**Exhibit10.4**

 

*ExecutionCopy*

 

**FirstAmendment to the Option Agreementand the Contingent Payment Agreement**

 

This First Amendment to the Option Agreement andthe Contingent Payment Agreement (the “Amendment”) is made and enteredinto as of October 4, 2005, by and among Credit Suisse First Boston (USA),Inc., a Delaware corporation (the “Optionee”),SPS Holding Corp., a Delaware corporation (the “Company”),Select Portfolio Servicing, Inc., a Utah corporation (the “Servicer”), The PMIGroup, Inc., a Delaware corporation (“PMI”),FSA Portfolio Management Inc., a New York corporation (“FSA”), and Greenrange Partners LLC, aConnecticut limited liability company (“Greenrange”) (each ofGreenrange, PMI and FSA, individually an “Optionor”and collectively the “Optionors”).

WHEREAS, the Optionee, the Company and the Optionorshave entered into the Option Agreement, dated as of August 12, 2005 (the “OptionAgreement”), pursuant to which the Optionors have granted the Optionee theoption to acquire all of the outstanding shares of capital stock of theCompany;

 

WHEREAS, the Optionee, the Servicer and the Optionorshave entered into the Contingent Payment Agreement, dated as of August 12, 2005(the “Contingent Payment Agreement”);

 

WHEREAS, the Optionee has exercised the Option and theparties hereto intend to consummate the Closing on the date hereof immediatelyafter the execution and delivery of this Amendment;

 

WHEREAS, the parties hereto desire to set forth their mutualunderstanding of the manner in which the Specified Regulatory Matters (asdefined below) will be indemnified under the Option Agreement;

 

NOW, THEREFORE, for good and valuable consideration,the receipt and sufficiency of which is hereby acknowledged, the partieshereto, intending to be legally bound, hereby agree as follows:

 

1.             CertainDefinitions.  Capitalized terms usedbut not defined in this Amendment shall have the meanings ascribed to suchterms in the Option Agreement.

 

2.             Amendmentsof Section 1.1 of the Option Agreement.

 

(a)           Section1.1 of the Option Agreement is hereby amended to insert the followingdefinitions:

 

“MaximumIndemnification Amount” shall be an amount equal the sum of (i) $25,000,000*plus* (ii) the lesser of (a) theaggregate amount paid by the Optionors pursuant to Section 11.2(e) based uponthe Specified Regulatory Matters and (b)

 

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$9,000,000.  The parties hereto agree that under nocircumstances shall the Maximum Indemnification Amount exceed $34,000,000.

 

 “Specified Regulatory Matters” shallmean the matters set forth in Schedule 1.1(d) hereto.

 

(b)           TheOption Agreement is hereby amended to insert a new schedule entitled “Scheduleof Specified Regulatory Matters” as “Schedule 1.1(d)” thereto.  Such new schedule is attached hereto asSchedule 1.1(d).

 

(c)           Section1.1 of the Option Agreement is hereby amended to insert the followingimmediately after the definition of the term “Regulatory Action”:

 

“The parties hereto agreethat the Specified Regulatory Matters shall be deemed to constitute aRegulatory Action for purposes of the Option Agreement and the ContingentPayment Agreement.”

 

(d)           Section1.1 of the Option Agreement is hereby amended to insert the followingimmediately after the definition of the term “Regulatory Payment”:

 

“The parties hereto agreethat all Losses (which shall include, for this purpose, any reverse andreimbursement payments made by the Servicer of premiums, fees or other chargesregardless of the beneficiary of such premiums, fees or other charges) that arepaid by the Servicer or any of its Subsidiaries or Affiliates based upon orarising out of the Specified Regulatory Matters shall be deemed to constituteRegulatory Payments for purposes of the Option Agreement and the ContingentPayment Agreement; provided, however, that (i) to the extent theevents giving rise to such Losses occur (A) before the Closing Date or (B) bothbefore the Closing Date and during the 180-day period immediately after theClosing Date, 100% of such Losses shall be deemed to constitute RegulatoryPayments for purposes of the Option Agreement and the Contingent PaymentAgreement and (ii) to the extent the events giving rise to such Losses occurboth before the Closing Date and after the 180-day period immediately after theClosing Date, 50% of such Losses shall be deemed to constitute RegulatoryPayments for purposes of the Option Agreement and the Contingent PaymentAgreement (it being agreed that the remaining 50% of such Losses shall be borneby the Servicer).  In the event that theServicer or any of its Subsidiaries or Affililiates offers, agrees or isrequired to reverse or reimburse any premiums, fees or other charges foroptional products in connection with the Specified Regulatory Matters, then theparties hereto agree that all of such reverse or reimburse payments shall be deemedto constitute Regulatory Payments for purposes of the Option Agreement and theContingent Payment Agreement; provided, however, that Servicershall be permitted to respond to an individual customer-initiated complaint orinquiry with a Customer Accommodation or Customer Reversal to the extentotherwise permitted by the Contingent Payment Agreement, provided thatsuch complaint or inquiry does not arise from the Servicer or one of itsSubsidiaries or Affiliates contacting such customer.  The parties hereto further agree that none ofthe Monthly Contingent Payments nor the Final Payment Amount shall be reduced,whether as a reduction to 

 

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Professional Services Income (as such term is definedin the Contingent Payment Agreement) or otherwise, by amounts paid or payableby the Optionors pursuant to Section 11.2(e) of this Agreement or amounts thatare required to be borne by the Servicer pursuant to this definition or Section11.2(e) of this Agreement.”

 

3.             Amendmentof Section 11.2(e) of the Option Agreement. Section 11.2(e) of the Option Agreement is hereby amended to insert thefollowing immediately after clause (iv) of the first sentence:

 

“; provided, however,that the portion of any Regulatory Payments not subject to indemnification bythe Optionors pursuant to this Section 11.2(e) which shall be borne by theServicer with respect to the Specified Regulatory Matters shall not exceed$2,550,000; provided, further, that the portion of any RegulatoryPayments not subject to indemnification by the Optionors pursuant to thisSection 11.2(e) which shall be borne by the Servicer in any event shall notexceed $3,050,000.”

 

4.             Amendmentof Section 11.2(g) of the Option Agreement. Section 11.2(g) of the Option Agreement is hereby amended such that thenumber “$25,000,000” in such section is deleted and replaced with the term “MaximumIndemnification Amount”.

 

5.             Amendmentof Article V of the Option Agreement. The first sentence of Article V of the Option Agreement is herebyamended to insert the following immediately after the word “hereof” andimmediately before “, the Company”:

 

“and except for the Specified Regulatory Matters”

 

6.             Disclosureof the Specified Regulatory Matters. The Optionee hereby agrees that neither the Company nor any Optionor hasbeen or is in breach of the Option Agreement for not delivering a DisclosureSchedule Supplement in respect of the Specified Regulatory Matters.

 

7.             Amendmentof Sections 3.3(b) and 3.3(c) of the Option Agreement.  The parties hereto agree that the Companyshall accrue an incentive bonus payment of $3,300,000 and an income tax benefitof $1,245,750 during the third quarter of fiscal year 2005 and shall reflectsuch accruals on the Estimated Closing Balance Sheet, the Actual ClosingBalance Sheet and the Closing Balance Sheet. The parties hereto agree that, notwithstanding anything to the contrarycontained in the Option Agreement, neither the Company nor the Optionors makeany representations or warranties concerning whether such accruals are inaccordance with GAAP or otherwise recorded in the same manner as the Company’sconsolidated balance sheet as of December 31, 2004.  Sections 3.3(b) and 3.3(c) of the OptionAgreement are hereby amended such that the number “$15,500,000” is deleted andreplaced with the number “$17,554,250” in each such section.

 

8.             Amendmentof Article VII of the Option Agreement. The parties hereto agree to amend Article VII of the Option Agreement toinsert the following as a new Section 7.11 thereof:

 

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“Section 7.11         Mutual Cooperation.  (a) Following the Closing Date, the parties agree to mutually cooperate withrespect to the Specified Regulatory Matters and other actions, suits, litigations,arbitrations, proceedings, investigations or inquiries (“Other Actions”)involving a party hereto.  Suchcooperation shall include, to the extent reasonably requested by a party (a “RequestingParty”), the provision by the other parties of reasonable access duringnormal business hours to the books and records of such other parties (each a “CooperatingParty”); provided, however, that a Cooperating Party mayrestrict the foregoing access to the extent that (i) in the reasonablejudgment of the Cooperating Party, any law, treaty, rule or regulation of anyGovernmental Entity applicable to such Cooperating Party requires suchCooperating party or its Subsidiaries to restrict or prohibit access to anysuch properties or information, (ii) in the reasonable judgment of theCooperating Party, the information is subject to confidentiality obligations toa third party, (iii) such disclosure would result in disclosure of any tradesecrets of third parties or (iv) disclosure of any such information or documentcould reasonably result in the loss of attorney client privilege.  In addition, each party shall usecommercially reasonable efforts to make its officers and employees available ona mutually convenient basis to provide an explanation of any informationprovided hereunder.

 

(b)  Any information obtained after the ClosingDate pursuant to this Section 7.11 (“Confidential Information”)shall be used solely for the purpose of evaluating, defending and resolving theSpecified Regulatory Matters and Other Actions and shall be kept confidential(and shall not be disclosed) by the Requesting Party and all persons obtainingsuch information on such Requesting Party’s behalf or who obtain suchinformation from such Requesting Party. Confidential Information shall not include information that (A) isor becomes generally available to the public other than as a result ofdisclosure by the Requesting Party or its Representatives, (B) is orbecomes available to the Requesting Party or its Representatives from sources thatare not known by the Requesting Party to have any obligation not to disclosesuch information or (C) is independently generated by the Requesting Partywithout use of or reference to any proprietary or confidential information ofthe Disclosing Party.  Notwithstandingthe foregoing, Confidential Information may be disclosed by a Requesting Party(x) to its directors, officers, employees, representatives (including,without limitation, financial advisors, attorneys and accountants) or agents(collectively “Representatives”) who need to know such information ifthe Requesting Party informs such Representatives of the confidential nature ofsuch information and directs them to treat such information confidentially andto use such information for no purpose other than as specifically permitted bythis Agreement, (y) if the Requesting Party is legally required to makesuch disclosure as a result of a court order, subpoena or similar legal duress,provided that prior to such disclosure, the Requesting Party gives tothe Cooperating Party prompt written notice of its receipt of such order orsubpoena or similar document so that the Cooperating Party has a reasonableopportunity prior to disclosure to obtain a protective order (if disclosure ofConfidential Information is so required, the Requesting Party shall discloseonly that portion of such information that is so required and shall assist the 

 

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Cooperating Party in obtaining protective orders orundertakings that confidential treatment will be accorded to any suchinformation furnished) and (z) if it determines that it is required to disclosesuch Confidential Information pursuant to applicable laws or the rules orregulations of a Governmental Entity (including the Securities and ExchangeCommission) or self regulatory organization (including the New York StockExchange), provided that in such event, it shall only disclose that portion ofthe Confidential Information which it is advised by counsel is required to bedisclosed (after consulting with the Cooperating Party as to such disclosureand the nature and wording of such disclosure) and shall exercise allcommercially reasonable efforts to obtain confidential treatment, to the extentavailable, of documents that are to be filed with a Governmental Entity thatconstitute Confidential Information.  Inthe event of termination of this Agreement, each Requesting Party shallpromptly return to the Cooperating Party all Confidential Information in itspossession (including all written materials prepared or supplied by or on itsbehalf containing or reflecting any Confidential Information) and will notretain any copies, extracts or other reproductions in whole or in part of anyConfidential Information.  Each party shallbe responsible for the breach of the terms of this Section 7.11 byits Representatives.

 

(c)  Each Requesting Party agrees to reimburse theCooperating Party for its reasonable out-of-pocket costs, if any, of gatheringand copying any information pursuant to this Section 7.11 or for providingexplanations of such information.  Anyrequest for reimbursement pursuant to this Section 7.11 shall be made inwriting and shall provide reasonable detail of such out-of-pocket coststogether with appropriate documentation of such out-of-pocket costs.

 

(d)  Notwithstanding anything to the contrarycontained in this Section 7.11, the obligations of the parties contained inSections 7.11(b) and (c) shall not apply to any information provided to a partyhereto pursuant to any other provision of this Agreement or the ContingentPayment Agreement and nothing in this Section 7.11 shall limit, modify orotherwise affect any other provision of this Agreement or the ContingentPayment Agreement.”

 

9.             Amendmentsto the Contingent Payment Agreement.

 

(a)           Section1 of the Contingent Payment Agreement is hereby amended to insert the followingimmediately at the end of the definition of the term “Mortgage Loan ServicingError”:

 

“or a violation by SPS ofapplicable law with respect to any optional product relating to such PortfolioMortgage Loans.”

 

(b)           Section7(b) of the Contingent Payment Agreement is hereby amended to insert thefollowing immediately after clause (iii):

 

“and (iv) SPS may modifyits practices of collecting premiums, fees and charges for optional productsrelating to the Mortgage Loans so long as it collects such premiums, 

 

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fees and charges consistent with its practices forcollecting premiums, fees and charges for optional products relating to theother Portfolio Mortgage Loans (including, for the avoidance of doubt,transitions of collection of such premiums, fees and charges for the MortgageLoans to third parties if SPS does not collect premiums, fees and charges foroptional products on the other Portfolio Mortgage Loans).”

 

10.           NoOther Amendments; Option Agreement and Contingent Payment Agreement Remain inEffect.  Except as expressly amendedby Sections 2, 3, 4, 5, 7 and 8 of this Amendment, the Option Agreement shallremain in full force and effect in the form in which it existed immediatelyprior to the execution and delivery of this Amendment.  Except as expressly amended by Section 9 ofthis Amendment, the Contingent Payment Agreement shall remain in full force andeffect in the form in which it existed immediately prior to the execution anddelivery of this Amendment.

 

11.           GoverningLaw.  This Agreement shall begoverned by and construed in accordance with the laws of the State of New Yorkwithout giving effect to the principles of conflicts of law thereof.

 

12.           EntireAgreement; No Third Party Beneficiaries. The Option Agreement, as amended by this Amendment, the ContingentPayment Agreement, as amended by this Amendment, and the Purchase Agreement (a) constitutesthe entire agreement and supersedes all prior agreements and understandings,both written and oral, among the parties with respect to the subject matterhereof and thereof and (b) are not intended to confer any rights orremedies upon any Person other than the parties hereto and thereto.

 

13.           Amendments.  No amendments, changes or modifications tothis Amendment shall be valid unless the same are in writing and signed by theparties hereto.

 

14.           Counterparts.  ThisAmendment may be executed in multiple counterparts.  Each counterpart shall be an original, butaltogether shall constitute one and the same instrument.

 

[SIGNATURES ON FOLLOWING PAGE]

 

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IN WITNESS WHEREOF, Optionee, the Servicer, theCompany and each of the Optionors have executed this Amendment or caused thisAmendment to be executed by their respective officers thereunto duly authorizedas of the date first written above.
|   | CREDIT SUISSE FIRST BOSTON (USA), INC.                         |
|--------|----------------------------------------------------------------|
|   |                                                           |
|   | By                                                             | /s/ Neil Radey |
|   | Name:  Neil Radey                                         |
|   | Title:  Managing Director and General Counsel             |
|   |                                                           |
|   | SPS HOLDING CORP.                                              |
|   |                                                           |
|   | By                                                             | /s/ M. Hollingsworth |
|   | Name:                                                          |
|   | Title:                                                         |
|   |                                                           |
|   | THE PMI GROUP, INC.                                            |
|   |                                                           |
|   | By                                                             | /s/ Donald P. Lofe, Jr. |
|   | Name: Donald P.  Lofe, Jr.                                     |
|   | Title: Executive  Vice President & Chief Financial Officer |
|   |                                                           |   |
|   | By                                                             | /s/ Glen S. Corso |
|   | Name: Glen S.  Corso                                           |
|   | Title: Group SVP                                               |
|   |                                                           |   |
|   | FSA PORTFOLIO MANAGEMENT INC.                                  |
|   |                                                           |
|   | By                                                             | /s/ Bruce E. Stern |
|   | Name: Bruce E.  Stern                                          |
|   | Title: General  Counsel & Managing Director                |
|   |                                                           |   |
|   | GREENRANGE PARTNERS LLC                                        |
|   |                                                           |
|   | By                                                             | /s/ J.H. Ozanne |
|   | Name:                                                          |
|   | Title:                                                         |
|   |                                                           |
|        |                                                                |  |  |

 

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|   | SELECT PORTFOLIO SERVICING, INC. |
|--------|----------------------------------|
|   |                             |
|   | By                               | /s/ M. Hollingsworth |
|   | Name:                            |
|   | Title:                           |

 

*Signature Page to First Amendmentto Option Agreementand Contingent Payment Agreement*

 

 

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