SECURITIES REPURCHASE
AGREEMENT
MORTGAGE GUARANTY INSURANCE
CORPORATION
SHERMAN FINANCIAL GROUP
LLC
Dated as of August 13,
2008
SECURITIES
REPURCHASE AGREEMENT, dated as of August 13, 2008 (this
“ Agreement ”), between MORTGAGE GUARANTY
INSURANCE CORPORATION, a Wisconsin corporation (“ MGIC
” or “ Seller ”), and SHERMAN FINANCIAL
GROUP LLC, a Delaware limited liability company (“ Sherman
Financial ” or “ Purchaser
”).
WHEREAS, Seller is
the record and beneficial owner of 2,424,665 Common Units of
Sherman Financial (the “ Units ”).
WHEREAS, Seller
desires to sell, and Purchaser desires to purchase, all of the
Units (such purchase, the “ Unit Repurchase
”).
WHEREAS, as of the
date hereof, each of the Members of Sherman Financial has waived,
among other things, all of its rights under Article IX of the
Fifth Amended and Restated Limited Liability Company Agreement of
Sherman Financial Group LLC, dated as of September 1, 2007
(the “ Existing Operating Agreement ”) with
respect to the transactions contemplated hereby, pursuant to a
written waiver (collectively, the “ Unit Repurchase
Waiver ”).
WHEREAS, certain
changes to the Existing Operating Agreement in connection with the
Unit Repurchase, including, without limitation, the cancellation of
the Units by Sherman Financial and the withdrawal of MGIC as a
Member upon consummation of the Unit Repurchase, will be effected
through the amendment and restatement of the Existing Operating
Agreement.
WHEREAS, Seller
and Purchaser desire to agree to such other matters in connection
with the foregoing as are set forth herein.
NOW THEREFORE, in
consideration of the foregoing and the respective representations,
warranties, covenants, agreements and conditions hereinafter set
forth, and intending to be legally bound hereby, the parties hereto
agree as follows.
(a)
Definitions . For purposes of this Agreement, capitalized
terms used but not otherwise defined herein shall have the meanings
set forth in the Existing Operating Agreement, and the following
terms shall have the following meanings:
“
Additional Payment ” means an amount equal to 24.25%
multiplied by the excess, if any, of (i) the
fair market value of the aggregate consideration for (a) in
the case of an Additional Unit Purchase, the Additional Units or
(b) in the case of Tag or Drag Transaction, the Interests sold
(directly or indirectly, as the case may be) in such Tag or Drag
Transaction, in either case divided by the percentage
ownership of Sherman Financial purchased by the purchasing party as
of the Purchase Date, over (ii) the sum of (x) $1,000,000,000
plus (y) the product of $100,000,000 divided by nine,
multiplied by the lesser of (A) the number of full months
elapsed between the Midpoint Date and the Execution Date and
(B) nine (it being understood that if less than one full month
has so elapsed, such product is zero); provided ,
that if on the Purchase Date the Interests do not consist
solely of Common Units, the foregoing formula
shall be
appropriately adjusted to reflect the applicable capital structure.
If, in connection with an Additional Unit Purchase or a Tag or Drag
Transaction, any arrangements are made that involve the giving of
value to the transferor, the portion of such value, if any,
properly allocable, using reasonable economic analysis, to the
Interests transferred shall be reallocated to such Interests. It is
understood that (i) in the case of the Radian Option
Agreement, no Distributions shall be considered part of the
consideration paid for the Additional Units under such Radian
Option Agreement and (ii) in the case of other Definitive
Agreements, Distributions shall be deemed to be part of the
consideration to the extent they were taken into account in
determining the price for the Interests.
“
Additional Payment Period ” has the meaning set forth
in Section 3(b) .
“
Additional Unit Purchase ” has the meaning set forth
in Section 3(b) .
“
Additional Units ” has the meaning set forth in
Section 3(b) .
“
Adjustment ” means $3,742,966, except that if the
Closing Date occurs after August 13, 2008, such amount shall
be increased by $27,726 for each day in the period from and
including August 14 to and including the Closing Date (it is
understood that if the Closing Date were August 14, 2008, the
period would have one day).
“
Affiliate ” means, with respect to any Person, any
Person directly or indirectly controlling, controlled by or under
common control with such Person; provided , however ,
that, except as otherwise expressly provided herein, no individual
shall be deemed to be an Affiliate of any other Person solely by
reason of his or her being an officer or director of such Person
and no Person shall be deemed to be an Affiliate of any other
Person solely by reason of its being a member of the same limited
liability company as, or a limited partner of, such
Person.
“
Ancillary Agreements ” has the meaning set forth in
Section 4(c) .
“ Base
Purchase Price ” means (i) $227,466,500 minus
(ii) all Distributions made to MGIC in respect of the Units
during the period from April 1, 2008 to the Closing
Date.
“ CEO
Group ” means the individual acting as Chief Executive
Officer of Sherman Financial and its subsidiaries and the members
of his or her Immediate Family.
“ Change
in Bank Control Act ” means the Change in Bank Control
Act of 1978, as amended.
“
Claims ” has the meaning set forth in
Section 9(a) .
“
Closing ” has the meaning set forth in
Section 10 .
“ Closing
Date ” has the meaning set forth in
Section 10 .
“
Confidential Information ” has the meaning set forth
in Section 12(k) .
“
Defaulting Party ” has the meaning set forth in
Section 11(b) .
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“
Definitive Agreement ” means a final agreement
executed by the parties thereto, and includes, with respect to the
Radian Option Agreement, a notice of exercise of the Call Option
(as defined therein) by Meeting Street Investments LLC or a
permitted assignee of Meeting Street Investments LLC, any amendment
(however effected, including, without limitation, by waiver of the
terms in effect prior to the waiver) to the economic terms of the
Radian Option Agreement (it is understood that an amendment to
extend the Call Exercise Period (as defined in the Radian Option
Agreement) is an amendment to such terms), the grant by Radian
and/or an Affiliate of Radian of another call option to Sherman
Financial, any Affiliate of Sherman Financial that is controlled by
Sherman Financial or a Management Affiliate or the grant by any
Management Affiliate of any put option to Radian and/or an
Affiliate of Radian in respect of an Interest in Sherman
Financial.
“
Distributions ” means, in respect of any period, all
cash and non-cash property that is distributed by Sherman Financial
in respect of the Common Units during such period; it being
understood that, with respect to MGIC, payments of the Base
Purchase Price, the Adjustment, or an Additional Payment, and the
issuance of the Sherman Financial Note shall not be treated as a
“Distribution,” but principal payments by Sherman
Financial on the Sherman Financial Note shall be so treated. All
non-cash property comprising part of any Distribution shall be
valued for purposes of this Agreement as determined by agreement of
Sherman Financial and MGIC or, if the parties cannot agree within a
reasonable period, pursuant to Section 12(g) hereof.
“ DPV
Group ” means the individual acting as Director of
Portfolio Valuation of Sherman Financial and its subsidiaries and
the members of his or her Immediate Family.
“ Event
of Default ” has the meaning set forth in
Section 11(b) .
“
Execution Date ” has the meaning set forth in
Section 3(b) .
“
Existing Operating Agreement ” has the meaning set
forth in the recitals hereto.
“
Governmental Entity ” means any foreign, federal,
state or local government and any agency or instrumentality
thereof, including, without limitation, any court or regulatory
body.
“ HSR
Act ” means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
“
Immediate Family ” means (i) the spouse, lineal
descendants and children by adoption of a specified individual and
(ii) each trust whose primary beneficiaries include the
foregoing Persons.
“ Initial
Lender ” has the meaning set forth in the Loan
Agreement.
“ Initial
Lender Exposure ” has the meaning set forth in the Loan
Agreement.
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“ Law
” means any statute, law, ordinance, regulation, rule, code,
order, rule of common law or judgment enacted, promulgated, issued,
enforced or entered by any Governmental Entity.
“ Loan
Agreement ” means the Credit Agreement, of even date
herewith, between Sherman Financial, as obligor, and MGIC, as
Initial Lender and Administrative Agent.
“
Management Affiliates ” means Sherman Capital, L.L.C.,
Meeting Street Partners II Inc., Meeting Street Investments LLC,
Sherman Capital Markets LLC or any corporation, partnership,
association, joint-stock company, trust, fund, organized group of
Persons whether or not incorporated, at least 40% of the economic
or voting interest in which is owned, directly or indirectly, by
the CEO Group, the DPV Group and/or other members of the management
of Sherman Financial and/or their Immediate Families.
“
Midpoint Date ” means the date that is halfway between
March 31, 2008 and the Closing Date (determined by including
March 31, 2008 and including or excluding the Closing Date, as
the case may be, in order to cause the period used for such
determination to comprise an odd number of days).
“ MSII
Stockholders Agreement ” means the Amended and Restated
Stockholders Agreement of Meeting Street Partners II Inc., dated as
of September 1, 2007.
“
Purchase Date ” has the meaning set forth in
Section 3(b) .
“
Purchase Price ” has the meaning set forth in
Section 3(a) .
“
Radian ” means Radian Guaranty Inc.
“ Radian
Option Agreement ” means the Option Agreement dated as of
September 14, 2007, by and among Radian and Meeting Street
Investments LLC.
“
Representatives ” has the meaning set forth in
Section 12(k) .
“
Restated Operating Agreement ” means the Sixth Amended
and Restated Limited Liability Company Agreement of Sherman
Financial Group LLC, in substantially the form agreed to by the
parties hereto and Radian Asset Management Inc. as of the date
hereof, to be entered into on the Closing Date and pursuant to
which, among other things, the cancellation of the Units and the
withdrawal of MGIC as a Member upon consummation of the Unit
Repurchase will be provided for.
“
Securities Purchase Agreement ” means the Securities
Purchase Agreement, dated as of September 14, 2007, by and
among MGIC, Radian and Sherman Capital.
“ Sherman
Capital Operating Agreement ” means the Third Amended and
Restated Limited Liability Company Agreement of Sherman Capital,
L.L.C., dated as of September 1, 2007.
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“ Sherman
Financial Note ” means the promissory note of Sherman
Financial in the principal amount of $85,000,000, of even date
herewith, payable to the order of MGIC and issued pursuant to the
Loan Agreement.
“
Solvent ” means, with respect to any Person on any
date of determination, that on such date (i) the fair value of
the property of such Person is greater than the total amount of
liabilities, including contingent liabilities, of such Person,
(ii) the present fair salable value of the assets of such
Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become
absolute and matured, (iii) such Person does not intend to,
and does not believe that it will, incur debts or liabilities
beyond such Person’s ability to pay such debts and
liabilities as they mature, and (iv) such Person is not
engaged in business or a transaction, and is not about to engage in
business or a transaction, for which such Person’s property
would constitute an unreasonably small capital. The amount of
contingent liabilities at any time shall be computed as the amount
that, in light of all the facts and circumstances existing at such
time, represents the amount that can reasonably be expected to
become an actual or matured liability.
“ Unit
Repurchase ” has the meaning set forth in the recitals
hereto.
“ Unit
Repurchase Waiver ” has the meaning set forth in the
recitals hereto.
“
Units ” has the meaning set forth in the recitals
hereto.
“ Tag or
Drag Transaction ” means (i) a Transfer by a member
of the Sherman Capital Group or a member of the MSII Group that
under Section 9.3 of the Existing Operating Agreement would
have afforded MGIC the opportunity to sell its Units as provided
therein (were MGIC then a member of the MGIC Group), (ii) a
Transfer by a member of the Sherman Capital Group that under
Section 9.4 of the Existing Operating Agreement would have
entitled the Sherman Capital Group to require MGIC to sell its
Units as provided for therein (were MGIC then a member of the MGIC
Group), (iii) a Transfer (as defined in the Sherman Capital
Operating Agreement as in effect on the date hereof) that would
have entitled MGIC to exercise tag along rights under
Section 9.5 of the Sherman Capital Operating Agreement as in
effect on the date hereof (were MGIC then a member of the MGIC
Group) or (iv) a Transfer (as defined in the MSII Stockholders
Agreement as in effect on the date hereof) that would have entitled
MGIC to exercise tag along rights under Section 3.5 of the
MSII Stockholders Agreement as in effect on the date hereof (were
MGIC then a member of the MGIC Group).
“ Waiver
Time ” has the meaning set forth in
Section 6(f) .
(b)
Construction . For purposes of this Agreement, except as
otherwise expressly set forth herein:
(i) Unless
the context otherwise requires, words in the singular include the
plural and words in the plural include the singular.
(ii) A
reference to any party to this Agreement or any other agreement or
document shall include such party’s successors and permitted
assigns.
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(iii) A
reference to any agreement or order shall include any amendment of
such agreement or order from time to time in accordance with the
terms thereof and hereof, except that a reference to the Radian
Option Agreement or the Existing Operating Agreement shall not
include any amendment thereto. In addition, if the Sherman Capital
Operating Agreement or the MSII Stockholders Agreement is amended
on the date on which the Closing Date occurs, any such amendment
shall be disregarded for purposes of determining the content of
each such agreement as in effect on the date hereof.
(iv) A
reference to any legislation, to any provision of any legislation
or to any regulation issued thereunder shall include any amendment
to, and any modification or re-enactment thereof, any legislative
provision or regulation substituted therefor and all regulations
issued thereunder or pursuant thereto.
(v) The
headings contained in this Agreement are for convenience of
reference only and do not form a part of this Agreement.
(vi) Section
references in this Agreement refer to sections of this Agreement
unless otherwise specified.
Section 2.
Purchase and Sale of Units .
(a) Unit
Repurchase . On the Closing Date, subject to the terms and
conditions of this Agreement, in consideration of the payment of
the Purchase Price to Seller in accordance with Section 3(a)
hereof, Seller shall sell to Purchaser, and Purchaser shall
purchase from Seller, the Units, free and clear of all Liens, other
than such Liens as may arise under the Existing Operating Agreement
and such Liens as may be created by Purchaser.
Section 3.
Purchase Price .
(a)
Purchase Price . The purchase price for the Units shall be
the sum of the Base Purchase Price and the Adjustment (such sum,
the “ Purchase Price ”). The Purchase Price
minus $85,000,000 shall be paid by Purchaser to Seller in
cash on the Closing Date. The remainder of the Purchase Price shall
be paid by delivery of the Sherman Financial Note, which shall be
issued by Sherman Financial to MGIC pursuant to the Loan
Agreement.
(i) If,
within the period beginning on and including the Midpoint Date and
ending nine months after the Midpoint Date (the “
Additional Payment Period ”), Sherman Financial, any
Affiliate of Sherman Financial that is controlled by Sherman
Financial or any Management Affiliate executes a Definitive
Agreement (the date of execution thereof, the “ Execution
Date ”) (A) covering the purchase (an “
Additional Unit Purchase ”) from a Member other than a
Management Affiliate of an additional Interest in Sherman Financial
(the “ Additional Units ”) or (B) that
constitutes a Tag or Drag Transaction, then Sherman Financial shall
pay to MGIC by wire transfer of immediately available funds within
15 Business Days after the date on which such Additional Unit
Purchase or Tag or Drag Transaction has been consummated (the
“ Purchase Date ”) an amount equal to the
Additional Payment; provided , that
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the foregoing
shall not apply and no Additional Payment shall be due in the event
that such Additional Unit Purchase or Tag or Drag Transaction is
entered into:
(A)
(w) between or among any of Sherman Financial and (1) any
of its Affiliates who are controlled by Sherman Financial or
(2) any Management Affiliates, (x) between such Affiliates,
(y) between any Person referred to in clause (w) or
clause (x) and one or more of their respective equity holders
who are either existing or former members of the team managing the
business that has been conducted by Sherman Financial or its
subsidiaries from time to time or an Affiliate controlled by a
member referred to in clause (y) or any trust whose primary
(as opposed to contingent) beneficiaries are any one or more of the
equity holders referred to in clause (y), such equity
holders’ respective spouses, such equity holders’
respective issue, or the spouses of such equity holders’
respective issue (including, without limitation, grantor retained
annuity trusts (GRATs)) or (z) between any of the Persons
referred to in clause (y); or
(B)
for purposes of (x) raising funds (including, without
limitation, in connection with the incurrence of indebtedness) to
cover obligations of Sherman Financial incurred or to be incurred
in the ordinary course of business or (y) making any payment to the
lenders under the Original Credit Facility or any Permitted
Replacement Facility.
For purposes of
this Section 3(b) (including any defined terms used in this
Section 3(b)), “month” shall mean the period
beginning on, and including, the Midpoint Date (in the case of the
initial such month) or the last day of the preceding month (in the
case of any other such month) and ending on, but excluding, the
numerically corresponding day in the next succeeding calendar
month, except that, if there is no numerically corresponding day in
that next succeeding calendar month, such month shall end on the
last day of that next succeeding calendar month. For the avoidance
of doubt, no Additional Payment shall be due with respect to any
Additional Unit Purchase or Tag or Drag Transaction having an
Execution Date after the expiration of the Additional Payment
Period.
(ii) Sherman
Financial shall provide all relevant information to MGIC with
respect to any Additional Unit Purchase or Tag or Drag Transaction,
the Execution Date of which occurs during the Additional Payment
Period, within ten Business Days after any Purchase Date in respect
thereof, so that MGIC can determine whether an Additional Payment
is due.
(c)
Payments . The cash payment to be made by Purchaser to
Seller pursuant to Section 3(a) hereof shall be made by wire
transfer of immediately available funds to the account on which
Distributions were paid to MGIC on June 30, 2008 and any
Additional Payment, to the extent due pursuant to Section 3(b)
hereof, shall be made by wire transfer of immediately available
funds to an account to be designated by MGIC in writing when such
Additional Payment becomes due.
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Section 4.
Representations and Warranties of Seller .
As a material
inducement to Purchaser to enter into this Agreement and consummate
the transactions contemplated hereby, Seller hereby represents and
warrants to Purchaser as follows:
(a)
Organization . Seller is a corporation validly existing and
in good standing (or its equivalent) under the laws of the State of
Wisconsin.
(b)
Equity Interests and Related Matters . There are no
statutory or contractual preemptive rights or rights of first
refusal or Liens or other similar restrictions with respect to the
purchase and sale of Seller’s interests in Sherman Financial
hereunder (other than those contained in the Existing Operating
Agreement). There are no agreements or understandings between
Seller and any Person (other than Sherman Financial and/or any of
its Affiliates) with respect to the voting or transfer of any
Interests (including the Units).
(c)
Authorization . The execution, delivery and performance of
this Agreement and all of the other agreements executed in
connection with this Agreement, including, without limitation, the
Loan Agreement, the Unit Repurchase Waiver, the Sherman Financial
Note and the Restated Operating Agreement (collectively, the
“ Ancillary Agreements ”) to which Seller is a
party and the sale of the Units hereunder by Seller have been duly
authorized by Seller. This Agreement constitutes, and all other
Ancillary Agreements to which Seller is a party, when executed and
delivered by Seller in accordance with the terms thereof, will each
constitute, a valid and binding obligation of Seller, enforceable
against Seller in accordance with its terms.
(d)
Noncontravention . The execution and delivery by Seller of
this Agreement and all other Ancillary Agreements to which Seller
is a party, the sale of the Units hereunder and the fulfillment of
and compliance with the respective terms hereof and thereof by
Seller, do not and will not (i) conflict with or result in a
material breach of the terms, conditions or provisions of, or
constitute a material default under (whether with or without the
passage of time, the giving of notice or both), the organizational
documents of Seller, or any material agreement, instrument, order,
judgment or decree to which Seller is subject (except that no
representation or warranty is given with respect to the Existing
Operating Agreement), (ii) result in the creation of any Lien
upon the Units (except as may be created by Purchaser) or
(iii) require that Seller obtain or make any authorization,
consent, approval, exemption or other action by or notice or
declaration to, or filing with, any third party or any Governmental
Entity pursuant to any Law or judgment enacted, promulgated,
issued, enforced or entered by any Governmental Entity to which
Seller is su
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