SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 2)*
THE WMF GROUP, LTD.
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(Name of Issuer)
Common Stock, $.01 par value
(Title of Class of Securities)
929289106
(CUSIP Number)
James M. Better Jeffrey J. Rosen, Esq.
Capricorn Investors II, L.P. O'Melveny & Myers LLP
c/o Capricorn Holdings, LLC The Citicorp Center
30 East Elm Street 153 East 53rd Street, 54th Floor
Greenwich, Connecticut 06830 New York, New York 10022-4611
(203) 861-6600 (212) 326-2000
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(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
September 14, 1998
-------------------------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G
to report the acquisition which is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the
following box [ ].
Note: Six copies of this statement, including all exhibits, should be
filed with the Commission. See Rule 13d-1(a) for other parties to whom copies
are to be sent.
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* The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which would
alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not
be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("ACT") or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act (however, SEE
the NOTES).
CUSIP Number 929289106
---------
<PAGE>
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Winokur Holdings, Inc.
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [ ]
(b) [X]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
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4 SOURCE OF FUNDS
OO
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEM 2(d) or 2(e) [ ]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
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NUMBER OF 7 SOLE VOTING POWER
SHARES ----------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 78,925
EACH REPORT- ----------------------------------
ING PERSON 9 SOLE DISPOSITIVE POWER
WITH ----------------------------------
10 SHARED DISPOSITIVE POWER
78,925
----------------------------------
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
78,925
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11)
EXCLUDES CERTAIN SHARES [ ]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
1.4%*
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14 TYPE OF REPORTING PERSON
CO
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- ----------------
* Assumes 5,515,796 shares of Common Stock issued and outstanding as of
August 14, 1998, comprised of (i) 5,270,796 shares of Common Stock issued and
outstanding on August 14, 1998, according to the Company's Quarterly Report on
Form 10-Q for the period ended June 30, 1998, (ii) 240,000 shares of Common
Stock issuable upon exercise of the Warrant (as defined below), and (iii) 5,000
shares of Common Stock issuable upon exercise of the Option (as defined below).
<PAGE>
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Capricorn Investors II, L.P.
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [ ]
(b) [X]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS
OO
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEM 2(d) or 2(e) [ ]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- --------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES ----------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 1,081,012
EACH REPORT- ----------------------------------
ING PERSON 9 SOLE DISPOSITIVE POWER
WITH ----------------------------------
10 SHARED DISPOSITIVE POWER
1,081,012
----------------------------------
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,081,012
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11)
EXCLUDES CERTAIN SHARES [ ]
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
19.6%*
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14 TYPE OF REPORTING PERSON
PN
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- ----------------
* Assumes 5,515,796 shares of Common Stock issued and outstanding as of
August 14, 1998, comprised of (i) 5,270,796 shares of Common Stock issued and
outstanding on August 14, 1998, according to the Company's Quarterly Report on
Form 10-Q for the period ended June 30, 1998, (ii) 240,000 shares of Common
Stock issuable upon exercise of the Warrant, and (iii) 5,000 shares of Common
Stock issuable upon exercise of the Option.
<PAGE>
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Capricorn Holdings, LLC
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [ ]
(b) [X]
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3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS
OO
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEM 2(d) or 2(e) [ ]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
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NUMBER OF 7 SOLE VOTING POWER
SHARES ----------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 1,081,012
EACH REPORT- ----------------------------------
ING PERSON 9 SOLE DISPOSITIVE POWER
WITH ----------------------------------
10 SHARED DISPOSITIVE POWER
1,081,012
----------------------------------
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,081,012
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11)
EXCLUDES CERTAIN SHARES [ ]
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
19.6%*
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14 TYPE OF REPORTING PERSON
OO
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- ----------------
* Assumes 5,515,796 shares of Common Stock issued and outstanding as of
August 14, 1998, comprised of (i) 5,270,796 shares of Common Stock issued and
outstanding on August 14, 1998, according to the Company's Quarterly Report on
Form 10-Q for the period ended June 30, 1998, (ii) 240,000 shares of Common
Stock issuable upon exercise of the Warrant, and (iii) 5,000 shares of Common
Stock issuable upon exercise of the Option.
<PAGE>
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Herbert S. Winokur, Jr.
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [ ]
(b) [X]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS
OO
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEM 2(d) or 2(e) [ ]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States of America
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NUMBER OF 7 SOLE VOTING POWER
SHARES ----------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 1,159,937
EACH REPORT- ----------------------------------
ING PERSON 9 SOLE DISPOSITIVE POWER
WITH ----------------------------------
10 SHARED DISPOSITIVE POWER
1,159,937
----------------------------------
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,159,937
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11)
EXCLUDES CERTAIN SHARES [ ]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
21%
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14 TYPE OF REPORTING PERSON
IN
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- ----------------
* Assumes 5,515,796 shares of Common Stock issued and outstanding as of
August 14, 1998, comprised of (i) 5,270,796 shares of Common Stock issued and
outstanding on August 14, 1998, according to the Company's Quarterly Report on
Form 10-Q for the period ended June 30, 1998, (ii) 240,000 shares of Common
Stock issuable upon exercise of the Warrant, and (iii) 5,000 shares of Common
Stock issuable upon exercise of the Option.
<PAGE>
This Amendment No. 2 to Schedule 13D (the "SCHEDULE 13D"), which was
filed on November 25, 1997, by Capricorn Investors, L.P. ("CAPRICORN I"),
Capricorn Holdings, G.P. ("CAPRICORN HOLDINGS, G.P."), Winokur Holdings, Inc.
("WINOKUR HOLDINGS"), Herbert S. Winokur, Jr. ("WINOKUR"), Capricorn Investors
II, L.P. ("CAPRICORN II") and Capricorn Holdings, LLC ("CAPRICORN HOLDINGS,
LLC"), as amended by Amendment No. 1 filed on January 9, 1998, by Winokur
Holdings, Capricorn II, Capricorn Holdings, LLC, and Winokur, and which relates
to shares of Common Stock, par value $.01 per share ("COMMON STOCK"), of The WMF
Group, Ltd. (the "COMPANY"), hereby amends Items 3, 4, 5, 6 and 7 of the
Schedule 13D. Unless otherwise indicated, all capitalized terms used but not
defined herein shall have the same meaning as set forth in the Schedule 13D.
This Amendment No. 2 assumes that the number of shares of Common Stock
outstanding as of August 14, 1998 was 5,515,796 shares, comprised of (i)
5,270,796 shares of Common Stock issued and outstanding on August 14, 1998,
according to the Company's Quarterly Report on Form 10-Q for the period ended
June 30, 1998, (ii) 240,000 shares of Common Stock issuable upon exercise of the
Warrant (defined below), and (iii) 5,000 shares of Common Stock issuable upon
exercise of the Option (defined below).
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
The information previously furnished in response to this item is
amended by adding thereto the following:
On December 8, 1997, Capricorn II acquired an option (the "OPTION") to
purchase 5,000 shares of Common Stock (the "OPTION SHARES") at an exercise price
of $9.15 per share, subject to adjustments in accordance with the terms of the
Option, which became exercisable on June 8, 1998. The Option was granted by the
Company to Capricorn II as compensation for Winokur's service as a director of
the Company.
On January 13, 1998, Capricorn II purchased 15,000 shares of Common
Stock in a transaction effected through the NASDAQ national market at a purchase
price of $11.625 per share, or $174,375 in the aggregate. The funds were
provided by capital contributed to Capricorn II by its partners.
On January 15, 1998, Capricorn II purchased 15,000 shares of Common
Stock in a transaction effected through the NASDAQ national market at a purchase
price of $12.00 per share, or $180,000 in the aggregate. The funds were provided
by capital contributed to Capricorn II by its partners.
<PAGE>
On September 14, 1998, Capricorn II purchased 7,500 shares of Common
Stock in a transaction effected through the NASDAQ national market at a purchase
price of $6.1600 per share, or $46,200 in the aggregate. The funds were provided
by capital contributed to Capricorn II by its partners.
On September 14, 1998, Capricorn II acquired beneficial ownership of a
warrant (the "WARRANT") to purchase 240,000 shares of Common Stock (the "WARRANT
SHARES"), at $11.25 per share (subject to adjustment as described below), in
accordance with the terms of a Subscription Agreement, dated September 4, 1998
(the "SUBSCRIPTION AGREEMENT"), among Commercial Mortgage Investment Trust, Inc.
("CMIT"), Harvard Private Capital Holdings, Inc. ("HPCH"), Capricorn II, and the
Company. The Warrant, which had been previously issued to CMIT pursuant to a
Credit Agreement, dated September 4, 1998 (the "CREDIT AGREEMENT"), between CMIT
and the Company, becomes exercisable on October 20, 1998. If the Company repays
the loan extended to it by CMIT pursuant to the Credit Agreement in whole or in
part prior to October 20, 1998, the number of Warrant Shares will be reduced
proportionately up to a total reduction of 75% of the total Warrant Shares
purchasable upon the Warrant's exercise. The number of Warrant Shares and the
exercise price of the Warrant are subject to adjustment upon the occurrence of
certain dilutive events.
On September 25, 1998, Capricorn II purchased 101,499 shares of Common
Stock in a transaction effected through the NASDAQ national market at a purchase
price of $8.1039 per share, or $822,537.75 in the aggregate. The funds were
provided by capital contributed to Capricorn II by its partners.
ITEM 4. PURPOSE OF TRANSACTION
The information previously furnished in response to this item is
amended to read as follows:
On December 8, 1997, Capricorn II acquired the Option to purchase the
Option Shares at an exercise price of $9.15 per share, subject to adjustments in
accordance with the terms of the Option, which became exercisable on June 8,
1998. The Option was granted by the Company to Capricorn II as compensation for
Winokur's service as a director of the Company.
Capricorn II purchased shares of Common Stock on January 13, 1998
(15,000), January 15, 1998 (15,000), September 14, (7,500), and on September 25,
(101,499). On September 14, 1998, Capricorn II acquired the Warrant. Subject to
certain contingencies described in Item 3 above,
<PAGE>
prior to October 20, 1998, the number of Warrant Shares which are purchasable
upon the exercise of the Warrant may be reduced by up to 75%.
The acquisitions of shares of Common Stock by Capricorn II described
herein were effected in accordance with the stated intention of Capricorn II,
Capricorn Holdings, LLC and Winokur to acquire a significant equity position in
the Company and to influence the management, policies and activities of the
Company, as previously described in Item 4 of the Schedule 13D.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
The information previously furnished in response to this item is
amended to read as follows:
Winokur Holdings is the direct beneficial owner, and Winokur is the
indirect beneficial owner, of 78,925 shares of Common Stock. Capricorn II is the
direct beneficial owner, and Capricorn Holdings, LLC and Winokur are the
indirect beneficial owners, of 1,081,012 shares of Common Stock. Winokur is the
indirect beneficial owner of 1,159,937 shares of Common Stock.
Based upon 5,270,796 shares of Common Stock issued and outstanding as
of August 14, 1998, as reported by the Company in its Quarterly Report on Form
10-Q for the period ended June 30, 1998, and giving effect to the issuance of
all 5,000 Option Shares and all 240,000 Warrant Shares, Winokur Holdings is the
direct beneficial owner of shares equal to approximately 1.4% of the number of
shares of Common Stock that were then outstanding, Capricorn II is the direct
beneficial owner of shares equal to approximately 19.6% of the number of shares
of Common Stock that were then outstanding, Capricorn Holdings, LLC is the
indirect beneficial owner of shares equal to approximately 19.6% of the number
of shares of Common Stock that were then outstanding, and Winokur is the
indirect beneficial owner of shares equal to approximately 21% of the number of
shares of Common Stock that were then outstanding.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER.
For information relating to the Subscription Agreement, the Warrant and
the Option, see Item 3 above. The information regarding such agreements set
forth in Item 3 is qualified in its entirety by the provisions of such
agreements, copies of which are Exhibits 4, 5 and 6 to this Amendment No. 2 to
Schedule 13D.
<PAGE>
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
The information previously furnished in response to this item is
amended to add the following:
Exhibit 4 - Subscription Agreement by and among Commercial
Mortgage Investment Trust, Inc., The WMF Group,
Ltd., Harvard Private Capital Holdings, Inc.
and Capricorn Investors II, L.P. dated as of
September 4, 1998.
Exhibit 5 - Warrant No. W-1 to Purchase Common Stock of The
WMF Group, Ltd. dated as of September 4, 1998
(with respect to which the right to acquire
240,000 Warrant Shares has been assigned to
Capricorn II on September 14, 1998).
Exhibit 6 - Non-Employee Director Award Agreement made and
entered into as of the 8th day of December,
1997 by and between The WMF Group, Ltd. and
Capricorn Investors II, L.P., and Key Employee
Incentive Plan of The WMF Group Ltd. originally
adopted by the Board of Directors on October
21, 1997 and further amended as of December 5,
1997, constituting Exhibit A thereto.
<PAGE>
Signature
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
October 16, 1998
Date
WINOKUR HOLDINGS, INC.
By: /s/ Herbert S. Winokur, Jr.
----------------------------------------
Herbert S. Winokur, Jr., President
S-1
<PAGE>
Signature
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
October 16, 1998
Date
CAPRICORN INVESTORS II, L.P.
By: Capricorn Holdings, LLC,
its General Partner
By: /s/ Herbert S. Winokur, Jr.
----------------------------------------
Herbert S. Winokur, Jr., Manager
S-2
<PAGE>
Signature
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
October 16, 1998
Date
CAPRICORN HOLDINGS, LLC
By: /s/ Herbert S. Winokur, Jr.
----------------------------------------
Herbert S. Winokur, Jr., Manager
S-3
<PAGE>
Signature
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
October 16, 1998
Date
By: /s/ Herbert S. Winokur, Jr.
----------------------------------------
Herbert S. Winokur, Jr.
S-4
SUBSCRIPTION AGREEMENT
BY AND AMONG
COMMERCIAL MORTGAGE INVESTMENT TRUST, INC.,
THE WMF GROUP, LTD.,
HARVARD PRIVATE CAPITAL HOLDINGS, INC.
AND
CAPRICORN INVESTORS II, L.P.
DATED AS OF SEPTEMBER 4, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
1. CAPITALIZED TERMS...............................................2
2. AGREEMENT TO PURCHASE AND SELL SHARES; SUBSCRIPTIONS............2
2.1. Harvard Subscription.................................2
2.2. Capricorn Subscription...............................2
2.3. WMF Commitment.......................................2
2.4. Transfer of Warrants; Commitment Fee.................2
3. CLOSING; WMF LOAN..............................................3
3.1. Closing of Stock Purchases...........................3
3.2. WMF Loan.............................................3
4. FUTURE STOCK PURCHASES PURSUANT TO THE STOCK PURCHASE AGREEMENT;
APPLICABILITY OF SHAREHOLDERS'
AGREEMENT..................................................3
4.1. No Modification of Commitments........................3
4.2. Future Requested Contributions........................4
4.3. Cumulative Requested Contributions....................4
4.4. Applicability of the Shareholders' Agreement..........4
5. CANCELLATION OF WARRANTS.........................................4
5.1. Cancellation of Warrants..............................4
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................5
6.1. Organization, Good Standing and Qualification.........5
6.2. Capitalization........................................5
6.3. Options, Warrants, Reserved Shares....................5
6.4. Subsidiaries..........................................6
6.5. Due Authorization.....................................6
-i-
<PAGE>
6.6. Valid Issuance of Stock...............................6
6.7. Governmental Consents.................................6
6.8. Litigation............................................6
6.9. Compliance with Law and Organizational Documents......7
7. REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF INVESTORS..7
7.1. Authorization; Principal Office.......................7
7.2. Purchase for Own Account..............................8
7.3. Investment Experience.................................8
7.4. Accredited Investor Status............................8
7.5. Restricted Securities.................................8
7.6. Legends...............................................8
7.7. Litigation............................................9
7.8. Compliance with Law and Organizational Documents......9
8. CONDITIONS TO INVESTOR'S OBLIGATIONS AT CLOSING.................9
8.1. WMF Credit Agreement..................................9
8.2. Securities Law Exemptions............................9
8.3. Proceedings and Documents.............................9
8.4. Opinion of Company Counsel............................9
9. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING..............10
9.1. WMF Credit Agreement..................................10
9.2. Securities Law Exemptions.............................10
9.3. Proceedings and Documents.............................10
10. MISCELLANEOUS...................................................10
10.1. Survival.............................................10
10.2. Successors and Assigns...............................10
10.3. Governing Law........................................10
10.4. Counterparts.........................................11
10.5. Headings.............................................11
10.6. Notices..............................................11
-ii-
<PAGE>
10.7. No Finder's Fees....................................12
10.8. Attorneys' Fees.....................................12
10.9. Amendments and Waivers..............................12
10.10. Severability.......................................12
10.11. Entire Agreement...................................12
10.12. Further Assurances.................................13
-iii-
<PAGE>
SUBSCRIPTION AGREEMENT
----------------------
THIS SUBSCRIPTION AGREEMENT (this "AGREEMENT") is made and entered into
as of September 4, 1998, by and among COMMERCIAL MORTGAGE INVESTMENT TRUST,
INC., a Virginia corporation (the "COMPANY"), THE WMF GROUP, LTD., a Delaware
corporation ("WMF"), HARVARD PRIVATE CAPITAL HOLDINGS, INC., a Massachusetts
corporation ("HARVARD"), and CAPRICORN INVESTORS II, L.P., a Delaware limited
partnership ("CAPRICORN"). WMF, Harvard and Capricorn are referred to herein
individually as an "INVESTOR" and collectively as the "INVESTORS".
RECITALS
A. The Company and the Investors are parties to that certain Stock
Purchase Agreement dated as of June 12, 1998 (the "STOCK PURCHASE AGREEMENT"),
whereby the Investors agreed to purchase, and the Company agreed to sell, shares
of the Company's stock pursuant to the terms and conditions set forth therein.
B. As partial fulfillment of the Harvard Commitment of $30,000,000
(as adjusted pursuant to the Stock Purchase Agreement), Harvard now desires to
purchase from the Company, and the Company desires to sell to Harvard, 16,000
shares of the Company's Class C Participating Non-Voting Preferred Stock, no par
value ("CLASS C STOCK"), with the terms and conditions as set forth in the
Company's Second Amended and Restated Articles of Incorporation (the "ARTICLES")
for a total purchase price of $16,000,000, on the terms and conditions set forth
in this Agreement.
C. Capricorn now desires to purchase from the Company, and the
Company desires to sell to Capricorn, 4,000 shares of Class C Stock for a total
purchase price of $4,000,000, which amount shall be in addition to the Capricorn
Commitment of $6,000,000 (as adjusted pursuant to the Stock Purchase Agreement),
on the terms and conditions set forth in this Agreement.
D. WMF desires to confirm its obligation to contribute the WMF
Commitment of $8,900,000 (as adjusted pursuant to the Stock Purchase Agreement)
pursuant to future requests for capital contributions and its agreement that the
WMF Commitment shall neither be reduced nor increased as a result of the
transactions contemplated by this Agreement.
E. The Company will lend to WMF all of the proceeds from the sale of
shares of Class C Stock pursuant to this Agreement.
F. As a further inducement to Harvard and Capricorn to enter into this
Agreement, the Company shall transfer to Harvard and Capricorn certain warrants
to purchase WMF stock (the "WARRANTS") received by the Company pursuant to a
Credit Agreement of even date herewith between the Company and WMF (the "WMF
CREDIT AGREEMENT").
<PAGE>
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. CAPITALIZED TERMS.
-----------------
All capitalized terms not otherwise defined herein shall have the
meanings set forth in the Stock Purchase Agreement.
2. AGREEMENT TO PURCHASE AND SELL SHARES; SUBSCRIPTIONS.
-----------------------------------------------------
2.1. HARVARD SUBSCRIPTION.
Subject to the terms and conditions of this Agreement, the
Company agrees to sell to Harvard, and Harvard agrees to purchase from the
Company, 16,000 shares of Class C Stock at a price of $1,000 per share (the
"CLASS C PRICE"), for a total purchase price of $16,000,000 (the "HARVARD
SUBSCRIPTION").
2.2. CAPRICORN SUBSCRIPTION.
Subject to the terms and conditions of this Agreement, the
Company agrees to sell to Capricorn, and Capricorn agrees to purchase from the
Company, 4,000 shares of Class C Stock at the Class C Price, for a total
purchase price of $4,000,000 (the "CAPRICORN SUBSCRIPTION"). The sum of the
Harvard Subscription and the Capricorn Subscription is referred to herein as the
"TOTAL SUBSCRIPTION."
2.3. WMF COMMITMENT.
WMF shall not purchase any shares of the Company's capital
stock pursuant to this Agreement, but WMF hereby affirms its obligation to
contribute to the Company the full amount of the WMF Commitment of $8,900,000
(as adjusted pursuant to the Stock Purchase Agreement) pursuant to future
requests for capital contributions under the Stock Purchase Agreement. Harvard,
Capricorn and the Company agree that WMF's failure to purchase shares of capital
stock pursuant to this Agreement shall not result in WMF's being considered in
default under the Stock Purchase Agreement or being subject to the damage
provisions set forth in Section 2.4 thereof.
2.4. TRANSFER OF WARRANTS; COMMITMENT FEE.
(a) To induce Harvard and Capricorn to enter into this
Agreement, the Company hereby agrees that immediately
after the execution of the WMF Credit Agreement and the
Company's receipt of the Warrants from WMF, the Company
shall transfer the Warrants to Harvard and Capricorn pro
RATA, according to their respective Subscriptions set
forth in this Article 2. Upon their receipt of the
Warrants, Harvard and Capricorn agree to assume the
rights, powers, privileges and obligations associated
with the Warrants.
-2-
<PAGE>
(b) As a further inducement to enter this Agreement, the
Company shall pay to Harvard and Capricorn 50% of any
amount received as a Commitment Fee pursuant to the WMF
Credit Agreement. Any such payment from the Company
shall be divided between Harvard and Capricorn pro rata
according to their relative subscription amounts, as set
forth in Sections 2.1 and 2.2 of this Agreement.
3. CLOSING; WMF LOAN.
------------------
3.1. CLOSING OF STOCK PURCHASES.
Upon the execution of this Agreement, Harvard shall purchase
from the Company, and the Company shall sell to Harvard, 16,000 shares of Class
C Stock, and Capricorn shall purchase from the Company, and the Company shall
sell to Capricorn, 4,000 shares of Class C Stock. The conference held on the
date of this Agreement is referred to as the "CLOSING."
At the Closing, Harvard will deliver the purchase price for
the Harvard Subscription, and Capricorn will deliver the purchase price for the
Capricorn Subscription, by wire transfer of immediately available funds to the
account or accounts designated by the Company on SCHEDULE 3.1. Upon receipt of
the funds from Harvard and Capricorn, the Company will deliver to Harvard and
Capricorn (i) certificates representing the number of shares of Class C Stock to
be purchased by each of them pursuant to this Agreement and (ii) the Warrants to
be transferred to Harvard and Capricorn pursuant to Section 2.4 of this
Agreement.
3.2. WMF LOAN.
Following the Closing, the Company shall lend the entire
amount of the Total Subscription to WMF (the "WMF LOAN"), on the terms and
conditions set forth in the WMF Credit Agreement.
4. FUTURE STOCK PURCHASES PURSUANT TO THE STOCK PURCHASE AGREEMENT;
APPLICABILITY OF SHAREHOLDERS' AGREEMENT.
-----------------------------------------
4.1. NO MODIFICATION OF COMMITMENTS.
(a) The amounts of the WMF Commitment, the Harvard
Commitment and Capricorn Commitment shall not be
modified as a result of this Agreement.
(b) For purposes of the Stock Purchase Agreement, the amount
of the Harvard Subscription shall be deemed to be a draw
against the Harvard Commitment, as though Harvard had
purchased 16,000 shares of Class A Stock at the Class A
Price pursuant to a Drawdown Request from the Company.
When and to the extent that the Company redeems shares
of Class C Stock from Harvard pursuant to Article VII.E
of the Articles, the Company may redraw against the
Harvard Commitment an amount equal to (A) the number of
shares so repurchased from Harvard, multiplied by (B)
the Redemption Price (as defined in the Articles).
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<PAGE>
(c) The amount of the Capricorn Subscription shall not be
deemed a draw against the Capricorn Commitment.
4.2. FUTURE REQUESTED CONTRIBUTIONS.
On and after the date of this Agreement, the Company may
continue to make requests for additional capital contributions from the
Investors pursuant to Article 2 of the Stock Purchase Agreement. The Investors'
respective Requested Contributions shall continue to be determined by dividing
the total amount requested by the Company among the Investors PRO RATA according
to their respective capital commitments, as set forth in Article 1 of the Stock
Purchase Agreement.
4.3. CUMULATIVE REQUESTED CONTRIBUTIONS.
The cumulative Requested Contributions from each Investor
contained in the Drawdown Notices delivered during the Commitment Period, plus
each Investor's respective Initial Investment, shall not exceed the amount of
such Investor's commitment set forth in Article 1 of the Stock Purchase
Agreement, as adjusted pursuant to Sections 1.4 and 1.5 of the Stock Purchase
Agreement and Section 4.1 of this Agreement.
4.4. APPLICABILITY OF THE SHAREHOLDERS' AGREEMENT.
The Company and the Investors hereby agree that the shares of
Class C Stock to be purchased pursuant to this Agreement shall be subject to the
rights, restrictions and obligations set forth in the Shareholders' Agreement
dated June 12, 1998, among the Company and the Investors (the "SHAREHOLDERS'
AGREEMENT"), as though Harvard and Capricorn had purchased shares of Class A
Stock pursuant to the Stock Purchase Agreement; provided, however, that the
amount of the Harvard Subscription and the Capricorn Subscription shall be
excluded from all calculations necessary to determine the timing of the Interim
Referendum pursuant to Section 13 of the Shareholders Agreement.
5. CANCELLATION OF WARRANTS.
------------------------
5.1. CANCELLATION OF WARRANTS.
If, within the period ending 45 days after the date of this
Agreement, the Company redeems shares of Class C Stock from Harvard and
Capricorn pursuant to Article VII.E of the Articles, a number of Warrants shall
be automatically canceled in an amount equal to (A) the total number of
outstanding Warrants, less 300,000, multiplied by (B) the percentage calculated
by multiplying (i) the number of shares of Class C Stock so redeemed by (ii) the
Class C Price, and dividing by (iii) the amount of the Total Subscription. The
Warrants shall be canceled PRO RATA according to Harvard and Capricorn's
respective subscriptions set forth in Article 2 of this Agreement. Harvard and
Capricorn agree to promptly tender to WMF the certificates representing the
Warrants for cancellation, and WMF agrees to promptly reissue to Harvard and
Capricorn certificates of like tenor representing the number of Warrants
outstanding after such cancellation.
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<PAGE>
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
---------------------------------------------
The Company hereby represents and warrants to the Investors as follows:
6.1. ORGANIZATION, GOOD STANDING AND QUALIFICATION.
The Company is a corporation duly organized, validly existing
and in good standing under the laws of the Commonwealth of Virginia and has all
requisite corporate power and authority to own or lease its properties and
assets and to carry on its business as now conducted. The Company is duly
qualified and in good standing to do business as a foreign corporation in each
jurisdiction where failure to be so qualified would have a material adverse
effect on its financial condition, business or operations.
6.2. CAPITALIZATION.
Immediately prior to the Closing, the capitalization of the
Company will consist of the following:
(a) PREFERRED STOCK. A total of 100,000 authorized shares of
Preferred Stock, no par value (the "PREFERRED STOCK"),
consisting of 50,000 shares designated as "Class A
Participating Preferred Stock," 2,806 of which are
issued and outstanding, 1,000 shares designated as
"Class B Participating Non-Voting Preferred Stock," none
of which are issued and outstanding, and 25,000 shares
designated as "Class C Participating Non-Voting
Preferred Stock," none of which are issued and
outstanding. The respective rights, preferences and
privileges of the Class A Stock, Class B Stock and Class
C Stock are as stated in the Articles and as provided by
law.
(b) COMMON STOCK. A total of 25,000 authorized shares of
Common Stock, no par value, 694 of which will be issued
and outstanding. The rights, preferences and privileges
of the Common Stock are as stated in the Articles of
Incorporation and as provided by law.
6.3. OPTIONS, WARRANTS, RESERVED SHARES.
Other than pursuant to the Stock Purchase Agreement and
Shareholders' Agreement, as of the date of this Agreement there are no
outstanding options, warrants, rights (including conversion or preemptive
rights) or agreements for the purchase or acquisition from the Company of any
shares of its capital stock or any securities convertible into or ultimately
exchangeable or exercisable for any shares of the Company's capital stock; no
shares of the Company's outstanding capital stock are subject to any rights of
first refusal or other rights to purchase such stock (whether in favor of the
Company or any other person), pursuant to any agreement or commitment of the
Company.
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<PAGE>
6.4. SUBSIDIARIES.
As of the date of this Agreement, the Company does not own or
control, directly or indirectly, any interest in any other corporation,
partnership, trust, joint venture, association or other entity.
6.5. DUE AUTHORIZATION.
All corporate action on the part of the Company, its officers,
directors and shareholders necessary for the authorization, execution, delivery
of, and the performance of all obligations of the Company under this Agreement,
and the authorization, issuance, reservation for issuance and delivery of all of
the shares of Class C Stock to be sold under this Agreement has been taken or
will be taken prior to the date of this Agreement, and this Agreement
constitutes, and such other agreements, when executed, will constitute, valid
and legally binding obligations of the Company, enforceable in accordance with
their respective terms.
6.6. VALID ISSUANCE OF STOCK.
(a) The shares of Class C Stock, when issued, sold and
delivered in accordance with the terms of this Agreement
for the consideration provided for herein, will be duly
and validly issued, fully paid and nonassessable.
(b) Based in part on the representations made by the
Investors in Section 7 hereof, the shares of Class C
Stock (assuming no change in applicable law and no
unlawful distribution of the shares of Class C Stock by
Harvard or Capricorn) will be exempt from registration
under the Securities Act of 1933, as amended (the "1933
ACT") and the registration and qualification
requirements of the securities laws of the Commonwealths
of Massachusetts and Virginia and the State of
Connecticut.
6.7. GOVERNMENTAL CONSENTS.
No consent, approval, order or authorization of, or
registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority on the part of the Company is
required in connection with the consummation of the transactions contemplated by
this Agreement, EXCEPT FOR such qualifications or filings under the 1933 Act and
the regulations thereunder and all other applicable securities laws of States of
the United States and the corporation laws of the Commonwealth of Virginia as
may be required in connection with the transactions contemplated by this
Agreement. All such qualifications and filings will, in the case of
qualifications, be effective on the date of this Agreement and will, in the case
of filings, be made within the time prescribed by law.
6.8. LITIGATION.
(a) As of the date of this Agreement, no action, proceeding
or investigation is pending to which the Company is a
party or to which the property of the Company is subject
and no such proceedings have been threatened against
-6-
<PAGE>
the Company, nor to the Company's knowledge, is there a
basis for any such proceeding.
(b) No action, proceeding or investigation is pending or to
the Company's knowledge, threatened that questions the
validity of this Agreement, the WMF Credit Agreement,
the Warrants, the Stock Purchase Agreement or the Class
C Stock, nor to the Company's knowledge, is there a
basis for any such action, proceeding or investigation.
6.9. COMPLIANCE WITH LAW AND ORGANIZATIONAL DOCUMENTS.
(a) The Company (i) is not in violation or default of any
provisions of its Articles or Bylaws, both as amended;
(ii) to the Company's knowledge, except for any
violations that individually and in the aggregate would
have no material adverse effect on the Company's
business, is in compliance with all applicable statutes,
laws, regulations and executive orders of the United
States of America and all states, foreign countries or
other governmental bodies and agencies having
jurisdiction over the Company's business or properties;
(iii) has not received any notice of any such violation
of such statutes, laws, regulations or orders which has
not been remedied prior to the date hereof, and (iv) to
the Company's knowledge, is not in breach or default
under any material agreement or contract to which the
Company is a party or by which it or any of its
properties are bound.
(b) The execution, delivery and performance by the Company
of this Agreement and the other agreements contemplated
hereby and the consummation of the transactions
contemplated hereby or thereby will not conflict with or
constitute, with or without the passage of time or the
giving of notice or both, a violation or default under
the Company's Articles or Bylaws, or a breach of or
default under any agreement or contract to which the
Company is a party or by which it or any of its
properties is bound, or result in the creation of any
material lien, charge or encumbrance upon any asset of
the Company, or to the Company's knowledge, a violation
of any statutes, laws, regulations or orders.
7. REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF INVESTORS.
---------------------------------------------------------------
Each of Harvard and Capricorn represents and warrants to the Company as
follows:
7.1. AUTHORIZATION; PRINCIPAL OFFICE.
This Agreement and the other documents contemplated hereby to
be executed by such Investor, when executed, will constitute such Investor's
valid and legally binding obligation, enforceable in accordance with its terms.
Such Investor represents that it has full power and authority to enter into this
Agreement. The principal business offices of Harvard and
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<PAGE>
Capricorn are located in the Commonwealth of Massachusetts and the State of
Connecticut, respectively.
7.2. PURCHASE FOR OWN ACCOUNT.
The shares of the Class C Stock to be purchased by such
Investor hereunder will be acquired for investment for such Investor's own
account, not as a nominee or agent, and not with a view to the public resale or
distribution thereof within the meaning of the 1933 Act, and such Investor has
no present intention of selling, granting any participation in, or otherwise
distributing the same. Such Investor also represents that it has not been formed
for the specific purpose of acquiring the shares of the Class C Stock.
7.3. INVESTMENT EXPERIENCE.
Such Investor understands that the purchase of the shares of
the Class C Stock involves substantial risk. Such Investor has experience as an
investor in securities of companies in the commercial mortgage industry and in
the development stage and acknowledges that such Investor is able to fend for
itself, can bear the economic risk of such Investor's investment in the shares
of the Class C Stock and has such knowledge and experience in financial or
business matters that such Investor is capable of evaluating the merits and
risks of this investment in the shares of the Class C Stock and protecting its
own interests in connection with this investment.
7.4. ACCREDITED INVESTOR STATUS.
Such Investor is an "accredited investor" within the meaning
of Regulation D promulgated under the 1933 Act and such Investor has received a
copy of the Company's Articles of Incorporation and Bylaws, the Stock Purchase
Agreement, the WMF Credit Agreement and this Agreement and such other documents
and agreements as it has requested and has read and understands the respective
contents thereof. Such Investor has had the opportunity to ask questions of the
Company and has received answers to such questions from the Company. Such
Investor has carefully reviewed and evaluated these documents and understands
the risks and other considerations relating to the investment.
7.5. RESTRICTED SECURITIES.
Such Investor understands that the shares of the Class C Stock
are characterized as "restricted securities" under the 1933 Act inasmuch as they
are being acquired from the Company in a transaction not involving a public
offering and that under the 1933 Act and applicable rules and regulations
thereunder such securities may be resold without registration under the 1933 Act
only in certain limited circumstances. Such Investor understands that no public
market now exists for any of the shares of the Class C Stock and that it is
uncertain whether a public market will ever exist for the shares of the Class C
Stock.
7.6. LEGENDS.
It is understood that the certificates evidencing the shares
of the Class C Stock will bear certain legends as set forth in the Shareholders'
Agreement.
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<PAGE>
7.7. LITIGATION.
There is no action, proceeding or investigation pending
against such Investor, or to such Investor's knowledge, threatened that
questions the validity of this Agreement, the WMF Credit Agreement, the
Warrants, the Stock Purchase Agreement or the Class C Stock.
7.8. COMPLIANCE WITH LAW AND ORGANIZATIONAL DOCUMENTS.
The execution, delivery and performance by such Investor of
this Agreement and the other agreements contemplated hereby and the consummation
of the transactions contemplated hereby or thereby will not conflict with or
constitute, with or without the passage of time or the giving of notice or both,
a violation or default under such Investor's organizational documents, or a
breach of or default under any agreement or contract to which such Investor is a
party or by which it or any of its properties is bound, or result in the
creation of any material lien, charge or encumbrance upon any asset of such
Investor, or to such Investor's knowledge, a violation of any statutes, laws,
regulations or orders.
8. CONDITIONS TO INVESTOR'S OBLIGATIONS AT CLOSING.
------------------------------------------------
The obligations of Harvard and Capricorn to purchase Class C Stock at
the Closing are subject to the fulfillment or waiver of each of the following
conditions:
8.1. WMF CREDIT AGREEMENT.
The Company and WMF shall have entered into the WMF Credit
Agreement, in the form attached hereto as EXHIBIT A, and the Warrants shall have
been issued to the Company.
8.2. SECURITIES LAW EXEMPTIONS.
The offer and sale of the shares of the Class C Stock to
Harvard and Capricorn pursuant to this Agreement shall be exempt from the
registration requirements of the 1933 Act and the registration and/or
qualification requirements of all applicable state securities laws.
8.3. PROCEEDINGS AND DOCUMENTS.
All corporate and other proceedings in connection with the
transactions contemplated herein, and all documents incident thereto, shall be
reasonably satisfactory in form and substance to each Investor and to each
Investor's counsel, and each Investor shall have received all such counterpart
originals and certified or other copies of such documents (including customary
closing certificates) as they may reasonably request.
8.4. OPINION OF COMPANY COUNSEL.
The Investors shall have received an opinion from Hunton &
Williams, counsel for the Company, dated as of the applicable Closing Date, in a
form substantially similar to the opinion delivered pursuant to Section 6.8 of
the Stock Purchase Agreement.
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<PAGE>
9. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING.
---------------------------------------------------
The obligations of the Company to sell to an Investor Class C Stock at
the Closing are subject to the fulfillment or waiver of the following
conditions:
9.1. WMF CREDIT AGREEMENT.
WMF and the Company shall have entered into the WMF Credit
Agreement, in the form attached hereto as EXHIBIT A, and the Warrants shall have
been issued to the Company.
9.2. SECURITIES LAW EXEMPTIONS.
The offer and sale of the shares of Class C Stock to the
Harvard and Capricorn pursuant to this Agreement shall be exempt from the
registration requirements of the 1933 Act and the registration and/or
qualification requirements of all other applicable state securities laws.
9.3. PROCEEDINGS AND DOCUMENTS.
All corporate and other proceedings in connection with the
transactions contemplated herein and all documents incident thereto shall be
reasonably satisfactory in form and substance to the Company and to the
Company's legal counsel, and the Company shall have received all such
counterpart originals and certified or other copies of such documents as it may
reasonably request.
10. MISCELLANEOUS.
-------------
10.1. SURVIVAL.
The representations, warranties and covenants of the Company
and the Investors contained in or made pursuant to this Agreement shall survive
the execution and delivery of this Agreement and shall in no way be affected by
any investigation of the subject matter thereof made by or on behalf of the
Investors, its counsel or the Company, as the case may be.
10.2. SUCCESSORS AND ASSIGNS.
The terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective successors and assigns of the
parties, provided that the Investors may not assign their rights or obligations
hereunder without the written consent of the Company and each other Investor.
10.3. GOVERNING LAW.
This Agreement shall be governed by and construed under the
internal laws of the Commonwealth of Virginia as applied to agreements among
Virginia residents entered into and to be performed entirely within Virginia,
without reference to principles of conflict of laws or choice of laws.
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<PAGE>
10.4. COUNTERPARTS.
This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
10.5. HEADINGS.
The headings and captions used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement. All references in this Agreement to sections, paragraphs, exhibits
and schedules shall, unless otherwise provided, refer to sections and paragraphs
hereof and exhibits and schedules attached hereto, all of which exhibits and
schedules are incorporated herein by this reference.
10.6. NOTICES.
Unless otherwise provided, any notice required or permitted
under this Agreement shall be given in writing and shall be deemed effectively
given upon personal delivery to the party to be notified or one business day
after deposit with a national overnight delivery service or three business days
after deposit with the United States Post Office, by registered or certified
mail, postage prepaid and addressed to the party to be notified at the address
indicated for each Investor on EXHIBIT B or, in the case of the Company:
11601 Wilshire Boulevard, Suite 2440
Los Angeles, California 90025
Attention: Mr. Glenn A. Sonnenberg
with copies to:
Mr. Shekar Narasimhan
The WMF Group, Ltd.
1593 Spring Hill Road
Vienna, Virginia 22182
and
Mr. Patrick Clancy
Krooth & Altman
1850 M Street, NW
Washington, DC 20036
or at such other address as any Investor or the Company may designate by giving
10 days advance written notice to the other parties. A copy of every notice
given pursuant to this Agreement to any of the Investors or to the Company shall
also be provided to Greenwich Capital Markets, Inc., at the following addresses:
Greenwich Capital Markets, Inc.
600 Steamboat Road
-11-
<PAGE>
Greenwich, Connecticut 06830
Attention: Mr. Mark R. Jarrell
with copies to:
Sidley & Austin
875 Third Avenue
New York, New York 10022
Attention: George Petrow, Esquire and Andrew
Berman, Esquire
10.7. NO FINDER'S FEES.
Each party represents that it neither is nor will be obligated
for any finder's or broker's fee or commission in connection with this
transaction. Each Investor agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finder's or broker's fee (and any asserted liability) for which such Investor or
any of its directors, officers, partners, employees, or representatives is
responsible. The Company agrees to indemnify and hold harmless each Investor
from any liability for any commission or compensation in the nature of a
finder's or broker's fee (and any asserted liability) for which the Company or
any of its directors, officers, employees or representatives is responsible.
10.8. ATTORNEYS' FEES.
If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the prevailing party shall be entitled to
reasonable attorneys' fees, costs and necessary disbursements in addition to any
other relief to which such party may be entitled.
10.9. AMENDMENTS AND WAIVERS.
Any term of this Agreement may be amended and the observance
of any term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and the Investors.
10.10. SEVERABILITY.
If one or more provisions of this Agreement are held to be
unenforceable under applicable law, such provision(s) shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision(s) were so excluded and shall be enforceable in accordance with its
terms.
10.11. ENTIRE AGREEMENT.
This Agreement, together with all exhibits and schedules
hereto, constitutes the entire agreement and understanding of the parties with
respect to the subject matter hereof and supersedes any and all prior
negotiations, correspondence, agreements, understandings, duties or obligations
between the parties with respect to the subject matter hereof.
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<PAGE>
10.12. FURTHER ASSURANCES.
From and after the date of this Agreement, upon the request of
any Investor or the Company, the Company and the Investors shall execute and
deliver such instruments, documents or other writings as may be reasonably
necessary or desirable to confirm and carry out and to effectuate fully the
intent and purposes of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
THE COMPANY: COMMERCIAL MORTGAGE INVESTMENT TRUST,
a Virginia corporation
By:
---------------------------------
Name:
Title:
THE INVESTORS: THE WMF GROUP, LTD.,
a Delaware corporation
By:
---------------------------------
Name:
Title:
HARVARD PRIVATE CAPITAL HOLDINGS,
INC., a Massachusetts corporation
By:
---------------------------------
Name:
Title:
By:
---------------------------------
Name:
Title:
CAPRICORN INVESTORS II, L.P.,
a Delaware limited partnership
BY CAPRICORN HOLDINGS, L.L.C.,
Its General Partner
By:
---------------------------------
Name:
Title:
<PAGE>
STOCK PURCHASE AGREEMENT
LIST OF SCHEDULES AND EXHIBITS
------------------------------
SCHEDULES
Schedule 3.1 - Wire Transfer Instructions For Initial Closing
EXHIBITS
Exhibit A - Form of WMF Credit Agreement
Exhibit B - Addresses of the Investors
<PAGE>
SCHEDULE 3.1
WIRING INSTRUCTIONS
-------------------
Bank: National City Bank, Kentucky
ABA: 083000056
Address: 421 West Market Street, Louisville, Kentucky
Account Name: Commercial Mortgage Investment Trust, Inc.
Operating Account
Account Number: 354081469
<PAGE>
EXHIBIT B
ADDRESSES OF THE INVESTORS
--------------------------
THE WMF GROUP, LTD.
1593 Spring Hill Road, Suite 400
Vienna, VA 22182
with copies to:
Mr. Patrick Clancy
Krooth & Altman
1850 M Street, NW
Washington, D.C. 20036
HARVARD PRIVATE CAPITAL HOLDINGS, INC.
600 Atlantic Avenue, 26th Floor
Boston, MA 02210
with copies to:
Ropes & Gray
One International Place
Boston, MA 02110
Attn: Larry Rowe, Esquire
CAPRICORN INVESTORS II, L.P.
30 East Elm Street
Greenwich, CT 06830
THIS WARRANT AND ANY SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND NEITHER THIS WARRANT NOR ANY (I) SUCH SHARES MAY BE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND (II)
COMPLIANCE WITH THE PROVISIONS OF ARTICLE V HEREOF.
WARRANT No. W-1
To Purchase Common Stock of
THE WMF GROUP, LTD.
THIS IS TO CERTIFY that COMMERCIAL MORTGAGE INVESTMENT TRUST, INC. a Virginia
corporation, or its registered assigns, is entitled upon the due exercise hereof
at any time during the Exercise Period (as hereinafter defined), to purchase
1,200,000 shares of Common Stock, $.01 par value, of The WMF Group, Ltd. a
Delaware corporation, at an Exercise Price of $11.25 per share (such Exercise
Price and the number of shares of Common Stock purchasable hereunder being
subject to adjustment as provided herein), and to exercise the other rights,
powers and privileges hereinafter provided, all on the terms and subject to the
conditions hereinafter set forth.
ARTICLE I
DEFINITIONS
The terms defined in this ARTICLE I, whenever used in this Warrant, shall
have the respective meanings hereinafter specified.
"AFFILIATE" of any entity means a Person which directly or directly through one
or more intermediaries controls, or is controlled by, or is under common control
with, such entity. The term "control," as used with respect to any Person, means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"ASSIGNMENT" means the form of Assignment in the form of EXHIBIT 3.4.
"CLOSING DATE" means September 4, 1998.
"COMMISSION" means the Securities and Exchange Commission or any other Federal
agency from time to time administering the Securities Act.
"COMMON STOCK" means shares of the Company's Common Stock, $.01 par value, any
stock into which such stock shall have been changed or any stock resulting from
any reclassification of such stock.
"COMPANY" means The WMF Group, Ltd., a Delaware corporation, and any successor
corporation.
<PAGE>
"CONVERTIBLE SECURITIES" means evidences of indebtedness, shares of stock or
other securities which are convertible into or exchangeable or exercisable for,
with or without payment of additional consideration, additional shares of Common
Stock, either immediately or upon the arrival of a specified date or the
happening of a specified event.
"CREDIT AGREEMENT" means the Credit Agreement dated as of September 4, 1998,
between the Company and the Lender, as the same may be amended from time to
time.
"CURRENT MARKET PRICE" as to any security on any date specified herein means the
average of the daily closing prices for the thirty (30) consecutive trading days
before such date excluding any trades which are not bona fide arm's length
transactions. The closing price for each day shall be 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, in either case on the New York Stock
Exchange Composite Tape or, if the security is not listed or admitted to trading
on such Exchange, on the national securities exchange in or nearest the City of
New York on which the security is listed or admitted to trading, or if the
security is not listed or admitted to trading on any national securities
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 on
Nasdaq, or if the security is not authorized for quotation on Nasdaq, the last
sale price regular way or, in case no such sale takes place on such day, the
average of the highest reported bid and lowest reported asked prices as
furnished by the National Association of Securities Dealers, Inc., or if on any
such trading day the security is not quoted by any such organization, the fair
market value of the security on such day, as determined in good faith by the
Board of Directors of the Company after consultation with an independent
investment banking firm of recognized national standing.
"DETERMINATION DATE" means, with respect to any dividend or other Distribution,
the date fixed for the determination of holders of shares of Common Stock
entitled to receive such dividend or Distribution, or if a dividend as other
Distribution is to be paid or made without fixing a date, the date of such
dividend or Distribution.
"DISTRIBUTION" means any dividend or other distribution, whether in cash,
securities or other property, with respect to the Common Stock.
"EVENT OF DEFAULT" means (a) the breach of any warranty, or the inaccuracy of
any representation, made by the Company herein, (b) the failure by the Company
to comply with any covenant contained herein, or (c) an Event of Default as such
term is defined in the Credit Agreement.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or any
successor Federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect from time to time.
"EXERCISE PERIOD" means the period commencing on the 46th day following the
Closing Date and terminating on the fifth anniversary of the Closing Date.
"EXERCISE PRICE" means the price per share of Common Stock set forth in the
preamble to this Warrant, as such price may be adjusted pursuant to ARTICLE IV.
2
<PAGE>
"INITIAL HOLDER" means Commercial Mortgage Investment Trust, Inc.
"ISSUABLE WARRANT SHARES" means the number of shares of Common Stock issuable
from time to time upon exercise of this Warrant.
"ISSUED WARRANT SHARES" means any shares of Common Stock issued upon exercise of
this Warrant or to any holder of this Warrant as a stockholder, including,
without limitation, any shares of Common Stock issued as a stock dividend with
respect to any shares of Common Stock or as part of a stock split affecting such
shares.
"LENDER" means Commercial Mortgage Investment Trust, Inc., and its assigns, as
lender under the Credit Agreement.
"LIABILITIES" means the Company's obligations to repay indebtedness, including,
without limitation, principal, interest, fees and expenses, under and pursuant
to the Credit Agreement.
"NASDAQ" means The Nasdaq Stock Market.
"NOTICE OF EXERCISE" means the form of Notice of Exercise appearing at the end
of this Warrant.
"OPINION OF COUNSEL" means an opinion of counsel experienced in Securities Act
matters chosen by the holder of this Warrant or the holder of Issued Warrant
Shares, which counsel may be counsel to such holder.
"ORIGINAL WARRANT SHARES" means the original number of Issuable Warrant Shares
set forth in the preamble to this Warrant.
"PERSON" means any unincorporated organization, association, corporation,
individual, sole proprietorship, partnership, limited liability company, joint
venture, trust institution, entity, party or government (including any
instrumentality, division, agency, body or department thereof).
"RESTRICTED COMMON STOCK" shall mean shares of Common Stock which are, or which,
upon their issuance on the exercise of this Warrant would be, evidenced by a
certificate bearing the restrictive legend set forth in SECTION 5.2.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any successor
Federal statute, and the rules and regulations of the Commission promulgated
thereunder, all as the same shall be in effect from time to time.
"STOCK PURCHASE RIGHTS" means any warrants, options or other rights to subscribe
for, purchase or otherwise acquire any shares of Common Stock or any Convertible
Securities.
"WARRANT" means the warrant dated as of Closing Date issued to the Initial
Holder and all warrants issued upon the partial exercise, transfer or division
of or in substitution for any Warrant.
"WARRANT SHARES" means the Issuable Warrant Shares plus the Issued Warrant
Shares.
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Whenever used in this Warrant, any noun or pronoun shall be deemed to include
both the singular and plural and to cover all genders, and the words "herein,"
"hereof," and "hereunder" and words of similar import shall refer to this
instrument as a whole, including any amendments hereto.
ARTICLE II
EXERCISE OF WARRANT
2.1 RIGHT TO EXERCISE. On the terms and subject to the conditions of
this ARTICLE II, the holder hereof shall have the right, at its option, to
exercise this Warrant in whole or in part at any time during the Exercise
Period.
2.2 MANNER OF EXERCISE; ISSUANCE OF COMMON STOCK. To exercise this
Warrant, the holder hereof shall deliver to the Company (a) a Notice of Exercise
in the form of EXHIBIT 2.2 hereto duly executed and completed by the holder
hereof specifying the number of shares of Common Stock to be purchased, (b) an
amount equal to the aggregate Exercise Price for all shares of Common Stock as
to which this Warrant is then being exercised and (c) this Warrant. At the
option of the holder hereof, payment of the Exercise Price shall be made by (i)
wire transfer of funds to an account in a bank located in the United States
designated by the Company for such purpose, (ii) certified or official bank
check payable to the order of the Company, (iii) on a net basis, as described
below or (iv) by any combination of such methods.
Payment of the Exercise Price may be made on a net basis, by the
surrender of all or a portion of this Warrant in exchange for the number of
shares of Common Stock determined by (x) multiplying (A) the difference obtained
by subtracting the Exercise Price from the Current Market Price of a share of
Common Stock on the date of exercise by (B) the number of shares of Common Stock
with respect to which this Warrant shall have been exercised and (y) dividing
the product so derived by such Current Market Price.
Upon receipt of the required deliveries set forth above, the Company
shall, as promptly as practicable, and in any event within five days thereafter,
cause to be issued and delivered to the holder hereof (or its nominee) or,
subject to ARTICLE V, the transferee designated in the Notice of Exercise, a
certificate or certificates representing shares of Common Stock equal in the
aggregate to the number of shares of Common Stock specified in the Notice of
Exercise (but not exceeding the maximum number of shares issuable upon exercise
of this Warrant). Such certificate or certificates shall be registered in the
name of the holder hereof (or its nominee) or in the name of such transferee, as
the case may be.
If this Warrant is exercised in part, the Company shall, at the time of
delivery of such certificate or certificates, unless the Exercise Period has
expired, issue and deliver to the holder hereof or, subject to ARTICLE V, the
transferee so designated in the Notice of Exercise, a new Warrant evidencing the
right of the holder hereof or such transferee to purchase the aggregate number
of shares of Common Stock for which this Warrant shall not have been exercised,
and this Warrant shall be cancelled.
2.3 EFFECTIVENESS OF EXERCISE. Unless otherwise requested by the holder
hereof, this Warrant shall be deemed to have been exercised and such certificate
or certificates shall
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be deemed to have been issued, and the holder or transferee so designated in the
Notice of Exercise shall be deemed to have become the holder of record of such
shares for all purposes, as of the close of business on the date the Notice of
Exercise, together with payment of the Exercise Price and this Warrant, in
accordance with SECTION 2.2 hereof, is received by the Company.
2.4 FRACTIONAL SHARES. The Company shall not issue fractional shares of
Common Stock or scrip representing fractional shares of Common Stock upon any
exercise of this Warrant. As to any fractional share of Common Stock which the
holder hereof would otherwise be entitled to purchase from the Company upon such
exercise, the Company shall purchase from the holder such fractional share at a
price equal to an amount calculated by multiplying such fractional share
(calculated to the nearest .001 of a share) by the Current Market Price
calculated as of the date of the Notice of Exercise. Payment of such amount
shall be made at the time of delivery of any certificate or certificates
deliverable upon such exercise in cash or by check payable to the order of the
holder hereof or, subject to ARTICLE V, the transferee designated in the Notice
of Exercise, as the case may be.
2.5 CONTINUED VALIDITY. A holder of shares of Common Stock issued upon
the exercise of this Warrant, in whole or in part, shall continue to be entitled
to all rights to which a holder of this Warrant is entitled pursuant to the
provisions of this Warrant except such rights as by their terms apply solely to
the holder of a Warrant. The Company will, at the time of any exercise of this
Warrant, upon the request of the holder of the shares of Common Stock issued
upon the exercise hereof, acknowledge in writing, in form reasonably
satisfactory to such holder, its continuing obligation to afford to such holder
all rights to which such holder shall continue to be entitled after such
exercise in accordance with the provisions of this Warrant; PROVIDED, HOWEVER,
that if such holder shall fail to make any such request, such failure shall not
affect the continuing obligation of the Company to afford to such holder all
such rights.
2.6 REDUCTION OF ISSUABLE WARRANT SHARES. At any time and from time to
time, on or prior to the 45th day following the Closing Date, the Company may
reduce the number of Issuable Warrant Shares upon (a) delivery, on or prior to
such 45th day, of a written notice to the holder hereof to such effect
specifying the number of Issuable Warrant Shares so reduced, and (b) within five
(5) days of the delivery of such notice, repayment all or a portion of the loan
under the Credit Agreement. The number of Issuable Warrant Shares shall be
adjusted automatically and without further action or other payment by the
Company or the holder hereof such that the adjusted number of Issuable Warrant
Shares shall be equal to the Original Warrant Shares MINUS the product of (1)
75% of the Original Warrant Shares and (2) a fraction, the numerator of which
shall be all principal repayments made by the Company on such loan prior to the
date of the adjustment PLUS the principal payment requiring such adjustment and
the denominator of which shall be the original amount of the loan under the
Credit Agreement ($20,000,000).
The Company will promptly notify the holder hereof in writing of each
principal repayment and its calculation of the reduction in the number of
Issuable Warrant Shares as a result of the foregoing adjustment.
2.7 REPURCHASE OF ISSUABLE WARRANT SHARES. At any time, and from time
to time, on or prior to the first anniversary of the Closing Date, the Company
may, by written notice to the
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holder and payment of the repurchase price, repurchase from the holder hereof up
to 75% of the Original Warrant Shares (as adjusted pursuant to ARTICLE IV) at a
price of $11.25 per Issuable Warrant Share (as adjusted pursuant to ARTICLE IV).
Payment of the repurchase price shall be made by wire transfer of funds to an
account in a bank located in the United States designated by the holder for such
purpose.
2.8 PRO RATA REDUCTION. In the event that there is more than one holder
of Warrants, any reduction pursuant to Section 2.6 or repurchase pursuant to
Section 2.7 of the number of Issuable Warrant Shares shall reduce the Issuable
Warrant Shares on a pro rata basis (based on the number of Warrant Shares of
each holder).
ARTICLE III
REGISTRATION, TRANSFER AND EXCHANGE
3.1 MAINTENANCE OF REGISTRATION BOOKS. The Company shall keep at its
principal office in Vienna, Virginia a register in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration, transfer and exchange of this Warrant. The Company shall not at
any time, except upon the dissolution, liquidation or winding up of the Company,
close such register so as to result in preventing or delaying the exercise or
transfer of this Warrant.
3.2 TRANSFER AND EXCHANGE. Upon surrender for registration of transfer
of this Warrant at such office, the Company shall execute and deliver, subject
to ARTICLE V, in the name of the designated transferee or transferees, one or
more new Warrants representing the right to purchase a like aggregate number of
shares of Common Stock. At the option of the holder hereof, this Warrant may be
exchanged for other Warrants representing the right to purchase a like aggregate
number of shares of Common Stock upon surrender of this Warrant at such office.
Whenever this Warrant is so surrendered for exchange, the Company shall execute
and deliver the Warrants which the holder making the exchange is entitled to
receive.
Every Warrant presented or surrendered for registration of transfer or
exchange shall be accompanied by an Assignment duly executed by the holder
thereof or its attorney duly authorized in writing.
All Warrants issued upon any registration of transfer or exchange of
Warrants shall be the valid obligations of the Company, evidencing the same
rights, and entitled to the same benefits, as the Warrants surrendered upon such
registration of transfer or exchange.
3.3 REPLACEMENT. Upon receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of this Warrant and
(a) in the case of any such loss, theft or destruction upon delivery of
indemnity reasonably satisfactory to the Company in form and amount or (b) in
the case of any such mutilation, upon surrender of such Warrant for cancellation
at the principal office of the Company, the Company, at its expense, will
execute and deliver, in lieu thereof, a new Warrant.
3.4 OWNERSHIP. The Company and any agent of the Company may treat the
Person in whose name this Warrant is registered on the register kept at the
principal office of the Company
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as the owner and holder thereof for all purposes, notwithstanding any notice to
the contrary, except that, if and when this Warrant is properly assigned in
blank, the Company may (but shall not be obligated to except as immediately
provided below) treat the bearer thereof as the owner of this Warrant for all
purposes, notwithstanding any notice to the contrary. This Warrant, if properly
assigned by delivery of an Assignment in the form of EXHIBIT 3.4 hereto, may be
exercised by a new holder without first having a new Warrant issued.
ARTICLE IV
ANTIDILUTION PROVISIONS
4.1 ADJUSTMENT OF NUMBER OF SHARES PURCHASABLE. Upon any adjustment of
the Exercise Price as provided in SECTION 4.2, the holder hereof shall
thereafter be entitled to purchase, at the Exercise Price resulting from such
adjustment, the number of shares of Common Stock (calculated to the nearest
1/100th of a share) obtained by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of shares of Common Stock
purchasable hereunder immediately prior to such adjustment and dividing the
product thereof by the Exercise Price resulting from such adjustment.
4.2 ADJUSTMENT OF EXERCISE PRICE. The Exercise Price shall be subject
to adjustment from time to time as hereinafter set forth.
(a) STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. In the event
that the Company subsequent to the Closing Date shall:
(i) declare a dividend upon, or make any distribution in
respect of, any of its stock, payable in Common Stock, Convertible Securities or
Stock Purchase Rights, or
(ii) subdivide its outstanding shares of Common Stock into
a larger number of shares of Common Stock, or
(iii) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
then the Exercise Price shall be adjusted to that price determined by
multiplying the Exercise Price immediately prior to such event by a fraction (A)
the numerator of which shall be the total number of outstanding shares of Common
Stock of the Company immediately prior to such event, and (B) the denominator of
which shall be the total number of outstanding shares of Common Stock of the
Company immediately after such event, treating as outstanding all shares of
Common Stock issuable upon conversions or exchanges of such Convertible
Securities and exercises of such Stock Purchase Rights.
(b) ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. In case the
Company shall issue or sell any shares of Common Stock after the Closing Date
for a consideration less than the then Current Market Price per share, the
Exercise Price upon each such issuance or sale shall be adjusted (to the nearest
one-thousandth of a cent) to the price calculated by MULTIPLYING the then
existing Exercise Price by a fraction the numerator of which is (A) the sum of
(1) the number of shares of Common Stock outstanding immediately prior to such
issue or sale
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multiplied by the Current Market Price per share of Common Stock immediately
prior to such issue or sale PLUS (2) the consideration received by the Company
upon such issue or sale, divided by (B) the total number of shares of Common
Stock outstanding immediately after such issue or sale, and the denominator of
which shall be the Current Market Price per share of Common Stock immediately
prior to such issue or sale.
For purposes of this Subsection (b) the adjustment shall be made
successively whenever any issuance is made, and shall become effective
immediately after such issuance.
The provisions of this Subsection (b) shall not apply to any additional
shares of Common Stock which are distributed to holders of Common Stock pursuant
to a stock dividend or subdivision for which an adjustment is provided for under
Subsection (a) of this SECTION 4.2. No adjustment of the Exercise Price shall be
made under this Subsection (b) upon the issuance of any additional shares of
Common Stock which are issued pursuant to the exercise of any Stock Purchase
Rights or pursuant to the conversion or exchange of any Convertible Securities
to the extent that such adjustment shall previously have been made upon the
issuance of such Stock Purchase Rights or Convertible Securities pursuant to
Subsection (a), (c) or (d) of this SECTION 4.2.
(c) ISSUANCE OF STOCK PURCHASE RIGHTS. In case the Company shall
issue or sell any Stock Purchase Rights and the consideration per share for
which additional shares of Common Stock may at any time thereafter be issuable
upon exercise thereof (or, in the case of Stock Purchase Rights exercisable for
the purchase of Convertible Securities, upon the subsequent conversion or
exchange of such Convertible Securities) shall be less than the then Current
Market Price per share, the Exercise Price shall be adjusted as provided in
Subsection (b) of this SECTION 4.2 on the basis that (I) the maximum number of
additional shares of Common Stock issuable upon exercise of such Stock Purchase
Rights (or upon conversion or exchange of such Convertible Securities following
such exercise) shall be deemed to have been issued as of the date of the
determination of the Current Market Price, as hereinafter provided, and (II) the
aggregate consideration received for such additional shares of Common Stock
shall be deemed to be the minimum consideration received and receivable by the
Company in connection with the issuance and exercise of such Stock Purchase
Rights (or upon conversion or exchange of such Convertible Securities). For the
purposes of this Subsection (c), the date as of which the Current Market Price
shall be determined shall be the earlier of (A) the date on which the Company
shall enter into a firm contract for the issuance of such Stock Purchase Rights,
or (B) the date of actual issuance of such Stock Purchase Rights.
(d) ISSUANCE OF CONVERTIBLE SECURITIES. In case the Company shall
issue or sell any Convertible Securities and the consideration per share for
which additional shares of Common Stock may at any time thereafter be issuable
pursuant to the terms of such Convertible Securities shall be less than the then
Current Market Price per share, the Exercise Price shall be adjusted as provided
in Subsection (b) of this SECTION 4.2 on the basis that (I) the maximum number
of additional shares of Common Stock necessary to effect the conversion or
exchange of all such Convertible Securities shall be deemed to have been issued
as of the date for the determination of the Current Market Price, as hereinafter
provided, and (II) the aggregate consideration received for such additional
shares of Common Stock shall be deemed to be equal to the minimum consideration
received and receivable by the Company in connection with the
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issuance and exercise of such Convertible Securities. For the purposes of this
Subsection (d), the date as of which the Current Market Price per share shall be
determined shall be the earlier of (A) the date on which the Company shall enter
into a firm contract for the issuance of such Convertible Securities, or (B) the
date of actual issuance of such Convertible Securities. No adjustment of the
Exercise Price shall be made under this Subsection (d) upon the issuance of any
Convertible Securities which are issued pursuant to the exercise of any Stock
Purchase Rights, if an adjustment shall previously have been made upon the
issuance of such Stock Purchase Rights pursuant to Subsection (c) of this
SECTION 4.2.
(e) MINIMUM ADJUSTMENT. In the event any adjustment of the
Exercise Price pursuant to this SECTION 4.2 shall result in an adjustment of
less than $.01 per share of Common Stock, no such adjustment shall be made, but
any such lesser adjustment shall be carried forward and shall be made at the
time and together with the next subsequent adjustment, if any, which, together
with any adjustments so carried forward, shall amount to $.01 more per share of
Common Stock; PROVIDED, HOWEVER, that upon any adjustment of the Exercise Price
resulting from (i) the declaration of a dividend upon, or the making of any
distribution in respect of, any stock of the Company payable in Common Stock or
Convertible Securities or (ii) the reclassification by subdivision, combination
or otherwise, of the Common Stock into a greater or smaller number of shares,
the foregoing figure of $.01 per share (or such figure as last adjusted) shall
be proportionately adjusted, and provided, further, upon the exercise of this
Warrant, the Company shall make all necessary adjustments (to the nearest .001
of a cent) not theretofore made to the Exercise Price up to and including the
date upon which this Warrant is exercised.
(f) READJUSTMENT OF EXERCISE PRICE. In the event (i) the purchase
price payable for any Stock Purchase Rights or Convertible Securities referred
to in Subsection (c) or (d) above, (ii) the additional consideration, if any,
payable upon exercise of such Stock Purchase Rights or upon the conversion or
exchange of such Convertible Securities or (iii) the rate at which any
Convertible Securities referred to above are convertible into or exchangeable
for additional shares of Common Stock shall change, the Exercise Price in effect
at the time of such event shall forthwith be readjusted to the Exercise Price
which would have been in effect at such time had such Stock Purchase Rights or
Convertible Securities provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time initially
granted, issued or sold. On the expiration of any such Stock Purchase Rights or
of any such right to convert or exchange under any such Convertible Securities,
if none of such Stock Purchase Rights or such Convertible Securities, as the
case may be, shall have been exercised, the Exercise Price then in effect
hereunder shall forthwith be increased to the Exercise Price which would have
been in effect at the time of such expiration or termination had such Stock
Purchase Rights or Convertible Securities never been issued. No readjustment of
the Exercise Price pursuant to this Subsection (f) shall have the effect of
increasing the Exercise Price by an amount in excess of the adjustment
originally made to the Exercise Price in respect of the issue, sale or grant of
the applicable Stock Purchase Rights or Convertible Securities.
(g) REORGANIZATION, RECLASSIFICATION OR RECAPITALIZATION OF
COMPANY. In case of any capital reorganization or reclassification or
recapitalization of the capital stock of the Company (other than in the cases
referred to in Subsection (a) of this SECTION 4.2), or in case of the
consolidation or merger of the Company with or into another corporation, or in
case of the sale or transfer of the property of the Company as an entirety or
substantially as an entirety, there
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shall thereafter be deliverable upon the exercise of this Warrant or any portion
thereof (in lieu of or in addition to the number of shares of Common Stock
theretofore deliverable, as appropriate) the number of shares of stock or other
securities or property to which the holder of the number of shares of Common
Stock which would otherwise have been deliverable upon the exercise of this
Warrant or any portion thereof at the time would have been entitled upon such
capital reorganization or reclassification of capital stock, consolidation,
merger or sale, and at the same aggregate Exercise Price.
Prior to and as a condition of the consummation of any transaction
described in the preceding sentence, the Company shall make equitable, written
adjustments in the application of the provisions herein set forth satisfactory
to the holder or holders of this Warrant so that the provisions set forth herein
shall thereafter be applicable, as nearly as possible, in relation to any shares
of stock or other securities or other property thereafter deliverable upon
exercise of this Warrant. Any such adjustment shall be made by and set forth in
a supplemental agreement between the Company and/or the successor entity, as
applicable, which agreement shall bind each such entity, shall be accompanied by
an opinion of counsel as to the enforceability of such agreement and shall be
approved by the holder or holders of this Warrant.
(h) CASH DIVIDENDS. In the event that the Company subsequent to
the Closing Date shall declare a cash dividend upon, or make any cash
Distribution in respect of, any of its Common Stock, then the Exercise Price
shall be adjusted to that price determined by multiplying the Exercise Price
immediately prior to the Determination Date by a fraction (i) the numerator of
which shall be the Current Market Price per share of Common Stock of the Company
immediately prior to the Determination Date less the per share amount of such
dividend or other Distribution and (ii) the denominator of which shall be the
Current Market Price per share of Common Stock of the Company immediately prior
to the Determination Date .
(i) OTHER DILUTIVE EVENTS. In case any Distribution shall occur as
to which the other provisions of this ARTICLE IV are not strictly applicable but
the failure to make any adjustment would not fairly protect the purchase rights
represented by this Warrant in accordance with the essential intent and
principles hereof, then, in each such case, the Board of Directors of the
Company shall determine the amount of the adjustment in good faith and on a
basis consistent with the essential intent and principles established in this
ARTICLE IV, necessary to preserve, without dilution, the purchase rights
represented by this Warrant. Upon determination of such adjustment, the Company
will promptly mail a copy thereof to the holder of this Warrant and shall make
the adjustment described therein.
(j) DETERMINATION OF CONSIDERATION. For purposes of this ARTICLE
IV, the consideration received or receivable by the Company for the issuance,
sale, grant or assumption of additional shares of Common Stock, Stock Purchase
Rights or Convertible Securities, irrespective of the accounting treatment of
such consideration, shall be valued as follows:
(1) CASH PAYMENT. In the case of cash, the net amount
received by the Company without deduction of any expenses paid or incurred or
any underwriting commissions or concessions paid or allowed by the Company.
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(2) SECURITIES OR OTHER PROPERTY. In the case of
securities or other property, at the lesser of (i) the Current Market Price of
the security for which such consideration was received, and (ii) the fair value
of such consideration as determined in good faith by the Board of Directors of
the Company (in both cases as of the date immediately preceding the issuance,
sale or grant in question).
(3) ALLOCATION RELATED TO COMMON STOCK. In the event
additional shares of Common Stock are issued or sold together with other
securities or other assets of the Company for a consideration which covers both,
the consideration received (computed as provided in (1) and (2) above) shall be
allocable to such additional shares of Common Stock as determined in good faith
by the Board of Directors of the Company.
(4) DIVIDENDS IN SECURITIES. In case the Company shall
declare a dividend or make any other distribution upon any stock of the Company
(other than Common Stock) payable in either case in Common Stock, Convertible
Securities or Stock Purchase Rights, such Common Stock, Convertible Securities
or Stock Purchase Rights, as the case may be, issuable in payment of such
dividend or distribution shall be deemed to have been issued or sold without
consideration.
(5) STOCK PURCHASE RIGHTS AND CONVERTIBLE SECURITIES. The
consideration for which shares of Common Stock shall be deemed to be issued upon
the issuance of any Stock Purchase Rights or Convertible Securities shall be
determined by dividing (i) the total consideration, if any, received or
receivable by the Company as consideration for the granting of such Stock
Purchase Rights or the issuance of such Convertible Securities, plus the minimum
aggregate amount of additional consideration payable to the Company upon the
exercise of such Stock Purchase Rights, or, in the case of such Convertible
Securities, the minimum aggregate amount of additional consideration, if any,
payable upon the conversion or exchange thereof, in each case after deducting
any accrued interest, dividends, or any expenses paid or incurred or any
underwriting commissions or concessions paid or allowed by the Company, by (ii)
the maximum number of shares of Common Stock issuable upon the exercise of such
Stock Purchase Rights or upon the conversion or exchange of all such Convertible
Securities.
(6) MERGER, CONSOLIDATION OR SALE OF ASSETS. In case any
shares of Common Stock or Convertible Securities or any Stock Purchase Rights
shall be issued in connection with any merger or consolidation in which the
Company is the surviving corporation, the amount of consideration therefor shall
be deemed to be the fair value of such portion of the assets and business of the
non-surviving corporation as shall be attributable to such Common Stock,
Convertible Securities or Stock Purchase Rights, as the case may be. In the
event of any merger or consolidation of the Company in which the Company is not
the surviving corporation or in the event of any sale of all or substantially
all of the assets of the Company for stock or other securities of any
corporation, the Company shall be deemed to have issued a number of shares of
its Common Stock for stock or securities of the other corporation computed on
the basis of the actual exchange ratio on which the transaction was predicated
and for a consideration equal to the Current Market Price on the date of such
transaction of such stock or securities of the other corporation, and if any
such calculation results in adjustment of the Exercise Price, the determination
of the number of shares of Common Stock issuable upon
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exercise of this Warrant immediately prior to such merger, consolidation or
sale, for the purposes of Subsection (g) above, shall be made after giving
effect to such adjustment of the Exercise Price.
(k) RECORD DATE. In case the Company shall take a record of the
holders of the Common Stock for the purpose of entitling them (i) to receive a
Distribution payable in Common Stock, Stock Purchase Rights or in Convertible
Securities or (ii) to subscribe for or purchase Common Stock or Convertible
Securities, then all references in this ARTICLE IV to the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
making of such Distribution or the date of the granting of such right of
subscription or purchase, as the case may be, shall be deemed to be references
to such record date.
(l) SHARES OUTSTANDING. The number of shares of Common Stock
deemed to be outstanding at any given time shall exclude shares of Common Stock
in the treasury of the Company and those held by any subsidiary of the Company.
(m) MAXIMUM EXERCISE PRICE. At no time shall the Exercise Price
per share of Common Stock exceed the amount set forth in the Preamble of this
Warrant except as provided in Subsection (a) or (g) of this SECTION 4.2.
(n) APPLICATION. Except as otherwise provided herein, all
Subsections of this SECTION 4.2 are intended to operate independently of one
another. If an event occurs that requires the application of more than one
Subsection, all applicable Subsections shall be given independent effect.
(o) NO ADJUSTMENTS UNDER CERTAIN CIRCUMSTANCES. Anything herein to
the contrary notwithstanding, the Company shall not be required to make any
adjustment of the Exercise Price in the case of the issuance of shares of Common
Stock pursuant to a rights offering in which the holder hereof elects to
participate under the provisions of SECTION 4.3.
4.3 RIGHTS OFFERING. In the event the Company shall effect an offering
of Common Stock pro rata among its stockholders, the holder hereof shall be
entitled, at its option, to elect to participate in each and every such offering
occurring during the term hereof as if this Warrant had been exercised and such
holder were, at the time of any such rights offering, then a holder of that
number of shares of Common Stock to which such holder is then entitled on the
exercise hereof.
4.4 CERTIFICATES AND NOTICES.
(a) ADJUSTMENTS TO EXERCISE PRICE. Upon any adjustment under this
ARTICLE IV of the number of shares of Common Stock purchasable upon exercise of
this Warrant or of the Exercise Price, a certificate, signed (i) by the
President or a Vice President and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary of the Company, or (ii) by any
independent firm of certified public accountants of recognized national standing
selected by, and at the expense of, the Company, setting forth in reasonable
detail the events requiring the adjustment and the method by which such
adjustment was calculated, shall be mailed to the holder of this Warrant
specifying the adjusted Exercise Price and the number of shares of Common Stock
purchasable upon exercise of such holder's Warrant after giving effect to such
adjustment.
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The certificate of any independent firm of certified public accountants
of recognized national standing selected by the Board of Directors of the
Company shall be conclusive evidence of the correctness of any computation made
under ARTICLE IV.
(b) EXTRAORDINARY CORPORATE EVENTS. In case the Company after the
date hereof shall propose to (i) pay any dividend payable in stock to the
holders of shares of Common Stock or to make any other Distribution to the
holders of shares of Common Stock, (ii) offer to the holders of shares of Common
Stock rights to subscribe for or purchase any additional shares of any class of
stock or any other rights or options, (iii) amend its certificate of
incorporation in a manner that requires a vote of its stockholders, (iv)
repurchase or redeem any of its equity securities or any securities convertible
into or exchangeable for such equity securities or any warrants or other rights
to purchase such equity securities or (v) effect any reclassification of the
Common Stock (other than a reclassification involving merely the subdivision or
combination of outstanding shares of Common Stock), or any capital
reorganization or any consolidation or merger (other than a merger in which no
distribution of securities or other property is to be made to holders of shares
of Common Stock), or any sale, transfer or other disposition of its property,
assets and business as an entirety or substantially as an entirety, or the
liquidation, dissolution or winding up of the Company, then, in each such case,
the Company shall mail to the holder of this Warrant notice of such proposed
action, which shall specify the date on which the stock transfer books of the
Company shall close, or a record shall be taken, for determining the holders of
Common Stock entitled to vote or receive such stock dividends or other
Distribution or such rights or options, or the date on which such
reclassification, reorganization, consolidation, merger, sale, transfer, other
disposition, liquidation, dissolution or winding up shall take place or
commence, as the case may be, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to receive securities or
other property deliverable upon such action, if any such date is to be fixed.
Such notice shall be mailed in the case of any action covered by clause (i),
(ii), (iii) or (iv) above at least fifteen (15) days prior to the record date
for determining holders of Common Stock or other equity securities for purposes
of voting or receiving such payment or offer, or in the case of any action
covered by clause (v) above at least thirty (30) days prior to the date upon
which such action takes place and twenty (20) days prior to any record date to
determine holders of Common Stock entitled to receive such securities or other
property.
(c) EFFECT OF FAILURE. Failure to file any certificate or notice
or to mail any noticed or any defect in any certificate or notice pursuant to
this SECTION 4.4 shall not affect the legality or validity of the adjustment of
the Exercise Price or the number of shares purchasable upon exercise of this
Warrant, or any transaction giving rise thereto.
ARTICLE V
RESTRICTIONS ON TRANSFER
Neither this Warrant nor any shares of Restricted Common Stock issued
upon the exercise hereof shall be transferable except (a) to Harvard Private
Capital Holdings, Inc., Capricorn Investors II, L.P. or an Affiliate of the
holder hereof, (b) to a successor corporation to
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the holder hereof as a result of a merger or consolidation with, or sale of all
or substantially all of the assets of, the holder hereof, (c) as is or may be
required by the holder hereof to comply with any Federal or state law or any
rule or regulation of any governmental or public body or authority, (d) on five
(5) days prior written notice to the Company, to any other Person pursuant to an
exemption under the Securities Act, or (e) in an offering pursuant to an
effective registration statement under the Securities Act.
Any notice given pursuant to Subsection (d) of this ARTICLE V by the
holder hereof or of any shares issuable pursuant hereto shall contain (i) the
name and address of the proposed bona fide purchaser of the Warrant or portion
thereof or of any shares of Restricted Common Stock issued pursuant hereto, (ii)
the proposed purchase price per share of Common Stock subject to or issuable
pursuant to this Warrant ("Proposed Purchase Price"), (iii) the number of shares
of Common Stock subject to or issuable pursuant to this Warrant proposed to be
sold and (iv) a brief description of such proposed transfer.
The conditions contained in the following sections of this ARTICLE V
are intended to ensure compliance with the Securities Act in respect of the
transfer of this Warrant or Restricted Common Stock issued upon the exercise
hereof.
5.1 NOTICE OF PROPOSED TRANSFER; REGISTRATION NOT REQUIRED. The holder
hereof or the holder of any shares of Restricted Common Stock issued upon the
exercise of this Warrant, by acceptance hereof or thereof, agrees to give
written notice to the Company, prior to any transfer of this Warrant, such
shares of Restricted Common Stock or any portion hereof or thereof, of its
intention to make such transfer pursuant to Subsection (d) of the preamble of
this ARTICLE V.
Such holder, in connection with a proposed transfer pursuant to
Subsection (d), shall request an Opinion of Counsel (which shall be rendered by
counsel reasonably acceptable to the Company) that the proposed transfer may be
effected without registration or qualification under Federal law. Counsel shall,
as promptly as practicable, notify the Company and the holder of such opinion
and of the terms and conditions, if any, to be observed in such transfer,
whereupon the holder shall be entitled to transfer this Warrant or such shares
of Restricted Common Stock (or portion thereof) in accordance with such terms
and conditions. In the event this Warrant shall be exercised as an incident to
such transfer, such exercise shall relate back and for all purposes of this
Warrant be deemed to have occurred as of the date of such notice regardless of
delays incurred by reason of the provisions of this ARTICLE V which may result
in the actual exercise on any later date.
Notwithstanding the provisions of the foregoing paragraph, the holder
hereof or the holder of any shares of Restricted Common Stock issued upon the
exercise hereof shall be permitted to transfer this Warrant or any such shares
of Restricted Common Stock without obtaining an Opinion of Counsel to a limited
number of institutional holders, PROVIDED that (i) each such holder represents
in writing that it is acquiring such securities for investment and not with a
view to the distribution thereof (subject, however, to any requirement of law
that the disposition thereof shall at all times be within the control of such
holder) and (ii) each such holder agrees in writing to be bound by all the
restrictions on transfer contained in this ARTICLE V.
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5.2 LEGEND ON WARRANTS. Each Warrant shall bear a legend in
substantially the following form:
"This Warrant and any shares of Common Stock issuable upon the exercise
of this Warrant have not been registered under the Securities Act of 1933, as
amended, and neither this Warrant nor any such shares may be transferred in the
absence of (i) such registration or an exemption therefrom under such Act and
(ii) compliance with the provisions of Article V hereof."
5.3 TERMINATION OF RESTRICTIONS. The restrictions imposed under this
ARTICLE V upon the transferability of this Warrant, or of any Warrant Shares,
shall cease when (a) a registration statement covering such Issuable Warrant
Shares or Issued Warrant Shares becomes effective under the Securities Act and
such Warrant Shares are sold pursuant thereto or (b) the Company receives an
Opinion of Counsel (which shall be rendered by counsel reasonably acceptable to
the Company) that such restrictions are no longer required in order to ensure
compliance with the Securities Act. When such restrictions terminate, the
Company shall, or shall instruct its transfer agent and registrar to, issue new
certificates in the name of the holder not bearing the legends required under
SECTION 5.2.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company hereby represents and warrants to the Initial Holder and
each subsequent holder of this Warrant that as of the Closing Date:
6.1 ORGANIZATION AND CAPITALIZATION OF THE COMPANY. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The authorized capital of the Company consists of
25,000,000 shares of Common Stock, $.01 par value per share. As of the date
hereof there are 5,270,796 shares of Common Stock issued and outstanding. No
unissued shares of Common Stock are reserved for any purpose other than for
issuance upon the exercise of this Warrant. The Company has not issued or agreed
to issue any Stock Purchase Rights or Convertible Securities, and there are no
preemptive rights in effect with respect to the issuance of any shares of Common
Stock. All the outstanding shares of the Company's capital stock have been
validly issued without violation of any preemptive or similar rights and are
fully paid and nonassessable.
6.2 AUTHORITY. The Company has full corporate power and authority to
execute and deliver this Warrant and to perform all of its obligations
hereunder, and the execution, delivery and performance hereof have been duly
authorized by all necessary corporate action on its part. This Warrant has been
duly executed on behalf of the Company and constitutes the legal, valid and
binding obligation of the Company enforceable in accordance with its terms.
6.3 NO LEGAL BAR. The execution, delivery and performance of this
Warrant will not (a) conflict with or result in a violation of the articles or
certificate of incorporation or By-Laws of the Company, (b) conflict with or
result in a violation of any law, statute, regulation, order or decree
applicable to the Company, (c) require any consent or authorization or filing
with, or
15
<PAGE>
other act by or in respect of, any governmental authority, or (d) result in a
breach of, constitute a default under or constitute an event creating rights of
acceleration, termination or cancellation under any mortgage, lease, contract,
franchise, instrument or other agreement to which the Company is a party or by
which it is bound.
6.4 VALIDITY OF SHARES. When issued upon the exercise of this Warrant
as contemplated herein, shares of Common Stock will have been validly issued and
will be fully paid and nonassessable.
ARTICLE VII
COVENANTS OF THE COMPANY
7.1 NO IMPAIRMENT OR AMENDMENT. The Company shall not by any action
including, without limitation, any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate to protect the rights of the holder hereof against
impairment. Without limiting the generality of the foregoing, the Company will
(a) not increase the par value of any shares of Common Stock issuable upon the
exercise of this Warrant above the amount payable therefor upon such exercise,
(b) take all such action as may be necessary or appropriate in order that the
Company may validly issue fully paid and nonassessable shares of Common Stock
upon the exercise of this Warrant, (c) obtain all such authorizations,
exemptions or consents from any public regulatory body having jurisdiction
thereof as may be necessary to enable the Company to perform its obligations
under this Warrant, and (d) not undertake any reverse stock split, combination,
reorganization or other reclassification of its capital stock which would have
the effect of making this Warrant exercisable for less than that percentage of
the outstanding shares of Common Stock to which it related immediately prior to
such corporate action.
7.2 RESERVATION OF COMMON STOCK. The Company will at all times reserve
and keep available, solely for issuance, sale and delivery upon the exercise of
this Warrant, a number of shares of Common Stock equal to the number of shares
of Common Stock issuable upon the exercise of this Warrant. All such shares of
Common Stock shall be duly authorized and, when issued upon exercise of this
Warrant, all be validly issued and fully paid and non-assessable with no
liability on the part of the holders thereof.
7.3 LISTING. The Company shall use its best efforts to list on each
securities exchange, and will maintain such listing of, any other securities
which the holder of this Warrant shall be entitled to receive upon the exercise
thereof if at the time any securities of the same class shall be listed on such
securities exchange by the Company.
7.4 AVAILABILITY OF INFORMATION. The Company will cooperate with the
holder hereof and of Issued Warrant Shares in supplying such information as may
be necessary for such holder to complete and file any information reporting
forms presently or hereafter required by the Commission as a condition to the
availability of an exemption from the registration provisions of the Securities
Act for the sale of this Warrant or such Issued Warrant Shares. In addition to
the information and documents required to be delivered pursuant to the terms of
this Warrant, the
16
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Company shall deliver to the holder hereof all information and documents of or
relating to the Company delivered to stockholders of the Company whether or not
required by law or otherwise.
7.5 INDEMNIFICATION. If the Company fails to make when due any payments
provided for in this Warrant, the Company shall pay to the holder hereof (a)
interest at the Default Rate (as such term is defined in the Credit Agreement)
on any amounts due and owing to such holder and (b) such further amounts as
shall be sufficient to cover any costs and expenses including, but not limited
to, reasonable attorneys' fees and expenses incurred by such holder in
collecting any amounts due hereunder. The Company shall indemnify, save and hold
harmless the holder hereof from and against any and all liability, loss, cost,
damage, reasonable attorneys' and accountants' fees and expenses, court costs
and all other out-of-pocket expenses incurred in connection with or arising from
an Event of Default.
7.6 CERTAIN EXPENSES. The Company shall pay all expenses in connection
with, and all taxes (other than stock transfer taxes) and other governmental
charges that may be imposed in respect of, the issue, sale and delivery of (a)
the Warrant, (b) the Issuable Warrant Shares, or (c) the Issued Warrant Shares.
7.7 REGISTRATION RIGHTS AGREEMENT. Issuable Warrant Shares and Issued
Warrant Shares shall be considered Registrable Shares pursuant to the
Registration Rights Agreement among the Company, Harvard Private Capital
Holdings, Inc. and Capricorn Investors II, L.P., dated as of June 12, 1998.
ARTICLE VIII
MISCELLANEOUS
8.1 NONWAIVER. No course of dealing or any delay or failure to exercise
any right, power or remedy hereunder on the part of the holder hereof shall
operate as a waiver of or otherwise prejudice such holder's rights, powers or
remedies.
8.2 HOLDER NOT A STOCKHOLDER. Prior to the exercise of this Warrant as
hereinbefore provided, the holder hereof shall not be entitled to any of the
rights of a stockholder of the Company including, without limitation, the right
as a stockholder to (a) vote on or consent to any proposed action of the Company
or (b) receive (i) dividends or any other distributions made to stockholders
(except as provided in ARTICLE IV hereof), (ii) notice of or attend any meetings
of stockholders of the Company (except as provided in ARTICLES IV and VI) or
(iii) notice of any other proceedings of the Company (except as provided in
ARTICLES IV and VI).
8.3 NOTICES. Any notice, demand or delivery to be made pursuant to the
provisions of this Warrant shall be sufficiently given or made if sent by first
class mail, postage prepaid, addressed if to (a) the holder, to Commercial
Mortgage Investment, Inc., 11601 Wilshire Boulevard, Suite 2440, Los Angeles,
California 90025, Attention: Mr. Glenn Sonnenberg, or to any other holder of
this Warrant or Issued Warrant Shares at its last known address appearing on the
books of the Company maintained for such purpose or (b) to the Company, at its
principal office at 1593 Spring Hill Road, Suite 400, Vienna, Virginia 22182,
Attention: President. The holder of this Warrant and the Company may each
designate a different address by notice to the other pursuant to this SECTION
8.3.
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8.4 REMEDIES. The Company stipulates that the remedies at law of the
holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate and that, to the fullest extent
permitted by law, such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise.
8.5 SUCCESSORS AND ASSIGNS. This Warrant and the rights evidenced
hereby shall inure to the benefit of and be binding upon the successors and
assigns of the Company, the holder hereof and (to the extent provided herein)
the holders of Issued Warrant Shares, and shall be enforceable by any such
holder.
8.6 MODIFICATION AND SEVERABILITY. If, in any action before any court
or agency legally empowered to enforce any provision contained herein, any
provision hereof is found to be unenforceable, then such provision shall be
deemed modified to the extent necessary to make it enforceable by such court or
agency. If any such provision is not enforceable as set forth in the preceding
sentence, the unenforceability of such provision shall not affect the other
provisions of this Agreement, but this Agreement shall be construed as if such
unenforceable provision had never been contained herein.
8.7 INTEGRATION. This Warrant replaces all prior agreements, supersedes
all prior negotiations and constitutes the entire agreement of the parties with
respect to the transactions contemplated herein.
8.8 AMENDMENT. This Warrant may not be modified or amended except by
written agreement of the Company and the holder hereof.
8.9 HEADINGS. The headings of the Articles and Sections of this Warrant
are for the convenience of reference only and shall not, for any purpose, be
deemed a part of this Warrant.
8.10 GOVERNING LAW. This Warrant shall be governed by the internal laws
(as opposed to conflicts of laws provisions) of the State of Delaware.
8.11 EXPIRATION. The right to exercise this Warrant shall expire at the
termination of the Exercise Period at 5 P.M., Los Angeles time. Whenever any
dispute shall exist under any provision of this Warrant, the Exercise Period
shall be automatically extended for a period of time equal to the period of time
which it takes to resolve such dispute, and if any other rights benefiting the
holder of this Warrant would expire during the period of time which it takes to
resolve such dispute, then the relevant time period for the exercise of such
rights shall be similarly extended so that the holder is not prejudiced by any
delay in resolving the dispute.
8.12 GOOD FAITH DETERMINATION. Whenever the Board of Directors of the
Company shall be required to make a determination in good faith of the fair
value of any item pursuant to this Warrant, such determination shall be
conclusive if the Board of Directors relied upon a written opinion of an
independent investment banking firm of recognized national standing or an
investment banking firm acceptable to the holder hereof in making such
determination or, if the Board of Directors did not so rely, such determination
may be challenged in good faith by the holder hereof and any dispute shall be
resolved by an independent investment banking firm
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<PAGE>
selected by the Company and acceptable to such holder. If the holder hereof
challenges such determination and the selected investment banking firm agrees
with the determination of the Board of Directors of the Company, the holder
hereof shall pay all fees and expenses of such investment banking firm or, if
such investment banking firm disagrees with such determination, the Company
shall pay all of such fees and expenses.
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<PAGE>
THE WMF GROUP, LTD.
By:_____________________________
Title:__________________________
S-1
<PAGE>
EXHIBIT 2.2
NOTICE OF EXERCISE FORM
(To be executed only upon partial or full
exercise of the within Warrant)
The undersigned registered holder of the within Warrant irrevocably exercises
the within Warrant for and purchases shares of Common Stock of The WMG Group,
Ltd. (the "Company") and herewith makes payment therefor in the amount of
$____________, all at the price and on the terms and conditions specified in the
within Warrant, and requests that a certificate (or _________ certificates in
denominations of ______________ shares) for the shares of Common Stock of the
Company hereby purchased be issued in the name of and delivered to (choose one)
(a) the undersigned or (b) ________________________________, whose address is
____________________________________________ and, if such shares of Common Stock
shall not include all the shares of Common Stock issuable as provided in the
within Warrant, that a new Warrant of like tenor for the number of shares of
Common Stock of the Company not being purchased hereunder be issued in the name
of and delivered to (choose one) (a) the undersigned or (b)
_____________________________________, whose address is
_______________________________________________.
Dated: ___________ ____.
Signature Guaranteed: By:________________________________
(Signature of Registered Holder)
___________________________
By:________________________
[Title:]
NOTICE: The signature to this Notice of Exercise must correspond with
the name as written upon the face of the within Warrant in
every particular, without alteration or enlargement or any
change whatever.
The signature to this Notice of Exercise must be guaranteed by
a commercial bank or trust company in the United States or a
member firm of the New York Stock Exchange.
E-1
<PAGE>
EXHIBIT 3.4
ASSIGNMENT FORM
(To be executed only upon the assignment
of the within Warrant)
FOR VALUE RECEIVED, the undersigned registered holder of the within Warrant
hereby sells, assigns and transfers unto _______ ________________________ whose
address is ________________, all of the rights of the undersigned under the
within Warrant, with respect to ____________________ shares of Common Stock of
The WMF Group, Ltd. (the "Company") and, if such shares of Common Stock shall
not include all the shares of Common Stock issuable as provided in the within
Warrant, that a new Warrant of like tenor for the number of shares of Common
Stock of the Company not being transferred hereunder be issued in the name of
and delivered to the undersigned, and does hereby irrevocably constitute and
appoint ___________________________________ Attorney to register such transfer
on the books of the Company maintained for the purpose, with full power of
substitution in the premises.
Dated: ___________ ____.
Signature Guaranteed: By:________________________________
(Signature of Registered Holder)
___________________________
By: _______________________
[Title:]
NOTICE: The signature to this Assignment must correspond with the name
as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatever.
The signature to this Assignment must be guaranteed by a
commercial bank or trust company in the United States or a
member firm of the New York Stock Exchange.
E-2
THE WMF GROUP, LTD.
NON-EMPLOYEE DIRECTOR AWARD AGREEMENT
This Non-Employee Director Award Agreement (the "Agreement") is made
and entered into as of the 8th day of December, 1997, by and between The WMF
Group, Ltd. (hereinafter referred to as the "Company") and Capricorn Investors
II, L.P. (hereinafter referred to as the "Participant"). The Options specified
herein have a grant date of December 8, 1997 (the "Grant Date").
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged by the Company and the Participant, and pursuant
to and subject to all the terms and conditions set forth herein and in that Key
Employee Incentive Plan adopted by the Company as of December 5, 1997 and all
amendments thereto (the "Plan"), a copy of which Plan is attached to this
Agreement as EXHIBIT A, and which Exhibit and all provisions thereof are
incorporated into this Agreement as an integral part thereof, the Company
desires to grant to the Participant, and the Participant desires to accept, an
option to purchase 5,000 shares of the Common Shares of the Company as
specifically provided in this Agreement (the "Option Shares"), and, accordingly,
the Company and the Participant agree upon the terms and provisions specified in
this Agreement.
Unless specifically defined in this Agreement, all capitalized words
and phrases in this Agreement shall have the meaning ascribed to them in the
Plan.
1. GRANT AND ACCEPTANCE OF OPTION; VESTING
(a) Subject to the terms and provisions of this Agreement and the Plan,
the Company has granted to Participant the right and option to purchase Five
Thousand (5,000) shares of Common Shares of the Company at a price of $9.15 per
share, the fair market value of the Option Shares on the Grant Date. Participant
hereby accepts the grant and agrees to all of the terms and provisions of this
Agreement and of the Plan. Unless otherwise specifically provided in this
Agreement, the right and option granted herein shall vest and be exercisable by
the Participant six (6) months after the Grant Date.
(b) The specific option (hereinafter referred to as the "Option") which
is granted to Participant is intended to be treated for income tax purposes as a
non-qualified stock option. The granting of a non-qualified stock option will
not be treated as a taxable event so long as the Option does not have an
ascertainable fair market value. Participant acknowledges that when the Option
is exercised, the Participant may recognize income if and to the extent the fair
market value of the Option Shares at the time the Option is exercised is greater
than the Option price. The Option is granted in connection with Participant's
service as a Non-Employee Director.
<PAGE>
2. PERIOD OF OPTION; CERTAIN LIMITATIONS ON RIGHT TO EXERCISE
(a) Unless terminated earlier as otherwise provided in this Agreement,
the Option shall expire at 5:00 PM, Washington, D.C. time, on the tenth (10th)
anniversary of the date of this Agreement, viz., December 8, 2007 (the "Option
Term"). The period of the Option may be reduced only as provided in this
Agreement and in the Plan.
(b) Nothing in this Agreement shall have the effect of accelerating the
six-month period during which Director Options are not exercisable..
(c) If, for any reason other than death or permanent and total
disability, a Non-Employee director ceases to be a member of the Board, each
Director Option held by that Non-Employee Director on the date that the
Non-Employee Director ceases to be a member of the Board may be exercised in
whole or in part at any time within one year after the date of such termination
or until the expiration of the Director Option, whichever is earlier.
(d) If a Non-Employee Director dies or becomes permanently and totally
disabled (within the meaning of Section 422(c)(6) of the Code) while a member of
the Board (or within the period that the Director Options remain exercisable
after the Non-Employee Director ceases to be a member of the Board), each
Director Option then held by that Non-Employee Director may be exercised, in
whole or in part, by the Non-Employee Director, by the Non-Employee Director's
personal representative or by the person to whom the Non-Employee Director
transferred the Director Option by will or the laws of descent and distribution,
or approved assignment, at any time within two years after the date of death or
permanent and total disability of the Non-Employee Director or until the
expiration date of the Director Option, whichever is earlier.
3. LISTING AND REGISTRATION OF SHARES
If at any time the Committee, in its discretion, shall determine that
it is necessary or desirable to list, register or qualify the Option Shares upon
any securities exchange or under any state or federal law, or to obtain the
consent or approval of any governmental regulatory body, as a condition of, or
in connection with, the granting of the Option or the issue or purchase of
shares hereunder, the Option may not be exercised in whole or in part unless and
until such listing, registration, qualification, consent, or approval shall have
been effected or obtained free of any conditions not acceptable to the
Committee.
4. RIGHTS AS A SHAREHOLDER
Neither Participant nor Participant's legal representative shall have
any rights as a shareholder of the Company with respect to any Option Shares
until evidence of ownership is properly issued for those shares.
Page 2
<PAGE>
5. AMENDMENT OF OPTION AGREEMENT
This Agreement may be amended by the Company or the Committee at any
time; provided, however, any change adversely affecting the Participant must
receive the Participant's written consent, unless the Company or the Committee
determines, in its sole discretion, that amendment is necessary or advisable in
light of any change or amendment to the Code or to the U.S. Treasury Regulations
promulgated thereunder, or any federal or state securities law or other law or
regulations, which change occurs after the Grant Date and by its terms applies
to the Option.
6. METHOD OF EXERCISING OPTION
Participant may exercise the Option, or any portion thereof, by
providing the Committee with written notice of the number of shares which
Participant desires to purchase. Participant shall deliver to the Company
consideration in the form of cash or other consideration permitted by the
Committee for the full purchase price of the Option Shares to be acquired. Upon
the payment of such purchase price, the Company shall issue and deliver to
Participant evidence of ownership for such shares and shall register such
evidence of ownership in Participant's name (or, upon Participant's written
request, jointly in Participant's name and the name of Participant's spouse,
with rights of survivorship).
7. CONFLICTING PROVISIONS
The wording of this Agreement is based upon the provisions of the Plan,
under which the Option is issued. There has been no attempt made to repeat all
of the provisions of the Plan verbatim herein. In the event of any conflict
between the terms and conditions of this Agreement and the provisions of the
Plan, the provisions of the Plan shall control in all respects.
Page 3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Key Employee Incentive
Award Agreement to be duly executed by its authorized officer, and Participant
has set his/her hand and seal, as of the day and year first hereinabove written.
Witness: THE WMF GROUP, LTD.
_____________________________ By: __________________________________
Shekar Narasimhan
Its: President and
Chief Executive Officer
Witness: PARTICIPANT
CAPRICORN INVESTORS II, L.P.
Approved Assignee
_____________________________ By: __________________________________
Herbert S. Winokur
Authorized Agent
Page 4
<PAGE>
KEY EMPLOYEE INCENTIVE PLAN
OF
THE WMF GROUP LTD.
1. PURPOSE OF THE PLAN AND DEFINITIONS
-----------------------------------
1.1 PURPOSE. The purpose of this Key Employee Incentive Plan ("the
Plan") of The WMF Group, Ltd.(the "Company") is to:
(a) furnish incentives to individuals chosen to receive
stock-based awards because they are considered capable of responding by
improving operations and increasing profits and shareholder value;
(b) encourage selected persons to accept or continue
employment with the Company; and increase the interest of key executives in the
Company's welfare through their participation in the growth in value of the
Company's Shares.
To accomplish these purposes, this Plan provides a means whereby
executives and key employees, board members, and other enumerated persons may
receive Awards.
1.2 DEFINITIONS. For purposes of this Plan, the following terms
have the following meanings:
"AFFILIATE" means a parent or subsidiary entity, to be interpreted in
accordance with the comparable terms "parent" and "subsidiary" corporation in
the applicable provisions (currently Section 424) of the Code at the time this
definition is being applied.
"ASSUMED OPTION" means any option assumed by the Company with respect
to Common Stock as a result of the Separation Agreement between the Company and
NHP, Inc., to be entered as of December 8, 1997.
"AWARD" means any award under this Plan, including any grant of
Options, Performance Shares or Director Options.
"AWARD AGREEMENT" means, with respect to each Award, the written
agreement executed by the Company and the Participant or other written document
approved by the Committee setting forth the terms and conditions of the Award.
"BOARD" means the Board of Directors of the Company.
<PAGE>
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor statute.
"COMMISSION" means the Securities and Exchange Commission and any
successor agency.
"COMMITTEE" has the meaning given it in Section 4.1.
"COMMON SHARES" or "SHARES" means shares of the common stock of the
Company, par value $0.01 per share.
"COMPANY" has the meaning given it in Section 1.1.
"DIRECTOR" means a person duly elected or appointed and serving as a
Director of the Company in accordance with the by-laws of the Company.
"DIRECTOR OPTIONS" has the meaning given it in Section 5.3.
"EMPLOYEE" has the meaning ascribed to it for purposes of Section
3401(c) of the Code and the Treasury Regulations adopted under that Section.
"EMPLOYMENT TERMINATION" means that a Participant has ceased, for any
reason and with or without cause, to be an Employee or Director of, or a
consultant to, the Company or any Affiliate of the Company. However, the term
"Employment Termination" shall not include a Non-Employee Director ceasing to be
a Director or a transfer of a Participant from the Company to an Affiliate or
vice versa, or from one Affiliate to another, or a leave of absence duly
authorized by the Company unless the Committee has provided otherwise.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor statute.
"EXERCISE NOTICE" has the meaning given it in Section 6.1(h).
"GRANT DATE" has the meaning given it in Section 6.1(d).
"INCENTIVE STOCK OPTION" or "ISO" mean any Option intended to be and
designated as an "incentive stock option" within the meaning of Section 422 of
the Code or successor provision.
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"NON-EMPLOYEE DIRECTOR" means a person who qualifies as a "Non-Employee
Director" as defined in Rule 16b-3 and an "outside director" as defined in
Treasury Regulation 1.162-27(e)(3) and any successor Treasury Regulation.
"NON-QUALIFIED STOCK OPTION" or "NQO" means any Option that is not an
Incentive Stock Option.
"OPTION" means an option granted under Section 5.
"PARTICIPANT" means an eligible person who is granted an Award.
"PLAN" means this Key Employee Incentive Plan.
"PERFORMANCE SHARE AWARD" means an Award granted under Section 5.4
"RULE 16B-3" means Rule 16b-3 adopted under Section 16(b) of the
Exchange Act or any successor rule, as it may be amended from time to time, and
references to paragraphs or clauses of Rule 16b-3 refer to the corresponding
paragraphs or clauses of Rule 16b-3 as it exists at the Effective Date or the
comparable paragraph or clause of Rule 16b-3 or successor rule, as that
paragraph or clause may thereafter be amended.
"SECURITIES ACT" means the Securities Act of 1933, as amended from time
to time, and any successor statute.
"SPINOFF" means the distribution of Shares pursuant to the Rights
Agreement dated as of April 21, 1997.
"TEN PERCENT SHAREHOLDER" means any person who, at the time this
definition is being applied, owns directly or indirectly (or is treated as
owning by reason of attribution rules currently set forth in Section 424 of the
Code or any successor statute), shares of the Company constituting more than ten
percent (10%) of the total combined voting power of all classes of outstanding
shares of the Company or of any Affiliate of the Company.
2. ELIGIBLE PERSONS
Every person who, at or as of the Grant Date, is (a) an Employee of the
Company or an Affiliate of the Company, or (b) someone whom the Committee
designates as eligible for an Award (other than for Incentive Stock Options)
because the person (i) performs bona fide consulting or advisory services for
the Company or an Affiliate of the Company (other than services in connection
with the offer or sale of securities in a capital-raising transaction) and (ii)
has a direct and significant effect on the financial development of the Company
or an
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Affiliate of the Company, shall be eligible to receive Awards hereunder.
Directors of the Company who are not Employees are only eligible to receive
Director Options under Section 5.3.
3. SHARES SUBJECT TO THE PLAN
The total number of Shares that may be issued under Award, all or any
part of which may be issued to any Participant, is eight percent (8.00%) of the
total shares outstanding of the Company, plus that number of shares needed to
satisfy the Assumed Options; provided, however, that ISOs may not be more than
368,000 Shares, plus that number of shares needed to satisfy the Assumed Options
that are ISOs. Such Shares may consist, in whole or in part, of authorized and
unissued Common Shares or Shares reacquired in private transactions or open
market purchases, but all Shares issued under the Plan, regardless of their
source, shall be counted against the foregoing limitation. Any Shares that are
retained by the Company upon exercise or settlement of an Award in order to
satisfy the exercise price in whole or in part, or to pay withholding taxes due
with respect to such exercise or settlement, shall be treated as issued to the
Participant and will thereafter not be available under the Plan. The number of
Shares reserved for issuance under this Plan is subject to adjustment in
accordance with the provisions for adjustment in this Plan.
4. ADMINISTRATION
4.1 COMMITTEE. This plan shall be administered by a committee (the
"Committee") appointed by the Board. The Committee shall be constituted so that,
as long as Shares are registered under Section 12 of the Exchange Act, each
member of the Committee shall be a Non-Employee Director. The number of persons
that shall constitute the Committee shall be determined from time to time by a
majority of all the members of the Board; provided, however, the Committee shall
not consist of fewer than two persons.
4.2 COMMITTEE'S POWERS. Subject to the express provisions of this Plan
and Rule 16b-3 (so long as it is applicable) and the terms of the Assumed
Options, the Committee shall have the authority, in its sole discretion: (a) to
adopt, amend and rescind administrative and interpretive rules and regulation
relating to the Plan; (b) to determine the eligible persons to whom, and the
time or times at which, Awards shall be granted; (c) to determine the number of
Shares that shall be the subject of each Award; (d) to determine the terms and
provisions of each Award Agreement (which need not be identical) and any
amendments thereto, including provisions defining or otherwise relating to (i)
the period or periods and extent of exercisability of any Option, (ii) the
extent to which the transferability of Shares issued or transferred pursuant to
any Award is restricted, (iii) the effect of Employment Termination on an Award,
and (iv) the effect of approved leaves of absence (consistent with applicable
Treasury Regulations); (e) to accelerate the time of exercisability of any
Option; (f) to construe the respective Award
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Agreements and the Plan; (g) to make determinations of the fair market value of
Shares; (h) to waive any provision, condition or limitation set forth in an
Award Agreement; (i) to delegate its duties under the Plan to such agents as it
may appoint from time to time, PROVIDED, HOWEVER, that the Committee may not
delegate its duties with respect to making or exercising discretion with respect
to Awards to eligible persons if such delegation would cause Awards not to
qualify for the exemptions provided by Rule 16b-3 (unless the Board expressly
determines not to have Awards under the Plan comply with Rule 16b-3); and (j) to
make all other determinations, perform all other acts and exercise all other
powers and authority necessary or advisable for administering the Plan,
including the delegation of those ministerial acts and responsibilities as the
Committee deems appropriate. Subject to Rule 16b-3 (so long as it is
applicable), the Committee may correct any defect, supply any omission or
reconcile any inconsistency in the Plan, in any Award or in any Award Agreement
in the manner and to the extent it deems necessary or desirable to implement the
Plan, and the Committee shall be the sole and final judge of that necessity or
desirability. The determinations of the Committee on the matters referred to in
this Section 4.4 shall be final and conclusive. Notwithstanding any provision in
the Plan to the contrary, Awards will be made to Non-Employee Directors under
Sections 5.3 and 8 of this Plan. In addition, notwithstanding any provision of
this Plan to the contrary, the Committee may not in any manner exercise
discretion under the Plan with respect to any Awards made to Non-Employee
Directors.
4.3 TERM OF PLAN No awards shall be granted under this Plan after
10 years from the Effective Date of this Plan.
5. GRANT OF OPTIONS
5.1 WRITTEN AGREEMENT. Each option shall be evidenced by an Award
Agreement. The Award Agreement shall specify whether each Option it evidences is
a NQO or an ISO.
5.2 ANNUAL $100,000 LIMITATION ON ISOS. To the extent that the
aggregate "fair market value" of Shares with respect to which ISOs first become
exercisable by a Participant in any calendar year exceeds $100,000 taking into
account ISOs granted under this Plan, the Options covering such additional
Shares becoming exercisable in that year shall cease to be ISOs and thereafter
be NQOs. For this purpose, the "fair market value" of the ISOs shall be
determined as of the Grant Date of the Options. In reducing the number of
Options treated as ISOs to meet this $100,000 limit, the most recently granted
Options shall be reduced first.
5.3 ANNUAL GRANTS TO NON-EMPLOYEE DIRECTORS. On the last day of
each calendar year beginning with the last day of 1997, each Non-Employee
Director who is then a member of the Board shall automatically be granted NQOs
to purchase 5,000 Shares. Each option referred to in the previous sentence is
referred to as a "Director Option." The exercise price of Director Options shall
be the fair market value of the Shares subject to the Option on the
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date the Option is granted. Each Director Option shall be fully exercisable
commencing six months after the date of grant and continuing, unless sooner
terminated as provided in this Plan, for 10 years after the date it is granted.
If, for any reason other than death or permanent and total disability, a
Non-Employee Director ceases to be a member of the Board, each Director Option
held by that Non-Employee Director on the date that the Non-Employee Director
ceases to be a member of the Board may be exercised in whole or in part at any
time within one year after the date of such termination or until the expiration
of the Director Option, whichever is earlier. If a Non-Employee Director dies or
becomes permanently and totally disabled (within the meaning of Section
422(c)(6) of the Code) while a member of the Board (or within the period that
the Director Options remain exercisable after the Non-Employee Director ceases
to be a member of the Board), each Director Option then held by that
Non-Employee Director may be exercised, in whole or in part, by the Non-Employee
Director, by the Non-Employee Director's personal representative or by the
person to whom the Non-Employee Director transferred the Director Option by will
or the laws of descent and distribution, at any time within two years after the
date of death or permanent and total disability of the Non-Employee Director or
until the expiration date of the Director Option, whichever is earlier. Nothing
in this Section 5.3 or in Section 6.1(c) shall have the effect of accelerating
the six-month period during which Director Options are not exercisable. Each
Director Option shall be evidenced by an Award Agreement.
5.4 GRANTS OF PERFORMANCE SHARE AWARDS. The Committee may, in its
discretion, grant Performance Share Awards to eligible Employees. An Award shall
specify the maximum number of shares of Common Shares (if any) subject to the
Performance Share Award and its terms and conditions. The Committee shall
establish the specified period (a "performance cycle") for the Performance Share
Award and the measure(s) of the performance of the Company (or any part thereof)
or the Participant. The Committee may, during the performance cycle, make such
adjustments to the measure(s) of performance as it may deem appropriate to
compensate for, or reflect, any significant changes that may occur in accounting
practices, tax laws, other laws or regulations that alter or affect the
computation of the measure(s). The Award Agreement shall specify how the degree
of attainment of the measure(s) over the performance cycle is to be determined.
The Committee may provide for full or partial credit, prior to completion of
such performance cycle or the attainment of the performance achievement
specified in the Award, in the event of the Participant's death.
5.5 ASSUMED OPTIONS. As provided in the Separation Agreement
between the Company and NHP, Inc., to be entered into as of December 8, 1997,
the Company assumes obligations with respect to the Assumed Options through this
Plan.
6. CERTAIN TERMS AND CONDITIONS OF OPTIONS AND OTHER AWARDS
Each option shall be designated as an ISO or a NQO and shall be subject
to the terms and conditions set forth in Section 6.1. Notwithstanding the
foregoing, the Committee
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may provide for different terms and conditions in any Award Agreement or
amendment thereto as provided in Section 4.2.
6.1 ALL AWARDS. All Options and other Awards shall be subject to
the following terms and conditions, except as may be otherwise provided in the
Assumed Options:
(a) CHANGES IN CAPITAL STRUCTURE: If the number of
outstanding Shares is increased by means of a share dividend payable in Shares,
a share split or other subdivision or by a reclassification of Shares, then,
from and after the record date for such dividend, subdivision or
reclassification, the number and class of Shares subject to this Plan (including
without limitation its Sections 3 and 5.3) and each outstanding Award shall be
increased in proportion to such increase in outstanding Shares and the
then-applied exercise price of each outstanding Award shall be correspondingly
decreased. If the number of outstanding Shares is decreased by means of a share
split or other subdivision or by a reclassification of Shares, then, from and
after the record date for such split, subdivision or reclassification, the
number and class of Shares subject to this Plan (including without limitation
its Sections 3 and 5.3) and each outstanding Award shall be decreased in
proportion to such decrease in outstanding Shares and the then-applicable
exercise price of each outstanding Award shall be correspondingly increased.
(b) GRANT DATE: Each Award Agreement shall specify the date
as of which it shall be effective (the "Grant Date").
(c) FAIR MARKET VALUE: For purposes of this Plan, the fair
market value of Shares shall be determined as follows:
(i) If the Shares are listed on any established
stock exchange or a national market system, including, without limitation, the
National Market System of the National Association of Securities Dealers
Automated Quotation System, its fair market value shall be the closing sales
price for the Shares, or the mean between the high bid and low asked prices if
no sales were reported, as quoted on such system or exchange (or, if the Shares
are listed on more than one exchange, then on the largest such exchange) for the
date the value is to be determined (or if there are no sales or bids for such
date, then for the last preceding business day on which there were sales or
bids), as reported in THE WALL STREET JOURNAL or similar publication.
(ii) If the Shares are regularly quoted by a
recognized securities dealer but selling prices are not reported, its fair
market value shall be determined in good faith by the Committee, with reference
to the Company's net worth, prospective earning power, dividend-paying capacity
and other relevant factors, including the goodwill of the Company, the economic
outlook in the Company's industry, the Company's position in the industry and
its management, and the values of stock of other corporations in the same or
similar lines of business.
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<PAGE>
(d) TIME OF EXERCISE; VESTING: Awards may, in the sole
discretion of the Committee, be exercisable or may vest, and restrictions may
lapse, as the case may be, at such times and in such amounts as may be specified
by the Committee in the grant of the Award.
(e) NONASSIGNABILITY OF RIGHTS: No Award that is a
derivative security (as defined in Rule 16a-1(c) under the Exchange Act) shall
be transferable other than with the consent of the Committee (which consent will
not be granted in the case of ISOs unless the conditions for transfer of ISOs
specified in the Code have been satisfied) or by will or the laws of the descent
and distribution or pursuant to a qualified domestic relations order as defined
by the Code or Title I of ERISA. Awards requiring exercise shall be exercisable
only by the Participant, assignees that were approved by the Committee,
executors, administrators or beneficiaries of the Participant (who are the
permitted transferees hereunder), guardians or members of a committee for an
incompetent Participant, or similar persons duly authorized by law to administer
the estate or assets of a Participant.
(f) NOTICE AND PAYMENT: To the extent it is exercisable, an
Award shall be exercisable only by written or recorded electronic notice of
exercise, in the manner specified by the Committee from time to time, delivered
to the Company or its designated agent during the term of the Award (the
"Exercise Notice"). The Exercise Notice shall: (a) state the number of Shares
with respect to which the Award is being exercised; (b) be signed by the holder
of the Award or by the person authorized to exercise the Award pursuant to
Section 6.1(c) and (c) include such other information, instruments and documents
as may be required to satisfy any other condition to exercise set forth in the
Award Agreement. Except as provided below, payment in full, in cash or check,
shall be made for all Shares purchased at the time notice of exercise of an
Award is given to the Company. The proceeds of any payment shall constitute
general funds of the Company. At the time an Award is granted or before it is
exercised, the Committee, in the exercise of its sole discretion, may authorize
any one or more of the following additional methods of payment:
(i) for all Participants, acceptance of such
Participants' full recourse promissory note for some or all of the exercise
price of the Shares being acquired, payable on such terms and bearing such
interest rate as determined by the Committee, and secured in such manner, if at
all, as the Committee shall approve, including, without limitation, by a
security interest in the Shares which are the subject of the Award or other
securities;
(ii) for all Participants, delivery by such
Participants of Shares of the Company already owned by such Participants for all
or part of the exercise price of the Award being exercised, provided that the
fair market value of such Shares are equal on the date of exercise to the
exercise price of the Award being exercised, or such portion thereof as the
Participants are authorized to pay and elect to pay by delivery of such Shares;
(iii) for all Participants, surrender by such
Participants, or withholding by the Company from the Shares issuable upon
exercise of the Award, of a number
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of Shares subject to the Award being exercised with a fair market value equal to
some or all of the exercise price of the Shares being acquired, together with
such documentation as the Committee and the broker, if applicable, shall
require; or
(iv) for all Participants, to the extent permitted
by applicable law, payment may be made pursuant to arrangements with a brokerage
firm under which that brokerage firm, on behalf of such Participants, shall pay
to the Company the exercise price of the Award being exercised (either as a loan
to the Participant or from the proceeds of the sale of Shares issued under that
Award), and the Company shall promptly cause the Shares being purchased under
the Award to be delivered to the brokerage firm. Such transactions shall be
effected in accordance with the procedures that the Committee may establish from
time to time.
If the exercise price is satisfied in whole or in part by the
delivery of Shares pursuant to paragraph (ii) above, the Committee may issue to
the Participant an additional Option, with terms identical to those set forth in
the option agreement governing the exercised Option, except for the exercise
price which shall be the fair market value used for such delivery and the number
of Shares subject to such additional Option shall be the number of Shares so
delivered.
(g) TERMINATION OF EMPLOYMENT: Any Award or portion thereof
which has not vested on or before the date of a Participant's Employment
Termination shall expire on the date of Employment Termination. As to an Award
or portion thereof that has vested by the time of Employment Termination, the
Committee shall establish, in respect of each Award when granted, the effect of
an Employment Termination on the rights and benefits thereunder and in so doing
may, but need not, make distinctions based upon the cause of termination (such
as retirement, death, disability or other factors) or which party effected the
termination (the employer or the Employee). Notwithstanding any other provision
in this Plan or the Award Agreement, the Committee may decide in its discretion
at the time of any Employment Termination (or within a reasonable time
thereafter) to extend the exercise period of an Award (but not beyond the period
specified in Section 6.2(b) or 6.3(b), as applicable) and not decrease the
number of Shares covered by the Award with respect to which the Award is
exercisable or vested.
(h) DEATH: Any Award or portion thereof which has not vested
on or before the date of the Participant's death shall expire on the date of
such Participant's death. As to an Award or portion thereof that has vested by
the date of death of the Participant, such Awards or portions thereof must be
exercised within two years of the date of the Participant's death by a person
authorized under this Plan to exercise such Awards.
(i) PAYMENT OF DIVIDENDS UPON EXERCISE OF OPTIONS: Upon
exercise of an Option, other than an Assumed Option, the Participant shall be
entitled to receive a cash payment from the Company equal to the amount of cash
dividends that have been paid from the Grant Date of the Option through the date
of exercise of the Option on that number of Common Shares that is equal to the
number of Common Shares being purchased upon exercise of such Option.
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(j) OTHER PROVISIONS: Each Award Agreement may contain such
other terms, provisions and conditions not inconsistent with this Plan, as may
be determined by the Committee, and each ISO granted under this Plan shall
include such provisions and conditions as are necessary to qualify such Option
as an "incentive stock option" within the meaning of Section 422 of the Code,
unless the Committee determined otherwise.
(k) WITHHOLDING AND EMPLOYMENT TAXES: At the time of exercise
of an Award, the lapse of restrictions on an Award or a disqualifying
disposition of Shares issued under an ISO (within the meaning of Section
6.3(c)), the Participant shall remit to the Company in cash all applicable
federal and state withholding and employment taxes. If and to the extent
authorized and approved by the Committee in its sole discretion, a Participant
may elect, by means of a form of election to be prescribed by the Committee, to
have Shares which are acquired upon exercise of an Award withheld by the Company
or tender other Shares owned by the Participant to the Company at the time the
amount of such taxes is determined, in order to pay the amount of such tax
obligations, subject to such limitations as the Committee determines are
necessary or appropriate to comply with Rule 16b-3 in the case of Participants
who are subject to Section 16(b).
(l) NAMED OFFICER PROVISIONS: The Award Agreements (other than
the Assumed Options) for Participants determined by the Committee to be named
officers ("Named Officers") shall contain the following terms and definitions:
SEVERANCE. If a Named Officer is terminated without
"cause" (as defined below), he or she will be paid his or her then current
salary for two years if he or she is the Chief Executive Officer, for one year
if he or she is an Executive Vice President, for six months if he or she is a
Senior Vice President, or for three months if he or she is a Group Vice
President. If there is a "transfer of control" of the Company (as defined below)
and such an employee is terminated within 180 days of such change, he or she
will be paid his or her then current salary for three years if he or she is the
Chief Executive Officer, for two years if he or she is an Executive Vice
President, for one year if he or she is a Senior Vice President, or for six
months if he or she is a Group Vice President.
CAUSE. With respect to the termination of the
Participant's employment by the Company, "cause" means: (i) the engaging by the
Participant in any act of dishonesty in connection with the performance of his
employment duties and responsibilities, (ii) the final judgment of any United
States federal or state court convicting the Participant of a felony, (iii) the
failure of the Participant to perform his duties or responsibilities as
specified by the Company or any Affiliate of the Company, and (iv) the inability
of the Participant to perform his duties or responsibilities for a period of
more than one hundred twenty (120) consecutive days due to physical or mental
illness or incapacity.
TRANSFER OF CONTROL. For the purposes of this Agreement, a
"transfer of control" shall occur, after the Company's Spinoff, upon: (i) a
transfer of a majority of
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the Company's voting stock outstanding on the day of the transfer, (ii) sale of
substantially all of the Company's assets, to any entity or person unaffiliated
with the Company, (iii) the consolidation of the Company with or its merger into
any other unaffiliated corporation, or (iv) an act by the Company, or any entity
or person affiliated with the Company, which results in the dissolution of the
Company.
6.2 TERMS AND CONDITION TO WHICH ONLY NQOS ARE SUBJECT. Options
granted under this Plan (other than Assumed Options) which are designated as
NQOs shall be subject to the following terms and conditions:
(a) EXERCISE PRICE. The exercise price of a NQO shall be
determined by the Committee.
(b) OPTION TERM. Unless an earlier expiration date is
specified by the Committee at the Grant Date, each NQO shall expire 10 years
after the Grant Date or, if required by applicable state securities laws in the
case of a NQO granted to a Ten Percent Shareholder, five years after the Grant
Date.
6.3 TERMS AND CONDITIONS TO WHICH ONLY ISOS ARE SUBJECT. Options
granted under this Plan (other than Assumed Options) which are designated as
ISOs shall be subject to the following terms and conditions:
(a) EXERCISE PRICE. The exercise price of an ISO shall
be determined in accordance with the applicable provisions of the Code and shall
in no event be less that 100% of the fair market value of the Shares covered by
the ISO at the Grant Date; PROVIDED, HOWEVER, that the exercise price of an ISO
granted to a Ten Percent Shareholder shall not be less than 110% of such fair
market value.
(b) OPTION TERM. Unless an earlier expiration date is
specified by the Committee at the Grant Date, each ISO shall expire 10 years
after the Grant Date; PROVIDED, HOWEVER, that an ISO granted to a Ten Percent
Shareholder shall expire no later than five year after the Grant Date.
(c) DISQUALIFYING DISPOSITIONS. If Shares acquired by
exercise of an ISO are disposed of within two years after the Grant Date or
within one year after the transfer of the Shares to the optionee, the holder of
the Shares immediately before the disposition shall promptly notify the Company
in writing of the date and terms of the disposition and shall provide such other
information regarding the disposition as the Company may reasonably require and
shall pay the Company any withholding and employment taxes which the Company in
its sole discretion deem applicable to the disposition.
(d) TERMINATION OF EMPLOYMENT. All vested ISOs must be
exercised within three months after an optionee ceases to be an Employee unless
such cessation is due to
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the employee being disabled (within the meaning of Section 422 (c)(6) of the
Code), in which case the ISO shall be exercised within one year of the cessation
of employment.
6.4 SURRENDER OF OPTIONS.. The Committee, acting in its sole
discretion, may include a provision in an option agreement allowing the optionee
to surrender the Option covered by the agreement, in whole or in part in lieu of
exercise in whole or in part, on any date that the fair market value of the
Shares subject to the Option exceeds the exercise price and the Option is
exercisable (to the extent being surrendered). The surrender shall be effected
by the delivery of the option agreement, together with a signed statement which
specifies the number of shares as to which the optionee is surrendering the
Option, together with a request for such type of payment. Upon such surrender,
the optionee shall receive (subject to any limitations imposed by Rule 16b-3),
at the election of the Committee, payment in cash or shares, or a combination of
the two, equal to (or equal in fair market value to) the excess of the fair
market value of the Shares covered by the portion of the Option being
surrendered on the date of surrender over the form of payment, taking into
account such factors as it deems appropriate. To the extent necessary to satisfy
Rule 16b-3, the Committee may terminate an optionee's rights to receive payments
in cash for fractional Shares. Any option agreement providing for such surrender
privilege shall also incorporate such additional restrictions on the exercise or
surrender of options as may be necessary to satisfy the conditions of Rule
16b-3.
7. SECURITY LAWS
Nothing in this Plan or in any Award or Award Agreement shall require
the Company to issue any Shares with respect to any Award if, in the opinion of
counsel for the Company, that issuance could constitute a violation of the
Securities Act, any other law or the rules of any applicable securities exchange
or securities association then in effect. As a condition to the grant or
exercise of an Award, the Company may require the Participant (or, in the event
of the Participant's death, the Participant's legal representatives, heirs,
legatees or distributees) to provide written representations concerning the
Participant's (or such other person's) intentions with regard to the retention
or disposition of the Shares covered by the Award and written covenants as to
the manner of disposal of such Shares as may be necessary or useful to ensure
that the grant, exercise or disposition will not violate the Securities Act, and
other law or any rule of any applicable securities exchange or securities
association then in effect. The Company shall not be required to register any
Shares under the Securities Act or register or qualify any Shares under any
state or other securities laws.
8. AMENDMENT, SUSPENSION AND TERMINATION OF PLAN
The Board may at any time amend, suspend or discontinue this Plan
without shareholder approval, except as required by applicable law; PROVIDED,
HOWEVER, that no amendment, alteration, suspension or discontinuation shall be
made which would impair the
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rights of any Participant under any Award previously granted, without the
Participant's consent, except to conform this Plan and Awards granted to the
requirements of federal or other tax laws including without limitation Section
422 of the Code and/or ERISA, or to the requirements of Rule 16b-3. The Board
may choose to require that the Company's shareholders approve any amendment to
this Plan in order to satisfy the requirements of Section 422 of the Code, Rule
16b-3 or for any other reason.
9. SEVERABILITY
If any provision of this Plan is held to be illegal or invalid for any
reason, that illegality or invalidity shall not affect the remaining portions of
the Plan, but such provision shall be fully severable and the Plan shall be
construed and enforced as if the illegal or invalid provision had never been
included in this Plan. Such an illegal or invalid provision shall be replaced by
a revised provision that most nearly comports to the substance of the illegal or
invalid provision.
10. EFFECTIVE DATE
This Plan was originally adopted by the Board of Directors on October
21, 1997. It was approved in that form by the holders of the Company's voting
shares on _____________ (the earlier of which is the "Effective Date"). It was
further amended by the Board on December 5, 1997.
I hereby certify that the foregoing is a full, true and correct copy of
the Key Employee Incentive Plan of The WMF Group Ltd., a Delaware Corporation,
as in effect on the date hereof.
Witness my hand and the seal of the Corporation.
Dated: _______________________ ________________________________
Barbara Ekstrom, Secretary
(SEAL)
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