DRAFT #2




                KEY EMPLOYEE SEVERANCE AGREEMENT
                (TIER 2 EXECUTIVE)

                Southern Pacific Funding Corporation

                August 1998


















                                        Note:   This  draft  form  of  agreement
                                        reflects   the   basic   terms   of  the
                                        severance   policy   with   respect   to
                                        executive vice president level positions
                                        adopted  by the  Board of  Directors  of
                                        Southern Pacific Funding  Corporation in
                                        June 1998 and is subject to change  upon
                                        review by  representatives  of  Southern
                                        Pacific  Funding   Corporation  and  its
                                        legal counsel.


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CONTENTS




--------------------------------------------------------------------------------
Article 1. Definitions                                                         1

Article 2. Severance Benefits                                                  5

Article 3. Form and Timing of Severance Benefits                               8

Article 4. Excise Tax                                                          8

Article 5. The Company's Payment Obligation                                    9

Article 6. Recission                                                          10

Article 7. Covenants                                                          10

Article 8. Term of Agreement                                                  11

Article 9. Legal Remedies                                                     11

Article 10. Successors                                                        13

Article 11. Miscellaneous                                                     13




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KEY EMPLOYEE SEVERANCE AGREEMENT (TIER 2 EXECUTIVE)
SOUTHERN PACIFIC FUNDING CORPORATION

     THIS KEY  EMPLOYEE  SEVERANCE  AGREEMENT  is  made,  entered  into,  and is
effective  as of August ---,  1998  (hereinafter  referred to as the  "Effective
Date"), by and between Southern Pacific Funding  Corporation (the "Company"),  a
California corporation, and -------------- (the "Executive").

     WHEREAS,  the  Executive  is  currently  employed  by the  Company in a key
management capacity; and

     WHEREAS, the Executive possesses  considerable  experience and knowledge of
the business and affairs of the Company and its  policies,  methods,  personnel,
and operations; and

     WHEREAS,  the Company is desirous of assuring insofar as possible,  that it
will continue to have the benefit of the Executive's services; and the Executive
is desirous of having such assurances; and

     WHEREAS,  the Company  recognizes that  circumstances  may arise in which a
change in control of the  Company  occurs,  through  acquisition  or  otherwise,
thereby  causing  uncertainty of employment  without  regard to the  Executive's
competence or past contributions. Such uncertainty may result in the loss of the
valuable  services  of the  Executive  to the  detriment  of the Company and its
shareholders; and

     WHEREAS,  both the Company and the Executive are desirous that any proposal
for a change in control  or  acquisition  will be  considered  by the  Executive
objectively and with reference only to the business interests of the Company and
its shareholders; and

     WHEREAS,  the  Executive  will be in a  better  position  to  consider  the
Company's  best  interests if the Executive is afforded a level of security,  as
provided in this Agreement, against altered conditions of employment which could
result from any such change in control or acquisition.

     NOW,  THEREFORE,  in  consideration  of the  foregoing  and  of the  mutual
covenants  and  agreements  of the parties set forth in this  Agreement,  and of
other good and valuable consideration,  the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound, agree as
follows:

ARTICLE 1. DEFINITIONS
     Wherever  used in this  Agreement,  the  following  terms  shall  have  the
meanings set forth below and, when the meaning is intended,  the initial  letter
of the word is capitalized:

     (a) "Agreement" means this Key Employee Severance Agreement.

     (b)    "Base  Salary" means the salary of record paid by the Company to the
            Executive  as  annual  salary,   excluding  amounts  received  under
            incentive or other bonus plans, whether or not deferred.


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     (c)    "Board"  means the Board of  Directors of Southern  Pacific  Funding
            Corporation.

     (d)    "Cause" shall be determined  solely by the Committee in the exercise
            of good faith and reasonable judgment, and shall mean the occurrence
            of any one or more of the following:

             (i)    The  willful  and  continued  failure  by the  Executive  to
                    substantially  perform his duties of employment  (other than
                    any such failure resulting from the Executive's Disability),
                    after  a  written  demand  for  substantial  performance  is
                    delivered to the Executive that specifically  identifies the
                    manner in which the  Committee  believes  that the Executive
                    has  not  substantially   performed  his  duties,   and  the
                    Executive has failed to remedy the situation within ten (10)
                    business days of receiving such notice; or

            (ii)    The  Executive's  conviction for committing an act of fraud,
                    embezzlement,  theft,  or other  act  constituting  a felony
                    involving  moral turpitude (with all rights of appeal having
                    been exhausted); or

           (iii)    The  willful   engaging  by  the   Executive  in  misconduct
                    materially  and  demonstrably   injurious  to  the  Company,
                    monetarily or otherwise.  However,  no act or failure to act
                    on the Executive's part shall be considered "willful" unless
                    done,  or omitted to be done,  by the  Executive not in good
                    faith  and  without  reasonable  belief  that his  action or
                    omission was in the best interest of the Company.

     (e)    "Change in Control" shall be deemed to have occurred as of the first
            day that any one or more of the following conditions shall have been
            satisfied:

             (i)    Any Person  (other  than the  Company;  any trustee or other
                    fiduciary holding  securities under an employee benefit plan
                    of  the  Company;   or  any  company   owned,   directly  or
                    indirectly,   by  the   stockholders   of  the   Company  in
                    substantially the same proportions as their ownership of the
                    Stock of the Company) is or becomes the  "beneficial  owner"
                    (as defined in Rule 13d-3 under the Exchange Act),  directly
                    or  indirectly,  of securities of the Company (not including
                    in the  securities  beneficially  owned by such  Person  any
                    securities   acquired  directly  from  the  Company  or  its
                    affiliates) representing thirty percent (30%) or more of the
                    combined  voting  power of the  Company's  then  outstanding
                    securities; or

            (ii)    During any period of two  consecutive  years (not  including
                    any period prior to the Effective Date),  individuals who at
                    the beginning of such period  constitute the Board,  and any
                    new director  (other than a director  designated by a person
                    who has entered into an agreement with the Company to effect
                    a  transaction  described in clause (i),  (iii),  or (iv) of
                    this definition),  whose election by the Board or nomination
                    for election by the Company's shareholders was approved by a
                    vote of at  least  two-thirds  (2/3) of the  directors  then
                    still in office who either were  directors at the  beginning
                    of the period or whose  election or nomination  for election
                    was  previously  so  approved,   cease  for  any  reason  to
                    constitute at least a majority thereof; or

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           (iii)    The   shareholders  of  the  Company  approve  a  merger  or
                    consolidation  of the  Company  with any other  corporation,
                    other than (A) a merger or consolidation  which would result
                    in  the  voting   securities  of  the  Company   outstanding
                    immediately prior thereto continuing to represent (either by
                    remaining  outstanding  or by being  converted  into  voting
                    securities of the surviving entity), in combination with the
                    ownership  of  any  trustee  or  other   fiduciary   holding
                    securities under an employee benefit plan of the Company, at
                    least  seventy-five  percent  (75%) of the  combined  voting
                    power  of the  voting  securities  of the  Company  or  such
                    surviving entity  outstanding  immediately after such merger
                    or consolidation  or (B) a merger or consolidation  effected
                    to implement a  recapitalization  of the Company (or similar
                    transaction)  in which no person  acquires  more than  fifty
                    percent (50%) of the combined  voting power of the Company's
                    then outstanding securities; or

            (iv)    The  shareholders  of the Company approve a plan of complete
                    liquidation  of the Company or an agreement  for the sale or
                    disposition  by the Company of all or  substantially  all of
                    the Company's assets.

     (f)    "Claim  Date" means the date on which the  Executive  or the Company
            gives written notice to the other party that a controversy, dispute,
            or claim exists that arises out of or relates to this Agreement.

     (g)    "Code" means the Internal Revenue Code of 1986, as amended.

     (h)    "Committee"  means any  committee  to which the Board has  delegated
            authority to administer  the  provisions of this  Agreement.  If the
            Board has not so delegated its authority, "Committee" shall mean the
            Board.

     (i)    "Company" means Southern Pacific Funding  Corporation,  a California
            corporation  (including any and all subsidiaries),  or any successor
            thereto as provided in Article 10 herein.

     (j)    "Disability"  means  permanent  and total  disability  as determined
            under the Company's disability program or policy.

     (k)    "Effective  Date" means the date set forth above in the  preamble to
            this Agreement.

     (l)    "Effective Date of Termination" means the date on which a Qualifying
            Termination  occurs,  as provided  in  Paragraph  2.3 herein,  which
            triggers the payment of Severance Benefits hereunder.

     (m)    "Exchange  Act"  means  the  Securities  Exchange  Act of  1934,  as
            amended.


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     (n)    "Good  Reason"  means,   without  the  Executive's  express  written
            consent,  the occurrence after a Change in Control of the Company of
            any one or more of the following:

             (i)    The  assignment  of  the  Executive  to  duties   materially
                    inconsistent  with  the  Executive's  authorities,   duties,
                    responsibilities, and status (including offices, titles, and
                    reporting  requirements) as an officer of the Company,  or a
                    material  reduction or alteration in the nature or status of
                    the Executive's  authorities,  duties,  or  responsibilities
                    from those in effect as of ninety (90)  calendar  days prior
                    to the Change in Control,  other than an  insubstantial  and
                    inadvertent  act that is remedied  by the  Company  promptly
                    after receipt of notice thereof given by the Executive;

            (ii)    The  Company's  requiring  that the  Executive be based at a
                    location in excess of fifty (50) miles from the  location of
                    the Executive's principal job location or office immediately
                    prior to the Change in Control;  except for required  travel
                    on  the  Company's  business  to  an  extent   substantially
                    consistent  with the  Executive's  present  business  travel
                    obligations;

           (iii)    A fifteen  percent (15%) or more reduction by the Company of
                    the Executive's Base Salary or target bonus amount under the
                    Company's Executive  Performance  Excellence  Incentive Plan
                    (or  any  successor  plan)  as  each  is in  effect  on  the
                    Effective Date hereof or as the same shall be increased from
                    time to time;  unless  such  reduction  is the  result  of a
                    general  reduction in the compensation paid to the Company's
                    executives for legitimate  business reasons unrelated to the
                    Executive's employment;

            (iv)    The  failure of the Company to continue in effect any of the
                    Company's short- or long-term incentive  compensation plans,
                    or  employee   benefit  or   retirement   plans,   policies,
                    practices,  or other compensation  arrangements in which the
                    Executive  participates  unless such failure to continue the
                    plan, policy,  practice, or arrangement pertains to all plan
                    participants  generally  and the  Executive is provided with
                    replacement plans, policies,  practices,  or arrangements of
                    comparable  value; or the failure by the Company to continue
                    the Executive's  participation  therein on substantially the
                    same basis, both in terms of the amount of benefits provided
                    and the level of the Executive's  participation  relative to
                    other  participants,  as  existed  immediately  prior to the
                    Change in Control of the Company;

             (v)    The  failure  of  the  Company  to  obtain  a   satisfactory
                    agreement  from any  successor  to the Company to assume and
                    agree  to  perform  the  Company's  obligations  under  this
                    Agreement, as contemplated in Article 10 herein; and

            (vi)    Any purported  termination by the Company of the Executive's
                    employment  that is not  affected  pursuant  to a Notice  of
                    Termination  satisfying  the  requirements  of  Section  2.8
                    herein,  and  for  purposes  of  this  Agreement,   no  such
                    purported termination shall be effective.


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            The  Executive's  termination  of employment  shall not be for "Good
            Reason" if such  termination  occurs more than six (6) months  after
            the  occurrence  of an event that would  otherwise  constitute  Good
            Reason.  The  Executive's  right to  terminate  employment  for Good
            Reason shall not be affected by the  Executive's  incapacity  due to
            physical  or mental  illness.  Except  where the  Executive  remains
            employed  more  than  six (6)  months  after  an  event  that  would
            otherwise  constitute  "Good  Reason,"  the  Executive's   continued
            employment  shall not  constitute  consent to, or a waiver of rights
            with respect to, any circumstance constituting Good Reason herein.

     (o)    "Gross-Up Payment" means the payment provided for in Section 4.1.

     (p)    "Person"  shall have the  meaning  ascribed  to such term in Section
            3(a)(9) of the  Exchange  Act and used in  Sections  13(d) and 14(d)
            thereof, including a "group" as defined in Section 13(d).

     (q)    "Qualifying  Termination"  means  any of  the  events  described  in
            Section 2.3 herein,  the occurrence of which triggers the payment of
            Severance Benefits hereunder.

     (r)    "Severance Benefits" means the payment of severance  compensation as
            provided in Section 2.4 herein.

     (s)    "Stock"  means the  Common  Stock,  no par value per  share,  of the
            Company.

ARTICLE 2. SEVERANCE BENEFITS
     2.1 RIGHT TO SEVERANCE  BENEFITS.  Except to the extent prohibited pursuant
to Section 5.3 and Article 6, the  Executive  shall be entitled to receive  from
the Company the Severance  Benefits,  described in Section 2.4 herein,  if there
has been a Change  in  Control  of the  Company  and if,  within  eighteen  (18)
calendar months  thereafter,  the Executive's  employment with the Company shall
end for any  reason  specified  in  Section  2.3  herein  as being a  Qualifying
Termination.

     The Executive shall not be entitled to receive Severance  Benefits if he is
terminated for Cause,  or if his employment  with the Company ends due to death,
Disability,  normal  retirement (as defined under the then established  rules of
the Company's tax-qualified  retirement plan), or due to a voluntary termination
of employment by the Executive without Good Reason.

     2.2 SERVICES DURING CERTAIN  EVENTS.  In the event a Person begins a tender
or exchange offer,  circulates a proxy to shareholders of the Company,  or takes
any other step seeking to effect a Change in Control,  the Executive agrees that
he will not voluntarily leave the employ of the Company and will render services
until such Person has  abandoned  or  terminated  his or its efforts to effect a
Change  in  Control,  or until six (6)  months  after a Change  in  Control  has
occurred;  provided,  however,  that the Company may terminate  the  Executive's
employment for Cause at any time, and the Executive may terminate his employment
any time after the Change in Control for Good Reason.


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     2.3  QUALIFYING  TERMINATION.  The  occurrence  of any  one or  more of the
following  events  within  eighteen (18) months after a Change in Control of the
Company shall trigger the payment of Severance  Benefits to the Executive  under
this Agreement:

            (a)    The  Company's  involuntary  termination  of the  Executive's
                   employment without Cause;

            (b)    The  Executive's  voluntary  employment  termination for Good
                   Reason  within six (6) months of the  occurrence  of an event
                   that constitutes Good Reason;

            (c)    A successor  company fails or refuses to assume the Company's
                   obligations  under  this  Agreement  in  their  entirety,  as
                   required by Article 10 herein; or

            (d)    The Company,  or any  successor  company,  commits a material
                   breach of any of the provisions of this Agreement.

     For purposes of this Agreement,  a Qualifying Termination shall not include
a termination of employment by reason of death, Disability, or normal retirement
(as such term is  defined  under  the  then-established  rules of the  Company's
tax-qualified  retirement plan), the Executive's  voluntary  termination without
Good Reason, or the Company's involuntary termination for Cause.

     2.4  DESCRIPTION  OF SEVERANCE  BENEFITS.  In the event that the  Executive
becomes entitled to receive Severance Benefits,  as provided in Sections 2.1 and
2.3 herein,  the Company  shall pay to the  Executive and provide him with total
Severance Benefits equal to the following:

            (a)    A  lump-sum  amount  equal  to the  Executive's  unpaid  Base
                   Salary, accrued vacation pay, unreimbursed business expenses,
                   and all  other  items  earned  by and  owed to the  Executive
                   through and including the Effective Date of Termination.

            (b)    A lump-sum  amount  equal to the  Executive's  annual  target
                   bonus amount,  established  under the  Executive  Performance
                   Excellence  Incentive  Plan (or any  successor  plan) for the
                   bonus plan year in which the  Executive's  Effective  Date of
                   Termination occurs, multiplied by a fraction the numerator of
                   which is the full  number of  calendar  days in the year from
                   January 1 through the Effective Date of Termination,  and the
                   denominator of which is three hundred  sixty-five (365). This
                   payment  will be in lieu of any other  payment  to be made to
                   the  Executive  under the  Executive  Performance  Excellence
                   Incentive Plan (or any successor plan) for that plan year.

            (c)    A lump-sum  amount equal to two (2)  multiplied by the sum of
                   (i) the greater of the  Executive's  Base Salary upon (a) the
                   Executive's  Date of  Termination  or upon (b) the  effective
                   date of a Change in Control;  and (ii) the greater of (a) the
                   average of annual  bonuses paid to the  Executive  during the
                   two (2)  years  immediately  preceding  the  year in  which a
                   Change  in  Control  occurs,  or (b) the  Executive's  annual
                   target  bonus   amount   established   under  the   Executive
                   Performance


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                   Excellence  Incentive  Plan (or any  successor  plan) for the
                   bonus plan year in which the  Executive's  Effective  Date of
                   Termination  occurs;   provided,   however,   that  under  no
                   circumstances  shall the amounts  payable  under this Section
                   2.4(c) exceed seven hundred thousand dollars ($700,000).

            (d)    The  vesting  and the  lapse of  restrictions  on any and all
                   outstanding  awards held by the Executive,  as granted to the
                   Executive  under  the  provisions  of  the  Southern  Pacific
                   Funding  Corporation  1995 Stock Option,  Deferred Stock, and
                   Restricted  Stock  Plan (as  amended)  (or any  successor  or
                   complementary  plan),  shall be governed by the provisions of
                   such plan or plans and any applicable award
                   agreements.

            (e)    A  continuation  for  a  twelve  (12)  month  period  of  all
                   welfare-type  benefits  provided to the Executive at the time
                   of termination including, but not limited to, group term life
                   insurance,  medical  insurance,  and accident and  disability
                   insurance. These benefits shall be provided by the Company to
                   the  Executive   immediately   upon  the  Effective  Date  of
                   Termination. Such benefits shall be provided to the Executive
                   at the Company's  cost, and at the same coverage level, as in
                   effect as of the  Executive's  Effective Date of Termination.
                   Further,  the eighteen (18) month COBRA period shall commence
                   for medical benefits as of the Executive's  Effective Date of
                   Termination.  Following  the  termination  of the twelve (12)
                   month  period of  Company-provided  benefits,  the  Executive
                   shall be allowed to  purchase  medical  benefits  at the then
                   applicable  COBRA cost for the  remaining six (6) month COBRA
                   coverage period.

                   However   notwithstanding   the  above,   these  welfare-type
                   benefits shall be discontinued prior to the end of the stated
                   continuation  period  in the  event  the  Executive  receives
                   substantially similar benefits from a subsequent employer, as
                   determined  solely  by  the  Committee  in  good  faith.  For
                   purposes of enforcing  this offset  provision,  the Executive
                   shall be deemed to have a duty to keep the  Company  informed
                   as to the terms and conditions of any  subsequent  employment
                   and the  corresponding  benefits  earned from such employment
                   and shall  provide,  or cause to  provide,  to the Company in
                   writing correct,  complete, and timely information concerning
                   the same.

            (f)    At Company  expense,  standard  outplacement  services from a
                   nationally  recognized  outplacement  firm  of the  Company's
                   selection  for a  period  of up to  one  (1)  year  from  the
                   Effective Date of Termination.  However, except as determined
                   by the  Committee  in its sole and absolute  discretion,  the
                   Executive  shall not be entitled to receive a cash payment in
                   lieu of such outplacement services.

     2.5 TERMINATION FOR TOTAL AND PERMANENT  DISABILITY.  Following a Change in
Control,  if the  Executive's  employment is terminated  with the Company due to
Disability,  the Executive's benefits shall be determined in accordance with the
Company's  disability,  retirement,  insurance,  and other  applicable plans and
programs then in effect.


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     2.6 TERMINATION FOR RETIREMENT OR DEATH.  Following a Change in Control, if
the  Executive's  employment  with the  Company is  terminated  by reason of his
normal  retirement (as defined under the then established rules of the Company's
tax-qualified  retirement  plan), or death,  the  Executive's  benefits shall be
determined in accordance  with the Company's  retirement,  survivor's  benefits,
insurance, and other applicable programs then in effect.

     2.7  TERMINATION  FOR CAUSE OR BY THE EXECUTIVE OTHER THAN FOR GOOD REASON.
Following a Change in  Control,  if the  Executive's  employment  is  terminated
either:  (i) by the Company for Cause;  or (ii) by the Executive  other than for
Good Reason,  the Company  shall pay the  Executive  his full Base Salary at the
rate then in effect, accrued vacation, and other items earned by and owed to the
Executive  through the Effective Date of Termination,  plus all other amounts to
which the Executive is entitled under any  compensation  plans of the Company at
the  time  such  payments  are  due,  and the  Company  shall  have  no  further
obligations to the Executive under this Agreement.

     2.8 NOTICE OF  TERMINATION.  Any  termination by the Company for Cause or a
Qualifying  Termination by the Executive or the Company shall be communicated by
Notice of  Termination  to the other party.  For purposes of this  Agreement,  a
"Notice of  Termination"  shall mean a written  notice which shall  indicate the
specific  termination  provision in this  Agreement  relied upon,  and shall set
forth in  reasonable  detail  the facts and  circumstances  claimed to provide a
basis for  termination  of the  Executive's  employment  under the  provision so
indicated.

ARTICLE 3. FORM AND TIMING OF SEVERANCE BENEFITS
     3.1 FORM AND TIMING OF SEVERANCE BENEFITS.  Except as otherwise provided in
Section 5.3, the Severance  Benefits  described in Sections 2.4(a),  2.4(b), and
2.4(c)  herein shall be paid in cash to the  Executive  in a single  lump-sum as
soon as practicable following the Executive's Effective Date of Termination, but
in no event beyond thirty (30) days from such date.

     3.2  WITHHOLDING  OF TAXES.  The Company  shall  withhold  from any amounts
payable under this Agreement all federal, state, city, or other taxes as legally
shall be required.

ARTICLE 4. EXCISE TAX
     4.1 EXCISE TAX  PAYMENT.  If any portion of the  Severance  Benefits or any
other payment under this Agreement or under any other agreement with, or plan of
the Company,  including but not limited to stock  options,  and other  long-term
incentives,  would constitute an "excess parachute  payment," such that a golden
parachute  excise tax is due,  the Company  shall  provide to the  Executive  an
additional  payment,  in cash, in an amount sufficient to cover the full cost to
the Executive of any excise tax and the state and federal  income and employment
taxes  on  this  additional  payment,  and all  iterative  excise,  income,  and
employment  taxes  thereon  (cumulatively,  the  "Gross-Up  Payment").  For this
purpose,  the  Executive  shall be deemed to be in the highest  marginal rate of
federal and state taxes.  The Gross-Up Payment shall be made as soon as possible
following the date of the Executive's  Qualifying  Termination,  but in no event
later than thirty (30) calendar days of such date.

     For purposes of this Agreement,  the term "excess parachute  payment" shall
have the meaning assigned to such term in Section 280G of the Code, and the term
"excise  tax"  shall  mean the tax  imposed  on such  excess  parachute  payment
pursuant to Sections 280G and 4999 of the Code.


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     4.2 SUBSEQUENT  RECALCULATION.  In the event the Internal  Revenue  Service
subsequently  adjusts the excise tax computation  herein described,  the Company
shall  reimburse  the  Executive  for the  full  amount  necessary  to make  the
Executive  whole  on an  after-tax  basis  (less  any  amounts  received  by the
Executive  that the  Executive  would  not have  received  had the  computations
initially been computed as  subsequently  adjusted),  including the value of any
underpaid  excise tax,  and any related  interest  and/or  penalties  due to the
Internal Revenue Service.

ARTICLE 5. THE COMPANY'S PAYMENT OBLIGATION
     5.1 PAYMENT  OBLIGATIONS  ABSOLUTE.  Except as may otherwise be provided in
Section  5.3 and  Article  6, the  Company's  obligation  to make  the  payments
provided  for  herein  shall be  absolute  and  unconditional,  and shall not be
affected  by any  circumstances,  including,  without  limitation,  any  offset,
counterclaim,  recoupment,  defense,  or other  right which the Company may have
against  the  Executive  or anyone  else.  All  amounts  payable by the  Company
hereunder  shall be paid without  notice or demand.  Except as may  otherwise be
provided in Section 5.4,  each and every  payment made  hereunder by the Company
shall be final,  and the  Company  shall not seek to recover  all or any part of
such payment from the Executive or from whomsoever may be entitled thereto,  for
any reasons whatsoever.

     The Executive shall not be obligated to seek other employment in mitigation
of the  amounts  payable  or  arrangements  made  under  any  provision  of this
Agreement,  and the  obtaining  of any such other  employment  shall in no event
effect any  reduction  of the  Company's  obligations  to make the  payments and
arrangements  required  to be made  under this  Agreement,  except to the extent
provided in Section 2.4(e) herein.

     5.2 CONTRACTUAL RIGHTS TO BENEFITS. This Agreement establishes and vests in
the  Executive  a  contractual  right to the  benefits  to which he is  entitled
hereunder.  However,  nothing  herein  contained  shall  require or be deemed to
require,  or  prohibit  or be deemed to  prohibit,  the  Company  to  segregate,
earmark,  or  otherwise  set  aside  any  funds  or  other  assets,  in trust or
otherwise, to provide for any payments to be made or required hereunder.

     5.3 EXECUTION OF RELEASE. The Executive agrees that the payment of any sums
due the  Executive  pursuant to this  Agreement is  contingent  on the Executive
executing  a release of all legal  claims or actions  against the  Company,  its
affiliates,  shareholders,  directors, officers, employees,  representatives, or
agents,  whether arising out of, or relating to, the Executive's employment with
the  Company,  in  substantially  the same form as the release  attached to this
Agreement. The Executive agrees that his failure to execute such a release shall
cancel the  Company's  obligations  to pay any sums  otherwise due the Executive
under this Agreement (other than any sums due pursuant to Section 2.4(a)).


                                       9
<PAGE>


     5.4  REHIRE.  In the event that the  Executive  is  rehired by the  Company
following a termination after a Change in Control,  unless otherwise  determined
by the Committee in its sole and absolute  discretion,  the  Executive  shall be
required to reimburse to the Company an amount equal to the applicable repayment
percentage  specified on the schedule below multiplied by the sum of any amounts
paid to the Executive pursuant to Sections 2.4(b) and 2.4(c):

       CALENDAR DAYS FROM (BUT NOT INCLUDING)           REPAYMENT PERCENTAGE
         THE EFFECTIVE DATE OF TERMINATION
            THROUGH THE DATE OF REHIRE

                    0 through 90                               75%

                   91 through 180                              50%


                   180 through 270                             25%

                    More than 270                               0%


     Notwithstanding  the  foregoing,  the  repayment  amount  shall be reduced,
dollar for dollar,  to the extent,  if any, that the sum of the Executive's Base
Salary and annual target bonus amount under the Company's Executive  Performance
Excellence  Plan (or any successor plan) upon rehire is less than the greater of
such sum as of either (a) the date  immediately  prior to the effective  date of
the Change in Control, or (b) the Executive's Effective Date of Termination.

ARTICLE 6. RECISSION
     If the Committee  determines,  in its sole and absolute  discretion,  based
upon the opinion of the Company's  independent certified public accounting firm,
that (i) the  consummation  of a pending  merger  involving  the  Company may be
contingent upon the parties' ability to use pooling of interests accounting, and
(ii) a provision of this Agreement  (including,  but not limited to the Gross-Up
Payment  of  Section  4.1)  would  preclude  the  use of  pooling  of  interests
accounting  in  such  merger,  the  Committee  may,  in its  sole  and  absolute
discretion,  eliminate or modify any such provisions only to the extent required
to allow pooling of interests accounting to be used in such merger.

     The Executive  agrees that the  execution of this  Agreement by the Company
constitutes sufficient  consideration for the Executive granting the Company the
right  to  recission  provided  for in this  Article  6 and  that no  additional
consideration  shall be required  from the Company,  or any other party,  in the
event that the Committee exercises such right of recission.

ARTICLE 7. COVENANTS
     7.1  CONFIDENTIALITY.  The  Executive  agrees that at all times  during and
following  the term of this  Agreement,  he will not,  without the prior written
consent of the Company use, attempt to use, disclose, or otherwise make known to
any  person,  firm,  corporation,  or other  entity  (other  than  the  Board of
Directors  of  the  Company)  any  confidential  or  proprietary   knowledge  or
information  of the  Company  or its  subsidiaries  which is now known to him or
which hereafter  (whether before or after his  termination)  may become known to
him as a result of his employment or association with the Company.

                                       10
<PAGE>

     7.2 NONSOLICITATION. Following the termination of employment, the Executive
agrees  that he will not  retain,  solicit,  or induce  or  attempt  to  retain,
solicit,  or induce, any employee of the Company or any of its subsidiaries,  to
terminate his employment.

     7.3  COOPERATION.  The Executive  agrees that,  at all times  following his
employment  termination,  he will  furnish  such  information  and  render  such
assistance and cooperation as may reasonably be requested in connection with any
litigation  or  legal   proceedings   concerning  the  Company  or  any  of  its
subsidiaries  (other  than any  legal  proceedings  concerning  the  Executive's
employment).  In  connection  with such  cooperation,  the  Company  will pay or
reimburse the Executive for all reasonable expenses incurred in cooperating with
such requests.

     7.4  REMEDIES  FOR BREACH.  It is  recognized  that damages in the event of
breach of this Article 7 by the Executive would be difficult, if not impossible,
to ascertain,  and it is therefore  agreed that the Company,  in addition to and
without  limiting any other remedy or right it may have, shall have the right to
an injunction or other equitable relief in any court of competent  jurisdiction,
enjoining any such breach,  and the Executive hereby waives any and all defenses
he may have on the ground of lack of  jurisdiction or competence of the court to
grant such an injunction or other equitable relief.  The existence of this right
shall not preclude  the Company  from  pursuing any other rights and remedies at
law or in equity that the Company may have.

ARTICLE 8. TERM OF AGREEMENT
     This Agreement will commence on the Effective Date first written above, and
shall continue in effect for three (3) full calendar years.  However, at the end
of such three-year  period and, if extended,  at the end of each additional year
thereafter,  the term of this Agreement shall be extended  automatically for one
(1) additional year, unless the Company delivers written notice to the Executive
three (3)  months  prior to the end of such term,  or  extended  term,  that the
Agreement  will not be extended.  In such case,  the Agreement will terminate at
the end of the term, or extended term, then in progress.

     However, in the event a Change in Control occurs during the original or any
extended term, and  notwithstanding  any other provision of this Article 8, this
Agreement will remain in effect for the longest of (i) the remaining term of the
original three (3) year term, if still in effect; (ii) eighteen (18) months from
the effective date of such Change in Control;  or (iii) until all obligations of
the Company  hereunder  have been  fulfilled,  and until all  benefits  required
hereunder have been paid to the Executive.

ARTICLE 9. LEGAL REMEDIES
     9.1 DISPUTE  RESOLUTION.  Each controversy,  dispute,  or claim between the
Executive and the Company  arising out of or relating to this  Agreement,  which
controversy,  dispute,  or claim is not  settled in writing  within  thirty (30)
calendar days after the Claim Date,  will be settled by binding  arbitration  in
Portland,  Oregon in accordance with the provisions of the American  Arbitration
Association. Further:

            (a)    Such  arbitration  shall  constitute the exclusive remedy for
                   the settlement of any controversy, dispute, or claim, and the
                   Executive and the Company each waive their rights to initiate
                   any legal proceedings against each other in any court or


                                       11
<PAGE>


                   jurisdiction.  Any decision  rendered by the  arbitrator  and
                   such arbitration will be final,  binding,  and conclusive and
                   judgment shall be entered in any court in the state of Oregon
                   having jurisdiction.

            (b)    Except  as  expressly  set  forth  in  this  Agreement,   the
                   arbitrator shall determine the manner in which the proceeding
                   is  conducted,  including the time and place of all hearings,
                   the  order  of  presentation  of  evidence,   and  all  other
                   questions  that  arise  with  respect  to the  course  of the
                   proceeding. All proceedings and hearings conducted before the
                   arbitrator,  except for trial,  shall be conducted  without a
                   court  reporter,  except that when any party so  requests,  a
                   court reporter will be used at any hearing  conducted  before
                   the  arbitrator.  The party making such a request  shall have
                   the obligation to arrange for any pay for the court reporter.
                   Except as may otherwise be provided in Section 9.2, the costs
                   of the court reporter shall be borne equally by the parties.

            (c)    The  arbitrator  shall be required to determine all issues in
                   accordance  with existing case and statutory law of the state
                   of Oregon. The rules of evidence applicable to proceedings at
                   law  in  the  state  of  Oregon  will  be  applicable  to the
                   proceeding.  The  arbitrator  shall  be  empowered  to  enter
                   equitable as well as legal  relief,  to provide all temporary
                   and/or  provisional  remedies,  and to enter equitable orders
                   that will be binding upon the Executive and the Company.  The
                   arbitrator  shall issue a single judgment at the close of the
                   proceeding  which  shall  dispose of all of the claims of the
                   Executive  and  the  Company  that  are  the  subject  of the
                   proceeding.   The  Executive  and  the  Company  hereto  each
                   expressly  reserve  the right to contest  or appeal  from the
                   final judgment or any appealable order or appealable judgment
                   entered by the  arbitrator.  The  Executive  and the  Company
                   hereto each expressly  reserve the right to findings of fact,
                   conclusions of law, a written statement of decision,  and the
                   right to move for a new trial or a different judgment,  which
                   new trial,  if granted,  is also to be a proceeding  governed
                   under this Section 9.1.

     9.2  PAYMENT  OF LEGAL  FEES.  In the event that it shall be  necessary  or
desirable for the Executive to retain legal counsel  and/or to incur other costs
and  expenses in  connection  with the  enforcement  of any or all of his rights
under this  Agreement,  including,  but not  limited to,  maintaining  an action
pursuant to Section 9.1 herein, the Company shall pay (or the Executive shall be
entitled to recover from the Company)  fifty  percent  (50%) of the  Executive's
reasonable  attorneys'  fees and  costs  and  expenses  in  connection  with the
enforcement of his rights  including the enforcement of any  arbitration  award.
This shall include without limitation,  court costs and attorneys' fees incurred
by the Executive as a result of any claim, action, or proceeding,  including any
such action against the Company  arising out of, or challenging  the validity or
enforceability  of this  Agreement or any provision  hereof.  However,  under no
circumstances  shall the  amounts  payable by the Company to or on behalf of the
Executive pursuant to this Section 9.2 exceed fifty thousand dollars ($50,000).


                                       12
<PAGE>


ARTICLE 10. SUCCESSORS
     The rights of the Executive and the Company hereunder shall run in favor of
the Company and their respective successors,  assigns,  nominees, or other legal
representatives.  Termination of the Executive's employment shall not operate to
relieve the  Executive  of any  remaining  obligations  hereunder,  and all such
obligations  are binding  upon his heirs,  executors,  administrators,  or other
legal representatives.

     The Company  shall require any successor  (whether  direct or indirect,  by
purchase,  merger,  reorganization,  consolidation,  acquisition  of property or
stock, liquidation,  or otherwise) to all or a significant portion of the assets
of  the  Company  by  agreement,  in  form  and  substance  satisfactory  to the
Executive,  to expressly  assume and agree to perform this Agreement in the same
manner and to the same extent  that the Company  would be required to perform if
no such  succession  had taken place.  Regardless  of whether such  agreement is
executed,  this Agreement shall be binding upon any successor in accordance with
the  operation  of law and such  successor  shall be deemed  the  "Company"  for
purposes of this Agreement.

ARTICLE 11. MISCELLANEOUS
     11.1 EMPLOYMENT STATUS.  Nothing herein contained shall be deemed to create
an employment agreement between the Company (or a subsidiary) and the Executive,
providing  for the  employment of the Executive by the Company (or a subsidiary)
for any fixed period of time. The  Executive's  employment  with the Company (or
any subsidiary) is terminable at will by the Company (or the subsidiary,  as the
case may be), or the  Executive  and each shall have the right to terminate  the
Executive's employment with the Company (or any subsidiary) at any time, with or
without  Cause,  subject to the  Company's  obligation  to provide any Severance
Benefits as may be required hereunder.

     Upon a termination  of the  Executive's  employment  prior to the effective
date of a Change  in  Control,  there  shall be no  further  rights  under  this
Agreement; provided, however, that if such an employment termination shall arise
in  connection  with,  or in  anticipation  of, a Change  in  Control,  then the
Executive's  rights shall be the same as if the  termination had occurred within
eighteen (18) months following a Change in Control.

     11.2 ENTIRE AGREEMENT.  This Agreement contains the entire understanding of
the Company and the  Executive  with respect to the subject  matter  hereof.  In
addition,  the payments  provided  for under this  Agreement in the event of the
Executive's termination of employment shall be in lieu of any severance benefits
payable under any severance plan,  program, or policy of the Company to which he
might otherwise be entitled.

     11.3 NOTICES.  All notices,  requests,  demands,  and other  communications
hereunder  shall be  sufficient  if in writing  and shall be deemed to have been
duly given if delivered by hand or if sent by  registered  or certified  mail to
the  Executive  at the last address he has filed in writing with the Company or,
in the case of the Company, at its principal offices.

     11.4  EXECUTION  IN  COUNTERPARTS.  This  Agreement  may be executed by the
parties  hereto in  counterparts,  each of which shall be deemed to be original,
but all such counterparts shall constitute one and the same instrument,  and all
signatures need not appear on any one counterpart.

                                       13
<PAGE>

     11.5 CONFLICTING  AGREEMENTS.  The Executive hereby represents and warrants
to the Company that his entering into this  Agreement,  and the  obligations and
duties undertaken by him hereunder,  will not conflict with, constitute a breach
of, or otherwise  violate the terms of, any other  employment or other agreement
to which he is a party,  except to the  extent  any such  conflict,  breach,  or
violation  under any such agreement has been disclosed to the Company's Board in
writing in advance of the signing of this Agreement.

     11.6  SEVERABILITY.  In the event any provision of this Agreement  shall be
held illegal or invalid for any reason,  the illegality or invalidity  shall not
affect the remaining  provisions of the  Agreement,  and the Agreement  shall be
construed  and  enforced  as if the  illegal or invalid  provision  had not been
included. Further, the captions of this Agreement are not part of the provisions
hereof and shall have no force and effect.

     Notwithstanding any other provisions of this Agreement to the contrary, the
Company shall have no obligation to make any payment to the Executive  hereunder
to the extent,  but only to the extent,  that such payment is  prohibited by the
terms of any final  order of a Federal or state  court or  regulatory  agency of
competent jurisdiction;  provided, however, that such an order shall not affect,
impair,  or invalidate any provision of this Agreement not expressly  subject to
such order.

     11.7 MODIFICATION.  No provision of this Agreement may be modified, waived,
or discharged  unless such  modification,  waiver,  or discharge is agreed to in
writing and signed by the Executive and by a member of the Company's  Board,  as
applicable, or by the respective parties' legal representatives or successors.

     11.8  APPLICABLE LAW. To the extent not preempted by the laws of the United
States,  the laws of the state of California shall be the controlling law in all
matters relating to this Agreement.

     IN WITNESS WHEREOF,  the parties have executed this Agreement on this -----
day of ---------------, 1998.



ATTEST                                   SOUTHERN PACIFIC FUNDING CORPORATION



By: --------------------------           By: -------------------------------
      Corporate Secretary
                                         Title: ----------------------------




                                         -----------------------------------
                                         Executive




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