1
EXHIBIT 10(bb)
FFOG, Inc.
0000 X. Xxxxxx Xx.
Xxxxx 0000
X.X. Xxx 0000
Xxxxxxxxxx, XX 00000
May 23, 1995
Source One Mortgage Services Corporation
00000 Xxxxxxxxxx Xxxx
Xxxxxxxxxx Xxxxx, Xxxxxxxx 00000
Stock Purchase Agreement as Amended May 16, 1994 and May 23, 1995
Dear Sir/Madam:
This Stock Purchase Agreement sets forth the agreement of FFOG, Inc. (the
"Purchaser") to purchase shares of Common Stock ("Stock") of Source One
Mortgage Services Corporation ("SOMSC") on the terms and conditions stated
herein.
1. Stock Purchase. The Purchaser will, at any time or from time to time,
purchase Stock aggregating up to $100,000,000 within 5 business days after
receipt of written notice from SOMSC during the term hereof, in the amount (in
whole shares) so specified by SOMSC, at a purchase price per share of Stock
equal to the Per Share Price. The purchase price of Stock is payable by (at
the Purchaser's option) (i) cash or (ii) the transfer to SOMSC of certain
specified Assets (defined below) having a fair market value equal to the
aggregate purchase price or (iii) any combination of (i) and (ii). At each
closing, SOMSC will deliver certificates for the Stock purchased at such
closing registered in the name of the Purchaser or its nominee. At any closing
involving the transfer by the Purchaser to SOMSC of securities in payment of
all or any portion of the purchase price of Stock, certificates evidencing such
securities shall be delivered to SOMSC duly endorsed or accompanied by duly
completed stock/bond powers, or by any other method of transferring ownership
that is mutually agreeable to the parties.
2. "Specified Assets" means, initially, the investment securities listed on
the New York Stock Exchange, described in Schedule A (the "Initial
Securities"). Thereafter,
(i) the Specified Assets shall also include any proceeds received under
paragraph 10 from the sale of the Initial Securities or any other Specified
Assets and any Substitution Securities received under paragraph 11 for the
Initial Securities or any other Specified Assets, and any distributions or
dividends payable in respect of Specified
2
Assets and any security resulting from a conversion, modification,
reclassification or other similar transaction with respect to any Specified
Assets, and
(ii) the Specified Assets shall not include any securities or cash which
are transferred to SOMSC pursuant hereto, or disposed of in compliance with
this paragraph 2, or any Stock or distribution of any kind with respect
thereto, or any securities which have been surrendered by the Purchaser in
any conversion, modification, reclassification or other similar transaction
as stated in (i) above or any securities which are sold pursuant to paragraph
10 or deliverable in exchange for Substitution Securities received under
paragraph 11.
The Purchaser agrees that it will not transfer or subject to a lien any of
Purchaser's assets or properties which constitute Specified Assets so long as
this Agreement remains in effect, except that (i) the Purchaser may transfer
Specified Assets to SOMSC at a closing held hereunder and (ii) the Purchaser
may dispose, as the Purchaser sees fit in its sole discretion, of Specified
Assets so long as the value of remaining cash and cash equivalents, together
with the fair market value of the remaining Specified Assets, is at least $100
million.
Nothing in this Agreement shall restrict the Purchaser in any way from
disposing, as the Purchaser sees fit in its sole discretion, of some or all of
assets or properties of the Purchaser which do not constitute Specified Assets.
Also, it is understood and agreed that the Purchaser remains the owner of the
Specified Assets for all purposes, retaining all voting and other rights,
unless and until some or all thereof are transferred to SOMSC at a closing held
pursuant to this Agreement.
3. The fair market value of securities for all purposes of this Agreement
shall be determined by the Purchaser applying the valuation principles stated
in Schedule B, using market information for the last market day prior to the
valuation day. In the case of the Initial Securities, their agreed fair market
values as of February 25, 1994 is as set forth in Schedule A. In the case of
any Substitution Securities, their initial fair market values will be the
amount at which they are credited for substitution purpose pursuant to
Paragraph 11. In each case, the Purchaser from time to time may, and prior to
any transfer to SOMSC hereunder or any substitution therefor pursuant to
paragraph 11, will adjust the initial (or previously adjusted) fair market
value as may be necessary to reflect any events, developments or circumstances
occurring after the date hereof or of their transfer to the Purchaser which in
the Purchaser's reasonable judgment materially change their fair market value,
determined in accordance with the valuation principles stated in Schedule B.
Purchaser agrees that it will promptly take all appropriate action to maintain,
at all times during the effective period of this Agreement, the value of cash
and cash equivalents, together with the fair market value of
3
Specified Assets, determined in accordance with the valuation principles stated
in Schedule B, in an amount not less than $100,000,000.
4. "Per Share Price" means the price of Stock, as determined as of the most
recent available quarterly balance sheet date, pursuant to the terms of the
valuation formula set forth on Schedule C.
5. Term. The term of this Agreement shall continue from the date hereof
until the earlier of (i) the Specified Assets are exhausted by transfer(s) to
SOMSC pursuant hereto and (ii) the Purchaser and SOMSC mutually agree in
writing to end the term of this Agreement (which mutual agreement will be
effective on and as of the date specified therein).
6. Mutual Representations and Warranties. Each party hereby represents and
warrants to the other that on and as of the date hereof;
(a) Each is a duly organized and validly existing corporation in good
standing under the laws of its jurisdiction in which it has its principal
office. Each has been duly authorized by all necessary corporate action
(including without limitation any necessary vote of security holders) to
enter into and carry out this Agreement.
(b) No consent, permit, notice, registration, waiver or other action by
any third party or any governmental agency is required to be obtained, made
or given by it in connection with entering into or carrying out this
Agreement. Neither the entering into nor carrying out of this Agreement will
cause any breach or violation of, or any lien against its properties or
assets under, or any acceleration of any of its obligations pursuant to, any
agreement, commitment, law, statute, regulation or order to which it or any
of its properties are subject.
(c) It has not engaged any broker, finder or similar person in connection
with the transactions contemplated hereby.
(d) It is an "accredited investor" as that term is defined in SEC
Regulation D, and is acquiring any securities to be transferred or issued to
it pursuant hereto for its own account.
(e) It is familiar with the affairs of the other party and (in the case
of SOMSC) is familiar with the affairs of the issuers of the Initial
Securities. Except for the express representations and warranties made
herein, it is relying totally on its own evaluation of the risks and benefits
associated with this Agreement and the securities which may be transferred
or issued to it hereunder.
4
7. Additional Representations, Warranties and Agreements of the Parties.
(a) The Purchaser represents and warrants to SOMSC that:
(i) It owns 100% of the Initial Securities, free and clear of all
liens,
(ii) It has conducted no business since its incorporation activities
and holding investments.
(iii) It is not an "investment advisor" required to be registered
under the Investment Advisors Act of 1940, as amended (the"Advisors Act").
The Purchaser agrees that if it should ever be required to be registered
under the Advisors Act, it will so register on a timely basis and will comply
with the requirements of the Advisors Act.
(b) SOMSC represents and warrants to the Purchaser that it is not an
"investment company" required to be registered under the Investment Company
Act of 1940, as amended (the "Company Act"), and agrees that if it should
ever be required to be registered under the Company Act, it will so register
on a timely basis and will comply with the requirements of the Company Act.
8. Resales. Each party agrees that it will not resell any securities
transferred or issued to it hereunder except in a transaction registered under
the Securities Act of 1933, as amended, or any successor statute or in a
transaction exempt from such registration, established to the reasonable
satisfaction of the transferor or issuer, as the case may be.
9. Covenants of the Purchaser. Purchaser agrees that during the term of this
Agreement it will not:
(a) Engage in any material business other than owning the Specified
Assets and other investment securities.
(b) Voluntarily incur any indebtedness or obligations which would or
might constitute a claim enforceable against the Specified Assets (other than
under this Agreement and under a credit facility extended by The Chase
Manhattan Bank, N.A. and other financial institutions to the Purchaser and
other borrowers in principal amount not to exceed $75,000,000).
(c) Subject any Specified Assets to any lien or permit any Specified
Assets to become subject to any lien.
10. Sale. Notwithstanding anything in this Agreement, the Purchaser may, at
any time and from time to time, at its election
5
sell some or all of the Specified Assets to third parties not affiliated with
the Purchaser in arms-length transactions for cash and/or securities which
thereupon become part of the Specified Assets.
11. Substitution. Notwithstanding anything in this Agreement, the Purchaser
may, at any time and from time to time, at its election, exchange cash and/or
securities in the Specified Assets for cash and/or securities ("Substitution
Securities") held by the Purchaser or any of its affiliates thereof with an
aggregate fair market value not less than the aggregate fair market value of
the cash and/or securities to be exchanged, all determined as of the date of
substitution, provided that the Purchaser, promptly after such substitution,
delivers to SOMSC its calculation of the fair market values of all assets
included in the exchange, which calculation confirms its compliance with this
paragraph 11.
12. Separate Portfolio Accounting and Management. If any investment
securities are transferred to SOMSC pursuant to this Agreement, SOMSC, as sole
and absolute owner of such securities, will retain Fund American Enterprises,
Inc. as portfolio manager with respect to such investment securities pursuant
to a mutually acceptable Investment Services Agreement.
13. Miscellaneous.
(a) This Agreement is governed by the internal law of New York State.
Exclusive jurisdiction and venue for its enforcement shall lie in the state
and federal courts of the State of New York.
(b) Each party will pay and bear its own expenses in connection with this
Agreement and the enforcement hereof, except that in any proceeding primarily
between the parties for the enforcement hereof, the prevailing party may
recover its reasonable attorney's fees. Each party will pay and bear the
cost of any stock transfer tax applicable to the transfer or issuance of
securities by it.
(c) This Agreement is the entire agreement of the parties as to its
subject matter, and supersedes any other agreements between the parties
relating to the subject matter hereof. Nothing in this Agreement may be
waived or amended except by a writing signed by the parties hereto. Nothing
in this Agreement is intended to create any third-party beneficiary rights.
6
If the foregoing correctly states our agreement, please so indicate by
signing an enclosed copy of this letter to me.
Very truly yours,
/s/ Xxxxxxx Xxxxxxxxx
---------------------------------
for FFOG, Inc.
Agreed:
/s/ Xxxxxxx X. Xxxxxxxx
----------------------------------
for Source One Mortgage Services
Corporation
Schedules
A. Initial Securities
B. Valuation Principles
C. Valuation Formula
7
SCHEDULE A
FFOG, Inc.
SCHEDULE OF SECURITIES
VALUED AS OF
May 23, 1995
MARKET VALUE
SECURITY SHARES PER SHARE TOTAL
Louisiana Land & Exploration 2,331,535 $37.75 $ 88,015,446
San Xxxx Basin Royalty Trust 2,751,927 6.50 17,887,525
------------
$105,902,971
============
8
SCHEDULE B
VALUATION PRINCIPLES
The following valuation principles shall be applied when determining
the value of the Specified Assets for purposes of this Stock Purchase
Agreement.
For any security which is publicly held or so traded, such security
shall be valued at its daily Closing Price. "Closing Price" on any day of any
security means (1) if such security is listed on the New York Stock Exchange,
the last sale price, regular way, or, in case no such sale takes place on such
day, the average of the closing bid and asked prices, regular way, or, (2) if
such security is not listed or admitted to trading on the New York Stock
Exchange as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which such security is listed or admitted to trading or, (3) if such
security is not listed or admitted to trading on any national securities
exchange, the last quoted sale price or, if not so quoted, the average of the
high bid and low asked prices in the over-the-counter market, as reported by
NASDAQ. The source of the information used to compute the Closing Price of any
such security shall be The Wall Street Journal.
For any security which is not publicly held or is not listed or
publicly traded, such security shall be valued at the transferee's carrying
value of the security, calculated in accordance with generally accepted
accounting principles, as of the date of transfer.
9
SCHEDULE C
VALUATION FORMULA
SOURCE ONE MORTGAGE SERVICES CORPORATION
VALUATION METHODOLOGY
- The valuation per share equals the company valuation divided by a
number equal to the positive difference between the number of all
shares of capital stock issued and outstanding and the number of
shares issued as part of any "Capital Infusion" (as hereinafter
defined) by Fund American Enterprises, Inc. ("FAE"), The Fund American
Companies, Inc. ("FAC"), and/or any "Person" (as hereinafter defined).
The share valuation should be rounded to the nearest 1/100 of a cent.
- The initial (6/30/86) total company valuation is the acquisition
price; $258,148,000. This also equals the 6/30/86 GAAP book net worth
under purchase accounting (except that it does not include capitalized
acquisition costs). Since the initial number of shares outstanding is
2,600,000, the initial valuation per share is $99.2877.
- Company valuations will be performed on a formula basis not less than
quarterly for purposes of the plan and will be equal to:
- current GAAP book net worth minus the GAAP effect of any
Capital Infusion,
- minus current GAAP book value of in place mortgage servicing
portfolio,
- plus current "formula value" of in place mortgage servicing
portfolio (purchased and originated),
- minus the current GAAP book value of capitalized acquisition
costs,
- minus current GAAP book value of the initial purchase
accounting write up related to good will, buildings, FNMA
stock, in process mortgage origination ("pipeline"), systems
development and the branch network,
- plus the 6/30/86 excess purchase price that would have
resulted had the in place servicing portfolio been valued and
capitalized at its formula value on that date, and excluding
capitalized acquisition costs ($907,509). (This amount is a
constant for all periods and equals $109,765,000.)
10
- The "formula value" of the mortgage servicing portfolio is a
percentage (rounded to the nearest 1/1000 of a percent) multiplied by
the total outstanding principal balance of the portfolio. This
servicing value excludes the "pipeline" of mortgages in process but
not yet closed.
- This portfolio valuation percentage is determined initially as of
6/30/86 and first updated as of 12/31/86. Thereafter, the percentage
will be updated quarterly. The percentage will remain constant
between the quarterly updates, unless the Board of Directors (the
"Board") of Source One Mortgage Services Corporation (the "Company")
and FAC Chairman decide more frequent changes are needed.
- This percentage will be developed from the Company's "bid model,"
using data for the actual in place servicing portfolio as of 6/30/86,
12/31/86, 3/31/87, etc. The model (which includes certain
supplemental calculations such as insurance, income and tax benefits)
produces after-tax cash flows which are discounted at an after-tax
rate. The discounted cash flows equal the estimated value of the
servicing portfolio. This value divided by the total in place
principal balance equals the portfolio valuation percentage.
- The model's after-tax cash flows are composed of servicing income,
minus servicing expenses, minus/plus taxes (all on a cash basis).
Some of the highlights of the model are as follows:
- Cash servicing income includes servicing fees, interest
savings (due to escrow balances and cash flow "float"), plus
ancillary income such as insurance commissions, late charges,
assumption fees and prepayment penalties,
- Cash servicing expense includes 100% of all variable servicing
costs and 85% of all fixed servicing costs. This does not
include any Company interest expense, principal payments on
debt or amortization of capitalized purchased servicing costs.
The expenses are based on actual costs for the latest 12-month
period, plus a reasonable inflation assumption for future
years.
- Taxes are calculated at the expected effective rate for each
year (federal, state and local on a stand-alone basis) times:
(cash servicing income, less cash servicing expense, less
non-cash purchased servicing amortization). This amortization
is based on the actual tax basis of the purchased servicing
rights (not on the total servicing valuation) and on the
actual tax basis amortization schedule.
- The discount rate used in the portfolio valuation is based on the
average daily yield of 10-year U.S. Treasury Bonds (as determined from
the Federal Reserve Board "Statistical
11
Release") rounded to the nearest 1/100 of a percent, plus a 700 basis
point risk premium. The average yield is for the period beginning 10
business days before the "as of" date for the bid model and ending 10
working days after. For example, the initial period would be the 21
business days from 6/16 to 7/15/86 with an average Treasury rate of
7.42%. The after-tax discount rate = (average pre- tax Treasury rate
+ 700 basis points) X (1 - posted effected tax rate).
- The prepayment rate will be a weighted average of the rates
experienced over the 48 months immediately preceding the valuation
date. The weighing distribution will be as follows: 50% for the most
recent 12 months, 30% for the prior 12 months and 10% for each of the
remaining 2 prior 12-month periods. Annual changes in the rate will
be limited to a cap and floor of plus or minus 20%. (Cumulative
quarterly changes during a calendar year will be limited to 5%, 10%
and 15%, respectively, of the prior year-end rate.) The first
prepayment rate will be calculated as of December 31, 1985.
Therefore, the prepayment rate on the initial valuation date (June 30,
1986) will be capped at a 10% increase from the weighted average rate
on December 31, 1985. A separate rate (rounded to the nearest 1/100
of a percent) will be determined for residential and commercial loans.
- The interest saving on escrow balances for P & I float is based on the
average A1/P1 commercial paper rate for the latest 36 months, plus
dealer cost, plus backup line cost, minus balance borrowing cost.
(The following pages provide additional details on various
assumptions.)
- All assumptions used in the bid model will be agreed to by the Company
and FAC management. Further, the Company Board and the FAC Chairman
will agree on the treatment of any Capital Infusion with the intent
that the effect of any Capital Infusion on the operation of this
formula shall be neutralized to the fullest extent possible.
- As used herein, the term "Capital Infusion" means any infusion of new
capital in the Company, after October 1, 1991, by FAE, FAC and/or any
Person for which FAE, FAC and/or such Person receives capital stock of
the Company. (The term "Capital Infusion" includes, but is not
limited to, the $300,000,000 capital infusion in November 1991 (which
capital infusion consisted of a portfolio of common equity securities
and other investments then valued at approximately $300,000,000) by
FAE for which FAE was issued 1,660,118 shares of Class A Common Stock
(including certain treasury shares of Class A Common Stock) of the
Company.) The term "Person" means any person or entity other than (i)
those persons listed on Annex I attached hereto and (ii) any employee
stock ownership plan or similar plan of the Company.
12
SERVICING PORTFOLIO VALUATION
INPUT REQUIREMENT BASIS OF DETERMINATION
----------------- ----------------------
Initial Servicing costs per loan Actual costs over the 12-month period immediately preceding
the valuation date. Servicing costs will include full
variable costs and an 85% fixed cost allocation.
Servicing costs growth rate Estimate based on anticipated inflation and assuming no
escalation of fixed costs due to increased cost fixed cost
allocation.
Insurance income/ Miscellaneous fee income Estimate of future income based on experience over the prior
3 years.
Prepayment Rate The prepayment rate will be a weighted average of the rates
experienced over the 48 months immediately preceding the
valuation date. The weighing distribution will be as
follows: 50% for the most recent 12 months, 30% for the
prior 12 months and 10% for each of the remaining 2 prior
12-month periods. Annual changes in the rate will be
limited to a cap and floor of plus or minus 20%.
(Cumulative quarterly changes during a calendar year will be
limited to 5%, 10% and 15%, respectively, of the prior year-
end rate.) The first prepayment rate will be calculated as
of December 31, 1985. Therefore, the prepayment rate on the
initial valuation date (June 30, 1986) will be capped at a
10% increase from the weighted average rate on December 31,
1985. A separate rate (rounded to the nearest 1/100 of a
percent) will be determined for residential and commercial
loans.
Foreclosures The number of loans is based on current FHA experience. To
be reviewed and updated at quarterly valuation dates.
Foreclosure loss per loan Estimate of Company foreclosure losses on GNMA pools based
on loan loss experience. To be reviewed and updated at
quarterly valuation dates.
13
INPUT REQUIREMENT BASIS OF DETERMINATION
----------------- ----------------------
Escrow balance per loan Based on the average escrow balance available over the
previous 12 months.
Interest earned on escrow/P&I balances Average A1-P1 commercial paper rate over the 36 months
immediately preceding the valuation date, plus the cost of a
back-up line of credit, plus dealer costs, less the cost of
escrow available lines. Rates utilized in determining the
average will be AA rates as published by the Federal
Reserve.
Escrow interest cost Estimate based on 13 states which require interest payments
on escrow funds held. To be reviewed and updated at
quarterly valuation dates.
Escrow growth rate Estimate, to be held constant for future evaluation periods.
Principal and interest float Estimate float available on FHA/VA and conventional loans.
No float assumed available on GNMA loans (float benefits are
offset by interest advanced on delinquent loans) or
commercial loans. To be reviewed and updated at quarterly
valuation dates.
Reserve requirement Estimate based on current experience and objectives. To be
reviewed and updated at quarterly valuation dates.
Tax rate Federal taxes applied as projected under current law. State
taxes assumed at 2%.
14
INPUT REQUIREMENT BASIS OF DETERMINATION
----------------- ----------------------
Discount rate The discount rate will be applied to cash flows after
adjustment for the effective tax rate in the period. The
discount rate used in the portfolio valuation is based on
the average daily yield of 10-year U.S. Treasury Bonds (as
determined from the Federal Reserve Board "Statistical
Release"), rounded to the nearest 1/100 of a percent, plus a
700 basis point risk premium. The average yield is for the
period beginning 10 working days before the "as of"
valuation date and ending 10 working days after.
