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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14D-9
Solicitation/Recommendation Statement
Pursuant to Section 14(d)(4) of
the Securities Exchange Act of 1934
Amendment No. 1
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THE WMF GROUP, LTD.
(Name of Subject Company)
THE WMF GROUP, LTD.
(Name of Person Filing Statement)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of Class of Securities)
000929289
(CUSIP Number of Class of Securities)
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Shekar Narasimhan
Chairman of the Board and Chief Executive Officer
The WMF Group, Ltd.
1593 Spring Hill Road, Suite 400
Vienna, Virginia 22182
(703) 610-1400
(Name, address and telephone number of person authorized to
receive notices and communications on behalf of
the person filing statement)
With a copy to:
Randall S. Parks, Esq. Jane D. Goldstein, Esq.
Hunton & Williams Ropes & Gray
951 East Byrd Street One International Place
Riverfront Plaza, East Tower Boston, Massachusetts 02110-2624
Richmond, Virginia 23219-4074 (617) 951-7000
(804) 788-8200
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Item 1. Subject Company Information
The name of the subject company is The WMF Group, Ltd., a Delaware
corporation. The address of the principal executive offices of WMF is 1593
Spring Hill Road, Suite 400, Vienna, Virginia 22182. The telephone number of
the executive offices of WMF is (703) 610-1400. The title of the class of
equity securities to which this Statement relates is common stock, par value
$.01 per share, of WMF (the "WMF Common Stock" or the "Shares"). On May 10,
2000, there were 10,958,302 shares of WMF Common Stock outstanding.
Item 2. Identity and Background of Filing Person
This Schedule 14D-9 is being filed by the subject company identified above
and relates to the tender offer by Prudential Mortgage Capital Acquisition
Corp. ("Purchaser"), a Delaware corporation and a wholly owned subsidiary of
Prudential Mortgage Capital Company, LLC, a Delaware limited liability company
("Prudential Mortgage"), disclosed in a Tender Offer Statement on Schedule TO
(the "Schedule TO") dated May 23, 2000, offering to purchase all of the
outstanding Shares at a price of $8.90 per Share, net to the seller in cash
(the "Offer Consideration"), upon the terms and subject to the conditions set
forth in the Offer to Purchase dated May 23, 2000 (the "Offer to Purchase")
and the related Letter of Transmittal (which, together with the Offer to
Purchase, constitute the "Offer").
The Offer is being made pursuant to an Agreement and Plan of Merger dated as
of May 10, 2000 (the "Merger Agreement") by and among Purchaser, Prudential
Mortgage and WMF. The Merger Agreement provides, among other things, that
following satisfaction or waiver of the conditions set forth in the Merger
Agreement, Purchaser will be merged with and into WMF (the "Merger"), the
separate corporate existence of Purchaser will cease, and WMF will continue as
the surviving corporation and a direct wholly owned subsidiary of Prudential
Mortgage. A copy of the Merger Agreement is filed as Exhibit C to this
Statement and is incorporated herein by reference.
As set forth in the Schedule TO, the principal executive offices of
Prudential Mortgage and Purchaser are located at Four Gateway Center, Newark,
New Jersey 07102-4069.
Item 3. Past Contacts, Transactions, Negotiations and Agreements
Certain contracts, agreements, arrangements or understandings between WMF or
its affiliates and certain of its directors and executive officers are, except
as noted below, described in the Information Statement pursuant to Section
14(f) of the Securities Exchange Act of 1934, as amended, and Rule 14f-1
thereunder (the "Information Statement"), which is attached as Schedule I to
this Statement and is incorporated herein by this reference. Except as set
forth in this Item 3 or in Schedule I attached hereto or as incorporated by
reference herein, to the knowledge of WMF, there are no material contracts,
agreements, arrangements or understandings and no actual or potential
conflicts of interest between WMF or its affiliates and (i) WMF, its executive
officers, directors or affiliates or (ii) Prudential Mortgage or Purchaser or
their respective executive officers, directors or affiliates.
The Merger Agreement
WMF, Prudential Mortgage and Purchaser have entered into the Merger
Agreement. A summary of the terms of the Offer and Merger Agreement is
incorporated herein by this reference to the Introduction, Section 1 and
Section 12 of Purchaser's Offer to Purchase, filed herewith as Exhibit A to
this Statement. The summary is qualified in its entirety by reference to the
Merger Agreement, a copy of which is filed as Exhibit C to this Statement.
Understanding Relating to Mortgage Brokerage Unit
According to a joint press release issued by WMF and Prudential Mortgage on
May 10, 2000, Prudential Mortgage expects to work with the current management
of WMF's commercial mortgage brokerage unit to
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determine the best way to divest Prudential Mortgage of that unit while
maintaining an ongoing strategic relationship.
The Stockholders Agreement
Capricorn Investors II, L.P., Capricorn Holdings, Inc., Demeter Holdings
Corporation, Phemus Corporation, Commonwealth Overseas Trading Company
Limited, Mohammed A. Al-Tuwaijri, J. Roderick Heller, III, John D. Reilly and
Shekar Narasimhan have entered into a Stockholders Agreement dated as of May
10, 2000 with Prudential Mortgage. Messrs. Al-Tuwaijri, Heller, Reilly and
Narasimhan are directors of WMF. Mr. Narasimhan is Chairman of the Board and
Chief Executive Officer of WMF. Herbert S. Winokur, a director of WMF,
controls the general partner of Capricorn Investors II, L.P. and is the
majority shareholder of Capricorn Holdings, Inc. Michael Eisenson and Tim
Palmer, directors of WMF, are also Managing Directors of Charlesbank Capital
Partners, LLC, which is the investment advisor to Demeter Holdings Corporation
and Phemus Corporation. Messrs. Al-Tuwaijri and Narasimhan own all of the
outstanding voting securities of Commonwealth Overseas Trading Company
Limited.
A summary of the terms of the Stockholders Agreement is incorporated herein
by this reference to Section 12 of Purchaser's Offer to Purchase, filed
herewith as Exhibit A to this Statement. The summary is qualified in its
entirety by reference to the Stockholders Agreement, a copy of which is filed
as Exhibit D to this Statement.
Employment Agreements
Mr. Narasimhan and Charles H. Cremens, the President, Chief Operating
Officer and director of WMF, have entered into employment agreements with WMF
and Prudential Mortgage. A summary of the terms of the Employment Agreements
is incorporated herein by this reference to Section 12 of Purchaser's Offer to
Purchase, filed herewith as Exhibit A to this Statement. The summary is
qualified in its entirety by reference to the Employment Agreements, copies of
which are filed as Exhibits E and F to this Statement.
Other Compensation Arrangements
At the Effective Time (as that term is defined in the Merger Agreement), the
following executive officers of WMF will receive bonuses as consideration for
their services to WMF:
<TABLE>
<S> <C>
Mr. Narasimhan................................................... $810,000
Mr. Cremens...................................................... $640,000
Elizabeth Whitbred-Snyder........................................ $195,000
Chief Financial Officer
</TABLE>
Item 4. The Solicitation or Recommendation
(a) Recommendation of the Board of Directors
On May 9, 2000, the Board of Directors of WMF unanimously approved the
Merger Agreement and the transactions contemplated thereby, including the
Offer and the Merger, and determined that the Offer and the Merger are
advisable, fair to, and in the best interests of, WMF and its stockholders.
This recommendation is based in part on an opinion of Credit Suisse First
Boston Corporation ("CSFB") to the effect that, as of such date, the
consideration to be received by WMF's stockholders in the Offer and the Merger
is fair to the stockholders from a financial point of view. This opinion was
confirmed by a written opinion by CSFB dated May 10, 2000 (the "Fairness
Opinion"). The Fairness Opinion contains a description of the procedures
followed, matters considered, assumptions made and limitations on the review
undertaken by CSFB in rendering its opinion. The full text of the Fairness
Opinion is attached as Exhibit H to this Schedule 14D-9 and is incorporated
herein by reference. Stockholders are urged to read the Fairness Opinion in
its entirety. CSFB has consented to the inclusion of the Fairness Opinion as
an exhibit hereto.
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(b) Reasons for the Recommendation of WMF's Board of Directors
A description of the Background of the Merger is incorporated herein by this
reference to Section 11 of the Offer to Purchase.
In making its recommendation and in approving the Merger Agreement and the
transactions contemplated thereby, the Board of Directors of WMF considered a
number of factors, including, but not limited to, the following:
(1) the terms and conditions of the Merger Agreement, including the
parties' representations, warranties and covenants, the conditions to their
respective obligations, the limited ability of Prudential Mortgage to
terminate the Offer or the Merger Agreement and the provision for payment
of all cash with no financing condition;
(2) the financial condition, results of operations, cash flows and
prospects of WMF;
(3) the prospects of WMF if WMF were to remain independent and the risks
inherent in remaining independent, including competitive risks;
(4) the extensive arms-length negotiations between WMF and Prudential
Mortgage that resulted in the $8.90 per share price;
(5) the history of WMF's discussions with Prudential Mortgage and other
parties;
(6) that the Offer and the Merger provide for a prompt cash tender offer
for all outstanding shares of WMF Common Stock to be followed by a merger
for the same consideration, thereby enabling WMF's stockholders to obtain
the benefits of the transaction in exchange for their shares of WMF Common
Stock at the earliest possible time;
(7) the current status of the industries in which WMF competes and the
resources available to WMF's competitors;
(8) the recent trading price of WMF Common Stock and that the $8.90 per
share to be paid in the Offer and the Merger represents a premium of
approximately 60% over the $5.50 closing sale price for the WMF Common
Stock on The Nasdaq Stock Market shortly before the Merger Agreement was
executed;
(9) WMF's determination that the likelihood that an unconditional
superior offer could be found was insufficient to justify the risk of delay
in proceeding with the favorable transaction with Prudential Mortgage;
(10) the presentations of CSFB made to the WMF Board at the May 9, 2000
Board meeting and the fairness opinion of CSFB delivered to the Board to
the effect that, as of such date and based upon and subject to certain
matters, the cash consideration of $8.90 per share to be received by
holders of shares of WMF Common Stock in the Offer and the Merger was fair,
from a financial point of view, to such holders;
(11) the Merger Agreement permits the WMF Board, in order to comply with
its fiduciary duties, to furnish information and enter into discussions and
negotiations, in connection with an unsolicited acquisition proposal that
is reasonably likely to result in a superior proposal and to withdraw its
recommendation of the Merger in favor of a superior unsolicited acquisition
proposal;
(12) the Merger Agreement permits the WMF Board, in the exercise of its
fiduciary duties, to terminate the Merger Agreement in favor of a superior
acquisition proposal, provided, that following such termination, WMF must
pay Prudential Mortgage a fee of $3,075,000, and the expenses of Prudential
Mortgage incurred in connection with the Offer and Merger; and
(13) the business reputation of Prudential Mortgage, its affiliates and
their management, and the financial strength of Prudential Mortgage and its
affiliates, including its ability to finance the Offer.
The WMF Board of Directors did not assign relative weights to the above
factors or determine that any factor was of particular importance. Rather, the
WMF Board viewed its position and recommendations as being based on the
totality of the information presented to and considered by it. In addition, it
is possible that different members of the Board assigned different weights to
the factors.
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(c) Intent to Tender
Capricorn Investors II, L.P., Capricorn Holdings, Inc., Demeter Holdings
Corporation, Phemus Corporation, Commonwealth Overseas Trading Company
Limited, Mohammed A. Al-Tuwaijri, J. Roderick Heller, III, John D. Reilly and
Shekar Narasimhan (the "Selling Stockholders") have entered into a
Stockholders Agreement dated as of May 10, 2000 with Prudential Mortgage,
pursuant to which, among other things, the Selling Stockholders have agreed to
tender their Shares in the Offer. Messrs. Al-Tuwaijri, Heller, Reilly and
Narasimhan are directors of WMF. Mr. Narasimhan is Chairman of the Board and
Chief Executive Officer of WMF. Herbert S. Winokur, a director of WMF,
controls the general partner of Capricorn Investors II, L.P. and is the
majority shareholder of Capricorn Holdings, Inc. Michael Eisenson and Tim
Palmer, directors of WMF, are also Managing Directors of Charlesbank Capital
Partners, LLC, which is the investment advisor to Demeter Holdings Corporation
and Phemus Corporation. Messrs. Al-Tuwaijri and Narasimhan own all of the
outstanding voting securities of Commonwealth Overseas Trading Company
Limited.
A summary of the terms of the Stockholders Agreement is incorporated herein
by this reference to Section 12 of Purchaser's Offer to Purchase, filed
herewith as Exhibit A to this Statement. The summary is qualified in its
entirety by reference to the Stockholders Agreement, a copy of which is filed
as Exhibit D to this Statement.
After reasonable inquiry, WMF believes that its executive officers will
tender their shares in the Offer.
Item 5. Persons Retained, Employed, Compensated or Used
Pursuant to an engagement letter dated June 17, 1999, between WMF and CSFB,
WMF retained CSFB to act as its exclusive financial advisor with respect to
identifying a potential strategic or sale transaction involving WMF and a
third party. As compensation for CSFB's services in connection with the Offer
and Merger, WMF agreed to pay CSFB (i) a financial advisory fee equal to
$50,000, payable upon execution of the engagement letter, which was credited
against the transaction fee described in the following paragraph, (ii)
warrants for 150,000 Shares with an exercise price equal to the greater of
$7.00 per share or the average closing price of WMF Common Stock for the 30
days prior to the issuance of the warrants, which warrants fully accrued to
CSFB upon the signing of the Merger Agreement and (iii) a transaction fee, to
be negotiated subsequently in connection with a proposed sale transaction.
Pursuant to an engagement letter dated March 6, 2000, WMF engaged CSFB to
act as its exclusive financial advisor with respect to a potential sale of WMF
to The Prudential Insurance Company of America. As compensation for CSFB's
services, WMF agreed to pay CSFB a transaction fee of $1.9 million. WMF agreed
to reimburse CSFB for its out-of-pocket expenses resulting from or arising out
of the engagement, and to indemnify CSFB, its directors, officers, agents and
employees and each person, if any, controlling CSFB against certain
liabilities and expenses, including certain liabilities under the federal
securities laws, arising out of CSFB's engagement.
Except as disclosed herein, neither WMF nor any person acting on its behalf
has employed, retained or agreed to compensate any person to make
solicitations or recommendations to the stockholders concerning the Offer or
the Merger.
Item 6. Interest in Securities of the Subject Company
During the past 60 days, no transactions in Shares have been effected by WMF
or, to the best of WMF's knowledge, by any of its executive officers,
directors, affiliates or subsidiaries, except that the individuals and
entities named in Item 4(c) hereto have entered into a Stockholders Agreement.
A summary of the terms of the Stockholders Agreement is incorporated herein by
this reference to Section 12 of Purchaser's Offer to Purchase, filed herewith
as Exhibit A to this Statement. The summary is qualified in its entirety by
reference to the Stockholders Agreement, a copy of which is filed as Exhibit D
to this Statement.
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Item 7. Purposes of the Transaction and Plans or Proposals
(a) Except as set forth in this Statement, WMF is not engaged in any
negotiation in response to the Offer that relates to or would result in (i) a
tender offer or other acquisition of WMF securities by WMF, any of its
subsidiaries or any other person, (ii) an extraordinary transaction, such as a
merger reorganization or liquidation, involving WMF or any subsidiary of WMF,
(iii) a purchase, sale or transfer of a material amount of assets of WMF or
any subsidiary of WMF, or (iv) any material change in the present dividend
policy, indebtedness or capitalization of WMF.
(b) Except as described in Items 3 and 4 above (the provisions of which are
hereby incorporated by reference), there are no transactions, Board of
Directors resolutions, agreements in principle, or signed contracts entered
into in response to the Offer that relate to or would result in one or more of
the events referred to in Item 7(a) above.
Item 8. Additional Information
Not applicable.
Item 9. Exhibits
<TABLE>
<C> <S>
Schedule I Schedule 14f-1*
Exhibit A Form of Offer to Purchase, dated as of May 23, 2000
(incorporated by reference to Exhibit (a)(1)(A) to Prudential
Mortgage and Purchaser's Tender Offer Statement on Schedule TO
dated May 23, 2000, as amended (the "Schedule TO")).*
Exhibit B Form of Letter of Transmittal (incorporated by reference to
Exhibit (a)(1)(B) to the Schedule TO).*
Exhibit C Agreement and Plan of Merger dated as of May 10, 2000 by and
among Prudential Mortgage, Purchaser and WMF (incorporated by
reference to Exhibit (d)(1)(A) to the Schedule TO).*
Exhibit D Stockholders Agreement, dated as of May 10, 2000, among
Prudential Mortgage and certain entities, individuals, officers
and directors of WMF named therein (incorporated by reference
to Exhibit (d)(1)(B) to the Schedule TO).*
Exhibit E Employment Agreement by and between WMF and Shekar Narasimhan
dated as of May 10, 2000 (incorporated by reference to Exhibit
(d)(1)(C) to the Schedule TO).*
Exhibit F Employment Agreement by and between WMF and Charles H. Cremens
dated as of May 10, 2000 (incorporated by reference to Exhibit
(d)(1)(D) to the Schedule TO).*
Exhibit G Letter to Shareholders, dated May 23, 2000.*
Exhibit H Fairness Opinion of Credit Suisse First Boston Corporation
dated May 10, 2000.*
Exhibit I Joint Press Release issued by Prudential Mortgage and WMF on
May 10, 2000 (incorporated by reference to Schedule 14D-9 filed
by WMF on May 10, 2000).
</TABLE>
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* Included in copies mailed to the shareholders.
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this Statement is true, complete and correct.
THE WMF GROUP, LTD.
/s/ Shekar Narasimhan
By:__________________________________
Name: Shekar Narasimhan
Title: Chairman of the Board and
Chief Executive Officer
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SCHEDULE I
THE WMF GROUP, LTD.
1593 SPRING HILL ROAD, SUITE 400
VIENNA, VIRGINIA 22182
INFORMATION STATEMENT PURSUANT TO SECTION 14(f) OF THE
SECURITIES EXCHANGE ACT OF 1934 AND RULE 14f-1 THEREUNDER
General
This Information Statement is being mailed on or about May 23, 2000 as part
of the Solicitation/ Recommendation Statement on Schedule 14D-9 (the "Schedule
14D-9") of The WMF Group, Ltd., a Delaware corporation, to the holders of
record of shares of common stock, $.01 par value per share, of WMF (the
"Shares" or the "WMF Common Stock"). You are receiving this Information
Statement in connection with the possible election of persons designated by
Prudential Mortgage (as defined below) to a majority of the seats on the Board
of Directors of WMF (the "WMF Board"). As of May 10, 2000, there were
10,958,302 shares of WMF Common Stock outstanding.
On May 10, 2000, WMF, Prudential Mortgage Capital Company, LLC, a Delaware
limited liability company, and Prudential Mortgage Capital Acquisition Corp.,
a Delaware corporation and a wholly owned subsidiary of Prudential Mortgage
("Purchaser"), entered into an Agreement and Plan of Merger (the "Merger
Agreement"), pursuant to which (i) Prudential Mortgage shall cause Purchaser
to commence a tender offer (the "Offer") for all outstanding Shares at a price
of $8.90 per Share, net to the seller in cash, and (ii) Purchaser shall be
merged with and into WMF (the "Merger"). As a result of the Offer and the
Merger, WMF will become a wholly owned subsidiary of Prudential Mortgage.
The Merger Agreement provides that, promptly after the purchase of Shares
pursuant to the Offer, Purchaser shall be entitled to designate such number of
directors (the "Purchaser Designees") to the WMF Board as will give Purchaser
representation proportionate to its ownership interest, subject to certain
conditions. The Merger Agreement requires WMF to take such action as Purchaser
may request to cause the Purchaser Designees to be elected to the WMF Board
under the circumstances described therein. This Information Statement is
required by Section 14(f) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and Rule 14f-1 thereunder.
You are urged to read this Information Statement carefully. You are not,
however, required to take any action. Capitalized terms used and not otherwise
defined shall have the meaning set forth in the Schedule 14D-9.
The information contained in this Information Statement concerning
Prudential Mortgage and Purchaser has been furnished to WMF by Prudential
Mortgage. WMF assumes no responsibility for the accuracy or completeness of
such information.
Right To Designate Directors; Purchaser Designees
The Merger Agreement provides that promptly upon the purchase of and payment
for Shares by the Purchaser pursuant to the Offer, Purchaser shall be entitled
to designate up to such number of directors, rounded up to the next whole
number, on the WMF Board as will give the Purchaser representation on the WMF
Board equal to the product of the total number of directors on the WMF Board
(giving effect to the directors elected pursuant to this provision) multiplied
by the percentage that the aggregate number of Shares beneficially owned by
the Purchaser and its affiliates bears to the total number of Shares then
outstanding. WMF has agreed that it will promptly take all actions necessary
to cause the Purchaser Designees to be so elected as directors of WMF,
including increasing the size of the WMF Board or securing the resignations of
incumbent directors or both. The Merger Agreement provides that at such times,
WMF shall cause persons designated by the Purchaser to constitute the same
percentage of (i) each committee of the WMF Board, (ii) each board of
directors of each
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subsidiary and (iii) each committee of each such board, in each case only to
the extent permitted by applicable law. The Merger Agreement further provides
that Prudential Mortgage, the Purchaser and WMF shall cause two members of the
WMF Board to be persons who were members of the WMF Board on the date of the
Merger Agreement (the "Continuing Directors") so long as there are at least
two such persons who are willing to serve as Continuing Directors; provided,
that subsequent to the acceptance, purchase and payment for shares of WMF
Common Stock representing greater than 50% of the voting power represented by
the outstanding shares of WMF Common Stock pursuant to the Offer, Purchaser
shall always have its designees represent at least a majority of the entire
Board of Directors. Pursuant to the Merger Agreement, the Continuing Directors
will be John D. Reilly and Shekar Narasimhan.
The following table sets forth certain information with respect to
individuals Purchaser may designate as the Purchaser Designees (including age
as of the date hereof, current principal occupation or employment and five-
year employment history). Unless otherwise noted, each individual is a citizen
of the United States. Unless otherwise noted, the business address of each
designee is c/o Prudential Mortgage Capital Company, LLC, Four Gateway Center,
Newark, NJ 07102-4069.
<TABLE>
<CAPTION>
Name, Business Address
(if different from Principal Occupation or Employment;
above) Age Five-Year Employment History; Directorships
---------------------- --- -------------------------------------------
<S> <C> <C>
David A. Twardock....... 43 Mr. Twardock has served as President of Prudential
Mortgage Capital Company, LLC since1998. He
served as Senior Managing Director of Prudential
Realty Group from 1995 to 1998. Mr. Twardock has
also served as a director of Prudential Mortgage Capital
Acquisition Corp. since April 2000.
Michael B. Jameson...... 37 Mr. Jameson has served as Senior Vice President of
Prudential Mortgage Prudential Mortgage Capital Company, LLC since 1998. He
Capital Company was employed in Prudential Realty Group from 1995 to 1996,
Four Embarcadero and since then has been employed by Prudential Mortgage
Center, Suite 2700 Capital Company, LLC. Mr. Jameson has also served as a
San Francisco, CA director of Prudential Mortgage Capital Acquisition Corp.
94111-4106 since April 2000.
Robert L. Fitts......... 35 Mr. Fitts has served as Principal in Operations and
Finance at Prudential Mortgage Capital Company, LLC
since April 2000, prior to which he served as Vice
President of Securitization/Operations since joining
Prudential Mortgage Capital Company in September
1997. From 1993 to September 1997, Mr. Fitts was
employed with the Archon Group, a real estate asset
management subsidiary of Goldman, Sachs & Co.,
serving as Assistant Director in Structured Finance and
also as investment manager. Mr. Fitts has also served
as a director of Prudential Mortgage Acquisition Corp.
since April 2000.
</TABLE>
Prudential Mortgage has informed WMF that each of the individuals listed
above has consented to act as a director, if so designated. If necessary,
Purchaser may choose additional or other Purchaser Designees, subject to the
requirements of Rule 14f-1.
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Based solely on the information set forth in the Offer to Purchase, none of
the Purchaser Designees (i) is currently a director of, or holds any position
with, WMF, (ii) has a familial relationship with any directors or executive
officers of WMF, or (iii) to the best knowledge of Prudential Mortgage,
beneficially owns any securities (or any rights to acquire such securities) of
WMF. WMF has been advised by Prudential Mortgage that, to the best of
Prudential Mortgage's knowledge, none of the Purchaser Designees has been
involved in any transactions with WMF or any of its directors, officers, or
affiliates which are required to be disclosed pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC"), except as
may be disclosed herein.
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DIRECTORS AND EXECUTIVE OFFICERS OF WMF
Board Of Directors
The following persons currently serve as members of the Board of Directors
of WMF.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Shekar Narasimhan.......... 46 Chairman and Chief Executive Officer
Charles H. Cremens......... 46 Director, President and Chief Operating Officer
Mohammed A. Al-Tuwaijri.... 44 Director
Michael R. Eisenson........ 44 Director
J. Roderick Heller III..... 62 Director
Tim R. Palmer.............. 42 Director
John D. Reilly............. 57 Director
Herbert S. Winokur, Jr..... 56 Director
</TABLE>
Shekar Narasimhan has served as a Director and Chief Executive Officer of
WMF since 1992 and as a Director, President and Chief Executive Officer of WMF
Washington Mortgage Corp., a subsidiary of WMF ("Washington Mortgage"), since
its incorporation in 1990. In 1999, he was appointed Chairman of the Board.
From 1992 to 1999, he also served as President of WMF. Mr. Narasimhan has 20
years of experience in property management and real estate mortgage finance,
primarily for multifamily properties. He has been a member of the Board of
Governors of the Mortgage Bankers Association of America (the "MBA") since
1995 and served as the Chairman of the MBA's Commercial/Multifamily Board. Mr.
Narasimhan was the 1996 recipient of the MBA's Burton C. Wood Legislative
Service Award and the 1999 recipient of the Distinguished Service Award.
Charles H. Cremens has served as a Director, President and Chief Operating
Officer of WMF since 1999. Prior to 1999, Mr. Cremens was self-employed as a
consultant and provided consulting services to WMF. From 1996 to 1998, Mr.
Cremens was the Chief Investment Officer for Beacon Properties Corp., a real
estate investment trust that invests in office properties. From 1993 to 1996,
he was employed by Aetna Life Insurance Company as its head of mortgage and
real estate investments. Prior to that time, he held various senior management
positions at the Bank of Boston.
Mohammed A. Al-Tuwaijri has served as a Director of WMF since 1992. He was
Chairman of the WMF Board from 1992 to 1996. He served as a Director of
Washington Mortgage from 1990 to 1996 and was Chairman of Washington
Mortgage's Board from 1991 to 1996. He also served as a Director of
WMF/Huntoon, Paige Associates Limited ("WMF/Huntoon, Paige"), another
subsidiary of WMF, from 1991 to 1996. Mr. Al-Tuwaijri has been President of
Dar Al-Majd Consulting Engineers since 1981 and serves as a Director of Al-
Thomad Trading & Contracting.
Michael R. Eisenson has served as a Director of WMF since 1997. He also
served as a Director of NHP Incorporated ("NHP") from 1990 until May 1997.
Since July 1998, Mr. Eisenson has been a Managing Director and the Chief
Executive Officer of Charlesbank Capital Partners, LLC ("Charlesbank"), a
private investment firm located in Boston and the successor to Harvard Private
Capital Group, Inc. ("Harvard Private Capital"). Mr. Eisenson is a co-founder
of Charlesbank. From 1986 through June 1998, Mr. Eisenson was the President
and Chief Executive Officer of Harvard Private Capital, which managed the
private equity and real estate portfolios of the Harvard University endowment
fund. Charlesbank is the investment advisor to Demeter Holdings Corporation
("Demeter"), a controlling stockholder of WMF, and to Phemus Corporation
("Phemus"), an investment affiliate of Demeter. Mr. Eisenson is a Director of
CCC Information Services Group, Inc., ImmunoGen, Inc., Playtex Products, Inc.
and United Auto Group, Inc.
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J. Roderick Heller III has served on the WMF Board of Directors since 1996
and served as Chairman of the Board from 1996 to 1999. Mr. Heller is currently
the Chairman and Chief Executive Officer of Carnton Capital Associates,
L.L.P., an investment company located in Washington, D.C. He served as a
Director, President and Chief Executive Officer of NHP beginning in 1986 and
served as Chairman of NHP's Board from 1988 to 1997. From 1982 until 1985, Mr.
Heller served as President and Chief Executive Officer of Bristol Compressors,
Inc., a Bristol, Virginia-based company involved in the manufacturing of air
conditioning compressors. From 1971 until 1982, he was a partner in the
Washington, D.C. law firm of Wilmer, Cutler & Pickering. Mr. Heller is a
Director of Auto-Trol Technology Corporation and City First Bank of D.C.
Tim R. Palmer has served as a Director of WMF since 1996. He also served as
a Director of NHP from 1990 until May 1997. Since July 1998, Mr. Palmer has
been a Managing Director of Charlesbank. Mr. Palmer is a co-founder of
Charlesbank. From 1990 to June 1998, Mr. Palmer was a Managing Director of
Harvard Private Capital. From 1987 to 1990, Mr. Palmer was Manager--Business
Development at The Field Corporation, a private investment firm. Mr. Palmer is
a Director of Bell Sports Corporation.
John D. Reilly has served as a Director of WMF since 1996. He is the
President of Reilly Investment Corporation, a real estate investment company,
and from 1991 through 1994 he was Executive Director of Reilly Mortgage Group,
Inc., a mortgage banking and servicing company. Mr. Reilly serves as a
Director of Mexico Private Equity Fund.
Herbert S. Winokur, Jr. has served as a Director of WMF since 1997. He also
served as a Director of NHP from 1991 until May 1997. Since 1987, he has
served as the President and Chief Executive Officer of Capricorn Holdings,
Inc., a private investment company. Mr. Winokur is also the Managing General
Partner of Capricorn Investors, L.P., Capricorn Investors II, L.P. and
Capricorn Investors III, L.P., private investment partnerships concentrating
on investments in restructure situations. Prior to 1987, Mr. Winokur was
Senior Executive Vice President and Director of Penn Central Corporation. Mr.
Winokur serves as a Director of DynCorp, Enron Corp., Azurix Corp., Mrs.
Fields Holding Company, Inc., and CCC Information Services Group, Inc.
Additional Information Concerning The Board Of Directors
There are no family relationships among any of the directors or executive
officers of WMF.
The WMF Board of Directors held four regular meetings and two special
meetings in 1999. The Board has an Audit Committee and a Compensation
Committee. During 1999, Messrs. Winokur and Al-Tuwaijri attended fewer than 75
percent of the total number of Board meetings and meetings of committees on
which they served.
Committees of the Board of Directors. The Audit Committee of the WMF Board
of Directors consists of Messrs. Reilly, Palmer and Al-Tuwaijri. The Audit
Committee held four meetings during 1999. The Audit Committee reviews WMF's
annual audit and meets with WMF's independent accountants to review WMF's
internal controls and financial management practices. The Compensation
Committee of the WMF Board of Directors consists of Messrs. Eisenson and
Winokur, with Mr. Heller serving as a non-voting member. The Compensation
Committee held three meetings during 1999. The Compensation Committee reviews
salary policies of officers and other members of management and approves
compensation plans and awards. The Compensation Committee also administers
WMF's Stock Option Plan, Employee Stock Purchase Plan and Key Employee
Incentive Plan.
Director Compensation. WMF compensates each director who is not also an
executive officer of WMF (each, a "Non-Management Director") for all out-of-
pocket expenses related to his service as a director. Each Non-Management
Director received options to purchase 5,000 shares of common stock for his
services as a director in the year ended December 31, 1999. Those options are
exercisable on and after July 1, 2000. Options granted as compensation for
Messrs. Palmer and Eisenson's services as directors were issued in the name of
Demeter. Options granted as compensation for Mr. Winokur's services as a
director were issued in the name of Capricorn Investors II, L.P.
5
<PAGE>
Executive Officers
The executive officers and certain other officers of WMF are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Shekar Narasimhan....... 46 Chairman and Chief Executive Officer
Charles H. Cremens...... 46 Director, President and Chief Operating Officer
Mitchell D. Clarfield... 40 Executive Vice President--Advisory Services
James L. Clouser........ 58 Executive Vice President--FHA Business
Douglas J. Moritz....... 50 Executive Vice President--Multifamily Business
Glenn A. Sonnenberg..... 43 Executive Vice President--Advisory Services
Clarke B. Welburn....... 52 Executive Vice President--Risk Management
Joan C. May............. 43 Senior Vice President and Chief Underwriter--Multifamily
Elizabeth Whitbred-
Snyder................. 45 Executive Vice President, Chief Financial Officer and Treasurer
</TABLE>
Additional information regarding these executive officers, other than Mr.
Narasimhan and Mr. Cremens, is set forth below. Information regarding Mr.
Narasimhan and Mr. Cremens is set forth under "Directors," above.
Mitchell D. Clarfield has served as an Executive Vice President of WMF since
1998. Mr. Clarfield also serves as co-Chief Executive Officer of WMF Carbon
Mesa Advisors, Inc., a subsidiary of WMF. From 1994 to 1998, Mr. Clarfield was
the founder and served as President and Chief Executive Officer of Carbon Mesa
Advisors, Inc. From 1990 to 1993, Mr. Clarfield served as Senior Vice
President of Secured Capital Corp., a Los Angeles-based investment advisory
firm. Prior to that, Mr. Clarfield served as Vice President in the Commercial
Mortgage Trading Group of Drexel Burnham Lambert.
James L. Clouser has served as an Executive Vice President of WMF since
1997. Mr. Clouser is the President and Chief Executive Officer of WMF/Huntoon,
Paige. He joined WMF/Huntoon, Paige in 1979 and served as President and Chief
Operating Officer of that subsidiary from 1989 until 1999. Mr. Clouser has 23
years of real estate finance experience. He is active in the MBA and sits on
the Insured Project and Income Producing Loan Subcommittee of the MBA. Mr.
Clouser is a regular speaker at MBA seminars and conventions and was
contributing editor to the MBA Servicing Handbook.
Douglas J. Moritz has served as an Executive Vice President of WMF since
1997. He currently serves as Chief Executive Officer--Multifamily Business of
Washington Mortgage. Mr. Moritz joined Washington Mortgage in 1988, serving as
Executive Vice President--Lending from 1990 to 1996. Mr. Moritz has 28 years
of experience in the multifamily industry, with 17 years of experience in
multifamily finance. He has served on the Board of Governors of the Mortgage
Bankers Association of Metropolitan Washington, Inc. (the "Association") since
1993, was the Chairman of the Association's Income Property Committee in 1995
and 1996 and served as the Association's President in 1997 and Chairman of the
Board in 1998. Mr. Moritz was a member of the Fannie Mae DUS Lenders' Advisory
Council from 1996 to 1998.
Glenn A. Sonnenberg has served as Executive Vice President since 1998. Mr.
Sonnenberg also served as Chief Operating Officer of WMF from 1998 to 1999.
Mr. Sonnenberg also serves as co-Chief Executive Officer of WMF Carbon Mesa
Advisors, Inc. From 1996 to 1998, Mr. Sonnenberg served as Managing Director
of Carbon Capital Mortgage Partners and as Principal of Strategic Real Estate
Partners. From 1995 to 1996, Mr. Sonnenberg served as President and Chief
Executive Officer of ING Real Estate Investors. From 1994 to 1995, Mr.
Sonnenberg served as Executive Vice President and co-Chief Executive Officer
of Kearny Street Real Estate Company. From 1980 to 1993, Mr. Sonnenberg was a
partner in the Los Angeles law firm of Allen, Matkins, Leck, Gamble & Mallory.
6
<PAGE>
Clarke B. Welburn has served as Executive Vice President of WMF since 1997.
He also serves as Executive Vice President--Risk Management for Washington
Mortgage. From 1990 to 1996, he served as Executive Vice President--Credit
Policy for Washington Mortgage. Mr. Welburn joined Washington Mortgage in
1988. Mr. Welburn has 27 years of lending experience.
Joan C. May has served as Senior Vice President of WMF since 1997. Since
1992, Ms. May has served as Senior Vice President and Chief Underwriter of
Washington Mortgage. Ms. May joined Washington Mortgage in 1989, serving as
Vice President--Underwriting from 1990 to 1992. She has 16 years of real
estate lending experience.
Elizabeth Whitbred-Snyder has served as Executive Vice President, Chief
Financial Officer and Treasurer of WMF since 1999. From 1997 to 1999, she was
a Senior Vice President and Assistant Secretary of WMF. From 1990 to 1997, Ms.
Whitbred-Snyder served as Controller of Washington Mortgage. In addition, Ms.
Whitbred-Snyder served as Vice President of Washington Mortgage from 1990 to
1992. She is a certified public accountant and has 16 years of financial
services experience.
Compliance With Section 16(a) Of The Securities Exchange Act Of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires WMF's officers
and directors and persons who beneficially own more than 10% of WMF's common
stock to file reports of ownership and changes in ownership with the
Securities and Exchange Commission and the National Association of Securities
Dealers, Inc. Based solely on its review of the copies of such reports
received by it, WMF believes that during the fiscal year ended December 31,
1999, all filing requirements applicable to its officers, directors and such
10% beneficial owners were complied with except that Messrs. Al-Tuwaijri and
Moritz and Ms. May were each late in filing a Form 5 with respect to one
transaction.
7
<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK
Security Ownership Of Certain Beneficial Owners
The following table sets forth, as of May 10, 2000, the number and
percentage of outstanding shares of WMF's common stock beneficially owned by
all persons known by WMF to own beneficially more than 5% of WMF's common
stock.
<TABLE>
<CAPTION>
Name and Address of Beneficial Owner Number Percent
------------------------------------ --------- -------
<S> <C> <C>
Demeter Holdings Corporation(1)............................... 5,445,902 44.32%
c/o Charlesbank Capital Partners
600 Atlantic Ave.
Boston, MA 02210
Michael R. Eisenson(2)........................................ 5,445,902 44.32%
Charlesbank Capital Partners
600 Atlantic Ave.
Boston, MA 02210
Tim R. Palmer(2).............................................. 5,445,902 44.32%
Charlesbank Capital Partners
600 Atlantic Ave.
Boston, MA 02210
Herbert S. Winokur, Jr.(3).................................... 1,919,065 15.62%
30 East Elm Street
Greenwich, CT 06830
Capricorn Investors II, L.P.(4)............................... 1,745,532 14.21%
30 East Elm Street
Greenwich, CT 06830
</TABLE>
- --------
(1) Includes: (A) 5,134,483 shares of common stock owned directly by Demeter;
(B) 281,419 shares of common stock owned by Phemus, and (C) 30,000 shares
subject to options that are exercisable currently or within 60 days of the
date of this schedule.
(2) Includes: (A) 5,134,483 shares of common stock held directly by Demeter;
(B) 281,419 shares of common stock owned by Phemus, and (C) 30,000 shares
subject to options that are exercisable currently or within 60 days of the
date of this schedule. Messrs. Eisenson and Palmer disclaim beneficial
ownership of all the shares held by Demeter and Phemus. Messrs. Eisenson
and Palmer are also directors of WMF, but have not been listed separately
in the following Officers and Directors chart.
(3) Includes: (A) 1,730,532 shares beneficially owned by Capricorn Investors
II, L.P., (B) 163,533 shares beneficially owned by Capricorn Holdings,
Inc., (C) 10,000 shares owned by two revocable trusts benefiting members
of Mr. Winokur's family and (D) 15,000 shares subject to options that are
exercisable currently or within 60 days of the date of this schedule.
(4) Includes all shares and options owned by Capricorn Investors II, L.P., of
which Capricorn Holdings, LLC is the general partner.
8
<PAGE>
Security Ownership Of Management
The following table sets forth, as of May 10, 2000, the number and
percentage of outstanding shares of WMF's common stock beneficially owned by
(i) each director and director nominee who was not listed as a 5% beneficial
owner, (ii) the Chief Executive Officer and each of the four other most highly
compensated executive officers of WMF (the "Named Executive Officers"), and
(iii) all directors and executive officers as a group. The business address of
each of the following persons is 1593 Spring Hill Road, Suite 400, Vienna,
Virginia 22182, unless otherwise specified.
<TABLE>
<CAPTION>
Name and Address of Beneficial Owner Number Percent
------------------------------------ --------- -------
<S> <C> <C>
Mohammed A. Al-Tuwaijri(1).................................. 160,040 1.30%
P.O. Box 60212
Tamaneen Street
Riyadh 11545
Saudi Arabia
J. Roderick Heller III(2)................................... 304,754 2.48%
2445 M Street, N.W., Suite 460
Washington DC 20037
John D. Reilly(3)........................................... 225,033 1.83%
5335 Wisconsin Avenue, N.W. #440
Washington, D.C. 20015
Shekar Narasimhan(4)........................................ 339,322 2.76%
Mitchell D. Clarfield(5).................................... 220,670 1.80%
James L. Clouser(6)......................................... 52,800 *
Douglas J. Moritz(7)........................................ 56,800 *
Glenn A. Sonnenberg(8)...................................... 85,576 *
Charles H. Cremens(9)....................................... 2,500 *
All directors and executive officers as a group (15 persons)
(10)....................................................... 8,763,355 71.32%
</TABLE>
- --------
* Less than 1%
(1) Includes: (A) 145,040 shares of common stock owned by Commonwealth
Overseas Trading Company Limited, over which Mr. Al-Tuwaijri shares
voting power with Mr. Narasimhan, and (B) 15,000 shares subject to
options that are exercisable currently or within 60 days of the date of
this schedule.
(2) Includes: (A) 128,464 shares of unrestricted common stock owned directly
by Mr. Heller; (B) 6,000 shares of common stock held in trust for Mr.
Heller's grandchild, over which Mr. Heller has sole voting and investment
control; (C) 35,000 shares held by the Heller Family Foundation, over
which Mr. Heller shares control of voting and investment decisions with
his children; and (D) 135,290 shares subject to options that are
exercisable currently or within 60 days of the date of this schedule.
(3) Includes: (A) 210,033 shares of unrestricted common stock held directly
by Mr. Reilly, and (B) 15,000 shares subject to options that are
exercisable currently or within 60 days of the date of this schedule.
Excludes 23,108 shares held in trust for the benefit of Mr. Reilly's
daughters, over which Mr. Reilly has no voting or investment control and
of which Mr. Reilly disclaims beneficial ownership.
(4) Includes: (A) 20,000 shares of restricted stock which will be forfeited
on June 30, 2000, unless WMF first achieves certain performance goals;
(B) 55,415 shares of unrestricted common stock owned directly by Mr.
Narasimhan; (C) 145,040 shares of common stock owned by Commonwealth
Overseas Trading Company Limited, over which Mr. Narasimhan shares voting
power with Mr. Al-Tuwaijri, and (D) 118,867 shares subject to options
that are exercisable currently or within 60 days of the date of this
schedule.
9
<PAGE>
(5) Includes: (A) 124,845 shares of unrestricted common stock held directly
by Mr. Clarfield; (B) 25,000 shares of restricted common stock held
directly by Mr. Clarfield, which will be forfeited on June 30, 2000,
unless WMF first meets certain performance goals; (C) 42,425 shares of
unrestricted common stock held by Carbon Mesa Advisors, Inc., which is
owned by Mr. Clarfield and his spouse, and (D) 28,400 shares subject to
options that are exercisable currently or within 60 days of the date of
this schedule.
(6) Includes: (A) 1,000 shares of unrestricted common stock held directly by
Mr. Clouser; (B) 10,000 shares of restricted stock held directly by Mr.
Clouser, and (C) 41,800 shares subject to options that are exercisable
currently or within 60 days of the date of this schedule.
(7) Includes: (A) 3,333 shares of unrestricted common stock held directly by
Mr. Moritz, (B) 10,000 shares of restricted common stock held directly by
Mr. Moritz, and (C) 43,467 shares subject to options that are exercisable
currently or within 60 days of the date of this schedule.
(8) Includes: (A) 31,176 shares of unrestricted common stock owned directly
by Mr. Sonnenberg; (B) 1,000 shares of unrestricted common stock owned
jointly by Mr. Sonnenberg and his spouse; (C) 25,000 shares of restricted
common stock owned directly by Mr. Sonnenberg which will be forfeited on
June 30, 2000, unless WMF first achieves certain performance goals, and
(D) 28,400 shares subject to options that are exercisable currently or
within 60 days of the date of this schedule.
(9) Includes 2,500 shares subject to options that are exercisable currently
or within 60 days of the date of this schedule.
(10) Includes: (A) 5,134,483 shares of common stock beneficially owned by
Demeter; (B) 281,419 shares of common stock beneficially owned by Phemus;
(C) 1,730,532 shares of common stock beneficially owned by Capricorn
Investors II, L.P.; (D) 163,533 shares of common stock beneficially owned
by Capricorn Holdings, Inc.; and (E) 560,657 shares of common stock
subject to options that are exercisable currently or within 60 days of
the date of this schedule.
Changes In Control Of WMF
The Offer is being made pursuant to the Merger Agreement, which provides,
among other things, that following satisfaction or waiver of the conditions
set forth in the Merger Agreement, Purchaser will be merged with and into WMF
(the "Merger"), the separate corporate existence of Purchaser will cease and
WMF will continue as the surviving corporation (the "Surviving Corporation")
and a direct wholly owned subsidiary of Prudential Mortgage.
Capricorn Investors II, L.P., Capricorn Holdings, Inc., Demeter Holdings
Corporation, Phemus Corporation, Commonwealth Overseas Trading Company
Limited, and Messrs. Al-Tuwaijri, Heller, Reilly and Narasimhan (together, the
"Selling Stockholders") have entered into a Stockholders Agreement dated as of
May 10, 2000 with Prudential Mortgage, pursuant to which the Selling
Stockholders have agreed to tender the shares of WMF Common Stock owned by
them and vote in favor of the Merger.
10
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information with respect to the compensation
paid by WMF for services rendered during the years ended December 31, 1999,
1998 and 1997 to the Named Executive Officers.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards
---------------------- ----------------------
Name and Principal Restricted All Other
Position Year Salary Bonus(1) Stock($)(2) Options(#) Compensation(3)
------------------ ---- -------- -------- ----------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Shekar Narasimhan....... 1999 $254,819 $ 0 $ 0 50,000 $ 8,140
Chairman and Chief 1998 275,000 0 120,000 20,000 5,740
Executive Officer 1997 250,000 175,000 0 84,000 10,383
Mitchell D. Clarfield... 1999 $175,000 $ 65,000 $ 0 40,000 $ 6,400
Executive Vice 1998 131,250 94,061 150,000 21,000 1,956
President 1997 n/a n/a n/a n/a n/a
James L. Clouser........ 1999 $165,000 $ 25,000 $ 57,500 40,000 $11,125
Executive Vice 1998 165,000 70,000 0 0 8,500
President 1997 155,000 92,500 0 21,000 4,000
Douglas J. Moritz....... 1999 $185,000 $ 50,000 $ 57,500 40,000 $ 9,280
Executive Vice 1998 185,000 100,000 0 5,000 5,740
President 1997 175,000 92,500 0 21,000 11,075
Glenn A. Sonnenberg..... 1999 $175,000 $ 65,000 $ 0 40,000 $ 7,420
Chief Operating Officer 1998 131,250 94,061 150,000 21,000 5,337
1997 n/a n/a n/a n/a n/a
</TABLE>
- --------
(1) The amounts reported for 1997 were paid in 1998. The amounts reported for
1998 were paid in 1999, and the amounts reported for 1999 were paid in
2000, except for the amounts for Messrs. Clarfield and Sonnenberg who
received draws against their bonus in 1999.
(2) On December 31, 1998, WMF issued 20,000 shares of restricted stock to Mr.
Narasimhan. The shares will vest only upon a change of control of WMF
resulting in Mr. Narasimhan's termination or WMF's achieving certain
performance goals. If the shares do not vest before midnight on June 30,
2000, the restricted stock will be forfeited.
On December 31, 1998, WMF issued 25,000 shares of restricted stock to Mr.
Clarfield and 25,000 shares of restricted stock to Mr. Sonnenberg. These
shares will vest (A) if there is a transfer of control of WMF resulting in
the stock owner's termination or (B) if WMF achieves certain performance
goals. If the shares do not vest before midnight on June 30, 2000, the
restricted stock will be forfeited.
In addition to the above terms, the restricted stock awarded to Messrs.
Narasimhan, Clarfield and Sonnenberg may be forfeited under certain other
circumstances. The dollar value of each restricted stock award is based on
The Nasdaq Stock Market closing price per share of WMF Common Stock on the
date of the award. As of December 31, 1999, WMF had 263,625 outstanding
shares of restricted stock with a value of $1,515,844. Holders of
restricted stock are entitled to receive dividends on those shares, if WMF
issues dividends.
(3) These amounts represent WMF's payment of life insurance premiums and
matching contributions to WMF's 401(k) Retirement Plan.
11
<PAGE>
Stock Options
The following table sets forth certain information regarding options granted
to the Named Executive Officers during the year ended December 31, 1999.
Options Granted in Last Fiscal Year
<TABLE>
<CAPTION>
Potential
Realizable Per
Share Value at
Assumed Annual
Percent Market Rates of Stock
of Total Price Price
Options on Appreciation for
Granted Exercise Grant Option Term (5)
Options in Fiscal Prices Date Expiration -----------------
Name Granted(#) Year(1) ($/sh) ($/sh) Date 5%($) 10%($)
---- ---------- --------- -------- ------ ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Shekar
Narasimhan.. 50,000(2) 9.05% $7.00 $6.81 6/10/2009 $4.09(3) $10.66(4)
Mitchell D.
Clarfield... 40,000(2) 7.24% $7.00 $6.81 6/10/2009 $4.09(3) $10.66(4)
James L.
Clouser..... 40,000(2) 7.24% $7.00 $6.81 6/10/2009 $4.09(3) $10.66(4)
Douglas J.
Moritz...... 40,000(2) 7.24% $7.00 $6.81 6/10/2009 $4.09(3) $10.66(4)
Glenn A.
Sonnenberg.. 40,000(2) 7.24% $7.00 $6.81 6/10/2009 $4.09(3) $10.66(4)
</TABLE>
- --------
(1) Percentages indicated are based on a total of 552,500 options granted to
42 employees during the fiscal year ended December 31, 1999.
(2) These options were awarded on June 10, 1999 and vest 25% on June 30, 1999,
25% on January 31, 2000, 25% on January 31, 2001 and 25% on January 31,
2002.
(3) Based on the difference between the strike price and $6.81 appreciated 5%
per year over the 10-year option term ($11.09).
(4) Based on the difference between the strike price and $6.81 appreciated 10%
per year over the 10-year option term ($17.66).
(5) All of the outstanding options to purchase WMF Common Stock will vest upon
consummation of the Merger and will become exchangeable for the difference
between the Offer Price of $8.90 and the exercise price of such options,
which is $1.90 per share.
Option Exercises And Holdings
The following table sets forth certain information regarding unexercised
options held by the Named Executive Officers on December 31, 1999. No Named
Executive Officer exercised options during the year ended December 31, 1999.
Aggregated Year-End 1999 Option Values
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options at In the Money Options at
December 31, 1999 December 31, 1999(1)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Shekar Narasimhan.......... 89,567 71,100 $ -- $ --
Mitchell D. Clarfield...... 14,200 46,800 $ -- $ --
James L. Clouser........... 27,600 38,400 $ -- $ --
Douglas J. Moritz.......... 29,267 38,400 $ -- $ --
Glenn A. Sonnenberg........ 14,200 46,800 $ -- $ --
</TABLE>
- --------
(1) Based on The Nasdaq Stock Market closing price of the underlying common
stock on December 31, 1999 of $5.75, minus the exercise price. As of
December 31, 1999, none of the options held by the Named Executive
Officers were in-the-money options. All of the outstanding options to
purchase WMF Common Stock will vest upon consummation of the Merger and
will become exchangeable for the difference between the Offer Price of
$8.90 and the exercise price of such options.
12
<PAGE>
Employment Contracts And Change-in-Control Arrangement
Except as described below, none of the Named Executive Officers has an
employment contract or change-in-control arrangement with WMF.
On April 1, 1998, Messrs. Clarfield and Sonnenberg each entered into five-
year employment contracts with WMF. Pursuant to the contracts, Messrs.
Clarfield and Sonnenberg each receive a $175,000 annual base salary and are
eligible for incentive bonuses and stock options. During the first two years
of the contracts, Messrs. Clarfield and Sonnenberg received $65,000 as
advances against incentive bonuses earned during the contract period. The base
salary amount will be reviewed annually and may be adjusted, with the consent
of Messrs. Clarfield and Sonnenberg. In addition to benefits provided
generally to all of WMF's executive employees, Messrs. Clarfield and
Sonnenberg are entitled to four weeks of paid vacation per year, dining or
golf club membership, liability insurance and a life insurance policy.
If Mr. Clarfield or Mr. Sonnenberg is terminated without cause, he will be
paid his then current salary for one year. Messrs. Clarfield and Sonnenberg
are also entitled to a pro-rated incentive bonus for the year in which the
termination occurs, vesting of all options owned at the time of termination
and incentive compensation for three years following the termination. The
amount of incentive compensation is calculated based on the incentive bonus
pool for the year preceding the termination and WMF's net income attributable
to assets acquired during or immediately after the employment period.
Messrs. Clarfield and Sonnenberg are also entitled to the above severance
payments if they resign because WMF has materially breached their employment
agreements. If upon termination without cause or resignation after WMF's
material breach of the employment agreements, Mr. Clarfield or Mr. Sonnenberg
wishes to be released from certain non-competition agreements with WMF, he may
waive his right to severance payments. If Mr. Clarfield or Mr. Sonnenberg is
terminated because of a physical or mental disability which prevents him from
performing his duties for 180 days out of any 12-month period, he will be
entitled to receive $20,000 per month for 12 months after his termination.
For purposes of the above paragraphs, "cause" is defined as: (A) the
engaging by the employee in any act of dishonesty, including the appropriation
or attempted appropriation of a material business opportunity of WMF; (B) the
conviction of the employee of a felony, any crime involving moral turpitude,
or any other crime which jeopardizes WMF's liability insurance; or (C) a
material breach of the employment agreement by the employee, which is not
corrected within 30 days.
Each of the Named Executive Officers has entered into a Key Employee
Incentive Award Agreement with WMF, pursuant to which the Named Executive
Officer's unvested options will vest immediately and in their entirety upon a
"transfer of control" of WMF (as defined below). Additionally, WMF provides
certain severance arrangements for Messrs. Narasimhan and Moritz. If such
employee is terminated without "cause" (as defined below), that employee will
be paid his then current salary for two years in the case of Mr. Narasimhan,
as Chief Executive Officer ("CEO"), or for one year in the case of Mr. Moritz.
If a Named Executive Officer's employment is terminated within 180 days of a
"transfer of control" of WMF (as defined below), Mr. Narasimhan, as the CEO,
would be paid his then current salary for three years and Messrs. Clarfield,
Moritz, Sonnenberg and Clouser would each be paid their then current salary
for two years. WMF has required each of the Named Executive Officers to agree
to refrain from competing in the business of mortgage origination and
servicing during his employment with WMF and, after such employment is
terminated, for the greater of one year or the period during which such
employee is receiving severance benefits. In addition, WMF has required such
officers to agree to refrain from disclosing confidential information about
WMF during their employment and indefinitely thereafter.
For purposes of the Key Employee Incentive Award Agreement, "cause" means
(A) the engaging by the employee in any act of dishonesty in connection with
the performance of his or her employment duties and responsibilities, (B) the
conviction of the employee of a felony, (C) the failure of the employee to
perform his or her duties or responsibilities or (D) the inability of the
employee to perform his or her duties or responsibilities
13
<PAGE>
for a period of more than 120 consecutive days due to physical or mental
illness or incapacity. For purposes of the arrangements described in the above
paragraph, "transfer of control" means (i) a transfer of a majority of WMF's
voting stock outstanding on the day of the transfer, (ii) a sale of
substantially all of WMF's assets to any entity or person unaffiliated with
WMF, (iii) the consolidation of WMF with, or its merger into, any unaffiliated
corporation or (iv) the dissolution of WMF.
Under the terms of the Merger Agreement, following the consummation of the
Offer, the WMF Board of Directors will adopt resolutions and take all other
actions necessary to cancel all outstanding Key Employee Incentive Award
Agreements. The Merger Agreement provides that, for a period of 180 days
following the consummation of the Merger, WMF will make available to former
Key Employee Incentive Award recipients severance benefits that are no less
favorable than those to which recipients would have been entitled under their
respective Key Employee Incentive Award Agreements if WMF had terminated their
employment within 180 days following a "transfer of control," as defined in
the Key Employee Incentive Award Agreements.
At the Effective Time (as that term is defined in the Merger Agreement), Mr.
Narasimhan will receive a bonus of $810,000 from WMF. Mr. Narasimhan has
agreed that, if this bonus is paid to him, he will not receive severance
payments pursuant to his Key Employee Incentive Award Agreement.
In addition, Mr. Narasimhan has entered into an employment agreement with
WMF and Prudential Mortgage Capital Corporation. A summary of the terms of the
Employment Agreement is incorporated herein by this reference to Section 12 of
Purchaser's Offer to Purchase, filed as Exhibit A to the Schedule 14D-9. The
summary is qualified in its entirety by reference to the Employment Agreement,
a copy of which is filed as Exhibit E to the Schedule 14D-9.
Compensation Committee Report On Executive Compensation
The Compensation Committee of the Board of Directors (the "Committee") is
composed entirely of Non-Management Directors. The Chief Executive Officer of
WMF initiates recommendations with respect to base salary, bonus and stock
option awards for all executive officers other than himself for the
Committee's review. The Committee determines the compensation paid or awarded
to WMF's executive officers.
The Committee's goal has been to attract, motivate, and retain an executive
management team that can take full advantage of WMF's opportunities for growth
and achieve long-term success in an increasingly competitive business
environment, thereby increasing stockholder value. The Committee believes that
linking a significant portion of an executive's current and potential net
worth to WMF's success, as reflected in the stock price, ensures that the
interests of management are closely aligned with that of stockholders.
In deciding on initial base salary for an individual, the Committee
considers determinants of the individual's market value, including experience,
education, accomplishments and reputation, as well as the level of
responsibility to be assumed. The Committee's approach is to offer salaries it
believes to be fair and competitive with those of executives with similar
responsibilities at companies it considers to be comparable in terms of
assets, net revenues and cash flows, based upon such information as the
Committee may acquire from annual reports and proxy materials of such other
companies, business and industry publications, and other sources as may be
available from time to time. In deciding whether to increase the compensation
of an individual, the Committee considers the overall contribution of the
employee to the performance of WMF, experience gained by the employee and
market conditions.
In determining annual bonuses, the Committee considers each individual's
area of responsibility and the specific goals that were achieved in that area
of responsibility. For any given executive officer, such goals may include
growth in WMF's earnings before interest, taxes, depreciation and
amortization, growth in WMF's revenues generated on either an absolute or per
unit basis, and completion of major acquisitions or other significant
corporate transactions that promote achieving WMF's objectives. In keeping
with WMF's belief that executive compensation should be linked to WMF's
success, the Committee limited the number and amount of bonuses awarded in
1999 to members of WMF's senior management team.
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In addition to base salary and bonuses, the Committee recommends the award
of stock options under WMF's Key Employee Incentive Plan. In that regard,
during the fiscal year ended December 31, 1999, the Committee granted options
to purchase 295,000 shares of WMF Common Stock to its executive officers. The
determination to award options on initial employment is based on the same
factors as initial salary award. The determination to award additional options
is based primarily on such individual's performance and as an incentive for
future performance.
Applying these factors to each individual's case is a judgment process,
exercised by the Committee with the advice of management. Pursuant to their
employment agreements, Messrs. Clarfield and Sonnenberg are compensated in
part based on the financial performance of WMF Carbon Mesa. There is no other
intent to relate compensation to WMF's stock price performance, either
absolute or relative to peer groups, except as that relationship is implicit
in the stock-based compensation plans.
Chief Executive Officer's Compensation. For Mr. Narasimhan's services as
WMF's chief executive officer, his compensation has been determined in
accordance with the compensation policies outlined above. In light of WMF's
losses in 1998 and the decline of WMF's stock price in 1998 and 1999, neither
the Committee nor Mr. Narasimhan thought it would be appropriate for him to
receive a bonus during 1999.
Compensation Deduction Limit. The Committee has considered the $1 million
limit on deductible executive compensation that is not performance-based. The
Committee does not believe that the $1 million limit will prevent WMF from
deducting any executive compensation expenses established in 2000.
Herbert S. Winokur, Jr.
Michael R. Eisenson
Compensation Committee Interlocks And Insider Participation
The Compensation Committee of the WMF Board of Directors consists of Messrs.
Eisenson and Winokur, with Mr. Heller serving as a non-voting member. The
Compensation Committee is charged with determining the compensation of all
executive officers upon consultation with the Chairman of the Board. Mr.
Heller is an employee of WMF. Neither Mr. Eisenson nor Mr. Winokur has ever
been an officer or employee of WMF. Mr. Heller is a director and shareholder
of Redbricks.com, LLC, in which WMF has a 15% equity interest. Mr. Eisenson is
an officer of Charlesbank, the investment advisor for Demeter, which, with its
affiliates, controls 44.32% of WMF's Common Stock. Mr. Winokur is an officer
of Capricorn Investors II, L.P. ("Capricorn"), which controls 14.21% of WMF's
Common Stock. Demeter and Capricorn have engaged in several transactions with
WMF during 1999, as described below.
Certain Relationships And Related Transactions
During the year ended December 31, 1999, WMF engaged in the following
transactions and is a party to the following agreements with entities in which
its directors, director nominee or executive officers have the interests
described.
Effective March 1, 1999, Mr. Cremens and WMF entered into a consulting
agreement pursuant to which WMF paid Mr. Cremens $10,000 per month as
compensation for consulting services provided to WMF and its subsidiaries. Mr.
Cremens has also entered into an employment agreement with WMF and Prudential
Mortgage Capital Corporation. A summary of the terms of the Employment
Agreement is incorporated herein by this reference to Section 12 of
Purchaser's Offer to Purchase, filed as Exhibit A to the Schedule 14D-9. The
summary is qualified in its entirety by reference to the Employment Agreement,
a copy of which are filed as Exhibit F to the Schedule 14D-9.
Mr. Narasimhan has entered into an employment agreement with WMF and
Prudential Mortgage Capital Corporation. A summary of the terms of the
Employment Agreement is incorporated herein by this reference to
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<PAGE>
Section 12 of Purchaser's Offer to Purchase, filed as Exhibit A to the
Schedule 14D-9. The summary is qualified in its entirety by reference to the
Employment Agreement, a copy of which is filed as Exhibit E to the Schedule
14D-9.
On April 2, 1999, WMF and Carbon Capital Management modified the terms of an
option to purchase certain of the assets of Carbon Capital Management, which
WMF then exercised. Mr. Sonnenberg owns 48 percent of Carbon Capital
Management and Mr. Clarfield owns 48 percent. WMF purchased assets of Carbon
Capital Management for a total of $1.52 million in cash, promissory notes and
28,479 shares of WMF Common Stock valued at $0.2 million.
During 1999, WMF acquired a 15% ownership in interest in Redbricks.com, LLC
("Redbricks"). Messrs. Narasimhan and Heller serve on the Board of Directors
of Redbricks. Also during 1999, Messrs. Narasimhan, Heller and Al-Tuwaijri and
Capricorn Investors II, L.P. purchased, in the aggregate, an approximate 2%
ownership interest in Redbricks. Redbricks has entered into a credit agreement
with Commonwealth Overseas Trading Company Limited, over which Mr. Al-Tuwaijri
has control, whereby Commonwealth Overseas Trading Company Limited has loaned
Redbricks $1.5 million.
During 1999, WMF engaged in transactions with Commercial Mortgage Investment
Trust, Inc. ("COMIT"), Demeter (or its affiliate, Harvard Private Capital
Holdings, Inc. ("HPCH")), Phemus and Capricorn. Messrs. Eisenson and Palmer
are officers of Charlesbank, which is the investment advisor to Demeter,
Phemus and HPCH. Mr. Winokur is the Managing General Partner of Capricorn. WMF
Carbon Mesa manages COMIT, and Messrs. Narasimhan, Eisenson, Palmer, Welburn,
Clarfield and Sonnenberg serve as officers and/or directors of COMIT.
In June of 1998, WMF, HPCH and Capricorn created COMIT, a real estate
investment trust. On September 4, 1998, COMIT and WMF entered into a Credit
Agreement pursuant to which COMIT loaned WMF $20 million. HPCH contributed $16
million and Capricorn contributed $4 million to fund the loan. In connection
with the loan, WMF issued warrants to COMIT to purchase 1,200,000 shares of
WMF Common Stock at $11.25 per share. COMIT transferred those warrants to HPCH
and Capricorn. On March 12, 1999, WMF repaid the loan, and the warrants were
canceled.
On December 31, 1998, Demeter, Phemus and Capricorn purchased 3,635,972
shares of WMF's Class A Non-Voting Convertible Preferred Stock (the "Class A
Stock") for a total purchase price of approximately $16.6 million. Each share
of Class A Stock was converted to one share of WMF Common Stock on January 14,
1999. In connection with that purchase, Demeter, Phemus and Capricorn agreed
that they would buy additional shares during WMF's rights offering to all
shareholders, except that Demeter, Phemus and Capricorn agreed to purchase up
to a total of 664,028 shares from WMF, to the extent that WMF's rights
offering was not fully subscribed. On March 19, 1999, Demeter, Phemus and
Capricorn purchased a total of 664,028 shares pursuant to that agreement, for
total proceeds to WMF of approximately $3.3 million. On March 31, 1999,
Capricorn purchased an additional 34,520 shares of WMF Common Stock for $0.2
million. WMF used the proceeds from sales to Demeter, Capricorn and Phemus and
the rights offering to repay the loan from COMIT and for other operating
purposes.
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<PAGE>
Shareholder Return Performance Graph
Set forth below is a line graph comparing the yearly percentage change in the
cumulative total stockholder return on WMF Common Stock against the cumulative
total return of The Nasdaq National Market Index (the "Nasdaq Market Index")
and the Standard Industrial Classification Industry Index of Mortgage Bankers &
Loan Correspondents (the "SIC Code Index") for the period commencing December
7, 1997 and ending December 31, 1999.
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG THE WMF GROUP, LTD.,
NASDAQ MARKET INDEX AND SIC CODE INDEX
[GRAPH]
WMF GROUP, LTD. SIC CODE INDEX NASDAQ MARKET INDEX
12/09/97 100.00 100.00 100.00
12/31/97 89.29 104.11 98.35
12/31/98 42.86 138.82 138.71
12/31/99 41.07 110.55 244.65
ASSUMES $100 INVESTED ON DEC. 09, 1997
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DEC. 31, 1999
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<PAGE>
EXHIBIT G
THE WMF GROUP, LTD.
1593 Spring Hill Road, Suite 400
Vienna, Virginia 22182
May 23, 2000
Dear Stockholder:
We are pleased to report that The WMF Group, Ltd. has entered into a merger
agreement with Prudential Mortgage Capital Company, LLC, a Delaware limited
liability company ("Prudential Mortgage"), and one of its subsidiaries,
Prudential Mortgage Capital Acquisition Corp., a Delaware corporation
("Purchaser"), that provides for the acquisition of WMF by Prudential Mortgage
at a price of $8.90 per share in cash. Under the terms of the proposed
transaction, the Purchaser is today commencing a cash tender offer for all
outstanding shares of WMF's common stock at $8.90 per share. Following the
successful completion of the tender offer, the Purchaser will be merged with
and into WMF and all shares not purchased by the Purchaser in the tender offer
will be converted into the right to receive $8.90 per share in cash in the
merger.
Your Board of Directors has unanimously approved the Merger Agreement and
the transactions contemplated by the Merger Agreement, including the offer and
the merger, and determined that the terms of the tender offer and the merger
are advisable, fair to, and in the best interests of, WMF and its
stockholders. Accordingly, the Board of Directors unanimously recommends
acceptance of the tender offer and approval and adoption of the Merger
Agreement by the stockholders of WMF.
In arriving at its recommendations, the Board of Directors gave careful
consideration to a number of factors. These factors included the opinion dated
May 10, 2000, of Credit Suisse First Boston Corporation ("CSFB"), financial
advisor to WMF, to the effect that, as of such date and based upon and subject
to certain matters stated in such opinion, the cash consideration of $8.90 per
share to be received by WMF's stockholders in the tender offer and the merger
was fair from a financial point of view to such stockholders.
Accompanying this letter is a copy of WMF's Solicitation/Recommendation
Statement on Schedule 14D-9. Also enclosed is Purchaser's Offer to Purchase
and related materials, including a Letter of Transmittal for use in tendering
shares. We urge you to read carefully the enclosed materials, including CSFB's
opinion, which is attached to the Schedule 14D-9.
The management and directors thank you for the support you have given WMF.
Sincerely,
/s/ Shekar Narasimhan
Shekar Narasimhan
Chairman of the Board
and Chief Executive Officer
<PAGE>
EXHIBIT H
[LETTERHEAD OF CREDIT SUISSE FIRST BOSTON]
May 10, 2000
Board of Directors
The WMF Group, Ltd.
1593 Spring Hill Road
Suite 400
Vienna, Virginia 22182-2245
Members of the Board:
You have asked us to advise you with respect to the fairness to the
stockholders of The WMF Group (the "Company" from a financial point of view of
the consideration to be received by such stockholders pursuant to the terms of
the Agreement and Plan of Merger dated as of May 10, 2000 (the "Merger
Agreement"), among the Company, Prudential Mortgage Capital Company, LLC, (the
"Acquiror") and Prudential Mortgage Capital Acquisition Corp., a wholly-owned
subsidiary of the Acquiror (the "Sub"). Upon the terms and subject to the
conditions of the Merger Agreement (i) the Sub will commence a tender offer
(the "Offer") for all issued and outstanding shares of common stock, par value
$0.01 per share, of the Company (the "Shares") at a price of $8.90 per Share
in cash (the "Consideration") and (ii) following consummation of the Offer,
Sub will be merged with and into the Company (the "Merger" and together with
the Offer, the "Transaction"), each outstanding Share not acquired in the
Offer will be converted into the right to receive the Consideration and the
Company will become a wholly-owned subsidiary of the Acquiror.
In arriving at our opinion, we have reviewed certain publicly available
business and financial information relating to the Company, as well as the
Merger Agreement and certain related agreements. We have also reviewed certain
other information, including financial forecasts, provided to or discussed
with us by the Company and have met with the Company's management to discuss
the business and prospects of the Company.
We have also considered certain financial and stock market data of the
Company, and we have compared those data with similar data for other publicly
held companies in businesses similar to the Company and we have considered the
financial terms of certain other business combinations and other transactions
which have recently been effected. We also considered such other information,
financial studies, analyses and investigations and financial, economic and
market criteria which we deemed relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied
on its being complete and accurate in all material respects. With respect to
the financial forecasts, we have assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the Company's management as to the future financial performance
of the Company. In addition, we have not been requested to make, and have not
made, an independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of the Company, nor have we been furnished with any
such evaluation or appraisals. Our opinion is necessarily based upon
financial, economic, market and other conditions as they exist and can be
evaluated on the date hereof.
We have acted as financial advisor to the Company in connection with the
Transaction and will receive a fee for our services which is contingent upon
the consummation of the Offer.
It is understood that this letter is for the information of the Board of
Directors in connection with its consideration of the Transaction, does not
constitute a recommendation to any stockholder as to whether such stockholder
should tender shares pursuant to the Offer, or how any such stockholder should
vote on the Merger or act on any other matter relating to the Transaction.
<PAGE>
In the past, we have performed certain investment banking services for the
Company and for the Acquiror and have received compensation for such services.
Based upon the subject to the foregoing, it is our opinion that, as of the
date hereof, the Consideration to be received by the stockholders of the
Company in the Transaction is fair to such stockholders from a financial point
of view.
Very truly yours,
Credit Suisse First Boston
Corporation
/s/ Diana W. Chazaud
By: _________________________________
Diana W. Chazaud
Managing Director--Senior Advisor
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