SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of report (date of earliest event reported): June 17, 1999
SOUTHERN PACIFIC FUNDING CORPORATION
(Exact name of registrant as specified in its charter)
California 1-11785 33-0636924
(State or other jurisdiction (Commission File No.) (IRS Employer Identification
of incorporation) No.)
One Centerpointe Drive, Suite 551
Lake Oswego, Oregon 97035
(Address of principal executive offices) (Zip Code)
(503) 684-6316
(Registrant's telephone number, including area code)
Item 5. Other Events.
Southern Pacific Funding Corporation ("SPFC") has entered into a
settlement agreement (the "Settlement Agreement") with Norwest Bank Minnesota,
National Association ("Norwest"), MBIA Insurance Corporation ("MBIA"), and The
Goldman Sachs Group, Inc. ("Goldman"), dated June 17, 1999. A copy of the
Settlement Agreement is attached as Exhibit 10 to this report. The Settlement
Agreement is subject to Bankruptcy Court approval in SPFC's Chapter 11 case. If
one or more objections to the Settlement Agreement are filed on or before July
7, 1999, a hearing will be held on the motion to approve the Settlement
Agreement on July 7, 1999.
Norwest serves as trustee and MBIA acts as certificate insurer with
respect to several of SPFC's mortgage loan securitization trusts (the "Trusts").
The Trusts were established under the terms of Pooling and Servicing Agreements
or Indentures (collectively, the "Pooling and Servicing Agreements") which,
under SPFC's proposed plan of reorganization, will be assumed by the reorganized
company pursuant to Section 365(b) of the Bankruptcy Code.
Norwest has filed eight proofs of claim in SPFC's bankruptcy case
totaling approximately $2 billion based on alleged breaches of the Pooling and
Servicing Agreements due to SPFC's failure to repurchase certain allegedly
defective mortgage loans owned by the Trusts. MBIA has also filed a contingent
proof of claim in an estimated amount of $2.4 billion. SPFC has asserted that
its failure to repurchase the mortgage loans at issue is not a breach of the
Pooling and
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Servicing Agreements but, at most, constitutes a default under related mortgage
loan purchase agreements.
The Settlement Agreement provides that SPFC will purchase those
mortgage loans with critical document deficiencies that cannot be cured. SPFC
believes that all such deficiencies will be cured, including pursuant to amended
document delivery requirements contained in the Settlement Agreement. However,
the liquidating trust (the "Liquidating Trust") to be established under SPFC's
plan of reorganization will be required to pay approximately $3.3 million to
repurchase certain mortgage loans that were supposed to be, but were not,
transferred to the Trusts.
The Settlement Agreement requires that a subservicer acceptable to
Norwest and MBIA be appointed for each Trust as to which SPFC acts as master
servicer no later than September 30, 1999, with the transfer of servicing to be
completed by October 31, 1999. The Settlement Agreement acknowledges that Ocwen
Financial Corporation and a related entity are acceptable subservicers.
The Settlement Agreement also provides that SPFC, the Liquidating
Trust, and Goldman will release Norwest and MBIA from all claims resulting from
SPFC's failure to perform as master servicer. Norwest and MBIA will withdraw all
proofs of claim relating to the alleged breaches of the Pooling and Servicing
Agreements. SPFC will also be required to compensate the Trusts for damages, if
any, arising out of legal proceedings brought by Oceanmark Bank, F.S.B. ("OMB"),
in connection with certain mortgage loans held by the Trusts that OMB claims it
owns.
SPFC is required to file Monthly Operating Reports with the United
States Bankruptcy Court for the District of Oregon pursuant to Bankruptcy Rule
2015 in connection with its Chapter 11 case (Case No. 398-37613-elp11). Attached
hereto as Exhibit 99 are the financial statements (omitting certain schedules)
included in the Monthly Operating Report for the Month Ending May 1999, filed
with the Bankruptcy Court on June 29, 1999.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits:
10 Settlement Agreement dated as of June 17, 1999, by
and among Southern Pacific Funding Corporation,
Norwest Bank Minnesota, National Association, MBIA
Insurance Corporation, and The Goldman Sachs Group,
Inc.
99 Financial Statements from Monthly Operating Report
for May 1999.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOUTHERN PACIFIC FUNDING CORPORATION
Dated: June 30, 1999 By:/s/ Timothy Breedlove
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Name: Timothy Breedlove
Title: Chief Financial Officer
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SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT (this "Agreement"), dated as of June 17,
1999, by and among Southern Pacific Funding Corporation ("SPFC"), Norwest Bank
Minnesota, National Association, solely in its capacity as trustee for the
Transactions, as defined below (the "Trustee"), MBIA Insurance Corporation
("MBIA"), and THE Goldman Sachs GROUP, INC. (the "Purchaser"), recites and
provides as follows:
W I T N E S S E T H:
WHEREAS, the Trustee serves as trustee and MBIA acts as certificate
insurer, with respect to each of the following series of Southern Pacific
Secured Assets Corp., Mortgage Asset-Backed Pass-Through Certificates
securitization transactions (the "Insured Transactions"): Series 1996-4, Series
1997-1, Series 1997-3, Series 1997-4, Series 1998-1 and Series 1998-2;
WHEREAS, the Trustee serves as trustee with respect to each of the
following securitization transactions (the "Non-Insured Transactions", and
together with the Insured Transactions, the "Transactions"): Southern Pacific
Secured Assets Corp. Mortgage Asset-Backed Pass-Through Certificates, Series
1997-2 and Southern Pacific Home Loan Trust Collateralized Asset-Backed Notes,
Series 1998-H1;
WHEREAS, MBIA acts as certificate insurer with respect to the following
series of Southern Pacific Secured Assets Corp. Mortgage Asset-Backed
Pass-Through Certificates securitization transactions for which the Trustee does
not serve as trustee (the "Additional Insured Transactions"): Series 1995-1,
Series 1995-2, Series 1996-1, Series 1996-2, and Series 1996-3;
WHEREAS, the trust related to each of the Transactions and each of the
Additional Insured Transactions (each, a "Trust") has been established pursuant
to the terms of a Pooling and Servicing Agreement or an Indenture and is
serviced pursuant to an agreement identified on Schedule 1 hereto (collectively,
the "Pooling and Servicing Agreements");
WHEREAS, SPFC commenced a case under Chapter 11 of the United States
Bankruptcy Code (the "Bankruptcy Code") on October 1, 1998 (the "Chapter 11
Case") in the United States Bankruptcy Court for the District of Oregon (the
"Bankruptcy Court");
WHEREAS, on June 3, 1999, SPFC proposed its second amended Chapter 11
plan (the "Plan") that provides for the assumption of the Pooling and Servicing
Agreements under Section 365(b) of the Bankruptcy Code and the sale of newly
issued common stock of SPFC to the Purchaser (such sale of stock to the
Purchaser pursuant to the Plan, the "Acquisition");
WHEREAS, the Trustee and MBIA assert that SPFC has failed to repurchase
certain Mortgage Loans owned by the Trusts as to which various alleged breaches
of representations or warranties materially and adversely affecting the value of
such mortgage loans have occurred and have not been cured (collectively, the
"Breaches"), and the Trustee and MBIA further assert that SPFC has the
obligation under Section 365(b) of the Bankruptcy Code to cure such defaults by
repurchasing the related Mortgage Loans in accordance with certain of the
Pooling and Servicing
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Agreements contemporaneously with the assumption of those the Pooling and
Servicing Agreements;
WHEREAS, SPFC has not repurchased the Mortgage Loans affected by the
Breaches, but asserts that its failures to repurchase such Mortgage Loans do not
constitute defaults under the Pooling and Servicing Agreements, but, at most,
constitute defaults under the related mortgage loan purchase agreements
identified on Schedule 2 hereto (the "Mortgage Loan Purchase Agreements");
WHEREAS, SPFC intends to reject the Mortgage Loan Purchase Agreements,
Insurance Agreements and the indemnification agreements associated with the
Insurance Agreements (the "Indemnification Agreements"), and SPFC contends that
the Trustee's claims for the repurchase price of the Mortgage Loans affected by
the Breaches, as set forth in the proofs of claim filed by the Trustee
(collectively, the "Trustee's Proofs of Claim"), constitute no more than general
unsecured claims, to the extent such claims are allowed, and should be treated
as such under the Plan;
WHEREAS, MBIA and the Trustee assert certain rights and remedies
against SPFC in respect of various defaults under the terms of certain of the
Insurance Agreements, Mortgage Loan Purchase Agreements and Pooling and
Servicing Agreements and various rights of consent to the appointment of any
subservicer or successor master servicer; and
WHEREAS, the Parties hereto have agreed to resolve certain issues
arising from the proposed assumption of the Pooling and Servicing Agreements
under the Plan upon the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto hereby agree as follows:
1. Definitions. Except as otherwise expressly provided herein or
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unless the context otherwise requires, capitalized terms used and not otherwise
defined herein shall have the meanings assigned to them in the Pooling and
Servicing Agreements. In addition, the following terms shall have the following
definitions:
(a) "Closing Date" shall mean the date on which the Acquisition
is consummated.
(b) "Confirmation Order" shall mean the order of the bankruptcy
court confirming the Plan and approving the settlement contained in
this Agreement.
(c) "Final Order" shall mean an order or judgment entered by a
court of competent jurisdiction, including without limitation the
Bankruptcy Court, that (i) has not been reversed, stayed, modified or
amended, (ii) is not the subject of a pending appeal or motion for
review or reconsideration, (iii) has not been and may no longer be
appealed from or otherwise reviewed or reconsidered, and (iv) is final
and non-appealable in accordance with applicable law, including without
limitation Rule 8002 of the Federal Rules of Bankruptcy Procedure.
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(d) "Excess Loss" shall mean, with respect to a Trust, any loss,
whenever incurred, that would be allocated, in accordance with the
applicable Pooling and Servicing Agreement, to any of the Class A
Certificates or Notes related to such Trust absent any payment under
any Certificate Insurance Policy, which is to say the amount of any
loss incurred by a Trust in excess of the amount of available credit
support for the related Class A Certificates or Notes (including credit
support represented by any related Residual Interests excess cashflow
or overcollateralization, but excluding payments and rights to payment
under any Certificate Insurance Policy).
(e) "Liquidating Trust" shall mean the liquidating trust created by
the Plan for the benefit of SPFC's creditors.
(f) "Reorganized SPFC" shall mean Southern Pacific Funding
Corporation on and following the effective date of the Plan, and shall
exclude the Liquidating Trust.
(g) "Residual Interests" shall mean, with respect to a Trust, any
Class R Certificates, uninsured interest-only securities or any and all
other economic interests in the Trust that are uninsured and are
subordinated in right of payment to the related Class A Certificates or
Notes.
(h) "Series 1998-H1 Servicing Agreement" shall mean the Servicing
Agreement dated as of June 1, 1998 between SPFC and Southern Pacific
CMN Trust Series 1998-H1.
(i) "SPFC" shall mean Southern Pacific Funding Corporation prior to
the effective date of the Plan and shall exclude Reorganized SPFC.
2. Critical Exceptions.
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(a) Critical Exception Mortgage Loans. Certain of the Breaches
arise from deficiencies in the contents of the related Mortgage Files
that the parties agree are critical to the effective realization of
value in the related Mortgage Loans by the Trust (the "Critical
Exceptions"). The following constitute Critical Exceptions: (i) missing
or incomplete original Mortgage Notes and (ii) missing or incomplete
recorded assignments of Mortgages or other security instruments related
to the Mortgage Loans to the Trustee. The Mortgage Loans as to which a
Critical Exception exists as of the date hereof (collectively, the
"Critical Exception Mortgage Loans") are identified on Schedule 3
hereto.
(b) Amendment of Pooling and Servicing Agreements. To address such
of the Critical Exceptions as may be cured by such actions, SPFC shall
prepare such amendments to the Pooling and Servicing Agreements as may
be necessary and appropriate to provide for the following changes to
the terms of certain of the Pooling and Servicing Agreements: (i) to
permit delivery of a copy of an executed Mortgage Note together with a
lost note affidavit in form and substance acceptable to the Trustee in
lieu of delivery of the original Mortgage Note and (ii) to allow for
delivery of an Opinion of Counsel that recordation of an Assignment Of
Mortgage to a Trust is not required under applicable law to protect the
Trust's interest in the related Mortgage Loan. Prior to the
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entry of the Confirmation Order, SPFC shall cause such amendments to be
prepared and delivered to the Trustee and MBIA for signature along with
all legal opinions, consents, confirmations of ratings and any and all
other documents necessary to amend each applicable Pooling and
Servicing Agreement. The Trustee and MBIA, as applicable, will enter
into such amendments, provided the terms of such amendments are
satisfactory to the Trustee and MBIA, as applicable, and all conditions
to the effectiveness of such amendments have been satisfied. As to each
Critical Exception which is to be cured by recordation of an assignment
of mortgages to the Trustee, SPFC shall submit the assignment to the
applicable recording office prior to the Closing Date.
(c) Repurchase Obligations. On or before the Closing Date, SPFC or
the Liquidating Trust, as successor to SPFC, agrees to repurchase each
Critical Exception Mortgage Loan for which the related Critical
Exception in the reasonable judgment of the Trustee and MBIA, if
applicable, has not either been (i) cured as of such date (or, in the
judgment of the Trustee, MBIA, and the Purchaser) adequate steps to
cure the Critical Exceptions are being taken and, in any event, such
cure is completed within six months of the Closing Date); or (ii)
effectively avoided by the amendments to the applicable Pooling and
Servicing Agreement. If, at any time after the Closing Date, the
Trustee and MBIA, on the one hand or Purchaser, on the other hand,
conclude, in their reasonable judgment, that a Critical Exception
identified for cure on the Closing Date is not likely to be cured
within the six-month period after the Closing Date, SPFC (or the
Liquidating Trust as successor) will repurchase the related Critical
Exception Mortgage Loan within 10 business days after notice and demand
for repurchase. Such repurchase will be effected in accordance with the
terms of the applicable Mortgage Loan Purchase Agreement and Pooling
and Servicing Agreement by payment to each related Trust of the full
amount of the purchase price (as defined by the applicable Mortgage
Loan Purchase Agreement or other document related to the Trust) in
immediately available funds for each related Critical Exception
Mortgage Loan.
3. Non-Critical Exceptions.
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(a) Non-Critical Exception Loans. Certain of the Breaches arise
from deficiencies in the contents of the related Mortgage Files that do
not constitute Critical Exceptions (the "Non-Critical Exceptions").
Reorganized SPFC shall cause the Master Servicer or any Subservicer of
the related Trust, in accordance with Accepted Servicing Practices, to
cure any and all Non-Critical Exceptions in the ordinary course of the
Master Servicer's or the Subservicer's servicing of the related
Mortgage Loans.
(b) Exception Losses. If the Master Servicer or any Subservicer
fails to cure a Non-Critical Exception and the Master Servicer, the
Subservicer, the Trustee or any successor servicer is unable to
complete foreclosure proceedings in respect of any Mortgage Loan after
the Closing Date as to which a Non-Critical Exception exists, a loss
(an "Exception Loss") in the amount of the then outstanding principal
balance of the related Mortgage Loan plus accrued interest thereon and
any unreimbursed servicing advances will be allocated pursuant to the
terms of the related Pooling and Servicing Agreement. If the allocation
of any loss pursuant to the terms of any Pooling and Servicing
Agreement would result in an Excess Loss, Reorganized SPFC shall
deposit to the related Trust, in immediately available funds, the full
amount of any such Excess
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Loss; provided, however, that Reorganized SPFC's obligation (the
"Exception Loss Coverage Obligation") to cover Excess Losses under this
Section with respect to a particular Trust shall not exceed the
aggregate amount of Exception Losses actually incurred in respect of
such Trust following the Closing Date and provided, further, that the
aggregate amount of Reorganized SPFC's Exception Loss Coverage
Obligation will not exceed the following: (i) $5 million with respect
to the Insured Transactions or (ii) $1.7 million with respect to the
Non-Insured Transactions.
(c) Exception Loss Reporting. Reorganized SPFC shall assure that
the Master Servicer or Subservicer with respect to each Trust shall
provide the Trustee and MBIA with a monthly mortgage loan liquidation
report, on a loan-by-loan basis, detailing the amount of any loss
incurred in respect of each liquidated Mortgage Loan. Any liquidated
Mortgage Loan with a Non-Critical Exception for which no net proceeds
are realized as a result of such liquidation will be presumed to have
incurred an Exception Loss unless the Master Servicer provides or
causes the related Subservicer to provide to the Trustee and MBIA an
Officers' Certificate certifying that, in the good faith business
judgment of the Master Servicer or (to the extent provided by the
Subservicer) the related Subservicer, the loss incurred with respect to
such liquidated Mortgage Loan did not result from an inability to
complete foreclosure proceedings with respect to such Mortgage Loan and
detailing the basis for that determination.
4. Phantom Loans.
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(a) Phantom Loan Breaches. Certain of the Breaches (the "Phantom
Loan Breaches") arise from Mortgage Loans that SPFC contends were
de-funded prior to sale to the Trust, were sold to another person or
entity, or otherwise were not effectively transferred to the related
Trusts (the "Phantom Loans"). The Phantom Loans are identified on
Schedule 4 hereto.
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(b) Repurchase of Phantom Loans. On the Closing Date, SPFC (or the
Liquidating Trust, as successor) shall deposit to each applicable
Trust, in immediately available funds, an amount (the "Phantom Loan
Repurchase Amount") with respect to each Phantom Loan equal to the sum
of the purchase price and the amount of unreimbursed advances related
to such Phantom Loan, each as specified in Schedule 4 hereto. Upon
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deposit of the Phantom Loan Repurchase Amount for a Phantom Loan to the
related Trust, SPFC, as Master Servicer (or the Liquidating Trust as
successor), shall be entitled to reimbursement from the Trust of the
amount of unreimbursed advances related to such Phantom Loan, as
specified on Schedule 4 hereto. The parties agree that, notwithstanding
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the terms of the Pooling and Servicing Agreement or Mortgage Loan Sale
Agreement related to the Trust, the obligation of SPFC (or the
Liquidating Trust as successor) to deposit the Phantom Loan Repurchase
Amount for each Phantom Loan to the related Trust satisfies SPFC's (or
the Liquidating Trust's as successor) repurchase obligation with
respect to the Phantom Loans, and SPFC (or the Liquidating Trust as
successor) shall have no rights of reimbursement for any advances in
respect of any Phantom Loan other than the rights under this Section;
and Reorganized SPFC shall have no rights of reimbursement for any
advances in respect of any Phantom Loan.
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5. Oceanmark Loans.
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(a) Oceanmark Claims. Certain of the Breaches arise as a result of
claims made and issues related to litigation commenced by Oceanmark
Bank, F.S.B. ("Oceanmark") in Florida state court styled Oceanmark Bank
F.S.B. v. Norwest Bank Minnesota, N.A. and Advanta Mortgage Corp.,
U.S.A., Case No. 98-20426, and Oceanmark Bank F.S.B. v. Bankers Trust
Company of California N.A. and Advanta Mortgage Company, Case No.
98-20427 (together with all pending litigation in the Bankruptcy Court
related to the same subject matter, the "Oceanmark Cases"), in which
Oceanmark asserts ownership of and/or entitlement to or encumbrances on
certain Mortgage Loans identified on Schedule 5 hereto (collectively,
the "Oceanmark Loans").
(b) Oceanmark Loans Obligation. In the event that any of the
Oceanmark Loans is determined in a Final Order issued by a court of
competent jurisdiction to be owned or otherwise encumbered by Oceanmark
and (i) such Final Order requires reconveyance to Oceanmark of any such
loan, or (ii) such Final Order awards Oceanmark money damages against
the Trustee or a Trust in respect of any such loans, Reorganized SPFC
shall promptly pay to the Trustee an amount equal to the amount
necessary to permit the Trustee to honor such reconveyance obligation
and/or the amount of damages set forth in the Final Order, provided
that, such amount shall not exceed, with respect to the Oceanmark Loans
for which reconveyance and/or damages were awarded, (A) the aggregate
principal balances as of the Cut-off Date for the Oceanmark Loans to
which the Final Order relates plus any premium as determined from the
Final Order, plus (B) interest calculated for each such loan at the
related note rate thereon from the Cut-off Date to the date of payment
pursuant to the Final Order. In addition, Reorganized SPFC agrees to
reimburse directly all out-of-pocket costs and expenses (including
reasonable attorneys' fees and expenses) reimbursable to the Trustee or
the Trust pursuant to the terms of the related Pooling and Servicing
Agreement with respect to the Oceanmark Cases. Upon demand of Trustee,
Reorganized SPFC shall remit to the Trustee or deposit to the related
Trust any amount payable hereunder in immediately available funds. The
Trustee agrees to provide written notice to MBIA and Purchaser of any
claim for payment hereunder, which notice shall include the
identification of the Oceanmark Loans related to such claim and the
amount of the claim. The parties agree, notwithstanding the terms of
the Pooling and Servicing Agreement or Mortgage Loan Sale Agreement
related to the applicable Trust, the obligation of Reorganized SPFC
under this Section 5(b) satisfies Reorganized SPFC's obligations with
respect to such Oceanmark Loan and neither the Trustee nor MBIA shall
have any further rights against SPFC, Reorganized SPFC, or the
Purchaser in respect thereof, except as contemplated by Section 6.
(c) SPFC hereby instructs Purchaser and Reorganized SPFC, that in
the event that SPFC (or the Liquidating Trust as successor) shall fail
to pay any amount owing to the Trustee pursuant to this Section (after
application of amounts paid pursuant to Section 6), Reorganized SPFC
shall pay to the Trustee all amounts due to be paid to Liquidating
Trust by Reorganized SPFC pursuant to the Cash Flow Instrument to be
issued by Reorganized SPFC to Liquidating Trust as Holder on the
Closing Date until all amounts due to the Trustee under this Section
have been paid.
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6. Guaranty of Performance; Appointment of Subservicer; Forbearance.
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(a) Purchaser Guaranty. Subject to and conditioned upon the closing
of the Acquisition, Purchaser hereby guarantees the full and prompt
payment of all amounts required to be paid by Reorganized SPFC pursuant
to Section 5(b) of this Agreement, excluding any amounts payable with
respect to premium, if any. The Purchaser's guaranty hereunder is a
guaranty of payment, not of collection, and Purchaser hereby expressly
waives any right to require that demand be made (other than the demand
for payment contemplated by Section 5(b)) or any action be brought
against Reorganized SPFC as a condition to Purchaser's obligation under
this guaranty.
(b) Appointment of Subservicer. Reorganized SPFC agrees to use its
reasonable best efforts promptly to appoint a Subservicer acceptable to
the Trustee and MBIA, in their sole and absolute discretion, as
subservicer (the "Subservicer") with respect to each Trust for which
Reorganized SPFC acts as Master Servicer. Reorganized SPFC shall enter
into a Subservicing Agreement with such Subservicer (the "Subservicing
Agreement"), which Subservicing Agreement shall comply with the
requirements of the related Pooling and Servicing Agreements and shall
provide for the transfer of servicing in respect of all related
Mortgage Loans for which Reorganized SPFC acts as Master Servicer. The
Subservicing Agreement shall be executed and effective no later than
September 30, 1999. In addition, "good-bye letters" notifying borrowers
of the transfer of servicing to the Subservicer shall be mailed no
later than September 30, 1999, and the transfer of servicing of all
related Mortgage Loans to the Subservicer shall be completed no later
than October 31, 1999. The Trustee and MBIA agree that Ocwen Financial
Corporation ("Ocwen Financial") and Ocwen Federal Bank FSB ("Ocwen
Bank") each shall constitute an acceptable Subservicer, and consent to
the appointment of either as Subservicer pursuant to the terms of the
Pooling and Servicing Agreements. The Trustee and MBIA further consent
to the retention by the Master Servicer or any Subservicer of Fannie
Mae to provide management and liquidation services with respect to any
mortgaged property, ownership of which is acquired by a Trust.
(c) Forbearance. Each of the Parties acknowledges and agrees that
one or more Events of Default have occurred and are continuing under
Section 7.01(vii), (viii) or (ix) of the Pooling and Servicing
Agreements (or Section 6.01(v), in the case of the Series 1998-H1
Servicing Agreement). The Trustee and MBIA hereby agree, upon the
satisfaction of all Conditions Precedent under Section 10 of this
Settlement Agreement, to forbear from enforcing their respective rights
and remedies against each of SPFC and Reorganized SPFC or any
successor, as Master Servicer, with respect to (A) any Events of
Default which may have previously occurred or which may occur in the
future under Section 7.01(iii) of the Pooling and Servicing Agreements
with respect to any breach of a representation or warranty of the
Master Servicer contained in Section 3.01(c) or of the Master
Servicer's covenants in Sections 5.08, 5.17 and 5.22 of the Pooling and
Servicing Agreements, Section 7.01 (vi) (with respect to the Chapter 11
Case), (vii), (viii) or (ix) of the Pooling and Servicing Agreements,
or (B) any Servicing Defaults which may have previously occurred or
which may occur in the future under Section 6.01(ii) of the Series
1998-H1 Servicing Agreement with respect to any breach of a
representation or warranty of the Master Servicer or of the Master
Servicer's covenants in Sections 2.03, 3.09, 3.15,
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and 3.16 of the Series 1998-H1 Servicing Agreement or Section 6.01(v)
of the Series 1998-H1 Servicing Agreement, for so long as the following
conditions are met:
(i) a Subservicer is appointed and performing as provided in
this Section;
(ii) Reorganized SPFC, as Master Servicer, is in compliance
with all other terms and conditions of the Pooling and Servicing
Agreements and SPFC and Reorganized SPFC are in compliance with all
terms and conditions of this Settlement Agreement;
(iii) the Subservicer meets certain financial covenants
specified by MBIA, in its sole and absolute discretion, for such
Subservicer; provided that, if the Subservicer is either Ocwen
Financial or Ocwen Bank, the Subservicer meets the following
financial covenants: (A) Ocwen Bank maintains at least "adequately
capitalized" status at all times, as defined by its banking
regulators, for so long as the Purchaser (or an affiliate)
continues to have a substantial economic interest in the Residual
Interests for the related Transaction, and, otherwise maintains
"well capitalized" status at all times as defined by its banking
regulators; (B) if the Subservicer is Ocwen Financial, Ocwen
Financial provides MBIA with audited financial statements within
ninety days after the end of each fiscal year; (C) Ocwen Bank
agrees to notify MBIA of the entry of any consent or cease and
desist order or similar order or directive issued against Ocwen
Bank by any regulator of Ocwen Bank; (D) Ocwen Bank agrees to
notify MBIA of any material adverse change in the operations or
finances of Ocwen Bank; and (E) if the Subservicer is Ocwen
Financial, the performance of all of its obligations as Subservicer
are guaranteed by Ocwen Bank;
(iv) on and after the six month anniversary of the Closing
Date, the Subservicer meets certain resource and procedural
criteria derived from Subservicer's published policy and
procedures, which criteria shall be specified by MBIA, in its sole
and absolute discretion; provided, however, that if the Subservicer
is Ocwen Financial or Ocwen Bank, such criteria shall be those
selected by MBIA in its sole and absolute discretion, up to eight
such criteria, from the resource and procedural standards contained
in Ocwen Financial's or Ocwen Bank's (as applicable) current
servicing manual and attached to this Agreement on or prior to the
Closing Date, as Exhibit A;
(v) the agreement to forbear with respect to a failure to
maintain a fidelity bond under Section 5.08 of the Pooling and
Servicing Agreements and Section 3.09 of the Series 1998-H1
Servicing Agreement shall only be effective at such times as the
Master Servicer does not collect, process or otherwise handle any
monies and the Subservicer does maintain fidelity bonds and errors
and omissions policies as required therein; and
(vi) the agreement to forbear with respect to failure to
provide annual reports as required by Section 5.17 of the Pooling
and Servicing Agreements and Section 3.15 of the Series 1998-H1
Servicing Agreement shall only be effective
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so long as the Subservicer provides the reports required therein
with respect to the Subservicer;
provided, however, that the Trustee and MBIA agree that Reorganized
SPFC, as Master Servicer, shall be entitled to a period of 30 days
following any failure by the Subservicer to meet the conditions
contained in subsections (iii) or (iv) above to cure such breach or
cause Subservicer to cure such breach. Without limiting the following
sentence, the parties agree that time is of the essence in any
transition to a successor subservicer, and shall cooperate with each
other if the breach is to be cured through the replacement of the
Subservicer. In the case of replacement, MBIA and the Trustee agree to
forbear from removing Reorganized SPFC as Master Servicer for so long
as MBIA is satisfied, in its reasonable business judgment, that
Reorganized SPFC is using its reasonable efforts to cause a successor
subservicer to be identified and performing in a timely manner and MBIA
agrees, in the event it is not so satisfied, to give Reorganized SPFC
30 days' written notice and opportunity to cure in advance of removing
Reorganized SPFC as Master Servicer.
(d) Enforcement of Remedies. Upon expiration of the term of any
forbearance and any applicable cure period under this Section, (i) each
of the parties hereby agrees that MBIA has the right to terminate all
the rights of Reorganized SPFC as Master Servicer under the Pooling and
Servicing Agreement for each of the related Transactions and, subject
to any rights of certificate holders, to cause all authority and power
of Reorganized SPFC as Master Servicer under each such Pooling and
Servicing Agreement to pass to and be vested in the Trustee, or its
designee approved by MBIA, and (ii) each of the parties (other than the
Trustee) agrees not to contest, challenge or object in any way to
MBIA's exercise at any time of any such right or remedy.
(e) Acquisition of Additional Master Servicing. The Trustee and
MBIA agree to consent to Reorganized SPFC (or any successor) as a
successor master servicer under the terms of any Pooling and Servicing
Agreement for Transactions for which SPFC is not currently acting as
Master Servicer provided (i) Reorganized SPFC (or any successor) is in
compliance with the terms of this Agreement and each Pooling and
Servicing Agreement under which Reorganized SPFC acts as Master
Servicer (otherwise than as contemplated by subsection (c)), (ii) the
Subservicer is in compliance with the conditions for forbearance under
this Section, (iii) the Subservicer is obligated to subservice the
related Mortgage Loans pursuant to the terms of the Subservicing
Agreement, and (iv) the Purchaser owns a substantial economic interest
(as determined by MBIA) in the Residual Interests for the related
Transaction.
7. REMIC Reporting Matters. The Trustee, in its capacity as
--------------------------
administrator of each of the REMICs related to the Trusts, has consented to use
certain methodologies, described in Schedule 7 relating to the calculation of
the taxable income of the REMICs (the "Methodologies"), and has agreed to sign
amended federal income tax returns in respect of certain of the REMICs and
future returns for the REMICs (collectively, the "Returns") that reflect the use
of the Methodologies. The Trustee, in its capacity as administrator of the
REMICs, agrees to sign the Returns upon satisfaction of the following
conditions: (a) receipt of an opinion of counsel satisfactory to the Trustee
that the Methodologies are permissible under the REMIC Provisions and that the
preparation and filing of Returns reflecting the use of the
-9-
<PAGE>
Methodologies will have no adverse effect on the status of any REMIC as a REMIC
and (b) receipt of a written opinion of a nationally-recognized tax and
financial accounting firm acceptable to the Trustee that the use of the
Methodologies in preparation of the Returns does not constitute a change in
accounting method requiring notice to or consent of the Internal Revenue
Service. The parties further agree that (unless the Trustee agrees otherwise)
all Returns and other required schedules will be prepared for the Trustee's
signature by a nationally-recognized tax and financial accounting firm
acceptable to the Trustee as a paid preparer of such Returns and other required
schedules. Reorganized SPFC agrees to bear all costs and expenses associated
with the preparation of such Returns and other required schedules by the paid
preparer.
8. Releases of the Trustee and MBIA; Waiver by Trustee.
---------------------------------------------------
(a) Release. SPFC (and the Liquidating Trust as successor),
Reorganized SPFC, and the Purchaser hereby jointly and severally
irrevocably and absolutely release, remise, acquit, and discharge each
of the Trustee and MBIA, their respective affiliates, and each of their
respective current and former officers, directors, employees,
attorneys, agents, consultants, shareholders, successors and assigns
from and of any and all claims, demands, causes of action, actions,
liabilities, damages, losses, expenses and costs, of any kind or nature
whatsoever, absolute or contingent, matured or unmatured, liquidated or
unliquidated, now known or subsequently discovered, that (a) arise out
of or in any way relate to the settlement set forth herein and/or the
transactions contemplated hereby (other than the performance by the
Trustee and MBIA of their obligations under this Agreement), (b) relate
to the Trustee's or MBIA's performance (or failure to perform) pursuant
to the terms of the Pooling and Servicing Agreements prior to the
Closing Date, to the extent resulting from any failure to perform by
SPFC as Master Servicer, and/or (c) are identified on Schedule 6
hereto. The parties hereto hereby agree to amend each of the Pooling
and Servicing Agreements for the Transactions to require the following:
(a) that any subsequent purchaser of any Residual Interests in any
Trust provide the foregoing release, mutatis mutandis, and (b) that a
restrictive legend regarding the foregoing be placed on any and all
certificated Residual Interests. Each of SPFC and the Purchaser hereby
represents and warrants that it is not currently aware of any other
claims against the Trustee or MBIA.
(b) Waiver. The Trustee hereby waives its rights and any claims it
may have under the indemnity covenants in Sections 9.05(d) and 10.03(b)
of the Pooling and Servicing Agreements and Section 5.06(b) of the
Series 1998-H1 Servicing Agreement with respect to any event occurring
prior to the Closing Date.
9. Consent to Assumption and Partial Withdrawal of the Trustee's Proofs
--------------------------------------------------------------------
of Claim. Subject to and conditioned upon the full and complete satisfaction of
- --------
the Conditions Precedent specified in Section 10, the Trustee shall consent to
the assumption of the Pooling and Servicing Agreements for the Transactions and
withdraw the Trustee's Proofs of Claim related to the Breaches, and MBIA shall
withdraw its proofs of claim. Further, all obligations of SPFC, Reorganized
SPFC, and Purchaser arising out of the rejection of the Mortgage Loan Purchase
Agreements and the Insurance Agreements and Indemnification Agreements, shall be
only as expressly set forth in this Settlement Agreement. The Trustee and MBIA,
and their successors in interest, waive and shall be forever estopped from
asserting any claim or demand arising out of
-10-
<PAGE>
such rejections or in any way related to the Breaches, subject to Section 14 and
otherwise except as expressly set forth in this Settlement Agreement.
10. Conditions Precedent to the Obligations of the Trustee and MBIA
------------------------------------------------------------------
Hereunder. The obligations of the Trustee and MBIA under this Agreement shall
- ---------
not arise until each of the following conditions (the "Conditions Precedent") is
satisfied (or waived) to the reasonable satisfaction of the Trustee and MBIA, as
evidenced by an officer's certificate from each of the Trustee and MBIA to such
effect:
(a) The Plan and the related disclosure provide an accurate and
adequate summary of the terms of this Settlement Agreement and
otherwise are reasonably satisfactory to the Trustee and MBIA;
(b) Notice is provided to each holder of any Class A Certificate or
Note and any other holders of interests in the related Trusts of the
terms of this Settlement Agreement, and the Bankruptcy Court issues an
order approving the terms of this Settlement Agreement, each of which
notice and order is in form and substance acceptable to the Trustee and
MBIA, in their sole and absolute discretion;
(c) The Confirmation Order is in form and substance acceptable to
the Trustee and MBIA in their sole and absolute discretion, and either
(i) becomes a Final Order, or (ii) an opinion (satisfactory to the
Trustee, MBIA and the Purchaser in form and substance) of counsel for
SPFC concluding that consummation of the Plan will effectively moot any
appeal from the Confirmation Order has been delivered to the Trustee,
MBIA and the Purchaser;
(d) An assumption agreement executed and delivered by the
Liquidating Trust in form and substance acceptable to MBIA and the
Trustee, pursuant to which the Liquidating Trust assumes its
obligations hereunder;
(e) SPFC and/or the Liquidating Trust have repurchased the Critical
Exception Mortgage Loans as to which the corresponding Breaches have
not been cured in accordance with Section 2 of this Agreement;
(f) The Trustee and MBIA have reviewed and approved, in their sole
and absolute discretion, the Subservicer (if other than Ocwen Financial
or Ocwen Bank) and the terms of the Subservicing Agreement;
(g) Delivery of Exhibit A described in sub-paragraph 6(c)(iv);
(h) The procedures for transfer of servicing of the Mortgage Loans
to the Subservicer have been presented to MBIA and MBIA has consented
to such procedures, which consent shall not unreasonably be withheld;
and
(i) SPFC and/or the Purchaser have delivered opinions of counsel
regarding the due authorization, execution, delivery and enforceability
of this Agreement with respect to each of SPFC, Reorganized SPFC and
the Purchaser and an opinion of counsel for the Liquidating Trust
regarding the due authorization, execution, delivery and enforceability
of the assumption agreement referred to in subparagraph (d).
-11-
<PAGE>
11. Opinions of Counsel to Trustee and MBIA. The obligations of SPFC,
---------------------------------------
Reorganized SPFC and Purchaser hereunder shall not arise until each of the
Trustee and MBIA delivers an opinion of counsel regarding the due authorization,
execution, delivery and enforceability of this Agreement with respect to such
party.
12. Continuing Representations, Warranties and Covenants.
----------------------------------------------------
(a) Notwithstanding the rejection of any Insurance Agreement,
Reorganized SPFC hereby represents, warrants and covenants as follows:
(i) Upon the request of MBIA, Reorganized SPFC shall furnish,
with reasonable promptness, any financial data, financial reports
and other data relating to Reorganized SPFC or the Subservicer as
MBIA may reasonably request.
(ii) Reorganized SPFC shall, upon the request of MBIA, permit
MBIA, or its authorized agent, at reasonable times and upon
reasonable notice, to inspect the books and records of Reorganized
SPFC and the Subservicer as they may relate to the Class A
Certificates, the Mortgage Loans and Reorganized SPFC's obligations
under the Transaction Documents and to discuss matters relating to
the Class A Certificates, the Mortgage Loans or Reorganized SPFC's
obligations under the Transaction Documents with an appropriate
authorized officer of Reorganized SPFC.
(iii) Reorganized SPFC shall promptly deliver to MBIA any
Notice of Material Event (as defined in the Insurance Agreement).
(iv) Except as permitted in this Agreement or the Pooling and
Servicing Agreement, Reorganized SPFC, in its capacity as Master
Servicer, shall not take any action, or fail to take any action, if
such action or failure to take action will have a material adverse
effect on MBIA's ability to enforce its rights under any of the
Transaction Documents.
(b) Reorganized SPFC shall either enter into new custodial
arrangements for the Mortgage Loans with the same fee schedule as the
existing schedule or assume all obligations of SPFC to pay fees and
costs related to existing custodial arrangements for the Mortgage
Loans. In either event, SPFC will pay all fees due and payable before
the Closing Date.
(c) SPFC (or the Liquidating Trust as successor) shall continue to
provide to the Trustee all release requests as required under any
Pooling and Servicing Agreement for any Mortgage Loans paid off or
otherwise subject to release through the Closing Date (and shall pay
all fees associated with such releases), assisted as required and as
customary by the Trustee.
13. Representations and Warranties. Each of the Parties hereby
--------------------------------
represents and warrants that each of the following statements is true and
accurate as of the date hereof:
(a) This Agreement has been duly authorized and validly executed
and delivered by such party and constitutes such party's legal, valid
and binding obligation, enforceable against such party in accordance
with its terms;
-12-
<PAGE>
(b) Subject, in the case of SPFC, to the authority of the
Bankruptcy Court, such party is not subject to any restriction,
agreement or law, order, writ, injunction, decree, rule or regulation
of any court, administrative agency or other governmental authority
that, with or without the giving of notice, the passage of time or
both, would prohibit, contravene, be violated by, or be inconsistent
with the execution, delivery and performance by such party of this
Agreement or the consummation of the transaction effected hereby or
contemplated herein; and
(c) There is no action, suit or proceeding pending or, to the best
of such party's knowledge and belief, threatened against such party
that questions the validity of, in any way legally impairs, or seeks to
enjoin or otherwise prevent the execution, delivery and/or performance
by such party of this Agreement or, if adversely determined, would have
a material adverse effect on such party's ability to perform his or
its, as the case may be, obligations hereunder.
14. No Exception Loss; No Other Breaches. SPFC hereby represents and
-------------------------------------
warrants that to its best knowledge there has not been any loss prior to the
date hereof and there will be no loss as of the Closing Date which would be
defined as an "Exception Loss" within the meaning of paragraph 3(b) if it
occurred after the Closing Date. SPFC hereby represents and warrants to each of
the Trustee and MBIA that SPFC is not aware of any breach of any representation
or warranty of SPFC or any affiliate of SPFC under any Pooling and Servicing
Agreement or any Mortgage Loan Purchase Agreement other than the Breaches
resulting directly from SPFC's bankruptcy, or dealt with in this Agreement. MBIA
and the Trustee represent that they are not aware of any such additional
breaches. The Trustee and MBIA hereby acknowledge and agree that the
representations and warranties contained in this Section are made by SPFC and
not by Reorganized SPFC, and that the recourse of the Trustee and MBIA hereunder
is limited to a claim against the Liquidating Trust.
15. Transfer of Servicing; No Acquisition. In the event SPFC and
-----------------------------------------
Purchaser fail to consummate the Acquisition, SPFC agrees as follows:
(a) SPFC shall enter into a Subservicing Agreement to be executed
and effective no later than September 30, 1999, which Subservicing
Agreement shall comply with the requirements of the related Pooling and
Servicing Agreements and provide for the transfer of servicing with
respect to all related Mortgage Loans for which SPFC acts as Master
Servicer.
(b) "Good-bye letters" notifying borrowers of the transfer of
servicing to the Subservicer shall be mailed no later than September
30, 1999.
(c) Transfer of servicing of all related Mortgage Loans to the
Subservicer shall be completed no later than October 31, 1999.
(d) If SPFC fails to fulfill any of the obligations set forth in
subscections (a) through (c) above, (i) each of the parties hereby
agrees that MBIA has the right to terminate all the rights of SPFC, or
any successor, as Master Servicer under the Pooling and Servicing
Agreement for each of the related Transactions or Additional Insured
Transactions, as applicable, and, subject to the rights of the
certificate holders, to cause
-13-
<PAGE>
all authority and power of SPFC, or any successor, as Master Servicer
under each such Pooling and Servicing Agreement to pass to and be
vested in the Trustee, or its designee approved by MBIA, and (ii) each
of the parties (other than the Trustee) agrees (A) not to contest,
challenge or object in any way to MBIA's exercise at any time of any
such right or remedy, (B) irrevocably and absolutely to waive and
cooperate to obtain, at MBIA's expense, any necessary relief from the
automatic stay under the Bankruptcy Code or other impediment to
exercise of any remedy against SPFC and (C) to join with MBIA and the
Trustee, at MBIA's request and expense, in asking any court of
competent jurisdiction (including, without limitation, the Bankruptcy
Court) to approve any such action at any and all times.
(e) It shall secure an order approving the waiver of the automatic
stay of Section 362(a) of the Bankruptcy Code, as set forth in Section
15 hereof, to be entered by the Bankruptcy Court on or before July 7,
1999 and to become a Final Order.
If SPFC and Purchaser fail to consummate the Acquisition, Reorganized SPFC under
this Agreement shall mean SPFC and Purchaser shall have no obligation of any
nature whatsoever under this Agreement or otherwise with respect to the subject
matter of this Agreement.
16. Attorneys' Fees. In the event any litigation, arbitration or other
---------------
proceeding is commenced by a party hereto against one or more of the other
parties hereto for purposes of enforcing the terms of this Agreement, the
prevailing party in such litigation, arbitration or other proceeding shall be
entitled to recover its attorneys' fees and expenses from the non-prevailing
party or parties in such litigation, arbitration or other proceeding.
17. Consent to Jurisdiction. Each of the parties hereby agrees that all
-----------------------
actions, suits or other proceedings arising out of or relating in any way to
this Agreement may, but need not, be brought in the Bankruptcy Court. Each of
the parties hereby knowingly, voluntarily, intelligently, absolutely and
irrevocably waives and agrees not to assert any objection it may now or
hereafter have to the laying of venue of all actions, suits or proceedings
arising out of or relating in any way to this Agreement in the Bankruptcy Court
and irrevocably submits to the jurisdiction of the Bankruptcy Court for such
purposes. Each of the parties hereby knowingly, voluntarily, intelligently,
absolutely and irrevocably waives and agrees not to assert in any such action,
suit or proceeding that it is not subject to the personal jurisdiction of the
Bankruptcy Court or that the action, suit or proceeding should be transferred to
a different venue under forum non conveniens principles or statutes embodying
such principles.
18. Amendment. This Agreement may be amended from time to time by the
---------
parties hereto pursuant to a written agreement signed by the parties hereto.
19. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND 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.
20. Notices. All demands, notices and communications hereunder shall be
-------
in writing and shall be deemed to have been duly given if personally delivered
at or mailed by registered mail, postage prepaid, addressed as follows, or such
other address as may be furnished by proper
-14-
<PAGE>
notice as described herein (facsimile numbers are provided below for convenience
of communication and not as an alternative means of delivery of notice):
SPFC: Southern Pacific Funding Corporation
---- One Centerpointe Drive, Suite 551
Lake Oswego, Oregon 97035
Attention: Mr. Kevin D. Padrick
Facsimile No.: (503) 598-0662
Trustee: Norwest Bank Minnesota, National Association
------- 11000 Broken Land Parkway
Columbia, Maryland 21044-3562
Attention: Mr. Brian W. Bartlett
Facsimile No.: (410) 884-2363
MBIA: MBIA Insurance Corporation
---- 113 King Street
Armonk, NY 10504
Attention: Mr. Stephen G. Holliday
Facsimile No.: (914) 765-3810
Purchaser and The Goldman Sachs Group, Inc.
Reorganized SPFC: 85 Broad Street
---------------- New York, NY 10004
Attention: Mr. Marvin Kabatznick
Facsimile No.: (212) 346-3568
Attention: Jay Strauss, Esq.
Facsimile No.: (212) 902-3876
21. Relationship of Parties. Nothing herein contained shall be deemed
-----------------------
or construed to create a partnership or joint venture between the parties
hereto.
22. 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 and such
counterparts, together, shall constitute one and the same agreement.
23. Term. The term of this Agreement shall extend until satisfaction of
----
all obligations of the parties hereunder and until payment in full of any and
all amounts required to be paid hereunder or under the terms of any Pooling and
Servicing Agreement.
24. Entire Agreement; Amendment. This Agreement constitutes the entire
----------------------------
agreement and understanding between the parties concerning the subject matter
hereof and supersedes and terminates all prior written and oral agreements,
proposals, promises and representations of the parties respecting the subject
matter hereof. No representation or promise hereafter made, nor any modification
or amendment of this Agreement, shall be binding upon either party, unless made
in writing and signed by the parties hereto.
-15-
<PAGE>
25. Assignment; Binding Effect. None of the parties hereto may assign
---------------------------
its rights hereunder or delegate its duties and obligations hereunder without
the express prior written consent of each of the Trustee and MBIA. Subject to
all terms and conditions hereof, this Agreement shall be binding upon and inure
to the benefit of the parties and their respective successors and permitted
assigns.
[Signature Page Follows]
-16-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed and delivered by its duly authorized officer thereunto
as of the day and year first above written.
SOUTHERN PACIFIC FUNDING CORPORATION
By: /s/ Kevin D. Padrick
-----------------------------
Name: Kevin D. Padrick
Title: President
NORWEST BANK MINNESOTA, NATIONAL ASSOCATION
By: /s/ E. M. Frere, Jr. 6/18/99
-----------------------------
Name: Edward M. Frere, Jr.
Title: Vice President
MBIA INSURANCE CORPORATION
By: /s/ John D. Lohrs
-----------------------------
Name: John D. Lohrs
Title: Managing Director
THE GOLDMAN SACHS GROUP, INC.
By: /s/ Robert Christie
-----------------------------
Name: Robert Christie
Title: Managing Director
<PAGE>
The following schedules have been omitted and will be furnished
supplementally to the Commission by the registrant upon request:
Schedule 1 List of Pooling and Servicing Agreements
Schedule 2 List of Mortgage Loan Purchase Agreements
Schedule 3 List of Critical Exception Loans
Schedule 4 List of Phantom Loans
Schedule 5 List of Oceanmark Loans
Schedule 6 List of Claims Against Trustee
Schedule 7 Methodologies re Calculating REMIC Taxable Income
<TABLE>
Southern Pacific Funding Corp. Debtor in Possession Case No. 398-37613-elp11
RULE 2015 REPORT FOR THE MONTH
AND YEAR MAY 1999
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT (Page 1 of 2) Filing
October 1, 1998
February March April May to Date
----------- ----------- ----------- ----------- -----------
GROSS SALES
Interest Income $ 128,778 $ 147,227 $ 62,432 $ 119,765 $ 6,040,319
Servicing Income 766,674 1,601,342 541,539 537,246 5,151,603
Prepayment Penalty Income 659,343 933,755 965,060 912,763 7,293,407
Less: Returns and Allowances --
----------- ----------- ----------- ----------- -----------
NET SALES 1,554,795 2,682,324 1,569,031 1,569,774 18,485,329
COST OF SALES
BEGINNING INVENTORY --
Add: PURCHASES --
Less: ENDING INVENTORY --
----------- ----------- ----------- ----------- -----------
COST OF GOODS SOLD -- -- -- -- --
GROSS PROFIT 1,554,795 2,682,324 1,569,031 1,569,774 18,485,329
OTHER OPERATING EXPENSES:
OFFICER SALARIES/DRAWS 214,410 214,465 221,336 227,275 2,493,443
DIRECT LABOR/SALARIES 213,631 196,655 193,403 162,395 2,494,254
BENEFITS/PAYROLL TAXES 53,258 57,025 41,481 41,148 763,160
SUPPLIES 10,529 4,650 3,519 8,229 99,922
INSURANCE 28,427 56,495 18,660 18,660 248,053
RENT 75,159 52,689 53,707 53,492 920,782
GENERAL AND ADMINISTRATIVE 781,433 1,441,127 1,383,423 1,107,088 9,446,477
</TABLE>
5 of 21
<PAGE>
<TABLE>
Southern Pacific Funding Corp. Debtor in Possession Case No. 398-37613-elp11
RULE 2015 REPORT FOR THE MONTH
AND YEAR MAY 1999
INCOME STATEMENT (Page 2 of 2) Filing
October 1, 1998
February March April May to Date
------------ ------------ ------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
DEPRECIATION/AMORTIZATION 160,042 160,042 160,042 160,042 1,973,443
------------ ------------ ------------- ------------ ---------------
TOTAL OPERATING EXPENSES 1,536,889 2,183,148 2,075,571 1,778,329 18,439,534
------------ ------------ ------------- ------------ ---------------
NET OPERATING INCOME (LOSS) 17,906 499,176 (506,540) (208,555) 45,795
ADD: OTHER INCOME (2) 87,303 158,447 6,450 65,455 1,442,951
LESS OTHER EXPENSES:
INTEREST EXPENSE (383,113) (459,305) (397,562) (1,820,931) (8,098,551)
OTHER (3) (434,491) (1,276,935) 261,024 - (5,455,171)
------------ ------------ ------------- ------------ ---------------
TOTAL OTHER EXPENSES (712,395) (1,078,617) (636,628) (1,964,031) (12,064,976)
GAIN/(LOSS) SALE OF ASSETS (64,328) (3,433,218) - - (7,000,955)
------------ -------------- ------------- ------------- ---------------
INCOME (LOSS) BEFORE TAXES (776,723) (4,511,835) (636,628) (1,964,031) (19,065,931)
INCOME TAXES 142,025 1,342,484 372,398 815,073 5,648,338
============ ============== ============= ============= ===============
NET INCOME (LOSS) $ (634,698) $ (3,169,351) $ (264,230) $(1,148,958) $ (13,417,593)
============ ============== ============= ============= ===============
</TABLE>
(2) Schedule of Other Income attached
(3) Schedule of Other Expense attached
6 of 21
<PAGE>
<TABLE>
Southern Pacific Funding Corp. Debtor in Possession Case No. 398-37613-elp11
RULE 2015 REPORT FOR THE MONTH
AND YEAR MAY 1999
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATIONS
Filing
October 1, 1998
February March April May to Date
--------------- --------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
NET INCOME (LOSS) $ (634,698) $ (3,169,351) $ (264,230) $(1,148,958) $ (13,417,593)
ADJUSTMENTS TO RECONCILE
NET INCOME TO NET CASH:
DEPRECIATION/AMORTIZATION 311,607 311,607 293,639 187,875 2,559,804
(GAIN)LOSS ON SALE OF ASSETS 64,328 75,033 -- -- 4,770,012
(INCREASE)DECREASE IN RECEIVABLES (392,798) (536,775) (922,993) 1,403,992 9,403,610
(INCREASE)DECREASE IN INVENTORY (1) 72,371 6,140,449 1,439 123,303 301,839,139
INCREASE(DECREASE) IN PAYABLES 211,909 2,116,117 (1,278,601) (1,566,012) (8,626,977)
OTHER, NET (2) 719,480 2,905,517 393,552 (203,446) 9,143,008
--------------- --------------- ------------- ------------- ---------------
NET CASH PROVIDED BY OPERATIONS 352,199 7,842,597 (1,777,194) (1,203,246) 305,671,003
CASH FLOWS FROM INVESTING/FINANCING
(PURCHASE OF)FIXED ASSETS --
CAPITAL CONTRIBUTIONS --
LOAN PROCEEDS (SCHEDULE F, NUMBER6) 39,086,058
LOAN PRINCIPAL/CAPITAL LEASE (PAYMENTS) (309,021) (4,648,449) (690,976) (489,759) (339,155,926)
--------------- --------------- ------------- ------------- ---------------
NET INCREASE (DECREASE) IN CASH 43,178 3,194,148 (2,468,170) (1,693,005) 5,601,135
BEGINNING CASH 8,455,426 8,498,604 11,692,752 9,224,582 1,930,442
=============== =============== ============= ============= ===============
ENDING CASH $ 8,498,604 $ 11,692,752 $ 9,224,582 $ 7,531,577 $ 7,531,577
=============== =============== ============= ============= ===============
(1) Mortgage Loans held for Sale
(2) Accrual of Operations of subsidiaries $ 434,491 $ 1,276,935 $ (261,024) $ - $ 5,455,173
Residual Loan Interests 286,874 1,572,764 623,595 742,928 4,888,382
Prepaid expenses and other assets, net (1,885) 55,818 30,981 (946,374) (1,200,547)
=============== =============== ============= ============= ===============
$ 719,480 $ 2,905,517 $ 393,552 $ (203,446) $ 9,143,008
=============== =============== ============= ============= ===============
</TABLE>
7 of 21
<PAGE>
<TABLE>
Southern Pacific Funding Corp. Debtor in Possession Case No. 398-37613-elp11
RULE 2015 REPORT FOR THE MONTH
AND YEAR MAY 1999
COMPARATIVE BALANCE SHEET (Page 1 of 2)
AS OF AS OF AS OF AS OF
02/28/99 03/31/99 04/30/99 05/31/99
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash $ 8,498,604 $ 11,692,752 $ 9,224,582 $ 7,531,577
Inventory ( Mortgage Loans Held for Sale ) 6,544,246 403,797 402,358 279,055
Accounts Receivable 94,650,427 95,187,202 96,110,195 94,706,203
(net of bad debts)
Notes Receivable
Other (attach schedule) 2,993,576 2,816,059 2,618,484 1,180,671
--------------- --------------- ---------------- ---------------
Total Current Assets 112,686,853 110,099,810 108,355,619 103,697,506
Fixed Assets:
Property and Equipment 1,436,040 1,361,007 1,361,007 1,361,007
Less: Accumulated Depreciation (408,799) (408,799) (408,799) (408,799)
--------------- --------------- ---------------- ----------------
Total Fixed Assets 1,027,241 952,208 952,208 952,208
Other Assets (attach schedule) 316,299,768 313,260,161 312,770,545 314,223,929
--------------- --------------- ---------------- ----------------
TOTAL ASSETS $ 430,013,862 $ 424,312,179 $ 422,078,372 $ 418,873,643
=============== =============== ================ ================
LIABILITIES
Postpetition Liabilities:
Accounts Payable $ 82,481 $ 145,676 $ 124,888 $ 106,824
Notes Payable 38,649,723 34,002,109 33,311,942 32,823,018
Rents and Leases Payable
Taxes Payable
Accrued Interest 121,742 - 9,522 37,429
Other 3,419,228 4,072,549 3,403,235 2,601,460
--------------- --------------- ---------------- ----------------
Total Postpetition Liabilities 42,273,174 38,220,334 36,849,587 35,568,731
Prepetition Liabilities (Noncurrent):
Unsecured Debt 171,609,871 174,472,863 174,491,473 174,499,576
Notes Payable-Secured 111,948,980 111,948,980 111,948,980 111,980,924
Priority Claims:
Taxes 76,332 76,332 76,332 76,332
Wages 1,405,267 1,405,267 1,405,225 1,405,337
Deposits
Other (Deferred Tax Liability) 15,418,183 14,075,699 13,458,301 12,643,227
--------------- --------------- ---------------- ----------------
Total Prepetition Liabilities 300,458,633 301,979,141 301,380,311 300,605,396
--------------- --------------- ---------------- ----------------
TOTAL LIABILITIES 342,731,807 340,199,475 338,229,898 336,174,127
Page 8 of 21
<PAGE>
Southern Pacific Funding Corp. Debtor in Possession Case No. 398-37613-elp11
RULE 2015 REPORT FOR THE MONTH
AND YEAR MAY 1999
COMPARATIVE BALANCE SHEET (Page 2 of 2)
AS OF AS OF AS OF AS OF
02/28/99 03/31/99 04/30/99 05/31/99
--------------- --------------- --------------- ----------------
OWNER EQUITY (DEFICIT) 87,282,055 84,112,704 83,848,474 82,699,516
=============== =============== =============== ================
TOTAL LIABILITIES AND OWNER EQUITY $ 430,013,862 $ 424,312,179 $ 422,078,372 $ 418,873,643
=============== =============== =============== ================
Page 9 of 21
</TABLE>
<PAGE>
Southern Pacific Funding Corp. Debtor in Possession Case No. 398-37613-elp11
RULE 2015 REPORT FOR THE MONTH
AND YEAR MAY 1999
SCHEDULE F
STATEMENT OF PERSONNEL, INSURANCE AND OPERATIONS
1. PERSONNEL REPORT (required if more than ten employees)
Full Time Part Time
Total number of employees at beginning of period 84 -
Number hired during period - -
Number terminated or resigned during period 3 -
--------------- ---------
Total number of employees on payroll at period end 81 -
Total Payroll for the period: $ 388,752
Includes payment of severance and retention compensation for terminated
employees
2. INSURANCE - Copies of certificates of insurance must accompany first report.
For subsequent months, explain any changes in insurance coverage:
Effective March 26, 1999 the Company renewed the following insurance policies
through March 25, 2000; property, general liability, mortgage holders, auto,
umbrella and fiduciary liability. The financial institution bond was renewed
for a term of 6 months. Coverages were reduced, as appropriate, to reflect
lower exposure attributable to the reduced activities of the Company.
3. Subsequent to the filing of the petition have any payments been made on
prepetition unsecured debt, except as authorized by the court?
X No.
---------------
Yes. Identify amount, who was paid and date paid:
--------------- ------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
4. Provide a narrative report of significant events which may have an effect on
the financial condition of the debtor or any events out of the ordinary
course of business, which have occurred since the period covered by this
report. Attach separate sheet(s) if necessary.
On June 14, 1999, SPFC sold additional loans to Bayview Financial Trading Group
LP and received net proceeds in the amount of $359,245.45.
18 of 21
<PAGE>
Southern Pacific Funding Corp. Debtor in Possession Case No. 398-37613-elp11
RULE 2015 REPORT FOR THE MONTH
AND YEAR MAY 1999
STATEMENT OF PERSONNEL, INSURANCE, AND OPERATIONS - Continued
5. If assets, other than inventory sold in the ordinary course of business, were
disposed of during the current month, provide the following information for
each asset (attach separate sheet(s), if necessary):
ENTITY TO WHOM AUTHORIZATION
TRANSFERRED (e.g. notice
(relationship dated _____or
DESCRIPTION VALUE ON to debtor court order
OF ASSET BOOK BASIS if any) dated ) Terms
- --------------------------------------------------------------------------------
19 of 21
<PAGE>
Southern Pacific Funding Corp. Debtor in Possession Case No. 398-37613-elp11
RULE 2015 REPORT FOR THE MONTH
AND YEAR MAY 1999
STATEMENT OF PERSONNEL, INSURANCE, AND OPERATIONS - Continued
6. For each loan obtained during the current month provide the following
information (attach separate sheet(s), if necessary):
- --------------------------------------------------------------------------------
AMOUNT OF LOAN TERMS OF LOAN
LENDER'S NAME (describe right (interest rate, PROCEDURE FOR
(Relationship to receive future maturity, OBTAINING
to debtor, if any) advances, if any) collateral, etc.) AUTHORIZATION
- --------------------------------------------------------------------------------
7. Statement of Disbursements and Fee paid to the U.S. Trustee pursuant to
Federal Rule of Bankruptcy Procedure 2015(a)(5):
QUARTER ENDING TOTAL DISBURSEMENTS FEE PAID
-------------- ------------------- --------------
March 31, 1998
June 30, 1998
September 30, 1998
December 31, 1998 $ 6,857,519 (1) $ 10,000
March 31, 1999 $ 4,081,434 (1) $ 10,000
June 30, 1999 $ 8,243,779 (1) $ -
(1) Excludes servicing disbursements
20 of 21
<PAGE>
<TABLE>
Southern Pacific Funding Corp. Debtor in Possession Case No. 398-37613-elp11
RULE 2015 REPORT FOR THE MONTH
AND YEAR MAY 1999
INCOME STATEMENT
SUPPORTING SCHEDULE (2) OTHER INCOME
Filing
October 1, 1998
February March April May to Date
--------------- ------------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Insurance Commissions Revenue (Servicing) $ 62,373 $ 121,814 $ - $ 51,419 $ 286,999
Discount on Early Payoff of Secured Financing 1,000,000
Miscellaneous Refunds Received 24,930 36,633 6,450 14,036 155,952
--------------- ------------- ---------- ---------- -------------
TOTAL OTHER INCOME $ 87,303 $ 158,447 $ 6,450 $ 65,455 $ 1,442,951
=============== ============= ========== ========== =============
<PAGE>
Southern Pacific Funding Corp. Debtor in Possession Case No. 398-37613-elp11
RULE 2015 REPORT FOR THE MONTH
AND YEAR MAY 1999
INCOME STATEMENT
SUPPORTING SCHEDULE (3) OTHER EXPENSE
Filing
October 1, 1998
February March April May to Date
--------------- ------------- ----------- ---------- ---------------
Equity in Operations (Losses) of Subsidiaries
Oceanmark Financial Services $ 44,856 $ (13,476) $ (2,453) $ - $ (1,942,973)
Home America Financial Services (124,513) (91,500) 20,888 (731,846)
Hallmark America (7,265)
National Capital Funding, Inc. (114,156)
Southern Pacific Mortgage Limited (354,834) (1,171,959) 242,589 (2,658,933)
-------------- ------------- ----------- ---------- --------------
TOTAL OTHER EXPENSE $ (434,491) $(1,276,935) $ 261,024 $ - $ (5,455,173)
-------------- ------------- ----------- ---------- --------------
</TABLE>
<PAGE>
<TABLE>
Southern Pacific Funding Corp. Debtor in Possession Case No. 398-37613-elp11
RULE 2015 REPORT FOR THE MONTH
AND YEAR MAY 1999
COMPARATIVE BALANCE SHEET
SUPPORTING SCHEDULES - OTHER ASSETS
AS OF AS OF AS OF AS OF
02/28/99 03/31/99 04/30/99 05/31/99
--------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
OTHER CURRENT ASSETS
Prepaid Expenses 2,845,762 2,694,197 2,495,600 1,057,242
Prepaid Lease Deposit 149,052 120,874 120,874 120,874
Prepaid Maintenace Contracts 701 523 344 165
Miscellaneous Servicing accounts (1,939) 465 1,666 2,390
--------------- --------------- ---------------- ---------------
TOTAL OTHER CURRENT ASSETS $ 2,993,576 $ 2,816,059 $ 2,618,484 $ 1,180,671
=============== =============== ================ ===============
OTHER ASSETS
Residual Loan Interests 301,034,608 299,461,844 298,838,249 298,095,321
Mortgage Servicing Rights 6,863,486 6,703,444 6,543,402 6,383,359
Investment in Subsidiaries 8,372,808 7,095,873 7,356,897 -
Real Estate Owned 28,866 (1,000) 31,997 130,249
Notes Receivable - UK 9,615,000
--------------- --------------- ---------------- ---------------
TOTAL OTHER ASSETS $ 316,299,768 $ 313,260,161 $ 312,770,545 $ 314,223,929
=============== =============== ================ ===============
</TABLE>
