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Item 1.01
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Entry into a Material Definitive Agreement
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On October 14, 2019, Redwood Trust, Inc.
(“Redwood”) and RWT Holdings, Inc. (“Holdings”), an indirect wholly owned subsidiary of Redwood, entered
into an equity interests purchase agreement (the “Purchase Agreement”) with CF CoreVest Parent I LLC, CF CoreVest Parent
II LLC and CoreVest Management Partners LLC (collectively, the “Sellers”) and members of management of CoreVest (the
“Management Holders”), pursuant to which Holdings acquired (the “Acquisition”) all of the Sellers’
equity interests in CoreVest American Finance Lender LLC (“CAFL”) and several of its affiliates (CAFL and such affiliates
collectively, “CoreVest”), including CoreVest’s associated financial assets (the “Assets”). The Assets
include securities collateralized by single-family rental (“SFR”) loans and business purpose residential loans to real
estate investors, including residential bridge loans and SFR loans. The estimated aggregate purchase price for CoreVest is approximately
$492 million. The purchase price is subject to a customary post-closing reconciliation, including a net book value adjustment.
On October 15, 2019, the parties completed the Acquisition and the transactions contemplated by the Purchase Agreement and ancillary
agreements.
Pursuant to the Purchase Agreement, CF CoreVest
Parent I LLC and CF CoreVest Parent II LLC received their respective pro rata portions of the estimated purchase price in cash
at the closing of the Acquisition, and CoreVest Management Partners LLC received its pro rata share of the estimated purchase price
in a mix of cash at the closing of the Acquisition and shares of Redwood common stock, par value $0.01 per share (the “Common
Stock”), vesting over a two-year period following the closing of the Acquisition. The Common Stock was granted at the closing
of the Acquisition and was distributed to the Management
Holders and certain other members of CoreVest management (collectively, the “Shareholders”). Fifty percent (50%) of
the Common Stock will vest on October 15, 2020 and the remaining fifty percent (50%) will vest on October 15, 2021, provided that
any unvested shares of Common Stock shall vest upon any termination of such shareholder’s employment by Redwood
other than due to an “Adverse Action” or upon occurrence of a “Good Reason” (each, as defined below), or
upon such shareholder’s death or disability.
“Adverse Action” means: (i)
the Shareholder voluntarily terminates his or her employment with Redwood other than for Good Reason; (ii) the Shareholder’s
material failure to substantially perform the reasonable and lawful duties of his or her position for Redwood or any Subsidiary
thereof, which failure shall continue for thirty (30) days after written notice thereof by Redwood to the Shareholder; (iii) acts
or omissions constituting gross negligence, recklessness or willful misconduct on the part of the Shareholder in respect of the
performance of his or her duties hereunder, his or her fiduciary obligations or otherwise relating to the business of Redwood or
its Subsidiaries; (iv) the habitual or repeated neglect of duties by the Shareholder; (v) the Shareholder’s conviction of
a felony; (vi) theft or embezzlement, or attempted theft or embezzlement, of money or tangible or intangible assets or property
of Redwood or its Subsidiaries and their respective employees, customers, clients, or others having business relations with Redwood
or its Subsidiaries by the Shareholder; (vii) any act of moral turpitude by the Shareholder injurious to the interest, property,
operations, business or reputation of Redwood or its Subsidiaries; (viii) unauthorized use or disclosure of trade secrets or confidential
or proprietary information pertaining to Redwood’s or its Subsidiaries’ businesses; or (ix) the failure of certain
representations or warranties pertaining to the Shareholder to be true and correct.
“Good Reason” means the occurrence
of any one of the following without the Shareholder’s written consent: (1) a material reduction (at the direction of Redwood)
in the Shareholder’s duties, responsibilities, authority or title; (2) a material reduction (at the direction of Redwood)
of the Shareholder’s base salary if such a reduction is not made in proportion to an across-the-board reduction for all senior
management employees of Redwood; (3) a material breach by Redwood or any of its Subsidiaries of the terms of the Shareholder’s
written employment agreement or offer letter, as applicable, with Redwood or any of its Subsidiaries; (4) a change in the position
to which the Shareholder reports outside of reports up the chain to employees of CoreVest or Redwood; (5) a relocation (at the
direction of Redwood) of the Shareholder’s current principal office location to a location more than twenty-five (25) miles
in the aggregate from its location as of immediately prior to the date of the Purchase Agreement, provided that required travel
on Redwood’s business to the extent necessary for the Shareholder to fulfill its obligations and regular travel to CoreVests’
offices and to Redwood’s other offices in Mill Valley, California and Englewood, Colorado shall not be considered as an actual
or constructive relocation; (6) the complete liquidation of Redwood or CoreVest; or (7) in the event of a merger, consolidation,
transfer, or closing of a sale of all or substantially all the assets of Redwood with or to any other individual or entity, the
failure of Redwood’s successor to affirmatively adopt the share distribution agreement or to otherwise comply with its obligations.
A portion of the purchase price was deposited
into an escrow account to secure the indemnification obligations of the Sellers, including for breaches of their respective representations
and warranties. The escrow account will be maintained by Bank of America, N.A. Pursuant to the terms of the Purchase Agreement,
$10 million of the purchase price was deposited into the escrow account. The aggregate maximum liability of the Sellers for their
indemnification obligations is limited to this escrow amount, provided that such limit shall not apply to any claim based on fraud
or breach of any payment obligation. Subject to any such claims, the funds held in escrow will be delivered to the Sellers promptly
following January 31, 2021, which represents the conclusion of the extended coverage period for claims arising from breaches of
fundamental representations and warranties in the Purchase Agreement.
The Purchase Agreement includes customary
representations, warranties and covenants by the respective parties. The Purchase Agreement includes, among other covenants, certain
restrictive covenants relating to competitive activities and restrictions on solicitation and hiring of CoreVest employees by the
Sellers and Management Holders.
The foregoing description of the Purchase
Agreement does not purport to be complete and is qualified in its entirety by the full text of the Purchase Agreement, which is
filed as Exhibit 99.1 to this Current Report and is incorporated herein by reference.