Exhibit 10.5
SALE AND SERVICING AGREEMENT
among
OPTION ONE OWNER TRUST 2005-7
as Issuer
and
OPTION ONE LOAN WAREHOUSE CORPORATION
as Depositor
and
OPTION ONE MORTGAGE CORPORATION
as Loan Originator and Servicer
and
▇▇▇▇▇ FARGO BANK, N.A.
as Indenture Trustee
Dated as of September 1, 2005
OPTION ONE OWNER TRUST 2005-7
MORTGAGE-BACKED NOTES
TABLE OF CONTENTS
Page
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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 ...................... 32
Section 2.02 Ownership and Possession of Loan Files .................. 34
Section 2.03 Books and Records; Intention of the Parties ............. 34
Section 2.04 Delivery of Loan Documents .............................. 35
Section 2.05 Acceptance by the Indenture
Trustee of the Loans; Certain ........................... 36
Section 2.06 Conditions Precedent to Transfer Dates and
Collateral Value Increase Dates ......................... 37
Section 2.07 Termination of Revolving Period ......................... 40
Section 2.08 Correction of Errors .................................... 40
ARTICLE III REPRESENTATIONS AND WARRANTIES
Section 3.01 Representations and Warranties of the Depositor ......... 41
Section 3.02 Representations and Warranties of the Loan Originator ... 43
Section 3.03 Representations, Warranties and
Covenants of the Servicer ............................... 45
Section 3.04 Reserved ................................................ 48
Section 3.05 Representations and Warranties Regarding Loans .......... 48
Section 3.06 Purchase and Substitition ............................... 48
Section 3.07 Dispositions ............................................ 50
Section 3.08 Loan Originator Put; Servicer Call ...................... 53
Section 3.09 Modification of Underwriting Guidelines ................. 54
ARTICLE IV ADMINISTRATION AND SERVICING OF THE LOANS
Section 4.01 Servicer's Servicing Obligations ........................ 54
ARTICLE V ESTABLISHMENT OF TRUST ACCOUNTS; TRANSFER OBLIGATION
Section 5.01 Collection Account and Distribution Account ............. 55
Section 5.02 Payments to Securityholders ............................. 60
Section 5.03 Trust Accounts; Trust Account Property .................. 60
Section 5.04 Advance Account ......................................... 63
Section 5.05 Transfer Obligation Account ............................. 63
Section 5.06 Transfer Obligation ..................................... 64
ARTICLE VI STATEMENTS AND REPORTS; SPECIFICATION OF TAX MATTERS
Section 6.01 Statements .............................................. 65
Section 6.02 Specification of Certain Tax Matters .................... 68
Section 6.03 Valuation of Loans, Hedge Value and
Retained Securities Value; .............................. 68
ARTICLE VII HEDGING; FINANCIAL COVENANTS
Section 7.01 Hedging Instruments ..................................... 69
Section 7.02 Financial Covenants ..................................... 70
ARTICLE VIII THE SERVICER
Section 8.01 Indemnification; Third Party Claims ..................... 71
Section 8.02 Merger or Consolidation of the Servicer ................. 73
Section 8.03 Limitation on Liability of the
Servicer and Others ..................................... 73
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Section 8.04 Servicer Not to Resign; Assignment ...................... 74
Section 8.05 Relationship of Servicer to Issuer and
the Indenture Trustee ................................... 74
Section 8.06 Servicer May Own Securities ............................. 74
Section 8.07 Indemnification of the Indenture Trustee and
Initial Noteholder ...................................... 75
ARTICLE IX SERVICER EVENTS OF DEFAULT
Section 9.01 Servicer Events of Default .............................. 75
Section 9.02 Appointment of Successor ................................ 77
Section 9.03 Waiver of Defaults ...................................... 78
Section 9.04 Accounting Upon Termination of Servicer ................. 78
ARTICLE X TERMINATION; PUT OPTION
Section 10.01 Termination ............................................ 79
Section 10.02 Optional Termination ................................... 79
Section 10.03 Notice of Termination .................................. 80
Section 10.04 Put Option ............................................. 80
ARTICLE XI MISCELLANEOUS PROVISIONS
Section 11.01 Acts of Securityholders ................................ 80
Section 11.02 Amendment .............................................. 80
Section 11.03 Recordation of Agreement ............................... 81
Section 11.04 Duration of Agreement .................................. 81
Section 11.05 Governing Law .......................................... 82
Section 11.06 Notices ................................................ 82
Section 11.07 Severability of Provisions ............................. 82
Section 11.08 No Partnership ......................................... 83
Section 11.09 Counterparts ........................................... 83
Section 11.10 Successors and Assigns ................................. 83
Section 11.11 Headings ............................................... 83
Section 11.12 Actions of Securityholders ............................. 83
Section 11.13 Non-Petition Agreement ................................. 84
Section 11.14 Holders of the Securities .............................. 84
Section 11.15 Due Diligence Fees, Due Diligence ...................... 84
Section 11.16 No Reliance ............................................ 85
Section 11.17 Confidential Information ............................... 86
Section 11.18 Conflicts .............................................. 87
Section 11.19 Limitation on Liability ................................ 87
Section 11.20 Third Party Beneficiary ................................ 87
Section 11.21 No Agency .............................................. 87
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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
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AMENDED AND RESTATED SALE AND SERVICING AGREEMENT
This Sale and Servicing Agreement is entered into effective as of September
1, 2005, among OPTION ONE OWNER TRUST 2005-7, a Delaware statutory trust (the
"Issuer" or the "Trust"), OPTION ONE LOAN WAREHOUSE CORPORATION, a Delaware
corporation, as Depositor (in such capacity, the "Depositor"), OPTION ONE
MORTGAGE CORPORATION, a California corporation ("Option One"), as Loan
Originator (in such capacity, the "Loan Originator") and as Servicer (in such
capacity, the "Servicer"), and ▇▇▇▇▇ FARGO BANK, N.A., a national banking
association, as Indenture Trustee on behalf of the Noteholders (in such
capacity, the "Indenture Trustee").
WITNESSETH:
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.
Accrual Period: With respect to the Notes, the period commencing on and
including the preceding Payment Date (or, in the case of the first Payment Date,
the period commencing on and including the first Transfer Date (which first
Transfer Date is the first date on which the Note Principal Balance is greater
than zero)) and ending on the day preceding the related Payment Date.
Act or Securities Act: The Securities Act of 1933, as amended.
Additional LIBOR Margin: As defined in the Pricing Letter.
Additional Note Principal Balance: With respect to each Transfer Date, the
aggregate Sales Prices of all Loans conveyed on such date.
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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
September 1, 2005, between the Issuer and the Administrator.
Administrator: Option One Mortgage Corporation, in its capacity as
Administrator under the Administration Agreement.
Advance Account: The account established and maintained pursuant to Section
5.04.
Affiliate: With respect to any specified Person, any other Person
controlling or controlled by or under common control with such specified Person.
For the purposes of this definition, "control" when used with respect to any
specified Person means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise, and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
Agreement: This Agreement, as the same may be amended and supplemented from
time to time.
ALTA: The American Land Title Association and its successors in interest.
Appraised Value: With respect to any Loan, and the related Mortgaged
Property, the lesser of:
(i) the lesser of (a) the value thereof as determined by an appraisal made
for the originator of the Loan at the time of origination of the Loan by an
appraiser who met the minimum requirements of ▇▇▇▇▇▇ ▇▇▇ or ▇▇▇▇▇▇▇ Mac and (b)
the value thereof as determined by a review appraisal process which may include
an automated appraisal consistent with the Underwriting policies and guidelines
conducted by the Loan Originator in the event any such review appraisal
determines an appraised value more than 10% lower than the value thereof, in the
case of a Loan with a Loan-to-Value Ratio less than or equal to 80%, or more
than 5% lower than the value thereof, in the case of a Loan with a Loan-to-Value
Ratio greater than 80%, as determined by the appraisal referred to in clause
(i)(a) above; and
(ii) the purchase price paid for the related Mortgaged Property by the
Borrower with the proceeds of the Loan; provided, however, that in the case of a
refinanced Loan (which is a Loan the proceeds of which were not used to purchase
the related Mortgaged Property) or a Loan originated in connection with a "lease
option purchase" if the "lease option purchase price" was set 12 months or more
prior to origination, such value of the Mortgaged Property is based solely upon
clause (i) above.
ARM: Any Loan, the Loan Interest Rate with respect to which is subject to
adjustment during the life of such Loan.
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Assignment: An LPA Assignment or S&SA Assignment.
Assignment of Mortgage: With respect to any Loan, an assignment of the
related Mortgage in blank or to ▇▇▇▇▇ 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, each Hedging Instrument, if
any, and, as and when required to be executed and delivered, the Assignments.
Borrower: The obligor or obligors on a Promissory Note.
Business Day: Any day other than (i) a Saturday or Sunday, or (ii) a day on
which banking institutions in New York City, California, Maryland, Minnesota,
Pennsylvania, Delaware or in the city in which the corporate trust office of the
Indenture Trustee is located or the city in which the 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: September 22, 2005.
Code: The Internal Revenue Code of 1986, as amended from time to time, and
the regulations promulgated by the United States Treasury thereunder.
Collateral Percentage: As defined in the Pricing Letter.
Collateral Value: As defined in the Pricing Letter.
Collection Account: The account designated as such, established and
maintained by the Servicer in accordance with Section 5.01(a)(1) hereof.
Combined LTV or CLTV: With respect to any Second Lien Loan, the ratio of
the outstanding Principal Balance on the related date of origination of (a) (i)
such Loan plus (ii) the loan constituting the first lien, to (b) the lesser of
(x) the Appraised Value of the Mortgaged
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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.
Committed Purchaser: The meaning set forth in the Note Purchase Agreement.
Condominium Mortgage Loan: A Mortgage Loan secured by a lien on a
condominium unit.
Conduit Purchaser: The meaning set forth in the Note Purchase Agreement.
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.
Cooperative: The entity that holds title (fee or an acceptable leasehold
estate) to all of the real property that the Project comprises, including the
land, separate dwelling units and all common areas.
Cooperative Apartment: The specific dwelling unit relating to a Cooperative
Loan.
Cooperative Loan: A Mortgage Loan that is secured by Cooperative Shares and
a Proprietary Lease granting exclusive rights to occupy the related Cooperative
Apartment.
Cooperative Shares: The shares of stock issued by a Cooperative, owned by
the Borrower, and allocated to a Cooperative Apartment.
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 September 1, 2005,
among the Issuer, the Servicer, the Indenture Trustee and the Custodian,
providing for the retention of the Custodial Loan Files by the Custodian on
behalf of the Indenture Trustee.
Custodial Loan File: As defined in the Custodial Agreement.
Custodian: The custodian named in the Custodial Agreement, which custodian
shall not be affiliated with the Servicer, the Loan Originator, the Depositor or
any Subservicer. ▇▇▇▇▇ 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.
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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.
Deemed Cured: With respect to the occurrence of a Performance Trigger or
Rapid Amortization Trigger, when the condition that originally gave rise to the
occurrence of such trigger has not continued for 20 consecutive days, or if the
occurrence of such Performance Trigger or Rapid Amortization Trigger has been
waived in writing by the Noteholder Agent.
Default: Any occurrence that is, or with notice or the lapse of time or
both would become, an Event of Default.
Defaulted Loan: With respect to any Determination Date, any Loan,
including, without limitation, any Liquidated Loan with respect to which any of
the following has occurred as of the end of the related Remittance Period: (a)
foreclosure or similar proceedings have been 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);
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(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;
(c) with respect to any security issued by the U.S. Treasury, ▇▇▇▇▇▇
Mae or ▇▇▇▇▇▇▇ 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 ▇▇▇▇▇'▇ and the short-term deposits
of which shall be rated P-1 or better by ▇▇▇▇▇'▇ and A-1 or better by S&P,
unless otherwise approved in writing by the Noteholder Agent and
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which is any of the following: (A) a federal savings and loan association duly
organized, validly existing and in good standing under the federal banking laws,
(B) an institution duly organized, validly existing and in good standing under
the applicable banking laws of any state, (C) a national banking association
duly organized, validly existing and in good standing under the federal banking
laws, (D) a principal subsidiary of a bank holding company or (E) approved in
writing by the Noteholder Agent and, in each case acting or designated by the
Servicer as the depository institution for the Eligible Account; provided,
however, that any such institution or association shall have combined capital,
surplus and undivided profits of at least $50,000,000.
Depositor: Option One Loan Warehouse Corporation, a Delaware corporation,
and any successors thereto.
Determination Date: With respect to any Payment Date occurring on the 10th
day of a month, the last calendar day of the month immediately preceding the
month of such Payment Date, and with respect to any other Payment Date, as
mutually agreed by the Servicer and the Noteholders.
Disposition: A Securitization, Whole Loan Sale transaction, or other
disposition of Loans.
Disposition Agent: HSBC Securities (USA) 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 Noteholder Agent, the
Trust and the Servicer.
Distribution Account: The account established and maintained pursuant to
Section 5.01(a)(2) hereof.
Due Date: The day of the month on which the Monthly Payment is due from the
Borrower with respect to a Loan.
Due Diligence Fees: Shall have the meaning provided in Section 11.15
hereof.
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Eligible Account: At any time, a deposit account or a securities account
which is: (i) maintained with a Designated Depository Institution; (ii) fully
insured by either the Bank Insurance Fund or the Savings Association Insurance
Fund of the FDIC; (iii) a trust account (which shall be a "segregated trust
account") maintained with the corporate trust department of a federal or state
chartered depository institution or trust company with trust powers and acting
in its fiduciary capacity for the benefit of the Indenture Trustee and the
Issuer, which depository institution or trust company shall have capital and
surplus of not less than $50,000,000; or (iv) with the prior written consent of
the Noteholder Agent, any other deposit account or a securities account.
Eligible Servicer: (a) Option One or (b) any other Person to which the
Majority Noteholders may consent in writing.
Escrow Payments: With respect to any Loan, the amounts constituting ground
rents, taxes, assessments, water rates, sewer rents, municipal charges, fire,
hazard, liability and other insurance premiums, condominium charges, and any
other payments required to be escrowed by the related Borrower with the lender
or servicer pursuant to the Mortgage or any other document.
Event of Default: Either a Servicer Event of Default or an Event of Default
under the Indenture.
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.
▇▇▇▇▇▇ ▇▇▇: The Federal National Mortgage Association and any successor
thereto.
FDIC: The Federal Deposit Insurance Corporation and any successor thereto.
Fidelity Bond: As described in Section 4.10 of the Servicing Addendum.
Final Put Date: The Put Date following the end of the Revolving Period on
which the Majority Noteholders (or the Market Value Agent on their behalf)
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.
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First Payment Default Loan: A Loan with respect to which the first Monthly
Payment due following either the date of origination of such Loan or the related
Transfer Date is not paid by the related Borrower and received by the Servicer
within 45 days after date on which it is or was due.
Foreclosed Loan: As of any Determination Date, any Loan that as of the end
of the preceding Remittance Period has been discharged as a result of (i) the
completion of foreclosure or comparable proceedings by the Servicer on behalf of
the Issuer; (ii) the acceptance of the deed or other evidence of title to the
related Mortgaged Property in lieu of foreclosure or other comparable
proceeding; or (iii) the acquisition of title to the related Mortgaged Property
by operation of law.
Foreclosure Property: Any real property securing a Foreclosed Loan that has
been acquired by the Servicer on behalf of the Issuer through foreclosure, deed
in lieu of foreclosure or similar proceedings in respect of the related Loan.
▇▇▇▇▇▇▇ Mac: The Federal Home Loan Mortgage Corporation and any successor
thereto.
GAAP: Generally Accepted Accounting Principles as in effect in the United
States.
Gross Margin: With respect to each ARM, the fixed percentage amount set
forth in the related Promissory Note.
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
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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 September 1, 2005, between the Issuer
and the Indenture Trustee and all supplements and amendments thereto.
Indenture Trustee: ▇▇▇▇▇ 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 according to the provisions of SEC Regulation
S-X, Article 2.
Index: With respect to each ARM, the index set forth in the related
Promissory Note for the purpose of calculating the Loan Interest Rate thereon.
Interest Carry-Forward Amount: With respect to any Payment Date, the
excess, if any, of (A) the Interest Payment Amount for such Payment Date plus
the Interest Carry-Forward Amount for the prior Payment Date over (B) the amount
in respect of interest that is actually paid from the Distribution Account on
such Payment Date in respect of the interest for such Payment Date.
Interest 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.
-▇▇-
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇▇ Date: With respect to each Accrual Period, each day
during such Accrual Period.
LIBOR Margin: As defined in the Pricing Letter.
Lien: With respect to any asset, (a) any mortgage, lien, pledge, charge,
security interest, hypothecation, option or encumbrance of any kind in respect
of such asset or (b) the interest of a vendor or lessor under any conditional
sale agreement, financing lease or other title retention agreement relating to
such asset.
Lifetime Cap: The provision in the Promissory Note for each ARM which
limits the maximum Loan Interest Rate over the life of such ARM.
Lifetime Floor: The provision in the Promissory Note for each ARM which
limits the minimum Loan Interest Rate over the life of such ARM.
Liquidated Loan: As defined in Section 4.03(c) of the Servicing Addendum.
Liquidated Loan Losses: With respect to any Determination Date, the
difference between (i) the aggregate Principal Balances as of such date of all
Loans that became Liquidated Loans and (ii) all Liquidation Proceeds allocable
to principal received on or prior to such date.
Liquidation Proceeds: With respect to a Liquidated Loan, any cash amounts
received in connection with the liquidation of such Liquidated Loan, whether
through 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)(1) hereof, in each case other than Mortgage Insurance Proceeds and
Released Mortgaged Property Proceeds. Liquidation Proceeds shall also include
any awards or settlements in respect of the related Mortgage Property, whether
permanent or temporary, partial or entire, by exercise of the power of eminent
domain or condemnation.
Loan: Any loan sold to the Trust hereunder and pledged to the Indenture
Trustee, which loan includes, without limitation, (i) a Promissory Note or Lost
Note Affidavit and related Mortgage and (ii) all right, title and interest of
the Loan Originator in and to the Mortgaged Property covered by such Mortgage.
The term Loan shall be deemed to include the related Promissory Note or Lost
Note Affidavit, related Mortgage, all other Loan Documents and related
Foreclosure Property, if any.
Loan Documents: With respect to a Loan, the documents comprising the Loan
File for such Loan.
Loan File: With respect to each Loan, the Custodial Loan File and the
Servicer's Loan File.
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Loan Interest Rate: With respect to each Loan, the annual rate of interest
borne by the related Promissory Note, as shown on the Loan Schedule, and, in the
case of an ARM, as the same may be periodically adjusted in accordance with the
terms of such Loan.
Loan Originator: Option One and its permitted successors and assigns.
Loan Originator 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: The Fourth Amended and Restated
Loan Purchase and Contribution Agreement, between Option One, as seller, and the
Depositor, as purchaser, dated as of September 1, 2005, and all supplements and
amendments thereto.
Loan Schedule: The schedule of Loans conveyed to the Issuer on the Closing
Date and on each Transfer Date and delivered to the Noteholder Agent and the
Custodian in the form of a computer-readable transmission specifying the
information set forth on Exhibit D hereto and, with respect to Wet Funded Loans,
Exhibit C to the Custodial Agreement.
Loan-to-Value Ratio or LTV: With respect to any First Lien Loan, the ratio
of the original outstanding principal amount of such Loan to the Appraised Value
of the Mortgaged Property at origination.
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: 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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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: 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: HSBC Bank USA, N.A. or an Affiliate thereof designated
by HSBC Bank USA, N.A. in writing to the parties hereto and, in either case, its
successors in interest.
Master Disposition Confirmation Agreement: The Fourth Amended and Restated
Master Disposition Confirmation Agreement, dated as of June 1, 2005, by and
among Option One, the Depositor, the Delaware statutory trusts listed on
Schedule I thereto and each of the Lenders listed on Schedule II thereto, 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.
Mixed Use Mortgage Loan: A Mortgage Loan secured by a Mortgage on real
property which consists of a mix of residential and commercial use.
Monthly Advance: The aggregate of the advances made by the Servicer on any
Remittance Date pursuant to Section 4.14 of the Servicing Addendum.
Monthly Payment: The scheduled monthly payment of principal and/or interest
required to be made by a Borrower on the related Loan, as set forth in the
related Promissory Note.
Monthly Remittance Amount: With respect to each Remittance Date, the sum,
without duplication, of (i) the aggregate payments on the Loans collected by the
Servicer pursuant to Section 5.01(b)(1)(i) during the immediately preceding
Remittance Period and (ii) the aggregate of amounts deposited into the
Collection Account pursuant to Section 5.01(b)(1)(ii) through 5.01(b)(1)(xi)
during the immediately preceding Remittance Period.
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.
Multi-Family Mortgage Loan: A Mortgage Loan secured by a Multi-family
Property conforming to the standards for such properties established in the
Underwriting Guidelines.
Multi-family Property: A single parcel of real property improved by one or
more detached multi-family housing structures comprising five or more dwelling
units.
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 Noteholder Agent, will not,
or, in the case of a proposed Monthly Advance, would not be, ultimately
recoverable from the related late payments, Mortgage Insurance Proceeds,
Liquidation Proceeds or condemnation proceeds on such Loan or Foreclosure
Property as provided herein.
Nonrecoverable Servicing Advance: With respect to any Loan or any
Foreclosure Property, (a) any Servicing Advance previously made and not
reimbursed from late collections,
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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 Noteholder Agent, would not be ultimately recoverable.
Nonutilization Fee: As defined in the Pricing Letter.
Note: As defined in the Indenture.
Note Interest Rate: As defined in the Pricing Letter.
Noteholder: As defined in the Indenture.
Noteholder Agent: HSBC Securities (USA) Inc. and its successors and assigns
acting at the direction, and as agent, of the Majority Noteholders.
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 Purchasers,
the Noteholder Agent, the Administrative Agent, the Issuer and the Depositor,
dated as of September 1, 2005, and any amendments thereto.
Note Redemption Amount: As of any Determination Date, an amount without
duplication equal to the sum of (i) the then outstanding Note Principal Balance
of the Notes, plus the Interest Payment Amount for the related Payment Date,
(ii) any Trust Fees and Expenses due and unpaid on the related Payment Date,
(iii) any Servicing Advance Reimbursement Amount as of such Determination Date
and (iv) all amounts due to Hedging Counterparties in respect of the termination
of all related Hedging Instruments.
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 Noteholder Agent on the related LIBOR Determination Date on the basis of
the offered rate for one-month U.S. dollar deposits, as such rate appears on
Telerate Page 3750 as of 11:00 a.m. (London time) on such LIBOR Determination
Date; provided that if such rate does not appear on Telerate Page 3750, the rate
for such date will be determined on the basis of the offered rates of the
Reference Banks for one-month U.S. dollar deposits, as of 11:00 a.m. (London
time) on such LIBOR Determination Date. In such event, the Noteholder Agent will
request the principal London office of each of the Reference Banks to provide a
quotation of its rate. If on such LIBOR Determination Date, two or more
Reference Banks provide such offered quotations, One-Month LIBOR for the related
Accrual Period shall be the arithmetic mean of all such offered quotations
(rounded to the nearest whole multiple of 1/16%). If on such LIBOR
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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 Noteholder Agent shall select an
alternative comparable index (over which the Noteholder Agent has no control),
used for determining one-month Eurodollar lending rates that is calculated and
published (or otherwise made available) by an independent party.
Opinion of Counsel: A written opinion of counsel who may be employed by the
Servicer, the Depositor, the Loan Originator or any of their respective
Affiliates.
Option One: Option One Mortgage Corporation, a California corporation.
Overcollateralization Shortfall: With respect to any Business Day, an
amount equal to the positive difference, if any, between (a) the Note Principal
Balance on such Business Day and (b) the aggregate Collateral Value of all Loans
in the Loan Pool as of such Business Day; provided, however, that on (A) the
termination of the Revolving Period, (B) the occurrence of a Rapid Amortization
Trigger, (C) the Payment Date on which the Trust is to be terminated pursuant to
Section 10.02 hereof or (D) the Final Put Date, the Overcollateralization
Shortfall shall be equal to the Note Principal Balance. Notwithstanding anything
to the contrary herein, in no event shall the Overcollateralization Shortfall,
with respect to any Business Day, exceed the Note Principal Balance as of such
date. If as of such Business Day, no Rapid Amortization Trigger or Default under
this Agreement or the Indenture shall be in effect, the Overcollateralization
Shortfall shall be reduced (but in no event to an amount below zero) by all or
any portion of the aggregate Hedge Value as of such Payment Date as the Majority
Noteholders may, in their sole discretion, designate in writing.
Owner Trustee: means Wilmington Trust Company, a Delaware banking
corporation, not in its individual capacity but solely as Owner Trustee under
this Agreement, and any successor owner trustee under the Trust Agreement.
Owner Trustee Fee: The annual fee of $4,000 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: 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
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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.
Performance Trigger: Shall exist if, as of any Determination Date, the
aggregate Principal Balance of all Loans that are equal to or greater than 30
days Delinquent as of such Determination Date (including Defaulted Loans and
Foreclosed Loans) divided by the Pool Principal Balance as of such Determination
Date is greater than or equal to 10%, provided, however, that a Performance
Trigger shall not occur if such percentage is reduced to less than 10% within
three (3) Business Days of such Determination Date as the result of the exercise
of a Servicer Call.
Periodic Cap: With respect to each ARM Loan and any Rate Change Date
therefor, the annual percentage set forth in the related Promissory Note, which
is the maximum annual percentage by which the Loan Interest Rate for such Loan
may increase or decrease (subject to the Lifetime Cap or the Lifetime Floor) on
such Rate Change Date from the Loan Interest Rate in effect immediately prior to
such Rate Change Date.
Permitted Investments: Each of the following:
(a) Direct general obligations of the United States or the obligations
of any agency or instrumentality of the United States fully and unconditionally
guaranteed, the timely payment or the guarantee of which constitutes a full
faith and credit obligation of the United States.
(b) Federal Housing Administration debentures rated Aa2 or higher by
Moody's and AA or better by S&P.
(c) ▇▇▇▇▇▇▇ 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) ▇▇▇▇▇▇ 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-1 or better by S&P and P-1 or better by Moody's.
(g) Investment agreements approved by the Noteholder Agent provided:
(1) The agreement is with a bank or insurance company which
has an unsecured, uninsured and unguaranteed obligation (or
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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 Noteholder Agent receive
an opinion of counsel that such agreement is an enforceable
obligation of such insurance company or bank.
(h) Commercial paper (having original maturities of not more than 365
days) rated A-1 or better by S&P and P-1 or better by 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 Noteholder Agent;
provided that no instrument described above is permitted to evidence either the
right to receive (a) only interest with respect to obligations underlying such
instrument or (b) both principal and interest payments derived from obligations
underlying such instrument and the interest and principal payments with respect
to such instrument provided a yield to maturity at par greater than 120% of the
yield to maturity at par of the underlying obligations; and provided, further,
that no instrument described above may be purchased at a price greater than par
if such instrument may be prepaid or called at a price less than its purchase
price prior to stated maturity; and provided, further, that, with respect to any
instrument described above, such instrument qualifies as a "permitted
investment" within the meaning of Section 860G(a)(5) of the Code and the
regulations thereunder.
Person: Any individual, corporation, partnership, joint venture, limited
liability company, association, joint-stock company, trust, national banking
association, unincorporated organization or government or any agency or
political subdivision thereof.
Physical Property: As defined in clause (b) of the definition of "Delivery"
above.
Pool Principal Balance: With respect to any Determination Date, the
aggregate Principal Balances of the Loans as of such Determination Date.
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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 and the Indenture Trustee, dated the date hereof and any amendments thereto.
Primary Insurance Policy: A policy of primary mortgage guaranty insurance
issued by a Qualified Insurer pursuant to Section 4.06 of the Servicing
Addendum.
Principal Balance: With respect to any Loan or related Foreclosure
Property, (i) at the Transfer Cut-off Date, the Transfer Cut-off Date Principal
Balance and (ii) with respect to any other date of determination, the
outstanding unpaid principal balance of the Loan as of the end of the preceding
Remittance Period (after giving effect to all payments received thereon and the
allocation of any Net Loan Losses with respect thereto for a Defaulted Loan
prior to the end of such Remittance Period); provided, however, that any
Liquidated Loan shall be deemed to have a Principal Balance of zero.
Proceeding: Any suit in equity, action at law or other judicial or
administrative proceeding.
Project: With respect to a Cooperative Loan, all real property owned by the
related Cooperative including the land, separate dwelling units and all common
areas.
Promissory Note: With respect to a Loan, the original executed promissory
note or other evidence of the indebtedness of the related Borrower or Borrowers.
Proprietary Lease: With respect to a Cooperative Loan, a lease on a
Cooperative Apartment evidencing the possessory interest of the Borrower in such
Cooperative Apartment.
Purchasers: As defined in the Note Purchase Agreement.
Put/Call Loan: Any (i) Loan that has become 30 or more days (but less than
60 days) Delinquent, (ii) Loan that has become 60 or more days (but less than 90
days) Delinquent, (iii) Loan that has become 90 or more days Delinquent, (iv)
Loan that is a Defaulted Loan, (v) Loan that has been in default for a period of
30 days or more (other than a Loan referred to in clause (i), (ii), (iii) or
(iv) hereof), (vi) Loan that does not meet criteria established by independent
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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: 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 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 ▇▇▇▇▇▇ ▇▇▇ and
▇▇▇▇▇▇▇ 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.
Rapid Amortization Trigger: Shall exist, as of any Determination Date, if
the aggregate Principal Balance of all Loans that are Delinquent greater than or
equal to 30 days (including Defaulted Loans and Foreclosed Loans) as of such
Determination Date is greater than or equal to 15% of the Pool Principal
Balance; provided, however, that a Rapid Amortization Trigger shall not occur if
such percentage is reduced to less than 15% within one Business Day of such
Determination Date as a result of the exercise of a Servicer Call. A Rapid
Amortization Trigger shall continue to exist until it is Deemed Cured.
Rate Change Date: The date on which the Loan Interest Rate of each ARM is
subject to adjustment in accordance with the related Promissory Note.
Rating Agencies: S&P and 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.
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Reference Banks: Deutsche Bank AG, Barclay's Bank PLC, The Tokyo Mitsubishi
Bank and National Westminster Bank PLC and their successors in interest;
provided, however, that if the Noteholder Agent determines that any of the
foregoing banks are not suitable to serve as a Reference Bank, then any leading
banks selected by the Noteholder Agent with the approval of the Issuer, which
approval shall not be unreasonably withheld, which are engaged in transactions
in Eurodollar deposits in the international Eurocurrency market (i) with an
established place of business in London and (ii) which have been designated as
such by the Noteholder Agent with the approval of the Issuer, which approval
shall not be unreasonably withheld.
Refinanced Loan: A Loan the proceeds of which were not used to purchase the
related Mortgaged Property.
Released Mortgaged Property Proceeds: With respect to any Loan, proceeds
received by the Servicer in connection with (i) a taking of an entire Mortgaged
Property by exercise of the power of eminent domain or condemnation or (ii) any
release of part of the Mortgaged Property from the lien of the related Mortgage,
whether by partial condemnation, sale or otherwise; which proceeds in either
case are not released to the Borrower in accordance with applicable law and/or
Accepted Servicing Practices.
Remittance Date: The Business Day immediately preceding each Payment Date.
Remittance Period: With respect to any Payment Date, the period commencing
immediately following the Determination Date for the preceding Payment Date (or,
in the case of the initial Payment Date, commencing immediately following the
initial Transfer Cut-off Date) and ending on and including the related
Determination Date.
Repurchase Price: With respect to a Loan the sum of (i), the Principal
Balance thereof as of the date of purchase or repurchase, plus (ii) all accrued
and unpaid interest on such Loan to the date of purchase or repurchase computed
at the applicable Loan Interest Rate, plus (iii) the amount of any unreimbursed
Servicing Advances made by the Servicer with respect to such Loan (after
deducting therefrom any amounts received in respect of such purchased or
repurchased Loan and being held in the Collection Account for future
distribution to the extent such amounts represent recoveries of principal not
yet applied to reduce the related Principal Balance or interest (net of the
Servicing Fee) for the period from and after the date of repurchase). The
Repurchase Price shall be (i) increased by the net negative value or (ii)
decreased by the net positive value of all Hedging Instruments terminated with
respect to the purchase of such Loan. To the extent the Servicer does not
reimburse itself for amounts, if any, in respect of the Servicing Advance
Reimbursement Amount pursuant to Section 5.01(c)(1) hereof, with respect to such
Loan, the Repurchase Price shall be reduced by such amounts.
Reserve Interest Rate: With respect to any LIBOR Determination Date, the
rate per annum that the Noteholder Agent determines to be either (i) the
arithmetic mean (rounded to the nearest whole multiple of 1/16%) of the
one-month U.S. dollar lending rates which New York City banks selected by the
Noteholder Agent are quoting on the relevant LIBOR Determination Date to the
principal London offices of leading banks in the London interbank market or (ii)
in the event that the Noteholder Agent can determine no such arithmetic mean,
the lowest
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one-month U.S. dollar lending rate which New York City banks selected by the
Noteholder Agent are quoting on such LIBOR Determination Date to leading
European banks.
Responsible Officer: When used with respect to the Indenture Trustee or
Custodian, any officer within the corporate trust office of such Person,
including any Vice President, Assistant Vice President, Secretary, Assistant
Secretary or any other officer of such Person customarily performing functions
similar to those performed by any of the above designated officers and also,
with respect to a particular matter, any other officer to whom such matter is
referred because of such 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.
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) 364 days after such date, 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.
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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.
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
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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 ▇▇▇▇▇▇-▇▇▇▇
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 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
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leasehold improvements, good will, trademarks, trade names, service marks,
copyrights, patents, licenses and unamortized debt discount and expense;
provided, that residual securities issued by such Person or its Subsidiaries
shall not be treated as intangibles for purposes of this definition; (ii) any
loans outstanding to any officer or director of Option One or its Affiliates;
and (iii) any receivables from H&R Block, Inc.
Termination Price: As of any Determination Date, an amount without
duplication equal to the greater of (A) the Note Redemption Amount and (B) the
sum of (i) the Principal Balance of each Loan included in the Trust as of the
end of the preceding Remittance Period; (ii) all unpaid interest accrued on the
Principal Balance of each such Loan at the related Loan Interest Rate to the end
of the preceding Remittance Period; and (iii) the aggregate fair market value of
each Foreclosure Property included in the Trust as of the end of the preceding
Remittance Period, as determined by an Independent appraiser acceptable to the
Majority Noteholders as of a date not more than 30 days prior to such Payment
Date.
Transfer Cut-off Date: With respect to each Loan, (i) the first day of the
month in which the Transfer Date with respect to such Loan occurs or if
originated in such month, the date of origination or (ii) in the case of a
purchase from a QSPE Affiliate, unless otherwise specified in the confirmation
delivered in accordance with the Master Disposition Confirmation Agreement in
connection with such purchase, the related Transfer Date.
Transfer Cut-off Date Principal Balance: As to each Loan, its Principal
Balance as of the opening of business on the Transfer Cut-off Date (after giving
effect to any payments received on the Loan before the Transfer Cut-off Date).
Transfer Date: With respect to each Loan, the day such Loan is either (i)
sold and conveyed to the Depositor by the Loan Originator pursuant to the Loan
Purchase and Contribution Agreement and to the Issuer by the Depositor pursuant
to Section 2.01 hereof or (ii) sold to the Issuer pursuant to the Master
Disposition Confirmation Agreement, which results in an increase in the Note
Principal Balance by the related Additional Note Principal Balance. With respect
to any Qualified Substitute Loan, the Transfer Date shall be the day such Loan
is conveyed to the Trust pursuant to Section 2.05 or 3.06 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 the Transfer Obligation Account to but not
including such Payment Date minus any amount withdrawn from the Transfer
Obligation Account to return to the Loan Originator pursuant to Section
5.05(i)(i).
Trust: Option One Owner Trust 2005-7, the Delaware statutory trust created
pursuant to the Trust Agreement.
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Trust Agreement: The Trust Agreement dated as of September 1, 2005 between
the Depositor and the Owner Trustee.
Trust Account Property: The Trust Accounts, all amounts and investments
held from time to time in the Trust Accounts and all proceeds of the foregoing.
Trust Accounts: The Distribution Account, the Collection Account and the
Transfer Obligation Account.
Trust Certificate: The meaning assigned thereto in the Trust Agreement.
Trust Estate: Shall mean the assets subject to this Agreement, the Trust
Agreement and the Indenture and assigned to the Trust, which assets consist of:
(i) such Loans as from time to time are subject to this Agreement as listed in
the Loan Schedule, as the same may be amended 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 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.
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Underwriting Guidelines: The underwriting guidelines (including the loan
origination guidelines) of the Loan Originator, as the same may be amended from
time to time with notice to the Noteholder Agent.
Unfunded Transfer Obligation: With respect to any date of determination, an
amount equal to the greater of:
(A) the sum of (i) 10% of the aggregate Sales Prices of all Loans owned by
the Issuer at the close of business on the immediately preceding day minus all
payments actually made by the Loan Originator in respect of the Unfunded
Transfer Obligation pursuant to Section 5.06 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 fifteenth Business Day after the related Transfer Date, provided that if a
Default or Event of Default shall have occurred, the Wet Funded Custodial File
Delivery Date shall be the earlier of (x) such fifteenth day and (y) the fifth
day after the occurrence of such event.
Wet Funded Loan: A Loan for which the Custodian has not received the
related Custodial Loan File as of the related Transfer Date and for which the
Custodian has issued a Trust Receipt with respect to the Wet Funded Loan, in
substantially the form of Exhibit M 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.
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(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 purchase thereof, the Issuer agrees to purchase such
Loans offered for sale by the Depositor. On the terms and conditions
of this Agreement and the Master Disposition Confirmation Agreement,
on each Transfer Date during the Revolving Period, the Issuer may
acquire Loans from another QSPE Affiliate of the Loan Originator to
the extent the Issuer has or is able to obtain sufficient funds for
the purchase thereof.
(ii) In consideration of the payment of the Additional Note
Principal Balance pursuant to Section 2.06 hereof and as a
contribution to the assets of the Issuer, the Depositor as of the
related Transfer Date and concurrently with the execution and delivery
hereof, hereby sells, transfers, assigns, sets over and
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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
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.
(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 Committed Purchaser or the Conduit Purchaser be required to
advance Additional Note Principal Balances on a Transfer Date if the
conditions precedent to a transfer of the Loans under Section 2.06 and
the conditions precedent to the purchase of Additional Note Principal
Balances set forth in Section 3.01 of the Note Purchase Agreement have
not been fulfilled.
(iii) The Servicer shall appropriately note such Additional Note
Principal Balance (and the increased Note Principal Balance) in the
next
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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.
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 (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.
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(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 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.
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 Committed Purchaser or Conduit
Purchaser, as applicable, on behalf of the Issuer, such funds shall be promptly
returned to the Purchaser, on behalf of the Issuer and (ii) in the event that
any Wet Funded Loan is subject to a recission, all funds received in connection
with such recission shall be promptly returned to the Committed Purchaser or
Conduit Purchaser, as applicable, on behalf of the Issuer.
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(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 Noteholder Agent 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.
(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 (1)
Business Day of notice thereof from the Indenture Trustee or the Noteholder
Agent at the Repurchase Price thereof with respect to such Loan by
depositing such Repurchase Price in the Collection Account. In lieu of such
a repurchase, the Depositor and Loan Originator may comply with the
substitution provisions of Section 3.06 hereof. The Loan Originator shall
provide the Servicer, the Indenture Trustee, the Issuer and the Noteholder
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Agent with a certification of a Responsible Officer on or prior to such
repurchase or substitution indicating that the Loan Originator intends to
repurchase or substitute such Loan.
(iii) It is understood and agreed that the obligation of the Loan
Originator to repurchase or substitute any such Loan pursuant to this
Section 2.05(b) shall constitute the sole remedy with respect to such
failure to comply with the foregoing delivery requirements.
(c) In performing its reviews of the Custodial Loan Files pursuant to
the Custodial Agreement, the Custodian shall have no responsibility to determine
the genuineness of any document contained therein and any signature thereon. The
Custodian shall not have any responsibility for determining whether any document
is valid and binding, whether the text of any assignment or endorsement is in
proper or recordable form, whether any document has been recorded in accordance
with the requirements of any applicable jurisdiction, or whether a blanket
assignment is permitted in any applicable jurisdiction.
(d) The 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) 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 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.
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(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
Noteholder Agent of such upcoming Transfer Date and shall deliver or cause to be
delivered to the Noteholder Agent: (i) an estimate of the number of Loans and
aggregate Principal Balance of such Loans to be transferred on such Transfer
Date 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 Noteholder Agent a Wet Funded Loan Schedule in
computer-readable form with respect to the Loans requested to be transferred on
such Transfer Date.
(b) In the case of non-Wet Funded Loans, two (2) Business Days prior
to each Transfer Date, the Issuer shall give notice to the Noteholder Agent of
such upcoming Transfer Date and by no later than 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 Noteholder Agent: (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 Noteholder Agent 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 Purchasers in the
Advance Account in respect thereof, and the Paying Agent shall, promptly after
such deposit, withdraw the amount deposited in respect of applicable Additional
Note Principal Balance from the Advance Account, and distribute such amount to
or at the direction of the Depositor or the applicable QSPE Affiliate.
(d) As of the Closing Date and each Transfer Date:
(i) the Depositor, the QSPE Affiliate and the Servicer, as
applicable, shall have delivered to the Issuer and the Noteholder Agent
duly executed Assignments, which shall have attached thereto a Loan
Schedule setting forth the appropriate information with respect to all
Loans conveyed on such Transfer Date and shall have delivered to the
Noteholder Agent a computer readable transmission of such Loan Schedule;
(ii) the Depositor shall have deposited, or caused to be
deposited, in the Collection Account all collections received with respect
to each of the Loans on and after the applicable Transfer Cut-off Date;
(iii) as of such Transfer Date, none of the Loan Originator, the
Depositor or the QSPE Affiliate, as applicable, shall (A) be insolvent, (B)
be made insolvent by its respective sale of Loans or (C) have reason to
believe that its insolvency is imminent;
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(iv) the Revolving Period shall not have terminated;
(v) as of such Transfer Date (after giving effect to the sale of
Loans on such Transfer Date), there shall be no Overcollateralization
Shortfall;
(vi) Reserved;
(vii) each of the representations and warranties made by the Loan
Originator contained in Exhibit E with respect to the Loans shall be true
and correct in all material respects as of the related Transfer Date with
the same effect as if then made and the proviso set forth in Section 3.05
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 shall, at its own
expense, within one Business Day following the Transfer Date, indicate in
its computer files that the Loans identified in each S&SA Assignment have
been sold to the Issuer pursuant to this Agreement and the S&SA Assignment;
(ix) the Depositor or the QSPE Affiliate shall have taken any
action requested by the Indenture Trustee, the Issuer or the Noteholders
required to maintain the ownership interest of the Issuer in the Trust
Estate;
(x) no selection procedures believed by the Depositor or the QSPE
Affiliate to be adverse to the interests of the Noteholders shall have been
utilized in selecting the Loans to be conveyed on such Transfer Date;
(xi) the Depositor shall have provided the Issuer, the Indenture
Trustee and the Noteholder Agent no later than two Business Days prior to
such date a notice of Additional Note Principal Balance in the form of
Exhibit A hereto;
(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
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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) the
Unfunded Transfer Obligation Percentage equals 4% or less or (iii) Option One or
any of its Affiliates shall default under, or shall otherwise materially breach
the terms of any repurchase agreement, loan and security agreement or similar
credit facility or agreement entered into by Option One or any of its
Affiliates, including without limitation, the Sale and Servicing Agreement,
dated as of April 1, 2001, among the Option One Owner Trust 2001-1A, the
Depositor, Option One and the Indenture Trustee, the Sale and Servicing
Agreement, dated as of April 1, 2001, among the Option One Owner Trust 2001-1B,
the Depositor, Option One and the Indenture Trustee, the Sale and Servicing
Agreement, dated as of July 2, 2002, among the Option One Owner Trust 2002-3,
the Depositor, Option One and the Indenture Trustee, 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 the 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, 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
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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;
(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
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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 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;
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(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 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
-43-
equity principles (regardless of whether such enforcement is considered in a
proceeding in equity or at law);
(d) The Loan Originator is not in violation of, and the execution and
delivery of each Basic Document to which it is a party by the Loan Originator
and its performance and compliance with the terms of each Basic Document to
which it is a party will not constitute a violation with respect to, any order
or decree of any court or any order or regulation of any federal, state,
municipal or governmental agency having jurisdiction, which violation would
materially and adversely affect the condition (financial or otherwise) or
operations of the Loan Originator or its properties or materially and adversely
affect the performance of its duties under any Basic Document to which it is a
party;
(e) There are no actions or proceedings against, or investigations of,
the Loan Originator currently pending with regard to which the Loan Originator
has received service of process and no action or proceeding against, or
investigation of, the Loan Originator is, to the knowledge of the Loan
Originator, threatened or otherwise pending before any court, administrative
agency or other tribunal that (A) if determined adversely to the Loan
Originator, would prohibit its entering into any Basic Document to which it is a
party or render the Securities invalid, (B) seek to prevent the issuance of the
Securities or the consummation of any of the transactions contemplated by any
Basic Document to which it is a party or (C) if determined adversely to the Loan
Originator, would have a reasonable possibility of prohibiting or preventing or
materially and adversely affecting the sale of the Loans to the Depositor, the
performance by the Loan Originator of its obligations under, or the validity or
enforceability of, any Basic Document to which it is a party or the Securities;
provided, however, that insofar as this representation relates to the Loan
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: (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
Committed Purchaser or the Conduit 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
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Originator to the Noteholder Agent or any Noteholder in connection with the
Basic Documents to which it is a party and the transactions contemplated thereby
will be true, complete and accurate in every material respect, or (in the case
of projections) based on reasonable estimates, on the date as of which such
information is stated or certified;
(i) The Loan Originator is solvent, is able to pay its debts as they
become due and has capital sufficient to carry on its business and its
obligations under each Basic Document to which it is a party; it will not be
rendered insolvent by the execution and delivery of this Agreement or by the
performance of its obligations under each Basic Document to which it is a party;
no petition of bankruptcy (or similar insolvency proceeding) has been filed by
or against the Loan Originator prior to the date hereof;
(j) The Loan Originator has transferred the Loans transferred by it on
or prior to such Transfer Date without any intent to hinder, delay or defraud
any of its creditors;
(k) The Loan Originator has received fair consideration and reasonably
equivalent value in exchange for the Loans sold by it on such Transfer Date to
the Depositor;
(l) The Loan Originator has not dealt with any broker or agent or
other Person who might be entitled to a fee, commission or compensation in
connection with the transaction contemplated by this Agreement;
(m) The Loan Originator is in compliance with each of its financial
covenants set forth in Section 7.02; and
(n) The Loan 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 Securityholders, the
Depositor, the Servicer, the Indenture Trustee or the Trust respecting a breach
of the representations and warranties contained in this Section 3.02. The fact
that the Noteholder Agent or any Noteholder has conducted or has failed to
conduct any partial or complete due diligence investigation of the Loan Files
shall not affect the Securityholders rights to demand repurchase or substitution
as provided under this Agreement.
Section 3.03 Representations, Warranties and Covenants of the Servicer.
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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;
(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
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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, there is also a
reasonable possibility of an adverse determination of such action, proceeding or
investigation having such effect, or (D) allege that the Servicer has engaged in
practices, with respect to any of the Loans, that are predatory, abusive,
deceptive or otherwise wrongful under an applicable statute, regulation or
ordinance or that are otherwise actionable and that have a reasonable
possibility of adverse determination;
(f) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Servicer of, or compliance by the Servicer with, any Basic
Document to which it is a party or the Securities, or for the consummation of
the transactions contemplated by any Basic Document to which it is a party,
except for such consents, approvals, authorizations and orders, if any, that
have been obtained prior to such date;
(g) The information, reports, financial statements, exhibits and
schedules furnished in writing by or on behalf of the Servicer to the Majority
Noteholders in connection with the negotiation, preparation or delivery of the
Basic Documents to which it is a party or delivered pursuant thereto, when taken
as a whole, do not contain any untrue statement of material fact or omit to
state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. All written
information furnished after the date hereof by or on behalf of the Servicer to
the Majority Noteholders in connection with the Basic Documents to which it is a
party and the transactions contemplated thereby will be true, complete and
accurate in every material respect, or (in the case of projections) based on
reasonable estimates, on the date as of which such information is stated or
certified;
(h) The Servicer is solvent and will not be rendered insolvent as a
result of the performance of its obligations pursuant to under the Basic
Documents to which it is a party;
(i) The Servicer acknowledges and agrees that the Servicing
Compensation represents reasonable compensation for the performance of its
services hereunder and that the entire Servicing Compensation shall be treated
by the Servicer, for accounting purposes, as compensation for the servicing and
administration of the Loans pursuant to this Agreement;
(j) The Servicer is in compliance with each of its financial covenants
set forth in Section 7.02;
(k) Each Subservicer is an Eligible Servicer and the Servicer
covenants to cause each Subservicer to be an Eligible Servicer; and
(l) The Servicer has not engaged in any practice or activity with
respect to the Loans, or any other loans, that is predatory, abusive, deceptive
or otherwise wrongful under the
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statutes, regulations and ordinances, if any, that are applicable to the
particular loans or that is otherwise actionable.
It is understood and agreed that the representations, warranties and
covenants set forth in this Section 3.03 shall survive delivery of the
respective Custodial Loan Files to the Indenture Trustee or the Custodian on its
behalf and shall inure to the benefit of the Depositor, the Securityholders, the
Indenture Trustee and the Issuer. Upon discovery by the Loan Originator, the
Depositor, the Servicer, the Indenture Trustee, the Owner Trustee or the Issuer
of a breach of any of the foregoing representations, warranties and covenants
that materially and adversely affects the value of any Loan or the interests of
the Securityholders therein or in the Securities, the party discovering such
breach shall give prompt written notice (but in no event later than two Business
Days following such discovery) to the other parties. The fact that the
Noteholder Agent or any Noteholder has conducted or has failed to conduct any
partial or complete due diligence investigation shall not affect the
Securityholders, rights to exercise their remedies as provided under this
Agreement.
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 Noteholder Agent of such facts or circumstances and, in such event,
shall have no obligation to make such materially false representation and
warranty and the Issuer shall not purchase such Loan.
In addition, the Loan Originator represents and warrants with respect
to each Loan sold by a QSPE Affiliate that the Loan Originator has not been
required to pay any amount 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 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 written instructions from the Majority
Noteholders either (i) remove such Unqualified Loan from the Trust (in which
case it shall become a Deleted Loan) and substitute one or more Qualified
Substitute Loans in the manner and subject to the conditions set forth in this
Section 3.06 or (ii) purchase such Unqualified Loan at a purchase price equal to
the Repurchase Price with respect to such Unqualified Loan by depositing or
causing to be deposited such Repurchase Price in the Collection Account.
Any substitution of Loans pursuant to this Section 3.06(a) shall be
accompanied by payment by the Loan Originator of the Substitution Adjustment, if
any, (x) if no Overcollateralization Shortfall exists on the date of such
substitution (after giving effect to such substitution), remitted to the
Noteholders in accordance with Section 5.01(c)(4)(i) or (y) otherwise to be
deposited in the Collection Account pursuant to Section 5.01(b)(1) hereof.
(b) As to any Deleted Loan for which the Loan Originator substitutes a
Qualified Substitute Loan or Loans, the Loan Originator shall effect such
substitution by delivering to the Indenture Trustee and the Noteholder Agent a
certification executed by a Responsible Officer of the Loan Originator to the
effect that the Substitution Adjustment, if any, has been (x) if no
Overcollateralization Shortfall exists on the date of such substitution (after
giving effect to such substitution), remitted to the Noteholders in accordance
with Section 5.01(c)(4)(i), or (y) otherwise deposited in the Collection
Account. As to any Deleted Loan for which the Loan Originator substitutes a
Qualified Substitute Loan or Loans, the Loan Originator shall effect such
substitution by delivering to the Custodian the documents constituting the
Custodial Loan File for such Qualified Substitute Loan or Loans.
The Servicer shall deposit in the Collection Account all payments
received in connection with each Qualified Substitute Loan after the date of
such substitution. Monthly Payments received with respect to Qualified
Substitute Loans on or before the date of substitution will be retained by the
Loan Originator. The Trust will be entitled to all payments received on the
Deleted Loan on or before the date of substitution and the Loan Originator shall
thereafter be entitled to retain all amounts subsequently received in respect of
such Deleted Loan. The Loan Originator shall give written notice to the Issuer,
the Servicer (if the Loan Originator is not then acting as such), the Indenture
Trustee and the Noteholder Agent that such substitution has taken place and the
Servicer shall amend the Loan Schedule to reflect (i) the removal of such
Deleted Loan from the terms of this Agreement and (ii) the substitution of the
Qualified Substitute Loan. The Servicer shall promptly deliver to the Issuer,
the Loan Originator, the Indenture Trustee and the Noteholder Agent, a copy of
the amended Loan Schedule. Upon such substitution, such Qualified Substitute
Loan or Loans shall be subject to the terms of this Agreement in all respects,
and the Loan Originator shall be deemed to have made with respect to
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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 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 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 any Noteholder
acts as "depositor" or performs a similar function in a Securitization,
additional indemnities and informational representations and warranties are
provided which are consistent with those in the Basic Documents and may
upon request of the Loan Originator be set forth in a separate agreement
between such Affiliate of the Noteholder and the Loan Originator.
(ii) In the event of any Disposition to the Loan Originator or
any of its Affiliates (except in connection with a Securitization or a
Disposition to a QSPE Affiliate), the purchase price paid by the Loan
Originator or any such Affiliate shall be the "fair market value" of the
Loans subject to such Disposition (as determined by the Market Value Agent
based upon recent sales of comparable loans or such other objective
criteria as may be approved for determining "fair market value" by a "Big
Four" national accounting firm).
(iii) As long as no Event of Default or Default shall have
occurred and be continuing under this Agreement or the Indenture, the
Servicer may continue to service the Loans included in any Disposition
subject to any applicable "term-to-term" servicing provisions in Section
9.01(c) and subject to any required amendments to the related servicing
provisions as may be necessary to effect the related Disposition including
but not limited to the obligation to make recoverable principal and
interest advances on the Loans.
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 five (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 omit to take in good faith in the performance
of their duties.
Section 3.08 Loan Originator Put; Servicer Call.
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(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 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 Noteholder Agent object in writing to any modification or change to the
Underwriting Guidelines within 15 days after receipt of such notice, no Loans
may be conveyed to the Issuer pursuant to this Agreement unless such Loans have
been originated pursuant to the Underwriting Guidelines without giving effect to
such modification or change. Notwithstanding anything contained in this
Agreement to the contrary, any Loan conveyed to the Issuer pursuant to this
Agreement pursuant to a modification or change to the Underwriting Guidelines
that has been rejected by the Noteholders or which the Noteholders did not
receive notice of, such Loan shall be deemed an Unqualified Loan and be
repurchased or substituted for in accordance with Section 3.06.
ARTICLE IV
ADMINISTRATION AND SERVICING OF THE LOANS
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.
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(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;
(iii) monthly unaudited statements of the Servicer no later than
45 days after month-end;
(iv) on a timely basis, (i) quarterly and annual consolidating
financial statements reflecting material intercompany adjustments, (ii) all form
10-K, registration statements and other "corporate finance" filings made with
the SEC (other than 8-K filings), provided, however, that the Servicer shall
provide the Noteholders a copy of the 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 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 2005-7 Collection
Account, ▇▇▇▇▇ Fargo Bank, N.A., as Indenture Trustee, for the benefit of the
Option One Owner Trust 2005-7 Mortgage-Backed Notes." The Collection Account
shall be maintained with a depository institution and shall satisfy the
requirements set forth in the definition of Eligible Account. Funds in the
Collection Account shall be invested in accordance with Section 5.03 hereof. Net
investment earnings shall not be considered part of funds available in the
Collection Account.
(2) Establishment of Distribution Account. The Servicer, for the
benefit of the Noteholders, shall cause to be established and maintained, one or
more Distribution Accounts (collectively, the "Distribution Account"), which
shall be separate Eligible Accounts, entitled "Option One Owner Trust 2005-7
Distribution Account, ▇▇▇▇▇ Fargo Bank, N.A., as Indenture Trustee, for the
benefit of the Option One Owner Trust 2005-7
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Mortgage-Backed Notes." The Distribution Account shall be maintained with a
depository institution and shall satisfy the requirements set forth in the
definition of Eligible Account. Funds in the Distribution Account shall be
invested in accordance with Section 5.03 hereof. The Servicer may, at its
option, maintain one account to serve as both the Distribution Account and the
Collection Account, in which case, the account shall be entitled "Option One
Owner Trust 2005-7 Collection/Distribution Account, ▇▇▇▇▇ Fargo Bank, N.A., as
Indenture Trustee, for the benefit of the Option One Owner Trust 2005-7
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) 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];
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(x) any payments received under Hedging Instruments or the return
of amounts by the Hedging Counterparty pledged pursuant to prior Hedge Funding
Requirements in accordance with the last sentence of this Section 5.01(b)(1);
and
(xi) any Repurchase Price payable in connection with a 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 (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)(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.
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(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 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 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 Committed Purchaser, the Nonutilization Fee for such
Payment Date, to the extent payable, together with any Nonutilization Fees
unpaid from any prior Payment Dates;
(vi) to the appropriate Person, amounts in respect of Issuer/Depositor
Indemnities (as defined in the Trust Agreement) and Due Diligence Fees until
such amounts are paid in full;
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(vii) to the Transfer Obligation Account, all remaining amounts until
the balance therein equals the Transfer Obligation Target Amount;
(viii) to the Indenture Trustee all amounts owing to the Indenture
Trustee pursuant to Section 6.07 of the Indenture and not paid pursuant to
clause (i) above; and
(ix) to the holders of the Trust Certificates, subject to Section
5.2(b) of the Trust Agreement, all amounts remaining therein; provided, however,
if the Owner Trustee has notified the Paying Agent that any amounts are due and
owing to it and remain unpaid, then first to the Owner Trustee, such amounts.
(4) (i) If the Loan Originator or the Servicer, as applicable, repurchases,
purchases or substitutes a Loan pursuant to Section 2.05, 3.06, 3.08(a), 3.08(b)
or 3.08(c), then the Noteholders and the Issuer shall deem such date to be an
additional Payment Date and the Issuer shall provide written notice to the
Indenture Trustee and the Paying Agent of such additional Payment Date at least
one Business Day prior to such Payment Date. On such additional Payment Date,
the Loan Originator or the Servicer, in satisfaction of its obligations under
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 the Indenture Trustee as
provided above, the Paying Agent shall provide the Loan Originator or the
Servicer (as applicable) information necessary so that remittances to the
Noteholders pursuant to this clause (4)(i) may be made by the Loan Originator or
the Servicer, as applicable, in compliance with Section 5.02(a) hereof.
(ii) To the extent that there is deposited in the Collection Account
or the Distribution Account any amounts referenced in Section 5.01(b)(1)(vii)
and 5.01(c)(2)(D), the Majority Noteholders and the Issuer may agree, upon
reasonable written notice to the Paying Agent and the Indenture Trustee, to
additional Payment Dates. The Issuer and the Majority Noteholders shall give the
Paying Agent and the Indenture Trustee at least one (1) Business 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 such additional
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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.
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. 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 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
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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 "▇▇▇▇▇ Fargo Bank, N.A., as Indenture
Trustee, in trust for the Option One Owner Trust 2005-7 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
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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; and, without limitation on the foregoing, the
Indenture Trustee shall have sole signature authority with respect
thereto;
(2) any Trust Account Property that constitutes Physical Property
shall be delivered to the Indenture Trustee in accordance with
paragraphs (a) and (b) of the definition of "Delivery" in Section 1.01
hereof and shall be held, pending maturity or disposition, solely by
the Indenture Trustee or a securities intermediary (as such term is
defined in Section 8-102(a)(14) of the UCC) acting solely for the
Indenture Trustee;
(3) any Trust Account Property that is a book-entry security held
through the Federal Reserve System pursuant to federal book-entry
regulations shall be delivered in accordance with paragraph (c) of the
definition of "Delivery" in Section 1.01 hereof and shall be
maintained by the Indenture Trustee, pending maturity or disposition,
through continued book-entry registration of such Trust Account
Property as described in such paragraph; and
(4) any Trust Account Property that is an "uncertificated security"
under Article 8 of the UCC and that is not governed by clause (3)
above shall be
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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 Purchasers 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 Purchasers
and shall be maintained for and on behalf of the Purchasers, entitled "HSBC Bank
USA, N.A., for the benefit of the Issuer, Re: Custodial Agreement dated as of
September 1, 2005." Amounts in the Advance Account may not be invested.
(b) Deposits and Withdrawals. Amounts in respect of the transfer of
Additional Note Principal Balances and Loans shall be deposited into and
withdrawn from the Advance Account as provided in Sections 2.01(c) and 2.06
hereof and Section 3.01 of the Note Purchase Agreement. Any amounts on deposit
in the Advance Account but not applied on any Transfer Date shall remain in the
Advance Account and may be applied to any subsequent transfer of Additional Note
Principal Balances and Loans, subject to the conditions set forth in Sections
2.01(c) and 2.06 hereof and Section 3.01 of the Note Purchase Agreement.
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 2005-7 Transfer Obligation Account, ▇▇▇▇▇ Fargo Bank, N.A., as
Indenture Trustee, in trust for the Option One Owner Trust 2005-7
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.
(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.
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(e) On each Payment Date, the Paying Agent shall withdraw from the
Transfer Obligation Account and deposit into the Distribution Account on such
Payment Date the lesser of (x) the amount then on deposit in the Transfer
Obligation Account and (y) the Interest Carry-Forward Amount as of such date.
(f) If with respect to any Business Day there exists an
Overcollateralization Shortfall, the Paying Agent, upon the written direction of
the Majority Noteholders, shall withdraw from the Transfer Obligation Account
and deposit into the Distribution Account on such Business Day the lesser of (x)
the amount then on deposit in the Transfer Obligation Account and (y) the amount
of such Overcollateralization Shortfall as of such date.
(g) If with respect to any Payment Date there shall exist a Hedge
Funding Requirement, the Paying Agent, upon the written direction of the
Servicer or the Majority Noteholders, shall withdraw from the Transfer
Obligation Account and deposit into the Distribution Account on the Business Day
prior to such Payment Date the lesser of (x) the amount then on deposit in the
Transfer Obligation Account (after making all other required withdrawals
therefrom with respect to such Payment Date) and (y) the amount of such Hedge
Funding Requirement as of such date.
(h) In the event of the occurrence of an Event of Default under the
Indenture, the Paying Agent shall withdraw all remaining funds from the Transfer
Obligation Account and apply such funds in satisfaction of the Notes as provided
in Section 5.04(b) of the Indenture.
(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
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Obligation Account any Hedge Funding Requirement (to the extent amounts
available on the related Payment Date pursuant to Section 5.01 hereof are
insufficient to make such payment), when, as and if due to any Hedging
Counterparty;
(iii) If any Interest Carry-Forward Amount shall occur, it shall
deposit into the Transfer Obligation Account any such Interest Carry-Forward
Amount on or before the Business Day preceding such related Payment Date;
(iv) If on any Business Day there exists an Overcollateralization
Shortfall, upon the written direction of the Majority Noteholders, it shall on
such Business Day deposit into the Transfer Obligation Account the full amount
of the Overcollateralization Shortfall as of such date, provided, that in the
event that notice of such Overcollateralization Shortfall is provided to the
Loan Originator after 3:00 p.m. New York City time, the Loan Originator shall
make such deposit on the following Business Day;
(v) If on any applicable Payment Date, the amount available to
pay the Nonutilization Fee is insufficient, the Loan Originator shall deposit
the amount of such shortfall on the Business Day prior to such Payment Date;
(vi) If the amount available to pay the 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;
(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 Servicer'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.
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 Noteholder by
electronic transmission, the receipt and legibility of which shall be confirmed
by telephone, and with hard copy thereof to
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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 2005-7"), 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
Noteholder Agent and the Indenture Trustee. In addition, no later than 12:00
noon (New York City time) on the 15th day of each calendar month (or if such day
is not a Business Day, the preceding Business Day), the Custodian shall prepare
and provide to the Servicer and the Indenture Trustee by facsimile, the
Custodian Fee Notice for the Payment Date falling in such calendar month.
(b) No later than 12:00 noon (New York City time) on each Remittance
Date, the Servicer shall prepare (or cause to be prepared) and provide to the
Indenture Trustee electronically, receipt confirmed by telephone, and each
Noteholder, a statement (the "Payment Statement"), stating each date and amount
of a purchase of Additional Note Principal Balance (day, month and year), the
name of the Issuer (i.e., "Option One Owner Trust 2005-7"), 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;
(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 Loan
Originator Put was exercised during the preceding Remittance Period;
(10) the aggregate amount of all payments received under Hedging
Instruments during the preceding Remittance Period;
(11) the aggregate amount of all withdrawals from the
Distribution Account pursuant to Section 5.01(c)(1)(i) hereof during the
preceding Remittance Period;
(12) the aggregate amount of cash Disposition Proceeds received
during the preceding Remittance Period;
(13) withdrawals from the Collection Account in respect of the
Servicing Advance Reimbursement Amount with respect to the related Payment Date;
(14) [reserved];
(15) the number and aggregate Principal Balance of all Loans that
are (i) 30-59 days Delinquent, (ii) 60-89 days Delinquent, (iii) 90 or more
days Delinquent as of the end of the related Remittance Period;
(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 Performance Trigger or 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
Noteholders and Indenture Trustee in the form of a data file in a form mutually
agreed to by and between the Noteholders, the Indenture Trustee and the
Servicer. The Indenture Trustee shall have no duty to monitor the occurrence of
a Performance Trigger, Rapid Amortization Trigger or any events resulting in
withdrawals from the Transfer Obligation Account.
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 Noteholders hereby irrevocably appoint, and the Issuer hereby
consents to the appointment of, the Market Value Agent as agent on behalf of the
Noteholders to determine the Market Value of each Loan, the Hedge Value of each
Hedging Instrument and the Retained Securities Value of all Retained Securities.
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(b) Except as otherwise set forth in Section 3.07 hereof, on each
Business Day, the Market Value Agent shall determine the Market Value of each
Loan, for the purposes of the Basic Documents, in its sole discretion exercised
in good faith. In determining the Market Value of each Loan, the Market Value
Agent may consider any information that it may deem relevant, including, without
limitation, the expected proceeds of the sale of such Loan following the
occurrence and continuation of an Event of Default. The Market Value Agent's
determination, in its sole discretion exercised in good faith, 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 Noteholders, shall
determine are necessary in order to hedge the interest rate risk with respect to
the Loans being purchased on such Transfer Date. The Market Value Agent shall
determine, in its sole discretion, whether any Hedging Instrument conforms to
the requirements of Section 7.01(b), (c) and (d).
(b) Each Hedging Instrument shall expressly provide that in the event
of a Disposition or other removal of the Loan from the Trust, such portion of
the Hedging Instrument shall terminate as the Disposition Agent deems
appropriate to facilitate the hedging of the risks specified in Section 7.01(a).
In the event that the Hedging Instrument is not otherwise terminated, it shall
contain provisions that allow the position of the Trust to be assumed by an
Affiliate of the Trust upon the liquidation of the Trust. The terms of the
assignment documentation and the credit quality of the successor to the Trust
shall be subject to the Hedging 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)(1)(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 the Loan Originator and the Servicer shall maintain a
minimum Tangible Net Worth $425 million as of any day.
(b) Each of the Loan Originator and the Servicer shall maintain a
ratio of 1.0 or greater at any time pursuant to the Capital Adequacy Test,
attached as Exhibit G hereto.
(c) Neither the Loan Originator nor the Servicer may exceed a maximum
non-warehouse leverage ratio (the ratio of (i) the sum of (A) all funded debt
(excluding debt from H&R Block, Inc. or any of its Affiliates and all
non-recourse debt) less (B) 91% of its mortgage loan inventory held for sale
less (C) 90% of servicing advance receivables (determined and valued in
accordance with GAAP) to (ii) Tangible Net Worth) of 0.50x at any time. Any
direct or indirect debt provided by H&R Block, Inc. will be subject to a
subordination agreement; or, if H&R Block, Inc. does not enter into a
subordination agreement, the maximum permitted non-warehouse leverage ratio
including debt from H&R Block, Inc. will be 1.0x at any time, provided, that no
more than 0.5x of such non-warehouse leverage ratio can be funded by entities
not affiliated with Option One or H&R Block, Inc.
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(d) Each of the Loan Originator and the Servicer shall maintain a
minimum liquidity facility (defined as a committed, unsecured, non-amortizing
liquidity facility from H&R Block, Inc. not to mature (scheduled or accelerated)
prior to the Maturity Date) in an amount no less than $150 million. Such
facility from H&R Block, Inc. cannot contain covenants or termination events
more restrictive than the covenants or termination events contained in the Basic
Documents.
(e) Each of the Loan Originator and the Servicer shall maintain a
minimum "Net Income" (defined and determined in accordance with GAAP) of at
least $1 based on the total of the current quarter combined with the previous
three quarters.
(g) Each of the Loan Originator and the Servicer, on a quarterly
basis, shall provide the Noteholder Agent with an Officer's Certificate stating
that the Loan Originator or the Servicer, as the case may be, is in compliance
with the financial covenants set forth in this Section 7.02 and the details of
such compliance.
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.
(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
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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, 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
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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; 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.
Subject to the prior written consent of the Majority Noteholders, any
Person into which the Servicer may be merged or consolidated, or any corporation
resulting from any merger, conversion or consolidation to which the Servicer
shall be a party, or any Person succeeding to the business of the Servicer,
shall be the successor of the Servicer, as applicable hereunder, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, anything herein to the contrary notwithstanding. The Servicer
shall send notice of any such merger, conversion, consolidation or succession to
the Indenture Trustee and the Issuer.
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
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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.
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
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shall have an equal and proportionate benefit under the provisions of this
Agreement, without preference, priority, or distinction as among all of the
Securities; provided, however, that any Securities owned by the Servicer or any
Affiliate thereof, during the time such Securities are owned by them, shall be
without voting rights for any purpose set forth in this Agreement unless the
Servicer or such Affiliate owns all outstanding Securities of the related class.
The Servicer shall notify the Indenture Trustee promptly after it or any of its
Affiliates becomes the owner or pledgee of a Security.
Section 8.07 Indemnification of the Indenture Trustee and Majority
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 Noteholder Agent 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 30 days (or, in the
case of payment of insurance premiums, for a period of 15 days) after the date
on which written notice of such failure, requiring the same to be remedied,
shall have been given to the Servicer by any other party hereto or to the
Servicer (with copy to each other party hereto), by Holders of 25% of the
Percentage Interests of the Notes or the Trust Certificates; or
(3) any breach on the part of the Servicer of any representation
or warranty contained in any Basic Document to which it is a party that
materially and adversely affects the interests of any of the parties hereto or
any Securityholder and which continues unremedied for a period of 30 days after
the date on which notice of such breach, requiring the same to be remedied,
shall have been given to the Servicer by any other party hereto or to the
Servicer (with copy to each other party hereto), by the Noteholder Agent or
Holders of 25% of the Percentage Interests (as defined in the Indenture) of the
Notes; or
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(4) there shall have been commenced before a court or agency or
supervisory authority having jurisdiction in the premises an involuntary
proceeding against the Servicer under any present or future federal or state
bankruptcy, insolvency or similar law for the appointment of a conservator,
receiver, liquidator, trustee or similar official in any bankruptcy, insolvency,
readjustment of debt, marshaling of assets and liabilities or similar
proceedings, or for the winding-up or liquidation of its affairs, which action
shall not have been dismissed for a period of 60 days; or
(5) the Servicer shall consent to the appointment of a
conservator, receiver, liquidator, trustee or similar official in any
bankruptcy, insolvency, readjustment of debt, marshaling of assets and
liabilities or similar proceedings of or relating to it or of or relating to all
or substantially all of its property; or
(6) the Servicer (or the Loan Originator if the Servicer is not
Option One) fails to comply with the Financial Covenants; or
(7) the Servicer ceases to be a 100% direct or indirect
wholly-owned subsidiary of H&R Block Inc.; or
(8) the Servicer shall admit in writing its inability to pay its
debts generally as they become due, file a petition to take advantage of any
applicable bankruptcy, insolvency or reorganization statute, make an assignment
for the benefit of its creditors, voluntarily suspend payment of its
obligations, or take any corporate action in furtherance of the foregoing.
Then, and in each and every such case, so long as a Servicer Event of
Default shall not have been remedied, the Indenture Trustee or the Majority
Noteholders, by notice in writing to the Servicer may, in addition to whatever
rights such Person may have at law or in equity to damages, including injunctive
relief and specific performance, may terminate all the rights and obligations of
the Servicer under this Agreement and in and to the Loans and the proceeds
thereof, as servicer under this Agreement. Upon receipt by the Servicer of such
written notice, all authority and power of the Servicer under this Agreement,
whether with respect to the Loans or otherwise, shall, subject to Section 9.02
hereof, pass to and be vested in a successor servicer, and the successor
servicer is hereby authorized and empowered to execute and deliver, on behalf of
the Servicer, as attorney-in-fact or otherwise, any and all documents and other
instruments and do or cause to be done all other acts or things necessary or
appropriate to effect the purposes of such notice of termination, including, but
not limited to, the transfer and endorsement or assignment of the Loans and
related documents. The Servicer agrees to cooperate with the successor servicer
in effecting the termination of the 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, (iii) a Rapid Amortization Trigger or (iv) an event that shall have a
reasonable possibility of materially impairing the ability of the Servicer to
service and administer the Loans in accordance with the
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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 Noteholders for successive
one-month terms (each such term ending at 5:00 p.m. New York City time, on the
last business day of the related month). Following a Term Event, the Servicer
hereby agrees that the Servicer shall be bound for the duration of the Initial
Term and the term covered by any such Servicer Extension Notice to act as the
Servicer pursuant to this Agreement. Following a Term Event, the Servicer agrees
that if, as of 3:00 p.m. New York City time on the last Business Day of any
month, the Servicer shall not have received a Servicer Extension Notice from the
Majority Noteholders, the Servicer shall give written notice of such non-receipt
to the Noteholders by 4:00 p.m. New York City time. Following a Term Event, the
failure of the Noteholders, to deliver a Servicer Extension Notice by 5:00 p.m.
New 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.
The successor servicer shall be obligated to make Servicing Advances
hereunder. As compensation therefor, the successor servicer appointed pursuant
to the following paragraph, shall be entitled to all funds relating to the Loans
which the Servicer would have been entitled to receive from the Collection
Account pursuant to Section 5.01 hereof as if the Servicer had continued to act
as servicer hereunder, together with other Servicing Compensation in the form of
assumption fees, late payment charges or otherwise as provided in Section 4.15
of the Servicing Addendum. The Servicer shall not be entitled to any termination
fee if it is terminated pursuant to Section 9.01 hereof but shall be entitled to
any accrued and unpaid Servicing Compensation to the date of termination.
Any collections received by the Servicer after removal or resignation
shall be endorsed by it to the Indenture Trustee and remitted directly to the
successor servicer. The compensation of any successor servicer appointed shall
be the Servicing Fee, together with other
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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 Majority Noteholders, the Indenture Trustee, the Issuer and
the Depositor, the Noteholders and the Issuer shall have consented in writing
thereto.
In connection with such appointment and assumption, the Majority
Noteholders may make such arrangements for the compensation of such successor
servicer out of payments on the Loans as they and such successor servicer shall
agree.
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 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 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 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.
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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 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.
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(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.
Section 11.04 Duration of Agreement.
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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, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, or such other addresses or
telecopy or telephone numbers as may hereafter be furnished to the
Securityholders and the other parties hereto in writing by the Depositor; (II)
in the case of the Trust, to Option One Owner Trust 2005-7, c/o Wilmington
Trust Company, One ▇▇▇▇▇▇ Square North, ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: Corporate Trust Administration, telecopy number:
(▇▇▇) ▇▇▇-▇▇▇▇, telephone number: (▇▇▇) ▇▇▇-▇▇▇▇, or such other address or
telecopy or telephone numbers as may hereafter be furnished to the Noteholders
and the other parties hereto in writing by the Trust; (III) in the case of the
Loan Originator, to Option One Mortgage Corporation, 3 Ada, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇, Attention: ▇▇▇▇▇▇▇ ▇'▇▇▇▇▇, telecopy number: (▇▇▇) ▇▇▇-▇▇▇▇, telephone
number: (▇▇▇) ▇▇▇-▇▇▇▇ or such other addresses or telecopy or telephone numbers
as may hereafter be furnished to the Securityholders and the other parties
hereto in writing by the Loan Originator; (IV) in the case of the Servicer, to
Option One Mortgage Corporation 3 Ada, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention:
▇▇▇▇▇▇▇ ▇'▇▇▇▇▇, telecopy number: (▇▇▇) ▇▇▇-▇▇▇▇, telephone number: (949)
▇▇▇-▇▇▇▇ 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 ▇.▇.
▇▇▇ ▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: Option One Owner Trust 2005-7, 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.
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.
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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.
(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.
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(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 Majority Noteholders have
the right to perform continuing due diligence reviews with respect to the Loans,
for purposes of verifying compliance with the representations, warranties and
specifications made hereunder, or otherwise, and the Loan Originator agrees that
upon reasonable prior notice (with no notice being required upon the occurrence
of an Event of Default) to the Loan Originator, the Majority Noteholders, the
Indenture Trustee and Custodian or its authorized representatives will be
permitted during normal business hours to examine, inspect, and make copies and
extracts of, the Loan Files and any and all documents, records, agreements,
instruments or information relating to such Loans in the possession or under the
control of the Servicer and the Indenture Trustee. The Loan Originator also
shall make available to the Majority Noteholders a knowledgeable financial or
accounting officer for the purpose of answering questions respecting the Loan
Files and the Loans and the financial condition of the Loan Originator. Without
limiting the generality of the foregoing, the Loan Originator acknowledges that
the Majority Noteholders may purchase Notes based solely upon the information
provided by the Loan Originator to the Majority Noteholders in the Loan Schedule
and the representations, warranties and covenants contained herein, and that the
Majority Noteholders, at their option, have the right at any time to conduct a
partial or complete due diligence review on some or all of the Loans securing
such purchase, including without limitation ordering new credit reports and new
appraisals on the related Mortgaged
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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, not to exceed
$15,000 per calendar quarter (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.
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 Noteholder Agent, the
Noteholders or any of their officers, directors, employees, agents and "control
persons" as such term is used under the Act and under the Securities Exchange
Act of 1934, as amended, for any tax, accounting, legal or other professional
advice in connection with the transactions contemplated by the Basic Documents,
that each of the Loan Originator, the Depositor, the Servicer and the Issuer has
retained and been advised by such tax, accounting, legal and other professionals
as it has deemed
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necessary in connection with the transactions contemplated by the Basic
Documents and that neither the Noteholder Agent nor the Noteholders makes any
representation or warranty, and shall have no liability with respect to, the
tax, accounting or legal treatment or implications relating to the transactions
contemplated by the Basic Documents.
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 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 ▇▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ 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 ▇▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇
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 ▇▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ 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
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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 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 2005-7, 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 Third Party Beneficiary. The Noteholders and Noteholder Agent
shall be third-party beneficiaries to the provisions of this Agreement, and
shall be entitled to rely upon and directly enforce such provisions of this
Agreement as if parties hereto.
Section 11.21 No Agency.
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Nothing contained herein or in the Basic Documents shall be construed
to create an agency or fiduciary relationship between the Noteholder Agent, any
Noteholder or the Majority Noteholders or any of their Affiliates and the
Issuer, the Depositor, the Loan Originator or the Servicer. None of the
Noteholder Agent, any Noteholder, the Majority Noteholders or any of their
Affiliates shall be liable for any acts or actions affected in connection with a
disposition of Loans, including without limitation, any Securitization pursuant
to Section 3.06 hereof, any Loan Originator 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 and the Loan Originator have caused their names to be signed
by their respective officers thereunto duly authorized, as of the day and year
first above written, to this SALE AND SERVICING AGREEMENT.
OPTION ONE OWNER TRUST 2005-7,
By: Wilmington Trust Company, not in its
individual capacity but solely as
Owner Trustee
By: /s/ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇
Title: Assistant Vice President
OPTION ONE LOAN WAREHOUSE CORPORATION,
as Depositor
By: /s/ ▇▇ ▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Assistant Secretary
OPTION ONE MORTGAGE CORPORATION, as Loan
Originator and Servicer
By: /s/ ▇▇ ▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Assistant Secretary
▇▇▇▇▇ FARGO BANK, N.A., as Indenture
Trustee
By: /s/ ▇▇▇▇ ▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇
Title: Vice President