<PAGE>
As filed with the Securities and Exchange Commission on February 2, 1999
Registration No. 333-70029
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
THE WMF GROUP, LTD.
(Exact name of registrant as specified in its charter)
Delaware 6162 54-1647759
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code No.) Identification No.)
incorporation or
organization)
1593 Spring Hill Road Shekar Narasimhan
Suite 400 1593 Spring Hill Road
Vienna, Virginia 22182 Suite 400
(703) 610-1400 Vienna, Virginia 22182
(Address, including zip code, (703) 610-1400
and telephone number, including (Name, address, including zip code,
area code, of registrant's and telephone number, including
principal executive offices) area code, of agent for service)
---------------
Copy to:
Randall S. Parks
Hunton & Williams
Riverfront Plaza
951 East Byrd Street
Richmond, Virginia 23218
(804) 788-7375
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after effectiveness of the Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed
Proposed maximum
Title of each class of Amount maximum aggregate Amount of
securities to be to be offering price offering registration
registered registered(1) per unit(2) price(2) fee(3)
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<S> <C> <C> <C> <C>
Rights to Purchase Shares
of Common Stock, $.01
par value per share.... 2,829,511 -- -- --
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Common Stock, $.01 par
value per share........ 2,829,511 $5.00 $14,147,555 $3,933
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</TABLE>
(1) Maximum number of shares of The WMF Group, Ltd.'s common stock to be sold
to current holders of common stock of The WMF Group, Ltd., in this rights
offering.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(g) of the Securities Act.
(3) The WMF Group, Ltd. paid a registration fee of $3,707 in connection with
the original filing of this registration statement December 31, 1998. The
balance of $226 has been filed with this Pre-Effective Amendment No. 1.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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<PAGE>
The information in this prospectus is not complete and may be changed. The
Company may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This prospectus is
not an offer to sell, and it is not soliciting an offer to buy, these
securities in any state where the offer or sale is not permitted.
[LOGO APPEARS HERE] 2,829,511 Shares
Common Stock
$5.00 per Share
The Company is distributing transferable rights to persons who owned shares of
the Company's common stock on February 1, 1999. During this rights offering,
the Company will issue up to 2,829,511 shares of common stock.
You will receive 1.072 rights for each share of common stock that you owned on
February 1, 1999. You will not receive any fractional rights. Each right
entitles you to purchase one share of common stock for $5.00 per share. If you
exercise all of your rights, you will also have the opportunity to purchase
<TABLE>
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<CAPTION>
Net Proceeds
Rights Price to the Company(1)
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<S> <C> <C>
Per Share $5.00 $5.00
- --------------------------------------------
Total $14,147,555 $14,147,555
- --------------------------------------------
</TABLE>
(1)Before deducting expenses payable by the Company, estimated to be $390,000.
=================================
The exercise of the rights
involves substantial risk.
You should refer to the
discussion of material Risk
Factors, beginning on page 9
of this prospectus.
=================================
additional shares at the same purchase price.
Because they recently acquired approximately 3.6 million shares of the
Company's common stock, Demeter Holdings Corporation ("Demeter"), Phemus
Corporation ("Phemus"), and Capricorn Investors II, L.P. ("Capricorn"), have
agreed that they will not exercise, transfer or acquire any rights during this
rights offering.
However, Demeter, Phemus and Capricorn will purchase up to a total of 664,028
additional shares of capital stock not otherwise purchased during this rights
offering.
Shares of the Company's common stock are currently traded on The Nasdaq
National Market under the symbol "WMFG." The Company expects that the rights
will trade on the OTC Bulletin Board under the symbol "WMFGR."
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The date of this prospectus is February , 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
PROSPECTUS SUMMARY........................................................ 1
Questions and Answers About The Company................................. 1
Questions and Answers About The Rights Offering......................... 3
A WARNING ABOUT FORWARD-LOOKING STATEMENTS................................ 8
RISK FACTORS.............................................................. 9
Losses By The Company, Including Losses Related To Short-Sale
Transactions, May Recur................................................ 9
Unsatisfied Contractual Commitments May Cause Additional Losses......... 9
Losses Related To Loans Held For Sale For Which The Company Does Not
Have Investor Commitments Could Affect The Company's Results Of
Operations............................................................. 10
The Company May Incur Losses Related To Loan Commitments For Which It
Does Not Have A Purchaser And Has Not Entered Into Hedge
Arrangements........................................................... 10
Company's Loss Of Deferred Tax Assets Could Adversely Affect Shareholder
Equity................................................................. 10
If You Do Not Exercise Your Rights, Your Ownership Interest May Be
Diluted................................................................ 10
Principal Stockholders May Not Act In The Best Interest Of Other
Stockholders........................................................... 11
Stand-By Commitment Is Conditional...................................... 12
Maturity Of Warehouse Financing May Result In The Company's Inability To
Make Additional Loans After April 1, 1999.............................. 13
The Company May Need Additional Capital Even After Rights Offering...... 13
The Company May Be Unable To Complete Acquisitions Or Enter Into New
Business Lines......................................................... 14
The Company May Incur Losses On Mortgage Loans Under The DUS Program.... 14
The Company Is Liable For Certain Representations And Warranties
Concerning Mortgage Loans.............................................. 15
The Company May Incur Losses As A Result Of Changes In General Economic
Conditions............................................................. 15
The Company's Operations May Decline As A Result Of Impairment Of
Mortgage Servicing Rights.............................................. 16
The Company May Not Be Able To Recover Advanced Funds................... 17
The Company May Incur Losses Upon Termination Of Certain Servicing
Contracts.............................................................. 17
The Company May Be Unable To Continue To Comply With Government
Regulation And Programs................................................ 17
The Company's Operations May Be Significantly Affected By The Year 2000
Problem................................................................ 18
The Company Relies On Certain Key Personnel............................. 20
The Company's Business Depends On Its Sales Staff....................... 20
The Company Is Subject To National And Regional Competition............. 20
Certain Anti-Takeover Provisions May Affect Your Rights As A
Shareholder............................................................ 21
The Company Does Not Anticipate Paying Dividends On Common Stock........ 21
No Prior Market For The Rights Exists................................... 21
The Sale Of A Substantial Amount Of Common Stock May Affect The Market
Price.................................................................. 21
The Company's Stock Price Has Been And May Continue To Be Volatile...... 22
THE COMPANY............................................................... 24
Recent Developments..................................................... 24
Business................................................................ 26
Business Strategy....................................................... 31
THE RIGHTS OFFERING....................................................... 34
The Rights.............................................................. 34
Basic Subscription Right................................................ 34
Oversubscription Privilege.............................................. 34
Stand-By Purchase Commitment............................................ 35
Expiration Date......................................................... 35
Withdrawal Right........................................................ 35
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Determination Of Share Price............................................. 35
Transferability Of Rights................................................ 35
Exercise Of Rights....................................................... 36
Method Of Payment........................................................ 36
Guaranteed Delivery Procedures........................................... 37
Signature Guarantees..................................................... 38
Shares Held For Others................................................... 38
Ambiguities In Exercise Of The Rights.................................... 38
Company's Decision Binding............................................... 39
No Revocation............................................................ 39
Fees and Expenses........................................................ 39
Subscription Agent....................................................... 39
Financial Advisor........................................................ 40
IF YOU HAVE QUESTIONS...................................................... 40
USE OF PROCEEDS............................................................ 41
CAPITALIZATION............................................................. 42
PLAN OF DISTRIBUTION....................................................... 43
FEDERAL INCOME TAX CONSIDERATIONS.......................................... 44
Taxation Of Stockholders................................................. 44
Taxation Of The Company.................................................. 44
PRICE RANGE OF COMMON STOCK................................................ 45
SELECTED FINANCIAL DATA.................................................... 46
LEGAL MATTERS.............................................................. 48
EXPERTS.................................................................... 48
IF YOU WOULD LIKE ADDITIONAL INFORMATION................................... 49
SIGNATURES................................................................. iv
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
This section answers in summary form some questions you may have about the
Company and this rights offering. The information in this section is not
complete and may not contain all of the information that you should consider
before exercising your rights. You should read the entire prospectus carefully,
including the "Risk Factors" section and the documents listed under "If You
Would Like More Information."
Questions and Answers About The Company
What Is The WMF Group, Ltd.?
. The WMF Group, Ltd. (the "Company") is one of the largest commercial
mortgage financial services companies in the United States, according
to a 1997 survey by the Mortgage Bankers Association of America.
. The Company is the nation's largest originator of multifamily and
healthcare loans insured by the Federal Housing Administration
("FHA"), based on statistics provided by the U.S. Department of
Housing and Urban Development.
. The Company is the nation's largest originator of multifamily loans
sold through Fannie Mae, based on statistics provided by Fannie Mae.
. The Company has originated more than $9 billion in multifamily and
commercial loans since 1993.
. As of December 31, 1998, the Company serviced loans having a total
outstanding principal balance of over $12 billion.
. The Company has six operating subsidiaries. Please see page 23 for a
chart illustrating the Company's corporate structure.
. As of December 31, 1998, the Company had 346 employees in 19 cities
around the country.
. For more information, see "The Company."
What Does The Company Do?
The Company divides its business into three main segments:
. Mortgage Banking: The Company's mortgage banking operations include
the origination, sale and servicing of multifamily and commercial
loans.
Origination: The Company makes loans to fund the purchase and
construction of commercial buildings, such as apartment
complexes, hospitals and retail stores.
Sale: After the Company originates a loan, it often sells the
loan to a mortgage investor. Some investors pool these loans
together and then securitize the loan pool, which means that
the investor sells interests in the loan pool to other
investors.
Servicing: Servicing a loan involves keeping records of the
borrower's payments and outstanding principal balance, sending
out monthly statements, collecting payments and fees on behalf
of the investors, remitting payments to the investors and
performing other services. The Company usually services the
loans that it originates and sells to investors. The Company
also buys the right to service loans that it does not
originate.
1
Prospectus Summary
<PAGE>
. Capital Markets: The Company originates commercial mortgage loans
through WMF Funding, a division of WMF Washington Mortgage Corp.
created in December 1998. The Company has entered into a strategic
relationship with Greenwich Capital Markets pursuant to which WMF
Funding will originate loans for sale to Greenwich. Greenwich is
expected to pool those loans with other loans and then sell interests
in, or "securitize," the pool. WMF Funding will service the loans it
originates and receive a portion of the profits, if any, from any
securitization of those loans.
Prior to September 1998, the Company had operated an independent
commercial mortgage conduit through its subsidiary WMF Capital Corp.
("Capital Corp."). The operations of Capital Corp. have been
substantially curtailed since it suffered losses in the second and
third quarters of 1998.
. Advisory Services: In March of 1998, the Company started its advisory
services operations through the creation of WMF Carbon Mesa Advisors,
Inc. ("WMF Carbon Mesa"). The advisory services segment manages
commercial mortgage investment funds and provides special asset
management services.
. For more information, see "The Company - Business."
What Is The Company's History?
. The Company entered the mortgage banking industry in 1992 as "WMF
Holdings, Inc.," a holding company for two companies that are now its
subsidiaries. One of those subsidiaries, WMF Huntoon, Paige
Associates, Limited, has operated a mortgage banking business under
various owners and under various names since 1979. The other
subsidiary, WMF Washington Mortgage Corp., has operated a mortgage
banking business under various owners and under various names since
1984.
. In April of 1996, NHP Incorporated purchased the Company and changed
its name to "NHP Financial Services, Ltd."
. In 1997, NHP Incorporated was purchased by Apartment Investment and
Management Co. As a condition of that merger, NHP Incorporated
renamed the Company "The WMF Group, Ltd.", and the Company became an
independent, publicly traded corporation on December 8, 1997.
Where Is The Company Located?
. The Company's principal executive offices are located at:
The WMF Group, Ltd.
1593 Spring Hill Road, Suite 400
Vienna, Virginia 22182
(703) 610-1400
. The Company also has principal offices in:
.Edison, New Jersey .Dallas .Atlanta
.Phoenix .Houston .Charlotte
.Detroit .Los Angeles .New York, New York
2
Prospectus Summary
<PAGE>
Questions and Answers About The Rights Offering
What Is A Right?
The Company is distributing to you, at no charge, 1.072 rights for every share
of common stock that you owned on February 1, 1999. The Company will not
distribute any fractional rights, but will round the number of rights you are
to receive up or down to the nearest whole number. Each right entitles its
holder to purchase one share of common stock for $5.00. When you "exercise" a
right, that means that you choose to purchase the common stock that the right
entitles you to purchase. You may exercise any number of your rights, or you
may choose not to exercise any rights. See "The Rights Offering - The Rights."
What Is A Rights Offering?
A rights offering is an opportunity for you to purchase additional shares of
common stock at a fixed price and in an amount proportional to your existing
interest in the Company. This enables you to maintain your current percentage
ownership in the Company.
Will Every Shareholder Receive Rights In Proportion To Their Current Holdings?
Yes. However, on December 31, 1998, Demeter, Phemus and Capricorn purchased a
total of 3,635,972 shares of the Company's capital stock for approximately
$16.7 million. Demeter, Phemus and Capricorn have also surrendered warrants to
purchase 1.2 million shares of the Company's common stock and have entered into
a stand-by purchase commitment (described below).
Demeter, Phemus and Capricorn completed the purchase of capital stock before
the rights offering to provide the Company with additional equity more quickly
than would have been possible through the rights offering. Because Demeter,
Phemus and Capricorn purchased these shares in advance of the rights offering,
they have agreed that they will not exercise, transfer or acquire any rights
during the rights offering. Rights held by Demeter, Phemus and Capricorn will
expire without being exercised.
To guarantee the Company minimum proceeds of $3.3 million from the rights
offering, Demeter, Phemus and Capricorn have agreed to a stand-by commitment to
purchase up to a total of 664,028 additional shares of capital stock at $5.00
per share if the Company does not sell all 2,829,511 shares offered in the
rights offering. See "The Rights Offering - Stand-By Commitment."
Why Is The Company Engaging In A Rights Offering?
The rights offering is part of a recapitalization plan that the Company expects
will raise up to approximately $30 million in equity for the Company (the
"Recapitalization Plan"). The Company needs the additional equity as a result
of losses incurred during the second and third quarters of 1998. Instead of
selling additional equity securities to outside parties, the Company's Board of
Directors has chosen to give you the opportunity to buy more shares and provide
the Company with additional capital.
In the second and third quarters of 1998, the Company incurred net losses of
$33.9 million, or $6.53 per share. Almost all of these losses were incurred by
Capital Corp. and resulted from volatility in commercial mortgage-backed
security markets and interest rates on U.S. Treasury securities. See "The
Company - Recent Developments."
3
Prospectus Summary
<PAGE>
As a result of these losses, the Company has substantially curtailed its
operations at Capital Corp. While the Company's line of credit lenders have
agreed to extend the term of the credit facility until April 1, 1999, and the
Company's other lines of business are operating profitably, the Company
requires additional equity to repay certain of its debts and for working
capital.
The Recapitalization Plan has two parts:
. Sale of Approximately $16.7 Million of Class A Stock to Demeter,
Phemus and Capricorn
On December 31, 1998, the Company's three largest shareholders,
Demeter, Phemus and Capricorn purchased a total of 3,635,972 shares
of a new class of capital stock called the Class A Non-Voting
Convertible Preferred Stock ("Class A Stock") for an aggregate
purchase price of approximately $16.7 million. See "The Company -
Recent Developments."
On January 14, 1999, each outstanding share of Class A Stock was
converted into one share of the Company's common stock, after the
Federal Trade Commission informed the Company that it would not
object to the conversion under the Hart-Scott-Rodino Anti-Trust
Improvements Act of 1976. As a result of the conversion, Demeter,
Phemus and Capricorn received a total of 3,635,972 shares of common
stock.
Also as part of the transaction, Harvard Private Capital Holdings,
Inc. ("Harvard"), which is an affiliate of Demeter and Phemus, and
Capricorn surrendered warrants to purchase 1,200,000 shares of common
stock at a price of $11.25 per share that they received in connection
with their financing of the purchase of $20 million of the Company's
subordinated notes by Commercial Mortgage Investment Trust, Inc.
("COMIT") on September 4, 1998. In addition, Demeter, Phemus and
Capricorn have agreed to a stand-by purchase agreement, described
below.
The Company has applied the proceeds of the sale of shares of Class A
Stock to Demeter, Phemus and Capricorn to partially repay the
subordinated notes held by COMIT. COMIT used the partial repayment to
redeem shares of its preferred stock that were sold to Harvard and
Capricorn to fund the purchase of the notes, effectively resulting in
the partial conversion of the subordinated notes into common stock.
COMIT is a real estate investment trust controlled by Harvard and
Capricorn. WMF Carbon Mesa manages COMIT, and the Company owns a
minority ownership interest in COMIT.
Because of their participation in this transaction, Demeter, Phemus
and Capricorn have agreed not to exercise, transfer or acquire any
rights during the rights offering.
Demeter, Phemus and Capricorn have further agreed to a stand-by
commitment to purchase up to 664,028 shares of the Company's capital
stock for up to $3,320,140 following the rights offering, as
described below.
. $14 Million Rights Offering
The Company is issuing to all of its shareholders of record as of
February 1, 1999, 1.072 transferable rights for each share of common
stock held by them on that date. Each right will entitle you to
purchase one share of common stock for $5.00. Because Demeter, Phemus
and Capricorn have agreed not to exercise, transfer or acquire any
rights, a total of 2,829,511 rights could be exercised during the
rights offering for a total purchase price of $14,147,555.
If the Company sells less than 2,829,511 shares through the rights
offering, Demeter, Phemus and Capricorn have also agreed to a stand-
by commitment under which they will purchase up to 664,028 shares of
capital stock at $5.00 per share for a maximum total purchase price
of $3,320,140. Consequently, the Company expects that it will sell at
least 664,028 shares for total proceeds of $3,320,140.
4
Prospectus Summary
<PAGE>
The Company has agreed to apply the proceeds from the rights
offering, including proceeds from any shares sold to Demeter, Phemus
and Capricorn, first to repay the remaining subordinated notes held
by COMIT. If the Company is unable to repay all of the subordinated
notes held by COMIT, Harvard and Capricorn will have the option of
causing COMIT to convert the remaining notes for capital stock of the
Company at an exchange rate of $5.00 per share.
The Recapitalization Plan will likely result in the effective
conversion of the Company's $20 million of subordinated notes into
capital stock and may raise additional common equity, which will be
used to repay a portion of the Company's revolving debt and for
working capital.
How Many Shares May I Purchase?
You will receive 1.072 rights for each share of common stock that you owned on
February 1, 1999. The Company will not distribute fractional rights, but will
round the number of rights you are to receive up or down to the nearest whole
number. Each right entitles you to purchase one share of common stock for
$5.00. See "The Rights Offering - Basic Subscription Right."
If you exercise all of the rights that you receive, you will have the
opportunity to purchase additional shares of common stock. On the attached
Subscription Certificate, you may request to purchase as many additional shares
as you wish for $5.00 per share. If shareholders request a total of more than
2,829,511 shares, then the number of additional shares that you may purchase
will be determined on a pro rata basis, in proportion to the number of rights
you exercised. In some cases, this may mean that you will be able to purchase
fewer additional shares than the total that you requested on your Subscription
Certificate. See "The Rights Offering - Oversubscription Privilege."
How Did The Company Arrive At The $5.00 Per Share Price?
In determining the price per share during the rights offering, the Company
considered current and historical market prices for the common stock. The
common stock traded above $5.00 per share until September of 1998, a short time
before the public announcement of this rights offering. See "The Rights
Offering - Determination of Share Price."
How Do I Exercise My Rights?
You must properly complete the attached Subscription Certificate and deliver it
to Boston EquiServe, L.P. before 5:00 p.m., Eastern Standard Time on March 8,
1999. The address for Boston EquiServe, L.P. is on page 39. See "The Rights
Offering - Exercise of Rights." Your Subscription Certificate must be
accompanied by proper payment for each share that you wish to purchase. See
"The Rights Offering - Method of Payment."
How Long Will The Rights Offering Last?
You will be able to exercise your rights only during a limited period. If you
do not exercise your rights before 5:00 p.m., Eastern Standard Time, on March
8, 1999, the rights will expire. The Company, in its discretion, may decide to
extend the rights offering for up to 10 days. See "The Rights Offering -
Expiration Date."
5
Prospectus Summary
<PAGE>
After I Exercise My Rights, Can I Change My Mind?
No. Once you send in your Subscription Certificate and payment, you cannot
revoke the exercise of your rights, even if you later learn information about
the Company that you consider to be unfavorable. You should not exercise your
rights unless you are certain that you wish to purchase additional shares of
common stock. See "Rights Offering - No Revocation."
The Company plans to announce its operating results for the fourth quarter of
1998 and for the full year shortly after the date of this Prospectus. You may
wish to wait until after that announcement to decide whether to exercise or
transfer your rights.
Is Exercising My Rights Risky?
The exercise of your rights involves a degree of risk. You should carefully
consider the "Risk Factors" described in this prospectus, beginning on page 9.
What Happens If I Choose Not To Exercise My Rights?
You will retain your current number of shares of common stock even if you do
not exercise your rights. If you do not exercise your rights, you will diminish
your proportionate interest in the Company, and your voting rights will be
diluted. See "Risk Factors - Dilution."
Can I Sell My Rights?
Yes. You may sell or transfer your rights to another individual or entity. The
Company expects that the rights will trade on the OTC Bulletin Board under the
symbol "WMFGR." See "The Rights Offering - Transferability of the Rights." The
Company cannot assure you that you will be able to sell your rights at all or
at a price that is satisfactory to you. See "Risk Factors - No Prior Market for
Rights."
What Are The Federal Income Tax Consequences Of Exercising My Rights?
The receipt and exercise of your rights are intended to be nontaxable.
Shareholders who sell their rights may be taxed on all or a portion of the
proceeds from that sale. You should seek specific tax advice from your personal
tax advisor. See "Federal Income Tax Considerations - Taxation of
Shareholders."
When Will I Receive My New Shares?
If you purchase shares of common stock through the rights offering, the Company
will send you certificates representing those shares as soon as practicable
after March 8, 1999.
Can The Company Cancel The Rights Offering?
Yes. The Company can cancel the rights offering at any time on or before March
8, 1999, for any reason but has agreed with Demeter, Phemus and Capricorn to
use its reasonable best efforts to complete the rights offering as soon as
practicable. If the Company cancels the rights offering, any money received
from stockholders will be refunded promptly. See "The Rights Offering -
Withdrawal Right."
6
Prospectus Summary
<PAGE>
How Much Money Will The Company Receive From The Rights Offering?
The Company's gross proceeds from the rights offering depend on the number of
shares that are purchased. If the Company sells all 2,829,511 shares offered by
this prospectus, then the Company will receive proceeds of $14,147,555.
To guarantee the Company a minimum of $3,320,140 in proceeds after the rights
offering, Demeter, Phemus and Capricorn have agreed to a stand-by commitment.
If the Company sells fewer than 2,829,511 shares of common stock during this
rights offering, then Demeter, Phemus and Capricorn will purchase, for $5.00
per share, the lesser of (A) 664,028 shares of capital stock, or (B) 2,829,511
shares minus the number of shares sold during the rights offering. As a result,
the Company expects to receive minimum proceeds of approximately $3,320,140
following the rights offering, even if no stockholders exercise their rights.
See "The Rights Offering - Stand-By Purchase Commitment.
How Will The Company Use The Proceeds From The Rights Offering?
The Company will use the proceeds from the rights offering first to repay
amounts outstanding under the Company's subordinated notes held by COMIT and
then to repay a portion of its revolving credit facility and for additional
working capital. See "Use of Proceeds." If the Company is unable to repay all
of the subordinated notes held by COMIT, Harvard and Capricorn will have the
option to cause COMIT to convert the remaining notes into capital stock at an
exchange rate of $5.00 per share.
How Many Shares Will Be Outstanding After The Rights Offering?
The number of shares of common stock outstanding after the rights offering
depends on the number of shares that are purchased.
If the Company sells all of the shares offered by this prospectus, then the
Company will issue 2,829,511 new shares of common stock during the rights
offering. In this case, the Company will have approximately 11,916,866 shares
of common stock outstanding after the rights offering.
If none of the stockholders exercise their rights, then Demeter, Phemus and
Capricorn will purchase a total of 664,028 shares of capital stock from the
Company immediately following the rights offering. This will result in the
Company's having approximately 9,751,383 shares of common stock outstanding
after the rights offering.
Who Can I Talk To If I Have More Questions?
If you have more questions about the rights offering, please contact the
Company's Information Agent:
D.F. King & Co., Inc.
77 Water Street
New York, New York 10005
(800) 207-2872
See "If You Have Questions."
7
Prospectus Summary
<PAGE>
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
This prospectus may contain "forward-looking statements." Any statement in this
prospectus, other than a statement of historical fact, may be a forward-looking
statement.
You can generally identify forward-looking statements by looking for words such
as "may," "will," "expect," "intend," "estimate," "anticipate," "believe" or
"continue." Variations on those or similar words, or the negatives of such
words, also may indicate forward-looking statements.
Although the Company believes that the expectations reflected in this
prospectus are reasonable, the Company cannot assure you that its expectations
will be correct. The Company has included a discussion entitled "Risk Factors"
in this prospectus, disclosing important factors that could cause its actual
results to differ materially from its expectations. If in the future you hear
or read any forward-looking statements concerning the Company, you should refer
back to these Risk Factors.
The forward-looking statements in this prospectus are accurate only as of its
date. If the Company's expectations change, or if new events, conditions or
circumstances arise, the Company is not required to, and may not, update or
revise any forward-looking statement in this prospectus.
8
A Warning About Forward-Looking Statements
<PAGE>
RISK FACTORS
As you decide whether to exercise your rights, and when you evaluate the
Company's performance and the forward-looking statements in this prospectus,
you should carefully consider the following risk factors, as well as the other
information contained in this prospectus.
Losses By The Company, Including Losses Related To Short-Sale Transactions, May
Recur
The Company incurred significant losses during the first nine months of 1998,
and the Company cannot assure you that similar losses will not occur again in
the future. For the nine months ended September 30, 1998, the Company reported
a net loss of $33.9 million, or $6.53 per share. To manage its exposure to
interest-rate changes, Capital Corp. entered into "short-sale" contracts to
sell U.S. Treasury securities and incurred significant losses on these
transactions. The losses resulted primarily from a drop in the interest rate on
U.S. Treasury securities. During the second and third quarters of 1998, the
interest rates and yields on U.S. Treasury securities dropped to historic lows,
and prices for those securities increased dramatically.
A short-sale contract for U.S. Treasury securities involves Capital Corp. and
an investment bank or brokerage firm (called the "counterparty"). In a short-
sale contract, Capital Corp. borrows U.S. Treasury securities from the
counterparty, and the counterparty sells those securities to an investor on
behalf of Capital Corp. The counterparty sets aside the proceeds from that sale
in a brokerage account. To repay the counterparty for its loan of U.S. Treasury
securities, Capital Corp. must purchase U.S. Treasury securities on the market
at a later date. When the loan is repaid, the counterparty gives Capital Corp.
the proceeds in the brokerage account. If the price of U.S. Treasury securities
has dropped since the counterparty made the loan, then Capital Corp.'s cost to
repay the loan will be lower than the amount in the brokerage account, and
Capital Corp. will make a profit on the short-sale arrangement.
During the first nine months of 1998, the price of U.S. Treasury securities
increased, so Capital Corp.'s cost to repay its counterparty was greater than
the amount of proceeds in the brokerage account. Therefore, Capital Corp.
incurred losses on the short-sale contracts. At the same time, the value of
Capital Corp.'s mortgages held for securitization did not offset these losses.
To satisfy margin calls on the short-sale contracts, Capital Corp. sold most of
the mortgages held for securitization at a significant loss.
The short-sale contracts for U.S. Treasury securities were part of the
Company's arrangements to reduce the effects of interest rate movements. See
"Risk of Loss from Changes in General Economic Conditions." In addition to the
short-sale contracts, the Company and its subsidiaries have also entered into
swap contracts and futures contracts. These transactions may also be used to
manage the effect of interest rate changes on lines of credit with variable
interest rates and on the value of uncommitted loans held for sale. In an
effort to avoid future losses related to such transactions, the Company and its
subsidiaries have entered into arrangements with its creditors to reduce the
cash requirements of those transactions. The Company cannot assure you,
however, that losses related to interest rate volatility and short-sale
arrangements will not recur in the future.
Unsatisfied Contractual Commitments May Cause Additional Losses
As a result of the losses described above and to reduce its exposure to
additional losses, the Company decided that it would no longer contribute
capital to Capital Corp. This determination resulted in Capital Corp.'s being
unable to fulfill its obligations under at least one loan commitment. The
Company has settled all claims related to that loan commitment, but the Company
cannot assure you that it will not incur significant losses in the future
related to Capital Corp.'s inability to meet its other contractual commitments.
See "The Company - Recent Developments - Losses Related to Unsatisfied Loan
Obligations."
9
Risk Factors
<PAGE>
Losses Related To Loans Held For Sale For Which The Company Does Not Have
Investor Commitments Could Affect The Company's Results Of Operations
Generally the Company sells loans to third-party mortgage investors at
predetermined prices before the Company funds or purchases the loan. However,
sometimes the Company originates or purchases a mortgage loan before an
investor has agreed to purchase it from the Company. During the period between
the Company's origination or purchase of a loan and the sale of the loan to an
investor (called the "holding period"), the Company must bear the interest rate
risk and credit risk associated with that loan. If the holding period is long,
the Company's risks are higher. Adverse changes in interest rates, the market
for these mortgage-backed securities, or the value of assets securing the
mortgages could impair the Company's ability to sell loans and securities,
increasing the Company's holding period and potential losses. If the Company is
unable to sell its loans for a long period of time, the Company's business and
results of operations could be materially adversely affected.
The Company May Incur Losses Related To Loan Commitments For Which It Does Not
Have A Purchaser And Has Not Entered Into Hedge Arrangements
Capital Corp. has entered into commitments to lend money on certain terms and
conditions which subject the Company to interest rate and market risks until
Capital Corp. sells the loans. No investor has committed to purchase these
loans, and Capital Corp. has not entered into arrangements to manage the
interest rate and market risk associated with those loans. If interest rates
increase and the demand for such loans declines before Capital Corp. is able to
sell these loans, Capital Corp. may incur significant losses. The Company is
currently seeking investors for the loans, but the Company cannot assure you
that Capital Corp. will not incur significant losses before such an investor is
found or that it will locate an investor at all.
Company's Loss Of Deferred Tax Assets Could Adversely Affect Shareholder Equity
As of September 30, 1998, the Company had $21.2 million in deferred tax assets
related to the Company's losses during the second and third quarters of 1998.
The Company has recognized the tax benefit of those operating losses as
deferred tax assets and believes that it is more likely than not that the
Company will have sufficient taxable income to realize the tax benefits of
those losses during the next 20 years. However, in the event of a change of
control of the Company or Capital Corp. or certain other material changes in
the Company's business, the Company would have to establish a valuation
allowance against the deferred tax asset. The valuation allowance against the
deferred tax asset could adversely affect shareholder equity and the trading
price of the common stock.
If You Do Not Exercise Your Rights, Your Ownership Interest May Be Diluted
If you do not exercise all of your rights, you may suffer significant dilution
of your percentage ownership in the Company relative to stockholders who
exercise their rights and relative to Demeter, Phemus and Capricorn. The chart
below illustrates the potential dilution that could result if a stockholder
that owns 100,000 shares of common stock fails to exercise its rights, and
other stockholders purchase all 2,829,511 shares of common stock offered
through this rights offering.
10
Risk Factors
<PAGE>
<TABLE>
<CAPTION>
Before the Rights After the Rights Offering After the Rights Offering
Offering Assuming Stockholder Assuming Stockholder
Exercises All Rights Exercises No Rights
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares Owned by 100,000 207,200 100,000
Stockholder
- -------------------------------------------------------------------------------------------------
Total Number of Common 9,087,355 11,916,866 11,916,866
Shares Outstanding
- -------------------------------------------------------------------------------------------------
Stockholder's Percentage 1.10% 1.74% 0.84%
Ownership
</TABLE>
Principal Stockholders May Not Act In The Best Interest Of Other Stockholders
As of February 1, 1999, Demeter, Phemus, Capricorn and Capricorn Holdings, Inc.
(an affiliate of Capricorn formerly known as "Winokur Holdings, Inc.") (the
"Principal Stockholders") owned approximately 72 percent of the Company's
voting stock. Together, the Principal Stockholders have enough votes to elect
all of the Company's directors and to approve or disapprove any matters that
are determined by a majority vote of the stockholders of the Company.
Furthermore, because of their holdings, the Principal Stockholders can prevent
a sale of the Company or other transaction resulting in a change of control.
The rights offering could result in the Principal Stockholders owning as little
as 55.48 percent of the Company's common stock, but the Principal Stockholders
will still be able to control any shareholder votes determined by a majority.
As long as the Principal Stockholders control the Company's shareholder votes,
the Company cannot assure you that the Principal Stockholders will cause the
Company to act in the best interest of all of the other stockholders.
The Company had approximately 9,087,355 shares of common stock outstanding as
of January 31, 1999. The Principal Stockholders owned shares of the Company's
common stock as follows:
<TABLE>
<CAPTION>
Stockholder Name Number of Shares Owned Percentage Ownership
- ---------------------------------------------------------------------------
<S> <C> <C>
Capricorn Investors II, L.P. 1,563,206 17.20%
- ---------------------------------------------------------------------------
Demeter Holdings Corporation 4,630,864 50.96%
- ---------------------------------------------------------------------------
Phemus Corporation 253,816 2.79%
- ---------------------------------------------------------------------------
Capricorn Holdings, Inc. 78,925 0.87%
- ---------------------------------------------------------------------------
TOTAL FOR ALL PRINCIPAL 6,526,811 71.82%
STOCKHOLDERS
</TABLE>
Michael Eisenson and Tim Palmer, directors of the Company, are officers of both
Demeter and Phemus. Herbert Winokur, also a director of the Company, is the
manager of the general partner of Capricorn. In addition, Phemus owns limited
partnership interests in Capricorn. Mr. Winokur is the sole shareholder and
director of Capricorn Holdings, Inc. In addition, Mr. Winokur has an interest
in an entity that owns limited partnership interests in Capricorn.
Because Demeter, Phemus and Capricorn have recently acquired 3,635,972 shares
of the Company's common stock, they have agreed that they will not exercise,
transfer or acquire any rights during this rights offering. Capricorn Holdings,
Inc. is permitted to exercise, transfer or acquire rights.
Assuming that Demeter, Phemus and Capricorn do not exercise their rights and
that all of the other rights issued during this rights offering (including
those held by Capricorn Holdings, Inc.) are exercised, the Company will
11
Risk Factors
<PAGE>
have approximately 11,916,866 shares of common stock outstanding after the
rights offering. The Principal Stockholders will own common stock as follows:
<TABLE>
<CAPTION>
Stockholder Name Number of Shares Owned Percentage Ownership
- ---------------------------------------------------------------------------
<S> <C> <C>
Capricorn Investors II, L.P. 1,563,206 13.12%
- ---------------------------------------------------------------------------
Demeter Holdings Corporation 4,630,864 38.86%
- ---------------------------------------------------------------------------
Phemus Corporation 253,816 2.13%
- ---------------------------------------------------------------------------
Capricorn Holdings, Inc. 163,533 1.37%
- ---------------------------------------------------------------------------
TOTAL FOR ALL PRINCIPAL 6,611,419 55.48%
STOCKHOLDERS
</TABLE>
As shown in the table above, if all of the rights (other than those owned by
Demeter, Phemus and Capricorn) are exercised, the rights offering will result
in the Principal Stockholders' owning a smaller percentage of the Company than
they currently own, but they will still be able to control most shareholder
votes.
To guarantee the Company proceeds from the rights offering of at least $3.3
million, Demeter, Phemus and Capricorn have entered into a Stand-by Purchase
Agreement. Under that agreement, if the Company sells fewer than 2,829,511
shares during the rights offering, then Demeter, Phemus and Capricorn will
purchase the lesser of (A) 664,028 shares of capital stock, or (B) 2,829,511
shares, minus the number of shares of common stock sold during the rights
offering. See "Rights Offering--Stand-By Purchase Commitment."
Therefore, if no stockholders exercise their rights, Demeter will purchase
503,619 shares of common stock, Phemus will purchase 27,603 shares, and
Capricorn will purchase 132,806 shares. In this instance, after the rights
offering the Company will have a total of 9,751,383 shares of common stock
outstanding, and the Principal Stockholders will own common stock as follows:
<TABLE>
<CAPTION>
Stockholder Name Number of Shares Owned Percentage Ownership
- ---------------------------------------------------------------------------
<S> <C> <C>
Capricorn Investors II, L.P. 1,696,012 17.39%
- ---------------------------------------------------------------------------
Demeter Holdings Corporation 5,134,483 52.65%
- ---------------------------------------------------------------------------
Phemus Corporation 281,419 2.89%
- ---------------------------------------------------------------------------
Capricorn Holdings, Inc. 78,925 0.81%
- ---------------------------------------------------------------------------
TOTAL FOR ALL PRINCIPAL 7,190,839 73.74%
STOCKHOLDERS
</TABLE>
As shown above, if no stockholders, or very few stockholders, exercise their
rights, the Principal Stockholders will increase their percentage ownership of
the Company. Because they will own almost 74 percent of the Company's voting
stock, together the Principal Stockholders will effectively be able to control
all shareholder votes.
Stand-By Commitment Is Conditional
To guarantee that the Company will receive minimum proceeds of approximately
$3.3 million from the rights offering, Demeter, Phemus and Capricorn have
agreed to purchase, at $5.00 per share, the lesser of (A) 664,028 shares of
capital stock, or (B) 2,829,511 shares, minus the number of shares purchased
during the rights offering. However, this commitment is subject to certain
conditions to closing, including that there must not
12
Risk Factors
<PAGE>
have been a material adverse change in the Company's business, financial
condition, assets or prospects. The Company cannot assure you that all of these
conditions will be satisfied or that Demeter, Phemus and Capricorn will
complete the agreed-upon purchases. To the extent that Demeter, Phemus or
Capricorn fails to perform its obligations, the Company may not receive
sufficient proceeds from the rights offering to fund its capital needs.
Maturity Of Warehouse Financing May Result In The Company's Inability To Make
Additional Loans After April 1, 1999
The Company's warehouse financing agreement matures on April 1, 1999. If the
Company does not renew the warehouse revolving credit facility or enter into a
new facility before April 2, 1999, the line of credit may be withdrawn. If the
warehouse facility terminates, certain of the Company's other loans will come
due. The Company does not currently have the funds to repay those loans. The
Company cannot assure you that it will be able to renew the line of credit or
enter into a new credit facility by April 1, 1999.
The warehouse line of credit is important to the Company's business because it
permits the Company to make loans and sell those loans to investors. The
Company must obtain funds so that it can temporarily hold loans between the
time it makes a loan and the time it sells the loan to a mortgage investor. To
obtain this financing, the Company depends on warehouse facilities with
financial institutions or institutional lenders. In addition, to implement its
growth strategy, the Company needs its warehouse facilities to continue to be
available, and the Company may require increases in the capacity of its
warehouse facilities.
The Company cannot assure you that its warehouse financing will continue to be
available on satisfactory terms. The inability of the Company to arrange
additional warehouse facilities or to maintain existing facilities would make
it more difficult for the Company to generate revenue through the origination
and servicing of mortgages.
As of September 30, 1998, the Company's warehouse facilities had an aggregate
capacity of $452 million (of which $159 million was unused).
The Company May Need Additional Capital Even After Rights Offering
The Company's ability to conduct its business depends to a significant degree
on its ability to incur indebtedness and obtain equity capital. The Company
needs financing primarily to fund its loan originations, pursue new
acquisitions and purchase servicing rights. To meet these needs, the Company
currently uses warehouse lines of credit, a secured line of credit and a
revolving credit facility.
The Recapitalization Plan also is intended to raise additional capital for the
Company. Even after the completion of the Recapitalization Plan, however, the
Company may need additional capital to meet its working capital requirements.
The Company cannot assure you that such capital will be available on
satisfactory terms, if at all. If all of the rights are not exercised, or if
the Company fails to reach sufficient cash flows, the Company will require
additional debt or equity.
Through this rights offering and its existing lines of credit, the Company
believes that it will have access to sufficient funds to carry on its existing
level of business. If the Company decides to complete further acquisitions,
however, the Company will need additional capital. The Company cannot assure
you that its existing lines of credit will remain available, and the Company
cannot assure you that it will be successful in consummating any future
financing transactions on satisfactory terms, if at all.
Factors which could affect the Company's access to the capital markets, or the
costs of such capital, include:
. changes in interest rates,
13
Risk Factors
<PAGE>
. general economic conditions, and
. investors' perceptions of the Company's business, results of
operations, leverage, financial condition and business prospects.
Economic, financial, competitive and other matters strongly influence each of
these factors, and the Company may not be able to control those influences.
In addition, covenants under the Company's existing or future debt securities
and credit facilities may significantly restrict the Company's ability to incur
additional indebtedness or to issue additional preferred stock. The covenants
require the Company to maintain certain debt-to-equity and coverage ratios, and
the Company would not be able to borrow additional capital if the new debt
would violate those ratios.
The Company's ability to repay its outstanding debts on time may depend on its
ability to refinance those debts. The Company may not be able to refinance debt
if the Company is unable to sell additional debt or equity securities on
satisfactory terms.
The Company May Be Unable To Complete Acquisitions Or Enter Into New Business
Lines
The Company plans to expand its business both internally and through
acquisitions of other commercial mortgage financial service companies. The
Company cannot assure you that it will be able to support its continued growth.
The Company also cannot assure you that it will be able to identify, finance
and purchase additional acquisition candidates, or that future acquisitions, if
completed, will be successful. If the Company cannot successfully complete
additional acquisitions, the market price of the common stock may decline.
When the Company acquires new businesses with different markets, customers,
financial products, systems and managements, the Company may have difficulty
integrating those business into its existing operations. This integration
process may cause unforeseen difficulties and may require a large portion of
management's attention and the Company's resources. These difficulties may be
particularly acute as the Company expands into business lines outside of its
traditional multifamily business.
The Company originally focused on originating and servicing mortgages on
multifamily properties, such as apartment buildings and condominiums. Since
1996, the Company has expanded its origination and servicing of mortgages on
other commercial properties, such as office buildings, hotels, and retail
stores. The Company plans to continue to expand its business in both the
multifamily and commercial mortgage areas. See "The Company - Business
Strategy."
To support, manage and control continued growth, the Company must be able to
hire, train, retain, supervise and manage its workforce. The Company must also
develop the skills necessary to compete successfully in its new business lines.
In particular, the success of certain acquisitions may depend on the Company's
ability to retain key employees of the acquired business.
The Company is not currently planning or negotiating any specific acquisitions
or expansions into new business. However, if the rights offering is successful,
such discussions could occur in the near future.
The Company May Incur Losses On Mortgage Loans Under The DUS Program
WMF Washington Mortgage Corp. ("Washington Mortgage") is an approved lender
under the Federal National Mortgage Association's ("Fannie Mae") Delegated
Underwriting and Servicing ("DUS") Program. Under this program, Washington
Mortgage originates, places and services multifamily loans for Fannie Mae
without having to obtain Fannie Mae's prior approval for each loan.
14
Risk Factors
<PAGE>
The DUS Program requires Washington Mortgage to pay a portion of any losses on
mortgages that it originates under the program. These losses may cost
Washington Mortgage up to 20 percent of the original principal balance of the
loan. Additionally, if borrowers default under loans in the DUS Program, the
value of Washington Mortgage's servicing rights for those loans could
materially decrease. See "Loss of Value from Impairment of Mortgage Servicing
Rights."
To qualify for the DUS Program, Washington Mortgage must maintain a letter of
credit or cash sufficient to cover its estimated portion of any losses. As of
September 30, 1998, the unpaid principal balance of Washington Mortgage loans
in the DUS Program totaled $1.3 billion and Washington Mortgage had a $5.9
million reserve for probable loan losses under the DUS Program. Washington
Mortgage also had a $4.8 million letter of credit to pay for losses under the
program. While the Company believes that these reserves are sufficient, actual
losses under the DUS Program could exceed these reserves and hurt the Company's
performance. If the Company incurs and is required to fund additional losses,
the market price of the common stock may be adversely affected.
The Company Is Liable For Certain Representations And Warranties Concerning
Mortgage Loans
When the Company originates mortgage loans and then sells them to investors,
the Company must make certain representations and warranties concerning those
mortgages. These representations and warranties cover such matters as title to
mortgaged property, lien priority, environmental reviews and certain other
matters. When making these representations and warranties, the Company relies
in part on similar representations and warranties made by the borrower or
others.
If the representations made by a borrower or others are false, the Company will
have a claim against the borrower or other party. The Company's ability to
recover its damages, however, depends on the financial condition of the party
that made the false representation. In addition, the Company makes some
representations and warranties even though it does not receive similar
representations and warranties from borrowers or others. If those
representations are later found to be false, the Company would have to pay for
any losses and would not have a claim against another party. The Company cannot
assure you that it will not experience a material loss as a result of its
representations and warranties.
The Company May Incur Losses As A Result Of Changes In General Economic
Conditions
The following general economic conditions could have an adverse affect on the
Company's business:
. periods of general, regional or industry-related economic slowdown or
recession,
. rising interest rates, or
. declining demand for real estate.
An economic slowdown will generally reduce the Company's originations and sales
of mortgages, which generated approximately 48.7 percent of the Company's
revenue during the nine months ending September 30, 1998. In addition, periods
of economic slowdown or recession may increase the risk that borrowers will
default on multifamily and commercial mortgage loans, and those defaults may
have an adverse effect on the Company's financial condition. When the owner of
a mortgage forecloses on a property, the Company's servicing fees may be
reduced or eliminated and the Company may experience additional losses.
15
Risk Factors
<PAGE>
Periods of economic slowdown or recession may be accompanied by decreased
demand for multifamily or commercial properties. Decreased demand may result in
declining values for the properties securing outstanding loans, and decreased
property values weaken the Company's collateral coverage and increase the
possibility of losses in the event of default. If more properties are for sale
during recessionary periods, the Company may receive lower prices when it sells
foreclosed properties, or it may have to delay such sales. The Company cannot
assure you that it will be able to sell foreclosed properties in the
multifamily or commercial markets. Any material deterioration of such markets
could reduce the Company's proceeds from foreclosure sales.
Changes in the relationship between short-term and long-term interest rates
could also affect the Company's results of operations, which in turn could
affect the value of the common stock. Between the time the Company funds a loan
and the time it sells the loan, the Company earns net interest income. Net
interest income is based on the long-term rate earned on a loan minus the
short-term borrowing costs to finance the loan.
During the nine months ended September 30, 1998, interest income amounted to
31.5 percent of the Company's total revenue. If long-term interest rates
decrease and short-term interest rates do not decrease by the same amount, then
the Company's net interest income may decline. If long-term interest rates drop
below the short-term rates, the Company could incur a net interest expense
instead of earning net interest income.
The Company also earns income from placement fees, which are earned from the
placement and utilization of escrow funds. If the short-term interest rates
decrease, the Company's income from placement fees may decline.
The Company's Operations May Decline As A Result Of Impairment Of Mortgage
Servicing Rights
Under generally accepted accounting principles, the Company must treat its
servicing rights as an asset. Servicing rights are recorded as an asset on the
Company's balance sheet at either the purchase price paid for the servicing
rights or the relative fair value of the servicing rights at the time the
Company sells a loan and retains the servicing associated with that loan. The
Company also must amortize the value of the servicing rights over their
estimated lives.
If the value of the servicing rights, as shown on the Company's balance sheet,
exceeds their fair value, then the rights are impaired. The fair value of the
servicing rights may be affected by, and impairment may result from, factors
such as:
. changes in mortgage prepayments, which tend to increase as long-term
interest rates decline, and tend to decrease as such interest rates
rise;
. prepayment penalty terms, including lockout and yield maintenance
requirements;
. higher than expected rate of loan defaults;
. lower than expected short-term interest rates;
. factors which impact the net cash flow generated from the servicing
rights, such as the cost of servicing such loans; and
. the underlying loans' average custodial balances (the amount
deposited by borrowers for taxes, deposits and replacement reserves).
To the extent that the Company's servicing rights are impaired, the Company's
operating results and stock price may be adversely affected. Although the
Company has never recorded any impairment, it may record impairment at any time
in the future. The Company cannot assure you that it has accurately estimated
the factors that could cause impairment of the servicing, or that the Company's
mortgage servicing rights can be sold at their value, if at all.
16
Risk Factors
<PAGE>
The Company May Not Be Able To Recover Advanced Funds
When borrowers are late in making payments on the multifamily and commercial
mortgage loans serviced by the Company, the Company may be required to advance
principal, interest, tax and insurance payments for those loans, to the extent
that the Company believes that those advances are ultimately recoverable. At
September 30, 1998, the Company had made servicing advances of $2.4 million.
The Company must make these advances from its working capital, but when the
late payments are collected, the Company's advances will be repaid first. If
the collected payments are not sufficient to repay all of the Company's
advances, the Company could incur losses, which could have a material impact on
the Company.
The Company May Incur Losses Upon Termination Of Certain Servicing Contracts
As of September 30, 1998, the Company had contracts to service mortgages with a
total principal balance of $12.7 billion. Approximately 23 percent of those
contracts are terminable upon 30 days' notice by the owner of the serviced
mortgage. Most of the contracts with these termination provisions are for the
servicing of mortgages held by insurance companies. As the Company increases
its servicing of mortgages held by insurance companies, the percentage of
servicing contracts with such termination provisions will also increase.
The rest of the Company's servicing contracts are for a term equal to the life
of the mortgage. The holder of the mortgage may terminate the contract only for
cause, after paying the Company a termination fee, or after prepayment or other
early termination of the mortgage.
If a significant number of the Company's mortgage servicing contracts were
terminated and the Company were unable to replace them with new servicing
contracts, the Company's operations would be adversely affected.
The Company May Be Unable To Continue To Comply With Government Regulation And
Programs
The Company's operations are regulated by:
. federal, state and local government authorities, including the
Federal Housing Administration ("FHA") and the Government National
Mortgage Association ("Ginnie Mae");
. various federal, state and local laws and judicial and administrative
decisions; and
. regulations of government sponsored entities (such as Fannie Mae)
that purchase mortgages originated and/or serviced by the Company.
Among other things, these laws, regulations and decisions:
. require the Company to maintain a minimum net worth and minimum lines
of credit;
. require periodic financial reports;
. require a quality control plan for the underwriting, origination and
servicing of loans;
. restrict loan originations, credit activities, maximum interest
rates, and finance and other charges;
. regulate disclosures to customers, the terms of secured transactions
and personnel qualifications; and
. require certain collection, repossession and claims-handling
procedures and other trade practices.
17
Risk Factors
<PAGE>
Although the Company believes that it complies in all material respects with
applicable laws and regulations and with the requirements of mortgage
purchasers, the Company cannot assure you that it will be able to continue to
comply if more restrictive laws, rules, regulations or requirements are adopted
in the future. If the Company fails to comply with all applicable requirements,
the Company could lose the opportunity to originate, sell or service mortgages
in certain jurisdictions, or to originate mortgages on behalf of, sell
mortgages to or service mortgages held by certain institutions. If that occurs,
the Company's financial results could be adversely affected.
The FHA insured approximately 11.8 percent of loans originated by the Company
during the nine months ended September 30, 1998 and approximately 47.4 percent
of loans serviced by the Company as of September 30, 1998. If the laws or
regulations governing FHA programs change, the availability of FHA-insured
loans could decrease, and the Company's ability to originate or service those
mortgages could be affected. Any such change could have a material adverse
effect on the Company and its results of operations.
The Company must obtain the consent of the State of Arizona and Fannie Mae
prior to a change in control of the Company. While the Recapitalization Plan
may be considered a change in control, the Company has no reason to believe
that these consents will not be granted. If the Company fails to receive any
such consents, it will lose the net income (if any) generated by loans
originated in Arizona or held by Fannie Mae.
The Company's Operations May Be Significantly Affected By The Year 2000 Problem
The Year 2000 Problem refers to errors that may occur when computers use two
digits rather than four to define the applicable year. Software and hardware
may recognize a date using "00" as the year 1900, rather than the year 2000. If
a computer does not recognize a date on or after January 1, 2000, the error
could, among other things, prevent the Company from processing transactions,
sending invoices, or engaging in other normal business activities.
The Company's Program. The Company has developed a program to address the Year
2000 Problem as it may affect:
. the Company's computer and operating systems, including its
servicing, accounting, human resources and financial reporting
systems;
. the Company's other systems, such as buildings, equipment, telephone
systems and other non-computer systems that may contain technology
that is sensitive to the Year 2000 Problem;
. certain systems of the Company's major vendors and material service
providers, if those systems relate to the Company's business
activities;
. certain systems of the Company's material customers and investors, if
those systems relate to the Company's ability to provide services to
the customers and investors.
As described below, the Company's Year 2000 program involves
1. assessing the Year 2000 Problem and determining how it may negatively
affect the Company;
2. developing remedies to address the problems discovered in the
assessment phase;
3. testing of the remedies; and
4. preparing contingency plans to deal with worst-case scenarios.
18
Risk Factors
<PAGE>
Assessment Phase. The following table shows the current state of Year 2000
compliance in the Company's computer systems:
<TABLE>
<CAPTION>
Component Year 2000 Year 2000
Compliant Non-Compliant
Number Number
- -----------------------------------------------------
<S> <C> <C>
Business Critical Software
- -----------------------------------------------------
Servicing Systems 1 2
- -----------------------------------------------------
Accounting System 1 0
- -----------------------------------------------------
Human Resources 1 0
- -----------------------------------------------------
Hardware
- -----------------------------------------------------
Personal Computers 400 0
- -----------------------------------------------------
File/Data Services 34 3
- -----------------------------------------------------
Networks 20 0
- -----------------------------------------------------
Office Software Suites 400 0
</TABLE>
The Company has evaluated all of its systems except its telephone equipment,
and the Company has begun to develop remedies for the Year 2000 Problem. The
Company has sent letters to certain of its significant hardware, software and
other equipment vendors and other material service providers, as well as to its
significant customers, requesting that they provide detailed, written
information concerning existing or anticipated Year 2000 compliance by their
systems. The Company expects that it will complete these inquiries and receive
substantially all third-party responses by March 30, 1999.
While the Company cannot thoroughly assess other parties' Year 2000 readiness,
it will attempt to identify areas of vulnerability and change relationships
with those parties as appropriate. If the Company believes that a third-party's
systems may have a negative material impact on its operations, it will develop
relationships with other parties who have been thoroughly screened for Year
2000 compliance.
Remediation and Testing Phase. During the remediation and testing phase, the
Company will address potential Year 2000 Problems in systems and will attempt
to demonstrate that the affected systems will be Year 2000 compliant on a
timely basis. All computer software systems that are critical to the Company's
business are supplied by vendors, and the vendors are contractually responsible
for the systems' becoming Year 2000 compliant. However, the Company cannot
assure you that it will be able to recover damages from any vendor who fails to
bring a system into Year 2000 compliance.
Of the Company's critical systems, its accounting and human resources systems
have been certified Year 2000 compliant and were substantially tested by
December 31, 1998. The Company is in the process of combining its four loan
servicing systems into two. The Company expects that this consolidation will be
completed no later than February 28, 1999. At the same time, the two surviving
loan servicing systems will be made Year 2000 compliant and tested internally.
These systems will then be tested with major customers and investors to ensure
that the delivery of proper data will occur on and after January 1, 2000.
All of the Company's servers are Year 2000 compliant. All non-compliant
personal computers have been put out of service. The Company will replace all
non-Year 2000 compliant office software by June 30, 1999. The Company expects
that all telephone equipment will be Year 2000 compliant by March 30, 1999.
19
Risk Factors
<PAGE>
Contingency Plans. The Company has not yet fully identified its most likely
worst-case scenarios that could occur because of the Year 2000 Problem. The
Company is developing contingency plans for the scenarios that have been
identified. The Company intends to complete its determination of worst case
scenarios after it has received and analyzed responses to most of the inquiries
it has made of third parties. After its analysis, the Company plans to develop
a timetable for completing its contingency plans.
Costs Related to the Year 2000 Problem. To date, the Company has spent
approximately $50,000 for its Year 2000 program, mostly in labor costs. The
Company expects to incur additional costs, which it estimates will not exceed
$300,000. Compliance costs are relatively low because all business critical
software systems are being upgraded under normal vendor maintenance agreements.
The Company currently believes that the costs to resolve the Year 2000 Problem
for its other systems will not be material. However, the Company cannot assure
you that its cost estimates will not change as the Company completes its
assessment.
Risks Related to the Year 2000 Problem. Although the Company's Year 2000
program is intended to minimize the adverse effects of the Year 2000 Problem on
the Company's business and operations, the actual effects of the Year 2000
Problem and the success or failure of the Company's efforts described above
cannot be known until after January 1, 2000. If the Company, its major vendors,
service providers or major customers fail to address adequately the Year 2000
Problem in a timely manner, the Company's business, results of operations and
financial condition could be adversely affected.
The Company Relies On Certain Key Personnel
The Company depends on the efforts and abilities of a number of its current key
management, including J. Roderick Heller, III, the Company's Chairman of the
Board of Directors, and Shekar Narasimhan, the Company's President and Chief
Executive Officer. The success of the Company depends to a large extent on its
ability to retain and continue to attract key employees through its
compensation plans, including employee stock options. If the Company loses
certain key employees or cannot retain or attract key employees in the future,
the Company's operations could be adversely affected.
The Company's Business Depends On Its Sales Staff
The Company's business depends on the efforts and abilities of its 59-person
sales staff. The success of the Company depends to a large extent on its
ability to retain and attract sales personnel through its compensation
policies, including commission arrangements and its deferred compensation plan.
If sales staff responsible for a significant portion of the Company's annual
loan origination volume terminate their employment, the Company's loan
origination volume and its operating results could be adversely affected.
The Company Is Subject To National And Regional Competition
The Company operates throughout the United States and faces different levels of
competition in various individual markets. Generally, the Company has very few
national competitors and many local and regional competitors. The profile and
business practices of competitors may change, however, because the multifamily
and commercial mortgage industry is currently consolidating. Certain of the
Company's competitors are larger than the Company and have greater financial
resources, including greater access to and lower cost of capital. In addition,
the Company's business is characterized by low barriers to entry, and recently
new competitors have successfully raised the capital necessary to enter the
business. If competition increases in the Company's markets, the Company's
level of loan origination, servicing and fees could decrease.
20
Risk Factors
<PAGE>
Certain Anti-Takeover Provisions May Affect Your Rights As A Shareholder
The Company's Board of Directors has the authority to issue up to 12,500,000
shares of preferred stock and to determine the price, rights, preferences and
privileges of those shares without any further vote of, or action by, the
Company's stockholders. Your rights will be subject to, and may be adversely
affected by, the rights of holders of preferred stock. If the Company chooses
to issue preferred stock with voting rights, the issuance could provide
desirable flexibility in connection with possible acquisitions and other
corporate purposes. The issuance of voting preferred stock could also make it
more difficult for a third party to acquire a majority of the outstanding
voting stock of the Company. Certain provisions of Delaware law applicable to
the Company may also discourage third-party attempts to acquire control.
The Company Does Not Anticipate Paying Dividends On Common Stock
The Company does not plan to pay cash dividends on the Company's common stock
in the foreseeable future. The Board of Directors will decide, in the exercise
of its business judgment, whether to apply legally available funds to the
payment of dividends. The Board of Directors will consider the Company's
results of operations and financial condition, any existing or proposed
commitments for the use of available funds, and the Company's obligations to
its creditors or holders of preferred stock, if any preferred stock is issued.
Financial covenants in the Company's credit agreements or in arrangements with
government-sponsored entities may restrict the Company's ability to pay
dividends.
No Prior Market For The Rights Exists
You are permitted to sell or transfer your rights, but the Company cannot
assure you that such a sale will be practicable or profitable. The Company
expects that the rights will be listed for trading on the OTC Bulletin Board
under the symbol "WMFGR." Prior to this rights offering, there has been no
public market for the rights, and the Company cannot assure you that an active
public market for the rights will develop or be sustained. If a market for the
rights develops, it may be volatile and unreliable. The Company cannot assure
you that you will receive a satisfactory price upon the sale of the rights.
The Sale Of A Substantial Amount Of Common Stock May Affect The Market Price
If substantial amounts of common stock are sold in the public market following
the rights offering, the market price of the stock could be adversely affected.
If the rights offering is fully subscribed, the Company will have approximately
11,916,866 shares of common stock outstanding. Of those shares, approximately
6,611,419 shares (55.48 percent) will be held by the Principal Stockholders.
The Principal Stockholders may be deemed to be "affiliates" of the Company
under Rule 144 of the Securities Act of 1933, and these shares generally may be
sold only subject to the volume limitations of Rule 144. However, the Company
has agreed to register for resale without restriction (A) 546,448 shares of
common stock purchased by Capricorn in December 1997, (B) the approximately 3.6
million shares of common stock recently acquired by Demeter, Phemus and
Capricorn and (C) any shares of common stock purchased pursuant to the stand-by
purchase commitment.
In addition, as part of a transaction entered into in December 1998, the
Company (i) has issued warrants to purchase 100,000 shares of common stock for
$5.98125 per share exercisable through December 30, 2002, (ii) has issued
warrants to purchase 150,000 shares of common stock for $10.00 per share
exercisable through December 30, 2003, and (iii) has secured certain
obligations with the pledge of an additional 50,000 shares of
21
Risk Factors
<PAGE>
authorized but unissued common stock. The Company has agreed to register for
resale all of these shares if they are issued.
If after the rights offering the Company is unable to repay all of the
subordinated notes held by COMIT, Harvard and Capricorn will have the option to
cause COMIT to convert those notes into shares of capital stock at an exchange
rate of $5.00 per share.
The sale of a substantial number of these shares at any time or over time could
adversely affect the market price of the Company common stock. The Company
cannot predict the effect that the availability and future sales of common
stock could have on the market price.
The Company's Stock Price Has Been And May Continue To Be Volatile
Trading volume and prices for the common stock has been subject to wide
fluctuations during the past year and may continue to fluctuate in response to
quarterly variations in operations, results, announced earnings and other
factors. The Company cannot always foresee or predict such events. Other
factors that may affect stock prices include the sale or attempted sale of a
large amount of securities in the public market, the registration for resale of
any shares of common stock, and the effect on the Company's earnings of equity-
based compensation awards to management. The market price of the Company's
common stock could also be influenced by developments or matters not related to
the Company.
22
Risk Factors
<PAGE>
THE WMF GROUP, LTD.
CURRENT CORPORATE STRUCTURE
The WMF Group Ltd.
----------------------------------------
WMF Carbon Mesa WMF Washington WMF Capital Corp.
Advisors, Inc. Mortgage Corp.
-----------------------------------
WMF Huntoon WMF Robert C.
Paige WMF Proctor Wilson
23
Current Corporate Structure
<PAGE>
THE COMPANY
The WMF Group, Ltd. is a Delaware corporation formed in October 1992 under the
name "WMF Holdings, Inc." Originally, the Company was created to hold the
operations of WMF Huntoon, Paige Associates Limited ("WMF Huntoon Paige") and
WMF Washington Mortgage Corp. ("Washington Mortgage"). WMF Huntoon Paige and
Washington Mortgage are now wholly-owned subsidiaries of the Company. Please
see the chart on page 23 for an illustration of the Company's organizational
structure.
WMF Huntoon Paige has originated and serviced multifamily and healthcare
mortgages insured by the FHA under various owners and under various names since
1979. Washington Mortgage acquired WMF Huntoon Page in 1991. Washington
Mortgage has originated and serviced multifamily and commercial mortgages under
various owners and under various names since 1984.
On April 1, 1996, NHP Incorporated ("NHP") purchased the Company and named it
"NHP Financial Services, Inc." In early 1997, NHP was acquired by Apartment
Investment and Management Co. ("AIMCO"). As a condition of that purchase, AIMCO
required NHP to spin-off the Company. On December 8, 1997, the Company became
an independent, publicly traded company.
Recent Developments
1998 Losses. During the nine months ended September 30, 1998, the Company
incurred a net loss of $33.9 million, or $6.53 per share. Almost all of these
losses were incurred at Capital Corp. and resulted from volatility in
commercial mortgage-backed security markets and interest rates on U.S. Treasury
securities. Despite the losses, the Company's mortgage banking segment remained
profitable during the third quarter, and the Company as a whole experienced
increased revenue during the first nine months of 1998.
Losses and Restructuring at Capital Corp. Most of the Company's losses during
the first three quarters of 1998 resulted from short-sale transaction losses
related to Capital Corp.'s inventory of mortgage loans. During that period,
Capital Corp. originated $969 million in mortgage loans. To protect itself
against interest rate fluctuations prior to the sale or securitization of its
loans, Capital Corp. entered into arrangements for the short sale of U.S.
Treasury securities. Because of interest rate volatility during that period,
the Company was required to fund losses related to changes in the value of its
short-sale positions. To reduce its exposure to margin calls, Capital Corp.
sold $691 million in loans, and closed the related U.S. Treasury short
positions, at a loss. Capital Corp. also recognized a loss on the short-sale
positions related to its remaining $278 million loan inventory.
To reduce the cash requirements of its short-sale activities, the Company made
arrangements with its warehouse lender and short-sale counterparties to permit
the Company to offset the impact of losses on the short sale of U.S. Treasuries
with gains and losses in mortgage loans held for securitization. During
December of 1998, Capital Corp. sold the remainder of its loan inventory and
closed the related short-sale positions without incurring additional losses. As
part of these agreements, the Company and COMIT purchased $2.4 million and $7.6
million of subordinated interests in a pool of $63.5 million of these loans.
As a result of the losses incurred, Capital Corp. has become unable to satisfy
certain loan commitments. Capital Corp. has settled one claim related to these
obligations but the Company may not be able to settle similar claims in the
future. See "Risk Factors - Unsatisfied Contractual Commitments May Cause
Additional Losses." The Company does not intend to contribute additional
capital to Capital Corp. or to take principal risk positions at Capital Corp.
Cost-Saving Measures. In response to its 1998 losses, the Company implemented a
cost-reduction program, reducing its workforce by 15 percent and decreasing
general and administrative expenses. The Company expects that the cost-
reduction program will result in annual savings of at least $7.5 million
beginning in 1999.
24
The Company
<PAGE>
Issuance of Subordinated Notes. On September 4, 1998, the Company entered into
a Credit Agreement with Commercial Mortgage Investment Trust, Inc. ("COMIT").
COMIT is a real estate investment trust that is owned by Harvard, Capricorn and
the Company and managed by WMF Carbon Mesa. Under the Credit Agreement, Harvard
and Capricorn contributed a total of $20 million to COMIT, and the Company then
sold $20 million of its subordinated notes to COMIT. The Company also issued
warrants to COMIT entitling it to purchase 1,200,000 shares of common stock at
$11.25 per share. COMIT later assigned 960,000 of the warrants to Harvard and
240,000 of the warrants to Capricorn. The Company repaid $16.7 million of the
subordinated notes on December 31, 1998, as part of the Recapitalization Plan,
described below.
Designation of Class A Stock. On December 31, 1998, the Board of Directors of
the Company amended the Company's Certificate of Incorporation to provide for a
new class of preferred stock, designated "Class A Non-Voting Convertible
Preferred Stock" (the "Class A Stock"), par value $0.01.
The Company issued 3,635,972 shares of Class A Stock as part of the
Recapitalization Plan, described below.
On January 14, 1999, each outstanding share of Class A Stock was converted into
one share of the Company's common stock, after the Federal Trade Commission
informed the Company that it would not object to such a conversion pursuant to
certain provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
Recapitalization Plan. To provide for its working and other capital needs after
the losses at Capital Corp., the Company has entered into the Recapitalization
Plan. The Recapitalization Plan has two parts and is expected to raise a
minimum of $20 million and a maximum of $30 million of new equity:
. Sale of $16.7 Million of Capital Stock to Demeter, Phemus and
Capricorn
On December 31, 1998, the Company's three largest shareholders,
Demeter, Phemus and Capricorn, acquired 3,635,972 shares of the
Company's Class A Stock for total cash proceeds of approximately
$16.7 million. On January 14, 1999, each outstanding share of Class A
Stock was converted into one share of common stock. As a result of
these transactions, Demeter acquired 2,757,633 shares of the
Company's common stock, Phemus acquired 151,145 shares of common
stock, and Capricorn acquired 727,194 shares of common stock.
As part of the transaction, Harvard (an affiliate of Demeter and
Phemus) and Capricorn surrendered the warrants to purchase 1,200,000
shares of common stock issued to COMIT in connection with the
subordinated notes. In addition, Demeter, Phemus and Capricorn have
entered into a stand-by purchase agreement in connection with the
rights offering (described below). The Company has applied the
proceeds of the sale of Class A Stock to repay partially the
subordinated notes held by COMIT. COMIT used the repayment to redeem
shares of its preferred stock that were sold to Harvard and Capricorn
to fund the purchase of the subordinated notes, effectively resulting
in the partial conversion of the notes into common stock.
Because of their participation in this transaction, Demeter, Phemus
and Capricorn have agreed not to exercise, transfer or acquire any
rights during the rights offering.
. $14 Million Rights Offering
The Company is issuing to all of its shareholders of record as of
February 1, 1999, 1.072 transferable rights for each share of common
stock held by them on that date. Each right will entitle its holder
to purchase one share of common stock for $5.00. Because Demeter,
Phemus and Capricorn have agreed not to exercise, transfer or acquire
any rights, a total of 2,829,511 rights could be exercised during the
rights offering for a total purchase price of $14,147,555.
25
The Company
<PAGE>
Demeter, Phemus and Capricorn have entered into a Stand-by Purchase
Agreement to purchase up to 664,028 shares of common stock not
otherwise purchased in the rights offering for a total purchase price
of up to $3,320,140. Consequently, the Company expects that it will
sell at least 664,028 shares of common stock in the rights offering
for total proceeds of at least $3,320,140.
The Company has agreed to apply the proceeds from the rights offering
and from any shares sold to Demeter, Phemus and Capricorn first to
repay the remaining subordinated notes held by COMIT. If after the
rights offering the Company is unable to repay all of the
subordinated notes held by COMIT, Harvard and Capricorn will have the
option to cause COMIT to convert the notes into shares of Company
capital stock at an exchange rate of $5.00 per share.
The Recapitalization Plan will result in the effective conversion of the
Company's $20 million of subordinated notes into capital stock and also may
raise additional common equity, which will be used to repay a portion of the
Company's revolving line of credit and for working capital.
Business
The Company has three principal lines of business: (i) mortgage banking, (ii)
capital markets and (iii) advisory services. Mortgage banking involves
origination and servicing of mortgage loans.
Mortgage Origination. Mortgage origination involves the making of loans to
borrowers who use real estate property as collateral. The Company's staff of 59
loan originators targets a wide variety of borrowers including developers,
local entrepreneurial owners, large portfolio owners and public companies such
as real estate investment trusts.
Currently, the Company originates mortgages through two channels - retail and
wholesale. For the retail operation, the Company has loan originators in 19
offices located throughout the country. Those individuals directly solicit
owners of real estate, as well as local multifamily and commercial mortgage
brokers. The Company believes that having a local presence within a market
significantly adds to its understanding of the local economic, demographic and
real estate trends, thus allowing it to serve borrowers and investors better. A
local presence also helps develop borrower relationships and identify new
customers.
In those markets where the Company does not have a retail presence, it acts
through "correspondent relationships" with local mortgage brokers. In this
relationship, a local commercial mortgage broker identifies potential borrowers
and refers them to the Company for their loans. Currently, the Company
originates loans through correspondents throughout the United States. In 1997,
the Company obtained 21.5 percent of its $2.3 billion of loan originations
through correspondents.
The Company's relationship with correspondents differs between multifamily and
commercial lending and FHA lending. For multifamily and commercial lending, the
Company enters into an agreement with each correspondent which generally
provides that (1) the borrower will pay the correspondent, usually based on a
percentage of the loan, (2) in some instances, the Company will have a right of
first refusal to finance properties meeting the criteria of its loan programs
and investors and (3) the correspondent will be eligible for incentive fees
based on servicing fees received by the Company from the originated loans.
Generally, either party to a multifamily and commercial correspondent agreement
may terminate the relationship without cause upon prior written notice. The
multifamily and commercial correspondent agreements usually do not place
geographic restrictions on either the Company or the correspondent.
With respect to FHA lending, correspondents generally enter into agreements
with the Company for each individual transaction and the terms of the
agreements vary from transaction to transaction. These agreements define the
compensation, roles, representations and warranties for the correspondent and
the Company.
26
The Company
<PAGE>
After it identifies a potential borrower, the Company determines which of its
mortgage products best meets the borrower's needs. Then the Company works with
the borrower and a mortgage investor to prepare a loan application. When the
borrower completes the application, the Company's underwriters conduct due
diligence. In the case of FHA loans, the FHA conducts due diligence. See "-
Mortgage Underwriting." The loan is evaluated, and if appropriate, submitted
to a loan committee consisting of senior officers of the Company.
If the Company or the FHA approves the loan, the Company issues a commitment to
the borrower. Normally, the Company simultaneously commits to sell the loan to
an appropriate investor. Because the commitment for the loan sometimes occurs
prior to the investor commitment, the Company limits its exposure to interest
rate changes for these transactions. Typical investors include insurance
companies, banks, credit corporations, government sponsored entities (such as
Fannie Mae) and other institutional investors. Typically the Company funds a
loan 15 to 30 days after the loan commitment. At that time, the Company funds
the loan using its warehouse lines of credit and the borrower pays the Company
an origination fee, typically one percent of the principal amount of the loan.
Within 10 to 45 days after funding the loan, the Company completes the sale of
the loan to an investor. In connection with such sales, the Company sometimes
retains certain liabilities. See "Risk Factors - Retained Risks of Mortgage
Loans Sold" and "Risk Factors - Mortgage Loans Sold Under DUS Program." After
selling a mortgage loan, the Company typically retains the right to service the
loan. See "- Mortgage Servicing."
As of December 31, 1997, the Company held 32 mortgage loans for sale with an
aggregate principal balance of $49.4 million and investors had committed to
purchase all of the loans held for sale, and after that date, the Company sold
each of the loans. As of September 30, 1998, the Company held 46 mortgage loans
for sale with an aggregate principal balance of $306.2 million. After September
30, 1998, the Company entered agreements to sell each of these mortgage loans.
As of September 30, 1998, the Company had commitments to lend that were not
matched with investor commitments. Those commitments are subject to market risk
until such time as a permanent investor is identified.
The Company provides a diverse range of products to borrowers through three
product groups: Conventional Multifamily, FHA Multifamily and Healthcare, and
Commercial/Life Insurance Company. The following table sets forth information
regarding loan origination volume by business unit for each of the last three
years.
Loan Origination Volume by Business Unit
(Dollars in Millions)
<TABLE>
<CAPTION>
9 Months
Ended
Sept. 30,
1998 1997 1996 1995
--------- ------- ------- -----
<S> <C> <C> <C> <C>
Conventional Multifamily 768.8 742.0 505.4 448.0
FHA Multifamily and Healthcare 386.5 489.7 505.6 325.5
Commercial/Life Insurance (/1/) 2,128.5 1,075.2 117.5 29.0
------- ------- ------- -----
Total 3,283.8 2,306.9 1,128.5 802.5
======= ======= ======= =====
(/1/Includes)Capital Corp. and other Conduit originations.
</TABLE>
Conventional Multifamily (Fannie Mae). This business unit finances multifamily
properties that are not supported by governmental insurance or guarantees. The
Company sells such loans to a variety of mortgage investors, including Fannie
Mae. One of the Company's most active conventional products is Fannie Mae's DUS
Program. Currently, there are only 28 companies approved to participate in this
program. In 1997, total DUS Program production was $4.5 billion, of which the
Company produced approximately $200 million.
27
The Company
<PAGE>
Under the DUS Program, Fannie Mae allows the Company to approve, close and
service loans on multifamily mortgages that meet predetermined criteria. Fannie
Mae commits to purchase these loans after they close. As part of the program,
Fannie Mae requires that participating companies share in the risk of loss on
the loan. See "Risk Factors - Mortgage Loans Sold Under 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 is a Fannie
Mae Prior Approval Lender and is one of the designated post-closing review
lenders for the Fannie Mae Aggregation Facility. These programs allow the
Company to sell certain loans to Fannie Mae that would not otherwise qualify
for the DUS Program. Unlike DUS, however, neither of these programs requires
that the Company share in the risk of loss.
FHA Multifamily and Healthcare. The Company, through WMF Huntoon Paige, is the
largest provider of FHA-insured multifamily and healthcare financing in the
country. The Company originates and services both construction and permanent
loans. For the twelve months ended September 30, 1998, the Company's
subsidiaries originated 12.5 percent of all FHA multifamily and healthcare
insured debt financing.
The Company operates FHA lending through a separate subsidiary because typical
property characteristics, borrower requirements, licensing and approval
processes differ significantly between FHA and conventional multifamily
financing. To participate in FHA programs, the Company must comply with the
applicable requirements of the National Housing Act and the regulations and
policies of the FHA. See "Risk Factors - Uncertainties Resulting from
Government Regulation and Changes in Government Programs."
Commercial/Life Insurance Company Loans. With its acquisitions in 1996 and
1997, the Company has substantially increased its presence in the market for
commercial, non-multifamily financing. The Company originates loans secured by
a variety of properties, including office buildings, retail centers, hotels,
warehouses and nursing homes. Through relationships with regional mortgage
banks, insurance companies have been particularly active investors in this
segment. The Company has a variety of established relationships with insurance
companies, including: John Hancock, UNUM, Canada Life, CIGNA, American General,
Nationwide, Berkshire Life, Government Personnel Mutual and Century Life.
In addition to originating conduit-eligible loans that are processed by its
capital markets group, through WMF Funding, the Company has established
origination relationships with commercial mortgage conduits operated by major
financial institutions, including Merrill Lynch, NationsBank, N.A. and
ContiFinancial. In 1998, the Company originated loans totaling approximately
$1.1 billion through these investor sources.
Mortgage Underwriting. The Company's originators work with underwriters who
perform due diligence on all loans prior to commitment and approval. The
Company's underwriters assess each proposed loan including a review of (1)
borrower financial position and credit history, (2) past operating performance
of the underlying collateral, (3) potential changes in project economics and
(4) appraisal, environmental and engineering studies completed by a pre-
approved list of third-party consultants. Additionally, underwriters inspect
the property, review tenant and lease files, survey comparable markets and
analyze area economic and demographic trends. A loan committee consisting of
the Company's senior officers reviews and approves each proposed loan.
The Company applies its own underwriting guidelines, as well as those provided
by investors. Among other things, the Company considers debt service coverage,
loan-to-value ratios, property financial and operating performance, quality of
property management, borrower credit history and tenant profile. The standards
vary from investor to investor and may include a subjective element based on an
assessment of the total credit risk. The standards generally do not involve
mechanical application of a set formula. The Company revises its underwriting
criteria based on its experience and as market conditions and investor
requirements change.
28
The Company
<PAGE>
Due in part to its underwriting procedures, in 1997 the Company achieved a loan
delinquency rate (i.e., loans delinquent over 60 days) equal to only 0.21
percent of its entire conventional multifamily and commercial portfolios. In
connection with the Fannie Mae DUS Program, the Company has originated over 296
DUS loans since 1990 with original principal balances in excess of $1.4
billion. The Company has experienced one loss of $0.3 million on a DUS loan.
That loan was originated by another lender, and the Company acquired the risk-
sharing obligation as part of its DUS approval in 1990.
The Company uses the underwriting criteria established by the FHA to recommend
loans for FHA insurance. The Company must provide the FHA with certain
information. The FHA then examines the loans and decides whether to provide
insurance.
Mortgage Servicing. As a mortgage servicer, the Company performs both primary
and master servicing functions. Primary servicing involves:
. collecting mortgage payments,
. maintaining escrow accounts for the payment of taxes and insurance
premiums,
. sending payments of principal and interest,
. reporting to investors on financial and property issues, and
. general loan administration.
The primary servicer must inspect properties, determine the adequacy of
insurance coverage, monitor delinquent accounts and, in cases of extreme
delinquency, institute forbearance arrangements or foreclosure proceedings on
behalf of investors.
Master servicers administer and report on securitized pools of mortgage-backed
securities. Normally, the mortgages in the pool are serviced by individual
primary servicers. Master servicing agreements typically require the primary
servicer to retain responsibility for administering the mortgage loans, and the
master servicer supervises the primary servicers by monitoring their compliance
with the servicing contract. The master servicer consolidates all accounting
and reporting to the issuer of the securities.
The Company has contracts to service loans with mortgage owners and originators
of mortgage-backed securities. The contracts are generally for a term equal to
the term of the serviced mortgage or the mortgage-backed security and are
terminable for cause. Contracts with insurance companies who own mortgages are
usually terminable on 30 days' notice by the owner, in many instances without
cause. In some circumstances, the insurance company must pay a termination fee
if it terminates a servicing contract without cause. Under these agreements,
the Company receives an annual fee for primary servicing. The fee typically
ranges from 5 basis points to 40 basis points of the unpaid principal balance
of the loans underlying the securities. Fees for master servicing typically
range from one to ten basis points.
As of September 30, 1998, the Company acted as the primary servicer for
approximately $11.1 billion of loans and the master servicer for an additional
$1.6 billion of loans. These loans were obtained through the Company's
origination network and through the purchase of servicing rights. A breakdown
of the servicing portfolio is shown below.
29
The Company
<PAGE>
Servicing Portfolio by Product Type
$ in Millions
<TABLE>
<CAPTION>
9 Months Year Ended
Ended December 31,
Sept. 30, ------------------
1998 1997 1996 1995
--------- ------ ----- -----
<S> <C> <C> <C> <C>
Conventional Multifamily 3,735 1,544 1,644 1,409
FHA and Ginnie Mae 4,397 4,201 3,076 2,657
Commercial 2,924 4,173 1,267 201
Master Servicing 1,622 952 214 145
------ ------ ----- -----
Total 12,678 10,870 6,201 4,412
====== ====== ===== =====
</TABLE>
The Company principally services loans in its offices in Vienna, Virginia;
Edison, New Jersey and Houston, Texas. It employs approximately 92 persons in
these servicing facilities. As of September 30, 1998, the Company serviced
3,383 loans. As part of its servicing functions on these loans, the Company
managed escrow accounts totaling $378 million and processed approximately $83.0
million in principal and interest payments each month. The Company continuously
reviews its servicing operations and seeks to implement improvements in its
systems and business processes.
Capital Markets (WMF Funding). The Company originates commercial mortgage loans
through WMF Funding, a division of WMF Washington Mortgage Corp. created in
December 1998. The Company has entered into a strategic relationship with
Greenwich Capital Markets pursuant to which WMF Funding will originate loans
for sale to Greenwich. Greenwich is expected to pool those loans with other
loans and then sell interests in, or "securitize," the pool. WMF Funding will
service the loans it originates and receive a portion of the profits, if any,
from any securitization of those loans.
Prior to September 1998, the Company had operated an independent commercial
mortgage conduit through its subsidiary Capital Corp. The operations of Capital
Corp. have been substantially curtailed since it suffered substantial losses in
the second and third quarters of 1998 and the Company has determined not to
make further investments in Capital Corp. However, the Company cannot assure
that it will not be required to do so.
Advisory Services (WMF Carbon Mesa). The Company's advisory services segment
was formed in March 1998, when the Company acquired all of the assets of Carbon
Mesa Advisors, Inc. and Strategic Real Estate Partners and created WMF Carbon
Mesa Advisors, Inc. ("WMF Carbon Mesa"). Based in Los Angeles, WMF Carbon Mesa
managed a private commercial mortgage fund, provided a variety of advisory
services to institutional investors and originated over $400 million in loans
and investments in 1997. WMF Carbon Mesa employs 16 people.
WMF Carbon Mesa develops new loan products, manages commercial mortgage
investment funds, provides special asset management servicing and originates
commercial mortgages. In June 1998, WMF Carbon Mesa entered into an agreement
to manage COMIT. COMIT invests in multifamily and commercial mortgages,
primarily those originated by the Company that are not sold in securitizations
or to other institutional investors. These types of multifamily and commercial
loans include bridge, mezzanine and structured transactions.
30
The Company
<PAGE>
Business Strategy
Because of its geographic scope and quality services, the Company believes that
it is well-positioned to compete effectively in the commercial real estate
financing industry. The commercial and multifamily mortgage banking industry is
increasingly characterized by expensive technological demands, large and
sophisticated infrastructure for real estate underwriting and risk evaluation,
and the rapid emergence of the securitized market. The Company believes that
these developments will lead to the creation of sophisticated and well-
capitalized mortgage finance enterprises. The Company seeks to use its existing
infrastructure and its market position to increase market share of its
established businesses and increase its non-multifamily commercial business.
The Company seeks to increase reported earnings and cash flow through:
. acquisitions and internal growth,
. design and delivery of new mortgage products, including structured
loan products and participating loan products, and
. expansion into related businesses, such as due diligence services.
Acquisitions. The Company has pursued a strategy of acquiring (1) multifamily
and commercial mortgage businesses that either serve key real estate markets in
the United States or provide specialized services that enhance its product
line, and (2) additional servicing portfolios. In the past, the Company has
sought to acquire companies with active and productive loan origination staffs,
significant market share and servicing portfolios of $250 million or more and
expects to continue to do so following completion of the Recapitalization Plan
to the extent its resources permit.
During 1996, the Company increased its portfolio of serviced mortgages by 40.9
percent from $4.4 billion to $6.2 billion, primarily as a result of two
acquisitions. On May 13, 1996, WMF Huntoon Paige purchased a portion of the
loan production pipeline and servicing, as well as certain other assets, of ACR
Investment Corp. for approximately $4.2 million, plus potential future payments
based on realization of loans closed from the pipeline through August 1997. The
acquired pipeline and loan production offices originated approximately $138
million in multifamily and healthcare loans for WMF Huntoon Paige in 1996.
On December 31, 1996, Washington Mortgage acquired all of the common stock of
Detroit-based Proctor & Associates of Michigan ("Proctor"), the 37th largest
commercial mortgage banking firm in the United States based on the MBA Survey.
Washington Mortgage paid approximately $3.7 million in cash to acquire Proctor.
The acquisition brought to the Company a $1.1 billion loan servicing portfolio
of multifamily, retail and office building mortgages, as well as 17 active
correspondent relationships with life insurance companies.
On April 16, 1997, Washington Mortgage purchased substantially all of the
mortgage banking assets and liabilities of Askew Investment Company ("Askew")
in Dallas, Texas for $4.6 million, excluding transaction costs. Askew is a
multifamily and commercial mortgage bank with correspondent relationships with
14 insurance companies, which originated $375 million of mortgages in 1996. The
acquisition increased the Company's mortgage servicing portfolio by $425
million and gave the Company access to the traditional insurance company whole-
loan buyers in the markets served by Askew. The purchase also provided the
Company with a new source of loans for securitization through the Company's
capital market relationships.
31
The Company
<PAGE>
On November 5, 1997, Washington Mortgage purchased 100 percent of the
outstanding stock of The Robert C. Wilson Company and its Arizona subsidiary
(collectively, "Robert C. Wilson") for a purchase price of approximately $4.0
million in cash (80 percent of which was paid at closing and the remaining 20
percent of which will be paid in the form of earnouts upon the attainment of
certain performance objectives over a 42-month period). In addition to its
mortgage and equity origination and servicing activities, Robert C. Wilson
provides commercial office leasing and real estate sales. Robert C. Wilson has
correspondent relationships with 24 insurance companies and originated
approximately $475 million of mortgages in 1997. The acquisition increased the
Company's servicing portfolio by $554 million.
On December 23, 1997, Washington Mortgage purchased substantially all of the
mortgage banking assets of New York Urban West, Inc. ("New York Urban") for a
purchase price of approximately $4.9 million in cash (84 percent of which was
paid at closing and the remaining 16 percent of which will be paid in the form
of earnouts upon the attainment of certain performance objectives over a 42-
month period). An approved HUD mortgagee, New York Urban originated $225
million of mortgages in 1997 and had correspondent relationships with several
life insurance companies. The acquisition increased the Company's servicing
portfolio by $1.3 billion.
On March 27, 1998, the Company created WMF Carbon Mesa, which purchased all of
the assets of WMF Carbon Mesa Advisors, Inc., and Strategic Real Estate
Partners for a combination of cash and common stock. WMF Carbon Mesa develops
new loan products, manages commercial mortgage investment funds, provides
special asset management services and originates commercial mortgages.
The Company also grows its servicing portfolio through the acquisition of
servicing rights. Since 1992, the Company has acquired servicing rights on
approximately $1.3 billion of mortgages in over 44 transactions.
As a result of acquisitions and internal growth, the Company has increased loan
originations from approximately $240 million in 1992 to approximately $3.3
billion for the nine months ended September 30, 1998. The Company's servicing
portfolio has increased from approximately $3.0 billion in 1992 to $12.7
billion as of September 30, 1998.
In furtherance of its acquisition strategy, the Company routinely reviews, and
conducts investigations of, potential acquisitions of multifamily and
commercial mortgage businesses. As of the date of this prospectus, the Company
does not have any agreements for pending acquisitions and has not entered into
any letters of intent with respect to pending acquisitions. However, if the
Recapitalization Plan is successful and the Company obtains sufficient working
capital, the Company may enter into discussions with one or more potential
acquisition targets in the commercial mortgage financial services business. The
Company cannot assure you that such discussions will result in future
acquisitions, or that if those acquisitions are completed, they will be
successful. The Company also cannot assure you that it will successfully
develop any particular product or enter into any particular product line.
Design and delivery of new mortgage products. Since 1992, the Company has been
involved in developing more than eight new products, including one of the first
whole-loan conduits (Common SenseSM), a revolving credit facility for real
estate investment trusts and a forward commitment program for tax-credit new
construction. Using these products, the Company has originated loans totaling
over $1.2 billion from 1992 to 1997.
The Company has also enhanced its bridge loan product, has added a number of
loan products to sell to life insurance companies, and has developed a
securitized loan product with a major Wall Street conduit for commercial
lending. Through WMF Carbon Mesa, the Company intends to develop new financing
products in response to changing market conditions, including continued
development of bridge loan products, as well as the addition of high-yield,
mezzanine and participating loan products. The Company cannot assure you that
it will be successful in developing any particular new product or, if a product
is developed, that it will be profitable for the Company.
32
The Company
<PAGE>
Expansion into related businesses. The Company seeks to build upon its
experience in evaluating real estate to expand its services and develop related
products. The Company has used its expertise to provide due diligence services
for institutional clients, to enter the advisory services/funds management
business and to expand its presence in the commercial mortgage-backed
securities market. Other possible businesses may include asset management,
commercial leasing and management and the purchase and retention of commercial
mortgage-backed securities. Expansion may occur through a combination of
acquisitions, strategic alliances and internal business development. There can
be no assurance that the Company will seek to undertake any specific line of
business, or, if it undertakes a particular line of business, that the business
will be successful.
33
The Company
<PAGE>
THE RIGHTS OFFERING
The Rights
The Company is distributing transferable rights to stockholders who owned
shares of its common stock on February 1, 1999, at no cost to the stockholders.
The Company will give you 1.072 rights for each share of common stock that you
owned on February 1, 1999. You will not receive fractional rights during the
rights offering, but instead the Company will round your number of rights up or
down to the nearest whole number. Each right will entitle you to purchase one
share of common stock for $5.00.
If you wish to exercise your rights, you must do so before 5 p.m., Eastern
Standard Time, on March 8, 1999. After that date, the rights will expire and
will no longer be exercisable.
Basic Subscription Right
Each right will entitle you to receive, upon payment of $5.00 to the Company,
one share of common stock (the "Basic Subscription Right"). The Company will
send you certificates representing the shares that you purchase pursuant to
your Basic Subscription Right as soon as practicable after March 8, 1999,
whether you exercise your rights immediately prior to that date or earlier.
Oversubscription Privilege
Subject to the allocation described below, each right also grants you an
"Oversubscription Privilege" to purchase additional shares of common stock that
are not purchased by other stockholders. You are entitled to exercise your
Oversubscription Privilege only if you exercise your Basic Subscription Right
in full.
If you wish to exercise your Oversubscription Privilege, you should indicate
the number of additional shares that you would like to purchase in the space
provided on your Subscription Certificate. When you send in your Subscription
Certificate, you must also send the full purchase price for the number of
additional shares that you have requested to purchase (in addition to the
payment due for shares purchased through your Basic Subscription Right).
If the number of shares remaining after the exercise of all Basic Subscription
Rights is not sufficient to satisfy all Oversubscription Privileges, you will
be allocated shares pro rata (subject to elimination of fractional shares), in
proportion to the number of shares you purchased through your Basic
Subscription Right. However, if your pro rata allocation exceeds the number of
shares you requested on your Subscription Certificate, then you will receive
only the number of shares that you requested, and the remaining shares from
your pro rata allocation will be divided among other shareholders exercising
their Oversubscription Privileges.
As soon as practicable after March 8, 1999, the Subscription Agent will
determine the number of shares of common stock that you may purchase pursuant
to the Oversubscription Privilege. The Company will send you certificates
representing these shares as soon as practicable after March 8, 1999. If you
request and pay for more shares than are allocated to you, the Company will
refund that overpayment, without interest.
In connection with the exercise of the Oversubscription Privilege, banks,
brokers and other nominee holders of rights who act on behalf of beneficial
owners will be required to certify to the Subscription Agent and the Company as
to the aggregate number of rights that have been exercised, and the number of
shares of common stock that are being requested through the Oversubscription
Privilege, by each beneficial owner on whose behalf such nominee holder is
acting.
34
The Rights Offering
<PAGE>
Stand-By Purchase Commitment
Because Demeter, Phemus and Capricorn recently acquired 3,635,972 shares of the
Company's common stock, they have agreed that they will not exercise, transfer
or acquire any rights during the rights offering.
However, if the Company sells fewer than 2,829,511 shares of common stock
during this rights offering, then Demeter, Phemus and Capricorn have entered
into a Stand-by Purchase Agreement to purchase for $5.00 per share, the lesser
of (A) 664,028 shares of the Company's capital stock or (B) 2,829,511 shares,
minus the number of shares sold during the rights offering. This agreement
guarantees that the Company will receive at least $3,320,140 in gross proceeds
from the rights offering.
If no stockholders exercise their Basic Subscription Rights and only Demeter,
Phemus and Capricorn purchase shares pursuant to the Stand-by Purchase
Agreement, the proceeds to the Company will be $3,320,140. In contrast, if all
rights are exercised, the gross proceeds to the Company of the rights offering
will be $14,147,555.
Expiration Date
The rights will expire at 5:00 p.m., Eastern Standard Time, on March 8, 1999,
unless the Company, in its discretion, extends the rights offering for up to 10
days. If you do not exercise your Basic Subscription Rights and
Oversubscription Privilege prior to that time, the rights will be null and
void. The Company will not be required to issue shares of common stock to you
if the Subscription Agent receives your Subscription Certificate or your
payment after that time, regardless of when you sent the Subscription
Certificate and payment, unless you send the documents in compliance with the
Guaranteed Delivery Procedures described below.
Withdrawal Right
The Company may withdraw the rights offering at any time prior to or on March
8, 1999, for any reason (including, without limitation, a change in the market
price of the common stock). If the Company withdraws the rights offering, any
funds received from stockholders will be promptly refunded, without interest or
penalty.
Determination Of Share Price
The Company and its Board of Directors decided to charge $5.00 per share during
the rights offering after considering such factors as the historic and current
market price of the Company's common stock and the Company's need for capital.
The $5.00 per share price should not be considered an indication of the actual
value of the Company or its common stock. The Company cannot assure you that
the market price of the common stock will not decline during the rights
offering. The Company also cannot assure you that you will be able to sell
shares of common stock purchased during the rights offering at a price equal to
or greater than $5.00 per share.
Transferability Of Rights
Starting on the date on which the rights are distributed, you may purchase or
sell rights through usual investment channels, including banks and brokers. The
Company expects that the rights will be listed on the OTC Bulletin Board under
the symbol "WMFGR." You will be able to transfer and exercise the rights
through the facilities of the Depository Trust Company. See "Risk Factors - No
Prior Market for Rights."
35
The Rights Offering
<PAGE>
You may transfer the rights evidenced by a single Subscription Certificate in
whole by endorsing the Subscription Certificate for transfer in accordance with
the accompanying Instructions. You may transfer a portion of the rights
evidenced by a single Subscription Certificate (but not fractional rights) by
delivering to the Subscription Agent a Subscription Certificate properly
endorsed for transfer, with instructions to register such portion of the rights
evidenced thereby in the name of the transferee and to issue a new Subscription
Certificate to the transferee evidencing such transferred rights. In such
event, a new Subscription Certificate evidencing the balance of the rights will
be issued to you, or, if you so instruct, to an additional transferee.
If you wish to transfer all or a portion of your rights (but not fractional
rights), you should allow a sufficient amount of time prior to March 8, 1999,
for
. the transfer instructions to be received and processed by the
Subscription Agent,
. a new Subscription Certificate to be issued and transmitted to the
transferee or transferees with respect to the transferred rights, and
to you with respect to retained rights, and
. the rights evidenced by such new Subscription Certificates to be
exercised or sold by the recipients thereof.
Neither the Company nor the Subscription Agent will be liable to a transferee
or transferor of rights if Subscription Certificates are not received in time
for exercise or sale prior to March 8, 1999.
Except for the fees charged by the Subscription Agent (which the Company will
pay, as described below), you will be responsible for paying any commissions,
fees and other expenses (including brokerage commissions and transfer taxes)
incurred in connection with the purchase, sale or exercise of the rights.
Neither the Company nor the Subscription Agent will pay any such commissions,
fees or expenses.
Exercise Of Rights
You may exercise your rights by delivering to the Subscription Agent on or
prior to March 8, 1999:
. A properly completed and duly executed Subscription Certificate;
. Any required signature guarantees; and
. Payment in full of $5.00 per share of common stock to be purchased
through the Basic Subscription Right and the Oversubscription
Privilege.
You should deliver your Subscription Certificate and payment to the address set
forth below under "- Subscription Agent."
Method Of Payment
Payment for the shares must be made by check or bank draft (cashier's check)
drawn upon a United States bank or a postal, telegraphic or express money order
payable to "Boston EquiServe, L.P., as Subscription Agent."
If you are purchasing an aggregate number of shares of common stock totaling
$500,000 or more, the Company may agree to an alternative payment method. If
you use an alternative payment method, the Subscription Agent must receive the
full amount of your payment in currently available funds within one over-the-
counter ("OTC") trading day prior to March 8, 1999.
36
The Rights Offering
<PAGE>
Payment will be deemed to have been received by the Subscription Agent only
upon:
(A) clearance of any uncertified check;
(B) receipt by the Subscription Agent of any certified check or bank
draft drawn upon U.S. bank or of any postal, telegraphic or express
money order; or
(C) receipt of funds by the Subscription Agent through an alternative
payment method.
Please note that funds paid by uncertified personal check may take at
least five business days to clear. Accordingly, if you wish to pay by
means of an uncertified personal check, the Company urges you to make
payment sufficiently in advance of March 8, 1999, to ensure that the
payment is received and clears before that date. The Company also urges
you to consider payment by means of certified or cashier's check or money
order.
Guaranteed Delivery Procedures
If you want to exercise your rights, but time will not permit your Subscription
Certificate to reach the Subscription Agent on or prior to March 8, 1999, you
may exercise your rights if you satisfy the following Guaranteed Delivery
Procedures:
(1) You send, and the Subscription Agent receives, payment in full for
each share of common stock being purchased through the Basic
Subscription Right and the Oversubscription Privilege, on or prior
to March 8, 1999;
(2) You send, and the Subscription Agent receives, on or prior to March
8, 1999, a Notice of Guaranteed Delivery, substantially in the form
provided with the attached Instructions, from a member firm of a
registered national securities exchange or a member of the National
Association of Securities Dealers, Inc., or a commercial bank or
trust company having an office or correspondent in the United
States. The Notice of Guaranteed Delivery must state your name, the
number of rights that you hold, the number of shares of common stock
that you wish to purchase pursuant to the Basic Subscription Right
and the number of shares, if any, you wish to purchase pursuant to
the Oversubscription Privilege. The Notice of Guaranteed Delivery
must guarantee the delivery of your Subscription Certificate to the
Subscription Agent within three OTC trading days following the date
of the Notice of Guaranteed Delivery; and
(3) You send, and the Subscription Agent receives, your properly
completed and duly executed Subscription Certificate, including any
required signature guarantees, within three OTC trading days
following the date of your Notice of Guaranteed Delivery. The Notice
of Guaranteed Delivery may be delivered to the Subscription Agent in
the same manner as your Subscription Certificate at the addresses
set forth below, or may be transmitted to the Subscription Agent by
facsimile transmission, to facsimile number (781) 794-6388. You can
obtain additional copies of the form of Notice of Guaranteed
Delivery by requesting it from the Subscription Agent at the address
set forth below under "--Subscription Agent."
37
The Rights Offering
<PAGE>
Signature Guarantees
Signatures on the Subscription Certificate must be guaranteed by an Eligible
Guarantor Institution, as defined in Rule 17Ad-15 of the Exchange Act, subject
to the standards and procedures adopted by the Subscription Agent. Eligible
Guarantor Institutions include banks, brokers, dealers, credit unions, national
securities exchanges and savings associations.
Signatures on the Subscription Certificate do not need to be guaranteed if:
(1)the Subscription Certificate provides that the shares of common stock
to be purchased are to be delivered directly to the record owner of such
rights, or
(2)the Subscription Certificate is submitted for the account of a member
firm of a registered national securities exchange or a member of the
National Association of Securities Dealers, Inc., or a commercial bank
or trust company having an office or correspondent in the United States.
Shares Held For Others
If you hold shares of common stock for the account of others, such as a broker,
a trustee or a depository for securities, you should notify the respective
beneficial owners of such shares as soon as possible to obtain instructions
with respect to the rights beneficially owned by them.
If you are a beneficial owner of common stock held by a holder of record, such
as a broker, trustee or a depository for securities, you should contact the
holder and ask him to effect transactions in accordance with your instructions.
Ambiguities In Exercise Of The Rights
If you do not specify the number of rights being exercised on your Subscription
Certificate, or if your payment is not sufficient to pay the total purchase
price for all of the shares that you indicated you wished to purchase, you will
be deemed to have exercised the maximum number of rights that could be
exercised for the amount of the payment that the Subscription Agent receives
from you.
If your payment exceeds the total purchase price for all of the rights shown on
your Subscription Certificate, your payment will be applied, until depleted, to
subscribe for shares of common stock in the following order:
(1)to subscribe for the number of shares, if any, that you indicated on
the Subscription Certificate(s) that you wished to purchase through your
Basic Subscription Right;
(2)to subscribe for shares of common stock until your Basic Subscription
Right has been fully exercised;
(3)to subscribe for additional shares of common stock pursuant to the
Oversubscription Privilege (subject to any applicable proration).
Any excess payment remaining after the foregoing allocation will be returned to
you as soon as practicable by mail, without interest or deduction.
38
The Rights Offering
<PAGE>
- --------------------------------------------------------------------------------
IMPORTANT
Please carefully read the Instructions accompanying the Subscription
Certificate and follow those Instructions in detail.
Do not send Subscription Certificates to the Company.
You are responsible for choosing the payment and delivery method for your
Subscription Certificate, and you bear the risks associated with such
delivery. If you choose to deliver your Subscription Certificate and
payment by mail, the Company recommends that you use registered mail,
properly insured, with return receipt requested. The Company also
recommends that you allow a sufficient number of days to ensure delivery
to the Subscription Agent and clearance of payment prior to March 8, 1999.
Because uncertified personal checks may take at least five business days
to clear, the Company strongly urges you to pay, or arrange for payment,
by means of certified or cashier's check or money order.
- --------------------------------------------------------------------------------
Company's Decision Binding
All questions concerning the timeliness, validity, form and eligibility of any
exercise of rights will be determined by the Company, whose determinations will
be final and binding. The Company, in its sole discretion, may waive any defect
or irregularity, or permit a defect or irregularity to be corrected within such
time as it may determine, or reject the purported exercise of any right by
reason of any defect or irregularity in such exercise. Subscriptions will not
be deemed to have been received or accepted until all irregularities have been
waived or cured within such time as the Company determines in its sole
discretion. Neither the Company nor the Subscription Agent will be under any
duty to give notification of any defect or irregularity in connection with the
submission of Subscription Certificates or incur any liability for failure to
give such notification.
No Revocation
After you have exercised your Basic Subscription Right or Oversubscription
Privilege, you may not revoke that exercise. You should not exercise your
rights unless you are certain that you wish to purchase additional shares of
common stock. The Company plans to announce its operating results for the
fourth quarter of 1998 and for the full year shortly after the date of this
Prospectus. You may wish to wait until after that announcement to decide
whether to exercise or transfer your rights.
Fees and Expenses
The Company will pay all fees charged by the Subscription Agent. You are
responsible for paying any other commissions, fees, taxes or other expenses
incurred in connection with the exercise or transfer of the rights. Neither the
Company nor the Subscription Agent will pay such expenses.
Subscription Agent
The Company has appointed Boston EquiServe, L.P. as Subscription Agent for the
rights offering. The Subscription Agent's address for packages sent by mail or
overnight delivery is:
First Class Mail Overnight or Registered Mail
Boston EquiServe, L.P. Boston EquiServe, L.P.
Corporate Reorganization Corporate Reorganization
P. O. Box 9573 40 Campanelli Drive
Boston, MA 02205-9573 Braintree, MA 02184
39
The Rights Offering
<PAGE>
The Subscription Agent's telephone number is (781) 575-3400, and its facsimile
number is (781) 794-6388.
You should deliver your Subscription Certificate, payment of the Subscription
Price and Notice of Guaranteed Delivery (if any) to the Subscription Agent.
The Company will pay the fees and expenses of the Subscription Agent, which the
Company estimates will total $22,000. The Company has also agreed to indemnify
the Subscription Agent from any liability which it may incur in connection with
the rights offering.
Financial Advisor
The Company has engaged BT Alex. Brown Incorporated as its financial advisor in
connection with the Recapitalization Plan.
IF YOU HAVE QUESTIONS
If you have questions or need assistance concerning the procedure for
exercising rights, or if you would like additional copies of this prospectus,
the Instructions, or the Notice of Guaranteed Delivery, you should contact the
Information Agent:
D.F. King & Co., Inc.
77 Water Street
New York, New York
(800) 207-2872
40
The Rights Offering
<PAGE>
USE OF PROCEEDS
The Company will apply the net proceeds from the rights offering first to repay
a loan to COMIT and then to repay a portion of its revolving credit facility
and to finance its working capital and other capital requirements. On September
4, 1998, the Company entered into a Credit Agreement with COMIT, pursuant to
which the Company sold $20 million of its subordinated notes to COMIT. The
Company also issued warrants to COMIT entitling it to purchase 1,200,000 shares
of common stock at $11.25 per share. COMIT transferred the warrants to Harvard
and Capricorn.
Demeter, Phemus and Capricorn recently acquired a total of 3,635,972 shares of
the Company's capital stock. Demeter acquired 2,757,633 shares of common stock,
Phemus acquired 151,145 shares of common stock, and Capricorn acquired 727,194
shares of common stock, for aggregate consideration of approximately
$16.7 million. The proceeds from this sale were used to used to repay $16.7
million of the $20 million debt that the Company owed to COMIT. In addition,
Harvard (an affiliate of Demeter and Phemus) and Capricorn surrendered the
1,200,000 warrants that they received in connection with the Credit Agreement.
Demeter, Phemus and Capricorn have also entered into a Standby Purchase
Agreement whereby they will purchase up to 664,028 shares of capital stock.
Assuming that shareholders exercise all of the rights, the Company will receive
proceeds from this rights offering of approximately $14 million. The Company
will use the first $3.3 million in proceeds to repay the remainder of its debt
to COMIT. Under the terms of its revolving credit facility, the Company will be
required to use 25 percent of any proceeds in excess of $3.3 million to repay a
portion of its revolving credit facility. All remaining proceeds will be used
for the Company's working capital requirements.
The Company expects to receive minimum proceeds of approximately $3.3 million
after this rights offering, because Demeter, Phemus and Capricorn have agreed
that if the Company sells fewer than 2,829,511 shares during the rights
offering, they will purchase, for $5.00 per share, the lesser of (A) 664,028
shares of the Company's capital stock, or (B) 2,829,511 shares minus the number
of shares of common stock sold during the rights offering. These minimum
proceeds will be sufficient to repay the Company's outstanding debt to COMIT,
but will not be sufficient to repay the revolving credit facility or to finance
the Company's working and other capital requirements.
If the Company receives only the minimum proceeds, or if the Company fails to
reach sufficient revenue levels, the Company may require additional capital.
The Company cannot assure you that such capital will be available on
satisfactory terms.
41
Use of Proceeds
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company, on an
historical basis as of September 30, 1998, and on a pro forma basis as of
September 30, 1998, based on completion of the Recapitalization Plan (i)
assuming the minimum purchase by Demeter, Phemus and Capricorn of 664,028
shares pursuant to their stand-by purchase commitment and (ii) assuming the
maximum exercise of all 2,829,511 rights. The net proceeds from the
Recapitalization Plan will be applied as set forth above in Use of Proceeds.
Amounts shown are in thousands, except number of outstanding shares.
<TABLE>
<CAPTION>
September 30, 1998
-----------------------------
Pro Forma
------------------
Historical Minimum Maximum
---------- -------- --------
<S> <C> <C> <C>
Debt:
Warehouse Credit Facility
Subordinated Debt $293,171 $293,171 $293,171
Servicing Acquisition Line 20,000 0 0
Revolving Credit Facility 4,712 4,712 4,712
Total Debt 36,883 36,883 26,883
Stockholders' Equity: 354,766 334,766 324,766
Common stock, par value $.01 per share,
25,000,000 shares authorized; 5,299,383,
9,751,383 and 11,916,866 issued and
oustanding, respectively 53 97 119
Additional paid-in capital 39,943 59,899 70,703
Retained deficit (30,330) (30,330) (30,330)
-------- -------- --------
Total Stockholders' Equity: $ 9,666 $ 29,666 $ 40,492
======== ======== ========
</TABLE>
42
Capitalization
<PAGE>
PLAN OF DISTRIBUTION
On or about February 5, 1999, the Company will distribute the rights and copies
of this prospectus to individuals who owned shares of common stock on February
1, 1999. If you wish to exercise your rights and purchase shares of common
stock, you should complete the Subscription Certificate and return it, with
payment for the shares, to the Subscription Agent, Boston EquiServe, L.P., at
the address on page 39. See "The Rights Offering - Exercise of Rights."
If you have any questions, you should contact the Company's Information Agent,
D.F. King & Co., Inc. at the telephone number and address on page 40. At the
conclusion of the rights offering, the Company will pay D.F. King & Co. a fee
of $8,000 for its services as Information Agent.
To guarantee the Company minimum proceeds of approximately $3,320,140 from this
rights offering, Demeter, Phemus and Capricorn have entered into a Standby
Purchase Agreement. Under that agreement, if the Company sells fewer than
2,829,511 shares of common stock during the rights offering, then Demeter,
Phemus and Capricorn will buy, for $5.00 per share, a total of the lesser of
(A) 664,028 shares of the Company's capital stock or (B) 2,829,511 shares,
minus the number of shares sold during the rights offering. Demeter will
purchase 75.84 percent of any shares purchased pursuant to the Stand-by
Purchase Agreement, while Phemus will purchase 4.16 percent of such shares, and
Capricorn will purchase 20 percent of such shares.
BT Alex. Brown Incorporated has acted as the Company's financial advisor in
connection with the rights offering, for which it will be paid a customary fee.
43
Plan of Distribution
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS
The following summarizes the material federal income tax considerations of the
rights offering to you and the Company. This summary is based on current law,
which is subject to change at any time, possibly with retroactive effect. This
summary is not a complete discussion of all federal income tax consequences of
the rights offering, and, in particular may not address federal income tax
consequences applicable to Company shareholders subject to special treatment
under federal income tax law. In addition, this summary does not address the
tax consequences of the rights offering under applicable state, local or
foreign tax laws. This discussion assumes that your shares of common stock and
the rights and shares issued to you during the rights offering constitute
capital assets.
Receipt and exercise of the rights distributed pursuant to the rights offering
is intended to be nontaxable to Company shareholders, and the following summary
assumes they will qualify for such nontaxable treatment. If, however, the
rights offering does not qualify as a nontaxable distribution, you would be
treated as receiving a dividend equal to the fair market value of the rights on
their distribution date and expiration of the rights would result in a capital
loss.
This discussion is included for your general information only. You should
consult your tax advisor to determine the tax consequences to you of the rights
offering in light of your particular circumstances, including any state, local
and foreign tax consequences.
Taxation Of Stockholders
Receipt of a Right. You will not recognize any gain or other income upon
receipt of a right.
Tax Basis and Holding Period of Rights. Your tax basis in each right will
depend on whether you exercise the right, transfer the right, or allow the
right to expire.
If you exercise or transfer a right, your tax basis in the right will be
determined by allocating the tax basis of your common stock on which the right
is distributed between the common stock and the right, in proportion to their
relative fair market values on the date of distribution of the right. However,
if the fair market value of your rights is less than 15 percent of the fair
market value of your existing shares of common stock, then the tax basis of
each right will be deemed to be zero, unless you elect, by attaching an
election statement to your federal income tax return for 1999, to allocate tax
basis to your rights.
If you allow a right to expire, it will be treated as having no tax basis.
Your holding period for a right will include your holding period for the share
of common stock upon which the right is issued.
Expiration of Rights. You will not recognize any loss upon the expiration of a
right.
Transfer of Rights. If you sell any of your rights, you will recognize a gain
or loss equal to the difference between the sale proceeds and your basis (if
any) in the rights sold. If your holding period for the rights (determined as
described above) is more than one year, such gain or loss generally will be
long-term capital gain or loss.
Exercise of Rights. You generally will not recognize a gain or loss on the
exercise of a right. The tax basis of any share of common stock that you
purchase through the rights offering will be equal to the sum of your tax basis
(if any) in the right exercised and the price paid for the share. The holding
period of the shares of common stock purchased through the rights offering will
begin on the date that you exercise your rights.
Taxation Of The Company
The Company will not recognize any gain, other income or loss upon the issuance
of the rights, the lapse of the rights, or the receipt of payment for shares of
common stock upon exercise of the rights.
44
Federal Income Tax Considerations
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's common stock is listed for quotation under the symbol "WMFG" on
The Nasdaq National Market. The following table sets forth the high and low
per-share closing prices for the Company's common stock for each quarterly
period since the completion of the Company's initial public offering on
December 8, 1997.
<TABLE>
<CAPTION>
Calendar Year High Low
------------- ------ -------
<S> <C> <C>
1997
Fourth Quarter (from December 9, 1997) $14 $12 1/8
1998
First Quarter 32 1/2 11 1/8
Second Quarter 28 1/4 19 5/8
Third Quarter 29 5
Fourth Quarter 8 1/4 3 7/8
1999
First Quarter (through January 31, 1999) 6 1/4 5 3/4
</TABLE>
As of February 1, 1999, there were 253 holders of record of the Company's
common stock. The Company believes, based on the number of proxy materials
distributed in connection with its 1998 Annual Meeting of Stockholders, that
the number of beneficial owners as of that date exceeds 1,500.
45
Price Range of Common Stock
<PAGE>
SELECTED FINANCIAL DATA
Set forth on the following page is selected financial data of the Company for
the nine months ended September 30, 1998 and 1997, and for the years ended
December 31, 1997, 1996 and 1995. The selected financial data has been derived
from, and should be read in conjunction with, the unaudited consolidated
financial statements and accompanying notes included in the Company's Quarterly
Report on Form 10-Q/A for the nine months ended September 30, 1998 and 1997 and
the audited consolidated financial statements and accompanying notes included
in the Company's Annual Report on Form 10-K for the year ended December 31,
1997.
The unaudited financial statements include all adjustments, consisting of
normal recurring accruals, which the Company considered necessary for a fair
presentation of the Company's financial position and the results of operations
for those periods. Operating results for the nine months ended September 30,
1998, are not necessarily indicative of results that may be expected for the
year ending December 31, 1998. The selected financial data below should be read
in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's financial statements and
notes contained in the reports listed in the previous paragraph, which are
incorporated by reference herein.
46
Selected Financial Data
<PAGE>
Selected Consolidated Financial Data
(In thousands, except per share data)
<TABLE>
<CAPTION>
WMF Holdings Ltd. and
The Company Subsidiaries
----------------------------------- --------------------------
For the For the
Nine Months Nine Months Period Period
Ended Ended Pro Forma April 1 to January 1, to Year Ended
September 30, September 30, December 31, December 31, March 31, December 31,
1998 1997 1997 1996 (/1/) 1996 1996 1995
------------- ------------- ------- ------------ ------------ ------------- ------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data
Revenues $ 50,802 $29,497 $44,645 $30,301 $23,473 $ 6,828 $ 21,999
Expenses 84,729 27,773 42,203 29,416 22,318 6,523 21,222
Net income (loss) (33,927) 1,724 2,442 885 1,155 305 777
Net income (loss) per
share-Basic (/2/) (6.53) 0.41 0.57 0.21 0.27 0.07 0.16
Weighted average shares
outstanding-Basic (/2/) 5,199 4,217 4,273 4,217 4,217 4,217 4,717
Net income (loss) per
share-Diluted (/2/) (6.53) 0.41 0.55 0.21 0.27 0.07 0.16
Weighted average shares
outstanding-Diluted
(/2/) 5,199 4,217 4,453 4,217 4,217 4,217 4,717
Balance Sheet Data
Mortgage loans held for
sale $ 306,153 $35,650 $49,431 $40,263 $23,116 $ 32,462
Servicing rights 28,147 22,520 26,796 22,460 8,477 8,466
Total assets 698,836 93,783 119,331 88,097 48,976 57,176
Total debt (/3/) 354,402 40,586 59,904 46,137 34,108 43,304
Shareholder's equity 9,666 24,252 38,825 22,528 4,324 4,018
- -------------------------------------------------------------------------------------------------------------------
Other Data
Cash Flow from
Operating activities
(/4/) $(302,079) $16,098 $ (881) $ 3,395 $(6,588) $ 9,983 $(21,897)
Investing activities
(/4/) 3,510 (8,715) (21,463) (9,624) (9,276) (548) (2,343)
Financing activities
(/4/) 299,266 (5,550) 26,529 7,833 17,029 (9,196) 26,833
EBITDA (/5/) (43,981) 8,440 11,439 8,256 6,502 1,754 4,743
</TABLE>
- ------------------------
/1/On April 1, 1996, NHP, Incorporated acquired all of the outstanding
capital stock of the Company (the "Acquisition"). This data has been adjusted
to reflect results of operations for the twelve months ended December 31, 1996,
as if the Acquisition had occurred January 1, 1996. Adjustments include all
income amounts for the three months ended March 31, 1996 and additional
amortization of $575,647.
/2/Gives retroactive effect to a 789.94 per share stock split effective
October 3, 1997.
/3/Includes $5,000,000 of notes to the Company's former shareholder as of
March 31, 1996 and December 31, 1995, which were repaid in conjunction with the
Acquisition.
/4/Operating, investing and financing cash flow represents the amount of
cash generated from operating, investing and financing activities,
respectively, as determined using GAAP.
/5/EBITDA is a non-GAAP presentation of the Company's performance and
consists of income from operations before non-warehouse interest expense,
income taxes, depreciation and amortization. EBITDA is included because it is
used in the industry as a measure of a company's operating performance and
provides information in addition to that supplied by GAAP-based data regarding
the ability of the Company's business to generate cash, but should not be
construed as an alternative either (i) to income from operations (determined in
accordance with GAAP) as a measure of profitability of (ii) to cash flows from
operating activity (determined in accordance with GAAP). EBITDA does not take
into account the Company's debt service requirements and other commitments and,
accordingly, is not necessarily indicative of amounts that may be available for
discretionary uses. EBITDA as measured by the Company may not be comparable to
EBITDA as measured by other companies.
47
Selected Financial Data
<PAGE>
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered hereby will
be passed upon for the Company by Hunton & Williams, Richmond, Virginia.
EXPERTS
The consolidated balance sheet of the Company and its subsidiaries as of
December 31, 1997, and the related consolidated statements of operations,
changes in stockholders' equity, and cash flows for the years ended December
31, 1997 and December 31, 1995, and all related schedules, have been
incorporated herein in reliance on the reports of KPMG LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
The consolidated balance sheets of the Company and its subsidiaries as of
December 31, 1996, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for the year ended December 31,
1996, and all related schedules have been incorporated herein in reliance on
the reports of Arthur Andersen LLP, independent accountants, given on the
authority of that firm as experts in accounting and auditing.
48
Legal Matters/Experts
<PAGE>
IF YOU WOULD LIKE ADDITIONAL INFORMATION
The Company files annual, quarterly and special reports, proxy statements and
other information with the U.S. Securities and Exchange Commission ("SEC"). You
may read and copy this information at the SEC's public reference rooms, which
are located at:
450 Fifth Street, NW 7 World Trade Center, Suite
Washington, DC 20549 1300
New York, NY 10048
500 West Madison Street, Suite 1400
Chicago, IL 60661-2511
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. This information is also available on-line through the SEC's
Electronic Data Gathering, Analysis, and Retrieval System (EDGAR), located on
the SEC's web site (http://www.sec.gov.).
Also, the Company will provide you (free of charge) with any of its documents
filed with the SEC. To get your free copies, please call or write:
Michael D. Ketcham
Chief Financial Officer
1593 Spring Hill Road, Suite 400,
Vienna, VA 22182
(703) 610-1400
The Company has filed a Registration Statement with the SEC on Form S-3 with
respect to the rights offering. This prospectus is a part of the Registration
Statement, but the prospectus does not repeat important information that you
can find in the Registration Statement, reports and other documents that the
Company filed with the SEC. The SEC allows the Company to "incorporate by
reference" those documents, which means that the Company can disclose important
information to you by referring you to other documents. The documents that are
incorporated by reference are legally considered to be a part of this
prospectus. The documents incorporated by reference are:
(1) Annual Report on Form 10-K for the year ended December 31, 1997;
(2) Quarterly Report on Form 10-Q for the period ended March 31, 1998;
Quarterly Report on Form 10-Q for the period ended June 30, 1998, as
amended by Form 10-Q/A filed December 21, 1998; Quarterly Report on
Form 10-Q for the period ended September 30, 1998, as amended by
Form 10-Q/A filed December 22, 1998;
(3) Current Report on Form 8-K filed January 8, 1998; Current Report on
Form 8-K filed September 26, 1998; Current Report on Form 8-K filed
January 13, 1999;
(4) The description of the common stock contained in the Company's
Registration Statement on Form 10, as filed with the Commission on
August 4, 1997, as amended on September 22, 1997, October 8, 1997
and November 19, 1997;
(5) Any filings with the SEC pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act of 1934 between the date of this
prospectus and the expiration of the rights offering.
As you read the above documents, you may find some inconsistencies in
information from one document to another. If you find inconsistencies between
the documents, or between a document and this prospectus, you should rely on
the statements made in the most recent document.
You should rely only on the information in this prospectus or incorporated by
reference. The Company has not authorized anyone to provide you with any
different information.
49
If You Would Like Additional Information
<PAGE>
- -------------------------------------------------------------------------------
Prospective investors may rely on the information contained in this
prospectus. The Company has not authorized anyone to provide prospective
investors with information different from that contained in this prospectus.
This prospectus is not an offer to sell nor is it seeking an offer to buy
these securities in any state where the offer or sale is not permitted. This
prospectus is not an offer to sell nor is it seeking an offer to buy
securities other than the shares of common stock to be issued pursuant to the
rights offering. The information contained in this prospectus is correct only
as of the date of this prospectus, regardless of the time of the delivery of
this prospectus or any sale of these securities.
------------
No action is being taken in any jurisdiction outside the United States to
permit a public offering of the common stock or possession or distribution of
this prospectus in any such jurisdiction. Persons who come into possession of
this prospectus in jurisdictions outside the United States are required to
inform themselves about and to observe any restrictions as to this offering
and the distribution of this prospectus applicable in the jurisdiction.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Shares
Common Stock
------------
PROSPECTUS
------------
February , 1999
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses Of Issuance And Distribution
The following table sets forth the expenses in connection with this
Registration Statement. The Company will pay all expenses of the rights
offering. All such expenses are estimates, other than the filing fees payable
to the Securities and Exchange Commission and The Nasdaq National Market.
<TABLE>
<S> <C>
Securities and Exchange Commission Filing Fee.................. $ 3,933
Printing Fees and Expenses..................................... 25,000
Nasdaq Listing Fee............................................. 17,500
Legal Fees and Expenses........................................ 75,000
Information Agent Fee.......................................... 8,000
Financial Advisory Fee......................................... 200,000
Accounting Fees and Expenses................................... 35,000
Subscription Agent Fee......................................... 22,000
Miscellaneous.................................................. 3,567
--------
Total........................................................ 390,000
========
</TABLE>
Item 15. Indemnification Of Directors And Officers
Subsection (a) of Section 145 of the General Corporation Law of Delaware (the
"DGCL") empowers a corporation to indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or complete action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, employee or agent of the corporation or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no cause to believe his conduct was unlawful.
Subsection (b) of Section 145 of the DGCL empowers a corporation to indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation and except that no indemnification may be
made in respect to any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the
extent that the Court of Chancery or the court in which such action or suit was
brought shall determine that despite the adjudication of liability such person
is fairly and reasonably entitled to indemnity for such expenses which the
court shall deem proper.
Section 145 of the DGCL further provides that to the extent a director,
officer, employee or agent of a corporation has been successful in the defense
of any action, suit or proceeding referred to in subsections (a)
Part II - i
<PAGE>
and (b) or in the defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith; that indemnification or
advancement of expenses provided for by Section 145 shall not be deemed
exclusive of any other rights to which the indemnified party may be entitled;
and empowers the corporation to purchase and maintain insurance on behalf of a
director, officer, employee or agent of the corporation against any liability
asserted against him or incurred by him in any such capacity or arising out of
his status as such whether or not the corporation would have the power to
indemnify him against such liabilities under Section 145.
Article Seven of the Company's Restated Certificate of Incorporation, as
amended, and Article VI, Section 1 of the Company's By-laws, each of which is
an exhibit to this prospectus and each of which is incorporated herein by
reference, provide in effect for the indemnification by the Company of each
director and officer of the Company to the fullest extent permitted by
applicable law.
Item 16. Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
1.1 Standby Purchase Agreement dated as of October 16, 1998
between the Company, Demeter Holding Corporation, Phemus
Corporation and Capricorn Investors II, L.P.(1)
4.1 Restated Certificate of Incorporation of The WMF Group,
Ltd.(2)
4.2 Amendment to the Company's Restated Certificate of
Incorporation(3)
4.3 Certificate of Designations, Preferences and Rights of Class A
Non-Voting Convertible Preferred Stock(1)
4.4 Amended and Restated Bylaws of The WMF Group, Ltd.(4)
4.5 Form of Certificate representing the Common Stock(2)
4.6 Rights Agreement dated as of February 1, 1999, by and between
the Company and BankBoston, N.A. as Subscription Agent
(including form of Subscription Certificate)
5 Opinion of Hunton & Williams
23.1 Consent of Hunton & Williams (included in Exhibit 5)
23.2 Consent of KPMG LLP
23.3 Consent of Arthur Andersen LLP
24 Power of Attorney (previously filed)
99.1 Form of Subscription Certificate
99.2 Instructions to Stockholders as to use of Subscription
Certificate
99.3 Notice of Guaranteed Delivery for Subscription Certificates
99.4 Form of Letter to Shareholders
99.5 Form of Letter to Brokers
</TABLE>
(1) Incorporated by reference to the current report on Form 8-K
previously filed by the Company on January 13, 1999.
(2) Incorporated by reference to the registration statement on Form 10
previously filed by the Company on August 4, 1997 as amended.
(3) Incorporated by reference to the registration statement on Form S-1
filed by the Company on October 30, 1997.
(4) Incorporated by reference to the Company's Form 10-Q for the quarter
ended March 31, 1998 filed on May 15, 1998.
Part II - ii
<PAGE>
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made of
the securities registered hereby, a post-effective amendment to this
registration statement (i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any
facts or events arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set forth in
the registration statement (Notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent no
more than 20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective registration
statement); and (iii) to include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
provided, however, that the undertakings set forth in subparagraphs (i) and
(ii) above do not apply if the information required to be included in a post-
effective amendment by those paragraphs is contained in periodic reports filed
with or furnished to the Commission by the registrant pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 that are incorporated by reference
in this registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
The undersigned registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the registrant's
annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration statement shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to Item 15, or otherwise, the registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Part II - iii
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Fairfax County, Commonwealth of Virginia, on February 2, 1999.
THE WMF GROUP, LTD.
/s/ Michael D. Ketcham
BY: _____________________
Michael D. Ketcham
Executive Vice President/Chief
Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities indicated
on February 2, 1999.
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C>
/s/ Roderick Heller* Chairman of the Board
______________________________________
Roderick Heller
/s/ Shekar Narasimhan* President, Chief Executive Officer and
______________________________________ Director (Principal Executive Officer)
Shekar Narasimhan
Director
______________________________________
Mohammed A. Al-Tuwaijri
Director
______________________________________
Michael Eisensen
/s/ Tim R. Palmer* Director
______________________________________
Tim R. Palmer
/s/ John D. Reilly* Director
______________________________________
John D. Reilly
Director
______________________________________
Herbert S. Winokur, Jr.
/s/ Michael D. Ketcham Executive Vice President/Chief Financial
______________________________________ Officer/Treasurer
Michael D. Ketcham (Principal Financial Officer)
/s/ Mathew J. Whelan, III* Controller
______________________________________ (Principal Accounting Officer)
Mathew J. Whelan, III
*By: /s/ Michael D. Ketcham
______________________________________
Attorney In Fact
</TABLE>
Part II - iv
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
1.1 Standby Purchase Agreement dated as of October 16, 1998
between the Company, Demeter Holding Corporation, Phemus
Corporation and Capricorn Investors II, L.P.(1)
4.1 Restated Certificate of Incorporation of The WMF Group, Ltd.
(the "Company")(2)
4.2 Amendment to the Company's Restated Certificate of
Incorporation(3)
4.3 Certificate of Designations, Preferences and Rights of Class A
Non-Voting Convertible Preferred Stock(1)
4.4 Amended and Restated Bylaws of The WMF Group, Ltd.(4)
4.5 Form of Certificate representing the Common Stock(2)
4.6 Rights Agreement dated as of February 1, 1999, by and between
the Company and BankBoston, N.A. as Subscription Agent
5 Opinion of Hunton & Williams
23.1 Consent of Hunton & Williams (included in Exhibit 5)
23.2 Consent of KPMG LLP
23.3 Consent of Arthur Andersen LLP
24 Power of Attorney (previously filed)
99.1 Form of Subscription Certificate
99.2 Instructions to Stockholders as to use of Subscription
Certificate
99.3 Notice of Guaranteed Delivery for Subscription Certificates
99.4 Form of Letter to Shareholders
99.5 Form of Letter to Brokers
</TABLE>
(1) Incorporated by reference to the current report on Form 8-K
previously filed by the Company on January 13, 1999.
(2) Incorporated by reference to the registration statement on Form 10
previously filed by the Company on August 4, 1997 as amended.
(3) Incorporated by reference to the registration statement on Form S-1
filed by the Company on October 30, 1997.
(4) Incorporated by reference to the Company's Form 10-Q for the quarter
ended March 31, 1998 filed on May 15, 1998.
Part II - v
<PAGE>
- --------------------------------------------------------------------------------
SUBSCRIPTION AGREEMENT
BETWEEN
THE WMF GROUP, LTD.
AND
BANKBOSTON, N.A.,
SUBSCRIPTION AGENT
RIGHTS TO PURCHASE COMMON STOCK
February 1, 1999
- --------------------------------------------------------------------------------
<PAGE>
SUBSCRIPTION AGREEMENT
----------------------
This SUBSCRIPTION AGREEMENT (the "Agreement") is dated as of February 1,
1999, between The WMF Group, Ltd., a Delaware corporation (the "Company"), and
BankBoston, N.A., a national banking association, as Subscription Agent and
Transfer Agent.
RECITALS
--------
WHEREAS, the Company proposes to issue Rights (the "Rights") entitling the
holders thereof to purchase an aggregate of up to approximately 2,829,511
shares (the "Shares") of the Company's Common Stock, $.01 par value (the "Common
Stock"); and
WHEREAS, the Subscription Agent, at the request of the Company, has agreed
to act as the agent of the Company in connection with the issuance,
registration, transfer, exchange and exercise of the Rights;
NOW, THEREFORE, in consideration of the premises and mutual agreements
herein set forth, the parties hereto agree as follows:
AGREEMENT
---------
1. Appointment of Subscription Agent.
---------------------------------
The Company hereby appoints the Subscription Agent to act as agent for the
Company in accordance with the instructions hereinafter set forth; and the
Subscription Agent hereby accepts such appointment, upon the terms and
conditions hereinafter set forth.
2. Amount Issued.
-------------
Subject to the provisions of this Agreement, the Company shall issue
transferable Rights to purchase approximately 2,829,511 shares of Common
Stock. The Company shall deliver to holders of Common Stock as of February 1,
1999 (the "Record Date") (the "Record Holders") 1.072 Rights for each share of
Common Stock held of record on the Record Date. No fractional rights or cash in
lieu thereof will be issued or paid. The number of Rights distributed to each
Record Holder will be rounded up or down to the nearest whole number. Each
Right shall entitle the holder thereof to purchase one share of Common Stock at
a price of $5.00 per share upon exercise of the Right as herein provided.
3. Form of Subscription Certificates.
---------------------------------
(a) The Rights shall be evidenced by certificates (the "Subscription
Certificates") to be delivered pursuant to this Agreement in registered form
only. The Subscription Certificates and the forms of election to purchase Shares
and of assignment to be printed on the reverse thereof shall be in substantially
the form set forth in Exhibit A hereto together with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Agreement, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply
- 1 -
<PAGE>
with any law or with any rules made pursuant thereto or with any rules of any
securities exchange, any agreement between the Company and any holder of a Right
(a "Rightholder"), or as may, consistently herewith, be determined by the
officers executing such Subscription Certificates, as evidenced by their
execution of such Subscription Certificates.
(b) No Subscription Certificate may be divided in such a way as to
permit the holder to receive a greater number of Rights than the number to which
such Subscription Certificate entitles its holder, except that a depositary,
bank, trust company, and securities broker or dealer holding shares of Common
Stock on the Record Date for more than one beneficial owner may by delivering a
written request by 5:00 p.m., New York City time, on a date which is fifteen
(15) business days from the effective date of the Registration Statement, as
hereinafter defined, and, upon proper showing to the Subscription Agent,
exchange its Subscription Certificate to obtain a Subscription Certificate for
the number of Rights to which all such beneficial owners in the aggregate would
have been entitled had each been a Record Holder. The Company reserves the right
to refuse to issue any such Subscription Certificate if such issuance would be
inconsistent with the principle that each beneficial owner's holdings will be
rounded up or down to the nearest whole Right.
4. Execution of Subscription Certificates.
--------------------------------------
Subscription Certificates shall be signed on behalf of the Company by its
Chairman, President, a Vice President or its Treasurer and attested by its
Secretary or Assistant Secretary. Each such signature upon the Subscription
Certificates may be in the form of a facsimile signature of the current or any
future Chairman, President, Vice President, Treasurer, Secretary or Assistant
Secretary and may be imprinted or otherwise reproduced on the Subscription
Certificates and for that purpose the Company may adopt and use the facsimile
signature of any person who shall have been Chairman, President, Vice President,
Treasurer, Secretary or Assistant Secretary, notwithstanding the fact that at
the time the Subscription Certificates shall be delivered or disposed of, such
person shall have ceased to hold such office.
If any officer of the Company who shall have signed any of the Subscription
Certificates shall cease to be such officer before the Subscription Certificates
so signed shall have been delivered by the Subscription Agent or disposed of by
the Company, such Subscription Certificates nevertheless may be delivered or
disposed of as though such person had not ceased to be such officer of the
Company; and any Subscription Certificate may be signed on behalf of the Company
by any person who, at the actual date of the execution of such Subscription
Certificate, shall be a proper officer of the Company to sign such Subscription
Certificate, although at the date of the execution of this Agreement any such
person was not such officer.
5. Registration.
------------
The Subscription Certificates shall be numbered and shall be registered in
a register (the "Rights Register") to be maintained by the Subscription Agent.
The Company and the Subscription Agent may deem and treat the registered holder
of a Subscription Certificate as the absolute owner thereof (notwithstanding any
notation of ownership or other writing thereon made by anyone), for the purpose
of any exercise thereof or any distribution to the holder thereof and
<PAGE>
for all other purposes, and neither the Company nor the Subscription Agent shall
be affected by any notice to the contrary.
6. Rights Issued To Certain Shareholders Not Exercisable Or Transferable.
---------------------------------------------------------------------
Pursuant to a Stock Purchase Agreement dated as of October 16, 1998, among
the Company, Demeter Holding Corporation ("Demeter"), Phemus Corporation
("Phemus") and Capricorn Investors II, L.P. ("Capricorn"), Demeter, Phemus and
Capricorn have agreed that they will not exercise, transfer or acquire any of
the Rights issued to them pursuant to Section 2 of this Agreement. The
Subscription Agent hereby agrees that it will hold and not issue any
Subscription Certificates issuable in the name of Harvard Private Capital
Holdings, Inc. ("Harvard," an affiliate of Demeter and Phemus), Demeter, Phemus
or Capricorn and that it will not accept for exercise, exchange or transfer any
Subscription Certificate issued in the name of, or to be issued in the name of,
Harvard, Demeter, Phemus or Capricorn, and that it will notify the Company
immediately upon receipt of any such Subscription Certificate.
7. Registration of Transfers and Exchanges.
---------------------------------------
Subject to Section 6 hereof, until the Close of Business on the Expiration
Date (as hereinafter defined), the Subscription Agent shall from time to time
register the transfer of any outstanding Subscription Certificates in the Rights
Register, upon surrender of such Subscription Certificates, duly endorsed, and,
if not surrendered by or on behalf of an original holder of Subscription
Certificates or a transferee thereof, accompanied by a written instrument or
instruments of transfer in form satisfactory to the Subscription Agent, duly
signed by the registered holder or holders thereof or by the duly appointed
legal representative thereof or by a duly authorized attorney, such signature to
be guaranteed by (a) a bank or trust company, (b) a broker or dealer that is a
member of the National Association of Securities Dealers, Inc. (the "NASD"), (c)
a member of a national securities exchange or (d) by an "eligible guarantor
institution" as defined under Rule 17Ad-15 promulgated under the Securities
Exchange Act of 1934, as amended. Upon any such registration of transfer, a new
Subscription Certificate shall be issued to the transferee.
Subscription Certificates may be exchanged at the option of the holder or
holders thereof, when surrendered to the Subscription Agent at its offices or
agency maintained in New York, New York (or at such other offices or agencies as
may be designated by the Agent) for the purpose of exchanging, transferring and
exercising the Rights (a "Subscription Agent Office,") or at the offices of any
successor Subscription Agent as provided in Section 19 hereof, for another
Subscription Certificate or other Subscription Certificates of like tenor and
representing in the aggregate a like number of Rights.
8. Duration and Exercise of Rights; Subscription Price.
---------------------------------------------------
(a) The Rights shall expire at (i) 5:00 p.m. Eastern Standard Time
(the "Close of Business") on March 8, 1999, subject to extension by up to 10
days, in the sole discretion of the Company in a written statement to the
Subscription Agent and with notice to registered Right Holders in the manner
provided for in Section 15 (such date of expiration being hereinafter
- 3 -
<PAGE>
referred to as the "Expiration Date"). At such time as the Rights become
exercisable, and thereafter until the Close of Business on the Expiration Date,
the Rights may be exercised on any business day. After the Close of Business on
the Expiration Date, the Rights will become void and of no value.
(b) (i) Subject to the provisions of this Agreement, each Right shall
entitle the holder thereof to purchase from the Company (and the Company shall
issue and sell to such holder of a Right) one fully paid and nonassessable Share
at the price of $5.00 (U.S.) per share (the "Subscription Price") (the "Basic
Subscription Right").
(ii) If a Right Holder subscribes to purchase the maximum number
of shares available pursuant to such holder's Basic Subscription Right, such
holder shall be entitled to subscribe to purchase additional Shares at the price
of $5.00 (U.S.) per share (the "Oversubscription Privilege"), subject to the
availability of such shares and to the allotment of such shares among Right
Holders who exercise the Oversubscription Privilege on the basis specified in
the Prospectus.
(c) A Right Holder shall exercise such Holder's right to purchase
Shares by depositing with the Subscription Agent at a Subscription Agent Office,
the Subscription Certificate evidencing such Right with the form of election to
purchase on the reverse thereof duly completed and signed by the registered
holder or holders thereof or by the duly appointed legal representative thereof
or by a duly authorized attorney, such signature (if not signed by or on behalf
of an original holder of Rights) to be guaranteed in the manner described in
Section 6 hereof, and paying to the Subscription Agent in lawful money of the
United States of America by check or bank draft drawn upon a United States bank
or a postal, telegraphic or express money order of an amount equal to the
Subscription Price multiplied by the number of Shares in respect of which the
Rights are being exercised. Once a Right Holder exercises a Right, that exercise
may not be revoked.
(d) If a Right Holder wishes to exercise its Rights, but time will
not permit such holder to cause the Subscription Certificate or Subscription
Certificates evidencing such Rights to reach the Subscription Agent on or prior
to the Expiration Date, such Rights may nevertheless be exercised if all of the
following conditions (the "Guaranteed Delivery Procedures") are met:
(i) such holder has caused payment in full of the Subscription Price
for each Share being subscribed to be received (in the manner set
forth in subsection (c) above) by the Subscription Agent on or prior
to the Expiration Date;
(ii) the Subscription Agent receives, on or prior to the Expiration
Date, a guarantee notice (a "Notice of Guaranteed Delivery"),
substantially in the form provided with the Instruction for Use of The
WMF Group, Ltd. Subscription Certificates (the "Instructions")
distributed with the Subscription Certificates, from a member firm of
a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. (the "NASD"), or from a
commercial bank or trust company having an office or correspondent in
the
- 4 -
<PAGE>
United States (each, an "Eligible Institution"), stating the name
of the exercising Right Holder, the number of Rights represented by
the Subscription Certificate or Subscription Certificates held by such
exercising Right Holder, the number of Shares being subscribed for
pursuant to the Basic Subscription Right, the number of Shares being
subscribed for pursuant to the Oversubscription Privilege and
guaranteeing the delivery to the Subscription Agent of any
Subscription Certificate evidencing such Rights within three (3)
Nasdaq trading days following the date of the Notice of Guaranteed
Delivery; and
(iii) the properly completed Subscription Certificate or Subscription
Certificates evidencing the Rights being exercised, with any required
signatures guaranteed, is received by the Subscription Agent within
three (3) Nasdaq trading days following the date of the Notice of
Guaranteed Delivery relating thereto. The Notice of Guaranteed
Delivery may be delivered to the Subscription Agent in the manner set
forth in Section 21 hereof.
Unless a Subscription Certificate (i) provides that the shares of Common
Stock to be issued pursuant to the exercise of Rights represented thereby are to
be delivered directly to the holder of such Rights or (ii) is submitted for the
account of an Eligible Institution, signatures on such Subscription Certificate
must be guaranteed by an Eligible Institution.
(e) Subject to Sections 6 and 10, upon such surrender of a
Subscription Certificate and payment of the Subscription Price, and as soon as
practicable after the Expiration Date:
(i) the Subscription Agent, in its capacity as the Company's
transfer agent (the "Transfer Agent"), shall requisition for issuance
and delivery to or upon the written order of the registered holder of
such Subscription Certificate and in such name or names as such
registered holder may designate, a certificate or certificates for the
Share or Shares issuable upon the exercise of the Basic Subscription
Right evidenced by such Subscription Certificate. Such certificate or
certificates shall be deemed to have been issued and any person so
designated to be named therein shall be deemed to have become the
holder of record of such Share or Shares as of the Expiration Date.
(ii) the Subscription Agent shall calculate the total number of
Shares subscribed for pursuant to the Oversubscription Privileges and
the total number of Shares available for purchase pursuant to the
Oversubscription Privilege (the "Available Shares"). The number of
Available Shares shall be equal to the difference between the total
number of Rights issued by the Company (excluding Rights issued to
Demeter, Phemus and Capricorn) and the number of shares purchased
pursuant to the Basic Subscription Rights. Each Right Holder
subscribing to purchase Shares pursuant to the Oversubscription
Privilege shall be entitled to purchase a number of shares (the "Pro-
Rata Amount") equal to the product of (A) the number of Available
Shares multiplied by (B) the number of
- 5 -
<PAGE>
Shares purchased by such Right Holder pursuant to its Basic
Subscription Right, divided by the total number of Shares purchased by
all Right Holders who also exercised their Oversubscription Privilege.
If a Right Holder has subscribed for fewer Shares pursuant to the
Oversubscription Privilege than such holder's Pro-Rata Amount, then
the Subscription Agent shall issue a certificate for the subscribed
number of Shares and shall treat the difference between the Pro-Rata
Amount and the number of Shares so issued as Available Shares. If a
Right Holder has subscribed for more Shares than such holder's Pro-
Rata Amount, then the Subscription Agent shall issue a certificate for
the Pro-Rata Amount and refund to such holder any overpayment.
The Subscription Price will be deemed to have been received by the
Subscription Agent only upon (i) clearance of any uncertified check, or (ii)
receipt by the Subscription Agent of any certified check or bank draft drawn
upon a U.S. bank or any postal, telegraphic or express money order.
(f) The Rights evidenced by a Subscription Certificate shall be
exercisable, at the election of the registered holder thereof, either as an
entirety or from time to time for a portion of the number of Rights specified in
the Subscription Certificate. If less than all of the Rights evidenced by a
Subscription Certificate surrendered upon the exercise of Rights are exercised
at any time prior to the Expiration Date, a new Subscription Certificate or
Certificates shall be issued for the number of Rights evidenced by the
Subscription Certificate so surrendered that have not been exercised.
(g) The Subscription Agent shall account promptly to the Company with
respect to Rights exercised and concurrently pay or deliver to the Company all
moneys and other consideration received by it upon the purchase of Shares
through the exercise of the Basic Subscription Rights. The Subscription Agent
shall retain all moneys and other consideration received by it for the purchase
of Shares through the exercise of the Oversubscription Privileges until after
completion of the procedure described in subsection (e)(ii) above.
(h) If either the number of Rights being exercised is not specified on
a Subscription Certificate, or the payment delivered is not sufficient to pay
the full aggregate Subscription Price for all shares of Common Stock stated to
be subscribed for, the Right Holder will be deemed to have exercised the maximum
number of Rights that could be exercised for the amount of the payment delivered
by such Right Holder. If the payment delivered by the Right Holder exceeds the
aggregate Subscription Price for the number of Rights evidenced by the
Subscription Certificate(s) delivered by such Right Holder, the payment will be
applied, until the Basic Subscription Right is depleted, to subscribe for shares
of Common Stock. Any excess payment remaining after the foregoing allocation
will be applied to subscribe for additional shares of Common Stock pursuant to
the Oversubscription Privilege (subject to pro-ration pursuant to subsection
(e)(ii) hereof).
9. Cancellation of Rights.
----------------------
- 6 -
<PAGE>
If the Company shall purchase or otherwise acquire Rights, the Subscription
Certificates representing such Rights shall thereupon be delivered to the
Subscription Agent and be canceled by it and retired. The Subscription Agent
shall cancel all Subscription Certificates surrendered for exchange,
substitution, transfer or exercise in whole or in part.
10. Payment of Taxes.
----------------
The Company will pay all documentary stamp taxes attributable to the
initial issuance of Rights and of Shares upon the exercise of Rights; provided,
that the Company shall not be required to pay any tax or taxes which may be
payable in respect of any transfer involved in the issue of any Subscription
Certificates or any certificates for Shares in a name other than the registered
holder of a Subscription Certificate surrendered upon the exercise of a Right,
and the Company shall not be required to issue or deliver such certificates
unless or until the person or persons requesting the issuance thereof shall have
paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid or adequate provision
has been made for the payment thereof.
11. Mutilated or Missing Subscription Certificates.
----------------------------------------------
If any of the Subscription Certificates shall be mutilated, lost, stolen or
destroyed, the Company may in its discretion issue, and the Subscription Agent
shall deliver, in exchange and substitution for and upon cancellation of the
mutilated Subscription Certificate, or in lieu of and substitution for the
Subscription Certificate lost, stolen or destroyed, a new Subscription
Certificate of like tenor and representing an equivalent number of Rights, but
only upon receipt of evidence satisfactory to the Company and the Subscription
Agent of such loss, theft or destruction of such Subscription Certificate and
indemnity or bond, if requested, also satisfactory to them. Applicants for such
substitute Subscription Certificates shall also comply with such other
reasonable regulations and pay such other reasonable charges as the Company or
the Subscription Agent may prescribe.
12. Reservation of Shares.
---------------------
For the purpose of enabling it to satisfy any obligation to issue Shares
upon exercise of Rights, the Company will at all times through the Close of
Business on the Expiration Date, reserve and keep available, free from
preemptive rights and out of its aggregate authorized but unissued shares of
Common Stock, the number of Shares deliverable upon the exercise of all
outstanding Rights (excluding Rights issued to Demeter, Phemus and Capricorn),
and the Transfer Agent is hereby irrevocably authorized and directed at all
times to reserve such number of authorized and unissued shares of Common Stock
as shall be required for such purpose. The Subscription Agent, in its capacity
as Transfer Agent, is hereby irrevocably authorized to requisition from time to
time stock certificates issuable upon exercise of outstanding Rights.
Before taking any action that would cause an adjustment pursuant to Section
14(b) reducing the Subscription Price below the then par value (if any) of the
Shares issuable upon exercise of the Rights, the Company will take any corporate
action that may, in the opinion of its
- 7 -
<PAGE>
counsel, be necessary in order that the Company may validly and legally issue
fully paid and nonassessable Shares at the Subscription Price as so adjusted.
The Company covenants that all Shares issued upon exercise of the Rights
will, upon issuance in accordance with the terms of this Agreement, be fully
paid and nonassessable and free from all liens, charges and security interests
created by or imposed upon the Company with respect to the issuance thereof.
13. Registration of Rights and Shares.
---------------------------------
The Company has filed with the SEC a registration statement, on Form S-3
(the "Registration Statement") which has been or will be declared effective.
The Company will use its best efforts to keep the Registration Statement
continuously effective from the date hereof through the Close of Business ten
(10) business days following the Expiration Date. So long as any unexpired
Rights remain outstanding, the Company will take all necessary action to obtain
and keep effective any and all permits, consents and approvals of government
agencies and authorities and to make filings under federal and state securities
acts and laws, which may be or become necessary in connection with the issuance,
sale, transfer and delivery of the Subscription Certificates, the exercise of
the Rights and the issuance, sale, transfer and delivery of the Shares issued
upon exercise of Rights.
14. Adjustment of Subscription Price and Number of Shares Purchasable or
--------------------------------------------------------------------
Number of Rights.
----------------
(a) Except as provided in subsection (b) below, the Subscription
Price and the number of Shares purchasable upon the exercise of each Right shall
not be adjusted during the term of the Rights Offering or upon exercise of any
Right or Rights.
(b) If the Company shall (i) pay a dividend on its shares of Common
Stock in shares of Common Stock, (ii) subdivide its outstanding shares of Common
Stock, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock or (iv) reclassify the Common Stock (including
any such reclassification in connection with a consolidation or merger in which
the Company is the continuing corporation), the number of Shares purchasable
upon exercise of each Right immediately prior thereto shall be adjusted so that
the holder of each Right shall be entitled upon exercise to receive the kind and
number of Shares or other securities of the Company which such holder would have
owned or have been entitled to receive after the happening of any of the events
described above, had such Right been exercised immediately prior to the
happening of such event or any record date with respect thereto. An adjustment
made pursuant to this subparagraph (b) shall become effective immediately after
the effective date of such event retroactive to the record date, if any, for
such event. In addition, in the event of any reclassification of the Common
Stock, references in this Agreement to Common Stock shall thereafter be deemed
to refer to the securities into which the Common Stock shall have been
reclassified.
(c) In case of any consolidation of the Company with or merger of the
Company into another corporation or in case of any sale or conveyance to another
corporation
- 8 -
<PAGE>
of the property of the Company as an entirety or substantially as an entirety or
the Company is a party to a merger or binding share exchange which reclassifies
or changes its outstanding Common Stock, the Company or such successor or
purchasing corporation, as the case may be, shall execute with the Subscription
Agent an agreement, in form and substance substantially equivalent to this
Agreement, that each holder of a Subscription Certificate shall have the right
thereafter, subject to terms and conditions substantially equivalent to those
contained in this Agreement, upon payment of the Subscription Price in effect
immediately prior to such action to purchase upon exercise of each Right the
kind and amount of shares and other securities and property which such holder
would have owned or have been entitled to receive after the happening of such
consolidation, merger, sale or conveyance had such Right been exercised
immediately prior to such action. The Company shall mail by first-class mail,
postage prepaid, to each registered holder of a Right, notice of the execution
of any such agreement. Such agreement shall provide for adjustments, which shall
be as nearly equivalent as may be practicable to the adjustments provided for in
this Section 14. The provisions of this subparagraph (b) shall similarly apply
to successive consolidations, mergers, sales or conveyances. The Subscription
Agent shall be under no duty or responsibility to determine the correctness of
any provisions contained in any such agreement relating either to the kind or
amount of shares of stock or other securities or property receivable upon
exercise of Rights or with respect to the method employed and provided therein
for any adjustments and shall be entitled to rely upon the provisions contained
in any such agreement
15. Fractional Rights and Fractional Shares.
---------------------------------------
The Company shall issue 1.072 Rights for each share of Common Stock held by
a Record Holder on the Record Date. The Company shall not distribute fractional
Rights or Subscription Certificates that evidence fractional Rights. The number
of Rights to be distributed to each Record Holder will be rounded up or down to
the nearest whole number. Each Right will be exercisable for one share of
Common Stock.
16. Notices to Rightholders.
-----------------------
If:
(a) the Company shall declare any dividend payable in any securities
upon its shares of Common Stock or make any distribution (other than a cash
dividend declared in the ordinary course) to the holders of its shares of Common
Stock, or
(b) the Company shall offer to the holders of its shares of Common
Stock any additional shares of Common Stock or securities convertible or
exchangeable into shares of Common Stock or any right to subscribe for or
purchase Common Stock, or
(c) there shall be a dissolution, liquidation or winding up of the
Company (other than in connection with a consolidation, merger or sale of all or
substantially all of its property, assets and business as an entirety),
- 9 -
<PAGE>
then the Company shall (i) cause written notice of such event to be filed
with the Subscription Agent and shall cause written notice of such event to be
given to each of the registered holders of the Subscription Certificates at such
holder's address appearing on the Rights Register, by first-class mail, postage
prepaid, and (ii) make a public announcement in a daily morning English language
newspaper of general circulation in New York City, New York, of such event, such
giving of notice and publication to be completed at least ten (10) calendar days
(or twenty (20) calendar days in any case specified in clause (c) above) prior
to the date fixed as a record date or the date of closing the transfer books for
the determination of the stockholders entitled to such dividend, distribution or
subscription rights, or for the determination of stockholders entitled to vote
on such proposed dissolution, liquidation or winding up. Such notice shall
specify such record date or the date of closing the transfer books, as the case
may be. The failure to give the notice required by this Section 16 or any
defect therein shall not affect the legality or validity of any dividend,
distribution, right, option, warrant, dissolution, liquidation or winding up or
the vote upon or any other action taken in connection therewith.
17. Merger, Consolidation or Change of Name of Subscription Agent.
-------------------------------------------------------------
Any corporation into which the Subscription Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Subscription Agent
shall be a party, or any corporation succeeding to the shareholder services
business of the Subscription Agent, shall be the successor to the Subscription
Agent hereunder without the execution or filing of any paper or any further act
on the part of any of the parties hereto, provided that such corporation would
be eligible for appointment as a successor Subscription Agent under the
provisions of Section 19.
18. Subscription Agent.
------------------
The Subscription Agent undertakes the duties and obligations imposed by
this Agreement upon the following terms and conditions, by all of which the
Company and the holders of Subscription Certificates, by their acceptance
thereof, shall be bound:
(a) The Subscription Agent shall not be responsible for any failure
of the Company to comply with any of the covenants contained in this Agreement
or in the Subscription Certificates to be complied with by the Company nor shall
it at any time be under any duty or responsibility to any holder of a Right to
make or cause to be made any adjustment in the Subscription Price or in the
number of Shares issuable upon exercise of any Subscription (except as
instructed by the Company)
(b) The Company agrees to indemnify the Subscription Agent and save
it harmless against any and all losses, liabilities and expenses, including
judgments, costs and reasonable counsel fees and expenses, for anything done or
omitted by the Subscription Agent arising out of or in connection with this
Agreement except as a result of its gross negligence or bad faith.
- 10 -
<PAGE>
(c) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Subscription Agent for the carrying out or performing the provisions of
this Agreement.
(d) The Subscription Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from the
Chairman, the President, any Vice President, the Controller, the Treasurer or an
Assistant Treasurer, the Secretary or an Assistant Secretary of the Company, and
to apply to such officers for advice or instructions in connection with its
duties, and shall not be liable for any action taken or suffered to be taken by
it in good faith in accordance with instructions of any such officer or in good
faith reliance upon any statement signed by any one of such officers of the
Company with respect to any fact or matter (unless other evidence in respect
thereof is herein specifically prescribed) which may be deemed to be
conclusively proved and established by such signed statement.
19. Change of Subscription Agent.
----------------------------
If the Subscription Agent shall resign (such resignation to become
effective not earlier than sixty (60) days after the giving of written notice
thereof to the Company and the registered holders of Subscription Certificates)
or shall become incapable of acting as Subscription Agent or if the Board of
Directors of the Company shall by resolution remove the Subscription Agent (such
removal to become effective not earlier than thirty (30) days after the filing
of a certified copy of such resolution with the Subscription Agent and the
giving of written notice of such removal to the registered holders of
Subscription Certificates), the Company shall appoint a successor to the
Subscription Agent. If the Company shall fail to make such appointment within a
period of thirty (30) days after such removal or after it has been so notified
in writing of such resignation or incapacity by the Subscription Agent or by the
registered holder of a Subscription Certificate (in the case of incapacity),
then the registered holder of any Subscription Certificate may apply to any
court of competent jurisdiction for the appointment of a successor to the
Subscription Agent. Pending appointment of a successor to the Subscription
Agent, either by the Company or by such a court, the duties of the Subscription
Agent shall be carried out by the Company. Any successor Subscription Agent,
whether appointed by the Company or by such a court, shall be a bank or trust
company, in good standing, incorporated under the laws of any state or of the
United States of America. As soon as practicable after appointment of the
successor Subscription Agent, the Company shall cause written notice of the
change in the Subscription Agent to be given to each of the registered holders
of the Subscription Certificates at such holder's address appearing on the
Rights Register. After appointment, the successor Subscription Agent shall be
vested with the same powers, rights, duties and responsibilities as if it had
been originally named as Subscription Agent without further act or deed. The
former Subscription Agent shall deliver and transfer to the successor
Subscription Agent any property at the time held by it hereunder and execute and
deliver, at the expense of the Company, any further assurance, conveyance, act
or deed necessary for the purpose. Failure to give any notice provided for in
this Section 19 or any defect therein, shall not affect the legality or validity
of the removal of the Subscription Agent or the appointment of a successor
Subscription Agent, as the case may be.
- 11 -
<PAGE>
20. Rightholder Not Deemed a Stockholder.
------------------------------------
Nothing contained in this Agreement or in any of the Subscription
Certificates shall be construed as conferring upon the holders thereof the right
to vote or to receive dividends or to consent or to receive notice as
stockholders in respect of the meetings of stockholders or for the election of
directors of the Company or any other matter, or any rights whatsoever as
stockholders of the Company.
21. Delivery of Prospectus.
----------------------
If the Company is required under applicable federal or state securities
laws to deliver a prospectus upon exercise of Rights, the Company will furnish
to the Subscription Agent sufficient copies of a prospectus, and the
Subscription Agent agrees that upon the exercise of any Subscription Certificate
by the holder thereof, the Subscription Agent will deliver to such holder, prior
to or concurrently with the delivery of the certificate or certificates for the
Shares issued upon such exercise, a copy of the prospectus.
22. Notices to Company and Subscription Agent.
-----------------------------------------
Any notice or demand authorized by this Agreement to be given or made by
the Subscription Agent or by any registered holder of any Subscription
Certificate to or on the Company shall be sufficiently given or made if sent by
mail, first-class or registered, postage prepaid, addressed (until another
address is filed in writing by the Company with the Subscription Agent), as
follows:
The WMF Group, Ltd.
1593 Spring Hill Road, Suite 400
Vienna, Virginia 22182
Attention: Michael D. Ketcham
If the Company shall fail to maintain such office or agency or shall fail
to give such notice of any change in the location thereof, presentation may be
made and notices and demands may be served at the principal office of the
Subscription Agent.
Any notice pursuant to this Agreement to be given by the Company or by any
registered holder of any Subscription Certificate to the Subscription Agent
shall be sufficiently given if sent by first-class mail, postage prepaid,
addressed (until another address is filed in writing by the Subscription Agent
with the Company), as follows:
Boston EquiServe, L.P.
150 Royall Street
Boston, MA 02021
Attn: Eric Schwendenman
- 12 -
<PAGE>
The Subscription Agent maintains a Subscription Agent Office at 40 Campanelli
Drive, Braintree, MA, 02184.
23. Supplements and Amendments.
--------------------------
The Company and the Subscription Agent may from time to time supplement or
amend this Agreement without the approval of any holders of Subscription
Certificates in order to cure any ambiguity, manifest error or other mistake in
this Agreement, or to correct or supplement any provision contained herein that
may be defective or inconsistent with any other provision herein, or to make any
other provisions in regard to matters or questions arising hereunder that the
Company and the Subscription Agent may deem necessary or desirable and that
shall not adversely affect, alter or change the interests of the holders of the
Rights in any material respect.
Any supplement or amendment of this Agreement which may not be made by the
Company and the Subscription Agent without the approval of holders of
Subscription Certificates pursuant to the preceding paragraph shall require the
approval of the holders of Subscription Certificates entitled to purchase upon
exercise thereof a majority of the Shares which may be purchased upon the
exercise of all outstanding Subscription Certificates at the time that such
amendment or supplement is to be made. Notwithstanding the foregoing, any
amendment or supplement to this Agreement which would provide for an adjustment
to either (i) the number of Shares purchasable upon exercise of a Right or (ii)
the exercise price for which Shares are purchasable upon exercise of a Right, in
either case, in a manner not provided for in this agreement and in a manner that
would have a substantial negative impact on the holders of Subscription
Certificates, then such amendment or supplement shall require the consent of the
holders of all Subscription Certificates.
24. Successors.
----------
All the covenants and provisions of this Agreement by or for the benefit of
the Company or the Subscription Agent shall bind and inure to the benefit of
their respective successors and assigns hereunder.
25. Termination.
-----------
This Agreement shall terminate the Close of Business on the date which is
fifteen (15) OTC Bulletin Board trading days after the Expiration Date. Upon
termination of the Agreement, the Subscription Agent shall retain all canceled
Subscription Certificates and related documentation as required by applicable
law.
26. Governing Law.
-------------
This Agreement and each Subscription Certificate issued hereunder shall be
deemed to be a contract made under the laws of the Commonwealth of Massachusetts
and for all purposes shall be construed in accordance with the internal laws of
the Commonwealth of Massachusetts without regard to principles of conflict of
law or choice of laws of the Commonwealth of
- 13 -
<PAGE>
Massachusetts or any other jurisdiction which would cause the application of any
laws other than of the Commonwealth of Massachusetts.
27. Benefits of this Agreement.
--------------------------
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company, the Subscription Agent and the registered
holders of the Subscription Certificates any legal or equitable right, remedy or
claim under this Agreement, and this Agreement shall be for the sole and
exclusive benefit of the Company, the Subscription Agent and the registered
holders of the Subscription Certificates.
28. Counterparts.
------------
This Agreement may be executed in a number of counterparts and each of such
counterparts shall all for purposes be deemed to be an original, and such
counterparts shall together constitute but one and the same instrument.
29. Headings.
--------
The headings of sections of this Agreement have been inserted for
convenience of reference only, are not to be considered a part hereof and shall
in no way modify or restrict any of the terms or provisions hereof.
- 14 -
<PAGE>
IN WITNESS WHEREOF the parties hereto have caused this Rights Agreement to
be executed and delivered as of the day and year first above written.
THE WMF GROUP, LTD.
By: /s/ Michael D. Ketcham
------------------------------
Name: Michael D. Ketcham
Title: Chief Financial Officer and Treasurer
Attest:
/s/ Elizabeth Whitbred-Snyder
- -----------------------------
Elizabeth Whitbred-Snyder
Assistant Secretary
BANKBOSTON, N.A.
By: /s/ Barbara S. Cummings
------------------------------
Name: Barbara S. Cummings
Title: Administration Manager
Attest:
/s/ Erik Schwendenman
- ---------------------
- 15 -
<PAGE>
EXHIBIT 5
[LETTERHEAD OF HUNTON & WILLIAMS]
February 2, 1999
Board of Directors
The WMF Group, Ltd.
1593 Spring Hill Road, Suite 400
Vienna, Virginia 22182
Re: Registration Statement on Form S-3 Relating to WMF Rights Offering
-----------------------------------------------------------------------
Gentlemen:
We are acting as counsel for The WMF Group, Ltd. (the "Company") in connection
with the registration under the Securities Act of 1933 of 2,829,511 of its
Rights (the "Rights") and 2,829,511 shares of its Common Stock (the "Common
Stock"). The Rights will be issued as described in the Company's Registration
Statement on Form S-3 (File No. 333-70029, the "Registration Statement"), as
amended, filed with the Securities and Exchange Commission (the "Commission") on
February 2, 1999. The Common Stock may be issued, in whole or in part, by the
Company in connection with the exercise of the Rights. In connection with the
filing of the Registration Statement, you have requested our opinion concerning
certain corporate matters.
In rendering this opinion, we have relied upon, among other things, our
examination of such records of the Company and certificates of its officers and
of public officials as we have deemed necessary.
Based upon the foregoing and the further qualifications stated below, we are
of the opinion that:
1. The Company is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware.
2. The Rights have been duly authorized and are legally issued, fully paid
and nonassessable.
<PAGE>
3. The Common Stock has been duly authorized and, when the shares have been
issued upon exercise of the Rights as described in the Registration
Statement, will be legally issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement and to the references to us included
therein.
Very truly yours,
/s/ Hunton & Williams
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
The WMF Group, Ltd.
We consent to incorporation by reference in the registration statement on Form
S-3 of The WMF Group, Ltd. of our report dated March 13, 1998, relating to the
consolidated balance sheet of The WMF Group, Ltd. and subsidiaries as of
December 31, 1997, and the related consolidated statements of operations,
changes in stockholders' equity, and cash flows for the years ended December 31,
1997 and December 31, 1995, which report appears in the December 31, 1997 annual
report on Form 10-K of WMF Group Ltd., and to the reference to our firm under
the heading "Experts" in the prospectus.
KPMG LLP
Washington, DC
February 1, 1999
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Form S-3 of our report dated February 28, 1997 included in the
Form 10-K as of December 31, 1997. It should be noted that we have not audited
any financial statements of the company subsequent to December 31, 1996 or
performed any audit procedures subsequent to the date of our report.
ARTHUR ANDERSEN LLP
Washington, D.C.
February 1, 1999
<PAGE>
CONTROL No. _________ Number of Rights ___________
VOID IF NOT RECEIVED BY THE SUBSCRIPTION AGENT BEFORE 5:00 P.M.
EASTERN STANDARD TIME ON MARCH 8, 1999
THE WMF GROUP, LTD.
SUBSCRIPTION RIGHTS FOR COMMON STOCK
Dear Stockholder:
As the registered owner of this Subscription Certificate, you are the owner of
the number of Subscription Rights shown above. Each Right entitles you to
subscribe for one share of common stock, par value $.01 per share, of The WMF
Group, Ltd. (the "Basic Subscription Right"). You may subscribe for such
shares at the Subscription Price of $5.00 per share. If you subscribe for all
of the shares available pursuant to the Basic Subscription Right, you are also
entitled to purchase an unlimited number of additional shares at the
Subscription Price (subject to proration) (the "Oversubscription Privilege").
The other terms and conditions of these Subscription Rights are set forth in
the enclosed Prospectus.
You have been issued 1.072 Rights per share of common stock that you held on
February 1, 1999. You have not been issued fractional Rights, but instead your
number of Rights was rounded up or down to the nearest whole Right.
SAMPLE CALCULATION
OF BASIC SUBSCRIPTION RIGHT
<TABLE>
<S> <C>
Shares of Common Stock owned on February 1, 1999 100 X 1.072 = 107 New Shares
(Equals number of Rights issued)
(rounded up or down)
</TABLE>
THIS SUBSCRIPTION RIGHT IS TRANSFERABLE
The Rights are transferable. The Company expects that the Rights will be
listed for trading on the OTC Bulletin Board under the symbol "WMFGR."
You have four choices:
1. You can subscribe for all of the new shares listed at the top of the
page (the "Basic Subscription Right").
2. You can subscribe for more than the number of new shares listed
above (the "Oversubscription Privilege"). Shares may be available to
you subject to an allocation process as described in the Prospectus.
3. You can subscribe for less than the number of new shares listed
above and sell or transfer the rest of your Rights or allow them to
expire; or
4. If you do not want to purchase any additional shares, you can sell or
transfer all of your Rights or disregard this material.
TO SUBSCRIBE, FULL PAYMENT OF THE SUBSCRIPTION PRICE IS REQUIRED FOR EACH
SHARE OF COMMON STOCK. YOU MUST COMPLETE THE REVERSE SIDE OF THIS FORM TO
SUBSCRIBE FOR NEW SHARES OR TRANSFER YOUR RIGHTS.
ATTEST: THE WMF GROUP, LTD.
By: /s/ Barbara Ekstrom By: /s/ Shekar Narasimhan
___________________________ ___________________________
Barbara Ekstrom Shekar Narasimhan
Secretary President and Chief Executive Officer
Control No. _________
Account No. _________
No. of Rights: ______
CUSIP No.: 929289 11 4
<PAGE>
DELIVERY OPTIONS FOR SUBSCRIPTION CERTIFICATE
BY FIRST CLASS MAIL: BY REGISTERED OR OVERNIGHT DELIVERY:
Boston EquiServe, L.P. Boston EquiServe, L.P.
Corporate Reorganization Corporate Reorganization
P. O. Box 9573 40 Campanelli Drive
Boston, MA 02205-9573 Braintree, MA 02184
Delivery to an address other than one of the addresses listed above will not
constitute valid delivery.
Delivery by facsimile will not constitute valid delivery.
PLEASE PRINT ALL INFORMATION CLEARLY AND LEGIBLY
IF YOU WISH TO SUBSCRIBE FOR YOUR FULL BASIC SUBSCRIPTION RIGHT OR A PORTION
THEREOF:
I apply for shares X $5.00 = $
(No. of new shares) (Amount Enclosed)
IF YOU HAVE SUBSCRIBED FOR YOUR FULL BASIC SUBSCRIPTION RIGHT AND WISH TO
PURCHASE ADDITIONAL SHARES PURSUANT TO THE OVERSUBSCRIPTION PRIVILEGE:
I apply for shares X $5.00 = $
(No. of new shares) (Amount Enclosed)
TO SUBSCRIBE: I acknowledge that I TO TRANSFER RIGHTS: For value
have received the Prospectus for received, of the Rights
this offer and I hereby irrevocably represented by this Subscription
subscribe for the number of shares Certificate are assigned to:
indicated above on the terms and
conditions specified in the
Prospectus. I hereby agree that if
I fail to pay for the shares of
common stock for which I have
subscribed, the Company may
exercise its legal remedies against
me.
_____________________________________
(Print Full Name of Assignee)
_____________________________________
(Print Full Address)
_____________________________________
Signature(s) of Assignor(s)
IMPORTANT:
The Signature(s) must
correspond in every
particular, without
alteration, with the
name(s) as printed on the
reverse of this
Subscription Certificate.
____________________________________
____________________________________
Signature(s) of Subscriber(s)
Please give your telephone number:
Your Signature must be guaranteed
( ) by: (a) a commercial bank or
trust company, (b) a member firm
of a domestic stock exchange, or
(c) a credit union.
____________________________________
____________________________________
____________________________________ Signature Guaranteed: _______________
Address for delivery of shares if (Name of Bank or Firm)
other than shown on front.
By: _________________________________
YOU MUST HAVE YOUR SIGNATURE (Signature of Officer)
GUARANTEED IF YOU WISH TO HAVE YOUR
SHARES DELIVERED TO AN ADDRESS
OTHER THAN THAT SHOWN ON THE FRONT
OF THIS CERTIFICATE.
If permanent change of address,
check here [_]
FULL PAYMENT FOR THE SHARES MUST ACCOMPANY THIS FORM AND MUST BE MADE PAYABLE
IN UNITED STATES DOLLARS IN A CHECK OR BANK DRAFT DRAWN UPON A U.S. BANK OR
POSTAL, TELEGRAPHIC OR EXPRESS MONEY ORDER AND PAYABLE TO BOSTON EQUISERVE,
L.P., AS SUBSCRIPTION AGENT.
STOCK CERTIFICATES FOR THE SHARES SUBSCRIBED TO PURSUANT TO THE RIGHTS
OFFERING WILL BE DELIVERED AS SOON AS PRACTICABLE AFTER THE EXPIRATION DATE.
ANY REFUND IN CONNECTION WITH YOUR SUBSCRIPTION WILL BE DELIVERED AS SOON AS
PRACTICABLE THEREAFTER.
<PAGE>
INSTRUCTIONS FOR USE OF THE WMF GROUP, LTD.
SUBSCRIPTION CERTIFICATES
CONSULT D. F. KING & CO., INC. (INFORMATION AGENT), OR
YOUR BANK OR BROKER WITH QUESTIONS
The following instructions relate to a rights offering (the "Rights
Offering") by The WMF Group, Ltd., a Delaware corporation ("WMF"), to the
holders of its Common Stock, par value $.01 per share ("Common Stock"), as
described in WMF's Prospectus dated February _, 1999 (the "Prospectus").
Holders of record of Common Stock at the close of business on February 1, 1999
(the "Record Date") are receiving 1.072 transferable subscription rights (the
"Rights") for each share of Common Stock held by them as of the close of
business on the Record Date. An aggregate of 2,829,511 Rights exercisable to
purchase an aggregate of 2,829,511 shares (the "Rights Shares") of the Common
Stock of WMF are being distributed in connection with the Rights Offering. Each
Right is exercisable, upon payment of $5.00 in cash ("the Subscription Price"),
to purchase one share of Common Stock (the "Basic Subscription Privilege"). In
addition, subject to the allocation described below, each Right also carries
the right to subscribe at the Subscription Price for an unlimited number of
additional shares of Common Stock (the "Oversubscription Privilege"), up to a
total of 2,829,511 shares (subject to proration). See "The Rights Offering" in
the Prospectus.
No fractional Rights or cash in lieu thereof will be issued or paid. The
number of Rights issued to each shareholder will be rounded up or down to the
nearest full Right.
The Rights will expire at 5:00 p.m., Eastern Standard Time, on March 8,
1999, unless extended by WMF (as it may be extended, the "Expiration Date").
The Rights are expected to trade on the OTC Bulletin Board (the "OTC") under
the symbol "WMFGR" until close of business on the last OTC trading day
preceding the Expiration Date.
The number of Rights to which you are entitled is printed on the face of
your Subscription Certificate. You should indicate your wishes with regard to
the exercise or transfer of your Rights by completing the appropriate section
on the back of your Subscription Certificate and returning the Subscription
Certificate to the Subscription Agent in the envelope provided.
YOUR SUBSCRIPTION CERTIFICATES MUST BE RECEIVED BY THE SUBSCRIPTION AGENT,
OR GUARANTEED DELIVERY REQUIREMENTS WITH RESPECT TO YOUR SUBSCRIPTION
CERTIFICATES MUST BE COMPLIED WITH, ON OR BEFORE THE EXPIRATION DATE. PAYMENT
OF THE SUBSCRIPTION PRICE OF ALL RIGHTS EXERCISED, INCLUDING OVERSUBSCRIPTION
SHARES, INCLUDING FINAL CLEARANCE OF ANY CHECKS, MUST BE RECEIVED BY THE
SUBSCRIPTION AGENT ON OR BEFORE THE EXPIRATION DATE. ONCE A HOLDER OF RIGHTS
HAS EXERCISED THE BASIC SUBSCRIPTION PRIVILEGE AND/OR THE OVERSUBSCRIPTION
PRIVILEGE, SUCH EXERCISE MAY NOT BE REVOKED.
1.SUBSCRIPTION PRIVILEGES.
To exercise Rights, complete the back of the Subscription Certificate and
send your properly completed and executed Subscription Certificate, together
with payment in full of the Subscription
1
<PAGE>
Price for each share of Common Stock subscribed for pursuant to the Basic
Subscription Privilege and the Oversubscription Privilege, to the Subscription
Agent. Delivery of the Subscription Certificate must be made by mail or by
overnight delivery. FACSIMILE DELIVERY OF THE SUBSCRIPTION CERTIFICATE WILL NOT
CONSTITUTE VALID DELIVERY. All payments must be made in United States dollars
by (i) check or bank draft drawn upon United States bank or postal, telegraphic
or express money order payable to Boston EquiServe, L.P., as Subscription
Agent; or (ii) in the case of persons acquiring shares at an aggregate
Subscription Price of $500,000 or more, an alternative payment method arranged
with the Subscription Agent.
Acceptance of Payments.
Payments will be deemed to have been received by the Subscription Agent only
upon the (a) clearance of any uncertified check, (b) receipt by the
Subscription Agent of any certified check or bank draft drawn upon a United
States bank or postal, telegraphic or express money order or (c) receipt of
funds by the Subscription Agent through an agreed upon alternative payment
method. IF PAYING BY UNCERTIFIED PERSONAL CHECK, PLEASE NOTE THAT THE FUNDS
PAID THEREBY MAY TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR. ACCORDINGLY,
HOLDERS OF RIGHTS WHO WISH TO PAY THE SUBSCRIPTION PRICE BY MEANS OF
UNCERTIFIED PERSONAL CHECK ARE URGED TO MAKE PAYMENT SUFFICIENTLY IN ADVANCE OF
THE EXPIRATION DATE TO ENSURE THAT SUCH PAYMENT IS RECEIVED AND CLEARS BY SUCH
DATE. YOU ARE URGED TO CONSIDER PAYMENT BY MEANS OF CERTIFIED OR CASHIER'S
CHECK OR MONEY ORDER.
Exercise Through Bank or Broker; Procedures for Guaranteed Delivery.
You may also transfer your Subscription Certificate to your bank or broker
in accordance with the procedures specified in Instruction 3(a) below, make
arrangements for the delivery of funds on your behalf and request such bank or
broker to exercise the Rights represented by such Subscription Certificate on
your behalf. Alternatively, you may cause a written guarantee substantially in
the form available from the Subscription Agent (the "Notice of Guaranteed
Delivery") from a member firm of a registered national securities exchange or a
member of the National Association of Securities Dealers, Inc. or a commercial
bank or trust company having an office or correspondent in the United States,
to be received by the Subscription Agent on or prior to the Expiration Date
guaranteeing delivery of your properly completed and executed Subscription
Certificate within three OTC trading days following the date of the Notice of
Guaranteed Delivery. If this procedure is followed, your Subscription
Certificates must be received by the Subscription Agent within three OTC
trading days of the Notice of Guaranteed Delivery. Additional copies of the
Notice of Guaranteed Delivery may be obtained upon request from the
Subscription Agent at the address, or by calling the telephone number,
indicated below.
Banks, brokers and other nominee holders of Rights who exercise the Basic
Subscription Privilege and the Oversubscription Privilege on behalf of
beneficial owners of Rights will be required to certify to the Subscription
Agent and WMF as to the aggregate number of Rights that have been exercised,
and the number of shares of Common Stock that are being subscribed for pursuant
to the
2
<PAGE>
Oversubscription Privilege, by each beneficial owner of Rights (including such
nominee itself) on whose behalf such nominee holder is acting. In the event
such certification is not delivered in respect of a Subscription Certificate,
the Subscription Agent shall for all purposes (including for purposes of any
allocation in connection with the Oversubscription Privilege) be entitled to
assume that such certificate is exercised on behalf of a single beneficial
owner. If more shares are subscribed for pursuant to the Oversubscription
Privilege than are available for sale, shares will be allocated among
beneficial owners exercising the Oversubscription Privilege in proportion to
such owner's exercise of Rights pursuant to the Basic Subscription Privilege.
Contacting the Subscription Agent.
The address and telecopier numbers of the Subscription Agent are as follows:
If by First Class Mail: Registered or Overnight Delivery:
Boston EquiServe, L.P. Boston EquiServe, L.P.
Corporate Reorganization Corporate Reorganization
P.O. Box 9573 40 Campanelli Drive
Boston, Massachusetts 02205-9573 Braintree, MA 02184
Telephone: (781) 575-3400
Facsimile: (781) 794-6388
Partial Exercises; Effect of Over- and Underpayments.
If you exercise less than all of the Rights evidenced by your Subscription
Certificate, the Subscription Agent either (i) will issue to you a new
Subscription Certificate evidencing the unexercised Rights or (ii) if you so
indicate on your Subscription Certificate, will transfer the unexercised Rights
in accordance with your instructions. However, if you choose to have a new
Subscription Certificate sent to you or to a transferee, you or such transferee
may not receive any such new Subscription Certificate in sufficient time to
permit sale or exercise of the Rights evidenced thereby. If you have not
indicated the number of Rights being exercised, or if the dollar amount you
have forwarded is not sufficient to purchase (or exceeds the amount necessary
to purchase) the number of shares subscribed for, you will be deemed to have
exercised the Basic Subscription Privilege with respect to the maximum number
of whole Rights which may be exercised for the Subscription Price payment
delivered by you. To the extent that the Subscription Price payment delivered
by you exceeds the product of the Subscription Price multiplied by the number
of Rights evidenced by the Subscription Certificates delivered by you (such
excess being the "Subscription Excess"), you will be deemed to have exercised
your Oversubscription Privilege to purchase, to the extent available, that
number of whole shares of Common Stock equal to the quotient obtained by
dividing the Subscription Excess by the Subscription Price.
3
<PAGE>
2.DELIVERY OF STOCK CERTIFICATES, ETC.
The following deliveries and payments to you will be made to the address
shown on the face of your Subscription Certificate unless you provide
instructions to the contrary on the back of your Subscription Certificate.
(a) Basic Subscription Privilege. As soon as practicable after the valid
exercise of Rights and the Expiration Date, the Subscription Agent will
mail to each exercising Rights holder certificates representing shares
of Common Stock purchased pursuant to the Basic Subscription Privilege.
(b) Oversubscription Privilege. As soon as practicable after the Expiration
Date and after all prorations and adjustments contemplated by the terms
of the Rights Offering have been effected, the Subscription Agent will
mail to each Rights holder who validly exercises the Oversubscription
Privilege the number of shares allocated to such Rights holder pursuant
to the Oversubscription Privilege. See "The Rights Offering" in the
Prospectus.
(c) Excess Payments. As soon as practicable after the Expiration Date and
after all prorations and adjustments contemplated by the terms of the
Rights Offering have been effected, the Subscription Agent will mail to
each Rights holder who exercises the Oversubscription Privilege any
excess funds received (without interest or deduction) in payment of the
Subscription Price for shares that are subscribed for but not allocated
to such Rights holder pursuant to the Oversubscription Privilege.
3.TO SELL OR TRANSFER RIGHTS.
(a) Sale of Rights Through a Bank or Broker. To sell all Rights evidenced
by a Subscription Certificate through your bank or broker, sign the
Subscription Certificate under "To Transfer Rights," have your
signature guaranteed (as described in Instruction 3(b)) on your
Subscription Certificate and deliver your properly completed and
executed Subscription Certificate to your bank or broker. If your
Subscription Certificate is completed without designating a transferee,
the Subscription Agent may thereafter treat the bearer of the
Subscription Certificate as the absolute owner of all of the Rights
evidenced by such Subscription Certificate for all purposes, and the
Subscription Agent shall not be affected by any notice to the contrary.
Because your bank or broker cannot issue Subscription Certificates, if
you wish to sell less than all of the Rights evidenced by a
Subscription Certificate, either you or your bank or broker must
instruct the Subscription Agent as to the action to be taken with
respect to the Rights not sold, or you or your bank or broker must
first have your Subscription Certificate divided into Subscription
Certificates of appropriate denominations by following the procedures
set forth in Instruction 4 below. The Subscription Certificates
evidencing the number of Rights you intend to sell can then be
transferred by your bank or broker in accordance with the instructions
in this Instruction 3(a).
(b) Transfer of Rights to a Designated Transferee. To transfer all of your
Rights to a transferee other than a bank or broker, you must complete
your Subscription Certificate in its entirety, execute the Subscription
Certificate and have your signature guaranteed by an Eligible
4
<PAGE>
Guarantor Institution (as defined in Rule 17Ad-15 of the Securities
Exchange Act of 1934), subject to the standards and procedures adopted
by the Subscription Agent. A Subscription Certificate that has been
properly transferred in its entirety may be exercised by a new holder
without having a new Subscription Certificate issued. In order to
exercise, or otherwise take action with respect to, such a transferred
Subscription Certificate, the new holder should deliver the Subscription
Certificate, together with payment of the applicable Subscription Price
(with respect to the exercise of both the Basic Subscription Privilege
and the Oversubscription Privilege) and complete separate instructions
signed by the new holder, to the Subscription Agent in ample time to
permit the Subscription Agent to take the desired action. Because only
the Subscription Agent can issue Subscription Certificates, if you wish
to transfer less than all of the Rights evidenced by your Subscription
Certificate to a designated transferee, you must instruct the
Subscription Agent as to the action to be taken with respect to the
Rights not sold or transferred, or you must divide your Subscription
Certificate into Subscription Certificates of appropriate smaller
denominations by following the procedures set forth in Instruction 4
below. The Subscription Certificate evidencing the number of Rights you
intend to transfer can then be transferred by following the procedures
set forth in this Instruction 3(b).
4. TO HAVE A SUBSCRIPTION CERTIFICATE DIVIDED INTO SMALLER DENOMINATIONS.
To have a Subscription Certificate divided into smaller denominations, send
your Subscription Certificate, together with complete separate instructions
(including specification of the denominations into which you wish your Rights
to be divided) signed by you, to the Subscription Agent, allowing a sufficient
amount of time for the Subscription Certificates to be issued and returned so
that they can be used prior to the Expiration Date. Alternatively, you may ask
a bank or broker to effect such actions on your behalf. Your signature must be
guaranteed by an Eligible Guarantor Institution if any of the new Subscription
Certificates are to be issued in a name other than that in which the old
Subscription Certificate was issued. Subscription Certificates may not be
divided into fractional Rights, and any instruction to do so will be rejected.
As a result of delays in the mail, the time of the transmittal, the necessary
processing time and other factors, you or your transferee may not receive such
new Subscription Certificates in time to enable the Rights holder to complete
a sale or exercise by the Expiration Date. Neither WMF nor the Subscription
Agent will be liable to either a transferor or transferee for any such delays.
5. EXECUTION.
(a) Execution by Registered Holder. The signature on the Subscription
Certificate must correspond with the name of the registered holder
exactly as it appears on the face of the Subscription Certificate
without any alteration or change whatsoever. Persons who sign the
Subscription Certificate in a representative or other fiduciary
capacity must indicate their capacity when signing and, unless waived
by the Subscription Agent in its sole and absolute discretion, must
present to the Subscription Agent satisfactory evidence of their
authority so to act.
5
<PAGE>
(b) Execution by Person Other than Registered Holder. If the Subscription
Certificate is executed by a person other than the holder named on the
face of the Subscription Certificate, proper evidence of authority of
the person executing the Subscription Certificate must accompany the
same unless the Subscription Agent, in its discretion, dispenses with
proof of authority.
(c) Signature Guarantees. Your signature must be guaranteed by an Eligible
Guarantor Institution (A) if you wish to transfer your Rights, as
specified in Instruction 3(b) above, to a transferee other than a bank
or broker, (B) if you wish a new Subscription Certificate or
Certificates to be issued in a name other than that in which the old
Subscription Certificate was issued, as specified in Instruction 4
above, or (C) if you specify special payment or delivery instructions.
6.METHOD OF DELIVERY.
The method of delivery of Subscription Certificates and payment of the
Subscription Price to the Subscription Agent will be at the election and risk
of the Rights holder. If sent by mail, it is recommended that they be sent by
registered mail, properly insured, with return receipt requested, and that a
sufficient number of days be allowed to ensure delivery to the Subscription
Agent prior to the Expiration Date.
7. SPECIAL PROVISIONS RELATING TO THE DELIVERY OF RIGHTS THROUGH DEPOSITORY
FACILITY PARTICIPANTS.
In the case of holders of Rights that are held of record through The
Depository Trust Company ("DTC"), exercises of the Basic Subscription Privilege
and the Oversubscription Privilege may be effected by instructing DTC to
transfer Rights (such Rights, "Depository Rights") from the DTC account of such
holder to the DTC account of the Subscription Agent, together with payment of
the Subscription Price for each share of Common Stock subscribed for pursuant
to the Basic Subscription Privilege and the Oversubscription Privilege.
6
<PAGE>
Form of Notice of Guaranteed Delivery
for
Subscription Certificates
issued by
The WMF Group, Ltd.
This form, or one substantially equivalent hereto, must be used to exercise
Rights pursuant to the Rights Offering described in the Prospectus dated
February , 1999 (the "Prospectus"), of The WMF Group, Ltd., a Delaware
corporation (the "Company"), if a holder of Rights cannot deliver the
Subscription Certificate(s) evidencing the Rights (the "Subscription
Certificate(s)"), to the Subscription Agent listed below (the "Subscription
Agent") at or prior to 5:00 p.m., Eastern Standard Time, on March 8, 1999,
unless extended (the "Expiration Date"). Such form must be sent by facsimile
transmission or mail to the Subscription Agent, and must be received by the
Subscription Agent on or prior to the Expiration Date. See "The Rights
Offering -Guaranteed Delivery Procedures" in the Prospectus. Payment of the
Subscription Price of $5.00 per share for each share of Common Stock
subscribed for upon exercise of such Rights must be received by the
Subscription Agent in the manner specified in the Prospectus at or prior to
5:00 p.m., Eastern Standard Time, on the Expiration Date, even if the
Subscription Certificate evidencing such Rights is being delivered pursuant to
the procedure for guaranteed delivery thereof. The Subscription Certificate
evidencing such Rights must be received by the Subscription Agent within three
(3) OTC trading days after the Expiration Date.
The Subscription Agent address is:
By First Class Mail: By Overnight or Registered Delivery:
Boston EquiServe, L.P. Boston EquiServe, L.P.
Corporate Reorganization Corporate Reorganization
P. O. Box 9573 40 Campanelli Drive
Boston, Massachusetts 02205-9573 Braintree, MA 02184
Telephone:
(781) 575-3400
Facsimile:
(781) 794-6388
----------------
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE OTHER THAN AS SET FORTH ABOVE
DOES NOT CONSTITUTE A VALID DELIVERY.
Ladies and Gentlemen:
The Undersigned hereby represents that he or she is the holder of
Subscription Certificate(s) representing Rights issued by The WMF Group,
Ltd. and that such Subscription Certificate(s) cannot be delivered to the
Subscription Agent at or before 5:00 p.m., Eastern Standard Time, on the
Expiration Date. Upon the terms and subject to the conditions set forth in the
Prospectus, receipt of which is hereby acknowledged, the undersigned hereby
elects to exercise the Subscription Privilege to subscribe for one share of
Common Stock per Right with respect to each of the number of Rights
represented by such Subscription Certificate and shares set forth below
pursuant to the Oversubscription Privilege described in the Prospectus:
No. of Rights exercised
(shares subscribed for): -------------------
No. of Shares subscribed for
pursuant to Oversubscription Privilege: -------------------
TOTAL: -------------------
X $5.00
TOTAL PAYMENT DUE: -------------------
<PAGE>
The undersigned understands that payment of the Subscription Price of $5.00
per share for each Common Share subscribed pursuant to the Basic Subscription
Privilege and the Oversubscription Privilege must be received by the
Subscription Agent at or before 5:00 p.m., Eastern Standard Time, on the
Expiration Date and represents that such payment, in the aggregate amount set
forth above, either (check appropriate box):
[_]is being delivered to the Subscription Agent herewith; or
[_]has been delivered separately to the Subscription Agent;
and is or was delivered in the manner set forth below (check appropriate box
and complete information relating thereto):
[_]uncertified check (NOTE: Payment by uncertified check will not be deemed
to have been received by the Subscription Agent until such check has
cleared. Holders paying by such means are urged to make payment
sufficiently in advance of the Expiration Date to ensure that such
payment clears by such date).
[_]certified check
[_]bank draft (cashier's check)
[_]postal, telegraphic or money order
If by certified check, bank draft or money order, please provide the
following information:
name of maker __________________________________________________________
date of check, draft or money order ____________________________________
bank on which check is drawn or issuer of money order __________________
SIGNATURE(S) ____________________ ADDRESS:
NAME(S) _________________________ ---------------------------------
--------------------------------- ---------------------------------
PLEASE TYPE OR PRINT
SUBSCRIPTION CERTIFICATE NO(S). AREA CODE AND TELEPHONE NUMBER(S)
(If available)
---------------------------------
2
<PAGE>
[WMF LOGO APPEARS HERE]
1593 Spring Hill Road, Suite 400
Vienna, Virginia 22182
February _, 1999
Dear Shareholder:
Enclosed are the Prospectus and other materials relating to the rights
offering by The WMF Group, Ltd. ("WMF").
Please carefully review the Prospectus, which describes how you can
participate in the rights offering. You will be able to either exercise your
rights to purchase additional shares or sell your rights only during a limited
period.
You will find answers to some frequently asked questions about the rights
offering beginning on page 3 of the Prospectus. You should also refer to the
detailed Instructions for Use of Subscription Certificates, included with this
letter.
The exercise of rights will be irrevocable. The Company expects to announce
its operating results for the fourth quarter of 1998 and the full year shortly
after the date of the Prospectus. You may wish to wait until after that
announcement to determine whether to exercise or transfer your rights.
SUMMARY OF THE TERMS OF THE OFFERING
. You will receive 1.072 transferable rights for each share of WMF common
stock you owned on February 1, 1999. You will not receive fractional
rights, but the Company will round your number of rights up or down to
the nearest whole number. For example, if you own 100 shares of common
stock, you will receive 107 rights. If you own 50 shares of common
stock, you will receive 54 rights.
. You may purchase one share of common stock for each right you receive at
the Subscription Price of $5.00 per share.
. If you fully exercise the rights issued to you, you may subscribe for
additional shares through the Oversubscription Privilege. If rights
holders subscribe to purchase more than a total of 2,829,511 shares,
shares purchased through the Oversubscription Privilege will be
allocated, based upon the number of shares each holder subscribed for
pursuant to the Basic Subscription Privilege, as more fully described in
the Prospectus.
. The rights offering expires at 5:00 p.m., Eastern Standard Time, on
March 8, 1999. If you do not exercise or transfer your rights before
that date, they will expire and will have no monetary value.
If your shares are held in your name, a Subscription Certificate is
enclosed. If your shares are held in the name of your bank or broker, you must
contact your bank or broker if you wish to participate in this offering.
The Company expects that the rights will trade on the OTC Bulletin Board
under the symbol "WMFGR." You should contact your bank or broker if you wish
to sell your rights.
If you do not exercise your rights, your ownership in WMF may be diluted.
Please see page 10 of the Prospectus for a discussion of dilution and other
risk factors.
Sincerely,
[SIGNATURE APPEARS HERE]
Shekar Narasimhan
President and Chief Executive
Officer
If you have any questions concerning the rights offering, please feel free
to contact the Company's information agent, D.F. King & Co., Inc. at 1-800-
207-2872.
<PAGE>
[WMF LOGO APPEARS HERE]
1593 Spring Hill Road, Suite 400
Vienna, Virginia 22182
February _, 1999
To:Securities Dealers, Commercial Banks,
Trust Companies, and Other Nominees
This letter is being distributed to securities dealers, commercial banks,
trust companies and other nominees in connection with the offering by The WMF
Group, Ltd. ("WMF" or "the Company") of an aggregate of approximately
2,829,511 shares of Common Stock, par value $.01 per share ("Common Stock") of
WMF, at a subscription price of $5.00 per share of Common Stock ("Subscription
Price"), pursuant to the exercise of transferable rights initially distributed
on February _, 1999, to all holders of record of shares of WMF's Common Stock
as of the close of business on February 1, 1999 (the "Record Date"). Each
right also carries the right to oversubscribe at the Subscription Price for an
unlimited number of additional shares of Common Stock (up to a total of
2,829,511 shares). The rights are described in the enclosed Prospectus and
evidenced by a Subscription Certificate registered in your name or in the name
of your nominee.
Each beneficial owner of shares of Common Stock registered in your name or
the name of your nominee is entitled to 1.072 rights for each share of Common
Stock owned by such beneficial owner. Shareholders will not receive fractional
rights, but instead rights will be rounded up or down to the nearest full
right.
We are asking you to contact your clients for whom you hold shares of Common
Stock registered in your or in the name of your nominee to obtain instructions
with respect to the rights.
Enclosed are copies of the following documents:
1. Prospectus;
2. A letter from WMF to its shareholders;
3. Instructions for Use of The WMF Group, Ltd. Subscription Certificates;
4. A form of Notice of Guaranteed Delivery for Subscription Certificates
issued by WMF; and
5. A return envelope addressed to Boston EquiServe, L.P., as Subscription
Agent.
Your prompt action is requested. The rights will expire at 5:00 P.M.,
Eastern Standard Time, on March 8, 1999, unless extended by WMF (as it may be
extended, the "Expiration Date").
To exercise rights, properly completed and executed Subscription
Certificates and payment in full for all rights exercised must be delivered to
the Subscription Agent as indicated in the Prospectus prior to the Expiration
Date, unless the guaranteed delivery procedures described in the Prospectus
are followed.
Additional copies of the enclosed materials may be obtained by contacting
the Company's Information Agent, D. F. King & Co., Inc. at 77 Water Street,
New York, NY, 10005, (800) 207-2872.
Sincerely,
[SIGNATURE APPEARS HERE]
Shekar Narasimhan
President and Chief Executive
Officer
