AMENDED AND RESTATED
STOCK SUBSCRIPTION AND PURCHASE AGREEMENT
BETWEEN
SOUTHERN PACIFIC FUNDING CORPORATION
AND
THE ▇▇▇▇▇▇▇ ▇▇▇▇▇ GROUP, INC.
AMENDED AND RESTATED AS OF MAY 21, 1999
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
▇▇▇▇▇▇▇ SACHS GROUP, INC., a Delaware corporation ("Subscriber").
RECITALS
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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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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
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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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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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(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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(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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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.
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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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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 ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
& Wood, at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇,
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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(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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(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#:
▇▇▇▇▇▇▇▇▇ at Citibank, clearance account 87709012600; directed
to account ▇▇▇▇▇▇▇ in the name of ▇▇▇▇▇▇▇, ▇▇▇▇▇ & 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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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
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Miller, Nash, Wiener, Hager & ▇▇▇▇▇▇▇ LLP
▇▇▇ ▇.▇. ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Subscriber:
-----------
The ▇▇▇▇▇▇▇ ▇▇▇▇▇ Group, Inc.
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Cadwalader, ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇.▇. ▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
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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 ▇▇▇▇▇▇▇ ▇▇▇▇▇ GROUP, INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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
▇▇▇▇▇▇▇, ▇▇▇▇▇ & Co., pursuant to which ▇▇▇▇▇▇▇, 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 ▇▇▇▇-▇▇▇▇▇ ▇▇▇▇▇▇ 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 ▇▇▇▇▇ 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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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
-42-
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.
-43-
"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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"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).
-45-
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.
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.
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.
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.
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:
(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
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
(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
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
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
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.
7
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: -----------------------------
8
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 ▇▇▇▇▇▇▇, ▇▇▇▇▇ & 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;
9
(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
10
(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 ▇▇▇▇▇ 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.
11
"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.
13
"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 ▇▇▇▇▇▇▇ 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:
14
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.
15
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.
17
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 ▇▇▇▇▇▇▇ ▇▇▇▇▇ Group, Inc.,
("Subscriber"), including any securities retained by the Company in connection
with the Securitization of any Assets.
18
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.
19
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.
20
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") ▇▇▇▇▇▇▇, SACHS & CO., a Delaware
limited partnership ("Asset Company"), and THE ▇▇▇▇▇▇▇ ▇▇▇▇▇ 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 ▇▇▇▇▇▇▇, 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 ▇▇▇▇▇▇▇ ▇▇▇▇▇ 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.
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.
2
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.
3
(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.
4
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
5
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.
6
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):
7
Liquidating Trust: Asset Company:
------------------ --------------
SPFC Liquidating Trust ▇▇▇▇▇▇▇, ▇▇▇▇▇ & Co.
One Centerpointe Drive ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇ Attention: ▇▇▇ ▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
with a copy to:
Miller, Nash, Wiener, Hager & ▇▇▇▇▇▇▇ LLP
▇▇▇ ▇.▇. ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇
Suite 3500 ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇ Attention: ▇▇▇▇▇ ▇.▇. ▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇ Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Subscriber: Company:
----------- --------
The ▇▇▇▇▇▇▇ ▇▇▇▇▇ Group, Inc. Southern Pacific Funding Corporation
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ 10004 ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇ Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇ with a copy to:
with a copy to: Miller, Nash, Wiener, Hager & ▇▇▇▇▇▇▇ LLP
▇▇▇ ▇.▇. ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇ Suite 3500
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇.▇. ▇▇▇▇▇▇▇ Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
8
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.
9
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 ▇▇▇▇▇▇▇ ▇▇▇▇▇ GROUP, INC.
CORPORATION
By: By:
Title: Title:
SPFC LIQUIDATING TRUST ▇▇▇▇▇▇▇, SACHS & CO.
By: By:
Trustee
Title:
10
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.
1
"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
▇▇▇▇▇▇▇, ▇▇▇▇▇ & Co., pursuant to which ▇▇▇▇▇▇▇, 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
"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
3
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.
4
"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
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).
6
"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).
APPENDIX II
, 1999
Southern Pacific Funding Corporation
ADDRESS
Attention:
Ladies and Gentlemen:
For value received, The ▇▇▇▇▇▇▇ ▇▇▇▇▇ 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, ▇▇▇▇▇▇▇, ▇▇▇▇▇ & 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
2
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 ▇▇▇▇▇▇▇ SACHS GROUP, INC.
By:---------------------------
Authorized Officer
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.
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-
SCHEDULE 3.2.2
CONFLICTS WITH ORGANIZATIONAL DOCUMENTS, LAWS, ASSUMED CONTRACTS--DEBTOR
NONE.
SCHEDULE 4.2.2
CONFLICTS WITH ORGANIZATIONAL DOCUMENTS, LAWS, CONTRACTS--SUBSCRIBER
NONE.
SCHEDULE 4.2.3
CONSENTS-SUBSCRIBER
NONE.