servicing Records relating to the Mortgage
Loans (subject to the confidentiality requirements of any applicable consumer protection and other
laws or regulations).
SECTION 10.21 Time. Unless the context clearly requires otherwise, all references to
time contained in this Agreement shall be deemed to be local time in New York City on the
applicable day.
SECTION 10.22 Headings. The headings and captions contained herein are for
convenience only and shall not control or affect the meaning or interpretation of any provision
hereof.
SECTION 10.23 Exhibits. The schedules and exhibits referred to herein shall
constitute a part of this Agreement and are incorporated into this Agreement for all purposes.
SECTION 10.24 Counterparts. This Agreement may be executed in two or more
counterparts, including telecopy transmission thereof (and by different parties on separate
counterparts), each of which shall be an original, but all of which together shall constitute one
and the same instrument. Signatures may be exchanged by facsimile, and each party hereto agrees to
be bound by its own facsimile signature and to accept the facsimile signature of the other party.
[Remainder of page intentionally left blank.]
26
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.
| OPTION ONE OWNER TRUST 2002-3 | ||||
| By: | ||||
| Wilmington Trust Company, not in | ||||
| its individual capacity but solely as owner | ||||
| trustee | ||||
| By: | ||||
| Name: | ||||
| Title: |
| OPTION ONE LOAN WAREHOUSE | ||||
| CORPORATION | ||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| UBS REAL ESTATE SECURITIES INC., | ||||
| as Purchaser | ||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| By: | ||||
| Name: | ||||
| Title: | ||||
27
Schedule I
Information for Notices
Information for Notices
1.
|
if to the Issuer: | |
| Option One Owner Trust 2002-3 | ||
| 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: Matthew Engel | ||
| Telecopy number: (866)715-8329 | ||
| Telephone number: (949) 790-8128 | ||
2.
|
if to the Depositor: | |
| Option One Loan Warehouse Corporation | ||
| 3 Ada Road | ||
| Irvine, California 92618 | ||
| Attention: Matthew Engel | ||
| Telecopy number: (866)715-8329 | ||
| Telephone number: (949) 790-8128 | ||
3.
|
if to the Purchaser: | |
| UBS Real Estate Securities Inc. | ||
| 1251 Avenue of the Americas | ||
| New York, New York 10020 | ||
| Attention: Robert Carpenter | ||
| George A. Mangiaracina | ||
| Telephone: (212) 882-3749 | ||
| Facsimile: (212) 882-3597 |
Schedule I
| with a copy to: | ||
| UBS Investment Bank | ||
| Newport Office Center 7 (NOC 7) | ||
| 480 Washington Boulevard | ||
| Jersey City, NJ 07310 | ||
| Attention: Steven D’Orazio | ||
| Telephone: (201) 793-6819 | ||
| Facsimile: (201) 793-6833 |
Schedule I
Exhibit 10.8
EXECUTION COPY
INDENTURE
between
OPTION ONE OWNER TRUST 2002-3
as Issuer
as Issuer
and
WELLS FARGO BANK, N.A.
as Indenture Trustee
as Indenture Trustee
Dated as of January 19, 2007
OPTION ONE OWNER TRUST 2002-3
MORTGAGE-BACKED NOTES
MORTGAGE-BACKED NOTES
TABLE OF CONTENTS
| Page | ||||
ARTICLE I DEFINITIONS |
2 | |||
Section 1.01 Definitions |
2 | |||
Section 1.02 Rules of Construction |
8 | |||
ARTICLE II GENERAL PROVISIONS WITH RESPECT TO THE NOTES |
9 | |||
Section 2.01 Method of Issuance and Form of Notes |
9 | |||
Section 2.02 Execution, Authentication, Delivery and Dating |
9 | |||
Section 2.03 Registration; Registration of Transfer and Exchange |
10 | |||
Section 2.04 Mutilated, Destroyed, Lost or Stolen Notes |
11 | |||
Section 2.05 Persons Deemed Noteholders |
11 | |||
Section 2.06 Payment of Principal and/or Interest |
12 | |||
Section 2.07 Cancellation |
12 | |||
Section 2.08 Conditions Precedent to the Authentication of the Notes |
13 | |||
Section 2.09 Release of Collateral |
13 | |||
Section 2.10 Additional Note Principal Balance |
13 | |||
Section 2.11 Tax Treatment |
13 | |||
Section 2.12 Limitations on Transfer of the Notes |
14 | |||
ARTICLE III COVENANTS |
14 | |||
Section 3.01 Payment of Principal and/or Interest |
14 | |||
Section 3.02 Maintenance of Office or Agency |
15 | |||
Section 3.03 Money for Payments to Be Held in Trust |
15 | |||
Section 3.04 Existence |
16 | |||
Section 3.05 Protection of Collateral |
17 | |||
Section 3.06 Negative Covenants |
17 | |||
Section 3.07 Performance of Obligations; Servicing of Loans |
18 | |||
Section 3.08 Reserved |
20 | |||
Section 3.09 Annual Statement as to Compliance |
20 | |||
Section 3.10 Covenants of the Issuer |
20 | |||
Section 3.11 Servicer’s Obligations |
20 | |||
Section 3.12 Restricted Payments |
20 | |||
Section 3.13 Treatment of Notes as Debt for All Purposes |
20 | |||
Section 3.14 Notice of Default |
21 | |||
Section 3.15 Further Instruments and Acts |
21 | |||
ARTICLE IV SATISFACTION AND DISCHARGE |
21 | |||
Section 4.01 Satisfaction and Discharge of Indenture |
21 | |||
Section 4.02 Application of Trust Money |
22 | |||
Section 4.03 Repayment of Moneys Held by Paying Agent |
22 | |||
ARTICLE V REMEDIES |
23 | |||
Section 5.01 Events of Default |
23 | |||
-i-
TABLE OF CONTENTS
(continued)
(continued)
| Page | ||||
Section 5.02 Acceleration of Maturity; Rescission and Annulment |
26 | |||
Section 5.03 Collection of Indebtedness and Suits for Enforcement by Indenture Trustee |
27 | |||
Section 5.04 Remedies; Priorities |
29 | |||
Section 5.05 Optional Preservation of the Collateral |
30 | |||
Section 5.06 Limitation of Suits |
30 | |||
Section 5.07 Unconditional Rights of Noteholders to Receive Principal and/or Interest |
31 | |||
Section 5.08 Restoration of Rights and Remedies |
31 | |||
Section 5.09 Rights and Remedies Cumulative |
31 | |||
Section 5.10 Delay or Omission Not a Waiver |
32 | |||
Section 5.11 Control by Noteholders |
32 | |||
Section 5.12 Waiver of Past Defaults |
32 | |||
Section 5.13 Undertaking for Costs |
33 | |||
Section 5.14 Waiver of Stay or Extension Laws |
33 | |||
Section 5.15 Action on Notes |
33 | |||
Section 5.16 Performance and Enforcement of Certain Obligations |
33 | |||
ARTICLE VI THE INDENTURE TRUSTEE |
34 | |||
Section 6.01 Duties of Indenture Trustee |
34 | |||
Section 6.02 Rights of Indenture Trustee |
35 | |||
Section 6.03 Individual Rights of Indenture Trustee |
36 | |||
Section 6.04 Indenture Trustee’s Disclaimer |
36 | |||
Section 6.05 Notices of Default |
36 | |||
Section 6.06 Reports by Indenture Trustee to Holders |
36 | |||
Section 6.07 Compensation and Indemnity |
36 | |||
Section 6.08 Replacement of Indenture Trustee |
37 | |||
Section 6.09 Successor Indenture Trustee by Merger |
38 | |||
Section 6.10 Appointment of Co-Indenture Trustee or Separate Indenture Trustee |
38 | |||
Section 6.11 Eligibility |
40 | |||
ARTICLE VII NOTEHOLDERS’ LISTS AND REPORTS |
40 | |||
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 |
40 | |||
ARTICLE VIII ACCOUNTS, DISBURSEMENTS AND RELEASES |
41 | |||
Section 8.01 Collection of Money |
41 | |||
Section 8.02 Trust Accounts; Distributions |
41 | |||
Section 8.03 General Provisions Regarding Trust Accounts |
41 | |||
Section 8.04 The Paying Agent |
42 | |||
-ii-
TABLE OF CONTENTS
(continued)
(continued)
| Page | ||||
Section 8.05 Release of Collateral |
42 | |||
Section 8.06 Opinion of Counsel |
43 | |||
ARTICLE IX SUPPLEMENTAL INDENTURES |
43 | |||
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 |
45 | |||
Section 9.04 Effect of Supplemental Indentures |
45 | |||
Section 9.05 Reference in Notes to Supplemental Indentures |
45 | |||
ARTICLE X REDEMPTION OF NOTES; PUT OPTION |
46 | |||
Section 10.01 Redemption |
46 | |||
Section 10.02 Form of Redemption Notice |
46 | |||
Section 10.03 Notes Payable on Redemption Date |
46 | |||
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 |
47 | |||
Section 11.01 Compliance Certificates and Opinions, etc |
47 | |||
Section 11.02 Form of Documents Delivered to Indenture Trustee |
48 | |||
Section 11.03 Acts of Noteholders |
48 | |||
Section 11.04 Notices, etc., to Indenture Trustee and Issuer |
49 | |||
Section 11.05 Notices to Noteholders; Waiver |
49 | |||
Section 11.06 Effect of Headings and Table of Contents |
50 | |||
Section 11.07 Successors and Assigns |
50 | |||
Section 11.08 Separability |
50 | |||
Section 11.09 Benefits of Indenture |
50 | |||
Section 11.10 Legal Holidays |
50 | |||
Section 11.11 GOVERNING LAW |
50 | |||
Section 11.12 Counterparts |
51 | |||
Section 11.13 Recording of Indenture |
51 | |||
Section 11.14 Trust Obligation |
51 | |||
Section 11.15 No Petition |
51 | |||
Section 11.16 Inspection |
51 | |||
Section 11.17 Limitation on Liability |
52 | |||
-iii-
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 |
-iv-
INDENTURE
INDENTURE dated as of January 19, 2007 (the “Indenture”), between OPTION ONE OWNER TRUST
2002-3, a Delaware statutory trust, as Issuer (the “Issuer”), and WELLS FARGO BANK, N.A. (“Wells
Fargo”), 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 confirms that the Issuer has, as of
July 2, 2002, Granted to the Indenture Trustee, which Grant as of the Closing Date is agreed to be
in its capacity as Indenture Trustee hereunder for the benefit of the Noteholders, all of the
Issuer’s 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 Servicer’s 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, the Collection Account, the Advance 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) [reserved] (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 Issuer’s 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,
1
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.
“Act of Insolvency” shall mean, with respect to the Issuer, the Depositor, Option One
Mortgage Corporation, Option One Mortgage Capital Corporation or any other Affiliate of the Issuer,
(i) the commencement by such Person as debtor of any case or proceeding under any bankruptcy,
insolvency, reorganization, liquidation, moratorium, dissolution, delinquency or similar law, or
such Person seeking the appointment or election of a receiver, conservator, trustee, custodian or
similar official for such Person or any substantial part of its property, or the convening of any
meeting of creditors for purposes of commencing any such case or proceeding or seeking such an
appointment or election, (ii) the commencement of any such case or proceeding against such Person,
or the seeking by another person of any such appointment or election, which (A) is consented to or
not timely contested by such Person, or (B) results in the entry of an order for relief, such as an
appointment or election, the issuance of such a protective decree or the entry of an order having a
similar effect, or (C) is not dismissed within 60 days (unless such Person provides to the Initial
Noteholder evidence reasonably satisfactory to the Initial Noteholder that such case or proceeding
will be promptly dismissed), (iii) the making by such Person of a general assignment for the
benefit of creditors, (iv) the failure by such Person generally to pay its debts as they become due
or (v) the admission in writing by such Person of its inability to pay its debts as they become
due.
“Additional Note Principal Balance” has the meaning set forth in the Sale and
Servicing Agreement.
“Administration Agreement” means the Administration Agreement dated as of July 2,
2002, between the Issuer, and Option One, as the Administrator.
“Administrator” means Option One Mortgage Corporation, or any successor Administrator
under the Administration Agreement.
2
“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.
“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 Date” means January 19, 2007.
“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 2002-3, 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 2002-3, 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.
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“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.
“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.
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“Initial Noteholder” means UBS Real Estate Securities Inc. and its successors and
assigns.
“Issuer” means Option One Owner Trust 2002-3.
“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 each of Option One Mortgage Corporation, a California
corporation and Option One Mortgage Capital Corporation, a Delaware corporation.
“Material Adverse Effect” means any event or condition which would have a material
adverse effect on (i) the validity, enforceability, collectibility or value of any Collateral or of
any of the Basic Documents, (ii) the interest of the Noteholders or any of their assignees in such
Collateral or in any of the Basic Documents, (iii) the validity or enforceability of, or the
ability of the Issuer to perform its obligations under any of the Basic Documents or (iv) the
validity or enforceability of, or the ability of the Loan Originator, Servicer or Depositor to
perform its obligations under, the Basic Documents.
“Majority Certificateholders” has the meaning set forth in the Sale and Servicing
Agreement.
“Majority Noteholders” has the meaning set forth in the Sale and Servicing Agreement.
“Maturity Date” means, with respect to the Notes, January 18, 2008.
“Maximum Note Principal Balance” has the meaning set forth in the Pricing Letter.
“Note” means any Note authorized by and authenticated and delivered under this
Indenture.
“Note Interest Rate” has the meaning set forth in the Pricing Letter.
“Note Principal Balance” has the meaning set forth in the Sale and Servicing
Agreement. The Initial Noteholder’s records of the Note Principal Balance outstanding from time to
time shall be dispositive absent manifest error.
“Note Purchase Agreement” means the Second Amended and Restated Note Purchase
Agreement dated as of January 19, 2007, among the Issuer, UBS, as Note Purchaser, and Option One
Loan Warehouse Corporation, as Depositor.
“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.
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“Noteholder” means the Person in whose name a Note is registered on the Note Register.
“Officer’s 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 Officer’s Certificate
shall be to an Officer’s 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 Initial Noteholder.
“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 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.
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“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 Initial Noteholder 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.
“Pricing Letter” means the pricing letter, dated as of the date hereof, among the
Issuer, the Depositor, Option One, Option One Mortgage Capital Corporation and the Indenture
Trustee, and any amendments thereto.
“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 Second Amended and Restated Sale and
Servicing Agreement, dated as of January 19, 2007, among the Issuer, the Depositor, the Loan
Originator and the Servicer, and the Indenture Trustee on behalf of the Noteholders.
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“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 July 2, 2002, 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;
(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.
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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 2002-3
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 Initial Noteholder.
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
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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 Holder’s attorney
duly authorized in writing.
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 exchange
of Notes, other than exchanges pursuant to Section 9.05 hereof not involving any transfer.
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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.
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
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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 no less than five days preceding the related Record Date, and
otherwise by check mailed to the address of such Noteholder appearing in the Note Register. 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 redemption 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
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
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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; and
(c) An executed counterpart of each Basic Document.
Section 2.09 Release of Collateral. (a) Except as provided in (b) below, the
Indenture Trustee shall release the Collateral from the lien of this Indenture only upon receipt of
an Issuer Request accompanied by the written consent of the Majority Noteholders 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 6 of the Custodial Agreement upon compliance by the Servicer with the
provisions thereof; provided, however, that the Custodian’s records shall indicate the Issuer’s
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 Noteholder’s 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 Noteholder’s 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
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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 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 twenty
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
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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 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.
Each Paying Agent shall be appointed by the Majority Noteholders with written notice thereof
to the Indenture Trustee. The Majority Noteholders 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 on the written demand by the Majority Noteholders or the written
request of 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
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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 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
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respects with the covenants contained in the Trust Agreement, including without limitation,
the “special purpose entity” covenants 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 as may be requested
by the Majority Noteholders or determined to be appropriate by the Issuer, and will take such other
action necessary or advisable to:
(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 Majority 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
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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;
(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) 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), other than the lien
of this Indenture or (C) 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 Person’s 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)
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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 Officer’s 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 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 Initial Noteholder 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 Servicer’s 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 pursuant to the Sale and Servicing Agreement, 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) 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
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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, 2007), an Officer’s Certificate
stating, as to the Authorized Officer signing such Officer’s 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 Officer’s supervision; and
(ii) to the best of such Authorized Officer’s knowledge, based on such review, the
Issuer has materially complied with all conditions and covenants under this Indenture
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 Servicer’s 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 (a) the Owner Trustee, (b) any owner of a
beneficial interest in the Issuer or (c) another Person, (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 Collection Account, Advance Account or 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.
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Section 3.14 Notice of Default. The Issuer shall give the Indenture Trustee and the
Initial Noteholder prompt written notice of each 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.
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
| (1) | 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 | ||
| (2) | all Notes not theretofore delivered to the Indenture Trustee for cancellation |
| a. | shall have become due and payable, or | ||
| b. | are to be called for redemption within one year under arrangements satisfactory to the Initial Noteholder for the giving of notice of redemption |
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| by the Indenture Trustee in the name, and at the expense, of the Issuer, | |||
| c. | 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 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 and the Initial
Noteholder an Officer’s 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 and not applied to the payment of the Notes at the time of such satisfaction and
discharge 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.
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ARTICLE V
REMEDIES
Section 5.01 Events of Default. “Event 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) default in the payment of any interest on any Note when the same becomes due and payable;
or
(b) 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, but only 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 on the Redemption Date; 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 oral (including
telephonic) communication, to the Issuer by the Indenture Trustee, or to the Issuer, the Depositor
and the Indenture Trustee by the Initial Noteholder, written notice thereof or knowledge thereof by
the Issuer, Depositor or Loan Originator; or
(e) default in the observance or performance of any covenant or agreement of the Depositor (or
any other transferor of loans to the Issuer) 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 it is 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 to the Issuer and
the Depositor by the Indenture Trustee, or to the Issuer, the Depositor and the Indenture Trustee
by the Initial Noteholder, written notice thereof or knowledge thereof by the Issuer, the Depositor
or Loan Originator; or
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(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
(g) the filing of a decree or order for relief by a court having jurisdiction over the Issuer,
any Affiliate of 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, any Affiliate 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, any Affiliate 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, any Affiliate of 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, any Affiliate of 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, any Affiliate of the Issuer, the Depositor
or the Loan Originator to the appointment or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Issuer, any Affiliate 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, any Affiliate of the Issuer, the Depositor or the Loan
Originator generally to pay its respective debts as such debts become due, or the admission in
writing by the Issuer, any Affiliate of the Issuer, the Depositor or the Loan Originator of its
inabiliaty to pay its debts as they become due, or the taking of any action by the Issuer, any
Affiliate of 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 Option One Mortgage Capital Corporation; or
(j) the Notes shall be Outstanding on the day after the end of the Revolving Period; or
(k) default in the payment of any Make-Whole Premium that becomes due; or
(l) the Indenture Trustee shall cease to have a first priority perfected Lien with respect to
the Collateral or any material portion thereof; or
(m) failure of Option One to satisfy the financial covenants set forth in Section 7.02 of the
Sale and Servicing Agreement; or
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(n) the Issuer shall enter into any agreement, other than this Agreement and the other Basic
Documents, to borrow money from any Person, or shall incur any other material debt obligation to
any Person for a reason other than money borrowed, and other than amounts owed to the Depositor (or
any other transferor of loans to the Issuer) in consideration of assets purchased by the Issuer, in
each case without first obtaining the specific written consent of the Initial Noteholder (which
consent may be given or withheld in the Initial Noteholder’s sole discretion); or
(o) Either of the following shall occur: (i) the Depositor (or other transferor of loans to
the Issuer), Option One, or Option One Mortgage Capital Corporation shall default under any of the
Basic Documents to which it is a party, any applicable grace period set forth thereon shall have
expired, and such default, in the Initial Noteholder’s good faith business judgment, is likely to
have a Material Adverse Effect; or (ii) any recourse debt (as distinguished from asset-backed debt
other than secured and warehouse debt that is recourse debt) on which the Depositor (or other
transferor of loans to the Issuer) or Option One or any Affiliate of Option One is accelerated by
the lender(s) thereunder as a result of the occurrence of any event of default thereunder and such
acceleration, in the Initial Noteholder’s commercially reasonable business judgment, is likely to
have a Material Adverse Effect; provided that any waiver of such event of default by the lender(s)
thereunder shall automatically constitute a waiver of the corresponding Event of Default hereunder;
or
(p) without the prior written consent of the Note Purchaser (i) the Issuer shall cease to be
wholly owned by the Depositor, or indirectly wholly-owned by Option One, or (ii) the Issuer shall
either (x) merge with or into or consolidate with any other Person, regardless of whether the
Issuer is the surviving entity in such merger or consolidation, or transfer all or substantially
all of its assets to any other Person to accomplish a similar purpose, or (y) wind up, liquidate,
or dissolve, or (z) agree to do any of the foregoing, or (iii) a Change in Control shall occur; or
(q) a final, non-appealable judgment by any competent court in the United States for the
payment of money in an amount in excess of $3,000 is rendered against the Issuer, and the same
remains undischarged and unpaid for a period of sixty (60) days during which execution of the
judgment is not effectively stayed; or
(r) the Issuer and Option One shall fail to satisfy their obligations to cure a breach or
repurchase a Mortgage Loan, as required under the Basic Documents; or
(s) the Issuer shall enter into any agreement, other than this Indenture and the other Basic
Documents, to borrow money from any person, or shall incur any other material debt obligation to
any Person for a reason other than money borrowed, and other than amounts owed to the immediate
transferor of assets in consideration of assets purchased by the Issuer under the Sale and
Servicing Agreement or the Master Disposition Confirmation Agreement, in each case without first
obtaining the specific written consent of the Majority Noteholders (which consent may be given or
withheld in the Majority Noteholders’ sole discretion), or
(t) either of the following shall occur: (i) the Depositor or Loan Originator shall default
under any of the Basic Documents to which it is a party, any applicable grace period
25
set forth thereon shall have expired, and such default, in the Note Purchaser’s good faith
business judgment, is likely to have a Material Adverse Effect; or (ii) any recourse debt (as
distinguished from asset-backed debt other than secured and warehouse debt that is recourse debt)
on which the Depositor or Loan Originator or any other affiliate of Option One is accelerated by
the lender(s) thereunder as a result of the occurrence of any event of default thereunder and such
acceleration, in the Majority Noteholders’ good faith business judgment, is likely to have a
Material Adverse Effect; provided that any waiver of such event of default by the lender(s)
thereunder shall automatically constitute a waiver of the corresponding Event of Default hereunder,
or
(u) except with the prior written consent of the Majority Noteholders, any agreement between
the Issuer and Option One, the Issuer and Capital, or Option One and Capital is amended,
supplemented or modified in any respect that has, or could reasonably be expected to have, a
Material Adverse Effect, including, without limitation, any such occurrence that adversely affects
the Issuer’s, or the Noteholders’ right to enforce any or all of the remedies under the Sale and
Servicing Agreement or any such agreement in respect of a breach of the representations and
warranties of the transferor thereunder with respect to any Loan.
The Issuer shall deliver to the Indenture Trustee, within five days after the occurrence
thereof, written notice in the form of an Officer’s 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 may, and
shall if so directed in writing by the Majority Noteholders, 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 and the Revolving Period shall terminate; provided that, upon the
occurrence of an Event of Default described in Section 5.01(g) or (h), the Notes shall
automatically and immediately become due and payable and the Revolving Period shall terminate. In
either case, the Indenture Trustee shall forthwith apply (or cause to be applied) the cash, if any,
then held by it as part of the Collateral to the payment of the Notes.
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:
(a) the Issuer has paid or deposited with the Indenture Trustee a sum sufficient to pay:
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| 1. | 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 | ||
| 2. | 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 equal to LIBOR plus 4.00%.
(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.
(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
27
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 and as directed by the Majority 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
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
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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 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. The Initial Noteholder may purchase any or all of the Collateral. If the proceeds
of sale, collection, foreclosure, or other realization on the Collateral are insufficient to
cover the costs and expenses of such realizing on the Collateral and the payment in full of
the Obligations, the Issuer shall remain liable for any deficiency.
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(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: to the Noteholders pro rata, all amounts in respect of interest
due and owing and Make-Whole Premiums under the Notes;
THIRD: to the Noteholders pro rata, all amounts in respect of unpaid
principal of the Notes;
FOURTH: to the Purchaser 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 to the Initial Noteholder 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;
FIFTH: 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, unless contrary directions have been given by 66-2/3% of the Noteholders, elect to
maintain possession of the Collateral.
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;
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(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 interest on and any Overcollateralization
Shortfall on and, on the Maturity Date, all outstanding principal and interest on each Note and to
institute suit 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
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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 Holders 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 Holders representing Percentage Interests of the Outstanding Notes of less
than 66-2/3% 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.
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
32
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 Noteholder’s 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
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 Trustee’s 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 or the Initial Noteholder to do so
and at the Administrator’s expense, the Issuer shall take all such lawful action as the Indenture
Trustee may request to compel or secure the performance and observance
33
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 or the Initial Noteholder, 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 person’s own affairs.
(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;
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(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 or
otherwise in the event of the Issuer’s failure to pay the Indenture Trustee’s 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 Officer’s
Certificate or an Opinion of Counsel. The Indenture Trustee shall not be liable for any
35
action it takes or omits to take in good faith in reliance on an Officer’s 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 Trustee’s 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 Issuer’s use of the proceeds from the Notes, or responsible
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 Trustee’s 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 Trustee’s 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 Trustee’s
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
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shall include the reasonable compensation and expenses, disbursements and advances of the
Indenture Trustee’s 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 Trustee’s own willful misconduct,
negligence or bad faith.
The Issuer’s 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(g) or (h) 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, including the Indenture Trustee’s fees, 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 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 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
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(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
acceptable to the Majority Noteholders.
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 Issuer’s and the Servicer’s obligations under Section 6.07 hereof shall
continue for the benefit of the retiring Indenture Trustee.
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.
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(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;
(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
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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.
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.
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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) and 5.05(f) of the Sale and Servicing Agreement and (ii) such 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
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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 Issuer 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 Permitted Investments included therein.
(c) If (i) the Issuer 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 Accounts in one or more Permitted Investments.
Section 8.04 The Paying Agent. The initial Paying Agent shall be the Servicer. The
Paying Agent may be removed by the Initial Noteholder in its sole discretion at any time. Upon
removal of the Paying Agent, the Initial Noteholder will appoint a successor Paying Agent within 30
days; provided that the Indenture Trustee will be the Paying Agent until such successor is
appointed. Upon receiving written notice from the Initial Noteholder that the Paying Agent has
been terminated, the Indenture Trustee will immediately terminate the Paying Agent’s access to any
and all Trust Accounts.
Section 8.05 Release of Collateral. (a) Subject to the payment of its reasonable fees
and expenses in connection therewith 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 Trustee’s 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 Trustee’s authority, inquire into the satisfaction of any
conditions precedent or see to the application of any moneys.
(a) The Indenture Trustee shall, at such time as there are no Notes Outstanding and all sums
due to the Noteholders (and their Affiliates), the Initial Noteholder, 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
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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 Officer’s
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. With the
consent of the Initial Noteholder and 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 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
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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 an 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 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
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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.
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 Trustee’s
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
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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 Trustee’s 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
Noteholder’s address or facsimile number appearing in the Note Register.
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
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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 to the Issuer and the Servicer by the Majority
Noteholders (with a copy 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.
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 Servicer’s servicing activity in the ordinary course of its
business), the Issuer shall furnish to the Indenture Trustee (i) an Officer’s 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 |
47
| 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 officer’s 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 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
Authorized Officer or 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 Issuer’s 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 Trustee’s 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
48
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 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 2002-3, 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 2002-3, 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
49
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.
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.
50
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 “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 IV, V, 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 or of the Initial Noteholder, during the
Issuer’s 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 Issuer’s affairs, finances and
accounts with the Issuer’s 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
51
Servicer. The Indenture Trustee and the Initial Noteholder 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 or the Initial Noteholder 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 2002-3, 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.
| OPTION ONE OWNER TRUST 2002-3 | ||||
| By: | Wilmington Trust Company, not in its individual capacity but solely as Owner Trustee |
|||
| By: | ||||
| Name: | ||||
| Title: | ||||
| WELLS FARGO BANK, N.A., as Indenture Trustee | ||||
| By: | ||||
| Name: | ||||
| Title: | ||||
53
STATE OF DELAWARE
|
) | |||
| )ss.: | ||||
COUNTY OF NEW CASTLE
|
) | |||
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 2002-3, 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 ___, 2007.
Notary Public
(Seal)
My commission expires:
My commission expires:
54
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.
| OPTION ONE OWNER TRUST 2002-3 | ||||
| By: | Wilmington Trust Company, not in its individual capacity but solely as Owner Trustee |
|||
| By: | ||||
| Name: | ||||
| Title: | ||||
| WELLS FARGO BANK, N.A., as Indenture Trustee | ||||
| By: | ||||
| Name: | ||||
| Title: | ||||
55
STATE OF MARYLAND
|
) | |||
| ) ss.: | ||||
COUNTY OF BALTIMORE
|
) | |||
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 2002-3, 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 December, 2007
Notary Public
(Seal)
My commission expires:
My commission expires:
56
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 OR (D) BACK TO THE ISSUER PURSUANT TO THE PUT OPTION.
THIS NOTE MAY NOT BE TRANSFERRED (EXCEPT PURSUANT TO THE PUT OPTION) 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
A-1
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: $___
Initial Percentage Interest: ___%
No. ___
Initial Percentage Interest: ___%
No. ___
OPTION ONE OWNER TRUST 2002-3
MORTGAGE-BACKED NOTES
OPTION ONE OWNER TRUST 2002-3, a Delaware statutory trust (the “Issuer”), for value
received, hereby promises to pay to ___, or registered assigns (the
“Noteholder”), the principal sum of ___($___) 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 January [ ], 2007 between the Issuer and Wells Fargo Bank,
N.A., as Indenture Trustee (the “Indenture Trustee”) or, if not defined therein, the Second
Amended and Restated Sale and Servicing Agreement (the “Sale and Servicing Agreement”),
dated as of January [ ], 2007 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 Noteholder’s 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
A-3
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 Noteholder’s 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: January ___, 2007
| OPTION ONE OWNER TRUST 2002-3 | ||||
| By: | Wilmington Trust Company, not in its individual capacity but solely as Owner Trustee under the Trust Agreement |
|||
| By: | ||||
| Authorized Signatory | ||||
INDENTURE TRUSTEE’S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the within-mentioned Indenture.
Date: January ___, 2007
| WELLS FARGO BANK, N.A., not in its individual capacity but solely as Indenture Trustee | ||||
| By: | ||||
| Authorized Signatory | ||||
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 and automatically upon
the occurrence of an Issuer bankruptcy. 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 amount of this Note (or
any one or more Predecessor Notes) effected by payments to the Issuer
A-6
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 Holder’s attorney duly authorized in
writing, 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 (solely in its capacity as such) 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 (solely in its capacity as such), 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.
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
A-7
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 the amendment thereof and the modification of the rights and obligations
of the Issuer and the rights of the Noteholders 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 in its capacity as such, 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:
Signature
A-9
Schedule to Note
dated as of ______________, ______
of OPTION ONE OWNER TRUST 2002-3
dated as of ______________, ______
of OPTION ONE OWNER TRUST 2002-3
| Date of advance | Amount of | |||||||
| of Additional | advance of | |||||||
| Note Principal | Additional Note | Percentage | Aggregate Note | Note Principal | ||||
| Balance | Principal Balance | Interest | Principal Balance | Balance of Note | ||||
| 100% | ||||||||
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 2002-3
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
Attention: Corporate Trust Services — Option One Owner Trust 2002-3
Re: Option One Owner Trust 2002-3
Reference is hereby made to the Indenture dated as of January [ ], 2007 (the “Indenture”)
between Option One Owner Trust 2002-3 (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 Second Amended and Restated Sale and Servicing Agreement dated as of January [ ], 2007 among
the Trust, Option One Loan Warehouse Corporation (the “Depositor”), Option One Mortgage
Corporation, as servicer and as 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.
| [Name of Transferor] | ||||
| By: | ||||
| Name: | ||||
| Title: | ||||
Dated: _________, ____
B-1-1
EXHIBIT B-2
FORM OF TRANSFEREE CERTIFICATE FOR
INSTITUTIONAL ACCREDITED INVESTOR
INSTITUTIONAL ACCREDITED INVESTOR
Wells Fargo Bank, N.A.
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
Attention: Corporate Trust Services — Option One Owner Trust 2002-3
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
Attention: Corporate Trust Services — Option One Owner Trust 2002-3
Re: Option One Owner Trust 2002-3
In connection with our proposed purchase of $ ___ Note Principal Balance
Mortgage-Backed Notes (the “Offered Notes”) issued by Option One Owner Trust 2002-3, we confirm
that:
| (1) | 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 January [ ], 2007, between Option One Owner Trust 2002-3 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. | |
| (2) | 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. | |
| (3) | 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 |
B-2-1
| 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. | ||
| (4) | 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. | |
| (5) | We have received such information as we deem necessary in order to make our investment decision. | |
| (6) | 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.
| [Name of Transferor] | ||||
| By: | ||||
| Name: | ||||
| Title: | ||||
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 2002-3
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
Attention: Corporate Trust Services — Option One Owner Trust 2002-3
Re: Option One Owner Trust 2002-3
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 2002-3
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 January [ ], 2007 between Option One Owner Trust 2002-3 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.
| [Name of Transferor] | ||||
| By: | ||||
| Name: | ||||
| Title: | ||||
Dated: _________, ____
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, 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”).
C-1
Exhibit 10.9
OMNIBUS AMENDMENT AND CONSENT AGREEMENT
This OMNIBUS AMENDMENT AND CONSENT AGREEMENT (the
“Amendment and Consent”) dated as of December 29, 2006 is by and among Option One Owner
Trust 2003-4 (the “Issuer”), Option One Mortgage Corporation (“OOMC”), in its capacity as loan
originator (in such capacity, the “Loan Originator”) and as servicer (in such capacity, the
“Servicer”), Option One Mortgage Capital Corporation (“Capital”), Option One Loan Warehouse
Corporation (the “Depositor”), Wells Fargo Bank, National Association, as indenture trustee (the
“Indenture Trustee”), Falcon Asset Securitization Company LLC (formerly Falcon Asset Securitization
Corporation) and Park Avenue Receivables Company LLC, as conduit purchasers, and JPMorgan Chase
Bank, N.A. (successor by merger to Bank One, N.A. (Main Office Chicago)), as committed purchaser
(collectively, the “Purchasers”), and JPMorgan Chase Bank, N.A. (successor by merger to Bank One,
N.A. (Main Office Chicago)), as note agent (the “Note Agent”). Capitalized terms used herein but
not specifically defined herein shall have the meanings given to such terms in the Sale and
Servicing Agreement (as defined below) or Indenture (as defined below).
PRELIMINARY STATEMENTS:
A.
The Issuer, OOMC, as the Servicer and as the Loan Originator, the
Depositor and the Indenture Trustee are parties to that certain Amended and Restated Sale and Servicing
Agreement dated as of August 5, 2005 (as amended, the “Sale and Servicing Agreement”).
B.
The Issuer and the Indenture Trustee are parties to that certain
Indenture dated as of August 8, 2003 (as amended, the “Indenture”).
C.
The Note Agent, the Issuer, OOMC, as the Servicer and the Indenture Trustee, as both Indenture Trustee and Custodian, are parties to that certain Custodial
Agreement dated as of August 8, 2003 (as amended, the “Custodial Agreement”).
D.
OOMC intends to transfer and assign to its subsidiary, Capital, and Capital intends to accept and assume from OOMC, a portion of OOMC’s business.
E.
OOMC has requested that the Depositor, the Purchasers, the Note
Agent, the Issuer and the Indenture Trustee consent to certain
amendments to the Sale and Servicing Agreement, the Indenture and the Custodial Agreement, upon the terms and subject to the conditions set forth herein.
F.
OOMC, Capital and Depositor have requested that the Purchasers, the Note Agent, the Issuer and the Indenture Trustee (a) consent to, promptly after the date
hereof, the conversion of the Depositor from a Delaware corporation
to a Delaware limited liability company (the “Depositor
Conversion”) and (b) consent to promptly enter into after the date hereof a Fifth Amended and Restated Loan Purchase and Contribution Agreement, dated as of
December 29, 2006 (the “Proposed Fifth Amended and Restated LPA”), between Capital, as
seller, and Depositor, as purchaser (to reflect the terms of this Amendment and Consent).
G. OOMC has requested that all references to “Loan Originator” in any of the Basic
Documents be defined to mean both OOMC and Capital, jointly and severally. OOMC has further
requested that the definition of “Loan Purchase and Contribution Agreement” in any of the Basic
Documents be defined to mean each of: (i) the Loan Purchase Agreement between OOMC, as seller, and
Capital, as purchaser, dated as of December 29, 2006 and all supplements and amendments thereto and
(ii) the Proposed Fifth Amended and Restated LPA, and all supplements and amendments thereto.
H. In consideration of the consent of the Depositor, the Purchasers, the Note Agent,
the Issuer and the Indenture Trustee, OOMC has agreed to be held jointly and severally liable for
the Transfer Obligation on the terms set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Amendments to the Sale and Servicing Agreement. Effective as of December
29, 2006 or such later date as OOMC shall designate (the
“Effective Date”) and subject to the
satisfaction of the conditions precedent set forth in Section 9 hereof, the Sale and Servicing
Agreement is hereby amended as follows:
(a) The definition of “Loan Originator” set forth in Section 1.01 of the Sale
and Servicing Agreement is hereby amended to provide as follows:
“Loan Originator: Each of Option One and Option One Capital, and their respective
successors and assigns, jointly and severally.”
(b) The definition of “Loan Purchase and Contribution Agreement” set forth
in Section 1.01 of the Sale and Servicing Agreement is hereby amended to provide as follows:
“Loan Purchase and Contribution Agreement: Each of: (i) the Loan Purchase Agreement
between Option One, as loan originator, and Option One Capital, as transferee, dated as of
December 29, 2006 and all supplements and amendments thereto and (ii) the Fifth Amended and
Restated Loan Purchase and Contribution Agreement, between Option One Capital, as loan
originator, and Depositor, as depositor, dated as of December 29, 2006, and all supplements
and amendments thereto.”
(c) The following definition of “Option One Capital” is hereby added to
Section 1.01 of the Sale and Servicing Agreement:
“Option One Capital: Option One Mortgage Capital Corporation, a Delaware
corporation.”
(d) Section 2.07(iv) of the Sale and Servicing Agreement is hereby amended
by substituting the following language:
-2-
“(iv) Option One, Option One Capital or any of their Affiliates 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, Option One Capital or any of their Affiliates, including without
limitation, the Sale and Servicing Agreement, dated as of April 1, 2001, among the Option
One Owner Trust 2001-1 A, 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 2001-2, 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
Facility Administrator, 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, the
Sale and Servicing Agreement, dated as of June 1, 2005, among Option One Owner Trust 2005-6,
the Depositor, Option One and the Indenture Trustee, the Sale and Servicing Agreement, dated
as of September 1, 2005, among the Option One Owner Trust 2005-7, the Depositor, Option One
and the Indenture Trustee, the Sale and Servicing Agreement, dated as of October 1, 2005
among Option One Owner Trust 2005-8, the Depositor, Option One and the Indenture Trustee and
the Sale and Servicing Agreement, dated as of October 30, 2005 among Option One Owner Trust
2005-9, 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 Note Agent may, in any such case, in its sole
discretion, terminate the Revolving Period.”
(e) Subsection (m) of Section 3.02 of the Sale and Servicing Agreement is
hereby amended and restated in its entirety as follows:
“(m) Option One is in compliance with each of its financial covenants set forth in
Section 7.02; and”
(f) Subsection (k) of Section 3.02 of the Sale and Servicing Agreement is
hereby amended and restated in its entirety as follows:
“(k) Option One has received fair consideration and reasonably equivalent value in
exchange for the Loans sold by it to Option One Capital and the Option One Capital has
received fair consideration and reasonably equivalent value in exchange for the Loans sold
by it on such Transfer Date to the Depositor;
(g) Section 5.06 of the Sale and Servicing Agreement is hereby amended by
adding the following subsection:
“(c) With respect to the obligations of the Loan Originator pursuant to this Section
5.06, Option One shall be obligated to make payments hereunder only if Option One Capital
does not make such payments prior to the time any such payment is required to be made. If
Option One Capital does not make any such payment prior to the time such payment is required
to be made, Option One shall be required to make such payment not later than the time such
payment is required to be made.”
-3-
(h) Section 7.02 of the Sale and Servicing Agreement is hereby amended by
substituting “Option One” for “the Loan Originator” in each and every place where such term appears
in such section.
(i) Section 11.06 of the Sale and Servicing Agreement is hereby amended by deleting
clause (III) thereof and replacing such clause with the following:
“(III) in the case of the Loan Originator, (A) if to Option One, to Option One Mortgage
Corporation, 3 Ada, Irvine, California 92618, Attention: William O’Neill, telecopy number:
(949) 790-7540, telephone number: (949) 790-7504 or (B) if to Option One Capital, to Option
One Mortgage Capital Corporation, 3 Ada Road, Irvine, California 92618, Attention: Chief
Financial Officer, telecopy number: (949) 790-7514, telephone number: (949) 790-3600 ext
35524 or, in either case, to such other addresses or telecopy or telephone numbers as may
hereafter be furnished to the Securityholders and the other parties hereto in writing by
Option One or Option One Capital.
SECTION 2. Amendments to the Indenture. Effective as of the Effective Date and
subject to the satisfaction of the conditions precedent set forth in Section 9 hereof, the
Indenture is hereby amended as follows:
The definition of “Loan Originator” set forth in Section 1.01 (a) of the Indenture is hereby
amended to provide as follows:
“Loan Originator: has the meaning given to such term in the Sale and Servicing
Agreement.”
SECTIONS 3. Amendments to the Custodial Agreement. Effective as of the Effective Date and
subject to the satisfaction of the conditions precedent set forth in Section 9 hereof, the
Custodial Agreement is hereby amended as follows:
(a) The definition of “Loan Originator” set forth in Section 1 of the Custodial
Agreement is hereby amended to provide as follows:
“Loan Originator: As defined in the Sale and Servicing Agreement.”
(b) The definition of “Loan Purchase and Contribution Agreement” set forth
in Section 1 of the Custodial Agreement is hereby amended to provide as follows:
“Loan Purchase and Contribution Agreement: As defined in the Sale and
Servicing Agreement.”
SECTION 4. Consent to the Depositor Conversion and Proposed Fifth Amended and Restated
LPA. Each of the parties hereto consents to (a) the Depositor Conversion and (b) the Proposed
Fifth Amended and Restated LPA to amend and restate that certain Fourth Amended and Restated Loan
Purchase and Contribution Agreement, dated as of September 1, 2005, between OOMC, as seller, and
Depositor, as purchaser (to reflect the terms of this Amendment
-4-
and Consent, including the substitution of Capital for OOMC as the immediate transferor to
the Depositor).
SECTION 5. Representations and Warranties. Each of the parties hereto represents
and warrants that this Amendment and Consent, and the Sale and Servicing Agreement, Indenture and
Custodial Agreement, each as amended by this Amendment and Consent, constitute legal, valid and
binding obligations of such Person enforceable against such Person in accordance with their terms,
except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the
enforcement of creditors’ rights generally and general equitable principles. Each of OOMC, Capital
and the Depositor represent to the Purchasers that as of the date hereof, after giving effect to
this Amendment and Consent, (a) all of their respective representations and warranties in the Basic
Documents are true and correct, and (b) such party is in full compliance with all of the terms and
conditions of the Basic Documents.
SECTION 6. Reference to and the Effect on the Sale and Servicing Agreement, the
Indenture and the Custodial Agreement.
(a) On and after the Effective Date, each reference in the Sale and Servicing
Agreement to “this Agreement”, “hereunder”,
“hereof”, “herein” or words of like import
referring to the Sale and Servicing Agreement and each reference to the Sale and Servicing
Agreement in any certificate delivered in connection therewith, shall mean and be a reference
to the Sale and Servicing Agreement as amended hereby.
(b) Each of the parties hereto hereby agrees that, except as specifically
amended above, the Sale and Servicing Agreement is hereby ratified and confirmed and shall
continue to be in full force and effect and enforceable, except as such enforcement may be
limited by applicable bankruptcy, insolvency, reorganization or other similar laws relating to
or limiting creditors’ rights generally and general equitable principles.
(c) On and after the Effective Date, each reference in the Indenture to “this
Indenture”, “hereunder”, “hereof”, “herein” or words of like import referring to the Indenture
and each reference to the Indenture in any certificate delivered in connection therewith,
shall mean and be a reference to the Indenture as amended hereby.
(d) Each of the parties hereto hereby agrees that, except as specifically
amended above, the Indenture is hereby ratified and confirmed and shall continue to be in full
force and effect and enforceable, except as such enforcement may be limited by applicable
bankruptcy, insolvency, reorganization or other similar laws relating to or limiting
creditors’ rights generally and general equitable principles.
(e) On and after the Effective Date, each reference in the Custodial
Agreement to “this Agreement”, “hereunder”, “hereof”, “herein” or words of like import
referring to the Custodial Agreement and each reference to the Custodial Agreement in any
certificate delivered in connection therewith, shall mean and be a reference to the
Custodial Agreement as amended hereby.
(f) Each of the parties hereto hereby agrees that, except as specifically
amended above, the Custodial Agreement is hereby ratified and confirmed and shall continue to
-5-
be in full force and effect and enforceable, except as such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization or other similar laws relating to or limiting
creditors’ rights generally and general equitable principles.
SECTION 7. Execution in Counterparts. This Amendment and Consent may be executed in
any number of counterparts and by different parties hereto in separate counterparts, each of which
when so executed and delivered shall be deemed to be an original and all of which taken together
shall constitute but one and the same agreement.
SECTION 8. Governing Law. This Amendment and Consent shall be construed in
accordance with, and governed by the laws of the State of New York, without giving effect to its
conflicts of law provisions.
SECTION 9. Conditions of Effectiveness. This Amendment and Consent shall become
effective as of the date hereof upon the receipt by the Note Agent of this Amendment and Consent
duly executed by all of the parties hereto.
[remainder of page intentionally left blank]
-6-
IN WITNESS WHEREOF, the parties have executed this Amendment and Consent as of the day and
year first above written.
| OPTION ONE OWNER TRUST 2003-4, | ||||||
| as Issuer | ||||||
| By: | Wilmington Trust Company, not in its | |||||
| individual capacity, but solely as | ||||||
| Owner Trustee | ||||||
| by | /s/ Mary Kay Pupillo | |||||
| Name: | ||||||
| Title: | Assistant Vice President | |||||
| OPTION ONE LOAN WAREHOUSE | ||||||
| CORPORATION, as Depositor | ||||||
| By: | /s/ Philip Laren | |||||
| Name: | ||||||
| Title: | Vice President | |||||
| OPTION ONE MORTGAGE | ||||||
| CORPORATION, as Loan | ||||||
| Originator and as Servicer | ||||||
| By: | /s/ Philip Laren | |||||
| Name: | ||||||
| Title: | Senior Vice President | |||||
| OPTION ONE MORTGAGE CAPITAL | ||||||
| CORPORATION | ||||||
| By: | /s/ Philip Laren | |||||
| Name: | Philip Laren | |||||
| Title: | Vice President | |||||
Signature Page to Omnibus Amendment
| WELLS FARGO BANK, | ||||||
| NATIONAL ASSOCIATION, | ||||||
| as Indenture Trustee | ||||||
| By: | /s/ Darron C. Woodus | |||||
| Name: | ||||||
| Title: | Assistant Vice President | |||||
Signature Page to Omnibus Amendment
24
| FALCON ASSET SECURITIZATION |
||||||
| COMPANY LLC, as Conduit Purchaser |
||||||
| By: JPMorgan Chase Bank, N.A., its attorney-in-fact | ||||||
| By: | /s/ Daniel J. Clarke, Jr. | |||||
| Name: | ||||||
| Title: | Managing Director | |||||
| PARK AVENUE RECEIVABLES COMPANY | ||||||
| LLC, as Conduit Purchaser | ||||||
| By: JPMorgan Chase Bank, N.A., its attorney-in-fact | ||||||
| By: / | s/ Daniel J. Clarke, Jr. | |||||
| Name: | ||||||
| Title: | Managing Director | |||||
| JPMORGAN CHASE BANK, N. A. (successor by | ||||||
| merger to Bank One, N. A. (Main | ||||||
| Office Chicago)), as Committed Purchaser | ||||||
| By: | /s/ Daniel J. Clarke, Jr. | |||||
| Name: | ||||||
| Title: | Managing Director | |||||
Signature Page to Omnibus Amendment
| JPMORGAN CHASE BANK, N.A. (successor by | ||||||
| merger to Bank One, N.A. (Main Office Chicago)), | ||||||
| as a Note Agent | ||||||
| By: | /s/ Daniel J. Carke, Jr. | |||||
| Name: | ||||||
| Title: | Managing Director | |||||
Signature Page to Omnibus Amendment
Exhibit 10.10
WAIVER
THIS WAIVER
(the “Waiver”) is entered into as of January _, 2007 by and among OPTION ONE OWNER
TRUST 2003-4 (the “Issuer”), OPTION ONE MORTGAGE CORPORATION (“OQMC”) and OPTION ONE MORTGAGE
CAPITAL CORPORATION (“OOMCC,”) and together with OOMC in its capacity as loan originator in such
capacity, the “Loan Originator”), OOMC as
servicer (in such capacity, the “Servicer”), OPTION ONE
LOAN WAREHOUSE CORPORATION (the “Depositor,” and
together with OOMC and OOMCC, the “ Entities”),
WELLS FARGO BANK, NATIONAL ASSOCIATION, as indenture trustee (the “Indenture Trustee”) and the
MAJORITY NOTEHOLDERS party hereto. Capitalized terms used herein and not otherwise defined shall
have the meanings ascribed to them in the Sale and Servicing Agreement referred to below.
PRELIMINARY STATEMENTS
A. The Issuer, OOMC, OOMCC the Depositor and the Indenture Trustee are
parties to that certain Amended and Restated Sale and Servicing Agreement dated as of August
5, 2005 (as amended, restated, supplemented or otherwise modified from time to time, the “Sale and Servicing Agreement”) and the Basic Documents as defined therein.
B. Pursuant to Section 7.02(e) of the Sale and Servicing Agreement, entitled
“Financial Covenants,” OOMC is required to 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 (the “Minimum Income Covenant”). Pursuant to the
Basic Documents, OOMC periodically represents and warrants its compliance with the
Minimum Income Covenant. In addition, under the Basic Documents, a failure by OOMC to
satisfy the Minimum Income Covenant, if not waived, could be or become a Default, Event of
Default or Servicing Event of Default, as those terms are used in the Basic Documents, or
could result in a termination of the Revolving Period.
C. OOMC now believes that the Minimum Income Covenant will not be
satisfied as of January 31, 2007. The Issuer has requested that the Majority Noteholders
temporarily waive the Minimum Income Covenant, and, subject to the terms hereof, the Majority
Noteholders have agreed to temporarily waive the Minimum Income Covenant on and subject to
the terms and conditions hereinafter set forth.
D. The parties have also agreed to modify the circumstances in which an
Overcollateralization Shortfall is deemed not to exist, as defined in the Pricing Side Letter
identified in the Sale and Servicing Agreement, as provided hereinbelow.
NOW, THEREFORE, in consideration of the premises set forth above, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1.
Accuracy of Preliminary Statements. The OO Entities agree and represent that the
foregoing Preliminary Statements are true and correct in all respects.
2. (a) Temporary Waiver of the Minimum Income Covenant. Effective as of the
date first above written and subject to the satisfaction of the conditions precedent set forth in
Section 3 below, the Majority Noteholders hereby agree to waive, until April 27, 2007 only,
the Minimum Income Covenant.
(b) Modification of Overcollateralization Shortfall Provisions. Effective as of the
date first above written and subject to the satisfaction of the conditions precedent set forth in
Section 3 below,
(i) The definition of the term “Overcollateralization Shortfall,” as set forth in the
Pricing Side Letter, shall be applied as if the text of clause (i) in the proviso were
written as follows: “(i) if such Business Day is not a Payment Date, an
Overcollateralization Shortfall shall not occur if the Note Principal Balance exceeds the
Collateral Value on such Business Day by an amount less than or equal to $250,000.”
(ii) Section 5.06(a)(iv) of the Sale and Servicing Agreement is amended to
delete such provision in its entirety and to substitute the following new provision
therefor:
“(iv) If on any Business Day there exists an Overcollateralization
Shortfall, the Loan Originator shall on such Business Day deposit into the Transfer
Obligation Account the full amount of the Overcollateralization Shortfall as of such
date; and”
(iii) Section 5.05(f) of the Sale and Servicing Agreement is amended to delete
such provision in its entirety and to substitute the following new provision therefor:
“(f) If on any Business Day there exists an Overcollateralization
Shortfall, the Paying Agent 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.”
(iv) Section 5.01(c) of the Sale and Servicing Agreement is amended to add the
following new clause (5):
“(5) Withdrawals From Distribution Account — Dates Other Than Payment Dates. On
each date on which a deposit is required to be made in the Distribution Account in
accordance with the terms of Section 5.05(f) hereof, the Paying Agent shall
make a withdrawal therefrom of such deposit and distribute such deposit to the
holders of the Notes pro rata for application to the related Overcollateralization
Shortfall.”
(v) The definition of the term “Event of Default,” as set forth in the Sale and
Servicing Agreement, shall be amended to add the following new sentence thereto:
2
“In addition, any of the following shall constitute an ‘Event of Default’
hereunder: (i) the failure on any Business Day of a deposit to be made to the
Transfer Obligation Account under Section 5.06(a)(iv), (ii) the failure on
any Business Day of a deposit to be made to the Distribution Account under
Section 5.05(f) or (iii) the failure on any Business Day of a withdrawal and
application to be made under Section 5.01(c)(5), in each case in the full
amount of the Overcollateralization Shortfall existing on such Business Day.”
(c) Waiver of Payment Delay. Effective as of the date first above written and
subject to the satisfaction of the conditions precedent set forth in Section 3 below, the
Majority Noteholders hereby agree to waive the failure to timely and accurately report, or to
timely and fully make any payment or distribution in respect of, any Overcollateralization
Shortfall at any time prior to the date hereof.
3. Condition Precedent. This Waiver shall become effective and be deemed
effective as of the date first above written upon (i) receipt by OOMC of an executed
counterpart of this Waiver from each of the Issuer, the Depositor, the Majority Noteholders and the
Indenture Trustee and (ii) receipt by the Majority Noteholders of confirmation from OOMC that each Note
Purchaser, Purchaser, Initial Noteholder Agent or Note Agent, as applicable, in connection
with each of the Trusts listed on Schedule I hereto, has executed a waiver in substantially similar
form as this Waiver, regarding the failure by OOMC to satisfy the Minimum Income Covenant at any
time prior to April 27, 2007.
4. Condition to Continuing Effectiveness. Section 2(a) of this Waiver shall
continue to be effective until April 27, 2007 only so long as no Event of Default (other than
the Minimum Income Covenant) has occurred. Upon the occurrence of any Event of Default other
than the Minimum Income Covenant, Section 2(a) of this Waiver shall immediately cease to be
effective. In all other respects, the terms and conditions hereof shall continue in full
force and effect until the Basic Documents shall terminate in accordance with their respective terms.
5. Covenants, Representations and Warranties of the Issuer, OOMC,
OOMCC and the Depositor.
(a) Upon the effectiveness of this Waiver, each of the Issuer, OOMC (in its
capacities as Servicer and Loan Originator), OOMCC and the Depositor hereby reaffirms all
covenants, representations and warranties made by the Issuer, OOMC, OOMCC and the
Depositor, as applicable, in the Sale and Servicing Agreement, to the extent the same are not
modified hereby and agrees that all such covenants, representations and warranties shall be
deemed to have been re-made as of the effective date of this Waiver.
(b) Each of the Issuer, OOMC, OOMCC and the Depositor hereby represents
and warrants that this Waiver constitutes the legal, valid and binding obligation of the
Issuer, OOMC, OOMCC and the Depositor, as applicable, enforceable against the Issuer, OOMC,
OOMCC and the Depositor, as applicable, in accordance with its terms. The execution, delivery
and performance by the Issuer, OOMC, OOMCC and the Depositor of this Waiver: (i) are
within the Issuer’s, OOMC’s, OOMCC’s and the Depositor’s power; (ii) have been duly
authorized by all necessary or proper corporate action; (iii) are not in contravention of any
3
provision of the Issuer’s, OOMC’s, OOMCC’s or the Depositor’s certificate of incorporation, bylaws
or other organizational documents; (iv) will not violate any law applicable to the Issuer, OOMC,
OOMCC or the Depositor, as applicable; (v) will not conflict with or result in the breach or
termination of, constitute a default under or accelerate any performance required by, any
indenture, mortgage, deed of trust, lease, agreement or other instrument to which the Issuer, OOMC,
OOMCC or the Depositor is a party or by which the Issuer, OOMC, OOMCC or the Depositor or any of
their respective property is bound; (vi) will not result in the creation or imposition of any Lien
upon any of the property of the Issuer, OOMC, OOMCC or the Depositor, as applicable; and (vii) do
not require the consent or approval of any governmental authority or any other Person, except those
which were duly obtained, made or complied with prior to the date of this Waiver.
6. Reference to and Effect on the Sale and Servicing Agreement.
(a) Upon the effectiveness of this Waiver, each reference in the Sale and
Servicing Agreement and in each of the other Basic Documents to “this Agreement,”
“hereunder,” “hereof,” “herein,” or words of like import shall mean and be a reference to the
Sale and Servicing Agreement or such other Basic Documents as modified hereby, and each
reference to the Sale and Servicing Agreement or such other Basic Document in any other
document, instrument or agreement executed and/or delivered in connection with the Sale and
Servicing Agreement shall mean and be a reference to the Sale and Servicing Agreement or such
other Basic Document as modified hereby.
(b) Except as specifically modified hereby, the Sale and Servicing Agreement,
each of the other Basic Documents and all other documents, instruments and agreements
executed and/or delivered in connection therewith shall remain in full force and effect and
are hereby ratified and confirmed.
(c) Except as expressly provided in Section 2 hereof, the execution, delivery
and effectiveness of this Waiver shall not operate as a waiver of any right, power or remedy
of the Majority Noteholders under the Sale and Servicing Agreement or any of the other Basic
Documents, nor constitute a waiver of, amendment of, consent to or other modification of any
other term, provision, Event of Default, or of any term or provision of any other Basic
Document, or of any transaction or further or future action of the Issuer which would require
the consent of the Majority Noteholders under the Sale and Servicing Agreement. Without limiting
the generality of the foregoing, the execution, delivery and effectiveness of this Waiver
shall not entitle the Issuer to a waiver of any existing or hereafter arising Event of Default (other
than, prior to April 27, 2007, the Minimum Income Covenant), nor shall the Majority Noteholders’
execution and delivery of this Waiver establish a course of dealing between the Majority
Noteholders and the Servicer or the Issuer or in any other way obligate the Majority
Noteholders to hereafter provide any waiver or extension to the Servicer or the Issuer for the payment or
performance by the Servicer or the Issuer of its obligations under the Sale and Servicing
Agreement and the Basic Documents prior to the enforcement by the Majority Noteholders of
any of their respective rights and remedies under the Sale and Servicing Agreement and the
other Basic Documents.
4
7. GOVERNING LAW. THIS WAIVER SHALL BE GOVERNED BY,
AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK (WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES).
8. Execution in Counterparts. This Waiver may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each of which when
so executed and delivered shall be deemed to be an original and all of which taken together shall
constitute but one and the same instrument.
9. Headings. Section headings in this Waiver are included herein for
convenience or reference only and shall not constitute a part of this Waiver for any other
purpose.
10. Liability. It is expressly understood and agreed by the parties that (a) this
Waiver is executed and delivered by Wilmington Trust Company, not individually or personally,
but solely as Owner Trustee, in the exercise of the powers and authority conferred and vested
in it, pursuant to the Trust Agreement, (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 of binding the Issuer with respect thereto, (c) nothing herein contained shall be
construed as creating any liability on Wilmington Trust Company, individually or personally,
to perform any covenant either expressly or impliedly contained herein, and the right to claim
any and 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 hereunder or under any other related
documents.
11. Direction of Majority Noteholders. By their signature(s) below, the Majority
Noteholders hereby authorize and direct the Indenture Trustee to sign this Waiver.
[Signature Page Follows]
5
IN WITNESS WHEREOF, the parties hereto have caused this Waiver to be executed by their
respective officers thereto duly authorized as of the date first written above.
| OPTION ONE OWNER TRUST 2003-4, as Issuer |
OPTION ONE LOAN WAREHOUSE CORPORATION, as Depositor | |||||||||
By:
|
Wilmington Trust Company, not in its individual capacity, but solely as Owner Trustee |
|||||||||
By:
|
/s/ Mary Kay Pupillo | By: | /s/ Philip Laren | |||||||
|
|
|
|||||||||
| Title: Assistant Vice President | Title: Vice President | |||||||||
| OPTION ONE MORTGAGE CORPORATION, as Loan Originator and as Servicer |
WELLS FARGO BANK, NATIONAL ASSOCIATION, as Indenture Trustee |
|||||||||
By:
|
/s/ Philip Laren | By: | /s/ Joshan Kelly | |||||||
|
|
|
|||||||||
| Title: Senior Vice President | Title: Vice President | |||||||||
| OPTION ONE MORTGAGE CAPITAL CORPORATION, as Loan Originator |
||||||||||
By:
|
/s/ Philip Laren | |||||||||
|
|
||||||||||
| Title: Vice President | ||||||||||
6
THE MAJORITY NOTEHOLDERS:
| JPMORGAN CHASE BANK, N.A. (successor by merger to Bank One, N.A. (Main Office Chicago)), as a Note Agent |
FALCON ASSET SECURITIZATION COMPANY LLC, as Conduit Purchaser By: JPMorgan Chase Bank, N.A., its attorney-in-fact |
|||||||
By:
|
/s/ John K. Svolos | By: | /s/ John K. Svolos | |||||
| Name: John K. Svolos | Name: John K. Svolos | |||||||
| Title: Vice President | Title: Vice President | |||||||
| PARK AVENUE RECEIVABLES COMPANY LLC, as Conduit Purchaser By: JPMorgan Chase Bank, N.A., its attorney-in-fact |
JPMORGAN CHASE BANK, N.A. (successor by merger to Bank One, N.A. (Main Office Chicago)), as Committed Purchaser |
|||||||
By:
|
/s/ John K. Svolos | By: | /s/ John K. Svolos | |||||
| Name: John K. Svolos | Name: John K. Svolos | |||||||
| Title: Vice President | Title: Vice President | |||||||
7
SCHEDULE I
List of Owner Trusts
Option One Owner Trust 2001-1A
Option One Owner Trust 2001-2
Option One Owner Trust 2002-3
Option One Owner Trust 2003-5
Option One Owner Trust 2005-6
Option One Owner Trust 2005-7
Option One Owner Trust 2005-8
Option One Owner Trust 2005-9
8
Exhibit 10.11
AMENDMENT NUMBER TWO
to the
AMENDED AND RESTATED SALE AND SERVICING AGREEMENT,
dated as of November 12, 2004,
among
OPTION ONE OWNER TRUST 2003-5,
OPTION ONE LOAN WAREHOUSE CORPORATION,
OPTION ONE MORTGAGE CORPORATION
and
WELLS FARGO BANK, N.A.
to the
AMENDED AND RESTATED SALE AND SERVICING AGREEMENT,
dated as of November 12, 2004,
among
OPTION ONE OWNER TRUST 2003-5,
OPTION ONE LOAN WAREHOUSE CORPORATION,
OPTION ONE MORTGAGE CORPORATION
and
WELLS FARGO BANK, N.A.
This AMENDMENT NUMBER TWO (this “Amendment”) is made and is effective as of this
10th day of November, 2006 among Option One Owner Trust 2003-5 (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., (formerly known as Wells Fargo Bank
Minnesota, National Association) as Indenture Trustee (the “Indenture Trustee”), to the Amended and
Restated Sale and Servicing Agreement, dated as of November 12, 2004 (as amended, 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 of 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.
(a) Section 1.01 of the Sale and Servicing Agreement is hereby amended by deleting in its
entirety the definition of “Revolving Period” and replacing it with the following:
Revolving Period: With respect to the Notes, the period commencing on November 10, 2006
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.
(b) Article V of the Sale and Servicing Agreement is hereby amended by adding Section 5.07
following Section 5.06 to read in its entirety as follows:
Section 5.07. Monthly Payment Information.
The Servicer shall provide to Citigroup Global Markets Realty Corp within one (1)
Business Day of any request, updated payment information regarding any of the Loans,
including current paid-through information.
SECTION 3. Representations. In order to induce the parties hereto to execute and
deliver this Amendment, each of the Issuer and the Depositor 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. Guaranty. Reference is hereby made to that certain Guaranty, dated as of
November 1, 2003 (the “Guaranty”), made by H&R Block, Inc. in favor of Wells Fargo Bank Minnesota,
National Association, as indenture trustee. H&R Block, Inc., as guarantor pursuant to the
Guaranty, hereby consents to this Amendment and acknowledges and agrees that the Guaranty shall
remain in full force and effect and shall apply to all of the Guaranteed Obligations (as defined in
the Guaranty), as such term is amended or affected by this Amendment.
SECTION 5. 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 6. 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 7. 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 8. 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 9. Limitation on Liability. It is expressly understood and agreed by the
parties hereto that (a) this Amendment is executed and delivered by Wilmington Trust
2
Company, not individually or personally, but solely as Owner Trustee of Option One Owner Trust
2003-5 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 2003-5 | ||||||
| By: Wilmington Trust Company, not in its individual capacity but solely as owner trustee |
||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
| OPTION ONE LOAN WAREHOUSE CORPORATION | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
| OPTION ONE MORTGAGE CORPORATION | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
| WELLS FARGO BANK, N.A., as Indenture Trustee | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
Acknowledged and Agreed as
of the date first above written:
of the date first above written:
| H&R BLOCK, INC. | ||||
By: |
||||
Name:
|
||||
Title: |
||||
Exhibit 10.12
AMENDMENT NUMBER TWO
to the
NOTE PURCHASE AGREEMENT,
dated as of November 14, 2004,
among
OPTION ONE OWNER TRUST 2003-5,
dated as of November 14, 2004,
among
OPTION ONE OWNER TRUST 2003-5,
OPTION ONE LOAN WAREHOUSE CORPORATION
and
CITIGROUP GLOBAL MARKETS REALTY CORP.
and
CITIGROUP GLOBAL MARKETS REALTY CORP.
This AMENDMENT NUMBER TWO (this “Amendment”) is made and is effective as of this
10th day of November, 2006, among Option One Owner Trust 2003-5 (the “Issuer”), Option
One Loan Warehouse Corporation (the “Depositor”) and Citigroup Global Markets Realty Corp.
(“Citigroup”, and in its capacity as Purchaser, the “Purchaser”) to the Note Purchase Agreement,
dated as of November 14, 2003 (as amended, supplemented or otherwise modified from time to time,
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 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 of 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. Effective as of November 10, 2006, 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 an amount equal to $1,500,000,000.
SECTION 3. Representations. To induce the Purchaser to execute and deliver this
Amendment, (i) each of the Issuer and the Depositor hereby jointly and severally 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 correct, and (b) it is otherwise in full compliance with all of the terms
and conditions of the Note Purchase Agreement, and (ii) Option One Mortgage Corporation agrees to
negotiate in good faith the terms and conditions of joint venture and/or profit sharing
opportunities with Citigroup in respect of residential mortgage loans.
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.
2
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 2003-5 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 2003-5 | |||||
| By: | Wilmington Trust Company, not in its | |||||
|
individual capacity but solely as owner trustee |
||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
| OPTION | ONE LOAN WAREHOUSE CORPORATION | |||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
| CITIGROUP GLOBAL MARKETS REALTY CORP. | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
Agreed with respect to part (ii) of Section 3:
OPTION ONE MORTGAGE CORPORATION
By: |
||||
| Title: |
Exhibit 10.13
OMNIBUS AMENDMENT AND CONSENT AGREEMENT
This OMNIBUS AMENDMENT AND CONSENT AGREEMENT (the
“Amendment and Consent”) dated as of December 29, 2006 is by and among Option One Owner
Trust 2003-5 (the “Issuer”), Option One Mortgage Corporation (“OOMC”), in its capacity as loan
originator (in such capacity, the “Loan Originator”) and as servicer (in such capacity, the
“Servicer”), Option One Mortgage Capital Corporation (“Capital”), Option One Loan Warehouse
Corporation (the “Depositor”), Wells Fargo Bank, National Association (successor-in-interest to
Wells Fargo Bank Minnesota, National Association), as indenture trustee (the “Indenture Trustee”),
and Citigroup Global Markets Realty Corp. (the “Purchaser”). Capitalized terms used herein but not
specifically defined herein shall have the meanings given to such terms in the Sale and Servicing
Agreement (as defined below) or Indenture (as defined below).
PRELIMINARY STATEMENTS:
A. The Issuer, OOMC, as the Servicer and as the Loan Originator, the
Depositor and the Indenture Trustee are parties to that certain Amended and Restated Sale and
Servicing Agreement dated as of November 12, 2004 (as amended, the “Sale and Servicing
Agreement”).
B. The Issuer and the Indenture Trustee are parties to that certain Indenture
dated as of November 1, 2003 (as amended, the “Indenture”).
C. The Purchaser, the Issuer, OOMC, as Servicer and the Indenture Trustee,
as both Indenture Trustee and custodian, are parties to that certain Custodial Agreement dated
as of November 1, 2003 (as amended, the “Custodial Agreement”).
D. OOMC intends to transfer and assign to its wholly-owned subsidiary,
Capital, and Capital intends to accept and assume from OOMC, a
portion of OOMC’s business.
E. OOMC has requested that the Depositor, the Purchaser, the Issuer and the Indenture
Trustee consent to certain amendments to the Sale and Servicing Agreement, the Indenture and the
Custodial Agreement, upon the terms and subject to the conditions set
forth herein.
F. OOMC, Capital and Depositor have requested that the Purchaser, the
Issuer and the Indenture Trustee (a) consent to, promptly after the date hereof, the
conversion of the Depositor from a Delaware corporation to a Delaware limited liability company (the
“Depositor Conversion”) and (b) agree to promptly enter into after the date hereof a Fifth
Amended and Restated Loan Purchase and Contribution Agreement, dated as of December 29,
2006 (the “Proposed Fifth Amended and Restated LPA”), between Capital, as seller, and
Depositor, as purchaser (to reflect the terms of this Amendment and Consent).
G. OOMC has requested that all references to “Loan Originator” in any of the
Basic Documents be defined to mean both OOMC and Capital, jointly and severally, unless
otherwise specifically set forth therein. OOMC has further requested that the definition of
“Loan Purchase and Contribution Agreement” in any of the Basic Documents be defined to mean each
of: (i) the Loan Purchase Agreement between OOMC, as seller, and Capital, as purchaser, dated as
of December 29, 2006 and all supplements and amendments thereto and (ii) the Proposed Fifth
Amended and Restated LPA, and all supplements and amendments thereto.
H. In consideration of the consent of the Depositor, the Purchaser, the Issuer and the
Indenture Trustee, OOMC has agreed to be held jointly and severally liable for the Transfer
Obligation on the terms set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Amendments to the Sale and Servicing Agreement. Effective as of December
29, 2006 or such later date as OOMC shall designate (the “Effective Date”) and subject to the
satisfaction of the conditions precedent set forth in Section 9 hereof, the Sale and Servicing
Agreement is hereby amended as follows:
(a) The definition of “Loan Originator” set forth in Section 1.01 of the Sale
and Servicing Agreement is hereby amended to provide as follows:
“Loan Originator: Each of Option One and Option One Capital, and their respective
successors and assigns, jointly and severally.”
(b) The definition of “Loan Purchase and Contribution Agreement” set forth
in Section 1.01 of the Sale and Servicing Agreement is hereby amended to provide as follows:
“Loan Purchase and Contribution Agreement: Each of: (i) the Loan Purchase Agreement
between Option One, as loan originator, and Option One Capital, as transferee, dated as of
December 29, 2006 and all supplements and amendments thereto and (ii) the Fifth Amended and
Restated Loan Purchase and Contribution Agreement, between Option One Capital, as loan
originator, and Depositor, as depositor, dated as of December 29, 2006, and all supplements
and amendments thereto.”
(c) The following definition of “Option One Capital” is hereby added to
Section 1.01 of the Sale and Servicing Agreement:
“Option One Capital: Option One Mortgage Capital Corporation, a Delaware
corporation.”
(d) Section 2.07(iv) of the Sale and Servicing Agreement is hereby amended
by substituting the following language:
“(iv) Option One, Option One Capital or any of their Affiliates 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, Option One Capital or any of their 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 2001-2, the
Depositor, Option One and the Indenture Trustee, the Sale
- 2 -
and Servicing Agreement, dated as of July 2, 2002, among the Option One Owner Trust 2002-3,
the Depositor, Option One and the Facility Administrator, 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, the Sale and Servicing Agreement, dated as of June 1, 2005,
among Option One Owner Trust 2005-6, the Depositor, Option One and the Indenture Trustee,
the Sale and Servicing Agreement, dated as of September 1, 2005, among the Option One Owner
Trust 2005-7, the Depositor, Option One and the Indenture Trustee, the Sale and Servicing
Agreement, dated as of October 1, 2005 among Option One Owner Trust 2005-8, the Depositor,
Option One and the Indenture Trustee and the Sale and Servicing Agreement, dated as of
December 30, 2005 among Option One Owner Trust 2005-9, 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.
(e) Subsection (m) of Section 3.02 of the Sale and Servicing Agreement is
hereby amended and restated in its entirety as follows:
“(m) Option One is in compliance with each of its financial covenants set forth in
Section 7.02; and”
(f) Subsection (a)(8) of Section 9.01 of the Sale and Servicing Agreement is
hereby amended and restated in its entirety as follows:
“(8) Option One fails to comply with any of the financial covenants set forth in
Section 7.02; or”
(g) Subsection (k) of Section 3.02 of the Sale and Servicing Agreement is
hereby amended and restated in its entirety as follows:
“(k) Option One has received fair consideration and reasonably equivalent value in
exchange for the Loans sold by it to Option One Capital and 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;
(h) Section 5.06 of the Sale and Servicing Agreement is hereby amended by adding the
following subsection:
“(c) With respect to the obligations of the Loan Originator pursuant to this Section
5.06, Option One shall be obligated to make payments hereunder only if Option One Capital
does not make such payments prior to the time any such payment is required to be made. If
Option One Capital does not make any such payment prior to the time such payment is required
to be made, Option One shall be required to make such payment not later than the time such
payment is required to be made.”
(i) Section 7.02 of the Sale and Servicing Agreement is hereby amended by substituting
“Option One” for “the Loan Originator” in each and every place where such term appears in such
section.
- 3 -
(j) Section 11.06 of the Sale and Servicing Agreement is hereby amended by deleting
clause (III) thereof and replacing such clause with the following:
“(III) in the case of the Loan Originator, (A) if to Option One, to Option One
Mortgage Corporation, 3 Ada, Irvine, California 92618, Attention: William O’Neill, telecopy
number: (949) 790-7540, telephone number: (949) 790-7504 or (B) if to Option One Capital,
to Option One Mortgage Capital Corporation, 3 Ada Road, Irvine, California 92618,
Attention: Chief Financial Officer, telecopy number: (949) 790-7514, telephone number:
(949) 790-3600 ext 35524 or, in either case, to such other addresses or telecopy or
telephone numbers as may hereafter be furnished to the Securityholders and the other
parties hereto in writing by Option One or Option One Capital.
SECTION 2. Amendments to the Indenture. Effective as of the Effective Date and
subject to the satisfaction of the conditions precedent set forth in Section 9 hereof, the
Indenture is hereby amended as follows:
The definition of “Loan Originator” set forth in Section 1.01(a) of the Indenture is hereby
amended to provide as follows:
“Loan Originator: has the meaning given to such term in the Sale and Servicing
Agreement.”
SECTION 3. Amendments to the Custodial Agreement. Effective as of the Effective Date
and subject to the satisfaction of the conditions precedent set forth in Section 9 hereof, the
Custodial Agreement is hereby amended as follows:
(a) The definition of “Loan Originator” set forth in Section 1 of the Custodial
Agreement is hereby amended to provide as follows:
“Loan Originator: As defined in the Sale and Servicing Agreement.”
(b) The definition of “Loan Purchase and Contribution Agreement” set forth
in Section 1 of the Custodial Agreement is hereby amended to provide as follows:
“Loan Purchase and Contribution Agreement: As defined in the Sale and
Servicing Agreement.”
SECTION 4. Consent to the Depositor Conversion and Proposed Fifth Amended and Restated
LPA. Each of the parties hereto consents to (a) the Depositor Conversion and (b) the Proposed
Fifth Amended and Restated LPA to amend and restate that certain Fourth Amended and Restated Loan
Purchase and Contribution Agreement, dated as of September 1, 2005, between OOMC, as seller, and
Depositor, as purchaser (to reflect the terms of this Amendment and Consent, including the
substitution of Capital for OOMC as the Loan Originator).
SECTION 5. Representations and Warranties. Each of the parties hereto represents
and warrants that this Amendment and Consent, and the Sale and Servicing Agreement, Indenture and
Custodial Agreement, each as amended by this Amendment and Consent, constitute legal,
- 4 -
valid and binding obligations of such Person enforceable against such Person in accordance with
their terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws
affecting the enforcement of creditors’ rights generally and general equitable principles. Each of
OOMC, Capital and the Depositor represent to the Purchaser that as of the date hereof, after
giving effect to this Amendment and Consent, (a) all of their respective representations and
warranties in the Basic Documents are true and correct, and (b) such party is in full compliance
with all of the terms and conditions of the Basic Documents.
SECTION 6. Reference to and the Effect on the Sale and Servicing Agreement, the
Indenture and the Custodial Agreement.
(a) On and after the Effective Date, each reference in the Sale and Servicing
Agreement to “this Agreement”, “hereunder”, “hereof, “herein” or words of like import
referring to the Sale and Servicing Agreement and each reference to the Sale and Servicing
Agreement in any certificate delivered in connection therewith, shall mean and be a reference
to the Sale and Servicing Agreement as amended hereby.
(b) Each of the parties hereto hereby agrees that, except as specifically
amended above, the Sale and Servicing Agreement is hereby ratified and confirmed and shall
continue to be in full force and effect and enforceable, except as such enforcement may be
limited by applicable bankruptcy, insolvency, reorganization or other similar laws relating to
or limiting creditors’ rights generally and general equitable principles.
(c) On and after the Effective Date, each reference in the Indenture to “this
Indenture”, “hereunder”, “hereof, “herein” or words of like import referring to the Indenture
and each reference to the Indenture in any certificate delivered in connection therewith,
shall mean and be a reference to the Indenture as amended hereby.
(d) Each of the parties hereto hereby agrees that, except as specifically
amended above, the Indenture is hereby ratified and confirmed and shall continue to be in full
force and effect and enforceable, except as such enforcement may be limited by applicable
bankruptcy, insolvency, reorganization or other similar laws relating to or limiting
creditors’ rights generally and general equitable principles.
(e) On and after the Effective Date, each reference in the Custodial
Agreement to “this Agreement”, “hereunder”, “hereof, “herein” or words of like import
referring to the Custodial Agreement and each reference to the Custodial Agreement in any
certificate delivered in connection therewith, shall mean and be a reference to the
Custodial Agreement as amended hereby.
(f) Each of the parties hereto hereby agrees that, except as specifically
amended above, the Custodial Agreement is hereby ratified and confirmed and shall continue to
be in full force and effect and enforceable, except as such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization or other similar laws relating to or
limiting creditors’ rights generally and general equitable principles.
SECTION
7. Execution in Counterparts. This Amendment and Consent may be executed in
any number of counterparts and by different parties hereto in separate counterparts,
- 5 -
each of which when so executed and delivered shall be deemed to be an original and all of which
taken together shall constitute but one and the same agreement.
SECTION 8. Governing Law. This Amendment and Consent shall be construed in accordance with,
and governed by the laws of the State of New York, without giving effect to its conflicts of law
provisions.
SECTION 9. Conditions of Effectiveness. This Amendment and Consent shall become
effective as of the date hereof upon the receipt by the Purchaser of this Amendment and Consent
duly executed by all of the parties hereto.
[remainder of page intentionally left blank]
- 6 -
IN WITNESS WHEREOF, the parties have executed this Amendment and Consent as of the day
and year first above written.
| OPTION ONE OWNER TRUST 2003-5, as Issuer | ||||||
| By: | Wilmington Trust Company, not in its individual capacity, but solely as Owner Trustee |
|||||
| By: | /s/ Mary Kay Pupillo
|
|||||
| Title: Assistant Vice President | ||||||
| OPTION ONE LOAN WAREHOUSE CORPORATION, as Depositor |
||||||
| By: | /s/ Philip Laren
|
|||||
| Title: Vice President | ||||||
| OPTION ONE MORTGAGE CORPORATION, as Loan Originator and as Servicer |
||||||
| By: | /s/ Philip Laren | |||||
| Name: Philip Laren | ||||||
| Title: Senior Vice President | ||||||
| OPTION ONE MORTGAGE CAPITAL CORPORATION |
||||||
| By: | /s/ Philip Laren
|
|||||
| Title: Vice President | ||||||
Signature Page to Omnibus Amendment
| WELLS FARGO BANK, NATIONAL ASSOCIATION, as Indenture Trustee |
||||||
| By: | /s/ Darron C. Woodus
|
|||||
| Title: Assistant Vise President | ||||||
Signature
Page to Omnibus Amendment
| CITIGROUP GLOBAL MARKETS REALTY CORP., as Purchaser |
||||||
| By: | /s/ Bobbie Theivakumaran
|
|||||
| Title: Authorized Agent | ||||||
Signature
Page to Omnibus Amendment
Exhibit 10.14
OMNIBUS AMENDMENT
OPTION ONE OWNER TRUST 2003-5
OPTION ONE OWNER TRUST 2003-5
This OMNIBUS AMENDMENT (the “Amendment”) dated as of January 1, 2007 is by and among Option
One Owner Trust 2003-5 (the “Issuer”), Option One Mortgage Corporation (“OOMC”), in its capacity as
loan originator (in such capacity, the “Loan Originator”) and as servicer (in such capacity, the
“Servicer”), Option One Mortgage Capital Corporation (“Capital”), Option One Loan Warehouse
Corporation (the “Depositor”), Wells Fargo Bank, National Association (successor-in-interest to
Wells Fargo Bank Minnesota, National Association), as indenture trustee (the “Indenture Trustee”),
and Citigroup Global Markets Realty Corp. (the “Purchaser”). Capitalized terms used herein but not
specifically defined herein shall have the meanings given to such terms in the Sale and Servicing
Agreement (as defined below) or the Indenture referred to therein.
PRELIMINARY STATEMENTS:
A. The Issuer, OOMC, Capital, the Depositor and the Indenture Trustee are parties to that
certain Amended and Restated Sale and Servicing Agreement dated as of November 12, 2004 (as amended
and waived through the date hereof, the “Sale and Servicing Agreement”).
B. The Issuer, the Depositor and the Purchaser are parties to that certain Note Purchase
Agreement dated as of November 14 2003 (as amended and waived through the date hereof, the “Note
Purchase Agreement”).
C. OOMC and Capital intend to cause the Depositor to establish a new trust, to be called
Option One Owner Trust 2007-5A, and the Purchaser intends to purchase notes to be issued by that
new trust, upon terms to be negotiated and agreed between the parties. The parties have agreed
that if such a transaction is consummated, the Maximum Note Principal Amount will be reduced to the
extent of the maximum note principal amount of notes issued to the Purchaser by that new trust.
D. The parties hereto desire to amend the Sale and Servicing Agreement subject to the terms
and conditions of this Amendment.
E. OOMC and Capital acknowledge that the changes to the Sale and Servicing Agreement that are
being made by this Amendment are inconsistent with the Issuer being considered a qualified special
purpose entity for purposes of Statement of Financial Accounting Standards No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and of 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 to the Sale and Servicing Agreement.
(A) Section 1.01 of the Sale and Servicing Agreement is hereby amended by amending the
definition of the term “Revolving Period” in its entirety to read as follows:
Revolving Period: With respect to the Notes, the period commencing on
November 10, 2006 and ending on the earlier of (i) April 27, 2007, and (ii)
the date on which the Revolving Period is terminated pursuant to Section
2.07.
(B) Section 3.10 is hereby added to the Sale and Servicing Agreement, immediately following
Section 3.09, reading in its entirety as follows:
Section 3.10 Loan Originator Call. The Loan Originator may
repurchase any Loan at any time at the Repurchase Price. Prior to
exercising this call, the Loan Originator shall deliver written notice to
the Majority Noteholders and the Indenture Trustee which notice shall
identify each Loan to be repurchased and the Repurchase Price therefor.
The Loan Originator shall then repurchase the Loan in the manner set forth
in Section 2.05(b)(ii).
SECTION 3. Amendments to the Note Purchase Agreement. Section 1.01 of the Sale and
Servicing Agreement is hereby amended by amending the definition of the term “Maximum Note
Principal Balance” in its entirety to read as follows:
“Maximum Note Principal Balance” means an amount equal to
$1,500,000,000, reduced by the maximum note principal balance under the note
purchase agreement, if any shall have been entered into, between the
Depositor, the Purchaser and Option One Owner Trust 2007-5A.
SECTION 4. Representations. In order to induce the parties hereto to execute and
deliver this Amendment, each of the Issuer and the Depositor 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 5. Limited Effect. Except as expressly amended and modified by this
Amendment, the Sale and Servicing Agreement and the Note Purchase Agreement shall continue in full
force and effect in accordance with their respective terms. Reference to this Amendment need not
be made in the Sale and Servicing Agreement or Note Purchase 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 or
the Note Purchase Agreement, any reference in any of such items to the Sale and
- 2 -
Servicing Agreement or Note Purchase Agreement, as applicable, being sufficient to refer to the
Sale and Servicing Agreement or Note Purchase Agreement as amended hereby.
SECTION 6. 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 and (ii) all reasonable fees and expenses of the
Indenture Trustee and Owner Trustee and their counsel.
SECTION 7. 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 8. 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 9. 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 2003-5 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.
[remainder of page intentionally left blank]
- 3 -
IN WITNESS WHEREOF, the parties have executed this Amendment and Consent as of the day
and year first above written.
| OPTION ONE OWNER TRUST 2003-5, as Issuer |
OPTION ONE LOAN WAREHOUSE
CORPORATION, as Depositor |
|||||||||
By:
|
Wilmington Trust Company, not in its | By: | ||||||||
| individual capacity, but solely as Owner Trustee |
Name: Title: | |||||||||
By:
|
||||||||||
Name:
|
||||||||||
Title:
|
||||||||||
| OPTION ONE MORTGAGE
CORPORATION, as Loan Originator and as Servicer |
WELLS FARGO BANK,
NATIONAL ASSOCIATION, as Indenture Trustee |
|||||||||
By:
|
By: | |||||||||
Name:
|
Name: | |||||||||
Title:
|
Title: | |||||||||
| OPTION ONE MORTGAGE CAPITAL CORPORATION | CITIGROUP GLOBAL MARKETS REALTY CORP., as Purchaser | |||||||||
By:
|
By: | |||||||||
Name:
|
Name: | |||||||||
Title:
|
Title: | |||||||||
Signature Page to Omnibus Amendment
Option One Owner Trust 2003-5
Option One Owner Trust 2003-5
Exhibit 10.15
OMNIBUS AMENDMENT NUMBER FOUR
to the
OPTION ONE OWNER TRUST 2005-6 WAREHOUSE FACILITY
This OMNIBUS AMENDMENT NUMBER FOUR (this “Amendment”) is made and is effective as of
this 12th day of July, 2006, among Option One Owner Trust 2005-6 as issuer (the
“Issuer”), Option One Loan Warehouse Corporation as depositor (the “Depositor”), Option One
Mortgage Corporation as loan originator and servicer (“Option One”), Wells Fargo Bank, N.A.
as indenture trustee (the “Indenture Trustee”) and Lehman Brothers Bank as noteholder agent
and purchaser (“Lehman Brothers”) to (i) the Pricing Letter, dated as of June 1, 2005 among
the Issuer, the Depositor, Option One and the Indenture Trustee (as amended or supplemented,
the “Pricing Letter”) and (ii) the Sale and Servicing Agreement, dated as of June 1, 2005 (as
amended, supplemented or otherwise modified from time to time, the “Sale and Servicing
Agreement”), among the Issuer, the Depositor, Option One and the Indenture Trustee (as
amended, supplemented or otherwise modified from time to time, the “Sale and Servicing
Agreement” and together with the Pricing Letter, the “Transaction Documents”), among the
Issuer, the Depositor, Option One and the Indenture Trustee.
RECITALS
WHEREAS, the parties have previously entered into the Pricing Letter; and
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, and of the mutual covenants herein contained, the parties hereto
hereby agree as follows:
SECTION 1. Defined Terms. Capitalized terms used but not defined herein shall
have the meanings ascribed to such terms in the Pricing Letter.
SECTION 2. Amendments to Pricing Letter.
(a) The definition of “Collateral Value” in the Section 1 of the Pricing Letter is
hereby amended by deleting in its entirety subsection (A)(viii) relating to 40 year
amortization Loans and interest only Loans and replacing it with the following:
“ (viii) the aggregate outstanding Principal Balance of 40 year amortization
Loans and interest only Loans combined may not exceed 50% of the Pool
Principal Balance;”
(c) The definition of “Collateral Value” in the Section 1 of the Pricing Letter is
hereby amended by deleting in its entirety subsection (A)(ix) relating to interest only
Loans.
1
(d) The definition of “Collateral Value” in the Section 1 of the Pricing Letter is hereby
amended by deleting in its entirety subsection (A)(x) relating to 40 year amortization Loans.
SECTION 3. Amendments to Sale and Servicing Agreement.
(a) The definition of “Combined LTV or CLTV” in Section 1.01 of the Sale and Servicing
Agreement is hereby amended by deleting the definition in its entirety and replacing it with the
following:
“Combined LTV or CLTV: With respect to any Mortgage Loan, the ratio of the outstanding
Principal Balance on the related date of origination of (a) (i) such Loan plus (ii) any other First
Lien Loan or Second Lien Loan secured by the Mortgaged Property, 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.”
SECTION 4. Representations. To induce Lehman to execute and deliver this Amendment,
each of the Issuer and the Depositor hereby jointly and severally represents to Lehman Brothers
that as of the date hereof, after giving effect to this Amendment, (a) all of its respective
representations and warranties in the Basic Documents are true and correct, and (b) it is
otherwise in full compliance with all of the terms and conditions of the Basic Documents.
SECTION 5. Fees and Expenses. The Issuer and the Depositor jointly and severally
covenant to pay as and when billed by Lehman 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
Lehman Brothers, (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. Limited Effect. Except as expressly amended and modified by this Amendment,
the Transaction Documents shall continue in full force and effect in accordance with its terms.
Reference to this Amendment need not be made in the Transaction Documents 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 Transaction Documents, any reference in any of such
items to the Transaction Documents being sufficient to refer to the Transaction Documents as
amended hereby.
SECTION 7. 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.
2
SECTION 8. 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 9. 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 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 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 2005-6 | ||||||
| By: | Wilmington Trust Company, not in its individual capacity but solely as owner trustee |
|||||
| By: | /s/ Mary Kay Pupillo | |||||
| Name: | ||||||
| Title: | Assistant Vice President | |||||
| OPTION ONE LOAN WAREHOUSE CORPORATION | ||||||
| By: | /s/ Philip Laren | |||||
| Name: | ||||||
| Title: | Vice President | |||||
| OPTION ONE MORTGAGE CORPORATION | ||||||
| By: | /s/ Philip Laren | |||||
| Name: | ||||||
| Title: | Senior Vice President | |||||
| WELLS FARGO BANK, N.A. | ||||||
| By: | /s/ Darron C. Woodus | |||||
| Name: | ||||||
| Title: | Assistant Vice President | |||||
| LEHMAN BROTHERS BANK | ||||||
| By: | /s/ [ILLEGIBLE] | |||||
| Name: | ||||||
| Title: | ||||||
Exhibit 10.16
OMNIBUS AMENDMENT AND CONSENT AGREEMENT
This OMNIBUS AMENDMENT AND CONSENT AGREEMENT (the
“Amendment and Consent”) dated as of December 29, 2006 is by and among Option One Owner
Trust 2005-6 (the “Issuer”), Option One Mortgage Corporation (“OOMC”), in its
capacity as loan originator (in such capacity, the “Loan Originator”) and as servicer (in
such capacity, the “Servicer”), Option One Mortgage Capital Corporation
(“Capital”), Option One Loan Warehouse Corporation (the “Depositor”), Wells Fargo
Bank, National Association, as indenture trustee (the “Indenture Trustee”), and Lehman
Brothers Bank, as purchaser (in such capacity, the “Purchaser”) and as noteholder agent
(in such capacity, “Noteholder Agent”). Capitalized terms used herein but not specifically
defined herein shall have the meanings given to such terms in the Sale and Servicing Agreement (as
defined below) or Indenture (as defined below).
PRELIMINARY STATEMENTS:
A. The Issuer, OOMC, as the Servicer and as the Loan Originator, the Depositor and
the Indenture Trustee are parties to that certain Sale and Servicing Agreement dated as of
June 1, 2005 (as amended, the “Sale and Servicing Agreement”).
B. The Issuer and the Indenture Trustee are parties to that certain Indenture dated as of June
1, 2005 (as amended, the “Indenture”).
C. The Noteholder Agent, the Issuer, OOMC, as servicer and the Indenture Trustee, as both
indenture trustee and custodian, are parties to that certain Custodial Agreement dated as of June
1, 2005 (as amended, the “Custodial Agreement”).
D. OOMC intends to transfer and assign to its wholly-owned subsidiary, Capital, and Capital
intends to accept and assume from OOMC, a portion of OOMC’s business.
E. OOMC has requested that the Depositor, the Purchaser, the Noteholder Agent, the Issuer and
the Indenture Trustee consent to certain amendments to the Sale and Servicing Agreement, the
Indenture and the Custodial Agreement, upon the terms and subject to the conditions set forth
herein.
F. OOMC, Capital and Depositor have requested that the Purchaser, the Noteholder Agent, the
Issuer and the Indenture Trustee (a) consent to, promptly after the date hereof, the conversion of
the Depositor from a Delaware corporation to a Delaware limited liability company (the
“Depositor Conversion”) and (b) agree to promptly enter into after the date hereof a Fifth
Amended and Restated Loan Purchase and Contribution Agreement, dated as of December 29, 2006 (the
“Proposed Fifth Amended and Restated LPA”), between Capital, as seller, and Depositor, as
purchaser (to reflect the terms of this Amendment and Consent).
G. OOMC has requested that all references to “Loan Originator” in any of the Basic Documents
be defined to mean both OOMC and Capital, jointly and severally, unless otherwise specifically set
forth therein. OOMC has further requested that the definition of “Loan Purchase and Contribution
Agreement” in any of the Basic Documents be defined to mean each of: (i) the Loan Purchase
Agreement between OOMC, as seller, and Capital, as purchaser, dated
as of December ___, 2006 and all supplements and amendments thereto and (ii) the Proposed Fifth
Amended and Restated LPA, and all supplements and amendments thereto.
H. In consideration of the consent of the Depositor, the Purchaser, the Noteholder
Agent, the Issuer and the Indenture Trustee, OOMC has agreed to be held jointly and severally
liable for the Transfer Obligation on the terms set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Amendments to the Sale and Servicing Agreement. Effective as of December
29, 2006 or such later date as OOMC shall designate (the “Effective Date”) and subject to the
satisfaction of the conditions precedent set forth in Section 9 hereof, the Sale and Servicing
Agreement is hereby amended as follows:
(a) The definition of “Loan Originator” set forth in Section 1.01 of the Sale and Servicing
Agreement is hereby amended to provide as follows:
“Loan Originator: Each of Option One and Option One Capital, and their respective
successors and assigns, jointly and severally.”
(b) The definition of “Loan Purchase and Contribution Agreement” set forth in Section 1.01 of
the Sale and Servicing Agreement is hereby amended to provide as follows:
“Loan Purchase and Contribution Agreement: Each of: (i) the Loan Purchase Agreement
between Option One, as loan originator, and Option One Capital, as transferee, dated as of
December 29, 2006 and all supplements and amendments thereto and (ii) the Fifth Amended and
Restated Loan Purchase and Contribution Agreement, between Option One Capital, as loan
originator, and Depositor, as depositor, dated as of December 29, 2006, and all supplements
and amendments thereto.”
(c) The following definition of “Option One Capital” is hereby added to Section 1.01 of
the Sale and Servicing Agreement:
“Option One Capital: Option One Mortgage Capital Corporation, a Delaware
corporation.”
(d) Section 2.07 (iii) of the Sale and Servicing Agreement is hereby amended by substituting
the following language:
“(iii) Option One, Option One Capital or any of their Affiliates 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, Option One Capital or any of their Affiliates, including without
limitation, the Sale and Servicing Agreement, dated as of April 1, 2001, among the Option One
Owner Trust 2001-1 A, 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 2001-2, 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
- 2 -
2002-3, the Depositor, Option One and the Facility Administrator, 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, the Sale and Servicing Agreement, dated as
of June 1, 2005, among Option One Owner Trust 2005-6, the Depositor, Option One and the
Indenture Trustee, the Sale and Servicing Agreement, dated as of September 1, 2005, among
the Option One Owner Trust 2005-7, the Depositor, Option One and the Indenture Trustee, the
Sale and Servicing Agreement, dated as of October 1, 2005 among Option One Owner Trust
2005-8, the Depositor, Option One and the Indenture Trustee and the Sale and Servicing
Agreement, dated as of December 30, 2005 among Option One Owner Trust 2005-9, 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.”
(e) Subsection (e) of Section 3.02 of the Sale and Servicing Agreement is hereby amended
by deleting the words “the Loan Originator’s satisfaction of its financial covenants” and in
their place inserting the words “Option One’s satisfaction of its financial covenants.”
(f) Subsection (m) of Section 3.02 of the Sale and Servicing Agreement is hereby amended and
restated in its entirety as follows:
“(m) Option One is in compliance with each of its financial covenants set forth in
Section 7.02; and”
(g) Subsection (k) of Section 3.02 of the Sale and Servicing Agreement is hereby amended
and restated in its entirety as follows:
“(k) Option One has received fair consideration and reasonably equivalent value in
exchange for the Loans sold by it to Option One Capital and Option One Capital has received
fair consideration and reasonably equivalent value in exchange for the Loans sold by it on
such Transfer Date to the Depositor;
(h) Section 5.06 of the Sale and Servicing Agreement is hereby amended by adding the
following subsection:
“(c) With respect to the obligations of the Loan Originator pursuant to this Section
5.06, Option One shall be obligated to make payments hereunder only if Option One Capital
does not make such payments prior to the time any such payment is required to be made. If
Option One Capital does not make any such payment prior to the time such payment is required
to be made, Option One shall be required to make such payment not later than the time such
payment is required to be made.”
(i) Section 7.02 of the Sale and Servicing Agreement is hereby amended by substituting
“Option One” for “the Loan Originator” in each and every place where such term appears in such
section.
(j) Subsection (a)(6) of Section 9.01 of the Sale and Servicing Agreement is hereby
amended and restated in its entirety as follows:
- 3 -
“(6) Option One fails to comply with any of the financial covenants; or”
(k) Section 11.06 of the Sale and Servicing Agreement is hereby amended by deleting
clause (III) thereof and replacing such clause with the following:
“(III) in the case of the Loan Originator, (A) if to Option One, to Option One Mortgage
Corporation, 3 Ada, Irvine, California 92618, Attention: William O’Neill, telecopy number:
(949) 790-7540, telephone number: (949) 790-7504 or (B) if to Option One Capital, to Option
One Mortgage Capital Corporation, 3 Ada Road, Irvine, California 92618, Attention: Chief
Financial Officer, telecopy number: (949) 790-7514, telephone number: (949) 790-3600 ext
35524 or, in either case, to such other addresses or telecopy or telephone numbers as may
hereafter be furnished to the Securityholders and the other parties hereto in writing by
Option One or Option One Capital.
SECTION 2. Amendments to the Indenture. Effective as of the Effective Date and
subject to the satisfaction of the conditions precedent set forth in Section 9 hereof, the
Indenture is hereby amended as follows:
The definition of “Loan Originator” set forth in Section 1.01 (a) of the Indenture is hereby
amended to provide as follows:
“Loan Originator: has the meaning given to such term in the Sale and Servicing
Agreement.”
SECTION 3. Amendments to the Custodial Agreement. Effective as of the Effective Date
and subject to the satisfaction of the conditions precedent set forth in Section 9 hereof, the
Custodial Agreement is hereby amended as follows:
(a) The definition of “Loan Originator” set forth in Section 1 of the Custodial Agreement is
hereby amended to provide as follows:
“Loan Originator: As defined in the Sale and Servicing Agreement.”
(b) The definition of “Loan Purchase and Contribution Agreement” set forth in Section 1
of the Custodial Agreement is hereby amended to provide as follows:
“Loan Purchase and Contribution Agreement: As defined in the Sale and
Servicing Agreement.”
SECTION 4. Consent to the Depositor Conversion and Proposed Fifth Amended and Restated
LPA. Each of the parties hereto consents to (a) the Depositor Conversion and (b) the Proposed
Fifth Amended and Restated LPA to amend and restate that certain Fourth Amended and Restated Loan
Purchase and Contribution Agreement, dated as of September 1, 2005, between OOMC, as seller, and
Depositor, as purchaser (to reflect the terms of this Amendment and Consent, including the
substitution of Capital for OOMC as the Loan Originator).
SECTION 5. Representations and Warranties. Each of the parties hereto represents
and warrants that this Amendment and Consent, and the Sale and Servicing Agreement, Indenture
- 4 -
and Custodial Agreement, each as amended by this Amendment and Consent, constitute legal, valid
and binding obligations of such Person enforceable against such Person in accordance with their
terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting
the enforcement of creditors’ rights generally and general equitable principles. Each of OOMC,
Capital and the Depositor represent to the Purchaser that as of the date hereof, after giving
effect to this Amendment and Consent, (a) all of their respective representations and warranties
in the Basic Documents are true and correct, and (b) such party is in full compliance with all of
the terms and conditions of the Basic Documents.
SECTION 6. Reference to and the Effect on the Sale and Servicing Agreement, the
Indenture and the Custodial Agreement.
(a) On and after the Effective Date, each reference in the Sale and Servicing Agreement to
“this Agreement”, “hereunder”, “hereof” , “herein” or words of like import referring to the Sale and
Servicing Agreement and each reference to the Sale and Servicing Agreement in any certificate
delivered in connection therewith, shall mean and be a reference to the Sale and Servicing
Agreement as amended hereby.
(b) Each of the parties hereto hereby agrees that, except as specifically amended above, the
Sale and Servicing Agreement is hereby ratified and confirmed and shall continue to be in full
force and effect and enforceable, except as such enforcement may be limited by applicable
bankruptcy, insolvency, reorganization or other similar laws relating to or limiting creditors’
rights generally and general equitable principles.
(c) On and after the Effective Date, each reference in the Indenture to “this Indenture”,
“hereunder”, “hereof” , “herein” or words of like import referring to the Indenture and each
reference to the Indenture in any certificate delivered in connection therewith, shall mean and be
a reference to the Indenture as amended hereby.
(d) Each of the parties hereto hereby agrees that, except as specifically amended above, the
Indenture is hereby ratified and confirmed and shall continue to be in full force and effect and
enforceable, except as such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws relating to or limiting creditors’ rights generally and
general equitable principles.
(e) On and after the Effective Date, each reference in the Custodial Agreement to “this
Agreement”, “hereunder”, “hereof” , “herein” or words of like import referring to the Custodial
Agreement and each reference to the Custodial Agreement in any certificate delivered in
connection therewith, shall mean and be a reference to the Custodial Agreement as amended
hereby.
(f) Each of the parties hereto hereby agrees that, except as specifically amended above, the
Custodial Agreement is hereby ratified and confirmed and shall continue to be in full force and
effect and enforceable, except as such enforcement may be limited by applicable bankruptcy,
insolvency, reorganization or other similar laws relating to or limiting creditors’ rights
generally and general equitable principles.
- 5 -
SECTION 7. Execution in Counterparts. This Amendment and Consent may be executed in
any number of counterparts and by different parties hereto in separate counterparts, each of which
when so executed and delivered shall be deemed to be an original and all of which taken together
shall constitute but one and the same agreement.
SECTION 8. Governing Law. This Amendment and Consent shall be construed in
accordance with, and governed by the laws of the State of New York, without giving effect to its conflicts of law provisions.
SECTION 9. Conditions of Effectiveness. This Amendment and Consent shall become
effective as of the date hereof upon the receipt by the Noteholder Agent of this Amendment and
Consent duly executed by all of the parties hereto.
[remainder of page intentionally left blank]
- 6 -
IN WITNESS WHEREOF, the parties have executed this Amendment and Consent as of the day and
year first above written,
| OPTION ONE OWNER TRUST 2005-6, as Issuer | ||||||
| By: | Wilmington Trust Company, not in its individual capacity, but solely as Owner Trustee | |||||
| By: | /s/ Mary Kay Pupillo | |||||
| Name: | ||||||
| Title: | Assistant Vice President | |||||
| OPTION ONE LOAN WAREHOUSE CORPORATION, as Depositor | ||||||
| By: | /s/ Philip Laren | |||||
| Name: | ||||||
| Title: | Vice President | |||||
| OPTION ONE MORTGAGE CORPORATION, as Loan Originator and as Servicer | ||||||
| By: | /s/ Philip Laren | |||||
| Name: | ||||||
| Title: | Senior Vice President | |||||
| OPTION ONE MORTGAGE CAPITAL CORPORATION | ||||||
| By: | /s/ Philip Laren | |||||
| Name: | ||||||
| Title: | Vice President | |||||
Signature Page to Omnibus Amendment
| WELLS FARGO BANK, NATIONAL ASSOCIATION, as Indenture Trustee | ||||||
| By: | /s/ Darron C. Woodus | |||||
| Name: | ||||||
| Title: | Assistant Vice President | |||||
Signature Page to Omnibus Amendment
| LEHMAN BROTHERS BANK, as Purchaser | ||||||
| By: | [ILLEGIBLE] | |||||
| Name: | ||||||
| Title: | ||||||
| LEHMAN BROTHERS BANK, as Noteholder Agent | ||||||
| By: | [ILLEGIBLE] | |||||
| Name: | ||||||
| Title: | ||||||
Signature Page to Omnibus Amendment
Exhibit 10.17
OMNIBUS AMENDMENT AND CONSENT AGREEMENT
This OMNIBUS AMENDMENT AND CONSENT AGREEMENT (the
“Amendment and Consent”) dated as of December 29, 2006 is by and among Option One Owner
Trust 2005-7 (the “Issuer”), Option One Mortgage Corporation (“OOMC”), in its
capacity as loan originator (in such capacity, the “Loan Originator”) and as servicer (in
such capacity, the “Servicer”), Option One Mortgage Capital Corporation
(“Capital”), Option One Loan Warehouse Corporation (the “Depositor”), Wells Fargo
Bank, National Association, as indenture trustee (the “Indenture Trustee”), and HSBC Bank
USA, N.A and Bryant Park Funding LLC, as purchasers and HSBC Securities (USA) Inc., as
administrative agent (collectively, the “Purchasers”), and HSBC Securities (USA) Inc., as
noteholder agent (in such capacity, the “Noteholder Agent”). Capitalized terms used herein
but not specifically defined herein shall have the meanings given to such terms in the Sale and
Servicing Agreement (as defined below) or the Indenture (as defined below).
PRELIMINARY STATEMENTS:
A. The Issuer, OOMC, as servicer and as the loan originator, the Depositor and the Indenture
Trustee are parties to that certain Sale and Servicing Agreement dated as of September 1, 2005 (as
amended, the “Sale and Servicing Agreement”).
B. The Issuer and the Indenture Trustee are parties to that certain Indenture dated as of
September 1, 2005 (as amended, the “Indenture”).
C. The Noteholder Agent, the Issuer, OOMC, as servicer and the Indenture Trustee, as both
indenture trustee and custodian, are parties to that certain Custodial Agreement dated as of
September 1, 2005 (as amended, the “Custodial Agreement”).
D. OOMC intends to transfer and assign to its wholly-owned subsidiary, Capital, and Capital
intends to accept and assume from OOMC, a portion of OOMC’s business.
E. OOMC has requested that the Depositor, the Purchasers, the Noteholder Agent, the Issuer and
the Indenture Trustee consent to certain amendments to the Sale and Servicing Agreement, the
Indenture and the Custodial Agreement, upon the terms and subject to the conditions set forth
herein.
F. OOMC, Capital and Depositor have requested that the Purchasers, the Noteholder Agent, the
Issuer and the Indenture Trustee (a) consent to, promptly after the date hereof, the conversion of
the Depositor from a Delaware corporation to a Delaware limited liability company (the
“Depositor Conversion”) and (b) agree to promptly enter into after the date hereof a Fifth
Amended and Restated Loan Purchase and Contribution Agreement, dated as of December 29, 2006 (the
“Proposed Fifth Amended and Restated LPA”), between Capital, as seller, and Depositor, as
purchaser (to reflect the terms of this Amendment and Consent).
G. OOMC has requested that all references to “Loan Originator” in any of the Basic Documents
be defined to mean both OOMC and Capital, jointly and severally, unless otherwise specifically set
forth therein, OOMC. has further requested that the definition of “Loan Purchase and Contribution
Agreement” in any of the Basic Documents be defined to mean each
of: (i) the Loan Purchase Agreement between OOMC, as seller, and Capital, as purchaser, dated as
of December 29, 2006 and all supplements and amendments thereto and (ii) the Proposed Fifth
Amended and Restated LPA, and all supplements and amendments thereto.
H. In consideration of the consent of the Depositor, the Pur chasers, the Noteholder
Agent, the Issuer and the Indenture Trustee, OOMC has agreed to be held jointly and severally
liable for the Transfer Obligation on the terms set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Amendments to the Sale and Servicing Agreement. Effective as of December
29, 2006 or such later date as OOMC shall designate (the “Effective Date”) and subject to
the satisfaction of the conditions precedent set forth in Section 9 hereof, the Sale and Servicing
Agreement is hereby amended as follows:
(a) The definition of “Loan Originator” set forth in Section 1.01 of the Sale and Servicing
Agreement is hereby amended to provide as follows:
“Loan Originator: Each of Option One and Option One Capital, and their respective
successors and assigns, jointly and severally.”
(b) The definition of “Loan Purchase and Contribution Agreement” set forth in Section 1.01 of
the Sale and Servicing Agreement is hereby amended to provide as follows:
“Loan Purchase and Contribution Agreement: Each of: (i) the Loan Purchase Agreement
between Option One, as loan originator, and Option One Capital, as transferee, dated as of
December 29, 2006 and all supplements and amendments thereto and (ii) the Fifth Amended and
Restated Loan Purchase and Contribution Agreement, between Option One Capital, as loan
originator, and Depositor, as depositor, dated as of December 29, 2006, and all supplements
and amendments thereto.”
(c) The following definition of “Option One Capital” is hereby added to Section 1.01 of
the Sale and Servicing Agreement:
“Option One Capital: Option One Mortgage Capital Corporation, a Delaware
corporation.”
(d) Section 2.07(iii) of the Sale and Servicing Agreement is hereby amended by substituting
the following language:
“(iii) Option One, Option One Capital or any of their Affiliates 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, Option One Capital or any of their Affiliates, including without
limitation, the Sale and Servicing Agreement, dated as of April 1, 2001, among the Option
One Owner Trust 2001-1 A, 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 2001-2, the
Depositor, Option One and the Indenture Trustee, the Sale
- 2 -
and Servicing Agreement, dated as of July 2, 2002, among the Option One Owner Trust 2002-3,
the Depositor, Option One and the Facility Administrator, 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, the Sale and Servicing Agreement, dated as of June 1, 2005,
among Option One Owner Trust 2005-6, the Depositor, Option One and the Indenture Trustee,
the Sale and Servicing Agreement, dated as of September 1, 2005, among the Option One Owner
Trust 2005-7, the Depositor, Option One and the Indenture Trustee, the Sale and Servicing
Agreement, dated as of October 1, 2005 among Option One Owner Trust 2005-8, the Depositor,
Option One and the Indenture Trustee and the Sale and Servicing Agreement, dated as of
December 30, 2005 among Option One Owner Trust 2005-9, 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.
(e) Subsection (e) of Section 3.02 of the Sale and Servicing Agreement is hereby amended by
deleting the words “the Loan Originator’s satisfaction of its financial covenants” and in their
place inserting the words “Option One’s satisfaction of its financial covenants.”
(f) Subsection (m) of Section 3.02 of the Sale and Servicing Agreement is hereby amended and
restated in its entirety as follows:
“(m) Option One is in compliance with each of its financial covenants set forth in
Section 7.02; and”
(g) Subsection (k) of Section 3.02 of the Sale and Servicing Agreement is hereby amended
and restated in its entirety as follows:
“(k) Option One has received fair consideration and reasonably equivalent value in
exchange for the Loans sold by it to Option One Capital and Option One Capital has received
fair consideration and reasonably equivalent value in exchange for the Loans sold by it on
such Transfer Date to the Depositor;
(h) Section 5.06 of the Sale and Servicing Agreement is hereby amended by adding the
following subsection:
“(c) With respect to the obligations of the Loan Originator pursuant to this Section
5.06, Option One shall be obligated to make payments hereunder only if Option One Capital
does not make such payments prior to the time any such payment is required to be made. If
Option One Capital does not make any such payment prior to the time such payment is required
to be made, Option One shall be required to make such payment not later than the time such
payment is required to be made.”
(i) Section 7.02 of the Sale and Servicing Agreement is hereby amended by substituting
“Option One” for “the Loan Originator” in each and every place where such term appears in such
section.
- 3 -
(j) Subsection (a)(6) of Section 9.01 of the Sale and Servicing Agreement is hereby
amended and restated in its entirety as follows:
“(6) Option One fails to comply with any of its financial covenants; or”
(k) Section 11.06 of the Sale and Servicing Agreement is hereby amended by deleting
clause (III) thereof and replacing such clause with the following:
“(III) in the case of the Loan Originator, (A) if to Option One, to Option One
Mortgage Corporation, 3 Ada, Irvine, California 92618, Attention: William O’Neill, telecopy
number: (949) 790-7540, telephone number: (949) 790-7504 or (B) if to Option One Capital,
to Option One Mortgage Capital Corporation, 3 Ada Road, Irvine, California 92618,
Attention: Chief Financial Officer, telecopy number: (949) 790-7514, telephone number:
(949) 790-3600 ext 35524 or, in either case, to such other addresses or telecopy or
telephone numbers as may hereafter be furnished to the Securityholders and the other
parties hereto in writing by Option One or Option One Capital.
SECTION 2. Amendments to the Indenture. Effective as of the Effective Date and
subject to the satisfaction of the conditions precedent set forth in Section 9 hereof, the
Indenture is hereby amended as follows:
The definition of “Loan Originator” set forth in Section 1.01 (a) of the Indenture is hereby
amended to provide as follows:
“Loan Originator: has the meaning given to such term in the Sale and Servicing
Agreement.”
SECTION 3. Amendments to the Custodial Agreement. Effective as of the Effective Date
and subject to the satisfaction of the conditions precedent set forth in Section 9 hereof, the
Custodial Agreement is hereby amended as follows:
(a) The definition of “Loan Originator” set forth in Section 1 of the Custodial Agreement is
hereby amended to provide as follows:
“Loan Originator: As defined in the Sale and Servicing Agreement.”
(b) The definition of “Loan Purchase and Contribution Agreement” set forth in Section 1
of the Custodial Agreement is hereby amended to provide as follows:
“Loan Purchase and Contribution Agreement: As defined in the Sale and
Servicing Agreement.”
SECTION 4. Consent to the Depositor Conversion and Proposed Fifth Amended and Restated
LPA. Each of the parties hereto consents to (a) the Depositor Conversion and (b) the Proposed
Fifth Amended and Restated LPA to amend and restate that certain Fourth Amended and Restated Loan
Purchase and Contribution Agreement, dated as of September 1, 2005, between OOMC, as seller, and
the Depositor, as purchaser (to reflect the terms of this
- 4 -
Amendment and Consent, including the substitution of Capital for OOMC as the Loan
Originator).
SECTION 5. Representations and Warranties. Each of the parties hereto represents
and warrants that this Amendment and Consent, and the Sale and Servicing Agreement, Indenture and
Custodial Agreement, each as amended by this Amendment and Consent, constitute legal, valid and
binding obligations of such Person enforceable against such Person in accordance with their terms,
except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the
enforcement of creditors’ rights generally and general equitable principles. Each of OOMC, Capital
and me Depositor represent to the Purchasers that as of the date hereof, after giving effect to
this Amendment and Consent, (a) all of their respective representations and warranties in the
Basic Documents are true and correct, and (b) such party is in full compliance with all of the
terms and conditions of the Basic Documents.
SECTION 6. Reference to and the Effect on the Sale and Servicing Agreement, the
Indenture and the Custodial Agreement.
(a) On and after the Effective Date, each reference in the Sale and Servicing Agreement to
“this Agreement”, “hereunder”, “hereof” , “herein” or words of like import referring to the Sale and
Servicing Agreement and each reference to the Sale and Servicing Agreement in any certificate
delivered in connection therewith, shall mean and be a reference to the Sale and Servicing
Agreement as amended hereby.
(b) Each of the parties hereto hereby agrees that, except as specifically amended above, the
Sale and Servicing Agreement is hereby ratified and confirmed and shall continue to be in full
force and effect and enforceable, except as such enforcement may be limited by applicable
bankruptcy, insolvency, reorganization or other similar laws relating to or limiting creditors’
rights generally and general equitable principles.
(c) On and after the Effective Date, each reference in the Indenture to “this Indenture”,
“hereunder”, “hereof” , “herein” or words of like import referring to the Indenture and each
reference to the Indenture in any certificate delivered in connection therewith, shall mean and be
a reference to the Indenture as amended hereby.
(d) Each of the parties hereto hereby agrees that, except as specifically amended above, the
Indenture is hereby ratified and confirmed and shall continue to be in full force and effect and
enforceable, except as such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws relating to or limiting creditors’ rights generally and
general equitable principles.
(e) On and after the Effective Date, each reference in the Custodial Agreement to “this
Agreement”, “hereunder”, “hereof”, “herein” or words of like import referring to the Custodial
Agreement and each reference to the Custodial Agreement in any certificate delivered in
connection therewith, shall mean and be a reference to the Custodial Agreement as amended
hereby.
(f) Each of the parties hereto hereby agrees that, except as specifically amended above, the
Custodial Agreement is hereby ratified and confirmed and shall continue to
- 5 -
be in full force and effect and enforceable, except as such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization or other similar laws relating to or limiting
creditors’ rights generally and general equitable principles.
SECTION 7. Execution in Counterparts. This Amendment and Consent may be executed in
any number of counterparts and by different parties hereto in separate counterparts, each of which
when so executed and delivered shall be deemed to be an original and all of which taken together
shall constitute but one and the same agreement.
SECTION 8. Governing Law. This Amendment and Consent shall be construed in
accordance with, and governed by the laws of the State of New York, without giving effect to its
conflicts of law provisions.
SECTION 9. Conditions of Effectiveness. This Amendment and Consent shall become
effective as of the date hereof upon the receipt by the Noteholder Agent of this Amendment and
Consent duly executed by all of the parties hereto.
[remainder of page intentionally left blank]
- 6 -
IN WITNESS WHEREOF, the parties have executed this Amendment and Consent as
of the day and year first above written.
| OPTION ONE OWNER TRUST 2005-7, as Issuer | ||||||
| By: | Wilmington Trust Company, not in its individual capacity, but solely as Owner Trustee | |||||
| By: | /s/ Jennifer A. Luce | |||||
| Name: | ||||||
| Title: | Sr. Financial Services Officer | |||||
| OPTION ONE LOAN WAREHOUSE CORPORATION, as Depositor | ||||||
| By: | /s/ Philip Laren | |||||
| Name: | ||||||
| Title: | Vice President | |||||
| OPTION ONE MORTGAGE CORPORATION, as Loan Originator and as Servicer | ||||||
| By: | /s/ Philip Laren | |||||
| Name: | ||||||
| Title: | Senior Vice President | |||||
| OPTION ONE MORTGAGE CAPITAL CORPORATION | ||||||
| By: | /s/ Philip Laren | |||||
| Name: | ||||||
| Title: | Vice President | |||||
Signature Page to Omnibus Amendment
| WELLS FARGO BANK, NATIONAL ASSOCIATION, as Indenture Trustee | ||||||
| By: | /s/ Darron C. Woodus | |||||
| Name: | ||||||
| Title: | Assistant Vice President | |||||
Signature Page to Omnibus Amendment
| HSBC BANK USA, N.A, as Purchaser | ||||||
| By: | /s/ Kevin E. Miller | |||||
| Name: | ||||||
| Title: | Senior Vice President | |||||
| BRYANT PARK FUNDING LLC, as Purchaser | ||||||
| By: | /s/ Kevin P. Burns | |||||
| Name: | ||||||
| Title: | Vice President | |||||
| HSBC SECURITIES (USA) INC., as Administrative Agent and as Noteholder Agent | ||||||
| By: | /s/ Thomas Carroll | |||||
| Name: | ||||||
| Title: | Director | |||||
Signature Page to Omnibus Amendment
Exhibit 10.18
OMNIBUS AMENDMENT AND CONSENT AGREEMENT
This OMNIBUS AMENDMENT AND CONSENT AGREEMENT (the
“Amendment and Consent”) dated as of December 29, 2006 is by and among Option One Owner
Trust 2005-8 (the “Issuer”), Option One Mortgage Corporation (“OOMC”), in its
capacity as loan originator (in such capacity, the “Loan Originator”) and as servicer (in
such capacity, the “Servicer”), Option One Mortgage Capital Corporation
(“Capital”), Option One Loan Warehouse Corporation (the “Depositor”) , Wells Fargo
Bank, National Association, as indenture trustee (the “Indenture Trustee”), and Merrill
Lynch Bank USA, as purchaser (in such capacity, the “Purchaser”) and as Noteholder Agent
(in such capacity, the “Noteholder Agent”). Capitalized terms used herein but not
specifically defined herein shall have the meanings given to such terms in the Sale and Servicing
Agreement (as defined below) or the Indenture (as defined below).
PRELIMINARY STATEMENTS:
A. The Issuer, OOMC, as servicer and as loan originator, the Depositor and the Indenture
Trustee are parties to that certain Sale and Servicing Agreement dated as of October 1, 2005 (as
amended, the “Sale and Servicing Agreement”).
B. The Issuer and the Indenture Trustee are parties to that certain Indenture dated as of
October 1, 2005 (as amended, the “Indenture”).
C. The Noteholder Agent, the Issuer, OOMC, as servicer and the Indenture Trustee, as both
indenture trustee and custodian, are parties to that certain Custodial Agreement dated as of
October 1, 2005 (as amended, the “Custodial Agreement”).
D. OOMC intends to transfer and assign to its wholly-owned subsidiary, Capital, and Capital
intends to accept and assume from OOMC, a portion of OOMC’s business.
E. OOMC has requested that the Depositor, the Purchaser, the Noteholder Agent, the Issuer and
the Indenture Trustee consent to certain amendments to the Sale and Servicing Agreement, the
Indenture and the Custodial Agreement, upon the terms and subject to the conditions set forth
herein.
F. OOMC, Capital and Depositor have requested that the Purchaser, the Noteholder Agent, the
Issuer and the Indenture Trustee (a) consent to, promptly after the date hereof, the conversion of
the Depositor from a Delaware corporation to a Delaware limited liability company (the
“Depositor Conversion”) and (b) agree to promptly enter into after the date hereof a Fifth
Amended and Restated Loan Purchase and Contribution Agreement, dated as of December 29, 2006 (the
“Proposed Fifth Amended and Restated LPA”), between Capital, as seller, and Depositor, as
purchaser (to reflect the terms of this Amendment and Consent).
G. OOMC has requested that all references to “Loan Originator” in any of the Basic
Documents be defined to mean both OOMC and Capital, jointly and severally, unless otherwise
specifically set forth therein. OOMC has further requested that the definition of “Loan Purchase
and Contribution Agreement” in any of the Basic Documents be defined to mean each of: (i) the Loan
Purchase Agreement between OOMC, as seller, and Capital, as purchaser, dated
as of December 29, 2006 and all supplements and amendments thereto and (ii) the Proposed Fifth
Amended and Restated LPA, and all supplements and amendments thereto.
H. In consideration of the consent of the Depositor, the Purchaser, the Noteholder
Agent, the Issuer and the Indenture Trustee, OOMC has agreed to be held jointly and severally
liable for the Transfer Obligation on the terms set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Amendments to the Sale and Servicing Agreement. Effective as of December
29, 2006 or such later date as OOMC shall designate (the “Effective Date”) and subject to the
satisfaction of the conditions precedent set forth in Section 9 hereof, the Sale and Servicing
Agreement is hereby amended as follows:
(a) The definition of “Loan Originator” set forth in Section 1.01 of the Sale and Servicing
Agreement is hereby amended to provide as follows:
“Loan Originator: Each of Option One and Option One Capital, and their respective
successors and assigns, jointly and severally.”
(b) The definition of “Loan Purchase and Contribution Agreement” set forth in Section 1.01 of
the Sale and Servicing Agreement is hereby amended to provide as follows:
“Loan Purchase and Contribution Agreement: Each of: (i) the Loan Purchase Agreement
between Option One, as loan originator, and Option One Capital, as transferee, dated as of
December 29, 2006 and all supplements and amendments thereto and (ii) the Fifth Amended and
Restated Loan Purchase and Contribution Agreement, between Option One Capital, as loan
originator, and Depositor, as depositor, dated as of December 29, 2006, and all supplements
and amendments thereto.”
(c) The following definition of “Option One Capital” is hereby added to Section 1.01 of
the Sale and Servicing Agreement:
“Option One Capital: Option One Mortgage Capital Corporation, a Delaware
corporation.”
(d) Section 2.07(iii) of the Sale and Servicing Agreement is hereby amended by substituting
the following language:
“(iii) Option One, Option One Capital or any of their Affiliates 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, Option One Capital or any of their Affiliates, including without
limitation, the Sale and Servicing Agreement, dated as of April 1, 2001, among the Option One
Owner Trust 2001 -1 A, 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 -2,
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
- 2 -
2002-3, the Depositor, Option One and the Facility Administrator, 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, the Sale and Servicing Agreement, dated as
of June 1, 2005, among Option One Owner Trust 2005-6, the Depositor, Option One and the
Indenture Trustee, the Sale and Servicing Agreement, dated as of September 1, 2005, among
the Option One Owner Trust 2005-7, the Depositor, Option One and the Indenture Trustee, the
Sale and Servicing Agreement, dated as of October 1, 2005 among Option One Owner Trust
2005-8, the Depositor, Option One and the Indenture Trustee and the Sale and Servicing
Agreement, dated as of December 30, 2005 among Option One Owner Trust 2005-9, 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.
(e) Subsection (e) of Section 3.02 of the Sale and Servicing Agreement is hereby amended by
deleting the words “the Loan Originator’s satisfaction of its financial covenants” and in their
place inserting the words “Option One’s satisfaction of its financial covenants.”
(f) Subsection (m) of Section 3.02 of the Sale and Servicing Agreement is hereby amended and
restated in its entirety as follows:
“(m) Option One is in compliance with each of its financial covenants set forth in
Section 7.02; and”
(g) Subsection (k) of Section 3.02 of the Sale and Servicing Agreement is hereby amended
and restated in its entirety as follows:
“(k) Option One has received fair consideration and reasonably equivalent value in
exchange for the Loans sold by it to Option One Capital and Option One Capital has received
fair consideration and reasonably equivalent value in exchange for the Loans sold by it on
such Transfer Date to the Depositor;
(h) Section 5.06 of the Sale and Servicing Agreement is hereby amended by adding the
following subsection:
“(c) With respect to the obligations of the Loan Originator pursuant to this Section
5.06, Option One shall be obligated to make payments hereunder only if Option One Capital
does not make such payments prior to the time any such payment is required to be made. If
Option One Capital does not make any such payment prior to the time such payment is required
to be made, Option One shall be required to make such payment not later than the time such
payment is required to be made.”
(i) Section 7.02 of the Sale and Servicing Agreement is hereby amended by substituting
“Option One” for “the Loan Originator” in each and every place where such term appears in such
section.
(j) Subsection (a)(6) of Section 9.01 of the Sale and Servicing Agreement is hereby
amended and restated in its entirety as follows:
- 3 -
“(6) Option One fails to comply with any of its financial covenants; or
(k) Section 11.06 of the Sale and Servicing Agreement is hereby amended by deleting
clause (III) thereof and replacing such clause with the following:
“(III) in the case of the Loan Originator, (A) if to Option One, to Option One Mortgage
Corporation, 3 Ada, Irvine, California 92618, Attention: William O’Neill, telecopy number:
(949) 790-7540, telephone number: (949) 790-7504 or (B) if to Option One Capital, to Option
One Mortgage Capital Corporation, 3 Ada Road, Irvine, California 92618, Attention: Chief
Financial Officer, telecopy number: (949) 790-7514, telephone number: (949) 790-3600 ext
35524 or, in either case, to such other addresses or telecopy or telephone numbers as may
hereafter be furnished to the Securityholders and the other parties hereto in writing by
Option One or Option One Capital.
SECTION 2. Amendments to the Indenture. Effective as of the Effective Date and
subject to the satisfaction of the conditions precedent set forth in Section 9 hereof, the
Indenture is hereby amended as follows:
The definition of “Loan Originator” set forth in Section 1.01 (a) of the Indenture is hereby
amended to provide as follows:
“Loan Originator: has the meaning given to such term in the Sale and Servicing
Agreement.”
SECTION 3. Amendments to the Custodial Agreement. Effective as of the Effective Date
and subject to the satisfaction of the conditions precedent set forth in Section 9 hereof, the
Custodial Agreement is hereby amended as follows:
(a) The definition of “Loan Originator” set forth in Section 1 of the Custodial Agreement is
hereby amended to provide as follows:
“Loan Originator: As defined in the Sale and Servicing Agreement.”
(b) The definition of “Loan Purchase and Contribution Agreement” set forth in Section 1
of the Custodial Agreement is hereby amended to provide as follows:
“Loan Purchase and Contribution Agreement: As defined in the Sale and Servicing
Agreement.”
SECTION 4. Consent to the Depositor Conversion and Proposed Fifth Amended and Restated
LPA. Each of the parties hereto consents to (a) the Depositor Conversion and (b) the Proposed
Fifth Amended and Restated LPA to amend and restate that certain Fourth Amended and Restated Loan
Purchase and Contribution Agreement, dated as of September 1, 2005, between OOMC, as seller, and
the Depositor, as purchaser (to reflect the terms of this Amendment and Consent, including the
substitution of Capital for OOMC as the Loan Originator).
- 4 -
SECTION 5. Representations and Warranties. Each of the parties hereto represents
and warrants that this Amendment and Consent, and the Sale and Servicing Agreement, Indenture and
Custodial Agreement, each as amended by this Amendment and Consent, constitute legal, valid and
binding obligations of such Person enforceable against such Person in accordance with their terms,
except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the
enforcement of creditors’ rights generally and general equitable principles. Each of OOMC, Capital
and the Depositor represent to the Purchaser that as of the date hereof, after giving effect to
this Amendment and Consent, (a) all of their respective representations and warranties in the
Basic Documents are true and correct, and (b) such party is in full compliance with all of the
terms and conditions of the Basic Documents.
SECTION 6. Reference to and the Effect on the Sale and Servicing Agreement, the
Indenture and the Custodial Agreement.
(a) On and after the Effective Date, each reference in the Sale and Servicing Agreement to
“this Agreement”, “hereunder”, “hereof”, “herein” or words of like import referring to the Sale
and Servicing Agreement and each reference to the Sale and Servicing Agreement in any certificate
delivered in connection therewith, shall mean and be a reference to the Sale and Servicing
Agreement as amended hereby.
(b) Each of the parties hereto hereby agrees that, except as specifically amended above, the
Sale and Servicing Agreement is hereby ratified and confirmed and shall continue to be in full
force and effect and enforceable, except as such enforcement may be limited by applicable
bankruptcy, insolvency, reorganization or other similar laws relating to or limiting creditors’
rights generally and general equitable principles.
(c) On and after the Effective Date, each reference in the Indenture to “this Indenture”,
“hereunder”, “hereof” , “herein” or words of like import referring to the Indenture and each
reference to the Indenture in any certificate delivered in connection therewith, shall mean and be
a reference to the Indenture as amended hereby.
(d) Each of the parties hereto hereby agrees that, except as specifically amended above, the
Indenture is hereby ratified and confirmed and shall continue to be in full force and effect and
enforceable, except as such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws relating to or limiting creditors’ rights generally and
general equitable principles.
(e) On and after the Effective Date, each reference in the Custodial Agreement to “this
Agreement”, “hereunder”, “hereof” , “herein” or words of like import referring to the Custodial
Agreement and each reference to the Custodial Agreement in any certificate delivered in
connection therewith, shall mean and be a reference to the Custodial Agreement as amended
hereby.
(f) Each of the parties hereto hereby agrees that, except as specifically amended above, the
Custodial Agreement is hereby ratified and confirmed and shall continue to be in full force and
effect and enforceable, except as such enforcement may be limited by
- 5 -
applicable bankruptcy, insolvency, reorganization or other similar laws relating to or limiting
creditors’ rights generally and general equitable principles.
SECTION 7. Execution in Counterparts. This Amendment and Consent may be executed in
any number of counterparts and by different parties hereto in separate counterparts, each of which
when so executed and delivered shall be deemed to be an original and all of which taken together
shall constitute but one and the same agreement.
SECTION 8. Governing Law. This Amendment and Consent shall be construed in
accordance with, and governed by the laws of the State of New York, without giving effect to its
conflicts of law provisions.
SECTION 9. Conditions of Effectiveness. This Amendment and Consent shall become
effective as of the date hereof upon the receipt by the Noteholder Agent of this Amendment and
Consent duly executed by all of the parties hereto.
[remainder of page intentionally left blank]
- 6 -
IN WITNESS WHEREOF, the parties have executed this Amendment and Consent as of the day and
year first above written.
| OPTION ONE OWNER TRUST 2005-8, as Issuer | ||||||
| By: | Wilmington Trust Company, not in its individual capacity, but solely as Owner Trustee |
|||||
| By: | /s/ Jennifer A. Luce | |||||
| Name: | ||||||
| Title: | Sr. Financial Services Officer | |||||
| OPTION ONE LOAN WAREHOUSE CORPORATION, as Depositor | ||||||
| By: | /s/ Philip Laren | |||||
| Name: | ||||||
| Title: | Vice President | |||||
| OPTION ONE MORTGAGE CORPORATION, as Loan Originator and as Servicer | ||||||
| By: | /s/ Philip Laren | |||||
| Name: | ||||||
| Title: | Senior Vice President | |||||
| OPTION ONE MORTGAGE CAPITAL CORPORATION | ||||||
| By: | /s/ Philip Laren | |||||
| Name: | ||||||
| Title: | Vice President | |||||
Signature Page to Omnibus Amendment
| WELLS FARGO BANK, NATIONAL ASSOCIATION, as Indenture Trustee | ||||||
| By: | /s/ Darron C. Woodus | |||||
| Name: | ||||||
| Title: | Assistant Vice President | |||||
Signature Page to Omnibus Amendment
| MERRILL LYNCH BANK USA, as Purchaser | ||||||
| By: | /s/ James B. Cason | |||||
| Name: | ||||||
| Title: | Vice President | |||||
| MERRILL LYNCH BANK USA, as Noteholder Agent | ||||||
| By: | /s/ Joseph Magnus | |||||
| Name: | ||||||
| Title: | Director | |||||
Signature Page to Omnibus Amendment
Exhibit 10.19
OMNIBUS AMENDMENT AND CONSENT AGREEMENT
This OMNIBUS AMENDMENT AND CONSENT AGREEMENT (the
“Amendment and Consent”) dated as of December 29,2006 is by and among Option One
Owner Trust 2005-9 (the “Issuer”), Option One
Mortgage Corporation (“OOMC”), in its capacity
as loan originator (in such capacity, the “Loan Originator”) and as servicer (in such
capacity, the “Servicer”), Option One Mortgage Capital Corporation (“Capital”), Option One
Loan Warehouse Corporation (the “Depositor”), Wells Fargo Bank, National Association, as
indenture trustee (the “Indenture Trustee”), and DB Structured Products, Inc., Gemini
Securitization Corp., LLC, Aspen Funding Corp. and Newport Funding Corp. (collectively, the
“Purchasers”) and DB Structured Products, Inc., as noteholder agent (the “Noteholder
Agent”).. Capitalized terms used herein but not specifically defined herein shall have the
meanings given to such terms in the Sale and Servicing Agreement (as defined below) or the
Indenture (as defined below).
PRELIMINARY STATEMENTS:
A. The Issuer, OOMC, as the Servicer and as the Loan Originator, the Depositor
and the Indenture Trustee are parties to that certain Sale and Servicing Agreement dated as of
December 30, 2005 (as amended, the “Sale and Servicing Agreement”).
B. The Issuer and the Indenture Trustee are parties to that certain Indenture
dated as of December 30, 2005 (as amended, the “Indenture”).
C. The Noteholder Agent, the Issuer, OOMC, as servicer and the Indenture
Trustee, as both indenture trustee and custodian, are parties to that certain Custodial
Agreement
dated as of December 30, 2005 (as amended, the “Custodial Agreement”).
D. OOMC intends to transfer and assign to its wholly-owned subsidiary, Capital, and Capital intends to accept and assume from OOMC, a portion of OOMC’s
business.
E. OOMC has requested that the Depositor, the Purchasers, the Noteholder
Agent, the Issuer and the Indenture Trustee consent to certain amendments to the Sale and
Servicing Agreement, the Indenture and the Custodial Agreement, upon the terms and
subject to
the conditions set forth herein.
F. OOMC, Capital and Depositor have requested that the Purchasers, the
Noteholder Agent, the Issuer and the Indenture Trustee (a) consent to, promptly after the
date
hereof, the conversion of the Depositor from a Delaware corporation to a Delaware limited
liability company (the “Depositor Conversion”) and (b) agree to promptly enter into after
the
date hereof a Fifth Amended and Restated Loan Purchase and Contribution Agreement, dated
as
of December 29, 2006 (the “Proposed Fifth Amended and Restated LPA”), between
Capital, as
seller, and Depositor, as purchaser (to reflect the terms of this Amendment and Consent).
G. OOMC has requested that all references to “Loan Originator” in any of the
Basic Documents be defined to mean both OOMC and Capital, jointly and severally, unless
otherwise specifically set forth therein. OOMC has further requested that the definition
of “Loan
Purchase and Contribution Agreement” in any of the Basic Documents be defined to mean
each
of: (i) the Loan Purchase Agreement between OOMC, as seller, and Capital, as purchaser, dated as
of December 29, 2006 and all supplements and amendments thereto and (ii) the Proposed Fifth
Amended and Restated LPA, and all supplements and amendments thereto.
H. In consideration of the consent of the Depositor, the Purchasers, the Noteholder
Agent, the Issuer and the Indenture Trustee, OOMC has agreed to be held jointly and severally
liable for the Transfer Obligation on the terms set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION
1. Amendments to the Sale and Servicing Agreement. Effective as of December
29, 2006 or such later date as OOMC shall designate (the “Effective Date”) and subject to the
satisfaction of the conditions precedent set forth in Section 9 hereof, the Sale and Servicing
Agreement is hereby amended as follows:
(a) The definition of “Loan Originator” set forth in Section 1.01 of the Sale
and Servicing Agreement is hereby amended to provide as follows:
“Loan Originator: Each of Option One and Option One Capital, and their respective
successors and assigns, jointly and severally.”
(b) The definition of “Loan Purchase and Contribution Agreement” set forth
in Section 1.01 of the Sale and Servicing Agreement is hereby amended to provide as follows:
“Loan Purchase and Contribution Agreement: Each of: (i) the Loan Purchase Agreement
between Option One, as loan originator, and Option One Capital, as transferee, dated as of
December 29, 2006 and all supplements and amendments thereto and (ii) the Fifth Amended and
Restated Loan Purchase and Contribution Agreement, between Option One Capital, as loan
originator, and Depositor, as depositor, dated as of December 29, 2006, and all supplements
and amendments thereto.”
(c) The following definition of “Option One Capital” is hereby added to
Section 1.01 of the Sale and Servicing Agreement:
“Option One Capital: Option One Mortgage Capital Corporation, a Delaware
corporation.”
(d) Section 2.07(iv) of the Sale and Servicing Agreement is hereby amended
by substituting the following language:
“(iv) Option One, Option One Capital or any of their Affiliates 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, Option One Capital or any of their Affiliates, including without
limitation, the Sale and Servicing Agreement, dated as of April 1, 2001, among the Option
One Owner Trust 2001-1 A, 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 2001-2, the
Depositor, Option One and the Indenture Trustee, the Sale
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and
Servicing Agreement, dated as of July 2, 2002, among the Option One Owner Trust 2002-3,
the Depositor, Option One and the Facility Administrator, 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, the Sale and Servicing Agreement, dated as of June 1, 2005,
among Option One Owner Trust 2005-6, the Depositor, Option One and the Indenture Trustee,
the Sale and Servicing Agreement, dated as of September 1, 2005, among the Option One Owner
Trust 2005-7, the Depositor, Option One and the Indenture Trustee, the Sale and Servicing
Agreement, dated as of October 1, 2005 among Option One Owner Trust 2005-8, the Depositor,
Option One and the Indenture Trustee and the Sale and Servicing Agreement, dated as of
December 30, 2005 among Option One Owner Trust 2005-9, 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 Noteholder Agent may, in any such case, in its sole discretion, terminate the Revolving
Period.”
(e) Subsection (e) of Section 3. 02 of the Sale and Servicing Agreement is
hereby amended by deleting the words “satisfaction by the Loan Originator of the Financial
Covenants” and in their place inserting the words
“satisfaction by Option One of the Financial Covenants.”
(f) Subsection (m) of Section 3.02 of the Sale and Servicing Agreement is
hereby amended and restated in its entirety as follows:
“(n) Option One is in compliance with each of the Financial Covenants ; and”
(g) Subsection (k) of Section 3.02 of the Sale and Servicing Agreement is
hereby amended and restated in its entirety as follows:
“(k) Option One has received fair consideration and reasonably equivalent value in
exchange for the Loans sold by it to Option One Capital and Option One Capital has received
fair consideration and reasonably equivalent value in exchange for the Loans sold by it on
such Transfer Date to the Depositor;
(h) Section 5.06 of the Sale and Servicing Agreement is hereby amended by adding the
following subsection:
“(c) With respect to the obligations of the Loan Originator pursuant to this Section
5.06, Option One shall be obligated to make payments hereunder only if Option One Capital
does not make such payments prior to the time any such payment is required to be made. If
Option One Capital does not make any such payment prior to the time such payment is required
to be made, Option One shall be required to make such payment not later than the time such
payment is required to be made.”
(i) Section 7.02 of the Sale and Servicing Agreement is hereby amended by substituting
“Option One” for “the Loan Originator” in each and every place where such term appears in such
section.
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(j) Subsection (a)(6) of Section 9.01 of the Sale and Servicing Agreement is hereby
amended and restated in its entirety as follows:
“(6) Option One fails to comply with any of the Financial Covenants; or
(k) Section 11.06 of the Sale and Servicing Agreement is hereby amended by deleting
clause (3) thereof and replacing such clause with the following:
“(3) in the case of the Loan Originator, (A) if to Option One, to Option One Mortgage
Corporation, 3 Ada, Irvine, California 92618, Attention: Chief Financial Officer, telecopy
number: (949) 790-7540, telephone number: (949) 790-7504 or (B) if to Option One Capital,
to Option One Mortgage Capital Corporation, 3 Ada Road, Irvine, California 92618,
Attention: Chief Financial Officer, telecopy number: (949) 790-7514, telephone number:
(949) 790-3600 ext 35524 or, in either case, to such other addresses or telecopy or
telephone numbers as may hereafter be furnished to the Securityholders and the other
parties hereto in writing by Option One or Option One Capital.
SECTION 2. Amendments to the Indenture. Effective as of the Effective Date and subject to
the satisfaction of the conditions precedent set forth in Section 9 hereof, the Indenture is hereby
amended as follows:
The definition of “Loan Originator” set forth in Section 1.01(a) of the Indenture is hereby
amended to provide as follows:
“Loan Originator: has the meaning given to such term in the Sale and Servicing
Agreement.”
SECTIONS 3. Amendments to the Custodial Agreement. Effective as of the Effective Date
and subject to the satisfaction of the conditions precedent set forth in Section 9 hereof, the
Custodial Agreement is hereby amended as follows:
(a) The definition of “Loan Originator” set forth in Section 1 of the Custodial
Agreement is hereby amended to provide as follows:
“Loan Originator: As defined in the Sale and Servicing Agreement.”
(b) The definition of “Loan Purchase and Contribution Agreement” set forth
in Section 1 of the Custodial Agreement is hereby amended to provide as follows:
“Loan Purchase and Contribution Agreement: As defined in the Sale and
Servicing Agreement.”
SECTION 4. Consent to the Depositor Conversion and Proposed Fifth Amended and Restated
LPA. Each of the parties hereto consents to (a) the Depositor Conversion and (b) the Proposed
Fifth Amended and Restated LPA to amend and restate that certain Fourth Amended and Restated Loan
Purchase and Contribution Agreement, dated as of September 1, 2005, between OOMC, as seller, and
the Depositor, as purchaser (to reflect the terms of this
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Amendment and Consent, including the substitution of Capital for OOMC as the Loan
Originator).
SECTION 5. Representations and Warranties. Each of the parties hereto represents
and warrants that this Amendment and Consent, and the Sale and Servicing Agreement, Indenture and
Custodial Agreement, each as amended by this Amendment and Consent, constitute legal, valid and
binding obligations of such Person enforceable against such Person in accordance with their terms,
except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the
enforcement of creditors’ rights generally and general equitable principles. Each of OOMC, Capital
and the Depositor represent to the Purchasers that as of the date hereof, after giving effect to
this Amendment and Consent, (a) all of their respective representations and warranties in the
Basic Documents are true and correct, and (b) such party is in full compliance with all of the
terms and conditions of the Basic Documents.
SECTION 6. Reference to and the Effect on the Sale and Servicing Agreement, the
Indenture and the Custodial Agreement.
(a) On and after the Effective Date, each reference in the Sale and Servicing
Agreement to “this Agreement”, “hereunder”, “hereof”, “herein” or words of like import
referring to the Sale and Servicing Agreement and each reference to the Sale and Servicing
Agreement in any certificate delivered in connection therewith, shall mean and be a reference
to
the Sale and Servicing Agreement as amended hereby.
(b) Each of the parties hereto hereby agrees that, except as specifically
amended above, the Sale and Servicing Agreement is hereby ratified and confirmed and shall
continue to be in full force and effect and enforceable, except as such enforcement may be
limited by applicable bankruptcy, insolvency, reorganization or other similar laws relating to
or
limiting creditors’ rights generally and general equitable principles.
(c) On and after the Effective Date, each reference in the Indenture to “this
Indenture”, “hereunder”, “hereof”, “herein” or words of like import referring to the Indenture
and each reference to the Indenture in any certificate delivered in connection therewith,
shall
mean and be a reference to the Indenture as amended hereby.
(d) Each of the parties hereto hereby agrees that, except as specifically
amended above, the Indenture is hereby ratified and confirmed and shall continue to be in full
force and effect and enforceable, except as such enforcement may be limited by applicable
bankruptcy, insolvency, reorganization or other similar laws relating to or limiting
creditors’
rights generally and general equitable principles.
(e) On and after the Effective Date, each reference in the Custodial
Agreement to “this Agreement”, “hereunder”, “hereof”, “herein” or words of like import
referring to the Custodial Agreement and each reference to the Custodial Agreement in any
certificate delivered in connection therewith, shall mean and be a reference to the
Custodial
Agreement as amended hereby.
(f) Each of the parties hereto hereby agrees that, except as specifically
amended above, the Custodial Agreement is hereby ratified and confirmed and shall continue to
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be in full force and effect and enforceable, except as such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization or other similar laws relating to or limiting
creditors’ rights generally and general equitable principles.
SECTION 7. Execution in Counterparts. This Amendment and Consent may be executed in
any number of counterparts and by different parties hereto in separate counterparts, each of which
when so executed and delivered shall be deemed to be an original and all of which taken together
shall constitute but one and the same agreement.
SECTION 8. Governing Law. This Amendment and Consent shall be construed in
accordance with, and governed by the laws of the State of New York, without giving effect to its
conflicts of law provisions.
SECTION 9. Conditions of Effectiveness. This Amendment and Consent shall become
effective as of the date hereof upon the receipt by the Noteholder Agent of this Amendment and
Consent duly executed by all of the parties hereto.
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IN WITNESS WHEREOF, the parties have executed this Amendment and Consent as of the day
and year first above written.
| OPTION ONE OWNER TRUST 2005-9, 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: | /s/ Jennifer A. Luce
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| Name: | Jennifer A. Luce | |||||
| Title: | Sr. Financial Services Officer | |||||
| OPTION ONE LOAN WAREHOUSE CORPORATION, as Depositor |
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| By: | /s/ Philip Laren
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| Name: | Philip Laren | |||||
| Title: | Vice President | |||||
| OPTION ONE MORTGAGE CORPORATION, as Loan Originator and as Servicer |
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| By: | /s/ Philip Laren
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| Name: | Philip Laren | |||||
| Title: | Senior Vice President | |||||
| OPTION ONE MORTGAGE CAPITAL CORPORATION | ||||||
| By: | /s/ Philip Laren
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| Name: | Philip Laren | |||||
| Title: | Vice President | |||||
Signature Page to Omnibus Amendment
| WELLS FARGO BANK, NATIONAL ASSOCIATION, as Indenture Trustee |
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| By: | /s/ Darron C. Woodus
|
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| Name: | Darron C. Woodus | |||||
| Title: | Assistant Vice President | |||||
Signature Page to Omnibus Amendment
| DB STRUCTURED PRODUCTS, INC., as Purchaser |
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| By: | /s/ Stephen Newman
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| Name: | Stephen Newman | |||||
| Title: | Director | |||||
| By: | /s/ John McCarthy
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| Name: | John McCarthy | |||||
| Title: | Authorized Signatory | |||||
| GEMINI SECURITIZATION CORP., LLC, as Purchaser |
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| By: | /s/ R. Douglas Donaldson
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| Name: | R. Douglas Donaldson | |||||
| Title: | Treasurer | |||||
| ASPEN FUNDING CORP., as Purchaser | ||||||
| By: | /s/ Doris J. Hearn
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| Name: | Doris J. Hearn | |||||
| Title: | Vice President | |||||
| NEWPORT FUNDING CORP., as Purchaser | ||||||
| By: | /s/ Doris J. Hearn
|
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| Name: | Doris J. Hearn | |||||
| Title: | Vice President | |||||
| DB STRUCTURED PRODUCTS, INC., as Noteholder Agent |
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| By: | /s/ Stephen Newman
|
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| Name: | Stephen Newman | |||||
| Title: | Director | |||||
Signature Page to Omnibus Amendment
| By: | /s/ John McCarthy
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| Name: | John McCarthy | |||||
| Title: | Authorized Signatory |
Exhibit 10.20
OPTION ONE OWNER TRUST 2005-9
SUPPLEMENTAL INDENTURE NO. 2
Supplemental Indenture No. 2 (the “Supplemental Indenture”), dated and effective as of January
16, 2007, between Option One Owner Trust 2005-9, as Issuer and Wells Fargo Bank, N.A., as Indenture
Trustee, with respect to the Indenture (the “Indenture”), dated as of December 30, 2005, between
the Issuer and the Indenture Trustee. The parties hereto are entering into the Supplemental
Indenture pursuant to Section 9.02 of the Indenture. Capitalized terms used herein but not defined
herein shall have the meanings ascribed thereto in the Indenture.
1. Supplemental Indenture. The definition of “Maturity Date” in Section 1.01 of the
Indenture is deleted in its entirety and replaced with the following:
“Maturity Date” means, with respect to the Notes, January 15, 2008.
2. Acknowledgement and Waiver of Opinion of Counsel. The Indenture Trustee hereby
acknowledges and agrees that this Supplemental Indenture No. 1 is being entered into pursuant to
Section 9.02 of the Indenture, and the Indenture Trustee hereby waives the right to receive an
Opinion of Counsel described in Section 9.03 of the Indenture.
3. Issuer Order. By executing below, the Issuer hereby directs and authorizes the
Indenture Trustee to execute this Supplemental Indenture No. 2 pursuant to Section 9.02 of the
Indenture.
4. Counterparts. This Supplemental Indenture may be executed simultaneously in any
number of counterparts, each of which counterparts shall be deemed to be an original, and such
counterparts shall constitute but one and the same instrument.
5. Governing Law. This Supplemental Indenture 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.
6. Severability of Provisions. If any one or more of the covenants, agreements,
provisions or terms of this Supplemental Indenture for any reason whatsoever shall be held invalid,
then such covenants, agreements, provisions or terms shall be deemed severable from the remaining
covenants, agreements, provisions or terms of this Supplemental Indenture and shall in no way
affect the validity or enforceability of the other provisions of this Supplemental Indenture.
7. Successors and Assigns. The provisions of this Supplemental Indenture shall be
binding upon and inure to the benefit of the respective successors and assigns of the parties
hereto, and all such provisions shall inure to the benefit of the Certificateholders.
8. Article and Section Headings. The article and section headings herein are for
convenience of reference only, and shall not limit or otherwise affect the meaning hereof.
9. No Recourse to Owner Trustee. is expressly understood and agreed by the parties
hereto that (a) this Supplemental Indenture is executed and delivered by Wilmington Trust Company,
not individually or personally, but solely as Owner Trustee of Option One Owner Trust 2005-9, 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 of 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 Supplemental
Indenture or any other related documents.
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IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused this Supplemental
Indenture No. 2 to be executed and delivered by their duly authorized officers as of the day and
year first above written.
| OPTION ONE OWNER TRUST 2005-9, By: Wilmington Trust Company, not in its individual capacity but solely as Owner Trustee |
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| By: | ||||||
| Name: | ||||||
| Title: | ||||||
| WELLS FARGO BANK, N.A., as Indenture Trustee | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
Acknowledged and Consented to as of this 16th day of January, 2007:
DB STRUCTURED PRODUCTS, INC., as Majority Noteholder
By: |
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Name:
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Title: |
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By: |
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Name:
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Title: |
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| GEMINI SECURITIZATION CORP., LLC, as Majority Noteholder | ||||
By: |
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Name:
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Title: |
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| ASPEN FUNDING CORP., as Majority Noteholder | ||||
By: |
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Name:
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Title: |
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| NEWPORT FUNDING CORP., as Majority Noteholder | ||||
By: |
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Name:
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Title: |
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Supplemental Indenture No. 2
Exhibit 10.21
AMENDMENT NUMBER ONE
to the
SALE AND SERVICING AGREEMENT
Dated as of December 31, 2005
by and among
OPTION ONE OWNER TRUST 2005-9
OPTION ONE LOAN WAREHOUSE CORPORATION
OPTION ONE MORTGAGE CORPORATION
and
WELLS FARGO BANK, N.A.
to the
SALE AND SERVICING AGREEMENT
Dated as of December 31, 2005
by and among
OPTION ONE OWNER TRUST 2005-9
OPTION ONE LOAN WAREHOUSE CORPORATION
OPTION ONE MORTGAGE CORPORATION
and
WELLS FARGO BANK, N.A.
This AMENDMENT NUMBER ONE is made this 16th day of January, 2007 (“Amendment
Number One”), by and among Option One Owner Trust 2005-9, a Delaware statutory trust (the
“Issuer”), Option One Loan Warehouse Corporation, a Delaware corporation, as Depositor (the
“Depositor”), Option One Mortgage Corporation, a California corporation, as Loan Originator
and Servicer (the “Loan Originator” or “Servicer”), and Wells Fargo Bank, N.A., a
national banking association, as Indenture Trustee on behalf of the Noteholders (the “Indenture
Trustee”), to the Sale and Servicing Agreement, dated as of December 30, 2005, by and among the
Issuer, the Depositor, the Loan Originator and the Indenture Trustee (the “Sale and Servicing
Agreement”). Capitalized terms used herein but not defined will have the meaning attributed to
such term in the Sale and Servicing Agreement.
RECITALS
WHEREAS, the Depositor and the Loan Originator have requested that the Noteholders agree to
modify the definition of CLTV as more fully set forth herein;
WHEREAS, as of the date hereof (after giving effect to the amendments to the Agreement
contemplated herein), each of the Depositor and the Loan Originator represents to the Indenture
Trustee and the Noteholders that it is in compliance with all of the representations and warranties
and all of the affirmative and negative covenants set forth in the Basic Documents and no default
has occurred and is continuing under any Basic Documents to which it is a party; and
WHEREAS, the Depositor, the Loan Originator, the Issuer, the Indenture Trustee and the
Majority Noteholders have agreed to amend the Sale and Servicing Agreement as set forth herein.
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and for the mutual covenants herein contained, the parties hereto hereby agree
as follows:
SECTION 1. Effective as of January 16, 2007 (the “Effective Date”), the definition of
“Combined LTV or CLTV” in Section 1 of the Sale and Servicing Agreement is hereby deleted in its
entirety and replaced with the following new definition:
Combined LTV or CLTV: With respect to any Loan, the ratio of
(expressed as a percentage) (a) the outstanding Principal Balance on the
related date of origination of such Loan plus the outstanding principal
balance of (x) if the Loan is a First Lien Loan, any second lien loan
secured by the related Mortgaged Property, or (y) if the Loan is a Second
Lien Loan, any Senior Lien, to (b) the lesser of (x) the Appraised Value of
the Mortgaged Property at origination or (y)
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if the Mortgaged Property was purchased within 12 months of the origination
of the Loan, the purchase price of the Mortgaged Property.
SECTION 2. Acknowledgement and Waiver of Opinion of Counsel. The Issuer, the
Depositor, the Loan Originator and the Indenture Trustee hereby acknowledge and agree that this
Amendment Number One is being entered into pursuant to Section 11.02(b) of the Sale and Servicing
Agreement, and each of the Issuer and the Indenture Trustee hereby waives the right to receive an
Opinion of Counsel described in Section 11.02 of the Sale and Servicing Agreement.
SECTION 3. Representations. In order to induce the parties hereto to execute and
deliver this Amendment Number One, each of the Issuer, the Depositor and the Loan Originator hereby
jointly and severally represents to the other parties hereto and to the Noteholders that as of the
date hereof, after giving effect to this Amendment Number One, (a) all of its respective
representations and warranties in the other Basic Documents to which it is a party are true and
correct, and (b) it is otherwise in full compliance with all of the terms and conditions of the
Basic Documents to which it is a party.
SECTION 4. Limited Effect. Except as expressly amended and modified by this Amendment
Number One, the Sale and Servicing Agreement shall continue in full force and effect in accordance
with its terms. Reference to this Amendment Number One 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 Purchasers 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 Purchasers, (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 Number One 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 without regard to conflict of laws
doctrine applied in such state (other than Section 5-1401 of the New York General Obligations Law).
SECTION 7. Counterparts. This Amendment Number One 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 Number One is executed and delivered by Wilmington Trust
Company, not individually or personally, but solely as Owner Trustee of Option One Owner Trust
2005-9, 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
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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 Number One or any other related
documents.
[REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK]
IN WITNESS WHEREOF, the Issuer, the Depositor, the Loan Originator and the Indenture Trustee
have caused this Amendment Number One to the Sale and Servicing Agreement to be executed and
delivered by their duly authorized officers as of the day and year first above written.
| OPTION ONE OWNER TRUST 2005-9, By: Wilmington Trust Company, not in its individual capacity but solely as Owner Trustee |
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| By: | ||||||
| Name: | ||||||
| Title: | ||||||
| OPTION ONE LOAN WAREHOUSE
CORPORATION, as Depositor |
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| By: | ||||||
| Name: | ||||||
| Title: | ||||||
| OPTION ONE MORTGAGE CORPORATION, as Loan Originator and Servicer |
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| By: | ||||||
| Name: | ||||||
| Title: | ||||||
| WELLS | FARGO BANK, N.A., as Indenture Trustee | |||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
Acknowledged and Consented to as of this 16th day of January, 2007:
DB STRUCTURED PRODUCTS, INC., as Majority Noteholder
By: |
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Name:
|
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Title: |
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By: |
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Name: |
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Title: |
| GEMINI SECURITIZATION CORP., LLC, as Majority Noteholder | ||||
By: |
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Name: |
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Title: |
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| ASPEN FUNDING CORP., as Majority Noteholder | ||||
By: |
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Name: |
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Title: |
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| NEWPORT | FUNDING CORP., as Majority Noteholder | |||
By: |
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Name: |
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Title: |
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Exhibit 10.22
SALE AND SERVICING AGREEMENT
among
OPTION ONE OWNER TRUST 2007-5A
as Issuer
as Issuer
and
OPTION ONE LOAN WAREHOUSE CORPORATION
as Depositor
as Depositor
and
OPTION ONE MORTGAGE CORPORATION
as Loan Originator and Servicer
as Loan Originator and Servicer
and
OPTION ONE MORTGAGE CAPITAL CORPORATION, as Loan Originator
and
WELLS FARGO BANK, N.A.
as Indenture Trustee
as Indenture Trustee
Dated as of January 1, 2007
OPTION ONE OWNER TRUST 2007-5A
MORTGAGE-BACKED NOTES
MORTGAGE-BACKED NOTES
TABLE OF CONTENTS
| Page | ||||||
| ARTICLE I |
||||||
| DEFINITIONS |
||||||
Section 1.01
|
Definitions | 5 | ||||
Section 1.02
|
Other Definitional Provisions | 31 | ||||
| ARTICLE II |
||||||
| CONVEYANCE OF THE TRUST ESTATE; ADDITIONAL NOTE PRINCIPAL BALANCES |
||||||
Section 2.01
|
Conveyance of the Trust Estate; Additional Note Principal Balances | 31 | ||||
Section 2.02
|
Ownership and Possession of Loan Files | 33 | ||||
Section 2.03
|
Books and Records; Intention of the Parties | 33 | ||||
Section 2.04
|
Delivery of Loan Documents | 35 | ||||
Section 2.05
|
Acceptance by the Indenture Trustee of the Loans; Certain | 35 | ||||
Section 2.06
|
Conditions Precedent to Transfer Dates and Collateral Value Increase Dates | 37 | ||||
Section 2.07
|
Termination of Revolving Period | 39 | ||||
Section 2.08
|
Correction of Errors | 39 | ||||
| ARTICLE III |
||||||
| REPRESENTATIONS AND WARRANTIES |
||||||
Section 3.01
|
Representations and Warranties of the Depositor | 40 | ||||
Section 3.02
|
Representations and Warranties of the Loan Originator | 42 | ||||
Section 3.03
|
Representations, Warranties and Covenants of the Servicer | 45 | ||||
Section 3.04
|
Reserved | 47 | ||||
Section 3.05
|
Representations and Warranties Regarding Loans | 47 | ||||
Section 3.06
|
Purchase and Substitution | 47 | ||||
Section 3.07
|
Dispositions | 49 | ||||
Section 3.08
|
Servicer Put; Servicer Call | 52 | ||||
Section 3.09
|
Modification of Underwriting Guidelines | 53 | ||||
| ARTICLE IV |
||||||
| ADMINISTRATION AND SERVICING OF THE LOANS |
||||||
Section 4.01
|
Servicer’s Servicing Obligations | 53 | ||||
| ARTICLE V |
||||||
| ESTABLISHMENT OF TRUST ACCOUNTS; TRANSFER OBLIGATION |
||||||
Section 5.01
|
Collection Account and Distribution Account | 54 | ||||
Section 5.02
|
Payments to Securityholders | 59 | ||||
Section 5.03
|
Trust Accounts; Trust Account Property | 59 | ||||
Section 5.04
|
Advance Account | 62 | ||||
- 2 -
| Page | ||||||
Section 5.05
|
Transfer Obligation Account | 62 | ||||
Section 5.06
|
Transfer Obligation | 63 | ||||
| ARTICLE VI |
||||||
| STATEMENTS AND REPORTS; SPECIFICATION OF TAX MATTERS |
||||||
Section 6.01
|
Statements | 64 | ||||
Section 6.02
|
Specification of Certain Tax Matters | 67 | ||||
Section 6.03
|
Valuation of Loans, Hedge Value and Retained Securities Value; | 67 | ||||
| ARTICLE VII |
||||||
| HEDGING; FINANCIAL COVENANTS |
||||||
Section 7.01
|
Hedging Instruments | 68 | ||||
Section 7.02
|
Financial Covenants | 69 | ||||
| ARTICLE VIII |
||||||
| THE SERVICER |
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Section 8.01
|
Indemnification; Third Party Claims | 70 | ||||
Section 8.02
|
Merger or Consolidation of the Servicer | 72 | ||||
Section 8.03
|
Limitation on Liability of the Servicer and Others | 72 | ||||
Section 8.04
|
Servicer Not to Resign;Assignment | 73 | ||||
Section 8.05
|
Relationship of Servicer to Issuer and the Indenture Trustee | 73 | ||||
Section 8.06
|
Servicer May Own Securities | 73 | ||||
Section 8.07
|
Indemnification of the Indenture Trustee and Initial Noteholder | 74 | ||||
| ARTICLE IX |
||||||
| SERVICER EVENTS OF DEFAULT |
||||||
Section 9.01
|
Servicer Events of Default | 74 | ||||
Section 9.02
|
Appointment of Successor | 76 | ||||
Section 9.03
|
Waiver of Defaults | 77 | ||||
Section 9.04
|
Accounting Upon Termination of Servicer | 77 | ||||
| ARTICLE X |
||||||
| TERMINATION; PUT OPTION |
||||||
Section 10.01
|
Termination | 78 | ||||
Section 10.02
|
Optional Termination | 78 | ||||
Section 10.03
|
Notice of Termination | 79 | ||||
Section 10.04
|
Put Option | 79 | ||||
- 3 -
| Page | ||||||
| ARTICLE XI |
||||||
| MISCELLANEOUS PROVISIONS |
||||||
Section 11.01
|
Acts of Securityholders | 79 | ||||
Section 11.02
|
Amendment | 80 | ||||
Section 11.03
|
Recordation of Agreement | 80 | ||||
Section 11.04
|
Duration of Agreement | 81 | ||||
Section 11.05
|
Governing Law | 81 | ||||
Section 11.06
|
Notices | 81 | ||||
Section 11.07
|
Severability of Provisions | 82 | ||||
Section 11.08
|
No Partnership | 82 | ||||
Section 11.09
|
Counterparts | 82 | ||||
Section 11.10
|
Successors and Assigns | 82 | ||||
Section 11.11
|
Headings | 82 | ||||
Section 11.12
|
Actions of Securityholders | 82 | ||||
Section 11.13
|
Non-Petition Agreement | 83 | ||||
Section 11.14
|
Holders of the Securities | 83 | ||||
Section 11.15
|
Due Diligence Fees, Due Diligence | 83 | ||||
Section 11.16
|
No Reliance | 84 | ||||
Section 11.17
|
Confidential Information | 85 | ||||
Section 11.18
|
Conflicts | 86 | ||||
Section 11.19
|
Limitation on Liability | 86 | ||||
Section 11.20
|
No Agency | 86 | ||||
- 4 -
EXHIBITS
EXHIBIT A
|
Form of Notice of Additional Note Principal Balance | |
EXHIBIT B
|
Form of Servicer’s Remittance Report to Indenture Trustee | |
EXHIBIT C
|
Form of S&SA Assignment | |
EXHIBIT D
|
Loan Schedule | |
EXHIBIT E
|
Representations and Warranties Regarding the Loans | |
EXHIBIT F
|
Servicing Addendum |
- 5 -
SALE AND SERVICING AGREEMENT
This Sale and Servicing Agreement is entered into and effective as of January 1, 2007, among
OPTION ONE OWNER TRUST 2007-5A, 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”) individually
and collectively with Option One Mortgage Capital Corporation as Loan Originator (in such capacity,
a “Loan Originator”) and as Servicer (in such capacity, the “Servicer”), OPTION ONE MORTGAGE
CAPITAL CORPORATION, a Delaware corporation (“Option One Capital”) individually and collectively
with Option One Mortgage Corporation as Loan Originator (in such capacity, a “Loan Originator”),
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, each
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 Servicer’s 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.
- 6 -
Additional Note Principal Balance: With respect to each Transfer Date, the aggregate Sales
Prices of all Loans conveyed on such date.
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 January 1, 2007, 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
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.
- 7 -
ARM: Any Loan, the Loan Interest Rate with respect to which is subject to adjustment
during the life of such Loan.
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 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 Servicer’s 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: January 31, 2007.
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.
Collateral Value Increase Date: Shall have the meaning provided in Section 2.01 (c) hereof.
Collection Account: The account designated as such, established and maintained by the
Servicer in accordance with Section 5.01(a)(l) hereof.
-7-
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.
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 January 1, 2007, 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 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 Rapid Amortization Trigger has been waived in
writing by the Majority Noteholder.
-8-
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 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.
Default LIBOR Margin: As defined in the Pricing Letter.
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”);
-9-
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;
(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 Moody’s
and the short-term deposits of which shall be rated P-l or better by Moody’s and A-l or better by
S&P, unless otherwise approved in writing by the Initial Noteholder 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 Initial Noteholder
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.
-10-
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.
Disposition Agent: Citigroup Global Markets Inc. 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 Initial Noteholder, 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 Majority Noteholders, any other deposit account or a
securities account.
Eligible Servicer: (x) Option One or (y) any other Person that (a) (i) has been designated as
an approved seller-servicer by Fannie Mae or Freddie Mac for first and second mortgage loans
-11-
and (ii) has equity of not less than $15,000,000, as determined in accordance with GAAP 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.
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 exercise 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.
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.
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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.
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 January 1, 2007, between the Issuer and the Indenture
Trustee and any 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
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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
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.
Initial Noteholder: Citigroup Global Markets Realty Corp. or an Affiliate thereof identified
in writing by Citigroup Global Markets Realty Corp. to the Indenture Trustee and the other parties
hereto.
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-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 Borrower’s 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. Each Interest-Only Loan shall be identified as such on the Loan
Schedule, and shall have an interest-only period of five years or as otherwise designated in the
Loan Schedule.
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, the second LIBOR Business Day
preceding the commencement of 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.
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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 trustee’s 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 pursuant to Section
5.01(b)(l) 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 and related Foreclosure Property, if any.
Loan Documents: With respect to a Loan, the documents comprising the Custodial Loan File for
such Loan.
Loan File: With respect to each Loan, the Custodial Loan File and the Servicer’s 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: Each of Option One and Option One Capital, and their respective successors
and assigns, either individually or collectively.
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
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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 Fifth Amended and Restated Loan Purchase and
Contribution Agreement, dated as of December 29, 2006, by and between Option One Capital, a
Delaware corporation, and Option One Loan Warehouse Corporation, a Delaware corporation, as
amended by the Addendum to the Fifth Amended and Restated Loan Purchase and Contribution
Agreement, dated as of January 1, 2007, between Option One Capital and the Depositor.
Loan Schedule: The schedule of Loans conveyed to the Issuer on the Closing Date and on each
Transfer Date and delivered to the Initial Noteholder 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.
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: Citigroup Global Markets Realty Corp. or an Affiliate thereof designated
by Citigroup Global Markets Realty Corp. in writing to the parties hereto and, in either case, its
successors in interest.
Master Disposition Confirmation Agreement: The Fifth Amended and Restated Master Disposition
Confirmation Agreement, dated as of December 29, 2006, by and among Option One, Option One
Capital, the Depositor, Option One Owner Trust 2001-1 A, Option One Owner Trust 2001-2, Option One
Owner Trust 2002-3, Option One Owner Trust 2003-4, Option One Owner Trust 2003-5, Option One Owner
Trust 2005-6, Option One Owner Trust 2005-7, Option
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One Owner Trust 2005-8, and Option One Owner Trust 2005-9, Option One Owner Trust 2007-5A, Wells
Fargo Bank, N.A., Bank of America, N.A., Greenwich Capital Financial Products, Inc., Steamboat
Funding Corporation, UBS Warburg Real Estate Securities Inc., JPMorgan Chase Bank, N.A., Lehman
Brothers Bank, HSBC Bank USA, N.A., Bryant Park Funding LLC, HSBC Securities (USA) Inc., Merrill
Lynch Bank USA, DB Structured Products, Inc., Aspen Funding Corp., Newport Funding Corp., Gemini
Securitization Corp. and Citigroup Global Markets Realty Corp., as amended by the Addendum to the
Fifth Amended and Restated Master Disposition Confirmation Agreement, dated as of January 1, 2007.
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)(l)(i) during the immediately preceding Remittance Period and (ii) the aggregate of amounts
deposited into the Collection Account pursuant to Section 5.01(b)(l)(ii) through 5.01(b)(l)(xi)
during the immediately preceding Remittance Period.
Moody’s: Moody’s Investors Service, Inc., or any successor thereto.
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 Borrower’s 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.
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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.
Non-performing Loan: Any Loan which is greater than 90 days Delinquent.
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 Officer’s Certificate of a Servicing Officer delivered to the Initial
Noteholder, 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 the good faith business judgment
of the Servicer, as evidenced by an Officer’s Certificate of a Servicing Officer delivered to the
Initial Noteholder, would not be ultimately recoverable.
Nonutilization Fee: With respect to any Payment Date occurring on a date specified in clause
(i) of the definition thereof, a fee payable by the Issuer to the Initial Noteholder in an amount
equal to (a) the product of (i) 0.125% and (ii) the average amount of the excess (if any) on each
day during the related Remittance Period of $1,000,000,000 over the Note Principal Balance for such
day and (iii) the number of days during the related Remittance Period divided by (b) 360; provided,
however, that (1) for purposes of clauses (a)(ii) and (a)(iii) above there shall be disregarded any
days occurring prior to the first Transfer Date and any days occurring on or after the expiration
or termination of the Revolving Period and (2) should the amount calculated pursuant to clause
(a)(ii) above not exceed $750,000,000, then the amount of the Nonutilization Fee with respect to
the Payment Date shall be zero.
Note: The meaning assigned thereto in the Indenture.
Noteholder: The meaning assigned thereto in the Indenture.
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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 Default 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 Initial Noteholder, the Issuer
and the Depositor, dated as of November 14, 2003 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.
Officer’s 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 Initial
Noteholder 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 Initial Noteholder 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, 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 Initial Noteholder shall select an
alternative comparable index (over which the Initial Noteholder 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.
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Option One Capital: Option One Mortgage Capital Corporation, a Delaware 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 $4,000 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 Noteholder 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).
Payment Statement: As defined in Section 6.01(b) hereof.
Percentage Interest: As defined in the Trust Agreement.
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:
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(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 Moody’s and AA or better
by S&P.
(c) Freddie Mac senior debt obligations rated Aa2 or higher by Moody’s and AA or better by
S&P.
(d) Federal Home Loan Banks’ consolidated senior debt obligations rated Aa2 or higher by
Moody’s and AA or better by S&P.
(e) Fannie Mae senior debt obligations rated Aa2 or higher by Moody’s.
(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-l or better by S&P and P-l or better by Moody’s.
(g) Investment agreements approved by the Initial Noteholder 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 Moody’s and AA or better
by S&P, and
(2) Monies invested thereunder may be withdrawn without any penalty, premium or charge upon
not more than one day’s 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 Initial Noteholder 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-l
or better by S&P and P-l or better by Moody’s.
(i) Investments in money market funds rated AAAM or AAAM-G by S&P and Aaa or P-l by
Moody’s.
(j) Investments approved in writing by the Initial Noteholder;
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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.
Points and Fees Loan: Any Loan identified on the related Loan Schedule as having points and
fees of less than 4.85%.
Pool Principal Balance: With respect to any Determination Date, the aggregate Principal
Balances of the Loans as of such Determination Date.
Premium Advance Loan: As defined in the Pricing Letter.
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 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, Option One
Capital 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
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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: Means 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.
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.
QSPE Affiliate: Option One Owner Trust 2001-1A, Option One Owner Trust 2001-2, Option One
Owner Trust 2002-3, Option One Owner Trust 2003-4, Option One Owner Trust 2003-5, Option One Owner
Trust 2005-6, Option One Owner Trust 2005-7, Option One Owner Trust 2005-8 and Option One Owner
Trust 2005-9, or any other Affiliate which is a “qualified special purpose entity” in accordance
with Financial Accounting Standards Board’s 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.
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Rapid Amortization Trigger: Shall exist, as of any Determination Date, if the aggregate
Principal Balance of all Loans that are Delinquent greater than 59 days (including Defaulted Loans
and Foreclosed Loans) as of such Determination Date divided by the Pool Principal Balance as of
such Determination Date is greater than 3%; provided, however, that a Rapid Amortization Trigger
shall not occur if such percentage is reduced to less than 3% within 5 Business Days 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 Moody’s 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: Bankers Trust Company, Barclay’s Bank PLC, The Tokyo Mitsubishi Bank and
National Westminster Bank PLC and their successors in interest; provided, however, that if the
Initial Noteholder determines that any of the foregoing banks are not suitable to serve as a
Reference Bank, then any leading banks selected by the Initial Noteholder 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 Initial Noteholder 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.
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
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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)(l) 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 Initial Noteholder 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 Initial Noteholder 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 Initial Noteholder can determine no such arithmetic mean, the lowest one-month U.S. dollar
lending rate which New York City banks selected by the Initial Noteholder 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 officer’s 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 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 sell, such securities.
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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 January 31, 2007 and
ending on November 9, 2007
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.
Servicer: Option One, in its capacity as the servicer hereunder, or any successor appointed
as herein provided.
Servicer Call: The optional repurchase by the Servicer of a Loan pursuant to Section 3.08(b)
hereof.
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.
Servicer’s Fiscal Year: May 1st of each year through April 30th of the
following year.
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Servicer’s 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.
Servicer’s 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 Officer’s 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 & Poor’s 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.
Sub-performing Loan: Any Loan which is 31 to 90 days Delinquent.
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.
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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 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.
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.
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).
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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 2007-5A, the Delaware statutory trust created pursuant to the
Trust Agreement.
Trust Agreement: The Trust Agreement dated as of January 1, 2007 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 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 Servicer’s 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
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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 party’s 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 Initial Noteholder.
Unfunded Transfer Obligation: With respect to any date of determination, an amount equal to
(x) the sum of (A) 10% of the aggregate Collateral Value (as of the related Transfer Date) of all
Loans sold hereunder, plus (B) any amounts withdrawn from the Transfer Obligation Account for
return to the Loan Originator pursuant to Section 5.05(i)(i) hereof prior to such Payment Date,
less (y) the sum of (i) the aggregate amount of payments actually made by the Loan Originator in
respect of the Transfer Obligation pursuant to Section 5.06, (ii) the amount obtained by
multiplying (a) the Unfunded Transfer Obligation Percentage immediately prior to a Disposition by
(b) the aggregate Collateral Value (as of the related date of such Disposition) of all Loans that
have been subject to such Disposition and (iii) without duplication, the aggregate amount of the
Repurchase Prices paid by the Servicer in respect of any Servicer Puts.
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 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
day and (y) the fifth day after the occurrence of such event.
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Wet Funded Loan: A Loan for which the related Custodial Loan File shall not have been
delivered to the Custodian as of the related Transfer Date.
Whole Loan Sale: A Disposition of Loans pursuant to a whole-loan sale.
Section 1.02 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.
ARTICLE II
CONVEYANCE OF THE TRUST ESTATE; ADDITIONAL NOTE PRINCIPAL BALANCES
Section 2.01 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
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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. In addition, the Issuer may purchase Loans at any time from Option
One Owner Trust 2003-5, and in the event of any such purchase, such Loans will be treated in all
respects under this Agreement as if they were purchased from a QSPE Affiliate.
(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 2.0 l(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 Depositor’s 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 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.
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(c) (i) Pursuant to and subject to the Note Purchase Agreement, the Trust may, at its sole
option, from time to time request that the Initial Noteholder advance on any Transfer Date
Additional Note Principal Balances and the Initial Noteholder shall remit on such Transfer Date, to
the Advance Account, an amount equal to the Additional Note Principal Balance. In addition, if the
Issuer increases the Collateral Percentage of any Mortgage Loan to a percentage specified in the
Pricing Letter pursuant to the definition of “Collateral Percentage” on any date following the
related Transfer Date (any such date, a “Collateral Value Increase Date”), the Issuer may request
that the Initial Noteholder advance Additional Note Principal Balances equal to such increase in
the Collateral Percentage of such Loan and the Initial Noteholder may, in its sole discretion, make
such advance of Additional Note Principal Balances.
(ii) Notwithstanding anything to the contrary herein, in no event shall the
Initial Noteholder be required to advance Additional Note Principal Balances on a
Transfer Date or Collateral Value Increase 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 Noteholder’s
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. The Initial Noteholder shall record on the schedule attached to such
Noteholder’s 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 Noteholder’s 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 Initial Noteholder’s 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.
Section 2.02 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 Servicer’s Loan File and
Custodial Loan File shall be vested in the Trust for the benefit of the Securityholders, although
possession of the Servicer’s 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.
Section 2.03 Books and Records; Intention of the Parties.
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(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 Depositor’s 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 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 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 Initial Noteholder
on behalf of the Issuer, such funds shall be promptly returned to the Initial Noteholder 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 Initial Noteholder 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 Servicer’s 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
Servicer’s 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 Initial Noteholder and delivery of an Opinion of
Counsel with respect to the continued perfection of the Indenture Trustee’s 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.
| Section 2.05 | 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 documents to the
Custodian or otherwise curing the defect no later than, in the case of (x) a
non-Wet Funded Loan, 5 Business Days, or (y) in the case of a Wet Funded Loan 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.
(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, the Loan Originator shall
repurchase such Loan within one Business Day of notice thereof from the Indenture
Trustee or the Initial Noteholder 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 Initial Noteholder 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 Servicer’s 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 Servicer’s 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 Servicer’s agreement pursuant to
this Section 2.05(d), the Indenture Trustee shall be deemed to have possession of the Servicer’s
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 Servicer’s 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 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,
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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 Servicer’s
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 Servicer’s performance as custodian of the Servicer Loan
File hereunder.
Section 2.06 Conditions Precedent to Transfer Dates and Collateral Value Increase Dates.
Two (2) Business Days prior to each Transfer Date, the Issuer shall give notice to the Initial
Noteholder of such upcoming Transfer Date and provide the Initial Noteholder (i) an estimate of the
number of Loans and aggregate Principal Balance of such Loans to be transferred on such Transfer
Date and (ii) a final Loan Schedule with respect to the Loans to be transferred on such Transfer
Date. By no later than 12:00 noon New York City time on the Business Day preceding each Transfer
Date, in the case of non-Wet Funded Loans, the Issuer shall have delivered the Custodial Loan File
to the Custodian in accordance with the Custodial Agreement and the Initial Noteholder shall have
received a copy of the Trust Receipt and Exceptions Report reflecting such delivery. 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 or Collateral Value Increase Date, shall deposit or cause to be deposited cash in the
amount of the Additional Note Principal Balance received from the Initial Noteholder in the Advance
Account in respect thereof, and the Servicer 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.
As of the Closing Date, each Transfer Date and, as applicable, each Collateral Value Increase
Date:
(i) the Depositor, the QSPE Affiliate and the Servicer, as applicable, shall have delivered
to the Issuer and the Initial Noteholder duly executed Assignments, which shall have attached
thereto a Loan Schedule setting forth the appropriate information with respect to all Loans
conveyed on such Transfer Date and shall have delivered to the Initial Noteholder 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 or Collateral Value Increase Date, neither the Loan
Originator, the Depositor or the QSPE Affiliate, as applicable, shall (A) be insolvent, (B) be
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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 or Collateral Value Increase 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 or Collateral Value
Increase 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 Initial
Noteholder no later than two Business Days prior to such date a notice of Additional Note
Principal Balance in the form of Exhibit A hereto;
(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 Depositor’s 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 Issuer’s 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
or Collateral Value Increase Date; and
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(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.
Section 2.07 Termination of Revolving Period.
Upon the occurrence of (i) an Event of Default or Default or (ii) a Rapid Amortization Trigger
or (iii) the Unfunded Transfer Obligation Percentage equals 4% or less or (iv) Option One, Option
One Capital or any of their Affiliates 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, Option One Capital or
any of their Affiliates, including without limitation, the Sale and Servicing Agreement, dated as
of April 1, 2001, among the Option One Owner Trust 2001-1 A, 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 2001-2, the Depositor, Option One and the Indenture Trustee, the Second Amended and
Restated Sale and Servicing Agreement, dated as of January 1, 2007, among Option One Owner Trust
2002-3, the Depositor, Option One, Option One Capital and the Indenture Trustee, 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, the Sale and Servicing Agreement, dated as of
November 1, 2003, among the Option One Owner Trust 2003-5, the Depositor, Option One and the
Indenture Trustee, the Sale and Servicing Agreement, dated as of June 1, 2005, among Option One
Owner Trust 2005-6, the Depositor, Option One and the Indenture Trustee, the Sale and Servicing
Agreement, dated as of September 1, 2005, among the Option One Owner Trust 2005-7, the Depositor,
Option One and the Indenture Trustee, the Sale and Servicing Agreement, dated as of October 1, 2005
among Option One Owner Trust 2005-8, the Depositor, Option One and the Indenture Trustee and the
Sale and Servicing Agreement, dated as of December 30, 2005 among Option One Owner Trust 2005-9,
the Depositor, Option One and the Indenture Trustee, in each case as such agreement is amended,
supplemented or modified and effective from time to time pursuant to the terms thereof, 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.
Section 2.08 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
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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
Section 3.01 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
Depositor’s 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);
(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;
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(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, has 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 a Loan Originator’s 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 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 Officer’s
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
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material fact or omits to state a material fact necessary to make the statements contained herein
or therein not misleading;
(1) 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 Depositor’s 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.
Section 3.02 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;
(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
Originator’s 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
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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 probability 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 a Loan
Originator’s satisfaction of its financial covenants, there is also a reasonable possibility 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 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 Initial Noteholder in
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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 Initial 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) Option One has received fair consideration and reasonably equivalent value in exchange
for the Loans sold by it to Option One Capital and 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;
(1) 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) Each of Option One and Option One Capital is in compliance with each of the financial
covenants set forth in Section 7.02; and
(n) The Loan Originator’s 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 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
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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
Initial 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.
Section 3.03 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 Servicer’s
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);
(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;
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(e) There are no actions or proceedings against, or investigations of, the Servicer currently
pending with regard to which the Servicer has received 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 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 or (C) if determined adversely to the Servicer, would
have a reasonable probability of prohibiting or materially and adversely affecting 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 a Loan Originator’s 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 any 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 Initial Noteholder 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 Initial 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.
(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; and
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(k) The Servicer is an Eligible Servicer and covenants to remain an Eligible Servicer
or, if not an Eligible Servicer, each Subservicer is an Eligible Servicer and the Servicer
covenants to cause each Subservicer to be an Eligible Servicer.
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 Initial 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.
Section 3.04 Reserved.
Section 3.05 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 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 Initial
Noteholder of such facts or circumstances and, in such event, shall have no obligation to make
such materially false representation and warranty.
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 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.
Section 3.06 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 Originator’s best knowledge) or which constitutes a breach of the representations and
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warranties set forth in Exhibit E, the party discovering such breach shall give prompt written
notice to the others. The Loan Originator shall within 5 Business Days of the earlier of the Loan
Originator’s discovery or the Loan Originator’s receiving notice of any breach of a representation
or warranty, promptly cure such breach in all material respects. If within 5 Business Days after
the earlier of the Loan Originator’s discovery of such breach or the Loan Originator’s 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)(l) 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 Initial Noteholder 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 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 Initial Noteholder 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 Initial Noteholder,
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
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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 Issuer’s 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 Trustee’s 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 a 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
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.
Section 3.07 Dispositions.
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(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,
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;
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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 the Initial 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 an Affiliate of the Initial 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 9.0 l(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.
After the termination of the Revolving Period, the Loan Originator, the Issuer and the
Depositor shall use commercially reasonable efforts to effect a Disposition at the direction of the
Disposition Agent.
(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);
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(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 by the highest bidder. The Disposition Agent shall conduct any Whole Loan Sale subject to the
Loan Originator’s 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.
Section 3.08 Servicer Put; Servicer Call.
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(a) Servicer Put. The Servicer shall promptly purchase, upon the written
demand of the Majority Noteholders, any Put/Call Loan; provided, however, that the Servicer
may, 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 Servicer shall remit for 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) shall in no event exceed the Unfunded Transfer Obligation at the
time of any Servicer Put.
Section 3.09 Modification of Underwriting Guidelines.
The Loan Originator shall give the Initial Noteholder prompt written notification of any
modification or change to the Underwriting Guidelines. If the Noteholder objects 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 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 Initial Noteholder or which the Initial Noteholder 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
Section 4.01 Servicer’s 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.
Section 4.02 Financial Statements.
(a) So long as the Notes remain outstanding, the Servicer shall furnish to the Initial
Noteholder:
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(i) annual consolidated audited financial statements of the Servicer
and its Affiliates no later than 105 days after the Servicer’s 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 Initial Noteholder a copy of the Servicer’s annual SEC Form
10-K filing no later than 105 days after year-end, and (iii) any other financial information that
the Initial Noteholder 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.
ARTICLE V
ESTABLISHMENT OF TRUST ACCOUNTS; TRANSFER OBLIGATION
Section 5.01 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
2007-5A Collection Account, Wells Fargo Bank, N.A., as Indenture Trustee, for the benefit of the
Option One Owner Trust 2007-5A 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 2007-5A Distribution Account, Wells Fargo Bank,
N.A., as Indenture Trustee, for the benefit of the Option One Owner Trust 2007-5A
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
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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
2007-5A Collection/Distribution Account, Wells Fargo Bank, N.A., as Indenture Trustee, for the
benefit of the Option One Owner Trust 2007-5 A 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 Trustee’s name, including any location to which an account is transferred.
(b) (1) 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;
(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)(l); and
(xi) any Repurchase Price payable in connection with a Servicer Put remitted by the Servicer
pursuant to Section 3.08.
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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
(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)(l) 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.
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(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 Servicer’s 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 (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; |
| (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 sum of 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 Initial Noteholder, 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; |
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| (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; |
| (ix) | all Nonrecoverable Servicing Advances not previously reimbursed; and |
| (x) | 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 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)(l)(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 Noteholder shall give the Paying Agent and the
Indenture Trustee at least one (1) Business Day’s 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
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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.
(D) [Reserved]
Section 5.02 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 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
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 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.
Section 5.03 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
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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 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 2007-5A 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
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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:
(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 as provided in the Blocked Account
Agreement; 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
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(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 Trustee’s
(or its nominee’s) ownership of such security.
Section 5.04 Advance Account.
(a) The Servicer shall cause to be established and maintained in its name, an
Advance Account (the “Advance Account”), which need not be a segregated account. The
Advance Account shall be maintained with any financial institution the Servicer elects.
(b) Deposits and Withdrawals. Amounts in respect of the transfer of
Additional Note Principal Balances and Loans shall be deposited in and withdrawn from the
Advance Account as provided in Sections 2.0l(c) and 2.06 hereof and Section 3.01 of the Note
Purchase Agreement.
Section 5.05 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 2007-5A Transfer Obligation Account, Wells
Fargo Bank, N.A., as Indenture Trustee, in trust for the Option One Owner Trust 2007-5A
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.
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(f) If with respect to any Business Day there exists an Overcollateralization
Shortfall, the Paying Agent, upon the written direction of the Initial Noteholder, 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 Initial
Noteholder, 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.
(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.
Section 5.06 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;
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(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 Initial Noteholder, 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; and
(v) 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 Originator’s
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
Servicer’s 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.
(c) With respect to the obligations of the Loan Originator pursuant to this
Section 5.06, Option One shall be obligated to make payments hereunder only if Option One
Capital does not make such payments prior to the time any such payment is required to be made.
If Option One Capital does not make any such payment prior to the time such payment is
required to be made, Option One shall be required to make such payment not later than the time
such payment is required to be made.
5.07 Monthly Payment Information.
The Servicer shall provide to Citigroup Global Markets Realty Corp. within one (1) Business
Day of any request, updated payment information regarding any of the Loans, including current
paid-through information.
ARTICLE VI
STATEMENTS AND REPORTS; SPECIFICATION OF TAX MATTERS
Section 6.01 Statements.
(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 Initial Noteholder by electronic
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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
Servicer’s Remittance Report, setting forth the date of such Report (day, month and year), the name
of the Issuer (i.e., “Option One Owner Trust 2007-5A”), 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 Initial Noteholder 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 Initial Noteholder 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 or via fax,
receipt confirmed by telephone, the Initial Noteholder 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 2007-5A”),
the date of this Agreement and the following information:
(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;
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(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)(l)(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;
(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;
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(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 Rapid Amortization Trigger shall exist with respect to
such Payment Date.
Such Payment Statement shall also be provided on the Remittance Date to the Initial Noteholder and
Indenture Trustee in the form of a data file in a form mutually agreed to by and between the
Initial Noteholder, the Indenture Trustee and the Servicer. The Indenture Trustee shall have no
duty to monitor the occurrence of a Rapid Amortization Trigger or any events resulting in
withdrawals from the Transfer Obligation Account.
Section 6.02 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.
Section 6.03 Valuation of Loans, Hedge Value and Retained Securities Value; Market Value Agent.
(a) The Initial Noteholder hereby irrevocably appoints, 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.
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(b) Except as otherwise set forth in Section 3.07, the Market Value Agent
shall determine the Market Value of each Loan, for the purposes of the Basic Documents, in its
sole and reasonable discretion. 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 Agent’s determination, in its sole and reasonable 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.
(d) 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 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
Section 7.01 Hedging Instruments.
(a) On each Transfer Date, the Trust shall enter into such Hedging
Instruments as the Market Value Agent, on behalf of the Majority Noteholders, shall determine
are necessary in order to hedge the interest rate risk with respect to the Collateral Value of
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 Counterparty’s approval.
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(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)(l)(x), (ii) contain
an
assignment of all of the Issuer’s 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 Counterparty’s 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
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.
Section 7.02 Financial Covenants.
(a) Each of Option One and the Servicer shall maintain a minimum Tangible
Net Worth of $425 million as of any day.
(b) Each of Option One 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 Option One 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.
(d) Each of Option One 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
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events more restrictive than the covenants or termination events contained in the Basic Documents.
(e) Beginning with the quarter ending April 30, 2007, each of Option One,
Option One Capital 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 Option One and the Servicer, on a quarterly basis, shall provide
the Noteholder Agent with an Officer’s Certificate stating that Option One 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.
ARTICLE VIII
THE SERVICER
Section 8.01 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 Servicer’s 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 Party’s 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
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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
by the Loan Originator, the Servicer or its Affiliates of any material fact or any such
Person’s
failure to state a material fact necessary to make such statements not misleading with respect
to
any such Person’s statements contained in any Basic Document, including, without limitation,
any Officer’s 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 Person’s 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 Party’s willful misfeasance, bad faith or negligence or by reason of an
Originator Indemnified Party’s 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 Party’s receipt thereof, copies of all notices
and
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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 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.
Section 8.02 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.
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 an Eligible Servicer and 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.
Section 8.03 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 Servicer’s duty to service the
Loans in accordance with this Agreement.
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Section 8.04 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 Servicer’s 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 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
Servicer’s 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.
Section 8.05 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.
Section 8.06 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
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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.
Section 8.07 Indemnification of the Indenture Trustee and Initial Noteholder.
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 Initial
Noteholder in accordance with Section 9.01 of the Note Purchase Agreement as if it were signatory
thereto.
ARTICLE IX
SERVICER EVENTS OF DEFAULT
Section 9.01 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 the Servicer to deposit into the Collection Account
or the Distribution Account any amounts required to be deposited therein or any failure by the
Servicer to make any of the required payments therefrom; 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 Initial Noteholder 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
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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 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; or
(7) Reserved; or
(8) Option One fails to comply with any of its financial covenants set
forth in Section 7.02; or
(9) a Change of Control of the Servicer; or
(10) so long as the Servicer or the Loan Originator is an Affiliate of the
Issuer, the occurrence of an Event of Default under the Indenture as a result of the action or
inaction of the Issuer.
(b) 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 Servicer’s 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.
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(c) 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 or (iii) a Rapid Amortization
Trigger (each, a “Term Event”), the Servicer’s 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 Initial Noteholder
by written notice (each, a “Servicer Extension Notice”) of the Initial Noteholder 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 Initial Noteholder, the
Servicer shall give written notice of such non-receipt to the Initial Noteholder by 4:00 p.m. (New
York City time). Following a Term Event, the failure of the Initial Noteholder to deliver a
Servicer Extension Notice by 5:00 p.m. (New 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 Initial Noteholder 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.
Section 9.02 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 9.0 l(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 EX 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.
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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 Servicer’s 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 Servicer’s 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 Servicer’s 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 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 Initial Noteholder, the Indenture Trustee, the Issuer
and the Depositor, the Majority Noteholders and the Issuer shall have consented in writing thereto.
In connection with such appointment and assumption, the Majority Noteholder 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.
Section 9.03 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.
Section 9.04 Accounting Upon Termination of Servicer.
Upon termination of the Servicer under this Article IX, the Servicer shall, at its own
expense:
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(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 tape;
(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.
ARTICLE X
TERMINATION; PUT OPTION
Section 10.01 Termination.
(a) This Agreement shall terminate upon either: (A) the later of (i) the
satisfaction and discharge of the Indenture and the provisions thereof, 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.
Section 10.02 Optional Termination.
(a) 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
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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)(l) 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.
Section 10.03 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.
Section 10.04 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)(l) 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
Section 11.01 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.
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Section 11.02 Amendment.
(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.
(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 Issuer’s own rights, duties or immunities of the Issuer or the Indenture Trustee, as the case
may be, under this Agreement.
Section 11.03 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 Duration of Agreement.
This Agreement shall continue in existence and effect until terminated as herein provided.
Section 11.05 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 OBLIGATIONS LAW BUT OTHERWISE WITHOUT
GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW).
Section 11.06 Notices.
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 2007-5A, 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, (A) if to Option One, to Option One Mortgage Corporation, 3 Ada,
Irvine, California 92618, Attention: Matthew Engel, telecopy number: (866) 715-8329, telephone
number: (949) 790-8128 or (B) if to Option One Capital, to Option One Mortgage Capital Corporation,
3 Ada Road, Irvine, California 92618, Attention: Chief Financial Officer, telecopy number: (949)
790-7514, telephone number: (949) 790-3600 ext 35524 or, in either case, to such other addresses or
telecopy or telephone numbers as may hereafter be furnished to the Securityholders and the other
parties hereto in writing by Option One or Option One Capital; (IV) in the case of the Servicer, to
Option One Mortgage Corporation 3 Ada, Irvine, California 92618, Attention: William O’Neill,
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 2007-5A, 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 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.
Section 11.08 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.
Section 11.09 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.
Section 11.10 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.
Section 11.11 Headings.
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.
Section 11.12 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.
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(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.
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.
Section 11.13 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 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.
Section 11.14 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.
Section 11.15 Due Diligence Fees. Due Diligence.
The Loan Originator acknowledges that the Initial Noteholder has 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 Initial Noteholder, 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 Initial Noteholder 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
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foregoing, the Loan Originator acknowledges that the Initial Noteholder may purchase Notes based
solely upon the information provided by the Loan Originator to the Initial Noteholder in the Loan
Schedule and the representations, warranties and covenants contained herein, and that the Initial
Noteholder, at its option, has 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 Initial Noteholder may underwrite
such Loans itself or engage a mutually agreed upon third party underwriter to perform such
underwriting. The Loan Originator agrees to cooperate with the Initial Noteholder and any third
party underwriter in connection with such underwriting, including, but not limited to, providing
the Initial Noteholder 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 agrees that the Loan Originator shall
reimburse the Initial Noteholder for any and all reasonable out-of-pocket costs and expenses
incurred by the Initial Noteholder in connection with the Initial Noteholder’s activities pursuant
to this Section 11.15 hereof, not to exceed $15,000 per quarter (the “Due Diligence Fees”). In
addition to the obligations set forth in Section 11.17 of this Agreement, the Initial Noteholder
agrees (on behalf of itself and its 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 Initial
Noteholder shall, prior to disclosure thereof, notify the Loan Originator of any request for
disclosure of any such non-public information. The Initial Noteholder further agrees not to use any
such non-public information for any purpose unrelated to this Agreement and that the Initial
Noteholder 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.
Section 11.16 No Reliance.
Each of the Loan Originator, the Depositor, the Servicer and the Issuer hereby acknowledges
that it has not relied on the Initial Noteholder or any of its 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 the Initial Noteholder makes no 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 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 its 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 action under this
Agreement and 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
and 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 Initial Noteholder may use Confidential Information for internal due
diligence purposes in connection with its 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 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.
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Section 11.18 Conflicts.
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.
Section 11.19 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 2007-5A, 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 Agreement or any other related documents.
Section 11.20 No Agency.
Nothing contained herein or in the Basic Documents shall be construed to create an agency or
fiduciary relationship between the Initial Noteholder or the Majority Noteholders or any of their
Affiliates and the Issuer, the Depositor, the Loan Originator or the Servicer. None of the Initial
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)
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IN WITNESS WHEREOF, the Issuer, the Depositor, the Servicer, the Indenture Trustee
Option One and Option One Capital 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.
| OPTION ONE OWNER TRUST 2007-5A, | ||||||
| By: | Wilmington Trust Company | |||||
| not in its individual capacity | ||||||
| but solely as Owner Trustee | ||||||
| By: | /s/ Michele C. Harra | |||||
| Name: | Michele C. Harra | |||||
| Title: | Financial Services Officer | |||||
| OPTION ONE LOAN WAREHOUSE | ||||||
| CORPORATION, as Depositor | ||||||
| By: | /s/ Philip Laren | |||||
| Name: | Philip Laren | |||||
| Title: | Vice President | |||||
| OPTION ONE MORTGAGE CORPORATION, as | ||||||
| Loan Originator and Servicer | ||||||
| By: | /s/ Philip Laren | |||||
| Name: | Philip Laren | |||||
| Title: | Senior Vice President | |||||
| OPTION ONE MORTGAGE CAPITAL | ||||||
| CORPORATION, as Loan Originator | ||||||
| By: | /s/ Philip Laren | |||||
| Name: | Philip Laren | |||||
| Title: | Vice President | |||||
| WELLS FARGO BANK, N.A., as Indenture Trustee | ||||||
| By: | /s/ Darron C. Woodus | |||||
| Name: | Darron C.Woodus | |||||
| Title: | Assistant Vice President | |||||
Sale and Servicing Agreement (Option One Owner Trust 2007-5A)
Exhibit 10.23
NOTE PURCHASE AGREEMENT
among
OPTION ONE OWNER TRUST 2007-5A
as Issuer
as Issuer
and
OPTION ONE LOAN WAREHOUSE CORPORATION
as Depositor
as Depositor
and
CITIGROUP GLOBAL MARKETS REALTY CORP.
as purchaser
as purchaser
Dated as of January 1, 2007
OPTION ONE OWNER TRUST 2007-5A
MORTGAGE-BACKED NOTES
MORTGAGE-BACKED NOTES
TABLE OF CONTENTS
| Page | ||||
ARTICLE I |
||||
DEFINITIONS |
||||
SECTION 1.01. Certain Defined Terms |
1 | |||
SECTION 1.02. Other Definitional Provisions |
2 | |||
ARTICLE II |
||||
COMMITMENT; CLOSING AND PURCHASES OF ADDITIONAL NOTE PRINCIPAL BALANCES |
||||
SECTION 2.01. Commitment; Collateral Value Increase Dates |
3 | |||
SECTION 2.02. Closing |
3 | |||
ARTICLE III |
||||
TRANSFER DATES |
||||
SECTION 3.01. Transfer Dates |
3 | |||
ARTICLE IV |
||||
CONDITIONS PRECEDENT TO EFFECTIVENESS OF COMMITMENT |
||||
SECTION 4.01. Closing Subject to Conditions Precedent |
5 | |||
ARTICLE V |
||||
REPRESENTATIONS AND WARRANTIES OF THE ISSUER AND THE DEPOSITOR |
||||
SECTION 5.01. Issuer |
7 | |||
SECTION 5.02. Securities Act |
9 | |||
SECTION 5.03. No Fee |
10 | |||
SECTION 5.04. Information |
10 | |||
SECTION 5.05. The Purchased Note |
10 | |||
SECTION 5.06. Use of Proceeds |
10 | |||
SECTION 5.07. The Depositor |
10 | |||
SECTION
5.08. Taxes, etc. |
10 | |||
SECTION 5.09. Financial Condition |
10 | |||
i
| Page | ||||
ARTICLE VI |
||||
REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE PURCHASER |
||||
SECTION 6.01. Organization |
11 | |||
SECTION
6.02. Authority, etc. |
11 | |||
SECTION 6.03. Securities Act |
11 | |||
SECTION 6.04. Conflicts With Law |
12 | |||
SECTION
6.05. Conflicts With Agreements, etc. |
12 | |||
ARTICLE VII |
||||
COVENANTS OF THE ISSUER AND THE DEPOSITOR |
||||
SECTION 7.01. Information from the Issuer |
12 | |||
SECTION 7.02. Access to Information |
13 | |||
SECTION 7.03. Ownership and Security Interests; Further Assurances |
13 | |||
SECTION 7.04. Covenants |
13 | |||
SECTION 7.05. Amendments |
13 | |||
SECTION 7.06. With Respect to the Exempt Status of the Purchased Note |
13 | |||
ARTICLE VIII |
||||
ADDITIONAL COVENANTS |
||||
SECTION 8.01. Legal Conditions to Closing |
14 | |||
SECTION 8.02. Expenses |
14 | |||
SECTION 8 03 Mutual Obligations |
14 | |||
SECTION 8.04. Restrictions on Transfer |
15 | |||
SECTION 8.05. [Reserved] |
15 | |||
SECTION
8.06. Information Provided by the Purchaser |
15 | |||
ARTICLE IX |
||||
INDEMNIFICATION |
||||
SECTION
9.01. Indemnification of Purchaser |
15 | |||
SECTION
9.02. Procedure and Defense |
15 | |||
ARTICLE X |
||||
MISCELLANEOUS |
||||
SECTION
10.01. Amendments |
16 | |||
SECTION 10.02. Notices |
16 | |||
SECTION 10.03. No Waiver; Remedies |
17 | |||
SECTION
10.04. Binding Effect; Assignability |
17 | |||
ii
| Page | ||||
SECTION 10.05. Provision of Documents and Information |
17 | |||
SECTION 10.06. GOVERNING LAW; JURISDICTION |
17 | |||
SECTION
10.07. No Proceedings |
18 | |||
SECTION
10.08. Execution in Counterparts |
18 | |||
SECTION
10.09. No Recourse — Purchaser and Depositor |
18 | |||
SECTION 10.10. Survival |
19 | |||
SECTION
10.11. Tax Characterization |
19 | |||
SECTION 10.12. Conflicts |
19 | |||
SECTION 10.13. Limitation on Liability |
19 | |||
Schedule I Information for Notices
iii
NOTE PURCHASE AGREEMENT
NOTE PURCHASE AGREEMENT dated as of January 1, 2007 (the
“Note Purchase Agreement”),
among OPTION ONE OWNER TRUST 2007-5A (the “Issuer”), OPTION ONE LOAN WAREHOUSE CORPORATION
(the “Depositor”), and CITIGROUP GLOBAL MARKETS REALTY CORP. (“Citigroup.” and in
its capacity as Purchaser hereunder, 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 January 1, 2007 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 each of Option One Mortgage Corporation, a California corporation and
Option One Mortgage Capital Corporation, a Delaware corporation, and their respective successors
and assigns, jointly and severally.
“
Maximum Note Principal Balance” means an amount equal to $1,000,000,000.
“Purchaser” means the Purchaser and its permitted successors and assigns.
“
Purchased Note” means the Option One Owner Trust 2007-5A Mortgage-Backed Note issued by the
Issuer pursuant to the Indenture.
“
Sale and Servicing Agreement” means the Sale and Servicing Agreement dated as of
January 1, 2007, 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
ADDITIONAL NOTE PRINCIPAL BALANCES
SECTION 2.01. Commitment; Collateral Value Increase Dates.
(a) At any time during the Revolving Period at least two Business Days prior to a proposed
Transfer Date, 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 and an
estimate of the number of Loans and aggregate Principal Balance of such Loans to be purchased by
the Issuer on such Transfer Date. On the identified Transfer Date, the Purchaser agrees to purchase
the Additional Note Principal Balances 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) On any Collateral Value Increase Date during the Revolving Period, to the extent that the
Note Principal Balance (after giving effect to the proposed increase in the Note Principal Balance)
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 equal to the related increase in the Collateral Percentage of
the related Loans. The Purchaser may in its sole discretion agree to purchase such Additional Note
Principal Balances.
SECTION 2.02. Closing. The closing (the “Closing”) of the execution of
the Basic Documents and Purchased Note 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 January 31, 2007, 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,
3
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;
(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 Note;
(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 required to be assigned pursuant to the related LPA Assignment, S&SA Assignment and the
Indenture;
(vi) Each Loan (i) has been originated in accordance with the Underwriting Guidelines and
(ii) is not “abusive” or “predatory”; and
(b) The Purchaser shall determine in its reasonable discretion whether each of the above
conditions have been met in accordance with the Sale and Servicing Agreement and its determination
shall be binding on the parties hereto.
(c) 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 4:00 p.m. New York City time on the Transfer
Date by wire transfer of immediately available funds to the Advance Account.
(d) The Purchaser shall record on the schedule attached to the Purchased Note, 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
Purchaser’s rights with respect to its Note Principal Balance and its right to receive interest
payments in respect of the Note Principal Balance actually held. Absent manifest error, the Note
Principal Balance of the Purchased Note as set forth in the Purchaser’s records
4
shall be binding upon the parties hereto, notwithstanding any notation or record made or
kept by any other party hereto.
ARTICLE IV
CONDITIONS PRECEDENT TO
EFFECTIVENESS OF COMMITMENT
EFFECTIVENESS OF COMMITMENT
SECTION 4.01. Closing 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) Officer’s Certificate. The Purchaser shall have received in form and substance
reasonably satisfactory to the Purchaser an Officer’s 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 Issuer’s and the
Depositor’s 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,
5
dated as of the Closing Date and reasonably satisfactory in form and substance to the Purchaser
and its counsel.
(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 Originator’s 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 Depositor’s 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 Issuer’s 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 Note and each and every
document or certification delivered by any party in connection with any of the Basic Documents or
the Purchased Note, 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 Note
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 Note
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.
(1) 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 Note. All actions and
proceedings undertaken by the Issuer, the Loan Originator, the Depositor and the Servicer in
6
connection with the issuance and sale of the Purchased Note as herein contemplated shall be
reasonably satisfactory in all respects to the Purchaser and its counsel.
(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) Wet Funding Agreement. The Issuer, the Depositor, the Loan Originator and such
other appropriate parties shall have entered into an agreement concerning the terms, conditions
and procedures applicable to the sale of Wet Funded Loans to the Issuer and the pledge of such
Loans to the Indenture Trustee reasonably satisfactory to the Purchaser.
(r) Underwriting Guidelines. The Purchaser shall have received a copy of the current
Underwriting Guidelines.
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
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 have a material adverse effect on the Issuer
or any adverse effect on the interests of the Purchaser.
(b) The issuance, sale, assignment and conveyance of the Purchased Note and the Additional
Note Principal Balances, the performance of the Issuer’s obligations under each
7
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 on the
transactions contemplated therein.
(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 Note. 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 Note.
(d) The Issuer possesses all material licenses, certificates, authorities 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, authority 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 on any of the
transactions contemplated therein.
(g) The Issuer 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 material to
the Issuer or the transactions contemplated by the Basic
Documents. The Issuer is not a party to, bound by or in breach or violation of any indenture
or other agreement or instrument,
8
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 materially and
adversely affects, or may in the future materially and adversely affect (i) the ability of the
Issuer to perform its obligations under any of the Basic Documents to which it is a party or (ii)
the business, operations, financial condition, properties, assets or prospects of the Issuer.
(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 Note or the consummation of any of the
transactions contemplated by the Basic Documents or the Purchased Note, or (iii) that, if adversely
determined, could materially and adversely affect the business, operations, financial condition,
properties, assets or prospects of the Issuer or the validity or enforceability of, or the
performance by the Issuer of its respective obligations under, any of the Basic Documents to which
it is a party or (iv) seeking to affect adversely the income tax attributes of the Purchased Note.
(i) The Issuer is not, and neither the issuance and sale of the Purchased Note 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”).
(j) It is not necessary to qualify the Indenture under the Trust Indenture Act of 1939, as
amended.
(k) The Issuer is solvent and has adequate capital for its business and undertakings.
(l) The chief executive offices of the Issuer are located at Option One Owner Trust 2007-5A,
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.
(m) 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 Note.
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
Note 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 Note, 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
9
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 Note 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 Note, would render the issuance and sale of the
Purchased Note 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 Note.
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 Note. The Purchased Note has 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 Note or otherwise 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.
10
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
WITH RESPECT TO THE PURCHASER
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 Purchaser’s 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 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.
11
(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 Purchaser’s
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, or which could be expected in the future to materially and adversely affect
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 Note remains 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;
(c) as soon as possible and in any event within five (5) 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
12
(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 Note remains 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 their 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 Issuer’s 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 Trustee’s 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 Note.
(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 security,
or solicit offers to buy any security, under circumstances that would require the
13
registration of the Purchased Note 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 Note.
(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 such subsequent purchaser so requests, 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 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.
14
SECTION 8.04. Restrictions on Transfer. The Purchaser agrees that it will comply with the
restrictions on transfer of the Purchased Note set forth in the Indenture and resell the Purchased
Note only in compliance with such restrictions.
SECTION 8.05. [Reserved].
SECTION 8.06. Information Provided by the Purchaser. The Purchaser 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 Purchaser 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 Purchaser 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 Party’s 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
15
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 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.
16
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 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 Note); 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 Purchaser’s 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 Purchaser’s 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 Note 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
17
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 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 Note, acknowledges that such Purchased Note
represents an obligation of the Issuer and does 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 Note
or the Basic Documents.
18
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 Note.
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 Note 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 Note 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 2007-5A, 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.
19
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.
| OPTION ONE OWNER TRUST 2007-5A | ||||||
| By: | Wilmington Trust Company not in its individual capacity but solely as owner trustee |
|||||
| By: | /s/ Michele C. Harra
|
|||||
| Name: | Michele C. Harra | |||||
| Title: | Financial Services Officer | |||||
| OPTION ONE LOAN WAREHOUSE CORPORATION | ||||||
| By: | /s/ Charles R. Fulton | |||||
| Name: | Charles R. Fulton | |||||
| Title: | Assistant Secretary | |||||
| CITIGROUP GLOBAL MARKETS REALTY CORP. | ||||||
| By: | /s/ Bobbie Theivakumaran
|
|||||
| Name: | Bobbie Theivakumaran | |||||
| Title: | Authorized Agent | |||||
Note Purchase Agreement (Option One Owner Trust 2007-5A)
Schedule I
Information for Notices
Information for Notices
1. if to the Issuer:
Option One Owner Trust 2007-5A
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
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: Matthew Engel
Telecopy number: (866) 715-8329
Telephone number: (949) 790-8128
3 Ada Road
Irvine, California 92618
Attention: Matthew Engel
Telecopy number: (866) 715-8329
Telephone number: (949) 790-8128
2. if to the Depositor:
Option One Loan Warehouse Corporation
3 Ada Road
Irvine, California 92618
Attention: Matthew Engel
Telecopy number: (866) 715-8329
Telephone number: (949) 790-8128
3 Ada Road
Irvine, California 92618
Attention: Matthew Engel
Telecopy number: (866) 715-8329
Telephone number: (949) 790-8128
3. if to the Purchaser:
Citigroup Global Markets Realty Corp.
390 Greenwich Street
New York, New York 10013
Attention: Randy Appleyard
Telecopy: (212) 723-8603
Telephone: (212) 723-6394
390 Greenwich Street
New York, New York 10013
Attention: Randy Appleyard
Telecopy: (212) 723-8603
Telephone: (212) 723-6394
I-1
Exhibit 10.24
INDENTURE
between
OPTION ONE OWNER TRUST 2007-5A
as Issuer
and
as Issuer
and
WELLS FARGO BANK, N.A.
as Indenture Trustee
as Indenture Trustee
Dated as of January 1, 2007
OPTION ONE OWNER TRUST 2007-5A
MORTGAGE-BACKED NOTES
MORTGAGE-BACKED NOTES
| ARTICLE I |
||||
| DEFINITIONS |
||||
Section 1.01 Definitions |
2 | |||
Section 1.02 Rules of Construction |
7 | |||
| ARTICLE II |
||||
| GENERAL PROVISIONS WITH RESPECT TO THE NOTES |
||||
Section 2.01 Method of Issuance and Form of Notes |
9 | |||
Section 2.02 Execution, Authentication, Delivery and Dating |
9 | |||
Section 2.03 Registration; Registration of Transfer and Exchange |
10 | |||
Section 2.04 Mutilated, Destroyed, Lost or Stolen Notes |
11 | |||
Section 2.05 Persons Deemed Noteholders |
12 | |||
Section 2.06 Payment of Principal and/or Interest; Defaulted Interest |
12 | |||
Section 2.07 Cancellation |
12 | |||
Section 2.08 Conditions Precedent to the Authentication of the Notes |
13 | |||
Section 2.09 Release of Collateral |
14 | |||
Section 2.10 Additional Note Principal Balance |
15 | |||
Section 2.11 Tax Treatment |
15 | |||
Section 2.12 Limitations on Transfer of the Notes |
15 | |||
| ARTICLE III |
||||
| COVENANTS | ||||
Section 3.01 Payment of Principal and/or Interest |
16 | |||
Section 3.02 Maintenance of Office or Agency |
16 | |||
Section 3.03 Money for Payments to Be Held in Trust |
16 | |||
Section 3.04 Existence |
18 | |||
Section 3.05 Protection of Collateral |
18 | |||
Section 3.06 Negative Covenants |
19 | |||
Section 3.07 Performance of Obligations; Servicing of Loans |
20 | |||
Section 3.08 Reserved |
21 | |||
Section 3.09 Annual Statement as to Compliance |
21 | |||
Section 3.10 Covenants of the Issuer |
21 | |||
Section 3.11 Servicer’s Obligations |
22 | |||
Section 3.12 Restricted Payments |
22 | |||
Section 3.13 Treatment of Notes as Debt for All Purposes |
22 | |||
Section 3.14 Notice of Events of Default |
22 | |||
Section 3.15 Further Instruments and Acts |
22 | |||
i
| ARTICLE IV |
||||
| SATISFACTION AND DISCHARGE |
||||
Section 4.01 Satisfaction and Discharge of Indenture |
22 | |||
Section 4.02 Application of Trust Money |
24 | |||
Section 4.03 Repayment of Moneys Held by Paying Agent |
24 | |||
| ARTICLE V |
||||
| REMEDIES |
||||
Section 5.01 Events of Default |
24 | |||
Section 5.02 Acceleration of Maturity; Rescission and Annulment |
26 | |||
Section 5.03 Collection of Indebtedness and Suits for Enforcement by Indenture Trustee
|
26 | |||
Section 5.04 Remedies; Priorities |
28 | |||
Section 5.05 Optional Preservation of the Collateral |
30 | |||
Section 5.06 Limitation of Suits |
30 | |||
Section 5.07 Unconditional Rights of Noteholders to Receive Principal and/or Interest |
31 | |||
Section 5.08 Restoration of Rights and Remedies |
31 | |||
Section 5.09 Rights and Remedies Cumulative |
31 | |||
Section 5.10 Delay or Omission Not a Waiver |
31 | |||
Section 5.11 Control by Noteholders |
32 | |||
Section 5.12 Waiver of Past Defaults |
32 | |||
Section 5.13 Undertaking for Costs |
33 | |||
Section 5.14 Waiver of Stay or Extension Laws |
33 | |||
Section 5.15 Action on Notes |
33 | |||
Section 5.16 Performance and Enforcement of Certain Obligations |
33 | |||
| ARTICLE VI |
||||
| THE INDENTURE TRUSTEE |
||||
Section 6.01 Duties of Indenture Trustee |
34 | |||
Section 6.02 Rights of Indenture Trustee |
35 | |||
Section 6.03 Individual Rights of Indenture Trustee |
36 | |||
Section 6.04 Indenture Trustee’s Disclaimer |
36 | |||
Section 6.05 Notices of Default |
36 | |||
Section 6.06 Reports by Indenture Trustee to Holders |
36 | |||
Section 6.07 Compensation and Indemnity |
36 | |||
Section 6.08 Replacement of Indenture Trustee |
37 | |||
Section 6.09 Successor Indenture Trustee by Merger |
38 | |||
Section 6.10 Appointment of Co-Indenture Trustee or Separate Indenture Trustee |
38 | |||
Section 6.11 Eligibility |
40 | |||
ii
| ARTICLE VII |
||||
| NOTEHOLDERS’ LISTS AND REPORTS |
||||
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 |
40 | |||
| ARTICLE VIII |
||||
| ACCOUNTS, DISBURSEMENTS AND RELEASES |
||||
Section 8.01 Collection of Money |
40 | |||
Section 8.02 Trust Accounts; Distributions |
41 | |||
Section 8.03 General Provisions Regarding Trust Accounts |
41 | |||
Section 8.04 The Paying Agent |
42 | |||
Section 8.05 Release of Collateral |
42 | |||
Section 8.06 Opinion of Counsel |
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 |
45 | |||
Section 9.04 Effect of Supplemental Indentures |
45 | |||
Section 9.05 Reference in Notes to Supplemental Indentures |
45 | |||
| 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 |
46 | |||
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 |
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| MISCELLANEOUS |
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Section 11.01 Compliance Certificates and Opinions, etc. |
47 | |||
Section 11.02 Form of Documents Delivered to Indenture Trustee |
48 | |||
Section 11.03 Acts of Noteholders |
48 | |||
Section 11.04 Notices, etc., to Indenture Trustee and Issuer |
49 | |||
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Section 11.05 Notices to Noteholders; Waiver |
49 | |||
Section 11.06 Effect of Headings and Table of Contents |
50 | |||
Section 11.07 Successors and Assigns |
50 | |||
Section 11.08 Separability |
50 | |||
Section 11.09 Benefits of Indenture |
50 | |||
Section 11.10 Legal Holidays |
50 | |||
Section 11.11 GOVERNING LAW |
50 | |||
Section 11.12 Counterparts |
50 | |||
Section 11.13 Recording of Indenture |
50 | |||
Section 11.14 Trust Obligation |
51 | |||
Section 11.15 No Petition |
51 | |||
Section 11.16 Inspection |
51 | |||
Section 11.17 Limitation on Liability |
51 |
EXHIBITS
EXHIBIT A Form of Notes
EXHIBIT B-1 Form of Rule 144A Transferor Certificate
EXHIBIT B-2 Form of Transferee Certificate for Institutional Accredited Investor
EXHIBIT B-3 Form of Rule 144A Transferee Certificate
EXHIBIT C Form of Securities Legend
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INDENTURE
INDENTURE dated as of January 1, 2007 (the “Indenture”), between OPTION ONE OWNER TRUST
2007-5A, 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 Issuer’s
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
Servicer’s 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 Originators and the Trust in and under the Basic Documents including, without
limitation, the obligations of the Loan Originators 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 Issuer’s right to cause either Loan Originator to repurchase related 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” As defined in the Sale and Servicing Agreement.
“Administration Agreement” means the Administration Agreement dated as of January 1,
2007, 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” As defined 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.
“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
2
and Exchange Commission under the Securities Exchange Act of 1934) of outstanding shares of voting
stock of either 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” As defined in the Sale and Servicing Agreement.
“Closing”
means January 31, 2007.
“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 2007-5A, 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 2007-5A, 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.
“Executive Officer” means, with respect to (i) the Depositor, the Servicer, the Loan
Originators or any Affiliate of any of the foregoing, 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
3
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 2007-5A.
“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” has the meaning given to such term in the Sale and Servicing
Agreement.
“Majority Certificateholders” As defined in the Sale and Servicing
Agreement.
“Maturity Date” means, with respect to the Notes, 364 days after the commencement of
the Revolving Period.
“Maximum Note Principal Balance” As defined in the Note Purchase Agreement.
“Note” means any Note authorized by and authenticated and delivered under this
Indenture.
4
“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” As defined in the Sale and Servicing Agreement.
“Note Purchase Agreement” means the Note Purchase Agreement dated as of January 1,
2007, among the Issuer, the Depositor and Citigroup Global Markets Realty Corp.
“Note Redemption Amount” As defined 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.
“Officer’s 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 Officer’s Certificate shall be to an
Officer’s 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 Initial Noteholder.
“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
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
5
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 Initial Noteholder 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” As defined 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” As defined 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.
“Proceeding” means any suit in equity, action at law or other judicial or
administrative proceeding.
“Record Date” As defined 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.
6
“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” As defined in the Sale and Servicing Agreement.
“Sale Agent” 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
January 1, 2007, among the Issuer, the Depositor, the Servicer, the Loan Originators and the
Indenture Trustee on behalf of the Noteholders.
“Servicer” shall mean 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” As defined in the Sale and Servicing Agreement.
“Transfer Date” As defined in the Sale and Servicing Agreement.
“Trust Agreement” means the Trust Agreement dated as of January 1, 2007, 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;
(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
7
(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 2007-5A
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 Initial Noteholder.
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
9
signature of one of its authorized signatories, and such certificate upon any Note shall be
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 Holder’s
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
10
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.
11
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; Defaulted 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);
(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
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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 Officer’s 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 this
Indenture only upon receipt of an Issuer Request accompanied by the written consent of the Majority
Noteholders in accordance with the procedures set forth in the Custodial Agreement. To the extent
it deems necessary, the Indenture Trustee may seek direction from the Initial Noteholder with
regard to the release of Collateral other than the Custodial Loan File.
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(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 Custodian’s records shall indicate the Issuer’s
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 Noteholder’s 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 Noteholder’s 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, agree 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 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
15
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 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.
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Any Paying Agent shall be appointed by the Initial Noteholder 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 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
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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:
(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;
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(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;
(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
19
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 Person’s 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 Officer’s 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 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 Initial Noteholder 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
20
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 Servicer’s 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 90 days after the end of each fiscal year
of the Issuer (commencing with the fiscal year beginning on May 1, 2007), an Officer’s Certificate
stating, as to the Authorized Officer signing such Officer’s 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 Officer’s supervision; and
(ii) to the best of such Authorized Officer’s knowledge, based on such review, the
Issuer has materially complied with all conditions and covenants under this Indenture
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
21
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 Servicer’s 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 Initial Noteholder prompt written notice of each Event of Default hereunder and each
default on the part of the Servicer or a 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.
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
22
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
| (1) | 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 | ||
| (2) | all Notes not theretofore delivered to the Indenture Trustee for cancellation |
| a. | shall have become due and payable, or | ||
| b. | 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, | ||
| c. | 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 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 Officer’s 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.
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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. “Event 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
(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
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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
a 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 a 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 a 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 a Loan Originator
made in any repurchase agreement, loan and security agreement or other similar credit facility
agreement entered into by the Loan Originator and any third party for borrowed funds in excess of
$10,000,000, including any default which entitles any party to require acceleration or prepayment
of any indebtedness thereunder; or
(g) the filing of a decree or order for relief by a court having jurisdiction over the Issuer,
the Depositor or a 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 a 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 a 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 a 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 a 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 a Loan Originator or for any
substantial part of the Collateral, or the making by the Issuer, the Depositor or a Loan Originator
of any general assignment for the benefit of creditors, or the failure by the Issuer, the Depositor
or a Loan Originator generally to pay its respective debts as such debts become due, or the taking
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of any action by the Issuer, the Depositor or a Loan Originator in furtherance of any of the
foregoing; or
(i) a Change of Control of a 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 Officer’s 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:
(a) the Issuer has paid or deposited with the Indenture Trustee a sum sufficient to pay:
| 1. | 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 | ||
| 2. | 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
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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.
(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;
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(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
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):
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(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 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;
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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 Purchaser 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 to the Initial Noteholder, 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 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;
30
(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 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
31
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 Holders of Notes 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 Holders of Notes 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.
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
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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 Noteholder’s 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
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 Trustee’s 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
Administrator’s 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 Originators 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 a Loan
Originator or the Servicer thereunder and the institution of legal or administrative actions or
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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 applicable 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 applicable
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 person’s own affairs.
(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;
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(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 or
otherwise in the event of the Issuer’s failure to pay the Indenture Trustee’s 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 Officer’s
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 Officer’s Certificate or Opinion of
Counsel.
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(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 Trustee’s 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 Issuer’s use of the proceeds from the Notes, or responsible
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 Trustee’s 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 Trustee’s 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 Trustee’s
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 Trustee’s 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
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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 Trustee’s own willful misconduct, negligence or bad faith.
The Issuer’s 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 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
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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 Issuer’s and the Administrator’s obligations under Section 6.07 hereof
shall continue for the benefit of the retiring Indenture Trustee.
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
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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;
(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.
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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.
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
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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)(l) 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
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
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\
Person, as evidenced by an Opinion of Counsel delivered to the Indenture Trustee by the Initial
Noteholder 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 Initial Noteholder 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 Initial Noteholder in its sole discretion at any time. Upon
removal of the Paying Agent, the Initial Noteholder will appoint a successor Paying Agent within
30 days; provided that the Indenture Trustee will be the Paying Agent until such successor is
appointed. Upon receiving written notice from the Initial Noteholder that the Paying Agent has
been terminated, the Indenture Trustee will immediately terminate the Paying Agent’s 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 Trustee’s 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 Trustee’s 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 Initial Noteholder, 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
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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 Officer’s
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 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
43
(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 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
44
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 Holders of the Notes 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.
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 Trustee’s
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 Holders of the Notes
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
45
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 Trustee’s 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
Noteholder’s address or facsimile number appearing in the Note Register.
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.
46
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.
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 Servicer’s servicing activity in the ordinary course of its
business), the Issuer shall furnish to the Indenture Trustee (i) an Officer’s 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. |
47
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 officer’s
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
opinion of, or representations by, an officer or officers of the Servicer, a 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 Issuer’s 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 Trustee’s 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.
48
(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 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 2007-5A, 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 2007-5A, 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
49
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.
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
50
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 “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 Issuer’s 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 Issuer’s affairs, finances and accounts with the Issuer’s
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 2007-5A,
51
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.
| OPTION ONE OWNER TRUST 2007-5A | ||||||
| By: | Wilmington Trust Company not in its | |||||
| individual capacity but solely as Owner | ||||||
| Trustee | ||||||
| By: | /s/ Michele C. Harra | |||||
| Name: Michele C. Harra | ||||||
| Title: Financial Services Officer | ||||||
| WELLS FARGO BANK, N.A., as Indenture Trustee | ||||||
| By: | /s/ Darron C. Woodus | |||||
| Name: Darron C. Woodus | ||||||
| Title: Assistant Vice President | ||||||
Indenture (Option One Owner Trust 2007-5A)
53
STATE OF Maryland
|
) | |||||
| )ss.: | ||||||
COUNTY OF Howard
|
) | |||||
BEFORE ME, the undersigned authority, a Notary Public in and for said county and state,
on this day personally appeared Darron Woodus, 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 January, 2007.
| /s/ Jennifer Richardson | ||||
| Notary Public | ||||
(Seal) |
JENNIFER RICHARDSON | |||
| NOTARY PUBLIC | ||||
My commission expires: |
ANNE ARUNDEL COUNTY | |||
| MARYLAND | ||||
4-1-2010 |
MY COMMISSION EXPIRES APR. 1, 2010 |
Indenture (Option One Owner Trust 2007-5A)
54
STATE OF delaware
|
) | |||||
| )ss: | ||||||
COUNTY OF new castle
|
) | |||||
BEFORE ME, the undersigned authority, a Notary Public in and for said county
and state, on this day personally appeared Michele Harra, 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
2007-5A, 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 29 day of January, 2007.
| /s/ Robert J. Perkins | ||||||
| Notary Public | ||||||
(Seal) |
||||||
| ROBERT J. PERKINS | ||||||
My commission expires: |
Notary Public - State of Delaware | |||||
| My Comm. Expires May 30, 2008 | ||||||
Indenture (Option One Owner Trust 2007-5A)
55
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
56
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”).
57
Maximum Note Principal Balance: $
Initial Percentage Interest: ___%
No.___
Initial Percentage Interest: ___%
No.___
OPTION ONE OWNER TRUST 2007-5A
MORTGAGE-BACKED NOTES
OPTION ONE OWNER TRUST 2007-5A, 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 January 1, 2007 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 January 1, 2007 among the
Issuer, the Depositor, the Servicer, the Loan Originators 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 Noteholder’s 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.
58
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 Noteholder’s 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.
59
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: January , 2007
| OPTION ONE OWNER TRUST 2007-5A | ||||||
| By: | Wilmington Trust Company, not in its | |||||
| individual capacity but solely as Owner | ||||||
| Trustee under the Trust Agreement | ||||||
| By: | ||||||
| Authorized Signatory | ||||||
INDENTURE TRUSTEE’S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the within-mentioned
Indenture.
Date: January , 2007
| WELLS FARGO BANK, N.A., not in its individual | ||||||
| capacity but solely as Indenture Trustee | ||||||
| By: | ||||||
| Authorized Signatory | ||||||
60
[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 Holders of the Notes. 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 Holders of the Notes 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
61
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 Holder’s attorney duly authorized in
writing, with such signature guaranteed by an “eligible guarantor institution” meeting the
requirements of the Securities Transfer Agent’s 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.
62
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 Holders of Notes 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.
63
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:
| */ | ||||
| Signature Guaranteed: | ||||
| */ | ||||
*/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.
64
Schedule to Note
dated as of January, 2007
of OPTION ONE OWNER TRUST 2007-5A
dated as of January, 2007
of OPTION ONE OWNER TRUST 2007-5A
| Date of advance | Amount of | |||||||||||||||
| of Additional | advance of | |||||||||||||||
| Note Principal | Additional Note | Percentage | Aggregate Note | Note Principal | ||||||||||||
| Balance | Principal Balance | Interest | Principal Balance | Balance of Note | ||||||||||||
| 100 | % | |||||||||||||||
65
EXHIBIT B-l
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 2007-5A
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
Attention: Corporate Trust Services — Option One Owner Trust 2007-5A
Re: Option One Owner Trust 2007-5A
Reference is hereby made to the Indenture dated as of January 1, 2007 (the “Indenture”)
between Option One Owner Trust 2007-5A (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 January 1, 2007 among the Trust, Option One Loan
Warehouse Corporation (the “Depositor”), Option One Mortgage Corporation (the “Servicer” and a
“Loan Originator”), Option One Mortgage Capital Corporation (a “Loan Originator”, and together with
Option One Mortgage Corporation the “Loan Originators”) 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.
| [Name of Transferor] | ||||||
By: |
||||||
Name: |
||||||
Title: |
||||||
| Dated: | , | |||||
66
EXHIBIT B-2
FORM OF TRANSFEREE CERTIFICATE FOR
INSTITUTIONAL ACCREDITED INVESTOR
INSTITUTIONAL ACCREDITED INVESTOR
Wells Fargo Bank, N.A.
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
Attention: Corporate Trust Services — Option One Owner Trust 2007-5A
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
Attention: Corporate Trust Services — Option One Owner Trust 2007-5A
Re: Option One Owner Trust 2007-5A
In connection with our proposed purchase of $ Note Principal
Balance Mortgage-Backed Notes (the “Offered Notes”) issued by Option One Owner Trust 2007-5A, we
confirm that:
| (1) | 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)(l), (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 January 1, 2007 between Option One Owner Trust 2007-5A 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. | |
| (2) | 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. |
67
| (3) | 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. | |
| (4) | 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. | |
| (5) | We have received such information as we deem necessary in order to make our investment decision. | |
| (6) | 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.
68
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.
| [Name of Transferor] | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
Dated: , ___ |
||||||
69
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 2007-5A
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
Attention: Corporate Trust Services — Option One Owner Trust 2007-5A
Re: Option One Owner Trust 2007-5A
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
2007-5A 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 January 1, 2007 between Option One Owner Trust 2007-5 A 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
70
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.
| [Name of Transferor] | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
Dated: , ___ |
||||||
71
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”).
72
Exhibit 10.25
EXECUTION COPY
JOINDER AND FIRST AMENDMENT TO PROGRAM CONTRACTS
This Joinder and First Amendment to Program Contracts (this “First Amendment”), dated
as of November 10, 2006, is made by and among the following parties (collectively, the
“Parties”):
HSBC Bank USA, National Association, a national banking association (“HSBC NA”);
HSBC Trust Company (Delaware), N.A., a national banking association (“HSBC Trust”);
HSBC Taxpayer Financial Services Inc., a Delaware corporation (“HSBC TFS”);
Beneficial Franchise Company Inc., a Delaware corporation (“Beneficial Franchise”);
Household Tax Masters Acquisition Corporation, a Delaware corporation (“HTMAC”);
H&R Block Services, Inc., a Missouri corporation (“Block Services”);
H&R Block Tax Services, Inc., a Missouri corporation (“Block Tax Services”);
H&R Block Enterprises, Inc., a Missouri corporation (“Block Enterprises”);
H&R Block Eastern Enterprises, Inc., a Missouri corporation (“Block Eastern
Enterprises”);
H&R Block Digital Tax Solutions, LLC, a Delaware limited liability company (“Block
Digital”);
H&R Block and Associates, L.P., a Delaware limited partnership (“Block Associates”);
HRB Royalty, Inc., a Delaware corporation (“Royalty”);
HSBC Finance Corporation, a Delaware corporation (“HSBC Finance”);
H&R Block, Inc., a Missouri corporation (“H&R Block”); and
Block Financial Corporation, a Delaware corporation (“BFC”).
NOTE: CERTAIN MATERIAL HAS BEEN OMMITTED FROM THIS AGREEMENT PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT UNDER RULE 24b-2. THE LOCATIONS OF THESE OMISSIONS ARE INDICATED THROUGHOUT THE AGREEMENT
BY THE FOLLOWING MARKINGS: [***].
RECITALS
A. All the Parties hereto other than HSBC Trust and BFC entered into that certain HSBC Retail
Settlement Products Distribution Agreement, dated as of September 23, 2005 (the “Original
Retail Distribution Agreement”).
B. Pursuant to Sections 2.6(b) and 2.7(a) of the Original Retail Distribution Agreement and
subject to the conditions set forth therein, HSBC NA may assign its rights and Obligations under
the Original Retail Distribution Agreement and other Program Contracts to an Affiliate that is a
national bank.
C. Pursuant to Section 2.5(b) of the Digital Distribution Agreement (and subject to the
conditions set forth therein), HSBC NA may assign its rights and Obligations thereunder to an
Affiliate that is a national bank.
D. Pursuant to Section 1.3(b) of the Participation Agreement (and subject to the conditions
set forth therein), HSBC NA may assign its rights and Obligations thereunder to an Affiliate that
is a national bank.
E. Pursuant to Sections 1.3(b) of the Servicing Agreement (and subject to the conditions set
forth therein), HSBC NA may assign its right and Obligations thereunder to an Affiliate that is a
national bank.
F. HSBC NA desires to (i) assign to HSBC Trust all of its rights and Obligations under the
Original Retail Distribution Agreement and the other Program Contracts to which it is a party to
serve as the Originator of (A) Retail Settlement Products issued through Block Offices other than
through Block Offices located in the States of California, Delaware, Florida, New Jersey, New York,
Oregon and Washington, the Commonwealths of Massachusetts and Pennsylvania and the District of
Columbia (the “Assigned Locations”), and (B) Digital Settlement Products issued through the
Block Digital Channel, and (ii) retain its rights and obligations under the Retail Distribution
Agreement and the other Program Contracts to which it is a party to serve as the Originator of
Retail Settlement Products issued through Block Offices located in the States of California,
Delaware, Florida, New Jersey, New York, Oregon and Washington, the Commonwealths of Massachusetts
and Pennsylvania and the District of Columbia, (the “Retained Locations”).
G. HSBC Trust desires to assume all of HSBC NA’s rights and Obligations to serve as the
Originator under (i) the Original Retail Distribution Agreement with respect to Retail Settlement
Products issued through the Assigned Locations and (ii) the Digital Distribution Agreement with
respect to Digital Settlement Products issued through the Block Digital Channel.
2
H. HSBC Trust desires to assume all of HSBC NA’s rights and Obligations as Originator under
the Participation Agreement with respect to Retail Settlement Products issued through Assigned
Locations and Digital Settlement Products issued through the Block Digital Channel.
I. The Block Companies are willing to consent to the partial assignment of rights and
Obligations from HSBC NA to HSBC Trust.
J. HSBC Trust is in the process of obtaining all regulatory approvals necessary for it to
carry out its obligations as Originator with respect to the Assigned Locations and the Block
Digital Channel, and the parties desire that no assignment to, or agency appointment by, HSBC Trust
occur until such approvals are obtained.
K. In connection with HSBC NA’s assignment of its rights and Obligations as Originator to HSBC
Trust with respect to Retail Settlement Products issued through the Assigned Locations and Digital
Settlement Products issued through the Block Digital Channel, HSBC NA desires to terminate the
Block Agents as its Agents with respect to origination activities for Retail Settlement Products
issued through the Assigned Locations and Digital Settlement Products issued through the Block
Digital Channel.
L. HSBC Trust as Originator desires to appoint the Block Agents as its Agents in connection
with its assumption of origination activities with respect to Retail Settlement Products issued
through the Assigned Locations and Digital Settlement Products issued through the Block Digital
Channel.
M. The Parties hereto have jointly developed a new “Enhanced IRAL” product and also desire to
amend the Program Contracts to include such product as a type of IRAL that may be offered to
Clients.
N. The Parties hereto desire to remove HTMAC as a party from all of the Program Contracts to
which it is currently a party and to substitute HSBC TFS in its place.
O. The Parties hereto desire to enter into this First Amendment to amend the Original Retail
Distribution Agreement and the other Program Contracts to effect the foregoing changes (the
Original Retail Distribution Agreement, as amended by this First Amendment, and all subsequent
amendments and restatements thereof and supplements thereto, is referred to as the “Retail
Distribution Agreement”).
AGREEMENT
ACCORDINGLY, the Parties to this First Amendment agree as follows:
Section 1. Definitions. All capitalized terms used herein and not otherwise defined
herein shall have the meanings assigned to such terms in the HSBC Appendix of Defined Terms and
Rules of Construction attached to the Original Retail Distribution Agreement (as hereinafter
amended), as hereinafter amended by this First Amendment.
3
Section 2. Joinder, Assignment, Assumption and Consent.
(a) HSBC NA hereby assigns to HSBC Trust all of its rights and Obligations under the Retail
Distribution Agreement and the other Program Contracts to which it is a party to serve as the
Originator of (i) Retail Settlement Products issued through the Assigned Locations in the HSBC
Trust States and (ii) Digital Settlement Products issued through the Block Digital Channel.
(b) HSBC Trust, by execution of this First Amendment, hereby (1) accepts such assignment from
HSBC NA and agrees to become the Originator of (i) Retail Settlement Products issued through the
Assigned Locations in the HSBC Trust States and (ii) Digital Settlement Products issued through the
Block Digital Channel, (2) agrees to be bound by all of the terms and conditions of each of the
Program Contracts applicable to “HSBC Bank” (as such term is amended by this First Amendment) in
its capacity as Originator with respect to the Assigned Locations in the HSBC Trust States and the
Block Digital Channel, and (3) assumes all obligations and liabilities of “HSBC Bank” (as such term
is amended by this First Amendment) in its capacity as Originator with respect to the Assigned
Locations in the HSBC Trust States and the Block Digital Channel under the Program Contracts to
which it is a party.
(c) The Block Companies hereby consent to the partial assignment of the rights and Obligations
of HSBC NA to HSBC Trust as provided in this First Amendment to the extent such consent is required
under the Program Contracts.
Section 3. Removal of HTMAC as a Party. HTMAC hereby assigns to HSBC TFS all of its
rights and Obligations under the Retail Distribution Agreement and the other Program Contracts to
which it is a party and ceases to be a party to any of the Program Contracts. HSBC TFS, by
execution of this First Amendment, hereby (1) accepts such assignment from HTMAC and agrees to be
bound by all of the terms and conditions of each of the Program Contracts applicable to “HTMAC”,
and (2) assumes all obligations and liabilities of “HTMAC” under the Program Contracts to which it
is a party. The Parties hereby consent to this assignment and assumption with respect to the
Program Contracts, including those to which HTMAC is currently a party, effective as of the date of
this First Amendment, which include, but are not limited to, the Retail Distribution Agreement, the
Servicing Agreement, the Participation Agreement, the Indemnification Agreement and the HSBC Common
Interest, Joint Defense and Confidentiality Agreement dated as of September 23, 2005 between the
HSBC Companies (as defined prior to the effective date of this First Amendment) and the Block
Companies.
Section 4. Agency Appointments and Terminations.
(a) HSBC Trust hereby appoints the Block Agents, and the Block Agents hereby accept such
appointment, to act as agents of HSBC Trust for purposes of offering and distributing Retail
Settlement Products issued through the Assigned Locations in the HSBC Trust States and Digital
Settlement Products issued through the Block Digital Channel.
(b) HSBC NA hereby terminates the appointment of each of the Block Agents and the Franchisee
Agents as its agent with respect to offering and distributing Retail Settlement
4
Products issued through the Assigned Locations in the HSBC Trust States and Digital Settlement
Products issued through the Block Digital Channel.
Section 5. Amendments.
(a) The Appendix of Defined Terms and Rules of Construction attached to the Original Retail
Distribution Agreement is hereby amended:
(1) by adding thereto the following defined terms (which are added thereto in alphabetical
order:
“Assigned Locations” shall mean all Block Offices other than Block Offices
located in the States of California, Delaware, Florida and New Jersey, New York,
Oregon and Washington, the Commonwealths of Massachusetts, and Pennsylvania and
the District of Columbia, provided, however, that these
locations may be modified prospectively in accordance with Section 2.8 of the
Retail Distribution Agreement.
“Enhanced IRAL” shall mean (a) an IRAL issued to a Client who would not
have qualified for an IRAL but for implementation of the credit criteria for
Enhanced IRALs established by the Originator, or (b) an IRAL issued to a Client
in an amount greater than what such Client would have qualified for but for
implementation of the credit criteria for Enhanced IRALs established by the
Originator.
“HSBC NA States” shall mean, collectively, the States of California,
Delaware, Florida, New Jersey, New York, Oregon and Washington, the
Commonwealths of Massachusetts and Pennsylvania and the District of Columbia,
provided, however, that these states may be modified
prospectively in accordance with Section 2.8 of the Retail Distribution
Agreement.
“HSBC Trust” shall mean HSBC Trust Company (Delaware), National
Association, a national banking association, and its successors and assigns.
“HSBC Trust States” shall mean, collectively, all of the states,
commonwealths and territories of the United States of America and other
locations that do not constitute the HSBC NA States, provided,
however, that the states may be modified prospectively in accordance
with Section 2.8 of the Retail Distribution Agreement.
“RAC Documents” shall mean with respect to each HSBC RAC, any and all other
documents executed and delivered in connection with the origination or
subsequent modification of such HSBC RAC.
“Retained Locations” shall mean Block Offices located in the States of
California, Delaware, Florida, New Jersey, New York, Oregon and Washington, the
Commonwealths of Massachusetts and Pennsylvania and the District of Columbia,
provided, however, that these locations may be modified
5
prospectively in accordance with Section 2.8 of the Retail Distribution
Agreement.
(2) by deleting in their entirety the existing definitions of the following defined terms and
inserting in their place the following new definitions:
“HSBC Bank” shall mean (a) HSBC NA or HSBC Trust, as the case may be, or
(b) in the event that HSBC NA or HSBC Trust shall assign their respective rights
and obligations under the Retail Distribution Agreement and the other Program
Contracts pursuant to Section 2.6(b) or 2.7 of the Retail Distribution
Agreement, and, if assigned pursuant to Section 2.7 of the Retail Distribution
Agreement, subject to the satisfaction of the terms and conditions specified in
Section 2.7(b) of the Retail Distribution Agreement, the national bank, federal
savings association, operating subsidiary or other Affiliate that is the
permitted assignee of HSBC NA or HSBC Trust, it being understood that when “HSBC
Bank” has the ability to act or make a determination under the Program
Contracts, each of the entities then constituting an “HSBC Bank” may do so
independently and no such entity is the agent of the other. For the avoidance
of doubt, the inclusion in the foregoing definition of “HSBC Bank” of references
to Sections of the Retail Distribution Agreement is not intended to, and shall
not, affect the rights of the parties pursuant to such Sections.
“HSBC Companies” shall mean, collectively, HSBC Bank, HSBC NA, HSBC Trust,
HSBC TFS and Beneficial Franchise.
“HSBC Indemnifying Parties” shall mean, collectively, HSBC Bank, HSBC TFS
and Beneficial Franchise.
“IRAL” or “Instant Money” shall mean any of (a) a RAL for which a credit
decision is made prior to Block Services receiving both (i) the IRS Return
Notification and (ii) the Debt Indicator, (b) an Enhanced IRAL or (c) a RAL
designated as such by mutual written agreement of the HSBC Companies and the
Block Companies.
“Originator” shall mean the originator of Retail Settlement Products
through Block Offices and Digital Settlement Products through the Block Digital
Channel; provided, however, that with respect to Retail Settlement Products
issued through Retained Locations in the HSBC NA States, the term “Originator”
refers only to HSBC NA and its permitted assignees or successors in interest,
and with respect to Retail Settlement Products issued through Assigned Locations
in the HSBC Trust States and Digital Settlement Products issued through the
Block Digital Channel, the term “Originator” refers only to HSBC Trust and its
permitted assignees or successors in interest.
“RAL Documents” shall mean with respect to each HSBC RAL, the related Note
and the related Security Agreement, if applicable, and any and all
6
other documents executed and delivered in connection with the origination
or subsequent modification of such HSBC RAL.
(3) The Parties agree that all Program Contracts are hereby amended to incorporate the
amendments to the Appendix of Defined Terms and Rules of Construction pursuant to this Section 4.
(b) The agency effective dates set forth in Section 2.1(c) and Section 11.1(a) of the Retail
Distribution Agreement are hereby amended to read “November 10, 2006.”
(c) Section 2.4(a)(iii) to the Retail Distribution Agreement is hereby amended by adding the
phrase “Subject to Section 2.4(c) hereof,” at the beginning thereof.
(d) A new Section 2.4(c) is hereby added to the Retail Distribution Agreement immediately
following Section 2.4(b) therein as follows:
(c) Except as otherwise provided in this Retail Distribution Agreement, the
Originator shall Offer Enhanced IRALs through the Block Agents at the Block
Offices, and the Originator and the Block Agents shall comply with the policies
and procedures set forth in the Enhanced IRAL Product Policies and Procedures
Schedule attached hereto as Schedule 2.4(c). Any Client whose
application for an Enhanced IRAL is denied by HSBC Bank will receive free
federal income tax return preparation services from the Block Companies for the
then current tax period.
(e) Section 2.7 is hereby amended to permit HSBC Trust to assign its rights and Obligations
under the Retail Distribution Agreement and other Program Contracts, on the same terms and subject
to the same restrictions as are applicable to HSBC NA.
(f) A new Section 2.8 is hereby added to the Retail Distribution Agreement, immediately
following Section 2.7 therein as follows:
Section 2.8. Future Modifications to Definitions of “Assigned Locations,” “Retained
Locations,” “HSBC NA States” and “HSBC Trust States.”
(a) After April 15, 2007, the HSBC Companies may, in their reasonable
discretion, modify the definitions of “Assigned Location,” “Retained Location,”
“HSBC NA States” and “HSBC Trust States” to move locations and states from one
category to the other on an annual basis, provided that such modification does not
have a material adverse effect upon any of the Block Companies. Any such
modification shall be effective prospectively only, and shall be in effect for an
entire Tax Period.
(b) During the Term of the Retail Distribution Agreement, on or before June
30th of each year, the HSBC Companies may notify the Block Companies in
writing of any such changes to such definitions, provided, however,
that (i) the only such change is a movement of an Assigned Location to a Retained
Location, or vice versa, and a corresponding movement of an HSBC
7
Trust State to an HSBC NA State, or vice versa, (ii) the changes are done only
for entire states, commonwealths, territories or foreign countries, and (iii) there
are no Retained Locations in an HSBC Trust State or Assigned Locations in any HSBC
NA State. No other modifications to such definitions are authorized under this
Section 2.8. No whole or partial assignment to any other entity is authorized under
this Section 2.8.
(c) It shall not be necessary for the parties to execute and deliver a
subsequent amendment to Program Contracts to evidence such modification, but the
parties may choose to do so if they deem it desirable.
(d) The HSBC Companies shall reimburse the Block Companies for all
out-of-pocket expenses reasonably incurred by the Block Companies as a result of any
such modification.
(g) Section 22.3 of the Retail Distribution Agreement is hereby amended to read as follows:
Section 22.3 Notices. All notices, requests and other communications to any
party hereunder shall be in writing (including prepaid overnight courier, facsimile
transmission or similar writing) and shall be given to such party at its address or
facsimile number set forth in this Section 22.3 or on the signature pages hereof or at such
other address or facsimile number as such party may hereafter specify in writing. Each such
notice, request or other communication shall be effective (a) if given by facsimile, when
transmitted to the facsimile number specified in this Section 22.3 and confirmation of
receipt is received by the sender, (b) if given by mail, upon the earlier of actual receipt
or five (5) Business Days after deposit in the United States Mail, registered or certified
mail, return receipt requested, properly addressed and with proper postage prepaid, (c) one
(1) Business Day after deposit with an internationally reputable overnight courier properly
addressed and with all charges prepaid or (d) when received, if by any other means.
Notices shall be addressed as follows:
If to HSBC TFS:
|
HSBC Taxpayer Financial Services Inc. | |
| 200 Somerset Corporate Blvd. | ||
| Bridgewater, NJ 08807 | ||
| Telephone: 908-203-4441 | ||
| Facsimile: 908-203-4211 | ||
| Attention: CEO and Managing Director | ||
With a copy to (which shall not
|
HSBC Taxpayer Financial Services, Inc. | |
constitute notice hereunder):
|
90 Christiana Road | |
| New Castle, DE 19707 | ||
| Telephone: 302-327-2507 | ||
| Facsimile: 302-327-2533 | ||
| Attention: General Counsel |
8
If to Beneficial Franchise:
|
Beneficial Franchise Company Inc. | |
| 200 Somerset Corporate Blvd. | ||
| Bridgewater, NJ 08807 | ||
| Telephone: 908-203-4441 | ||
| Facsimile: 908-203-4211 | ||
| Attention: CEO and Managing Director | ||
With a copy to (which shall not
|
HSBC Taxpayer Financial Services, Inc. | |
constitute notice hereunder):
|
90 Christiana Road | |
| New Castle, DE 19707 | ||
| Telephone: 302-327-2507 | ||
| Facsimile: 302-327-2533 | ||
| Attention: General Counsel | ||
If to HSBC Finance:
|
HSBC Finance Corporation | |
| 200 Somerset Corporate Blvd. | ||
| Bridgewater, NJ 08807 | ||
| Telephone: 908-203-2222 | ||
| Facsimile: 908-203-4221 | ||
| Attention: Patrick Cozza, Group Executive | ||
With a copy to (which shall not
|
HSBC Finance Corporation | |
constitute notice hereunder):
|
2700 Sanders Road | |
| Prospect Heights, IL 60070 | ||
| Telephone: 847-564-6268 | ||
| Facsimile: 847-564-6001 | ||
| Attention: Deputy General Counsel - Operations | ||
If to HSBC NA:
|
HSBC Bank USA, National Association | |
| One HSBC Center, 10th Floor | ||
| Buffalo, NY 14203 | ||
| Telephone: 716-841-6197 | ||
| Facsimile: 716-841-6591 | ||
| Attention: Executive V.P., Consumer Finance | ||
With a copy to (which shall not
|
HSBC Bank USA, National Association | |
constitute notice hereunder):
|
452 Fifth Ave., 7th Floor | |
| New York, NY 10018 | ||
| Telephone: 212-525-6533 | ||
| Facsimile: 212-525-8447 | ||
| Attention: General Counsel |
9
If to HSBC Trust:
|
HSBC Trust Company (Delaware), N.A. | |
| 1201 North Market Street | ||
| Wilmington, DE 19801 | ||
| Telephone: 302-657-8429 | ||
| Facsimile: 302-657-8415 | ||
| Attention: President | ||
With a copy to (which shall not
|
HSBC Trust Company (Delaware), N.A. | |
constitute notice hereunder):
|
452 Fifth Ave., 7th Floor | |
| New York, NY 10018 | ||
| Telephone: 212-525-6533 | ||
| Facsimile: 212-525-8447 | ||
| Attention: General Counsel | ||
If to HSBC Bank:
|
To both HSBC NA and HSBC Trust at the | |
| addresses listed above. | ||
If to Block Services:
|
H&R Block Services, Inc. | |
| One H&R Block Way | ||
| Kansas City, Missouri 64105 | ||
| Telephone: 816-854-3000 | ||
| Facsimile: 816-854-8500 | ||
| Attention: President and General Counsel | ||
With a copy to (which shall not
|
Stinson Morrison Hecker LLP | |
constitute notice hereunder):
|
1201 Walnut Street | |
| Kansas City, Missouri 64106 | ||
| Telephone: 816-691-3208 | ||
| Facsimile: 816-691-3495 | ||
| Attention: Mike W. Lochmann | ||
If to Block Tax Services:
|
H&R Block Tax Services, Inc. | |
| One H&R Block Way | ||
| Kansas City, Missouri 64105 | ||
| Telephone: 816-854-3000 | ||
| Facsimile: 816-854-8500 | ||
| Attention: President and General Counsel | ||
With a copy to (which shall not
|
Stinson Morrison Hecker LLP | |
constitute notice hereunder):
|
1201 Walnut Street | |
| Kansas City, Missouri 64106 | ||
| Telephone: 816-691-3208 | ||
| Facsimile: 816-691-3495 | ||
| Attention: Mike W. Lochmann |
10
If to Block Enterprises:
|
H&R Block Enterprises, Inc. | |
| One H&R Block Way | ||
| Kansas City, Missouri 64105 | ||
| Telephone: 816-854-3000 | ||
| Facsimile: 816-854-8500 | ||
| Attention: President and General Counsel | ||
With a copy to (which shall not
|
Stinson Morrison Hecker LLP | |
constitute notice hereunder):
|
1201 Walnut Street | |
| Kansas City, Missouri 64106 | ||
| Telephone: 816-691-3208 | ||
| Facsimile: 816-691-3495 | ||
| Attention: Mike W. Lochmann | ||
If to Block Eastern Enterprises:
|
H&R Block Eastern Enterprises, Inc. | |
| One H&R Block Way | ||
| Kansas City, Missouri 64105 | ||
| Telephone: 816-854-3000 | ||
| Facsimile: 816-854-8500 | ||
| Attention: President and General Counsel | ||
With a copy to (which shall not
|
Stinson Morrison Hecker LLP | |
constitute notice hereunder):
|
1201 Walnut Street | |
| Kansas City, Missouri 64106 | ||
| Telephone: 816-691-3208 | ||
| Facsimile: 816-691-3495 | ||
| Attention: Mike W. Lochmann | ||
If to Block Digital:
|
H&R Block Digital Tax Solutions, LLC | |
| One H&R Block Way | ||
| Kansas City, Missouri 64105 | ||
| Telephone: 816-854-3000 | ||
| Facsimile: 816-854-8500 | ||
| Attention: President and General Counsel | ||
With a copy to (which shall not
|
Stinson Morrison Hecker LLP | |
constitute notice hereunder):
|
1201 Walnut Street | |
| Kansas City, Missouri 64106 | ||
| Telephone: 816-691-3208 | ||
| Facsimile: 816-691-3495 | ||
| Attention: Mike W. Lochmann |
11
If to Block Associates:
|
H&R Block and Associates, L.P. | |
| One H&R Block Way | ||
| Kansas City, Missouri 64105 | ||
| Telephone: 816-854-3000 | ||
| Facsimile: 816-854-8500 | ||
| Attention: President and General Counsel | ||
With a copy to (which shall not
|
Stinson Morrison Hecker LLP | |
constitute notice hereunder):
|
1201 Walnut Street | |
| Kansas City, Missouri 64106 | ||
| Telephone: 816-691-3208 | ||
| Facsimile: 816-691-3495 | ||
| Attention: Mike W. Lochmann | ||
If to Royalty:
|
HRB Royalty, Inc. | |
| One H&R Block Way | ||
| Kansas City, Missouri 64105 | ||
| Telephone: 816-854-3000 | ||
| Facsimile: 816-854-8500 | ||
| Attention: President and General Counsel | ||
With a copy to (which shall not
|
Stinson Morrison Hecker LLP | |
constitute notice hereunder):
|
1201 Walnut Street | |
| Kansas City, Missouri 64106 | ||
| Telephone: 816-691-3208 | ||
| Facsimile: 816-691-3495 | ||
| Attention: Mike W. Lochmann | ||
If to BFC:
|
Block Financial Corporation | |
| One H&R Block Way | ||
| Kansas City, Missouri 64105 | ||
| Telephone: 816-854-3000 | ||
| Facsimile: 816-854-8500 | ||
| Attention: President and General Counsel | ||
With a copy to (which shall not
|
Stinson Morrison Hecker LLP | |
constitute notice hereunder):
|
1201 Walnut Street | |
| Kansas City, Missouri 64106 | ||
| Telephone: 816-691-3208 | ||
| Facsimile: 816-691-3495 | ||
| Attention: Mike W. Lochmann |
12
If to H& R Block:
|
H&R Block, Inc. | |
| One H&R Block Way | ||
| Kansas City, Missouri 64105 | ||
| Telephone: 816-854-3000 | ||
| Facsimile: 816-854-8500 | ||
| Attention: President and General Counsel | ||
With a copy to (which shall not
|
Stinson Morrison Hecker LLP | |
constitute notice hereunder):
|
1201 Walnut Street | |
| Kansas City, Missouri 64106 | ||
| Telephone: 816-691-3208 | ||
| Facsimile: 816-691-3495 | ||
| Attention: Mike W. Lochmann |
(h) A new Section 22.22 is hereby added to the Retail Distribution Agreement immediately
following Section 22.21 therein as follows:
“Section 22.22 Press Releases. During the Term of this Retail Distribution
Agreement, if any of the Block Companies or their Affiliates on the one hand, or any of the
HSBC Companies or their Affiliates on the other hand (in either case, an “Issuing
Party”, and the other party, the “Referenced Party”), proposes to:
(a) provide any written communication to any Governmental Authority or
recognized consumer advocate group, in either case that specifically references, by
name or trade name, the Referenced Party and is reasonably expected to become known
to the general public, then the Issuing Party shall (i) provide to the Referenced
Party, via facsimile or email, a draft of such proposed written communication a
reasonable time (depending upon the circumstances) prior to dissemination thereof,
(ii) give the Referenced Party the opportunity to comment upon such written
communication and (iii) give reasonable consideration to the Referenced Party’s
comments, including making modifications to address the Referenced Party’s concerns
if doing so would be appropriate in the reasonable judgment of the Issuing Party; or
(b) issue a press release that specifically references, by name or trade name,
the Referenced Party, then the Issuing Party shall not issue any such press release
without the Referenced Party’s prior written consent, which consent shall not be
unreasonably withheld or unreasonably delayed;
provided, however, that for the avoidance of doubt, the foregoing notice and
approval procedures shall not apply to any:
| (i) | verbal communication; | ||
| (ii) | media discussion or interview; |
13
| (iii) | press release or written communication that refers to the Program Contracts, the Settlement Product Program or any Settlement Product, but does not specifically reference, by name or trade name, any Referenced Party; | ||
| (iv) | informal or incidental written communication, including without limitation, e-mails and facsimiles (provided that such means of communication is not used to circumvent the intent and purpose of subparagraph (a) above); | ||
| (v) | filing with or written communication to the SEC; | ||
| (vi) | notice or written communication to employees, shareholders or franchisees; | ||
| (vii) | written communication to a third party providing products or services to the Issuing Party; | ||
| (viii) | written communication to educators, analysts, foundations, “think tanks” and similar individuals and institutions; | ||
| (ix) | notice or written communication to the Issuing Party’s federal or state regulators; | ||
| (x) | written communication filed or made in any case, arbitration or other legal or administrative proceeding to which the Issuing Party or any of its Affiliates is a party or subject; or | ||
| (xi) | press release or formal written communication relating to any pending dispute, litigation or arbitration in which any of the Block Companies or their Affiliates and any of the HSBC Companies or their Affiliates.” |
(i) The Agreement between H&R Block, Inc and HSBC Finance Corporation dated September 23, 2005
is hereby amended by deleting the definition of “HSBC Parties” and inserting in its place the
following new definition:
The “HSBC Parties” are: HSBC Bank USA, National Association; HSBC Taxpayer Financial
Services Inc. (f/k/a Household Tax Masters Inc. and Beneficial Tax Masters Inc.); Beneficial
Franchise Company Inc.; Beneficial Tax Centers, Inc., Household International, Inc., n/k/a
HSBC Finance Corporation, Household Finance Corporation, Household Bank, f.s.b.; Beneficial
National Bank, and: (a) any and all of their respective past, present, and future parent
companies, subsidiaries, divisions, affiliates, franchisees, predecessors, successors, and
assigns; (b) their respective present and former directors, officers, employees,
shareholders, and contractors (including, but not limited to, Imperial Capital Bank); and
(c) all persons or entities acting on behalf or at the direction of any of the foregoing.
14
Section 6. Reference to and Effect Upon the Existing Program Contracts.
(a) Except as explicitly stated in this First Amendment, all terms of the Program Contracts as
in effect immediately preceding execution of this First Amendment shall remain in full force and
effect as provided therein and in accordance with the terms thereof.
(b) Except as explicitly stated in this First Amendment, the execution, delivery and
effectiveness of this First Amendment shall not operate as a waiver of any right, power or remedy
of any party under the Program Contracts as in effect immediately preceding execution of this First
Amendment, nor constitute a waiver of any provision of the Program Contracts as in effect
immediately preceding execution of this First Amendment.
(c) Upon the effectiveness of this First Amendment, each reference in each of the Program
Contracts to “this Agreement,” “hereunder,” “hereof,” “herein” or words of similar import shall
mean and be a reference to such Program Contract as amended by this First Amendment.
(d) Subject to Section 5 above and the other specific provisions of this Section 6, each
reference to any Obligation of HSBC NA in the Program Contracts, either directly or by inclusion of
such entity in the definitions of the terms “HSBC Bank,” “HSBC Companies,” “HSBC Indemnified Party”
or “HSBC Indemnifying Party,” shall be deemed to refer to Obligations of HSBC Trust with respect to
its activities as Originator for the Assigned Locations in the HSBC Trust States and the Block
Digital Channel. For the avoidance of doubt, any reference to an obligation of “Originator” in the
Program Contracts, as amended, shall mean an obligation of either HSBC NA or HSBC Trust, severally.
(e) Subject to the other terms and provisions of this First Amendment, HSBC Trust hereby makes
each and every representation, warranty and covenant of HSBC NA in its capacity as Originator for
the Assigned Locations in the HSBC Trust States and the Block Digital Channel, whether specified as
a representation, warranty or covenant of “HSBC Bank,” an “HSBC Company,” the “Originator,” an
“HSBC Indemnified Party,” an “HSBC Indemnifying Party,” or otherwise.
(f) Subject to the other terms and provisions of this First Amendment, each payment obligation
of any Block Company to either HSBC NA or HSBC Trust under the Program Contracts, as amended,
whether specified as a payment obligation to “HSBC Bank,” an “HSBC Company,” the “Originator,” an
“HSBC Indemnified Party” or an “HSBC Indemnifying Party,” or otherwise, shall be computed on an
aggregated basis (without duplication) with respect to both HSBC NA and HSBC Trust.
(g) Subject to the other terms and provisions of this First Amendment, each payment obligation
payable to any Block Company from either HSBC NA or HSBC Trust under the Program Contracts, as
amended, whether specified as a payment obligation from “HSBC Bank,” an “HSBC Company,” the
“Originator,” an “HSBC Indemnified Party” or an “HSBC Indemnifying Party,” or otherwise, shall be
computed on an aggregate basis (without duplication) with respect to both HSBC NA and HSBC Trust.
15
(h) Notwithstanding any other provision of the Program Contracts or this First Amendment to
the contrary, solely with respect to the assignment to HSBC Trust contemplated hereunder, the
provisions of Section 2.7(b)(iii) and Section 2.7(c) of the Retail Agreement, and of Section 2.6 of
each Franchise Distribution Agreement, shall not be applicable and HSBC NA shall continue to be
party to all Program Contracts and responsible for all of its Obligations that are not specifically
assigned to HSBC Trust hereunder.
Section 7. Partial Expense Reimbursement Related to Assignment.
(a) No later than fifteen (15) days following the execution and delivery of this First
Amendment, the HSBC Companies agree to pay to the Block Companies $500,000 to partially reimburse
them for out-of-pocket expenses incurred by them as a result of this assignment.
(b) The Parties do not agree whether the assignment contemplated by this First Amendment is
pursuant to Section 2.6 or Section 2.7 of the Retail Distribution Agreement. The foregoing
allocation of expenses is for this First Amendment only, and is not a precedent for any future
reorganization, assignment or other amendment to the Program Contracts.
Section 8. HSBC Guaranty. HSBC Finance acknowledges that HSBC Trust has become an
HSBC Company covered by the HSBC Guaranty, as set forth in Article XX of the Retail Distribution
Agreement.
Section 9. Further Assurances. The Parties agree to (i) furnish upon request such
further information, (ii) execute and deliver to each other such additional documents and (iii) do
such other acts and things, all as any Party hereto may reasonably request for the purpose of
carrying out the intent of this First Amendment and partial assignment contemplated hereby.
Section 10. Headings. Headings and captions used in this First Amendment (including
all exhibits and schedules thereto) are included herein for convenience of reference only and shall
not constitute a part of this First Amendment for any other purpose or be given any substantive
effect.
Section 11. Alternative Dispute Resolution. ANY DISPUTE BETWEEN OR AMONG THE PARTIES
HERETO ARISING OUT OF OR RELATING TO THIS FIRST AMENDMENT OR THE TRANSACTIONS CONTEMPLATED HEREIN
(EXCEPT JUDICIAL ACTION FOR SPECIFIC PERFORMANCE OR INJUNCTIVE RELIEF) SHALL BE RESOLVED AMONG THE
PARTIES TO SUCH DISPUTE BY NEGOTIATIONS, MEDIATION AND ARBITRATION IN ACCORDANCE WITH THE
PROVISIONS OF ARTICLE XXI OF THE RETAIL DISTRIBUTION AGREEMENT, WHICH ARE INCORPORATED HEREIN BY
REFERENCE.
Section 12. Governing Law; Submission To Jurisdiction. THIS FIRST AMENDMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF MISSOURI. WITHOUT
LIMITING THE EFFECT OF SECTION 11 HEREOF AND ARTICLE XXI OF THE RETAIL DISTRIBUTION AGREEMENT, EACH
OF THE PARTIES HERETO (A) SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL AND/OR STATE
16
COURTS SITTING IN ST. LOUIS, MISSOURI FOR PURPOSES OF ALL LEGAL PROCEEDINGS FOR SPECIFIC
PERFORMANCE OR INJUNCTIVE RELIEF PERMITTED BY SECTION 21.12 OF THE RETAIL DISTRIBUTION AGREEMENT,
(B) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY
CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM,
(C) IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN SUCH PROCEEDING IN THE MANNER PROVIDED FOR
NOTICES IN SECTION 22.3 OF THE RETAIL DISTRIBUTION AGREEMENT, AND (D) AGREES THAT NOTHING IN THIS
FIRST AMENDMENT WILL AFFECT THE RIGHT OF ANY PARTY TO THIS FIRST AMENDMENT TO SERVE PROCESS IN ANY
SUCH PROCEEDING IN ANY OTHER MANNER PERMITTED BY LAW.
Section 13. Waiver of Jury Trial. WITHOUT LIMITING THE EFFECT OF SECTION 10 HEREOF,
EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION
ARISING OUT OF OR RELATING TO THIS FIRST AMENDMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 14. Counterparts. This First Amendment may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument. This First Amendment shall become effective upon the
execution of a counterpart hereof by each of the parties hereto.
[remainder of page intentionally blank]
17
THIS FIRST AMENDMENT CONTAINS A BINDING
ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES
ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES
IN WITNESS WHEREOF, the following Parties have caused this Joinder and First Amendment to
Program Contracts to be executed by their respective duly authorized officers as of the date first
set forth above, it being understood that no Party, other than HSBC Trust, shall be deemed to
become a signatory to any Program Contract to which such Party was not previously a signatory as a
result of executing this First Amendment.
| HSBC BANK USA, NATIONAL ASSOCIATION, a national banking association |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| HSBC TRUST COMPANY (DELAWARE), N.A., a national banking association |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| HSBC TAXPAYER FINANCIAL SERVICES INC., a Delaware corporation |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| BENEFICIAL FRANCHISE COMPANY INC., a Delaware corporation |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
THIS FIRST AMENDMENT CONTAINS A BINDING
ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES
ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES
| HOUSEHOLD TAX MASTERS ACQUISITION CORPORATION, a Delaware corporation |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| H&R BLOCK SERVICES, INC., a Missouri corporation |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| H&R BLOCK TAX SERVICES, INC., a Missouri corporation |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| H&R BLOCK ENTERPRISES, INC., a Missouri corporation |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| H&R BLOCK EASTERN ENTERPRISES, INC., a Missouri corporation |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
THIS FIRST AMENDMENT CONTAINS A BINDING
ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES
ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES
| H&R BLOCK DIGITAL TAX SOLUTIONS,
LLC, a Delaware limited liability company |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| H&R BLOCK AND ASSOCIATES, L.P., a Delaware limited partnership |
||||||
| By: | HRB Texas Enterprises, Inc., | |||||
| its General Partner | ||||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| HRB ROYALTY, INC., a Delaware corporation |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
THIS FIRST AMENDMENT CONTAINS A BINDING
ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES
ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES
IN WITNESS WHEREOF, the following Parties hereto have caused this Joinder and First Amendment
to Program Contracts to be executed by their respective duly authorized officers as of the date
first set forth above solely for the limited purpose of acknowledging the amendments set forth
herein in connection with such Parties’ respective guaranties set forth in Article XX, and also for
purposes of Articles XXI and XXII of the Retail Distribution Agreement, and, with respect to HSBC
Finance, the acknowledgement set forth in Section 7 of this Joinder and First Amendment to the
Program Contracts.
| HSBC FINANCE CORPORATION, A Delaware corporation |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| H&R BLOCK, INC., A Missouri corporation |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
Schedule 2.4(c)
Enhanced IRAL Product Policies and Procedures
[***]
Exhibit 10.26
EXECUTION COPY
SECOND AMENDMENT TO
PROGRAM CONTRACTS
PROGRAM CONTRACTS
This Second Amendment to Program Contracts (this “Second Amendment”), dated as of
November 13, 2006, is made by and among the following parties (collectively, the
“Parties”):
HSBC Bank USA, National Association, a national banking association (“HSBC NA”);
HSBC Trust Company (Delaware), N.A., a national banking association (“HSBC Trust”);
HSBC Taxpayer Financial Services Inc., a Delaware corporation (“HSBC TFS”);
Beneficial Franchise Company Inc., a Delaware corporation (“Beneficial Franchise”);
H&R Block Services, Inc., a Missouri corporation (“Block Services”);
H&R Block Tax Services, Inc., a Missouri corporation (“Block Tax Services”);
H&R Block Enterprises, Inc., a Missouri corporation (“Block Enterprises”);
H&R Block Eastern Enterprises, Inc., a Missouri corporation (“Block Eastern
Enterprises”);
H&R Block Digital Tax Solutions, LLC, a Delaware limited liability company (“Block
Digital”);
H&R Block and Associates, L.P., a Delaware limited partnership (“Block
Associates”);
HRB Royalty, Inc., a Delaware corporation (“Royalty”);
HSBC Finance Corporation, a Delaware corporation (“HSBC Finance”); and
H&R Block, Inc., a Missouri corporation (“H&R Block”).
NOTE: CERTAIN MATERIAL HAS BEEN OMMITTED FROM THIS AGREEMENT PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT UNDER RULE 24b-2. THE LOCATIONS OF THESE OMISSIONS ARE INDICATED THROUGHOUT THE AGREEMENT
BY THE FOLLOWING MARKINGS: [***].
RECITALS
A. All the Parties hereto, other than HSBC Trust, entered into that certain HSBC Retail
Settlement Products Distribution Agreement, dated as of September 23, 2005 (the “Original
Retail Distribution Agreement”).
B. All the Parties hereto, including HSBC Trust, as well as Block Financial Corporation, a
Delaware corporation (“BFC”), entered into that certain Joinder and First Amendment to
Program Contracts, dated as of November 10, 2006 (the “First Amendment”), which amended the
Original Retail Distribution Agreement and the other Program Contracts (as defined therein).
C. The Parties hereto desire (i) to include certain pre-file, unsecured loans (referred to
herein as instant money advances or “IMAs”) as a type of Settlement Product that may be
made available to Clients, and (ii) to amend the Original Retail Distribution Agreement and other
Program Contracts, each as amended by the First Amendment, to include IMAs as Settlement Products
offered pursuant to the Settlement Products Program (the Original Retail Distribution Agreement, as
amended by the First Amendment and this Second Amendment, and all subsequent amendments and
restatements thereof and supplemental thereto, is referred to as the “Retail Distribution
Agreement”).
D. Concurrently with the execution of this Second Amendment, certain of the Parties hereto and
BFC are executing a First Amended and Restated HSBC Refund Anticipation Loan and IMA Participation
Agreement, dated as of the date hereof (the “First A&R Participation Agreement”), and a
First Amended and Restated HSBC Settlement Products Servicing Agreement, dated as of the date
hereof (the “First A&R Servicing Agreement”).
AGREEMENT
ACCORDINGLY, the Parties to this Second Amendment agree as follows:
Section 1 Definitions. All capitalized terms used herein and not otherwise defined
herein shall have the meanings assigned to such terms in the HSBC Appendix of Defined Terms and
Rules of Construction attached to the Original Retail Distribution Agreement (the “Appendix of
Defined Terms and Rules of Construction”), as amended by the First Amendment and as hereinafter
amended by this Second Amendment.
Section 2 Amendments.
(a) Amendments to the Appendix of Defined Terms and Rules of Construction.
(i) The following existing definitions set forth in the Appendix of Defined Terms and Rules of
Construction are hereby amended to read as follows:
2
“Applicant” shall mean a Person who has submitted an Application to the
Originator and such Application shall be deemed to relate to the Calculation
Period in which the applied-for Settlement Product would be deemed to be issued.
“Applicant Information File” shall mean the electronic file transmitted
to the Originator by an ERO containing information pertaining to an Applicant
including, but not limited to (i) Applicant identification information from
the Applicant’s Application including, but not limited to, the Applicant’s
name, address and telephone number, (ii) the amount of the ERO Charges, if
any, (iii) the amount of the Refund Due (except with respect to IMAs), and
(iv) certain other qualifying Application information as reasonably requested
by the Originator subject to the ability of the ERO to collect and provide
such information, each used by the Originator solely for those purposes set
forth pursuant to the terms and conditions of the Program Contracts.
“Best in Market Price” shall mean, [***] .
“Client” shall mean a customer of any Block Office or of the Block
Digital Channel, as applicable, that is rendered tax preparation,
transmission, filing or other similar services at such office or channel.
“Deposit Account” shall mean a Refund Deposit Account or the General
Collection Deposit Account.
“Disbursement Check” shall mean, with respect to a Settlement Product, a
cashier’s check drawn on the Originator and payable to or at the direction of
a Settlement Products Client in the amount authorized by the Originator (which
shall not include Delinquent ERO Charges, ERO Charges, RAL Principal Amounts,
IMA Principal Amounts, First Priority Prior Indebtedness, Second Priority
Prior Indebtedness, Other Required Deductions or Authorized Deductions).
“Electronic Disbursement” shall mean, with respect to any Settlement
Product, any disbursement of proceeds (but excluding Disbursement Checks) of
such product made by the Originator, directly or indirectly, to or at the
direction of a Settlement Products Client in the amount authorized by the
Originator, whether via ACH credit, wire transfer, stored value card, debit
card, secured credit card or other electronic means (which amount shall not
include ERO charges, Delinquent ERO Charges, ERO Charges, RAL Principal
Amounts, IMA Principal Amounts, First Priority Prior Indebtedness, Second
Priority Prior Indebtedness, Other Required Deductions or Authorized
Deductions).
3
“Final Credit Criteria” shall mean, with respect to HSBC RALs and HSBC
IMAs, as applicable, the related final credit criteria for the origination of
HSBC RALs and HSBC IMAs, as applicable, as established by the Originator
pursuant to the terms of the Retail Distribution Agreement.
“Final Fees” shall mean the final fees for Settlement Products
established by the Originator pursuant to the terms of the Retail Distribution
Agreement including, but not limited to, the Refund Account Fee, the RAL Fee
and the IMA Fee.
“Initial Credit Criteria” shall mean the initial credit criteria for the
origination of HSBC RALs and HSBC IMAs as established by the Originator
pursuant to the terms of the Retail Distribution Agreement.
“Initial Fees” shall mean the initial fees for Settlement Products
established by the Originator pursuant to the terms of the Retail Distribution
Agreement including, but not limited to, the Refund Account Fee, the RAL Fee
and the IMA Fee.
“Late Fee” shall mean, with respect to a Delinquent RAL or a Delinquent
IMA, the late fee that may be charged on such Delinquent RAL or Delinquent IMA
as disclosed to the Settlement Products Client in the Application and/or the
TILA disclosure for such RAL or IMA.
“Note” shall mean with respect to any HSBC RAL, the promissory note or
other evidence of indebtedness or agreements evidencing the indebtedness of an
Obligor under such HSBC RAL.
“Obligor” shall mean the Settlement Products Client obligated to make
payments to the Originator with respect to any HSBC RAL or HSBC IMA.
“Originator” shall mean the originator of Retail Settlement Products
through Block Offices and Digital Settlement Products through the Block
Digital Channel; provided, however, that (i) with respect to
Retail Settlement Products, other than IMAs, issued through the Retained
Locations in the HSBC NA States, the term “Originator” refers only to HSBC NA;
(ii) with respect to Retail Settlement Products, other than IMAs, issued
through the Assigned Locations in the HSBC Trust States and Digital Settlement
Products issued through the Block Digital Channel, the term “Originator”
refers only to HSBC Trust; and (iii) with respect to IMAs issued through any
Block Office, the term “Originator” refers to HSBC NA.
“Participant” shall mean any Person who has purchased or otherwise owns a
Participation Interest in an HSBC RAL or HSBC IMA.
4
“Participation Interest” shall mean an undivided ownership interest in,
and in an amount equal to the Applicable Percentage of, all of the
Originator’s right, title and interest in and to an HSBC RAL or an HSBC IMA
created on and after the effective date of the Participation Agreement,
including all monies due or to become due with respect thereto and all
collections pertaining thereto and other proceeds (as defined in the UCC as in
effect in the State of Delaware), which interest is created pursuant to, or
contemplated by, the Participation Agreement.
“Principal Amount” of an HSBC RAL or an HSBC IMA shall mean the dollar
amount, if any, that the Originator lends to a Settlement Products Client
based upon such Client’s Application and the Originator’s credit criteria
(which principal amount shall include all payments of such Client’s ERO
Charges, if any, made by the Originator to such Client’s ERO, RAL Fees or IMA
Fees, as the case may be, and, with respect to HSBC RALs, Refund Account Fees
(unless such charges were paid by the Client at the time of preparation of
such Client’s Return(s)) and all Disbursements made by the Originator directly
to such Client).
“Prior Debt Indicator File” shall mean a file provided from time to time
upon the request of any Block Company by the HSBC Companies containing a
listing of Persons and their respective social security numbers who owe any
Defaulted HSBC RALs, Defaulted HSBC IMAs, Prior Indebtedness, Delinquent ERO
Charges, or other fees, charges or indebtedness that the HSBC Companies may
seek to collect from such Person whether from the proceeds of any Settlement
Product or otherwise.
“Prior Indebtedness” shall mean any outstanding obligations of a
Settlement Products Client for (ii) a refund anticipation loan or any other
similar loan product secured by a security interest in a deposit account into
which the borrower’s anticipated tax refund is to be deposited, or (ii) an
unsecured instant money advance loan or any other similar loan product issued
to a borrower based on such borrower’s pay stub prior to the preparation of a
final Return, in either case with all required documentation relating thereto,
which was made to such Settlement Products Client in a prior year by any
originator; provided, however, that prior to the Tax Period
beginning on January 1, 2008, Prior Indebtedness shall not include any instant
money advance loan or similar loan product that would otherwise constitute
Second Priority Prior Indebtedness.
“RAL Price Reduction” shall mean a reduction in pricing for RALs made
pursuant to Section 9.6(c) of the Retail Distribution Agreement.
5
“Refund Paid” shall mean the amount of the tax refund paid to a
Settlement Products Client by a Governmental Authority.
“Repurchase Value” of a Participation Interest in an HSBC RAL or an HSBC
IMA shall equal the remainder of (i) the product of (A) the Applicable
Percentage multiplied by (B) the sum of (I) the Principal Amount
plus (II) the Late Fees, minus (ii) any amount remitted to BFC
(or its permitted assignees, successors and assigns pursuant to the
Participation Agreement) pursuant to clauses (ii), (iii) and (iv) of Section
3.4(b) of the Servicing Agreement, with respect to such Participation
Interest.
“Retail Settlement Products” shall mean, collectively, RALs, RACs, IMAs,
and any similar financial product or service of the Originator offered to
Clients at Block Offices under the Program Contracts.
“Security Agreement” shall mean, with respect to any HSBC RAL, the
security agreement or other instrument pursuant to which the related Obligor
granted to the Originator a security interest in collateral to secure such
Obligor’s obligations pursuant to the related Note.
(ii) The following additional definitions are hereby added to the Appendix of Defined Terms
and Rules of Construction:
“Calculation Period” shall mean the period beginning on November 1 of a
calendar year and ending on December 31 of the immediately following calendar
year; provided that with respect to any Settlement Product originated in
November or December of any calendar year, such Settlement Product shall be
deemed to have been originated in the first month of the immediately following
calendar year. By way of example, the 2007 Calculation Period will be the
period beginning on November 1, 2006 and ending on December 31, 2007.
“Defaulted HSBC IMA” shall mean each Participated HSBC IMA which, in
accordance with the IMA Guidelines and HSBC TFS’s customary and usual
servicing procedures for IMAs, the Originator has charged off as
uncollectible; provided, however, that no HSBC IMA originated
during any Calculation Period shall be classified as a Defaulted HSBC IMA
prior to the close of business on the last day of such Calculation Period.
“Delinquent IMA” shall mean an HSBC IMA which has become due by its terms
and repayment has not been made by the applicable Settlement Products Client
by the applicable due date.
6
“Eligible IMA” shall mean each HSBC IMA:
(a) that was created by the Originator and is in compliance in all
material respects, with the applicable Distribution Agreement and applicable
Laws;
(b) for which HSBC TFS supplied a disclosure statement satisfying the
requirements of the TILA to the applicable Agent for distribution to the
Settlement Products Client; and
(c) as to which, at the time of the sale of the Participation Interest in
such HSBC IMA to any of the Block Companies, or any of their respective
Affiliates, Originator had good and marketable title thereto free and clear of
all Liens arising under or through HSBC TFS or any of its Affiliates.
“General Collection Deposit Account” shall mean a deposit account or
subaccount established by Servicer for the purpose of depositing collections
received on account of a Settlement Product issued to a Client that are not
otherwise required to be deposited into a Refund Deposit Account in accordance
with Section 3.2.
“HSBC IMA” shall mean any IMA made by the Originator through a Block
Office pursuant to or under color of (a) the Retail Distribution Agreement or
a Franchisee Distribution Agreement, as applicable, or (b) a referral to the
Originator by a Block Company, a Franchisee or either of their Affiliates
pursuant to a contractual electronic filing arrangement with any other Person.
“Instant Money Advance” or “IMA” means a loan issued to a Client prior to
the preparation of a final Return with all required documentation relating
thereto, which loan is not secured.
“IMA Documents” shall mean, with respect to each HSBC IMA, the related
Application, the related loan agreement and disclosure statement and any and
all other documents executed and delivered in connection with the origination
or subsequent modification of such HSBC IMA.
“IMA Fee” means shall mean the aggregate amount payable to the Originator
by the Settlement Products Client for the privilege of obtaining an HSBC IMA,
the calculation of which is set forth on Schedule 9.3 to the Retail
Distribution Agreement, which amount will include the finance charge. For the
avoidance of doubt, IMA Fees shall not include any account setup fees.
“IMA Guidelines” shall mean the Originator’s policies and procedures from
time to time relating to the operation of its IMA
7
business, including the policies and procedures for determining the
credit worthiness of IMA clients, the extensions of credit to IMA clients and
relating to the collection and charge off of IMAs.
“IMA Ownership Interest” shall mean Originator’s right, title and
interest in and to each HSBC IMA, including all monies due or to become due
with respect thereto and all collections pertaining thereto and other proceeds
thereof (as defined in the UCC as in effect in the State of Delaware), less
any Participation Interest.
“IMA Price Reduction” shall mean a reduction in pricing for IMAs made
pursuant to Section 9.6(c) of the Retail Distribution Agreement.
“IMA Price Reduction Amounts” shall mean, for a specific Calculation
Period, the sum of the IMA Fees that would have been charged if HSBC Bank had
not made an IMA Price Reduction minus the IMA Fees actually charged to
each Settlement Products Client who received an HSBC IMA during such
Calculation Period.
“IMA Protocol” shall mean the document attached hereto as Exhibit
A which describes the policies and procedures for offering HSBC IMAs in
certain states as agents and in other states as independent contractors of the
Originator.
“Participated HSBC IMA” shall mean any HSBC IMA in which a Participation
Interest has been sold pursuant to the Participation Agreement and has not
been reassigned to HSBC TFS or repurchased by HSBC TFS pursuant to the
Participation Agreement.
“Participated HSBC IMA Schedule” shall mean a schedule of certain IMAs
owned and held by the Originator and the Participants which sets forth
information with respect to such IMAs, as amended from time to time by the
parties.
“Refund Deposit Account” shall mean a deposit account or subaccount
established by HSBC Bank for each Settlement Products Client (other than with
respect to IMAs) in accordance with Section 3.2 of the Servicing Agreement.
“Unparticipated HSBC IMA” shall mean any HSBC IMA for which no
Participation Interests have been sold.
(iii) The definition “Preseason Loan” is hereby deleted.
(iv) The Parties agree that all Program Contracts are hereby amended to
incorporate the amendments to the Appendix of Defined
8
Terms and Rules of Construction pursuant to this Section 2(a), as well as
pursuant to the First Amendment.
(b) Amendments to the Retail Distribution Agreement.
(i) Section 2.1(c) of the Retail Distribution Agreement is hereby amended by inserting the
following clause at the beginning of such Section 2.1(c): “Subject to Section 11.1(c),”.
(ii) Section 2.4 of the Retail Distribution Agreement is hereby amended by deleting the word
“and” at the end of clause (iv) thereof, deleting the period at the end of clause (v) and replacing
it with a semicolon and the word “and”, and inserting the following new subsection:
(vi) IMAs, in accordance with the policies and procedures set forth on
the IMAs Schedule attached hereto as Schedule 2.4(a)(6).
(iii) The following new Sections 2.9 and 2.10 are hereby added to the Retail Distribution
Agreement immediately after the existing Section 2.8:
Section 2.9 HSBC Bank’s Right Not To Offer HSBC IMAs.
Notwithstanding any other provision of this Retail Distribution Agreement or the
other Program Contracts:
(a) HSBC Bank may, in its sole discretion, at any time and from time
to time during the Term of this Retail Distribution Agreement, elect not
to offer (whether through a physical presence, via the internet or any
computer software program) HSBC IMAs in one or more states, commonwealths,
territories or foreign countries (each, an “HSBC Discontinued
Location”) if HSBC Bank makes a reasonable determination (after good
faith discussions with the Block Companies and good faith attempts to
modify the Program Contracts to address any concerns, pursuant to Section
11.6(a)), that continued inclusion of HSBC IMAs as a type of Settlement
Product offered pursuant to the Settlement Products Program would
jeopardize HSBC Bank’s regulatory standing with the OCC, including any
component of any of its composite CAMEL rating, or the OCC’s assessment of
HSBC Bank’s safe and sound operation, or otherwise would cause the OCC to
raise serious regulatory concerns under applicable Law, including OCC
policies and procedures relating to the conduct of HSBC Bank’s lending
activities (in each case, an “ HSBC Regulatory Concern”). If HSBC
Bank makes a reasonable determination that such HSBC Regulatory Concern
exists in such HSBC Discontinued Location with respect to any other tax
preparer through whom either HSBC Bank or any of its Affiliates offers
instant money advance loans or similar loan products, and the terms of the
arrangement with such
9
other tax preparer are not modified to eliminate such HSBC Regulatory
Concern as it relates to such tax preparer, then HSBC Bank or its
Affiliate, as the case may be, shall also discontinue offering such
products through such other tax preparer in such HSBC Discontinued
Location. If HSBC Bank ceases offering HSBC IMAs in an HSBC Discontinued
Location due to an HSBC Regulatory Concern, the Block Agents may offer
IMAs through a lender other than HSBC Bank in such HSBC Discontinued
Location, including, without limitation, IMAs or similar loan products
offered by any third party, any Affiliate of a Block Company or a
financial institution or finance company, owned in whole or in part,
directly or indirectly, by a Block Company or any of its Affiliates. If
HSBC Bank makes a reasonable determination that such HSBC Regulatory
Concern ceases to exist in such HSBC Discontinued Location, HSBC Bank may
recommence offering IMAs through other tax preparers in such HSBC
Discontinued Location, provided that HSBC Bank shall give the Block
Companies notice of such intention to so recommence not later than HSBC
Bank gives notice to any other tax preparer located in such HSBC
Discontinued Location of its intention to so recommence, and shall give
the Block Companies the option to recommence offering HSBC IMAs in such
HSBC Discontinued Location through HSBC Bank at any time during the Term
in accordance with the terms set forth in this Retail Distribution
Agreement.
(b) Subject to Section 2.9(c), HSBC Bank may in its sole discretion
at any time and from time to time on or before March 16 of any calendar
year during the Term of this Retail Distribution Agreement, elect to
discontinue offering, effective November 1 of such calendar year, HSBC
IMAs in one or more HSBC Discontinued Locations, if, and only if, neither
HSBC Bank nor any of its Affiliates offer instant money advance loans or
similar loan products through any other tax preparer located in, or via
the internet or any computer software program to residents of, such HSBC
Discontinued Locations.
(c) If HSBC Bank elects to discontinue offering HSBC IMAs in HSBC
Discontinued Locations pursuant to Section 2.9(b) above, then the Block
Agents may, with respect to such HSBC Discontinued Locations, offer IMAs
or similar loan products originated from sources other than HSBC Bank,
including, without limitation, IMAs or similar loan products offered by
any third party, any Affiliate of a Block Company or a financial
institution or finance company, owned in whole or in part, directly or
indirectly, by a Block Company or any of its Affiliates; provided, that,
the Block Agents shall provide written notice to HSBC Bank
10
(i) within twenty (20) days following HSBC Bank’s election to
discontinue offering HSBC IMAs in such HSBC Discontinued Locations of the
Block Agents’ intention to so offer IMAs or similar loan products in such
HSBC Discontinued Locations originated from sources other than HSBC Bank,
promptly updating such notice to HSBC Bank if the Block Agents’ intentions
change, and (ii) within 10 days after a Block Company enters into an
agreement with another lender to offer IMAs or makes a final determination
to offer IMAs originated by any Affiliate of a Block Company or a
financial institution or finance company, owned in whole or in party,
directly or indirectly, by a Block Company or any of its Affiliates, of
the Block Agents’ intention to so offer IMAs or similar loan products in
such HSBC Discontinued Locations originated from sources other than HSBC
Bank. If the Block Agents provide a notice to HSBC Bank pursuant to
clause (ii) above of their agreement with another lender to offer IMAs in
such HSBC Discontinued Locations or their intention to in-source IMAs,
HSBC Bank and its Affiliates may offer instant money advance loans or
similar products through other tax preparers located in, or via the
internet or any computer software program to residents of, such HSBC
Discontinued Locations.
Section 2.10 Block Agents’ Right Not To Offer HSBC IMAs.
(a) Notwithstanding any other provision of this Retail Distribution
Agreement or the other Program Contracts, the Block Agents may, in their
sole discretion, at any time and from time to time during the Term of this
Retail Distribution Agreement, elect not to offer HSBC IMAs in one or more
states, commonwealths, territories or foreign countries (each, a
“Block Discontinued Location”).
(b) If subsequent thereto, the Block Agents desire to recommence
offering IMAs in any such Block Discontinued Locations, then the Block
Companies shall give HSBC Bank 120 days’ notice in writing of such desire
to recommence offering IMAs in such Block Discontinued Locations. Upon
receipt of such written notice, HSBC Bank (i) shall recommence offering
HSBC IMAs in such Block Discontinued Locations, if at that time HSBC Bank
or any of its Affiliates are offering instant money advance loans or
similar loan products through tax preparers located in, or via the
internet or any computer software program to residents of, such Block
Discontinued Locations, or (ii) have the option (exercisable within thirty
(30) calendar days) to recommence offering HSBC IMAs in such Block
Discontinued Locations, if at that time HSBC Bank or any of such
Affiliates are not offering instant money advance loans or similar loan
products through tax
11
preparers located in, or via the internet or any computer software
program to residents of, such Block Discontinued Locations. If HSBC Bank
and the Block Agents recommence offering HSBC IMAs in such Block
Discontinued Locations pursuant to (i) or (ii) of this Section 2.10(b),
then they shall do so in accordance with the terms of this Retail
Distribution Agreement.
(c) If HSBC Bank does not exercise its option within thirty (30)
calendar days to recommence offering HSBC IMAs in any such Block
Discontinued Locations, then the Block Agents may, with respect to such
Block Discontinued Locations, offer IMAs originated from sources other
than HSBC Bank, including, without limitation, IMAs offered by any third
party, any Affiliate of a Block Company or a financial institution or
finance company, owned in whole or in part, directly or indirectly, by a
Block Company or any of its Affiliates.
(iv) Section 5.8 of the Retail Distribution Agreement is hereby amended to read as follows:
Section 5.8 Franchisees in Settlement Products Program.
(a) Block Tax Services, Royalty and Block Associates shall use commercially
reasonable efforts to cause their respective Franchisees to offer Retail
Settlement Products through the Block Franchisee Offices, and Block Tax Services
and Block Associates shall provide the means for each of their respective
Franchisees to agree to be bound by the terms of its Franchisee Distribution
Agreement.
(b) On an annual basis, and at other times upon the written request of HSBC
Bank, Block Tax Services, Royalty and Block Associates will provide a report
listing all Franchisees that have electronically accepted and agreed to be bound
by a Franchisee Distribution Agreement that was electronically disseminated to,
and electronically accepted by, the Franchisee via TPS Software and the Block
Companies web-based communication system for Franchisees. The parties acknowledge
that such electronic acceptance is the only form of acceptance being required for
such Franchisees to be legally bound under the terms of such Franchisee
Distribution Agreements. Block Services represents that, with respect to 2007 and
subsequent Tax Periods and Calculation Periods, the TPS Software will not permit a
Franchisee to originate Retail Settlement Products unless the Franchisee has
electronically accepted and agreed to be bound by the Franchisee Distribution
Agreement.
(c) Block Tax Services, Royalty and Block Associates will provide to HSBC
Bank by January 3rd of each year, and at other times
12
upon the written request of HSBC Bank, the address and the e-mail address for
any Franchisee that is a party to a Franchisee Distribution Agreement.
(v) A new Section 5.13 is added to the Retail Distribution Agreement immediately after Section
5.12 as follows:
Section 5.13 IMA Notices to Franchisees. Any notification sent
pursuant to Section 6.1(c) of a Franchisee Distribution Agreement by either a
Block Company or an HSBC Company will be made only with the consent of the other
party, provided, however, that (i) when an HSBC Company exercises
its rights under Section 2.9 above to discontinue or recommence offering a
product, it may give notice to a Franchisee of such discontinuation or
recommencement without obtaining the consent of a Block Company, and (ii) when a
Block Company exercises its rights under Section 2.10 above to discontinue or
recommence offering a product, it may give notice to a Franchisee of such
discontinuation or recommencement without obtaining the consent of a HSBC Company.
(vi) Sections 6.8(a)(ii) and 6.8(a)(iii) of the Retail Distribution Agreement are hereby
amended by replacing in every instance therein the term “Preseason Loan” with the term “IMA.”
(vii) A new Section 6.12 is added to the Retail Distribution Agreement immediately after
Section 6.11 as follows:
Section 6.12 Further Regulatory Approvals of IMAs. During the Term
of this Retail Distribution Agreement, the HSBC Companies agree to use
commercially reasonable efforts to obtain, on a timely basis, all necessary
regulatory approvals for HSBC Trust to offer HSBC IMAs through the Block Agents
and the Franchisee Agents at Block Offices located in the HSBC Trust States. This
obligation shall be a continuing annual covenant with respect to each successive
Calculation Period until such regulatory approval is obtained. In making such
commercially reasonable efforts, the HSBC Companies may take into account the
written positions of the regulatory authorities and the impact of such efforts on
the regulatory standing of HSBC Trust, and the other HSBC Companies and their
Affiliates, and their relationships with the regulatory authorities.
(viii) Sections 7.6(c), 7.6(d) and 7.6(e) of the Retail Distribution Agreement are hereby
amended to read as follows:
(c) except with respect to IMAs, provide and require Settlement Product
Clients to complete and sign an authorization permitting the Block Agent to use
the Client’s Return information for the
13
application process in accordance with Section 301.7216-3(b) of the United
States Treasury Department Regulations;
(d) provide and require each Settlement Product Client (except with respect
to IMAs) to complete and sign IRS Form 8453;
(e) sign each Form 8453 as ERO, except with respect to IMAs;
(ix) Section 7.9 of the Retail Distribution Agreement is hereby amended to read as follows:
Section 7.9. Applicant Copies. Each Block Agent shall provide each
of its Applicants with a copy of such Applicant’s signed Application and, to the
extent applicable, IRS Form 8453, together with any other commercially reasonable
disclosures or documents required to be provided to the Applicant by HSBC Bank.
(x) The introductory clause of Section 9.1 of the Retail Distribution Agreement is hereby
amended to read as follows:
Section 9.1 Form of Application. HSBC Bank shall prepare the form of
Application to be used by the Agents and shall supply such Application to the
Agents no later than September 1 prior to each Tax Period with respect to RALs and
RACs, or August 1 prior to each Calculation Period with respect to IMAs. The form
of Application for RALs and RACs shall include:
(xi) The first sentence of Section 9.3 of the Retail Distribution Agreement is hereby amended
to read as follows:
HSBC Bank and HSBC Trust shall annually make a determination of their
respective Initial Fees, which shall include, but not be limited to, the Refund
Account Fee, the RAL Fee and the IMA Fee.
(xii) Section 9.6(b) of the Retail Distribution Agreement is hereby amended to read as
follows:
(b) The parties share a mutual desire to endeavor to offer the most
compelling customer value proposition which includes factors of price, loan size
and approval rate. With this goal in mind, HSBC Bank will set price with input
from the Block Companies on a mutually agreeable client value proposition when
considering an appropriate balance of price in combination with approval rate and
loan size. During the Term of this Retail Distribution Agreement, [***] .
14
(xiii) Section 9.6(c) of the Retail Distribution Agreement is hereby amended to read as
follows:
(c) Upon the written request of Block Services delivered to HSBC Bank prior
to the September 15th immediately preceding any Calculation Period,
[***] .
(xiv) The first sentence of Section 9.7 of the Retail Distribution Agreement is hereby amended
to read as follows:
Upon receipt of each Application, except with respect to IMAs, HSBC Bank
shall establish a Deposit Account in the name of the Settlement Products Client
listed on such Application.
(xv) Section 9.14 of the Retail Distribution Agreement is hereby amended to read as follows:
Section 9.14 Application and Disclosures. HSBC Bank shall create and
provide to the Block Companies initial drafts of pre-approved templates for
applications, forms, disclosures and other documents required for RALs and RACs by
August 1 of each year during the Term of this Retail Distribution Agreement.
After providing the Block Companies with an opportunity to review and provide
comments on the initial drafts of such pre-approved templates, HSBC Bank shall,
provide final pre-approved templates for applications, forms, disclosures and
other documents required for RALs and RACs by September 1 of each year during the
Term of this Retail Distribution Agreement. With respect to IMAs, beginning in
2007, the initial drafts of such pre-approved templates shall be provided by July
1 of each year and final pre-approved templates shall be provided by August 1 of
each year during the Term of this Retail Distribution Agreement.
(xvi) Section 9.16 of the Retail Distribution Agreement is hereby amended to read as follows:
Section 9.16 New Products. During the Term of this Retail
Distribution Agreement, the Block Companies shall have:
(a) a right [***] ;
(b) the right, [***] ;
(c) the right, [***] ; and
(d) the right, [***] .
15
(xvii) Section 9.18 of the Retail Distribution Agreement is hereby amended by adding a new
sentence at the end thereof as follows:
Notwithstanding the above, HSBC Bank shall review and process Applicant
Information Files for IMAs pursuant to the Service Level Thresholds set forth on
Schedule 13.4(i) hereto.
(xviii) Section 10.1 of the Retail Distribution Agreement is hereby amended to read as
follows:
Section 10.1 Forward Applicant Information File with Debt Indicator
Information to HSBC Bank and HSBC Trust. Upon receipt of a copy of an
Applicant Information File for a RAL or RAC, IRS Return Notification and Debt
Indicator from Block Services, HSBC TFS shall electronically transmit to HSBC Bank
or HSBC Trust, as the case may be, a copy of the Applicant Information File and a
copy of the Applicant’s Debt Indicator. Upon receipt of the Applicant Information
File for an IRAL or an IMA, HSBC TFS shall electronically transmit a copy of such
Applicant Information File to HSBC Bank or HSBC Trust, as the case may be,
immediately upon receipt.
(xix) Section 10.2 of the Retail Distribution Agreement is hereby amended to read as follows:
Section 10.2 Disbursement Check Printing Authorization. Subject to
Section 10.3, HSBC TFS shall electronically provide Block Services authorization
to print a Disbursement Check or issue an Electronic Disbursement (a) for each
Applicant who has been approved to receive a RAL or IMA, upon approval thereof,
and (b) for each Applicant who has been approved to receive a RAC, if applicable,
upon HSBC TFS’s crediting of the Refund Paid to such Applicant’s Deposit Account
and after debiting all Authorized Deductions from such Deposit Account in the
manner set forth in the Servicing Agreement. With respect to RALs and RACs,
within four (4) hours after receipt of such Applicant’s Refund Paid, if any funds
remain in the Deposit Account after debiting all Authorized Deductions, HSBC TFS
shall authorize Block Services to print a check or issue an Electronic
Disbursement to the Settlement Products Client in the amount remaining in the
Deposit Account in accordance with such Client’s instructions.
(xx) Section 10.5 of the Retail Distribution Agreement is hereby amended to read as follows:
Section 10.5 Contingent Issuing of Disbursement Checks. If it
becomes infeasible due to events or occurrences beyond the parties’ control for
the Agents to issue and deliver Disbursement Checks or Electronic Disbursements
directly to Settlement Products Clients, then
16
HSBC TFS shall issue and mail such Disbursement Checks or Electronic
Disbursements directly to such Settlement Products Clients. With respect to RALs
and IMAs, HSBC TFS shall use commercially reasonable efforts to mail the
Disbursement Check or Electronic Disbursement to the Settlement Products Client or
to the Block Offices for distribution to the Settlement Products Client the same
day as HSBC TFS’s approval of the RAL or IMA; provided, however,
such Application must be received by HSBC TFS by 11:00 a.m. Eastern Standard or
Daylight Savings Time (as the case may be). With respect to RACs, HSBC TFS shall
use commercially reasonable efforts to mail the Disbursement Check or Electronic
Disbursement to the Settlement Products Client within 24 hours following receipt
from the IRS of the Refund Paid.
(xxi) The following new Section 10.10 shall be added to the Retail Distribution Agreement
immediately after the existing Section 10.9:
Section 10.10 Website Development. In addition to the covenants set
forth in Section 2.1(a), 7.18 and 9.16(b) hereof, during the Term of this Retail
Distribution Agreement the HSBC Companies and their Affiliates shall not use any
HTML code that was jointly developed with any Block Company or any of its
Affiliates to design or operate any internet website or similar electronic means
to offer instant money advance loans or similar loans through any tax preparer
other than the Block Agents or the Franchisee Agents. For the avoidance of doubt,
the HSBC Companies and their Affiliates may so use (i) HTML code used in the
performance of this Retail Distribution Agreement that was not jointly developed
with any Block Company or any of its Affiliates, and (ii) similar HTML code that
is developed independently (e.g., to provide similar functionality to another
customer).
(xxii) A new Section 11.1(c) is hereby added to Retail Distribution Agreement immediately
following Section 11.1(b) as follows:
(c) Notwithstanding any other provision of this Retail Distribution Agreement
or the other Program Contracts, the following applies solely with respect to HSBC
IMAs offered through Block Offices from November 2006 through the Term of this
Retail Distribution Agreement:
(i) pursuant to Section 2.1(c), the Block Agents are appointed as the
agents of HSBC NA for purposes of offering and distributing HSBC IMAs at
Block Offices located in the HSBC NA States. In performing their
specified duties under Article VII of the Retail Distribution Agreement
with regard to distributing HSBC IMAs at Block Offices located in the HSBC
NA States, the Block Agents are acting as agents of HSBC NA; and
17
(ii) notwithstanding Section 2.1(c), HSBC NA does not appoint Block
Enterprises, Block Eastern Enterprises or Block Associates as its agents
for purposes of offering and distributing HSBC IMAs at Block Offices
located in any of the HSBC Trust States. In performing their specified
duties under Article VII of this Retail Distribution Agreement with
respect to distributing HSBC IMAs at Block Offices located in the HSBC
Trust States, Block Enterprises, Block Eastern Enterprises and Block
Associates are acting as independent contractors for HSBC NA. Block
Enterprises, Block Eastern Enterprises and Block Associates shall offer
HSBC IMAs at Block Offices in the HSBC Trust States in accordance with the
IMA Protocol.
(xxiii) A new subsection (i) shall be added to Section 13.4 of the Retail Distribution
Agreement to read as follows:
The HSBC Companies shall be subject to the Service Level Thresholds for IMAs
set forth on Schedule 13.4(i).
(xxiv) Section 14.2 of the Retail Distribution Agreement is hereby amended to read as follows:
Section 14.2 Incremental Bank Product Fee. No later than November 1
of each calendar year, HSBC TFS shall pay to the Block Enterprise Entities, via
wire transfer of immediately available funds to an account designated in writing
by the Block Enterprise Entities, an amount, in the aggregate, equal to [***] .
(xxv) Section 14.7(a) of the Retail Distribution Agreement is hereby amended to read as
follows:
(a) On the first Business Day of January of each Tax Period during the Term
of this Retail Distribution Agreement, HSBC TFS shall pay to the Block Enterprise
Entities the Expense Reimbursement to partially reimburse the Block Companies for
their out-of-pocket expenses incurred in connection with the Settlement Products
Program for the applicable Calculation Period. The Expense Reimbursement shall be
paid by ACH credit to an account designated by the Block Enterprise Entities.
(xxvi) Section 14.8 of the Retail Distribution Agreement is hereby amended to read as follows:
Section 14.8 IRAL and IMA Origination System Servicing Level
Threshold. If HSBC TFS fails to maintain the IRAL Origination System
Servicing Level Threshold set forth in Section 13.4(a) or the IMA origination
system servicing level threshold set forth in Schedule 13.4(i) on any Block
Business Day, except to the extent non-compliance arises from a Force Majeure
Event or a failure by any Block Company to
18
perform any material Obligation under this Retail Distribution Agreement,
HSBC TFS shall pay to the Block Enterprise Entities an amount, in the aggregate,
equal to [***] . All amounts payable under this Section 14.8 accrued during any
Calculation Period, shall be payable by HSBC TFS on the last Business Day of such
Calculation Period. HSBC TFS shall pay such amounts via ACH credit to an account
designated in writing by the Block Enterprise Entities. To the extent any failure
by HSBC TFS to maintain the IRAL Origination System Servicing Level Threshold
under this Section 14.8 could not reasonably result in a Material Adverse Effect,
the amount paid by HSBC TFS to the Block Companies under this Section 14.8 shall
constitute the sole remedy for failure to maintain the IRAL Origination System
Servicing Level Threshold. Not later than the last Business Day of the month of
October during such Calculation Period, HSBC TFS shall provide true and correct
reports to the Block Companies setting forth (a) the number of estimated lost IRAL
Clients for each Block Business Day during the Tax Period and lost IMA Clients for
each Block Business Day beginning on the first day that IMAs are offered by the
Block Agents during or prior to the Calculation Period and continuing through that
last day of such Calculation Period, (b) the actual number of IRALs and IMAs
originated during each Block Business Day in the preceding year and (c) the actual
number of IRALs originated during each Block Business Day during the Tax Period
and IMAs originated during each Block Business Day beginning on the first day that
IMAs are offered by the Block Agents during or prior to the Calculation Period and
continuing through that last day of such Calculation Period.
(xxvii) Section 14.14(a) of the Retail Distribution Agreement is hereby amended to read as
follows:
(a) With respect to HSBC RALs or HSBC IMAs originated on or after January 1,
2007, [***] .
(xxviii) Section 16.4(b) of the Retail Distribution Agreement is hereby amended to read as
follows:
(b) To the extent permitted by applicable Law, each HSBC Company agrees to
promptly provide to each Block Company and its Affiliates, upon request, but not
more than twice during any calendar year, a list of all Persons, and their
complete mailing addresses, to whom such HSBC Company made HSBC RALs, HSBC RACs or
HSBC IMAs during the most recently ended Calculation Period. Such list shall be
provided in electronic form and, to the extent reasonably practicable, in a form
typical of mailing lists purchased in the open market. No Block Company or
Affiliate shall use, or permit the use of, such list for purposes of soliciting
Clients for credit related products. The Block Companies and their Affiliates
shall take appropriate action by agreement with third parties
19
having access to such list to prohibit such third parties from using such
list for purposes of soliciting Clients for credit related products.
(xxix) The Table of Contents to the Retail Distribution Agreement is hereby amended to include
reference to each of the new Sections that were added to the agreement pursuant to this Second
Amendment.
Section 3 Reference to and Effect Upon the Existing Program Contracts.
(a) Except as explicitly stated in this Second Amendment, all terms of the Program Contracts
as in effect immediately preceding execution of this Second Amendment shall remain in full force
and effect as provided therein and in accordance with the terms thereof.
(b) Except as explicitly stated in this Second Amendment, the execution, delivery and
effectiveness of this Second Amendment shall not operate as a waiver of any right, power or remedy
of any party under the Program Contracts as in effect immediately preceding execution of this
Second Amendment, nor constitute a waiver of any provision of the Program Contracts as in effect
immediately preceding execution of this Second Amendment.
(c) Upon the effectiveness of this Second Amendment, each reference in each of the Program
Contracts to “this Agreement”, “hereunder”, “hereof,” “herein” or words of similar import shall
mean and be a reference to such Program Contract as amended by this Second Amendment.
Section 4 Headings. Headings and captions used in this Second Amendment (including
all exhibits and schedules thereto) are included herein for convenience of reference only and shall
not constitute a part of this Second Amendment for any other purpose or be given any substantive
effect.
Section 5 Alternative Dispute Resolution. ANY DISPUTE BETWEEN OR AMONG THE PARTIES
HERETO ARISING OUT OF OR RELATING TO THIS SECOND AMENDMENT OR THE TRANSACTIONS CONTEMPLATED HEREIN
(EXCEPT JUDICIAL ACTION FOR SPECIFIC PERFORMANCE OR INJUNCTIVE RELIEF) SHALL BE RESOLVED AMONG THE
PARTIES TO SUCH DISPUTE BY NEGOTIATIONS, MEDIATION AND ARBITRATION IN ACCORDANCE WITH THE
PROVISIONS OF ARTICLE XXI OF THE RETAIL DISTRIBUTION AGREEMENT, WHICH ARE INCORPORATED HEREIN BY
REFERENCE.
Section 6 Governing Law; Submission To Jurisdiction. THIS SECOND AMENDMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF MISSOURI. WITHOUT
LIMITING THE EFFECT OF SECTION 5 HEREOF AND ARTICLE XXI OF THE RETAIL DISTRIBUTION AGREEMENT, EACH
OF THE PARTIES HERETO (A) SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL AND/OR STATE COURTS
SITTING IN
20
ST. LOUIS, MISSOURI FOR PURPOSES OF ALL LEGAL PROCEEDINGS FOR SPECIFIC PERFORMANCE OR
INJUNCTIVE RELIEF PERMITTED BY SECTION 21.12 OF THE RETAIL DISTRIBUTION AGREEMENT, (B) IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO
THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH
PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM, (C) IRREVOCABLY
CONSENTS TO SERVICE OF PROCESS IN SUCH PROCEEDING IN THE MANNER PROVIDED FOR NOTICES IN SECTION
22.3 OF THE RETAIL DISTRIBUTION AGREEMENT, AND (D) AGREES THAT NOTHING IN THIS SECOND AMENDMENT
WILL AFFECT THE RIGHT OF ANY PARTY TO THIS SECOND AMENDMENT TO SERVE PROCESS IN ANY SUCH PROCEEDING
IN ANY OTHER MANNER PERMITTED BY LAW.
Section 7 Waiver of Jury Trial. WITHOUT LIMITING THE EFFECT OF SECTION 5 HEREOF, EACH
OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION ARISING
OUT OF OR RELATING TO THIS SECOND AMENDMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 8 Counterparts. This Second Amendment may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument. This Second Amendment shall become effective upon the
execution of a counterpart hereof by each of the parties hereto
[remainder of page intentionally blank]
21
THIS SECOND AMENDMENT CONTAINS A BINDING
ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES
ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES
IN WITNESS WHEREOF, the following Parties have caused this Second Amendment to Program
Contracts to be executed by their respective duly authorized officers as of the date first set
forth above.
| HSBC BANK USA, NATIONAL ASSOCIATION, a national banking association |
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| By: | ||||
| Name: | ||||
| Title: | ||||
| HSBC TRUST COMPANY (DELAWARE), N.A., a national banking association |
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| By: | ||||
| Name: | ||||
| Title: | ||||
| HSBC TAXPAYER FINANCIAL SERVICES INC., a Delaware corporation |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| BENEFICIAL FRANCHISE COMPANY INC., a Delaware corporation |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
THIS SECOND AMENDMENT CONTAINS A BINDING
ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES
ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES
| H&R BLOCK SERVICES, INC., a Missouri corporation |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| H&R BLOCK TAX SERVICES, INC., a Missouri corporation |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| H&R BLOCK ENTERPRISES, INC., a Missouri corporation |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| H&R BLOCK EASTERN ENTERPRISES, INC., a Missouri corporation |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| H&R BLOCK DIGITAL TAX SOLUTIONS, LLC, A Delaware limited liability company |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
THIS SECOND AMENDMENT CONTAINS A BINDING
ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES
ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES
| H&R BLOCK AND ASSOCIATES, L.P., a Delaware limited partnership |
||||||
| By: | HRB Texas Enterprises, Inc. its General Partner |
|||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| HRB ROYALTY, INC., a Delaware corporation |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
THIS SECOND AMENDMENT CONTAINS A BINDING
ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES
ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES
IN WITNESS WHEREOF, the following Parties hereto have caused this Second Amendment to Program
Contracts to be executed by their respective duly authorized officers as of the date first set
forth above solely for the limited purpose of acknowledging the amendments set forth herein in
connection with such Parties’ respective guaranties set forth in Article XX, and also for purposes
of Articles XXI and XXII of the Retail Distribution Agreement.
| HSBC FINANCE CORPORATION, a Delaware corporation |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| H&R BLOCK, INC., a Missouri corporation |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
Schedule 2.4(a)(6)
Instant Money Advance Loan Product Procedures
[***]
Schedule 13.4(i)
Origination
§ System will be available [***] ,
November — January at least [***] %
November — January at least [***] %
§ On daily basis, [***] .
§ [***] .
§ [***] .
§ [***] .
Fee payment
§ [***] .
Check Authorization
§ [***] .
Web site
| Website Availability (EST) | ||||||||||||||||||||||||||||
| Times | Sunday | Monday | Tuesday | Wednesday | Thursday | Friday | Saturday | |||||||||||||||||||||
Start |
[***] | [***] | [***] | [***] | [***] | [***] | [***] | |||||||||||||||||||||
Stop |
[***] | [***] | [***] | [***] | [***] | [***] | [***] | |||||||||||||||||||||
VRU System
§ Will be available [***] .
§ For customer call, [***] .
§ For client call, [***] .
§ For ERO call, [***] .
§ Toll free number will be provided
§ customer service hours
11/1-1/2
|
[***] | |
1/3-1/8
|
[***] | |
1/9-1/22
|
[***] | |
1/23-4/17
|
[***] |
Exhibit A
IMA PROTOCOL
This IMA Protocol (this “Protocol”), dated November 13, 2006, sets forth the agreement
of the following parties (collectively, the “Parties”) on the matters set forth herein:
HSBC Bank USA, National Association, a national banking association (“HSBC NA”);
HSBC Trust Company (Delaware), N.A., a national banking association (“HSBC Trust”);
HSBC Taxpayer Financial Services Inc., a Delaware corporation (“HSBC TFS”);
Beneficial Franchise Company Inc., a Delaware corporation (“Beneficial Franchise”);
H&R Block Services, Inc., a Missouri corporation (“Block Services”);
H&R Block Tax Services, Inc., a Missouri corporation (“Block Tax Services”);
H&R Block Enterprises, Inc., a Missouri corporation (“Block Enterprises”);
H&R Block Eastern Enterprises, Inc., a Missouri corporation (“Block Eastern
Enterprises”);
H&R Block Digital Tax Solutions, LLC, a Delaware limited liability company (“Block
Digital”);
H&R Block and Associates, L.P., a Delaware limited partnership (“Block Associates”);
HRB Royalty, Inc., a Delaware corporation (“Royalty”);
HSBC Finance Corporation, a Delaware corporation (“HSBC Finance”); and
H&R Block, Inc., a Missouri corporation (“H&R Block”).
RECITALS
A. All the Parties, other than HSBC Trust, entered into that certain HSBC Retail Settlement
Products Distribution Agreement, dated as of September 23, 2005 (the “Original Retail
Distribution Agreement”).
B. All the Parties, including HSBC Trust, as well as Block Financial Corporation, a Delaware
corporation (“BFC”), entered into that certain Joinder and First Amendment to Program
Contracts, dated as of November 10, 2006 (the “First Amendment”), which amended the
Original Retail Distribution Agreement and other Program Contracts (as defined therein).
C. All the Parties entered into that certain Second Amendment to Program Contracts, dated as
of November 13, 2006 (the “Second Amendment”), which amended the Original Retail
Distribution Agreement and other Program Contracts.
D. Pursuant to the Second Amendment, the Parties are amending the Program Contracts to
include IMAs as a type of Settlement Product under the Settlement Products Program.
E. This Protocol is intended to set forth the Parties’ agreement as to certain additional
procedures and specifications that apply to the distribution of IMAs and is the IMA Protocol
referred to in Section 11.1(c) of the Retail Distribution Agreement.
F. All capitalized terms used in this Protocol and not otherwise defined in this Protocol
shall have the meanings assigned to such terms in the HSBC Appendix of Defined Terms and Rules of
Construction attached to the Retail Distribution Agreement, as amended.
PROTOCOL
Part A. IMAs Offered Through Both Agents and Distributors.
The Parties acknowledge and agree that although HSBC NA is offering IMAs through Block Offices
on a nationwide basis, HSBC NA is doing so in some states through its expressly appointed agents,
the Block Agents, and in other states through independent contractor distributors, Block
Enterprises, Block Eastern Enterprises of Block Associates (when acting in such states as
independent contractors, the “Block Distributors”). While the Block Agents and the Block
Distributors are the same legal entities, they are acting in different capacities in different
states. The appointment by HSBC NA of the Block Agents as its agents in certain states does not
constitute the appointment of such entities as its agents in any other state. This Protocol
clarifies the rights, duties and obligation of HSBC NA, the Block Agents and the Block Distributors
with respect to the offering of IMAs in each state.
Part B. Independent Contractor Distribution of IMAs.
1. Independent Contractor States. HSBC NA is offering IMAs in the HSBC Trust States
exclusively through independent contractors. For the avoidance of doubt, the HSBC Trust States
include all territories of the United States, Block Offices located in foreign countries, and
the following states and commonwealths:
| Alabama Alaska Arizona Arkansas Colorado Connecticut Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Michigan Minnesota Mississippi Missouri |
Montana Nebraska Nevada New Hampshire New Mexico North Carolina North Dakota Ohio Oklahoma Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia West Virginia Wisconsin Wyoming |
2. Status. The Parties hereby acknowledge that the Block Distributors are acting as
independent contractors of HSBC NA in the foregoing HSBC Trust States. Unless otherwise provided
herein, no agency, joint venture, partnership or fiduciary relationship exists between HSBC NA and
the Block Distributors in such HSBC Trust States.
3. Safety and Soundness. In the HSBC Trust States, HSBC NA and the Block Distributors agree
that the offering of IMAs must be conducted consistent with safe and sound banking practices. The
Block Distributors acknowledge that HSBC NA is subject, inter alia, to the OCC Bulletin, “Risk
Management Principles” and may become subject to future regulatory guidance or requirements. The
Block Distributors agree to cooperate with HSBC NA in its efforts to comply with this and other
similar regulatory guidance. Such cooperation shall include, but is not limited to:
(i) the implementation by the Block Distributors of an independent
contractor distribution program, including training programs and audit
procedures designed by HSBC NA and approved by the Block Companies, which
approval shall not be unreasonably withheld or unreasonably delayed, for the use
of the Block Distributors with respect to the offering of IMAs in the HSBC Trust
States; and
(ii) the use of Applications and other IMA Documents with respect to the
offering of IMAs in the HSBC Trust States that clearly indicate that the Block
Distributors are acting as independent contractors, and not agents, of HSBC
NA in such states.
If the OCC raises any objection or concerns with the offering of IMAs, HSBC NA and the Block
Distributors agree to consult and negotiate with each other in good faith to address the
OCC’s objections or concerns, and to make mutually agreeable amendments and modifications to
the offering of IMAs in such states.
Part C. Agency Distribution of IMAs.
1. Agency States. HSBC NA is offering IMAs in the HSBC NA States exclusively through agents
appointed pursuant to the Retail Distribution Agreement. For the avoidance of doubt, the following
is a list of all such states, commonwealths and territories:
California
Delaware
Florida
Massachusetts
New Jersey
New York
Oregon
Pennsylvania
Washington
District of Columbia
Delaware
Florida
Massachusetts
New Jersey
New York
Oregon
Pennsylvania
Washington
District of Columbia
2. Status. The Parties hereby acknowledge that the Block Agents are acting as agents of HSBC
NA in the foregoing states.
3. Safety and Soundness. In the HSBC NA States, Article XI of the Retail Distribution
Agreement governs the relationship between HSBC NA and the Block Agents.
Part D. Timing. HSBC NA, the Block Distributors and the Block Agents are offering IMAs in
the period from on or about November 13, 2006 through January 31, 2007, pursuant to the
terms and conditions of the Program Contracts, as amended by the First Amendment and Second
Amendment, and this IMA Protocol. With respect to the offering of IMAs in future years,
the terms of this Protocol shall be applicable unless the Parties otherwise agree in
writing.
Part E. Conflict. If any provision contained in this IMA Protocol conflicts with any
provision in any of the Program Contracts, as amended by the First Amendment and Second
Amendment, the provision contained in this Protocol shall govern and control.
Exhibit 10.27
Execution copy
FIRST AMENDED AND RESTATED
HSBC REFUND ANTICIPATION LOAN
AND IMA
PARTICIPATION AGREEMENT
NOTE: CERTAIN MATERIAL HAS BEEN OMMITTED FROM THIS AGREEMENT PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT UNDER RULE 24b-2. THE LOCATIONS OF THESE OMISSIONS ARE INDICATED THROUGHOUT
THE AGREEMENT BY THE FOLLOWING MARKINGS: [***].
Dated as of November 13, 2006
Table of Contents
| Page(s) | ||||||||
| ARTICLE I | DEFINITIONS | 2 | ||||||
| Section 1.1. | Definitions | 2 | ||||||
| Section 1.2. | Rules of Construction | 2 | ||||||
| Section 1.3. | Corporate Reorganizations | 2 | ||||||
| Section 1.4. | Funding for Purchases of Participation Interests in HSBC RALs and HSBC IMAs | 3 | ||||||
| ARTICLE II | REPRESENTATIONS AND WARRANTIES OF HSBC BANK AND HSBC TFS |
4 | ||||||
| Section 2.1. | Representations Incorporated by Reference | 4 | ||||||
| Section 2.2. | Representations and Warranties of HSBC Bank and HSBC TFS | 4 | ||||||
| Section 2.3. | Representations and Warranties of HSBC TFS Relating to Participated HSBC RALs and Participated HSBC IMAs | 4 | ||||||
| ARTICLE III | REPRESENTATIONS AND WARRANTIES OF BFC | 5 | ||||||
| Section 3.1. | Representations Incorporated by Reference | 5 | ||||||
| ARTICLE IV | PURCHASE AND SALE OF PARTICIPATION INTERESTS | 5 | ||||||
| Section 4.1. | Purchase and Sale of Participation Interests in HSBC RALs and HSBC IMAs | 5 | ||||||
| Section 4.2. | Purchase Price | 6 | ||||||
| Section 4.3. | Payment | 6 | ||||||
| Section 4.4. | Right to Exclude Certain RALs and IMAs | 6 | ||||||
| Section 4.5. | Certain Rights of HSBC TFS | 7 | ||||||
| Section 4.6. | Information to be Furnished by HSBC TFS to BFC | 7 | ||||||
| Section 4.7. | True Sale and Nonconsolidation Opinions | 7 | ||||||
| Section 4.8. | Right of BFC to Sell Participation Rights | 8 | ||||||
| ARTICLE V | SERVICING OF PARTICIPATED HSBC RALS AND HSBC IMAS | 9 | ||||||
| Section 5.1. | Servicing Agreement | 9 | ||||||
| ARTICLE VI | REPURCHASE OF PARTICIPATION INTERESTS | 9 | ||||||
| Section 6.1. | Repurchase Events | 9 | ||||||
| Section 6.2. | Repurchase Remedy | 10 | ||||||
i
Table
of Contents (cont’d)
| Page(s) | ||||||||
| Section 6.3. | Procedures for Repurchase | 10 | ||||||
| Section 6.4. | Impairment | 10 | ||||||
| ARTICLE VII | TERM AND TERMINATION | 10 | ||||||
| Section 7.1. | Term | 10 | ||||||
| Section 7.2. | Termination | 11 | ||||||
| Section 7.3. | Effect of Termination | 11 | ||||||
| ARTICLE VIII | DEFAULT OF HSBC BANK AND HSBC TFS AND REMEDIES OF BFC | 11 | ||||||
| Section 8.1. | HSBC TFS Events of Default | 11 | ||||||
| Section 8.2. | Remedies | 12 | ||||||
| Section 8.3. | Default Rate | 12 | ||||||
| Section 8.4. | Waiver | 12 | ||||||
| ARTICLE IX | DEFAULT OF BFC AND REMEDIES OF HSBC TFS | 12 | ||||||
| Section 9.1. | BFC Events of Default | 12 | ||||||
| Section 9.2. | Remedies | 13 | ||||||
| Section 9.3. | Default Rate | 13 | ||||||
| Section 9.4. | Waiver | 13 | ||||||
| ARTICLE X | MISCELLANEOUS | 13 | ||||||
| Section 10.1. | Independent Evaluation | 13 | ||||||
| Section 10.2. | Survival | 13 | ||||||
| Section 10.3. | No Waivers; Remedies Cumulative | 14 | ||||||
| Section 10.4. | Notices | 14 | ||||||
| Section 10.5. | Severability | 14 | ||||||
| Section 10.6. | Amendments and Waivers | 14 | ||||||
| Section 10.7. | Successors and Assigns | 14 | ||||||
| Section 10.8. | Headings | 14 | ||||||
| Section 10.9. | Alternative Dispute Resolution | 14 | ||||||
| Section 10.10. | Governing Law; Submission To Jurisdiction | 15 | ||||||
| Section 10.11. | Waiver of Jury Trial | 15 | ||||||
| Section 10.12. | Counterparts | 15 | ||||||
| Section 10.13. | Entire Agreement | 15 | ||||||
| Section 10.14. | Reinstatement | 15 | ||||||
| Section 10.15. | Advice of Counsel | 16 | ||||||
| Section 10.16. | No Strict Construction | 16 | ||||||
| Section 10.17. | Conflict of Terms | 16 | ||||||
| Section 10.18. | Further Execution | 16 | ||||||
ii
Table
of Contents (cont’d)
| Page(s) | ||||||||
| Section 10.19. | Expenses | 16 | ||||||
| Section 10.20. | No Implied Relationship | 16 | ||||||
| Section 10.21. | No Third Party Beneficiaries | 17 | ||||||
| Section 10.22. | Limitation of Scope of Representations and Warranties and Other Disclosures | 17 | ||||||
iii
FIRST AMENDED AND RESTATED
HSBC REFUND ANTICIPATION LOAN AND IMA
HSBC REFUND ANTICIPATION LOAN AND IMA
PARTICIPATION AGREEMENT
This First Amended and Restated HSBC Refund Anticipation Loan and IMA Participation Agreement
(this “First A&R Participation Agreement”), dated as of November 13, 2006, is made by and
among the following parties:
Block Financial Corporation, a Delaware corporation (“BFC”);
HSBC Bank USA, National Association, a national banking association (“HSBC NA”);
HSBC Trust Company (Delaware), National Association (“HSBC Trust”); and
HSBC Taxpayer Financial Services, Inc., a Delaware corporation (“HSBC TFS”).
RECITALS
A. HSBC Bank and HSBC Trust offer banking products and services, including HSBC RALs and HSBC
IMAs offered through Block Offices and the Block Digital Channel.
B. HSBC TFS purchases participation interests in HSBC RALs and HSBC IMAs originated by HSBC
Bank and HSBC Trust.
C. BFC offers financial products and services to individuals and business entities, and
purchases loans and participation interests in loans originated by third party lenders.
D. HSBC Bank, HTMAC, HSBC TFS and certain of their Affiliates and certain Affiliates of BFC
entered into the HSBC Retail Settlement Products Distribution Agreement, dated as of September 23,
2005 (the “Original Retail Distribution Agreement”), which was subsequently amended by the
Joinder and First Amendment to Program Contracts, dated as of November 10, 2006 (the “First
Amendment”), pursuant to which, inter alia, HSBC Trust was added and HTMAC was removed to
reflect the replacement of HTMAC by HSBC TFS as a party to the Program Contracts, and which was
further amended by the Second Amendment to Program Contracts, dated the date hereof (the
“Second Amendment”), pursuant to which, inter alia, IMAs were added as a type of Settlement
Product offered to Clients (the Original Retail Distribution Agreement, as amended by the First
Amendment and the Second Amendment, the “Retail Distribution Agreement”).
E. HSBC Bank, HTMAC, HSBC TFS and BFC entered into the HSBC Settlement Products Servicing
Agreement, dated as of September 23, 2005 (the “Original Servicing Agreement”), to set
forth the terms and conditions pursuant to which HSBC TFS would service, administer and collect
HSBC Settlement Products originated by HSBC Bank, which was subsequently amended by the First
Amendment, pursuant to which, inter alia, HSBC Trust was added as a party thereto, HTMAC was
removed as a party thereto, and HSBC TFS replaced HTMAC as a party thereto, and which was further
amended and restated pursuant to the First Amended and Restated HSBC Settlement Products Servicing
Agreement, dated the date hereof (the “First A&R Servicing Agreement”), to provide for,
inter alia, the servicing, administration
and collection of IMAs (the Original Servicing Agreement, as amended by the First Amendment
and the First A&R Servicing Agreement, the “Servicing Agreement”).
F. HSBC Bank, HTMAC, HSBC TFS and BFC entered into the HSBC Refund Anticipation Loan
Participation Agreement, dated September 23, 2005 (the “Original Participation Agreement”),
to set forth the terms and conditions of HTMAC’s sales to BFC, and BFC’s purchases from HTMAC, of
Participation Interests in certain HSBC RALs originated by HSBC Bank, as amended by the First
Amendment, pursuant to which, inter alia, HSBC Trust was added, HTMAC was removed and HSBC TFS
replaced HTMAC as a party thereto.
G. HSBC Bank, HSBC Trust, HSBC TFS and BFC now desire to enter into this First A&R
Participation Agreement to amend and restate the Original Participation Agreement, as amended by
the First Amendment, to reflect the addition of IMAs as a type of Settlement Product in which BFC
desires to purchase, and HSBC TFS desires to sell, participation interests (the Original
Participation Agreement, as amended by the First Amendment and this First A&R Participation
Agreement, the “Participation Agreement”).
AGREEMENT
ACCORDINGLY, the parties to this First A&R Participation Agreement hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions. For all purposes of this First A&R Participation Agreement,
except as otherwise expressly provided herein or unless the context otherwise requires, capitalized
terms not otherwise defined herein shall have the meanings assigned to such terms in the Appendix
of Defined Terms and Rules of Construction attached to the Original Retail Distribution Agreement
as Appendix A, as amended pursuant to the First Amendment, and as further amended pursuant to the
Second Amendment (as amended, the “Appendix of Defined Terms and Rules of Construction”),
which is hereby incorporated by reference herein. All other capitalized terms used herein shall
have the meanings specified herein. In the event that any definition specified in this First A&R
Participation Agreement for any capitalized term is inconsistent with the definition specified for
such term in the Appendix of Defined Terms and Rules of Construction, the definition in the
Appendix of Defined Terms and Rules of Construction shall govern.
Section 1.2. Rules of Construction. For all purposes of this First A&R Participation
Agreement, unless the context otherwise requires, the rules of construction set forth in the
Appendix of Defined Terms and Rules of Construction shall be applicable to this First A&R
Participation Agreement.
Section 1.3. Corporate Reorganizations.
(a) The Block Companies may assign their rights and obligations under this Participation
Agreement to one or more Subsidiaries of H&R Block without the consent of the HSBC Companies if (i)
such assignment is desirable in connection with a reorganization of the
2
business operations of H&R Block’s Subsidiaries, (ii) such contemplated assignment will not
materially adversely affect any right or obligation of any HSBC Company under this Participation
Agreement, and (iii) the contemplated assignee (A) is a wholly owned (direct or indirect)
Subsidiary of H&R Block and (B) has the operational and financial capacity to meet all obligations
of the assigning Block Company under this Participation Agreement contemplated to be assigned to it
(a “Permitted Block Assignment”). The assigning Block Companies shall provide each of the
HSBC Companies at least sixty (60) days prior written notice of any contemplated Permitted Block
Assignment. The parties hereto agree to amend this Participation Agreement to the extent necessary
to reflect such Permitted Block Assignment.
(b) The HSBC Companies may assign their rights and obligations under this Participation
Agreement to one or more Subsidiaries of HSBC North American Holdings, Inc. without the consent of
the Block Companies if (i) such assignment is desirable in connection with a reorganization of the
business operations of HSBC North American Holdings, Inc.’s Subsidiaries, (ii) such contemplated
assignment will not materially adversely affect any right or obligation of any Block Company under
this Participation Agreement, and (iii) the contemplated assignee (A) is a wholly owned (direct or
indirect) Subsidiary of HSBC North American Holdings, Inc., (B) only with respect to any assignment
by HSBC Bank or HSBC Trust under this Section 1.3(b), is a national bank or federal savings
association and (C) has the operational and financial capacity to meet all obligations of the
assigning HSBC Company under this Participation Agreement contemplated to be assigned to it (a
“Permitted HSBC Assignment”). The assigning HSBC Companies shall provide each of the Block
Companies at least sixty (60) days prior written notice of any contemplated Permitted HSBC
Assignment. The parties hereto agree to amend this Participation Agreement to the extent necessary
to reflect such Permitted HSBC Assignment.
Section 1.4. Funding for Purchases of Participation Interests in HSBC RALs.
(a) HSBC TFS shall use its best efforts to obtain board of directors’ and all other required
approvals of one of its Affiliates, or of a third party lender, on or before July 1, 2006, to
furnish a commitment to BFC for funding of the purchase of Participation Interests in HSBC RALs
pursuant to this Participation Agreement; provided, that BFC timely furnishes such
information as is reasonably requested by such lender, such funding to be provided to BFC at an
interest rate [***] . BFC shall provide a preliminary written notice to HSBC TFS no later than
September 1st of the year preceding each Tax Period during the Term requesting funding for the
purchase of Participation Interests during the next Tax Period, which preliminary request shall be
confirmed by BFC pursuant to a final written notice to HSBC TFS to be delivered no later than
October 1st of such year preceding such Tax Period.
(b) Each Affiliate of HSBC TFS or third party lender, as applicable, and BFC shall pay their
own legal fees and expenses to document the funding arrangements described in this Section 1.4.
3
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF HSBC BANK, HSBC TRUST AND HSBC TFS
Section 2.1. Representations Incorporated by Reference. HSBC Bank, HSBC Trust and
HSBC TFS each represent and warrant, with respect to itself only, to BFC that each representation
and warranty made by it in Article IV of the Retail Distribution Agreement is true and correct,
each and all of which are made as of the date hereof and (except the representations and warranties
in Section 4.6 of the Retail Distribution Agreement) as of each day during the term of this
Participation Agreement.
Section 2.2. Representations and Warranties of HSBC Bank, HSBC Trust and HSBC TFS.
HSBC Bank, HSBC Trust and HSBC TFS hereby represent and warrant to BFC, as of each Closing Date
(prior to a purchase of BFC of a participation interest hereunder), that HSBC Bank and HSBC Trust
each has sold and HSBC TFS has purchased a one hundred percent (100%) participation interest in all
of HSBC Bank’s and HSBC Trust’s respective right, title and interest in and to each HSBC RAL and
HSBC IMA, free and clear of any Lien of any Person claiming under or through HSBC Bank, HSBC Trust
or any of its Affiliates.
Section 2.3. Representations and Warranties of HSBC TFS Relating to Participated HSBC RALs
and HSBC IMAs. HSBC TFS hereby represents and warrants to BFC, as of each Closing Date:
(a) Eligible RALs and Eligible HSBC IMAs. Each Participated HSBC RAL is an Eligible
RAL, and each Participated HSBC IMA is an Eligible IMA.
(b) Sale and Ownership; Title. Each conveyance of a Participation Interest by HSBC
TFS to BFC on such Closing Date constitutes either (i) a valid sale, transfer, assignment, set over
and conveyance to BFC of all right, title and interest of HSBC TFS in and to such Participation
Interest, free and clear of any Lien of any Person claiming through or under HSBC TFS or any of its
Affiliates, or (ii) if it is ultimately determined by a court of competent jurisdiction that a sale
of a Participation Interest from HSBC TFS to BFC did not occur, then such conveyance constitutes a
grant of a security interest (as defined in the UCC as in effect in the applicable state) by HSBC
TFS to BFC in each Participation Interest purportedly conveyed and this Participation Agreement
constitutes a security agreement with respect thereto. On each Closing Date, immediately prior to
any such sale of (or grant of a security interest in) a Participation Interest, HSBC TFS will be
the sole legal and beneficial owner of, and will have marketable title to, the Participation
Interest, free and clear of any Lien (other than the interests of BFC contemplated by this
Participation Agreement). Neither HSBC TFS nor any Person claiming through or under HSBC TFS or
any of its Affiliates shall have any claim to or interest in such Participation Interest, except
for any interest of HSBC TFS therein as a “debtor” (specifically, as seller of payment intangibles)
for purposes of Article 9 of the UCC.
4
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BFC
Section 3.1. Representations Incorporated by Reference. BFC hereby represents and
warrants to HSBC TFS that each representation and warranty made by BFC in Article III of the Retail
Distribution Agreement is true and correct, each and all of which are made as of the date hereof
and (except the representations and warranties in Section 3.6 of the Retail Distribution Agreement)
as of each day during the term of this Participation Agreement.
ARTICLE IV
PURCHASE AND SALE OF PARTICIPATION INTERESTS
Section 4.1. Purchase and Sale of Participation Interests in HSBC RALs and HSBC IMAs.
(a) Purchase and Sale of Participation Interests. Except as otherwise provided
herein, HSBC TFS shall sell to BFC, and BFC shall purchase from HSBC TFS, a Participation Interest
in each HSBC RAL and HSBC IMA originated pursuant to any Distribution Agreement. Each such
Participation Interest shall be purchased by BFC on the first Business Day following the Business
Day on which the Disbursement Check for such HSBC RAL or HSBC IMA has been presented to HSBC Bank
or HSBC Trust, as the case may be, for payment or Electronic Disbursement for such HSBC RAL or HSBC
IMA, has been made by HSBC Bank or HSBC Trust, as the case may be. HSBC TFS shall convey each
Participation Interest to BFC upon BFC’s payment to HSBC TFS of the Purchase Price with respect to
each such Participation Interest as set forth in Section 4.3. If and to the extent that any
conveyance of a Participation Interest is not deemed a sale of a Participation Interest, (i) HSBC
TFS hereby grants to BFC a security interest in each Participation Interest that was purportedly
conveyed, (ii) this Participation Agreement shall constitute a security agreement with respect to
such Participation Interest under applicable Law and (iii) HSBC TFS authorizes the filing of such
financing and continuation statements with respect to Participation Interests hereafter created or
arising. Except for the representations and warranties expressly made by HSBC TFS in this
Participation Agreement, Participation Interests (and the acquisition thereof by BFC) shall be
without recourse to HSBC TFS.
(b) Applicable Percentage. The Applicable Percentage for each Calculation Period
during the term of this Participation Agreement shall be 49.999999%; provided,
however, that (i) BFC may elect to reduce the Applicable Percentage to zero (0) for a
particular Calculation Period, by giving notice of BFC’s election to HSBC TFS on or before
September 1 immediately prior to such Calculation Period; (ii) BFC may elect to reduce the
Applicable Percentage to zero (0) for any applicable Calculation Period (or any remaining portion
thereof) from and after January 30 of such Calculation Period, by giving notice of BFC’s election
to HSBC TFS on or before January 20 of such Calculation Period for which the election is
applicable; and (iii) BFC may elect to reduce the Applicable Percentage to zero (0) at any time if
BFC has exceeded its internal funding limit, by giving notice thereof as soon as practicable, but
no later than 8:30 a.m., New York time, on the date of the reduction of the Applicable Percentage
to zero (0), it being understood that the reduction of the Applicable Percentage to
5
zero (0) shall only be in effect during the periods of time BFC has exceeded its internal
funding limit.
Section 4.2. Purchase Price. The Purchase Price for each Participation Interest on
each Closing Date shall be equal to the product of (a) the Applicable Percentage on such Closing
Date, multiplied by (b) the Principal Amount minus (1) in the case of an HSBC RAL, the RAL
Fees and the Refund Account Fees of the HSBC RAL, or (2) in the case of an HSBC IMA, the IMA Fees,
in which a Participation Interest is being purchased.
Section 4.3. Payment. Each Business Day, not later than 8:30 a.m., New York time,
HSBC TFS shall provide to BFC a list of the number and amount of Disbursement Checks presented to
HSBC Bank or HSBC Trust for payment and Electronic Disbursements made by HSBC Bank and HSBC Trust
for HSBC RALs and HSBC IMAs on the previous Business Day (excluding those Disbursement Checks and
Electronic Disbursements related to any HSBC RALs and HSBC IMAs excluded pursuant to Section 4.4),
together with the aggregate Purchase Price for the Participation Interests corresponding to such
HSBC RALs and HSBC IMAs. BFC shall pay to HSBC TFS the full amount of such Purchase Price not
later than 4:30 p.m., New York time, on the Business Day on which such notice is received. Such
payment shall be made via wire transfer to such domestic account designated by HSBC TFS by notice
to BFC from time to time, in United States dollars.
Section 4.4. Right to Exclude Certain HSBC RALs and HSBC IMAs.
(a) BFC may in its reasonable discretion elect not to purchase Participation Interests in any
group or groups of HSBC RALs and HSBC IMAs, for any remaining portion of a Calculation Period
and/or for any future Calculation Periods, for any of the following reasons: (i) to comply with
applicable Laws on advice of BFC’s counsel; (ii) to comply with a court order or a cease and desist
order; (iii) to comply with an agreement with any federal or state regulatory authority; or (iv)
any combination of the foregoing reasons.
(b) HSBC TFS or HSBC Bank or HSBC Trust may in its reasonable discretion elect not to sell
Participation Interests in any group or groups of HSBC RALs and HSBC IMAs, for any remaining
portion of a Calculation Period and/or for any future Calculation Periods, for any of the following
reasons: (i) to comply with applicable Laws; (ii) to comply with a court order or a cease and
desist order; (iii) to comply with an agreement with any federal or state regulatory authority; or
(iv) any combination of the foregoing reasons. Upon any such election, the parties shall negotiate
in good faith to promptly amend this Participation Agreement to the extent necessary to achieve
economic results for BFC that are comparable to the economic results that BFC would have achieved
had such election not been made.
(c) Either BFC or HSBC TFS shall make such elections to exclude certain RALs and HSBC IMAs by
giving notice of such election to the other party, which notice shall specify the group or groups
of HSBC RALs and HSBC IMAs that the notifying party elects to exclude, the reason for such
exclusion and the remaining portion of a Calculation Period or future Calculation Periods with
respect to which such RALs and HSBC IMAs shall be excluded, which election shall become effective
ten (10) days after the giving of such notice.
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Section 4.5. Certain Rights of HSBC TFS. The following obligations of BFC under this
Section 4.5 shall survive any termination of the obligations of HSBC TFS to sell, and the
obligations of BFC to purchase, Participation Interests in HSBC RALs and HSBC IMAs pursuant to
Section 4.1 and all other events and conditions whatever:
(a) Reimbursement. If, at any time, HSBC TFS is required to return or pay over any
payment received by, or application of funds made by, HSBC TFS on account of any Participated HSBC
RAL or Participated HSBC IMA, BFC, promptly upon notice from HSBC TFS, shall pay to HSBC TFS an
amount equal to the Applicable Percentage of the amount (net of related Defaulted RAL/IMA
Collection Fees (as that term is defined in the Servicing Agreement), as the case may be, retained
by the Servicer pursuant to the Servicing Agreement) so returned or paid over, together with the
Applicable Percentage of any interest or penalties payable with respect to such Participated HSBC
RAL or HSBC IMA, as the case may be.
(b) Payover. If BFC receives any payment for any HSBC RAL or HSBC IMA, BFC shall
deliver such payment to the Servicer for deposit into the applicable Deposit Account and, where
applicable, allocation to the IMA Collection Ledger as provided in Section 3.2 of the Servicing
Agreement.
Section 4.6. Information to be Furnished by HSBC TFS to BFC. HSBC TFS shall provide
to BFC, as of January 31, April 30, July 31, and October 31 of each year during the Term, a listing
by Calculation Period of the Principal Amounts and other amounts owing on all unpaid Participated
HSBC RALs and Participated HSBC IMAs, unique customer identifiers related thereto, type of
Settlement Product including, if applicable, type of HSBC RAL, EIC indicator and any other
information related thereto mutually agreeable to the parties, such information to be provided
within five (5) Business Days after such dates. BFC shall not use such information for any purpose
other than asset verification and trend analysis and agrees to hold such information in confidence
and not to disclose such information to any party other than its accountants and its legal counsel,
subject to the terms and conditions of Section 16.1 of the Retail Distribution Agreement.
Section 4.7. True Sale and Nonconsolidation Opinions. Upon BFC’s request, HSBC TFS
agrees to use commercially reasonable efforts to obtain for BFC (a) a “true sale” opinion of
counsel to HSBC TFS with respect to the sale by HSBC TFS and the purchase by BFC or its Affiliates
of the Participation Interests in the HSBC RALs and HSBC IMAs, and (b) a “nonconsolidation” opinion
of counsel to HSBC TFS with respect to HSBC TFS and any other Affiliate of HSBC TFS that owns the
Participation Interests prior to such sale and purchase, in both cases in form and substance
typically employed in off-balance sheet financing or sale transactions generally; provided,
however, that in connection with such efforts (A) HSBC TFS shall not be obligated to
restructure the terms of any Program Contract in any way that will have a Material Adverse Effect
upon the economic interests of HSBC TFS or its Affiliates, and (B) the failure of HSBC TFS to
obtain such opinions (after making commercially reasonable efforts to do so) shall not constitute a
breach of any of HSBC TFS’s obligations under this Participation Agreement and shall in no event
give rise to any liability on the part of HSBC TFS or any of its Affiliates. With respect to such
opinions for a particular Calculation Period, (i) BFC shall request such opinions as soon as
reasonably possible during the immediately preceding calendar year, and in any event, no later than
September 1st of such preceding calendar year absent major
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structural changes to the terms of any Program Contract made or proposed by HSBC TFS or its
Affiliates, (ii) BFC shall identify the entity, if any, with whom it intends to effectuate any
financing or sale transaction, and the proposed structure of such financing or sale transaction, as
soon as reasonably possible during the immediately preceding calendar year, and in any event, no
later than September 1st of such preceding calendar year absent major structural changes to the
terms of any Program Contract made or proposed by HSBC TFS or its Affiliates, and (iii) BFC, HSBC
TFS and its Affiliates shall cooperate and use commercially reasonable efforts to complete all
changes to the terms of all Program Contracts, if any, and the legal documents and agreements
reflecting such changes, if any, as soon as reasonably possible during the immediately preceding
calendar year, and in any event no later than October 15th of such preceding calendar year absent
major structural changes to any such agreement made or proposed by BFC or HSBC TFS or its
Affiliates. BFC shall be solely responsible for all legal fees of the parties associated with any
opinion undertaken pursuant to this Section 4.7. In connection with any request by BFC for an
opinion pursuant to this Section 4.7 for a particular Calculation Period, HSBC TFS shall, upon
reasonable request by BFC, provide to BFC copies of all material operative agreements executed by
HSBC TFS or its Affiliates relating to the origination of HSBC RALs and HSBC IMAs by the
Originator, or the sale and servicing of HSBC TFS’s retained interests in the HSBC RALs and HSBC
IMAs, for such Calculation Period, as well as all material operative agreements executed by HSBC
TFS or its Affiliates relating to the financing or sale of such retained interests for such
Calculation Period, in each case only to the extent (y) such agreements are reasonably necessary to
be reviewed by BFC in connection with the opinions contemplated by this Section 4.7, and (z) the
terms of such agreements permit disclosure to third parties; provided, however,
that HSBC TFS shall not add any provision to any such agreement that unreasonably prohibits
disclosure to BFC, its accountants or counsel engaged in connection with the issuance of any
opinion pursuant to this Section 4.7, or the entity, if any, engaged by BFC to effectuate any
financing or sale transaction. BFC hereby agrees to hold all such agreements in strict confidence
and not to provide any copies or disclose any terms therein to any party other than its
accountants, its counsel and the entity, if any, with whom BFC proposes to effectuate any financing
or sale transaction, subject to the terms and provisions of Section 16.1 of the Retail Distribution
Agreement (provided that references therein to any Program Contract shall be deemed to be
references to such material operative agreements for purposes of this sentence); provided,
however, that, notwithstanding any other provision in this Participation Agreement, if such
entity or an Affiliate of such entity is deemed by HSBC TFS to be a competitor of HSBC TFS in the
making or servicing of RALs or IMAs, then the disclosure of such agreements to such entity may be
restricted by HSBC TFS to the extent deemed necessary by HSBC TFS, in its sole discretion, to
protect its business interests and trade secrets.
Section 4.8. Right of BFC to Sell Participation Rights. If BFC has elected not to
purchase a Participation Interest as to any Calculation Period, BFC shall have the right to sell,
assign and transfer its rights to purchase Participation Interests as to such Calculation Period
without the consent of HSBC TFS if (a) such contemplated sale and assignment will not materially
adversely affect any right or obligation of HSBC TFS under this Participation Agreement, and (b)
the contemplated purchasers and assignees (i) have the operational and financial capacity to meet
all obligations of BFC under this Participation Agreement contemplated to be assigned to them and
(ii) are not, and will not become upon effectiveness of such contemplated purchase and assignment,
subject to any Law or consent that could reasonable
8
be deemed to require any Governmental Approval or third-party consent, that has not been
obtained, to carry out any of the obligations contemplated to be purchased and assigned to them.
BFC shall provide HSBC TFS at least five (5) Business Days prior notice of any contemplated sale
and assignment, which notice shall specify the portion of BFC’s rights to purchase Participation
Interests which it proposes to sell, the Person or Persons to whom it proposes to sell such rights,
the price and the terms and conditions of the proposed sale of such rights contained in any bona
fide offer to purchase such rights (the “Offer”). Within five (5) Business Days after such
notice, HSBC TFS or its Affiliates may elect, upon notice to BFC, to purchase from BFC the rights
to purchase Participation Interests proposed to be sold, at the price and on the terms and
conditions set forth in the Offer. If HSBC TFS or its Affiliates do not so elect to purchase BFC’s
rights, BFC shall have the right to sell such rights to the Person or Persons, at the price and on
the terms and conditions specified in the Offer, for a period of forty (40) days after BFC’s notice
of the Offer to HSBC TFS.
ARTICLE V
SERVICING OF PARTICIPATED HSBC RALS AND HSBC IMAS
Section 5.1. Servicing Agreement. HSBC Bank, HSBC Trust, BFC and HSBC TFS (on its own
behalf and as Servicer) are parties to the First A&R Servicing Agreement executed concurrently
herewith. Pursuant to the terms of the Servicing Agreement, the Servicer shall perform all
servicing acts with respect to Participated HSBC RALs and Participated HSBC IMAs including, but not
limited to, performing payment processing, record keeping, collecting and monitoring all payments
made with respect to Participated HSBC RALs and Participated HSBC IMAs, other routine customer
service functions and distribution of funds.
ARTICLE VI
REPURCHASE OF PARTICIPATION INTERESTS
Section 6.1. Repurchase Events.
(a) If HSBC TFS shall breach any of its representations and warranties made in Section 2.3 and
the HSBC RAL or HSBC IMA, as the case may be, underlying such Participation Interest was not fully
collected (i) with respect to such HSBC RAL, by December 31 immediately following the Tax Period in
which such HSBC RAL was originated, or (ii) with respect to such HSBC IMA, by December 31
immediately following the Calculation Period in which such HSBC IMA was originated, then BFC shall
have the repurchase rights set forth in Section 6.2.
(b) If a Participated HSBC RAL or Participated HSBC IMA is not an Eligible RAL or Eligible
IMA, as the case may be, as a result of the failure to satisfy the conditions set forth in the
definition of Eligible RAL or Eligible IMA (contingent on that failure not being caused by any
action or inaction by BFC to perform its explicit obligations under this Participation Agreement),
and such Participated HSBC RAL or Participated HSBC IMA was not fully collected (i) with respect to
such HSBC RAL, by December 31 immediately following the Tax Period in which such HSBC RAL was
originated, or (ii) with respect to such HSBC IMA, by December 31 immediately following the
Calculation Period in which such HSBC IMA was originated, then BFC shall have the repurchase rights
set forth in Section 6.2.
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Section 6.2. Repurchase Remedy. In the event of a breach as set forth in Section 6.1,
then, upon the earlier to occur of the discovery by BFC of such breach or event, or receipt by BFC
of notice from HSBC TFS of such breach or event, BFC may by notice then given in writing to HSBC
TFS direct HSBC TFS to repurchase the Participation Interest in each such Participated HSBC RAL or
Participated HSBC IMA, as the case may be, within thirty (30) days of such notice (or within such
longer period as may be specified in such notice but in no event later than one hundred twenty
(120) days) on a date specified by BFC occurring within such applicable period, on the terms and
conditions set forth in Section 6.3.
Section 6.3. Procedures for Repurchase. When the provisions of Section 6.2 require
repurchase of a Participation Interest, HSBC TFS shall purchase such Participation Interest by
remitting to BFC an amount equal to the Repurchase Value of the Participation Interest as of the
date of such repurchase. Such remittance shall be made to BFC at such account designated by BFC by
notice to HSBC TFS, in United States dollars and in immediately available funds, without setoff,
withholding, counterclaim or other deduction of any nature whatsoever. Upon such remittance, BFC
shall automatically and without further action be deemed to transfer, assign, set over and
otherwise convey to HSBC TFS, without recourse, representation or warranty (except for the warranty
that since the date of conveyance by HSBC TFS to BFC, BFC has not sold, transferred or encumbered
any such Participation Interest), all right, title and interest of BFC in and to such Participation
Interest. BFC shall execute such documents and instruments of transfer and assignment and take
other actions as shall reasonably be requested by HSBC TFS to evidence the conveyance of such
Participation Interest, all monies due or to become due with respect thereto and all proceeds
thereof pursuant to this Section 6.3. The obligation of HSBC TFS to repurchase Participation
Interests in HSBC RALs and HSBC IMAs in accordance with this Section 6.3 shall constitute the sole
remedy respecting the occurrence of the events specified in Section 6.1.
Section 6.4. Impairment. For the purposes of this Article VI, no proceeds of a HSBC
RAL or HSBC IMA shall be deemed to be impaired hereunder solely because such proceeds are held by
HSBC TFS for more than the applicable period under Section 9-315(d) of the UCC as in effect in the
State of Delaware.
ARTICLE VII
TERM AND TERMINATION
Section 7.1. Term. The “Initial Term” of this Participation Agreement shall
commence as of July 1, 2006 and shall expire on June 30, 2011. In the event the Block Companies
elect to renew the Retail Distribution Agreement for not more than two (2) successive one year
periods (each such one year period is referred to as a “Renewal Term”), this Participation
Agreement shall be automatically renewed for each Renewal Term so elected by the Block Companies,
unless BFC elects not to renew this Participation Agreement for a Renewal Term by providing written
notice to HSBC Bank, HSBC Trust and HSBC TFS not later than ninety (90) days prior to the
expiration of the Initial Term or, if the Participation Agreement was renewed, the Renewal Term.
The Initial Term and any Renewal Term(s) are collectively referred to as the “Term”.
Notwithstanding the provisions of this Section 7.1, this Participation Agreement may be terminated
prior to the expiration of the Initial Term or any Renewal Term in accordance with the provisions
of Section 7.2.
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Section 7.2. Termination.
(a) This Participation Agreement may be terminated as follows:
(1) upon the mutual written agreement of all of the parties hereto;
(2) upon the expiration or termination of the Retail Distribution Agreement;
(3) by BFC in accordance with Section 18.2(b) of the Retail Distribution Agreement; or
(4) by HSBC TFS in accordance with Section 19.2(b) of the Retail Distribution
Agreement.
(b) BFC may terminate this Participation Agreement pursuant to Section 8.2(b).
(c) HSBC TFS may terminate this Participation Agreement pursuant to Section 9.2(b).
Section 7.3. Effect of Termination. Termination pursuant to Section 7.2 shall not
affect the rights or obligations of the parties to this Participation Agreement or any other
Program Contract arising prior to the termination of this Participation Agreement, including the
obligations of the Servicer under the Servicing Agreement.
ARTICLE VIII
DEFAULT OF HSBC BANK, HSBC TRUST AND HSBC TFS AND REMEDIES OF BFC
Section 8.1. HSBC TFS Events of Default. The occurrence of any one or more of the
following events for any reason whatsoever (whether voluntary or involuntary, by operation of Law
or otherwise) shall constitute an event of default with respect to HSBC TFS. The occurrence of any
one or more of the following events with respect to HSBC Bank or HSBC Trust, as applicable, for any
reason whatsoever (whether voluntary or involuntary, by operation of Law or otherwise) shall
constitute an event of default with respect to HSBC Bank or HSBC Trust, as applicable.
(a) HSBC Bank, HSBC Trust or HSBC TFS, as applicable, fails to observe or perform any covenant
applicable to it contained in this Participation Agreement (or, in the event such covenant does not
contain a Material Adverse Effect qualification, so long as such failure could reasonably be
expected to have a Material Adverse Effect), following receipt of notice of such failure and the
same shall remain unremedied for five (5) days or more following receipt of such notice;
(b) any representation, warranty, certification or statement made by HSBC Bank, HSBC Trust or
HSBC TFS, as applicable, in this Participation Agreement is incorrect in
any respect (or, in the event such representation, warranty, certification or statement made
in this Participation Agreement does not contain a Material Adverse Effect qualification, so long
as
11
such incorrect representation, warranty, certification or statement could reasonably be expected
to have a Material Adverse Effect); or
(c) a HSBC Event of Default occurs under the Retail Distribution Agreement.
Section 8.2. Remedies. If any event of default by HSBC TFS under Section 8.1 has
occurred and is continuing and adversely affects BFC, the following actions may be taken:
(a) Termination. BFC may terminate this Participation Agreement. If BFC terminates,
this Participation Agreement under this Section 8.2(a), BFC shall promptly provide written notice
to HSBC TFS. The effective date of termination shall be the date such corresponding notice was
received by HSBC TFS.
(b) Other Rights and Remedies. BFC may exercise any rights and remedies provided to
it under this Participation Agreement or at law or equity.
Section 8.3. Default Rate. If any event of default of HSBC TFS has occurred and is
continuing, and all or any portion of the Obligations hereunder of HSBC TFS are outstanding, such
Obligations or any portion thereof shall bear interest at the Default Rate until such Obligations
or such portion thereof plus all interest thereon are paid in full.
Section 8.4. Waiver. BFC may waive, in writing, any event of default of HSBC Bank,
HSBC Trust or HSBC TFS, as applicable. Upon any such waiver of a past event of default of HSBC
Bank, HSBC Trust or HSBC TFS, as applicable, such event of default shall cease to exist;
provided, however, that such waiver shall not excuse or discharge any Obligations
relating to or liabilities arising from such event of default. No such waiver shall extend to any
subsequent or other event of default of HSBC Bank, HSBC Trust or HSBC TFS, as applicable, or impair
any right consequent thereon except to the extent expressly so waived.
ARTICLE IX
DEFAULT OF BFC AND REMEDIES OF HSBC TFS
Section 9.1. BFC Events of Default. The occurrence of any one or more of the
following events for any reason whatsoever (whether voluntary or involuntary, by operation of Law
or otherwise) shall constitute an event of default with respect to BFC:
(a) BFC fails to observe or perform any covenant applicable to it contained in this
Participation Agreement (or, in the event such covenant does not contain a Material Adverse Effect
qualification, so long as such failure could reasonably be expected to have a Material Adverse
Effect), and the same shall remain unremedied for five (5) days or more following receipt of
written notice of such failure;
(b) any representation, warranty, certification or statement made by BFC in or pursuant to
this Participation Agreement is incorrect in any respect (or, in the event such representation,
warranty, certificate or statement made in this Participation Agreement does not contain a Material
Adverse Effect qualification, so long as such incorrect representation,
warranty, certification or statement could reasonably be expected to have a Material Adverse
Effect); or
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(c) a Block Event of Default occurs under the Retail Distribution Agreement.
Section 9.2. Remedies. If any event of default by BFC under Section 9.1 has occurred
and is continuing and adversely affects HSBC Bank, HSBC Trust or HSBC TFS, as applicable, the
following actions may be taken:
(a) Termination. HSBC Bank, HSBC Trust or HSBC TFS, as applicable, may terminate
this Participation Agreement. If any of HSBC Bank, HSBC Trust or HSBC TFS, as applicable,
terminates this Participation Agreement under this Section 9.2(a), such party shall promptly
provide written notice to BFC. The effective date of termination shall be the date such
corresponding notice was received by BFC.
(b) Other Rights and Remedies. HSBC Bank, HSBC Trust or HSBC TFS, as applicable, may
exercise any rights and remedies provided to it under this Participation Agreement or at law or
equity.
Section 9.3. Default Rate. If any event of default of BFC has occurred and is
continuing, and all or any portion of the Obligations hereunder of BFC are outstanding, such
Obligations or any portion thereof shall bear interest at the Default Rate until such Obligations
or such portion thereof plus all interest thereon are paid in full.
Section 9.4. Waiver. HSBC Bank, HSBC Trust or HSBC TFS, as applicable, may waive, in
writing, any event of default of BFC. Upon any such waiver of a past event of default of BFC, such
event of default of BFC shall cease to exist; provided, however, that such waiver
shall not excuse or discharge any Obligations relating to or liabilities arising from such event of
default of BFC. No such waiver shall extend to any subsequent or other event of default of BFC or
impair any right consequent thereon except to the extent expressly so waived.
ARTICLE X
MISCELLANEOUS
Section 10.1. Independent Evaluation. BFC expressly acknowledges that except as
provided in Article II and the other Program Contracts, HSBC Bank, HSBC Trust and HSBC TFS have not
made any representation or warranty, express or implied, to BFC and no act by HSBC Bank, HSBC Trust
or HSBC TFS heretofore or hereafter taken shall be deemed to constitute any representation or
warranty by HSBC Bank, HSBC Trust or HSBC TFS to BFC; and (b) in connection with its entry into and
its performance of its obligations under this Participation Agreement, BFC has made and shall
continue to make its own independent investigation of the economic and credit risks associated with
the purchase of Participation Interests.
Section 10.2. Survival.
(a) The rights and obligations of the parties hereto under Sections 1.1, 1.2, 1.3, 1.4(b), 4.5
and 4.6, Article V and Article VI of this Participation Agreement, shall survive
the expiration or termination of this Participation Agreement until such time as no
obligations of such parties thereunder are due and owing.
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(b) The (i) representations and warranties of the parties hereto and (ii) the rights and
obligations of the parties hereto under Sections 8.2, 8.3, 9.2 and 9.3 and Article X of this
Participation Agreement shall survive the expiration or termination of this Participation Agreement
indefinitely.
Section 10.3. No Waivers; Remedies Cumulative. No failure or delay by any party
hereto in exercising any right, power or privilege under this Participation Agreement shall operate
as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The rights and remedies
herein provided shall be cumulative and not exclusive of any rights or remedies provided by law, by
other agreement or otherwise.
Section 10.4. Notices. All notices, requests and other communications to any party
hereunder shall be provided in the manner set forth in Section 22.3 of the Retail Distribution
Agreement.
Section 10.5. Severability. In case any provision of, or obligation under, this
Participation Agreement shall be invalid, illegal or unenforceable in any applicable jurisdiction,
the validity, legality and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be affected or impaired
thereby.
Section 10.6. Amendments and Waivers. Any provision of this Participation Agreement
may be amended or waived only if such amendment or waiver is in writing and is signed by all of the
parties hereto.
Section 10.7. Successors and Assigns. The provisions of this Participation Agreement
shall be binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, no such party may assign or otherwise
transfer any of its rights under this Participation Agreement without the prior written consent of
all parties signatory hereto except as provided in Sections 1.3, 4.8 or Article VI hereof.
Section 10.8. Headings. Headings and captions used in this Participation Agreement
(including all exhibits and schedules thereto) are included herein for convenience of reference
only and shall not constitute a part of this Participation Agreement for any other purpose or be
given any substantive effect.
Section 10.9. Alternative Dispute Resolution. ANY DISPUTE BETWEEN OR AMONG THE
PARTIES HERETO ARISING OUT OF OR RELATING TO THIS PARTICIPATION AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREIN (EXCEPT JUDICIAL ACTION FOR SPECIFIC PERFORMANCE OR INJUNCTIVE RELIEF) SHALL BE
RESOLVED AMONG THE PARTIES TO SUCH DISPUTE BY NEGOTIATION, MEDIATION AND ARBITRATION IN ACCORDANCE
WITH THE PROVISIONS OF ARTICLE XXI OF THE RETAIL DISTRIBUTION AGREEMENT, WHICH ARE INCORPORATED
HEREIN BY REFERENCE.
Section 10.10. Governing Law; Submission To Jurisdiction. THIS PARTICIPATION
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
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THE INTERNAL LAWS OF THE STATE OF
MISSOURI. WITHOUT LIMITING THE EFFECT OF SECTION 10.9 HEREOF AND ARTICLE XXI OF THE RETAIL
DISTRIBUTION AGREEMENT, EACH OF THE PARTIES HERETO HEREBY (A) SUBMITS TO THE EXCLUSIVE JURISDICTION
OF THE FEDERAL AND/OR STATE COURTS SITTING IN ST. LOUIS, MISSOURI FOR PURPOSES OF ALL LEGAL
PROCEEDINGS FOR SPECIFIC PERFORMANCE OR INJUNCTIVE RELIEF PERMITTED BY SECTION 21.12 OF THE RETAIL
DISTRIBUTION AGREEMENT, (B) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM, (C) IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN SUCH PROCEEDING
THE MANNER PROVIDED FOR NOTICES IN SECTION 10.4 AND (D) AGREES THAT NOTHING IN THIS PARTICIPATION
AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY TO THIS PARTICIPATION AGREEMENT TO SERVE PROCESS IN
ANY SUCH PROCEEDING IN ANY OTHER MANNER PERMITTED BY LAW.
Section 10.11. Waiver of Jury Trial. WITHOUT LIMITING THE EFFECT OF SECTION 10.9,
EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION
ARISING OUT OF OR RELATING TO THIS PARTICIPATION AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 10.12. Counterparts. This Participation Agreement may be signed in any number
of counterparts, each of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument. This Participation Agreement shall become
effective upon the execution of a counterpart hereof by each of the parties hereto.
Section 10.13. Entire Agreement. This Participation Agreement and the other Program
Contracts, as amended through the date hereof, constitute the entire agreement and understanding
among the parties hereto, and supersede and extinguish any and all prior agreements and
understandings, oral or written relating to the operation of the Settlement Products Program on and
after July 1, 2006. For the avoidance of doubt, (i) this Participation Agreement and the other
Program Contracts, as amended through the date hereof, shall govern the operation of the Settlement
Products Program on and after July 1, 2006, (ii) the Prior Program Agreements shall continue to
govern the operation of the current program until their expiration on June 30, 2006 in accordance
with their terms, and (iii) nothing in this Participation Agreement or the other Program Contracts
shall affect the rights and obligations of the parties to the Prior Program Agreements, whenever
arising, under such Prior Program Agreements, which remain valid and enforceable in accordance with
their terms.
Section 10.14. Reinstatement. This Participation Agreement shall remain in full force
and effect and continue to be effective should any petition be filed by or against any party hereto
for liquidation or reorganization, should any party hereto become insolvent or make an
assignment for the benefit of any creditor or creditors or should a receiver or trustee be
appointed for all or any significant part of any party’s assets or properties, and shall continue
to be effective
15
or to be reinstated, as the case may be, if at any time payment and performance of
the obligations hereunder, or any part thereof, is, pursuant to applicable Law, rescinded or
reduced in amount, or must otherwise be restored or returned by any obligee of such obligations,
whether as a “voidable preference,” “fraudulent conveyance,” or otherwise, all as though such
payment or performance had not been made. In the event that any payment, or any part thereof, is
rescinded, reduced, restored or returned, the obligations hereunder shall be reinstated and deemed
reduced only by such amount paid and not so rescinded, reduced, restored or returned.
Section 10.15. Advice of Counsel. Each of the parties represents to each other party
hereto that it has discussed this Participation Agreement with its counsel.
Section 10.16. No Strict Construction. The parties hereto have participated jointly
in the negotiation and drafting of this Participation Agreement. In the event any ambiguity or
question of intent or interpretation arises, this Participation Agreement shall be construed as if
drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provisions of this Participation
Agreement.
Section 10.17. Conflict of Terms. Except as otherwise provided in this Participation
Agreement or any of the other Program Contracts by specific reference to the applicable provisions
of this Participation Agreement, if any provision contained in this Participation Agreement
conflicts with any provision in any of the other Program Contracts, other than the Indemnification
Agreement or the Retail Distribution Agreement, the provisions contained in this Participation
Agreement shall govern and control. If there is a conflict between this Participation Agreement
and the Retail Distribution Agreement (but not the Indemnification Agreement), then the Retail
Distribution Agreement shall control. If there is a conflict between this Participation Agreement
and the Indemnification Agreement, the Indemnification Agreement shall control.
Section 10.18. Further Execution. Each party hereto shall execute any and all
documents as are necessary or desirable to consummate the transactions contemplated hereby.
Section 10.19. Expenses. Except as otherwise provided herein or in any Program
Contract, each party hereto shall pay its own expenses, including the expenses of its own counsel
and its own accountants, in connection with the consummation of the transactions contemplated by
this Participation Agreement.
Section 10.20. No Implied Relationship. Notwithstanding any provision herein to the
contrary:
(a) This Participation Agreement shall not be construed to establish a partnership or joint
venture between the parties hereto.
(b) All personnel employed or otherwise engaged by any party hereto to perform the obligations
and duties of such party hereunder shall not be deemed to be employees of any other party hereto.
In addition, the party employing or otherwise engaging such
employees, shall at all times be responsible for the compensation of, and payment of
applicable
16
state and federal income taxes with respect to, any personnel employed by such party to
perform any services hereunder.
Section 10.21. No Third Party Beneficiaries. This Participation Agreement is for the
sole benefit of the parties hereto and their permitted successors and assigns and nothing in this
Participation Agreement, express or implied, is intended to or shall confer upon any other person
any legal or equitable right, benefit or remedy, of any nature whatsoever under or by reason of
this Participation Agreement.
Section 10.22. Limitation of Scope of Representations and Warranties and Other
Disclosures. The representations, warranties and other disclosures set forth by each party
hereto are only made for the benefit of the parties hereto and the purpose of the transactions
contemplated hereby and are not intended for use by any person with respect to any acquisition or
disposition of any security of any party hereto.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
17
THIS PARTICIPATION AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY
THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this HSBC Refund Anticipation Loan
Participation Agreement to be executed by their respective duly authorized officers as of the date
set forth above.
| HSBC BANK USA, NATIONAL ASSOCIATION, | ||||||
| a national banking association | ||||||
| By: | ||||||
| Title: | ||||||
| HSBC TRUST COMPANY (DELAWARE), N.A., | ||||||
| a national banking association | ||||||
| By: | ||||||
| Title: | ||||||
| HSBC TAXPAYER FINANCIAL SERVICES, INC., | ||||||
| a Delaware corporation | ||||||
| By: | ||||||
| Title: | ||||||
| BLOCK FINANCIAL CORPORATION, | ||||||
| a Delaware corporation | ||||||
| By: | ||||||
| Title: | ||||||
18
Exhibit 10.28
Execution
Copy
FIRST AMENDED AND RESTATED
HSBC SETTLEMENT PRODUCTS
SERVICING AGREEMENT
HSBC SETTLEMENT PRODUCTS
SERVICING AGREEMENT
Dated as of November 13, 2006
NOTE: CERTAIN MATERIAL HAS BEEN OMMITTED FROM THIS AGREEMENT PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT UNDER RULE 24b-2. THE LOCATIONS OF THESE OMISSIONS ARE INDICATED THROUGHOUT
THE AGREEMENT BY THE FOLLOWING MARKINGS: [***].
Table of Contents
| Page | ||||||||
| ARTICLE I DEFINITIONS | 2 | |||||||
| Section 1.1. | Definitions | 2 | ||||||
| Section 1.2. | Rules of Construction | 6 | ||||||
| Section 1.3. | Corporate Reorganizations | 6 | ||||||
| ARTICLE II RETENTION OF SERVICER | 7 | |||||||
| Section 2.1. | Engagement | 7 | ||||||
| ARTICLE III SERVICES TO BE PERFORMED | 7 | |||||||
| Section 3.1. | Services as Settlement Product Servicer | 7 | ||||||
| Section 3.2. | Accounts | 8 | ||||||
| Section 3.3. | Authorized Withdrawals Related to Unparticipated HSBC RALs | 8 | ||||||
| Section 3.4. | Authorized Withdrawals Related to Participated HSBC RALs | 10 | ||||||
| Section 3.5. | Authorized Withdrawals Related to RACs, Denied Classic RALs and Denied Classic eRALs | 12 | ||||||
| Section 3.6. | Authorized Withdrawals of Amounts Recorded on the IMA Collection Ledger | 14 | ||||||
| Section 3.7. | Priority | 15 | ||||||
| Section 3.8. | No Set-off | 16 | ||||||
| ARTICLE IV STATEMENTS AND REPORTS | 16 | |||||||
| Section 4.1. | Reporting by the Servicer | 16 | ||||||
| ARTICLE V SERVICER COMPENSATION AND EXPENSES | 18 | |||||||
| Section 5.1. | HSBC Servicing Fee and Block Servicing Fee | 18 | ||||||
| Section 5.2. | Defaulted RAL/IMA Collection Fee; Defaulted RAL/IMA Collection Fee Credit | 18 | ||||||
| Section 5.3. | Servicing Expense | 18 | ||||||
| ARTICLE VI THE SERVICER, THE ORIGINATOR AND THE PARTICIPANTS | 19 | |||||||
| Section 6.1. | Subservicing | 19 | ||||||
| Section 6.2. | Servicer Not to Assign | 19 | ||||||
| ARTICLE VII REPRESENTATIONS AND WARRANTIES OF THE BLOCK COMPANIES | 19 | |||||||
| Section 7.1. | Representations Incorporated by Reference | 19 | ||||||
| ARTICLE VIII REPRESENTATIONS AND WARRANTIES OF THE HSBC COMPANIES | 19 | |||||||
| Section 8.1. | Representations Incorporated by Reference | 19 | ||||||
| ARTICLE IX DEFAULT OF BFC AND REMEDIES OF HSBC COMPANIES AND THE SERVICER | 19 | |||||||
| Section 9.1. | BFC Events of Default | 19 | ||||||
i
| Page | ||||||||
| Section 9.2. | Remedies | 20 | ||||||
| Section 9.3. | Default Rate | 20 | ||||||
| Section 9.4. | Waiver | 20 | ||||||
| ARTICLE X DEFAULT OF HSBC COMPANIES AND REMEDIES OF BFC AND THE SERVICER | 21 | |||||||
| Section 10.1. | HSBC Company Events of Default | 21 | ||||||
| Section 10.2. | Remedies | 21 | ||||||
| Section 10.3. | Default Rate | 22 | ||||||
| Section 10.4. | Waiver | 22 | ||||||
| ARTICLE XI DEFAULT OF THE SERVICER AND REMEDIES OF BFC AND HSBC COMPANIES | 22 | |||||||
| Section 11.1. | Servicer Events of Default | 22 | ||||||
| Section 11.2. | Remedies | 23 | ||||||
| Section 11.3. | Default Rate | 24 | ||||||
| Section 11.4. | Substitute Servicer | 24 | ||||||
| ARTICLE XII TERMINATION; TRANSFER OF PARTICIPATED HSBC RALS AND IMAS | 24 | |||||||
| Section 12.1. | Term | 24 | ||||||
| Section 12.2. | Termination | 24 | ||||||
| Section 12.3. | Termination of Agreement | 24 | ||||||
| ARTICLE XIII MISCELLANEOUS PROVISIONS | 25 | |||||||
| Section 13.1. | Survival | 25 | ||||||
| Section 13.2. | No Waivers; Remedies Cumulative | 25 | ||||||
| Section 13.3. | Notices | 25 | ||||||
| Section 13.4. | Severability | 25 | ||||||
| Section 13.5. | Amendments and Waivers | 25 | ||||||
| Section 13.6. | Successors and Assigns | 25 | ||||||
| Section 13.7. | Headings | 25 | ||||||
| Section 13.8. | Alternative Dispute Resolution | 26 | ||||||
| Section 13.9. | Governing Law; Submission to Jurisdiction | 26 | ||||||
| Section 13.10. | Waiver of Jury Trial | 26 | ||||||
| Section 13.11. | Counterparts | 26 | ||||||
| Section 13.12. | Entire Agreement | 26 | ||||||
| Section 13.13. | Reinstatement | 27 | ||||||
| Section 13.14. | Advice of Counsel | 27 | ||||||
| Section 13.15. | No Strict Construction | 27 | ||||||
| Section 13.16. | Conflict of Terms | 27 | ||||||
| Section 13.17. | Further Execution | 27 | ||||||
| Section 13.18. | Expenses | 27 | ||||||
| Section 13.19. | No Implied Relationship | 28 | ||||||
| Section 13.20. | No Third Party Beneficiaries | 28 | ||||||
| Section 13.21. | Force Majeure | 28 | ||||||
ii
| Page | ||||||||
| Section 13.22. | Limitation of Scope of Representations and Warranties and Other Disclosures | 28 | ||||||
| Section 13.23. | Inspection and Audit Rights | 28 | ||||||
iii
FIRST AMENDED AND RESTATED
HSBC SETTLEMENT PRODUCTS SERVICING AGREEMENT
This First Amended and Restated HSBC Settlement Products Servicing Agreement (this
“Servicing Agreement”), dated as of November 13, 2006, is made by and among the following
parties:
HSBC Bank USA, National Association, a national banking association (“HSBC NA”);
HSBC Taxpayer Financial Services, Inc., a Delaware corporation (“HSBC TFS”);
HSBC Trust Company (Delaware), N.A., a national banking association (“HSBC Trust”);
and
Block Financial Corporation, a Delaware corporation (“BFC”).
RECITALS
A. HSBC NA offers banking products and services, including Settlement Products offered through
Block Offices in Retained Locations.
B. HSBC Trust offers banking products and services, including RALs and RACs offered through
Block Offices in Assigned Locations and through the Block Digital Channel.
C. HSBC TFS purchases loans and participation interests in loans originated by HSBC NA and
HSBC Trust.
D. BFC offers financial products and services to individuals and business entities, and
purchases loans and participation interests in loans originated by third party lenders.
E. HSBC TFS is in the business of servicing loans and other financial products and services,
including Settlement Products, for HSBC Bank, HSBC Trust and other financial services companies.
F. HSBC NA, HTMAC, HSBC TFS and certain of their Affiliates, and BFC and certain of its
Affiliates, previously entered into the HSBC Settlement Products Retail Distribution Agreement,
dated as of September 23, 2005, as amended by that certain Joinder and First Amendment to Program
Contracts, dated as of November 10, 2006 pursuant to which, inter alia, HTMAC was removed as a
party to the Program Contracts and HSBC TFS replaced HTMAC as a party thereto, as further amended
by that certain Second Amendment to Program Contracts, dated as of the date hereof, and as from
time to time further amended, restated, supplemented or otherwise modified (the “Retail
Distribution Agreement”), and other agreements related thereto.
G. Simultaneously with the execution of this Servicing Agreement, HSBC NA, HSBC Trust, HSBC
TFS and BFC are entering into the Amended and Restated HSBC Refund Anticipation Loan and Instant
Money Advance Participation Agreement, as from time to time amended, restated or otherwise modified
(the “Participation Agreement”), pursuant to which
HSBC Bank may sell, and BFC may purchase, Participation Interests in certain Settlement
Products originated by HSBC Bank.
H. HSBC NA, HSBC TFS, HTMAC and BFC previously entered into a Servicing Agreement, dated as of
September 23, 2005 (the “Original Servicing Agreement”) to appoint HSBC TFS as the Servicer
of the Settlement Products and to administer all Refunds Paid with respect to such Settlement
Products.
I. HSBC NA, HSBC Trust, HSBC TFS and BFC desire to amend and restate the Original Servicing
Agreement to reflect the addition of HSBC Trust as the Originator for the Assigned Locations, to
reflect the removal of HTMAC as a party, to reflect the replacement of HTMAC by HSBC TFS and to
make certain other modifications to the terms of the Original Servicing Agreement, each as more
fully set forth herein.
AGREEMENT
ACCORDINGLY, the parties to this Servicing Agreement agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions. For all purposes of this Servicing Agreement, except as
otherwise expressly provided herein or unless the context otherwise requires, capitalized terms not
otherwise defined herein shall have the meanings assigned to such terms in the Appendix of Defined
Terms and Rules of Construction attached to the Retail Distribution Agreement as Appendix A, which
is hereby incorporated by reference herein. All other capitalized terms used herein shall have the
meanings set forth below. In the event that any definition specified in this Servicing Agreement
for any capitalized term is inconsistent with the definition specified for such term in the
Appendix of Defined Terms and Rules of Construction attached to the Retail Distribution Agreement
as Appendix A, the definition in the Appendix of Defined Terms and Rules of Construction attached
to the Retail Distribution Agreement as Appendix A shall govern.
“2005 Baseline Percentage” shall mean the IRS Collections Percentage for the 2005 Tax Year.
“Base Servicing Fee Factor” shall mean, for each applicable Calculation Period, an amount (i)
reasonably determined by the Servicer to cover its anticipated base servicing expenses for such
Calculation Period, and (ii) set forth in a notice delivered to the other HSBC Companies and the
Block Companies on or before the first December 15th of such Calculation Period;
provided, however, that for each Calculation Period such amount shall not exceed
the following:
2
| Calculation Period | Maximum Amount | |||
Nov. 1, 2006 — Dec. 31, 2007
|
[***] | |||
Nov. 1, 2007 — Dec. 31, 2008
|
[***] | |||
Nov. 1, 2008 — Dec. 31, 2009
|
[***] | |||
Nov. 1, 2009 — Dec. 31, 2010
|
[***] | |||
Nov. 1, 2010 — Dec. 31, 2011
|
[***] | |||
Nov. 1, 2011 — Dec. 31, 2012
|
$0 if the Participation Agreement is not renewed for such Calculation Period; and, if the Participation Agreement is renewed for such Calculation Period, an amount as agreed to by the Servicer and BFC on or before the commencement of the Renewal Term (as defined in the Participation Agreement) related to such Calculation Period; provided, however, that if no such amount is agreed to, then such amount shall be deemed to be [***] . | |||
Nov. 1, 2012 — Dec. 31, 2013
|
$0 if the Participation Agreement is not renewed for such Calculation Period; and, if the Participation Agreement is renewed for such Calculation Period, an amount as agreed to by the Servicer and BFC on or before the commencement of the Renewal Term (as defined in the Participation Agreement) related to such Calculation Period; provided, however, that if no such amount is agreed to, then such amount shall be deemed to be [***] . | |||
Nov. 1, 2013 and thereafter
|
$ 0 | |||
“Base Servicing Fee Percentage” shall mean, with respect to a Calculation Period, an amount,
expressed as a percentage rounded to six decimal places, equal to the weighted average of (A) with
respect to HSBC RALs, the remainder of (I) the product of (a) [***] percent ([***] %),
multiplied by (b) the ratio of (i) the RAL and IMA Net Revenues for such
Calculation Period, divided by (ii) the portion of Gross RAL and IMA Loan Volume
represented by HSBC RALs for such Calculation Period, minus (II) the applicable Service
Carry Percentage, but in no event less than zero percent (0%), and (B) with respect to HSBC IMAs,
the product of (a) [***] percent ([***] %), multiplied by (b) the ratio of (i) the
RAL and IMA Net Revenues for such Calculation
Period, divided by (ii) the portion of Gross RAL and IMA Loan Volume represented by
HSBC IMAs for such Calculation Period.
“Block Servicing Fee” shall mean, with respect to a Calculation Period, an amount equal to the
product of (a) the remainder (but not less than zero) of (i) the Base Servicing Fee Factor for such
Calculation Period, minus (ii) the HSBC Base Servicing Fee for such Calculation Period,
multiplied by (b) a percentage equal to the sum of one hundred percent (100%) plus the
applicable TVM.
“Defaulted RAL/IMA Collection Fee Adjustment Factor” shall mean, with respect to all HSBC RALs and
HSBC IMAs (computed separately with respect to all HSBC RALS and all
3
HSBC IMAs) collected during a
Tax Year but originated in a specific earlier Calculation Period, a percentage rounded to six
decimal points, computed as follows
[{A multiplied by (1 – B)} divided by C] divided by D,
where
A = the HSBC Base Servicing Fee for the Calculation Period of origination,
B = the applicable Defaulted RAL/IMA Collection Fee Percentage for the Calculation Period of
collection,
C = the weighted average Applicable Percentage (by original Principal Amount) for all Participated
HSBC RALs and Participated HSBC IMAs originated during such Calculation Period of origination, and
D = the RAL and IMA Net Revenues for such Calculation Period of origination.
“Defaulted RAL/IMA Collection Fee” shall mean, with respect to each Defaulted HSBC RAL and
Defaulted HSBC IMA, a collection fee payable to the Servicer equal to the product of (a) the
applicable Defaulted RAL/IMA Collection Fee Percentage multiplied by (b) certain amounts
otherwise distributable to the Originator, a Participant or other creditor, as set forth in the
provisos to Sections 3.4(b), 3.5(b) and 3.6(b) of this Servicing Agreement.
“Defaulted RAL/IMA Collection Fee Credit” shall mean, as of the first day of any Tax Period, the
remainder of [***] .
“Defaulted RAL/IMA Collection Fee Percentage” shall be, (a) with respect to all Defaulted HSBC IMAs
collected during a specific Calculation Period, [***] percent ([***] %), and (b) with respect to
all Defaulted HSBC RALs collected during a specific Tax Year, [***] percent ([***] %), unless the
IRS Collections Percentage for the immediately preceding Calculation Period was less than the 2005
Baseline Percentage by at least [***] percent ([***] %), in which
event the Defaulted RAL/IMA Collection Fee Percentage for HSBC RALs shall be determined as follows:
| Reduction in IRS Collections Percentage | ||||
| During the Calculation Period Compared to | Defaulted RAL/IMA | |||
| 2005 Baseline Percentage | Collection Fee Percentage | |||
at least [***] % but less than [***] % |
[***] | % | ||
at least [***] % but less than [***] % |
[***] | % | ||
at least [***] % but less than [***] % |
[***] | % | ||
at least [***] % but less than [***] % |
[***] | % | ||
at least [***] % but less than [***] % |
[***] | % | ||
By way of example only, if the 2005 Base Percentage was [***] % and the IRS Collections
Percentage for the 2007 Tax Year was [***] % (i.e., a reduction of the IRS Collections Percentage
by [***] %), the Defaulted RAL/IMA Collection Fee Percentage for all HSBC RALs collected during the
2008 Calculation Period would be [***] %.
4
“Defaulted RAL/IMA Pool Collection Fee Credit” shall mean, in any computation of the Defaulted
RAL/IMA Collection Fee Credit generated in a particular Calculation Period with respect to HSBC
RALs and HSBC IMAs originated in a specific Calculation Period (such amounts computed separately
with respect to all HSBC RALS and all HSBC IMAs, then combined to determine the overall credit),
the product of [***] .
“Delinquent ERO Charge Collection Fee” shall mean an amount equal to [***] percent ([***] %) of
those amounts collected by the Servicer on account of those Delinquent ERO Charges which BFC has
identified in writing to the Servicer and specifically authorized the Servicer to collect on behalf
of the related ERO.
“Gross RAL and IMA Loan Volume” shall mean, with respect to a Calculation Period, the aggregate
gross initial principal amounts of all HSBC RALs and HSBC IMAs made during such Calculation Period.
“HSBC Base Servicing Fee” shall mean, with respect to a Calculation Period, the product of [***] .
“HSBC Servicing Agreement” shall have the meaning set forth in Section 3.1.
“HSBC Servicing Fee” shall mean, with respect to any Calculation Period, the sum of (i) the HSBC
Base Servicing Fee, plus (ii) the HSBC Variable Servicing Fee.
“HSBC Variable Servicing Fee” shall mean, with respect to any Calculation Period, the product of
[***] .
“IRS Collections Percentage” shall mean, as to any Tax Year, the percentage of [***] .
“Permitted Block Assignment” shall have the meaning set forth in Section 1.3(a).
“Permitted HSBC Assignment” shall have the meaning set forth in Section 1.3(b).
“RAL and IMA Loan Volume Corridor Peak” shall mean, with respect to any Calculation Period, the
following amounts:
| Calculation Period | Amount | |||
Nov. 1, 2006 - Dec. 31, 2007 |
[***] | |||
Nov. 1, 2007 - Dec. 31, 2008 |
[***] | |||
Nov. 1, 2008 - Dec. 31, 2009 |
[***] | |||
Nov. 1, 2009 - Dec. 31, 2010 |
[***] | |||
Nov. 1, 2010 - Dec. 31, 2011 |
[***] | |||
Nov. 1, 2011 - Dec. 31, 2012 |
[***] | |||
Nov. 1, 2012 - Dec. 31, 2013 |
[***] | |||
"RAL and IMA Loan Volume Overage” shall mean, with respect to a Calculation Period, [***] .
5
“RAL and IMA Net Revenues” shall mean, with respect to a Calculation Period, the remainder of (a)
the aggregate amount of all RAL Fees, IMA Fees and Refund Account Fees charged or accrued by the
Originator with respect to HSBC RALs and HSBC IMAs made during such Calculation Period,
plus the RAL and IMA Price Reduction Amount minus (b) the aggregate unpaid
Principal Amount of all outstanding HSBC RALs and HSBC IMAs that were made during such Calculation
Period, determined as of the December 31st that is the last day of such Calculation
Period.
“Service Carry Percentage” shall mean, with respect to a Calculation Period, an amount expressed as
a percentage (rounded to six decimal points) equal to [***] .
“Settlement Products Servicing” shall have the meaning set forth in Section 3.1.
“TVM” shall mean a percentage equal to the 12 month average of one year LIBOR for the preceding 12
months (measured on each December 15 following a Tax Period) plus 0.20% (20 basis points).
Section 1.2. Rules of Construction. For all purposes of this Servicing Agreement,
unless the context otherwise requires, the rules of construction set forth in the Appendix of
Defined Terms and Rules of Construction attached to the Retail Distribution Agreement as Appendix A
shall be applicable to this Servicing Agreement.
Section 1.3. Corporate Reorganizations.
(a) The Block Companies may assign their rights and obligations under this Servicing Agreement
to one or more Subsidiaries of H&R Block without the consent of the HSBC Companies if (i) such
assignment is desirable in connection with a reorganization of the business operations of H&R
Block’s Subsidiaries, (ii) such contemplated assignment will not materially adversely affect any
right or obligation of any HSBC Company under this Servicing Agreement, and (iii) the contemplated
assignee (A) is a wholly owned (direct or indirect) Subsidiary of H&R Block and (B) has the
operational and financial capacity to meet all obligations of the assigning Block Company under
this Servicing Agreement contemplated to be assigned to it (a “Permitted Block
Assignment”). The assigning Block Companies shall provide each of the HSBC Companies at least
sixty (60) days prior written notice of any contemplated Permitted Block Assignment. The parties
hereto agree to amend this Servicing Agreement to the extent necessary to reflect such Permitted
Block Assignment.
(b) The HSBC Companies may assign their rights and obligations under this Servicing Agreement
to one or more Subsidiaries of HSBC North American Holdings, Inc., without the consent of the Block
Companies if (i) such assignment is desirable in connection with a reorganization of the business
operations of HSBC North American Holdings, Inc.’s Subsidiaries, (ii) such contemplated assignment
will not materially adversely affect any right or obligation of any Block Company under this
Servicing Agreement, and (iii) the contemplated assignee (A) is a wholly owned (direct or indirect)
Subsidiary of HSBC North American Holdings, Inc., (B) only with respect to any assignment by HSBC
Bank under this Section 1.3(b), is a national bank or federal savings association and (C) has the
operational and financial capacity to meet all obligations of the assigning HSBC Company under this
Servicing
6
Agreement contemplated to be assigned to it (a “Permitted HSBC Assignment”). The
assigning HSBC Companies shall provide each of the Block Companies at least sixty (60) days prior
written notice of any contemplated Permitted HSBC Assignment. The parties hereto agree to
amend this Servicing Agreement to the extent necessary to reflect such Permitted HSBC Assignment.
(c) If HSBC Bank assigns this Servicing Agreement by a Permitted HSBC Assignment, then HSBC
Bank shall also assign to such Subsidiary(ies) its rights and obligations under the HSBC Servicing
Agreement with respect to this Servicing Agreement.
ARTICLE II
RETENTION OF SERVICER
Section 2.1. Engagement. The Originator hereby appoints the Servicer, and the
Servicer hereby accepts such appointment, to act exclusively as the agent of the Originator to
perform the Settlement Products Servicing (as defined in Section 3.1 below) with respect to each of
the Settlement Products throughout the term of this Servicing Agreement or for such other period of
time as set forth herein, upon and subject to the terms, covenants and provisions hereof.
ARTICLE III
SERVICES TO BE PERFORMED
Section 3.1. Services as Settlement Product Servicer. The Servicer hereby agrees to
serve as the servicer with respect to each of the Settlement Products on behalf of the Originator
and for the benefit of each Participant. The Servicer shall service and administer each Settlement
Product upon and subject to the terms of this Servicing Agreement and that certain Amended and
Restated Services Agreement (as amended from time to time, the “HSBC Servicing Agreement”),
dated as of January 20, 2005, by and between HSBC TFS and HSBC Bank (“Settlement Products
Servicing”). In the event of any inconsistency between the terms and provisions of this
Servicing Agreement and the HSBC Servicing Agreement, the terms and provisions of this Servicing
Agreement shall govern and control. The HSBC Servicing Agreement shall not be terminated or
permitted to lapse during the term of this Servicing Agreement, except as provided in Section
11.2(a)(ii). Notwithstanding any provision of this Servicing Agreement to the contrary, Originator
and Servicer may amend the HSBC Servicing Agreement without the consent of any Participant if such
amendment (a) (i) to the extent it pertains to refund anticipation loan programs, pertains
uniformly to all refund anticipation loan programs serviced by the Servicer and (ii) to the extent
it pertains to instant money advance loan programs, pertains uniformly to all instant money advance
loan programs serviced by the Servicer, and (b) does not cause a Material Adverse Effect with
respect to any Participant, Block Company or Affiliate thereof, or Franchisee. The Originator and
the Servicer shall give prompt notice to each Participant of any breach by the Servicer of its
obligations under the HSBC Servicing Agreement, or any termination of the HSBC Servicing Agreement.
The Originator hereby makes to each Participant the representations and warranties set forth in
Section 13(a) of the HSBC Servicing Agreement (provided that all references therein to “Agreement”
shall mean the HSBC Servicing Agreement) as of the date hereof. The Servicer hereby makes to each
Participant the representations and warranties set forth in Section 13(b) of the HSBC Servicing
7
Agreement (provided that all references therein to “Agreement” shall mean the HSBC Servicing
Agreement) as of the date hereof.
Section 3.2. Accounts.
(a) Deposit Accounts. With respect to each HSBC RAL and HSBC RAC, the Servicer shall
establish and maintain, as appropriate, one Refund Deposit Account or one General Collection
Deposit Account, or both, in compliance, as applicable, with the Internal Revenue Code and other
applicable law, the RAL Documents and/or the Program Contracts, for the benefit, as applicable, of
the relevant Settlement Product Client, and the owners of, and participants in, the relevant
Settlement Product, for the purposes set forth herein. The Servicer shall deposit into the related
Refund Deposit Account, on the day of receipt, any refund paid on account of any HSBC RAL or HSBC
RAC. The Servicer shall deposit into the related General Collections Deposit Account, on the day
of receipt, all payments and collections received by it on or after the date hereof with respect to
the related HSBC RAL or HSBC RAC which do not constitute the Refund Paid.
(b) IMA Collection Ledger. With respect to the HSBC IMAs, the Servicer shall
establish and maintain an appropriate ledger system (the “IMA Collection Ledger”) in
compliance with applicable law, the IMA Documents and the Program Contracts, for the benefit of the
owners or, and the participants in, the HSBC IMAs, for the purposes set forth herein. The Servicer
shall record on the IMA Collection Ledger all amounts deposited in any Deposit Account with respect
to the HSBC IMAs pursuant to Section 3.3, Section 3.4 or Section 3.5, as applicable, of this
Servicing Agreement, all payments and collections received by it through the cross collection
process on account of any delinquent HSBC IMA, to the extent HSBC Companies elect to participate in
cross collections with respect to IMAs, and all other payments and collections received by the
Servicer on account of a HSBC IMA.
Section 3.3. Authorized Withdrawals Related to Unparticipated HSBC RALs. With respect
to any Deposit Account related to an Unparticipated HSBC RAL and in accordance with the
corresponding Application and other related documents including, without limitation, any related
RAL Document, the Servicer, following the deposit of any payment or collection into such Deposit
Account pursuant to Section 3.2, shall make allocations and withdrawals from such Deposit Account
only as follows (the order set forth below constituting an order of priority for such allocations
and withdrawals); provided, however, that if the Servicer has established and is
maintaining both a Refund Deposit Account and a General Collections Deposit Account with respect to
such Unparticipated HSBC RAL and deposits are made concurrently into such accounts, then
allocations and withdrawals of such concurrent deposits shall be made first from the related
General Collections Deposit Account and then from the related Refund Deposit Account:
(a) to withdraw any amount deposited in such Deposit Account which was not required to be
deposited therein;
(b) except as otherwise specified below, to allocate on its servicing records all amounts on
deposit in such Deposit Account (that represent good funds, net of any prior withdrawals or
allocations from the Deposit Account pursuant to this Section 3.3) no later than
8
4:30 p.m. Eastern
time on the Business Day following receipt, in the order listed below; provided,
however, that except as provided below, amounts on deposit must be received by the Servicer
prior to 8:00 p.m. Eastern time on a Business Day; provided, further, that except
as provided below, any amounts received at or after 8:00 p.m. Eastern time on a Business Day
shall be deemed to have been received on the following Business Day:
(i) to the applicable ERO, the Delinquent ERO Charges (payable solely out of the Refund
Paid), in the manner and at such times as set forth in Section 9.8(a) of the Retail
Distribution Agreement, net of Delinquent ERO Charge Collection Fees (if any, but in any
event subject to Section 5.2(b)), which shall be retained by the Servicer;
(ii) to allocate to the IMA Collection Ledger, all amounts outstanding with respect to
any HSBC IMA originated during the related Calculation Period on which the related
Settlement Product Client is the obligor;
(iii) to the Originator, the related RAL Principal Amount;
(iv) to the Originator, the Late Fees, if any;
(v) to the applicable creditor or creditors, the First Priority Prior Indebtedness
(payable in order of oldest to most recent First Priority Prior Indebtedness, in each case
allocated in accordance with the priorities set forth in Section 3.4(b) or Section 3.6(b),
as applicable, of this Servicing Agreement); provided, however, that if the
source of payment of such amounts is the Refund Paid and if the Servicer receives an
information file from the IRS regarding such Refund Paid on or before the second Business
Day preceding receipt of such Refund Paid, then if the calendar day following receipt is not
a Business Day, such amounts shall be allocated no later than 4:30 p.m. Eastern time on the
day of receipt;
(vi) to the applicable creditor or creditors, via ACH credit or otherwise in accordance
with the servicing standard specified in the HSBC Servicing Agreement, the Second Priority
Prior Indebtedness;
(vii) to the applicable Person or Persons entitled thereto, via ACH credit or otherwise
in accordance with the servicing standard specified in the HSBC Servicing Agreement, the
Other Required Deductions;
(viii) to the Person or Persons entitled thereto, via ACH credit or otherwise in
accordance with the servicing standard specified in the HSBC Servicing Agreement, such other
Authorized Deductions as the Settlement Products Client shall have authorized in writing,
including any custodian for an XIRA; and
(ix) to the Settlement Product Client, any remaining amounts to be processed as a
Disbursement by the Originator;
provided, with respect to amounts specified in clauses (i), (iv), (v), (vi) and
(vii) of Section 3.3(b) above, the Servicer shall on the later of (A) 38 days following the
date of
9
Application, or (B) such later date as may be required by applicable law, transfer
to the appropriate account or withdraw and remit to the appropriate recipient, pursuant to
wiring instructions from the Originator, all funds allocated pursuant to Section 3.3(b); and
with
respect to all other amounts specified in Section 3.3(b), the Servicer shall withdraw and
remit such amounts to the appropriate recipient, pursuant to wiring instructions from the
Originator, on such date of allocation; and further provided, that if any
such amount is the subject of a dispute with any Settlement Product Client or third Person,
no such disputed amounts shall be allocated or withdrawn from any Deposit Account until a
final decision has been made by the Servicer regarding such disputed amount; and, then
(c) to clear and terminate such Deposit Account upon the termination of the Servicer’s
obligations with respect to such Deposit Account under this Servicing Agreement.
The parties hereto acknowledge that, with respect to Unparticipated HSBC RALs, any related ERO
Charges shall have already been paid out of related RAL proceeds pursuant to Section 9.8 of the
Retail Distribution Agreement. Notwithstanding the foregoing, the order of priority of allocations
and distributions specified in clause (b) above shall be subject to the priority of distributions
specified in any existing collection agreement related to applicable Second Priority Prior
Indebtedness and to which the Servicer is party; provided, however, that any new
collection agreement entered into by the Servicer (which shall include any existing collection
agreement to which the Servicer is party and as to which the Servicer exercises an option held by
it to extend the term of such collection agreement beyond December 31, 2007) shall provide for
priority of distributions consistent with clause (b) above.
Section 3.4. Authorized Withdrawals Related to Participated HSBC RALs. With respect
to any Deposit Account related to a Participated HSBC RAL and in accordance with the corresponding
Application and other related documents including, without limitation, any related RAL Document,
the Servicer, following the deposit of any payment or collection into such Deposit Account pursuant
to Section 3.2, shall make allocations and withdrawals from such Deposit Account only as follows
(unless otherwise provided below, the order set forth below constituting an order of priority for
such allocations and withdrawals) ); provided, however, that if the Servicer has
established and is maintaining both a Refund Deposit Account and a General Collections Deposit
Account with respect to such Participated HSBC RAL and deposits are made concurrently into such
accounts, then allocations and withdrawals of such concurrent deposits shall be made first from the
related General Collections Deposit Account and then from the related Refund Deposit Account:
(a) to withdraw any amount deposited in such Deposit Account which was not required to be
deposited therein;
(b) except as otherwise specified below, to allocate on its servicing records all amounts on
deposit in such Deposit Account (that represent good funds, net of any prior withdrawals or
allocations from the Deposit Account pursuant to this Section 3.4) no later than 4:30 p.m. Eastern
time on the Business Day following receipt, in the order listed below; provided,
however, that except as provided below, amounts on deposit must be received by the Servicer
prior to 8:00 p.m. Eastern time on a Business Day; provided, further, that except
as
10
provided below, any amounts received at or after 8:00 p.m. Eastern time on a Business Day shall
be deemed to have been received on the following Business Day:
(i) to the applicable ERO, the Delinquent ERO Charges, (payable solely out of the
Refund Paid), in the manner set forth in Section 9.8(a) of the Retail Distribution
Agreement, net of Delinquent ERO Charge Collection Fees (if any, but in any event subject to
Section 5.2(b)), which shall be retained by the Servicer;
(ii) to allocate to the IMA Collection Ledger, all amounts outstanding with respect to
any HSBC IMA originated during the related Calculation Period on which the related
Settlement Product Client is the obligor;
(iii) to the Originator in accordance with its RAL Ownership Interest, to each
Participant in accordance with its respective Participation Interest, and to each holder of
any other related participation interest in accordance with such interest (such rights of
each Participant and holder under this clause (ii) being pari passu with the rights of the
Originator and each other under this clause (ii)), the related RAL Principal Amount;
provided, however, that if the source of payment of such amounts is the
Refund Paid and if the Servicer receives an information file from the IRS regarding such
Refund Paid on or before the second Business Day preceding receipt of such Refund Paid, then
if the calendar day following receipt is not a Business Day, such amounts shall be allocated
no later than 4:30 p.m. Eastern time on the day of receipt;
(iv) to the Originator in accordance with its RAL Ownership Interest, to each
Participant in accordance with its respective Participation Interest, and to each holder of
any other related participation interest in accordance with such interest (such rights of
each Participant and holder under this clause (iii) being pari passu with the rights of the
Originator and each other under this clause (iii)), the Late Fees, if any; provided,
however, that if the source of payment of such amounts is the Refund Paid and if the
Servicer receives an information file from the IRS regarding such Refund Paid on or before
the second Business Day preceding receipt of such Refund Paid, then if the calendar day
following receipt is not a Business Day, such amounts shall be allocated no later than 4:30
p.m. Eastern time on the day of receipt;
(v) to the applicable creditor or creditors, the First Priority Prior Indebtedness
(payable in order of oldest to most recent First Priority Prior Indebtedness, in each case
allocated in accordance with the priorities set forth in Section 3.4(b) or Section 3.6(b),
as applicable, of this Servicing Agreement); provided, however, that if the
source of payment of such amounts is the Refund Paid and if the Servicer receives an
information file from the IRS regarding such Refund Paid on or before the second Business
Day preceding receipt of such Refund Paid, then if the calendar day following receipt is not
a Business Day, such amounts shall be allocated no later than 4:30 p.m. Eastern time on the
day of receipt;
(vi) to the applicable creditor or creditors, via ACH credit or otherwise in accordance
with the servicing standard specified in the HSBC Servicing Agreement, the Second Priority
Prior Indebtedness;
11
(vii) to the applicable Person or Persons entitled thereto, via ACH credit or otherwise
in accordance with the servicing standard specified in the HSBC Servicing Agreement, the
Other Required Deductions;
(viii) to the Person or Persons entitled thereto, via ACH credit or otherwise in
accordance with the servicing standard specified in the HSBC Servicing Agreement, such other
Authorized Deductions as the Settlement Products Client shall have authorized in writing,
including any custodian for an XIRA; and
(ix) to the Settlement Product Client, any remaining amounts to be processed as a
Disbursement by the Originator;
provided, however, that if the Participated HSBC RAL is a Defaulted HSBC
RAL, then the Servicer shall collect the applicable Defaulted RAL Collection Fee by
withholding and retaining an amount (subject to Section 5.2(b)) equal to the product of (a)
the applicable Defaulted RAL/IMA Collection Fee Percentage multiplied by (b) the applicable
amounts otherwise distributable pursuant to subparagraphs (iii), (iv) and (v) above; and
further provided, with respect to amounts specified in clauses (i), (iv),
(v), (vi) and (vii) of Section 3.4(b) above, the Servicer shall on the later of (A) 38 days
following the date of Application), or (B) such later date as may be required by applicable
law, transfer to the appropriate account or withdraw and remit to the appropriate recipient,
pursuant to wiring instructions from the Originator, all funds allocated pursuant to Section
3.4(b); and with respect to all other amounts specified in Section 3.4(b), the Servicer
shall withdraw and remit such amounts to the appropriate recipient, pursuant to wiring
instructions from the Originator, on such date of allocation; and further
provided, that if any such amount is the subject of a dispute with any Settlement
Product Client or third Person, no such disputed amounts shall be allocated or withdrawn
from any Deposit Account until a final decision has been made by the Servicer regarding such
disputed amount; and, then
(c) to clear and terminate such Deposit Account upon the termination of the Servicer’s
obligations with respect to such Deposit Account under this Servicing Agreement.
The parties hereto acknowledge that, with respect to Participated HSBC RALs, any related ERO
Charges shall have already been paid out of related RAL proceeds pursuant to Section 9.8 of the
Retail Distribution Agreement. Notwithstanding the foregoing, the order of priority of
distributions specified in clause (b) above shall be subject to the priority of distributions
specified in any existing collection agreement related to applicable Second Priority Prior
Indebtedness and to which the Servicer is party; provided, however, that any new
collection agreement entered into by the Servicer (which shall include any existing collection
agreement to which the Servicer is party and as to which the Servicer exercises an option held by
it to extend the term of such collection agreement beyond December 31, 2007) shall provide for
priority of distributions consistent with clause (b) above.
Section 3.5. Authorized Withdrawals Related to RACs, Denied Classic RALs and Denied
Classic eRALs. With respect to any Deposit Account related to a RAC, Denied Classic RAL or
Denied Classic eRAL, and in accordance with the corresponding Application and other
12
related documents, the Servicer, following the deposit of any payment or collection into such
Deposit Account pursuant to Section 3.2, shall make allocations and withdrawals from such Deposit
Account only as follows (the order set forth below constituting an order of priority for such
allocations and withdrawals):
(a) to withdraw any amount deposited in such Deposit Account which was not required to be
deposited therein;
(b) except as otherwise specified below, to allocate on its servicing records all amounts on
deposit in such Deposit Account (that represent good funds, net of any prior allocations or
withdrawals from the Deposit Account pursuant to this Section 3.5) no later than 4:30 p.m. Eastern
time on the Business Day following receipt, in the order listed below; provided,
however, that except as provided below, amounts on deposit must be received by the Servicer
prior to 8:00 p.m. Eastern time on a Business Day; provided, further, that except
as provided below, any amounts received at or after 8:00 p.m. Eastern time on a Business Day shall
be deemed to have been received on the following Business Day:
(i) to the applicable ERO, the ERO Charges, (payable solely out of the Refund Paid), in
the manner and at such times as set forth in Section 9.8(a) or Section 9.8(b), as
applicable, of the Retail Distribution Agreement;
(ii) to the applicable ERO, the Delinquent ERO Charges, (payable solely out of the
Refund Paid), in the manner set forth in Section 9.8(a) of the Retail Distribution
Agreement, net of Delinquent ERO Charge Collection Fees (if any, but in any event subject to
Section 5.2(b)), which shall be retained by the Servicer;
(iii) to the Originator, the Refund Account Fee;
(iv) to allocate to the IMA Collection Ledger, all amounts outstanding with respect to
any HSBC IMA originated during the related Calculation Period on which the related
Settlement Product Client is the obligor;
(v) to the applicable creditor or creditors, the First Priority Prior Indebtedness
(payable in order of oldest to most recent First Priority Prior Indebtedness, in each case
allocated in accordance with the priorities set forth in Section 3.4(b) or Section 3.6(b),
as applicable, of this Servicing Agreement); provided, however, that if the
source of payment of such amounts is the Refund Paid and if the Servicer receives an
information file from the IRS regarding such Refund Paid on or before the second Business
Day preceding receipt of such Refund Paid, then if the calendar day following receipt is not
a Business Day, such amounts shall be allocated no later than 4:30 p.m. Eastern time on the
day of receipt;
(vi) to the applicable creditor or creditors, via ACH credit or otherwise in accordance
with the servicing standard specified in the HSBC Servicing Agreement, the Second Priority
Prior Indebtedness;
13
(vii) to the Person or Persons entitled thereto, via ACH credit or otherwise in
accordance with the servicing standard specified in the HSBC Servicing Agreement, the Other
Required Deductions;
(viii) to the Person or Persons entitled thereto, via ACH credit or otherwise in
accordance with the servicing standard specified in the HSBC Servicing Agreement, such other
Authorized Deductions as the Settlement Products Client shall have authorized in writing,
including any custodian for an XIRA; and
(ix) to the Settlement Product Client, any remaining amounts to be processed as a RAC;
provided, however, that the Servicer shall collect the applicable Defaulted
RAL Collection Fee, if any, by withholding and retaining an amount (subject to Section
5.2(b)) equal to the product of (a) the applicable Defaulted RAL Collection Fee Percentage
multiplied by (b) the applicable amounts otherwise distributable pursuant to subparagraph
(v) above; and further provided, with respect to amounts specified in
clauses (ii), (v), (vi) and (vii) of Section 3.5(b) above, the Servicer shall on the later
of (A) 38 days following the date of Application, or (B) such later date as may be required
by applicable law, transfer to the appropriate account or withdraw and remit to the
appropriate recipient, pursuant to wiring instructions from the Originator, all funds
allocated pursuant to Section 3.5(b); and with respect to all other amounts specified in
Section 3.5(b), the Servicer shall withdraw and remit such amounts to the appropriate
recipient, pursuant to wiring instructions from the Originator, on such date of allocation;
and further provided, that if any such amount is the subject of a dispute
with any Settlement Product Client or third Person, no such disputed amounts with shall be
allocated or withdrawn from any Deposit Account until a final decision has been made by the
Servicer regarding such disputed amount; and, then
(c) to clear and terminate such Deposit Account upon the termination of the Servicer’s
obligations with respect to such Deposit Account under this Servicing Agreement.
Notwithstanding the foregoing, the order of priority of distributions specified in clause (b) above
shall be subject to the priority of distributions specified in any existing collection agreement
related to applicable Second Priority Prior Indebtedness and to which the Servicer is party;
provided, however, that any new collection agreement entered into by the Servicer
(which shall include any existing collection agreement to which the Servicer is party and as to
which the Servicer exercises an option held by it to extend the term of such collection agreement
beyond December 31, 2007) shall provide for priority of distributions consistent with clause (b)
above.
Section 3.6. Authorized Withdrawals of Amounts Recorded on the IMA Collection Ledger.
With respect to any amount recorded on the IMA Collection Ledger and in accordance with the
corresponding Application and other related documents including, without limitation, any related
IMA Document, the Servicer, following the deposit of any payment or collection into such Deposit
Account pursuant to Section 3.2 shall make withdrawals on account of the IMAs recorded on the IMA
Collection Ledger only as follows (unless otherwise provided below, the order set forth below
constituting an order of priority for such withdrawals):
14
(a) to reallocate any such amount recorded on such IMA Collection Ledger which was not
required to be recorded thereon;
(b) except as otherwise specified below, to remit all such amounts recorded on such IMA
Collection Ledger (that represent good funds, net of any prior withdrawals or reallocations of
amount recorded on the IMA Collection Ledger pursuant to this Section 3.6) no later than 4:30 p.m.
Eastern time on the Business Day following receipt, pursuant to wiring instructions from the
Originator, in the order listed below; provided, however, that except as provided
below, any such amounts on deposit must be received by the Servicer prior to 8:00 p.m. Eastern time
on a Business Day; provided, further, that except as provided below, any such
amounts received at or after 8:00 p.m. Eastern time on a Business Day shall be deemed to have been
received on the following Business Day:
(i) with respect to each related HSBC IMA, to the Originator in accordance with its IMA
Ownership Interest, to each Participant in accordance with its respective Participation
Interest, and to each holder of any other related participation interest in accordance with
such interest (such rights of each Participant and holder under this clause (i) being pari
passu with the rights of the Originator and each other under this clause (i)), the related
IMA Fee;
(ii) with respect to each related HSBC IMA, to the Originator in accordance with its
IMA Ownership Interest, to each Participant in accordance with its respective Participation
Interest, and to each holder of any other related participation interest in accordance with
such interest (such rights of each Participant and holder under this clause (ii) being pari
passu with the rights of the Originator and each other under this clause (ii)), the related
Principal Amount;
(iii) with respect to each related HSBC IMA, to the Originator in accordance with its
IMA Ownership Interest, to each Participant in accordance with its respective Participation
Interest, and to each holder of any other related participation interest in accordance with
such interest (such rights of each Participant and holder under this clause (iii) being pari
passu with the rights of the Originator and each other under this clause (iii), the Late
Fees, if any;
provided, however, that if any such HSBC IMA is a Defaulted HSBC IMA and
that the Servicer has not already collected the applicable Defaulted RAL/IMA Collection Fee
pursuant to Section 3.4(b) or Section 3.5(b), then the Servicer shall collect the applicable
Defaulted RAL/IMA Collection Fee by withholding and retaining an amount (subject to Section
5.2(b)) equal to the product of (a) the applicable Defaulted RAL/IMA Collection Fee
Percentage multiplied by (b) the applicable amounts otherwise distributable pursuant to
subparagraphs (i), (ii) and (iii) above; and
(c) to clear and terminate such Deposit Account upon the termination of the Servicer’s
obligations with respect to such Deposit Account under this Servicing Agreement.
Section 3.7. Priority. The Servicer shall not withdraw from any Deposit Account and
remit to any party any amounts in satisfaction of any indebtedness, obligations or
otherwise of
15
any Settlement Products Client prior to satisfaction of all obligations,
indebtedness and otherwise of such Settlement Products Client under subsections (a) and (b) of
Sections 3.3, 3.4 or 3.5, as applicable.
Section 3.8. No Set-off. Except as otherwise specifically provided in this Article
III with respect to retention of Defaulted RAL/IMA Collection Fees, none of the Servicer, the
Originator or any Affiliate thereof shall have any right to set-off against amounts payable
hereunder to any Participant or any Affiliate thereof. The parties agree that the preceding
sentence shall not be construed to limit or adversely affect the ability of any Block Company to
apply or offset the Defaulted RAL/IMA Collection Fee Credit against amounts payable to any HSBC
Company in the manner set forth in Section 5.2.
ARTICLE IV
STATEMENTS AND REPORTS
Section 4.1. Reporting by the Servicer.
(a) The Servicer shall provide, or cause to be provided, as applicable, to the relevant
Originator and each Participant the following:
(i) No later than 8:30 a.m. Eastern time on each Business Day, a report setting forth
(A) the aggregate amount of collections processed by Servicer on the immediately preceding
Business Day and the Originator’s and each Participant’s share thereof, (B) the number of
and aggregate amount outstanding of HSBC RALs and HSBC IMAs as of the close of business on
the immediately preceding Business Day and the relevant Originator’s and each Participant’s
share thereof, and (C) the number and principal amount of HSBC RALs and HSBC IMAs funded by
such Originators on the immediately preceding Business Day on a “checks cleared” basis and
such Originators’ and each Participant’s share of collections related thereto;
(ii) On the second Business Day following December 15 of each Tax Year, estimates
(based upon information available as of December 15 of such Tax Year) of (a) the IRS
Collections Percentage with respect to such Tax Year and the Defaulted RAL/IMA Collection
Fee Credit, and (b) the HSBC Servicing Fee and the Block Servicing Fee for the related
Calculation Period, along with supporting data, documentation and computations for each such
estimate;
(iii) On the second Business Day following the conclusion of each Tax Year, its
determination (as of the end of such Tax Year) of (a) the IRS Collections Percentage with
respect to such Tax Year and the Defaulted RAL/IMA Collection Fee Credit, and (b) the HSBC
Servicing Fee and the Block Servicing Fee for the related Calculation Period, along with
supporting data, documentation and computations for each such determination;
(iv) Unless a Type II SAS 70 report (or any equivalent thereof or successor thereto)
has been previously delivered pursuant to Section 6.10 of the Retail Distribution Agreement
in the then-current calendar year, on the thirtieth (30th) day of the
16
second month immediately following the end of each of the Originator’s and Servicer’s
fiscal year, as applicable, a report prepared by a nationally recognized independent
accounting firm regarding its evaluation of the Originator’s or Servicer’s, as applicable,
internal accounting controls relative to its respective obligations under the Program
Contracts with respect to the Settlement Products, such report including an opinion
(assuming the accuracy of any reports generated by the agents of Originator or Servicer, as
applicable) of such accounting firm that the systems of internal accounting controls of the
Originator or the Servicer, as applicable, in effect on the day set forth in the report were
sufficient for the prevention and detection of errors for such exceptions, errors or
irregularities as such firm shall believe to be immaterial to the financial statements of
the Originator or the Servicer, as applicable, and such other exceptions, errors or
irregularities as shall be set forth in such report; provided, however, that
the HSBC Companies and the Block Companies shall split equally expenses incurred by the HSBC
Companies in connection with the preparation of any such reports; provided,
further, that the Block Companies’ portion of such expenses shall not exceed Fifty
Thousand Dollars ($50,000) in any year of the Term of this Servicing Agreement;
(v) At the request of any Participant (but not more often than annually), on or before
June 30 of each year, a special report that the Servicer shall obtain from its independent
certified public accountants (in such form and subject to such assumptions, limitations and
qualifications as such accountants generally require for special reports of such type) that
shall in effect state that the amounts calculated for the Servicer’s Block Servicing Fee,
the HSBC Servicing Fee, the IRS Collections Percentage, the Defaulted RAL/IMA Collection
Fee Percentage and the Defaulted RAL/IMA Collection Fee Credit for the previous Calculation
Period or Tax Year, as applicable, under Article V hereof are in compliance with the terms
of this Servicing Agreement or stating the nature of any variance from the terms of this
Servicing Agreement, provided, that each requesting Participant and the Servicer
shall share the cost of such report equally (with each such Participant reimbursing the
Servicer for such Participant’s share such cost); and
(vi) Any statement, report or information reasonably requested by the Originator or any
Participant; provided, however, that the Servicer shall not be required to
provide copies of any statement, report or information requested by, or provided to, any
applicable regulatory agency; provided, further, that the preceding proviso
shall not preclude the provision of the same or similar information to the extent that the
request therefor is not specifically framed in the context of responses to requests of
applicable regulatory agencies.
(b) Unless otherwise specifically stated herein, if the Servicer is required to deliver any
statement, report or information under any provision of this Servicing Agreement, the Servicer
shall satisfy such obligation by delivering such statement, report or information in a commonly
used electronic format.
17
ARTICLE V
SERVICER COMPENSATION AND EXPENSES
Section 5.1. HSBC Servicing Fee and Block Servicing Fee.
(a) In consideration for the Settlement Products Servicing performed by the Servicer pursuant
to this Servicing Agreement, as soon as possible after December 31st, but in any event
on or before the fifth Business Day after such date, following each Tax Period during the Term of
the Retail Distribution Agreement (beginning in December 2007):
(i) HSBC TFS shall pay to the Servicer the applicable HSBC Servicing Fee; and
(ii) BFC shall pay to the Servicer the applicable Block Servicing Fee;
in each case via wire transfer of immediately available funds to an account designated in writing
by the Servicer.
(b) The Servicer shall not have a right of set-off to collect the HSBC Servicing Fee or the
Block Servicing Fee from any funds held, or amount payable, by the Servicer pursuant to the
Servicing Agreement. The Servicer shall not have any lien on amounts payable to any Participant
hereunder.
Section 5.2. Defaulted RAL/IMA Collection Fee; Defaulted RAL/IMA Collection Fee
Credit.
(a) In addition to the servicing fees described in section 5.1 above, as consideration for
collection of certain Defaulted HSBC RALs and Defaulted HSBC IMAs, the Servicer shall be entitled
to receive a Defaulted RAL/IMA Collection Fee for each Defaulted HSBC RAL and Defaulted HSBC IMA
solely from the funds, and in accordance with the payment provisions, specified in Article III of
this Servicing Agreement.
(b) Notwithstanding any provision of any Program Contract to the contrary, the Defaulted
RAL/IMA Collection Fee Credit shall, at the sole option of the applicable Block Company, be offset
against any amount owed (either directly or by way of allocation of losses) by any of the Block
Companies to any of the HSBC Companies with respect to the Settlement Products Program, including
but not limited to any portion of Defaulted RAL/IMA Collection Fees or Delinquent ERO Charge
Collection Fees allocable to a Block Company (or an Affiliate thereof, but in no event allocable to
a Franchisee) in its capacity as a Participant or an ERO.
Section 5.3. Servicing Expense. The Servicer shall pay all expenses incurred by it in
connection with its Settlement Products Servicing activities hereunder and shall not be entitled to
reimbursement thereof except as specifically provided for herein or as provided in the HSBC
Servicing Agreement (but only to the extent that the HSBC Servicing Agreement does not provide for
payment of such amounts by any Participant out of its own funds or by retention or offset of
amounts otherwise payable to any Participant hereunder or the Participation Agreement).
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ARTICLE VI
THE SERVICER, THE ORIGINATOR AND
THE PARTICIPANTS
Section 6.1. Subservicing. The Servicer shall provide oversight and supervision with
regard to the performance of all subcontracted services and any subservicing agreement shall be
consistent with and subject to the provisions of this Servicing Agreement. Neither the existence
of any subservicing agreement nor any of the provisions of this Servicing Agreement relating to
subservicing shall relieve the Servicer of its obligations hereunder. Notwithstanding any such
subservicing agreement, the Servicer shall be obligated to the same extent and under the same terms
and conditions as if the Servicer alone was servicing and administering the related Settlement
Products in accordance with the terms of this Servicing Agreement. The Servicer shall be solely
liable for all fees owed by it to any subservicer, regardless of whether the Servicer’s
compensation hereunder is sufficient to pay such fees.
Section 6.2. Servicer Not to Assign. Except as otherwise provided in Section 1.3(b),
the Servicer may not assign this Servicing Agreement or any of its rights, powers, duties or
obligations hereunder without the written consent of the Originator and each Participant.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF THE BLOCK COMPANIES
Section 7.1. Representations Incorporated by Reference. Each Block Company that is a
party to this Servicing Agreement represents and warrants, with respect to itself only, to each of
the HSBC Companies that is a party to this Servicing Agreement that each representation and
warranty made by it in Article III of the Retail Distribution Agreement is true and correct, each
and all of which are made as of the date hereof (except the representations and warranties in
Section 3.6 of the Retail Distribution Agreement) and as of each day during the term of this
Servicing Agreement.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES OF THE HSBC COMPANIES
Section 8.1. Representations Incorporated by Reference. Each HSBC Company that is a
party to this Servicing Agreement represents and warrants, with respect to itself only, to each of
the Block Companies that is a party to this Servicing Agreement that each representation and
warranty made by it in Article IV of the Retail Distribution Agreement is true and correct, each
and all of which are made as of the date hereof and (except the representations and warranties in
Section 4.6 of the Retail Distribution Agreement) as of each day during the term of this Servicing
Agreement.
ARTICLE IX
DEFAULT OF BFC AND REMEDIES OF HSBC COMPANIES AND THE SERVICER
Section 9.1. BFC Events of Default. The occurrence of any one or more of the
following events for any reason whatsoever (whether voluntary or involuntary, by operation of law
or otherwise) shall constitute an event of default with respect to BFC:
19
(a) BFC fails to observe or perform any covenant applicable to it contained in this Servicing
Agreement (or, in the event such covenant does not contain a Material Adverse Effect qualification,
so long as such failure could reasonably be expected to have a Material Adverse Effect) and the
same shall remain unremedied for five (5) days or more following receipt of written notice of such
failure;
(b) any representation, warranty, certification or statement made by BFC in this Servicing
Agreement shall prove to have been incorrect in any respect (or, in the event such representation,
warranty, certificate or statement made in this Servicing Agreement does not contain a Material
Adverse Effect qualification, so long as such incorrect representation, warranty, certification or
statement could reasonably be expected to have a Material Adverse Effect); or
(c) a Block Event of Default occurs under the Retail Distribution Agreement.
Section 9.2. Remedies.
(a) If any event of default by BFC under Section 9.1 has occurred and is continuing and
adversely affects any HSBC Company party hereto, other than the Servicer, the following actions may
be taken:
(i) Termination. Any HSBC Company other than the Servicer may terminate itself
as a party to this Servicing Agreement. Such HSBC Company terminating itself as a party to
this Servicing Agreement under this Section 9.2(a)(i) shall promptly provide written notice
to BFC and the Servicer. The effective date of any termination shall be the date such
corresponding notice was received by BFC. For purposes of this Section 9.2(a)(i), a
termination by such HSBC Company shall only be with respect to itself as a party to this
Servicing Agreement and shall not be deemed to be a termination of this Servicing Agreement
with respect to any other party.
(ii) Other Rights and Remedies. Subject to Section 9.2(b), any HSBC Company
may exercise any rights and remedies provided to it under the Servicing Agreement or at law
or equity.
(b) If any event of default by BFC under Section 9.1 has occurred and is continuing and
adversely affects the Servicer, the Servicer may exercise any rights and remedies provided to it
under the Servicing Agreement or at law or equity; provided, however, the Servicer
shall be prohibited from terminating this Servicing Agreement or suspending, in whole or in part,
its performance hereunder.
Section 9.3. Default Rate. If any event of default of BFC has occurred and is
continuing, and all or any portion of the Obligations hereunder of BFC are outstanding, such
Obligations or any portion thereof shall bear interest at the Default Rate until such Obligations
or such portion thereof plus all interest thereon are paid in full.
Section 9.4. Waiver. Any HSBC Company may waive, in writing, any event of default of
BFC. Upon any such waiver of a past event of default of BFC, such event of default of BFC shall
cease to exist; provided, however, that such waiver shall not excuse or discharge
any
20
Obligations relating to or liabilities arising from such event of default of BFC. No such
waiver shall extend to any subsequent or other event of default of BFC or impair any right
consequent thereon except to the extent expressly so waived.
ARTICLE X
DEFAULT OF HSBC COMPANIES AND REMEDIES OF BFC AND THE SERVICER
Section 10.1. HSBC Company Events of Default. The occurrence of any one or more of
the following events for any reason whatsoever (whether voluntary or involuntary, by operation of
law or otherwise) shall constitute an event of default with respect to any HSBC Company party
hereto:
(a) such HSBC Company fails to observe or perform any covenant applicable to it contained in
this Servicing Agreement (or, in the event such covenant does not contain a Material Adverse Effect
qualification, so long as such failure could reasonably be expected to have a Material Adverse
Effect), following receipt of notice of such failure and the same shall remain unremedied for five
(5) days or more following receipt of such notice;
(b) any representation, warranty, certification or statement made by such HSBC Company in this
Servicing Agreement is incorrect in any respect (or, in the event such representation, warranty,
certificate or statement made in this Servicing Agreement does not contain a Material Adverse
Effect qualification, so long as such incorrect representation, warranty, certification or
statement could reasonably be expected to have a Material Adverse Effect); or
(c) a HSBC Event of Default occurs under the Retail Distribution Agreement.
Section 10.2. Remedies.
(a) If any event of default by any HSBC Company under Section 10.1 has occurred and is
continuing and adversely affects BFC, the following actions may be taken:
(i) Termination. BFC may terminate this Servicing Agreement. In the event BFC
terminates this Servicing Agreement under this Section 10.2(a)(i), it shall promptly provide
written notice to each HSBC Company and the Servicer. The effective date of any termination
shall be the earliest date such corresponding notice was received by any HSBC Company.
(ii) Other Rights and Remedies. BFC may exercise any rights and remedies
provided to it under the Servicing Agreement or at law or equity.
(b) If any event of default by any HSBC Company under Section 10.1 has occurred and is
continuing and adversely affects the Servicer, the Servicer may exercise any rights and remedies
provided to it under the Servicing Agreement or at law or equity; provided,
however, the Servicer shall be prohibited from terminating this Servicing Agreement or
suspending, in whole or in part, its performance hereunder.
21
Section 10.3. Default Rate. If any event of default of any HSBC Company has occurred
and is continuing, and all or any portion of the Obligations hereunder of the HSBC Companies
parties hereto are outstanding, such Obligations or any portion thereof shall bear interest at the
Default Rate until such Obligations or such portion thereof plus all interest thereon are paid in
full.
Section 10.4. Waiver. BFC may waive, in writing, any event of default of any HSBC
Company. Upon any such waiver of a past event of default of any HSBC Company, such event of
default of such HSBC Company shall cease to exist; provided, however, that such
waiver shall not excuse or discharge any Obligations relating to or liabilities arising from such
event of default of such HSBC Company. No such waiver shall extend to any subsequent or other
event of default of any HSBC Company or impair any right consequent thereon except to the extent
expressly so waived.
ARTICLE XI
DEFAULT OF THE SERVICER AND REMEDIES OF BFC AND HSBC COMPANIES
Section 11.1. Servicer Events of Default. The occurrence of any one or more of the
following events for any reason whatsoever (whether voluntary or involuntary, by operation of law
or otherwise) shall constitute an event of default with respect to the Servicer (each, a
“Servicer Event of Default”):
(a) the Servicer fails to remit to HSBC Bank or any Participant any payment required to be so
remitted by the Servicer under the terms of this Servicing Agreement when and as due;
(b) the Servicer fails to observe or perform any other covenant applicable to it contained in
the HSBC Servicing Agreement or this Servicing Agreement (or, in the event such covenant does not
contain a Material Adverse Effect qualification, so long as such failure could reasonably be
expected to have a Material Adverse Effect), following receipt of notice of such failure and the
same shall remain unremedied for ten (10) days or more following receipt of such notice;
(c) any representation, warranty, certification or statement made by the Servicer in this
Servicing Agreement shall prove to have been incorrect in any respect (or, in the event such
representation, warranty, certificate or statement made in this Servicing Agreement does not
contain a Material Adverse Effect qualification, so long as such incorrect representation,
warranty, certification or statement could reasonably be expected to have a Material Adverse
Effect);
(d) a HSBC Event of Default occurs under the Retail Distribution Agreement; or
(e) any termination of the HSBC Servicing Agreement.
22
Section 11.2. Remedies.
(a) If any Servicer Event of Default has occurred and is continuing and adversely affects HSBC
Bank, the following actions may be taken:
(i) Termination. HSBC Bank may terminate itself as a party to this Servicing
Agreement. In the event HSBC Bank terminates itself as a party to this Servicing Agreement
under this Section 11.2(a)(i), it shall promptly provide written notice to the Servicer and
the Participants. The effective date of any termination shall be the date such
corresponding notice was received by the Servicer. For purposes of this Section 11.2(a)(i),
a termination by HSBC Bank shall only be with respect to itself as a party to this Servicing
Agreement and shall not be deemed to be a termination of this Servicing Agreement with
respect to any other party.
(ii) Replacement of the Servicer. HSBC Bank may terminate this Servicing
Agreement and the HSBC Servicing Agreement; provided, that the effective date of such
termination shall be the date on which a substitute servicer reasonably acceptable to HSBC
Bank and the Participants has entered into a substitute servicing agreement, substantially
similar to this Servicing Agreement, with HSBC Bank and the Participants, and the HSBC
Servicing Agreement, with HSBC Bank, immediately prior to such termination of Servicer as a
party to this Servicing Agreement and the HSBC Servicing Agreement.
(iii) Other Rights and Remedies. HSBC Bank may exercise any rights and
remedies provided to it under the Servicing Agreement or at law or equity.
(b) If any Servicer Event of Default has occurred and is continuing and adversely affects any
Participant, the following actions may be taken:
(i) Termination. Such Participant may terminate itself as a party to this
Servicing Agreement. Any Participant terminating itself as a party to this Servicing
Agreement under this Section 11.2(b)(i) shall promptly provide written notice to the
Servicer and HSBC Bank. The effective date of any termination shall be the date such
corresponding notice was received by the Servicer. For purposes of this Section
11.2(b)(ii), a termination by any Participant shall only be with respect to itself as a
party to this Servicing Agreement and shall not be deemed to be a termination of this
Servicing Agreement with respect to any other party.
(ii) Replacement of the Servicer. Such Participant may terminate this
Servicing Agreement; provided, that the effective date of such termination shall be the date
on which a substitute servicer reasonably acceptable to HSBC Bank and the Participants has
entered into a substitute servicing agreement, substantially similar to this Servicing
Agreement, with HSBC Bank and the Participants immediately prior to such termination of
Servicer as a party to this Servicing Agreement.
(iii) Other Rights and Remedies. Such Participant may exercise any rights and
remedies provided to it under the Servicing Agreement or at law or equity.
23
Section 11.3. Default Rate. If any Servicer Event of Default has occurred and is
continuing, and all or any portion of the Obligations hereunder of the Servicer are outstanding,
such Obligations or any portion thereof shall bear interest at the Default Rate until such
Obligations or such portion thereof plus all interest thereon are paid in full.
Section 11.4. Substitute Servicer. On or after the receipt by the Servicer of such
written notice of termination of this Servicing Agreement, and if applicable, the HSBC Servicing
Agreement, all authority and power of the Servicer under this Servicing Agreement, and if
applicable, the HSBC Servicing Agreement, whether with respect to the Settlement Products or
otherwise, shall pass to and be vested in the substitute servicer, and the Servicer agrees to
cooperate with HSBC Bank and each Participant in terminating the Servicer’s rights and
responsibilities hereunder and under the HSBC Servicing Agreement, including, without limitation,
the transfer to the substitute servicer of the servicing files and the funds held in the accounts
as set forth in this Servicing Agreement.
ARTICLE XII
TERMINATION; TRANSFER OF PARTICIPATED HSBC RALS AND IMAS
Section 12.1. Term. The term of this Servicing Agreement shall begin as of October
15, 2006 and shall terminate in accordance with Section 12.2; provided, however, that
notwithstanding any other provision of this Servicing Agreement, in the event HSBC Trust shall not
have received by October 15, 2006 all regulatory approvals required for it to become subject to the
terms of this Servicing Agreement that HSBC Trust deems reasonably necessary, this Servicing
Agreement shall be effective as to HSBC Trust, and the term of this Servicing Agreement shall begin
as to HSBC Trust, only on such later date, if any, as all such approvals are received.
Section 12.2. Termination.
(a) This Servicing Agreement shall terminate immediately, upon the mutual written agreement of
all of the parties hereto.
(b) This Servicing Agreement shall terminate in accordance with Section 11.2(a)(ii) and
Section 11.2(b)(ii).
Section 12.3. Termination of Agreement.
(a) In no event shall the Settlement Product Servicing obligations of the Servicer terminate
prior to HSBC Bank and each Participant entering into a servicing agreement substantially similar
hereto with a substitute servicer reasonably acceptable to HSBC Bank and each Participant.
(b) Termination pursuant to this Article XII or as otherwise provided herein shall be without
prejudice to any rights of HSBC Bank, any Participant or the Servicer which may have accrued
through the date of termination hereunder. Upon such termination, the Servicer shall (i) remit
all funds in the Deposit Accounts to such Person as is designated in writing by HSBC Bank and the
Participants; (ii) deliver all related servicing files to the Persons designated in writing by
HSBC Bank and the Participants; and (iii) fully cooperate with HSBC
24
Bank, the Participants and any substitute servicer to effectuate an orderly transition of
Settlement Product Servicing of the related Settlement Products.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
Section 13.1. Survival.
(a) The rights and obligations of the parties hereto under Articles I, II, III, IV, V, VI,
VII, VIII and XII of this Servicing Agreement shall survive the termination or expiration of this
Servicing Agreement until such time as no liabilities hereunder are due and owing to the Originator
or any Participant; except that Section 3.3(b)(i), Section 3.4(b)(i), Section 3.5(b)(i) and Section
3.5(b)(ii) shall survive the termination or expiration of this Servicing Agreement to and including
December 31 occurring in the Tax Year in which the Participation Agreement is terminated or
expires.
(b) The (i) representations and warranties of the parties hereto and (ii) the rights and
obligations of the parties hereto under Articles IX, X, XI and XIII of this Servicing Agreement
shall survive the termination or expiration of this Servicing Agreement indefinitely.
Section 13.2. No Waivers; Remedies Cumulative. No failure or delay by any party
hereto in exercising any right, power or privilege under this Servicing Agreement shall operate as
a waiver thereof nor shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The rights and remedies
herein provided shall be cumulative and not exclusive of any rights or remedies provided by law, by
other agreement or otherwise.
Section 13.3. Notices. All notices, requests and other communications to any party
hereunder shall be provided in the manner set forth in Section 22.3 of the Retail Distribution
Agreement.
Section 13.4. Severability. In case any provision of or obligation under this
Servicing Agreement shall be invalid, illegal or unenforceable in any applicable jurisdiction, the
validity, legality and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be affected or impaired
thereby.
Section 13.5. Amendments and Waivers. Any provision of this Servicing Agreement may
be amended or waived only if such amendment or waiver is in writing and is signed by all of the
parties hereto.
Section 13.6. Successors and Assigns. The provisions of this Servicing Agreement
shall be binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, no such party may assign or otherwise
transfer any of its rights under this Servicing Agreement without the prior written consent of all
parties signatory hereto except as otherwise provided in Section 1.3 and Section 6.1 hereof.
Section 13.7. Headings. Headings and captions used in this Servicing Agreement
(including all exhibits and schedules thereto) are included herein for convenience of reference
25
only and shall not constitute a part of this Servicing Agreement for any other purpose or be
given any substantive effect.
Section 13.8. Alternative Dispute Resolution. ANY DISPUTE BETWEEN OR AMONG THE
PARTIES HERETO ARISING OUT OF OR RELATING TO THIS SERVICING AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREIN (EXCEPT JUDICIAL ACTION FOR SPECIFIC PERFORMANCE OR INJUNCTIVE RELIEF) SHALL BE
RESOLVED AMONG THE PARTIES TO SUCH DISPUTE BY NEGOTIATIONS, MEDIATION AND ARBITRATION IN ACCORDANCE
WITH THE PROVISIONS OF ARTICLE XXI OF THE RETAIL DISTRIBUTION AGREEMENT, WHICH ARE INCORPORATED
HEREIN BY REFERENCE.
Section 13.9. Governing Law; Submission to Jurisdiction. THIS SERVICING AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF MISSOURI.
WITHOUT LIMITING THE EFFECT OF SECTION 13.8 HEREOF AND ARTICLE XXI OF THE RETAIL DISTRIBUTION
AGREEMENT, EACH OF THE PARTIES HERETO HEREBY (A) SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE
FEDERAL AND/OR STATE COURTS SITTING IN ST LOUIS, MISSOURI FOR PURPOSES OF ALL LEGAL PROCEEDINGS FOR
SPECIFIC PERFORMANCE OR INJUNCTIVE RELIEF PERMITTED BY SECTION 21.12 OF THE RETAIL DISTRIBUTION
AGREEMENT, (B) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT
MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT
AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM, (C) IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN ANY SUCH PROCEEDING IN THE MANNER PROVIDED
FOR NOTICES IN SECTION 13.3 AND AGREES THAT NOTHING IN THIS SERVICING AGREEMENT WILL AFFECT THE
RIGHT OF ANY PARTY TO THIS SERVICING AGREEMENT TO SERVE PROCESS IN ANY SUCH PROCEEDING IN ANY OTHER
MANNER PERMITTED BY LAW.
Section 13.10. Waiver of Jury Trial. WITHOUT LIMITING THE EFFECT OF SECTION 13.8
HEREOF, EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
ACTION ARISING OUT OF OR RELATING TO THIS SERVICING AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
Section 13.11. Counterparts. This Servicing Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument. This Servicing Agreement shall become effective upon the
execution of a counterpart hereof by each of the parties hereto.
Section 13.12. Entire Agreement. This Servicing Agreement and the other Program
Contracts constitute the entire agreement and understanding among the parties hereto, and supersede
and extinguish any and all prior agreements and understandings, oral or written relating to the
operation of the Settlement Products Program on and after July 1, 2006. For the
26
avoidance of doubt, (i) this Servicing Agreement and the other Program Contracts shall govern
the operation of the Settlement Products Program on and after July 1, 2006, (ii) the Prior Program
Agreements shall continue to govern the operation of the current program until their expiration on
June 30, 2006 in accordance with their terms, and (iii) nothing in this Servicing Agreement or the
other Program Contracts shall affect the rights and obligations of the parties to the Prior Program
Agreements, whenever arising, under such Prior Program Agreements, which remain valid and
enforceable in accordance with their terms.
Section 13.13. Reinstatement. This Servicing Agreement shall remain in full force and
effect and continue to be effective should any petition be filed by or against any party hereto for
liquidation or reorganization, should any party hereto become insolvent or make an assignment for
the benefit of any creditor or creditors or should a receiver or trustee be appointed for all or
any significant part of any party’s assets or properties, and shall continue to be effective or to
be reinstated, as the case may be, if at any time payment and performance of the obligations
hereunder, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or
must otherwise be restored or returned by any obligee of such obligations, whether as a “voidable
preference,” “fraudulent conveyance,” or otherwise, all as though such payment or performance had
not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored
or returned, the obligations hereunder shall be reinstated and deemed reduced only by such amount
paid and not so rescinded, reduced, restored or returned.
Section 13.14. Advice of Counsel. Each of the parties represents to each other party
hereto that it has discussed this Servicing Agreement with its counsel.
Section 13.15. No Strict Construction. The parties hereto have participated jointly
in the negotiation and drafting of this Servicing Agreement. In the event any ambiguity or
question of intent or interpretation arises, this Servicing Agreement shall be construed as if
drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provision of this Servicing Agreement.
Section 13.16. Conflict of Terms. Except as otherwise provided in this Servicing
Agreement or any of the other Program Contracts by specific reference to the applicable provisions
of this Servicing Agreement, if any provision contained in this Servicing Agreement conflicts with
any provision in any of the other Program Contracts, other than the Indemnification Agreement and
the Retail Distribution Agreement, the provisions contained in this Servicing Agreement shall
govern and control. If there if a conflict between this Servicing Agreement and the Retail
Distribution Agreement (but not the Indemnification Agreement), then the Retail Distribution
Agreement shall control. If there is a conflict between the Servicing Agreement and the
Indemnification Agreement, the Indemnification Agreement shall control.
Section 13.17. Further Execution. Each party hereto shall execute any and all
documents as are necessary or desirable to consummate the transactions contemplated hereby.
Section 13.18. Expenses. Except as otherwise provided herein or in any Program
Contract, each party hereto shall pay its own expenses, including the expenses of its own counsel
and its own accountants, in connection with the consummation of the transactions contemplated by
this Servicing Agreement.
27
Section 13.19. No Implied Relationship. Notwithstanding any provision herein to the
contrary:
(a) This Servicing Agreement shall not be construed to establish a partnership or joint
venture between the parties hereto.
(b) All personnel employed or otherwise engaged by any party hereto to perform the obligations
and duties of such party hereunder shall not be deemed to be employees of any other party hereto.
In addition, the party employing or otherwise engaging such employees, shall at all times be
responsible for the compensation of, and payment of applicable state and federal income taxes with
respect to, any personnel employed by such party to perform any services hereunder.
Section 13.20. No Third Party Beneficiaries. This Servicing Agreement is for the sole
benefit of the parties hereto and their permitted successors and assigns and nothing in this
Servicing Agreement, express or implied, is intended to or shall confer upon any other person any
legal or equitable right, benefit or remedy, of any nature whatsoever under or by reason of this
Servicing Agreement.
Section 13.21. Force Majeure. No party hereto shall be liable for failure to satisfy
or delays in the satisfaction of its Obligations, except failure or delay with respect to its
payment obligations, as a result of a Force Majeure Event.
Section 13.22. Limitation of Scope of Representations and Warranties and Other
Disclosures. The representations, warranties and other disclosures set forth by each party
hereto are only made for the benefit of the parties hereto and the purpose of the transactions
contemplated hereby and are not intended for use by any person with respect to any acquisition or
disposition of any security of any party hereto.
Section 13.23. Inspection and Audit Rights. Each Participant shall have those
inspection and audit rights set forth in Section 6.7 of the Retail Distribution Agreement.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
28
THIS SERVICING AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE
PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this HSBC Settlement Products Servicing
Agreement to be executed by their respective duly authorized officers as of the date set forth
above.
| HSBC BANK USA, NATIONAL ASSOCIATION, | ||||||
| a national banking association | ||||||
| By: | ||||||
| Title: | ||||||
| HSBC TAXPAYER FINANCIAL SERVICES, INC., | ||||||
| a Delaware corporation | ||||||
| By: | ||||||
| Title: | ||||||
| HSBC TRUST COMPANY (DELAWARE), NATIONAL ASSOCIATION, | ||||||
| a national banking association | ||||||
| By: | ||||||
| Title: | ||||||
| BLOCK FINANCIAL CORPORATION, | ||||||
| a Delaware corporation | ||||||
| By: | ||||||
| Title: | ||||||
Exhibit 10.29
CREDIT AND GUARANTEE AGREEMENT
dated as of
January 2, 2007
among
BLOCK FINANCIAL CORPORATION,
as Borrower,
as Borrower,
H&R BLOCK, INC.,
as Guarantor,
as Guarantor,
and
HSBC FINANCE CORPORATION,
as Lender
as Lender
$3,000,000,000 REVOLVING CREDIT FACILITY
NOTE: CERTAIN MATERIAL HAS BEEN OMMITTED FROM THIS AGREEMENT PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT UNDER RULE 24b-2. THE LOCATIONS OF THESE OMISSIONS ARE INDICATED THROUGHOUT THE AGREEMENT
BY THE FOLLOWING MARKINGS: [***].
TABLE OF CONTENTS
| Page | ||||||||
| ARTICLE I DEFINITIONS | 1 | |||||||
| SECTION 1.1. | Defined Terms | 1 | ||||||
| SECTION 1.2. | Terms Generally | 14 | ||||||
| SECTION 1.3. | Accounting Terms; GAAP | 14 | ||||||
| ARTICLE II THE CREDITS | 15 | |||||||
| SECTION 2.1. | Commitment | 15 | ||||||
| SECTION 2.2. | Loans | 15 | ||||||
| SECTION 2.3. | Funding of Loans | 15 | ||||||
| SECTION 2.4. | Termination and Reduction of Commitment | 15 | ||||||
| SECTION 2.5. | Repayment of Loans; Evidence of Debt | 16 | ||||||
| SECTION 2.6. | Prepayment of Loans | 16 | ||||||
| SECTION 2.7. | Interest | 17 | ||||||
| SECTION 2.8. | Alternate Rate of Interest | 18 | ||||||
| SECTION 2.9. | Increased Costs | 18 | ||||||
| SECTION 2.10. | Taxes | 19 | ||||||
| SECTION 2.11. | Payments Generally | 20 | ||||||
| SECTION 2.12. | Mitigation Obligations | 20 | ||||||
| ARTICLE III REPRESENTATIONS AND WARRANTIES | 20 | |||||||
| SECTION 3.1. | Organization; Powers | 20 | ||||||
| SECTION 3.2. | Authorization; Enforceability | 21 | ||||||
| SECTION 3.3. | Governmental Approvals; No Conflicts | 21 | ||||||
| SECTION 3.4. | Financial Condition; No Material Adverse Change | 21 | ||||||
| SECTION 3.5. | Properties | 22 | ||||||
| SECTION 3.6. | Litigation and Environmental Matters | 22 | ||||||
| SECTION 3.7. | Compliance with Laws and Agreements | 22 | ||||||
| SECTION 3.8. | Investment Company Status | 22 | ||||||
| SECTION 3.9. | Taxes | 22 | ||||||
| SECTION 3.10. | ERISA | 23 | ||||||
| SECTION 3.11. | Disclosure | 23 | ||||||
| SECTION 3.12. | Federal Regulations | 23 | ||||||
| SECTION 3.13. | Subsidiaries | 23 | ||||||
| SECTION 3.14. | Insurance | 23 | ||||||
| ARTICLE IV CONDITIONS | 24 | |||||||
| SECTION 4.1. | Effective Date | 24 | ||||||
| SECTION 4.2. | Closing Date | 24 | ||||||
-i-
| Page | ||||||||
| SECTION 4.3. | Each Loan | 25 | ||||||
| ARTICLE V AFFIRMATIVE COVENANTS | 25 | |||||||
| SECTION 5.1. | Financial Statements and Other Information | 25 | ||||||
| SECTION 5.2. | Notices of Material Events | 27 | ||||||
| SECTION 5.3. | Existence; Conduct of Business | 27 | ||||||
| SECTION 5.4. | Payment of Taxes | 27 | ||||||
| SECTION 5.5. | Maintenance of Properties; Insurance | 27 | ||||||
| SECTION 5.6. | Books and Records; Inspection Rights | 27 | ||||||
| SECTION 5.7. | Compliance with Laws | 28 | ||||||
| SECTION 5.8. | Use of Proceeds | 28 | ||||||
| ARTICLE VI NEGATIVE COVENANTS | 28 | |||||||
| SECTION 6.1. | Adjusted Net Worth | 28 | ||||||
| SECTION 6.2. | Indebtedness | 28 | ||||||
| SECTION 6.3. | Liens | 31 | ||||||
| SECTION 6.4. | Fundamental Changes; Sale of Assets | 32 | ||||||
| SECTION 6.5. | Transactions with Affiliates | 33 | ||||||
| SECTION 6.6. | Restrictive Agreements | 33 | ||||||
| ARTICLE VII GUARANTEE | 34 | |||||||
| SECTION 7.1. | Guarantee | 34 | ||||||
| SECTION 7.2. | Delay of Subrogation | 35 | ||||||
| SECTION 7.3. | Amendments, etc. with respect to the Obligations; Waiver of Rights | 35 | ||||||
| SECTION 7.4. | Guarantee Absolute and Unconditional | 35 | ||||||
| SECTION 7.5. | Reinstatement | 36 | ||||||
| SECTION 7.6. | Payments | 36 | ||||||
| ARTICLE VIII EVENTS OF DEFAULT | 37 | |||||||
| ARTICLE IX | 39 | |||||||
| [RESERVED] | 39 | |||||||
| ARTICLE X MISCELLANEOUS | 39 | |||||||
| SECTION 10.1. | Notices | 39 | ||||||
| SECTION 10.2. | Waivers; Amendments | 40 | ||||||
| SECTION 10.3. | Expenses; Indemnity; Damage Waiver | 40 | ||||||
| SECTION 10.4. | Successors and Assigns | 41 | ||||||
| SECTION 10.5. | Survival | 42 | ||||||
| SECTION 10.6. | Counterparts; Integration; Effectiveness | 42 | ||||||
-ii-
| Page | ||||||||
| SECTION 10.7. | Severability | 43 | ||||||
| SECTION 10.8. | Right of Setoff | 43 | ||||||
| SECTION 10.9. | Governing Law; Jurisdiction; Consent to Service of Process | 43 | ||||||
| SECTION 10.10. | WAIVER OF JURY TRIAL | 44 | ||||||
| SECTION 10.11. | Headings | 44 | ||||||
| SECTION 10.12. | Confidentiality | 44 | ||||||
| SECTION 10.13. | Interest Rate Limitation | 45 | ||||||
| SECTION 10.14. | USA Patriot Act | 45 | ||||||
| SECTION 10.15. | Alternative Dispute Resolution | 45 | ||||||
| SCHEDULES: | ||
Schedule 3.4(a)
|
Guarantee Obligations | |
Schedule 3.6
|
Disclosed Matters | |
Schedule 3.13
|
Subsidiaries | |
Schedule 6.2
|
Existing Indebtedness | |
Schedule 6.3
|
Existing Liens | |
Schedule 6.4(b)
|
Additional Businesses | |
Schedule 6.6
|
Existing Restrictions | |
| EXHIBITS: | ||
Exhibit A
|
Form of Security Agreement | |
Exhibit B
|
Form of Control Agreement | |
Exhibit C
|
Form of HSBC TFS Letter | |
Exhibit D
|
Form of Opinion of Stinson Morrison Hecker LLP | |
-iii-
CREDIT AND GUARANTEE AGREEMENT
CREDIT AND GUARANTEE AGREEMENT, dated as of January 2, 2007, among BLOCK FINANCIAL
CORPORATION, a Delaware corporation, as Borrower, H&R BLOCK, INC., a Missouri corporation, as
Guarantor, and HSBC FINANCE CORPORATION, a Delaware corporation, as Lender.
WHEREAS, the Borrower has requested that the Lender provide a short-term revolving credit
facility in an amount of $3,000,000,000;
WHEREAS, the Guarantor has agreed to guarantee all of the Borrower’s obligations hereunder;
and
WHEREAS, the Lender is willing to provide a short-term revolving credit facility to the
Borrower on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the agreements herein and in reliance upon the
representations and warranties set forth herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Defined Terms. Capitalized terms used in this Agreement that are not defined below or
otherwise herein shall have the meanings set forth in the Appendix of Defined Terms and Rules of
Construction attached as Appendix A to the Retail Settlement Products Distribution Agreement. As
used in this Agreement, the following terms have the meanings specified below:
“Adjusted Net Worth” means, at any time, Consolidated Net Worth of the
Guarantor without giving effect to reductions in stockholders’ equity as a result of
repurchases by the Guarantor of its own Capital Stock subsequent to April 30, 2005 in an
aggregate amount not exceeding $350,000,000.
“Affiliate” means, with respect to a specified Person, another Person that
directly, or indirectly through one or more intermediaries, Controls or is Controlled by or
is under common Control with the Person specified. For the avoidance of doubt, neither the
Guarantor nor any of its Subsidiaries shall be deemed to Control any of its franchisees by
virtue of provisions in the relevant franchise agreement regulating the business and
operations of such franchisee.
“Agreement” means this Credit and Guarantee Agreement.
“Availability Period” means the period from and including January 2, 2007 (or,
if later, the Closing Date) to but excluding the earlier of the Revolving Termination Date
and the date of termination of the Commitments.
2
“Average Weekly LIBOR” means [***] .
“Bank Revolvers” means, collectively, (i) the Five-Year Credit and Guarantee
Agreement dated as of August 10, 2005 among the Borrower, the Guarantor, various financial
institutions and JPMorgan Chase Bank N.A., as Administrative Agent, and any restatement,
extension, renewal and replacement thereof (regardless of whether the amount available
thereunder is changed or the term thereof is modified) and (ii) the Amended and Restated
Five-Year Credit and Guarantee Agreement, dated as of August 10, 2005, among the Borrower,
the Guarantor, various financial institutions and JPMorgan Chase Bank, N.A., as
Administrative Agent, and any restatement, extension, renewal and replacement thereof
(regardless of whether the amount available thereunder is changed or the term thereof is
modified).
“Board” means the Board of Governors of the Federal Reserve System of the
United States of America.
“Borrower” means Block Financial Corporation, a Delaware corporation and a
wholly-owned indirect Subsidiary of the Guarantor.
“Business Day” means any day that is not a Saturday, Sunday or other day on
which commercial banks in New York City are authorized or required by law to remain closed;
provided that, when used in connection with a Eurodollar Loan, the term “Business
Day” shall also exclude any day on which banks are not open for dealings in dollar deposits
in the London interbank market.
“Capital Lease Obligations” of any Person means the obligations of such Person
to pay rent or other amounts under any lease of (or other arrangement conveying the right to
use) real or personal property, or a combination thereof, which obligations are required to
be classified and accounted for as capital leases on a balance sheet of such Person under
GAAP, and the amount of such obligations shall be the capitalized amount thereof determined
in accordance with GAAP.
“Capital Stock” means any and all shares, interests, participations or other
equivalents (however designated) of capital stock of a corporation, any and all equivalent
ownership interests in a Person (other than a corporation) and any and all warrants or
options to purchase any of the foregoing.
“Cash Equivalents” means (a) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States government or issued by any agency thereof
and backed by the full faith and credit of the United States, in each case maturing within
one year from the date of acquisition; (b) certificates of deposit, time deposits,
eurodollar time deposits or overnight bank deposits having maturities of six months or less
from the date of acquisition issued by (i) any “Lender” as defined in a Bank Revolver, (ii)
any commercial bank organized under the laws of the United States or any state thereof
having combined capital and surplus of not less than $500,000,000 or (iii) any other bank
if, and to the extent, covered by FDIC insurance; (c) commercial paper of an issuer rated at
least A-1 by S&P or P-1 by Moody’s, or carrying an equivalent rating
3
by a nationally recognized rating agency, if both of the two named rating agencies
cease publishing ratings of commercial paper issuers generally, and maturing within six
months from the date of acquisition; (d) repurchase obligations of any “Lender” as defined
in a Bank Revolver or of any commercial bank satisfying the requirements of clause (b) of
this definition, having a term of not more than 30 days, with respect to securities issued
or fully guaranteed or insured by the United States government; (e) securities with
maturities of one year or less from the date of acquisition issued or fully guaranteed by
any state, commonwealth or territory of the United States, by any political subdivision or
taxing authority of any such state, commonwealth or territory or by any foreign government,
the securities of which state, commonwealth, territory, political subdivision, taxing
authority or foreign government (as the case may be) are rated at least A by S&P or A2 by
Moody’s; (f) securities with maturities of six months or less from the date of acquisition
backed by standby letters of credit issued by any “Lender” as defined in a Bank Revolver or
any commercial bank satisfying the requirements of clause (b) of this definition; (g) money
market mutual or similar funds that invest exclusively in assets satisfying the requirements
of clauses (a) through (f) of this definition; (h) money market funds that (i) comply with
the criteria set forth in SEC Rule 2a-7 under the Investment Company Act of 1940, as
amended, (ii) are rated AAA by S&P and Aaa by Moody’s and (iii) have portfolio assets of at
least $1,000,000,000; (i) interests in privately offered investment funds under Section
3(c)(7) of the U.S. Investment Company Act of 1940 where such interests are (i) freely
transferable and (ii) rated AAA by S&P or Aaa by Moody’s; and (j) one month LIBOR floating
rate asset backed securities that are (i) freely transferable and (ii) rated AAA by S&P or
Aaa by Moody’s.
“Change in Control” means (a) the acquisition of ownership, directly or
indirectly, beneficially or of record, by any Person or group (within the meaning of the
Securities Exchange Act of 1934, as amended, and the rules of the Securities and Exchange
Commission thereunder as in effect on the date hereof) of shares representing more than 25%
of the aggregate ordinary voting power represented by the issued and outstanding Capital
Stock of the Guarantor; (b) occupation of a majority of the seats (other than vacant seats)
on the board of directors of the Guarantor by Persons who were neither (i) nominated by the
board of directors of the Guarantor nor (ii) appointed by directors so nominated; (c) the
acquisition of direct or indirect Control of the Guarantor by any Person or group; or (d)
the failure of the Guarantor to own, directly or indirectly, shares representing 100% of the
aggregate ordinary voting power represented by the issued and outstanding Capital Stock of
the Borrower.
“Change in Law” means (a) the adoption of any law, rule or regulation after the
date of this Agreement, (b) any change in any law, rule or regulation or in the
interpretation or application thereof by any Governmental Authority after the date of this
Agreement or (c) compliance by the Lender (or, for purposes of Section 2.9(b), by any
lending office of the Lender or by the Lender’s holding company, if any) with any request,
guideline or directive (whether or not having the force of law) of any Governmental
Authority made or issued after the date of this Agreement.
“Charges” has the meaning assigned to such term in Section 10.13.
4
“Closing Date” means the date on which the conditions specified in Section 4.2
are satisfied (or waived in accordance with Section 10.2).
“Code” means the Internal Revenue Code of 1986, as amended from time to time.
“Commitment” means the commitment of the Lender to make Loans, subject to the
terms and conditions of this Agreement, in an amount not to exceed (i) $3,000,000,000 from
January 2, 2007 through and including March 30, 2007 and (ii) thereafter, $120,000,000, as
such commitment may be reduced from time to time pursuant to Section 2.4.
“Consolidated Net Worth” means, at any time, the total amount of stockholders’
equity of the Guarantor and its consolidated Subsidiaries at such time determined on a
consolidated basis in accordance with GAAP.
“Contractual Obligation” means, as to any Person, any provision of any security
issued by such Person or of any agreement, instrument or undertaking to which such Person is
a party or by which it or any of its property is bound.
“Control” means the possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of a Person, whether through the
ability to exercise voting power, by contract or otherwise. “Controlling” and
“Controlled” have meanings correlative thereto.
“Control Agreement” means the Investment Account Control Agreement between the
Borrower, the Lender and the Securities Intermediary referred to therein in substantially
the form of Exhibit B hereto.
“Credit Parties” means the collective reference to the Borrower and the
Guarantor.
“Default” means any event or condition which constitutes an Event of Default or
which upon notice, lapse of time or both would, unless cured or waived, become an Event of
Default.
“Disclosed Matters” means (a) matters disclosed in the Borrower’s public
filings with the Securities and Exchange Commission prior to December 12, 2006 and (b) the
actions, suits, proceedings and environmental matters disclosed in Schedule 3.6.
“dollars” or “$” refers to lawful money of the United States of
America.
“Effective Date” means the date on which the conditions specified in Section
4.1 are satisfied (or waived in accordance with Section 10.2).
“Environmental Laws” means all laws, rules, regulations, codes, ordinances,
orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated
or entered into by any Governmental Authority, relating in any way to the
5
environment, preservation or reclamation of natural resources, to the management,
release or threatened release of any Hazardous Material or to health and safety matters.
“Environmental Liability” means any liability, contingent or otherwise
(including any liability for damages, costs of environmental remediation, fines, penalties
or indemnities), of any Credit Party or any Subsidiary directly or indirectly resulting from
or based upon (a) violation of any Environmental Law, (b) the generation, use, handling,
transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to
any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials
into the environment or (e) any contract, agreement or other consensual arrangement pursuant
to which liability is assumed or imposed with respect to any of the foregoing.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended
from time to time.
“ERISA Affiliate” means any trade or business (whether or not incorporated)
that, together with any Credit Party, is treated as a single employer under Section 414(b)
or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the
Code, is treated as a single employer under Section 414 of the Code.
“ERISA Event” means (a) any “reportable event”, as defined in Section 4043 of
ERISA or the regulations issued thereunder with respect to a Plan (other than an event for
which the 30-day notice period is waived); (b) the existence with respect to any Plan of an
“accumulated funding deficiency” (as defined in Section 412 of the Code or Section 302 of
ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or
Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with
respect to any Plan; (d) the incurrence by any Credit Party or any of their ERISA Affiliates
of any liability under Title IV of ERISA with respect to the termination of any Plan; (e)
the receipt by any Credit Party or any ERISA Affiliate from the PBGC or a plan administrator
of any notice relating to an intention to terminate any Plan or Plans or to appoint a
trustee to administer any Plan; (f) the incurrence by any Credit Party or any of their ERISA
Affiliates of any liability with respect to the withdrawal or partial withdrawal from any
Plan or Multiemployer Plan; or (g) the receipt by any Credit Party or any ERISA Affiliate of
any notice, or the receipt by any Multiemployer Plan from any Credit Party or any ERISA
Affiliate of any notice, concerning the imposition of Withdrawal Liability or a
determination that a Multiemployer Plan is, or is expected to be, insolvent or in
reorganization, within the meaning of Title IV of ERISA.
“Eurodollar”, when used in reference to any Loan, means that such Loan is
bearing interest at a rate determined by reference to the LIBO Rate.
“Events of Default” has the meaning assigned to such term in Article VIII.
“Excluded Taxes” means, with respect to the Lender or any payment to be made by
or on account of any obligation of the Borrower hereunder, (a) income or franchise
6
taxes imposed on (or measured by) its net income by the United States of America, or by
the jurisdiction under the laws of which the Lender is organized or in which its
principal office is located or in which its applicable lending office is located and (b) any
branch profits taxes imposed by the United States of America or any similar tax imposed by
any other jurisdiction in which the Borrower is located.
“Federal Funds Effective Rate” means for each day, the rate per annum which is
the average of the rates on the offered side of the Federal funds market quoted by three
interbank Federal funds brokers, selected by the Lender, at approximately 2:00 p.m., New
York City time, on such day for dollar deposits in immediately available funds, in an amount
comparable to the outstanding principal amount of the Loans, as determined by the Lender and
rounded upwards, if necessary, to the nearest 1/100 of 1%.
“Financial Officer” means the chief financial officer, principal accounting
officer, treasurer or controller of the Borrower or the Guarantor, as the context may
require.
“GAAP” means generally accepted accounting principles in the United States of
America.
“Governmental Authority” means the government of the United States of America,
any other nation or any political subdivision thereof, whether state, provincial or local,
and any agency, authority, instrumentality, regulatory body, court, central bank or other
entity exercising executive, legislative, judicial, taxing, regulatory or administrative
powers or functions of or pertaining to government.
“Guarantee” of or by any Person (the “guarantor”) means any obligation,
contingent or otherwise, of the guarantor guaranteeing or having the economic effect of
guaranteeing any Indebtedness or other obligation of any other Person (the “primary
obligor”) in any manner, whether directly or indirectly, and including any obligation of
the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for
the purchase or payment of) such Indebtedness or other obligation or to purchase (or to
advance or supply funds for the purchase of) any security for the payment thereof, (b) to
purchase or lease property, securities or services for the purpose of assuring the owner of
such Indebtedness or other obligation of the payment thereof, (c) to maintain working
capital, equity capital or any other financial statement condition or liquidity of the
primary obligor so as to enable the primary obligor to pay such Indebtedness or other
obligation or (d) as an account party in respect of any letter of credit or letter of
guaranty issued to support such Indebtedness or obligation; provided that the term
Guarantee shall not include endorsements for collection or deposit in the ordinary course of
business.
“Guarantee Obligation” means, as to any Person, any obligation of such Person
guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or other
obligations (the “primary obligations”) of any other Person (the “primary
obligor”) in any manner, whether directly or indirectly, including any obligation of
such Person, whether or not contingent, (a) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (b) to advance or supply funds
(i) for the purchase or payment of any such primary obligation or (ii) to maintain working
capital or
7
equity capital of the primary obligor or otherwise to maintain the net worth or
solvency of the primary obligor, (c) to purchase property, securities or services primarily for
the purpose of assuring the owner of any such primary obligation of the ability of the
primary obligor to make payment of such primary obligation or (d) otherwise to assure or
hold harmless the owner of any such primary obligation against loss in respect thereof;
provided, however, that the term Guarantee Obligation shall not include
endorsements of instruments for deposit or collection in the ordinary course of business.
The amount of any Guarantee Obligation shall be deemed to be an amount equal as of any date
of determination to the stated determinable amount of the primary obligation in respect of
which such Guarantee Obligation is made (unless such Guarantee Obligation shall be expressly
limited to a lesser amount, in which case such lesser amount shall apply) or, if not stated
or determinable, the amount as of any date of determination of the maximum reasonably
anticipated liability in respect thereof as determined by such Person in good faith.
“Guarantor” means H&R Block, Inc., a Missouri corporation.
“Hazardous Materials” means all explosive or radioactive substances or wastes
and all hazardous or toxic substances, wastes or other pollutants, including petroleum or
petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls,
radon gas, infectious or medical wastes and all other substances or wastes of any nature
regulated pursuant to any Environmental Law.
“Hedging Agreement” means any interest rate protection agreement, foreign
currency exchange agreement, commodity price protection agreement or other interest or
currency exchange rate or commodity price hedging arrangement.
“HSBC RAL” means “HSBC RAL” as such term is defined in the Appendix of Defined
Terms and Rules of Construction attached as Appendix A to Retail Settlement Products
Distribution Agreement.
“HSBC TFS” means HSBC Taxpayer Financial Services, Inc., a Delaware
corporation.
“HSBC TFS Letter” means a letter agreement between the Borrower, HSBC TFS and
the Lender in substantially the form of Exhibit C hereto.
“Indebtedness” of any Person means, without duplication, (a) all obligations of
such Person for borrowed money or with respect to deposits or advances of any kind, (b) all
obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c)
all obligations of such Person upon which interest charges are customarily paid, (d) all
obligations of such Person under conditional sale or other title retention agreements
relating to property acquired by such Person, (e) all obligations of such Person in respect
of the deferred purchase price of property or services (excluding current accounts payable
and accrued expenses incurred in the ordinary course of business), (f) all Indebtedness of
others secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien on
8
property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (g) all Guarantees by such Person of Indebtedness of others,
(h) all Capital Lease Obligations of such Person, (i) all obligations, contingent or
otherwise, of such Person as an account party in respect of letters of credit and letters of
guaranty, (j) all obligations, contingent or otherwise, of such Person in respect of
bankers’ acceptances and (k) for purposes of Section 6.2 only, all preferred stock issued by
a Subsidiary of such Person. The Indebtedness of any Person shall include the Indebtedness
of any other entity (including any partnership in which such Person is a general partner) to
the extent such Person is liable therefor as a result of such Person’s ownership interest in
or other relationship with such entity, except to the extent the terms of such Indebtedness
provide that such Person is not liable therefor. Indebtedness of a Person shall not include
obligations with respect to funds held by such Person in custody for, or for the benefit of,
third parties which are to be paid at the direction of such third parties (and are not used
for any other purpose).
“Indemnified Taxes” means Taxes other than Excluded Taxes.
“Indemnitee” has the meaning assigned to such term in Section 10.3(b).
“Indirect RAL Participation Transaction” means any transaction by the Guarantor
or any Subsidiary involving (a) an investment in a partnership, limited partnership, limited
liability company, limited liability partnership, business trust or other pass-through
entity which is partially owned by the Guarantor or any Subsidiary, (b) the purchase by such
pass-through entity of refund anticipation loans or participation interests in refund
anticipation loans (and/or related rights and interests), and (c) the distribution of cash
flow received by such pass-through entity with respect to such refund anticipation loans or
participation interests therein to the owners of such pass-through entity.
“Information” has the meaning assigned to such term in Section 10.12.
“LIBO Rate” means [***] .
“Lien” means, with respect to any asset, (a) any mortgage, deed of trust, lien,
pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b)
the interest of a vendor or a lessor under any conditional sale agreement, capital lease or
title retention agreement (or any financing lease having substantially the same economic
effect as any of the foregoing) relating to such asset and (c) in the case of securities,
any purchase option, call or similar right of a third party with respect to such securities;
provided that clause (c) above shall be deemed not to include stock options granted
by any Person to its directors, officers or employees with respect to the Capital Stock of
such Person.
“Loan Documents” means this Agreement, the Security Agreement, the Control
Agreement, the HSBC TFS Letter and the Notes, if any.
“Loans” means the loans made by the Lender to the Borrower pursuant to this
Agreement.
9
“Margin” means [***] % per annum.
“Margin Stock” means any “margin stock” as defined in Regulation U of the
Board.
“Material Adverse Effect” means a material adverse effect on (a) the business,
assets, property or condition (financial or otherwise) of the Guarantor and the Subsidiaries
taken as a whole, (b) the ability of any Credit Party to perform any of its obligations
under this Agreement or (c) the rights of or benefits available to the Lenders under this
Agreement.
“Material Indebtedness” means Indebtedness (other than the Loans), or
obligations in respect of one or more Hedging Agreements, of any one or more of the Credit
Parties and any Subsidiaries in an aggregate principal amount exceeding $40,000,000. For
purposes of determining Material Indebtedness, the “principal amount” of the obligations of
any Credit Party or any Subsidiary in respect of any Hedging Agreement at any time shall be
the aggregate amount (giving effect to any netting agreements) that the Credit Party or such
Subsidiary would be required to pay if such Hedging Agreement were terminated at such time.
“Material Proceeding” means any suit, action or proceeding brought by the
Lender against the Borrower or the Guarantor or both to collect payment of Obligations in
the aggregate amount of $300,000,000 or more which are past due.
“Material Subsidiary” means any Subsidiary of any Credit Party, other than
OOMC, the aggregate assets or revenues of which, as of the last day of the most recently
ended fiscal quarter for which the Borrower has delivered financial statements pursuant to
Section 5.1(a) or (b), when aggregated with the assets or revenues of all other Subsidiaries
with respect to which the actions contemplated by Section 6.4 are taken, are greater than 5%
of the total assets or total revenues, as applicable, of the Guarantor and its consolidated
Subsidiaries, in each case as determined in accordance with GAAP.
“Maximum Rate” has the meaning assigned to such term in Section 10.13.
“Moody’s” means Moody’s Investors Service, Inc.
“Multiemployer Plan” means a multiemployer plan as defined in Section
4001(a)(3) of ERISA.
“Notes” means the collective reference to any promissory note evidencing Loans.
“Obligations” means, collectively, the unpaid principal of and interest on the
Loans and all other obligations and liabilities of the Borrower (including interest accruing
at the then applicable rate provided herein after the maturity of the Loans and interest
accruing at the then applicable rate provided herein after the filing of any petition in
bankruptcy, or the commencement of any insolvency, reorganization or like proceeding,
relating to the Borrower, whether or not a claim for post-filing or post-petition interest
is allowed in such proceeding) to the Lender, whether direct or indirect, absolute or
10
contingent, due or to become due, or now existing or hereafter incurred, which may
arise under, out of, or in connection with, this Agreement, the Security Agreement, the
Control Agreement, the HSBC TFS Letter, any Note or any other document made, delivered or
given in connection herewith, whether on account of principal, interest, reimbursement
obligations, fees, indemnities, costs, expenses or otherwise (including all fees and
disbursements of counsel to the Lender that are required to be paid by the Borrower pursuant
to the terms of any of the foregoing agreements).
“OOMC” means Option One Mortgage Corporation, a California corporation, and all
of its subsidiaries.
“Other Taxes” means any and all present or future stamp or documentary taxes or
any other excise or property taxes, charges or similar levies arising from any payment made
hereunder or from the execution, delivery or enforcement of, or otherwise with respect to,
this Agreement.
“Participant” has the meaning assigned to such term in Section 10.4(c).
“Participation Agreement” means the HSBC Refund Anticipation Loan Participation
Agreement, dated as of September 23, 2005, as amended from time to time, and any
restatement, extension, renewal and replacement thereof, by and among Household Tax Masters
Acquisition Corporation, the Borrower, HSBC Bank USA, National Association, HSBC Taxpayer
Financial Services, Inc. and HSBC Trust Company (Delaware), National Association.
“Participation Interest” means a “Participation Interest” as defined in the
Participation Agreement.
“PBGC” means the Pension Benefit Guaranty Corporation referred to and defined
in ERISA and any successor entity performing similar functions.
“Permitted Encumbrances” means:
(a) judgment Liens in respect of judgments not constituting an Event of Default under
clause (k) of Article VIII;
(b) Liens imposed by law for taxes that are not yet due or are being contested in
compliance with Section 5.4;
(c) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s and other like
Liens imposed by law, arising in the ordinary course of business and securing obligations
that are not overdue by more than 30 days or are being contested in compliance with Section
5.4;
(d) pledges and deposits made in the ordinary course of business in compliance with
workers’ compensation, unemployment insurance and other social security laws or regulations;
11
(e) deposits to secure the performance of bids, trade contracts, leases, statutory
obligations, surety and appeal bonds, performance bonds and other obligations of a like
nature, in each case in the ordinary course of business; and
(f) easements, zoning restrictions, rights-of-way and similar encumbrances on real
property imposed by law or arising in the ordinary course of business that do not secure any
monetary obligations and do not materially detract from the value of the affected property
or interfere with the ordinary conduct of business of the Credit Parties or any Subsidiary;
provided that the term “Permitted Encumbrances” shall not include any Lien securing
Indebtedness.
“Person” means any natural person, corporation, limited liability company,
trust, joint venture, association, company, partnership, Governmental Authority or other
entity.
“Plan” means any employee pension benefit plan (other than a Multiemployer
Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section
302 of ERISA, and in respect of which any Credit Party or any ERISA Affiliate is (or, if
such plan were terminated, would under Section 4069 of ERISA be deemed to be) an “employer”
as defined in Section 3(5) of ERISA.
“Prime Rate” means the rate of interest per annum publicly announced from time
to time by JPMorgan Chase Bank, N.A., as its prime rate in effect at its principal office in
New York City; each change in the Prime Rate shall be effective from and including the date
such change is publicly announced as being effective.
“Proceeding” means any suit, action or proceeding described in clauses (1)
through (4) of Section 10.15.
“Purchase Price” means “Purchase Price” as such term is defined in the Appendix
of Defined Terms and Rules of Construction attached as Appendix A to Retail Settlement
Products Distribution Agreement.
“RAL Receivables Amount” means, at any time, the difference (but not less
than zero) between (i) the aggregate amount of funds received by the Guarantor, any
Subsidiary or any qualified or unqualified special purpose entity created by any Subsidiary
with respect to the transfer of refund anticipation loans, or participation interests in
refund anticipation loans (and/or related rights and interests), to any third party in any
RAL Receivables Transaction, at or prior to such time, minus (ii) the aggregate
amount received by all such third parties with respect to the transferred refund
anticipation loans, or participation interests in refund anticipation loans (and/or related
rights and interests), in all RAL Receivables Transactions, at or prior to such time,
excluding from the amounts received by such third parties, the aggregate amount of
any origination, set up, structuring or similar fees, all implicit or explicit financing
expenses and all indemnification and reimbursement payments paid to such any third party in
connection with any RAL Receivables Transaction.
12
“RAL Receivables Transaction” means any securitization, on — or off — balance
sheet financing or sale transaction, involving refund anticipation loans, or participation
interests in refund anticipation loans (and/or related rights and interests), that were
acquired by the Guarantor, any Subsidiary or any qualified or unqualified special purpose
entity created by any Subsidiary.
“Related Parties” means, with respect to any specified Person, such Person’s
Affiliates and the respective directors, officers, employees, agents and advisors of such
Person and such Person’s Affiliates.
“Restricted Margin Stock” means all Margin Stock owned by the Guarantor and its
Subsidiaries to the extent the value of such Margin Stock does not exceed 25% of the value
of all assets of the Guarantor and its Subsidiaries (determined on a consolidated basis)
that are subject to the provisions of Section 6.3 and 6.4.
“Retail Settlement Products Distribution Agreement” means the HSBC Retail
Settlement Products Distribution Agreement, dated as of September 23, 2005, as amended from
time to time, and any restatement, extension, renewal and replacement thereof, by and among
the parties thereto, including, the Lender and the Guarantor.
“Revolving Credit Exposure” means with respect to the Lender at any time, the
outstanding principal amount of the Lender’s Loans.
“Revolving Termination Date” means the earlier of (i) June 30, 2007 and (ii)
the first day after April 15, 2007 on which the aggregate outstanding amount of the
Participation Interests purchased by the Borrower in HSBC RALs under the Participation
Agreement which have been financed by the making of Loans is less than $50,000,000.
“RSM” means RSM McGladrey, Inc., a Delaware corporation.
“S&P” means Standard & Poor’s Ratings Services.
“Security Agreement” means a Security Agreement between the Borrower and the
Lender in substantially the form of Exhibit A hereto.
“Servicing Agreement” means the HSBC Settlement Products Servicing Agreement
dated as of September 23, 2005 , as amended from time to time, and any restatement,
extension, renewal and replacement thereof, among HSBC Bank USA, National Association, HSBC
TFS, Household Tax Masters Acquisition Corporation, and the Borrower.
“Short-Term Debt” means, at any time, the aggregate amount of Indebtedness of
the Guarantor and its Subsidiaries at such time (excluding seasonal Indebtedness of H&R
Block Canada, Inc.) having a final maturity less than one year after such time, determined
on a consolidated basis in accordance with GAAP, minus (a) to the extent otherwise included
therein, Indebtedness outstanding at such time (i) under mortgage facilities secured by
mortgages and related assets, (ii) incurred to fund servicing obligations required as part
of servicing mortgage backed securities in the ordinary course of
13
business, (iii) incurred and secured by broker-dealer Subsidiaries in the ordinary
course of business and (iv) deposits and other customary banking related liabilities
incurred by banking Subsidiaries in the ordinary course of business, (b) the excess, if any,
of (i) the aggregate amount of cash and Cash Equivalents held at such time in accounts of
the Guarantor and its Subsidiaries (other than broker-dealer Subsidiaries and banking
Subsidiaries) to the extent freely transferable to the Credit Parties and capable of being
applied to the Obligations without any contractual, legal or tax consequences over (ii)
$15,000,000 and (c) to the extent otherwise included therein, the current portion of long
term debt.
“Subsidiary” means, with respect to any Person (the “parent”) at any
date, any corporation, limited liability company, partnership, association or other entity
the accounts of which would be consolidated with those of the parent in the parent’s
consolidated financial statements if such financial statements were prepared in accordance
with GAAP as of such date, as well as any other corporation, limited liability company,
partnership, association or other entity (a) of which securities or other ownership
interests representing more than 50% of the equity or more than 50% of the ordinary voting
power or, in the case of a partnership, more than 50% of the general partnership interests
are, as of such date, owned, controlled or held, or (b) that is, as of such date, otherwise
Controlled, by the parent or one or more Subsidiaries of the parent or by the parent and one
or more Subsidiaries of the parent. Notwithstanding the foregoing, no entity shall be
considered a “Subsidiary” solely as a result of the effect and application of FASB
Interpretation No. 46R (Consolidation of Variable Interest Entities). Unless the context
shall otherwise require, all references to a “Subsidiary” or to “Subsidiaries” in this
Agreement shall refer to a Subsidiary or Subsidiaries of the Guarantor, including the
Borrower and the Subsidiaries of the Borrower.
“Taxes” means any and all present or future taxes, levies, imposts, duties,
deductions, charges or withholdings imposed by any Governmental Authority.
“Total Facility Commitments” means the sum of the total “Commitments” under and
as defined in the Bank Revolvers.
“Total Facility Loan Outstandings” has the meaning assigned to such term in
Section 6.2.
“Transactions” means the execution, delivery and performance by the Credit
Parties of the Loan Documents, the borrowing of Loans, the use of the proceeds thereof, and
the granting of the security provided for in the Security Agreement.
“Unrestricted Margin Stock” means all Margin Stock owned by the Guarantor and
its Subsidiaries other than Restricted Margin Stock.
“Withdrawal Liability” means liability to a Multiemployer Plan as a result of a
complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in
Part I of Subtitle E of Title IV of ERISA.
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SECTION 1.2. Terms Generally. The definitions of terms herein shall apply equally to the singular
and plural forms of the terms defined. Whenever the context may require, any pronoun shall include
the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and
“including” shall be deemed to be followed by the phrase “without limitation”. The word “will”
shall be construed to have the same meaning and effect as the word “shall”. Unless the context
requires otherwise (a) any definition of or reference to any agreement, instrument or other
document herein shall be construed as referring to such agreement, instrument or other document as
from time to time amended, supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth herein), (b) any reference herein to any Person
shall be construed to include such Person’s successors and assigns, (c) the words “herein”,
“hereof” and “hereunder”, and words of similar import, shall be construed to refer to this
Agreement in its entirety and not to any particular provision hereof, (d) all references herein to
Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of,
and Exhibits and Schedules to, this Agreement and (e) the words “asset” and “property” shall be
construed to have the same meaning and effect and to refer to any and all tangible and intangible
assets and properties, including cash, securities, accounts and contract rights.
SECTION 1.3. Accounting Terms; GAAP. Except as otherwise expressly provided herein, all terms of
an accounting or financial nature shall be construed in accordance with GAAP, as in effect from
time to time; provided that, if the Borrower notifies the Lender that the Borrower requests
an amendment to any provision hereof to eliminate the effect of any change occurring after the date
hereof in GAAP or in the application thereof on the operation of such provision (or if the Lender
notifies the Borrower that the Lender requests an amendment to any provision hereof for such
purpose), regardless of whether any such notice is given before or after such change in GAAP or in
the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect
and applied immediately before such change shall have become effective until such notice shall
have been withdrawn or such provision amended in accordance herewith.
ARTICLE II
THE CREDITS
SECTION 2.1. Commitment. Subject to the terms and conditions set forth herein (including the
proviso at the end of Section 6.2), the Lender agrees to make revolving loans (“Loans”) to
the Borrower from time to time during the Availability Period in an aggregate principal amount that
will not result in the Lender’s Revolving Credit Exposure exceeding the Lender’s Commitment as then
in effect. Within the foregoing limits and subject to the terms and conditions set forth herein,
the Borrower may borrow, prepay and reborrow Loans.
SECTION 2.2. Loans. Subject to Section 2.8, all Loans shall be comprised entirely of Eurodollar
Loans in accordance herewith. The Lender at its option may make any Eurodollar Loan by causing any
domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any
exercise of such option shall not affect the obligation of the Borrower to repay such Loan in
accordance with the terms of this Agreement.
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SECTION 2.3. Funding of Loans. As provided in the HSBC TFS Letter, HSBC TFS shall notify the
Lender of the aggregate amount of the Purchase Price for the Participation Interests to be
purchased by the Borrower under the Participation Agreement on any Business Day at the same time as
HSBC TFS notifies the Borrower of such amount, but in any event not later than 9:30 a.m. New York
City time on such Business Day. Subject to the terms and conditions of this Agreement, the Lender
shall make a Loan in the amount so notified in respect of each Business Day by wire transfer of
immediately available funds to or as instructed by HSBC TFS by 4:30 p.m., New York City time, on
such Business Day; provided, that if the Borrower shall notify the Lender and HSBC TFS not later
than one hour after the notification by HSBC TFS referred to in the preceding sentence that the
Borrower does not wish to borrow all or some of the amount so notified by HSBC TFS, then the Lender
shall make a Loan in such lesser amount, if any, specified in such notice of the Borrower. The
Borrower hereby irrevocably (i) authorizes and instructs the Lender to make Loans by transfer of
Loan proceeds directly to or as instructed by HSBC TFS as provided in the preceding sentence and
(ii) acknowledges and agrees that Loans will not be disbursed in any other manner or for any other
purpose than to fund the purchase by the Borrower of Participation Interests in HSBC RALs under the
Participation Agreement. Notices under this Section 2.3 shall be made by telephone and promptly
confirmed by fax. Absent manifest error, the Lender shall be entitled to rely without further
inquiry on notices and information received from HSBC TFS or the Borrower as contemplated in this
Section 2.3
SECTION 2.4. Termination and Reduction of Commitment. (a) Unless previously terminated, the
Commitment shall terminate on the Revolving Termination Date.
(b) The Borrower may at any time terminate, or from time to time reduce, the Commitment;
provided that (i) each reduction of the Commitment shall be in an amount that is an
integral multiple of $1,000,000 and not less than $25,000,000 and (ii) the Borrower shall not
terminate or reduce the Commitment if, after giving effect to any concurrent prepayment of the
Loans in accordance with Section 2.6, the Revolving Credit Exposure would exceed the Commitment.
(c) The Borrower shall notify the Lender of any election to terminate or reduce the Commitment
under paragraph (b) of this Section at least three Business Days prior to the effective date of
such termination or reduction, specifying such election and the effective date thereof. Each
notice delivered by the Borrower pursuant to this Section shall be irrevocable; provided
that a notice of termination of the Commitment delivered by the Borrower may state that such notice
is conditioned upon the effectiveness of other credit facilities, in which case such notice may be
revoked by the Borrower (by notice to the Lender) on or prior to the specified
effective date if such condition is not satisfied. Any termination or reduction of the
Commitment shall be permanent.
SECTION 2.5. Repayment of Loans; Evidence of Debt. (a) The Borrower hereby unconditionally
promises to pay to the Lender (i) the unpaid principal amount of the Loans on March 31, 2007 to
the extent that such principal amount exceeds the Commitment on such date and (ii) the then unpaid
principal amount of each Loan on the Revolving Termination Date.
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(b) The Lender shall maintain in accordance with its usual practice an account or
accounts evidencing the indebtedness of the Borrower to the Lender resulting from each Loan made by
the Lender, including the amounts of principal and interest payable and paid to the Lender from
time to time hereunder.
(c) The entries made in the account maintained pursuant to paragraph (b) of this Section shall
be prima facie evidence of the existence and amounts of the obligations recorded
therein; provided that the failure of the Lender to maintain such account or any error
therein shall not in any manner affect the obligation of the Borrower to repay the Loans in
accordance with the terms of this Agreement.
(d) The Lender may request that Loans made by it be evidenced by a promissory note. In such
event, the Borrower shall prepare, execute and deliver to the Lender a promissory note payable to
the order of the Lender (or, if requested by the Lender, to the Lender and its assigns) and in a
form approved by the Lender. Thereafter, the Loans evidenced by such promissory note and interest
thereon shall at all times (including after assignment pursuant to Section 10.4) be represented by
one or more promissory notes in such form payable to the order of the payee named therein. In
addition, upon receipt of an affidavit of an officer of the Lender as to the loss, theft,
destruction or mutilation of the promissory note, the Borrower will issue, in lieu thereof, a
replacement promissory note in the same principal amount thereof and otherwise of like tenor.
SECTION 2.6. Prepayment of Loans. (a) The Borrower (i) shall have the right at any time and from
time to time voluntarily to prepay the Loans in whole or in part without premium or penalty,
subject to prior notice in accordance with paragraph (b) of this Section, and (ii) shall prepay the
Loans from time to time in whole or in part without premium or penalty in accordance with paragraph
(c) of this Section.
(b) The Borrower shall notify the Lender by telephone (confirmed by telecopy) of any
voluntary prepayment of Loans under Section 2.6(a)(i), not later than 12:00 noon, New York City
time, on the date of prepayment. Each such notice shall be irrevocable and shall specify the
prepayment date and the principal amount of Loans to be prepaid; provided that, if a notice
of prepayment is given in connection with a conditional notice of termination of the Commitments as
contemplated by Section 2.4, then such notice of prepayment may be revoked if such notice of
termination is revoked in accordance with Section 2.4.
(c) The Borrower shall prepay the principal of the Loans in an amount equal to (i) 97% of the
amount of all payments constituting repayment of HSBC RALs in which the Borrower has purchased a
Participation Interest that has been financed by the Lender which are remitted to the Borrower by
HSBC TFS under Section 3.4(b)(ii) of the Servicing Agreement, and (ii) 97% of the amount of all
repurchases of Participation Interests by HSBC TFS under Section 6 of the Participation Agreement
as to Participation Interests that have been financed by the Lender. In the HSBC TFS Letter, the
Borrower will irrevocably authorize and instruct (A) HSBC TFS, as Servicer under the Servicing
Agreement, to pay 97% of all amounts from time to time to be remitted to the Borrower by the
Servicer under Section 3.4(b)(ii) of the Servicing
Agreement in respect of Participation Interests financed by the Lender directly to the Lender
for application to the prepayment of the Loans under this Section 2.6(c) and (B) HSBC TFS to pay
17
97% of all amounts otherwise payable to the Borrower in respect of the repurchase under Section 6
of the Participation Agreement of Participation Interests in HSBC RALs that have been financed by
the Lender directly to the Lender for application to the prepayment of the Loans under this Section
2.6(c). The Lender shall be entitled to rely without further inquiry on notices and information
received from HSBC TFS as contemplated in this Section 2.6(c). The Lender shall credit payments
received from HSBC TFS under this Section 2.6(c) to prepayment of the principal of the Loans on the
date of receipt.
SECTION 2.7. Interest. (a) The Loans shall bear interest for each day at a rate per annum equal
to [***] .
(b) Notwithstanding the foregoing, if any principal of or interest on any Loan or any other
amount payable by the Borrower hereunder is not paid when due, whether at stated maturity, upon
acceleration or otherwise, such overdue amount shall bear interest, after as well as before
judgment, at a rate per annum equal to 3% plus the rate of interest otherwise applicable to the
Loans hereunder.
(c) Accrued interest on each Loan shall be payable monthly in arrears on the fifth Business
Day of the following month and on the Revolving Termination Date; provided that interest
accrued pursuant to paragraph (b) of this Section shall be payable on demand. On the second
Business Day of such following month, the Lender shall deliver to the Borrower and HSBC TFS by
e-mail an invoice for the amount of accrued interest on the Loans for the preceding month, together
with a schedule in reasonable detail showing how such amount was calculated.
(d) All interest hereunder shall be computed on the basis of a year of 360 days, except that
interest computed by reference to the Prime Rate under Section 2.8 shall be computed on the basis
of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the
actual number of days elapsed (including the first day but excluding the last day). The LIBO Rate
(and in the case of determinations under Section 2.8, the Federal Funds Effective Rate and the
Prime Rate) shall be determined by the Lender, and such determination shall be conclusive absent
manifest error. The Lender shall as soon as practicable notify the Borrower of the effective date
and the amount of each change in interest rate.
SECTION 2.8. Alternate Rate of Interest. If at any time:
(a) the Lender determines (which determination shall be conclusive absent manifest error) that
adequate and reasonable means do not exist for ascertaining the LIBO Rate; or
(b) the Lender determines that the LIBO Rate will not adequately and fairly reflect the cost
to the Lender of making or maintaining Loans;
then the Lender shall give notice thereof to the Borrower by telephone or telecopy as promptly as
practicable thereafter and, until the Lender notifies the Borrower that the circumstances giving
rise to such notice no longer exist, the Loans shall bear interest at a rate per annum equal to,
for any day, a rate per annum equal to the greater of (a) the Prime Rate in effect on such day
[***] , and (b) the Federal Funds Effective Rate in effect on such day [***] . Any change in the
Prime
18
Rate or the Federal Funds Effective Rate shall be effective from and including the effective
date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively.
SECTION 2.9. Increased Costs. (a) If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit or similar
requirement against assets of, deposits with or for the account of, or credit
extended by, the Lender; or
(ii) impose on the Lender or the London interbank market any other condition
affecting this Agreement or Eurodollar Loans made by the Lender;
and the result of any of the foregoing shall be to increase the cost to the Lender of making or
maintaining any Eurodollar Loan (or of maintaining its obligation to make any such Loan) or to
increase the cost to the Lender or to reduce the amount of any sum received or receivable by the
Lender hereunder (whether of principal, interest or otherwise), then the Borrower will pay to the
Lender such additional amount or amounts as will compensate the Lender for such additional costs
incurred or reduction suffered.
(b) If the Lender determines that any Change in Law regarding capital requirements has or
would have the effect of reducing the rate of return on the Lender’s capital or on the capital of
the Lender’s holding company, if any, as a consequence of this Agreement or the Loans made by the
Lender to a level below that which the Lender or the Lender’s holding company could have achieved
but for such Change in Law (taking into consideration the Lender’s policies and the policies of the
Lender’s holding company with respect to capital adequacy), then from time to time the Borrower
will pay to the Lender such additional amount or amounts as will compensate the Lender or the
Lender’s holding company for any such reduction suffered.
(c) A certificate of the Lender setting forth the amount or amounts necessary to compensate
the Lender or its holding company, as the case may be, as specified in paragraph (a) or (b) of this
Section (together with a statement of the reason for such compensation and a calculation thereof in
reasonable detail) shall be delivered to the Borrower and shall be conclusive absent manifest
error. The Borrower shall pay the Lender the amount shown as due on any such certificate within 10
days after receipt thereof.
(d) Failure or delay on the part of the Lender to demand compensation pursuant to this Section
shall not constitute a waiver of the Lender’s right to demand such compensation; provided
that the Borrower shall not be required to compensate the Lender pursuant to this Section for any
increased costs or reductions incurred more than six months prior
to the date that the Lender notifies the Borrower of the Change in Law giving rise to such
increased costs or reductions and of the Lender’s intention to claim compensation therefor;
provided, further, that, if the Change in Law giving rise to such increased costs
or reductions is retroactive, then the six-month period referred to above shall be extended to
include the period of retroactive effect thereof.
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SECTION 2.10. Taxes. (a) Any and all payments by or on account of any obligation of the Borrower
or the Guarantor hereunder shall be made free and clear of and without deduction for any
Indemnified Taxes or Other Taxes; provided that if the Borrower or the Guarantor shall be
required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum
payable shall be increased as necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section) the Lender receives an amount
equal to the sum it would have received had no such deductions been made, (ii) the Borrower or the
Guarantor shall make such deductions and (iii) the Borrower or the Guarantor shall pay the full
amount deducted to the relevant Governmental Authority in accordance with applicable law.
(b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority
in accordance with applicable law.
(c) The Borrower shall indemnify the Lender, within 10 days after written demand therefor, for
the full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes
imposed or asserted on or attributable to amounts payable under this Section) paid by the Lender
and any penalties, interest and reasonable expenses arising therefrom or with respect thereto,
whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted
by the relevant Governmental Authority. A certificate as to the amount of such payment or
liability delivered to the Borrower by the Lender shall be conclusive absent manifest error.
(d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the
Borrower to a Governmental Authority, the Borrower shall deliver to the Lender the original or a
certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy
of the return reporting such payment or other evidence of such payment reasonably satisfactory to
the Lender.
SECTION 2.11. Payments Generally. (a) The Borrower shall make each payment required to be made by it
hereunder (whether of principal or interest, or under Section 2.9 or 2.10, or otherwise) prior to
12:00 noon, New York City time, on the date when due, in immediately available funds, without
set-off or counterclaim. Any amounts received after such time on any date may, in the discretion
of the Lender, be deemed to have been received on the next succeeding Business Day for purposes of
calculating interest thereon. All such payments shall be made to the Lender at its account at HSBC
Bank USA, N.A., Buffalo, N.Y., ABA #021001088, Cash Ops W/T, A/C #001842609, or at such other bank
or account as it shall specify from time to time by notice in writing to the Borrower. If any
payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be
extended to the next succeeding Business Day, and, in the case of any payment accruing interest,
interest thereon shall be payable for the period of such extension. All payments hereunder shall
be made in dollars. Notwithstanding the foregoing, this Section 2.11 shall not apply to payments
by HSBC TFS as contemplated by Section 2.6(c).
(b) If at any time insufficient funds are received by and available to the Lender to pay fully
all amounts of principal, interest and any other amounts then due hereunder,
20
such funds shall be
applied (i) first, to pay interest then due hereunder,
(ii) second, to pay principal then due hereunder, and (iii) third, any other amounts due and owing hereunder.
SECTION 2.12. Mitigation Obligations. If the Lender requests compensation under Section 2.9, or if
the Borrower is required to pay any additional amount to the Lender or any Governmental Authority
for the account of the Lender pursuant to Section 2.10, then the Lender shall use reasonable
efforts to designate a different lending office for funding or booking its Loans hereunder or to
assign its rights and obligations hereunder to another of its offices, branches or affiliates, if,
in the judgment of the Lender, such designation or assignment (i) would eliminate or reduce amounts
payable pursuant to Section 2.9 or 2.10, as the case may be, in the future and (ii) would not
subject the Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous
to the Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by the
Lender in connection with any such designation or assignment.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Each of the Credit Parties represents and warrants to the Lender that:
SECTION 3.1. Organization; Powers. Each of the Credit Parties and the Subsidiaries is duly
organized, validly existing and in good standing under the laws of the jurisdiction of its
organization, has the power and authority to carry on its business as now conducted and, except
where the failure to be so, individually or in the aggregate, would not reasonably be expected to
result in a Material Adverse Effect, is qualified to do business in, and is in good standing in,
every jurisdiction where such qualification is required.
SECTION 3.2. Authorization; Enforceability. The Transactions are within each Credit Party’s
corporate powers and have been duly authorized by all necessary corporate and, if required,
stockholder action. This Agreement has been duly executed and delivered by each Credit Party and
constitutes a legal, valid and binding obligation of each Credit Party, enforceable in accordance
with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting
creditors’ rights generally and subject to general principles of equity, regardless of whether
considered in a proceeding in equity or at law.
SECTION 3.3. Governmental Approvals; No Conflicts. The Transactions (a) do not require any consent
or approval of, registration or filing with, or any other action by, any Governmental Authority,
except such as have been obtained or made and are in full force and effect, (b) will not violate
any applicable law or regulation or the charter, by-laws or other organizational documents of any
Credit Party or any Subsidiary or any order of any Governmental Authority, (c) will not violate or
result in a default under any indenture, material agreement or other instrument (other than those
to be terminated on or prior to the Closing Date) binding upon any Credit Party or any Subsidiary
or their assets, or give rise to a right thereunder
21
to require any payment to be made by any Credit
Party or any Subsidiary, and (d) except as provided in the Loan Documents, will not result in the
creation or imposition of any Lien on any asset of any Credit Party or any Subsidiary.
SECTION 3.4. Financial Condition; No Material Adverse Change. (a) Each Credit Party has
heretofore furnished to the Lender consolidated balance sheets and statements of income and cash
flows (and, in the case of the Guarantor, of stockholders’ equity) (i) as of and for the fiscal
year ended April 30, 2006 (A) reported on by KPMG LLP, an independent registered public accounting
firm, in respect of the financial statements of the Guarantor, and (B) certified by its chief
financial officer, in respect of the financial statements of the Borrower, and (ii) as of and for
the fiscal quarter and the portion of the fiscal year ended October 31, 2006. Such financial
statements present fairly, in all material respects, the financial position and results of
operations and cash flows of the Borrower and its consolidated Subsidiaries and of the Guarantor
and its consolidated Subsidiaries as of such date and for such period in accordance with GAAP.
Except as set forth on Schedule 3.4(a), neither the Guarantor nor any of its consolidated
Subsidiaries had, at the date of the most recent balance sheet referred to above, any material
Guarantee Obligation, contingent liability or liability for taxes, or any long-term lease or
unusual forward or long-term commitment, including any interest rate or foreign currency swap or
exchange transaction not in the ordinary course of business, which is not reflected in the
foregoing statements or in the notes thereto. During the period from April 30, 2006 to and
including the date hereof, and except as disclosed in filings made by the Guarantor with the U.S.
Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, there has been no sale, transfer or other disposition
by the Guarantor or any of its consolidated Subsidiaries of any material part of its business or
property other than in the ordinary course of business and no purchase or other acquisition of any
business or property (including any Capital Stock of any other Person), material in relation to the
consolidated financial condition of the Guarantor and its consolidated Subsidiaries at April 30,
2006.
(b) From April 30, 2006 through the Effective Date, there has been no material adverse change
in the business, assets, property or condition (financial or otherwise) of the Guarantor and its
Subsidiaries, taken as a whole.
SECTION 3.5. Properties. (a) Each of the Credit Parties and the Subsidiaries has good title to,
or valid leasehold interests in, all its real and personal property material to its business,
except for minor defects in title that do not interfere with its ability to conduct its business as
currently conducted or to utilize such properties for their intended purposes.
(b) Each of the Credit Parties and the Subsidiaries owns, or is licensed to use, all
trademarks, tradenames, copyrights, patents and other intellectual property material to its
business, and the use thereof by the Credit Parties and the Subsidiaries does not infringe upon the
rights of any other Person, except for any such infringements that, individually or in the
aggregate, would not reasonably be expected to result in a Material Adverse Effect.
SECTION 3.6. Litigation and Environmental Matters. (a) There are no actions, suits or proceedings
by or before any arbitrator or Governmental Authority pending against or, to the knowledge of any
Credit Party, threatened against or affecting any Credit Party or any
22
Subsidiary that (i) have not
been disclosed in the Disclosed Matters and as to which there is a reasonable possibility of an
adverse determination and that, if adversely determined, would reasonably be expected, individually
or in the aggregate, to result in a Material Adverse Effect or (ii) challenge or would reasonably
be expected to affect the legality, validity or enforceability of this Agreement.
(b) Except for the Disclosed Matters and except with respect to any other matters that,
individually or in the aggregate, would not reasonably be expected to result in a Material Adverse
Effect, neither of the Credit Parties nor any Subsidiary (i) has failed to comply with any
Environmental Law or to obtain, maintain or comply with any permit, license or other approval
required under any Environmental Law, (ii) has become subject to any Environmental Liability, (iii)
has received notice of any claim with respect to any Environmental Liability or (iv) knows of any
basis for any Environmental Liability.
SECTION 3.7. Compliance with Laws and Agreements. Each of the Credit Parties and the Subsidiaries
is in compliance with all laws, regulations and orders of any Governmental Authority applicable to
it or its property and all indentures, agreements and other instruments binding upon it or its
property, except where the failure to be so, individually or in the aggregate, would not reasonably
be expected to result in a Material Adverse Effect.
SECTION 3.8. Investment Company Status. Neither of the Credit Parties nor any of the Subsidiaries
is an “investment company” as defined in, or subject to regulation under, the Investment Company
Act of 1940, as amended.
SECTION 3.9. Taxes. Each of the Credit Parties and the Subsidiaries has timely filed or caused to
be filed all Tax returns and reports required to have been filed and has paid or caused to be paid
all Taxes required to have been paid by it, except (a) Taxes that are being contested in good faith
by appropriate proceedings and for which the Guarantor, the Borrower or such Subsidiary, as
applicable, has set aside on its books adequate reserves or (b) to the extent that the failure to
do so would not reasonably be expected to result in a Material Adverse Effect.
SECTION 3.10. ERISA. No ERISA Event has occurred or is reasonably expected to occur that, when
taken together with all other such ERISA Events for which liability is reasonably expected to
occur, would reasonably be expected to result in a Material Adverse Effect. The present value of
all accumulated benefit obligations under each Plan (based on the assumptions used for purposes of
Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent
financial statements reflecting such amounts, exceed by more than $25,000,000 the fair market value
of the assets of such Plan, and the present value of all accumulated benefit obligations of all
underfunded Plans (based on the assumptions used for purposes of Statement of Financial Accounting
Standards No. 87) did not, as of the date of the most recent financial statements reflecting such
amounts, exceed by more than $25,000,000 the fair market value of the assets of all such
underfunded Plans.
SECTION 3.11. Disclosure. None of the reports, financial statements, certificates or other
information furnished by or on behalf of the Credit Parties to the Lender in connection with the
negotiation of this Agreement or delivered hereunder (as modified or supplemented by other
information so furnished) contains any material misstatement of fact or
23
omits to state any material
fact necessary to make the statements therein, in the light of the circumstances under which they
were made, not misleading; provided that, with respect to projected financial information,
the Credit Parties represent only that such information was prepared in good faith based upon
assumptions believed to be reasonable at the time.
SECTION 3.12. Federal Regulations. No part of the proceeds of any Loans will be used for
“purchasing” or “carrying” any “margin stock” (within the respective meanings of each of the quoted
terms under Regulation U of the Board as now and from time to time hereafter in effect) in a manner
or in circumstances that would constitute or result in non-compliance by any Credit Party or the
Lender with the provisions of Regulations U, T or X of the Board. If requested by the Lender, the
Borrower will furnish to the Lender a statement to the foregoing effect in conformity with the
requirements of FR Form U-1 referred to in said Regulation U.
SECTION 3.13. Subsidiaries. As of the date hereof, the Guarantor has only the Subsidiaries set
forth on Schedule 3.13.
SECTION 3.14. Insurance. Each Credit Party and each Subsidiary of each Credit Party maintains
(pursuant to a self-insurance program and/or with financially sound and reputable insurers)
insurance with respect to its properties and business and against at least such liabilities,
casualties and contingencies and in at least such types and amounts as is customary in the case of
companies engaged in the same or a similar business or having similar properties similarly
situated.
ARTICLE IV
CONDITIONS
SECTION 4.1. Effective Date. Except as otherwise provided in Sections 4.2 and 4.3, this Agreement
shall become effective on the date on which each of the following conditions is satisfied (or
waived in accordance with Section 10.2):
(a) The Lender (or its counsel) shall have received from each party hereto a counterpart of
this Agreement signed on behalf of such party.
SECTION 4.2. Closing Date. The obligations of the Lender to make Loans hereunder shall not become
effective until the date on which each of the following conditions is satisfied (or waived in
accordance with Section 10.2):
(a) The Effective Date shall have occurred.
(b) The Lender shall have received reasonably satisfactory written opinion (addressed to the
Lender and dated the Closing Date) of Stinson Morrison Hecker LLP, special counsel for the Credit
Parties, substantially in the form of Exhibit D hereto, and covering such other matters relating to
the Credit Parties, the Loan Documents or the Transactions as the Lender shall reasonably request.
The Credit Parties hereby request such counsel to deliver such opinion.
24
(c) The Lender shall have received such documents and certificates as the Lender or its
counsel may reasonably request relating to the organization, existence and good standing of the
Credit Parties, the authorization of the Transactions and any other legal matters relating to the
Credit Parties, the Loan Documents or the Transactions, all in form and substance satisfactory to
the Lender and its counsel.
(d) The Lender shall have received a certificate, dated the Closing Date and signed by the
President, a Vice President or a Financial Officer of each Credit Party, confirming compliance with
the conditions set forth in paragraphs (a) and (b) of Section 4.3.
(e) All governmental and material third party approvals necessary in connection with the
execution, delivery and performance of this Agreement, the Security Agreement, the Control
Agreement and the HSBC TFS Letter shall have been obtained and be in full force and effect.
(f) The Lender shall have received a counterpart of the Security Agreement, duly executed
and delivered by the Borrower, and a counterpart of the HSBC TFS Letter, duly executed and
delivered by the parties thereto; and all filings and other actions necessary or appropriate to
perfect the security interest created by the Security Agreement shall have been made or taken.
(g) The Lender shall have received the results of searches of Uniform
Commercial Code filings in such jurisdictions as it shall deem appropriate and such searches shall
not reveal any filing that remains in effect and that describes any of the “Collateral” referred to
in the Security Agreement.
(h) The Borrower shall have invested $50,000,000 in the HSBC Investor Money Market Fund
managed by HSBC Investments (USA), Inc. and the Lender shall have received a counterpart of the
Control Agreement with respect to that investment, duly executed and delivered by the parties
thereto.
The Lender shall notify the Borrower of the Closing Date, and such notice shall be conclusive and
binding. Notwithstanding the foregoing, the obligation of the Lender to make Loans hereunder
shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant
to Section 10.2) at or prior to the Closing Date.
SECTION 4.3. Each Loan. The obligation of the Lender to make each Loan is subject to the
satisfaction of the following conditions:
(a) The representations and warranties of the Credit Parties set forth in Article III of this
Agreement (other than the representations and warranties set forth in subsections 3.4(b), 3.6(a)(i)
and 3.6(b)) shall be true and correct in all material respects on and as of the date of such Loan
(except to the extent related to a specific earlier date).
(b) At the time of and immediately after giving effect to such Loan, no Event of Default shall
have occurred and be continuing.
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Each Loan shall be deemed to constitute a representation and warranty by each of the Credit Parties
on the date thereof as to the matters specified in paragraphs (a) and (b) of this Section.
ARTICLE V
AFFIRMATIVE COVENANTS
Until the Commitment has expired or been terminated and the principal of and interest on each
Loan shall have been paid in full, each of the Credit Parties covenants and agrees with the Lender
that:
SECTION 5.1. Financial Statements and Other Information. The Borrower will furnish to the Lender:
(a) within 90 days after the end of each fiscal year of the Guarantor, an audited consolidated
balance sheet and related statements of operations, stockholders’ equity and cash flows of the
Guarantor and its consolidated Subsidiaries as of the end of and for such year, setting forth in
each case in comparative form the figures for the previous fiscal year, all reported on by KPMG LLP
or another independent registered public accounting firm of recognized national standing (without a
“going concern” or like qualification or exception and without any qualification or exception as to
the scope of such audit) to the effect that such consolidated financial statements present fairly
in all material respects the financial condition and results of operations of the Guarantor and its
consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied;
(b) (i) in the case of the Guarantor, within 45 days after the end of each of the first three
fiscal quarters of each fiscal year of the Guarantor and (ii) in the case of the Borrower, within
90 days after the end of each fiscal year of the Borrower, consolidated balance sheets and related
statements of operations and cash flows of the Borrower and the Guarantor and their consolidated
Subsidiaries, and the consolidated statement of stockholders’ equity of the Guarantor, as of the
end of and for such fiscal quarter (in the case of the Guarantor) and the then elapsed portion of
the fiscal year, setting forth in each case in comparative form the figures for the corresponding
period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal
year, all certified by a Financial Officer of the Borrower and the Guarantor as presenting fairly
in all material respects the financial condition and results of operations of the Borrower and the
Guarantor and their consolidated Subsidiaries on a consolidated basis in accordance with GAAP
consistently applied, subject to normal year-end audit adjustments and the absence of footnotes;
(c) concurrently with any delivery of financial statements under clause (a) or (b) above, a
certificate of a Financial Officer of the Borrower and the Guarantor (i) certifying as to whether a
Default has occurred and, if a Default has occurred, specifying the details thereof and any action
taken or proposed to be taken with respect thereto, (ii) setting forth reasonably detailed
calculations demonstrating compliance with Section 6.1 and (iii) stating whether any change in GAAP
or in the application thereof has occurred since the date of the
audited financial
26
statements
referred to in Section 3.4 and, if any such change has occurred, specifying the effect of such
change on the financial statements accompanying such certificate;
(d) promptly after the same become publicly available, copies of all periodic and other
reports, proxy statements and other materials (other than (i) statements of ownership such as Forms
3, 4 and 5 and Schedule 13G, (ii) routine filings relating to employee benefits, such as Forms S-8
and 11-K, and (iii) routine filings by (A) HRB Financial Corporation and its Subsidiaries,
including H&R Block Financial Advisors, Inc., (B) RSM McGladrey, Inc. and its Subsidiaries,
including Birchtree Financial Services, Inc., (C) RSM Equico, Inc. and its Subsidiaries, including
RSM Equico Capital Markets, LLC, (D) Option One Mortgage Corporation, (E) H&R Block Canada, Inc.
and (F) H&R Block Limited) filed by any Credit Party or any Subsidiary with the Securities and
Exchange Commission, or any Governmental Authority succeeding to any or all of the functions of
said Commission, or with any national
securities exchange, or distributed by any Credit Party to its shareholders generally, as the
case may be;
(e) a copy of any notice given by the Borrower under Section 4.1(b), Section 4.4(c) or Section
4.8 of the Participation Agreement, such copy to be provided at the same time as such notice is
given under the Participation Agreement; and
(f) promptly following any request therefor, such other information regarding the operations,
business affairs and financial condition of any Credit Party or any Subsidiary, or compliance with
the terms of this Agreement, as the Lender may reasonably request.
SECTION 5.2. Notices of Material Events. The Borrower will furnish to the Lender prompt written
notice of the following:
(a) the occurrence of any Default;
(b) the filing or commencement of any action, suit or proceeding by or before any arbitrator
or Governmental Authority against or affecting any Credit Party or any Affiliate thereof that is
reasonably likely to be adversely determined and, if so determined, would reasonably be expected to
result in a Material Adverse Effect;
(c) the occurrence of any ERISA Event that, alone or together with any other ERISA Events that
have occurred, would reasonably be expected to result in liability of the Borrower, the Guarantor
or any Subsidiary in an aggregate amount exceeding $25,000,000; and
(d) any other development that results in, or would reasonably be expected to result in, a
Material Adverse Effect.
Each notice delivered under this Section shall be accompanied by a statement of a Financial Officer
or other executive officer of the Borrower and the Guarantor setting forth the details of the event
or development requiring such notice and any action taken or proposed to be taken with respect
thereto.
SECTION 5.3. Existence; Conduct of Business. Each Credit Party will, and will cause each of the
Subsidiaries to, do or cause to be done all things necessary to preserve, renew
27
and keep in full
force and effect its legal existence and the rights, licenses, permits, privileges and franchises
material to the conduct of its business; provided that the foregoing shall not prohibit any
merger, consolidation, liquidation, disposition or dissolution permitted under Section 6.4.
SECTION 5.4. Payment of Taxes. Each Credit Party will, and will cause each of the Subsidiaries to,
pay its Tax liabilities that, if not paid, would reasonably be expected to have a Material Adverse
Effect before the same shall become delinquent, except where (a) the validity or amount thereof is
being contested in good faith by appropriate proceedings, (b) such Credit Party or such
Subsidiary has set aside on its books adequate reserves with respect thereto in accordance
with GAAP and (c) the failure to make payment pending such contest would not reasonably be expected
to result in a Material Adverse Effect.
SECTION 5.5. Maintenance of Properties; Insurance. Each Credit Party will, and will cause each of
the Subsidiaries to, (a) keep and maintain all property material to the conduct of its business in
good working order and condition, ordinary wear and tear excepted, and (b) maintain (pursuant to a
self-insurance program and/or with financially sound and reputable insurers) insurance in such
amounts and against such risks as is customarily maintained by companies engaged in the same or
similar businesses operating in the same or similar locations.
SECTION 5.6. Books and Records; Inspection Rights. Each Credit Party will, and will cause each of
the Subsidiaries to, keep proper books of record and account in which full, true and correct
entries are made of all dealings and transactions in relation to this Agreement and the
transactions contemplated hereby. Each Credit Party will, and will cause each of the Subsidiaries
to, permit any representatives designated by the Lender, upon reasonable prior notice, to visit and
inspect its properties, to examine and make extracts from its books and records, and to discuss its
affairs, finances and condition with its officers and independent accountants, all at such
reasonable times and as often as reasonably requested; provided that so long as no Event of
Default exists, each Credit Party and each Subsidiary shall have the right to be present and
participate in any discussions with its independent accountants. Nothing in this Section 5.6 shall
permit the Lender to examine or otherwise have access to the tax returns or other confidential
information of any customer of either Credit Party or any of their respective Subsidiaries.
SECTION 5.7. Compliance with Laws. Each Credit Party will, and will cause each of the Subsidiaries
to, comply with all laws, rules, regulations and orders of any Governmental Authority applicable to
it or its property, except where the failure to do so, individually or in the aggregate, would not
reasonably be expected to result in a Material Adverse Effect.
SECTION 5.8. Use of Proceeds. The proceeds of the Loans will be used only to purchase
Participation Interests in HSBC RALs pursuant to the Participation Agreement. No part of the
proceeds of any Loan will be used, whether directly or indirectly, for any purpose that entails a
violation of any of the regulations of the Board, including Regulations U and X.
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ARTICLE VI
NEGATIVE COVENANTS
Until the Commitment has expired or terminated and the principal of and interest on each Loan
have been paid in full, each of the Credit Parties covenants and agrees with the Lender that:
SECTION 6.1. Adjusted Net Worth. The Guarantor will not permit Adjusted Net Worth as at the last
day of any fiscal quarter of the Guarantor to be less than $1,000,000,000.
SECTION 6.2. Indebtedness. The Credit Parties will not, and will not permit any Subsidiary to
create, incur, assume or permit to exist any Indebtedness, except:
(a) subject to the proviso at the end of this Section 6.2, Indebtedness created under the Bank
Revolvers;
(b) Indebtedness existing on the date hereof and set forth in Schedule 6.2 and extensions,
renewals and replacements of any such Indebtedness that do not increase the outstanding principal
amount thereof;
(c) seasonal Indebtedness of H&R Block Canada, Inc., provided that the aggregate
principal amount of all such Indebtedness incurred pursuant to this subsection (c) shall not exceed
250,000,000 Canadian dollars at any time outstanding;
(d) Indebtedness of the Borrower and the Guarantor, provided that (i) the obligations
of the Credit Parties hereunder shall rank at least pari passu with such
Indebtedness (including with respect to security) and (ii) the aggregate principal amount of all
Indebtedness permitted by this subsection (d) shall not exceed $2,000,000,000 at any time
outstanding;
(e) subject to the proviso at the end of this Section 6.2, (i) Indebtedness in connection with
commercial paper issued in the United States through the Borrower which is guaranteed by the
Guarantor and (ii) Indebtedness under bank lines of credit or similar facilities;
(f) Indebtedness in connection with Guarantees of the performance of any Subsidiary’s
obligations under or pursuant to (i) indemnity, fee, daylight overdraft and other similar customary
banking arrangements between such Subsidiary and one or more financial institutions in the ordinary
course of business, (ii) any office lease entered into in the ordinary course of business, and
(iii) any promotional, joint-promotional, cross-promotional, joint marketing, service, equipment or
supply procurement, software license or other similar agreement entered into by such Subsidiary
with one or more vendors, suppliers, retail businesses or other third parties in the ordinary
course of business, including indemnification obligations relating to such Subsidiary’s failure to
perform its obligations under such lease or agreement;
(g) acquisition-related Indebtedness (either incurred or assumed) and Indebtedness in
connection with the Guarantor’s guarantees of the payment or performance of primary obligations of
Subsidiaries of the Guarantor in connection with acquisitions by such
29
Subsidiaries, or Indebtedness
secured by Liens permitted under subsection 6.3(f); provided that, during any fiscal year,
the aggregate outstanding principal amount of all Indebtedness incurred pursuant to this subsection
6.2(g) shall not exceed at any time $325,000,000;
(h) Indebtedness of any Credit Party to any other Credit Party, of any Credit Party to any
Subsidiary, of any Subsidiary to any Credit Party and of any Subsidiary to any other Subsidiary;
provided that such Indebtedness shall not be prohibited by Section 6.5;
(i) Indebtedness in connection with repurchase agreements pursuant to which mortgage loans of
a Credit Party or a Subsidiary are sold with the simultaneous agreement to repurchase the mortgage
loans at the same price plus interest at an agreed upon rate; provided that the aggregate
outstanding principal amount of all Indebtedness incurred pursuant to this subsection 6.2(i) shall
not at any time exceed $500,000,000; provided, further, that no agreed upon
repurchase date shall be later than 90 business days after the date of the corresponding repurchase
agreement;
(j) Indebtedness in connection with Guarantees or Guarantee Obligations which are made, given
or undertaken as representations and warranties, indemnities or assurances of the payment or
performance of primary obligations in connection with securitization transactions or other
transactions permitted hereunder, as to which primary obligations the primary obligor is a Credit
Party, a Subsidiary or a securitization trust or similar securitization vehicle to which a Credit
Party or a Subsidiary sold, directly or indirectly, the relevant mortgage loans;
(k) Indebtedness of RSM, a Subsidiary of the Guarantor, to McGladrey & Pullen, LLP
(“M&P”) and certain related trusts under (i) that certain Asset Purchase Agreement dated as
of June 28, 1999 among RSM, M&P, the Guarantor and certain other parties signatory thereto (the
“M&P Purchase Agreement”) and (ii) the Retired Partners Agreement and the Loan Agreement
(as such terms are defined in the M&P Purchase Agreement); provided that the aggregate
outstanding principal amount payable in respect of such Indebtedness permitted under this paragraph
(k) shall not exceed $200,000,000 at any time;
(l) Indebtedness in connection with (i) Capital Lease Obligations in an aggregate outstanding
principal amount not at any time exceeding $50,000,000 (excluding any Capital Lease Obligations
permitted by subsection 6.2(p)), (ii) obligations under existing mortgages in an aggregate
outstanding principal amount not exceeding $12,000,000 at any time, (iii) securities sold and not
yet purchased, provided that the aggregate outstanding principal amount of all Indebtedness
incurred pursuant to this clause (iii) (other than Indebtedness of Subsidiaries which act as
broker-dealers) shall not at any time exceed $15,000,000, (iv) customer deposits in the ordinary
course of business, (v) payables to brokers and dealers in the ordinary course of business and (vi)
reimbursement obligations of broker-dealers relating to letters of credit in favor of a clearing
corporation or Indebtedness of broker-dealers under other credit facilities, provided that
(A) such letters of credit or such other credit facilities are used solely to satisfy margin
deposit requirements and (B) the aggregate outstanding exposure of the Guarantor
and the Subsidiaries under all such letters of credit and all such other credit facilities
shall not exceed $200,000,000 at any time;
30
(m) subject to the proviso at the end of this Section 6.2, Indebtedness incurred in connection
with the Borrower’s Refund Anticipation Loan Program, including any Indirect RAL Participation
Transaction; provided that (i) such Indebtedness is incurred during the period beginning on
January 2 of any year and ending on June 29 of such year, (iii) such Indebtedness is repaid in full
by June 30 of the year in which such Indebtedness is incurred and (iii) the covenants contained in
any agreement relating to such Indebtedness, or guarantee thereof (other than covenants specific to
the Borrower’s Refund Anticipation Loan Program and the operation thereof), are no more restrictive
than the covenants contained in this Agreement;
(n) subject to the proviso at the end of this Section 6.2, liabilities related to the RAL
Receivables Transactions to the extent consistent with the definition thereof;
(o) Indebtedness in respect of letters of credit in an aggregate outstanding principal amount
not to exceed $100,000,000;
(p) Indebtedness in an amount not exceeding $150,000,000 in connection with the acquisition,
development or construction of the Guarantor’s new headquarters;
(q) deposits and other liabilities incurred by banking Subsidiaries in the ordinary course of
business;
(r) customary liabilities of broker-dealers incurred by broker-dealer Subsidiaries in the
ordinary course of business;
(s) Indebtedness issued by a Subsidiary of the Borrower and primarily secured by mortgage
loans sold as contemplated by Section 6.5(c) hereof to such Subsidiary by another Subsidiary of the
Borrower;
(t) Indebtedness secured by Liens permitted by subsection 6.3(d) or 6.3(e);
(u) Indebtedness incurred solely to finance businesses described on Schedule 6.4(b) after the
date hereof that neither the Credit Parties nor their respective Subsidiaries are currently engaged
in to any material extent on the date hereof; provided that the aggregate principal amount
of all Indebtedness incurred pursuant to this clause (u) shall not at any time exceed $400,000,000;
and
(v) other Indebtedness (excluding Indebtedness of the types described in subsections 6.2(a),
6.2(b)(ii), 6.2(e) and 6.2(m)) in an aggregate principal amount not at any time exceeding
$20,000,000;
provided, that the sum of the aggregate outstanding principal amount of all Indebtedness
permitted pursuant to subsections 6.2(a), 6.2(e) and 6.2(m) plus the RAL Receivables Amount
shall not at any time exceed the greater of (x) the Total Facility Commitments then in effect or
(y) the sum of the then outstanding principal amount of the “Loans” under the Bank Revolvers (such
sum, the “Total Facility Loan Outstandings”), except that, during the period from
January
2 of any year through June 30 of such year, such sum may exceed the greater of the Total Facility
Commitments then in effect or the then Total Facility Loan Outstandings by an amount
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up to the total of (A) the aggregate outstanding principal amount of Indebtedness described in Section 6.2(m) and (B) $500,000,000.
SECTION 6.3. Liens. Each Credit Party will not, and will not permit any Subsidiary to, create, incur, assume or
permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign
or sell any income or revenues (including accounts receivable) or rights in respect of any thereof,
except:
(a) Permitted Encumbrances;
(b) (i) any Lien created under or securing a Bank Revolver and (ii) any Lien on any property
or asset of any Credit Party or any Subsidiary existing on the date hereof and set forth in
Schedule 6.3; provided that (i) such Lien shall not apply to any other property or asset of
any Credit Party or any Subsidiary and (ii) such Lien shall secure only those obligations which it
secures on the date hereof and extensions, renewals and replacements thereof that do not increase
the outstanding principal amount thereof;
(c) any Lien existing on any property or asset prior to the acquisition thereof by any Credit
Party or any Subsidiary or existing on any property or asset of any Person that becomes a
Subsidiary after the date hereof prior to the time such Person becomes a Subsidiary;
provided that (i) such Lien is not created in contemplation of or in connection with such
acquisition or such Person becoming a Subsidiary, as the case may be, (ii) such Lien shall not
apply to any other property or assets of any Credit Party or any Subsidiary and (iii) such Lien
shall secure only those obligations which it secures on the date of such acquisition or the date
such Person becomes a Subsidiary, as the case may be, and extensions, renewals and replacements
thereof that do not increase the outstanding principal amount thereof;
(d) Liens and transfers in connection with the securitization, financing or other transfer of
any mortgage loans or mortgage servicing reimbursement rights (and/or, in each case, related
rights, interests and servicing assets) owned by the Borrower or any of its Subsidiaries;
(e) Liens and transfers in connection with the securitization or other transfer of any credit
card receivables (and/or related rights and interests) owned by the Borrower or any of its
Subsidiaries;
(f) Liens on fixed or capital assets acquired, constructed or improved by any Credit Party or
any Subsidiary to secure Indebtedness of such Credit Party or such Subsidiary incurred to finance
the acquisition, construction or improvement of such fixed or capital assets; provided that
(i) such Liens and the Indebtedness secured thereby are incurred prior to or within 90 days after
such acquisition or the completion of such construction or improvement, (ii) the Indebtedness
secured thereby does not exceed 100% of the cost of acquiring, constructing or improving such fixed
or capital assets and (iii) such Liens shall not apply to any other property or assets of any
Credit Party or any Subsidiary;
(g) Liens arising in connection with repurchase agreements contemplated by Section 6.2(i);
provided that such security interests shall not apply to any property or assets of
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any Credit Party or any Subsidiary except for the mortgage loans or securities, as applicable, subject
to such repurchase agreements;
(h) Liens arising in connection with Indebtedness permitted by Sections 6.2(l)(v) or 6.2(q),
which Liens are granted in the ordinary course of business;
(i) Liens not otherwise permitted by this Section 6.3 so long as the Obligations hereunder are
contemporaneously secured equally and ratably with the obligations secured thereby;
(j) Liens not otherwise permitted by this Section 6.3, so long as the aggregate outstanding
principal amount of the obligations secured thereby does not exceed (as to the Credit Parties and
all Subsidiaries) $250,000,000 at any one time;
(k) Liens and transfers in connection with the RAL Receivables Transaction;
(l) Liens securing Indebtedness permitted by subsection 6.2(u); and
(m) Liens on Unrestricted Margin Stock.
SECTION 6.4. Fundamental Changes; Sale of Assets. (a) Each Credit Party will not, and will not permit any Material Subsidiary to, merge into
or consolidate with any other Person, or permit any other Person to merge into or consolidate with
it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of
transactions) all or substantially all of its assets (other than Unrestricted Margin Stock), or all
or substantially all of the stock or assets related to its tax preparation business or liquidate or
dissolve, except (i) transfers in connection with the RAL Receivables Transaction and other
securitizations otherwise permitted hereby, (ii) sales and other transfers of mortgage loans
(and/or related rights and interests and servicing assets) and (iii) if at the time thereof and
immediately after giving effect thereto no Default shall have occurred and be continuing, (A) any
Material Subsidiary other than the Borrower may merge into a Credit Party in a transaction in which
the Credit Party is the surviving corporation, (B) any wholly owned Material Subsidiary other than the Borrower may merge into any other wholly owned Material Subsidiary in a
transaction in which the surviving entity is a wholly owned Subsidiary, (C) any Material Subsidiary
other than the Borrower may sell, transfer, lease or otherwise dispose of its assets to the
Guarantor or to another Material Subsidiary and (D) any Material Subsidiary other than the Borrower
may liquidate or dissolve if the Guarantor determines in good faith that such liquidation or
dissolution is in the best interests of the Guarantor and is not materially disadvantageous to the
Lender; provided that any such merger involving a Person that is not a wholly owned
Subsidiary immediately prior to such merger shall not be permitted unless also permitted by Section
6.5.
(b) Except as set forth on Schedule 6.4(b), the Credit Parties will not, and will not permit
any Material Subsidiary to, engage to any material extent in any business other than businesses of
the type conducted by the Credit Parties and the Subsidiaries on August 10, 2005 and businesses
reasonably related thereto.
SECTION 6.5. Transactions with Affiliates. Each Credit Party will not, and will not permit any Subsidiary to, sell, lease or otherwise
transfer any property or assets to, or
33
purchase, lease or otherwise acquire any property or assets
from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) in the
ordinary course of business at prices and on terms and conditions not less favorable to such Credit
Party or such Subsidiary than could be obtained on an arm’s-length basis from unrelated third
parties, (b) transactions between or among the Guarantor and/or its Subsidiaries not involving any
other Affiliate, and (c) transactions involving the transfer of mortgage loans and other assets for
cash and other consideration of not less than the sum of (i) the lesser of (x) the fair market
value of such mortgage loans and (y) the outstanding principal amount of such mortgage loans, and
(ii) the fair market value of such other assets, to a Subsidiary of the Borrower that issues
Indebtedness permitted by Section 6.2(s); provided, that this Section 6.5 shall not apply to any
transactions with OOMC.
SECTION 6.6. Restrictive Agreements. The Credit Parties will not, and will not permit any Subsidiary to, directly or indirectly,
enter into, incur or permit to exist any agreement or other arrangement that by its terms
prohibits, restricts or imposes any condition upon (a) the ability of any Credit Party or any
Subsidiary to create, incur or permit to exist any Lien upon any of its material property or assets
(unless such agreement or arrangement does not prohibit, restrict or impose any condition upon the
ability of either Credit Party or any Subsidiary to create, incur or permit to exist any Lien in
favor of the Lender created under the Loan Documents), or (b) the ability of any Subsidiary to pay
dividends or other distributions with respect to any shares of its capital stock or to make or
repay loans or advances to the Guarantor or any other Subsidiary or to Guarantee Indebtedness of
the Guarantor or any other Subsidiary; provided that (i) the foregoing shall not apply to
restrictions and conditions imposed by law or by this Agreement, (ii) the foregoing shall not apply
to restrictions and conditions existing on the date hereof identified on Schedule 6.6 (but shall
apply to any extension, renewal, amendment or modification expanding the scope of any such
restriction or condition), (iii) the foregoing shall not apply to customary restrictions and
conditions contained in agreements relating to the sale of a Subsidiary pending such sale, provided such restrictions and conditions apply only to the Subsidiary that is to be sold and
such sale is permitted hereunder, (iv) the foregoing shall not apply to customary restrictions and
conditions contained in agreements relating to the securitization, financing or other transfer of
mortgage loans (and/or related rights and interests and servicing assets) owned by the Borrower or
any of its Subsidiaries, (v) clause (a) of the foregoing shall not apply to restrictions or
conditions imposed by any agreement relating to secured obligations permitted by this Agreement
(including obligations secured by Liens permitted by Section 6.3(j)) if such restrictions or
conditions apply only to the property or assets securing such obligations, (vi) clause (a) of the
foregoing shall not apply to customary provisions in leases and other contracts restricting the
assignment thereof and (vii) clause (a) of the foregoing shall not apply to restrictions or
conditions imposed by any agreement relating to Indebtedness permitted hereunder pursuant to
subsection 6.2(m) or the RAL Receivables Transaction.
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ARTICLE VII
GUARANTEE
SECTION 7.1. Guarantee. (a) The Guarantor hereby unconditionally and irrevocably guarantees to the Lender and its
successors, indorsees, transferees and assigns, the prompt and complete payment and performance by
the Borrower when due (whether at the stated maturity, by acceleration or otherwise) of the
Obligations.
(b) The Guarantor further agrees to pay any and all expenses (including all fees and
disbursements of counsel) which may be paid or incurred by the Lender in enforcing, or obtaining
advice of counsel in respect of, any rights with respect to, or collecting, any or all of the
Obligations and/or enforcing any rights with respect to, or collecting against, the Guarantor under
this Article. This Article shall remain in full force and effect until the Obligations and the
obligations of the Guarantor under the guarantee contained in this Article shall have been
satisfied by payment in full and the Commitment shall be terminated, notwithstanding that from time
to time prior thereto the Borrower may be free from any Obligations.
(c) No payment or payments made by any Credit Party, any other guarantor or any other Person
or received or collected by the Lender from any collateral security or Credit Party or any other
Person by virtue of any action or proceeding or any set-off or appropriation or application, at any
time or from time to time, in reduction of or in payment of the Obligations shall be deemed to
modify, reduce, release or otherwise affect the liability of the Guarantor hereunder which shall,
notwithstanding any such payment or payments, remain liable hereunder for the Obligations until the
Obligations are paid in full and the Commitment is terminated.
(d) The Guarantor agrees that whenever, at any time or from time to time, it shall make any
payment to the Lender on account of its liability hereunder, it will notify the Lender in writing
that such payment is made under this Article for such purpose.
SECTION 7.2. Delay of Subrogation. Notwithstanding any payment or payments made by the Guarantor hereunder, or any set-off or
application of funds of the Guarantor by the Lender, the Guarantor shall not be entitled to be
subrogated to any of the rights of the Lender against the Borrower or against any collateral
security or guarantee or right of offset held by the Lender for the payment of the Obligations, nor
shall the Guarantor seek or be entitled to seek any contribution or reimbursement from the Borrower
in respect of payments made by the Guarantor hereunder, until all amounts owing to the Lender by
the Borrower on account of the Obligations are paid in full and the Commitment is terminated. If
any amount shall be paid to the Guarantor on account of such subrogation rights at any time when
all of the Obligations shall not have been paid in full, such amount shall be held by the Guarantor
in trust for the Lender, segregated from other funds of the Guarantor, and shall, forthwith upon
receipt by the Guarantor, be turned over to the Lender in the exact form received by the Guarantor
(duly indorsed by the Guarantor to the Lender, if required) to be applied against the Obligations,
whether matured or unmatured, in such order as the Lender may determine. The provisions of this
Section shall be effective notwithstanding the termination of this Agreement and the payment in
full of the Obligations and the termination of the Commitment.
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SECTION 7.3. Amendments, etc. with respect to the Obligations; Waiver of Rights. The Guarantor shall remain obligated hereunder notwithstanding that, without any
reservation of rights against the Guarantor, and without notice to or further assent by the
Guarantor, any demand for payment of any of the Obligations made by the Lender may be rescinded by
the Lender, and any of the Obligations continued, and the Obligations, or the liability of any
other party upon or for any part thereof, or any collateral security or guarantee therefor or right
of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended,
amended, modified, accelerated, compromised, waived, surrendered or released by the Lender, and
this Agreement and any other documents executed and delivered in connection herewith may be
amended, modified, supplemented or terminated, in whole or in part, in accordance with the
provisions hereof as the Lender may deem advisable from time to time, and any collateral security,
guarantee or right of offset at any time held by the Lender for the payment of the Obligations may
be sold, exchanged, waived, surrendered or released. The Lender shall not have any obligation to
protect, secure, perfect or insure any Lien at any time held by it as security for the Obligations
or for this Agreement or any property subject thereto. When making any demand hereunder against
the Guarantor, the Lender may, but shall be under no obligation to, make a similar demand on the
Borrower or any other guarantor, and any failure by the Lender to make any such demand or to
collect any payments from the Borrower or any such other guarantor or any release of the Borrower
or such other guarantor shall not relieve the Guarantor of its obligations or liabilities
hereunder, and shall not impair or affect the rights and remedies, express or implied, or as a
matter of law, of the Lender against the Guarantor. For the purposes hereof “demand” shall include
the commencement and continuance of any legal proceedings.
SECTION 7.4. Guarantee Absolute and Unconditional. The Guarantor waives any and all notice of the creation, renewal, extension or accrual of
any of the Obligations and notice of or proof of reliance by the Lender upon this Agreement or
acceptance of this Agreement; the Obligations, and any of them, shall conclusively be deemed to
have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance
upon this Agreement; and all dealings between the Borrower and the Guarantor, on the one hand, and
the Lender, on the other, shall likewise be conclusively presumed to have been had or consummated
in reliance upon this Agreement. The Guarantor waives diligence, presentment, protest, demand for
payment and notice of default or nonpayment to or upon the Borrower and the Guarantor with respect
to the Obligations. This Article shall be construed as a continuing, absolute and unconditional
guarantee of payment without regard to (a) the validity, regularity or enforceability of this
Agreement, any other documents executed and delivered in connection herewith, any of the
Obligations or any other collateral security therefor or guarantee or right of offset with respect
thereto at any time or from time to time held by the Lender, (b) any defense, set-off or
counterclaim (other than a defense of payment or performance) which may at any time be available to
or be asserted by the Guarantor against the Lender, or (c) any other circumstance whatsoever (with
or without notice to or knowledge of the Borrower or the Guarantor) which constitutes, or might be
construed to constitute, an equitable or legal discharge of the Borrower for the Obligations, or of
the Guarantor under this Article, in bankruptcy or in any other instance. When pursuing its rights
and remedies hereunder against the Guarantor, the Lender may, but shall be under no obligation to,
pursue such rights and remedies as it may have against the Borrower or any other Person or against
any collateral security or guarantee for the Obligations or any right of offset with respect
thereto, and any failure by the Lender to pursue such other
36
rights or remedies or to collect any payments from the Borrower or any such other Person or to realize upon any such collateral security
or guarantee or to exercise any such right of offset, or any release of the Borrower or any such
other Person or of any such collateral security, guarantee or right of offset, shall not relieve
the Guarantor of any liability hereunder, and shall not impair or affect the rights and remedies,
whether express, implied or available as a matter of law, of the Lender against the Guarantor.
This Article shall remain in full force and effect and be binding in accordance with and to the
extent of its terms upon the Guarantor and its successors and assigns, and shall inure to the
benefit of the Lender and its successors, indorsees, transferees and assigns, until all the
Obligations and the obligations of the Guarantor under this Agreement shall have been satisfied by
payment in full and the Commitment shall be terminated, notwithstanding that from time to time
during the term of this Agreement the Borrower may be free from any Obligations.
SECTION 7.5. Reinstatement. This Article shall continue to be effective, or be reinstated, as the case may be, if at
any time payment, or any part thereof, of any of the Obligations is rescinded or must otherwise be
restored or returned by the Lender upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of any Credit Party or upon or as a result of the appointment of a receiver,
intervenor or conservator of, or trustee or similar officer for, any Credit Party or any
substantial part of its property, or otherwise, all as though such payments had not been made.
SECTION 7.6. Payments. The Guarantor hereby agrees that all payments required to be made by it hereunder will be
made to the Lender without set-off or counterclaim in accordance with the terms of the Obligations,
including in the currency in which payment is due.
ARTICLE VIII
EVENTS OF DEFAULT
If any of the following events (“Events of Default”) shall occur:
(a) the Borrower shall fail to pay any principal of any Loan when and as the same shall become
due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or
otherwise;
(b) the Borrower shall fail to pay any interest on any Loan or any other amount (other than an
amount referred to in clause (a) of this Article) payable under this Agreement, when and as the
same shall become due and payable, and such failure shall continue unremedied for a period of five
business days;
(c) any representation or warranty made or deemed made by any Credit Party (or any of its
officers) in or in connection with this Agreement or any amendment or modification hereof, or in
any report, certificate, financial statement or other document furnished pursuant to or in
connection with this Agreement or any amendment or modification hereof, shall prove to have been
incorrect in any material respect when made or deemed made;
37
(d) any Credit Party shall fail to observe or perform any covenant, condition or agreement
contained in Section 5.2, 5.3 (with respect to the Credit Parties’ existence) or 5.8 or in Article
VI;
(e) any Credit Party shall fail to observe or perform any covenant, condition or agreement
contained in this Agreement (other than those specified in clause (a), (b) or (d) of this Article),
and such failure shall continue unremedied for a period of 30 days after notice thereof from the
Lender to the Borrower;
(f) any Credit Party or any Subsidiary shall fail to make any payment (whether of principal or
interest and regardless of amount) in respect of any Material Indebtedness, when and as the same
shall become due and payable (after expiration of any applicable grace or cure period);
(g) any event or condition occurs that results in any Material Indebtedness becoming due prior
to its scheduled maturity; provided that this clause (g) shall not apply to (i) secured
Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or
assets securing such Indebtedness or (ii) any obligation under a Hedging Agreement that becomes due
as a result of a default by a party thereto other than a Credit Party or a Subsidiary;
(h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed
seeking (i) liquidation, reorganization or other relief in respect of any Credit Party or any Material Subsidiary or its debts, or of a substantial part of its assets, under any
Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in
effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for any Credit Party or any Material Subsidiary or for a substantial part of its
assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days
or an order or decree approving or ordering any of the foregoing shall be entered;
(i) any Credit Party or any Material Subsidiary shall (i) voluntarily commence any proceeding
or file any petition seeking liquidation, reorganization or other relief under any Federal, state
or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii)
consent to the institution of, or fail to contest in a timely and appropriate manner, any
proceeding or petition described in clause (h) of this Article, (iii) apply for or consent to the
appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for
the Borrower or any Material Subsidiary or for a substantial part of its assets, (iv) file an
answer admitting the material allegations of a petition filed against it in any such proceeding,
(v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose
of effecting any of the foregoing;
(j) any Credit Party or any Material Subsidiary shall become unable, admit in writing or fail
generally to pay its debts as they become due;
(k) one or more final judgments for the payment of money shall be rendered against the
Guarantor, the Borrower, any Subsidiary or any combination thereof and either (i) a creditor shall
have commenced enforcement proceedings upon any such judgment in an aggregate amount (to the extent
not covered by insurance as to which the relevant insurance
38
company has not denied coverage) in excess of $40,000,000 (a “Material Judgment”) or (ii) there shall be a period of 30
consecutive days during which a stay of enforcement of any Material Judgment shall not be in effect
(by reason of pending appeal or otherwise) (it being understood that, notwithstanding the
definition of “Default”, no “Default” shall be triggered solely by the rendering of such a judgment
or judgments prior to the commencement of enforcement proceedings or the lapse of such 30
consecutive day period, so long as such judgments are capable of satisfaction by payment at any
time);
(l) an ERISA Event shall have occurred that, in the opinion of the Lender, when taken together
with all other ERISA Events that have occurred, would reasonably be expected to result in a
Material Adverse Effect;
(m) a Change in Control shall occur;
(n) the Guarantee contained in Article VII herein shall cease, for any reason, to be in full
force and effect in any material respect or any Credit Party shall so assert; or
(o) the Security Agreement, the Control Agreement or the HSBC TFS Letter shall for any reason
cease to be valid and binding on or enforceable against any Credit Party thereto; or any Credit
Party shall so state in writing or bring an action to limit its obligations or liabilities
thereunder;
(p) the Security Agreement shall for any reason (other than pursuant to the terms thereof)
cease to create a valid, perfected and first priority security interest in the Collateral purported
to be covered thereby;
(q) any representation or warranty made or deemed made by any Credit Party in the Security
Agreement, the Control Agreement or the HSBC TFS Letter shall prove to have been incorrect in any
material respect when made or deemed made; or
(r) any Credit Party shall fail to observe or perform any covenant or agreement (other than
as specified in clauses (o), (p) and (q) of this Article) contained in the Security Agreement, the
Control Agreement or the TFS Letter Agreement;
then, and in every such event (other than an event with respect to the Credit Parties described in
clause (h) or (i) of this Article), and at any time thereafter during the continuance of such
event, the Lender may, by notice to the Borrower, take either or both of the following actions, at
the same or different times: (i) terminate the Commitment, and thereupon the Commitment shall
terminate immediately, and (ii) declare the Loans then outstanding to be due and payable in whole
(or in part, in which case any principal not so declared to be due and payable may thereafter be
declared to be due and payable), and thereupon the principal of the Loans so declared to be due and
payable, together with accrued interest thereon and all fees and other Obligations of the Credit
Parties accrued hereunder, shall become due and payable immediately, without presentment, demand,
protest or other notice of any kind, all of which are hereby waived by the Credit Parties; and in
case of any event with respect to the Credit Parties described in clause (h) or (i) of this
Article, the Commitment shall automatically terminate and the principal
39
of the Loans then outstanding, together with accrued interest thereon and all fees and other Obligations of the
Credit Parties accrued hereunder, shall automatically become due and payable, without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by the Credit Parties.
ARTICLE IX
[RESERVED]
ARTICLE X
MISCELLANEOUS
SECTION 10.1. Notices. Except in the case of notices and other communications expressly permitted to be given by
telephone and except as otherwise provided in Sections 2.3, 2.6 and 2.8, all notices and other
communications provided for herein shall be in writing and shall be delivered by hand or overnight
courier service, mailed by certified or registered mail or sent by telecopy, as follows:
(a) if to the Borrower or the Guarantor, to it at One H&R Block Way, Kansas City, Missouri
64105, Attention of Becky Shulman (Telecopy No. (816) 854-8043), David Staley (Telecopy No. (816)
854-8043) and Andrew Somora (Telecopy No. (816) 802-1043); and
(b) if to the Lender, to it at 2700 Sanders Road, Prospect Heights, Illinois 60070,
attention: Treasurer (Telecopy No. (847) 205-7538), with copies to 2700 Sanders Road, Prospect
Heights, Illinois 60070, attention: Deputy General Counsel- Corporate Law (Telecopy No.(847)
564-6366), HSBC Securities, Inc., 425 Fifth Avenue, Lower Level, New York, N.Y. 10018 (Telecopy No.
(212) 525-2479), attention Peter Nealon, HSBC Taxpayer Financial Services Inc., 200 Somerset
Corporate Boulevard, Bridgewater, N.J. 08807 (Telecopy No. (908) 203-4211, attention: CEO and
Managing Director, and HSBC Taxpayer Financial Services Inc., 90 Christiana Road, New Castle, DE
19707 (Telecopy No. (302) 327-2507, attention: General Counsel; provided, that notices under
Section 10.3 need only be given to Mr. Kyle Hartung at telephone number (847) 564-6281, confirmed
by telecopy at (847) 564-6138.
Any party hereto may change its address or telecopy number for notices and other communications
hereunder by notice to the other parties hereto. All notices and other communications given to any
party hereto in accordance with the provisions of this Agreement shall be deemed to have been given
on the date of receipt. For so long as any Affiliate of the Lender is a “Lender” under either of
the Bank Revolvers, the Lender will accept delivery of any financial statement or other information
to be delivered under Section 5.1(a), (b) and(d) hereunder that is posted to Intralinks. The
Lender, the Borrower or the Guarantor may, in its
40
discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it;
provided that approval of such procedures may be limited to particular notices or
communications.
SECTION 10.2. Waivers; Amendments. (a) No failure or delay by the Lender in exercising any right or power hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any such right or power,
or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other
or further exercise thereof or the exercise of any other right or power. The rights and remedies
of the Lender hereunder are cumulative and are not exclusive of any rights or remedies that they
would otherwise have. No waiver of any provision of this Agreement or consent to any departure by
the Credit Parties therefrom shall in any event be effective unless the same shall be permitted by
paragraph (b) of this Section, and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given. Without limiting the generality of the
foregoing, the making of a Loan shall not be construed as a waiver of any Default, regardless of
whether the Lender may have had notice or knowledge of such Default at the time.
(b) Neither this Agreement nor any provision hereof may be waived, amended or modified except
pursuant to an agreement or agreements in writing entered into by the Credit Parties and the
Lender.
SECTION 10.3. Expenses; Indemnity; Damage Waiver. (a) The Borrower shall pay all reasonable and documented out-of-pocket expenses incurred by
the Lender, including the reasonable and documented fees, charges and disbursements of any counsel
for the Lender, in connection with the enforcement or protection of its rights in connection with
this Agreement, including its rights under this Section, or in connection with the Loans made
hereunder, including in connection with any workout, restructuring or negotiations in respect
thereof.
(b) The Credit Parties shall jointly and severally indemnify the Lender and each Related
Party of the Lender (each such Person being called an “Indemnitee”), against, and hold each
Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses,
including the fees, charges and disbursements of any counsel for any Indemnitee, incurred by or
asserted against any Indemnitee arising out of, in connection with, or as a result of the material
breach by any Credit Party of any representation, warranty, covenant or agreement in this
Agreement, the Security Agreement, the Control Agreement or the HSBC TFS Letter; provided
that such indemnity shall not be available to the extent that such losses, claims, damages,
liabilities or related expenses are determined by a court of competent jurisdiction by final and
nonappealable judgment to have resulted from the gross negligence or willful misconduct of any
Indemnitee or any of its Related Parties.
(c) No party to this Agreement shall be liable for lost profits, incidental, consequential,
exemplary, special or punitive damages arising under or in connection with this Agreement, the
Security Agreement, the Control Agreement or the HSBC TFS Letter, or the transaction contemplated
hereby or thereby.
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SECTION 10.4. Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns permitted hereby, except that no Credit
Party may assign or otherwise transfer any of its rights or obligations hereunder without the prior
written consent of the Lender (and any attempted assignment or transfer by any Credit Party without
such consent shall be null and void). Nothing in this Agreement, expressed or implied, shall be
construed to confer upon any Person (other than the parties hereto, their respective successors and
assigns permitted hereby and, to the extent expressly contemplated hereby, the Related Parties of
the Lender) any legal or equitable right, remedy or claim under or by reason of this Agreement.
(b) The Lender may assign to one or more assignees all or a portion of its rights under this
Agreement (including all or a portion of the Loans at the time owing to it); provided that
the Borrower must give its prior written consent to such assignment (which consent shall not be
unreasonably withheld); provided, further, that any consent of the Borrower otherwise required under this paragraph shall not be required if an Event of Default has
occurred and is continuing. Any assignment or transfer by the Lender of rights under this
Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement
as a sale by the Lender of a participation in such rights and obligations in accordance with
paragraph (c) of this Section.
(c) The Lender may, without the consent of any Credit Party, sell participations to one or
more banks or other entities (a “Participant”) in all or a portion of the Lender’s rights
and obligations under this Agreement (including all or a portion of its Commitment and the Loans
owing to it); provided that (i) the Lender’s obligations under this Agreement shall remain
unchanged, (ii) the Lender shall remain solely responsible to the other parties hereto for the
performance of the obligations and (iii) the Credit Parties shall continue to deal solely and
directly with the Lender in connection with the Lender’s rights and obligations under this
Agreement. Any agreement or instrument pursuant to which the Lender sells such a participation
shall provide that the Lender shall retain the sole right to enforce this Agreement and to approve
any amendment, modification or waiver of any provision of this Agreement; provided that
such agreement or instrument may provide that such Lender will not, without the consent of the
Participant, agree to any amendment, modification or waiver of or under this Agreement that shall
(i) increase the Commitment, (ii) reduce the principal amount of any Loan or reduce the rate of
interest thereon, (iii) postpone the scheduled date of payment of the principal amount of any Loan,
or any interest thereon, or reduce the amount of, waive or excuse any such payment, or postpone the
scheduled date of expiration of the Commitment, (iv) release any security provided for in the
Security Agreement, (v) release the guarantee contained in Article VII or (vi) change any of the
provisions of this Section. Subject to paragraph (d) of this Section, the Borrower agrees that
each Participant shall be entitled to the benefits of Sections 2.9 and 2.10 to the same extent as
if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this
Section.
(d) A Participant shall not be entitled to receive any greater payment under Section 2.9 or
2.10 than the Lender would have been entitled to receive with respect to the participation sold to
such Participant, unless the sale of the participation to such Participant is made with the
Borrower’s prior written consent.
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(e) The Lender may at any time pledge or assign a security interest in all or any portion of
its rights under this Agreement to secure obligations of the Lender, including any such pledge or
assignment to a Federal Reserve Bank, and this Section shall not apply to any such pledge or
assignment of a security interest; provided that no such pledge or assignment of a security
interest shall release the Lender from any of its obligations hereunder or substitute any such
assignee for the Lender as a party hereto.
SECTION 10.5. Survival. All covenants, agreements, representations and warranties made by the Credit Parties herein
and in the certificates or other instruments delivered in connection with or pursuant to this
Agreement shall be considered to have been relied upon by the other parties hereto and shall
survive the execution and delivery of this Agreement and the making of any Loans regardless of any
investigation made by any such other party or on its behalf and notwithstanding that the Lender may have had notice or knowledge of any Default or incorrect
representation or warranty at the time any credit is extended hereunder, and shall continue in full
force and effect as long as the principal of or any accrued interest on any Loan or any other
amount payable under this Agreement is outstanding and unpaid and so long as the Commitment has not
expired or terminated. The provisions of Sections 2.9, 2.10, 10.3, 10.9, 10.10 and 10.l5 shall
survive and remain in full force and effect regardless of the consummation of the transactions
contemplated hereby, the repayment of the Loans, the expiration or termination of the Commitment or
the termination of this Agreement or any provision hereof.
SECTION 10.6. Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto on
different counterparts), each of which shall constitute an original, but all of which when taken
together shall constitute a single contract. This Agreement and the documents provided for herein
constitute the entire contract among the parties relating to the subject matter hereof and
supersede any and all previous agreements and understandings, oral or written, relating to the
subject matter hereof. Except as provided in Section 4.1, this Agreement shall become effective
when it shall have been executed by the Lender and when the Lender shall have received counterparts
hereof which, when taken together, bear the signatures of each of the other parties hereto, and
thereafter shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. Delivery of an executed counterpart of a signature page of this
Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this
Agreement.
SECTION 10.7. Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity,
illegality or unenforceability without affecting the validity, legality and enforceability of the
remaining provisions hereof; and the invalidity of a particular provision in a particular
jurisdiction shall not invalidate such provision in any other jurisdiction.
SECTION 10.8. Right of Setoff. If an Event of Default shall have occurred and be continuing, the Lender is hereby
authorized at any time and from time to time, to the fullest extent permitted by law, to set off
and apply any and all indebtedness at any time owing by the Lender to or for the credit or the
account of either Credit Party against any of and all the obligations of such Credit Party now or
hereafter existing under this Agreement held by the Lender, irrespective of whether or not the
Lender shall have made any demand under this
43
Agreement and although such obligations may be
unmatured. The rights of the Lender under this Section are in addition to other rights and
remedies (including other rights of setoff) which such Lender may have.
SECTION 10.9. Governing Law; Jurisdiction; Consent to Service of Process. (a) This Agreement shall be construed in accordance with and governed by the law of the
State of New York.
(b) Each Credit Party hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in
New York County and of the United States District Court of the Southern District of New York, and
any appellate court from any thereof, in connection with any Proceeding, and each of the parties
hereto hereby irrevocably and unconditionally agrees that all claims in respect of any Proceeding
may be heard and determined in such New York State or, to the extent permitted by law, in such
Federal court. Each of the parties hereto agrees that a final judgment in any such Proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any
other manner provided by law. Nothing in this Agreement shall affect any right that the Lender may
otherwise have to bring any Proceeding relating to this Agreement against any Credit Party or its
properties in the courts of any jurisdiction.
(c) Each Credit Party hereby irrevocably and unconditionally waives, to the fullest extent it
may legally and effectively do so, any objection which it may now or hereafter have to the laying
of venue of any Proceeding arising out of or relating to this Agreement in any court referred to in
paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the
fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such
Proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to service of process in the manner
provided for notices in Section 10.1 in connection with a Proceeding. Nothing in this Agreement
will affect the right of any party to this Agreement to serve process in any other manner permitted
by law in connection with a Proceeding.
SECTION 10.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY
RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT,
TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT
AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS,
THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
44
SECTION 10.11. Headings. Article and Section headings and the Table of Contents used herein are for convenience of
reference only, are not part of this Agreement and shall not affect the construction of, or be
taken into consideration in interpreting, this Agreement.
SECTION 10.12. Confidentiality. The Lender agrees to maintain the confidentiality of the Information (as defined below),
except that Information may be disclosed (a) to its and its Affiliates’ directors, officers,
employees and agents, including accountants, legal counsel and other advisors (it being understood
that the Persons to whom such disclosure is made will be informed of the confidential nature of
such Information and instructed to keep such Information confidential), (b) to the extent requested
by any regulatory authority, (c) to the extent required by applicable laws or regulations or by
any subpoena or similar legal process, (d) to any other party to this Agreement, (e) in connection
with the exercise of any remedies hereunder or any suit, action or proceeding relating to this
Agreement or the enforcement of rights hereunder, (f) subject to an agreement containing provisions
substantially the same as those of this Section, to any assignee of or Participant in, or any
prospective assignee of or Participant in, any of its rights or obligations under this Agreement,
(g) with the consent of the Borrower or (h) to the extent such Information (i) becomes publicly
available other than as a result of a breach of this Section by it or (ii) becomes available to the
Lender on a nonconfidential basis from a source other than any Credit Party; provided, that the
Lender may file this Agreement with the Securities and Exchange Commission. For the purposes of
this Section, “Information” means all information received from any Credit Party relating
to any Credit Party or its business, other than any such information that is available to the
Lender on a nonconfidential basis prior to disclosure by such Credit Party; provided that,
in the case of information received from any Credit Party after the date hereof, such information
is clearly identified at the time of delivery as confidential. The Lender shall be considered to
have complied with its obligation under this Section if it has exercised the same degree of care to
maintain the confidentiality of such Information as it would accord to its own confidential
information.
SECTION 10.13. Interest Rate Limitation. Notwithstanding anything herein to the contrary, if at any time the interest rate
applicable to any Loan, together with all fees, charges and other amounts which are treated as
interest on such Loan under applicable law (collectively the “Charges”), shall exceed the
maximum lawful rate (the “Maximum Rate”) which may be contracted for, charged, taken,
received or reserved by the Lender holding such Loan in accordance with applicable law, the rate of
interest payable in respect of such Loan hereunder, together with all Charges payable in respect
thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges
that would have been payable in respect of such Loan but were not payable as a result of the
operation of this Section shall be cumulated and the interest and Charges payable to the Lender in
respect of other Loans or periods shall be increased (but not above the Maximum Rate therefor)
until such cumulated amount, together with interest thereon at the Federal Funds Effective Rate to
the date of repayment, shall have been received by the Lender.
SECTION 10.14. USA Patriot Act.
The Lender hereby notifies the Borrower that pursuant to the requirements of the USA Patriot
Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”), it is
45
required to obtain, verify and record information that identifies the Borrower, which information
includes the name and address of the Borrower and other information that will allow the Lender to
identify the Borrower in accordance with the Act.
SECTION 10.15.Alternative Dispute Resolution. EXCEPT IN THE CASE OF (1) A MATERIAL
PROCEEDING, (2) JUDICIAL ACTION FOR SPECIFIC PERFORMANCE, (3) INJUNCTIVE RELIEF OR (4) ENFORCEMENT
OF ANY MEDIATION OR ARBITRATION AWARD, ANY DISPUTE BETWEEN OR AMONG THE PARTIES HERETO ARISING OUT
OF OR RELATING TO THIS AGREEMENT, THE SECURITY AGREEMENT, THE CONTROL AGREEMENT, OR THE HSBC TFS
LETTER, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY SHALL BE RESOLVED AMONG THE PARTIES TO
SUCH DISPUTE BY NEGOTIATION, MEDIATION AND ARBITRATION IN ACCORDANCE WITH THE PROVISIONS OF ARTICLE
XXI OF THE RETAIL SETTLEMENT PRODUCTS DISTRIBUTION AGREEMENT, WHICH ARE INCORPORATED HEREIN BY
REFERENCE.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION
WHICH MAY BE ENFORCED BY THE PARTIES.
WHICH MAY BE ENFORCED BY THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their
respective authorized officers as of the day and year first above written.
| BLOCK FINANCIAL CORPORATION, as Borrower |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| H&R BLOCK, INC., as Guarantor |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| HSBC FINANCE CORPORATION, as Lender |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
SCHEDULE 3.4(a)
Guarantee Obligations
| • | Guarantee Obligations with respect to obligations (including obligations under operating leases) reflected on the Guarantor’s consolidated balance sheet as of April 30, 2006 or in the notes thereto. |
SCHEDULE 3.6
Disclosed Matters
| • | On December 18, 2006, the New York Attorney General re-filed the lawsuit related to the Express IRA product, as more particularly described in the Guarantor’s quarterly report on Form 10-Q for the quarter ended October 31, 2006. |
SCHEDULE 3.13
Subsidiaries
The following is a list of the direct and indirect subsidiaries of H&R Block, Inc., a
Missouri corporation.
| Name | Jurisdiction | |||
1) H&R Block Group, Inc.
|
Delaware | |||
2) HRB Management, Inc.
|
Missouri | |||
3) H&R Block Tax and Financial Services Limited
|
United Kingdom | |||
4) Companion Insurance, Ltd.
|
Bermuda | |||
5) H&R Block Services, Inc.
|
Missouri | |||
6) H&R Block Tax Services, Inc.
|
Missouri | |||
7) HRB Partners, Inc.
|
Delaware | |||
8) HRB Texas Enterprises, Inc.
|
Missouri | |||
9) H&R Block and Associates, L.P.
|
Delaware | |||
10) H&R Block Canada, Inc.
|
Canada | |||
11) Financial Stop, Inc.
|
British Columbia | |||
12) H&R Block Canada Financial Services, Inc.
|
Canada | |||
13) H&R Block (Nova Scotia) Incorporated
|
Nova Scotia | |||
14) H&R Block Enterprises, Inc.
|
Missouri | |||
15) H&R Block Eastern Enterprises, Inc.
|
Missouri | |||
16) The Tax Man, Inc.
|
Massachusetts | |||
17) HRB Royalty, Inc.
|
Delaware | |||
18) H&R Block Limited.
|
New South Wales | |||
| Name | Jurisdiction | |||
19) West Estate Investors, LLC
|
Missouri | |||
20) H&R Block Global Solutions (Hong Kong) Limited
|
Hong Kong | |||
21) Black Orchard Financial, Inc.
|
Delaware | |||
22) H&R Block Tax and Business Services, Inc.
|
Delaware | |||
23) H&R Block Tax Institute, LLC
|
Missouri | |||
24) Block Financial Corporation
|
Delaware | |||
25) Option One Mortgage Corporation
|
California | |||
26) Option One Mortgage Acceptance Corporation
|
Delaware | |||
27) Option One Mortgage Securities Corp.
|
Delaware | |||
28) Option One Mortgage Securities II Corp.
|
Delaware | |||
29) Premier Trust Deed Services, Inc.
|
California | |||
30) Premier Mortgage Services of Washington, Inc.
|
Washington | |||
31) H&R Block Mortgage Corporation
|
Massachusetts | |||
32) Option One Insurance Agency, Inc. (d/b/a H&R
Block Insurance Agency)
|
California | |||
33) Woodbridge Mortgage Acceptance Corporation
|
Delaware | |||
34) Option One Loan Warehouse Corporation
|
Delaware | |||
35) Option One Advance Corporation
|
Delaware | |||
36) AcuLink Mortgage Solutions, LLC
|
Florida | |||
37) AcuLink of Alabama, LLC
|
Alabama | |||
38) Option One Mortgage Corporation (India) Pvt Ltd
|
India | |||
39) Option One Mortgage Capital Corporation
|
Delaware | |||
40) First Option Asset Management Services, LLC
|
California | |||
41) Premier Property Tax Services, LLC
|
California | |||
| Name | Jurisdiction | |||
42) First Option Asset Management Services, Inc.
|
California | |||
43) Companion Mortgage Corporation
|
Delaware | |||
44) Franchise Partner, Inc.
|
Nevada | |||
45) HRB Financial Corporation
|
Michigan | |||
46) H&R Block Financial Advisors, Inc.
|
Michigan | |||
47) OLDE Discount of Canada
|
Canada | |||
48) H&R Block Insurance Agency of Massachusetts,
Inc.
|
Massachusetts | |||
49) HRB Property Corporation
|
Michigan | |||
50) HRB Realty Corporation
|
Michigan | |||
51) 4230 West Green Oaks, Inc.
|
Michigan | |||
52) Financial Marketing Services, Inc.
|
Michigan | |||
53) 2430472 Nova Scotia Co.
|
Nova Scotia | |||
54) H&R Block Digital Tax Solutions, LLC
|
Delaware | |||
55) TaxNet Inc.
|
California | |||
56) H&R Block Bank
|
Federal | |||
57) BFC Transactions, Inc.
|
Delaware | |||
58) RSM McGladrey Business Services, Inc.
|
Delaware | |||
59) RSM McGladrey, Inc.
|
Delaware | |||
60) RSM McGladrey Financial Process Outsourcing,
L.L.C.
|
Minnesota | |||
61) RSM McGladrey Financial Process Outsourcing
India Pvt. Ltd (70% ownership)
|
India | |||
62) Birchtree Financial Services, Inc.
|
Oklahoma | |||
63) Birchtree Insurance Agency, Inc.
|
Missouri | |||
64) Pension Resources, Inc.
|
Illinois | |||
| Name | Jurisdiction | |||
65) FM Business Services, Inc. (d/b/a Freed Maxick
ABL Services)
|
Delaware | |||
66) O’Rourke Career Connections, LLC (50% ownership)
|
California | |||
67) Credit Union Jobs, LLC
|
California | |||
68) RSM McGladrey TBS, LLC
|
Delaware | |||
69) PDI Global, Inc.
|
Delaware | |||
70) RSM Equico, Inc.
|
Delaware | |||
71) RSM Equico Capital Markets, LLC
|
Delaware | |||
72) Equico, Inc.
|
California | |||
73) Equico Europe Limited
|
United Kingdom | |||
74) RSM Equico Canada, Inc.
|
Canada | |||
75) RSM McGladrey Business Solutions, Inc. (d/b/a
RSM McGladrey Retirement Resources)
|
Delaware | |||
76) CFS-McGladrey, LLC (50% ownership)
|
Massachusetts | |||
77) Creative Financial Staffing of Western
Washington, LLC (50% ownership)
|
Massachusetts | |||
78) Cfstaffing, Ltd. (25% ownership)
|
British Columbia | |||
79) RSM McGladrey Insurance Services, Inc.
|
Delaware | |||
80) PWR Insurance Services, Inc.
|
California | |||
81) RSM McGladrey Employer Services, Inc.
|
Georgia | |||
82) RSM Employer Services Agency, Inc.
|
Georgia | |||
83) RSM Employer Services Agency of Florida, Inc.
|
Florida | |||
84) H&R Block (India) Pvt. Ltd.
|
India | |||
85) RSM (Bahamas) Global, Ltd.
|
Bahamas | |||
SCHEDULE 6.2
Existing Indebtedness
| • | The Irrevocable Standby Letter of Credit issued on March 22, 2004 by KeyBank National Association in favor of Old Republic Insurance Company for an amount up to $16,509,269. |
| • | Irrevocable Standby Letter of Credit issued on December 18, 2003 by KeyBank National Association in favor of Pacific Employer’s Insurance Company and ACE American Insurance Company for an amount up to $865,650. |
| • | Irrevocable Standby Letter of Credit issued on February 16, 2005 by KeyBank National Association in favor of Chubb National Company for an amount up to $3,500,000. |
| • | Promissory Note dated December 6, 2001 in the principal amount of $5,500,000 between MyBenefitSource.com, Inc. (now RSM McGladrey Employer Services, Inc.) and AUSA Holdings Company. |
| • | The Guarantor’s and Subsidiaries’ obligations under surety bonds and fidelity bonds issued pursuant to state mortgage licensing requirements. |
SCHEDULE 6.3
Existing Liens
None.
SCHEDULE 6.4(b)
ADDITIONAL BUSINESSES
| • | Businesses that offer products and services typically provided by finance companies, banks and other financial service providers, including consumer finance and mortgage-loan related products and services, credit products, insurance products, check cashing, money orders, wire transfers, stored value cards, bill payment services, notary services and similar products and services. |
| • | Businesses that offer financial, or financial-related, products and services that can be marketed, provided or distributed by leveraging the retail locations of Guarantor’s Subsidiaries or the relationships of such Subsidiaries with their clients as a tax return preparer or financial advisor or service provider. |
SCHEDULE 6.6
Existing Restrictions
| • | Indenture dated as of October 20, 1997, by and between the Credit Parties and Bankers Trust Company, as trustee (the “October 20, 1997 Indenture”). |
| • | Any other Indenture entered into by any Credit Party to the extent that (a) the Indebtedness thereunder is permitted by Section 6.2(d) of this Agreement and (b) such other Indenture has substantially similar terms to the October 20, 1997 Indenture. |
| • | Repurchase Agreements of the type referred to in Section 6.2(i) of this Agreement. |
| • | Certain Subsidiaries must maintain capital requirements which could impair their ability to pay dividends or other distributions. |
EXHIBIT A
[FORM OF SECURITY AGREEMENT]
SECURITY AGREEMENT
SECURITY AGREEMENT dated as of January 2, 2007 between BLOCK FINANCIAL CORPORATION
(“Debtor”), a Delaware corporation, and HSBC FINANCE CORPORATION (“Secured Party”),
a Delaware corporation.
WHEREAS, Debtor, Secured Party and H&R Block, Inc. have entered into a Credit and Guarantee
Agreement dated as of January 2, 2007 (as amended, restated or otherwise modified and in effect
from time to time, the “Credit Agreement”) pursuant to which Secured Party has agreed,
subject to the terms and conditions thereof, to make loans to Debtor from time to time.
WHEREAS, Secured Party has required, as a condition to its making loans under the Credit
Agreement, that Debtor execute and deliver this Agreement.
NOW, THEREFORE, in consideration of the premises and to induce Secured Party to make loans to
Debtor under the Credit Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Definitions. Capitalized terms used herein without definition are used herein as
defined in the Credit Agreement. In addition, the following terms shall have the following
meanings:
“BFC Program Contracts” means, collectively, the Indemnification Agreement, the
Participation Agreement and the Servicing Agreement.
“Collateral” is defined in Section 2 hereof.
“Contract Obligor” means any Person that is obligated to Debtor under a Program
Contract.
“Control Agreement” means the Investment Account Control Agreement between Debtor,
Secured Party and the Securities Intermediary with respect to the Securities Account, in
substantially the form of Exhibit B to the Credit Agreement.
“Direct Pay Provisions” means the provisions of paragraph 2 of the HSBC TFS
Letter.
“HSBC RAL” means “HSBC RAL” as such term is defined in the Appendix of Defined Terms
and Rules of Construction attached as Appendix A to Retail Settlement Products Distribution
Agreement.
“HSBC TFS” means HSBC Taxpayer Financial Services, Inc., a Delaware corporation.
“HSBC TFS Letter” means a letter agreement between Debtor, HSBC TFS and Secured Party
in substantially the form of Exhibit C to the Credit Agreement.
“Indemnification Agreement” means the HSBC Settlement Products Indemnification
Agreement dated as of September 23, 2005 among HSBC Bank USA, N.A., HSBC TFS, Household Tax Masters
Acquisition Corporation, Beneficial Franchise Company, Inc., H&R Block Services, Inc., H&R Block
Tax Services, Inc., H&R Block Enterprises, Inc., H&R Block Eastern Enterprises, Inc., H&R Block
Digital Tax Solutions, LLC, Block Associates, L.P., HRB Royalty, Inc. and Debtor, as amended from
time to time, and any restatement, extension, renewal and replacement thereof.
“Participation Agreement” means the HSBC Refund Anticipation Loan Participation
Agreement, dated as of September 23, 2005, as amended from time to time, and any restatement,
extension, renewal and replacement thereof, by and among Household Tax Masters Acquisition
Corporation, the Borrower, HSBC Bank USA, National Association, HSBC TFS and HSBC Trust Company
(Delaware), National Association.
“Participation Interest” means a “Participation Interest” under and as defined in the
Credit Agreement.
“Securities Account” means account number 615878 maintained by Debtor with the
Securities Intermediary, all cash balances, securities, instruments, financial assets and
investment property at any time and from time to time credited to, received or receivable in
respect of such account, and all securities entitlements and claims thereunder or in connection
therewith.
“Securities Intermediary” means HSBC Investor Funds.
“Servicing Agreement” means the HSBC Settlement Products Servicing Agreement dated as
of September 23, 2005 , as amended from time to time, and any restatement, extension, renewal and
replacement thereof, among HSBC Bank USA, National Association, HSBC TFS, Household Tax Masters
Acquisition Corporation, and Debtor.
“Uniform Commercial Code” means the Uniform Commercial Code as in effect from time to
time in the State of New York; provided, however, if, by reason of mandatory provisions of law, the
attachment, perfection or priority of Secured Party’s security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New
York, the term “Uniform Commercial Code” shall mean the Uniform Commercial Code as in effect in
such other jurisdiction for purposes of the provisions hereof relating to such attachment,
perfection or priority and for purposes of definitions related to such provisions.
The terms “control”, entitlement holder”, “entitlement order”,
“financial asset”, “instrument”, “investment property”,
“proceeds”, “security”, “security entitlement”, “securities
intermediary” and “supporting obligation” shall have the respective meanings set forth
in the Uniform Commercial Code.
2. Security Interest. As collateral security for the prompt payment in full when due
(whether at stated maturity, by acceleration or otherwise) of the Obligations, Debtor hereby
assigns and pledges to Secured Party and grants to Secured Party a security interest in and to all
of Debtor’s right, title and interest in the following property and interests in property, whether
now owned or hereafter acquired by Debtor and wherever located (collectively, the
“Collateral”):
(a) the BFC Program Contracts, including (without limitation) the Participation
Interests purchased by Debtor under the Participation Agreement, all rights of Debtor
related to the HSBC RALs to which such Participation Interests relate, and all monies due
and to become due in respect thereof; provided, that the security interest created hereby
shall not extend to the rights reserved to Debtor pursuant to the proviso in Section 3
hereof;
(b) the Securities Account; and
(c) all proceeds, supporting obligations, income, benefits, substitutions, additions
and replacements of and to any of the property described in this Section 2
including, without limitation, all rights, claims and benefits against any Contract Obligor
or other Person obligated on any Collateral, and all related books, correspondence, files,
records, invoices and other papers, including, without limitation, all computer runs,
programs and files.
3. Certain Rights of Debtor. Notwithstanding any other term or provision of this
Agreement, as long as no Event of Default has occurred, Debtor may exercise all of its rights under
the BFC Program Contracts, other than the following, which Debtor may not exercise: (a) the right
to receive payments from HSBC TFS under the Direct Pay Provisions of the amounts to be transferred
by HSBC TFS to Secured Party thereunder, (b) the right to sell, assign, pledge or grant a security
interest in or Lien on the Collateral and (c) its right to modify, amend or waive its rights under
the BFC Program Contracts that would affect in any way the Participation Interests that have been
financed by Secured Party pursuant to the Credit Agreement, provided, further, that
even after an Event of Default has occurred and is continuing under the Credit Agreement, Debtor
will have the right, on a prospective basis, (i) under Section 4.1 of the Participation Agreement,
to participate or not participate in subsequently originated HSBC RALs and to change the Applicable
Percentage (as defined in the Participation Agreement) with respect thereto, (ii) under Section 4.4
of the Participation Agreement, to elect not to purchase a participation interest in certain groups
of subsequently originated HSBC RALs; and (iii) under Section 4.8 of the Participation Agreement to
sell, assign or transfer its right to purchase participation interests on subsequently originated
HSBC RALs that are not financed by Secured Party.
4. Representations and Warranties of Debtor. Debtor represents and warrants to
Secured Party as follows:
(a) Binding Effect. This Agreement has been, and the Control Agreement and the HSBC
TFS Letter will be, duly executed and delivered by Debtor, and this Agreement
constitutes, and the Control Agreement and the HSBC TFS Letter will constitute, legal, valid
and binding agreements of Debtor, enforceable in accordance with their terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights
generally and subject to general principles of equity, regardless of whether considered in a
proceeding in equity or at law.
(b) Ownership and Liens. Debtor is and will be the owner of the Collateral and no
Lien exists or will exist upon such Collateral at any time except as provided for in this
Agreement. Debtor is the sole entitlement holder with respect to the Securities Account.
(c) Perfection. This Agreement is effective to create in favor of Secured Party a
valid security interest in and Lien upon all of Debtor’s right, title and interest in and to the
Collateral and, upon the filing of an appropriate Uniform Commercial Code financing statement in
the Office of the Secretary of State of the State of Delaware, such security interest will be a
duly perfected security interest in all of the Collateral and no further recordings or filings are
or will be required in connection with the creation, perfection or enforcement of such security
interest and Lien, other than (i) the filing of continuation statements or financing change
statements in accordance with applicable law and (ii) additional filings if Debtor changes its
name, identity or organizational structure or the jurisdiction in which it is organized.
5. Agreements of Debtor. Debtor hereby agrees with Secured Party as follows:
(a) Direct Payment to Secured Party. Debtor shall enter into the HSBC TFS Letter
with Secured Party and HSBC TFS. Debtor shall, forthwith upon becoming aware or being made aware
that it has received any amount in payment under the Direct Pay Provisions at any time, pay such
amount to Secured Party, and any such amount which may be so received by Debtor shall, from the
time of Debtor being or becoming aware of such receipt, not be commingled by Debtor with any of its
other funds or property but, until paid to Secured Party, shall be held separate and apart from
such other funds and property and in trust for Secured Party. Debtor authorizes and empowers
Secured Party (i) to ask, demand, receive, receipt and give acquittance for any and all amounts
which may be or become due or payable at any time to Debtor under the Direct Pay Provisions and
(ii) in its discretion to file any claims or take any action or proceeding, either in its own name
or in the name of Debtor or otherwise, which Secured Party may deem to be necessary or advisable to
collect amounts due under the Direct Pay Provisions.
(b) Performance of BFC Program Contracts. Debtor shall remain liable under the BFC
Program Contracts to perform all of its obligations thereunder and shall duly and punctually
perform and observe all of the terms and provisions of the BFC Program Contracts on the part of
Debtor to be performed or observed, subject to any applicable grace or cure periods contained in
the BFC Program Contracts. Secured Party does not assume and shall not have any obligations or
liabilities under the BFC Program Contracts by reason of or arising out of this Agreement, nor
shall Secured Party be obligated to make any inquiry as to the nature or sufficiency of any payment
received under the BFC Program Contracts or to collect or enforce the BFC Program Contracts.
Debtor shall not agree to or suffer or permit any amendment, modification or waiver of or under the
BFC Program Contracts that would affect in any way the Participation Interests that have been
financed by Secured Party pursuant to the Credit Agreement.
(c) Other Documents and Actions. Debtor shall, within 10 days of request by Secured
Party, give, execute, deliver, file or record any financing statement, notice, instrument,
agreement or other document that may be necessary or desirable in the reasonable judgment of
Secured Party to create, preserve, perfect or validate the security interest granted pursuant
hereto or to enable Secured Party to exercise and enforce the rights of Secured Party hereunder
with respect to such security interest.
(d) [RESERVED]
(e) Control Agreement. Debtor shall take any and all actions required or requested
by Secured Party from time to time to cause Secured Party to maintain exclusive control the
Securities Account and for that purpose Debtor shall enter into the Control Agreement with Secured
Party and the Securities Intermediary. Debtor agrees that Debtor shall not withdraw any money or
property from the Securities Account or modify or terminate the Control Agreement or any customer
agreement relating to the Securities Account without the prior written consent of Secured Party.
(f) Other Liens. Debtor shall not create, permit or suffer to exist, and shall
defend the Collateral against and take such other action as is necessary to remove, any Lien on the
Collateral and shall defend the right, title and interest of Secured Party in and to the Collateral
and in and to all Proceeds thereof against the claims and demands of all Persons whatsoever.
(g) Preservation of Rights. Whether or not any Event of Default has occurred or is
continuing, Secured Party may, but shall not be required to, take any actions Secured Party
reasonably deems necessary or appropriate to preserve any Collateral or any rights against third
parties to any of the Collateral and Debtor shall, within 30 days of demand by Secured Party, pay,
or reimburse Secured Party for, all expenses incurred in connection therewith.
(h) Changes in Name, etc. The name of Debtor that appears above its signature on
this Agreement is its full and correct legal name as it appears in its certificate of
incorporation. Debtor shall notify Secured Party promptly in writing prior to any change in
Debtor’s name, identity, corporate structure or state of incorporation.
(i) Financing Statements. Debtor hereby irrevocably authorizes Secured Party, at
Debtor’s expense, to file such financing and continuation statements relating to this Agreement,
without Debtor’s signature, as Secured Party may deem appropriate, and appoints Secured Party as
Debtor’s attorney-in-fact to execute any such statements in Debtor’s name and to perform all other
acts which Secured Party deems appropriate to perfect and continue the security interest created
hereby.
6. Remedies. During the period during which an Event of Default shall have occurred
and be continuing:
(a) Secured Party shall have, in addition to other rights and remedies provided for herein or
otherwise available to it, all of the rights and remedies of a Secured Party upon default under the
Uniform Commercial Code (whether or not the Uniform Commercial Code applies to
the affected Collateral) and Secured Party may, without notice, demand or legal process of any
kind except as may be required by law, at any time or times (i) if Secured Party shall have
requested that Debtor assemble any tangible Collateral pursuant to Section 6(a)(ii) hereof and
Debtor shall have failed to do so in a commercially reasonable time, enter Debtor’s premises and
take physical possession of such tangible Collateral and maintain such possession on Debtor’s
premises, at no cost to Secured Party, or remove such tangible Collateral or any part thereof to
such other place or places as Secured Party may desire, (ii) require Debtor to, and Debtor hereby
agrees to, assemble any tangible Collateral as directed by Secured Party and make it available to
Secured Party at a place to be designated by Secured Party which is reasonably convenient to
Secured Party and Debtor and (iii) without notice except as specified below, sell, lease, assign,
grant an option or options to purchase or otherwise dispose of the Collateral or any part thereof
at public or private sale, at any exchange, broker’s board or at any of the offices of Secured
Party or elsewhere, for cash, on credit or for future delivery, and upon such other terms as
Secured Party may deem commercially reasonable. Debtor agrees that, to the extent notice of sale
shall be required by law, at least 10 days’ notice to Debtor of the time and place of any public
sale or the time after which any private sale is to be made shall constitute reasonable
notification. Secured Party shall not be obligated to make any sale of Collateral regardless of
notice of sale having been given. Secured Party may adjourn any public or private sale from time
to time by announcement at the time and place fixed therefor and such sale may, without further
notice, be made at the time and place to which it was so adjourned;
(b) Secured Party may make any compromise or settlement deemed desirable with respect to any
of the Collateral and may extend the time of payment, arrange for payment in installments or
otherwise modify the terms of, any of the Collateral;
(c) Secured Party may, in the name of Secured Party or in the name of Debtor or otherwise,
demand, sue for, collect or receive any money or property at any time payable or receivable on
account of or in exchange for any of the Collateral, but shall be under no obligation to do so; and
(d) Secured Party may take any action and exercise any right or remedy available to it under
the Control Agreement, including any right to give instructions or entitlement orders to the
Securities Intermediary under the Control Agreement and to dispose of any Collateral in the
Securities Account as provided in Section 6(a).
7. Deficiency; Application of Proceeds. If the proceeds of sale, collection or other
realization of or upon the Collateral are insufficient to cover the costs and expenses of such
realization and the payment in full of the Obligations, Debtor shall remain liable for any
deficiency. The proceeds of any collection, sale or other realization of all or any part of the
Collateral shall be applied first, to payment of all expenses payable or reimbursable by Debtor
under the Loan Documents in connection with such collection, sale or other realization on the
Collateral, and then as provided in the Credit Agreement.
8. Power of Attorney. Debtor hereby irrevocably constitutes and appoints Secured
Party, with full power of substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of Debtor and in the name of Debtor or in
its own
name, from time to time in the discretion of Secured Party, after the occurrence and during
the continuance of an Event of Default, for the purpose of carrying out the terms of this
Agreement, to take any and all appropriate action and to execute and deliver any and all documents
and instruments which may be necessary or desirable to accomplish the purposes of this Agreement
and, without limiting the generality of the foregoing, hereby gives Secured Party the power and
right, on behalf of Debtor, without notice to or assent by Debtor, to do the following upon the
occurrence and during the continuance of an Event of Default:
(a) to ask, demand, collect, receive and give acquittance and receipts for any and all moneys
due and to become due under any Collateral and, in the name of Debtor or its own name or otherwise,
to take possession of and endorse and collect any checks, drafts, notices acceptances or other
instruments for the payment of monies due under any Collateral and to file any claim or to take any
other action or proceeding in any court of law or equity or otherwise deemed appropriate by Secured
Party for the purpose of collecting any and all such moneys due under any Collateral whenever
payable and to file any claim or to take any other action or proceeding or otherwise deemed
appropriate by Secured Party for the purpose of collecting any and all such moneys due under any
Collateral;
(b) to pay or discharge charges or Liens levied or placed on or threatened against the
Collateral;
(c) to direct any Contract Obligor or other party liable under any of the Collateral to make
payment of any and all monies due and to become due thereunder directly to Secured Party or as
Secured Party may direct, and to receive payment of and receipt for any and all moneys, claims and
other amounts due and to become due in respect of or arising out of any Collateral;
(d) to sign and indorse any invoices, drafts against debtors, assignments, verifications and
notices in connection with or relating to the Collateral;
(e) to commence and prosecute any suits, actions or proceedings to collect the Collateral or
any part thereof and to enforce any other right in respect of any Collateral;
(f) to participate in the defense of any suit, action or proceeding brought against Debtor
with respect to any Collateral, or to defend same with Debtor’s consent;
(g) to settle, compromise or adjust any such suit, action or proceeding as it relates to the
Collateral and, in connection therewith, to give such discharges or releases as Secured Party may
deem appropriate;
(h) to notify each Contract Obligor in respect of any BFC Program Contracts that such
Collateral has been assigned to Secured Party and that any payments due or to become due in respect
of such Collateral are to be made directly to Secured Party; and to communicate in its own name
with any party to any Program Contract with regard to the assignment of the right, title and
interest of Debtor in and under the BFC Program Contracts hereunder and other matters relating
thereto;
(i) to execute, in connection with any sale of Collateral provided for in Section 6
hereof, any endorsements, assignments or other instruments of conveyance or transfer with respect
to the Collateral; and
(j) generally to sell, transfer, pledge, make any agreement with respect to or otherwise deal
with any of the Collateral as fully and completely as though Secured Party were the absolute owner
thereof for all purposes and to do, at Secured Party’s option and at Debtor’s expense, at any time
or from time to time, all acts and things which Secured Party reasonably deems necessary to
protect, preserve or realize upon the Collateral and Secured Party’s Lien therein, in order to
effect the intent of this Agreement, all as fully and effectively as Debtor might do.
The power of attorney granted hereunder is a power coupled with an interest, shall be irrevocable
until this Agreement is terminated pursuant to Section 9, and shall not limit the rights of Secured
Party when no Event of Default shall have occurred and be continuing.
9. Termination. This Agreement and the security interests granted hereunder shall not
terminate until the termination of the Commitment of the Secured Party under the Credit Agreement
and the full and complete payment and satisfaction of all Obligations (regardless of whether the
Credit Agreement shall have earlier terminated), at which time Secured Party shall notify (i) the
Securities Intermediary of the termination of the Control Agreement pursuant to Section 15 thereof
and (ii) HSBC TFS of the termination of the HSBC TFS Letter pursuant to paragraph 3 thereof.
10. Further Assurances. At any time and from time to time, within 10 days of request
of Secured Party, and at the sole expense of Debtor, Debtor shall duly execute and deliver any and
all such further instruments, documents and agreements and take such further actions as Secured
Party may reasonably require in order for Secured Party to obtain the full benefits of this
Agreement, including, without limitation, using Debtor’s best efforts to secure all consents and
approvals necessary or appropriate for the assignment to Secured Party of any Collateral held by
Debtor or in which Debtor has any rights not heretofore assigned.
11. Limitation on Duty of Secured Party. The powers conferred on Secured Party under
this Agreement are solely to protect the Secured Party’s interest in the Collateral and shall not
impose any duty upon it to exercise any such powers. Except for the safe custody of any Collateral
in its possession and the accounting for moneys actually received by it hereunder, Secured Party
shall have no duty as to any of the Collateral. Secured Party shall be accountable only for
amounts that it actually receives as a result of the exercise of such powers and neither Secured
Party nor any of its officers, directors, employees or agents shall be responsible to Debtor for
any act or failure to act, except for gross negligence or willful misconduct. Without limiting the
foregoing, Secured Party shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral in its possession if such Collateral is accorded treatment
substantially equivalent to that which Secured Party, in its individual capacity, accords its own
property consisting of the type of Collateral involved, it being understood and agreed that Secured
Party shall have no responsibility for taking any necessary steps, other than steps taken
in accordance with the standard of care set forth above, to preserve rights against any Person
with respect to any Collateral.
12. Private Sales. Debtor recognizes that Secured Party may be unable to
effect a public sale of certain of the Collateral by reason of prohibitions contained in the
Securities Act of 1933, as amended, and applicable state securities laws or otherwise, and may be
compelled to resort to one or more private sales thereof to a restricted group of purchasers which
will be obliged to agree, among other things, to acquire such Collateral for their own account for
investment and not with a view to the distribution or resale thereof. Debtor acknowledges and
agrees that any such private sale may result in prices and other terms less favorable than if such
sale were a public sale and, notwithstanding such circumstances, agrees that, solely by reason of
such circumstances, any such private sale shall be deemed to have been made in a commercially
reasonable manner; provided, that nothing in this Section 12 shall otherwise relieve Secured Party
of any duty to proceed in a commercially reasonable manner in connection with such private sale.
Secured Party shall be under no obligation to delay a sale of any of the Collateral for the period
of time necessary to permit registration of any Collateral for public sale under such Act or
applicable state securities laws.
13. Miscellaneous.
(a) No Waiver. No failure on the part of Secured Party to exercise, and no course of
dealing with respect to, and no delay in exercising, any right, power or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise by Secured Party of any
right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of
any other right, power or remedy. The rights and remedies hereunder provided are cumulative and
may be exercised singly or concurrently, and are not exclusive of any rights and remedies provided
by law.
(b) Governing Law. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
(c) Notices. All notices, demands and requests that any party is required or elects
to give to any other party shall be given in accordance with the provisions of the Credit
Agreement.
(d) Amendments. The terms of this Agreement may be waived, altered or amended only by
an instrument in writing duly executed by Debtor and Secured Party.
(e) Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the respective successors and assigns of each of the parties hereto; provided, that
Debtor shall not assign or transfer its rights or delegate its obligations hereunder without the
prior written consent of Secured Party.
(f) Counterparts; Headings. This Agreement may be executed in any number of
counterparts and by any party on any counterpart, all of which together shall constitute one and
the same instrument. The headings in this Agreement are for convenience of reference only and
shall not alter or otherwise affect the meaning hereof.
(g) Severability. If any provision hereof is invalid or unenforceable in any
jurisdiction, then, to the fullest extent permitted by law, the other provisions hereof shall
remain in full force and effect in such jurisdiction and shall be liberally construed in favor of
Secured Party in order to carry out the intentions of the parties hereto as nearly as may be
possible, and the invalidity or unenforceability of any provision in any jurisdiction shall not
affect the validity or enforceability of such provision in any other jurisdiction.
IN WITNESS WHEREOF, the parties have caused this Security Agreement to be duly executed and
delivered as of the date first written above.
| BLOCK FINANCIAL CORPORATION |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| HSBC FINANCE CORPORATION |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
EXHIBIT B
[FORM OF CONTROL AGREEMENT]
INVESTMENT ACCOUNT CONTROL AGREEMENT
INVESTMENT ACCOUNT CONTROL AGREEMENT dated as of January 2, 2007 among BLOCK FINANCIAL
CORPORATION, a Delaware corporation (“Debtor”), HSBC FINANCE CORPORATION (“Secured
Party”), a Delaware corporation, and HSBC INVESTOR FUNDS (the “Securities
Intermediary”), a Massachusetts business trust.
WHEREAS, Debtor, Secured Party and H&R Block, Inc. have entered into a Credit and Guarantee
Agreement dated as of January 2, 2007 (as amended, restated or otherwise modified and in effect
from time to time, the “Credit Agreement”) pursuant to which Secured Party has agreed,
subject to the terms and conditions thereof, to make loans to Debtor from time to time.
WHEREAS, Secured Party has required, as a condition to its making loans under the Credit
Agreement, that Debtor execute and deliver to Secured Party a Security Agreement (as amended,
restated or otherwise modified and in effect from time to time, the “Security Agreement”),
which Security Agreement creates a security interest in certain property of Debtor, including the
Securities Account, as hereinafter defined, maintained with Securities Intermediary by Debtor in
which certain cash balances, securities, financial assets and other investment property are held.
WHEREAS, Secured Party, Debtor and Securities Intermediary have agreed to enter into this
Agreement to perfect Secured Party’s security interests in the Collateral, as defined below.
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
Section 1. Meaning of “UCC”. All references herein to the “UCC” shall mean
the Uniform Commercial Code as in effect in the State of New York.
Section 2. Establishment of Securities Account. The Securities Intermediary hereby
confirms that (i) the Securities Intermediary has established account number 615878 in the name
Debtor (such account and any successor account, the “Securities Account”), (ii) the
Securities Account is a “securities account” as such term is defined in Section 8-501(a) of the
UCC, (iii) pursuant to that the Security Agreement, Secured Party has a security interest in
Debtor’s right, title and interest in and to such Securities Account and all cash balances,
securities, instruments, investment property and financial assets maintained therein from time to
time (collectively, “Collateral”) and all securities entitlements relative thereto, (iv)
the Securities Intermediary shall, subject to the terms of this Agreement, treat Secured Party as
entitled to exercise the rights relating to any Collateral credited to the Securities Account, (v)
all property delivered to the Securities Intermediary pursuant to the Security Agreement will be
promptly credited to the Securities Account and become Collateral, and (vi) all Collateral credited
to the Securities Account shall be registered in the name of the Secured Party, endorsed to the
Secured Party or in blank, and in no case will any Collateral credited to the Securities Account be
registered in the
name of the Debtor, payable to the order of the Debtor or specially endorsed to
the Debtor except to the extent the foregoing have been specially endorsed to the Secured Party or
in blank.
Section 3. “Financial Assets” Election. The Securities Intermediary hereby agrees
that each item of property (whether investment property, financial asset, security, instrument or
cash) credited to the Securities Account shall be treated as a “financial asset” within the meaning
of Section 8-102(a)(9) of the UCC.
Section 4. Sole Control. Secured Party shall have sole control over the Securities
Account. Securities Intermediary shall not accept any direction, instructions, or entitlement
orders with respect to the Securities Account or the Collateral credited thereto from any person
other than Secured Party, except as provided in Section 6 and unless otherwise ordered by a court
of competent jurisdiction.
Section 5. Entitlement Orders. The Securities Intermediary hereby agrees that if
Secured Party delivers to the Securities Intermediary and its transfer agent identified in Section
14 (the “Transfer Agent”) an “entitlement order” (within the meaning of Section 8-102(a)(8) of the
UCC) relating to the Securities Account, the Securities Intermediary shall comply with such
entitlement order (and shall cause the Transfer Agent to so comply) without further consent by the
Debtor or any other person, and Debtor hereby irrevocably authorizes such compliance. Secured
Party will only issue an entitlement order following an “Event of Default” under the Credit
Agreement and for the purpose of directing the Securities Intermediary to distribute Collateral to
the Secured Party for application to the obligations of the Debtor under the Credit Agreement and
the Security Agreement.
Section 6. Procedures for Securities Account. Without Secured Party’s prior written
consent: (i) neither Debtor nor any party other than Secured Party may withdraw any Collateral from
the Securities Account and (ii) the Securities Intermediary will not comply with any entitlement
order or request to withdraw any Collateral from the Securities Account given by any party other
than Secured Party.
Section 7. Subordination of Lien; Waiver of Set-Off. In the event that the Securities
Intermediary has or subsequently obtains by agreement, operation of law or otherwise a security
interest in the Securities Account or any Collateral credited thereto, the Securities Intermediary
hereby agrees that such security interest shall be subordinate to the security interest of the
Secured Party. The Collateral will not be subject to deduction, set-off, banker’s lien, or any
other right in favor any person other than the Secured Party except for the payment of the
customary fees and expenses of the Securities Intermediary.
Section 8. Choice of Law. Both this Agreement and the Securities Account shall be
governed by the laws of the State of New York. Regardless of any provision in any other agreement,
for purposes of the UCC, New York shall be deemed to be the Securities Intermediary’s location and
the Securities Account (as well as the securities entitlements related thereto) shall be governed
by the laws of the State of New York.
Section 9. Conflict with other Agreements. There are no other agreements entered into
between the Securities Intermediary and the Debtor with respect to the Securities Account except
for a certain account application dated December 15, 2006 (the “Account Agreement”).
In
the event of any conflict between this Agreement (or any portion thereof) and any other agreement
now existing (including the Account Agreement) or hereafter entered into, the terms of this
Agreement shall prevail.
Section 10. Indemnification Debtor agrees to indemnify Securities Intermediary and
Transfer Agent against all claims, liabilities and expenses incurred, sustained or payable by
Securities Intermediary or Transfer Agent arising out of this Agreement except to the extent
directly caused by the Securities Intermediary’s or the Transfer Agent’s gross negligence or
willful misconduct.
Section 11. Amendments. No amendment or modification of this Agreement or waiver of
any right hereunder shall be binding on any party hereto unless it is in writing and is signed by
all of the parties hereto.
Section 12. Notice of Adverse Claims. Except for the claims and interests of the
Secured Party and of Debtor in the Securities Account, the Securities Intermediary does not know of
any claim to, or interest in, the Securities Account or in any financial asset credited thereto.
If any person asserts any lien, encumbrance or adverse claim (including any writ, garnishment,
judgment, warrant of attachment, execution or similar process) against the Securities Account or in
any Collateral carried therein, the Securities Intermediary will promptly notify the Secured Party
and Debtor thereof.
Section 13. Successors. The terms of this Agreement shall be binding upon, and shall
inure to the benefit of, the parties hereto and their respective corporate successors or heirs and
personal representatives.
Section 14. Notices. All notices and other communications provided for herein shall
be in writing and shall be delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
| Secured Party: | HSBC Finance Corporation | |||
| 2700 Sanders Road | ||||
| Prospect Heights, IL 60070 | ||||
| Attention: Treasurer | ||||
| Fax no.: . (847) 205-7538 | ||||
| with copies to: | ||||
| HSBC Finance Corporation | ||||
| 2700 Sanders Road | ||||
| Prospect Heights, IL 60070 | ||||
| Attention: Deputy General Counsel-Corporate | ||||
| Law Fax no.: (847) 564-6366 | ||||
| HSBC Securities, Inc. | ||||
| 425 Fifth Avenue, Lower Level | ||||
| New York, N.Y. 10018 |
| (Telecopy No. (212) 525-2479) | ||||
| Attention: Peter Nealon | ||||
| HSBC Taxpayer Financial Services Inc. | ||||
| 200 Somerset Corporate Boulevard | ||||
| Bridgewater, N.J. 08807 | ||||
| (Telecopy No. (908) 203-4211) | ||||
| attention: CEO and Managing Director | ||||
| HSBC Taxpayer Financial Services Inc. | ||||
| 90 Christiana Road | ||||
| New Castle, DE 19707 | ||||
| (Telecopy No. (302) 327-2507) | ||||
| attention: General Counsel | ||||
| Debtor: | Block Financial Corporation | |||
| One H&R Block Way | ||||
| Kansas City, MO 64105 | ||||
| Attention: Becky Shulman (Telecopy | ||||
| No. (816) 854-8043), David Staley | ||||
| (Telecopy No. (816) 854-8043) and Andrew | ||||
| Somora (Telecopy No. (816) 802-1043) | ||||
| Securities Intermediary: | HSBC Investor Funds | |||
| c/o HSBC Investments (USA) Inc. | ||||
| 452 Fifth Avenue | ||||
| New York, NY 10018 | ||||
| Attention: Richard Fabietti | ||||
| Telephone: 212 525-2387 | ||||
| Fax No.: 917 525-1032 | ||||
| with a copy to: | ||||
| HSBC Investments (USA) Inc. | ||||
| 452 Fifth Avenue | ||||
| New York, NY 10018 | ||||
| Attention: James M. Curtis | ||||
| Telephone: 212 525-6961 | ||||
| Fax No.: 917 229-5219 | ||||
| Transfer Agent: | Bisys Fund Services, Inc. | |||
| 3455 Stelzer Road | ||||
| Columbus, Ohio 43219 | ||||
| Attention: Michael Bryan, Analyst |
| TA Risk Management | ||||
| Telephone: (614) 470-8676 | ||||
| Facsimile: (614) 470-8326 |
Any party hereto may change its address or telecopy number for notices and other communications
hereunder by notice to the other parties hereto. All notices and other communications given to any
party hereto in accordance with the provisions of this Agreement shall be deemed to have been given
on the date of receipt. Debtor, Secured Party or Securities Intermediary may, in its sole
discretion, agree to accept notices and other communications to it hereunder by electronic
communications pursuant to procedures approved by it; provided that approval of such
procedures may be limited to particular notices or communications.
Section 15. Termination. The rights and powers granted herein to the Secured Party
have been granted in order to perfect its security interests in the Securities Account, are powers
coupled with an interest and will neither be affected by the bankruptcy of Debtor nor by the lapse
of time. This Agreement, the rights and powers granted herein to the Secured Party, and the
obligations of the Securities Intermediary hereunder shall automatically terminate upon the
termination of the Secured Party’s security interests pursuant to the terms of the Security
Agreement. The Secured Party shall promptly provide written notice of such termination to the
Securities Intermediary.
Section 16. Counterparts. This Agreement may be executed in any number of
counterparts, all of which shall constitute one and the same instrument, and any party hereto may
execute this Agreement by signing and delivering one or more counterparts.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered
as of the date first written above.
| BLOCK FINANCIAL CORPORATION |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| HSBC FINANCE CORPORATION |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| HSBC INVESTOR FUNDS, as Securities Intermediary |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
EXHIBIT C
[FORM OF HSBC TFS LETTER]
HSBC TAXPAYER FINANCIAL SERVICES, INC.
90 Christiana Road
New Castle, Delaware 19720
90 Christiana Road
New Castle, Delaware 19720
As of January 2, 2007
HSBC Finance Corporation
2700 Sanders Road
Prospect Heights, IL 60070
2700 Sanders Road
Prospect Heights, IL 60070
Block Financial Corporation
One H&R Block Way
Kansas City, MO 64105
One H&R Block Way
Kansas City, MO 64105
Ladies and Gentlemen:
HSBC Taxpayer Financial Services (“HSBC TFS”) acknowledges that HSBC Finance
Corporation (the “Lender”) and Block Financial Corporation (the “Borrower”) have
notified HSBC TFS that they are party to (1) a Credit and Guarantee Agreement dated as of January
2, 2007 (as amended, restated or otherwise modified and in effect from time to time, the
“Credit Agreement”) with H&R Block, Inc., as Guarantor, pursuant to which the Lender has
agreed, subject to the terms and conditions thereof, to make loans to the Borrower from time to
time and (2) a Security Agreement dated as of January 2, 2007 (as amended, restated or otherwise
modified and in effect from time to time, the “Security Agreement”) pursuant to which the
Borrower has granted to the Lender a security interest in certain property, including the
Borrower’s right, title and interest in and to the Servicing Agreement and the Participation
Agreement to secure the obligations of the Borrower under the Credit Agreement. The parties are
entering into this letter agreement to set forth certain agreements among them.
1. Definitions. Capitalized terms used herein that are not otherwise defined herein
shall have the meanings set forth in the Credit Agreement.
2. Instructions. As contemplated in the Credit Agreement and the Security
Agreement, the Borrower hereby authorizes and instructs HSBC TFS: (1) to give notice to the Lender
of the Purchase Price of all Participation Interests to be purchased by the Borrower under the
Participation Agreement, such notice to be given to the Lender simultaneously with the giving of
notice to the Borrower under Section 4.3 of the Participation Agreement but in any case not later
than 9:30 a.m., New York City time; (2) to accept from the Lender for the account of the Borrower
the proceeds of Loans made by the Lender to the Borrower under the Credit Agreement in payment of
the Purchase Price of Participation Interests to the extent of the amount of such Loans; (3) to pay
97% of all amounts from time to time payable to the Borrower by HSBC TFS under Section 6 of the
Participation Agreement in respect of the repurchase of Participation Interests which have been
financed by the Lender direct to the Lender to such account as it shall specify from time to time;
and (4) to pay 97% of all amounts from time to time to be remitted to the Borrower by HSBC TFS
under Section 3.4(b)(ii) of the Servicing Agreement in respect of principal of HSBC RALs in which
the Borrower has purchased Participation Interests which have been financed by the Lender directly
to the Lender to such account as it shall specify from time to time; provided, that so long as no
Event of Default has occurred and is continuing under the Credit Agreement, HSBC TFS is authorized
and instructed to pay 3% of all amounts from time to time to be remitted to the Borrower by HSBC
TFS under Section 3.4(b)(ii) of the Servicing Agreement in respect of HSBC RALs in which the
Borrower has purchased Participation Interests which have been financed by the Lender directly to
the Borrower to such account as it shall specify from time to time.
The Borrower and HSBC TFS agree that the authorizations and instructions in the preceding
paragraph may not be waived, modified or revoked without the prior written agreement of the Lender.
HSBC TFS hereby acknowledges and agrees to the instructions in the preceding paragraph. The
Lender agrees that it shall give prompt written notice to HSBC TFS and the Borrower when all Loans
borrowed and other amounts payable under the Credit Agreement have been paid in full and no further
Commitment exists thereunder, at which time the authorizations and instructions in the preceding
paragraph and the agreements of the parties in this letter agreement shall terminate.
3. Miscellaneous. Except as provided in paragraph 2, all notices and other
communications provided for in this letter agreement shall be in writing and shall be delivered by
hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as
follows:
| Lender: | HSBC Finance Corporation | |||
| 2700 Sanders Road | ||||
| Prospect Heights, IL 60070 | ||||
| Attention: Treasurer | ||||
| Fax no.: (847) 205-7538 | ||||
| with a copy to: | ||||
| HSBC Finance Corporation | ||||
| 2700 Sanders Road | ||||
| Prospect Heights, IL 60070 |
| Attention: Deputy General Counsel—Corporate Law | ||||
| Fax no.: (847) 564-6366 | ||||
| HSBC Securities, Inc. | ||||
| 425 Fifth Avenue, Lower Level | ||||
| New York, N.Y. 10018 | ||||
| (Telecopy No. (212) 525-2479) | ||||
| Attention: Peter Nealon | ||||
| HSBC Taxpayer Financial Services Inc. | ||||
| 200 Somerset Corporate Boulevard | ||||
| Bridgewater, N.J. 08807 | ||||
| (Telecopy No. (908) 203-4211) | ||||
| attention: CEO and Managing Director | ||||
| HSBC Taxpayer Financial Services Inc. | ||||
| 90 Christiana Road | ||||
| New Castle, DE 19707 | ||||
| (Telecopy No. (302) 327-2507) | ||||
| attention: General Counsel | ||||
| Borrower: | Block Financial Corporation | |||
| One H&R Block Way | ||||
| Kansas City, MO 64105 | ||||
| Attention: Becky Shulman (Telecopy | ||||
| No. (816) 854-8043), David Staley | ||||
| (Telecopy No. (816) 854-8043) and Andrew | ||||
| Somora (Telecopy No. (816) 802-1043) | ||||
| HSBC TFS: | HSBC Taxpayer Financial Services Inc. | |||
| 90 Christiana Road | ||||
| New Castle, Delaware 19720 | ||||
| Attention: CEO and Managing Director | ||||
| Telephone: 908-203-4441 | ||||
| Fax No.: 908-203-4211 |
Any party hereto may change its address or telecopy number for notices and other communications
hereunder by notice to the other parties hereto. All notices and other communications given to any
party hereto in accordance with the provisions of this letter agreement shall be deemed to have
been given on the date of receipt. Without limiting paragraph 2 hereof, the Lender, the Borrower
or HSBC TFS may, in its sole discretion, agree to accept notices and other communications to it
hereunder by electronic communications pursuant
to procedures approved by it; provided that approval of such procedures may be limited to
particular notices or communications.
This letter agreement shall be governed by and construed in accordance with the law of the
State of New York.
By executing this letter agreement in the space below, each of the Borrower, HSBC TFS and the
Lender agree to the terms and provision of this letter agreement.
| Very truly yours, HSBC TAXPAYER FINANCIAL SERVICES, INC. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| Accepted and agreed: HSBC FINANCE CORPORATION |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| Accepted and agreed: BLOCK FINANCIAL CORPORATION |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
EXHIBIT D
[FORM OF OPINION OF STINSON MORRISON HECKER LLP]
January ___, 2007
HSBC Finance Corporation
2700 Sanders Road
Prospect Heights, Illinois 60070
2700 Sanders Road
Prospect Heights, Illinois 60070
Ladies and Gentlemen:
We have acted as special counsel for Block Financial Corporation (the “Borrower”) and H&R
Block, Inc. (the “Guarantor” and, together with the Borrower, the “Credit Parties”), in connection
with the Credit and Guarantee Agreement, dated as of January 2, 2007 (the “Credit Agreement”), by
and among the Borrower, the Guarantor and HSBC Finance Corporation (the “Lender”). Unless
otherwise defined herein, capitalized terms defined in the Credit Agreement and used herein shall
have the meanings given to them in the Credit Agreement, and capitalized terms defined in the
Security Agreement (defined below) and used herein, but not defined in the Credit Agreement, shall
have the meanings given to them in the Security Agreement.
In connection with this opinion letter, we have examined originally executed counterparts or
other copies identified to our satisfaction of the following documents (the “Reviewed Documents”):
| (a) | the Credit Agreement; | ||
| (b) | the Security Agreement, dated as of January 2, 2007 (the “Security Agreement”), between the Borrower and the Lender; | ||
| (c) | the Investment Account Control Agreement dated as of January 2, 2007 (the “Control Agreement”), among the Borrower, the Lender and HSBC Investor Funds (the “Securities Intermediary”); | ||
| (d) | the letter agreement, dated as of January 2, 2007 (the “HSBC TFS Letter”) among the Borrower, the Lender and HSBC TFS; | ||
| (e) | the Form UCC-1 Financing Statement naming the Borrower, as Debtor, and the Lender, as Secured Party, filed or to be filed by Lender in the office of the Secretary of State of Delaware in the form attached hereto as Schedule A (the “Financing Statement”); |
| (f) | the following documents regarding the Borrower: (i) the certificate of incorporation and any amendments thereto certified as of the date hereof by the Secretary of the Borrower, (ii) the by-laws and any amendments thereto certified as of the date hereof by the Secretary of the Borrower, (iii) a copy of the resolutions of the Board of Directors of the Borrower certified as of the date hereof by the Secretary of the Borrower and (iv) a certificate of good standing dated December ___, 2006 issued by the Secretary of State of Delaware; | ||
| (g) | the following documents regarding the Guarantor: (i) the certificate of incorporation and any amendments thereto certified as of the date hereof by the Secretary of the Guarantor, (ii) the by-laws and any amendments thereto certified as of the date hereof by the Secretary of the Guarantor, (iii) a copy of the resolutions of the Board of Directors of the Guarantor certified as of the date hereof by the Secretary of the Guarantor and (iv) a certificate of good standing dated December ___, 2006 issued by the Secretary of State of Missouri; and | ||
| (h) | such other, agreements, certificates, documents, orders, pleadings, records and papers, including, without limitation, certificates of public officials and certificates of representatives of the Borrower and the Guarantor, as we have deemed appropriate, in our professional judgment, to render the opinions set forth below. |
The documents specified in items (a) through (d) above are hereinafter collectively called the
“Loan Documents” and individually, a “Loan Document.”
In rendering the opinions and confirmations set forth herein, we have made, without
investigation on our part, the following assumptions:
a. (i) Each Reviewed Document submitted to us as an original is authentic; (ii) each Reviewed
Document submitted to us as a certified, conformed, telecopied, photostatic, electronic or
execution copy conforms to the original of such document, and each such original is authentic;
(iii) all signatures appearing on Reviewed Documents are genuine; (iv) the execution, delivery and
performance of each Loan Document have been duly authorized by all requisite corporate, limited
liability company, partnership or other action on the part of, and each Loan Document has been duly
executed and delivered by, the parties thereto other than the Credit Parties, and each Loan
Document is, under all applicable laws, the valid and binding obligation of the parties thereto
(other than the Credit Parties) enforceable against such parties (other than the Credit Parties) in
accordance with its terms; (v) all natural persons who have signed or will sign any of the Reviewed
Documents had, or will have, as the case may be, the legal capacity to do so at the time of such
signature; and (vi) excluding Reviewed Documents, there is no agreement, understanding, course of
dealing or performance, usage of trade, or writing defining, supplementing, amending, modifying,
waiving or qualifying the terms of any of the Loan Documents.
b. The statements, recitals, representations and warranties as to matters of fact set forth in
the Loan Documents are accurate and complete. All certificates and similar documents provided to
us by public officials are accurate and complete. The certificates provided to us by either or
both of the Credit Parties are accurate and complete as to the factual matters set forth therein.
c. There is no circumstance (such as, but not limited to mutual mistake of fact or
misunderstanding, fraud in the inducement, duress, undue influence, waiver or estoppel) extrinsic
to the Loan Documents which might give rise to a defense against enforcement of any of the Loan
Documents.
d. The conduct of the parties and their respective agents in connection with the Loan
Documents and the transactions contemplated thereby has complied with any requirements of good
faith, fair dealing, and conscionability.
e. The Collateral exists, and the Borrower has sufficient rights in the Collateral to grant a
security interest therein under Section 9-203 of the New York UCC (defined below), the Missouri UCC
(defined below) or the Delaware UCC (defined below), as applicable, and we express no opinion as to
the nature or extent of the rights or title of the Borrower in and to any of the Collateral.
f. Each opinion recipient is without notice of any defense against enforcement of any rights
created by, or any adverse claim to any property or security interest transferred or created as a
part of or contemplated by, the Loan Documents.
g. The Financing Statement has been, or will be, properly filed and indexed in the Uniform
Commercial Code records of the Secretary of State of Delaware.
h. The Securities Intermediary is a “securities intermediary” (as defined in § 8-102(a)(14) of
the New York UCC) with respect to the Collateral which is the subject of the Control Agreement.
Based upon the foregoing, and subject to the assumptions, qualifications and limitations set
forth herein, we are of the opinion that as of this date:
1. Borrower is a corporation validly existing and in good standing under the laws of the State
of Delaware, Guarantor is a corporation validly existing and in good standing under the laws of the
State of Missouri, and each Credit Party has the corporate power to own its properties and to carry
on its business as presently conducted by it as described in the
Guarantor’s Form 10-K for the year ended December 31, 2005, as amended, or any of the
Guarantor’s subsequent filings with the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934.
2. Each Credit Party has all requisite corporate power and authority to execute, deliver and
perform its obligations under the Loan Documents to which it is a party and has taken all necessary
corporate action to authorize the execution and delivery of, and the performance of its obligations
under, the Loan Documents to which it is a party.
3. Each Credit Party has duly executed and delivered the Loan Documents to which it is a party
and such Loan Documents constitute the legal, valid and binding agreements of such Credit Party,
enforceable against such Credit Party in accordance with their respective terms.
4. The execution and delivery by each Credit Party of each Loan Document to which it is a
party do not, and the performance of its obligations thereunder will not, (a) violate such Credit
Party’s articles or certificate of incorporation or by-laws, (b) violate any applicable law,
statute or regulation of the United States or the State of Missouri that we, based upon the scope
of our representation of and our experience with such Credit Party, reasonably recognize as
applicable to such Credit Party with respect to transactions of the type contemplated by the Loan
Documents, (c) violate any order, writ, judgment, injunction, decree, determination or award of any
court or other Governmental Authority binding upon such Credit Party of which we have knowledge, or
(d) breach, constitute a default under, result in the acceleration of (or entitle any party to
accelerate) the maturity of, any obligation of a Credit Party under, or result in or require the
creation of any lien upon or security interest in (other than pursuant to the Loan Documents) any
of its property pursuant to the terms of, the Bank Revolvers, the other financing agreements and
instruments and the Program Contracts listed on Schedule B attached hereto.
5. No authorization or approval or other action by, and no notice to or filing with, any
Governmental Authority of the United States, the State of Missouri or the State of Delaware is
required for the execution and delivery by a Credit Party, or the validity or enforceability
against such Credit Party, of each Loan Document to which it is a party other than (i) such as have
been obtained, made or given and are in full force in effect, (ii) the filing of financing
statements (including the Financing Statement) under the Uniform Commercial Code pursuant to the
requirements of the Loan Documents and (iii) any authorization, approval, notice, filing or other
action which is not a condition required to be satisfied on or before the Effective Date but is
itself a future obligation of such Credit Party under a Loan Document.
6. To our knowledge, there is no suit, action or proceeding pending against either Credit
Party before any court, governmental or regulatory authority, agency or commission, or board of
arbitration or overtly threatened against either Credit Party in writing which (whether pending or
threatened) challenges the legality, validity or enforceability of any Loan Document.
7. The Security Agreement is effective to create in favor of the Lender a valid security
interest in all right, title and interest of the Borrower in the Collateral described in the
Security Agreement to secure the Obligations. Assuming that the Financing Statement was
filed in the office of the Secretary of State of Delaware (the “Filing Office”), the
security interest of the Lender in the Collateral has been duly perfected in that portion of the
Collateral in which a security interest may be perfected by the filing of a financing statement
under the Delaware UCC. Without limiting the foregoing, the security interest of the Lender in the
Securities Account has been perfected pursuant to the execution and delivery of the Control
Agreement.
8. The making of the Loans and the application of the proceeds thereof as provided in the
Credit Agreement do not violate Regulations T, U and X of the Board of Governors of the Federal
Reserve Board.
9. The Borrower is not an “investment company” or a company “controlled by” an “investment
company,” as such terms are defined in the Investment Company Act of 1940, as amended.
Our opinions set forth above are subject to the following additional qualifications and
limitations:
| 1. | The enforceability of each Loan Document is subject to the effect of applicable bankruptcy, insolvency, reorganization, receivership, arrangement, moratorium, assignment for the benefit of creditors and other similar laws affecting the rights and remedies of creditors. This qualification includes, without limitation, the avoidance, fraudulent transfer and preference provisions of the federal Bankruptcy Code of 1978 (11 U.S.C. §§ 101 et seq.), as amended, and the fraudulent transfer and conveyance laws of the State of Missouri, and we render no opinion that any transaction provided for in the Loan Documents would not be subject to avoidance or otherwise adversely affected under such provisions or laws. |
| 2. | The enforceability of each Loan Document is subject to the effect of principles of equity (including those respecting the availability of specific performance), whether considered in a proceeding at law or in equity, and the limitations imposed by applicable procedural requirements of applicable state or federal law. |
| 3. | The enforceability of each Loan Document is subject to (1) the effect of generally applicable rules of law that limit or deny the enforceability of provisions (i) purporting to waive defenses or rights or the obligations of good faith, fair dealing, diligence and reasonableness; (ii) purporting to authorize a party to take discretionary independent actions for the account of, or as agent or attorney-in-fact for, a Credit Party under a Loan Document; or (iii) purporting to provide for the indemnification or exculpation of a party with respect to such party’s intentional acts or gross negligence, with respect to securities law violations or to the extent that such provisions violate public policy considerations; and (2) the effect of generally applicable rules of law that may, where a portion of the contract may be unenforceable, limit the enforceability of the balance of the contract to circumstances in which the unenforceable portion is not an essential part of the transaction or contract. |
| 4. | We express no opinion as to the enforceability of (i) any contractual provision which either directly or indirectly limits or tends to limit the time in which any suit or action may be instituted by a party; (ii) any contractual provision which requires a party to execute and deliver additional agreements or instruments other than agreements or instruments which are limited in effect to effectuating the express terms of a Loan Document and do not expand or modify such terms; (iii) any waiver by a party of personal service of process or any consent of a party to service of process upon it in a manner that does not satisfy the requirements of applicable law; (iv) any waiver by a party of its right to a jury trial, (v) any provision of a Loan Document that purports to waive or modify the rules identified in Section 9-602 of the applicable Uniform Commercial Code; and (vi) any contractual provision which would have the effect of giving the Lender cumulative or duplicative remedies, to the extent such cumulative or duplicate remedies purport to or would have the effect of compensating the Lender in amounts in excess of the actual amount of the indebtedness owed to the Lender and other loss suffered by the Lender. |
| 5. | The enforceability of any right of set-off in any of the Loan Documents is subject to the effect of common law principles pertaining to set-off, such as mutuality of obligations, maturity of obligations, and the like. |
| 6. | The enforceability of a Loan Document which purports to be a guarantee of, or the grant of a lien or security interest for, the payment or performance of obligations of another person (“guaranteed obligations”), including, without limitation, the applicable provisions of the Credit Agreement, is subject to the effect of generally applicable rules of law that may discharge the guarantor or grantor of such lien or security interest to the extent that (i) action or inaction by the beneficiary of the guaranteed obligations impairs the value of collateral securing guaranteed obligations to the detriment of such guarantor or grantor or (ii) the guaranteed obligations are materially modified. |
| 7. | With respect to the recovery of attorneys’ fees under the Loan Documents, to the extent that the laws of the State of Missouri are applicable, the provisions of Mo. Rev. Stat. § 408.092 limit the right to recover attorneys’ fees in connection with a “credit agreement” (as defined in Mo. Rev. Stat. § 432.045.1) and reads in pertinent part as follows: |
Notwithstanding any other provision of law to the contrary, attorneys’ fees
are permitted to enforce a credit agreement provided the enforcing attorney
is a licensed member of the Missouri Bar or is authorized to practice law in
Missouri, and such fees meet one of the following requirements:
(1) Such fees are included in a written credit agreement, and are not
otherwise prohibited by law; or
(2) Such fees do not exceed fifteen percent of the outstanding credit
balance in default, provided such credit was extended by a for-profit
business or credit union. ...
At the court’s discretion, additional fees may be awarded to the attorney
for the prevailing party.
A “credit agreement” is defined in Mo. Rev. Stat. § 432.045.1 as “an
agreement to lend or forebear repayment of money, to otherwise extend
credit, or to make other financial accommodation.”
| 8. | With respect to the enforceability of any contractual provision stating that the Credit Agreement or any of the other Loan Documents or the obligations, rights or remedies of the parties thereunder shall be governed by or construed or determined in accordance with the laws of the State of New York, we call your attention to the following: Missouri courts generally apply the rules of Section 187 of the Restatement (Second) of Conflicts of Law (1971) in deciding whether to give effect to the parties’ choice of the state whose law will govern the interpretation of their contractual rights and duties. State ex rel. Geil v. Corcoran, 623 S.W.2d 557, 559 (Mo. Ct. App. 1981); Davidson & Associates, Inc. v. Internet Gateway, 334 F. Supp. 2d 1164, 1175 (E.D. Mo. 2004). Section 187 of the Restatement provides in pertinent part as follows: |
| (1) | The law of the state chosen by the parties to govern their contractual rights and duties will be applied if the particular issue is one which the parties could have resolved by an explicit provision in their agreement directed to that issue. | ||
| (2) | The law of the state chosen by the parties to govern their contractual rights and duties will be applied even if the particular issue is one which the parties could not have resolved by an explicit provision in their agreement directed to that issue unless either: |
| (a) | the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties’ choice, or | ||
| (b) | application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under the rule of § 188 [of the Restatement], would be the state of the applicable law in the absence of an effective choice of law by the parties. |
While the Missouri choice of law rules are, nevertheless, not entirely settled,
we believe that a state or federal court sitting in the State of Missouri, properly
presented with the question and properly applying the choice of law rules of the
State of Missouri should honor the provisions of a Loan Document stating that, to
the extent provided therein, the rights and duties of the parties thereto are to be
governed by the laws of the State of New York (except as to matters of procedure
which may be governed by the laws of the forum state) unless either (a) the State of
New York has no substantial relationship to the parties to such Loan Document or the
transactions contemplated by such Loan Document and there is
no reasonable basis for
such parties’ choice or (b) application of the laws of the State of New York would
be contrary to a fundamental policy of the State of Missouri and the State of Missouri has materially greater interest than the
State of New York in the determination of the particular issue.
| 9. | With respect to the enforceability of any contractual provision in the Credit Agreement or any other Loan Document whereby the parties submit to the jurisdiction of the federal and New York State courts located in the City or County of New York in connection with any suit, action or proceeding related to such agreement or any of the matters contemplated thereby, we call your attention to the following: Missouri courts generally follow the holding of the Missouri Supreme Court in High Life Sales Co. v. Brown-Forman Corp., 823 S.W.2d 493 (Mo. 1992) that a forum selection clause in a contract should be enforced unless it is unfair or unreasonable to do so. Id. at 494. Factors considered by Missouri courts in determining the fairness of enforcing forum selection clauses include (1) whether a forum selection clause is a part of an adhesive contract (i.e., “one in which the parties have unequal standing in terms of bargaining power (usually a large corporation versus an individual) and often involv[ing] take-it-or-leave-it provisions in printed form contracts”, id. at 497), (2) whether the forum selection clause was neutral and reciprocal (Id.) and (3) whether inclusion of the forum selection clause in the contract was the product of fraud or coercion (Marano Enterprises v. Z-Teca Restaurants, L.P., 254 F.3d 753, 757 (8th Cir. 2001)). There are also Missouri cases which have found a forum selection clause to be unreasonable (e.g., High Life Sales). | |
| 10. | In addition to the other qualifications set forth in this opinion letter regarding the enforceability of a Loan Document under the laws of the State of Missouri, certain waivers, procedures, remedies and other provisions of any Loan Document covered by such opinion may be rendered unenforceable or limited by the laws, regulations or judicial decisions of the State of Missouri within the scope of this opinion letter, but such laws, regulations and judicial decisions would not render any of such Loan Documents invalid as a whole under the laws of the State of Missouri and would not make the remedies available under such Loan Documents inadequate for the practical realization of the principal rights and benefits purporting to be afforded thereby, except for the economic consequences of any judicial, administrative or other delay or procedure which may be imposed by applicable law. | |
| 11. | With respect to our opinions regarding security interests set forth in opinion paragraph 7 above, we advise you that (i) any security interest in “proceeds” (as defined in the New York UCC, the Missouri UCC or the Delaware UCC, as applicable) of Collateral may be limited as to perfection and effectiveness to the extent provided in Section 9-315 of the New York UCC, the Missouri UCC or the Delaware UCC, as applicable; and (ii) the Lender’s rights under the Loan Documents are subject to the rights of the following parties under circumstances described in the applicable sections of the New York UCC, the Missouri UCC or the Delaware UCC, as applicable, set forth below: (a) purchasers of chattel paper or instruments under the circumstances described in Section 9-330 or (b) holders in due course of negotiable instruments, holders to whom negotiable documents of title have been duly negotiated, or protected purchasers of securities, in each case, under the circumstances described in Section 9-331. |
| 12. | We note that in order to continue the perfection of the security interest in that portion of the Collateral which has been perfected by the filing of the Financing Statement under the Delaware UCC for more than five (5) years, a continuation statement must be filed as to such Financing Statement in the Filing Office within six (6) months prior to the expiration of each consecutive five-year period (with the first such period commencing on the date the Financing Statement was duly filed) and in all respects in compliance with Article 9, Part 5 of the Delaware UCC. |
| 13. | We call your attention to the fact that with respect to any security interest in Collateral perfected by the filing of the Financing Statement under the Delaware UCC, the Financing Statement will not be effective to perfect a security interest under the Delaware UCC in (i) any Collateral acquired by the Borrower more than four (4) months after it changes it name so as to make the Financing Statement seriously misleading, unless a new appropriate financing statement indicating its new name is properly filed before the expiration of such four (4) months and (ii) any Collateral four (4) months after it changes its jurisdiction of organization (or if earlier, when perfection under the Delaware UCC would have ceased) unless such security interest is perfected in such new jurisdiction before that termination occurs. |
| 14. | We are expressing no opinion as to the priority of any lien or security interest created by the Loan Documents. |
| 15. | We call your attention that Section 522 of the federal Bankruptcy Code limits the extent to which property acquired by a debtor after the commencement of a case under the federal Bankruptcy Code may be subject to a security interest arising from a security agreement entered into by such debtor before the commencement of such case. |
| 16. | We do not express any opinion as to the attachment or perfection of a security interest in deposit accounts, letter-of-credit rights, money or commercial tort claims as those terms are defined in the New York UCC, the Missouri UCC or the Delaware UCC, as applicable. |
| 17. | We express no opinion with respect to any laws, rules or regulations governing the issuance or sale of securities. |
| 18. | In connection with any matters confirmed by us with respect to the existence or absence of facts, conditions or circumstances, the words “to our knowledge”, “of which we have knowledge”, “known to us” and words of similar import mean that in the course of performing legal services on behalf of any Credit Party, we are without conscious awareness of facts or other information that such confirmed matters are untrue, and in preparing this opinion letter, we have not undertaken any independent verification of such confirmed matters beyond our recollection of legal services currently or previously performed by us for the Credit Parties, and have made no investigation or inquiry with any Credit Party or any other persons regarding such confirmed matters except as stated above in this opinion letter. For purposes of the preceding sentence, the terms “to our knowledge”, “of which we have knowledge”, “known to us” and similar phrases refer to the actual present knowledge of those lawyers of Stinson Morrison Hecker LLP who |
| have devoted substantive attention to the matters relating to the Loan Documents and the other transactions of the Credit Parties occurring on the date hereof, and not to the knowledge of Stinson Morrison Hecker LLP as a firm or its partners or employees generally. |
| 19. | Our opinions set forth in this opinion letter are based upon the facts in existence and the laws in effect on the date hereof, and we expressly disclaim any obligation to update or supplement our opinions in response to changes in the law becoming effective hereafter or future events or circumstances affecting the transactions contemplated by the Loan Documents. |
Our opinions and statements expressed herein are restricted to matters governed by (a) the
federal laws of the United States of America; (b) the laws of the State of Missouri, including,
without limitation, the Uniform Commercial Code as in effect in the State of Missouri, Mo. Rev.
Stat. §§ 400.1-101 et seq. (the “Missouri UCC”); (c) with respect to the opinions given as to the
Borrower set forth in opinion paragraphs 1, 2, 3, 4(a) and 5, the General Corporation Law of
Delaware, 8 Del. Code Ann. §§ 101 et seq.; (d) with respect to the opinions given as to the
Borrower set forth in the first and third sentences of opinion paragraph 7, Article 9 of the
Uniform Commercial Code as in effect in the State of New York, 38 New York Consol. Laws §§ 9-101 et
seq. (the “New York UCC”); and (e) with respect to the opinions given as to the Borrower set forth
in opinion paragraph 5 and the second sentence of opinion paragraph 7, Article 9 of the Uniform
Commercial Code as in effect in the State of Delaware, 6 Del. Code Ann. §§ 9-101 et seq. (the
"Delaware UCC”). Except as indicated in the preceding sentence, we express no opinion as to any
matter rising under the laws of any other jurisdiction, including, without limitation, the
statutes, ordinances, rules and regulations of counties, towns, municipalities and special
political subdivisions of the State of Missouri. To the extent that any Reviewed Document is
governed by or subject to the laws of any state or jurisdiction not specified above in this
paragraph with respect to such opinion or confirmation, we have assumed that the laws of such state
or jurisdiction (without regard to conflicts of laws principles) are substantively identical to the
laws of the State of Missouri.
This opinion letter is solely for the benefit of the addressee hereof in connection with the
execution and delivery of the Loan Documents and may not be relied upon for any other purpose or by
any other person for any purpose, without in each instance our prior written consent. We
understand that this opinion letter may be included in closing binders with respect to the
transactions contemplated by the Loan Documents.
| Very truly yours, | ||
| STINSON MORRISON & HECKER LLP |
EXHIBIT A
Financing Statement
[Attached]
EXHIBIT B
Financing Agreements and Instruments
| 1. | Indenture dated October 20, 1997 among Block Financial Corporation (the “Company”), H&R Block, Inc. (the “Guarantor”) and Deutsche Bank Trust Company Americas (f/k/a Bankers Trust Company) (the “First Trustee”), together with: |
| a. | The First Supplemental Indenture dated as of April 18, 2000 among the Company, the Guarantor, the First Trustee and The Bank of New York, as separate trustee under the Indenture (the “Second Trustee”). | ||
| b. | The Company’s 8.50% Notes due 2007, which are guaranteed by the Guarantor pursuant to the guarantees endorsed on said Notes. | ||
| c. | The Officers’ Certificate of the Company dated October 26, 2004 establishing the terms of the Notes described in d. below. | ||
| d. | The Company’s 5.125% Notes due 2014, which are guaranteed by the Guarantor pursuant to the guarantees endorsed on said Notes. |
| 2. | The Amended and Restated Five-year Credit and Guarantee Agreement dated as of August 10, 2005 among the Company, the Guarantor, the financial institutions which are Lender parties thereto, and JP Morgan Chase Bank, N.A., as Administrative Agent (in such capacity, the “Administrative Agent”), as amended by the First Amendment dated as of November 28, 2006 among the Company, the Guarantor, the Lender parties and the Administrative Agent. |
| 3. | The Five-Year Credit and Guarantee Agreement dated as of August 10, 2005 among the Company, the Guarantor, the financial institutions which are Lender parties thereto, and the Administrative Agent, as amended by the First Amendment dated as of November 28, 2006 among the Company, the Guarantor, the Lender parties and the Administrative Agent. |
| 4. | The Credit and Guarantee Agreement to be dated as of January 2, 2007 among the Company, the Guarantor and BNP Paribas. |
| 5. | The HSBC Retail Settlement Products Distribution Agreement, dated as of September 23, 2005 among HSBC Bank USA, National Association, HSBC TFS, Beneficial Franchise Company Inc., Household Tax Masters Acquisition Corporation, H&R Block Services, Inc., H&R Block Tax Services, Inc., H&R Block Enterprises, Inc., H&R Block Eastern Enterprises, Inc., H&R Block Digital Tax Solutions, LLC, H&R Block and Associates, L.P., HRB Royalty, Inc., HSBC Finance Corporation and the Guarantor, as amended from time to time, and any restatement, extension, renewal and replacement thereof. |
| 6. | The HSBC Refund Anticipation Loan Participation Agreement, dated as of September 23, 2005 among Household Tax Masters Acquisition Corporation, the Company, HSBC Bank USA, National Association, HSBC TFS and HSBC Trust Company (Delaware), |
| National Association, as amended from time to time, and any restatement, extension, renewal and replacement thereof. |
| 7. | The HSBC Settlement Products Servicing Agreement dated as of September 23, 2005 among HSBC Bank USA, National Association, HSBC TFS, Household Tax Masters Acquisition Corporation and the Company, as amended from time to time, and any restatement, extension, renewal and replacement thereof. |
| 8. | The HSBC Settlement Products Indemnification Agreement dated as of September 23, 2005 among HSBC Bank USA, National Association, HSBC TFS, Household Tax Masters Acquisition Corporation, Beneficial Franchise Company, Inc., H&R Block Services, Inc., H&R Block Tax Services, Inc., H&R Block Enterprises, Inc., H&R Block Eastern Enterprises, Inc., H&R Block Digital Tax Solutions, LLC, H&R Block and Associates, L.P., HRB Royalty, Inc. and the Company, as amended from time to time, and any restatement, extension, renewal and replacement thereof. |
Exhibit 10.30
FIRST AMENDMENT
THIS FIRST AMENDMENT dated as of November 28, 2006 (this “Amendment”) amends the
Five-Year Credit and Guarantee Agreement dated as of August 10, 2005 (the “Credit
Agreement”) among Block Financial Corporation (the “Borrower”), H&R Block, Inc. (the
“Guarantor”), various financial institutions (the “Lenders”) and JPMorgan Chase Bank, N.A.,
as administrative agent for the Lenders (in such capacity, the “Administrative Agent”).
Capitalized terms used but not defined herein have the respective meanings set forth in
the Credit Agreement.
WHEREAS, the Borrower, the Guarantor, the Lenders and the Administrative Agent have
entered into the Credit Agreement; and
WHEREAS, the parties hereto desire to amend the Credit Agreement as set forth
herein;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1 Amendments. Subject to the satisfaction of the condition precedent
set forth in Section 3, the Credit Agreement is amended as follows:
1.1 Amendment to Section 3.8. Section 3.8 is amended in its entirety to
read as follows:
SECTION 3.8. Investment Company Status. Neither of the
Credit Parties nor any of the Subsidiaries is an “investment company” as
defined in, or subject to regulation under, the Investment Company Act of
1940, as amended.
1.2 Amendments to Section 6.2. Section 6.2 is amended as follows:
(a) Clause (m) is amended in its entirety to read as follows:
(m) subject to the proviso at the end of this Section 6.2,
Indebtedness incurred in connection with the Borrower’s Refund Anticipation
Loan Program, including any Indirect RAL Participation Transaction;
provided that (i) such Indebtedness is incurred during the period
beginning on January 2 of any year and ending on June 29 of such year, (ii)
such Indebtedness is repaid in full by June 30 of the year in which such
Indebtedness is incurred and (iii) the covenants contained in any agreement
relating to such Indebtedness, or guarantee thereof (other than covenants
specific to the Borrower’s Refund Anticipation Loan Program and the operation
thereof), are no more restrictive than the covenants contained in this
Agreement;
(b) The last paragraph is amended by deleting the clause beginning “except” at the
end thereof and substituting the following therefor:
except that, during the period from January 2 of any year through June 30
of such year, such sum may exceed the greater of the Total Facility Commitments
then in effect or the then Total Facility Loan Outstandings by an amount up to the
total of (A) the aggregate
outstanding principal amount of Indebtedness described in subsection 6.2(m) and (B)
$500,000,000.
1.3 Amendment to Section 10.1. Section 10.1 (a) is amended in its entirety to
read as follows:
(a) if to the Borrower or the Guarantor, to it at One H&R Block Way, Kansas City,
Missouri 64105, Attention of Becky Shulman (Telecopy No. (816) 854-4242), David Staley
(Telecopy No. (816) 854-4239) and Andrew Somora (Telecopy No. (816) 753-0037);
SECTION 2 Representations and Warranties. Each of the Borrower and the Guarantor
represents and warrants to the Administrative Agent and the Lenders that, after giving effect to
the effectiveness hereof, (a) each representation and warranty set forth in Article III of the
Credit Agreement (other than the representations and warranties set forth in subsections 3.4(b),
3.6(a)(i) and 3.6(b)) is true and correct in all material respects as of the date hereof with the
same effect as if made on the date hereof (except to the extent related to a specific earlier date)
and (b) no Default or Event of Default shall have occurred and be continuing.
SECTION 3 Effectiveness. The amendments set forth herein shall become effective upon
receipt by the Administrative Agent of counterparts of this Amendment executed by the Borrower, the
Guarantor and the Required Lenders.
SECTION 4 Miscellaneous.
4.1 Continuing Effectiveness, etc. Except as expressly amended hereby, the
provisions of the Credit Agreement are and shall remain in full force and effect. After
the effectiveness of this Amendment, all references in the Credit Agreement and the other
Loan Documents to “Credit Agreement” or similar terms shall refer to the Credit Agreement as
amended hereby.
4.2 Counterparts. This Amendment may be executed in any number of counterparts
and by the different parties on separate counterparts, and each such counterpart shall be
deemed to be an original but all such counterparts shall together constitute one and the same
Amendment. Delivery of a counterpart hereof, or an executed signature hereto, by facsimile or by e-mail
(in pdf or similar format) shall be effective as delivery of a manually-executed counterpart
hereof.
4.3 Governing Law. This Amendment shall be construed in accordance with and
governed by the law of the State of New York.
-2-
Delivered as of the day and year first above written.
| BLOCK FINANCIAL CORPORATION | ||||||
| By: | /s/ Becky S. Shulman | |||||
| Name: Becky S. Shulman | ||||||
| Title: Senior Vice President and Treasurer | ||||||
| H&R BLOCK, INC. | ||||||
| By: | /s/ Becky S. Shulman | |||||
| Name: Becky S. Shulman | ||||||
| Title: Senior Vice President and Treasurer | ||||||
-3-
| JPMORGAN CHASE BANK, N.A., as Administrative Agent, as a Lender and as Swingline Lender |
||||||
| By: | /s/ Elisabeth H. Schwabe | |||||
| Name: Elisabeth H. Schwabe | ||||||
| Title: Managing Director JPMorgan Chase Bank |
||||||
-4-
| BANK OF AMERICA, N.A. | ||||||
| By: | /s/ Alexa B. Bradford | |||||
| Name: Alexa B. Bradford | ||||||
| Title: Senior Vice President | ||||||
-5-
| HSBC BANK USA, NATIONAL ASSOCIATION | ||||||
| By: | /s/ Peter Nealon | |||||
| Name: Peter Nealon | ||||||
| Title: Managing Director | ||||||
-6-
| GREENWICH CAPITAL MARKETS, INC., AS AGENT FOR THE ROYAL BANK OF SCOTLAND PLC |
||||
| /s/ Fergus Smail | ||||
| Fergus Smail | ||||
| Vice President |
-7-
| BNP PARIBAS | ||||||
| By: | /s/ Tomasz Rydel | |||||
| Name: Tomasz Rydel | ||||||
| Title: Vice-President | ||||||
| By: | /s/ Chris Grumboski | |||||
| Name: Chris Grumboski | ||||||
| Title: Director | ||||||
-8-
| CALYON NEW YORK BRANCH | ||||||||
| By: | /s/ Sebastian Rocco | |||||||
| Name: Sebastian Rocco | ||||||||
| Title: Managing Director | ||||||||
| By: | /s/ [ILLEGIBLE] | |||||||
| Name: [ILLEGIBLE] | ||||||||
| Title: Director | ||||||||
-9-
| WACHOVIA BANK, NATIONAL ASSOCIATION |
||||||||
| By: | /s/ Joan Anderson | |||||||
| Name: Joan Anderson | ||||||||
| Title: Director | ||||||||
-10-
| WELLS FARGO BANK, N.A. | ||||||||
| By: | /s/ Thiplada Siddiqui | |||||||
| Name: Thiplada Siddiqui | ||||||||
| Title: Vice President | ||||||||
-11-
| CITIBANK, N.A. | ||||||||
| By: | /s/ Andrew Kreeger | |||||||
| Name: Andrew Kreeger | ||||||||
| Title: Vice President | ||||||||
-12-
| LEHMAN BROTHERS BANK, FSB | ||||||||
| By: | /s/ Janine M. Shugan | |||||||
| Name: Janine M. Shugan | ||||||||
| Title: Authorized Signatory | ||||||||
-13-
| MELLON BANK, N.A. | ||||||||
| By: | /s/ Daniel Beagle | |||||||
| Name: Daniel Beagle | ||||||||
| Title: First Vice President | ||||||||
-14-
| U.S. BANK NATIONAL ASSOCIATION | ||||||||
| By: | /s/ Michael J. Reymann | |||||||
| Name: Michael J. Reymann | ||||||||
| Title: Senior Vice President | ||||||||
-15-
| COMERICA BANK | ||||||||
| By: | /s/ Mark J. Leveille | |||||||
| Name: Mark J. Leveille | ||||||||
| Title: Assistant Vice President | ||||||||
-16-
| THE BANK OF NEW YORK | ||||||||
| By: | /s/ Louis D. Serio | |||||||
| Name: Louis D. Serio | ||||||||
| Title: Vice President | ||||||||
-17-
| DEUTSCHE BANK AG, NEW YORK BRANCH | ||||||||
| By: | ||||||||
| Name: | ||||||||
| Title: | ||||||||
-18-
| FIFTH THIRD BANK | ||||||||
| By: | /s/ Christopher D. Jones | |||||||
| Name: Christopher D. Jones | ||||||||
| Title: Vice President | ||||||||
-19-
| ROYAL BANK OF CANADA | ||||||||
| By: | /s/ Dustin Craven | |||||||
| Name: Dustin Craven | ||||||||
| Title: Attorney-in-Fact | ||||||||
-20-
| SUNTRUST BANK | ||||||||
| By: | /s/ Steven A. Deily | |||||||
| Name: Steven A. Deily | ||||||||
| Title: Managing Director | ||||||||
-21-
| MERRILL LYNCH BANK USA | ||||||||
| By: | /s/ Louis Alder | |||||||
| Name: Louis Alder | ||||||||
| Title: Director | ||||||||
-22-
| SUMITOMO MITSUI BANKING CORPORATION |
||||||||
| By: | /s/ Shigeru Tsuru | |||||||
| Name: Shigeru Tsuru | ||||||||
| Title: Joint General Manager | ||||||||
-23-
| UBS LOAN FINANCE LLC | ||||||||
| By: | /s/ Richard L. Tavrow | |||||||
| Name: Richard L. Tavrow | ||||||||
| Title: Director | ||||||||
| By: | /s/ Irja R. Otsa | |||||||
| Name: Irja R. Otsa | ||||||||
| Title: Associate Director | ||||||||
-24-
| BANK MIDWEST, N.A. | ||||||||
| By: | /s/ Brian Bower | |||||||
| Name: Brian Bower | ||||||||
| Title: Vice President | ||||||||
-25-
| CHANG HWA COMMERCIAL BANK, LTD. | ||||||||
| By: | ||||||||
| Name: | ||||||||
| Title: | ||||||||
-26-
| COMMERCE BANK, N.A. | ||||||||
| By: | ||||||||
| Name: | ||||||||
| Title: | ||||||||
-27-
| NATIONAL CITY BANK | ||||||||
| By: | /s/ Michael J. Durbin | |||||||
| Name: Michael J. Durbin | ||||||||
| Title: Senior Vice President | ||||||||
-28-
| PNC BANK, NATIONAL ASSOCIATION | ||||||||
| By: | /s/ Louis K. McLinden | |||||||
| Name: Louis K. McLinden | ||||||||
| Title: Vice President | ||||||||
-29-
| UMB BANK, N.A. | ||||||||
| By: | /s/ Thomas S. Terry | |||||||
| Name: Thomas S. Terry | ||||||||
| Title: Senior Vice President | ||||||||
-30-
Exhibit 10.31
FIRST AMENDMENT
THIS FIRST AMENDMENT dated as of November 28, 2006 (this “Amendment”) amends the
Amended and Restated Five-Year Credit and Guarantee Agreement dated as of August 10, 2005 (the
“Credit Agreement”) among Block Financial Corporation (the “Borrower”), H&R Block, Inc. (the
“Guarantor”), various financial institutions (the “Lenders”) and JPMorgan Chase Bank, N.A., as
administrative agent for the Lenders (in such capacity, the “Administrative Agent”).
Capitalized terms used but not defined herein have the respective meanings set forth in the
Credit Agreement.
WHEREAS, the Borrower, the Guarantor, the Lenders and the Administrative Agent have
entered into the Credit Agreement; and
WHEREAS, the parties hereto desire to amend the Credit Agreement as set forth herein;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1 Amendments. Subject to the satisfaction of the condition precedent set
forth in Section 3, the Credit Agreement is amended as follows:
1.1 Amendment to Section 3.8. Section 3.8 is amended in its entirety to
read as follows:
SECTION 3.8. Investment Company Status. Neither of the Credit
Parties nor any of the Subsidiaries is an “investment company” as defined in,
or subject to regulation under, the Investment Company Act of 1940, as
amended.
1.2 Amendments to Section 6.2. Section 6.2 is amended as follows:
(a) Clause (m) is amended in its entirety to read as follows:
(m) subject to the proviso at the end of this Section 6.2,
Indebtedness incurred in connection with the Borrower’s Refund Anticipation
Loan Program, including any Indirect RAL Participation Transaction;
provided that (i) such Indebtedness is incurred during the period
beginning on January 2 of any year and ending on June 29 of such year, (ii)
such Indebtedness is repaid in full by June 30 of the year in which such
Indebtedness is incurred and (iii) the covenants contained in any agreement
relating to such Indebtedness, or guarantee thereof (other than covenants
specific to the Borrower’s Refund Anticipation Loan Program and the operation
thereof), are no more restrictive than the covenants contained in this
Agreement;
(b) The last paragraph is amended by deleting the clause beginning “except” at the
end thereof and substituting the following therefor:
except that, during the period from January 2 of any year through June 30 of
such year, such sum may exceed the greater of the Total Facility Commitments then in
effect or the then Total Facility Loan Outstandings by an amount up to the total of (A)
the aggregate
outstanding principal amount of Indebtedness described in subsection 6.2(m) and (B)
$500,000,000.
1.3 Amendment to Section 10.1. Section 10.1 (a) is amended in its entirety to
read as follows:
(a) if to the Borrower or the Guarantor, to it at One H&R Block Way, Kansas City,
Missouri 64105, Attention of Becky Shulman (Telecopy No. (816) 854-4242), David Staley
(Telecopy No. (816) 854-4239) and Andrew Somora (Telecopy No. (816) 753-0037);
SECTION 2 Representations and Warranties. Each of the Borrower and the Guarantor
represents and warrants to the Administrative Agent and the Lenders that, after giving effect to
the effectiveness hereof, (a) each representation and warranty set forth in Article III of the
Credit Agreement (other than the representations and warranties set forth in subsections 3.4(b),
3.6(a)(i) and 3.6(b)) is true and correct in all material respects as of the date hereof with the
same effect as if made on the date hereof (except to the extent related to a specific earlier date)
and (b) no Default or Event of Default shall have occurred and be continuing.
SECTION 3 Effectiveness. The amendments set forth herein shall become effective upon
receipt by the Administrative Agent of counterparts of this Amendment executed by the Borrower, the
Guarantor and the Required Lenders.
SECTION 4 Miscellaneous.
4.1 Continuing Effectiveness, etc. Except as expressly amended hereby, the
provisions of the Credit Agreement are and shall remain in full force and effect. After
the effectiveness of this Amendment, all references in the Credit Agreement and the other
Loan Documents to “Credit Agreement” or similar terms shall refer to the Credit Agreement as
amended hereby.
4.2 Counterparts. This Amendment may be executed in any number of counterparts
and by the different parties on separate counterparts, and each such counterpart shall be
deemed to be an original but all such counterparts shall together constitute one and the same
Amendment. Delivery of a counterpart hereof, or an executed signature hereto, by facsimile or by e-mail
(in pdf or similar format) shall be effective as delivery of a manually-executed counterpart
hereof.
4.3 Governing Law. This Amendment shall be construed in accordance with and
governed by the law of the State of New York.
-2-
Delivered as of the day and year first above written.
| BLOCK FINANCIAL CORPORATION | ||||||
| By: | /s/ Becky S. Shulman | |||||
| Name: | Becky S. Shulman | |||||
| Title: | Senior Vice President and Treasurer | |||||
| H&R BLOCK, INC. | ||||||
| By: | /s/ Becky S. Shulman | |||||
| Name: | Becky S. Shulman | |||||
| Title: | Senior Vice President and Treasurer | |||||
| JPMORGAN CHASE BANK, N.A., as Administrative Agent, as a Lender and as Swingline Lender |
||||||
| By: | /s/ Elisabeth H. Schwabe | |||||
| Name: | Elisabeth H. Schwabe | |||||
| Title: | Managing Director JPMorgan Chase Bank |
|||||
| BANK OF AMERICA, N.A. | ||||||
| By: | /s/ Alexa B. Bradford | |||||
| Name: | Alexa B. Bradford | |||||
| Title: | Senior Vice President | |||||
| GREENWICH CAPITAL MARKETS, INC., AS AGENT FOR THE ROYAL BANK OF SCOTLAND PLC |
||||||
| /s/ Fergus Smail | ||||||
| Fergus Smail | ||||||
| Vice President | ||||||
-4-
| BARCLAYS CAPITAL PLC | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
-5-
| HSBC BANK USA, NATIONAL ASSOCIATION | ||||||
| By: | /s/ Peter Nealon | |||||
| Name: | Peter Nealon | |||||
| Title: | Managing Director | |||||
-6-
| CITIBANK, N.A. | ||||||
| By: | /s/ Andrew Kreeger | |||||
| Name: | Andrew Kreeger | |||||
| Title: | Vice President | |||||
-7-
| KEY BANK NATIONAL ASSOCIATION | ||||||
| By: | /s/ Donald F. Carmichael, Jr. | |||||
| Name: | Donald F. Carmichael, Jr. | |||||
| Title: | Vice President | |||||
-8-
| WELLS FARGO BANK, N.A. | ||||||
| By: | /s/ Thiplada Siddiqui | |||||
| Name: | Thiplada Siddiqui | |||||
| Title: | Vice President | |||||
-9-
| CALYON NEW YORK BRANCH | ||||||
| By: | /s/ Sebastian Rocco | |||||
| Name: | Sebastian Rocco | |||||
| Title: | Managing Director | |||||
| By: | /s/ [ILLEGIBLE] | |||||
| Name: | [ILLEGIBLE] | |||||
| Title: | Director | |||||
-10-
| MELLON BANK, N.A. | ||||||
| By: | /s/ Daniel Beagle | |||||
| Name: | Daniel Beagle | |||||
| Title: | First Vice President | |||||
-11-
| ROYAL BANK OF CANADA | ||||||
| By: | /s/ Dustin Craven | |||||
| Name: | Dustin Craven | |||||
| Title: | Attorney-in-Fact | |||||
-12-
| SUNTRUST BANK | ||||||
| By: | /s/ Steven A. Deily | |||||
| Name: | Steven A. Deily | |||||
| Title: | Managing Director | |||||
-13-
| U.S. BANK NATIONAL ASSOCIATION | ||||||
| By: | /s/ Michael J. Reymann | |||||
| Name: | Michael J. Reymann | |||||
| Title: | Senior Vice President | |||||
-14-
| WACHOVIA BANK, NATIONAL ASSOCIATION |
||||||
| By: | /s/ Joan Anderson | |||||
| Name: | Joan Anderson | |||||
| Title: | Director | |||||
-15-
| BNP PARIBAS | ||||||
| By: | /s/ Tomasz Rydel | |||||
| Name: | Tomasz Rydel | |||||
| Title | Vice-President | |||||
| By: | /s/ Chris Grumboski | |||||
| Name: | Chris Grumboski | |||||
| Title: | Director | |||||
-16-
| COMERICA BANK | ||||||
| By: | /s/ Mark J. Leveille | |||||
| Name: | Mark J. Leveille | |||||
| Title: | Assistant Vice President | |||||
-17-
| E.SUN COMMERCIAL BANK, LTD. (LOS ANGELES) |
||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
-18-
| DEUTSCHE BANK AG NEW YORK BRANCH | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
-19-
| FIFTH THIRD BANK | ||||||
| By: | /s/ Christopher D. Jones | |||||
| Name: | Christopher D. Jones | |||||
| Title: | Vice President | |||||
-20-
| LEHMAN BROTHERS BANK, FSB | ||||||
| By: | /s/ Janine M. Shugan | |||||
| Name: | Janine M. Shugan | |||||
| Title: | Authorized Signatory | |||||
-21-
| MERRILL LYNCH BANK USA | ||||||
| By: | /s/ Louis Alder | |||||
| Name: | Louis Alder | |||||
| Title: | Director | |||||
-22-
| SUMITOMO MITSUI BANKING CORPORATION | ||||||
| By: | /s/ Shigeru Tsuru | |||||
| Name: Title: |
Shigeru Tsuru Joint General Manager |
|||||
-23-
| UBS LOAN FINANCE LLC | ||||||
| By: | /s/ Richard L. Tavrow | |||||
| Name: | Richard L. Tavrow | |||||
| Title: | Director | |||||
| By: | /s/ Irja R. Otsa | |||||
| Name: | Irja R. Otsa | |||||
| Title: | Associate Director | |||||
-24-
| BANK MIDWEST, N.A. | ||||||
| By: | /s/ Brian Bower | |||||
| Name: | Brian Bower | |||||
| Title: | Vice President | |||||
-25-
| CHANG HWA COMMERCIAL BANK, LTD. | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
-26-
| COMMERCE BANK, N.A. | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
-27-
| NATIONAL CITY BANK | ||||||
| By: | /s/ Michael J. Durbin | |||||
| Name: | Michael J. Durbin | |||||
| Title: | Senior Vice President | |||||
-28-
| PNC BANK, NATIONAL ASSOCIATION | ||||||
| By: | /s/ Louis K. McLinden | |||||
| Name: | Louis K. McLinden | |||||
| Title: | Vice President | |||||
-29-
| UMB BANK, N.A. | ||||||
| By: | /s/ Thomas S. Terry | |||||
| Name: | Thomas S. Terry | |||||
| Title: | Senior Vice President | |||||
-30-
Exhibit 10.32
SEPARATION AND RELEASE AGREEMENT
This SEPARATION AND RELEASE AGREEMENT (the “Agreement”) is entered into as of the ___day of
November, 2006, by and between HRB Management, Inc., a Missouri corporation (“HRB”) and Nicholas J.
Spaeth (“Mr. Spaeth”).
WHEREAS Mr. Spaeth and HRB agree to terminate his employment with HRB,
WHEREAS Mr. Spaeth and HRB intend the terms and conditions of this Agreement to govern all
issues related to Mr. Spaeth’s employment and separation from HRB,
NOW, THEREFORE, in consideration of the covenants and mutual promises contained in this
Agreement, Mr. Spaeth and HRB agree as follows:
1. Termination Date. HRB and Mr. Spaeth are parties to an Employment Agreement dated
February 2, 2004 (the “Employment Agreement”). The parties agree to terminate Mr. Spaeth’s
employment pursuant to Section 1.07(b) of the Employment Agreement. The parties further agree to
treat Mr. Spaeth’s termination of employment as a “Qualifying Termination,” as defined in the
Employment Agreement, for purposes of determining Mr. Spaeth’s severance compensation and benefits
as set forth in Section 2 of this Agreement. The parties also agree that the termination is not
the result of the elimination of the position of Senior Vice President, Chief Legal Officer of HRB.
Block shall continue to employ Mr. Spaeth on active payroll and be paid his current salary at
HRB’s regular pay intervals until January 2, 2007, upon which date Mr. Spaeth’s employment under
the Employment Agreement will terminate (the “Termination Date”). Mr. Spaeth will continue to work
full-time until November 10, 2006. After that date and until the Termination Date, Mr. Spaeth is
expected to be available for consultation with respect to matters within the scope of his
employment. From the date of this Agreement through the Termination Date, Mr. Spaeth will
appropriately respond to and cooperate with HRB management. The parties agree to waive
any notice of termination required by the Employment Agreement.
2. Severance Benefits. HRB agrees to provide Mr. Spaeth with compensation and
benefits under the H&R Block Severance Plan (“Severance Plan”) as follows:
a. Release Agreement. Mr. Spaeth and HRB agree that this Agreement
constitutes the release agreement required under the Severance Plan.
b. Severance Pay. Subject to the terms of the Severance Plan, HRB will pay to
Mr. Spaeth $659,200.00 (which amount represents an aggregate of Mr. Spaeth’s (A) annual base
salary of $412,000.00 and (B) target short-term incentive compensation for HRB’s fiscal year
2007 of $247,200.00, each determined as of the date of this Agreement) over the 12-month
period beginning on the Termination Date in semi-monthly equal installments of $27,466.66
(less required tax withholdings and elected benefit withholdings).
c. Employee Benefits. Mr. Spaeth will remain eligible to participate in the
various health and welfare benefit plans maintained by HRB in accordance with the terms
of the Severance Plan. After his severance benefits cease, Mr. Spaeth may be eligible
to continue coverage of group health plan benefits under COBRA. Conversion privileges may
also be available for other benefit plans.
d. Stock Options. Those portions of any outstanding incentive stock options
(“ISO Stock Options”) and nonqualified stock options (“NQ Stock Options”) to purchase shares
of HRB’s common stock granted to Mr. Spaeth by HRB that are scheduled to vest between the
Termination Date and July 2, 2008 (based solely on the time-specific vesting schedule
included in the applicable stock option agreement) shall vest and become exercisable as of
the Termination Date. A list of the ISO Stock Options and NQ Stock Options vested as of the
date of this Agreement and to become vested pursuant to this Section is attached as Exhibit
A. No later than the Termination Date, Mr. Spaeth will complete an election form on which
he will elect the time period during which he may exercise his ISO and NQ Stock Options.
Mr. Spaeth acknowledges and agrees that he is solely responsible for the income tax
treatment of his ISO and NQ Stock Options election, and that HRB has not provided him any
personal tax advice about this election. HRB encourages Mr. Spaeth to seek independent tax
advice regarding this election.
e. Restricted Shares. All restrictions on any shares of HRB’s common stock
awarded to Mr. Spaeth by HRB (“Restricted Shares”) that would have lapsed absent a
termination of employment in accordance with their terms by reason of time between the
Termination Date and July 2, 2008 shall terminate (and shall be fully vested) as of the
Termination Date. Any shares unaffected by the operation of this Section shall be forfeited
to HRB on the Termination Date. A list of the Restricted Shares vested as of the date of
this Agreement and to become vested pursuant to this Section is attached as Exhibit B.
f. Performance Shares. On the Termination Date, Mr. Spaeth shall forfeit to
HRB all Performance Shares because HRB awarded him those Performance Shares pursuant to a
cycle which is less than one year old.
g. Outplacement Services. HRB will pay directly to Right Management Services
for twelve (12) months of outplacement services to be provided to Mr. Spaeth.
h. Forfeiture. Mr. Spaeth agrees that the compensation and benefits described
in this Section will cease and no further compensation and benefits will be provided to him
if he violates any of the post-employment obligations under Section 7 of this Agreement, or
Articles Two and Three of the Employment Agreement.
3. Vacation. HRB will pay Mr. Spaeth for his accrued, unused 2007 vacation within 21
days of the Termination Date. Mr. Spaeth will not receive any other payment for vacation or
holidays.
4. Mr. Spaeth Representations. Mr. Spaeth represents and acknowledges to HRB that (a)
HRB has advised him to consult with an attorney of his choosing; (b) he has had twenty-one (21)
days to consider the waiver of his rights under the Age Discrimination in Employment Act of 1967,
as amended (“ADEA”) prior to signing this Agreement; (c) he has disclosed to HRB any information in
his possession concerning any conduct involving HRB or its subsidiaries or affiliates
2
(“Affiliates”) that he has any reason to believe involves any false claims to any governmental
agency, or is or may be unlawful, or violates HRB policy in any respect; (d) the consideration
provided him under this Agreement is sufficient to support the releases provided by him under this
Agreement; and (e) he has not filed any charges, claims or lawsuits against HRB involving any
aspect of his employment which have not been terminated as of the date of this Agreement. Mr.
Spaeth understands that HRB regards the representations made by him as material and that HRB is
relying on these representations in entering into this Agreement.
5. Effective Date of this Agreement. Mr. Spaeth shall have seven (7) days from the
date he signs this Agreement to revoke his consent to the waiver of his rights under the ADEA in
writing addressed and delivered to the HRB official executing this Agreement on behalf of HRB which
action shall revoke this Agreement. If Mr. Spaeth revokes this Agreement, all of its provisions
shall be void and unenforceable. If Mr. Spaeth does not revoke his consent, this Agreement will
take effect on the day after the end of this revocation period (the “Effective Date”).
6. Resignation as an Officer. As of November 10, 2006, Mr. Spaeth will resign (a) as
Senior Vice President, Chief Legal Officer of HRB and (b) from any other officer and director
positions held with HRB and any Affiliates. Mr. Spaeth will execute the resignations attached as
Exhibit C on minute book paper contemporaneously with his execution of this Agreement.
7. Surviving Employment Agreement Obligations. Mr. Spaeth and HRB agree that the
termination of Mr. Spaeth’s employment will not affect the following provisions of the Employment
Agreement which impose continuing obligations on him following termination of the Employment
Agreement: (a) Article Two, “Confidentiality” — Sections 2.01, 2.02; (b) Article Three,
“Non-Hiring; Non-Solicitation; No Conflicts; Non-Competition” — Sections 3.01, 3.02, 3.03, 3.05,
3.06; and (c) Article Four, “Miscellaneous” — Section 4.03. Mr. Spaeth acknowledges and agrees
that he will fully comply with these obligations. HRB may agree to waive any of Mr. Spaeth’s
surviving post-employment obligations under the Employment Agreement. Any such waiver must be in
writing and signed by Mr. Spaeth and the Chief Executive Officer of HRB. Any payments made to Mr.
Spaeth under this Agreement will immediately cease upon any such waiver.
8. Business Expenses and Commitments. Until the Termination Date, HRB will promptly
pay directly, or reimburse Mr. Spaeth for, all business expenses to the extent such expenses are
paid or incurred by Mr. Spaeth in accordance with HRB’s travel policy. As of the Termination Date,
Mr. Spaeth agrees that he will have submitted required documentation for all outstanding expenses
on his HRB corporate credit card. Mr. Spaeth agrees that he will not initiate, make, renew,
confirm or ratify any contracts or commitments for or on behalf of HRB or any Affiliate, nor will
he incur any expenses on behalf of HRB or any Affiliate without HRB’s prior written consent.
9. Mr. Spaeth Release. Mr. Spaeth and his heirs, assigns, and agents release, waive,
and discharge HRB and Released Parties as defined below from each and every claim, action, or right
of any sort, known or unknown, arising on or before the Effective Date.
a. The foregoing release includes, but is not limited to, any claim of discrimination
on the basis of race, sex, pregnancy, religion, marital status, sexual orientation, national
origin, handicap or disability, age, veteran status, special disabled veteran status, or
3
citizenship status or any other category protected by law; any other claim based on a
statutory prohibition or requirement; any claim arising out of or related to an express or
implied employment contract, any other contract affecting terms and conditions of
employment, or a covenant of good faith and fair dealing; any tort claims, any personal gain
with respect to any claim arising under the qui tam provisions of the False Claims Act, 31
U.S.C. 3730, and any claims to attorney fees or expenses. Mr. Spaeth acknowledges and
agrees that this release does not prohibit him from filing a charge of discrimination with
the Equal Employment Opportunity Commission. HRB and Mr. Spaeth agree that the foregoing
release does not include and Mr. Spaeth is not releasing any indemnification rights that he
may be entitled to as an officer and/or director of HRB and its Affiliates as applicable.
b. Mr. Spaeth represents that he understands the foregoing release, that rights and
claims under the Age Discrimination in Employment Act of 1967, as amended, are among the
rights and claims against HRB he is releasing, and that he understands that he is not
releasing any rights or claims arising after the Effective Date.
c. Mr. Spaeth further agrees never to sue HRB or cause HRB to be sued regarding any
matter within the scope of the above release. If Mr. Spaeth violates this release by suing
HRB or causing HRB to be sued, Mr. Spaeth agrees to pay all costs and expenses of defending
against the suit incurred by HRB, including reasonable attorney fees except to the extent
that paying such costs and expenses is prohibited by law or would result in the invalidation
of the foregoing release.
d. Released Parties are HRB, all current and former parents, subsidiaries, related
companies, partnerships or joint ventures, and, with respect to each of them, their
predecessors and successors; and, with respect to each such entity, all of its past,
present, and future employees, officers, directors, stockholders, owners, representatives,
assigns, attorneys, agents, insurers, employee benefit programs (and the trustees,
administrators, fiduciaries and insurers of such programs), and any other person acting by,
through, under or in concert with any of the persons or entities listed in this paragraph,
and their successors.
10. HRB Release. HRB and the Released Parties release, waive, and discharge
Mr. Spaeth and his heirs, assigns, and agents from each and every known claim, action, or right of
any sort arising on or before the Effective Date. This release includes any and all known claims
which arise as a result of Mr. Spaeth’s employment relationship with HRB.
11. Breach by Mr. Spaeth. HRB’s obligations to Mr. Spaeth after the
Effective Date are contingent on his obligations under this Agreement. Any material breach of this
Agreement by Mr. Spaeth will result in the immediate cancellation of HRB’s obligations under this
Agreement and of any benefits that have been granted to Mr. Spaeth by the terms of this Agreement
except to the extent that such cancellation is prohibited by law or would result in the
invalidation of the foregoing release.
12. Mr. Spaeth Availability. Mr. Spaeth agrees to make himself reasonably available to
HRB to respond to requests by HRB for information pertaining to or relating to the Company and/or
its Affiliates, agents, officers, directors or employees that may be within the knowledge of Mr.
4
Spaeth. Mr. Spaeth will cooperate fully with HRB in connection with any and all existing or
future litigation or investigations brought by or against HRB or any of its Affiliates, agents,
officers, directors or employees, whether administrative, civil or criminal in nature, in which and
to the extent HRB deems Mr. Spaeth’s cooperation necessary. HRB will reimburse Mr. Spaeth for
reasonable out-of pocket expenses incurred as a result of such cooperation. Nothing herein shall
prevent Mr. Spaeth from communicating with or participating in any government investigation.
13. Non-Disparagement. Mr. Spaeth agrees, subject to any obligations he may have
under applicable law, that he will not make or cause to be made any statements that disparage, are
inimical to, or damage the reputation of HRB or any of its Affiliates, agents, officers, directors,
or employees. In the event such a communication is made to anyone, including but not limited to
the media, public interest groups and publishing companies, it will be considered a material breach
of the terms of this Agreement and Mr. Spaeth will be required to reimburse HRB for any and all
compensation and benefits (other than those already vested) paid under the terms of this Agreement
and all commitments to make additional payments to Mr. Spaeth will be null and void. HRB President
and Chief Executive Officer Mark A. Ernst agrees, during the time he is employed by HRB and subject
to any obligations he may have under applicable law, that he will not make or cause to be made any
statements that disparage, are inimical to, or damage the reputation of Mr. Spaeth.
14. Return of Company Property. Mr. Spaeth agrees that as of the Termination Date he
will have returned to HRB any and all HRB property or equipment in his possession, including but
not limited to, any computer, printer, fax, phone, credit card, badge, Blackberry, and telephone
card assigned to him.
15. Severability of Provisions. In the event that any provision in this Agreement is
determined to be legally invalid or unenforceable by any court of competent jurisdiction, and
cannot be modified to be enforceable, the affected provision shall be stricken from the Agreement,
and the remaining terms of the Agreement and its enforceability shall remain unaffected.
16. Entire Agreement. This Agreement sets forth the entire agreement and
understanding between the parties and may be changed only with the written consent of both parties
and only if both parties make express reference to this Agreement. The parties have not relied on
any oral statements that are not included in this Agreement. This Agreement supersedes all prior
agreements and understandings concerning the subject matter of this Agreement. Any modifications
to this Agreement must be in writing and signed by Mr. Spaeth and the Chief Executive Officer of
HRB. Failure of HRB to insist upon strict compliance with any of the terms, covenants, or
conditions of this Agreement will not be deemed a waiver of such terms, covenants, or conditions.
17. Applicable Law. This Agreement shall be construed, interpreted, and applied in
accordance with the law of the State of Missouri.
18. Successors and Assigns. This Agreement and each of its provisions will be binding
upon Mr. Spaeth and his executors, successors, and administrators, and will inure to the benefit of
HRB and its successors and assigns. Mr. Spaeth may not assign or transfer to others the obligation
to perform his duties hereunder.
5
19. Specific Performance by Mr. Spaeth. The parties acknowledge that money damages
alone will not adequately compensate HRB for Mr. Spaeth’s breach of any of the covenants and
agreements herein and, therefore, in the event of the breach or threatened breach of any such
covenant or agreement by Mr. Spaeth, in addition to all other remedies available at law, in equity
or otherwise, HRB will be entitled to injunctive relief compelling Mr. Spaeth’s specific
performance of (or other compliance with) the terms hereof.
20. Counterparts. This Agreement may be signed in counterparts and delivered by
facsimile transmission confirmed promptly thereafter by actual delivery of executed counterparts.
21. Additional Release. Mr. Spaeth agrees that on or within ten (10) days after the
Termination Date, he will execute an additional release covering the period from the Effective Date
to the last day of employment. Mr. Spaeth agrees that all HRB covenants that relate to its
obligations beyond the last day of employment will be contingent on Mr. Spaeth’s execution of the
additional release. The additional release is attached as Exhibit D to this Agreement.
| NICHOLAS J. SPAETH: | ||||||
Dated: |
||||||
| Nicholas J. Spaeth | ||||||
Accepted and Agreed:
HRB Management, Inc.
a Missouri corporation
a Missouri corporation
By: |
||||||
| President and Chief Executive Officer of HRB Management, Inc. | ||||||
Dated:
6
EXHIBIT A
STOCK OPTION SUMMARY
| Date of | Strike | Vested | Unvested | Options vesting under | ||||||||||||||||||||
| Grant | Option Type | Options Granted | Price | Options | Options | Separation Agreement | ||||||||||||||||||
02/02/2004 |
ISO | 10,380 | $ | 28.89 | 6,920 | 3,460 | 3,460 | |||||||||||||||||
02/02/2004 |
NQ | 389,620 | $ | 28.89 | 259,746 | 129,874 | 129,874 | |||||||||||||||||
06/30/2004 |
NQ | 70,000 | $ | 23.84 | 46,667 | 23,333 | 23,333 | |||||||||||||||||
06/30/2005 |
ISO | 3,410 | $ | 29.175 | 0 | 3,410 | 3,410 | |||||||||||||||||
06/30/2005 |
NQ | 46,590 | $ | 29.175 | 16,666 | 29,924 | 29,924 | |||||||||||||||||
06/30/2006 |
ISO | 4,179 | $ | 23.86 | 0 | 4,179 | 2 | |||||||||||||||||
06/30/2006 |
NQ | 50,821 | $ | 23.86 | 0 | 50,821 | 33,880 | |||||||||||||||||
EXHIBIT B
RESTRICTED SHARES SUMMARY
| Date of | Vested | Unvested | Shares Vesting Under | |||||||||||||
| Grant | Shares Granted | Shares | Shares | Separation Agreement | ||||||||||||
02/02/2004 |
40,000 | 13,333 | 26,667 | 26,667 | ||||||||||||
06/30/2004 |
10,000 | 6,667 | 3,333 | 3,333 | ||||||||||||
06/30/2005 |
10,000 | 3,333 | 6,667 | 6,667 | ||||||||||||
EXHIBIT C
OFFICER RESIGNATION
Effective November 10, 2006, I hereby resign from my officer position as Senior Vice
President, Chief Legal Officer, of the following companies:
| • | H&R Block, Inc., a Missouri Corporation | ||
| • | HRB Management, Inc., a Missouri Corporation |
Dated: November ___, 2006
EXHIBIT C
DIRECTOR RESIGNATION
Effective November 10, 2006, I hereby resign as a Director of H&R Block (India) Private
Limited, an Indian corporation.
Dated: November ___, 2006
EXHIBIT D
SUPPLEMENTAL RELEASE
This supplemental release given to the HRB Management, Inc. (“HRB”) by Nicholas J. Spaeth
(“Mr. Spaeth”) is executed in consideration for the covenants made by
the Company in a Separation Agreement and Release signed by Mr. Spaeth.
Mr. Spaeth and his heirs, assigns, and agents release, waive, and discharge HRB, its directors,
officers, employees, subsidiaries, affiliates, and agents from each and every claim, action or
right of any sort, known or unknown, arising on or before the date of this Supplemental Release.
1. The foregoing release includes, but is not limited to, any claim of discrimination on the
basis of race, sex, religion, marital status, sexual orientation, national origin, handicap or
disability, age, veteran status, special disabled veteran status, citizenship status; any other
claim based on a statutory prohibition; any claim arising out of or related to an express or
implied employment contract, any other contract affecting terms and conditions of employment, or a
covenant of good faith and fair dealing; any tort claims and any personal gain with respect to any
claim arising under the qui tam provisions of the False Claims Act, 31 U.S.C. 3730, and any claim
to attorney’s fees. This release does not prohibit Mr. Spaeth from filing a charge of
discrimination with the Equal Employment Opportunity Commission. This release also does not
include and Mr. Spaeth is not releasing any indemnification rights that he may be entitled to as
an officer and/or director of HRB and its Affiliates as applicable.
2. Mr. Spaeth represents that he understands the foregoing release, that rights and claims
under the Age Discrimination in Employment Act of 1967, as amended, are among the rights and
claims against HRB that he is releasing, and that he understands that he is not releasing any
rights or claims arising after the date of this Supplemental Release.
| NICHOLAS J. SPAETH | ||||
| DATE: |
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
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 registrant’s 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 registrant’s 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 registrant’s internal control over financial
reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth
quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant’s auditors and the audit
committee of the registrant’s 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 registrant’s
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 registrant’s internal control over financial reporting.
| Date: March 14, 2007 | /s/ Mark A. Ernst | |||
| Mark A. Ernst | ||||
| Chief Executive Officer H&R Block, Inc. |
||||
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
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 registrant’s 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 registrant’s 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 registrant’s internal control over financial
reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth
quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant’s auditors and the audit
committee of the registrant’s 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 registrant’s
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 registrant’s internal control over financial reporting.
| Date: March 14, 2007 | /s/ William L. Trubeck | |||
| William L. Trubeck | ||||
| Chief Financial Officer H&R Block, Inc. |
||||
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
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 January 31, 2007 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:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | ||
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| /s/ Mark A. Ernst | ||||
| Mark A. Ernst | ||||
| Chief Executive Officer H&R Block, Inc. March 14, 2007 |
||||
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
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 January 31, 2007 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:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | ||
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| /s/ William L. Trubeck | ||||
| William L. Trubeck | ||||
| Chief Financial Officer H&R Block, Inc. March 14, 2007 |
||||