Document:

Exhibit 10.3

 

Credit Suisse
First Boston (USA), Inc.

c/o Credit Suisse First Boston LLC

One Madison Avenue, 9th Floor

New York, New York 10010

 

August 12, 2005

 

VIA FAX 925-658-6175

The PMI Group, Inc.

PMI Plaza

3003 Oak Road

Walnut Creek, CA  94597

Attention:  General Counsel

 

VIA FAX 212-339-0849

FSA Portfolio Management
Inc.,

c/o Financial Security
Assurance Holdings Ltd.

31 West 52nd Street

New York, New York  10019

Attention:  General Counsel

 

VIA FAX 203 655 - 6044

Greenrange Partners LLC

114 Goodwives River Rd.

Darien, CT 06820

Attention:  James H. Ozanne

 

VIA FAX (801) 293-3907

SPS Holding Corp.

P. O. Box 65250

Salt Lake City, UT 84165-0250

Attention:  General Counsel

 

RE:  Exercise Notice

 

Ladies and Gentlemen:

 

Reference is made to that
certain Option Agreement, dated as of August 12, 2005, by and among Credit
Suisse First Boston (USA), Inc. (the “Optionee”), SPS Holding Corp., The
PMI Group, Inc., FSA Portfolio Management Inc., and Greenrange Partners
LLC (the “Option Agreement”).  Certain
capitalized terms used herein shall have the meanings assigned to them in
Option Agreement.

 

 

Pursuant to Section 3.1(a) of
the Option Agreement, and subject to Section 3.1(b) of the Option
Agreement, the Optionee hereby exercises the Option to purchase the Option
Shares for the Exercise Price in accordance with the terms of the Option Agreement.  Please be advised that the Measurement Date
shall be September 30, 2005.

 

 

	
  Sincerely,

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Credit Suisse First
  Boston (USA), Inc.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ James P. Healy

  	
   

  	
   

  
	
   

  	
  James P. Healy

  	
   

  
	
   

  	
  Managing Director

  	
   

  
					

 

 

cc:

 

VIA FAX 713-437-5370

Bracewell &
Giuliani LLP

711 Louisiana Street, Suite 2300

Houston, Texas  77002

Attention:  William S. Anderson

 

VIA FAX (202) 778-9100

Thomas F. Cooney, III

Kirkpatrick &
Lockhart Nicholson Graham LLP

1800 Massachusetts
Avenue, N.W.

Second Floor

Washington, D.C.  20036

 

2

 

Acknowledgement of
Receipt of Acceptance

 

Receipt of the foregoing
notice of acceptance delivered by Credit Suisse First Boston (USA), Inc.
on August 12, 2005 with respect to the exercise of the Option to purchase
the Option Shares is hereby acknowledged this 12th day of August,
2005, and such notice is effective to exercise the right to purchase the Option
Shares.  This Acknowledgement of Receipt
of Acceptance may be executed in counterparts.

 

 

	
   

  	
  The PMI
  Group, Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Victor J.
  Bacigalupi

  	
   

  
	
   

  	
  Name: Victor J.
  Bacigalupi

  
	
   

  	
  Title Executive Vice
  President, Chief Administrative Officer and General Counsel

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  FSA Portfolio
  Management Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Bruce E. Stern

  	
   

  
	
   

  	
  Name: Bruce E. Stern

  
	
   

  	
  Title General Counsel
  and Managing Director

  
	
   

  	
   

  
	
   

  	
  Greenrange Partners LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ James H. Ozanne

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title

  
	
   

  	
   

  
	
   

  	
  SPS Holding Corp.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Matt Hollingsworth

  	
   

  
	
   

  	
  Name: Matt
  Hollingsworth

  
	
   

  	
  Title CEOExhibit
10.4

 

Execution
Copy

 

First
Amendment to the Option Agreement

and the Contingent Payment Agreement

 

This First Amendment to the Option Agreement and
the Contingent Payment Agreement (the “Amendment”) is made and entered
into 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 PMI
Group, Inc., a Delaware corporation (“PMI”),
FSA Portfolio Management Inc., a New York corporation (“FSA”), and Greenrange Partners LLC, a
Connecticut limited liability company (“Greenrange”) (each of
Greenrange, PMI and FSA, individually an “Optionor”
and collectively the “Optionors”).

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

 

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

 

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

 

WHEREAS, the parties hereto desire to set forth their mutual
understanding of the manner in which the Specified Regulatory Matters (as
defined 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 parties
hereto, intending to be legally bound, hereby agree as follows:

 

1.             Certain
Definitions.  Capitalized terms used
but not defined in this Amendment shall have the meanings ascribed to such
terms in the Option Agreement.

 

2.             Amendments
of Section 1.1 of the Option Agreement.

 

(a)           Section
1.1 of the Option Agreement is hereby amended to insert the following
definitions:

 

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

 

 

$9,000,000.  The parties hereto agree that under no
circumstances shall the Maximum Indemnification Amount exceed $34,000,000.

 

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

 

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

 

(c)           Section
1.1 of the Option Agreement is hereby amended to insert the following
immediately after the definition of the term “Regulatory Action”:

 

“The parties hereto agree
that the Specified Regulatory Matters shall be deemed to constitute a
Regulatory Action for purposes of the Option Agreement and the Contingent
Payment Agreement.”

 

(d)           Section
1.1 of the Option Agreement is hereby amended to insert the following
immediately after the definition of the term “Regulatory Payment”:

 

“The parties hereto agree
that all Losses (which shall include, for this purpose, any reverse and
reimbursement payments made by the Servicer of premiums, fees or other charges
regardless of the beneficiary of such premiums, fees or other charges) that are
paid by the Servicer or any of its Subsidiaries or Affiliates based upon or
arising out of the Specified Regulatory Matters shall be deemed to constitute
Regulatory Payments for purposes of the Option Agreement and the Contingent
Payment Agreement; provided, however, that (i) to the extent the
events giving rise to such Losses occur (A) before the Closing Date or (B) both
before the Closing Date and during the 180-day period immediately after the
Closing Date, 100% of such Losses shall be deemed to constitute Regulatory
Payments for purposes of the Option Agreement and the Contingent Payment
Agreement and (ii) to the extent the events giving rise to such Losses occur
both before the Closing Date and after the 180-day period immediately after the
Closing Date, 50% of such Losses shall be deemed to constitute Regulatory
Payments for purposes of the Option Agreement and the Contingent Payment
Agreement (it being agreed that the remaining 50% of such Losses shall be borne
by the Servicer).  In the event that the
Servicer or any of its Subsidiaries or Affililiates offers, agrees or is
required to reverse or reimburse any premiums, fees or other charges for
optional products in connection with the Specified Regulatory Matters, then the
parties hereto agree that all of such reverse or reimburse payments shall be deemed
to constitute Regulatory Payments for purposes of the Option Agreement and the
Contingent Payment Agreement; provided, however, that Servicer
shall be permitted to respond to an individual customer-initiated complaint or
inquiry with a Customer Accommodation or Customer Reversal to the extent
otherwise permitted by the Contingent Payment Agreement, provided that
such complaint or inquiry does not arise from the Servicer or one of its
Subsidiaries or Affiliates contacting such customer.  The parties hereto further agree that none of
the Monthly Contingent Payments nor the Final Payment Amount shall be reduced,
whether as a reduction to 

 

2

 

Professional Services Income (as such term is defined
in the Contingent Payment Agreement) or otherwise, by amounts paid or payable
by the Optionors pursuant to Section 11.2(e) of this Agreement or amounts that
are required to be borne by the Servicer pursuant to this definition or Section
11.2(e) of this Agreement.”

 

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

 

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

 

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

 

5.             Amendment
of Article V of the Option Agreement. 
The first sentence of Article V of the Option Agreement is hereby
amended to insert the following immediately after the word “hereof” and
immediately before “, the Company”:

 

“and except for the Specified Regulatory Matters”

 

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

 

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

 

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

 

3

 

“Section 7.11         Mutual Cooperation.  (a) 
Following the Closing Date, the parties agree to mutually cooperate with
respect to the Specified Regulatory Matters and other actions, suits, litigations,
arbitrations, proceedings, investigations or inquiries (“Other Actions”)
involving a party hereto.  Such
cooperation shall include, to the extent reasonably requested by a party (a “Requesting
Party”), the provision by the other parties of reasonable access during
normal business hours to the books and records of such other parties (each a “Cooperating
Party”); provided, however, that a Cooperating Party may
restrict the foregoing access to the extent that (i) in the reasonable
judgment of the Cooperating Party, any law, treaty, rule or regulation of any
Governmental Entity applicable to such Cooperating Party requires such
Cooperating party or its Subsidiaries to restrict or prohibit access to any
such properties or information, (ii) in the reasonable judgment of the
Cooperating Party, the information is subject to confidentiality obligations to
a third party, (iii) such disclosure would result in disclosure of any trade
secrets of third parties or (iv) disclosure of any such information or document
could reasonably result in the loss of attorney client privilege.  In addition, each party shall use
commercially reasonable efforts to make its officers and employees available on
a mutually convenient basis to provide an explanation of any information
provided hereunder.

 

(b)  Any information obtained after the Closing
Date pursuant to this Section 7.11 (“Confidential Information”)
shall be used solely for the purpose of evaluating, defending and resolving the
Specified Regulatory Matters and Other Actions and shall be kept confidential
(and shall not be disclosed) by the Requesting Party and all persons obtaining
such information on such Requesting Party’s behalf or who obtain such
information from such Requesting Party. 
Confidential Information shall not include information that (A) is
or becomes generally available to the public other than as a result of
disclosure by the Requesting Party or its Representatives, (B) is or
becomes available to the Requesting Party or its Representatives from sources that
are not known by the Requesting Party to have any obligation not to disclose
such information or (C) is independently generated by the Requesting Party
without use of or reference to any proprietary or confidential information of
the Disclosing Party.  Notwithstanding
the 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 if
the Requesting Party informs such Representatives of the confidential nature of
such information and directs them to treat such information confidentially and
to use such information for no purpose other than as specifically permitted by
this Agreement, (y) if the Requesting Party is legally required to make
such disclosure as a result of a court order, subpoena or similar legal duress,
provided that prior to such disclosure, the Requesting Party gives to
the Cooperating Party prompt written notice of its receipt of such order or
subpoena or similar document so that the Cooperating Party has a reasonable
opportunity prior to disclosure to obtain a protective order (if disclosure of
Confidential Information is so required, the Requesting Party shall disclose
only that portion of such information that is so required and shall assist the 

 

4

 

Cooperating Party in obtaining protective orders or
undertakings that confidential treatment will be accorded to any such
information furnished) and (z) if it determines that it is required to disclose
such Confidential Information pursuant to applicable laws or the rules or
regulations of a Governmental Entity (including the Securities and Exchange
Commission) or self regulatory organization (including the New York Stock
Exchange), provided that in such event, it shall only disclose that portion of
the Confidential Information which it is advised by counsel is required to be
disclosed (after consulting with the Cooperating Party as to such disclosure
and the nature and wording of such disclosure) and shall exercise all
commercially reasonable efforts to obtain confidential treatment, to the extent
available, of documents that are to be filed with a Governmental Entity that
constitute Confidential Information.  In
the event of termination of this Agreement, each Requesting Party shall
promptly return to the Cooperating Party all Confidential Information in its
possession (including all written materials prepared or supplied by or on its
behalf containing or reflecting any Confidential Information) and will not
retain any copies, extracts or other reproductions in whole or in part of any
Confidential Information.  Each party shall
be responsible for the breach of the terms of this Section 7.11 by
its Representatives.

 

(c)  Each Requesting Party agrees to reimburse the
Cooperating Party for its reasonable out-of-pocket costs, if any, of gathering
and copying any information pursuant to this Section 7.11 or for providing
explanations of such information.  Any
request for reimbursement pursuant to this Section 7.11 shall be made in
writing and shall provide reasonable detail of such out-of-pocket costs
together with appropriate documentation of such out-of-pocket costs.

 

(d)  Notwithstanding anything to the contrary
contained in this Section 7.11, the obligations of the parties contained in
Sections 7.11(b) and (c) shall not apply to any information provided to a party
hereto pursuant to any other provision of this Agreement or the Contingent
Payment Agreement and nothing in this Section 7.11 shall limit, modify or
otherwise affect any other provision of this Agreement or the Contingent
Payment Agreement.”

 

9.             Amendments
to the Contingent Payment Agreement.

 

(a)           Section
1 of the Contingent Payment Agreement is hereby amended to insert the following
immediately at the end of the definition of the term “Mortgage Loan Servicing
Error”:

 

“or a violation by SPS of
applicable law with respect to any optional product relating to such Portfolio
Mortgage Loans.”

 

(b)           Section
7(b) of the Contingent Payment Agreement is hereby amended to insert the
following immediately after clause (iii):

 

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

 

5

 

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

 

10.           No
Other Amendments; Option Agreement and Contingent Payment Agreement Remain in
Effect.  Except as expressly amended
by Sections 2, 3, 4, 5, 7 and 8 of this Amendment, the Option Agreement shall
remain in full force and effect in the form in which it existed immediately
prior to the execution and delivery of this Amendment.  Except as expressly amended by Section 9 of
this Amendment, the Contingent Payment Agreement shall remain in full force and
effect in the form in which it existed immediately prior to the execution and
delivery of this Amendment.

 

11.           Governing
Law.  This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
without giving effect to the principles of conflicts of law thereof.

 

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

 

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

 

14.           Counterparts.  This
Amendment may be executed in multiple counterparts.  Each counterpart shall be an original, but
altogether shall constitute one and the same instrument.

 

[SIGNATURES ON FOLLOWING PAGE]

 

6

IN WITNESS WHEREOF, Optionee, the Servicer, the
Company and each of the Optionors have executed this Amendment or caused this
Amendment to be executed by their respective officers thereunto duly authorized
as 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:

  
	
   

  	
   

  
				

 

7

 

	
   

  	
  SELECT PORTFOLIO SERVICING, INC.

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ M. Hollingsworth

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

Signature Page to First Amendment
to Option Agreement

and Contingent Payment Agreement

 

 

8

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