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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1998
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[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES ACT OF
1934
For the transition period from _________ to _____________
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
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Securities registered pursuant to Section 12 (b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
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Common Stock, $.01 par value The Nasdaq Stock Market
Securities registered pursuant to Section 12 (g) of the Act: NONE
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 ____
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. _____
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $57.7 million based on the closing price of such
shares on The Nasdaq Stock Market as of March 29, 1999.
As of March 29, 1999 there were 11,260,415 shares of common stock issued and
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outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
THE PROXY STATEMENT FOR THE 1999 ANNUAL MEETING OF STOCKHOLDERS IS INCORPORATED
BY REFERENCE INTO PART III OF THIS REPORT.
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The WMF GROUP, LTD.
FORM 10-K
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Item No. Page
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<S> <C>
PART I
1. Business 3
2. Properties 17
3. Legal Proceedings 17
4. Submission of Matters to a Vote of Security Holders 18
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters 18
6. Selected Financial Data 19
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 21
7a. Quantitative and Qualitative Disclosure about Market Risk 32
8. Financial Statements and Supplementary Data 32
9. Changes in and disagreements with Accountants on Accounting and
Financial Disclosure 32
PART III
10. Directors and Executive Officers of the Registrant 32
11. Executive Compensation 32
12. Security Ownership of Certain Beneficial Owners and Management 32
13. Certain Relationships and Related Transactions 32
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 32
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A Warning About Forward Looking Statements
This report may contain "forward-looking statements." Any statement in this
report, other than a statement of historical fact, may be a forward-looking
statement.
You can generally identify forward-looking statements by looking for words
such as "may," "will," "expect," "intend," "estimate," "anticipate," "believe"
or "continue." Variations on those or similar words, or the negatives of such
words, also may indicate forward-looking statements.
Although the Company believes that the expectations reflected in this
report are reasonable, the Company cannot assure you that its expectations will
be correct. The Company has included a discussion entitled "Risk Factors" in
this report, disclosing important factors that could cause its actual results to
differ materially from its expectations. If in the future you hear or read any
forward-looking statements concerning the Company, you should refer to these
Risk Factors.
The forward-looking statements in this report are accurate only as of its
date. If the Company's expectations change, or if new events, conditions or
circumstances arise, the Company is not required to, and may not, update or
revise any forward-looking statement in this report.
PART I
ITEM 1. BUSINESS
COMPANY OVERVIEW
The WMF Group, Ltd. (the "Company") is one of the largest commercial
mortgage financial services companies in the United States, as measured by
servicing portfolio size, according to a survey published by the Mortgage
Bankers Association of America (the "MBA"). As the nation's largest originator
of Federal National Mortgage Association ("Fannie Mae") and Federal Housing
Authority ("FHA") insured multifamily and health care loans, the Company has
originated more than $9 billion in conventional and FHA-insured multifamily and
commercial loans since 1993, and has a servicing portfolio of approximately
$12.1 billion, at December 31, 1998. The company has 346 employees and operates
19 offices nationwide. The Company has three principal lines of business: (i)
mortgage banking, (ii) capital markets and (iii) advisory services.
The WMF Group, Ltd. is a Delaware corporation formed in October 1992 under
the name "WMF Holdings, Inc." Originally, the Company was created to hold the
operations of WMF Huntoon, Paige Associates Limited ("WMF Huntoon Paige") and
WMF Washington Mortgage Corp. ("WMF Washington Mortgage"). WMF Huntoon Paige and
WMF Washington Mortgage are wholly-owned subsidiaries of the Company.
WMF Huntoon Paige has originated and serviced multifamily and healthcare
mortgages insured by FHA under various owners and under various names since
1979. WMF Washington Mortgage acquired WMF Huntoon Paige in 1991. WMF Washington
Mortgage has originated and serviced multifamily and commercial mortgages under
various owners and under various names since 1984.
On April 1, 1996, NHP Incorporated ("NHP") purchased the Company and named
it "NHP Financial Services, Inc." In early 1997, NHP was acquired by Apartment
Investment and Management Co. ("AIMCO"). As a condition of that purchase, AIMCO
required NHP to spin-off the Company. On December 8, 1997, the Company became an
independent, publicly traded company. The Company's primary shareholders are
Demeter Holdings Corporation ("Demeter"), Phemus Corporation ("Phemus") and
Capricorn Investors II, L.P. ("Capricorn"). Demeter and Phemus are affiliates of
Harvard Private Capital Holdings, Inc. ("Harvard").
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INDUSTRY OVERVIEW
The Company believes that the financing of commercial and multifamily real
estate offers significant growth opportunities. Commercial and multifamily real
estate encompasses a wide spectrum of assets including multifamily, office,
industrial, retail and hospitality. These assets are financed by an estimated
$1.3 trillion of outstanding commercial real estate debt. During the past ten
years, total commercial mortgage originations have averaged approximately $210
billion annually, of which approximately 75 percent to 80 percent consist of
non-multifamily assets. The Company anticipates that on a stabilized basis, the
commercial real estate market will require debt financing for existing
properties of approximately $120 to $140 billion annually, plus additional
amounts for new construction.
Mortgage banking involves the origination and servicing of mortgage loans.
Commercial mortgage banks have arranged a significant portion of the debt
financing for commercial real estate. Historically, commercial mortgage banks
originated and serviced loans for life insurance companies in specified
geographic regions. In addition to providing loans to life insurance companies,
some commercial mortgage banks acted as originators for Government Sponsored
Entities ("GSEs") such as Fannie Mae and Federal Home Loan Mortgage Corporation
("Freddie Mac"), and also acted as brokers for other lenders. As a result, a
fragmented industry has developed which is comprised of small local and regional
firms.
However, since the early 1990s the commercial mortgage banking industry has
experienced significant change, in part due to the growth in commercial mortgage
securitization, the expanded involvement of GSEs, increased borrower
sophistication and advances in information technology. Many of the existing
firms lack the capital and financial sophistication to compete effectively in
today's rapidly changing market. Accordingly, the Company believes the
commercial mortgage industry is going through a period of consolidation similar
to that experienced in the residential mortgage industry. Although consolidation
provides significant growth opportunities for the Company, certain risks are
also involved. See "Risk Factors -- The Company May Be Unable to Complete
Acquisitions or Enter into New Business Lines."
STRATEGIC OBJECTIVES
Because of its geographic scope, multiple investor relationships,
underwriting expertise, operating systems and product development capabilities,
the Company believes that it is well-positioned to compete effectively in the
commercial real estate financing industry. Technological demands, large and
sophisticated infrastructure for real estate underwriting and risk evaluation,
and rapid market changes increasingly characterize this industry. The Company
believes that these developments will lead to the creation of large and
sophisticated mortgage finance enterprises offering a wide spectrum of
commercial finance products. The Company seeks to use its existing
infrastructure and market position to increase market share of its established
businesses and to expand into related businesses.
The Company seeks to increase reported earnings and cash flow through (i)
acquisitions, (ii) internal growth, (iii) design and delivery of new mortgage
products, including structured loan products and participating loan products,
(iv) expansion into related businesses, such managing commercial mortgage
investment funds, and (v) diversification of fee income sources.
Acquisitions. The Company has pursued a strategy of acquiring (1) multifamily
and commercial mortgage businesses that either serve key real estate markets in
the United States or provide specialized services that enhance its product line,
and (2) additional servicing portfolios. In the past, the Company has sought to
acquire companies with active and productive loan origination staffs,
significant market share and servicing portfolios of $250 million or more and
expects to continue to do so in the future, to the extent adequate capital and
attractive opportunities are available.
Since 1996, the Company has made six acquisitions (the "Acquistions"):
. During 1996, the Company increased its portfolio of serviced mortgages by
40.9 percent from $4.4 billion to $6.2 billion, primarily as a result of
two acquisitions. On May 13, 1996, WMF Huntoon Paige purchased a portion of
the loan production pipeline and servicing, as well as certain other
assets, of American Capital Resources Investment Corp. ("ACR") for
approximately $4.2 million, plus potential future payments based on
realization of loans closed from the pipeline through August 1997. The
acquired pipeline and loan production offices originated approximately $138
million in multifamily and healthcare loans for WMF Huntoon Paige in 1996.
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. On December 31, 1996, WMF Washington Mortgage acquired all of the common
stock of Detroit-based Proctor & Associates of Michigan ("Proctor"), the
37th largest commercial mortgage banking firm in the United States based on
a survey by the MBA. WMF Washington Mortgage paid approximately $3.7
million in cash to acquire Proctor. The acquisition brought to the Company
a $1.1 billion loan servicing portfolio of multifamily, retail and office
building mortgages, as well as 17 active correspondent relationships with
life insurance companies.
. On April 15, 1997, WMF Washington Mortgage purchased substantially all of
the mortgage banking assets and liabilities of Askew Investment Company
("Askew") in Dallas, Texas for $5.6 million, excluding transaction costs
(82 percent of which was paid at closing and the remaining 18 percent of
which will be paid in the form of earnouts upon the attainment of certain
performance objectives over a 36-month period). Askew is a multifamily and
commercial mortgage bank with correspondent relationships with 14 insurance
companies, which originated $375 million of mortgages in 1996. The
acquisition increased the Company's mortgage servicing portfolio by $425
million and gave the Company access to the traditional insurance company
whole-loan buyers in the markets served by Askew. The purchase also
provided the Company with a new source of loans it intended for
securitization through the Company's capital market relationships.
. On November 5, 1997, WMF Washington Mortgage purchased 100 percent of the
outstanding stock of The Robert C. Wilson Company and its Arizona
subsidiary (collectively, "Robert C. Wilson") for a purchase price of
approximately $4.0 million in cash (80 percent of which was paid at closing
and the remaining 20 percent of which will be paid in the form of earnouts
upon the attainment of certain performance objectives over a 42-month
period). In addition to its mortgage and equity origination and servicing
activities, Robert C. Wilson provides commercial office leasing and real
estate sales. Robert C. Wilson has correspondent relationships with 24
insurance companies and originated approximately $475 million of mortgages
in 1997. The acquisition increased the Company's servicing portfolio by
$554 million.
. On December 23, 1997, WMF Washington Mortgage purchased substantially all
of the mortgage banking assets of New York Urban West, Inc. ("New York
Urban") for a purchase price of approximately $4.9 million in cash (84
percent of which was paid at closing and the remaining 16 percent of which
will be paid in the form of earnouts upon the attainment of certain
performance objectives over a 42-month period). An approved HUD mortgagee,
New York Urban originated $225 million of mortgages in 1997 and had
correspondent relationships with several life insurance companies. The
acquisition increased the Company's servicing portfolio by $1.3 billion.
. On March 27, 1998, the Company created WMF Carbon Mesa Advisors, Inc. ("WMF
Carbon Mesa"), which purchased all of the assets of Carbon Mesa Advisors,
Inc. and Strategic Real Estate Partners for a combination of cash and
common stock. WMF Carbon Mesa develops new loan products, manages
commercial mortgage investment funds, provides special asset management
services and originates commercial mortgages.
The Company also grows its servicing portfolio through the acquisition of
servicing rights. Since 1992, the Company has acquired servicing rights on
approximately $1.3 billion of mortgages in over 44 transactions.
The Company routinely reviews and conducts investigations of potential
acquisitions of multifamily and commercial mortgage businesses. As of March 30,
1999, the Company does not have any agreements or letters of intent with respect
to pending acquisitions. However, if the Company has access to sufficient
capital, the Company may enter into discussions with one or more potential
acquisition targets in the commercial mortgage financial services business. The
Company cannot assure you that such discussions will result in future
acquisitions, or that if those acquisitions are completed, they will be
successful.
Internal Growth. The Company has grown through internal expansion. This growth
has occurred though a combination of opening of new offices, hiring new loan
officers, implementing loan officer training programs, and creating a national
sales force capable of originating loans for multiple of investor sources.
Prospectively, the Company seeks to grow via continued expansion of its national
origination system, further streamlining of its servicing operations, and the
realization of other operating efficiencies.
- In addition to expanding its origination system through acquisitions, the
Company opened four new loan origination offices and hired 16 new loan
officers in 1998. Through training and other management initiatives, the
Company has developed a national sales force, capable of selling all loan
products offered by the Company.
- The Company implemented a cost-reduction program, which is expected to
result in savings of at least $7.5 million annually
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from previously anticipated levels. See "Major Developments in 1998 - Cost-
Saving Measures".
As a result of acquisitions and internal growth, the Company has increased
loan originations by approximately 62 percent annually, from approximately $240
million in 1992 to approximately $4.3 billion in 1998. The Company's servicing
portfolio has increased by approximately 26 percent annually, from approximately
$3.0 billion in 1992 to $12.1 billion as of December 31, 1998.
Design and delivery of new mortgage products. Since 1992, the Company has been
involved in developing more than eight new products, including one of the first
whole-loan conduits (Common Sense/SM/), a revolving credit facility for real
estate investment trusts, a bridge loan program for mark-to-market properties
and a forward commitment program for tax-credit new construction. Using these
products, the Company has originated loans totaling over $1.7 billion from 1992
to 1998.
The Company has also enhanced its interim financing product, has added a
number of loan products to sell to life insurance companies, has created a small
loan program, and has developed a securitized loan product with a major Wall
Street conduit for commercial lending. The Company intends to enhance its
ability to develop new financing products in response to changing market
conditions, including continued development of bridge loan products, as well as
the addition of high-yield, mezzanine and participating loan products. The
Company cannot assure you that it will be successful in developing any
particular new product or, if a product is developed, that it will be profitable
for the Company.
Expansion into related businesses. The Company seeks to build upon its
experience in evaluating real estate to expand its services and develop related
products. The Company has used its expertise to provide due diligence services
for institutional clients, to enter the advisory services/funds management
business and to expand its presence in the commercial mortgage-backed securities
market. Other possible businesses may include asset management, commercial
leasing and management and the purchase and retention of commercial mortgage-
backed securities. Expansion may occur through a combination of acquisitions,
strategic alliances and internal business development. There can be no assurance
that the Company will seek to undertake any specific line of business, or that,
if it undertakes a particular line of business, that the business will be
successful.
Fee Diversification. The Company intends to manage the risks of the commercial
real estate financing industry by (i) focusing its activities on earning service
and origination fees rather than earning interest on retained mortgage assets,
(ii) developing strategic relationships with multiple investors, (iii) lending
to a variety of commercial asset classes and (iv) operating on a national basis.
. Fee-based Earnings. In 1998, approximately 96.8% of the Company's revenue was
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generated from origination, servicing and other related fees. Of this amount,
fees and other revenue related to servicing and funds management agreements
accounted for approximately 44% of Company fee revenue. In addition to
providing a stable source of earnings, this approach requires significantly
less capital than the retention of mortgage assets. While it may make
minority investments in funds it manages, the Company does not intend to take
significant principal risk positions.
. Multiple Investors. In the past, changes in the financial markets and
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investor requirements have contributed to the volatility of the commercial
mortgage financial markets. The Company seeks to manage this risk by
developing strategic relationships with a variety of investor sources,
including commercial banks, GSEs, investment banks and insurance companies.
The Company believes this strategy enabled it to originate $1.1 billion of
multifamily and commercial mortgages in the fourth quarter of 1998 despite
the limited liquidity in the conduit market.
. Multiple Asset Classes. The Company has lent to a wide variety of commercial
----------------------
asset classes, including multifamily, retail, office and hospitality. The
Company believes that business and financing cycles vary among asset classes.
By lending to multiple asset classes, the Company can reduce risk and improve
operating efficiency by redeploying its origination activities as market
conditions change.
. National Presence. The Company has 19 loan origination offices located
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throughout the country and has originated loans in every state and the
District of Columbia. This national presence provides another source of
diversification, helping to mitigate the risk posed by changes in regional
business conditions.
See "Risk Factors" for a detailed discussion of the risks that may affect the
Company.
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MAJOR DEVELOPMENTS IN 1998
1998 Losses. During the year ended December 31, 1998, the Company incurred a
net loss of $33.3 million, or $6.38 per share. Almost all of these losses were
incurred at the Company's wholly owned subsidiary WMF Capital Corp. ("Capital
Corp.") and resulted from volatility in commercial mortgage-backed securities
markets and interest rates on U.S. Treasury securities. Despite the losses, the
Company's mortgage banking segment remained profitable during the year, and the
Company as a whole experienced increased revenue during 1998.
Losses and Restructuring at Capital Corp. Most of the Company's losses during
1998 resulted from short-sale transaction losses related to Capital Corp.'s
inventory of mortgage loans. During the first three quarters of 1998, Capital
Corp. originated $969 million in mortgage loans. To protect itself against
interest rate fluctuations prior to the sale or securitization of its loans,
Capital Corp. entered into arrangements for the short sale of U.S. Treasury
securities. Because of interest rate volatility during that period, the Company
was required to fund losses related to changes in the value of its short-sale
positions. To reduce its exposure to margin calls, Capital Corp. sold $691
million in loans and closed the related U.S. Treasury short positions at a loss
in the third quarter of 1998.
During December of 1998, Capital Corp. sold the remainder of its loan
inventory and closed the related short-sale positions without incurring
additional losses. As part of these sales, the Company and Commercial Mortgage
Investment Trust, Inc. ("COMIT") purchased $2.4 million and $7.6 million,
respectively, of subordinated interests in a pool of $63.5 million of these
loans. COMIT is a real estate investment trust ("REIT") that is owned by
Harvard, Capricorn and the Company. WMF Carbon Mesa manages COMIT. See "The
Company's Lines of Business - Advisory Services (WMF Carbon Mesa)" for more
information on WMF Carbon Mesa.
As a result of the losses incurred, Capital Corp. was unable to satisfy
certain loan commitments. Capital Corp. has settled one claim related to these
obligations but Capital Corp. may not be able to settle similar claims in the
future. See "Risk Factors -- Unsatisfied Loan Obligations May Cause Additional
Losses." The Company does not intend to contribute additional capital to
Capital Corp. or to take principal risk positions at Capital Corp.
Cost-Saving Measures. In response to its 1998 losses, the Company implemented a
cost-reduction program, reducing its workforce by 15 percent and decreasing
general and administrative expenses. The Company expects that the cost-
reduction program will result in annual savings of at least $7.5 million from
previously anticipated levels, beginning in 1999.
Issuance and Repayment of Subordinated Notes. On September 4, 1998, the Company
entered into a Credit Agreement with COMIT. Under the Credit Agreement, Harvard
and Capricorn contributed a total of $20 million to COMIT, and the Company then
sold $20 million of its subordinated notes to COMIT. The Company also issued
warrants to COMIT entitling it to purchase 1,200,000 shares of common stock at
$11.25 per share. COMIT later assigned 960,000 of the warrants to Harvard and
240,000 of the warrants to Capricorn. As part of the Recapitalization Plan,
described below, Harvard and Capricorn surrendered those warrants. The Company
repaid $16.6 million of the subordinated notes on December 31, 1998. On March
12, 1999, the Company repaid the remaining principal and interest due under the
subordinated notes, and the notes were canceled.
Recapitalization Plan. To provide for its working and other capital needs after
the losses at Capital Corp., the Company entered into the Recapitalization Plan.
The Recapitalization Plan had two parts and raised a total of approximately
$27.5 million of new equity:
. Sale of $16.6 Million of Capital Stock to Demeter, Phemus and Capricorn
On December 31, 1998, Demeter, Phemus and Capricorn acquired 3,635,972 shares
of the Company's Class A Non-Voting Convertible Preferred Stock (the "Class A
Stock") for total cash proceeds of approximately $16.6 million. On January
14, 1999, each share of Class A Stock was converted into one share of common
stock. As a result of these transactions, Demeter acquired 2,757,633 shares
of the Company's common stock, Phemus acquired 151,145 shares of common
stock, and Capricorn acquired 727,194 shares of common stock.
As part of the Class A Stock transaction, Harvard and Capricorn canceled the
warrants to purchase 1,200,000 shares of common stock issued to COMIT in
connection with the subordinated notes. In addition, Demeter, Phemus and
Capricorn entered into a Standby Purchase Agreement to purchase up to 664,028
shares of common stock not otherwise purchased in the rights offering
described below, for a total purchase price of $3,320,140. The Company
applied the proceeds of the sale of Class A Stock to repay part of the
subordinated notes held by COMIT.
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Because of their participation in this transaction, Demeter, Phemus and
Capricorn agreed not to exercise, transfer or acquire any rights during the
rights offering.
. $10.9 Million Public Rights Offering/Private Placement
The Company issued 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. On March 19,
1999, Demeter, Phemus and Capricorn completed the purchase of a total of
664,028 shares of the Company's common stock pursuant to the Standby Purchase
Agreement, for total proceeds to the Company of approximately $3.3 million.
Also, Capricorn has agreed to purchase an additional 34,520 shares at
$5.375 per share, for proceeds to the Company of $185,545. The Company
expects that this sale to Capricorn will close shortly.
The Company applied the proceeds from the rights offering first to repay the
remaining subordinated notes held by COMIT. The Recapitalization Plan
resulted in the effective conversion of the Company's $20 million of
subordinated notes into common stock and raised approximately $7.5 million of
additional common equity, which was used to repay borrowings under the
Company's revolving line of credit and for working capital.
Expansion into Funds Management. Though the acquisition of Carbon Mesa Advisors,
Inc. and Strategic Real Estate Partners in March 1998, the Company started its
advisory services segment, which manages commercial mortgage investment funds,
provides special asset management services and develops new loan products. In
June, the Company, with Harvard and Capricorn, formed a commercial mortgage REIT
to invest in bridge, mezzanine, and structured loans originated by the Company.
The REIT is managed by WMF Carbon Mesa and is expected to fund up to $345
million of commercial and multifamily mortgages through June 1999.
THE COMPANY'S LINES OF BUSINESS
MORTGAGE ORIGINATION
Mortgage origination involves the making of loans to borrowers who use
real estate property as collateral. The Company's staff of 59 loan originators
targets a wide variety of borrowers, including developers, local entrepreneurial
owners, large portfolio owners and public companies such as REITs.
Currently, the Company originates mortgages through two channels -- retail
and correspondent. For the retail operation, the Company has loan originators in
19 offices located throughout the country. Those individuals directly solicit
owners of real estate, as well as local multifamily and commercial mortgage
brokers. The Company believes that having a local presence within a market
significantly adds to its understanding of the local economic, demographic and
real estate trends, thus allowing it to serve borrowers and investors better. A
local presence also helps develop borrower relationships and identify new
customers.
In those markets where the Company does not have a retail presence, it
acts through "correspondent relationships" with local mortgage brokers. In this
relationship, a local commercial mortgage broker identifies potential borrowers
and refers them to the Company for their loans. Currently, the Company
originates loans through correspondents throughout the United States. In 1998,
the Company obtained 25.9 percent of its $4.3 billion of loan originations
through correspondents.
The Company's relationship with correspondents differs between multifamily
and commercial lending and FHA lending. For multifamily and commercial lending,
the Company enters into an agreement with each correspondent which generally
provides that (1) the borrower will pay the correspondent, usually based on a
percentage of the loan, (2) in some instances, the Company will have a right of
first refusal to finance properties meeting the criteria of its loan programs
and investors and (3) the correspondent will be eligible for incentive fees
based on the servicing fees received by the Company from the originated loans.
Generally either party to a multifamily and commercial correspondent agreement
may terminate the relationship without cause upon prior written notice. The
multifamily and commercial correspondent agreements usually do not place
geographic restrictions on either the Company or the correspondent.
With respect to FHA lending, correspondents generally enter into
agreements with the Company for each individual
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transaction and the terms of the agreements vary from transaction to
transaction. These agreements define the compensation, roles, representations
and warranties for the correspondent and the Company.
After it identifies a potential borrower, the Company determines which of
its mortgage products best meets the borrower's needs. Then the Company works
with the borrower and a mortgage investor to prepare a loan application. When
the borrower completes the application, the Company's underwriters conduct due
diligence. In the case of FHA loans, the FHA conducts due diligence. See "--
Mortgage Underwriting" below. The loan is evaluated, and if appropriate,
submitted to a loan committee consisting of senior officers of the Company.
If the Company or the FHA approves the loan, the Company issues a
commitment to the borrower. Normally, the Company simultaneously commits to sell
the loan to an appropriate investor. This simultaneous commitment from both a
borrower and a mortgage investor enables the Company to eliminate its exposure
to interest rate changes for each transaction. Typical investors include
insurance companies, banks, credit corporations, GSEs (such as Fannie Mae) and
other institutional investors. Typically the Company funds a loan 15 to 30 days
after the loan commitment. At that time, the Company funds the loan using its
warehouse lines of credit and the borrower pays the Company an origination fee,
typically one percent of the principal amount of the loan.
Within 10 to 45 days after funding the loan, the Company completes the sale
of the loan to an investor. In connection with such sales, the Company
sometimes retains certain liabilities. See "Risk Factors -- The Company is
Liable for Certain Representation and Warranties Concerning Mortgage Loans" and
"Risk Factors -- The Company May Incur Losses on Mortgage Loans Under the DUS
Program." After selling a mortgage loan, the Company typically retains the right
to service the loan. See "-- Mortgage Servicing" below.
As of December 31, 1998, the Company held 33 mortgage loans for sale with
an aggregate principal balance of $34.2 million. After December 31, 1998, the
Company sold these loans. As of December 31, 1997, the Company held 32 mortgage
loans for sale with an aggregate principal balance of $49.4. After that date,
the Company sold these loans. As of December 31, 1998, the Company's subsidiary,
Capital Corp., had $65.8 million of forward commitments to lend that were not
matched with investor commitments. Those commitments are subject to market risk
until such time as a permanent investor is identified. See "Risk Factors - The
Company May Incur Losses Related To Loan Commitments For Which It Does Not Have
A Purchaser And Has Not Entered Into Hedge Arrangements" below.
The Company provides a diverse range of products to borrowers through three
business units: Conventional Multifamily, FHA Multifamily and Healthcare, and
Commercial/Life Insurance Company. The following table sets forth information
regarding loan origination volume by business unit for each of the last three
years.
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LOAN ORIGINATION VOLUME BY BUSINESS UNIT
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1998 1997 1996
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<S> <C> <C> <C>
CONVENTIONAL MULTIFAMILY $1,263.5 $ 742.0 $ 505.4
FHA MULTIFAMILY AND HEALTHCARE 451.3 489.7 505.6
COMMERCIAL/LIFE INSURANCE/ (1)/ 2,633.9 1,075.2 117.5
-------- -------- --------
TOTAL $4,348.7 $2,306.9 $1,128.5
======== ======== ========
</TABLE>
/(1)/ Includes Capital Corp. and other conduit originations.
Conventional Multifamily (Fannie Mae). This business unit finances multifamily
properties that are not supported by governmental insurance or guaranties. The
Company sells such loans to a variety of mortgage investors, including Fannie
Mae. Through WMF Washington Mortgage, one of the Company's most active
conventional products is Fannie Mae's Delegated Underwriting and Servicing
Program ("DUS Program"). Currently, there are only 26 companies approved to
participate in this program. The Company, through WMF Washington Mortgage,
originated approximately $660 million and $240 million of DUS Program loans in
1998 and 1997, respectively.
Under the DUS Program, Fannie Mae allows WMF Washington Mortgage to
approve, close and service loans on multifamily mortgages that meet
predetermined criteria. Fannie Mae commits to purchase these loans after they
close. As part of the program, Fannie Mae requires that participating companies
share in the risk of loss on the loan. See "Risk Factors -- The Company May
Incur Losses on Mortgage Loans Under the DUS Program." In return for sharing the
risk of loss, the Company receives a servicing fee that is significantly higher
than its typical fee. The Company underwrites each loan to manage its loss
exposure and enhance its return on servicing. See "-- Mortgage Underwriting"
below.
In addition to its participation in the DUS Program, the Company, through
WMF Washington Mortgage, is a Fannie Mae Prior Approval Lender and is one of the
designated post-closing review lenders for the Fannie Mae Aggregation Facility.
These programs allow WMF Washington Mortgage to sell certain loans to Fannie Mae
that would not otherwise qualify for the DUS Program. Unlike DUS, however,
neither of these programs requires that the Company share in the risk of loss.
FHA Multifamily and Healthcare. The Company, through WMF Huntoon Paige, is the
largest provider of FHA-insured multifamily and healthcare financing in the
country. The Company originates and services both construction and permanent
loans. For the twelve months ended September 30, 1998, WMF Huntoon Paige
originated approximately 12.0 percent of all FHA multifamily and healthcare
insured debt financing, more than any other FHA mortgagee.
The Company operates FHA lending through a separate subsidiary because
typical property characteristics, borrower requirements, licensing and approval
processes differ significantly between FHA and conventional multifamily
financing. The Company, through WMF Huntoon Paige, is an FHA-approved mortgagee
and, as such, must comply with the applicable requirements of the National
Housing Act ("Housing Act") and the regulations and policies of the FHA that are
promulgated pursuant to the Housing Act. See "Risk Factors-The Company May Be
Unable To Continue To Comply With Government Regulations and Programs," below.
Commercial/Life Insurance Company Loans. With its acquisitions in 1996 and
1997, the Company substantially increased its presence in the market for
commercial, non-multifamily financing. The Company originates loans secured by a
variety of properties, including office buildings, retail centers, hotels,
warehouses and nursing homes. Through relationships with regional mortgage
banks, insurance companies have been particularly active investors in this
segment. The Company, through its acquisitions, has established relationships
with a number of insurance companies, including: John Hancock, UNUM, Canada
Life, CIGNA, American General, Nationwide, Berkshire Life, Government Personnel
Mutual and Century Life.
In addition to originating commercial and multifamily loans placed with
insurance companies, the Company has established origination relationships with
commercial mortgage conduits operated by major financial institutions, including
Greenwich Capital Markets and NationsBank, N.A. In 1998, the Company originated
loans totaling approximately $1.5 billion through commercial mortgage conduits.
The Company will typically process conduit eligible loans through WMF Funding, a
division of WMF
10
<PAGE>
Washington Mortgage (see "-Capital Markets (WMF Funding)" below).
MORTGAGE UNDERWRITING. The Company's originators work with underwriters who
perform due diligence on all loans prior to commitment and approval. The
Company's underwriters assess each proposed loan including a review of (1)
borrower financial position and credit history, (2) past operating performance
of the underlying collateral, (3) potential changes in project economics and (4)
appraisal, environmental and engineering studies completed by a pre-approved
list of third-party consultants. Additionally, underwriters inspect the
property, review tenant and lease files, survey comparable markets, and analyze
area economic and demographic trends. A loan committee consisting of the
Company's senior officers reviews and approves each proposed loan.
The Company applies its own underwriting guidelines, as well as those
provided by investors. Among other things, the Company considers debt service
coverage and loan-to-value ratios, property financial and operating performance,
quality of property management, borrower credit history and tenant profile. The
standards vary from investor to investor and may include a subjective element
based on an assessment of the total credit risk. The standards generally do not
involve mechanical application of a set formula. The Company revises its
underwriting criteria based on its experience and as market conditions and
investor requirements change.
Due in part to its underwriting procedures, in 1998 the Company achieved a
loan delinquency rate (i.e., loans delinquent over 60 days) equal to only .14
percent of its entire conventional multifamily and commercial portfolios based
on unpaid principal balance. In connection with the Fannie Mae DUS Program, the
Company has originated over 358 DUS loans since 1990 with original principal
balances in excess of $1.9 billion. The Company has experienced one loss of $0.3
million on a DUS Program loan. Another lender originated that loan, and the
Company acquired the risk-sharing obligation as part of its DUS approval in
1990.
The Company uses the underwriting criteria established by the FHA to
recommend loans for FHA insurance. The Company must provide the FHA with certain
information. The FHA then examines the loans and decides whether to provide
insurance.
MORTGAGE SERVICING
As a mortgage servicer, the Company performs both primary and master
servicing functions. Primary servicing involves the collection of mortgage
payments, maintenance of escrow accounts for the payment of taxes and insurance
premiums, remittance of payments of principal and interest, reporting to
investors on financial and property issues and general loan administration. The
primary servicer must inspect properties, determine the adequacy of insurance
coverage, monitor delinquent accounts and, in cases of extreme delinquency,
institute forbearance arrangements or foreclosure proceedings on behalf of
investors.
Master servicers administer and report on securitized pools of mortgage-
backed securities. Normally, the mortgages in the pool are serviced by
individual primary servicers. Master servicing agreements typically require the
primary servicer to retain responsibility for administering the mortgage loans,
and the master servicer supervises the primary servicers by monitoring their
compliance with the servicing contract. The master servicer consolidates all
accounting and reporting to the issuer of the securities.
The Company has contracts to service loans with mortgage owners and
originators of mortgage-backed securities. The contracts are generally for a
term equal to the term of the serviced mortgage or the mortgage-backed security
and are terminable for cause. Contracts with insurance companies who own
mortgages are usually terminable on 30 days' notice by the owner, in many
instances without cause. In some circumstances, the insurance company must pay a
termination fee if it terminates a servicing contract without cause. Under these
agreements, the Company receives an annual fee for primary servicing. The fee
typically ranges from five basis points to 40 basis points of the unpaid
principal balance of the loans underlying the securities. Fees for master
servicing typically range from one to ten basis points.
As of December 31, 1998, the Company acted as the primary servicer for
approximately $10.6 billion of loans and as the master servicer for an
additional $1.6 billion of loans. These loans were obtained through the
Company's origination network and through the purchase of servicing rights. A
breakdown of the servicing portfolio is shown below.
11
<PAGE>
SERVICING PORTFOLIO BY PRODUCT TYPE
$ IN MILLIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CONVENTIONAL MULTIFAMILY $ 2,583 $ 1,544 $1,644
FHA AND GINNIE MAE 3,905 4,201 3,076
COMMERCIAL 4,069 4,173 1,267
MASTER SERVICING 1,585 952 214
------- ------- ------
TOTAL $12,142 $10,870 $6,201
======= ======= ======
</TABLE>
The Company principally services loans in its offices in Vienna, Virginia;
Edison, New Jersey; and Houston, Texas. It employs approximately 70 people in
these servicing facilities. As of December 31, 1998, the Company serviced 3,154
loans. As part of its servicing functions on these loans, the Company managed
escrow accounts totaling approximately $350 million and processed approximately
$83.0 million in principal and interest payments each month. The Company
continuously reviews its servicing operations and seeks to implement
improvements in its systems and business processes.
CAPITAL MARKETS (WMF FUNDING)
To capitalize on its national loan origination system and conduit loan
processing system, as well as to reduce the capital requirements and principal
risks associated with operating a conduit, the Company created WMF Funding, a
division of WMF Washington Mortgage, in December 1998. The Company has entered
into a strategic relationship with Greenwich Capital Markets ("Greenwich")
pursuant to which WMF Funding will originate loans for sale to Greenwich.
Greenwich is expected to pool these loans with other loans and then sell
interests in, or "securitize," the pool. The Company will service the loans it
originates and receive a portion of the profits, if any, from any securitization
of those loans.
Prior to September 1998, the Company had operated an independent commercial
mortgage conduit through its subsidiary Capital Corp. The operations of Capital
Corp. have been curtailed since it suffered substantial losses in the second and
third quarters of 1998 and the Company has determined not to make further
investments in Capital Corp. However, the Company cannot assure you that it will
not be required to do so.
ADVISORY SERVICES (WMF CARBON MESA)
The Company's advisory services segment, WMF Carbon Mesa, was formed in
March 1998, when the Company acquired all of the assets of Carbon Mesa Advisors,
Inc. and Strategic Real Estate Partners. Based in Los Angeles, WMF Carbon Mesa
manages a private commercial mortgage fund, provides a variety of advisory
services to institutional investors and originated over $400 million in loans
and investments in 1997. WMF Carbon Mesa employs 16 people.
WMF Carbon Mesa develops new loan products, manages commercial mortgage
investment funds, provides special asset management servicing and originates
commercial mortgages. In June 1998, WMF Carbon Mesa entered into an agreement to
manage COMIT. COMIT invests in multifamily and commercial mortgages, primarily
those originated by the Company that are not sold in securitizations or to other
institutional investors. These types of multifamily and commercial loans include
bridge, mezzanine and structured transactions.
Financial information for each of the Company's operating segments is
included in Note 15 of the Company's Consolidated Financial Statements.
EMPLOYEES
At December 31, 1998, the Company employed 346 persons. Most of these
people work in professional, administrative and technical positions and no
employee is represented by a labor union or subject to a collective bargaining
agreement. The Company believes that its employee relations are generally good.
12
<PAGE>
RISK FACTORS
UNSATISFIED CONTRACTUAL COMMITMENTS MAY CAUSE ADDITIONAL LOSSES - As a result of
the losses described above (See "Major Developments in 1998 - 1998 Losses") and
to reduce its exposure to additional losses, the Company has decided that it
will no longer contribute capital to Capital Corp. This determination, combined
with changes in market conditions, resulted in Capital Corp.'s being unable to
fulfill its obligations under at least one loan commitment. The Company has
settled all claims related to that loan commitment, but the Company cannot
assure you that it will not incur significant losses in the future related to
the Company's inability to meet other contractual commitments of Capital Corp.
LOSSES RELATED TO LOANS HELD FOR SALE FOR WHICH THE COMPANY DOES NOT HAVE
INVESTOR COMMITMENTS COULD AFFECT THE COMPANY'S RESULTS OF OPERATIONS -Generally
the Company sells loans to third-party mortgage investors at predetermined
prices before the Company funds or purchases the loan. However, sometimes the
Company originates or purchases a mortgage loan before an investor has agreed to
purchase it from the Company. During the period between the Company's
origination or purchase of a loan and the sale of the loan to an investor
(called the "holding period"), the Company must bear the interest rate risk and
credit risk associated with that loan. If the holding period is long, the
Company's risks are higher. Adverse changes in interest rates, the market for
these mortgage loans or the value of assets securing the mortgages could impair
the Company's ability to sell loans, increasing the Company's holding period and
potential losses. If the Company is unable to sell its loans for a long period
of time, the Company's business and results of operations could be materially
adversely affected.
THE COMPANY MAY INCUR LOSSES RELATED TO LOAN COMMITMENTS FOR WHICH IT DOES NOT
HAVE A PURCHASER AND HAS NOT ENTERED INTO HEDGE ARRANGEMENTS - Capital Corp. has
entered into forward commitments to lend money on certain terms and conditions
which subject the Company to interest rate and market risks until the Company
sells the loans. As of December 31, 1998, Capital Corp. had commitments
outstanding to extend credit to borrowers of $65.8 million. No investor has
committed to purchase these loans, and Capital Corp. has not entered into
arrangements to manage the interest rate and market risk associated with those
loans. If interest rates increase or the demand for such loans declines before
Capital Corp. is able to sell these loans, Capital Corp. may incur significant
losses. The Company is currently seeking investors for the loans, but the
Company cannot assure you that Capital Corp. will not incur significant losses
before such an investor is found or that it will locate an investor at all.
COMPANY'S LOSS OF DEFERRED TAX ASSETS COULD ADVERSELY AFFECT SHAREHOLDER EQUITY-
As of December 31, 1998, the Company had $17.3 million in deferred tax assets
related to the Company's losses during 1998. The Company has recognized the tax
benefit of those operating losses as deferred tax assets and believes that it is
more likely than not that the Company will have sufficient taxable income to
realize the tax benefits of those losses during the next 20 years. However, in
the event of a change of control of the Company or Capital Corp. or certain
other material changes in the Company's business, the Company would have to
establish a valuation allowance against the deferred tax asset. An increase in
the valuation allowance relating to the deferred tax asset could adversely
affect operating results and shareholder equity.
THE COMPANY MAY BE UNABLE TO COMPLETE ACQUISITIONS OR ENTER INTO NEW BUSINESS
LINES - The Company plans to expand its business both internally and through
acquisitions of other commercial mortgage financial service companies. The
Company cannot assure you that it will be able to support its continued growth.
The Company also cannot assure you that it will be able to identify, finance
and purchase additional acquisition candidates, or that future acquisitions, if
completed, will be successful.
When the Company acquires new businesses with different markets, customers,
financial products, systems and management, the Company may have difficulty
integrating those business into its existing operations. This integration
process may cause unforeseen difficulties and may require a large portion of
management's attention and the Company's resources. These difficulties may be
particularly acute as the Company expands into business lines outside of its
traditional multifamily business.
The Company originally focused on originating and servicing mortgages on
multifamily properties, such as apartment buildings and condominiums. Since
1996, the Company has expanded its origination and servicing of mortgages on
other commercial properties, such as office buildings, hotels, and retail
stores. The Company plans to continue to expand its business in both the
multifamily and commercial mortgage areas. See "Business - Strategic
Objectives."
To support, manage and control continued growth, the Company must be able
to hire, train, retain, supervise and manage its workforce. The Company must
also develop the skills necessary to compete successfully in its new business
lines. In particular, the
13
<PAGE>
success of certain acquisitions may depend on the Company's ability to retain
key employees of the acquired business.
THE COMPANY MAY INCUR LOSSES ON MORTGAGE LOANS UNDER THE DUS PROGRAM - WMF
Washington Mortgage is an approved lender under the Fannie Mae DUS Program.
Under this program, WMF Washington Mortgage originates, places and services
multifamily loans for Fannie Mae without having to obtain Fannie Mae's prior
approval for each loan.
The DUS Program requires WMF Washington Mortgage to pay a portion of any
losses on mortgages that it originates under the program. These losses may cost
WMF Washington Mortgage up to 20 percent of the original principal balance of
the loan. Additionally, if borrowers default under loans in the DUS Program, the
value of WMF Washington Mortgage's servicing rights for those loans could
materially decrease. See "The Company's Operations May Decline As a Result of
Impairment of Mortgage Servicing Rights"
To remain in the DUS Program, WMF Washington Mortgage must maintain a
letter of credit or cash sufficient to cover its estimated portion of any
losses. As of December 31, 1998, the unpaid principal balance of WMF Washington
Mortgage loans in the DUS Program totaled $1.5 billion and WMF Washington
Mortgage had a $6.3 million reserve for probable loan losses under the DUS
Program. WMF Washington Mortgage also had a $5.2 million letter of credit to pay
for losses under the program. While the Company believes that these reserves are
sufficient, actual losses under the DUS Program could exceed these reserves and
hurt the Company's performance. If the Company incurs and is required to fund
additional losses, results of operations may be adversely affected.
THE COMPANY IS LIABLE FOR CERTAIN REPRESENTATIONS AND WARRANTIES CONCERNING
MORTGAGE LOANS - When the Company originates mortgage loans and then sells them
to investors, the Company must make certain representations and warranties
concerning those mortgages. These representations and warranties cover such
matters as title to mortgaged property, lien priority, environmental reviews and
certain other matters. When making these representations and warranties, the
Company relies in part on similar representations and warranties made by the
borrower or others.
If the representations made by a borrower or others are false, the Company
will have a claim against the borrower or other party. The Company's ability to
recover its damages, however, depends on the financial condition of the party
that made the false representation. In addition, the Company makes some
representations and warranties even though it does not receive similar
representations and warranties from borrowers or others. If those
representations are later found to be false, the Company would have to pay for
any losses and would not have a claim against another party. The Company cannot
assure you that it will not experience a material loss as a result of its
representations and warranties.
THE COMPANY MAY INCUR LOSSES AS A RESULT OF CHANGES IN GENERAL ECONOMIC
CONDITIONS - The following general economic conditions could have an adverse
effect on the Company's business:
. periods of general, regional or industry-related economic
slowdown or recession,
. declining demand for real estate or
. changes in interest rate levels.
An economic slowdown will generally reduce the Company's origination and
sales of mortgages, which generated approximately 56.0 percent of the Company's
revenue during 1998. In addition, periods of economic slowdown or recession may
increase the risk that borrowers will default on multifamily and commercial
mortgage loans, and those defaults may have an adverse effect on the Company's
financial condition. When the owner of a mortgage forecloses on a property, the
Company's servicing fees may be reduced or eliminated and the Company may
experiences additional losses.
Periods of economic slowdown or recession may be accompanied by decreased
demand for multifamily or commercial properties. Decreased demand may result in
declining values for the properties securing outstanding loans, and decreased
property values weaken the Company's collateral coverage and increase the
possibility of losses in the event of default. If more properties are for sale
during recessionary periods, the Company may receive lower prices when it sells
foreclosed properties, or it may have to delay such sales. The Company cannot
assure you that it will be able to sell foreclosed properties in the multifamily
or commercial markets. Any material deterioration of such markets could reduce
the Company's proceeds from foreclosure sales.
THE COMPANY EARNINGS MAY BE AFFECTED BY CHANGES IN INTEREST RATES - The Company
believes that interest rate changes can affect its operating results in a
variety of ways, including impacts on
14
<PAGE>
origination fees, servicing fees, placement fee income and gains on loan sales,
as well as its own cost of financing. Generally, interest rate increases reduce
the level of economic and real estate activity, thereby decreasing the demand
for mortgage financing, which in turn may negatively affect the Company's
ability to earn origination fees and generate gains on loan sales. In addition
to possibly depressing loan origination levels, gains on loan sales may be
further restricted because the value of fixed income securities, such as many
real estate mortgages, tend to decline as interest rates increase. Finally,
interest rate increases raise the cost of debt financing, particularly if the
Company finances its operations with variable rate debt.
Interest rate increases, however, positively affect Company earnings from
loan servicing activities. A reduction in real estate activity may reduce the
risk of borrower prepayments, potentially increasing the level of servicing fees
and the value of the Company's servicing portfolio. Additionally, placement fee
income earned by the Company may benefit from increased interest rate levels.
Declines in interest rates should generally have a corresponding favorable
impact on Company earnings from originating, loan sales and financing activities
and a negative impact on servicing and placement fee income. Changes in the
relationship between short-term and long-term interest rates may also affect the
Company's results of operations. The Company earns net interest income,
typically based upon long-term rates earned on loans held between loan closing
and mortgage investor funding. Net interest income increases when long-term
rates increase relative to short-term rates and decreases when short-term rates
increase relative to long-term rates.
Although the Company believes that the interest rate environment generally
has the foregoing effects, there is no consistent correlation between interest
rate levels and either the Company's revenues or its overall profitability. In
part, this lack of correlation reflects the refinancing of existing permanent
and construction mortgages at their maturities which may occur regardless of the
interest rate environment. Additionally, approximately 56 percent of the
Company's revenues are derived from originating and approximately 44 percent of
the Company's revenues are derived from servicing activities, and interest rates
have different impacts on each, as described above.
See Item 7A, Quantitative and Qualitative Disclosures about Market Risk,
for additional information about the Company's exposure to interest rate risk.
THE COMPANY'S OPERATIONS MAY DECLINE AS A RESULT OF IMPAIRMENT OF MORTGAGE
SERVICING RIGHTS - Under generally accepted accounting principles ("GAAP"), the
Company must treat its servicing rights as an asset. Servicing rights are
recorded as an asset on the Company's balance sheet at either the purchase price
paid for the servicing rights or the relative fair value of the servicing rights
at the time the Company sells a loan and retains the servicing associated with
that loan. The Company also must amortize the value of the servicing rights over
their estimated lives.
If the value of the servicing rights, as shown on the Company's balance
sheet, exceeds their fair value, then the rights are impaired. The fair value of
the servicing rights may be affected by, and impairment may result from, factors
such as:
. changes in mortgage prepayments, which tend to increase as long-
term interest rates decline, and tend to decrease as such
interest rates rise;
. prepayment penalty terms, including lockout and yield maintenance
requirements;
. higher than expected rate of loan defaults;
. lower than expected short-term interest rates;
. factors which impact the net cash flow generated from the
servicing rights, such as the cost of servicing such loans; and
. the underlying loans' average custodial balances (the amount
deposited by borrowers for taxes, deposits and replacement
reserves).
To the extent that the Company's servicing rights are impaired, the
Company's operating results may be adversely affected. Although the Company has
not recorded any impairment in the Consolidated Financial Statements presented
herein, it may record impairment at any time in the future. The Company cannot
assure you that it has accurately estimated the factors that could cause
impairment of the servicing, or that the Company's mortgage servicing rights can
be sold at their value, if at all.
THE COMPANY MAY INCUR LOSSES UPON TERMINATION OF CERTAIN SERVICING CONTRACTS -As
of December 31, 1998, the Company had contracts to service mortgages with a
total principal balance of $12.1 billion. Approximately 24 percent of those
contracts are terminable upon 30 days' notice by the owner of the serviced
mortgage. Most of the contracts with these termination provisions are for the
servicing of mortgages held by insurance companies. As the Company increases its
servicing of mortgages held by insurance companies, the percentage of servicing
contracts with such termination provisions may also increase.
15
<PAGE>
The rest of the Company's servicing contracts are for a term equal to the
life of the mortgage. The holder of the mortgage may terminate the contract
only for cause, after paying the Company a termination fee, or after prepayment
or other early termination of the mortgage.
If a significant number of the Company's mortgage servicing contracts were
terminated and the Company were unable to replace them with new servicing
contracts, the Company's operations would be adversely affected.
THE COMPANY MAY BE UNABLE TO CONTINUE TO COMPLY WITH GOVERNMENT REGULATIONS AND
PROGRAMS -
The Company's operations are regulated by:
. federal, state and local government authorities, including the
FHA and the Government National Mortgage Association ("Ginnie
Mae");
. various federal, state and local laws and judicial and
administrative decisions; and
. regulations of GSEs (such as Fannie Mae) that purchase mortgages
originated and/or serviced by the Company.
Among other things, these laws, regulations and decisions:
. require the Company to maintain a minimum net worth, minimum
lines of credit, minimum liquid reserves and minimum errors and
omissions and fidelity insurance;
. require the employment of trained personnel competent to perform
their assigned responsibilities;
. require periodic financial reports;
. require a quality control plan for the underwriting, origination
and servicing of loans;
. restrict loan originations, credit activities, maximum interest
rates, and finance and other charges;
. regulate disclosures to customers, the terms of secured
transactions and personnel qualifications; and
. require certain collection, repossession and claims-handling
procedures and other trade practices.
Although the Company believes that it complies in all material respects
with applicable laws and regulations and with the requirements of mortgage
purchasers, the Company cannot assure you that it will be able to continue to
comply if more restrictive laws, rules, regulations or requirements are adopted
in the future. If the Company fails to comply with all applicable requirements,
the Company could lose the opportunity to originate, sell or service mortgages
in certain jurisdictions, or to originate mortgages on behalf of, sell mortgages
to or service mortgages held by certain institutions. If that occurs, the
Company's financial results could be adversely affected.
The FHA insured approximately 10.4 percent of loans originated by the
Company during the year ended December 31, 1998 and approximately 44.9 percent
of loans serviced by the Company as of December 31, 1998. If the laws or
regulations governing FHA programs change, the availability of FHA-insured loans
could decrease, and the Company's ability to originate or service those
mortgages could be affected. Any such change could have a material adverse
effect on the Company and its results of operations.
THE COMPANY MAY INCUR LOSSES RELATED TO THE YEAR 2000 CONVERSION - 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.
Although the Company's Year 2000 program (see "Management's Discussion and
Analysis Of Financial Condition and Results of Operations - Year 2000") is
intended to minimize the adverse effects of the Year 2000 Problem on the
Company's business and operations, the actual effects of the Year 2000 Problem
and the success or failure of the Company's efforts described below cannot be
known until after January 1, 2000. If the Company, its major vendors, service
providers or major customers fail to address adequately the Year 2000 Problem in
a timely manner, the Company's business, results of operations and financial
condition could be adversely affected.
THE COMPANY MAY NOT BE ABLE TO COMPETE WITH OTHER MORTGAGE BANKING BUSINESSES -
The Company's competition varies by geographic market. Generally, competition is
fragmented with very few national competitors and many local and regional
competitors.
16
<PAGE>
In addition, the Company's business is characterized by low barriers to entry,
and new competitors have recently been successful in raising the capital
necessary to enter the business. Moreover, certain of the Company's competitors
are larger and have greater financial resources than the Company, including the
commercial mortgage banking arms of General Motors, General Electric, Mellon
Bank, Banc One and First Union. The Company competes largely on the basis of its
experience in purchasing and servicing and on its ability to respond promptly to
changing market conditions. Although management believes that the Company is
well positioned to continue to compete effectively in the multifamily and
commercial mortgage banking businesses, there can be no assurance that it will
do so or that the Company will not encounter further increased competition in
the future which could limit its ability to maintain or increase its market
share.
ITEM 2. PROPERTIES
The following table summarizes information about the Company's primary leased
office space:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
Location of the Approximate square feet Lease Expiration Business Segment
office Occupied Date Occupying Space
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Vienna, VA 52,000 sf December 31, 2000 Mortgage Banking, Headquarters
--------------------------------------------------------------------------------------------------------------------------
Edison, NJ 15,200 sf April, 28, 2000 Mortgage Banking
--------------------------------------------------------------------------------------------------------------------------
Houston, TX 10,200 sf January 28, 2001 Mortgage Banking
--------------------------------------------------------------------------------------------------------------------------
Los Angeles, CA 17,700 sf January 30, 2007 Advisory Services, Mortgage Banking
--------------------------------------------------------------------------------------------------------------------------
Charlotte, NC 16,500 sf February 14, 2003 Capital Markets, Mortgage Banking
--------------------------------------------------------------------------------------------------------------------------
New York, NY 13,600 sf October 20, 2008 Mortgage Banking
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company's headquarters are currently located in Vienna, Virginia. In
addition to the offices listed above, the Company has thirteen corporate offices
located around the country, including Phoenix, AZ; Detroit, MI; Dallas, TX;
Denver, CO; and Atlanta, GA.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved from time to time in legal proceedings arising in
the ordinary course of business. In connection with the Company's loan servicing
activities, the Company is indemnified to varying degrees by the party on whose
behalf the Company is acting. The Company also maintains insurance that
management believes is adequate for the Company's operations. Except as
described below, none of the legal proceedings in which the Company is currently
involved, either individually or in the aggregate (and after consideration of
available indemnities and insurance), is expected to have a material adverse
effect on the Company's business or financial condition; however, any claims
asserted in the future may result in legal expenses or liabilities which could
have a material adverse effect on the Company's business or financial condition.
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 judgement 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 judgement
against it in the case where it is named as a defendant.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the year ended December 31, 1998.
PART II
ITEM 5.MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
17
<PAGE>
The Company's common stock began trading on December 8, 1997 and trades on
The Nasdaq Stock Market under the symbol "WMFG".
The following table sets forth the high and low per-share closing prices
for the Company's common stock for each quarterly period since its initial
public offering:
<TABLE>
<CAPTION>
CALENDAR YEAR HIGH LOW
------------- ---- ---
<S> <C> <C>
1997
----
Fourth Quarter (from December 9, 1997) $14 $12 1/8
1998
----
First Quarter 32 1/2 11 1/8
Second Quarter 28 1/4 19 5/8
Third Quarter 29 5
Fourth Quarter 8 1/4 3 3/8
1999
----
First Quarter (through March 29, 1999) 6 1/2 4 3/4
</TABLE>
On March 29, 1999, the Company had approximately 244 stockholders of
record.
The Company does not anticipate declaring and paying cash dividends on the
Company's common stock in the foreseeable future. The decision whether to apply
any legally available funds to the payment of dividends on the Company common
stock will be made by the Board of Directors of the Company from time to time in
the exercise of its business judgment, taking into account the Company's
financial condition, results of operations, existing and proposed commitments
for use of the Company's funds and other relevant factors.
The Company's ability to pay dividends may be restricted from time to time
by financial covenants in its credit agreements or in arrangements with or
regulations of government sponsored entities.
On December 30, 1998, the Company issued a total of 250,000 warrants as
part of a settlement agreement between the Company and one of its borrowers. As
adjusted, the warrants permit the borrower to purchase 100,000 shares of the
Company's common stock at $5.90 per share and 150,000 shares of the Company's
common stock at $9.70 per share. The exercise price of the warrants may be
further adjusted upon the occurrence of certain dilutive events. Also as part of
the settlement, the Company issued 50,000 shares of its common stock to be held
in escrow to secure Capital Corp.'s obligations under the settlement agreement.
These transactions were exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act"), because they did not
involve any public offering.
On December 31, 1998, the Company sold a total of 3,635,972 shares of Class
A Stock to Demeter, Phemus and Capricorn for total proceeds of approximately
$16.6 million. The shares of Class A Stock were subsequently converted to an
equal number of shares of common stock. The Company used the proceeds from the
sale of Class A Stock to partially repay the subordinated notes held by COMIT.
The sale 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.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial and operating data of the
Company as of and for each of the years ended December 31, 1998, 1997, 1995.
Also set forth is data as of and for the three-month period ended March 31, 1996
and as of and for the nine-month period ended December 31, 1996. The data for
the three-month period ended March 31, 1996 and the nine-month period ended
December 31, 1996 are presented separately as a result of the acquisition of the
Company, which was formerly known as WMF Holdings Ltd., by NHP effective April
1, 1996 (the "NHP Acquisition"). The table also sets forth pro forma income
statement data for the year ended December 31, 1996 giving effect to the NHP
Acquisition as though it occurred January 1, 1996. The selected financial data
of the Company as of and for each of the above mentioned periods were derived
from the Company's consolidated
18
<PAGE>
financial statements contained elsewhere herein. The pro forma data (which are
unaudited) are derived from the footnote 19 of the Company's consolidated
financial statements contained in this document. The pro forma results are not
necessarily indicative of operating results that would have been achieved had
the NHP Acquisition actually occurred on January 1, 1996. Additionally, the pro
forma operating results are not intended to be a projection of results of future
operations. The selected financial and operating data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements, pro forma financial
statements and related notes included elsewhere herein.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
WMF Holdings Ltd. and
The Company Subsidiaries
------------------------------- --------------------------
For the period For the period
Pro Forma April 1 to January 1 to Year Ended
December 31, December 31, March 31, December 31,
1998 1997 1996 (1) 1996 1996 1995
---------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues $ 72,541 $ 44,645 $ 30,301 $23,473 $ 6,828 $ 21,999
Expenses 105,863 42,203 29,416 22,318 6,523 21,222
Net income (loss) (33,322) 2,442 885 1,155 305 777
Net income (loss) per share-Basic (2) (6.38) 0.57 0.21 0.27 0.07 0.16
Weighted average shares
outstanding-Basic (2) 5,224 4,272 4,217 4,217 4,217 4,717
Net income (loss) per share-Diluted(2) (6.38) 0.55 0.21 0.27 0.07 0.16
Weighted average shares outstanding-
Diluted(2) 5,224 4,452 4,217 4,217 4,217 4,717
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31, DECEMBER 31,
1998 1997 1996 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Mortgage loans held for sale $ 34,217 $ 49,431 $40,263 $23,116 $ 32,462
Servicing rights 26,243 26,796 22,460 8,477 8,466
Total assets 144,527 119,331 88,097 48,976 57,176
Total debt (3) 79,151 59,904 46,136 34,108 43,304
Shareholders' equity 27,378 38,825 22,528 4,324 4,018
OTHER DATA
Cash Flows from
Operating activities (4) $ 14,086 $ (1,099) $ 1,275 $(8,708) $ 9,983 $(21,897)
Investing activities (4) (54,759) (21,463) (9,824) (9,276) (548) (2,343)
Financing activities (4) 41,122 26,529 7,833 17,029 (9,196) 26,833
EBITDA (4) (41,168) 11,439 8,256 6,502 1,754 4,743
</TABLE>
_____________
(1) Adjusted to reflect results of operations for the twelve months ended
December 31, 1996, as if the NHP Acquisition had occurred January 1, 1996.
Adjustments include all income amounts for the three months ended March
31,1996 and additional amortization of $575,648.
(2) Gives retroactive effect to a 789.94 per share stock split effective October
3, 1997.
(3) Includes $5,000,000 of notes to the Company's former shareholder as of March
31, 1996 and December 31, 1995, which were repaid in conjunction with the
NHP Acquisition.
(4) Operating, investing and financing cash flow represents the amount of cash
generated from operating, investing and financing activities, respectively,
as determined using GAAP.
(5) EBITDA is a non-GAAP presentation of the Company's performance and consists
of income (loss) from operation before non-warehouse interest expense,
income taxes, depreciation and amortization. EBITDA is included because it
is used in the industry as a measure of a company's operating performance
and provides information in addition to that supplied by GAAP-based data
regarding the ability of the Company's business to generate cash, but should
not be constructed as an alternative either (i) to income (loss) from
operations (determined in accordance with GAAP) as measure of profitability
or (ii) to cash flows from operating activities (determined in accordance
with GAAP). EBITDA does not take into account the Company's debt service
requirements and other commitments and, accordingly, is not necessarily
indicative of amounts that may be available for discretionary uses and
EBITDA as measured by the Company may not be comparable to EBITDA as
measured by other companies.
20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
On April 1, 1996, NHP acquired all the outstanding capital stock of the
Company for consideration of approximately $21 million, in the form of $16.8
million in cash and 210,000 shares of NHP Common Stock. (For periods prior to
NHP's acquisition of the Company, the Company is referred to as "WMF Holding.").
As a result of the NHP Acquisition, all assets and liabilities acquired were
recorded at their fair value which resulted in an increase of the recorded value
of the Company's servicing rights of $10.7 million and goodwill of $5.1 million.
The following discussion and analysis presents the significant changes in
financial condition and results of operations of the Company for the years ended
December 31, 1998, 1997 and 1996. The results of operations of acquired
businesses are included in the Company's consolidated financial statements from
the date of acquisition. This discussion should be read in conjunction with the
Company's consolidated financial statements and notes thereto included elsewhere
herein. For the purpose of comparing the year ended December 31, 1997 to the
year ended December 31, 1996, the three months ended March 31, 1996 has been
combined with the nine months ended December 31, 1996. As a result of the NHP
Acquisition, the year ended December 31, 1997 includes $575,000 of additional
amortization expense as compared to the year ended December 31, 1996. For
purposes of comparing the year ended December 31, 1997 and 1996, no other income
statement amounts have been impacted by the NHP Acquisition.
Although it incurred significant losses in 1998, since 1996, the
Company has experienced significant growth in its revenues, annual 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.
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 the acquisition of
Carbon Mesa in the first quarter of 1998, 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. Sources of mortgage banking revenue include 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) and origination
fee 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
segment.
The Company's revenue is significantly influenced by the timing of
origination and sales 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. Therefore, the Company's historical results may not be
indicative of future periods.
21
<PAGE>
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:
Segment Financial Information and Reconciliation to Consolidated Statements
Statements of Operations
(in thousands)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1998 1997 1996
-----------------------------------------------
Revenue (Proforma)
- -------
<S> <C> <C> <C>
Mortgage Banking (1) $ 67,567 $44,645 $30,301
Capital Markets 3,484 - -
Advisory Services 1,490 - -
----------------------------------------------
Total 72,541 44,645 30,301
Consolidated Statement 72,541 44,645 30,301
Expenses (2)
- ------------
Mortgage Banking (1) 59,169 39,116 27,154
Capital Markets 60,379 - -
Advisory Services 2,114 - -
Non-operating interest 3,267 758 278
----------------------------------------------
Total 124,929 39,874 27,432
Consolidated Statement 124,929 39,874 27,432
Pretax income (loss) (52,388) 4,771 2,869
Provision (benefit) for taxes (19,066) 2,329 1,984
----------------------------------------------
Net income (loss) ($33,322) $ 2,442 $ 885
==============================================
Mortgage Banking EBITDA (1) 16,074 11,439 $ 8,256
Capital Markets EBITDA (56,766) - -
Advisory Services EBITDA (476) - -
----------------------------------------------
Total ($41,168) $11,439 $ 8,256
Consolidated EBITDA ($41,168) $11,439 $ 8,256
</TABLE>
(1) Mortgage banking operations includes corporate administrative expenses.
(2) The company recognized reorganization and recapitalization expenses of
approximately $2.0 million with approximately $1.7 million reported in
mortgage banking and $341,000 reported in capital markets.
22
<PAGE>
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>
<CAPTION>
December 31, December 31, December 31,
1998 1997 1996
----------------------------------------------
<S> <C> <C> <C>
Assets
- ------
Mortgage Banking (1) $131,264 $119,331 $88,097
Capital Markets 8,558 - -
Advisory Services 4,705 - -
----------------------------------------------
Total 144,527 119,331 88,097
Consolidated Statement $144,527 $119,331 $88,097
</TABLE>
(1) Mortgage banking operations includes corporate administration.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
Net income (loss) was ($33.3) million for the year ended December 31, 1998,
a decrease of $35.7 million from $2.4 million for the same period in 1997. The
decline in net income was due primarily to U.S. Treasury short sale transaction
losses of $36.7 million and losses of $10.5 million on loan sales at Capital
Corp. The losses were partially offset by higher gains on loan sales, servicing
revenue and placement fee income in the mortgage banking segment and structuring
fee income in the advisory services segment. Net income includes a tax benefit
of $19.1 million for the year ended December 31, 1998.
The Company's earnings (losses) before non-operating interest expense,
income taxes, depreciation and amortization (EBITDA) for the year ended December
31, 1998 was ($41.2) million, a decrease of $52.6 million from $11.4 million for
the same period in 1997. The decrease in EBITDA for the year ended December 31,
1998 as compared to 1997 is due primarily to U.S. Treasury short sale
transaction losses and losses on loans sales at Capital Corp., as discussed
above. Higher servicing fee and placement fee income in the mortgage banking
segment helped to offset the loss in EBITDA, as the Company's servicing
portfolio balance at December 31, 1998 was $12.1 billion, up from $10.9 billion
as of December 31, 1997.
EBITDA is widely used in the industry as a measure of a company's operating
performance, but should not be considered as an alternative either (i) to income
from continuing operations (determined in accordance with GAAP) as a measure of
profitability or (ii) to cash flows from operating activities (determined in
accordance with GAAP). EBITDA does not take into account the Company's debt
service requirements and other commitments and, accordingly, is not necessarily
indicative of amounts that are available for discretionary uses.
The Company's consolidated tax benefit for the year ended December 31, 1998
was $19.1 million, compared to a tax expense of $2.3 million for the same period
in 1997. The tax provision change is the result of the Company recognizing a
deferred tax asset related to the losses incurred at Capital Corp. during the
year ended December 31, 1998. Differences between the effective income tax rate
and the federal and state income tax rates are due primarily to the amortization
of goodwill, a portion of which is not deductible for income tax purposes. The
Company has concluded that it is more likely than not to have sufficient taxable
income, either through continuing operations or asset dispositions during the
carry forward period, to realize the tax benefit of $19.1 million.
Mortgage Banking Operations:
Servicing fees earned by the mortgage banking segment were $14.7 million
for the year ended December 31, 1998, an increase of $2.8 million or 24% from
$11.9 million for the same period in 1997. Revenue related to mortgage servicing
is based upon the unpaid principal balance of loans serviced. The increase in
servicing fees for the year ended December 31, 1998 is a result of the average
principal balance of mortgage banking segment's servicing portfolio increasing
to $11.7 billion in 1998, from $7.8 billion in 1997, an increase of 49%.
The mortgage banking segment's servicing portfolio year-end principal balance
was $12.1 billion and $10.9 billion for 1998 and 1997, respectively, an increase
of 11%. The percentage increase in average principal balance is greater than the
23
<PAGE>
percentage increase in the year-end servicing portfolio primarily due to a sale
of servicing rights at the end of the fourth quarter of 1998 and the servicing
portfolio increases resulting from the acquisitions of Askew, Robert C. Wilson,
and New York Urban in 1997. Typically, the percentage increase in servicing fee
revenue is less than the percentage increase in the average servicing portfolio
because the servicing fee on the added servicing, which includes servicing
received from insurance companies and conduits, is lower than the Company's
historical average servicing rate. The average servicing fee rate was .126% in
1998, a decrease of .026% from .152% in 1997.
Gain on sale of mortgage loans was $31.3 million for year ended December
31, 1998, an increase of $11.6 million or 59% from $19.7 million for the same
period in 1997. For the year ended December 31, 1998, the mortgage banking
segment sold $3.3 billion in mortgage loans, as compared to $2.3 billion for the
year ended December 31, 1997. Gain on sale of mortgage loans includes the gain
on recognizing originated mortgage servicing rights in the amount of $6.0
million and $2.1 million for the years ended December 31, 1998 and 1997,
respectively. In addition, 1998 results include a $1.3 million loss related to
an interest rate lock agreement, which was terminated in the third quarter.
Gain on sale of servicing rights was $2.0 million for the year ended
December 31, 1998, an increase of $1.7 million from $0.3 million for the same
period in 1997. The increase in income is attributed to the sale of
approximately $500 million of servicing rights.
Interest income was $5.9 million for the year ended December 31, 1998, an
increase of $0.1 million or 1.7% from $5.8 million for the same period in 1997.
The increase in income is attributed to the higher average balance of loans held
until funding during the fourth quarter of 1998.
Placement fee income was $8.5 million for the year ended December 31, 1998,
an increase of $3.2 million or 60% from $5.3 million for the same period in
1997. This increase was the result of an increase in the average investor escrow
balances held by the Company, to $340 million from $277 million for the year
ended December 31, 1998 and 1997, respectively. The escrow balances are on
deposit in escrow bank accounts and are not included in the Company's balance
sheet.
Other income (which includes prepayment penalties, termination fees and
loan management fees) was $5.2 million for the year ended December 31, 1998, an
increase of $3.5 million or 206% from $1.7 million for the same period in 1997.
The increase in income is attributed primarily to higher termination and
prepayment fees associated with the prepayment of loans serviced by the Company.
This increase in prepayments is mainly the result of a lower interest rate
environment in 1998, which resulted in higher mortgage refinancing.
The mortgage banking segment's total expenses consist of salaries and
benefits (including commissions), other general and administrative expenses,
provision for loan servicing losses, operating interest expense, amortization of
mortgage servicing rights and other depreciation and amortization. The mortgage
banking segment's expenses include corporate administrative expenses.
Salaries and benefits, the largest category of expenses for the segment,
increased with loan production due to the payment of commissions on loan
originations. Salaries and benefits expense was $32.3 million for the year ended
December 31, 1998, an increase of $11.1 million or 52%, from $21.2 million for
the same period in 1997. This increase is due primarily to increased
originations and the Acquisitions. Salaries and benefits related to corporate
administrative costs also increased due to the acquisition of WMF Carbon Mesa
and the formation of Capital Corp. These factors, combined with mortgage
banking's expansion into non-multifamily commercial lending, contributed to the
increase in the number of mortgage banking and corporate administrative
employees to 318 as of December 31, 1998 from 272 as of December 31, 1997.
Additionally, salaries and benefits in the fourth quarter of 1998 include
approximately $429,000 related to severance payments as a result of the
Company's cost-savings measures.
General and administrative expenses consist of professional fees, travel,
reorganization and recapitalization expenses, management information, equipment
rental, and other expenses. General and administrative expenses were $12.3
million for the year ended December 31, 1998, an increase of $4.7 million or 62%
from $7.6 million for the same period in 1997. The increase is a result of
integration and start-up costs associated with the Acquisitions and formation of
Capital Corp., as well as recapitalization and reorganization costs incurred
during the fourth quarter of 1998. Recapitalization and reorganization costs
reported in general and administrative expenses totaled $1,201,500 and include
approximately $300,000 in legal and accounting fees, $337,500 in financial
advisory service fees and $564,000 in other costs.
Occupancy expense was $3.8 million for the year ended December 31, 1998, an
increase of $1.7 million or 81% from $2.1 million for the same period in 1997.
This increase was due to an increased number of offices in 1998.
24
<PAGE>
The mortgage banking segment's provision for loan servicing losses was $1.1
million for the year ended December 31, 1998, an increase of $371,000 or 51%
from $729,000 for the same period in 1997. The provision for losses is the
result of management's ongoing assessment of the Company's exposure related to
its Fannie Mae DUS portfolio. Mortgage banking's principal balance of Fannie Mae
DUS loans in the servicing portfolio was $1.5 billion and $944 million as of
December 31, 1998 and 1997, 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 prove valid. There
can be no assurance that losses will not exceed the allowance, and future
increases in the allowance may be required.
Warehouse interest expense was $2.3 million for the year ended December 31,
1998, an increase of $0.8 million or 53% from $1.5 million for the same period
in 1997. The increase is due to commitment fees paid to the warehouse lender
during the fourth quarter of 1998 to temporarily increase the warehouse line.
Non-operating interest expense was $3.3 million for the year ended December
31, 1998, an increase of $2.5 million or 313% from $0.8 million for the same
period in 1997. The interest expense on a $20 million note issued by COMIT,
combined with increased borrowings under bank credit facilities, contributed to
the increase in expense.
Depreciation and amortization was $7.7 million for the year ended December
31, 1998, an increase of $1.8 million or 31% from $5.9 million for the same
period in 1997. This increase was due primarily to the amortization related to
the originated mortgage servicing rights recognized during 1998 and the full
year effect of amortization of goodwill related to 1997 Acquisitions.
Capital Markets Segment:
Capital Corp., the capital markets segment of the Company, was formed in
February of 1998 to conduct the securitization conduit activities of the
Company. During the year, capital markets experienced a loss of $10.5 million
on the sale of loans with a principal balance $971.0 million. This loss is net
of gains from the sales of the related servicing rights of $5.5 million.
Interest income earned on commercial mortgage loans held for sale was $14.9
million for the year ended December 31, 1998. The capital markets segment sold
its remaining loan portfolio of $278.8 million during the fourth quarter of
1998.
Salary and benefits expense was $5.4 million for the year ended December
31, 1998. This expense includes $341,000 of severance costs associated with the
Company's reorganization and recapitalization, which took place during the
fourth quarter of 1998.
Occupancy expense was $772,000 for the year ended December 31, 1998.
Interest expense on warehouse balances was $12.2 million for the year ended
December 31, 1998. Capital Markets sold its remaining loan portfolio and closed
out the related warehouse balances during the fourth quarter of 1998.
Realized losses on short sales of U.S. Treasury securities for the year
ended December 31, 1998 was $36.7 million. Those losses were attributed to the
Company's use of short sales of U.S. Treasury securities to manage interest rate
volatility. The losses resulted from volatility in commercial mortgage-backed
securities and interest rates on U.S. Treasury securities.
Other general and administrative expense was $6.1 million for the year
ended December 31, 1998. Capital Corp. recognized $1.5 million in legal
settlement expenses incurred in connection with the curtailment of conduit
operations during the fourth quarter.
Advisory Services Segment:
The advisory services segment of the Company, WMF Carbon Mesa, 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, which are included in gain on loan sales. Structuring fees are
paid to WMF Carbon Mesa for structuring loans for borrowers and loan processing
fees are paid to WMF Carbon Mesa for processing mortgage loan applications. For
the year ended December 31, 1998, origination fees totaled $1.2 million. WMF
Carbon Mesa originates loans for and manages two commercial mortgage funds.
Those funds paid WMF Carbon Mesa management fees of $295,000 for the year ended
December 31, 1998. Total assets under management by WMF Carbon Mesa as of
December 31, 1998,
25
<PAGE>
was $138.7 million.
Expenses consist primarily of salary and benefits, occupancy and
amortization. Total expenses were $2.1 million for the year ended December 31,
1998.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
Net income increased by $1.5 million or 166% from $0.9 million for the year
ended December 31, 1996 to $2.4 million for the year ended December 31, 1997.
This increase was primarily due to an increase in loan originations and sales as
well as increases in servicing fees. These increases were offset partially by
increases in salaries and employee benefits, general and administrative expenses
and income tax expense which were in part related to the Company's expansion
into non-multifamily commercial lending, the impact of the WMF Proctor and WMF
Askew acquisitions and increased interest expense.
The Company's earnings before non-operating interest expense, income taxes,
depreciation and amortization ("EBITDA") for the year ended December 31, 1997
was $11.4 million compared with $8.3 million for the same period of 1996, an
increase of $3.1 million or 37%. The increase in EBITDA for the year ended
December 31, 1997 is attributable primarily to an increase in loan originations
and sales as well as increases in servicing fees, offset partially by increases
in salaries and employee benefits, general and administrative expenses and
income tax expense which were in part related to the Company's expansion into
non-multifamily commercial lending, the impact of the WMF Proctor and WMF Askew
acquisitions and increased interest expense. The fourth quarter results were
affected by a one-time charge of $0.75 million related to the issuance of
138,000 shares of common stock through an employee stock purchase plan, the
recognition of a one-time charge of $0.34 million related to the issuance of
271,250 stock options under the Key Employee Incentive Plan and the recognition
of a $1.2 million gain related to the Company's origination of conduit mortgage
loans. During the fourth quarter the Company evaluated recent market trades and
other factors related to conduit servicing, and concluded it had sufficient
basis to capitalize servicing rights related to the origination of conduit
loans. As a result, the Company capitalized $1.2 million of conduit servicing.
Prior to the fourth quarter, the Company only capitalized originated servicing
rights on loans insured by the FHA. The Company originated multifamily and
commercial mortgages of $2.3 billion and $1.1 billion for the years ended
December 31, 1997 and 1996, respectively. The EBITDA increase also reflects the
$0.6 million loss on Beverly Hills Securities in 1996 as discussed below.
EBITDA is widely used in the industry as a measure of a company's operating
performance, but should not be considered as an alternative either (i) to income
from continuing operations (determined in accordance with GAAP) as a measure of
profitability or (ii) to cash flows from operating activities (determined in
accordance with GAAP). EBITDA does not take into account the Company's debt
service requirements and other commitments and, accordingly, is not necessarily
indicative of amounts that may be available for discretionary uses.
Servicing fees were $11.9 million for the year ended December 31, 1997, an
increase of $2.6 million or 28% from $9.3 million for the year ended December
31, 1996. Revenue related to mortgage servicing is based upon the unpaid
principal balance of loans serviced. The increase in servicing fees for the year
ended December 31, 1997 is a result of the principal balance of the Company's
servicing portfolio increasing. Such balances were $10.9 billion and $6.2
billion as of December 31, 1997 and 1996, respectively. The increase in the
servicing portfolio for the year ended December 31, 1997 is attributable
primarily to loan originations of $2.3 billion and the acquisitions of Proctor,
ACR, Askew, Robert C. Wilson and New York Urban, which added rights to service
loans with principal balances of $3.5 billion for the year ended December 31,
1997. The percentage increase in servicing fee revenue is less than the
percentage increase in the servicing portfolio because the fee as a percentage
of unpaid principal balance on the added servicing, primarily for insurance
companies, is lower than the Company's historical average servicing rate.
Gain on sale of mortgage loans was $19.7 million for the year ended
December 31, 1997, an increase of $9.5 million or 93% from $10.2 million for the
year ended December 31, 1996. For the years ended December 31, 1997 and 1996,
the Company originated $2.3 billion and $1.1 billion mortgage loans,
respectively. The increase in gain on sale of mortgage loans is a result of the
increase in loan origination fees, recognition of gain in the amount of $1.2
million related to the Company's origination of conduit mortgage loans, as
discussed above, and includes the gain on recognizing originated mortgage
servicing rights on other products of $2.1 million and $2.8 million for the
years ended December 31, 1997 and 1996, respectively.
Gain on sale of servicing of $0.3 million, for the year ended December 31,
1997, represents the sale of the Company's servicing portfolio of loans held by
Federal Home Loan Mortgage Corporation. The Company does not expect the sale of
this portfolio
26
<PAGE>
to have a material impact on future results.
Interest income was $5.8 million for the year ended December 31, 1997, an
increase of $1.5 million or 35% from $4.3 million for the year ended December
31, 1996. This increase was due to the increase in originations for the year
ended December 31, 1997 compared to the year ended December 31, 1996, as
discussed above.
Placement fee income was $5.3 million for the year ended December 31, 1997,
an increase of $0.3 million or 6% from $5.0 million for the year ended December
31, 1996. This increase was the result of earnings on invested mortgagor escrow
amounts. The Company's escrow balance was $323 million and $228 million as of
December 31, 1997 and 1996, respectively.
Other income was $1.7 million for the year ended December 31, 1997, an
increase of $0.2 million or 13% from $1.5 million for the year ended December
31, 1996. The increase was the result of loan modifications, prepayment
penalties and recoveries. The increase in the year ended December 31, 1997 is
primarily related to the recovery of approximately $0.5 million in escrow
advances that had previously been written off during the year ended December 31,
1996.
The Company's total expenses consist of salaries and benefits (including
commissions), other general and administrative expenses, provision for loan
servicing losses, operating interest expense, amortization of mortgage servicing
rights, and other depreciation and amortization.
Salaries and benefits, the largest category of expenses for the Company,
increase with loan production due primarily to the payment of commissions on
loan originations. Salaries and benefits increased $8.5 million, or 67%, from
$12.7 million for the year ended December 31, 1996 to $21.2 million for the year
ended December 31, 1997. This increase is due primarily to increased
originations, recognition of a one-time charge related to issuance of shares
through stock option plans, as discussed above, and the acquisitions of Proctor,
Askew, Robert C. Wilson and New York Urban which occurred subsequent to the year
ended December 31, 1996 and the acquisition of ACR in May, 1996. These
acquisitions, combined with the Company's expansion into non-multifamily
commercial lending contributed to the increase in the Company's number of
employees from 171 at December 31, 1996 to approximately 300 at December 31,
1997.
General and administrative expenses consist of professional fees, travel,
management information, occupancy, telephone and equipment rental, and other
expenses. General and administrative expenses were $7.6 million for the year
ended December 31, 1997, an increase of $2.8 million or 58% from $4.8 million
for the year ended December 31, 1996. The increase is a result of costs
associated with acquisitions and the resulting additional offices.
The Company's provision for loan servicing losses was $0.7 million for the
year ended December 31, 1997, a decrease of $ 0.6 million or 46% from $1.3
million for the year ended December 31, 1996. The decrease in reserves is the
result of management's determination, as part of its ongoing assessment of the
reserve, that current market conditions do not require a further increase in
reserves. The Company's principal balance of Fannie Mae DUS loans in the
servicing portfolio was $944 million and $776 million as of December 31, 1997
and 1996, respectively. In 1997 the Company did not incur any losses related to
its DUS portfolio.
Interest expense of $2.3 million for the year ended December 31, 1997
increased $1.0 million or 77% from $1.3 million for the year ended December 31,
1996. This increase was due to the Company's increased production and
acquisition borrowings.
Depreciation and amortization of $5.9 million for the year ended December
31, 1997 increased $0.8 million or 16% from $5.1 million for the year ended
December 31, 1996. This increase was due primarily to the acquisitions made by
the Company.
Losses from Beverly Hills Securities, as discussed below, of $0 and $0.6
million for the years ended December 31, 1997 and 1996, respectively, decreased
due to the Company writing off its investment/advances in Beverly Hills
Securities during the first quarter of 1996.
In July 1994, the Company exchanged its stock in WMF Residential Mortgage
Corporation ("Residential"), a wholly-owned subsidiary, for a 40 percent limited
partnership interest in Beverly Hills Securities Company, Ltd. ("Beverly").
Residential and Beverly specialized in the origination, purchase, sale and
servicing of single-family residential mortgage loans. No gain or loss was
recognized on the exchange. The Company recognized $0.7 million and $0.7 million
in equity losses relating to Beverly during 1995 and 1994, respectively. At
December 31, 1995, the carrying value of the Company's investment in Beverly was
written off as a result of operating losses and concerns about the
recoverability of the investment. The Company's exposure was limited to its
original
27
<PAGE>
investment amount in and advances to Beverly. The Company had advanced
approximately $1.1 million to Beverly at December 31, 1995. During 1996,
approximately $0.5 million of the advance to Beverly was collected and the
remaining balance was written off.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal financing needs are the funding of loan
originations, the pursuit of new company acquisitions and the purchase of
servicing rights. To meet these needs, the Company currently utilizes warehouse
lines of credit, a secured line of credit and a revolving credit facility. As
part of the Company's strategy to limit interest rate and spread risk, Capital
Corp. has terminated its $50 million credit facility with Merrill Lynch Capital
Markets, sold all remaining commercial mortgage loans and terminated the related
U.S. Treasury short sale transactions, which were financed by the facility.
The Company incurred substantial operating losses during the second and
third quarters of 1998. In response to the losses, the Company has curtailed its
operations at Capital Corp. The Company also refinanced its $150 million
warehouse line of credit, $4.2 million term loan, $35 million secured revolving
line and $10 million line of credit, on February 10, 1999. These facilities were
replaced with the warehouse lines of credit, credit lines and term loans
described below. The Company's servicing rights collateralize these facilities.
In addition, the warehouse line of credit is secured by the mortgage loans held
for sale.
The Company has a warehouse line of credit for $150 million, which can be
drawn for purposes of originating loans. Historically, the Company has
temporarily increased this line of credit at times to allow borrowings beyond
the credit limit. The warehouse line of credit is required to be repaid with
interest upon sale of the mortgage loans. The interest rate of the warehouse
line of credit is equal to one percent to the extent compensating balances are
maintained at or above the amount borrowed, or is equal to the London InterBank
Offered Rate ("LIBOR") plus one percent for amounts borrowed in excess of
compensating balances. The warehouse line of credit is renewable annually. The
facility can also be used for certain principal and interest advances with
credit limits totaling $10.0 million.
The Company has a $25 million term loan to be repaid in twenty quarterly
installments based on a 10-year amortization schedule beginning on March 31,
1999. The interest rate on the term loan is three percent to the extent
compensating balances are maintained at or above the amount borrowed and is
equal to LIBOR plus three percent for amounts in excess of compensating
balances. Interest is payable monthly. The Company cannot borrow any additional
amounts under this line, which will mature as follows: $2.5 million in each year
from 1999 to 2003 and $15 million in 2004.
The Company has a $25 million revolving credit facility to be used for
servicing acquisitions or working capital purposes. The facility matures in
February 2002. The interest rate on the revolving credit facility is 2.5 percent
to the extent compensating balances are maintained at or above the amount
borrowed and is equal to LIBOR plus 2.5 percent for amounts in excess of
compensating balances. Interest is payable monthly. At closing, the Company
borrowed $10.7 million under this line to repay its previous credit facilities.
In addition to these new facilities the Company has a $35 million revolving
line of credit, which principally can be drawn for purposes of originating
loans. The warehouse advances are secured by mortgage loans held for sale and
are required to be repaid upon sale of the mortgage loans. The interest rate on
the warehouse advances is 3/4 percent to the extent compensating balances are
maintained and is equal to the Euro-Rate plus 3/4 percent for amounts borrowed
in excess of the compensating balances. Interest is payable monthly. The
facility can also be used for principal and interest advances and working
capital purposes with credit limits of $4 million and $5 million, respectively.
The interest rates on the principal and interest advances and working capital
portion of the facility are 1.5 percent and 2.0 percent, respectively, to the
extent compensating balances are maintained and the Euro-Rate plus 1.5 percent
or 2 percent, respectively, for amounts borrowed in excess of the compensating
balances, respectively. Interest is payable monthly. Borrowings under this
facility totaled $19.9 million as of December 31, 1998 and $0 million as of
December 31, 1997. This facility expires on April 1, 1999. The Company does not
plan to renew this facility upon expiration, but may replace the facility in the
future.
The Company has also established a letter of credit on behalf of Fannie Mae
for the DUS Program of $5.2 million and $4.4 million as of December 31, 1998 and
1997, respectively. This letter of credit is secured by cash equivalents and
mortgage-backed securities with a market value of $6.3 million and $5.5 million
as of December 31, 1998 and December 31, 1997, respectively.
On September 4, 1998, the Company and COMIT entered into a Credit Agreement
whereby COMIT loaned $20 million to the Company and the Company granted COMIT
warrants to purchase up to 1.2 million shares of common stock of the Company at
$11.25 per share. COMIT immediately assigned the warrants to two of its
shareholders, which provided the capital for the loan.
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<PAGE>
Harvard received warrants for the purchase of up to 960,000 shares of common
stock, and Capricorn received warrants for the purchase of up to 240,000 shares
of common stock. The interest rate on the loan was 11 percent through January
31, 1999 and 15 percent thereafter, until the maturity date of May 31, 1999. On
December 31, 1998, the Company used the proceeds from the sale of its Class A
Stock, described below, to reduce the unpaid principal balance of the loan to
$3.9 million. In connection with the sale of the Class A Stock, Harvard and
Capricorn agreed to cancel the warrants that COMIT assigned to them. On March
12, 1999, the Company repaid the remaining principal and interest due under the
subordinated notes, and the notes were canceled.
On December 31, 1998, the company's three largest shareholders, Demeter,
Phemus and Capricorn, purchased a total of 3,635,972 shares of Class A Stock for
an aggregate purchase price of approximately $16.6 million. On January 14,
1999, each outstanding share of Class A Stock was converted into one share of
the Company's common stock. In addition, Demeter, Phemus and Capricorn entered
into a Standby Purchase Agreement to purchase up to 664,028 shares of the
Company's capital stock for up to $3,320,140 following the rights offering.
Because of their participation in this transaction, Demeter, Phemus and
Capricorn agreed not to exercise, transfer or acquire any rights during the
rights offering described below.
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 the holder to 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. On March 19, 1999, Demeter, Phemus and Capricorn
completed the purchase of a total of 664,028 shares of the Company's common
stock pursuant to the Standby Purchase Agreement, for total proceeds to the
Company of approximately $3.3 million. Also, Capricorn has agreed to purchase
an additional 34,520 shares at $5.375 per share, for proceeds to the Company
of $185,545. The Company expects that this sale to Capricorn will close shortly.
On March 12, 1999, the Company applied a portion of the proceeds from the
rights offering to repay the remaining subordinated notes held by COMIT. The
remaining proceeds from the rights offering and the proceeds from the purchases
by Demeter, Phemus and Capricorn will be used to repay borrowings under the
Company's revolving line of credit and for 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.
The Company enters into commitments to extend credit to borrowers in the
normal course of business. In the event there are significant fluctuations in
interest rates and spreads, the value of the commitments could have a material
adverse effect on the Company's future operating results and consequently the
Company's ability to honor the commitments. In the future, the Company intends
to manage this risk by issuing commitments to borrowers and obtaining loan sale
commitments from appropriate investors at the same time. The Company expects
that this essentially simultaneous commitment from both a borrower and a
mortgage investor will enable it to eliminate its exposure to interest rate and
credit spread changes for each transaction.
The Company's debt agreements, as amended, 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 December 31, 1998.
The Company believes its funds on hand at December 31, 1998, its unused
borrowing capacity under its credit lines, and its proceeds from the public
rights offering and private placements will be sufficient to meet its
anticipated operating needs as well as planned investments for at least the next
twelve months. Principal capital requirements in 1999 include co-investment in
commercial mortgage funds managed by the advisory services segment, systems
investments to support the Company's loan servicing and origination activities,
and furniture, fixtures, and equipment. In addition, the Company is obligated to
make certain earn-out and other payments to the prior owners of acquired
companies. The maximum amounts of the payments total approximately $3.3 million.
Of this amount, $1.6 million is subject to the achievement of certain
performance objectives over a defined period. The magnitude of the Company's
acquisition and investment program will be governed to some extent by the
availability of capital.
YEAR 2000
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
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<PAGE>
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;
. certain systems of the Company's material customers and investors,
if those systems relate to the Company's ability to provide
services to the customers and investors.
As described below, the Company's Year 2000 program involves
1. assessing the Year 2000 Problem and determining how it may
negatively affect the Company;
2. developing remedies to address the problems discovered in the
assessment phase;
3. testing of the remedies; and
4. preparing contingency plans to deal with 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
expects that it will complete these inquiries and receive substantially all
third-party responses by March 30, 1999.
While the Company cannot thoroughly assess other parties' Year 2000
readiness, it will attempt to identify areas of vulnerability and change
relationships with those parties as appropriate. If the Company believes that
third-party systems may have a negative material impact on its operations, it
will develop relationships with other parties who have been thoroughly screened
for Year 2000 compliance.
Remediation and Testing Phase. During the remediation and testing phase, the
Company 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.
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<PAGE>
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 received and analyzed responses to most of the inquiries
it has made of third parties. After its analysis, the Company plans to develop a
timetable for completing its contingency plans.
Costs Related to the Year 2000 Problem. To date, the Company has spent
approximately $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 its contingency planning
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, Disclosures About Segments of an Enterprise and Related Information
("SFAS No. 131"). SFAS No. 131 establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. SFAS No. 131 is
effective for financial statements for periods beginning after December 15,
1997, but need not be applied to interim financial statements in the initial
year of application. The Company has adopted the provisions of this statement as
of and for the period ended December 31, 1998.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS No. 133"). This statement 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 the resulting designation. If certain conditions are met, a derivative may
be specifically designated as (a) a hedge of certain exposure to changes in the
fair value 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 the foreign
currency exposures. This statement 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.
In October 1998, SFAS No. 134, Accounting for Mortgage-Backed Securities
Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage
Banking Enterprise, was issued. SFAS No. 134 requires that mortgage banks
classify the retained interests in mortgage-backed securities that were
originally classified as mortgage loans available for sale in accordance with
the provisions of SFAS No. 115, Accounting for Certain Investments in Debt and
Equity Securities. The Company adopted SFAS No. 134 upon its issuance.
ITEM 7A. QUANTITIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Interest rate risk is the most significant market risk affecting the
Company. Interest rate risk is the possibility that changes in interest rates
will cause unfavorable changes in net income or in the value of interest rate-
sensitive assets, liabilities and commitments. In particular, changes in
interest rates affect the volume of mortgage loan originations, the interest
rate spread on the Company's portfolio of loans, the amount of gain on the sale
of loans, the amount of placement fee income earned on invested escrow balances
and the value of the Company's loan servicing portfolio. The Company has been
managing this risk by striving to balance its revenue from loan origination and
loan servicing segments, which generally are counter-cyclical in nature. The
Company does not maintain a trading portfolio. As a result, the Company is not
exposed to market risk as it relates to trading activities.
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<PAGE>
Generally, interest rate increases reduce the level of economic and real
estate activity, thereby decreasing the demand for mortgage financing. Such a
decrease in demand may negatively affect the Company's ability to earn
origination fees and generate gains from the sale of loans. In the ordinary
course of business, the Company enters into commitments to extend credit to
borrowers. Normally, the Company simultaneously commits to sell the loan to an
investor, limiting the Company's exposure to interest rate fluctuations. To the
extent that the Company has committed to extend credit to borrowers without a
pre-existing sale commitment, changes in interest rates and spreads affect the
value of the commitments and could have a material adverse effect on the
Company's future operating results. Between the time that the loan is originated
and sold to the ultimate investor, the Company earns interest income. The loans
are funded through the use of a revolving warehouse line of credit, for which
the Company is charged interest based upon short-term interest rates. Therefore,
the net interest income that is earned by the Company is generally dependent
upon the spread between long-term mortgage rates and short-term interest rates.
An increase in short-term rates relative to long-term rates could have an
adverse effect on net interest income.
Interest rate increases, however, positively affect Company earnings from
loan servicing activities. A reduction in real estate activity may reduce the
risk of borrower prepayments, potentially increasing the level of servicing fees
and the value of the Company's servicing portfolio. Additionally, placement fee
income earned by the Company may benefit from increased interest rate levels.
Although loans within the servicing portfolio may have prepayment
restrictions and yield maintenance provisions, declines in interest rates can
adversely affect the Company's revenues by increasing the level of loan
prepayments. To the extent that future mortgage servicing rights have been
capitalized by the Company, higher than anticipated rates of loan prepayments or
losses could cause an increase of the amortization of these servicing assets or
require the Company to write down the value of these assets, adversely affecting
earnings. In addition, increased prepayment rates can reduce the Company's
servicing income by decreasing the size of the Company's servicing portfolio.
Declines in interest rates could also have an adverse effect on the placement
fee income earned on invested escrow balances. At the same time, interest rate
declines should generally have a corresponding favorable impact on Company
earnings from origination, loan sales and financing activities.
The Company currently does not enter into hedging activities. In the
future, the Company may use hedging techniques including futures, options,
interest rate swap agreements or other hedge instruments to help mitigate
interest rate and market risk. However, there can be no assurance that any of
the above hedging techniques will be successful. To the extent they are not
successful, the Company's profitability may be adversely affected.
Based on the information available and the interest environment as of
December 31, 1998, the Company believes that an instantaneous 100 basis point
increase, all else being constant, would result in a decrease in the Company's
net income of $1.7 million over a twelve-month period. An instantaneous 100
basis point decrease in rates, all else being constant, would result in an
increase in the Company's net income of $0.4 million over a twelve-month period.
The Company believes that larger or smaller interest rate changes would result
in proportionately larger or smaller gains and losses. The change in net income
principally reflects the impact of forward loan commitment gain or losses and
interest expense on variable rate debt, offset partially by changes in placement
fee income. The sensitivity analyses relate solely to the Company's rate-
sensitive assets, liabilities and commitments at December 31, 1998 and do not
capture changes in cash flows and earnings related to certain production and
servicing activities that would be expected to affect financial performance in
the simulated rate environments. These estimates are limited by the fact that
they are performed at a particular point in time and do not incorporate other
factors that would impact the Company's financial performance in such a
scenario. Consequently, the preceding estimates should not be viewed as a
forecast.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and Supplementary Data of the Company
are listed and included under Item 14 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the directors and executive officers of the Company
is incorporated by reference from the Company's Proxy Statement for the Annual
Meeting of Stockholders to be held on June 10, 1999, (the "1999 Proxy
Statement") under the caption "Election of Directors."
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated by reference
from the 1999 Proxy Statement under the caption
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<PAGE>
"Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding the stock ownership of each person known to the
Company to be the beneficial owner of more than 5 percent of the Common Stock,
of each director and executive officer of The WMF Group, Ltd., and all directors
and executive officers as a group is incorporated by reference from the 1999
Proxy Statement under the caption "Beneficial Ownership of Common Stock."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is
incorporated by reference from the 1999 Proxy Statement under the caption
"Certain Relationships and Related Transactions."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K
A. The following documents are filed as part of this report.
1. The Consolidated Financial Statements of The WMF Group, Ltd.
See Index to Financial Statements on Page F-1 included herein
B. The Company filed one current report on Form 8-K during the last quarter
of 1998. On October 26, 1998, the Company filed a current report on Form
8-K, incorporating information from four press releases related to the
Company's third-quarter losses, the Credit Agreement between the Company
and COMIT, and the Recapitalization Plan.
C. Exhibits -
EXHIBIT NO. DESCRIPTION
----------- -----------
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)
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.
33
<PAGE>
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
10.7 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
10.8 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
10.9 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 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
10.11 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.
10.19 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)
21 Subsidiaries of the Registrant (8)
23 Consent of KPMG LLP
27 Financial Data Schedule
34
<PAGE>
(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.
35
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
THE WMF GROUP, LTD.
By: /s/ Shekar Narasimham
----------------------
Shekar Narasimham
Director, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ J. Roderick Heller, III Chairman of the Board March 31, 1999
---------------------------
J. Roderick Heller, III
/s/ Shekar Narasimhan Director, President and March 31, 1999
---------------------
Shekar Narasimhan Chief Executive Officer
(Principal Executive Officer)
/s/ Michael D. Ketcham Executive Vice President March 31, 1999
----------------------
Michael D. Ketcham and Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Mohammed A. Al-Tuwaijri Director March 31, 1999
---------------------------
Mohammed A. Al-Tuwaijri
/s/ Tim R. Palmer Director March 31, 1999
------------------
Tim R. Palmer
/s/ John D. Reilly Director March 31, 1999
-------------------
John D. Reilly
/s/ Herbert S. Winokur, Jr. Director March 31, 1999
----------------------------
Herbert S. Winokur, Jr.
/s/ Michael R. Eisenson Director March 31, 1999
-----------------------
Michael R. Eisenson
</TABLE>
36
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report F - 1
Consolidated Balance Sheets
As of December 31, 1998 and 1997 F - 3
Consolidated Statements of Operations
For the Years Ended December 31, 1998 and 1997,
for the Period April 1, 1996 to December 31, 1996 and
for the Period January 1, 1996 to March 31, 1996 F - 4
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 1998 and 1997,
for the Period April 1, 1996 to December 31, 1996 and
for the Period January 1, 1996 to March 31, 1996 F - 5
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1998 and 1997,
for the Period April 1, 1996 to December 31, 1996 and
for the Period January 1, 1996 to March 31, 1996 F - 6
Notes to Consolidated Financial Statements F - 8
</TABLE>
37
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
The WMF Group, Ltd. and subsidiaries:
We have audited the accompanying consolidated balance sheets of The WMF Group
Ltd. and subsidiaries (collectively "the Company") as of December 31, 1998 and
1997, and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. The consolidated financial statements
of the Company for the periods April 1, 1996 to December 31, 1996 and January 1,
1996 to March 31, 1996, were audited by other auditors whose report dated
February 28, 1997, expressed an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
Washington, D.C.
March 5, 1999, except for
Note 20 which is as of
March 19, 1999
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
The WMF Group, Ltd. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of The WMF
Group, Ltd., and Subsidiary (the "Company") (formerly NHP Financial Services,
Ltd. and Subsidiary and formerly WMF Holdings Ltd., and Subsidiaries see Note
1) as of December 31, 1996, and the related consolidated statements of
operations, changes in shareholder's equity and cash flows for the periods April
1, 1996, to December 31, 1996, and January 1, 1996, to March 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of December 31, 1996, and the results of its operations and its cash flows
for the periods April 1, 1996, to December 31, 1996, and January 1, 1996, to
March 31, 1996, in conformity with generally accepted accounting principles.
As explained in Note 2 to the consolidated financial statements, effective
January 1, 1996, the Company changed its method of accounting for originated
mortgage servicing rights to comply with Statement of Financial Accounting
Standard No. 122, "Accounting for Mortgage Servicing Rights."
ARTHUR ANDERSEN LLP
Washington, D.C.
February 28, 1997
<PAGE>
THE WMF GROUP, LTD.
Consolidated Balance Sheets
As of December 31, 1998 and 1997
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
ASSETS 1998 1997
---------------- ----------------
<S> <C> <C>
Cash and cash equivalents $ 8,897 8,448
Restricted cash 13,398 3,914
Mortgage-backed securities 6,195 3,851
Mortgage loans held for sale, pledged 34,217 49,431
Principal, interest and other servicing advances 2,588 2,631
Investment 3,780 --
Furniture, equipment and leasehold improvements, net 5,011 2,299
Servicing rights, net 26,243 26,796
Goodwill, net 22,360 18,465
Deferred tax assets, net 17,290 --
Other assets 4,548 3,496
---------------- ----------------
Total assets $ 144,527 119,331
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 15,455 6,265
Escrow payable 10,853 2,338
Subordinated note 3,901 --
Warehouse lines of credit 34,757 48,743
Servicing loan 4,212 5,462
Revolving credit facility 36,281 5,699
Deferred fees 5,437 3,600
Accrued loan servicing portfolio losses 6,253 5,125
Deferred tax liability, net -- 3,274
---------------- ----------------
Total liabilities 117,149 80,506
---------------- ----------------
Stockholders' equity:
Preferred stock, 12,500,000 shares
authorized; 3,635,972 shares issued and outstanding in 1998 16,541 --
Common stock, $.01 par value, 25,000,000 shares authorized;
5,349,403 and 5,042,723 shares issued and outstanding
in 1998 and 1997, respectively 53 50
Additional paid-in capital 40,509 35,178
Retained earnings (deficit) (29,725) 3,597
---------------- ----------------
Total stockholders' equity 27,378 38,825
---------------- ----------------
Total liabilities and stockholders' equity $ 144,527 119,331
================ ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
THE WMF GROUP, LTD.
Consolidated Statements of Operations
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
PRO FORMA
FOR THE YEAR FOR THE PERIOD
FOR THE YEAR FOR THE YEAR ENDED APRIL 1, 1996 FOR THE PERIOD
ENDED ENDED DECEMBER 31, TO JANUARY 1, 1996
DECEMBER 31, DECEMBER 31, 1996 DECEMBER 31, TO
1998 1997 (UNAUDITED) 1996 MARCH 31, 1996
-------------- -------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Revenues:
Servicing fees $ 14,715 11,871 9,329 7,274 2,055
Gain on sale of mortgage loans, net 20,064 19,652 10,221 8,113 2,108
Gain on sale of servicing rights 2,026 297 -- -- --
Interest income 20,844 5,771 4,250 3,388 862
Placement fee income 8,470 5,330 4,959 3,823 1,136
Other income 6,422 1,724 1,542 875 667
-------------- -------------- -------------- -------------- ----------------
Total revenues 72,541 44,645 30,301 23,473 6,828
-------------- -------------- -------------- -------------- ----------------
Expenses:
Salaries and employee benefits 38,816 21,163 12,745 9,975 2,770
General and administrative 17,878 7,649 4,812 3,884 928
Occupancy 4,736 2,140 1,593 1,352 241
Provision for loan servicing losses 1,128 729 1,254 969 285
Interest 17,764 2,283 1,319 1,012 307
Realized losses on treasury short sale 36,653 -- -- -- --
Amortization of servicing rights 5,153 4,250 3,914 3,062 471
Depreciation and amortization 2,801 1,660 1,195 920 81
Losses on investments/advances -- -- 600 -- 600
-------------- -------------- -------------- -------------- ----------------
Total expenses 124,929 39,874 27,432 21,174 5,683
-------------- -------------- -------------- -------------- ----------------
Income (loss) before
income tax expense (52,388) 4,771 2,869 2,299 1, 145
Income tax expense (benefit) (19,066) 2,329 1,984 1,144 840
============== ============== ============== ============== ================
Net income (loss) $ (33,322) 2,442 885 1,155 305
============== ============== ============== ============== ================
Net income (loss) per share - Basic $ (6.38) 0.57 0.21 0.27 0.07
============== ============== ============== ============== ================
Net income (loss) per share - Diluted $ (6.38) 0.55 0.21 0.27 0.07
============== ============== ============== ============== ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
THE WMF GROUP, LTD.
Consolidated Statements of Changes in Stockholders' Equity
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
Number of shares outstanding Additional
----------------------------
Preferred Common Common Preferred paid-in Retained
stock stock stock stock capital earnings Total
----- ----- ------ ----- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 -- 4,217 $ 42 $ -- $ 2,640 $ 1,336 $ 4,018
Net income -- -- -- -- -- 305 305
-------- ------ ------- ------- -------- -------- -------
Balance at March 31, 1996 -- 4,217 42 -- 2,640 1,641 4,323
------------------------------------------------------------------------------
Elimination of equity upon sale -- -- (42) -- (2,640) (1,641) (4,323)
Initial investment -- -- 42 -- 21,331 -- 21,373
Net income -- -- -- -- -- 1,155 1,155
------ ------ ------- ------- -------- -------- -------
Balance at December 31, 1996 -- 4,217 42 -- 21,331 1,155 22,528
Net income -- -- -- -- -- 2,442 2,442
Issuance of common stock -
Capricorn Investors -- 547 6 -- 4,994 -- 5,000
Issuance of stock options -- -- -- -- 1,093 -- 1,093
Equity contribution - NHP -- -- -- -- 6,500 -- 6,500
Adjustment for NHP's conversion -- 129 1 -- (1) -- --
Exercise of stock options and others -- 150 1 -- 1,261 -- 1,262
------ ------ ------- ------- -------- -------- -------
Balance at December 31, 1997 -- 5,043 50 -- 35,178 3,597 38,825
Net loss -- -- -- -- -- (33,322) (33,322)
Issuance of preferred stock 3,636 -- -- 16,541 -- -- 16,541
Issuance of stock options and warrants -- 215 2 -- 3,239 -- 3,241
Stock issued in conjunction with the
acquisition of WMF Carbon Mesa -- 91 1 -- 2,092 -- 2,093
------ ------ ------- ------- -------- -------- -------
Balance at December 31, 1998 $3,636 5,349 $ 53 16,541 $ 40,509 (29,725) $27,378
====== ====== ======= ======= ======== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
THE WMF GROUP, LTD.
Consolidated Statements of Cash Flows
(dollars in thousands)
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
APRIL 1, 1996 JANUARY 1, 1996
TO TO
DECEMBER 31, MARCH 31,
1998 1997 1996 1996
----------- ----------- -------------- -------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (33,322) 2,442 1,155 305
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization of furniture,
equipment and leasehold improvements 1,136 596 313 77
Amortization of mortgage servicing rights 5,153 4,250 3,062 471
Amortization of goodwill 1,665 1,064 578 4
Compensation related to stock options -- 1,093 -- --
Losses from investments/advances -- -- -- 600
Gain on sale of mortgage servicing rights (2,026) (297) -- --
Provision for loan servicing losses 1,128 729 969 285
Realized losses on treasury short sales 36,653 -- -- --
Deferred taxes, net (20,564) 90 -- --
Mortgage loans originated (4,333,507) (1,283,552) (657,217) (176,724)
Mortgage loans sold 4,348,721 1,274,384 640,071 186,070
Increase (decrease) in escrows payable 8,515 (86) -- --
Decrease (increase) in principal, interest
and other servicing advances 43 (619) 1,708 (926)
Increase (decrease) in due (from) affiliates -- (872) 1,100 280
(Increase) decrease in restricted cash (9,484) (600) (2,391) (60)
(Increase) decrease in other assets (1,052) (1,030) 1,210 (805)
Increase (decrease) in payable and accrued
expenses 9,190 495 (175) 1,563
Increase (decrease) in deferred fees 1,837 814 909 (1,157)
----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities 14,086 (1,099) (8,708) 9,983
----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchase of furniture, equipment and leasehold
improvements (3,848) (1,410) (910) (71)
Purchase of mortgage servicing rights (1,594) (4,272) (3,728) (332)
Acquisition of servicing rights -- (1,252) -- --
Proceeds from securities sold but not
yet purchased 850,000 -- -- --
Purchases to cover securities sold but not
yet purchased (886,653) -- -- --
Origination of servicing rights (5,980) (3,251) (2,659) (150)
Purchase of ACR production system and pipeline -- -- (2,000) --
Purchase price in excess of net assets acquired (5,560) (11,823) -- --
Purchase of investment (3,780) -- -- --
Proceeds from sale of mortgage servicing rights 5,000 486 -- --
Repayments of mortgage-backed securities 56 59 21 5
Purchase of mortgage-backed securities (2,400) -- -- --
----------- ----------- ----------- -----------
Net cash used in investing activities (54,759) (21,463) (9,276) (548)
----------- ----------- ----------- -----------
</TABLE>
F-6
<PAGE>
THE WMF GROUP, LTD.
Consolidated Statements of Cash Flows
(dollars in thousands)
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
APRIL 1, 1996 JANUARY 1, 1996
TO TO
DECEMBER 31, MARCH 31,
1998 1997 1996 1996
------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Cash flows from financing activities:
Repayment of servicing loan $ (1,250) (750) (201) (26)
Increase (decrease) in warehouse lines
of credit, net (13,986) 8,818 17,264 (9,170)
Payments on notes payable -- -- (34)
Increase in revolving credit facilities, net 30,582 5,699 -- --
Proceeds from issuance of subordinated debt 20,000 -- -- --
Repayment of subordinated debt (16,099) -- -- --
Stock issued in conjunction with acquisition 2,093 -- -- --
Issuance of stock options and warrants 3,241 6,262 -- --
Equity contribution by NHP -- 6,500 -- --
Proceeds from issuance of preferred stock 16,541 -- -- --
-------- -------- -------- --------
Net cash (used in) provided by
financing activities 41,122 26,529 17,029 (9,196)
-------- -------- -------- --------
Net increase in cash 449 3,967 (955) 239
Cash at beginning of period 8,448 4,481 5,436 5,197
======== ======== ======== ========
Cash at end of period $ 8,897 8,448 4,481 5,436
======== ======== ======== ========
Supplemental disclosures:
Cash paid during the period for interest $ 17,117 2,290 990 474
Cash paid during the period for income taxes 1,156 2,610 1,008 935
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
THE WMF GROUP, LTD.
Notes to Consolidated Financial Statements
(dollars in thousands, except share and per share data)
(1) ORGANIZATION
The Company originates, underwrites, structures, places, sells and
services multifamily and commercial real estate loans. With the formation
of WMF Capital Corp. ("Capital Corp.") and the acquisition of WMF Carbon
Mesa Advisors, Inc. ("WMF Carbon Mesa") in the first quarter of 1998, the
Company operates a commercial mortgage conduit, manages commercial
mortgage investment funds and provides special asset management services.
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, management fees, structuring fees, net
interest income on loans held for sale and placement fees.
On April 1, 1996, NHP Incorporated ("NHP"), purchased the Company and
named it "NHP Financial Services, Inc." In early 1997, NHP was acquired
by Apartment Investment and Management Co. ("AIMCO"). As a condition of
that purchase, AIMCO required NHP to spin-off the Company. On December 8,
1997, the Company became an independent, publicly traded company.
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") (previously known as Washington Mortgage
Financial Group, Ltd.), WMF Capital Corp., and WMF Carbon Mesa each of
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.
As a result of the Company's acquisition on April 1, 1996 by NHP, NHP's
acquisition cost was pushed down to the Company and all assets acquired
were recorded at their estimated fair value which resulted in an increase
of the recorded value of the Company's servicing rights of $10,700. In
addition, the Company recorded approximately $5,100 of goodwill related
to the transaction and a deferred tax liability of approximately $3,200.
The goodwill related to this transaction is being amortized over seven
years. The acquired servicing rights are being amortized over their
estimated lives. Both acquired servicing rights and goodwill are
amortized based upon the estimated life of the assets acquired.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All material
intercompany balances and transactions have been eliminated in
F-8
<PAGE>
THE WMF GROUP, LTD.
Notes to Consolidated Financial Statements
(dollars in thousands, except share and per share data)
consolidation. Certain prior year amounts have been reclassified
to conform with the current year presentation.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and
liabilities at the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates. Significant estimates included in the financial
statements relate to the valuation of mortgage-backed securities,
mortgage loans held for sale, servicing rights, deferred tax
assets, goodwill and accrued loan servicing portfolio losses.
(B) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with initial
maturities of 90 days or less to be cash equivalents. These
include cash, demand deposits and overnight repurchase agreements.
(C) RESTRICTED CASH
Restricted cash includes cash deposited at banks to cover escrow
payables and money market funds that are collateral on a Federal
National Mortgage Association ("Fannie Mae") Delegated
Underwriting and Servicing ("DUS") letter of credit.
(D) MORTGAGE-BACKED SECURITIES
The Company classifies its mortgage-backed securities as either
held-to-maturity or as available for sale. Securities that it has
the ability and the intent to hold until maturity are classified
as held-to-maturity and are recorded at amortized cost. Premiums
and discounts are amortized using the effective interest rate
method over the term of the security. Mortgage backed securities
classified as available for sale are carried at fair market value.
Unrealized holding gains and losses, net of the related tax
effect, on available-for-sale securities are excluded from
earnings and are reported as a separate component of other
comprehensive income until realized. Realized gains and losses
from the sale of available-for-sale securities are determined on a
specific identification basis.
(E) MORTGAGE LOANS HELD FOR SALE
Mortgage loans held for sale are carried at the lower of aggregate
cost or market as determined by outstanding commitments from
investors or current investor yield requirements. Typically, loans
are held for a period of no more than three months. As of December
31, 1998 and 1997, there were no loans in the warehouse for a
period greater than three months.
(F) INVESTMENT
In June 1998, the Company began investing in Commercial Mortgage
Investment Trust, Inc. ("COMIT") a commercial mortgage REIT of
which the Company owns less than 20 percent. COMIT invests in
multifamily and commercial mortgages, primarily those originated
by the Company that are not sold in securitizations or to other
institutional investors. These types of
F-9
<PAGE>
THE WMF GROUP, LTD.
Notes to Consolidated Financial Statements
(dollars in thousands, except share and per share data)
multifamily and commercial loans include bridge, mezzanine and
structured transactions. The Company records its investment in
COMIT at cost.
(G) FURNITURE, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements are stated at
cost, net of accumulated amortization and depreciation.
Depreciation of furniture and equipment is recognized using the
straight-line method over the estimated useful life of the asset,
approximately five years. Leasehold improvements are amortized
over the estimated useful life of the asset or the lease term,
whichever is less. Cost of maintenance and repairs are charged to
expense as incurred.
(H) SERVICING RIGHTS
The Company accounts for its servicing rights under Statement of
Financial Accounting Standard ("SFAS") No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities.
SFAS No. 125 requires servicing rights retained by the Company
after the origination and sale of the related loan be capitalized
by allocating the carrying amount between the loan and the
servicing rights based on their relative fair value. If it is not
practicable to determine the servicing rights' fair value then no
value is allocated to the servicing rights. The Company has also
determined that it is practicable to estimate the fair value of
conduit servicing rights and servicing rights related to permanent
Federal Housing Administration ("FHA") originated loans but does
not capitalize other loan types due to the limited secondary
market for the products. The capitalization of these originated
mortgage servicing rights increases net income for the period by
the amount capitalized less related amortization and impairment if
any. Purchased servicing rights are initially recorded at their
purchase price. Servicing rights are amortized over a seven-year
period which is the estimated life of the asset.
F-10
<PAGE>
THE WMF GROUP, LTD.
Notes to Consolidated Financial Statements
(dollars in thousands, except share and per share data)
Under SFAS No. 125, all capitalized mortgage servicing rights are
evaluated for impairment based on the excess of the carrying
amount of the mortgage servicing rights over their fair value. In
measuring impairment, the servicing rights are stratified based on
the interest rate and loan type of the underlying loan. The
assumptions used in estimating the net cash flows are based on
market conditions and actual experience. Impairment, if any, is
recognized through a valuation allowance for each individual
stratum.
(I) GOODWILL
Goodwill arising from acquisitions is determined based on the
excess of the purchase price paid over the fair value of the
assets acquired. The Company evaluates the impairment of goodwill
whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. Goodwill is amortized on a
straight-line basis primarily over seven to twenty years.
(J) ACCRUED LOAN SERVICING PORTFOLIO LOSSES
The Company bears a portion of the credit loss risk associated
with the loans it services as a result of its participation in the
Fannie Mae DUS multifamily loan program. The accrual for loan
servicing portfolio losses represents management's estimate of the
losses which may be incurred on recourse loans underwritten to
date. Management believes the current accrual reserve is adequate
to provide for such losses. Management regularly reviews the
adequacy of this accrual, considering such items as economic
conditions and collateral value, and makes adjustments to the
accrual through the provision for loan servicing losses as
considered necessary.
(K) SERVICING FEES
Servicing fee income represents fees earned for servicing
multi-family and commercial real estate mortgage loans owned by
institutional investors, including subservicing fees, net of
guarantee fees, pool insurance fees and trustee fees. The fees are
generally calculated on the outstanding principal balances of the
loans serviced and are recorded as income when collected. Late
charge income is recognized as income when collected and is
included in servicing fee income.
(L) GAIN ON SALE OF MORTGAGE LOANS
Gains on sale of mortgage loans consist of origination fees,
commitment fees and gains on originated mortgage servicing rights.
The gain is recognized based upon the difference between the
selling price and the carrying amount of the related mortgage
loans sold, net of the allocation to servicing rights for
permanent FHA and conduit originated loans. Origination fees and
expenses, net of commitment fees paid in connection with the sale
of the loans, are deferred and recognized at the time of sale in
the gain or loss determination.
F-11
<PAGE>
THE WMF GROUP, LTD.
Notes to Consolidated Financial Statements
(dollars in thousands, except share and per share data)
(M) GAIN ON SALE OF SERVICING RIGHTS
Gain on sale of servicing rights is recognized based upon the
difference between the selling price and the carrying amount of
the related servicing rights.
(N) PLACEMENT FEE INCOME
Placement fee income represents revenue earned from the placement
and utilization of escrow funds. Income is recognized during the
period in which it is earned.
(O) INCOME TAXES
Between the acquisition of the Company by NHP on April 1, 1996
through May 8, 1997, the Company filed a consolidated tax return
with NHP. Since May 8, 1997 the Company has filed consolidated tax
returns on its own behalf. The Company records income tax expense
or benefit for each of the periods presented herein as if it filed
a return on a stand-alone basis. Deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. Prior to
the acquisition on April 1, 1996, the Company filed a consolidated
tax return together with its subsidiaries.
(P) NET INCOME PER SHARE
Effective December 15, 1997, the Company adopted the provision of
SFAS No. 128 Earnings per Share. SFAS No. 128 requires earnings
per share to be reported as basic earnings per share and diluted
earnings per share. Basic earnings per share are based on total
weighted average outstanding shares for a given period. Diluted
earnings per share is based on total weighted average outstanding
shares and also assumes exercise or conversion of all potentially
dilutive instruments currently outstanding. In addition, net
income per share is computed after retroactively applying the
impact of the stock split.
(Q) COMPREHENSIVE INCOME
In June 1998, SFAS No. 130, Reporting Comprehensive Income became
effective. SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components and in total in
the financial statements. Comprehensive income is defined as the
change in equity of a business enterprise during a period from
transactions and other events and circumstances from non-owner
sources. It includes all changes in equity during a period except
those resulting from investments by owners and distributions to
owners. The Company adopted the requirements of SFAS No. 130 on
January 1, 1998. At December 31, 1998, the Company has no other
items of comprehensive income.
F-12
<PAGE>
THE WMF GROUP, LTD.
Notes to Consolidated Financial Statements
(dollars in thousands, except share and per share data)
(R) NEW ACCOUNTING STATEMENTS
In June 1998, SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities was issued. SFAS No. 133 establishes
accounting and reporting requirements 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 the resulting
designation. If certain conditions are met, a derivative may be
specifically designated as (a) a hedge of certain exposures to
changes in the fair value 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.
In October 1998, SFAS No. 134, Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise, was issued. SFAS
No. 134 requires that mortgage banks classify the retained
interests in mortgage-backed securities that were originally
classified as mortgage loans available for sale in accordance with
the provisions of SFAS No. 115, Accounting for Certain Investments
in Debt and Equity Securities. The Company adopted SFAS No. 134
upon its issuance.
(S) STOCK-BASED EMPLOYEE COMPENSATION ARRANGEMENTS
The Company follows Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its employee stock options.
Certain options granted by the Company have exercise prices less
than the market price of the underlying stock on the date of
grant. In accordance with APB 25, compensation expense is
recognized on these options.
(T) RECLASSIFICATIONS
Certain amounts in 1997 and 1996 have been reclassified to conform
to their presentation in 1998.
(3) ACQUISITIONS
On April 15, 1997, WMF Washington Mortgage acquired the assets and
liabilities of Askew Investment in Dallas, Texas for $5,600. In
accordance with the purchase agreement, $4,600 of the purchase price was
paid upon closing with the remaining $1,000 paid in the form of earnouts
upon attainment of certain performance objectives. The acquisition has
been accounted for as a purchase resulting in goodwill of $4,600. Such
goodwill will be amortized on a straight-line basis over twenty years
which is the estimated life of the mortgage loan production operations
acquired.
During 1998 and 1997, respectfully, $727 and $300 of goodwill was
recorded in connection with the earnout agreement related to the
acquisition of Askew Investments.
F-13
<PAGE>
THE WMF GROUP, LTD.
Notes to Consolidated Financial Statements
(dollars in thousands, except share and per share data)
On November 5, 1997, WMF Washington Mortgage acquired 100 percent of the
outstanding stock of The Robert C. Wilson Company and its Arizona
subsidiary (collectively "WMF Robert C. Wilson"), a Houston based
commercial mortgage banking company. WMF Washington Mortgage acquired all
of Wilson's issued and outstanding common stock for a purchase price of
approximately $4,000 in cash. In accordance with the purchase agreement
$3,200 was paid at closing and the remaining $800 would be paid in the
form of earnouts upon the attainment of certain performance objectives
over a 42 month period. The funds for the acquisition were obtained
through a draw on an existing credit line of WMF Washington Mortgage. The
acquisition has been accounted for as a purchase resulting in goodwill of
$3,200 million. Such goodwill will be amortized on a straight-line basis
over twenty years which is the estimated life of the mortgage loan
production operations acquired.
During 1998 an additional $267 of goodwill was recorded in connection
with the earnout agreement related to the acquisition of WMF Robert C.
Wilson.
On December 23, 1997, WMF Washington Mortgage acquired the assets and
liabilities of New York Urban West, Inc. ("WMF New York Urban"), a New
York based commercial mortgage banking company for $4,900. In accordance
with the purchase agreement, approximately $4,100 was paid in cash and
the remaining $800 would be paid in the form of earnouts upon the
attainment of certain performance objectives over a 42 month period. The
funds for the acquisition were obtained through a draw on an existing
credit line of WMF Washington Mortgage. The acquisition has been
accounted for as a purchase resulting in goodwill of $2,700. Such
goodwill will be amortized on a straight-line basis over twenty years
which is the estimated life of the mortgage loan production operations
acquired
On March 27, 1998, the Company created WMF Carbon Mesa, which purchased
all of the assets of Carbon Mesa Advisors, Inc., and Strategic Real
Estate Partners for a combination of cash and common stock. The purchase
did not have a significant impact on the Company's financial position or
results of operations. WMF Carbon Mesa develops new loan products,
manages commercial mortgage investment funds, provides special asset
management services, and originates commercial mortgages.
(4) MORTGAGE-BACKED SECURITIES
Mortgage-backed securities include Government National Mortgage
Association ("Ginnie Mae") securities. These securities are classified as
held to maturity. The market value of the securities is $3,813 and $3,935
at December 31, 1998 and 1997, respectively. The securities held will
mature in the years 2028 and 2029 and are pledged as collateral for a
letter of credit established on behalf of Fannie Mae for loans originated
under the DUS program. These securities carry an AAA credit rating.
Mortgage-backed securities also include a subordinated interest in
certain commercial tenant leases retained by the Company after their
origination and sale. The cost and fair value of these securities at
December 31, 1998 was $2,400. These securities are classified as
available-for-sale and are scheduled to mature in 2012.
F-14
<PAGE>
THE WMF GROUP, LTD.
Notes to Consolidated Financial Statements
(dollars in thousands, except share and per share data)
(5) Mortgage Loans Held for Sale
Mortgage loans that the Company acquires or originates with the intent to
sell in the foreseeable future are initially recorded at cost
including any premium or discount related to acquired loans. Loans held
for sale are carried on the books at the lower of cost or fair value
calculated on the aggregate basis. Gains and losses on the sale of loans
is recognized upon settlement with investor. The Company does not
anticipate prepayment of loans held for sale due to the Company's short
holding period, which is typically less than three months. Mortgage loans
held for sale are pledged as collateral against the Company's warehouse
lines of credit.
(6) Furniture, Equipment, and Leasehold Improvements
As of December 31, 1998 and 1997, furniture, equipment and leasehold
improvements consist of the following:
1998 1997
------ ------
Furniture and equipment $5,911 2,745
Capital lease 125 125
Leasehold improvements 933 251
------ ------
6,969 3,121
Less -- accumulated depreciation and amortization 1,958 822
------ ------
$5,011 2,299
====== ======
(Continued)
<PAGE>
THE WMF GROUP, LTD.
Notes to Consolidated Financial Statements
(dollars in thousands, except share and per share data)
(7) DEBT FACILITIES
The Company has two warehouse lines of credit for a total of $185,000 (one
for $150,000 and another for $35,000) which can be drawn upon for purposes
of originating loans. The warehouse lines of credit are secured by mortgage
loans held for sale and are required to be repaid, with interest, upon sale
of the mortgage loans. The interest rate on the $150,000 line of credit was
.75 to 1 percent for 1997 and 1998 and 1 to 1.5 percent in 1996 to the
extent borrowings were equal to or less than compensating balances
maintained and was equal to the London InterBank Offered Rate ("LIBOR")
plus .75 to 1 percent for 1997 and 1998 and 1 to 1.5 percent in 1996 for
amounts borrowed in excess of compensating balances. The interest rate on
the $35,000 line of credit was .75 percent to the extent borrowings were
equal to or less than compensating balances maintained and was equal to the
Euro-Rate plus .75 percent for amounts borrowed in excess of compensating
balances. The Company had borrowed $34,757 and $48,743 against these lines
of credit as of December 31, 1998 and 1997, respectively. The $150,000
million line of credit was refinanced in February 1999.
The $35,000 warehouse line of credit can also be used for principal and
interest advances and working capital purposes with credit limits of $4,000
to $5,000 respectively. The interest rate on the principal and interest
advances and working capital portion of the facility are 1.5 percent and
2.0 percent to the extent borrowings were equal to or less than
compensating balances maintained and was equal to the Euro-Rate plus 1.5
percent or 2 percent for amounts borrowed in excess of the compensating
balances, respectively. Interest and principal is repayable monthly. The
balance of these advance lines are required to be zero for at least seven
consecutive days during each month of the year. The Company had borrowed
$4,763 against this facility as of December 31, 1998.
The Company has a servicing loan. The loan is to be repaid in twenty equal
quarterly installments based on a 10-year amortization schedule beginning
in October 1996, with the remaining balance due in June 2001. The interest
rate on the servicing loan was 3 percent for 1997 and 1998 and 3 to 3.5
percent in 1996 to the extent borrowings were equal to or less than
compensating balances maintained and was equal to LIBOR plus 3 percent for
1997 and 1998 and LIBOR plus 3 to 3.5 percent in 1996 for amounts borrowed
in excess of compensating balances. Interest is payable monthly. The
servicing loan is collateralized by servicing rights. The Company had
outstanding under this loan $4,212 and $5,462 as of December 31, 1998 and
1997, respectively. This loan was refinanced in February 1999.
The Company has a $10,000 secured revolving credit agreement to be used for
servicing acquisitions or working capital purposes. The revolving credit
agreement is renewable annually through November 2002 and requires monthly
interest payments. Any principal balance outstanding in November 2002 would
be converted to a term loan due in quarterly installments through November
2007. The interest rate on the term loan is 2.5 percent for amounts
borrowed to the extent borrowings were equal to or less than compensating
balances maintained and is equal to LIBOR plus 2.5 percent for amounts
borrowed in excess of compensating balances. The revolving credit agreement
is collateralized by all nonrecourse servicing rights. The Company had
borrowed $10,000 and $2,829 against this line as of December 31, 1998 and
1997, respectively. This line of credit was refinanced in February 1999.
F-16
<PAGE>
THE WMF GROUP, LTD.
Notes to Consolidated Financial Statements
(dollars in thousands, except share and per share data)
The Company has a $35,000 secured revolving line of credit which is
utilized to finance the acquisition of commercial mortgage banking
companies and related activities. The interest rate on this facility is 3
percent to the extent borrowings were equal to or less than compensating
balances maintained and was equal to LIBOR plus 3 percent for amounts
borrowed in excess of the compensating balances. Interest is payable
monthly. This facility is collateralized by all nonrecourse servicing
rights. The Company had borrowed $21,519 and $2,870 against this facility
as of December 31, 1998 and 1997, respectively. This line of credit was
refinanced in February 1999.
On September 4, 1998, the Company issued $20.0 million of subordinated debt
to COMIT. From this borrowing, the Company used $10.0 million to repay a
portion of the credit line with another lender. The balance of $10.0
million was used for working capital purposes. The subordinated debt is
subordinate in right of payment to certain of the Company's senior
indebtedness, is unsecured and bears interest at a rate of 11 percent
through January 31, 1999 and 15 percent from February 1, 1999 through the
maturity date of May 31, 1999. Interest is payable on January 29, 1999, at
maturity and upon repayment of principal. In connection with the COMIT
subordinated debt agreement, the Company also issued COMIT warrants to
purchase 1.2 million shares of the Company's common stock at an exercise
price of $11.25 per share. The Company repaid $16.1 million of the
subordinated notes on December 31, 1998 and as part of the sale of
approximately $16.6 million of Class A Preferred Stock discussed in Note
20, the warrants were surrendered. The Company repaid the remainder of the
subordinated note in March 1999 (see note 20).
The Company refinanced its $4,200 servicing loan, $35,000 revolving line,
$10,000 line of credit and $150,000 of its warehouse lines of credit. These
facilities were replaced with the following warehouse lines of credit,
credit lines and term loans on February 10, 1999. The Company's servicing
rights collateralized these facilities. The Company's debt agreements
require maintenance of certain financial ratios relating to liquidity,
leverage, working capital, and net worth among other restrictions. As a
result of the refinancing of the Company's debt in February 1999, the
Company was in compliance with these restrictions at December 31, 1998.
The Company has a $25 million term loan to be repaid in twenty quarterly
installments based on a 10-year amortization schedule beginning on March
31, 1999. The interest rate on the term loan is 3 percent to the extent
compensating balances are maintained and is equal to LIBOR plus 3 percent
for amounts in excess of compensating balances. Interest is payable
monthly. The Company cannot borrow any additional amounts under this line,
which will mature as follows: $2.5 million in each year from 1999 to 2003
and $15 million in 2004.
The Company has a $25 million revolving credit agreement to be used for
servicing acquisitions or working capital purposes. The facility matures in
February 2002. The interest rate on the revolving credit facility is 2.5
percent to the extent compensating balances are maintained and is equal to
LIBOR
Historically, the Company has temporarily increased its warehouse lines of
credit at times to allow borrowing beyond the credit limit. The warehouse
line of credit is renewable annually. The facility can also be used for
certain principal and interest advances with credit limits totaling $10.0
million.
F-17
<PAGE>
THE WMF GROUP, LTD.
Notes to Consolidated Financial Statements
(dollars in thousands, except share and per share data)
Following is certain information relating to the Company's various credit
agreements for the years ended December 31, 1998 and 1997, respectively.
<TABLE>
<CAPTION>
Average Maximum Interest rate at Average
December 31, balance balance December 31, interest
1998 outstanding outstanding 1998 rate
------------- ----------- ----------- ----------------- --------
<S> <C> <C> <C> <C> <C>
$185,000 warehouse lines $34,757 71,159 170,815 2.58% 1.28%
Servicing loan 4,212 4,844 5,462 3.10% 3.04%
$45,000 revolving credit
facilities 36,281 24,684 41,519 10.18% 3.92%
Subordinated note 3,901 19,037 20,000 11.00% 11.00%
============= =========== =========== ================= ========
<CAPTION>
Average Maximum Interest rate at Average
December 31, balance balance December 31, interest
1997 outstanding outstanding 1997 rate
------------- ----------- ----------- ----------------- --------
<S> <C> <C> <C> <C> <C>
$185,000 warehouse line $48,473 56,377 127,675 0.75% 0.75%
Servicing loan 5,462 5,775 6,212 3.0% 3.0%
$10,000 servicing
acquisition line 2,829 2,829 2,829 2.5% 2.5%
$35,000 revolving credit
facility 2,870 2,870 2,870 3.0% 3.0%
============= =========== =========== ================= ========
</TABLE>
The Company has also established a letter of credit of $5,200 and $4,400 on
behalf of Fannie Mae for the DUS program as of December 31, 1998 and 1997,
respectively. This letter of credit is secured by cash equivalents and
mortgagebacked securities with a market value of $6,358 and $5,511 as of
December 31, 1998 and 1997, respectively.
(8) Servicing Rights
During 1998 and 1997, the activity for servicing rights consisted of the
following:
(Continued)
<PAGE>
THE WMF GROUP, LTD.
Notes to Consolidated Financial Statements
(dollars in thousands, except share and per share data)
1998 1997
-------- --------
Beginning balance, net $ 26,796 22,460
Increase due to acquisition -- 1,252
Purchases 1,594 4,272
Originations 5,980 3,251
Sale, net (2,974) (189)
Amortization (5,153) (4,250)
-------- --------
Ending balance, net $ 26,243 26,796
======== ========
SFAS No. 125 requires enterprises to measure the impairment of servicing
rights based on the difference between the carrying amount of the
servicing rights and their current fair value. At December 31, 1998 and
1997, no allowance for impairment in the Company's mortgage servicing
rights was necessary. The estimated fair value of the capitalized
mortgage servicing rights was approximately $51,200 at December 31, 1998.
The estimated fair value was determined using a discounted cash flow
valuation model incorporating prepayment, default, cost to service and
interest rate assumptions to the underlying loans. This estimated fair
value presented herein is not necessarily indicative of the amounts the
Company could realize in a current market exchange. The use of different
market assumptions, valuation methodologies or both may have a material
effect on the estimates of fair value.
(9) Loan Administration
The Company's portfolio of mortgage loans serviced for institutional
investors aggregated $12,141,933 and $10,870,357 at December 31, 1998 and
1997, respectively. Included in the Company's portfolio are approximately
$11,553,866 and $10,248,834 of permanent multifamily and commercial
loans, and $588,067 and $621,523 in construction loans at December 31,
1998 and 1997, respectively.
At December 31, 1998 and 1997, the Company serviced and subserviced loans
for the following investors:
<TABLE>
<CAPTION>
1998 1997
---------------------- -----------------------
Loan Principal Loan Principal
count outstanding count outstandng
---------- ----------- --------- ------------
<S> <C> <C> <C> <C>
Investor:
Federal National Mortgage
Association 353 $ 2,583,180 256 $ 1,543,826
Government National Mortgage
Association 283 1,411,756 382 1,612,716
Other investors 2,518 8,146,997 2,488 7,713,815
----------- ----------- ----------- -----------
Total loans serviced for others 3,154 $12,141,933 3,126 $10,870,357
=========== =========== =========== ===========
</TABLE>
(Continued)
<PAGE>
THE WMF GROUP, LTD.
Notes to Consolidated Financial Statements
(dollars in thousands, except share and per share data)
The Company's DUS portfolio has the following geographic and interest
rate concentrations as of December 31, 1998 and 1997, respectively:
1998 1997
------ ------
State:
New York 5% 5%
Oklahoma 1 8
Texas 18 19
Other 76 68
------ ------
100% 100%
====== ======
Interest rate:
Less than 7.5% 35% 27%
7.5% to 9.49% 60 70
Greater than 9.49% 5 3
------ ------
100% 100%
====== ======
In addition, the Company makes voluntary advances under certain of its
servicing agreements pending receipt from the mortgagors. Such advances
amounted to $2,588 and $2,631 at December 31, 1998 and 1997,
respectively.
Related escrow funds of approximately $305,368 and $323,000 at December
31, 1998 and 1997, respectively, are on deposit in escrow bank accounts
and are not included in the accompanying consolidated balance sheet. As
of December 31, 1998, the Company carried blanket bond insurance coverage
of $13,100 and errors and omissions insurance coverage in the amount of
$18,100.
The Company bears the Level I risk of loss associated with the loans it
services under the Fannie Mae DUS program. The Level I risk of loss
imposes a lender deductible of 5 percent of the unpaid principal balance
and limits the maximum loss to 20 percent of the original mortgage. The
unpaid principal balance of the Fannie Mae DUS loan servicing portfolio
was approximately $1,500,510 and $943,703 at December 31, 1998 and 1997,
respectively. The DUS loans are secured by first liens on the underlying
multifamily properties. The Company's portfolio includes one state
(Texas) comprising over 10 percent of the total portfolio. No other state
comprises over 10 percent of the Fannie Mae DUS portfolio. No Fannie Mae
DUS loans were delinquent as of December 31, 1998 and 1997. The Company
has provided a reserve for losses of $6,253 and $5,125 as of December 31,
1998 and 1997, respectively. This reserve represents management's
estimate of inherent losses on loans underwritten to date that are
currently being serviced.
Activity in the reserve for loan servicing losses is summarized as
follows:
(Continued)
<PAGE>
THE WMF GROUP, LTD.
Notes to Consolidated Financial Statements
(dollars in thousands, except share and per share data)
<TABLE>
<CAPTION>
For the period For the period
April 1, 1996 to January 1, 1996 to
1998 1997 December 31, 1996 March 31, 1996
-------- -------- ----------------- -------------------
<S> <C> <C> <C> <C>
Balance, beginning
of period $5,125 4,396 3,427 3,142
Provision for
loan servicing losses 1,128 729 969 285
-------- -------- ----------------- -------------------
Balance, end of period $6,253 5,125 4,396 3,427
======== ======== ================= ===================
</TABLE>
(10) Income Taxes
Income tax expense (benefit) attributable to income (loss) before
income taxes for the years ended December 31, 1998 and 1997 and for
the period April 1, 1996 to December 31, 1996 and the period
January 1, 1996 to March 31, 1996 consisted of the following:
<TABLE>
<CAPTION>
For the period For the period
April 1, 1996 to January 1, 1996 to
1998 1997 December 31, 1996 March 31, 1996
-------- -------- ----------------- -------------------
<S> <C> <C> <C> <C>
Federal
Current $ -- 2,092 (2,183) 613
Deferred (17,729) (90) 3,184 --
--------- -------- ------- -----
(17,729) 2,002 1,001 613
--------- -------- ------- -----
State
Current 1,498 327 143 227
Deferred (2,835) -- -- --
--------- -------- ------- -----
(1,337) 327 143 227
--------- -------- ------- -----
Total $ (19,066) 2,329 1,144 840
========= ======== ======= =====
</TABLE>
The following is a summary of the tax effects of temporary differences
that give rise to significant portions of the deferred tax assets and
deferred tax liabilities.
(Continued)
<PAGE>
THE WMF GROUP, LTD.
Notes to Consolidated Financial Statements
(dollars in thousands, except share and per share data)
<TABLE>
<CAPTION>
For the period For the period
April 1, 1996 to January 1, 1996 to
1998 1997 December 31, 1996 March 31, 1996
---------- ----------- --------------------- --------------------
<S> <C> <C> <C> <C>
Deferred tax assets:
Reserve for loan servicing
portfolio losses $ 2,501 2,050 1,758 1,371
Mark to market valuation allowance 374 -- -- --
Loss on investment in Beverly -- -- -- 351
Net operating loss carryforwards 21,563 -- -- --
-------- -------- -------- --------
Total gross deferred tax assets 24,438 2,050 1,758 1,722
Less - valuation allowance (560) -- -- (1,038)
-------- -------- -------- --------
Net deferred tax assets 23,878 2,050 1,758 684
Deferred tax liabilities:
Originated mortgage servicing rights (6,472) (5,238) (4,883) (671)
Other (116) (86) (59) (13)
-------- -------- -------- --------
Total gross deferred tax liabilities (6,588) (5,324) (4,942) (684)
-------- -------- -------- --------
Net deferred tax assets (liabilities) $ 17,290 (3,274) (3,184) --
======== ======== ======== ========
</TABLE>
The differences between the effective income tax rates and the Federal
statutory income tax rates are as follows:
<TABLE>
<CAPTION>
For the period For the period
April 1, 1996 to January 1, 1996 to
1998 1997 December 31, 1996 March 31, 1996
----------- ----------- --------------------- --------------------
<S> <C> <C> <C> <C>
Federal income tax rate (benefit) (35)% 35% 35% 35%
State income tax rate (3) 5 5 5
Valuation allowance (1) -- -- 25
Goodwill amortization 3 9 10 8
----------- ----------- --------------------- --------------------
Effective income tax
rate (benefit) (36)% 49% 50% 73%
=========== =========== ===================== ====================
</TABLE>
As of December 31, 1998, the Company had a $17 million deferred tax asset
related to the Company's losses during 1998. The Company will have to
generate income to realize the deferred tax asset relating to net
operating losses. Excluding the losses incurred in the Company's capital
markets segment, which generated the 1998 losses and which the Company
has taken steps to minimize, the Company believes its existing levels of
pretax earnings for financial reporting purposes are sufficient to
generate the minimum amount of future taxable income needed to realize
the deferred tax asset. The Company has also identified the possible
disposition of assets as a means of generating future taxable
(Continued)
<PAGE>
THE WMF GROUP, LTD.
Notes to Consolidated Financial Statements
(dollars in thousands, except share and per share data)
income if enough taxable income is not derived from recurring operations in
order to realize the deferred tax asset over the carryforward period of 20
years. Management believes that it is more likely than not the Company will
realize the benefits of these deductible differences, net of the existing
valuation allowance for state deferred taxes at December 31, 1998. However,
in the event of a change of control of the Company or Capital Corp. or
certain other material changes in the Company's business, the Company would
have to establish additional valuation allowances against the deferred tax
asset.
All of the net operating losses incurred in 1998 will expire in 2018.
(11) Commitments and Contingencies
(A) Leases
The Company is obligated under noncancelable leases for office
space, furniture and equipment. Minimum future lease payments are
as follows as of December 31, 1998:
Year Amount
-------
1999 $ 4,954
2000 4,307
2001 2,894
2002 2,683
2003 1,595
Thereafter 5,383
-------
Total $21,816
=======
Rent expense was $3,438 and $1,594, in the years ended December
31, 1998 and 1997, respectively, and $975 and $230 in the nine
months ended December 31, 1996 and three months ended March 31,
1996, respectively.
(Continued)
<PAGE>
THE WMF GROUP, LTD.
Notes to Consolidated Financial Statements
(dollars in thousands, except share and per share data)
(B) 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 sometimes occurs prior to the investor
commitment, the Company limits its exposure to interest rate changes
for these transactions. As of December 31, 1998 the Company had
commitments outstanding to extend credit to borrowers of $65,800
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 the Company's future operating
results and consequently the Company's ability to honor the
commitments.
At December 31, 1998 and 1997, the Company had floating rate
commitments outstanding to originate $49,627 and $183,207,
respectively, in multifamily and commercial mortgage loans and
mandatory delivery commitments in the amount of $229,830 and $212,883,
respectively, to cover the Company's origination commitments and loans
held for sale.
(C) 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.
The Company is involved in other litigation related to the normal
course of 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.
(12) EMPLOYEE BENEFIT PLANS
The Company has initiated a defined contribution plan under Section 401(k)
of the Internal Revenue Code covering substantially all employees.
Employees may contribute to the plan up to 15 percent of their salary up to
the maximum allowable by the Internal Revenue Code. The Company will match
employee contributions at 50 percent for an amount up to 5 percent of each
employee's salary.
F-24
<PAGE>
THE WMF GROUP, LTD.
Notes to Consolidated Financial Statements
(dollars in thousands, except share and per share data)
Company contributions vest 20 percent after the first year of employment
and an additional 20 percent in each subsequent year until fully vested in
the fifth year. Contributions by the Company were $285 and $168 for the
years ended December 31, 1998 and 1997, respectively.
(13) RELATED PARTY TRANSACTIONS
As of December 31, 1998 the Company holds an investment in COMIT with a
carrying value of $3,780 and owes a subordinated note to COMIT in the
amount of $3,901, which was repaid in March 1999 (see note 20). WMF Carbon
Mesa received $137 in advisory fees for services rendered to COMIT during
1998.
As of December 31, 1995, the Company had advanced funds of $1,086 to
Beverly Hills Securities. The Company collected $486 in 1996, and wrote the
remainder of the receivable off resulting in a $600 loss in 1996.
(14) DISCLOSURES OF FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company is required to disclose the estimated fair values for its
financial instruments. The basic assumptions used and the estimates
disclosed represent management's best judgment of appropriate valuation
methods. These estimates are based on pertinent information available to
management. In certain cases, fair values are not subject to precise
quantification or verification and may change as economic and market
factors, and management's evaluation of those factors change.
Although management uses its best judgment in estimating the fair value of
these financial instruments, there are inherent limitations in any
estimation technique. Therefore, these fair value estimates are not
necessarily indicative of the amounts that the Company would realize in a
market transaction.
F-25
<PAGE>
THE WMF GROUP, LTD.
Notes to Consolidated Financial Statements
(dollars in thousands, except share and per share data)
The following fair values do not represent an estimate of the overall
market value of the Company as a going concern, which would take into
account future business opportunities.
<TABLE>
<CAPTION>
1998 1997
-------------------- ----------------------
Carrying Fair Carrying Fair
value value value value
--------- -------- --------- ----------
<S> <C> <C> <C> <C>
Assets:
Cash, cash equivalents and restricted cash $22,295 22,295 12,362 12,362
Mortgage-backed securities 6,195 6,213 3,851 3,935
Mortgage loans held for sale 34,217 34,217 49,431 49,431
Servicing rights 26,243 51,200 26,796 54,700
Investment 3,780 3,780 -- --
Liabilities:
Subordinated note 3,901 3,901 -- --
Warehouse lines of credit 34,757 34,757 48,743 48,743
Servicing acquisition line of credit 4,212 4,212 5,462 5,462
Revolving credit facilities 36,281 36,281 5,699 5,699
======= ======= ======= =======
Off-balance sheet instruments:
Commitments to extend credit $ -- -- -- --
======= ======= ======= =======
</TABLE>
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable
to estimate the value.
(A) Cash, Cash Equivalents, and Restricted Cash Equivalents
For cash, cash equivalents, and restricted cash, the carrying
amount is a reasonable estimate of fair value due to the
relatively short time between the origination of the instruments
and their expected realization.
(B) Mortgage-Backed Securities
The fair value of the mortgage-backed securities is estimated
based on bid quotations received from securities dealers.
(C) Mortgage Loans Held for Sale
For mortgage loans held for sale, fair value was estimated based
on outstanding commitments from investors or current inventory
yield requirements calculated on an aggregate basis. The fair
market value of loans held for sale also includes the market
value of commitments to extend credit to borrowers for which a
preexisting investor sale commitment
(Continued)
<PAGE>
THE WMF GROUP, LTD.
Notes to Consolidated Financial Statements
(dollars in thousands, except share and per share data)
(D) SERVICING RIGHTS
The estimated fair value was determined using a discounted cash flow
valuation model incorporating prepayment, default, cost to service and
interest rate assumptions to the underlying loans. This estimated fair
value presented herein is not necessarily indicative of the amounts
the Company could realize in a current market exchange. The use of
different market assumptions, valuation methodologies or both may have
a material effect on the estimates of fair value.
(E) WAREHOUSE LINES OF CREDIT, SERVICING ACQUISITION LINE OF CREDIT AND
REVOLVING CREDIT FACILITY
The estimated fair value of the warehouse lines of credit, servicing
acquisition line of credit, and revolving credit facility, each of
which are short-term liabilities, approximates their carrying values.
(F) COMMITMENTS TO EXTEND CREDIT
The fair value of commitments is estimated using the fees currently
charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of
the counter parties. For fixed-rate loan commitments, fair value also
considers the difference between current levels of interest rates and
the committed rates. The fair value of such commitments are included
in mortgage loans held for sale in the preceding table and are
considered in the calculation of the lower of cost or market
calculations for mortgage loans held for sale.
(G) OFF-BALANCE SHEET
The Company uses a variety of off-balance sheet investment products as
part of its risk management strategy and in its loan origination
activities. The most frequently used off-balances sheet investment
products are various types of interest rate swaps and forward rate
agreements. Off-balance sheet investment products are typically
classified as hedges. The Company does not enter into financial
instruments for trading purposes. As of December 31, 1998 and 1997,
the Company had no off-balance sheet investments outstanding. During
1998 the Company did not enter into any off-balance sheet investments.
F-27
<PAGE>
THE WMF GROUP, LTD.
Notes to Consolidated Financial Statements
(dollars in thousands, except share and per share data)
(15) Segment Reporting
In 1998, SFAS No. 131, Disclosure About Segments of an Enterprise and
Related Information became effective. SFAS No. 131 established standards
for reporting information about operating segments. The Company adopted
the requirements of SFAS No. 131 for the fiscal year ending December 31,
1998. The following table sets forth both information derived from the
Company's consolidated statements of operations and reconciles the
summary segment information for the consolidated statement of operations
for each of the periods presented:
<TABLE>
<CAPTION>
For the year For the year
ended ended For the period For the period
December 31, December 31, April 1, 1996 to January 1, 1996 to
1998 1997 December 31, 1996 March 31, 1996
-------------- ------------- ------------------- --------------------
<S> <C> <C> <C> <C>
Revenue:
Mortgage banking(1) $ 67,567 44,645 23,473 6,828
Capital markets 3,484 -- -- --
Advisory services 1,490 -- -- --
--------- --------- --------- ---------
Total 72,541 44,645 23,473 6,828
Expenses: (2)
Mortgage banking(1) 59,169 39,116 20,953 5,626
Capital markets 60,379 -- -- --
Advisory services 2,114 -- -- --
--------- --------- --------- ---------
Total 121,662 39,116 20,953 5,626
Earnings (loss) before non-operating
interest expense and taxes:
Mortgage banking (1) 8,398 5,529 2,520 1,202
Capital markets (56,895) -- -- --
Advisory services (624) -- -- --
--------- --------- --------- ---------
Total (49,121) 5,529 2,520 1,202
Non-operating interest expense 3,267 758 221 57
--------- --------- --------- ---------
Pretax income (loss) (52,388) 4,771 2,299 1,145
Provision for (benefit from) taxes (19,066) 2,329 1,144 840
--------- --------- --------- ---------
Net income (loss) $ (33,322) 2,442 1,155 305
========= ========= ========= =========
</TABLE>
(1) Mortgage banking operations includes corporate administration expenses.
(2) The Company recognized reorganization and recapitalization expenses of
approximately $2,000 with approximately $1,700 reported in mortgage banking
and $341 reported in capital markets.
The following table sets forth information derived from the Company's
consolidated balance sheet for the date presented:
(Continued)
<PAGE>
THE WMF GROUP, LTD.
Notes to Consolidated Financial Statements
(dollars in thousands, except share and per share data)
December 31, December 31,
1998 1997
----------- -----------
Assets:
Mortgage banking $ 131,264 119,331
Capital markets 8,558 --
Advisory services 4,705 --
---------- -----------
Total $ 144,527 119,331
========== ===========
Mortgage banking operations include corporate and administration assets.
(16) 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:
1998 1997
-------- --------
Current assets $ 49,980 63,363
Current liabilities 55,649 58,608
-------- --------
Net working capital (deficit) $ (5,669) 4,755
======== ========
(17) Stock and Stock Option Plans
As part of the spinoff the Company granted, to certain key employees,
options to purchase common shares under the Key Employee Incentive Plan.
On December 8, 1997, the Company granted 271,250 nonqualified stock
options for an aggregate of six percent of the total shares outstanding
of the Company at December 31, 1997. The non-qualified stock option plan
provides for the right to purchase Common Stock at a specified price. The
options vest ratably over five years and are contingent upon continued
employment of the individual and other factors as set forth in the
agreement. Compensation expense of $288 and $343 was recognized in the
years ended December 31, 1998 and 1997, respectively.
The Company also issued options under its employee stock purchase plan
during December 1997. Employees exercised the right to purchase 138,352
shares at a purchase price of $9.15 per share. The Company incurred
compensation expense of $750. No options under this plan were
outstanding.
(Continued)
<PAGE>
THE WMF GROUP, LTD
Notes to Consolidated Financial Statements
(dollars in thousands, except share and per share amounts)
In 1997, the Company also issued 20,000 restricted shares under its Key
Employee Deferred Compensation Plan. In 1998, the Company provided for
the future issuance of an additional 118,000 restricted shares under this
plan. Compensation cost for the restricted shares to be issued in the
future is being recognized over the vesting period. The vesting period
ranges from 13 months to five years. Issuance of the shares is contingent
upon continued employment of the individual and other factors as set
forth in the agreement. For 70,000 of these shares, vesting also is
contingent upon the achievement of certain performance objectives.
No options were granted prior to the fiscal year ended December 31, 1996.
The following tables summarize the Company's stock option activity for
the years ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
Weighted Price Price
Average range Average range
exercise of stock exercise of stock
1998 price options 1997 price options
----------- --------- ------------ ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Number of shares under stock options
Granted 606,104 12.12 3.96-26.12 707,017 7.79 3.96-7.29
Exercised (126,073) 13.99 .25-26.12 (150,273) 8.81 4.88-9.15
Forfeited (15,429) 11.63 11.63 -- -- --
----------- ------------ ----------- ------------
Outstanding at the end of the year 1,021,346 10.07 3.96 - 15 556,744 7.51 3.96-9.15
=========== ============ =========== ============
</TABLE>
The weighted average fair value of options granted during the years ended
December 31, 1998 and 1997 were $12.12 and $7.82 per share, respectively.
<TABLE>
<CAPTION>
Options outstanding Options exercisable
-------------------------------------------------- -------------------------------
Weighted Weighted
Weighted Average Average
Options Number of average life exercise Number of exercise
outstanding options remaining price options price
- ---------------------------- --------------- ---------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Price range:
$3.96 - 4.88 101,829 3.2 4.41 101,829 4.41
$6.00 - 6.92 226,667 5.3 6.26 136,667 6.44
$9.15 392,350 9.2 9.15 125,100 9.15
$11.25 - 11.63 93,500 9.3 11.59 16,700 11.63
$15 207,000 9.3 15.00 -- 15.00
----------- --------------
$3.96 - 15 1,021,346 380,296
=========== ==============
</TABLE>
At December 31, 1998, there were 195,748 additional shares available for
grant under the Plans. The per share weighted-average fair value of stock
options was $6.66 on the date of grant using the Black Scholes
option-pricing model with the following weighted-average assumptions:
expected dividend
(Continued)
<PAGE>
THE WMF GROUP, LTD.
Notes to Consolidated Financial Statements
(dollars in thousands, except share and per share data)
yield of 0 percent, risk-free interest rate of 4.75 percent, a volatility
of 20 percent and an expected life of 9.2 years.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for certain of its
stock options in the financial statements. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options under SFAS No. 123, the Company's net income would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------------------
<S> <C>
Net income (loss) As reported $ (33,322) $2,442
- --------------------------------------------------------------------------------------------
Pro forma (34,154) 2,244
- --------------------------------------------------------------------------------------------
Net income (loss) per share As reported (6.38) 0.55
- --------------------------------------------------------------------------------------------
Pro forma (6.54) 0.50
- --------------------------------------------------------------------------------------------
</TABLE>
Pro forma net income reflects only options granted since December 31,
1996. Therefore, the full impact of calculating compensations cost for
stock options under SFAS 123 is not reflected in the proforma net income
amounts presented above because compensation cost is reflected over the
options' vesting period of five years.
(18) Earnings per share
The following is the computation of the Company's basic and diluted
earnings per share for the years ended December 31, 1998 and 1997, the
period April 1, 1996 to December 31, 1996, and the period January 1, 1996
to March 31, 1996:
(Continued)
<PAGE>
<TABLE>
<CAPTION>
1998 1997
------------------------------------------- ----------------------------------------
Net Per share Net Per share
loss Shares amount income Shares amount
------------ ------------------------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $ (33,322) 5,224 (6.38) $ 2,442 4,272 $ 0.57
Effect of dilutive
securities options -- -- -- -- 180 (.02)
------------ ----------- ----------- --------------- ---------- ---------
Diluted EPS $ (33,322) 5,224 (6.38) $ 2,442 4,452 $ 0.55
============ =========== =========== =============== ========== =========
<CAPTION>
Period April 1 to Period January 1 to
December 31, 1996 March 31, 1996
--------------------------------------------- -------------------------------------
Net Per share Net Per share
income Shares amount income Shares amount
------------ ------------------------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $ 1,155 4,217 0.27 $ 305 4,217 $ 0.07
Effect of dilutive
securities options -- -- -- -- -- --
------------ ----------- ----------- --------------- ---------- ---------
Diluted EPS $ 1,155 4,217 0.27 $ 305 4,217 $ 0.07
============ =========== =========== =============== ========== =========
</TABLE>
(19) Pro Forma Presentation (Unaudited)
The unaudited pro forma income statement has been presented to reflect
results of operations for the twelve months ended December 31, 1996 as if
the acquisition of Holdings by NHP had occurred on January 1, 1996. The
adjustments to the period April 1, 1996, to December 31, 1996, include
(1) income from January 1, 1996, through March 31, 1996, of the acquired
entity, and (2) an additional three months of amortization of the
purchase accounting adjustments for the period January 1, 1996, through
March 31, 1996. The following table summarizes these pro forma
adjustments:
(Continued)
<PAGE>
THE WMF GROUP, LTD.
Notes to Consolidated Financial Statements
(dollars in thousands, except share and per share data)
<TABLE>
<CAPTION>
Historical
----------------------------------- Pro forma
For the period For the period Three for the period
April 1, 1996 to January 1, 1996 months year ended
December 31, to March 31, additional December 31,
1996 1996 amortization 1996
-------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenue $ 23,473 6,828 -- 30,301
-------------- ---------------- -------------- --------------
Amortization/depreciation 3,982 551 575 5,108
Other expenses 18,336 5,972 -- 24,308
-------------- ---------------- -------------- --------------
Total 22,318 6,523 575 29,416
-------------- ---------------- -------------- --------------
Net income $ 1,155 305 (575) 885
============== ================ ============== ==============
</TABLE>
(20) Recapitalization Plan
(A) Sale of Approximately $16.7 Million of Class A Stock to the Company's
Major Shareholders
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, after the
Federal Trade Commission informed the Company that it would not
object to the conversion. As a result of the conversion, the
Company's three largest shareholders received a total of 3,635,972
shares of common stock.
Also as part of the transaction, the warrants to purchase 1,200,000
shares of common stock at a price of $11.25 per share that were
received in connection with the financing of the purchase of $20,000
of the Company's subordinated notes by COMIT on September 4, 1998
were surrendered. In addition, the Company's three largest
shareholders agreed to a stand-by purchase commitment, described
below.
The Company has applied the proceeds of the sale of shares of Class A
Stock to partially repay the subordinated notes.
(Continued)
<PAGE>
THE WMF GROUP, LTD.
Notes to Consolidated Financial Statements
(dollars in thousands, except share and per share data)
Because of their participation in this transaction, the Company's
three largest shareholders agreed not to exercise, transfer or acquire
any rights during the rights offering.
The Company's three largest shareholders further agreed to a standby
commitment to purchase up to 664,028 shares of the Company's capital
stock for up to $3,300 following the rights offering, as described
below.
(B) PUBLIC RIGHTS OFFERING
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 $7,400. On
March 19, 1999, the Company's three largest shareholders completed the
purchase of a total of 664,028 shares of the Company's common stock
pursuant to the standby commitment for total proceeds to the Company
of approximately $3,300.
The Company applied the proceeds form the rights offering first to
repay the remaining subordinated notes held by COMIT.
F-34
<PAGE>
CREDIT AND SECURITY AGREEMENT
(SYNDICATED AGREEMENT)
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 COMPANY-ARIZONA,
an Arizona corporation
WMF CARBON MESA ADVISORS, INC.,
a Delaware corporation
AND
RESIDENTIAL FUNDING CORPORATION,
a Delaware corporation
AND
CERTAIN OTHER LENDERS PARTY THERETO
Dated as of February 10, 1999
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. DEFINITIONS 1
1.1 Defined Terms 1
1.2 Other Definitional Provisions 25
2. THE CREDIT 25
2.1 The Warehousing Credit Limit 25
2.2 Swingline Commitment. 29
2.3 Procedures for Obtaining Warehousing Advances 29
2.4 The Servicing Facility Commitment 32
2.5 Procedures for Obtaining Servicing Facility Advances 33
2.6 The Term Loan Commitment 35
2.7 Funding of Advances; Non-Receipt of Funds by the Credit Agent 35
2.8 Notes 36
2.9 Interest Payments 37
2.10 Principal Payments 39
2.11 Expiration of Commitments 44
2.12 Fees 44
2.13 Miscellaneous Charges 47
2.14 Illegality 47
2.15 Interest Limitation 48
2.16 Billing and Payment 48
3. COLLATERAL. 49
3.1 Appointment of Collateral Agent 49
<PAGE>
3.2 Delivery of Collateral 49
3.3 Grant of Security Interest 49
3.4 Release of Security Interest in Collateral 52
3.5 Delivery of Additional Collateral or Mandatory Prepayment 55
3.6 Release of Collateral 55
3.7 Collection and Servicing Rights 56
3.8 Collection of Receivables 56
3.9 Return of Collateral at Maturity 57
4. CONDITIONS PRECEDENT 57
4.1 Initial Advances 57
4.2 Each Advance 60
4.3 New Subsidiary Borrowers 61
4.4 New Fannie Mae Special Program Agreements 63
5. REPRESENTATIONS 64
5.1 Organization; Good Standing; Subsidiaries 64
5.2 Authorization and Enforceability 64
5.3 Approvals 65
5.4 Financial Condition 65
5.5 Litigation 66
5.6 Compliance with Laws 66
5.7 Regulation U 66
5.8 Investment Company Act 66
5.9 Payment of Taxes 66
5.10 Agreements 67
<PAGE>
5.11 Title to Properties 67
5.12 ERISA 67
5.13 Eligibility 68
5.14 Place of Business 68
5.15 Special Representations Concerning Warehousing Collateral 68
5.16 Servicing 71
5.17 Special Representations Concerning Servicing Collateral 72
5.18 No Adverse Selection 73
5.19 Year 2000 Compliance 73
6. AFFIRMATIVE COVENANTS 73
6.1 Payment of Notes 73
6.2 Financial Statements and Other Reports 74
6.3 Maintenance of Existence; Conduct of Business 76
6.4 Compliance with Applicable Laws 77
6.5 Inspection of Properties and Books 77
6.6 Notice 77
6.7 Payment of Debt, Taxes, etc 78
6.8 Insurance 79
6.9 Closing Instructions 79
6.10 Subordination of Certain Indebtedness 79
6.11 Other Loan Obligations 79
6.12 Use of Proceeds of Advances 80
6.13 Special Affirmative Covenants Concerning Collateral 80
6.14 Repayment of Debt to PNC Bank, N.A. 82
7. NEGATIVE COVENANTS 82
<PAGE>
7.1 Contingent Liabilities 82
7.2 Sale or Pledge of Servicing Contracts 82
7.3 Merger; Sale of Assets; Acquisitions 83
7.4 Defferal of Subordinated Debt 83
7.5 Loss of Eligibility 83
7.6 Debt to Adjusted Tangible Net Worth Ratio 83
7.7 Non-Warehouse Debt to Adjusted Tangible Net Worth 83
7.8 Minimum Adjusted Tangible Net Worth 84
7.9 Liquidity 84
7.10 Maximum Pass-Throughs 84
7.11 Minimum Nonrecourse Servicing Portfolio 84
7.12 Debt Service Coverage Ratio 84
7.13 Minimum Income 84
7.14 Debt Limitation 84
7.15 Acquisition of Recourse Servicing Contracts 85
7.16 Transactions with Affiliates 85
7.17 Gestation Facilities 85
7.18 Restricted Payments 85
7.19 Special Negative Covenants Concerning Collateral 85
8. DEFAULTS; REMEDIES 86
8.1 Events of Default. 86
8.2 Remedies. 90
8.3 Application of Proceeds. 95
8.4 Credit Agent Appointed Attorney-in-Fact 97
8.5 Right of Setoff 98
8.6 Sharing of Payments 98
<PAGE>
9. THE CREDIT AGENT. 99
9.1 Appointment. 99
9.2 Duties of Credit Agent. 99
9.3 Standard of Care. 99
9.4 Delegation of Duties 100
9.5 Exculpatory Provisions 100
9.6 Reliance by Credit Agent 100
9.7 Non-Reliance on Credit Agent or Other Lenders 101
9.8 Credit Agent in Individual Capacity 102
9.9 Successor Credit Agent. 102
9.10 Agreements Regarding Servicing Collateral and Acknowledgment
Agreements 102
10. NOTICES 103
11. REIMBURSEMENT OF EXPENSES; INDEMNITY 103
11.1 Reimbursement of Expenses and Indemnification by the Borrowers. 103
11.2 Indemnification by the Lenders. 104
12. FINANCIAL INFORMATION 105
13. MISCELLANEOUS 105
13.1 Terms Binding Upon Successors; Survival of Representations 105
13.2 Lenders in Individual Capacity 105
13.3 Participation and Assignments 106
13.4 Commitment Increases 107
13.5 Amendments 109
13.6 Operational Reviews 110
<PAGE>
13.7 Governing Law 110
13.8 Relationship of the Parties 111
13.9 Severability 111
13.10 Counterparts 111
13.11 Consent to Credit References 111
13.12 Consent to Jurisdiction 112
13.13 Counterparts 112
13.14 Confidentiality of Information 112
13.15 WAIVER OF JURY TRIAL 113
13.16 Entire Agreement 113
<PAGE>
EXHIBITS
--------
Exhibit A-1 Form of Warehousing Promissory Note
Exhibit A-2 Form of Sublimit Note
Exhibit A-3 Form of Swingline Promissory Note
Exhibit A-4 Form of Servicing Facility Promissory Note
Exhibit A-5 Form of Term Loan Promissory Note
Exhibit B (Intentionally Omitted)
Exhibit C-MF Request for Advance Against
Mortgage Loans
Exhibit C-P&I P&I and Liquidity Advance Request
Exhibit C-SER Servicing Facility Advance Request
Exhibit D-MF/CONV/DUS Procedures and Documentation for Warehousing
Conventional Multifamily, Health Care,
Commercial and Fannie Mae DUS Mortgage Loans
Exhibit D-MF/FHA Procedures and Documentation for Warehousing
FHA Project Mortgage Loans and FHA
Construction Mortgage Loans
Exhibit D-MF/SFNMA Procedures and Documentation for Warehousing
Special Fannie Mae Loans
Exhibit E Schedule of Servicing Contracts
Exhibit F Subordination of Debt Agreement
Exhibit G Subsidiaries
Exhibit H Legal Opinion
Exhibit I-MF Officer's Certificate
Exhibit J Schedule of Other Credit Agreements
Exhibit K Funding Bank Agreement
Exhibit L Collateral Agency Agreement
Exhibit M Advance Certificate
Exhibit N Terms Applicable to Guaranteed Obligations
<PAGE>
Exhibit O Borrower Addition Agreement
Exhibit P Schedule of Subsidiary Borrowers
Exhibit Q Schedule of Special Fannie Mae Program
Agreements
Exhibit R Schedule of Borrowers' Agency Approvals
Exhibit S FHA Construction Loan to be Refinanced
Exhibit T Litigation
<PAGE>
THIS CREDIT AND SECURITY AGREEMENT, dated as of February 10, 1999 by and
among THE WMF GROUP, LTD., a Delaware corporation ("WMF Group"), WMF WASHINGTON
MORTGAGE CORP., a Delaware corporation ("Washington"), WMF/HUNTOON, PAIGE
ASSOCIATES LIMITED, a Delaware corporation ("Huntoon"), WMF PROCTOR, LTD., a
Michigan corporation ("Proctor"), THE ROBERT C. WILSON COMPANY, a Texas
corporation ("Wilson"), THE ROBERT C. WILSON COMPANY-ARIZONA, an Arizona
corporation ("Wilson-Arizona"), and WMF CARBON MESA ADVISORS, INC., a Delaware
corporation ("Carbon Mesa"; WMF Group, Washington, Huntoon, Proctor, Wilson,
Wilson-Arizona and Carbon Mesa are hereinafter collectively referred to as the
"Borrowers"), having their principal office at 1593 Spring Hill Road, Suite 400,
Vienna, VA 22182 and RESIDENTIAL FUNDING CORPORATION, a Delaware corporation
("RFC"), BANK UNITED, a federal savings bank ("Bank United") and LASALLE
NATIONAL BANK, a national banking association ("LaSalle"; RFC, Bank United,
LaSalle and any Additional Lender that may at any time hereafter become party
hereto are hereafter referred to individually as a "Lender" and collectively as
the "Lenders"), and RFC as credit agent for the Lenders (in such capacity, the
"Credit Agent").
WHEREAS, the Borrowers and the Lenders desire to set forth herein the terms
and conditions upon which the Lenders shall provide financing to the Borrowers;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. DEFINITIONS.
1.1 Defined Terms. Capitalized terms defined below or elsewhere in
-------------
this Agreement (including the Exhibits hereto) shall have the following
meanings:
"Acknowledgment Agreement" has the meaning set forth in Section 8.2(j)
------------------------
hereof.
"Additional Lender" means a Person admitted as a Lender under the
-----------------
Agreement by an amendment hereto.
"Adjusted Servicing Portfolio" means, for any Person, the Servicing
----------------------------
Portfolio of such Person, but excluding the principal balance of Mortgage
Loans included in the Servicing Portfolio at such date, (a) which are past
due for principal or interest for sixty (60) days or more, (b) which are
Fannie Mae DUS Mortgage Loans or FHA co-insured Mortgage Loans, (c) which
are serviced pursuant to Servicing Contracts that may be terminated without
cause, (d) with respect to which such Person is obligated to repurchase or
indemnify the holder of the Mortgage Loans as a result of defaults on the
Mortgage Loans at any time during the term
<PAGE>
of such Mortgage Loans, (e) for which the Servicing Contracts are not owned
by such Person free and clear of all Liens (other than in favor of the
Lenders), or (f) which are serviced by the Borrowers for others under
subservicing arrangements.
"Adjusted Tangible Net Worth" means with respect to any Person at any
---------------------------
date, the Tangible Net Worth of such Person at such date, excluding
capitalized excess servicing fees and capitalized servicing rights, plus 1%
----
of the Adjusted Servicing Portfolio, and plus deferred taxes arising from
----
capitalized excess servicing fees and capitalized servicing rights.
"Advance" means a disbursement by the Lenders under the Commitments
-------
pursuant to Article 2 of this Agreement.
"Advance Certificate" has the meaning set forth in Section 2.2 hereof.
-------------------
"Advance Request" means a Servicing Facility Advance Request or a
---------------
Warehousing Advance Request.
"Affiliate" has the meaning set forth in Rule 12b-2 of the General
---------
Rules and Regulations under the Exchange Act.
"Agency Security" means a Mortgage-backed Security issued or
---------------
guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae.
"Agreement" means this Credit and Security Agreement (Syndicated
---------
Agreement), either as originally executed or as it may from time to time be
supplemented, modified or amended.
"Annual Debt Payments" means, as of the last day of any fiscal quarter
--------------------
of WMF Group and its Subsidiaries, the sum of (a) the aggregate amount of
scheduled principal payments required under this Agreement on the Term Loan
Advances in the 4 fiscal quarters following such date, (b) the aggregate
amount of scheduled principal payments on other Debt of WMF Group (and its
Subsidiaries, on a consolidated basis) in the 4 fiscal quarters following
such date, and (c) the amount of interest expense deducted in calculating
net income for the 4 fiscal quarters ending on such date incurred on Debt
of WMF Group (and its Subsidiaries, on a consolidated basis), other than
(i) the Warehousing Advances and (ii) other Debt secured by Multifamily
Mortgage Loans, Commercial Mortgage Loans and/or Mortgage-backed Securities
covered by Purchase Commitments issued by Investors, to the extent such
Debt
<PAGE>
does not exceed the Committed Purchase Price of such Mortgage Loans.
"Appraisal" means a certificate of independent certified public
---------
accountants or independent financial consultants selected by the Borrowers
and reasonably satisfactory to the Credit Agent as to the Appraisal Value
of all of the Pledged Servicing Contracts or the Nonrecourse Servicing
Contracts acquired in any Servicing Acquisition, which shall evaluate such
Servicing Contracts based upon reasonably determined categories of the
Mortgage Loans contained therein and give effect to any subservicing
agreement to which any such Mortgage Loan is or will be subject, which
certificate shall be in form, substance and detail reasonably satisfactory
to the Credit Agent.
"Appraisal Value" means, at any date of determination, with respect to
---------------
all of the Pledged Servicing Contracts or the Nonrecourse Servicing
Contracts acquired in any Servicing Acquisition, the fair market value of
the Borrowers' right to service Mortgage Loans pursuant to such Servicing
Contracts, calculated as a percentage of the unpaid principal amount of
each Mortgage Loan serviced pursuant thereto, as set forth in the most
recent Appraisal.
"Approved Custodian" means a pool custodian or other Person which is
------------------
deemed acceptable to the Credit Agent from time to time in its sole
discretion to hold a Mortgage Loan for inclusion in a Mortgage Pool or to
hold a Mortgage Loan as agent for an Investor who has issued a Purchase
Commitment for such Mortgage Loan.
"Balance Deficiency Fee" has the meaning set forth in Section 2.9(f)
----------------------
hereof.
"Balance Funded Agreement" has the meaning set forth in Section 2.9(f)
------------------------
hereof.
"Balance Funded Portion" has the meaning set forth in Section 2.9(f)
----------------------
hereof.
"Balance Funded Rate" means, with respect to any Advance, the rate
-------------------
provided for in the applicable Balance Funded Agreement.
"Borrower Addition Agreement" means an agreement in the form of
---------------------------
Exhibit O attached hereto, pursuant to which a wholly-owned Subsidiary of
---------
WMF Group becomes a Borrower hereunder.
<PAGE>
"Borrowers" means WMF Group, Washington, Huntoon, Proctor, Wilson,
---------
Wilson-Arizona, Carbon Mesa and any wholly-owned Subsidiaries of WMF Group
listed on Exhibit P hereto.
---------
"Business Day" means any day excluding Saturday or Sunday and
------------
excluding any day on which national banking associations are closed for
business.
"Calendar Quarter" shall mean the 3 month period beginning on any
----------------
January 1, April 1, July 1 or October 1.
"Cash Collateral Account" means a demand deposit account maintained at
-----------------------
the Funding Bank in the name of the Credit Agent for the benefit of the
Lenders, and designated for receipt of the proceeds of the sale or other
disposition of the Collateral.
"Closing Date" means February 11, 1999.
------------
"Collateral" means any property or assets in which the Credit Agent is
----------
granted a Lien to secure the Obligations, including the property and assets
of the Borrowers described in Section 3.3 hereof.
"Collateral Agency Agreement" means the agreement dated as of the date
---------------------------
hereof between the Borrowers, the Credit Agent, and the Collateral Agent
substantially in the form of Exhibit L hereto, as the same may be amended
---------
or modified from time to time.
"Collateral Agent" means RFC, in its capacity as collateral agent for
----------------
the Credit Agent under the Collateral Agency Agreement.
"Collateral Documents" has the meaning set forth in Section 2.3(a)
--------------------
hereof.
"Collateral Value" means (a) with respect to any Mortgage Loan as of
----------------
the date of determination, the lesser of (i) the amount of any Advance made
against such Mortgage Loan under Section 2.1(c) hereof or (ii) the Fair
Market Value of such Mortgage Loan; (b) in the event Pledged Mortgages have
been exchanged for Agency Securities, the lesser of (i) the amount of any
Advances outstanding against the Mortgage Loans backing such Agency
Securities or (ii) the Fair Market Value of such Agency Securities; and (c)
with respect to cash, the amount of such cash.
"COMIT" means Commercial Mortgage Investment Trust, Inc., a Virginia
-----
corporation and an Affiliate of the Borrowers.
<PAGE>
"Commercial Advance" means an Advance made against a Commercial
------------------
Mortgage Loan.
"Commercial Mortgage Loan" means a Mortgage Loan secured by a Mortgage
------------------------
on a Commercial Property.
"Commercial Property" means improved commercial real property that is
-------------------
an income-producing property but is not a Multifamily Property or a Health
Care Facility.
"Commitment Fee" means the Warehousing Commitment Fee, the Term Loan
--------------
Commitment Fee, or the Servicing Facility Commitment Fee.
"Commitments" means, collectively, the Servicing Facility Commitments,
-----------
the Term Loan Commitments and the Warehousing Commitments.
"Committed Purchase Price" means for a Mortgage Loan the product of
------------------------
the Mortgage Note Amount multiplied by (a) the price (expressed as a
percentage) as set forth in a Purchase Commitment for such Mortgage Loan or
(b) in the event such Mortgage Loan is to be used to back an Agency
Security, the price (expressed as a percentage) as set forth in a Purchase
Commitment for such Agency Security.
"Conventional Mortgage Loan" means a Multifamily Mortgage Loan or a
--------------------------
Health Care Mortgage Loan other than a Fannie Mae DUS Mortgage Loan, an FHA
Project Mortgage Loan, or an FHA Construction Mortgage Loan.
"Credit Agent" means RFC, in its capacity as credit agent for the
------------
Lenders hereunder, and any successor pursuant to Section 9.9 hereof.
"Debt" means, with respect to any Person, at any date (a) all
----
indebtedness or other obligations of such Person which, in accordance with
GAAP, would be included in determining total liabilities as shown on the
liabilities side of a balance sheet of such Person at such date; and (b)
all indebtedness or other obligations of such Person for borrowed money or
for the deferred purchase price of property or services; provided that for
purposes of this Agreement, there shall be excluded from Debt at any date
Fannie Mae Loan Loss Reserves (to the extent included as a liability on
such Person's balance sheet), Subordinated Debt not due within one year of
such date, deferred taxes arising from capitalized excess servicing fees
and capitalized servicing rights and the deferred portion of any purchase
<PAGE>
price payable with respect to a Servicing Acquisition to the extent payment
of said deferred portion by the Borrower is contingent upon the generation
of minimum levels of income to the Borrower by the seller.
"Debt Service Coverage Ratio" means, as of the last day of any fiscal
---------------------------
quarter of WMF Group and its Subsidiaries, the ratio of Funds From
Operations to Annual Debt Payments.
"Default" means the occurrence of any event or existence of any
-------
condition which, but for the giving of Notice, the lapse of time, or both,
would constitute an Event of Default.
"Default Rate" has the meaning set forth in Section 2.9(g) hereof.
------------
"Designated Bank" means any bank(s) designated from time to time by
---------------
any Lender to receive Eligible Balances for the benefit of such Lender for
the purposes of Section 2.9(f) hereof.
"DUS Program" means Fannie Mae's Delegated Underwriting and Servicing
-----------
Program.
"Eligible Balances" means funds of or maintained by the Borrowers and
-----------------
their Subsidiaries in accounts at a Lender or a Designated Bank, less
balances to support float, reserve requirements, and such other reductions
as may be imposed by governmental authorities or agreed between the
Borrowers and such Lender from time to time.
"Eligible Commercial Mortgage Loan" means a Commercial Mortgage Loan
---------------------------------
which, unless otherwise agreed by the Credit Agent in sole and absolute
discretion, satisfies each of the following conditions:
(a) it is a First Mortgage Loan;
(b) it is a Mortgage Loan as to which:
(1) the Mortgage Note is payable or endorsed to the order
of a Borrower;
(2) each of the Mortgage Note and Mortgage is a legal,
valid and binding obligation of the Borrower;
(3) the Mortgage Note is an "instrument" within the meaning
of Section 9-105 of the Uniform
<PAGE>
Commercial Code of all applicable jurisdictions; and
(4) the Mortgage Note is denominated and payable only in
United States dollars;
(c) a Borrower owns such Mortgage Loan free and clear of any
Lien (other than the Lien created hereunder);
(d) neither such Mortgage Loan nor the related Collateral
Documents contravene in any material respect any law, rule or
regulation applicable thereto (including, without limitation, all
laws, rules and regulations relating to usury) if any such
contravention would impair the collectibility of such Mortgage Loan,
and no party to the related Collateral Documents is in violation of
any such law, rule or regulation (or procedures prescribed thereby) in
any material respect if such violation would impair the collectibility
of such Mortgage Loan or the performance by the Borrower or any
obligor of its obligations with respect thereto;
(e) the Mortgage Loan is not subject to any rights of setoff,
counterclaim or defense in favor of the Mortgage Borrower or any other
obligor thereon;
(f) such Mortgage Loan complies with all representations and
warranties set forth herein with respect thereto;
(g) such Mortgage Loan has been underwritten in accordance with
the Underwriting Guidelines;
(h) the principal amount of such Mortgage Loan does not exceed
Thirty Million Dollars ($30,000,000);
(i) the LTV of such Mortgage Loan does not exceed eighty percent
(80%);
(j) the projected Property Debt Service Coverage Ratio of the
related Mortgaged Property for the 12-month period beginning on the
anticipated closing date thereof shall be not less than 1.20 to 1.00;
(k) such Mortgage Loan is not a graduated payment Mortgage Loan,
does not have a shared appreciation or other contingent interest
feature, and provides for
<PAGE>
periodic payments of all accrued interest thereon on at least a
monthly basis;
(l) such Mortgage Loan has a final maturity of not more than 20
years and provides for monthly payments of principal and interest
sufficient to repay the original principal amount of such Mortgage
Loan over a period of 30 years (subject to adjustment in accordance
with industry standards in the case of an adjustable rate Mortgage
Loan);
(m) the Commercial Property securing such Mortgage Loan is not a
marina, golf course, automobile dealership, funeral home or other type
of property specific to a particular business;
(n) if either (i) the principal amount of such Mortgage Loan
exceeds $25,000,000 or (ii) the owners or sponsors of the Mortgage
Borrower, or any Person owned or controlled by any of them, have
previously been debtors under the United States Bankruptcy Code or
defaulted on Debt, the Mortgage Borrower is a Single Purpose Entity;
and
(o) neither the Borrowers nor any of their Affiliates has any
ownership interest, right to acquire any ownership interest, or
equivalent economic interest in such Commercial Property or the
Mortgage Borrower.
"Eligible Mortgage Pool" means a Mortgage Pool for which (a) an
----------------------
Approved Custodian has issued its initial certification (on the basis of
which an Agency Security is to be issued), (b) there exists a Purchase
Commitment covering such Agency Security, and (c) such Agency Security will
be delivered to the Collateral Agent.
"ERISA" means the Employee Retirement Income Security Act of 1974 and
-----
all rules and regulations promulgated thereunder, as amended from time to
time and any successor statute.
"Event of Default" means any of the conditions or events set forth in
----------------
Section 8.1 hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
------------
from time to time, and any successor statute.
<PAGE>
"Existing Agreement Servicing Advances" means all "Advances" other
-------------------------------------
than "Warehousing Advances" outstanding under the Existing Credit
Agreement.
"Existing Agreement Warehousing Advances" means all "Warehousing
---------------------------------------
Advances" outstanding under the Existing Credit Agreement.
"Existing Credit Agreement" means the Credit and Security Agreement
-------------------------
(Syndicated Agreement) dated as of December 5, 1997, as amended, between
WMF Group, Washington, Huntoon, Proctor, Wilson, Wilson-Arizona and Carbon
Mesa, as borrowers, Residential Funding Corporation, Bank United and PNC
Bank, N.A., as lenders, and Residential Funding Corporation as credit agent
for the lenders.
"Fair Market Value" means at any time for a Mortgage Loan or the
-----------------
related Agency Security (if such Mortgage Loan is to be used to back an
Agency Security), (a) if such Mortgage Loan or the related Agency Security
is covered by a Purchase Commitment, the Committed Purchase Price, or (b)
otherwise, the market price for such Mortgage Loan or Agency Security,
determined by the Lender based on market data for similar Mortgage Loans or
Agency Securities and such other criteria as the Lender deems appropriate.
"Fannie Mae" means Fannie Mae, a corporation created under the laws of
----------
the United States, and any successor thereto.
"Fannie Mae DUS Mortgage Loan" means a Multifamily Mortgage Loan under
----------------------------
Fannie Mae's DUS Program.
"Fannie Mae Loan Loss Reserves" means reserves established by the
-----------------------------
Borrowers to absorb estimated future losses related to Fannie Mae DUS
Mortgage Loans sold by the Borrowers to Fannie Mae.
"FHA" means the Federal Housing Administration and any successor
---
thereto.
"FHA Construction Mortgage Loan" means an FHA fully-insured Mortgage
------------------------------
Loan for the construction or substantial rehabilitation of a Multifamily
Property or a Health Care Facility.
"FHA Project Mortgage Loan" means an FHA fully insured Multifamily
-------------------------
Mortgage Loan or an FHA fully insured Health Care Mortgage Loan.
<PAGE>
"Freddie Mac" means the Federal Home Loan Mortgage Corporation and any
-----------
successor thereto.
"FICA" means the Federal Insurance Contributions Act.
----
"FIRREA" means the Financial Institutions Reform, Recovery and
------
Enforcement Act of 1989, as amended from time to time, and the regulations
promulgated and rulings issued thereunder.
"First Mortgage" means a Mortgage which constitutes a first Lien on
--------------
the property covered thereby.
"First Mortgage Loan" means a Mortgage Loan secured by a First
-------------------
Mortgage.
"Freddie Mac" means Freddie Mac, a corporation created under the laws
-----------
of the United States, and any successor thereto.
"Funding Bank" means The First National Bank of Chicago or any other
------------
bank designated from time to time by the Credit Agent.
"Funding Bank Agreement" means the letter agreement substantially in
----------------------
the form of Exhibit K-1 hereto, or the letter agreement substantially in
-----------
the form of Exhibit K-2 hereto.
-----------
"Funds From Operations" means, as of the last day of any fiscal
---------------------
quarter of WMF Group and its Subsidiaries, the sum of (a) the net income of
WMF Group (and its Subsidiaries on a consolidated basis) for the 4 fiscal
quarters ending on such date, plus (b) the amount of income tax expense
----
deducted in calculating such net income, minus (c) the amount of income
-----
taxes actually paid by WMF Group and its Subsidiaries during such 4 fiscal
quarters, plus (d) depreciation, amortization and other non-cash items
----
deducted in calculating such net income, minus (e) non-cash revenue
-----
included in calculating such net income, minus (f) the amount of dividends
-----
paid and other distributions made on the capital stock of WMF Group during
such 4 fiscal quarters, plus (g) the amount of interest expense deducted in
----
calculating net income for the 4 fiscal quarters ending on such date
incurred on Debt of WMF Group (and its Subsidiaries, on a consolidated
basis), other than (i) the Warehousing Advances, and (ii) other Debt
secured by Multifamily Mortgage Loans, Commercial Mortgage Loans and/or
Mortgage-backed Securities covered by Purchase Commitments
<PAGE>
issued by Investors, to the extent such Debt does not exceed the Committed
Purchase Price of such Mortgage Loans.
"GAAP" means generally accepted accounting principles set forth in the
----
opinions and pronouncements of the Accounting Principles Board and the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment
of the accounting profession, which are applicable to the circumstances as
of the date of determination.
"Gestation Agreement" means an agreement under which the Borrowers
-------------------
agree to sell or finance (a) a Pledged Mortgage prior to the date of
purchase by an Investor, or (b) a Mortgage Pool prior to the date the
Agency Security is issued.
"Ginnie Mae" means the Government National Mortgage Association, an
----------
agency of the United States government, and any successor thereto.
"Government Servicing Contracts" means Servicing Contracts (a)
------------------------------
pursuant to which the Borrowers service FHA Project Mortgage Loans or FHA
Construction Mortgage Loans or (b) between Ginnie Mae or Fannie Mae and any
of the Borrowers.
"Health Care Facility" means a retirement service center, a board and
--------------------
care facility, an intermediate care facility, a nursing home or a hospital.
"Health Care Mortgage Loan" means a Mortgage Loan secured by a
-------------------------
Mortgage on a Health Care Facility.
"Hedging Arrangements" means, with respect to any Person, any
--------------------
agreements or other arrangement (including, without limitation, interest
rate swap agreements, interest rate cap agreements and forward sale
agreements) entered into by such Person to protect itself against changes
in interest rates or the market value of assets.
"HUD" means the Department of Housing and Urban Development and any
---
successor thereto.
"HUD 241 Program" means federal loan insurance to finance
---------------
improvements, additions and equipment to multifamily rental housing and
healthcare facilities pursuant to Section 241 of the National Housing Act,
12 U.S.C. (S)1715z-6.
<PAGE>
"HUD 241 Mortgage Loans" means Mortgage Loans that are insured by HUD
----------------------
under the HUD 241 Program and committed for purchase by an Investor
pursuant to a Purchase Commitment.
"Indemnified Liabilities" has the meaning set forth in Article 11
-----------------------
hereof.
"Internal Revenue Code" means the Internal Revenue Code of 1986, or
---------------------
any subsequent federal income tax law or laws, as any of the foregoing have
been or may from time to time be amended.
"Investor" means Fannie Mae, Freddie Mac or a financially responsible
--------
private institution which is deemed acceptable by the Credit Agent from
time to time in its sole discretion.
"Lender" has the meaning set forth in the first paragraph of this
------
Agreement.
"Letter of Credit" means a letter of credit issued by LaSalle for the
----------------
account of the Borrowers, for the benefit of Fannie Mae with respect to
Fannie Mae's Loan Loss Reserve requirement or for any other corporate
purpose of the Borrowers, except to the extent (a) LaSalle is holding
separate collateral for the Borrowers' reimbursement obligations in respect
thereof, or (b) after giving effect to the issuance of such Letter of
Credit either (i) the Servicing Secured Obligations would exceed sixty-five
percent (65%) of the Servicing Collateral Value or (ii) the sum of the
outstanding principal balance of the Servicing Facility Advances, the
amount available to be drawn under all Letters of Credit and the Letter of
Credit Obligations would exceed the Servicing Facility Credit Limit. No
letter of credit issued by LaSalle shall be a "Letter of Credit" hereunder
unless the Credit Agent receives, within 1 Business Day after such letter
of credit is issued, (A) a copy of such letter of credit, (B) a
confirmation from LaSalle that LaSalle is not holding any separate
collateral therefor, and (C) evidence satisfactory to the Credit Agent that
the requirements of clause (b) above have been satisfied.
"Letter of Credit Obligations" means the obligations of the Borrower
----------------------------
to reimburse LaSalle with respect to draws made under a Letter of Credit.
"LIBOR" means, for each calendar week, the rate of interest per annum
-----
which is equal to the arithmetic mean of the U.S. Dollar London Interbank
Offered Rates for one (1)
<PAGE>
month periods of certain U.S. banks as of 11:00 a.m. London time on the
first Business Day of each week on which the London Interbank market is
open, as published by Bridge Information Services on its MoneyCenter
system. LIBOR shall be rounded, if necessary, to the next higher one
sixteenth of one percent (1/16)%. If such U.S. dollar LIBOR rates are not
so offered or published for any period, then during such period LIBOR shall
mean the London Interbank Offered Rate for one (1) month periods published
on the first Business Day of each week on which the London Interbank market
is open, in the Wall Street Journal in its regular column entitled "Money
-----
Rates."
-----
"Lien" means any lien, mortgage, deed of trust, pledge, security
----
interest, charge or encumbrance of any kind (including any conditional sale
or other title retention agreement, any lease in the nature thereof, and
any agreement to give any security interest).
"Liquid Assets" means, with respect to any Person at any date, the
-------------
following unrestricted and unencumbered assets owned by such Person on such
date: cash, funds on deposit in any bank located in the United States,
investment grade commercial paper, money market funds, marketable
securities, the excess, if any, of Mortgage Loans and Agency Securities
held for sale (valued in accordance with GAAP) over the outstanding
aggregate principal amount of notes or other debt instruments against which
such Mortgage Loans or Agency Securities are pledged as Collateral, and
amounts available to be borrowed under the Servicing Facility (after giving
effect to all applicable limitations set forth in Section 2.4(b) hereof)
and other liquidity facilities available to the Borrowers.
"Liquidity Advance" shall mean a Warehousing Advance used by the
-----------------
Borrowers to fund advances required to be made by the Borrowers as master
servicer of Mortgage-backed Securities (i) issued by Fannie Mae or (ii)
backed by Commercial Mortgage Loans, provided such advance results in the
creation of a Receivable pursuant to the applicable Servicing Contract.
"Liquidity Rate" means a floating rate of interest equal to two
--------------
percent (2.00%) per annum over LIBOR. The Liquidity Rate shall be adjusted
on and as of the effective date of each weekly change in LIBOR. The Credit
Agent's determination of the Liquidity Rate as of any date of determination
shall be conclusive and binding, absent manifest error.
<PAGE>
"Loan Documents" means this Agreement, the Notes, the Collateral
--------------
Agency Agreement, any agreement of the Borrowers relating to Subordinated
Debt, and each other document, instrument or agreement executed by the
Borrowers or any of their Subsidiaries in connection herewith or therewith,
as any of the same may be amended, restated, renewed or replaced from time
to time.
"Majority Lenders" means at any date the Lenders holding not less than
----------------
66.67% of the sum of the Term Loan Advances, the Servicing Facility Credit
Limit or, if the Servicing Facility Commitments have expired or been
terminated, the Servicing Facility Advances, and the Warehousing Credit
Limit or, if the Warehousing Commitments have expired or been terminated,
the Warehousing Advances. Notwithstanding the foregoing, if there are only
two (2) Lenders holding Commitments or Advances, the term "Majority
Lenders" shall, except for purposes of Sections 8.2(c) and 8.2(d),
including both such Lenders.
"Majority Servicing Facility Lenders" means at any date the Lenders
-----------------------------------
holding not less than 66.67% of the Servicing Facility Credit Limit or, if
the Servicing Facility Commitments have expired or been terminated, the
Servicing Facility Advances.
"Majority Term Loan Lenders" means at any date the Lenders holding not
--------------------------
less than 66.67% of the outstanding principal balance of the Term Loan
Advances.
"Majority Warehousing Lenders" means at any date the Lenders holding
----------------------------
not less than 66.67% of the Warehousing Credit Limit or, if the Warehousing
Commitments have expired or been terminated, the Warehousing Advances.
Notwithstanding the foregoing, if there are only two (2) Lenders holding
Warehousing Commitments or Warehousing Advances, the term "Majority
Warehousing Lenders" shall, except for purposes of Section 3.8, include
both such Lenders.
"Maturity Date" means, for any Advance, the Warehousing Maturity Date,
-------------
the Servicing Facility Maturity Date or the Term Loan Maturity Date, as
applicable.
"Margin Stock" has the meaning assigned to that term in Regulation U
------------
of the Board of Governors of the Federal Reserve System as in effect from
time to time.
"Maximum Servicing Facility Commitment" means, for any Lender at any
-------------------------------------
date, that dollar amount designated as such opposite such Lender's name on
the signature pages hereof,
<PAGE>
as the same may be reduced pursuant to Section 2.10(o) hereof or amended
from time to time in accordance with this Agreement.
"Maximum Term Loan Commitment" means, for any Lender at any date, that
----------------------------
dollar amount designated as such opposite such Lender's name on the
signature pages hereof, as the same may be amended from time to time in
accordance with this Agreement.
"Maximum Warehousing Commitment" means, for any Lender at any date,
------------------------------
that dollar amount designated as such opposite such Lender's name on the
signature pages hereof, as the same may be amended from time to time in
accordance with this Agreement.
"Miscellaneous Charges" has the meaning set forth in Section 2.13
---------------------
hereof.
"Mortgage" means a mortgage or deed of trust on improved real
--------
property. A Mortgage may be a First Mortgage or a Second Mortgage.
"Mortgage-backed Securities" means securities that are secured or
--------------------------
otherwise backed by Mortgage Loans.
"Mortgage Borrower" means, with respect to a Mortgage Loan, the Person
-----------------
to which such Mortgage Loan is made.
"Mortgage Loan" means any loan evidenced by a Mortgage Note and
-------------
secured by a Mortgage. The term "Mortgage Loan" shall include First
Mortgage Loans and Second Mortgage Loans unless the context otherwise
requires, and shall include each Special Fannie Mae Loan.
"Mortgage Note" means a promissory note secured by one or more
-------------
Mortgages.
"Mortgage Note Amount" means, as of the date of determination, the
--------------------
then outstanding unpaid principal amount of a Mortgage Note (whether or not
an additional amount is available to be drawn thereunder).
"Mortgage Pool" means a pool of one or more Pledged Mortgages on the
-------------
basis of which there is to be issued a Mortgage-backed Security.
"Multiemployer Plan" means a "multiemployer plan" as defined in
------------------
Section 4001(a)(3) of ERISA which is maintained
<PAGE>
for employees of the Borrowers or any Subsidiary of the Borrowers.
"Multifamily Mortgage Loan" means a Mortgage Loan secured by a
-------------------------
Mortgage on improved Multifamily Property.
"Multifamily Property" means real property containing or which will
--------------------
contain more than four (4) dwelling units.
"Net Aggregate Shortfall" means on any given date for which a
-----------------------
regularly scheduled pass-through payment is required to be made by the
Borrowers to an Investor or the holders of Mortgaged-backed Securities, the
excess of all (i) principal and interest payments due the Investor or
holders in such payment over (ii) all principal and interest received for
such monthly payment on the related Mortgage Loans.
"Net Proceeds" means, with respect to the Rights Offering, any other
------------
issuance of Debt of any Borrower or equity securities of WMF Group after
the Closing Date, or any sale of Servicing Contracts after the Closing
Date, the aggregate amount of the proceeds thereof, net of the actual cash
expenses paid by the Borrowers in connection therewith.
"New Borrower" has the meaning set forth in Section 4.3 hereof.
------------
"Nonrecourse Servicing Contract" means a Servicing Contract under
------------------------------
which the Borrowers are not obligated to repurchase or indemnify the holder
of Mortgage Loans as a result of a default on the Mortgage Loans occurring
more than six months after the date of such Mortgage Loan; provided, that
the Borrowers may be obligated to repurchase or indemnify the holder as a
result of a breach of any customary representation or warranty made in
connection with the non-recourse sale or servicing of such Mortgage Loans.
"Nonrecourse Servicing Portfolio" means, for any Person, the Adjusted
-------------------------------
Servicing Portfolio of such Person, but excluding the principal balance of
Mortgage Loans serviced pursuant to Servicing Contracts other than
Government Servicing Contracts included in the Adjusted Servicing Portfolio
at such date.
"Notes" has the meaning set forth in Section 2.8 hereof.
-----
"Notices" has the meaning set forth in Article 10 hereof.
-------
<PAGE>
"Obligations" means any and all indebtedness, obligations and
-----------
liabilities of the Borrowers to the Lenders, the Credit Agent and the
Collateral Agent (whether now existing or hereafter arising, voluntary or
involuntary, whether or not jointly owed with others, direct or indirect,
absolute or contingent, liquidated or unliquidated, and whether or not from
time to time decreased or extinguished and later increased, created or
incurred), whether or not arising out of or related to the Loan Documents.
"Officer's Certificate" means a certificate executed on behalf of the
---------------------
Borrowers by the chief financial officer or the treasurer of WMF Group or
by such other officer as may be acceptable to the Credit Agent and
substantially in the form of Exhibit I-MF attached hereto.
------------
"Operating Account" means a demand deposit account maintained at the
-----------------
Funding Bank in the name of the Borrowers and designated for funding that
portion of each Mortgage Loan not funded by an Advance made against such
Mortgage Loan and for returning any excess payment from an Investor for a
Pledged Mortgage or Pledged Security.
"Ordinary Warehousing Rate" means a floating rate of interest which is
-------------------------
equal to one percent (1.00%) per annum over LIBOR. The Ordinary
Warehousing Rate will be adjusted as of the effective date of each weekly
change in LIBOR. The Credit Agent's determination of the Ordinary
Warehousing Rate as of any date of determination shall be conclusive and
binding, absent manifest error.
"Participant" has the meaning set forth in Section 13.3 hereof.
-----------
"Participation Certificate" means a participation certificate issued
-------------------------
by an Investor, a pool custodian satisfactory to the Lenders or the
Borrowers evidencing an undivided interest in a Pledged Mortgage or a
Mortgage Pool consisting of Pledged Mortgages.
"Percentage Share" means Servicing Facility Percentage Share, Term
----------------
Loan Percentage Share or Warehousing Percentage Share, as applicable.
"Person" means and includes natural persons, corporations, limited
------
liability companies, limited partnerships, general partnerships, joint
stock companies, joint ventures, associations, companies, trusts, banks,
trust companies, land trusts, business trusts or other
<PAGE>
organizations, whether or not legal entities, and governments and agencies
and political subdivisions thereof.
"P&I Advance" means a Warehousing Advance used by the Borrowers to
-----------
make a regularly scheduled pass-through payment on Ginnie Mae Mortgage-
backed Securities for which the Borrowers have a Net Aggregate Shortfall.
"P&I Rate" means a floating rate of interest equal to one and one-half
--------
percent (1.50%) per annum over LIBOR. The P&I Rate shall be adjusted on
and as of the effective date of each weekly change in LIBOR. The Credit
Agent's determination of the P&I Rate as of any date of determination shall
be conclusive and binding, absent manifest error.
"Plans" has the meaning set forth in Section 5.12 hereof.
-----
"Pledged Mortgages" has the meaning set forth in Section 3.3(a)
-----------------
hereof.
"Pledged Securities" has the meaning set forth in Section 3.3(b)
------------------
hereof.
"Pledged Servicing Contracts" means all Servicing Contracts in which
---------------------------
the Credit Agent has a valid, perfected, first priority security interest
to secure the Obligations, whether hereunder or under any other Loan
Document.
"Projected Net Operating Income" means, with respect to any Commercial
------------------------------
Property securing a Commercial Mortgage Loan, the following amount
(determined for the 12 months following the date of the related Advance):
PNOI = PFOR - VR - NOE,
where "PNOI" means Projected Net Operating Income, "PFOR" means the
---- ----
projected amount of rent that would be paid by tenants of such related
property assuming (a) full occupancy thereof and (b) an average rental rate
equal to the lower of the actual current average rental rate for such
property or the current market rental rate for comparable properties, "VR"
--
means the projected amount of PFOR that will not be received as a result of
vacancies, assuming a vacancy rate equal to the greater of the actual
current vacancy rate for such property and the current market vacancy rate
for comparable properties, and rent concessions agreed to with existing
tenants, and "NOE" means the projected net
---
<PAGE>
operating expenses (i.e., total expenses minus interest expense) for such
related property.
"Property" means a Multifamily Property, a Health Care Facility or
--------
other income-producing commercial property securing a Mortgage Loan.
"Property Debt Service Coverage Ratio" means, at any date of
------------------------------------
determination for any Commercial Property that secures a Mortgage Loan
pledged or to be pledged hereunder, the ratio of (a) the Projected Net
Operating Income of the Commercial Property, to (b) projected interest
expense and scheduled payments in respect of the Commercial Mortgage Loan
for the 12 months after such date of determination.
"Purchase Commitment" means a written commitment, in form and
-------------------
substance satisfactory to the Credit Agent, issued in favor of the
Borrowers by an Investor pursuant to which that Investor commits to
purchase Mortgage Loans or Agency Securities.
"Rating Agency" means a nationally recognized statistical rating
-------------
organization that rates securities backed by Mortgage Loans.
"Receivables" has the meaning set forth in Section 3.3(g) hereof.
-----------
"Regulation D" means Regulation D of the Board of Governors of the
------------
Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof establishing reserve requirements.
"Release Amount" has the meaning set forth in Section 3.4(g), 3.4(h)
--------------
hereof.
"Restricted Payments" means, collectively, all dividends or other
-------------------
distributions of any nature (cash, securities, assets or otherwise), and
all payments, by virtue of redemption or otherwise, on any class of equity
securities (including, without limitation, warrants, options or rights
therefor) issued by WMF Group, whether such securities are now or may
hereafter be authorized or outstanding and any distribution in respect of
any of the foregoing, whether directly or indirectly.
"RFC" means Residential Funding Corporation, a Delaware corporation,
---
and any successor thereto.
<PAGE>
"Rights Offering" means the rights to purchase common stock of WMF
---------------
Group for $5.00 per share distributed to the holders of shares of Common
Stock of WMF Group as of February 1, 1999, as described in the Prospectus
filed on December 31, 1998, as amended through February 5, 1999, filed with
the Securities and Exchange Commission.
"Second Mortgage" means a Mortgage which constitutes a second Lien on
---------------
the property covered thereby.
"Second Mortgage Loan" means a Mortgage Loan secured by a Second
--------------------
Mortgage.
"Secured Parties" has the meaning set forth in Section 3.1 hereof.
---------------
"Servicing Acquisition" means a transaction in which the Borrowers
---------------------
acquire (a) Nonrecourse Servicing Contracts with respect to Multifamily
Mortgage Loans, Health Care Mortgage Loans and/or Commercial Mortgage Loans
in a bulk purchase, (b) all of the issued and outstanding capital stock
(and, if applicable, securities convertible into or other rights to acquire
such capital stock) of a corporation (or equivalent interests in a limited
liability company, partnership or other entity) that owns, as its primary
asset, such Nonrecourse Servicing Contracts, or (c) all or substantially
all of the assets of such a corporation or other entity.
"Servicing Acquisition Documents" means, with respect to any Servicing
-------------------------------
Acquisition, the Servicing Purchase Agreement and all agreements,
documents, and instruments executed and delivered in connection therewith.
"Servicing Collateral" means (a) the Pledged Servicing Contracts, all
--------------------
Collateral described in Sections 3.1(e) and 3.1(f), all Collateral
described in Sections 3.1(g), 3.1(i), 3.1(j) and 3.1(k) hereof that
constitutes proceeds of, or is related to, such Collateral, and any other
property related to Pledged Servicing Contracts in which the Credit Agent
has a security interest to secure the Obligations.
"Servicing Collateral Value" means, as of the date of any
--------------------------
determination, with respect to any Servicing Contracts, the Appraisal Value
of such Servicing Contracts (adjusted to account for Servicing Contracts
sold or Mortgage Loans repaid since the date of the most recent Appraisal
in accordance with the methodology of such Appraisal); provided, that for
--------
purposes of calculating the Servicing Collateral Value, the following
Mortgage Loans shall be
<PAGE>
excluded: (i) Mortgage Loans on which any payment is more than sixty (60)
days past due, (ii) Mortgage Loans in respect of which the borrowers have
commenced foreclosure proceedings, (iii) Mortgage Loans in respect of which
any obligor is the subject of a bankruptcy proceeding, (iv) Mortgage Loans
serviced pursuant to Servicing Contracts with Affiliates of the Borrowers,
including without limitation, WMFCC, or with special purpose entities
created by Affiliates in connection with the securitization of Mortgage
Loans; and (v) Servicing Contracts excluded in calculating the Adjusted
Servicing Portfolio, other than pursuant to clause (b) of the definition
thereof.
"Servicing Contract" means, with respect to any Person, the
------------------
arrangement, whether or not in writing, pursuant to which such Person has
the right to service Mortgage Loans.
"Servicing Facility Advance" means a disbursement by the Lenders under
--------------------------
the Servicing Facility Commitments pursuant to Section 2.4 of this
Agreement.
"Servicing Facility Advance Request" has the meaning set forth in
----------------------------------
Section 2.5 hereof.
"Servicing Facility Commitment" has the meaning set forth in Section
-----------------------------
2.4(a) hereof.
"Servicing Facility Commitment Fee" means a fee payable by the
---------------------------------
Borrowers in consideration of the Lenders' agreement to make their
respective Servicing Facility Advances hereunder. The amount of the
Servicing Facility Commitment Fee is set forth in Section 2.12(b) hereof.
"Servicing Facility Credit Limit" means at any date the sum of the
-------------------------------
Maximum Servicing Facility Commitments of the Lenders at such date, with
the initial Servicing Facility Credit Limit being Twenty-five Million
Dollars ($25,000,000).
"Servicing Facility Maturity Date" means the earliest of: (a) February
--------------------------------
10, 2002, as such date may be extended from time to time in writing by all
of the Lenders holding Servicing Facility Advances or a Servicing Facility
Commitment, and (b) the date the Servicing Facility Advances become due and
payable pursuant to Section 8.2 below.
"Servicing Facility Percentage Share" means, for any Lender at any
-----------------------------------
date, that percentage which such Lender's Maximum Servicing Facility
Commitment or, after the Servicing Facility Commitments have expired or
been
<PAGE>
terminated, the aggregate outstanding principal balance of such Lender's
Servicing Facility Advances, bears to the Servicing Facility Credit Limit
or, after the Servicing Facility Commitments have expired or been
terminated, the aggregate outstanding principal balance of all Servicing
Facility Advances.
"Servicing Facility Promissory Note" means the promissory note
----------------------------------
evidencing the Borrowers' Obligations to any Lender with respect to
Servicing Facility Advances.
"Servicing Facility Rate" means a floating rate of interest per annum
-----------------------
equal to two and one-half percent (2.50%) per annum over LIBOR. The
Servicing Facility Rate shall be adjusted on and as of the effective date
of each weekly change in LIBOR. The Credit Agent's determination of the
Servicing Facility Rate as of any date of determination shall be conclusive
and binding, absent manifest error.
"Servicing Portfolio" means, as to any Person, the unpaid principal
-------------------
balance of Mortgage Loans whose Servicing Contracts are owned by such
Person.
"Servicing Purchase Agreement" means the principal agreement or
----------------------------
agreements pursuant to which the Borrowers make any Servicing Acquisition.
"Servicing Secured Advances" means P&I Advances, Liquidity Advances,
--------------------------
Term Loan Advances and Servicing Facility Advances.
"Servicing Secured Obligations" means the sum of the aggregate
-----------------------------
outstanding principal balance of all Servicing Secured Advances, the amount
available to be drawn under all outstanding Letters of Credit and the
Letter of Credit Obligations.
"Single Purpose Entity" means a corporation, limited liability company
---------------------
or limited partnership the organizational documents of which provide that
such Person (i) was formed or organized solely for the purpose of owning or
operating the Commercial Property securing a Commercial Mortgage Loan, (ii)
will not engage in any business other than the ownership, operating and
financing of such Commercial Property, (iii) will not own any assets other
than those related to such Commercial Property and its financing, (iv) will
not incur any liabilities other than the related Commercial Mortgage Loan
and other liabilities permitted thereunder, (v) will maintain its own
books, records and accounts separate and apart from those of any other
Person,
<PAGE>
and (vi) will hold itself out as being a legal entity separate and distinct
from any other Person.
"Special Fannie Mae Advance" means an Advance made to Washington
--------------------------
against Special Fannie Mae Loans.
"Special Fannie Mae Loans" means advances made by Washington under any
------------------------
Special Fannie Mae Program Agreement and evidenced by one or more
promissory notes in the possession of (a) the Collateral Agent or (b)
Fannie Mae, provided that Fannie Mae has entered into a bailee agreement
with the Credit Agent, in form and substance satisfactory to the Credit
Agent, with respect to the Credit Agent's security interest in Washington's
interest in such promissory note(s).
"Special Fannie Mae Program Agreement" means any agreement between
------------------------------------
Washington and one or more borrowers and (if applicable) other obligors
described on Exhibit Q hereto (as such Exhibit Q may be amended in
--------- ---------
accordance with Section 4.4 hereof) pursuant to which Washington makes
Special Fannie Mae Loans to such borrowers secured by Mortgages on Multi-
family Properties, provided that Fannie Mae has agreed, on terms
satisfactory to the Credit Agent, to issue a Mortgage-backed Security or
Securities in exchange for a one hundred percent (100%) participation in
each such Special Fannie Mae Loan.
"Statement Date" means the date of the most recent financial
--------------
statements of WMF Group and its Subsidiaries, on a consolidated basis,
delivered to the Lenders under the terms of this Agreement.
"Subordinated Debt" means (a) all indebtedness of the Borrowers for
-----------------
borrowed money which is effectively subordinated in right of payment to all
other present and future Obligations either (i) pursuant to a Subordination
of Debt Agreement in the form of Exhibit F hereto or (ii) otherwise on
---------
terms acceptable to the Majority Lenders, and (b) solely for purposes of
Section 7.4 hereof, all indebtedness of the Borrowers which is required to
be subordinated by Section 4.1(b) or Section 6.10 hereof.
"Subsidiary" means any corporation, association or other business
----------
entity in which more than fifty percent (50%) of the total voting power or
shares of stock entitled to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or
indirectly, by any Person or one or more of the other Subsidiaries of that
Person or a combination thereof.
<PAGE>
"Swingline Advance" means Warehousing Advances made by the Swingline
-----------------
Lender under Section 2.2 hereof.
"Swingline Facility Amount" means the maximum amount of Swingline
-------------------------
Advances to be outstanding from time to time, not to exceed the lesser of
(i) Fifty Million Dollars ($50,000,000) or (ii) the then undisbursed
portion of the Warehousing Credit Limit.
"Swingline Lender" means RFC.
----------------
"Swingline Note" means the promissory note evidencing the Borrowers'
--------------
Obligation to the Swingline Lender with respect to Swingline Advances.
"Tangible Net Worth" means with respect to any Person at any date, the
------------------
excess of the total assets over total liabilities of such Person on such
date, each to be determined in accordance with GAAP consistent with those
applied in the preparation of the financial statements referred to in
Section 4.1(a)(7) hereof, plus Fannie Mae Loan Loss Reserves and that
portion of Subordinated Debt not due within one year of such date, provided
that, for purposes of this Agreement, there shall be excluded from total
assets advances or loans to shareholders, officers, employees or
Affiliates, investments in Affiliates, assets pledged to secure any
liabilities not included in the Debt of such Person, intangible assets and
those other assets which would be deemed by HUD to be non-acceptable in
calculating adjusted net worth in accordance with its requirements in
effect as of such date, as such requirements appear in the "Audit Guide for
Audit of Approved Non-Supervised Mortgagees" and other assets deemed
unacceptable by the Credit Agent in its sole discretion.
"Term Loan Advance" means an Advance made on the Closing Date pursuant
-----------------
to Section 2.6 hereof.
"Term Loan Credit Limit" means the sum of the Maximum Term Loan
----------------------
Commitments of the Lenders, which shall be Twenty-five Million Dollars
($25,000,000).
"Term Loan Commitment Fee" means a fee payable by the Borrowers in
------------------------
consideration of the Lenders' making their respective Term Loan Advances
hereunder. The amount of the Term Loan Commitment Fee is set forth in
Section 2.12(d) hereof.
"Term Loan Maturity Date" means the earliest of: (a) the close of
-----------------------
business on February 10, 2004, as such date may
<PAGE>
be extended from time to time in writing by all of the Lenders holding Term
Loan Advances, in their sole discretion, and (b) the date the Term Loan
Advances become due and payable pursuant to Section 8.2 below.
"Term Loan Percentage Share" means, for any Lender at any date, that
--------------------------
percentage which such Lenders Maximum Term Loan Commitment or, after the
Term Loan Advances have been made, the outstanding principal balance of
such Lender's Term Loan Advance bears to the Term Loan Credit Limit or,
after the Term Loan Advances have been made, the aggregate outstanding
principal balance of all Term Loan Advances.
"Term Loan Rate" means a floating rate of interest per annum equal to
--------------
three percent (3.00%) per annum over LIBOR. The Term Loan Rate shall be
adjusted on and as of the effective date of each weekly change in LIBOR.
The Credit Agent's determination of the Term Loan Rate as of any date of
determination shall be conclusive and binding, absent manifest error.
"Trust Receipt" means a trust receipt in a form approved by the Credit
-------------
Agent and pursuant to which the Collateral Agent may deliver any document
relating to the Collateral to the Borrowers for correction or completion.
"Underwriting Guidelines" means any underwriting guidelines adopted by
-----------------------
the sponsor of any program approved by the Credit Agent for Eligible
Commercial Mortgage Loans, as in effect from time to time, provided such
underwriting guidelines have been approved by, or conform to the standards
of, at least two Rating Agencies.
"VA" means the U.S. Department of Veterans Affairs and any successor
--
thereto.
"Warehousing Advance" shall mean a disbursement by the Lenders under
-------------------
the Warehousing Commitments pursuant to Section 2.1(a) of this Agreement or
a Swingline Advance.
"Warehousing Advance Request" has the meaning set forth in Section
---------------------------
2.3(a) hereof.
"Warehousing Collateral" means all of the Collateral other than the
----------------------
Servicing Collateral and the Receivables.
"Warehousing Commitment" has the meaning set forth in Section 2.1(a)
----------------------
hereof.
<PAGE>
"Warehousing Commitment Fee" means a fee payable by the Borrowers in
--------------------------
consideration of the Lenders' issuance of their Warehousing Commitments.
The amount of the Warehousing Commitment Fee, if any, is set forth in
Section 2.12(a) hereof.
"Warehousing Credit Limit" means at any date the sum of the Maximum
------------------------
Warehousing Commitments of the Lenders at such date, with the initial
Warehousing Credit Limit being One Hundred Fifty Million Dollars
($150,000,000).
"Warehousing Maturity Date" shall mean the earlier of: (a) the close
-------------------------
of business on February 9, 2000, as such date may be extended from time to
time in writing by all of the Lenders holding Warehousing Advances or a
Warehousing Commitment, in their sole discretion, and (b) the date the
Warehousing Advances become due and payable pursuant to Section 8.2 below.
"Warehousing Percentage Share" means, for any Lender at any date, that
----------------------------
percentage which such Lender's Maximum Warehousing Commitment or, after the
Warehousing Commitments have expired or been terminated, the aggregate
outstanding principal balance of such Lender's Warehousing Advances, bears
to the Warehousing Credit Limit or, after the Warehousing Commitments have
expired or been terminated, the aggregate outstanding principal balance of
all Warehousing Advances.
"Warehousing Promissory Note" means the promissory note evidencing the
---------------------------
Borrowers' Obligations to any Lender with respect to Warehousing Advances
other than Swingline Advances.
"Wire Disbursement Account" means a demand deposit account maintained
-------------------------
at the Funding Bank in the name of the Credit Agent for the clearing of
wire transfers requested by the Borrowers to fund the closing of Pledged
Mortgages.
"WMFCC" means WMF Capital Corp., a Delaware corporation and a wholly-
-----
owned subsidiary of WMF Group.
"Year 2000 Problem" means the risk that computer applications may not
-----------------
be able to properly perform date-sensitive functions after December 31,
1999.
1.2 Other Definitional Provisions.
-----------------------------
<PAGE>
1.2(a) Accounting terms not otherwise defined herein
shall have the meanings given the terms under GAAP.
1.2(b) Defined terms may be used in the singular or the
plural, as the context requires.
1.2(c) All references to time of day shall mean the then
applicable time in Chicago, Illinois, unless expressly provided to the
contrary.
2. THE CREDIT.
2.1 The Warehousing Credit Limit.
----------------------------
2.1(a) Subject to the terms and conditions of this
Agreement and provided no Default or Event of Default has occurred and
is continuing, the Lenders agree, severally, and not jointly, from
time to time during the period from the Closing Date, but not
including, the Warehousing Maturity Date, to make Warehousing Advances
to the Borrowers, pro rata in accordance with their respective
Warehousing Percentage Shares, provided the total aggregate principal
amount outstanding at any one time of all such Warehousing Advances
shall not exceed the Warehousing Credit Limit. The obligation of each
Lender to make Warehousing Advances up to its Maximum Warehousing
Commitment is hereafter referred to as such Lender's "Warehousing
Commitment." Within the Warehousing Credit Limit, the Borrowers may
borrow, repay and reborrow. On the Closing Date, the Borrowers shall
request, and the Lenders shall make, Warehousing Advances in an amount
equal to the aggregate outstanding principal balance of the Existing
Agreement Warehousing Advances, and such Warehousing Advances shall be
applied to pay such Existing Agreement Warehousing Advances in full.
All Warehousing Advances under this Agreement shall constitute a
single indebtedness, and all of the Collateral shall be security for
the Notes and for the performance of all the Obligations. Warehousing
Advances shall be made to any Borrower, as shall be requested by the
Borrowers, but each Warehousing Advance shall be deemed made to or for
the benefit of all of the Borrowers, and the Borrowers, jointly and
severally, shall be obligated to repay all Warehousing Advances made
hereunder. With respect to its obligation to repay Warehousing
Advances made to the other Borrowers, each Borrower agrees to the
terms set
<PAGE>
forth in Exhibit N attached hereto and made a part hereof.
---------
2.1(b) Warehousing Advances shall be used by the Borrowers
solely for the purpose of funding the acquisition or origination of
Commercial Mortgage Loans, Health Care Mortgage Loans and Multifamily
Mortgage Loans, except (i) in the case of P&I Advances, which may be
used for the purpose of funding the Borrowers' obligations to make
principal or interest payments to the holders of Ginnie Mae Mortgage-
backed Securities backed by Mortgage Loans serviced by the Borrowers
and for which the Borrowers have a Net Aggregate Shortfall, and (ii)
in the case of Liquidity Advances, which may be used for the purpose
of funding the Borrowers' obligation, as a master servicer of
Mortgage-backed Securities issued by Fannie Mae or backed by
Commercial Mortgage Loans, provided such advance results in the
creation of a Receivable pursuant to the applicable Servicing
Contract. All Warehousing Advances shall be made at the request of
the Borrowers, in the manner hereinafter provided in Section 2.3, and
all Warehousing Advances, except P&I Advances and Liquidity Advances,
shall be made against the pledge of Mortgage Loans as Collateral
therefor. The following limitations on the use of the Warehousing
Advances shall be applicable:
(1) No Warehousing Advance shall be made against a Mortgage
Loan other than a Mortgage Loan secured by a Mortgage on real
property located in one of the states of the United States or the
District of Columbia.
(2) No Warehousing Advance shall be made to any Borrower
against Mortgage Loans other than Mortgage Loans of a type for
which such Borrower has been approved by the Credit Agent.
(3) No Warehousing Advance shall be made against a Mortgage
Loan which is not covered by a Purchase Commitment for either the
Mortgage Loan or the Agency Securities to be created on the basis
of such Mortgage Loan.
(4) No Warehousing Advance (other than Warehousing Advances
made on the Closing Date to refinance Existing Agreement
Warehousing Advances) shall be made against any Mortgage Loan
other than an FHA Construction
<PAGE>
Mortgage Loan which was closed more than thirty (30) days prior
to the date of the requested Advance.
(5) Except for Warehousing Advances made against the
Mortgage Loans described on Exhibit S hereto, no Warehousing
---------
Advance shall be made against an FHA Construction Mortgage Loan
or a Special Fannie Mae Loan unless (a) no lender other than the
Lenders have made loans to the Borrowers against such FHA
Construction Mortgage Loan or loans made under the related
Special Fannie Mae Program Agreement, (b) the Collateral Agent
has at one time had or will (as provided in Exhibit D-MF/FHA or
----------------
Exhibit D-MF/SFNMA, as applicable) obtain possession of the
------------------
related Mortgage Note and Collateral Documents, and (c) the
related Mortgage Note is in the possession of a Person other than
the Borrowers or an Affiliate of the Borrowers.
(6) No Warehousing Advance shall be made against a
Mortgage Loan, other than a HUD 241 Mortgage Loan or a Fannie Mae
DUS Mortgage Loan, that is not a First Mortgage Loan.
(7) The aggregate amount of Warehousing Advances
outstanding at any one time against Second Mortgage Loans shall
not exceed Fifteen Million Dollars ($15,000,000).
(8) The aggregate amount of Warehousing Advances
outstanding at any one time against Commercial Mortgage Loans
shall not exceed Fifty Million Dollars ($50,000,000).
(9) The aggregate amount of P&I Advances outstanding
at any one time shall not exceed Five Million Dollars
($5,000,000).
(10) The aggregate amount of Liquidity Advances
outstanding at any one time shall not exceed Five Million Dollars
($5,000,000).
2.1(c) No Warehousing Advance shall exceed the following
amount applicable to the type of Collateral at the time it is pledged:
<PAGE>
(1) A Warehousing Advance made against a Conventional
Mortgage Loan pledged hereunder that is committed for purchase by
Fannie Mae or Freddie Mac or against a Fannie Mae DUS Mortgage
Loan pledged hereunder, the lesser of (i) the Mortgage Note
Amount or (ii) the Committed Purchase Price.
(2) A Warehousing Advance made against a Conventional
Mortgage Loan pledged hereunder that is committed for purchase by
an Investor other than Fannie Mae or Freddie Mac, ninety-eight
percent (98%) of the lesser of (i) the Mortgage Note Amount or
(ii) the Committed Purchase Price.
(3) A Warehousing Advance made against an FHA Project
Mortgage Loan, an FHA Construction Mortgage Loan or a HUD 241
Mortgage Loan pledged hereunder, the lesser of (i) the Mortgage
Note Amount or (ii) the Committed Purchase Price.
(4) A Warehousing Advance made against a Commercial
Mortgage Loan pledged hereunder that is subject to a Purchase
Commitment, ninety-five percent (95%) of the lesser of (i) the
Mortgage Note Amount, or (ii) the Committed Purchase Price.
(5) A Warehousing Advance made against a Special Fannie Mae
Loan pledged hereunder, the lesser of (i) the Mortgage Note
Amount or (ii) the Committed Purchase Price.
(6) A P&I Advance made hereunder or a Liquidity Advance
made hereunder to fund principal or interest payments under
Mortgage-backed Securities, ninety percent (90%) of the related
Net Aggregate Shortfall.
(7) A Liquidity Advance made hereunder, other than a
Liquidity Advance made to fund principal or interest payments
under Mortgage-backed Securities, ninety (90%) of the amount of
the Receivable that will be created by the related payment.
(8) No P&I Advance or Liquidity Advance shall be made
hereunder if, after giving effect to
<PAGE>
such Advance, the aggregate outstanding principal balance of the
Servicing Secured Obligations would exceed sixty-five (65%) of
the Servicing Collateral Value.
2.2 Swingline Commitment. On the terms and subject to the
--------------------
conditions set forth herein, the Swingline Lender agrees that it may, from
time to time to, but not including, the Maturity Date, agree to make
Warehousing Advances requested by the Borrowers in amounts not to exceed
the Swingline Facility Amount. Such Swingline Advances shall be evidenced
by the Swingline Note. A Swingline Advance shall bear interest, from the
date of such Swingline Advance, until paid in full, at the Ordinary
Warehousing Rate. The Lenders hereby agree to purchase from the Swingline
Lender an undivided participation interest in all outstanding Swingline
Advances held by the Swingline Lender at any time in an amount equal to
each Lender's Warehousing Percentage Share of such Swingline Advances. The
Swingline Lender may at any time in its sole and absolute discretion (and
shall no less frequently than weekly and upon the acceleration of the
Obligations following an Event of Default) request the Lenders to make
Warehousing Advances (each in principal amounts equal to their Warehousing
Percentage Shares thereof) in the aggregate amount necessary to repay the
outstanding Swingline Advances, and each Lender absolutely and
unconditionally agrees to fund such Warehousing Advances, regardless of any
Default or Event of Default or other condition which would otherwise excuse
such Lender from funding Warehousing Advances; provided that no Lender
shall be required to make Warehousing Advances to repay Swingline Advances
which would cause such Lender's aggregate Warehousing Advances then
outstanding to exceed the amount of such Lender's Maximum Warehousing
Commitment. Each Lender's Warehousing Advances made pursuant to the
preceding sentence shall be delivered directly to the Swingline Lender in
immediately available funds at the office of the Credit Agent by 12:00 noon
on the day of the request therefor by the Swingline Lender if such request
is made on or before 11:00 a.m. or by 9:00 a.m. on the first (1st) Business
Day following such request therefor if such request is made after 11:00
a.m. and shall be promptly applied against the outstanding Swingline
Advances. At any time following the receipt of funds from all the Lenders,
and no less than weekly, the Credit Agent shall deliver to each Lender a
certificate in the form of Exhibit M attached hereto (the "Advance
---------
Certificate"), certified by the Credit Agent.
2.3 Procedures for Obtaining Warehousing Advances.
---------------------------------------------
<PAGE>
2.3(a) The Borrowers may obtain Warehousing Advances
hereunder, subject to the satisfaction of the conditions set forth in
Sections 4.1 and 4.2 hereof, upon compliance with the procedures set
forth in this Section 2.3 and in the following described Exhibits,
attached hereto and made a part hereof including the delivery of all
documents listed in the following described Exhibits (the "Collateral
Documents") to the Collateral Agent, as applicable to the type of
Collateral being financed:
(1) Conventional Mortgage Loans, Fannie Mae DUS Mortgage
Loans and Commercial Mortgage Loans, as set forth in Exhibit D-
----------
MF/CONV/DUS hereto.
-----------
(2) FHA Project Mortgage Loans, FHA Construction Mortgage
Loans and HUD 241 Mortgage Loans, as set forth in Exhibit D-
----------
MF/FHA hereto.
------
(3) Special Fannie Mae Loans, as set forth in Exhibit D-
---------
MF/SFNMA.
--------
Requests for Warehousing Advances shall be initiated by the
Borrowers by delivering to the Credit Agent, with a copy to the
Collateral Agent, no later than one (1) Business Day prior to any
Business Day that the Borrowers desire to borrow hereunder, a
completed and signed request for a Warehousing Advance (a "Warehousing
Advance Request") on the then current form approved by the Credit
Agent. The current forms in use by the Credit Agent are Exhibit C-MF
------------
for Warehousing Advances, other than P&I Advances and Liquidity
Advances, and Exhibit C-P&I for P&I Advances and Liquidity Advances.
-------------
The Credit Agent shall have the right, on not less than three (3)
Business Days' prior Notice to the Borrowers, to modify any of said
Exhibits to conform to current legal requirements or Collateral Agent
practices, and, as so modified, said Exhibits shall be deemed a part
hereof.
2.3(b) The Collateral Agent shall have one (1) Business Day
under ordinary circumstances to (i) examine the Collateral Documents
(ii) reject Collateral that does not meet the requirements of this
Agreement or, if applicable, the related Purchase Commitment and (iii)
verify the Warehousing Advance amount. Before the Credit Agent funds
any requested Warehousing Advance, the Credit Agent shall have
<PAGE>
received from the Collateral Agent Notice (telephonic followed by
written notice) of the amount that may be advanced pursuant to Section
2.1(c).
2.3(c) The Borrowers shall hold in trust for the Lenders,
and the Borrowers shall deliver to the Collateral Agent promptly upon
request, or if the recorded Collateral Documents have not yet been
returned from the recording office, immediately upon receipt by the
Borrowers of such recorded Collateral Documents, and the Pledged
Mortgage is not being held by an Investor for purchase or has not been
redeemed from pledge, the following: (1) originals of the Collateral
Documents for which copies are required to be delivered to the
Collateral Agent pursuant to Exhibit D-MF/CONV/DUS, Exhibit D-MF/FHA
--------------------- ----------------
or Exhibit D-MF/SFNMA, (2) the original lender's ALTA Policy of Title
------------------
Insurance or an equivalent thereto, (3) the environmental assessment,
and (4) any other documents relating to a Pledged Mortgage which the
Collateral Agent may request including, without limitation,
certificates of casualty or hazard insurance, credit information on
the maker of each such Mortgage Note, and other documents of all kinds
which are customarily desired for inspection or transfer incidental to
the purchase of any Mortgage Loan by an Investor or the issuance of a
Mortgage-backed Security and any additional documents which are
customarily executed by the seller of a Mortgage Note to an Investor.
2.3(d) Neither the Credit Agent nor any Lender shall incur
any liability to the Borrowers in acting upon any telephonic notice
referred to in this Agreement which the Credit Agent or such Lender
believes in good faith to have been given by a duly authorized officer
or other Person authorized to borrow on behalf of the Borrowers or for
otherwise acting in good faith under this Section. Upon the funding
of Warehousing Advances by the Lenders in accordance with this
Agreement pursuant to any telephonic notice, the Borrowers shall have
effected borrowings hereunder. A Warehousing Advance Request shall be
irrevocable and the Borrowers shall be bound to accept a Warehousing
Advance in accordance herewith, if such Warehousing Advance Request is
not revoked prior to 10:00 a.m. on the date the Warehousing Advance is
to be disbursed.
2.3(e) To make an Advance, the Credit Agent shall cause the
Funding Bank to credit the Wire Disbursement Account upon compliance
by the Borrowers
<PAGE>
with the terms of the Loan Documents. The Credit Agent shall determine
in its sole discretion the method by which Advances and other amounts
on deposit in the Wire Disbursement Account are disbursed by the
Funding Bank to or for the account of the Borrowers.
2.3(f) If, pursuant to the authorization given by the Borrowers
in the Funding Bank Agreement, for the purpose of financing a Mortgage
Loan against which a Warehousing Advance has been made in accordance
with a Warehousing Advance Request, the Credit Agent debits the
Borrowers' Operating Account at the Funding Bank to the extent
necessary to cover a wire to be initiated by the Credit Agent, and
such debit or direction results in an overdraft, the Swingline Lender
may make an additional Swingline Advance to fund such overdraft.
2.3(g) Upon an Event of Default, and without the necessity of
prior demand or notice from the Credit Agent, the Borrowers authorizes
the Credit Agent to cause the Funding Bank to charge the Borrowers'
account for any Obligations due and owing the Lenders.
2.4 The Servicing Facility Commitment.
---------------------------------
2.4(a) Subject to the terms and conditions of this
Agreement and provided no Default or Event of Default has occurred and
is continuing, the Lenders agree from time to time during the period
from the Closing Date, to, but not including, the Servicing Facility
Maturity Date, to make Servicing Facility Advances to the Borrowers,
provided the sum of (i) the total aggregate principal amount
outstanding at any one time of all such Servicing Facility Advances,
(ii) the amount available to be drawn under Letters of Credit, and
(iii) the Letter of Credit Obligations, shall not exceed the Servicing
Facility Credit Limit. The obligation of each Lender to make
Servicing Facility Advances hereunder up to its Maximum Servicing
Facility Commitment is hereinafter referred to as such Lender's
"Servicing Facility Commitment." Within the Servicing Facility Credit
Limit, the Borrowers may borrow, repay and reborrow. All Servicing
Facility Advances under this Agreement shall constitute a single
indebtedness, and all of the Collateral shall be security for the
Servicing Facility Promissory Notes and for the performance of all the
Obligations. Servicing Facility Advances shall be made to each
Borrower, as shall be requested by the Borrowers, but each Servicing
Facility Advance shall be deemed made to or for the benefit of
<PAGE>
all of the Borrowers, and all of the Borrowers, jointly and severally,
shall be obligated to repay any Servicing Facility Advances made under
the Servicing Facility Commitments. With respect to its obligation to
repay Servicing Facility Advances made to the other Borrowers, each
Borrower agrees to the terms set forth in Exhibit N attached hereto
---------
and made a part hereof.
2.4(b) Servicing Facility Advances shall be used by the
Borrowers solely for the purpose of (i) financing a part of the cost
of a Servicing Acquisition; (ii) general working capital purposes;
(iii) meeting Fannie Mae's Loan Loss Reserve requirements; or (iv)
other corporate needs. Each Servicing Facility Advance shall be made
at the request of the Borrowers, in the manner hereinafter provided in
Section 2.5 hereof. The following limitations on Servicing Facility
Advances shall be applicable:
(1) No Servicing Facility Advance shall be made if,
after giving effect thereto, (i) the aggregate outstanding
principal balance of all Servicing Facility Advances, the amount
available to be drawn under all Letters of Credit and the Letters
of Credit Obligations would exceed the Servicing Facility Credit
Limit, or (ii) the Servicing Secured Obligations would exceed
sixty-five percent (65%) of the Servicing Collateral Value.
(2) In calculating the Servicing Collateral Value
for purposes of the foregoing clause (i), no Servicing Contracts
being acquired in a Servicing Acquisition may be included unless
the Collateral Agent shall have reviewed the documents and
information described in Section 2.5(b) in connection with such
Servicing Acquisition, and the same shall be in all respects
satisfactory to the Collateral Agent.
2.5 Procedures for Obtaining Servicing Facility Advances.
----------------------------------------------------
2.5(a) The Borrowers may obtain Servicing Facility Advances
hereunder, subject to the satisfaction of the conditions set forth in
Sections 4.1 and 4.2 hereof, upon compliance with the procedures set
forth in this Section 2.5. Requests for Servicing Facility Advances
shall be initiated by the Borrowers delivering to the Credit Agent, no
later than two (2)
<PAGE>
Business Day prior to any Business Day on which the Borrowers desire
to borrow hereunder, a completed and signed request for Servicing
Facility Advances (a "Servicing Facility Advance Request") on the then
current form approved by the Credit Agent. The current form in use by
the Credit Agent is Exhibit C-SA attached hereto and made a part
------------
hereof. The Credit Agent shall have the right, on not less than three
(3) Business Days' prior Notice to the Borrowers, to modify such
Exhibits to conform to current legal requirements or Credit Agent
practices, and, as so modified, said Exhibit shall be deemed a part
hereof.
2.5(b) If the Servicing Contracts being acquired in a Servicing
Acquisition will be included in calculating the Servicing Collateral
Value for purposes of Section 2.4(b)(1) hereof, the Borrowers shall
deliver the following documents, certificates and opinions related to
any Servicing Acquisition to the Credit Agent on or prior to the date
of any Servicing Facility Advance requested to finance such Servicing
Acquisition:
(1) the following documents with respect to the Nonrecourse
Servicing Contracts to be acquired in such Servicing Acquisition:
a counterpart of the Servicing Purchase Agreement and all other
Servicing Acquisition Documents, duly executed by each party
thereto;
(2) an Appraisal of the Nonrecourse Servicing Contracts to
be acquired in such Servicing Acquisition;
(3) evidence satisfactory to the Credit Agent that all
consents from and notices to Fannie Mae, Ginnie Mae, FHA, VA and
other governmental agencies or Investors required for the
Borrowers to assume the Servicing Contracts to be acquired and
continue its business after the closing of such Servicing
Acquisition, or for the Borrowers to acquire the Person to be
acquired and for such Person (or the Borrowers, if such Person is
to be merged with one of the Borrowers) to continue such Person's
business after the closing of such Servicing Acquisition, have
been obtained and given;
(4) evidence satisfactory to the Credit Agent that such
Servicing Facility Advances in
<PAGE>
such Servicing Acquisition and any additional funds delivered
simultaneously to the sellers in such Servicing Acquisition will
be sufficient to pay the purchase price under such Servicing
Purchase Agreement in full;
(5) Such UCC Financing statements or amendments as the
Credit Agent, in its sole discretion, may request to perfect or
continue the perfection of its security interest;
(6) UCC, tax lien and judgment searches in the appropriate
public records for the seller(s) in such Servicing Acquisition
and any Person to be acquired in such Servicing Acquisition,
which shall not have disclosed the existence of any prior Lien on
the Servicing Contracts to be acquired by, or owned by the Person
to be acquired by, the Borrowers; and
(7) such further documents, instruments, opinions,
certificates and evidence as the Credit Agent may reasonably
request.
Before any Servicing Facility Advances to fund any Servicing
Acquisition are funded, the Collateral Agent shall have a reasonable
time to examine the documents delivered to it hereunder in connection
with the Servicing Acquisition to be funded, and may reject such of
them as are not reasonably satisfactory to the Collateral Agent.
2.5(c) To make Servicing Facility Advances to fund a
Servicing Acquisition, the Credit Agent shall cause the Funding Bank
to disburse the amount thereof to the seller(s) in the Servicing
Acquisition to be funded in accordance with the Servicing Facility
Advance Request, together with any other funds required to pay the
purchase price under such Servicing Purchase Agreement in full (other
than any portion thereof to be paid after the effective date of
transfer), upon compliance by the Borrowers with the terms of this
Agreement.
2.6 The Term Loan Commitment.
------------------------
Term Loan Advances shall be made on the Closing Date, without any
further action by the Borrowers, in an amount equal to the Term Loan Credit
Limit, and applied to repay the Existing Agreement Servicing Advances. No
Term Loan Advances shall be made after the Closing Date.
<PAGE>
2.7 Funding of Advances; Non-Receipt of Funds by the Credit Agent.
-------------------------------------------------------------
Except to the extent any requested Warehousing Advances are to be funded as
Swingline Advances, the Credit Agent shall notify each Lender obligated to
make an Advance no later than 11:00 a.m. on the date of the requested
Advances of its receipt of the Advance Request and of its Percentage Share
of such Advances. To make an Advance, each Lender shall, except as
otherwise provided in Section 2.2, credit an account of the Credit Agent
with the Funding Bank prior to 12:00 noon on the date of such Advance, and
the Credit Agent shall make such Advance available to the Borrowers as
provided in this Agreement. If the Credit Agent receives notice from a
Lender that such Lender does not intend to make its Percentage Share of any
Advance, neither the Credit Agent nor any other Lender shall have any
obligation to fund such Lender's Percentage Share. Notwithstanding the
foregoing, unless a Lender notifies the Credit Agent by 12:00 noon on the
date of a proposed Advance that it does not intend to make its Percentage
Share of such Advance at such time and on such date available to the Credit
Agent, the Credit Agent may assume that such Lender will make such amount
available to the Credit Agent to be advanced to the Borrowers, and in
reliance on such assumption, the Credit Agent may, at its option, make a
corresponding amount available to the Borrowers.
2.7(a) If the Credit Agent makes such corresponding
amount available to the Borrowers and such amount is not made
available to the Credit Agent by such Lender by close of business on
the date of the Advance, such Lender shall pay such amount to the
Credit Agent upon demand plus interest to the date of payment at the
rate per annum equal to one percent (1%) per annum over the Federal
Funds Rate.
2.7(b) If such Lender fails to pay as provided herein,
the Borrowers shall pay such amount to the Credit Agent upon demand
plus interest (at the rate applicable to the Borrowers for such
Advance) to the date of repayment.
2.7(c) Nothing in this Subsection shall relieve any
Lender from its obligation to fund its Percentage Share of any
Advance, or prejudice any rights the Borrowers may have against any
Lender as a result of such Lender's failure to make its Percentage
Share of any Advance available to the Borrowers.
2.7(d) Any Lender failing to make an Advance when
required pursuant to this Agreement shall,
<PAGE>
if no Default has occurred and is continuing, upon the request of the
Borrowers delivered to such Lender and the Credit Agent, assign,
pursuant to and in accordance with the provisions of Section 13.3
hereof, all of its rights and obligations under this Agreement and
under the Notes to an assignee selected by the Borrowers in
consideration for (i) the payment by such assignee to the assigning
Lender of the principal of, and interest accrued and unpaid to the
date of such assignment on, the Notes of such Lender, and (ii) the
payment by the Borrowers to the assigning Lender of any and all other
amounts owing to such Lender under any provision of this Agreement
accrued and unpaid to the date of such assignment. The processing and
recordation fee required under Section 13.3 hereof for such assignment
shall be paid by the Borrowers. Notwithstanding anything to the
contrary in this Section 2.7(d), in no event shall the replacement of
any Lender result in a decrease or reallocation of the aggregate
Commitments without the written consent of the Majority Lenders.
2.8 Notes.
-----
2.8(a) The Borrowers' Obligations in respect of Warehousing
Advances other than P&I Advances, Liquidity Advances and Swingline
Advances shall be evidenced by Warehousing Promissory Notes of the
Borrowers in favor of each Lender holding a Warehousing Commitment,
substantially in the form of Exhibit A-1 attached hereto. The
-----------
Borrowers' Obligations in respect of P&I Advances and Liquidity
Advances shall be evidenced by Sublimit Promissory Notes of the
Borrowers' in favor of each Lender holding a Warehousing Commitment,
substantially in the form of Exhibit A-2 attached hereto. The
-----------
Borrowers' Obligations in respect of Swingline Advances shall be
evidenced by a Swingline Note of the Borrowers in favor of the
Swingline Lender in the form of Exhibit A-3 attached hereto. The
-----------
Borrowers' Obligations in respect of the Servicing Facility Advances
shall be evidenced by Servicing Facility Promissory Notes of the
Borrowers in favor of each Lender holding a Servicing Facility
Commitment, substantially in the form of Exhibit A-4 attached hereto.
-----------
The Borrowers' Obligations in respect of the Term Loan Advances shall
be evidenced by Term Loan Promissory Notes of the Borrowers in favor
of each Lender, substantially in the form of Exhibit A-5 attached
-----------
hereto. The Warehousing Promissory Notes, Sublimit Promissory Notes,
Swingline Note, Servicing Facility Promissory Notes and Term Loan
Promissory
<PAGE>
Notes are hereinafter collectively referred to as the "Notes." The
terms "Warehousing Promissory Note," "Sublimit Promissory Note,"
"Servicing Facility Promissory Note," "Term Loan Promissory Note,"
"Swingline Note", "Note" or "Notes" shall include all extensions,
renewals and modifications of the Notes and all substitutions
therefor. All terms and provisions of the Notes are hereby
incorporated herein.
2.8(b) Each Borrower, other than WMF Group, by its
execution and delivery of this Agreement or, in the case of a New
Borrower, a Borrower Addition Agreement, hereby (i) authorizes WMF
Group to execute and deliver, and appoints WMF Group as its true and
lawful attorney-in-fact for the purpose of executing and delivering,
Notes on its behalf, and (ii) agrees to be bound by, and obligated
pursuant to, each Note executed by WMF Group pursuant to this
Agreement or any amendment hereto. The foregoing appointment of WMF
Group is for the benefit of the Lenders and coupled with an interest,
and shall be irrevocable for as long as any Commitment remains
outstanding or any of the Obligations have not been irrevocably paid
and discharged in full.
2.9 Interest Payments.
-----------------
2.9(a) Except as provided in Section 2.9(f) or Section
2.9(g), the unpaid amount of each Warehousing Advance, other than a
P&I Advance and a Liquidity Advance, shall bear interest, from the
date of such Advance until paid in full, at the Ordinary Warehousing
Rate.
2.9(b) Except as provided in Section 2.9(f) or Section
2.9(g) hereof, the unpaid amount of each Term Loan Advance shall bear
interest, from the date of such Advance until paid in full, at the
Term Loan Rate.
2.9(c) Except as provided in Section 2.9(f) or Section
2.9(g) hereof, the unpaid amount of the Servicing Facility Advance
shall bear interest, from the date of such Advance until paid in full,
at the Servicing Facility Rate.
2.9(d) Except as provided in Section 2.9(f) or Section
2.9(g) hereof, the unpaid amount of each P&I Advance shall bear
interest, from the date of such Advance until paid in full, at the P&I
Rate.
<PAGE>
2.9(e) Except as provided in Section 2.9(f) or Section
2.9(g) hereof, the unpaid amount of each Liquidity Advance shall bear
interest, from the date of such Advance until paid in full, at the
Liquidity Rate.
2.9(f) The Borrowers and any Lender may enter into an
agreement (the "Balance Funded Agreement") pursuant to which the
Borrowers agree to maintain Eligible Balances on deposit with such
Lender or a Designated Bank in consideration of the funding of all or
a portion of such Lender's Advances at a Balance Funded Rate. Prior
to the end of any calendar month, the Borrowers may give written
notice to any Lender with which it has a Balance Funded Agreement of
the Borrowers' election to have a portion (the "Balance Funded
Portion") of the principal amount of the Lender's Advances bear
interest at a Balance Funded Rate during the next succeeding calendar
month. In the event the Borrowers elect to have all or a portion of
any Lender's Advances bear interest at a Balance Funded Rate, such
Lender shall notify the Credit Agent no later than the first Business
Day of the next succeeding month of the Balance Funded Portion of such
Lender's Advances during such month and the Balance Funded Rate(s)
applicable thereto. If the Eligible Balances maintained by the
Borrowers with such Lender or Designated Bank during such month are
less than the Balance Funded Portion, such Lender may charge and
separately bill the Borrowers a deficiency fee (a "Balance Deficiency
Fee"), the amount of which shall be set forth in the Balance Funded
Agreement between the Borrowers and such Lender.
2.9(g) Upon Notice to the Borrowers, after the occurrence
and during the continuation of an Event of Default, the Credit Agent
may give Notice to the Borrowers that the unpaid amount of each
Advance shall bear interest, until paid in full, at a rate of interest
(the "Default Rate") equal to four percent (4%) per annum over the
applicable rate provided in the applicable subsection of this Section
2.9 or, if no rate is applicable, the highest rate then applicable to
any outstanding Advance.
2.9(h) If, for any reason, no interest is due on a
Warehousing Advance, the Borrowers agree to pay to the Swingline
Lender or the Lenders, as applicable, an administrative fee equal to
one (1) day of interest on such Advance at the rate of one and
<PAGE>
one-half percent (1-1/2%) per annum. Administrative fees shall be due
and payable in the same manner as interest is due and payable
hereunder.
2.9(i) The floating rates of interest provided for in
this Section 2.9 will be adjusted as of the effective date of each
change in the applicable index. The Lender's determination of such
rates as of any date of determination shall be conclusive and binding,
absent manifest error.
2.9(j) All interest shall be computed on the basis of
a 360-day year for the actual number of days elapsed.
2.10 Principal Payments.
------------------
2.10(a) The outstanding principal amount of all
Warehousing Advances shall be payable in full on the Warehousing
Maturity Date.
2.10(b) The outstanding principal amount of all
Servicing Facility Advances shall be payable in full on the Servicing
Facility Maturity Date.
2.10(c) The principal amount of each Lender's Term Loan
Advance shall be payable in quarterly installments, due on the first
day of each Calendar Quarter beginning April 1, 1999, in an amount
equal to such Lender's Term Loan Percentage Share of Six Hundred
Twenty-Five Thousand Dollars ($625,000). The remaining principal
balance of the Term Loan Advances shall be payable on the Term Loan
Maturity Date.
2.10(d) The Borrowers shall have the right to prepay
the outstanding Advances in whole or in part, from time to time,
without premium or penalty. Amounts prepaid on Warehousing Advances
prior to the Warehousing Maturity Date and on Servicing Facility
Advances prior to the Servicing Facility Maturity Date may be
reborrowed, subject to the terms and conditions set forth in this
Agreement. All prepayments of the Term Loan Advances shall be applied
to the installments due thereon in the inverse order of their
maturities.
2.10(e) All payments of outstanding Advances from the
proceeds of the sale or other disposition of Pledged Mortgages and
Pledged Securities shall be paid directly by the Investor to the Cash
<PAGE>
Collateral Account to be applied against any Obligations then due and
payable.
2.10(f) The Borrowers shall be obligated to pay to the
Credit Agent for the pro rata benefit of the Lenders, without the
necessity of prior demand or notice from the Credit Agent, and the
Borrowers authorize the Credit Agent to cause the Funding Bank to
charge the Borrowers' Operating Account for the amount of, any
outstanding Advance against a specific Pledged Mortgage upon the
earliest occurrence of any of the following events:
(1) For an FHA Construction Mortgage Loan,
ninety (90) days elapse from the date of each Advance made
against such Pledged Mortgage, and for any other Mortgage Loan
other than a Pledged Mortgage to be exchanged for a Fannie Mae
Mortgage-backed Security, ninety (90) days elapse from the date
of the initial Advance made by the Credit Agent against such
Pledged Mortgage, whether or not such Pledged Mortgage is
included in an Eligible Mortgage Pool.
(2) For Mortgage Loans other than Fannie Mae
DUS Mortgage Loans to be exchanged for a Fannie Mae Mortgage-
backed Security, forty-five (45) days elapse from the date the
Pledged Mortgage was delivered to an Investor or an Approved
custodian for examination and purchase, without the purchase
being made or the Eligible Mortgage Pool being initially
certified, or upon rejection of the Pledged Mortgage as
unsatisfactory by an Investor or an Approved Custodian.
(3) For a Fannie Mae DUS Mortgage Loan to be
exchanged for a Fannie Mae Mortgage-backed Security, seventy-five
(75) days elapse from the date such Fannie Mae DUS Mortgage Loan
was delivered to Fannie Mae for examination and the issuance of a
Pledged Security without the Pledged Security being issued, or
upon rejection of the Pledged Mortgages as unsatisfactory by
Fannie Mae.
(4) On the date an Advance was made and the
Pledged Mortgage which was to have been funded by such Advance is
not closed and funded.
<PAGE>
(5) For a Conventional Multifamily Mortgage
Loan, Fannie Mae DUS Mortgage Loan, FHA Project Mortgage Loan,
HUD 241 Mortgage Loan, FHA Construction Mortgage Loan,
Conventional Health Care Mortgage Loan, Commercial Mortgage Loan,
or Special Fannie Mae Loan, one (1) Business Day elapses from the
date an Advance was made against any Mortgage Loan, without
receipt of those Collateral Documents relating to such Mortgage
Loan required to be delivered on such date under Exhibit D-
---------
MF/CONV/DUS, Exhibit D-MF/FHA or Exhibit D-MF SFNMA, or such
----------- ---------------- ------------------
Collateral Documents, upon examination by the Lender, are found
not to be in compliance with the requirements of this Agreement
or the related Purchase Commitment.
(6) Ten (10) Business Days elapse from the date
a Collateral Document was delivered to the Borrowers for
correction or completion under a Trust Receipt, without being
returned to the Lender.
(7) Three (3) Business Days after the date on
which the Credit Agent notifies the Borrowers that a Pledged
Mortgage is determined to have been originated based on untrue,
incomplete or inaccurate information, whether or not the
Borrowers had knowledge of such misrepresentation or incorrect
information, or that a Pledged Mortgage is defaulted and has
remained in default for a period of sixty (60) days or more.
(8) For a Pledged Mortgage against which an
Advance was made on the basis of a Purchase Commitment, on the
mandatory delivery date of the related Purchase Commitment if the
specific Pledged Mortgage was not delivered under the Purchase
Commitment prior to such mandatory delivery date, or if the
Purchase Commitment is terminated.
(9) Payment of any Lien prior to a Second
Mortgage Loan is delinquent, and remains delinquent, for a period
of sixty (60) days or more.
<PAGE>
(10) Upon sale, maturity or other disposition of the
Pledged Mortgage or, if a Pledged Mortgage is included in an
Eligible Mortgage Pool, upon sale or other disposition of the
related Agency Securities.
(11) On the date on which the Borrowers know, or have reason
to know, or receives notice from the Credit Agent, that one or
more of the representations and warranties set forth in Section
5.15 were inaccurate or incomplete in any material respect on any
date when made or deemed made.
(12) For a Warehousing Advance made to Washington against a
Special Fannie Mae Loan, [30] days elapse from the date of the
initial Advance made by the Credit Agent without the Pledged
Security to be exchanged for a 100% participation in such Special
Fannie Mae Loan having been issued, or upon any determination by
Fannie Mae not to purchase such 100% participation.
2.10(g) The outstanding amount of any Advance made
pursuant to Section 2.3(f) shall be payable in full within 1 Business
Day after the date of such Advance .
2.10(h) The Borrowers shall give Notice to the
Collateral Agent (telephonically, to be followed by written notice) of
the Pledged Mortgages or Pledged Securities for which proceeds have
been received. Upon receipt of such Notice, the Warehousing Advances
against such Pledged Mortgages or the Pledged Securities shall be
repaid and such Pledged Mortgages or Pledged Securities shall be
considered to have been redeemed from pledge. The Credit Agent is
entitled to rely upon the Borrowers' affirmation that deposits in the
Cash Collateral Account represent payment from Investors for the
purchase of Pledged Mortgages or Pledged Securities as specified by
the Borrowers. In the event that the payment from an Investor for the
purchase of Pledged Mortgages or Pledged Securities is less than the
outstanding Warehousing Advances against such Pledged Mortgages or the
Mortgage Loans backing Pledged Securities, the Credit Agent is
authorized to cause the Funding Bank to charge the Borrowers' account
for an amount equal to such deficiency. Provided no Default or Event
of Default exists, the Credit Agent shall return any excess payment
from an Investor for
<PAGE>
Pledged Mortgages or Pledged Securities to the Borrowers.
2.10(i) In addition to the payments required pursuant to Section
2.9(g), the Borrowers shall be obligated to pay to the Credit Agent,
for the account of the Lenders, without the necessity of prior demand
or notice from the Credit Agent, and the Borrowers authorize the
Credit Agent to cause the Funding Bank to charge the Borrowers'
Operating Account, if the principal amount of any Pledged Mortgage is
prepaid in whole or in part while an Advance is outstanding against
such Pledged Mortgage, for the amount of such prepayment, to be
applied to such Advance.
2.10(j) For a period of not less than seven (7) consecutive days
in each calendar month, there shall be no P&I Advances outstanding;
and the Borrowers shall make such prepayments of the P&I Advances, and
shall refrain from requesting P&I Advances, as necessary to comply
with the foregoing requirement.
2.10(k) For a period of not less than seven (7) consecutive days
in each one hundred eighty (180) day period, there shall be no
Liquidity Advances outstanding; and the Borrowers shall make such
prepayments of the Liquidity Advances, and shall refrain from
requesting Liquidity Advances, as necessary to comply with the
foregoing requirement.
2.10(l) If at any time the aggregate outstanding principal
balance of all Servicing Secured Obligations exceeds sixty-five
percent (65%) of the Servicing Collateral Value, the Borrowers shall
prepay (i) first, the outstanding Servicing Facility Advances, (ii)
second, the outstanding P&I Advances and Liquidity Advances, and (iii)
third, the outstanding Term Loan Advances, in the amount of such
excess.
2.10(m) Prior to the occurrence of an Event of Default and
acceleration of all Warehousing Advances outstanding hereunder or
termination of the Warehousing Commitments hereunder, amounts received
by the Credit Agent as proceeds of the sale or other disposition of
Pledged Mortgages or Pledged Securities, including without limitation,
all such amounts from time to time deposited in the Cash Collateral
Account, shall be applied:
<PAGE>
(1) in an amount equal to the Release Amount for
such Pledged Mortgages or the Mortgage Loans backing such
Pledged Securities, first, to the Swingline Advances until
the same have been repaid in full, and second, to the other
Warehousing Advances; and
(2) the balance, if any, to the Borrowers.
The application of funds allocated among the Lenders as set
forth above shall be deemed to constitute (1) repayment, in part or in
full, as applicable, of the Advances outstanding against the Pledged
Mortgages or Pledged Securities sold, and (ii) a refunding of an
amount of Swingline Advances equal to the portion of such proceeds
applied to Swingline Advances (other than any Swingline Advances made
against the Pledged Mortgages or Pledged Securities sold) as Advances
made by the Lenders pursuant to Section 2.1.
2.10(n) Following the occurrence of an Event of Default and
acceleration of any Obligations outstanding hereunder or termination
of the commitments of the Lenders to make Advances hereunder, all
amounts received by the Credit Agent on account of the Obligations
shall be disbursed by the Credit Agent in accordance with the
provisions of Section 8.3 hereof.
2.10(o) Upon the closing of the Rights Offering, the
Company shall repay the outstanding Servicing Facility Advances in an
amount equal to the sum of (i) the amount previously repaid to COMIT
on Subordinated Debt, as permitted by Section 7.4 hereof, plus (ii)
----
twenty-five percent (25%) of the amount by which the Net Proceeds of
the Rights Offering exceeds $20,000,000. Upon the closing of any
other issuance of Debt of any Borrower or equity securities of WMF
Group, or sale of any Servicing Contracts by any Borrower, the Company
shall repay the outstanding Servicing Facility Advances in an amount
equal to twenty-five percent (25%) of the Net Proceeds thereof.
2.11 Expiration of Commitments. Unless extended or terminated
-------------------------
earlier as permitted hereunder, the Warehousing Commitments shall expire of
their own term, and without the necessity of action by the Credit Agent or
any Lender, at the close of business on the Warehousing Maturity Date,the
<PAGE>
Servicing Facility Commitments shall expire of their own term, and without
the necessity of action by the Credit Agent or any Lender, at the close of
business on the later to occur of the Servicing Facility Maturity Date, and
the Term Loan Facility Commitments shall expire of their own term, and
without the necessity of action by the Credit Agent or any Lender, at the
close of business on the Closing Date.
2.12 Fees. The Borrowers shall pay the following fees:
----
2.12(a) To each Lender, through the Credit Agent, a
Warehousing Commitment Fee in the amount of 1/8% per annum of the
amount of such Lender's Maximum Warehousing Commitment, which
Warehousing Commitment Fee shall be paid quarterly in advance and
shall be computed on the basis of a 365-day year and applied to the
actual number of days elapsed in each Calendar Quarter. On the Closing
Date, the Borrowers shall pay the prorated portion of the quarterly
Warehousing Commitment Fee due from the Closing Date to the last day
of the current Calendar Quarter. If any Lender increases its Maximum
Warehousing Commitment, or if an Additional Lender becomes a party
hereto, the Borrowers shall pay the Warehousing Commitment Fee on the
amount of such increase or the amount of such Additional Lender's
Maximum Warehousing Commitment from the effective date thereof to the
last day of the current Calendar Quarter. In all other cases, the
Borrowers shall make payments of the Warehousing Commitment Fee on the
1st day of each Calendar Quarter. If the Warehousing Maturity Date is
other than the last day of a Calendar Quarter, the Borrowers shall pay
the prorated portion of the Warehousing Commitment Fee due from the
beginning of the then current Calendar Quarter to and including the
Warehousing Maturity Date. The Borrowers shall not be entitled to a
reduction in the amount of the Warehousing Commitment Fee in the event
the amount of any Lender's Maximum Warehousing Commitment is reduced
at the request of the Borrowers, or in the event that any Lender's
Maximum Warehousing Commitment is terminated prior to its stated
expiration date as a result of an Event of Default hereunder. If the
commitments of the Lenders hereunder terminate prior to the
Warehousing Maturity Date, the unpaid balance of the Warehousing
Commitment Fee shall be due and payable in full on the date of such
termination.
2.12(b) To each Lender, through the Credit Agent, a
Servicing Facility Commitment Fee in
<PAGE>
the amount of (i) one-fourth of one percent (1/4%) per annum of such
Lender's Percentage Share of the Servicing Facility Commitment, which
Servicing Facility Commitment Fee shall be payable quarterly in
advance until the Servicing Facility Maturity Date. Servicing Facility
Commitment Fees shall be computed on the basis of a 365-day year and
applied to the actual number of days elapsed in each Calendar Quarter.
On the Closing Date, the Borrowers shall pay the prorated portion of
the quarterly Servicing Facility Commitment Fee due from the Closing
Date to the last day of the current Calendar Quarter. In all other
cases, the Borrowers shall make quarterly payments of the Servicing
Facility Commitment Fee on the first (1st) day of each Calendar
Quarter. If the Servicing Facility Maturity Date is other than the
last day of a Calendar Quarter, the Borrowers shall pay the prorated
portion of the quarterly Servicing Facility Commitment Fee due from
the beginning of the then current Calendar Quarter to and including
the Servicing Facility Maturity Date, as applicable. The Borrowers
shall not be entitled to a reduction in the amount of the Servicing
Facility Commitment Fee in the event the amount of the Servicing
Facility Credit Limit is reduced at the request of the Borrowers, or
in the event that any Lender's Servicing Facility Commitment is
terminated prior to its stated expiration date as a result of an Event
of Default hereunder. If the Servicing Facility Commitments of the
Lenders hereunder terminate prior to the Servicing Facility Maturity
Date, the unpaid balance of the Servicing Facility Commitment Fee
shall be due and payable in full on the date of such termination.
2.12(c) If the Servicing Facility Commitment is at any time
reduced or terminated prior to the date set forth in clause (a) of the
definition of Servicing Facility Maturity Date at the request of the
Borrowers, the Borrowers shall pay to the Credit Agent, for the
account of the Lenders holding Servicing Facility Commitments, a fee
in the amount of one percent (1%) per annum (from the date of such
termination or reduction until the date set forth in clause (a) of the
definition of Servicing Facility Maturity Date herein) of the sum of
the Servicing Facility Commitments or, if less, the amount of such
reduction. The foregoing fee shall be due and payable on the
effective date of such reduction or termination.
2.12(d) To each Lender, through the Credit Agent, a Term
Loan Commitment Fee in the amount
<PAGE>
of one-fourth of one percent (1/4%) per annum of (i) on the Closing
Date, such Lender's Maximum Term Loan Commitment, and (ii) thereafter,
the unpaid principal amount of such Lender's Term Loan Advance
outstanding on each annual anniversary of the Closing Date, which Term
Loan Commitment Fee shall be computed on the basis of a 365-day year
and applied to the actual number of days elapsed in each year. On the
Closing Date, the Borrowers shall pay the Term Loan Commitment Fee due
from the Closing Date to the day before the first annual anniversary
thereof. Thereafter, the Borrowers shall pay the Term Loan Commitment
Fee due for the following year, calculated as of each annual
anniversary date, on the first Business Day of each Calendar Quarter.
The Borrowers shall not be entitled to a refund of any portion of the
Term Loan Commitment Fee in the event the Term Loan Advances are
prepaid, either voluntarily by the Borrowers or as a result of an
Event of Default.
2.12(e) To LaSalle, for its own account, fees in respect of
each Letter of Credit in an amount not to exceed two percent (2.00%)
per annum.
2.12(f) To the Credit Agent, for its own account, such fees
as shall be separately agreed between the Borrowers and the Credit
Agent.
2.13 Miscellaneous Charges. In addition to all fees payable pursuant
---------------------
to Section 2.12 hereof, the Borrowers agree to reimburse the Credit Agent
for miscellaneous charges and expenses (collectively, "Miscellaneous
Charges") incurred by or on behalf of the Credit Agent in connection with
the handling and administration of Advances, and to reimburse the
Collateral Agent for Miscellaneous Charges incurred by or on behalf of the
Collateral Agent in connection with the handling and administration of the
Collateral. For the purposes hereof, Miscellaneous Charges shall include,
but not be limited to, costs for UCC, tax lien and judgment searches
conducted by the Credit Agent, filing fees, charges for wire transfers,
check processing charges, charges for security delivery fees, charges for
overnight delivery of Collateral, the Funding Bank's service charges and
Designated Bank Charges. Miscellaneous Charges are due when incurred, but
shall not be delinquent if paid within thirty (30) days after receipt of an
invoice or an account analysis statement from the Credit Agent or the
Collateral Agent, as the case may be.
<PAGE>
2.14 Illegality. In the event that any Lender shall have determined
----------
(which determination shall be conclusive and binding absent manifest error)
at any time that the introduction of, or any change in, any applicable law,
rule, regulation, order or decree or in the interpretation or the
administration thereof by any Person charged with the interpretation or
administration thereof, or compliance by such Lender with any request or
directive (whether or not having the force of law) of any such Person,
shall make it unlawful or impossible for such Lender to charge interest at
the Balance Funded Rate based on the Borrowers' Eligible Balances as
contemplated by this Agreement, then such Lender shall forthwith give
Notice thereof to the Credit Agent and the Borrowers describing such
illegality in reasonable detail. Upon the giving of such Notice, the
obligation of such Lender to charge interest at the Balance Funded Rate
based on the Borrowers' Eligible Balances shall be immediately suspended
for the duration of such illegality, and with respect to Advances bearing
interest at the Balance Funded Rate, each such Advance of such Lender shall
bear interest at the applicable rate set forth in Section 2.9(a), (b), (c),
(d), (e) or (g). If and when such illegality ceases to exist, such Lender
shall notify the Credit Agent and the Borrowers thereof and such suspension
shall cease.
2.15 Interest Limitation. All agreements between the Borrowers and
-------------------
the Lenders are hereby expressly limited so that in no contingency or event
whatsoever, whether by reason of acceleration of maturity of this Agreement
or the Notes or otherwise, shall the amount paid or agreed to be paid to
the Lenders for the use, forbearance, loaning or retention of the Advances
exceed the maximum permissible under applicable law. If from any
circumstances whatsoever, fulfillment of any provisions hereof, of the
Notes, or of any other document securing this Agreement at any time given
shall involve transcending the limit of validity prescribed by law, then,
the obligation to be fulfilled shall automatically be reduced to the limit
of such validity, and if from any circumstances the Lenders should ever
receive as interest an amount which would exceed the highest lawful rate of
interest, such amount which would be in excess of interest shall be applied
to the reduction of the principal balance secured by the Notes and not to
the payment of interest thereunder. This provision shall control every
other provision of all agreements between the Borrowers and Lenders and
shall also be binding upon and available to any subsequent holder of the
Notes.
2.16 Billing and Payment.
-------------------
<PAGE>
2.16(a) The Credit Agent shall on or before the fifth (5th)
Business Day of each month deliver to the Borrowers billings for
interest due and payable for the immediately preceding month on
Advances. On or before the tenth (10th) Business Day of each month,
the Borrowers shall pay to the Credit Agent the full amount of
interest and fees billed for the immediately preceding month.
2.16(b) All payments made on account of the Obligations
shall be made by the Borrowers to the Credit Agent for distribution to
the Lenders, except for Balance Deficiency Fees, which shall be made
directly to the applicable Lender, fees payable to the Credit Agent
for its own account or for the account of the Collateral Agent, and
Letter of Credit fees payable to LaSalle. All payments made on
account of the Obligations shall be made without setoff or
counterclaim, free and clear of and without deduction for any taxes,
fees or other charges of any nature whatsoever imposed by any taxing
authority, and must be received by the Credit Agent by 12:00 noon on
the day of payment, it being expressly agreed and understood that if a
payment is received after 12:00 noon by the Credit Agent such payment
will be considered to have been made on the next succeeding Business
Day and interest thereon shall be payable by the Borrowers at the then
applicable rate during such extension. No principal payments
resulting from the sale of Pledged Mortgages or Pledged Securities
shall be deemed to have been received by the Credit Agent until the
Collateral Agent has also received the Notice required under Section
2.9(i) hereof. All payments shall be made in lawful money of the
United States of America in immediately available funds transferred
via wire to accounts designated by the Credit Agent from time to time.
If any payment required to be made by the Borrowers hereunder becomes
due and payable on a day other than a Business Day, the due date
thereof shall be extended to the next succeeding Business Day and
interest shall be payable on Advances so extended at the then
applicable rate during such extension.
2.16(c) All amounts received by Credit Agent on account of
the Obligations (except amounts received in respect of fees or
expenses payable hereunder to the Credit Agent or the Collateral Agent
for their own accounts or amounts payable to the Swingline Lender for
Swingline Advances) shall be disbursed to the Lenders by wire transfer
on the date
<PAGE>
of receipt if received by the Credit Agent by the applicable deadlines
for payment thereof as specified in Section 2.16(b) hereof, or if
received later, by 12:00 noon on the next succeeding Business Day,
without any interest payable by the Credit Agent thereon.
3. COLLATERAL.
3.1 Appointment of Collateral Agent. Pursuant to the Collateral
-------------------------------
Agency Agreement, RFC has been appointed as Collateral Agent to act as
agent, bailee, and custodian for the exclusive benefit of itself, the
Lenders, the Credit Agent and LaSalle, as issuer of the Letters of Credit
(collectively, the "Secured Parties"), with respect to the Collateral.
3.2 Delivery of Collateral. As described in Section 2.3 hereof, and
----------------------
in the Collateral Agency Agreement, from time to time the Borrowers shall
deliver Collateral or cause Collateral to be delivered to the Collateral
Agent hereunder.
3.3 Grant of Security Interest. As security for the payment of the
--------------------------
Notes, for the payment of the Letter of Credit Obligations and for the
payment and performance of all of the other Obligations, the Borrowers
hereby assign and transfer to the Credit Agent, for the benefit of the
Secured Parties, all right, title and interest in and to, and grant a
security interest to the Credit Agent, for the benefit of the Secured
Parties, in, the following described property:
3.3(a) All Mortgage Loans, including all Mortgage Notes and
Mortgages evidencing or securing such Mortgage Loans, which from time
to time are delivered or caused to be delivered to the Collateral
Agent (including delivery to a third party on behalf of the Collateral
Agent), come into the possession, custody or control of any of the
Lenders, the Credit Agent or the Collateral Agent for the purpose of
assignment or pledge or in respect of which an Advance has been made
by the Lenders hereunder, and with respect to the Special Fannie Mae
Loans, the promissory notes evidencing the same and all of
Washington's right, title and interest in and to the Special Fannie
Mae Program Agreements, and all promissory notes and other agreements,
documents and instruments executed and delivered pursuant thereto or
in connection therewith, or otherwise relating thereto and referenced
therein (the "Pledged Mortgages").
<PAGE>
3.3(b) All Mortgage-backed Securities and Participation
Certificates which are from time to time created in whole or in part
on the basis of the Pledged Mortgages or are delivered or caused to be
delivered to, or are otherwise in the possession of the Collateral
Agent or its agent, bailee or custodian as assignee, or pledged to the
Collateral Agent, or for such purpose are registered by book-entry in
the name of, the Collateral Agent (including delivery to or
registration in the name of a third party on behalf of the Collateral
Agent, the Credit Agent or any Lender) hereunder or in respect of
which from time to time an Advance has been made by the Lenders
hereunder (the "Pledged Securities").
3.3(c) All commitments issued by the FHA to insure or
guarantee any Mortgage Loans included in the Pledged Mortgages; all
guaranties related to Pledged Securities; all Purchase Commitments
held by the Borrowers covering the Pledged Mortgages or the Pledged
Securities and all proceeds resulting from the sale thereof to
Investors pursuant thereto; and all personal property, contract
rights, servicing and servicing fees and income or other proceeds,
amounts and payments payable to the Borrowers as compensation or
reimbursement, accounts and general intangibles of whatsoever kind
relating to the Pledged Mortgages, the Pledged Securities, said FHA
commitments and the Purchase Commitments, and all other documents or
instruments relating to the Pledged Mortgages and the Pledged
Securities, including, without limitation, any interest of the
Borrowers in any fire, casualty or hazard insurance policies and any
awards made by any public body or decreed by any court of competent
jurisdiction for a taking or for degradation of value in any eminent
domain proceeding as the same relate to the Pledged Mortgages.
3.3(d) All Servicing Contracts now owned or hereafter
created or acquired by the Borrowers, other than Servicing Contracts
pursuant to which any Borrower Services Mortgage Loans for WMFCC.
3.3(e) All rights of the Borrowers to receive payments
under or by virtue of the Servicing Contracts described in Section
3.3(d) and the related Acknowledgment Agreements, whether as servicing
fees, servicing income, damages, amounts payable upon the
<PAGE>
cancellation or termination of any such Servicing Contract, interests
on the foregoing, or otherwise.
3.3(f) Any agreement pursuant to which any Servicing Contract
described in Section 3.3(d) or the stock of any Person that owned (at
the time of acquisition or at any time thereafter) or owns any such
Servicing Contract was acquired or is sold by the Borrowers, and all
documents executed or delivered in connection with any such
acquisition or sale.
3.3(g) All accounts or general intangibles owned by the Company
for the payment of money against (i) FHA under an FHA mortgage
insurance policy insuring payment of, or any other Person under any
other agreement (including a Servicing Contract) relating to, all or
part of a defaulted Mortgage Loan repurchased by the Company from an
investor or out of a pool of Mortgage Loans serviced by the Company or
being serviced by the Company, (ii) obligors and their accounts,
Fannie Mae, Freddie Mac, Ginnie Mae or any other investor under a
Servicing Contract covering, or out of the proceeds of any sale of or
foreclosure sale in respect of, any Mortgage Loan (A) repurchased by
the Company out of a pool of Mortgage Loans serviced by the Company,
or (B) being serviced by the Company, for the reimbursement of real
estate taxes or assessments, or casualty or liability insurance
premiums, paid by the Company in connection with Mortgage Loans, and
(iii) obligors and their accounts, or Fannie Mae, Freddie Mac, Ginnie
Mae, or any other investor under or in respect of any Mortgage Loans
serviced by the Company for repayment of advances made by the Company
to cover shortages in principal and interest payments.
3.3(h) All right, title and interest of the Company in and
to any Hedging Arrangements entered into to protect the Company
against changes in the value of the Collateral, including, without
limitation, all rights to payment arising under such Hedging
Arrangements.
3.3(i) All right, title and interest of the Borrowers in
and to all escrow accounts, documents, instruments, files, surveys,
certificates, correspondence, appraisals, computer programs, tapes,
discs, cards, accounting records (including all information, records,
tapes, data, programs, discs and cards necessary or helpful in the
administration or servicing of the Collateral) and other information
and data of the Borrowers relating to the Collateral.
<PAGE>
3.3(j) All now existing or hereafter acquired cash
delivered to or otherwise in the possession of the Credit Agent, the
Collateral Agent, any Lender or their agents, bailee or custodian or
designated on the books and records of the Borrowers as assigned and
pledged to the Credit Agent, including, without limitation, all cash
deposited in the Cash Collateral Account.
3.3(k) All cash and non-cash proceeds of the Collateral,
including all dividends, distributions and other rights in connection
with, and all additions to, modifications of and replacements for, the
Collateral, and all products and proceeds of the Collateral, together
with whatever is receivable or received when the Collateral or
proceeds thereof are sold, collected, exchanged or otherwise disposed
of, whether such disposition is voluntary or involuntary, including,
without limitation, all rights to payment with respect to any cause of
action affecting or relating to the Collateral or proceeds thereof.
The grant of the security interest under Sections 3.3(d) and 3.3(e)
above is subject and subordinate to the rights of Fannie Mae or Ginnie
Mae, as applicable, in and to any Servicing Contracts to which Fannie
Mae or Ginnie Mae is a party. The Lenders acknowledge that (i) each
Borrower is entitled to servicing income with respect to a given
Mortgage Pool only as long as such Borrower is an issuer in good
standing, (ii) upon either Borrower's loss of issuer status, the
Lenders' rights to servicing income related to the affected Mortgage
Pool(s) also terminate, and (iii) the pledge of rights to servicing
income conveys no rights (such as the right to become a substitute
servicer or issuer) that are not otherwise specifically provided for
in the applicable Ginnie Mae or Investor guide.
3.4 Release of Security Interest in Collateral.
------------------------------------------
3.4(a) Pledged Mortgages shall be released from the Credit
Agent's security interest only against payment to the Credit Agent of
the Release Amount in connection with such Pledged Mortgages.
3.4(b) If Pledged Mortgages are to be transferred to a pool
custodian or to Freddie Mac or Fannie Mae for inclusion in a Mortgage
Pool, the Credit Agent's security interest in such Pledged Mortgages
<PAGE>
shall be released only against payment to the Credit Agent of the
Release Amount in connection with such Pledged Mortgages. If the
Credit Agent's security interest in the Pledged Mortgages comprising
the Mortgage Pool is not released prior to the issuance of the
Mortgage-backed Security or Participation Certificate, then the
Mortgage-backed Security or Participation Certificate, when issued,
shall be a Pledged Security. The Credit Agent's security interest
shall continue in such Pledged Mortgages and the Pledged Security.
The Credit Agent shall be entitled to possession of such Pledged
Security in the manner provided below.
3.4(c) If Pledged Mortgages are transferred to an Approved
Custodian and included in an Eligible Mortgage Pool, the Credit
Agent's security interest in the Pledged Mortgages comprising the
Eligible Mortgage Pool shall be released upon the issuance of the
Agency Security, which shall be a Pledged Security. The Credit
Agent's security interest in such Pledged Security shall be released
only against payment to the Credit Agent of the Release Amount in
connection with the Pledged Mortgages backing such Pledged Security.
The Credit Agent shall be entitled to possession of such Pledged
Security in the manner provided below.
3.4(d) The Collateral Agent shall have the exclusive right
to the possession of the Pledged Securities or, if the Pledged
Securities are issued in book-entry form or issued in certificated
form and delivered to a clearing corporation (as such term is defined
in the Uniform Commercial Code of Minnesota) or its nominee, the
Credit Agent shall have the right to have the Pledged Securities
registered in the name of a securities intermediary (as such term is
defined in the Uniform Commercial Code of Minnesota) in an account
containing only customer securities and credited to an account of the
Credit Agent, and the Credit Agent shall have the right to cause
delivery of the Pledged Securities to be made to the Investor or the
Pledged Securities credited to the account of the Investor or the
Investor's designee only against payment therefor. The Borrowers
acknowledge that the Credit Agent may enter into one or more standing
arrangements with other financial institutions with respect to Pledged
Securities issued in book entry form or issued in certificated form
and delivered to a clearing corporation, pursuant to which such
Pledged
<PAGE>
Securities are registered in the name of such financial institution,
as agent or securities intermediary for the Credit Agent, and the
Borrowers agree upon request of the Lender, to execute and deliver to
such other financial institutions the Borrowers' written concurrence
in any such standing arrangements.
3.4(e) Prior to the occurrence of an Event of Default, the
Borrowers may redeem a Pledged Mortgage or Pledged Security from the
Credit Agent's security interest by notifying the Credit Agent of its
intention to redeem such Pledged Mortgage or Pledged Security from
pledge and either (a) paying, or causing an Investor to pay, to the
Credit Agent, for application to prepayment of the principal balance
of the Notes, the Release Amount in connection with such Pledged
Mortgage or Pledged Security, or (b) delivering substitute Collateral
which, in addition to being acceptable to the Collateral Agent in its
sole discretion will, when included with the Collateral, result in a
Collateral Value of all Warehousing Collateral held by the Collateral
Agent which is at least equal to the aggregate outstanding Warehousing
Advances (other than P&I Advances and Liquidity Advances).
3.4(f) Following the occurrence of a Default or Event of
Default, unless otherwise instructed by the Majority Lenders, the
Credit Agent may, with no liability to the Borrowers, the Secured
Parties or any Person, continue to release its security interest in
any Pledged Mortgage or Pledged Security against payment of the
Release Amount in connection with such Pledged Mortgage or Pledged
Security. Following the occurrence of a Default or Event of Default,
at the direction of all the Lenders and with no liability to
Borrowers, the Secured Parties or any Person, the Credit Agent shall
refuse to release its security interest in any item of Collateral and
shall instruct the Collateral Agent to cease the delivery of
Collateral to the Borrowers or any Person.
3.4(g) The Release Amount in connection with any Pledged
Mortgage shall be (i) prior to the occurrence of an Event of Default
and the receipt by the Credit Agent of instructions from the Majority
Lenders to exercise its remedies as provided in Section 8.2(c) hereof,
the principal amount of the Warehousing Advances made against such
Pledged Mortgage, and (ii) from and after the occurrence and
<PAGE>
during the continuance of an Event of Default and receipt by the
Credit Agent of instructions from the Majority Lenders to exercise its
remedies as provided in Section 8.2(c) hereof, the Committed Purchase
Price of such Pledged Mortgage or, if there is no Purchase Commitment
therefor, the amount paid to the Credit Agent in a commercially
reasonable disposition thereof.
3.4(h) Servicing Contracts included in the Servicing
Collateral (but not the proceeds thereof) shall be released from the
Credit Agent's security interest in connection with any sale of such
Servicing Contracts permitted pursuant to Section 7.2 hereof.
3.5 Delivery of Additional Collateral or Mandatory Prepayment. At
---------------------------------------------------------
any time that the aggregate Collateral Value of the Pledged Mortgages and
Pledged Securities then pledged hereunder is less than the aggregate amount
of the Warehousing Advances then outstanding hereunder, the Credit Agent
may request, and the Borrowers shall within two (2) Business Days after
Notice by the Credit Agent (a) deliver to the Collateral Agent for pledge
hereunder additional Mortgage Loans and/or cash, with a Collateral Value
sufficient to cover the difference between the Collateral Value of the
Pledged Mortgages and Pledged Securities and the aggregate amount of
Warehousing Advances outstanding hereunder, and/or (b) repay the
Warehousing Advances in an amount sufficient to reduce the aggregate
balance thereof outstanding to or below the Collateral Value of the Pledged
Mortgages and Pledged Securities hereunder.
3.6 Release of Collateral.
---------------------
3.6(a) The Collateral Agent may deliver documents relating
to the Collateral to the Borrowers for correction or completion
pursuant to a Trust Receipt and Section 4.3 of the Collateral Agency
Agreement.
3.6(b) Prior to the occurrence of an Event of Default, upon
delivery by the Borrowers to the Collateral Agent of shipping
instructions pursuant to Exhibit D-MF/CONV/DUS, Exhibit D-MF/FHA or
--------------------- ----------------
Exhibit D-MF/SFNMA, the Collateral Agent will transmit Pledged
------------------
Mortgages or Pledged Securities and all related loan documents or pool
documents to the applicable Investor, Approved Custodian or other
party in accordance with Section 4.4 of the Collateral Agency
Agreement.
<PAGE>
3.6(c) Upon receipt of Notice from the Borrowers under
Section 2.9(i) hereof, and repayment of the Release Amount with
respect to a Pledged Mortgage or a Mortgage Loan backing a Pledged
Security identified by the Borrowers, any Collateral Documents
relating to the redeemed Pledged Mortgage or Mortgage Loan backing a
Pledged Security which have not been delivered to an Investor or
Approved Custodian shall be released by the Collateral Agent to the
Borrowers.
3.7 Collection and Servicing Rights. So long as no Event of Default
-------------------------------
shall have occurred and be continuing, the Borrowers shall be entitled to
service and receive and collect directly all sums payable to the Borrowers
in respect of the Collateral other than proceeds of any Purchase Commitment
or proceeds of the sale of any Collateral. Following the occurrence of any
Event of Default, the Credit Agent or its designee shall thereafter be
entitled to service and receive and collect all sums payable to the
Borrowers in respect of the Collateral, and in such case (a) the Credit
Agent or its designee in its sole discretion may, in its own name, in the
name of the Borrowers or otherwise, demand, sue for, collect or receive any
money or property at any time payable or receivable on account of or in
exchange for any of the Collateral, but shall be under no obligation to do
so, (b) the Borrowers shall, if the Credit Agent so requests, forthwith pay
to the Credit Agent at its office designated by Notice hereunder, all
amounts thereafter received by the Borrowers upon or in respect of any of
the Collateral, advising the Credit Agent as to the source of such funds,
and (c) all amounts so received and collected by the Credit Agent shall be
held by it in the Cash Collateral Account as part of the Collateral.
3.8 Collection of Receivables.
-------------------------
3.8(a) From and after the occurrence of an Event of
Default, whether or not such Event of Default shall have been cured or
waived for other purposes, the Credit Agent may, and at the direction
of the Majority Warehousing Lenders shall, require the Company to, and
thereupon the Company shall, require that all payments in respect of
Receivables (i) if made by check or other payment item, be made to a
post office box under the exclusive control of the Credit Agent or its
designees (the "Lock Box"), and (ii) if made by wire transfer or other
method of inter-bank funds transfer, be made by transfer to a deposit
account at a bank acceptable to the Credit Agent (the "Lock Box Bank")
under the exclusive control of the
<PAGE>
Credit Agent (the "Lock Box Account"). The Company may not modify or
revoke any such requirement or modify any agreement relating to the
Lock Box or the Lock Box Account without the consent of the Credit
Agent. The Credit Agent or its designee shall cause all checks or
payment items received in the Lock Box to be deposited into the Lock
Box Account.
3.8(b) Following the occurrence and during the continuance
of an Event of Default, the Credit Agent may hold all amounts on
deposit in the Lock Box Account as Collateral for the Obligations,
withdraw all amounts on deposit in the Lock Box Account and apply such
amounts to the Obligations as provided in Section 8.3 below or, with
the consent of the Majority Warehousing Lenders, deposit such amounts
into the Operating Account. Prior to the occurrence of an Event of
Default, or after all Events of Default that have occurred have been
cured or waived in accordance with this Agreement, the Credit Agent
shall transfer all amounts deposited into the Lock Box Account into
the Operating Account.
3.9 Return of Collateral at Maturity. If (a) the Commitments shall
--------------------------------
have expired or been terminated, (b) no Advances, interest or other
Obligations shall be outstanding and unpaid, and (c) no Letters of Credit
remain outstanding and no Letter of Credit Obligations remain unpaid, the
Credit Agent shall release its security interest and the Collateral Agent
shall deliver all Collateral in its possession to the Borrowers at the
Borrowers' expense. The receipt of the Borrowers for any Collateral
released or delivered to the Borrowers pursuant to any provision of this
Agreement shall be a complete and full acquittance for the Collateral so
returned, and the Secured Parties shall thereafter be discharged from any
liability or responsibility therefor.
4. CONDITIONS PRECEDENT.
4.1 Initial Advances. The obligation of the Lenders to make the
----------------
initial Advance under this Agreement is subject to the satisfaction, in the
sole discretion of the Credit Agent, on or before the date thereof, of the
following conditions precedent:
4.1(a) The Credit Agent shall have received the following,
all of which must be satisfactory in form and content to the Credit
Agent, in its sole discretion:
<PAGE>
(1) This Agreement duly executed by all
parties hereto.
(2) The Notes duly executed by the
Borrowers.
(3) The Collateral Agency Agreement duly
executed by all parties thereto.
(4) The Borrowers' articles of incorporation
as certified by the Secretary of State of the State of each
Borrowers' incorporation, bylaws certified by the corporate
secretary of each Borrower, or a Certificate of each of the
Borrowers stating that there have been no change in either its
articles of incorporation or bylaws since those delivered in
connection with the Existing Credit Agreement, and certificates
of good standing dated no less recently than thirty (30) days
prior to the date of this Agreement for each Borrower.
(5) A resolution of the board of directors
of each of the Borrowers, certified as of the date of this
Agreement by each of the Borrowers' corporate secretary,
authorizing the execution, delivery and performance of this
Agreement and the other Loan Documents, and all other instruments
or documents to be delivered by the Borrowers pursuant to this
Agreement.
(6) A certificate of the Borrowers'
corporate secretary as to the incumbency and authenticity of the
signatures of the officers of the Borrowers executing this
Agreement and the other Loan Documents and each Advance Request
and all other instruments or documents to be delivered pursuant
hereto (the Credit Agent being entitled to rely thereon until a
new such certificate has been furnished to the Credit Agent).
(7) A favorable written opinion of counsel
to the Borrowers, dated as of the date of this Agreement and
substantially in the form of Exhibit H attached hereto, addressed
---------
to the Credit Agent and the Lenders.
<PAGE>
(8) With respect to each Special Fannie Mae
Program Agreement described on Exhibit Q hereto, to the extent
---------
not previously delivered pursuant to the Existing Credit
Agreement, (i) an executed copy of such Special Fannie Mae
Program Agreement, (ii) executed copies of the promissory note(s)
evidencing the Special Fannie Mae Loans made thereunder, (iii) an
executed copy of the Fannie Mae Special Pool Purchase Contract
relating thereto, and (iv) an executed original of a bailee
agreement with respect to any of the promissory notes described
in clause (ii) above that have been delivered to Fannie Mae, in
form and substance satisfactory to the Credit Agent.
(9) Uniform Commercial Code, tax lien and
judgment searches of the appropriate public records in the
jurisdictions where each Borrower has an office, which search
shall not have disclosed the existence of any prior Lien on the
Collateral other than in favor of the Credit Agent or as
permitted hereunder.
(10) Executed financing statements or
amendments to financing statements previously filed against the
Borrowers, in recordable form covering the Collateral and ready
for filing in all jurisdictions required by the Credit Agent.
(11) Copies of the certificates, documents or
other written instruments which evidence the Borrowers'
eligibility described in Section 5.13 hereof, all in form and
substance satisfactory to the Credit Agent.
(12) Copies of the Borrowers' errors and
omissions insurance policy or mortgage impairment insurance
policy and blanket bond coverage policy, or certificates in lieu
of policies, all in form and content satisfactory to the Credit
Agent, showing compliance by the Borrowers as of the date of this
Agreement with the related provisions of Section 6.8 hereof.
(13) Evidence that all accounts necessary
into which Advances will be funded have been established at the
Funding Bank
<PAGE>
and receipt of a fully executed Funding Bank Agreement.
4.1(b) All directors, officers and shareholders of the
Borrowers, all Affiliates of the Borrowers or of any Subsidiary of the
Borrowers, to whom or to any of whom the Borrowers shall be indebted
as of the date of this Agreement, which indebtedness has a term of
more than one (1) year or is in excess of Five Hundred Thousand
Dollars ($500,000) shall have subordinated such indebtedness to the
Obligations, by executing a Subordination of Debt Agreement, in the
form of Exhibit F hereto; and the Credit Agent shall have received an
---------
executed copy of any such Subordination of Debt Agreement, certified
by the corporate secretary of the Borrowers to be true and complete
and in full force and effect as of the date of the Advance.
4.1(c) After giving effect to the application of all
Advances made on the Closing Date, all of the Borrowers' "Obligations"
(as defined in the Existing Credit Agreement) shall have been repaid
in full and the Credit Agent shall have received satisfactory evidence
thereof.
4.2 Each Advance. The obligation of the Lenders to make the initial
------------
and each subsequent Advance under this Agreement is subject to the
satisfaction, in the sole discretion of the Credit Agent, as of the date of
each such Advance, of the following additional conditions precedent:
4.2(a) The Borrowers shall have delivered to the
Credit Agent the original Advance Request, and the Borrowers shall
have delivered to the Collateral Agent a copy of the Advance Request,
and the Collateral Documents, called for under, and shall have
satisfied the procedures set forth in, Section 2.3 hereof and the
applicable Exhibits hereto described in that Section, according to the
type of the requested Advance. All items delivered to the Credit Agent
or the Collateral Agent, as the case may be, shall be satisfactory to
the Credit Agent or the Collateral Agent, in form and content, and the
Credit Agent or the Collateral Agent, as the case may be, may reject
such of them as do not meet the requirements of this Agreement or of
the related Purchase Commitment.
4.2(b) The Collateral Agent shall have given
telephonic notice to the Credit Agent of the
<PAGE>
Mortgage Loans against which Advances may be made, followed by a Loans
Warehoused Report as provided for and defined in the Collateral Agency
Agreement.
4.2(c) The Credit Agent shall have received evidence
satisfactory to it as to the making and/or continuation of any book
entry or the due filing and recording in all appropriate offices of
all financing statements and other instruments as may be necessary to
perfect the security interest of the Credit Agent in the Collateral
under the Uniform Commercial Code or other applicable law.
4.2(d) The representations and warranties of the
Borrowers contained in Article 5 hereof shall be accurate and complete
in all material respects as if made on and as of the date of each
Advance.
4.2(e) The Borrowers shall have performed all
agreements to be performed by them hereunder, and after giving effect
to the requested Advance, there shall exist no Default or Event of
Default hereunder.
4.2(f) The Borrowers shall not have incurred any
material liabilities, direct or contingent, other than in the ordinary
course of its business, since the Statement Date.
4.2(g) The Credit Agent shall have received from
counsel for the Borrowers, if requested by the Credit Agent in its
sole discretion, an updated opinion, in form and substance
satisfactory to the Credit Agent, addressed to the Credit Agent and
the Lenders and dated as of the date of such Advance, covering such of
the matters as the Credit Agent may reasonably request.
Delivery of an Advance Request by the Borrowers shall be deemed a
representation by the Borrowers that all conditions set forth in this
Section 4.2 shall have been satisfied as of the date of such Advance.
4.3 New Subsidiary Borrowers. WMF Group may, at any time, amend
------------------------
Exhibit P to add any direct or indirect Subsidiary of WMF Group as a
---------
Borrower hereunder (provided, that the addition of such Subsidiary as a
Borrower would not result in a breach of Section 8.1(n) hereof); provided,
that the effectiveness of any such amendment to Exhibit P, and of
---------
<PAGE>
the addition of any such direct or indirect Subsidiary of WMF Group as a
Borrower hereunder, shall be subject to the following conditions precedent:
4.3(a) The Credit Agent shall have received the
following, all of which must be in form and content satisfactory to
the Credit Agent, in its sole discretion:
(1) A Borrower Addition Agreement, duly executed
by WMF Group (on behalf of the Borrowers) and the wholly-owned
Subsidiary to be added as a Borrower hereunder (the "New
Borrower").
(2) Certified copies of the New Borrower's
articles of incorporation and bylaws or other organizational
documents, and certificates of good standing dated no less
recently than thirty (30) days prior to the date of the Borrower
Addition Agreement.
(3) A copy of resolutions of the board of
directors or other governing authority of the New Borrower,
certified as of the date of the Borrower Addition Agreement by
its corporate secretary (or the equivalent), authorizing the
execution, delivery and performance of the Borrower Addition
Agreement (and thereby the assumption of the Obligations under
the Loan Documents) and all other instruments or documents to be
delivered by the New Borrower pursuant to this Agreement and the
Borrower Addition Agreement (including, without limitation, the
Notes contemplated pursuant to Section 4.3(b)).
(4) A certificate of the corporate secretary (or
the equivalent) of the New Borrower, as to the incumbency and
authenticity of the signatures of the officers of the New
Borrower executing the Borrower Addition Agreement, and all other
instruments or documents to be delivered by such New Borrower
pursuant to the Borrower Addition Agreement and this Agreement
(the Credit Agent being entitled to rely thereon until a new such
certificate has been furnished to the Credit Agent).
(5) A tax, lien and judgment search of the
appropriate public records for the
<PAGE>
New Borrower in the States where its chief executive office is
located, including a search of Uniform Commercial Code financing
statements, which search shall not have disclosed the existence
of any prior Lien on the Collateral other than in favor of the
Credit Agent, for the benefit of the Secured Parties, or as
permitted hereunder.
(6) Executed financing statements in recordable
form naming the New Borrower as debtor, covering the Collateral
and ready for filing in all jurisdictions required by the Credit
Agent.
(7) Copies of the certificates, documents or
other written instruments which evidence the New Borrower's
status as a mortgagee, seller, servicer or issuer with HUD,
Ginnie Mae and the applicable Investors all in form and substance
satisfactory to the Lender.
(8) Copies of the New Borrower's errors and
omissions insurance policy or mortgage impairment insurance
policy and blanket bond coverage policy, or certificates in lieu
of such policies or naming the new Borrower as an insured under
the existing Borrowers' policies, all in form and content
satisfactory to the Credit Agent, showing compliance by the New
Borrower as of the date of the Borrower Addition Agreement with
the related provisions of Section 6.8 hereof.
(9) Funding Bank Agreements in the forms attached
to this Agreement, executed by the New Borrower.
4.3(b) The representations and warranties of the
Borrowers contained in Article 5 hereof shall be accurate and complete
in all material respects as if made on and as of the date of, and
after giving effect to, the Borrower Addition Agreement.
4.3(c) The Borrowers shall have performed all agreements
to be performed by them hereunder, and after giving effect to the
addition of the New Borrower hereunder, there shall exist no Default
or Event of Default hereunder.
<PAGE>
4.3(d) The Borrowers shall not have incurred any material
liabilities, direct or contingent, other than in the ordinary course
of their business, since the Statement Date.
4.3(e) If requested by the Credit Agent, the Lenders
shall have received from counsel for the Borrowers an updated opinion,
in form and substance satisfactory to the Credit Agent, addressed to
the Credit Agent and the Lenders and dated as of the date of the
Borrower Addition Agreement, covering such of the matters set forth
on Exhibit H hereto as the Credit Agent may reasonably request.
---------
Each of the Borrowers (including, without limitation, any Borrower that
becomes a party hereto pursuant to a Borrower Addition Agreement) hereby
authorizes WMF Group, on behalf of the Borrowers, to execute and deliver
Borrower Addition Agreements on behalf of all of the Borrowers.
4.4 New Fannie Mae Special Program Agreements. Washington may, at
-----------------------------------------
any time with the prior written consent of the Credit Agent, amend Exhibit
-------
Q to add any Special Fannie Mae Program Agreement thereto; provided, that
-
the effectiveness of any such amendment to Exhibit Q, and the obligation of
---------
the Lenders to make Warehousing Advances against Special Fannie Mae Loans
made thereunder, shall be subject to the following conditions precedent:
4.4(a) The representations and warranties of the Borrowers
contained in Article 5 hereof shall be accurate and complete in all
material respects as if made on and as of the date of, and after
giving effect to, the amendment to Exhibit Q hereto.
---------
4.4(b) The Borrowers shall have performed all agreements to
be performed by them hereunder, and there shall exist no Default or
Event of Default hereunder.
4.4(c) The Borrowers shall not have incurred any material
liabilities, direct or contingent, other than in the ordinary course
of their business, since the Statement Date.
4.4(d) If requested by any Lender holding a Warehousing
Commitment, the Lenders shall have received from counsel for the
Borrowers an updated opinion, in form and substance satisfactory to
the Credit Agent, addressed to the Credit Agent and the
<PAGE>
Lenders and dated the date of the amendment to Exhibit Q hereto,
---------
covering such matters relating to the Special Fannie Mae Program
Agreement and related documents as any Lender may reasonably request.
The Credit Agent shall promptly notify the other Lenders holding
Warehousing Commitments of any such amendment to Exhibit Q.
---------
5. REPRESENTATIONS AND WARRANTIES.
The Borrowers hereby represent and warrant to the Lenders, as of the
date of this Agreement and as of the date of each Advance Request and the
making of each Advance, that:
5.1 Organization; Good Standing; Subsidiaries. Each of the Borrowers
-----------------------------------------
and each Subsidiary of the Borrowers is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its incorporation, has the full legal power and authority to own its
property and to carry on its business as currently conducted and is duly
qualified as a foreign corporation to do business and is in good standing
in each jurisdiction in which the transaction of its business makes such
qualification necessary, except in jurisdictions, if any, where a failure
to be in good standing has no material adverse effect on the business,
operations, assets or financial condition of the Borrowers or any such
Subsidiary. For the purposes hereof, good standing shall include
qualification for any and all licenses and payment of any and all taxes
required in the jurisdiction of its incorporation and in each jurisdiction
in which the Borrowers, transacts business. The Borrowers have no
Subsidiaries except as set forth on Exhibit G hereto. Exhibit G sets forth
--------- ---------
with respect to each such Subsidiary, its name, address, place of
incorporation, each state in which it is qualified as a foreign
corporation, and the percentage ownership of its capital stock by the
Borrowers.
5.2 Authorization and Enforceability. The Borrowers have the power
--------------------------------
and authority to execute, deliver and perform this Agreement, the Notes and
all other Loan Documents to which the Borrowers are a party and to make the
borrowings hereunder. The execution, delivery and performance by the
Borrowers of this Agreement, the Notes and all other Loan Documents to
which the Borrowers are a party and the making of the borrowings hereunder
and thereunder, have been duly and validly authorized by all necessary
corporate action on the part of the Borrowers (none of which actions has
been
<PAGE>
modified or rescinded, and all of which actions are in full force and
effect) and do not and will not conflict with or violate any provision of
law, of any judgments binding upon the Borrowers, or of the articles of
incorporation or by-laws of the Borrowers, conflict with or result in a
breach of or constitute a default or require any consent under, or result
in the creation of any Lien upon any property or assets of the Borrowers
other than the Lien on the Collateral granted hereunder, or result in or
require the acceleration of any indebtedness of the Borrowers pursuant to
any agreement, instrument or indenture to which the Borrowers are a party
or by which the Borrowers or their property may be bound or affected. This
Agreement, the Notes, the Collateral Agency Agreement and all other Loan
Documents contemplated hereby or thereby constitute legal, valid, and
binding obligations of the Borrowers, enforceable in accordance with their
respective terms, except as limited by bankruptcy, insolvency or other such
laws affecting the enforcement of creditors' rights generally and general
principles of equity.
5.3 Approvals. The execution and delivery of this Agreement, the
---------
Notes and all other Loan Documents and the performance of the Borrowers'
obligations hereunder and thereunder and validity and enforceability hereof
and thereof do not require any license, consent, approval or other action
of any state or federal agency or governmental or regulatory authority
other than those which have been obtained and remain in full force and
effect.
5.4 Financial Condition. The balance sheet of WMF Group and its
-------------------
Subsidiaries, on a consolidated basis, as of the Statement Date, and the
related statements of income and changes in stockholders' equity for the
fiscal period ended on the Statement Date, heretofore furnished to each
Lender, fairly present the financial condition of WMF Group and its
Subsidiaries as of the Statement Date and the results of its operations for
the fiscal period ended on the Statement Date. The Borrowers had, on the
Statement Date, no known material liabilities, direct or indirect, fixed or
contingent, matured or unmatured, or liabilities for taxes, long-term
leases or unusual forward or long-term commitments not disclosed by, or
reserved against in, said balance sheet and related statements, and at the
present time there are no material unrealized or anticipated losses from
any loans, advances or other commitments of the Borrowers except as
heretofore disclosed to the Lenders in writing. Said financial statements
were prepared in accordance with GAAP applied on a consistent basis
throughout the periods involved. Since the Statement Date, there has been
no
<PAGE>
material adverse change in the business, operations, assets or financial
condition of the Borrowers (and their Subsidiaries), nor are the Borrowers
aware of any state of facts which (with or without notice or lapse of time
or both) would or could result in any such material adverse change.
5.5 Litigation. Except as set forth on Exhibit T hereto, there are
---------- ---------
no actions, claims, suits or proceedings pending or, to the knowledge of
the Borrowers, threatened or reasonably anticipated against or affecting
the Borrowers or any Subsidiary of the Borrowers in any court or before any
arbitrator or before any government commission, board, bureau or other
administrative agency which, if adversely determined, may reasonably be
expected to result in any material and adverse change in the business,
operations, assets or financial condition of the Borrowers as a whole, or
which would affect the validity or enforceability of this Agreement, the
Notes or any other Loan Document.
5.6 Compliance with Laws. None of the Borrowers and none of their
--------------------
Subsidiaries is in violation of any provision of any law, or of any
judgment, award, rule, regulation, order, decree, writ or injunction of any
court or public regulatory body or authority which might have a material
adverse effect on the business, operations, assets or financial condition
of the Borrowers and their Subsidiaries as a whole or which would affect
the validity or enforceability of this Agreement, the Notes or any other
Loan Document.
5.7 Regulation U. The Borrowers are not engaged principally, or as
------------
one of their important activities, in the business of extending credit for
the purpose of purchasing or carrying Margin Stock, and no part of the
proceeds of any Advances made hereunder will be used to purchase or carry
any Margin Stock or to extend credit to others for the purpose of
purchasing or carrying any Margin Stock.
5.8 Investment Company Act. None of the Borrowers is an "investment
----------------------
company" or controlled by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
5.9 Payment of Taxes. The Borrowers and each of their Subsidiaries
----------------
have filed or caused to be filed all federal, state and local income,
excise, property and other tax returns with respect to the operations of
the Borrowers and their Subsidiaries which are required to be filed, all
such returns are true and correct, and the Borrowers and each of
<PAGE>
their Subsidiaries have paid or caused to be paid all taxes as shown on
such returns or on any assessment, including, but not limited to, all FICA
payments and withholding taxes, if appropriate, to the extent that such
taxes have become due. The amounts reserved as a liability for income and
other taxes payable in the financial statements described in Section 5.4
hereof are sufficient pursuant to GAAP for payment of all unpaid federal,
state and local income, excise, property and other taxes, whether or not
disputed, of the Borrowers and their Subsidiaries accrued for or applicable
to the period and on the dates of such financial statements and all years
and periods prior thereto and for which either Borrower or any of their
Subsidiaries may be liable in their own right or as transferee of the
assets of, or as successor to, any other Person. No tax Liens have been
filed and no material claims are being asserted with respect to any such
taxes, fees or charges.
5.10 Agreements. None of the Borrowers and none of their
----------
Subsidiaries, except WMFCC, is a party to any agreement, instrument or
indenture or subject to any restriction materially and adversely affecting
its business, operations, assets or financial condition, except as
disclosed in the financial statements described in Section 5.4 hereof.
None of the Borrowers and none of their Subsidiaries, except WMFCC, is in
default in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any agreement,
instrument, or indenture which default could have a material adverse effect
on the business, operations, properties or financial condition of the
Borrowers and their Subsidiaries as a whole. No holder of any indebtedness
of any of the Borrowers or any of their Subsidiaries has given notice of
any asserted default thereunder, and no liquidation or dissolution of any
of the Borrowers or of any of their Subsidiaries, and no receivership,
insolvency, bankruptcy, reorganization or other similar proceedings
relative to any of the Borrowers, any of their Subsidiaries or any of their
properties, is pending or threatened.
5.11 Title to Properties. Each of the Borrowers and each Subsidiary
-------------------
of the Borrowers has good, valid, insurable (in the case of real property)
and marketable title to all of its properties and assets (whether real or
personal, tangible or intangible) reflected on the financial statements
described in Section 5.4 hereof, except for such properties and assets as
have been disposed of since the date of such financial statements as no
longer used or useful in the conduct of its business or as have been
disposed of in the ordinary course of business, and all such
<PAGE>
properties and assets are free and clear of all Liens except as disclosed
in such financial statements.
5.12 ERISA. All plans ("Plans") of a type described in Section 3(3)
-----
of ERISA in respect of which any of the Borrowers or any Subsidiary of the
Borrowers is an "Employer," as defined in Section 3(5) of ERISA, are in
substantial compliance with ERISA, and none of such Plans is insolvent or
in reorganization, has an accumulated or waived funding deficiency within
the meaning of Section 412 of the Internal Revenue Code, and none of the
Borrowers and none of their Subsidiaries has incurred any material
liability (including any material contingent liability) to or on account of
any such Plan pursuant to Sections 4062, 4063, 4064, 4201 or 4204 of ERISA;
and no proceedings have been instituted to terminate any such Plan, and no
condition exists which presents a material risk to any of the Borrowers or
any of their Subsidiaries of incurring a liability to or on account of any
such Plan pursuant to any of the foregoing Sections of ERISA. No Plan or
trust forming a part thereof has been terminated since September 1, 1974.
5.13 Eligibility. The Borrowers are approved and qualified and in
-----------
good standing as a lender or seller/servicer, as set forth in Exhibit R
---------
attached hereto, and meet all requirements applicable to its status as
such.
5.14 Place of Business. The chief executive office and principal
-----------------
place of business of WMF Group and Washington is 1593 Spring Hill Road,
Suite 400, Vienna, Virginia 22182. The chief executive office and
principal place of business of Huntoon is 379 Thornall Street, Edison, New
Jersey 08837. The chief executive office and principal place of business
of Proctor is 3883 Telegraph Road, Suite 210, Bloomfield Hills, Michigan
48302. The principal place of business of Wilson is 19 Briar Hollow Lane,
Suite 200, Houston, Texas 77027. The principal place of business of
Wilson-Arizona is 5080 N. 40th Street, Suite 105, Phoenix, Arizona 85018.
The principal place of business of Carbon Mesa is 11755 Wilshire Boulevard,
Suite 1900, Los Angeles, California 90025.
5.15 Special Representations Concerning Warehousing Collateral. The
---------------------------------------------------------
Borrowers hereby represent and warrant to the Lenders, as of the date of
this Agreement and as of the date of each Advance Request and the making of
each Advance, that:
<PAGE>
5.15(a) The applicable Borrower is the legal and equitable
owner and holder, free and clear of all Liens (other than Liens
granted hereunder), of the Pledged Mortgages and the Pledged
Securities. All Pledged Mortgages, Pledged Securities and Purchase
Commitments have been duly authorized and validly issued to the
Borrowers, and all of the foregoing items of Collateral comply with
all of the requirements of this Agreement, and have been and will
continue to be validly pledged or assigned to the Credit Agent,
subject to no other Liens.
5.15(b) Each Borrower has, and will continue to have, the
full right, power and authority to pledge the Collateral pledged and
to be pledged by it hereunder.
5.15(c) Any Mortgage Loan and any related document included
in the Pledged Mortgages (1) has been duly executed and delivered by
the parties thereto at a closing held not more than thirty (30) days
prior to the date of the initial Warehousing Advance Request for such
Mortgage Loan, except with respect to a Warehousing Advance Request
for a Special Fannie Mae Advance or the Warehousing Advance Request
made for Warehousing Advances to refinance Existing Agreement
Warehousing Advances, (2) has been made in compliance with all
applicable requirements of the Real Estate Settlement Procedures Act,
Equal Credit Opportunity Act, the federal Truth-In-Lending Act and all
other applicable laws and regulations, (3) is and will continue to be
valid and enforceable in accordance with its terms, without defense or
offset, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, liquidation, receivership, moratorium or
other laws affecting the enforcement of creditors' rights and by
general principles of equity (regardless of whether such enforcement
is considered in a proceeding at law or in equity), (4) has not been
modified or amended except in writing, which writing is part of the
Collateral Documents, nor any requirements thereof waived, (5) has
been evaluated or appraised in accordance with Title XI of FIRREA and
industry standards, and (6) complies and will continue to comply with
the terms of this Agreement and the related Purchase Commitment.
Except for FHA Construction Mortgage Loans and Special Fannie Mae
Loans, each Mortgage Loan has been fully advanced in the face amount
thereof. Each First Mortgage is a first Lien on the premises
described therein and each Second Mortgage
<PAGE>
is a second Lien on the premises described therein, and has or will
have a title insurance policy, in American Land Title Association form
or equivalent thereof, from a recognized title insurance company,
insuring the priority of the Lien of the Mortgage and meeting the
usual requirements of Investors purchasing such Mortgage Loans. Each
premises securing a Pledged Mortgage is free and clear of all tax
liens and assessments (except for Liens for taxes and assessments not
yet delinquent or accruing interest or penalties).
5.15(d) No default has occurred and is continuing for more
than sixty (60) days under any Mortgage Loan included in the Pledged
Mortgages without the Advance against such Pledged Mortgage having
been repaid in accordance with Section 2.10(f)(7) hereof; provided,
however, that, with respect to Pledged Mortgages which have already
been pledged as Collateral hereunder, if any default has occurred, the
Borrowers will promptly notify the Credit Agent.
5.15(e) The Borrowers have complied and will continue to
comply with all laws, rules and regulations in respect of the FHA
insurance of each Mortgage Loan included in the Pledged Mortgages
designated by the Borrowers as an FHA insured Mortgage Loan, and such
insurance is and will continue to be in full force and effect.
5.15(f) Each premises securing a Pledged Mortgage is
insured by an "all-risks" or "fire and extended perils" insurance
policy issued by an insurer satisfactory to the Lender, and all such
insurance policies (1) name and will continue to name the applicable
Borrower and its successors and assigns as the insured under a
standard mortgagee clause, (2) are and will continue to be in full
force and effect, and (3) afford and will continue to afford insurance
against fire and such other risks as are usually insured against in
the broad form of extended coverage insurance from time to time
available.
5.15(g) Pledged Mortgages secured by premises located in a
special flood hazard area designated as such by the Director of the
Federal Emergency Management Agency are and shall continue to be
covered by special flood insurance under the National Flood Insurance
Program. Pledged Mortgages that are Commercial Mortgage Loans have
insurance covering earthquake risk from an insurer and on terms and
conditions satisfying the requirements of Standard
<PAGE>
& Poor's Ratings Service for inclusion in a Commercial Mortgage-backed
Security.
5.15(h) Each FHA insured Mortgage Loan pledged hereunder
meets all applicable governmental requirements for such insurance.
Each Pledged Mortgage against which an Advance is made on the basis of
a Purchase Commitment meets all requirements of such Purchase
Commitment. The Borrowers shall assure that Pledged Mortgages which
are intended to be used in the formation of Mortgage-backed Securities
or asset-backed securities shall comply or, prior to the formation of
any such Mortgage-backed Security or asset-backed securities, shall
comply with the requirements of the governmental instrumentality,
department or agency issuing or guaranteeing such Mortgage-backed
Security or at least one Investor that purchases similar Mortgage
Loans for securitization and two Rating Agencies.
5.15(i) For Pledged Mortgages which will be used to back
Ginnie Mae Mortgage-backed Securities, the applicable Borrower has
received from Ginnie Mae a Confirmation Notice or Confirmation Notices
for Request Additional Commitment Authority and for Request Pool
Numbers, and there remains available thereunder a commitment on the
part of Ginnie Mae sufficient to permit the issuance of Ginnie Mae
Mortgage-backed Securities in an amount at least equal to the amount
of such Pledged Mortgages designated by the Borrowers as the Mortgage
Loans to be used to back such Ginnie Mae Mortgage-backed Securities;
each such Confirmation Notice is in full force and effect; each of
such Pledged Mortgages has been assigned by the Borrowers to one of
such Pool Numbers and a portion of the available Ginnie Mae Commitment
has been allocated thereto by the Borrowers, in an amount at least
equal to such Pledged Mortgages; and each such assignment and
allocation has been reflected in the books and records of the
Borrowers.
5.15(j) At the time of any Advance to Washington against a
Special Fannie Mae Loan, (i) the related Special Fannie Mae Program
Agreement and the promissory note(s) evidencing such Special Fannie
Mae Loan are in full force and effect and constitute the legal, valid
and binding obligations of the parties thereto, enforceable against
such parties in accordance with their terms, (ii) all of the Mortgages
and pledges of Mortgage Notes securing such Special Fannie Mae Loans
<PAGE>
under the related Special Fannie Mae Program Agreement are in full
force and effect, constitute the legal, valid and binding obligations
of the parties thereto, enforceable against such parties in accordance
with their terms, and, in the case of Mortgages, constitute valid,
perfected first priority Liens on the underlying property, subject
only to Liens specified as exceptions in the original title insurance
policy related thereto and Liens in favor of Washington in connection
with the same Special Fannie Mae Program Agreement, and in the case of
pledges of Mortgage Notes, constitute a valid, perfected first
priority Lien on such Mortgage Notes, which is in turn secured by
valid, perfected, first priority Liens on the underlying property,
subject only to Liens specified in the original file policy related
thereto; and (iii) such Special Fannie Mae Loan is or was made, and
each of Washington and the borrower(s) and other obligor(s) is, in
compliance with all terms of the related Special Fannie Mae Program
Agreement and the FNMA Special Pool Purchase Contract related thereto.
5.16 Servicing. Attached hereto as Exhibit E is a true and complete
--------- ---------
list of the Borrowers' Servicing Portfolio. All of the Borrowers'
Servicing Contracts are in full force and effect and, except as otherwise
indicated, are unencumbered by Liens. No default or event which, with
notice or lapse of time or both, would become a default, exists under any
such Servicing Contract.
5.17 Special Representations Concerning Servicing Collateral. The
-------------------------------------------------------
Borrowers hereby represent and warrant to the Lenders, as of the Closing
Date and as of the date of each Servicing Facility Advance Request or
Warehousing Advance Request for a P&I Advance or a Liquidity Advance, and
the making of each such Advance, that:
5.17(a) A Borrower is the legal and equitable owners and
holders, free and clear of all Liens (other than Liens granted
hereunder), of each Pledged Servicing Contract, and the Pledged
Servicing Contracts have been and will continue to be validly pledged
or assigned to the Credit Agent, subject to no other Liens.
5.17(b) The Borrower that owns each Pledged Servicing Contracts
has, and will continue to have, the full right, power and authority to
pledge such Pledged
<PAGE>
Servicing Contract, subject to the rights of Fannie Mae, Ginnie Mae or
any applicable Investor.
5.17(c) All of the servicing rights under the Servicing
Contracts included in the calculation of Servicing Collateral Value
constitute direct, primary servicing rights.
5.17(d) Each Pledged Servicing Contract is in full force
and effect, each Pledged Servicing Contract is legal, valid and
enforceable in accordance with its terms and no default or event
which, with notice or lapse of time or both, would become a default,
exists under any Pledged Servicing Contract.
5.17(e) Each right to the payment of money under the
Pledged Servicing Contracts is genuine and enforceable in accordance
with its terms against the parties obligated to pay the same
("Obligor"), except as limited by bankruptcy, insolvency, moratorium
or other similar laws affecting the enforcement of creditors' rights
generally and general principles of equity, which terms have not been
modified or waived in any material respect or to any material extent.
5.17(f) To the best of the Borrowers' knowledge, the amount
represented by the Borrowers to the Credit Agent as owing by an
Obligor under each Mortgage Loan being serviced under a Pledged
Servicing Contract is the correct amount actually and unconditionally
owing by such Obligor.
5.17(g) To the best of the Borrowers' knowledge, no Obligor
has any defense, set off, claim or counterclaim against the Borrowers
or any Subsidiary of the Borrowers which can be asserted against the
Credit Agent or the Lenders, whether in any proceeding to enforce the
Credit Agent's security interest in the related Pledged Servicing
Contracts or otherwise.
5.17(h) The Borrowers have not sold, assigned or otherwise
transferred any rights associated with the Mortgage Loans being
serviced under any Pledged Servicing Contract, including, without
limitation, any rights to place escrow deposits with respect thereto.
5.17(i) Except for Acknowledgment Agreements, no consent of
any Obligor or any other
<PAGE>
Person is required for the grant of a security interest in favor of
the Credit Agent, for the benefit of the Secured Parties, in any of
the Servicing Collateral including, without limitation, the Pledged
Servicing Contracts, or any computer software being utilized by the
Borrowers pursuant to license, lease or otherwise, other than consents
which have been obtained, nor will any consent need to be obtained
upon the occurrence of an Event of Default for the Credit Agent to
exercise its rights with respect to any of the Servicing Collateral
except as set forth in the Acknowledgment Agreements.
5.18 No Adverse Selection. The Borrowers have not selected the
--------------------
Collateral in a manner so as to affect adversely the Lenders' interests.
5.19 Year 2000 Compliance. The Borrowers have conducted a
--------------------
comprehensive review and assessment of the Borrowers' computer applications
and made inquiry of the Borrowers' key suppliers, vendors, customers, and
Investors with respect to the Year 2000 Problem and, based on that review
and inquiry, the Borrowers do not believe the Year 2000 Problem will result
in a material adverse change in the Borrowers' business condition
(financial or otherwise), operations, properties or prospects, or ability
to pay the Obligations.
6. AFFIRMATIVE COVENANTS.
The Borrowers hereby covenant and agree with the Lenders that, so long
as any of the Commitments are outstanding or there remain any Obligations to be
paid or performed under this Agreement or under any other Loan Document, the
Borrowers shall:
6.1 Payment of Notes. Punctually pay or cause to be paid all
----------------
Obligations payable hereunder and under the Notes in accordance with the
terms hereof and thereof.
6.2 Financial Statements and Other Reports. Deliver to each Lender:
--------------------------------------
6.2(a) As soon as available and in any event within forty-
five (45) days after the end of each month, statements of income and
changes in stockholders' equity of WMF Group and its Subsidiaries on a
consolidated basis for the immediately preceding month and for the
period from the beginning of the fiscal year to the end of such month,
and the related balance sheet as of the end of the immediately
<PAGE>
preceding month, all in reasonable detail and certified as to the
fairness of presentation by the chief financial officer of WMF Group,
subject, however, to year-end audit adjustments.
6.2(b) As soon as available and in any event within ninety
(90) days after the close of each fiscal year of WMF Group, statements
of income, changes in stockholders' equity and cash flow of WMF Group
and its Subsidiaries on a consolidated basis for such year, and the
related balance sheet as of the end of such year (setting forth in
comparative form the corresponding figures for the preceding fiscal
year), all in reasonable detail and accompanied by an opinion (which
opinion shall not be qualified due to possible failure to take all
appropriate steps to successfully address the Year 2000 Problem) in
form and substance satisfactory to the Lenders and prepared by
independent certified public accountants of recognized standing
selected by WMF Group and reasonably satisfactory to the Lenders as to
said financial statements and a certificate signed by the chief
financial officer of WMF Group stating that said financial statements
fairly present the financial condition and results of operations of
WMF Group and its Subsidiaries as of the end of, and for, such fiscal
year.
6.2(c) Together with each delivery of financial statements
required in Section 6.2(a) for the last month of any fiscal quarter,
and each delivery of financial statements required in Section 6.2(b),
an Officer's Certificate substantially in the form of Exhibit I-MF
------------
hereto: (1) setting forth in reasonable detail all calculations
necessary to show that the Borrowers are in compliance with the
requirements of Sections 7.6, 7.7, 7.8, 7.9, 7.10, 7.11, 7.12, 7.13,
7.14 and 7.16 hereof as of the end of such month or year (or, if the
Borrowers are not in compliance, showing the extent of non-compliance
and specifying the period of non-compliance and what actions the
Borrowers have taken, are taking or propose to take with respect
thereto); (2) certifying that the Borrowers were, as of the end of the
period, in compliance and in good standing with applicable HUD, Ginnie
Mae, or Investor net worth requirements; (3) certifying that the
representation set forth in Section 5.19 hereof is true and correct as
of the date of such certificate or, if such representation is not true
and correct as of such date, specifying the nature of the problem and
what action the Borrowers have taken, is taking or proposes
<PAGE>
to take with respect thereto; and (4) stating that the signers have
reviewed the terms of this Agreement and have made, or caused to be
made under their supervision, a review in reasonable detail of the
transactions and conditions of the Borrowers and their Subsidiaries
during the accounting period covered by such financial statements and
that such review has not disclosed the existence during or at the end
of such accounting period, and that the signers do not have knowledge
of the existence as of the date of the Officer's Certificate, of any
Default or Event of Default or if any Default or Event of Default
existed or exists, specifying the nature and period of the existence
thereof and what action the Borrowers have taken, are taking and
propose to take with respect thereto.
6.2(d) As soon as available and in any event within forty-
five (45) days after the end of each month, a consolidated report (the
"Servicing Portfolio Report") as of the end of the month detailing, as
to all Mortgage Loans the servicing rights to which are owned by the
Borrowers (specified by investor type, recourse and non-recourse)
regardless of whether such Mortgage Loans are Pledged Mortgages and
which report shall indicate Mortgage Loans which (A) are current and
in good standing, (B) are more than 30, 60 or 90 days past due,
respectively, (C) are the subject of pending bankruptcy or foreclosure
proceedings, (D) are excluded in calculating the Adjusted Servicing
Portfolio for any of the reasons listed in clauses (a) - (f) of the
definition thereof, or (E) have been converted (through foreclosure or
other proceedings in lieu thereof) by the Borrowers into real estate
owned by the Borrowers.
6.2(e) As soon as available and in any event within forty-
five (45) days after the end of each fiscal quarter of the Borrowers,
a consolidated report (the "Loan Production Report") as of the end of
the fiscal quarter, presenting the total dollar volume and the number
of Mortgage Loans originated or purchased during the fiscal year,
specified by property type and loan type or Investor (e.g. FHA, Ginnie
Mae, Fannie Mae, Freddie Mac, etc.)
6.2(f) Reports in respect of the Pledged Mortgages, Pledged
Securities and Pledged Servicing Contracts, in such detail and at such
times as any Lender in its discretion may reasonably request at any
time or from time to time.
<PAGE>
6.2(g) As of the last day of June and December of each year
(to be delivered with the financial statements required under Sections
6.2(a) and (b), respectively, as of such dates), and at any time at
the request of the Credit Agent, an Appraisal of the Pledged Servicing
Contracts; if the Borrowers shall at any time fail to obtain an
Appraisal required by this Section 6.2(g), the Credit Agent may obtain
such Appraisal, and the Borrowers shall reimburse the Credit Agent for
its costs and expenses incurred in connection therewith.
6.2(h) As soon as available and in any event within forty-
five (45) days after the end of each Calendar Quarter, a valuation of
the Pledged Servicing Contracts prepared by the Borrowers using the
methodology used in the most recent Appraisal thereof.
6.2(i) Copies of all regular or periodic financial and
other reports, if any, which the Borrowers shall file with the
Securities and Exchange Commission or any governmental agency
successor thereto and copies of any audits completed by HUD, Ginnie
Mae, Fannie Mae or Freddie Mac. Copies of the Mortgage Bankers'
Financial Reporting Forms (Freddie Mac Form 1055/Fannie Mae Form 1002)
which the Borrowers shall have filed with Fannie Mae or Freddie Mac,
in such detail and at such times as any Lender may reasonably request.
6.2(j) From time to time, with reasonable promptness, such
further information regarding the business, operations, properties or
financial condition of the Borrowers as any Lender may reasonably
request.
6.3 Maintenance of Existence; Conduct of Business. Preserve and
---------------------------------------------
maintain their corporate existence in good standing and all of its rights,
privileges, licenses and franchises necessary or desirable in the normal
conduct of their business, including, without limitation, their eligibility
as lender, seller/servicer and issuer described under Section 5.13 hereof
or in any Borrower Addition Agreement; conduct their businesses in an
orderly and efficient manner; maintain a net worth of acceptable assets as
required for maintaining each Borrower's eligibility as lender,
seller/servicer and issuer described under Section 5.13 hereof or in any
Borrower Addition Agreement; and make no change in the nature or character
of their businesses or
<PAGE>
engage in any business in which they were not engaged on the date of this
Agreement or, in the case of any New Borrower acquired by the Borrowers in
a Servicing Acquisition, on the date the Borrowers' acquisition of such New
Borrower was approved by the Lenders hereunder. Notwithstanding anything in
this Agreement to the contrary, it shall not be deemed a change in the
nature or character of their businesses for any of the Borrowers, directly
or indirectly through any existing or prospective Subsidiary, to engage as
a principal in (i) mortgage loan securitizations in the primary and
secondary markets, (ii) mortgage asset management, and (iii) services with
respect to mortgage banking generally, with respect to the financing,
managing and sale of real property, and with respect to collateralized
mortgage obligations.
6.4 Compliance with Applicable Laws. Comply with the requirements of
-------------------------------
all applicable laws, rules, regulations and orders of any governmental
authority, a breach of which could materially adversely affect their
business, operations, assets, or financial condition, except where
contested in good faith and by appropriate proceedings.
6.5 Inspection of Properties and Books. Permit authorized
----------------------------------
representatives of the Credit Agent, the Collateral Agent, any Lender or
any Participant to discuss the business, operations, assets and financial
condition of the Borrowers and their Subsidiaries with their officers and
employees and to examine their books of account and make copies or extracts
thereof, all at such reasonable times as the Credit Agent, the Collateral
Agent, any Lender or any Participant may request; provided, that prior to
the occurrence of a Default or an Event of Default, the Borrowers shall
have no obligation to permit any such visitation or examination on less
than two (2) Business Days notice from the Credit Agent, the Collateral
Agent, any Lender or any Participant. The Borrowers will provide their
accountants with a copy of this Agreement promptly after the execution
hereof and will instruct its accountants to answer candidly any and all
questions that the officers of the Credit Agent, the Collateral Agent, any
Lender or any Participant or any authorized representative of the Credit
Agent, the Collateral Agent, any Lender or any Participant may address to
them in reference to the financial condition or affairs of the Borrowers
and their Subsidiaries. The Borrowers may have their representatives in
attendance at any meetings between the officers or other representatives of
the Credit Agent, the Collateral Agent, any Lender or any Participant and
the Borrowers' accountants held in accordance with this authorization.
<PAGE>
6.6 Notice. Give Notice to the Credit Agent, promptly after the
------
Borrowers have actual or constructive notice thereof, of (a) any action,
suit or proceeding instituted by or against any Borrower or any of their
Subsidiaries in any federal or state court or before any commission or
other regulatory body (federal, state or local, domestic or foreign) which
action, suit or proceeding has at issue in excess of Five Hundred Thousand
Dollars ($500,000), or any such proceedings threatened against any Borrower
or any of their Subsidiaries in a writing containing the details thereof
that the Borrowers reasonably determine is likely to be instituted unless
settled, (b) the filing, recording or assessment of any federal, state or
local tax Lien against any Borrower, any of their Subsidiaries or any of
their assets, (c) the occurrence of any Event of Default hereunder or the
occurrence of any Default and continuation thereof for five (5) days, (d)
the suspension, revocation or termination of any Borrower's eligibility, in
any respect, as approved lender, seller/servicer or issuer as described
under Section 5.13 hereof or in any Borrower Addition Agreement, (e) the
transfer, loss or termination (other than termination resulting from
repayment of one or more Mortgage Loan in whole) of any Servicing Contract
to which any Borrower or any of their Subsidiaries is a party, or which is
held for the benefit of any Borrower or any of their Subsidiaries, and the
reason for such transfer, loss or termination, if known to any Borrower, if
the unpaid principal balance of the Mortgage Loans serviced pursuant to all
such Servicing Contracts transferred, lost or terminated since the date of
the most recent appraisal or valuation delivered pursuant to Section 6.2(g)
or 6.2(h) hereof exceeds five percent (5%) of the Servicing Portfolio as of
the date of such appraisal or valuation, and (f) any other action, event or
condition of any nature which may lead to or result in a material adverse
effect upon the business, operations, assets, or financial condition of the
Borrowers and their Subsidiaries or which, with or without notice or lapse
of time or both, would constitute a default under any other agreement,
instrument or indenture to which any Borrower or any of their Subsidiaries
is a party or to which any Borrower or any of their Subsidiaries, their
properties, or assets may be subject.
6.7 Payment of Debt, Taxes, etc. Pay and perform all obligations and
---------------------------
indebtedness of any Borrower, and cause to be paid and performed all
obligations and indebtedness of their Subsidiaries, except WMFCC, promptly
and in accordance with the terms thereof and pay and discharge or cause to
be
<PAGE>
paid and discharged promptly all taxes, assessments and governmental
charges or levies imposed upon any Borrower or any of their Subsidiaries,
except WMFCC, or upon their respective income, receipts or properties
before the same shall become past due, as well as all lawful claims for
labor, materials and supplies or otherwise which, if unpaid, might become a
Lien or charge upon such properties or any part thereof; provided, however,
that any Borrower and any of their Subsidiaries shall not be required to
pay taxes, assessments or governmental charges or levies or claims for
labor, materials or supplies for which the Borrowers or their Subsidiaries
shall have obtained an adequate bond or adequate insurance or which are
being contested in good faith and by proper proceedings which are being
reasonably and diligently pursued and for which proper reserves have been
created.
6.8 Insurance. Maintain (a) errors and omissions insurance or
---------
mortgage impairment insurance and blanket bond coverage, with such
companies and in such amounts as satisfy prevailing requirements applicable
to a lender, seller/servicer and issuer described under Section 5.13
hereof, and (b) liability insurance and fire and other hazard insurance on
its properties, with responsible insurance companies approved by the Credit
Agent, in such amounts and against such risks as is customarily carried by
similar businesses operating in the same vicinity; and within thirty (30)
days after Notice from the Credit Agent, obtain such additional insurance
as the Credit Agent shall reasonably require, all at the sole expense of
the Borrowers. Copies of such policies shall be furnished to the Credit
Agent without charge upon request of the Credit Agent.
6.9 Closing Instructions. Indemnify and hold the Secured Parties
--------------------
harmless from and against any loss, including reasonable attorneys' fees
and costs, attributable to the failure of a title insurance company, agent
or approved attorney to comply with the disbursement or instruction letter
or letters of the Borrowers relating to any Mortgage Loan. The Collateral
Agent shall have the right to pre-approve the closing instructions of the
Borrowers to the title insurance company, agent or attorney in any case
where the Mortgage Loan to be created at settlement is intended to be
pledged as Collateral pursuant hereto.
6.10 Subordination of Certain Indebtedness. Cause any indebtedness
-------------------------------------
of any Borrower incurred after the date of this Agreement to any
shareholder, director or officer of any
<PAGE>
Borrower, or to any Affiliate of any Borrower or of any Subsidiary of any
Borrower, which indebtedness has a term of more than one (1) year or is in
excess of Five Hundred Thousand Dollars ($500,000), to be subordinated to
all Obligations by the execution of a Subordination of Debt Agreement in
the form of Exhibit F hereto and deliver to the Credit Agent an executed
---------
copy of said Agreement, certified by the corporate secretary of the
applicable Borrower to be true and complete and in full force and effect.
6.11 Other Loan Obligations. Perform all material obligations under
----------------------
the terms of each loan agreement, note, mortgage, security agreement or
debt instrument by which any Borrower is bound or to which any of their
property is subject, and promptly notify the Credit Agent in writing of a
declared default under or the termination, cancellation, reduction or
nonrenewal of any of its other lines of credit or agreements with any other
lender. Exhibit J hereto is a true and complete list of all such lines of
---------
credit or agreements as of the date hereof and the Borrowers hereby agree
to give the Credit Agent at least thirty (30) days Notice before entering
into any additional lines of credit or agreements.
6.12 Use of Proceeds of Advances. Use the proceeds of each Advance
---------------------------
solely for the purpose set forth in Section 2.1(b), Section 2.4(b) or
Section 2.6 for Advances of that type.
6.13 Special Affirmative Covenants Concerning Collateral.
---------------------------------------------------
6.13(a) Warrant and defend the right, title and interest of
the Secured Parties in and to the Collateral against the claims and
demands of all Persons whomsoever.
6.13(b) Service or cause to be serviced all Mortgage Loans
in accordance with the standard requirements of the issuers of
Purchase Commitments covering the same, all applicable HUD, Fannie Mae
and Freddie Mac requirements and, with respect to Mortgage Loans not
intended for sale to Fannie Mae or Freddie Mac or to back a Ginnie Mae
Mortgage-backed Security, the Rating Agencies, including without
limitation taking all actions necessary to enforce the obligations of
the obligors under such Mortgage Loans. The Borrowers shall service
or cause to be serviced all Mortgage Loans backing Pledged Securities
in accordance with applicable
<PAGE>
governmental requirements and requirements of issuers of Purchase
Commitments covering the same. The Borrowers shall hold all escrow
funds collected in respect of Pledged Mortgages, Mortgage Loans
backing Pledged Securities and Mortgage Loans serviced pursuant to
Pledged Servicing Contracts in trust, without commingling the same
with non-custodial funds, and apply the same for the purposes for
which such funds were collected.
6.13(c) Execute and deliver to the Credit Agent such
Uniform Commercial Code financing statements with respect to the
Collateral as the Credit Agent may request. The Borrowers shall also
execute and deliver to the Credit Agent and obtain the execution and
delivery by Fannie Mae, Ginnie Mae and/or other Investors
Acknowledgment Agreements in the forms from time to time promulgated
by Fannie Mae, Ginnie Mae and/or other Investors, as applicable, and
acceptable to the Credit Agent, with respect to the Pledged Servicing
Contracts. The Borrowers shall also execute and deliver to the Credit
Agent such further instruments of sale, pledge or assignment or
transfer, and such powers of attorney, as may be reasonably requested
by the Credit Agent, and shall do and perform all matters and things
necessary or desirable to be done or observed, for the purpose of
effectively creating, maintaining and preserving the security and
benefits intended to be afforded the Secured Parties under this
Agreement and the other Loan Documents. The Credit Agent shall have
all the rights and remedies of a secured party under the Uniform
Commercial Code of Minnesota or any other applicable law in addition
to all rights provided for herein and in the other Loan Documents.
6.13(d) Notify the Collateral Agent within two (2) Business
Days of any default under, or of the termination of, any Purchase
Commitment relating to any Pledged Mortgage, Eligible Mortgage Pool or
Pledged Security.
6.13(e) Promptly comply in all respects with the terms and
conditions of all Purchase Commitments, and all extensions, renewals
and modifications or substitutions thereof or thereto. The Borrowers
will cause to be delivered to the Investor the Pledged Mortgages and
Pledged Securities to be sold under each Purchase Commitment not later
than three (3)
<PAGE>
Business Days prior to the mandatory delivery date thereof.
6.13(f) Maintain, at their principal office or in a
regional office approved by the Credit Agent, or in the office of a
computer service bureau engaged by the Borrowers and approved by the
Credit Agent, and, upon request, shall make available to the
Collateral Agent, the originals, or copies in any case where the
originals have been delivered to the Collateral Agent or to an
Investor, of its Mortgage Notes and Mortgages included in Pledged
Mortgages, Mortgage-backed Securities delivered to the Collateral
Agent as Pledged Securities, Purchase Commitments, and all related
Mortgage Loan documents and instruments, and all files, surveys,
certificates, correspondence, appraisals, computer programs, tapes,
discs, cards, accounting records and other information and data
relating to the Collateral.
6.13(g) Promptly provide the Credit Agent with copies of
any amendment, supplement, restatement or other modification of any
Special Fannie Mae Program Agreement, the promissory note(s)
evidencing the Special Fannie Mae Loans made thereunder, or the Fannie
Mae Special Pool Purchase Contract related thereto.
6.14 Repayment of Debt to PNC Bank, N.A. The Borrowers will, on or
-----------------------------------
before March 27, 1999, repay in full all of their outstanding Debt to PNC
Bank, N.A., terminate all outstanding lending commitments from PNC Bank,
N.A., and obtain the release of all Liens on their assets in favor of PNC
Bank, N.A. (including, without limitation, the termination of any financing
statements filed to perfect those Liens).
7. NEGATIVE COVENANTS.
The Borrowers hereby covenant and agree with the Lenders that, so long
as the commitments of the Lenders are outstanding or there remain any
Obligations to be paid or performed, the Borrowers shall not, either directly or
indirectly, without the prior written consent of all the Lenders:
7.1 Contingent Liabilities. Assume, guarantee, endorse, or otherwise
----------------------
become contingently liable for the obligation of any Person, except another
Borrower, and except by endorsement of negotiable instruments for deposit
or collection in the ordinary course of business, for liability for
breaches of representations and warranties
<PAGE>
made by any Borrower in connection with the sale of Mortgage Loans in the
ordinary course of business, provided such representations and warranties
are typical of non-recourse sales of similar Mortgage Loans, for liability
as a result of sales of Mortgage Loans to RFC pursuant to the Master
Purchase Agreement (Bridge Mortgage Loans) dated as of September 22, 1997
by and between Washington, Huntoon and Proctor, as sellers, and RFC, as
purchaser, and for liability as a result of the sale of Fannie Mae DUS
Mortgage Loans with recourse in the ordinary course of the Borrowers'
businesses.
7.2 Sale or Pledge of Servicing Contracts. Sell, pledge or grant a
-------------------------------------
security interest in any existing or future Servicing Contracts of any
Borrower or acquired in any Servicing Acquisition other than to the Credit
Agent for the benefit of the Secured Parties, or omit to take any action
required to keep all such Servicing Contracts in full force and effect;
provided, however, that if no Default or Event of Default has occurred and
is continuing, (a) servicing on individual Mortgage Loans may be sold
concurrently with and incidental to the sale of such Mortgage Loans (with
servicing released) in the ordinary course of the Borrowers' business, and
(b) Servicing Contracts may be sold by the Borrowers or any Subsidiary of
the Borrowers in the ordinary course of business as long as (i) after
giving effect to any such sale, the requirements of Section 7.11 will be
satisfied, and (ii) after giving effect to any prepayments of Servicing
Facility Advances made with the proceeds of such sale, no further
prepayments will be required pursuant to Section 2.10(l) hereof.
7.3 Merger; Sale of Assets; Acquisitions. Liquidate, dissolve,
------------------------------------
consolidate or merge or sell any substantial part of its assets, or acquire
any substantial part of the assets of another, other than acquisition of
(a) Nonrecourse Servicing Contracts acquired in the ordinary course of the
Borrowers' business, and (b) the stock or assets of a Person engaged
principally in the mortgage banking business and acquired in a Servicing
Acquisition. For purposes of this Section 7.3, "mortgage banking business"
shall mean business activities relating to (i) mortgage loan
securitizations in the primary and secondary markets, (ii) mortgage asset
management, and (iii) services with respect to the financing, managing and
sale of real property, and with respect to collateralized mortgage
obligations.
7.4 Deferral of Subordinated Debt. Except for the repayment of
-----------------------------
Subordinated Debt owed to COMIT in an amount not to exceed $4,000,000
(principal, accrued interest and other amounts) on or before the date the
Rights Offering
<PAGE>
closes, pay in advance of the stated maturity thereof any Subordinated Debt
of the Borrowers or, if a Default or Event of Default hereunder shall have
occurred, make any payment of any kind thereafter on such Subordinated
Debt, until all Obligations have been paid and performed in full and any
applicable preference period has expired.
7.5 Loss of Eligibility. Take any action that would cause any
-------------------
Borrower to lose all or any part of its status as an eligible lender,
seller/servicer and issuer as described under Section 5.13 hereof or in any
Borrower Addition Agreement.
7.6 Debt to Adjusted Tangible Net Worth Ratio. Permit the ratio of
-----------------------------------------
Debt (excluding, for this purpose only, Debt arising under the Hedging
Arrangements, to the extent of assets arising under the same Hedging
Arrangements) to Adjusted Tangible Net Worth of WMF Group (and its
Subsidiaries, on a consolidated basis) at any time to exceed 15 to 1.
7.7 Non-Warehouse Debt to Adjusted Tangible Net Worth. Permit the
-------------------------------------------------
ratio of Debt (excluding, for this purpose only, (a) Debt arising under
Hedging Arrangements, to the extent of assets arising under the same
Hedging Arrangements, (b) Warehousing Advances, and (c) other Debt secured
by Multifamily Mortgage Loans, Commercial Mortgage Loans and/or Mortgage-
backed Securities covered by Purchase Commitments issued by Investors, to
the extent such Debt does not exceed the Committed Purchase Price of such
Mortgage Loans) to Adjusted Tangible Net Worth of WMF Group (and its
Subsidiaries, on a consolidated basis) at any time to exceed 1.25 to 1.
7.8 Minimum Adjusted Tangible Net Worth. Permit Adjusted Tangible
-----------------------------------
Net Worth of WMF Group (and its Subsidiaries, on a consolidated basis) at
any time (a) from the Closing Date to and including June 30, 1999, to be
less than Thirty-Five Million Dollars ($35,000,000); and (b) thereafter, to
be less than Fifty Million Dollars ($50,000,000).
7.9 Liquidity. Permit the Liquid Assets of WMF Group (and its
---------
Subsidiaries, on a consolidated basis) at any time to be less than the
greater of (a) twenty-five percent (25%) of Tangible Net Worth or (b) Five
Million Dollars ($5,000,000).
7.10 Maximum Pass-Throughs. Permit the ratio (expressed as a
---------------------
percentage) of (a) the aggregate cumulative
<PAGE>
outstanding amount of advances to or on behalf of defaulting mortgagors
paid or required to have been paid by the Borrowers and their Subsidiaries
on Mortgage Loans and Mortgage-backed Securities to (b) Tangible Net Worth
of WMF Group (and its Subsidiaries, on a consolidated basis) at any time to
exceed forty percent (40%).
7.11 Minimum Nonrecourse Servicing Portfolio. Permit the Nonrecourse
---------------------------------------
Servicing Portfolio of the Borrowers to be less than Five Billion Dollars
($5,000,000,000).
7.12 Debt Service Coverage Ratio. Permit the Debt Service Coverage
---------------------------
Ratio, measured as of the last day of any fiscal quarter ending on or after
September 30, 1999, to be less than 1.50 to 1.00.
7.13 Minimum Income. Permit the net income of WMF Group (and its
--------------
Subsidiaries, on a consolidated basis, excluding, for measurement periods
ending on or before March 31, 2000, WMFCC) for any period of four (4)
consecutive fiscal quarters, to be less than One Dollar ($1).
7.14 Debt Limitation. Permit Debt (excluding, for this purpose only,
---------------
(a) Debt arising under Hedging Arrangements, to the extent of assets under
the same Hedging Arrangements, (b) Warehousing Advances, (c) other Debt
secured by Multifamily Mortgage Loans, Commercial Mortgage Loans or
Mortgage-backed Securities covered by Purchase Commitments issued by
Investors, to the extent such Debt does not exceed the Committed Purchase
Price of such Mortgage Loans, (d) Subordinated Debt, and (e) Debt of
Subsidiaries of WMF Group that are not Borrowers, provided such Debt is not
guaranteed by, secured by the assets of, or otherwise supported by, any
Borrower) of WMF Group (and its Subsidiaries, on a consolidated basis) to
exceed One Hundred Million Dollars ($100,000,000).
7.15 Acquisition of Recourse Servicing Contracts. Acquire or enter
-------------------------------------------
into, or permit any Subsidiary to acquire or enter into, Servicing
Contracts under which any Borrower or Subsidiary is obligated to repurchase
or indemnify the holder of the Mortgage Loans as a result of defaults on
the Mortgage Loans at any time during the term of such Mortgage Loans
(other than those Servicing Contracts that are customarily recognized in
the trade as non-recourse but that may contain repurchase or
indemnification obligations related to breaches of usual and customary
representations and warranties made in connection with the non-recourse
sale and servicing of the Mortgage Loans serviced thereunder).
<PAGE>
7.16 Transactions with Affiliates. Directly or indirectly (a) make
----------------------------
any loan, advance, extension of credit or capital contribution to any of
its Affiliates, (b) transfer, sell, pledge, assign or otherwise dispose of
any of its assets to or on behalf of such Affiliates, (c) merge or
consolidate with or purchase or acquire assets from such Affiliates, or (d)
pay management fees to or on behalf of such Affiliates; provided, that
nothing in this Section 7.16 shall restrict transactions between the
Borrowers. Provided that no Default or Event of Default has occurred or is
continuing at the time any transfer or investment is made, this Section
7.16 does not prohibit investments by WMF Group in an aggregate amount not
to exceed Ten Million Dollars ($10,000,000) in COMIT.
7.17 Gestation Facilities. Directly or indirectly sell or finance
--------------------
Pledged Mortgages under any Gestation Agreements.
7.18 Restricted Payments. Make any Restricted Payment if, either
-------------------
before or after giving effect thereto, a Default or Event of Default will
have occurred and be continuing.
7.19 Special Negative Covenants Concerning Collateral.
------------------------------------------------
7.19(a) The Borrowers shall not amend or modify, or waive
any of the terms and conditions of, or settle or compromise any claim
in respect of, any Pledged Mortgages or Pledged Securities.
7.19(b) The Borrowers shall not sell, assign, transfer or
otherwise dispose of, or grant any option with respect to, or pledge
or otherwise encumber (except pursuant to this Agreement or as
permitted herein), any of the Collateral or any interest therein.
7.19(c) The Borrowers shall not make any compromise,
adjustment or settlement in respect of any of the Collateral or accept
other than cash in payment or liquidation of the Collateral.
7.19(d) At any time that a Special Fannie Mae Advance is
outstanding against any Special Fannie Mae Loan, Washington shall not
amend, supplement, restate or otherwise modify the related Special
Fannie Mae Program Agreement, the promissory note(s) evidencing such
Special Fannie Mae Loans or the Fannie Mae Special Pool Purchase
Contract related thereto.
8. DEFAULTS; REMEDIES.
<PAGE>
8.1 Events of Default. The occurrence of any of the following
-----------------
conditions or events shall be an event of default ("Event of Default"):
8.1(a) Failure to pay the principal of any Advance when
due, whether at stated maturity, by acceleration, or otherwise; or
failure to pay any installment of interest on any Advance or any other
amount due under this Agreement within ten (10) days after the due
date; or failure to pay, within any applicable grace period, the
principal or interest on any other indebtedness of the Borrowers due
the Lenders; or
8.1(b) Failure of any Borrower or any of their
Subsidiaries, except WMFCC, to pay, or any default in the payment of
any principal or interest on, any other indebtedness or contingent
obligations in an aggregate amount of One Million Dollars ($1,000,000)
or more within any period of grace provided; breach or default with
respect to any other material term of any other indebtedness or of any
loan agreement, mortgage, indenture or other agreement relating
thereto, if the effect of such breach or default is to cause, or to
permit the holder or holders thereof (or a trustee on behalf of such
holder or holders) to cause, indebtedness of any Borrower or any of
their Subsidiaries, except WMFCC, in the aggregate amount of One
Million Dollars ($1,000,000) or more to become or be declared due
prior to its stated maturity (upon the giving or receiving of notice,
lapse of time, both, or otherwise); or
8.1(c) Failure of the Borrowers to perform or comply with
any term or condition applicable to them contained in Sections 6.3,
6.12, 6.13 and 6.14, or in any Section of Article 7 of this Agreement;
provided, however, that no Event of Default shall be deemed to occur
as a result of a breach of Section 6.13 or Section 7.19 hereof
relating to particular Pledged Mortgages if the Borrowers deliver to
the Lender the Release Amount for each Pledged Mortgage affected by
such breach within one (1) Business Day after the earliest of (i)
receipt by the Borrowers of Notice from the Lender of such breach,
(ii) receipt by the Lender of Notice from the Borrowers of such
breach, or (iii) the date the Borrowers should have notified the
Lender of such breach pursuant to Section 6.6(c) hereof; or
<PAGE>
8.1(d) (1) Any of the Borrowers' representations or
warranties made or deemed made herein or in any other Loan Document
shall be inaccurate or incomplete in any material respect on the date
as of which made or deemed made, or (2) any of the Borrowers'
representations or warranties made or deemed made in any statement or
certificate at any time given by any Borrower in writing pursuant
hereto or thereto shall be inaccurate or incomplete in any material
respect on the date as of which made or deemed made and, if such
inaccuracy or incompleteness was unintentional, the same has not been
cured within ten (10) days after (i) receipt by the Borrowers of
Notice thereof from the Credit Agent, (ii) receipt by the Credit Agent
of Notice thereof from the Borrowers, or (iii) the date the Borrowers
should have notified the Credit Agent thereof pursuant to Section
6.6(c); or
8.1(e) The Borrowers shall default in the performance of or
compliance with any term contained in this Agreement or any other Loan
Document other than those referred to above in Subsections 8.1(a),
8.1(c) or 8.1(d) and such default shall not have been remedied or
waived within thirty (30) days after the earliest of (i) receipt by
the Borrowers of Notice from the Credit Agent of such default, (ii)
receipt by the Credit Agent of Notice from the Borrowers of such
default, or (iii) the date the Borrowers should have notified the
Credit Agent of such default pursuant to Section 6.6(c); or
8.1(f) (1) A court having jurisdiction shall enter a decree
or order for relief in respect of any Borrower or any of their
Subsidiaries in an involuntary case under any applicable bankruptcy,
insolvency or other similar law in respect of any Borrower or any of
their Subsidiaries now or hereafter in effect, which decree or order
is not stayed; any Borrower or any of their Subsidiaries shall consent
to the entry of any such decree or order; or a filing of a voluntary
case under any applicable bankruptcy, insolvency or other similar law
in respect of any Borrower or any of their Subsidiaries has occurred;
or any other similar relief shall be granted under any applicable
federal or state law; or (2) the filing of an involuntary case in
respect of any Borrower or any of their Subsidiaries under any
applicable bankruptcy, insolvency or other similar law; or a decree or
order of a court having jurisdiction for the appointment of a
receiver, liquidator, sequestrator, trustee, custodian
<PAGE>
or other officer having similar powers over any Borrower or any of
their Subsidiaries, or over all or a substantial part of their
respective property, shall have been entered; or the involuntary
appointment of an interim or permanent receiver, trustee or other
custodian of any Borrower or any of their Subsidiaries for all or a
substantial part of their respective property; or the issuance of a
warrant of attachment, execution or similar process against any
substantial part of the property of any Borrower or any of their
Subsidiaries, and the continuance of any such events in Subsection (2)
above for sixty (60) days unless dismissed, bonded off or discharged;
or
8.1(g) Any Borrower or any of their Subsidiaries shall
consent to the appointment of or taking possession by a receiver,
trustee or other custodian for all or a substantial part of its
property; the making by any Borrower or any of their Subsidiaries of
any assignment for the benefit of creditors; or the inability or
failure of any Borrower or any of their Subsidiaries other than WMFCC,
or the admission by any Borrower or any of their Subsidiaries other
than WMFCC in writing of its inability, to pay its debts as such debts
become due; or
8.1(h) Failure of any Borrower or any of their Subsidiaries
to perform any contractual obligations which it may have to repurchase
Mortgage Loans if such obligations in the aggregate exceed One Million
Dollars ($1,000,000); or
8.1(i) Any money judgment, writ or warrant of attachment,
or similar process involving in any case an amount in excess of Five
Hundred Thousand Dollars ($500,000) shall be entered or filed against
any Borrower, any of their Subsidiaries or any of their respective
assets and shall remain undischarged, unvacated, unbonded or unstayed
for a period of thirty (30) days or in any event later than five (5)
days prior to the date of any proposed sale thereunder; or
8.1(j) Any order, judgment or decree shall be entered
against any Borrower decreeing the dissolution or split up of any
Borrower and such order shall remain undischarged or unstayed for a
period in excess of twenty (20) days; or
8.1(k) Any Plan maintained by any Borrower or any of their
Subsidiaries shall be
<PAGE>
terminated within the meaning of Title IV of ERISA or a trustee shall
be appointed by an appropriate United States district court to
administer any Plan, or the Pension Benefit Guaranty Corporation (or
any successor thereto) shall institute proceedings to terminate any
Plan or to appoint a trustee to administer any Plan if as of the date
thereof such Borrower's or Subsidiary's liability (after giving effect
to the tax consequences thereof) to the Pension Benefit Guaranty
Corporation (or any successor thereto) for unfunded guaranteed vested
benefits under the Plan exceeds the then current value of assets
accumulated in such Plan by more than Twenty-Five Thousand Dollars
($25,000) (or in the case of a termination involving any Borrower or
any of their Subsidiaries as a "substantial employer" (as defined in
Section 4001(a)(2) of ERISA) the withdrawing employer's proportionate
share of such excess shall exceed such amount); or
8.1(l) Any Borrower or any of their Subsidiaries as
employer under a Multiemployer Plan shall have made a complete or
partial withdrawal from such Multiemployer Plan and the plan sponsor
of such Multiemployer Plan shall have notified such withdrawing
employer that such employer has incurred a withdrawal liability in an
annual amount exceeding Twenty-Five Thousand Dollars ($25,000); or
8.1(m) Any Borrower or any of their Subsidiaries shall
purport to disavow its obligations hereunder or under any other Loan
Document, or shall contest the validity or enforceability hereof or
thereof; or the Credit Agent's security interest on any portion of
the Collateral shall become unenforceable or otherwise impaired;
provided that, subject to the Majority Lenders' approval, no Event of
Default shall occur as a result of such impairment if all Advances
made against any such Collateral shall be paid in full within ten
(10) days of the date of such impairment; or
8.1(n) WMF Group shall cease to own, directly or
indirectly, at least 51% of each class of the capital stock of any
other Borrower or any Subsidiary that has granted a Lien to secure the
Obligations; or
8.1(o) The Rights Offering shall not have closed, or WMF
Group shall not have received at
<PAGE>
least $20,000,000 in Net Proceeds therefrom, on or before May 31,
1999; or
8.1(p) A material adverse change occurs, or is
reasonably likely to occur, in the business condition (financial or
otherwise), operations, properties or prospects of the Borrowers, or
in the ability of the Borrowers to repay their Obligations; or
8.1(q) Any Lien for any taxes, assessments or other
governmental charges (i) is filed against the Borrowers or any of
their properties, or is otherwise enforced against the Borrowers or
any portion of their Collateral, or (ii) obtains priority that is
equal or greater than the priority of the Lender's security interest
in any of the Collateral; or
8.1(r) The Warehousing Maturity Date shall occur.
8.2 Remedies.
--------
8.2(a) If a Lender shall have knowledge of a Default
or an Event of Default, it shall forthwith give Notice thereof to the
Credit Agent. If the Credit Agent shall have knowledge of a Default or
an Event of Default, it shall forthwith give Notice thereof to each
Lender and to the Borrowers. The Credit Agent shall not be deemed to
have knowledge or Notice of the occurrence of a Default or an Event of
Default unless the Credit Agent has received Notice thereof from a
Lender or the Borrowers .
8.2(b) Upon the occurrence of any Event of Default
described in Sections 8.1(f) or 8.1(g) with respect to any Borrower,
the Commitment shall automatically be terminated and all unpaid
principal amounts of and accrued interest on the Notes and all other
Obligations shall automatically become due and payable, without
presentment, demand or other requirements of any kind, all of which
are hereby expressly waived by the Borrowers.
8.2(c) Upon the occurrence of any Event of Default,
other than those described in Sections 8.1(f) and 8.1(g) with respect
to any Borrower, the Majority Lenders may, by Notice to the Borrowers,
terminate the Commitments and/or declare all Obligations to be
immediately due and payable,
<PAGE>
whereupon the same shall forthwith become due and payable, together
with all accrued interest thereon, and the obligation of the Lenders
to make any Advances shall thereupon terminate.
8.2(d) Upon the occurrence of any Event of Default,
the Credit Agent, on behalf of the Secured Parties, may also do any of
the following:
(1) Foreclose upon or otherwise enforce its
security interest in and Lien on the Collateral to secure all
payments and performance of the Obligations in any manner
permitted by law or provided for hereunder.
(2) Notify all obligors in respect of
Collateral that the Collateral has been assigned to the Credit
Agent, for the benefit of the Secured Parties, and that all
payments thereon are to be made directly to the Credit Agent or
such other party as may be designated by the Credit Agent;
settle, compromise, or release, in whole or in part, any amounts
owing on the Collateral, any such obligor or any Investor or any
portion of the Collateral, on terms acceptable to the Credit
Agent; enforce payment and prosecute any action or proceeding
with respect to any and all Collateral; and where any such
Collateral is in default, foreclose on and enforce security
interests in such Collateral by any available judicial procedure
or without judicial process and sell property acquired as a
result of any such foreclosure.
(3) Act, or contract with a third party to
act, as servicer or subservicer of each item of Collateral
requiring servicing and perform all obligations required in
connection with the Pledged Mortgages, the Pledged Securities,
the Pledged Servicing Contracts and related Purchase Commitments,
such third party's fees to be paid by the Borrowers.
(4) Require the Borrowers to assemble the
Collateral and/or books and records relating thereto and make
such available to the Credit Agent at a place to be designated by
the Credit Agent.
(5) Enter onto property where any Collateral
or books and records relating
<PAGE>
thereto are located and take possession thereof with or without
judicial process; and obtain access to the Borrowers' data
processing equipment, computer hardware and software relating to
the Collateral and to use all of the foregoing and the
information contained therein in any manner the Credit Agent
deems necessary for the purpose of effectuating its rights under
this Agreement and any other Loan Document.
(6) Prior to the disposition of the
Collateral, prepare it for disposition in any manner and to the
extent the Credit Agent deems appropriate.
(7) Exercise all rights and remedies of a
secured creditor under the Uniform Commercial Code of Minnesota
or other applicable law, including, but not limited to, selling
or otherwise disposing of the Collateral, or any part thereof, at
one or more public or private sales, whether or not such
Collateral is present at the place of sale, for cash or credit or
future delivery, on such terms and in such manner as the Credit
Agent may determine, including, without limitation, sale pursuant
to any applicable Purchase Commitment. If notice is required
under such applicable law, the Credit Agent will give the
Borrowers not less than ten (10) days' notice of any such public
sale or of the date after which any private sale may be held. The
Borrowers agree that ten (10) days' notice shall be reasonable
notice. The Credit Agent may, without notice or publication,
adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place
fixed for the sale, and such sale may be made at any time or
place to which the same may be so adjourned. In case of any sale
of all or any part of the Collateral on credit or for future
delivery, the Collateral so sold may be retained by the Credit
Agent until the selling price is paid by the purchaser thereof,
but the Credit Agent shall not incur any liability in case of the
failure of such purchaser to take up and pay for the Collateral
so sold and, in case of any such failure, such Collateral may
again be sold upon like notice. The Credit Agent may, however,
instead of exercising the power of sale herein conferred upon it,
proceed by a suit or suits at law or in equity
<PAGE>
to collect all amounts due upon the Collateral or to foreclose
the pledge and sell the Collateral or any portion thereof under a
judgment or decree of a court or courts of competent
jurisdiction, or both.
(8) Proceed against the Borrowers on the
Notes.
The Credit Agent shall follow the instructions of the
Majority Lenders in exercising or not exercising its rights under this
Section 8.2(d), but (i) the Credit Agent shall have no obligation to
take or not to take any action which it believes may expose it to any
liability, and (ii) the Credit Agent may, but shall be under no
obligation to, await instructions from the Majority Lenders before
exercising or not exercising its rights under this Section 8.2(d).
8.2(e) Neither the Credit Agent nor any other Secured
Party shall incur any liability as a result of the sale or other
disposition of the Collateral, or any part thereof, at any public or
private sale or disposition. The Borrowers hereby waive (to the extent
permitted by law) any claims it may have against the Credit Agent and
the other Secured Parties arising by reason of the fact that the price
at which the Collateral may have been sold at such private sale was
less than the price which might have been obtained at a public sale or
was less than the aggregate amount of the outstanding Advances and the
unpaid interest accrued thereon, even if the Credit Agent accepts the
first offer received and does not offer the Collateral to more than
one offeree, provided such sale was commercially reasonable in all
other respects. Any sale of Collateral pursuant to the terms of a
Purchase Commitment, or any other disposition of Collateral arranged
by any Borrower, whether before or after the occurrence of an Event of
Default, shall be deemed to have been made in a commercially
reasonable manner.
8.2(f) The Borrowers acknowledge that Mortgage Loans
and Mortgage-backed Securities are collateral of a type which is
customarily sold on a recognized market. The Borrowers waive any right
they may have to prior notice of the sale of any Pledged Mortgage or
Pledged Security, and agrees that any
<PAGE>
Lender may purchase any Pledged Mortgages or Pledged Securities at a
private sale of such Collateral.
8.2(g) The Borrowers specifically waive and release
(to the extent permitted by law) any equity or right of redemption,
all rights of redemption, stay or appraisal which the Borrowers have
or may have under any rule of law or statute now existing or hereafter
adopted, and any right to require the Credit Agent or any of the
Secured Parties to (1) proceed against any Person, (2) proceed against
or exhaust any of the Collateral or pursue their rights and remedies
as against the Collateral in any particular order, or (3) pursue any
other remedy in their power. The Credit Agent shall not be required to
take any steps necessary to preserve any rights of the Borrowers
against holders of mortgages prior to the Lien of any Mortgage
included in the Collateral or to preserve rights against prior
parties.
8.2(h) The Credit Agent and/or the Lenders may, but
shall not be obligated to, advance any sums or do any act or thing
necessary to uphold and enforce the Lien and priority of, or the
security intended to be afforded by, any Mortgage included in the
Collateral, including, without limitation, payment of delinquent taxes
or assessments and insurance premiums. All advances, charges, costs
and expenses, including reasonable attorneys' fees and disbursements,
incurred or paid by the Credit Agent or any Lender in exercising any
right, power or remedy conferred by this Agreement, or in the
enforcement hereof, together with interest thereon at the Default Rate
from the time of payment until repaid, shall become a part of the
principal balance outstanding hereunder and under the Notes.
8.2(i) No failure on the part of the Credit Agent or
any other Secured Party to exercise, and no delay in exercising, any
right, power or remedy provided hereunder, at law or in equity shall
operate as a waiver thereof; nor shall any single or partial exercise
by the Credit Agent or any other Secured Party of any right, power or
remedy provided hereunder, at law or in equity preclude any other or
further exercise thereof or the exercise of any other right, power or
remedy. Without intending to limit the foregoing, all defenses based
on the statute of limitations are hereby waived by the Borrowers to
the extent permitted by law.
<PAGE>
The remedies herein provided are cumulative and are not exclusive of
any remedies provided at law or in equity.
8.2(j) The Borrowers acknowledge that the Borrowers
and the Credit Agent may from time to time hereafter enter into,
agreements ("Acknowledgment Agreements") with Fannie Mae, Ginnie Mae
or any other Investor in order to obtain the consent of Fannie Mae,
Ginnie Mae or such other Investor to the assignment of and security
interest granted in the Pledged Servicing Contracts. The Borrowers
further acknowledge that the Acknowledgment Agreements may contain
certain provisions concerning the enforcement by the Credit Agent of
its security interest, for the benefit of the Secured Parties, in the
Servicing Contracts subject thereto. The Borrowers agree that the
disposition of their rights in any Pledged Servicing Contract pursuant
to the terms of the applicable Acknowledgment Agreement shall be
deemed commercially reasonable within the meaning of Section 9-504(3)
of the Uniform Commercial Code of Minnesota. The Borrowers hereby
waive any claims they might otherwise have against the Credit Agent or
the other Secured Parties as a result of the Credit Agent's compliance
with the terms of any Acknowledgment Agreement.
8.2(k) The Credit Agent is hereby granted a license or
other right to use, without charge, the Borrowers' computer programs,
other programs, labels, patents, copyrights, rights of use of any
name, trade secrets, trade names, trademarks, service marks and
advertising matter, or any property of a similar nature, as it
pertains to the Collateral, in advertising for sale and selling any
Collateral, and the Borrowers' rights under all licenses and all other
agreements related to the foregoing shall insure to the Credit Agent's
benefit until the Obligations and the Letter of Credit Obligations are
paid in full and no Letters of Credit are outstanding.
8.3 Application of Proceeds. The proceeds of any sale, disposition
-----------------------
or other enforcement of the Credit Agent's security interest in all or any
part of the Collateral shall be applied by the Credit Agent as follows:
8.3(a) In the case of the proceeds of the Warehousing
Collateral and Receivables:
<PAGE>
First, to the payment of the costs and expenses of
-----
such sale or enforcement, including reasonable compensation to the
Credit Agent's and Collateral Agent's agents and counsel, and all
expenses, liabilities and advances made or incurred by or on behalf of
the Credit Agent and Collateral Agent in connection therewith;
Second, to the payment of the costs and expenses of
------
such sale or enforcement, including reasonable compensation to the
Lenders' agents and counsel, and all expenses, liabilities and
advances made or incurred by or on behalf of any Lender in connection
therewith;
Third, to the Swingline Lender, in an amount equal
-----
to the amount of accrued interest, or accrued fees charged in lieu of
interest pursuant to a Balance Funded Agreement, owed to the Swingline
Lender in respect of Swingline Advances, until paid in full;
Fourth, to the Swingline Lenders until the principal
------
amount of all Swingline Advances outstanding are paid in full;
Fifth, to the Lenders holding Warehousing Advances,
-----
pro rata in accordance with the amount of accrued interest, or accrued
fees charged in lieu of interest pursuant to a Balance Funded
Agreement, owed to each of them in respect to Warehousing Advances,
until such interest and fees are paid in full;
Sixth, to the Lenders holding Warehousing Advances,
-----
pro rata in accordance with their respective Warehousing Percentage
Shares, until the principal amounts of all Warehousing Advances
outstanding are paid in full;
Seventh, to the Lenders holding Warehousing Advances,
-------
pro rata in accordance with their respective Warehousing Percentage
Shares, until all fees and other Obligations accrued by or due each
Lender, the Credit Agent and the Collateral Agent are paid in full;
Eighth, to the Lenders, for application to the
------
Obligations owed to each of them in respect of the Servicing Facility
Advances and the Term Loan
<PAGE>
Advances, as set forth in clauses Third and Fourth of Section 8.2(b)
----- ------
hereof;
Ninth, to LaSalle, for application to the Letter of
-----
Credit Obligations and to hold as separate collateral for any future
Letter of Credit Obligations, in the amount notified by LaSalle to the
Credit Agent;
Tenth, to the remaining Obligations; and
-----
Finally, to the payment to the Borrowers, or to their
-------
successors or assigns, or as a court of competent jurisdiction may
direct, of any surplus then remaining from such proceeds.
8.3(b) In the case of the proceeds of the Servicing
Collateral:
First, to the payment of the costs and expenses of
-----
such sale or enforcement, including reasonable compensation to the
Credit Agent's and Collateral Agent's agents and counsel, and all
expenses, liabilities and advances made or incurred by or on behalf of
the Credit Agent and Collateral Agent in connection therewith;
Second, to the payment of the costs and expenses of
------
such sale or enforcement, including reasonable compensation to the
Lenders' agents and counsel, and all expenses, liabilities and
advances made or incurred by or on behalf of any Lender in connection
therewith;
Third, to the Lenders holding Servicing Facility
-----
Advances and/or Term Loan Advances, pro rata in accordance with the
amount of accrued interest, or accrued fees charged in lieu of
interest pursuant to a Balance Funded Agreement, owed to each of them
in respect of Term Loan Advances and Servicing Facility Advances,
until such interest and fees are paid in full;
Fourth, to the Lenders holding Servicing Facility
------
Advances and/or Term Loan Advances, pro rata in accordance with their
respective Servicing Facility Percentage Shares and Term Loan
Servicing Facility Percentage Shares and Term Loan Percentage Shares,
until the principal amount of all Term Loan Advances
<PAGE>
and Servicing Facility Advances outstanding are paid in full;
Fifth, to the Lenders holding Servicing Facility
-----
Advances and/or Term Loan Advances, pro rata in accordance with their
respective Percentage Shares, until all fees and other Obligations
accrued by or due each Lender, the Credit Agent and the Collateral
Agent are paid in full;
Sixth, to LaSalle, for application to the Letter of
-----
Credit Obligations and to hold as separate collateral for any future
Letter of Credit Obligations, in the amount notified by LaSalle to the
Credit Agent;
Seventh, to the Lenders, for application to the
-------
Obligations owed to each of them in respect of Warehousing Advances,
as set forth in clauses Third, Fourth, Fifth and Sixth of Section
----- ------ ----- -----
8.3(a) hereof;
Eighth, to the remaining Obligations; and
------
Finally, to the payment to the Borrowers, or to their
-------
successors or assigns, or as a court of competent jurisdiction may
direct, of any surplus then remaining from such proceeds.
8.3(c) If the proceeds of any such sale, disposition
or other enforcement are insufficient to cover the costs and expenses
of such sale, as aforesaid, and the payment in full of all
Obligations, the Borrowers shall remain liable for any deficiency.
8.4 Credit Agent Appointed Attorney-in-Fact. The Credit Agent is
---------------------------------------
hereby appointed the attorney-in-fact of the Borrowers, with full power of
substitution, for the purpose of carrying out the provisions hereof and
taking any action and executing any instruments which the Credit Agent may
deem necessary or advisable to accomplish the purposes hereof, which
appointment as attorney-in-fact is irrevocable and coupled with an
interest. Without limiting the generality of the foregoing, the Credit
Agent shall have the right and power to give notices of its security
interest in the Collateral to any Person, either in the name of the
Borrowers or in its own name, to endorse all Pledged Mortgages or Pledged
Securities payable to the order of the Borrowers, to change or cause to be
changed the book-entry registration or name of subscriber or Investor on
any
<PAGE>
Pledged Security, or to receive, endorse and collect all checks made
payable to the order of either Borrower representing any payment on account
of the principal of or interest on, or the proceeds of sale of, any of the
Pledged Mortgages or Pledged Securities and to give full discharge for the
same. Except to the extent the Credit Agent is granted the power to take
any action covered by the foregoing power of attorney prior to the
occurrence of an Event of Default under the Loan Documents, the Lenders
agree that the Credit Agent shall not exercise the foregoing power of
attorney prior to the occurrence of an Event of Default.
8.5 Right of Setoff. The Borrowers hereby grant to the Credit Agent,
---------------
to each Lender and to any assignee or Participant of any Lender a right of
setoff, to secure the repayment of the Obligations and (in the case of
LaSalle) the Letter of Credit Obligations, upon any and all monies,
securities, or other property of the Borrowers, and the proceeds thereof,
now or hereafter held or received by or in transit to such Person, from or
for the account of the Borrowers, whether for safekeeping, custody, pledge,
transmission, collection or otherwise, and all deposits (general or
special, time or demand, provisional or final) and credits of the Borrowers
and any and all claims of the Borrowers against such Person at any time
existing. Upon the occurrence and during the continuance of any Event of
Default, the Credit Agent, each Lender and any assignee or Participant of
any Lender is hereby authorized, at any time and from time to time, without
notice, to setoff and to appropriate or apply any and all items hereinabove
described against and on account of the Obligations and (in the case of
LaSalle) the Letter of Credit Obligations, irrespective of whether or not
the Lenders shall have made any demand hereunder and whether or not said
Obligations or Letter of Credit Obligations shall have matured.
8.6 Sharing of Payments. If upon the occurrence of an Event of
-------------------
Default and acceleration of the Obligations any Lender shall hold or
receive and retain any payment, whether by setoff, application of deposit
balance or security, or otherwise, in respect of the Obligations, then such
Lender shall purchase from the other Lenders for cash and at face value and
without recourse, such participation in the Obligations held by them as
shall be necessary to cause such payment to be shared with each of them as
provided in Section 8.3 hereof; provided, that if such payment or part
thereof is thereafter recovered from such purchasing Lender, the related
purchases from the other Lenders shall be rescinded ratably and the
purchase price restored as to the portion of such excess payment so
recovered, but without
<PAGE>
interest thereon unless the purchasing Lender is required to pay interest
on such amounts to the Person recovering such payment, in which case with
interest thereon, computed at the same rate, and on the same basis, as the
interest that the purchasing Lender is required to pay. If any Lender
receives a payment from the Borrowers not in respect of the Obligations,
but relating to another relationship of such Lender and the Borrowers, such
Lender may apply the payment first to the indebtedness arising out of the
other relationship and then against the Obligations as provided for above.
9. THE CREDIT AGENT.
9.1 Appointment. Each Lender hereby irrevocably designates and
-----------
appoints the Credit Agent as the agent of such Lender under the Loan
Documents and each such Lender hereby irrevocably authorizes the Credit
Agent to take such action on its behalf under the provisions of the Loan
Documents and to exercise such powers and perform such duties as are
expressly delegated to the Credit Agent by the terms of the Loan Documents,
together with such other powers as are reasonably incidental thereto. The
Credit Agent hereby accepts such appointment and agrees to act in
accordance with this Agreement.
9.2 Duties of Credit Agent. The provisions of the Loan Documents set
----------------------
forth the exclusive duties of the Credit Agent and no implied duties or
obligations shall be read into the Loan Documents against the Credit Agent.
The Credit Agent shall not be bound in any way by any agreement or contract
other than the Loan Documents and any other agreement to which it is a
party.
9.3 Standard of Care. The Credit Agent shall act in accordance with
----------------
customary standards for those engaged as agents of commercial loan
transactions in similar capacities. Without limiting the generality of the
foregoing:
9.3(a) The Credit Agent shall not be required to ascertain or
inquire as to the performance or observance of any of the conditions
or agreements to be performed or observed by any other party, except
as specifically provided in the Loan Documents. The Credit Agent
disclaims any responsibility for the validity or accuracy of the
recitals to this Agreement and any representations and warranties
contained herein, unless specifically identified as recitals,
representations or warranties of the Credit Agent.
<PAGE>
9.3(b) The Credit Agent shall have no responsibility for
ascertaining the value, collectibility, insurability, enforceability,
effectiveness or suitability of any Collateral, the title of any party
therein, the validity or adequacy of the security afforded thereby, or
the validity of this Agreement (except as to Credit Agent's authority
to enter into this Agreement and to perform its obligations
hereunder).
9.3(c) No provision of this Agreement shall require the Credit
Agent to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder or in the
exercise of any of its rights or powers, if, in its sole judgment, it
shall believe that repayment of such funds or adequate indemnity
against such risk or liability is not assured to it.
9.3(d) The Credit Agent is not responsible for preparing or
filing any reports or returns relating to federal, state or local
income taxes with respect to this Agreement, other than for the Credit
Agent's compensation or for reimbursement of expenses.
9.4 Delegation of Duties. The Credit Agent may execute any of its
--------------------
duties under the Loan Documents by or through agents or attorneys-in-fact
and shall be entitled to advice of counsel concerning all matters
pertaining to such duties. The Credit Agent shall not be responsible for
the negligence or misconduct of any agents or attorneys-in-fact selected by
it with reasonable care.
9.5 Exculpatory Provisions. Neither the Credit Agent nor any of its
----------------------
respective officers, directors, employees, agents, attorneys-in-fact or
Affiliates shall be (a) liable for any action taken or omitted to be taken
by it or such Person under or in connection with the Loan Documents (except
for its or such Person's own gross negligence or willful misconduct), or
(b) responsible in any manner to any of the Lenders for any recitals,
statements, representations or warranties made by the Borrowers or any
officer thereof contained in the Loan Documents or in any certificate,
report, statement or other document referred to or provided for in, or
received by the Credit Agent under or in connection with, the Loan
Documents or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of the Loan Documents or for any failure of
the Borrowers to perform their obligations under any Loan Document. The
Credit Agent shall not be under any
<PAGE>
obligation to any Lender to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, the
Loan Documents or to inspect the properties, books or records of the
Borrowers or any of their Subsidiaries.
9.6 Reliance by Credit Agent. The Credit Agent shall be entitled to
------------------------
rely, and shall be fully protected in relying, upon any note, writing,
resolution, notice, consent, certification, affidavit, letter, cablegram,
telegram, telecopy, telex or teletype message, statement, order or other
document or conversation reasonably believed by it to be correct and to
have been signed, sent or made by the proper Person or Persons and upon
advice and statements of legal counsel (including, without limitation,
counsel to the Borrowers), independent accountants and other experts
selected by the Credit Agent. The Credit Agent may deem and treat the
payee of any Note as the owner thereof for all purposes. As to the
Lenders: (a) the Credit Agent shall be fully justified in failing or
refusing to take any action under the Loan Documents unless it shall first
receive such advice or concurrence of the Majority Lenders or all of the
Lenders, as appropriate, and/or it shall first be indemnified to its
satisfaction by the Lenders ratably in accordance with their respective
Percentage Shares against any and all liability and expense which may be
incurred by it by reason of taking or continuing to take any action (except
for liabilities and expenses resulting from the Credit Agent's gross
negligence or willful misconduct), and (b) the Credit Agent shall in all
cases be fully protected in acting, or in refraining from acting, under the
Loan Documents in accordance with a request of the Majority Lenders or all
of the Lenders, as appropriate, and such request and any action taken or
failure to act pursuant thereto shall be binding upon all the Lenders.
9.7 Non-Reliance on Credit Agent or Other Lenders. Each Lender
---------------------------------------------
expressly acknowledges that neither the Credit Agent nor any of its
respective officers, directors, employees, agents, attorneys-in-fact or
Affiliates has made any representations or warranties to such Lender and
that no act by the Credit Agent hereafter taken, including any review of
the affairs of the Borrowers, shall be deemed to constitute any
representation or warranty by the Credit Agent to any Lender. Each Lender
represents to the Credit Agent that it has, independently and without
reliance upon the Credit Agent or any other Lender, and based on such
documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, operations, property,
financial and other condition and
<PAGE>
creditworthiness of the Borrowers and made its own decision to enter into
and make Advances under the Credit Agreement. Each Lender also represents
that it will, independently and without reliance upon the Credit Agent or
any other Lender, and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under the Credit
Agreement, and to make such investigation as it deems necessary to inform
itself as to the business, operations, property, financial and other
condition and creditworthiness of the Borrowers. Except for notices,
reports and other documents expressly required to be furnished to the
Lenders by the Credit Agent hereunder, the Credit Agent shall have no duty
or responsibility to provide any Lender with any credit or other
information concerning the business, operations, property, financial or
other condition or creditworthiness of the Borrowers or any Subsidiary
which may come into the possession of the Credit Agent or any of its
respective officers, directors, employees, agents, attorneys-in-fact or
Affiliates.
9.8 Credit Agent in Individual Capacity. The Credit Agent may make
-----------------------------------
loans to, accept deposits from and generally engage in any kind of business
with the Borrowers as though the Credit Agent was not the Credit Agent
hereunder. With respect to the Advances made or renewed by it and any Note
issued to it, the Credit Agent shall have the same rights and powers under
the Loan Documents as any Lender and may exercise the same as though it
were not the Credit Agent, and the terms "Lender" and "Lenders" shall
include the Credit Agent in its individual capacity.
9.9 Successor Credit Agent. The Credit Agent may resign as such at
----------------------
any time upon giving thirty (30) days Notice to the Borrowers and the
Lenders. The Credit Agent may be removed immediately with cause or at any
time upon thirty (30) days Notice from the Majority Lenders to the Credit
Agent and the Borrowers. Upon Notice of such resignation or removal, the
Majority Lenders may appoint a successor Credit Agent (which successor
Credit Agent, assuming that no Default or Event of Default exists, shall be
reasonably acceptable to the Borrowers). The date on which the Borrowers,
the Collateral Agent and Lenders have received Notice from such successor
of its acceptance of appointment as the Credit Agent shall constitute the
effective date of resignation or removal of the resigning or removed the
Credit Agent. If no successor Credit Agent shall have been so appointed by
the Majority Lenders, and shall have accepted such appointment within the
allotted time period, then, upon five (5) days' Notice to the
<PAGE>
Borrowers, the resigned or removed Credit Agent may, on behalf of the
Lenders, appoint a successor. Upon the effective date of resignation or
removal of the resigning or removed Credit Agent, such successor will
thereupon succeed to and become vested with all the rights, powers,
privileges, and duties of the resigning or removed Credit Agent, but the
resigning or removed Credit Agent shall not be discharged from any
liability as a result of its or its directors', officers', agents', or
employees' gross negligence or willful misconduct in the performance of its
duties and obligations under this Agreement prior to the effective date of
its resignation or removal. Upon the effective date of its resignation or
removal, the Credit Agent shall assign all of its right, title and security
interest in and to all Collateral to its successor, without recourse,
warranty or representation, express or implied.
9.10 Agreements Regarding Servicing Collateral and Acknowledgment
------------------------------------------------------------
Agreements. Each Lender (including each Lender becoming a party hereto as
----------
an Additional Lender pursuant to Section 13.4) hereby agrees (a) to benefit
under this Agreement with respect to the Servicing Collateral and under
each Acknowledgment Agreement exclusively by and through the Credit Agent,
(b) to authorize the Credit Agent or its agent to act exclusively for such
Lender with respect to the Acknowledgment Agreements and persons (other
than the Borrowers) party thereto, and (c) that all terms of the
Acknowledgment Agreements shall be binding on such Lender as if it had
executed the same. The provisions of clause (c) of the preceding sentence
shall not be effective with respect to any Acknowledgment Agreement, other
than Acknowledgment Agreements in the forms promulgated by Fannie Mae and
Freddie Mac as of the date of this Agreement, unless the Credit Agent's
execution and delivery of such Acknowledgment Agreement is consented to by
all of the Lenders.
10. NOTICES.
All notices, demands, consents, requests and other communications
required or permitted to be given or made hereunder (collectively,
"Notices") shall, except as otherwise expressly provided hereunder, be in
writing and shall be delivered in person or telecopied, or mailed, first
class or delivered by overnight courier, return receipt requested, postage
prepaid, addressed to the respective party hereto at its address set forth
opposite the name of such party on the signature pages of this Agreement
or, as to any such party, at such other address as may be designated by it
in a Notice to the other. All Notices
<PAGE>
shall be conclusively deemed to have been properly given or made when duly
delivered, in person, by telecopy or by overnight courier, or if mailed, on
the date of receipt as noted on the return receipt.
11. REIMBURSEMENT OF EXPENSES; INDEMNITY.
11.1 Reimbursement of Expenses and Indemnification by the Borrowers.
--------------------------------------------------------------
The Borrowers shall: (a) pay a documentation production fee of Five
Thousand Dollars ($5,000) to the Credit Agent in connection with the
preparation and negotiation of this Agreement; (b) pay all reasonable out-
of-pocket costs and expenses of the Credit Agent and the Collateral Agent,
including, without limitation, reasonable fees and disbursements of counsel
(including the fees and service charges of Dorsey & Whitney LLP, special
counsel to the Credit Agent, and allocated costs of internal counsel), in
connection with the preparation, negotiation, amendment, enforcement and
administration of this Agreement, the Notes, and other Loan Documents and
the making and repayment of the Advances and the payment of interest
thereon; (c) indemnify, pay, and hold harmless the Lenders and any holder
of the Notes from and against, any and all present and future stamp,
documentary and other similar taxes with respect to the foregoing matters
and save the Lenders and the holder or holders of the Notes harmless from
and against any and all liabilities with respect to or resulting from any
delay or omission to pay such taxes; (d) indemnify, pay and hold harmless
the Credit Agent, the Collateral Agent and each Lender and any of their
respective officers, directors, employees or agents and any subsequent
holder of the Notes (collectively called the "Indemnitees") from and
against any and all liabilities, obligations, losses, damages, penalties,
judgments, suits, and reasonable costs, expenses and disbursements of any
kind or nature whatsoever (including without limitation, the reasonable
fees and disbursements of counsel of the Indemnitees (including allocated
costs of internal counsel) in connection with any investigative,
administrative or judicial proceeding, whether or not such Indemnitees
shall be designated a party thereto) which may be imposed upon, incurred by
or asserted against such Indemnitees in any manner relating to or arising
out of this Agreement, the Notes, or any other Loan Document or any of the
transactions contemplated hereby or thereby (the "Indemnified
Liabilities"); provided, however, that the Borrowers shall have no
obligation hereunder to any Indemnitee with respect to Indemnified
Liabilities arising from any action or inaction by the Borrowers explicitly
directed by the Credit Agent or by any Lender in writing, or
<PAGE>
the gross negligence or willful misconduct of such Indemnitee. To the
extent that the undertaking to indemnify, pay and hold harmless as set
forth in the preceding sentence may be unenforceable because it is
violative of any law or public policy, the Borrowers shall contribute the
maximum portion which it is permitted to pay and satisfy under applicable
law, to the payment and satisfaction of all Indemnified Liabilities
incurred by the Indemnitees or any of them. The agreement of the Borrowers
contained in this Subsection (d) shall survive the expiration or
termination of this Agreement and the payment in full of the Notes.
Reasonable attorneys' fees and disbursements incurred in enforcing, or on
appeal from, a judgment pursuant hereto shall be recoverable separately
from and in addition to any other amount included in such judgment, and
this clause is intended to be severable from the other provisions of this
Agreement and to survive and not be merged into such judgment. As to
Subsection (d), each Indemnitee shall use its best efforts to give
Borrowers' notice of any such investigative, administrative or judicial
proceeding, and the Borrowers shall have the right to consult in the
defense of or the negotiation relating to any such matter at Borrowers'
expense.
11.2 Indemnification by the Lenders. The Lenders agree to indemnify
------------------------------
each of the Credit Agent and the Collateral Agent in its respective
capacity as such (to the extent not reimbursed by the Borrowers, and
without limiting the obligation of the Borrowers to do so), ratably
according to the respective amounts of their Percentage Shares, from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind
whatsoever which may at any time (including without limitation at any time
following the payment of the Obligations) be imposed on, incurred by or
asserted against the Credit Agent or the Collateral Agent in any way
relating to or arising out of the Loan Documents or any documents
contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by the Credit
Agent or the Collateral Agent under or in connection with any of the
foregoing; provided that no Lender shall be liable for the payment of any
portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting from
the Credit Agent's or the Collateral Agent's gross negligence or willful
misconduct. The agreements in this Section shall survive the payment of
the Obligations and the termination of this Agreement. Attorneys' fees and
disbursements incurred in enforcing, or on appeal from, a
<PAGE>
judgment pursuant hereto shall be recoverable separately from and in
addition to any other amount included in such judgment, and this clause is
intended to be severable from the other provisions of this Agreement and to
survive and not be merged into such judgment.
12. FINANCIAL INFORMATION.
All financial statements and reports furnished to the Credit Agent or
the Lenders hereunder shall be prepared in accordance with GAAP, applied on
a basis consistent with that applied in preparing the financial statements
as at the end of and for the last fiscal year ended (except to the extent
otherwise required to conform to good accounting practice).
13. MISCELLANEOUS.
13.1 Terms Binding Upon Successors; Survival of Representations. The
----------------------------------------------------------
terms and provisions of this Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and
assigns. All representations, warranties, covenants and agreements herein
contained on the part of the Borrowers shall survive the making of any
Advance and the execution of the Notes, and shall be effective so long as
any Lender's commitment is outstanding hereunder or there remain any
Obligations to be paid or performed.
13.2 Lenders in Individual Capacity. The Lenders and their
------------------------------
Affiliates may make loans to, accept deposits from and generally engage in
any kind of business with the Borrowers or any Subsidiary of the Borrowers
regardless of the capacity of the Lenders hereunder. The Lenders may
disclose to the other Lenders information regarding other relationships
which they may have with the Borrowers and the Borrowers hereby consent to
these disclosures.
13.3 Participation and Assignments. This Agreement and the
-----------------------------
Obligations of the Borrowers may not be assigned by the Borrowers. Any
Lender may, subject to the limitations set forth below, assign or transfer,
in whole or in part, this Agreement and the other Loan Documents and
further may sell participations in all or any part of its Advances or
Maximum Commitment or any other interest in the Obligations or any of its
obligations hereunder to another Person, in which event: (a) in the case
of an assignment, upon consent of the Credit Agent and, with respect to any
assignment made except after the occurrence and during the continuance of
an Event of Default, the Borrowers (which consent of the
<PAGE>
Borrowers shall not be unreasonably withheld), the assignee shall have, to
the extent of such assignment (unless otherwise provided thereby), the same
rights and benefits as it would have if it were a "Lender" hereunder, and,
if the assignee has expressly assumed, for the benefit of the Borrowers,
such Lender's obligations hereunder, such Lender shall be relieved of its
obligations hereunder to the extent of such assignment and assumption,
provided that the Credit Agent shall have no obligation to consent to there
being more than a total of ten (10) Lenders (a Participant is not a
Lender); and (b) in the case of a participation, the participating Person's
(a "Participant") rights against the Lender from whom it has purchased such
participation in respect of such participation are those set forth in the
agreement executed by such Lender in favor of the Participant relating
thereto. In the case of any sale of a participation by any Lender, such
Lender shall remain solely responsible to the other parties hereto for the
performance of such Lender's obligations under the Loan Documents, whether
or not such Lender shall remain the holder of any Note, such Lender shall
retain all voting rights with respect to such Note, the Advances hereunder
and the Lender's Maximum Commitment, and the Borrowers, the Credit Agent
and the other Lenders shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under the
Loan Documents. Each such Participant shall enter into an agreement with
the Participating Lender under which such Participant agrees (a) to the
benefit under this Agreement with respect to the Servicing Collateral and
under the Acknowledgment Agreements exclusively by and through the Credit
Agent, (b) to authorize the Credit Agent or its agent to act exclusively
for such Participant with respect to the Acknowledgment Agreements and the
parties thereto (other than the Borrowers), and (c) that all terms of the
Acknowledgment Agreements shall be binding upon such Participant as if it
had executed the same. Nothing contained herein shall in any manner or to
any extent affect the right of any Lender to assign its Note and its right
to receive and retain payments on its Note provided such Lender remains
primarily and directly liable pursuant to the terms and conditions of this
Agreement to keep, observe and perform all of its obligations under this
Agreement, and all such assignments shall be treated, considered and
administered as a sale of a participation and not as an assignment and
shall be subject to and governed by the provisions of this Section.
Notwithstanding the other provisions of this Section 13.3, (a) no Lender
shall assign or transfer its Warehousing Advances or Maximum Warehousing
Commitment if the portion of such Lender's Maximum Warehousing Commitment
held by it
<PAGE>
(after giving effect to all such assignments) would be less than Fifteen
Million Dollars ($15,000,000), or if the Maximum Warehousing Commitment or,
if the Warehousing Commitments have expired or been terminated, Warehousing
Advances of the assignee Lender would be less than Fifteen Million Dollars
($15,000,000), and (b) no Lender may assign or transfer its Servicing
Facility Advances, Maximum Servicing Facility Commitment, Term Loan
Advances or Maximum Term Loan Commitment if the portion of the sum of such
Lender's Maximum Servicing Facility Commitment or, if the Servicing
Facility Commitments have expired or been terminated, Servicing Facility
Advances, and Maximum Term Loan Commitment, or, after the Term Loan
Advances have been made, Term Loan Advances held by it (after giving effect
to all such assignments) would be less than Ten Million Dollars
($10,000,000) or if the sum of such amounts of the assignee Lender would be
less than Ten Million Dollars ($10,000,000). On the closing date of any
assignment by any Lender of any portion of its Commitments or Advances,
such Lender shall pay to the Credit Agent an assignment fee in the amount
of Two Thousand Five Hundred Dollars ($2,500). Any Lender may furnish any
information concerning the Borrowers in the possession of such Lender from
time to time to Affiliates of such Lender and to assignees and Participants
(including prospective assignees and Participants) and the Borrowers hereby
consent to the provision of such information.
13.4 Commitment Increases.
--------------------
13.4(a) At any time and from time to time after the Closing
Date, the Warehousing Credit Limit may be increased, either
temporarily or permanently, by either an Additional Lender
establishing a Maximum Commitment or by one or more then existing
Lender ("Increase Lender") increasing its Maximum Warehousing
Commitment (each such increase by either means, a "Commitment
Increase"); provided that no Commitment Increase shall become
effective unless and until (i) the Borrowers, the Credit Agent and the
Additional Lender or the Increase Lender shall have executed and
delivered an amendment with respect to such Commitment Increase, and
(ii) if, after giving effect thereto, the Warehousing Credit Limit
would exceed Three Hundred Thousand Dollars ($300,000,000), such
Commitment Increase shall have been consented to by each of the other
Lenders holding Warehousing Commitments. Prior to the effective date
("Effective Date") of any Commitment Increase, the Borrowers shall
issue a promissory note to the Additional Lender, or against surrender
of its existing Note to an Increase
<PAGE>
Lender, in the amount of such Lender's Maximum Warehousing Commitment
after giving effect to such Commitment Increase. Such new promissory
note or notes shall constitute a "Warehousing Note" or "Warehousing
Notes" for the purposes of the Loan Documents.
13.4(b) On the Effective Date of any such Commitment
Increase, if such Commitment Increase is permanent, the Credit Agent
shall recompute the Warehousing Percentage Share for each Lender based
on the new Warehousing Credit Limit which results from the Commitment
Increase, and within two (2) Business Days, the Credit Agent shall
request Warehousing Advances from or shall direct prepayments to each
Lender so that the total amount of all then outstanding Warehousing
Advances are shared pro rata with each Lender. In the case of a
temporary Commitment Increase, notwithstanding anything to the
contrary set forth in this Agreement:
(1) Warehousing Advances during the period
of such temporary Commitment Increase (the "Temporary Increase
Period") shall be made by the Lenders holding Warehousing
Commitments (i) ratably, based on (A) their respective Maximum
Warehousing Commitments, without giving effect to such temporary
Commitment Increase, until such amounts are fully advanced, and
(ii) thereafter, by the Additional Lender(s) or Increase
Lender(s) only, up to the amount of its or their Maximum
Warehousing Commitment(s); and
(2) As long as the maturity of the
Warehousing Commitments has not been accelerated pursuant to
Section 8.2 of the Agreement, payments received by the Credit
Agent in respect of the principal amount of Warehousing Advances
outstanding shall be applied first, to Warehousing Advances made
by the Additional Lender(s) or the Increase Lender(s) to the
extent the outstanding principal balance thereof exceeds the
permanent Maximum Warehousing Commitment of such Lender(s), and
thereafter, to the remaining Warehousing Advances outstanding,
ratably among the Lenders holding Warehousing Commitments.
On the date any temporary Commitment Increase expires, the amount by which
the outstanding principal balance of
<PAGE>
Warehousing Advances exceeds the Warehousing Credit Limit (as reduced by
the expiration of the temporary increase) shall be due and payable to the
Additional Lender(s) or Increase Lender(s).
13.5 Amendments.
----------
13.5(a) This Agreement may not be amended or terms or
provisions hereof waived unless such amendment or waiver is in writing
and signed by the Majority Lenders, the Credit Agent and the
Borrowers; provided, however, that (i) without the prior written
consent of one hundred percent (100%) of the Lenders, no amendment or
waiver shall: (1) reduce the principal of, or rate of interest or
fees on, the Advances or any Lender's Maximum Servicing Facility
Commitment or Maximum Warehousing Commitment, (2) except as provided
in Section 13.4 hereof, modify the Warehousing Credit Limit, the
Servicing Facility Credit Limit or the Term Loan Credit Limit, (3)
except as expressly contemplated by Sections 13.3 and 13.4 hereof,
modify any Lender's Percentage Share of the Warehousing Credit Limit,
Term Loan Credit Limit or Servicing Facility Credit Limit, (4) modify
the definition of "Majority Lenders," "Majority Warehousing Lenders,"
"Majority Servicing Facility Lenders" or "Majority Term Loan Lenders,"
(5) modify any of the provisions of this Agreement relating to the
sharing of payments or proceeds of Collateral among the Lenders, (6)
modify Section 11.1(c) or Section 11.1(d) hereof, (7) amend any of the
definitions related to the foregoing provisions, or (8) release any of
the Servicing Collateral except in connection with a sale of Servicing
Contracts permitted pursuant to Section 7.2 of the Agreement, or (9)
amend this Section; (ii) without the prior written consent of the
Lenders holding one hundred percent (100%) of Servicing Facility
Commitments or, if the Servicing Facility Commitments have expired or
been terminated, the Servicing Facility Advances, (1) change the
amount or time for payment of any Servicing Facility Advance or amount
payable in respect thereof or any Servicing Facility Commitment or (2)
amend any of the definitions relating to the foregoing provisions;
(iii) without the prior written consent of the Lenders holding one
hundred percent (100%) of the Term Loan Commitments or, after the Term
Loans have been made, the Term Loan Advances, (1) change the amount of
time for payment of any Term Loan Advances or installment thereof, or
(2) amend any of the definitions relating to the foregoing
<PAGE>
provisions; or (iv) without the prior written consent of the Lenders
holding one hundred percent (100%) of the Warehousing Commitments or,
if the Warehousing Commitments have expired or been terminated, the
Warehousing Advances, (1) change the amount or time for payment of any
Warehousing Advance or amount payable in respect thereof or any
Warehousing Commitment, (2) release any of the Warehousing Collateral
except in connection with the sale of Pledged Mortgages or Pledged
Securities in the ordinary course of business or (3) amend any of the
definitions related to the foregoing. It is expressly agreed and
understood that the failure by the Majority Lenders to elect to
accelerate amounts outstanding hereunder or to terminate the
obligation of the Lenders to make Advances hereunder shall not
constitute an amendment or waiver of any term or provision of this
Agreement.
13.5(b) The Borrowers hereby agree that they shall,
upon requesting any amendment of this Agreement or any other Loan
Document or any waiver of any material term or provision of this
Agreement or any other Loan Document (except an extension of the
Maturity Date), pay at the time of such request a modification fee (1)
to the Credit Agent in a minimum amount of One Thousand Dollars
($1,000) or such greater amount as may be specified in the Amendment
or waiver, and (2) to each Lender (except any Lender which becomes
party to the Agreement by virtue of such amendment) in a minimum
amount of Five Hundred Dollars ($500) or such greater amount as may be
specified in the Amendment or waiver. The payment of such modification
fees shall be in addition to and shall not limit the Borrowers'
reimbursement obligations pursuant to Article 11 hereof, and any other
fee or charge imposed by the Credit Agent or the Lenders as a
condition to any amendment.
13.6 Operational Reviews. From time to time upon request, the
-------------------
Borrowers shall permit the Credit Agent, any Lender or their representative
access to its premises and records for the purpose of conducting a review
of the Borrowers' general mortgage business methods, policies, and
procedures, auditing loan files and reviewing financial and operational
aspects of the Borrowers' business.
13.7 Governing Law. This Agreement and the other Loan Documents
-------------
shall be governed by the laws of the State of Minnesota, without reference
to its principles of conflicts of laws.
<PAGE>
13.8 Relationship of the Parties. This Agreement provides for the
---------------------------
making of Advances by the Lenders, in their capacities as lenders, to the
Borrowers, in their capacity as borrowers, and for the payment of interest
and repayment of principal by the Borrowers to the Lenders, and for the
payment of certain fees by the Borrowers to the Lenders, the Credit Agent
and the Collateral Agent. The relationship between the Secured Parties and
the Borrowers is limited to that of creditor/secured party, on the one
hand, and debtor, on the other hand. The provisions herein for compliance
with financial covenants and delivery of financial statements are intended
solely for the benefit of the Secured Parties to protect their interests in
assuring payments of interest and repayment of principal and payment of
certain fees, and nothing contained in this Agreement shall be construed as
permitting or obligating any Secured Party to act as a financial or
business advisor or consultant to the Borrowers, as permitting or
obligating any Secured Party to control the Borrowers or to conduct the
Borrowers' operations, as creating any fiduciary obligation on the part of
the Lenders to the Borrowers, or as creating any joint venture, agency, or
other relationship between or among any parties hereto other than as
explicitly and specifically stated in this Agreement. The Borrowers
acknowledge that they have had the opportunity to obtain the advice of
experienced counsel of its own choosing in connection with the negotiation
and execution of this Agreement and to obtain the advice of such counsel
with respect to all matters contained herein. The Borrowers further
acknowledge that they are experienced with respect to financial and credit
matters and has made their own independent decisions to apply to the
Lenders for credit and to execute and deliver this Agreement.
13.9 Severability. If any provision of this Agreement shall be
------------
declared to be illegal or unenforceable in any respect, such illegal or
unenforceable provision shall be and become absolutely null and void and of
no force and effect as though such provision were not in fact set forth
herein, but all other covenants, terms, conditions and provisions hereof
shall nevertheless continue to be valid and enforceable.
13.10 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute but one and the same instrument.
<PAGE>
13.11 Consent to Credit References. The Borrowers hereby consent to
----------------------------
the disclosure of information regarding the Borrowers and their
relationships with the Lenders to Persons making credit inquiries to the
Lenders. This consent is revocable by the Borrowers at any time upon
Notice to the Lenders as provided in Section 10 hereof.
13.12 Consent to Jurisdiction. The Borrowers, the Credit Agent and
-----------------------
each of the Lenders hereby agree that any action or proceeding under the
Loan Documents, the Notes or any document delivered pursuant hereto may be
commenced against it in any court of competent jurisdiction within the
State of Minnesota, by service of process by first class registered or
certified mail, return receipt requested, addressed to such Person at its
address last designated under the Notices provisions herein. The
Borrowers, the Credit Agent and each of the Lenders agree that any such
suit, action or proceeding arising out of or relating to this Agreement or
any other such document may be instituted in the Hennepin County, State
District Court or in the United States District Court for the District of
Minnesota at the option of the Credit Agent; and the Borrowers, the Credit
Agent and each of the Lenders hereby waive any objection to the
jurisdiction or venue of any such court with respect to, or the convenience
of any court as a forum for, any such suit, action or proceeding. Nothing
herein shall affect the right of the Credit Agent or any Lender to
accomplish service of process in any other manner permitted by law or to
commence legal proceedings or otherwise proceed against the Borrowers in
any other jurisdiction or court.
13.13 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute but one and the same instrument.
13.14 Confidentiality of Information. The Lenders shall use their
------------------------------
usual and customary efforts (as applied to public companies) to assure that
information about the Borrowers and their operations, affairs and financial
condition not generally disclosed to the public or to trade and other
creditors that is furnished to the Lenders pursuant to the provisions
hereof is used only for the purposes of this Agreement and any other
relationship between the Lenders and the Borrowers, and shall not be
divulged to any Person other than the Lenders, their Affiliates and their
respective officers, directors, employees and agents, except: (a) to their
attorneys and accountants, (b) in connection with the enforcement of the
rights of the Credit Agent, the Collateral Agent and the Lenders hereunder
and under the other Loan Documents or
<PAGE>
otherwise in connection with litigation involving the Borrowers, (c) in
connection with assignments and participations and the solicitation of
prospective assignees and participants referred to in Section 13.3 hereof,
provided that the assignee, participant or prospective assignee or
participant agrees to be bound by the terms of this Section 13.14 and (d)
as may otherwise be required or requested by any applicable law, rule,
regulation or judicial process, the opinion of the applicable Lender's
counsel concerning the making of such disclosure to be binding on the
parties hereto. The Lenders shall not incur any liability to the Borrowers
by reason of any disclosure permitted by this Section 13.14.
13.15 WAIVER OF JURY TRIAL. THE BORROWERS, THE CREDIT AGENT AND EACH
--------------------
OF THE LENDERS HEREBY (a) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY
OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (b) WAIVES ANY RIGHT TO TRIAL
BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER
EXIST. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN,
KNOWINGLY AND VOLUNTARILY, BY THE BORROWERS, THE CREDIT AGENT AND EACH OF
THE LENDERS, AND THIS WAIVER IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH
INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT OF A JURY TRIAL WOULD
OTHERWISE ACCRUE. THE CREDIT AGENT, THE LENDERS AND THE BORROWERS ARE
HEREBY AUTHORIZED AND REQUESTED TO SUBMIT THIS AGREEMENT TO ANY COURT
HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE PARTIES HERETO, SO AS
TO SERVE AS CONCLUSIVE EVIDENCE OF THE FOREGOING WAIVER OF THE RIGHT TO
JURY TRIAL. FURTHER, THE CREDIT AGENT, THE BORROWERS AND EACH OF THE
LENDERS HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF ANY OF THEM,
RESPECTIVELY, HAS REPRESENTED, EXPRESSLY OR OTHERWISE, TO ANY OF THE
UNDERSIGNED THAT THE CREDIT AGENT, THE BORROWERS OR ANY OF THE LENDERS WILL
NOT SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION.
13.16 Entire Agreement. This Agreement, the Notes and the other Loan
----------------
Documents represent the final agreement among the parties hereto and
thereto with respect to the subject matter hereof and thereof, and may not
be contradicted by evidence of prior or contemporaneous oral agreements
among such parties. There are no oral agreements among the parties with
respect to the subject matter hereof and thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
BORROWERS:
<PAGE>
THE WMF GROUP, LTD.,
a Delaware corporation
By:____________________
Its:___________________
WMF WASHINGTON MORTGAGE CORP.,
a Delaware corporation
By:____________________
Its:___________________
WMF/HUNTOON, PAIGE ASSOCIATES
LIMITED, a Delaware corporation
By:____________________
Its:___________________
WMF PROCTOR, LTD., a Michigan
By:____________________
Its:___________________
THE ROBERT C. WILSON COMPANY,
a Texas corporation
By:____________________
Its:___________________
THE ROBERT C. WILSON COMPANY-ARIZONA,
an Arizona corporation
By:____________________
Its:___________________
WMF CARBON MESA ADVISORS, INC.
a Delaware corporation
<PAGE>
By:____________________
Its:___________________
Notice Address:
The WMF Group, Ltd.
1593 Spring Hill Road, Suite 400
Vienna, VA 22182
Attention: Michael D. Ketcham, CFO
Telecopier No.: (703) 610-1459
STATE OF _______________ )
) ss
COUNTY OF ______________ )
On _________________, 1999, before me, a Notary Public, personally appeared
________________________________, the of THE WMF GROUP, LTD., a Delaware
corporation, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to the within
instrument and acknowledged to me that he/she executed the same in his/her
authorized capacity, and that by his/her signature on the instrument the person,
or the entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
______________________________
Notary Public
(SEAL) My Commission Expires:
STATE OF _______________ )
) ss
COUNTY OF ______________ )
On _________________, 1999, before me, a Notary Public, personally appeared
__________________________________________________, the of WMF WASHINGTON
MORTGAGE CORP., a Delaware corporation, personally known to me (or proved to me
on the basis of satisfactory evidence) to be the person whose name is subscribed
to the within instrument and acknowledged to me that he/she executed the same in
his/her authorized capacity, and that by his/her signature on the instrument the
person, or the entity upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
<PAGE>
______________________________
Notary Public
(SEAL) My Commission Expires:
STATE OF _______________ )
) ss
COUNTY OF ______________ )
On _________________, 1999, before me, a Notary Public, personally appeared
_____________________________________________________, the of WMF/HUNTOON, PAIGE
ASSOCIATES LIMITED, a Delaware corporation, personally known to me (or proved to
me on the basis of satisfactory evidence) to be the person whose name is
subscribed to the within instrument and acknowledged to me that he/she executed
the same in his/her authorized capacity, and that by his/her signature on the
instrument the person, or the entity upon behalf of which the person acted,
executed the instrument.
WITNESS my hand and official seal.
______________________________
Notary Public
(SEAL) My Commission Expires:
STATE OF _______________ )
) ss
COUNTY OF ______________ )
On _________________, 1999, before me, a Notary Public, personally appeared
_______________________________________________, the of WMF PROCTOR, LTD., a
Michigan corporation, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to the within
instrument and acknowledged to me that he/she executed the same in his/her
authorized capacity, and that by his/her signature on the instrument the person,
or the entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
______________________________
Notary Public
(SEAL) My Commission Expires:
STATE OF _______________ )
)ss
<PAGE>
COUNTY OF ______________ )
On _________________, 1999, before me, a Notary Public, personally appeared
____________________________________________________, the of THE ROBERT C.
WILSON COMPANY, a Texas corporation, personally known to me (or proved to me on
the basis of satisfactory evidence) to be the person whose name is subscribed to
the within instrument and acknowledged to me that he/she executed the same in
his/her authorized capacity, and that by his/her signature on the instrument the
person, or the entity upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
______________________________
Notary Public
(SEAL) My Commission Expires:
STATE OF _______________ )
) ss
COUNTY OF ______________ )
On _________________, 1999, before me, a Notary Public, personally appeared
_______________________________________________, the of THE ROBERT C. WILSON
COMPANY-ARIZONA, an Arizona corporation, personally known to me (or proved to me
on the basis of satisfactory evidence) to be the person whose name is subscribed
to the within instrument and acknowledged to me that he/she executed the same in
his/her authorized capacity, and that by his/her signature on the instrument the
person, or the entity upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
______________________________
Notary Public
(SEAL) My Commission Expires:
STATE OF _______________ )
) ss
COUNTY OF ______________ )
On _________________, 1999, before me, a Notary Public, personally appeared
_________________________________________________, the of WMF CARBON MESA
ADVISORS, INC., a Delaware corporation, personally known to me (or proved to me
on the basis of satisfactory evidence) to be the person whose name is subscribed
to the within instrument and acknowledged to me that he/she executed the same in
his/her authorized capacity, and that by
<PAGE>
his/her signature on the instrument the person, or the entity upon behalf of
which the person acted, executed the instrument.
WITNESS my hand and official seal.
______________________________
Notary Public
(SEAL) My Commission Expire:
CREDIT AGENT:
RESIDENTIAL FUNDING CORPORATION,
a Delaware corporation
By:______________
Its: Director
Notice Address:
4800 Montgomery Lane
Suite 300
Bethesda, Maryland 20814
Attention: Lisa Carlson, Managing
Telecopier No.: (301) 215-7212
LENDERS:
Maximum Warehousing RESIDENTIAL FUNDING CORPORATION,
Commitment: $115,500,000 a Delaware corporation
By:______________
Maximum Servicing Facility Its: Director
Commitment: $ 7,500,000
Notice Address:
Maximum Term Loan 4800 Montgomery Lane
Commitment: $ 7,500,000 Suite 300
Bethesda, Maryland 20814
Attention: Lisa Carlson, Managing
Telecopier No.: (301) 215-7212
STATE OF _______________ )
) ss
COUNTY OF ______________ )
On _________________, _____ before me, a Notary Public, personally appeared
_____________________________________________, the Director of RESIDENTIAL
FUNDING CORPORATION, a Delaware corporation, personally known to me (or proved
to me on the basis of
<PAGE>
satisfactory evidence) to be the person whose name is subscribed to the within
instrument and acknowledged to me that he/she executed the same in his/her
authorized capacity, and that by his/her signature on the instrument the person,
or the entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
______________________________
Notary Public
(SEAL) My Commission Expires:
<PAGE>
Maximum Warehousing BANK UNITED
Commitment: $34,500,000 a federal savings bank
By:_________________
Maximum Servicing Facility Its:________________
Commitment: $ 5,000,000
Notice Address:
8000 Towers Crescent Dr., Suite 1350
Maximum Term Loan Vienna, VA 22182
Commitment: $ 5,000,000 Attention: Sonya S. Faivre
Regional Director
Telecopier No.: (703) 760-7846
STATE OF _______________ )
) ss
COUNTY OF ______________ )
On _________________, _____ before me, a Notary Public, personally appeared
________________________________________________, the of BANK UNITED, a federal
savings bank, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to the within
instrument and acknowledged to me that he/she executed the same in his/her
authorized capacity, and that by his/her signature on the instrument the person,
or the entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
______________________________
Notary Public
(SEAL) My Commission Expires:
<PAGE>
Maximum Warehousing LASALLE NATIONAL BANK
Commitment: $0 a federal savings bank
By:_______________
Maximum Servicing Facility Its:______________
Commitment: $12,500,000
Notice Address:
135 S. LaSalle, Suite 362
Maximum Term Loan Chicago, IL 60603
Commitment: $12,500,000 Attention: Lisa Mun
Telecopier No.: (312) 904-2903
STATE OF _______________ )
) ss
COUNTY OF ______________ )
On _________________, _____ before me, a Notary Public, personally appeared
____________________________________________, the of LASALLE NATIONAL BANK, a
federal savings bank, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to the within
instrument and acknowledged to me that he/she executed the same in his/her
authorized capacity, and that by his/her signature on the instrument the person,
or the entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
______________________________
Notary Public
(SEAL) My Commission Expires:
<PAGE>
WAREHOUSING PROMISSORY NOTE
---------------------------
$__________________ Date: February 10, 1999
FOR VALUE RECEIVED, the undersigned, THE WMF GROUP, LTD., a Delaware
corporation; WMF WASHINGTON MORTGAGE CORP., a Delaware corporation; WMF/HUNTOON,
PAIGE ASSOCIATES LIMITED, a Delaware corporation; WMF PROCTOR, LTD., a Michigan
corporation; THE ROBERT C. WILSON COMPANY, a Texas corporation; THE ROBERT C.
WILSON-ARIZONA COMPANY, an Arizona corporation and WMF CARBON MESA ADVISORS,
INC., a Delaware corporation (herein collectively called the "Borrowers", and
individually as "Co-Borrower"), hereby promise to pay to the order of, a
_____________________________ (the "Lender" or, together with its successors and
assigns, the "Holder") at the offices of RESIDENTIAL FUNDING CORPORATION (the
"Credit Agent") at 8400 Normandale Lake Blvd., Suite 600, Minneapolis, Minnesota
55437, or at such other place as the Holder may designate from time to time, the
principal sum of Dollars ($___________) or so much thereof as may be outstanding
from time to time pursuant to the Warehousing Credit and Security Agreement
described below, and to pay interest on said principal sum or such part thereof
as shall remain unpaid from time to time, from the date of each Advance until
repaid in full, and all other fees and charges due under the Agreement, at the
rates and at the times set forth in the Agreement. All payments hereunder shall
be made in lawful money of the United States and in immediately available funds.
This Note is given to evidence an actual warehousing line of credit in the
above amount and is one of the Warehousing Promissory Notes referred to in that
certain Credit and Security Agreement (Syndicated Agreement) (the "Agreement")
dated the date hereof by and among the Borrowers, the Lenders named therein, and
the Credit Agent, as credit agent for the Lenders, as the same may be amended or
supplemented from time to time, and is entitled to the benefits thereof.
Reference is hereby made to the Agreement (which is incorporated herein by
reference as fully and with the same effect as if set forth herein at length)
for a description of the Collateral, a statement of the covenants and
agreements, a statement of the rights and remedies and securities afforded
thereby and other matters contained therein. Capitalized terms used herein,
unless otherwise defined herein, shall have the meanings given them in the
Agreement.
<PAGE>
This Note may be prepaid in whole or in part at any time without premium or
penalty.
Should this Note be placed in the hands of attorneys for collection, the
Borrowers agree to pay, in addition to principal and interest, fees and charges
due under the Agreement, any and all costs of collecting this Note, including
reasonable attorneys' fees and expenses.
The Borrowers hereby waive demand, notice, protest and presentment.
The promises and agreements herein shall be construed to be and are hereby
declared to be the joint and several promises and agreements of each Co-Borrower
and shall constitute the joint and several obligation of each Co-Borrower and
shall be fully binding upon and enforceable against each Co-Borrower. The
release of any party to this Note shall not affect or release the joint and
several liability of any other party. The Lender may at its option enforce this
Note against one or all of the Co-Borrower, and the Lender shall not be required
to resort to enforcement against each Co-Borrower and the failure to proceed
against or join each Co-Borrower shall not affect the joint and several
liability of each Co-Borrower.
This Note shall be construed and enforced in accordance with the laws of
the State of Minnesota, without reference to its principles of conflicts of law.
IN WITNESS WHEREOF, the Borrowers have executed this Note as of the day and
year first above written.
THE WMF GROUP, LTD.,
a Delaware corporation
(on behalf of the Borrowers)
By:_________________
Its:________________
STATE OF _______________ )
) ss
COUNTY OF ______________ )
On ______________________, before me, a Notary Public, personally appeared
________________________________, the of THE WMF GROUP, LTD., a Delaware
corporation, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to the within
instrument
<PAGE>
and acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument the person, or the
entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
______________________________
Notary Public
(SEAL) My Commission Expires:
<PAGE>
TERM LOAN FACILITY PROMISSORY NOTE
----------------------------------
$__________________ Date: February 10, 1999
FOR VALUE RECEIVED, the undersigned, THE WMF GROUP, LTD., a Delaware
corporation; WMF WASHINGTON MORTGAGE CORP., a Delaware corporation; WMF/HUNTOON,
PAIGE ASSOCIATES LIMITED, a Delaware corporation; WMF PROCTOR, LTD., a Michigan
corporation; THE ROBERT C. WILSON COMPANY, a Texas corporation; THE ROBERT C.
WILSON-ARIZONA COMPANY, an Arizona corporation and WMF CARBON MESA ADVISORS,
INC., a Delaware corporation (herein collectively called the "Borrowers", and
individually as "Co-Borrower"), hereby promise to pay to the order of, a
_____________________________ (the "Lender" or, together with its successors and
assigns, the "Holder") at the offices of RESIDENTIAL FUNDING CORPORATION (the
"Credit Agent") at 8400 Normandale Lake Blvd., Suite 600, Minneapolis, Minnesota
55437, or at such other place as the Holder may designate from time to time, the
principal sum of Dollars ($___________) or so much thereof as may be outstanding
from time to time pursuant to the Warehousing Credit and Security Agreement
described below, and to pay interest on said principal sum or such part thereof
as shall remain unpaid from time to time, from the date of each Advance until
repaid in full, and all other fees and charges due under the Agreement, at the
rates and at the times set forth in the Agreement. All payments hereunder shall
be made in lawful money of the United States and in immediately available funds.
This Note is given to evidence an actual line of credit in the above amount
and is one of the Term Loan Facility Promissory Notes referred to in that
certain Credit and Security Agreement (Syndicated Agreement) (the "Agreement")
dated the date hereof by and among the Borrowers, the Lenders named therein, and
the Credit Agent, as credit agent for the Lenders, as the same may be amended or
supplemented from time to time, and is entitled to the benefits thereof.
Reference is hereby made to the Agreement (which is incorporated herein by
reference as fully and with the same effect as if set forth herein at length)
for a description of the Collateral, a statement of the covenants and
agreements, a statement of the rights and remedies and securities afforded
thereby and other matters contained therein. Capitalized terms used herein,
unless otherwise defined herein, shall have the meanings given them in the
Agreement.
<PAGE>
This Note may be prepaid in whole or in part at any time without premium or
penalty.
Should this Note be placed in the hands of attorneys for collection, the
Borrowers agree to pay, in addition to principal and interest, fees and charges
due under the Agreement, any and all costs of collecting this Note, including
reasonable attorneys' fees and expenses.
The Borrowers hereby waive demand, notice, protest and presentment.
The promises and agreements herein shall be construed to be and are hereby
declared to be the joint and several promises and agreements of each Co-Borrower
and shall constitute the joint and several obligation of each Co-Borrower and
shall be fully binding upon and enforceable against each Co-Borrower. The
release of any party to this Note shall not affect or release the joint and
several liability of any other party. The Lender may at its option enforce this
Note against one or all of the Co-Borrower, and the Lender shall not be required
to resort to enforcement against each Co-Borrower and the failure to proceed
against or join each Co-Borrower shall not affect the joint and several
liability of each Co-Borrower.
This Note shall be construed and enforced in accordance with the laws of
the State of Minnesota, without reference to its principles of conflicts of law.
IN WITNESS WHEREOF, the Borrowers have executed this Note as of the day and
year first above written.
THE WMF GROUP, LTD.,
a Delaware corporation
(on behalf of the Borrowers)
By:________________
Its:_______________
STATE OF _______________ )
) ss
COUNTY OF ______________ )
On ______________________, before me, a Notary Public, personally appeared
__________________________________________, the of THE WMF GROUP, LTD., a
Delaware corporation, personally known to me (or proved to me on the basis of
satisfactory evidence) to
<PAGE>
be the person whose name is subscribed to the within instrument and acknowledged
to me that he/she executed the same in his/her authorized capacity, and that by
his/her signature on the instrument the person, or the entity upon behalf of
which the person acted, executed the instrument.
WITNESS my hand and official seal.
_______________________________
Notary Public
(SEAL) My Commission Expires:
<PAGE>
SERVICING FACILITY PROMISSORY NOTE
----------------------------------
$__________________Date: February 10, 1999
FOR VALUE RECEIVED, the undersigned, THE WMF GROUP, LTD., a Delaware
corporation; WMF WASHINGTON MORTGAGE CORP., a Delaware corporation; WMF/HUNTOON,
PAIGE ASSOCIATES LIMITED, a Delaware corporation; WMF PROCTOR, LTD., a Michigan
corporation; THE ROBERT C. WILSON COMPANY, a Texas corporation; THE ROBERT C.
WILSON-ARIZONA COMPANY, an Arizona corporation and WMF CARBON MESA ADVISORS,
INC., a Delaware corporation (herein collectively called the "Borrowers", and
individually as "Co-Borrower"), hereby promise to pay to the order of , a
_____________________________ (the "Lender" or, together with its successors and
assigns, the "Holder") at the offices of RESIDENTIAL FUNDING CORPORATION (the
"Credit Agent") at 8400 Normandale Lake Blvd., Suite 600, Minneapolis, Minnesota
55437, or at such other place as the Holder may designate from time to time, the
principal sum of Dollars ($___________) or so much thereof as may be outstanding
from time to time pursuant to the Warehousing Credit and Security Agreement
described below, and to pay interest on said principal sum or such part thereof
as shall remain unpaid from time to time, from the date of each Advance until
repaid in full, and all other fees and charges due under the Agreement, at the
rates and at the times set forth in the Agreement. All payments hereunder shall
be made in lawful money of the United States and in immediately available funds.
This Note is given to evidence an actual line of credit in the above amount
and is one of the Servicing Facility Promissory Notes referred to in that
certain Credit and Security Agreement (Syndicated Agreement) (the "Agreement")
dated the date hereof by and among the Borrowers, the Lenders named therein, and
the Credit Agent, as credit agent for the Lenders, as the same may be amended or
supplemented from time to time, and is entitled to the benefits thereof.
Reference is hereby made to the Agreement (which is incorporated herein by
reference as fully and with the same effect as if set forth herein at length)
for a description of the Collateral, a statement of the covenants and
agreements, a statement of the rights and remedies and securities afforded
thereby and other matters contained therein. Capitalized terms used herein,
unless otherwise defined herein, shall have the meanings given them in the
Agreement.
<PAGE>
This Note may be prepaid in whole or in part at any time without premium or
penalty.
Should this Note be placed in the hands of attorneys for collection, the
Borrowers agree to pay, in addition to principal and interest, fees and charges
due under the Agreement, any and all costs of collecting this Note, including
reasonable attorneys' fees and expenses.
The Borrowers hereby waive demand, notice, protest and presentment.
The promises and agreements herein shall be construed to be and are hereby
declared to be the joint and several promises and agreements of each Co-Borrower
and shall constitute the joint and several obligation of each Co-Borrower and
shall be fully binding upon and enforceable against each Co-Borrower. The
release of any party to this Note shall not affect or release the joint and
several liability of any other party. The Lender may at its option enforce this
Note against one or all of the Co-Borrower, and the Lender shall not be required
to resort to enforcement against each Co-Borrower and the failure to proceed
against or join each Co-Borrower shall not affect the joint and several
liability of each Co-Borrower.
This Note shall be construed and enforced in accordance with the laws of
the State of Minnesota, without reference to its principles of conflicts of law.
IN WITNESS WHEREOF, the Borrowers have executed this Note as of the day and
year first above written.
THE WMF GROUP, LTD.,
a Delaware corporation
(on behalf of the Borrowers)
By:___
Its:__
STATE OF _______________ )
) ss
COUNTY OF ______________ )
On ______________________, before me, a Notary Public, personally appeared
________________________________, the of THE WMF GROUP, LTD., a Delaware
corporation, personally known to me (or proved to me on the basis of
satisfactory evidence) to
<PAGE>
be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument the person, or the
entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
- -----------------------------------
Notary Public
(SEAL) My Commission Expires:
<PAGE>
SWINGLINE PROMISSORY NOTE
-------------------------
$50,000,000 Date: February 10, 1999
FOR VALUE RECEIVED, the undersigned, 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 (herein called the "Borrowers", and individually as
"Co-Borrowers"), hereby promises to pay to the order of RESIDENTIAL FUNDING
CORPORATION, a Delaware corporation (the "Lender" or, together with its
successors and assigns, the "Holder") at the offices of RESIDENTIAL FUNDING
CORPORATION (the "Credit Agent") at 8400 Normandale Lake Blvd., Suite 600,
Minneapolis, Minnesota 55437, or at such other place as the Holder may designate
from time to time, the principal sum of Fifty Million Dollars ($50,000,000) or
so much thereof as may be outstanding from time to time pursuant to the
Warehousing Credit and Security Agreement described below, and to pay interest
on said principal sum or such part thereof as shall remain unpaid from time to
time, from the date of each Advance until repaid in full, and all other fees and
charges due under the Agreement, at the rate and at the times set forth in the
Agreement. All payments hereunder shall be made in lawful money of the United
States and in immediately available funds.
This Note is given to evidence an actual warehouse line of credit in the
above amount and is the Swingline Note referred to in that certain Credit and
Security Agreement (Syndicated Agreement) (the "Agreement") dated the date
hereof by and among the Borrowers, the Lenders named therein, and the Credit
Agent, as credit agent for the Lenders, as the same may be amended or
supplemented from time to time, and is entitled to the benefits thereof.
Reference is hereby made to the Agreement (which is incorporated herein by
reference as fully and with the same effect as if set forth herein at length)
for a description of the Collateral, a statement of the covenants and
agreements, a statement of the rights and remedies and securities afforded
thereby and other matters contained therein. Capitalized terms used herein,
unless otherwise defined herein, shall have the meanings given them in the
Agreement.
This Note may be prepaid in whole or in part at any time without premium or
penalty.
<PAGE>
Should this Note be placed in the hands of attorneys for collection, the
Borrowers agree to pay, in addition to principal and interest, fees and charges
due under the Agreement, any and all costs of collecting this Note, including
reasonable attorneys' fees and expenses.
The Borrowers hereby waive demand, notice, protest and presentment.
The promises and agreements herein shall be construed to be and are hereby
declared to be the joint and several promises and agreements of each Co-Borrower
and shall constitute the joint and several obligation of each Co-Borrower and
shall be fully binding upon and enforceable against each Co-Borrower. The
release of any party to this Note shall not affect or release the joint and
several liability of any other party. The Lender may at its option enforce this
Note against one or all of the Co-Borrower, and the Lender shall not be required
to resort to enforcement against each Co-Borrower and the failure to proceed
against or join each Co-Borrower shall not affect the joint and several
liability of each Co-Borrower.
This Note shall be construed and enforced in accordance with the laws of
the State of Minnesota, without reference to its principles of conflicts of law.
IN WITNESS WHEREOF, the Borrowers have executed this Note as of the day and
year first above written.
THE WMF GROUP, LTD.,
a Delaware corporation
(on behalf of the Borrowers)
By:___________________
Its:__________________
STATE OF _______________ )
) ss
COUNTY OF ______________ )
On ______________________, before me, a Notary Public, personally appeared
________________________________, the ______________________ of THE WMF GROUP,
LTD., a Delaware corporation, personally known to me (or proved to me on the
basis of satisfactory evidence) to be the person whose name is subscribed to the
within instrument
<PAGE>
and acknowledged to me that he/she executed the same in his/her authorized
capacity, and that by his/her signature on the instrument the person, or the
entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
______________________________
Notary Public
(SEAL) My Commission Expires:_____________
<PAGE>
SUBLIMIT PROMISSORY NOTE
------------------------
$__________________ Date: February 10, 1999
FOR VALUE RECEIVED, the undersigned, THE WMF GROUP, LTD., a Delaware
corporation; WMF WASHINGTON MORTGAGE CORP., a Delaware corporation; WMF/HUNTOON,
PAIGE ASSOCIATES LIMITED, a Delaware corporation; WMF PROCTOR, LTD., a Michigan
corporation; THE ROBERT C. WILSON COMPANY, a Texas corporation; THE ROBERT C.
WILSON-ARIZONA COMPANY, an Arizona corporation and WMF CARBON MESA ADVISORS,
INC., a Delaware corporation (herein collectively called the "Borrowers", and
individually as "Co-Borrower"), hereby promise to pay to the order of, a
_____________________________ (the "Lender" or, together with its successors and
assigns, the "Holder") at the offices of RESIDENTIAL FUNDING CORPORATION (the
"Credit Agent") at 8400 Normandale Lake Blvd., Suite 600, Minneapolis, Minnesota
55437, or at such other place as the Holder may designate from time to time, the
principal sum of Dollars ($___________) or so much thereof as may be outstanding
from time to time pursuant to the Warehousing Credit and Security Agreement
described below, and to pay interest on said principal sum or such part thereof
as shall remain unpaid from time to time, from the date of each Advance until
repaid in full, and all other fees and charges due under the Agreement, at the
rates and at the times set forth in the Agreement. All payments hereunder shall
be made in lawful money of the United States and in immediately available funds.
This Note is given to evidence an actual line of credit in the above amount
and is one of the Sublimit Promissory Notes referred to in that certain Credit
and Security Agreement (Syndicated Agreement) (the "Agreement") dated the date
hereof by and among the Borrowers, the Lenders named therein, and the Credit
Agent, as credit agent for the Lenders, as the same may be amended or
supplemented from time to time, and is entitled to the benefits thereof.
Reference is hereby made to the Agreement (which is incorporated herein by
reference as fully and with the same effect as if set forth herein at length)
for a description of the Collateral, a statement of the covenants and
agreements, a statement of the rights and remedies and securities afforded
thereby and other matters contained therein. Capitalized terms used herein,
unless otherwise defined herein, shall have the meanings given them in the
Agreement.
<PAGE>
This Note may be prepaid in whole or in part at any time without premium or
penalty.
Should this Note be placed in the hands of attorneys for collection, the
Borrowers agree to pay, in addition to principal and interest, fees and charges
due under the Agreement, any and all costs of collecting this Note, including
reasonable attorneys' fees and expenses.
The Borrowers hereby waive demand, notice, protest and presentment.
The promises and agreements herein shall be construed to be and are hereby
declared to be the joint and several promises and agreements of each Co-Borrower
and shall constitute the joint and several obligation of each Co-Borrower and
shall be fully binding upon and enforceable against each Co-Borrower. The
release of any party to this Note shall not affect or release the joint and
several liability of any other party. The Lender may at its option enforce this
Note against one or all of the Co-Borrower, and the Lender shall not be required
to resort to enforcement against each Co-Borrower and the failure to proceed
against or join each Co-Borrower shall not affect the joint and several
liability of each Co-Borrower.
This Note shall be construed and enforced in accordance with the laws of
the State of Minnesota, without reference to its principles of conflicts of law.
IN WITNESS WHEREOF, the Borrowers have executed this Note as of the day and
year first above written.
THE WMF GROUP, LTD.,
a Delaware corporation
(on behalf of the Borrowers)
By:____________________________
Its:___________________________
STATE OF _______________ )
) ss
COUNTY OF ______________ )
On ______________________, before me, a Notary Public, personally appeared
________________________________, the of THE WMF GROUP, LTD., a Delaware
corporation, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to the within
instrument and acknowledged to me that he/she executed the same in his/her
<PAGE>
authorized capacity, and that by his/her signature on the instrument the person,
or the entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
- -----------------------------------
Notary Public
(SEAL) My Commission Expires:
<PAGE>
EXHIBIT 10.18
FORM OF
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT dated as of _______ __, 1997
between THE WMF GROUP, LTD., a Delaware corporation (the "COMPANY"), and
CAPRICORN INVESTORS II, L.P., a Delaware limited partnership (the "PURCHASER").
Terms not otherwise defined herein have the meanings stated in
the Purchase Agreement (as defined below).
RECITALS
A. The Company and the Purchaser have entered into the
Purchase Agreement dated as of November 17, 1997 (as amended or modified from
time to time, the "PURCHASE AGREEMENT").
B. Pursuant to the Purchase Agreement, the Purchaser is
purchasing the Shares. The Shares are collectively referred to herein as the
"REGISTRABLE SHARES".
C. The Company and the Purchaser desire to enter into this
Agreement to provide for the registration under the Securities Act of the
disposition of the Registrable Shares and certain other matters. The execution
and delivery of this Agreement is a condition precedent to the respective
obligations of the parties on the Closing Date pursuant to Section 3.1(j) of the
Purchase Agreement.
AGREEMENT
The parties agree as follows:
SECTION 1. DEMAND REGISTRATION RIGHTS.
(a) From and after the Closing Date (the
"COMMENCEMENT DATE") and to and including the date that is the fourth
anniversary of the Commencement Date, subject to extension pursuant to Section 4
(as so extended from time to time, the "TERMINATION DATE"), on one or more
occasions when the Company shall have received the written request of the
Purchaser, any pledgee of Registrable Shares from the Purchaser or holders of at
least 100,000 Registrable Shares in the aggregate (as such number of shares may
be adjusted in the event of any change in the Registerable Shares by reason of
stock dividends, split-ups, reverse split-ups, mergers, recapitalizations,
subdivisions, conversions,
B-1
<PAGE>
exchanges of shares or the like) that shall have been acquired directly or
indirectly from the Purchaser and to which rights under this Section 1 shall
have been assigned pursuant to Section 13(a) (each such person, when requesting
registration under this Section 1 or under Section 2 and thereafter in
connection with any such registration, being hereinafter referred to as a
"REGISTERING STOCKHOLDER"), the Company shall give written notice of the receipt
of such request to each potential Registering Stockholder; it being understood
that, without prior notice to the Company, the Company shall not be deemed to
have knowledge of the existence of any pledgee of Registrable Shares. The
Company shall, as expeditiously as possible and in good faith, include in a
Registration Statement the number of Registrable Shares (the "TRANSACTION
REGISTRABLE SHARES") that the Registering Stockholders shall have specified by
written notice received by the Company not later than 10 Business Days after the
Company shall have given such written notice to the Registering Stockholders
pursuant to this Section 1(a).
(b) If the requested registration pursuant to this
Section 1 shall involve an underwritten offering, (1) no other securities of the
Company, including securities to be offered for the account of the Company or
any person other than a Registering Stockholder, shall be included in the
Registration Statement and (2) the Registering Stockholder initiating a request
for registration of Registrable Shares pursuant to this Section 1 shall select
(with the consent of the Company, not to be unreasonably withheld) the managing
underwriter in connection with the offering and any additional investment
bankers and managers to be used in connection with the offering.
(c) Notwithstanding anything herein to the contrary:
(1) the Company shall not be required to prepare and file
pursuant to this Section 1 a Registration Statement including less than
100,000 Registrable Shares in the aggregate (as such number of shares
may be adjusted in the event of any change in the Registerable Shares
by reason of stock dividends, split-ups, reverse split-ups, mergers,
recapitalizations, subdivisions, conversions, exchanges of shares or
the like);
(2) subject to the following clause (3), the Company shall not
be required to prepare and file pursuant to this Section 1 more than
seven Registration Statements, PROVIDED that a Registration Statement
shall be deemed not to have been prepared and filed if the same does
not become effective; and
(3) if a requested registration pursuant to this Section 1
shall involve an underwritten offering, and if the managing underwriter
shall advise the Company and the Registering Stockholders in writing
that, in its opinion, the number of Transaction Registrable Shares
proposed to be included in the registration is so great as to adversely
affect the offering, including the price at which the Transaction
Registrable Shares could be sold, the Company will include in the
registration the maximum number of securities which it is so advised
can be sold without the adverse effect, allocated pro rata among all
Registering Stockholders on the basis of the relative number of
Transaction Registrable Shares that each Registering Stockholder
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<PAGE>
has duly requested to be included in the registration; PROVIDED, that
if 10% or more of the Transaction Registrable Shares requested to be
registered by the Registering Stockholder initiating a request for
registration of Registrable Shares pursuant to this Section 1 are so
excluded from any registration and an investment banking firm of
recognized national standing shall advise the Company that the number
of the Transaction Registerable Shares requested to be registered by
such Registering Stockholder, at the time of the request and in light
of the market conditions then prevailing, did not exceed the number
that would have an adverse effect on the offering of such Transaction
Registrable Shares, including the price of which such Transaction
Registrable Shares could be sold, there shall be provided one
additional registration under the preceding clause (2) in respect of
each such exclusion.
SECTION 2. PIGGY-BACK REGISTRATION RIGHTS.
(a) From and after the Commencement Date to and
including the date that is the fourth anniversary of the Commencement Date, if
the Company shall determine to register or qualify by a registration statement
filed under the Securities Act and under any applicable state securities laws,
any offering of any Equity Securities of the Company, other than an offering
with respect to which a Registering Stockholder shall have requested a
registration pursuant to Section 1, the Company shall give notice of such
determination to each potential Registering Stockholder and each other person
having rights with respect to the registration under the Securities Act of the
disposition of securities of the Company about which the Company has knowledge;
it being understood that without prior notice to the Company, the Company shall
not be deemed to have knowledge of the existence of any pledgee of Registrable
Shares. The Company shall, as expeditiously as possible and in good faith,
include in the registration statement the number of Registrable Shares (the
"TRANSACTION REGISTRABLE SHARES") that the Registering Stockholders shall have
specified by written notice received by the Company not later than 30 Business
Days after the Company shall have given such written notice to the Registering
Stockholders pursuant to this Section 2(a).
(b) Notwithstanding anything herein to the contrary:
(1) the Company shall not be required by this Section 2 to
include any Registrable Shares owned by Registering Stockholders in a
registration statement on Form S-4 or S-8 (or any successor form) or a
registration statement filed in connection with an exchange offer or
other offering of securities solely to the then existing stockholders
of the Company; and
(2) if a registration pursuant to this Section 2 involves an
underwritten offering, the Company shall select the managing
underwriter for the offering and any additional investment bankers and
managers to be used in connection with the offering, and if the
managing underwriter advises the Company in writing that, in its
opinion, the number of securities requested to be included in the
registration is so great as to adversely affect the offering, including
the price at which the securities
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could be sold, the Company will include in the registration the maximum
number of securities which it is so advised can be sold without the
adverse effect, allocated as follows:
(A) FIRST, all securities proposed to be registered
by the Company for its own account;
(B) SECOND, all securities proposed to be registered
by the Company pursuant to the exercise by any person other than a
Registering Stockholder of a "demand" right requesting the registration
of shares of Common Stock in accordance with an agreement substantially
similar to the provisions of Section 1;
(C) THIRD, all Transaction Registrable Shares duly
requested to be included in the registration, allocated pro rata among
all Registering Stockholders on the basis of the relative number of
Transaction Registrable Shares that each Registering Stockholder has
duly requested to be included in the registration; and
(D) FOURTH, any other securities proposed to be
registered by the Company other than for its own account, including,
without limitation, securities proposed to be registered by the Company
pursuant to the exercise by any person other than a Registering
Stockholder of a "piggy-back" right requesting the registration of
shares of Common Stock in accordance with an agreement substantially
similar to this Section 2;
PROVIDED, HOWEVER, that in no event will the number of Registrable
Shares included in a registration pursuant to this Section 2 be reduced
to less than 10% of the aggregate number of securities included in the
registration.
SECTION 3. REGISTRATION PROVISIONS. With respect to each
registration pursuant to this Agreement:
(a) Notwithstanding anything herein to the contrary,
the Company shall not be required to include in any registration any of the
Registrable Shares owned by a Registering Stockholder (1) if the Company shall
deliver to the Registering Stockholder an opinion, satisfactory in form, scope
and substance to the Registering Stockholder and addressed to the Registering
Stockholder by legal counsel satisfactory to the Registering Stockholder, to the
effect that the distribution of such Registrable Shares proposed by the
Registering Stockholder is exempt from registration under the Securities Act and
all applicable state securities laws or (2) if such Registering Stockholder or
any underwriter of such Registrable Shares shall fail to furnish to the Company
the information in respect of the distribution of the shares that may be
required under this Agreement to be furnished by the Registering Stockholder or
the underwriter to the Company.
(b) The Company shall make available for inspection
by each Registering Stockholder participating in the registration, each
underwriter of Transaction
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<PAGE>
Registrable Shares owned by the Registering Stockholder and their respective
accountants, counsel and other representatives all financial and other records,
pertinent corporate documents and properties of the Company as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility in connection with each registration of Transaction Registrable
Shares owned by the Registering Stockholder, and shall cause the Company's
officers, directors and employees to supply all information reasonably requested
by any such person in connection with such registration; PROVIDED that records
and documents which the Company determines, in good faith, after consultation
with counsel for the Company and counsel for the Registering Stockholder or
underwriter, as the case may be, to be confidential and which it notifies such
persons are confidential shall not be disclosed to them, except in each case to
the extent that (1) the disclosure of such records or documents is necessary to
avoid or correct a misstatement or omission in the Registration Statement, (2)
the disclosure of such records or documents to an agency, bureau, commission,
court, department, official, political subdivision or other instrumentality of
any government, whether federal, state, county or local, domestic or foreign
(each, a "GOVERNMENTAL BODY") having jurisdiction over such person is necessary
or appropriate or (3) the disclosure of such records or documents may otherwise
be required by applicable laws, rules, regulations, ordinances, judgments,
rulings, orders, awards, recommendation or other official action of any
Governmental Body having jurisdiction over such person. Each Registering
Stockholder shall, after determining that disclosure of any records or documents
may be necessary or advisable in the circumstances referenced in the proviso to
the preceding sentence, give notice to the Company, and allow the Company, at
the Company's expense, to undertake appropriate action and to prevent disclosure
of any such records or documents deemed confidential.
(c) Each Registering Stockholder shall furnish, and
shall cause each underwriter of Transaction Registrable Shares owned by the
Registering Stockholder to be distributed pursuant to the registration to
furnish, to the Company in writing promptly upon the request of the Company the
additional information regarding the Registering Stockholder or the underwriter,
the contemplated distribution of the Transaction Registrable Shares and the
other information regarding the proposed distribution by the Registering
Stockholder and the underwriter that shall be required in connection with the
proposed distribution by the applicable securities laws of the United States of
America and the states thereof in which the Transaction Registrable Shares are
contemplated to be distributed. The information furnished by any Registering
Stockholder or any underwriter shall be certified by the Registering Stockholder
or the underwriter, as the case may be, and shall be stated to be specifically
for use in connection with the registration.
(d) The Company shall prepare and file with the
Securities and Exchange Commission the Registration Statement, including the
Prospectus, and each amendment thereof or supplement thereto, under the
Securities Act and as required under any applicable state securities laws, on
the form that is then required or available for use by the Company to permit
each Registering Stockholder, upon the effective date of the Registration
Statement, to use the Prospectus in connection with the contemplated
distribution by the Registering Stockholder of the Transaction Registrable
Shares requested
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<PAGE>
to be so registered. A registration pursuant to Section 1 shall be effected
pursuant to Rule 415 (or any similar provision then in force) under the
Securities Act if the manner of distribution contemplated by the Registering
Stockholder shall include an offering on a delayed or continuous basis. The
Company shall furnish to each Registering Stockholder drafts of the Registration
Statement and the Prospectus and each amendment thereof or supplement thereto
for its timely review prior to the filing thereof with the Securities and
Exchange Commission. If any Registration Statement refers to any Registering
Stockholder by name or otherwise as the holder of any securities of the Company
but such reference is not required by the Securities Act or any similar federal
statute then in force, then the Registering Stockholder shall have the right to
require the deletion of such reference. The Company shall deliver to each
Registering Stockholder, without charge, one executed copy of the Registration
Statement and each amendment or post-effective amendment thereof and one copy of
each document incorporated therein by reference. If the registration shall have
been initiated solely by the Company or shall not have been initiated by a
Registering Stockholder, the Company shall not be obligated to prosecute the
registration, and may withdraw the Registration Statement at any time prior to
the effectiveness thereof, if the Company shall determine in good faith not to
proceed with the offering of securities included in the Registration Statement.
In all other cases, the Company shall use its best efforts to cause the
Registration Statement to become effective and, as soon as practicable after the
effectiveness thereof, shall deliver to each Registering Stockholder evidence of
the effectiveness and as many copies of the Prospectus and each amendment
thereof or supplement thereto as the Registering Stockholder may reasonably
request. The Company consents to the use by each Registering Stockholder of each
Prospectus and each amendment thereof and supplement thereto in connection with
the distribution, in accordance with this Agreement, of the Transaction
Registrable Shares owned by the Registering Stockholder. In addition, if
necessary for resale by the Registering Stockholders, the Company shall qualify
or register in such states as may be reasonably requested by each Registering
Stockholder the Transaction Registrable Shares of the Registering Stockholder
that shall have been included in the Registration Statement; PROVIDED that the
Company shall not be obligated to file any general consent to service of process
or to qualify as a foreign corporation in any state in which it is not subject
to process or qualified as of the date of the request. The Company shall advise
the Purchaser and each Registering Stockholder in writing, promptly after the
occurrence of any of the following, of (1) the filing of the Registration
Statement or any Prospectus, or any amendment thereof or supplement thereto,
with the Securities and Exchange Commission, (2) the effectiveness of the
Registration Statement and any post-effective amendment thereto, (3) the receipt
by the Company of any communication from the Securities Exchange Commission with
respect to the Registration Statement or the Prospectus, or any amendment
thereof or supplement thereto, including, without limitation, any stop order
suspending the effectiveness thereof, any comments with respect thereto and any
requests for amendments or supplements and (4) the receipt by the Company of any
notification with respect to the suspension of the qualification of Transaction
Registrable Shares for sale in any jurisdiction or the initiation or threatening
of any proceeding for such purpose.
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<PAGE>
(e) The Company shall use its best efforts to cause
the Registration Statement and the Prospectus to remain effective or current, as
the case may be, including the filing of necessary amendments, post-effective
amendments and supplements, and shall furnish copies of such amendments, post-
effective amendments and supplements to the Registering Stockholders, so as to
permit the Registering Stockholders to distribute the Transaction Registrable
Shares owned by them in their respective manner of distribution during their
respective contemplated periods of distribution, but in no event longer than six
consecutive months from the effective date of the Registration Statement;
PROVIDED that the period shall be increased by the number of days that any
Registering Stockholder shall have been required by Section 4 to refrain from
disposing under the registration of the Transaction Registrable Shares owned by
the Registering Stockholder. During such respective contemplated periods of
distribution, the Company shall comply with the provisions of the Securities Act
applicable to it with respect to the disposition of all Transaction Registrable
Shares that shall have been included in the Registration Statement in accordance
with their respective contemplated manner of disposition by the Registering
Stockholders set forth in the Registration Statement, the Prospectus or the
supplement, as the case may be. The Company shall not be deemed to have used its
best efforts to cause the Registration Statement to remain effective during the
applicable period if it voluntarily takes any action (other than an action
required under applicable law or taken pursuant to and in accordance with
Section 4) that would result in the Registering Stockholders not being able to
dispose of the Transaction Registrable Shares during their respective
contemplated periods of distribution in accordance with their respective
contemplated manner of disposition. The Company shall notify each Registering
Stockholder, at any time when a prospectus with respect to the Transaction
Registrable Shares is required to be delivered under the Securities Act, when
the Company becomes aware of the happening of any event as a result of which the
Prospectus (as then in effect) contains any untrue statement of a material fact
or omits to state a material fact necessary to make the statements therein (in
the case of the Prospectus or any preliminary prospectus, in light of the
circumstances under which they were made) not misleading and, as promptly as
practicable thereafter, prepare and file with the Securities and Exchange
Commission an amendment or supplement to the Registration Statement or the
Prospectus so that, as thereafter delivered to the purchasers of such
Transaction Registrable Shares, such Prospectus will not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The Company shall make every reasonable effort to obtain
the withdrawal of any order suspending the effectiveness of the Registration
Statement at the earliest possible moment. Notwithstanding anything in the
foregoing to the contrary, if, in the opinion of counsel for the Company, there
shall have arisen any legal impediment to the offer of the Transaction
Registrable Shares made by the Prospectus or if any legal action or
administrative proceeding shall have been instituted or threatened or any other
claim shall have been made relating to the offer made by the Prospectus or
against any of the parties involved in the offer, the Company may at any time
upon written notice to each Registering Stockholder (1) terminate the
effectiveness of the Registration Statement or (2) withdraw from the
Registration Statement the Transaction Registrable Shares owned by the
Registering Stockholder; PROVIDED that, promptly after those matters
B-7
<PAGE>
shall be resolved to the satisfaction of counsel for the Company, then, pursuant
to Section 1 or 2, as the case may be, the Company shall cause the registration
of Transaction Registrable Shares formerly covered by the Registration Statement
that were removed from registration by the action of the Company.
(f) If requested by any Registering Stockholder or
an underwriter of Transaction Registrable Shares owned by the Registering
Stockholder, the Company shall as promptly as practicable prepare and file with
the Securities and Exchange Commission an amendment or supplement to the
Registration Statement or the Prospectus containing such information as the
Registering Stockholder or the underwriter requests to be included therein,
including, without limitation, information with respect to the Transaction
Registrable Shares being sold by the Registering Stockholder to the underwriter,
the purchase price being paid therefor by such underwriter and other terms of
the underwritten offering of the Transaction Registrable Shares to be sold in
such offering.
(g) Each Registering Stockholder shall report to the
Company distributions made by the Registering Stockholder of Transaction
Registrable Shares pursuant to the Prospectus and, upon written notice by the
Company that an event has occurred as a result of which an amendment or
supplement to the Registration Statement or the Prospectus is required, the
Registering Stockholder shall cease further distributions pursuant to the
Prospectus until notified by the Company of the effectiveness of the amendment
or supplement. Each Registering Stockholder shall distribute Transaction
Registrable Shares only in accordance with the manner of distribution
contemplated by the Prospectus with respect to the Transaction Registrable
Shares owned by the Registering Stockholder. Each Registering Stockholder, by
participating in a registration pursuant to this Agreement, acknowledges that
the remedies of the Company at law for failure by the Registering Stockholder to
comply with the undertaking contained in this paragraph (g) would be inadequate
and that the failure would not be adequately compensable in damages and would
cause irreparable harm to the Company, and therefore agrees that undertakings
made by the Registering Stockholder in this paragraph (g) may be specifically
enforced.
(h) If the registration is made pursuant to Section
2 and the registration involves an underwritten offering, in whole or in part,
the Company may require the Transaction Registrable Shares owned by the
Registering Stockholders to be included in such underwriting on the same terms
and conditions as shall be applicable to the other securities being sold through
underwriters in the registration. In that event, the Registering Stockholders
shall be parties to the related underwriting agreement.
(i) If the registration involves an underwritten
offering, (1) at the request of one or more of the Registering Stockholders or
the Company, the Company and the requesting Registering Stockholders shall enter
into an appropriate underwriting agreement with respect to the Registrable
Shares of the Registering Stockholders containing terms and provisions customary
in agreements of that nature, including, without limitation, provisions with
respect to expenses substantially the same as those set forth in Section 5 and
provisions with respect to indemnification and contribution substantially the
same as those
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<PAGE>
set forth in Section 6, (2) the Company shall make such representations and
warranties, and deliver such certificates with respect thereto, to each
Registering Stockholder owning the Transaction Registrable Shares included in
such underwritten offering and each underwriter of such Transaction Registrable
Shares, and in each case in such form, substance and scope, as are customarily
made by issuers to underwriters in primary underwritten offerings, (3) the
Company shall obtain and deliver to each such Registering Stockholder and
underwriter opinions of counsel to the Company and updates thereof (which
counsel and opinions (in form, substance and scope) shall be reasonably
satisfactory to the managing underwriter in such offering) addressed to such
Registering Stockholder and underwriter with respect to matters customarily
covered by such opinions requested in underwritten offerings and such other
matters as may reasonably be requested by such Registering Stockholder or
underwriter, (4) the Company shall obtain and deliver to each such Registering
Stockholder and underwriter "cold comfort" letters and updates thereof from the
independent certified public accountants of the Company (and, if necessary, any
other independent certified public accounts of any subsidiary of the Company or
of any business of the Company for which financial statements and financial data
are, or required to be, included in the Registration Statement), addressed to
such Registering Stockholder and underwriter, in customary form and substance,
with respect to matters customarily covered by "cold comfort" letters in
connection with primary underwritten offerings, and (5) the Company shall
prepare or obtain, and deliver to each such Registering Stockholder and
underwriter, such other documents as may reasonably be requested by such
Registering Stockholder or underwriter.
(j) Prior to sales of Transaction Registrable Shares
under the Registration Statement, the Company shall cooperate with each
Registering Stockholder and each underwriter of Transaction Registrable Shares
owned by the Registering Stockholder to facilitate the timely preparation and
delivery of certificates (not bearing any restrictive legends) representing such
Transaction Registrable Shares, and to enable such Transaction Registrable
Shares to be in such denominations and registered in such names as the
Registering Stockholder or the underwriter may request.
(k) The Company shall use its best efforts to comply
with all applicable rules and regulations of the Securities and Exchange
Commission, and make available to its securityholders, as soon as reasonably
practicable, an earnings statement covering the period of at least twelve
months, but not more than eighteen months, beginning with the first calendar
month after the effective date of the Registration Statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the Securities Act.
(l) The Company shall take all action required to
cause the Transaction Registrable Shares to be listed on each national
securities exchange on which the Common Stock shall then be listed, if any, and
to be qualified for inclusion in the NASDAQ/National Market System or the
NASDAQ/SmallCap Market, as the case may be, if the Common Stock is then so
qualified.
(m) For the purposes of this Agreement, the
following terms shall have the following meanings:
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(1) "BUSINESS DAY" means any day excluding Saturday, Sunday
and any day which is a legal holiday under the laws of the State of New
York or is a day on which banking institutions located in such state
are authorized or required by law or other governmental action to
close;
(2) "PROSPECTUS" means (A) the prospectus relating to the
Transaction Registrable Shares owned by the Registering Stockholders
included in a Registration Statement, (B) if a prospectus relating to
the Transaction Registrable Shares shall be filed with the Securities
and Exchange Commission pursuant to Rule 424 (or any similar provision
then in force) under the Securities Act, such prospectus, and (C) in
the event of any amendment or supplement to the prospectus after the
effective date of the Registration Statement, then from and after the
effectiveness of the amendment or the filing with the Securities and
Exchange Commission of the supplement, the prospectus as so amended or
supplemented;
(3) "REGISTRATION STATEMENT" means (A) a registration
statement filed by the Company in accordance with Section 3(d),
including exhibits and financial statements thereto, in the form in
which it shall become effective, the documents incorporated by
reference therein pursuant to Item 12 of Form S-3 (or any similar
provision or forms then in force) under the Securities Act and
information deemed to be a part of such registration statement pursuant
to paragraph (b) of Rule 430A (or any similar provision then in force)
and (B) in the event of any amendment thereto after the effective date
of the registration statement, then from and after the effectiveness of
the amendment, the registration statement as so amended; and
(4) information "CONTAINED", "INCLUDED" or "STATED" in a
Registration Statement or a Prospectus (or other references of like
import) includes information incorporated by reference.
SECTION 4. BLACKOUT PROVISIONS.
(a) By delivery of written notice to any of the
Purchaser, the Registering Stockholders and the other holders of Registrable
Shares, stating which one or more of the following limitations shall apply to
the addressee of such written notice, the Company may (1) postpone effecting a
registration under this Agreement pursuant to this Section 4 on one occasion
during any period of nine consecutive months, (2) require such addressee to
refrain from disposing of Transaction Registrable Shares under the registration
or (3) require such addressee to refrain from otherwise disposing of any
Registrable Shares owned by such addressee (whether pursuant to Rule 144 or 144A
under the Securities Act or otherwise), in each case for a reasonable time
specified in the notice but not exceeding 90 days (which period may not be
extended or renewed).
(b) The Company may postpone effecting a
registration or apply to any person specified in clauses (2) and (3) of
paragraph (a) above any of the limitations specified in such clauses if (1) an
investment banking firm of recognized national standing
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shall advise the Company and the Registering Stockholders in writing that
effecting the registration or the disposition by such person of Registrable
Shares, as the case may be, would materially and adversely affect an offering of
Equity Securities of the Company the preparation of which had then been
commenced or (2) the Company is in possession of material non-public information
the disclosure of which during the period specified in such notice the Company
reasonably believes would not be in the best interests of the Company.
(c) If the Company shall take any action pursuant to
paragraph (a) above, the period during which the Registering Stockholders may
exercise their respective rights under Sections 1 and 2 shall be extended by one
day beyond the Commencement Date for each day that, pursuant to this Section 4,
the Company postpones effecting a registration, requires any person to refrain
from disposing of Transaction Registrable Shares under a registration or
otherwise requires any person to refrain from disposing of Registrable Shares.
SECTION 5. EXPENSES.
(a) The Company shall bear all expenses of the
following in connection with the registration of Transaction Registrable Shares
pursuant to this Agreement, whether or not any related Registration Statement
shall become effective:
(1) preparing, printing and filing each Registration Statement
and Prospectus and each qualification or notice required to be filed
under federal and state securities laws or the rules and regulations of
the National Association of Securities Dealers, Inc. (the "NASD");
(2) all fees and expenses of complying with federal and state
securities laws and the rules and regulations of the NASD;
(3) furnishing to each Registering Stockholder one executed
copy of the related Registration Statement and the number of copies of
the related Prospectus that may be required by Sections 3(d) and 3(e)
to be so furnished, together with a like number of copies of each
amendment, post-effective amendment or supplement;
(4) performing its obligations under Sections 3(d) and 3(i);
(5) printing and issuing share certificates, including the
transfer agent's fees, in connection with each distribution so
registered;
(6) preparing audited financial statements required by the
Securities Act and the rules and regulations thereunder to be included
in the Registration Statement and preparing audited financial
statements for use in connection with the registration other than
audited financial statements required by the Securities Act and the
rules and regulations thereunder;
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(7) internal expenses of the Company (including, without
limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties);
(8) premiums or other expenses relating to liability insurance
required by the Company or underwriters of the Registering
Stockholders;
(9) fees and disbursements of underwriters of the Registering
Stockholders customarily paid by issuers or sellers of securities;
(10) listing of the Registrable Shares on national securities
exchanges and inclusion of the Registrable Shares on the
NASDAQ/National Market System or the NASDAQ/SmallCap Market, as the
case may be; and
(11) fees and expenses of any special experts retained by the
Company in connection with the registration.
(b) The Registering Stockholders shall bear all
other expenses incident to the distribution by the respective Registering
Stockholders of the Registrable Shares owned by them in connection with a
registration pursuant to this Agreement, including, without limitation, the
selling expenses of the Registering Stockholders (but excluding the expenses
referred to in paragraph (a)(9) above), commissions, underwriting discounts,
insurance, fees of counsel for the Registering Stockholders and their
underwriters.
SECTION 6. INDEMNIFICATION
(a) The Company shall indemnify and hold harmless
each Registering Stockholder participating in a registration pursuant to this
Agreement, each underwriter of Transaction Registrable Shares owned by the
Registering Stockholder to be distributed pursuant to the registration, each
partner in the Registering Stockholder, the officers and directors of the
Registering Stockholder and the underwriter and each person, if any, who
controls the Registering Stockholder, any partner in the Registering Stockholder
or the underwriter within the meaning of Section 15 (or any successor provision)
of the Securities Act, and their respective successors, against all claims,
losses, damages and liabilities to third parties (or actions in respect thereof)
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in the Registration Statement or the Prospectus or
other document incident thereto or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and shall reimburse each such Registering
Stockholder and each other person indemnified pursuant to this Section 6(a) for
any legal and any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action;
PROVIDED that the Company shall not be liable in any case to the extent that any
such claim, loss, damage or liability arises out of or is based on any untrue
statement or omission based upon written information furnished to the Company by
the Registering Stockholder or the underwriter of such
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<PAGE>
Transaction Registrable Shares specifically for use in the Registration
Statement or the Prospectus.
(b) Each Registering Stockholder, by participating in
a registration pursuant to this Agreement, thereby agrees to indemnify and to
hold harmless the Company and its officers and directors and each person, if
any, who controls any of them within the meaning of Section 15 (or any successor
provision) of the Securities Act, and their respective successors, against all
claims, losses, damages and liabilities to third parties (or actions in respect
thereof) arising out of or based upon any untrue statement (or alleged untrue
statement) of a material fact contained in the Registration Statement or the
Prospectus or other document incident thereto or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and shall reimburse the
Company and each other person indemnified pursuant to this Section 6(b) for any
legal and any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action;
PROVIDED that this Section 6(b) shall apply only if (and only to the extent
that) the statement or omission was made in reliance upon and in conformity with
information furnished to the Company in writing by the Registering Stockholder
specifically for use in the Registration Statement or the Prospectus, PROVIDED,
FURTHER, that in no event shall the liability of a Registering Stockholder
hereunder be greater in amount than the dollar amount of the proceeds received
by the Registering Stockholder upon the sale of the Registrable Shares giving
rise to such indemnification obligations.
(c) If any action or proceeding (including any
governmental investigation or inquiry) shall be brought, asserted or threatened
against any person indemnified under this Section 6, the indemnified person
shall promptly notify the indemnifying party in writing, and the indemnifying
party shall assume the defense of the action or proceeding, including the
employment of counsel satisfactory to the indemnified person and the payment of
all expenses. The indemnified person shall have the right to employ separate
counsel in any action or proceeding and to participate in the defense of the
action or proceeding, but the fees and expenses of that counsel shall be at the
expense of the indemnified person unless:
(1) the indemnifying party shall have agreed to pay those fees
and expenses; or
(2) the indemnifying party shall have failed to assume the
defense of the action or proceeding or shall have failed to employ
counsel reasonably satisfactory to the indemnified person in the action
or proceeding; or
(3) the named parties to the action or proceeding (including
any impleaded parties) include both the indemnified person and the
indemnifying party, and the indemnified person shall have been advised
by counsel that there may be one or more legal defenses available to
the indemnified person that are different from or additional to those
available to the indemnifying party (in which case, if the
B-13
<PAGE>
indemnified person notifies the indemnifying party in writing that it
elects to employ separate counsel at the expense of the indemnifying
party, the indemnifying party shall not have the right to assume the
defense of such action or proceeding on behalf of the indemnified
person; it being understood, however, that the indemnifying party shall
not, in connection with any one action or proceeding or separate but
substantially similar or related actions or proceedings in the same
jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more
than one separate firm of attorneys at any time for the indemnified
person, which firm shall be designated in writing by the indemnified
person).
The indemnifying party shall not be liable for any settlement of any action or
proceeding effected without its written consent, but if settled with its written
consent, or if there be a final judgment for the plaintiff in any such action or
proceeding, the indemnifying party shall indemnify and hold harmless the
indemnified person from and against any loss or liability by reason of the
settlement or judgment.
(d) If the indemnification provided for in this
Section 6 is unavailable to an indemnified person (other than by reason of
exceptions provided in this Section 6) in respect of losses, claims, damages,
liabilities or expenses referred to in this Section 6, then each applicable
indemnifying party, in lieu of indemnifying the indemnified person, shall
contribute to the amount paid or payable by the indemnified person as a result
of the losses, claims, damages, liabilities or expenses in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and of the indemnified person on the other in connection with the
statements or omissions which resulted in the losses, claims, damages,
liabilities or expenses as well as any other relevant equitable considerations.
The relative fault of the indemnifying party on the one hand and of the
indemnified person on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified person and by these
persons' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The parties agree that it would
not be just and equitable if contribution pursuant to this Section 6(d) were
determined by pro rata allocation or by any other method of allocation that does
not take into account the equitable considerations referred to in the
immediately preceding sentence. The amount paid or payable by a person as a
result of the losses, claims, damages, liabilities and expenses shall be deemed
to include any legal or other fees or expenses reasonably incurred by the person
in connection with investigating or defending any action or claim.
Notwithstanding in the foregoing to the contrary, no Registering Stockholder or
underwriter of Transaction Registrable Shares owned by the Registering
Stockholder shall be required to contribute any amount in excess of the amount
by which (1) in the case of the Registering Stockholder, the net proceeds
received by the Registering Stockholder the sale of Transaction Registrable
Shares or (2) in the case of the underwriter, the total price at which such
Transaction Registrable Shares purchased by it and distributed to the public
were offered to the public exceeds, in any such case, the
B-14
<PAGE>
amount of any damages that the Registering Stockholder or underwriter, as the
case may be, has otherwise been required to pay by reason of any untrue or
alleged untrue statement or omission. No person guilty of fraudulent
representation (within the meaning of Section 11(f) of the Securities Act) shall
be entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation.
(e) Each Registering Stockholder participating in a
registration pursuant to Section 1 shall cause each underwriter of any
Transaction Registrable Shares owned by the Registering Stockholder to be
distributed pursuant to the registration to agree in writing on terms reasonably
satisfactory to the Company to indemnify and to hold harmless the Company and
its officers and directors and each person, if any, who controls any of them
within the meaning of Section 15 (or any successors provision) of the Securities
Act, and their respective successors, against all claims, losses, damages and
liabilities to third parties (or actions in respect thereof) arising out of or
based upon any untrue statement (or alleged untrue statement) of a material fact
contained in the Registration Statement or the Prospectus or other document
incident thereto or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and to reimburse the Company and each other person
indemnified pursuant to the agreement for any legal or any other expense
reasonably incurred in connection with investigating or defending any claim,
loss, damage, liability or action; PROVIDED that the agreement shall apply only
if (and only to the extent that) the statement or omission was made in reliance
upon and in conformity with information furnished to the Company in writing by
the underwriter specifically for use in the Registration Statement or the
Prospectus.
SECTION 7. TRANSFER RESTRICTIONS.
(a) The Purchaser acknowledges that the Company
will issue and sell the Registrable Shares to the Purchaser in reliance upon the
exemption afforded by Section 4(2) of the Securities Act for transactions by an
issuer not involving any public offering. The Purchaser represents that (1) it
will acquire the Registrable Shares for investment and without any view toward
distribution of any of the Registrable Shares to any other person and (2) it
will not sell or otherwise dispose of the Registrable Shares except in
compliance with the registration requirements or exemption provisions under the
Securities Act.
(b) Except as provided to the contrary in this
Section 7, each certificate for Registrable Shares, and any certificate issued
in exchange therefor or upon conversion, exercise or transfer thereof, shall
bear legends substantially to the effect stated in clauses (1) and (2) below:
(1) "The shares of Common Stock represented by this
certificate have not been registered under the Securities Act of 1933,
as amended, and may not be offered, sold, transferred or otherwise
disposed of except in compliance with said Act."
B-15
<PAGE>
(2) "The shares of Common Stock represented by this
certificate are subject to the restrictions stated in the Registration
Rights Agreement dated as of __________, 1997, a copy of which is on
file at the office of the Secretary of the Company."
(c) The legend stated in Section 7(b)(1) shall be
removed by delivery of one or more substitute certificates without such legend
if either (1) such substitute instruments or certificates are issued in
connection with a sale that is registered under the Securities Act or (2) the
holder thereof shall have delivered to the Company a copy of a letter from the
staff of the Securities and Exchange Commission or an opinion of counsel, in
form and substance reasonably satisfactory to the Company, to the effect that
the legend is not required for purposes of the Securities Act.
(d) The legend stated in Section 7(b)(2) shall be
removed by delivery of one or more substitute certificates without such legend
at such time as the related securities are no longer subject to this Agreement.
SECTION 8. EXEMPT SALES.
(a) The Company shall make all filings with the
Securities and Exchange Commission required by paragraph (c) of Rule 144 (or any
similar provision then in force) under the Securities Act to permit the sale of
Registrable Shares by any holder thereof (other than an Affiliate of the
Company) to satisfy the conditions of Rule 144 (or any similar provision then in
force). The Company shall, promptly upon the written request of the holder of
Registrable Shares, deliver to such holder a written statement as to whether the
Company has complied with all such filing requirements.
(b) If any of the Registrable Shares are then
eligible for sale by the holder thereof pursuant to Rule 144A (or any similar
provision then in force) under the Securities Act, the Company shall, promptly
upon the written request of such holder, furnish to such holder and each
prospective purchaser of such Registrable Shares identified by such holder in
such written request, the information required by paragraph (d)(4) of Rule 144A
(or any similar provision then in force) to permit the sale of such Registrable
Shares to satisfy the conditions of Rule 144A (or any similar provision then in
force).
(c) Prior to sales of Registrable Shares proposed
to be sold pursuant to an exemption from the registration requirements of the
Securities Act, the Company shall, subject to Section 6(d), cooperate with the
Purchaser and each other holder of Registrable Shares to facilitate the timely
preparation and delivery of certificates (not bearing any restrictive legends)
representing such Registrable Shares.
SECTION 9. MERGER, CONSOLIDATION, EXCHANGE, ETC. In the event,
directly or indirectly, (1) the Company shall merge with and into, or
consolidate with, or consummate a share exchange pursuant to Subchapter IX of
the Delaware General Corporation Law (or successor provisions or statutes) with,
any other person, or (2) any person shall merge with
B-16
<PAGE>
and into, or consolidate, the Company and the Company shall be the surviving
corporation of such merger or consolidation and, in connection with such merger
or consolidation, all or part of the Registrable Shares shall be changed into or
exchanged for stock or other securities of any other person, then, in each such
case, proper provision shall be made so that such other person shall be bound by
the provisions of this Agreement and the term "Company" shall thereafter be
deemed to refer to such other person.
SECTION 10. OTHER AGREEMENTS. The Company, on behalf of itself
and its Affiliates (other than a Registering Stockholder), agrees (1) not to
effect any public sale or distribution of any securities similar to the
Registrable Shares being registered pursuant to this Agreement or any securities
convertible into or exchangeable or exercisable for such Registrable Shares
during the 14 days prior to, and during the 90-day period beginning on, the
effective date of the Registration Statement (except (x) on Form S-4 or Form S-8
(or comparable form) or (y) as part of the Registration Statement; PROVIDED that
with respect to clause (y) in the case of a registration pursuant to Section 1
the Registering Stockholder initiating the registration consents to such
inclusion), or the commencement of a public distribution of Registrable Shares;
(2) not to enter into any agreement inconsistent with any provision of this
Agreement; (3) that any agreement entered into after the date of this Agreement
pursuant to which the Company issues or agrees to issue any privately placed
securities shall contain a provision under which holders of such securities
agree not to effect any public sale or distribution of any of the securities
during the periods described in clause (1) of this Section 10, in each case
including a sale in a Rule 144 Transaction (except as part of any such
registration, if permitted); PROVIDED that the provisions of this Section 10
shall not prevent the conversion or exchange of any securities pursuant to their
terms into or for other securities.
SECTION 11. NOTICES. All notices, requests and other
communications to any party under this Agreement shall be in writing.
Communications may be made by telecopy or similar writing. Each communication
shall be given to the party at its address stated on the signature pages of this
Agreement or at any other address as the party may specify for this purpose by
notice to the other party. Each communication shall be effective (1) if given by
telecopy, when the telecopy is transmitted to the proper address and the receipt
of the transmission is confirmed, (2) if given by mail, 72 hours after the
communication is deposited in the mails properly addressed with first class
postage prepaid or (3) if given by any other means, when delivered to the proper
address and a written acknowledgement of delivery is received.
SECTION 12. NO WAIVERS; REMEDIES. No failure or delay by any
party in exercising any right, power or privilege under this Agreement shall
operate as a waiver of the right, power or privilege. A single or partial
exercise of any right, power or privilege shall not preclude any other or
further exercise of the right, power or privilege or the exercise of any other
right, power or privilege. The rights and remedies provided in this Agreement
shall be cumulative and not exclusive of any rights or remedies provided by law.
B-17
<PAGE>
SECTION 13. AMENDMENTS, ETC. No amendment, modification,
termination or waiver of any provision of this Agreement, and no consent to any
departure by a party to this Agreement from any provision of this Agreement,
shall be effective unless it shall be in writing and signed and delivered by the
other party to this Agreement, and then it shall be effective only in the
specific instance and for the specific purpose for which it is given.
SECTION 14. SUCCESSORS AND ASSIGNS.
(a) Each holder of Registrable Shares may assign to
any transferee of Registrable Shares its rights and delegate to the transferee
its obligations under this Agreement, including, without limitation, the rights
of assignment pursuant to this Section 14; PROVIDED that such transferee
assignee shall accept such rights and assume such obligations for the benefit of
the Company by written instrument, in form and substance reasonably satisfactory
to the Company. Thereafter, without any further action by any person, all
references in this Agreement to the holder of such Registrable Securities, and
all comparable references, shall be deemed to be references to the transferee,
and the transferor shall be released from each obligation or liability under
this Agreement with respect to the Registrable Shares so transferred.
(b) The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties to this Agreement and their
respective successors and permitted assigns pursuant to Section 3(a).
SECTION 15. GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the internal laws of the State of New York.
SECTION 16. COUNTERPARTS; EFFECTIVENESS. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if all signatures were on the same instrument.
SECTION 17. SEVERABILITY OF PROVISIONS. Any provision of this
Agreement that is prohibited or unenforceable in any jurisdiction shall, as to
that jurisdiction, be ineffective to the extent of the prohibition or
unenforceability without invalidating the remaining provisions of this Agreement
or affecting the validity or enforceability of the provision in any other
jurisdiction.
SECTION 18. HEADINGS AND REFERENCES. Section headings in this
Agreement are included for the convenience of reference only and do not
constitute a part of this Agreement for any other purpose. References to parties
and sections in this Agreement are references to the parties to or the sections
of this Agreement, as the case may be, unless the context shall require
otherwise.
SECTION 19. ENTIRE AGREEMENT. This Agreement embodies the
entire agreement and understanding of the parties and supersedes all prior
agreements or understandings with respect to the subject matters of this
Agreement.
B-18
<PAGE>
SECTION 20. SURVIVAL. Except as otherwise specifically
provided in this Agreement, each representation, warranty or covenant of each
party contained in to this Agreement shall remain in full force and effect,
notwithstanding any investigation or notice to the contrary or any waiver by the
other party of a related condition precedent to the performance by such other
party of an obligation under this Agreement.
SECTION 21. EXCLUSIVE JURISDICTION. Each party (1) agrees that
any Action with respect to this Agreement or transactions contemplated by this
Agreement shall be brought exclusively in the courts of the State of New York or
of the United States of America for the Southern District of New York, (2)
accepts for itself and in respect of its property, generally and
unconditionally, the jurisdiction of those courts, (3) irrevocably waives any
objection, including, without limitation, any objection to the laying of venue
or based on the grounds of FORUM NON CONVENIENS, which it may now or hereafter
have to the bringing of any action in those jurisdictions; PROVIDED, HOWEVER,
that each party may assert in an Action in any other jurisdiction or venue each
mandatory defense, third-party claim or similar claim that, if not so asserted
in such Action, may not be asserted in an original Action in the courts referred
to in clause (1) above.
SECTION 22. WAIVER OF JURY TRIAL. Each party waives any right
to a trial by jury in any Action to enforce or defend any right under this
Agreement or any amendment, instrument, document or agreement delivered, or
which in the future may be delivered, in connection with this Agreement and
agrees that any Action shall be tried before a court and not before a jury.
SECTION 23. NON-RECOURSE. No recourse under this Agreement
shall be had against any "controlling person" (within the meaning of Section 20
of the Exchange Act) of the Purchaser or the stockholders, directors, officers,
employees, agents and Affiliates of the Purchaser or such controlling persons,
whether by the enforcement of any assessment or by any legal or equitable
proceeding, or by virtue of any Regulation, it being expressly agreed and
acknowledged that no personal liability whatsoever shall attach to, be imposed
on or otherwise be incurred by such controlling person, stockholder, director,
officer, employee, agent or Affiliate, as such, for any obligations of the
Purchaser under this Agreement or any other Transaction Document or for any
claim based on, in respect of or by reason of such obligations or their
creation.
SECTION 24. AFFILIATE. Nothing contained in this Agreement
shall constitute the Purchaser an "affiliate" of any of the Company and its
Subsidiaries within the meaning of Rule 13e-3 under the Exchange Act.
----------------------------
[Intentionally Left Blank]
B-19
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered
this Registration Rights Agreement as of the date first written above in New
York, New York.
THE WMF GROUP, LTD.
By:__________________________________________
Name:
Title:
Address: 1593 Spring Hill Road
Suite 400
Vienna, Virginia 22182
Telecopy: (703) 610-1400
CAPRICORN INVESTORS II, L.P.
BY: CAPRICORN HOLDINGS, LLC,
ITS GENERAL PARTNER
By:__________________________________________
Name:
Title:
Address: 30 East Elm Street
Greenwich, Connecticut 06830
Telecopy: (203) 861-6671
S-1
B-20
<PAGE>
The Board of Directors
The WMF Group. Ltd.
We consent to the incorporation by reference in the registration statements
(No.333-41613 and No.333-61653) on Form S-8 of The WMF Group, Ltd. of our report
dated March 5, 1999, except for note 20 which is as of March 19, 1999, relating
to the consolidated balance sheets of The WMF Group, Ltd. and subsidiaries as of
December 31, 1998 and 1997, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the years then
ended, which report appears in the December 31, 1998 Form 10-K of The WMF Group,
Ltd.
KPMG LLP
Washington, D.C.
March 31, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10K
CONSOLIDATED FINANCIALS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 22,295 12,362
<SECURITIES> 6,195 3,851
<RECEIVABLES> 2,588 2,631
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 49,980 63,363
<PP&E> 5,011 2,299
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 144,527 119,331
<CURRENT-LIABILITIES> 55,649 58,608
<BONDS> 0 0
0 0
0 0
<COMMON> 53 50
<OTHER-SE> 27,325 38,775
<TOTAL-LIABILITY-AND-EQUITY> 144,527 119,331
<SALES> 0 0
<TOTAL-REVENUES> 72,541 44,645
<CGS> 0 0
<TOTAL-COSTS> 98,083 30,952
<OTHER-EXPENSES> 7,954 5,910
<LOSS-PROVISION> 1,128 729
<INTEREST-EXPENSE> 17,764 2,283
<INCOME-PRETAX> (52,388) 4,771
<INCOME-TAX> (19,066) 2,329
<INCOME-CONTINUING> (33,322) 2,442
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (33,322) 2,442
<EPS-PRIMARY> (6.38) .57
<EPS-DILUTED> (6.38) .55
</TABLE>
