<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the period ended: March 31, 1999
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Commission File Number 000-22567
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THE WMF GROUP, LTD.
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(Exact name of registrant as specified in its charter)
Delaware 54-1647759
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(State or other jurisdiction of (I.R.S Employer
incorporation or organization) identification no.)
1593 Spring Hill Road, Suite 400, Vienna, Virginia 22182
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including are code (703) 610-1400
----------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days, Yes X No
--- ---
Common Stock, $.01 par value, outstanding as of May 14, 1999
11,294,935 Shares of Common Stock
<PAGE>
The WMF GROUP, LTD.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Part I Financial Information
------ ----------------------
<S> <C>
Item 1. Financial Statements.
1 Consolidated Balance Sheets
As of March 31, 1999 (unaudited) and December 31, 1998
2 Consolidated Statements of Operations for the
Three Months Ended March 31, 1999 and 1998 (unaudited),
3 Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1999 and 1998 (unaudited),
4 Notes to Unaudited Consolidated Financial Statements
Item 2.
6 Management's Discussion and Analysis of Financial Condition
and Results of Operations
Part II. Other Information
-------- -----------------
Item 1.
11 Legal Proceedings
Items 2 - 5
11 None
Item 6.
11 Exhibits and Reports on Form 8-K
13 Signatures
</TABLE>
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
The WMF GROUP, LTD.
Consolidated Balance Sheets
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
As of As of
March 31, December 31,
1999 1998
------------- ------------
(Unaudited)
<S> <C> <C>
(ASSETS)
Cash and cash equivalents 9,986 $ 8,897
Restricted cash 8,772 13,398
Mortgage-backed securities 6,187 6,195
Mortgage loans held for sale, pledged 105,409 34,217
Principal, interest and other servicing advances 2,263 2,588
Investment 5,861 3,780
Furniture, equipment and leasehold improvements, net 4,870 5,011
Servicing rights, net 27,417 26,243
Goodwill, net 21,915 22,360
Deferred tax asset, net 18,080 17,290
Other assets 4,130 4,548
-------- --------
Total assets $214,890 $144,527
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses 11,786 $ 15,455
Escrow Payable 6,195 10,853
Subordinated Note - 3,901
Warehouse lines of credit 104,980 34,757
Servicing acquisition line of credit - 4,212
Revolving credit facility 19,331 36,281
Term Loan 24,375 -
Deferred fees 4,927 5,437
Accrued loan servicing losses 6,573 6,253
-------- --------
Total liabilities 178,167 117,149
-------- --------
Stockholders' equity:
Preferred stock, 12,500,000 shares
authorized; 0 and 3,635,972 shares issued
and outstanding in 1999 and 1998, respectively - 16,541
Common stock, $.01 par value, 25,000,000
shares authorized; 11,294,935 and 5,349,403
issued and outstanding, respectively 111 53
Additional paid-in capital 67,596 40,509
Retained earnings (benefit) (30,984) (29,725)
-------- --------
Total stockholders' equity 36,723 27,378
-------- --------
Total liabilities and stockholders' equity $214,890 $144,527
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
THE WMF GROUP, LTD.
Consolidated Statements of Operations
(dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1999 1998
---- ----
<S> <C> <C>
Revenues:
Servicing fees $ 3,626 $ 3,694
Gain on sale of mortgage loans, net 5,873 5,233
Interest income 939 1,156
Placement fee income 2,023 2,061
Management fee income 304 -
Other income 337 1,144
------- -------
Total Revenues 13,102 13,288
------- -------
Expenses:
Salaries and employee benefits 7,095 6,271
General and administrative 2,890 3,073
Occupancy 1,618 838
Provision for loan servicing losses 320 254
Interest 891 578
Amortization of servicing rights 1,286 1,074
Depreciation and amortization 778 621
------- -------
Total Expenses 14,877 12,709
------- -------
Income (loss) before income tax expense (1,775) 579
Income tax expense (benefit) (517) 298
------- -------
Net income (loss) $(1,258) $ 281
======= =======
Net income (loss) per share - Basic $ (.15) $ 0.06
======= =======
Net income (loss) per share - Diluted $ (.15) $ 0.05
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
Statements.
<PAGE>
THE WMF GROUP, LTD.
Consolidated Statements Of Cash Flows
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,258) $ 281
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of furniture, equipment
and leasehold improvements 333 243
Amortization of mortgage servicing rights 1,286 1,074
Amortization of goodwill 445 378
Compensation related to stock options 15 160
Provision for loan servicing losses 320 254
Deferred taxes, net (790)
Mortgage loans originated (246,718) (601,013)
Mortgage loans sold 175,526 594,337
Decrease (increase) in principal, interest
and other servicing advances 325 264
Increase in due to affiliates - -
Increase (decrease)in restricted cash (4,626) (510)
Decrease in other assets 418 342
Decrease in accounts payable and accrued expenses (3,669) (2,206)
Decrease in escrow payable (4,658)
Increase (decrease) in deferred fees (510) 467
------------ ------------
Net cash provided by (used in) operating activities (74,309) (7,712)
------------ ------------
Cash flows from investing activities:
Purchase of furniture, equipment and leasehold improvements (192) (1,142)
Purchase of mortgage servicing rights - ( 762)
Origination of mortgage servicing rights (2,460) (1,136)
Repayment of mortgage backed securities (8) -
Assets acquired and liabilities assumed, net of cash - (4,273)
Investment in subsidiary (2,081) -
------------ ------------
Net cash used in investing activities (4,741) (7,313)
------------ ------------
Cash flows from financing activities:
Repayment of servicing acquisition line of credit (4,212) (250)
Increase in warehouse lines of credit, net 70,223 6,258
Repayment of revolving credit facility (16,950) -
Conversion of Preferred Stock (16,541) -
Increase in term loan 24,375 17,649
Issuance of common stock and exercise of stock options 27,145 2,558
Repayment of subordinated note (3,901) -
------------ ------------
Net cash (used) provided by financing activities 80,139 26,215
------------ ------------
Net increase (decrease) in cash 1,089 11,190
Cash at beginning of period 8,897 10,786
------------ ------------
Cash at end of period $ 9,986 $ 21,976
============ ============
Supplemental disclosures:
Cash paid during the period for interest $ 1,471 $ 489
Cash paid during the period for income taxes 602 336
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
THE WMF GROUP, LTD.
Notes to unaudited consolidated financial statements
(dollar in thousands, except per share data)
1. ORGANIZATION:
The WMF Group, Ltd. (the "Company") is one of the largest independent
commercial mortgage bankers in the United States as measured by servicing
portfolio size based on the 1998 survey published by the Mortgage Bankers
Association of America ("MBA"), the largest originator of Federal National
Mortgage Association ("Fannie Mae") multifamily loans based on statistics
provided by Fannie Mae, and the largest originator of Federal Housing
Administration ("FHA") insured multifamily and healthcare loans based on
statistics provided by the United States Department of Housing and Urban
Development ("HUD"). The Company originates, underwrites, structures, places,
sells and services multifamily and commercial real estate loans. In the second
quarter of 1998, the Company entered the commercial mortgage investment funds
management and special asset management businesses. Through its relationships
with Government Sponsored Enterprises ("GSEs"), investment banks, life insurance
companies, commercial banks and other investors, the Company provides and
arranges financing to owners of multifamily and commercial real estate on a
nationwide basis using both a retail and wholesale network. The Company
generates revenues through origination fees, servicing fees, net interest income
on loans held for sale, placement fees and funds management fees. In the fourth
quarter of 1998, the Company terminated conduit operations at WMF Capital Corp.
and formed a conduit processing unit within WMF Washington Mortgage Corp.
The Company does not plan to hold loans for sale without a pre-arranged take-out
commitment from a third party mortgage investor.
The Company is a Delaware corporation formed in October 1992. The Company
has three direct wholly owned subsidiaries: WMF Washington Mortgage Corp. ("WMF
Washington Mortgage"), WMF Capital Corp. ("Capital Corp."), and WMF Carbon Mesa
Advisors, Inc. ("Carbon Mesa Advisors"), which are incorporated under the laws
of Delaware. WMF Washington Mortgage's wholly owned subsidiaries are WMF
Huntoon, Paige Associates Limited ("WMF Huntoon Paige"), WMF Proctor Ltd. ("WMF
Proctor"), and WMF Robert C. Wilson Ltd. ("WMF Robert C. Wilson"), which are
incorporated under the laws of the states of Delaware, Michigan and Texas,
respectively.
2. BASIS OF PRESENTATION:
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All material inter-company balances and
transactions have been eliminated in consolidation.
The consolidated financial statements of the Company at March 31, 1999
and for the three month periods ended March 31, 1999 and 1998 included herein
are unaudited, and include all adjustments necessary for the fair presentation
of the financial position, results of operations and cash flows of the Company
as of and for the periods presented. All such adjustments are of a normal
recurring nature. Interim results are not necessarily indicative of results that
may be expected for the full year.
3. BALANCE SHEET CLASSIFICATION:
The Company prepares its consolidated balance sheet using an unclassified
balance sheet presentation as is customary in the mortgage banking industry. A
classified presentation would have aggregated current assets, current
liabilities, and net working capital as follows:
<PAGE>
<TABLE>
<CAPTION>
As of As of
March 31, December 31,
1999 1998
--------- ---------
<S> <C> <C>
Current assets $ 121,527 $ 49,980
Current liabilities 121,693 55,649
--------- ---------
Net working capital (deficit) $ (166) $ ( 5,669)
========= =========
</TABLE>
4. Debt Facilities:
On February 10, 1999, the Company refinanced its $150 million warehouse
line of credit, $4.2 million term loan, $35 million secured line of credit and
$10 million secured line of credit. These facilities were replaced with a $150
million warehouse line of credit, a $25 million secured term loan, and a $25
million secured line of credit. The Company maintained an outstanding balance of
$149 million under these credit facilities at March 31, 1999. The agreement
requires the Company to maintain certain financial ratios relating to liquidity,
leverage, working capital and net worth, among other restrictions. On March 31,
1999, the Company was in compliance with the provisions of the debt covenants.
The Company repaid its remaining $3.9 million subordinated note balance to
Commercial Mortgage Investment Trust, Inc. ("COMIT") on March 19, 1999. The
subordinated note balance and related interest were repaid from proceeds
received from a rights offering of the Company's common stock.
5. RECENT ACCOUNTING PRONOUNCEMENTS:
In June 1998, SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities was issued. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives), and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. The accounting for changes in the fair value of
a derivative depends on the intended use of the derivative and resulting
designation. If certain conditions are met, a derivative may be specifically
designated as (a) a hedge of certain exposures to variable cash flows of a
recognized asset or liability or an unrecognized firm commitment, (b) a hedge of
the exposure to variable cash flows of a recognized asset or liability or of a
forecasted transaction, or (c) a hedge of foreign currency exposures. SFAS No.
133 is effective for all fiscal quarters of fiscal years beginning after June
15, 1999. Earlier adoption is permitted. The Company has not yet determined the
impact, if any, of this statement, including its provisions for the potential
reclassifications of investment securities, on earnings, financial condition, or
equity.
6. LITIGATION:
Two lawsuits have been filed against Capital Corp. alleging, among other
things, breach of contract by Capital Corp. due to its failure to fund certain
loan commitments issued by it. The Company is also named as a defendant in one
of the lawsuits. An adverse judgment in these matters against Capital Corp.
would be material to Capital Corp., and if against the Company, could be
material to the Company. Capital Corp. is attempting to resolve the matters by
settlement and compromise, but no assurances can be given that such attempts
will be successful. The Company does not anticipate a material adverse judgment
against it in the case where it is named as a defendant.
<PAGE>
The Company is involved in other litigation related to the normal course
of its business. Management is of the opinion that the litigation will not have
a material adverse impact on the Company's financial position or operating
results. No amounts have been accrued because the loss, if any, cannot be
reasonably estimated.
7. COMMITMENTS:
The Company enters into commitments to extend credit to borrowers in the
normal course of business. Normally, the Company simultaneously commits to sell
the loan to an appropriate investor. Because the commitment for the loan
normally occurs simultaneously with the investor commitment, the Company limits
its exposure to interest rate changes for these transactions. As of March 31,
1999 Capital Corp. had commitments outstanding to extend credit to borrowers of
$65.8 million without pre-existing investor sale commitments. In the event there
are significant fluctuations in interest rates and spreads during the term of
these commitments, the change in value of the commitments could have a material
adverse effect on Capital Corp.'s future operating results and consequently
Capital Corp.'s ability to honor commitments.
At March 31, 1999 and 1998, the Company had floating rate commitments
outstanding to originate $354 million and $432 million respectively, in
multifamily and commercial mortgage loans and mandatory delivery commitments in
the amount of $234 million and $306 million, respectively, to cover the
Company's origination commitments and loans held for sale.
8. SERVICING RIGHTS:
Under the provisions of SFAS 122, the Company capitalizes retained servicing
rights after the origination and sale of the related loan by allocating the
total cost incurred between the loan and the servicing rights based on their
relative fair value if it is practicable to determine the mortgage servicing
rights' fair value. If it is not practicable to determine the servicing rights'
fair value, then no value is allocated to the servicing rights. After the first
observed sale of servicing rights under the Fannie May Delegated Underwriting
and Servicing Program ("DUS") in the first quarter of 1999, the Company
evaluated its mortgage servicing rights capitalization policy and concluded that
market condition changes made it practicable to estimate the fair value of DUS
servicing rights. For the three months ended March 31, 1999, the Company
recognized gains totaling $918,000 related to the origination of DUS servicing
rights. Prior to the first quarter 1999, the Company had determined that it was
only practicable to estimate the fair value of servicing rights related to
permanent FHA and conduit originated loans.
9. STOCKHOLDERS EQUITY:
On December 31, 1998, the Company's three largest shareholders 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. On January 14, 1999, each
outstanding share of Class A Stock was converted into one share of the Company's
common stock. As a result of the conversion, the Company's three largest
shareholders received a total of 3,635,972 shares of common stock.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
All statements contained herein that are not historical facts, including
but not limited to statements regarding anticipated future capital requirements,
the Company's future acquisition and development plans, the Company's ability to
obtain additional debt, equity or other financing, and the Company's ability to
generate cash from operations and further savings from existing operations, are
based on current expectations. These statements are forward looking in nature
and involve a number of risks and uncertainties. Actual results may differ
materially from those projected, estimated, assumed or anticipated. Among the
factors that could cause actual results to differ are the following: the
availability of sufficient capital to finance the Company's business plan on
terms satisfactory to the Company; competitive factors, such as changes in fees
earned from originating and servicing multifamily and commercial mortgage loans,
the introduction of new competitors, future acquisitions and strategic
partnerships; general business and economic conditions; and the other risk
factors described in the Company's 1998 Annual Report on Form 10-K and from time
to time in the Company's other reports filed with the Securities and Exchange
Commission. Readers should not place undue reliance on any such forward-looking
statements, which are made pursuant to the Private Securities Litigation Reform
Act of 1995.
OVERVIEW
Although it incurred significant losses in 1998, since 1996, the Company
has experienced significant growth in its revenues, annual loan production
volume and servicing volume. The Company seeks to continue to expand its
business through (i) acquisitions, (ii) internal growth, (iii) design and
delivery of new mortgage products, (iv) expansion into related businesses, and
(v) diversification of fee income sources. On a going-forward basis, to the
extent that the Company is successful in completing acquisitions, the Company
will experience increased expenses associated with the amortization of goodwill
and acquired mortgage servicing rights and, if the acquisitions are financed by
additional indebtedness, an increase in interest expense. Through its
acquisitions, the Company's primary focus is to increase its mortgage
origination capabilities and servicing portfolio as well as to expand into
related businesses. Accordingly, such acquisitions may result in a short-term
decrease in income from operations during the period from acquisition through a
period necessary to integrate the acquired companies.
The Company analyzes its operations through three business segments:
mortgage banking, capital markets and advisory services. The mortgage banking
business segment consists of corporate administrative expenses and the
activities of WMF Washington Mortgage and its subsidiaries: WMF Proctor, WMF
Huntoon Paige and WMF Robert C. Wilson. The capital markets business segment
consists of Capital Corp., and the advisory services segment consists of Carbon
Mesa Advisors.
<PAGE>
RESULTS OF OPERATIONS - SUMMARY
The Company's primary business activities are commercial and multifamily
loan servicing, loan origination and sales of the loans to investors in the
secondary market. With the formation of Capital Corp. and Carbon Mesa Advisors,
the Company operated a commercial mortgage conduit, manages commercial mortgage
investment funds and provides special asset management services. The Company
manages its operations through three business segments: mortgage banking,
capital markets, and advisory services. Revenues from mortgage banking
activities are earned from the origination of commercial and multifamily real
estate mortgage loans and the servicing of such loans. The Company's revenue
includes loan servicing fees, gains on sale of mortgage loans (including related
gains on originated servicing rights), interest income on loans prior to sale,
"placement fees" (revenue earned relating to utilization of escrow funds),
origination fee income and other income. In capital markets, the principal
sources of revenue include gain on the sale of mortgage loans, gains on the sale
of servicing and interest income on loans prior to securitization. Structuring
fee income, management fees and origination fees represent the major sources of
income for the advisory services segement. Through an ownership interest in
COMIT, the Company also invests in structured real estate debt.
The Company's revenue is significantly influenced by the timing of
origination, sales and securitization of mortgage loans and is somewhat
sensitive to economic factors such as the general level of interest rates and
demand for commercial and multifamily real estate. As a result, future revenues
may fluctuate due to changes in these factors. The Company expects that as it
expands into new businesses the sources of revenues will change. Therefore, the
Company's historical results may not be indicative of future periods.
The following table sets forth information derived from the Company's
consolidated statements of operations and reconciles the summary segment
financial information to the consolidated statements of operations for each of
the periods presented:
Summary Financial Information
Results of Operations
(dollars in thousands)
<TABLE>
<CAPTION>
Three months Three months
Ended Ended
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Revenues
Mortgage Banking *** $ 12,802 $ 13,196
Capital Markets 30 92
Advisory Services 270 -
-------- --------
Total 13,102 13,288
Consolidated Statement 13,102 13,288
-------- --------
Expenses
Mortgage Banking *** 13,086 11,908
Capital Markets 565 590
Advisory Services 570 -
-------- --------
Total 14,221 12,709
Consolidated Statement 14,221 12,709
Non-operating interest income 656 211
Pretax Income (Loss) (1,775) 579
Provision (Benefit) for Taxes (517) 298
-------- --------
Net Income (Loss) (1,258) 281
======== ========
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Consolidated EBITDA 945 2,485
Mortgage Banking EBITDA *** 1,704 2,948
Capital Markets EBITDA (535) (462)
Advisory Services EBITDA (224) -
</TABLE>
*** Mortgage Banking operations includes corporate administrative expenses.
The following table sets forth information derived from the Company's
consolidated balance sheet for each of the periods presented and a
reconciliation to the Company's consolidated balance sheet:
<TABLE>
<S> <C> <C>
Assets
Mortgage Banking *** $202,638 $112,841
Capital Markets 7,321 31,686
Advisory Services 4,931 -
-------- --------
Total $214,890 $144,527
Consolidated Statement 214,890 144,527
</TABLE>
*** Mortgage Banking operations includes corporate administrative expenses.
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE THREE MONTHS ENDED MARCH
31,1998
Net income (loss) was ($1.3) million for the three months ended March 31,
1999 and $281,000 for the three months ended March 31, 1998.
The Company's earnings before non-operating interest expense, income
taxes, depreciation and amortization ("EBITDA") for the three months ended March
31, 1999 was $945,000 compared with $2.5 million for the same period of 1998, a
decrease of $1.6 million or 64%. The decrease in EBITDA for the three months
ended March 31, 1999 is attributable primarily to increased salaries, benefits
and occupancy costs over the three months ended March 31, 1998.
EBITDA is widely used in the industry as a measure of a company's
operating performance, but should not be considered as an alternative to either
(i) income from continuing operations (determined in accordance with generally
accepted accounting principles) as a measure of profitability or (ii) cash flows
from operating activities (determined in accordance with generally accepted
accounting principles). 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.
Mortgage Banking
Servicing fees earned in the mortgage banking segment were $3.6 million
for the three months ended March 31, 1999, a decrease of $68,000 or 1.8% from
$3.7 million for the same period in 1998. Revenue related to mortgage servicing
is based upon the unpaid principal balance of loans serviced. Mortgage banking
operations increased its total servicing portfolio by 10% from $10.9 billion as
of March 31, 1998 to $12.0 million at March 31, 1999. Servicing fees, however,
declined due to an increased mix of life insurance company servicing and master
servicing in the Company's servicing portfolio. The Company earns lower fees on
life insurance servicing and master servicing than on primary servicing for
Fannie Mae and FHA mortgages.
Gain on sale of mortgage loans was $3.4 million for the three months
ended March 31, 1999, a decrease of $700,000 or 17.1% from $4.1 million for the
three months ended March 31, 1998. For the three months ended March 31, 1999 and
1998, the Company sold $359 million and $594 million mortgage loans,
respectively. The decrease in gain on sale of mortgage loans is a result of the
decrease in loan origination fees and includes the gain on recognizing
originated mortgage servicing rights in the amount of $2.5 million and $1.1
million for the three months ended March 31, 1999 and March 31, 1998,
respectively.
<PAGE>
Under the provisions of SFAS 122, the Company capitalizes retained
servicing rights after the origination and sale of the related loan by
allocating the total cost incurred between the loan and the servicing rights
based on their relative fair value if it is practicable to determine the
mortgage servicing rights' fair value. If it is not practicable to determine the
servicing rights' fair value, then no value is allocated to the servicing
rights. After the first observed sale of servicing rights under the Fannie Mae
Delegated Underwriting and Servicing Program ("DUS") in the first quarter of
1999, the Company evaluated its mortgage servicing rights capitalization policy
and concluded that market condition changes made it practicable to estimate the
fair value of DUS servicing rights. For the three months ended March 31, 1999,
the Company recognized gains totaling $918,000 related to the origination of DUS
servicing rights. Prior to the first quarter 1999, the Company had determined
that it was only practicable to estimate the fair value of servicing rights
related to permanent FHA and conduit originated loans.
Interest income was $931,000 for the three months ended March 31, 1999, a
decrease of $133,000 or 12.5% from $1.1 million for the three months March 31,
1998. This decrease was due to the decrease in loan originations for the three
months ended March 31, 1999 compared to the three months ended March 31, 1998.
Placement fee income was $2.0 million for the three months ended March
31, 1999, a decrease of $38,000 or 1.8% from $2.1 million for the three months
ended March 31, 1998. This decrease was the result of the Company's increased
use of investor escrow balances held by the Company as compensating balances to
reduce the interest rate on its credit facilities. This decrease was partially
offset by the receipt of $500,000 in placement fees during the first quarter of
1999, which had been previously underpaid by a third party financial
institution.
Other income (which includes prepayment penalties, termination fees, loan
management fees and brokerage fees) was $337,000 for the three months ended
March 31, 1999, a decrease of $807,000 or 73.4% from $1.1 million for the three
months ended March 31,1998. The decrease was the result of decreased prepayment
penalties, termination fees, loan management fees, brokerage fees and extension
fees.
Mortgage banking segment's total expenses consist of salaries and
benefits (including commissions), other general and administrative expenses,
provision for servicing losses, operating interest expense, amortization of
mortgage servicing rights, and other depreciation and amortization. Mortgage
banking's expenses include corporate administrative expenses.
Salaries and benefits, the largest category of costs for the Company,
increased $339,000, or 5.7%, from $5.9 million for the three months ended March
31, 1998 to $6.3 million for the three months ended March 31, 1999. This
increase is due primarily to the addition of a conduit processing group.
General and administrative expenses consist of professional fees, travel,
management information, telephone and equipment rental, and other expenses.
General and administrative expenses were $2.9 million for the three months ended
March 31, 1999 and $3.1 million for the three months ended March 31, 1998. The
decrease of $183,000 is a result of the Company's previously announced cost
reduction program.
Occupancy expense was $1.4 million for the three months ended March 31,
1999, an increase of $622,000 or 80.2% from $776,000 for the same period in
1998. This increase was due to the costs associated with the addition of a
conduit loan processing group and the expansion of loan origination operations
in New York and Los Angeles.
The Company increased the provision for loan servicing losses to $320,000
for the three months ended March 31, 1999, an increase of 26% from $254,000 for
the three months ended March 31, 1998. The increase in addition to reserves is
the result of management's determination, as part of its ongoing assessment of
the Company's exposure related to its Fannie Mae DUS portfolio, for which it is
obligated to share certain losses. The Company's principal balance of Fannie Mae
DUS loans in the servicing portfolio was $1.5 billion and $1.0 billion as of
March 31, 1999 and 1998, respectively. Although management considers the
allowance appropriate and adequate to cover inherent loan servicing losses,
management's judgment is based on a number of assumptions about future events
which are believed to be reasonable but which may or may not be valid. There can
be no assurance that losses will not exceed the allowance, and future increases
in the allowance may be required.
<PAGE>
Warehouse interest expense of $235,000 for the three months ended March
31, 1999 decreased $119,000 or 33.7% from $354,000 for the three months ended
March 31, 1998. This decrease was due to the decrease in Company loan
originations.
Non-operating interest expense of $656,000 for the three months ended
March 31, 1999 increased $445,000 or 210.9% from $211,000 for the three months
ended March 31, 1998. This increase was due to increased borrowings under the
Company's credit facilities.
Depreciation and amortization of $702,000 for the three months ended
March 31, 1999 increased $116,000 or 19.8% from $586,000 for the three months
ended March 31, 1998. This increase was due primarily to the amortization
related to the originated mortgage servicing rights recognized during 1998.
Capital Markets Segment:
The capital markets segment of the Company, Capital Corp., was formed in
February 1998 to conduct the securitization conduit activities of the Company.
During the quarter, capital markets experienced a loss of $535,000 compared to a
loss of $498,000 for the same period in 1998. The losses in 1999 relate to the
cost of a small loan processing unit, a loan origination office and certain
administrative costs to curtail conduit operations.
Interest income was $8,000 for the three months ended March 31, 1999 a
decrease of $84,000 from $92,000 for the three months ended March 31, 1998. This
decrease resulted from the decrease in the number of loan originations during
the period ended March 31, 1999.
Salary and benefits expense was $368,000 for the three months ended March
31, 1999 an increase of $37,000 from $331,000 for the three months ended March
31, 1998. This increase was primarily due to the operation of a small loan
processing unit and a loan origination office, offset partially by staff
reductions resulting from the curtailment of conduit operations.
Other general and administrative expenses were $57,000 for the three
month period ending March 31, 1999, a decrease of $91,000 from $148,000 for the
three month period ending March 31, 1998. This decrease is the result of the
curtailment of conduit operations.
Advisory Services Segment:
The advisory services segment of the Company, Carbon Mesa Advisors, began
operations during the second quarter of 1998. Revenue within the advisory
services segment of the Company consists of origination fee income and
management fees. Origination fee income includes structuring fees and loan
processing fees (included in gain on loan sales). Structuring fees are paid to
Carbon Mesa Advisors for structuring loans for borrowers, and loan processing
fees are paid to Carbon Mesa Advisors for processing mortgage loan applications.
Carbon Mesa Advisors originates loans for and manages two commercial mortgage
funds. Those funds paid Carbon Mesa Advisors management fees of $304,000 for the
three months ended March 31, 1999. Total assets under management by Carbon Mesa
Advisors on March 31, 1999 were $187 million, a $48 million increase from the
$139 million under management at December 31, 1998.
Expenses consist primarily of salary and benefits, occupancy and
amortization. Total expenses were $570,000 for the three-month period ending
March 31, 1999. There were no corresponding expenses for the period ending March
31, 1998 because Carbon Mesa Advisors was not established until the second
quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal financing needs are the financing of loan
origination activities, the pursuit of new acquisitions and the purchase of
servicing rights. To meet these needs, the Company currently utilizes a
warehouse line of credit, a revolving line of credit and a term loan.
The Company's credit agreements require the maintenance of certain
financial ratios relating to liquidity, leverage, working capital, and net worth
among other restrictions, all of which were met at March 31, 1999. Among other
things, these provisions restrict Company capital contributions to Capital
Corp., which may result in Capital Corp.'s inability to fulfill certain
contractual obligations.
In connection with its Fannie Mae DUS program, the Company is required to
establish a letter of credit to meet the program's requirements.
<PAGE>
The Company issued 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 entitled its holder to purchase one share of common stock
for $5.00. The rights expired on March 8, 1999. Through the rights offering, the
Company sold a total of 1,482,271 shares of common stock for total proceeds of
approximately $7.4 million. The Company used the proceeds from the rights
offering to repay its remaining $3.9 million subordinated note balance to COMIT.
On March 19, 1999, the Company's three largest shareholders, Demeter
Holdings Corp. ("Demeter"), Phemus Corporation ("Phemus") and Capricorn
Investors II, L.P. ("Capricorn"), completed the purchase of a total of 664,028
shares of the Company's common stock for $3.3 million, pursuant to a Standby
Purchase Agreement. In addition, on March 31, 1999, Capricorn purchased an
additional 34,250 shares of common stock for total proceeds to the Company of
$185,545. The proceeds from these transactions were used for the Company's
working capital.
In the course of the Company's mortgage banking operations, the Company
sells to investors the mortgage loans it originates but generally retains the
right to service the loans, thereby increasing the Company's investment in loan
servicing rights. The Company views the sale of loans on a servicing-retained
basis in part as an investing activity. Significant unanticipated prepayments in
the Company's servicing portfolio could have a material adverse effect on the
Company's future operating results and liquidity.
Cashflows
Operating Activities: In the three months ended March 31, 1999, the
Company's operating activities used cash of approximately $74.3 million
primarily to increase its mortgage loans held for sale. These are viewed as
short term assets and are generally financed with short-term borrowings as
discussed under "Financing Activities".
Investing Activities: The primary investing activities for which cash
was used during the three months ended March 31, 1999 were an investment in
COMIT and the origination of mortgage servicing rights.
Financing Activities: Net cash provided by financing activities totaled
$80.1 million for the three months ended March 31, 1999. Principal financing
activities included an increase in the warehouse line of credit to finance
mortgage loans held for sale, as discussed under "Operating Activities," and the
issuance of common stock pursuant to the rights offering and private placements
to Demeter, Phemus, and Capricorn. The conversion of preferred stock and the
repayment of a subordinated note partially offset those sources of additional
financing.
The Company believes its current cash flow from operations and borrowings
available under its debt facilities will be sufficient to meet its operating
needs. Additionally, in the event additional capital resources are required, the
Company believes it will have access to capital through other sources.
YEAR 2000 COMPLIANCE
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;
<PAGE>
. certain systems of the Company's material customers and investors, if
those systems relate to the Company's ability to provide services to
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 the remedies; and
4. preparing contingency plans to deal with the most likely worst case
scenarios.
Assessment Phase. The following table shows the current state of Year
2000 compliance in the Company's computer systems:
<TABLE>
<CAPTION>
Year 2000 Year 2000
Compliant Non-Compliant
Component Number Number
- --------- --------- -------------
<S> <C> <C>
Business Critical Software
Servicing Systems 2 0
Accounting System 1 0
Human Resources 1 0
Hardware
Personal Computers 400 0
File/Data Services 34 0
Networks 20 0
Office Software Suites 400 0
</TABLE>
The Company has evaluated all of its systems and has completed remedies
for the Year 2000 Problem. During the last quarter of 1998, the Company 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 has
completed these inquiries and has received substantially all third-party
responses.
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
third-party systems may have a negative 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 addressed potential Year 2000 Problems in systems. Vendors supply
all computer software systems that are critical to the Company's business, 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 combined its four loan servicing systems into
two. The two surviving loan-servicing systems are now Year 2000 compliant and
have been tested internally. These systems will 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 has replaced all
critical non-Year 2000 compliant office software, and other less significant
personal computer software will be upgraded by June 30, 1999. All telephone
equipment is Year 2000 compliant.
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 analyzed responses to most of the inquires made to 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 $100,000 for its Year 2000 program, mostly in labor costs and
hardware replacement. 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 were 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 until the
Company completes the contingency planning.
<PAGE>
II.
OTHER INFORMATION
Item 1: Legal Proceedings
A description of material litigation pending against the Company is
contained in the Company's 1998 Annual Report on Form 10-K, filed with the
Securities and Exchange Commission on March 31, 1999.
The Company is involved in other litigation related to the normal
course of its business. Management is of the opinion that the litigation will
not have a material adverse impact on the Company's financial position or
operating results. No amounts have been accrued because the loss, if any, cannot
be reasonably estimated.
Item 2: Changes in Securities.
On January 14, 1999, each outstanding share of Class A Stock was
converted into one share of the Company's common stock. As a result of the
conversion, the Company's three largest shareholders received a total of
3,635,972 shares of common stock. The conversion of the Class A Stock was exempt
from registration pursuant to Section 4(2) of the Securities Act, because the
sale did not involve any public offering.
On March 19, 1999, the Company's three largest shareholders, Demeter
Holdings Corp., Phemus Corporation and Capricorn Investors II, L.P
("Capricorn"), completed the purchase of a total of 664,028 shares of the
Company's common stock for $3.3 million, pursuant to a Standby Purchase
Agreement. In addition, on March 31, 1999, Capricorn purchased an additional
34,250 shares of common stock for total proceeds to the Company of $185,545. The
proceeds from these transactions were used for the Company's working capital.
These transactions were exempt from registration pursuant to Section 4(2) of the
Securities Act, because the sale did not involve any public offering.
Item 3: Defaults upon Senior Securities. None
Item 4: Submission of Matter to a Vote of Security Holders. None
Item 5: Other Information. None
Item 6: Exhibits and Reports on Form 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
2.1 Rights Agreement dated as of April 21, 1997, by and
between NHP Incorporated, NHP Financial Services, Ltd. and
The First National Bank of Boston (1)
3.1 Restated Certificate of Incorporation of The WMF Group,
Ltd. (the "Company") (3)
3.2 Amendment to the Company's Restated Certificate of
Incorporation (4)
3.3 Certificate of Designations, Preferences and Rights of
Class A Non-Voting Convertible Preferred Stock (2)
3.4 Amended and Restated Bylaws of The WMF Group, Ltd. (5)
4.1 Form of certificate representing shares of Common Stock of
The WMF Group, Ltd. (4)
10.1 Mortgage Selling and Servicing Contract between Fannie Mae
and the Company, dated December 21, 1990. (3)
10.2 Delegated Underwriting and Servicing Addendum to Mortgage
Selling and Servicing Contract between Fannie Mae and the
Company, dated as of March 1, 1994. (3)
10.3 Delegated Underwriting and Servicing Master Loss Sharing
Agreement between Fannie Mae and the Company, dated as of
March 1, 1994. (3)
</TABLE>
<PAGE>
10.4 Delegated Underwriting and Servicing Reserve Agreement
among Fannie Mae, State Street Bank and Trust Company and
the Company, dated as of June 4, 1996. (3)
10.5 Credit and Security Agreement (Syndicate Agreement) dated
as of February 10, 1999, between the Company, WMF
Washington Mortgage Corp., WMF/Huntoon, Paige Associates
Limited, WMF Proctor Ltd., The Robert C. Wilson Company,
The Robert C. Wilson Company - Arizona, WMF Carbon Mesa
Advisors, Inc. and Residential Funding Corporation and
certain other lenders party thereto. (10)
10.6 Warehousing Promissory Note between The WMF Group, Ltd., a
Delaware corporation; WMF Washington Mortgage Corp., a
Delaware corporation; WMF/Huntoon, Paige Associates
Limited, a Delaware corporation; WMF Proctor, Ltd., a
Michigan corporation; The Robert C. Wilson Company, a
Texas corporation; The Robert C. Wilson-Arizona Company,
an Arizona corporation and WMF Carbon Mesa Advisors, Inc.,
a Delaware corporation, and _______________ dated as of
February 10, 1999 (10)
10.7 Term Loan Facility Promissory Note between The WMF Group,
Ltd., a Delaware corporation; WMF Washington Mortgage
Corp., a Delaware corporation; WMF/Huntoon, Paige
Associates Limited, a Delaware corporation; WMF Proctor,
Ltd., a Michigan corporation; The Robert C. Wilson
Company, a Texas corporation; The Robert C. Wilson-Arizona
Company, an Arizona corporation and WMF Carbon Mesa
Advisors, Inc., a Delaware corporation, and
__________________ dated as of February 10, 1999 (10)
10.8 Servicing Promissory Note between The WMF Group, Ltd., a
Delaware corporation; WMF Washington Mortgage Corp., a
Delaware corporation; WMF/Huntoon, Paige Associates
Limited, a Delaware corporation; WMF Proctor, Ltd., a
Michigan corporation; The Robert C. Wilson Company, a
Texas corporation; The Robert C. Wilson-Arizona Company,
an Arizona corporation and WMF Carbon Mesa Advisors, Inc.,
a Delaware corporation, and _____________________ dated as
of February 10, 1999 (10)
10.9 Swingline Promissory Note between The WMF Group, Ltd., a
Delaware corporation; WMF Washington Mortgage Corp., a
Delaware corporation; WMF/Huntoon, Paige Associates
Limited, a Delaware corporation; WMF Proctor, Ltd., a
Michigan corporation; The Robert C. Wilson Company, a
Texas corporation; The Robert C. Wilson-Arizona Company,
an Arizona corporation and WMF Carbon Mesa Advisors, Inc.,
a Delaware corporation, and Residential Funding
corporation dated as of February 10, 1999 (10)
10.10 Sublimit Promissory Note between The WMF Group, Ltd., a
Delaware corporation; WMF Washington Mortgage Corp., a
Delaware corporation; WMF/Huntoon, Paige Associates
Limited, a Delaware corporation; WMF Proctor, Ltd., a
Michigan corporation; The Robert C. Wilson Company, a
Texas corporation; The Robert C. Wilson-Arizona Company,
an Arizona corporation and WMF Carbon Mesa Advisors, Inc.,
a Delaware corporation, and __________________ dated as of
February 10, 1999 (10)
10.11 Letter Agreement dated October 25, 1996 between Washington
Mortgage Financial Group and Michael D. Ketcham. (3)
10.12 Key Employee Incentive Plan. (4)
10.13 Key Employee Incentive Award Agreement. (4)
10.14 Key Employee Deferral Compensation Plan. (4)
10.15 Employee Stock Purchase Plan. (4)
10.16 Stock Purchase Agreement dated as of October 31, 1997
between Washington Mortgage Financial Group, Ltd. and The
Robert C. Wilson Company (7)
10.17 Asset Purchase Agreement dated as of Dated December 16,
1997 between Washington Mortgage Financial Group, Ltd. and
NY Urban West Inc. (8)
10.18 Registration Rights Agreement dated December 7, 1997
between the Company and Capricorn Investors II, L.P. (10)
<PAGE>
10.19 Registration Rights Agreement dated June 12, 1998, between
the Company, Harvard Private Capital Holdings, Inc. and
Capricorn Investors II, L.P., as amended by the First
Amendment to the Registration Rights Agreement, dated as
of October 16, 1998, among the Company, Harvard Private
Capital Holdings, Inc., Capricorn Investors II, L.P.,
Demeter Holdings Corporation and Phemus Corporation (2)
10.20 Series 2 Warrant Agreement dated December 30, 1998,
between the Company and [*] (2)(6)
10.21 Series 3 Warrant Agreement dated December 30, 1998,
between the Company and [*] (2)(6)
10.22 Registration Rights Agreement dated December 30, 1998,
between the Company and [*] (2)(6)
10.23 Employment Agreement dated April 1, 1998, between the
Company and Mitchell D. Clarfield
10.24 Employment Agreement dated April 1, 1998 between the
Company and Glenn A. Sonnenberg
11 Statement re Computation of Per Share Earnings
21 Subsidiaries of the Registrant (8)
27 Financial Data Schedule
(1) Incorporated by reference to Exhibit 2.2 to the current report on Form
8-K previously filed by NHP Incorporated on April 24, 1997.
(2) Incorporated by reference to the current report on Form 8-K previously
filed by the Company on January 13, 1999.
(3) Incorporated by reference to the registration statement on Form 10
previously filed by the Company on August 4, 1997 as amended.
(4) Incorporated by reference to the registration statement on Form S-1
filed by the Company on October 30, 1997.
(5) Incorporated by reference to the Company's Form 10-Q for the quarter
ended March 31, 1998, filed on May 15, 1998.
(6) Portions of this document have been omitted pursuant to a confidential
treatment request.
(7) Incorporated by reference to the Form 8-K previously filed by the
Company on November 20, 1997.
(8) Incorporated by reference to the Company's annual report on Form 10-K
for the year ended December 31, 1997, filed on March 31, 1998.
(9) Incorporated by reference to the Company's quarterly report on Form 10-Q
for the quarter ended June 30, 1998, filed on August 14, 1998.
(10) Incorporated by reference to the Company's annual report on Form 10-K
for the year ended December 31, 1998, filed on March 31, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant has
duly caused to be signed on its behalf by the undersigned, thereunto duly
authorized.
THE WMF GROUP, LTD.
Date: May 14, 1999 By: /s/ Shekar Narasimhan
---------------------
Shekar Narasimhan
Director, President and Chief
Executive Officer
Date: May 14, 1999 By: /s/ Michael D. Ketcham
------------------
Michael D. Ketcham Executive
Vice President, Chief
Financial Officer and
Treasurer (Principal
Financial Officer)
THE WMF GROUP, LTD.
(dollars in thousands, except per share data)
<PAGE>
EMPLOYMENT AND ADDITIONAL PURCHASE PRICE AGREEMENT
THIS EMPLOYMENT AND ADDITIONAL PURCHASE PRICE AGREEMENT (the "Agreement" or
the "Employment Agreement") is entered into as of this 1st day of April, 1998 by
and between WMF CARBON MESA ADVISORS, INC. a Delaware corporation, its
successors and assigns (the "Employer") and MITCHELL D. CLARFIELD (the
"Executive").
WHEREAS, the Employer desires to obtain the services and employment of the
Executive, and the Executive desires to secure employment from the Employer,
upon the terms and conditions hereinafter set forth, the parties hereto agree as
follows:
1. TERM OF EMPLOYMENT. The Employer agrees to employ the Executive, and
the Executive accepts full-time employment with the Employer, for the period of
five (5) years, commencing on or about April 1, 1998, and ending at the close of
business on the date that is five (5) years after commencement, unless sooner
terminated as provided in this Agreement or unless extended in accordance with
this Section 1 (the "Employment Period"). The Executive's employment hereunder
shall automatically be extended on each April 1 commencing April 1, 2003 for an
additional one (1) year term to and including the next succeeding April 1 unless
either party shall have given the other party written notice on or before the
immediately preceding January 1 that the Employment Period will not be so
extended.
2. COMPENSATION.
(a) Base Salary. The Executive shall receive a base salary at the
-----------
annual rate of $175,000.00 (the "Base Salary"), subject to adjustment from time
to time by the Employer. The compensation provided for in this Section shall be
in addition to any bonuses or other additional compensation specified in this
Agreement or provided at the option of the Employer.
(b) Salary Payment. All Base Salary due under this Section shall be
--------------
paid in accordance with the salary payment schedule for employees of the
Employer as, from time to time, may be adopted by the Employer in its sole
discretion, provided however, that salary payments to the Executive shall be
made at least monthly during the Employment Period.
(c) Incentive Bonus and Options. In addition to the Base Salary, the
---------------------------
Executive shall be entitled, during the Employment Period, to additional,
incentive compensation in the form of (i) incentive bonus income, commencing as
to calendar year 1998, as provided in the Incentive Bonus Plan attached hereto
as EXHIBIT A ("Incentive Compensation"), and (ii) non-qualified stock options to
acquire common stock in The WMF Group, Ltd., as provided in the Key Employee
Incentive Award Agreement, dated as of the date of this Agreement, between the
Executive and The WMF Group, Ltd. (the "Award Agreement").
<PAGE>
(d) Advance of Incentive Bonus Payments. During the initial two (2)
-----------------------------------
years of the Employment Period, in addition to the Base Salary, the Executive
shall be entitled to receive from the Employer an amount not to exceed $65,000
per annum, which amount (the "Incentive Advance") shall be an advance against,
and shall be deducted and recouped from, any incentive bonus payments to which
the Executive is entitled pursuant to the Agreement as specifically provided in
Exhibit A hereto.
(e) Additional Purchase Price. Exhibit A hereto shall also set forth
-------------------------
certain additional price payments based on the CCM Revenues (as defined in
Exhibit A) to be made for the assets of CCM (as hereinafter defined) pursuant to
the Option Agreement (as hereinafter defined).
3. PERFORMANCE APPRAISAL AND DISCRETIONARY BASE SALARY ADJUSTMENTS. The
Executive's work performance shall be reviewed in March of each year beginning
in 1999. As part of this annual performance appraisal review, the Base Salary
shall be reviewed and may be adjusted to reflect the Executive's performance.
The Base Salary may not be reduced without the prior written consent of the
Executive.
4. CAPACITIES AND DUTIES. During the term of this Agreement, the
Executive shall work full-time for the Employer and shall be employed in the
capacity, and shall have the responsibilities and duties, as specified in the
position description attached hereto as EXHIBIT B. The Executive shall also
perform such additional duties as may be reasonably designated from time to time
by the Employer. The Executive agrees to perform and discharge well and
faithfully all duties assigned to him and to devote his full, best and most
diligent efforts towards the performance of his duties for the Employer and the
furtherance of its business. The Employer will furnish the Executive office
space, equipment, supplies, and such other administrative services and personnel
as the Employer deems reasonably necessary or appropriate for the performance of
the Executive's duties under this Agreement and to enable the Executive to
perform such duties. Nothing in this Agreement shall be construed to prohibit
the Executive from engaging in business activities other than those described in
Exhibit B, provided that such other business activities may not be competitive
with the Employer and may not interfere with the obligation of the Executive to
provide full-time services to the Employer under this Agreement.
5. OTHER BENEFITS. In addition to the foregoing, the Employer shall
provide the Executive the following in benefits:
(a) Vacation. The Executive shall be entitled to four (4) weeks of
--------
paid vacation per year;
(b) Expenses. The Employer shall pay and reimburse the Executive for
--------
all reasonable and necessary expenses incurred or paid by the Executive in the
discharge of his duties hereunder which are consistent with the travel and
entertainment policy of the Employer
Page 2
<PAGE>
which is applicable to the executives of the Employer, as promulgated by the
Employer from time to time, provided the Executive submits documentation of said
expenses to the Employer in accordance with the policies of the Employer which
are applicable to the executives of the Employer; and
(c) Employee Benefits. The Executive shall be eligible to participate
-----------------
in any and all employee benefit plans and programs, including but not limited
to, health insurance and retirement programs, which are available to all the
senior management of the Employer. Additionally, the Executive shall be eligible
to participate in any and all employee benefit plans and programs, including but
not limited to, all insurance and retirement programs, which are available to
all members of senior management of The WMF Group, Ltd. The Employer shall pay
the costs of the Executive's membership in a dining or golf club selected by the
Executive, with the consent of the Chairman of the Employer, which consent will
not be unreasonably withheld. The Employer shall also pay the cost of the
Employee's professional licensing, and professional memberships and continuing
education programs reasonably related to the performance of the Executive's
duties under this Agreement (including, without limitation, the Berkeley real
estate program, the Wharton Real Estate Advisory Board, the USC Real Estate
Program, ICSC, MBA, ULI and NAIOP).
(d) Liability Insurance. The Employer shall pay for and maintain
-------------------
directors' and officers', and errors and omissions, liability insurance naming
the Executive as an insured in accordance with its practices with respect to
senior management of The WMF Group, Ltd. and its subsidiaries, and the Executive
agrees that he shall conduct himself at all times during the Employment Period
so as not to jeopardize the Employer's ability to obtain and maintain such
insurance. The Executive hereby represents and warrants to, and covenants with,
the Employer that, to the best of his knowledge, there is no cause attributable
to the Executive which would be a reasonable basis for the Employer's provider
of such insurance to object to the inclusion of the Executive into the coverage
of the Employer's current policies.
6. TERMINATION; RESIGNATION.
(a) Termination by Employer Without Cause. The Employer may terminate
-------------------------------------
the Executive's services and this Agreement at any time and for any reason or no
reason whatsoever by giving thirty (30) days' prior written notice to the
Executive. In the event the Executive is terminated by the Employer for any
reason other than for Cause, as defined below, the Executive shall (i) be
entitled to a severance payment in an amount equal to (A) twelve (12) months'
Base Salary, plus (B) the pro rata portion of the Incentive Bonus allocable to
----
the Executive for the year in which the termination occurs, using the
Executive's percentage of the Incentive Bonus Plan, or 25%, whichever is
greater, for the previous year (the "Pro-Rated Bonus"), plus (C) Incentive
----
Compensation for the thirty-six (36) months immediately succeeding the
Employment Period in an amount for such period which shall be determined as
follows: the amount of the Incentive Compensation shall be calculated by
obtaining the product of (I) the
Page 3
<PAGE>
Executive's allocation percentage of the Incentive Bonus Pool (as such Pool is
defined in Exhibit A to this Agreement) for the year immediately preceding the
Executive's termination, or 25%, whichever is greater, times (II) the net income
to the Employer (for the first, second or third twelve-month period, as
applicable, after the termination of the Executive) which is allocable to the
Booked Assets (as defined below) of the Employer as of the date of the
Executive's termination, plus (D) the acceleration of the vesting of all of (B),
----
(C) and (D) being in the aggregate, the "Severance Payment"), and (ii) be
subject to the terms and provisions of said Section 8(b) for a period of one (1)
year following the date of termination, provided, however, that the Executive
may at the time of his termination waive his right to receive the Severance
Payment and be released from his obligation and liability with respect to
Section 8 of this Agreement. If the Executive is terminated pursuant to this
Section 6(a), then in addition to the Severance Payment, and subject to
acceptance of the Severance Payment by the Executive, all transfer restrictions
applicable to any shares of the stock of The WMF Group, Ltd. which were issued
with respect to the Employer's acquisition of the assets of Carbon Mesa
Advisors, Inc. or Strategic Real Estate Partners and which is owned by the
Employer shall be terminated.
For purposes of this Agreement, the Booked Assets shall mean (i) any assets
or agreements producing income for the benefit of the Employer which were
acquired or originated by the Employer during the Employment Period, and (ii)
all prospective assets or agreements which are anticipated to produce income for
the benefit of the Employer which on the date of the Executive's termination are
the subject of a binding contract by the Employer and which are acquired or
funded on or before the 90th day after the date of the Executive's termination.
For purposes of determining the Incentive Compensation pursuant to this Section
6(a), net income allocable to Booked Assets shall mean (i) the revenue allocable
for the respective year to the Booked Assets, less (ii) an amount with respect
----
to the Employer's expenses for the respective year, which amount shall be
determined for each year by obtaining the product of (x) the Employer's overhead
expenses for the year, times (y) a fraction the numerator of which is the
-----
revenue for the year allocable to the Booked Assets and the denominator of which
is the revenue for the year allocable to all of the revenue of the Booked
Assets.
Notwithstanding anything to the contrary in this Agreement, the Executive
shall not be entitled to receive any Incentive Advance as a part of the
Severance Payment, and Severance Payment shall not be deemed to include any
Incentive Advance.
Further notwithstanding anything in this Section 6(a) to the contrary, the
Executive shall not be subject to the terms and provisions of Section 8(b) in
the event that his services are terminated by the Employer without Cause during
or after the fourth (4th) year of the Employment Period.
(b) Resignation of Executive for Breach by Employer. The Executive
-----------------------------------------------
may resign and terminate his employment upon a material breach of this Agreement
by the Employer,
Page 4
<PAGE>
which material breach remains uncorrected by the Employer for thirty (30) days
following receipt by the Employer of written notice from the Executive of such
breach. A material breach of this Agreement shall be deemed to have occurred if
there shall have been a material change in the Executive's responsibilities not
otherwise agreed to by the Executive, a reassignment of the Executive to work in
a location that is more than ten (10) miles from the Executive's work location
prior to such reassignment, or the Executive is required to report to an
individual other than the Chairman of the Employer. In the event that the
Executive resigns as provided in this Section 6(b), the Executive may, by giving
prompt written notice to the Employer of his resignation pursuant to this
Section 6(b) and his acceptance of the Severance Payment, accept the Severance
Payment, which acceptance shall constitute full and complete satisfaction
(except as to monies otherwise owed to the Executive by the Employer hereunder)
and be his sole and exclusive remedy (except as to monies otherwise owed to the
Executive by the Employer hereunder) for the Employer's breach of this
Agreement. The Executive may, alternatively, at the time of his resignation give
prompt written notice to the Employer of his waiver of his right to receive the
Severance Payment and any amount from the Employer equal to the value of the
Severance Payment and be released from his obligation and liability with respect
to Section 8 of this Agreement. In the event that the Executive does not elect
either of the foregoing alternatives, the Executive shall be deemed to have
reserved all of his rights and remedies against the Employer for any breach of
this Agreement by the Employer. . If the Executive resigns pursuant to this
Section 6(b), then in addition to the Severance Payment, and subject to
acceptance of the Severance Payment by the Executive, all transfer restrictions
applicable to any shares of the stock of The WMF Group, Ltd. which were issued
with respect to the Employer's acquisition of the assets of Carbon Mesa
Advisors, Inc. or Strategic Real Estate Partners and which is owned by the
Employer shall be terminated.
(c) Termination by Employer for Cause; Resignation of Executive. The
-----------------------------------------------------------
Executive shall not be entitled to any Severance Payment (other than any accrued
but unpaid Base Salary and such other amounts exclusive of the Severance Payment
which may otherwise be owed by the Employer to the Executive under this
Agreement) (i) in the event that he is terminated by the Employer for Cause, or
(ii) in the event that he resigns and terminates his employment with the
Employer for any reason other than a material breach of this Agreement by the
Employer, which resignation and termination by the Executive shall not be deemed
to be a breach of this Agreement. Additionally, in either event, the Executive
shall be subject to the terms and provisions of Section 8 of this Agreement for
that one (1) year period following the date of such termination.
For the purposes of this Agreement, "Cause" is hereby defined to mean: (i)
the engaging by the Executive in any act of dishonesty, including, but not
limited to, the appropriation (or attempted appropriation) of a material
business opportunity of the Employer, attempting to secure or securing any
personal profit in connection with any transaction entered into on behalf of the
Employer, or the misappropriation (or attempted misappropriation) of any of the
Employer's funds or property; (ii) the conviction of the Executive of, or the
entering of a guilty
Page 5
<PAGE>
plea or plea of no contest by the Executive with respect to, a felony (other
than the initial instance of a "driving while intoxicated" case or "driving
under the influence" case (or similar charge under applicable law), any crime
involving moral turpitude, or any other crime which jeopardizes the status of
the Employer's errors and omissions or fidelity insurance or causes a surcharge
for the cost to the Employer of such insurance, or (iii) a breach of this
Agreement by the Executive, including the failure of the Executive, after
written notice by, and consultation with, the Employer, to perform his duties or
responsibilities under this Agreement in a business-like manner, or to comply
with any written Employer policy which the Executive has received and which is
applicable to all employees, or if to senior management, then to all senior
management, of the Employer, which breach is material and is not corrected to
the reasonable satisfaction of the Employer within thirty (30) days (to the
extent such breach may be corrected within such 30-day period, and if not,
within a reasonable time period but not longer than 180 days) after written
notification by the Employer to the Executive of the breach.
(d) Termination by Employer for Disability of the Executive. If the
-------------------------------------------------------
Executive shall be terminated due to a disability (as defined hereafter in this
Section 6(d)), the Executive shall not be entitled to any Severance Payment
(other than any accrued but unpaid Base Salary, the Pro-Rated Bonus, and such
other amounts exclusive of the Severance Payment which are owed by the Employer
to the Executive under this Agreement) but shall be entitled to receive a
payment of $20,000.00 per month (the "Disability Payment") for the twelve (12)
months immediately succeeding his termination by the Employer for disability.
The Disability Payment may be made from insurance proceeds, the Employer's
resources, or both.
For purposes of this Agreement, the Executive will be deemed to have a
"disability" if, for physical or mental reasons, the Executive is unable to
perform the Executive's duties under this Agreement for 180 days during any
twelve month period, unless the Employer grants in writing a leave of absence to
the Executive. The disability of the Executive will be determined either (i) by
the Executive's eligibility for payments pursuant to the disability insurance
benefit plan provided by the Employer to its employees, including the Executive,
or (ii) by a medical doctor selected by written agreement of the Employer and
the Executive upon the request of either party by notice to the other. If the
Employer and the Executive cannot agree on the selection of a medical doctor,
each of them will select a medical doctor and the two medical doctors will
select a third medical doctor who will determine whether the Executive has a
disability. The determination of the medical doctor selected under this
Agreement will be binding on both parties. The Executive must submit to a
reasonable number of examinations by the medical doctor making the determination
of disability under this Agreement, and the Executive hereby authorizes the
disclosure and release to the Employer of such determination and all supporting
medical records. If the Executive is not legally competent, the Executive's
legal guardian or duly authorized attorney-in-fact will act in the Executive's
stead, under this Agreement, for the purposes of submitting the Executive to the
examinations, and providing the authorization of disclosure, required under this
Agreement.
Page 6
<PAGE>
If the Executive is terminated for disability, the Executive shall be
entitled to resume his employment with the Employer within ninety (90) days of
his termination, subject to the terms and provisions of this Agreement and at
the Base Salary which was payable to the Executive at the time of his
termination for disability. If the Executive elects so to resume employment with
the Employer and is at any time thereafter terminated for Cause, then such
subsequent termination for Cause shall not be subject to or conditioned upon any
rights of the Executive to resume employment with the Employer.
(e) Termination Upon Death of Executive. The Employment Period shall
-----------------------------------
terminate upon the death of the Executive, provided, however, that the heirs and
beneficiaries of the Executive shall be entitled to receive (i) such benefits as
may be provided to the heirs and beneficiaries of employees of the Employer and
The WMF Group, Ltd. pursuant to the employee benefits plans and programs of the
Employer and The WMF Group, Ltd. in which the Executive participated, including
but not limited to the proceeds of any life or disability insurance policy
insuring the Executive, the premiums for which policy are paid by the Employer
or by The WMF Group, Ltd., and which names a beneficiary other than the Employer
or The WMF Group, Ltd., (ii) any accrued and unpaid Base Salary, and (iii) the
Pro-Rated Bonus. The Employer agrees that during the Employment Period, at a
minimum, it shall maintain at no cost to the Executive a term life/split dollar
life insurance policy insuring the life of the Executive for an amount equal to
no less than $500,000.00, with the proceeds of such policy payable to such
beneficiaries thereof as the Executive has designated in accordance with the
terms of the policy.
(f) Timing of Payments. The Base Salary component of any Severance
------------------
Payments due under this Agreement, and any accrued and unpaid Base Salary due to
or on behalf of the Executive under this Agreement, shall be paid within sixty
(60) days following the end of the Employment Period. The Incentive
Compensation component of any Severance Payments shall be paid annually on the
1st day of March for the prior calendar year. Subject to the terms and
provisions of Section 8 of this Agreement, the Employer waives any right to a
reduction in any such payments as a result of the Executive's receipt of
compensation from any other employment.
(g) Special Termination By Executive. The Employer and the Executive
--------------------------------
acknowledge and agree that the Employer has entered into an option agreement,
dated as of the date of this Agreement, with Carbon Capital Management, L.L.C.
("CCM") (the "Option Agreement") pursuant to which the Employer has the option
to acquire substantially all of the assets of CCM, and that the Executive will
derive personal benefit if the Employer exercises such option. Notwithstanding
anything to the contrary in this Agreement or in any other agreement between the
Executive and the Employer, in the event that the Employer does not exercise its
option in accordance with the terms and provisions of the Option Agreement, then
the Executive may resign his employment under this Agreement within ninety (90)
days of the decision of the Employer not to exercise its option. In such event,
then, notwithstanding anything to the contrary in this Agreement, but only if
the Executive resigns within the aforesaid ninety (90) day period, (i) the
Executive shall be entitled to receive the Severance Payment, (ii) all transfer
restrictions
Page 7
<PAGE>
applicable to any shares of the stock of The WMF Group, Ltd. which were issued
with respect to the Employer's acquisition of the assets of Carbon Mesa
Advisors, Inc. or Strategic Real Estate Partners and which is owned by the
Employer shall be terminated, and (iii) the Executive shall be subject to the
terms and provisions of Section 8(b) of this Agreement for a period of one (1)
year following the date of resignation, provided, however, that the Executive
may at the time of his resignation waive his right to receive the Severance
Payment and be released from his obligation and liability with respect to
Section 8(b) of this Agreement.
(h) Nondisclosure. In the event that the Executive is terminated
-------------
pursuant to Sections 6(a), (b) or (c), the Executive and the Employer agree that
neither party shall disclose to any third-party the reasons or the details of
the Executive's termination (unless such information must be disclosed pursuant
to advice of counsel).
(i) Survival. The provisions of this Section 6 shall survive the
--------
termination of any other terms and provisions of this Agreement for the term
necessary to complete any severance payments required to be paid to the
Executive hereunder.
(j) Replacement of Certain Executives. In the event that Glenn A.
---------------------------------
Sonnenberg is no longer employed as an executive by the Employer, then the
Employer agrees that it will obtain the prior consent of the Executive before
the Employer hires an executive to replace Mr. Sonnenberg. The Executive agrees
that he may not unreasonably withhold his consent to the hiring of such
replacement.
7. CONFIDENTIAL INFORMATION.
(a) Introduction. The Executive and the Employer recognize that due
------------
to the nature of their relationship, the Executive has had access to and will
have access to confidential and proprietary information relating to the business
and operations of the Employer. The Executive acknowledges that all such
information has been and will continue to be of critical importance to the
Employer and that disclosure of it to, or its use by, others could cause
substantial injury to the Employer.
(b) Confidentiality. The Executive shall keep confidential any
---------------
confidential information of the Employer which is now known to him or which
hereafter becomes known to him as a result of his employment by the Employer,
and shall not at any time directly or indirectly disclose any such information
to any person or firm or use the same in any way other than in connection with
the business of the Employer during, and at all times after termination of, the
employment by the Employer of the Executive. The Executive further agrees that
he will, upon termination of his employment by or with the Employer, return to
the Employer, all confidential information in the Executive's possession,
including all books, records, lists and other written, typed or computer printed
materials or data, and all copies thereof and excerpts therefrom, whether
furnished by the Employer or an affiliate of the Employer or prepared by the
Executive, which contain any information relating to the Employer's business,
and the Executive
Page 8
<PAGE>
agrees that he will neither make nor retain any copies of such materials after
termination of his employment. The Executive recognizes that should a dispute or
controversy arising from or relating to this Agreement be submitted for
adjudication to any court, arbitration panel, or other third party, the
preservation of the secrecy of confidential information may be jeopardized. All
pleadings, documents, testimony, and records relating to any such adjudication
will be maintained in secrecy (except as must be made public in accordance with
court rules and procedures) and will be available for inspection by the
Employer, the Executive, and their respective attorneys and experts, who will
agree, in advance and in writing, to receive and maintain all such information
in secrecy, except as may be limited by them in writing.
For the purposes of this Agreement, "confidential information" shall
mean, to the extent that such information is not generally known or available to
the public, or required by law or judicial process to be disclosed, any and all:
(a) trade secrets concerning the business and affairs of the Employer, data in
all media and formats, processes, designs, sketches, photographs, graphs,
drawings and inventions, past, current, and planned research and development,
current and planned marketing or distribution methods and processes, customer
lists, current and anticipated customer requirements, price lists, market
studies, business plans, computer software and programs (including object code
and source code), computer software and database technologies, systems,
structures, and architectures, and any other information, however documented,
that is a trade secret generally within the meaning of law; and (b) information
concerning the business and affairs of the Employer (which includes historical
financial statements, financial projections and budgets, historical and
projected sales, capital spending budgets and plans, the names and backgrounds
of key personnel, personnel training and techniques and materials, however
documented; and (c) notes, analysis, compilations, studies, summaries, and other
material prepared by or for the Employer containing or based, in whole or in
part, on any information included in the foregoing. For the purposes of this
Agreement, customer lists shall not include any list prepared by the Executive
after the termination of his employment or of this Agreement which are compiled
by the Executive without referring to any confidential information.
(c) Compliance. Compliance with this Section 7 is a condition
----------
precedent to the Employer's obligation to make any payments of any nature to the
Executive.
(d) Survival. The terms and provisions of this Section 7 shall
--------
survive the termination of any other terms and provisions of this Agreement, and
if the Executive's employment hereunder expires or is terminated, this Agreement
will continue in full force and effect as is necessary or appropriate to enforce
the covenants and agreements of the Executive in this Section 7.
8. NON-COMPETITION; NON-SOLICITATION.
(a) Acknowledgments by the Executive. The Executive acknowledges
--------------------------------
that: (i) the services to be performed by him under this Agreement are of a
special, unique, unusual,
Page 9
<PAGE>
extraordinary, and intellectual character; (ii) the Employer's business is
national in scope and its products and services are marketed throughout the
United States; (iii) the Employer competes with other businesses that are or
could be located in any part of the United States; (iv) the Employer has
required that the Executive make the covenants set forth in this section of the
Agreement as a specific condition to the Employer's creation or substantial
capitalization of, and substantial investment of time, money and personnel in,
the business, the business units or affiliated entities of the Employer for
which the Executive shall have responsibility to the Employer; and (v) the
provisions of this section are reasonable and necessary to protect the
Employer's business.
(b) Covenants of the Executive. In consideration of the
---------------------------
acknowledgments by the Executive, and in consideration of the compensation and
benefits to be paid or provided to the Executive by the Employer, the Executive
covenants that :
(1) during the Employment Period, the Executive will not,
directly or indirectly, either individually or as owner, director, partner,
agent, employee, independent contractor, consultant or otherwise, except for the
account of and on behalf of the Employer in the course of his employment by the
Employer under this Agreement (i) engage in any manner, either as a principal or
advisor or representative, in the high yield funds management business with
respect to commercial mortgage related assets, or the commercial loan
origination or brokering business, or (ii) solicit, or otherwise attempt to
establish for the Executive, or any other person or firm, any business
relationships directly competitive with the Employer's business as of the date
of the end of the Employment Period; and
(2) the Executive will not, whether for the Executive's own
account or the account of any other person, at any time during the Employment
Period , (i) with respect to any business activities which are directly
competitive with the business of the Employer, solicit, any person who is an
employee of the Employer; or (ii) in any manner induce or attempt to induce any
employee of the Employer to terminate his employment with the Employer; and
(c) Severability; Enforceability. If any covenant in this Section 8
----------------------------
is held to be unreasonable, arbitrary, or against public policy, such covenant
will be considered to be divisible with respect to scope, time, and geographic
area, and such lesser scope, time, or geographic area, or all of them, as a
court of competent jurisdiction may determine to be reasonable, not arbitrary,
and not against public policy, will be effective, binding, and enforceable
against the Executive.
(d) Extension of Covenant. The period of time applicable to any
---------------------
covenant in this Section 8 will be extended by the duration of any violation by
the Executive of such covenant, which violation shall be deemed to have begun
after notice of such violation by the Employer to the Executive.
Page 10
<PAGE>
(e) Notice to Employer. The Executive will, while the covenant under
------------------
this Section 8 is in effect, give notice to the Employer, within ten (10) days
after accepting any other employment, of the identity of the Executive's
employer. The Employer may notify such employer that the Executive is bound by
this Agreement and, at the Employer's election, furnish such employer with a
copy of this Agreement or relevant portions thereof.
(f) Compliance. Compliance with this Section 8 is a condition
----------
precedent to the Employer's obligation to make any payments of any nature to the
Executive except earned and accrued, but unpaid, Base Salary.
(g) Survival. Except as otherwise specifically provided in this
--------
Agreement, the terms and provisions of this Section 8 shall survive the
termination of any other terms and provisions of this Agreement, and if the
Executive's employment hereunder expires or is terminated, this Agreement will
continue in full force and effect as is necessary or appropriate to enforce the
covenants and agreements of the Executive in this Section 8.
(h) Termination of Covenants. The covenants of the Executive made in
------------------------
this Section 8 shall terminate completely and be of no further force and effect
upon the occurrence of either (i) the commencement by the Employer of voluntary
liquidation or winding-up proceedings under applicable Federal or State law, or
(ii) a decree or order of a court having jurisdiction in the premises in an
involuntary case against the Employer under any Federal or State law ordering
the liquidation of the Employer or its affairs, and such decree or order remains
in force undischarged or unstayed for a period of thirty (30) business days.
9. EMPLOYER'S REMEDIES. The Executive acknowledges that the injury that
would be suffered by the Employer as a result of a breach of the provisions of
this Agreement (including any provision of Sections 7 and 8 of this Agreement)
would be irreparable and substantial and that an award of monetary damages to
the Employer for such a breach would be difficult, if not impossible, to
ascertain and would in any event be an inadequate remedy. Consequently, the
Employer shall have the right, in addition to any other rights and remedies it
may have, to obtain injunctive relief to restrain any breach or threatened
breach or otherwise specifically to enforce any provision of this Agreement, and
the Executive hereby waives any and all defenses he may have on the grounds of
lack of jurisdiction or competence of the court to grant such an injunction or
other equitable relief. Without limiting the Employer's rights under this
Agreement, or any other remedies of the Employer, if the Executive breaches any
of the provisions of Sections 7 or 8 of this Agreement, the Employer will have
the right to cease making any payments otherwise due to the Executive under this
Agreement, except earned and accrued, but unpaid, Base Salary, and the Executive
shall reimburse the Employer for reasonable costs incurred by the Employer.
10. EXECUTIVE'S REPRESENTATIONS. The Executive hereby represents and
warrants to, and covenants with, the Employer that (i) he is free to enter into
this Agreement and that by so doing he is not violating any other agreement,
undertaking, obligation, court order or decree which would or may interfere with
the delivery and execution of this Agreement by the
Page 11
<PAGE>
Executive or the performance by the Executive of his obligations hereunder, and
(ii) he possesses, or if not in possession, has no reason to believe that he
cannot obtain in a timely manner, any and all licenses which are necessary for
him to fulfill his obligations to the Employer under this Agreement.
11. MISCELLANEOUS.
(a) Notices. Any notice required or permitted under this Agreement
-------
shall be deemed given (i) if in writing and if personally delivered and
receipted in writing, or (ii) three (3) business days after being mailed by
certified or registered mail, return receipt requested, to the parties hereto at
the addresses listed below (or at such other address for a party as shall be
specified by like notice):
Employer: WMF Carbon Mesa Advisors, Inc.
1593 Spring Hill Road, 5th Floor
Vienna, Virginia 22182
Attention: Shekar Narasimhan
Executive: See the address of Executive on signature page.
(b) Entire Agreement. This Agreement, with Exhibit A and Exhibit B,
----------------
constitutes the entire agreement concerning the subject matter hereof between
the parties, and replaces in toto and fully supersedes any and all prior or
existing agreements, whether written or verbal, between the Employer and the
Executive, except for that certain Key Employee Incentive Award Agreement, dated
of even date herewith, which is incorporated into this Agreement.
(c) Governing Law; Jurisdiction; Service of Process. This Agreement
-----------------------------------------------
shall be construed in accordance with and governed by the laws of the
Commonwealth of Virginia. Any action or proceeding seeking to enforce any
provision of, or based on any right arising out of, this letter may be brought
against any of the parties in the courts of the Commonwealth of Virginia, County
of Fairfax, or, if it has or can acquire jurisdiction, in the United States
District Court for the Eastern District of Virginia, and each of the parties
consents to the jurisdiction of such courts (and of the appropriate appellate
courts) in any such action or proceeding and waives any objection to venue laid
therein. Process in any action or proceeding referred to in the preceding
sentence may be served on any party anywhere in the world.
(d) Counterparts. This Agreement may be executed in any number of
------------
counterparts, all such counterparts shall be deemed to constitute one and the
same instrument, and each counterpart shall be deemed an original hereof.
Page 12
<PAGE>
(e) Modification. No change or modification of this Agreement shall
------------
be valid unless the same is in writing and signed by the Executive and a duly
authorized officer of the Employer.
(f) Waiver. Failure of any party to exercise, any right or option
------
arising out of a breach of this Agreement shall not be deemed a waiver of any
right or option with respect to any subsequent or different breach, or the
continuance of any existing breach.
(g) Successors and Assigns; No Assignment by Executive. This
--------------------------------------------------
Agreement may not be assigned in part or in toto by the Executive or by the
Employer. The parties hereto acknowledge and agree that a change in control of
the Employer shall not be deemed to be an assignment of this Agreement.
(h) Captions. Captions used herein are for convenience only and are
--------
not part of this Agreement and shall not be deemed to limit or alter any
provisions hereof and shall not be deemed relevant in construing this Agreement.
(i) Severability. If any term or provision of this Agreement shall
------------
be held to be invalid, unenforceable or void, the remainder of this Agreement
shall remain in full force and effect.
(j) Attorneys' Fees and Costs. If any judicial proceedings,
-------------------------
arbitration or mediation as between the parties arises with respect to this
Agreement, the prevailing party shall be entitled to recover all reasonable fees
of counsel, reasonable costs, and any reasonable disbursements, including,
without limitation, expert witness fees, deposition costs and other fees and
expenses.
(k) Covenants of Sections 7 and 8 Are Essential and Independent
-----------------------------------------------------------
Covenants. The covenants by the Executive in Sections 7 and 8 of this Agreement
- ---------
are essential elements of this Agreement, and without the Executive's agreement
to comply with such covenants, the Employer would not have created or
substantially capitalized, and substantially invested time, money and personnel
in, the business, the business units or affiliated entities of the Employer for
which the Executive shall have responsibility to the Employer, and the Employer
would not have entered into this Agreement or employed or continued the
employment of the Executive. The Employer and the Executive have independently
consulted their respective counsel and have been advised in all respects
concerning the reasonableness and propriety of such covenants, with specific
regard to the nature of the business conducted by the Employer. The Executive's
covenants in Sections 7 and 8 of this Agreement are independent covenants and
the existence of any claim by the Executive against the Employer under this
Agreement or otherwise will not excuse the Executive's breach of any covenant in
Sections 7 or 8 of this Agreement.
(l) Life Insurance. The Employer shall have the right, during the
--------------
Employment Period, to pay for and obtain a life insurance policy, of the type
commonly known
Page 13
<PAGE>
as "key person" insurance, insuring the life of the Executive in an amount not
to exceed $2,000,000, which amount shall be payable to the Employer as the
beneficiary of the policy upon the death or disability of the Executive. The
Executive agrees to cooperate with the Employer, and with such insurance brokers
and agents, and with such insurance companies, as may be necessary in order for
the Employer to obtain such a policy.
(m) Deductions from Amounts Due to Executive. The Executive
----------------------------------------
authorizes the Employer to deduct from any amounts due to him, upon the end of
his employment, an amount equal to any outstanding advances by the Employer to
him or on his behalf and any amounts otherwise owed by him to the Employer,
provided however, that such authorization is conditioned upon the absence of any
dispute between the Employer and the Executive with respect to such amounts.
IN WITNESS WHEREOF, the Employer and the Executive have executed this
Employment Agreement as of the day and year first above written.
EMPLOYER:
---------
WMF CARBON MESA ADVISORS, INC.
___________________________ By: /s/ Shekar Narasimhan
-------------------------
Witness Shekar Narasimhan
Its: Chairman
EXECUTIVE:
----------
____________________________ /s/ Mitchell D. Clarfield
-------------------------
Witness
Address:
_________________________
_________________________
_________________________
Page 14
<PAGE>
EMPLOYMENT AND ADDITIONAL PURCHASE PRICE AGREEMENT
THIS EMPLOYMENT AND ADDITIONAL PURCHASE PRICE AGREEMENT (the "Agreement" or
the "Employment Agreement") is entered into as of this 1st day of April, 1998 by
and between WMF CARBON MESA ADVISORS, INC. a Delaware corporation, its
successors and assigns (the "Employer") and GLENN A. SONNENBERG (the
"Executive").
WHEREAS, the Employer desires to obtain the services and employment of the
Executive, and the Executive desires to secure employment from the Employer,
upon the terms and conditions hereinafter set forth, the parties hereto agree as
follows:
1. TERM OF EMPLOYMENT. The Employer agrees to employ the Executive, and
the Executive accepts full-time employment with the Employer, for the period of
five (5) years, commencing on or about April 1, 1998, and ending at the close of
business on the date that is five (5) years after commencement, unless sooner
terminated as provided in this Agreement or unless extended in accordance with
this Section 1 (the "Employment Period"). The Executive's employment hereunder
shall automatically be extended on each April 1 commencing April 1, 2003 for an
additional one (1) year term to and including the next succeeding April 1 unless
either party shall have given the other party written notice on or before the
immediately preceding January 1 that the Employment Period will not be so
extended.
2. COMPENSATION.
(a) Base Salary. The Executive shall receive a base salary at the
-----------
annual rate of $175,000.00 (the "Base Salary"), subject to adjustment from time
to time by the Employer. The compensation provided for in this Section shall be
in addition to any bonuses or other additional compensation specified in this
Agreement or provided at the option of the Employer.
(b) Salary Payment. All Base Salary due under this Section shall be
--------------
paid in accordance with the salary payment schedule for employees of the
Employer as, from time to time, may be adopted by the Employer in its sole
discretion, provided however, that salary payments to the Executive shall be
made at least monthly during the Employment Period.
(c) Incentive Bonus and Options. In addition to the Base Salary, the
---------------------------
Executive shall be entitled, during the Employment Period, to additional,
incentive compensation in the form of (i) incentive bonus income, commencing as
to calendar year 1998, as provided in the Incentive Bonus Plan attached hereto
as EXHIBIT A ("Incentive Compensation"), and (ii) non-qualified stock options to
acquire common stock in The WMF Group, Ltd., as provided in the Key Employee
Incentive Award Agreement, dated as of the date of this Agreement, between the
Executive and The WMF Group, Ltd. (the "Award Agreement").
<PAGE>
(d) Advance of Incentive Bonus Payments. During the initial two (2)
-----------------------------------
years of the Employment Period, in addition to the Base Salary, the Executive
shall be entitled to receive from the Employer an amount not to exceed $65,000
per annum, which amount (the "Incentive Advance") shall be an advance against,
and shall be deducted and recouped from, any incentive bonus payments to which
the Executive is entitled pursuant to the Agreement as specifically provided in
Exhibit A hereto.
(e) Additional Purchase Price. Exhibit A hereto shall also set forth
-------------------------
certain additional price payments based on the CCM Revenues (as defined in
Exhibit A) to be made for the assets of CCM (as hereinafter defined) pursuant to
the Option Agreement (as hereinafter defined).
3. PERFORMANCE APPRAISAL AND DISCRETIONARY BASE SALARY ADJUSTMENTS. The
Executive's work performance shall be reviewed in March of each year beginning
in 1999. As part of this annual performance appraisal review, the Base Salary
shall be reviewed and may be adjusted to reflect the Executive's performance.
The Base Salary may not be reduced without the prior written consent of the
Executive.
4. CAPACITIES AND DUTIES. During the term of this Agreement, the
Executive shall work full-time for the Employer and shall be employed in the
capacity, and shall have the responsibilities and duties, as specified in the
position description attached hereto as EXHIBIT B. The Executive shall also
perform such additional duties as may be reasonably designated from time to time
by the Employer. The Executive agrees to perform and discharge well and
faithfully all duties assigned to him and to devote his full, best and most
diligent efforts towards the performance of his duties for the Employer and the
furtherance of its business. The Employer will furnish the Executive office
space, equipment, supplies, and such other administrative services and personnel
as the Employer deems reasonably necessary or appropriate for the performance of
the Executive's duties under this Agreement and to enable the Executive to
perform such duties. Nothing in this Agreement shall be construed to prohibit
the Executive from engaging in business activities other than those described in
Exhibit B, provided that such other business activities may not be competitive
with the Employer and may not interfere with the obligation of the Executive to
provide full-time services to the Employer under this Agreement.
5. OTHER BENEFITS. In addition to the foregoing, the Employer shall
provide the Executive the following in benefits:
(a) Vacation. The Executive shall be entitled to four (4) weeks of
--------
paid vacation per year;
(b) Expenses. The Employer shall pay and reimburse the Executive for
--------
all reasonable and necessary expenses incurred or paid by the Executive in the
discharge of his duties hereunder which are consistent with the travel and
entertainment policy of the Employer
Page 2
<PAGE>
which is applicable to the executives of the Employer, as promulgated by the
Employer from time to time, provided the Executive submits documentation of said
expenses to the Employer in accordance with the policies of the Employer which
are applicable to the executives of the Employer; and
(c) Employee Benefits. The Executive shall be eligible to participate
-----------------
in any and all employee benefit plans and programs, including but not limited
to, health insurance and retirement programs, which are available to all the
senior management of the Employer. Additionally, the Executive shall be eligible
to participate in any and all employee benefit plans and programs, including but
not limited to, all insurance and retirement programs, which are available to
all members of senior management of The WMF Group, Ltd. The Employer shall pay
the costs of the Executive's membership in a dining or golf club selected by the
Executive, with the consent of the Chairman of the Employer, which consent will
not be unreasonably withheld. The Employer shall also pay the cost of the
Employee's professional licensing, and professional memberships and continuing
education programs reasonably related to the performance of the Executive's
duties under this Agreement (including, without limitation, the Berkeley real
estate program, the Wharton Real Estate Advisory Board, the USC Real Estate
Program, ICSC, MBA, ULI and NAIOP).
(d) Liability Insurance. The Employer shall pay for and maintain
-------------------
directors' and officers', and errors and omissions, liability insurance naming
the Executive as an insured in accordance with its practices with respect to
senior management of The WMF Group, Ltd. and its subsidiaries, and the Executive
agrees that he shall conduct himself at all times during the Employment Period
so as not to jeopardize the Employer's ability to obtain and maintain such
insurance. The Executive hereby represents and warrants to, and covenants with,
the Employer that, to the best of his knowledge, there is no cause attributable
to the Executive which would be a reasonable basis for the Employer's provider
of such insurance to object to the inclusion of the Executive into the coverage
of the Employer's current policies.
6. TERMINATION; RESIGNATION.
(a) Termination by Employer Without Cause. The Employer may terminate
-------------------------------------
the Executive's services and this Agreement at any time and for any reason or no
reason whatsoever by giving thirty (30) days' prior written notice to the
Executive. In the event the Executive is terminated by the Employer for any
reason other than for Cause, as defined below, the Executive shall (i) be
entitled to a severance payment in an amount equal to (A) twelve (12) months'
Base Salary, plus (B) the pro rata portion of the Incentive Bonus allocable to
----
the Executive for the year in which the termination occurs, using the
Executive's percentage of the Incentive Bonus Plan, or 25%, whichever is
greater, for the previous year (the "Pro-Rated Bonus"), plus (C) Incentive
----
Compensation for the thirty-six (36) months immediately succeeding the
Employment Period in an amount for such period which shall be determined as
follows: the amount of the Incentive Compensation shall be calculated by
obtaining the product of (I) the
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<PAGE>
Executive's allocation percentage of the Incentive Bonus Pool (as such Pool is
defined in Exhibit A to this Agreement) for the year immediately preceding the
Executive's termination, or 25%, whichever is greater, times (II) the net income
to the Employer (for the first, second or third twelve-month period, as
applicable, after the termination of the Executive) which is allocable to the
Booked Assets (as defined below) of the Employer as of the date of the
Executive's termination, plus (D) the acceleration of the vesting of all of the
----
options awarded to the Executive pursuant to the Award Agreement ((A), (B), (C)
and (D) being in the aggregate, the "Severance Payment"), and (ii) be subject to
the terms and provisions of said Section 8(b) for a period of one (1) year
following the date of termination, provided, however, that the Executive may at
the time of his termination waive his right to receive the Severance Payment and
be released from his obligation and liability with respect to Section 8 of this
Agreement. If the Executive is terminated pursuant to this Section 6(a), then in
addition to the Severance Payment, and subject to acceptance of the Severance
Payment by the Executive, all transfer restrictions applicable to any shares of
the stock of The WMF Group, Ltd. which were issued with respect to the
Employer's acquisition of the assets of Carbon Mesa Advisors, Inc. or Strategic
Real Estate Partners and which is owned by the Employer shall be terminated.
For purposes of this Agreement, the Booked Assets shall mean (i) any assets
or agreements producing income for the benefit of the Employer which were
acquired or originated by the Employer during the Employment Period, and (ii)
all prospective assets or agreements which are anticipated to produce income for
the benefit of the Employer which on the date of the Executive's termination are
the subject of a binding contract by the Employer and which are acquired or
funded on or before the 90th day after the date of the Executive's termination.
For purposes of determining the Incentive Compensation pursuant to this Section
6(a), net income allocable to Booked Assets shall mean (i) the revenue allocable
for the respective year to the Booked Assets, less (ii) an amount with respect
----
to the Employer's expenses for the respective year, which amount shall be
determined for each year by obtaining the product of (x) the Employer's overhead
expenses for the year, times (y) a fraction the numerator of which is the
-----
revenue for the year allocable to the Booked Assets and the denominator of which
is the revenue for the year allocable to all of the revenue of the Booked
Assets.
Notwithstanding anything to the contrary in this Agreement, the Executive
shall not be entitled to receive any Incentive Advance as a part of the
Severance Payment, and Severance Payment shall not be deemed to include any
Incentive Advance.
Further notwithstanding anything in this Section 6(a) to the contrary, the
Executive shall not be subject to the terms and provisions of Section 8(b) in
the event that his services are terminated by the Employer without Cause during
or after the fourth (4th) year of the Employment Period.
(b) Resignation of Executive for Breach by Employer. The Executive
-----------------------------------------------
may resign and terminate his employment upon a material breach of this Agreement
by the Employer,
Page 4
<PAGE>
which material breach remains uncorrected by the Employer for thirty (30) days
following receipt by the Employer of written notice from the Executive of such
breach. A material breach of this Agreement shall be deemed to have occurred if
there shall have been a material change in the Executive's responsibilities not
otherwise agreed to by the Executive, a reassignment of the Executive to work in
a location that is more than ten (10) miles from the Executive's work location
prior to such reassignment, or the Executive is required to report to an
individual other than the Chairman of the Employer. In the event that the
Executive resigns as provided in this Section 6(b), the Executive may, by giving
prompt written notice to the Employer of his resignation pursuant to this
Section 6(b) and his acceptance of the Severance Payment, accept the Severance
Payment, which acceptance shall constitute full and complete satisfaction
(except as to monies otherwise owed to the Executive by the Employer hereunder)
and be his sole and exclusive remedy (except as to monies otherwise owed to the
Executive by the Employer hereunder) for the Employer's breach of this
Agreement. The Executive may, alternatively, at the time of his resignation give
prompt written notice to the Employer of his waiver of his right to receive the
Severance Payment and any amount from the Employer equal to the value of the
Severance Payment and be released from his obligation and liability with respect
to Section 8 of this Agreement. In the event that the Executive does not elect
either of the foregoing alternatives, the Executive shall be deemed to have
reserved all of his rights and remedies against the Employer for any breach of
this Agreement by the Employer. . If the Executive resigns pursuant to this
Section 6(b), then in addition to the Severance Payment, and subject to
acceptance of the Severance Payment by the Executive, all transfer restrictions
applicable to any shares of the stock of The WMF Group, Ltd. which were issued
with respect to the Employer's acquisition of the assets of Carbon Mesa
Advisors, Inc. or Strategic Real Estate Partners and which is owned by the
Employer shall be terminated.
(c) Termination by Employer for Cause; Resignation of Executive. The
-----------------------------------------------------------
Executive shall not be entitled to any Severance Payment (other than any accrued
but unpaid Base Salary and such other amounts exclusive of the Severance Payment
which may otherwise be owed by the Employer to the Executive under this
Agreement) (i) in the event that he is terminated by the Employer for Cause, or
(ii) in the event that he resigns and terminates his employment with the
Employer for any reason other than a material breach of this Agreement by the
Employer, which resignation and termination by the Executive shall not be deemed
to be a breach of this Agreement. Additionally, in either event, the Executive
shall be subject to the terms and provisions of Section 8 of this Agreement for
that one (1) year period following the date of such termination.
For the purposes of this Agreement, "Cause" is hereby defined to mean: (i)
the engaging by the Executive in any act of dishonesty, including, but not
limited to, the appropriation (or attempted appropriation) of a material
business opportunity of the Employer, attempting to secure or securing any
personal profit in connection with any transaction entered into on behalf of the
Employer, or the misappropriation (or attempted misappropriation) of any of the
Employer's funds or property; (ii) the conviction of the Executive of, or the
entering of a guilty
Page 5
<PAGE>
plea or plea of no contest by the Executive with respect to, a felony (other
than the initial instance of a "driving while intoxicated" case or "driving
under the influence" case (or similar charge under applicable law), any crime
involving moral turpitude, or any other crime which jeopardizes the status of
the Employer's errors and omissions or fidelity insurance or causes a surcharge
for the cost to the Employer of such insurance, or (iii) a breach of this
Agreement by the Executive, including the failure of the Executive, after
written notice by, and consultation with, the Employer, to perform his duties or
responsibilities under this Agreement in a business-like manner, or to comply
with any written Employer policy which the Executive has received and which is
applicable to all employees, or if to senior management, then to all senior
management, of the Employer, which breach is material and is not corrected to
the reasonable satisfaction of the Employer within thirty (30) days (to the
extent such breach may be corrected within such 30-day period, and if not,
within a reasonable time period but not longer than 180 days) after written
notification by the Employer to the Executive of the breach.
(d) Termination by Employer for Disability of the Executive. If the
-------------------------------------------------------
Executive shall be terminated due to a disability (as defined hereafter in this
Section 6(d)), the Executive shall not be entitled to any Severance Payment
(other than any accrued but unpaid Base Salary, the Pro-Rated Bonus, and such
other amounts exclusive of the Severance Payment which are owed by the Employer
to the Executive under this Agreement) but shall be entitled to receive a
payment of $20,000.00 per month (the "Disability Payment") for the twelve (12)
months immediately succeeding his termination by the Employer for disability.
The Disability Payment may be made from insurance proceeds, the Employer's
resources, or both.
For purposes of this Agreement, the Executive will be deemed to have a
"disability" if, for physical or mental reasons, the Executive is unable to
perform the Executive's duties under this Agreement for 180 days during any
twelve month period, unless the Employer grants in writing a leave of absence to
the Executive. The disability of the Executive will be determined either (i) by
the Executive's eligibility for payments pursuant to the disability insurance
benefit plan provided by the Employer to its employees, including the Executive,
or (ii) by a medical doctor selected by written agreement of the Employer and
the Executive upon the request of either party by notice to the other. If the
Employer and the Executive cannot agree on the selection of a medical doctor,
each of them will select a medical doctor and the two medical doctors will
select a third medical doctor who will determine whether the Executive has a
disability. The determination of the medical doctor selected under this
Agreement will be binding on both parties. The Executive must submit to a
reasonable number of examinations by the medical doctor making the determination
of disability under this Agreement, and the Executive hereby authorizes the
disclosure and release to the Employer of such determination and all supporting
medical records. If the Executive is not legally competent, the Executive's
legal guardian or duly authorized attorney-in-fact will act in the Executive's
stead, under this Agreement, for the purposes of submitting the Executive to the
examinations, and providing the authorization of disclosure, required under this
Agreement.
Page 6
<PAGE>
If the Executive is terminated for disability, the Executive shall be
entitled to resume his employment with the Employer within ninety (90) days of
his termination, subject to the terms and provisions of this Agreement and at
the Base Salary which was payable to the Executive at the time of his
termination for disability. If the Executive elects so to resume employment with
the Employer and is at any time thereafter terminated for Cause, then such
subsequent termination for Cause shall not be subject to or conditioned upon any
rights of the Executive to resume employment with the Employer.
(e) Termination Upon Death of Executive. The Employment Period shall
-----------------------------------
terminate upon the death of the Executive, provided, however, that the heirs and
beneficiaries of the Executive shall be entitled to receive (i) such benefits as
may be provided to the heirs and beneficiaries of employees of the Employer and
The WMF Group, Ltd. pursuant to the employee benefits plans and programs of the
Employer and The WMF Group, Ltd. in which the Executive participated, including
but not limited to the proceeds of any life or disability insurance policy
insuring the Executive, the premiums for which policy are paid by the Employer
or by The WMF Group, Ltd., and which names a beneficiary other than the Employer
or The WMF Group, Ltd., (ii) any accrued and unpaid Base Salary, and (iii) the
Pro-Rated Bonus. The Employer agrees that during the Employment Period, at a
minimum, it shall maintain at no cost to the Executive a term life/split dollar
life insurance policy insuring the life of the Executive for an amount equal to
no less than $500,000.00, with the proceeds of such policy payable to such
beneficiaries thereof as the Executive has designated in accordance with the
terms of the policy.
(f) Timing of Payments. The Base Salary component of any Severance
------------------
Payments due under this Agreement, and any accrued and unpaid Base Salary due to
or on behalf of the Executive under this Agreement, shall be paid within sixty
(60) days following the end of the Employment Period. The Incentive
Compensation component of any Severance Payments shall be paid annually on the
1st day of March for the prior calendar year. Subject to the terms and
provisions of Section 8 of this Agreement, the Employer waives any right to a
reduction in any such payments as a result of the Executive's receipt of
compensation from any other employment.
(g) Special Termination By Executive. The Employer and the Executive
--------------------------------
acknowledge and agree that the Employer has entered into an option agreement,
dated as of the date of this Agreement, with Carbon Capital Management, L.L.C.
("CCM") (the "Option Agreement") pursuant to which the Employer has the option
to acquire substantially all of the assets of CCM, and that the Executive will
derive personal benefit if the Employer exercises such option. Notwithstanding
anything to the contrary in this Agreement or in any other agreement between the
Executive and the Employer, in the event that the Employer does not exercise its
option in accordance with the terms and provisions of the Option Agreement, then
the Executive may resign his employment under this Agreement within ninety (90)
days of the decision of the Employer not to exercise its option. In such event,
then, notwithstanding anything to the contrary in this Agreement, but only if
the Executive resigns within the aforesaid ninety (90) day period, (i) the
Executive shall be entitled to receive the Severance Payment, (ii) all transfer
restrictions
Page 7
<PAGE>
applicable to any shares of the stock of The WMF Group, Ltd. which were issued
with respect to the Employer's acquisition of the assets of Carbon Mesa
Advisors, Inc. or Strategic Real Estate Partners and which is owned by the
Employer shall be terminated, and (iii) the Executive shall be subject to the
terms and provisions of Section 8(b) of this Agreement for a period of one (1)
year following the date of resignation, provided, however, that the Executive
may at the time of his resignation waive his right to receive the Severance
Payment and be released from his obligation and liability with respect to
Section 8(b) of this Agreement.
(h) Nondisclosure. In the event that the Executive is terminated
-------------
pursuant to Sections 6(a), (b) or (c), the Executive and the Employer agree that
neither party shall disclose to any third-party the reasons or the details of
the Executive's termination (unless such information must be disclosed pursuant
to advice of counsel).
(i) Survival. The provisions of this Section 6 shall survive the
--------
termination of any other terms and provisions of this Agreement for the term
necessary to complete any severance payments required to be paid to the
Executive hereunder.
(j) Replacement of Certain Executives. In the event that Mitchell D.
---------------------------------
Clarfield is no longer employed as an executive by the Employer, then the
Employer agrees that it will obtain the prior consent of the Executive before
the Employer hires an executive to replace Mr. Clarfield. The Executive agrees
that he may not unreasonably withhold his consent to the hiring of such
replacement.
7. CONFIDENTIAL INFORMATION.
(a) Introduction. The Executive and the Employer recognize that due
------------
to the nature of their relationship, the Executive has had access to and will
have access to confidential and proprietary information relating to the business
and operations of the Employer. The Executive acknowledges that all such
information has been and will continue to be of critical importance to the
Employer and that disclosure of it to, or its use by, others could cause
substantial injury to the Employer.
(b) Confidentiality. The Executive shall keep confidential any
---------------
confidential information of the Employer which is now known to him or which
hereafter becomes known to him as a result of his employment by the Employer,
and shall not at any time directly or indirectly disclose any such information
to any person or firm or use the same in any way other than in connection with
the business of the Employer during, and at all times after termination of, the
employment by the Employer of the Executive. The Executive further agrees that
he will, upon termination of his employment by or with the Employer, return to
the Employer, all confidential information in the Executive's possession,
including all books, records, lists and other written, typed or computer printed
materials or data, and all copies thereof and excerpts therefrom, whether
furnished by the Employer or an affiliate of the Employer or prepared by the
Executive, which contain any information relating to the Employer's business,
and the Executive
Page 8
<PAGE>
agrees that he will neither make nor retain any copies of such materials after
termination of his employment. The Executive recognizes that should a dispute or
controversy arising from or relating to this Agreement be submitted for
adjudication to any court, arbitration panel, or other third party, the
preservation of the secrecy of confidential information may be jeopardized. All
pleadings, documents, testimony, and records relating to any such adjudication
will be maintained in secrecy (except as must be made public in accordance with
court rules and procedures) and will be available for inspection by the
Employer, the Executive, and their respective attorneys and experts, who will
agree, in advance and in writing, to receive and maintain all such information
in secrecy, except as may be limited by them in writing.
For the purposes of this Agreement, "confidential information" shall
mean, to the extent that such information is not generally known or available to
the public, or required by law or judicial process to be disclosed, any and all:
(a) trade secrets concerning the business and affairs of the Employer, data in
all media and formats, processes, designs, sketches, photographs, graphs,
drawings and inventions, past, current, and planned research and development,
current and planned marketing or distribution methods and processes, customer
lists, current and anticipated customer requirements, price lists, market
studies, business plans, computer software and programs (including object code
and source code), computer software and database technologies, systems,
structures, and architectures, and any other information, however documented,
that is a trade secret generally within the meaning of law; and (b) information
concerning the business and affairs of the Employer (which includes historical
financial statements, financial projections and budgets, historical and
projected sales, capital spending budgets and plans, the names and backgrounds
of key personnel, personnel training and techniques and materials, however
documented; and (c) notes, analysis, compilations, studies, summaries, and other
material prepared by or for the Employer containing or based, in whole or in
part, on any information included in the foregoing. For the purposes of this
Agreement, customer lists shall not include any list prepared by the Executive
after the termination of his employment or of this Agreement which are compiled
by the Executive without referring to any confidential information.
(c) Compliance. Compliance with this Section 7 is a condition
----------
precedent to the Employer's obligation to make any payments of any nature to the
Executive.
(d) Survival. The terms and provisions of this Section 7 shall
--------
survive the termination of any other terms and provisions of this Agreement, and
if the Executive's employment hereunder expires or is terminated, this Agreement
will continue in full force and effect as is necessary or appropriate to enforce
the covenants and agreements of the Executive in this Section 7.
8. NON-COMPETITION; NON-SOLICITATION.
(a) Acknowledgments by the Executive. The Executive acknowledges
--------------------------------
that: (i) the services to be performed by him under this Agreement are of a
special, unique, unusual,
Page 9
<PAGE>
extraordinary, and intellectual character; (ii) the Employer's business is
national in scope and its products and services are marketed throughout the
United States; (iii) the Employer competes with other businesses that are or
could be located in any part of the United States; (iv) the Employer has
required that the Executive make the covenants set forth in this section of the
Agreement as a specific condition to the Employer's creation or substantial
capitalization of, and substantial investment of time, money and personnel in,
the business, the business units or affiliated entities of the Employer for
which the Executive shall have responsibility to the Employer; and (v) the
provisions of this section are reasonable and necessary to protect the
Employer's business.
(b) Covenants of the Executive. In consideration of the
--------------------------
acknowledgments by the Executive, and in consideration of the compensation and
benefits to be paid or provided to the Executive by the Employer, the Executive
covenants that :
(1) during the Employment Period, the Executive will not, directly
or indirectly, either individually or as owner, director, partner, agent,
employee, independent contractor, consultant or otherwise, except for the
account of and on behalf of the Employer in the course of his employment by the
Employer under this Agreement (i) engage in any manner, either as a principal or
advisor or representative, in the high yield funds management business with
respect to commercial mortgage related assets, or the commercial loan
origination or brokering business, or (ii) solicit, or otherwise attempt to
establish for the Executive, or any other person or firm, any business
relationships directly competitive with the Employer's business as of the date
of the end of the Employment Period; and
(2) the Executive will not, whether for the Executive's own
account or the account of any other person, at any time during the Employment
Period , (i) with respect to any business activities which are directly
competitive with the business of the Employer, solicit, any person who is an
employee of the Employer; or (ii) in any manner induce or attempt to induce any
employee of the Employer to terminate his employment with the Employer; and
(c) Severability; Enforceability. If any covenant in this Section 8
----------------------------
is held to be unreasonable, arbitrary, or against public policy, such covenant
will be considered to be divisible with respect to scope, time, and geographic
area, and such lesser scope, time, or geographic area, or all of them, as a
court of competent jurisdiction may determine to be reasonable, not arbitrary,
and not against public policy, will be effective, binding, and enforceable
against the Executive.
(d) Extension of Covenant. The period of time applicable to any
---------------------
covenant in this Section 8 will be extended by the duration of any violation by
the Executive of such covenant, which violation shall be deemed to have begun
after notice of such violation by the Employer to the Executive.
Page 10
<PAGE>
(e) Notice to Employer. The Executive will, while the covenant under
------------------
this Section 8 is in effect, give notice to the Employer, within ten (10) days
after accepting any other employment, of the identity of the Executive's
employer. The Employer may notify such employer that the Executive is bound by
this Agreement and, at the Employer's election, furnish such employer with a
copy of this Agreement or relevant portions thereof.
(f) Compliance. Compliance with this Section 8 is a condition
----------
precedent to the Employer's obligation to make any payments of any nature to the
Executive except earned and accrued, but unpaid, Base Salary.
(g) Survival. Except as otherwise specifically provided in this
--------
Agreement, the terms and provisions of this Section 8 shall survive the
termination of any other terms and provisions of this Agreement, and if the
Executive's employment hereunder expires or is terminated, this Agreement will
continue in full force and effect as is necessary or appropriate to enforce the
covenants and agreements of the Executive in this Section 8.
(h) Termination of Covenants. The covenants of the Executive made in
------------------------
this Section 8 shall terminate completely and be of no further force and effect
upon the occurrence of either (i) the commencement by the Employer of voluntary
liquidation or winding-up proceedings under applicable Federal or State law, or
(ii) a decree or order of a court having jurisdiction in the premises in an
involuntary case against the Employer under any Federal or State law ordering
the liquidation of the Employer or its affairs, and such decree or order remains
in force undischarged or unstayed for a period of thirty (30) business days.
9. EMPLOYER'S REMEDIES. The Executive acknowledges that the injury
that would be suffered by the Employer as a result of a breach of the provisions
of this Agreement (including any provision of Sections 7 and 8 of this
Agreement) would be irreparable and substantial and that an award of monetary
damages to the Employer for such a breach would be difficult, if not impossible,
to ascertain and would in any event be an inadequate remedy. Consequently, the
Employer shall have the right, in addition to any other rights and remedies it
may have, to obtain injunctive relief to restrain any breach or threatened
breach or otherwise specifically to enforce any provision of this Agreement, and
the Executive hereby waives any and all defenses he may have on the grounds of
lack of jurisdiction or competence of the court to grant such an injunction or
other equitable relief. Without limiting the Employer's rights under this
Agreement, or any other remedies of the Employer, if the Executive breaches any
of the provisions of Sections 7 or 8 of this Agreement, the Employer will have
the right to cease making any payments otherwise due to the Executive under this
Agreement, except earned and accrued, but unpaid, Base Salary, and the Executive
shall reimburse the Employer for reasonable costs incurred by the Employer.
10. EXECUTIVE'S REPRESENTATIONS. The Executive hereby represents
and warrants to, and covenants with, the Employer that (i) he is free to enter
into this Agreement and that by so doing he is not violating any other
agreement, undertaking, obligation, court order or decree which would or may
interfere with the delivery and execution of this Agreement by the
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Executive or the performance by the Executive of his obligations hereunder, and
(ii) he possesses, or if not in possession, has no reason to believe that he
cannot obtain in a timely manner, any and all licenses which are necessary for
him to fulfill his obligations to the Employer under this Agreement.
11. MISCELLANEOUS.
(a) Notices. Any notice required or permitted under this Agreement
-------
shall be deemed given (i) if in writing and if personally delivered and
receipted in writing, or (ii) three (3) business days after being mailed by
certified or registered mail, return receipt requested, to the parties hereto at
the addresses listed below (or at such other address for a party as shall be
specified by like notice):
Employer: WMF Carbon Mesa Advisors, Inc.
1593 Spring Hill Road, 5th Floor
Vienna, Virginia 22182
Attention: Shekar Narasimhan
Executive: See the address of Executive on signature page.
(b) Entire Agreement. This Agreement, with Exhibit A and Exhibit B,
----------------
constitutes the entire agreement concerning the subject matter hereof between
the parties, and replaces in toto and fully supersedes any and all prior or
existing agreements, whether written or verbal, between the Employer and the
Executive, except for that certain Key Employee Incentive Award Agreement, dated
of even date herewith, which is incorporated into this Agreement.
(c) Governing Law; Jurisdiction; Service of Process. This Agreement
-----------------------------------------------
shall be construed in accordance with and governed by the laws of the
Commonwealth of Virginia. Any action or proceeding seeking to enforce any
provision of, or based on any right arising out of, this letter may be brought
against any of the parties in the courts of the Commonwealth of Virginia, County
of Fairfax, or, if it has or can acquire jurisdiction, in the United States
District Court for the Eastern District of Virginia, and each of the parties
consents to the jurisdiction of such courts (and of the appropriate appellate
courts) in any such action or proceeding and waives any objection to venue laid
therein. Process in any action or proceeding referred to in the preceding
sentence may be served on any party anywhere in the world.
(d) Counterparts. This Agreement may be executed in any number of
------------
counterparts, all such counterparts shall be deemed to constitute one and the
same instrument, and each counterpart shall be deemed an original hereof.
Page 12
<PAGE>
(e) Modification. No change or modification of this Agreement shall
------------
be valid unless the same is in writing and signed by the Executive and a duly
authorized officer of the Employer.
(f) Waiver. Failure of any party to exercise, any right or option
------
arising out of a breach of this Agreement shall not be deemed a waiver of any
right or option with respect to any subsequent or different breach, or the
continuance of any existing breach.
(g) Successors and Assigns; No Assignment by Executive. This Agreement
--------------------------------------------------
may not be assigned in part or in toto by the Executive or by the Employer. The
parties hereto acknowledge and agree that a change in control of the Employer
shall not be deemed to be an assignment of this Agreement.
(h) Captions. Captions used herein are for convenience only and are
--------
not part of this Agreement and shall not be deemed to limit or alter any
provisions hereof and shall not be deemed relevant in construing this Agreement.
(i) Severability. If any term or provision of this Agreement shall be
------------
held to be invalid, unenforceable or void, the remainder of this Agreement shall
remain in full force and effect.
(j) Attorneys' Fees and Costs. If any judicial proceedings,
-------------------------
arbitration or mediation as between the parties arises with respect to this
Agreement, the prevailing party shall be entitled to recover all reasonable fees
of counsel, reasonable costs, and any reasonable disbursements, including,
without limitation, expert witness fees, deposition costs and other fees and
expenses.
(k) Covenants of Sections 7 and 8 Are Essential and Independent
-----------------------------------------------------------
Covenants. The covenants by the Executive in Sections 7 and 8 of this Agreement
- ---------
are essential elements of this Agreement, and without the Executive's agreement
to comply with such covenants, the Employer would not have created or
substantially capitalized, and substantially invested time, money and personnel
in, the business, the business units or affiliated entities of the Employer for
which the Executive shall have responsibility to the Employer, and the Employer
would not have entered into this Agreement or employed or continued the
employment of the Executive. The Employer and the Executive have independently
consulted their respective counsel and have been advised in all respects
concerning the reasonableness and propriety of such covenants, with specific
regard to the nature of the business conducted by the Employer. The Executive's
covenants in Sections 7 and 8 of this Agreement are independent covenants and
the existence of any claim by the Executive against the Employer under this
Agreement or otherwise will not excuse the Executive's breach of any covenant in
Sections 7 or 8 of this Agreement.
(l) Life Insurance. The Employer shall have the right, during the
--------------
Employment Period, to pay for and obtain a life insurance policy, of the type
commonly known
Page 13
<PAGE>
as "key person" insurance, insuring the life of the Executive in an amount not
to exceed $2,000,000, which amount shall be payable to the Employer as the
beneficiary of the policy upon the death or disability of the Executive. The
Executive agrees to cooperate with the Employer, and with such insurance brokers
and agents, and with such insurance companies, as may be necessary in order for
the Employer to obtain such a policy.
(m) Deductions from Amounts Due to Executive. The Executive
----------------------------------------
authorizes the Employer to deduct from any amounts due to him, upon the end of
his employment, an amount equal to any outstanding advances by the Employer to
him or on his behalf and any amounts otherwise owed by him to the Employer,
provided however, that such authorization is conditioned upon the absence of any
dispute between the Employer and the Executive with respect to such amounts.
IN WITNESS WHEREOF, the Employer and the Executive have executed this
Employment Agreement as of the day and year first above written.
EMPLOYER:
---------
WMF CARBON MESA ADVISORS, INC.
By: /s/ Shekar Narasimhan
_________________________ -----------------------
Witness Shekar Narasimhan
Its: Chairman
EXECUTIVE:
----------
/s/ Glenn A. Sonnenberg
_________________________ -----------------------
Witness
Address:
_______________________
_______________________
_______________________
Page 14
<PAGE>
EXHIBIT 11
Statement re computation of per share earnings
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1999 MARCH 31, 1998
-------------- ---------------
NET PER SHARE NET PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS $(1,258) 8,144 $ (0.15) $ 281 5,076 $ 0.06
Effect of dilutive
securities Options - - - - 243 (0.01)
-------- ------ -------- ------ ----- ---------
DILUTED EPS $(1,258) 8,144 $ (0.15) $ 281 5,319 $ 0.05
-------- ------ -------- ------ ----- ---------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 18,758
<SECURITIES> 6,187
<RECEIVABLES> 0
<ALLOWANCES> 6,573
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 4,870
<DEPRECIATION> 778
<TOTAL-ASSETS> 214,890
<CURRENT-LIABILITIES> 121,693
<BONDS> 0
0
0
<COMMON> 111
<OTHER-SE> 36,612
<TOTAL-LIABILITY-AND-EQUITY> 214,890
<SALES> 0
<TOTAL-REVENUES> 13,102
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 13,666
<LOSS-PROVISION> 320
<INTEREST-EXPENSE> 891
<INCOME-PRETAX> (1,775)
<INCOME-TAX> (517)
<INCOME-CONTINUING> (1,258)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
</TABLE>
