<PAGE>
Filed Pursuant to Rule 424(B)(3)
Registration No.333 70029
[LOGO OF WMF COMPANY APPEARS HERE] 2,829,511 Shares
Common Stock
$5.00 per Share
The WMF Group, Ltd. (the "Company") is distributing transferable rights to
persons who owned shares of its common stock on February 1, 1999. During this
rights offering, the Company will issue up to 2,829,511 shares of common stock.
You will receive 1.072 rights for each share of common stock that you owned on
February 1, 1999. You will not receive any fractional rights. Each right
entitles you to purchase one share of common stock for $5.00 per share. If you
exercise all of your rights, you will also have the opportunity to purchase
additional shares at the same purchase price.
<TABLE>
- --------------------------------------------
<CAPTION>
Net Proceeds
Rights Price to the Company(1)
- --------------------------------------------
<S> <C> <C>
Per Share $5.00 $5.00
- --------------------------------------------
Total $14,147,555 $14,147,555
- --------------------------------------------
</TABLE>
(1) Before deducting expenses payable by the Company, estimated to be
$390,000.
============================================
The exercise of the rights
involves substantial risk.
You should refer to the
discussion of material Risk
Factors, beginning on page 9
of this prospectus.
============================================
Because they recently acquired approximately 3.6 million shares of the
Company's common stock, Demeter Holdings Corporation ("Demeter"), Phemus
Corporation ("Phemus"), and Capricorn Investors II, L.P. ("Capricorn"), have
agreed that they will not exercise, transfer or acquire any rights during this
rights offering.
However, Demeter, Phemus and Capricorn will purchase up to a total of 664,028
additional shares of capital stock not otherwise purchased during this rights
offering.
Shares of the Company's common stock are currently traded on The Nasdaq
National Market under the symbol "WMFG." The Company expects that the rights
will trade on the OTC Bulletin Board under the symbol "WMFGR." BT Alex. Brown
Incorporated has informed the Company that it intends to make a market in the
rights.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The date of this prospectus is February 5, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PROSPECTUS SUMMARY........................................................ 1
Questions and Answers About The Company................................. 1
Questions and Answers About The Rights Offering......................... 3
A WARNING ABOUT FORWARD-LOOKING STATEMENTS................................ 8
RISK FACTORS.............................................................. 9
Losses By The Company, Including Losses Related To Short-Sale
Transactions, May Recur................................................ 9
Unsatisfied Contractual Commitments May Cause Additional Losses......... 9
Losses Related To Loans Held For Sale For Which The Company Does Not
Have Investor Commitments Could Affect The Company's Results Of
Operations............................................................. 10
The Company May Incur Losses Related To Loan Commitments For Which It
Does Not Have A Purchaser And Has Not Entered Into Hedge
Arrangements........................................................... 10
Company's Loss Of Deferred Tax Assets Could Adversely Affect Shareholder
Equity................................................................. 10
If You Do Not Exercise Your Rights, Your Ownership Interest May Be
Diluted................................................................ 10
Principal Stockholders May Not Act In The Best Interest Of Other
Stockholders........................................................... 11
Stand-By Commitment Is Conditional...................................... 12
Maturity Of Warehouse Financing May Result In The Company's Inability To
Make Additional Loans After April 1, 1999.............................. 13
The Company May Need Additional Capital Even After Rights Offering...... 13
The Company May Be Unable To Complete Acquisitions Or Enter Into New
Business Lines......................................................... 14
The Company May Incur Losses On Mortgage Loans Under The DUS Program.... 15
The Company Is Liable For Certain Representations And Warranties
Concerning Mortgage Loans.............................................. 15
The Company May Incur Losses As A Result Of Changes In General Economic
Conditions............................................................. 15
The Company's Operations May Decline As A Result Of Impairment Of
Mortgage Servicing Rights.............................................. 16
The Company May Not Be Able To Recover Advanced Funds................... 17
The Company May Incur Losses Upon Termination Of Certain Servicing
Contracts.............................................................. 17
The Company May Be Unable To Continue To Comply With Government
Regulation And Programs................................................ 17
The Company's Operations May Be Significantly Affected By The Year 2000
Problem................................................................ 18
The Company Relies On Certain Key Personnel............................. 20
The Company's Business Depends On Its Sales Staff....................... 20
The Company Is Subject To National And Regional Competition............. 20
Certain Anti-Takeover Provisions May Affect Your Rights As A
Shareholder............................................................ 21
The Company Does Not Anticipate Paying Dividends On Common Stock........ 21
No Prior Market For The Rights Exists................................... 21
The Sale Of A Substantial Amount Of Common Stock May Affect The Market
Price.................................................................. 21
The Company's Stock Price Has Been And May Continue To Be Volatile...... 22
Current Corporate Structure............................................. 23
THE COMPANY............................................................... 24
Recent Developments..................................................... 24
Business................................................................ 26
Business Strategy....................................................... 31
THE RIGHTS OFFERING....................................................... 34
The Rights.............................................................. 34
Basic Subscription Right................................................ 34
Oversubscription Privilege.............................................. 34
Stand-By Purchase Commitment............................................ 35
Expiration Date......................................................... 35
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Withdrawal Right......................................................... 35
Determination Of Share Price............................................. 35
Transferability Of Rights................................................ 35
Exercise Of Rights....................................................... 36
Method Of Payment........................................................ 36
Guaranteed Delivery Procedures........................................... 37
Signature Guarantees..................................................... 38
Shares Held For Others................................................... 38
Ambiguities In Exercise Of The Rights.................................... 38
Company's Decision Binding............................................... 39
No Revocation............................................................ 39
Fees and Expenses........................................................ 39
Subscription Agent....................................................... 40
Financial Advisor........................................................ 40
IF YOU HAVE QUESTIONS...................................................... 40
USE OF PROCEEDS............................................................ 41
CAPITALIZATION............................................................. 42
PLAN OF DISTRIBUTION....................................................... 43
FEDERAL INCOME TAX CONSIDERATIONS.......................................... 44
Taxation Of Stockholders................................................. 44
Taxation Of The Company.................................................. 44
PRICE RANGE OF COMMON STOCK................................................ 45
SELECTED FINANCIAL DATA.................................................... 46
LEGAL MATTERS.............................................................. 48
EXPERTS.................................................................... 48
IF YOU WOULD LIKE ADDITIONAL INFORMATION................................... 49
</TABLE>
ii
<PAGE>
PROSPECTUS SUMMARY
This section answers in summary form some questions you may have about the
Company and this rights offering. The information in this section is not
complete and may not contain all of the information that you should consider
before exercising your rights. You should read the entire prospectus carefully,
including the "Risk Factors" section and the documents listed under "If You
Would Like More Information."
Questions and Answers About The Company
What Is The WMF Group, Ltd.?
. The Company is one of the largest commercial mortgage financial
services companies in the United States, according to a 1997 survey by
the Mortgage Bankers Association of America.
. The Company is the nation's largest originator of multifamily and
healthcare loans insured by the Federal Housing Administration
("FHA"), based on statistics provided by the U.S. Department of
Housing and Urban Development.
. The Company is the nation's largest originator of multifamily loans
sold through Fannie Mae, based on statistics provided by Fannie Mae.
. The Company has originated more than $9 billion in multifamily and
commercial loans since 1993.
. As of December 31, 1998, the Company serviced loans having a total
outstanding principal balance of over $12 billion.
. The Company has six operating subsidiaries. Please see page 23 for a
chart illustrating the Company's corporate structure.
. As of December 31, 1998, the Company had 346 employees in 19 cities
around the country.
. For more information, see "The Company."
What Does The Company Do?
The Company divides its business into three main segments:
. Mortgage Banking: The Company's mortgage banking operations include
the origination, sale and servicing of multifamily and commercial
loans.
Origination: The Company makes loans to fund the purchase and
construction of commercial buildings, such as apartment
complexes, hospitals and retail stores.
Sale: After the Company originates a loan, it often sells the
loan to a mortgage investor. Some investors pool these loans
together and then securitize the loan pool, which means that the
investor sells interests in the loan pool to other investors.
Servicing: Servicing a loan involves keeping records of the
borrower's payments and outstanding principal balance, sending
out monthly statements, collecting payments and fees on behalf
of the investors, remitting payments to the investors and
performing other services. The Company usually services the
loans that it originates and sells to investors. The Company
also buys the right to service loans that it does not originate.
1
Prospectus Summary
<PAGE>
. Capital Markets: The Company originates commercial mortgage loans
through WMF Funding, a division of WMF Washington Mortgage Corp.
created in December 1998. The Company has entered into a strategic
relationship with Greenwich Capital Markets pursuant to which WMF
Funding will originate loans for sale to Greenwich. Greenwich is
expected to pool those loans with other loans and then sell interests
in, or "securitize," the pool. WMF Funding will service the loans it
originates and receive a portion of the profits, if any, from any
securitization of those loans.
Prior to September 1998, the Company had operated an independent
commercial mortgage conduit through its subsidiary WMF Capital Corp.
("Capital Corp."). The operations of Capital Corp. have been
substantially curtailed since it suffered significant losses in the
second and third quarters of 1998.
. Advisory Services: In March of 1998, the Company started its advisory
services operations through the creation of WMF Carbon Mesa Advisors,
Inc. ("WMF Carbon Mesa"). The advisory services segment manages
commercial mortgage investment funds and provides special asset
management services.
. For more information, see "The Company - Business."
What Is The Company's History?
. The Company entered the mortgage banking industry in 1992 as "WMF
Holdings, Inc.," a holding company for two companies that are now its
subsidiaries. One of those subsidiaries, WMF Huntoon, Paige
Associates, Limited, has operated a mortgage banking business under
various owners and under various names since 1979. The other
subsidiary, WMF Washington Mortgage Corp., has operated a mortgage
banking business under various owners and under various names since
1984.
. In April of 1996, NHP Incorporated purchased the Company and changed
its name to "NHP Financial Services, Ltd."
. In 1997, NHP Incorporated was purchased by Apartment Investment and
Management Co. As a condition of that merger, NHP Incorporated renamed
the Company "The WMF Group, Ltd.", and the Company became an
independent, publicly traded corporation on December 8, 1997.
Where Is The Company Located?
. The Company's principal executive offices are located at:
The WMF Group, Ltd.
1593 Spring Hill Road, Suite 400
Vienna, Virginia 22182
(703) 610-1400
. The Company also has principal offices in:
.Edison, New Jersey .Dallas .Atlanta
.Phoenix .Houston .Charlotte
.Detroit .Los Angeles .New York
2
Prospectus Summary
<PAGE>
Questions and Answers About The Rights Offering
What Is A Right?
The Company is distributing to you, at no charge, 1.072 rights for every share
of common stock that you owned on February 1, 1999. The Company will not
distribute any fractional rights, but will round the number of rights you are
to receive up or down to the nearest whole number. Each right entitles its
holder to purchase one share of common stock for $5.00. When you "exercise" a
right, that means that you choose to purchase the common stock that the right
entitles you to purchase. You may exercise any number of your rights, or you
may choose not to exercise any rights. See "The Rights Offering - The Rights."
What Is A Rights Offering?
A rights offering is an opportunity for you to purchase additional shares of
common stock at a fixed price and in an amount proportional to your existing
interest in the Company. This enables you to maintain your current percentage
ownership in the Company.
Will Every Shareholder Receive Rights In Proportion To Their Current Holdings?
Yes. However, on December 31, 1998, Demeter, Phemus and Capricorn purchased a
total of 3,635,972 shares of the Company's capital stock for approximately
$16.7 million. Demeter, Phemus and Capricorn have also surrendered warrants to
purchase 1.2 million shares of the Company's common stock and have entered into
a stand-by purchase commitment (described below).
Demeter, Phemus and Capricorn completed the purchase of capital stock before
the rights offering to provide the Company with additional equity more quickly
than would have been possible through the rights offering. Because Demeter,
Phemus and Capricorn purchased these shares in advance of the rights offering,
they have agreed that they will not exercise, transfer or acquire any rights
during the rights offering. Rights held by Demeter, Phemus and Capricorn will
expire without being exercised.
To guarantee the Company minimum proceeds of $3.3 million from the rights
offering, Demeter, Phemus and Capricorn have agreed to a stand-by commitment to
purchase up to a total of 664,028 additional shares of capital stock at $5.00
per share if the Company does not sell all 2,829,511 shares offered in the
rights offering. See "The Rights Offering - Stand-By Purchase Commitment."
Why Is The Company Engaging In A Rights Offering?
The rights offering is part of a recapitalization plan that the Company expects
will raise up to approximately $30 million in equity for the Company (the
"Recapitalization Plan"). The Company needs the additional equity as a result
of losses incurred during the second and third quarters of 1998. Instead of
selling additional equity securities to outside parties, the Company's Board of
Directors has chosen to give you the opportunity to buy more shares and provide
the Company with additional capital.
In the second and third quarters of 1998, the Company incurred net losses of
$33.9 million, or $6.53 per share. Almost all of these losses were incurred by
Capital Corp. and resulted from volatility in commercial mortgage-backed
security markets and interest rates on U.S. Treasury securities. See "The
Company - Recent Developments."
3
Prospectus Summary
<PAGE>
As a result of these losses, the Company has substantially curtailed its
operations at Capital Corp. While the Company's line of credit lenders have
agreed to extend the term of the credit facility until April 1, 1999, and the
Company's other lines of business are operating profitably, the Company
requires additional equity to repay certain of its debts and for working
capital.
The Recapitalization Plan has two parts:
. Sale of Approximately $16.7 Million of Class A Stock to Demeter,
Phemus and Capricorn
On December 31, 1998, the Company's three largest shareholders,
Demeter, Phemus and Capricorn purchased a total of 3,635,972 shares
of a new class of capital stock called the Class A Non-Voting
Convertible Preferred Stock ("Class A Stock") for an aggregate
purchase price of approximately $16.7 million. See "The Company -
Recent Developments."
On January 14, 1999, each outstanding share of Class A Stock was
converted into one share of the Company's common stock, after the
Federal Trade Commission informed the Company that it would not
object to the conversion under the Hart-Scott-Rodino Anti-Trust
Improvements Act of 1976. As a result of the conversion, Demeter,
Phemus and Capricorn received a total of 3,635,972 shares of common
stock.
Also as part of the transaction, Harvard Private Capital Holdings,
Inc. ("Harvard"), which is an affiliate of Demeter and Phemus, and
Capricorn surrendered warrants to purchase 1,200,000 shares of common
stock at a price of $11.25 per share that they received in connection
with their financing of the purchase of $20 million of the Company's
subordinated notes by Commercial Mortgage Investment Trust, Inc.
("COMIT") on September 4, 1998. In addition, Demeter, Phemus and
Capricorn have agreed to a stand-by purchase commitment, described
below.
The Company has applied the proceeds of the sale of shares of Class A
Stock to Demeter, Phemus and Capricorn to partially repay the
subordinated notes held by COMIT. COMIT used the partial repayment to
redeem shares of its preferred stock that were sold to Harvard and
Capricorn to fund the purchase of the notes, effectively resulting in
the partial conversion of the subordinated notes into common stock.
COMIT is a real estate investment trust controlled by Harvard and
Capricorn. WMF Carbon Mesa manages COMIT, and the Company owns a
minority ownership interest in COMIT.
Because of their participation in this transaction, Demeter, Phemus
and Capricorn have agreed not to exercise, transfer or acquire any
rights during the rights offering.
Demeter, Phemus and Capricorn have further agreed to a stand-by
commitment to purchase up to 664,028 shares of the Company's capital
stock for up to $3,320,140 following the rights offering, as
described below.
. $14 Million Rights Offering
The Company is issuing to all of its shareholders of record as of
February 1, 1999, 1.072 transferable rights for each share of common
stock held by them on that date. Each right will entitle you to
purchase one share of common stock for $5.00. Because Demeter, Phemus
and Capricorn have agreed not to exercise, transfer or acquire any
rights, a total of 2,829,511 rights could be exercised during the
rights offering for a total purchase price of $14,147,555.
If the Company sells less than 2,829,511 shares through the rights
offering, Demeter, Phemus and Capricorn have also agreed to a stand-
by commitment under which they will purchase up to 664,028 shares of
capital stock at $5.00 per share for a maximum total purchase price
of $3,320,140. Consequently, the Company expects that it will sell at
least 664,028 shares for total proceeds of $3,320,140.
4
Prospectus Summary
<PAGE>
The Company has agreed to apply the proceeds from the rights
offering, including proceeds from any shares sold to Demeter, Phemus
and Capricorn, first to repay the remaining subordinated notes held
by COMIT. If the Company is unable to repay all of the subordinated
notes held by COMIT, Harvard and Capricorn will have the option of
causing COMIT to convert the remaining notes for capital stock of the
Company at an exchange rate of $5.00 per share.
The Recapitalization Plan will likely result in the effective
conversion of the Company's $20 million of subordinated notes into
capital stock and may raise additional common equity, which will be
used to repay a portion of the Company's revolving debt and for
working capital.
How Many Shares May I Purchase?
You will receive 1.072 rights for each share of common stock that you owned on
February 1, 1999. The Company will not distribute fractional rights, but will
round the number of rights you are to receive up or down to the nearest whole
number. Each right entitles you to purchase one share of common stock for
$5.00. See "The Rights Offering - Basic Subscription Right."
If you exercise all of the rights that you receive, you will have the
opportunity to purchase additional shares of common stock. On the attached
Subscription Certificate, you may request to purchase as many additional shares
as you wish for $5.00 per share. If shareholders request a total of more than
2,829,511 shares, then the number of additional shares that you may purchase
will be determined on a pro rata basis, in proportion to the number of rights
you exercised. In some cases, this may mean that you will be able to purchase
fewer additional shares than the total that you requested on your Subscription
Certificate. See "The Rights Offering - Oversubscription Privilege."
How Did The Company Arrive At The $5.00 Per Share Price?
In determining the price per share during the rights offering, the Company
considered current and historical market prices for the common stock. The
common stock traded above $5.00 per share until September of 1998, a short time
before the public announcement of this rights offering. See "The Rights
Offering - Determination of Share Price."
How Do I Exercise My Rights?
You must properly complete the attached Subscription Certificate and deliver it
to Boston EquiServe, L.P. before 5:00 p.m., Eastern Standard Time, on March 8,
1999. The address for Boston EquiServe, L.P. is on page 39. See "The Rights
Offering - Exercise of Rights." Your Subscription Certificate must be
accompanied by proper payment for each share that you wish to purchase. See
"The Rights Offering - Method of Payment."
How Long Will The Rights Offering Last?
You will be able to exercise your rights only during a limited period. If you
do not exercise your rights before 5:00 p.m., Eastern Standard Time, on March
8, 1999, the rights will expire. The Company, in its discretion, may decide to
extend the rights offering for up to 10 days. See "The Rights Offering -
Expiration Date."
5
Prospectus Summary
<PAGE>
After I Exercise My Rights, Can I Change My Mind?
No. Once you send in your Subscription Certificate and payment, you cannot
revoke the exercise of your rights, even if you later learn information about
the Company that you consider to be unfavorable. You should not exercise your
rights unless you are certain that you wish to purchase additional shares of
common stock. See "Rights Offering - No Revocation."
The Company plans to announce its operating results for the fourth quarter of
1998 and for the full year shortly after the date of this Prospectus. You may
wish to wait until after that announcement to decide whether to exercise or
transfer your rights.
Is Exercising My Rights Risky?
The exercise of your rights involves a degree of risk. You should carefully
consider the "Risk Factors" described in this prospectus, beginning on page 9.
What Happens If I Choose Not To Exercise My Rights?
You will retain your current number of shares of common stock even if you do
not exercise your rights. If you do not exercise your rights, you will diminish
your proportionate interest in the Company, and your voting rights will be
diluted. See "Risk Factors - If You Do Not Exercise Your Rights, Your Ownership
Interest May Be Diluted."
Can I Sell My Rights?
Yes. You may sell or transfer your rights to another individual or entity. The
Company expects that the rights will trade on the OTC Bulletin Board under the
symbol "WMFGR." BT Alex. Brown Incorporated has informed the Company that it
intends to make a market in the rights. See "The Rights Offering -
Transferability of Rights." The Company cannot assure you that you will be
able to sell your rights at all or at a price that is satisfactory to you. See
"Risk Factors - No Prior Market Exists for Rights."
What Are The Federal Income Tax Consequences Of Exercising My Rights?
The receipt and exercise of your rights are intended to be nontaxable.
Shareholders who sell their rights may be taxed on all or a portion of the
proceeds from that sale. You should seek specific tax advice from your personal
tax advisor. See "Federal Income Tax Considerations - Taxation of
Stockholders."
When Will I Receive My New Shares?
If you purchase shares of common stock through the rights offering, the Company
will send you certificates representing those shares as soon as practicable
after March 8, 1999.
Can The Company Cancel The Rights Offering?
Yes. The Company can cancel the rights offering at any time on or before March
8, 1999, for any reason but has agreed with Demeter, Phemus and Capricorn to
use its reasonable best efforts to complete the rights offering as soon as
practicable. If the Company cancels the rights offering, any money received
from stockholders will be refunded promptly. See "The Rights Offering -
Withdrawal Right."
6
Prospectus Summary
<PAGE>
How Much Money Will The Company Receive From The Rights Offering?
The Company's gross proceeds from the rights offering depend on the number of
shares that are purchased. If the Company sells all 2,829,511 shares offered by
this prospectus, then the Company will receive proceeds of $14,147,555.
To guarantee the Company a minimum of $3,320,140 in proceeds after the rights
offering, Demeter, Phemus and Capricorn have agreed to a stand-by commitment.
If the Company sells fewer than 2,829,511 shares of common stock during this
rights offering, then Demeter, Phemus and Capricorn will purchase, for $5.00
per share, the lesser of (A) 664,028 shares of capital stock, or (B) 2,829,511
shares minus the number of shares sold during the rights offering. As a result,
the Company expects to receive minimum proceeds of approximately $3,320,140
following the rights offering, even if no stockholders exercise their rights.
See "The Rights Offering - Stand-By Purchase Commitment.
How Will The Company Use The Proceeds From The Rights Offering?
The Company will use the proceeds from the rights offering first to repay
amounts outstanding under the Company's subordinated notes held by COMIT and
then to repay a portion of its revolving credit facility and for additional
working capital. See "Use of Proceeds." If the Company is unable to repay all
of the subordinated notes held by COMIT, Harvard and Capricorn will have the
option to cause COMIT to convert the remaining notes into capital stock at an
exchange rate of $5.00 per share.
How Many Shares Will Be Outstanding After The Rights Offering?
The number of shares of common stock outstanding after the rights offering
depends on the number of shares that are purchased.
If the Company sells all of the shares offered by this prospectus, then the
Company will issue 2,829,511 new shares of common stock during the rights
offering. In this case, the Company will have approximately 11,916,866 shares
of common stock outstanding after the rights offering.
If none of the stockholders exercise their rights, then Demeter, Phemus and
Capricorn will purchase a total of 664,028 shares of capital stock from the
Company immediately following the rights offering. This will result in the
Company's having approximately 9,751,383 shares of common stock outstanding
after the rights offering.
Who Can I Talk To If I Have More Questions?
If you have more questions about the rights offering, please contact the
Company's Information Agent:
D.F. King & Co., Inc.
77 Water Street
New York, New York 10005
(800) 207-2872
See "If You Have Questions."
7
Prospectus Summary
<PAGE>
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
This prospectus may contain "forward-looking statements." Any statement in this
prospectus, other than a statement of historical fact, may be a forward-looking
statement.
You can generally identify forward-looking statements by looking for words such
as "may," "will," "expect," "intend," "estimate," "anticipate," "believe" or
"continue." Variations on those or similar words, or the negatives of such
words, also may indicate forward-looking statements.
Although the Company believes that the expectations reflected in this
prospectus are reasonable, the Company cannot assure you that its expectations
will be correct. The Company has included a discussion entitled "Risk Factors"
in this prospectus, disclosing important factors that could cause its actual
results to differ materially from its expectations. If in the future you hear
or read any forward-looking statements concerning the Company, you should refer
back to these Risk Factors.
The forward-looking statements in this prospectus are accurate only as of its
date. If the Company's expectations change, or if new events, conditions or
circumstances arise, the Company is not required to, and may not, update or
revise any forward-looking statement in this prospectus.
8
A Warning About Forward-Looking Statements
<PAGE>
RISK FACTORS
As you decide whether to exercise your rights, and when you evaluate the
Company's performance and the forward-looking statements in this prospectus,
you should carefully consider the following risk factors, as well as the other
information contained in this prospectus.
Losses By The Company, Including Losses Related To Short-Sale Transactions, May
Recur
The Company incurred significant losses during the first nine months of 1998,
and the Company cannot assure you that similar losses will not occur again in
the future. For the nine months ended September 30, 1998, the Company reported
a net loss of $33.9 million, or $6.53 per share. To manage its exposure to
interest-rate changes, Capital Corp. entered into "short-sale" contracts to
sell U.S. Treasury securities and incurred significant losses on these
transactions. The losses resulted primarily from a drop in the interest rate on
U.S. Treasury securities. During the second and third quarters of 1998, the
interest rates and yields on U.S. Treasury securities dropped to historic lows,
and prices for those securities increased dramatically.
A short-sale contract for U.S. Treasury securities involves Capital Corp. and
an investment bank or brokerage firm (called the "counterparty"). In a short-
sale contract, Capital Corp. borrows U.S. Treasury securities from the
counterparty, and the counterparty sells those securities to an investor on
behalf of Capital Corp. The counterparty sets aside the proceeds from that sale
in a brokerage account. To repay the counterparty for its loan of U.S. Treasury
securities, Capital Corp. must purchase U.S. Treasury securities on the market
at a later date. When the loan is repaid, the counterparty gives Capital Corp.
the proceeds in the brokerage account. If the price of U.S. Treasury securities
has dropped since the counterparty made the loan, then Capital Corp.'s cost to
repay the loan will be lower than the amount in the brokerage account, and
Capital Corp. will make a profit on the short-sale arrangement.
During the first nine months of 1998, the price of U.S. Treasury securities
increased, so Capital Corp.'s cost to repay its counterparty was greater than
the amount of proceeds in the brokerage account. Therefore, Capital Corp.
incurred losses on the short-sale contracts. At the same time, the value of
Capital Corp.'s mortgages held for securitization did not offset these losses.
To satisfy margin calls on the short-sale contracts, Capital Corp. sold most of
the mortgages held for securitization at a significant loss.
The short-sale contracts for U.S. Treasury securities were part of the
Company's arrangements to reduce the effects of interest rate movements. See
"The Company May Incur Losses As A Result of Changes in General Economic
Conditions." In addition to the short-sale contracts, the Company and its
subsidiaries have also entered into swap contracts and futures contracts. These
transactions may also be used to manage the effect of interest rate changes on
lines of credit with variable interest rates and on the value of uncommitted
loans held for sale. In an effort to avoid future losses related to such
transactions, the Company and its subsidiaries have entered into arrangements
with its creditors to reduce the cash requirements of those transactions. The
Company cannot assure you, however, that losses related to interest rate
volatility and short-sale arrangements will not recur in the future.
Unsatisfied Contractual Commitments May Cause Additional Losses
As a result of the losses described above and to reduce its exposure to
additional losses, the Company decided that it would no longer contribute
capital to Capital Corp. This determination resulted in Capital Corp.'s being
unable to fulfill its obligations under at least one loan commitment. The
Company has settled all claims related to that loan commitment, but the Company
cannot assure you that it will not incur significant losses in the future
related to Capital Corp.'s inability to meet its other contractual commitments.
See "The Company - Recent Developments - Losses and Restructuring at Capital
Corp."
9
Risk Factors
<PAGE>
Losses Related To Loans Held For Sale For Which The Company Does Not Have
Investor Commitments Could Affect The Company's Results Of Operations
Generally the Company sells loans to third-party mortgage investors at
predetermined prices before the Company funds or purchases the loan. However,
sometimes the Company originates or purchases a mortgage loan before an
investor has agreed to purchase it from the Company. During the period between
the Company's origination or purchase of a loan and the sale of the loan to an
investor (called the "holding period"), the Company must bear the interest rate
risk and credit risk associated with that loan. If the holding period is long,
the Company's risks are higher. Adverse changes in interest rates, the market
for these mortgage-backed securities, or the value of assets securing the
mortgages could impair the Company's ability to sell loans and securities,
increasing the Company's holding period and potential losses. If the Company is
unable to sell its loans for a long period of time, the Company's business and
results of operations could be materially adversely affected.
The Company May Incur Losses Related To Loan Commitments For Which It Does Not
Have A Purchaser And Has Not Entered Into Hedge Arrangements
Capital Corp. has entered into commitments to lend money on certain terms and
conditions which subject the Company to interest rate and market risks until
Capital Corp. sells the loans. No investor has committed to purchase these
loans, and Capital Corp. has not entered into arrangements to manage the
interest rate and market risk associated with those loans. If interest rates
increase and the demand for such loans declines before Capital Corp. is able to
sell these loans, Capital Corp. may incur significant losses. The Company is
currently seeking investors for the loans, but the Company cannot assure you
that Capital Corp. will not incur significant losses before such an investor is
found or that it will locate an investor at all.
Company's Loss Of Deferred Tax Assets Could Adversely Affect Shareholder Equity
As of September 30, 1998, the Company had $21.2 million in deferred tax assets
related to the Company's losses during the second and third quarters of 1998.
The Company has recognized the tax benefit of those operating losses as
deferred tax assets and believes that it is more likely than not that the
Company will have sufficient taxable income to realize the tax benefits of
those losses during the next 20 years. However, in the event of a change of
control of the Company or Capital Corp. or certain other material changes in
the Company's business, the Company would have to establish a valuation
allowance against the deferred tax asset. The valuation allowance against the
deferred tax asset could adversely affect shareholder equity and the trading
price of the common stock.
If You Do Not Exercise Your Rights, Your Ownership Interest May Be Diluted
If you do not exercise all of your rights, you may suffer significant dilution
of your percentage ownership in the Company relative to stockholders who
exercise their rights and relative to Demeter, Phemus and Capricorn. The chart
below illustrates the potential dilution that could result if a stockholder
that owns 100,000 shares of common stock fails to exercise its rights, and
other stockholders purchase all 2,829,511 shares of common stock offered
through this rights offering.
10
Risk Factors
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
After the Rights Offering After the Rights Offering
Before the Rights Assuming Stockholder Assuming Stockholder
Offering Exercises All Rights Exercises No Rights
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares Owned by 100,000 207,200 100,000
Stockholder
- -------------------------------------------------------------------------------------------------
Total Number of Common
Shares Outstanding 9,087,355 11,916,866 11,916,866
- -------------------------------------------------------------------------------------------------
Stockholder's Percentage
Ownership 1.10% 1.74% 0.84%
- -------------------------------------------------------------------------------------------------
</TABLE>
Principal Stockholders May Not Act In The Best Interest Of Other Stockholders
As of February 1, 1999, Demeter, Phemus, Capricorn and Capricorn Holdings, Inc.
(an affiliate of Capricorn formerly known as "Winokur Holdings, Inc.") (the
"Principal Stockholders") owned approximately 72 percent of the Company's
voting stock. Together, the Principal Stockholders have enough votes to elect
all of the Company's directors and to approve or disapprove any matters that
are determined by a majority vote of the stockholders of the Company.
Furthermore, because of their holdings, the Principal Stockholders can prevent
a sale of the Company or other transaction resulting in a change of control.
The rights offering could result in the Principal Stockholders owning as little
as 55.48 percent of the Company's common stock, but the Principal Stockholders
will still be able to control any shareholder votes determined by a majority.
As long as the Principal Stockholders control the Company's shareholder votes,
the Company cannot assure you that the Principal Stockholders will cause the
Company to act in the best interest of all of the other stockholders.
The Company had approximately 9,087,355 shares of common stock outstanding as
of January 31, 1999. The Principal Stockholders owned shares of the Company's
common stock as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Stockholder Name Number of Shares Owned Percentage Ownership
- ---------------------------------------------------------------------------
<S> <C> <C>
Capricorn Investors II, L.P. 1,563,206 17.20%
- ---------------------------------------------------------------------------
Demeter Holdings Corporation 4,630,864 50.96%
- ---------------------------------------------------------------------------
Phemus Corporation 253,816 2.79%
- ---------------------------------------------------------------------------
Capricorn Holdings, Inc. 78,925 0.87%
- ---------------------------------------------------------------------------
TOTAL FOR ALL PRINCIPAL
STOCKHOLDERS 6,526,811 71.82%
- ---------------------------------------------------------------------------
</TABLE>
Michael Eisenson and Tim Palmer, directors of the Company, are officers of both
Demeter and Phemus. Herbert Winokur, also a director of the Company, is the
manager of the general partner of Capricorn. In addition, Phemus owns limited
partnership interests in Capricorn. Mr. Winokur is the sole shareholder and
director of Capricorn Holdings, Inc. In addition, Mr. Winokur has an interest
in an entity that owns limited partnership interests in Capricorn.
Because Demeter, Phemus and Capricorn have recently acquired 3,635,972 shares
of the Company's common stock, they have agreed that they will not exercise,
transfer or acquire any rights during this rights offering. Capricorn Holdings,
Inc. is permitted to exercise, transfer or acquire rights.
Assuming that Demeter, Phemus and Capricorn do not exercise their rights and
that all of the other rights issued during this rights offering (including
those held by Capricorn Holdings, Inc.) are exercised, the Company will
11
Risk Factors
<PAGE>
have approximately 11,916,866 shares of common stock outstanding after the
rights offering. The Principal Stockholders will own common stock as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Stockholder Name Number of Shares Owned Percentage Ownership
- ---------------------------------------------------------------------------
<S> <C> <C>
Capricorn Investors II, L.P. 1,563,206 13.12%
- ---------------------------------------------------------------------------
Demeter Holdings Corporation 4,630,864 38.86%
- ---------------------------------------------------------------------------
Phemus Corporation 253,816 2.13%
- ---------------------------------------------------------------------------
Capricorn Holdings, Inc. 163,533 1.37%
- ---------------------------------------------------------------------------
TOTAL FOR ALL PRINCIPAL
STOCKHOLDERS 6,611,419 55.48%
- ---------------------------------------------------------------------------
</TABLE>
As shown in the table above, if all of the rights (other than those owned by
Demeter, Phemus and Capricorn) are exercised, the rights offering will result
in the Principal Stockholders' owning a smaller percentage of the Company than
they currently own, but they will still be able to control most shareholder
votes.
To guarantee the Company proceeds from the rights offering of at least $3.3
million, Demeter, Phemus and Capricorn have entered into a Stand-by Purchase
Agreement. Under that agreement, if the Company sells fewer than 2,829,511
shares during the rights offering, then Demeter, Phemus and Capricorn will
purchase the lesser of (A) 664,028 shares of capital stock, or (B) 2,829,511
shares, minus the number of shares of common stock sold during the rights
offering. See "The Rights Offering--Stand-By Purchase Commitment."
Therefore, if no stockholders exercise their rights, Demeter will purchase
503,619 shares of common stock, Phemus will purchase 27,603 shares, and
Capricorn will purchase 132,806 shares. In this instance, after the rights
offering the Company will have a total of 9,751,383 shares of common stock
outstanding, and the Principal Stockholders will own common stock as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Stockholder Name Number of Shares Owned Percentage Ownership
- ---------------------------------------------------------------------------
<S> <C> <C>
Capricorn Investors II, L.P. 1,696,012 17.39%
- ---------------------------------------------------------------------------
Demeter Holdings Corporation 5,134,483 52.65%
- ---------------------------------------------------------------------------
Phemus Corporation 281,419 2.89%
- ---------------------------------------------------------------------------
Capricorn Holdings, Inc. 78,925 0.81%
- ---------------------------------------------------------------------------
TOTAL FOR ALL PRINCIPAL
STOCKHOLDERS 7,190,839 73.74%
- ---------------------------------------------------------------------------
</TABLE>
As shown above, if no stockholders, or very few stockholders, exercise their
rights, the Principal Stockholders will increase their percentage ownership of
the Company. Because they will own almost 74 percent of the Company's voting
stock, together the Principal Stockholders will effectively be able to control
all shareholder votes.
Stand-By Commitment Is Conditional
To guarantee that the Company will receive minimum proceeds of approximately
$3.3 million from the rights offering, Demeter, Phemus and Capricorn have
agreed to purchase, at $5.00 per share, the lesser of (A) 664,028 shares of
capital stock, or (B) 2,829,511 shares, minus the number of shares purchased
during the rights offering. However, this commitment is subject to certain
conditions to closing, including that there must not
12
Risk Factors
<PAGE>
have been a material adverse change in the Company's business, financial
condition, assets or prospects. The Company cannot assure you that all of these
conditions will be satisfied or that Demeter, Phemus and Capricorn will
complete the agreed-upon purchases. To the extent that Demeter, Phemus or
Capricorn fails to perform its obligations, the Company may not receive
sufficient proceeds from the rights offering to fund its capital needs.
Maturity Of Warehouse Financing May Result In The Company's Inability To Make
Additional Loans After April 1, 1999
The Company's warehouse financing agreement matures on April 1, 1999. If the
Company does not renew the warehouse revolving credit facility or enter into a
new facility before April 2, 1999, the line of credit may be withdrawn. If the
warehouse facility terminates, certain of the Company's other loans will come
due. The Company does not currently have the funds to repay those loans. The
Company cannot assure you that it will be able to renew the line of credit or
enter into a new credit facility by April 1, 1999.
The warehouse line of credit is important to the Company's business because it
permits the Company to make loans and sell those loans to investors. The
Company must obtain funds so that it can temporarily hold loans between the
time it makes a loan and the time it sells the loan to a mortgage investor. To
obtain this financing, the Company depends on warehouse facilities with
financial institutions or institutional lenders. In addition, to implement its
growth strategy, the Company needs its warehouse facilities to continue to be
available, and the Company may require increases in the capacity of its
warehouse facilities.
The Company cannot assure you that its warehouse financing will continue to be
available on satisfactory terms. The inability of the Company to arrange
additional warehouse facilities or to maintain existing facilities would make
it more difficult for the Company to generate revenue through the origination
and servicing of mortgages.
As of September 30, 1998, the Company's warehouse facilities had an aggregate
capacity of $452 million (of which $159 million was unused).
The Company May Need Additional Capital Even After Rights Offering
The Company's ability to conduct its business depends to a significant degree
on its ability to incur indebtedness and obtain equity capital. The Company
needs financing primarily to fund its loan originations, pursue new
acquisitions and purchase servicing rights. To meet these needs, the Company
currently uses warehouse lines of credit, a secured line of credit and a
revolving credit facility.
The Recapitalization Plan also is intended to raise additional capital for the
Company. Even after the completion of the Recapitalization Plan, however, the
Company may need additional capital to meet its working capital requirements.
The Company cannot assure you that such capital will be available on
satisfactory terms, if at all. If all of the rights are not exercised, or if
the Company fails to reach sufficient cash flows, the Company will require
additional debt or equity.
Through this rights offering and its existing lines of credit, the Company
believes that it will have access to sufficient funds to carry on its existing
level of business. If the Company decides to complete further acquisitions,
however, the Company will need additional capital. The Company cannot assure
you that its existing lines of credit will remain available, and the Company
cannot assure you that it will be successful in consummating any future
financing transactions on satisfactory terms, if at all.
13
Risk Factors
<PAGE>
Factors which could affect the Company's access to the capital markets, or the
costs of such capital, include:
. changes in interest rates,
. general economic conditions, and
. investors' perceptions of the Company's business, results of
operations, leverage, financial condition and business prospects.
Economic, financial, competitive and other matters strongly influence each of
these factors, and the Company may not be able to control those influences.
In addition, covenants under the Company's existing or future debt securities
and credit facilities may significantly restrict the Company's ability to incur
additional indebtedness or to issue additional preferred stock. The covenants
require the Company to maintain certain debt-to-equity and coverage ratios, and
the Company would not be able to borrow additional capital if the new debt
would violate those ratios.
The Company's ability to repay its outstanding debts on time may depend on its
ability to refinance those debts. The Company may not be able to refinance debt
if the Company is unable to sell additional debt or equity securities on
satisfactory terms.
The Company May Be Unable To Complete Acquisitions Or Enter Into New Business
Lines
The Company plans to expand its business both internally and through
acquisitions of other commercial mortgage financial service companies. The
Company cannot assure you that it will be able to support its continued growth.
The Company also cannot assure you that it will be able to identify, finance
and purchase additional acquisition candidates, or that future acquisitions, if
completed, will be successful. If the Company cannot successfully complete
additional acquisitions, the market price of the common stock may decline.
When the Company acquires new businesses with different markets, customers,
financial products, systems and managements, the Company may have difficulty
integrating those business into its existing operations. This integration
process may cause unforeseen difficulties and may require a large portion of
management's attention and the Company's resources. These difficulties may be
particularly acute as the Company expands into business lines outside of its
traditional multifamily business.
The Company originally focused on originating and servicing mortgages on
multifamily properties, such as apartment buildings and condominiums. Since
1996, the Company has expanded its origination and servicing of mortgages on
other commercial properties, such as office buildings, hotels, and retail
stores. The Company plans to continue to expand its business in both the
multifamily and commercial mortgage areas. See "The Company - Business
Strategy."
To support, manage and control continued growth, the Company must be able to
hire, train, retain, supervise and manage its workforce. The Company must also
develop the skills necessary to compete successfully in its new business lines.
In particular, the success of certain acquisitions may depend on the Company's
ability to retain key employees of the acquired business.
The Company is not currently planning or negotiating any specific acquisitions
or expansions into new business. However, if the rights offering is successful,
such discussions could occur in the near future.
14
Risk Factors
<PAGE>
The Company May Incur Losses On Mortgage Loans Under The DUS Program
WMF Washington Mortgage Corp. ("Washington Mortgage") is an approved lender
under the Federal National Mortgage Association's ("Fannie Mae") Delegated
Underwriting and Servicing ("DUS") Program. Under this program, Washington
Mortgage originates, places and services multifamily loans for Fannie Mae
without having to obtain Fannie Mae's prior approval for each loan.
The DUS Program requires Washington Mortgage to pay a portion of any losses on
mortgages that it originates under the program. These losses may cost
Washington Mortgage up to 20 percent of the original principal balance of the
loan. Additionally, if borrowers default under loans in the DUS Program, the
value of Washington Mortgage's servicing rights for those loans could
materially decrease. See "The Company's Operations May Decline As A Result Of
Impairment Of Mortgage Servicing Rights."
To qualify for the DUS Program, Washington Mortgage must maintain a letter of
credit or cash sufficient to cover its estimated portion of any losses. As of
September 30, 1998, the unpaid principal balance of Washington Mortgage loans
in the DUS Program totaled $1.3 billion and Washington Mortgage had a $5.9
million reserve for probable loan losses under the DUS Program. Washington
Mortgage also had a $4.8 million letter of credit to pay for losses under the
program. While the Company believes that these reserves are sufficient, actual
losses under the DUS Program could exceed these reserves and hurt the Company's
performance. If the Company incurs and is required to fund additional losses,
the market price of the common stock may be adversely affected.
The Company Is Liable For Certain Representations And Warranties Concerning
Mortgage Loans
When the Company originates mortgage loans and then sells them to investors,
the Company must make certain representations and warranties concerning those
mortgages. These representations and warranties cover such matters as title to
mortgaged property, lien priority, environmental reviews and certain other
matters. When making these representations and warranties, the Company relies
in part on similar representations and warranties made by the borrower or
others.
If the representations made by a borrower or others are false, the Company will
have a claim against the borrower or other party. The Company's ability to
recover its damages, however, depends on the financial condition of the party
that made the false representation. In addition, the Company makes some
representations and warranties even though it does not receive similar
representations and warranties from borrowers or others. If those
representations are later found to be false, the Company would have to pay for
any losses and would not have a claim against another party. The Company cannot
assure you that it will not experience a material loss as a result of its
representations and warranties.
The Company May Incur Losses As A Result Of Changes In General Economic
Conditions
The following general economic conditions could have an adverse affect on the
Company's business:
. periods of general, regional or industry-related economic slowdown or
recession,
. rising interest rates, or
. declining demand for real estate.
An economic slowdown will generally reduce the Company's originations and sales
of mortgages, which generated approximately 48.7 percent of the Company's
revenue during the nine months ending September 30, 1998. In addition, periods
of economic slowdown or recession may increase the risk that borrowers will
default on multifamily and commercial mortgage loans, and those defaults may
have an adverse effect on the Company's financial condition. When the owner of
a mortgage forecloses on a property, the Company's servicing fees may be
reduced or eliminated and the Company may experience additional losses.
15
Risk Factors
<PAGE>
Periods of economic slowdown or recession may be accompanied by decreased
demand for multifamily or commercial properties. Decreased demand may result in
declining values for the properties securing outstanding loans, and decreased
property values weaken the Company's collateral coverage and increase the
possibility of losses in the event of default. If more properties are for sale
during recessionary periods, the Company may receive lower prices when it sells
foreclosed properties, or it may have to delay such sales. The Company cannot
assure you that it will be able to sell foreclosed properties in the
multifamily or commercial markets. Any material deterioration of such markets
could reduce the Company's proceeds from foreclosure sales.
Changes in the relationship between short-term and long-term interest rates
could also affect the Company's results of operations, which in turn could
affect the value of the common stock. Between the time the Company funds a loan
and the time it sells the loan, the Company earns net interest income. Net
interest income is based on the long-term rate earned on a loan minus the
short-term borrowing costs to finance the loan.
During the nine months ended September 30, 1998, interest income amounted to
31.5 percent of the Company's total revenue. If long-term interest rates
decrease and short-term interest rates do not decrease by the same amount, then
the Company's net interest income may decline. If long-term interest rates drop
below the short-term rates, the Company could incur a net interest expense
instead of earning net interest income.
The Company also earns income from placement fees, which are earned from the
placement and utilization of escrow funds. If the short-term interest rates
decrease, the Company's income from placement fees may decline.
The Company's Operations May Decline As A Result Of Impairment Of Mortgage
Servicing Rights
Under generally accepted accounting principles, the Company must treat its
servicing rights as an asset. Servicing rights are recorded as an asset on the
Company's balance sheet at either the purchase price paid for the servicing
rights or the relative fair value of the servicing rights at the time the
Company sells a loan and retains the servicing associated with that loan. The
Company also must amortize the value of the servicing rights over their
estimated lives.
If the value of the servicing rights, as shown on the Company's balance sheet,
exceeds their fair value, then the rights are impaired. The fair value of the
servicing rights may be affected by, and impairment may result from, factors
such as:
. changes in mortgage prepayments, which tend to increase as long-term
interest rates decline, and tend to decrease as such interest rates
rise;
. prepayment penalty terms, including lockout and yield maintenance
requirements;
. higher than expected rate of loan defaults;
. lower than expected short-term interest rates;
. factors which impact the net cash flow generated from the servicing
rights, such as the cost of servicing such loans; and
. the underlying loans' average custodial balances (the amount
deposited by borrowers for taxes, deposits and replacement reserves).
To the extent that the Company's servicing rights are impaired, the Company's
operating results and stock price may be adversely affected. Although the
Company has never recorded any impairment, it may record impairment at any time
in the future. The Company cannot assure you that it has accurately estimated
the factors that could cause impairment of the servicing, or that the Company's
mortgage servicing rights can be sold at their value, if at all.
16
Risk Factors
<PAGE>
The Company May Not Be Able To Recover Advanced Funds
When borrowers are late in making payments on the multifamily and commercial
mortgage loans serviced by the Company, the Company may be required to advance
principal, interest, tax and insurance payments for those loans, to the extent
that the Company believes that those advances are ultimately recoverable. At
September 30, 1998, the Company had made servicing advances of $2.4 million.
The Company must make these advances from its working capital, but when the
late payments are collected, the Company's advances will be repaid first. If
the collected payments are not sufficient to repay all of the Company's
advances, the Company could incur losses, which could have a material impact on
the Company.
The Company May Incur Losses Upon Termination Of Certain Servicing Contracts
As of September 30, 1998, the Company had contracts to service mortgages with a
total principal balance of $12.7 billion. Approximately 23 percent of those
contracts are terminable upon 30 days' notice by the owner of the serviced
mortgage. Most of the contracts with these termination provisions are for the
servicing of mortgages held by insurance companies. As the Company increases
its servicing of mortgages held by insurance companies, the percentage of
servicing contracts with such termination provisions will also increase.
The rest of the Company's servicing contracts are for a term equal to the life
of the mortgage. The holder of the mortgage may terminate the contract only for
cause, after paying the Company a termination fee, or after prepayment or other
early termination of the mortgage.
If a significant number of the Company's mortgage servicing contracts were
terminated and the Company were unable to replace them with new servicing
contracts, the Company's operations would be adversely affected.
The Company May Be Unable To Continue To Comply With Government Regulation And
Programs
The Company's operations are regulated by:
. federal, state and local government authorities, including the
Federal Housing Administration ("FHA") and the Government National
Mortgage Association ("Ginnie Mae");
. various federal, state and local laws and judicial and administrative
decisions; and
. regulations of government sponsored entities (such as Fannie Mae)
that purchase mortgages originated and/or serviced by the Company.
Among other things, these laws, regulations and decisions:
. require the Company to maintain a minimum net worth and minimum lines
of credit;
. require periodic financial reports;
. require a quality control plan for the underwriting, origination and
servicing of loans;
. restrict loan originations, credit activities, maximum interest
rates, and finance and other charges;
. regulate disclosures to customers, the terms of secured transactions
and personnel qualifications; and
. require certain collection, repossession and claims-handling
procedures and other trade practices.
17
Risk Factors
<PAGE>
Although the Company believes that it complies in all material respects with
applicable laws and regulations and with the requirements of mortgage
purchasers, the Company cannot assure you that it will be able to continue to
comply if more restrictive laws, rules, regulations or requirements are adopted
in the future. If the Company fails to comply with all applicable requirements,
the Company could lose the opportunity to originate, sell or service mortgages
in certain jurisdictions, or to originate mortgages on behalf of, sell
mortgages to or service mortgages held by certain institutions. If that occurs,
the Company's financial results could be adversely affected.
The FHA insured approximately 11.8 percent of loans originated by the Company
during the nine months ended September 30, 1998 and approximately 47.4 percent
of loans serviced by the Company as of September 30, 1998. If the laws or
regulations governing FHA programs change, the availability of FHA-insured
loans could decrease, and the Company's ability to originate or service those
mortgages could be affected. Any such change could have a material adverse
effect on the Company and its results of operations.
The Company must obtain the consent of the State of Arizona and Fannie Mae
prior to a change in control of the Company. While the Recapitalization Plan
may be considered a change in control, the Company has no reason to believe
that these consents will not be granted. If the Company fails to receive any
such consents, it will lose the net income (if any) generated by loans
originated in Arizona or held by Fannie Mae.
The Company's Operations May Be Significantly Affected By The Year 2000 Problem
The Year 2000 Problem refers to errors that may occur when computers use two
digits rather than four to define the applicable year. Software and hardware
may recognize a date using "00" as the year 1900, rather than the year 2000. If
a computer does not recognize a date on or after January 1, 2000, the error
could, among other things, prevent the Company from processing transactions,
sending invoices or engaging in other normal business activities.
The Company's Program. The Company has developed a program to address the Year
2000 Problem as it may affect:
. the Company's computer and operating systems, including its
servicing, accounting, human resources and financial reporting
systems;
. the Company's other systems, such as buildings, equipment, telephone
systems and other non-computer systems that may contain technology
that is sensitive to the Year 2000 Problem;
. certain systems of the Company's major vendors and material service
providers, if those systems relate to the Company's business
activities; and
. certain systems of the Company's material customers and investors, if
those systems relate to the Company's ability to provide services to
the customers and investors.
As described below, the Company's Year 2000 program involves
1. assessing the Year 2000 Problem and determining how it may negatively
affect the Company;
2. developing remedies to address the problems discovered in the
assessment phase;
3. testing of the remedies; and
4. preparing contingency plans to deal with worst-case scenarios.
18
Risk Factors
<PAGE>
Assessment Phase. The following table shows the current state of Year 2000
compliance in the Company's computer systems:
<TABLE>
<CAPTION>
- -----------------------------------------------------
Component Year 2000 Year 2000
Compliant Non-Compliant
Number Number
- -----------------------------------------------------
<S> <C> <C>
Business Critical Software
- -----------------------------------------------------
Servicing Systems 1 2
- -----------------------------------------------------
Accounting System 1 0
- -----------------------------------------------------
Human Resources 1 0
- -----------------------------------------------------
Hardware
- -----------------------------------------------------
Personal Computers 400 0
- -----------------------------------------------------
File/Data Services 34 3
- -----------------------------------------------------
Networks 20 0
- -----------------------------------------------------
Office Software Suites 400 0
- -----------------------------------------------------
</TABLE>
The Company has evaluated all of its systems except its telephone equipment,
and the Company has begun to develop remedies for the Year 2000 Problem. The
Company has sent letters to certain of its significant hardware, software and
other equipment vendors and other material service providers, as well as to its
significant customers, requesting that they provide detailed, written
information concerning existing or anticipated Year 2000 compliance by their
systems. The Company expects that it will complete these inquiries and receive
substantially all third-party responses by March 30, 1999.
While the Company cannot thoroughly assess other parties' Year 2000 readiness,
it will attempt to identify areas of vulnerability and change relationships
with those parties as appropriate. If the Company believes that a third-party's
systems may have a negative material impact on its operations, it will develop
relationships with other parties who have been thoroughly screened for Year
2000 compliance.
Remediation and Testing Phase. During the remediation and testing phase, the
Company will address potential Year 2000 Problems in systems and will attempt
to demonstrate that the affected systems will be Year 2000 compliant on a
timely basis. All computer software systems that are critical to the Company's
business are supplied by vendors, and the vendors are contractually responsible
for the systems' becoming Year 2000 compliant. However, the Company cannot
assure you that it will be able to recover damages from any vendor who fails to
bring a system into Year 2000 compliance.
Of the Company's critical systems, its accounting and human resources systems
have been certified Year 2000 compliant and were substantially tested by
December 31, 1998. The Company is in the process of combining its four loan
servicing systems into two. The Company expects that this consolidation will be
completed no later than February 28, 1999. At the same time, the two surviving
loan servicing systems will be made Year 2000 compliant and tested internally.
These systems will then be tested with major customers and investors to ensure
that the delivery of proper data will occur on and after January 1, 2000.
All of the Company's servers are Year 2000 compliant. All non-compliant
personal computers have been put out of service. The Company will replace all
non-Year 2000 compliant office software by June 30, 1999. The Company expects
that all telephone equipment will be Year 2000 compliant by March 30, 1999.
19
Risk Factors
<PAGE>
Contingency Plans. The Company has not yet fully identified its most likely
worst-case scenarios that could occur because of the Year 2000 Problem. The
Company is developing contingency plans for the scenarios that have been
identified. The Company intends to complete its determination of worst case
scenarios after it has received and analyzed responses to most of the inquiries
it has made of third parties. After its analysis, the Company plans to develop
a timetable for completing its contingency plans.
Costs Related to the Year 2000 Problem. To date, the Company has spent
approximately $50,000 for its Year 2000 program, mostly in labor costs. The
Company expects to incur additional costs, which it estimates will not exceed
$300,000. Compliance costs are relatively low because all business critical
software systems are being upgraded under normal vendor maintenance agreements.
The Company currently believes that the costs to resolve the Year 2000 Problem
for its other systems will not be material. However, the Company cannot assure
you that its cost estimates will not change as the Company completes its
assessment.
Risks Related to the Year 2000 Problem. Although the Company's Year 2000
program is intended to minimize the adverse effects of the Year 2000 Problem on
the Company's business and operations, the actual effects of the Year 2000
Problem and the success or failure of the Company's efforts described above
cannot be known until after January 1, 2000. If the Company, its major vendors,
service providers or major customers fail to address adequately the Year 2000
Problem in a timely manner, the Company's business, results of operations and
financial condition could be adversely affected.
The Company Relies On Certain Key Personnel
The Company depends on the efforts and abilities of a number of its current key
management, including J. Roderick Heller, III, the Company's Chairman of the
Board of Directors, and Shekar Narasimhan, the Company's President and Chief
Executive Officer. The success of the Company depends to a large extent on its
ability to retain and continue to attract key employees through its
compensation plans, including employee stock options. If the Company loses
certain key employees or cannot retain or attract key employees in the future,
the Company's operations could be adversely affected.
The Company's Business Depends On Its Sales Staff
The Company's business depends on the efforts and abilities of its 59-person
sales staff. The success of the Company depends to a large extent on its
ability to retain and attract sales personnel through its compensation
policies, including commission arrangements and its deferred compensation plan.
If sales staff responsible for a significant portion of the Company's annual
loan origination volume terminate their employment, the Company's loan
origination volume and its operating results could be adversely affected.
The Company Is Subject To National And Regional Competition
The Company operates throughout the United States and faces different levels of
competition in various individual markets. Generally, the Company has very few
national competitors and many local and regional competitors. The profile and
business practices of competitors may change, however, because the multifamily
and commercial mortgage industry is currently consolidating. Certain of the
Company's competitors are larger than the Company and have greater financial
resources, including greater access to and lower cost of capital. In addition,
the Company's business is characterized by low barriers to entry, and recently
new competitors have successfully raised the capital necessary to enter the
business. If competition increases in the Company's markets, the Company's
level of loan origination, servicing and fees could decrease.
20
Risk Factors
<PAGE>
Certain Anti-Takeover Provisions May Affect Your Rights As A Shareholder
The Company's Board of Directors has the authority to issue up to 12,500,000
shares of preferred stock and to determine the price, rights, preferences and
privileges of those shares without any further vote of, or action by, the
Company's stockholders. Your rights will be subject to, and may be adversely
affected by, the rights of holders of preferred stock. If the Company chooses
to issue preferred stock with voting rights, the issuance could provide
desirable flexibility in connection with possible acquisitions and other
corporate purposes. The issuance of voting preferred stock could also make it
more difficult for a third party to acquire a majority of the outstanding
voting stock of the Company. Certain provisions of Delaware law applicable to
the Company may also discourage third-party attempts to acquire control.
The Company Does Not Anticipate Paying Dividends On Common Stock
The Company does not plan to pay cash dividends on the Company's common stock
in the foreseeable future. The Board of Directors will decide, in the exercise
of its business judgment, whether to apply legally available funds to the
payment of dividends. The Board of Directors will consider the Company's
results of operations and financial condition, any existing or proposed
commitments for the use of available funds, and the Company's obligations to
its creditors or holders of preferred stock, if any preferred stock is issued.
Financial covenants in the Company's credit agreements or in arrangements with
government-sponsored entities may restrict the Company's ability to pay
dividends.
No Prior Market For The Rights Exists
You are permitted to sell or transfer your rights, but the Company cannot
assure you that such a sale will be practicable or profitable. The Company
expects that the rights will be listed for trading on the OTC Bulletin Board
under the symbol "WMFGR." Prior to this rights offering, there has been no
public market for the rights, and the Company cannot assure you that an active
public market for the rights will develop or be sustained. If a market for the
rights develops, it may be volatile and unreliable. The Company cannot assure
you that you will receive a satisfactory price upon the sale of the rights.
The Sale Of A Substantial Amount Of Common Stock May Affect The Market Price
If substantial amounts of common stock are sold in the public market following
the rights offering, the market price of the stock could be adversely affected.
If the rights offering is fully subscribed, the Company will have approximately
11,916,866 shares of common stock outstanding. Of those shares, approximately
6,611,419 shares (55.48 percent) will be held by the Principal Stockholders.
The Principal Stockholders may be deemed to be "affiliates" of the Company
under Rule 144 of the Securities Act of 1933, and these shares generally may be
sold only subject to the volume limitations of Rule 144. However, the Company
has agreed to register for resale without restriction (A) 546,448 shares of
common stock purchased by Capricorn in December 1997, (B) the approximately 3.6
million shares of common stock recently acquired by Demeter, Phemus and
Capricorn and (C) any shares of common stock purchased pursuant to the stand-by
purchase commitment.
In addition, as part of a transaction entered into in December 1998, the
Company (i) has issued warrants to purchase 100,000 shares of common stock for
$5.98125 per share exercisable through December 30, 2002, (ii) has issued
warrants to purchase 150,000 shares of common stock for $10.00 per share
exercisable through December 30, 2003, and (iii) has secured certain
obligations with the pledge of an additional 50,000 shares of
21
Risk Factors
<PAGE>
authorized but unissued common stock. The Company has agreed to register for
resale all of these shares if they are issued.
If after the rights offering the Company is unable to repay all of the
subordinated notes held by COMIT, Harvard and Capricorn will have the option to
cause COMIT to convert those notes into shares of capital stock at an exchange
rate of $5.00 per share.
The sale of a substantial number of these shares at any time or over time could
adversely affect the market price of the Company common stock. The Company
cannot predict the effect that the availability and future sales of common
stock could have on the market price.
The Company's Stock Price Has Been And May Continue To Be Volatile
Trading volume and prices for the common stock have been subject to wide
fluctuations during the past year and may continue to fluctuate in response to
quarterly variations in operations, results, announced earnings and other
factors. The Company cannot always foresee or predict such events. Other
factors that may affect stock prices include the sale or attempted sale of a
large amount of securities in the public market, the registration for resale of
any shares of common stock and the effect on the Company's earnings of equity-
based compensation awards to management. The market price of the Company's
common stock could also be influenced by developments or matters not related to
the Company.
22
Risk Factors
<PAGE>
THE WMF GROUP, LTD.
CURRENT CORPORATE STRUCTURE
-------------------
The WMF Group Ltd.
-------------------
----------------------------------------
------------------- --------------- -----------------
WMF Carbon Mesa WMF Washington WMF Capital Corp.
Advisors, Inc. Mortgage Corp.
------------------- --------------- -----------------
-----------------------------------
------------------- --------------- -----------------
WMF Huntoon WMF Proctor WMF Robert C.
Paige Wilson
------------------- --------------- -----------------
23
Current Corporate Structure
<PAGE>
THE COMPANY
The WMF Group, Ltd. is a Delaware corporation formed in October 1992 under the
name "WMF Holdings, Inc." Originally, the Company was created to hold the
operations of WMF Huntoon, Paige Associates Limited ("WMF Huntoon Paige") and
WMF Washington Mortgage Corp. ("Washington Mortgage"). WMF Huntoon Paige and
Washington Mortgage are now wholly-owned subsidiaries of the Company. Please
see the chart on page 23 for an illustration of the Company's organizational
structure.
WMF Huntoon Paige has originated and serviced multifamily and healthcare
mortgages insured by the FHA under various owners and under various names since
1979. Washington Mortgage acquired WMF Huntoon Paige in 1991. Washington
Mortgage has originated and serviced multifamily and commercial mortgages under
various owners and under various names since 1984.
On April 1, 1996, NHP Incorporated ("NHP") purchased the Company and named it
"NHP Financial Services, Inc." In early 1997, NHP was acquired by Apartment
Investment and Management Co. ("AIMCO"). As a condition of that purchase, AIMCO
required NHP to spin-off the Company. On December 8, 1997, the Company became
an independent, publicly traded company.
Recent Developments
1998 Losses. During the nine months ended September 30, 1998, the Company
incurred a net loss of $33.9 million, or $6.53 per share. Almost all of these
losses were incurred at Capital Corp. and resulted from volatility in
commercial mortgage-backed security markets and interest rates on U.S. Treasury
securities. Despite the losses, the Company's mortgage banking segment remained
profitable during the third quarter, and the Company as a whole experienced
increased revenue during the first nine months of 1998.
Losses and Restructuring at Capital Corp. Most of the Company's losses during
the first three quarters of 1998 resulted from short-sale transaction losses
related to Capital Corp.'s inventory of mortgage loans. During that period,
Capital Corp. originated $969 million in mortgage loans. To protect itself
against interest rate fluctuations prior to the sale or securitization of its
loans, Capital Corp. entered into arrangements for the short sale of U.S.
Treasury securities. Because of interest rate volatility during that period,
the Company was required to fund losses related to changes in the value of its
short-sale positions. To reduce its exposure to margin calls, Capital Corp.
sold $691 million in loans, and closed the related U.S. Treasury short
positions, at a loss. Capital Corp. also recognized a loss on the short-sale
positions related to its remaining $278 million loan inventory.
To reduce the cash requirements of its short-sale activities, the Company made
arrangements with its warehouse lender and short-sale counterparties to permit
the Company to offset the impact of losses on the short sale of U.S. Treasuries
with gains and losses in mortgage loans held for securitization. During
December of 1998, Capital Corp. sold the remainder of its loan inventory and
closed the related short-sale positions without incurring additional losses. As
part of these agreements, the Company and COMIT purchased $2.4 million and $7.6
million of subordinated interests in a pool of $63.5 million of these loans.
As a result of the losses incurred, Capital Corp. has become unable to satisfy
certain loan commitments. Capital Corp. has settled one claim related to these
obligations but the Company may not be able to settle similar claims in the
future. See "Risk Factors - Unsatisfied Contractual Commitments May Cause
Additional Losses." The Company does not intend to contribute additional
capital to Capital Corp. or to take principal risk positions at Capital Corp.
Cost-Saving Measures. In response to its 1998 losses, the Company implemented a
cost-reduction program, reducing its workforce by 15 percent and decreasing
general and administrative expenses. The Company expects that the cost-
reduction program will result in annual savings of at least $7.5 million
beginning in 1999.
24
The Company
<PAGE>
Issuance of Subordinated Notes. On September 4, 1998, the Company entered into
a Credit Agreement with COMIT. COMIT is a real estate investment trust that is
owned by Harvard, Capricorn and the Company and managed by WMF Carbon Mesa.
Under the Credit Agreement, Harvard and Capricorn contributed a total of $20
million to COMIT, and the Company then sold $20 million of its subordinated
notes to COMIT. The Company also issued warrants to COMIT entitling it to
purchase 1,200,000 shares of common stock at $11.25 per share. COMIT later
assigned 960,000 of the warrants to Harvard and 240,000 of the warrants to
Capricorn. The Company repaid $16.7 million of the subordinated notes on
December 31, 1998, as part of the Recapitalization Plan, described below.
Designation of Class A Stock. On December 31, 1998, the Board of Directors of
the Company amended the Company's Certificate of Incorporation to provide for
the Class A Stock.
The Company issued 3,635,972 shares of Class A Stock as part of the
Recapitalization Plan, described below.
On January 14, 1999, each outstanding share of Class A Stock was converted into
one share of the Company's common stock, after the Federal Trade Commission
informed the Company that it would not object to such a conversion pursuant to
certain provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
Recapitalization Plan. To provide for its working and other capital needs after
the losses at Capital Corp., the Company has entered into the Recapitalization
Plan. The Recapitalization Plan has two parts and is expected to raise a
minimum of $20 million and a maximum of $30 million of new equity:
. Sale of $16.7 Million of Capital Stock to Demeter, Phemus and
Capricorn
On December 31, 1998, the Company's three largest shareholders,
Demeter, Phemus and Capricorn, acquired 3,635,972 shares of the
Company's Class A Stock for total cash proceeds of approximately
$16.7 million. On January 14, 1999, each outstanding share of Class A
Stock was converted into one share of common stock. As a result of
these transactions, Demeter acquired 2,757,633 shares of the
Company's common stock, Phemus acquired 151,145 shares of common
stock, and Capricorn acquired 727,194 shares of common stock.
As part of the transaction, Harvard (an affiliate of Demeter and
Phemus) and Capricorn surrendered the warrants to purchase 1,200,000
shares of common stock issued to COMIT in connection with the
subordinated notes. In addition, Demeter, Phemus and Capricorn have
entered into a stand-by purchase agreement in connection with the
rights offering (described below). The Company has applied the
proceeds of the sale of Class A Stock to repay partially the
subordinated notes held by COMIT. COMIT used the repayment to redeem
shares of its preferred stock that were sold to Harvard and Capricorn
to fund the purchase of the subordinated notes, effectively resulting
in the partial conversion of the notes into common stock.
Because of their participation in this transaction, Demeter, Phemus
and Capricorn have agreed not to exercise, transfer or acquire any
rights during the rights offering.
. $14 Million Rights Offering
The Company is issuing to all of its shareholders of record as of
February 1, 1999, 1.072 transferable rights for each share of common
stock held by them on that date. Each right will entitle its holder
to purchase one share of common stock for $5.00. Because Demeter,
Phemus and Capricorn have agreed not to exercise, transfer or acquire
any rights, a total of 2,829,511 rights could be exercised during the
rights offering for a total purchase price of $14,147,555.
25
The Company
<PAGE>
Demeter, Phemus and Capricorn have entered into a Stand-by Purchase
Agreement to purchase up to 664,028 shares of common stock not
otherwise purchased in the rights offering for a total purchase price
of up to $3,320,140. Consequently, the Company expects that it will
sell at least 664,028 shares of common stock in the rights offering
for total proceeds of at least $3,320,140.
The Company has agreed to apply the proceeds from the rights offering
and from any shares sold to Demeter, Phemus and Capricorn first to
repay the remaining subordinated notes held by COMIT. If after the
rights offering the Company is unable to repay all of the
subordinated notes held by COMIT, Harvard and Capricorn will have the
option to cause COMIT to convert the notes into shares of Company
capital stock at an exchange rate of $5.00 per share.
The Recapitalization Plan will result in the effective conversion of the
Company's $20 million of subordinated notes into capital stock and also may
raise additional common equity, which will be used to repay a portion of the
Company's revolving line of credit and for working capital.
Business
The Company has three principal lines of business: (i) mortgage banking, (ii)
capital markets and (iii) advisory services. Mortgage banking involves
origination and servicing of mortgage loans.
Mortgage Origination. Mortgage origination involves the making of loans to
borrowers who use real estate property as collateral. The Company's staff of 59
loan originators targets a wide variety of borrowers including developers,
local entrepreneurial owners, large portfolio owners and public companies such
as real estate investment trusts.
Currently, the Company originates mortgages through two channels - retail and
wholesale. For the retail operation, the Company has loan originators in 19
offices located throughout the country. Those individuals directly solicit
owners of real estate, as well as local multifamily and commercial mortgage
brokers. The Company believes that having a local presence within a market
significantly adds to its understanding of the local economic, demographic and
real estate trends, thus allowing it to serve borrowers and investors better. A
local presence also helps develop borrower relationships and identify new
customers.
In those markets where the Company does not have a retail presence, it acts
through "correspondent relationships" with local mortgage brokers. In this
relationship, a local commercial mortgage broker identifies potential borrowers
and refers them to the Company for their loans. Currently, the Company
originates loans through correspondents throughout the United States. In 1997,
the Company obtained 21.5 percent of its $2.3 billion of loan originations
through correspondents.
The Company's relationship with correspondents differs between multifamily and
commercial lending and FHA lending. For multifamily and commercial lending, the
Company enters into an agreement with each correspondent which generally
provides that (1) the borrower will pay the correspondent, usually based on a
percentage of the loan, (2) in some instances, the Company will have a right of
first refusal to finance properties meeting the criteria of its loan programs
and investors and (3) the correspondent will be eligible for incentive fees
based on servicing fees received by the Company from the originated loans.
Generally, either party to a multifamily and commercial correspondent agreement
may terminate the relationship without cause upon prior written notice. The
multifamily and commercial correspondent agreements usually do not place
geographic restrictions on either the Company or the correspondent.
With respect to FHA lending, correspondents generally enter into agreements
with the Company for each individual transaction and the terms of the
agreements vary from transaction to transaction. These agreements define the
compensation, roles, representations and warranties for the correspondent and
the Company.
26
The Company
<PAGE>
After it identifies a potential borrower, the Company determines which of its
mortgage products best meets the borrower's needs. Then the Company works with
the borrower and a mortgage investor to prepare a loan application. When the
borrower completes the application, the Company's underwriters conduct due
diligence. In the case of FHA loans, the FHA conducts due diligence. See "-
Mortgage Underwriting." The loan is evaluated, and if appropriate, submitted
to a loan committee consisting of senior officers of the Company.
If the Company or the FHA approves the loan, the Company issues a commitment to
the borrower. Normally, the Company simultaneously commits to sell the loan to
an appropriate investor. Because the commitment for the loan sometimes occurs
prior to the investor commitment, the Company limits its exposure to interest
rate changes for these transactions. Typical investors include insurance
companies, banks, credit corporations, government sponsored entities (such as
Fannie Mae) and other institutional investors. Typically the Company funds a
loan 15 to 30 days after the loan commitment. At that time, the Company funds
the loan using its warehouse lines of credit and the borrower pays the Company
an origination fee, typically one percent of the principal amount of the loan.
Within 10 to 45 days after funding the loan, the Company completes the sale of
the loan to an investor. In connection with such sales, the Company sometimes
retains certain liabilities. See "Risk Factors - The Company Is Liable For
Certain Representations And Warranties Concerning Mortgage Loans" and "Risk
Factors - The Company May Incur Losses On Mortgage Loans Under The DUS
Program." After selling a mortgage loan, the Company typically retains the
right to service the loan. See "- Mortgage Servicing."
As of December 31, 1997, the Company held 32 mortgage loans for sale with an
aggregate principal balance of $49.4 million and investors had committed to
purchase all of the loans held for sale, and after that date, the Company sold
each of the loans. As of September 30, 1998, the Company held 46 mortgage loans
for sale with an aggregate principal balance of $306.2 million. After September
30, 1998, the Company entered agreements to sell each of these mortgage loans.
As of September 30, 1998, the Company had commitments to lend that were not
matched with investor commitments. Those commitments are subject to market risk
until such time as a permanent investor is identified.
The Company provides a diverse range of products to borrowers through three
product groups: Conventional Multifamily, FHA Multifamily and Healthcare, and
Commercial/Life Insurance Company. The following table sets forth information
regarding loan origination volume by business unit for each of the last three
years.
Loan Origination Volume by Business Unit
(Dollars in Millions)
<TABLE>
<CAPTION>
9 Months
Ended
Sept. 30,
1998 1997 1996 1995
--------- ------- ------- -----
<S> <C> <C> <C> <C>
Conventional Multifamily 768.8 742.0 505.4 448.0
FHA Multifamily and Healthcare 386.5 489.7 505.6 325.5
Commercial/Life Insurance (/1/) 2,128.5 1,075.2 117.5 29.0
------- ------- ------- -----
Total 3,283.8 2,306.9 1,128.5 802.5
======= ======= ======= =====
</TABLE>
(/1/) Includes Capital Corp. and other conduit originations.
27
The Company
<PAGE>
Conventional Multifamily (Fannie Mae). This business unit finances multifamily
properties that are not supported by governmental insurance or guarantees. The
Company sells such loans to a variety of mortgage investors, including Fannie
Mae. One of the Company's most active conventional products is Fannie Mae's DUS
Program. Currently, there are only 28 companies approved to participate in this
program. In 1997, total DUS Program production was $4.5 billion, of which the
Company produced approximately $200 million.
Under the DUS Program, Fannie Mae allows the Company to approve, close and
service loans on multifamily mortgages that meet predetermined criteria. Fannie
Mae commits to purchase these loans after they close. As part of the program,
Fannie Mae requires that participating companies share in the risk of loss on
the loan. See "Risk Factors - The Company May Incur Losses On Mortgage Loans
Under The DUS Program." In return for sharing the risk of loss, the Company
receives a servicing fee that is significantly higher than its typical fee. The
Company underwrites each loan to manage its loss exposure and enhance its
return on servicing. See "- Mortgage Underwriting."
In addition to its participation in the DUS Program, the Company is a Fannie
Mae Prior Approval Lender and is one of the designated post-closing review
lenders for the Fannie Mae Aggregation Facility. These programs allow the
Company to sell certain loans to Fannie Mae that would not otherwise qualify
for the DUS Program. Unlike DUS, however, neither of these programs requires
that the Company share in the risk of loss.
FHA Multifamily and Healthcare. The Company, through WMF Huntoon Paige, is the
largest provider of FHA-insured multifamily and healthcare financing in the
country. The Company originates and services both construction and permanent
loans. For the twelve months ended September 30, 1998, the Company's
subsidiaries originated 12.5 percent of all FHA multifamily and healthcare
insured debt financing.
The Company operates FHA lending through a separate subsidiary because typical
property characteristics, borrower requirements, licensing and approval
processes differ significantly between FHA and conventional multifamily
financing. To participate in FHA programs, the Company must comply with the
applicable requirements of the National Housing Act and the regulations and
policies of the FHA. See "Risk Factors - The Company May Be Unable To Continue
To Comply With Government Regulation And Programs."
Commercial/Life Insurance Company Loans. With its acquisitions in 1996 and
1997, the Company has substantially increased its presence in the market for
commercial, non-multifamily financing. The Company originates loans secured by
a variety of properties, including office buildings, retail centers, hotels,
warehouses and nursing homes. Through relationships with regional mortgage
banks, insurance companies have been particularly active investors in this
segment. The Company has a variety of established relationships with insurance
companies, including: John Hancock, UNUM, Canada Life, CIGNA, American General,
Nationwide, Berkshire Life, Government Personnel Mutual and Century Life.
In addition to originating conduit-eligible loans that are processed by its
capital markets group, through WMF Funding, the Company has established
origination relationships with commercial mortgage conduits operated by major
financial institutions, including Merrill Lynch, NationsBank, N.A. and
ContiFinancial. In 1998, the Company originated loans totaling approximately
$1.1 billion through these investor sources.
Mortgage Underwriting. The Company's originators work with underwriters who
perform due diligence on all loans prior to commitment and approval. The
Company's underwriters assess each proposed loan including a review of (1)
borrower financial position and credit history, (2) past operating performance
of the underlying collateral, (3) potential changes in project economics and
(4) appraisal, environmental and engineering studies completed by a pre-
approved list of third-party consultants. Additionally, underwriters inspect
the property, review tenant and lease files, survey comparable markets and
analyze area economic and demographic trends. A loan committee consisting of
the Company's senior officers reviews and approves each proposed loan.
28
The Company
<PAGE>
The Company applies its own underwriting guidelines, as well as those provided
by investors. Among other things, the Company considers debt service coverage,
loan-to-value ratios, property financial and operating performance, quality of
property management, borrower credit history and tenant profile. The standards
vary from investor to investor and may include a subjective element based on an
assessment of the total credit risk. The standards generally do not involve
mechanical application of a set formula. The Company revises its underwriting
criteria based on its experience and as market conditions and investor
requirements change.
Due in part to its underwriting procedures, in 1997 the Company achieved a loan
delinquency rate (i.e., loans delinquent over 60 days) equal to only 0.21
percent of its entire conventional multifamily and commercial portfolios. In
connection with the Fannie Mae DUS Program, the Company has originated over 296
DUS loans since 1990 with original principal balances in excess of $1.4
billion. The Company has experienced one loss of $0.3 million on a DUS loan.
That loan was originated by another lender, and the Company acquired the risk-
sharing obligation as part of its DUS approval in 1990.
The Company uses the underwriting criteria established by the FHA to recommend
loans for FHA insurance. The Company must provide the FHA with certain
information. The FHA then examines the loans and decides whether to provide
insurance.
Mortgage Servicing. As a mortgage servicer, the Company performs both primary
and master servicing functions. Primary servicing involves:
. collecting mortgage payments,
. maintaining escrow accounts for the payment of taxes and insurance
premiums,
. sending payments of principal and interest,
. reporting to investors on financial and property issues, and
. general loan administration.
The primary servicer must inspect properties, determine the adequacy of
insurance coverage, monitor delinquent accounts and, in cases of extreme
delinquency, institute forbearance arrangements or foreclosure proceedings on
behalf of investors.
Master servicers administer and report on securitized pools of mortgage-backed
securities. Normally, the mortgages in the pool are serviced by individual
primary servicers. Master servicing agreements typically require the primary
servicer to retain responsibility for administering the mortgage loans, and the
master servicer supervises the primary servicers by monitoring their compliance
with the servicing contract. The master servicer consolidates all accounting
and reporting to the issuer of the securities.
The Company has contracts to service loans with mortgage owners and originators
of mortgage-backed securities. The contracts are generally for a term equal to
the term of the serviced mortgage or the mortgage-backed security and are
terminable for cause. Contracts with insurance companies who own mortgages are
usually terminable on 30 days' notice by the owner, in many instances without
cause. In some circumstances, the insurance company must pay a termination fee
if it terminates a servicing contract without cause. Under these agreements,
the Company receives an annual fee for primary servicing. The fee typically
ranges from 5 basis points to 40 basis points of the unpaid principal balance
of the loans underlying the securities. Fees for master servicing typically
range from one to ten basis points.
As of September 30, 1998, the Company acted as the primary servicer for
approximately $11.1 billion of loans and the master servicer for an additional
$1.6 billion of loans. These loans were obtained through the Company's
origination network and through the purchase of servicing rights. A breakdown
of the servicing portfolio is shown below.
29
The Company
<PAGE>
Servicing Portfolio by Product Type
$ in Millions
<TABLE>
<CAPTION>
9 Months Year Ended
Ended December 31,
Sept. 30, ------------------
1998 1997 1996 1995
--------- ------ ----- -----
<S> <C> <C> <C> <C>
Conventional Multifamily 3,735 1,544 1,644 1,409
FHA and Ginnie Mae 4,397 4,201 3,076 2,657
Commercial 2,924 4,173 1,267 201
Master Servicing 1,622 952 214 145
------ ------ ----- -----
Total 12,678 10,870 6,201 4,412
====== ====== ===== =====
</TABLE>
The Company principally services loans in its offices in Vienna, Virginia;
Edison, New Jersey and Houston, Texas. It employs approximately 92 persons in
these servicing facilities. As of September 30, 1998, the Company serviced
3,383 loans. As part of its servicing functions on these loans, the Company
managed escrow accounts totaling $378 million and processed approximately $83.0
million in principal and interest payments each month. The Company continuously
reviews its servicing operations and seeks to implement improvements in its
systems and business processes.
Capital Markets (WMF Funding). The Company originates commercial mortgage loans
through WMF Funding, a division of WMF Washington Mortgage Corp. created in
December 1998. The Company has entered into a strategic relationship with
Greenwich Capital Markets pursuant to which WMF Funding will originate loans
for sale to Greenwich. Greenwich is expected to pool these loans with other
loans and then sell interests in, or "securitize," the pool. WMF Funding will
service the loans it originates and receive a portion of the profits, if any,
from any securitization of those loans.
Prior to September 1998, the Company had operated an independent commercial
mortgage conduit through its subsidiary Capital Corp. The operations of Capital
Corp. have been substantially curtailed since it suffered substantial losses in
the second and third quarters of 1998 and the Company has determined not to
make further investments in Capital Corp. However, the Company cannot assure
you that it will not be required to do so.
Advisory Services (WMF Carbon Mesa). The Company's advisory services segment
was formed in March 1998, when the Company acquired all of the assets of Carbon
Mesa Advisors, Inc. and Strategic Real Estate Partners and created WMF Carbon
Mesa Advisors, Inc. ("WMF Carbon Mesa"). Based in Los Angeles, WMF Carbon Mesa
managed a private commercial mortgage fund, provided a variety of advisory
services to institutional investors and originated over $400 million in loans
and investments in 1997. WMF Carbon Mesa employs 16 people.
WMF Carbon Mesa develops new loan products, manages commercial mortgage
investment funds, provides special asset management servicing and originates
commercial mortgages. In June 1998, WMF Carbon Mesa entered into an agreement
to manage COMIT. COMIT invests in multifamily and commercial mortgages,
primarily those originated by the Company that are not sold in securitizations
or to other institutional investors. These types of multifamily and commercial
loans include bridge, mezzanine and structured transactions.
30
The Company
<PAGE>
Business Strategy
Because of its geographic scope and quality services, the Company believes that
it is well-positioned to compete effectively in the commercial real estate
financing industry. The commercial and multifamily mortgage banking industry is
increasingly characterized by expensive technological demands, large and
sophisticated infrastructure for real estate underwriting and risk evaluation
and the rapid emergence of the securitized market. The Company believes that
these developments will lead to the creation of sophisticated and well-
capitalized mortgage finance enterprises. The Company seeks to use its existing
infrastructure and its market position to increase market share of its
established businesses and increase its non-multifamily commercial business.
The Company seeks to increase reported earnings and cash flow through:
. acquisitions and internal growth,
. design and delivery of new mortgage products, including structured
loan products and participating loan products, and
. expansion into related businesses, such as due diligence services.
Acquisitions. The Company has pursued a strategy of acquiring (1) multifamily
and commercial mortgage businesses that either serve key real estate markets in
the United States or provide specialized services that enhance its product
line, and (2) additional servicing portfolios. In the past, the Company has
sought to acquire companies with active and productive loan origination staffs,
significant market share and servicing portfolios of $250 million or more and
expects to continue to do so following completion of the Recapitalization Plan
to the extent its resources permit.
During 1996, the Company increased its portfolio of serviced mortgages by 40.9
percent from $4.4 billion to $6.2 billion, primarily as a result of two
acquisitions. On May 13, 1996, WMF Huntoon Paige purchased a portion of the
loan production pipeline and servicing, as well as certain other assets, of ACR
Investment Corp. for approximately $4.2 million, plus potential future payments
based on realization of loans closed from the pipeline through August 1997. The
acquired pipeline and loan production offices originated approximately $138
million in multifamily and healthcare loans for WMF Huntoon Paige in 1996.
On December 31, 1996, Washington Mortgage acquired all of the common stock of
Detroit-based Proctor & Associates of Michigan ("Proctor"), the 37th largest
commercial mortgage banking firm in the United States based on the MBA Survey.
Washington Mortgage paid approximately $3.7 million in cash to acquire Proctor.
The acquisition brought to the Company a $1.1 billion loan servicing portfolio
of multifamily, retail and office building mortgages, as well as 17 active
correspondent relationships with life insurance companies.
On April 16, 1997, Washington Mortgage purchased substantially all of the
mortgage banking assets and liabilities of Askew Investment Company ("Askew")
in Dallas, Texas for $4.6 million, excluding transaction costs. Askew is a
multifamily and commercial mortgage bank with correspondent relationships with
14 insurance companies, which originated $375 million of mortgages in 1996. The
acquisition increased the Company's mortgage servicing portfolio by $425
million and gave the Company access to the traditional insurance company whole-
loan buyers in the markets served by Askew. The purchase also provided the
Company with a new source of loans for securitization through the Company's
capital market relationships.
31
The Company
<PAGE>
On November 5, 1997, Washington Mortgage purchased 100 percent of the
outstanding stock of The Robert C. Wilson Company and its Arizona subsidiary
(collectively, "Robert C. Wilson") for a purchase price of approximately $4.0
million in cash (80 percent of which was paid at closing and the remaining 20
percent of which will be paid in the form of earnouts upon the attainment of
certain performance objectives over a 42-month period). In addition to its
mortgage and equity origination and servicing activities, Robert C. Wilson
provides commercial office leasing and real estate sales. Robert C. Wilson has
correspondent relationships with 24 insurance companies and originated
approximately $475 million of mortgages in 1997. The acquisition increased the
Company's servicing portfolio by $554 million.
On December 23, 1997, Washington Mortgage purchased substantially all of the
mortgage banking assets of New York Urban West, Inc. ("New York Urban") for a
purchase price of approximately $4.9 million in cash (84 percent of which was
paid at closing and the remaining 16 percent of which will be paid in the form
of earnouts upon the attainment of certain performance objectives over a 42-
month period). An approved HUD mortgagee, New York Urban originated $225
million of mortgages in 1997 and had correspondent relationships with several
life insurance companies. The acquisition increased the Company's servicing
portfolio by $1.3 billion.
On March 27, 1998, the Company created WMF Carbon Mesa, which purchased all of
the assets of WMF Carbon Mesa Advisors, Inc., and Strategic Real Estate
Partners for a combination of cash and common stock. WMF Carbon Mesa develops
new loan products, manages commercial mortgage investment funds, provides
special asset management services and originates commercial mortgages.
The Company also grows its servicing portfolio through the acquisition of
servicing rights. Since 1992, the Company has acquired servicing rights on
approximately $1.3 billion of mortgages in over 44 transactions.
As a result of acquisitions and internal growth, the Company has increased loan
originations from approximately $240 million in 1992 to approximately $3.3
billion for the nine months ended September 30, 1998. The Company's servicing
portfolio has increased from approximately $3.0 billion in 1992 to $12.7
billion as of September 30, 1998.
In furtherance of its acquisition strategy, the Company routinely reviews, and
conducts investigations of, potential acquisitions of multifamily and
commercial mortgage businesses. As of the date of this prospectus, the Company
does not have any agreements for pending acquisitions and has not entered into
any letters of intent with respect to pending acquisitions. However, if the
Recapitalization Plan is successful and the Company obtains sufficient working
capital, the Company may enter into discussions with one or more potential
acquisition targets in the commercial mortgage financial services business. The
Company cannot assure you that such discussions will result in future
acquisitions, or that if those acquisitions are completed, they will be
successful. The Company also cannot assure you that it will successfully
develop any particular product or enter into any particular product line.
Design and delivery of new mortgage products. Since 1992, the Company has been
involved in developing more than eight new products, including one of the first
whole-loan conduits (Common SenseSM), a revolving credit facility for real
estate investment trusts and a forward commitment program for tax-credit new
construction. Using these products, the Company has originated loans totaling
over $1.2 billion from 1992 to 1997.
The Company has also enhanced its bridge loan product, has added a number of
loan products to sell to life insurance companies, and has developed a
securitized loan product with a major Wall Street conduit for commercial
lending. Through WMF Carbon Mesa, the Company intends to develop new financing
products in response to changing market conditions, including continued
development of bridge loan products, as well as the addition of high-yield,
mezzanine and participating loan products. The Company cannot assure you that
it will be successful in developing any particular new product or, if a product
is developed, that it will be profitable for the Company.
32
The Company
<PAGE>
Expansion into related businesses. The Company seeks to build upon its
experience in evaluating real estate to expand its services and develop related
products. The Company has used its expertise to provide due diligence services
for institutional clients, to enter the advisory services/funds management
business and to expand its presence in the commercial mortgage-backed
securities market. Other possible businesses may include asset management,
commercial leasing and management and the purchase and retention of commercial
mortgage-backed securities. Expansion may occur through a combination of
acquisitions, strategic alliances and internal business development. There can
be no assurance that the Company will seek to undertake any specific line of
business, or, if it undertakes a particular line of business, that the business
will be successful.
33
The Company
<PAGE>
THE RIGHTS OFFERING
The Rights
The Company is distributing transferable rights to stockholders who owned
shares of its common stock on February 1, 1999, at no cost to the stockholders.
The Company will give you 1.072 rights for each share of common stock that you
owned on February 1, 1999. You will not receive fractional rights during the
rights offering, but instead the Company will round your number of rights up or
down to the nearest whole number. Each right will entitle you to purchase one
share of common stock for $5.00.
If you wish to exercise your rights, you must do so before 5 p.m., Eastern
Standard Time, on March 8, 1999. After that date, the rights will expire and
will no longer be exercisable.
Basic Subscription Right
Each right will entitle you to receive, upon payment of $5.00 to the Company,
one share of common stock (the "Basic Subscription Right"). The Company will
send you certificates representing the shares that you purchase pursuant to
your Basic Subscription Right as soon as practicable after March 8, 1999,
whether you exercise your rights immediately prior to that date or earlier.
Oversubscription Privilege
Subject to the allocation described below, each right also grants you an
"Oversubscription Privilege" to purchase additional shares of common stock that
are not purchased by other stockholders. You are entitled to exercise your
Oversubscription Privilege only if you exercise your Basic Subscription Right
in full.
If you wish to exercise your Oversubscription Privilege, you should indicate
the number of additional shares that you would like to purchase in the space
provided on your Subscription Certificate. When you send in your Subscription
Certificate, you must also send the full purchase price for the number of
additional shares that you have requested to purchase (in addition to the
payment due for shares purchased through your Basic Subscription Right).
If the number of shares remaining after the exercise of all Basic Subscription
Rights is not sufficient to satisfy all Oversubscription Privileges, you will
be allocated shares pro rata (subject to elimination of fractional shares), in
proportion to the number of shares you purchased through your Basic
Subscription Right. However, if your pro rata allocation exceeds the number of
shares you requested on your Subscription Certificate, then you will receive
only the number of shares that you requested, and the remaining shares from
your pro rata allocation will be divided among other shareholders exercising
their Oversubscription Privileges.
As soon as practicable after March 8, 1999, the Subscription Agent will
determine the number of shares of common stock that you may purchase pursuant
to the Oversubscription Privilege. The Company will send you certificates
representing these shares as soon as practicable after March 8, 1999. If you
request and pay for more shares than are allocated to you, the Company will
refund that overpayment, without interest.
In connection with the exercise of the Oversubscription Privilege, banks,
brokers and other nominee holders of rights who act on behalf of beneficial
owners will be required to certify to the Subscription Agent and the Company as
to the aggregate number of rights that have been exercised and the number of
shares of common stock that are being requested through the Oversubscription
Privilege by each beneficial owner on whose behalf such nominee holder is
acting.
34
The Rights Offering
<PAGE>
Stand-By Purchase Commitment
Because Demeter, Phemus and Capricorn recently acquired 3,635,972 shares of the
Company's common stock, they have agreed that they will not exercise, transfer
or acquire any rights during the rights offering.
However, if the Company sells fewer than 2,829,511 shares of common stock
during this rights offering, then Demeter, Phemus and Capricorn have entered
into a Stand-by Purchase Agreement to purchase for $5.00 per share the lesser
of (A) 664,028 shares of the Company's capital stock or (B) 2,829,511 shares,
minus the number of shares sold during the rights offering. This agreement
guarantees that the Company will receive at least $3,320,140 in gross proceeds
from the rights offering.
If no stockholders exercise their Basic Subscription Rights and only Demeter,
Phemus and Capricorn purchase shares pursuant to the Stand-by Purchase
Agreement, the gross proceeds to the Company will be $3,320,140. In contrast,
if all rights are exercised, the gross proceeds to the Company will be
$14,147,555.
Expiration Date
The rights will expire at 5:00 p.m., Eastern Standard Time, on March 8, 1999,
unless the Company, in its discretion, extends the rights offering for up to 10
days. If you do not exercise your Basic Subscription Rights and
Oversubscription Privilege prior to that time, the rights will be null and
void. The Company will not be required to issue shares of common stock to you
if the Subscription Agent receives your Subscription Certificate or your
payment after that time, regardless of when you sent the Subscription
Certificate and payment, unless you send the documents in compliance with the
Guaranteed Delivery Procedures described below.
Withdrawal Right
The Company may withdraw the rights offering at any time prior to or on March
8, 1999, for any reason (including, without limitation, a change in the market
price of the common stock). If the Company withdraws the rights offering, any
funds received from stockholders will be promptly refunded without interest or
penalty.
Determination Of Share Price
The Company and its Board of Directors decided to charge $5.00 per share during
the rights offering after considering such factors as the historic and current
market price of the Company's common stock and the Company's need for capital.
The $5.00 per share price should not be considered an indication of the actual
value of the Company or its common stock. The Company cannot assure you that
the market price of the common stock will not decline during the rights
offering. The Company also cannot assure you that you will be able to sell
shares of common stock purchased during the rights offering at a price equal to
or greater than $5.00 per share.
Transferability Of Rights
Starting on the date on which the rights are distributed, you may purchase or
sell rights through usual investment channels, including banks and brokers. The
Company expects that the rights will be listed on the OTC Bulletin Board under
the symbol "WMFGR." BT Alex. Brown Incorporated has informed the Company that
it intends to make a market in the rights. The Company expects that you will be
able to transfer and exercise the rights through the facilities of the
Depository Trust Company. See "Risk Factors - No Prior Market for the Rights
Exists."
35
The Rights Offering
<PAGE>
You may transfer the rights evidenced by a single Subscription Certificate in
whole by endorsing the Subscription Certificate for transfer in accordance with
the accompanying Instructions. You may transfer a portion of the rights
evidenced by a single Subscription Certificate (but not fractional rights) by
delivering to the Subscription Agent a Subscription Certificate properly
endorsed for transfer, with instructions to register such portion of the rights
evidenced thereby in the name of the transferee and to issue a new Subscription
Certificate to the transferee evidencing such transferred rights. In such
event, a new Subscription Certificate evidencing the balance of the rights will
be issued to you or, if you so instruct, to an additional transferee.
If you wish to transfer all or a portion of your rights (but not fractional
rights), you should allow a sufficient amount of time prior to March 8, 1999,
for
. the transfer instructions to be received and processed by the
Subscription Agent,
. a new Subscription Certificate to be issued and transmitted to the
transferee or transferees with respect to the transferred rights, and
to you with respect to retained rights, and
. the rights evidenced by such new Subscription Certificates to be
exercised or sold by the recipients thereof.
Neither the Company nor the Subscription Agent will be liable to a transferee
or transferor of rights if Subscription Certificates are not received in time
for exercise or sale prior to March 8, 1999.
Except for the fees charged by the Subscription Agent (which the Company will
pay, as described below), you will be responsible for paying any commissions,
fees and other expenses (including brokerage commissions and transfer taxes)
incurred in connection with the purchase, sale or exercise of the rights.
Neither the Company nor the Subscription Agent will pay any such commissions,
fees or expenses.
Exercise Of Rights
You may exercise your rights by delivering to the Subscription Agent on or
prior to March 8, 1999:
. A properly completed and duly executed Subscription Certificate;
. Any required signature guarantees; and
. Payment in full of $5.00 per share of common stock to be purchased
through the Basic Subscription Right and the Oversubscription
Privilege.
You should deliver your Subscription Certificate and payment to the address set
forth below under "- Subscription Agent."
Method Of Payment
Payment for the shares must be made by check or bank draft (cashier's check)
drawn upon a United States bank or a postal, telegraphic or express money order
payable to "Boston EquiServe, L.P., as Subscription Agent."
If you are purchasing an aggregate number of shares of common stock totaling
$500,000 or more, the Company may agree to an alternative payment method. If
you use an alternative payment method, the Subscription Agent must receive the
full amount of your payment in currently available funds within one over-the-
counter ("OTC") trading day prior to March 8, 1999.
36
The Rights Offering
<PAGE>
Payment will be deemed to have been received by the Subscription Agent only
upon:
(A) clearance of any uncertified check;
(B) receipt by the Subscription Agent of any certified check or bank
draft drawn upon U.S. bank or of any postal, telegraphic or express
money order; or
(C) receipt of funds by the Subscription Agent through an approved
alternative payment method.
===============================================================================
Please note that funds paid by uncertified personal check may take at
least five business days to clear. Accordingly, if you wish to pay by
means of an uncertified personal check, the Company urges you to make
payment sufficiently in advance of March 8, 1999, to ensure that the
payment is received and clears before that date. The Company also urges
you to consider payment by means of certified or cashier's check or money
order.
===============================================================================
Guaranteed Delivery Procedures
If you want to exercise your rights, but time will not permit your Subscription
Certificate to reach the Subscription Agent on or prior to March 8, 1999, you
may exercise your rights if you satisfy the following Guaranteed Delivery
Procedures:
(1) You send, and the Subscription Agent receives, payment in full for
each share of common stock being purchased through the Basic
Subscription Right and the Oversubscription Privilege, on or prior
to March 8, 1999;
(2) You send, and the Subscription Agent receives, on or prior to March
8, 1999, a Notice of Guaranteed Delivery, substantially in the form
provided with the attached Instructions, from a member firm of a
registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or a commercial bank or
trust company having an office or correspondent in the United
States. The Notice of Guaranteed Delivery must state your name, the
number of rights that you hold, the number of shares of common stock
that you wish to purchase pursuant to the Basic Subscription Right
and the number of shares, if any, you wish to purchase pursuant to
the Oversubscription Privilege. The Notice of Guaranteed Delivery
must guarantee the delivery of your Subscription Certificate to the
Subscription Agent within three OTC trading days following the date
of the Notice of Guaranteed Delivery; and
(3) You send, and the Subscription Agent receives, your properly
completed and duly executed Subscription Certificate, including any
required signature guarantees, within three OTC trading days
following the date of your Notice of Guaranteed Delivery. The Notice
of Guaranteed Delivery may be delivered to the Subscription Agent in
the same manner as your Subscription Certificate at the addresses
set forth below, or may be transmitted to the Subscription Agent by
facsimile transmission, to facsimile number (781) 794-6333. You can
obtain additional copies of the form of Notice of Guaranteed
Delivery by requesting it from the Subscription Agent at the address
set forth below under "--Subscription Agent."
37
The Rights Offering
<PAGE>
Signature Guarantees
Signatures on the Subscription Certificate must be guaranteed by an Eligible
Guarantor Institution, as defined in Rule 17Ad-15 of the Exchange Act, subject
to the standards and procedures adopted by the Subscription Agent. Eligible
Guarantor Institutions include banks, brokers, dealers, credit unions, national
securities exchanges and savings associations.
Signatures on the Subscription Certificate do not need to be guaranteed if:
(1) the Subscription Certificate provides that the shares of common stock
to be purchased are to be delivered directly to the record owner of such
rights, or
(2) the Subscription Certificate is submitted for the account of a member
firm of a registered national securities exchange or a member of the
National Association of Securities Dealers, Inc., or a commercial bank
or trust company having an office or correspondent in the United States.
Shares Held For Others
If you hold shares of common stock for the account of others, such as a broker,
a trustee or a depository for securities, you should notify the respective
beneficial owners of such shares as soon as possible to obtain instructions
with respect to the rights beneficially owned by them.
If you are a beneficial owner of common stock held by a holder of record, such
as a broker, trustee or a depository for securities, you should contact the
holder and ask him to effect transactions in accordance with your instructions.
Ambiguities In Exercise Of The Rights
If you do not specify the number of rights being exercised on your Subscription
Certificate, or if your payment is not sufficient to pay the total purchase
price for all of the shares that you indicated you wished to purchase, you will
be deemed to have exercised the maximum number of rights that could be
exercised for the amount of the payment that the Subscription Agent receives
from you.
If your payment exceeds the total purchase price for all of the rights shown on
your Subscription Certificate, your payment will be applied, until depleted, to
subscribe for shares of common stock in the following order:
(1) to subscribe for the number of shares, if any, that you indicated on
the Subscription Certificate(s) that you wished to purchase through your
Basic Subscription Right;
(2) to subscribe for shares of common stock until your Basic Subscription
Right has been fully exercised; and
(3) to subscribe for additional shares of common stock pursuant to the
Oversubscription Privilege (subject to any applicable proration).
Any excess payment remaining after the foregoing allocation will be returned to
you as soon as practicable by mail, without interest or deduction.
38
The Rights Offering
<PAGE>
================================================================================
IMPORTANT
Please carefully read the Instructions accompanying the Subscription
Certificate and follow those Instructions in detail.
Do not send Subscription Certificates to the Company.
You are responsible for choosing the payment and delivery method for your
Subscription Certificate, and you bear the risks associated with such delivery.
If you choose to deliver your Subscription Certificate and payment by mail, the
Company recommends that you use registered mail, properly insured, with return
receipt requested. The Company also recommends that you allow a sufficient
number of days to ensure delivery to the Subscription Agent and clearance of
payment prior to March 8, 1999. Because uncertified personal checks may take at
least five business days to clear, the Company strongly urges you to pay, or
arrange for payment, by means of certified or cashier's check or money order.
================================================================================
Company's Decision Binding
All questions concerning the timeliness, validity, form and eligibility of any
exercise of rights will be determined by the Company, whose determinations will
be final and binding. The Company, in its sole discretion, may waive any defect
or irregularity, or permit a defect or irregularity to be corrected within such
time as it may determine, or reject the purported exercise of any right by
reason of any defect or irregularity in such exercise. Subscriptions will not
be deemed to have been received or accepted until all irregularities have been
waived or cured within such time as the Company determines in its sole
discretion. Neither the Company nor the Subscription Agent will be under any
duty to give notification of any defect or irregularity in connection with the
submission of Subscription Certificates or incur any liability for failure to
give such notification.
No Revocation
After you have exercised your Basic Subscription Right or Oversubscription
Privilege, you may not revoke that exercise. You should not exercise your
rights unless you are certain that you wish to purchase additional shares of
common stock. The Company plans to announce its operating results for the
fourth quarter of 1998 and for the full year shortly after the date of this
Prospectus. You may wish to wait until after that announcement to decide
whether to exercise or transfer your rights.
Fees and Expenses
The Company will pay all fees charged by the Subscription Agent. You are
responsible for paying any other commissions, fees, taxes or other expenses
incurred in connection with the exercise or transfer of the rights. Neither the
Company nor the Subscription Agent will pay such expenses.
39
The Rights Offering
<PAGE>
Subscription Agent
The Company has appointed Boston EquiServe, L.P. as Subscription Agent for the
rights offering. The Subscription Agent's address for packages sent by mail or
overnight delivery is:
First Class Mail Overnight or Registered Mail
Boston EquiServe, L.P. Boston EquiServe, L.P.
Corporate Reorganization Corporate Reorganization
P. O. Box 9573 40 Campanelli Drive
Boston, MA 02205-9573 Braintree, MA 02184
The Subscription Agent's telephone number is (781) 575-3400, and its facsimile
number is (781) 794-6333. To confirm that the Subscription Agent has received
your facsimile, please call (781) 794-6388.
You should deliver your Subscription Certificate, payment of the Subscription
Price and Notice of Guaranteed Delivery (if any) to the Subscription Agent.
The Company will pay the fees and expenses of the Subscription Agent, which the
Company estimates will total $22,000. The Company has also agreed to indemnify
the Subscription Agent from any liability which it may incur in connection with
the rights offering.
Financial Advisor
The Company has engaged BT Alex. Brown Incorporated as its financial advisor in
connection with the Recapitalization Plan.
IF YOU HAVE QUESTIONS
If you have questions or need assistance concerning the procedure for
exercising rights, or if you would like additional copies of this prospectus,
the Instructions, or the Notice of Guaranteed Delivery, you should contact the
Information Agent:
D.F. King & Co., Inc.
77 Water Street
New York, New York
(800) 207-2872
40
The Rights Offering
<PAGE>
USE OF PROCEEDS
The Company will apply the net proceeds from the rights offering first to repay
a loan to COMIT and then to repay a portion of its revolving credit facility
and to finance its working capital and other capital requirements. On September
4, 1998, the Company entered into a Credit Agreement with COMIT, pursuant to
which the Company sold $20 million of its subordinated notes to COMIT. The
Company also issued warrants to COMIT entitling it to purchase 1,200,000 shares
of common stock at $11.25 per share. COMIT transferred the warrants to Harvard
and Capricorn.
Demeter, Phemus and Capricorn recently acquired a total of 3,635,972 shares of
the Company's capital stock. Demeter acquired 2,757,633 shares of common stock,
Phemus acquired 151,145 shares of common stock, and Capricorn acquired 727,194
shares of common stock, for aggregate consideration of approximately
$16.7 million. The proceeds from this sale were used to used to repay $16.7
million of the $20 million debt that the Company owed to COMIT. In addition,
Harvard (an affiliate of Demeter and Phemus) and Capricorn surrendered the
1,200,000 warrants that they received in connection with the Credit Agreement.
Demeter, Phemus and Capricorn have also entered into a Stand-by Purchase
Agreement whereby they will purchase up to 664,028 shares of capital stock.
Assuming that shareholders exercise all of the rights, the Company will receive
proceeds from this rights offering of approximately $14 million. The Company
will use the first $3.3 million in proceeds to repay the remainder of its debt
to COMIT. Under the terms of its revolving credit facility, the Company will be
required to use 25 percent of any proceeds in excess of $3.3 million to repay a
portion of its revolving credit facility. All remaining proceeds will be used
for the Company's working capital requirements.
The Company expects to receive minimum proceeds of approximately $3.3 million
after this rights offering, because Demeter, Phemus and Capricorn have agreed
that if the Company sells fewer than 2,829,511 shares during the rights
offering, they will purchase, for $5.00 per share, the lesser of (A) 664,028
shares of the Company's capital stock, or (B) 2,829,511 shares minus the number
of shares of common stock sold during the rights offering. These minimum
proceeds will be sufficient to repay the Company's outstanding debt to COMIT,
but will not be sufficient to repay the revolving credit facility or to finance
the Company's working and other capital requirements.
If the Company receives only the minimum proceeds, or if the Company fails to
reach sufficient revenue levels, the Company may require additional capital.
The Company cannot assure you that such capital will be available on
satisfactory terms.
41
Use of Proceeds
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company, on an
historical basis as of September 30, 1998, and on a pro forma basis as of
September 30, 1998, based on completion of the Recapitalization Plan (i)
assuming the minimum purchase by Demeter, Phemus and Capricorn of 664,028
shares pursuant to their stand-by purchase commitment and (ii) assuming the
maximum exercise of all 2,829,511 rights. The net proceeds from the
Recapitalization Plan will be applied as set forth above in Use of Proceeds.
Amounts shown are in thousands, except number of outstanding shares.
<TABLE>
<CAPTION>
September 30, 1998
------------------------------
Pro Forma
------------------
Historical Minimum Maximum
---------- -------- --------
<S> <C> <C> <C>
Debt:
Warehouse Credit Facility $ 293,171 $293,171 $293,171
Subordinated Debt 20,000 0 0
Servicing Acquisition Line 4,712 4,712 4,712
Revolving Credit Facility 36,883 36,883 26,883
--------- -------- --------
Total Debt 354,766 334,766 324,766
--------- -------- --------
Stockholders' Equity:
Common stock, par value $.01 per share,
25,000,000 shares authorized; 5,299,383,
9,751,383 and 11,916,866 issued and
oustanding, respectively 53 97 119
Additional paid-in capital 39,943 59,899 70,703
Retained deficit (30,330) (30,330) (30,330)
--------- -------- --------
Total Stockholders' Equity: $ 9,666 $ 29,666 $ 40,492
--------- -------- --------
Total Capitalization: 364,432 364,432 365,258
========= ======== ========
</TABLE>
42
Capitalization
<PAGE>
PLAN OF DISTRIBUTION
On or about February 5, 1999, the Company will distribute the rights and copies
of this prospectus to individuals who owned shares of common stock on February
1, 1999. If you wish to exercise your rights and purchase shares of common
stock, you should complete the Subscription Certificate and return it, with
payment for the shares, to the Subscription Agent, Boston EquiServe, L.P., at
the address on page 39. See "The Rights Offering - Exercise Of Rights."
If you have any questions, you should contact the Company's Information Agent,
D.F. King & Co., Inc. at the telephone number and address on page 40. At the
conclusion of the rights offering, the Company will pay D.F. King & Co. a fee
of $8,000 for its services as Information Agent.
To guarantee the Company minimum proceeds of approximately $3,320,140 from this
rights offering, Demeter, Phemus and Capricorn have entered into a Stand-by
Purchase Agreement. Under that agreement, if the Company sells fewer than
2,829,511 shares of common stock during the rights offering, then Demeter,
Phemus and Capricorn will buy, for $5.00 per share, a total of the lesser of
(A) 664,028 shares of the Company's capital stock or (B) 2,829,511 shares,
minus the number of shares sold during the rights offering. Demeter will
purchase 75.84 percent of any shares purchased pursuant to the Stand-by
Purchase Agreement, while Phemus will purchase 4.16 percent of such shares, and
Capricorn will purchase 20 percent of such shares.
BT Alex. Brown Incorporated has acted as the Company's financial advisor in
connection with the rights offering, for which it will be paid a customary fee.
43
Plan of Distribution
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS
The following summarizes the material federal income tax considerations of the
rights offering to you and the Company. This summary is based on current law,
which is subject to change at any time, possibly with retroactive effect. This
summary is not a complete discussion of all federal income tax consequences of
the rights offering and, in particular, may not address federal income tax
consequences applicable to Company shareholders subject to special treatment
under federal income tax law. In addition, this summary does not address the
tax consequences of the rights offering under applicable state, local or
foreign tax laws. This discussion assumes that your shares of common stock and
the rights and shares issued to you during the rights offering constitute
capital assets.
Receipt and exercise of the rights distributed pursuant to the rights offering
is intended to be nontaxable to Company shareholders, and the following summary
assumes they will qualify for such nontaxable treatment. If, however, the
rights offering does not qualify as a nontaxable distribution, you would be
treated as receiving a dividend equal to the fair market value of the rights on
their distribution date and expiration of the rights would result in a capital
loss.
This discussion is included for your general information only. You should
consult your tax advisor to determine the tax consequences to you of the rights
offering in light of your particular circumstances, including any state, local
and foreign tax consequences.
Taxation Of Stockholders
Receipt of a Right. You will not recognize any gain or other income upon
receipt of a right.
Tax Basis and Holding Period of Rights. Your tax basis in each right will
depend on whether you exercise the right, transfer the right or allow the right
to expire.
If you exercise or transfer a right, your tax basis in the right will be
determined by allocating the tax basis of your common stock on which the right
is distributed between the common stock and the right, in proportion to their
relative fair market values on the date of distribution of the right. However,
if the fair market value of your rights is less than 15 percent of the fair
market value of your existing shares of common stock, then the tax basis of
each right will be deemed to be zero, unless you elect, by attaching an
election statement to your federal income tax return for 1999, to allocate tax
basis to your rights.
If you allow a right to expire, it will be treated as having no tax basis.
Your holding period for a right will include your holding period for the share
of common stock upon which the right is issued.
Expiration of Rights. You will not recognize any loss upon the expiration of a
right.
Transfer of Rights. If you sell any of your rights, you will recognize a gain
or loss equal to the difference between the sale proceeds and your basis (if
any) in the rights sold. If your holding period for the rights (determined as
described above) is more than one year, such gain or loss generally will be
long-term capital gain or loss.
Exercise of Rights. You generally will not recognize a gain or loss on the
exercise of a right. The tax basis of any share of common stock that you
purchase through the rights offering will be equal to the sum of your tax basis
(if any) in the right exercised and the price paid for the share. The holding
period of the shares of common stock purchased through the rights offering will
begin on the date that you exercise your rights.
Taxation Of The Company
The Company will not recognize any gain, other income or loss upon the issuance
of the rights, the lapse of the rights, or the receipt of payment for shares of
common stock upon exercise of the rights.
44
Federal Income Tax Considerations
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's common stock is listed for quotation under the symbol "WMFG" on
The Nasdaq National Market. The following table sets forth the high and low
per-share closing prices for the Company's common stock for each quarterly
period since the completion of the Company's initial public offering on
December 8, 1997.
<TABLE>
<CAPTION>
Calendar Year High Low
------------- ------ -------
<S> <C> <C>
1997
Fourth Quarter (from December 9, 1997) $14 $12 1/8
1998
First Quarter 32 1/2 11 1/8
Second Quarter 28 1/4 19 5/8
Third Quarter 29 5
Fourth Quarter 8 1/4 3 7/8
1999
First Quarter (through January 31, 1999) 6 1/4 5 3/4
</TABLE>
As of February 1, 1999, there were 253 holders of record of the Company's
common stock. The Company believes, based on the number of proxy materials
distributed in connection with its 1998 Annual Meeting of Stockholders, that
the number of beneficial owners as of that date exceeds 1,500.
45
Price Range of Common Stock
<PAGE>
SELECTED FINANCIAL DATA
Set forth on the following page is selected financial data of the Company for
the nine months ended September 30, 1998 and 1997, and for the years ended
December 31, 1997, 1996 and 1995. The selected financial data has been derived
from, and should be read in conjunction with, the unaudited consolidated
financial statements and accompanying notes included in the Company's Quarterly
Report on Form 10-Q/A for the nine months ended September 30, 1998 and 1997 and
the audited consolidated financial statements and accompanying notes included
in the Company's Annual Report on Form 10-K for the year ended December 31,
1997.
The unaudited financial statements include all adjustments, consisting of
normal recurring accruals, which the Company considered necessary for a fair
presentation of the Company's financial position and the results of operations
for those periods. Operating results for the nine months ended September 30,
1998, are not necessarily indicative of results that may be expected for the
year ending December 31, 1998. The selected financial data below should be read
in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's financial statements and
notes contained in the reports listed in the previous paragraph, which are
incorporated by reference herein.
46
Selected Financial Data
<PAGE>
Selected Consolidated Financial Data
(In thousands, except per share data)
<TABLE>
<CAPTION>
WMF Holdings Ltd. and
The Company Subsidiaries
----------------------------------- --------------------------
For the For the
Nine Months Nine Months Period Period
Ended Ended Pro Forma April 1 to January 1, to Year Ended
September 30, September 30, December 31, December 31, March 31, December 31,
1998 1997 1997 1996 (/1/) 1996 1996 1995
------------- ------------- ------- ------------ ------------ ------------- ------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data
Revenues $ 50,802 $29,497 $44,645 $30,301 $23,473 $ 6,828 $ 21,999
Expenses 84,729 27,773 42,203 29,416 22,318 6,523 21,222
Net income (loss) (33,927) 1,724 2,442 885 1,155 305 777
Net income (loss) per
share-Basic (/2/) (6.53) 0.41 0.57 0.21 0.27 0.07 0.16
Weighted average shares
outstanding-Basic (/2/) 5,199 4,217 4,273 4,217 4,217 4,217 4,717
Net income (loss) per
share-Diluted (/2/) (6.53) 0.41 0.55 0.21 0.27 0.07 0.16
Weighted average shares
outstanding-Diluted
(/2/) 5,199 4,217 4,453 4,217 4,217 4,217 4,717
Balance Sheet Data
Mortgage loans held for
sale $ 306,153 $35,650 $49,431 $40,263 $23,116 $ 32,462
Servicing rights 28,147 22,520 26,796 22,460 8,477 8,466
Total assets 698,836 93,783 119,331 88,097 48,976 57,176
Total debt (/3/) 354,402 40,586 59,904 46,137 34,108 43,304
Shareholders' equity 9,666 24,252 38,825 22,528 4,324 4,018
- -------------------------------------------------------------------------------------------------------------------
Other Data
Cash Flow from
Operating activities
(/4/) $(302,079) $16,098 $ (881) $ 3,395 $(6,588) $ 9,983 $(21,897)
Investing activities
(/4/) 3,510 (8,715) (21,463) (9,624) (9,276) (548) (2,343)
Financing activities
(/4/) 299,266 (5,550) 26,529 7,833 17,029 (9,196) 26,833
EBITDA (/5/) (43,981) 8,440 11,439 8,256 6,502 1,754 4,743
</TABLE>
- ------------------------
/1/On April 1, 1996, NHP, Incorporated acquired all of the outstanding
capital stock of the Company (the "Acquisition"). This data has been adjusted
to reflect results of operations for the twelve months ended December 31, 1996,
as if the Acquisition had occurred January 1, 1996. Adjustments include all
income amounts for the three months ended March 31, 1996 and additional
amortization of $575,647.
/2/Gives retroactive effect to a 789.94 per share stock split effective
October 3, 1997.
/3/Includes $5,000,000 of notes to the Company's former shareholder as of
March 31, 1996 and December 31, 1995, which were repaid in conjunction with the
Acquisition.
/4/Operating, investing and financing cash flow represents the amount of
cash generated from operating, investing and financing activities,
respectively, as determined using GAAP.
/5/EBITDA is a non-GAAP presentation of the Company's performance and
consists of income from operations before non-warehouse interest expense,
income taxes, depreciation and amortization. EBITDA is included because it is
used in the industry as a measure of a company's operating performance and
provides information in addition to that supplied by GAAP-based data regarding
the ability of the Company's business to generate cash, but should not be
construed as an alternative either (i) to income from operations (determined in
accordance with GAAP) as a measure of profitability or (ii) to cash flows from
operating activity (determined in accordance with GAAP). EBITDA does not take
into account the Company's debt service requirements and other commitments and,
accordingly, is not necessarily indicative of amounts that may be available for
discretionary uses. EBITDA as measured by the Company may not be comparable to
EBITDA as measured by other companies.
47
Selected Financial Data
<PAGE>
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered hereby will
be passed upon for the Company by Hunton & Williams, Richmond, Virginia.
EXPERTS
The consolidated balance sheet of the Company and its subsidiaries as of
December 31, 1997, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for the years ended December 31,
1997 and December 31, 1995, and all related schedules have been incorporated
herein in reliance on the reports of KPMG LLP, independent accountants, given
on the authority of that firm as experts in accounting and auditing.
The consolidated balance sheets of the Company and its subsidiaries as of
December 31, 1996, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for the year ended December 31,
1996, and all related schedules have been incorporated herein in reliance on
the reports of Arthur Andersen LLP, independent accountants, given on the
authority of that firm as experts in accounting and auditing.
48
Legal Matters/Experts
<PAGE>
IF YOU WOULD LIKE ADDITIONAL INFORMATION
The Company files annual, quarterly and special reports, proxy statements and
other information with the U.S. Securities and Exchange Commission ("SEC"). You
may read and copy this information at the SEC's public reference rooms, which
are located at:
450 Fifth Street, NW 7 World Trade Center, Suite
Washington, DC 20549 1300
New York, NY 10048
500 West Madison Street, Suite 1400
Chicago, IL 60661-2511
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. This information is also available on-line through the SEC's
Electronic Data Gathering, Analysis, and Retrieval System (EDGAR), located on
the SEC's web site (http://www.sec.gov.).
Also, the Company will provide you (free of charge) with any of its documents
filed with the SEC. To get your free copies, please call or write:
Michael D. Ketcham
Chief Financial Officer
1593 Spring Hill Road, Suite 400
Vienna, VA 22182
(703) 610-1400
The Company has filed a Registration Statement with the SEC on Form S-3 with
respect to the rights offering. This prospectus is a part of the Registration
Statement, but the prospectus does not repeat important information that you
can find in the Registration Statement, reports and other documents that the
Company filed with the SEC. The SEC allows the Company to "incorporate by
reference" those documents, which means that the Company can disclose important
information to you by referring you to other documents. The documents that are
incorporated by reference are legally considered to be a part of this
prospectus. The documents incorporated by reference are:
(1) Annual Report on Form 10-K for the year ended December 31, 1997;
(2) Quarterly Report on Form 10-Q for the period ended March 31, 1998;
Quarterly Report on Form 10-Q for the period ended June 30, 1998, as
amended by Form 10-Q/A filed December 21, 1998; Quarterly Report on
Form 10-Q for the period ended September 30, 1998, as amended by
Form 10-Q/A filed December 22, 1998;
(3) Current Report on Form 8-K filed January 8, 1998; Current Report on
Form 8-K filed September 26, 1998; Current Report on Form 8-K filed
January 13, 1999;
(4) The description of the common stock contained in the Company's
Registration Statement on Form 10, as filed with the Commission on
August 4, 1997, as amended on September 22, 1997, October 8, 1997
and November 19, 1997;
(5) Any filings with the SEC pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act of 1934 between the date of this
prospectus and the expiration of the rights offering.
As you read the above documents, you may find some inconsistencies in
information from one document to another. If you find inconsistencies between
the documents, or between a document and this prospectus, you should rely on
the statements made in the most recent document.
You should rely only on the information in this prospectus or incorporated by
reference. The Company has not authorized anyone to provide you with any
different information.
49
If You Would Like Additional Information
<PAGE>
- -------------------------------------------------------------------------------
Prospective investors may rely on the information contained in this
prospectus. The Company has not authorized anyone to provide prospective
investors with information different from that contained in this prospectus.
This prospectus is not an offer to sell nor is it seeking an offer to buy
these securities in any state where the offer or sale is not permitted. This
prospectus is not an offer to sell nor is it seeking an offer to buy
securities other than the shares of common stock to be issued pursuant to the
rights offering. The information contained in this prospectus is correct only
as of the date of this prospectus, regardless of the time of the delivery of
this prospectus or any sale of these securities.
------------
No action is being taken in any jurisdiction outside the United States to
permit a public offering of the common stock or possession or distribution of
this prospectus in any such jurisdiction. Persons who come into possession of
this prospectus in jurisdictions outside the United States are required to
inform themselves about and to observe any restrictions as to this offering
and the distribution of this prospectus applicable in the jurisdiction.
2,829,511 Shares
The WMF Group, Ltd.
Common Stock
------------
PROSPECTUS
------------
February 5, 1999
- -------------------------------------------------------------------------------
