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): May 28, 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") filed a
voluntary petition with the United States Bankruptcy Court for the District of
Oregon (the "Bankruptcy Court") under Chapter 11 of the United States Bankruptcy
Code, Case No. 298-37613-elp11, on October 1, 1998. SPFC is required to file
Monthly Operating Reports with the Bankruptcy Court pursuant to Bankruptcy Rule
2015. In connection therewith, attached hereto as Exhibit 99.1 are the financial
statements (omitting certain schedules) included in the Monthly Operating Report
for the Month Ending April 1999, filed with the Bankruptcy Court on May 28,
1999.
On May 28, 1999, following Bankruptcy Court approval, SPFC
sold the outstanding capital stock of its United Kingdom mortgage lending
subsidiary, Southern Pacific Mortgage Limited ("SPML") to Resetfan Limited
("Resetfan"), a U.K. company formed by members of SPML's management. As a
portion of the sale consideration, SPFC received a 25 percent interest in
Resetfan; the former SPML management owns the remaining 75 percent interest. The
balance of the purchase price in the amount of 6 million British pounds
(approximately $9.7 million, subject to currency fluctuations) is payable over
five years pursuant to a promissory note bearing interest at a rate of 12.5
percent per annum. Payment of the note is secured by a security interest in the
Resetfan stock held by former SPML management. All proceeds will be held by SPFC
pending further court order addressing issues regarding the extent of a lien on
the SPML stock and SPFC's ability to avoid as a fraudulent transfer its
prepetition contribution to SPML's equity effected by releasing a debt due from
SPML to SPFC.
-1-
<PAGE>
On June 3, 1999, following a hearing on the adequacy of SPFC's
Disclosure Statement (the "Disclosure Statement") regarding its proposed Second
Amended Plan of Reorganization (the "Plan"), the Bankruptcy Court approved the
distribution of copies of the Plan and Disclosure Statement to SPFC's creditors
and equity holders in connection with soliciting votes on the Plan. A copy of
the Disclosure Statement, together with certain of the exhibits thereto
(including the Plan as Exhibit 5), is attached hereto as Exhibit 99.2 and
incorporated herein by reference.
The voting record date was established as May 26, 1999. Record
holders of specified classes of claims against SPFC, including holders of SPFC's
11-1/2% Senior Notes due November 1, 2004 (the "Senior Notes"), its 6.75%
Convertible Subordinated Notes due October 15, 2006 (the "Subordinated Notes")
and other senior and general unsecured claims, on the voting record date are
entitled to vote to accept or reject the Plan. Classes of claimants that are not
entitled to any distributions under the Plan are deemed to have rejected the
Plan and are not entitled to vote. Also, classes of claimants that are to be
paid in full under the Plan are not entitled to vote. The voting deadline is
July 2, 1999, and the confirmation hearing to approve the Plan is scheduled for
July 7, 1999.
Under the Plan, SPFC proposes to enter into a transaction (the
"Acquisition Transaction") pursuant to which SPFC will (1) sell a portion of its
assets to The Goldman Sachs Group, Inc., or certain affiliated entities
("Goldman") and (2) sell newly issued stock of the reorganized company
("Reorganized SPFC") to Goldman after (3) transferring certain excluded assets
to a liquidating trust (the "Trust"). The assets to be transferred to Goldman or
held by Reorganized SPFC include SPFC's interests in pools of residential
mortgage loans, rights to service those loans, and rights to receive certain
prepayment charges paid by the borrowers of those loans (collectively, the
"Financial Assets"). The consideration to be paid by Goldman in the Acquisition
Transaction includes (i) a cash payment of approximately $38.5 million (subject
to certain adjustments), most of which will be used to retire a post-bankruptcy
loan refinanced by Goldman on May 5, 1999, and (ii) 50 percent of the net cash
flow on a pretax basis from the Financial Assets. Copies of the Amended and
Restated Asset Purchase Agreement and Amended and Restated Stock Subscription
and Purchase Agreement between SPFC and Goldman, each dated as of May 21, 1999,
are attached hereto as Exhibits 99.3 and 99.4, respectively, and are
incorporated herein by reference.
The Trust will distribute the proceeds of the Acquisition
Transaction, together with income from and proceeds of the sale of assets
transferred to the Trust, including any recoveries from claims against other
parties, to creditors in accordance with their statutory and contractual
priorities. A projection of sources and uses of cash and estimated distributions
by the Trust is attached to the Disclosure Statement as Exhibit 4. The Trust
will terminate upon the distribution of all assets held in trust, but not later
than five years after the effective date of the Plan unless its term is extended
with approval of the Bankruptcy Court.
With certain exceptions, the indentures for the Senior Notes
and the Subordinated Notes will be terminated and cancelled under the Plan, and
the obligations of the indenture trustees thereunder to both SPFC and the
holders of Senior Notes and Subordinated Notes will be discharged. The Trust
will make the distributions to the holders of the Senior Notes and the
Subordinated Notes.
Under the Plan, all administrative and allowed priority claims
will be paid in full. The Senior Notes are secured to the extent of all or a
portion of available proceeds from the sale of SPML described above and will be
paid to the extent of such proceeds following the resolution by the Bankruptcy
Court of certain issues referred to above. Approximately $300,000 will be
distributed by the Trust to satisfy claims of an administrative convenience
class of claimants
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<PAGE>
whose claims are $400 or less or who elect to reduce their claims to $400.
Claims of the holders of the Senior Notes, to the extent not satisfied from the
SPML sale proceeds, and other allowed unsecured claims, including the holders of
the Subordinated Notes, will be paid from available assets of the Trust in
accordance with their statutory and contractual priorities. The Plan does not
provide for any distributions to be made with respect to claims of plaintiffs or
defendants in lawsuits brought against certain of SPFC's former officers and
directors or to holders of SPFC's outstanding common stock.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits:
99.1 Financial Statements from Monthly Operating Report
for April 1999.
99.2 Disclosure Statement for Second Amended Plan of
Reorganization Proposed by Southern Pacific Funding
Corporation dated June 2, 1999.
99.3 Amended and Restated Asset Purchase Agreement between
Southern Pacific Funding Corporation and Goldman,
Sachs & Co. dated as of May 21, 1999.
99.4 Amended and Restated Stock Subscription and Purchase
Agreement between Southern Pacific Funding
Corporation and The Goldman Sachs Group, Inc., dated
as of May 21, 1999.
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 7, 1999 By: /s/ Timothy Breedlove
Name: Timothy Breedlove
Title: Chief Financial Officer
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Southern Pacific Funding Corp. Debtor in Possession
Case No. 398-37613-elp11
RULE 2015 REPORT FOR THE MONTH
AND YEAR APRIL 1999
<TABLE>
INCOME STATEMENT (Page 1 of 2) Filing
October 1, 1998
January February March April to Date
----------- ----------- ----------- ----------- ------------
GROSS SALES
<S> <C> <C> <C> <C> <C>
Interest Income $ 120,039 $ 128,778 $ 147,227 $ 62,432 $ 5,920,554
Servicing Income 584,778 766,674 1,601,342 541,539 4,614,357
Prepayment Penalty Income 1,232,858 659,343 933,755 965,060 6,380,644
Less: Returns and Allowances -
----------- ----------- ----------- ----------- ------------
NET SALES 1,937,675 1,554,795 2,682,324 1,569,031 16,915,555
COST OF SALES
BEGINNING INVENTORY -
Add: PURCHASES -
Less: ENDING INVENTORY -
----------- ----------- ----------- ----------- ------------
COST OF GOODS SOLD - - - - -
GROSS PROFIT 1,937,675 1,554,795 2,682,324 1,569,031 16,915,555
OTHER OPERATING EXPENSES:
OFFICER SALARIES/DRAWS 290,739 214,410 214,465 221,336 2,266,168
DIRECT LABOR/SALARIES 196,131 213,631 196,655 193,403 2,331,859
BENEFITS/PAYROLL TAXES 102,529 53,258 57,025 41,481 722,012
SUPPLIES 4,174 10,529 4,650 3,519 91,693
INSURANCE 28,427 28,427 56,495 18,660 229,393
RENT 51,533 75,159 52,689 53,707 867,290
GENERAL AND ADMINISTRATIVE 1,048,984 781,433 1,441,127 1,383,423 8,339,389
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<PAGE>
Southern Pacific Funding Corp. Debtor in Possession
Case No. 398-37613-elp11
RULE 2015 REPORT FOR THE MONTH
AND YEAR APRIL 1999
INCOME STATEMENT (Page 2 of 2) Filing
October 1, 1998
January February March April to Date
----------- ----------- ----------- ----------- ------------
DEPRECIATION/AMORTIZATION 160,042 160,042 160,042 160,042 1,813,401
----------- ----------- ----------- ----------- ------------
TOTAL OPERATING EXPENSES 1,882,559 1,536,889 2,183,148 2,075,571 16,661,205
----------- ----------- ----------- ----------- ------------
NET OPERATING INCOME (LOSS) 55,116 17,906 499,176 (506,540) 254,350
ADD: OTHER INCOME (2) 1,030,005 87,303 158,447 6,450 1,377,496
LESS OTHER EXPENSES:
INTEREST EXPENSE (688,451) (383,113) (459,305) (397,562) (6,277,620)
OTHER (3) (1,095,623) (434,491) (1,276,935) 261,024 (5,455,171)
----------- ----------- ----------- ----------- ------------
TOTAL OTHER EXPENSES (698,953) (712,395) (1,078,617) (636,628) (10,100,945)
GAIN/(LOSS) SALE OF ASSETS (3,230,938) (64,328) (3,433,218) - (7,000,955)
----------- ----------- ----------- ----------- ------------
INCOME (LOSS) BEFORE TAXES (3,929,891) (776,723) (4,511,835) (636,628) (17,101,900)
INCOME TAXES 1,176,222 142,025 1,342,484 372,398 4,833,265
----------- ----------- ----------- ----------- ------------
NET INCOME (LOSS) $(2,753,669) $ (634,698) $(3,169,351) $ (264,230) $(12,268,635)
=========== =========== =========== =========== ============
</TABLE>
(2) Schedule of Other Income attached
(3) Schedule of Other Expense attached
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<PAGE>
Southern Pacific Funding Corp. Debtor in Possession
Case No. 398-37613-elp11
RULE 2015 REPORT FOR THE MONTH
AND YEAR APRIL 1999
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATIONS
<TABLE>
Filing
October 1, 1998
January February March April to Date
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
NET INCOME (LOSS) $ (2,753,669) $ (634,698) $ (3,169,351) $ (264,230) $ (12,268,635)
ADJUSTMENTS TO RECONCILE
NET INCOME TO NET CASH:
DEPRECIATION/AMORTIZATION 281,843 311,607 311,607 293,639 2,371,929
(GAIN)LOSS ON SALE OF ASSETS 3,230,938 64,328 75,033 - 4,770,012
(INCREASE)DECREASE IN RECEIVABLES 2,254,471 (392,798) (536,775) (922,993) 7,999,618
(INCREASE)DECREASE IN INVENTORY (1) 242,557 72,371 6,140,449 1,439 301,715,836
INCREASE(DECREASE) IN PAYABLES 721,311 211,909 2,116,117 (1,278,601) (7,060,965)
OTHER, NET (2) 14,631 719,480 2,905,517 393,552 9,346,454
------------- ------------- ------------- ------------- -------------
NET CASH PROVIDED BY OPERATIONS 3,992,082 352,199 7,842,597 (1,777,194) 306,874,249
CASH FLOWS FROM INVESTING/FINANCING
(PURCHASE OF)FIXED ASSETS -
CAPITAL CONTRIBUTIONS -
LOAN PROCEEDS (SCHEDULE F, NUMBER 6) 38,960,936 39,086,058
LOAN PRINCIPAL/CAPITAL LEASE (PAYMENTS) (38,690,645) (309,021) (4,648,449) (690,976) (338,666,167)
------------- ------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH 4,262,373 43,178 3,194,148 (2,468,170) 7,294,140
BEGINNING CASH 4,193,053 8,455,426 8,498,604 11,692,752 1,930,442
------------- ------------- ------------- ------------- -------------
ENDING CASH $ 8,455,426 $ 8,498,604 $ 11,692,752 $ 9,224,582 $ 9,224,582
============= ============= ============= ============= =============
(1) Mortgage Loans held for Sale
(2) Accrual of Operations of subsidiaries $ 1,095,623 $ 434,491 $ 1,276,935 $ (261,024) $ 5,455,173
Residual Loan Interests 909,933 286,874 1,572,764 623,595 4,145,454
Prepaid expenses and other assets, net (1,990,925) (1,885) 55,818 30,981 (254,173)
------------- ------------- ------------- ------------- -------------
$ 14,631 $ 719,480 $ 2,905,517 $ 393,552 $ 9,346,454
============= ============= ============= ============= =============
</TABLE>
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<PAGE>
Southern Pacific Funding Corp. Debtor in Possession
Case No. 398-37613-elp11
RULE 2015 REPORT FOR THE MONTH
AND YEAR APRIL 1999
COMPARATIVE BALANCE SHEET
<TABLE>
AS OF AS OF AS OF AS OF
01/31/99 02/28/99 03/31/99 04/30/99
------------- ------------- ------------- -------------
ASSETS
Current Assets:
<S> <C> <C> <C> <C>
Cash $ 8,455,426 $ 8,498,604 $ 11,692,752 $ 9,224,582
Inventory ( Mortgage Loans Held for Sale ) 6,616,617 6,544,246 403,797 402,358
Accounts Receivable 94,257,629 94,650,427 95,187,202 96,110,195
(net of bad debts)
Notes Receivable
Other (attach schedule) 3,149,915 2,993,576 2,816,059 2,618,484
------------- ------------- ------------- -------------
Total Current Assets 112,479,587 112,686,853 110,099,810 108,355,619
Fixed Assets:
Property and Equipment 1,500,368 1,436,040 1,361,007 1,361,007
Less: Accumulated Depreciation (408,799) (408,799) (408,799) (408,799)
------------- ------------- ------------- -------------
Total Fixed Assets 1,091,569 1,027,241 952,208 952,208
Other Assets (attach schedule) 317,174,516 316,299,768 313,260,161 312,770,545
------------- ------------- ------------- -------------
TOTAL ASSETS $ 430,745,672 $ 430,013,862 $ 424,312,179 $ 422,078,372
============= ============= ============= =============
LIABILITIES
Postpetition Liabilities:
Accounts Payable $ 99,496 $ 82,481 $ 145,676 $ 124,888
Notes Payable 38,957,990 38,649,723 34,002,109 33,311,942
Rents and Leases Payable
Taxes Payable
Accrued Interest 78,563 121,742 - 9,522
Other 3,095,204 3,419,228 4,072,549 3,403,235
------------- ------------- ------------- -------------
Total Postpetition Liabilities 42,231,253 42,273,174 38,220,334 36,849,587
Prepetition Liabilities (Noncurrent):
Unsecured Debt 171,606,879 171,609,871 174,472,863 174,491,473
Notes Payable-Secured 111,948,980 111,948,980 111,948,980 111,948,980
Priority Claims:
Taxes 76,332 76,332 76,332 76,332
Wages 1,405,267 1,405,267 1,405,267 1,405,225
Deposits
Other 15,560,208 15,418,183 14,075,699 13,458,301
------------- ------------- ------------- -------------
Total Prepetition Liabilities 300,597,666 300,458,633 301,979,141 301,380,311
------------- ------------- ------------- -------------
TOTAL LIABILITIES 342,828,919 342,731,807 340,199,475 338,229,898
OWNER EQUITY (DEFICIT) 87,916,753 87,282,055 84,112,704 83,848,474
------------- ------------- ------------- -------------
TOTAL LIABILITIES AND OWNER EQUITY $ 430,745,672 $ 430,013,862 $ 424,312,179 $ 422,078,372
============= ============= ============= =============
</TABLE>
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<PAGE>
Southern Pacific Funding Corp. Debtor in Possession
Case No. 398-37613-elp11
RULE 2015 REPORT FOR THE MONTH
AND YEAR APRIL 1999
SCHEDULE F
STATEMENT OF PERSONNEL, INSURANCE AND OPERATIONS
1. PERSONNEL REPORT (required if more than ten employees)
<TABLE>
Full Time Part Time
<S> <C> <C>
Total number of employees at beginning of period 85 -
Number hired during period - -
Number terminated or resigned during period 1 -
---------- --------
Total number of employees on payroll at period end 84 -
</TABLE>
Total Payroll for the period: $ 392,018
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.
<TABLE>
<S> <C>
- ------------------------------- Yes. Identify amount, who was paid and date paid: --------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
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 May 5, 1999, in connection with the refinance of the Bear Stearns DIP
financing by Goldman Sachs & Co., SPFC paid the $1.4 million DIP financing
participation fee to Bear Stearns.
On May 21, 1999, as a result of an auction process among two competing bidders,
SPFC and Goldman agreed to a sales price for certain financial assets of SPFC in
the amount of $38.5 million and a percentage of the cash flows from certain
financial assets, including residuals, prepayment penalties, and servicing fees.
The sale is subject to the confirmation of SPFC's proposed plan of
reorganization.
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<PAGE>
Southern Pacific Funding Corp. Debtor in Possession
Case No. 398-37613-elp11
RULE 2015 REPORT FOR THE MONTH
AND YEAR APRIL 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
- --------------------------------------------------------------------------------
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<PAGE>
Southern Pacific Funding Corp. Debtor in Possession
Case No. 398-37613-elp11
RULE 2015 REPORT FOR THE MONTH
AND YEAR APRIL 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):
<TABLE>
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
-----------------------------------------------------------------------------------------------------
</TABLE>
7. Statement of Disbursements and Fee paid to the U.S. Trustee pursuant to
Federal Rule of Bankruptcy Procedure 2015(a)(5):
<TABLE>
-----------------------------------------------------------------------------------------------------
QUARTER ENDING TOTAL DISBURSEMENTS FEE PAID
-------------- ------------------- --------
<S> <C> <C>
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 $ 2,750,149 (1) $ -
</TABLE>
(1) Excludes servicing disbursements
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<PAGE>
Southern Pacific Funding Corp. Debtor in Possession
Case No. 398-37613-elp11
RULE 2015 REPORT FOR THE MONTH
AND YEAR APRIL 1999
INCOME STATEMENT
SUPPORTING SCHEDULE (2) OTHER INCOME
<TABLE>
Filing
October 1, 1998
January February March April to Date
------------ --------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Insurance Commissions Revenue (Servicing) $ 20,763 $ 62,373 $ 121,814 $ - $ 235,580
Discount on Early Payoff of Secured Financing 1,000,000 1,000,000
Miscellaneous Refunds Received 9,242 24,930 36,633 6,450 141,916
----------- -------- ----------- --------- -----------
TOTAL OTHER INCOME $ 1,030,005 $ 87,303 $ 158,447 $ 6,450 $ 1,377,496
=========== ======== =========== ========= ===========
</TABLE>
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<PAGE>
Southern Pacific Funding Corp. Debtor in Possession
Case No. 398-37613-elp11
RULE 2015 REPORT FOR THE MONTH
AND YEAR APRIL 1999
INCOME STATEMENT
SUPPORTING SCHEDULE ( 3 ) OTHER EXPENSE
<TABLE>
Filing
October 1, 1998
January February March April to Date
----------- ----------- ----------- ----------- -----------
Equity in Operations (Losses) of Subsidiaries
<S> <C> <C> <C> <C> <C>
Oceanmark Financial Services $ (246,476) $ 44,856 $ (13,476) $ (2,453) $(1,942,973)
Home America Financial Services (32,740) (124,513) (91,500) 20,888 (731,846)
Hallmark America (7,265)
National Capital Funding, Inc. (114,156)
Southern Pacific Mortgage Limited (816,407) (354,834) (1,171,959) 242,589 (2,658,933)
----------- ----------- ----------- ----------- -----------
TOTAL OTHER EXPENSE $(1,095,623) $ (434,491) $(1,276,935) $ 261,024 $(5,455,173)
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<S> <C>
SOUTHERN PACIFIC FUNDING CORPORATION, a California Case No. 398-37613-elp11
corporation,
Chapter 11
Debtor in Possession.
Tax ID No. 33-0636924
DISCLOSURE STATEMENT FOR SECOND AMENDED PLAN OF REORGANIZATION PROPOSED BY
SOUTHERN PACIFIC FUNDING CORPORATION
DATED JUNE 2, 1999
</TABLE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PAGE
INTRODUCTION.....................................................................................................1
Article I BRIEF SUMMARY..............................................................................3
Article II EXPLANATION OF CHAPTER 11..................................................................4
2.1 Overview of Chapter 11.........................................................................4
2.2 Plan of Reorganization.........................................................................4
2.3 Recommendation.................................................................................5
Article III SPFC'S OPERATION AS A SPECIALTY FINANCE COMPANY............................................6
3.1 Overview of Loan Originations and Purchases....................................................6
3.2 Wholesale Division.............................................................................7
3.3 Correspondent Program..........................................................................7
3.4 Strategic Alliance Program.....................................................................7
3.5 Consumer Loan Division.........................................................................7
3.6 Securitization of Mortgage Loans...............................................................8
3.7 Loan Servicing and Delinquencies...............................................................9
3.8 Historical Financial Information...............................................................9
Article IV PREPETITION FINANCING AND RELATED MATTERS..................................................9
4.1 First Union...................................................................................10
4.2 Lehman........................................................................................10
4.3 Morgan........................................................................................11
4.4 Greenwich.....................................................................................11
4.5 Wilshire Real Estate Partnership, L.P. ("Wilshire")...........................................11
Article V POSTPETITION EVENTS.......................................................................12
5.1 Filing of Petition............................................................................12
5.2 Filing of Petitions by SPFC Subsidiaries and Affiliates.......................................12
5.3 Creditors' Committee..........................................................................12
5.4 Employment of Professional Persons............................................................14
5.5 Closure of Outlying Offices and Sale of Excess Equipment......................................15
5.6 Employee Severance and Retention Plan.........................................................15
5.7 Wilshire Litigation; DIP Facility.............................................................15
-i-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
5.8 Sale of Whole Loans to Bayview Financial Trading Group LP ("Bayview").........................16
5.9 Assumption and Rejection of Real Property Leases..............................................16
5.10 Officers and Directors........................................................................17
5.10.1 Senior Officers......................................................................17
5.10.2 Directors............................................................................18
5.10.3 Other Directors and Senior Officers in 1998..........................................18
5.11 Postpetition Income and Expenses..............................................................18
5.12 Sale of United Kingdom Subsidiary.............................................................18
Article VI DESCRIPTION OF SPFC'S ASSETS..............................................................19
6.1 Financial Assets..............................................................................19
6.1.1 Residual Certificates................................................................19
6.1.2 Prepayment Charge Income.............................................................21
6.2 Servicing Rights..............................................................................22
6.2.1 General..............................................................................22
6.2.2 Transfer of Servicing................................................................22
6.3 Loan Servicing Operations.....................................................................23
6.4 U.K. Note.....................................................................................23
6.5 Other Assets..................................................................................23
6.5.1 Cash and Bank Deposits...............................................................23
6.5.2 Equipment and Leasehold Improvements.................................................24
6.5.3 Other Assets.........................................................................24
Article VII DESCRIPTION OF CLAIMS AGAINST AND INTERESTS IN SPFC.......................................25
7.1 Administrative Expenses.......................................................................25
7.2 Professional Persons..........................................................................25
7.3 Foreclosure and Collection Attorneys..........................................................26
7.4 Priority Tax Claims...........................................................................26
7.5 Priority Wage Claims..........................................................................26
7.6 DIP Facility..................................................................................27
-ii-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
7.7 Prepetition Secured Claims....................................................................27
7.8 Unsecured Nonpriority Claims..................................................................28
7.9 Old Common Stock..............................................................................29
Article VIII ACQUISITION TRANSACTION...................................................................29
8.1 Marketing of Residual Certificates............................................................29
8.1.1 SPFC's Employment of Pentalpha.......................................................29
8.1.2 Bidding Process......................................................................30
8.2 Acquisition Transaction.......................................................................31
8.2.1 Asset Agreement......................................................................31
8.2.2 Acquisition Agreement................................................................31
8.2.3 Cash Flow Instrument.................................................................31
8.2.4 Conditions Precedent to Consummation of the Acquisition Agreements...................32
8.2.5 Transfer of Servicing................................................................32
8.2.6 Florida Case Settlement Terms........................................................33
8.2.7 Additional Covenants Agreement.......................................................33
Article IX SUMMARY OF THE PLAN.......................................................................34
9.1 In General....................................................................................34
9.2 Res Judicata Effect of Confirmation Order.....................................................34
9.3 Administrative Claims and Priority Tax Claims.................................................34
9.3.1 Administrative Expense Claims........................................................34
9.3.2 Priority Tax Claims..................................................................35
9.4 Classified Claims.............................................................................35
9.4.1 In General...........................................................................35
9.4.2 Classification Motion................................................................36
9.4.4 Class 1: Priority Nontax Claims......................................................37
9.4.5 Class 2: Miscellaneous Secured Claims................................................37
9.4.6 Class 3: Secured Senior Notes........................................................38
9.4.7 Class 4: Administrative Convenience Class............................................38
9.4.8 Class 5: Senior Notes................................................................39
-iii-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
9.4.9 Class 6: Subordinated Notes..........................................................39
9.4.10 Class 7: Senior Unsecured Claims.....................................................39
9.4.11 Class 8: General Unsecured Claims....................................................39
9.4.12 Class 9: Claims of Securities Plaintiffs Based On Notes..............................40
9.4.13 Class 10: Securities Action Defendants...............................................40
9.4.14 Class 11: Old Common Stock...........................................................40
9.4.15 Class 12: Securities Action Plaintiffs...............................................40
9.4.16 Class 13: Bankers Trust..............................................................40
9.4.17 Class 14: Norwest and MBIA Insurance Corporation.....................................41
9.4.18 Rights of Indenture Trustees.........................................................41
9.5 Postpetition Interest.........................................................................41
9.6 Liquidating Trust.............................................................................41
9.6.1 Establishment of Liquidating Trust...................................................41
9.6.2 Term of Liquidating Trust............................................................42
9.6.3 Beneficial Interests.................................................................42
9.6.4 Liquidating Trust Assets.............................................................43
9.6.5 Nature of Trust Assets...............................................................43
9.6.6 The Liquidating Trustee..............................................................43
9.6.7 Notices to Beneficiaries (Special Notice List).......................................44
9.6.8 Trust Committee......................................................................45
9.6.9 Professionals and Current Employees..................................................45
9.6.10 Authority of Liquidating Trustee.....................................................46
9.6.11 Prosecution of Claims and Third Party Claims; Disposition of Assets..................47
9.6.12 Federal Income Tax Matters...........................................................47
9.7 Rights of Action..............................................................................48
9.8 Post-Confirmation Taxes for the 1999 Taxable Year.............................................50
9.9 Executory Contracts and Unexpired Leases......................................................52
9.9.1 Executory Contracts and Unexpired Leases to Be Assumed...............................52
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9.9.2 Executory Contracts and Unexpired Leases to Be Rejected; Bar Date for
Rejection Damages....................................................................52
9.10 Estimated Dates of Payments to Creditors......................................................52
9.11 Releases......................................................................................53
9.12 Postpetition Role of the Committee and Indenture Trustees.....................................53
Article X RISKS AND BENEFITS OF THE PLAN............................................................53
10.1 In General....................................................................................53
10.2 Speculative Nature of the Financial Assets....................................................53
10.3 Overcollateralization Requirements of the Residual Certificates...............................54
10.4 Prepayments and Defaults......................................................................54
10.5 Additional Risks Associated with the Mortgage Loans...........................................55
10.6 Subordination of Residual Certificates........................................................55
10.7 Risks Relating to the Projection..............................................................55
10.8 Risks Relating to Transferability of Beneficial Interests.....................................55
10.9 BOMAC Litigation..............................................................................56
Article XI LIQUIDATION ANALYSIS......................................................................56
Article XII CONFIRMATION OF THE PLAN..................................................................56
12.1 Voting Procedures.............................................................................56
12.1.1 For All Creditors....................................................................56
12.1.2 General Instructions.................................................................58
12.1.3 Special Procedures for Administrative Convenience Class Election.....................58
12.1.4 Special Voting Procedures for Note Holders...........................................58
12.2 Hearing on Confirmation.......................................................................60
12.3 Confirmation Without the Acceptance of a Class................................................60
12.4 Effect of Confirmation........................................................................60
12.5 Consequences of Failure to Confirm a Plan.....................................................61
Article XIII TAX ASPECTS OF DISTRIBUTIONS UNDER THE PLAN...............................................61
Article XIV CONCLUSION................................................................................62
Article I ALTERNATIVES FOR DISPOSITION OF RESIDUALS.................................................63
1.1 Evaluation....................................................................................63
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1.1.1 Cash Sale Strategy...................................................................63
1.1.2 Hold Strategy........................................................................63
1.2 Share Strategy................................................................................64
Article II CASH FLOW AND ESTIMATED DISTRIBUTIONS.....................................................65
2.1 Projected Sources of Plan Funds...............................................................65
2.1.1 The Acquisition Transaction..........................................................66
2.1.2 Prepayment Charges and Residual certificates.........................................66
2.1.3 Distributions from Cash Flow Instrument..............................................66
2.1.4 Proceeds from Sale of SPML...........................................................66
2.1.5 Other................................................................................66
2.2 Projected Uses of Plan Funds..................................................................67
2.2.1 Interim Operations...................................................................67
2.2.2 Administrative Expenses..............................................................68
2.2.3 Professional Fees....................................................................68
2.2.4 Fees Paid to Financial Advisers......................................................68
2.2.5 Principal, Interest, and Fees on DIP Financing Facility..............................68
2.2.6 Income Taxes and Interest............................................................69
2.2.7 Allowed Claims.......................................................................69
2.2.8 Subordination........................................................................69
2.3 Additional Information Regarding Cash Flow....................................................71
</TABLE>
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INTRODUCTION
On October 1, 1998 ("Petition Date"), Southern Pacific Funding
Corporation ("SPFC") filed a petition for reorganization under Chapter 11 of the
United States Bankruptcy Code ("Bankruptcy Code") in the United States
Bankruptcy Court for the District of Oregon ("Bankruptcy Court").
On April 8, 1999, SPFC filed its Plan of Reorganization and a
disclosure statement with the Bankruptcy Court. On June 3, 1999, SPFC filed its
Second Amended Plan of Reorganization (the "Plan") and this disclosure statement
("Disclosure Statement"). SPFC has obtained an order of the Bankruptcy Court
dated June 3, 1999, approving this Disclosure Statement for submission to
creditors, together with the Plan. The purpose of this Disclosure Statement is
to provide creditors with information regarding the Plan that is adequate to let
them make an informed judgment about the Plan.
THIS DISCLOSURE STATEMENT IS PROVIDED FOR USE SOLELY BY
HOLDERS OF CLAIMS AND INTERESTS, AND THEIR ADVISERS, IN CONNECTION WITH THEIR
DETERMINATION TO ACCEPT OR REJECT THE PLAN.
THIS DISCLOSURE STATEMENT CONTAINS IMPORTANT INFORMATION THAT
MAY BEAR ON YOUR DECISION REGARDING ACCEPTING THE PLAN. PLEASE READ THIS
DOCUMENT WITH CARE.
FACTUAL INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT IS
THE REPRESENTATION OF SPFC ONLY AND NOT OF ITS ATTORNEYS, ACCOUNTANTS OR OTHER
PROFESSIONALS, OR OF THE INDENTURE TRUSTEES, THE MEMBERS OF THE COMMITTEE, ITS
ATTORNEYS, ACCOUNTANTS, OR OTHER PROFESSIONALS. FINANCIAL INFORMATION CONTAINED
IN THIS DISCLOSURE STATEMENT HAS NOT BEEN SUBJECTED TO AN AUDIT BY AN
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT. DUE TO THE COMPLEXITY OF SPFC'S
FINANCIAL AFFAIRS, IT IS NOT ABLE TO CONFIRM THAT THE INFORMATION CONTAINED IN
THIS DISCLOSURE STATEMENT DOES NOT INCLUDE ANY INACCURACIES. HOWEVER, SPFC HAS
MADE ITS BEST EFFORT TO PROVIDE ACCURATE INFORMATION AND IS NOT AWARE OF ANY
INACCURACY IN THIS DISCLOSURE STATEMENT.
THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT HAS NOT
BEEN INDEPENDENTLY INVESTIGATED BY THE BANKRUPTCY COURT, AND APPROVAL OF THIS
DISCLOSURE STATEMENT BY THE BANKRUPTCY COURT DOES NOT CONSTITUTE A DETERMINATION
BY THE BANKRUPTCY COURT OF THE FAIRNESS OR MERITS OF THE PLAN OR OF THE ACCURACY
OR COMPLETENESS OF THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT.
THE ONLY REPRESENTATIONS THAT ARE AUTHORIZED BY SPFC
CONCERNING SPFC, THE VALUE OF ITS ASSETS, THE EXTENT OF ITS LIABILITIES, OR ANY
OTHER FACTS MATERIAL TO THE PLAN ARE THE REPRESENTATIONS
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MADE IN THIS DISCLOSURE STATEMENT. REPRESENTATIONS CONCERNING THE PLAN OR SPFC
OTHER THAN AS SET FORTH IN THIS DISCLOSURE STATEMENT ARE NOT AUTHORIZED BY SPFC.
HOLDERS OF CLAIMS AND INTERESTS SHOULD NOT CONSTRUE THE
CONTENTS OF THIS DISCLOSURE STATEMENT AS PROVIDING ANY LEGAL, BUSINESS,
FINANCIAL, OR TAX ADVICE AND SHOULD CONSULT WITH THEIR OWN ADVISERS.
SPFC HAS NO ARRANGEMENT OR UNDERSTANDING WITH ANY BROKER,
SALESMAN, OR OTHER PERSON TO SOLICIT VOTES FOR THE PLAN. NO PERSON HAS BEEN
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THE PLAN OTHER THAN THOSE CONTAINED IN THIS DISCLOSURE STATEMENT AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS SHOULD NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY SPFC. THE DELIVERY OF THIS DISCLOSURE
STATEMENT SHALL NOT UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME AFTER THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE
AFFAIRS OF SPFC SINCE THE DATE HEREOF. ANY ESTIMATES OF CLAIMS AND INTERESTS SET
FORTH IN THIS DISCLOSURE STATEMENT MAY VARY FROM THE FINAL AMOUNTS OF CLAIMS OR
INTERESTS ALLOWED BY THE BANKRUPTCY COURT. SIMILARLY, THE ANALYSIS OF ASSETS AND
THE AMOUNT ULTIMATELY REALIZED FROM THEM MAY DIFFER MATERIALLY.
THE DESCRIPTION OF THE PLAN CONTAINED HEREIN IS INTENDED TO
BRIEFLY SUMMARIZE THE MATERIAL PROVISIONS OF THE PLAN AND IS SUBJECT TO AND
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE PROVISIONS OF THE PLAN, A COPY OF
WHICH IS ATTACHED HERETO AS EXHIBIT 5.
As a creditor of SPFC, your vote is important. The Bankruptcy
Court may confirm the Plan if the Plan meets certain requirements of the
Bankruptcy Code and has been accepted by at least two-thirds in amount and more
than one-half in number of the timely received votes of acceptance or rejection
by creditors of each voting Class. If the requisite acceptances are not
obtained, SPFC will nonetheless request confirmation of the Plan by the
Bankruptcy Court, and the Plan may be confirmed if the Bankruptcy Court finds
that it accords fair and equitable treatment to the Class or Classes of
creditors rejecting or deemed to have rejected the Plan.
SPFC BELIEVES THAT CONFIRMATION OF THE PLAN IS IN THE BEST
INTERESTS OF ITS CREDITORS. ACCORDINGLY, SPFC URGES YOU TO ACCEPT THE PLAN AND
TO RETURN YOUR COMPLETED BALLOT PROMPTLY SO THAT YOUR VOTE WILL BE COUNTED. YOU
SHOULD VOTE ON THE PLAN, USING THE BALLOT THAT IS SUBMITTED WITH THE PLAN, AND
MAIL THE BALLOT TO THE ADDRESS STATED ON THE BALLOT. PLEASE CAREFULLY READ THIS
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DISCLOSURE STATEMENT AND THE PLAN IN MAKING YOUR DECISION ON HOW TO VOTE ON THE
PLAN. IN ORDER TO BE TABULATED FOR PURPOSES OF SATISFYING THE ABOVE
REQUIREMENTS, BALLOTS MUST BE RECEIVED AT THE ADDRESS INDICATED ON THE BALLOT NO
LATER THAN 5 P.M., PORTLAND, OREGON, TIME, ON JULY 2, 1999, UNLESS YOU ARE THE
BENEFICIAL HOLDER OF A NOTE (I.E., YOU ARE NOT THE REGISTERED HOLDER OF NOTE),
IN WHICH CASE YOUR BALLOT MUST BE RECEIVED BY YOUR NOMINEE (FROM WHOM YOU
RECEIVED THE BALLOT AND THIS DISCLOSURE STATEMENT) IN TIME TO PERMIT YOUR
NOMINEE TO RECEIVE YOUR BALLOT, PREPARE A MASTER BALLOT, AND SEND THE MASTER
BALLOT TO THE VOTING AGENT BY THE VOTING DEADLINE. IF YOU ARE THE BENEFICIAL
HOLDER OF A NOTE, PLEASE FOLLOW THE INSTRUCTIONS YOU RECEIVE FROM YOUR NOMINEE.
The Bankruptcy Court has scheduled a hearing to consider
confirmation of the Plan on July 7, 1999, at 9 a.m. before the Honorable
Elizabeth L. Perris, United States Bankruptcy Judge, in Bankruptcy Courtroom No.
1, United States Bankruptcy Court, 1001 S.W. Fifth Avenue, Portland, Oregon. The
Bankruptcy Court has directed that objections, if any, to confirmation of the
Plan be filed and served on or before July 2, 1999.
ARTICLE I
BRIEF SUMMARY
This Disclosure Statement describes SPFC, its assets, this
case, and Claims against and Interests in SPFC, summarizes the Plan, and
outlines the procedure involved in confirmation of the Plan. A more complete
description of the Plan is provided in Article IX, "SUMMARY OF THE PLAN."
Capitalized terms used but not defined in this Disclosure Statement are used as
defined in the Plan.
SPFC has not operated its loan origination or securitization
businesses since October 2, 1998. SPFC has been engaged since January 1999 in
marketing its most valuable assets: interests in pools of residential mortgage
loans, the right to service those loans, and the right to receive certain
prepayment charges made by the borrowers of those loans (collectively, the
"Financial Assets"). The Plan proposes to enter into a transaction (the
"Acquisition Transaction") in which SPFC will (1) sell a portion of the
Financial Assets to The Goldman Sachs Group, Inc., or certain affiliated
entities ("Goldman") and (2) sell newly issued stock of Reorganized SPFC to
Goldman, after transferring certain excluded assets to a liquidating trust, in
return for payment of $38.5 million (subject to certain adjustments), most of
which will be used to retire a post-bankruptcy loan, and 50 percent of the net
cash flow from the Financial Assets. The liquidating trust will distribute the
proceeds of the Acquisition Transaction, together with income from and proceeds
of the sale of retained assets, including any recoveries from claims against
other parties, to creditors in accordance with the priorities set forth in the
Bankruptcy Code, including Section 510 thereof, which enforces subordination
agreements to the extent enforceable under applicable nonbankruptcy law, and
subject to the priority, indemnity, and other rights of the Indenture Trustees
vis-a-vis holders of the Notes.
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THIS SUMMARY OF THIS DISCLOSURE STATEMENT IS PROVIDED FOR
CONVENIENCE OF REFERENCE AND IS NOT A COMPLETE SUMMARY OF ALL PROVISIONS OF THIS
DISCLOSURE STATEMENT OR THE PLAN. CREDITORS ARE URGED TO REVIEW THE ENTIRE PLAN
AND THIS DISCLOSURE STATEMENT FOR A COMPLETE DESCRIPTION OF THE PROPOSED
TREATMENT UNDER THE PLAN OF THEIR CLAIMS.
This summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements (including the notes thereto), appearing elsewhere in this Disclosure
Statement. The summaries of the Plan and other documents contained in this
Disclosure Statement are qualified in their entirety by reference to the Plan
itself, the exhibits thereto, and all documents described herein and therein.
The information contained in this Disclosure Statement, including the
information regarding the history, businesses, and operations of SPFC, and the
liquidation analysis relating to SPFC, is included herein to solicit acceptances
of the Plan.
ARTICLE II
EXPLANATION OF CHAPTER 11
2.1 OVERVIEW OF CHAPTER 11.
The commencement of a Chapter 11 case creates an estate
composed of all the legal and equitable interests of the debtor (here, SPFC) in
property as of the date the petition is filed. A debtor may continue to operate
its business and remain in possession of its property as a "debtor in
possession" unless the Bankruptcy Court orders the appointment of a trustee. In
the Chapter 11 case, SPFC has remained in possession of its property and
continues to manage its business as a debtor in possession for the purpose of
achieving an orderly disposition of its business and remaining assets.
2.2 PLAN OF REORGANIZATION.
The formulation of a plan of reorganization is the principal
purpose of a Chapter 11 case. The plan of reorganization sets forth the means
for satisfying claims against and interests in the debtor. Although referred to
as a plan of reorganization, a plan may, as in this case, provide simply for a
disposition of the debtor's business and an orderly liquidation of the debtor's
remaining assets.
After a plan of reorganization has been filed, creditors and,
in some cases, shareholders are permitted to vote to accept or reject the plan.
Before soliciting acceptances of the proposed plan, the debtor must prepare a
disclosure statement, which is approved by the Bankruptcy Court, containing
adequate information of a kind, and in sufficient detail, to enable a
hypothetical reasonable investor, typical of the claims or interests in the
classes entitled to vote on a plan, to make an informed judgment about a plan.
Chapter 11 does not require that each creditor vote in favor
of a plan of reorganization in order for the Bankruptcy Court to confirm a plan.
At a minimum, however, a plan must be accepted by a majority in number and
two-thirds in amount of those claims actually voting in at least one class of
impaired claims under a plan. Creditors who fail to vote will not
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be counted as either accepting or rejecting the plan. Even if all classes of
claims accept a plan, the Bankruptcy Court must make certain findings to confirm
a plan.
To be confirmed, a plan of reorganization must, among other
things, comply with the requirements of Chapter 11, be proposed in good faith,
be in the "best interests" of creditors and shareholders and be feasible. The
"best interests" test generally requires that the value of the consideration to
be distributed to the creditors under a plan be not less than creditors would
receive if the debtor were liquidated under Chapter 7 of the Bankruptcy Code. To
satisfy the "feasibility" requirement, the Bankruptcy Court must find that there
is a reasonable probability that the debtor will be able to perform the
obligations incurred under the plan and that the debtor will be able to continue
operations without the need for further financial reorganization, unless such
liquidation or further reorganization is proposed in the plan.
If certain other requirements are met, the Bankruptcy Court
may confirm a plan even though fewer than all impaired classes have accepted it
as long as one impaired class of creditors has accepted the plan. For a plan to
be confirmed despite the rejection of an impaired class, the proponent of the
plan must show, among other things, that the plan does not discriminate unfairly
and that the plan is fair and equitable with respect to each impaired class that
has not accepted the plan.
A plan is "fair and equitable" as to a class if, among other
things, the plan provides: (a) with respect to secured claims, that each holder
of a claim included in the rejecting class will receive or retain on account of
its claim property that has a value, as of the effective date of the plan, of
not less than the allowed amount of such claim; and (b) with respect to
unsecured claims and equity interests, that the holder of any claim or equity
interest that is junior to the claims or equity interests of such class will not
receive or retain on account of such junior claim or equity interest any
property at all unless the senior class is paid in full. The Bankruptcy Court
must also find that the economic terms of the plan of reorganization do not
unfairly discriminate with respect to the particular objecting class.
Classes of claims and interests that do not receive or retain
any property under a plan on account of such claims and interests are deemed to
have rejected the plan and are not entitled to vote, and classes of claims and
interests that are not impaired under a plan are deemed to have accepted the
plan and are not entitled to vote. Therefore, acceptances of the Plan are being
solicited only from those who hold Claims in an impaired Class that may be
receiving a Distribution under the Plan.
2.3 RECOMMENDATION.
SPFC recommends that each entity entitled to vote on the Plan
vote to accept the Plan.
SPFC believes that:
(i) the Plan provides the best possible result for the
Holders of Claims and Interests;
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(ii) with respect to each impaired Class of Claims and
Interests, the distributions under the Plan are the
same as or greater than the amounts that would be
received if SPFC were liquidated under Chapter 7 of
the Bankruptcy Code; and
(iii) acceptance of the Plan is in the best interests of
the Holders of Claims and Interests.
ARTICLE III
SPFC'S OPERATION AS A SPECIALTY FINANCE COMPANY
Until the filing of its petition on October 1, 1998, SPFC was
a specialty finance company engaged in the business of originating, purchasing,
selling, and securitizing nonconforming "sub-prime" mortgage loans secured
primarily by first- or second-position liens on one- to four-family residences.
SPFC commenced operations in January 1993 as a division of Southern Pacific
Thrift & Loan Association, a wholly owned subsidiary of Imperial Credit
Industries, Inc. ("ICII"). It was incorporated in October 1994 and became an
operating subsidiary of ICII. SPFC completed an initial public offering of its
common stock in June 1996, and through subsequent offerings, ICII reduced its
ownership stake in SPFC to approximately 47 percent of SPFC's outstanding common
stock in March 1997.
SPFC had five operating subsidiaries that originated mortgage
loans: Oceanmark Financial Corporation, formed in May 1997 to acquire the
residential mortgage lending assets of Oceanmark Bank, F.S.B.; Home America
Financial Services, Inc., formed in June 1997; National Capital Holdings, Inc.,
formed in December 1996 to acquire interests in certain residential and
commercial mortgage lending and funding companies, including MorCap, Inc.;
Hallmark America, Inc., acquired in December 1996 and affiliated with Hallmark
Government Mortgage, Inc.; and Southern Pacific Mortgage Limited, based in the
United Kingdom, formed in October 1996. SPFC's other subsidiaries included
Southern Pacific Secured Assets Corp., which acted as issuer with respect to
SPFC's securitizations.
3.1 OVERVIEW OF LOAN ORIGINATIONS AND PURCHASES.
SPFC primarily originated or purchased nonconforming home
equity loans that were typically secured by a first mortgage on the borrower's
residence. The majority of SPFC's loans were made to borrowers who used the loan
proceeds for purposes such as mortgage refinancing, home purchases, debt
consolidation, home improvements, and educational expenditures. SPFC focused
primarily on lending to individuals with significant equity in the value of
their homes but impaired or limited credit histories. As a result, SPFC's
customers were less likely to qualify for loans from conventional mortgage
lenders and generally paid higher interest rates than interest rates charged by
conventional mortgage lenders. SPFC originated or purchased loans in all 50
states, the District of Columbia, and the United Kingdom through its Wholesale
Division, Strategic Alliance Program, Correspondent Program, and Consumer Loan
Division (all as hereinafter defined). These four channels included loans
originated or purchased through SPFC's subsidiaries or affiliates Oceanmark
Financial Corporation, Home America Financial Services, Inc., MorCap, Inc., and
Hallmark Government Mortgage, Inc.
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SPFC offered a wide range of loan products to meet the needs
of borrowers with varying credit profiles and borrowing needs. SPFC's loan
products include fixed-rate first mortgage loans, variable-rate first-mortgage
loans, fixed-rate second-mortgage loans, and variations thereof. Historically,
the majority of the loans originated and purchased by SPFC were variable-rate
first-mortgage loans.
3.2 WHOLESALE DIVISION.
The wholesale division (the "Wholesale Division") originated a
substantial portion of SPFC's loans through account executives located in
regional branch centers nationwide. The Wholesale Division originated $267.4
million, $529.0 million, $1,244.0 million, and $1,169.1 million worth of
mortgage loans during the years ended December 31, 1995, 1996, and 1997, and the
nine months ended September 30, 1998, respectively, representing 92.7 percent,
67.0 percent, 63.3 percent, and 58.2 percent of SPFC's total loan originations
and purchases during the respective periods.
3.3 CORRESPONDENT PROGRAM.
SPFC purchased closed loans through its correspondent program
(the "Correspondent Program") from 1995 through February 1998. Loans purchased
through the Correspondent Program were complete loan packages that were
underwritten and funded by approved mortgage bankers or financial institutions.
Through the Correspondent Program, SPFC purchased $21.1 million, $204.8 million,
$280.4 million, and $28.8 million worth of mortgage loans during the years ended
December 31, 1995, 1996, 1997, and 1998, respectively, representing 7.3 percent,
25.9 percent, 14.3 percent, and 1.4 percent of SPFC's total loan originations
and purchases during the respective periods.
3.4 STRATEGIC ALLIANCE PROGRAM.
SPFC also purchased loans through its strategic alliance
program (the "Strategic Alliance Program"). Through the Strategic Alliance
Program, SPFC obtained a committed source of loan production from mortgage
companies that formed a strategic alliance with SPFC (each, a "Strategic
Alliance"). The primary Strategic Alliances were with Liberty Lending Inc. and
BOMAC Capital Mortgage, Inc. ("BOMAC"). Through the Strategic Alliance Program,
SPFC purchased $51.5 million, $289.7 million, and $514.6 million worth of
mortgage loans during the years ended December 31, 1996 and 1997, and the nine
months ended September 30, 1998, respectively, representing 6.5 percent, 14.8
percent, and 25.6 percent of SPFC's total loan originations and purchases during
the respective periods.
3.5 CONSUMER LOAN DIVISION.
The consumer loan division (the "Consumer Loan Division")
offered both second-mortgage loans to credit-impaired borrowers and high
loan-to-value ("LTV") loans to borrowers with a generally better credit history
than SPFC's typical nonconforming borrower. The majority of the loans originated
by the Consumer Loan Division were fixed-rate, fully amortizing loans secured by
owner-occupied one- to four-family residences. SPFC generally secured the
high-LTV loans with second mortgages on properties in which the borrowers had
little or no equity. SPFC sold the majority of second-lien mortgage loans
originated by the
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Consumer Loan Division on a whole-loan basis. In addition, it completed a
securitization of high-LTV second mortgages in June 1998, in the amount of
$105.3 million (Series 1998-H1). The Consumer Loan Division originated $4.5
million, $149.8 million, and $297.6 million worth of mortgage loans during the
years ended December 31, 1996 and 1997, and the nine months ended September 30,
1998, respectively, representing 0.6 percent, 7.6 percent, and 14.8 percent of
SPFC's total loan originations and purchases during the respective periods.
3.6 SECURITIZATION OF MORTGAGE LOANS.
SPFC sold substantially all the mortgage loans that it
originated and purchased through securitizations issued by its special-purpose
subsidiary, Southern Pacific Secured Assets Corp. ("SPSAC") (with the exception
of loans originated through the Consumer Loan Division and sold through
whole-loan sales). The securitization process involved the pooling of mortgage
loans and the sale of such loans to SPSAC, which then deposited such loans into
a trust. The trust issued senior pass-through certificates ("Senior
Certificates"), which were underwritten and sold to investors. The trust also
issued certain interests known as "IO Certificates" (for "interest-only") and
"Residual Certificates," which are both subordinate in priority to the Senior
Certificates. See Section 6.1.1 below. The Residual Certificates, which were
retained by SPFC, entitle SPFC to certain junior cash flows described more fully
below. During the years ended December 31, 1995, 1996, 1997, and 1998, SPFC
securitized $164.9 million, $657.4 million, $1.805 billion, and $1.31 billion
worth of mortgage loans, respectively. The securitizations completed in 1995 are
referred to as Series 1995-1 and 1995-2. SPFC completed quarterly
securitizations in 1996 and 1997 (Series 1996-1, 1996-2, 1996-3, 1996-4, 1997-1,
1997-2, 1997-3, and 1997-4). In 1998, SPFC completed three securitization
transactions (Series 1998-1, 1998-2, and 1998-H1).
Securitizations completed in 1997 and 1998 also included
insured IO Certificates (senior to other, uninsured subordinate IO Certificates)
sold to investors. The sale of the senior IO Certificates permitted SPFC to
partially offset negative cash flow associated with selling loans through
securitizations. Each securitization, with the exception of the securitization
completed in the second quarter of 1997 (Series 1997-2) and the high-LTV loan
securitization completed in the second quarter of 1998 (Series 1998-H1), was
insured by MBIA Insurance Corporation (the "Insurer"), guaranteeing the timely
payment of interest and ultimate principal payment of the Senior Certificates.
Series 1997-2 provided for several classes of Senior Certificates, each with a
different priority interest in monthly payments collected from the mortgage
loans or a different expected maturity. Under this structure, the holders of the
Senior Certificates assumed the risk of nonpayment of interest and principal.
Series 1998-H1 was based on a structure different from earlier securitizations,
composed of securities issued as debt instruments and Residual Certificates that
were treated as interests in a partnership.
The pooling and servicing agreements that govern the
distribution of cash flows from the loans included in the trusts (the "Pooling
and Servicing Agreements") require the overcollateralization of the Senior
Certificates by using cash flows from the Residual Certificates to reduce the
outstanding principal balance of the Senior Certificates to a preset percentage
of the mortgage loans.
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3.7 LOAN SERVICING AND DELINQUENCIES.
SPFC originated or purchased all mortgage loans on a
servicing-released basis, thereby acquiring the servicing rights. Through
December 1997, SPFC contracted for the servicing of substantially all the loans
it originated, purchased, and held for sale with Advanta Mortgage Corp. USA
("Advanta") under a servicing agreement (as amended, the "Servicing Agreement")
entered into between SPFC and Advanta in September 1995. Servicing includes
collecting and remitting loan payments, making required advances, accounting for
principal and interest, holding escrow or impound funds for payment of taxes and
insurance, if applicable, making required inspections of the mortgaged property,
contacting delinquent borrowers, and supervising foreclosures and property
dispositions in the event of unremedied defaults. Under the Servicing Agreement,
SPFC is obligated to pay Advanta a monthly servicing fee on the declining
principal balance of each loan serviced and a setup fee for each loan delivered
to Advanta for servicing.
In addition, Advanta is the Master Servicer on all
securitization trusts through Series 1997-3 (with the exception of Series
1995-2, for which it acts as subservicer for a portion of the loans) and it
acted as a subservicer on Series 1997-4 and a portion of Series 1998-1 until May
1998. Advanta's obligations as Master Servicer are specified in the related
pooling and servicing agreement ("PSA") for each securitization series. The PSAs
provide for payment to Advanta by the securitization trust of a monthly
servicing fee on the declining principal balance of each loan serviced. Under
the PSA, Advanta receives an annual servicing fee, paid monthly, of 50 basis
points (0.50 percent of the unpaid principal balance of the serviced loans).
Under the Servicing Agreement, Advanta remits to SPFC 15 of the 50 basis points
Advanta receives under the PSA.
SPFC's acquisition in December 1997 of the loan servicing
operations of North American Mortgage Company ("NAMCO") allowed SPFC, in
mid-January 1998, to begin its own loan servicing operation for all new loans
originated and purchased. In the second quarter of 1998, Advanta transferred to
SPFC servicing of the loans in Series 1997-4 , mortgage loans in Series 1998-1
not then serviced by SPFC, and mortgage loans owned by SPFC (with the exception
of Ohio second mortgages). SPFC is Master Servicer for Series 1997-4, 1998-1,
1998-2, and 1998-H1.
3.8 HISTORICAL FINANCIAL INFORMATION.
Attached hereto as Exhibit 1 is a copy of SPFC's consolidated
financial statements for the years ending December 31, 1996, and December 31,
1997.
ARTICLE IV
PREPETITION FINANCING AND RELATED MATTERS
SPFC financed and purchased real estate loans using funding
from "warehouse" lenders, which financed mortgage loans on a short-term basis
until the mortgage loans could be sold or securitized. Before the Petition Date,
SPFC had entered into agreements with four lenders: First Union National Bank
("First Union"), Lehman Brothers Commercial Paper, Inc.
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("Lehman"), Morgan Stanley & Co., Inc. ("Morgan"), and Greenwich Capital
Financial Products, Inc. ("Greenwich"). The warehouse lines of credit, totaling
$1.2 billion ($100 million from Greenwich, $400 million each from Lehman and
Morgan, and $300 million from First Union), were used by SPFC to fund loan
originations and purchases and were secured by the loans that SPFC originated or
purchased. The warehouse lines with First Union, Lehman, and Greenwich were in
the form of repurchase agreements. The lenders advanced to SPFC an agreed
percentage of the market value of each financed mortgage loan. The Morgan line
was in the form of a loan and security agreement.
Shortly before the Petition Date, SPFC received notices of
default from First Union, Lehman, and Morgan. SPFC sought to negotiate amended
terms for its warehouse lines as part of its restructuring initiatives, which
also included changes in top management, execution of significant whole loan
sales, discontinuance of SPFC's Strategic Alliance Program, and a corporatewide
cost reduction program, including employee layoffs.
4.1 FIRST UNION.
On September 28, 1998, First Union sent SPFC a notice stating
that SPFC was in default under the master repurchase agreement under which First
Union provided its financing and demanding that SPFC "repurchase" the loans SPFC
had pledged to First Union by repaying First Union's loan to SPFC. SPFC was
unable to do so. First Union then purported to exercise a right under the
repurchase agreement to give SPFC credit for the loans purchased under the
repurchase agreement and to seek a deficiency. First Union subsequently required
SPFC to transfer servicing on the mortgage loans to Aurora Loan Services, Inc.
As of September 28, 1998, the amount due First Union was approximately
$297,961,614 and the unpaid principal balance of the First Union-financed loans
was approximately $294,173,312. In November 1998, Norwest Bank Minnesota,
National Association ("Norwest"), released $1,018,607 to First Union from the
Morgan Account (see Section 6.5.1), which First Union applied to amounts owed by
SPFC to First Union.
After the Petition Date, First Union, Lehman, and SPFC
negotiated a sale transaction pursuant to which SPFC sold the loans to Lehman
for 100.50 percent of the aggregate unpaid principal balance of the loans and
paid the proceeds to First Union. The sale was approved by the Bankruptcy Court
on November 6, 1998, and closed on November 24, 1998. In connection with the
sale, SPFC and First Union entered into an agreement pursuant to which $301,806
was placed in escrow, pending a resolution of whether SPFC or First Union was
entitled to such funds. First Union asserts a security interest in the escrowed
funds. SPFC also preserved its claims and interests in the funds provided to
First Union, including, but not limited to claims (i) under Section 506(c) of
the Bankruptcy Code for servicing and transferring the loans, (ii) a claim based
on the amount of costs (including fees) asserted by First Union being excessive
and not allowable under Section 506(a) of the Bankruptcy Code, and (iii) that
SPFC was entitled to all Postpetition income from such loans until the date of
sale.
4.2 LEHMAN.
On September 25, 1998, SPFC received a notice of default from
Lehman. On September 28, 1998, Lehman gave notice that it had elected to
accelerate the "repurchase" date
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and demanded that SPFC "repurchase" the loans by repaying the amount due to
Lehman. SPFC was unable to do so, and Lehman purported to exercise an option to
credit SPFC with the market value of the mortgage loans financed under the
repurchase agreement. As of September 28, 1998, the amount advanced by Lehman
was $379,043,277 and the aggregate unpaid principal balance of loans financed by
Lehman was $375,543,000. On September 29, 1998, SPFC entered into a letter
agreement with Lehman, pursuant to which SPFC agreed to cooperate with Lehman in
the transfer of servicing and Lehman agreed to pay SPFC a fee of .25 percent of
the aggregate unpaid principal balance of the purchased mortgage loans and,
after the disposition of the mortgage loans by Lehman to a third party, the
first 2.50 percent of the net proceeds above 100.25 percent of the aggregate
unpaid principal balance of the purchased mortgage loans. As of May 5, 1999,
Lehman has not completed a sale or securitization of the mortgage loans. Any
remaining Claim by Lehman is unsecured, except to the extent that Lehman may
have a right to offset its debt to SPFC against its Claim against SPFC and to
the extent that any funds in the Morgan Account are attributable to proceeds of
Lehman's collateral.
4.3 MORGAN.
On September 25, 1998, Morgan sent a notice of default to
SPFC. At the time, the amount advanced to SPFC by Morgan was approximately
$96,538,800. On September 28, 1998, Morgan sent SPFC a notice of sale and
termination of servicing, informing SPFC that Morgan had elected to sell to a
third party the mortgage loans pledged to Morgan. Morgan informed SPFC that
Morgan had received $97,327,433 as the purchase price for its sale to a third
party and that Morgan had applied $96,901,331 to payment of SPFC's obligations.
4.4 GREENWICH.
Greenwich provided financing for high-LTV mortgage loans. On
September 29, 1998, Greenwich and SPFC entered into a sale agreement pursuant to
which SPFC sold Greenwich certain mortgage loans that had been financed by
Greenwich for a purchase price of 100.50 percent of the aggregate unpaid
principal balance of the purchase mortgage loans, less $100,000 for fees owed to
Greenwich. The bill of sale also provided for the payment to SPFC of an
additional 1 percent of the aggregate unpaid principal balance of the mortgage
loans upon transfer of servicing of the mortgage loans and payment of a fee upon
the resale of the mortgage loans by Greenwich. The fee for resales that occur
after October 31, 1998, is .25 percent of the aggregate unpaid principal
balance, less Greenwich's costs not to exceed $15,000, payable upon the resale
of the last mortgage loan purchased. As of September 30, 1998, the borrowings
under the Greenwich line totaled $29,728,051. The net proceeds to SPFC were
$1,451,654. No fee for resale has yet been received.
4.5 WILSHIRE REAL ESTATE PARTNERSHIP, L.P. ("WILSHIRE").
On August 17 and September 23, 1998, SPFC pledged certain
Residual Certificates to Wilshire Real Estate Partnership, L.P. ("Wilshire"), to
secure a loan of $40 million to SPFC. In September 1998, Wilshire purported to
transfer the same Residual Certificates to Bear, Stearns International Limited
("Bear Stearns") in return for payment of $20 million to Wilshire, subject to
Wilshire's right and obligation to repurchase the Residual Certificates.
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On September 29, 1998, SPFC filed a state-court complaint
against Wilshire, seeking a declaration that Wilshire held the Residual
Certificates only as a pledgee and not as owner, and obtained a temporary
restraining order to prevent Wilshire from disposing of the Residual
Certificates held by Wilshire. As explained below, this matter was resolved
after the petition was filed.
ARTICLE V
POSTPETITION EVENTS
5.1 FILING OF PETITION.
As discussed above, attempts by SPFC to negotiate with its
warehouse lenders with respect to the notices of default were unsuccessful,
leaving SPFC unable to continue to fund mortgage loans in the normal course.
Accordingly, SPFC filed a petition under Chapter 11 on October 1, 1998, in order
to obtain an opportunity to reorganize its affairs under the protection of
Chapter 11.
Negotiations for Postpetition funding continued until October
2, 1998, when SPFC announced that it had ceased all mortgage loan production and
was working to develop a plan for the orderly liquidation of its assets.
On November 13, 1998, SPFC's corporate offices moved to
smaller, less-expensive office space at One Centerpointe Drive, Suite 551, Lake
Oswego, Oregon.
SPFC continues to service certain loans at its mortgage loan
servicing operation in Santa Rosa, California ("Service Center"). SPFC believes
that the method and timing of the transfer of loan servicing will have a
measurable and significant effect on the receipt of payments on the serviced
loans.
5.2 FILING OF PETITIONS BY SPFC SUBSIDIARIES AND AFFILIATES.
Three of SPFC's subsidiaries have commenced their own
bankruptcy cases. Oceanmark Financial Corporation, MorCap, Inc., and Home
America Financial Services, Inc. filed voluntary petitions under Chapter 11 in
the United States Bankruptcy Court for the District of Oregon on October 30,
1998, and November 5 and 20, 1998, respectively, as Case Nos. 398-38571-elp11,
398-38735-elp11, and 398-39192-elp11, respectively. MorCap, Inc., converted to a
Chapter 7 case on February 3, 1999. In addition, an affiliate of an SPFC
subsidiary, Hallmark Government Mortgage, Inc., filed a voluntary petition for
liquidation under Chapter 7 on November 24, 1998, in the United States
Bankruptcy Court for the Western District of Washington as Case No. 98-14615.
The Plan does not propose substantive consolidation of SPFC's estate with that
of any of the subsidiaries.
5.3 CREDITORS' COMMITTEE.
Shortly after the Petition Date, the Office of the United
States Trustee appointed the following persons (and Conseco Capital Management
and Helix Investment Partners, each of
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which has resigned) as members of the Official Unsecured Creditors' Committee
("Committee") in this case:
<TABLE>
<S> <C>
Mariner Investment Group, Chair Hacienda Property Valuation
c/o Lorrie Landis c/o Michael L. Robertson
65 East 55th Street 2340 Santa Rita Road, #4
New York, NY 10022 Pleasanton, CA 94566
Forest Fulcrum HSBC Bank USA, fka Marine Midland Bank
c/o Derrick Wenger, Senior Vice President c/o Metin Caner, Vice President
53 Forest Avenue 140 Broadway, 12th Floor
Old Greenwich, CT 06870 New York, NY 10005
The Bank of New York, Indenture Trustee
c/o Jack Stevenson, Vice President
Suzanne MacDonald, Vice President
101 Barclay Street 21W
New York, NY 10286
</TABLE>
The following is a statement provided by the Committee
regarding its role in this case:
"From the outset of this case, the Committee focused on
maximizing the value of SPFC's assets. The Committee interviewed several
consultants to provide guidance in this process and chose the Pentalpha Group,
LLC (the "Pentalpha Group") to assist in the disposition of the Financial Assets
and CIBC Oppenheimer Corp. to assist in the disposition of SPFC's United Kingdom
subsidiary.
"One of the first issues the Committee worked with SPFC on was
resolving competing ownership claims in the Residual Certificates asserted by
Wilshire and Bear Stearns. If successful, these claims would have eliminated a
substantial amount of SPFC's assets (nearly 50% of the Residual Certificates at
book value) from the Estate. The Committee and SPFC coordinated their efforts to
ensure a rapid response to a constantly changing situation and preparation for
important litigation, while working to negotiate a settlement of the outstanding
issues. Ultimately, SPFC and the Committee on the one hand, and Bear Stearns and
Wilshire on the other hand, entered into the Postpetition financing arrangement
and settlement agreement that the Bankruptcy Court approved on January 5, 1999.
"After resolution of the Bear Stearns and Wilshire matter, the
Committee and SPFC focused on exploring options to maximize the value of the
Estate's assets. The Committee and SPFC investigated various options including
holding the Residual Certificates, also known as the `run off' strategy, selling
the Residual Certificates as a whole, or a combination thereof as well as the
manner of disposition (public auction or controlled, closed bid process). The
Committee and SPFC also considered the tax implications of each disposition
strategy and made an effort to maintain the enterprise value of SPFC. In
addition to the Residual Certificates, the Committee and SPFC analyzed the
disposition of SPFC's other assets and protecting the value, if any, of SPFC's
subsidiaries.
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"After consulting with experts, advisers, and SPFC, the
Committee voted to support the Acquisition Transaction as being in the best
interest of the Estate given the uncertainty and risk of other strategies. For a
further discussion of the Acquisition Transaction, and the factors that favor
that option over others, please see Article VIII and the Addendum.
"In carrying out its duties, the Committee has met often to
discuss issues affecting the Estate and has relied on analyses and projections
prepared by SPFC, its advisers, and the Committee's advisers.
"At all times, the Committee has worked closely with SPFC in
furtherance of one goal -- to maximize the recovery of the Estate."
5.4 EMPLOYMENT OF PROFESSIONAL PERSONS.
SPFC has employed Miller, Nash, Wiener, Hager & Carlsen LLP of
Portland, Oregon, and Murphy Sheneman Julian & Rogers of San Francisco,
California, as bankruptcy counsel, KPMG Peat Marwick as its accountants, and
Pentalpha Capital LLC ("Pentalpha Capital") to act as its placement agent with
respect to disposition of the Financial Assets. Contact information for SPFC's
bankruptcy counsel is set forth below. SPFC has also employed other attorneys to
assist it with certain matters.
<TABLE>
<S> <C>
David Hercher Patrick A. Murphy
John Casey Mills Ellen A. Friedman
Miller, Nash, Wiener, Hager & Carlsen LLP Murphy Sheneman Julian & Rogers
3500 U.S. Bancorp Tower 101 California Street, 39th Floor
111 S.W. Fifth Avenue San Francisco, CA 94111
Portland, OR 97204-3699 Telephone: (415) 398-4700
Telephone: (503) 224-5858 Fax: (415) 421-7879
Fax: (503) 224-0155
</TABLE>
The Committee has employed Munger, Tolles & Olson, LLP of Los
Angeles, California, and Lane Powell Spears Lubersky LLP of Portland, Oregon, as
bankruptcy counsel and Pentalpha Group LLC and Pentalpha Capital LLC to act as
its financial adviser and liquidation agent, respectively, with respect to the
Financial Assets. The Committee employed CIBC Oppenheimer, Inc., to assist in
the evaluation of any potential sale of the stock of Southern Pacific Mortgage
Limited. Munger, Tolles & Olson, LLP, and Lane Powell Spears Lubersky LLP
represent the Committee only and not any individual creditor. Creditors desiring
legal representation should engage separate counsel.
Contact information for the Committee's bankruptcy counsel is
set forth below.
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Thomas B. Walper John H. Durkheimer
Mark Shinderman Lane Powell Spears Lubersky LLP
Munger, Tolles & Olson, LLP 520 S.W. Yamhill Street, Suite 800
355 South Grand Avenue, 35th Floor Portland, OR 97204
Los Angeles, CA 90071-1560 Telephone: (503) 778-2168
Telephone: (213) 683-9193 Fax: (503) 224-0388
Fax: (213) 687-3702
The Indenture Trustees have also employed separate counsel,
though their employment was not subject to Bankruptcy Court approval and they
are not "Professionals" as defined in the Bankruptcy Code . Counsel for the
Indenture Trustees have attorney-client relationships with and represent the
Indenture Trustees only and not any individual Note Holder. Note Holders
desiring legal representation should engage their own counsel.
5.5 CLOSURE OF OUTLYING OFFICES AND SALE OF EXCESS EQUIPMENT.
Having terminated its loan production and acquisition
operations on October 2, 1998, SPFC closed its offices, other than its corporate
office, file storage facility, and servicing operation. With the Bankruptcy
Court's authorization, SPFC rejected leases of its outlying offices and sold the
furniture, fixtures, and equipment in those offices at auction, from which SPFC
received net proceeds of approximately $1,100,000.
5.6 EMPLOYEE SEVERANCE AND RETENTION PLAN.
Since the Petition Date, SPFC has terminated 550 employees. As
of April 1, 1999, SPFC had 83 employees, 69 of whom work in the service center
and 14 of whom work in the corporate office.
Under a retention program approved by the Bankruptcy Court,
SPFC agreed to pay severance to its current employees upon termination of
employment or change of control in the case of a sale. As of May 10, 1999, SPFC
had paid approximately $1,059,422.78 in severance to employees and its remaining
liability for retention payments is approximately $1,630,000. With the consent
of the Committee, SPFC will soon be filing a motion to authorize a 10 percent
increase in its retention payment plan pool as well as in increases of the
retention benefits for the following key officers: Messrs. Hedemark and Padrick
(one additional month, for a total of 5.5 months compensation), and Timothy
Breedlove and Wendy Beth Oliver (and $25,000 in addition to 4.5 months
compensation). One half of the existing retention benefit will be paid on June
30, 1999, with the remainder paid upon earlier of the agreed termination date
for the employee or September 15, 1999.
5.7 WILSHIRE LITIGATION; DIP FACILITY.
Shortly after the Petition Date, SPFC removed its state-court
action against Wilshire to the Bankruptcy Court as an adversary proceeding. On
October 9, 1998, Wilshire filed a motion for relief from the automatic stay.
Wilshire later contended in connection with both the motion for relief from stay
and the adversary proceeding that it owned the Residual Certificates it held and
was not subject to the automatic stay.
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SPFC and Wilshire entered into a settlement evidenced by
stipulated order entered November 20, 1998, subject to notice and a hearing.
After November 20, Bear Stearns took the positions that it should not be bound
by the terms of orders entered to settle a dispute between SPFC and Wilshire and
that Bear Stearns was not subject to the automatic stay in this case.
In December 1998, SPFC engaged in extensive negotiations with
both Wilshire and Bear Stearns that resulted in Wilshire's agreement to accept a
$1 million early payment discount and Bear Stearns' agreement to extend a
DIP/Bridge Facility to SPFC to refinance Wilshire's claim. On January 6, 1999,
the Bankruptcy Court approved an 18-month debtor-in-possession financing
facility (the "Bear Stearns DIP Facility") between SPFC and Bear Stearns. The
closing of the transactions contemplated by the Bear Stearns DIP Facility
occurred January 8, 1999. Under the terms of the agreement, Bear Stearns
provided $38,960,936 in financing to SPFC and was entitled to a participation
fee in the amount of $1.4 million. The financing proceeds were used to repay
SPFC's debt to Wilshire.
The Bear Stearns DIP Facility was secured by substantially all
of SPFC's assets. Under the terms of the Bear Stearns DIP Facility, SPFC could
sell all or part of the pledged assets before the expiration of the Bear Stearns
DIP Facility.
On May 5, 1999, Goldman, Sachs & Co. refinanced the Bear
Stearns DIP Facility (the "DIP Facility") on similar terms and SPFC paid Bear
Stearns the $1.4 million participation fee from its cash. Release of all assets
pledged will occur upon repayment of the DIP Facility on the Closing Date.
5.8 SALE OF WHOLE LOANS TO BAYVIEW FINANCIAL TRADING GROUP LP ("BAYVIEW").
Although most loans originated or purchased by SPFC were
placed in a securitization pool, SPFC retained some loans as whole
(nonsecuritized) loans, due to missing documentation or performance
deficiencies. One of the conditions of the Bear Stearns DIP Facility was that
SPFC sell its whole loans and apply a portion of the proceeds to reduction of
SPFC's liability to Bear Stearns. SPFC engaged Wilshire to market the whole-loan
inventory. SPFC and Bayview entered into a mortgage loan purchase and sale
agreement that was approved by the Bankruptcy Court on March 19, 1999. The
mortgage loan purchase and sale agreement provided for two closings. At the
first closing on March 22, 1999, Bayview purchased 226 loans for $5,795,718. At
the second closing on March 29, 1999, Bayview purchased an additional 19 loans
for $905,751.
In accordance with the Bear Stearns DIP Facility, $4,701,474
of the whole-loan sale proceeds was applied to reduce SPFC's indebtedness under
the Bear Stearns DIP Facility, and $2 million was retained by SPFC.
5.9 ASSUMPTION AND REJECTION OF REAL PROPERTY LEASES.
SPFC has rejected the real property leases at all of its
former locations except its Lake Oswego, Oregon, corporate office, file storage
facility in Tigard, Oregon, and the Service Center.
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5.10 OFFICERS AND DIRECTORS.
5.10.1 SENIOR OFFICERS.
Listed below are the current senior officers of SPFC.
E. JAMES HEDEMARK is chairman of the board and chief executive
officer ("CEO") of SPFC. He was appointed CEO on September 28, 1998, following
the resignation of his predecessor. Mr. Hedemark served as president (1993) and
chief executive officer (1994) of Napa National Bank, and is a current member of
its board of directors. At Bank of America from 1972 to 1993, Mr. Hedemark
served in various positions of increasing responsibilities, in all aspects of
marketing, credit, financial analysis, operations, management, and computer
systems. His positions at Bank of America included: president and chief
executive officer of Bank of America Texas N.A. (1992) and senior vice president
and manager, residential mortgages, of Bank of America (1991-1996). Mr. Hedemark
is responsible for all aspects of servicing and operations, including the
servicing platform, base files, and trailing documentation; coordination with
securitization trustees, the Insurer, and third parties respecting servicing;
and coordination with the financial adviser retained by the Committee respecting
servicing and operations. Mr. Hedemark's current gross monthly compensation is
$42,729.18.
KEVIN D. PADRICK was appointed president of SPFC on February
11, 1999, having been engaged on September 28, 1998, to assist with and as part
of SPFC's restructuring efforts. Since 1997, Mr. Padrick has owned and operated
a consulting business, advising businesses with a combination of business and
legal needs. In 1993, after practicing law for 15 years, Mr. Padrick formed and
successfully operated nine diversified businesses in both regulated and
nonregulated industries. Mr. Padrick's primary responsibility is to maximize the
value realized for the assets of SPFC for the benefit of SPFC's creditors by
arranging for the sale of the capital stock of SPFC or the Financial Assets. Mr.
Padrick's other responsibilities include overseeing tax matters; pursuing claims
on behalf of SPFC; negotiating, proposing, and obtaining confirmation of a plan
of reorganization; and resolving Claims against SPFC. Mr. Padrick's current
gross monthly compensation is $41,023.64 (together with $2,000 per month expense
reimbursement).
TIMOTHY A. BREEDLOVE was appointed SPFC's Chief Financial
Officer on September 28, 1998. Before this appointment, Mr. Breedlove had served
as SPFC's controller since December 1997. Before joining SPFC, Mr. Breedlove
served for seven years as senior vice president and chief accounting officer of
Weyerhaeuser Mortgage Company, a subsidiary of Weyerhaeuser Company. He was also
a member of the board of directors of Weyerhaeuser Mortgage Company. From 1989
to 1991, Mr. Breedlove served as president and chief operating officer of
Republic Federal Savings and Loan, also a subsidiary of Weyerhaeuser Company.
Mr. Breedlove's responsibilities include the resolution of warehouse line
issues, realization of tax refunds and reduction of tax obligations, financial
reports to the Bankruptcy Court and the Committee, accounting functions, and
cash management. Mr. Breedlove's current gross monthly compensation is
$20,513.64.
WENDY BETH OLIVER has served as SPFC's general counsel and
corporate secretary since October 1997, after practicing law in private practice
for ten years. Ms. Oliver is
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responsible for managing the legal affairs of SPFC, determining strategies for
subsidiaries and overseeing subsidiary bankruptcy cases, overseeing the sale of
the U.K. subsidiary; coordinating outside legal representation, reviewing claims
against SPFC, and advising on claims against third-parties. Ms. Oliver's current
gross monthly compensation is $20,512.64.
5.10.2 DIRECTORS.
The three directors of SPFC are Messrs. Hedemark and Padrick
and one outside director, Timothy J. Galligan. Mr. Hedemark became a director on
June 8, 1998, and Messrs. Padrick and Galligan became directors in December 1998
after the resignations of prior directors.
5.10.3 OTHER DIRECTORS AND SENIOR OFFICERS IN 1998.
The following additional persons served as directors and
senior officers of SPFC during 1998:
NAME: TITLE:
- ----- ------
H. Wayne Snavely Chairman of the Board
Director
Stephen J. Shugerman Director
John Dewey Director
Robert W. Howard Director, Vice Chair of the Board,
and Chief Executive Officer
Bernard A. Guy Director, President, and Chief Operating Officer
Frank P. Willey Director
A. Van Ruiter Director
Peter Makowiecki Chief Financial Officer/EVP
John Horak Executive Vice President-Credit Risk
Thomas Bowser Executive Vice President-Production
J. Dwaine Rhea Executive Vice President-Operations
Frank A. Frazzitta Senior Vice President-Strategic Alliances
Annie Muir Senior Vice President-Strategic Operations
Terry Ness Senior Vice President Human Resources
Messrs. Snavley Shugerman, Howard, Guy, and Makowiecki are
defendants in the actions listed in Schedule II to the Plan.
5.11 POSTPETITION INCOME AND EXPENSES.
Attached hereto as Exhibit 2 is a copy of SPFC's financial
report for the month of April 1999 ("Financial Report"), without instructions
and schedules. The report includes a statement of income and expenses and a
balance sheet.
5.12 SALE OF UNITED KINGDOM SUBSIDIARY.
In October 1998, the Committee engaged CIBC Oppenheimer to
market SPFC's United Kingdom mortgage lending subsidiary, Southern Pacific
Mortgage Limited ("SPML").
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After several months of marketing and meetings with prospective purchasers, CIBC
arranged a transaction with Resetfan Limited, a U.K. company formed by SPML
management ("Resetfan"), which was accepted by SPFC, with the consent of the
Committee. The sale was approved by the Bankruptcy Court by an order entered May
27, 1999, and closed May 28, 1999. SPML management now owns 75 percent of
Resetfan and SPFC owns the remaining 25 percent. The purchase price will be
payable pursuant to a note, payable over five years, in the amount of (pound)6
million, accruing interest at a rate of 12.5 percent per annum. Payment is
secured by a security interest in the Resetfan stock held by former SPML
management. All proceeds will be held by SPFC pending further court order
addressing a dispute regarding the extent of a lien on the SPML stock and SPFC's
ability to avoid SPFC's prepetition contribution to SPML's equity of a debt due
from SPML to SPFC as a fraudulent transfer.
ARTICLE VI
DESCRIPTION OF SPFC'S ASSETS
SPFC's assets consist of the Financial Assets, tangible
personal property, and claims.
6.1 FINANCIAL ASSETS.
The Financial Assets consist of (1) interests of the mortgage
loan pools subordinate to the Senior Certificates, known as "Residual
Certificates," (2) the right to service the mortgage loans, and (3) prepayment
charge income from the mortgage loans.
6.1.1 RESIDUAL CERTIFICATES.
Between early 1995 and mid-1998, SPFC engaged in 13 mortgage
loan securitization transactions (the "Securitizations"). In these transactions,
SPFC sold mortgage loans to its wholly owned special purpose subsidiary, SPSAC,
which then deposited the mortgage loans in trusts (the "Securitization Trusts").
The Securitization Trusts then issued various classes of mortgage pass-through
certificates (the "Mortgage Securities"). The Mortgage Securities issued in each
transaction represent interests in the trust assets primarily consisting of a
pool of mortgage loans (the "Mortgage Loans"). SPFC or one of its subsidiaries
or strategic alliances originated or purchased the Mortgage Loans comprising the
mortgage pools.
Bankers Trust Company of California, N.A. ("Bankers Trust"),
is the trustee of the trust series 1995-1 through 1996-3. Norwest Bank of
Minnesota, N.A. ("Norwest") is the trustee of Series 1996-4 through 1998-2 and
1998-H1. Each of the Securitization Trusts made one or more elections to be a
Real Estate Mortgage Investment Conduit ("REMIC") within the meaning of Section
860G of the Internal Revenue Code of 1986, as amended, except the Series 1998-H1
Securitization Trust. Certain of the Mortgage Securities for Series 1998-H1,
which included in its Mortgage Loan pool certain high-LTV loans that were not
eligible for inclusion in a REMIC, were issued as debt instruments. The Residual
Certificate for Series 1998-H1 (the "Class X Certificate") is treated as an
interest in a partnership.
The Mortgage Securities issued with respect to a particular
Securitization represent the entire ownership interest in the related
Securitization Trust. As part of the
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Securitizations, SPSAC sold the Senior Certificates and retained certain of the
"Residual Certificates." Generally, the Residual Certificates can be divided
into three categories:
"IO Certificates," which are certificates issued by seven of
the Securitization Trusts. These certificates represent an interest
subordinate to holders of Senior Certificates but senior to holders of
REMIC Residual Certificates and entitle the holders to receive certain
interest payments from the related Securitization Trust.
"REMIC Residual Certificates," which are certificates
representing the "residual interest" (i.e., equity) in each
Securitization Trust that is a REMIC or composed of more than one
REMIC. These certificates entitle the holders to receive excess cash
flow, if any, generated each month by the Mortgage Loans in the
relevant Securitization Trust after required payments to holders of
Senior Certificates and the Insurer and, where issued, holders of IO
Certificates.
"Class X Certificate," which is a certificate representing an
equity interest in the Series 1998-H1 trust. The Series 1998-H1 trust
is treated as a partnership, and the equity certificate holders are
entitled to receive distributions of trust income as partners.
6.1.1.1 GENERAL TERMS OF THE RESIDUAL CERTIFICATES.
Each Residual Certificate represents a right of the holder to
receive a specified amount described in the related Pooling and Servicing
Agreement. The amount available for distribution to the holders of Residual
Certificates on any payment date will vary depending on (i) the amounts remitted
by mortgagors on the related Mortgage Loans in payment of the mortgagors'
scheduled installments of principal and interest, (ii) the amounts of
prepayments of principal made by mortgagors, (iii) proceeds from liquidations of
defaulted Mortgage Loans, and (iv) the amount required to pay the related Senior
Certificates.
6.1.1.2 OCEANMARK BANK LITIGATION.
In March 1998, Oceanmark Bank, F.S.B. ("OMB"), filed an action
against SPFC in federal district court in Florida, alleging racketeering,
securities fraud, and other claims arising in connection with the sale by OMB to
SPFC's subsidiary, Oceanmark Financial Corporation ("OFC"), of assets related to
OMB's mortgage loan origination business. OMB sought $75 million in damages. The
filing by SPFC and its subsidiary, OFC, of petitions under Chapter 11 stayed the
case in federal court with respect to SPFC and OFC. OMB subsequently filed two
actions in Florida entitled Oceanmark Bank F.S.B. v. Norwest Bank Minnesota,
N.A. and Advanta Mortgage Corp., U.S.A. and Oceanmark Bank F.S.B. v. Bankers
Trust Company of California N.A. and Advanta Mortgage Company (the "Florida
Case"). The complaint alleges that OMB owns certain Mortgage Loans that were
transferred into the Securitization Trusts, having an aggregate principal
balance of approximately $10.7 million. These loans fall into three categories:
(i) loans purchased by SPFC from OMB through May 1997; (ii) loans originated by
OFC in the name of OMB pursuant to a letter agreement between OMB and OFC, and
(iii) loans originated by OFC in the name of OMB and funded by SPFC that had not
closed when OMB provided notice to OFC that it would no longer continue to
execute assignments (collectively, the "OMB Loans"). OMB also alleges that it is
entitled to approximately
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$10 million from SPFC. The economic effect of the Florida Case on the
Acquisition Transaction is discussed in Section 8.2.6.
The determination whether SPFC has material unperformed
obligations under certain contracts between SPFC and Oceanmark Bank, FSB
("OMB"), causing such contracts to be executory, shall be made by the Bankruptcy
Court in the following adversary proceeding pending in the Bankruptcy Court,
Southern Pacific Funding Corporation v. Oceanmark Bank, F.S.B., et al.,
Adversary Proceeding No. 99-3046-elp, or in such other action or contest matter
as the Bankruptcy Court shall determine ("OMB Proceeding"). Not later than 30
days after entry of the Final Order in the OMB Proceeding determining whether
SPFC has material unperformed obligations to OMB under such contracts, and thus
whether they are executory, SPFC may file a motion for authority to assume any
executory contract between SPFC and OMB ("OMB Contract"). In the absence of a
timely filed motion to assume any OMB Contract, all OMB Contracts shall be
deemed rejected to the extent that they are executory.
6.1.1.3 BOMAC.
BOMAC has commenced an adversary proceeding in the Chapter 11
Case asserting that it owns a portion of the Residual Certificates and
prepayment charges for certain loans and requesting an injunction while an
examiner can be appointed to determine whether SPFC's retention of the Residual
Certificates would bring a greater return to BOMAC. SPFC has filed a
counterclaim against BOMAC seeking a judgment of more than $16 million and a
declaration that BOMAC does not own any Residual or prepayment penalty claimed
by SPFC. A trial on the issue of ownership of the Residual Certificates and
prepayment charges is scheduled for June 11, 1999. The remaining issues will be
tried at the time of the hearing on confirmation of the Plan.
Please see Section 10.9 for a discussion of risks related to
this lawsuit.
6.1.1.4 BALTIMORE LITIGATION.
There are two actions pending in state court in Maryland,
Peaks v. A Home of Your Own and Parker v. A House Is a Home, involving
approximately 27 Mortgage Loans. The complaints allege that individuals in
Baltimore purchased run-down properties, made minimal cosmetic repairs, and sold
the properties to plaintiffs for amounts greatly in excess of their actual
worth. SPFC is not a party to the actions; however, SPFC has obtained written
estimates of current values for the properties that suggest that the current
values of the properties are well below the appraised values obtained when the
affected Mortgage Loans were made. The affected Securitization Trusts are Series
1997-3 (8 loans), 1997-4 (16 loans), and 1998-1 (3 loans). SPFC is considering
pursuing claims that could mitigate the loss to the Securitization Trusts.
Potential claims include claims for fraud and misrepresentation against brokers,
appraisers, and other parties involved in the origination of the affected
Mortgage Loans.
6.1.2 PREPAYMENT CHARGE INCOME.
The terms of some of the Mortgage Loans require the mortgagor
to pay prepayment charges (referred to as "prepayment charges") upon prepayment
of the principal of the Mortgage Loan before its due date. In August 1998, the
Pooling and Servicing Agreements
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for Series 1995-1, 1995-2, 1996-1, 1996-2, 1996-3, 1996-4, 1997-1, 1997-2,
1997-3, 1997-4, 1998-1, 1998-2, and 1998-H1 were amended to clarify that SPFC
retained the right to receive prepayment charges ("Prepayment Charge Income")
and to direct the Master Servicer under each such agreement to remit Prepayment
Charge Income to SPFC. SPFC receives Prepayment Charge Income directly from the
related Master Servicer and not as part of any payment made by the trustee of
the related Securitization Trust with respect to the Residual Certificates or
any other security certificate.
The amount of the prepayment charge and the period over which
it is imposed vary from loan to loan. For some Mortgage Loans, the time for
imposition of prepayment charges has expired. There are approximately 151
different types of prepayment charges. The most common prepayment charge has a
term of 36 months and is calculated as six months' interest on any prepaid
principal in excess of 20 percent of the original loan balance.
Although past performance is not indicative of future results,
SPFC received Prepayment Charge Income in 1998 totaling $9.4 million.
6.2 SERVICING RIGHTS.
6.2.1 GENERAL.
SPFC is the master servicer for Series 1997-4, 1998-1, 1998-2,
and 1998-H1. Under the Pooling and Servicing Agreements, as master servicer SPFC
is entitled to an annual servicing fee, in addition to other fees, paid monthly,
in the amount of 50 basis points (0.50 percent) of the unpaid principal balance
("UPB") of the Mortgage Loans serviced. As of February 28, 1999, the total
number and aggregate UPB of Mortgage Loans in the pool for each Securitization
Trust for which SPFC is the master servicer are set forth below. These UPBs are
not representations of the likely principal payments or servicing fee income
from the Mortgage Loans.
SECURITIZATION NUMBER OF UPB AMOUNT
MORTGAGE
LOANS
SPSAC 97-4 5,590 $437,882,497
SPSAC 98-1 5,105 453,527,759
SPSAC 98-2 6,587 592,268,904
SPSAC 98-H1 2,874 93,220,155
----- ----------
Total 20,156 $1,576,899,315
6.2.2 TRANSFER OF SERVICING.
Under the terms of the DIP Facility, SPFC agreed to enter into
an agreement for the transfer of servicing to a third-party servicer approved by
Norwest and the Insurer not later than August 30, 1999, and such transfer of
servicing rights must be completed no later than September 30, 1999. SPFC is not
required to make such transfer if, on or before August 30, 1999, SPFC has
entered into a purchase agreement with a third party for the sale of SPFC or
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substantially all of its Residual Certificates, which agreement is subject only
to Bankruptcy Court approval and usual and customary conditions, and such sale
closes no later than November 14, 1999.
SPFC does not expect that it will violate the WARN Act with
respect to employee terminations associated with the transfer of servicing or
the reductions in force at SPFC's corporate office.
6.3 LOAN SERVICING OPERATIONS.
The Service Center is located in Santa Rosa, California,
approximately 60 miles northeast of San Francisco, in Sonoma County. The
31,000-square-foot leased facility is near the Sonoma County airport, with
freeway access nearby. The Service Center currently services approximately
20,000 loans for Series 1997-4, 1998-1, 1998-2, and 1998-H1. The Service Center
performs all servicing functions in Santa Rosa with a staff of approximately 70
employees. These functions include loan administration, default administration
(loan counseling, default, loss mitigation, foreclosure, and bankruptcy),
administration of real estate owned, customer service, investor administration,
office automation, legal, and facilities. The mortgage loan servicing experience
of the Service Center employees includes servicing sub-prime, RTC, GNMA, FNMA,
FHLMC, community homebuyer, nonconforming, and bond program loans.
The Service Center's mortgage loan processing uses Alltel
Information Services, Inc.'s software (referred to as "CPI MSP") under a
perpetual license agreement, the fees for which are payable over a 36-month
term, beginning on December 1, 1997, and services provided by NAMCO, pursuant to
an agreement that expires June 30, 1999. SPFC anticipates that NAMCO will
consent to a month-to-month extension of the service agreement. SPFC contracts
with Advantis/IBM Global Services to run CPI MSP on a mainframe computer in
Dallas, Texas. SPFC uses an automated dialer system manufactured by Melita,
which was financed by Sun Microsystems through a lease agreement. The fixed
assets located in the Service Center include furniture, fixtures, and computer
equipment.
6.4 U.K. NOTE.
As discussed in Section 5.12 above, on May 28, 1999, SPFC
close the sale of its stock in SPML to Resetfan in return for 25 percent of the
stock of Resetfan and a note, payable over five years, in the amount of (pound)6
million, accruing interest at a rate of 12.5 percent per annum.
6.5 OTHER ASSETS.
6.5.1 CASH AND BANK DEPOSITS.
At the Petition Date, SPFC had cash and bank deposits totaling
$2,155,886. SPFC had cash and bank deposits totaling $9,224,582 as of April 30,
1999.
In addition to funds in its own accounts, SPFC believes it has
rights to a portion (approximately $1.4 million) of funds held in a bank account
at Norwest in Morgan's name containing approximately $3 million ("Morgan
Account"). The Morgan Account was
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established by Morgan at Norwest for the purpose of receiving payments from
investors for loans funded on the Morgan warehouse line. Norwest, the warehouse
custodian, shipped the collateral files to investors under bailee letters. If
the investor chose to purchase the loan, the investor sent payment to the Morgan
account pursuant to instructions in the bailee letters. Norwest also shipped to
investors collateral files funded on other warehouse lines. In several
instances, the investors sent payment to the Morgan Account rather than
remitting payment to Norwest for application to the appropriate warehouse line
(for example, First Union or Lehman). This error resulted in the other warehouse
lines not being paid down when loans were sold.
Based on payments sent to the Morgan Account rather than being
applied to the appropriate warehouse line, and other issues, the funds in the
Morgan Account are also subject to claims by Lehman, Flagstar Bank, F.S.B.
("Flagstar"), and Morgan, some of which are disputed by SPFC. Lehman claims that
approximately $1.2 million in the Morgan Account constitutes proceeds of
Lehman's collateral. Flagstar claims that $391,390 in the Morgan Account
represents amounts erroneously paid by Flagstar to SPFC and thus is held in
constructive trust for Flagstar. Morgan claims that it is entitled to its
claimed deficiency of approximately $500,000. SPFC believes it is entitled to
receive no less than $1.4 million of the funds in the Morgan Account because
those funds were sent by investors for warehouse lines other than Morgan's line
and with respect to certain loans, SPFC paid down the lines or the collateral
was released. If Lehman, Flagstar, Morgan, and SPFC cannot agree on a
distribution of the funds in the Morgan Account, SPFC will commence an adversary
proceeding to recover not less than $1.4 million from the Morgan Account.
6.5.2 EQUIPMENT AND LEASEHOLD IMPROVEMENTS.
At the Petition Date, the book value of SPFC's equipment and
leasehold improvements was $7,447,695. Since then, it has closed its offices
other than its corporate office, file storage facility, and servicing operation
office, rejected the leases of the closed offices, and sold at auction the
furniture, fixtures, and equipment that it had used at the closed offices. As
set forth in the Financial Report, SPFC has retained furniture, fixtures, and
equipment with a book value of $952,208 as of April 30, 1999.
6.5.3 OTHER ASSETS.
SPFC is investigating whether it may be entitled to certain
tax refunds and to assert other claims in favor of SPFC, including contract and
tort claims arising under nonbankruptcy law and claims arising under the
Bankruptcy Code, including claims for avoidance and recovery of preferences and
fraudulent transfers. The Plan provides for the retention and transfer of those
claims to the Liquidating Trust for the benefit of SPFC's creditors. At the time
of this Disclosure Statement, SPFC's investigation into possible claims in its
favor has not progressed to the point where SPFC can place values or even ranges
of values on them.
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ARTICLE VII
DESCRIPTION OF CLAIMS AGAINST AND INTERESTS IN SPFC
SPFC's references in this Disclosure Statement to the amounts
of Claims are based on the amounts of those Claims as reflected in SPFC's
schedules of liabilities or in filed proofs of Claim and are not intended to be
admissions regarding the allowed amount of the Claims or waivers of SPFC's right
to assert any otherwise available defense, recoupment, setoff, or counterclaim
against any Claim. SPFC has not completed its audit of the filed proofs of Claim
and expects to object to allowance of some or all of the proofs of Claim to the
extent that they assert Claims exceeding the amounts set forth in SPFC's
schedules. In addition, SPFC reserves the right to further amend its schedules.
7.1 ADMINISTRATIVE EXPENSES.
Administrative Expenses are Claims for any cost or expense of
the Chapter 11 Case that are allowed under Sections 503(b) and 507(a)(1) of the
Bankruptcy Code. These expenses include all actual and necessary costs and
expenses relating to the preservation of the Estate or the operation of SPFC's
business, all allowances of compensation and reimbursement of expenses to the
extent allowed by the Bankruptcy Code, all Claims for cure payments arising from
the assumption of executory contracts and unexpired leases pursuant to Section
365(b)(1) of the Bankruptcy Code, any Claims of the Indenture Trustees to the
extent allowed under Section 503(b) of the Bankruptcy Code, and all United
States Trustee quarterly fees. SPFC has paid all United States Trustee fees.
Other than fees and expenses owed to professional persons (described below) and
the amount due under the DIP Facility, SPFC had accrued postpetition accounts
payable of $124,888 as of April 30, 1999. SPFC will pay administrative expenses
from its revenue from its servicing operation and from the proceeds of sale of
its assets.
BONY, in its capacity as Indenture Trustee, as a member of the
Committee, and as a creditor listed in SPFC's schedules as holding a Secured
Claim, may assert a Claim seeking administrative treatment of certain services
rendered and costs incurred, including those of its counsel. Further, BONY and
its counsel collectively incurred a total of approximately $250,000 in fees and
expenses for the period October 4, 1998 through May 9, 1999. BONY and its
counsel may seek administrative treatment of services rendered and costs
incurred after May 9, 1999, in the estimated amount of $45,000 per month, though
such amount is subject to increase or decrease depending largely upon future
facts and circumstances. HSBC Bank USA, Indenture Trustee for the Subordinated
Notes, estimates that it will assert a Claim for reimbursement of its costs in
the amount of $162,000 through April 1999 and $47,000 per month through June
1999, though such amount is also subject to increase or decrease depending
largely upon future facts and circumstances.
7.2 PROFESSIONAL PERSONS.
Compensation for Postpetition services rendered by
professional persons (including attorneys and accountants) engaged by SPFC and
the Committee may be paid only with the approval of the Bankruptcy Court. The
first applications for compensation were filed in early February 1999 and
totaled $1,487,003 for fees and $108,639 for costs. The Bankruptcy
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Court has allowed on an interim basis payment of $1,328,407 in fees and $97,894
in costs, which was paid by SPFC in April 1999. SPFC estimates that the
aggregate amount due professional persons since the Petition Date, including the
amounts listed in the first applications, was $3,475,000 as of April 30, 1999.
Prepetition retainers in the approximate total amount of $375,000 held by
bankruptcy counsel for SPFC have been applied to amounts owed.
7.3 FORECLOSURE AND COLLECTION ATTORNEYS.
In its servicing operation, SPFC regularly engages attorneys
to handle foreclosures, bankruptcies, and evictions and otherwise to collect
serviced loans. Fees and expenses paid to those attorneys are limited by their
contracts with SPFC to the amounts set forth in a schedule published by the
Federal National Mortgage Association ("Fannie Mae"). By its order of March 4,
1999 (the "Foreclosure and Collection Attorneys' Compensation Order"), the
Bankruptcy Court has approved SPFC's compensation of those attorneys in the
ordinary course of business consistent with the Fannie Mae schedule. As
servicer, SPFC is entitled to recover attorney fees and expenses from amounts
paid by borrowers to reinstate loans in default or from the proceeds of SPFC's
sale of property at or after foreclosure. Since the Petition Date, SPFC has paid
approximately $2 million to attorneys engaged by SPFC in accordance with the
Foreclosure and Collection Attorneys' Compensation Order, which SPFC expects to
recover through proceeds of foreclosure sales and upon transfer of servicing.
7.4 PRIORITY TAX CLAIMS.
Priority Tax Claims are certain unsecured claims of
governmental units that are entitled to priority pursuant to Section 507(a)(8)
of the Bankruptcy Code. SPFC's Schedule E lists unpaid unsecured Priority Tax
Claims of $63,401. Proofs of Claim that have been categorized by the Bankruptcy
Court as priority and that appear to be filed by governmental units total
$4,309,375. The foregoing amount includes a proof of Claim by the Internal
Revenue Service ("IRS") in the amount of $4,159,471.00 for 1998 taxes. SPFC's
1998 federal tax return as filed showed $2,737,788 due to the IRS. SPFC expects
to amend that return, as a result of which it expects to reduce its 1998 federal
tax liability.
7.5 PRIORITY WAGE CLAIMS.
Certain claims are entitled to priority pursuant to Sections
507(a)(3) (claims for wages, salaries, or commissions), 507(a)(4) (claims for
contributions to employee benefit plans), and 507(a)(6) (claims by individual
for refunds of deposits) of the Bankruptcy Code. In its schedules of liabilities
filed with the Bankruptcy Court (including the original schedules and amendments
thereto), SPFC has listed priority wage Claims totaling $737,712. With the
Bankruptcy Court's approval, SPFC has paid priority wage Claims totaling
$785,643.
The total amount of Claims reflected in proofs of claim
categorized as priority wage Claims is $5,323,350. Of that amount, $4,585,638
reflects amounts claimed in excess of the amounts set forth in SPFC's schedules
as the priority wage Claims of the creditors Filing Claims asserting wage
priority.
SPFC does not have any pension plans and is unaware of any
pension plan liability.
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7.6 DIP FACILITY.
SPFC has pledged essentially all its assets to Goldman, Sachs
& Co. to secure the DIP Facility. As of May 5, 1999, the amount of the Secured
Claim was $33,230,528. This Claim is also allowable as an Administrative Expense
priority.
7.7 PREPETITION SECURED CLAIMS.
In its schedules of liabilities filed with the Bankruptcy
Court, SPFC listed nine creditors holding Secured Claims totaling $955,524,124.
Those Claims consist of two Claims secured by two REO (real estate owned by SPFC
as a result of foreclosures of unencumbered mortgage loans) properties totaling
$316,805; four Claims of warehouse lenders totaling $806,290,918 secured by
mortgage loans; and three Claims totaling $148,916,401 secured by property of
SPFC.
Since filing its schedules, SPFC has paid the two Claims
secured by REO in connection with its sale of two REO properties. In addition,
none of the warehouse lenders continues to hold a Claim secured by property of
SPFC due to releases of collateral in exchange for reduction of debt, except as
noted above. The three remaining Claims secured by property of SPFC include a
Claim of ICII in the amount of $4,329,183 secured by certain warrants to
purchase stock in BOMAC that SPFC believes have no value; a Claim for
$110,541,666 by the holders of SPFC's 11-1/2 percent Senior Notes due November
1, 2004, in the aggregate principal amount of $100 million (the "Senior Notes"),
issued by SPFC pursuant to an indenture dated as of November 4, 1997, between
SPFC and BONY, acting as Indenture Trustee, which is secured by 65 percent of
the value of SPFC's stock in its U.K. subsidiary, Southern Pacific Mortgage
Limited ("SPML"), which had a book value at the Petition Date of approximately
$12,926,000 (BONY contends that its Claim is secured by 100 percent, rather than
65 percent, of the value of SPFC's stock in SPML); and a Claim by Wilshire in
the amount of $39,795,667 secured by a portion of SPFC's Residual Certificates,
which at the Petition Date had a book value substantially in excess of the
amount due to Wilshire. To the extent that the amount of a Claim is greater than
all security held for the Claim, the deficiency is unsecured. As discussed
above, Wilshire's Secured Claim was refinanced on January 8, 1999, by the Bear
Stearns DIP Facility.
Creditors holding Secured Claims are not required to file
proofs of Claim. Nonetheless, creditors have filed 15 proofs of Claim that have
been categorized as secured, totaling $16,930,749. Those 15 Claims consist of
BOMAC's Claim of $16 million, which BOMAC alleges is secured by Residual
Certificates related to mortgage loans acquired by SPFC from BOMAC; Flagstar's
Claim to $391,390 held in the Morgan Account; two Claims totaling $230,093 for
which persons other than SPFC appear to be solely liable; a mortgage-loan
borrower's Claim in the amount of $172,515 for SPFC's alleged violation of the
Truth In Lending Act, which the borrower asserts is secured by the residence
securing the loan; one Claim of $78,287 for an insurance premium loan secured by
contingent premium reimbursements; two Claims totaling $9,848 asserted by
counties for personal property taxes; Douglas County, Colorado's Claim of $8,368
for real property taxes, which corresponds to (and is $437 less than) the amount
of its scheduled Secured Claim secured by one of the REO properties that has
been sold; and Claims totaling $5,527 that appear to be erroneously categorized
as secured.
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7.8 UNSECURED NONPRIORITY CLAIMS.
In its schedules of liabilities, SPFC has listed unsecured
nonpriority Claims totaling $171,994,219. The foregoing amount includes the
Claims of the Holders of the 6.75 percent convertible subordinated notes due
October 15, 2006, in the aggregate principal amount of up to $86,250,000
("Subordinated Notes"), issued pursuant to an indenture (the "Subordinated
Indenture") dated as of November 1, 1996, between SPFC and The Bank of New York,
acting as trustee. HSBC is successor trustee under the Subordinated Indenture.
The Subordinated Indenture provides that the Subordinated Notes are subordinated
in payment to "Senior Indebtedness," which is defined to include all
Indebtedness (as defined in the Plan) other than (i) taxes, (ii) trade payables
not more than 90 days past due, (iii) Claims of SPFC's subsidiaries, and (iv)
Claims of officers, directors, and employees of SPFC and its subsidiaries. It is
the position of HSBC that Indebtedness should be interpreted narrowly to include
only the Claims that are specifically enumerated within that definition and
whether a trade payable is more than 90 days past due, and thus entitled to the
benefit of the subordination provision, is determined as of the Petition Date.
According to SPFC's records, trade payables not more than 90 days past due at
the Petition Date totaled $2,530,013, and trade payables more than 90 days past
due at the Petition Date totaled $121,120.
The following proofs of Claim each exceed the amount scheduled
for the particular creditor by more than $1 million:
<TABLE>
CLAIMANT NAME PROOF OF CLAIM AMOUNT SCHEDULED DIFFERENCE
AMOUNT
<S> <C> <C> <C>
Norwest $1,990,334,859.56 $27,337.00 $1,990,307,522.56
BONY 110,541,666.63 104,803,167.00 5,738,499.63
ICII (Claim 668) 2,046,963.00 0 2,046,963.00
ICII (Claim 669) 1,066,896.00 0 1,066,896.00
Spieker Properties 5,098,657.43 555,396.00 4,543,261.43
Reliance Insurance 3,990,000.00 0 3,990,000.00
IKON Office Solutions 1,817,456.92 0 1,817,456.92
TOTAL $2,114,896,499.54 $105,385,900.00 $2,009,510,599.54
</TABLE>
Included in ICII's three proofs of Claim is a Claim for a loan
by ICII to SPFC in the amount of $4.25 million plus interest. This Claim is
scheduled by SPFC as $4,330,600 under Secured Claims. ICII's other two proofs of
claim are scheduled as unsecured nonpriority claims. ICII's claim (No. 668) is
based on a tax agreement which purportedly requires SPFC to indemnify ICII for
taxes relating to ICII with respect to any taxing period ending after June 19,
1996, and payable pursuant to consolidated tax returns filed by ICII. ICII's
claim (No. 669) is based on a letter agreement between ICII and SPFC for the
settlement of intercompany account obligations. The IKON Office Solutions Claim
includes Claims for rejection of personal property leases. The Reliance
Insurance Co. Claim is based on the face amount of bonds issued by Reliance that
are subject to indemnification by SPFC.
SPFC has reached an agreement in principle, subject to
documentation, to resolve Norwest's ten proofs of Claim totaling
$1,990,334,859.56. Under the agreement, SPFC
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estimates that Norwest will receive approximately $3.4 million in full
settlement of its Allowed Claims. This assumes that the Liquidating Trust
prevails in the OMB Proceeding (see Section 6.1.1.2). If it does not, amounts
will be payable to Norwest from the Florida Reserve as described in Section
8.2.6, in addition to the payment of approximately $3.4 million. If SPFC does
not enter into such a settlement agreement, the Class 14 Norwest/MBIA Claims
will be treated as a Class 7 Senior Unsecured Claim or Class 8 General Unsecured
Claim, as appropriate. It is a condition to consummation of the Acquisition
Transaction that the Norwest/MBIA Claims be settled or otherwise resolved in
connection with Confirmation of the Plan.
SPFC is reviewing filed proofs of Claim and will object to
proofs of Claim it believes are incorrect.
7.9 OLD COMMON STOCK.
The outstanding equity of SPFC is represented by one Class of
Old Common Stock, no par value, of which 20,767,988 shares are outstanding.
ARTICLE VIII
ACQUISITION TRANSACTION
The centerpiece of the Plan is the Acquisition Transaction,
pursuant to which SPFC will dispose of the Financial Assets.
8.1 MARKETING OF RESIDUAL CERTIFICATES.
SPFC has engaged in an intensive effort since early 1999 to
market the Residual Certificates in order to maximize their value.
8.1.1 SPFC'S EMPLOYMENT OF PENTALPHA.
Pursuant to an engagement letter dated October 18, 1998,
between the Committee, Pentalpha Group, Pentalpha Capital, and SPFC (the
"Engagement Letter"), the Committee engaged Pentalpha Group to act as financial
adviser to the Committee and Pentalpha Capital to act as liquidation agent.
James Callahan is the principal of both Pentalpha Capital and Pentalpha Group.
By amendment to the engagement letter dated February 5, 1999, SPFC retained
Pentalpha Capital to act as placement agent for purposes of obtaining offers to
purchase the Financial Assets, including offers to purchase the capital stock of
SPFC.
SPFC has agreed to pay Pentalpha Capital and Pentalpha Group,
collectively, a monthly retainer fee of $45,000, together with a fee based on a
percentage of the aggregate gross proceeds to SPFC from sale of the assets
ranging in steps from 1.63 percent of proceeds up to but not including $70
million to 3.00 percent of proceeds of $125 million or more (with the applicable
percentage applied to the proceeds in the aggregate). SPFC will also reimburse
Pentalpha Capital and Pentalpha Group for their reasonable out-of-pocket
expenses in connection with their activities under the Engagement Letter. SPFC
has paid all Pentalpha
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Capital and Pentalpha Group statements presented to it. Pentalpha Capital and
Pentalpha Group will be required to file applications for Bankruptcy Court
approval of their fees and expenses.
8.1.2 BIDDING PROCESS.
In February 1999, Pentalpha Capital sent introductory letters
and confidentiality agreements to more than 90 financial institutions and
mortgage industry participants nationwide. SPFC prepared and distributed to
approximately 45 interested parties who had signed confidentiality agreements a
private placement memorandum and supplemental information describing the
Financial Assets and the Service Center offered for sale by SPFC. SPFC conducted
the bidding process in two phases. In Phase 1, the bidders conducted limited due
diligence and submitted preliminary bids by March 3, 1999. SPFC discussed the
preliminary bids with the bidders and then met with the Committee on March 8,
1999, to select final bidders for Phase 2. During Phase 2, the selected bidding
groups and SPFC engaged in due diligence and structuring discussions. Phase 2
bids were due on April 13, 1999.
Goldman's bid of $35 million for certain assets and the New
Common Stock was selected as the winning bid. SPFC and Goldman entered into a
letter of intent on April 26, 1999. Goldman and SPFC entered into a Stock
Subscription and Purchase Agreement and an Asset Purchase Agreement, each dated
as of May 5, 1999.
SPFC agreed to provide Goldman with a break-up of $2 million
(the "Break-Up Fee") under certain circumstances. Pursuant to an order entered
on May 13, 1999, after a hearing held on May 10, 1999, the Bankruptcy Court
approved the payment of the Break-Up Fee, under the following circumstances: (i)
Goldman is prepared to timely complete the closing of the Acquisition
Transaction and SPFC sells its stock or substantially all of its assets to an
entity other than Goldman, or (ii) SPFC willfully breaches its obligations to
complete the Acquisition Transaction.
In addition, Goldman and SPFC agreed to certain procedures
(the "Bidding Procedures") if a third party wished to make an offer on the
Acquired Assets (an "Alternative Transaction"). Consistent with the Bidding
Procedures, Bear Stearns proposed an Alternative Transaction in writing to SPFC,
Goldman, and the Committee on May 17, 1999. Goldman made an alternative new
proposal on May 20, 1999, and an auction was held on May 21, 1999. Goldman was
the winning bidder at the auction. As a result of the auction, the cash portion
of the sales price to be paid by Goldman has increased to $38.5 million from
$35.0 million. In addition, as a result of the recent auction process Goldman
agreed effectively to contribute $240,000 toward SPFC's transition expenses,
including costs of employee severance and transfer of servicing, and to maintain
the level of its servicing costs vis a vis the Liquidating Trust at 35 basis
points per annum on the principal balance of a significant portion of the loans
held in the securitization trusts, which is estimated to have a present value to
SPFC's creditors in the range of $1.0 million to $2.5 million.
Goldman and SPFC have entered into an Amended and Restated
Stock Subscription and Purchase Agreement (the "Acquisition Agreement") and an
Amended and Restated Asset Purchase Agreement (the "Asset Agreement") each dated
as of May 21, 1999 (collectively, the "Acquisition Agreements"). The terms of
the Acquisition Transaction, as
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modified by the Acquisition Agreements and after the completion of the bidding
process, are described below.
8.2 ACQUISITION TRANSACTION.
On the Effective Date of the Plan or as soon thereafter as
practicable, pursuant to the Plan and the Acquisition Agreement, the Old Common
Stock of SPFC will be canceled and the 10,000 shares of New Common Stock of
Reorganized SPFC will be issued to Goldman. In addition, Goldman will acquire
the assets described in the Acquisition Agreements (the "Acquired Assets"). All
other assets of SPFC will be distributed to the Liquidating Trust.
8.2.1 ASSET AGREEMENT.
As consideration for the sale by Reorganized SPFC of the
Acquired Assets pursuant to the Asset Agreement, Goldman has agreed to pay a
cash price of $11,614,768 (subject to reduction by 50 percent of the cash
distributions from the Acquired Assets from April 1, 1999, to the closing date)
and to issue an instrument (the "Asset Cash Flow Instrument"), which will
provide for distributions to Reorganized SPFC each month in an amount equal to
50 percent of the net pre-tax cash flows (including net proceeds from sales or
financing transactions) from the Acquired Assets.
8.2.2 ACQUISITION AGREEMENT.
As consideration for the issuance of the New Common Stock,
Goldman will pay a cash price of $26,885,232 subject to a reduction of 50
percent of the cash distributions (if any) from the Residual Certificates
retained by Reorganized SPFC between April 1, 1999, and the closing of the
Acquisition Transaction.
8.2.3 CASH FLOW INSTRUMENT.
As of the Effective Date, Reorganized SPFC (immediately before
issuing the New Common Stock to Goldman) will distribute an instrument (the
"Cash Flow Instrument") to the Liquidating Trust. The Cash Flow Instrument will
provide for periodic payments ("Cash Flows") to the holder (initially, the
Liquidating Trust) of: (a) all net pre-tax cash flows received by Reorganized
SPFC from the Asset Cash Flow Instrument, plus (b) 50 percent of all net pre-tax
cash flows from the Residual certificates and servicing rights held by
Reorganized SPFC, whether received from a sale, financing, or otherwise, minus
(c) 50 percent of the out-of-pocket expenses and other direct costs incurred by
the Reorganized SPFC with respect to its retained Residual Certificates and
servicing rights.
The Asset Agreement (with a form of Asset Cash Flow
Instrument) is attached as Exhibit C to the Plan. The Acquisition Agreement is
attached as Exhibit B to the Plan. The Cash Flow Instrument is attached as
Exhibit 2.3.1 to the Acquisition Agreement.
Although the payments on the mortgage loans underlying the
Residual Certificates are expected to last up to 29 years, SPFC expects that
within five years Reorganized SPFC will elect to monetize the Financial Assets
by, for example, selling the Financial Assets, selling the underlying mortgages
and paying the Senior Certificates, or obtaining financing
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secured by the Financial Assets. In each case, the Liquidating Trust would be
entitled to receive 50 percent of all net pre-tax cash flows received by
Reorganized SPFC as a result of the monetization.
8.2.4 CONDITIONS PRECEDENT TO CONSUMMATION OF THE ACQUISITION AGREEMENTS.
The Acquisition Transaction is subject to certain conditions
precedent, including those listed below. The Acquisition Transaction is subject
to the consent and approval of the certain third parties, including the
Bankruptcy Court and any required filings pursuant to the Hart Scott Rodino
Antitrust Improvements Act of 1976 (and the expiration of the waiting periods
specified thereunder).
In addition, the Confirmation Order must contain the
following:
(i) A provision stating that the assets and liabilities of
Reorganized SPFC, upon Confirmation and consummation of the Acquisition
Transaction, will be as set forth in the Statements of Assets and
Liabilities as of April 15, 1999; and
(ii) A provision stating that Reorganized SPFC, upon
Confirmation and consummation of the Acquisition Transaction, will have
no liability, contingent or otherwise, for any matter, except for (A)
the liabilities identified on the Statement of Assets and Liabilities
dated April 15, 1999, (B) the contingent liability assumed by
Reorganized SPFC pursuant to the settlement to be entered into among
SPFC, Goldman, the Insurer, and Norwest, (C) the liability to repay
demand notes issued to the trustee of the Reserve Accounts defined in
the Acquisition Agreements, (D) liabilities incurred after the
Acquisition Transaction and based on events occurring after the closing
of the Acquisition Transaction; and (E) any other liabilities the
parties expressly agree will be assumed by Reorganized SPFC or that
actually are expressly assumed by Reorganized SPFC.
The Confirmation Order must otherwise be in form and substance
reasonably satisfactory to Goldman.
It is a condition precedent for Goldman to receive copies of
all relevant material documents regarding the rights and obligations of SPFC,
Advanta Mortgage Corp. USA, the Insurer, Norwest, and Bankers Trust in
connection with the Assets.
Goldman must also receive certain agreements from the Insurer.
8.2.5 TRANSFER OF SERVICING.
Under the terms of the Acquisition Agreements, SPFC has agreed
that if requested by Goldman it will enter into an agreement with a subservicer
to assure the proper servicing in accordance with the Pooling and Servicing
Agreements. SPFC has also agreed that if notified by Goldman on or before June
1, 1999, SPFC will use its best efforts to cause the Liquidating Trust to enter
into an agreement by which the employees of the Liquidating Trust
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would provide the services of its employees for a period that would not extend
beyond August 31, 1999.
8.2.6 FLORIDA CASE SETTLEMENT TERMS.
Reorganized SPFC will hold in reserve (the "Florida Reserve")
the Cash Flows from the assets that would otherwise be payable to the
Liquidating Trust until such time as the Florida Case (see Section 6.1.1.2) is
finally resolved. Funds in the Florida Reserve will be used to buy loans, to the
extent necessary, in connection with the resolution of the Florida Case. In the
event the amount of the Florida Reserve is insufficient, Goldman will contribute
funds to Reorganized SPFC (the "Goldman Contribution") to be used to buy loans
pursuant to resolution of the Florida Case. In the event that Goldman
contributes funds in accordance with this paragraph, Goldman may, at its option,
require Reorganized SPFC to:
(i) leave the percentage of the participation interest held by the
Liquidating Trust at 50 percent, but recognize a preferred
return of 15 percent on the Goldman Contribution; or
(ii) adjust the percent of the participation interest held by the
Liquidating Trust based on a total implicit purchase price of
$77 million, $38.5 million of which is attributable to each of
Goldman and the Liquidating Trust.
Once the Florida Case is resolved, any funds held in the
Florida Reserve pursuant to this paragraph that are not used to buy loans in
connection with the resolution of the Florida Case will promptly be released to
the Liquidating Trust.
8.2.7 ADDITIONAL COVENANTS AGREEMENT.
Pursuant to the Acquisition Agreements, Reorganized SPFC,
Goldman and the Liquidating Trust will enter into the Additional Covenants
Agreement. The Additional Covenants Agreement will require Reorganized SPFC to
distribute to the Liquidating Trust any payments received before or after the
Effective Date as a result of SPFC, the Liquidating Trust, or Reorganized SPFC
prevailing in any proceeding against a third party for activities occurring
before the closing of the Acquisition Transaction, except that Reorganized SPFC
will retain any payments received with respect to certain proceedings as set
forth in the Additional Covenants Agreement.
The Additional Covenants Agreement will also provide that the
Liquidating Trust will provide Reorganized SPFC access to the books and records
of SPFC and the opportunity to make copies at its expense, and that upon
dissolution of the Liquidating Trust, all such books and records shall be
delivered by the Liquidating Trust to Reorganized SPFC.
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ARTICLE IX
SUMMARY OF THE PLAN
9.1 IN GENERAL.
The following is an overview of certain material provisions of
the Plan, a copy of which is attached hereto as Exhibit 5. The following
sections are qualified in their entirety by reference to all the provisions of
the Plan, including all exhibits thereto, all documents described therein and
the definitions therein of certain terms used below.
The Plan divides Claims and Interests into Classes and sets
forth the treatment for each Class. In accordance with Bankruptcy Code,
Administrative Expenses and Priority Tax Claims have not been classified and
each Class must contain Claims or Interests that are substantially similar to
the other Claims or Interests in such Class. Under the Plan, all Claims and
Interests have been separated into 14 Classes, and each Class has been
determined to be either impaired or unimpaired by the Plan's terms.
9.2 RES JUDICATA EFFECT OF CONFIRMATION ORDER.
The classification and treatment of Claims in the Plan are
based upon SPFC's interpretation of the subordination provisions of the
Subordinated Indenture (the "Subordination Provisions"), the Subordinated
Indenture, and applicable law. Parties in interest, including the Holders of
Claims that are affected by, or that assert rights under, the Subordination
Provisions must raise any objection to the classification and treatment of
Claims before Confirmation. THE CONFIRMATION ORDER WILL BE BINDING AS TO ALL
SUCH ISSUES THAT WERE OR COULD HAVE BEEN RAISED IN CONNECTION WITH CONFIRMATION
OF THE PLAN.
For a discussion of SPFC's planned motion to address certain
classification issues and the effect of Confirmation on those issues, see
Section 9.4.2 below.
9.3 ADMINISTRATIVE CLAIMS AND PRIORITY TAX CLAIMS.
9.3.1 ADMINISTRATIVE EXPENSE CLAIMS.
Except as provided below, on the Effective Date, each Holder
of an Allowed Administrative Expense (including the DIP Facility and any
Postpetition taxes payable on or before the Effective Date) will receive Cash
equal to the amount of such Allowed Administrative Expense, unless such Holder
and SPFC agree to other terms or an order of the Bankruptcy Court provides for
other terms.
The Holders of Allowed Administrative Expenses representing
obligations incurred in the ordinary course of business will be assumed on the
Effective Date and paid, performed, or settled by the Liquidating Trust to be
established under the Plan or by Reorganized SPFC when due in accordance with
the terms and conditions of the particular agreements governing such
obligations, but the Plan does not limit the right of the Holder to request and
obtain an order requiring payment on the Effective Date.
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Professionals requesting compensation or reimbursement of
expenses for services rendered before the Effective Date must file and serve an
application for final allowance of compensation and reimbursement of expenses no
later than 30 days after the Effective Date; provided, however, that certain
foreclosure and collection attorneys authorized by the Foreclosure and
Collection Attorneys' Compensation Order may continue to receive compensation
and reimbursement of expenses for services rendered before the Effective Date
without further Bankruptcy Court review or approval pursuant to such order. The
Claims of the foreclosure and collection attorneys will be paid by Reorganized
SPFC, and all other Allowed Administrative Expenses not otherwise provided for
will be paid by the Liquidating Trust.
9.3.2 PRIORITY TAX CLAIMS.
Unless otherwise agreed to by the Liquidating Trust and a
Holder of a Priority Tax Claim, each Holder of an Allowed Priority Tax Claim
will receive, at the option of the Liquidating Trust, (i) cash equal to the
unpaid portion of such Allowed Priority Tax Claim on the later of the Effective
Date and the date on which such Claim becomes an Allowed Priority Tax Claim, or
as soon thereafter as is practicable, or (ii) equal quarterly Cash payments in
an aggregate amount equal to such Allowed Priority Tax Claim, together with
interest at a fixed rate of 1-3/4 percent per calendar quarter or as otherwise
agreed to by the Liquidating Trust and such Holder, over a period through the
sixth anniversary of the date of assessment of such Allowed Priority Tax Claim,
or upon such other terms determined by the Bankruptcy Court to provide the
Holder of such Allowed Priority Tax Claim deferred Cash payments having a value,
as of the Effective Date, equal to such Allowed Priority Tax Claim.
9.4 CLASSIFIED CLAIMS.
9.4.1 IN GENERAL.
It is not possible to predict with a high degree of certainty
the amounts of Distributions that will ultimately be paid to Holders of Claims
in the following Classes because of the substantial variable elements necessary
to the calculation (e.g. the total amount of Allowed Claims in each Class, the
amount to be realized from the Cash Flow Instrument, and the amounts to be
recovered from third parties). No assurance can be given that sufficient
Distributions will be available to pay a significant portion or all of the
Claims in Classes 5, 6, 7, or 8. Nonetheless, solely for the purpose of
providing information to enable creditors to determine whether to vote for or
against this Plan, SPFC has prepared the attached Addendum I, which estimates,
with stated qualifications, net present value of the payments that will be
received by creditors in different Classes from the proceeds of cash on hand and
the sale of the Financial Assets.
The classification and treatment scheme set forth in the Plan
is intended to be consistent with the provisions of the Bankruptcy Code
regarding the allowance and payment of Claims, the Subordination Provisions of
the Subordinated Indenture, and the terms of the Senior Indenture. SPFC does not
believe that the Subordination Provisions should apply to permit or require the
payment of Postpetition interest or fees on the Class 5 Senior Notes Claims or
the Class 7 Senior Unsecured Claims from the Distributions otherwise payable to
the Holders of Class 6 Subordinated Notes because the Subordinated Indenture
makes no reference to the right of the Holders of Senior Indebtedness to receive
Postpetition interest or fees by reason of the
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Subordination Provisions. SPFC believes that the Senior Notes are not entitled
to payment of Postpetition interest or fees on their Claims from the
Distributions otherwise payable to the Subordinated Note Holders. AS SET FORTH
ABOVE AND IN THE PLAN, PARTIES IN INTEREST WHO WISH TO CHALLENGE THE PLAN'S
INTERPRETATION OF THE SUBORDINATION PROVISIONS, MUST DO SO IN CONNECTION WITH
CONFIRMATION. See Section 9.2 above. If such a challenge is sustained by the
Confirmation Order or by a Final Order, Distributions will be made in accordance
with the Confirmation Order or that Final Order.
Because of the Subordination Provisions, certain Claims will
be paid before other Claims. Holders of Claims should be aware that SPFC, the
Liquidating Trustee, or any other party in interest may object to Claims and the
classification of such Claims in a particular Class; i.e. whether certain Claims
will be treated as Class 7 Senior Unsecured Claims or Class 8 General Unsecured
Claims.
The following is a list of Claims against SPFC other than
Administrative Expenses and Priority Tax Claims. Prior to the Petition Date,
SPFC issued two issues of Notes. The Holders of the first issue of Notes,
included in Class 6, are the Subordinated Note Holders whose Claims are
contractually subordinated to the Class 5 Claims of the Senior Note Holders and
the Class 7 Claims of the Holders of Senior Unsecured Claims. The Holders of the
second issue of Notes are classified in Class 3 as Secured Senior Notes Claims
and in Class 5 of the Plan as Senior Notes. In addition, the Secured Claims of
the Senior Note Holders, to the extent that they are secured by stock in SPML,
are included in Class 3. Accordingly, and as set forth more fully below and in
Addendum I, Distributions that otherwise would be paid to the Subordinated Note
Holders will instead be paid to the Senior Note Holders and to the Holders of
Senior Unsecured Claims, until those Claims have been paid in full without
Postpetition interest and fees.
The Plan gives effect to the Subordination Provisions with
respect to all Distributions from the Liquidating Trust and any successor or
assign, including Distributions of proceeds of actions brought by SPFC or the
Liquidating Trust under Chapter 5 of the Bankruptcy Code.
9.4.2 CLASSIFICATION MOTION.
SPFC will file a motion before Confirmation seeking a
determination of the proper classification of the Class 7 Senior Unsecured
Claims and Class 8 General Unsecured Claims. The primary issues to be addressed
by the motion will be whether those Claims (including Claims arising from the
rejection of executory contracts and unexpired leases) meet the definition of
Senior Indebtedness as set forth in the Subordinated Indenture and are entitled
to the benefits of the Subordination Provisions. The motion will set forth
SPFC's determination of which Unsecured Claims, other than the Senior Notes and
the Senior Unsecured Claims, constitute Senior Indebtedness as defined in the
Subordinated Indenture and the preliminary classification of such Unsecured
Claims for voting purposes. The final determination of whether such Unsecured
Claims qualify within the description of Class 7 for purposes of distribution
will be made by a Final Order entered at Confirmation or thereafter as a result
of the motion.
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9.4.3 SUMMARY OF CLAIMS AND INTERESTS.
<TABLE>
CLASS DESCRIPTION IMPAIRED ENTITLED ESTIMATED AGGREGATE
TO VOTE TOTAL OF ALLOWED
CLAIMS
<S> <C> <C> <C> <C>
1 Priority Claims No No 0
2 Secured Claims No No 0
3 Secured Senior Notes Claims Yes Yes included in Class 5
4 Administrative Convenience Class No No $300,000
5 Senior Notes Claims Yes Yes $104,823,611
6 Subordinated Notes Claims Yes Yes $77,334,375
7 Senior Unsecured Claims Yes Yes $14,900,000
8 General Unsecured Claims Yes Yes $6,000,000
9 Claims of Securities Plaintiffs Based Upon Notes Yes No --
10 Indemnity Claims of Securities Action Defendants Yes No --
11 Interests of Holders of Old Common Stock Yes No --
12 Claims of Securities Plaintiffs (Not Based on Notes) Yes No --
13 Claim of Bankers Trust No No N/A
14 Norwest Yes Yes $3,400,000
</TABLE>
9.4.4 CLASS 1: PRIORITY NONTAX CLAIMS.
Class 1 consists of Allowed Priority Claims other than taxes.
On the Effective Date, each Holder of an Allowed Claim entitled to priority
under Section 507(a) of the Bankruptcy Code, other than a Priority Tax Claim,
will receive Cash in an amount equal to the amount of such Allowed Claim. Class
1 is not impaired by the Plan and will not vote on the Plan. The total of the
Allowed Claims in Class 1 is estimated to be $0.
9.4.5 CLASS 2: MISCELLANEOUS SECURED CLAIMS.
Class 2 consists of Allowed Secured Claims that are not Senior
Notes. SPFC is unaware of any such Claims. Each Allowed Secured Claim in Class 2
will be treated, at the option of the Liquidating Trust, as follows: (i) the
Plan will leave unaltered the legal, equitable, and contractual rights to which
such Claim entitles the Holder; (ii) SPFC will surrender the property securing
such Claim to the Holder; (iii) SPFC will cure any default with respect to such
Claim in a manner consistent with Section 1124(2) of the Bankruptcy Code; or
(iv) the Claim will receive such other treatment agreed to by as the Holder and
the Liquidation Trust. Class 2 is not impaired by the Plan and will not vote on
the Plan. The total of the Allowed Claims in Class 2 is estimated to be $0.
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9.4.6 CLASS 3: SECURED SENIOR NOTES.
Class 3 consists of the Allowed Secured Claims of the Holders
of the Senior Notes. SPFC pledged the stock of its wholly owned United Kingdom
subsidiary, SPML, to BONY (the "Senior Indenture Trustee") in whole or in part
to secure payment of the Senior Notes. The Holders of Allowed Claims in Class 3
will receive, in full and final satisfaction of their Class 3 Claims, a portion
of the net proceeds received by SPFC from the sale of its interest in SPML
("SPML Proceeds"). As used in this clause, "SPML Proceeds" means proceeds from
the sale of stock or assets of SPML after payment of, or provision for, the
expenses of sale, taxes incurred in connection with or as a result of the sale,
and an amount equal to the amount due from SPML to SPFC as of September 29, 1998
and is set forth in greater detail in the Plan. Whether and to what extent the
remaining portion, if any, of the SPML Proceeds is subject to BONY's lien will
be determined by the Bankruptcy Court (see the following paragraph).
Class 3 is impaired by the Plan and is entitled to vote. The
total of the Allowed Claims in Class 3 depends completely on the value of the
SPML Proceeds that are subject to the BONY lien. The remaining amounts due on
the Senior Notes are Class 5 Claims described below.
There is a dispute as to the extent of BONY's lien. SPFC
contends that the lien extends to only 65 percent of the SPML proceeds and that
an account receivable that had been due from SPML to SPFC before the filing of
the petition, but that was contributed to the capital of SPML the day before the
Petition Date, must be repaid from the SPML Proceeds before payment to BONY of
any amount on account of its lien. BONY, on the other hand, contends that the
lien extends to 100 percent of the SPML Proceeds, and BONY disputes that the
receivable may be recovered by SPFC. SPFC, the Liquidating Trustee, BONY, or
another party in interest may commence a contested matter on such notice as the
Bankruptcy Court may direct to determine the extent of BONY's lien in the net
proceeds. Pending resolution of that matter, a Bankruptcy Court order requires
that 100 percent of the proceeds be held in trust by the Liquidating Trust.
9.4.7 CLASS 4: ADMINISTRATIVE CONVENIENCE CLASS.
Class 4 consists of the Allowed Claims of Class 7 Senior
Unsecured Claims and Class 8 General Unsecured Claims that are in the amount of
$400 or less or whose Holders elect to reduce their Claims to $400. Within 60
days after the Effective Date or as soon thereafter as is practicable Holders of
Class 4 Administrative Convenience Class Claims shall receive the lesser of the
Allowed amount of such Claim or $400. For example, the Holder of a Class 8 Claim
in the amount of $900 who elects to reduce his Claim to $400 will receive $400
in Cash on, or as soon as is practicable after, the Effective Date in full
satisfaction of this Claim, without interest. Holders of Class 7 or Class 8
Allowed Claims whose Claims are $400 or less or who elect to reduce their Claims
to $400 will no longer be Classified in Class 7 or Class 8. Class 4 is not
impaired by the Plan and will not vote on the Plan. The total of the Allowed
Claims in Class 4 is estimated to be $300,000. IN MAKING YOUR DECISION WHETHER
TO ELECT TO REDUCE YOUR CLAIM TO $400, PLEASE REVIEW THE PROJECTED DISTRIBUTION
TO CREDITORS IN ADDENDUM I, AS WELL AS THE ENTIRETY OF THIS DISCLOSURE
STATEMENT.
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9.4.8 CLASS 5: SENIOR NOTES.
Class 5 consists of the Allowed Unsecured Claim of the Holders
of the Senior Notes. The Holders of Class 5 Senior Notes Claims will receive Pro
Rata Distributions of Available Cash with Classes 6 through 8 (subject to
certain limitations) until the Class 5 Claims have been paid in full and, until
the Class 5 Claims have been paid in full, shall also receive Pro Rata
Distributions with the Holders of Class 7 Senior Unsecured Claims of that
portion of Available Cash that would otherwise be distributed to the Holders of
Class 6 Subordinated Notes Claims in the absence of the Subordination
Provisions. The Holders of Class 5 Claims will receive no Distributions on
account of Postpetition interest and fees unless Distributions are made as
described in Section 9.5. Class 5 is impaired by the Plan and is entitled to
vote. The total of the Allowed Claims in Classes 3 and 5 is estimated by SPFC to
be $104,823,611.
9.4.9 CLASS 6: SUBORDINATED NOTES.
Class 6 consists of the Allowed Claims of Holders of
Subordinated Notes. Holders of Class 6 Claims shall receive Pro Rata
Distributions of Available Cash with Classes 5, 7, and 8 (subject to certain
limitations); provided, however, that until Class 5 Senior Notes Claims and
Class 7 Senior Unsecured Claims have been paid in full, all Distributions of
Available Cash that would be payable to Holders of Class 6 Subordinated Notes
Claims shall be distributed Pro Rata to the Holders of Class 5 Claims and Class
7 Claim without Postpetition interest or fees. The rights of the Holders of
Class 6 Claims to be subrogated to the rights of the Holders of Class 5 and
Class 7 Claims are preserved. The Holders of Class 6 Claims shall also receive
the Distributions, if any, described in Section 9.5. Class 6 is impaired by the
Plan and is entitled to vote. The total of the Allowed Claims in Class 6 is
estimated to be $77,334,375.
9.4.10 CLASS 7: SENIOR UNSECURED CLAIMS.
Class 7 consists of the Allowed Unsecured Claims that are
Senior Indebtedness and that are not Class 5 Allowed Claims. The Holders of
Class 7 Senior Unsecured Claims will receive Pro Rata Distributions of Available
Cash with Classes 5, 6, and 8 (subject to certain limitations) and, until Class
7 Claims have been paid in full, shall also receive Pro Rata Distributions with
the Holders of Class 5 Senior Notes Claims of that portion of Available Cash
that would otherwise be payable to the Holders of Class 6 Subordinated Notes
Claims in the absence of the Subordination Provisions. Holders of Class 7
Allowed Claims shall not receive Distributions on account of Postpetition
interest or fees unless Distributions are payable under Section 9.5 below. Class
7 is impaired by the Plan and is entitled to vote. The total of the Allowed
Claims in Class 7 is estimated to be $14,900,000 but that amount may be affected
by the classification motion described in Section 9.4.2 above.
9.4.11 CLASS 8: GENERAL UNSECURED CLAIMS.
Class 8 consists of the Allowed Unsecured Claims that are not
entitled to priority under the Subordinated Indenture and that are not Class 5
Senior Notes Claims or Class 7 Subordinated Notes Claims. The Holders of Allowed
Claims in Class 8 will receive Pro Rata Distributions, with the Holders of
Claims of Classes 5, 6, and 7, of Available Cash until the Class 8 Claims have
been paid in full. The Holders of Class 8 Claims shall also receive the
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Distributions, if any, payable under Section 9.5 below. Class 8 is impaired by
the Plan and is entitled to vote. The total of the Allowed Claims in Class 8 is
estimated to be $6 million but that amount may be affected by the classification
motion described in Section 9.4.2 above.
9.4.12 CLASS 9: CLAIMS OF SECURITIES PLAINTIFFS BASED ON NOTES.
Class 9 consists of (i) the Allowed Claims of Securities
Action Plaintiffs, based on the purchase or sale of Notes and that are set forth
in or arise from, or are related to allegations in lawsuits that have been
commenced against certain of SPFC's former officers and directors and other
persons ("Securities Actions") and (ii) all other Allowed Claims for rescission
of a purchase and sale of a security of SPFC that is a Note, for damages arising
from the purchase or sale of such a security, or for reimbursement or
contribution on account of such a claim. The Plan does not provide for any
Distributions to the Holders of Class 9 Claims.
Class 9 is therefore deemed to have rejected the Plan and will not vote.
9.4.13 CLASS 10: SECURITIES ACTION DEFENDANTS.
Class 10 consists of the Claims of the Securities Actions
Defendants for indemnity or contribution with respect to any judgment the
Securities Actions Plaintiffs may obtain and attorney fees or costs incurred by
such Securities Action Defendants in the Securities Actions. The Plan does not
provide for any Distributions to the Holders of Class 10 Claims. Class 10 is
therefore deemed to have rejected the Plan and will not vote.
9.4.14 CLASS 11: OLD COMMON STOCK.
Class 11 consists of the Interests of Holders of SPFC's Old
Common Stock. The Plan provides for cancellation of the Old Common Stock and, as
a result, the Plan does not provide for any Distributions to the Holders of
Class 11 Interests. Class 11 is therefore deemed to have rejected the Plan and
will not vote.
9.4.15 CLASS 12: SECURITIES ACTION PLAINTIFFS.
Class 12 consists of (i) the Claims of Securities Action
Plaintiffs that are based on the purchase or sale of Old Common Stock and that
are set forth in, arise from, or are related to allegations in the Securities
Actions and (ii) all other Claims for rescission of a purchase or sale of a
security of SPFC or of an affiliate of SPFC (other than a Note), for damages
arising from the purchase or sale of such a security, or for reimbursement or
contribution on account of such a Claim. The Plan does not provide for any
Distributions to the Holders of Class 12 Claims. Class 12 is therefore deemed to
have rejected the Plan and will not vote.
9.4.16 CLASS 13: BANKERS TRUST.
Class 13 consists of the Allowed Claims of Bankers Trust
Company of California N.A. ("Bankers Trust"), as trustee for securitization
trust Series 1995-2, 1996-1 and 1996-3, for investments made in short-term debt
of SPFC and evidenced by three promissory notes in the approximate aggregate
amount of $5,758,072. Pursuant to the terms of the Acquisition, Bankers Trust's
Claim will be an obligation of Reorganized SPFC, which relieves the Liquidating
Trust of any obligation to pay that Claim.
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9.4.17 CLASS 14: NORWEST AND MBIA INSURANCE CORPORATION.
Class 14 consists of the claims of Norwest and the Insurer
("Norwest/MBIA"), including any Claims arising from rejection of any executory
contracts between either or both of them and SPFC. SPFC may, in its discretion,
enter into a settlement agreement with Holders of the Class 14 Norwest/MBIA
Allowed Claims substantially on the terms and conditions summarized in Exhibit
2.6.1(f) to the Acquisition Agreement, "Norwest Settlement Agreement Outline of
Material Terms," which shall be filed not less than five days before the
Confirmation Date. Under that settlement, SPFC estimates that Norwest will
receive approximately $3.4 million in full settlement of its Allowed Claims.
This assumes that the Liquidating Trust prevails in the OMB Proceeding (see
Section 6.1.1.2). If it does not, amounts will be payable to Norwest from the
Florida Reserve as described in Section 8.2.6, in addition to the payment of
approximately $3.4 million. If SPFC does not enter into such a settlement
agreement, the Class 14 Norwest/MBIA Claims shall be treated as a Class 7 Senior
Unsecured Claim or Class 8 General Unsecured Claim, as appropriate. It is a
condition to consummation of the Acquisition Transaction that the Norwest/MBIA
Claims be settled or otherwise resolved in connection with Confirmation of the
Plan.
9.4.18 RIGHTS OF INDENTURE TRUSTEES.
Nothing in the Plan shall modify the rights of the Indenture
Trustees with respect to any party to the Senior Indenture or the Subordinated
Indenture, other than SPFC, including without limitation the Indenture Trustees'
rights to be indemnified and to obtain compensation and reimbursement of
expenses from Distributions to the Holders of Notes and to apply for
reimbursement of attorney fees and costs under the Bankruptcy Code or any other
law, both for pre-Confirmation services and expenses and for post-Confirmation
services and expenses related to consummation of the Plan. Any amounts allowed
by the Bankruptcy Court as reimbursement of attorney fees and costs under the
Bankruptcy Code or any other law for post-Confirmation services or expenses
related to consummation of the Plan shall be paid by the Liquidating Trust.
9.5 POSTPETITION INTEREST
Except as otherwise provided in the Plan, no Holder of an
Allowed Unsecured Claim will be entitled to the accrual of Postpetition interest
or the payment by SPFC, Reorganized SPFC, or the Liquidating Trust of
Postpetition interest on account of such Allowed Claim for any purpose;
provided, however, that, after the Claims in Class 5, 6, 7 and 8 have been paid,
the Holders of Claims in those Classes will receive Pro Rata Distributions of
Available Cash until Postpetition interest at the greater of the contract rate
or the legal rate on those Claims has been paid in full.
9.6 LIQUIDATING TRUST.
9.6.1 ESTABLISHMENT OF LIQUIDATING TRUST.
On the Effective Date, the Liquidating Trust will be
established for the primary purposes of (i) liquidating SPFC's Assets other than
the Acquired Assets that will be transferred to Goldman in connection with the
Acquisition Agreement, (ii) resolving and disputing Claims,
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and (iii) satisfying Claims. A copy of the Liquidating Trust Agreement governing
the Liquidating Trust (the "Liquidating Trust Agreement") is attached as Exhibit
C to the Plan.
9.6.2 TERM OF LIQUIDATING TRUST.
The Liquidating Trust shall terminate upon the Distribution of
all assets held in trust, but not later than five years after the Effective
Date; provided, however, that the Liquidating Trustee may, if it is in the best
interest of the Beneficiaries, and subject to the approval of the Bankruptcy
Court (or another court of competent jurisdiction if the Chapter 11 Case has
been closed) based on a finding that an extension is necessary to the
liquidating purpose of the Liquidating Trust, extend the term of the Liquidating
Trust for one or more finite terms based on the particular facts and
circumstances at that time (each an "Extension Period"), provided that each
Extension Period is approved by the Bankruptcy Court (or a court of competent
jurisdiction if the Chapter 11 Case has been Finally Closed) within the first
six months of such Extension Period. If permitted under applicable law and not
contrary to the classification of the Liquidating Trust as a pass-through entity
under applicable income tax law, and if in the best interests of the
Beneficiaries, the Liquidating Trust may distribute interests in the assets of
the Liquidating Trust or distribute the Liquidating Trust's assets to another
entity and then distribute interests in that entity to the Beneficiaries.
9.6.3 BENEFICIAL INTERESTS.
The Liquidating Trust shall be for the benefit of Holders of
Allowed Claims that are not entitled to be paid in full on or before the
Effective Date (the "Beneficiaries"). The Beneficiaries will hold Beneficial
Interests in the Liquidating Trust on the Effective Date, which Beneficial
Interests will be uncertificated.
The trustee for the Liquidating Trust (the "Liquidating
Trustee") will keep a register of Beneficial Interests and may record transfers
of Beneficial Interests upon a Beneficial Holder's providing the Liquidating
Trustee with the information required under the Liquidating Trust Agreement.
Pursuant to the terms of the Liquidating Trust, a Beneficiary may transfer its
Beneficial Interests by delivery to the Liquidating Trustee of (i) a duly
executed written instrument of transfer in the form of Exhibit B to the
Liquidating Trust Agreement, (ii) during any period that the Liquidating Trust
is not subject to the reporting requirements of the Securities Exchange Act of
1934, as amended (the "1934 Act"), a certificate of the Beneficiary transferring
its Beneficial Interest stating that such Beneficiary has provided the
transferee with copies of the most recent annual and all subsequent quarterly
reports prepared by the Liquidating Trustee pursuant to the Liquidating Trust
Agreement, and (iii) such other documents as may be reasonably required.
Confirmation of the Plan shall constitute a determination, in
accordance with Section 1145(a)(1) of the Bankruptcy Code, that, except with
respect to an entity that is an underwriter as defined in Section 1145(b) of the
Bankruptcy Code, Section 5 of the Securities Act of 1933 and any state or local
law requiring registration for offer or sale of a security or registration or
licensing of an issuer of, underwriter of, or broker or dealer in, a security do
not apply to the Beneficial Interests in the Liquidating Trust because they are
securities of the Liquidating Trust, which is a successor to SPFC under the
Plan, issued in exchange for Claims
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against, Interests in, or Claims for Administrative Expenses in the Chapter 11
case. Although the Beneficial Interests under the Liquidating Trust may be
issued under Section 1145 of the Bankruptcy Code, without compliance with the
registration requirements of the Securities Act of 1933, the Liquidating Trust
may register the Beneficial Interests and file periodic reports under the 1934
Act. If the Liquidating Trustee determines that registration under the 1934 is
Act is required, the Liquidating Trustee will take steps to comply with these
requirements. In addition, once registered, the Liquidating Trust would be
required to file certain reports with the Securities and Exchange Commission,
including quarterly and annual financial reports. SPFC estimates that the
initial cost of registration would be approximately $25,000 and that the annual
costs of additional reporting would be approximately $50,000. SPFC believes
that, if it is necessary, registration of the Beneficial Interests under the
1934 Act will not be required before 120 days after the end of its first fiscal
year.
There is no existing trading market for the Beneficial
Interests, and no active trading market is expected to develop. Even if a
trading market does develop, there is no assurance as to the level of liquidity,
the ability of Beneficiaries to sell their Beneficial Interests, or the price at
which Beneficial Interests may be able to be sold. Future trading prices of the
Beneficial Interests, if any, will depend on many factors, including, among
others, the cash flow history of the Cash Flow Instrument, the resolution of
Claims against third parties held by the Liquidating Trust, changes in market
interest rates, the market for Residual certificates of the type underlying the
Cash Flow Instrument, and the market, if any, for similar securities. The
Liquidating Trust, the Liquidating Trustee, and SPFC will not seek to have the
Beneficial Interests listed on any securities exchange or quoted on NASDAQ, nor
will they take any action to create or facilitate the development of a trading
market in the Beneficial Interests other than to comply with any applicable
registration reporting requirements under the 1934 Act.
9.6.4 LIQUIDATING TRUST ASSETS.
The Liquidating Trust will contain the Excluded Assets and the
consideration paid by the Buyer, including the Cash Flows. Major assets among
the Excluded Assets will include the Cash Flow Instrument, the shares of
Resetfan Limited and the SPML Proceeds held subject to further Bankruptcy Court
order pending resolution of BONY' claim of lien in the SPML Proceeds, and Rights
of Action retained by the Estate. The Liquidating Trust will make Distributions
as provided in the Plan with respect to all Allowed Claims.
9.6.5 NATURE OF TRUST ASSETS.
The Liquidating Trust shall not receive transfers of any
listed stock or securities, any readily marketable assets, or any operating
assets of a going business. Furthermore, the Trust shall not receive transfers
of any unlisted stock of a single issuer that represents 80 percent or more of
the stock of such issuer and shall not receive transfers of any general or
limited partnership interests.
9.6.6 THE LIQUIDATING TRUSTEE.
The Liquidating Trust shall have a Liquidating Trustee, which
may be natural person or an entity.
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No less than ten business days before the Confirmation Date,
the Committee may (i) file a notice setting forth the name and compensation of
the initial Liquidating Trustee and (ii) serve the notice on SPFC, the United
States Trustee, and the Special Notice List (see Section 9.6.7 below). The
Liquidating Trustee shall be responsible for administering assets of the
Liquidating Trust and for prosecuting the Rights of Action.
If the Committee fails to timely file a notice setting forth
the name and compensation of the initial Liquidating Trustee, then (i) SPFC
shall appoint an interim Liquidating Trustee from among its senior officers;
(ii) the interim Liquidating Trustee shall receive the same compensation and
other benefits that the interim Liquidating Trustee had most recently received
as an employee of SPFC; (iii) the Trust Committee may at any time File a notice
setting forth the name and compensation of a proposed successor Liquidating
Trustee, which notice shall be served on the Liquidating Trust, Reorganized
SPFC, the United States Trustee, and the Special Notice List and shall give not
less than ten days' notice and opportunity for hearing regarding the appointment
of the proposed successor Liquidating Trustee, (iv) the Trust Committee may
select the interim Liquidating Trustee to serve as successor Liquidating
Trustee, and (v) the interim Liquidating Trustee shall serve as Liquidating
Trustee until the Bankruptcy Court enters a Final Order approving the
appointment of the successor Liquidating Trustee and shall be eligible for
appointment as Liquidating Trustee.
Any successor Liquidating Trustee shall be appointed in the
manner set forth above and in the Liquidating Trust Agreement. The Liquidating
Trustee may be removed in the manner set forth in the Liquidating Trust
Agreement. The Liquidating Trustee shall obtain a bond in an amount to be
determined by the Committee or the Trust Committee, as appropriate, the cost of
which shall be borne by the Liquidating Trust.
The Liquidating Trustee will have the authority to appoint an
additional trustee to handle Claims objections and litigation of the Rights of
Action (the "Litigating Trustee"). To the extent that a Litigating Trustee is
appointed, the Litigating Trustee will have all of the rights and benefits of
the Liquidation Trustee under the Liquidating Trust Agreement.
9.6.7 NOTICES TO BENEFICIARIES (SPECIAL NOTICE LIST).
TO RECEIVE ALL PLEADINGS AND OTHER NOTICES REGARDING THE
LIQUIDATING TRUST, A BENEFICIARY SHOULD: (1) PREPARE A WRITTEN REQUEST TO
RECEIVE ALL PLEADINGS AND OTHER NOTICES REGARDING THE LIQUIDATING TRUST, STATING
IN THE REQUEST THE NAME AND NUMBER OF THE CHAPTER 11 CASE (IN RE SOUTHERN
PACIFIC FUNDING CORPORATION, CASE NO. 398-37613-ELP11), (2) FILE THE REQUEST
WITH THE CLERK OF THE BANKRUPTCY COURT, 1001 S.W. FIFTH AVENUE, SUITE 700,
PORTLAND, OREGON 97204 (IF THE CHAPTER 11 CASE REMAINS OPEN), AND (3) MAIL A
COPY TO THE LIQUIDATING TRUSTEE. THE PERSONS WHO REQUEST SUCH NOTICES ARE
COLLECTIVELY REFERRED TO HEREIN AS THE "SPECIAL NOTICE LIST." THE RIGHT TO
RECEIVE NOTICES TO BE SENT TO THE SPECIAL NOTICE LIST WILL TERMINATE WHEN A
PERSON ON THE SPECIAL NOTICE LIST CEASES TO BE A BENEFICIARY.
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9.6.8 TRUST COMMITTEE.
Oversight of the Liquidating Trustee (and the Litigating
Trustee, if any is appointed) will be the responsibility of a new committee, the
Trust Committee, consisting of three to seven members who are Beneficiaries. The
initial Trust Committee will be selected by the Committee. To the extent
practicable, the Trust Committee membership shall be representative of the
Beneficiaries and shall consist of Holders of Senior Notes, Subordinated Notes,
and both Senior and General Unsecured Claims. Any Trust Committee member may
resign at any time, but the Trust Committee will take no action while it has
fewer than three members. Trust Committee vacancies will be filled by
appointment by the remaining members of the Trust Committee or, if there are
none, by the Liquidating Trustee.
Members of the Trust Committee will not be compensated for
their services to the Liquidating Trust, but they will be reimbursed for all
reasonable out-of-pocket expenses, other than the fees and expenses of counsel
to individual members of the Trust Committee.
The Liquidating Trustee will consult with the Trust Committee
in good faith regarding all material issues affecting the Liquidating Trust,
including the resolution of Claims objections, the pursuit of Rights of Action,
and the disposition of assets. Within 45 days after the Effective Date, and
periodically thereafter, the Liquidating Trustee will present to the Trust
Committee, and seek the advice of the Trust Committee regarding, proposed
budgets for the Liquidating Trust setting forth expected receipts and
disbursements for litigation, operations, and other purposes.
The Trust Committee initially will operate under the
Committee's bylaws and subject to all pre-Confirmation confidentiality
agreements and requirements applicable to the members of the Committee until
such documents and agreements are redrafted. The Trust Committee will dissolve
six months after the Confirmation Date; provided, however, that the Committee
may, by majority vote of its members and written notice before dissolution to
the United States Trustee, the Liquidating Trustee, and the Special Notice List,
postpone the date of the Trust Committee's dissolution by one or more additional
six-month periods. While the Trust Committee has fewer than three members, and
after it dissolves, all provisions of the Plan requiring the Liquidating Trustee
to consult with the Trust Committee shall be void.
9.6.9 PROFESSIONALS AND CURRENT EMPLOYEES.
The Liquidating Trustee shall have the authority, on behalf of
the Liquidating Trust, to employ and compensate attorneys, accountants,
investment advisers, and other professionals (including a registrar to maintain
the registry of Beneficiaries and a disbursing agent to make payments) as
determined from time to time without Bankruptcy Court approval, unless the Trust
Committee or ten Beneficiaries request a Bankruptcy Court hearing on the
allowance of such fees within ten days after mailing of notice to the Trust
Committee and the Special Notice List of the proposed payment; provided,
however, that compensation or reimbursement of expenses for any services
rendered after the Effective Date in connection with any applications for
compensation or reimbursement pending on the Effective Date or Filed and served
after the Effective Date with respect to services rendered or costs incurred
before the Effective Date shall be paid only in accordance with Section 2.1.3 of
the Plan.
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The Trust Committee may, with Bankruptcy Court approval,
employ Professionals for specified special purposes. The Liquidating Trustee
shall pay the fees and expenses of such Professionals for such services without
Bankruptcy Court approval, unless the Liquidating Trust or ten Beneficiaries
request a Bankruptcy Court hearing on the allowance of such fees and expenses
within ten days after mailing of the request for payment to the Liquidating
Trust.
To assist in the transition from SPFC to the Liquidating
Trust, current management shall be employed by the Liquidating Trust as
consultants on the current terms of employment as follows: E. James Hedemark
through September 15, 1999; Kevin D. Padrick through September 15, 1999; Timothy
A. Breedlove through September 15, 1999; and Wendy Beth Oliver through September
1, 1999. The Liquidating Trustee, in his or her sole discretion, may by
agreement extend the term and/or renegotiate the contracts with these
consultants, but in no event except by mutual agreement shall the periods or
terms of employment of these consultants be reduced.
The Liquidating Trust shall assume and perform SPFC's
obligations to pay to employees all accrued salaries, wages, benefits, and other
amounts that have accrued from the Petition Date through the Effective Date,
including such payments as authorized by the Order Authorizing Payment of (1)
Employee Severance Plan and (2) Retention Plan, as amended or modified by the
Bankruptcy Court. Each employee of SPFC on the Effective Date shall become an
employee of the Liquidating Trust on the terms and conditions of the employee's
employment by SPFC and with the benefits that SPFC had accorded the employee.
The unpaid portion of the retention and/or severance payment due to each
employee shall be paid on the earlier of September 15, 1999, or the date upon
which the employee becomes entitled to receive that payment pursuant to a
Bankruptcy Court order regarding the retention and/or severance plan. The
Liquidating Trust shall reserve sufficient funds to make all retention payments
due to former employees of SPFC. James E. Hedemark shall be entitled to disburse
or cause to be disbursed all retention payments due to former SPFC employees
employed by the Liquidating Trust in accordance with the severance and retention
plan approved by the Bankruptcy Court. Confirmation of the Plan shall constitute
approval to make such disbursements without further approval.
9.6.10 AUTHORITY OF LIQUIDATING TRUSTEE.
Except as otherwise expressly limited in the Liquidating Trust
Agreement and the Plan, the Liquidating Trustee will have, without prior or
further authorization, control and authority over the trust assets, including
the Rights of Action, over the management and disposition thereof (including any
transfer of trust assets that does not constitute a disposition), and over the
management and conduct of the business of the Liquidating Trust to the same
extent as if the Liquidating Trustee was the sole owner thereof in its own
right.
In connection with the management and use of the trust assets,
the Liquidating Trustee's powers, except as otherwise expressly limited in the
Liquidating Trust Agreement, may include, but shall not be limited to, the
following: (i) to accept the trust assets transferred from SPFC, to pursue the
liquidation and marshaling of the trust assets, and to preserve and protect the
trust assets; (ii) to reconcile, settle or object to claims against SPFC and to
prosecute, settle or
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abandon Rights of Action; (iii) to make or cause to be made distributions of the
trust assets in accordance with the terms of the Liquidating Trust Agreement;
(iv) to liquidate and distribute trust assets or any part thereof or any
interest therein, for cash or upon such terms and for such consideration as it
deems proper; (v) to engage in all acts that would constitute ordinary
performance of the obligations of the trustee under a liquidating trust; (vi) to
enforce the payment of notes or other obligations of any person or to make
contracts with respect thereto; (vii) to purchase insurance with such coverage
and limits as it deems desirable consistent with a budget to be delivered in
connection with the Liquidating Trust Agreement, including, without limitation,
insurance covering liabilities of the Liquidating Trustee or employees or agents
of the Liquidating Trust incurred in connection with their services to the
Liquidating Trust; (viii) to appoint, engage, employ, supervise, and compensate
officers, employees, and other persons as may be necessary or desirable,
including managers, consultants, accountants, technical, financial, real estate,
or investment advisers or managers, attorneys, agents or brokers, corporate
fiduciaries or depositories, and the registrar and transfer agent; (ix) to
invest and reinvest cash available to the Liquidating Trust, pending
Distribution, and to liquidate such investments; (x) to execute, deliver, and
perform any closing agreement made with the IRS; (xi) to determine the manner of
ascertainment of income and principal, and the apportionment of income and
principal, and the apportionment between income and principal of all receipts
and disbursements, and to select an annual accounting period; and (xii) to
execute, deliver, and perform such other agreements and documents and to take or
cause to be taken any and all such other actions as it may deem necessary or
desirable to effectuate and carry out the purposes of the Liquidating Trust
Agreement. The Liquidating Trustee shall make continuing efforts to dispose of
the Trust Assets, make timely distributions, and not unduly prolong the duration
of the Trust.
9.6.11 PROSECUTION OF CLAIMS AND THIRD PARTY CLAIMS; DISPOSITION OF ASSETS.
Except as limited in this Section 9.6.11 or in Section 9.8,
the Liquidating Trustee will be responsible for and will have the authority to
make determinations with respect to objecting to and settling all Claims against
SPFC and the Liquidating Trust; provided, however, that the Liquidating Trustee
will not settle any Claim against SPFC or the Liquidating Trust in excess of
$50,000 but not more than $500,000 or sell or otherwise dispose of an asset
worth more than $50,000 but not more than $500,000 without either obtaining the
Trust Committee's consent or giving 15 days' notice and an opportunity for
hearing in accordance with the procedure applicable to SPFC before the
Confirmation Date, and if a timely objection to the proposed settlement is
filed, obtaining a Bankruptcy Court order approving the settlement; and provided
further, however, that the Liquidating Trustee will not settle any Claim against
SPFC or the Liquidating Trust in excess of $500,000 without giving 15 days'
notice and an opportunity for hearing in accordance with the procedure
applicable to SPFC before the Confirmation Date, and if a timely objection to
the proposed settlement is filed, obtaining a Bankruptcy Court order approving
the settlement. The Liquidating Trustee may settle any Claim against SPFC or the
Liquidating Trust of not more than $50,000 or sell or otherwise dispose of any
asset worth not more than $50,000 without obtaining the Trust Committee's
consent or giving any notice.
9.6.12 FEDERAL INCOME TAX MATTERS.
NO RULING IS BEING REQUESTED FROM THE IRS REGARDING THE TAX
CHARACTERIZATION OF THE LIQUIDATING TRUST.
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The Liquidating Trustee will treat the Liquidating Trust as a
liquidating trust pursuant to Treasury Regulation Section 301.7701-4(d). For
federal income tax purposes, SPFC, the Liquidating Trustee and the Beneficiaries
shall treat the transfer of the Liquidating Trust Assets to the Liquidating
Trust as a transfer of such Liquidating Trust Assets to the Beneficiaries
followed by a nontaxable contribution by the Beneficiaries of such Liquidating
Trust Assets to the Liquidating Trust. For federal income tax purposes, the
Beneficiaries will be treated as the Liquidating Trust's grantors and deemed
owners (in proportion to their interests) of the Liquidating Trust Assets. The
Liquidating Trustee is authorized to take any action as may be necessary or
appropriate to minimize any potential tax liability of the Beneficiaries arising
out of the operations of the Liquidating Trust. The Liquidating Trustee shall
file in a timely manner all such tax returns as are required by applicable law
(Treas. Reg. 1.671-4(a)) by virtue of the existence and operations of the
Liquidating Trust and pay any taxes shown as due thereon. The Liquidating
Trustee shall prepare and distribute to Beneficiaries reports regarding any
income, gain, deduction, credit, or loss of the Liquidating Trust as are
required by applicable law and, in addition thereto, the Liquidating Trustee
shall, not less often than annually, provide to Beneficiaries such information
as is appropriate or necessary to enable the Beneficiaries to determine their
respective tax obligations, if any, arising out of the operations of the
Liquidating Trust. The Liquidating Trustee shall treat all trust income as
subject to tax on a current basis. The Liquidating Trust shall distribute, at
least annually, all trust income and liquidation proceeds to the Beneficiaries,
after payment of expenses and liabilities, less the Reserves and reasonably
necessary reserves for expenses and other Liquidating Trust Costs. The
Beneficiaries shall each report their share of the net income of the Liquidating
Trust and pay any tax owing thereon on a current basis.
The aggregate value of the Excluded Assets shall be determined
by SPFC and the Liquidating Trustee shortly after the Effective Date and
reported to each Beneficiary. The value of the transferred property, (i.e., the
Excluded Assets less liabilities assumed by the Liquidating Trust) shall be
consistently reported for federal income tax purposes by SPFC, the Liquidating
Trust, and the Beneficiaries.
For federal income tax purposes, the transfer of property from
SPFC to the Liquidating Trust is treated as a taxable transaction to SPFC. Any
tax liability incurred by SPFC as a result of the transfer shall be paid by the
Liquidating Trust in accordance with Section 9.8 below.
9.7 RIGHTS OF ACTION.
In accordance with Section 1123(b)(3) of the Bankruptcy Code,
the Liquidating Trust will receive from SPFC and Reorganized SPFC and may
enforce any claims, rights, and causes of action, including those arising before
and after the Petition Date under contract, tort, and statutory law, including
Chapter 5 and ss. 105 of the Bankruptcy Code, that SPFC may hold against any
person or entity, and the Liquidating Trust may exercise all other rights of a
trustee or debtor in possession under the Bankruptcy Code. The Liquidating Trust
or its successors may pursue such Rights of Action, as appropriate, in
accordance with the best interests of the Beneficiaries and without regard to
the confirmation of the Plan or the terms of this Disclosure Statement. The
Liquidating Trustee shall have the right and power to object to proofs of Claim
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or Interest or Claims including those deemed allowed under Section 1111(a) of
the Bankruptcy Code on any ground, including the grounds set forth in Section
502 of the Bankruptcy Code.
Schedule I to the Plan is a nonexclusive list of persons
against whom SPFC may have Rights of Action. SPFC has not determined that it
does or does not have Rights of Action against those persons, but the Plan
reserves for SPFC and the Liquidating Trust the rights to pursue Rights of
Action against all persons, including those listed in Schedule I.
Schedule III to the Plan is a nonexclusive list of creditors
who filed claims in excess of the amounts set forth in SPFC's schedule of assets
and liabilities, and with respect to which proofs of Claim SPFC or the
Liquidating Trust may object.
Without limitation, the Liquidating Trust shall receive and
may enforce any Rights of Action against the persons listed in Schedule I to the
Plan, and the Liquidating Trust may object to the proofs of Claim listed in
Schedule III to the Plan. SPFC lists the names in Schedules I and III to the
Plan only to give notice to the listed persons that SPFC is investigating
whether it has Rights of Action against them or whether it has grounds for
objecting to their proofs of Claim. At this time, SPFC has not concluded that it
does or does not have Rights of Action against the persons listed in Schedule I
or other persons or that SPFC does or does not have grounds for objection to the
proofs of Claim filed by the persons listed in Schedule III to the Plan or any
other proofs of Claim, except as indicated otherwise in this disclosure
statement and to the extent SPFC has commenced actions or counterclaims or filed
objections to proofs of Claim. SPFC reserves and the Liquidating Trust shall
receive from SPFC and may pursue all Rights of Action and may object to all
proofs of Claim without regard to whether the persons against whom the Rights of
Action may be asserted are listed in Schedule I to the Plan or the proofs of
Claim to which the Liquidating Trust objects are listed in Schedule III to the
Plan.
Among other things, the Liquidating Trustee may bring (1)
preference actions against noninsiders, (2) preference actions against insiders,
(3) collection actions, and (4) objections to Claims.
Payments and other transfers in payment of antecedent debts
owed by SPFC to noninsiders during the 90 days before the Petition Date (July 3,
1998, through September 30, 1998) may be avoidable as preferences under Section
547 of the Bankruptcy Code. Persons who received such transfers are potential
defendants in preference actions. A nonexclusive list of noninsiders who
received payments from SPFC during the 90-day period is set forth in Schedule
I-B to the Plan.
The preference period for insiders is extended from 90 days to
one year before the Petition was filed (i.e., from October 1, 1997, through the
Petition Date). "Insider" includes officers, directors, persons in control, and
affiliates of SPFC. "Affiliate" includes an entity that owns, controls, or holds
with power to vote, 20 percent or more of the outstanding voting securities of
SPFC. Insiders who received transfers in payment of antecedent debts owed by
SPFC during the one-year period are also potential defendants in preference
actions. A nonexclusive list of those transferees is set forth in Schedule I-C
to the Plan.
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Except as otherwise set forth in the Plan, the Litigating
Trustee may, but shall not be required to offset against any Claim and the
Distributions to be made pursuant to the Plan in respect of such Claim, any
Rights of Action the Liquidating Trust may have against the Holder of the Claim,
but neither the failure to do so nor the allowance of any Claim hereunder shall
constitute a waiver or release by the Liquidating Trust of any such Right of
Action, setoff, or recoupment that the Liquidating Trust may have against such
Holder.
Unless a Right of Action against a creditor or other person is
expressly waived, relinquished, released, compromised, or settled in the Plan or
in a Final Order, all rights with respect to such Right of Action are reserved
to the Liquidating Trust, which may pursue such Right of Action.
9.8 POST-CONFIRMATION TAXES FOR THE 1999 TAXABLE YEAR.
(a) Unless advised otherwise by Subscriber before the
Effective Date, Reorganized SPFC will become a member of a group of corporations
filing a consolidated federal income tax return effective upon or immediately
after the Closing Date (or under federal and any applicable state income tax
laws SPFC's taxable year will end on or immediately thereafter on the Closing
Date with respect to such taxing jurisdictions), and:
(i) the taxable income of SPFC for the period from
January 1, 1999, through and including the Closing Date (the "Short
Year") will be referred to as the "Short-Year Income";
(ii) the Liquidating Trust will, on behalf of SPFC,
timely file (including any applicable extensions) all tax returns for a
taxable year of SPFC that ends on the Closing Date (the "Short-Year
Returns") and the Liquidating Trust will make reasonable efforts to
file these returns by November 1, 1999, even if not legally required to
do so. Reorganized SPFC will have a reasonable opportunity to review
and provide comments on the federal, California and Oregon Short-Year
Returns before they are filed;
(iii) the Liquidating Trust will be liable for paying
the tax (and interest and penalties, if any) on the Short-Year Income
in each jurisdiction for which a Short-Year Return is to be filed (the
"Short-Year Tax"), and its liability for the Short-Year Tax will be an
allowed claim against the Estate and will be treated as an
administrative expense.
(b) If Reorganized SPFC is not a member of a consolidated (or
equivalent) tax filing group effective upon or immediately after the Closing
Date in any applicable taxing jurisdiction, or if the Closing Date is not the
last day of SPFC's taxable year for tax purposes, then Reorganized SPFC agrees
to prepare and file its 1999 tax returns in a timely fashion (taking into
account extensions), will be responsible to pay taxes due for such taxable year
to the extent provided in this paragraph, and will provide the Liquidating Trust
with notice of such filing. In such event, the Liquidating Trust's liability for
paying the tax in respect of the tax liability for the 1999 taxable year will be
limited to the amount of Reorganized SPFC's incremental additional tax liability
for the 1999 taxable year over the tax liability that would have resulted
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had the Closing Date been the last day of a Short Year (the "Deemed Short Year")
taking into account for federal income tax purposes only the extent to which
Reorganized SPFC's Tax Attributes are affected (adversely or otherwise) by
taxable income in respect of the Deemed Short Year. Accordingly, for avoidance
of doubt, if Reorganized SPFC's Tax Attributes are not adversely affected in
respect of Deemed Short Year income, then the Liquidating Trust will not have
any liability for Reorganized SPFC's 1999 taxable income. For state (and local)
income tax purposes, the liability of the Liquidating Trust for taxes in any
jurisdiction under this paragraph (b) shall not exceed the liability for taxes
would have been owing if the Deemed Short Year had actually been a separate
taxable year of SPFC.
(c) The Liquidating Trust will request a prompt determination
of the state and federal Prepetition tax liabilities of SPFC pursuant to Section
505(a) of the Bankruptcy Code for any tax year ending after June 15, 1996 (the
day after the effective date of SPFC's initial public offering). The Liquidating
Trust will pay (on behalf of SPFC) any tax for which SPFC is obligated to pay as
a result of any such determinations, and Reorganized SPFC will pay to the
Liquidating Trust any tax refunds it receives as a result of any such
determinations.
(d) The Liquidating Trust, pursuant to Section 505(b) of the
Bankruptcy Code, will request a prompt determination of any unpaid liability of
SPFC for any tax incurred during the administration of the Chapter 11 case with
respect to its 1998 taxable year and (if applicable) the Short Year, and the
Liquidating Trust shall be liable to pay any taxes (and interest and penalties,
if any) with respect to such taxable years.
(e) Reorganized SPFC and the Liquidating Trust may both
participate in all material aspects of the federal income tax audits with
respect to SPFC and the Acquired Assets for any taxable year beginning after
June 14, 1996 (the effective date of SPFC's initial public offering) and ending
on or before December 31, 1998 (except that the Liquidating Trust will have no
right to participate in any audit of a tax year unless it is responsible to pay
a portion of the tax due with respect to such tax year) and each shall provide
the other with contemporaneous notice of any communication with the relevant tax
authorities (as set forth in the Additional Covenants Agreement). The
Liquidating Trustee will consult with Reorganized SPFC before making or
accepting any proposed settlement with respect to SPFC or the Acquired Assets in
connection with taxable years beginning before the Closing Date that reasonably
would affect Reorganized SPFC. Notwithstanding the foregoing, the Liquidating
Trustee will make final decisions with respect to tax settlements for taxable
years ending on or before the Closing Date and Reorganized SPFC will make the
final decisions with respect to tax settlements for taxable years ending after
the Closing Date.
(f) The Liquidating Trust will assume any and all liability
for taxes payable by SPFC in connection with SPFC's operations and subsidiaries
located outside of the United States before and including the Closing Date,
including, without limitation, any tax liability in excess of amounts reported
on SPFC's tax returns and Reorganized SPFC will be discharged from any such
liability.
(g) A nationally recognized accounting firm selected by
Subscriber and reasonably acceptable to the Liquidating Trust (the "Tax Expert")
will finally decide all disputes and controversies with respect to this Section
9.8 by submission of a reasonably detailed written
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decision. The Tax Expert, before reaching any such decision, must allow the
Liquidating Trust and Subscriber a reasonable opportunity to provide information
and respond to issues.
9.9 EXECUTORY CONTRACTS AND UNEXPIRED LEASES.
9.9.1 EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE ASSUMED.
On the Effective Date, pursuant to Sections 365 and 1123(b)(2)
of the Bankruptcy Code, SPFC will (i) assume for the benefit of Reorganized SPFC
each executory contract and unexpired lease listed in Schedule IV to the Plan
and (ii) assume and assign to the Liquidating Trust each executory contract and
unexpired lease listed in Schedule V to the Plan. Schedules IV and V to the Plan
may be amended or supplemented by an amendment or amendments filed with the
Bankruptcy Court before Confirmation of the Plan. In addition, Reorganized SPFC
and the Liquidating Trust may assume, or assume and assign, any executory
contract or unexpired lease listed in Schedule VI to the Plan by motion Filed
within 60 days after the Effective Date.
9.9.2 EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE REJECTED; BAR DATE FOR
REJECTION DAMAGES.
Except as otherwise provided in the Plan or in the
Confirmation Order or in any contract, instrument, release, indenture or other
agreement or document entered into in connection with the Plan, on the Effective
Date, SPFC will reject each executory contract and unexpired lease not
previously assumed with the approval of the Bankruptcy Court or assumed under
the Plan. Certain such contracts or leases are listed on Schedule VII to the
Plan. In addition, Reorganized SPFC and the Liquidating Trust may reject any
executory contract or unexpired lease listed in Schedule VI to the Plan by
motion Filed at any time. Each contract and lease will be rejected only if and
to the extent it constitutes an executory contract or unexpired lease.
If the rejection of an executory contract or unexpired lease
gives rise to a claim by the other party or parties to such contract or lease,
such claim will be forever barred and will not be enforceable against the
Liquidating Trust unless a proof of claim is filed and served on the Liquidating
Trust and counsel for the Liquidating Trust within 30 days after the Effective
Date of the Plan or, with respect to the contracts and leases listed in Schedule
VI, by the earlier of the 90th day after the Effective Date or the 30th day
after rejection.
9.10 ESTIMATED DATES OF PAYMENTS TO CREDITORS.
Please review Addendum I regarding the timing and amount of
the estimated payments to creditors.
ADDENDUM I IS INTENDED ONLY AS A SUMMARY AND BRIEF DESCRIPTION
OF THE PLAN. MANY OPERATIVE PROVISIONS OF THE PLAN THAT MAY AFFECT TREATMENT OF
SPECIFIC CLAIMS HAVE BEEN OMITTED FROM THE BRIEF DESCRIPTION CONTAINED IN
ADDENDUM I. THEREFORE, THE PLAN SHOULD BE FULLY AND CAREFULLY READ TO DETERMINE
HOW A SPECIFIC CLAIM IS TO BE TREATED UNDER THE PLAN.
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9.11 RELEASES.
The Plan Participants shall not incur any liability to any
entity, including specifically any Holder of a Claim or Interest, for any act
taken or omitted to be taken after the Petition Date in connection with or
related to the formulation, preparation, dissemination, implementation,
Confirmation, or consummation of this Plan, the Disclosure Statement, the
Confirmation Order, or any contract, instrument, release, or other agreement or
document created or entered into, or any other act taken or omitted to be taken
in connection with this Plan, the Disclosure Statement, or the Confirmation
Order, including solicitation of acceptances of this Plan in good faith and in
compliance with the applicable provisions of the Bankruptcy Code, other than
actions or omissions arising from gross negligence, willful misconduct, or ultra
vires acts. This Section 9.11 shall not apply to any person listed in Schedule
I-A. SPFC is not aware of any claims that would be released by this release.
9.12 POSTPETITION ROLE OF THE COMMITTEE AND INDENTURE TRUSTEES.
The Committee will be disbanded upon the Effective Date and
have no further role in the Chapter 11 Case. The Trust Committee will replace
the Committee. The Indentures will be canceled under the Plan and except as
provided in the Plan the obligations of the Indenture Trustees to both SPFC and
the Holders of the Notes will be discharged. The Plan provides for payment to
the Indenture Trustees of reasonable post-Confirmation legal fees, trustee's
fees, and expenses incurred in connection with the initial steps in consummation
of this Plan and the implementation of the Liquidating Trust. SPFC expects that
the Indenture Trustees will have a limited role in the Chapter 11 Case after the
Effective Date, which will end with implementation of the Liquidating Trust.
ARTICLE X
RISKS AND BENEFITS OF THE PLAN
10.1 IN GENERAL.
The risks and benefits of the Plan, by comparison to
alternatives to the Plan considered by SPFC, are discussed in Addendum I below,
together with Cash Flows under the Plan. The Plan is also subject to several
other risks described below.
Because the value of the Liquidating Trust depends in large
part on Cash Flow generated by the Residual Certificates that is to be paid
under the Acquisition Agreement, Holders of the Claims should consider the risk
factors set forth below in evaluating the Plan. The risk factors enumerated
below assume confirmation and the consummation of the Plan and of the
Acquisition Transaction. Prior to deciding whether and how to vote on the Plan,
Holders of Claims should carefully consider all of the information contained in
this Disclosure Statement, especially the factors mentioned in the following
paragraphs.
10.2 SPECULATIVE NATURE OF THE FINANCIAL ASSETS.
The aggregate amount and timing of distributions on the
Financial Assets is subject to material variability from period to period and
over the lives of the assets. Actual Cash
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Flows are impossible to predict with precision and are likely to change from
time to time. Distribution of Cash Flows to the Holders of Residual Certificates
is dependent upon the performance of the related mortgage loans and there may be
material variations in the amount, if any, of the Cash Flows distributed and
extended periods when no Cash Flows are received with respect to one or more
Residual Certificates.
10.3 OVERCOLLATERALIZATION REQUIREMENTS OF THE RESIDUAL CERTIFICATES.
The Cash Flows represent the excess of amounts, if any,
generated by pools of mortgage loans. Such excess amounts are derived from, and
affected by, the interplay of two economic components to each Residual
Certificate: (1) the excess spread differential and (2) overcollateralization.
The "excess spread differential" is the excess of amounts generated by the
mortgage loans relating to a Residual Certificate over amounts required to be
paid on the related Senior Certificates. The differential can be severely eroded
and in extreme cases extinguished by, among other factors, (i) a significant
amount of defaults or rapid prepayments experienced by the related mortgage
loans (and, in particular, delinquencies, defaults, or prepayments experienced
on higher coupon mortgage loans), or (ii) a significant upward adjustment in the
applicable interest rate index.
The "overcollateralization" feature common to the Residual
Certificates creates a limited acceleration of the principal amortization of the
Senior Certificates relative to the principal amortization of the mortgage loans
until certain targeted levels of overcollateralization are satisfied. Unless and
until the required overcollateralization amount is reached, no Cash Flows with
respect to the related Residual Certificates derived from the excess spread
differential will be available.
In general, each of the securitization trusts has experienced
increased required overcollateralization amounts as a result of actual
delinquency performance. As long as Cash Flows resulting from the related excess
spread differential are directed to the senior certificates, the Residual
Certificates will not receive any Distribution. The Liquidating Trust bears the
risk that there may be significant periods during which no or limited
Distributions will be made on the Residual Certificates.
10.4 PREPAYMENTS AND DEFAULTS.
The Cash Flows generated for the Residual Certificates will be
adversely affected by a higher than expected rate of principal payments on the
mortgage loans (including prepayments and collections upon defaults,
liquidations, and repurchases). Factors affecting prepayment (including defaults
and liquidations) of mortgage loans include changes in mortgagors' housing
needs, job transfers, unemployment, mortgagors' net equity in the mortgaged
properties, changes in the value of the mortgaged properties, mortgage market
interest rates, solicitations and servicing decisions. In addition, if
prevailing mortgage rates fall, the rate of prepayments would be expected to
increase. All of the mortgage loans contain due-on-sale provisions and
enforcement will result in prepayment of such mortgage loans.
The underwriting standards for the mortgage loans were less
stringent than those of FNMA or FHLMC with respect to a borrower's credit,
collateral, and in certain other respects.
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As a result of this approach to underwriting, the mortgage loans may experience
higher rates of delinquencies, defaults and foreclosures than mortgage loans
underwritten in a more traditional manner. Loss and prepayment experience on the
mortgage loans could adversely affect the Cash Flow.
Furthermore, changes in the value of the properties securing
the mortgage loans may have a greater effect on the delinquency, foreclosure,
bankruptcy, and loss experience of the mortgage loans than on mortgage loans
originated in a more traditional manner. Loss and prepayment experience on the
mortgage loans may be affected by, among other things, a downturn in regional or
local economic conditions.
10.5 ADDITIONAL RISKS ASSOCIATED WITH THE MORTGAGE LOANS.
A significant percentage of the mortgage loans are delinquent
or in foreclosure.
10.6 SUBORDINATION OF RESIDUAL CERTIFICATES.
The Cash Flow is extremely sensitive to losses on the mortgage
loans (and the timing thereof), because the entire amount of such losses that
are realized will be allocated to the Residual Certificates, either by reduction
in amounts otherwise payable in respect of the Residual Certificates or by a
reduction in the amount of overcollateralization, which represents, in part,
amounts distributable to the Residual Certificates on future distribution dates.
Losses on the mortgage loans generally are allocated first to
the Residual Certificates and reduce the Cash Flow payable with respect to the
Residual Certificates.
10.7 RISKS RELATING TO THE PROJECTION.
The management of SPFC has prepared the projected financial
information attached to this Disclosure Statement as Exhibit 4 (the
"Projection") in connection with the development of the Plan and in order to
present the anticipated effects of the Plan and the transactions contemplated
thereby. The Projection assumes that the Plan and the Acquisition Transaction
will be implemented in accordance with their terms. The assumptions and
estimates underlying the Projection are forward-looking and as such are
inherently uncertain and, although considered reasonable by management as of the
date hereof, are subject to significant business, economic, and competitive
risks and uncertainties that could cause actual results to differ materially
from those projected. Consequently, the projected financial information
contained herein should not be regarded as a representation by SPFC, SPFC's
advisers, or any other person that the Projection can or will be achieved.
10.8 RISKS RELATING TO TRANSFERABILITY OF BENEFICIAL INTERESTS.
Please see Section 9.6.3 regarding the risks relating to the
transferability of the Beneficial Interests.
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10.9 BOMAC LITIGATION.
As discussed in Section 3.4, above, from late 1996 until
September 1998, SPFC purchased loans from BOMAC through SPFC's Strategic
Alliance Program. BOMAC filed an adversary proceeding in the Chapter 11 Case
(the "BOMAC Litigation") alleging ownership of a portion of the Residual
Certificates, and SPFC has filed a counterclaim seeking $16 million in damages
and a declaration that BOMAC has no interest in the Residual Certificates. Those
issues in the BOMAC Litigation that pertain to ownership of the residuals and
prepayment penalties are set for trial on June 11, 1999, with the remainder of
the issues to be determined at the confirmation hearing. Although SPFC believes
that it will prevail, if BOMAC is successful, SPFC will not be able to
consummate the Acquisition Transaction.
ARTICLE XI
LIQUIDATION ANALYSIS
As a condition to confirmation of a Plan, Section
1129(a)(7)(A)(ii) of the Bankruptcy Code requires that each impaired Class of
Claims or Interests must receive or retain at least the amount or value they
would receive if the debtor were liquidated in a Chapter 7 case. This
requirement is referred to as the requirement that the Plan be in "the best
interest of creditors."
SPFC believes that the Plan satisfies the "best interest" test
for the following reasons: (1) the Plan provides for the liquidation of SPFC's
assets and Distribution of the proceeds in the priority in which they would be
distributed in a Chapter 7 case, (2) the price that will be realized for the
sale of new capital stock of SPFC in the Acquisition Transaction will
substantially exceed the price that SPFC or a Chapter 7 trustee could obtain
from separately selling the Financial Assets (and the amount of that excess will
exceed any expenses, including trustee compensation, under the Plan that might
exceed those that a Chapter 7 trustee would incur), and (3) a transaction such
as the Acquisition Transaction in which new capital stock of SPFC is issued to a
buyer could not be effected other than through a Chapter 11 case (due to the
need to convey certain tax attributes to the buyer). See Addendum I for SPFC's
discussion of its marketing of the Financial Assets and its decision to enter
into the Acquisition Transaction rather than sell the Financial Assets for cash.
ARTICLE XII
CONFIRMATION OF THE PLAN
12.1 VOTING PROCEDURES.
12.1.1 FOR ALL CREDITORS.
SPFC is seeking the acceptance of the Plan by all Classes of
claimants entitled to vote on the Plan. If you are entitled to vote to accept or
reject the Plan, a Ballot is enclosed for the purpose of voting on the Plan. If
you hold a Claim in more than one Class and you are entitled to vote Claims in
more than one Class, you will receive separate Ballots, which must be used for
each separate Class of Claims. Please vote and return your Ballot(s) to Poorman
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Douglas Corporation as the voting agent (the "Voting Agent"). Your Ballot must
be delivered either by mail or personal delivery to:
Poorman Douglas Corporation
Southern Pacific Funding Corporation Balloting
P.O. Box 4230
Portland, Oregon 97208-4230
If a Ballot is signed by trustees, executors, administrators,
guardians, attorneys in fact, officers of corporations or others acting in a
fiduciary capacity, such persons should indicate such capacity when signing.
Unless otherwise ordered by the Bankruptcy Court, Ballots or
Master Ballots that are signed, but on which a vote to accept or reject the Plan
has not been indicated, will not be counted.
Ballots with respect to the Plan will be accepted by SPFC
until 5 p.m., Portland, Oregon Time, on July 2, 1999 (the "Voting Deadline").
Except to the extent SPFC so determines or as permitted by the Bankruptcy Court
pursuant to Bankruptcy Rule 3018, Ballots that are received after the Voting
Deadline will not be accepted or used by SPFC in connection with SPFC's request
for confirmation of the Plan.
Consistent with the provisions of Rule 3018 of the Bankruptcy
Rules, SPFC has fixed the Voting Record Date (the close of business, Portland,
Oregon Time, on May 26, 1999) as the time and date for the determination of
Holders of record of Claims in Classes 3, 5, 6 and 11 who are entitled to vote
on the Plan. If the Holder of record of any Claim is not also the beneficial
owner of such Claim or Interest, the vote to accept or reject the Plan must be
cast by the beneficial owner of such Claim or Interest.
For purposes of voting to accept or reject the Plan, Holders
of the Notes should be aware that the term "Holder" means a beneficial owner of
the Senior Notes or the Subordinated Notes on the Record Date. A "beneficial
owner" is the person who enjoys the benefits of ownership of the securities
(i.e., has a pecuniary interest in the securities) even though title of the
securities may be in another name. The term "Holder" with respect to other
Claims and Interests means the person who holds such Claim or Interest in such
person's capacity as the Holder of such Claim or Interest. Only beneficial
owners (or their authorized signatories) of the Subordinated Notes and the
Senior Notes (collectively, the "Voting Securities").
All votes to accept or reject the Plan must be cast by using a
Ballot. Votes cast in any manner other than by using a Ballot will not be
counted.
If you are a Holder of a Claim or Interest entitled to vote on
the Plan and you did not receive a Ballot, received a damaged Ballot, lost your
Ballot, or have questions concerning this Disclosure Statement, the Plan, or the
procedures for voting on the Plan, please call Alexander Ring of Miller, Nash,
Wiener, Hager & Carlsen LLP, at (503) 205-2556.
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12.1.2 GENERAL INSTRUCTIONS.
After carefully reviewing the Plan, including all exhibits
thereto, and this Disclosure Statement and its exhibits, please indicate your
vote on the enclosed Ballot and return it in the envelope provided. In voting to
accept or reject the Plan, please use only the Ballot sent to you with this
disclosure statement. Please complete and sign your ballot in accordance with
the instructions set forth on the Ballot and return it in the enclosed envelope.
BALLOTS SENT BY FACSIMILE TRANSMISSION OR ELECTRONIC MAIL ARE
NOT ALLOWED AND WILL NOT BE COUNTED. BALLOTS THAT ARE NOT CORRECTLY COMPLETED
WILL NOT BE COUNTED, BUT BALLOTS THAT ARE OTHERWISE COMPLETED BUT DO NOT
INDICATE EITHER AN ACCEPTANCE OR REJECTION OF THE PLAN OR INDICATE BOTH AN
ACCEPTANCE AND REJECTION OF THE PLAN WILL BE IGNORED.
This Disclosure Statement has been approved by order of the
Bankruptcy Court dated June ---, 1999, as containing information of a kind and
in sufficient detail to enable a hypothetical, reasonable investor, typical of a
Holder of a Claim, to make an informed judgment whether to accept or reject the
Plan. Approval of this Disclosure Statement by the Bankruptcy Court does not
constitute a ruling as to the fairness or merits of the Plan.
No statements or information concerning SPFC or the Plan may
be made or should be relied on, other than as set forth in this Disclosure
Statement or as may hereafter be authorized by the Bankruptcy Court. The
statements and information about SPFC in this Disclosure Statement have been
prepared by SPFC.
12.1.3 SPECIAL PROCEDURES FOR ADMINISTRATIVE CONVENIENCE CLASS ELECTION.
Creditors holding Allowed Claims of more than $400 in Classes
7 and 8 (Holders of Unsecured Claims other than the Senior Notes or the
Subordinated Notes) are entitled to elect to reduce their Claims to $400 in
order receive payment of $400 on the Effective Date of the Plan. See Section
9.4.7. To determine whether to make that election, please see Addendum I, as
well as the entirety of this Disclosure Statement. TO MAKE THE ELECTION TO
RECEIVE $400, A CREDITOR MUST COMPLETE THE ELECTION FORM ON THE BALLOT THE
CREDITOR WILL RECEIVE AND RETURN IT TO THE VOTING AGENT BY THE VOTING DEADLINE.
A Holder of an Allowed Claim of less than $400 in Class 7 or Class 8 will
receive the amount of its Allowed Claim on the Effective Date.
12.1.4 SPECIAL VOTING PROCEDURES FOR NOTE HOLDERS.
SPFC is providing copies of this Disclosure Statement, ballots
and, where appropriate, pre-addressed envelopes to all registered holders as of
the record date of the Notes. Registered Holders may include brokers, banks, and
other nominees. If such registered Holders do not hold for their own accounts,
they or their agents (collectively the "Nominees") should provide copies of this
Disclosure Statement and appropriate Ballots to their customers and to
beneficial owners. Any beneficial owner who has not received a Ballot should
contact the appropriate Nominee.*
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12.1.4.1 BENEFICIAL OWNERS.
The Bankruptcy Court has set May 26, 1999, as the record date
for determining the identity of Note Holders entitled to vote on the Plan. Only
the Note Holder of record on the record date may vote with respect to a Note.
Any beneficial owner as of the record date of the Notes in
his, her, or its own name can vote by completing the Ballot and returning it
directly to the Voting Agent before the Voting Deadline using the pre-addressed
envelope so as to be received by the Voting Agent before the Voting Deadline.
Any beneficial owner holding Notes as of the record date in
"street name" through a Nominee can vote by completing and signing the Ballot
and returning it to the Nominee in sufficient time for the Nominee to then
forward the vote so as to be received by the Voting Agent at the addresses above
before the Voting Deadline of 5 p.m. (Portland, Oregon, Time) on July 2, 1999.
Any Ballot submitted to a Nominee will not be counted until such Nominee
properly completes and timely delivers a corresponding Master Ballot to the
Voting Agent.
12.1.4.2 NOMINEES.
A Nominee who on the record date is the registered Holder of
one or more Notes for a beneficial owner must obtain the votes of the beneficial
owners by forwarding to the beneficial owners the unsigned Ballots, together
with this Disclosure Statement, a return envelope provided by and addressed to
the Nominee, and other materials requested to be forwarded. Each beneficial
owner must then indicate his, her, or its vote on the Ballot, complete the
Ballot, review the certifications on the Ballot, execute the Ballot and return
the Ballot to the Nominee. After collecting the Ballots, the Nominee should, in
turn, complete the Master Ballot, compiling the votes and other information from
the Ballots, execute the Master Ballot, and deliver the Master Ballot to the
Voting Agent so that it is received by the Voting Agent before the Voting
Deadline. All Ballots returned by the beneficial owners should be forwarded to
the Voting Agent along with the Master Ballot. Beneficial owners should be
advised to return their Ballots to the Nominee by a date calculated to allow the
Nominee to prepare and return the Master Ballot so that it is received by the
Voting Agent before the Voting Deadline.
Note Holders should be aware that the indenture trustees
cannot vote on behalf of the Note Holders.
If more than one-half in number of the voting creditors of a
Class vote to accept a Plan and at least two-thirds in amount of the Allowed
Claims of such voting creditors are voted in favor of that Plan, such Class will
be determined to have accepted that Plan. All unimpaired Classes are deemed to
have accepted the Plan under which they are not impaired. For purposes of
determining whether a Class of Claims has accepted or rejected the Plan, only
the votes of those creditors who have timely returned their Ballots will be
considered.
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12.1.4.3 SENIOR NOTE HOLDERS.
Senior Note Holders should be aware that under the Plan, they
automatically hold claims in both Classes 3 and 5 and may vote in both Classes.
12.2 HEARING ON CONFIRMATION.
The hearing on confirmation of the Plan has been set for July
7, 1999, at 9 a.m. before the Honorable Elizabeth L. Perris, United States
Bankruptcy Judge, in Bankruptcy Courtroom No. 1, United States Bankruptcy Court,
1001 S.W. Fifth Avenue, Suite 700, Portland, Oregon.
The Bankruptcy Court will confirm the Plan at the confirmation
hearing only if certain requirements set forth in Section 1129 of the Bankruptcy
Code are satisfied. A summary of these requirements is set forth in Section 2.2,
and some of these requirements are reviewed below with respect to the Plan. The
Confirmation Hearing may be adjourned from time to time without notice other
than the announcement of an adjourned date at the Confirmation Hearing.
Objections to Confirmation of the Plan, if any, must be in writing and served on
counsel to SPFC and the Committee and filed with the Bankruptcy Court on or
before July 2, 1999.
12.3 CONFIRMATION WITHOUT THE ACCEPTANCE OF A CLASS.
If all other requirements for confirmation of a Plan are met,
the Bankruptcy Court may, at the request of the proponent, confirm the Plan
notwithstanding the fact that one or more impaired Classes of Claims or
Interests have not accepted the Plan. The Bankruptcy Court may confirm a Plan
under these circumstances if the Bankruptcy Court finds that the Plan is fair
and equitable under the provisions of Section 1129(b) of the Bankruptcy Code.
The Bankruptcy Code requires the Bankruptcy Court to find that the Plan does not
discriminate unfairly and is fair and equitable with respect to each Class of
Claims or Interests that is impaired under the Plan and has not accepted the
Plan. Upon such finding, the proponent of the Plan may confirm the Plan over the
objections of a dissenting class.
SPFC believes that the Plan does not discriminate unfairly and
is fair and equitable with respect to each Class of Claims or Interests that is
impaired under the Plan and therefore can be confirmed over a dissenting Class
of Claims or Interests.
12.4 EFFECT OF CONFIRMATION.
Confirmation of a Plan will operate as a discharge of
Reorganized SPFC, which will continue to engage in business, from all Claims and
indebtedness that arose before the Plan was confirmed. The sole compensation for
such discharged Claims and indebtedness will be Cash payments and other
consideration to be Distributed under the confirmed Plan.
All properties of SPFC's estate will be free and clear of all
Claims and Interests of creditors and equity security holders except as
otherwise provided in the confirmed Plan or the order of the Bankruptcy Court
confirming the Plan. The provisions of the confirmed Plan will bind SPFC and all
other parties in interest, including any creditor of SPFC or Holder of an equity
interest in SPFC, whether or not such creditor or Holder of an equity interest
is impaired under
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the confirmed Plan and whether or not such creditor or Holder of an equity
interest voted to accept the confirmed Plan. Confirmation will also discharge
the Indenture Trustees from any duty under the Senior Indenture or the
Subordinated Indenture except as expressly provided in the Plan or any
modification thereto.
12.5 CONSEQUENCES OF FAILURE TO CONFIRM A PLAN.
If the requirements for confirmation of the Plan are not
satisfied, SPFC would not be able to consummate the Acquisition Transaction.
SPFC would then attempt to sell the Financial Assets in a manner that did not
require confirmation of a plan and then convert this Chapter 11 case to a
liquidating case under Chapter 7 of the Bankruptcy Code. SPFC believes the
Acquisition Transaction will maximize the value of the Financial Assets. SPFC
also believes that the Acquisition Transaction could not be effected in a
Chapter 7 liquidation case.
ARTICLE XIII
TAX ASPECTS OF DISTRIBUTIONS UNDER THE PLAN
SPFC believes that under the present law and regulations, the
federal income tax consequences of the Distribution of Cash to creditors before
formation of the Liquidating Trust pursuant to the Plan will be only those
normally attendant to payment or partial payment of an obligation by a debtor to
a creditor. The tax aspects of Distributions to or from the Liquidating Trust
under the Plan are complex and beyond the ability of SPFC to predict, and SPFC
urges creditors to seek independent professional tax advice. See Section 9.6.12
for a general discussion of the tax consequences of the creation of and
contribution of assets to the Liquidating Trust.
THE FOREGOING DESCRIPTION OF FEDERAL INCOME TAX CONSEQUENCES
IS INTENDED MERELY AS AN AID FOR CREDITORS, AND NEITHER SPFC NOR ITS COUNSEL
ASSUME ANY RESPONSIBILITY IN CONNECTION WITH THE INCOME TAX LIABILITY OF ANY
CREDITOR OR HOLDER OF AN EQUITY INTEREST.
CREDITORS AND HOLDERS OF EQUITY INTERESTS ARE URGED TO OBTAIN
ADVICE FROM THEIR COUNSEL REGARDING THE APPLICABILITY OF FEDERAL AND STATE TAX
LAWS.
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ARTICLE XIV
CONCLUSION
Please read this Disclosure Statement and the Plan carefully
and vote by using the Ballots included with this Disclosure Statement. SPFC
urges you to vote to ACCEPT the Plan.
DATED this 2d day of June, 1999.
SOUTHERN PACIFIC FUNDING CORPORATION
By: /s/ Wendy Beth Oliver
Wendy Beth Oliver
Secretary
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ADDENDUM I
ARTICLE I
ALTERNATIVES FOR DISPOSITION OF RESIDUALS
1.1 EVALUATION.
As discussed in Article VIII above, after the Petition Date,
SPFC, with the assistance of its advisers and in consultation with the
Committee, engaged in an intensive, in-depth analysis of alternatives for
disposition of the Residual Certificates (and related servicing rights) in order
to maximize their present value without undertaking undue risk. SPFC examined
three general strategies: (i) the "cash sale" strategy, in which SPFC would sell
the Residual Certificates immediately for a cash payment; (ii) the "hold"
strategy, in which SPFC would hold the Residual Certificates to receive cash
payments over the remaining term of the mortgage loans in the securitization
trusts subject to the Residual Certificates ("Cash Flow"); and (iii) the "share"
strategy, in which SPFC would receive an immediate cash payment and a percentage
of the Cash Flow in return for transfer of the Financial Assets. Considering the
projected Cash Flow and the risks inherent in each strategy, SPFC, in
consultation with the Committee, concluded that the share strategy, as embodied
in the Acquisition Agreements, is in the best interest of creditors and the
Estate.
A Comparison of Disposition Alternatives is attached hereto as
Exhibit 3. A brief discussion of the alternative strategies follows. The first
page of the exhibit provides a comparison of sources and uses of cash, the
estimated Distributions, and the estimated net present value of the estimated
Distributions for each of the disposition alternatives. The second page compares
that net present value of the estimated Distributions as a percentage of
estimated claims, a matrix of net present values of the estimated Distributions
using varying discount rates, and comparative timelines of the estimated
Distributions for each of the disposition alternatives.
1.1.1 CASH SALE STRATEGY.
After an extensive marketing effort, including the auction,
the highest offer SPFC received for a cash sale of the Residual Certificates was
a net of $76 million from Bear, Stearns & Co. ($78 million, less $2 million that
would have had to have been paid as a break-up fee).
1.1.2 HOLD STRATEGY.
The present value of pursuing the hold strategy is a function
of the projected Cash Flow and the appropriate discount rate and depends on a
number of factors, such as prepayment rates, maturity dates, and the quality and
cost of servicing. It is impossible to determine with any certainty the actual
Cash Flows. SPFC is aware of projections of Cash Flow prepared by Pentalpha
Group that support a range from $187,562,127, based on loan servicing continuing
to be conducted by SPFC under its current servicing policies (the hold strategy
"base case"), to $217,328,785, assuming that SPFC were able to improve the
quality of its servicing by transferring servicing of part or all of the
Mortgage Loans to a replacement servicer. The Cash Flows would be paid over the
remaining 29-year life of the Mortgage Loans.
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The appropriate discount rate to apply to the Cash Flow is a
function of the risk that the Cash Flow will not be realized and the discount
rates available in the market for investments of similar risk. Due to the
limited market for Residual Certificates such as those owned by SPFC, it is
difficult to determine an appropriate discount rate by market references. For
comparison purposes, SPFC has calculated the present value of the hold strategy
Cash Flow by applying a discount rate of 18 percent per annum, but the true
discount rate that potential purchasers of the Residual Certificates or
interests in them would require may be higher or lower than 18 percent. (As
explained below, SPFC believes that a lower discount rate of 15 percent per
annum is justified when determining the present value of Cash Flow under the
base share strategy.) Applying that discount rate to the foregoing Cash Flow
projections results in a range of present values from $78,453,934 to
$92,723,005.
The hold strategy is not without risks. First, SPFC would need
to pay interest on and refinance the DIP Facility of approximately $33 million,
which matures on July 8, 2000. Based on Pentalpha Group's forecast, SPFC
believes that it would take approximately four years to pay the DIP Facility in
full from the Cash Flow. It has been SPFC's experience that lenders interested
in financing residuals are usually willing to do so only for much shorter
periods of time, and then only if the financing gives the lender an opportunity
to purchase the residuals. Second, without additional capital, SPFC would
continue to face risks that it will have inadequate cash to make required
servicer advances (thus risking becoming in default under its pooling and
servicing agreements ("PSAs")). Third, it may be difficult for SPFC to retain
its servicing staff after June 1999, when most Service Center employees expect
that their positions will be eliminated. Fourth, MBIA has taken the position
that, if SPFC were to retain Residual Certificates, MBIA would compel SPFC to
transfer master servicing rights, and would not permit SPFC to enter into a
subservicing arrangement with a different servicer and retain master servicing
rights for SPFC. If SPFC were forced to transfer master servicing rights, it
could not separately sell the Residual Certificates "servicing-released," i.e.,
with the right to service the mortgage loans, thus reducing the value of the
Residual Certificates. Finally, SPFC's senior management may not be willing to
remain in SPFC's employment for an extended period.
1.2 SHARE STRATEGY.
Because the highest bid received under the cash sale strategy
was at the low end of the projected range of present values of the hold
strategy, SPFC was reluctant to accept that bid. In view of the uncertainty,
risks, and timing of the hold strategy, however, SPFC was also reluctant to
endorse the hold strategy. Ultimately, SPFC negotiated a share strategy that is
reflected in the Acquisition Transaction (described in Article VIII).
Effectively, SPFC will sell one-half the Financial Assets for
cash at closing and will receive one-half of the net Cash Flow as provided in
the Cash Flow Instrument. Although the share strategy also exposes SPFC to the
risk that Cash Flow will be less than projected, the share strategy allows SPFC
to pay the DIP Facility (and thus eliminate the risk of not being able to
refinance it on July 8, 2000) and benefit from the increased value that
Goldman's financial strength brings to the Residual Certificates.
First, SPFC believes that Goldman is likely to arrange for
servicing to be transferred from SPFC to an alternative servicer. Because
servicers make substantial cash
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advances in connection with servicing (in 1999, SPFC's servicer advance balance
has peaked at more than $10 million), the cost to the servicer of obtaining
financing to make those advances is passed on to the owner of the Residual
certificates in the form of higher servicing fees. Goldman will use its
financial strength to arrange for lower-rate financing to a servicer in return
for lower servicing fees, thus increasing the Cash Flow.
In addition, the risk of loss to the Residual Certificates
will be less under the Acquisition Transaction at least because (i) there will
be no need to refinance the DIP Facility on July 8, 2000, (ii) Goldman has the
capital to ensure that servicer advances are made, avoiding the risk of PSA
defaults, and (iii) Goldman's ability to manage SPFC will not be affected by the
resignation of any or all of SPFC's current management.
For the foregoing reasons, SPFC believes that in determining
the present value of the Cash Flow from the Acquisition Transaction, a discount
rate of 15 percent per annum (a reduction of 3 percent from the discount rate
applied to the hold strategy Cash Flow) is appropriate.
Pentalpha Group has advised SPFC that under the Acquisition
Transaction, the base case (assuming no improvement in Cash Flow) would be
$188,908,717, and an "optimistic" case Cash Flow would be $245,678,622. The
projected Cash Flows under the base and optimistic cases have present values
(discounted at 15 percent per annum) of $82,716,371 and $97,705,833,
respectively.
ARTICLE II
CASH FLOW AND ESTIMATED DISTRIBUTIONS
Given the uncertainty of the projected Cash Flows, it is not
possible to predict what payments ("Estimated Distributions") ultimately will be
made to creditors. In addition, the amount of Claims against the Estate, the
value of the Estate's claims against third parties, and the value of SPFC's
other assets have not been determined. Nonetheless, SPFC and its advisers have
attempted to project the Estimated Distributions to demonstrate that SPFC will
have sufficient funds to meet its obligations on the Effective Date and to fund
adequately the Liquidating Trust. Exhibit 4 is a projection of sources and uses
of cash and estimated Distributions.
IT IS IMPORTANT TO NOTE THAT THE PROJECTION DEPENDS ON A
NUMBER OF ASSUMPTIONS DISCUSSED BELOW.
2.1 PROJECTED SOURCES OF PLAN FUNDS.
The Projection assumes that for the base case of the
Acquisition Transaction, the Liquidating Trust will have sources of cash
totaling $167,159,456. The Projection assumes that the Liquidating Trust will
have uses of cash (before Distributions to creditors including income taxes)
totaling $56,811,221 under the base case.
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<PAGE>
2.1.1 THE ACQUISITION TRANSACTION.
The Projection includes the purchase price of $38,500,000,
less the Cash Price Adjustment that represents one-half of the total projected
prepayment charges and Residual Cash Flow collected by SPFC between April 1,
1999, and closing.
2.1.2 PREPAYMENT CHARGES AND RESIDUAL CERTIFICATES.
The Projection includes $1,486,409 of actual prepayment
charges and Residual Cash Flow collected during April 1999 and actual Residual
Cash Flow for May 1999. The remaining amounts are as forecast by Pentalpha Group
for May and June 1999. Prepayment charges projected for May and June were
reduced by approximately $300,000 per month to reflect actual collections during
recent months.
2.1.3 DISTRIBUTIONS FROM CASH FLOW INSTRUMENT.
The Projection includes 50 percent of the total prepayment
charges and Residual Certificate Cash Flows projected by Pentalpha Group over
the remaining contractual lives of the underlying mortgage loans. The projected
Cash Flow is based on numerous assumptions, including future interest rates,
delinquencies, realized losses, and prepayment speeds associated with mortgage
loans underlying the Residual Certificates that are being sold to Goldman.
2.1.4 PROCEEDS FROM SALE OF SPML.
The Projection includes principal and interest payments that
will be collected under the terms of the note issued pursuant to the sale of
SPML. The projection also includes the realization of approximately $6.3 million
from the value of the Liquidating Trust's 25-percent retained equity interest in
SPML. The projected value of the retained equity interest was estimated by the
financial adviser retained by the Committee, assuming the exercise of a put
option in the sixth year following the date of the sale.
2.1.5 OTHER.
The Projection does not include proceeds of claims of SPFC,
including preference and fraudulent transfer claims and contract and tort claims
not arising under the Bankruptcy Code. Although the Plan provides for
reservation and assignment to the Liquidating Trust of all such claims, SPFC has
not concluded its analysis of possible claims it may bring and believes that any
estimate of proceeds of those claims at this time would not be meaningful. For
the same reason, the Projection also does not include any expenses the
Liquidating Trust may incur in pursuing those claims, which would reduce cash
available for payment to creditors to the extent the expenses exceed the
proceeds of pursuing those claims. Amounts that the Liquidating Trust recovers
from such claims, net of expenses, will increase the amount available for
Distributions.
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2.2 PROJECTED USES OF PLAN FUNDS.
2.2.1 INTERIM OPERATIONS.
2.2.1.1 OPERATING RECEIPTS AND DISBURSEMENTS, NET
This category includes actual net servicing fees and ancillary
income, net of payments for uncollected interest and miscellaneous cash
collections for April 1999 of $725,040. Projections for May through August
include net servicing income of $500,000 per month from the Santa Rosa servicing
center. Servicing income from Advanta, which is remitted to the company in the
month following collection by Advanta, is projected at $125,898 (based on
actual), $95,000 and $90,000 for May, June and July, respectively. Servicing
income collected by Advanta after June is included in the cash flows projected
for Reorganized SPFC. Miscellaneous deposits are projected at $40,000 for May,
$20,000 for $10,000 per month for July and August, and $240,000 in September.
Projected interim administrative costs include actual expenses for April of
approximately $1 million and forecasted amounts for May of approximately
$915,000 descending to approximately $227,000 in September. The decrease in
administrative costs assumes that corporate staff will be reduced following the
completion of the sale to Goldman Sachs. The projections include the retention
of the majority of the staff of the Santa Rosa servicing center to provide
sub-servicing support on behalf of Reorganized SPFC during July. Interim
operations include payment in June of 50 percent of the total liability under
the company's employee retention plan. The remaining retention payments are
projected over the period from July through August based upon the expected
termination date of all retention eligible employees. The projected obligation
under the retention program is $1,748,609. The employer portion of payroll taxes
attributable to the retention payments was estimated at approximately 4 percent.
2.2.1.2 PROCEEDS FROM OTHER ASSET SALES.
The Projection includes $140,000 from the estimated net
proceeds from the sale of an REO property during May and $360,000 from the
estimated proceeds from the sale or liquidation of mortgage loans receivable in
June. SPFC projects that it will receive $1,300,000 during August from funds
currently held in the Morgan Account in trust resulting from prior sales of
warehouse mortgage loans. See Section 6.5.1. SPFC may receive additional amounts
from the release of funds in the respective trust accounts or under the terms of
the respective agreements to sell loans to SPFC's former warehouse lenders. No
estimate for the collection of such additional amounts is included in the
Projection.
2.2.1.3 NET REPAYMENT OF SERVICING ADVANCES.
The Projection includes actual net servicing advances of
$1,358,028 for April and assumes $500,000 of net servicing advances for May and
June. The Projection also assumes that SPFC will receive a repayment during July
of net advances totaling $5,523,425, including the balance outstanding as of the
beginning of the Projection.
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2.2.1.4 SETTLEMENT WITH NORWEST.
The payment of $3,380,964 in partial settlement of Claims made
by Norwest is projected to be made in June, before the closing of the
Acquisition Transaction. Norwest will not otherwise share in Distributions.
2.2.2 ADMINISTRATIVE EXPENSES.
The Projection assumes Administrative Expenses of $100,000 per
month through February 2000, $50,000 per month during the remainder of 2000,
$30,000 per month from 2001 through 2003, $10,000 per month from 2004 through
2009, and $5,000 per month thereafter until they are reduced to the level of
available monthly cash flow in year 24.
2.2.3 PROFESSIONAL FEES.
The Projection includes the actual payment to SPFC's
accountants and attorneys during April of $1,404,423 for services performed
through January 1999. The projection includes the payment of $3,186,000 to
SPFC's professionals during August. Additional payments to professionals of
approximately $910,000 are projected during the remainder of 1999.
The Projection includes a $500,000 payment to the financial
adviser retained by the Committee in connection with the sale of SPML. The
Projection also includes payments to the Indenture Trustees of $686,000 as
reimbursement of postpetition costs and attorney fees if the Indenture Trustees
apply for payment of their costs and attorney fees as Administrative Expenses.
(By so doing SPFC does not concede that the Indenture Trustees will be entitled
to payment of that amount.)
2.2.4 FEES PAID TO FINANCIAL ADVISERS.
Fees paid to financial advisers includes a monthly retainer of
$45,000 plus expenses through the closing of the Acquisition Transaction. In
addition, a performance enhancement fee based upon a percentage of cash flows
received by SPFC is projected pursuant to the contract with the financial
adviser. The fee percentage is based upon a tiered scale of cumulative cash
flows generated from the sale of SPFC's Residual Certificates. The fee is
increased retroactively as each successive cumulative tier is achieved. Based on
the cash flows projected under the sources section of the Projection, the
highest tier of 3 percent has been applied to project the fee to the financial
adviser.
2.2.5 PRINCIPAL, INTEREST, AND FEES ON DIP FINANCING FACILITY.
The Projection includes actual payments applied to the Bear
Stearns DIP Facility of $972,410 during April and actual payments made on May 5
of approximately $1,558,000 for participation and other fees made in connection
with the payoff of the Bear Stearns facility. Payments of $754,855 and $460,000
against principal and accrued interest are projected for May and June,
respectively. The projected balance of outstanding principal and interest of
$32,713,613 is forecast for payoff in July with proceeds of the Acquisition
Transaction.
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2.2.6 INCOME TAXES AND INTEREST.
The Projection includes $245,000 in actual payments made in
April for state income taxes due for 1998 and payments of $850,000 each during
June and July for the estimated corporate income tax liability for the first
half of 1999. The Projection also includes payments of $2,255,000 for the net
amount due for federal and state income taxes for the period from 1996 through
1998 subject to the amendment of the returns that were previously filed for
those periods. The Projection includes $197,573 for interest charges that are
expected to accrue on the $2,255,000 before its complete payment. The estimated
tax liability is subject to the completion of the amended returns for 1996,
1997, and 1998 and the results of the expected audits of some or all of those
returns by the respective taxing authorities.
2.2.7 ALLOWED CLAIMS.
Considering the schedules and proofs of claim, the sum of
claims in this case was $2,256,758,118.98. The bulk of that amount is
represented by several proofs of Claim filed on behalf of Norwest, and it also
includes the Claims of the Holders of the Senior Notes and the Subordinated
Notes.
SPFC has filed one series of objections to proofs of Claim.
Although SPFC has not completed its analysis of all remaining proofs of Claim
(and SPFC may object to other proofs of Claim before Confirmation of the Plan,
and the Liquidating Trust may do so after Confirmation of the Plan), SPFC
estimates that after subsequent objections to proofs of Claim the sum of Allowed
nonpriority unsecured Claims in Classes 7 and 8, other than those of Holders of
Senior Notes and Subordinated Notes, will be approximately $20,900,000. If any
of SPFC's pending or anticipated Claim objections is unsuccessful, the aggregate
amount of the Class 7 and 8 Claims will be greater. Also, SPFC expects that its
rejection of certain executory contracts and unexpired leases will result in
additional Claims, the amounts of which SPFC has not estimated. Those Claims
will increase the amount of the Class 7 and 8 Claims.
2.2.8 SUBORDINATION.
As explained above, the Subordinated Indenture subordinates
payment of the Subordinated Notes not only to the Senior Notes, but also to all
other indebtedness other than taxes, trade payables not more than 90 days
past-due, claims of SPFC's subsidiaries, and Claims of officers, directors, and
employees of SPFC and its subsidiaries (collectively, the "Senior Unsecured
Claims"). SPFC believes that tax Claims are either Secured Claims or have
priority over all Prepetition Claims in accordance with Section 507(a)(8) of the
Bankruptcy Code. SPFC estimates that the sum of the Allowed Claims of officers,
directors, and employees of SPFC and its subsidiaries will be no greater than
$3,516,131. That amount could be reduced as the result of possible objections to
several large Claims by former officers. With regard to trade payables, none is
now less than 90 days past-due, but it is the position of the Indenture Trustees
for the Notes that whether a trade payable is more than 90 days past-due should
be determined as of the Petition Date, October 1, 1999. If the Indenture
Trustees are correct, SPFC estimates that trade payables totaling $2,530,013
will be excluded from the benefit of the subordination provision. This issue
will be resolved in connection with classification of claims under the Plan. The
Projection assumes for illustration purposes only that the Indenture Trustees'
position in this
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regard is correct. Thus, for illustration purposes, Class 8 Claims totaling
$6,046,144 (rounded to $6 million) are not entitled to the benefit of the
subordination provision ("General Unsecured Claims"), and the balance of the
Class 7 Claims, $14,900,000, are Senior Unsecured Claims entitled to the benefit
of that provision. If the Indenture Trustees' position is incorrect, the total
amounts of Senior Unsecured Claims and General Unsecured Claims will increase
and decrease, respectively, by $2,503,013.
To give effect to the subordination, the Plan provides that
the Holders of the Senior Notes and the other creditors entitled to the benefit
of the subordination provision (collectively, the "Senior Claims") receive
ratable distributions from the Liquidating Trust determined by adding to the
Senior Claims the amount of the Allowed Claims of the Holders of the
Subordinated Notes. Because the sum of the Senior Notes and the Subordinated
Notes is assumed to be $182,157,986, the Senior Unsecured Claims are assumed to
total $14,900,000, and the General Unsecured Claims in Class 8 are assumed to
total $6 million, ratable Distributions to the Holders of the Senior Claims in
Class 7 and the General Unsecured Claims in Class 8 will result in Distributions
being allocated 97.1 percent (197,057,986/203,057,986) to the holders of Senior
Claims in Class 7 and 2.9 percent (6,000,000/203,057,986) to the Holders of
General Unsecured Claims in Class 8. Because the Senior Claims are comprised of
the Senior Notes (Class 5) in the amount of $104,823,611 and the Senior
Unsecured Claims (Class 7) in the amount of $14,900,000, Distributions to the
Senior Claims in Class 7 will be divided ratably between the Senior Notes and
the Senior Trade Claims, such that the Senior Notes in Class 5 will receive 87.6
percent (104,823,611/119,723,611) and the Senior Trade Claims will receive 12.4
percent (14,900,000/119,723,611) of the Distributions to the Holders of the
Senior Claims.
If the Senior Claims in Class 7, with interest through the
Petition Date, have been paid in full, the Subordinated Notes in Class 6 will
receive Distributions in the amounts that had been paid to the Holders of the
Senior Claims, i.e., a portion of the Distributions equal to the ratio between
(1) the sum of the Senior Claims and the Subordinated Notes and (2) the sum of
the Senior Claims, the Subordinated Notes, and the General Claims. On the
assumptions set forth above, the Subordinated Notes in Class 6 would receive
approximately 96 percent of Distributions after payment in full of Senior
Claims.
The Projection states that, in the base case under the
Acquisition Transaction, Cash in the amount of $110,348,235 will be Distributed
after payment of Administrative Expenses and Claims of Classes 1, 2, 3, and 4.
Assuming a discount rate of 15 percent per annum, the Projections provide a
present value of the base-case Estimated Distribution as $53,417,469, or 26.3
percent of all nonpriority Claims (Classes 5, 6, 7 and 8).
The Projection assumes that the Acquisition Transaction will
result in Estimated Distributions to nonpriority Claims under the optimistic
case of $137,874,489 which has a present value when discounted at 15 percent per
annum of $67,798,606 (33.4 percent of nonpriority Claims). Holders of
Subordinated Notes in Class 6 would receive nothing under the base case and
$14,311,396 under the optimistic case. Because the Distribution to the Holders
of the Subordinated Notes would be made late in the 29-year Cash Flow, the
present value of those projected Estimated Distributions (discounted at 15
percent per annum in the optimistic case) is assumed to be $2,247,273 (2.9
percent of the Subordinated Notes).
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2.3 ADDITIONAL INFORMATION REGARDING CASH FLOW.
The projected Cash Flow is the product of a computerized model
that makes many assumptions. Upon the request of Holders of Allowed Claims, SPFC
will provide additional information regarding the primary assumptions upon which
the model is based, but that information will necessarily be incomplete and
misleading considered apart from the model as a whole.
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EXHIBITS
1 SPFC's Consolidated Financial Statements for the years ending December
31, 1996, and December 31, 1997 (omitted)
2 SPFC's Financial Report for the month of April 1999 (omitted)
3 Comparison of Disposition Alternatives
4 Projected Sources and Uses of Cash
5 Second Amended Plan of Reorganization Proposed by Southern Pacific
Funding Corporation dated June 2, 1999
<PAGE>
SOUTHERN PACIFIC FUNDING CORPORATION, Debtor in Possession
COMPARISON OF DISPOSITION ALTERNATIVES
<TABLE>
HOLD SHARE
Cash Sale Base Improved Base Optimistic
Partially Improve Loss
Sell now for Improved Cash mitigation on all
Cash Base Cash Flow Flow Base Cash Flow loans
Discount Rate 15.0% 18.0% 18.0% 15.0% 15.0%
Projected Gross Residual Cash Flows
<S> <C> <C> <C> <C> <C>
Gross $ 76,000,000 $187,562,127 $217,328,795 $188,908,717 $245,678,622
NPV $ 76,000,000 $ 78,453,934 $ 92,723,005 $ 82,716,371 $ 97,705,833
SOURCES OF CASH
Sale Proceeds 71,827,952 36,413,976 36,413,976
Pre-closing Cash Flow 4,172,048 4,172,048 4,172,048
Ongoing Cash Flow 187,562,127 217,328,785 92,368,334 120,753,287
-------------------------------------------------------------------
Sale / Residual Flows 76,000,000 187,562,127 217,328,785 132,954,359 161,339,311
Proceeds from sale of SPML 22,777,865 22,777,865 22,777,865 22,777,865 22,777,865
Cash on hand March 31 11,427,233 11,427,233 11,427,233 11,427,233 11,427,233
Proceeds from other claims - - - - -
-------------------------------------------------------------------
Total Available 110,205,098 221,767,225 251,533,883 167,159,456 195,544,409
USES OF CASH
Interim operations 2,469,675 2,469,675 2,469,675 2,229,675 2,229,675
Administrative costs 955,000 8,772,625 8,772,995 4,145,557 4,152,707
Professional fees 5,500,000 6,250,000 6,250,000 5,500,000 5,500,000
Fees to financial advisor 1,446,989 5,748,859 6,620,848 4,178,631 5,030,179
Taxes 4,297,573 5,000,381 4,981,759 4,297,573 4,297,573
DIP Financing 36,459,786 48,122,785 47,805,060 36,459,786 36,459,786
-------------------------------------------------------------------
51,129,023 76,364,326 76,900,337 56,811,221 57,669,920
-------------------------------------------------------------------
AVAILABLE FOR ESTIMATED DISTRIBUTIONS 59,076,075 145,402,899 174,633,546 110,348,235 137,874,489
===================================================================
ESTIMATED DISTRIBUTIONS
Senior Notes 52,301,617 104,823,611 104,823,611 94,393,670 104,823,611
Senior Unsecured Claims 5,449,338 14,900,000 14,900,000 12,973,919 14,900,000
Subordinated Notes 0 21,545,273 49,850,945 0 14,311,396
General Unsecured Claims 1,325,120 4,134,015 5,058,990 2,980,646 3,839,482
-------------------------------------------------------------------
Total 59,076,075 145,402,899 174,633,546 110,348,235 137,874,489
===================================================================
NPV OF ESTIMATED DISTRIBUTIONS
Senior Notes 41,151,591 37,851,378 44,012,796 45,967,981 55,984,120
Senior Unsecured Claims 4,862,472 5,109,900 6,105,254 6,034,304 7,712,243
Subordinated Notes 0 2,076,216 8,174,824 0 2,247,273
General Unsecured Claims 1,186,001 1,251,235 1,671,108 1,415,184 1,854,971
-------------------------------------------------------------------
Total 47,200,064 46,288,729 59,963,982 53,417,469 67,798,606
===================================================================
</TABLE>
DISCLOSURE STATMENT
EXHIBIT 3 - Page 1 of 2
<PAGE>
<TABLE>
SOUTHERN PACIFIC FUNDING CORPORATION, Debtor in Possession
COMPARISON OF DISPOSITION ALTERNATIVES
HOLD SHARE
Cash Sale Base Improved Base Optimistic
Partially Improve Loss
Sell now for Improved Cash mitigation on all
Cash Base Cash Flow Flow Base Cash Flow loans
NPV of Estimated Distributions as a % of Claims
<S> <C> <C> <C> <C> <C>
Senior Notes 39.3% 36.1% 42.0% 43.9% 53.4%
Senior Unsecured Claims 32.6% 34.3% 41.0% 40.5% 51.8%
Subordinated Notes 0.0% 2.7% 10.6% 0.0% 2.9%
General Unsecured Claims 19.8% 20.9% 27.9% 23.6% 30.9%
-------------------------------------------------------------------
Total 23.2% 22.8% 29.5% 26.3% 33.4%
</TABLE>
NPV of Estimated Distributions - Discount Matrix
Hold Share
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
15% 12% 55,178,842 70,665,224 60,786,155 77,024,175
18% 15%, 46,288,729 59,963,982 53,417,469 67,798,606
21% 18% 38,996,319 51,077,412 47,252,918 60,028,045
24% 21% 32,976,259 43,652,552 42,057,904 53,436,320
</TABLE>
Timeline of Estimated Distributions
Year
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
1 1999 36,298,210 - - 6,583,815 6,524,626
2 2000 - - - 6,393,314 6,822,522
3 2001 771,240 176,306 176,306 2,437,012 5,458,701
4 2002 2,570,801 1,671,021 1,671,021 6,103,597 9,360,830
5 2003 2,948,613 21,727,865 39,297,468 20,411,230 29,580,070
6 2004 10,196,646 34,764,455 52,543,248 22,823,826 33,316,710
7 2005 6,290,564 30,257,453 25,247,507 17,988,389 16,304,452
8 2006 10,512,623 7,709,900 5,231,192 4,453,472
9 2007 11,458,478 11,289,167 5,703,358 5,926,954
10 2008 8,515,518 8,955,317 4,222,875 5,202,705
11-15 2013 21,224,612 22,504,557 10,150,801 12,480,843
16-20 2018 4,443,206 4,570,128 2,102,229 2,230,195
20+ 2028 651,362 668,927 196,596 212,408
-------------------------------------------------------------------
59,076,075 145,402,899 174,633,546 110,348,235 137,874,489
</TABLE>
DISCLOSURE STATMENT
EXHIBIT 3 - Page 2 of 2
<PAGE>
SOUTHERN PACIFIC FUNDING CORPORATION, Debtor in Possession
BASE CASE - PROJECTED SOURCES AND USES OF CASH AND ESTIMATED DISTRIBUTIONS
<TABLE>
Through Remainder
Closing of 1999 2000 2001 2002
SOURCES
<S> <C> <C> <C> <C> <C>
Initial Proceeds from sale to Goldman 36,413,976
Prepayment penalties & payments on residual interests 4,172,048
Distributions from Cash Flow Instrument 3,973,919 7,210,851 2,059,339 3,957,300
Proceeds from sale of SPML (UK Operation) - - - 771,240 2,570,801
Beginning cash on hand 11,427,233
Proceeds from other claims - - - - -
----------------------------------------------------------------------
Total Sources 52,013,257 3,973,919 7,210,851 2,830,579 6,528,101
USES
Interim Operations
Operating receipts and disbursements, net 1,765,957 1,848,151
Servicing advances, net 2,258,028 (5,523,425)
Proceeds from other asset sales (500,000) (1,300,000)
Settlement with Norwest 3,380,964
Payment of Administrative Convenience Claims 300,000
----------------------------------------------------------------------
6,904,949 (4,675,274) - - -
Administrative costs - - 700,000 360,000 360,000
Professional Fees 1,404,423 4,095,577
Fees paid to Financial Advisor 190,000 726,327 117,537 33,567 64,504
Principal, Interest and fees on DIP Financing facility 36,459,786
Income taxes and interest 1,095,000 3,202,573 -
----------------------------------------------------------------------
TOTAL USES BEFORE ESTIMATED DISTRIBUTIONS 46,054,158 3,349,203 817,537 393,567 424,504
----------------------------------------------------------------------
NET CASH FLOW BEFORE ESTIMATED DISTRIBUTIONS 5,959,099 624,717 6,393,314 2,437,012 6,103,597
ESTIMATED DISTRIBUTIONS
Senior Notes 5,594,109 5,432,244 2,097,173 5,431,670
Senior Unsecured Claims 795,166 772,159 273,039 540,274
Subordinated Notes 0 0 0 -
General Unsecured Claims 194,540 188,911 66,800 131,652
----------------------------------------------------------------------
TOTAL ESTIMATED DISTRIBUTIONS - 6,583,815 6,393,314 2,437,012 6,103,597
----------------------------------------------------------------------
Net Activity 5,959,099 (5,959,099) - - -
</TABLE>
DISCLOSURE STATMENT
EXHIBIT 4 - PAGE 1 OF 2
<PAGE>
EXHIBIT 5
The Plan
<PAGE>
UNITED STATES BANKRUPTCY COURT
DISTRICT OF OREGON
In re
<TABLE>
<S> <C>
SOUTHERN PACIFIC FUNDING CORPORATION, a California Case No. 398-37613-elp11
corporation,
Chapter 11
Debtor in Possession.
</TABLE>
Tax ID No. 33-0636924
SECOND AMENDED PLAN OF REORGANIZATION PROPOSED BY
SOUTHERN PACIFIC FUNDING CORPORATION
DATED JUNE 2, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PAGE(S)
Article I DEFINED TERMS, RULES OF INTERPRETATION, COMPUTATION OF TIME, AND GOVERNING LAW.............1
1.1 Defined Terms..................................................................................1
1.2 Rules of Interpretation, Computation of Time, and Governing Law...............................10
1.2.1 Rules of Interpretation..............................................................10
1.2.2 Computation of Time..................................................................11
1.2.3 Governing Law........................................................................11
Article II TREATMENT OF ADMINISTRATIVE CLAIMS AND PRIORITY TAX CLAIMS................................11
2.1 Administrative Expenses.......................................................................11
2.1.1 In General...........................................................................11
2.1.2 DIP Claim............................................................................11
2.1.3 Professionals........................................................................12
2.1.4 Taxes Incurred During the Administration of the Bankruptcy Case......................12
2.2 Priority Tax Claims...........................................................................12
Article III CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS......................................13
3.1 Summary of Claims and Interests...............................................................13
3.2 Classification and Treatment of Claims Against and Interests in SPFC..........................14
3.2.1 Class 1: Priority Claims.............................................................14
3.2.2 Class 2: Secured Claims..............................................................14
3.2.3 Class 3: Secured Senior Notes Claims.................................................15
3.2.4 Class 4: Administrative Convenience Class............................................15
3.2.5 Class 5: Senior Notes................................................................16
3.2.6 Class 6: Subordinated Notes..........................................................16
3.2.7 Class 7: Senior Unsecured Claims.....................................................17
3.2.8 Class 8: General Unsecured Claims....................................................17
3.2.9 Class 9: Claims of Securities Action Plaintiffs Based On Notes.......................17
3.2.10 Class 10: Securities Action Defendants...............................................18
3.2.11 Class 11: Interests of Holders of Old Common Stock...................................18
3.2.12 Class 12: Claims of Securities Action Plaintiffs (Not Based on Notes)................18
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3.2.13 Class 13: Bankers Trust..............................................................18
3.2.14 Class 14: Norwest Bank Minnesota, National Association, and MBIA Insurance
Corporation..........................................................................19
3.3 Determination of Extent of Subordination and Classification...................................19
3.3.1 Res Judicata Effect of Confirmation Order............................................19
3.3.2 Classification Motion................................................................19
3.4 Postpetition Interest.........................................................................20
3.5 Reservations of Rights........................................................................20
3.6 Rights of Indenture Trustees Vis-a-Vis Third Parties..........................................20
Article IV ACCEPTANCE OR REJECTION OF THIS PLAN......................................................21
4.1 Voting Classes................................................................................21
4.2 Acceptance by Impaired Classes................................................................21
4.3 Presumed Acceptance of Plan...................................................................21
4.4 Deemed Nonacceptance of Plan..................................................................21
4.5 Nonconsensual Confirmation....................................................................21
Article V MEANS FOR IMPLEMENTATION OF THIS PLAN.....................................................21
5.1 Sale of Acquired Assets and Acquisition Transaction...........................................21
5.2 SPFC..........................................................................................22
5.2.1 Continued Corporate Existence........................................................22
5.2.2 Certificate of Incorporation and Bylaws of Reorganized SPFC..........................22
5.3 Liquidating Trust.............................................................................22
5.3.1 Liquidating Trust Agreement..........................................................22
5.3.2 Additional Covenants Agreement.......................................................27
5.3.3 Federal Income Tax Matters...........................................................28
5.4 Post-Confirmation Taxes.......................................................................28
5.4.1 1999 Taxable Year....................................................................28
5.4.2 Taxable Years Before 1999............................................................30
5.4.3 Taxes, Generally.....................................................................30
5.5 Vesting of Assets; Preservation of Rights.....................................................31
5.6 Authority.....................................................................................31
5.7 Employment and Other Agreements and Incentive Compensation Programs of the Liquidating
Trust.........................................................................................31
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5.8 Effectuating Documents; Further Transactions; Exemption From Certain Transfer Taxes...........31
Article VI EXECUTORY CONTRACTS AND UNEXPIRED LEASES..................................................32
6.1 Executory Contracts and Unexpired Leases to Be Assumed........................................32
6.1.1 Assumptions Generally................................................................32
6.1.2 Cure of Defaults.....................................................................32
6.2 Executory Contracts and Unexpired Leases to Be Rejected.......................................33
6.2.1 Rejection Generally..................................................................33
6.2.2 Bar Date for Rejection Damages.......................................................33
6.3 Oceanmark Bank, FSB...........................................................................33
Article VII PROVISIONS GOVERNING DISTRIBUTIONS........................................................34
7.1 Delivery of Distributions and Undeliverable or Unclaimed Distributions........................34
7.1.1 Delivery of Distributions in General.................................................34
7.1.2 Undeliverable Distributions..........................................................34
7.2 Distribution Record Date......................................................................35
7.3 Means of Cash Payments........................................................................35
7.4 Compliance With Tax Requirements..............................................................35
7.5 Setoffs.......................................................................................35
7.6 Senior Indenture and Subordinated Indenture...................................................36
7.7 Senior Notes and Subordinated Notes...........................................................36
Article VIII PROCEDURES FOR RESOLVING DISPUTED CLAIMS AND DISPUTED INTERESTS...........................36
8.1 No Payments on Account of Disputed Claims or Interests........................................36
8.2 Resolution or Estimation of Claims............................................................36
8.3 Distributions on Account of Disputed Claims Once They Are Allowed.............................37
Article IX CONDITIONS PRECEDENT TO CONFIRMATION AND CONSUMMATION OF THIS PLAN........................37
9.1 Conditions to Confirmation....................................................................37
9.2 Conditions to Effective Date..................................................................37
9.3 Waiver of Conditions..........................................................................37
9.4 Effect of Nonoccurrence of Conditions to Effective Date.......................................37
Article X CONFIRMABILITY AND SEVERABILITY OF PLAN AND CRAMDOWN......................................38
10.1 Confirmability and Severability of Plan.......................................................38
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<PAGE>
10.2 Cramdown......................................................................................38
Article XI DISCHARGE OF CLAIMS, TERMINATION OF INTERESTS, INJUNCTION, AND INDEMNIFICATION............38
11.1 Discharge of Claims and Termination of Interests..............................................38
11.2 Injunction Related to Discharged Claims and Terminated Interests..............................39
11.3 Limitation of Liability in Connection With this Plan, Disclosure Statement, and
Related Documents.............................................................................39
11.4 Effect of Property Received from Sources Other than SPFC or Liquidating Trust.................40
Article XII RETENTION OF JURISDICTION; CLOSURE........................................................40
12.1 Retention of Jurisdiction.....................................................................40
12.2 Case Closure..................................................................................41
Article XIII MISCELLANEOUS PROVISIONS..................................................................42
13.1 United States Trustee.........................................................................42
13.2 Modification of this Plan.....................................................................42
13.3 Revocation of this Plan.......................................................................42
13.4 Severability of Plan Provisions...............................................................42
13.5 Successors and Assigns........................................................................43
13.6 Service of Documents on SPFC or Liquidating Trust..............................................1
Exhibit A Asset Agreement............................................................................1
Exhibit B Acquisition Agreement......................................................................1
Exhibit C Liquidating Trust Agreement................................................................1
Schedule I Rights of Action...........................................................................1
Schedule II Securities Actions.........................................................................1
Schedule IV Contracts to be Assumed for Benefit of Reorganized SPFC....................................1
Schedule IV Contracts to be Assumed and Assigned to the Liquidating Trust..............................1
Schedule V Contracts that May be Assumed or Assumed and Assigned After Confirmation...................1
Schedule VI Contracts to be Rejected...................................................................1
</TABLE>
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<PAGE>
INTRODUCTION
Southern Pacific Funding Corporation ("SPFC") proposes the
following Second Amended Plan of Reorganization (the "Plan") under Chapter 11 of
the Bankruptcy Code to resolve all of SPFC's outstanding claims and interests.
Please review SPFC's Disclosure Statement, distributed contemporaneously with
this Plan, for a discussion of SPFC's history, businesses, and assets; for a
description of the significant events of this Chapter 11 Case; and for a summary
and analysis of this Plan and certain related matters.
ALL HOLDERS OF CLAIMS AGAINST AND INTERESTS IN SPFC ARE
ENCOURAGED TO READ THIS PLAN, THE ACCOMPANYING DISCLOSURE STATEMENT, AND THE
ATTACHED EXHIBITS AND SCHEDULES IN THEIR ENTIRETY BEFORE VOTING TO ACCEPT OR
REJECT THIS PLAN.
Subject to certain restrictions and requirements set forth in
the Bankruptcy Code, the Bankruptcy Rules, and this Plan, SPFC reserves the
right to alter, amend, modify, revoke, or withdraw this Plan before its
consummation.
ARTICLE I
DEFINED TERMS, RULES OF INTERPRETATION, COMPUTATION OF TIME, AND
GOVERNING LAW
1.1 DEFINED TERMS.
As used in this Plan, capitalized terms and phrases have the
meanings set forth below. Any term used in this Plan that is not defined herein
but is used in the Bankruptcy Code or the Bankruptcy Rules has the meaning
assigned to that term in the Bankruptcy Code or the Bankruptcy Rules.
"Acquired Assets" means the assets to be sold to Buyer as
described in the Asset Agreement, a copy of which is attached hereto as Exhibit
A.
"Acquisition Agreement" means that certain Amended and
Restated Stock Subscription and Purchase Agreement dated as of May 21, 1999,
between SPFC and Subscriber, a copy of which is attached hereto as Exhibit B.
"Acquisition Transaction" means the transactions pursuant to
which Subscriber will acquire the New Common Stock pursuant to the Acquisition
Agreement.
"Additional Covenants Agreement" means that certain Additional
Covenants Agreement to be entered into as of the Effective Date among Buyer,
Subscriber, Reorganized SPFC, and the Liquidating Trust, a copy of which is
attached to the Asset Agreement as Exhibit 4.1.
"Administrative Expense" means a Claim for costs and expenses
of administration allowed under Sections 503(b), 507(b), or 1114(e)(2) of the
Bankruptcy Code, including: (a) the actual and necessary costs and expenses
incurred after the Petition Date of preserving the
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<PAGE>
Estate and operating the business of SPFC (such as wages, salaries, or
commissions for services and payments for goods or other services); (b)
compensation for legal, accounting, and other services and reimbursement of
expenses awarded or allowed under Sections 330(a) or 331 of the Bankruptcy Code;
(c) compensation for legal and other costs incurred by the Indenture Trustees to
the extent that they are allowed by the Bankruptcy Court; (d) DIP Claims; and
(e) all fees and charges assessed against the Estate under Chapter 123 of Title
28, United States Code, 28 U.S.C. Sections 1911-1930.
"Allowed Claim" or "Allowed Unsecured Claim" means a:
(a) Claim that has been listed by SPFC in its Schedules as
other than disputed, contingent, or unliquidated and is not otherwise a Disputed
Claim;
(b) Claim that is allowed (i) in a Final Order or (ii)
pursuant to the terms of this Plan; or
(c) Claim with respect to which a proof of Claim has been
Filed by the Bar Date or has otherwise been deemed timely Filed under applicable
law and is not otherwise a Disputed Claim.
"Allowed . . . Claim" means an Allowed Claim in the particular
Class or category described.
"Amended Certificate of Incorporation" means the Certificate
of Incorporation of Reorganized SPFC, as restated and described in Article V of
this Plan, which shall be filed with the Bankruptcy Court before the
Confirmation Date.
"Asset Agreement" means that certain Amended and Restated
Asset Purchase Agreement between SPFC and Buyer dated as of May 21, 1999, which
provides the terms and conditions of the sale of the Acquired Assets from SPFC
to Buyer, a copy of which is attached hereto as Exhibit A.
"Available Cash" means the Cash that is unencumbered and
unrestricted for use or disposition under this Plan, including proceeds from the
Rights of Action, less reserves necessary for the Payment of Disputed Claims and
other payments to be paid under this Plan, and such other reserves to be
determined and retained at the discretion of the Liquidating Trustee for
litigation costs, anticipated costs, and operating expenses.
"Ballots" means the ballots accompanying the Disclosure
Statement on which Holders of Impaired Claims entitled to vote on this Plan will
indicate their acceptance or rejection of this Plan in accordance with the
Voting Instructions.
"Bankruptcy Code" means Title 11 of the United States Code, as
now in effect or hereafter amended.
"Bankruptcy Court" means the United States Bankruptcy Court
for the District of Oregon or such other court or adjunct thereof that exercises
jurisdiction over the Chapter 11 Case.
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<PAGE>
"Bankruptcy Rules" means the Federal Rules of Bankruptcy
Procedure and the general and local rules of the Bankruptcy Court now in effect
or hereafter amended.
"Bar Date" means February 8, 1999; or with respect to Claims
of governmental units, 180 days after the Petition Date; or with respect to
Claims arising from the rejection of executory contracts and unexpired leases,
30 days after the Effective Date.
"Beneficial Holder" means the entity holding the beneficial
interest in a Claim or Interest.
"Beneficial Interests" means the interests of Beneficiaries in
the assets of the Liquidating Trust.
"Beneficiaries" means the Holders of Allowed Claims of Classes
5, 6, 7, and 8.
"BONY" means The Bank of New York, acting as indenture trustee
under the Senior Indenture.
"Business Day" means any day other than a Saturday, Sunday, or
"legal holiday" (as defined in Bankruptcy Rule 9006(a)).
"Buyer" means Goldman, Sachs & Co., a Delaware limited
partnership (or permitted assignee), which is purchasing the Acquired Assets
pursuant to the Asset Purchase Agreement.
"Bylaws" means the bylaws of Reorganized SPFC, as restated and
described in Article V of this Plan, which will be filed with the Bankruptcy
Court before Confirmation.
"Capitalized Lease Obligation" is defined in the Subordinated
Indenture and means rental obligations under a lease that are required to be
capitalized for financial reporting purposes in accordance with GAAP. The amount
of Indebtedness represented by such obligations will be the capitalized amount
of such obligations, as determined in accordance with GAAP.
"Capital Stock" means, with respect to any corporation, any
and all shares, interests, rights to purchase (other than convertible or
exchangeable indebtedness), warrants, options, participations, or other
equivalents of or interests (however designated) in stock issued by such
corporation.
"Case Closure Order" has the meaning set forth in Section
12.2.
"Cash" means cash and cash equivalents, including a cashier's
check, wire transfer, or a check drawn on a domestic bank.
"Cash Flow Instrument" means the instrument to be distributed
by Reorganized SPFC to the Liquidating Trust, a copy of which is attached to the
Acquisition Agreement as Exhibit 2.3.1.
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<PAGE>
"Chapter 11 Case" means the bankruptcy case commenced under
Chapter 11 of the Bankruptcy Code by SPFC.
"Claim" means a claim (as defined in Section 101(5) of the
Bankruptcy Code) against SPFC.
"Class" means a Class of Claims or Interests, as described in
Article III.
"Closing Date" has the meaning set forth in the Acquisition
Agreement.
"Committee" means the Official Unsecured Creditors' Committee
in the Chapter 11 Case.
"Confirmation" means the entry by the Bankruptcy Court of the
Confirmation Order.
"Confirmation Date" means the date on which the Bankruptcy
Court enters the Confirmation Order on its docket, within the meaning of
Bankruptcy Rules 5003 and 9021.
"Confirmation Order" means the order of the Bankruptcy Court
confirming this Plan pursuant to Section 1129 of the Bankruptcy Code.
"Deemed Short Year" has the meaning set forth in Section 5.4.
"DIP Claims" means all Claims arising under the DIP Facility.
"DIP Facility" means the Master Repurchase Agreement between
SPFC and Goldman, Sachs & Co. dated May 5, 1999.
"Disbursing Agent" means the Liquidating Trustee or any person
appointed as Disbursing Agent in the Confirmation Order.
"Disclosure Statement" means the Second Amended Disclosure
Statement dated June 2, 1999, as amended, modified, or supplemented (and all
exhibits or schedules annexed thereto or referenced therein), which relates to
this Plan and which has been prepared and distributed in accordance with
Sections 1125 and 1126(b) of the Bankruptcy Code and Bankruptcy Rule 3018.
"Disputed Claim" means any Claim to which SPFC, Reorganized
SPFC, the Liquidating Trust, or any other party in interest has interposed an
objection or request for estimation in accordance with the Bankruptcy Code and
the Bankruptcy Rules; or any Claim listed in the Schedules as disputed,
contingent, or unliquidated; or any Claim otherwise disputed by SPFC,
Reorganized SPFC, or the Liquidating Trust in accordance with the terms of this
Plan or applicable law, which objection, request for estimation, or dispute has
not been withdrawn or determined by a Final Order.
"Distribution Record Date" means the close of business on the
Business Day immediately preceding the Effective Date.
-4-
<PAGE>
"Distributions" means payments of Cash or property under this
Plan to the Holders of Allowed Claims.
"Effective Date" means a Business Day, as determined by SPFC
on or after the Confirmation Date and on which: (a) no stay of the Confirmation
Order is in effect and (b) all conditions to the Effective Date set forth in
Section 9.2 have been satisfied or waived (if available) pursuant to Section
9.3.
"Estate" means the estate created for SPFC in its Chapter 11
Case pursuant to Section 541 of the Bankruptcy Code.
"Excluded Assets" means all assets of SPFC, including the net
cash from the Acquisition Transaction and the Cash Flow Instrument, the Rights
of Action, the SPML Proceeds, the SPML Receivable, other than the Acquired
Assets.
"File," "Filed," or "Filing" means file, filed, or filing with
the Bankruptcy Court in the Chapter 11 Case.
"Final Order" means an order or judgment of the Bankruptcy
Court or other court of competent jurisdiction, as entered on the docket in the
Chapter 11 Case, which has not been reversed, stayed, modified, or amended, and
as to which the time to appeal or seek certiorari has expired and no appeal or
petition for certiorari has been timely taken, or as to which any appeal that
has been or may be taken or any petition for certiorari that has been or may be
filed has been dismissed or resolved by the highest court to which the order or
judgment was appealed or from which certiorari was sought.
"Finally Closed," when referring to the Chapter 11 Case, means
that the Chapter 11 Case has been closed and the Bankruptcy Court no longer has,
or declines to exercise, jurisdiction over the Chapter 11 Case or for any other
reason declines to reopen the Chapter 11 Case.
"Foreclosure and Collection Attorneys' Compensation Order"
means the Amended Order Authorizing Employment of Special Counsel for Debtor in
Possession and Approving Compensation Procedure (collection and Foreclosure
Matters) entered by the Bankruptcy Court on March 4, 1999, and any amendment
thereto.
"GAAP" is defined in the Subordinated Indenture and means
generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board ("FASB") (or in such other statements by such other
entity as approved by a significant segment of the accounting profession which
are in effect in the United States).
"Goldman" has the meaning set forth in Section 5.4.3.
"Holder" means an entity holding an Interest or Claim, and
with respect to a vote on this Plan means the Beneficial Holder as of the Voting
Record Date or any authorized
-5-
<PAGE>
signatory who has completed and executed a Ballot or on whose behalf a Master
Ballot has been completed and executed in accordance with the Voting
Instructions.
"HSBC" means HSBC Bank USA, formerly known as Marine Midland
Bank, successor indenture trustee under the Subordinated Indenture.
"Impaired . . ." means, when used with reference to a Claim or
Interest, a Claim or Interest that is impaired within the meaning of Section
1124 of the Bankruptcy Code.
"Indebtedness" is defined in the Subordinated Indenture and
means, without duplication (a) all liabilities and obligations, contingent or
otherwise, of SPFC (i) in respect of borrowed money, (ii) evidenced by bonds,
notes, debentures, loan agreements, or similar instruments or agreements, (iii)
representing the balance deferred and unpaid of the purchase price of any
property or services, except such as would constitute trade payables to trade
creditors in the ordinary course of business that are not more than 90 days past
their original due date, (iv) evidenced by bankers' acceptances or similar
instruments issued or accepted by banks, (v) relating to a Capitalized Lease
Obligation, or (vi) evidenced by a letter of credit or a reimbursement
obligation of SPFC with respect to any letter of credit; (b) all net obligations
of SPFC under Interest Swap and Hedging Obligations; (c) all liabilities of
others of the kind described in the preceding clauses (a) and (b) that SPFC has
guaranteed or that is otherwise its legal liability and all obligations to
purchase, redeem, or acquire any Capital Stock; and (d) any and all deferrals,
renewals, extensions, amendments, modifications, refinancings, and refunding
(whether direct or indirect) of any liability of the kind described in any of
the preceding clauses (a), (b), or (c), or this clause (d), whether or not
between or among the same parties.
"Indenture Trustees" means BONY and HSBC.
"Interest" means, collectively, (a) the rights of Holders of
Old Common Stock, including redemption rights, dividend rights, and liquidation
preferences, (b) the rights of Holders of options or warrants to purchase Old
Common Stock, and (c) the rights of the Securities Action Plaintiffs who are
Holders of Old Common Stock.
"Interest Swap and Hedging Obligations" is as defined in the
Subordinated Indenture and means any obligation of SPFC pursuant to any interest
rate swap agreement, interest rate cap agreement, interest rate collar
agreement, interest rate exchange agreement, currency exchange agreement, or any
other agreement or arrangement designed to protect against fluctuations in
interest rates or currency values, including, without limitation, any
arrangement whereby, directly or indirectly, such person is entitled to receive
from time to time periodic payments calculated by applying either a fixed or
floating rate of interest on a stated notional amount in exchange for periodic
payments made by such person calculated by applying a fixed or floating rate of
interest on the same notional amount.
"Liquidating Trust" means that certain liquidating trust
created under the Liquidating Trust Agreement to administer and liquidate the
Excluded Assets, review and object where appropriate to proofs of Claim, analyze
and pursue the Rights of Action, and distribute proceeds of Excluded Assets and
other amounts received.
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<PAGE>
"Liquidating Trust Agreement" means that certain Liquidating
Trust Agreement, a copy of which is attached hereto as Exhibit C, whereby the
Liquidating Trustee will administer the Liquidating Trust.
"Liquidating Trustee" means the person or persons designated
as trustee in accordance with Section 5.3.1(b) and any successor appointed or
elected under the terms of the Liquidating Trust Agreement, including the
Litigating Trustee, if any is appointed.
"Litigating Trustee" means any person appointed as Litigating
Trustee by the Liquidating Trustee in accordance with Section 5.3.1(g).
"Master Ballot" means a Ballot on which the registered owner
of one or more Notes who is not also the Beneficial Holder of the Notes will
indicate the acceptances or rejections of this Plan by such Beneficial Holders
as of the Voting Record Date.
"New Common Stock" means the shares of common stock of
Reorganized SPFC authorized pursuant to the Amended Certificate of
Incorporation, shares of which shall be issued to Subscriber under Article V on
or after the Effective Date.
"Notes" means collectively the Senior Notes and the
Subordinated Notes.
"Old Common Stock" means all Capital Stock issued by SPFC and
outstanding immediately before the Effective Date and all options and warrants
to buy such Capital Stock.
"OMB" has the meaning set forth in Section 6.3.
"OMB Contract" has the meaning set forth in Section 6.3.
"OMB Proceeding" has the meaning set forth in Section 6.3.
"Petition Date" means October 1, 1998, the date on which SPFC
Filed its petition commencing the Chapter 11 Case.
"Plan" means this First Amended Chapter 11 Plan of
Reorganization for SPFC and all exhibits annexed hereto or referenced herein, as
the same may be Filed, amended, modified, or supplemented.
"Plan Participants" means, collectively: (a) SPFC; (b)
Reorganized SPFC; (c) the Liquidating Trust; (d) the Committee and its members;
and (e) respective directors, officers, employees, and Professionals, acting in
such capacity, of any of the foregoing entities.
"Postpetition" means after the Petition Date.
"Prepetition" means before the Petition Date.
"Priority Claim" means a Claim that arises under Section
507(a) of the Bankruptcy Code and is not an Administrative Expense or a Priority
Tax Claim, excluding any Claim for interest or penalties accruing after the
Petition Date.
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<PAGE>
"Priority Tax Claim" means a Claim of a governmental unit that
is entitled to priority in payment pursuant to Section 507(a)(8) of the
Bankruptcy Code.
"Professional" means any professional employed in the Chapter
11 Case pursuant to Sections 327 or 1103 of the Bankruptcy Code.
"Pro Rata" means proportionally when used with reference to
Distributions from the Liquidating Trust on account of Claims, so that with
respect to an Allowed Claim entitled to Distributions from the Liquidating
Trust, the ratio of (i) (a) the amount of the Distribution on account of that
Claim to (b) the amount of Distributions to other Claims entitled to
Distributions from the Liquidating Trust of the same priority is the same as the
ratio of (ii) (a) the Allowed amount of the Claim to (b) the Allowed amount of
all other Claims entitled to Distributions from the Liquidating Trust of the
same priority.
"Reorganized SPFC" means SPFC on and after the Effective Date,
including any successor thereto, by merger, consolidation, or otherwise.
"Rights of Action" means any and all claims, demands, rights,
actions, causes of action and suits of the SPFC or the Estate, of any kind or
character whatsoever, known or unknown, suspected or unsuspected, whether
arising before, on, or after the Petition Date, in contract or in tort, at law
or in equity or under any theory of law, of SPFC or the Estate, including, but
not limited to (1) derivative claims, (2) rights of setoff, counterclaim, or
recoupment, and claims on contracts or for breaches of duties imposed by law,
(3) the right to object to claims or interests, (4) claims pursuant to Section
362 of the Bankruptcy Code, (5) such claims and defenses as fraud mistake,
duress, usury, (6) all avoidance and recovery powers, rights to seek
subordination, and all rights and remedies under Sections 502(d), 506, 510, 542,
543, 544, 545, 547, 548, 549, 550, 552, and 553 of the Bankruptcy Code or any
fraudulent reconveyance, fraudulent transfer, or preference claims, including
without limitation any and all claims against the persons listed in the attached
Schedules I-A, I-B, and I-C or described in the Disclosure Statement.
"Schedules" means the schedules of assets and liabilities and
the statements of financial affairs Filed by SPFC in the Chapter 11 Case, as
required by Section 521 of the Bankruptcy Code, the Bankruptcy Rules, and the
Official Bankruptcy Forms.
"Secured Claim" means a Claim that is secured by a security
interest in or lien on property in which the Estate has an interest or that is
subject to setoff under Section 553 of the Bankruptcy Code, to the extent of the
value of the Claim Holder's interest in the Estate's interest in such property
or to the extent of the amount subject to setoff, as applicable, as determined
pursuant to Section 506(a) of the Bankruptcy Code.
"Securities Act" means the Securities Act of 1933, 15
U.S.C.Sections 77a-77aa, as now in effect or hereafter amended.
"Securities Action Plaintiffs" means the plaintiffs in the
Securities Actions.
"Securities Action Defendants" means the defendants in the
Securities Actions.
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"Securities Actions" means all actions, other than derivative
actions that constitute property of the Estate pursuant to Section 541 of the
Bankruptcy Code and other Rights of Action, that have been or could at any time
be commenced against SPFC or its officers, directors, agents, or advisers by or
on behalf of Holders of Old Common Stock or Notes, and includes without
limitation the actions listed in Schedule II.
"Senior Indebtedness" is defined in the Subordinated Indenture
and means any principal of, premium, if any, and interest on and fees, costs,
enforcement expenses, collateral protection expenses, or other obligations with
respect to any Indebtedness of SPFC other than the Subordinated Notes and
Indebtedness that by its terms or the terms of the instrument creating or
evidencing it is stated to be not superior in right of payment to the Notes, but
including guarantees given by SPFC. "Senior Indebtedness" does not include (a)
indebtedness of SPFC owed or owing to any subsidiary of SPFC or any officer,
director, or employee of SPFC or any subsidiary thereof or (b) any liability for
taxes owed or owing by SPFC.
"Senior Indenture" means the indenture agreement dated
November 4, 1997, between SPFC and The Bank of New York, as indenture trustee,
with respect to the Senior Notes.
"Senior Notes" means those 11.5 percent senior notes in the
amount of $100 million due November 1, 2004, that were issued by SPFC pursuant
to the Senior Indenture.
"Short Income Year" has the meaning set forth in Section 5.4.
"Short-Year Returns" has the meaning set forth in Section 5.4.
"Short-Year Term" has the meaning set forth in Section 5.4.
"Short-Year Tax" has the meaning set forth in Section 5.4.
"Special Notice List" has the meaning set forth in Section
5.3.1(b).
"SPFC" means Southern Pacific Funding Corporation, a
California corporation.
"SPML" means Southern Pacific Mortgage Limited, formerly a
wholly owned subsidiary of SPFC, organized under the laws of the United Kingdom.
"SPML Proceeds" has the meaning set forth in Section 3.2.3(b).
"SPML Receivable" means the amount due from SPML to SPFC as of
September 29, 1998.
"Subordinated Indenture" means the agreement dated November 1,
1996, between SPFC and BONY, acting as indenture trustee, under which HSBC is
successor indenture trustee, with respect to the Subordinated Notes.
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"Subordinated Notes" means those 6.75 percent convertible
subordinated notes due October 15, 2006, in the aggregate principal amount of up
to $86,250,000 that were issued by SPFC pursuant to the Subordinated Indenture.
"Subordination Provisions" has the meaning set forth in
Section 3.1.
"Subscriber" means The Goldman Sachs Group Inc. or certain of
its affiliates that have agreed to purchase the New Common Stock of SPFC
pursuant to the terms of the Acquisition Agreement.
"Tax Attributes" has the meaning set forth in the Acquisition
Agreement.
"Tax Expert" has the meaning set forth in Section 5.4.
"Trust Committee" has the meaning set forth in Section
5.3.1(c).
"Unimpaired Claim" means a Claim that is not impaired within
the meaning of Section 1124 of the Bankruptcy Code.
"Unsecured Claim" means any Claim that is not an
Administrative Expense, Priority Claim, or Secured Claim.
"Voting Instructions" means the instructions for voting on
this Plan in the "Voting Procedures" section of the Disclosure Statement and in
the Ballots.
"Voting Record Date" means May 26, 1999.
1.2 RULES OF INTERPRETATION, COMPUTATION OF TIME, AND GOVERNING LAW.
1.2.1 RULES OF INTERPRETATION.
For purposes of this Plan: (a) whenever from the context it is
appropriate, each term, whether stated in the singular or the plural, includes
both the singular and the plural; (b) any reference in this Plan to a contract,
instrument, release, indenture, or other agreement or document being in a
particular form or on particular terms and conditions means that the document
will be substantially in that form or substantially on those terms and
conditions; (c) any reference in this Plan to an existing document or exhibit
Filed or to be Filed means the document or exhibit as it may have been or may be
amended, modified, or supplemented; (d) if this Plan's description of the terms
of an exhibit is inconsistent with the terms of the exhibit, the terms of the
exhibit will control, but this Plan's description of the terms of the
Liquidating Trust Agreement shall control in the case of any inconsistency with
the terms of the Liquidating Trust Agreement; (e) unless otherwise specified,
all references in this Plan to Articles, Sections, Clauses, and exhibits are
references to Articles, Sections, Clauses, and exhibits of or to this Plan; (f)
the words "herein" and "hereto" refer to this Plan in its entirety rather than
to a particular portion of this Plan; (g) captions and headings to Articles and
Sections are inserted for convenience of reference only and are not intended to
be a part of or to affect the interpretation of this Plan; (h) the rules of
construction set forth in Section 102 of the Bankruptcy Code shall apply, to the
extent that the rules are not inconsistent with any other provision in this
Section 1.2.1; and (i)
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in the event of any inconsistency between this Plan and the accompanying
Disclosure Statement, the provisions of this Plan shall control.
1.2.2 COMPUTATION OF TIME.
In computing any period of time prescribed or allowed by this
Plan, the provisions of Bankruptcy Rule 9006(a) shall apply.
1.2.3 GOVERNING LAW.
Except to the extent that the Bankruptcy Code or Bankruptcy
Rules are applicable, and subject to the provisions of any contract, instrument,
release, indenture, or other agreement or document entered into in connection
with this Plan, the rights and obligations arising under this Plan shall be
governed by, and construed and enforced in accordance with, the laws of the
State of Oregon, without giving effect to the principles of conflicts of law
thereof.
ARTICLE II
TREATMENT OF ADMINISTRATIVE CLAIMS AND PRIORITY TAX CLAIMS
2.1 ADMINISTRATIVE EXPENSES.
In accordance with Section 1123(a)(1) of the Bankruptcy Code,
Administrative Expenses are not designated as a Class of Claims under this Plan,
and the Holders thereof are not entitled to vote on this Plan.
2.1.1 IN GENERAL.
Subject to the provisions of Section 2.1.3 with respect to
Professionals and the balance of this paragraph, on the Effective Date or as
soon thereafter as is practicable, each Holder of an Allowed Administrative
Expense shall receive Cash equal to the amount of the Allowed Administrative
Expense, unless the Holder and the Liquidating Trust (or, if Reorganized SPFC
has assumed the Administrative Expense, Reorganized SPFC) agree to other terms
or an order of the Bankruptcy Court provides for other terms. Allowed
Administrative Expenses representing obligations incurred in the ordinary course
of business or payable on the Effective Date shall be assumed on the Effective
Date and paid, performed, or settled by the Liquidating Trust or Reorganized
SPFC, as applicable, when due in accordance with the terms and conditions of the
particular agreements or applicable law governing such obligations, but this
Plan does not limit the right of the Holder of an Allowed Administrative Expense
to request and obtain a Bankruptcy Court order requiring payment on the
Effective Date.
2.1.2 DIP CLAIM.
The Administrative Expense Claim of Goldman, Sachs & Co. under
the DIP Facility is to be paid in full on the Effective Date or as soon
thereafter as is practicable.
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2.1.3 PROFESSIONALS.
Professionals or other entities requesting compensation or
reimbursement of expenses pursuant to Sections 327, 328, 330, 331, 503(b), or
1103 of the Bankruptcy Code or any other basis (including the Indenture
Trustees) for services rendered before the Effective Date shall File and serve
notice of their applications for final allowance of compensation and
reimbursement of expenses on the Liquidating Trust, counsel for the Liquidating
Trust, and all other persons entitled to notice of the applications (the
applications themselves to be filed and served on the Office of the United
States Trustee, the Liquidating Trust, and the Trust Committee) no later than 30
days after the Effective Date, but any Professional who is authorized to receive
compensation or reimbursement of expenses pursuant to the Foreclosure and
Collection Attorneys' Compensation Order without having Filed an application for
compensation or reimbursement of expenses may continue to receive compensation
and reimbursement of expenses for services rendered before the Effective Date
without further Bankruptcy Court review or approval pursuant to the Foreclosure
and Collection Attorneys' Compensation Order. The Liquidating Trust reserves the
right to contest any such applications. Any Administrative Expense for which an
application under this section was not timely Filed shall be forever barred.
2.1.4 TAXES INCURRED DURING THE ADMINISTRATION OF THE BANKRUPTCY CASE.
Taxes incurred by SPFC between the Petition Date and the
Effective Date shall be a liability of the Liquidating Trust only to the extent
provided in Section 5.4.
2.2 PRIORITY TAX CLAIMS.
In accordance with Section 1123(a)(1) of the Bankruptcy Code,
Priority Tax Claims are not designated as a Class of Claims under this Plan, and
the Holders thereof are not entitled to vote to accept or reject this Plan.
Priority Tax Claims shall be a liability of the Liquidating Trust only,
determined as provided in Section 5.4. Unless otherwise agreed to by the
Liquidating Trust and a Holder of a Priority Tax Claim, each Holder of an
Allowed Priority Tax Claim shall receive, at the option of the Liquidating Trust
in its sole discretion (a) Cash equal to the unpaid portion of the Allowed
Priority Tax Claim on the later of the Effective Date and the date on which the
Claim becomes an Allowed Priority Tax Claim or as soon thereafter as is
practicable or (b) equal quarterly Cash payments in an aggregate amount equal to
the Allowed Priority Tax Claim, together with interest at the fixed rate of
1-3/4 percent per calendar quarter or as otherwise agreed to by the Liquidating
Trust and the Holder, over a period through the sixth anniversary of the date of
assessment of the Allowed Priority Tax Claim, or on such other terms determined
by the Bankruptcy Court to provide the Holder of the Allowed Priority Tax Claim
deferred Cash payments having a value, as of the Effective Date, equal to the
Allowed Priority Tax Claim. The Liquidating Trust may prepay any Allowed
Priority Tax Claim at any time without penalty or premium, and any prepayment
shall be applied to future installments in order of maturity.
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ARTICLE III
CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS
The Bankruptcy Code requires that all Claims and Interests,
except Administrative Expenses and Priority Tax Claims, be placed in Classes. A
Claim or Interest is classified in a particular Class only to the extent that
the Claim or Interest qualifies within the description of that Class and is
classified in other Classes only to the extent that any remainder of the Claim
or Interest qualifies within the description of the other Classes. A Claim or
Interest is also classified in a particular Class only to the extent that the
Claim or Interest is an Allowed Claim or Allowed Interest in that Class and has
not been paid, released, or otherwise satisfied before the Effective Date. The
Bankruptcy Court shall determine, after notice and a hearing, the extent to
which a Claim or Interest qualifies within the description of a particular
Class. All obligations herein with respect to the making of Distributions and
the treatment of Claims after the Effective Date (including Administrative
Expenses and Priority Tax Claims) shall be assumed and performed by the
Liquidating Trust only and not by Reorganized SPFC.
3.1 SUMMARY OF CLAIMS AND INTERESTS.
<TABLE>
<S> <C> <C> <C>
CLASS DESCRIPTION IMPAIRED ENTITLED TO VOTE
1 Priority Claims No No
2 Secured Claims No No
3 Secured Senior Notes Claims Yes Yes
4 Administrative Convenience Class No No
5 Senior Notes Claims Yes Yes
6 Subordinated Notes Claims Yes Yes
7 Senior Unsecured Claims Yes Yes
8 General Unsecured Claims Yes Yes
9 Claims of Securities Plaintiffs Based On Notes Yes No
10 Indemnity Claims of Securities Action Defendants Yes No
11 Interests of Holders of Old Common Stock Yes No
12 Claims of Securities Plaintiffs (Not Based on Notes) Yes No
13 Claim of Bankers Trust Company of California, N.A. No No
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14 Claims of Norwest Bank Minnesota, National Association, and Yes Yes
MBIA Insurance Corporation
</TABLE>
The classification and treatment scheme set forth below is
intended to be consistent with the provisions of the Bankruptcy Code regarding
the allowance and payment of Claims and the enforcement of the subordination
provisions of the Subordinated Indenture ("Subordination Provisions") and the
terms of the Senior Indenture under Section 510(a) of the Bankruptcy Code.
Parties in interest are provided an opportunity to challenge this Plan's
treatment of Claims, and in particular the Plan's treatment of the Subordination
Provisions and the Administrative Convenience Class (see Section 3.2.4), at
Confirmation. See, for example, Section 3.3.2. If a challenge to the treatment
of the Subordination Provisions is sustained in the Confirmation Order or by a
Final Order, Distributions shall be made in accordance with the Confirmation
Order or the Final Order. If no such challenge is made or sustained,
Distributions shall be made in accordance with this Plan. In no event shall a
Bankruptcy Court determination that the Plan does not comply with the
Subordination Provisions require the giving of additional notice or solicitation
of votes on this Plan or prevent, or require revocation of, Confirmation. If the
Bankruptcy Court determines that Section 3.2.4 prevents Confirmation, SPFC may
elect to modify this Plan to delete Section 3.2.4, in which case Class 4
Administrative Convenience Class Claims shall be treated as Class 7 or Class 8
Claims, as appropriate.
3.2 CLASSIFICATION AND TREATMENT OF CLAIMS AGAINST AND INTERESTS IN SPFC.
3.2.1 CLASS 1: PRIORITY CLAIMS.
(a) CLASSIFICATION. Class 1 consists of all Allowed Priority Claims against
SPFC.
(b) TREATMENT. On the Effective Date or as soon thereafter as is practicable,
each Holder of an Allowed Class 1 Priority Claim shall receive Cash in an amount
equal to the amount of the Class 1 Priority Claim.
(c) VOTING. Class 1 is unimpaired, and the Holders of Class 1 Priority Claims
are not entitled to vote to accept or reject this Plan.
3.2.2 CLASS 2: SECURED CLAIMS.
(a) CLASSIFICATION. Class 2 consists of Allowed Secured Claims other than Class
3 Allowed Secured Senior Notes Claims.
(b) TREATMENT. Each Allowed Secured Claim in Class 2 shall, at the option of the
Liquidating Trust in its sole discretion, be treated in one of the following
fashions: (i) this Plan shall leave unaltered the legal, equitable, and
contractual rights to which the Claim entitles the Holder; (ii) the Liquidating
Trust shall surrender the property securing the Claim to the Holder; (iii) the
Liquidating Trust shall cure any default with respect to the Claim in a manner
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consistent with Section 1124(2) of the Bankruptcy Code; or (iv) the Claim shall
receive the other treatment to which the Holder shall consent.
(c) VOTING. Class 2 is unimpaired, and the Holders of Claims in Class 2 are not
entitled to vote to accept or reject this Plan.
3.2.3 CLASS 3: SECURED SENIOR NOTES CLAIMS.
(a) CLASSIFICATION. Class 3 consists of the Allowed Claims of the Holders of the
Senior Notes to the extent that they are Secured Claims.
(b) TREATMENT. The Holders of the Class 3 Secured Senior Notes Claims shall
receive, in full and final satisfaction of those Claims, a portion of the net
proceeds received by SPFC or the Liquidating Trust from the sale to Resetfan
Limited of SPFC's Capital Stock in SPML ("SPML Proceeds") equal to the portion
of the Capital Stock in SPML that was subject to a security interest in favor of
BONY as of the Petition Date. As used in this section, "net proceeds" means (i)
payments made under, or the proceeds of the sale of, the promissory note in the
amount of (pound)6 million given to SPFC by Resetfan Limited and (ii) dividends
paid under, or the proceeds of the sale of, the 25 percent of the Capital Stock
in Resetfan Limited issued to SPFC, after payment of or provision for the
expenses of SPFC's sale of its Capital Stock in SPML to Resetfan Limited and
taxes incurred in connection with or as a result of the sale. "Net proceeds," as
used in this Section 3.2.3, shall be further reduced to the extent that as of
the Petition Date, SPFC was entitled to avoid and recover its contribution of
the SPML Receivable to the capital of SPML in accordance with the Bankruptcy
Code or other law. The amount, if any, of SPML Proceeds that exceeds the amount
of "net proceeds" shall be held in trust by SPFC or the Liquidating Trust
pending determination of the amount of the Class 3 Claim in accordance with
Subsection (c) below. The Liquidating Trustee shall have the sole right to
appoint, or serve as, a director of Resetfan Limited while the Liquidating Trust
holds Capital Stock of Resetfan Limited.
(c) DETERMINATION OF AMOUNT OF CLASS 3 SECURED CLAIM. The Liquidating Trustee,
BONY, or any party in interest may commence a contested matter on such notice as
the Bankruptcy Court may direct to determine the extent of BONY's lien in the
net proceeds. Pending resolution of that matter, 100 percent of the net proceeds
shall be held in reserve by the Liquidating Trust.
(d) VOTING. Class 3 is impaired, and the Holders of the Class 3 Secured Senior
Notes Claims are entitled to vote to accept or reject this Plan.
3.2.4 CLASS 4: ADMINISTRATIVE CONVENIENCE CLASS.
(a) CLASSIFICATION: Class 4 consists of the Allowed Claims of Classes 7 and 8
that are in the amount of $400 or less, or whose Holders elect to reduce their
Claims to $400.
(b) TREATMENT: The Holders of Class 4 Allowed Claims shall receive the lesser of
the amount of the holder's Class 4 Administrative Convenience Class Claim or
$400 in Cash on, or as soon as is practicable after, the Effective Date in full
satisfaction of those Claims.
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(c) VOTING. Class 4 is unimpaired, and the Holders of the Class 4 Administrative
Convenience Claims are not entitled to vote to accept or reject this Plan.
3.2.5 CLASS 5: SENIOR NOTES.
(a) CLASSIFICATION. Class 5 consists of the Allowed Unsecured Claims of the
Holders of the Senior Notes to the extent that they are Unsecured Claims.
(b) TREATMENT. The Holders of Class 5 Senior Notes Claims shall receive Pro Rata
Distributions of Available Cash with the Holders of Class 6 Subordinated Notes
Claims, Class 7 Senior Notes Claims, and Class 8 General Unsecured Claims and,
until the Class 5 Senior Notes Claims have been paid in full, shall receive Pro
Rata Distributions with the Holders of Class 7 Senior Unsecured Claims of that
portion of Available Cash that would otherwise be payable to the Holders of
Class 6 Subordinated Notes Claims in the absence of the Subordination
Provisions, but the Holders of Class 5 Senior Notes Claims shall not receive
Distributions otherwise payable to the Holders of Class 6 Subordinated Notes
Claims on account of Class 5 Senior Notes Claims for Postpetition interest or
fees. The Holders of Class 5 Senior Notes Claims shall also receive
Distributions, if any, payable under Section 3.4 below.
(c) VOTING. Class 5 is impaired, and the Holders of the Class 5 Senior Notes
Claims are entitled to vote to accept or reject this Plan.
3.2.6 CLASS 6: SUBORDINATED NOTES.
(a) CLASSIFICATION. Class 6 consists of all Allowed Claims of Holders of
Subordinated Notes.
(b) TREATMENT. The Holders of Class 6 Subordinated Notes Claims shall receive
Pro Rata Distributions of Available Cash with the Holders of Class 5 Senior
Notes Claims, Class 7 Senior Unsecured Claims, and Class 8 General Unsecured
Claims, but until Class 5 Senior Notes Claims and Class 7 Senior Unsecured
Claims have been paid in full, all Distributions of Available Cash that would be
payable to Holders of Class 6 Subordinated Notes Claims in the absence of the
Subordination Provisions shall be distributed Pro Rata to the Holders of Class 5
Senior Notes Claims and Class 7 Senior Unsecured Claims; and the Holders of
Class 5 Senior Notes Claims and Class 7 Senior Unsecured Claims may not receive
Distributions otherwise payable to the Holders of Class 6 Subordinated notes
Claims on account of Class 5 Senior Notes Claims and Class 7 Senior Unsecured
Claims for Postpetition interest or fees. The rights of Holders of Class 6
Subordinated Notes Claims to be subrogated to the rights of the Holders of Class
5 Senior Notes Claims and Class 7 Senior Unsecured Claims and to receive
Distributions thereon until the Allowed Class 6 Subordinated Notes Claims are
paid in full, subject to the payment in full of Class 5 Senior Notes Claims and
Class 7 Senior Unsecured Claims as provided herein, are not affected by this
Plan. The Holders of Allowed Class 6 Subordinated Notes Claims shall also
receive the Distributions, if any, payable under Section 3.4 below.
(c) VOTING. Class 6 is impaired, and the Holders of Class 6 Subordinated Notes
Claims are entitled to vote to accept or reject this Plan.
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3.2.7 CLASS 7: SENIOR UNSECURED CLAIMS.
(a) CLASSIFICATION. Class 7 consists of the Allowed Unsecured Claims that are
Senior Indebtedness and that are not Class 5 Senior Notes Claims.
(b) TREATMENT. The Holders of Class 7 Senior Unsecured Claims shall receive Pro
Rata Distributions of Available Cash with the Holders of Class 5 Senior Notes
Claims, Class 6 Subordinated Notes Claims, and Class 8 General Unsecured Claims
and, until the Class 7 Senior Unsecured Claims have been paid in full, shall
receive Pro Rata Distributions with the Holders of Class 5 Senior Notes Claims
of that portion of Available Cash that would be payable to the Holders of Class
6 Subordinated Notes Claims in the absence of the Subordination Provisions, but
the Holders of Class 7 Senior Unsecured Claims may not receive Distributions
otherwise payable to the Holders of Class 6 Subordinated Notes claims on account
of Class 7 Senior Unsecured Claims for Postpetition interest or fees. The
Holders of Class 7 Senior Unsecured Claims shall also receive the Distributions,
if any, payable under Section 3.4 below.
(c) VOTING. Class 7 is impaired, and the Holders of Class 7 Senior Unsecured
Claims are entitled to vote to accept or reject this Plan.
3.2.8 CLASS 8: GENERAL UNSECURED CLAIMS.
(a) CLASSIFICATION. Class 8 consists of the Allowed Unsecured Claims that are
not otherwise classified.
(b) TREATMENT. The Holders of Class 8 General Unsecured Claims shall receive Pro
Rata Distributions of Available Cash with the Holders of Claims in Classes 5, 6,
and 7 until the Class 8 General Unsecured Claims have been paid in full. The
Holders of the Class 8 General Unsecured Claims shall also receive the amount,
if any, payable under Section 3.4 below.
(c) VOTING. Class 8 is impaired, and the Holders of Class 8 General Unsecured
Claims are entitled to vote to accept or reject this Plan.
3.2.9 CLASS 9: CLAIMS OF SECURITIES ACTION PLAINTIFFS BASED ON NOTES.
(a) CLASSIFICATION. Class 9 consists of (i) the Allowed Claims of Securities
Action Plaintiffs that are based on the purchase or sale of Notes and that are
set forth in, or arise from or are related to allegations in, the Securities
Actions and (ii) all other Allowed Claims for rescission of a purchase or sale
of a security of SPFC that is a Note, for damages arising from the purchase or
sale of such a security, or for reimbursement or contribution on account of such
a Claim.
(b) TREATMENT. The Holders of Class 9 Claims shall not receive or retain any
interest or property under this Plan.
(c) VOTING. Class 9 is impaired. Because the Holders of Class 9 Claims will not
receive or retain any interest or property under this Plan, Class 9 is deemed to
have not accepted this Plan, and the Holders of Class 9 Claims are not entitled
to vote on this Plan.
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3.2.10 CLASS 10: SECURITIES ACTION DEFENDANTS.
(a) CLASSIFICATION. Class 10 consists of the Allowed Claims of the Securities
Action Defendants for indemnity or contribution with respect to any judgment the
Securities Plaintiffs may obtain and attorneys fees or costs incurred by the
defendants in the Securities Actions.
(b) TREATMENT. The Holders of Class 10 Claims shall not receive or retain any
interest or property under this Plan.
(c) VOTING. Class 10 is impaired. Because the Holders of Class 10 Claims will
not receive or retain any interest or property under this Plan, Class 10 is
deemed to have not accepted this Plan, and the Holders of Class 10 Claims are
not entitled to vote on this Plan.
3.2.11 CLASS 11: INTERESTS OF HOLDERS OF OLD COMMON STOCK.
(a) CLASSIFICATION. Class 11 consists of the Interests of Holders of Old Common
Stock.
(b) TREATMENT. The Holders of the Class 11 Interests shall not receive or retain
any interest or property under this Plan, and the Old Common Stock shall be
canceled without compensation or consideration of any kind.
(c) VOTING. Class 11 is impaired. Because no Distribution will be made to the
Holders of Class 11 Interests, Class 11 is deemed to have not accepted this
Plan, and the Holders of Class 11 Interests are not entitled to vote on this
Plan.
3.2.12 CLASS 12: CLAIMS OF SECURITIES ACTION PLAINTIFFS (NOT BASED ON NOTES).
(a) CLASSIFICATION. Class 12 consists of (i) the Allowed Claims of Securities
Action Plaintiffs that are based on the purchase or sale of Old Common Stock and
that are set forth in, or that arise from or are related to the allegations of,
the Securities Actions and (ii) all other Claims for rescission of a purchase or
sale of a security of SPFC or of an affiliate of SPFC (other than a Note), for
damages arising from the purchase or sale of such a security, or for
reimbursement or contribution on account of such a Claim.
(b) TREATMENT. The Holders of Class 12 Claims may not receive or retain any
interest or property under this Plan.
(c) VOTING. Class 12 is impaired. Because no Distribution will be made to the
Holders of Class 12 Claims, Class 12 is deemed to have not accepted this Plan,
and the Holders of Class 12 Claims are not entitled to vote on this Plan.
3.2.13 CLASS 13: BANKERS TRUST.
(a) CLASSIFICATION. Class 13 consists of the Claim of Bankers Trust Company of
California, N.A., as trustee for securitization trust Series 1995-2, 1996-1, and
1996-3
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evidenced by promissory notes given by SPFC for amounts advanced thereunder
through the Effective Date.
(b) TREATMENT. The legal, equitable, and contractual rights of the Holder of the
Class 13 Claim continue unaltered by this Plan.
(c) VOTING. Class 13 is unimpaired, and the Holder of the Class 13 Bankers Trust
Claim is not entitled to vote to accept or reject this Plan.
3.2.14 CLASS 14: NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, AND MBIA
INSURANCE CORPORATION.
(a) CLASSIFICATION: Class 14 consists of the Allowed Claims of Norwest Bank
Minnesota, National Association, and MBIA Insurance Corporation, including any
claims arising from rejection of any executory contracts between either or both
of them and SPFC.
(b) TREATMENT: SPFC may, in its discretion, enter into a settlement agreement
with the Holders of the Class 14 Norwest/MBIA Claims substantially on the terms
and conditions summarized in Exhibit 2.6.1(f) to the Acquisition Agreement,
"Norwest Settlement Agreement Outline of Material Terms," which shall be Filed
not less than five days before the Confirmation Date. If SPFC does enter into
such a settlement agreement, the Class 14 Norwest/MBIA Claims shall be treated
without regard to this Section 3.2.14 and in the Class to which it would
otherwise belong.
(c) VOTING. Class 14 is impaired, and the Holder of the Class 14 Norwest/MBIA
Claims are entitled to vote to accept or reject this Plan.
3.3 DETERMINATION OF EXTENT OF SUBORDINATION AND CLASSIFICATION.
3.3.1 RES JUDICATA EFFECT OF CONFIRMATION ORDER.
The classification and treatment of Claims set forth in this
Plan are based on SPFC's interpretation of the Subordination Provisions, the
Subordinated Indenture, the Senior Indenture, and applicable law. Parties in
interest, including the Holders of Claims, affected by, or who assert rights
under, the Subordination Provisions must raise any objection to the
classification and treatment of Claims in this Plan before Confirmation because
the Confirmation Order will be binding as to all the issues that were or could
have been raised. To the extent that any such objection is upheld, this Plan
shall be deemed to be amended to be consistent with such determination as set
forth in Section 3.1.
3.3.2 CLASSIFICATION MOTION.
Pursuant to Bankruptcy Rule 3013, SPFC will file a motion
before Confirmation on such notice as the Bankruptcy Court may direct seeking a
determination of the proper classification of the Class 7 Senior Unsecured
Claims and Class 8 General Unsecured Claims. The primary issues to be addressed
by the motion will be whether such Claims meet the definition of Senior
Indebtedness as set forth in the Subordinated Indenture and are entitled to the
benefits of the Subordination Provisions including Claims arising from
rejection. The motion
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will set forth SPFC's determination of which Unsecured Claims, other than the
Senior Notes and the Senior Unsecured Claims, constitute Senior Indebtedness as
defined in the Subordinated Indenture and the preliminary classification of such
Unsecured Claims for voting purposes. The final determination of whether such
Unsecured Claims qualify within the description of Class 7 for purposes of
distribution will be made by a Final Order entered at Confirmation or thereafter
as a result of the motion.
3.4 POSTPETITION INTEREST.
Except as otherwise provided in this Plan, no Holder of an
Allowed Unsecured Claim shall be entitled to the accrual of Postpetition
interest or the payment by SPFC, Reorganized SPFC, or the Liquidating Trust of
Postpetition interest on account of such Claim for any purpose, but after the
Claims in Class 5, 6, 7, and 8 have been paid in full in accordance with
Sections 3.2.5, 3.2.6, 3.2.7, and 3.2.8, the Holders of Claims in those Classes
shall receive Pro Rata Distributions of Available Cash until Postpetition
interest at the greater of the contract rate or the legal rate on those Claims
has been paid in full.
3.5 RESERVATIONS OF RIGHTS.
Nothing in this Plan or the Disclosure Statement shall affect
SPFC's or the Liquidating Trust's:
(a) rights and legal and equitable defenses in respect of any Claims, including
Unimpaired Claims, including but not limited to all rights in respect of legal
and equitable defenses to setoffs or recoupments against any Claims; or
(b) right to request enforcement of a subordination agreement or otherwise to
seek subordination of a Claim or lien under Section 510 of the Bankruptcy Code
or otherwise, except to the extent that the issue has been resolved by entry of
this Confirmation Order or by a Final Order.
3.6 RIGHTS OF INDENTURE TRUSTEES VIS-A-VIS THIRD PARTIES.
Nothing in this Plan shall modify the rights of the Indenture
Trustees with respect to any party to the Senior Indenture or the Subordinated
Indenture, other than SPFC, including without limitation the Indenture Trustees'
rights to obtain liens, indemnity, compensation, and reimbursement of legal
fees, trustee's fees, and expenses on and from Distributions to the Holders of
Notes. The Indenture Trustees may apply for reimbursement of legal fees,
trustee's fees, and costs under the Bankruptcy Code or any other applicable law
for services rendered and expenses incurred before or at Confirmation and for
services rendered and expenses incurred after Confirmation in connection with
any objection to the proofs of Claim filed by the Indenture Trustees, any
objection to this Plan's treatment of the Subordination Provisions, and with
respect to BONY the dispute regarding the nature and extent of BONY's lien
treated in Section 3.2.3, as permitted by Section 2.1.3. The Indenture Trustees
shall also be compensated by the Liquidating Trust for all reasonable
post-Confirmation legal fees, trustee's fees, and expenses incurred in
connection actions required to be performed by the Indenture Trustees to
consummate this Plan and implement the Liquidating Trust.
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ARTICLE IV
ACCEPTANCE OR REJECTION OF THIS PLAN
4.1 VOTING CLASSES.
Each Holder of an Allowed Claim of Classes 3, 5, 6, 7, 8, and
14 may vote to accept or reject this Plan.
4.2 ACCEPTANCE BY IMPAIRED CLASSES.
An Impaired Class of Claims shall have accepted this Plan if
(a) the Holders (other than any Holder designated under Section 1126(e) of the
Bankruptcy Code) of at least two-thirds in amount of the Allowed Claims actually
voting in the Class have voted to accept this Plan and (b) the Holders (other
than any Holder designated under Section 1126(e) of the Bankruptcy Code) of more
than one-half in number of the Allowed Claims actually voting in the Class have
voted to accept this Plan. An Impaired Class of Interests shall have accepted
this Plan if the Holders (other than any Holder designated under Section 1126(e)
of the Bankruptcy Code) of at least two-thirds in amount of the Allowed
Interests actually voting in such Class have voted to accept this Plan.
4.3 PRESUMED ACCEPTANCE OF PLAN.
Classes 1, 2, 4, and 13 are unimpaired under this Plan and
therefore are conclusively presumed to have accepted this Plan pursuant to
Section 1126(f) of the Bankruptcy Code.
4.4 DEEMED NONACCEPTANCE OF PLAN.
Because the Holders of Class 9, 10, and 12 Claims and Class 11
Interests will not receive or retain any property under the Plan, Classes 9, 10,
11, and 12 are deemed not to have accepted this Plan pursuant to Section 1126(g)
of the Bankruptcy Code.
4.5 NONCONSENSUAL CONFIRMATION.
SPFC will seek Confirmation of this Plan under Section 1129(b)
of the Bankruptcy Code in view of the deemed nonacceptance by Classes 9, 10, 11,
and 12. If any Impaired Class of Claims fails to accept this Plan in accordance
with Section 1129(a)(8) of the Bankruptcy Code, SPFC will (a) request that the
Bankruptcy Court confirm this Plan in accordance with Section 1129(b) of the
Bankruptcy Code and/or (b) modify this Plan in accordance with Article XII of
this Plan.
ARTICLE V
MEANS FOR IMPLEMENTATION OF THIS PLAN
5.1 SALE OF ACQUIRED ASSETS AND ACQUISITION TRANSACTION.
Subject to the occurrence of certain conditions precedent, on
or immediately after the Effective Date SPFC shall consummate a transaction with
the Buyer on the terms set forth in the Asset Agreement and sell the Acquired
Assets. Immediately thereafter, Reorganized SPFC
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shall consummate a transaction with Subscriber on the terms set forth in the
Acquisition Agreement. The Old Common Stock of SPFC shall be canceled, and
10,000 shares of New Common Stock of Reorganized SPFC, constituting all of the
Capital Stock of Reorganized SPFC, shall be issued to Subscriber.
5.2 SPFC.
5.2.1 CONTINUED CORPORATE EXISTENCE.
On the Effective Date, the Old Common Stock shall be canceled
without any further action on the part of SPFC. The Holders of Old Common Stock
shall have no rights arising from or related to the Old Common Stock.
Reorganized SPFC shall continue to exist on the Effective Date as a separate
corporate entity, with all the powers of a corporation under applicable state
corporation law and without prejudice to any right to alter or terminate its
existence (whether by merger or otherwise). After the Effective Date,
Reorganized SPFC or any successor entity may operate its businesses, may use,
acquire, and dispose of its property without supervision or approval by the
Bankruptcy Court, and will be free of any restrictions of the Bankruptcy Code or
Bankruptcy Rules.
5.2.2 CERTIFICATE OF INCORPORATION AND BYLAWS OF REORGANIZED SPFC.
The Amended Certificate of Incorporation and the Bylaws of
Reorganized SPFC shall be substantially in the form Filed with the Bankruptcy
Court not later than five days before the Confirmation Date. The Amended
Certificate of Incorporation shall, among other things, prohibit the issuance of
nonvoting equity securities, to the extent required by Section 1123(a)(6) of the
Bankruptcy Code and authorize the issuance of the New Common Stock. After the
Effective Date, Reorganized SPFC or its successor may amend and restate the
Amended Certificate of Incorporation or Bylaws as permitted by applicable law.
5.3 LIQUIDATING TRUST.
5.3.1 LIQUIDATING TRUST AGREEMENT.
SPFC shall enter into and perform a Liquidating Trust
Agreement substantially in the form attached as Exhibit C to this Plan. The
executed Liquidating Trust Agreement will be Filed at least five days before the
Confirmation Date. The Liquidating Trust Agreement shall govern all aspects of
the Liquidating Trust. The Liquidating Trust shall contain the Excluded Assets.
The Liquidating Trustee shall keep a register of Beneficial Interests and shall
record transfers of interests upon a Holder's providing the Liquidating Trustee
with the information required under the Liquidating Trust Agreement.
Confirmation shall constitute a determination, in accordance with Section 1145
of the Bankruptcy Code, that except with respect to an entity that is an
underwriter as defined in Section 1145(b) of the Bankruptcy Code, Section 5 of
the Securities Act of 1933 and any State or local law requiring registration for
offer or sale of a security or registration or licensing of an issuer of,
underwriter of, or broker or dealer in, a security do not apply to the offer or
sale under this Plan of the Beneficial Interests in exchange for Claims against,
Interests in, or claims for administrative expenses in the Chapter 11 Case.
Nonetheless, if the Liquidating Trustee determines that registration and
reporting under Securities Exchange Act of 1934 is required, the Liquidating
Trustee will take steps to comply with those requirements.
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(a) LIQUIDATING TRUSTEE.
The Liquidating Trust shall have a Liquidating Trustee, which
may be natural person or an entity.
Not less than ten business days before the Confirmation Date,
the Committee may (i) File a notice setting forth the name and compensation of
the initial Liquidating Trustee and (ii) serve the notice on SPFC, the United
States trustee, and the Special Notice List. (The procedure by which any person
may be added to the Special Notice List and thus receive the foregoing notice is
set forth in Section 5.3.1(b) below, "Notices to Beneficiaries (Special Notice
List).") The Liquidating Trustee shall be responsible for administering assets
of the Liquidating Trust, analyzing and if appropriate objecting to Claims, and
prosecuting the Rights of Action, which shall be assigned to the Liquidating
Trust. The Liquidating Trustee and, as appropriate, the Litigation Trustee,
shall be deemed the Estate's representative in accordance with Section
1123(b)(3) of the Bankruptcy Code and may prosecute the Rights of Action for the
benefit of the Beneficiaries. The Liquidating Trustee shall also be vested with
SPFC's attorney-client privilege.
If the Committee fails to timely File a notice setting forth
the name and compensation of the initial Liquidating Trustee, then (i) SPFC
shall appoint an interim Liquidating Trustee from among its senior officers;
(ii) the interim Liquidating Trustee shall receive the same compensation and
other benefits that the interim Liquidating Trustee had most recently received
as a senior officer of SPFC; (iii) the Trust Committee may at any time File a
notice setting forth the name and compensation of a proposed successor
Liquidating Trustee, which notice shall be served on the Liquidating Trust,
Reorganized SPFC, the United States trustee, and the Special Notice List and
shall give not less than ten days' notice and opportunity for hearing regarding
the appointment of the proposed successor Liquidating Trustee, (iv) the Trust
Committee may select the interim Liquidating Trustee to serve as successor
Liquidating Trustee, and (v) the interim Liquidating Trustee shall serve as
Liquidating Trustee until the Bankruptcy Court enters a Final Order approving
the appointment of the successor Liquidating Trustee and shall be eligible for
appointment as Liquidating Trustee.
Any successor Liquidating Trustee shall be appointed in the
manner set forth above and in the Liquidating Trust Agreement. The Liquidating
Trustee may be removed in the manner set forth in the Liquidating Trust
Agreement. The Liquidating Trustee shall obtain a bond in an amount to be
determined by the Committee or the Trust Committee, as appropriate, the cost of
which shall be borne by the Liquidating Trust.
(b) NOTICES TO BENEFICIARIES (SPECIAL NOTICE LIST).
To receive all pleadings and other notices regarding the
Liquidating Trust, a Beneficiary shall: (1) prepare a written request to receive
all pleadings and other notices regarding the Liquidating Trust, stating in the
request the name and number of the Chapter 11 Case (In re Southern Pacific
Funding Corporation, Case No. 398-37613-elp11); (2) File the request with the
Clerk of the Bankruptcy Court, 1001 S.W. Fifth Avenue, Suite 700, Portland,
Oregon 97204 (if the Chapter 11 Case remains open); and (3) mail a copy to the
Liquidating Trustee. The persons who request such notices are collectively
referred to herein as the "Special
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Notice List." The right to receive notices to be sent to the Special Notice List
shall terminate when a person on the Special Notice List ceases to be a
Beneficiary.
(c) TRUST COMMITTEE.
Oversight of the Liquidating Trustee (and the Litigating
Trustee, if any is appointed) shall be the responsibility of a new committee,
the "Trust Committee," which shall replace the Committee and shall consist of
not more than seven and not fewer than three members who are Holders of Claims
in Classes 5, 6, 7, or 8. The initial Trust Committee shall be selected by the
Committee. To the extent practicable, the Trust Committee membership shall be
representative of the Beneficiaries and shall consist of Holders of Claims of
each of Classes 5, 6, 7, and 8. Any Trust Committee member may resign at any
time, but the Trust Committee may take no action while it has fewer than three
members. Trust Committee vacancies shall be filled by the members of the Trust
Committee or, in the absence of Committee members, by the Liquidating Trustee.
Members of the Trust Committee may not be compensated for
their services to the Liquidating Trust, but they shall be reimbursed for all
reasonable out-of-pocket expenses, other than the fees and expenses of counsel
to individual members of the Trust Committee.
The Liquidating Trustee shall consult with the Trust Committee
in good faith regarding all material issues affecting the Liquidating Trust,
including the resolution of Claims objections, the pursuit of Rights of Action,
and the disposition of assets. Within 45 days after the Effective Date, and
periodically thereafter, the Liquidating Trustee shall present to the Trust
Committee, and seek the advice of the Trust Committee regarding, proposed
budgets for the Liquidating Trust, setting forth expected receipts and
disbursements for litigation, operations, and other purposes.
The Trust Committee initially shall operate under the
Committee's bylaws and shall be subject to all pre-Confirmation confidentiality
agreements and requirements applicable to the members of the Committee until
such documents and agreements are redrafted. The term of the Trust Committee
shall renew automatically for six-month periods, but the Trust Committee may, by
majority vote of its members and written notice to the Office of the United
States Trustee, the Liquidating Trustee, and the Special Notice List, agree to
dissolve the Trust Committee. While the Trust Committee has fewer than three
members, and after it dissolves, the Liquidating Trustee shall not be required
to consult with the Trust Committee.
(d) PROFESSIONALS AND CURRENT EMPLOYEES.
The Liquidating Trustee shall have the authority, on behalf of
the Liquidating Trust, to employ and compensate attorneys, accountants,
investment advisers, and other professionals (including a registrar to maintain
the registry of Beneficiaries and a disbursing agent to make payments) as
determined from time to time without Bankruptcy Court approval, unless the Trust
Committee or ten Beneficiaries request a Bankruptcy Court hearing on the
allowance of such fees within ten days after mailing of notice to the Trust
Committee and the Special Notice List of the proposed payment, but compensation
or reimbursement of expenses for any services rendered after the Effective Date
in connection with any applications for
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compensation or reimbursement pending on the Effective Date or Filed and served
after the Effective Date with respect to services rendered or costs incurred
before the Effective Date shall be paid only in accordance with Section 2.1.3
above.
The Trust Committee may, with Bankruptcy Court approval,
employ Professionals for specified special purposes. The Liquidating Trustee
shall pay the fees and expenses of such Professionals for such services without
Bankruptcy Court approval, unless the Liquidating Trust or ten Beneficiaries
request a Bankruptcy Court hearing on the allowance of such fees and expenses
within ten days after mailing of the request for payment to the Liquidating
Trust and the Special Notice List.
To assist in the transition from SPFC to the Liquidating
Trust, current management shall be employed by the Liquidating Trust as
consultants on the terms of employment as of the Confirmation Date for the
following periods: E. James Hedemark through September 15, 1999; Kevin D.
Padrick through September 15, 1999; Timothy A. Breedlove through September 15,
1999; and Wendy Beth Oliver through September 1, 1999. The Liquidating Trustee,
in his or her sole discretion, may by agreement extend the periods of employment
and/or renegotiate the contracts with these consultants, but in no event except
by mutual agreement may the periods or terms of employment of these consultants
be reduced.
The Liquidating Trust shall assume and perform SPFC's
obligations to pay to employees all accrued salaries, wages, benefits, and other
amounts that have accrued from the Petition Date through the Effective Date,
including such payments as authorized by the Order Authorizing Payment of (1)
Employee Severance Plan and (2) Retention Plan, as amended or modified by the
Bankruptcy Court ("Severance and Retention Order"). Each employee of SPFC on the
Effective Date shall become an employee of the Liquidating Trust on the terms
and conditions of the employee's employment by SPFC and with the benefits that
SPFC had accorded the employee. The unpaid portion of the retention and/or
severance payment due to each employee shall be paid on the earlier of September
15, 1999, or the date on which the employee becomes entitled to receive that
payment in accordance with the Severance/Retention Order. The Liquidating Trust
shall reserve sufficient funds to make all retention payments due to former
employees of SPFC. James E. Hedemark shall be entitled to disburse or cause to
be disbursed all retention payments due to former SPFC employees employed by the
Liquidating Trust in accordance with the severance and retention plan approved
by the Bankruptcy Court. Confirmation of this Plan shall constitute approval to
make such disbursements without further approval.
(e) AUTHORITY OF LIQUIDATING TRUSTEE.
Except as otherwise expressly limited in the Liquidating Trust
Agreement and in subsection (g) below, the Liquidating Trustee shall have,
without prior or further authorization, control and authority over the trust
assets, including the Rights of Action, over the management and disposition
thereof (including any transfer of trust assets that does not constitute a
disposition), and over the management and conduct of the business of the
Liquidating Trust to the same extent that the Liquidating Trustee would have if
the Liquidating Trustee were the sole owner thereof in his or her own right. The
Liquidating Trustee shall exercise his or her judgment for the benefit of the
Beneficiaries in order to maximize the value of Distributions, giving due
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regard to the cost, risk, and delay of any course of action, but giving no
regard to the subordination of the Class 6 Subordinated Notes Claims to the
Class 5 Senior Notes Claims and the Class 7 Senior Unsecured Claims.
In connection with the management and use of the trust assets,
the Liquidating Trustee's powers, except as otherwise expressly limited in the
Liquidating Trust Agreement, may include, but shall not be limited to, the
following: (i) to accept the trust assets transferred from SPFC, to pursue the
liquidation and marshaling of the trust assets, and to preserve and protect the
trust assets; (ii) to make or cause to be made Distributions of the trust assets
in accordance with the terms of the Liquidating Trust Agreement; (iii) to
liquidate and distribute trust assets or any part thereof or any interest
therein, for Cash or on such terms and for such consideration as it deems
proper; (iv) to engage in all acts that would constitute ordinary performance of
the obligations of the trustee under a liquidating trust; (v) to enforce the
payment of notes or other obligations of any person or to make contracts with
respect thereto; (vi) to purchase insurance with such coverage and limits as it
deems desirable, including, without limitation, insurance covering liabilities
of the Liquidating Trustee or employees or agents of the Liquidating Trust
incurred in connection with their services to the trust; (vii) to appoint,
engage, employ, supervise, and compensate officers, employees, and other persons
as may be necessary or desirable, including managers, consultants, accountants,
technical, financial, real estate, or investment advisers or managers,
attorneys, agents or brokers, corporate fiduciaries or depositaries, and the
registrar and transfer agent, subject to subsection (d) above; (viii) to invest
and reinvest Cash available to the trust, pending Distribution, and to liquidate
such investments; (ix) to execute, deliver, and perform any closing agreement
made with the Internal Revenue Service (x) to determine of ascertainment of
income and principal, the apportionment of income and principal, the
apportionment between income and principal of all receipts and disbursements,
and the selection of an annual accounting period; (xi) to provide for reserves
to pay expenses of or Distributions from the Liquidating Trust, including
Administrative Expenses and Priority Tax Claims, and (xii) to execute, deliver,
and perform such other agreements and documents and to take or cause to be taken
any and all such other actions as it may deem necessary or desirable to
effectuate and carry out the purposes of the Liquidating Trust Agreement.
(f) APPOINTMENT OF LITIGATING TRUSTEE.
The Liquidating Trustee may with the approval of the
Bankruptcy Court appoint a Litigating Trustee based on a showing that the
appointment is reasonably necessary for the pursuit of the Rights of Action and
that the compensation to be paid for the services of both the Liquidating
Trustee and the Litigating Trustee will be reasonable. The Liquidating Trustee
shall give not less than ten days' notice of the proposed appointment of a
Litigating Trustee to the Trust Committee and the Special Notice List. If the
Liquidating Trustee has not appointed a Litigating Trustee, or if any appointed
Litigating Trustee resigns, references in this Plan to the Litigating Trustee
shall mean the Liquidating Trustee.
(g) APPROVAL OF SALES OF ASSETS AND SETTLEMENTS.
Except as limited in this Section 5.3 and in Section 5.4, the
Liquidating Trustee shall be responsible for and shall have the authority to
sell or otherwise dispose of Trust assets, to make determinations with respect
to objecting to and settling all Claims against SPFC and the
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Trust, and to prosecute or settle all Rights of Action, except that if a
Litigating Trustee has been appointed in accordance with Section 5.3.1(g), the
Litigating Trustee shall be responsible for and shall have the authority to
prosecute or settle all Rights of Action. The Liquidating Trustee may not sell
or otherwise dispose of an asset worth more than $50,000 but not more than
$500,000 or settle any Claim against SPFC or the Trust or any Right of Action in
excess of $50,000 but not more than $500,000 without either obtaining the Trust
Committee's consent or giving 15 days' notice and an opportunity for hearing to
the Special Notice List in accordance with the procedure applicable to SPFC
before the Confirmation Date, and if a timely objection to the proposed
settlement is filed, obtaining a Bankruptcy Court order approving the sale,
disposition, or settlement; and the Liquidating Trustee may not sell or
otherwise dispose of an asset worth more than $500,000 or settle any Claim
against SPFC or the Trust or any claim or cause of action of SPFC or the Trust
in excess of $500,000 without giving 15 days' notice and an opportunity for
hearing to the Trust Committee and the Special Notice List in accordance with
the procedure applicable to SPFC before the Confirmation Date, and if a timely
objection to the proposed settlement is filed, obtaining a Bankruptcy Court
order approving the settlement. The Liquidating Trustee may sell or otherwise
dispose of any Trust asset not worth more than $50,000 or settle any Claim
against SPFC or the Liquidating Trust or any Right of Action of not more than
$50,000 without obtaining the Trust Committee's consent or giving any notice.
If the Chapter 11 Case has been Finally Closed, any hearing
referred to in this SECTION 5.3.1(G) shall be held in a court of competent
jurisdiction or in accordance with the Case Closure Order.
(h) TERM OF LIQUIDATING TRUST.
The Liquidating Trust shall terminate upon the Distribution of
all assets held in trust, but not later than five years after the Effective
Date. Notwithstanding, the Liquidating Trustee may, if it is in the best
interest of the Beneficiaries, and subject to the approval of the Bankruptcy
Court (or another court of competent jurisdiction if the Chapter 11 Case has
been closed) based on a finding that an extension is necessary to the
liquidating purpose of the Liquidating Trust, extend the term of the Liquidating
Trust for one or more finite terms based upon the particular facts and
circumstances at that time (each, an "Extension Period"), provided that each
Extension Period is approved by the Bankruptcy Court (or a court of competent
jurisdiction if the Chapter 11 Case has been Finally Closed) within the first
six months of the Extension Period. If permitted under the applicable law and
not contrary to the classification of Liquidating Trust as a pass-through entity
under applicable income tax law, and if in the best interests of the
Beneficiaries, the Liquidating Trust may distribute interests in the assets of
the Liquidating Trust or distribute the Liquidating Trust's assets to another
entity and then distribute interests in that entity to the Beneficiaries.
5.3.2 ADDITIONAL COVENANTS AGREEMENT.
Pursuant to the Acquisition Agreement, Reorganized SPFC,
Buyer, Subscriber, and the Liquidating Trust shall enter into and perform the
Additional Covenants Agreement.
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5.3.3 FEDERAL INCOME TAX MATTERS.
The Liquidating Trustee will treat the Liquidating Trust as a
liquidating trust pursuant to Treasury Regulation Section 301.7701-4(d). For
federal income tax purposes, SPFC, the Liquidating Trustee and the Beneficiaries
shall treat the transfer of the Trust Assets to the Liquidating Trust as a
transfer of such Trust Assets to the Beneficiaries followed by a nontaxable
contribution by the Beneficiaries of such Trust Assets to the Liquidating Trust.
For federal income tax purposes, the Beneficiaries will be treated as the
Liquidating Trust's grantors and deemed owners (in proportion to their
interests) of the Liquidating Trust Assets. The Liquidating Trustee is
authorized to take any action as may be necessary or appropriate to minimize any
potential tax liability of the Beneficiaries arising out of the operations of
the Liquidating Trust. The Liquidating Trustee shall file in a timely manner all
such tax returns as are required by applicable law (Treas. Reg. 1.671-4(a)) by
virtue of the existence and operations of the Liquidating Trust and pay any
taxes shown as due thereon. The Liquidating Trustee shall prepare and distribute
to Beneficiaries reports regarding any income, gain, deduction, credit, or loss
of the Liquidating Trust as are required by applicable law and, in addition
thereto, the Liquidating Trustee shall, not less often than annually, provide to
Beneficiaries such information as is appropriate or necessary to enable the
Beneficiaries to determine their respective tax obligations, if any, arising out
of the operations of the Liquidating Trust. The Liquidating Trustee shall treat
all trust income as subject to tax on a current basis. The Liquidating Trust
shall distribute, at least annually, all trust income and liquidation proceeds
to the Beneficiaries, after payment of expenses and liabilities, less the
Reserves and reasonably necessary reserves for expenses and other Liquidating
Trust Costs. The Beneficiaries shall each report their share of the net income
of the Liquidating Trust and pay any tax owing thereon on a current basis.
The aggregate value of the Excluded Assets shall be determined
by SPFC and the Liquidating Trustee shortly after the Effective Date and
reported to each Beneficiary. The value of the transferred property (the
Excluded Assets less liabilities assumed by the Liquidating Trust) shall be
consistently reported for federal income tax purposes by SPFC, the Liquidating
Trust, and the Beneficiaries.
For federal income tax purposes, the transfer of property from
SPFC to the Liquidating Trust shall be a taxable transaction to SPFC. Any tax
liability incurred by SPFC as a result of the transfer shall be paid by the
Liquidating Trust in accordance with Section 5.4 below.
The Liquidating Trust shall distribute, at least annually, all
trust income (including investment income) and liquidation proceeds to the
Beneficiaries, after payment of expenses and liabilities, less reasonably
necessary reserves for expenses. The Beneficiaries shall each report their share
of the net income of the Liquidating Trust and pay any tax owing thereon on a
current basis.
5.4 POST-CONFIRMATION TAXES.
5.4.1 1999 TAXABLE YEAR.
For the 1999 taxable year:
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(a) Unless advised otherwise by Subscriber before the Effective Date,
Reorganized SPFC shall become a member of a group of corporations filing a
consolidated federal income tax return effective on or immediately after the
Closing Date (or under federal and any applicable state income tax laws, SPFC's
taxable year shall end on the Closing Date with respect to such taxing
jurisdictions), and:
(i) The taxable income of SPFC for the period from January 1, 1999, through and
including the Closing Date (the "Short Year") shall be referred to as the
"Short-Year Income";
(ii) The Liquidating Trust shall, on behalf of SPFC, timely file (including any
applicable extensions) all tax returns for a taxable year of the SPFC that ends
on the Closing Date (the "Short-Year Returns"), and the Liquidating Trust shall
make reasonable efforts to file these returns by November 1, 1999, even if not
legally required to do so. Reorganized SPFC shall have a reasonable opportunity
to review and provide comments on the federal, California, and Oregon Short-Year
Returns before they are filed;
(iii) The Liquidating Trust shall be liable for paying the tax (and interest and
penalties, if any) on the Short-Year Income in each jurisdiction for which a
Short-Year Return is to be filed (the "Short-Year Tax"), and its liability for
the Short-Year Tax shall be allowed as a Claim against the Estate and shall be
treated as an Administrative Expense in accordance with Section 2.1.4; and
(iv) Reorganized SPFC shall be discharged from any obligation to pay the
Short-Year Tax.
(b) If Reorganized SPFC is not a member of a consolidated (or equivalent) tax
filing group effective on or immediately after the Closing Date in any
applicable taxing jurisdiction, or if the Closing Date is not the last day of
the SPFC's taxable year for tax purposes, then Reorganized SPFC shall prepare
and file its 1999 tax returns in a timely fashion (taking into account
extensions), shall be responsible to pay taxes due for such taxable year to the
extent provided in this paragraph, and shall provide the Liquidating Trust with
notice of such filing. In such event, the Liquidating Trust's liability for
paying the tax in respect of the 1999 taxable year shall be limited to the
amount of Reorganized SPFC's incremental additional tax liability for the 1999
taxable year over the tax liability that would have resulted had the Closing
Date been the last day of a Short Year (the "Deemed Short Year") taking into
account for federal income tax purposes only the extent to which Reorganized
SPFC's Tax Attributes are affected (adversely or otherwise) by taxable income in
respect of the Deemed Short Year. Accordingly, for avoidance of doubt, if
Reorganized SPFC's tax liability is not greater for taxable year 1999 than it
would have been had the Deemed Short Year been a Short Year and Reorganized
SPFC's Tax Attributes are not adversely affected in respect of Deemed Short Year
income, then the Liquidating Trust shall not have any liability for Reorganized
SPFC's 1999 taxable income. For state (and local) income tax purposes, the
liability of the Liquidating Trust for taxes in any jurisdiction under this
paragraph (b) shall not exceed the liability for taxes that would have been
owing if the Deemed Short Year had actually been a separate taxable year of
SPFC.
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5.4.2 TAXABLE YEARS BEFORE 1999.
The Liquidating Trust shall request a prompt determination of
the state and federal prepetition tax liabilities of SPFC pursuant to Section
505(a) of the Bankruptcy Code for any tax year ending after June 15, 1996 (the
day after the effective date of SPFC's initial public offering). The Liquidating
Trust shall pay (on behalf of SPFC) any tax that SPFC is obligated to pay as a
result of any such determinations, as provided in Section 2.2, and Reorganized
SPFC shall pay to the Liquidating Trust any tax refunds it receives as a result
of any such determinations.
5.4.3 TAXES, GENERALLY.
The Liquidating Trust, pursuant to Section 505(b) of the
Bankruptcy Code, shall request a prompt determination of any unpaid liability of
SPFC for any tax incurred during the administration of the Bankruptcy Case with
respect to its 1998 taxable year and (if applicable) the Short Year, and the
Liquidating Trust shall be liable to pay any taxes (and interest and penalties,
if any) with respect to such taxable years.
Reorganized SPFC and the Liquidating Trust may both
participate in all material aspects of the federal income tax audits with
respect to SPFC and the Acquired Assets for any taxable year beginning after
June 14, 1996 (the effective date of SPFC's initial public offering) and ending
on or before December 31, 1998 (except that the Liquidating Trust shall have no
right to participate in any audit of a tax year unless it is responsible to pay
a portion of the tax due with respect to such tax year), and each shall provide
the other with contemporaneous notice of any communication with the relevant tax
authorities (as set forth in the Additional Covenants Agreement). The
Liquidating Trust shall consult with Reorganized SPFC before making or accepting
any proposed settlement with respect to SPFC or the Acquired Assets in
connection with taxable years beginning before the Closing Date that reasonably
would affect Reorganized SPFC. Notwithstanding the foregoing, the Liquidating
Trust shall make final decisions with respect to tax settlements for taxable
years ending on or before the Closing Date and Reorganized SPFC shall make the
final decisions with respect to tax settlements for taxable years ending after
the Closing Date.
The Liquidating Trust shall assume any and all liability for
taxes payable by SPFC in connection with SPFC's operations and subsidiaries
located outside of the United States prior to and including the Closing Date,
including, without limitation, any tax liability in excess of amounts reported
on SPFC's tax returns and Reorganized SPFC shall be discharged from any such
liability.
A nationally recognized accounting firm selected by Subscriber
and reasonably acceptable to the Liquidating Trust (the "Tax Expert") shall
finally decide all disputes and controversies with respect to this Section 5.4
by submission of a reasonably detailed written decision. The Tax Expert, before
reaching any such decision, must allow the Liquidating Trust and Subscriber a
reasonable opportunity to provide information and respond to issues.
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5.5 VESTING OF ASSETS; PRESERVATION OF RIGHTS.
Except as otherwise provided in this Plan or in the
Confirmation Order, on and after the Effective Date, the Acquired Assets shall
vest in Reorganized SPFC free and clear of all Claims, liens, charges, other
encumbrances, and Interests.
Except as otherwise provided in this Plan or in the
Confirmation Order, on and after the Effective Date, all Excluded Assets,
including all Rights of Action and the attorney-client privilege, shall vest in
and be assigned to the Liquidating Trust free and clear of all Claims, liens,
charges, other encumbrances, and Interests.
In accordance with Section 1123(b)(3) of the Bankruptcy Code,
the Liquidating Trust shall receive from SPFC and Reorganized SPFC and may
enforce the Rights of Action and exercise all other rights of a trustee or
debtor in possession under the Bankruptcy Code. The Liquidating Trust or its
successors may pursue the Rights of Action in accordance with the best interests
of the Beneficiaries and without regard to the Confirmation or the terms of the
Disclosure Statement. The Liquidating Trustee shall have the right and power to
object to proofs of Claim or interest or Claims deemed allowed under Section
1111(a) of the Bankruptcy Code on any ground, including the grounds set forth in
Section 502 of the Bankruptcy Code, and shall be the Estate's representative
pursuant to Section 1123(b)(3) of the Bankruptcy Code. Without limitation, the
Liquidating Trust shall have the right to pursue all Rights of Action against
the persons listed in Schedule I and to object to all proofs of Claim that
exceed the amount set forth in the Schedules as the amount of the Claim held by
the claimant, including the proofs of Claim set forth in Schedule III. SPFC
reserves and the Liquidating Trust shall receive from SPFC and may pursue all
Rights of Action and may object to all proofs of Claim without regard to whether
the persons against whom the Rights of Action may be asserted are listed in
Schedule I to the Plan or the proofs of Claim to which the Liquidating Trust
objects are listed in Schedule III to the Plan.
5.6 AUTHORITY.
The Confirmation Order shall constitute sufficient evidence of
the Liquidating Trustee's authority to convey, transfer, or otherwise dispose of
property of the Liquidating Trust, including the Rights of Action, without
further order of the Bankruptcy Court.
5.7 EMPLOYMENT AND OTHER AGREEMENTS AND INCENTIVE COMPENSATION PROGRAMS OF
THE LIQUIDATING TRUST.
As of the Effective Date, the Liquidating Trust shall have the
authority to (a) enter into employment agreements with former employees of SPFC
and (b) implement welfare benefit plans and other incentive plans in which
employees of the Liquidating Trust may be eligible to participate. Such
agreements and plans may include bonus and other incentive plans.
5.8 EFFECTUATING DOCUMENTS; FURTHER TRANSACTIONS; EXEMPTION FROM CERTAIN
TRANSFER TAXES.
The Chairman of the Board and Chief Executive Officer or the
President of SPFC or Reorganized SPFC or the Liquidating Trustee, as applicable,
may execute, deliver, file, or record such contracts, instruments, releases,
indentures, and other agreements or documents and
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take such actions as may be necessary or appropriate to effectuate and further
evidence the terms and conditions of this Plan. The Secretary or any Assistant
Secretary of SPFC, Reorganized SPFC, or the Liquidating Trustee, as applicable,
may certify or attest to any of the foregoing actions. Pursuant to Section
1146(c) of the Bankruptcy Code, the issuance, Distribution, transfer, or
exchange of the New Common Stock shall not be subject to any document recording
tax, stamp tax, conveyance fee, intangibles or similar tax, mortgage tax, stamp
act, real estate transfer tax, mortgage recording tax, or other similar tax or
governmental assessment, and the appropriate state or local governmental
officials or agents shall be, and hereby are, directed to forgo the collection
of any such tax or governmental assessment and to accept for filing and
recordation any of the foregoing instruments or other documents without the
payment of any such tax or governmental assessment.
ARTICLE VI
EXECUTORY CONTRACTS AND UNEXPIRED LEASES
6.1 EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE ASSUMED.
6.1.1 ASSUMPTIONS GENERALLY.
On the Effective Date, pursuant to Sections 365 and 1123(b)(2)
of the Bankruptcy Code, SPFC shall (a) assume each executory contract and
unexpired lease listed in Schedule IV to this Plan and (b) assume and assign to
the Liquidating Trust each executory contract and unexpired lease listed in
Schedule V to this Plan. Schedules IV and V to this Plan may be amended or
supplemented by an amendment or amendments filed with the Bankruptcy Court on or
before the Confirmation Date. The Confirmation Order shall constitute an order
of the Bankruptcy Court approving the assumptions described in this Section
6.1.1 pursuant to Sections 365 and 1123(b)(2) of the Bankruptcy Code, as of the
Effective Date. In addition, notwithstanding any other provision of this Plan,
Reorganized SPFC and the Liquidating Trust may assume or assume and assign any
executory contract or unexpired lease listed in Schedule VI by motion filed
within 60 days after the Effective Date.
6.1.2 CURE OF DEFAULTS.
The Confirmation Order shall constitute an order of the
Bankruptcy Court determining that as of the Confirmation Date there exist no
defaults under any assumed executory contracts or unexpired leases other than
those listed in Schedules IV and V. Parties to assumed executory contracts and
unexpired leases shall be forever barred from asserting the existence of any
defaults other than those listed in Schedules IV and V.
Any monetary amounts by which each executory contract and
unexpired lease to be assumed pursuant to this Plan is in default shall be
satisfied, pursuant to Section 365(b)(1) of the Bankruptcy Code, at the option
of Reorganized SPFC (with respect to executory contracts or unexpired leases
that have been assumed and not assigned) or the Liquidating Trust (with respect
to executory contracts and unexpired leases that have been assumed and assigned
to the Liquidating Trust): (a) by payment of the default amount in Cash on the
Effective Date or as soon thereafter as is practicable (b) by the giving of
adequate assurance of future performance or
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(c) on such other terms as are agreed to by Reorganized SPFC or the Liquidating
Trust, as appropriate, and the other parties to the executory contract or
unexpired lease. If the nondebtor party to the contract or lease disputes: the
amount of any cure payments; the ability of the assignee to provide "adequate
assurance of future performance" (within the meaning of Section 365(b)(1) of the
Bankruptcy Code) under the contract or lease to be assumed; or any other matter
pertaining to assumption, then (x) the nondebtor party to the contract or lease
shall be forever barred from asserting the dispute unless that party Files an
objection to the proposed assumption or assignment within 30 days after the
Confirmation Date, and (y) the cure payments or other method of providing
adequate assurance of future performance required by Section 365(b)(1) of the
Bankruptcy Code shall be made (i) on the Confirmation Date or (ii) upon entry of
a Final Order resolving the dispute and approving the assumption or assignment,
whichever is later.
6.2 EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE REJECTED.
6.2.1 REJECTION GENERALLY.
Except as otherwise provided in this Plan, the Confirmation
Order, any contract, instrument, release, indenture, or other agreement or
document entered into in connection with this Plan, or a prior Bankruptcy Court
order, on the Effective Date, pursuant to Section 365 of the Bankruptcy Code,
SPFC shall reject each executory contract and unexpired lease not previously
assumed with the approval of the Bankruptcy Court or assumed under Section 6.1
above. Without limitation, SPFC shall reject the executory contracts and
unexpired leases set forth in Schedule V. The Confirmation Order shall
constitute an order of the Bankruptcy Court approving such rejections, pursuant
to Section 365 of the Bankruptcy Code, as of the Effective Date. SPFC shall
reject each contract and lease listed in Schedule VI 60 days after the Effective
Date unless a motion to assume or to assume and assign the contract or lease has
been Filed before the end of the 60-day period. Each contract and lease shall be
rejected only if and to the extent that it constitutes an executory contract or
unexpired lease.
6.2.2 BAR DATE FOR REJECTION DAMAGES.
If the rejection of an executory contract or unexpired lease,
including the Senior Indenture or the Subordinated Indenture, gives rise to a
Claim by the other party or parties to the contract or lease, the Claim shall be
forever barred and shall not be enforceable against the Liquidating Trust unless
a proof of Claim is Filed and served on the Liquidating Trust and counsel for
the Liquidating Trust within 30 days after the Effective Date or, with respect
to the contracts and leases listed in Schedule VI, by the earlier of 90 days
after the Effective Date or 30 days after the date of any rejection; any
settlement between SPFC and the Holders of the Class 14 Claims shall govern the
treatment of those Claims. A timely Filed Claim arising from rejection of an
executory contract or unexpired lease shall be treated as a Claim in the
appropriate Class.
6.3 OCEANMARK BANK, FSB.
The determination whether SPFC has material unperformed
obligations under certain contracts between SPFC and Oceanmark Bank, FSB
("OMB"), causing such contracts to be executory, shall be made by the Bankruptcy
Court in the following adversary proceeding
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pending in the Bankruptcy Court, Southern Pacific Funding Corporation v.
Oceanmark Bank, F.S.B., et al., Adversary Proceeding No. 99-3046-elp, or in such
other action or contested matter as the Bankruptcy Court shall determine ("OMB
Proceeding"). Notwithstanding Section 6.1, not later than 30 days after entry of
the Final Order in the OMB Proceeding determining whether SPFC has material
unperformed obligations to OMB under such contracts, and thus whether they are
executory, SPFC may File a motion for authority to assume any executory contract
between SPFC and OMB ("OMB Contract"). In the absence of a timely Filed motion
to assume any OMB Contract, all OMB Contracts shall be deemed rejected to the
extent they are executory.
ARTICLE VII
PROVISIONS GOVERNING DISTRIBUTIONS
7.1 DELIVERY OF DISTRIBUTIONS AND UNDELIVERABLE OR UNCLAIMED DISTRIBUTIONS.
7.1.1 DELIVERY OF DISTRIBUTIONS IN GENERAL
Distributions to Holders of Allowed Claims or Interests shall
be made at the addresses set forth in the proof of claim or interest Filed by
the Holder or, if none has been Filed, in the Schedules or other records of
Reorganized SPFC or the Liquidating Trust, as applicable, at the time of the
Distribution.
7.1.2 UNDELIVERABLE DISTRIBUTIONS.
If the Distribution to any Holder of an Allowed Claim is
returned to the Liquidating Trust as undeliverable, the Liquidating Trustee
shall use reasonable efforts to determine the Holder's then-current address, and
no further Distributions shall be made to the Holder unless and until the
Liquidating Trustee learns of the Holder's then-current address or the
Liquidating Trust is notified in writing of the Holder's then-current address.
Undeliverable Distributions shall remain in the possession of the Liquidating
Trust until such time as a Distribution becomes deliverable, but not more than
two years after the Effective Date. Undeliverable Cash shall be held in trust in
segregated bank accounts in the name of the Liquidating Trust for the benefit of
the potential claimants of the funds, and shall be accounted for separately. The
Liquidating Trust shall invest the Cash in a manner consistent with the
Liquidating Trust Agreement.
Any Holder of an Allowed Claim that does not assert a Claim
pursuant to this Plan for an undeliverable Distribution within two years after
the Effective Date shall have its Claim for the undeliverable Distribution
discharged and shall be forever barred from asserting any such Claim for an
undeliverable Distribution against the Liquidating Trust. In such cases, any
Cash held for Distribution on account of the Claims for undeliverable
Distributions shall be the property of the Liquidating Trust, free of any
restrictions thereon. Notwithstanding the foregoing, the Liquidating Trustee
shall attempt to locate missing holders of Allowed Claims by checking a national
address directory either through the Internet or commercially available CD-ROM
package.
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7.2 DISTRIBUTION RECORD DATE.
As of the close of business on the Distribution Record Date, the
transfer registers for the Notes shall be closed. The Liquidating Trust shall
have no obligation to recognize the transfer of any Notes occurring after the
Distribution Record Date and shall be entitled for all purposes herein to
recognize and deal only with those Holders of record as of the close of business
on the Distribution Record Date. Concurrently with Confirmation, SPFC shall seek
a Bankruptcy Court order directing Holders of record as of the Distribution Date
to identify Beneficiaries or Beneficial Holders.
7.3 MEANS OF CASH PAYMENTS.
Cash payments made pursuant to this Plan shall be in U.S.
dollars by checks drawn on a domestic bank selected by the Liquidating Trust or
by wire transfer from a domestic bank, at the option of the Liquidating Trust,
but Cash payments to foreign creditors may be made, at the option of SPFC or the
Liquidating Trust, in such funds and by such means as are necessary or customary
in a particular foreign jurisdiction.
7.4 COMPLIANCE WITH TAX REQUIREMENTS.
In connection with this Plan, to the extent applicable, the
Liquidating Trust shall comply with all tax withholding and reporting
requirements imposed on it by any governmental unit, and all Distributions
pursuant to this Plan shall be subject to withholding and reporting
requirements. The Liquidating Trust may take any and all actions that may be
necessary or appropriate to comply with withholding and reporting requirements.
Notwithstanding any other provision of this Plan: (i) each
Holder of an Allowed Claim that is to receive a Distribution pursuant to this
Plan shall have sole and exclusive responsibility for the satisfaction and
payment of any tax obligations imposed by any governmental unit, including
income, withholding, and other tax obligations, on account of the Distribution;
and (ii) no Distribution may be made to or on behalf of the Holder pursuant to
this Plan unless and until the Holder has made arrangements satisfactory to the
Liquidating Trust for the payment and satisfaction of the tax obligations. Any
Cash to be distributed pursuant to this Plan shall, pending the implementation
of such arrangements, be treated as an undeliverable Distribution pursuant to
Section 7.1.2 above.
7.5 SETOFFS.
The Liquidating Trust, pursuant to Section 553 of the
Bankruptcy Code or applicable nonbankruptcy law, may offset any Allowed Claim
and the Distributions to be made pursuant to this Plan on account of the Claim
(before any Distribution is made on account of the Claim) against the Claims,
rights, and causes of action of any nature that SPFC or the Liquidating Trust
may hold against the Holder of the Claim. Neither the failure to effect such a
setoff nor the allowance of any Claim hereunder shall constitute a waiver or
release by SPFC or the Liquidating Trust of any such Claims, rights, and causes
of action that SPFC or the Liquidating Trust may possess against the Holder.
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7.6 SENIOR INDENTURE AND SUBORDINATED INDENTURE.
Subject to Section 3.6, without further action on the part of
SPFC, on the Effective Date, the Senior Indenture and Subordinated Indenture
shall be terminated and canceled, and the obligations of the Indenture Trustees
thereunder to both SPFC and the Holders of Notes shall be discharged. The
Liquidating Trust shall make the Distributions to the Holders of Class 3 Senior
Secured Notes Claims, the Class 5 Senior Notes Claims, and the Class 6
Subordinated Notes Claims.
7.7 SENIOR NOTES AND SUBORDINATED NOTES.
Except for the obligations to make Distributions under the
Plan, the Senior Notes and the Subordinated Notes shall be canceled on the
Effective Date. Notwithstanding the foregoing, the certificates evidencing the
Notes shall not be canceled, but shall be surrendered solely to reflect the
cancellation of Claims under the Plan in exchange for the Distributions from the
Liquidating Trust. Any record Holder of a certificate evidencing a Senior Note
or Subordinated Note that is also a Beneficial Holder of a Claim of Classes 3,
5, or 6 shall surrender the certificate to the Liquidating Trustee. No such
Holder will receive Distributions unless the certificate is surrendered before
two years after the Effective Date.
ARTICLE VIII
PROCEDURES FOR RESOLVING DISPUTED CLAIMS AND DISPUTED INTERESTS
8.1 NO PAYMENTS ON ACCOUNT OF DISPUTED CLAIMS OR INTERESTS.
Notwithstanding any other provisions of this Plan, no payments
or Distributions shall be made, or Beneficial Interests allocated on account of
a Disputed Claim until the Claim becomes an Allowed Claim. The Liquidating Trust
shall maintain Reserves on account of Disputed Claims.
8.2 RESOLUTION OR ESTIMATION OF CLAIMS.
The Liquidating Trust may request at any time that the
Bankruptcy Court estimate any contingent or unliquidated Claim pursuant to
Section 502(c) of the Bankruptcy Code, regardless of whether any party has
previously objected to the Claim or the Bankruptcy Court has ruled on any the
objection. The Bankruptcy Court shall retain jurisdiction to estimate any
contingent or unliquidated Claim at any time during litigation concerning any
objection to the Claim, including during the pendency of any appeal relating to
any such objection. If the Bankruptcy Court estimates any contingent or
unliquidated Claim, that estimated amount shall constitute either the Allowed
amount of the Claim or a maximum limitation on such Claim, as determined by the
Bankruptcy Court. If the estimated amount constitutes a maximum limitation on
such Claim, the Liquidating Trust may elect to pursue any supplemental
proceedings to object to any ultimate payment on account of the Claim. All of
these objection, estimation, and resolution procedures are cumulative and not
necessarily exclusive of one another.
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8.3 DISTRIBUTIONS ON ACCOUNT OF DISPUTED CLAIMS ONCE THEY ARE ALLOWED.
Distributions shall be made on account of Disputed Claims that
have become Allowed Claims to the same extent as previous Distributions on
account of Allowed Claims.
ARTICLE IX
CONDITIONS PRECEDENT TO CONFIRMATION AND CONSUMMATION OF THIS PLAN
9.1 CONDITIONS TO CONFIRMATION.
The Bankruptcy Court may not enter the Confirmation Order
unless the Confirmation Order is acceptable in form and substance to SPFC,
Buyer, Goldman, and Subscriber.
9.2 CONDITIONS TO EFFECTIVE DATE.
This Plan may not be confirmed and the Effective Date may not
occur unless and until each of the following conditions has been satisfied or
duly waived pursuant to Section 9.3 below:
(a) The Confirmation Order shall authorize and direct SPFC and the Liquidating
Trust to take all actions necessary or appropriate to enter into, implement, and
consummate the agreements or documents necessary or desirable in connection with
this Plan and the Acquisition Transaction.
(b) The Confirmation Order shall have become a Final Order.
(c) The parties to the Acquisition Transaction shall be prepared to consummate
it concurrently with entry of the Confirmation Order.
9.3 WAIVER OF CONDITIONS.
The conditions to Confirmation and the Effective Date, other
than the condition set forth above in Section 9.2, paragraph (a), may be waived
in whole or in part by SPFC at any time, without notice, an order of the
Bankruptcy Court, or any further action other than proceeding to Confirmation
and consummation of this Plan. The failure to satisfy or waive any condition may
be asserted by SPFC regardless of the circumstances giving rise to the failure
of the condition to be satisfied (including any action or inaction by SPFC). The
failure of SPFC to exercise any of the foregoing rights shall not be deemed a
waiver of any other rights, and each such right shall be deemed an ongoing right
that may be asserted at any time.
9.4 EFFECT OF NONOCCURRENCE OF CONDITIONS TO EFFECTIVE DATE.
Each of the conditions to consummation of the Acquisition
Transaction and the Effective Date must be satisfied or duly waived, as provided
above, within 30 days after the Confirmation Date unless SPFC extends this time
for a period not exceeding 90 days. If each
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condition to the Effective Date has not been satisfied or duly waived pursuant
to Section 9.3, within 90 days after the Confirmation Date, then upon motion by
any party in interest made before the time that each condition has been
satisfied or duly waived and upon notice to such parties in interest as the
Bankruptcy Court may direct, the Confirmation Order shall be vacated by the
Bankruptcy Court. Notwithstanding the Filing of such motion, the Confirmation
Order may not be vacated if each of the conditions to the Effective Date is
either satisfied or duly waived before the Bankruptcy Court enters an order
granting the motion. If the Confirmation Order is vacated pursuant to this
Section 9.4, this Plan shall be deemed null and void in all respects, including
the discharge of Claims and termination of Interests pursuant to Section 1141 of
the Bankruptcy Code and the assumptions or rejections of executory contracts and
unexpired leases pursuant to Article VI above, and nothing contained in this
Plan shall (a) constitute a waiver or release of any Claims by or against, or
any Interests in, SPFC or (b) prejudice in any manner the rights of SPFC.
ARTICLE X
CONFIRMABILITY AND SEVERABILITY OF PLAN AND CRAMDOWN
10.1 CONFIRMABILITY AND SEVERABILITY OF PLAN.
SPFC reserves the right to modify, revoke, or withdraw this
Plan, as it applies pursuant to Sections 13.2 and 13.3 below. A determination by
the Bankruptcy Court that this Plan is not confirmable pursuant to Section 1129
of the Bankruptcy Code shall not limit or affect SPFC's ability to modify this
Plan to satisfy the confirmation requirements of Section 1129 of the Bankruptcy
Code.
10.2 CRAMDOWN.
SPFC requests Confirmation under Section 1129(b) of the
Bankruptcy Code if any Impaired Class does not accept this Plan pursuant to
Section 1126 of the Bankruptcy Code. In that event, SPFC reserves the right to
modify this Plan to the extent, if any, that Confirmation pursuant to Section
1129(b) of the Bankruptcy Code requires modification.
ARTICLE XI
DISCHARGE OF CLAIMS, TERMINATION OF INTERESTS, INJUNCTION, AND INDEMNIFICATION
11.1 DISCHARGE OF CLAIMS AND TERMINATION OF INTERESTS.
Except as provided in this Plan or the Confirmation Order, the
rights afforded under this Plan and the treatment of Claims under this Plan
shall be in exchange for and in complete satisfaction, discharge, and release of
all Claims, including any interest accrued on and fees due the Holders of Claims
from the Petition Date. Except as provided in this Plan or the Confirmation
Order, Confirmation shall: (a) discharge SPFC and Reorganized SPFC from all
Claims or other debts that arose before the Confirmation Date and all debts of
the kind specified in Sections 502(g), 502(h), or 502(i) of the Bankruptcy Code,
whether or not: (i) a proof of Claim based on the debt is Filed or deemed Filed
pursuant to Section 501 of the Bankruptcy Code, (ii) a
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Claim based on the debt is Allowed pursuant to Section 502 of the Bankruptcy
Code, or (iii) the Holder of a Claim based on the debt has accepted this Plan;
and (b) terminate all Interests and other rights of the Holders of Old Common
Stock. Except as provided in this Plan or the Confirmation Order, all
obligations undertaken in this Plan are obligations of the Liquidating Trust and
not of Reorganized SPFC.
As of the Confirmation Date, except as provided in this Plan
or the Confirmation Order, all entities shall be precluded from asserting
against SPFC, Reorganized SPFC, or the Liquidating Trust, their successors, or
their property, any other or further Claims, debts, rights, causes of action,
liabilities, or equity interests based on any act, omission, transaction, or
other activity of any nature that occurred before the Confirmation Date. In
accordance with the foregoing, except as provided in this Plan or the
Confirmation Order, the Confirmation Order shall be a judicial determination of
discharge of all such Claims and other debts against SPFC and termination of all
such Interests and other rights of Old Common Stock, pursuant to Sections 524
and 1141 of the Bankruptcy Code, and the discharge shall void any judgment
obtained against SPFC at any time, to the extent that the judgment relates to a
discharged Claim or terminated Interest.
11.2 INJUNCTION RELATED TO DISCHARGED CLAIMS AND TERMINATED INTERESTS.
Except as provided in this Plan or the Confirmation Order, as
of the Confirmation Date, all entities that have held, currently hold, or may
hold a Claim or other debt that is discharged or an Interest or other right of
an equity security holder that is terminated pursuant to the terms of this Plan,
are permanently enjoined from taking any of the following actions against SPFC,
Reorganized SPFC, the Liquidating Trust, or their respective property, on
account of any such discharged Claims, debts, or liabilities or terminated
Interests or rights: (a) commencing or continuing, in any manner or in any
place, any action or other proceeding; (b) enforcing, attaching, collecting, or
recovering in any manner any judgment, award, decree, or order; (c) creating,
perfecting, or enforcing any lien or encumbrance; (d) asserting a setoff, right
of subrogation, or recoupment of any kind against any debt, liability, or
obligation due to SPFC, Reorganized SPFC, or the Liquidating Trust; and (e)
commencing or continuing, in any manner or in any place, any action that does
not comply with or is inconsistent with the provisions of this Plan.
11.3 LIMITATION OF LIABILITY IN CONNECTION WITH THIS PLAN, DISCLOSURE
STATEMENT, AND RELATED DOCUMENTS.
The Plan Participants shall not incur any liability to any
entity, including specifically any Holder of a Claim or Interest, for any act
taken or omitted to be taken after the Petition Date in connection with or
related to the formulation, preparation, dissemination, implementation,
Confirmation, or consummation of this Plan, the Disclosure Statement, the
Confirmation Order, or any contract, instrument, release, or other agreement or
document created or entered into, or any other act taken or omitted to be taken
in connection with this Plan, the Disclosure Statement, or the Confirmation
Order, including solicitation of acceptances of this Plan in good faith and in
compliance with the applicable provisions of the Bankruptcy Code, other than
actions or omissions arising from gross negligence, willful misconduct, or ultra
vires acts. This Section 11.3 shall not apply to any person or entity listed in
Schedule I-A.
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11.4 EFFECT OF PROPERTY RECEIVED FROM SOURCES OTHER THAN SPFC OR LIQUIDATING
TRUST.
If and to the extent that the Holder of a Claim or Interest
receives property other than from SPFC or the Liquidating Trust on account of
the Holder's Claim or Interest, and if the Holder is entitled to retain that
property as against SPFC, the Estate, and the Liquidating Trust, then
Confirmation shall not determine the rights among that Holder and other persons
with respect to such property, but the property shall reduce the amount of the
Claim or Interest, except to the extent that the payor of the property is
subrogated to the rights of the Holder.
ARTICLE XII
RETENTION OF JURISDICTION; CLOSURE
12.1 RETENTION OF JURISDICTION.
Notwithstanding the entry of the Confirmation Order and the
occurrence of the Effective Date, the Bankruptcy Court shall retain jurisdiction
over the Chapter 11 Case after the Effective Date, including jurisdiction to:
(a) Allow, disallow, determine, liquidate, classify, estimate, or establish the
priority or secured or unsecured status of any Claim or Interest, including the
resolution of any request for payment of any Administrative Expense, the
resolution of any objections to the allowance or priority of Claims or
Interests, and the determination of the amount or legality of any tax or of any
fine or penalty relating to a tax or any addition to tax of SPFC, Reorganized
SPFC, or the Liquidating Trust;
(b) Grant or deny any applications for allowance of compensation or
reimbursement of expenses authorized pursuant to the Bankruptcy Code or this
Plan for periods ending on or before the Effective Date;
(c) Resolve any matters related to the assumption or rejection of any executory
contract or unexpired lease to which SPFC is a party or with respect to which
SPFC may be liable, and hear, determine, and, if necessary, liquidate any Claims
arising therefrom;
(d) Ensure that Distributions to Holders of Allowed Claims are accomplished
pursuant to the provisions of this Plan;
(e) Decide or resolve any motions, adversary proceedings, contested or litigated
matters, and any other matters and grant or deny any applications involving SPFC
or the Liquidating Trust, including the Rights of Action;
(f) Enter such orders as may be necessary or appropriate to implement or
consummate the provisions of this Plan and all contracts, instruments, releases,
indentures, and other agreements or documents created in connection with this
Plan, the Disclosure Statement, or the Confirmation Order;
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(g) Resolve any cases, controversies, suits, or disputes that may arise in
connection with the consummation, interpretation, or enforcement of this Plan or
the Confirmation Order, including the release and injunction provisions set
forth in and contemplated by this Plan and the Confirmation Order, or any
entity's rights arising under or obligations incurred in connection with this
Plan or the Confirmation Order;
(h) Modify this Plan before or after substantial consummation pursuant to
Section 1127 of the Bankruptcy Code or modify the Disclosure Statement, the
Confirmation Order, or any contract, instrument, release, indenture, or other
agreement or document created in connection with this Plan, the Disclosure
Statement, or the Confirmation Order; or remedy any defect or omission or
reconcile any inconsistency in any Bankruptcy Court order, this Plan, the
Disclosure Statement, the Confirmation Order, or any contract, instrument,
release, indenture, or other agreement or document created in connection with
this Plan, the Disclosure Statement, or the Confirmation Order, in such manner
as may be necessary or appropriate to consummate this Plan, to the extent
authorized by the Bankruptcy Code;
(i) Issue injunctions, enter and implement other orders, or take such other
actions as may be necessary or appropriate to restrain interference by any
entity with consummation, implementation, or enforcement of this Plan or the
Confirmation Order;
(j) Enter and implement such orders as are necessary or appropriate if the
Confirmation Order is for any reason modified, stayed, reversed, revoked, or
vacated;
(k) Determine any other matters that may arise in connection with or relating to
this Plan, the Disclosure Statement, the Confirmation Order, or any contract,
instrument, release, indenture, or other agreement or document created in
connection with this Plan, the Disclosure Statement, or the Confirmation Order,
except as otherwise provided in this Plan; and
(l) Enter an order closing the Chapter 11 Case.
The Bankruptcy Court shall retain such jurisdiction even if
the action, motion, or proceeding is brought by the Liquidating Trustee on
behalf of the Beneficiaries.
12.2 CASE CLOSURE.
Unless the Liquidating Trustee and the Trust Committee agree
otherwise, the Chapter 11 Case shall remain open for not less than 18 months
after the Confirmation Date. Before expiration of that 18-month period, the
Liquidating Trustee shall File, after consultation with the Trust Committee, a
motion proposing a mechanism for closing the Case, including the Court's
retention of jurisdiction over specified pending adversary proceedings and
contested matters ("Case Closure Order"). Except as otherwise provided in the
Case Closure Order, when the Chapter 11 Case is closed, all provisions of this
Plan requiring the Liquidating Trustee to give notice and in the case of a
timely objection to obtain a Bankruptcy Court order shall be permissive and not
mandatory.
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ARTICLE XIII
MISCELLANEOUS PROVISIONS
13.1 UNITED STATES TRUSTEE.
All fees payable pursuant to Section 1930 of Title 28 of the
United States Code, as determined by the Bankruptcy Court at the Confirmation
hearing pursuant to Section 1128 of the Bankruptcy Code, shall be paid on or
before the Effective Date. The Liquidating Trust shall pay all fees incurred
under 28 U.S.C. Section 1930(a)(6) by reason of the Trust's disbursements until
this case is closed. After the Confirmation Date, the Liquidating Trust shall
serve on the Office of the United States Trustee a monthly financial report for
each month, or portion thereof, that the Chapter 11 Case remains open. The
monthly financial report shall include a statement of all disbursements made
during the course of the month, whether or not pursuant to this Plan.
13.2 MODIFICATION OF THIS PLAN.
Subject to the restrictions on modifications set forth in
Section 1127 of the Bankruptcy Code and any applicable notice requirements, the
Liquidating Trust and, before the closing of the Acquisition Transaction, SPFC
or Reorganized SPFC, shall have the right to alter, amend, or modify this Plan
before its substantial consummation.
13.3 REVOCATION OF THIS PLAN.
SPFC reserves the right to revoke or withdraw this Plan before
the Confirmation Date. If SPFC revokes or withdraws this Plan, or if
Confirmation does not occur, then this Plan shall be null and void in all
respects, and nothing contained in this Plan shall: (a) constitute a waiver or
release of any Claims by or against, or any Interests in, SPFC; or (b) prejudice
in any manner the rights of SPFC.
13.4 SEVERABILITY OF PLAN PROVISIONS.
If, before Confirmation, any term or provision of this Plan is
held by the Bankruptcy Court to be invalid, void, or unenforceable, the
Bankruptcy Court, at the request of SPFC, shall have the power to alter and
interpret the term or provision to make it valid or enforceable to the maximum
extent practicable, consistent with the original purpose of the term or
provision held to be invalid, void, or unenforceable, and the term or provision
shall then be applicable as altered or interpreted. Notwithstanding any such
holding, alteration, or interpretation, the remainder of the terms and
provisions of this Plan shall remain in full force and effect and shall in no
way be affected, impaired, or invalidated by such holding, alteration, or
interpretation. The Confirmation Order shall constitute a judicial determination
and shall provide that each term and provision of this Plan, as it may have been
altered or interpreted in accordance with the foregoing, is valid and
enforceable pursuant to its terms.
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13.5 SUCCESSORS AND ASSIGNS.
The rights, benefits, and obligations of any entity named or
referred to in this Plan shall be binding on and shall inure to the benefit of
any heir, executor, administrator, successor, or assign of such entity.
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13.6 SERVICE OF DOCUMENTS ON SPFC OR LIQUIDATING TRUST.
Any pleading, notice or other document required by this Plan
or Confirmation Order to be served on or delivered to SPFC shall be sent by
first-class U.S. mail, postage prepaid, to:
Southern Pacific Funding Corporation
c/o Miller, Nash, Wiener, Hager & Carlsen LLP
111 S.W. Fifth Avenue, Suite 3500
Portland, Oregon 97204-3699
Attn: David W. Hercher
Fax: (503) 224-0155
Telephone: (503) 224-5858
Portland, Oregon June 2, 1999.
SOUTHERN PACIFIC FUNDING CORPORATION
By: /s/ Wendy Beth Oliver
Wendy Beth Oliver
Secretary
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Exhibit A Asset Agreement *
Exhibit B Acquisition Agreement **
Exhibit C Liquidating Trust Agreement ***
Schedule I Rights of Action ***
Schedule II Securities Actions ***
Schedule III Proofs of Claim that Exceed Scheduled Amounts ***
Schedule IV Contracts to be Assumed for Benefit of Reorganized SPFC ***
Schedule IV Contracts to be Assumed and Assigned to the Liquidating Trust
***
Schedule V Contracts that May be Assumed or Assumed and Assigned After
Confirmation ***
Schedule VI Contracts to be Rejected ***
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* See Exhibit 99.3 to this Current Report on Form 8-K.
** See Exhibit 99.4 to this Current Report on Form 8-K.
*** Omitted. Southern Pacific Funding Corporation will furnish supplementally a
copy of any omitted exhibit or schedule to the Securities and Exchange
Commission upon request.
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AMENDED AND RESTATED
ASSET PURCHASE AGREEMENT
BY AND BETWEEN
SOUTHERN PACIFIC FUNDING CORPORATION,
(AS DEBTOR-IN-POSSESSION)
AND
GOLDMAN, SACHS & CO.
AMENDED AND RESTATED AS OF MAY 21, 1999
<PAGE>
AMENDED AND RESTATED
ASSET PURCHASE AGREEMENT
This Amended and Restated Asset Purchase Agreement ("Purchase
Agreement") dated as of May 21, 1999, by and between GOLDMAN, SACHS & CO., a
Delaware limited partnership ("Asset Company"), and SOUTHERN PACIFIC FUNDING
CORPORATION, a California corporation acting in its capacity as
Debtor-in-Possession ("Seller").
RECITALS
A. On October 1, 1998, Southern Pacific Funding Corporation
(referred to generally as the "Company") filed for bankruptcy under Chapter 11
of the United States Bankruptcy Code in the United States Bankruptcy Court for
the District of Oregon (the "Bankruptcy Case"). The assets of the Company
constitute a bankruptcy estate supervised and managed by Seller as
Debtor-in-Possession for the benefit of the Company's creditors.
B. Seller has filed its Plan of Reorganization, which will be
amended promptly after the parties have signed and delivered this Purchase
Agreement and related agreements, including a Stock Subscription and Purchase
Agreement (all referred to as the "Definitive Agreements"). Seller is seeking
confirmation of such plan, as amended, from the United States Bankruptcy Court
for the District of Oregon or such other court or adjunct thereof that exercises
jurisdiction over the Bankruptcy Case (the "Bankruptcy Court").
C. Pursuant to the Plan of Reorganization (as it may be
amended, and once confirmed by the Confirmation Order), the Company will sell
certain of its assets to Asset Company pursuant to this Purchase Agreement.
D. Seller desires to sell, and Asset Company desires to
purchase, certain of its assets for the consideration, on the terms, and subject
to the conditions set forth in this Purchase Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For purposes of this Purchase Agreement, capitalized terms not
otherwise defined have the meanings given in Appendix I attached to and hereby
incorporated into this Purchase Agreement by reference.
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2. ASSETS PURCHASED; NO LIABILITIES ASSUMED
2.1 ASSETS PURCHASED
Subject to the terms and conditions of this Purchase Agreement, at
Closing Seller agrees to sell to Asset Company and Asset Company agrees to
purchase from Seller the assets listed on Schedule 2.1 (the "Purchased Assets").
Seller will exclude all other assets of Seller from this sale and purchase.
2.2 NO LIABILITIES ASSUMED
Asset Company is assuming no liabilities of Seller pursuant to this
Purchase Agreement. All obligations and liabilities of Seller will remain and be
the obligations and liabilities of Seller or of the Liquidating Trust and will
not be assumed by Asset Company.
3. PURCHASE PRICE
3.1 The purchase price (the "Purchase Price") for the Purchased Assets is
the amount consisting of the (i) Base Cash Price less the Adjustment
Amount, and (ii) plus the Asset Cash Flow Instrument.
3.2 The Base Cash Price is $11,614,768.
3.3 The Adjustment Amount will be equal to 50 percent of (i) Prepayment
Penalty Income, (ii) amounts received with respect to the IO
Certificates (including partnership distributions), and (iii) all other
amounts actually received by Seller between April 1, 1999, and the
Closing Date with respect to the Purchased Assets. Asset Company will
pay the Purchase Price in immediately available funds at Closing.
4. ASSET CASH FLOW INSTRUMENT
4.1 At Closing, Asset Company will issue to Seller an instrument in the
form of Exhibit 4.1 (the "Asset Cash Flow Instrument"). The Asset Cash
Flow Instrument will provide for periodic payments to Seller of the sum
(without duplication) of 50 percent of the following (i.e., 50 percent
of the amounts in clause (a) minus 50 percent of the amounts in clause
(b)) with respect to the Purchased Assets and Purchased Asset Proceeds.
("Purchased Asset Proceeds" means any securities or tangible non-cash
consideration received on a sale or transfer of Purchased Assets to a
non-Related Person of Asset Company, or any securities retained by
Asset Company in connection with the securitization of any Purchased
Assets):
(a) the sum (without duplication) of:
(i) the aggregate of all pre-tax cash flows from each of the
Purchased Assets and Purchased Asset Proceeds from the Closing Date
until the sale (or transfer) or Financing Transaction with respect to
the related Purchased Assets or
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Purchased Asset Proceeds, it being agreed that the cash flows will
continue to be payable to Holder after any sale or transfer to a
Related Person of Asset Company (other than a sale to a Related Person
of Asset Company for the sole purpose of facilitating a Financing
Transaction) or pursuant to a transaction that has not been found by
the board of directors (or if Asset Company is not a corporation, the
comparable governing body) of Asset Company to be an arms-length
transaction;
(ii) all pre-tax Proceeds from the sale of any Purchased Asset or
Purchased Asset Proceeds or portion of a Purchased Asset or Purchased
Asset Proceeds; and
(iii) all pre-tax Proceeds from any Financing Transaction entered
into by Asset Company with respect to any of the Purchased Assets or
Purchased Asset Proceeds and all Hedging Gains;
(50% of the sum of the amounts in clause (i), (ii) and (iii) is the "Asset
Purchase Cash Flows"); minus
(b) otherwise unreimbursed Out-of-Pocket Expenses incurred by Asset
Company.
4.2 The periodic payments (each a "Distribution") made with respect to the
Asset Cash Flow Instrument each calendar month, commencing with the
first full calendar month following the Closing Date (each such month,
a "Cash Flow Period") will equal (i) the Asset Purchase Cash Flows
received by Asset Company during such Cash Flow Period (or from the
Closing Date through the last day of the first Cash Flow Period, in the
case of the first Distribution) minus (ii) 50 percent of the
Out-of-Pocket Expenses not previously applied in reduction of Asset
Purchase Cash Flows.
4.3 Out-of-Pocket Expenses means:
(a) Direct Third Party out-of-pocket expenses reasonably incurred
by the Asset Company or by a Related Person of Asset Company with
respect to the Purchased Asset and Purchased Asset Proceeds, not
otherwise reimbursable from a third party, and directly related to a
sale of Purchased Assets or Purchased Asset Proceeds or Financing
Transaction.
(b) Notwithstanding Section 2.3.3(a), Out-of-Pocket Expenses
specifically include:
(i) Hedging Losses and carrying costs of hedging
transactions;
(ii) principal and interest repaid on any Financing
Transaction;
(iii) otherwise reimbursable Third Party expenses that Asset
Company has determined to be uncollectible; and
(iv) fees and expenses incurred with respect to Asset Company
or a Related Person of Asset Company in connection with a sale or
Financing Transaction,
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but only to the extent such fees are consistent with market rates
and industry standards and are approved by the Holder, which
approval shall not be unreasonably withheld ("Related Person
Expenses"). Related Person Expenses shall be deemed to be approved
if not objected to within 21 days after Holder received a detailed
report from the Asset Company together with a request for
approval.
4.4 The Distribution for a particular month will be paid on or before
the first business day following the end of the related Cash Flow
Period.
4.5 The terms and conditions of this Section 4 reflect the intent and
agreement of the parties. In the case of any conflict between the
terms of this Purchase Agreement and the terms of the Asset Cash
Flow Instrument, however, the terms of this Agreement will control
until Closing, in which case the Asset Cash Flow Instrument itself
will control.
5. ADDITIONAL COVENANTS AGREEMENT
5.1 The Plan of Reorganization will provide for Asset Company to enter
into an agreement with the Liquidating Trust, the Reorganized
Company, and Subscriber in the form of Exhibit 5.1. (the
"Additional Covenants Agreement"), with such further changes as
the parties may agree are necessary, desirable or appropriate.
Asset Company agrees to accept any change agreed to by Subscriber
prior to Closing. The Additional Covenants Agreement will contain
all of the substantive provision of Exhibit 5.1.
6. CLOSING
The completion of the purchase and sale of the Purchased
Assets provided for in this Purchase Agreement (the "Closing") will take place
at the same place as and immediately prior to, the closing of the transactions
contemplated by the Stock Subscription and Purchase Agreement.
7. CLOSING DELIVERIES
7.1 Seller will deliver to Asset Company at Closing:
(a) a certificate signed by Seller in which Seller represents and
warrants to Asset Company that each of Seller's representations and
warranties in this Purchase Agreement was accurate in all respects as
of the date of this Purchase Agreement and is accurate in all respects
as of the Closing Date as if made on the Closing Date (giving full
effect to any supplements to the Disclosure Schedules that were
delivered by Seller to Asset Company prior to the Closing Date in
accordance with Section 10.3);
(b) possession of the Purchased Assets free and clear of all
Encumbrances, including any documents and instruments of transfer
necessary to transfer ownership of the IO Certificates, the Series
1998-H1 Class X Certificate, and Prepayment Penalty Trust
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Certificates and Prepayment Penalty Rights to Asset Company, in each
case in accordance with the applicable Pooling and Servicing Agreement;
(c) a fully executed copy of the Additional Covenants Agreement;
and
(d) a fully executed copy of the Stock Subscription and Purchase
Agreement.
7.2 Asset Company will deliver to Seller at Closing:
(a) The Purchase Price paid on behalf of the Company sent by wire
transfer to Goldman, Sachs & Co. at Account Number ABA#: 021000089 at
Citibank, clearance account 87709012600; directed to account 9253549 in
partial payment of the amount owing under the DIP Financing Agreement;
(b) the Asset Cash Flow Instrument;
(c) a certificate signed by Asset Company in which Asset Company
represents and warrants to Seller that each of Asset Company's
representations and warranties in this Purchase Agreement was accurate
in all respects as of the date of this Purchase Agreement and is
accurate in all respects as of the Closing Date as if made on the
Closing Date;
(d) a fully executed copy of the Stock Subscription and Purchase
Agreement; and
(e) a fully executed copy of the Additional Covenants Agreement.
8. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller (in its capacity both as Seller and as the Company)
represents and warrants to Asset Company as follows:
8.1 ORGANIZATION AND GOOD STANDING
8.1.1 The Company is a corporation duly organized, validly
existing, and in good standing under the laws of California.
8.1.2 Seller has delivered to Asset Company copies of the
Organizational Documents of the Company, as currently in effect.
8.2 AUTHORITY; NO CONFLICT
8.2.1 Upon approval of the Contemplated Transactions by the
Bankruptcy Court, the Seller Definitive Agreements will constitute
the legal, valid, and binding obligations of Seller, enforceable
against Seller in accordance with its terms. Subject to the
requirement of Bankruptcy Court approval, Seller has the absolute
and unrestricted right, power, authority, and capacity to execute
and deliver this Purchase Agreement and to perform its obligations
under the Seller Definitive Agreements.
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8.2.2 Except as set forth in Schedule 8.2.2, neither the execution
and delivery of this Purchase Agreement nor the consummation or
performance of any of the Contemplated Transactions will, directly
or indirectly (with or without notice or lapse of time):
(a) contravene, conflict with, or result in a violation of (i) any
provision of the Organizational Documents of the Seller, or (ii) any
resolution adopted by the board of directors of the Seller;
(b) contravene, conflict with, or result in a violation or breach
of any provision of, or give any Person the right to declare a default
or exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate, or modify, any contract; or
(c) result in the imposition or creation of any Encumbrance upon
or with respect to any of the Purchased Assets (except as expressly
approved in this Purchase Agreement).
8.2.3 Except for obtaining appropriate approval from the
Bankruptcy Court, the Company is not and will not be required to
give any notice to or obtain any Consent from any Person in
connection with the execution and delivery of this Purchase
Agreement or the consummation or performance of any of the
Contemplated Transactions.
9. REPRESENTATIONS AND WARRANTIES OF ASSET COMPANY
Asset Company represents and warrants to Seller as follows:
9.1 ORGANIZATION AND GOOD STANDING
Asset Company is a limited partnership duly organized, validly
existing, and in good standing under the laws of the State of Delaware.
9.2 AUTHORITY; NO CONFLICT
9.2.1 The Asset Company Definitive Agreements constitute the
legal, valid, and binding obligations of Asset Company,
enforceable against Asset Company in accordance with its terms.
Asset Company has the absolute and unrestricted right, power, and
authority to execute and deliver the Asset Company Definitive
Agreements and to perform its obligations under the Asset Company
Definitive Agreements.
9.2.2 Except as set forth in Schedule 9.2.2, neither the execution
and delivery of this Purchase Agreement nor the consummation or
performance of any of the Contemplated Transactions will give any
Person the right to prevent, delay, or otherwise interfere with
any of the Contemplated Transactions pursuant to:
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(a) any provision of Asset Company's Organizational Documents;
(b) any Legal Requirement or Order to which Asset Company may be
subject; or
(c) any Contract to which Asset Company is a party or by which
Asset Company may be bound.
9.2.3 Except as set forth in Schedule 9.2.3, Asset Company is not
and will not be required to obtain any Consent from any Person in
connection with the execution and delivery of this Purchase
Agreement or the consummation or performance of any of the
Contemplated Transactions.
9.3 CERTAIN PROCEEDINGS
Except for matters raised in connection with the Bankruptcy
Case, no pending Proceeding has been commenced against Asset Company that
challenges, or may have the effect of preventing, delaying, making illegal, or
otherwise interfering with, any of the Contemplated Transactions. To Asset
Company's Knowledge, no such Proceeding has been Threatened.
9.4 ABSENCE OF BROKER'S FEE OR COMMISSION
Neither Asset Company nor any of its Representatives has
incurred any liability to pay a broker's fee or commission, in connection with
the signing, delivery or performance of this Purchase Agreement or entering into
the Contemplated Transactions.
9.5 QUALIFIED INSTITUTIONAL BUYER; RESTRICTED SECURITIES
Asset Company is a "qualified institutional buyer" as defined
in Rule 144A under the Securities Act and acknowledges that the IO Certificates
and Prepayment Penalty Certificates have not been registered under the
Securities Act. The I0 Certificates and Prepayments Penalty Certificates may be
deemed to be "restricted securities" subject to restrictions on transferability
and resale and may not be transferred or resold except in accordance with the
requirements of the related Pooling and Servicing Agreements, and except (i) in
a transaction not subject to the registration requirements of the Securities Act
and (ii) pursuant to the requirements of, or an exemption under, applicable
state securities laws.
9.6 DUE DILIGENCE
Asset Company has performed its own thorough due diligence
investigation of the Purchased Assets offered for sale and is not relying on any
representation or warranty, express or implied, of Seller or any of its
Representatives or third-party vendors, other than those expressly contained in
this Purchase Agreement.
10. COVENANTS OF SELLER PRIOR TO CLOSING DATE
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10.1 ACCESS AND INVESTIGATION
Between the date of this Purchase Agreement and the Closing
Date, Seller will, and will cause its Representatives to, afford Asset Company
and its Representatives the same access and information afforded to Subscriber
in Section 5.1 of the Stock Subscription and Purchase Agreement.
10.2 REQUIRED APPROVALS
As promptly as practicable after the date of this Purchase
Agreement and prior to the Closing Date, Seller will make all filings Company is
required to make by Legal Requirements (with the understanding that Asset
Company will pay all filing fees for any HSR Act filing, as provided by
statute). As promptly as practicable after the date of this Agreement and prior
to the Closing Date, Seller will (a) cooperate with the Asset Company with
respect to all filings that Asset Company elects to make or is required by Legal
Requirements to make in connection with the Contemplated Transactions, and (b)
cooperate with Asset Company in obtaining all Consents identified in Schedule
9.2.3 (including taking all actions requested by Asset Company to cause early
termination of any applicable waiting period under the HSR Act).
10.3 NOTIFICATION
Between the date of this Purchase Agreement and the Closing
Date, Seller will promptly notify Asset Company in writing if Seller becomes
aware of any fact or condition that (a) causes or constitutes a Breach of any of
Seller's representations and warranties in this Purchase Agreement as of the
date of this Purchase Agreement, or (b) would cause or constitute a Breach of
any such representation or warranty had such representation or warranty been
made as of the time of occurrence or discovery of such fact or condition. Should
any such fact or condition require any change in the Disclosure Schedules in
order to make the Disclosure Schedules accurate as of Closing, Seller will
promptly deliver to Asset Company a supplement to the Disclosure Schedules
specifying such change.
10.4 BEST EFFORTS
Between the date of this Purchase Agreement and the Closing
Date, Seller will use its Best Efforts to cause the conditions in Section 12 to
be satisfied and to complete Closing no later than June 30, 1999.
11. COVENANTS OF ASSET COMPANY PRIOR TO CLOSING DATE
In addition to the covenants set forth elsewhere in this
Purchase Agreement, Asset Company covenants as follows:
11.1 APPROVALS OF GOVERNMENTAL BODIES
As promptly as practicable after the date of this Purchase
Agreement, Asset Company will, and will cause each of its Related
Persons to, make all filings required by Legal
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Requirements to be made by them to consummate the Contemplated
Transactions (including all filings under the HSR Act) and will use its
Best Efforts to obtain the Consents identified in Schedules 9.2.3.
Between the date of this Purchase Agreement and the Closing Date, Asset
Company will, and will cause each Related Person to, cooperate with
Seller with respect to all filings that Seller are required by Legal
Requirements to make in connection with the Contemplated Transactions,
(including, without limitation, by paying the filing fee under the HSR
Act as provided by statute).
11.2 BEST EFFORTS
Between the date of this Purchase Agreement and the Closing
Date, Asset Company will use its Best Efforts to cause the conditions in Section
13 to be satisfied.
11.3 NOTIFICATION
Between the date of this Purchase Agreement and the Closing
Date, Asset Company will promptly notify Seller in writing if Seller becomes
aware of any fact or condition that (a) causes or constitutes a Breach of any of
Asset Company's representations and warranties in this Purchase Agreement as of
the date of this Purchase Agreement, or (b) would cause or constitute a Breach
of any such representation or warranty had such representation or warranty been
made as of the time of occurrence or discovery of such fact or condition.
12. CONDITIONS PRECEDENT TO ASSET COMPANY'S OBLIGATION TO CLOSE
Asset Company's obligation to purchase the Purchased Assets and to take
the other actions required to be taken by Asset Company at Closing is subject to
the satisfaction, at or prior to Closing, of each of the following conditions
(any of which may be waived by Asset Company, in whole or in part):
12.1 ACCURACY OF REPRESENTATIONS
All of Seller's representations and warranties in this
Purchase Agreement (considered collectively), and each of these representations
and warranties (considered individually), must have been accurate in all
material respects as of the date of this Purchase Agreement, and must be
accurate in all material respects as of the Closing Date as if made on the
Closing Date, without regard to any supplement to the Disclosure Schedules.
12.2 SELLER'S PERFORMANCE
12.2.1 All of the covenants and obligations that Seller is
required to perform or to comply with pursuant to this Purchase
Agreement at or prior to Closing (considered collectively), and
each of these covenants and obligations (considered individually),
must have been duly performed and complied with in all material
respects.
12.2.2 Seller must have signed and delivered all documents and
other item required to be delivered by it pursuant to Section
7.1.1, and each such document must be in
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form attached to this Purchase Agreement otherwise in form and
substance satisfactory to the Asset Company.
12.3 NO INJUNCTION
There must not be in effect any Legal Requirement or any
injunction or other Order that prohibits the sale of the Purchased Assets by
Seller to Asset Company.
12.4 BANKRUPTCY MATTERS
12.4.1 The Plan of Reorganization and Disclosure Statement, as
amended and supplemented, must have been filed with the Bankruptcy
Court and must not have been withdrawn.
12.4.2 The Confirmation Order (in form and substance reasonably
satisfactory to Asset Company) must have been entered by the
Bankruptcy Court, must be in effect, final and nonappealable, and
not otherwise subject to any stay, and must not have been modified
in any material respect.
12.4.3 The Confirmation Order will authorize and direct the Seller
to perform its obligations under the Definitive Agreements.
12.4.4 The Confirmation Order will (a) approve all Definitive
Agreements, including without limitation, the Stock Subscription
and Purchase Agreement; and (b) contain a provision stating that
the Purchased Assets acquired by Asset Company are acquired free
and clear of any and all claims, obligations, and liabilities.
12.4.5 Asset Company will have (i) received copies of all relevant
material documents regarding the rights and obligations of the
Seller, Advanta Mortgage Corp. USA, MBIA Insurance Corporation,
Norwest Bank Minnesota, NA, and Bankers Trust in connection with
the Purchased Assets; and (ii) received certification from each
such party that there are no relevant material documents other
than those given to Asset Company and that Seller is in compliance
with all terms and provisions of the relevant documents (unless
Seller has furnished Asset Company with a forbearance agreement in
which the relevant party agrees not to enforce its rights or
remedies against the company and to waive defaults in connection
with any noncompliance.
13. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE
Seller's obligation to sell the Purchased Assets and to take
the other actions required to be taken by Seller at the Closing is subject to
the satisfaction, at or prior to the Closing, of each of the following
conditions (any of which may be waived by Seller, in whole or in part):
13.1 ACCURACY OF REPRESENTATIONS
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All of Asset Company's representations and warranties in this
Purchase Agreement (considered collectively), and each of these representations
and warranties (considered individually), must have been accurate in all
material respects as of the date of this Purchase Agreement and must be accurate
in all material respects as of the Closing Date as if made on the Closing Date.
13.2 ASSET COMPANY'S PERFORMANCE
13.2.1 All of the covenants and obligations that Asset Company is
required to perform or to comply with pursuant to this Purchase
Agreement at or prior to the Closing (considered collectively),
and each of these covenants and obligations (considered
individually), must have been performed and complied with in all
material respects.
13.2.2 Asset Company must have paid the Purchase Price and
delivered each of the documents and other items required to be
delivered by Asset Company pursuant to Section 7.2.
13.3 NO INJUNCTION
There must not be in effect any Legal Requirement or any
injunction or other Order that prohibits the sale of the Purchased Assets by
Seller to Asset Company.
13.4 BANKRUPTCY MATTERS
13.4.1 The Plan of Reorganization and Disclosure Statement, as
amended and supplemented, must have been filed with the Bankruptcy
Court and must not have been withdrawn.
13.4.2 The Confirmation Order must have been entered by the
Bankruptcy Court, must be in effect, and must not have been stayed
or modified in any material respect.
13.4.3 The Confirmation Order will approve all Definitive
Agreements and all Definitive agreement (including, without
limitation, the Stock Subscription and Purchase Agreement).
14. TERMINATION
14.1 TERMINATION EVENTS
This Purchase Agreement may not be terminated by either party,
except:
(a) this Purchase Agreement shall terminate automatically upon any
termination of the Stock Subscription and Purchase Agreement, without
notice or further act;
(b) by mutual consent of Asset Company and Seller;
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(c) by either Asset Company or Seller if a material Breach of any
provision of this Agreement has been committed by the other party and
such Breach has not been cured or waived;
(d) by Asset Company if any of the conditions in Section 12 has
not been satisfied as of the Closing Date or if satisfaction of such a
condition is or becomes impossible (other than through the failure of
Buyer to comply with its obligations under this Agreement) and Asset
Company has not waived such condition on or before the Closing Date;
(e) by Seller, if any of the conditions in Section 13 has not been
satisfied as of the Closing Date or if satisfaction of such a condition
is or becomes impossible (other than through the failure of Seller to
comply with their obligations under this Agreement) and Seller has not
waived such condition on or before the Closing Date; and
(f) by Asset Company if Seller enters into a definitive agreement
for the sale of Purchased Assets to a party unrelated to Subscriber.
14.2 EFFECT OF TERMINATION
Prior to Closing, Asset Company's exclusive remedy for a
Breach by Seller is the exercise of Asset Company's right of termination under
Section 14.1. Seller's right of termination under Section 14.1 is in addition to
any other rights it may have under this Purchase Agreement or otherwise, and the
exercise of its right of termination will not be an election of remedies and
will not impair Seller's right to pursue all legal remedies.
14.3 REINSTATEMENT
If this Purchase Agreement and the Stock Subscription and
Purchase Agreement shall have been terminated for any reason, this Purchase
Agreement shall be automatically reinstated on any reinstatement of the Stock
Subscription and Purchase Agreement, without further notice or act.
15. GENERAL PROVISIONS
15.1 EXPENSES
Each party to this Purchase Agreement will bear its respective
expenses incurred in connection with the preparation, execution, and performance
of this Purchase Agreement and the Contemplated Transactions, including all fees
and expenses of its Representatives. Seller and the Liquidating Trust will pay
all amounts payable to Pentalpha Capital, LLC in connection with this Purchase
Agreement and the Contemplated Transactions.
15.2 NOTICES
All notices, consents, waivers, and other communications under
this Purchase Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand, (b) sent by facsimile (with written
confirmation of receipt), or (c) when received by the
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addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and facsimile
numbers set forth below (or to such other addresses and facsimile numbers as a
party may designate by notice to the other parties):
SELLER:
Southern Pacific Funding Corporation
One Centerpointe Drive, Suite 551
Lake Oswego, Oregon 97035
Attention: Kevin D. Padrick
Facsimile No.: (503) 598-0662
with a copy to:
Miller, Nash, Wiener, Hager & Carlsen LLP
111 S.W. Fifth Avenue
Suite 3500
Portland, Oregon 97204
Attention: David W. Brown
Facsimile No.: (503) 224-0155
ASSET COMPANY:
Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Attention: Marvin Kabatznick
Facsimile No.: (212) 346-3568
Attention: Jay Strauss
Facsimile No.: (212) 902-0940
with a copy to:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, New York 10038
Attention: David C.L. Frauman
Facsimile No.: (212) 504-6666
15.3 JURISDICTION; SERVICE OF PROCESS
Any action or proceeding seeking to enforce any provision of,
or based on any right arising out of, this Purchase Agreement may be brought
against any of the parties in the courts of the State of Oregon, County of
Multnomah, and each of the parties consents to the jurisdiction of such court
(and of the appropriate appellate court) in any such action or proceeding and
waives any objection to venue laid therein. Process in any action or proceeding
referred to in the preceding sentence may be served on any party anywhere in the
world. In connection with any such action or proceeding, the prevailing party
(whether prevailing affirmatively or by means of a successful defense
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with respect to the issues having the greatest value or importance) will be
entitled to recover its costs, including reasonable attorney fees at trial and
on any appeal.
15.4 FURTHER ASSURANCES
The parties agree (a) to furnish upon request to each other
such further information, (b) to execute and deliver to each other such other
documents, and (c) to do such other acts and things, all as the other party may
reasonably request for the purpose of carrying out the intent of this Purchase
Agreement and the other agreements referred to in this Purchase Agreement.
15.5 WAIVER
Neither the failure nor any delay by any party in exercising
any right, power, or privilege under this Purchase Agreement or the documents
referred to in this Purchase Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, no party will be deemed to have
waived any of its rights or privileges under this Purchase Agreement or the
documents referred to in this Purchase Agreement unless the waiver is in writing
and no waiver given by a party will be applicable except in the specific
instance for which it is given.
15.6 MODIFICATION
This Purchase Agreement may not be amended except by a written
agreement executed by the party to be charged with the amendment.
15.7 ASSIGNMENTS, SUCCESSORS, AND THIRD-PARTY RIGHTS
Neither party may assign any of its rights under this Purchase
Agreement without the prior consent of the other party, other than an assignment
of the rights of Asset Company to a wholly owned (direct or indirect) Related
Person of Asset Company that affirms in writing that it will be bound to the
representations, warranties, and obligation of Asset Company under this Purchase
Agreement as if it signed the Agreement as the original signatory Asset Company
(with such factual changes, such as jurisdiction of organization, as reasonably
may be required). Subject to the preceding sentence, this Purchase Agreement
will apply to, be binding in all respects upon, and inure to the benefit of the
successors and permitted assigns of the parties. Nothing expressed or referred
to in this Purchase Agreement will be construed to give any Person other than
the parties to this Purchase Agreement any legal or equitable right, remedy, or
claim under or with respect to this Purchase Agreement or any provision of this
Purchase Agreement. This Purchase Agreement and all of its provisions and
conditions are for the sole and exclusive benefit of the parties to this
Purchase Agreement and their successors and assigns. The Liquidating Trust is an
express beneficiary of the covenants and obligations of the parties to this
Agreement.
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15.8 SEVERABILITY
If any provision of this Purchase Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Purchase Agreement will remain in full force and effect. Any provision of
this Purchase Agreement held invalid or unenforceable only in part or degree
will remain in full force and effect to the extent not held invalid or
unenforceable.
15.9 SECTION HEADINGS; CONSTRUCTION
The headings of Sections in this Purchase Agreement are
provided for convenience only and will not affect its construction or
interpretation. All references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Purchase Agreement. All words used in
this Purchase Agreement will be construed to be of such gender or number as the
circumstances require. Unless otherwise expressly provided, the word "including"
does not limit the preceding words or terms.
15.10 TIME OF ESSENCE
With regard to all dates and time periods set forth or
referred to in this Purchase Agreement, time is of the essence.
15.11 GOVERNING LAW
THIS PURCHASE AGREEMENT WILL BE GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
15.12 COUNTERPARTS
This Purchase Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Purchase Agreement and all of which, when taken together, will be deemed to
constitute the and the same agreement.
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IN WITNESS WHEREOF, the parties have executed and delivered
this Amended and Restated Purchase Agreement as of the date first written above.
ASSET COMPANY SELLER
GOLDMAN, SACHS & CO. SOUTHERN PACIFIC FUNDING CORPORATION
By: /s/ Robert Christie By: /s/ Kevin D. Padrick
Name: Robert Christie Kevin D. Padrick
Title: Managing Director President
<PAGE>
APPENDIX I TO
ASSET PURCHASE AGREEMENT
DEFINED TERMS
All references in this Appendix I to Sections are references
to Sections of this Purchase Agreement unless otherwise specified. Unless the
context otherwise requires, capitalized terms used in the Purchase Agreement, if
not otherwise defined, have the following meanings:
"ADDITIONAL COVENANTS AGREEMENT" has the meaning given in
Section 5.1.
"ADJUSTMENT AMOUNT" has the meaning given in Section 3.3.
"AGREEMENT" means, when referring to "this Agreement," the
Amended and Restated Asset Purchase Agreement dated as of May 21, 1999, between
Seller and Asset Company.
"ASSET CASH FLOW INSTRUMENT" has the meaning given in Section
4.
"ASSET COMPANY" means the buyer of assets identified in
paragraph one of this Agreement, or any permitted assignee.
"ASSET COMPANY DEFINITIVE AGREEMENTS" means this Agreement,
the Stock Subscription and Purchase Agreement, Additional Covenants Agreement,
the Settlement Agreement, the Cash Flow Instrument, the Asset Purchase Agreement
Cash Flow Instrument, and the Guarantee.
"ASSET PURCHASE AGREEMENT" or "PURCHASE AGREEMENT" means the
Amended and Restated Asset Purchase Agreement dated as of May 21, 1999, between
Seller and Asset Company.
"ASSET PURCHASE CASH FLOWS" has the meaning given in Section
4.1.
"ASSET CASH FLOW INSTRUMENT" has the meaning given in Section
4.
"BANKRUPTCY CASE" has the meaning given in the Recitals to
this Agreement.
"BANKRUPTCY COURT" has the meaning given in the Recitals to
this Agreement.
"BASE CASH PRICE" has the meaning given in Section 3.2.
"BEST EFFORTS" means the efforts that a prudent Person who
desires to achieve a certain result would use in similar circumstances to
achieve the result as expediently as possible.
"BREACH" means (a) any inaccuracy in or breach of, or any
failure to perform or comply with, a representation, warranty, covenant,
obligation, or other provision of this Agreement or any instrument delivered
pursuant to this Agreement, or (b) any claim (by any Person) or other occurrence
or circumstance that is or was inconsistent with a representation, warranty,
covenant, obligation, or other provision of this Agreement or any instrument
delivered pursuant to this Agreement.
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"CASH FLOW PERIOD" has the meaning given in Section 4.2.
"CLOSING" has the meaning given in Section 6.
"CLOSING DATE" means the date and time when Closing actually
takes place.
"COMPANY" has the meaning given in the Recitals to this
Agreement.
"CONFIRMATION ORDER" means the order of the Bankruptcy Court
confirming the Plan of Reorganization.
"CONSENT" means any approval, consent, ratification, waiver,
or other authorization (including any Governmental Authorization).
"CONTEMPLATED TRANSACTIONS" means all of the transactions set
forth in the definition of Contemplated Transactions in the Stock Subscription
and Purchase Agreement.
"CONTRACT" means any agreement, contract, obligation, promise,
or undertaking (whether written or oral and whether express or implied) that is
legally binding.
"DEFINITIVE AGREEMENTS" means this Agreement, the Stock
Subscription and Purchase Agreement and all related agreements or instruments
referred to in this Agreement or in the Stock Subscription and Purchase
Agreement.
"DIP FINANCING AGREEMENT" means the Master Repurchase
Agreement, Annex I to such Master Repurchase Agreement, the Margin Agreement and
the related agreements, annexes and exhibits entered into between Debtor and
Goldman, Sachs & Co., pursuant to which Goldman, Sachs & Co. extended a credit
facility in the appropriate initial principal amount of $33,600,000.
"DISCLOSURE SCHEDULES" means the schedules attached to this
Agreement and delivered by Debtor to Subscriber concurrently with the execution
and delivery of this Agreement.
"DISCLOSURE STATEMENT" means the disclosure statement filed in
Bankruptcy Court with respect to the Plan of Reorganization, as amended.
"DISTRIBUTION" has the meaning given in Section 4.2.
"ENCUMBRANCE" means any charge, claim, community property
interest, condition, equitable interest, lien, option, pledge, security
interest, right of first refusal, or restriction of any kind, including any
restriction on use, voting, transfer, receipt of income, or exercise of any
other attribute of ownership.
"FINANCING TRANSACTION" means any nonrecourse borrowing or any
borrowing with recourse solely to a bankruptcy remote special purpose entity in
respect of the Reorganized Company or the Asset Company, which borrowing is
secured by, and on which principal and/or interest payments are made primarily
from cash flows on, the related Assets or Purchased Assets and entered
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into primarily for the purpose of distributing Proceeds. Financing Transaction
also includes all incremental borrowings from the reserve funds created for
Trust Series 1995-2, 1996-1 and 1996-3.
"GOVERNMENTAL BODY" means any:
(a) nation, state, county, city, town, village, district, or
other jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or other
government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official, or
entity and any court or other tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any
administrative, executive, judicial, legislative, police, regulatory,
or taxing authority or power of any nature.
"HEDGING GAINS" means any realized gains of the Asset Company
on hedging transactions.
"HEDGING LOSSES" means any realized losses of the Asset
Company on hedging transactions.
"HOLDER" means the holder of the Asset Cash Flow Instrument.
"HSR ACT" means the Hart-Scott Rodino Antitrust Improvements
Act of 1976 or any successor law, and regulations and rules issued pursuant to
that Act or any successor law.
"IO CERTIFICATE" means each of the certificates included among
the Purchased Assets, representing subordinated interest-only REMIC regular
interests in the related Securitization Trusts (or, in the case of the Series
1998-H1 Securitization Trust, a subordinated non-REMIC equity interest).
"LEGAL REQUIREMENT" means any federal, state, local,
municipal, foreign, international, multinational, or other administrative order,
constitution, law, ordinance, principle of common law, regulation, statute, or
treaty.
"LIQUIDATING TRUST" means the liquidating trust established
for the benefit of the Company's creditors in the Bankruptcy Case.
"MATERIAL INTEREST" has the meaning given in Appendix 1 of the
Stock Subscription and Purchase Agreement.
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"ORDER" means any award, decision, injunction, judgment,
order, ruling, subpoena, or verdict entered, issued, made, or rendered by any
court, administrative agency, or other Governmental Body or by any arbitrator.
"ORGANIZATIONAL DOCUMENTS" means (a) the articles or
certificate of incorporation and the bylaws of a corporation; (b) the
partnership agreement and any statement of partnership of a general partnership;
(c) the limited partnership agreement and the certificate of limited partnership
of a limited partnership; (d) the operating agreement and articles or
certificate of organization of a limited liability company; (e) any charter or
similar document adopted or filed in connection with the creation, formation, or
organization of a Person; and (f) any amendment to any of the foregoing.
"PERSON" means any individual, corporation (including any
non-profit corporation), general or limited partnership, limited liability
company, joint venture, estate, trust, association, organization, labor union,
or other entity or Governmental Body.
"PREPAYMENT PENALTY INCOME" means the income from the
Prepayment Penalty Trust Certificates and the Prepayment Penalty Rights.
"PREPAYMENT PENALTY TRUST CERTIFICATES" means the certificates
included among the Purchased Assets representing interests in prepayment penalty
income in respect of the mortgage loans in the Securitization Trusts.
"PREPAYMENT PENALTY RIGHTS" means all rights to prepayments
penalty income from the Securitization Trusts not represented by a Prepayment
Penalty Trust Certificate.
"PROCEEDING" means any action, arbitration, audit, case,
hearing, investigation, litigation, or suit (whether civil, criminal,
administrative, investigative, or informal) commenced, brought, conducted, or
heard by or before, or otherwise involving, any Governmental Body or arbitrator.
"PROCEEDS" means the cash amount realized from an arms-length
sale, transfer or Financing Transaction.
"PURCHASE AGREEMENT" or "ASSET PURCHASE AGREEMENT" means the
Amended and Restated Asset Purchase Agreement dated as of May 21, 1999, between
Seller and Asset Company.
"PURCHASE PRICE" has the meaning given in Section 3.1.
"PURCHASED ASSETS" means the assets set forth on Schedule 2.1
of this Agreement.
"PURCHASED ASSET PROCEEDS" has the meaning given in Section
4.1.
"RELATED PERSON" means, with respect to a specified Person
other than an individual:
(a) any Person that directly or indirectly controls, is
directly or indirectly controlled by, or is directly or indirectly
under common control with such specified Person;
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(b) any Person that holds a Material Interest in such
specified Person;
(c) each Person that serves as a director, officer, partner,
executor, or trustee of such specified Person (or in a similar
capacity), and each Person who is married to, resides with, or related
within the second degree to any such director, officer, partner,
executor, trustee, or Person in a similar capacity;
(d) any Person in which such specified Person holds a Material
Interest;
(e) any Person with respect to which such specified Person
serves as a general partner or a trustee (or in a similar capacity);
and
(f) any Related Person of any individual described in clause
(b) or (c).
"REORGANIZED COMPANY" refers to the Company upon the effective
date of the Plan of Reorganization.
"REPRESENTATIVE" means, with respect to a particular Person,
any director, officer, employee, agent, consultant, advisor, or other
representative of such Person, including legal counsel, accountants, and
financial advisors.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
or any successor law, and regulations and rules issued pursuant to that Act or
any successor law.
"SECURITIZATION TRUST" means the trusts into which pools of
mortgage loans were deposited pursuant to the 13 securitization transactions
entered into by the Company (or one of its Subsidiaries) between 1995 and 1998
and which in turn issued various classes of mortgage securities representing
interests in, or in the case of the Series 1998-H1 Securitization Trust, secured
by, the trust assets.
"SELLER" means the seller of assets identified in paragraph
one of this Purchase Agreement.
"SELLER DEFINITIVE AGREEMENTS" means this Agreement, the
Settlement Agreement, the Liquidating Trust Agreement, the Stock Subscription
and Purchase Agreement and the Additional Covenants Agreement.
"SETTLEMENT AGREEMENT" means the settlement agreement among
Seller, Norwest Bank Minnesota, National Association and MBIA Insurance
Corporation to be entered into prior to the Closing Date.
"STOCK SUBSCRIPTION AND PURCHASE AGREEMENT" means the Amended
and Restated Stock Subscription and Purchase Agreement between Seller and
Subscriber dated as of May 21, 1999.
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"SUBSCRIBER" has the meaning given in the first paragraph of
the Stock Subscription and Purchase Agreement.
"THREATENED" means a demand or statement has been made (orally
or in writing) or a notice has been given (orally or in writing), or another
event has occurred or other circumstances exist, that would lead a prudent
Person to conclude that a claim, Proceeding, dispute, action, or other matter is
likely to be asserted, commenced, taken, or otherwise pursued in the future.
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SCHEDULE 2.1
PURCHASED ASSETS
The following Subordinated Interest-Only Interests, Prepayment Penalty
Income, and Partnership Interest:
Securitization Trust Interest(s)
- -------------------- -----------
1995-1 Prepayment Penalty Income
1995-2 S-1, S-2, Prepayment Penalty Income
1996-1 I S-1, I S-2, II
S-1, II S-2,
Prepayment Penalty
Income
1996-2 I S, II S, Prepayment Penalty Income
1996-3 I S, II S, Prepayment Penalty Income
1996-4 I S, II S, Prepayment Penalty Income
1997-1 II S, Prepayment Penalty Income
1997-2 S-1A, S-1F, Prepayment Penalty Income
1997-3 Prepayment Penalty Income
1997-4 Prepayment Penalty Income
1998-1 Prepayment Penalty Income
1998-2 Prepayment Penalty Income
1998-H1 Class X(1)
Prepayment Penalty Income
- --------
1 This interest is a partnership interest for tax purposes.
<PAGE>
Exhibit 4.1
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE. NEITHER THIS
CERTIFICATE NOR ANY INTEREST HEREIN MAY BE OFFERED FOR SALE, SOLD OR OTHERWISE
TRANSFERRED UNLESS THE PROSPECTIVE TRANSFEREE PROVIDES THE COMPANY WITH AN
OPINION OF COUNSEL (WHICH SHALL NOT BE AT THE EXPENSE OF THE COMPANY)
SATISFACTORY TO THE COMPANY IN ITS SOLE JUDGMENT THAT SUCH TRANSFER IS BEING
MADE EITHER PURSUANT TO A REGISTRATION STATEMENT THAT HAS BECOME EFFECTIVE UNDER
THE ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT, AND EITHER
DOES NOT REQUIRE REGISTRATION OR QUALIFICATION UNDER ANY STATE SECURITIES LAWS,
OR HAS BEEN SO REGISTERED OR QUALIFIED. THE OPINION SHALL ALSO STATE THAT AS A
RESULT OF SUCH TRANSFER, THE COMPANY IS UNDER NO OBLIGATION TO REGISTER UNDER
THE SECURITIES ACT OF 1934, AS AMENDED, THE INVESTMENT COMPANY ACT OF 1940 OR
ANY OTHER FEDERAL OR STATE SECURITIES LAW.
ASSET CASH FLOW INSTRUMENT
NEW YORK, NEW YORK
-------, 1999
FOR VALUE RECEIVED, the undersigned ----------, ("Asset Company"), a
- ----------- having its principal place of business at
- -----------------------------, promises to pay to the order of SOUTHERN PACIFIC
FUNDING CORPORATION ("Holder") at ------------------------------------- the
amounts as provided herein.
This Asset Cash Flow Instrument (the "Instrument") evidences an
obligation incurred pursuant to the Amended Plan of Reorganization dated May
- ---, 1999, of Southern Pacific Funding Corporation acting in its capacity as
Debtor-in-Possession in its bankruptcy case filed under Chapter 11 of the United
States Bankruptcy Code in the United States Bankruptcy Court for the District of
Oregon.
Capitalized terms used in this Instrument and not otherwise defined
have the meanings given in Appendix I hereto, which is incorporated into this
Instrument by reference.
This Instrument represents a general obligation of Asset Company,
payable from any available funds.
1. ASSET CASH FLOW INSTRUMENT
1.1 The Asset Company shall make periodic payments to Holder (each a
"Distribution") of the sum (without duplication) of 50 percent of the following
(i.e., 50 percent of the amounts in clause (a) minus 50 percent of the amounts
in
<PAGE>
clause (b)) with respect to the Purchased Assets and Purchased Asset Proceeds.
("Purchased Asset Proceeds" means any securities or tangible non-cash
consideration received on a sale or transfer of Purchased Assets to a
non-Related Person of Asset Company, including any securities retained by Asset
Company in connection with the securitization of any Purchased Assets):
(a) the sum (without duplication) of:
(i) the aggregate of all pre-tax cash flows from each of the
Purchased Assets and Purchased Asset Proceeds from June ---, 1999
until the sale (or transfer) or Financing Transaction with respect
to the related Purchased Assets or Purchased Asset Proceeds, it
being agreed that the cash flows will continue to be payable to
Holder after any sale or transfer to a Related Person of Asset
Company (other than a sale to a Related Person of Asset Company
for the sole purpose of facilitating a Financing Transaction) or
pursuant to a transaction that has not been found by the board of
directors of Asset Company to be an arms-length transaction;
(ii) all pre-tax Proceeds from the sale of any Purchased
Asset or Purchased Asset Proceeds or any portion of a Purchased
Asset or Purchased Asset Proceeds; and
(iii) all pre-tax Proceeds from any Financing Transaction
entered into by Asset Company with respect to any of the Purchased
Assets or Purchased Asset Proceeds and all hedging gains;
(50% of the sum of the amounts in clause (i), (ii) and
(iii) are the "Asset Purchase Cash Flows"); minus
(b) otherwise unreimbursed Out-of-Pocket Expenses incurred by Asset
Company.
1.2 The periodic payments (each a "Distribution") made with respect to
this Instrument each calendar month, commencing with the first full calendar
month following June ---, 1999 (each such month, a "Cash Flow Period") will
equal (i) Asset Purchase Cash Flows received by Asset Company during such Cash
Flow Period (or from June ---, 1999 through the last day of the first Cash Flow
Period, in the case of the first Distribution) minus (ii) 50 percent of the
otherwise unreimbursed Out-of-Pocket Expenses not previously applied in
reduction of Asset Purchase Cash Flows.
1.3 Out-of-Pocket Expenses means:
(a) Direct Third Party out-of-pocket expenses reasonably incurred by
the Asset Company or by a Related Person of Asset Company with
respect to the Purchased Assets and Purchased Asset Proceeds, not
otherwise reimbursable from a third party, and directly
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related to a sale of Purchased Assets or Purchased Asset Proceeds
or Financing Transaction.
(b) Notwithstanding Section 1.3(a), Out-of-Pocket Expenses
specifically include:
(i) hedging losses and carrying costs of hedging
transactions;
(ii) principal and interest repaid on any Financing
Transaction;
(iii) otherwise reimbursable Third Party expenses that Asset
Company has determined to be uncollectible; and
(iv) fees and expenses incurred with respect to The Goldman
Sachs Group L.P. or a Related Person of The Goldman Sachs Group
L.P. in connection with a sale or Financing Transaction, but only
to the extent such fees are consistent with market rates and
industry standards and are approved by the Holder, which approval
shall not be unreasonably withheld ("Related Person Expenses").
Related Person Expenses shall be deemed to be approved if not
objected to within 21 days after Holder received a detailed report
from the Asset Company together with a request for approval.
1.4 The Distribution for a particular month will be paid on or before
the first business day following the end of the related Cash Flow Period by wire
transfer to an account specified by Holder.
2. OBLIGATIONS ABSOLUTE
The obligations of Asset Company to pay Distributions under this
Instrument (in accordance with its terms) shall be absolute and unconditional
and shall not be subject to any abatement, reduction, set-off, defense (other
than the defense that the amount due has been paid), counterclaim or recoupment
("Abatements") for any reason whatsoever, including without limitation,
Abatements due to any present or future claims of Asset Company against Holder
under this Instrument or otherwise, or against any other Person for whatever
reason.
It is the express intention of Asset Company and Holder that all
Distributions are, and shall continue to be, payable in all events unless the
obligation to pay such Distributions is terminated pursuant to the express
provisions of this Instrument.
3. REMEDIES
Asset Company and all others who may become liable for the payment of
all or any part of the obligations hereunder do hereby severally waive
presentment and demand for payment, notice of dishonor, protest and notice of
protest and non-payment and all other notices of any kind, except for notices
expressly provided for in this Instrument.
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Upon the occurrence and during the continuance of any breach by the
Asset Company of any of its obligations hereunder, Holder shall have all
remedies available to Holder at law or in equity, including, without limitation
of any other remedies, the right to specifically enforce any of the obligations
or duties owing by Asset Company or any other person and the right to also bring
an action for money damages.
4. VENUE; ATTORNEY FEES; GOVERNING LAW
In any action or proceeding seeking to enforce any provision of, or
based on any right arising out of, this Instrument may be brought against any of
the parties in the courts of the State of Oregon, County of Multnomah, and each
of the parties consents to the jurisdiction of such court (and of the
appropriate appellate court) in any such action or proceeding and waives any
objection to venue laid therein. Process in any action or proceeding referred to
in the preceding sentence may be served on any party anywhere in the world. In
connection with any such action or proceeding, the prevailing party will be
entitled to recover its costs, including reasonable attorney fees at trial and
on any appeal.
4
<PAGE>
THIS INSTRUMENT, AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER, SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF
CONFLICT OF LAWS.
IN WITNESS WHEREOF, this Asset Cash Flow Instrument has been executed
and delivered to the Holder as of the date first specified above.
GOLDMAN, SACHS & CO.
By: -------------------------------
Title: ----------------------------
5
<PAGE>
APPENDIX I TO
ASSET CASH FLOW INSTRUMENT
DEFINED TERMS
Unless the context otherwise requires, capitalized terms used
in the Asset Cash Flow Instrument, if not otherwise defined, have the following
meanings:
"FINANCING TRANSACTION" means any nonrecourse borrowing or any
borrowing with recourse solely to an bankruptcy remote special purpose entity in
respect of the Asset Company, which borrowing is secured by, and on which
principal and/or interest payments are made primarily from cash flows from, the
Purchased Assets or Purchased Asset Proceeds and entered into primarily for the
purpose of distributing Proceeds. Financing Transaction also includes all
incremental borrowings from the reserve funds created for Trust Series 1995-2,
1996-1 and 1996-3.
"GOVERNMENTAL BODY" means any:
(i) nation, state, county, city, town, village, district, or
other jurisdiction of any nature;
(ii) federal, state, local, municipal, foreign, or other
government;
(iii) governmental or quasi-governmental authority of any
nature (including any governmental agency, branch,
department, official, or entity and any court or other
tribunal);
(iv) multi-national organization or body; or
(v) body exercising, or entitled to exercise, any
administrative, executive, judicial, legislative,
police, regulatory, or taxing authority or power of any
nature.
"MATERIAL INTEREST" means, for purposes of the definition of
Related Person, a direct or indirect beneficial ownership (as defined in Rule
13d-3 under the Securities Exchange Act of 1934) of voting securities or other
voting interests representing at least 25% of the outstanding voting power of a
Person or equity securities or other equity interests representing at least 25%
of the outstanding equity securities or equity interest in a Person.
"PERSON" means any individual, corporation (including any
non-profit corporation), general or limited partnership, limited liability
company, joint venture, estate, trust, association, organization, labor union,
or other entity or Governmental Body.
"PROCEEDS" means the cash amount realized from an arms-length
sale, transfer or Financing Transaction.
6
<PAGE>
"PURCHASED ASSETS" means the assets set forth on the Schedule
of Assets to this Asset Cash Flow Instrument.
"RELATED PERSON" means, with respect to a specified Person
other than an individual:
(i) any Person that directly or indirectly controls, is
directly or indirectly controlled by, or is directly or
indirectly under common control with such specified
Person;
(ii) any Person that holds a Material Interest in such
specified Person;
(iii) each Person that serves as a director, officer, partner,
executor, or trustee of such specified Person (or in a
similar capacity), and each Person who is married to,
resides with, or related within the second degree to any
such director, officer, partner, executor, trustee, or
Person in a similar capacity;
(iv) any Person in which such specified Person holds a
Material Interest;
(v) any Person with respect to which such specified Person
serves as a general partner or a trustee (or in a
similar capacity); and
(vi) any Related Person of any individual described in clause
(b) or (c).
"THIRD PARTY" means a Person that is neither The Goldman Sachs
Group L.P. nor any Related Person of The Goldman Sachs Group L.P.
7
<PAGE>
SCHEDULE OF ASSETS
The following Subordinated Interest-Only Interests, Prepayment Penalty
Income, and Partnership Interest:
Securitization Trust Interest(s)
- -------------------- -----------
1995-1 Prepayment Penalty Income
1995-2 S-1, S-2, Prepayment Penalty Income
1996-1 I S-1, I S-2, II
S-1, II S-2,
Prepayment Penalty
Income
1996-2 I S, II S, Prepayment Penalty Income
1996-3 I S, II S, Prepayment Penalty Income
1996-4 I S, II S, Prepayment Penalty Income
1997-1 II S, Prepayment Penalty Income
1997-2 S-1A, S-1F, Prepayment Penalty Income
1997-3 Prepayment Penalty Income
1997-4 Prepayment Penalty Income
1998-1 Prepayment Penalty Income
1998-2 Prepayment Penalty Income
1998-H1 Class X1
Prepayment Penalty Income
- --------
1 This interest is a partnership interest for tax purposes.
8
<PAGE>
Exhibit 5.1
See Exhibit 2.4.1 to Exhibit 99.4 to this Current Report on Form 8-K.
<PAGE>
SCHEDULE 8.2.2
CONFLICTS WITH ORGANIZATIONAL DOCUMENTS, LAWS, ASSUMED CONTRACTS--DEBTOR
NONE.
<PAGE>
SCHEDULE 9.2.2
CONFLICTS WITH ORGANIZATIONAL DOCUMENTS, LAWS, CONTRACTS--SUBSCRIBER
NONE.
<PAGE>
SCHEDULE 9.2.3
CONSENTS--SUBSCRIBER
NONE.
AMENDED AND RESTATED
STOCK SUBSCRIPTION AND PURCHASE AGREEMENT
BETWEEN
SOUTHERN PACIFIC FUNDING CORPORATION
AND
THE GOLDMAN SACHS GROUP, INC.
AMENDED AND RESTATED AS OF MAY 21, 1999
<PAGE>
AMENDED AND RESTATED
STOCK SUBSCRIPTION AND PURCHASE AGREEMENT
This Amended and Restated Stock Subscription and Purchase
Agreement ("Agreement") is dated as of May 21, 1999, by and between SOUTHERN
PACIFIC FUNDING CORPORATION, a California corporation, acting in its capacity as
Debtor-in-Possession (in such capacity, referred to as the "Debtor"), and THE
GOLDMAN SACHS GROUP, INC., a Delaware corporation ("Subscriber").
RECITALS
--------
A. On October 1, 1998, Southern Pacific Funding Corporation, a
California corporation (referred to generally as the "Company") filed for
bankruptcy under Chapter 11 of the Bankruptcy Code in the United States
Bankruptcy Court for the District of Oregon (the "Bankruptcy Case"). The assets
of the Company constitute a bankruptcy estate supervised and managed by the
Company as Debtor-in-Possession for the benefit of the Company's creditors.
B. Debtor has filed its Plan of Reorganization, which will be amended
promptly after the parties have signed and delivered this Agreement. Debtor is
seeking confirmation of such plan, as amended, from the United States Bankruptcy
Court for the District of Oregon or such other court or adjunct thereof that
exercises jurisdiction over the Bankruptcy Case (the "Bankruptcy Court").
C. Pursuant to the Plan of Reorganization (after entry of the
Confirmation Order and as of the effective date of the Plan of Reorganization
(such event, the "Effective Date"), all of the capital stock of the Company
outstanding prior to the Effective Date will be canceled and 10,000 shares of
common stock of the Company (the "Shares") will be issued to Subscriber as
provided in this Agreement. The Company, upon the Effective Date is referred to
as the "Reorganized Company". The Shares will constitute all of the capital
stock of the Reorganized Company on and after the Effective Date.
D. Prior to the Closing, the Company will create the Cash-Flow
Instrument described in this Agreement, representing a right to receive a
percentage of the cash flows from the assets reflected on Schedule 2.1.2 for the
benefit of its creditors. At the Closing, but prior to issuance of the Shares,
the Reorganized Company will distribute to the Liquidating Trust the Cash-Flow
Instrument described in this Agreement. All Company assets (other than those
listed in Schedule 2.1.2) either (1) will be sold by the Company pursuant to the
Asset Purchase Agreement immediately prior to Closing in exchange for a cash
purchase price and a right to receive 50 percent of the cash flows from the
assets sold (as set forth in the Asset Purchase Agreement), or (2) will be
distributed to the Liquidating Trust prior to Closing.
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<PAGE>
E. Debtor desires to cause the Reorganized Company to issue, and
Subscriber desires to purchase, all of the Shares for the consideration and on
the terms set forth in this Agreement.
AGREEMENT
---------
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For purposes of this Agreement, capitalized terms not
otherwise defined have the meanings given in Appendix I attached to and hereby
incorporated into this Agreement by reference.
2. SUBSCRIPTION, SALE AND TRANSFER OF SHARES; PURCHASE PRICE AND
CONTINGENT OBLIGATION; CLOSING
2.1 SHARES; ASSETS; EXCLUDED ASSETS
2.1.1. Subject to the terms and conditions of this Agreement,
the Reorganized Company will direct its officers to take all
actions necessary to issue, sell and transfer the Shares to
Subscriber at Closing, and Subscriber will subscribe for and
purchase the Shares from the Reorganized Company. Upon
Closing, the Subscriber will pay the Purchase Price in
accordance with Sections 2.6.2(a) and 2.6.2(b).
2.1.2. At Closing, upon acquisition of the Shares by
Subscriber, the Reorganized Company's assets and liabilities
will consist of all of the assets and liabilities listed on
Schedule 2.1.2 (the "Assets" and "Liabilities," respectively,
together with the Asset Cash Flow Instrument, which is
excluded from the defined term "Assets") and no other
liabilities. At Closing but immediately prior to issuance of
the Shares, Debtor will transfer all other assets and
liabilities not set forth on Schedule 2.1.2 to the Liquidating
Trust or pursuant to the Asset Purchase Agreement.
2.2 PURCHASE PRICE
The subscription and purchase price (the "Purchase Price") for
the Shares is $26,885,232 minus the Cash Price Adjustment Amount. The Cash Price
Adjustment Amount will be equal to 50 percent of the cash distributions received
by the Company between April 1, 1999, and the Closing Date with respect to the
Residual Certificates. Subscriber will pay the Purchase Price in immediately
available funds at Closing.
2.3 CASH FLOW INSTRUMENT
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<PAGE>
2.3.1. At Closing, the Reorganized Company (immediately prior
to issuing the Shares to Subscriber) will distribute to the
Liquidating Trust an instrument in the form of Exhibit 2.3.1
(the "Cash-Flow Instrument"). Subject to the payment
provisions of Section 2.3.5(a), the Cash-Flow Instrument will
provide for periodic payments to the Holder of the following:
(a) the sum (without duplication) of:
(i) the Applicable Percentage of all pre-tax
cash flows and other amounts, if any, paid or payable
in respect of the "Asset Cash Flow Instrument" as
defined in the Asset Purchase Agreement (the "Asset
Purchase Cash Flows"); and
(ii) the Applicable Percentage of each of the
following (referred to collectively before
application of the Applicable Percentage as the
"Residual Cash Flows") with respect to the Assets and
Asset Proceeds. ("Asset Proceeds" means any
securities or tangible consideration received on a
sale or transfer of Assets to a non-Related Person of
Subscriber, or any securities retained by the
Reorganized Company in connection with the
securitization of any Assets.):
(A) the aggregate of all pre-tax cash flows
from each of the Assets and Asset Proceeds
from the Closing Date until a sale (or
transfer) or Financing Transaction with
respect to the related Assets or Asset
Proceeds, it being agreed that the cash
flows will continue to be payable to Holder
after any sale or transfer to a Related
Person of the Subscriber (other than a sale
or transfer to a Related Person of
Subscriber for the sole purpose of
facilitating a Financing Transaction) or
pursuant to a transaction that has not been
found by the board of directors of
Reorganized Company to be an arms-length
transaction; plus
(B) all pre-tax Proceeds from any sales or
transfers of any Asset or Asset Proceeds or
portion of an Asset or Asset Proceeds; plus
(C) all pre-tax Proceeds from any Financing
Transactions entered into by the
Reorganized Company with respect to any of
the Assets or Asset Proceeds and all
Hedging Gains;
(the Applicable Percentage of Asset Purchase Cash
Flows plus the Applicable Percentage of Residual Cash
Flows are the "Total Cash Flows.");
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<PAGE>
(b) minus the Applicable Percentage of otherwise
unreimbursed Out-of-Pocket Expenses incurred by Reorganized
Company (such amounts, the "Holder-Allocated Expenses"); plus
(c) any Holder Tax Adjustment Amount.
2.3.2. The periodic payment (each a "Distribution") made with
respect to the Cash Flow Instrument each month, for a period
commencing on the fifth day of a calendar month and ending on
the fourth day of the next calendar month, commencing with the
first full such period following the Closing Date (each such
period, a "Cash Flow Period") will equal (i) the sum of (a)
Total Cash Flows received by the Reorganized Company during
such Cash Flow Period (or from the Closing Date through the
last day of the first Cash Flow Period, in the case of the
first Distribution) plus (b) any previously unpaid Holder Tax
Adjustment Amount minus (ii) Holder-Allocated Expenses not
previously applied in reduction of Total Cash Flows.
2.3.3. Out-of-Pocket Expenses means:
(a) Direct Third Party out-of-pocket expenses
reasonably incurred by the Company or by Subscriber or a
Related Person of Subscriber directly on behalf of the Company
with respect to the Assets and Asset Proceeds, not otherwise
reimbursable from a third party and directly related to the
ownership, servicing (including without limitation, any
transfer of servicing, engagement of sub-servicers, or
financing of corporate (i.e., non-principal and interest)
servicer advances), maintenance, collection from, realization
of value from, evaluation of, protection, financing and sale
of Assets and Asset Proceeds, all in the Ordinary Course of
Business or with respect to a sale or Financing Transaction.
(b) For purposes of servicing fees as described in
Section 2.3.3(a) (including primary and special servicing),
Out-of-Pocket Expenses means 35 basis points (except with
respect to Securitization Trust 1998-H1, for which
Out-of-Pocket Expenses means 75 basis points), together with
ancillary fees and investment income on collection accounts.
(c) Notwithstanding Section 2.3.3(a), Out-of-Pocket
Expenses specifically include:
(i) Hedging Losses and carrying costs of hedging
transactions;
(ii) transfer fees or other costs charged by the
existing servicer or sub-servicer in connection with
the transfer of servicing operations as set forth in
Section 2.7.1;
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<PAGE>
(iii) principal and interest repaid on any
Financing Transaction;
(iv) interest expense incurred in connection
with financing corporate (i.e., non-principal and
interest) servicer advances with a Related Person of
Subscriber at a market rate of interest for a loan of
comparable credit risk;
(v) fees and expenses incurred with respect to
Subscriber or a Related Person of Subscriber in
connection with a sale or Financing Transaction, but
only to the extent such fees are consistent with
market rates and industry standards and are approved
by the Holder, which approval shall not be
unreasonably withheld ("Related Person Expenses").
Related Person Expenses shall be deemed to be
approved if not objected to within 21 days after
Holder receives a detailed report from the Company
together with a request for approval;
(vi) expenses incurred with respect to the
Liabilities of the Company other than with respect to
the Cash Flow Instrument;
(vii) any otherwise reimbursable Third Party
expense that the Reorganized Company has determined
to be uncollectible; and
(viii) the payments, if any, made by the
Reorganized Company with respect to severance
payments to employees of the Liquidating Trust.
(d) Notwithstanding Section 2.3.3(a), Out-of-Pocket
Expenses specifically exclude:
(i) amounts payable by Reorganized Company to
the Reserve pursuant to Section 2.3.7;
(ii) any management fees with respect to the
Assets; and
(iii) overhead, salaries and similar expenses of
Subscriber or any Related Person of Subscriber,
except as permitted under Section 2.3.3(c)(iv).
2.3.4. The Reorganized Company will deposit the Distributions
for each month after payments required to be made to
Subscriber pursuant to Sections 2.3.5(a)(i), (ii) or (iii)
into a segregated reserve account (the "Florida Reserve") for
a period of time. The funds deposited in the Florida Reserve
will be invested at the direction of the Reorganized Company
only in Eligible Investments for the benefit of Holder (and
Holder shall be responsible to report such investment income
and pay income taxes thereon), and may be used (together with
any income on Eligible Investments) by the
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<PAGE>
Reorganized Company only to repurchase each and every mortgage
loan out of the Securitization Trusts in the amount and as
specified in the settlement or finding referred to below
(including accrued interest and other amounts required to be
paid under the applicable Pooling and Servicing Agreement)
pursuant to the requirements of a binding settlement or a
finding that any such mortgage loans are owned by or
encumbered in favor of Oceanmark Bank F.S.B. in a final,
unappealable judgment entered by a court of competent
jurisdiction with respect to the Florida Case (such settlement
or judgment, the "Florida Case Resolution"). When the
obligations of the Reorganized Company under the Florida Case
Resolution are fully satisfied the Reorganized Company will
immediately release all remaining funds in the Florida Reserve
to Holder.
2.3.5. The terms of the Cash-Flow Instrument will provide that
amounts payable as Distributions from Asset Purchase Cash
Flows and Residual Cash Flows shall be applied in the
following order:
(a) (i) first, to payment to Subscriber of any
unpaid Preferred Return;
(ii) second, to the payment to Subscriber on
behalf of the Company of any unpaid Company Tax
Adjustment Amount;
(iii) third, to the payment of principal and
interest on Holder Expense Loans;
(iv) fourth, to the funding of the Florida
Reserve, if still applicable;
(v) fifth, to the funding of Holder's share
(i.e., 50 percent times the Factor) of the Reserve);
and
(vi) finally, to Holder.
(b) The Distribution for a particular month will be
paid on or before the third business day following the end of
the related Cash Flow Period, provided that if the amount to
be paid to Holder is less than $100,000, the Reorganized
Company may defer payment (at its option) until the following
month (or such later time as the amount to be paid equals or
exceeds $100,000).
(c) The Cash Flow Instrument shall also provide (i)
the Cash Flow Instrument will be evidenced by certificates;
(ii) the Company will keep an appropriate register of the
certificates; (iii) transfers of certificates shall be
prohibited unless an appropriate opinion of counsel
satisfactory to the Company with respect to securities laws
matters has been first obtained; (iv) procedures to approve
action by multiple Holders; and (v) other provisions, all as
more fully in Exhibit 2.3.1.
-6-
<PAGE>
2.3.6. Reorganized Company agrees:
(a) to make monthly deposits of its share of the
Reserve (i.e., 100 percent minus Holder's share of the
Reserve), which amounts shall not constitute an Out-of-Pocket
Expense, and
(b) that it will not sell or transfer any interest in
and will not engage in a Financing Transaction with respect to
the Asset Cash Flow Instrument.
2.3.7. Subscriber agrees to make capital contributions to
Company each month in cash to the extent the Residual Cash
Flows remaining after payment of Distributions together with
the proceeds of any Holder Expense Loan made during such month
are insufficient to pay all expenses and liabilities of the
Company together with the requirement to fund the Reserve
pursuant to Section 2.3.6(a) (such contributions, the
"Required Capital Contributions"), subject to the limitation
that Required Capital Contributions to pay an unpaid Holder
Tax Adjustment Amount may be limited during any month to an
amount equal to all pre-tax cash flows and other amounts, if
any, paid or payable in respect of the Asset Cash Flow
Instrument minus the Out-of-Pocket Expenses plus the
Holder-Allocated Expenses for the month.
Required Capital Contributions are not entitled to a preferred
return of any kind and no portion of the Required Capital
Contributions shall be eligible for treatment as Out-of-Pocket
Expenses.
2.3.8. The terms and conditions of this Section 2.3 reflect
the intent and agreement of the parties. In the case of any
conflict between the terms of this Agreement and the terms of
the Cash-Flow Instrument, however, the terms of the Cash-Flow
Instrument control.
2.4 ADDITIONAL COVENANTS AGREEMENT; LIQUIDATING TRUST
2.4.1. The Plan of Reorganization will provide for Subscriber
and Reorganized Company to enter into an agreement with the
Liquidating Trust and Asset Company in the form of Exhibit
2.4.1 (the "Additional Covenants Agreement"), with such
further changes as the parties may agree are necessary,
desirable, or appropriate; provided that nothing contained
herein shall be construed to require Subscriber or Asset
Company to agree to any such change. The Additional Covenants
Agreement will contain all of the substantive provisions of
Exhibit 2.4.1, including a provision requiring Reorganized
Company to distribute to the Liquidating Trust any payments
received before or after Closing as a result of the Debtor,
Liquidating Trust, or Reorganized Company prevailing in any
Proceeding against a third party for activities occurring
prior to Closing, except that Reorganized Company will retain
any
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<PAGE>
payments received with respect to Proceedings that (i) are
related to one or more particular mortgage loans held in the
Securitization Trusts on the Closing Date, (ii) affect the
interests or performance of the master servicer of such loans,
such as claims that the Company, as master servicer, may bring
on behalf of a Securitization Trust; or (iii) are related to
failure by the Trustee under any Securitization Trust or any
Prepayment Penalty Trust Certificates to properly calculate
the cash flows to the certificate holders from any such Trust
or Certificate.
The Additional Covenants Agreement will also provide that the
Liquidating Trust will provide Reorganized Company access to
the books and records of the Company and the opportunity to
make copies at its expense, and that, upon dissolution of the
Liquidating Trust, all such books and records shall be
delivered by the Liquidating Trust to the Reorganized Company.
2.4.2. Debtor covenants that the Liquidating Trust Agreement
will not obligate the Reorganized Company to any material
obligation or impose any material liability or expense on the
Reorganized Company effective or imposed after the Closing
Date (except as expressly provided herein) without the consent
of Subscriber.
2.5 CLOSING
The completion of the subscription, issuance, purchase and
sale of the Shares provided for in this Agreement (the
"Closing") will take place at the offices of Thacher Proffitt
& Wood, at Two World Trade Center, New York, New York 10048,
at 11:00 am Eastern Daylight Time on the later of (a) the date
that is two business days after the Confirmation Order becomes
final and nonappealable, and not otherwise subject to a stay,
and (b) the date that is two business days following the
termination of the applicable waiting period under the HSR
Act, or at such other time and place as the parties may agree.
Subject to the provisions of Section 9, this Agreement will
not terminate and no party will be relieved of any obligation
under this Agreement if the subscription, issuance, purchase
and sale of the Shares contemplated by this Agreement is not
completed on the date and time and at the place determined
pursuant to this Section 2.5.
2.6 DELIVERIES
At Closing (unless otherwise specified below):
2.6.1. The Reorganized Company will deliver to Subscriber at
Closing (except as specified in clause (c) below):
(a) certificates representing the Shares, duly
endorsed (or accompanied by duly executed stock powers) for
transfer to Subscriber;
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<PAGE>
(b) a certificate signed on behalf of the Reorganized
Company in which the Reorganized Company represents and
warrants to Subscriber that each of Debtor's representations
and warranties in this Agreement was accurate in all respects
as of the date of this Agreement and is accurate in all
respects as of the Closing Date as if made by the Reorganized
Company on the Closing Date (giving full effect to any
supplements to the Disclosure Schedules that were delivered to
Subscriber prior to the Closing Date in accordance with
Section 5.4);
(c) at least ten calendar days prior to the Closing,
to the extent not previously provided, copies of all relevant
material documents regarding the rights and obligations of the
Company, Advanta Mortgage Corp., USA, MBIA Insurance
Corporation, Norwest Bank Minnesota, National Association, and
Bankers Trust in connection with the Assets and the Purchased
Assets (the "Material Documents");
(d) certification from the Reorganized Company,
Advanta Mortgage Corp., USA, MBIA Insurance Corporation,
Norwest Bank Minnesota, National Association, and Bankers
Trust that there are no relevant material documents other than
the Material Documents given to Subscriber;
(e) certificates signed by each of Company, Norwest
Bank Minnesota, National Association, and MBIA Insurance
Corporation stating that the Company is in compliance with all
terms and provisions of the Material Documents to which the
signer is a party, unless (other than in the case of the
Reorganized Company) the Company has furnished Subscriber with
a forbearance agreement (which may, in the case of Norwest
Bank Minnesota, National Association, and MBIA Insurance
Corporation, be the Settlement Agreement) in which the
relevant party agrees not to enforce its rights or remedies
against the Company or to waive defaults in connection with
any noncompliance.
(f) a fully executed copy of a settlement agreement
among Debtor, Norwest Bank Minnesota, National Association and
MBIA Insurance Corporation (the "Settlement Agreement") with
substantially those terms set forth in Exhibit 2.6.1(f), with
such changes thereto as have been consented to by Subscriber
in writing;
(g) a certificate signed by Norwest Bank Minnesota,
National Association to the effect that the Debtor has prior
to the Closing Date (i) fully performed its obligation under
the Settlement Agreement to repurchase Critical Exception
Loans (as defined in the Settlement Agreement) from the
related Securitization Trusts and (ii) repurchased all Phantom
Loans (as defined in the Settlement Agreement) at par plus
accrued and unpaid interest and all unreimbursed Advances from
the related Securitization Trusts;
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<PAGE>
(h) an opinion or opinions of counsel with respect to
such matters as Subscriber may reasonably request as to the
matters specified in Exhibit 2.6.1(h);
(i) fully executed copies of each of the Liquidating
Trust Agreement and the Additional Covenants Agreement; and
(j) all original servicing files and base files with
respect to the Company Master Servicer Trusts, at Debtor's
expense.
2.6.2. Subscriber will deliver to or for the account of
Reorganized Company at Closing:
(a) a portion of the Purchase Price equal to the
amount owing on the DIP Financing Agreement after application
of the proceeds payable pursuant to the Asset Purchase
Agreement sent by wire transfer to Account Number ABA#:
021000089 at Citibank, clearance account 87709012600; directed
to account 9253549 in the name of Goldman, Sachs & Co.;
(b) the remaining balance of the Purchase Price sent
by wire transfer to the account in the name of the Reorganized
Company (designated for immediate distribution by wire
transfer to an account in the name of the Liquidating Trust)
designated at least two business days before Closing;
(c) a certificate signed by Subscriber in which
Subscriber represents and warrants to Reorganized Company that
each of Subscriber's representations and warranties in this
Agreement was accurate in all respects as of the date of this
Agreement and is accurate in all respects as if made on the
Closing Date; and
(d) an opinion of counsel of Subscriber (which may be
in-house counsel), dated the Closing Date, with respect to the
due authorization, execution and delivery by, and
enforceability (subject to customary exceptions) against,
Subscriber of this Agreement.
2.6.3. The Liquidating Trust will deliver to the Reorganized
Company at Closing the Additional Covenants Agreement and an
income tax Form W-9.
2.6.4. Immediately prior to issuing the Shares to Subscriber,
Debtor will issue the Cash-Flow Instrument to the Liquidating
Trust in accordance with Section 2.3 in a transaction exempt
from registration under the Securities Act and any applicable
state securities laws.
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<PAGE>
2.6.5. Prior to Closing, Debtor, and the trustees of the
Liquidating Trust will enter into the Liquidating Trust
Agreement.
2.6.6. Prior to Closing, Reorganized Company, Subscriber and
the Liquidating Trust will enter into the Additional Covenants
Agreement.
2.7 TRANSFER OF SERVICING
Debtor agrees, if requested by Subscriber, to use its Best Efforts to
enter into an agreement with a subservicer to assure the proper
servicing of the mortgage loans in the Securitization Trusts subsequent
to Closing in accordance with the Pooling and Servicing Agreements, on
an interim basis prior to a transfer of the servicing to a subservicer
selected by the Reorganized Company subsequent to Closing (such
agreement, the "Subservicing Agreement"). Debtor agrees that, if
notified by Subscriber on or prior to May 31 that the Subscriber wishes
to engage employees of the Liquidating Trust to fulfill the Reorganized
Company's servicing obligations following the Closing Date, the Debtor
will use its Best Efforts to cause the Liquidating Trust to enter into
an agreement pursuant to which it will provide for a mutually
acceptable fee specified therein, the services of its employees to the
Reorganized Company for a period expiring on the date specified by
Subscriber, not later than August 31, 1999.
2.7.1. Subscriber and Debtor agree that the servicing transfer
fees and other costs charged by the existing servicer or
sub-servicer in connection with the transfer of servicing
operations shall constitute Out-of-Pocket Expenses.
2.7.2. Subscriber and Debtor agree that Reorganized Company
must deliver to the Liquidating Trust the amount of all
advances properly made by the Company in accordance with the
terms of the Pooling and Servicing Agreement ("Advances") and
outstanding with respect to the Securitization Trusts for
which Reorganized Company holds Master Servicing ("Company
Master Servicer Trusts") on the date of the transfer of the
related servicing operations. Subscriber intends that the
Subservicing Agreement will provide that the new sub-servicer
will reimburse the Liquidating Trust for all such Advances
made by the Company with respect to the Company Master
Servicer Trusts and will assume responsibility for all
servicer advances after such date of transfer. If any Advances
are not reimbursed at the time of servicing transfer under the
Subservicing Agreement or if there is no servicing transfer by
July 31, 1999, all unreimbursed Advances will be paid by
Reorganized Company to the Liquidating Trust within 10 days
thereafter.
2.8 BREAK-UP FEE
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2.8.1. It is the understanding of the parties that, by order
of the Bankruptcy Court entered April 15, 1999 (as applied to
Subscriber), Debtor obtained the authority to pay Subscriber
$2,000,000 (the "Break-Up Fee") if:
(a) on or before April 30, 1999 (which Debtor, in the
exercise of its discretion, has extended through May 6, 1999),
Subscriber (or any Related Person) enters into the Subscriber
Definitive Agreements;
(b) the Subscriber Definitive Agreements contain the
same or better economic terms as contained in the letter of
intent signed by Debtor and a Related Person of Subscriber on
April 26, 1999;
(c) no material breach (including an anticipatory
breach) by Subscriber (or any Related Person) of the
agreements contained in the Subscriber Definitive Agreements
has occurred and is continuing; and
(d) Debtor sells the capital stock of the Company or
substantially all of its assets to someone other than
Subscriber or a Related Person.
2.8.2. Debtor agrees that Subscriber satisfies conditions (a)
and (b) set forth in Section 2.8.1. Debtor will use its Best
Efforts to obtain an Order from the Bankruptcy Court that
provides in substance: (i) that Subscriber is entitled to the
Break-Up Fee from the proceeds of a sale if the conditions set
forth in (c) and (d) of Section 2.8.1 are satisfied and
Subscriber and Asset Company are otherwise ready, willing and
able to complete Closing of all Contemplated Transactions in
accordance with the terms of the Subscriber Definitive
Agreements (or are unwilling to complete Closing only because
of a willful Breach by Debtor); and (ii) that Subscriber is
entitled to the Break-Up Fee under certain circumstances after
a willful breach by Debtor, as provided in Sections 9.2 and
9.3.
2.8.3. The provisions of this Section 2.8 shall survive any
termination of this Agreement.
2.9 ASSIGNMENT TO RELATED PERSON
Subscriber agrees that, in the event it assigns its rights and
obligations under this Agreement to an assignee (who must be a wholly-owned
Related Person), Subscriber will remain liable for all obligations under this
Agreement to be performed by the Subscriber at or before Closing. Subscriber
agrees that in the event that its assignee fails to perform its obligation to
make a Subscriber Contribution pursuant to Section 6.4, Subscriber will make the
required Subscriber Contribution on its behalf.
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2.10 OVERBID PROCEDURES
Debtor agrees to use its Best Efforts to obtain an Order of the
Bankruptcy Court substantially in the form of Exhibit 2.10, and Debtor agrees to
abide by and comply with the procedures set forth therein.
3. REPRESENTATIONS AND WARRANTIES OF DEBTOR
Debtor represents and warrants to Subscriber as follows:
3.1 ORGANIZATION AND GOOD STANDING
3.1.1. The Company is a corporation duly organized, validly
existing, and in good standing under the laws of California.
Subject to the jurisdiction and powers of the Bankruptcy Court
over the Company, the Company has full corporate power and
authority and, except as set forth on Schedule 3.1.1, has all
necessary licenses, permits and approvals to conduct its
business as it is now being conducted, to own or use the
properties and assets that it purports to own or use, and to
perform all its obligations under Assumed Contracts identified
in Schedule 3.7.
3.1.2. Debtor has delivered to Subscriber copies of the
Organizational Documents of the Company, as currently in
effect.
3.2 AUTHORITY; NO CONFLICT
3.2.1. Upon approval of the Contemplated Transactions by the
Bankruptcy Court, the Debtor Definitive Agreements will
constitute the legal, valid, and binding obligations of
Debtor, enforceable against Debtor in accordance with their
respective terms. Subject to the requirement of Bankruptcy
Court approval, Debtor has the absolute and unrestricted
right, power, authority, and capacity to execute and deliver
the Debtor Definitive Agreements and to perform its
obligations under the Debtor Definitive Agreements.
3.2.2. Except as set forth in Schedule 3.2.2, neither the
execution and delivery of this Agreement nor the consummation
or performance of any of the Contemplated Transactions will,
directly or indirectly (with or without notice or lapse of
time):
(a) contravene, conflict with, or result in a
violation of (i) any provision of the Organizational Documents
of the Company, or (ii) any currently effective resolution
adopted by the board of directors of the Company;
(b) contravene, conflict with, or result in a
violation or breach of any provision of, or give any Person
the right to declare a default or exercise any remedy
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under, or to accelerate the maturity or performance of, or to
cancel, terminate, or modify, any Assumed Contract; or
(c) result in the imposition or creation of any
Encumbrance upon or with respect to any of the Assets (except
as expressly approved in this Agreement).
3.2.3. Except for procedures and requirements of the
Bankruptcy Court, the Company is not and will not be required
to give any notice to or obtain any Consent from any Person in
connection with the execution and delivery of this Agreement
or the consummation or performance of any of the Contemplated
Transactions.
3.3 CAPITALIZATION
As of Closing, the authorized equity securities of Reorganized
Company will consist of 10,000 shares of common stock, with no par value,
constituting the Shares to be newly issued to Subscriber. Upon issuance to
Subscriber, the Shares will be free and clear of all Encumbrances.
3.4 BOOKS AND RECORDS
After Closing, the books and records of the Company in
existence as of the Closing Date will remain in the custody and control of the
Liquidating Trust, as provided in the Additional Covenants Agreement.
3.5 TAXES
3.5.1. The Company has filed or will file before Closing all
Tax Returns for the 1998 taxable year and all earlier taxable
years that are or were required pursuant to applicable Legal
Requirements. Subscriber will have a reasonable opportunity to
review and provide comments with respect to all Tax Returns
filed after the date of this Agreement and before the Closing
Date. Debtor has made available to Subscriber copies of, and
Schedule 3.5.1 contains, a complete and accurate list of, all
such Tax Returns relating to income or franchise taxes filed
for the short tax year beginning June 14, 1996 and ending
December 31, 1996, and subsequent tax years through the 1998
taxable year.
3.5.2. The Plan of Reorganization will provide that for the
1999 taxable year:
(a) Unless advised otherwise by Subscriber before
Closing, the Reorganized Company will become a member of a
group of corporations filing a consolidated federal income tax
return effective upon or immediately after the Closing Date
(or under federal and any applicable State income tax laws
Debtor's taxable year will end on the Closing Date with
respect to such taxing jurisdictions) and:
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(i) the taxable income of Debtor for the period
from January 1, 1999, through and including the
Closing Date (the "Short Year") will be referred to
as the "Short-Year Income";
(ii) the Liquidating Trust will, on behalf of
the Debtor, timely file (including any applicable
extensions) all Tax Returns for a taxable year of the
Debtor that ends on the Closing Date (the "Short-Year
Returns") and the Liquidating Trust will make
reasonable efforts to file these returns by November
1, 1999, even if not legally required to do so. The
Reorganized Company will have a reasonable
opportunity to review and provide comments on the
federal, California and Oregon Short-Year Returns
before they are filed;
(iii) the Liquidating Trust will be liable for
paying the Tax on the Short-Year Income in each
jurisdiction for which a Short-Year Return is to be
filed (the "Short-Year Tax"), and its liability for
the Short-Year Tax will be an allowed claim against
Debtor's bankruptcy estate in the Plan of
Reorganization and will be treated as a first
priority claim (i.e., an administrative expense); and
(iv) the Reorganized Company will be discharged
from any obligation to pay the Short-Year Tax.
(b) If the Reorganized Company is not a member of a
consolidated (or equivalent) tax filing group effective upon
or immediately after the Closing Date in any applicable taxing
jurisdiction, or if the Closing Date is not the last day of
the Debtor's taxable year for Tax purposes, then the
Reorganized Company agrees to prepare and file its 1999 Tax
Returns in a timely fashion (taking into account extensions),
will be responsible to pay taxes due for such taxable year to
the extent provided in this paragraph, and will provide the
Liquidating Trust with notice of such filing. In such event,
the Liquidating Trust's liability for paying the Tax in
respect of the 1999 taxable year will be limited to the amount
of the Reorganized Company's incremental additional Tax
liability for the 1999 taxable year over the Tax liability
that would have resulted had the Closing Date been the last
day of a Short Year (the "Deemed Short Year") taking into
account for federal income tax purposes only the extent to
which the Reorganized Company's Tax Attributes are affected
(adversely or otherwise) by taxable income in respect of the
Deemed Short Year. Accordingly, for avoidance of doubt, if the
Reorganized Company's Tax liability is not greater for taxable
year 1999 than it would have been had the Deemed Short Year
been a Short Year and the Reorganized Company's Tax Attributes
are not adversely affected in respect of Deemed Short Year
income, then the Liquidating Trust shall not have any
liability for the Reorganized Company's 1999 taxable income.
For state (and local) income tax purposes, the liability of
the Liquidating Trust for Taxes in any jurisdiction
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under this paragraph (b) shall not exceed the liability for
Taxes that would have been owing if the Deemed Short Year had
actually been a separate taxable year of Debtor.
3.5.3. The Plan of Reorganization will require the Liquidating
Trust to request a prompt determination of the state and
federal Prepetition Tax Liabilities of the Company pursuant to
Section 505(a) of the Bankruptcy Code for any tax year ending
after June 15, 1996 (the day after the effective date of the
Company's initial public offering). The Plan of Reorganization
will also provide that (i) the Liquidating Trust will pay (on
behalf of the Company) any Tax that the Company must pay as a
result of any such determinations, and (ii) the Reorganized
Company will pay to the Liquidating Trust any Tax refunds it
receives as a result of any such determinations.
3.5.4. The Plan of Reorganization will require the Liquidating
Trust, pursuant to Section 505(b) of the Bankruptcy Code, to
request a prompt determination of any unpaid liability of the
Debtor for any Tax incurred during the administration of the
Bankruptcy Case with respect to its 1998 taxable year and (if
applicable) the Short Year and the Liquidating Trust shall be
liable to pay any Taxes with respect to such taxable year..
3.5.5. The Reorganized Company and the Liquidating Trust may
both participate in all material aspects of the federal income
tax audits with respect to the Company and the Assets for any
taxable year beginning after June 14, 1996 (the effective date
of the Company's initial public offering) and ending on or
before December 31, 1998 (except that the Liquidating Trust
will have no right to participate in any audit of a tax year
unless it is responsible to pay a portion of the Tax due with
respect to such Tax year) and each will provide the other with
contemporaneous notice of any communication with the relevant
tax authorities (as set forth in the Additional Covenants
Agreement). As further provided in the Additional Covenants
Agreement, the Liquidating Trust will consult with the
Reorganized Company before making or accepting any proposed
settlement with respect to the Assets in connection with
taxable years beginning before the Closing that reasonably
would affect the Reorganized Company. Notwithstanding the
foregoing, the Liquidating Trust will make final decisions
with respect to Tax settlements for taxable years ending on or
before the Closing Date and the Reorganized Company will make
the final decisions with respect to Tax settlements for
taxable years ending after the Closing Date.
3.5.6. The Plan of Reorganization will provide for the
Liquidating Trust to assume any and all liability for Taxes
payable by the Company in connection with the Company's
operations and subsidiaries located outside of the United
States prior to and including the Closing Date, including,
without limitation, any Tax liability in excess of amounts
reported on the Company's Tax Returns, and the Reorganized
Company will be discharged from any such liability.
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3.5.7. The Plan of Reorganization will provide that a
nationally-recognized accounting firm selected by Subscriber
and reasonably acceptable to the Liquidating Trust (the "Tax
Expert") will finally decide all disputes and controversies
with respect to this Section 3.5 by submission of a reasonably
detailed written decision, and that the Tax Expert, before
reaching any such decision, must allow the Liquidating Trust
and Subscriber a reasonable opportunity to provide information
and respond to issues.
3.6 COMPLIANCE WITH LEGAL REQUIREMENTS; BOARD AND GOVERNMENTAL
AUTHORIZATIONS
The Company has complied in all material respects with the
terms of all orders of the Bankruptcy Court applicable to it. The board of
directors of the Company has approved the Debtor Definitive Agreements. Schedule
3.6 contains a complete and accurate list of each Governmental Authorization
held by the Company or that otherwise relates to the business of the Company or
to any of the Assets.
3.7 CONTRACTS
Schedule 3.7 contains a complete and accurate list, and Debtor
has delivered to Subscriber true and complete copies, of:
(a) each Assumed Contract;
(b) each power of attorney that is currently
effective and outstanding;
(c) each written warranty, guaranty, and or other
similar undertaking with respect to contractual performance of
any Assumed Contract extended by the Company other than in the
Ordinary Course of Business; and
(d) each amendment, supplement, and modification in
respect of any of the foregoing.
3.8 MORTGAGE LOAN LITIGATION
Schedule 3.8 contains a complete and accurate description of
all pending or, to the Debtor's Knowledge, Threatened Proceedings relating to
the Securitization Trusts, or related to any mortgage loans contained in the
Securitization Trusts, including, without limitation, any matter in which any
improper lending practice or violation of the Truth in Lending Act (including
the Home Owner's Equity Protection Act) or other federal or state lending or
consumer protection law is alleged, provided however, such Schedule does not
include mortgage loans in the following categories: (1) noncontested judicial
foreclosure actions, (2) nonjudicial foreclosures, (3) bankruptcy cases
(including adversary proceedings) involving borrowers, (4) judicial foreclosure
actions by prior lienholders, or (5) routine title-related litigation (including
mechanics' lien, condemnation, and
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forfeiture actions) in which a defense is being provided by a title company or
in which there is no reasonable likelihood of material impairment of the
lender's lien.
4. REPRESENTATIONS AND WARRANTIES OF SUBSCRIBER
Subscriber represents and warrants to Debtor as follows:
4.1 ORGANIZATION AND GOOD STANDING
Subscriber is a limited partnership duly organized, validly
existing, and in good standing under the laws of the State of Delaware.
4.2 AUTHORITY; NO CONFLICT
4.2.1. The Subscriber Definitive Agreements constitute the
legal, valid, and binding obligations of Subscriber,
enforceable against Subscriber in accordance with their
respective terms. Subscriber has the partnership right, power,
and authority to execute and deliver the Subscriber Definitive
Agreements and to perform its obligations under each
Subscriber Definitive Agreement.
4.2.2. Except as set forth in Schedule 4.2.2, neither the
execution and delivery of this Agreement nor the consummation
or performance of any of the Contemplated Transactions will
give any Person the right to prevent, delay, or otherwise
interfere with any of the Contemplated Transactions pursuant
to:
(a) any provision of Subscriber's Organizational
Documents;
(b) any resolution adopted by the board of directors
or the stockholders of Subscriber;
(c) any Legal Requirement or Order to which
Subscriber may be subject; or
(d) any Contract to which Subscriber is a party or by
which Subscriber may be bound.
4.2.3. Except as set forth in Schedule 4.2.3, Subscriber is
not and will not be required to obtain any Consent from any
Person in connection with the execution and delivery of this
Agreement or the consummation or performance of any of the
Contemplated Transactions.
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4.3 INVESTMENT INTENT; INVESTMENT COMPANY
Subscriber is acquiring the Shares for its own account and not
with a view to their distribution within the meaning of Section 2(11) of the
Securities Act. Subject to the express provisions of this Agreement, the
disposition of the Shares will at all times be within the control of Subscriber.
Subscriber agrees that it will sell or transfer the Shares only if such sale or
transfer is made pursuant to an effective registration under the Securities Act
or pursuant to an exemption from the Securities Act. Subscriber is not an
Investment Company within the meaning of the Investment Company Act of 1940.
4.4 CERTAIN PROCEEDINGS
Except for matters raised in connection with the Bankruptcy
Case, no pending Proceeding has been commenced against Subscriber that
challenges, or may have the effect of preventing, delaying, making illegal, or
otherwise interfering with, any of the Contemplated Transactions. To
Subscriber's Knowledge, no such Proceeding has been Threatened.
4.5 ABSENCE OF BROKER'S FEE OR COMMISSION
Neither Subscriber nor any of its Representatives has incurred
any liability to pay a broker's fee or commission, in connection with the
signing, delivery or performance of this Agreement or entering into the
Contemplated Transactions.
4.6 QUALIFIED INSTITUTIONAL BUYER
Subscriber is a "qualified institutional buyer" as defined in
Rule 144A of the Securities Act and acknowledges that the Shares have not been
registered under the Securities Act.
4.7 DUE DILIGENCE
Subscriber or a Related Person has performed its own thorough
due diligence investigation of the Company and the Assets offered for sale and
is not relying on any representation or warranty, express or implied, of Debtor
or any of its Representatives or third-party vendors, other than those expressly
contained in this Agreement.
5. COVENANTS OF DEBTOR
In addition to the covenants set forth in Section 2 and
elsewhere in this Agreement, Debtor covenants as follows:
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5.1 ACCESS AND INVESTIGATION
Between the date of this Agreement and the Closing Date,
Debtor will, and will cause its Representatives to:
(a) afford Subscriber and its Representatives
(collectively, "Subscriber's Advisors") full and free access
to the Company's personnel, properties, Contracts, books and
records, and other documents and data and to the Company's
sub-servicers, if any, to the extent the Company itself has
the right to grant such access (provided that under all
circumstances, Subscriber's Advisors will coordinate all
visits and communications with management of Debtor upon
reasonable notice),
(b) furnish Subscriber and Subscriber's Advisors with
copies of all such Contracts, books and records, and other
existing documents and data as Subscriber may reasonably
request,
(c) furnish Subscriber and Subscriber's Advisors with
such additional financial, operating, and other data and
information as Subscriber may reasonably request and
(d) furnish to Subscriber copies of all Pooling and
Servicing Agreements, Trust Agreements, Indentures, and other
documents relating to the formation and operation of the
Securitization Trusts and the offering of the related
securities and remittance reports relating to the
Securitization Trusts and all data files relating to the
administration of the Securitization Trusts or the Servicing
of the underlying mortgage loans prior to Closing.
5.2 OPERATION OF THE COMPANY'S BUSINESS
Between the date of this Agreement and the Closing Date, Debtor will:
(a) conduct the business of the Company (including
the current servicing operations and relationships with
sub-servicers) only in the Ordinary Course of Business,
subject to the limitations and restrictions imposed by the
Bankruptcy Code and Bankruptcy Court;
(b) use Best Efforts to preserve intact the current
business organization of the Company, keep available the
services of the current officers, employees, and agents of the
Company, and maintain the relations with suppliers, customers,
landlords, creditors, employees, agents, and others having
business relationships with the Company;
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(c) confer with Subscriber concerning operational
matters of a material nature;
(d) otherwise report weekly to Subscriber concerning
the status of the business, operations, and finances of the
Company; and
(e) not sell or encumber any Assets, amend any
Pooling and Servicing Agreement, or enter into any new
subservicer agreements or amend any existing subservicer
agreements without Subscriber's Consent;
(f) not make any new loans to any borrower;
(g) not purchase mortgage loans from the
Securitization Trusts except as expressly required by the
Settlement Agreement, change collection or REO procedures, or
change or modify procedures with respect to amending the terms
of any mortgage loan without giving prior reasonable notice to
Subscriber and two business days for Subscriber to respond;
provided, however, that Debtor's notice shall not be deemed to
waive any rights of Subscriber under this Agreement in respect
of any Breach by Debtor; and
(h) within seven days after execution of this
Agreement provide a master servicing data tape to Subscriber.
5.3 REQUIRED APPROVALS
As promptly as practicable after the date of this Agreement
and prior to the Closing Date, Debtor will make all filings Company is required
to make by Legal Requirements (with the understanding that Subscriber will pay
all filing fees for any HSR Act filing, as provided by statute). As promptly as
practicable after the date of this Agreement and prior to the Closing Date,
Debtor will (a) cooperate with Subscriber with respect to all filings that
Subscriber elects to make or is required by Legal Requirements to make in
connection with the Contemplated Transactions, and (b) cooperate with Subscriber
in obtaining all Consents identified in Schedule 4.2.3 (including taking all
actions requested by Subscriber to cause early termination of any applicable
waiting period under the HSR Act).
5.4 NOTIFICATION
Between the date of this Agreement and the Closing Date,
Debtor will promptly notify Subscriber in writing if Debtor becomes aware of any
fact or condition that (a) causes or constitutes a Breach of any of Debtor's
representations and warranties in this Agreement as of the date of this
Agreement, or (b) would cause or constitute a Breach of any such representation
or warranty had such representation or warranty been made as of the time of
occurrence or discovery of such fact or condition. Should any such fact or
condition require any change in the Disclosure Schedules in order
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to make the Disclosure Schedules accurate as of Closing, Debtor will promptly
deliver to Subscriber a supplement to the Disclosure Schedules specifying such
change.
5.5 BEST EFFORTS
Between the date of this Agreement and the Closing Date,
Debtor will use its Best Efforts to cause the conditions in Section 7 to be
satisfied and to complete Closing no later than June 30, 1999. Debtor agrees
that any willful breach by it of the Asset Purchase Agreement shall constitute a
willful breach of this Agreement.
5.6 NO SOLICITATION
Debtor agrees that until Bankruptcy Court approval (or
rejection) of the Break-Up Fee Order described in Section 9.2, Debtor will not,
and will not authorize or permit any of its Representatives, directly or
indirectly, (a) to solicit, initiate, participate in or encourage any inquiries,
negotiations, or discussions with, or provide any information to, any person or
group (other than the Subscriber and its Representatives and affiliates)
concerning, or encourage the making of any proposal with respect to, any
acquisition transaction involving, directly or indirectly, the Company or its
securities or assets (other than the assets to be transferred to the Liquidating
Trust), or (b) to enter into any agreement, arrangement, or understanding
requiring it to abandon, terminate, or fail to consummate this Agreement or any
other transactions contemplated by this Agreement (each event described in (a)
and (b) above, an "Acquisition Proposal"). Debtor will immediately cease any
existing activities, discussions, or negotiations with any parties other than
the Subscriber and its Representatives and affiliates conducted prior to the
date of this Agreement with respect to any of the activities described in (a)
and (b) above. Debtor will immediately (and in any event within 24 hours)
communicate to Subscriber the terms of any proposal, discussion, negotiation, or
inquiry relating to an Acquisition Proposal (and will disclose all written
materials received by Debtor in connection with any such Acquisition Proposal)
and the identity of the party making such proposal or inquiry which it may
receive in respect of any Acquisition Proposal.
6. COVENANTS OF SUBSCRIBER
In addition to the covenants set forth in Section 2 and
elsewhere in this Agreement, Subscriber covenants as follows:
6.1 APPROVALS OF GOVERNMENTAL BODIES
As promptly as practicable after the date of this Agreement
and prior to the Closing Date, Subscriber will, and will cause each of its
Related Persons to, make all filings required by Legal Requirements to be made
by them to consummate the Contemplated Transactions (including all filings under
the HSR Act) and will use its Best Efforts to obtain the Consents identified in
Schedule 4.2.3. Between the date of this Agreement and the Closing Date,
Subscriber will, and will cause each Related Person to cooperate with Debtor
with respect to all filings that Debtor is required by Legal
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Requirements to make in connection with the Contemplated Transactions
(including, without limitation, by paying the filing fee for any filing under
the HSR Act as provided by statute).
6.2 BEST EFFORTS
Between the date of this Agreement and the Closing Date,
Subscriber will use its Best Efforts to cause the conditions in Section 7 to be
satisfied and to complete Closing no later than June 30, 1999.
6.3 NOTIFICATION
Between the date of this Agreement and the Closing Date,
Subscriber will promptly notify Debtor in writing if Subscriber becomes aware of
any fact or condition that (a) causes or constitutes a Breach of any of
Subscriber's representations and warranties in this Agreement as of the date of
this Agreement, or (b) would cause or constitute a Breach of any such
representation or warranty had such representation or warranty been made as of
the time of occurrence or discovery of such fact or condition.
6.4 SUBSCRIBER CONTRIBUTION
Subscriber agrees to make a Subscriber Contribution to the
extent necessary to satisfy Reorganized Company's obligations to purchase each
and every mortgage loan out of the Securitization Trusts (including accrued
interest and amounts required to be paid under the applicable Pooling and
Servicing Agreement) pursuant to the Florida Case Resolution to the extent the
funds contained in the Florida Reserve established pursuant to this Agreement
(plus any funds provided by or on behalf of the Liquidating Trust, in each case
in its sole and absolute discretion) are insufficient to satisfy such
obligations at the time such obligations are due. Subscriber also agrees that
any funds remaining in the Florida Reserve will be released to the Liquidating
Trust immediately after all obligations under the Florida Case Resolution are
satisfied. Within 30 days of making a Subscriber Contribution, Subscriber must
elect by delivering written notice to Holder of its election not to receive a
Preferred Return (the "Subscriber Election"). If no election is made, Subscriber
will be deemed to have elected to receive a Preferred Return.
7. CONDITIONS PRECEDENT TO SUBSCRIBER'S OBLIGATION TO CLOSE
Subscriber's obligation to purchase the Shares and to take the
other actions required to be taken by Subscriber at Closing is subject to the
satisfaction, at or prior to Closing, of each of the following conditions (any
of which may be waived by Subscriber, in whole or in part):
7.1 ACCURACY OF REPRESENTATIONS
All of Debtor's representations and warranties in this
Agreement (considered collectively), and each of these representations and
warranties (considered individually), must have
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been accurate in all material respects as of the date of this Agreement, and
must be accurate in all material respects as of the Closing Date as if made on
the Closing Date, without regard to any supplement to the Disclosure Schedules.
7.2 DEBTOR'S PERFORMANCE
7.2.1. All of the covenants and obligations that Debtor is
required to perform or to comply with pursuant to this
Agreement and the Asset Purchase Agreement at or prior to
Closing (considered collectively), and each of these covenants
and obligations (considered individually), must have been duly
performed and complied with in all material respects.
7.2.2. Debtor must have signed and delivered the Asset
Purchase Agreement and delivered each document and other item
required to be delivered by it pursuant to Section 2.7, and
each such document must be in the form attached to this
Agreement or otherwise in form and substance satisfactory to
Subscriber.
7.3 CONSENTS
Each of the Consents identified in Schedule 4.2.3 must have
been obtained and must be in full force and effect.
7.4 NO INJUNCTION
There must not be in effect any Legal Requirement or any
injunction or other Order that prohibits the sale of the Shares by Reorganized
Company to Subscriber.
7.5 BANKRUPTCY MATTERS
7.5.1. The Plan of Reorganization and Disclosure Statement, as
amended and supplemented (in form and substance reasonably
satisfactory to Subscriber and containing the provisions
described in Section 3.5), must have been filed with the
Bankruptcy Court and must not have been withdrawn.
7.5.2. The Confirmation Order (in form and substance
reasonably satisfactory to Subscriber and containing
satisfactory findings with regard to claims of Bankers Trust,
Norwest Bank Minnesota, National Association and MBIA
Insurance Corporation) must have been entered by the
Bankruptcy Court, must be in effect, final and unappealable,
and otherwise must not have been stayed or modified in any
material respect adverse to Subscriber or Reorganized Company.
7.5.3. The Confirmation Order, as entered by the Bankruptcy
Court, will contain a provision to the effect that the assets
and liabilities of Reorganized Company, upon
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confirmation and consummation of the Contemplated
Transactions, will be as set forth in Schedule 2.1.2.
7.5.4. The Confirmation Order will contain a provision stating
that Reorganized Company, upon confirmation and consummation
of the Contemplated Transactions, will have no liability,
contingent or otherwise, for any matter, except for the
Liabilities set forth in Schedule 2.1.2.
7.5.5. The Confirmation Order will authorize and direct
Reorganized Company to perform the obligations of the Debtor
under the Debtor Definitive Agreements.
7.5.6. The Confirmation Order will contain a provision
substantially similar to the provisions of Sections 3.5.2,
3.5.3, 3.5.4, 3.5.6 and 3.5.7.
7.6 ASSET PURCHASE
The closing of the transactions contemplated by the Asset
Purchase Agreement must have occurred.
7.7 DIP FINANCING
All amounts owed by Debtor under the DIP Financing Agreement
shall have been paid.
8. CONDITIONS PRECEDENT TO DEBTOR'S OBLIGATION TO CLOSE
Reorganized Company's obligation to sell the Shares and to
take the other actions required to be taken by Debtor at Closing is subject to
the satisfaction, at or prior to Closing, of each of the following conditions
(any of which may be waived by Debtor or Reorganized Company, in whole or in
part):
8.1 ACCURACY OF REPRESENTATIONS
All of Subscriber's representations and warranties in this
Agreement (considered collectively), and each of these representations and
warranties (considered individually), must have been accurate in all material
respects as of the date of this Agreement and must be accurate in all material
respects as of the Closing Date as if made on the Closing Date.
8.2 SUBSCRIBER'S PERFORMANCE
8.2.1. All of the covenants and obligations that Subscriber is
required to perform or to comply with pursuant to this
Agreement and the Asset Purchase Agreement at or prior to
Closing (considered collectively), and each of these covenants
and obligations
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(considered individually), must have been performed and
complied with in all material respects.
8.2.2. A Related Person with respect to Subscriber must have
signed and delivered the Asset Purchase Agreement and
delivered each of the documents and other items required to be
delivered by Subscriber pursuant to Section 2.6 and must have
made the cash payments required to be made by Subscriber
pursuant to Sections 2.6.2(a) and 2.6.2(b).
8.3 NO INJUNCTION
There must not be in effect any Legal Requirement or any
injunction or other Order that prohibits the sale of the Shares by Reorganized
Company to Subscriber.
8.4 BANKRUPTCY MATTERS
8.4.1. The Plan of Reorganization and Disclosure Statement, as
amended and supplemented, must have been filed with the
Bankruptcy Court and must not have been withdrawn.
8.4.2. The Confirmation Order must have been entered by the
Bankruptcy Court, must be in effect, and must not have been
stayed or modified in any material respect adverse to Debtor.
8.4.3. The Confirmation Order will approve all Debtor
Definitive Agreements and all Subscriber Definitive Agreements
(including, without limitation, the Asset Purchase Agreement).
8.5 ASSET PURCHASE
The closing of the transactions contemplated by the Asset
Purchase Agreement must have occurred.
9. TERMINATION
9.1 TERMINATION EVENTS
This Agreement may, by notice given prior to or at Closing, be
terminated:
(a) by either Subscriber or Debtor if a material
Breach of any provision of this Agreement has been committed
by the other party and such Breach has not been cured or
waived;
(b) by Subscriber if any of the conditions in Section
7 has not been
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satisfied as of the Closing Date or if satisfaction of such a
condition is or becomes impossible (other than through the
failure of Subscriber to comply with its obligations under
this Agreement) and Subscriber has not waived such condition
on or before the Closing Date;
(c) by Debtor, if any of the conditions in Section 8
has not been satisfied as of the Closing Date or if
satisfaction of such a condition is or becomes impossible
(other than through the failure of Debtor to comply with their
obligations under this Agreement) and Debtor has not waived
such condition on or before the Closing Date;
(d) by mutual consent of Subscriber and Debtor;
(e) by either Subscriber or Debtor if Closing has not
occurred (other than through the failure of any party seeking
to terminate this Agreement to comply fully with its
obligations under this Agreement) on or before July 31, 1999,
or such later date as the parties may agree upon;
(f) by Debtor upon the expiration of three business
days after notice is given by Debtor of its intent to accept
another offer to purchase the Company's stock or Assets,
subject to payment of the Break-Up Fee in accordance with
Section 2.8;
(g) by Subscriber if the Order described in Section
2.8.2 is not granted and Subscriber gives notice of
termination to Debtor within three business days after the
Bankruptcy Court refuses to enter the order in the form
described in Section 2.8.2;
(h) by Subscriber if a letter of intent for the sale
of Assets or Debtor's stock is signed with a party unrelated
to Subscriber and 20 days have lapsed without definitive
agreements being signed, unless Debtor has notified Subscriber
within such 20 day period that such letter of intent has been
terminated;
(i) by Subscriber if Debtor enters into a definitive
agreement for the sale of Assets or Debtor's stock to a party
unrelated to Subscriber; or
(j) this Agreement shall terminate automatically upon
any termination of the Asset Purchase Agreement, without
notice or further act. .
9.2 EFFECT OF TERMINATION
Prior to Closing, Subscriber's exclusive remedy for a Breach
by Debtor is the exercise of Subscriber's right of termination under Section 9.1
and, where applicable as set forth in Section 2.8 and the related Bankruptcy
Court Order, the collection of the Break-Up Fee; provided however, if Debtor
willfully breaches its obligations hereunder Subscriber shall be entitled to the
Break-Up Fee as permitted pursuant to the related Bankruptcy Court Order.
Debtor's right of termination under
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Section 9.1 is in addition to any other rights it may have under this Agreement
or otherwise, and the exercise of its right of termination will not be an
election of remedies and will not impair Debtor's right to pursue all legal
remedies. Except as set forth in the preceding sentence, if this Agreement is
terminated pursuant to Section 9.1, all further obligations of the parties under
this Agreement will terminate.
9.3 REVISED DISCLOSURE SCHEDULES
If Debtor has provided Subscriber with notice of a Breach
pursuant to Section 5.4, any time after the date of this Agreement through the
Closing Date, Subscriber's sole options, in its sole discretion, are to complete
Closing as scheduled notwithstanding such Breach (in which case the Breach is
deemed to have been waived) or to terminate the Agreement pursuant to Section
9.1 by the earlier of five business days from the date Subscriber learned of the
Breach or the Closing Date (but under no circumstances will Debtor be liable to
Subscriber in connection with any such Breach arising prior to Closing except
that, in the case of Debtor's willful breach, Subscriber will be entitled to the
Break-Up Fee to the extent provided in the related Order of the Bankruptcy
Court).
9.4 REINSTATEMENT
In the event Subscriber terminates this Agreement pursuant to Section
9.1(h) or 9.1(i) and the transactions set forth in the definitive agreement
described in 9.1(i) or the letter of intent described in Section 9.1(h) are not
consummated, Debtor shall immediately give Subscriber notice of such event.
Notwithstanding any other provision contained herein, for a period of 15
business days following receipt of such notice, Subscriber shall have the right
to reinstate this Agreement without amendment except (i) as may be necessary and
appropriate to reflect the passage of time and (ii) except that the date set
forth in Section 9.1(e) of July 31, 1999 will be extended 70 days.
10. GENERAL PROVISIONS
10.1 EXPENSES
Except as otherwise expressly provided in this Agreement, each
party to this Agreement will bear its respective expenses incurred in connection
with the preparation, execution, and performance of this Agreement and the
Contemplated Transactions, including all fees and expenses of its
Representatives. Debtor and the Liquidating Trust will pay all amounts payable
to Pentalpha Capital, LLC in connection with this Agreement and the Contemplated
Transactions.
10.2 NOTICES
All notices, consents, waivers, and other communications under
this Agreement must be in writing and will be deemed to have been duly given
when (a) delivered by hand, (b) sent by facsimile (with written confirmation of
receipt), or (c) when received by the addressee, if sent by a nationally
recognized overnight delivery service (receipt requested), in each case to the
appropriate addresses and facsimile numbers set forth below (or to such other
addresses and facsimile numbers
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as a party may designate by notice to the other parties):
Debtor or the Liquidating Trust:
- --------------------------------
Southern Pacific Funding Corporation
One Centerpointe Drive, Suite 551
Lake Oswego, Oregon 97035
Attention: Kevin D. Padrick
Facsimile No.: (503) 598-0662
with a copy to:
Miller, Nash, Wiener, Hager & Carlsen LLP
111 S.W. Fifth Avenue
Suite 3500
Portland, Oregon 97204
Attention: David W. Brown
Facsimile No.: (503) 224-0155
Subscriber:
- -----------
The Goldman Sachs Group, Inc.
85 Broad Street
New York, New York 10004
Attention: Marvin Kabatznick
Facsimile No.: (212) 346-3568
Attention: Jay Strauss
Facsimile No.: (212) 902-3876
with a copy to:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, New York 10038
Attention: David C.L. Frauman
Facsimile No.: (212) 504-6666
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10.3 JURISDICTION; SERVICE OF PROCESS
Any action or proceeding seeking to enforce any provision of,
or based on any right arising out of, this Agreement may be brought against any
of the parties in the courts of the State of Oregon, County of Multnomah, or, if
it has or can acquire jurisdiction, in the United States District Court or the
United States Bankruptcy Court for the District of Oregon, and each of the
parties consents to the jurisdiction of such courts (and of the appropriate
appellate courts) in any such action or proceeding and waives any objection to
venue laid therein. Process in any action or proceeding referred to in the
preceding sentence may be served on any party anywhere in the world. In
connection with any such action or proceeding, the prevailing party (whether
prevailing affirmatively or by means of a successful defense with respect to the
issues having the greatest value or importance) will be entitled to recover its
costs, including reasonable attorney fees at trial and on any appeal.
10.4 FURTHER ASSURANCES
The parties agree (a) to furnish upon request to each other
such further information, (b) to execute and deliver to each other such other
documents, and (c) to do such other acts and things, all as the other party may
reasonably request for the purpose of carrying out the intent of this Agreement
and the other agreements referred to in this Agreement.
10.5 WAIVER
Neither the failure nor any delay by any party in exercising
any right, power, or privilege under this Agreement or the documents referred to
in this Agreement will operate as a waiver of such right, power, or privilege,
and no single or partial exercise of any such right, power, or privilege will
preclude any other or further exercise of such right, power, or privilege or the
exercise of any other right, power, or privilege. To the maximum extent
permitted by applicable law, no party will be deemed to have waived any of its
rights or privileges under this Agreement or the documents referred to in this
Agreement unless the waiver is in writing and no waiver given by a party will be
applicable except in the specific instance for which it is given.
10.6 ENTIRE AGREEMENT AND MODIFICATION
The parties agree that their respective obligations under this
Agreement are deemed to arise as of the date of this Agreement. This Agreement
supersedes all prior agreements between the parties and all representations or
warranties made by the parties with respect to its subject matter and
constitutes (along with the other agreements and documents referred to in this
Agreement, including, without limitation, the Plan of Reorganization and
Confirmation Order) a complete and exclusive statement of the terms of the
agreement between the parties with respect to its subject matter. In the event
of any inconsistency between the substantive provisions of this Agreement and
the substantive provisions of the Plan of Reorganization and Confirmation Order,
the substantive provisions of Plan of Reorganization and Confirmation Order will
control. This Agreement may not be amended except by a written agreement
executed by each of the parties hereto.
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10.7 ASSIGNMENTS, SUCCESSORS, AND THIRD-PARTY RIGHTS
Neither party may assign any of its rights under this
Agreement without the prior consent of the other party, other than an assignment
of the rights of Subscriber to a wholly-owned (direct or indirect) Related
Person of Subscriber that affirms in writing that it will be bound to the
representations, warranties, and obligations of Subscriber under the Subscriber
Definitive Agreements as if it signed the Agreements as the original signatory
Subscriber (with such factual changes, such as jurisdiction of organization and
type of entity, as reasonably may be required). Subject to the preceding
sentence, the Subscriber Definitive Agreements will apply to, be binding in all
respects upon, and inure to the benefit of the successors and permitted assigns
of the parties. Nothing expressed or referred to in this Agreement will be
construed to give any Person other than the parties to this Agreement any legal
or equitable right, remedy, or claim under or with respect to this Agreement or
any provision of this Agreement. This Agreement and all of its provisions and
conditions are for the sole and exclusive benefit of the parties to this
Agreement and their successors and assigns. The Liquidating Trust is an express
beneficiary of the covenants and obligations of the parties to this Agreement.
10.8 SEVERABILITY
If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
10.9 SECTION HEADINGS; CONSTRUCTION
The headings of Sections in this Agreement are provided for
convenience only and will not affect its construction or interpretation. All
references to "Section" or "Sections" refer to the corresponding Section or
Sections of this Agreement. All words used in this Agreement will be construed
to be of such gender or number as the circumstances require. Unless otherwise
expressly provided, the word "including" does not limit the preceding words or
terms.
10.10 TIME OF ESSENCE
With regard to all dates and time periods set forth or
referred to in this Agreement, time is of the essence.
10.11 GOVERNING LAW
THIS AGREEMENT WILL BE GOVERNED BY THE LAWS OF THE STATE OF
NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
10.12 COUNTERPARTS
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This Agreement may be executed in one or more counterparts,
each of which will be deemed to be an original copy of this Agreement and all of
which, when taken together, will be deemed to constitute one and the same
agreement.
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The undersigned parties, each acting through its duly
authorized representative, have signed and delivered this Amended and Restated
Stock Subscription and Purchase Agreement as of the date first written above.
Subscriber: Debtor:
SOUTHERN PACIFIC FUNDING CORPORATION
THE GOLDMAN SACHS GROUP, INC.
By: /s/ Robert Christie By: /s/ Kevin D. Padrick
Name: Robert Christie Kevin D. Padrick
Title: Managing Director President
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APPENDIX I TO
STOCK SUBSCRIPTION AND PURCHASE AGREEMENT
DEFINED TERMS
All references in this Appendix I to Sections are references
to Sections of this Stock Subscription and Purchase Agreement unless otherwise
specified. Unless the context otherwise requires, capitalized terms used in the
Stock Subscription and Purchase Agreement, if not otherwise defined, have the
following meanings:
"ACQUISITION PROPOSAL" has the meaning given in Section 5.6.
"ADDITIONAL COVENANTS AGREEMENT" has the meaning given in
Section 2.4.1.
"ADVANCES" has the meaning given in Section 2.7.2.
"AGREEMENT" means, when referring to "this Agreement," the
Amended and Restated Stock Subscription and Purchase Agreement dated as of May
21, 1999, between Debtor and Subscriber.
"APPLICABLE PERCENTAGE" means, in the case of Asset Purchase
Cash Flows, 100% times the Factor and, in the case of Residual Cash Flows and
Out-of-Pocket Expenses, 50% times the Factor.
"ASSET CASH FLOW INSTRUMENT" has the meaning given in Section
4.1 of the Asset Purchase Agreement.
"ASSET COMPANY" means the buyer of assets identified in the
first paragraph of the Asset Purchase Agreement or any permitted assignee
thereof.
"ASSET PROCEEDS" has the meaning given in Section
2.3.1(a)(ii).
"ASSET PURCHASE AGREEMENT" or "PURCHASE AGREEMENT" means the
Amended and Restated Asset Purchase Agreement dated as of May 21, 1999, between
Debtor and Asset Company.
"ASSET PURCHASE CASH FLOWS" has the meaning given in Section
2.3.1(a)(i).
"ASSETS" has the meaning given in Schedule 2.1.2.
"ASSUMED CONTRACT", when used in this Agreement, means any
Contract entered into by the Company that is (a) included among the contracts to
be assumed by the Reorganized Company pursuant to the Plan of Reorganization and
(b) identified on Schedule 3.7.
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"BANKRUPTCY CASE" has the meaning given in the Recitals to
this Agreement.
"BANKRUPTCY CODE" means Title 11 of the United States Code.
"BANKRUPTCY COURT" has the meaning given in the Recitals to
this Agreement.
"BEST EFFORTS" means the efforts that a prudent Person who
desires to achieve a certain result would use in similar circumstances to
achieve the result as expediently as possible.
"BREAK-UP FEE" has the meaning given in Section 2.8.1.
"BREACH" means (a) any inaccuracy in or breach of, or any
failure to perform or comply with, a representation, warranty, covenant,
obligation, or other provision of this Agreement or any instrument delivered
pursuant to this Agreement, or (b) any claim (by any Person) or other occurrence
or circumstance that is or was inconsistent with a representation, warranty,
covenant, obligation, or other provision of this Agreement or any instrument
delivered pursuant to this Agreement.
"CASH-FLOW INSTRUMENT" has the meaning given in Section 2.3.1.
"CASH FLOW PERIOD" has the meaning given in Section 2.3.2.
"CASH PRICE ADJUSTMENT AMOUNT" has the meaning given in
Section 2.2.
"CLOSING" has the meaning given in Section 2.5.
"CLOSING DATE" means the date and time when Closing actually
takes place.
"COMPANY" has the meaning given in the Recitals to this
Agreement.
"COMPANY MASTER SERVICER TRUSTS" means those Securitization
Trusts for which the Company acts as master servicer prior to Closing, namely
Series 1997-4, 1998-1, 1998-2, and 1998-H1.
"COMPANY TAX ADJUSTMENT AMOUNT" means, in the event the
Reorganized Company Tax Attributes are less than $77,000,000, the Tax Adjustment
Amount; otherwise zero.
"CONFIRMATION ORDER" means the order of the Bankruptcy Court
confirming the Plan of Reorganization.
"CONSENT" means any approval, consent, ratification, waiver,
or other authorization (including any Governmental Authorization).
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"CONTEMPLATED TRANSACTIONS" means all of the transactions
contemplated by this Agreement and the Asset Purchase Agreement, including, but
not limited to:
(a) the sale of the Shares by Reorganized Company to
Subscriber;
(b) the execution, delivery, and performance of the Cash Flow
Instrument;
(c) the execution, delivery, and performance of the Settlement
Agreement;
(d) the execution, delivery, and performance of the
Liquidating Trust Agreement;
(e) the execution, delivery, and performance of the Additional
Covenants Agreement;
(f) the execution, delivery, and performance of the Asset
Purchase Agreement;
(g) the performance by Subscriber, Debtor and the Reorganized
Company of their respective covenants and obligations under this Agreement;
(h) Asset Company's acquisition of the Purchased Assets; and
(i) Subscriber's acquisition and ownership of the Shares and
assumption of control over the Reorganized Company.
"CONTRACT" means any agreement, contract, obligation, promise,
or undertaking (whether written or oral and whether express or implied) that is
legally binding.
"DEBTOR" has the meaning given in the first paragraph of this
Agreement.
"DEBTOR DEFINITIVE AGREEMENTS" means this Agreement, the
Settlement Agreement, the Liquidating Trust Agreement, the Asset Purchase
Agreement and the Additional Covenants Agreement.
"DEBTOR-IN-POSSESSION" means a debtor in a case filed under
Chapter 11 of the Bankruptcy Code that retains possession of the assets
constituting the bankruptcy estate and manages the estate for the benefit of the
debtor's creditors under the powers and supervision of the Bankruptcy Court.
"DEEMED SHORT YEAR" has the meaning given in Section 3.5.2(b).
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"DIP FINANCING AGREEMENT" means the Master Repurchase
Agreement, Annex I to such Master Repurchase Agreement, the Margin Agreement and
the related agreements, annexes and exhibits entered into between Debtor and
Goldman, Sachs & Co., pursuant to which Goldman, Sachs & Co. extended a credit
facility in the approximate initial principal amount of $33,600,000.
"DISCLOSURE SCHEDULES" means the schedules attached to this
Agreement and delivered by Debtor to Subscriber concurrently with the execution
and delivery of this Agreement.
"DISCLOSURE STATEMENT" means the disclosure statement filed in
Bankruptcy Court with respect to the Plan of Reorganization, as amended.
"DISTRIBUTION" shall have the meaning given in Section 2.3.2.
"ELIGIBLE INVESTMENTS" means the following:
(1) direct general obligations of, or obligations fully
and unconditionally guaranteed as to the timely
payment of principal and interest by, the United
States or any agency or instrumentality thereof,
provided such obligations are backed by the full
faith and credit of the United States;
(2) federal funds and certificates of deposit, time and
demand deposits and banker's acceptances issued by
any bank or trust company incorporated under the laws
of the United States or any state thereof and subject
to supervision and examination by federal or state
banking authorities, provided that at the time of
such investment or contractual commitment providing
for such investment the short-term debt obligations
of such bank or trust company at the date of
acquisition thereof have been rated in its highest
rating by a nationally recognized statistical rating
organization;
(3) commercial paper (having original maturities of not
more than 30 days) rated in its highest rating by a
nationally recognized statistical rating
organization; and
(4) investments in money market funds rated in its
highest rating by a nationally recognized statistical
rating organization.
"ENCUMBRANCE" means any charge, claim, community property
interest, condition, equitable interest, lien, option, pledge, security
interest, right of first refusal, or restriction of any kind, including any
restriction on use, voting, transfer, receipt of income, or exercise of any
other attribute of ownership.
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"FACTOR" means one, if the Subscriber Election is not made and
otherwise means (i) $38,500,000 minus the aggregate amount of any Subscriber
Contributions, divided by (ii) $38,500,000.
"FINANCING TRANSACTION" means any nonrecourse borrowing or any
borrowing with recourse solely to a bankruptcy remote special purpose entity in
respect of the Reorganized Company or the Asset Company, which borrowing is
secured by, and on which principal and/or interest payments are made primarily
from cash flows on, the related Assets or Purchased Assets and entered into
primarily for the purpose of distributing Proceeds. Financing Transaction also
includes all incremental borrowings from the reserve funds created for Trust
Series 1995-2, 1996-1, and 1996-3.
"FLORIDA CASE" means Oceanmark Bank F.S.B. v. Norwest Bank
Minnesota, N.A. and Advanta Mortgage Corp., USA, a lawsuit filed in the state of
Florida by Oceanmark Bank, F.S.B., and all related litigation in the Bankruptcy
Court.
"FLORIDA CASE RESOLUTION" has the meaning given in Section
2.3.4.
"FLORIDA RESERVE" has the meaning given in Section 2.3.4.
"GOVERNMENTAL AUTHORIZATION" means any approval, consent,
license, permit, waiver, or other authorization issued, granted, given, or
otherwise made available by or under the authority of any Governmental Body or
pursuant to any Legal Requirement.
"GOVERNMENTAL BODY" means any:
(a) nation, state, county, city, town, village,
district, or other jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or
other government;
(c) governmental or quasi-governmental authority of
any nature (including any governmental agency, branch,
department, official, or entity and any court or other
tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any
administrative, executive, judicial, legislative, police,
regulatory, or taxing authority or power of any nature.
"HEDGING GAINS" means any realized gains of the Reorganized
Company on hedging transactions.
"HEDGING LOSSES" means any realized losses of the Reorganized
Company on hedging transactions.
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"HOLDER" means the holder of the Cash-Flow Instrument.
"HOLDER-ALLOCATED EXPENSES" has the meaning given in Section
2.3.1.
"HOLDER EXPENSE LOAN" means a loan by Subscriber or a Related
Person of Subscriber to Holder solely for the purpose of funding Holder
Allocated Expenses to the extent the Reserve is insufficient; Holder Expense
Loan to bear interest at a per annum rate equal to LIBOR plus 350 basis points
(calculated on an actual 360-day basis).
"HOLDER TAX ADJUSTMENT AMOUNT" means, in the event the
Reorganized Company Tax Attributes are more than $81,000,000, the lesser of the
Tax Adjustment Amount and $1,500,000; otherwise zero.
"HSR ACT" means the Hart-Scott Rodino Antitrust Improvements
Act of 1976 or any successor law, and regulations and rules issued pursuant to
that Act or any successor law.
"IO CERTIFICATE" means each of the certificates included among
the Purchased Assets, representing subordinated interest-only REMIC regular
interests in the related Securitization Trusts (or, in the case of the Series
1998-H1 Securitization Trust, a subordinated non-REMIC equity interest).
"KNOWLEDGE" of a Person (other than an individual) exists with
respect to a particular fact or other matter if any individual who is, or was, a
director, officer, partner, executor, or trustee (or held a position of similar
status) of such Person has Knowledge of such fact or matter, and Knowledge of an
individual exists with respect to a particular fact or other matter where:
(a) the individual has actual awareness of the fact or matter;
or
(b) a prudent individual could reasonably be expected to
discover or otherwise become aware of the fact or matter in the course
of conducting a reasonably comprehensive investigation concerning the
existence of such fact or matter.
"LEGAL REQUIREMENT" means any federal, state, local,
municipal, foreign, international, multinational, or other administrative order,
constitution, law, ordinance, principle of common law, regulation, statute, or
treaty.
"LIABILITIES" has the meaning given in Section 2.1.2.
"LIBOR" means the rate for United States dollar deposits for
one month which appears on the Dow Jones Telerate Screen page 3750 (or such
other page as may replace page 3750 on that service for the purpose of
displaying London interbank offered rates of major bonds), at 11:00 a.m., London
time, on the relevant date.
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"LIQUIDATING TRUST" means the liquidating trust established
for the benefit of the Company's creditors in the Bankruptcy Case.
"LIQUIDATING TRUST AGREEMENT" means the trust agreement
establishing the Liquidating Trust by and between the Company acting for the
benefit of the respective creditors entitled to the trust assets and the trust's
initial trustees.
"MASTER SERVICING" means master loan servicing rights under
the Pooling and Servicing Agreements.
"MATERIAL DOCUMENTS" has the meaning given in Section
2.6.1(c).
"MATERIAL INTEREST" means, for purposes of the definition of
Related Person, a direct or indirect beneficial ownership (as defined in Rule
13d-3 under the Securities Exchange Act of 1934) of voting securities or other
voting interests representing at least 25% of the outstanding voting power of a
Person or equity securities or other equity interests representing at least 25%
of the outstanding equity securities or equity interests in a Person.
"ORDER" means any award, decision, injunction, judgment,
order, ruling, subpoena, or verdict entered, issued, made, or rendered by any
court, administrative agency, or other Governmental Body or by any arbitrator.
"ORDINARY COURSE OF BUSINESS" means an action taken by a
Person if:
(a) such action is consistent with the past practices
of such Person and is taken in the ordinary course of the
normal day-to-day operations of such Person;
(b) such action is not required to be authorized by
the board of directors of such Person (or by any Person or
group of Persons exercising similar authority) and is not
required to be specifically authorized by the parent company
(if any) of such Person; and
(c) such action is similar in nature, standard of
quality, and magnitude to actions customarily taken, without
any authorization by the board of directors (or by any Person
or group of Persons exercising similar authority), in the
ordinary course of the normal day-to-day operations of other
Persons that are in the same line of business as such Person.
"ORGANIZATIONAL DOCUMENTS" means (a) the articles or
certificate of incorporation and the bylaws of a corporation; (b) the
partnership agreement and any statement of partnership of a general partnership;
(c) the limited partnership agreement and the certificate of limited partnership
of a limited partnership; (d) the operating agreement and articles or
certificate of organization of a limited liability company; (e) any charter or
similar document adopted or filed in connection with the creation, formation, or
organization of a Person; and (f) any amendment to any of the foregoing.
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"OUT-OF-POCKET EXPENSES" has the meaning given in Section
2.3.3.
"PERSON" means any individual, corporation (including any
non-profit corporation), general or limited partnership, limited liability
company, joint venture, estate, trust, association, organization, labor union,
or other entity or Governmental Body.
"PLAN OF REORGANIZATION" is the plan of reorganization filed
by the Company in the Bankruptcy Case, as may be amended or supplemented.
"POOLING AND SERVICING AGREEMENTS" means the Pooling and
Servicing Agreements (or the Trust Agreement and Indenture and Servicing
Agreement with respect to the Series 1998-H1 Securitization Trust) entered into
by the Company (or one of its Subsidiaries) with respect to each of the
securitization transactions engaged in by the Company (or one of its
Subsidiaries) between 1995 and 1998.
"PREFERRED RETURN" means, after a Subscriber Contribution
shall have been made and unless the Subscriber elects not to receive a Preferred
Return, the return of cash in an amount equal to the Subscriber Contribution
plus 15% per annum of the unpaid balance of the Subscriber Contribution until
the Subscriber Contribution shall have been returned in full.
"PREPETITION TAX LIABILITIES" means the Tax liabilities of
Company arising prior to October 1, 1998.
"PROCEEDING" means any action, arbitration, audit, case,
hearing, investigation, litigation, or suit (whether civil, criminal,
administrative, investigative, or informal) commenced, brought, conducted, or
heard by or before, or otherwise involving, any Governmental Body or arbitrator.
"PROCEEDS" means the cash amount realized from an arms-length
sale, transfer or Financing Transaction, net of direct Out-of-Pocket Expenses.
"PURCHASE AGREEMENT" or "ASSET PURCHASE AGREEMENT" means the
Asset Purchase Agreement dated as of May 5, 1999, between Debtor and Asset
Company.
"PURCHASE PRICE", has the meaning given in Section 2.2.
"PURCHASED ASSETS" has the meaning given in Section 2.1 of the
Asset Purchase Agreement.
"RELATED PERSON" means, with respect to a specified Person
other than an individual:
(a) any Person that directly or indirectly controls,
is directly or indirectly controlled by, or is directly or
indirectly under common control with such specified
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<PAGE>
Person;
(b) any Person that holds a Material Interest in such
specified Person;
(c) each Person that serves as a director, officer,
partner, executor, or trustee of such specified Person (or in
a similar capacity), and each Person who is married to,
resides with, or related within the second degree to any such
director, officer, partner, executor, trustee, or Person in a
similar capacity;
(d) any Person in which such specified Person holds a
Material Interest;
(e) any Person with respect to which such specified
Person serves as a general partner or a trustee (or in a
similar capacity); and
(f) any Related Person of any individual described in
clause (b) or (c).
"RELATED PERSON EXPENSES" has the meaning given in Section
2.3.3(b)(iv).
"REMIC" means a real estate mortgage investment conduit within
the meaning of Section 860D of the Internal Revenue Code of 1986, as amended.
"REO" means real estate held for sale by the Company as master
servicer for the Company Master Servicer Trusts for the benefit of the related
Securitization Trust.
"REORGANIZED COMPANY" has the meaning given in the Recitals to
this Agreement.
"REORGANIZED COMPANY TAX ATTRIBUTES" means the sum of the
Reorganized Company's net operating losses plus the excess of the tax basis of
its assets over their fair market value in the agreed amount of $79,000,000, to
be calculated as of the end of the Short Year or Deemed Short Year as: (a) total
capital contributed by the Company's shareholders, (b) minus any distributions
to Company shareholders or other payments that were not deductible or for which
the Company did not receive full basis for federal income tax purposes, (c) plus
retained after-tax income for the period prior to the Company's initial public
offering as reported for federal income tax purposes, and (d) plus the Company's
excess inclusion income for federal income tax purposes for the taxable periods
after the Company's initial public offering through Closing less Taxes paid, as
such amount may be adjusted on any Tax Attribute Determination Date.
"REPRESENTATIVE" means, with respect to a particular Person,
any director, officer, employee, agent, consultant, advisor, or other
representative of such Person, including legal counsel, accountants, and
financial advisors.
"REQUIRED CAPITAL CONTRIBUTIONS" has the meaning given in
Section 2.3.7.
"RESERVE" means a funded account equal to an amount reasonably
calculated by
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Subscriber to be sufficient to cover any Out-of Pocket Expenses estimated to
occur during the following twelve months, but in no event more than $100,000.
"RESIDUAL CASH FLOWS" has the meaning given in Section
2.3.1(a)(ii).
"RESIDUAL CERTIFICATE" means each of the certificates included
among the Assets, representing the REMIC residual interests in certain
Securitization Trusts.
"SECURITIES ACT" means the Securities Act of 1933 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"SECURITIZATION TRUST" means the trusts into which pools of
mortgage loans were deposited pursuant to the 13 securitization transactions
entered into by the Company (or one of its Subsidiaries) between 1995 and 1998
and which in turn issued various classes of mortgage securities representing
interests in, or in the case of the Series 1998-H1 Securitization Trust, secured
by, the trust assets.
"SERIES 1998-H1" means the Series 1998-H1 Securitization Trust
and related Master Servicing, Servicing Agreement, IO Certificates and equity
interest certificates, and rights to receive prepayment penalty income with
respect to such trust.
"SETTLEMENT AGREEMENT" has the meaning given in Section
2.6.1(e).
"SHARES" has the meaning given in the Recitals to this
Agreement.
"SHORT YEAR" has the meaning given in Section 3.5.2(a).
"SHORT-YEAR INCOME" has the meaning given in Section 3.5.2(a).
"SHORT-YEAR RETURNS" has the meaning given in Section
3.5.3(a).
"SHORT-YEAR TAX" has the meaning given in Section 3.5.2(a).
"SUBSCRIBER" has the meaning given in the first paragraph of
this Agreement.
"SUBSCRIBER'S ADVISORS" has the meaning given in Section 5.1.
"SUBSCRIBER CONTRIBUTION" means the amount of any funds
contributed to the Reorganized Company by Subscriber in order to purchase
mortgage loans out of certain Securitization Trusts (including accrued interest
and other amounts required to be paid under the applicable Pooling and Servicing
Agreements) with respect to loans pursuant to the resolution of the Florida Case
if the amount of the Florida Reserve is insufficient to make all of the required
purchases.
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<PAGE>
"SUBSCRIBER DEFINITIVE AGREEMENTS" means this Agreement, the
Asset Purchase Agreement, Additional Covenants Agreement, the Settlement
Agreement, the Cash-Flow Instrument, the [Asset Purchase Agreement Cash-Flow
Instrument], the Subservicing Agreement, and the Guarantee.
"SUBSCRIBER ELECTION" has the meaning given in Section 6.4.
"SUBSERVICING AGREEMENT" has the meaning given in Section 2.7.
"SUBSIDIARY" means, with respect to any Person (the "Owner"),
any corporation or other Person of which the Owner or one or more of its
Subsidiaries holds securities or other interests having the power to elect a
majority of that Person's board of directors or similar governing body, or
otherwise having the power to direct that Person's business and policies (other
than securities or other interests having such power only upon the happening of
a contingency that has not occurred).
"TAX" and "TAXES" mean all taxes, levies, imposts, duties,
charges or withholdings, together with any penalties, fines or interest thereon
or other additions thereto imposed by any Governmental Body.
"TAX ADJUSTMENT AMOUNT" means the amount calculated as of a
Tax Attribute Determination Date in accordance with the following formula
(without duplication of adjustments made on any earlier Tax Attribute
Determination Date), plus interest accrued at a per annum rate of 10 percent
from the Closing Date paid:
If Reorganized Company Tax Attributes exceed $81
million, the Tax Adjustment Amount shall be 15.19 percent of
such excess. If Reorganized Tax Attributes are less than $77
million, the Tax Adjustment Amount shall be 15.19 percent of
such shortfall.
"TAX ATTRIBUTE DETERMINATION DATE" is a date on which the
expected Reorganized Company Tax Attributes are determined to be different than
$79,000,000 as a result of (a) a final determination by or settlement with the
Internal Revenue Service, (b) a mutual determination of the Liquidating Trust
and Subscriber, or (c) the issuance of a written opinion from the Tax Expert
with respect to those elements of Reorganized Company Tax Attributes not
determined by the procedures set forth in clause (a) or (b).
"TAX EXPERT" has the meaning given in Section 3.5.7.
"TAX RETURN" means any return (including any information
return), report, statement, schedule, notice, form, or other document or
information filed with or submitted to, or required to be filed with or
submitted to, any Governmental Body in connection with the determination,
assessment, collection, or payment of any Tax or in connection with the
administration, implementation, or enforcement of or compliance with any Legal
Requirement relating to any Tax.
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<PAGE>
"THIRD PARTY" means a Person that is neither the Subscriber
nor any Related Person of Subscriber.
"THREATENED" means a demand or statement has been made (orally
or in writing) or a notice has been given (orally or in writing), or another
event has occurred or other circumstances exist, that would lead a prudent
Person to conclude that a claim, Proceeding, dispute, action, or other matter is
likely to be asserted, commenced, taken, or otherwise pursued in the future.
"TOTAL CASH FLOWS" has the meaning given in Section 2.3.1(a).
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OMITTED SCHEDULES AND EXHIBITS
Exhibit 2.6.1(h) Opinions of Counsel to be Delivered by Debtor
Schedule 3.1.1 Exceptions to Licenses, Permits and Approvals
Schedule 3.5.1 Tax Returns
Schedule 3.6 Governmental Authorizations
Schedule 3.7 Assumed Contracts
Schedule 3.8 Mortgage Loan Litigation
Southern Pacific Funding corporation will furnish supplementally to the
Securities and Exchange Commission a copy of any omitted schedule upon request.
<PAGE>
SCHEDULE 2.1.2
ASSETS AND LIABILITIES
The Assets and Liabilities are all of the assets and liabilities of the
Reorganized Company as of the Closing Date, and consist of the following:
ASSETS
- ------
Residual Certificates, namely:
Series 1995-1, Class R (61.27%)
Series 1995-2, Classes R-I (18.26%) and R-II
Series 1996-1, Class R
Series 1996-2, Class R
Series 1996-3, Class R
Series 1996-4, Class R
Series 1997-1, Classes R-I and R-II
Series 1997-2, Classes R-I, R-II, and R-III
Series 1997-3, Classes R-I and R-II
Series 1997-4, Classes R-I and R-II
Series 1998-1, Classes R-I and R-II
Series 1998-2, Classes R-I and R-II
Servicing Rights for the following Securitization Trusts (master servicing
rights for Series 1995-1, 1996-1, 1996-2, 1996-3, 1996-4, 1997-1, 1997-2 and
1997-3 are held by Advanta Mortgage Corp., U.S.A.):
Series 1995-1
Series 1996-1
Series 1996-2
Series 1996-3
Series 1996-4
Series 1997-1
Series 1997-2
Series 1997-3
Series 1997-4
Series 1998-1
Series 1998-2
Series 1998-H1
but in each case excluding all rights to servicer advances and all rights with
respect to Mortgage Loans not remaining in any Securitization Trust on the
Closing Date.
<PAGE>
ASSETS CON'T.
- -------------
All of the rights Company has under the Pooling and Servicing Agreements (in any
capacity) with respect to the following Securitization Trusts, including where
applicable, without limitation, (a) the call rights to purchase mortgage loans
from certain Securitization Trusts when the principal balance of the related
mortgage loans is less than 10% of the aggregate principal balances of the
related mortgage loans on the cut-off date established pursuant to the related
Pooling and Servicing Agreement, (b) the rights to purchase loans out of the
Securitization Trusts in certain circumstances and (c) the mortgage loans and
other proceeds of the exercise of the call rights or subsequent sale of mortgage
loans:
Series 1995-1
Series 1995-2
Series 1996-1
Series 1996-2
Series 1996-3
Series 1996-4
Series 1997-1
Series 1997-2
Series 1997-3
Series 1997-4
Series 1998-1
Series 1998-2
The rights Company has (in any capacity) under the Servicing Agreement for the
Series 1998-H1 Securitization Trust to purchase mortgage loans out of the
Securitization Trust in certain circumstances.
All of the rights Company has under the Assumed Contracts listed in Schedule
3.7.
All of the Company's rights to borrow funds from the reserve accounts associated
with the Series 1995-2, 1996-1, and 1996-3 Securitization Trusts in exchange for
the issuance of Company notes to Bankers Trust, as trustee of such
Securitization Trusts.
Servicing Platform equipment, furniture, improvements and software located in
Santa Rosa, California (leasehold interest) if and only if Subscriber has
notified Debtor by May 31, 1999 and the parties have reached an agreement
acceptable to them before Closing providing the terms and conditions of such
transfer, including price and assumption of liabilities.
Capital stock of Southern Pacific Secured Asset Corp., a special purpose
subsidiary of debtor, including its shelf registration statement, if and only if
Subscriber has notified Debtor by May 31, 1999, and the parties have reached an
agreement acceptable to them by June 8, 1999 providing the terms and conditions
of such transfer, including price.
All of the Company's licenses to service mortgage loans.
<PAGE>
LIABILITIES
Cash Flow Instrument, dated as of June --, 1999, issued by the Company pursuant
to its Plan of Reorganization.
Liabilities of the Reorganized Company under the Settlement Agreement.
Liability to repay the promissory notes issued to the Company to Bankers Trust
as trustee of the reserve accounts associated with the Series 1995-2, 1996-1,
and 1996-3 Securitization Trusts (the funds of which may be invested in the
Company's short-term debt obligations.
Liabilities of the Company under the Assumed Contracts listed
on Schedule 3.7.
<PAGE>
EXHIBIT 2.3.1
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE. NEITHER THIS
CERTIFICATE NOR ANY INTEREST HEREIN MAY BE OFFERED FOR SALE, SOLD OR OTHERWISE
TRANSFERRED UNLESS THE PROSPECTIVE TRANSFEREE PROVIDES THE COMPANY WITH AN
OPINION OF COUNSEL (WHICH SHALL NOT BE AT THE EXPENSE OF THE COMPANY)
SATISFACTORY TO THE COMPANY IN ITS SOLE JUDGMENT THAT SUCH TRANSFER IS BEING
MADE EITHER PURSUANT TO A REGISTRATION STATEMENT THAT HAS BECOME EFFECTIVE UNDER
THE ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT, AND EITHER
DOES NOT REQUIRE REGISTRATION OR QUALIFICATION UNDER ANY STATE SECURITIES LAWS,
OR HAS BEEN SO REGISTERED OR QUALIFIED. THE OPINION SHALL ALSO STATE THAT AS A
RESULT OF SUCH TRANSFER, THE COMPANY IS UNDER NO OBLIGATION TO REGISTER UNDER
THE SECURITIES ACT OF 1934, AS AMENDED, THE INVESTMENT COMPANY ACT OF 1940 OR
ANY OTHER FEDERAL OR STATE SECURITIES LAW.
CASH FLOW INSTRUMENT
NEW YORK, NEW YORK
-------, 1999
FOR VALUE RECEIVED, the undersigned, SOUTHERN PACIFIC FUNDING
CORPORATION ("Company"), a California corporation having its principal place of
business at -----------------------------, promises to pay to the order of SPFC
LIQUIDATING TRUST ("Holder") at ------------------------------------- the
amounts as provided herein.
This Cash Flow Instrument (the "Instrument") evidences an obligation
incurred pursuant to the Amended Plan of Reorganization (the "Plan") dated May
- ---, 1999, of Southern Pacific Funding Corporation acting in its capacity as
Debtor-in-Possession in its bankruptcy case filed under Chapter 11 of the United
States Bankruptcy Code in the United States Bankruptcy Court for the District of
Oregon (the "Bankruptcy Case").
Capitalized terms used in this Instrument and not otherwise defined
have the meanings given in Appendix I hereto, which is incorporated into this
Instrument by reference.
This Instrument represents a general obligation of Company, payable
from any available funds.
1. DISTRIBUTIONS
1.1 Subject to the payment provisions of Section 2.2, Company shall
make periodic payments to the Holder of the following:
<PAGE>
(a) the sum (without duplication) of:
(i) the Applicable Percentage (initially 100 percent) of all
pre-tax cash flows and other amounts, if any, paid or
payable in respect of the Asset Cash Flow Instrument (the
"Asset Purchase Cash Flows"); and
(ii) the Applicable Percentage (initially 50 percent) of each
of the following (referred to collectively before
application of the Applicable Percentage as the "Residual
Cash Flows") with respect to the Assets:
(A) the aggregate of all pre-tax cash flows from each
of the Assets until a sale (or transfer) or
Financing Transaction with respect to the related
Asset, it being agreed that the cash flows will
continue to be payable to Holder after any sale or
transfer to a Related Person of Subscriber (other
than a sale or transfer to a Related Person of
Subscriber for the sole purpose of facilitating a
Financing Transaction) or pursuant to a transaction
that has not been found by the board of directors
of the Company to be an arms-length transaction;
plus
(B) all pre-tax Proceeds from any sales or transfers of
any Asset or portion of an Asset; plus
(C) all pre-tax Proceeds from any Financing Transaction
entered into by the Company with respect to any of
the Assets and all Hedging Gains;
(the Applicable Percentage of Asset Purchase Cash Flows plus the
Applicable Percentage of Residual Cash Flows are the "Total Cash
Flows");
(b) minus the Applicable Percentage (initially 50 percent) of
otherwise unreimbursed Out-of-Pocket Expenses incurred by the
Company (such amounts, the "Holder-Allocated Expenses"); plus
(c) any Holder Tax Adjustment Amount.
1.2 The periodic payment (each a "Distribution") to be made with
respect to this Instrument each month for a period commencing on the fifth day
of a calendar month and ending on the fourth day of the next calendar month,
commencing with ------------- (each such month, a "Cash Flow Period") will equal
(i) the sum of (a) Total Cash Flows received by Company during such Cash Flow
Period (or from ---------, 1999, through the last day of the first Cash Flow
Period in the case of the first Distribution), plus (b) any previously unpaid
Holder Tax Adjustment Amount, minus (ii) Holder-Allocated Expenses not
previously applied in reduction of Total Cash Flows.
2
<PAGE>
2. OUT-OF-POCKET EXPENSES
2.1.1 Out-of-Pocket Expenses means direct, Third Party
out-of-pocket expenses reasonably incurred by the Company or by
Subscriber or a Related Person of Subscriber directly on behalf of the
Company with respect to the Assets not otherwise reimbursable from a
third party and directly related to the ownership, servicing (including
without limitation, any transfer of servicing, engagement of
sub-servicers, or financing of corporate (i.e., non-principal and
interest) servicer advances), maintenance, collection from, realization
of value from, evaluation of, protection, financing and sale of Assets,
all in the Ordinary Course of Business or with respect to a sale or
Financing Transaction.
2.1.2 For purposes of servicing fees as described in Section
2.1.1. (including primary and special servicing), Out-of-Pocket
Expenses means 35 basis points (except with respect to Securitization
Trust 1998-H1, for which Out-of-Pocket Expenses means 75 basis points),
together with ancillary fees and investment income on collection
accounts.
2.1.3 Notwithstanding Section 2.1.1, Out-of-Pocket Expenses
specifically include:
(i) Hedging Losses and carrying costs of hedging
transactions;
(ii) transfer fees or other costs charged by the existing
servicer or sub-servicer in connection with the transfer
of servicing operations;
(iii) principal and interest repaid on any Financing
Transaction;
(iv) fees and expenses incurred with respect to Subscriber or
a Related Person of Subscriber in connection with a sale
or Financing Transaction, but only to the extent such
fees are consistent with market rates and industry
standards and are approved by the Holder, which approval
shall not be unreasonably withheld ("Related Person
Expenses"). Related Person Expenses shall be deemed to be
approved if not objected to within 21 days after Holder
receives a detailed report from the Company together with
a request for approval;
(v) expenses incurred with respect to the Liabilities of the
Company;
(vi) any otherwise reimbursable Third Party expense that the
Company has determined to be uncollectible; and
(vii) the payments, if any, made by the Company with respect to
severance payments to employees of the Liquidating Trust.
2.1.4 Notwithstanding Section 2.1.1, Out-of-Pocket Expenses
specifically exclude:
3
<PAGE>
(i) amounts payable by Company to the Reserve pursuant to
this Instrument;
(ii) any management fees with respect to the Assets; and
(iii) overhead, salaries and similar expenses of Subscriber or
any Related Person of Subscriber, except as permitted
pursuant to clause (iv) above.
2.2 Amounts payable as Distributions from Asset Purchase Cash Flows and
Residual Cash Flows shall be applied in the following order:
(i) first, to payment to Subscriber of any unpaid Preferred
Return;
(ii) second, to the payment to Subscriber on behalf of the
Company of any unpaid Company Tax Adjustment Amount;
(iii)
third, to the payment of principal and interest on Holder
Expense Loans;
(iv) fourth, to the funding of the Florida Reserve, if still
applicable;
(v) fifth, to the funding of Holder's share (i.e., 50 percent
times the Factor) of the Reserve; and
(vi) finally, to Holder, in accordance with the payment
instructions set forth in Section 8.
2.3 The Distribution for a particular month will be paid on or before
the third business day following the end of the related Cash Flow Period,
provided that if the amount to be paid to Holder is less than $100,000, the
Company may defer payment (at its option) until the following month (or such
later time as the amount to be paid equals or exceeds $100,000).
2.4 Company agrees to make monthly deposits of its share of the Reserve
(i.e., 100 percent minus Holder's share of the Reserve), which amounts shall not
constitute an Out-of-Pocket Expense.
2.5 Company may not sell or transfer any interest in and will not
engage in a Financing Transaction with respect to the Asset Cash Flow
Instrument.
3. OBLIGATIONS ABSOLUTE
The obligations of Company to pay Distributions under this Instrument
(in accordance with its terms) shall be absolute and unconditional and shall not
be subject to any abatement, reduction, set-off, defense (other than the defense
that the amount due has been paid), counterclaim or recoupment ("Abatements")
for any reason whatsoever, including without limitation, Abatements due
4
<PAGE>
to any present or future claims of Company against Holder under this Instrument
or otherwise, or against any other Person for whatever reason.
It is the express intention of Company and Holder that all
Distributions are, and shall continue to be, payable in all events unless the
obligation to pay such Distributions is terminated pursuant to the express
provisions of this Instrument.
4. CERTIFICATES
This Instrument shall be evidenced by one or more certificates (each a
"Certificate") issued in fully-registered definitive form. Each Certificate
shall set forth on its face the percentage interest that it evidences (its
"Percentage Interest") in the amount of each Distribution to be made to Holders.
The aggregate Percentage Interest of the Certificates shall at all times equal
100%. The Company shall distribute to the Holders, in accordance with their
respective Percentage Interests as reflected in the Certificates, all
Distributions with respect to this Instrument. The Certificates shall be
executed by manual or facsimile signature on behalf of Company by the president
or any vice president and the secretary or any assistant secretary thereof.
Certificates bearing the manual or facsimile signatures of individuals who were
at any time the proper officers of Company shall bind Company notwithstanding
that such individuals or any of them have ceased to hold such offices prior to
the authentication and delivery of such Certificates or did not hold such
offices at the date of such Certificates. No Certificate shall be entitled to
any benefit under this Instrument, or be valid for any purpose, unless manually
countersigned by the president, any vice president, the secretary or any
assistant secretary of Company. All Certificates shall be dated the date of
their countersignature.
5. REGISTRATION; TRANSFER
Company shall cause to be kept at its principal office a certificate
register (the "Certificate Register") in which the Company shall provide for the
registration of Certificates and of transfers and exchanges of Certificates as
herein provided. Company shall register Certificates and transfers and exchanges
of Certificates as herein provided. Upon surrender for registration of transfer
of any Certificate to Company (and subject to the provisions of this Instrument)
Company shall execute, and shall date, countersign and deliver, in the name of
the designated transferee or transferees, one or more new Certificates of a like
aggregate Percentage Interest.
At the option of any Holder, Certificates may be exchanged for other
Certificates of a like aggregate Percentage Interest upon surrender of the
Certificates to be exchanged to the Company. Whenever any Certificates are so
surrendered for exchange, the Company shall execute, and shall date, countersign
and deliver, the Certificates which the Holder making the exchange is entitled
to receive. Every Certificate presented or surrendered for transfer or exchange
shall (if so required by the Company) be duly endorsed by, or be accompanied by
a written instrument of transfer in form satisfactory to the Company, duly
executed by the Holder thereof or his attorney duly authorized in writing.
5
<PAGE>
No service charge shall be made for any transfer or exchange of
Certificates, but the Company may require payment of a sum sufficient to cover
any tax or governmental charge that may be imposed in connection with any
transfer or exchange of Certificates.
All Certificates surrendered for transfer and exchange shall be
canceled by Company.
No transfer of a Certificate or any interest therein shall be made
unless the prospective transferee provides Company with an opinion of counsel
(which shall not be at the expense of Company) satisfactory to Company in its
sole judgment that such transfer is being made either pursuant to a registration
statement that has become effective under the Securities Act or pursuant to an
exemption from registration under the Act, and either does not require
registration or qualification under any State securities laws, or has been so
registered or qualified. The opinion shall also state that as a result of such
transfer, the Company is under no obligation to register under the Securities
Act of 1934, as amended, the Investment Company Act of 1940 or any other federal
or state securities law. The Certificates shall bear a legend referring to the
foregoing restrictions contained in this paragraph.
Prior to the due presentation of a Certificate for registration of
transfer, the Company and any agent of the Company may treat the Person in whose
name any Certificate is registered as the owner of such Certificate for the
purpose of receiving Distributions, and for all other purposes whatsoever, and
neither the Company nor any agent of Company shall be affected by notice to the
contrary. All Distributions shall be made to Holders of record on the last day
of the month preceding the month in which made.
6. MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES
If (i) any mutilated Certificate is surrendered to the Company, or the
Company receives evidence to its satisfaction of the destruction, loss or theft
of any Certificate, and (ii) there is delivered to the Company such security or
indemnity as may be required by it to hold it harmless, then, in the absence of
notice to the Company that such Certificate has been acquired by a bona fide
purchaser, the Company shall execute and countersign and deliver, in exchange
for or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a
new Certificate of like tenor and Percentage Interest. Upon the issuance of any
new Certificate under this Section, the Company may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto and any other expense (including the fees and expenses of the
Company) in connection therewith. Any duplicate Certificate issued pursuant to
this paragraph shall constitute complete and indefeasible evidence of the
corresponding Percentage Interest in Distributions, as if originally issued,
whether or not the lost, stolen, or destroyed Certificate shall be found at any
time.
6
<PAGE>
7. NOTICES TO HOLDERS; ACTION
Whenever notice or other communication to the Holders is required under
this Instrument, the Company shall mail all such notices and communications
specified herein to Holders as set forth in the Company's books and records.
Any action required or permitted to be taken under this Instrument by
the Holder of the Cash Flow Instrument may be taken only by the Holders of 51%
(fifty-one percent) or more of the aggregate Percentage Interests.
8. PAYMENT INSTRUCTIONS
Company will pay the Distribution for each Cash Flow Period by wire
transfer to:
NAME ------------------------------
BANK ------------------------------
BRANCH ----------------------------
ACCT. -----------------------------
Special Instructions:
9. REMEDIES
Company and all others who may become liable for the payment of all or
any part of the obligations hereunder do hereby severally waive presentment and
demand for payment, notice of dishonor, protest and notice of protest and
non-payment and all other notices of any kind, except for notices expressly
provided for in this Instrument.
Upon the occurrence and during the continuance of any breach by Company
of any of its obligations hereunder, Holder shall have all remedies available to
Holder at law or in equity, including, without limitation of any other remedies,
the right to specifically enforce any of the obligations or duties owing by
Company or any other person and the right to also bring an action for money
damages.
10. VENUE; ATTORNEY FEES; GOVERNING LAW
In any action or proceeding seeking to enforce any provision of, or
based on any right arising out of, this Instrument may be brought against any of
the parties in the courts of the State of Oregon, County of Multnomah, and each
of the parties consents to the jurisdiction of such court (and of the
appropriate appellate court) in any such action or proceeding and waives any
objection to venue laid therein. Process in any action or proceeding referred to
in the preceding sentence may be served on any party anywhere in the world. In
connection with any such action or proceeding, the prevailing party will be
entitled to recover its costs, including reasonable attorney fees at trial and
on any appeal.
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THIS INSTRUMENT, AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER, SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF
CONFLICT OF LAWS.
SOUTHERN PACIFIC FUNDING CORPORATION
By: --------------------------------
Title: -----------------------------
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APPENDIX I TO
CASH FLOW INSTRUMENT
DEFINED TERMS
Unless the context otherwise requires, capitalized terms used
in the Cash Flow Instrument, if not otherwise defined, have the following
meanings:
"APPLICABLE PERCENTAGE" means, in the case of Asset Purchase
Cash Flows, 100% times the Factor and, in the case of Residual Cash Flows and
Out-of-Pocket Expenses, 50% times the Factor.
"ASSET CASH FLOW INSTRUMENT" means the Asset Cash Flow
Instrument issued by Asset Company to Company and dated June , 1999.
"ASSET COMPANY" means Goldman, Sachs & Co., a Delaware limited
partnership, or its permitted assignees.
"ASSETS" means the assets and interests set forth on the
Schedule of Assets.
"ASSUMED CONTRACTS" means any contract entered into by the
Company that is (a) included among the contracts to be assumed by the Company
upon the effective date of the Plan of Reorganization and (b) identified on
Schedule of Assumed Contracts.
"BANKRUPTCY CODE" means Title 11 of the United States Code.
"BANKRUPTCY COURT" means the United States Bankruptcy Court
for the District of Oregon or such other court or adjunct thereof that exercises
jurisdiction over the Bankruptcy Case.
"COMPANY TAX ADJUSTMENT AMOUNT" means, in the event the
Reorganized Company Tax Attributes are less than $77,000,000, the Tax Adjustment
Amount; otherwise zero.
"DEBTOR-IN-POSSESSION" means a debtor in a case filed under
Chapter 11 of the Bankruptcy Code that retains possession of the assets
constituting the bankruptcy estate and manages the estate for the benefit of the
debtor's creditors under the powers and supervision of the Bankruptcy Court.
"ELIGIBLE INVESTMENTS" means the following:
(1) direct general obligations of, or obligations fully
and unconditionally guaranteed as to the timely
payment of principal and interest by, the United
States or any agency or instrumentality thereof,
provided such obligations are backed by the full
faith and credit of the United States;
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(2) federal funds and certificates of deposit, time and
demand deposits and banker's acceptances issued by
any bank or trust company incorporated under the laws
of the United States or any state thereof and subject
to supervision and examination by federal or state
banking authorities, provided that at the time of
such investment or contractual commitment providing
for such investment the short-term debt obligations
of such bank or trust company at the date of
acquisition thereof have been rated in its highest
rating by a nationally recognized statistical rating
organization;
(3) commercial paper (having original maturities of not
more than 30 days) rated in its highest rating by a
nationally recognized statistical rating
organization; and
(4) investments in money market funds rated in its
highest rating by a nationally recognized statistical
rating organization.
"FACTOR" means one, if the Subscriber Election is not made and
otherwise means (i) $38,500,000 minus the aggregate amount of any Subscriber
Contributions, divided by (ii) $38,500,000.
"FINANCING TRANSACTION" means any nonrecourse borrowing or any
borrowing with recourse solely to a bankruptcy remote special purpose entity in
respect of the Company or the Asset Company, which borrowing is secured by, and
on which principal and/or interest payments are made primarily from cash flows
on, the related Assets and entered into primarily for the purpose of
distributing Proceeds. Financing Transaction also includes an incremental
borrowings from the reserve funds created for Trust Series 1995-2, 1996-1 and
1996-3.
"FLORIDA CASE" means Oceanmark Bank F.S.B. v. Norwest Bank
Minnesota, N.A. and Advanta Mortgage Corp., USA, a lawsuit filed in the state of
Florida by Oceanmark Bank, F.S.B., and all related litigation in the Bankruptcy
Court.
"GOVERNMENTAL BODY" means any:
(a) nation, state, county, city, town, village,
district, or other jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or other
government;
(c) governmental or quasi-governmental authority of any
nature (including any governmental agency, branch, department,
official, or entity and any court or other tribunal);
(d) multi-national organization or body; or
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(e) body exercising, or entitled to exercise, any
administrative, executive, judicial, legislative, police,
regulatory, or taxing authority or power of any nature.
"HEDGING GAINS" means any realized gains of the Company on
hedging transactions.
"HEDGING LOSSES" means any realized losses of the Company on
hedging transactions.
"HOLDER EXPENSE LOANS" means a loan by Subservicer or a
Related Person of Subscriber to Holder solely for the purpose of funding Holder
allocated Expenses to the extent the Reserve is insufficient; Holder Expense
Loans to bear interest at a per annum rate equal to LIBOR plus 350 basis points
(calculated on an actual 360-day basis).
"HOLDER TAX ADJUSTMENT AMOUNT" means, in the event the
Reorganized Company Tax Attributes are more than $81,000,000, the lesser of the
Tax Adjustment Amount and $1,500,000; otherwise zero.
"KNOWLEDGE" of a Person (other than an individual) exists with
respect to a particular fact or other matter if any individual who is, or was, a
director, officer, partner, executor, or trustee (or held a position of similar
status) of such Person has Knowledge of such fact or matter, and Knowledge of an
individual exists with respect to a particular fact or other matter where:
(a) the individual has actual awareness of the fact or
matter; or
(b) a prudent individual could reasonably be expected to
discover or otherwise become aware of the fact or matter in
the course of conducting a reasonably comprehensive
investigation concerning the existence of such fact or matter.
"LIABILITIES" means the liabilities set forth on the Schedule
of Liabilities.
"LIBOR" means the rate for United States dollar deposits for
one month which appears on the Dow Jones Telerate Screen page 3750 (or such
other page as may replace page 3750 on that service for the purpose of
displaying London interbank offered rates of major bonds), at 11:00 a.m. London
time, on the relevant date.
"LIQUIDATING TRUST" means the liquidating trust established
for the benefit of the Company's creditors in the Bankruptcy Case.
"MATERIAL INTEREST" means, for purposes of the definition of
Related Person, a direct or indirect beneficial ownership (as defined in Rule
13d-3 under the Securities Exchange Act of 1934) of voting securities or other
voting interests representing at least 25% of the outstanding voting power of a
Person or equity securities or other equity interests representing at least 25%
of the outstanding equity securities or equity interests in a Person.
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"ORDER" means any award, decision, injunction, judgment,
order, ruling, subpoena, or verdict entered, issued, made, or rendered by any
court, administrative agency, or other Governmental Body or by any arbitrator.
"ORDINARY COURSE OF BUSINESS" means an action taken by a
Person if:
(a) such action is consistent with the past practices of
such Person and is taken in the ordinary course of the normal
day-to-day operations of such Person;
(b) such action is not required to be authorized by the
board of directors of such Person (or by any Person or group
of Persons exercising similar authority) and is not required
to be specifically authorized by the parent company (if any)
of such Person; and
(c) such action is similar in nature, standard of
quality, and magnitude to actions customarily taken, without
any authorization by the board of directors (or by any Person
or group of Persons exercising similar authority), in the
ordinary course of the normal day-to-day operations of other
Persons that are in the same line of business as such Person.
"ORGANIZATIONAL DOCUMENTS" means: (a) the articles or
certificate of incorporation and the bylaws of a corporation; (b) the
partnership agreement and any statement of partnership of a general partnership;
(c) the limited partnership agreement and the certificate of limited partnership
of a limited partnership; (d) the operating agreement and articles or
certificate of organization of a limited liability company; (e) any charter or
similar document adopted or filed in connection with the creation, formation, or
organization of a Person; and (f) any amendment to any of the foregoing.
"PERSON" means any individual, corporation (including any
non-profit corporation), general or limited partnership, limited liability
company, joint venture, estate, trust, association, organization, labor union,
or other entity or Governmental Body.
"PLAN OF REORGANIZATION" is the plan of reorganization filed
by the Company in the Bankruptcy Case, as may be amended or supplemented.
"POOLING AND SERVICING AGREEMENTS" means the Pooling and
Servicing Agreements (or the Trust Agreement and Indenture and Servicing
Agreement with respect to the Series 1998-H1 Securitization Trust) entered into
by the Company (or one of its Subsidiaries) with respect to each of the
securitization transactions engaged in by the Company (or one of its
Subsidiaries) between 1995 and 1998.
"PREFERRED RETURN" means, after a Subscriber Contribution
shall have been made and unless the Subscriber elects not to receive a Preferred
Return, the return of cash in an amount equal
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to the Subscriber Contribution plus 15% per annum of the unpaid balance of the
Subscriber Contribution until the Subscriber Contribution shall have been
returned in full.
"PROCEEDING" means any action, arbitration, audit, case,
hearing, investigation, litigation, or suit (whether civil, criminal,
administrative, investigative, or informal) commenced, brought, conducted, or
heard by or before, or otherwise involving, any Governmental Body or arbitrator.
"PROCEEDS" means the cash amount realized from an arms-length
sale, transfer or Financing Transaction, net of direct Out-of-Pocket Expenses.
"RELATED PERSON" means, with respect to a specified Person
other than an individual:
(a) any Person that directly or indirectly controls, is
directly or indirectly controlled by, or is directly or
indirectly under common control with such specified Person;
(b) any Person that holds a Material Interest in such
specified Person;
(c) each Person that serves as a director, officer,
partner, executor, or trustee of such specified Person (or in
a similar capacity), and each Person who is married to,
resides with, or related within the second degree to any such
director, officer, partner, executor, trustee, or Person in a
similar capacity;
(d) any Person in which such specified Person holds a
Material Interest;
(e) any Person with respect to which such specified
Person serves as a general partner or a trustee (or in a
similar capacity); and
(f) any Related Person of any individual described in
clause (b) or (c).
"REORGANIZED COMPANY" means the Seller after the effective
date of the Plan.
"REORGANIZED COMPANY TAX ATTRIBUTES" means the sum of the
Reorganized Company's net operating losses plus the excess of the tax basis of
its assets over their fair market value in the agreed amount of $79,000,000, to
be calculated as of the end of the Short Year as: (a) total capital contributed
by the Company's shareholders, (b) minus any distributions to Company
shareholders or other payments that were not deductible or for which the Company
did not receive full basis for federal income tax purposes, (c) plus retained
after-tax income for the period prior to the Company's initial public offering
as reported for federal income tax purposes, and (d) plus the Company's excess
inclusion income for federal income tax purposes for the taxable periods after
the Company's initial public offering through Closing less Taxes paid, as such
amount may be adjusted on any Tax Attribute Determination Date.
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"RESERVE" means a funded account equal to an amount reasonably
calculated by Subscriber to be sufficient to cover any Out-of Pocket Expenses
estimated to occur during the following twelve months, but in no event more than
$100,000.
"SECURITIES ACT" or "ACT" means the Securities Act of 1933 or
any successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"SECURITIZATION TRUST" means the trusts into which pools of
mortgage loans were deposited pursuant to the 13 securitization transactions
entered into by the Company (or one of its Subsidiaries) between 1995 and 1998
and which in turn issued various classes of mortgage securities representing
interests in, or in the case of the Series 1998-H1 Securitization Trust, secured
by, the trust assets.
"SHORT YEAR" has the meaning given in Section 3.5.2(a).
"SUBSCRIBER" means The Goldman Sachs Group Inc.
"SUBSCRIBER CONTRIBUTION" means the amount of any funds
contributed to the Reorganized Company by Subscriber in order to purchase
mortgage loans out of certain Securitization Trusts (including accrued interest
and other amounts required to be paid under the applicable Pooling and Servicing
Agreements) with respect to the loans pursuant to the resolution of the Florida
Case if the amount of the Florida Reserve is insufficient to make all of the
required purchases.
"SUBSCRIBER ELECTION" means the election made by Subscriber by
written notice to Holder not to receive a Preferred Return in connection with a
Subscriber Constriubtion.
"SUBSIDIARY" means, with respect to any Person (the "Owner"),
any corporation or other Person of which the Owner or one or more of its
Subsidiaries holds securities or other interests having the power to elect a
majority of that Person's board of directors or similar governing body, or
otherwise having the power to direct that Person's business and policies (other
than securities or other interests having such power only upon the happening of
a contingency that has not occurred).
"TAX" and "TAXES" mean all taxes, levies, imposts, duties,
charges or withholdings, together with any penalties, fines or interest thereon
or other additions thereto imposed by any Governmental Body.
"TAX ADJUSTMENT AMOUNT" means the amount calculated as of a
Tax Attribute Determination Date in accordance with the following formula
(without duplication of adjustments made on any earlier Tax Attribute
Determination Date), plus interest accrued at a per annum rate of 10 percent
from the Closing Date paid:
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If Reorganized Company Tax Attributes exceed $81
million, the Tax Adjustment Amount shall be 15.19 percent of
such excess. If Reorganized Company Tax Attributes are less
than $77 million, the Tax Adjustment Amount shall be 15.19
percent of such shortfall.
"TAX ATTRIBUTE DETERMINATION DATE" is a date on which the
expected Reorganized Company Tax Attributes are determined to be different than
$79,000,000 as a result of (a) a final determination by or settlement with the
Internal Revenue Service, (b) a mutual determination of the Liquidating Trust
and Subscriber, or (c) the issuance of a written opinion from the Tax Expert
with respect to those elements of Reorganized Company Tax Attributes not
determined by the procedures set forth in clause (a) or (b).
"THIRD PARTY" means a Person that is neither the Subscriber
nor any Related Person of Subscriber.
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SCHEDULE OF ASSETS
Residual Certificates, namely:
Series 1995-1, Class R (61.27%)
Series 1995-2, Classes R-I (18.26%) and R-II
Series 1996-1, Class R
Series 1996-2, Class R
Series 1996-3, Class R
Series 1996-4, Class R
Series 1997-1, Classes R-I and R-II
Series 1997-2, Classes R-I, R-II, and R-III
Series 1997-3, Classes R-I and R-II
Series 1997-4, Classes R-I and R-II
Series 1998-1, Classes R-I and R-II
Series 1998-2, Classes R-I and R-II
Servicing Rights for the following Securitization Trusts (master servicing
rights for Series 1995-1, 1996-1, 1996-3, 1996-4, 1997-1, 1997-2 and 1997-3 are
held by Advanta Mortgage Corp., U.S.A.):
Series 1995-1
Series 1996-1
Series 1996-2
Series 1996-3
Series 1996-4
Series 1997-1
Series 1997-2
Series 1997-3
Series 1997-4
Series 1998-1
Series 1998-2
Series 1998-H1
but in each case excluding all rights to servicer advances and all rights with
respect to Mortgage Loans not remaining in any Securitization Trust on the
Closing Date.
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ASSETS (CONTINUED)
- ------------------
All of the rights Company has under the Pooling and Servicing Agreements (in any
capacity) with respect to the following Securitization Trusts, including where
applicable, without limitation, (a) the call rights to purchase mortgage loans
from certain Securitization Trusts when the principal balance of the related
mortgage loans is less than 10% of the aggregate principal balances of the
related mortgage loans on the cut-off date established pursuant to the related
Pooling and Servicing Agreement, (b) the rights to purchase loans out of the
Securitization Trusts in certain circumstances and (c) the mortgage loans and
other proceeds of the exercise of the call rights or subsequent sale of mortgage
loans:
Series 1995-1
Series 1995-2
Series 1996-1
Series 1996-2
Series 1996-3
Series 1996-4
Series 1997-1
Series 1997-2
Series 1997-3
Series 1997-4
Series 1998-1
Series 1998-2
The rights Company has (in any capacity) under the Servicing Agreement for the
Series 1998-H1 Securitization Trust to purchase mortgage loans out of the
Securitization Trust in certain circumstances.
All of the rights Company has under the Assumed Contracts listed in the attached
Schedule of Assumed Contracts.
All of the Company's rights to borrow funds from the reserve accounts associated
with the Series 1995-2, 1996-1, and 1996-3 Securitization Trusts in exchange for
the issuance of Company notes to Bankers Trust, as trustee of such
Securitization Trusts.
Servicing Platform equipment, furniture, improvements and software located in
Santa Rosa, California (leasehold interest) if and only if Subscriber has
notified Debtor by May 31, 1999 and the parties have reached an agreement
acceptable to them before Closing providing the terms and conditions of such
transfer, including price and assumption of liabilities.
The Holder's interest in the Reserve created pursuant to the Cash Flow
Instrument.
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ASSETS (CONTINUED)
- ------------------
Capital stock of Southern Pacific Secured Asset Corp., a special purpose
subsidiary of debtor, including its shelf registration statement, if and only if
Subscriber has notified Debtor by May 31, 1999, and the parties have reached an
agreement acceptable to them by June 8, 1999 providing the terms and conditions
of such transfer, including price.
All of the Company's licenses to service mortgage loans.
Any securities and tangible non-cash consideration received in a sale or
transfer of any Assets to a non-Related Person of The Goldman Sachs Group, Inc.,
("Subscriber"), including any securities retained by the Company in connection
with the Securitization of any Assets.
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SCHEDULE OF LIABILITIES
Liabilities of the Company under the Settlement Agreement.
Liability to repay the promissory notes issued to the Company to Bankers Trust
as trustee of the reserve accounts associated with the Series 1995-2, 1996-1,
and 1996-3 Securitization Trusts (the funds of which may be invested in the
Company's short-term debt obligations.
Liabilities of the Company under the Assumed Contracts listed on Schedule of
Assumed Contracts.
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SCHEDULE OF ASSUMED CONTRACTS
The following Contracts are Assumed Contracts and are included in the
Liabilities:
The Pooling and Servicing Agreements including all amendments and
supplements thereto, with respect to the following Securitization
Trusts:
Series 1995-1
Series 1995-2
Series 1996-1
Series 1996-2
Series 1996-3
Series 1996-4
Series 1997-1
Series 1997-2
Series 1997-3
Series 1997-4
Series 1998-1
Series 1998-2
Series 1998-H1
Letter agreement with Advanta Mortgage Corp., USA, providing for the
Company to receive 15 basis points of Advanta Mortgage Corp., USA's 50
basis-point servicing fee (unless Subscriber gives notice to Company
prior to May 31, 1999 to reject such agreement, in which case such
agreement shall not be an Asset).
Letter agreement with Advanta Mortgage Corp., USA, dated January 22,
1999 giving the Company the option to terminate Advanta Mortgage Corp.,
USA as master servicer of certain Securitization Trusts.
Life-of-Loan Real Estate Tax Monitoring Agreement with Transamerica
Corporation.
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EXHIBIT 2.4.1
and
EXHIBIT 5.1
ADDITIONAL COVENANTS AGREEMENT
THIS ADDITIONAL COVENANTS AGREEMENT is entered into as of June
- --, 1999, by and between SOUTHERN PACIFIC FUNDING CORPORATION, a California
corporation ("Company") and the SPFC LIQUIDATING TRUST established for the
benefit of the creditors of Southern Pacific Funding Corporation in connection
with the case filed by the Company under Chapter 11 of the United States
Bankruptcy Code (the "Liquidating Trust") GOLDMAN, SACHS & CO., a Delaware
limited partnership ("Asset Company"), and THE GOLDMAN SACHS GROUP, INC., a
Delaware corporation ("Subscriber").
RECITALS
--------
A. On October 1, 1998, Company filed for bankruptcy under Chapter 11 of
the Bankruptcy Code (the "Bankruptcy Case") in the United States
Bankruptcy Court for the District of Oregon (the "Bankruptcy Court").
B. On May --, 1999, Company filed its amended "Plan of Reorganization"
with the Bankruptcy Court. The Plan of Reorganization was confirmed by
the Bankruptcy Court pursuant to the "Confirmation Order" entered on
June --, 1999.
C. As of May 21, 1999, Company entered into an Amended and Restated Asset
Purchase Agreement with Goldman, Sachs & Co., ( "Asset Purchase
Agreement").
D. As of May 21, 1999, Company entered into an Amended and Restated Stock
Subscription and Purchase Agreement with The Goldman Sachs Group, Inc.,
as Subscriber (the "Stock Subscription and Purchase Agreement").
E. Pursuant to the Confirmation Order and the Asset Purchase Agreement,
the Purchased Assets were sold by Company to Asset Company.
F. Also pursuant to the Confirmation Order and the Stock Subscription and
Purchase Agreement, Company canceled all of its capital stock
outstanding prior to the effective date of the Plan of Reorganization
and issued 10,000 shares of common stock, constituting all of the
capital stock of Company, to Subscriber (or one of its affiliates).
G. Also pursuant to the Confirmation Order and the Stock Subscription and
Purchase Agreement, certain of the assets and liabilities of the
Company were transferred to the Liquidating Trust. The Stock
Subscription and Purchase Agreement contemplates that Company, the
Liquidating Trust and the other parties hereto enter into this
Additional Covenants Agreement.
<PAGE>
AGREEMENTS
----------
The Liquidating Trust, Company, Subscriber, and Asset Company
intending to be bound, hereby agree as follows:
1. DEFINITIONS
For purposes of this Agreement, capitalized terms not
otherwise defined have the meanings given in Appendix I, attached hereto and
incorporated herein.
2. PAYMENTS FROM PROCEEDINGS
Company will distribute to the Liquidating Trust any payments
it has received or receives as a result of Company prevailing in any Proceeding
against third parties for activities occurring prior to the closing of the Stock
Subscription and Purchase Agreement, except that Company will retain any
payments received with respect to any Proceeding that (a) is related to one or
more particular mortgage loans held in the Securitization Trusts on the Closing
Date, (b) affects the interests or performance of the master servicer of such
loans, such as a claim that Company, as master servicer, may bring on behalf of
a Securitization Trust, or (c) is related to failure by the trustee under any
Securitization Trust or any Prepayment Penalty Trust Certificates to properly
calculate the cash flows to the certificate holders from any such Trust or
Certificate.
3. BOOKS AND RECORDS
The Liquidating Trust will provide Company access to the books
and records of Company, and the opportunity to make copies at its expense. Upon
dissolution of the Liquidating Trust, all such books and records shall be
delivered by the Liquidating Trust to Company.
4. THE FLORIDA RESERVE
Company will deposit the Distributions for each month (after
any payments required to be made to Subscriber as a result of an unpaid
Preferred Return, or unpaid Company Tax Adjustment Amount, or payments on Holder
Expense Loans) into a segregated reserve account (the "Florida Reserve") for a
period of time. The funds deposited in the Florida Reserve will be invested at
the direction of Company only in Eligible Investments for the benefit of Holder
(Holder shall be responsible to report such investment income and pay income
taxes thereon) and may be used (together with any income on Eligible
Investments) by Company to purchase each and every mortgage loan out of
Securitization Trusts in the amount and as specified in the settlement or
finding referred to below (including accrued interest and other amounts required
to be paid under the applicable Pooling and Servicing Agreement) pursuant to the
requirements of a binding settlement or a finding that any such mortgage loans
are owned by or encumbered in favor of Oceanmark Bank F.S.B. in a final,
unappealable judgment entered by a court of competent jurisdiction with respect
to the Florida Case (such settlement or judgment, the "Florida Case
Resolution"). When the obligations of the Company under the Florida Case
Resolution are fully satisfied, Company will immediately release all remaining
funds in the Florida Reserve to Holder.
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5. SUBSCRIBER CONTRIBUTION
Subscriber agrees to make a Subscriber Contribution to the
extent necessary to satisfy Reorganized Company's obligations to purchase each
and every mortgage loan out of Securitization Trusts as specified in the
settlement or finding referred to below (including accrued interest and other
amounts required to be paid under the applicable Pooling and Servicing
Agreement) pursuant to the Florida Case Resolution to the extent the funds
contained in the Florida Reserve established pursuant to this Agreement (plus
any funds provided by or on behalf of the Liquidating Trust, in each case in its
sole and absolute discretion) are insufficient to satisfy such obligations at
the time such obligations are due. Within 30 days of making a Subscriber
Contribution, Subscriber must elect by delivering written notice to Holder of
its election not to receive a Preferred Return (the "Subscriber Election"). If
no election is made, Subscriber will be deemed to have elected to receive a
Preferred Return.
6. REQUIRED CAPITAL CONTRIBUTIONS
Subscriber agrees to make capital contributions to Company
each month in cash to the extent the Residual Cash Flows remaining after payment
of Distributions together with the proceeds of any Holder Expense Loan made
during such month are insufficient to pay all expenses and liabilities of
Company together with the requirement to fund the Reserve pursuant to the Cash
Flow Instrument (such contributions, the "Required Capital Contributions"),
subject to the limitation that Required Capital Contributions to pay an unpaid
Holder Tax Adjustment Amount may be limited during any month to an amount equal
to all pre-tax cash flows and other amounts, if any, paid or payable in respect
of the Asset Cash Flow Instrument minus the Out-of-Pocket Expenses plus the
Holder-Allocated Expenses for the month.
Required Capital Contributions are not entitled to a preferred
return of any kind and no portion of the Required Capital Contributions shall be
eligible for treatment as Out-of-Pocket Expenses.
7. INFORMATION; REPORTS; COOPERATION
Company and Asset Company will provide Holder the following
information and reports:
(a) All reports pertaining to the Assets and the Purchased Assets
received by Company from Asset Company or Third Parties,
including without limitation, any master servicer or
subservicer (each, a "Third Party Report"). Company and Asset
Company will provide Third Party Reports to Holder monthly.
(b) Annual investor level reports ("Investor Reports") containing
information in reasonable detail on the Assets and the
Purchased Assets, a description of the management activities
and decisions related to the Assets and the Purchased Assets,
financial statements (including balance sheet, income
statement, and cash flow statements), and proposed management
plans for the next year. Each Investor Report shall contain
information that a reasonably prudent investor would be
interested in receiving with respect to its investment.
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(c) Meetings, upon reasonable request by Holder, with a person
designated by the Holder and a person designated by Company or
Asset Company (with knowledge of the management activities
respecting the Assets and the Purchased Assets) to discuss the
management of the Assets and the Purchased Assets, receive
comments from the person designated by the Holder, and prompt
responses to such designated person (which may be oral or
written) to questions or requests (including loan data tapes)
for information that a reasonably prudent investor would be
interested in receiving with respect to its investment.
In the event Holder desires to sell all or a portion of its
interest, Company and Asset Company will cooperate with Holder and will promptly
provide all necessary information reasonably requested by Holder to facilitate
the sale.
8. ASSET MANAGEMENT; STANDARDS
Company and Asset Company will manage the Assets and the
Purchased Assets in accordance with the following standards:
(a) All loan servicing activities will be managed in a manner
consistent with industry standards, including industry
servicing standards related to the subprime credit mortgage
market; provided that to the extent that such standards
conflict with the applicable Pooling and Servicing Agreements
such agreements shall govern.
(b) The Assets and the Purchased Assets will be managed with the
same care and diligence and in a manner consistent with the
manner in which other similar assets of the Subscriber and
Related Persons of Subscriber are managed;
(c) The Assets and the Purchased Assets will be managed in a
manner consistent with the economic interests of both Holder
and Company;
(d) No repurchase agreement will be entered into with respect to
the Assets or the Purchased Assets; and
(e) The Assets and the Purchased Assets will not be used as
collateral or security for any transaction other than a
Financing Transaction.
Company shall affix any Certificates created after the date of
this agreement with the legend that appears on the top of the Cash Flow
Instrument.
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9. NO MANAGEMENT FEE
Neither Subscriber, Company, Asset Company nor Related Persons
of any of the foregoing will be entitled to a management fee in connection with
the management of the Assets or the Purchased Assets.
10. EQUITY
Subscriber or a Related Person of Subscriber shall at all
times maintain ownership of at least 80% of the capital stock of Company, after
giving effect to any capital stock issued after Closing; provided that the
foregoing shall not be deemed to preclude the liquidation or merger of the
Company into Subscriber. Company shall not pledge or otherwise encumber the
capital stock of Company, except as collateral for a financing that is recourse
to Subscriber. Company shall not accept capital contributions except in cash and
except as may be required in connection with the Subscriber Contribution or as
Required Capital Contributions.
11. INDEBTEDNESS
(a) Unless Subscriber has delivered to Holder its Guarantee of
all obligations of Company to Holder, including without limitation, the
performance by Company of its obligation to make Distributions under
the Cash Flow Instrument, Company will not incur indebtedness other
than:
(i) indebtedness necessary to pay Out-of-Pocket Expenses;
(ii) indebtedness incurred to finance advances under the Pooling
and Servicing Agreements; and
(iii) Financing Transactions.
(b) Unless Subscriber has delivered to Holder its Guarantee of
all obligations of Asset Company to Company, including without
limitation, the obligation of Asset Company to make distributions under
the Asset Cash Flow Instrument, Asset Company will not incur
indebtedness other than Financing Transactions.
12. SERVICES BY LIQUIDATING TRUST
(a) From the Closing Date to the end of the month in which the
Closing Date occurs, the liquidating trust will be allowed to retain
the servicing income for such period and will, at its expense, hire and
utilize former employees of Company to provide loan servicing services
to Company for such period. Liquidating Trust will use its reasonable
best efforts to maintain the quality of servicing after the Closing
Date to a level comparable to the period prior to the closing date.
(b) From July 31, 1999 to August 31, 1999 (or as soon
thereafter as practicable), Liquidating Trust will utilize former
employees of Company and otherwise use its reasonable
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best efforts to assure a smooth transfer of servicing responsibilities,
records and files to the new servicer or servicers as directed by
Company. Company shall pay liquidating trust $480,000 as compensation
for such services. all other usual and customary costs of servicing
transfer (such as servicing transfer fees by the new subservicer, and
other costs), except as otherwise specified in the stock subscription
and purchase agreement, shall either be paid by the new servicer or
servicers or by company (it being understood that the liquidating trust
is not entitled to charge any additional fee).
13. SERVICING TRANSFER
Company shall not transfer the Master Servicing Rights unless the prior
consent of Holder shall have been obtained; provided that Master Servicing
Rights may be Transferred without consent in connection with the Sale of the
related Residual Certificate.
14. ASSET TRANSFERS
(a) Unless Subscriber has delivered to Holder its Guarantee of
all obligations of Company to Holder, including without limitation, the
performance by Company of its obligation to make Distributions under
the Cash Flow Instrument, Company will not transfer any Assets to an
entity other than a special purpose bankruptcy remote entity with
Organizational Documents that prohibit the transferee from incurring
indebtedness other than:
(i) indebtedness to pay Out-of-Pocket Expenses;
(ii) indebtedness incurred to finance servicer
advances under the Pooling and Servicing Agreements; and
(iii) Financing Transactions.
(b) Unless Subscriber has delivered to Holder its Guarantee of
all obligations of Asset Company to Company, including without
limitation, the obligation of Asset Company to make distributions under
the Asset Cash Flow Instrument, Asset Company will not transfer any
Assets to an entity other than a special purpose bankruptcy remote
entity with Organizational Documents that prohibit the transferee from
incurring indebtedness other than:
(i) indebtedness to pay Out-of-Pocket Expenses;
(ii) indebtedness incurred to finance servicer
advances under the Pooling and Servicing Agreements; and
(iii) Financing Transactions.
Company and Asset Company will not acquire any additional assets (other than
cash), by purchase, capital contribution (except for a Subscriber Contribution)
or otherwise, other than Asset Proceeds and Purchased Asset Proceeds.
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15. GUARANTEE
Subscriber agrees that its guaranty, if required to be given,
shall be substantially in the form attached as Appendix II hereto.
16. THIRD PARTY BENEFICIARIES
This Additional Covenants Agreement is entered into for the
benefit of the parties hereto and for the benefit of the Holder or Holders of
the Cash Flow Instrument, which Holder or Holders are expressly acknowledged to
be a third party beneficiary or third party beneficiaries of this Additional
Covenants Agreement.
17. VENUE; ATTORNEY FEES; GOVERNING LAW
In any action or proceeding seeking to enforce any provision
of, or based on any right arising out of, this Additional Covenants Agreement
may be brought against any of the parties in the courts of the State of Oregon,
county of Multnomah, and each of the parties consents to the jurisdiction of
such court (and of the appropriate appellate court) in any such action or
proceeding and waives any objection to venue laid therein. Process in any action
or proceeding referred to in the preceding sentence may be served on any party
anywhere in the world. In connection with any such action or proceeding, the
prevailing party will be entitled to recover its costs, including reasonable
attorney fees at trial and on any appeal.
18. NOTICES
All notices, consents, waivers, and other communications under
this Agreement must be in writing and will be deemed to have been duly given
when (a) delivered by hand, (b) sent by facsimile (with written confirmation of
receipt), or (c) when received by the addressee, if sent by a nationally
recognized overnight delivery service (receipt requested), in each case to the
appropriate addresses and facsimile numbers set forth below (or to such other
addresses and facsimile numbers as a party may designate by notice to the other
parties):
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<TABLE>
<S> <C>
Liquidating Trust: Asset Company:
- ------------------ --------------
SPFC Liquidating Trust Goldman, Sachs & Co.
One Centerpointe Drive 85 Broad Street
Suite 551 New York, New York 10004
Lake Oswego, Oregon 97035
Attention: Marvin Kabatznick
Attention: Kevin D. Padrick Facsimile No.: (212) 346-3568
Facsimile No.: (503) 598-0662 Attention: Jay Strauss
Facsimile No.: (212) 902-0940
with a copy to:
with a copy to:
Miller, Nash, Wiener, Hager & Carlsen LLP
111 S.W. Fifth Avenue Cadwalader, Wickersham & Taft
Suite 3500 100 Maiden Lane
Portland, Oregon 97204 New York, New York 10038
Attention: David W. Brown Attention: David C.L. Frauman
Facsimile No.: (503) 224-0155 Facsimile No.: (212) 504-6666
Subscriber: Company:
- ----------- --------
The Goldman Sachs Group, Inc. Southern Pacific Funding Corporation
85 Broad Street One Centerpointe Drive
New York, New York 10004 Suite 551
Lake Oswego, Oregon 97035
Attention: Marvin Kabatznick
Facsimile No.: (212) 346-3568 Attention: Kevin D. Padrick
Facsimile No.: (503) 598-0662
Attention: Jay Strauss
Facsimile No.: (212) 902-0940 with a copy to:
with a copy to: Miller, Nash, Wiener, Hager & Carlsen LLP
111 S.W. Fifth Avenue
Cadwalader, Wickersham & Taft Suite 3500
100 Maiden Lane Portland, Oregon 97204
New York, New York 10038
Attention: David W. Brown
Attention: David C.L. Frauman Facsimile No.: (503) 224-0155
Facsimile No.: (212) 504-6666
</TABLE>
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19. JURISDICTION; SERVICE OF PROCESS
Any action or proceeding seeking to enforce any provision of,
or based on any right arising out of, this Agreement may be brought against any
of the parties in the courts of the State of Oregon, County of Multnomah, or, if
it has or can acquire jurisdiction, in the United States District Court or the
United States Bankruptcy Court for the District of Oregon, and each of the
parties consents to the jurisdiction of such courts (and of the appropriate
appellate courts) in any such action or proceeding and waives any objection to
venue laid therein. Process in any action or proceeding referred to in the
preceding sentence may be served on any party anywhere in the world. In
connection with any such action or proceeding, the prevailing party (whether
prevailing affirmatively or by means of a successful defense with respect to the
issues having the greatest value or importance) will be entitled to recover its
costs, including reasonable attorney fees at trial and on any appeal.
20. FURTHER ASSURANCES
The parties agree (a) to furnish upon request to each other
such further information, (b) to execute and deliver to each other such other
documents, and (c) to do such other acts and things, all as the other party may
reasonably request for the purpose of carrying out the intent of this Agreement
and the other agreements referred to in this Agreement.
21. WAIVER
Neither the failure nor any delay by any party in exercising
any right, power, or privilege under this Agreement or the documents referred to
in this Agreement will operate as a waiver of such right, power, or privilege,
and no single or partial exercise of any such right, power, or privilege will
preclude any other or further exercise of such right, power, or privilege or the
exercise of any other right, power, or privilege. To the maximum extent
permitted by applicable law, no party will be deemed to have waived any of its
rights or privileges under this Agreement or the documents referred to in this
Agreement unless the waiver is in writing and no waiver given by a party will be
applicable except in the specific instance for which it is given.
22. SEVERABILITY
If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
23. SECTION HEADINGS; CONSTRUCTION
The headings of Sections in this Agreement are provided for
convenience only and will not affect its construction or interpretation. All
references to "Section" or "Sections" refer to the corresponding Section or
Sections of this Agreement. All words used in this Agreement will be construed
to be of such gender or number as the circumstances require. Unless otherwise
expressly provided, the word "including" does not limit the preceding words or
terms.
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24. TIME OF ESSENCE
With regard to all dates and time periods set forth or
referred to in this Agreement, time is of the essence.
25. NO PARTNERSHIP
None of the parties to the Subscriber Definitive Agreements
intend that any provision of any Subscriber Definitive Agreement shall be
construed as creating a partnership between or among any of the parties thereto.
Each party to any of the Subscriber Definitive Agreements agrees that it shall
not treat any agreement, arrangement or right thereunder as a partnership for
Tax reporting purposes or for the purpose of determining any Tax liability.
26. GOVERNING LAW
THIS ADDITIONAL COVENANTS AGREEMENT, AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER, SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING
EFFECT TO PRINCIPLES OF CONFLICT OF LAWS.
27. COUNTERPARTS
This Agreement may be executed in one or more counterparts,
each of which will be deemed to be an original copy of this Agreement and all of
which, when taken together, will be deemed to constitute one and the same
agreement.
IN WITNESS WHEREOF, the parties have executed this Additional Covenants
Agreement to be effective as of the date set forth above.
SOUTHERN PACIFIC FUNDING THE GOLDMAN SACHS GROUP, INC.
CORPORATION
By: By:
Title: Title:
SPFC LIQUIDATING TRUST GOLDMAN, SACHS & CO.
By: By:
Trustee
Title:
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<PAGE>
APPENDIX I TO
ADDITIONAL COVENANTS AGREEMENT
DEFINED TERMS
All references in this Appendix I to Sections are references
to Sections of this Additional Covenants Agreement unless otherwise specified.
Unless the context otherwise requires, capitalized terms used in the Additional
Covenants Agreement, if not otherwise defined, have the following meanings:
"ADDITIONAL COVENANTS AGREEMENT" and "AGREEMENT" means, when
referring to "this Agreement," the Additional Covenants Agreement dated as of
June ---, 1999, between Company, Liquidating Trust, Asset Company and
Subscriber.
"ASSETS" has the meaning given in Schedule 2.1.2 of the Stock
Subscription and Purchase Agreement.
"ASSET CASH FLOW INSTRUMENT" has the meaning given in Section
4.1 of the Asset Purchase Agreement.
"ASSET COMPANY" means the buyer of assets identified in the
first paragraph of the Asset Purchase Agreement or any permitted assignee
thereof.
"ASSET PURCHASE AGREEMENT" or "PURCHASE AGREEMENT" means the
Amended and Restated Asset Purchase Agreement dated as of May 21, 1999, between
Debtor and Asset Company.
"ASSET PURCHASE CASH FLOWS" has the meaning given in Section
2.3.1(a)(i) of the Stock Subscription and Purchase Agreement.
"BANKRUPTCY CASE" has the meaning given in the Recitals to
this Agreement.
"BANKRUPTCY CODE" means Title 11 of the United States Code.
"BANKRUPTCY COURT" has the meaning given in the Recitals to
this Agreement.
"CASH FLOW INSTRUMENT" has the meaning given in Section 2.3.1
of the Stock Subscription and Purchase Agreement.
"CERTIFICATES" means any certificates by Company to represent
a beneficial interest in the Cash Flow Instrument.
"CLOSING" has the meaning given in Section 2.5 of the Stock
Subscription and Purchase Agreement.
"CLOSING DATE" means the date and time when Closing actually
takes place.
"COMPANY" has the meaning given in the first paragraph of this
Agreement.
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"COMPANY TAX ADJUSTMENT AMOUNT" means, in the event the
Reorganized Company Tax Attributes are less than $77,000,000, the Tax Adjustment
Amount; otherwise zero.
"CONFIRMATION ORDER" means the order of the Bankruptcy Court
confirming the Plan of Reorganization.
"DIP FINANCING AGREEMENT" means the Master Repurchase
Agreement, Annex I to such Master Repurchase Agreement, the Margin Agreement and
the related agreements, annexes and exhibits entered into between Debtor and
Goldman, Sachs & Co., pursuant to which Goldman, Sachs & Co. extended a credit
facility in the approximate initial principal amount of $33,600,000.
"DISTRIBUTION" shall have the meaning given in Section 2.3.2
of the Stock Subscription and Purchase Agreement.
"ELIGIBLE INVESTMENTS" means the following:
(1) direct general obligations of, or obligations fully
and unconditionally guaranteed as to the timely
payment of principal and interest by, the United
States or any agency or instrumentality thereof,
provided such obligations are backed by the full
faith and credit of the United States;
(2) federal funds and certificates of deposit, time and
demand deposits and banker's acceptances issued by
any bank or trust company incorporated under the laws
of the United States or any state thereof and subject
to supervision and examination by federal or state
banking authorities, provided that at the time of
such investment or contractual commitment providing
for such investment the short-term debt obligations
of such bank or trust company at the date of
acquisition thereof have been rated in its highest
rating by a nationally recognized statistical rating
organization;
(3) commercial paper (having original maturities of not
more than 30 days) rated in its highest rating by a
nationally recognized statistical rating
organization; and
(4) investments in money market funds rated in its
highest rating by a nationally recognized statistical
rating organization.
"FINANCING TRANSACTION" means any nonrecourse borrowing or any
borrowing with recourse solely to a bankruptcy remote special purpose entity in
respect of the Reorganized Company or the Asset Company, which borrowing is
secured by, and on which principal and/or interest payments are made primarily
from cash flows on, the related Assets or Purchased Assets and entered into
primarily for the purpose of distributing Proceeds. Financing Transaction also
includes all incremental borrowings from the reserve funds created for Trust
Series 1995-2, 1996-1, and 1996-3.
2
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"FLORIDA CASE" means Oceanmark Bank F.S.B. v. Norwest Bank
Minnesota, N.A. and Advanta Mortgage Corp., USA, a lawsuit filed in the state of
Florida by Oceanmark Bank, F.S.B., and all related litigation in the Bankruptcy
Court.
"FLORIDA CASE RESOLUTION" has the meaning given in Section 4.
"FLORIDA RESERVE" has the meaning given in Section 4.
"GOVERNMENTAL BODY" means any:
(a) nation, state, county, city, town, village,
district, or other jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or
other government;
(c) governmental or quasi-governmental authority of
any nature (including any governmental agency, branch,
department, official, or entity and any court or other
tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any
administrative, executive, judicial, legislative, police,
regulatory, or taxing authority or power of any nature.
"GUARANTEE" means a guarantee to be delivered in accordance
with Section 13 and the terms of the Cash Flow Instrument.
"HOLDER" means the holder of the Cash Flow Instrument.
"HOLDER-ALLOCATED EXPENSES" has the meaning given in Section
2.3.1 of the Stock Subscription and Purchase Agreement.
"HOLDER TAX ADJUSTMENT AMOUNT" means, in the event the
Reorganized Company Tax Attributes are more than $81,000,000, the lesser of the
Tax Adjustment Amount and $1,500,000; otherwise zero.
"INVESTOR REPORTS" has the meaning given in Section 7(b).
"LIQUIDATING TRUST" has the meaning given in the first
paragraph of this Agreement.
"MASTER SERVICING RIGHTS" means master loan servicing rights
under the Pooling ans Servicing Agreements relating to Series 1997-4, 1998-1,
1998-2, and 1998-H1 Securitization Trusts.
"MATERIAL INTEREST" means, for purposes of the definition of
Related Person, a direct or indirect beneficial ownership (as defined in Rule
13d-3 under the Securities Exchange Act of 1934) of voting securities or other
voting interests representing at least 25% of the outstanding voting
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<PAGE>
power of a Person or equity securities or other equity interests representing at
least 25% of the outstanding equity securities or equity interests in a Person.
"ORGANIZATIONAL DOCUMENTS" means (a) the articles or
certificate of incorporation and the bylaws of a corporation; (b) the
partnership agreement and any statement of partnership of a general partnership;
(c) the limited partnership agreement and the certificate of limited partnership
of a limited partnership; (d) the operating agreement and articles or
certificate of organization of a limited liability company; (e) any charter or
similar document adopted or filed in connection with the creation, formation, or
organization of a Person; and (f) any amendment to any of the foregoing.
"OUT-OF-POCKET EXPENSES" has the meaning given in Section
2.3.3 of the Stock Subscription and Purchase Agreement.
"PERSON" means any individual, corporation (including any
non-profit corporation), general or limited partnership, limited liability
company, joint venture, estate, trust, association, organization, labor union,
or other entity or Governmental Body.
"PLAN OF REORGANIZATION" is the plan of reorganization filed
by the Company in the Bankruptcy Case, as may be amended or supplemented.
"POOLING AND SERVICING AGREEMENTS" means the Pooling and
Servicing Agreements (or the Trust Agreement and Indenture and Servicing
Agreement with respect to the Series 1998-H1 Securitization Trust) entered into
by the Company (or one of its Subsidiaries) with respect to each of the
securitization transactions engaged in by the Company (or one of its
Subsidiaries) between 1995 and 1998.
"PREFERRED RETURN" means, after a Subscriber Contribution
shall have been made and unless the Subscriber elects not to receive a Preferred
Return, the return of cash in an amount equal to the Subscriber Contribution
plus 15% per annum of the unpaid balance of the Subscriber Contribution until
the Subscriber Contribution shall have been returned in full.
"PREPAYMENT PENALTY TRUST CERTIFICATES" means the certificates
included among the Purchased Assets representing interests in prepayment penalty
income in respect of the mortgage loans in the Securitization Trusts.
"PROCEEDING" means any action, arbitration, audit, case,
hearing, investigation, litigation, or suit (whether civil, criminal,
administrative, investigative, or informal) commenced, brought, conducted, or
heard by or before, or otherwise involving, any Governmental Body or arbitrator.
"PROCEEDS" means the cash amount realized from an arms-length
sale, transfer or Financing Transaction, net of direct Out-of-Pocket Expenses.
"PURCHASED ASSETS" has the meaning given in Section 2.1 of the
Asset Purchase Agreement.
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<PAGE>
"RELATED PERSON" means, with respect to a specified Person
other than an individual:
(a) any Person that directly or indirectly controls,
is directly or indirectly controlled by, or is directly or
indirectly under common control with such specified Person;
(b) any Person that holds a Material Interest in such
specified Person;
(c) each Person that serves as a director, officer,
partner, executor, or trustee of such specified Person (or in
a similar capacity), and each Person who is married to,
resides with, or related within the second degree to any such
director, officer, partner, executor, trustee, or Person in a
similar capacity;
(d) any Person in which such specified Person holds a
Material Interest;
(e) any Person with respect to which such specified
Person serves as a general partner or a trustee (or in a
similar capacity); and
(f) any Related Person of any individual described in
clause (b) or (c).
"REORGANIZED COMPANY" has the meaning given in the Recitals to
the Stock Subscription and Purchase Agreement.
"REORGANIZED COMPANY TAX ATTRIBUTES" means the sum of the
Reorganized Company's net operating losses plus the excess of the tax basis of
its assets over their fair market value in the agreed amount of $79,000,000, to
be calculated as of the end of the Short Year as: (a) total capital contributed
by the Company's shareholders, (b) minus any distributions to Company
shareholders or other payments that were not deductible or for which the Company
did not receive full basis for federal income tax purposes, (c) plus retained
after-tax income for the period prior to the Company's initial public offering
as reported for federal income tax purposes, and (d) plus the Company's excess
inclusion income for federal income tax purposes for the taxable periods after
the Company's initial public offering through Closing less Taxes paid, as such
amount may be adjusted on any Tax Attribute Determination Date.
"REQUIRED CAPITAL CONTRIBUTIONS" has the meaning given in
Section 6.
"RESERVE" means a funded account equal to an amount reasonably
calculated by Subscriber to be sufficient to cover any Out-of Pocket Expenses
estimated to occur during the following twelve months, but in no event more than
$100,000.
"RESIDUAL CASH FLOWS" has the meaning given in Section
2.3.1(a)(ii) of the Stock Subscription and Purchase Agreement.
"SECURITIZATION TRUST" means the trusts into which pools of
mortgage loans were deposited pursuant to the 13 securitization transactions
entered into by the Company (or one of its Subsidiaries) between 1995 and 1998
and which in turn issued various classes of mortgage securities
5
<PAGE>
representing interests in, or in the case of the Series 1998-H1 Securitization
Trust, secured by, the trust assets.
"SHORT YEAR" has the meaning given in Section 3.5.2(a) of the
Stock Subscription and Purchase Agreement.
"STOCK SUBSCRIPTION AND PURCHASE AGREEMENT" has the meaning
given in the Recitals to this Agreement.
"SUBSCRIBER" has the meaning given in the first paragraph of
this Agreement.
"SUBSCRIBER CONTRIBUTION" means the amount of any funds
contributed to the Reorganized Company by Subscriber in order to purchase
mortgage loans out of certain Securitization Trusts (including accrued interest
and other amounts required to be paid under the applicable Pooling and Servicing
Agreements) with respect to loans pursuant to the resolution of the Florida Case
if the amount of the Florida Reserve is insufficient to make all of the required
purchases.
"SUBSCRIBER DEFINITIVE AGREEMENTS" means this Agreement, the
Asset Purchase Agreement, Additional Covenants Agreement, the Settlement
Agreement, the Cash-Flow Instrument, the [Asset Purchase Agreement Cash-Flow
Instrument], the Subservicing Agreement, and the Guarantee.
"SUBSCRIBER ELECTION" has the meaning given in Section 5.
"TAX" and "TAXES" mean all taxes, levies, imposts, duties,
charges or withholdings, together with any penalties, fines or interest thereon
or other additions thereto imposed by any Governmental Body.
"TAX ADJUSTMENT AMOUNT" means the amount calculated as of a
Tax Attribute Determination Date in accordance with the following formula
(without duplication of adjustments made on any earlier Tax Attribute
Determination Date), plus interest accrued at a per annum rate of 10 percent
from the Closing Date paid:
If Reorganized Company Tax Attributes exceed $81
million, the Tax Adjustment Amount shall be 15.19 percent of
such excess. If Reorganized Tax Attributes are less than $77
million, the Tax Adjustment Amount shall be 15.19 percent of
such shortfall.
"TAX ATTRIBUTE DETERMINATION DATE" is a date on which the
expected Reorganized Company Tax Attributes are determined to be different than
$79,000,000 as a result of (a) a final determination by or settlement with the
Internal Revenue Service, (b) a mutual determination of the Liquidating Trust
and Subscriber, or (c) the issuance of a written opinion from the Tax Expert
with respect to those elements of Reorganized Company Tax Attributes not
determined by the procedures set forth in clause (a) or (b).
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<PAGE>
"TAX EXPERT" has the meaning given in Section 3.5.7 of the
Stock Subscription and Purchase Agreement.
"THIRD PARTY" means a Person that is neither the Subscriber
nor any Related Person of Subscriber.
"THIRD PARTY REPORT" has the meaning given in Section 7(a).
<PAGE>
APPENDIX II
, 1999
Southern Pacific Funding Corporation
ADDRESS
Attention:
Ladies and Gentlemen:
For value received, The Goldman Sachs Group, Inc. (the "Guarantor"), a
corporation duly organized under the laws of the State of Delaware, hereby
unconditionally guarantees the prompt and complete payment and performance when
due, whether by acceleration or otherwise, of all obligations and liabilities,
whether now in existence or hereafter arising, of [Goldman Entity], a subsidiary
of the Guarantor and a [describe entity] (the "Company"), to SOUTHERN PACIFIC
FUNDING CORPORATION AND HOLDER (the "Counterparty") arising out of the
assumptions of the obligations of the Guarantor under the Additional Covenants
Agreement among the Guarantor, Goldman, Sachs & Co. and the Counterparty dated
as of [ ], 1999 (the "Agreement"). This Guaranty is one of payment and not of
collection.
The Guarantor hereby waives notice of acceptance of this Guaranty and notice of
any obligation or liability to which it may apply, and waives presentment,
demand for payment, protest, notice of dishonor or non-payment of any such
obligation or liability, suit or the taking of other action by Counterparty
against, and any other notice to, the Company, the Guarantor or others.
Counterparty may at any time and from time to time without notice to or consent
of the Guarantor and without impairing or releasing the obligations of the
Guarantor hereunder: (1) make any change in the terms of any obligation or
liability of the Company to Counterparty, (2) take or fail to take any action of
any kind in respect of any security for any obligation or liability of the
Company to Counterparty, (3) exercise or refrain from exercising any rights
against the Company or others, or (4) compromise or subordinate any obligation
or liability of the Company to Counterparty including any security therefor. Any
other suretyship defenses are hereby waived by the Guarantor.
The Guarantor will not exercise any rights which it may acquire by way of
subrogation until all due and unpaid obligations to Counterparty shall have been
paid in full. Any amount paid to the Guarantor in violation of the preceding
sentence shall be held by Guarantor for the benefit of the Counterparty and
shall forthwith be paid to the Counterparty to be credited and applied to the
due and unpaid obligations. Subject to the foregoing, upon payment of all such
due and unpaid obligations, the Guarantor shall be subrogated to the rights of
the Counterparty against the Company with respect to such obligations, and the
Counterparty agrees to take at the Guarantor's expense such steps as the
Guarantor may reasonably request to implement such subrogation.
The Guarantor agrees to pay all reasonable out-of-pocket expenses (including the
reasonable fees and expenses of counsel) incurred in the enforcement or
protection of the rights of the Counterparty in
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Southern Pacific Funding Corporation
, 1999
Page 3
connection with a breach of the Agreement by the Company or, to the extent
incurred after demand under the Guaranty has been made and not timely honored, a
breach of this Guaranty by the Guarantor.
The Guarantor may not assign its rights nor delegate its obligations under this
Guaranty, in whole or in part, without prior written consent of the
Counterparty, and any purported assignment or delegation absent such consent is
void, except for an assignment and delegation of all of the Guarantor's rights
and obligations hereunder in whatever form the Guarantor determines may be
appropriate to a partnership, corporation, trust or other organization in
whatever form that succeeds to all or substantially all of the Guarantor's
assets and business and that assumes such obligations by contract, operation of
law or otherwise. Upon any such delegation and assumption of obligations, the
Guarantor shall be relieved of and fully discharged from all obligations
hereunder, whether such obligations arose before or after such delegation and
assumption, in addition, the Counterparty will have the right to assign its
rights under the Guaranty in connection with the assignment of the cash flow
instrument issued in connection with the Agreement, provided, however, that
unless the Guarantor shall have received written notice of any such assignment,
it shall be entitled to treat the Counterparty as the beneficiary of this
Guaranty for all purposes and shall have no liability to any such assignee.
THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL
LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS
OF LAW. GUARANTOR AND COUNTERPARTY AGREE TO THE EXCLUSIVE JURISDICTION OF COURTS
LOCATED IN THE STATE OF NEW YORK, UNITED STATES OF AMERICA, OVER ANY DISPUTES
ARISING UNDER OR RELATING TO THIS GUARANTY.
Very truly yours,
THE GOLDMAN SACHS GROUP, INC.
By:---------------------------
Authorized Officer
<PAGE>
Exhibit 2.6.1(f)
NORWEST/MBIA SETTLEMENT AGREEMENT
OUTLINE OF MATERIAL TERMS
1. Critical Exceptions. Mortgage Loans identified by the Trustee
underlying the Securitizations with critical document deficiencies that
cannot be cured will be repurchased by SPFC, including accrued interest
and amounts required to be paid under the applicable Pooling and
Servicing Agreement.
2. Document Delivery Amendment. The Pooling and Servicing Agreements will
be amended, as necessary, (i) to permit delivery of a copy of a
Mortgage Note with a lost note affidavit and (ii) to allow, in lieu of
requiring recording assignments to the Trust, the delivery of an
opinion of counsel that such recordation is not necessary where
allowable.
3. Non-Critical Mortgage Loans. Reorganized SPFC will be required to cover
losses on certain of the Mortgage Loans that are incurred due to the
Master Servicer's inability to foreclose thereon due to document
deficiencies to the extent that such losses are not otherwise covered
by the related credit support provided by excess cashflow or
over-collateralization. Such obligation is limited to an aggregate
amount of $5,000,000 with respect to Series 1996-4, Series 1997-1,
Series 1997-3, Series 1997-4, Series 1998-1 and Series 1998-2 and an
aggregate amount of $1,700,000 with respect to Series 1997-2 and Series
1998-HI.
4. Phantom Loans. Certain of the Mortgage Loans were inadequately
transferred to the Trustee. SPFC will "repurchase" such mortgage loans
at an amount equal to the related unpaid principal balances and accrued
and unpaid interest thereon (together, without duplication, any related
unreimbursed advances which will, in turn, be reimbursed to SPFC).
5. Florida Cases. An affiliate of the Subscriber whose long term debt is
rated at least "A" by a nationally recognized statistical rating agency
will be obligated to repurchase any Mortgage Loan that is determined in
a final unappealable order to be owned or otherwise encumbered by
Oceanmark Bank, FSB, at the price set forth in such order. A letter of
credit from an entity with the foregoing debt rating in the amount of
$10,000,000 to cover the foregoing obligation would also be acceptable.
6. Events of Default for Successor Master Servicer. MBIA will agree to not
enforce the loss and delinquency level Events of Default in the Pooling
and Servicing Agreements against SPFC prior to September 30, 1999.
Thereafter, MBIA will continue such forbearance should the financial
condition of an approved and appointed subservicer meet certain
specified standards and such subservicer perform its duties in
accordance with its guide as audited by MBIA. In the event Advanta is
terminated by MBIA as Master Servicer under any Securitization, the
holder of the related Residual Certificates will have the right to
appoint a successor thereto subject to the approval of MBIA.
<PAGE>
7. Releases. SPFC will waive and release all claims against the Trustee
that either (i) arise out of or in any way relate to the subject matter
of the Settlement Agreement or (ii) are related to the tax
administration by Norwest. Any future holder of the residuals will be
required to agree to the foregoing release. The Trustee and MBIA will
waive and release all claims against SPFC due to the rejection of
certain agreements or, with respect to the Trustee, to the extent that
claims could have been asserted in its proof of claim. The Trustee and
MBIA will be estopped from asserting any Pooling and Servicing
Agreement defaults with respect to matters arising as of or prior to
the date of assumption thereof.
8. Bankruptcy Considerations. The Settlement Agreement is subject to
certain Bankruptcy Court approvals.
As used herein, "Mortgage Loans" means mortgage loans contained in the
Securitization Trust.
-2-
<PAGE>
SCHEDULE 3.2.2
CONFLICTS WITH ORGANIZATIONAL DOCUMENTS, LAWS, ASSUMED CONTRACTS--DEBTOR
NONE.
<PAGE>
SCHEDULE 4.2.2
CONFLICTS WITH ORGANIZATIONAL DOCUMENTS, LAWS, CONTRACTS--SUBSCRIBER
NONE.
<PAGE>
SCHEDULE 4.2.3
CONSENTS-SUBSCRIBER
NONE.
