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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 28, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 1-8422
COUNTRYWIDE CREDIT INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13 - 2641992
(State of other jurisdiction (I.R.S. Employer Identification No.)
of incorporation)
4500 Park Granada, Calabasas, CA 91302
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 225-3000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $.05 Par Value New York Stock Exchange
Pacific Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
-------------- -------------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
As of April 2, 2001, there were 118,424,434 shares of Countrywide Credit Industries, Inc. Common Stock, $.05 par value,
outstanding. Based on the closing price for shares of Common Stock on that date, the aggregate market value of Common Stock held by
non-affiliates of the registrant was approximately $5,640,838,015. For the purposes of the foregoing calculation only, all directors
and executive officers of the registrant have been deemed affiliates.
9
PART I
ITEM 1. BUSINESS
A. General
Founded in 1969, Countrywide Credit Industries, Inc. (the "Company" or "CCI") is a holding company which, through its principal
subsidiary, Countrywide Home Loans, Inc. ("CHL"), is engaged primarily in the mortgage banking business and, as such, originates,
purchases, sells and services mortgage loans. The Company's mortgage loans are principally prime credit quality first-lien mortgage
loans secured by single- (one-to-four) family residences ("prime credit quality first mortgages"). The Company also offers home
equity loans both in conjunction with newly produced prime credit quality first mortgages and as a separate product. In addition,
the Company offers sub-prime credit quality first-lien single-family mortgage loans ("sub-prime loans").
The Company, through its other wholly-owned subsidiaries, offers products and services complementary to its mortgage banking
business. See "Business-Company Segments-Business-to-Consumer ("B2C") Insurance Segment, Capital Markets Segment, and
Business-to-Business ("B2B") Insurance Segment." Unless the context otherwise requires, references to the "Company" herein shall be
deemed to refer to the Company and its consolidated subsidiaries.
This Annual Report on Form 10-K may contain forward-looking statements. These forward-looking statements are subject to certain
risks and uncertainties, which could cause actual results to differ materially from historical results or those anticipated due to a
number of factors such as the direction and level of interest rates, competitive and general economic conditions in each of our
business sectors, expense and loss levels in our mortgage, insurance and other business sectors, general economic conditions in the
United States and abroad and in the domestic and international areas in which we do business, the legal, regulatory and legislative
environments in the markets in which the company operates, changes in accounting and financial reporting standards, decisions by the
company to change its business mix, and other risks detailed in documents filed by the company with the Securities and Exchange
Commission from time to time. Words like "believe", "expect", "should", "may", "could", "anticipated", "promising" and other
expressions which indicate future events and trends identify forward-looking statements. The company undertakes no obligation to
publicly updated or revise any forward-looking statements.
Competition
The mortgage banking industry is highly competitive and fragmented. The Company competes with other financial intermediaries such
as mortgage bankers, commercial banks, savings and loan associations, credit unions, insurance companies and mortgage banking
subsidiaries or divisions of diversified companies. Generally, the Company competes by offering a wide selection of products through
multiple channels, by providing consistent, high quality service and by pricing its products at competitive rates.
The securities industry is also highly competitive and fragmented. Countrywide Securities Corporation ("CSC"), the Company's
indirectly wholly-owned broker-dealer, competes with large, global investment banks as well as smaller, regional broker-dealers. CSC
competes by specializing in mortgage related fixed income securities and through its affiliation with CHL, which allow it to offer
information, products and services tailored to the unique needs of participants in the mortgage-related debt securities markets.
The creditor-placed insurance market is dominated by a few providers, competing on policy terms and conditions, service
reputation, technological innovation and broker compensation. The homeowners and life and disability marketplace is dominated by
large, brand name providers and is driven by price, service reputation, commissions and the efficiency and effectiveness of marketing
and underwriting operations. The Company's B2C Insurance Segment competes by providing high quality service and pricing its products
at competitive rates, primarily to a captive customer base.
Seasonality
The mortgage banking industry is generally subject to seasonal trends. These trends reflect the general national pattern of sales
and resales of homes, although refinancings tend to be less seasonal and more closely related to changes in interest rates. Sales
and resales of homes typically peak during the spring and summer seasons and decline to lower levels from mid-November through
February. In addition, mortgage delinquency rates typically rise temporarily in the winter months.
Regulation
The Company's mortgage banking business is subject to the rules and regulations of, and examination by, the Department of Housing
and Urban Development ("HUD"), the Federal Housing Administration (the "FHA"), the Department of Veteran Affairs (the "VA"), Fannie
Mae, the Federal Home Loan Mortgage Corporation ("Freddie Mac"), the Government National Mortgage Agency ("GNMA") and state
regulatory authorities with respect to originating, processing, selling and servicing mortgage loans. Those rules and regulations,
among other things, impose licensing obligations on the Company, establish standards for originating and servicing mortgage loans,
prohibit discrimination, provide for inspections and appraisals of property, require credit reports on prospective borrowers and, in
some cases, fix maximum interest rates, fees and other loan amounts. Moreover, FHA lenders such as the Company are required to
submit to the Federal Housing Commissioner, on an annual basis, audited financial statements, and Ginnie Mae requires the maintenance
of specified net worth levels (which vary depending on the amount of Ginnie Mae securities issued by the Company). The Company's
affairs are also subject to examination by the Federal Housing Commissioner to assure compliance with the FHA regulations, policies
and procedures. In addition to other federal laws, mortgage origination activities are subject to the Equal Credit Opportunity Act,
Federal Truth-in-Lending Act, Home Mortgage Disclosure Act and the Real Estate Settlement Procedures Act, and the regulations
promulgated thereunder. These laws prohibit discrimination, require the disclosure of certain basic information to mortgagors
concerning credit and settlement costs, limit payment for settlement services to the reasonable value of the services rendered and
require the maintenance and disclosure of information regarding the disposition of mortgage applications based on race, gender,
geographical distribution and income level.
Securities broker-dealer and mutual fund operations are subject to federal and state securities laws, as well as the rules of both
the Securities and Exchange Commission and the National Association of Securities Dealers, Inc.
Insurance carrier, insurance agency and title insurance operations are subject to the insurance laws of each of the states in
which the Company conducts such operations.
Financing of Operations
The Company's principal financing needs related to its mortgage banking operations are the financing of its mortgage loan
inventory, its investment in mortgage servicing rights ("MSRs") and its investment in available-for-sale securities. To meet these
needs, the Company currently utilizes commercial paper supported by revolving credit facilities, medium-term notes, mortgage-backed
securities ("MBS") repurchase agreements, subordinated notes, pre-sale funding facilities, redeemable capital trust pass-through
securities, convertible debentures, securitization of servicing fee income and cash flow from operations. The Company estimates that
it had available committed and uncommitted credit facilities aggregating approximately $9.9 billion as of February 28, 2001. In
addition, in the past the Company has utilized whole loan repurchase agreements, servicing-secured bank facilities, private
placements of unsecured notes and other financings, direct borrowings from the revolving credit facilities and public offerings of
common and preferred stock. For further information on the material terms of the borrowings utilized by the Company, see "Note F"
and "Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources." The
Company continues to investigate and pursue alternative and supplementary methods to finance its operations through the public and
private capital markets.
The principal financing needs of the Countrywide Capital Markets ("CCM") consist of the financing of its inventory of securities
and mortgage loans and its underwriting activities. Its securities inventory is financed primarily through repurchase agreements.
CCM also has access to a $200 million secured bank loan facility and a lending facility with CHL.
The principal financing needs for the B2B Insurance Segment are short- and long-term obligations to policyholders (i.e., payment
of policy benefits), costs of acquiring new business (principally commissions) and the purchases of new investments. To meet these
needs, the B2B Insurance Segment currently utilizes cash flow provided from operations as well as maturities and sales of invested
assets.
Employees
At February 28, 2001, the Company had 12,090 employees engaged in the following activities.
-------------------------------------------------------- --- ---------------------------- -----------
Consumer Mortgage Originations 5,537
Consumer Insurance and Other Retail 408
Capital Markets 715
Processing and Technology 3,110
B2B Insurance 533
Central Office Administration and other 1,787
otherOthotherOOtOther
--------------
12,090
==============
-------------------------------------------------------- ---------- -------------- ------------------
None of these employees is represented by a collective bargaining agent.
B. Consolidated Operations
The principal sources of revenue from the Company's business are: (i) loan origination fees; (ii) gains from the sale of loans;
(iii) interest earned on mortgage loans during the period that they are held by the Company pending sale, net of interest paid on
funds borrowed to finance such mortgage loans; (iv) loan servicing and sub-servicing fees; (v) net premiums earned; and (vi) interest
earned from the custodial balances associated with the Company's servicing portfolio.
Through its Consumer Mortgage Originations and Capital Markets Segments, the Company originates and purchases conventional
mortgage loans, mortgage loans insured by the FHA, mortgage loans partially guaranteed by the VA, home equity loans and sub-prime
loans. A majority of the conventional loans are conforming loans that qualify for inclusion in guarantee programs sponsored by
Fannie Mae or Freddie Mac. The remainder of the conventional loans are non-conforming loans (i.e., jumbo loans with an original
balance in excess of $275,000 or other loans that do not meet Fannie Mae or Freddie Mac guidelines). As part of its mortgage
origination activities, the Company makes conventional loans with original balances of up to $2 million.
The following table sets forth the number and dollar amount of the Company's prime credit quality first mortgage, home equity and
sub-prime loan production for the periods indicated.
------------------------------- ----------- -----------------------------------------------------------------------
Summary of the Company's Prime Mortgage,
(Dollar amounts in millions, Home Equity and Sub-prime Loan Production
except average loan amount) Year Ended February 28(29),
----------- -----------------------------------------------------------------------
------------------------------- ----
2001 2000 1999 1998 1997
------------------------------- ---- ------------- -- ------------- --- ----------- -- ------------ -- ------------
Conventional Loans
Number of Loans 327,235 359,360 529,345 231,595 190,250
Volume of Loans $45,841.7 $45,412.5 $69,026.1 $29,887.5 $22,676.2
Percent of Total Volume 66.5% 68.0% 74.3% 61.3% 60.0%
FHA/VA Loans
Number of Loans 118,673 131,679 190,654 162,360 143,587
Volume of Loans $13,062.5 $13,535.5 $19,137.5 $15,869.8 $13,657.1
Percent of Total Volume 18.9% 20.3% 20.6% 32.5% 36.1%
Home Equity Loans
Number of Loans 119,018 93,812 65,607 45,052 20,053
Volume of Loans $4,658.7 $3,635.6 $2,220.5 $1,462.5 $613.2
Percent of Total Volume 6.8% 5.5% 2.4% 3.0% 1.6%
Sub-prime Loans
Number of Loans 51,706 43,392 25,433 16,360 9,161
Volume of Loans $5,360.3 $4,156.1 $2,496.4 $1,551.9 $864.3
Percent of Total Volume 7.8% 6.2% 2.7% 3.2% 2.3%
Total Loans
Number of Loans 616,632 628,243 811,039 455,367 363,051
Volume of Loans $68,923.2 $66,739.7 $92,880.5 $48,771.7 $37,810.8
Average Loan Amount $112,000 $106,000 $115,000 $107,000 $104,000
------------------------------- ---- ------------- -- ------------- --- ----------- -- ------------ -- ------------
The small increase in the volume of loans produced in the year ended February 28, 2001 ("Fiscal 2001") as compared to Fiscal 2000
was primarily due to an increase in the Company's market share, which was partially offset by a decline in the overall mortgage
market driven largely by a decrease in refinance activity.
For Fiscal 2001, 2000 and 1999, adjustable rate mortgages ("ARMs") represented 14%, 14% and 5%, respectively, of the Company's
total volume of mortgage loans produced. In addition, refinances comprised approximately 28%, 35% and 57%, respectively, of the
Company's total volume of mortgage loans produced. For Fiscal 2001, 2000 and 1999, jumbo loans represented 14%, 22% and 23%,
respectively, of the Company's total volume of mortgage loans produced.
The following table sets forth the geographic distribution of the Company's prime credit quality first mortgage, home equity and
sub-prime loan production for Fiscal 2001.
--------------------------------------------------------------------------------------------------------
Geographic Distribution of the Company's
Prime Mortgage, Home Equity and Sub-prime Loan Production
----- ----------------------------- -- ------------------ -- ----------------- -- ----------------- ----
Percentage of
Number Principal Total Dollar
(Dollar amounts in of Loans Amount Amount
millions)
----- ----------------------------- -- ------------------ -- ----------------- -- ----------------- ----
California 134,177 $18,049.7 26.2%
Texas 41,163 4,176.4 6.1%
Colorado 28,325 3,786.7 5.5%
Florida 37,702 3,585.8 5.2%
Michigan 34,949 3,513.0 5.1%
Arizona 24,597 2,700.5 3.9%
Illinois 20,023 2,224.1 3.2%
Washington 17,407 2,143.9 3.1%
Georgia 15,166 1,687.4 2.4%
Ohio 18,141 1,673.2 2.4%
New Jersey 13,230 1,609.9 2.3%
New York 11,928 1,556.1 2.3%
Massachusetts 10,749 1,551.1 2.3%
Pennsylvania 17,321 1,487.3 2.2%
Virginia 12,547 1,331.5 1.9%
Maryland 10,700 1,173.4 1.7%
Others (1) 168,507 16,673.2 24.2%
------------------ ----------------- -----------------
616,632 $68,923.2 100.0%
================== ================= =================
----- ----------------------------- -- ------------------ -- ----------------- -- ----------------- ----
(1) No other state constitutes more than 2.0% of the total dollar amount of loan production.
California mortgage loan production as a percentage of total mortgage loan production (measured by principal balance) for Fiscal
2001, 2000 and 1999, was 26%, 22% and 25%, respectively. Loan production within California is geographically dispersed, which
minimizes dependence on any individual local economy. As of
February 28, 2001, 81% of the Consumer Markets Division branch offices, Wholesale Division loan centers and Full Spectrum Lending,
Inc. ("FSLI") branches were located outside of California.
The following table sets forth the distribution by county of the Company's California loan production for
Fiscal 2001.
--------------------------------------------------------------------------------------------------------
Distribution by County of the Company's California
Loan Production
----- ----------------------------- -- ------------------ -- ----------------- -- ------------------ ---
Percentage of
Number Principal Total Dollar
(Dollar amounts in Of Loans Amount Amount
millions)
----- ----------------------------- -- ------------------ -- ----------------- -- ------------------ ---
Los Angeles 26,694 $3,822.9 21.2%
San Diego 10,618 1,545.2 8.6%
Orange 10,077 1,516.1 8.4%
Riverside 8,452 1,026.1 5.7%
Santa Clara 4,884 913.8 5.1%
Others (1) 73,452 9,225.6 51.0%
------------------ ----------------- ------------------
134,177 $18,049.7 100.0%
================== ================= ==================
----- ----------------------------- -- ------------------ -- ----------------- -- ------------------ ---
(1) No other county in California constitutes more than 5.0% of the total dollar amount of California loan production.
C. Company Segments
Consumer Mortgage Originations Segment
The Consumer Mortgage Originations Segment produces mortgage loans through two separate divisions of CHL and through FSLI. This
segment also provides other complementary services offered as part of the mortgage origination process through Landsafe, Inc.,
including title, escrow, appraisal, credit reporting and flood determination services.
Consumer Markets Division
The Consumer Markets Division originates primarily prime credit quality first mortgages and home equity loans through referrals
from real estate agents and direct contact with consumers through its nationwide network of retail branch offices and its electronic
commerce-based group known as the Home Finance Network. For calendar 2000, the Consumer Markets Division was ranked as the fourth
largest retail lender, in terms of volume, among residential mortgage lenders nationwide. During Fiscal 2001, the Consumer Markets
Division added external home loan consultants to each branch resulting in greater geographic coverage. This has allowed the Consumer
Markets Division to consolidate 76 branches, reducing the total number of retail branch offices to 370, located in 47 states and the
District of Columbia. Each of the Consumer Markets Division's branch offices is typically staffed by six to nine employees. The
branches are connected to the Company's central office by a computer network. The Company operates three Home Finance Network centers
that solicit potential borrowers and receive contacts from potential borrowers through electronic media. Loan counselors employed in
the Home Finance Network centers provide information and process loan applications, which are then made electronically available to
branch offices for processing and funding. Business from home construction companies is also solicited through a network of national
builder account managers. Additionally, business is solicited through advertising, affinity relationships, and extensive use of
direct mailings to borrowers and real estate brokers. The Company believes it offers a superior alternative to its customers through
low cost loans, a broad product line which includes one-stop choice, direct access to the lender using the customer's preferred
channel (a local branch, telephonically or through the Internet), and local underwriting authority. Consumer Markets Division branch
managers are not paid a commission based on individual loan production; however, they are paid a bonus based on various other
factors, including branch profitability and loan quality. Consumer Markets Division sales personnel are paid a bonus or commission
based on loan production. The Company believes that applying this basic approach allows it to originate high-quality loans at a
comparatively low cost. The Consumer Markets Division uses continuous quality control audits of loans originated within the division
to monitor compliance with the Company's underwriting criteria. The audits are performed by branch management and independent
quality control personnel.
The following table sets forth the number and dollar amount of the Consumer Markets Division's prime credit quality first
mortgage, home equity and sub-prime loan production for the periods indicated.
------------------------------- ---------- ------------------------------------------------------------------------
Summary of the Consumer Markets Division's Prime Mortgage,
(Dollar amounts in millions, Home Equity and Sub-prime Loan Production
except average loan amount) Year Ended February 28(29),
------------------------------- -- ------------- --- ------------ -- ------------ --- ------------ -- -------------
2001 2000 1999 1998 1997
------------------------------- -- ------------- --- ------------ -- ------------ --- ------------ -- -------------
Conventional Loans
Number of Loans 96,318 102,665 151,845 67,850 43,261
Volume of Loans $12,658.2 $13,156.0 $18,860.2 $8,377.7 $5,145.3
Percent of Total Volume 66.7% 65.9% 66.2% 62.8% 63.7%
FHA/VA Loans
Number of Loans 36,691 49,247 87,290 43,238 27,746
Volume of Loans $3,804.8 $4,998.2 $8,687.0 $4,114.0 $2,514.3
Percent of Total Volume 20.0% 25.0% 30.4% 30.8% 31.2%
Home Equity Loans
Number of Loans 70,079 61,256 31,725 27,198 14,028
Volume of Loans $2,460.6 $1,793.3 $947.8 $784.3 $384.7
Percent of Total Volume 13.0% 9.0% 3.3% 5.9% 4.8%
Sub-prime Loans
Number of Loans 749 208 130 737 303
Volume of Loans $52.3 $19.6 $13.1 $62.5 $27.0
Percent of Total Volume 0.3% 0.1% 0.1% 0.5% 0.3%
Total Loans
Number of Loans 203,837 213,376 270,990 139,023 85,338
Volume of Loans $18,975.9 $19,967.1 $28,508.1 $13,338.5 $8,071.3
Average Loan Amount $93,000 $94,000 $105,000 $96,000 $95,000
------------------------------- -- ------------- --- ------------ -- ------------ --- ------------ -- -------------
Wholesale Division
The Wholesale Division produces prime credit quality first mortgage, home equity and sub-prime loans through mortgage loan brokers
and other financial intermediaries. As of February 28, 2001, the Wholesale Division operated 53 loan centers, nine regional support
centers and two sub-prime underwriting centers in various parts of the United States. Each branch is typically staffed by 15 to 30
employees, consisting of sales and operational personnel. Business is solicited through a sales force, the Internet, advertising and
participation of branch management and sales personnel in trade associations. Additionally, the Wholesale Division has sales
personnel dedicated to serving large builders who have their own mortgage companies. For calendar 2000, the Wholesale Division was
ranked as the second largest wholesale originator, in terms of volume, among residential mortgage lenders nationwide. Wholesale
Division branch managers are not paid a commission based on individual loan production; however, they are paid a bonus based on
various other factors, including branch profitability and loan quality. Wholesale Division sales personnel are paid a commission
based on loan production. The Wholesale Division attributes its success to providing a high level of localized service to loan
brokers, a competitive and innovative product array and effective technology. The Wholesale Division's website, "Countrywide
Wholesale Business Channel" ("CWBC"), offers loan origination capability coupled with automated underwriting that will allow a
decision to be made within minutes after an application is submitted through the website. Prime credit quality first mortgage loans
are approved on the local authority of the Wholesale Division's loan underwriters staffed within each loan center. Sub-prime loans
are underwritten centrally by a specialized underwriting group and comply with the Company's underwriting criteria for such loans.
In addition, quality control personnel review loans for compliance with the Company's underwriting criteria. The Wholesale Division
has approximately 15,000 approved mortgage brokers and other third-party originators. All Wholesale Division business partners are
subject to ongoing quality control reviews.
The following table sets forth the number and dollar amount of the Wholesale Division's prime credit quality first mortgage, home
equity and sub-prime loan production for the periods indicated.
------------------------------- ----------- --------------------------------------------------------------------
Summary of the Wholesale Division's Prime Mortgage,
(Dollar amounts in millions, Home Equity and Sub-prime Loan Production
except average loan amount) Year Ended February 28(29),
------------------------------- --- ------------ -- ------------- -- ------------ -- ------------ -- -----------
2001 2000 1999 1998 1997
------------------------------- --- ------------ -- ------------- -- ------------ -- ------------ -- -----------
Conventional Loans
Number of Loans 112,980 111,935 187,852 87,391 50,570
Volume of Loans $15,638.9 $14,504.6 $25,493.4 $11,860.9 $6,187.8
Percent of Total Volume 78.4% 75.9% 82.5% 75.4% 73.4%
FHA/VA Loans
Number of Loans 14,242 21,029 33,282 23,641 12,505
Volume of Loans $1,554.6 $2,206.9 $3,436.1 $2,362.3 $1,190.0
Percent of Total Volume 7.8% 11.5% 11.1% 15.0% 14.1%
Home Equity Loans
Number of Loans 21,671 17,651 18,172 11,073 6,017
Volume of Loans $1,056.3 $799.4 $687.2 $419.4 $227.7
Percent of Total Volume 5.3% 4.2% 2.2% 2.7% 2.7%
Sub-prime Loans
Number of Loans 16,061 16,820 13,274 11,721 8,568
Volume of Loans $1,690.8 $1,605.5 $1,300.5 $1,088.1 $823.9
Percent of Total Volume 8.5% 8.4% 4.2% 6.9% 9.8%
Total Loans
Number of Loans 164,954 167,435 252,580 133,826 77,660
Volume of Loans $19,940.6 $19,116.4 $30,917.2 $15,730.7 $8,429.4
Average Loan Amount $121,000 $114,000 $122,000 $118,000 $109,000
------------------------------- --- ------------ -- ------------- -- ------------ -- ------------ -- -----------
Full Spectrum Lending, Inc.
FSLI, a wholly-owned subsidiary of the Company, originates primarily sub-prime first mortgages and home equity loans. FSLI
operates a nationwide network of 42 retail branch offices located in 25 states in addition to three national sales centers. Each of
FSLI's branch offices is typically staffed by five to seven employees. Business is obtained primarily through direct mailings to
borrowers, outbound telemarketing, referrals from other divisions of the Company and other business partners. FSLI branch managers
are not paid a commission based on individual loan production; however, they are paid a bonus based on various other factors,
including overall branch loan production, account executive productivity, branch profitability and loan quality. FSLI sales
personnel are paid a commission based on individual loan production. Each loan approved by FSLI is reviewed by its centralized
underwriting unit to ensure that standardized underwriting guidelines are met. In addition, FSLI performs quality control audits of
the origination process on a continuous basis.
The following table sets forth the number and dollar amount of FSLI's sub-prime and home equity mortgage production for the
periods indicated.
------------------------------- ------------------------------------------------------------------------------- --
Summary of the Full Spectrum Lending's
(Dollar amounts in millions, Home Equity and Sub-prime Loan Production
Except average loan amount) Year Ended February 28(29),
------------------------------- - -------------- -- ------------ --- ------------ -- ------------ -- -------------
2001 2000 1999 1998 1997
------------------------------- - -------------- -- ------------ --- ------------ -- ------------ -- -------------
Conventional Loans
Number of Loans 184 - - - -
Volume of Loans $21.6 - - - -
Percent of Total Volume 1.3% - - - -
Home Equity Loans
Number of Loans 708 196 113 146 -
Volume of Loans $26.7 $7.1 $4.5 $6.4 -
Percent of Total Volume 1.7% 0.5% 0.6% 4.6% -
Sub-prime Loans
Number of Loans 15,209 14,946 7,800 1,445 -
Volume of Loans $1,556.5 $1,409.5 $702.9 $133.8 -
Percent of Total Volume 97.0% 99.5% 99.4% 95.4% -
Total Loans
Number of Loans 16,101 15,142 7,913 1,591 -
Volume of Loans $1,604.8 $1,416.6 $707.4 $140.2 -
Average Loan Amount $100,000 $94,000 $89,000 $88,000 -
------------------------------- - -------------- -- ------------ --- ------------ -- ------------ -- -------------
Fair Lending Programs
The Company maintains a fair lending department, whose responsibilities include guiding the Company in its compliance with
applicable federal and state anti-discrimination laws and regulations that pertain to residential mortgage lending. In conjunction
with fair lending initiatives undertaken by both Fannie Mae and Freddie Mac and promoted by various government agencies, including
HUD, the Company has established affordable home loan and fair lending programs for low-income, moderate-income and designated
minority borrowers. These programs offer more flexible underwriting guidelines (consistent with guidelines adopted by Fannie Mae and
Freddie Mac) than historical industry standards, thereby enabling more people to qualify for home loans. These more flexible
guidelines allow lower down payments, income and cash reserve requirements and are more liberal in areas such as credit and
employment history.
House America(R)is the Company's affordable home loan program for low- and moderate-income borrowers. It offers loans that are
eligible for purchase by Fannie Mae and Freddie Mac. The product offerings include House America products that are specifically
designed to meet the needs of low- and moderate-income borrowers. The House America personnel work with all of the Company's loan
production divisions to help properly implement the flexible underwriting guidelines for these House America products. Additionally,
House America and FHA products can be offered in conjunction with a number of down payment assistance programs. The Company is
approved to participate in over 600 of these programs, which are offered by city agencies, municipalities and non-profit
organizations to assist with down payment and closing costs. In addition, an integral part of the program is the House America
Counseling Center, a free educational service, which can provide consumers with a home buyer's educational program, pre-qualify them
for a loan or provide a customized budget plan to help them obtain their goal of home ownership. Counseling services are offered in
English and Spanish. The Company also organizes and participates in local homebuyer fairs across the country. At these fairs, branch
personnel and Counseling Center counselors discuss various loan programs, provide free pre-qualifications and distribute credit
counseling and homebuyer educational materials.
The use of more flexible underwriting guidelines employed by the House America loan program may carry a risk of increased loan
defaults. However, because the loans in the Company's portfolio originated under the House America program are serviced on a
non-recourse basis, the exposure to credit loss resulting from increased loan defaults is substantially limited.
Loan Underwriting
The Company's guidelines for underwriting FHA-insured and VA-guaranteed loans comply with the criteria established by those
entities. The Company's guidelines for underwriting conventional conforming loans comply with the underwriting criteria employed by
Fannie Mae and/or Freddie Mac. The Company's underwriting guidelines and property standards for conventional non-conforming loans
AND HOME EQUITY loans are based on the underwriting standards employed by private investors for such loans. In addition,
conventional loans which are originated or purchased by the Company, that have a loan to value ratio greater than 80% at origination,
are covered by primary mortgage insurance. The cost of the insurance may be paid by the borrower or the lender.
In conjunction with fair lending initiatives undertaken by both Fannie Mae and Freddie Mac, the Company has established affordable
home loan programs for low- and moderate-income borrowers. These programs may allow for more flexible underwriting criteria than
historical industry standards. See "Business -Fair Lending Programs".
The Company determines loan approval by using the following general underwriting criteria to determine if a conventional loan is a
prime credit quality first mortgage application. Borrowers who do not qualify for a prime credit quality first mortgage may qualify
for a sub-prime loan. See "Sub-prime Underwriting" below.
Employment and Income
Applicants must exhibit the ability to generate income, on a regular ongoing basis, in an amount sufficient to pay the mortgage
payment and any other debts the applicant may have. The following sources of income may be included when determining the applicant's
ability: salary, wages, bonus, overtime, commissions, retirement benefits, notes receivable, interest, dividends, unemployment
benefits, rental income and other verifiable sources of income.
The type and level of income verification and supporting documentation required may vary based upon the type of loan program
selected by the applicant. For salaried applicants, evidence of employment and income is obtained through written verification of
employment with the current and prior employer(s) or by obtaining a recent pay stub and W-2 forms. Self-employed applicants are
generally required to provide income tax returns, financial statements or other documentation to verify income.
Debt-to-Income Ratios
Generally, an applicant's monthly housing expense (mortgage loan payment, real estate taxes, hazard insurance and homeowner
association dues, if applicable) should be no greater than 25% to 28% of his or her monthly gross income. Total fixed monthly
obligations (housing expense plus other obligations such as car loans, credit card payments, etc.) generally should be no greater
than 33% to 36% of monthly gross income. FOR HOME EQUITY LOANS, THE APPLICANT'S TOTAL FIXED MONTHLY OBLIGATIONS GENERALLY SHOULD BE
NO GREATER THAN 45% OF GROSS MONTHLY INCOME. Other areas of financial strength, such as equity in the property, large cash reserves
or a history of meeting home mortgage or rental obligations are considered to be compensating factors and may result in an adjustment
of these ratio limitations.
Credit History
An applicant's credit history is examined for both favorable and unfavorable occurrences. An applicant who has made payments on
outstanding or previous credit obligations according to the contractual terms may be considered favorably. Items such as slow payment
records, legal actions, judgments, bankruptcy, liens, foreclosure or garnishments are viewed unfavorably. In some instances,
extenuating circumstances beyond the applicant's control may mitigate the effect of such unfavorable items on the credit decision.
Property
The market value of the property is assessed to ensure that the property provides adequate collateral for the loan. Generally,
properties are appraised by licensed real estate appraisers. Some loan programs may provide for automated or streamlined appraisal
systems to be used to confirm property values.
Maximum Indebtedness to Appraised Value
Generally, the maximum amount the Company will lend is 95% of the property value (appraised value or purchase price, whichever is
less). However, under certain loan programs this percentage may be exceeded. Loan amounts in excess of 80% of the appraised value
generally require primary mortgage insurance to protect against foreclosure loss.
Funds for Closing
Generally, applicants are required to have sufficient funds of their own to meet the down payment requirement. A portion of the
funds may come from a gift or an unsecured loan from a municipality or a non-profit organization. Certain programs may require the
applicant to also have cash reserves after closing.
Sub-prime Underwriting
Generally, the same information is reviewed in the sub-prime underwriting process as in the prime credit quality first mortgage
underwriting process. Borrowers who qualify generally have payment histories and debt-to-income ratios which would not satisfy
Freddie Mac and Fannie Mae underwriting guidelines and may have a record of major derogatory credit items such as outstanding
judgments or prior bankruptcies. The Company's sub-prime mortgage loan underwriting guidelines establish the maximum permitted
loan-to-value ratio for each loan type based upon these and other risk factors, with more risk factors resulting in lower
loan-to-value ratios. On a case by case basis, the Company may determine that, based upon compensating factors, a prospective
borrower who does not strictly qualify under the underwriting risk category guidelines warrants an underwriting exception.
Compensating factors may include low loan-to value ratio, low debt-to-income ratios, stable employment and time in the same residence.
Sale of Loans
As a mortgage banker, the Company customarily sells substantially all loans that it originates or purchases. Substantially all
prime credit quality first mortgages sold by the Company are sold without recourse, subject in the case of VA loans to the limits of
the VA guaranty described below. Conforming conventional loans are generally pooled by the Company and exchanged for securities
guaranteed by Fannie Mae or Freddie Mac. These securities are then sold to national or regional broker-dealers. Substantially all
conventional loans securitized through Fannie Mae or Freddie Mac are sold, subject to certain representations and warranties on the
part of the Company, on a non-recourse basis, whereby foreclosure losses are generally a liability of Fannie Mae and Freddie Mac and
not the Company.
The Company securitizes substantially all of its FHA-insured and VA-guaranteed mortgage loans through Ginnie Mae, Fannie Mae, or
Freddie Mac. The Company is insured against foreclosure loss by the FHA or partially guaranteed against foreclosure loss by the VA
(at present, generally 25% to 50% of the loan, up to a maximum amount of $50,750, depending upon the amount of the loan). For Fiscal
2001, 2000 and 1999, the aggregate loss experience of the Company on VA loans in excess of the VA guaranty was approximately $4.1
million, $8.5 million and $13.2 million, respectively. The reduction in losses in Fiscal 2001 was due mainly to improved property
values nationally. To guarantee timely and full payment of principal and interest on Fannie Mae, Freddie Mac and Ginnie Mae
securities and to transfer the credit risk of the loans in the servicing portfolio sold to these entities the Company pays guarantee
fees to these agencies.
The Company sells its non-conforming conventional loan production on a non-recourse basis. These loans are sold either on a
whole-loan basis or in the form of "private-label" securities which generally have the benefit of some form of credit enhancement,
such as insurance, letters of credit, payment guarantees or senior/subordinated structures.
Home equity and sub-prime loans are sold on a whole-loan basis or in the form of securities backed by pools of these loans. The
Company retains credit risk on the home equity and sub-prime loans it securitizes, through retention of a subordinated interest or
through a corporate guarantee of losses up to negotiated maximum amount. As of February 28, 2001, the Company had investments in such
subordinated interests amounting to $763.6 million and had reserves amounting to $56.3 million related to such corporate guarantees.
In connection with the sale and securitization of mortgage loans, the Company makes customary representations and warranties
relating to, among other things, compliance with laws and the underwriting rules of the buyer or insurer. In the event of a breach of
any of such representations and warranties, the Company may be required to repurchase a mortgage loan or indemnify the buyer or
insurer with respect thereto and any subsequent foreclosure loss on the mortgage loan will be borne by the Company.
In order to mitigate the risk that a change in interest rates will result in a decline in the value of the Company's current loan
commitments (the "Committed Pipeline") or closed loans and mortgage backed securities held in inventory (the "Inventory"), the
Company enters into hedging transactions. The Inventory is hedged with forward contracts for the sale of loans and net sales of MBS,
including options to sell MBS where the Company can exercise the option on or prior to the anticipated settlement date of the MBS.
Due to the variability of closings in the Committed Pipeline, which is driven primarily by interest rates, the Company's hedging
policies require that substantially all of the Committed Pipeline be hedged with a combination of options for the purchase and sale
of MBS and treasury futures and forward contracts for the sale of MBS. The correlation between the Inventory and Committed Pipeline
and the hedge instruments is very high due to their similarity.
The Company is generally not exposed to significant losses nor will it realize significant gains related to its Inventory and
Committed Pipeline due to changes in interest rates, net of gains or losses on associated hedge positions. However, the Company is
exposed to the risk that the actual closings in the Committed Pipeline may deviate from the estimated closings for a given change in
interest rates. Although interest rates are the primary determinant, the actual loan closings from the Committed Pipeline are
influenced by many factors, including the composition of the Committed Pipeline and remaining commitment periods. The Company's
estimated closings are based on historical data of loan closings as influenced by recent developments.
Mortgage-Related Investments Segment
The Mortgage-Related Investments Segment consists of investments in assets retained in the mortgage securitization process,
including MSRs and residual interests. In addition to their direct returns, the investment in and management of these
mortgage-related assets provides the Company the opportunity to cross-sell various services and financial products to its servicing
portfolio of over 2.9 million borrowers. In particular, the Company has been able to cross-sell homeowners, fire, flood, earthquake,
auto, home warranty, life and disability insurance, as well as annuities, through its insurance agency, Countrywide Insurance
Services, Inc. ("CIS"). CIS is a national, full-service, multi-line insurance agency, with over five hundred thousand policies
currently in force with both portfolio and non-portfolio customers. See "Business-Company Segments-B2C Insurance Segment" for
further discussion. In addition, through telemarketing and direct mail solicitations, the Company has successfully offered home
equity lines of credit to its existing borrowers. As of February 28, 2001, the Company had 154,165 home equity lines in place, up
from 109,235 as of February 29, 2000.
The Company has vertically integrated several loan-servicing functions that are commonly out-sourced by other loan servicers.
These functions are included in the Mortgage-Related Investments Segment and include monitoring and processing property tax bills,
tracking and ensuring adequate insurance to protect the investor's interest in the property securing each loan, trustee services,
real estate owned management and liquidation services, and property field inspection services. The Company believes the integration
of these functions give it a competitive edge by lowering costs and enabling the Company to provide an enhanced overall level of
service.
In addition, the Company strives to balance its Mortgage-Related Investments Segment with the Production Divisions, which are
counter-cyclical in nature. In general, earnings from the Mortgage-Related Investments Segment increase as interest rates increase
and decline as interest rates decline, which is normally the opposite of the Production Divisions. Generally, in an environment of
increasing interest rates, the rate of current and projected future loan prepayments decreases, resulting in a decreased rate of
amortization of MSRs. Conversely, in an environment of declining interest rates, the rate of current and projected future
prepayments increases, resulting in an increased rate of amortization and potential impairment of MSRs. To further mitigate the
impact of MSR impairment on earnings, the Company has devoted substantial management expertise and financial resources to the
development and maintenance of a financial hedge by acquiring financial instruments, including derivative contracts, that increase in
aggregate value when interest rates decline (the "Servicing Hedge").
B2C Insurance Segment
The B2C Insurance Segment consists of two operating subsidiaries, CIS and Directnet Insurance Agency, Inc. ("Directnet").
CIS is comprised of Countrywide Insurance Services of California; Countrywide Insurance Services of Arizona; Countrywide General
Agency of Texas; Countrywide Insurance Agency of Massachusetts; Countrywide Agency of Ohio; and Countrywide Insurance Agency of Ohio.
CIS is an independent insurance agency that provides homeowners insurance, life insurance, disability insurance, automobile
insurance, and various other coverages. CIS has been servicing the insurance needs of homeowners, primarily CHL's mortgage
customers, since 1969. As of February 28(29), 2001 and 2000, CIS had total policies-in-force of 514,000 and 433,000, respectively.
CIS is headquartered in Simi Valley, California, with sales offices located in Simi Valley, California; Phoenix, Arizona; Plano,
Texas; Deerfield, Massachusetts; Columbus, Ohio; and Winterpark, Florida.
Directnet is comprised of Directnet Insurance Agency and Directnet Insurance Agency of Arizona. Directnet provides financial
institutions with a private-label insurance agency solution.
Processing and Technology Segment
The Processing and Technology Segment activities include internal subservicing of the Company's servicing portfolio, as well as
mortgage subservicing and subprocessing for other domestic and foreign financial institutions (through Global Home Loans Limited).
The Company services on a non-recourse basis substantially all of the mortgage loans that it originates or purchases pursuant to
servicing agreements with Fannie Mae, Freddie Mac, Ginnie Mae and various private and public investors. In addition, the Company
periodically purchases bulk servicing contracts, also on a non-recourse basis, to service single-family residential mortgage loans
and home equity lines of credit originated by other lenders. Servicing contracts acquired through bulk purchases accounted for 3% of
the Company's servicing portfolio as of February 28, 2001. Servicing mortgage loans includes collecting and remitting loan payments,
responding to borrower inquiries, making property protection and principal and interest advances when required, accounting for
principal and interest, holding custodial (impound) funds for payment of property taxes and hazard insurance, making physical
inspections of the property, counseling delinquent mortgagors, supervising foreclosures and property dispositions in the event of
unremedied defaults and generally administering the loans. The Company receives a fee for servicing mortgage loans ranging generally
from 1/4% to 1/2%, annually, of the declining principal balances of the loans. The Company also realizes other revenues generated
from its loan servicing activities, such as late charges and interest on custodial balances.
The Company's servicing portfolio is subject to reduction by scheduled principal payments, prepayments and foreclosures. In
addition, the Company has elected in the past to sell a portion of its MSRs as well as newly originated loans on a servicing-released
basis and may do so in the future. Nonetheless, the Company's overall strategy is to build and retain its servicing portfolio.
Loans are serviced from facilities located in Simi Valley, California and Plano, Texas (see "PROPERTIES"). The Company has
developed systems and processes that enable it to service mortgage loans efficiently and, therefore, enhance earnings from its
investment in MSRs. Some of these systems and processes are highlighted in the following paragraphs.
All data elements pertaining to each individual loan are transferred from the various loan origination systems to the loan
servicing system without manual intervention.
Customer service representatives in both servicing facilities have access to on-line screens containing all pertinent data about a
borrower's account, thus eliminating the need to refer to paper files and shortening the average time per call. The Company's
telephone system controls the flow of calls to each servicing site and has a "Smart Call Routing" filter. This filter is designed to
match the originating phone number to phone numbers in the Company's database. Having identified the borrower, the Company can
communicate topical loan information electronically without requiring the caller to enter information. The caller can get more
detailed information through an Interactive Voice Response application or can speak with a customer service representative.
The Company also provides an Internet site for existing borrowers through which the borrower can obtain current account status,
history, answers to frequently asked questions and a dictionary to help the borrower understand industry terminology. Borrowers may
also update information such as phone numbers and mailing address, ask questions and receive responses via e-mail, and make payments.
The Company offers a variety of options for customers to make their monthly payment, such as through ACH (utilizing HomePay Plus),
via the website, bimonthly, or through their own private banking software. Currently, approximately 20% of borrowers make their
monthly payment electronically. For those payments not made electronically, the Company's high speed payment processing equipment
enables the Company to deposit virtually all checks on the day of receipt, thereby maximizing cash availability.
The Company issues monthly statements to its borrowers. This allows the Company to provide personalized home loan information in
a more timely manner while simultaneously providing a vehicle for the Company to market other products. Customers have the option of
receiving a paper copy or an electronic copy of their monthly statement. For those customers who elect to receive an electronic
statement, the Company sends a notification to the customer via e-mail when the statement is available through the Company's Website,
saving the Company the cost of producing and mailing the statement while still allowing the Company to be able to market other
products to the customer and provide the customer with monthly information.
The collection department utilizes its collection management system in conjunction with its predictive dialing system to track and
maximize each individual collector's performance as well as to track the success of each collection campaign.
The Company tracks its foreclosure activity through its default processing system ("DPS"). DPS allows each foreclosure to be
assigned to a state/investor specific workflow template. The foreclosure processor is automatically guided through each function
required to successfully complete a foreclosure in any state and for any investor.
The majority of the Company's insurance tracking and disbursements is processed automatically through MortgageScan, which makes
use of Optical Character Recognition ("OCR") for forms and interacts with the servicing system. Data is extracted from insurance
documents and converted to an electronic file that is processed through a rules engine that automatically requests payments, prepares
correspondence and updates the host servicing system. Approximately 97% of the mail received annually is processed through
MortgageScan.
The Tax Automated Payment System automates the manual payment process for tax bills. Data is extracted from the tax bills using
OCR for forms and routed to queues where potential exceptions can be reviewed. This process increases productivity and minimizes the
likelihood of disbursement errors that can result in tax penalties.
The following table sets forth certain information regarding the Company's servicing portfolio of single-family mortgage loans,
including loans and securities held for sale and loans subserviced for others, for the periods
indicated.
------------------------------------ -- -------------------------------------------------------------------------
(Dollar amounts in millions) Year Ended February 28(29),
------------------------------------ -- -------------------------------------------------------------------------
Composition of Servicing Portfolio 2001 2000 1999 1998 1997
----------- -- ------------ -- ----------- -- ----------- -- ------------
At Period End:
FHA-Insured Mortgage Loans $ 47,307.5 $ 43,057.1 $ 38,707.0 $ 37,241.3 $ 30,686.3
VA-Guaranteed Mortgage Loans 16,374.1 15,980.2 15,457.7 14,878.7 13,446.6
Conventional Mortgage Loans 200,552.5 178,764.6 156,015.6 127,368.1 112,713.6
Home Equity Loans 10,736.7 5,229.2 2,806.3 1,656.5 689.9
Sub-prime Loans 18,629.3 7,160.7 2,502.3 1,744.2 1,048.9
----------- ------------ ----------- ----------- ------------
Total Servicing Portfolio $293,600.1 $250,191.8 $215,488.9 $182,888.8 $158,585.3
=========== ============ =========== =========== ============
Beginning Servicing Portfolio $250,191.8 $215,488.9 $182,888.8 $158,585.3 $136,835.2
Add: Loan Production 68,923.2 66,739.7 92,880.5 48,771.7 37,810.8
Bulk Servicing Acquired 8,712.1 2,003.3 4,591.1 1,010.0 1,358.1
Subservicing Acquired 3,150.0 1,714.5 3,593.6 2,751.6 1,450.0
Less: Servicing Transferred (1) (139.2) (255.2) (7,398.6) (110.6) (70.8)
Runoff (2) (37,237.8) (35,499.4) (61,066.5) (28,119.2) (18,798.0)
----------- ------------ ----------- ----------- ------------
Ending Servicing Portfolio $293,600.1 $250,191.8 $215,488.9 $182,888.8 $158,585.3
=========== ============ =========== =========== ============
Delinquent Mortgage Loans and Pending
Foreclosures at Period End (3):
30 days 2.99% 2.74% 2.52% 2.68% 2.26%
60 days .86% 0.67% 0.53% 0.58% 0.52%
90 days or more .83% 0.56% 0.50% 0.65% 0.66%
----------- ----------- ------------ ----------- ------------
Total Delinquencies 4.68% 3.97% 3.55% 3.91% 3.44%
=========== =========== ============ =========== ============
Foreclosures Pending 0.54% 0.39% 0.31% 0.45% 0.71%
=========== =========== ============ =========== ============
------------------------------------ -- ----------- -- ----------- -- ------------ -- ----------- -- ------------
(1) When servicing rights are sold from the servicing portfolio, the Company generally subservices such loans from the
sales contract date to the transfer date.
(2) Runoff refers to scheduled principal repayments on loans and unscheduled prepayments (partial prepayments or total
prepayments due to refinancing, modifications, sale, condemnation or foreclosure).
(3) Expressed as a percentage of the total number of loans serviced excluding subserviced loans and Ginnie Mae
rewarehoused loans sold into a third party-owned conduit.
At February 28, 2001, the Company's servicing portfolio of single-family mortgage loans was stratified by interest rate as follows.
---- -------------------------- -- --------------------------------------------------------------------------------
(Dollar amounts in Total Portfolio at February 28, 2001
millions)
---- -------------------------- -- --------------------------------------------------------------------------------
Weighted
Interest Principal Percent Average MSR
Rate Balance of Total Maturity (Years) Balance
---- -------------------------- -- --------------- -- -------------- -- --------------------- -- --------------- --
7% and under $ 80,574.5 27.4% 23.8 $1,713.7
7.01-8% 129,701.9 44.2% 25.7 2,684.3
8.01-9% 57,337.2 19.5% 26.9 970.4
9.01-10% 11,992.5 4.1% 26.2 141.2
over 10% 13,994.0 4.8% 23.4 258.1
--------------- -------------- --------------------- ---------------
$293,600.1 100.0% 25.3 $5,767.7
=============== ============== ===================== ===============
---- -------------------------- -- --------------- -- -------------- -- --------------------- -- --------------- --
The weighted average interest rate of the single-family mortgage loans in the Company's servicing portfolio as of February 28(29),
2001 and 2000 was 7.8% and 7.5%, respectively. As of February 28, 2001, 89% of the loans in the servicing portfolio bore interest at
fixed rates and 11% bore interest at adjustable rates. The weighted average net service fee of the loans in the portfolio was .393%
as of February 28, 2001. The weighted average interest rate of the fixed-rate loans in the servicing portfolio was 7.7%.
The following table sets forth the geographic distribution of the Company's servicing portfolio of single-family mortgage loans,
including loans and securities held for sale and loans subserviced for others, as of
February 28, 2001.
----------------------------------------------------------- -- ----------------------------- --------------------
Percentage of Principal
Balance Serviced
----------------------------------------------------------- -- ----------------------------- --------------------
California 26.9%
Texas 5.5%
Florida 5.2%
Michigan 4.1%
Colorado 3.9%
Illinois 3.6%
Washington 3.4%
Arizona 3.2%
Ohio 2.8%
New York 2.7%
Georgia 2.7%
Massachusetts 2.5%
New Jersey 2.4%
Virginia 2.4%
Pennsylvania 2.2%
Maryland 2.2%
Other (1) 24.3%
--------------
100.0%
==============
----------------------------------------------------------- ---------- -------------- ---------------------------
(1) No other state contains more than 2.0% of the properties securing loans in the Company's servicing portfolio.
Capital Markets Segment
The Capital Markets Segment consists of CCM, a wholly-owned subsidiary of the Company, CCM International Ltd. ("CCMI"),
Countrywide Warehouse Lending ("CWL") and the Correspondent Division of CHL. CCM has three principal operating subsidiaries: CSC,
Countrywide Servicing Exchange ("CSE") and Countrywide Asset Management Corporation ("CAMC"). CCM's principal offices are located in
Calabasas, California with sales offices in New York, New York; Rochester, New York; and Ft. Lauderdale, Florida.
CSC is a registered broker-dealer and a member of both the National Association of Securities Dealers, Inc. and the Securities
Investor Protection Corporation. CSC primarily trades mortgage-related securities, including pass-through certificates issued by
Ginnie Mae, Fannie Mae, Freddie Mac and others, and collateralized mortgage obligations and similar obligations. CSC also trades
certificates of deposit issued by banks, the deposits of which are insured by the Bank Insurance Fund (a fund of the Federal Deposit
Insurance Corporation) as well as callable agency debt and asset-backed securities. CSC participates in the underwriting of
securities for CHL and for unrelated entities. CSC provides financing for customers by entering into reverse repurchase agreements.
CSC also arranges the purchase and sale of mortgage loans for CHL and others. CSC trades with institutional investors, such as
investment managers, pension fund companies, insurance companies, depositories, and other broker-dealers. CSC's total securities
trading volume for Fiscal 2001 and Fiscal 2000 was $742 billion and $407 billion, respectively.
CSE is among the leading national mortgage servicing brokerage and consulting firms. CSE, as an agent, facilitates the purchase
and sale of bulk servicing contracts and provides loan portfolio evaluation services for prospective investors and servicers of
residential mortgage loans.
CAMC purchases distressed loans and other credit sensitive residential mortgage assets, including the related servicing asset from
other lenders. The Company services the loans with the intent to sell or securitize loans which become current and liquidate those
that do not become current. CAMC contracts with CHL to provide loan servicing activities.
CCMI has applied to become a registered broker-dealer in the United Kingdom. Upon licensing by the Securities and Futures
Authority, CCMI will arrange trades for CSC with trading partners in the European market. The principal office of CCMI is located in
London, England.
CWL provides warehouse lines of credit to mortgage originators to finance their origination or acquisition of residential mortgage
loans. Advances under the lines of credit are secured by mortgage loans.
The Company purchases loans from other mortgage bankers, commercial banks, savings and loan associations, credit unions and other
financial intermediaries ("Correspondents") through its Correspondent Division. For calendar 2000, the Correspondent Division was
ranked as the SECOND largest correspondent lender, in terms of volume, among residential mortgage lenders nationwide. The Company's
Correspondent Division is headquartered in Simi Valley, California. The Correspondent Division has approximately 1,500 approved
financial intermediaries serving all 50 states, the District of Columbia and Guam. Correspondents are approved after a review of
their reputation, financial strength and mortgage lending expertise of such institutions, including a review of their references and
financial statements. In addition, all Correspondents are reaffirmed annually based upon a review of their current audited financial
statements and their historical production volumes and loan quality. The Company attributes the success of the Correspondent
Division to providing superior service in the form of a broad product line and advanced technological systems. The Correspondent
Division's website, "Platinum Lender Access" ("Platinum"), offers a reliable and efficient way for approved Correspondents to
register loans, lock in best-effort commitments and obtain immediate approval for commitments through the Internet. In addition, the
website also offers quick access to the Company's other ancillary services.
The Correspondent Division has in place extensive compliance monitoring systems and procedures. These procedures include prior
purchase underwriting reviews, reviews performed by contract underwriters whose work CHL is indemnified against, fraud detection,
re-verification of employment, income and deposits and other steps as deemed appropriate. In addition, quality control personnel
review loans for compliance with the Company's underwriting criteria. To provide additional protection against losses, all
Correspondent contracts provide the Company with recourse against the Correspondent in the event of non-compliance with applicable
law, or fraud or misrepresentation by any party involved in the origination process.
The following table sets forth the number and dollar amount of the Correspondent Division's prime credit quality first mortgage,
home equity and sub-prime loan production for the periods indicated.
------------------------------- ------------------------------------------------------------------------------- --
Summary of the Correspondent Division's Prime Mortgage,
(Dollar amounts in millions, Home Equity and Sub-prime Loan Production
except average loan amount) Year Ended February 28(29),
------------------------------- - -------------- -- ------------ --- ------------ -- ------------ -- -------------
2001 2000 1999 1998 1997
------------------------------- - -------------- -- ------------ --- ------------ -- ------------ -- -------------
Conventional Loans
Number of Loans 117,753 144,760 189,648 76,354 96,419
Volume of Loans $17,523.0 $17,751.9 $24,672.5 $9,648.9 $11,343.1
Percent of Total Volume 61.7% 67.7% 75.3% 49.3% 53.2%
FHA/VA Loans
Number of Loans 67,740 61,403 70,082 95,481 103,336
Volume of Loans $7,703.1 $6,330.4 $7,014.4 $9,393.5 $9,952.8
Percent of Total Volume 27.1% 24.1% 21.4% 48.0% 46.7%
Home Equity Loans
Number of Loans 26,560 14,709 15,597 6,635 8
Volume of Loans $1,115.1 $1,035.8 $581.0 $252.4 $0.8
Percent of Total Volume 3.9% 3.9% 1.8% 1.3% 0.0%
Sub-prime Loans
Number of Loans 19,687 11,418 4,229 2,457 290
Volume of Loans $2,060.7 $1,121.5 $479.9 $267.5 $13.4
Percent of Total Volume 7.3% 4.3% 1.5% 1.4% 0.1%
Total Loans
Number of Loans 231,740 232,290 279,556 180,927 200,053
Volume of Loans $28,401.9 $26,239.6 $32,747.8 $19,562.3 $21,310.1
Average Loan Amount $123,000 $113,000 $117,000 $108,000 $107,000
------------------------------- - -------------- -- ------------ --- ------------ -- ------------ -- -------------
See pages 10-12 for a discussion of the Company's securitization and sale of mortgage loans and loan underwriting criteria.
B2B Insurance Segment
The B2B Insurance Segment consists of three wholly-owned subsidiaries, Balboa Life Insurance Company and Balboa Insurance Company
(collectively "Balboa") and Second Charter Reinsurance Company.
Balboa is comprised of Balboa Insurance, Balboa Life Insurance, Balboa Life Insurance of New York, Metriplan Insurance and
Newport Insurance companies. Balboa commenced operations in 1949, and was acquired by the Company on November 30, 1999. Balboa is
headquartered in Irvine, California, and has offices in Pasadena, California; Rosemead, California; Seattle, Washington and
Pittsburgh, Pennsylvania.
"A" rated by A.M. Best Company, Balboa is the leading writer of creditor-placed auto physical damage insurance and Guaranteed
Auto Protection insurance and a leader in creditor-placed property/hazard insurance. Balboa is licensed to underwrite property and
casualty and life and disability insurance in all 50 states. It distributes product and tracking services to 1,300 financial
institutions, including 50 of the 100 largest U.S. financial services companies, either directly or through independent agents.
Balboa provides loan tracking services on a combined portfolio of over 4 million loans. The total net written premiums for Fiscal
2001 and Fiscal 2000 were $244 million and $49 million, respectively.
Balboa's product line includes retail voluntary homeowners insurance and additional credit life and disability insurance
products, which are being distributed by CIS and other entities.
Second Charter Reinsurance Company earns a portion of the primary mortgage insurance premiums associated with loans in the
Company's servicing portfolio by providing a layer of non-catastrophic reinsurance coverage to the primary mortgage insurance
companies providing the related primary mortgage insurance.
D. Information Technology
The Company employs both proprietary and nonproprietary technology throughout the enterprise and continually searches for
new and better ways of both providing services to its customers and of maximizing the efficiency of its operations. Technology is
viewed as part of the Company's competitive advantage. By implementing highly integrated systems into its lines of business, the
Company believes it has been successful in the rapid start-up of new business enterprises. The Company views technology as a key
driver to maintaining world-class productivity levels in its operations. Management believes that the deployment of advanced
Internet technologies, data warehousing and customer management technologies, artificial intelligence and business rules engines,
advanced messaging and collaborative computing systems, interactive voice response and call management systems all represent
situations in which technology has played a role in improving or maintaining productivity and efficiency.
Proprietary systems currently in use by the Company include CLUES(R), an artificial intelligence system that is designed to
expedite the review of applications, credit reports and property appraisals. The Company believes that CLUES(R)increases
underwriters' productivity, reduces costs and provides greater consistency to the underwriting process, which in turn provides
improved efficiencies in the Company's overall business processes and in the level of customer service (e.g., improved pricing,
approval and funding speed) that the Company is able to provide to its various constituencies. Other proprietary loan origination
and processing systems in use by the production divisions are the EDGE system (used by the Consumer Markets, Wholesale Division, and
FSLI) and GEMS (primarily used by the Correspondent Division), which are loan processing systems that are designed to reduce the time
and cost associated with the loan application and funding process. These front-end systems were internally developed for the
Company's exclusive use and are integrated with the Company's loan servicing, sales, accounting, treasury and other systems. The
Company believes that both the EDGE and GEMS systems improve the quality of its loan products and customer service by: (i) reducing
the risk of deficient loans; (ii) facilitating accurate and customized pricing; (iii) promptly generating loan documents with the use
of laser printers; (iv) providing for electronic communication with credit bureaus, financial institutions, HUD and other third
parties; and (v) generally minimizing manual data input.
"AdvantEdge(R)" is an application that has been developed by the Company. AdvantEdge(R)is an object-oriented contact
management and loan origination system, which can be used separately or integrated with EDGE or websites. AdvantEdge(R)was designed
primarily to assist the telemarketing unit and retail branch network in generating more sales. AdvantEdge(R)provides the
telemarketing unit and the retail branch network the ability to
(i) manage customer contact efficiently and effectively; (ii) pre-qualify a prospective applicant; (iii) provide "what if" scenarios
to help find the appropriate loan product; (iv) obtain on-line price quotes; (v) take applications;
(vi) request credit reports electronically through LandSafe, Inc.; (vii) issue a LOCK 'N SHOP(R)certificate; and (viii) transmit a
loan pre-application to the appropriate production units for processing. Additionally, the loan origination modules of AdvantEdge(R)
provide disclosure document generation capability and access to CLUES(R). Once a loan is ready to be funded, the loan information is
seamlessly transferred to EDGE, resulting in time saved and enhanced customer service. The Company believes that AdvantEdge(R)will
allow the retail branch network to convert more leads, increase business partner referrals and cross-sell additional products (e.g.
mortgage insurance, property insurance, etc.) throughout the loan process. By maintaining a database of customer contact
information, real estate agents, individual customers, loan brokers, builders and other business partners, the Company believes it
will have the ability to maximize its customer relationships.
Global Origination System and Global Servicing System are applications that are being developed in conjunction with the
Global Home Loans Ltd. These systems are designed to address multi-company, multi-currency and multi-lingual requirements.
Management believes their implementation will position the Company to expand its presence in the global mortgage market.
LandSafe Credit Merge Engine is an internally developed system that gathers information from the nation's three largest
credit bureaus, merges and consolidates it into a single credit report. This process was developed to (i) increase dependability
in the event a single credit bureau became unavailable; (ii) provide timely data by presenting a mesh of results; and (iii) provide a
flexible format to interface with a multitude of computer systems. This system is used internally by the Company, as well as by
unrelated companies under licensing agreements with the Company.
Regarding the Internet, the Company's goal is to allow the customer (direct consumer or business partner) to utilize the
Company's various websites in an integrated fashion with each such customer's existing infrastructure and to provide customers with
competitive pricing as well as convenient and efficient services. The Company's more than sixty websites continue to evolve in
depth and breadth as the Company develops additional online partnerships. The Company has developed customized, interactive web
pages for each of its 450+ retail branches to leverage its local knowledge and expertise to the consumer. The Company believes this
strategy provides it with a distinct advantage over other online competitors. A component of the Company's strategy is to integrate
services required in the loan process (such as title, appraisal, home inspection and credit reporting) and offered through its
LandSafe subsidiaries. In addition, insurance services are also available on line through CIS. This provides a "one-stop" solution
to the individual consumer and to the Company's business partners.
Key areas of the Company's consumer websites are: (1) "Home Financing - Mortgage and Equity Lines" which provides potential
customers with the ability to pre-qualify for a loan, calculate maximum affordable home price, loan amount and monthly payments,
review loan products and current rates, submit loan applications on-line, check application status on-line, determine if refinancing
is advantageous and obtain answers to frequently asked questions; (2) "Customer Service", which provides current customers the
ability to review their current loan status, account history, insurance information, financial services and subscription services
online. This also includes information on the "Mortgage Pay on the Web" service, an internally developed product that allows the
customer to make mortgage payments online; (3) "Insurance Solutions", which provides insurance information concerning homeowners,
automobile, home warranty, life, disability insurance and annuities. This link provides calculators to help customers determine
coverage amounts and premiums including instant on-line quotes. In addition, it provides customers the ability to contact the
Company's customer service department to change existing coverage, review terms, conditions and status of existing policies, file a
claim, make a complaint, renew an existing policy, make changes to method of billing and update personal information; (4) "Corporate
Information", which contains information about the Company's background, description of products and services offered, a president's
letter, available career opportunities, press releases, quarterly earnings and performance report, annual reports and other investor
information.
The Internet sites that enhance business partner relationships include the "REALTOR(R)Advantage", "Builders Advantage", CWBC
and Platinum sites. REALTOR(R)Advantage allows realtors to register in the Company's online resource directory, obtain direct access
to local branches for up-front approvals, obtain a LOCK N' SHOP(R)and LOCK N' SELL(R)to guarantee rates, obtain an up-front loan
pre-approval on behalf of their clients, and offers real estate agents value-added tools for their clients. Builders Advantage is a
site that allows builders to register with the Company, to learn about the Company's builder advantage program and builder services
and to link to builder industry web sites. The CWBC site allows registered brokers to (i) float or lock loans 24 hours, 7 days a
week through e-Pipeline; (ii) obtain up-to-the-minute pricing; (iii) customize Broker's rate sheet using CHL's pricing; (iv) track
status of all loans in the pipeline (for CWBC and branch generated loans); (v) download marketing materials and loan submission
forms; (vi) access the Company's ancillary services (appraisal, credit reporting, flood and homeowners insurance); (vii) benefit from
the website-creation services offered by the Company and (vii) link to other industry-related sites. Platinum offers approved
Correspondents (i) the ability to register loans and lock in commitments; (ii) access to CLUES(R)and Freddie Mac Loan Prospector
underwriting decision services; (iii) access to the Company's ancillary services (appraisal, credit reporting, flood and home
warranty and homeowners insurance); (iv) access to current pricing rate sheets; (v) up-to-the-minute reporting of loans in the
pipeline; and (vi) links to other industry-related sites.
ITEM 2. PROPERTIES
The primary executive and administrative offices of the Company and its subsidiaries are located in Calabasas, California. The
headquarters facility consists of approximately 225,000 square feet and is situated on 20.1 acres of land. The executive and
administrative operations of the Company's information technology division and Wholesale Division are located in an 88,000 square
foot office building in Calabasas, California which the Company has leased with an option to purchase. The Company subleases a
215,000 square foot facility in Rosemead, California, which houses loan production and certain subsidiary operations. In Simi
Valley, California, the Company owns two office buildings totaling approximately 506,000 square feet which currently house loan
servicing operations and the Correspondent Division, and a 200,500 square foot building which houses the Company's document
custodian, collateral documents and the Company's document management operations. The Company also owns three office buildings
totaling approximately 790,000 square feet on 38.5 acres in Plano, Texas, which house additional loan servicing, loan production,
data processing and subsidiary operations. In June and November 2000, the Company entered into a lease and sublease of approximately
175,000 square feet of office space in West Hills, California to which it will relocate its Correspondent Division from Simi Valley,
California and its Wholesale Division from Calabasas, California. Additional space located in Pasadena, Irvine, Moorpark and Simi
Valley, California is currently under lease for certain subsidiaries, loan servicing, loan production and data processing
operations. These leases provide an additional 290,000 square feet on varying terms. In addition, the Company leases space for its
branch offices throughout the country.
ITEM 3. LEGAL PROCEEDINGS
The Company and certain subsidiaries are defendants in various legal proceedings involving matters generally incidental to their
business. Although it is difficult to predict the ultimate outcome of these proceedings, management believes, based on discussions
with counsel, that any ultimate liability will not materially affect the consolidated financial position or results of operations of
the Company and its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is listed on the New York Stock Exchange ("NYSE") and the Pacific Stock Exchange (Symbol: CCR). The
following table sets forth the high and low sales prices (as reported by the NYSE) for the Company's common stock and the amount of
cash dividends declared for the fiscal years ended
February 28(29), 2001 and 2000.
------- --------------- ------------------------- --- ------------------------- --- --------------------------------
Fiscal 2001 Fiscal 2000 Fiscal 2001 Fiscal 2000
------- --------------- ------------ ------------ --- ------------ ------------ --- --------------------------------
Quarter High Low High Low Cash Dividends Declared
------- --------------- ------------ ------------ --- ------------ ------------ --- --------------------------------
First $35.00 $22.31 $48.00 $36.56 $0.10 $0.10
Second 39.75 30.00 45.25 31.63 0.10 0.10
Third 41.69 31.50 35.25 27.75 0.10 0.10
Fourth 52.00 36.31 29.25 23.00 0.10 0.10
------- --------------- ------------ ------------ --- ------------ ------------ --- ---------------- ---------------
The Company has declared and paid cash dividends on its common stock quarterly since 1982. For the
fiscal years ended February 28(29), 2001 and 2000, the Company declared quarterly cash dividends aggregating $0.40 per share. On
March 23, 2001, the Company declared a quarterly cash dividend of $0.10 per common share, which was paid on April 30, 2001.
The ability of the Company to pay dividends in the future is limited by various restrictive covenants in the debt agreements of
the Company, the earnings, cash position and capital needs of the Company, general business conditions and other factors deemed
relevant by the Company's Board of Directors. The Company is prohibited under certain of its debt agreements, including its
guarantee of CHL's revolving credit facility, from paying dividends on any capital stock (other than dividends payable in capital
stock or stock rights), except that so long as no event of default or potential event of default under the agreements exists at the
time, the Company may pay dividends in an aggregate amount not to exceed the greater of: (i) the after-tax net income of the Company,
determined in accordance with generally accepted accounting principles, for the fiscal year to the end of the quarter to which the
dividends relate and (ii) the aggregate amount of dividends paid on common stock during the immediately preceding year. The primary
source of funds for payments to stockholders by the Company is dividends received from its subsidiaries. Accordingly, such payments
by the Company in the future also depend on various restrictive covenants in the debt obligations of its subsidiaries, the earnings,
the cash position and the capital needs of its subsidiaries, as well as laws and regulations applicable to its subsidiaries. Unless
the Company and CHL each maintain specified minimum levels of net worth and certain other financial ratios, dividends cannot be paid
by the Company and CHL in compliance with certain of CHL's debt obligations (including its revolving credit facility). See
"Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources."
As of May 15, 2001, there were 2,301 shareholders of record of the Company's common stock, with 118,826,957 common shares
outstanding.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
-------------------------------------- ------------------------------------------------------------------------------
Year ended February 28(29),
-------------------------------------- -------------------------- ------------ ------------ ------------ -------------
(Dollar amounts in thousands, except per share 2001 2000 1999 1998 1997
data)
------------------------------------------------- --------------- ------------ ------------ ------------ -------------
Statement of Earnings Data (1):
Revenues:
Loan origination fees $398,544 $406,458 $623,531 $301,389 $193,079
Gain on sale of loans 611,092 557,743 699,433 417,427 247,450
--------------- ------------ ------------ ------------ -------------
Loan production revenue 1,009,636 964,201 1,322,964 718,816 440,529
Interest earned 1,341,402 998,646 1,029,066 584,076 457,005
Interest charges (1,348,242) (922,225) (977,326) (564,640) (418,682)
--------------- ------------ ------------ ------------ -------------
Net interest income (6,840) 76,421 51,740 19,436 38,323
Loan servicing revenues 1,201,177 996,861 842,583 734,982 614,355
Amortization and impairment/recovery of
mortgage servicing rights, net of (617,153) (445,138) (600,766) (328,845) (226,686)
servicing hedge
--------------- ------------ ------------ ------------ -------------
Net loan administration income 584,024 551,723 241,817 406,137 387,669
Net premiums earned 274,039 75,786 12,504 5,643 1,995
Commissions, fees and other income 195,462 198,318 175,363 132,574 89,351
Gain on sale of subsidiary - 4,424 - 57,381 -
--------------- ------------ ------------ ------------ -------------
Total revenues 2,056,321 1,870,873 1,804,388 1,339,987 957,867
--------------- ------------ ------------ ------------ -------------
Expenses:
Salaries and related expenses 769,287 689,768 669,686 424,321 286,884
Occupancy and other office expenses 275,074 270,015 264,575 179,308 126,261
Marketing expenses 71,557 72,930 64,510 42,320 34,255
Insurance net losses 106,827 23,420 - - -
Other operating expenses 247,541 183,542 173,812 128,492 88,569
--------------- ------------ ------------ ------------ -------------
Total expenses 1,470,286 1,239,675 1,172,583 774,441 535,969
--------------- ------------ ------------ ------------ -------------
421,898
Earnings before income taxes 586,035 631,198 631,805 565,546 421,898
Provision for income taxes 211,882 220,955 246,404 220,563 164,540
--------------- ------------ ------------ ------------ -------------
--------------- ------------ ------------ ------------ -------------
Net earnings $374,153 $410,243 $385,401 $344,983 $257,358
================================================= =============== ============ ============ ============ =============
================================================= =============== ============ ============ ============ =============
Per Share Data (2):
Basic (3) $3.26 $3.63 $3.46 $3.21 $2.50
Diluted (3) $3.14 $3.52 $3.29 $3.09 $2.44
Cash dividends per share $0.40 $0.40 $0.32 $0.32 $0.32
Weighted average shares outstanding:
Basic 114,932,000 113,083,000 111,414,000 107,491,000 103,112,000
Diluted 119,035,000 116,688,000 117,045,000 111,526,000 105,677,000
================================================= =============== ============ ============ ============ =============
================================================= =============== ============ ============ ============ =============
Selected Balance Sheet Data at End of Period
(1):
Total assets $22,955,507 $15,822,328 $15,648,256 $12,183,211 $7,689,090
Short-term debt $7,300,030 $2,529,302 $3,982,435 $3,279,489 $2,345,663
Long-term debt $7,643,991 $7,253,323 $5,953,324 $4,195,732 $2,367,661
Common shareholders' equity $3,559,264 $2,887,879 $2,518,885 $2,087,943 $1,611,531
================================================= =============== ============ ============ ============ =============
================================================= =============== ============ ============ ============ =============
Operating Data (dollar amounts in millions):
Loan servicing portfolio (4) $293,600 $250,192 $215,489 $182,889 $158,585
Volume of loans originated $68,923 $66,740 $92,881 $48,772 $ 37,811
================================================= =============== ============ ============ ============ =============
(1) Certain amounts in the Consolidated Financial Statements have been reclassified to conform to current year presentation.
(2) Adjusted to reflect subsequent stock dividends and splits.
(3) Earnings per share for Fiscal 1998 include a $57.4 million gain on sale of subsidiary. Excluding the non-recurring gain on
sale of subsidiary, basic and diluted earnings per share would have been $2.88 and $2.78, respectively.
(4) Includes warehoused loans and loans under subservicing agreements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's businesses fall into six general categories: consumer mortgage originations, mortgage-related investments, B2C
insurance, processing and technology, capital markets and B2B insurance. See "Business--Mortgage Originations Segment",
"Business--Mortgage-Related Investments Segment", "Business-B2C Insurance Segment", "Business-Processing and Technology Segment",
"Business--Capital Markets Segment" and "Business--B2B Insurance Segment". The Company intends to continue its efforts to expand its
operations in each of these areas. A strong production capability and a growing servicing portfolio are the primary means used by the
Company to reduce the sensitivity of its earnings to changes in interest rates because the effect of interest rate changes on loan
production income is countercyclical to their effect on servicing income. The operations of the B2C Insurance Segment includes acting
as an agent in the sale of insurance, including homeowners, fire, flood, earthquake, life and disability and creditor-placed auto and
homeowner insurance. The operations of the Capital Markets Segment include trading MBS and other mortgage-related assets as well as
brokering service contracts and bulk purchases and sales of whole loans. In addition, the Capital Markets Segment also purchases
closed loans from mortgage bankers, commercial banks and other financial institutions through the Correspondent Division. The
operations of the B2B Insurance Segment includes underwriting insurance, including homeowners, fire, flood, earthquake, life and
disability and creditor-placed auto and homeowner insurance.
The Company's results of operations historically have been influenced primarily by the level of demand for mortgage loans, which
is affected by such external factors as the level and direction of interest rates, and the strength of the overall economy and the
economy in each of the Company's lending markets.
The fiscal year ended February 28, 1999 ("Fiscal 1999") was a then record year for the Company in terms of revenues and net
earnings. Loan production increased to $92.9 billion, an all-time Company record, up from
$48.8 billion in the prior fiscal year. The Company attributed the increase in production to: (i) an increase in the overall
mortgage market driven largely by refinances; (ii) the generally strong economy and home purchase market; and (iii) an increase in
the Company's market share, driven largely by the expansion of its Home Finance Network and Consumer Markets Division and Wholesale
branch networks, including new retail sub-prime branches. For calendar 1998, the Company ranked second in the amount of
single-family mortgage originations nationwide. During calendar 1998, the Company's market share increased to approximately 6.1%, up
from approximately 5.1% in calendar 1997. During Fiscal 1999, the Company's loan servicing portfolio grew to $215.5 billion, up
from $182.9 billion at the end of Fiscal 1998. This growth resulted from the Company's loan production during the year and bulk
servicing acquisitions amounting to $4.6 billion. This growth in the loan servicing portfolio was partially offset by prepayments,
partial prepayments and scheduled amortization of $53.2 billion and the transfer out of
$6.5 billion of subservicing. The prepayment rate in the servicing portfolio was 28%, up from the prior year due to increased
refinance activity driven by the lower mortgage interest rate environment in Fiscal 1999.
The fiscal year ended February 29, 2000 ("Fiscal 2000") was again a record year for the Company in terms of revenues and net
earnings. Loan production decreased to $66.7 billion, down from $92.9 billion in the prior fiscal year. The Company attributed the
decrease in production primarily to a decrease in the overall mortgage market driven largely by a decrease in refinance activity,
combined with a slight decrease in the Company's market share. For calendar 1999 the Company ranked third in the amount of
single-family mortgage originations nationwide. During calendar 1999 the Company's market share decreased to approximately 5.8% down
from approximately 6.1% in calendar 1998. During Fiscal 2000, the Company's loan servicing portfolio grew to $250.2 billion, up
from
$215.5 billion at the end of Fiscal 1999. This growth resulted from the Company's loan production during the year and bulk servicing
acquisitions amounting to $2 billion. This growth in the loan servicing portfolio was partially offset by prepayments, partial
prepayments and scheduled amortization of $28.5 billion. The prepayment rate in the servicing portfolio was 13%, down from 28% the
prior year due to the higher mortgage interest rate environment in Fiscal 2000.
The fiscal year ended February 28, 2001 ("Fiscal 2001") was another strong year for the Company in terms of revenues and net
earnings. Loan production increased slightly to $68.9 billion, up from $66.7 billion in the prior fiscal year. The Company
attributed the increase in production to an increase in the Company's market share. For calendar 2000, the Company ranked third in
the amount of single-family mortgage originations nationwide. During calendar 2000 the Company's market share increased to
approximately 5.9% up from approximately 5.8% in calendar 1999. During Fiscal 2001, the Company's loan servicing portfolio grew to
$293.6 billion, up from
$250.2 billion at the end of Fiscal 2000. This growth resulted from the Company's loan production during the year and bulk servicing
acquisitions amounting to $8.7 billion. This growth in the loan servicing portfolio was partially offset by prepayments, partial
prepayments and scheduled amortization of $28.7 billion. The prepayment rate in the servicing portfolio was 11%, down from 13% the
prior year.
Fiscal 2001 Compared with Fiscal 2000
OPERATING SEGMENT RESULTS
The Company's pre-tax earnings by segment is summarized below.
- -------------------------------------------- --------------------------------------- --------
(Dollar amounts in thousands) Pre-Tax Earnings
- -------------------------------------------- --------------------------------------- --------
Fiscal Fiscal
2001 2000
------------- --------------
Consumer Businesses:
Consumer Mortgage Originations $190,411 $218,121
Mortgage-Related Investments 166,944 250,296
B2C Insurance 4,158 6,041
------------- --------------
Total Consumer Businesses 361,513 474,458
Institutional Businesses:
Processing and Technology 62,540 35,924
Capital Markets 94,373 87,028
B2B Insurance 69,874 31,759
--------------
-------------
Total Institutional Businesses 226,787 154,711
Other (2,265) 2,029
------------- --------------
Pre-tax Earnings $586,035 $631,198
============= ==============
- ---------------------------------------------------------------------------------------------
Consumer Mortgage Originations Segment
The Consumer Mortgage Originations Segment activities include loan origination through the Company's retail branch network
(Consumer Markets Division and Full Spectrum Lending, Inc.) and the Wholesale Division, the warehousing and sales of such loans and
loan closing services.
Total Consumer Mortgage Originiations Segment loan production by Division is summarized below.
- -------------------------------------------- --------------------------------------- --------
(Dollar amounts in millions) Loan Production
- -------------------------------------------- --------------------------------------- --------
Fiscal Fiscal
2001 2000
------------- ----------------
Consumer Mortgage Originations:
Consumer Markets Division $18,976 $19,967
Wholesale Division 19,940 19,116
Full Spectrum Lending, Inc. 1,605 1,417
------------- ----------------
Total $40,521 $40,500
============= ================
- ---------------------------------------------------------------------------------------------
The decline in pre-tax earnings of $27.7 million in Fiscal 2001 as compared to Fiscal 2000 was primarily attributable to reduced
margins and increased price competition throughout Fiscal 2001. The lower net earnings rate on the inventory was due to an increase
in short-term rates during Fiscal 2001 combined with a decrease in long-term rates. The declines were partially offset by improved
margins on home equity and sub-prime loan production and increased profits from loan closing services.
Mortgage-Related Investments Segment
Mortgage-Related Investment Segment activities include investments in assets retained in the mortgage securitization process,
including MSRs, residual interests in asset-backed securities and other mortgage-related assets.
The decrease in pre-tax earnings of $83.4 million in Fiscal 2001 as compared to Fiscal 2000 was primarily due to increased
amortization and impairment of the MSRs net of servicing hedge expense, increased interest expense related to financing the
mortgage-related investments and higher servicing expenses driven by the growth in the servicing portfolio, including the
subservicing fee paid to the Processing and Technology Segment. These factors offset an increase in revenues generated from a larger
servicing portfolio and improved performance of the residual investments. The growth in the Company's servicing portfolio since
Fiscal 2000 was the result of loan production volume and the acquisition of bulk servicing rights. This was partially offset by
prepayments, partial prepayments and scheduled amortization.
During Fiscal 2001, the Company recorded gains of $208.3 million in accumulated other comprehensive income related to the
available-for-sale securities included in its Servicing Hedge.
During Fiscal 2001, the annual prepayment rate of the Company's servicing portfolio was 11%, compared to 13% for Fiscal 2000. In
general, the prepayment rate is affected by the level of refinance activity, which in turn is driven primarily by the relative level
of mortgage interest rates. The weighted average interest rate of the mortgage loans in the Company's servicing portfolio as of
February 28, 2001 was 7.8% compared to 7.5% as of
February 29, 2000.
B2C Insurance Segment
B2C Insurance Segment activities include the operations of CIS, an insurance agency that provides homeowners, life, disability and
automobile as well as other forms of insurance, primarily to the Company's mortgage customers. The decrease in pre-tax earnings of
$1.9 million in Fiscal 2001 as compared to Fiscal 2000 was primarily due to a decline in new policies sold.
Processing and Technology Segment
Processing and Technology Segment activities include internal sub-servicing of the Company's portfolio, as well as mortgage
subservicing and subprocessing for other domestic and foreign financial institutions. The increase in pre-tax earnings of $26.6
million in Fiscal 2001 as compared to Fiscal 2000 was primarily due to growth in the servicing portfolio and subprocessing for
foreign financial institutions. As of February 28, 2001 Global Home Loans subserviced approximately $40 billion of mortgage loans
for the Company's joint venture partner, Woolwich, plc.
Capital Markets Segment
Capital Markets Segment activities include primarily the operations CSC, a registered broker-dealer specializing in
mortgage-related securities, and the Correspondent Division, through which the Company purchases closed loans from mortgage bankers,
commercial banks and other financial institutions. The increase in pre-tax earnings of $7.3 million in Fiscal 2001 as compared to
Fiscal 2000 was primarily due to increased profitability of CSC driven by higher trading volumes.
B2B Insurance Segment
B2B Insurance Segment includes the activities of Balboa, an insurance carrier that offers property and casualty insurance
(specializing in creditor placed insurance), and life and disability insurance together with the activities of Second Charter
Reinsurance Company, a mortgage reinsurance company. The increase in pre-tax earnings of
$38.1 million in Fiscal 2001 as compared to Fiscal 2000 was due to the acquisition of Balboa (on
November 30, 1999) and increased mortgage reinsurance premium volume.
Other
In Fiscal 2000, the Company sold Countrywide Financial Services, Inc. which resulted in a $4.4 million pre-tax gain.
CONSOLIDATED EARNINGS PERFORMANCE
Revenues for Fiscal 2001 increased to $2.1 billion, up from $1.9 billion for Fiscal 2000. The increase in revenues for Fiscal 2001
compared to Fiscal 2000 was primarily due to the acquisition of Balboa on
November 30, 1999. Revenues for Fiscal 2001, excluding Balboa, decreased 1% compared to Fiscal 2000. The decline in revenues,
excluding Balboa, for Fiscal 2001 compared to Fiscal 2000 was primarily due to a reduction in production margins, an increase in net
servicing hedge expense and increased interest expense related to financing the mortgage-related investments. The decline was
partially offset by increased revenues from the Processing and Technology, Capital Markets and B2B Insurance Segments. Net earnings
decreased 9% to $374.2 million for Fiscal 2001, down from $410.2 million for Fiscal 2000. The decrease in net earnings for Fiscal
2001 was primarily due to a reduction in revenues and a nonrecurring tax benefit of $25 million that related primarily to a corporate
reorganization during Fiscal 2000.
The total volume of loans produced by the Company increased 3% to $68.9 billion for Fiscal 2001, up from $66.7 billion for Fiscal
2000. The increase in loan production was driven largely by an increase in market share.
Total loan production by purpose and by interest rate type is summarized below.
- -------------------------------------------- --------------------------------------- --------
(Dollar amounts in millions) Loan Production
- -------------------------------------------- --------------------------------------- --------
Fiscal Fiscal
2001 2000
------------- ----------------
Purchase $49,696 $43,594
Refinance 19,227 23,146
------------- ----------------
Total $68,923 $66,740
============= ================
------------- ----------------
Fixed Rate $59,349 $57,178
Adjustable Rate 9,574 9,562
------------- ----------------
Total $68,923 $66,740
============= ================
- ---------------------------------------------------------------------------------------------
Total loan production by Segment is summarized below.
- -------------------------------------------- --------------------------------------- --------
(Dollar amounts in millions) Loan Production
- -------------------------------------------- --------------------------------------- --------
Fiscal Fiscal
2001 2000
------------- ----------------
------------- ----------------
Consumer Mortgage Originations $40,521 $40,500
Correspondent Division 28,402 26,240
------------- ----------------
Total $68,923 $66,740
============= ================
- ---------------------------------------------------------------------------------------------
The factors which affect the relative volume of production among the Company's Segments include the price competitiveness of each
Segment's various product offerings, the level of mortgage lending activity in each Segment's market and the success of each
Segment's sales and marketing efforts.
Non-traditional loan production (which is included in the Company's total volume of loans produced) is summarized below.
- -------------------------------------------- --------------------------------------- --------
Non-Traditional
(Dollar amounts in millions) Loan Production
- -------------------------------------------- --------------------------------------- --------
Fiscal Fiscal
2001 2000
------------- ----------------
Sub-prime $5,360 $4,156
Home Equity 4,659 3,636
------------- ----------------
Total $10,019 $7,792
============= ================
- ---------------------------------------------------------------------------------------------
Loan production revenues increased in Fiscal 2001 as compared to Fiscal 2000 due to increased trading activity in the Capital
Markets Segment and improved margins on home equity and sub-prime loan production partially offset by reduced margins on prime credit
quality, first lien mortgages. Sub-prime loans contributed $256.3 million to the gain on sale of loans in Fiscal 2001 and $185.7
million in Fiscal 2000. The sale of home equity loans contributed $122.5 million and $86.9 million to gain on sale of loans in
Fiscal 2001 and Fiscal 2000, respectively. In general, loan production revenue is affected by numerous factors including the volume
and mix of loans produced and sold, the level of competition in the market place and changes in interest rates.
Net interest expense (interest earned net of interest charges) of $6.8 million for Fiscal 2001 was down from net interest income
of $76.4 million for Fiscal 2000. Net interest income (expense) is principally a function of: (i) net interest income earned from
the Company's mortgage loan inventory ($92.5 million and $157.5 million for
Fiscal 2001 and Fiscal 2000, respectively); (ii) interest expense related to the Company's mortgage-related investments ($392.3
million and $280.0 million for Fiscal 2001 and Fiscal 2000, respectively); (iii) interest income earned from the custodial balances
associated with the Company's servicing portfolio ($232.2 million and
$172.2 million for Fiscal 2001 and Fiscal 2000, respectively); and (iv) interest income earned from investments in the Capital
Markets and B2B Insurance Segments ($55.3 million and $15.8 million for Fiscal 2001 and Fiscal 2000, respectively).
The decrease in net interest income from the Company's mortgage loan inventory was primarily attributable to lower inventory
levels combined with a lower net earnings rate during Fiscal 2001, which resulted from an increase in short-term rates. The increase
in interest expense related to mortgage-related investments resulted primarily from an increase in amounts financed coupled with an
increase in short-term interest rates. The increase in net interest income earned from the custodial balances was primarily due to an
increase in the earnings rate and an increase in the average custodial balances. The increase in net interest income from the
investments in the Capital Markets and B2B Insurance Segments was primarily due to the acquisition of Balboa on November 30, 1999.
The Company recorded MSR amortization for Fiscal 2001 totaling $518.2 million compared to $459.3 million for Fiscal 2000. The
Company recorded impairment of $896.1 million Fiscal 2001 compared to recovery of previous impairment of $278.3 million for Fiscal
2000. The primary factors affecting the amount of amortization and impairment or impairment recovery of MSRs recorded in an
accounting period are the level of prepayments during the period and the change, if any, in estimated future prepayments. To
mitigate the effect on earnings of MSR impairment that may result from increased current and projected future prepayment activity,
the Company acquires financial instruments, including derivative contracts, that increase in aggregate value when interest rates
decline (the "Servicing Hedge").
In Fiscal 2001, the Company recognized a net benefit of $797.1 million from its Servicing Hedge. The net benefit included
unrealized net gains of $520.9 million and realized net gain of $276.2 million from the sale of various financial instruments that
comprise the Servicing Hedge net of premium amortization. In addition, the Company recorded additional gains of $208.3 million in
accumulated other comprehensive income related to the available-for-sale securities included in its Servicing Hedge. In Fiscal 2000,
the Company recognized a net expense of $264.1 million from its Servicing Hedge. The net expense included unrealized net losses of
$230.9 million and realized net loss of $33.2 million from the sale of various financial instruments that comprise the Servicing
Hedge net of premium amortization. In addition, the Company recorded additional losses of $50.0 million in accumulated other
comprehensive income related to the available-for-sale securities included in its Servicing Hedge.
The financial instruments that comprised the Servicing Hedge included interest rate floors, principal only securities ("P/O
Securities"), options on interest rate swaps ("Swaptions"), options on MBS, options on interest rate futures, interest rate swaps,
interest rate swaps with the Company's maximum payment capped ("Capped Swaps"), principal only swaps ("P/O Swaps") and interest rate
caps.
The Servicing Hedge is designed to protect the value of the MSRs from the effects of increased prepayment activity that generally
results from declining interest rates. To the extent that interest rates increase, the value of the MSRs increases while the value of
the hedge instruments declines. With respect to the interest rate floors, options on interest rate futures and MBS, interest rate
caps, and Swaptions, the Company is not exposed to loss beyond its initial outlay to acquire the hedge instruments plus any
unrealized gains recognized to date. With respect to the interest rate swaps, Capped Swaps and P/O Swaps contracts entered into by
the Company as of February 28, 2001, the Company estimates that its maximum exposure to loss over the remaining contractual terms is
$1 million.
Salaries and related expenses are summarized below for Fiscal 2001 and Fiscal 2000.
---- ---------------------------- -- -- ------ ------------------------------------------------- ----- -- ---- -----
(Dollar amounts in Fiscal 2001
thousands)
-- ------ ------------------------------------------------- ----- -- ---- -----
---- ---------------------------- --
Consumer Institutional Corporate
Businesses Businesses Administration Total
---- ---------------------------- -- ----------------- -- ---------------- -- ----------------- -- -----------------
Base Salaries $248,416 $150,527 $106,691 $505,634
Incentive Bonus
and Commissions 119,605 42,192 18,682 180,479
Payroll Taxes and Benefits 41,129 23,817 18,228 83,174
----------------- ---------------- ----------------- -----------------
Total Salaries and
Related $409,150 $216,536 $143,601 $769,287
Expenses
================= ================ ================= =================
Average Number of Employees 6,069 3,942 1,693 11,704
---- ---------------------------- -- ----------------- -- ---------------- -- ----------------- -- -----------------
---- ---------------------------- --- ---- ------------------------------------------------- ----- -- ---- ---------
(Dollar amounts in Fiscal 2000
thousands)
---- ------------------------------------------------- ----- -- ---- ---------
---- ---------------------------- ---
Consumer Institutional Corporate
Businesses Businesses Administration Total
---- ---------------------------- --- --------------- -- ---------------- -- ----------------- - -------------------
Base Salaries $266,120 $101,402 $101,514 $469,036
Incentive Bonus 98,759 26,533 20,659 145,951
Payroll Taxes and Benefits 41,231 15,345 18,205 74,781
--------------- ---------------- ----------------- -------------------
Total Salaries and
Related $406,110 $143,280 $140,378 $689,768
Expenses
=============== ================ ================= ===================
Average Number of Employees 6,321 2,837 1,776 10,934
---- ---------------------------- --- --------------- -- ---------------- -- ----------------- - -------------------
The amount of salaries increased during Fiscal 2001 as compared to Fiscal 2000 primarily due to an increase in staff in the
institutional businesses due to a larger servicing portfolio and the acquisition of Balboa on
November 30, 1999. Incentive bonuses and commissions earned during the Fiscal 2001 increased primarily due to an increase in
production volume, the addition of commissioned sales personnel in the Consumer Mortgage Originations Segment and increased activity
in the Capital Markets Segment.
Occupancy and other office expenses for Fiscal 2001 increased to $275.1 million from $270.0 million for
Fiscal 2000. The increase was primarily due to the acquisition of Balboa and growth in the Processing and Technology Segment.
Marketing expenses for Fiscal 2001 decreased 2% to $71.6 million as compared to $72.9 million for
Fiscal 2000.
Insurance net losses are attributable to insurance claims in the B2B Insurance Segment. Insurance losses were
$106.8 million for Fiscal 2001. These losses will increase or decrease during a period depending primarily on the volume of claims
caused by natural disasters. The increase in losses for Fiscal 2001 is due to the acquisition of Balboa on November 30, 1999.
Other operating expenses were $247.5 million for Fiscal 2001 as compared to $183.5 million for Fiscal 2000. The increase was
primarily due to the acquisition of Balboa.
Fiscal 2000 Compared with Fiscal 1999
OPERATING SEGMENT RESULTS
The Company's pre-tax earnings by segment is summarized below.
- -------------------------------------------- --------------------------------------- --------
(Dollar amounts in thousands) Pre-Tax Earnings
- -------------------------------------------- --------------------------------------- --------
Fiscal Fiscal
2000 1999
------------- --------------
Consumer Businesses:
Consumer Mortgage Originations $218,121 $517,827
Mortgage-Related Investments 250,296 (26,319)
B2C Insurance 6,041 3,325
------------- --------------
Total Consumer Businesses 474,458 494,833
Institutional Businesses:
Processing and Technology 35,924 33,367
Capital Markets 87,028 90,140
B2B Insurance 31,759 13,084
--------------
-------------
Total Institutional Businesses 154,711 136,591
Other 2,029 381
------------- --------------
Pre-tax Earnings $631,198 $631,805
============= ==============
- ---------------------------------------------------------------------------------------------
Consumer Mortgage Originations Segment
The Consumer Mortgage Originations Segment activities include loan origination through the Company's retail branch network
(Consumer Markets Division and Full Spectrum Lending, Inc.) and the Wholesale Division, the warehousing and sales of such loans and
loan closing services.
Total consumer mortgage loan production by division is summarized below.
- -------------------------------------------- --------------------------------------- --------
(Dollar amounts in millions) Loan Production
- -------------------------------------------- --------------------------------------- --------
Fiscal Fiscal
2000 1999
------------- ----------------
Consumer Mortgages:
Consumer Markets Division $19,967 $28,508
Wholesale Division 19,116 30,917
Full Spectrum Lending, Inc. 1,417 708
------------- ----------------
Total $40,500 $60,133
============= ================
- ---------------------------------------------------------------------------------------------
The decline in pre-tax earnings of $299.7 million in Fiscal 2000 as compared to Fiscal 1999 was primarily attributable to lower
prime credit quality first mortgage loan production and margins driven by a significant reduction in refinances. These declines were
partially offset by increased loan production and increased sales of higher margin home equity and sub-prime loans.
Mortgage-Related Investments Segment
Mortgage-Related Investment Segment activities include investments in assets retained in the mortgage securitization process,
including mortgage servicing rights, residual interests in asset-backed securities and other mortgage-related assets.
The increase in pre-tax earnings of $276.6 million in Fiscal 2000 as compared to Fiscal 1999 was primarily due to an increase in
servicing revenues resulting from servicing portfolio growth combined with a reduction in amortization and a recovery of previous
impairment of the MSRs, and improved performance of the residual investments. These factors were partially offset by higher
servicing expenses driven by growth in the servicing portfolio, including the subservicing fee paid to the Processing and Technology
Segment. The growth in the Company's servicing portfolio since Fiscal 1999 was the result of loan production volume and the
acquisition of bulk servicing rights. This growth was partially offset by prepayments, partial prepayments and scheduled
amortization.
During Fiscal 2000, the annual prepayment rate of the Company's servicing portfolio was 13%, compared to 28% for Fiscal 1999. In
general, the prepayment rate is affected by the level of refinance activity, which in turn is driven primarily by the relative level
of mortgage interest rates.
B2C Insurance Segment
B2C Insurance Segment activities include the operations of CIS, an insurance agency that provides homeowners, life, disability and
automobile as well as other forms of insurance, primarily to the Company's mortgage customers. The increase in pre-tax earnings of
$2.7 million in Fiscal 2000 as compared to Fiscal 1999 was primarily due to an increase in renewal policies.
Processing and Technology Segment
Processing and Technology Segment activities include internal sub-servicing of the Company's portfolio, as well as mortgage
subservicing and subprocessing for other domestic and foreign financial institutions. The increase in pre-tax earnings of $2.6
million in Fiscal 2000 as compared to Fiscal 1999 was primarily due to growth in the sub-servicing portfolio and in sub-processing
activities.
Capital Markets Segment
Capital Markets Segment activities include primarily the operations of CSC, a registered broker-dealer specializing in
mortgage-related securities, and the Correspondent Division, through which the Company purchases closed loans from mortgage bankers,
commercial banks and other financial institutions. The decrease in pre-tax earnings of $3.1 million in Fiscal 2000 as compared to
Fiscal 1999 was primarily due to CLD's decreased production volume and reduced margins on prime credit quality first mortgages driven
primarily by the decline in refinance activity. This decline was partially offset by increased profitability of CSC due to higher
trading volumes.
B2B Insurance Segment
B2B Insurance Segment includes the activities of Balboa, an insurance carrier that offers property and casualty insurance
(specializing in creditor placed insurance) and life and disability insurance, together with the activities of Second Charter
Reinsurance Company, a mortgage reinsurance company. The increase in pre-tax earnings of
$18.7 million in Fiscal 2000 as compared to Fiscal 1999 was due to the acquisition of Balboa (on
November 30, 1999) and increased mortgage reinsurance premium volume.
CONSOLIDATED EARNINGS PERFORMANCE
Revenues for Fiscal 2000 increased 4% to $1.9 billion, up from $1.8 billion for Fiscal 1999. Net earnings increased 6% to $410.2
million for Fiscal 2000, up from $385.4 million for Fiscal 1999. The slight increase in revenues for Fiscal 2000 compared to Fiscal
1999 was primarily attributed to the Mortgage-Related Investments and B2B Insurance Segments, together with increased production of
non traditional loan products (i.e., home equity and sub-prime loans). This increase was largely offset by a decline in traditional
prime loan originations, which was attributable to a market-wide decline in refinance activity. Included in net earnings in Fiscal
2000 was a nonrecurring tax benefit of $25 million that related primarily to a corporate reorganization.
The total volume of loans produced by the Company decreased 28% to $66.7 billion for Fiscal 2000, down from $92.9 billion for
Fiscal 1999. The decrease in loan production was primarily due to a decrease in the mortgage market, driven largely by a reduction
in refinances.
Total loan production by purpose and by interest rate type is summarized below.
- -------------------------------------------- --------------------------------------- --------
(Dollar amounts in millions) Loan Production
- -------------------------------------------- --------------------------------------- --------
Fiscal Fiscal
2000 1999
------------- ----------------
Purchase $43,594 $39,681
Refinance 23,146 53,200
------------- ----------------
Total $66,740 $92,881
============= ================
------------- ----------------
Fixed Rate $57,178 $88,334
Adjustable Rate 9,562 4,547
------------- ----------------
Total $66,740 $92,881
============= ================
- ---------------------------------------------------------------------------------------------
Total loan production by Segment is summarized below.
- -------------------------------------------- --------------------------------------- --------
(Dollar amounts in millions) Loan Production
- -------------------------------------------- --------------------------------------- --------
Fiscal Fiscal
2000 1999
------------- ----------------
------------- ----------------
Consumer Mortgages $40,500 $60,133
Correspondent Division 26,240 32,748
------------- ----------------
Total $66,740 $92,881
============= ================
- ---------------------------------------------------------------------------------------------
The factors that affect the relative volume of production among the Company's Segments include the price competitiveness of each
Segment's product offerings, the level of mortgage lending activity in each Segment's market and the success of each Segment's sales
and marketing efforts.
Non-traditional loan production (which is included in the Company's total volume of loans produced) is summarized below.
- -------------------------------------------- --------------------------------------- --------
(Dollar amounts in millions) Non-Traditional
Loan Production
- -------------------------------------------- --------------------------------------- --------
Fiscal Fiscal
2000 1999
------------- ----------------
Sub-prime $4,156 $2,496
Home Equity 3,636 2,221
------------- ----------------
Total $7,792 $4,717
============= ================
- ---------------------------------------------------------------------------------------------
Loan production revenues decreased in Fiscal 2000 as compared to Fiscal 1999 due to lower production and reduced margins on prime
credit quality, first lien mortgages. This decrease was partially offset by improved margins on home equity and sub-prime loan
production. Sub-prime loans contributed $186 million to the gain on sale of loans in Fiscal 2000 and $92 million in Fiscal 1999.
The sale of home equity loans contributed $87 million and $65 million to gain on sale of loans in Fiscal 2000 and Fiscal 1999,
respectively. In general, loan production revenue is affected by numerous factors including the volume and mix of loans produced and
sold, and the level of pricing competition.
Net interest income (interest earned net of interest charges) increased to $76.4 million for Fiscal 2000, up from net interest
income of $51.7 million for Fiscal 1999. Net interest income is principally a function of: (i) net interest income earned from the
Company's mortgage loan inventory ($157.5 million and $124.7 million Fiscal 2000 and Fiscal 1999, respectively); (ii) interest
expense related to the Company's mortgage-related investments
($280.0 million and $265.5 million for Fiscal 2000 and Fiscal 1999, respectively); and (iii) interest income earned from the
custodial balances associated with the Company's servicing portfolio ($172.2 million and $184.6 million for Fiscal 2000 and Fiscal
1999, respectively).
The increase in net interest income from the Company's mortgage loan inventory was primarily attributable to an increase in
inventory levels as a result of a longer warehouse period combined with a higher net earnings rate during Fiscal 2000. The increase
in interest expense on the investment in servicing rights resulted from a larger servicing portfolio. The decrease in net interest
income earned from the custodial balances was primarily related to a decrease in the average custodial balances caused by a decrease
in the amount of mortgage prepayments.
The Company recorded MSR amortization for Fiscal 2000 totaling $459.3 million compared to $556.4 million for Fiscal 1999. The
Company recorded recovery of previous impairment of $278.3 million for Fiscal 2000 compared to impairment of $457.2 million for
Fiscal 1999. The primary factors affecting the amount of amortization and impairment or impairment recovery of MSRs recorded in an
accounting period are the level of prepayments during the period and the change, if any, in estimated future prepayments. To
mitigate the effect on earnings of MSR impairment that may result from increased current and projected future prepayment activity,
the Company acquires financial instruments, including derivative contracts, that increase in aggregate value when interest rates
decline.
In Fiscal 2000, the Company recognized a net expense of $264.1 million from its Servicing Hedge. The net expense included
unrealized net losses of $230.9 million and realized net loss of $33.2 million from the sale of various financial instruments that
comprise the Servicing Hedge, net of premium amortization. In Fiscal, 1999, the Company recognized a net gain of $412.8 million from
its Servicing Hedge. The net gain included unrealized net gains of $26.1 million and net realized gain of $386.7 million from the
sale of various financial instruments that comprise the Servicing Hedge, net of premium amortization.
Salaries and related expenses are summarized below for Fiscal 2000 and Fiscal 1999.
---- --------------------------- -- -- ------ ------------------------------------------------- ----- -- ---- -----
(Dollar amounts in Fiscal 2000
thousands)
-- ------ ------------------------------------------------- ----- -- ---- -----
---- --------------------------- --
Consumer Institutional Corporate
Businesses Businesses Administration Total
---- --------------------------- -- ----------------- -- ---------------- -- ----------------- - ------------------
Base Salaries $266,120 $101,402 $101,514 $469,036
Incentive Bonus 98,759 26,533 20,659 145,951
Payroll Taxes and Benefits 41,231 15,345 18,205 74,781
----------------- ---------------- ----------------- ------------------
Total Salaries and
Related $406,110 $143,280 $140,378 $689,768
Expenses
================= ================ ================= ==================
Average Number of 6,321 2,837 1,776 10,934
Employees
---- --------------------------- -- ----------------- -- ---------------- -- ----------------- - ------------------
---- --------------------------- -- -- ------ ------------------------------------------------- ----- -- ---- -----
(Dollar amounts in Fiscal 1999
thousands)
-- ------ ------------------------------------------------- ----- -- ---- -----
---- --------------------------- --
Consumer Institutional Corporate
Businesses Businesses Administration Total
---- --------------------------- -- ----------------- -- ---------------- -- ----------------- - ------------------
Base Salaries $245,131 $78,609 $90,597 $414,337
Incentive Bonus 149,376 19,877 20,107 189,360
Payroll Taxes and Benefits 40,790 12,556 12,643 65,989
----------------- ---------------- ----------------- ------------------
Total Salaries and
Related $435,297 $111,042 $123,347 $669,686
Expenses
================= ================ ================= ==================
Average Number of 6,013 2,328 1,606 9,947
Employees
---- --------------------------- -- ----------------- -- ---------------- -- ----------------- - ------------------
The amount of salaries and related expenses increased during the Fiscal 2000 as compared to Fiscal 1999 primarily due to expansion
of the consumer branch network, including the retail sub-prime branches and an increase in staff in the institutional businesses due
to a larger servicing portfolio and the acquisition of Balboa on
November 30, 1999. The increase was partially offset by a decline in consumer businesses as a result of a decline in mortgage
originations. Incentive bonuses earned during Fiscal 2000 decreased primarily due to the reduction in loan production.
Occupancy and other office expenses for Fiscal 2000 increased to $270.0 million from $264.6 million for
Fiscal 1999. This was primarily due to expansion of the consumer branch network, a larger servicing portfolio and growth in the
Company's institutional businesses primarily due to the acquisition of Balboa, partially offset by a reduction in temporary personnel
expense as a result of decreased production.
Marketing expenses for Fiscal 2000 increased 13% to $72.9 million, up from $64.5 million for Fiscal 1999. The increase was
primarily related to the growth in the Company's origination volume of non-traditional loan products.
Insurance net losses are attributable to insurance claims in the B2B Insurance Segment. Insurance losses were
$23.4 million for Fiscal 2000 and are due to the acquisition of Balboa on November 30, 1999. These losses will increase or decrease
during a period depending primarily on the volume of claims caused by natural disasters.
Other operating expenses were $183.5 million for Fiscal 2000 as compared to $173.8 million for Fiscal 1999. The increase was
primarily due to the acquisition of Balboa, partially offset by a reduction in reserves for bad debt due primarily to improved
property values nationally.
In Fiscal 2000, the Company initiated a corporate reorganization related to its servicing operations. As a result of the
reorganization, future state income tax liabilities are expected to be less than the amounts that were previously recorded as
deferred income tax expense and liability in the Company's financial statements. The expected reduction in tax liabilities was
reflected as a reduction in deferred state income tax expense in
Fiscal 2000.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The primary market risk facing the Company is interest rate risk. From an enterprise perspective, the Company manages this risk by
striving to balance its loan origination (consumer and institutional) operations and mortgage-related investments, which are counter
cyclical in nature. In addition, the Company utilizes various financial instruments, including derivatives contracts, to manage the
interest rate risk related specifically to its committed pipeline, mortgage loan inventory and MBS held for sale, MSRs, MBS retained
in securitizations, trading securities and debt securities. The overall objective of the Company's interest rate risk management
policies is to offset changes in the values of these items resulting from changes in interest rates. The Company does not speculate
on the direction of interest rates in its management of interest rate risk.
As part of its interest rate risk management process, the Company performs various sensitivity analyses that quantify the net
financial impact of changes in interest rates on its interest rate-sensitive assets, liabilities and commitments. These analyses
incorporate scenarios including selected hypothetical (instantaneous) parallel shifts in the yield curve. Various modeling techniques
are employed to value the financial instruments. For mortgages loans, MBS and MBS forward contracts and CMOs, an option-adjusted
spread ("OAS") model is used. The primary assumptions used in this model are the implied market volatility of interest rates and
prepayment speeds. For options and interest rate floors, an option-pricing model is used. The primary assumption used in this model
is implied market volatility of interest rates. MSRs and residual interests are valued using discounted cash flow models. The primary
assumptions used in these models are prepayment rates, discount rates and credit losses.
Utilizing the sensitivity analyses described above, as of February 29, 2001, the Company estimates that a permanent 0.50%
reduction in interest rates, all else being constant, would result in no after-tax loss related to its trading securities or to its
other financial instruments and MSRs combined. These sensitivity analyses are limited by the fact that they are performed at a
particular point in time, are subject to the accuracy of various assumptions used, including prepayment forecasts, and do not
incorporate other factors that would impact the Company's overall financial performance in such a scenario. Consequently, the
preceding estimates should not be viewed as a forecast.
An additional, albeit less significant, market risk facing the Company is foreign currency risk. The Company has issued foreign
currency-denominated medium-term notes (See Note F). The Company manages the foreign currency risk associated with such medium-term
notes by entering into currency swaps. The terms of the currency swaps effectively translate the foreign currency denominated
medium-term notes into U.S. dollars, thereby eliminating the associated foreign currency risk (subject to the performance of the
various counterparties to the currency swaps). As a result, potential changes in the exchange rates of foreign currencies
denominating such medium-term notes would not have a net financial impact on future earnings, fair values or cash flows.
Inflation
Inflation affects the Company most significantly in the Consumer Mortgage Originations, Mortgage-Related Investments and Capital
Markets Segments. Interest rates normally increase during periods of high inflation and decrease during periods of low inflation.
Historically, as interest rates increase, loan production decreases, particularly from loan refinancings. Although in an environment
of gradual interest rate increases, purchase activity may actually be stimulated by an improving economy or the anticipation of
increasing real estate values. In such periods of reduced loan production, production margins may decline due to increased
competition resulting primarily from over capacity in the market. In a higher interest rate environment, mortgage-related investment
earnings are enhanced because prepayment rates tend to slow down thereby extending the average life of the Company's servicing
portfolio and reducing amortization and impairment of the MSRs, and because the rate of interest earned from the custodial balances
tends to increase. Conversely, as interest rates decline, loan production, particularly from loan refinancings, increases. However,
during such periods, prepayment rates tend to accelerate (principally on the portion of the portfolio having a note rate higher than
the prevailing mortgage rates), thereby decreasing the average life of the Company's servicing portfolio and adversely impacting its
mortgage-related investment earnings primarily due to increased amortization and impairment of the MSRs, and decreased earnings from
residual investments. The Servicing Hedge is designed to mitigate the impact of changing interest rates on mortgage-related
investment earnings.
Seasonality
The mortgage banking industry is generally subject to seasonal trends. These trends reflect the general national pattern of sales
and resales of homes, although refinancings tend to be less seasonal and more closely related to changes in mortgage rates. Sales
and resales of homes typically peak during the spring and summer seasons and decline to lower levels from mid-November through
February. In addition, delinquency rates typically rise temporarily in the winter months.
Liquidity and Capital Resources
The Company's principal financing needs related to its mortgage banking operations are the financing of its mortgage loan
inventory, investment in MSRs and available-for-sale securities. To meet these needs, the Company currently utilizes commercial
paper supported by revolving credit facilities, medium-term notes, MBS repurchase agreements, subordinated notes, pre-sale funding
facilities, redeemable capital trust pass-through securities, convertible debentures, securitization of servicing fee income and cash
flow from operations. In addition, in the past the Company has utilized whole loan repurchase agreements, servicing-secured bank
facilities, private placements of unsecured notes and other financings, direct borrowings from revolving credit facilities and public
offerings of common and preferred stock. The Company strives to maintain sufficient liquidity in the form of unused, committed lines
of credit to meet anticipated short-term cash requirements as well as to provide for potential sudden increases in business activity
driven by changes in the market environment.
Certain of the debt obligations of CCI and CHL contain various provisions that may affect the ability of CCI and CHL to pay
dividends and remain in compliance with such obligations. These provisions include requirements concerning net worth and other
financial covenants. These provisions have not had, and are not expected to have, an adverse impact on the ability of CCI and CHL to
pay dividends.
The principal financing needs of CCM consist of the financing of its inventory of securities and mortgage loans and its
underwriting activities. Its securities inventory is financed primarily through repurchase agreements. CCM also has access to a
$200 million secured bank loan facility and a secured lending facility with CHL.
The primary cash needs for the B2B Insurance Segment are to meet short-term and long-term obligations to policyholders (i.e.,
payment of policy benefits), costs of acquiring new business (principally commissions) and the purchases of new investments. To meet
these needs, Balboa currently utilizes cash flow provided from operations as well as through partial liquidation of its investment
portfolio from time to time.
The Company continues to investigate and pursue alternative and supplementary methods to finance its operations through the public
and private capital markets. These may include such methods as mortgage loan sale transactions designed to expand the Company's
financial capacity and reduce its cost of capital and the additional securitization of servicing income cash flows.
In connection with its derivative contracts, the Company may be required to deposit cash or certain government securities or
obtain letters of credit to meet margin requirements. The Company considers such potential margin requirements in its overall
liquidity management.
In the course of the Company's mortgage banking operations, the Company sells the mortgage loans it originates and purchases to
investors but generally retains the right to service the loans, thereby increasing the Company's investment in MSRs. The Company
views the sale of loans on a servicing-retained basis in part as an investment vehicle. Significant unanticipated prepayments in the
Company's servicing portfolio could have a material adverse effect on the Company's future operating results and liquidity.
Cash Flows
Operating Activities. In Fiscal 2001, the Company's operating activities used cash of approximately $3.3 billion on a short-term
basis to support an increase in trading securities and other financial instruments, primarily securities purchased under agreements
to resale. In Fiscal 2000, operating activities provided cash of approximately
$4.0 billion.
Investing Activities. The primary investing activity for which cash was used by the Company was the investment in MSRs and
available-for-sale securities. Net cash used by investing activities was $2.4 billion for Fiscal 2001 and $3.1 billion for Fiscal
2000.
Financing Activities. Net cash provided by financing activities amounted to $5.8 billion for Fiscal 2001 and net cash used by
financing activities amounted to $0.9 billion for Fiscal 2000. The increase in cash flow from financing activities was primarily
used to fund the Company's investment in MSRs and available-for-sale securities and the increase in trading securities and other
financial instruments.
Prospective Trends
Applications and Pipeline of Loans in Process
For the month ended April 30, 2001, the Company received new loan applications at an average daily rate of $675
million. As of April 30, 2001, the Company's pipeline of loans in process was $18.6 billion. This compares to a daily application
rate for the month ended April 30, 2000 of $344 million and a pipeline of loans in process as of April 30, 2000 of $9.2 billion. The
size of the pipeline is generally an indication of the level of near-term future fundings, as historically 41% to 77% of the pipeline
of loans in process has funded. In addition, at April 30, 2001, the Company had committed to make loans in the amount of $2.2
billion, subject to property identification and approval of the loans (the "LOCK `N SHOP(R)Pipeline"). At April 30, 2000, the LOCK `N
SHOP(R)Pipeline was $3.2 billion. Future application levels and loan fundings are dependent on numerous factors, including the level
of demand for mortgage loans, the level of competition in the market, the direction of mortgage rates, seasonal factors and general
economic conditions.
Market Factors
Loan production increased 3% from Fiscal 2000 to Fiscal 2001. This increase was primarily due to an increase in loan purchase
production of 14% to $49.7 billion during the same period driven by an increase in the Company's market share.
The prepayment rate in the servicing portfolio decreased from 13% for Fiscal 2000 to 11% for Fiscal 2001.
The Company's California mortgage loan production (as measured by principal balance) constituted 26% and 22% of its total
production during Fiscal 2001 and Fiscal 2000, respectively. Some regions in which the Company operates have experienced slower
economic growth, and real estate financing activity in these regions has been impacted negatively. The Company has striven to
diversify its mortgage banking activities geographically to mitigate such effects.
The delinquency rate in the Company's servicing portfolio, excluding sub-servicing, increased to 4.68% as of
February 28, 2001 from 3.97% as of February 29, 2000. This increase was primarily the result of changes in portfolio mix and aging.
Sub-prime loans (which tend to experience higher delinquency rates than prime loans) represented approximately 5% of the total
portfolio as of February 28, 2001, up from 3% as of
February 29, 2000. In addition, the weighted average age of the FHA and VA loans (which also tend to experience higher delinquency
sales than conventional loans) in the portfolio increased to 36 months at
February 28, 2001 from 31 months in February 29, 2000. Delinquency rates tend to increase as loans age, reaching a peak at three to
five years of age. Related late charge income has historically been sufficient to offset incremental servicing expenses resulting
from increased loan delinquencies.
The percentage of loans in the Company's servicing portfolio, excluding sub-servicing, that are in foreclosure increased to 0.54%
as of February 28, 2001 from 0.39% as of February 29, 2000. Because the Company services substantially all conventional loans on a
non-recourse basis, related credit losses are generally the responsibility of the investor or insurer and not the Company. While the
Company does not generally retain credit risk with respect to the prime credit quality first mortgage loans it sells, it does have
potential liability under representations and warranties made to purchasers and insurers of the loans. In the event of a breach of
these representations and warranties, the Company may be required to repurchase a mortgage loan and any subsequent loss on the
mortgage loan will be borne by the Company. Similarly, government loans serviced by the Company (22% of the Company's servicing
portfolio as of February 28, 2001) are insured by the FHA or partially guaranteed against loss by the VA. The Company is exposed to
credit losses to the extent that the partial guarantee provided by the VA is inadequate to cover the total credit losses incurred.
For Fiscal 2001, 2000 and 1999, the losses on VA loans in excess of the VA guarantee were approximately $4.1 million, $8.5 million
and $13.2 million, respectively. The Company retains credit risk on the home equity and sub-prime loans it securitizes, through
retention of a subordinated interest or through a corporate guarantee of losses up to a negotiated maximum amount. As of February
28, 2001, the Company had investments in such subordinated interests amounting to $763.6 million and had reserves amounting to $56.3
million related to such corporate guarantees.
Servicing Hedge
As previously discussed, the Company's Servicing Hedge is designed to protect the value of its investment in MSRs from the effects
of increased prepayment activity that generally results from declining interest rates. In periods of increasing interest rates, the
value of the Servicing Hedge generally declines and the value of MSRs generally increases. The historical correlation of the
Servicing Hedge and the MSRs has been very high. However, given the complexity and uncertainty inherent in hedging MSRs, there can
be no assurance that future results will match or approximate the historical performance of the Servicing Hedge.
Implementation of New Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement No. 133, Accounting for Derivative Instruments
and Hedging Activities, amended by Statement No. 137, Deferral of the Effective Date of FASB Statement No. 133 and Statement No. 138,
Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment to FASB Statement No. 133 (collectively,
"FAS 133"). FAS 133 requires companies to record derivatives on their balance sheets at fair value. Changes in the fair values of
those derivatives would be reported in earnings or other comprehensive income depending on the use of the derivative and whether it
qualifies for hedge accounting. The key criterion for hedge accounting is that the hedging relationship must be highly effective in
achieving offsetting changes in fair value of assets or liabilities or cash flows from forecasted transactions. This statement was
effective for the Company on March 1, 2001. At the date of initial application, the Company recorded certain transition adjustments
as required by FAS 133. There was no impact on net income as a result of such transition adjustments. However, such adjustments
resulted in the Company reducing the carrying amount of derivative assets by $94 million and recognizing $107 million of derivative
liabilities on its balance sheet. Management believes that the Company's hedging activities are highly effective over the long term.
However, the implementation of FAS 133 could result in more volatility in quarterly reported earnings as a result of market
conditions that temporarily impact the value of the derivatives while not reducing their long term hedge effect.
In September 2000, the FASB issued Statement No. 140 ("FAS 140"), Accounting for the Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities, which replaces FAS 125 (of the same title).
FAS 140 revises certain standards in the accounting for securitizations and other transfers of financial assets and collateral, and
requires some disclosures relating to securitization transactions and collateral that were not required by FAS 125; however, FAS 140
carries over most of FAS 125's provisions. The collateral and disclosure provisions of FAS 140 are effective for fiscal years ending
after December 15, 2000. The February 28, 2001 financial statements for the Company include the disclosures required by FAS 140. The
other provisions of FAS 140 are effective for transfers and servicing of financial assets and extinguishments of liabilities
occurring after March 31, 2001. Management does not expect that the adoption of this statement will have a material impact on the
Company.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In response to this Item, the information set forth on page 34 and Note A of this Form 10-K is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this Item 8 is hereby incorporated by reference from the Company's Financial Statements and
Auditors' Report beginning at page F-1 of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 is hereby incorporated by reference from the Company's definitive proxy statement, to be
filed pursuant to Regulation 14A within 120 days after the end of the fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is hereby incorporated by reference from the Company's definitive proxy statement, to be
filed pursuant to Regulation 14A within 120 days after the end of the fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is hereby incorporated by reference from the Company's definitive proxy statement, to be
filed pursuant to Regulation 14A within 120 days after the end of the fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is hereby incorporated by reference from the Company's definitive proxy statement, to be
filed pursuant to Regulation 14A within 120 days after the end of the fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) and (2) - Financial Statement Schedules.
The information called for by this section of Item 14 is set forth in the Financial Statements and Auditors' Report beginning at page
F-1 of this Form 10-K. The index to Financial Statements and Schedules is set forth at page F-2 of this Form 10-K.
(3) - Exhibits
Exhibit
No. Description
2.1* Agreement and Plan of Merger Among CWM Mortgage Holdings, Inc., Countrywide Asset
Management Corporation and Countrywide Credit Industries, Inc. (incorporated by
reference to Exhibit 2.1 to the Company's Annual Report on Form 10-K dated February
28, 1997).
3.1* Certificate of Amendment of Restated Certificate of Incorporation of Countrywide
Credit Industries, Inc. (incorporated by reference to Exhibit 4.1 to the Company's
Quarterly Report on Form 10-Q dated August 31, 1987).
3.2* Restated Certificate of Incorporation of Countrywide Credit Industries, Inc.
(incorporated by reference to Exhibit 4.2 to the Company's Quarterly Report on Form
10-Q dated August 31, 1987).
3.3* Bylaws of Countrywide Credit Industries, Inc., as amended and restated (incorporated
by reference to Exhibit 3 to the Company's Current Report on Form 8-K dated February
10, 1988).
3.3.1* Amendment to Bylaws of Countrywide Credit Industries, Inc. dated January 28, 1998
(incorporated by reference to Exhibit 3.3.1 to the Company's Annual Report on Form
10-K dated February 28, 1998).
3.3.2* Amendment to Bylaws of Countrywide Credit Industries, Inc. dated February 3, 1998
(incorporated by reference to Exhibit 3.3.1 to the Company's Annual Report on Form
10-K dated February 28, 1998).
3.3.3* Amendment to Bylaws of Countrywide Credit Industries, Inc. dated March 24, 2000
(incorporated by reference to Exhibit 3.3.3 to the Company's Annual Report on Form
10-K dated February 29, 2000).
3.3.4* Amendment to Bylaws of Countrywide Credit Industries, Inc. dated September 28, 2000
(incorporated by reference to Exhibit 3.3.4 to the Company's Quarterly Report on Form
10-Q dated August 31, 2000).
4.1* Rights Agreement, dated as of February 10, 1988, between Countrywide Credit
Industries, Inc. and Bank of America NT & SA, as Rights Agent (incorporated by
reference to Exhibit 4 to the Company's Form 8-A filed pursuant to Section 12 of the
Securities Exchange Act of 1934 on February 12, 1988).
4.1.1* Amendment No. 1 to Rights Agreement dated as of March 24, 1992 (incorporated by
reference to Exhibit 1 to the Company's Form 8 filed with the SEC on March 27, 1992).
4.2* Specimen Certificate of the Company's Common Stock (incorporated by reference to
Exhibit 4.2 to the Current Company's Report on Form 8-K dated February 6, 1987).
4.3* Specimen Debenture Certificate (incorporated by reference to Exhibit 4.3 to the
Company's Current Report on Form 8-K dated February 6, 1987).
4.4* Form of Medium-Term Notes, Series A (fixed-rate) of Countrywide Funding Corporation
(now known as Countrywide Home Loans, Inc.) ("CHL") (incorporated by reference to
Exhibit 4.2 to the Company's registration statement on Form S-3 (File Nos. 33-44194
and 33-44194-1) filed with the SEC on November 27, 1991).
4.5* Form of Medium-Term Notes, Series A (floating-rate) of CHL (incorporated by reference
to Exhibit 4.3 to the Company's registration statement on Form S-3 (File Nos.
33-44194 and 33-44194-1) filed with the SEC on November 27, 1991).
4.6* Form of Medium-Term Notes, Series B (fixed-rate) of CHL (incorporated by reference to
Exhibit 4.2 to the Company's registration statement on Form S-3 (File No. 33-51816)
filed with the SEC on September 9, 1992).
4.7* Form of Medium-Term Notes, Series B (floating-rate) of CHL (incorporated by reference
to Exhibit 4.3 to the Company's registration statement on Form S-3 (File No.
33-51816) filed with the SEC on September 9, 1992).
4.8* Form of Medium-Term Notes, Series C (fixed-rate) of CHL (incorporated by reference to
Exhibit 4.2 to the registration statement on Form S-3 of CHL and the Company (File
Nos. 33-50661 and 33-50661-01) filed with the SEC on
October 19, 1993).
4.9* Form of Medium-Term Notes, Series C (floating-rate) of CHL (incorporated by reference
to Exhibit 4.3 to the registration statement on Form S-3 of CHL and the Company
(File Nos. 33-50661 and 33-50661-01) filed with the SEC on
October 19, 1993).
4.10* Indenture dated as of January 1, 1992 among CHL, the Company and The Bank of New
York, as trustee (incorporated by reference to Exhibit 4.1 to the registration
statement on Form S-3 of CHL and the Company (File Nos. 33-50661 and 33-50661-01)
filed with the SEC on October 19, 1993).
4.10.1* Form of Supplemental Indenture No. 1 dated as of June 15, 1995, to the Indenture
dated as of January 1, 1992, among CHL, the Company, and The Bank of New York, as
trustee (incorporated by reference to Exhibit 4.9 to Amendment No. 2 to the
registration statement on Form S-3 of the Company and CHL (File Nos. 33-59559 and
33-59559-01) filed with the SEC on June 16, 1995).
4.11* Form of Medium-Term Notes, Series D (fixed-rate) of CHL (incorporated by reference to
Exhibit 4.10 to Amendment No. 2 to the registration statement on Form S-3 of the
Company and CHL (File Nos. 33-59559 and 33-59559-01) filed with the SEC on June 16,
1995).
4.12* Form of Medium-Term Notes, Series D (floating-rate) of CHL (incorporated by reference
to Exhibit 4.11 to Amendment No. 2 to the registration statement on Form S-3 of the
Company and CHL (File Nos. 33-59559 and 33-59559-01) filed with the SEC on June 16,
1995).
4.13* Form of Medium-Term Notes, Series E (fixed-rate) of CHL (incorporated by reference to
Exhibit 4.3 to Post-Effective Amendment No. 1 to the registration statement on Form
S-3 of the Company and CHL (File Nos. 333-3835 and 333-3835-01) filed with the SEC on
August 2, 1996).
4.14* Form of Medium-Term Notes, Series E (floating rate) of CHL (incorporated by reference
to Exhibit 4.4 to Post-Effective Amendment No. 1 to the registration statement on
Form S-3 of the Company and CHL (File Nos. 333-3835 and 333-3835-01) filed with the
SEC on August 2, 1996).
4.15* Trust Deed dated 1st May, 1998 among CHL, the Company and Bankers Trustee Company
Limited, as Trustee for Euro Medium Notes of CHL (incorporated by reference to
Exhibit 4.15 to the Company's Quarterly Report on Form 10-Q dated May 31, 1998).
4.16* First Supplemental Trust Deed dated 16th December, 1998, modifying the provisions of
a Trust Deed dated 1st May, 1998 among CHL, the Company and Bankers Trustee Company
Limited, as Trustee for Euro Medium Notes of CHL (incorporated by reference to
Exhibit 4.16 to the Company's Annual Report on Form 10-K dated February 28, 1999).
4.16.1* Form of Medium-Term Notes, Series F (fixed-rate) of CHL (incorporated by reference to
Exhibit 4.3 to the registration statement on Form S-3 of the Company and CHL (File
Nos. 333-31529 and 333-31529-01) filed with the SEC on July 29, 1997).
4.16.2* Form of Medium-Term Notes, Series F (floating-rate) of CHL (incorporated by reference
to Exhibit 4.4 to the registration statement on Form S-3 of the Company and CHL (File
Nos. 333-31529 and 333-31529-01) filed with the SEC on July 29, 1997).
4.16.3 Second Supplemental Trust Deed dated 23rd day of December, 1999, further modifying
the provisions of a Trust Deed dated 1st May, 1998 among CHL, the Company and Bankers
Trustee Company Limited, as Trustee for Euro Medium Notes of CHL.
4.16.4 Third Supplemental Trust Deed dated 12th day of January, 2001, further modifying the
provisions of a Trust Deed dated 1st May, 1998 among CHL, the Company and Bankers
Trustee Company Limited, as Trustee for Euro Medium Notes of CHL.
4.17* Form of Medium-Term Notes, Series G (fixed-rate) of CHL (incorporated by reference to
Exhibit 4.10 to the registration statement on Form S-3 of the Company and CHL (File
Nos. 333-58125 and 333-58125-01) filed with the SEC on June 30, 1998).
4.18* Form of Medium-Term Notes, Series G (floating-rate) of CHL (incorporated by reference
to Exhibit 4.11 to the registration statement on Form S-3 of the Company and CHL
(File Nos. 333-58125 and 333-58125-01) filed with the SEC on June 30, 1998).
4.19* Form of Medium-Term Notes, Series H (fixed-rate) of CHL (incorporated by reference to
Exhibit 4.3 to the registration statement on Form S-3 of the Company and CHL (File
Nos. 333-66467 and 333-66467-01) filed with the SEC on October 30, 1998).
4.20* Form of Medium-Term Notes, Series H (floating-rate) of CHL (incorporated by reference
to Exhibit 4.4 to the registration statement on Form S-3 of the Company and CHL (File
Nos. 333-66467 and 333-66467-01) filed with the SEC on October 30, 1998).
4.21* Form of 6.85% Note due 2004 of CHL (incorporated by reference to Exhibit 2 to the
Company's Current Report on Form 8-K dated June 21, 1999).
4.22* Form of Medium-Term Notes, Series I (floating-rate) of CHL (incorporated by reference
to Exhibit 4.16 to the registration statement on Form S-3 of the Company and CHL
(File Nos. 333-82583 and 333-82583-01) filed with the SEC on
June 5, 2000).
4.23* Form of Medium-Term Notes, Series I (fixed-rate) of CHL (incorporated by reference to
Exhibit 4.15 to the registration statement on Form S-3 of the Company and CHL (File
Nos. 333-82583 and 333-82583-01) filed with the SEC on June 5, 2000).
4.24* Form of Medium-Term Notes, Series J (floating-rate) of CHL (incorporated by reference
to Exhibit 4.15 to the registration statement on Form S-3 of the Company and CHL
(File Nos. 333-55536 and 333-55536-01) filed with the SEC on
February 14, 2001).
4.25* Form of Medium-Term Notes, Series J (fixed-rate) of CHL (incorporated by reference to
Exhibit 4.14 to the registration statement on Form S-3 of the Company and CHL (File
Nos. 333-55536 and 333-55536-01) filed with the SEC on February 14, 2001).
4.26* Liquid Yield Option Notes Due February 8, 2031 (Zero Coupon Senior) (incorporated by
reference to Exhibit 4.8 of registration statement on Form S-3 of the Company and CHL
(File Nos. 333-59614 and 333-59614-01) filed with the SEC on April 26, 2000).
4.27* Indenture, dated as of February 8, 2001, among the Company, CHL and The Bank of New
York, as trustee (incorporated by reference to Exhibit 4.7 of registration statement
on Form S-3 of the Company and CHL (File Nos. 333-59614 and 333-59614-01) filed with
the SEC on April 26, 2000).
4.28* Registration Rights Agreement, dated as of February 8, 2001, among the Company, CHL and
Merrill Lynch, Pierce, Fenner & Smith Incorporated (incorporated by reference to
Exhibit 4.7 of registration statement on Form S-3 of the Company and CHL (File Nos.
333-59614 and 333-59614-01) filed with the SEC on April 26, 2000).
+ 10.3.3* Third Restated Employment Agreement by and between the Company and Angelo R. Mozilo
in effect as of March 1, 2000 (incorporated by reference to Exhibit 10.3.3 to the
Company's Annual Report on Form 10-K dated February 29, 2000).
+ 10.3.4* Fourth Restated Employment Agreement by and between the Company and Angelo R. Mozilo
(incorporated by reference to Exhibit 10.3.4 to the Company's Quarterly Report on
Form 10-Q dated August 31, 2000).
+ 10.4.1* Employment Agreement by and between the Company and Stanford L. Kurland, dated as of
March 1, 1999 (incorporated by reference to Exhibit 10.4.1 to the Company's Annual
Report on Form 10-K dated February 28, 1999).
+ 10.4.2* First Restated Employment Agreement by and between the Company and
Stanford L. Kurland (incorporated by reference to Exhibit 10.4.2 to the Company's
Quarterly Report on Form 10-Q dated August 31, 2000).
+ 10.4.3* First Restated Employment Agreement by and between the Company and
Kevin W. Bartlett (incorporated by reference to Exhibit 10.4.3 to the Company's
Quarterly Report on Form 10-Q dated August 31, 2000).
+ 10.4.4* First Restated Employment Agreement by and between the Company and Thomas H. Boone
(incorporated by reference to Exhibit 10.4.4 to the Company's Quarterly Report on Form
10-Q dated August 31, 2000).
+ 10.4.5* First Restated Employment Agreement by and between the Company and
Carlos M. Garcia (incorporated by reference to Exhibit 10.4.5 to the Company's
Quarterly Report on Form 10-Q dated August 31, 2000).
+ 10.4.6* First Restated Employment Agreement by and between the Company and
David Sambol (incorporated by reference to Exhibit 10.4.6 to the Company's Quarterly
Report on Form 10-Q dated August 31, 2000).
+ 10.4.7* First Restated Employment Agreement by and between the Company and
Sandor E. Samuels (incorporated by reference to Exhibit 10.4.7 to the Company's
Quarterly Report on Form 10-Q dated August 31, 2000).
+ 10.4.8* Fiscal Year 2001 Bonus Plan for Certain Executive Officers (incorporated by reference
to Exhibit 10.4.8 to the Company's Quarterly Report on Form 10-Q dated August 31, 2000).
+ 10.5* Countrywide Credit Industries, Inc. Deferred Compensation Agreement for Non-Employee
Directors (incorporated by reference to Exhibit 5.2 to the Company's Quarterly Report
on Form 10-Q dated August 31, 1987).
+ 10.5.1* Supplemental Form of Countrywide Credit Industries, Inc. Deferred Compensation
Agreement for Non-Employee Directors (incorporated by reference to Exhibit 10.5.1 to
the Company's Quarterly Report on Form 10-Q dated May 31, 1998).
+ 10.7.3* Countrywide Credit Industries, Inc. Deferred Compensation Plan Amended and Restated
effective March 1, 2000 (incorporated by reference to Exhibit 10.7.3 to the Company's
Quarterly Report on Form 10-Q dated May 31, 2000).
10.8* Revolving Credit Agreement dated as of the 24th day of September, 1997, by and among
Countrywide Home Loans, Inc., Bankers Trust Company, The First National Bank of
Chicago, The Bank of New York, Chase Securities Inc., The Chase Manhattan Bank and
the Lenders Party thereto. (incorporated by reference to Exhibit 10.8 to the
Company's Quarterly report on Form 10-Q dated August 31, 1997).
10.8.3* Amendment to Revolving Credit Agreement dated as of the 25th day of November, 1998 by
and among CHL, the Lenders under (as that term is defined in) the Revolving Credit
Agreement dated as of September 24, 1997, and Bankers Trust Company as Credit Agent
(incorporated by reference to Exhibit 10.8.3 to the Company's Quarterly Report on
Form 10-Q dated November 30, 1998).
10.8.4 Second Amendment to Revolving Credit Agreement dated as of the 15th day of April,
1999 by and among CHL, the Lenders under (as that term is defined in) the Revolving
Credit Agreement dated as of September 24, 1997, and Bankers Trust Company as Credit
Agent.
10.8.7.1 Credit Agreement as of the 11th day of April, 2001, by and among CHL, Royal Bank of
Canada, ABN AMRO Bank, N.V., Credit Lyonnais New York Branch, Commerzbank AG, New
York Branch, and the Lenders Party thereto.
10.8.8* Short Term Facility Extension Amendment dated as of the 20th day of September 2000 by
and among CHL, the Short Term Lenders under the Revolving Credit Agreement dated as
of September 24, 1997 and Bankers Trust Company as Credit Agent (incorporated by
reference to Exhibit 10.8.8 to the Company's Quarterly Report on Form 10-Q dated
August 31, 2000).
+ 10.11* 1987 Stock Option Plan, as Amended and Restated on May 15, 1989 (incorporated by
reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K dated February
28, 1989).
+ 10.11.1* First Amendment to the 1987 Stock Option Plan as Amended and Restated. (incorporated
by reference to Exhibit 10.11.1 to the Company's Quarterly Report on Form 10-Q dated
November 30, 1997).
+ 10.11.2* Second Amendment to the 1987 Stock Option Plan as Amended and Restated. (incorporated
by reference to Exhibit 10.11.2 to the Company's Quarterly Report on Form 10-Q dated
November 30, 1997).
+ 10.11.3* Third Amendment to the 1987 Stock Option Plan as Amended and Restated (incorporated
by reference to Exhibit 10.11.3 to the Company's Quarterly Report on Form 10-Q dated
November 30, 1997).
+ 10.11.4* Fourth Amendment to the 1987 Stock Option Plan as Amended and Restated (incorporated
by reference to Exhibit 10.11.4 to the Company's Quarterly Report on Form 10-Q dated
May 31, 1998).
+ 10.13* 1985 Non-Qualified Stock Option Plan as amended (incorporated by reference to Exhibit
10.9 to Post-Effective Amendment No. 2 to the Company's registration statement on
Form S-8 (File No. 33-9231) filed with the SEC on December 20, 1988).
+ 10.15* 1982 Incentive Stock Option Plan as amended (incorporated by reference to Exhibits
10.2 - 10.5 to Post-Effective Amendment No. 2 to the Company's registration statement
on Form S-8 (File No. 33-9231) filed with the SEC on December 20, 1988).
+ 10.16* Amended and Restated Stock Option Financing Plan (incorporated by reference to
Exhibit 10.12 to Post-Effective Amendment No. 2 to the Company's registration
statement on Form S-8 (File No. 33-9231) filed with the SEC on December 20, 1988).
+ 10.20* 1991 Stock Option Plan (incorporated by reference to Exhibit 10.19 to the Company's
Annual Report on Form 10-K dated February 29, 1992).
+ 10.20.1* First Amendment to the 1991 Stock Option Plan (incorporated by reference to Exhibit
10.19.1 to the Company's Annual Report on Form 10-K dated February 28, 1993).
+ 10.20.2* Second Amendment to the 1991 Stock Option Plan (incorporated by reference to Exhibit
10.19.2 to the Company's Annual Report on Form 10-K dated February 28, 1993).
+ 10.20.3* Third Amendment to the 1991 Stock Option Plan (incorporated by reference to Exhibit
10.19.3 to the Company's Annual Report on Form 10-K dated February 28, 1993).
+ 10.20.4* Fourth Amendment to the 1991 Stock Option Plan (incorporated by reference to Exhibit
10.19.4 to the Company's Annual Report on Form 10-K dated
February 28, 1993).
+ 10.20.5* Fifth Amendment to the 1991 Stock Option Plan (incorporated by reference to Exhibit
10.19.5 to the Company's Annual Report on Form 10-K dated February 28, 1995).
+ 10.20.6* Sixth Amendment to the 1991 Stock Option Plan (incorporated by reference to Exhibit
10.20.6 to the Company's Annual Report on Form 10-Q dated November 30, 1997).
+ 10.20.7* Seventh Amendment to the 1991 Stock Option Plan (incorporated by reference to Exhibit
10.20.7 to the Company's Annual Report on Form 10-Q dated
November 30, 1997).
+ 10.20.8* Eighth Amendment to the 1991 Stock Option Plan (incorporated by reference to Exhibit
10.20.8 to the Company's Quarterly Report on Form 10-Q dated
May 31, 1998).
+ 10.21* 1992 Stock Option Plan dated as of December 22, 1992 (incorporated by reference to
Exhibit 10.19.5 to the Company's Annual Report on Form 10-K dated
February 28, 1993).
+ 10.21.1* First Amendment to the 1992 Stock Option Plan (incorporated by reference to Exhibit
10.21.1 to the Company's Quarterly Report on Form 10-Q dated November 30, 1997).
+ 10.21.2* Second Amendment to the 1992 Stock Option Plan (incorporated by reference to Exhibit
10.21.2 to the Company's Quarterly Report on Form 10-Q dated
November 30, 1997).
+ 10.21.3* Third Amendment to the 1992 Stock Option Plan (incorporated by reference to Exhibit
10.21.3 to the Company's Quarterly Report on Form 10-Q dated May 31, 1998).
+ 10.22* Amended and Restated 1993 Stock Option Plan (incorporated by reference to Exhibit
10.5 to the Company's Quarterly Report on Form 10-Q dated August 31, 1996).
+ 10.22.1* First Amendment to the Amended and Restated 1993 Stock Option Plan (incorporated by
reference to Exhibit 10.5.1 to the Company's Quarterly Report on Form 10-Q dated
August 31, 1996).
+ 10.22.2* Second Amendment to the Amended and Restated 1993 Stock Option Plan. (incorporated by
reference to Exhibit 10.22.2 to the Company's Quarterly Report on Form 10-Q dated
November 30, 1997).
+ 10.22.3* Third Amendment to the Amended and Restated 1993 Stock Option Plan (incorporated by
reference to Exhibit 10.22.3 to the Company's Annual Report on Form 10-K dated
February 28, 1998).
+ 10.22.4* Fourth Amendment to the Amended and Restated 1993 Stock Option Plan (incorporated by
reference to Exhibit 10.22.4 to the Company's Quarterly Report on Form 10-Q dated May
31, 1998).
+ 10.22.5* Fifth Amendment to the Amended and Restated 1993 Stock Option Plan (incorporated by
reference to Exhibit 10.22.5 to the Company's Quarterly Report on Form 10-Q dated
August 31, 1998).
10.22.6 2000 Stock Option Plan effective as of July 12, 2000.
+ 10.23.1* Amended and Restated Supplemental Executive Retirement Plan (incorporated by
reference to Exhibit 10.23.1 to the Company's Annual Report on Form 10-K dated
February 28, 1998).
+ 10.23.2* First Amendment, effective January 1, 1999, to the Company's Supplemental Executive
Retirement Plan 1998 Amendment and Restatement (incorporated by reference to Exhibit
10.23.2 to the Company's Annual Report on Form 10-K dated February 28, 1999).
+ 10.23.3* Second Amendment, effective as of June 30, 1999, to the Company's Supplemental
Executive Retirement Plan (incorporated by reference to Exhibit 10.23.3 to the
Company's Quarterly Report on Form 10-Q dated August 31, 1999).
+ 10.24.1* Amended and Restated Split-Dollar Life Insurance Agreement (incorporated by reference
to Exhibit 10.24.1 to the Company's Quarterly Report on Form 10-Q dated November 30,
1998).
+ 10.25* Split-Dollar Collateral Assignment (incorporated by reference to Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q dated May 31, 1994).
+ 10.26* Annual Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company's
Quarterly Report on Form 10-Q dated August 31, 1996).
+ 10.27.2* Countrywide Credit Industries, Inc. Change in Control Severance Plan as Amended and
Restated September 11, 2000 (incorporated by reference to Exhibit 10.27.2 to the
Company's Quarterly Report on Form 10-Q dated August 31, 2000).
+ 10.28* Summary of the Termination of Director Emeritus Plan (incorporated by reference to
Exhibit 10.28 to the Company's Quarterly Report on Form 10-Q dated
August 31, 2000).
10.29 Form of Restricted Stock Award Agreement with non-employee directors dated as of June
1, 1999.
10.29.1 Form of Amendment Number One, dated September 20, 2000, to the Restricted Stock Award
Agreement with non-employee directors dated as of June 1, 1999.
10.30 Form of Restricted Stock Award Agreement with non-employee directors dated as of
March 1, 2000.
10.30.1 Form of Amendment Number One, dated September 20, 2000, to the Restricted Stock Award
Agreement with non-employee directors dated as of March 1, 2000.
10.31 Form of Restricted Stock Award Agreement with non-employee directors dated as of
March 1, 2001.
21 List of subsidiaries.
* Incorporated by reference
+Constitutes a management contract or compensatory plan or arrangement.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
COUNTRYWIDE CREDIT INDUSTRIES, INC.
By: /s/ Angelo R. Mozilo
------------------------------------------------
Angelo R. Mozilo, Chief Executive Officer,
President and Chairman of the Board of Directors
(Principal Executive Officer)
Dated: May 10, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on
behalf of the Registrant in the capacities and on the dates indicated.
Signatures Title Date
/s/ Angelo R. Mozilo Chief Executive Officer, President and May 25, 2001
---------------------------------------
---------------------------------------
Angelo R. Mozilo Chairman of the Board of Directors
(Principal Executive Officer)
/s/ Stanford L. Kurland Executive Managing Director, Chief May 25, 2001
---------------------------------------
---------------------------------------
Stanford L. Kurland Operating Officer and Director
/s/ Carlos M. Garcia Senior Managing Director, May 25, 2001
---------------------------------------
Carlos M. Garcia Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
/s/ Jeffrey M. Cunningham Director May 25, 2001
---------------------------------------
Jeffrey M. Cunningham
/s/ Robert J. Donato Director May 25, 2001
---------------------------------------
Robert J. Donato
/s/ Michael E. Dougherty Director May 25, 2001
---------------------------------------
---------------------------------------
Michael E. Dougherty
/s/ Ben M. Enis Director May 25, 2001
---------------------------------------
Ben M. Enis
/s/ Edwin Heller Director May 25, 2001
---------------------------------------
Edwin Heller
/s/ Harley W. Snyder Director May 25, 2001
---------------------------------------
Harley W. Snyder
/s/ Oscar P. Robertson Director May 25, 2001
---------------------------------------
Oscar P. Robertson
F-1
COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
For Inclusion in Form 10-K
Annual Report Filed with
Securities and Exchange Commission
February 28, 2001
F-9
COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
February 28, 2001
Page
---------------
Report of Independent Certified Public Accountants................................................. F-3
Financial Statements
Consolidated Balance Sheets................................................................... F-4
Consolidated Statements of Earnings........................................................... F-5
Consolidated Statement of Common Shareholders' Equity......................................... F-6
Consolidated Statements of Cash Flows......................................................... F-7
Consolidated Statements of Comprehensive Income............................................... F-8
Notes to Consolidated Financial Statements.................................................... F-9
Schedules
Schedule I - Condensed Financial Information of Registrant.................................... F-41
Schedule II - Valuation and Qualifying Accounts............................................... F-45
All other schedules have been omitted since the required information is not present or not present in amounts sufficient to
require submission of the schedules, or because the information required is included in the consolidated financial statements or
notes thereto.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
Board of Directors and Shareholders
Countrywide Credit Industries, Inc.
We have audited the accompanying consolidated balance sheets of Countrywide Credit Industries, Inc. and Subsidiaries as of February
28, 2001 and February 29, 2000, and the related consolidated statements of earnings, common shareholders' equity, cash flows and
comprehensive income for each of the three years in the period ended February 28, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial
position of Countrywide Credit Industries, Inc. and Subsidiaries as of February 28, 2001 and February 29, 2000, and the consolidated
results of their operations and their consolidated cash flows for each of the three years in the period ended February 28, 2001, in
conformity with accounting principles generally accepted in the United States.
We have also audited Schedules I and II for each of the three years in the period ended February 28, 2001. In our opinion, such
schedules present fairly, in all material respects, the information required to be set forth therein.
Los Angeles, California
April 25, 2001
COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
February 28(29),
(Dollar amounts in thousands, except per share data)
A S S E T S
2001 2000
------------------- -------------------
Cash $ 126,496 $ 59,890
Mortgage loans and mortgage-backed securities held for sale 1,964,018 2,653,183
Trading securities, at market value ($309,089 pledged as 4,050,082 1,984,031
collateral)
Mortgage servicing rights, net 5,767,748 5,396,477
Investments in other financial instruments 4,160,314 3,174,194
Securities purchased under agreements to resell 3,109,556 435,593
Property, equipment and leasehold improvements, net 396,943 410,899
Other assets 3,380,350 1,708,061
------------------- -------------------
Total assets $22,955,507 $15,822,328
=================== ===================
Borrower and investor custodial accounts (segregated in special
accounts - excluded from corporate assets) $5,553,143 $2,852,738
=================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable $11,402,791 $ 8,281,216
Securities sold under agreements to repurchase 3,541,230 1,501,409
Drafts payable issued in connection with mortgage loan closings 932,931 382,108
Accounts payable, accrued liabilities and other 1,449,288 997,405
Deferred income taxes 1,570,003 1,272,311
------------------- -------------------
Total liabilities 18,896,243 12,434,449
Commitments and contingencies -
-
Company-obligated mandatorily redeemable capital trust pass-
through securities of subsidiary trusts holding solely Company
guaranteed related subordinated debt 500,000 500,000
Shareholders' equity
Preferred stock - authorized, 1,500,000 shares of $0.05 par value;
issued and outstanding, none -
-
Common stock - authorized, 240,000,000 shares of $0.05 par
value; issued and outstanding, 117,732,249 shares in 2001 and
113,463,424 shares in 2000 5,887 5,673
Additional paid-in capital 1,307,679 1,171,238
Accumulated other comprehensive income (loss) 173,249 (33,234)
Retained earnings 2,072,449 1,744,202
------------------- -------------------
Total shareholders' equity 3,559,264 2,887,879
------------------- -------------------
Total liabilities and shareholders' equity $22,955,507 $15,822,328
=================== ===================
Borrower and investor custodial accounts $5,553,143 $2,852,738
=================== ===================
The accompanying notes are an integral part of these statements.
COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Year ended February 28(29),
(Dollar amounts in thousands, except per share data)
2001 2000 1999
--------------- -------------- --------------
Revenues
Loan origination fees $398,544 $406,458 $ 623,531
Gain on sale of loans, net of commitment fees 611,092 557,743 699,433
--------------- -------------- --------------
Loan production revenue 1,009,636 964,201 1,322,964
Interest earned 1,341,402 998,646 1,029,066
Interest charges (1,348,242) (922,225) (977,326)
--------------- -------------- --------------
Net interest (6,840) 76,421 51,740
Loan servicing revenues 1,201,177 996,861 842,583
Amortization and impairment/recovery of
mortgage servicing rights, net of servicing hedge (617,153) (445,138) (600,766)
--------------- -------------- --------------
Net loan administration income 584,024 551,723 241,817
Net premiums earned 274,039 75,786 12,504
Commissions, fees and other income 195,462 202,742 175,363
--------------- -------------- --------------
Total revenues 2,056,321 1,870,873 1,804,388
Expenses
Salaries and related expenses 769,287 689,768 669,686
Occupancy and other office expenses 275,074 270,015 264,575
Marketing expenses 71,557 72,930 64,510
Insurance net losses 106,827 23,420 -
Other operating expenses 247,541 183,542 173,812
--------------- -------------- --------------
Total expenses 1,470,286 1,239,675 1,172,583
--------------- -------------- --------------
Earnings before income taxes 586,035 631,198 631,805
Provision for income taxes 211,882 220,955 246,404
--------------- -------------- --------------
NET EARNINGS $374,153 $410,243 $385,401
=============== ============== ==============
Earnings per share
Basic $3.26 $3.63 $3.46
Diluted $3.14 $3.52 $3.29
The accompanying notes are an integral part of these statements.
COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY
Three years ended February 28(29),
(Dollar amounts in thousands)
Accumulated
Additional Other
Number Common Paid-in- Comprehensive Retained
of Shares Stock Capital Income (Loss) Earnings Total
-------------- ----------- ------------------------------------------------------------
Balance at February 28, 1998 109,205,579 $5,460 $1,049,365 $ 3,697 $1,029,421 $2,087,943
Cash dividends paid - common - - - - (35,648) (35,648)
Stock options exercised 1,239,662 62 20,047 - - 20,109
Tax benefit of stock options exercised - - 11,456 - - 11,456
Dividend reinvestment plan 2,048,062 103 66,669 - - 66,772
401(k) Plan contribution 126,010 6 6,136 - - 6,142
Other comprehensive loss, net of tax - - - (23,290) - (23,290)
Net earnings for the year - - - - 385,401 385,401
--- --
- ------------------------------------------------------------------- ------------------------------------------------------------
Balance at February 28, 1999 112,619,313 5,631 1,153,673 (19,593) 1,379,174 2,518,885
Cash dividends paid - common - - - - (45,215) (45,215)
Stock options exercised 602,021 31 6,709 - - 6,740
Tax benefit of stock options exercised - - 1,883 - - 1,883
Dividend reinvestment plan 61,869 2 1,986 - - 1,988
401(k) Plan contribution 180,221 9 6,987 - - 6,996
Other comprehensive loss, net of tax - - - (13,641) - (13,641)
Net earnings for the year - - - - 410,243 410,243
- --------------------------------------------------------------------------------------------------------------------------------
Balance at February 29, 2000 113,463,424 5,673 1,171,238 (33,234) 1,744,202 2,887,879
Cash dividends paid - common - - - - (45,906) (45,906)
Stock options exercised 2,797,939 140 57,468 - - 57,608
Tax benefit of stock options exercised - - 17,375 - - 17,375
Dividend reinvestment plan 1,133,101 57 51,720 - - 51,777
401(k) Plan contribution 264,018 13 7,865 - - 7,878
Issued to employee stock purchase plan 73,767 2,013 - - 2,017
4
Other comprehensive income, net of tax - - - 206,483 - 206,483
Net earnings for the year - - - - 374,153 374,153
- --------------------------------------------------------------------------------------------------------------------------------
Balance at February 28, 2001 117,732,249 $5,887 $1,307,679 $173,249 $2,072,449 $3,559,264
================================================================================================================================
The accompanying notes are an integral part of this statement.
COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash
Year ended February 28(29),
(Dollar amounts in thousands)
2001 2000 1999
---------------- ----------------- ----------------
Cash flows from operating activities:
Net earnings $374,153 $410,243 $385,401
Adjustments to reconcile net earnings to net cash
provided (used) by operating activities:
Gain on sale of available-for-sale securities (56,965) (12,332) (56,801)
Gain on sale of subsidiary - (4,424) -
Gain on sale of securitized service fees - (2,650) -
Amortization and impairment/recovery of mortgage
servicing rights 1,414,388 181,101 1,013,578
Depreciation and other amortization 70,736 65,947 49,210
Deferred income taxes 211,882 220,955 246,404
Origination and purchase of loans held for sale (68,923,245) (66,739,744) (92,880,538)
Principal repayments and sale of loans 69,612,410 70,317,781 91,941,509
---------------- ----------------- ----------------
Decrease (increase) in mortgage loans and mortgage-
backed securities held for sale 689,165 3,578,037 (939,029)
(Increase) decrease in other financial instruments (20,345) 438,069 (269,711)
Increase in trading securities (2,066,051) (523,585) (1,216,499)
Increase in securities purchased under agreements to resale (2,673,963) (359,347) (22,686)
Increase in other assets (1,705,133) (33,722) (32,763)
Increase in accounts payable and accrued liabilities 451,883 6,263 35,259
---------------- ----------------- ----------------
Net (used) cash provided by operating activities (3,310,250) 3,964,555 (807,637)
---------------- ----------------- ----------------
Cash flows from investing activities:
Additions to mortgage servicing rights, net (1,785,659) (1,299,909) (1,898,007)
Additions to available-for-sale securities (1,480,079) (1,519,545) (195,828)
Proceeds from sale of securitized service fees - 197,616 -
Acquisition of insurance company - (425,000) -
Purchase of property, equipment and leasehold
improvements, net (38,721) (150,537) (119,507)
Proceeds from sale of available-for-sale securities 895,736 96,200 231,555
Proceeds from sale of subsidiary - 21,053 -
---------------- ----------------- ----------------
Net cash used by investing activities (2,408,723) (3,080,122) (1,981,787)
---------------- ----------------- ----------------
Cash flows from financing activities:
Net increase (decrease) in
short-term borrowings 3,252,032 (790,117) (1,122,273)
Issuance of long-term debt 3,417,237 2,224,354 4,044,121
Repayment of long-term debt (957,050) (2,288,762) (142,096)
Issuance of common stock 119,266 16,449 93,361
Cash dividends paid (45,906) (45,215) (35,648)
---------------- ----------------- ----------------
Net cash provided (used) by financing activities 5,785,579 (883,291) 2,837,465
---------------- ----------------- ----------------
Net increase in cash 66,606 1,142 48,041
Cash at beginning of period 59,890 58,748 10,707
---------------- ----------------- ----------------
Cash at end of period $126,496 $ 59,890 $ 58,748
================ ================= ================
Supplemental cash flow information:
Cash used to pay interest $ 1,336,506 $ 902,491 $ 876,236
Cash used to pay income taxes $ 14,799 $ 7,084 $ 1,407
Noncash financing activities:
Unrealized gain (loss) on available-for-sale securities,
net of tax $ 206,483 $ (13,641) $ (23,290)
The accompanying notes are an integral part of these statements.
COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Year Ended February 28(29),
(Dollar amounts in thousands)
2001 2000 1999
--------------- ----------------- ---------------
NET EARNINGS $374,153 $410,243 $385,401
Other comprehensive income, net of tax:
Unrealized gains (losses) on available for sale
securities:
Unrealized holding gains (losses) arising
during the period, before tax 381,587 (9,356) 18,556
Income tax (expense) benefit (138,876) 3,331 (7,237)
--------------- ----------------- ---------------
Unrealized holding gains (losses) arising
during the period, net of tax 242,711 (6,025) 11,319
Less: reclassification adjustment for gains
included in net earnings, (56,965) (12,332) (56,801)
before tax
Income tax expense 20,737 4,716 22,192
--------------- ----------------- ---------------
Reclassification adjustment for gains included
in net earnings, net of tax (36,228) (7,616) (34,609)
--------------- ----------------- ---------------
Other comprehensive income (loss) 206,483 (13,641) (23,290)
--------------- ----------------- ---------------
COMPREHENSIVE INCOME $580,636 $396,602 $362,111
=============== ================= ===============
The accompanying notes are an integral part of these statements.
COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Countrywide Credit Industries, Inc. (the "Company") is a holding company, which through its principal subsidiary, Countrywide Home Loans, Inc.
("CHL"), is engaged primarily in the mortgage banking business and as such originates, purchases, sells and services mortgage loans throughout
the United States. In preparing financial statements in conformity with generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at
the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates.
A summary of the Company's significant accounting policies consistently applied in the preparation of the accompanying consolidated financial
statements follows.
Principles of Consolidation
The consolidated financial statements include the accounts of the parent and all wholly-owned subsidiaries that are required to be
consolidated under generally accepted accounting principles. All material intercompany accounts and transactions have been eliminated.
Mortgage Loans and Mortgage-Backed Securities Held for Sale
Mortgage loans held for sale are carried at the lower of cost or market, which is computed by the aggregate method (unrealized losses are
offset by unrealized gains). The cost of mortgage loans and the carrying value of mortgage-backed securities ("MBS") held for sale in the near
term are adjusted by gains and losses generated from corresponding hedging transactions entered into to protect the value of the mortgage loans
and MBS held for sale from increases in interest rates. Hedging transactions also are entered into to protect the value of the Company's
short-term rate and point commitments to fund mortgage loan applications in process (the "Committed Pipeline") from increases in interest rates.
Gains and losses generated from such hedging transactions are deferred. Hedging losses are recognized currently if deferring such losses would
result in mortgage loans and MBS held for sale and the Committed Pipeline being effectively valued in excess of their estimated net realizable
value.
The Company's MBS held for sale in the near term are classified as trading. Trading securities are recorded at fair value, with the change in
fair value during the period included in earnings. The fair value of MBS held for sale in the near term is based on quoted market prices.
Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements are stated at cost, less accumulated depreciation and amortization. Depreciation is provided in
amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives using the straight-line method.
Leasehold improvements are amortized over the lesser of the life of the lease or service lives of the improvements using the straight-line method.
COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
42
F-
Transfers and Servicing of Financial Assets
A transfer of financial assets is accounted for as a sale when control is surrendered over the assets transferred. The Company
typically retains mortgage servicing rights ("MSRs") and may retain interest-only strips, principal-only strips and one or more
subordinated interests. MSRs and other assets retained are recognized as separate assets by allocating total costs incurred between
the loan sold and MSRs and other assets retained based on their relative fair values. The Company estimates the fair value of
retained interests based upon the present value of the expected future cash flows. This entails estimates of prepayment speeds,
credit losses, discount rates and other factors that impact the value of the retained interests.
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The Company recognizes as separate assets the rights to service mortgage loans for others, whether the servicing rights are
acquired through a separate purchase or through securitization. Amortization of MSRs is based on the ratio of net servicing income
received in the current period to total net servicing income projected to be realized from the MSRs. Projected net servicing
income is in turn determined by the estimated future balance of the underlying mortgage loan portfolio, which declines over time
from prepayments and scheduled loan amortization. The Company estimates future prepayment rates based on current interest rate
levels, other economic conditions and market forecasts, as well as relevant characteristics of the servicing portfolio, such as
loan types, note rate stratification and recent prepayment experience.
MSRs are periodically evaluated for impairment, which is recognized in the statement of earnings during the applicable period
through additions to an impairment reserve. For purposes of performing its impairment evaluation, the Company stratifies its
servicing portfolio on the basis of certain risk characteristics including loan type (fixed or adjustable) and note rate.
Other retained interests are classified as available-for-sale securities.
Servicing Hedge
To mitigate the effect on earnings of MSR impairment that may result from increased current and projected prepayment activity
that generally occurs when interest rates decline, the Company acquires financial instruments, including derivatives, that
increase in aggregate value when interest rates decline (the "Servicing Hedge"). These financial instruments include interest
rate floors, principle-only securities ("P/O Securities"), options on interest rate Swaps ("Swaptions"), options on MBS, options
on interest rate futures, interest rate futures, interest rate swaps with the Company's maximum payment capped ("Capped Swaps"),
interest rate swaps and interest rate caps. The value of the interest rate floors, options on interest rate futures and MBS,
Capped Swaps, interest rate caps and Swaptions, is derived from an underlying instrument or index; however, the notional or
contractual amount is not recognized on the balance sheet. The cost of these instruments is charged to expense (and deducted from
net loan administration income) over the life of the contract. Unamortized costs are included in Investments in Other Financial
Instruments on the balance sheet. The basis of the MSRs is adjusted for realized and unrealized gains and losses in the derivative
financial instruments that qualify for hedge accounting.
Qualitative Disclosures About Market Risk
The primary market risk facing the Company is interest rate risk. From an enterprise perspective, the Company manages this
risk by striving to balance its Mortgage-Related Investments Segment with the Production Divisions, which are counter-cyclical in
nature. In addition, the Company utilizes various financial instruments, including derivatives contracts, to manage the interest
rate risk related specifically to its Committed Pipeline, mortgage loan inventory and MBS held for sale, MSRs, mortgage-backed
securities retained in securitizations, trading securities and debt securities. The overall objective of the Company's interest
rate risk management policies is to offset changes in the values of these items resulting from changes in interest rates. The
Company does not speculate on the direction of interest rates in its management of interest rate risk.
To qualify for hedge accounting, the derivative contract positions must be designated as a hedge and be effective in reducing
the market risk of an existing asset, liability or the Committed Pipeline. The effectiveness of the derivative contracts is
evaluated on an initial and ongoing basis using quantitative measures of correlation. If a derivative contract no longer
qualifies as a hedge, any subsequent changes in fair value are recognized currently in earnings.
If a derivative contract that qualifies as a hedge is sold, matures or is terminated, any resulting intrinsic gain or loss
adjusts the basis of the hedged item and any gain or loss resulting from unamortized premiums associated with the time value of
such contracts are recognized in income. If a designated underlying item is no longer held, any previously unrecognized gain or
loss on the related derivative is recognized in earnings and the derivative contract is subsequently accounted for at fair value.
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Trading Securities
Trading securities consists of financial instruments held by the Company's broker-dealer subsidiary. These financial
instruments, including derivative contracts, are recorded at fair value on a trade date basis, and gains and losses, both realized
and unrealized, are included in Gain on Sale of Loans.
Securities Purchase Under Agreements to Resell and Securities Sold Under Agreements to Repurchase
Transactions involving purchases of securities under agreements to resell or sales of securities under agreements to repurchase
are accounted for as collateralized financing except where the Company does not have an agreement to sell (or purchase) the same
or substantially the same securities before maturity at a fixed or determinable price. It is the policy of the Company to obtain
possession of collateral with a market value equal to or in excess of the principal amount loaned under resale agreements.
Collateral is valued daily, and the Company may require counterparties to deposit additional collateral or return collateral
pledged when appropriate.
At February 28, 2001, the market value of the collateral received related to securities purchased under agreements to resell
was $2,201 million of which $723 million was pledged as collateral.
Collateral
The Company continues to report assets it has pledged as collateral in secured borrowings and other arrangements when the
secured party cannot sell or repledge the assets or the Company can substitute collateral or otherwise redeem it on short notice.
The Company generally does not report assets received as collateral in secured lending and other arrangements since the debtor
typically has the right to redeem the collateral on short notice.
Available-for-Sale-Securities
The Company has designated its investments in P/O Securities, certain other equity securities, mortgage-backed securities
retained in the Company's securitizations and insurance company investment portfolio as available for sale securities, which are
included in Investments in Other Financial Instruments. Mortgage-backed securities retained in the Company's securtizations
consist of sub-prime and home equity residual interests ("Residuals") and interest-only and principal-only certificates related to
the Company's non-conforming private label mortgage-backed securities. The timing and amount of cash flows on these securities
are significantly influenced by prepayments on the underlying loans and estimated foreclosure losses to the extent the Company has
retained the risk of such losses. The fair value of these securities is determined by discounting future cash flows using
discount rates that approximate current market rates.
The insurance company investment portfolio includes primarily fixed income securities, as well as other short-term securities.
The available for sale securities are measured at fair value. Unrealized gains or losses, net of deferred income taxes, are
excluded from earnings and reported as a separate component of shareholders' equity until realized. Realized gains and losses on
sales of securities are computed by the specific identification method at the time of disposition and are recorded in earnings.
Unrealized losses that are other than temporary are recognized in earnings.
Loan Origination Fees
Loan origination fees, as well as discount points and certain direct origination costs are initially recorded as an adjustment
of the cost of the loan and reflected in earnings when the loan is sold.
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Interest Income Recognition
Interest income is accrued as earned. Loans are placed on non-accrual status when any portion of principal or interest is
ninety days past due or earlier when concern exists as to the ultimate collectibility of principal or interest. Loans return to
accrual status when principal and interest become current and are anticipated to be fully collectible.
Loan Servicing Income
Loan servicing income represents fees earned for servicing residential mortgage loans for investors and related ancillary
income, including late charges. Servicing income is recognized as earned, unless collection is doubtful.
Interest Rate Swap Agreements
The amount to be received or paid under the interest rate swap agreements associated with the Company's debt and custodial
accounts is accrued and is recognized as an adjustment to net interest income. The related amount payable to or receivable from
counterparties is included in accounts payable and accrued liabilities.
Advertising Costs
The Company generally charges to expense the production costs of advertising the first time the advertising takes place, except
for direct-response advertising, which is capitalized and amortized over the expected period of future benefits. Advertising
expense was $55.5 million, $53.5 million and $46.0 million for the years ended
February 28(29), 2001, 2000 and 1999, respectively.
Stock-Based Compensation
The Company generally grants stock options for a fixed number of shares to employees with an exercise price equal to the fair
value of the shares at the date of grant. The Company recognizes compensation cost related to its stock option plans only to the
extent that the fair value of the shares at the grant date exceeds the exercise price.
Income Taxes
The Company utilizes an asset and liability approach in its accounting for income taxes. This approach requires the
recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the
financial statement and tax basis carrying amounts of assets and liabilities.
Earnings Per Share
Basic earnings per share ("EPS") is determined using net income divided by the weighted average shares outstanding during the
period. Diluted EPS is computed by dividing net income by the weighted average shares outstanding, assuming all dilutive
potential common shares were issued.
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The following table presents basic and diluted EPS for the years ended February 28(29), 2001, 2000 and 1999.
- ------------------------ --------- --------- --------- -- - ----------------------------- -- -- ------- ---------- -----
Year ended February 28(29),
--------- --------- --------- -- - ----------------------------- -- -- ------- ---------- -----
2001 2000 1999
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Per-Share Per-Share Per-Share
(Amounts in thousands, Net Amount Net Amount Net Amount
except per share data) Earnings Shares Earnings Shares Earnings Shares
- ------------------------ --------- --------- --------- --------- --------- ---------
--------- --------- ---------
Net earnings $374,153 $410,243 $385,401
========= ========= =========
Basic EPS
Net earnings available
to common shareholders $374,153 114,932 $3.26 $410,243 113,083 $3.63 $385,401 111,414 $3.46
Effect of Dilutive
Stock Options 4,103 3,605 5,631
--------- --------- --------- --------- --------- ---------
Diluted EPS
Net earnings available
to common shareholders $374,153 119,035 $3.14 $410,243 116,688 $3.52 $385,401 117,045 $3.29
========= ========= ========= ========= ========= =========
- ------------------------ --------- --------- --------- -- --------- --------- --------- -- --------- --------- ---------
During the years ended February 28 (29), 2001 and 2000, options to purchase 3.3 million shares and 3.2 million shares,
respectively, were outstanding but not included in the computation of EPS because they were antidilutive.
Financial Statement Reclassifications and Restatement
Certain amounts reflected in the Consolidated Financial Statements for the years ended
February 29(28), 2000 and 1999 have been reclassified to conform to the presentation for the year ended
February 28, 2001.
NOTE B - PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements consisted of the following.
--------------------------------------------- --------------------------------------------------------------------
February 28(29),
----------------- -- -------------- -----
(Dollar amounts in thousands) 2001 2000
--------------------------------------------------------------------- -- ----------------- -- -------------- -----
Buildings $190,109 $183,134
Office equipment 393,721 362,346
Leasehold improvements 55,822 55,281
----------------- --------------
639,652 600,761
Less: accumulated depreciation and amortization (271,505) (218,828)
----------------- --------------
368,147 381,933
Land 28,796 28,966
----------------- --------------
$396,943 $410,899
================= ==============
--------------------------------------------------------------------- -- ----------------- -- -------------- -----
Depreciation and amortization expense amounted to $54.6 million, $48.8 million and $40.3 million for the years ended February
28(29), 2001, 2000 and 1999, respectively.
NOTE C - MORTGAGE SERVICING RIGHTS
Entries to mortgage servicing rights for the years ended February 28(29), 2001, 2000 and 1999 were as follows.
----------------------------------------------- -- -------------------------------------------------------------
February 28(29),
---------------- --- ---------------- --- ---------------- --
(Dollar amounts in thousands) 2001 2000 1999
----------------------------------------------- -- ---------------- --- ---------------- --- ---------------- --
Mortgage Servicing Rights
Balance at beginning of period $5,420,239 $4,591,191 $3,653,318
Additions, net 1,785,659 1,299,909 1,898,007
Securitization of service fees - (218,770) -
Scheduled amortization (518,199) (459,308) (556,373)
Hedge losses (gains) applied (811,578) 207,217 (403,761)
---------------- ---------------- ----------------
Balance before valuation reserve
at end of period 5,876,121 5,420,239 4,591,191
---------------- ---------------- ----------------
Reserve for Impairment of Mortgage Servicing Rights
Balance at beginning of period (23,762) (94,752) (41,308)
Reductions (additions) (84,611) 70,990 (53,444)
---------------- ---------------- ----------------
Balance at end of period (108,373) (23,762) (94,752)
---------------- ---------------- ----------------
Mortgage Servicing Rights, net $5,767,748 $5,396,477 $4,496,439
================ ================ ================
----------------------------------------------- -- ---------------- --- ---------------- --- ---------------- --
The estimated fair value of mortgage servicing rights was $5.8 billion and $5.7 billion as of
February 28(29), 2001 and 2000, respectively. The fair value was determined by discounting estimated net future cash flows from
mortgage servicing activities using discount rates that approximate current market rates.
NOTE D - INVESTMENTS IN OTHER FINANCIAL INSTRUMENTS
Investments in other financial instruments as of February 28(29), 2001 and 2000 included the following.
------------------------------------------------------------ -----------------------------------------------------
February 28(29),
----------------- --- ---------------- ---
(Dollar amounts in thousands) 2001 2000
------------------------------------------------------------------- --- ----------------- --- ---------------- ---
Servicing hedge instruments $2,407,799 $1,784,315
Mortgage-backed securities retained in securitization 1,202,093 823,196
Insurance company investment portfolio 550,422 520,490
Equity securities, restricted and unrestricted - 46,193
----------------- ----------------
$4,160,314 $3,174,194
================= ================
------------------------------------------------------------------- --- ----------------- --- ---------------- ---
NOTE E - AVAILABLE FOR SALE SECURITIES
Amortized cost and fair value of available for sale securities as of February 28(29), 2001 and 2000 were as follows:
---------------------------------- ---------------- - ------------------------------------ -- ---------------- ---
February 28, 2001
---------------- - ------------------------------------ -- ---------------- ---
Gross Gross
Amortized Unrealized Unrealized Fair
(Dollar amounts in thousands) Cost Gains Losses Value
---------------------------------- ---------------- - ----------------- - ---------------- -- ---------------- ---
Mortgage-backed
securities retained in
securitization $1,108,557 $107,627 ($14,091) $1,202,093
Principal only securities 1,190,281 159,318 (605) 1,348,994
Insurance company
investment portfolio 531,983 21,637 (3,198) 550,422
---------------- ----------------- ---------------- ----------------
$2,830,821 $288,582 ($17,894) $3,101,509
================ ================= ================ ================
---------------------------------- ---------------- - ----------------- - ---------------- -- ---------------- ---
---------------------------------- ---------------- - ------------------------------------ -- ---------------- ---
February 29, 2000
---------------- - ------------------------------------ -- ---------------- ---
Gross Gross
Amortized Unrealized Unrealized Fair
(Dollar amounts in thousands) Cost Gains Losses Value
---------------------------------- ---------------- - ----------------- - ---------------- -- ---------------- ---
Mortgage-backed
securities retained in
securitization $807,948 $39,411 ($24,163) $823,196
Principal only securities 1,002,496 2,372 (52,028) 952,840
Insurance company
investment portfolio 523,012 483 (3,005) 520,490
Equity securities 63,136 3,193 (20,136) 46,193
---------------- ----------------- ---------------- ----------------
$2,396,592 $45,459 ($99,332) $2,342,719
================ ================= ================ ================
---------------------------------- ---------------- - ----------------- - ---------------- -- ---------------- ---
NOTE F - NOTES PAYABLE
Notes payable consisted of the following.
------------------------------------------------------------ -----------------------------------------------------
February 28(29),
----------------- --- ---------------- ---
(Dollar amounts in thousands) 2001 2000
-------------------------------------------------------------------- -- ----------------- --- ---------------- ---
Commercial paper $ $ 103,829
-
Medium-term notes, various series, and Euro Notes 10,435,510 7,975,324
Convertible debentures 500,717 -
Subordinated notes 200,000 200,000
Unsecured notes payable 264,196 -
Other notes payable 2,368 2,063
----------------- ----------------
$11,402,791 $8,281,216
================= ================
-------------------------------------------------------------------- -- ----------------- --- ---------------- ---
NOTE F - NOTES PAYABLE (Continued)
Commercial Paper and Backup Credit Facilities
As of February 28, 2001, CHL, the Company's mortgage banking subsidiary, had unsecured credit agreements (revolving credit
facilities) with consortiums of commercial banks permitting CHL to borrow an aggregate maximum amount of $5.3 billion. The
facilities included a $4.3 billion revolving credit facility with forty-two commercial banks consisting of: (i) a five-year
facility of $3.0 billion, which expires on September 24, 2002; and (ii) a one-year facility of $1.3 billion, which expires on
September 19, 2001. As consideration for the facility, CHL pays annual commitment fees of $3.8 million. There is an additional
one-year facility, which expires April 11, 2001, with thirteen of the forty-two banks referenced above for total commitments of
$1.0 billion. As consideration for the facility, CHL pays annual commitment fees of $0.8 million. CHL has renewed this facility.
(See Note Q - "Subsequent Events") The purpose of these credit facilities is to provide liquidity backup for CHL's commercial
paper program. No amount was outstanding under these revolving credit facilities at February 28, 2001. The weighted average
borrowing rate on commercial paper borrowings for the year ended February 28, 2001 was 6.40%. In addition, CHL has entered into a
$1.1 billion asset-backed commercial paper conduit facility with four commercial banks. This facility has a maturity date of
November 20, 2001. As consideration for this facility, CHL pays annual commitment fees of $1.4 million. Loans made under this
facility are secured by conforming and non-conforming mortgage loans. All of the facilities contain various financial covenants
and restrictions, certain of which limit the amount of dividends that can be paid by the Company or CHL.
Medium-Term Notes
As of February 28, 2001, outstanding medium-term notes issued by CHL under various shelf registrations filed with the
Securities and Exchange Commission or issued by CHL pursuant to its Euro medium-term note program were as follows.
NOTE F - NOTES PAYABLE (Continued)
- ---------------------------------------------------------------------------------------------------------------------------
(Dollar amounts in thousands)
Outstanding Interest Rate Maturity Date
Balance
---------------------- ----------------------------
-------------------------------------------
Floating-Rate Fixed-Rate Total From To From To
------------------------------------------- ----------- ---------- -------------- -------------
Series A - $ 96,500 $ 96,500 7.41% 8.79% Aug. 2001 Mar. 2002
Series B - 251,000 251,000 6.65% 6.98% Mar. 2003 Aug. 2005
Series C $105,000 127,000 232,000 4.84% 7.75% Mar. 2001 Mar. 2004
Series D - 385,000 385,000 6.05% 6.88% Mar. 2001 Sept. 2005
Series E - 655,000 655,000 6.94% 7.45% Sept. 2003 Oct. 2008
Series F 311,000 1,244,000 1,555,000 5.35% 7.13% Sept. 2001 May 2013
Series G - 271,000 271,000 6.90% 7.00% Aug. 2018 Nov. 2018
Series H 611,500 2,049,000 2,660,500 5.43% 8.25% May 2001 Oct. 2019
Series I 1,622,300 566,950 2,189,250 5.40% 8.00% June 2001 Aug. 2015
Euro Notes 627,406 1,512,854 2,140,260 5.52% 7.88% Mar. 2001 Jan. 2009
-------------------------------------------
Total $3,277,206 $7,158,304 $10,435,510
===========================================
- ---------------------------------------------------------------------------------------------------------------------------
As of February 28, 2001 substantially all of the outstanding fixed-rate notes had been effectively converted through
interest rate swap agreements to floating-rate notes. The weighted average rate on medium-term notes for the year ended February
28, 2001, including the effect of the interest rate swap agreements, was 6.95%. As of February 28, 2001
$1,511 million foreign currency-denominated medium-term notes were outstanding. Such notes are denominated in Deutsche Marks,
French Francs, Portuguese Escudos and Euros. The Company manages the associated foreign currency risk by entering into currency
swaps. The terms of the currency swaps effectively translate the foreign currency denominated medium-term notes into U.S.
dollars.
Convertible Debentures
During the year ended February 28, 2001, the Company received proceeds of $500 million from the issuance of zero coupon
Liquid Yield Option Notes ("LYONs") with a face value of $675 million at maturity of LYONs due
February 8, 2031. The LYONs were issued at $741.37 per LYON. At maturity, February 8, 2031, a holder will receive $1,000 per
LYON. The issue price of each LYON represents a yield to maturity of 1.0%. The LYONs are senior indebtedness of the Company.
NOTE F - NOTES PAYABLE (Continued)
Holders of LYONs may require the Company to repurchase all or a portion of their LYONs at the original issue price plus accrued
original issue discount on the following dates.
------------------ ------------------------------------------- ----------------------------------------------
Repurchase Date Repurchase Price
------------------ ------------------------------------------- ----------------------------------------------
February 8, 2004 $763.89
February 8, 2006 $779.28
February 8, 2011 $819.14
February 8, 2016 $861.03
February 8, 2021 $905.06
February 8, 2026 $951.35
------------------ ------------------------------------------- -------- ------------------- -----------------
The Company may pay the purchase price in cash, common stock or a combination thereof.
Beginning on February 8, 2006 and on any date thereafter, the Company may redeem the LYONs at the original issue price plus
accrued original issue discount.
Holders of LYONs may surrender LYONs for conversion into 11.57 shares of the Company's common stock per LYON in any calendar
quarter, if, as of the last day of the preceding calendar quarter, the closing sale price of the Company's common stock for at
least 20 trading days in a period of 30 consecutive trading days ending on the last trading day of such preceding calendar quarter
is more than a specified percentage, beginning at 135% and declining 0.21% per quarter thereafter, of the accreted conversion
price per share of common stock on the last day of trading of such preceding calendar quarter. The accreted conversion price per
share is equal to the original issue price of a LYON plus the accrued original issue discount, with that sum divided by the number
of shares issuable upon a conversion of a LYON.
Holders may also surrender a LYON for conversion during any period in which the credit rating assigned to the LYONs by either
Moody's or Standard&Poor's falls below an investment grade level.
Subordinated Notes
As of February 28, 2001, CHL had $200 million of 8.25% subordinated notes (the "Subordinated Notes") due
July 15, 2002. Interest on the Subordinated Notes is payable semi-annually on each January 15 and July 15. The Subordinated
Notes are not redeemable prior to maturity and are not subject to any sinking fund.
Pre-Sale Funding Facilities
As of February 28, 2001, CHL had uncommitted revolving credit facilities that are secured by conforming mortgage loans which
are in the process of being pooled into MBS. As of February 28, 2001, the Company had no outstanding borrowings under any of these
facilities.
NOTE F - NOTES PAYABLE (Continued)
Maturities of notes payable are as follows.
------------------ ------------------------------------------- ----------------------------------------------
Year ending February 28(29), (Dollar amounts in
thousands)
------------------ ------------------------------------------- ----------------------------------------------
2002 $3,758,800
2003 1,696,500
2004 828,000
2005 1,533,685
2006 1,165,944
Thereafter 2,419,862
-----------------
$11,402,791
=================
------------------ ------------------------------------------- -------- ------------------- -----------------
NOTE G - Securities Sold Under Agreements to Repurchase
The Company routinely enters into short-term financing arrangements to sell MBS under agreements to repurchase. The
weighted average borrowing rate for the year ended February 28, 2001 was 6.33%. The weighted average borrowing rate on repurchase
agreements outstanding as of February 28, 2001 was 5.53%. The repurchase agreements were collateralized by MBS. All MBS underlying
repurchase agreements are held in safekeeping by broker-dealers or banks. All agreements are to repurchase the same or
substantially identical MBS.
NOTE H - COMPANY-OBLIGATED CAPITAL SECURITIES OF SUBSIDIARY TRUSTS
In December 1996, Countrywide Capital I (the "Subsidiary Trust I"), a subsidiary of the Company, issued $300 million of 8%
Capital Trust Pass-through Securities (the "8% Capital Securities"). In connection with the Subsidiary Trust I issuance of the 8%
Capital Securities, CHL issued to the Subsidiary Trust I, $309 million of its 8% Junior Subordinated Deferrable Interest
Debentures (the "Subordinated Debt Securities I"). The Subordinated Debt Securities I are due on December 15, 2026 with interest
payable semi-annually on June 15 and December 15 of each year. The Company has the right to redeem at par, plus accrued interest,
the 8% Capital Securities any time on or after
December 15, 2006. The sole assets of the Subsidiary Trust I are, and will be, the Subordinated Debt Securities I.
In June 1997, Countrywide Capital III (the "Subsidiary Trust III"), a subsidiary of the Company, issued $200 million of 8.05%
Subordinated Capital Income Securities, Series A (the "8.05% Capital Securities"). In connection with the Subsidiary Trust III
issuance of 8.05% Capital Securities, CHL issued to the Subsidiary Trust III, $206 million of its 8.05% Junior Subordinated
Deferrable Interest Debentures (the "Subordinated Debt Securities III"). The Subordinated Debt Securities III are due on June 15,
2027 with interest payable semi-annually on June 15 and December 15 of each year. The sole assets of the Subsidiary Trust III
are, and will be, the Subordinated Debt Securities III.
In December 1997, Subsidiary Trust III completed an exchange offer pursuant to which newly issued capital securities (the "New
8.05% Capital Securities") were exchanged for all of the outstanding 8.05% Capital Securities. The New 8.05% Capital Securities
are identical in all material respects to the 8.05% Capital Securities, except that the New 8.05% Capital Securities have been
registered under the Securities Act of 1933, as amended.
In relation to Subsidiary Trusts I and III, CHL has the right to defer payment of interest by extending the interest payment
period, from time to time, for up to 10 consecutive semi-annual periods. If interest payments on the Debentures are so deferred,
the Company and CHL may not declare or pay dividends on, or make a distribution with respect to, or redeem, purchase or acquire,
or make a liquidation payment with respect to, any of its capital stock.
NOTE I - INCOME TAXES
Components of the provision for income taxes were as follows.
---- ------------------------------ ------------------------------------------------------------ --------
Year ended February28(29),
---------------- -- ------------- -- ------------- ---
(Dollar amounts in thousands) 2001 2000 1999
---- ----------------------------------------- --- ---------------- -- ------------- -- ------------- ---
Federal expense - deferred $204,262 $220,955 $204,186
State expense - deferred 7,620 - 42,218
---------------- ------------- -------------
$211,882 $220,955 $246,404
================ ============= =============
---- ----------------------------------------- --- ---------------- -- ------------- -- ------------- ---
The following is a reconciliation of the statutory federal income tax rate to the effective income tax rate as reflected in the
consolidated statements of earnings.
---- ------------------------------ ------------------------------------------------------------ --------
Year ended February 28(29),
--------------- -- -------------- --- ------------ ---
2001 2000 1999
---- ----------------------------------------- --- --------------- -- -------------- --- ------------ ---
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income and franchise taxes, net
of federal tax effect 3.0 4.0 4.0
Change in expected state tax rate (1.8) (4.0) -
--------------- -------------- ------------
Effective income tax rate 36.2% 35.0% 39.0%
=============== ============== ============
---- ----------------------------------------- --- --------------- -- -------------- --- ------------ ---
In Fiscal 2000, the Company initiated a corporate reorganization related to its servicing operations. Further refinements to
the reorganization plan were made in Fiscal 2001. As a result of the reorganization, future state income tax liabilities are
expected to be less than the amounts that were previously recorded as deferred income tax expense and liability in the Company's
financial statements. The expected reduction in tax liabilities was reflected as a reduction in deferred state income tax expense
in Fiscal 2000 and Fiscal 2001.
The tax effects of temporary differences that gave rise to deferred income tax assets and liabilities are presented below.
----- -------------------------------------------------------- ------------------------------------- -----
February 28(29),
------------------------------------- -----
(Dollar amounts in thousands) 2001 2000
----------------------------------------------------------------------------------------------------------
Deferred income tax assets:
Net operating losses $ 154,069 $ 139,288
State income and franchise taxes 57,958 53,625
Reserves, accrued expenses and other 66,376 48,336
Losses (gains) on available-for-sale securities - 1,150
--------------- ---------------
Total deferred income tax assets 278,403 242,399
--------------- ---------------
Deferred income tax liabilities:
Mortgage servicing rights 1,722,960 1,493,297
Gains (losses) on available-for-sale securities 125,446 -
Gain on sale of subsidiary - 21,413
--------------- ---------------
Total deferred income tax liabilities 1,848,406 1,514,710
--------------- ---------------
Deferred income taxes $1,570,003 $1,272,311
=============== ===============
----------------------------------------------------------------------------------------------------------
NOTE I - INCOME TAXES (Continued)
As of February 28, 2001, the Company had net operating loss carryforwards for federal income tax purposes totaling $435.7
million that expire as follows: $19.6 million in 2009, $74.3 million in 2010, $41.3 million in 2011, $84.7 million in 2012, $72.8
million in 2013, $95.9 million in 2019, and $47.1 million in 2021.
NOTE J - FINANCIAL INSTRUMENTS
Derivative Financial Instruments
The Company utilizes a variety of derivative financial instruments to manage interest-rate risk. These instruments include
interest rate floors, MBS mandatory forward sale and purchase commitments, options to sell or buy MBS, treasury futures and
interest rate futures, interest rate caps, Capped Swaps, Swaptions, interest rate futures and interest rate swaps. These
instruments involve, to varying degrees, elements of interest-rate and credit risk. In addition, the Company manages foreign
currency exchange rate risk with foreign currency swaps.
The Company has potential exposure to credit loss in the event of nonperformance by the counterparties to the various
over-the-counter instruments. The Company manages this credit risk by selecting only well established, financially strong
counterparties, spreading the credit risk amongst many such counterparties, and by placing contractual limits on the amount of
unsecured credit risk from any one counterparty. The Company's exposure to credit risk in the event of default by a counterparty
is the current cost of replacing the contracts net of any available margins retained by the Company, a custodian or the
Mortgage-Backed Securities Clearing Corporation (the "MBSCC"), which is an independent clearing agent.
The total amount of counterparty credit exposure as of February 28, 2001, before and after applicable margin accounts held, was
as follows:
- --------------------------------------------------------------- ------------------------------------------
(Dollar amounts in millions) As of February 28, 2001
Total credit exposure before margin accounts held $1,095.5
Less: Margin accounts held (622.4)
Net unsecured credit exposure $ 473.1
==================
- ---------------------------------------------------------------------- ------------------ ----------------
Hedge of Committed Pipeline and Mortgage Loan Inventory
As of February 28, 2001, the Company had $2.0 billion of closed mortgage loans and MBS held in inventory, including $1.7
billion fixed-rate and $0.3 billion adjustable-rate (the "Inventory"). In addition, as of February 28, 2001, the Company had
short-term rate and point commitments amounting to approximately $7.1 billion (including $6.4 billion fixed-rate and $0.7 billion
adjustable-rate) to fund mortgage loan applications in process and an additional $2.3 billion (including $2.2 billion fixed-rate
and $0.1 billion adjustable-rate) like commitments subject to property identification and borrower qualification (together the
"Committed Pipeline"). Substantially all of these commitments are for periods of 60 days or less. (After funding and sale of the
mortgage loans, the Company's exposure to credit loss in the event of nonperformance by the mortgagor is limited as described in
Note L).
In order to mitigate the risk that a change in interest rates will result in a decline in the value of the Company's
Committed Pipeline or Inventory, the Company enters into hedging transactions. The Inventory is hedged with forward contracts for
the sale of loans and net sales of MBS, including options to sell MBS where the Company can exercise the option on or prior to the
anticipated settlement date of the MBS.
NOTE J - FINANCIAL INSTRUMENTS (Continued)
Due to the variability of closings in the Company's Committed Pipeline, which is driven primarily by interest rates, the
Company's hedging policies require that substantially all of the Committed Pipeline be hedged with a combination of options for
the purchase and sale of MBS and treasury futures and forward contracts for the sale of MBS. As of February 28, 2001, the
notional amount of options to purchase and sell MBS aggregated $3.1 billion and $3.8 billion, respectively. There were no treasury
futures options in place at February 28, 2001. The Company had net forward contracts to sell MBS that amounted to $5.8 billion
(including forward contracts to sell MBS of $16.0 billion and to purchase MBS of $10.2 billion). The MBS that are to be delivered
under these contracts and options are either fixed or adjustable-rate, and generally correspond with the composition of the
Company's Inventory and Committed Pipeline.
The Company is generally not exposed to significant losses nor will it realize significant gains related to its Inventory or
Committed Pipeline due to changes in interest rates, net of gains or losses on associated hedge positions. The correlation between
the Inventory, the Committed Pipeline and the associated hedge instruments is very high due to their similarity. However, the
Company is exposed to the risk that the actual closings in the Committed Pipeline may deviate from the estimated closings for a
given change in interest rates. Although interest rates are the primary determinant, the actual loan closings from the Committed
Pipeline are influenced by many factors, including the composition of the Committed Pipeline and remaining commitment periods.
The Company's estimated closings are based on historical data of loan closings as influenced by recent developments.
Servicing Hedge
The Company manages its exposure to interest rate risk primarily through balancing its loan production and loan servicing
operations, which are counter cyclical in nature. In order to further mitigate the effect on earnings of MSR impairment that may
result from increased current and projected prepayment activity that generally occurs when interest rates decline, the Company
maintains a portfolio of financial instruments, including derivative contracts, that increase in aggregate value when interest
rates decline (the "Servicing Hedge"). The financial instruments that form the Servicing Hedge include interest rate floors,
options on interest rate futures, interest rate swaps, interest rate caps, Capped Swaps, Swaptions, options on MBS, principal-only
swaps and P/O securities.
The following table summarizes the notional amounts of derivative contracts included in the Servicing Hedge.
- -------------------------------------- -------------------- -------------------- ------------------ ---------------------
(Dollar amounts in millions) Balance, Balance,
February 29, 2000 Dispositions/ February 28,
Additions Expirations 2001
- -------------------------------------- -------------------- -------------------- ------------------ ---------------------
Interest Rate Floors $50,500 5,000 (23,500) $32,000
Long Call Options on
Interest Rate Futures $15,000 16,300 (26,700) $4,600
Long Put Options on
Interest Rate Futures $1,750 7,500 (9,250) -
Long Call Options on MBS $8,561 1,500 (4,000) $6,061
Capped Swaps $1,000 - (1,000) -
Interest Rate Swaps $1,500 - - $1,500
Interest Rate Cap $2,500 1,500 (1,500) $2,500
Swaptions $36,250 25,000 (19,000) $42,250
Principal-Only Swaps - 1,250 (1,125) $125
- -------------------------------------- -------------------- -------------------- ------------------ ---------------------
NOTE J - FINANCIAL INSTRUMENTS (Continued)
The Servicing Hedge is intended to protect the value of the investment in MSRs from the effects of increased prepayment
activity that generally results from declining interest rates. Should interest rates increase, the value of the MSRs generally
will increase while the value of the Servicing Hedge will decline. With respect to the options on interest rate futures and MBS,
Swaptions, interest rate floors, interest rate caps, Principal-only swaps and P/O Securities included in the Servicing Hedge, the
Company is not exposed to loss beyond its initial outlay to acquire the instruments plus any unrealized gains recognized to date.
With respect to the Swap contracts entered into by the Company as of
February 28, 2001, the Company estimates that its maximum exposure to loss over the remaining contractual term is
$1 million.
Interest Rate Swaps
As of February 28, 2001, CHL had interest rate swap contracts, in addition to those included in the Servicing Hedge, with
certain financial institutions having notional principal amounts totaling $8.8 billion. The effect of these contracts is to
enable CHL to convert its fixed-rate long term debt borrowings to LIBOR-based floating-rate cost borrowings (notional amount $6.1
billion), to convert its foreign currency denominated fixed rate medium-term notes to U.S. dollar LIBOR-based floating-rate cost
borrowings (notional amount $1.5 billion) and to convert a portion of its medium-term note borrowings from one floating-rate index
to another (notional amount $1.2 billion). Payments are due periodically through the termination date of each contract. The
agreements expire between March 2001 and June 2027.
The interest rate swap agreements related to debt had an average fixed rate (receive rate) of 6.03% and an average floating
rate indexed to 3-month LIBOR (pay rate) of 6.17% on February 28, 2001.
Broker-Dealer Financial Instruments
Countrywide Securities Corporation ("CSC") utilizes a variety of financial instruments for trading purposes and to manage
interest-rate risk. These instruments include MBS mandatory forward sale and purchase commitments as well as short sales of cash
market U.S. Treasury securities. At February 28, 2001, CSC had forward contracts to sell MBS that amounted to $7.5 billion and
forward contracts to purchase MBS that amounted to $4.0 billion. During the year ended February 28, 2001, the average fair value
of the forward contracts to sell MBS amounted to a gain of $6.0 million and the average fair value of forward contracts to
purchase MBS amounted to a gain of $13.7 million.
Fair Value of Financial Instruments
The following disclosure of the estimated fair value of financial instruments as of February 28(29), 2001 and 2000 is made by
the Company using available market information and appropriate valuation methodologies. However, considerable judgment is
required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
NOTE J - FINANCIAL INSTRUMENTS (Continued)
---- ------------------------------------------------ ---------------------------------- --- ----------------------------
February 28, 2001 February 29, 2000
Carrying Estimated Carrying Estimated
(Dollar amounts in thousands) Amount fair value amount fair value
Assets:
Mortgage loans and mortgage-backed
securities $1,964,018 $1,964,018 $2,653,183 $2,653,183
held for sale
Trading securities 4,050,082 4,050,082 1,984,031 1,984,031
Securities purchased with agreements 3,109,556 3,109,556 435,593 435,593
to resell
Items included in investments in other
financial instruments:
Principal only securities purchased 1,348,994 1,348,994 952,840 952,840
Mortgage-backed securities retained
in 1,202,093 1,202,093 823,196 823,196
securitizations
Insurance Company investment
portfolio 550,422 550,422 520,490 520,490
Equity Securities - restricted
and - - 46,193 46,193
unrestricted
Items included in other assets:
Rewarehoused FHA and VA loans 790,876 790,876 336,273 336,273
Loans held for investment 269,942 269,942 177,330 177,330
Receivables related to broker-dealer 318,739 318,739 22,612 22,612
activities
Liabilities:
Notes payable 11,402,791 11,159,777 8,281,216 7,957,602
Securities sold under agreements to 3,541,230 3,541,230 1,501,409 1,501,409
repurchase
Securities sold not yet purchased 260,151 260,151 181,903 181,903
Corporate guarantees 56,312 56,312 - -
Company-obligated mandatorily redeemable
Capital trust pass-through securities of
subsidiary trusts holding solely Company
guaranteed related subordinated 500,000 521,929 500,000 489,744
debt
Derivatives:
Interest rate floors 349,002 343,151 411,278 180,360
Forward contracts on MBS (8,673) (40,312) (11,080) (13,511)
Options on MBS 78,386 54,759 75,950 32,415
Options on interest rate futures 7,660 6,625 8,921 6,032
Interest rate caps 15,216 2,310 47,348 39,088
Capped Swaps - - (5,619) (8,040)
Swaptions 644,181 590,906 341,039 76,254
Interest rate swaps (3,682) (110,852) (23,228) (457,051)
Principal - only swaps - - - -
Short-term commitments to extend credit - 35,200 - 52,500
---- ------------------------------------------------ --------------- -- ------------- -- ------------- --- -------------
The fair value estimates as of February 28(29), 2001 and 2000 are based on pertinent information that was available to
management as of the respective dates. Although management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since
those dates and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.
NOTE J - FINANCIAL INSTRUMENTS (Continued)
The following describes the methods and assumptions used by the Company in estimating fair values.
Mortgage Loans and Mortgage-Backed Securities Held for Sale
Fair value is estimated using the quoted market prices for securities backed by similar types of loans and dealer commitments
to purchase loans on a servicing-retained basis.
Trading Securities
Fair value is estimated using quoted market prices.
Principal Only Securities
Fair value is estimated using quoted market prices and by discounting future cash flows using discount rates that approximate
current market rates and market consensus prepayment rates.
Mortgage-backed securities retained in securitization
Fair value is estimated by discounting future cash flows using discount rates that approximate current market rates, market
consensus and internally developed prepayment rates.
Insurance Company investment portfolio
Fair value is estimated using quoted market prices.
Derivatives
Fair value is defined as the amount that the Company would receive or pay to terminate the contracts at the report date.
Market or dealer quotes are available for many derivatives; otherwise, pricing or valuation models are applied to utilizing
current market information to estimate fair value.
Notes Payable
Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate the fair
value of existing debt.
NOTE K - SECURITIZATIONS
The Company routinely originates, securitizes and sells mortgage loans into the secondary market. As a result of this process,
the Company typically retains the MSRs and may retain interest-only strips, principal-only strips and one or more subordinated
interests. In general, conventional securitizations are structured without recourse to the Company. Government loans serviced by
the Company are insured by the Federal Housing Administration or partially guaranteed against loss by the Department of Veterans
Affairs. The Company is exposed to credit losses to the extent that the partial guarantee provided by the Department of Veterans
Affairs is inadequate to cover the total credit losses incurred. The Company retains primary credit risk on the home equity and
sub-prime loans it securitizes through retention of a subordinated interest or through a corporate guarantee of losses up to a
negotiated maximum amount. In general, there are no restrictions on the Company's retained interests. The Company recognized
gains of $444.8 million from sales of financial assets in securitizations in the year ended February 28, 2001.
NOTE K - SECURITIZATIONS (Continued)
Key economic assumptions used in determining the fair value of MSRs and other retained interests at the time of securitization
were as follows.
- ----------------------------------------------------------------------------------------------------------------
Year ended February 28, 2001
------------------------------------------------------
Other Retained
Interests
MSR's
- ----- ---------------------------------------------------- -------------- -- --------- --- ------------------ --
Weighted-average life (in years) 8.2 4.1
Weighted-average prepayment speed (annual rate) 11.0% 24.3%
Weighted-average discount rate (annual rate) 10.3% 15.4%
Weighted-average anticipated credit losses 0.01% 2.5%
- ----- ---------------------------------------------------- -------------- -- --------- --- ------------------ --
The following table summarizes cash flows between the Company and securitization special purpose entities.
- ----------------------------------------------------------------------------------------------------------------
Year ended February 28, 2001
------------------------------------------------------
(Dollar amounts in thousands)
- ----- -------------------------------------------------------- --- ------ -- ------------------ ------- ----- --
Proceeds from new securitizations $60,494,596
Proceeds from collections reinvested in securitizations $707,460
Service fees received $821,836
Purchases of delinquent loans ($2,610,563)
Servicing advances ($468,602)
Repayment of servicing advances $405,097
Other cash flows received on retained interest (a) $295,698
- ----- -------------------------------------------------------- --- ------ -- ------------------ ------- ----- --
(a) Represents cash flows received on retained interests other than servicing fees.
NOTE K - SECURITIZATIONS (Continued)
Key economic assumptions used in subsequently measuring the fair value of the Company's retained interests at
February 28, 2001 and the effect on the fair value of those retained interests from adverse changes in those assumptions are as
follows:
- ------------------------------------------------------------------------------------------------------------------------
Year ended February 28, 2001
------------------------------------------------------
Other Retained
(Dollar amounts in thousands) Interest
MSR's
- ----- ------------------------------------------------------------------------- ----------------- -- ---------------- --
Fair value of retained interests $5,834,058 $1,202,093
Weighted-average life (in years) 6.1 4.4
WEIGHTED-AVERAGE Prepayment speed (annual rate) 16.1% 23.3%
Impact of 10% adverse change $263,080 $62,058
Impact of 20% adverse change $500,464 $113,446
WEIGHTED-AVERAGE Discount rate (annual rate) 9.8% 16.6%
Impact of 10% adverse change $209,159 $30,728
Impact of 20% adverse change $404,732 $59,179
WEIGHTED-AVERAGE LIFETIME CREDIT LOSSES 0.02% 3.3%
Impact of 10% adverse change $3,082 $18,223
Impact of 20% of adverse change $6,163 $35,423
- ----- ------------------------------------------------------------------------- ----------------- -- ---------------- --
These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on
a 10% variation in assumptions generally cannot be extrapolated because the relationship of the change in the assumption to the
change in fair value may not be linear. Also, in the above table, the effect of a variation in a particular assumption on the
fair value of the retained interest is calculated independently without changing any other assumption. In reality, changes in one
factor may result in changes in another (for example, changes in prepayment speed estimates could result in changes in discount
rates), which might magnify or counteract the sensitivities.
NOTE K - SECURITIZATIONS (Continued)
The following table presents information about delinquencies and components of securitized and other managed assets.
- ----------------------------------------------------------------------------------------------------------------
Year ended February 28, 2001
------------------------------------------------------
Principal Amount 60
(Dollar amounts in thousands) Total Principal Days or More Past
Amount Due
- ----- -------------------------------------------------------- --- ------------------ -- -------------------- --
Subprime and Home Equity loans $11,695,059 $441,129
================== ====================
Comprised of:
Assets securitized $11,510,760
Assets held for sale 184,299
------------------
$11,695,059
==================
- ----- -------------------------------------------------------- --- ------------------ -- -------------------- --
The Company incurred credit losses of $43.6 million related to the assets above during the year ended
February 28, 2001.
NOTE L - COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Company and certain subsidiaries are defendants in various legal proceedings involving matters generally incidental to
their business. Although it is difficult to predict the ultimate outcome of these proceedings, management believes, based on
discussions with counsel, that any ultimate liability will not materially affect the consolidated financial position or results of
operations of the Company and its subsidiaries.
Commitments to Buy or Sell Mortgage-Backed Securities and Other Derivatives Contracts
In connection with its open commitments to buy or sell MBS and other derivative contracts, the Company may be required to
maintain margin deposits. With respect to the MBS commitments, these requirements are generally greatest during periods of
rapidly declining interest rates. With respect to other derivative contracts, margin requirements are generally greatest during
periods of increasing interest rates.
NOTE L - COMMITMENTS AND CONTINGENCIES (Continued)
Lease Commitments
The Company leases office facilities under lease agreements extending through December 2011. Future minimum annual rental
commitments under these non-cancelable operating leases with initial or remaining terms of one year or more are as follows.
----- ------------------------------------------ -----------------------------------
Year ending February 28(29), (Dollar amounts in
thousands)
----- ------------------------------- -------------------- -------------- ----------
2002 $ 38,228
2003 32,095
2004 24,008
2005 15,799
2006 13,701
Thereafter 52,201
--------------
$176,032
==============
----- ------------------------------- -------------------- -------------- ----------
Rent expense was $53.2 million, $57.2 million and $44.7 million for the years ended February 28(29), 2001, 2000 and 1999,
respectively.
Restrictions on Transfers of Funds
The Company and certain of its subsidiaries are subject to regulatory and/or credit agreement restrictions which limit their
ability to transfer funds to the Company through intercompany loans, advances or dividends. Pursuant to the revolving credit
facilities as of February 28, 2001, the Company is required to maintain $1.3 billion in consolidated net worth and CHL is required
to maintain $1.2 billion of net worth, as defined in the credit agreement.
Loan Servicing
As of February 28(29), 2001, 2000 and 1999, the Company serviced loans totaling approximately $293.6 billion,
$250.2 billion and $215.5 billion, respectively. Included in the loans serviced as of February 28(29), 2001, 2000 and 1999 were
loans being serviced under subservicing agreements with total principal balances of $8.6 billion, $5.5 billion and $3.8 billion,
respectively. The loans are serviced under a variety of servicing contracts. In general, these contracts include guidelines and
procedures for servicing the loans, remittance requirements and reporting requirements, among other provisions.
Conforming conventional loans serviced by the Company (56% of the servicing portfolio as of February 28, 2001) are primarily
included in either Fannie Mae MBS or Freddie Mac participation certificates ("PCs"). Such servicing is done on a non-recourse
basis, whereby credit losses are generally borne by Fannie Mae or Freddie Mac and not the Company. The government loans serviced
by the Company are included in either Ginnie Mae MBS, Fannie Mae MBS, or Freddie Mac PCs. The government loans are either insured
against loss by the Federal Housing Administration (16% of the servicing portfolio as of February 28, 2001) or partially
guaranteed against loss by the Department of Veterans Affairs (6% of the servicing portfolio as of February 28, 2001). In
addition, non-conforming mortgage loans (22% of the servicing portfolio as of February 28, 2001) are primarily included in
"private label" MBS and serviced on a non-recourse basis.
Properties securing the mortgage loans in the Company's servicing portfolio are geographically dispersed throughout the United
States. As of February 28, 2001, approximately 27%, 6% and 5% of the mortgage loans (measured by unpaid principal balance) in the
Company's servicing portfolio are secured by properties located in California, Texas and Florida respectively. No other state
contains more than 5% of the properties securing mortgage loans.
NOTE L - COMMITMENTS AND CONTINGENCIES (Continued)
Generally, the Company is not exposed to credit risk. Because the Company services substantially all conventional loans on a
non-recourse basis, credit losses are normally borne by the investor or insurer and not the Company. The Company retains credit
risk on the home equity and sub-prime loans it securitizes, through retention of a subordinated interest or through a corporate
guarantee of losses up to negotiated maximum amount. As of February 28, 2001, the Company had investments in such subordinated
interests amounting to $763.6 million and had reserves amounting to $56.3 million related to the corporate guarantees. While the
Company generally does not retain credit risk with respect to the conventional prime credit quality first mortgage loans it sells,
it does have potential liability under representations and warranties made to purchasers and insurers of the loans. In the event
of a breach of the representations and warranties, the Company may be required to repurchase a mortgage loan and any subsequent
loss on the mortgage loan may be borne by the Company. Similarly, government loans serviced by the Company (22% of the Company's
servicing portfolio as of
February 28, 2001) are insured by the Federal Housing Administration or partially guaranteed against loss by the Department of
Veterans Affairs. The Company is exposed to credit losses to the extent that the partial guarantee provided by the Department of
Veterans Affairs is inadequate to cover the total credit losses incurred.
NOTE M - EMPLOYEE BENEFITS
Stock Option Plans
The Company has stock option plans (the "Plans") that provide for the granting of both qualified and non-qualified options to
employees and directors. Options are generally granted at the average market price of the Company's common stock on the date of
grant and are exercisable beginning one year from the date of grant and expire up to ten years from the date of grant.
Stock options transactions under the Plans were as follows.
- ----------------------------------------------------------------------------------------------------------------
Year ended February 28(29),
------------------------------------------------------
2001 2000 1999
- ----- ------------------------------------------------- -- -------------- -- -------------- -- -------------- --
Number of Shares:
Outstanding options at beginning of year 14,059,515 11,497,044 11,151,799
Options granted 2,631,140 3,643,111 1,648,647
Options exercised (2,797,939) (602,021) (1,239,662)
Options expired or cancelled (460,069) (478,619) (63,740)
-------------- -------------- --------------
Outstanding options at end of year 13,432,647 14,059,515 11,497,044
============== ============== ==============
Weighted Average Exercise Price:
Outstanding options at beginning of year $27.44 $24.81 $20.57
Options granted 26.60 35.27 46.71
Options exercised 22.06 13.45 15.90
Options expired or canceled 33.05 37.64 25.11
-------------- --------------
--------------
Outstanding options at end of year $28.24 $27.44 $24.81
Options exercisable at end of year 7,457,090 8,299,892 6,514,039
Options available for future grant 5,919,027 2,673,480 5,840,713
- ----- ------------------------------------------------- -- -------------- -- -------------- -- -------------- --
NOTE M - EMPLOYEE BENEFITS (Continued)
Status of the outstanding stock options under the Plans as of February 28, 2001 was as follows:
- ----------------------------------------------------------------------------------------------------------------
Outstanding Options Exercisable Options
--------------------------------------------------- -------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Contractual Exercise Exercise
Price Range Life Number Price Number Price
------------------- --------------- -------------- ------------- ------------- --------------
$2.80 - $15.90 2.2 years 636,459 $14.66 636,459 $14.66
$15.91 - $21.20 3.2 1,556,501 17.45 1,556,501 17.46
$21.21 - $26.50 4.7 5,205,745 23.56 3,048,653 23.04
$26.51 - $31.80 5.3 2,478,545 27.52 814,019 27.08
$31.81 - $42.40 3.5 2,134,194 40.07 651,032 40.94
$42.41 - $53.00 7.0 1,421,203 46.75 750,426 46.75
------------------- --------------- -------------- ------------- ------------- --------------
$2.80 - $53.00 4.6 years 13,432,647 $28.24 7,457,090 $25.55
=================== =============== ============== ============= ============= ==============
- ----- ------------------- - --------------- - -------------- -- ------------- -- ------------- -- --------------
Had the estimated fair value of the options granted during the period been included in compensation expense, the Company's net
earnings and earnings per share would have been as follows:
- ------------------------------------------- ----------------------------------------------------
(Dollar amounts in thousands, Year ended February 28(29),
----------------------------------------------------
except per share data) 2001 2000 1999
- ------------------------------------------- ----------------- ---------------- -----------------
Net Earnings
As reported $374,153 $410,243 $385,401
Pro forma $346,026 $379,632 $366,118
Basic Earnings Per Share
As reported $3.26 $3.63 $3.46
Pro forma $3.01 $3.36 $3.29
Diluted Earnings Per Share
As reported $3.14 $3.52 $3.29
Pro forma $2.91 $3.25 $3.13
- ------------------------------------------- ----------------- ---------------- -----------------
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model that has
been modified to consider cash dividends to be paid. The following weighted-average assumptions were used for grants in Fiscal
2001, 2000 and 1999, respectively: dividend yield of 1.57%, 1.29% and 0.72%; expected volatility of 38%, 34% and 40%; risk-free
interest rates of 6.4%, 6.0% and 5.5% and expected lives of five years for options granted in all three years. The average fair
value of options granted during Fiscal 2001, 2000 and 1999 was $10.69, $13.66 and $19.20, respectively.
Pension Plan
The Company has a defined benefit pension plan (the "Plan") covering substantially all of its employees. The Company's policy
is to contribute the amount actuarially determined to be necessary to pay the benefits under the Plan, and in no event to pay less
than the amount necessary to meet the minimum funding standards of ERISA.
NOTE M - EMPLOYEE BENEFITS (Continued)
The following table sets forth the Plan's funded status and amounts recognized in the Company's financial statements.
---- ----------------------------------------- ---- ------------------------------------------------------ ---
Year ended February 28(29),
---- ----------------------------------------- ---- ------------------------------------------------------ ---
-- ------------- --- ------------
(Dollar amounts in thousands) 2001 2000
---- ------------------------------------------------------------------- -- ------------- --- ------------ ---
Change in benefit obligation
Benefit obligation at beginning of year $32,593 $29,777
Service cost 6,284 5,535
Interest cost 2,615 2,204
Transfer of plan assets - (453)
Actuarial loss (gain) 386 (41)
Benefits paid (367) (401)
Change in discount rate 4,690 (4,028)
------------- ------------
Benefit obligation at end of year $46,201 $32,593
============= ============
Change in plan assets
Fair value of plan assets at beginning of year $30,877 $22,775
Actual return on plan assets (4,189) 3,110
Employer contribution 8,318 5,846
Transfer of plan assets - (453)
Benefits paid (368) (401)
------------- ------------
Fair value of plan assets at end of year $34,638 $30,877
============= ============
Funded status at end of year ($11,562) ($1,716)
Unrecognized net actuarial loss (gain) 7,146 (4,977)
Unrecognized prior service cost 824 924
Unrecognized transaction asset (71) (142)
------------- ------------
Net amount recognized ($3,663) ($5,911)
============= ============
---- ------------------------------------------------------------------- -- ------------- --- ------------ ---
The following table sets forth the components of net periodic benefit cost for 2001 and 2000.
--------------------------------------------------------------------------------------------------------------
Year ended February 28(29),
--------------------------------------------------------------------------------------------------------------
(Dollar amounts in thousands) 2001 2000
--- ------------------------------------------------- -- -------------- -- --------------- -- ------------- --
Service cost $6,284 $5,535
Interest cost 2,615 2,204
Expected return on plan assets (2,768) (2,051)
Amortization of prior service cost 99 99
Amortization of unrecognized transition asset (71) (70)
Recognized net actuarial gain (89) -
--------------- -------------
Net periodic benefit cost $6,070 $5,717
=============== =============
--- ------------------------------------------------- -- -------------- -- --------------- -- ------------- --
The weighted-average assumptions used in calculating the amounts above were:
---- ----------------------------------------- ---- ------------------------------------------------------ ---
Year ended February 28(29),
---- ----------------------------------------- ---- ------------------------------------------------------ ---
-- ------------- --- ------------
2001 2000
---- ------------------------------------------------------------------- -- ------------- --- ------------ ---
Discount rate 7.50% 8.00%
Expected return on plan assets 8.00% 8.00%
Rate of compensation increase 4.00% 4.00%
---- ------------------------------------------------------------------- -- ------------- --- ------------ ---
NOTE M - EMPLOYEE BENEFITS (Continued)
Pension expense for the years ended February 28(29), 2001, 2000 and 1999 was $6.1 million, $5.7 million and
$4.9 million, respectively. The Company makes contributions to the Plan in amounts that are deductible in accordance with federal
income tax regulations.
Defined Contribution Plan
The Company has a defined contribution plan covering all full-time employees of the Company who have at least one year of
service and are age 21 or older. Participants may contribute up to 16 percent of pretax annual compensation, as defined in the
plan agreement. Participants may also contribute, at the discretion of the plan administrator, amounts representing distributions
from other qualified defined benefit or contribution plans. The Company makes a discretionary matching contribution equal to 50
percent of the participant contributions up to a maximum of six percent of the participants' base compensation, as defined in the
plan agreement. The defined contribution plan is subject to the provisions of ERISA.
NOTE N - SHAREHOLDERS' EQUITY
In January, 2000, the Company entered into a three year equity put option agreement with National Indemnity Company ("National
Indemnity"), a property casualty insurance company which is a subsidiary of Berkshire Hathaway, Inc. The purpose of the agreement
is to provide up to $100 million of additional capital and surplus in the event that property and casualty insurance companies of
Balboa Life Insurance Company and Balboa Insurance Company (collectively "Balboa") incur a certain level of catastrophic property
and casualty losses.
Upon the occurrence of one or more catastrophic events and two trigger events, the Company will have the option to require
National Indemnity to purchase up to one million shares of non voting Series B Cumulative Preferred Stock, par value $0.05 per
share, of the Company (the "Series B Preferred Stock"), at a price of $100 per share, with a dividend rate to be determined in
accordance with the agreement, resetting annually. The Series B Preferred Stock is convertible into shares of common stock of the
Company at a price which is 20% above the average price of the common stock in the 30 day period prior to the issuance of the
Series B Preferred Stock. Upon issuance of the Series B Preferred Stock and for so long as National Indemnity owns at least 50%
of the outstanding Series B Preferred Stock, the Company will not be able to increase quarterly dividends on its common stock. If
issued, the Series B Preferred Stock will pay an annual dividend rate determined at the time of issuance, and such rate would
increase by 50 basis points each year if the Series B Preferred Stock remained outstanding for more than three years. The Series
B Preferred Stock is redeemable by the Company at the purchase price plus any then unpaid dividend yield.
A catastrophic event that would trigger the option is one which results in Balboa sustaining losses in excess of
$97 million, net of reinsurance recoverable, or the occurrence in any calendar year of multiple catastrophic events which results
in Balboa sustaining losses in excess of $194 million, net of reinsurance recoverable. In addition, for the option to be
triggered the consolidated net loss ratio of the Balboa property and casualty operations must exceed 60% for the applicable
calendar year and Balboa property and casualty operations must have a net loss for such year.
In the event of a default in the payment of dividends on Series B Preferred Stock, National Indemnity has the right to purchase
shares of the Company's common stock having a market value of $1 million at a price per share of 10% below the closing price of
the Company's common stock on the business day prior to such purchase. This purchase option may be exercised quarterly until all
unpaid dividends and interest are paid.
In February 1988, the Board of Directors of the Company declared a dividend distribution of one preferred stock purchase right
("Right") for each outstanding share of the Company's common stock. As a result of stock splits and stock dividends, 0.399 of a
Right is presently associated with each outstanding share of the Company's common stock issued prior to the Distribution Date (as
defined below). Each Right, when exercisable, entitles the holder to purchase from the Company one one-hundredth of a share of
Series A Participating Preferred Stock, par value $0.05 per share, of the Company (the "Series A Preferred Stock"), at a price of
$145, subject to adjustments in certain cases to prevent dilution.
NOTE N - SHAREHOLDERS' EQUITY (Continued)
The Rights are evidenced by the common stock certificates and are not exercisable or transferable, apart from the common stock,
until the date (the "Distribution Date") of the earlier of a public announcement that a person or group, without prior consent of
the Company, has acquired 20% or more of the common stock ("Acquiring Person"), or ten days (subject to extension by the Board of
Directors) after the commencement of a tender offer made without the prior consent of the Company.
In the event a person becomes an Acquiring Person, then each Right (other than those owned by the Acquiring Person) will
entitle its holder to purchase, at the then current exercise price of the Right, that number of shares of common stock, or the
equivalent thereof, of the Company which, at the time of such transaction, would have a market value of two times the exercise
price of the Right. The Board of Directors of the Company may delay the exercisability of the Rights during the period in which
they are exercisable only for Series A Preferred Stock (and not common stock).
In the event that, after a person has become an Acquiring Person, the Company is acquired in a merger or other business
combination, as defined for the purposes of the Rights, each Right (other than those held by the Acquiring Person) will entitle
its holder to purchase, at the then current exercise price of the Right, that number of shares of common stock, or the equivalent
thereof, of the other party (or publicly-traded parent thereof) to such merger or business combination which at the time of such
transaction would have a market value of two times the exercise price of the Right. The Rights expire on the earlier of February
28, 2002, consummation of certain merger transactions or optional redemption by the Company prior to any person becoming an
Acquiring Person.
NOTE O - RELATED PARTY TRANSACTIONS
In July 1997, the Company sold the assets, operations and employees of Countrywide Asset Management Corporation ("CAMC"), a
then wholly-owned subsidiary of the Company, to IndyMac Mortgage Holdings, Inc. (formerly INMC Mortgage Holdings, Inc.) ("INMC").
CAMC was formerly the manager of INMC. As consideration, the Company received 3,440,800 newly issued common shares of INMC.
Subsequent to the sale, the Company entered into an agreement with INMC whereby the Company and certain affiliates agreed to
provide certain services to INMC during a transition period. During the year ended
February 28, 2001, no such services were provided. During the year ended February 29, 2000, CHL received
$3.9 million from INMC related to services provided in accordance with the agreement. Additionally, during the years ended
February 28(29), 2001 and 2000 the Company received $ 2.1 million and $4.1 million, respectively, of net sublease income from INMC.
During the year ended February 28, 1999, CHL entered into an agreement pursuant to which CHL assumed certain INMC recourse
obligations with respect to certain mortgage loans that INMC had previously sold to Freddie Mac. In consideration of CHL's
assumption of these recourse obligations, CHL received $6.0 million, which Management believes will exceed the actual loss
experience. A portion of the $6.0 million is subject to reimbursement to INMC based upon actual loss experience on the loans.
In January 2000, CHL sold their entire investment in IndyMac, Inc., which consisted of all of the outstanding common stock and 1%
of the economic interest in IndyMac, Inc., to INMC for $1.8 million.
During the year ended February 29, 2000, the Company sold 780,000 shares of INMC common stock, which resulted in a pre-tax gain
of $0.4 million.
In August 2000, the Company sold the remaining 3.6 million shares of INMC stock back to INMC at a price of $18.70 per share
which resulted in a $4.9 million pre-tax gain.
During the year ended February 28, 2001, CHL sub-serviced mortgage loans issued by INMC, for which CHL received $2.0 million in
sub-servicing fees.
NOTE O - RELATED PARTY TRANSACTIONS (Continued)
During the years ended February 28(29), 2001 and 2000, the Company's broker-dealer subsidiary purchased $3,275.4 million
and $872.6 million of MBS from INMC, respectively, and sold $1,504.6 million and $100.0 million of MBS to INMC, respectively.
NOTE P - SEGMENTS AND RELATED INFORMATION
The Company has six major segments that are grouped into Consumer and Institutional businesses. Consumer Businesses
include Mortgage Originations, Mortgage-Related Investments and Business to Consumer ("B2C") Insurance. Institutional Businesses
include Processing and Technology, Capital Markets and Business to Business ("B2B") Insurance.
The Mortgage Originations Segment originates mortgage loans through the Company's retail branch network (Consumer Markets
Division and Full Spectrum Lending, Inc.) and the Wholesale Division. This segment also provides other complementary services
offered as part of the origination process through LandSafe, Inc., including title, escrow, appraisal, credit reporting and flood
determination services. The Mortgage-Related Investments Segment consists of investments in assets retained in the mortgage
securitization process, including MSRs and residual interests. The B2C Insurance Segment, through Countrywide Insurance Services,
Inc., acts as an agent in the sale of insurance, including homeowners, fire, flood, earthquake, life and disability insurance,
primarily to the Company's mortgage customers.
The Processing and Technology Segment activities include internal sub-servicing of the Company's portfolio, as well as mortgage
subservicing and subprocessing for other domestic financial institutions and foreign financial institutions (through Global Home
Loans, Limited). The Capital Markets Segment purchases mortgage loans through the Correspondent Lending Division, acts as a
broker/dealer specializing in mortgages and mortgage-related securities through Countrywide Securities Corporation ("CSC"), and as
an agent, facilitates the purchase and sale of bulk servicing rights through Countrywide Servicing Exchange, Inc. ("CSE"). The
B2B Insurance Segment includes the activities of Balboa Life Insurance Company and Balboa Insurance Company (collectively
"Balboa"), an insurance carrier that offers property and casualty insurance (specializing in creditor-placed insurance), and life
and disability insurance, along with Second Charter, Inc., a mortgage reinsurance company. Included in the tables below labeled
"Other" is the holding company activities and certain reclassifications to conform management reporting to the consolidated
financial statements.
NOTE P - SEGMENT AND RELATED INFORMATION (Continued)
- -------------------------------------------------------------------------------------------------------------------------------------
For the fiscal year ended February 28, 2001
Consumer Businesses Institutional Businesses
---------- ---------- --------- ----------- ---------- --------- --------- ----------
Mortgage-Related Processing
Mortgage InvestmentsB2C and Capital B2B
(Dollars in thousandOriginations Insurance Total Technology Markets Insurance Total Other Total
- ------------------- ---------- ---------- --------- ----------- ---------- --------- --------- ---------- -------- ------------
External revenues $954,249 $434,976 $37,650 $1,426,875 $ 58,821 $263,214 $304,606 $626,641 $2,805 $2,056,321
Intersegment revenues - (261,086) - (261,086) 261,086 - - 261,086 - -
---------- ---------- --------- ----------- ---------- --------- --------- ---------- -------- ------------
Total revenues $954,249 $173,890 $37,650 $1,165,789 $319,907 $263,214 $304,606 $887,727 $2,805 $2,056,321
========== ========== ========= =========== ========== ========= ========= ========== ======== ============
Segment earnings
(pre-tax) $190,411 $166,944 $4,158 $361,513 $62,540 $94,373 $69,874 $226,787 ($2,265) $586,035
Segment assets $2,165,901 $10,990,807 $76,662 $13,233,370 $171,074 $8,455,834$934,758 $9,561,666 $160,471 $22,955,507
- ------------------- ---------- ---------- --------- ----------- -- ---------- --------- --------- ---------- -- -------- ------------
- -------------------------------------------------------------------------------------------------------------------------------------
For the fiscal year ended February 29, 2000
Consumer Businesses Institutional Businesses
---------- ---------- --------- ----------- ---------- --------- --------- ----------
Mortgage-Related Processing
Mortgage InvestmentsB2C and Capital B2B
(Dollars in thousandOriginations Insurance Total Technology Markets Insurance Total Other Total
- ------------------- ---------- ---------- --------- ----------- ---------- --------- --------- ---------- -------- ------------
External revenues $985,411 $470,914 $32,955 $1,489,280 $48,614 $233,941 $82,742 $365,297 $16,296 $1,870,873
Intersegment revenues - (205,212) - (205,212) 205,212 - - 205,212 - -
---------- ---------- --------- ----------- ---------- --------- --------- ---------- -------- ------------
Total revenues $985,411 $265,702 $32,955 $1,284,068 $253,826 $233,941 $82,742 $570,509 $16,296 $1,870,873
========== ========== ========= =========== ========== ========= ========= ========== ======== ============
Segment earnings
(pre-tax) $218,121 $250,296 $6,041 $474,458 $35,924 $87,028 $31,759 $154,711 $2,029 $631,198
Segment assets $1,981,795 $8,764,810 $47,436 $10,794,041 $151,075 $3,846,676$832,505 $4,830,256 $198,031 $15,822,328
- ------------------- ---------- ---------- --------- ----------- -- ---------- --------- --------- ---------- -- -------- ------------
- -------------------------------------------------------------------------------------------------------------------------------------
For the fiscal year ended February 28, 1999
Consumer Businesses Institutional Businesses
---------- ---------- --------- ----------- ---------- --------- --------- ----------
Mortgage-Related Processing
Mortgage InvestmentsB2C and Capital B2B
(Dollars in thousandOriginations Insurance Total Technology Markets Insurance Total Other Total
- ------------------- ---------- ---------- --------- ----------- ---------- --------- --------- ---------- -------- ------------
External revenues $1,324,374 $160,529 $22,784 $1,507,687 $ 49,165 $212,927 $13,244 $275,336 $21,365 $1,804,388
Intersegment revenues - (163,250) - (163,250) 163,250 - - 163,250 - -
---------- ---------- --------- ----------- ---------- --------- --------- ---------- -------- ------------
Total revenues $1,324,374 ($ $22,784 $1,344,437 $212,415 $212,927 $13,244 $438,586 $21,365 $1,804,388
2,721)
========== ========== ========= =========== ========== ========= ========= ========== ======== ============
Segment earnings
(pre-tax) $517,827 ($26,319) $3,325 $494,833 $33,367 $90,140 $13,084 $136,591 $381 $631,805
Segment assets $4,474,571 $6,532,760 $23,200 $11,030,531 $106,280 $4,356,474$27,862 $4,490,616 $127,109 $15,648,256
- ------------------- ---------- ---------- --------- ----------- -- ---------- --------- --------- ---------- -- -------- ------------
NOTE Q - SUBSEQUENT EVENTS
On March 23, 2001, the Company declared a cash dividend of $0.10 per common share payable April 30, 2001 to shareholders of
record on April 11, 2001.
On April 11, 2001, CHL renewed its one-year revolving credit facility with a limit of $1.0 billion. The new facility expires on
April 10, 2002.
NOTE R - QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly data was as follows.
---- ----------------------------------------- ---- ------------------------------------------------- --------
Three months ended
(Dollar amounts in thousands, except per share dataMay 31 August 31 November 30 February 28(29)
-------------- --------------- -------------- ----------------
----------------------------------------------- -------------- --------------- -------------- ----------------
Year ended February 28, 2001
Revenue $474,566 $512,301 $520,620 $548,834
Expenses 343,641 370,086 370,993 385,566
Provision for income taxes 47,466 51,180 54,214 59,022
Net earnings $83,459 $91,035 $95,413 $104,246
Earnings per share(1)
Basic $0.73 $0.80 $0.83 $0.89
Diluted $0.72 $0.77 $0.80 $0.85
Year ended February 29, 2000
Revenue $492,867 $491,074 $443,061 $443,871
Expenses 323,393 316,479 278,321 321,482
Provision for income taxes 66,095 68,092 64,176 22,592
Net earnings $103,379 $106,503 $100,564 $99,797
Earnings per share(1)
Basic $0.92 $0.94 $0.89 $0.88
Diluted $0.88 $0.91 $0.87 $0.87
----------------------------------------------- -------------- --------------- -------------- ----------------
(1) Earnings per share is computed independently for each of the quarters presented. Therefore, the sum of the quarterly
earnings per share amounts may not equal the annual amount. This is caused by rounding and the averaging effect of the
number of share equivalents utilized throughout the year, which changes with the market price of the common stock.
NOTE S - SUMMARIZED FINANCIAL INFORMATION
Summarized financial information for Countrywide Credit Industries, Inc. and subsidiaries was as follows:
- ------ ----------------------------------- ---------- ------------------------------------------------- -------------------------
February 28, 2001
---------- ------------------------------------------------- -------------------------
Countrywide Countrywide
(Dollar amounts in thousands) Credit Home Other
Industries, Loans, Inc. Subsidiaries Eliminations Consolidated
Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Balance Sheets:
Mortgage loans and
mortgage-backed securities $ $ 1,964,018 $ $ $ 1,964,018
held for sale - - -
Mortgage servicing rights, net - 5,767,748 - - 5,767,748
Other assets 4,343,853 9,155,120 8,336,417 (6,611,649) 15,223,741
---------------- --------------- --------------- -------------- ----------------
Total assets $4,343,853 $16,886,886 $ 8,336,417 ($6,611,649) $22,955,507
================ =============== =============== ============== ================
Company-obligated mandatorily
redeemable capital trust pass-through
securities $ $ $ 500,000 $ $ 500,000
- - -
Short- and long-term debt 736,630 11,435,760 5,959,565 (3,187,934) 14,944,021
Other liabilities 47,959 3,068,888 835,658 (283) 3,952,222
Equity 3,559,264 2,382,238 1,041,194 (3,423,432) 3,559,264
---------------- --------------- --------------- -------------- ----------------
Total liabilities and equity $4,343,853 $16,886,886 $8,336,417 ($6,611,649) $22,955,507
================ =============== =============== ============== ================
- ---------------------------------------------------------------------------------------------------------------------------------
- ------ ----------------------------------- ---------- ------------------------------------------------- -------------------------
Year ended February 28, 2001
---------- ------------------------------------------------- -------------------------
Countrywide Countrywide
(Dollar amounts in thousands) Credit Home Other
Industries, Loans, Inc. Subsidiaries Eliminations Consolidated
Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Statements of Earnings:
Revenues ($ 9,649) $1,273,529 $794,846 ($2,405) $2,056,321
Expenses 7,680 927,371 537,640 (2,405) 1,470,286
Provision for income taxes (6,324) 126,344 91,862 - 211,882
Equity in net earnings of subsidiaries 385,158 - - (385,158) -
---------------- --------------- --------------- -------------- ----------------
Net earnings $374,153 $ 219,814 $165,344 ($385,158) $ 374,153
================ =============== =============== ============== ================
- ---------------------------------------------------------------------------------------------------------------------------------
NOTE S - SUMMARIZED FINANCIAL INFORMATION (Continued)
- ------ ----------------------------------- ---------- ------------------------------------------------- -------------------------
February 29, 2000
---------- ------------------------------------------------- -------------------------
Countrywide Countrywide
(Dollar amounts in thousands) Credit Home Other
Industries, Loans, Inc. Subsidiaries Eliminations Consolidated
Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Balance Sheets:
Mortgage loans and
mortgage-backed securities $ $ 2,653,183 $ $ $ 2,653,183
held for sale - - -
Mortgage servicing rights, net - 5,396,477 - - 5,396,477
Other assets 3,717,770 5,240,247 2,866,833 (4,052,182) 7,772,668
---------------- --------------- --------------- -------------- ----------------
Total assets $3,717,770 $13,289,907 $2,866,833 ($4,052,182) $15,822,328
================ =============== =============== ============== ================
Company-obligated mandatorily
redeemable capital trust pass-through
securities $ $ $ 500,000 $ $ 500,000
- - -
Short- and long-term debt 766,697 8,842,848 1,041,501 (868,421) 9,782,625
Other liabilities 63,194 2,014,214 614,750 (40,334) 2,651,824
Equity 2,887,879 2,432,845 710,582 ($3,143,427) 2,887,879
---------------- --------------- --------------- -------------- ----------------
Total liabilities and equity $3,717,770 $13,289,907 $2,866,833 ($4,052,182) $15,822,328
================ =============== =============== ============== ================
- ---------------------------------------------------------------------------------------------------------------------------------
- ------ ----------------------------------- ---------- ------------------------------------------------- -------------------------
Year ended February 29, 2000
---------- ------------------------------------------------- -------------------------
Countrywide Countrywide
(Dollar amounts in thousands) Credit Home Other
Industries, Loans, Inc. Subsidiaries Eliminations Consolidated
Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Statements of Earnings:
Revenues $ 1,445 $1,409,832 $460,129 ($ 533) $1,870,873
Expenses 3,614 923,419 313,175 (533) 1,239,675
Provision for income taxes (127) 168,729 52,353 - 220,955
Equity in net earnings of subsidiaries 412,285 - - (412,285) -
---------------- --------------- --------------- -------------- ----------------
Net earnings $410,243 $ 317,684 $ 94,601 ($412,285) $ 410,243
================ =============== =============== ============== ================
- ---------------------------------------------------------------------------------------------------------------------------------
NOTE T - Business Acquisitions
On November 30, 1999, the Company acquired all of the outstanding common stock of Balboa Life Insurance Company and Balboa
Insurance Company (collectively "Balboa") for a cash price of $441 million. The purchase price is subject to adjustment based upon
completion of a post-closing audit.
Balboa is a leading writer of credit-related insurance, specializing in creditor-placed auto and homeowner insurance. Balboa
is licensed to underwrite in all 50 states.
The acquisition of Balboa was accounted for using the purchase method of accounting. Accordingly, a portion of the purchase
price was allocated to assets acquired and liabilities assumed based on their estimated fair market value at the date of
acquisition. The fair value of identifiable assets acquired and liabilities assumed was $895 million, respectively. Goodwill of
$36 million is amortized over a period of 25 years.
NOTE T - Business Acquisitions (continued)
The results of operations for Balboa are included in the Company's consolidated results of operations from
December 1, 1999. The following table sets forth certain unaudited consolidated earnings data for the years ended
February 29, 2000, and February 28, 1999, as if the acquisition of Balboa had been consummated March 1, 1998.
----- ----------------------------------------- --- --------------------------------------------------- --------
Year ended February 29(28),
--------------- ---------- --------------- ---------
(Dollar amounts in millions) 2000 1999
----- --------------------------------------------- ------- --------------- ---------- --------------- ---------
Statements of Earnings: (Unaudited)
Revenues $2,193,550 $2,245,253
Net Earnings $ 422,309 $ 404,717
Per Share
Basic $3.73 $3.63
Diluted $3.62 $3.46
----- --------------------------------------------- ------- --------------- ---------- --------------- ---------
In management's opinion, these unaudited pro forma amounts are not necessarily indicative of what the actual consolidated
results of operations might have been if the acquisition had been effective at March 1, 1998.
NOTE U - IMPLEMENTATION OF NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement No. 133, Accounting for Derivative Instruments
and Hedging Activities, amended by Statement No. 137, Deferral of the Effective Date of FASB Statement No. 133 and Statement No.
138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment to FASB Statement No. 133
(collectively "FAS 133"). FAS 133 requires companies to record derivatives on their balance sheets at fair value. Changes in the
fair values of those derivatives would be reported in earnings or other comprehensive income depending on the use of the
derivative and whether it qualifies for hedge accounting. The key criterion for hedge accounting is that the hedging relationship
must be highly effective in achieving offsetting changes in fair value of assets or liabilities or cash flows from forecasted
transactions. This statement was effective for the Company on March 1, 2001. At the date of initial application, the Company
recorded certain transition adjustments as required by FAS 133. There was no impact on net income as a result of such transition
adjustments. However, such adjustments resulted in the Company reducing the carrying amount of derivative assets by $94 million
and recognizing $107 million of derivative liabilities on the balance sheet. Management believes that the Company's hedging
activities are highly effective over the long term. However, the implementation of FAS 133 could result in more volatility in
quarterly reported earnings as a result of market conditions that temporarily impact the value of the derivatives while not
reducing their long term hedge effect.
In September 2000, the FASB issued Statement No. 140 ("FAS 140"), Accounting for the Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities, which replaces FAS 125 (of the same title). FAS 140 revises certain standards in the
accounting for securitizations and other transfers of financial assets and collateral, and requires some disclosures relating to
securitization transactions and collateral, but it carries over most of FAS 125's provisions. The collateral and disclosure
provisions of FAS 140 are effective for fiscal years ending after December 15, 2000. The
February 28, 2001 financial statements include the disclosures required by FAS 140. The other provisions of this Statement are
effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after
March 31, 2001. Management does not expect that the adoption of this statement will have a material impact on the Company.
F-45
-
COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
COUNTRYWIDE CREDIT INDUSTRIES, INC.
BALANCE SHEETS
(Dollar amounts in thousands)
February 28(29),
-------------- -- --------------
2001 2000
-------------- --------------
Assets
Cash $ $
- -
Intercompany receivable 434,764 428,298
Investments in other financial instruments 363,205 -
Investment in subsidiaries at equity in net assets 3,408,507 3,120,766
Equipment and leasehold improvements 38 55
Other assets 137,339 168,651
-------------- --------------
Total assets $4,343,853 $3,717,770
============== ==============
Liabilities and Shareholders' Equity
Note payable $ 500,717 $
-
Intercompany payable 235,913 766,697
Accounts payable and accrued liabilities 47,959 39,513
Deferred income taxes - 23,681
--------------
--------------
Total liabilities 784,589 829,891
Common shareholders' equity
Common stock 5,887 5,673
Additional paid-in capital 1,307,679 1,171,238
Accumulated other comprehensive loss 173,249 (33,234)
Retained earnings 2,072,449 1,744,202
-------------- --------------
Total shareholders' equity 3,559,264 2,887,879
-------------- --------------
Total liabilities and shareholders' equity $4,343,853 $3,717,770
============== ==============
COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
COUNTRYWIDE CREDIT INDUSTRIES, INC.
STATEMENTS OF EARNINGS
(Dollar amounts in thousands)
Year ended February 28(29),
-------------- -- -------------- -- --------------
2001 2000 1999
-------------- -------------- --------------
Revenue
Interest earned $ 1,308 $ 1,281 $ 1,261
Interest charges (16,230) (8,680) (4,151)
-------------- -------------- --------------
Net interest income (14,922) (7,399) (2,890)
Gain on sale of subsidiary - 4,424 -
Dividend and other income 5,273 4,420 8,287
-------------- -------------- --------------
(9,649) 1,445 5,397
Expenses (7,680) (3,614) (3,772)
-------------- -------------- --------------
Earnings (loss) before income tax (provision) benefit and
equity in net earnings of subsidiaries (17,329) (2,169) 1,625
Income tax (provision) benefit 6,324 127 (634)
-------------- -------------- --------------
Earnings (loss) before equity in net earnings of subsidiaries (11,005) (2,042) 991
Equity in net earnings of subsidiaries 385,158 412,285 384,410
-------------- -------------- --------------
NET EARNINGS $374,153 $410,243 $385,401
============== ============== ==============
COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
COUNTRYWIDE CREDIT INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash
(Dollar amounts in thousands)
Year ended February 28(29),
-------------- -- -------------- -- --------------
2001 2000 1999
-------------- -------------- --------------
Cash flows from operating activities:
Net earnings $374,153 $410,243 $385,401
Adjustments to reconcile net earnings to net cash
provided (used) by operating activities:
Earnings of subsidiaries (385,158) (412,285) (384,410)
Depreciation and amortization 72 5 28
Increase in other financial instruments (363,205) - -
Decrease (increase) in other receivables and other assets 168,367 (18,110) (1,801)
(Decrease) increase in accounts payable and accrued liabilities 8,446 8,610 (50,154)
Gain on sale of subsidiary - -
(4,424)
Gain on sale of available-for-sale securities (4,948) (433) -
-------------- -------------- --------------
Net cash used by operating activities (202,273) (16,394) (50,936)
-------------- -------------- --------------
Cash flows from investing activities:
Net change in intercompany receivables and payables (537,250) 216,316 267,809
Net change in investments in subsidiaries 97,362 (204,038) (273,735)
Proceeds from sales of subsidiary - 21,053 -
Proceeds from available-for-sale securities 68,084 10,977 -
-------------- -------------- --------------
Net cash (used) provided by investing activities (371,804) 44,308 (5,926)
-------------- -------------- --------------
Cash flows from financing activities:
Increase in long term debt 500,717 - -
Issuance of common stock 119,266 16,449 93,362
Cash dividends paid (45,906) (45,215) (35,648)
-------------- -------------- --------------
Net cash provided (used) by financing activities 574,077 (28,766) 57,714
-------------- -------------- --------------
Net change in cash - (852) 852
Cash at beginning of year - 852 -
-------------- -------------- --------------
Cash at end of year $ $ $ 852
- -
============== ============== ==============
Supplemental cash flow information:
Cash used to pay interest $ 1,571 $ 5,015 $ 97
Unrealized gain (loss) on available-for-sale securities,
net of tax $206,483 $ (13,641) $ (23,290)
COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
COUNTRYWIDE CREDIT INDUSTRIES, INC.
STATEMENTS OF COMPREHENSIVE INCOME
Year Ended February 28(29),
(Dollar amounts in thousands)
2001 2000 1999
--------------- ----------------- ---------------
NET EARNINGS $374,153 $410,243 $385,401
Other comprehensive income, net of tax:
Unrealized gains (losses) on available for sale
securities:
Unrealized holding gains (losses) arising
during the period, before tax 381,587 (9,356) 18,556
Income tax (expense) benefit (138,876) 3,331 (7,237)
--------------- ----------------- ---------------
Unrealized holding gains (losses) arising
during the period, net of tax 242,711 (6,025) 11,319
Less: reclassification adjustment for gains
included in net earnings, (56,965) (12,332) (56,801)
before tax
Income tax expense 20,737 4,716 22,192
--------------- ----------------- ---------------
Reclassification adjustment for gains included
in net earnings, net of tax (36,228) (7,616) (34,609)
--------------- ----------------- ---------------
Other comprehensive income (loss) 206,483 (13,641) (23,290)
--------------- ----------------- ---------------
COMPREHENSIVE INCOME $580,636 $396,602 $362,111
=============== ================= ===============
COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Three years ended February 28(29),
(Dollar amounts in thousands)
Column A Column B Column C Column D Column E
- ----------------------------------- -------------- --------------------------------- ----------------- --------------
Additions
---------------------------------
Balance at Charged to Charged Balance
beginning costs and to other at end
of period expenses accounts (2) Deductions (1) of period
- ----------------------------------- -------------- --------------- ---------------- ------------------ -------------
Year ended February 28, 2001
Allowance for losses $48,372 $8,406 $ - $11,706 $45,072
Year ended February 29, 2000
Allowance for losses $49,366 $17,143 $ - $18,137 $48,372
Year ended February 28, 1999
Allowance for losses $41,094 $30,556 $2,997 $25,281 $49,366
- -----------------------------------
(1) Actual losses charged against reserve, net of recoveries and reclassification.
(2) Primarily represents loss indemnification proceeds received.
Exhibit List
Exhibit
No. Description
---------- ------------------------------------------------------------------------------------
4.16.3 Second Supplemental Trust Deed dated 23rd day of December, 1999, further
modifying the provisions of a Trust Deed dated 1st May, 1998 among CHL, the
Company and Bankers Trustee Company Limited, as Trustee for Euro Medium Notes of
CHL.
4.16.4 Third Supplemental Trust Deed dated 12th day of January, 2001, further modifying
the provisions of a Trust Deed dated 1st May, 1998 among CHL, the Company and
Bankers Trustee Company Limited, as Trustee for Euro Medium Notes of CHL.
10.8.4 Second Amendment to Revolving Credit Agreement dated as of the 15th day of
April, 1999 by and among CHL, the Lenders under (as that term is defined in) the
Revolving Credit Agreement dated as of September 24, 1997, and Bankers Trust
Company as Credit Agent.
10.8.7.1 Credit Agreement as of the 11th day of April, 2001, by and among CHL, Royal Bank
of Canada, ABN AMRO Bank, N.V., Credit Lyonnais New York Branch, Commerzbank AG,
New York Branch, and the Lenders Party thereto.
10.22.6 2000 Stock Option Plan effective as of July 12, 2000.
10.29 Form of Restricted Stock Award Agreement with non-employee directors dated as of
June 1, 1999.
10.29.1 Form of Amendment Number One, dated September 20, 2000, to the Restricted Stock
Award Agreement with non-employee directors dated as of June 1, 1999.
10.30 Form of Restricted Stock Award Agreement with non-employee directors dated as of
March 1, 2000.
10.30.1 Form of Amendment Number One, dated September 20, 2000, to the Restricted Stock
Award Agreement with non-employee directors dated as of March 1, 2000.
10.31 Form of Restricted Stock Award Agreement with non-employee directors dated as of
March 1, 2001.
12.1 Computation of the Ratio of Earnings to Fixed Charges.
21 List of subsidiaries
23 Consent of Grant Thornton LLP.
+Constitutes a management contract or compensatory plan or arrangement.
THIS SECOND SUPPLEMENTAL TRUST DEED is made the 23rd day of December, 1999 BETWEEN:
(1) COUNTRYWIDE HOME LOANS, INC., a company incorporated with limited liability in the State of New York, whose principal office
is at 4500 Park Granada, Calabasas, California 91302, United States of America (the "Issuer");
(2) COUNTRYWIDE CREDIT INDUSTRIES, INC., a company incorporated with limited liability in the State of Delaware, whose principal
office is at 4500 Park Granada aforesaid (the "Guarantor"); and
(3) BANKERS TRUSTEE COMPANY LIMITED, a company incorporated with limited liability in England and Wales, whose registered office
is at 1 Appold Street, Broadgate, London EC2A 2HE, England (the "Trustee", which expression shall, wherever the context so
admits, include such company and all other persons or companies for the time being the trustee or trustees of these
presents) as trustee for the Noteholders, the Receiptholders and the Couponholders.
WHEREAS:
(A) This Second Supplemental Trust Deed is supplemental to:
(i) the Trust Deed dated 1st May, 1998 (hereinafter called the "Principal Trust Deed") made between the Issuer, the
Guarantor and the Trustee relating to the U.S.$2,000,000,000 Euro Medium Term Note Programme established by the
Issuer; and
(ii) the First Supplemental Trust Deed dated 16th December, 1998 (hereinafter called the "First Supplemental Trust Deed"
and, together with the Principal Trust Deed, the "Subsisting Trust Deeds") made between the Issuer, the Guarantor
and the Trustee and modifying the provisions of the Principal Trust Deed.
(B) On 16th December, 1998 the Issuer published modified and updated Listing Particulars relating to the Programme pursuant to
which, inter alia, the amount of the Programme was increased from U.S.$2,000,000,000 to U.S.$4,000,000,000.
(C) On 23rd December, 1999 the Issuer published modified and updated Listing Particulars relating to the Programme.
(D) By virtue of Clause 19(B) of the Principal Trust Deed the Trustee may without the consent or sanction of the Noteholders,
the Receiptholders or the Couponholders at any time and from time to time concur with the Issuer in making any modification
to these presents which in the opinion of the Trustee is not materially prejudicial to the interests of the Noteholders.
(E) The Issuer has requested the Trustee to concur in making modifications to the Principal Trust Deed to reflect the relevant
modifications to the Listing Particulars referred to in Recital (C) above.
(F) The Trustee, being of the opinion that the modifications referred to in Recital (E) above are not materially prejudicial to
the interests of the Noteholders, has concurred with the Issuer in making such modifications and has agreed that notice of
such modifications need not be given to the Noteholders.
NOW THIS SECOND SUPPLEMENTAL TRUST DEED WITNESSETH AND IT IS HEREBY DECLARED as follows:
1. Subject as hereinafter provided and unless there is something in the subject matter or context inconsistent therewith, all
words and expressions defined in the Principal Trust Deed (as previously modified) shall have the same meanings in this
Second Supplemental Trust Deed.
2. The provisions of the Principal Trust Deed are hereby further modified in relation only to all Notes issued on or after the
date hereof other than any such Notes issued so as to be consolidated and form a single Series with any Notes issued prior
to the date hereof as follows:
(i) by the deletion from the definition of "Dealers" in Clause 1(A) thereof of "Banque Lehman Brothers,";
(ii) by the deletion of "Indexed Interest Note", "Indexed Note" and "Indexed Redemption Amount Note" wherever they appear
therein and the substitution therefor of "Index Linked Interest Note", "Index Linked Note" and "Index Linked
Redemption Note" respectively;
(iii) by the deletion from the definition of "London Business Day" in Clause 1(A) thereof of "5(c)" and the substitution
therefor of "4(b)(v)";
(iv) by the deletion from Clause 1(B)(i) thereof of "Condition 6(e)" and the substitution therefor of "Condition 5(d)";
(v) by the deletion from Clause 1(D) thereof of "or, where relevant in the case of Notes denominated or payable in ECU,
the chosen currency (as defined in Condition 5(c)) in which payments in respect of such Notes and/or Receipts and/or
Coupons are to be made, as the case may be"; and
(vi) by the deletion of the Terms and Conditions of the Notes set out in Schedule 1 thereto (as previously substituted)
and the substitution therefor of the Terms and Conditions of the Notes set out in the Schedule hereto.
4. The Subsisting Trust Deeds and this Second Supplemental Trust Deed shall henceforth be read and construed together as one
Trust Deed.
5. A memorandum of this Second Supplemental Trust Deed shall be endorsed by the Trustee on the original of the Principal Trust
Deed and by the Issuer on the duplicate of the Principal Trust Deed.
6. This Second Supplemental Trust Deed may be executed in any number of counterparts, all of which, taken together, shall
constitute one and the same Second Supplemental Trust Deed and any party may enter into this Second Supplemental Trust Deed
by executing a counterpart.
IN WITNESS whereof this Second Supplemental Trust Deed has been executed as a deed by the Issuer, the Guarantor and the Trustee and
delivered on the date first stated on Page 1 above.
THE SCHEDULE
TERMS AND CONDITIONS OF THE NOTES
EXECUTED as a deed by )
COUNTRYWIDE HOME LOANS, INC. )
acting by KEITH MCLAUGHLIN ) KEITH MCLAUGHLIN
acting under the authority of that )
company in the presence of: )
Witness's Signature: GLENDA J. DANIEL
Name: GLENDA J. DANIEL
Address: 4500 Park Granada
Calabasas, CA 91302
Occupation: Assistant Vice-President
EXECUTED as a deed by )
COUNTRYWIDE CREDIT INDUSTRIES, )
INC. acting by KEITH MCLAUGHLIN ) KEITH MCLAUGHLIN
acting under the authority of that )
company in the presence of: )
Witness's Signature: GLENDA J. DANIEL
Name: GLENDA J. DANIEL
Address: 4500 Park Granada
Calabasas, CA 91302
Occupation: Assistant Vice-President
THE COMMON SEAL of BANKERS )
TRUSTEE COMPANY LIMITED ) SEAL
was affixed to this deed in )
the presence of: )
C. STRAKOSCH
Director
R. STUMBLES
Associate Director
ICM:394383
DATED 23RD DECEMBER, 1999
-------------------------
COUNTRYWIDE HOME LOANS, INC.
- and -
COUNTRYWIDE CREDIT INDUSTRIES, INC.
- and -
BANKERS TRUSTEE COMPANY LIMITED
- ---------------------------------------------------------------------------------------------------------------------------------------
SECOND SUPPLEMENTAL TRUST DEED
further modifying the provisions of a
Trust Deed dated 1st May, 1998
relating to a
U.S.$2,000,000,000
(now U.S.$4,000,000,000)
Euro Medium Term Note Programme
- ---------------------------------------------------------------------------------------------------------------------------------------
For Bankers Trustee Company Limited
as to English law:
ALLEN & OVERY
One New Change
London EC4M 9QQ
CONFORMED COPY
DATED 23RD DECEMBER, 1999
-------------------------
COUNTRYWIDE HOME LOANS, INC.
- and -
COUNTRYWIDE CREDIT INDUSTRIES, INC.
- and -
BANKERS TRUSTEE COMPANY LIMITED
---------------------------------------
SECOND SUPPLEMENTAL TRUST DEED
further modifying the provisions of a
Trust Deed dated 1st May, 1998
relating to a
U.S.$2,000,000,000
(now U.S.$4,000,000,000)
Euro Medium Term Note Programme
---------------------------------------
For Bankers Trustee Company Limited as to English law:
ALLEN& OVERY
One New Change
London EC4M 9QQ
THIS THIRD SUPPLEMENTAL TRUST DEED is made the 12th day of January, 2001 BETWEEN:
(1) COUNTRYWIDE HOME LOANS, INC., a company incorporated with limited liability in the State of New York, whose principal office
is at 4500 Park Granada, Calabasas, California 91302, United States of America (the "Issuer");
(2) COUNTRYWIDE CREDIT INDUSTRIES, INC., a company incorporated with limited liability in the State of Delaware, whose principal
office is at 4500 Park Granada aforesaid (the "Guarantor"); and
(3) BANKERS TRUSTEE COMPANY LIMITED, a company incorporated with limited liability in England and Wales, whose registered office
is at Winchester House, 1 Great Winchester Street, London EC2N 2DB, England (the "Trustee", which expression shall, wherever
the context so admits, include such company and all other persons or companies for the time being the trustee or trustees of
these presents) as trustee for the Noteholders, the Receiptholders and the Couponholders.
WHEREAS:
(A) This Third Supplemental Trust Deed is supplemental to:
(i) the Trust Deed dated 1st May, 1998 (hereinafter called the "Principal Trust Deed") made between the Issuer, the
Guarantor and the Trustee relating to the U.S.$2,000,000,000 Euro Medium Term Note Programme established by the
Issuer;
(ii) the First Supplemental Trust Deed dated 16th December, 1998 (hereinafter called the "First Supplemental Trust Deed")
made between the Issuer, the Guarantor and the Trustee and modifying the provisions of the Principal Trust Deed; and
(iii) the Second Supplemental Trust Deed dated 23rd December, 1999 (hereinafter called the "Second Supplemental Trust
Deed" and, together with the Principal Trust Deed and the First Supplemental Trust Deed, the "Subsisting Trust
Deeds") made between the Issuer, the Guarantor and the Trustee and further modifying the provisions of the Principal
Trust Deed.
(B) On 16th December, 1998 the Issuer published a modified and updated Offering Circular relating to the Programme pursuant to
which, inter alia, the amount of the Programme was increased from U.S.$2,000,000,000 to U.S.$4,000,000,000.
(C) On 12th January, 2001 the Issuer published a modified and updated Offering Circular relating to the Programme pursuant to
which, inter alia, the amount of the Programme was increased from U.S.$4,000,000,000 to U.S.$5,000,000,000.
(D) By virtue of Clause 19(B) of the Principal Trust Deed the Trustee may without the consent or sanction of the Noteholders,
the Receiptholders or the Couponholders at any time and from time to time concur with the Issuer in making any modification
to these presents which in the opinion of the Trustee is not materially prejudicial to the interests of the Noteholders.
(E) The Issuer has requested the Trustee to concur in making modifications to the Principal Trust Deed to reflect the relevant
modifications to the Offering Circular referred to in Recital (C) above.
(F) The Trustee, being of the opinion that the modifications referred to in Recital (E) above are not materially prejudicial to
the interests of the Noteholders, has concurred with the Issuer in making such modifications and has agreed that notice of
such modifications need not be given to the Noteholders.
NOW THIS THIRD SUPPLEMENTAL TRUST DEED WITNESSETH AND IT IS HEREBY DECLARED as follows:
1. Subject as hereinafter provided and unless there is something in the subject matter or context inconsistent therewith, all
words and expressions defined in the Principal Trust Deed (as previously modified) shall have the same meanings in this
Third Supplemental Trust Deed.
2. (A) The provisions of the Principal Trust Deed (as previously modified) are hereby further modified as follows:
(i) by the deletion therefrom of all references to "U.S.$4,000,000,000" and the substitution therefor of
references to "U.S.$5,000,000,000";
(ii) by the deletion from the definition of "Agent" in Clause 1(A) thereof of the words "Bankers Trust Company
at its office at 1 Appold Street, London EC2N 2HE" and the substitution therefor of "Deutsche Bank AG, a
corporation domiciled in Frankfurt am Main, Germany, operating in the United Kingdom under branch number
HR000005, acting through its London branch at Winchester House, 1 Great Winchester Street, London EC2N 2DB
and hereinafter referred to as "Deutsche Bank AG London"";
(iii) by the deletion of the definition of "Cedelbank" in Clause 1(A) thereof and the substitution therefor of
""Clearstream, Luxembourg" means Clearstream Banking, societe anonyme";
(iv) by the deletion of the word "Cedelbank" wherever it appears therein and the substitution therefor of the
words "Clearstream, Luxembourg";
(v) by the deletion from the definition of "Euroclear" in clause 1(A) thereof of the words "Morgan Guaranty
Trust Company of New York, Brussels office" and the substitution therefor of "Euroclear Bank S.A./N.V. as
operator of the Euroclear System";
(vi) by the deletion of the words "Bankers Trust Company" wherever they appear therein and the substitution
therefor of the words "Deutsche Bank AG London";
(vii) by the deletion from Clause 25 thereof of the Trustee's address and the substitution therefor of
"Winchester House, 1 Great Winchester Street, London EC2N 2DB"; and
(viii) by the deletion from Clause 25 thereof of the Trustee's facsimile number and the substitution therefor of
"020 7547 6149".
(B) The provisions of the Principal Trust Deed are hereby further modified in relation only to all Notes issued on or
after the date hereof other than any such Notes issued so as to be consolidated and form a single Series with any
Notes issued prior to the date hereof as follows:
(i) by the deletion from the definition of "Dealers" in Clause 1(A) thereof of "Paribas" and the substitution
therefor of "BNP Paribas";
(ii) by the insertion of the following clause immediately after Clause 28 thereof:
"29. CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999
A person which is not a party to this Trust Deed or any trust deed supplemental hereto has no
right under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Trust
Deed or any trust deed supplemental hereto, but this does not affect any right or remedy of a
third party which exists or is available apart from that Act.";
(iii) by the deletion therefrom of all references to UBS AG at its address at Bahnhofstrasse 45, CH-8098 Zurich;
(iv) by the deletion of the Terms and Conditions of the Notes set out in the First Schedule thereto (as
previously substituted) and the substitution therefor of the Terms and Conditions of the Notes set out in
the First Schedule hereto; and
(v) by the deletion of the forms of Temporary Global Note and Permanent Global Note set out in Parts I and II
respectively of the Second Schedule thereto and the substitution therefor of the forms of Temporary Global
Note and Permanent Global Note set out in Parts I and II respectively of the Second Schedule hereto.
3. The Subsisting Trust Deeds and this Third Supplemental Trust Deed shall henceforth be read and construed together as one
Trust Deed.
4. A memorandum of this Third Supplemental Trust Deed shall be endorsed by the Trustee on the original of the Principal Trust
Deed and by the Issuer on the duplicate of the Principal Trust Deed.
5. This Third Supplemental Trust Deed may be executed in any number of counterparts, all of which, taken together, shall
constitute one and the same Third Supplemental Trust Deed and any party may enter into this Third Supplemental Trust Deed by
executing a counterpart.
IN WITNESS whereof this Third Supplemental Trust Deed has been executed as a deed by the Issuer, the Guarantor and the Trustee and
delivered on the date first stated on Page 1 above.
THE FIRST SCHEDULE
TERMS AND CONDITIONS OF THE NOTES
AGENT
Deutsche Bank AG London
Winchester House
1 Great Winchester Street
London EC2N 2DB
PAYING AGENT
Deutsche Bank Luxembourg S.A.
2 boulevard Konrad Adenauer
L-1115 Luxembourg
THE SECOND SCHEDULE
PART I
FORM OF TEMPORARY GLOBAL NOTE
[ANY UNITED STATES PERSON (AS DEFINED IN THE INTERNAL REVENUE CODE OF THE UNITED STATES) WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO
LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE
INTERNAL REVENUE CODE.]1
[BY ACCEPTING THIS OBLIGATION, THE HOLDER REPRESENTS AND WARRANTS THAT IT IS NOT A UNITED STATES PERSON (OTHER THAN AN EXEMPT
RECIPIENT DESCRIBED IN SECTION 6049(b)(4) OF THE INTERNAL REVENUE CODE OF THE UNITED STATES AND THE REGULATIONS THEREUNDER) AND THAT
IT IS NOT ACTING FOR OR ON BEHALF OF A UNITED STATES PERSON (OTHER THAN AN EXEMPT RECIPIENT DESCRIBED IN SECTION 6049(b)(4) OF THE
INTERNAL REVENUE CODE AND THE REGULATIONS THEREUNDER).]2
[THIS NOTE CONSTITUTES [COMMERCIAL PAPER/[A SHORTER/LONGER] TERM DEBT SECURITY]3 ISSUED IN ACCORDANCE WITH REGULATIONS MADE UNDER
SECTION 4 OF THE BANKING ACT 1987. THE ISSUER OF THIS NOTE IS NOT AN AUTHORISED INSTITUTION OR A EUROPEAN AUTHORISED INSTITUTION (AS
SUCH TERMS ARE DEFINED IN THE BANKING ACT 1987 (EXEMPT TRANSACTIONS) REGULATIONS 1997). REPAYMENT OF THE PRINCIPAL AND PAYMENT OF
ANY INTEREST OR PREMIUM IN CONNECTION WITH THIS NOTE HAS BEEN GUARANTEED BY COUNTRYWIDE CREDIT INDUSTRIES, INC. WHICH IS NOT AN
AUTHORISED INSTITUTION OR A EUROPEAN AUTHORISED INSTITUTION.]4
COUNTRYWIDE HOME LOANS INC.
(the "Issuer")
(incorporated with limited liability in the State of New York)
Unconditionally and irrevocably guaranteed by
COUNTRYWIDE CREDIT INDUSTRIES, INC.
(incorporated with limited liability in the State of Delaware)
TEMPORARY GLOBAL NOTE
This Note is a Temporary Global Note in respect of a duly authorised issue of Notes of the Issuer (the "Notes") of the Nominal
Amount, Specified Currency(ies) and Specified Denomination(s) as are specified in the Pricing Supplement applicable to the Notes (the
"Pricing Supplement"), a copy of which is annexed hereto. References herein to the Conditions shall be to the Terms and Conditions
of the Notes as set out in the First Schedule to the Trust Deed (as defined below) as supplemented, replaced and modified by the
Pricing Supplement but, in the event of any conflict between the provisions of the said Conditions and the information in the Pricing
Supplement, the Pricing Supplement will prevail. Words and expressions defined in the Conditions shall bear the same meanings when
used in this Global Note. This Global Note is issued subject to, and with the benefit of, the Conditions and a Trust Deed (such
Trust Deed as modified and/or supplemented and/or restated from time to time, the "Trust Deed") dated 1st May, 1998 and made between
the Issuer, Countrywide Credit Industries, Inc. as guarantor and Bankers Trustee Company Limited as trustee for the holders of the
Notes.
The Issuer, subject as hereinafter provided and subject to and in accordance with the Conditions and the Trust Deed, promises to pay
to the bearer hereof on each Instalment Date (if the Notes are repayable in instalments) and on the Maturity Date and/or on such
earlier date(s) as all or any of the Notes represented by this Global Note may become due and repayable in accordance with the
Conditions and the Trust Deed, the amount payable under the Conditions in respect of such Notes on each such date and to pay interest
(if any) on the nominal amount of the Notes from time to time represented by this Global Note calculated and payable as provided in
the Conditions and the Trust Deed together with any other sums payable under the Conditions and the Trust Deed, upon presentation
and, at maturity, surrender of this Global Note at the specified office of the Agent at Winchester House, 1 Great Winchester Street,
London EC2N 2DB, England or such other specified office as may be specified for this purpose in accordance with the Conditions or at
the specified office of any of the other Paying Agents located outside the United States, its territories and possessions (except as
provided in the Conditions) from time to time appointed by the Issuer in respect of the Notes. On any redemption or payment of an
instalment or interest being made in respect of, or purchase and cancellation of, any of the Notes represented by this Global Note
details of such redemption, payment, purchase and cancellation (as the case may be) shall be entered by or on behalf of the Issuer in
Schedule One hereto and the relevant space in Schedule One hereto recording any such redemption, payment, purchase and cancellation
(as the case may be) shall be signed by or on behalf of the Issuer. Upon any such redemption, payment of an instalment, purchase and
cancellation the nominal amount of this Global Note and the Notes represented by this Global Note shall be reduced by the nominal
amount of such Notes so redeemed or purchased and cancelled or the amount of such instalment. The nominal amount from time to time
of this Global Note and of the Notes represented by this Global Note following any such redemption, payment of an instalment,
purchase and cancellation as aforesaid or any exchange as referred to below shall be the nominal amount most recently entered in the
relevant column in Part II, III or IV of Schedule One hereto or in Schedule Two hereto.
Payments of principal and interest (if any) due prior to the Exchange Date (as defined below) will only be made to the bearer hereof
to the extent that there is presented to the Agent by Clearstream Banking, societe anonyme ("Clearstream, Luxembourg") or Euroclear
Bank S.A./N.V., as operator of the Euroclear System ("Euroclear") a certificate in or substantially in the form set out in Part VII
of the Second Schedule to the Trust Deed to the effect that it has received from or in respect of a person entitled to a particular
nominal amount of the Notes represented by this Global Note (as shown by its records) a certificate in or substantially in the form
of Certificate "A" as set out in Part VII of the Second Schedule to the Trust Deed. The bearer of this Global Note will not (unless
upon due presentation of this Global Note for exchange, delivery of the appropriate number of Definitive Notes (together, if
applicable, with the Receipts, Coupons and Talons appertaining thereto in or substantially in the forms set out in Parts III, IV, V
and VI of the Second Schedule to the Trust Deed) or, as the case may be, issue and delivery (or, as the case may be, endorsement) of
the Permanent Global Note is improperly withheld or refused and such withholding or refusal is continuing at the relevant payment
date) be entitled to receive any payment hereon due on or after the Exchange Date.
On or after the date (the "Exchange Date") which is 40 days after the Issue Date, this Global Note may be exchanged (free of charge)
in whole or in part for, as specified in the Pricing Supplement, either Definitive Notes and (if applicable) Receipts, Coupons and/or
Talons (on the basis that all the appropriate details have been included on the face of such Definitive Notes and (if applicable)
Receipts, Coupons and/or Talons and the relevant information supplementing, replacing or modifying the Conditions appearing in the
Pricing Supplement has been endorsed on or attached to such Definitive Notes) or a Permanent Global Note in or substantially in the
form set out in Part II of the Second Schedule to the Trust Deed (together with the Pricing Supplement attached thereto) upon notice
being given by Euroclear and/or Clearstream, Luxembourg acting on the instructions of any holder of an interest in this Global Note
and subject, in the case of Definitive Notes, to such notice period as is specified in the Pricing Supplement. If Definitive Notes
and (if applicable) Receipts, Coupons and/or Talons have already been issued in exchange for all the Notes represented for the time
being by the Permanent Global Note, then this Global Note may only thereafter be exchanged for Definitive Notes and (if applicable)
Receipts, Coupons and/or Talons pursuant to the terms hereof. Presentation of this Global Note for exchange shall be made by the
bearer hereof on any day (other than a Saturday or Sunday) on which banks are open for business in London at the office of the Agent
specified above. The Issuer shall procure that Definitive Notes or (as the case may be) the Permanent Global Note shall be so issued
and delivered in exchange for only that portion of this Global Note in respect of which there shall have been presented to the Agent
by Euroclear or Clearstream, Luxembourg a certificate in or substantially in the form set out in Part VII of the Second Schedule to
the Trust Deed to the effect that it has received from or in respect of a person entitled to a particular nominal amount of the Notes
represented by this Global Note (as shown by its records) a certificate in or substantially in the form of Certificate "A" as set out
in Part VII of the Second Schedule to the Trust Deed. On an exchange of the whole of this Global Note, this Global Note shall be
surrendered to the Agent. On an exchange of part only of this Global Note, details of such exchange shall be entered by or on behalf
of the Issuer in Schedule Two hereto and the relevant space in Schedule Two hereto recording such exchange shall be signed by or on
behalf of the Issuer, whereupon the nominal amount of this Global Note and the Notes represented by this Global Note shall be reduced
by the nominal amount of this Global Note so exchanged. On any exchange of this Global Note for a Permanent Global Note, details of
such exchange shall be entered by or on behalf of the Issuer in Schedule Two to the Permanent Global Note and the relevant space in
Schedule Two thereto recording such exchange shall be signed by or on behalf of the Issuer.
Until the exchange of the whole of this Global Note as aforesaid, the bearer hereof shall (subject as provided in the next paragraph)
in all respects (except as otherwise provided herein) be entitled to the same benefits as if he were the bearer of Definitive Notes
and the relative Receipts, Coupons and/or Talons (if any) in the form(s) set out in Parts III, IV, V and VI (as applicable) of the
Second Schedule to the Trust Deed.
Each person (other than Euroclear or Clearstream, Luxembourg) who is for the time being shown in the records of Euroclear or
Clearstream, Luxembourg as the holder of a particular nominal amount of the Notes represented by this Global Note (in which regard
any certificate or other document issued by Euroclear or Clearstream, Luxembourg as to the nominal amount of such Notes standing to
the account of any person shall be conclusive and binding for all purposes save in the case of manifest error) shall be treated by
the Issuer, the Trustee, the Agent and any other Paying Agent as the holder of such nominal amount of such Notes for all purposes
other than with respect to the payment of principal and interest on such nominal amount of such Notes, the right to which shall be
vested, as against the Issuer, solely in the bearer of this Global Note in accordance with and subject to the terms of this Global
Note and the Trust Deed.
This Global Note is governed by, and shall be construed in accordance with, English law.
This Global Note shall not be valid unless authenticated by Deutsche Bank AG London as Agent.
No rights are conferred on any person under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Global Note,
but this does not affect any right or remedy of any person which exists or is available apart from that Act.
IN WITNESS whereof the Issuer has caused this Global Note to be signed manually or in facsimile by two persons duly authorised on its
behalf.
COUNTRYWIDE HOME LOANS, INC.
By: ..................................................... By: .....................................................
Duly Authorised Duly Authorised
Authenticated by
Deutsche Bank AG London
as Agent.
By: .....................................................
Authorised OfficerSchedule One
PART I
INTEREST PAYMENTS
Date made Interest Payment Date Total amount of Amount of interest Confirmation of
interest payable paid payment by or on
behalf of the Issuer
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PART II
PAYMENT OF INSTALMENT AMOUNTS
Date made Total amount of Amount of Instalment Remaining nominal Confirmation of
Instalment Amounts Amounts paid amount of this Global payment by or on
payable Note following such behalf of the Issuer
payment *
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* See most recent entry in Part II, III or IV or Schedule Two in order to determine this amount.
PART III
REDEMPTIONS
Date Total amount Amount of Remaining nominal Confirmation of redemption
made of principal principal paid amount of this Global by or on behalf of the
payable Note following such Issuer
redemption*
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* See most recent entry in Part II, III or IV or Schedule Two in order to determine this amount.
PART IV
PURCHASES AND CANCELLATIONS
Date Part of nominal amount of Remaining nominal amount of Confirmation of purchase and
made this Global Note purchased this Global Note following cancellation by or on behalf
and cancelled such purchase and of the Issuer
cancellation*
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* See most recent entry in Part II, III or IV or Schedule Two in order to determine this amount.
Schedule Two
EXCHANGES
FOR DEFINITIVE NOTES OR PERMANENT GLOBAL NOTE
The following exchanges of a part of this Global Note for Definitive Notes or a part of a Permanent Global Note have been made:
Date Nominal amount of this Global Remaining nominal amount of Notation made by or on behalf
made Note exchanged for Definitive this Global Note following of the Issuer
Notes or a part of a Permanent such exchange*
Global Note
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* See most recent entry in Part II, III or IV of Schedule One or in this Schedule Two in order to determine this amount.
PART II
FORM OF PERMANENT GLOBAL NOTE
[ANY UNITED STATES PERSON (AS DEFINED IN THE INTERNAL REVENUE CODE OF THE UNITED STATES) WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO
LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE
INTERNAL REVENUE CODE.]1
[BY ACCEPTING THIS OBLIGATION, THE HOLDER REPRESENTS AND WARRANTS THAT IT IS NOT A UNITED STATES PERSON (OTHER THAN AN EXEMPT
RECIPIENT DESCRIBED IN SECTION 6049(b)(4) OF THE INTERNAL REVENUE CODE OF THE UNITED STATES AND THE REGULATIONS THEREUNDER) AND THAT
IT IS NOT ACTING FOR OR ON BEHALF OF A UNITED STATES PERSON (OTHER THAN AN EXEMPT RECIPIENT DESCRIBED IN SECTION 6049(b)(4) OF THE
INTERNAL REVENUE CODE AND THE REGULATIONS THEREUNDER).]2
[THIS NOTE CONSTITUTES [COMMERCIAL PAPER/[A SHORTER/LONGER] TERM DEBT SECURITY]3 ISSUED IN ACCORDANCE WITH REGULATIONS MADE UNDER
SECTION 4 OF THE BANKING ACT 1987. THE ISSUER OF THIS NOTE IS NOT AN AUTHORISED INSTITUTION OR A EUROPEAN AUTHORISED INSTITUTION (AS
SUCH TERMS ARE DEFINED IN THE BANKING ACT 1987 (EXEMPT TRANSACTIONS) REGULATIONS 1997). REPAYMENT OF THE PRINCIPAL AND PAYMENT OF
ANY INTEREST OR PREMIUM IN CONNECTION WITH THIS NOTE HAS BEEN GUARANTEED BY COUNTRYWIDE CREDIT INDUSTRIES, INC. WHICH IS NOT AN
AUTHORISED INSTITUTION OR A EUROPEAN AUTHORISED INSTITUTION.]4
COUNTRYWIDE HOME LOANS, INC.
(the "Issuer")
(incorporated with limited liability in the State of New York)
Unconditionally and irrevocably guaranteed by
COUNTRYWIDE CREDIT INDUSTRIES, INC.
(incorporated with limited liability in the State of Delaware)
PERMANENT GLOBAL NOTE
This Note is a Permanent Global Note in respect of a duly authorised issue of Notes of the Issuer (the "Notes") of the Nominal
Amount, Specified Currency(ies) and Specified Denomination(s) as are specified in the Pricing Supplement applicable to the Notes (the
"Pricing Supplement"), a copy of which is annexed hereto. References herein to the Conditions shall be to the Terms and Conditions
of the Notes as set out in the First Schedule to the Trust Deed (as defined below) as supplemented, replaced and modified by the
Pricing Supplement but, in the event of any conflict between the provisions of the said Conditions and the information in the Pricing
Supplement, the Pricing Supplement will prevail. Words and expressions defined in the Conditions shall bear the same meanings when
used in this Global Note. This Global Note is issued subject to, and with the benefit of, the Conditions and a Trust Deed (such
Trust Deed as modified and/or supplemented and/or restated from time to time, the "Trust Deed") dated 1st May, 1998 and made between
the Issuer, Countrywide Credit Industries, Inc. as guarantor and Bankers Trustee Company Limited as trustee for the holders of the
Notes.
The Issuer, subject to and in accordance with the Conditions and the Trust Deed, promises to pay to the bearer hereof on each
Instalment Date (if the Notes are repayable in instalments) and on the Maturity Date and/or on such earlier date(s) as all or any of
the Notes represented by this Global Note may become due and repayable in accordance with the Conditions and the Trust Deed, the
amount payable under the Conditions in respect of such Notes on each such date and to pay interest (if any) on the nominal amount of
the Notes from time to time represented by this Global Note calculated and payable as provided in the Conditions and the Trust Deed
together with any other sums payable under the Conditions and the Trust Deed, upon presentation and, at maturity, surrender of this
Global Note at the specified office of the Agent at Winchester House, 1 Great Winchester Street, London EC2N 2DB, England or such
other office as may be specified for this purpose in accordance with the Conditions or at the specified office of any of the other
Paying Agents located outside the United States, its territories and possessions (except as provided in the Conditions) from time to
time appointed by the Issuer in respect of the Notes. On any redemption or payment of an instalment or interest being made in
respect of, or purchase and cancellation of, any of the Notes represented by this Global Note details of such redemption, payment,
purchase and cancellation (as the case may be) shall be entered by or on behalf of the Issuer in Schedule One hereto and the relevant
space in Schedule One hereto recording any such redemption, payment, purchase and cancellation (as the case may be) shall be signed
by or on behalf of the Issuer. Upon any such redemption, payment of an instalment, purchase and cancellation the nominal amount of
this Global Note and the Notes represented by this Global Note shall be reduced by the nominal amount of such Notes so redeemed or
purchased and cancelled or the amount of such instalment. The nominal amount from time to time of this Global Note and of the Notes
represented by this Global Note following any such redemption, payment of an instalment, purchase and cancellation as aforesaid or
any exchange as referred to below shall be the nominal amount most recently entered in the relevant column in Part II, III or IV of
Schedule One hereto or in Schedule Two hereto.
On any exchange of the Temporary Global Note issued in respect of the Notes for this Global Note or any part hereof, details of such
exchange shall be entered by or on behalf of the Issuer in Schedule Two hereto and the relevant space in Schedule Two hereto
recording such exchange shall be signed by or on behalf of the Issuer, whereupon the nominal amount of this Global Note and the Notes
represented by this Global Note shall be increased by the nominal amount of the Temporary Global Note so exchanged.
This Global Note may be exchanged (free of charge) in whole, but not in part, for Definitive Notes and (if applicable) Receipts,
Coupons and/or Talons in or substantially in the forms set out in Parts III, IV, V and VI of the Second Schedule to the Trust Deed
(on the basis that all the appropriate details have been included on the face of such Definitive Notes and (if applicable) Receipts,
Coupons and/or Talons and the relevant information supplementing, replacing or modifying the Conditions appearing in the Pricing
Supplement has been endorsed on or attached to such Definitive Notes) either, as specified in the applicable Pricing Supplement:
(i) upon not less than 60 days' written notice being given to the Agent by Euroclear Bank S.A./N.V., as operator of the
Euroclear System ("Euroclear") and/or Clearstream Banking, societe anonyme ("Clearstream, Luxembourg") (acting on the
instructions of any holder of an interest in this Global Note) or the Trustee; or
(ii) in the case of Notes with a maturity of 183 days or less only upon the occurrence of an Exchange Event.
An "Exchange Event" means:
(1) an Event of Default has occurred and is continuing;
(2) the Issuer has been notified that both Euroclear and Clearstream, Luxembourg have been closed for business for a
continuous period of 14 days (other than by reason of holiday, statutory or otherwise) or have announced an
intention permanently to cease business or have in fact done so and no alternative clearing system satisfactory to
the Trustee is available; or
(3) the Issuer has or will become obliged to pay additional amounts as provided for or referred to in Condition 7
which would not be required were the Notes in definitive form.
Upon the occurrence of an Exchange Event:
(i) the Issuer will promptly give notice to Noteholders in accordance with Condition 13 upon the occurrence of such
Exchange Event; and
(ii) Euroclear and/or Clearstream, Luxembourg (acting on the instructions of any holder of an interest in this Global
Note) or the Trustee may give notice to the Agent requesting exchange and, in the event of the occurrence of an
Exchange Event as described in (3) above, the Issuer may also give notice to the Agent requesting exchange. Any
such exchange shall occur on a date specified in the notice not later than 60 days after the date of receipt of
the first relevant notice by the Agent.
The first notice requesting exchange in accordance with the above provisions shall give rise to the issue of Definitive Notes for
the total nominal amount of Notes represented by this Global Note.
Any such exchange as aforesaid will be made upon presentation of this Global Note by the bearer hereof on any day (other than a
Saturday or Sunday) on which banks are open for business in London at the office of the Agent specified above.
The aggregate nominal amount of Definitive Notes issued upon an exchange of this Global Note will be equal to the aggregate nominal
amount of this Global Note. Upon exchange of this Global Note for Definitive Notes, the Agent shall cancel it or procure that it is
cancelled.
Until the exchange of the whole of this Global Note as aforesaid, the bearer hereof shall (subject as provided in the next paragraph)
in all respects be entitled to the same benefits as if he were the bearer of Definitive Notes and the relative Receipts, Coupons
and/or Talons (if any) in the form(s) set out in Parts III, IV, V and VI (as applicable) of the Second Schedule to the Trust Deed.
Each person (other than Euroclear or Clearstream, Luxembourg) who is for the time being shown in the records of Euroclear or
Clearstream, Luxembourg as the holder of a particular nominal amount of the Notes represented by this Global Note (in which regard
any certificate or other document issued by Euroclear or Clearstream, Luxembourg as to the nominal amount of such Notes standing to
the account of any person shall be conclusive and binding for all purposes save in the case of manifest error) shall be treated by
the Issuer, the Trustee, the Agent and any other Paying Agent as the holder of such nominal amount of such Notes for all purposes
other than with respect to the payment of principal and interest on such nominal amount of such Notes, the right to which shall be
vested, as against the Issuer, solely in the bearer of this Global Note in accordance with and subject to the terms of this Global
Note and the Trust Deed.
This Global Note is governed by, and shall be construed in accordance with, English law.
This Global Note shall not be valid unless authenticated by Deutsche Bank AG London as Agent.
No rights are conferred on any person under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Global Note,
but this does not affect any right or remedy of any person which exists or is available apart from that Act.
IN WITNESS whereof the Issuer has caused this Global Note to be signed manually or in facsimile by two persons duly authorised on its
behalf.
COUNTRYWIDE HOME LOANS, INC.
By: ..................................................... By: .....................................................
Duly Authorised Duly Authorised
Authenticated by
Deutsche Bank AG London
as Agent.
By: .....................................................
Authorised Officer
Schedule One
PART I
INTEREST PAYMENTS
Date made Interest Payment Date Total amount of Amount of interest Confirmation of
interest payable paid payment by or on
behalf of the Issuer
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
PART II
PAYMENT OF INSTALMENT AMOUNTS
Date Total amount Amount of Remaining nominal Confirmation of payment by
made of Instalment Instalment Amounts amount of this Global or on behalf of the Issuer
Amounts payable paid Note following such
payment *
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* See most recent entry in Part II, III or IV or Schedule Two in order to determine this amount.
PART III
REDEMPTIONS
Date Total amount Amount of Remaining nominal Confirmation of redemption
made of principal principal paid amount of this Global by or on behalf of the
payable Note following such Issuer
redemption*
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- --------- ----------- ------------- ----------------- -------------------
* See most recent entry in Part II, III or IV or Schedule Two in order to determine this amount.
PART IV
PURCHASES AND CANCELLATIONS
Date Part of nominal amount of Remaining nominal amount of Confirmation of purchase and
made this Global Note purchased this Global Note following cancellation by or on behalf
and cancelled such purchase and of the Issuer
cancellation*
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- --------- -------------------- -------------------- --------------------
* See most recent entry in Part II, III or IV or Schedule Two in order to determine this amount.
Schedule Two
EXCHANGES
Nominal amount of Temporary Increased nominal amount of
Global Note exchanged for this Global Note following
this Global Note such exchange* Notation made by or on
Date made behalf of the Issuer
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- --------- --------------- --------------- ------------------
* See most recent entry in Part II, III or IV of Schedule One or in this Schedule Two in order to determine this amount.
EXECUTED as a deed by )
COUNTRYWIDE HOME LOANS, INC. )
acting by )
acting under the authority of that ) ..........................................
company in the presence of: )
Witness's Signature:
Name:
Address:
Occupation:
EXECUTED as a deed by )
COUNTRYWIDE CREDIT INDUSTRIES, )
INC. acting by )
acting under the authority of that ) .........................................
company in the presence of: )
Witness's Signature:
Name:
Address:
Occupation:
THE COMMON SEAL of BANKERS )
TRUSTEE COMPANY LIMITED )
was affixed to this deed in )
the presence of: )
Director
Associate Director
ICM:477401
DATED 12TH JANUARY, 2001
------------------------
COUNTRYWIDE HOME LOANS, INC.
- and -
COUNTRYWIDE CREDIT INDUSTRIES, INC.
- and -
BANKERS TRUSTEE COMPANY LIMITED
- ---------------------------------------------------------------------------------------------------------------------------------------
THIRD SUPPLEMENTAL TRUST DEED
further modifying the provisions of a
Trust Deed dated 1st May, 1998
relating to a
U.S.$2,000,000,000
(now U.S.$5,000,000,000)
Euro Medium Term Note Programme
- ---------------------------------------------------------------------------------------------------------------------------------------
For Bankers Trustee Company Limited
as to English law:
ALLEN &OVERY
One New Change
London EC4M 9QQ
la-469666
la-469666
DATED 12TH JANUARY, 2001
------------------------
COUNTRYWIDE HOME LOANS, INC.
- and -
COUNTRYWIDE CREDIT INDUSTRIES, INC.
- and -
BANKERS TRUSTEE COMPANY LIMITED
---------------------------------------
THIRD SUPPLEMENTAL TRUST DEED
further modifying the provisions of a
Trust Deed dated 1st May, 1998
relating to a
U.S.$2,000,000,000
(now U.S.$5,000,000,000)
Euro Medium Term Note Programme
---------------------------------------
For Bankers Trustee Company Limited as to English law:
ALLEN & OVERY
One New Change
London EC4M 9QQ
SECOND AMENDMENT TO REVOLVING CREDIT AGREEMENT
THIS SECOND AMENDMENT TO REVOLVING CREDIT AGREEMENT (the "Amendment") is made and dated as of the 15th day of April, 1999 by and
among COUNTRYWIDE HOME LOANS, INC. (the "Company"), the Lenders under (and as that term and capitalized terms not otherwise defined
herein are defined in) the Revolving Credit Agreement described below, and BANKERS TRUST COMPANY, as Credit Agent (in such capacity,
the "Credit Agent").
RECITALS
A. Pursuant to that certain Revolving Credit Agreement dated as of September 24, 1997 by and among the Company, the Lenders party
thereto, the Credit Agent and others (as amended, extended and replaced from time to time, the "Revolving Credit Agreement"), the
Lenders agreed to extend credit to the Company on the terms and subject to the conditions set forth therein.
B. The Company has requested that the Lenders currently party to the Revolving Credit Agreement agree to amend the Revolving
Credit Agreement in certain respects as provided more particularly herein.
NOW, THEREFORE, in consideration of the above Recitals and for other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereto hereby agree as follows:
AGREEMENT
1. Y2K Issues. To reflect the agreement of the parties to address potential technological issues associated with the year 2000:
----------
(a) A new Paragraph 8(l) is hereby added to the Revolving Credit Agreement to read in its entirety as follows:
"8(l) Year 2000. The Company has reviewed its operations and those of its Affiliates with a view to
---------
assessing whether its businesses or the businesses of any of its Affiliates will be vulnerable to a Year 2000 Problem
arising from the computer-based systems of the Company or its Affiliates or will be vulnerable to the effects of a Year 2000
Problem suffered by certain of the Company's or any of its Affiliates' major commercial counterparties. The Company has
taken or shall take reasonable actions and has committed or shall expeditiously commit adequate resources to enable its
computer-based and other systems (and those of its Affiliates) to effectively process data, including dates before, on and
after January 1, 2000, without experiencing any Year 2000 Problem arising from its computer-based systems that could cause a
Material Adverse Effect. The Company has a reasonable basis to believe that the computer-based systems of the Company and
its Subsidiaries will not have a Year 2000 Problem arising from such systems that will cause a Material Adverse Effect."
(b) A New Paragraph 9(l) is hereby added to the Revolving Credit Agreement to read in its entirety as follows:
"9(l) Year 2000. At the request of the Credit Agent, the Company will provide the Credit Agent with a
---------
description of the actions undertaken by the Company in its efforts to enable the computer-based systems of the Company and
its Affiliates to effectively process data on and after January 1, 2000."
(c) The following new definitions are hereby added to the Glossary, in correct alphabetical order, to read in their
entirety as follows:
"'Material Adverse Effect' shall mean: (a) a materially adverse effect on the assets, business,
-----------------------
operations, properties or condition (financial or otherwise) of the Company and its Affiliates, taken as a whole, (b) an
impairment of the ability of the Company to perform any of its obligations under the Credit Documents or (c) an impairment
of the validity or enforceability of, or an impairment of the rights, remedies or benefits available to the Lenders under,
the Credit Documents."
"'Year 2000 Problem' shall mean, with respect to any Person, any significant risk that computer hardware,
-----------------
software or equipment containing embedded microchips essential to the business or operation of such Person or any of its
Affiliates will not, in the case of dates or time periods occurring after December 31, 1999, function at least as
effectively and reliably as in the case of dates or time periods occurring before January 1, 2000, including the making of
accurate leap year calculations."
2. Amendment of Negative Covenant. To reflect the agreement of the Lenders to modify the limitations on certain of the
------------------------------
Company's Advances to Affiliates from the limitations thereon set forth in the Revolving Credit Agreement:
(a) Paragraph 10(g) of the Revolving Credit Agreement is hereby amended to read in its entirety as follows:
"10(g) Investments; Advances; Receivables. Make or commit to make any advance, loan or extension of
----------------------------------
credit ("Advances") to, or hold any receivable ("Receivable") of, or make or commit to make any capital contribution to, or
purchase any stock, bonds, notes, debentures or other securities ("Investments") of, or make any other investment in, any
Person, except:
(1) Advances constituting Mortgage Loans made in the ordinary course of the Company's
business;
(2) Advances to and Receivables of any Person which are fully secured on a first
priority perfected basis by Mortgage Loans;
(3) Investments in, Advances to and Receivables of any Affiliate which are fully
secured on a first priority perfected basis by Mortgage Loans or Prime Quality Mortgage-Backed Securities;
(4) Investment in, Advances to and Receivables of any Affiliate or any Servicing
Pass-Through Venture which is not otherwise an Affiliate, which are unsecured or which are secured on a first
priority perfected basis by collateral other than Mortgage Loans or Prime Quality Mortgage-Backed Securities,
in an aggregate amount not to exceed fifteen percent (15%) of the net worth of the Company determined in
accordance with GAAP; and
(5) Investments in, Advances to and Receivables of Countrywide Capital Markets, Inc. or
any of its Subsidiaries, which are fully secured on a first priority perfected basis by: (i) debt
instruments issued by FNMA or FHLMC or (ii) time deposit accounts issued by a financial institution the
deposits of which are insured by the Bank Insurance Fund and which financial institution has a deposit rating
issued by a recognized rating agency not less than the rating assigned to the Company's long term
indebtedness."
(b) A new definition is hereby added to the Glossary, in correct alphabetical order, to read in its entirety as
follows:
"'Prime Quality Mortgage-Backed Security' shall mean a Mortgage-Backed Security: (a) meeting the
--------------------------------------
requirements of subparagraphs (a), (b) or (c) of the definition of `Mortgage-Backed Security' or (b) included in a senior
tranche of privately-placed securities which are rated by a recognized rating agency in a category that is not less than the
rating assigned to the Company's long term indebtedness, which securities represent an undivided interest in or are
otherwise supported by a pool of mortgages, deeds of trust or other instruments creating a Lien on Property which is
improved by a completed single family dwelling (one-to-four family units)."
3. Reaffirmation of Loan Documents. The Company hereby affirms and agrees that (a) the execution and delivery by the Company of
-------------------------------
and the performance of its obligations under this Amendment shall not in any way amend, impair, invalidate or otherwise affect any of
the obligations of the Company or the rights of the Credit Agent, the Lenders or any other Person under the Revolving Credit
Agreement or any other Credit Document, (b) the term "Obligations" as used in the Credit Documents includes, without limitation, the
Obligations of the Company under the Revolving Credit Agreement as amended hereby, and (c) the Revolving Credit Agreement as amended
hereby and the other Credit Documents remain in full force and effect.
4. Reaffirmation of Guaranties. By executing this Amendment as provided below, the Parent acknowledges the terms and conditions
---------------------------
of this Amendment and affirms and agrees that (a) the execution and delivery by the Company and the performance of its obligations
under this Amendment shall not in any manner or to any extent affect any of the obligations of the Parent or the rights of the Credit
Agent, the Lenders or any other Person under the Guaranty, the Subordination Agreement or any other document or instrument made or
given by the Parent in connection therewith, (b) the term "Obligations" as used in the Guaranty and the Subordination Agreement
includes, without limitation, the Obligations of the Company under the Revolving Credit Agreement as amended hereby, and (c) the
Guaranty and the Subordination Agreement remain in full force and effect.
5. Amendment Effective Date. This Amendment shall be effective as of the day and year first above written upon the date (the
------------------------
"Amendment Effective Date") that there has been delivered to the Credit Agent:
(a)A copy of this Amendment, duly executed by each party hereto and acknowledged by the Parent; and
(b)Such corporate resolutions, incumbency certificates and other authorizing documentation as the Credit Agent may request.
6. Representations and Warranties. The Company hereby represents and warrants to the Credit Agent and each of the Lenders that
------------------------------
at the date hereof and at and as of the Amendment Effective Date:
(a)Each of the Company and the Parent has the corporate power and authority and the legal right to execute, deliver and
perform this Amendment and has taken all necessary corporate action to authorize the execution, delivery and performance of this
Amendment. This Amendment has been duly executed and delivered on behalf of the Company and the Parent and constitutes the legal,
valid and binding obligation of such Person, enforceable against such Person in accordance with its terms.
(b)Both prior to and after giving effect hereto: (1) the representations and warranties of the Company and the Parent
contained in the Credit Documents are accurate and complete in all respects, and (2) there has not occurred an Event of Default or
Potential Default.
7. No Other Amendment. Except as expressly amended hereby, the Credit Documents shall remain in full force and effect as written
------------------
and amended to date.
8. Counterparts. This Amendment may be executed in any number of counterparts, each of which when so executed shall be deemed to
------------
be an original and all of which when taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the day and year first above written.
COUNTRYWIDE HOME LOANS, INC.,
a New York corporation
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
BANKERS TRUST COMPANY,
as Credit Agent
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
THE ASAHI BANK, LTD., LOS ANGELES AGENCY, as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
BANCA CRT S.p.A., as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
BANCA DI NAPOLI S.p.A., NEW YORK BRANCH, as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title _____________________________________________________
BANCA DI ROMA, SAN FRANCISCO BRANCH, as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title _____________________________________________________
BANCA MONTE DEI PASCHI DI SIENA S.p.A., NEW YORK BRANCH, as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
BANK OF HAWAII, as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
BANK OF MONTREAL, as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
THE BANK OF NEW YORK, as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
BANK OF TOKYO - MITSUBISHI TRUST COMPANY, as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
BANK ONE, TEXAS, N.A., as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
BANKERS TRUST COMPANY, as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
BANQUE NATIONALE DE PARIS, as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
BARCLAYS BANK PLC, as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
THE DAI-ICHI KANGYO BANK, LTD.,
LOS ANGELES AGENCY, as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
BAYERISCHE LANDESBANK GIROZENTRALE, CAYMAN ISLANDS BRANCH, as a Lender
By ________________________________________________________
Name ______________________________________________________
Title _____________________________________________________
By ________________________________________________________
Name ______________________________________________________
Title _____________________________________________________
CANADIAN IMPERIAL BANK OF COMMERCE, as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
THE CHASE MANHATTAN BANK, as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
COMMERZBANK, as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
CREDIT LYONNAIS, SAN FRANCISCO BRANCH, as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title _____________________________________________________
DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN ISLANDS BRANCHES, as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
THE FIFTH THIRD BANK, as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
THE FIRST NATIONAL BANK OF CHICAGO, as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
FIRST UNION NATIONAL BANK, as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
FLEET BANK, N.A., as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
THE FUJI BANK, LIMITED, LOS ANGELES AGENCY, as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
GUARANTY FEDERAL BANK, as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
THE INDUSTRIAL BANK OF JAPAN, LIMITED, LOS ANGELES AGENCY, as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
KBC BANK N.V., as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
By ________________________________________________________
Name ______________________________________________________
Title _____________________________________________________
LASALLE NATIONAL BANK, as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
THE LONG TERM CREDIT BANK OF JAPAN, LTD., LOS ANGELES AGENCY, as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
MELLON BANK, N.A., as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
THE MITSUBISHI TRUST AND BANKING CORPORATION, LOS ANGELES AGENCY, as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
NATIONSBANK, N.A., as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
NORDDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH AND/OR CAYMAN ISLANDS BRANCH, as a
Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
PARIBAS, as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
RCV CORPORATION, as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
ROYAL BANK OF CANADA, as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
THE SAKUR BANK LIMITED, LOS ANGELES AGENCY, as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
STAR BANK, NATIONAL ASSOCIATION, as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
THE SUMITOMO BANK, LIMITED, LOS ANGELES BRANCH, as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
THE TOYO TRUST AND BANKING CO., LTD., LOS ANGELES AGENCY, as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
UNION BANK OF CALIFORNIA, N.A., as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
U. S. BANK NATIONAL ASSOCIATION, formerly known as U.S. National Bank of Oregon, as a
Lender,
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
SUMITOMO TRUST& BANKING, as a Lender
By ____________________________________
Name __________________________________
Title ___________________________________
WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH/CAYMAN ISLANDS BRANCH, as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
ACKNOWLEDGED and AGREED TO
as of the date first written above:
COUNTRYWIDE CREDIT INDUSTRIES, INC.,
a Delaware corporation
By _______________________________________________
Name _____________________________________________
Title ____________________________________________
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (the "Agreement") is made and dated as of the 11th day of April, 2001, by and among the
lenders signatory hereto (collectively, the "Lenders"); ROYAL BANK OF CANADA ("RBC"), as lead administrative agent for the Lenders
(in such capacity, the "Lead Administrative Agent"); ABN AMRO BANK, N.V. ("ABN"), as co-administrative agent (in such capacity, the
"Co-Administrative Agent"); CREDIT LYONNAIS NEW YORK BRANCH ("CL"), as syndication agent (in such capacity, the "Syndication Agent")
COMMERZBANK AG, NEW YORK BRANCH ("CA") as documentation agent (in such capacity, the "Documentation Agent"), RBC, as arranger (in
such capacity, the "Arranger"), ABN, CL and CA, as co-arrangers (in such capacity, the "Co-Arrangers"); the Lenders acting as
co-agents, as indicated on the signature pages hereof (in such capacity, the "Co-Agents"); and COUNTRYWIDE HOME LOANS, INC., a New
York corporation (the "Company").
RECITALS
A. Pursuant to that certain Revolving Credit Agreement dated as of April 12, 2000, by and among the Company, the
Lenders party thereto, the Lead Administrative Agent and the Co-Administrative Agent, the Syndication Agent, the Documentation Agent,
the Arranger, the Co-Arrangers and the Co-Agents named therein (as amended to date, the "Existing Credit Agreement"), the Lenders
party thereto agreed to extend credit to the Company in the form of a short term, unsecured revolving credit facility on the terms
and subject to the conditions set forth therein.
B. The Company has requested that the Existing Credit Agreement be further amended to, among other things, provide
a term facility pursuant to which loans outstanding under the Existing Credit Agreement may (or, following the Effective Date (as
that term and capitalized terms used herein are defined in, or the location of such definitions referenced in, the Glossary attached
hereto as Annex I), hereunder) under certain circumstances be converted into a term loan.
-------
C. The Lenders and the other parties hereto have agreed to so amend the Existing Credit Agreement and, for
convenience of reference, to restate the Existing Credit Agreement in its entirety as set forth herein and to replace and supersede
the Existing Credit Agreement and the other "Credit Documents" (as that term is used and defined in the Existing Credit Agreement)
pursuant to this Agreement and the documents, instruments, and agreements referred to herein.
NOW, THEREFORE, in consideration of the above Recitals and for other good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows:
AGREEMENT
1. Credit Facilities.
-----------------
1(a) Primary Facility. On the terms and subject to the conditions set forth herein, each of the Lenders
----------------
severally agrees that it shall, from time to time to but not including the Revolving Facility Maturity Date (as that term and
capitalized terms used herein are defined in, or the location of the definitions of such terms referenced in, the Glossary attached
hereto as Annex I), advance its respective Primary Percentage Share of loans (the "Primary Loans" or a "Primary Loan") to the Company
-------
in amounts not to exceed in the aggregate at any date outstanding the Aggregate Credit Limit minus the aggregate dollar amount of
Swing Loans outstanding on such date (including Swing Loans to be funded on such date but excluding Swing Loans to be repaid on such
date).
1(b) Swing Loan Facility. On the terms and subject to the conditions set forth herein, each of the Swing
-------------------
Line Lenders severally agrees that it shall, from time to time to but not including the Revolving Facility Maturity Date, advance its
respective Swing Line Percentage Share of loans (the "Swing Loans" or a "Swing Loan") to the Company in amounts such that the
aggregate amount of Swing Loans outstanding does not exceed at any date the lesser of:
(1) The Aggregate Swing Line Commitment; and
(2) The Aggregate Credit Limit minus the aggregate dollar amount of Primary Loans outstanding
on such date (including Primary Loans to be funded on such date and excluding Primary Loans to be repaid on such date).
At the request of any Swing Line Lender, made through the Lead Administrative Agent at any time and from time to time, including,
without limitation, following the occurrence of an Event of Default, each Lender (including each of the Swing Line Lenders)
absolutely and unconditionally agrees to refund Swing Loans held by the Swing Line Lenders by advancing its Primary Percentage Share
thereof to the Lead Administrative Agent for disbursement to the Swing Line Lenders pro rata, in accordance with their respective
Swing Line Percentage Shares. Such fundings shall be made no later than 12:00 noon (Los Angeles time) on the date request therefor
is made if such request is made on or before 11:00 a.m. (Los Angeles time) on such date, and no later than 12:00 noon (Los Angeles
time) on the next succeeding Business Day if request therefor is made after 11:00 a.m. (Los Angeles time). Advances made by the
Lenders hereunder for the purpose of refunding Swing Loans shall, for all purposes of the Credit Documents: (i) constitute Primary
Loans to the extent of such Lender's Primary Percentage Share thereof, and (ii) be advanced as Alternate Base Rate Loans. In the
event, for whatever reason, the Lenders are not able to advance their respective Primary Percentage Shares for the purpose of
refunding Swing Loans as required hereunder, then each of the Lenders (including each of the Swing Line Lenders) absolutely and
unconditionally agrees to purchase and take from the Swing Line Lenders on demand an undivided participation interest in Swing Loans
outstanding in an amount equal to their respective Primary Percentage Shares of such Swing Loans. Notwithstanding anything contained
herein, in no event shall any Lender be required to advance its Primary Percentage Share of any Swing Loan or to purchase any
undivided participation interest in any Swing Loan: a. unless such Swing Loan was initially made in accordance with the requirements
-
of this Agreement (as such requirements may be amended or waived from time to time as permitted hereunder) or b. if upon such
-
advance or purchase the aggregate dollar amount of Primary Loans and Swing Loans held by such Lender would exceed such Lender's
Maximum Commitment.
1(c) Term Loan Facility. In the event the Lead Administrative Agent shall have notified the Company that
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the Majority Lenders shall have elected not to extend the then current Revolving Facility Maturity Date pursuant to Paragraph 5(m)
below, then the Company may, no later than ten (10) days prior to the then current Revolving Maturity Date, notify the Lenders in
writing, through the Lead Administrative Agent, that it desires to convert the principal balance of Primary Loans outstanding on the
then current Revolving Facility Maturity Date to a one year, non-amortizing term loan (the "Term Loan"). Subject to the conditions
precedent set forth in Paragraph 7(c) below, on the then current Revolving Facility Maturity Date: (1) all Swing Loans outstanding
shall be refunded by the Lenders in accordance with their respective Primary Percentage Shares, and (2) thereafter, the principal
balance of Primary Loans outstanding on such date shall be automatically converted into the Term Loan, which Term Loan shall be held
by each of the Lenders in accordance with their Primary Percentage Shares. The date of such conversion shall be referred to herein
as the "Conversion Date". Following the Conversion Date no further borrowings shall be permitted under this Agreement, it being
agreed and understood by the Company that any right of the Company to draw down undrawn portions of the Aggregate Credit Limit shall
have terminated on the Conversion Date.
2. Requests for Loans; Funding.
---------------------------
2(a) Requests for Loans. Subject to the advance notice required with respect to Eurodollar Loans pursuant
------------------
to Paragraph 4(a) below, on any Business Day that the Company desires to borrow Primary Loans or Swing Loans, it shall deliver a Loan
Request, Interest Rate Election and Payoff Notice to the Lead Administrative Agent no later than: (1) in the case of Primary Loans,
10:00 a.m. (Los Angeles time) on such date, and (2) in the case of Swing Loans, 11:00 a.m. (Los Angeles time) on such date; provided,
however, that in the event the Lead Administrative Agent receives a request for a Swing Loan after 11:00 a.m. (Los Angeles time) on a
Business Day, the Lead Administrative Agent shall work with the Swing Line Lenders on a best efforts basis with a view toward funding
the requested Swing Loans no later than 1:00 p.m. (Los Angeles time) on such date, the Company expressly acknowledging and agreeing
that there is no assurance that any such funding can be provided. Only one Loan Request, Interest Rate Election and Payoff Notice
requesting Primary Loans and only one Loan Request, Interest Rate Election and Payoff Notice requesting Swing Loans shall be
submitted to the Lead Administrative Agent on any date. Any request for Primary Loans shall be in such amount that the aggregate
dollar amount of Primary Loans which the Lenders are required to actually newly fund with respect thereto is not less than
$5,000,000.00, and any request for Swing Loans shall be in an amount not less than $1,000,000.00. On each Business Day on which a
Loan Request, Interest Rate Election and Payoff Notice is delivered to the Lead Administrative Agent, the Lead Administrative Agent
shall notify the applicable Lenders (which notification may be telephonic and, if telephonic, shall be promptly confirmed in writing)
no later than 11:00 a.m. (Los Angeles time) or in the case of a Swing Loan, 11:30 a.m. (Los Angeles time)) of the aggregate amount of
Primary Loans and/or Swing Loans which will be funded on such date.
2(b) Funding of Primary Loans and Swing Loans. Primary Loans and Swing Loans requested pursuant to any
----------------------------------------
Loan Request, Interest Rate Election and Payoff Notice shall be funded as follows:
(1) Each Lender shall make its Primary Percentage Share of Primary Loans available by wiring
the amount thereof in immediately available same day (including Federal) funds, to the Funding Account no later than
12:30 p.m. (Los Angeles time) on the proposed funding date; and
(2) Each Swing Line Lender shall make its Swing Line Percentage Share of each Swing Loan
available by wiring the amount thereof in immediately available same day (including Federal) funds to the Funding Account no
later than 2:00 p.m. (Los Angeles time) on the proposed funding date.
2(c) Funding Method. Each Lender shall be entitled to fund and maintain all or any portion of its Primary
--------------
Percentage Share of Primary Loans and refund and maintain its Primary Percentage Share of Swing Loans, each Swing Lender shall be
entitled to fund and maintain all or any portion of its Swing Line Percentage Share of Swing Loans and, following the Conversion
Date, each Lender shall be entitled to fund and maintain its Primary Percentage Share of the Term Loan in any manner it may determine
in its sole discretion, including, without limitation, in the Grand Cayman inter-bank market, the eurocurrency inter-bank market and
within the United States, but all calculations and transactions hereunder shall be conducted as though all Lenders actually fund and
maintain Eurodollar Loans funded by them hereunder through the purchase of offshore dollar deposits in such amounts with maturities
corresponding to the applicable Interest Periods.
3. Payment of Principal; Prepayments.
---------------------------------
3(a) Required Principal Payments. Subject to the provisions of Paragraph 3(b) below, the Company shall pay
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to the Lead Administrative Agent for the account of the Lenders the unpaid principal balance of each Primary Loan which is a
Eurodollar Loan on the last day of the applicable Eurodollar Interest Period and the unpaid principal balance of each Primary Loan
which is an Alternate Base Rate Loan and each Swing Loan on the Revolving Facility Maturity Date. Following the Conversion Date, the
Company shall pay to the Lead Administrative Agent for the account of the Lenders the unpaid principal balance of the Term Loan on
the Final Maturity Date.
3(b) Prepayments. The Company:
-----------
(1) May voluntarily prepay Loans in whole or in part at any time; provided, however, that any
prepayment shall be accompanied by accrued but unpaid interest on the Loan or portion thereof being prepaid.
(2) Shall pay in connection with any prepayment hereunder any amount payable on account
thereof pursuant to Paragraph 4(e) below concurrently with such prepayment.
4. Calculation and Payment of Interest; Related Provisions.
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4(a) Interest on Primary Loans and the Term Loan.
-------------------------------------------
(1) The Company shall pay interest to each Lender on such Lender's Primary Percentage Share
of Primary Loans outstanding and, following the Conversion Date, on such Lender's Primary Percentage Share of the Term Loan,
calculated, at the election of the Company made from time to time as permitted herein and set forth on a duly executed Loan
Request, Interest Rate Election and Payoff Notice, at either: (i) the Alternate Base Rate and/or (ii) the Applicable
Eurodollar Rate. Primary Loans and portions of the Term Loan bearing interest at the Alternate Base Rate shall be referred
to herein as "Alternate Base Rate Loans" and Primary Loans and portions of the Term Loan bearing interest at the Applicable
Eurodollar Rate shall be referred to herein as "Eurodollar Loans".
(2) The Company may elect from time to time to have Primary Loans funded as Alternate Base
Rate Loans by giving the Lead Administrative Agent irrevocable notice of such election as set forth on a duly executed Loan
Request, Interest Rate Election and Payoff Notice delivered on the proposed funding date. The Company may elect from time
to time to have Primary Loans funded as Eurodollar Loans by giving the Lead Administrative Agent at least three Eurodollar
Business Days' prior irrevocable notice of such election by delivery of a duly executed Loan Request, Interest Rate Election
and Payoff Notice.
(3) The Company may elect from time to time to convert Eurodollar Loans, including, following
the Conversion Date, portions of the Term Loan being maintained as Eurodollar Loans, to Alternate Base Rate Loans by giving
the Lead Administrative Agent irrevocable notice of such election as set forth on a duly executed Loan Request, Interest
Rate Election and Payoff Notice delivered on the proposed conversion date; provided, however, that any conversion of
Eurodollar Loans to Alternate Base Rate may only be made on the last day of the applicable Eurodollar Interest Period. The
Company may elect from time to time to convert Alternate Base Rate Loans, including, following the Conversion Date, portions
of the Term Loan being maintained as Alternate Base Rate Loans, to Eurodollar Loans by giving the Lead Administrative Agent
at least three Eurodollar Business Days' prior irrevocable notice of such election by delivery of a duly executed Loan
Request, Interest Rate Election and Payoff Notice.
(4) Upon receipt of any Loan Request, Interest Rate Election and Payoff Notice, the Lead
Administrative Agent shall promptly notify each of the Lenders thereof. No Primary Loan shall be funded as a Eurodollar
Loan and no outstanding Alternate Base Rate Loan shall be converted into a Eurodollar Loan if an Event of Default or
Potential Default has occurred and is continuing on the day occurring two Business Days prior to the date of the funding or
conversion requested by the Company or on the proposed funding or conversion date.
(5) Any Eurodollar Loan may be continued as such upon the expiration of the Interest Period
applicable thereto by giving the Lead Administrative Agent (which shall notify the Lenders) at least three Eurodollar
Business Days' prior irrevocable notice of such election as set forth on a duly executed Loan Request, Interest Rate
Election and Payoff Notice; provided, however, that no Eurodollar Loan may be continued as such when any Event of Default or
Potential Default has occurred and is continuing, but shall be automatically converted to an Alternate Base Rate Loan on the
last day of the then current Interest Period applicable thereto. The Lead Administrative Agent shall notify the Lenders and
the Company promptly that such automatic conversion will occur. If the Company shall fail to give notice as provided above,
the Company shall be deemed to have elected to convert the affected Eurodollar Loan to an Alternate Base Rate Loan on the
last day of the Interest Period applicable thereto.
(6) The Lead Administrative Agent shall give prompt written notice (or notice by telephone
immediately confirmed in writing) to the Company and the Lenders of the applicable interest rate determined by the Lead
Administrative Agent.
(7) Under no circumstances shall the Lenders be required to make or maintain Eurodollar Loans
under this Agreement with more than an aggregate number of eight (8) different Eurodollar Interest Periods.
4(b) Interest on Swing Loans. The Company shall pay interest to each Swing Line Lender on such Swing Line
-----------------------
Lender's Swing Line Percentage Share of Swing Loans outstanding from the date advanced to but not including the date of payment
thereof at the Applicable Fed Funds Rate.
4(c) Payment of Interest. The Company shall pay interest, in each case as more specifically provided in
-------------------
Paragraph 5(d) below:
(1) On Alternate Base Rate Loans and Swing Loans, monthly, in arrears, on the fifth day of
each month for the period from and including the first day of the immediately preceding month to and including the last day
of such month; and
(2) On Eurodollar Loans on the last day of the applicable Eurodollar Interest Period relating
thereto.
4(d) Inability to Determine Rate. In the event that the Lead Administrative Agent shall have determined
---------------------------
(which determination shall be conclusive and binding upon the Company) that by reason of circumstances affecting the interbank
eurodollar market adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for any given Eurodollar Interest
Period, the Lead Administrative Agent shall forthwith give notice (which may be telephonic and promptly confirmed in writing or by
facsimile transmission) of such determination to each Lender and to the Company at least two Eurodollar Business Days prior to, as
the case may be, the conversion date of an Alternate Base Rate Loan to a Eurodollar Loan, the continuation of a Eurodollar Loan as
such or the proposed funding of a Primary Loan as a Eurodollar Loan. If such notice is given: (1) any Alternate Base Rate Loan that
was to have been converted to a Eurodollar Loan and any Primary Loan that was to have been funded as a Eurodollar Loan shall, subject
to the provisions hereof, be continued or funded as an Alternate Base Rate Loan, and (2) any outstanding Eurodollar Loan shall be
converted, on the last day of the then current Interest Period with respect thereto, to an Alternate Base Rate Loan. Until such
notice has been withdrawn by the Lead Administrative Agent, the Company shall not have the right to convert an Alternate Base Rate
Loan to a Eurodollar Loan, to continue a Eurodollar Loan as such or to fund a Primary Loan as a Eurodollar Loan.
4(e) Funding Indemnification. In addition to all other payment obligations hereunder, in the event:
-----------------------
(1) any Eurodollar Loan is prepaid prior to the last day of the applicable Eurodollar Interest Period, whether following acceleration
upon the occurrence of an Event of Default or otherwise, including, without limitation, pursuant to Paragraphs 14(a), 14(b) and 14(c)
below, or (2) the Company shall fail to make a conversion into or a borrowing as a Eurodollar Loan after the Company has given notice
thereof as provided in Paragraph 4(a)(2) above, or (3) the Company shall fail to continue any Eurodollar Loan which it has elected to
have continued as a Eurodollar Loan, or (4) the Company shall fail to make any payment of principal or interest on any Loan when due,
then the Company shall immediately pay to each of the affected Lenders, through the Lead Administrative Agent, an additional amount
compensating such Lender for all losses, costs and expenses incurred by such Lender in connection therewith, including, without
limitation, such as may arise out of the re-employment of funds obtained by such Lender or from fees payable to terminate the
deposits from which such funds were obtained, such losses, costs and expenses and the method of calculation thereof being set forth
in reasonable detail in a statement delivered to the Company by such Lender, such statement to be conclusive in the absence of
manifest error. Under no circumstances shall any Lender have any obligation to remit monies to the Company upon prepayment of any
Eurodollar Loan, even under circumstances which do not result in the necessity for the payment by the Company of any amount
hereunder. The provisions hereof shall survive termination of this Agreement and payment of the outstanding Loans and all other
Obligations.
4(f) Illegality; Impracticality. Notwithstanding any other provisions herein, if any law, regulation,
--------------------------
treaty or directive or any change therein or in the interpretation or application thereof shall or may in the opinion of any Lender
make it unlawful or impractical for such Lender to make or maintain Eurodollar Loans: (1) the commitment of such Lender hereunder to
make, continue or convert into Eurodollar Loans shall forthwith be cancelled and (2) such Lender's Primary Percentage Share of Loans
outstanding as Eurodollar Loans, if any, shall be converted automatically to Alternate Base Rate Loans at the end of their respective
Eurodollar Interest Periods or within such earlier period as required by law. In the event of a conversion of any Eurodollar Loan
prior to the end of its applicable Eurodollar Interest Period the Company hereby agrees promptly to pay each Lender, upon its written
demand, the amounts required pursuant to Paragraph 4(e) above, it being agreed and understood that such conversion shall constitute a
prepayment for all purposes hereof. The provisions hereof shall survive the termination of this Agreement and payment of the
outstanding Loans and all other Obligations.
4(g) Requirements of Law; Increased Costs. In the event that a change subsequent to the date hereof in any
------------------------------------
applicable law, regulation, treaty or directive or in the governmental or judicial interpretation or application thereof, or
compliance by any Lender with any request or directive (whether or not having the force of law) issued subsequent to the date hereof
by any central bank or other governmental authority, agency or instrumentality:
(1) Does or shall subject any Lender to any tax of any kind whatsoever with respect to this
Agreement or any Loans purchased or made hereunder, or changes the basis of taxation of payments to such Lender of
principal, fees, interest or any other amount payable hereunder (except for changes in the rate of tax on the overall net
income of such Lender);
(2) Does or shall impose, modify or hold applicable any reserve, special deposit, compulsory
loan or similar requirement against assets held by, or deposits or other liabilities in or for the account of, advances or
loans by, or other credit extended by, or any other acquisition of funds by, any office of such Lender which are not
otherwise included in the determination of the Alternate Base Rate or the Applicable Eurodollar Rate; or
(3) Does or shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender of purchasing, making, agreeing to make, renewing or
maintaining or issuing any Loan or to reduce any amount receivable in respect thereof then, in any such case, the Company shall
promptly pay to such Lender, upon its written demand, any additional amounts necessary to compensate such Lender for such additional
cost or reduced amounts receivable as determined by such Lender with respect to this Agreement or such credit extensions. If a
Lender becomes entitled to claim any additional amounts pursuant to this Paragraph 4(g), it shall promptly notify the Company of the
event by reason of which it has become so entitled. A certificate as to any additional amounts payable pursuant to the foregoing
sentence submitted by a Lender to the Company shall be conclusive in the absence of manifest error. The obligations of the Company
under this Paragraph 4(g) shall survive the termination of this Agreement and the payment of all other Obligations.
4(h) Taxes.
-----
(1) All payments made by the Company, the Lead Administrative Agent and the Lenders on
account of the Obligations shall be made free and clear of, and without deduction or withholding for or on account of, any
present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, excluding, in the case of the
Lenders, net income taxes and franchise taxes (imposed in lieu of net income taxes), imposed on the Lenders, as the case may
be, as a result of a present or former connection between the jurisdiction of the government or taxing authority imposing
such tax, or any political subdivision or taxing authority thereof or therein, and such Lender (other than a connection
arising solely from such Lender having executed, delivered or performed its obligations or received a payment under, or
enforced, the Credit Documents) (all such non-excluded taxes, levies, imposts, duties, charges, fees, deductions and
withholdings being hereinafter called "Taxes"). If any Taxes are required to be withheld from any amounts payable to any
Lender under the Credit Documents, the amounts so payable by the Company to the Lead Administrative Agent for the benefit of
such Lender shall be increased to the extent necessary to yield to such Lender (after payment of all Taxes) interest or any
such other amounts payable thereunder at the rates or in the amounts specified in the Credit Documents. Whenever any Taxes
are payable by the Company or on behalf of the Company, as promptly as possible thereafter the Company shall send to the
Lead Administrative Agent for its own account or for the account of such Lender, as the case may be, a certified copy of an
original official receipt received by the Company showing payment thereof. If the Company fails to pay any Taxes when due
to the appropriate taxing authority or fails to remit to the Lead Administrative Agent the required receipts or other
required documentary evidence, the Company shall indemnify the Lead Administrative Agent and such Lender for any incremental
taxes, interest or penalties that may become payable by the Lead Administrative Agent and the Lenders as a result of any
such failure. The agreements in this subsection shall survive the termination of this Agreement and the payment of all
other Obligations. Each Lender by executing this Agreement represents and warrants to the Company and the Lead
Administrative Agent that at the date of this Agreement no Taxes are imposed upon such Lender which would result in
increased liability of the Company to such Lender pursuant to this Paragraph 4(h)(1).
(2) Each Lender that is not incorporated under the laws of the United States of
America or a state thereof (each a "Non-U.S. Lender") agrees that it will, on or before the Effective Date or the
effective date of any Additional Lender Agreement pursuant to which it becomes a Lender and on the request of the
Lead Administrative Agent or the Company, (i) deliver to each of the Company and the Lead Administrative Agent
two duly completed copies of United States Internal Revenue Service Form W-8ECI or W-8BEN or any successor form,
certifying in either case that such Lender is entitled to receive payments under this Agreement without deduction
or withholding of any United States federal income taxes, and (ii) deliver to each of the Company and the Lead
Administrative Agent a United States Internal Revenue Service Form W-8 or W-9, as the case may be, and certify
that it is entitled to an exemption from United States backup withholding tax. Each Non-U.S. Lender further
undertakes to deliver to each of the Company and the Lead Administrative Agent (x) renewals or additional copies
of such form (or any successor form) on or before the date that such form expires or becomes obsolete, and (y)
after the occurrence of any event requiring a change in the most recent forms so delivered by it, such additional
forms or amendments thereto as may be reasonably requested by the Company or the Lead Administrative Agent. All
forms or amendments described in the preceding sentence shall certify that such Lender is entitled to receive
payments under this Agreement without deduction or withholding of any United States federal income taxes, unless
an event (including without limitation any change in treaty, law or regulation) has occurred after the relevant
date and prior to the date on which any such delivery would otherwise be required which renders all such forms
inapplicable or which would prevent such Lender from duly completing and delivering any such form or amendment
with respect to it and such Lender advises the Company and the Lead Administrative Agent that it is not capable
of receiving payments without any deduction or withholding of United States federal income tax.
(3) For any period during which a Non-U.S. Lender has failed to provide the
Company with an appropriate form pursuant to subparagraph (2) above (unless such failure is due to a change after
the relevant date in treaty, law or regulation, or any change in the interpretation or administration thereof by
any governmental authority, occurring subsequent to the date on which a form originally was required to be
provided), such Non-U.S. Lender shall not be entitled to indemnification under this Paragraph 4(h) with respect
to Taxes; provided that, should a Non-U.S. Lender which is otherwise exempt from or subject to a reduced rate of
withholding tax become subject to Taxes because of its failure to deliver a form required under subparagraph (2)
above, the Company shall take (at the expense of the Non-U.S. Lender) such steps as such Non-U.S. Lender shall
reasonably request to assist such Non-U.S. Lender to recover such Taxes.
(4) Any Lender that is entitled to an exemption from or reduction of withholding
tax with respect to payments under this Agreement or any Note pursuant to the law of any relevant jurisdiction or
any treaty shall deliver to the Company (with a copy to the Lead Administrative Agent), at the time or times
prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law as
will permit such payments to be made without withholding or at a reduced rate.
(5) If the U.S. Internal Revenue Service or any other governmental authority of
the United States or any other country or any political subdivision thereof asserts a claim that the Lead
Administrative Agent did not properly withhold tax from amounts paid to or for the account of any Lender (because
the appropriate form was not delivered or properly completed, because such Lender failed to notify the Lead
Administrative Agent of a change in circumstances which rendered its exemption from withholding ineffective, or
for any other reason), such Lender shall indemnify the Lead Administrative Agent fully for all amounts paid,
directly or indirectly, by the Lead Administrative Agent as tax, withholding therefor, or otherwise, including
penalties and interest, and including taxes imposed by any jurisdiction on amounts payable to the Lead
Administrative Agent under this subparagraph, together with all costs and expenses related thereto (including
attorneys fees and time charges of attorneys for the Lead Administrative Agent, which attorneys may be employees
of the Lead Administrative Agent). The obligations of the Lenders under this Paragraph 4(h) shall survive the
termination of this Agreement and the payment of all other Obligations.
4(i) Buy-Down Provisions. Notwithstanding anything contained in this Agreement, the Company and any
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individual Lender (as used in this Paragraph 4(i), a "Buy-Down Lender") may notify the Lead Administrative Agent in writing that the
Company and such Buy-Down Lender have entered into a Buy-Down Agreement with respect to all or a portion of the Loans from time to
time outstanding held by such Buy-Down Lender (the Loans held by such Buy-Down Lender which are subject to a Buy-Down Agreement being
referred to herein as "Buy-Down Rate Loans"), and that, pursuant to said Buy-Down Agreement, the interest rate otherwise applicable
to the Buy-Down Rate Loans during any interest calculation period shall be reduced to the Buy-Down Rate and the interest otherwise
payable by the Company to such Buy-Down Lender during such interest calculation period shall be reduced accordingly. Interest
payable to such Buy-Down Lender with respect to Buy-Down Rate Loans shall be billed as provided in Paragraph 5(d) below. In no event
shall the Lead Administrative Agent have any obligation or duty to verify the amount of any Buy-Down Deposits supporting the pricing
of Buy-Down Rate Loans held by any Buy-Down Lender or the amount of any interest billing with respect thereto. Any deficiency fees
payable to such Buy-Down Lender by the Company under the applicable Buy-Down Agreement shall be billed by such Buy-Down Lender to the
Company directly. Any Buy-Down Lender may elect not to make demand for the payment of deficiency fees accruing in respect of
Buy-Down Deposits from time to time and it is expressly agreed and understood that: (1) any such deficiency fee shall not, by reason
of such failure of such Buy-Down Lender or otherwise, be deemed to have been waived by such Buy-Down Lender (except as such waiver is
expressly acknowledged in writing by such Buy-Down Lender from time to time), and (2) all deficiency fees accrued and unpaid
hereunder and not so expressly waived, whether or not previously declared due and owing by any such Buy-Down Lender, shall
automatically be due and payable in full upon the Revolving Facility Maturity Date or, following the Conversion Date, the Final
Maturity Date.
4(j) Obligation of Lenders to Mitigate; Replacement of Lenders. Each Lender agrees that:
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(1) As promptly as practicable after the officer of such Lender responsible for administering
the Loans of such Lender becomes aware of any event or condition that would entitle such Lender to receive payments under
Paragraph 4(g) above or to cease making Eurodollar Loans pursuant to Paragraph 4(f) above, such Lender will use reasonable
efforts (i) to make, issue, fund or maintain the affected Loans of such Lender through another lending office of such Lender
or (ii) take such other measures as such Lender may deem reasonable, if as a result thereof the additional amounts which
would otherwise be required to be paid to such Lender pursuant to Paragraph 4(g) above would be materially reduced or
eliminated or the conditions rendering such Lender incapable of making Eurodollar Loans under Paragraph 4(f) above no longer
would be applicable, and if, as determined by such Lender in its sole discretion, the making, issuing, funding or
maintaining of such Loans through such other lending office or in accordance with such other measures, as the case may be,
would not otherwise materially adversely affect such Loans or the interests of such Lender.
(2) If the Company receives a notice pursuant to Paragraph 4(g) above or a notice pursuant to
Paragraph 4(f) above stating that a Lender is unable to extend Eurodollar Loans (for reasons not generally applicable to the
Majority Lenders), so long as (i) no Potential Default or Event of Default shall have occurred and be continuing, (ii) the
Company has obtained a commitment from another Lender or another financial institution reasonably acceptable to the Lead
Administrative Agent to purchase at par such Lender's Loans, Maximum Commitment and accrued interest and fees and to assume
all obligations of the Lender to be replaced under the Credit Documents, and (iii) such Lender to be replaced is unwilling
to withdraw the notice delivered to the Company, upon thirty (30) days' prior written notice to such Lender and the Lead
Administrative Agent and payment of any amounts due under Paragraph 4(g) above, the Company may require, at the Company's
expense and subject to Paragraph 4(e) above, the Lender giving such notice to assign, without recourse, all of its Loans,
Maximum Commitment and accrued interest and fees to such other Lender or financial institution pursuant to the provisions of
Paragraph 14 below. Following such assignment, the assigning Lender shall retain the benefits of Paragraphs 4(g) and 4(h)
above and Paragraph 9(g) below as the same relate to the period prior to the effective date of such assignment.
5. Miscellaneous Lending Provisions.
--------------------------------
5(a) Use of Proceeds. The proceeds of Loans shall be utilized by the Company for general corporate
---------------
purposes, including, without limitation, repayment of Indebtedness of the Company to the Parent permitted to be repaid by the Company
to the Parent pursuant to the terms of the Credit Documents, and including CPNs.
5(b) Assumption of Funding/Purchase. The Lead Administrative Agent may (but shall not be obligated to)
------------------------------
assume that each Lender has advanced its Primary Percentage Share of Primary Loans and that each Swing Line Lender has advanced its
Swing Line Percentage Share of Swing Loans required to be funded by such Lender hereunder on the funding date therefor and may, in
reliance upon such assumption, make available to the Company on such date a corresponding amount. If and to the extent any Lender
shall not have so made such amounts available, such Lender and the Company jointly and severally agree to repay to the Lead
Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such
amount is made available to the Company until the date such amount is repaid to the Lead Administrative Agent, at, in the case of the
Company, the interest rate applicable at the time to the subject Loan and, in the case of the Lenders, the Federal Funds Effective
Rate. If such Lender shall repay to the Lead Administrative Agent such corresponding amount, such amount so repaid shall constitute
such Lender's Primary Percentage Share or Swing Line Percentage Share, as applicable, of the subject Loan, as applicable for all
purposes of the Credit Documents as of the date such Loan was made. Nothing contained herein shall affect the liability of any
Lender for its failure to make its Primary Percentage Share of Primary Loans or its Swing Line Percentage Share of Swing Loans
available to the Company as required pursuant to this Agreement and the other Credit Documents.
5(c) Evidence of Indebtedness. The obligation of the Company to repay Loans shall be evidenced by
------------------------
notations on the books and records of the Lead Administrative Agent and the Lenders. Such accounts shall be conclusive absent
manifest error. Any failure to record the advance of any Loan, the interest rate applicable thereto or any other information
regarding the Obligations, or any error in doing so, shall not limit or otherwise affect the obligation of the Company with respect
to any of the Obligations. Upon the request of any Lender, the Company shall promptly execute a promissory note or promissory notes
in favor of such Lender evidencing the Obligations held by such Lender hereunder.
5(d) Interest and Fee Billing and Payment. The Lead Administrative Agent shall:
------------------------------------
(1) On or before the first Business Day of each month notify the Company (which notification
may be telephonic) of the estimated amount of interest payable with respect to Alternate Base Rate Loans and Swing Loans as
of the fifth day of the current month for the period from and including the first day of the immediately preceding month to
and including the last day of such month, with the actual amount confirmed by notification by the Lead Administrative Agent
to the Company (which notification may be telephonic and which, if telephonic, shall be promptly confirmed in writing) given
no later than 9:00 a.m. (Los Angeles time) on the due date of payment thereof;
(2) On the last day of the Interest Period for each Eurodollar Loan notify the Company (which
notification may be telephonic and which, if telephonic, shall be promptly confirmed in writing) of the amount of interest
payable on such date on account thereof;
(3) On or before the first Business Day of the first month of each calendar quarter notify
the Company (which notification may be telephonic) of the amount of facility fees payable pursuant to Paragraph 5(i)(2)
below on the fifth day of such month for the period from and including the first day of the first month of the immediately
preceding calendar quarter to and including the last day of such calendar quarter, with the actual amount confirmed by
notification by the Lead Administrative Agent to the Company (which notification may be telephonic and which, if telephonic,
shall be promptly confirmed in writing) given no later than 9:00 a.m. (Los Angeles time) on the due date of payment thereof;
and
(4) From time to time upon the request of any Lender, deliver to the Company a funding
indemnification billing for amounts payable to such Lender pursuant to Paragraph 4(e) above or a billing for amounts payable
to such Lender pursuant to Paragraphs 4(g), 4(h) and 4(i) above and Paragraph 5(l) below.
The Company shall pay the full amount of interest and fees of which it has been notified pursuant to subparagraphs (1) and (3) above
on the fifth day of each month, shall pay the full amount of interest of which it has been notified pursuant to subparagraph (2)
above on the date such notification is given and shall pay the full amount of each billing delivered to it pursuant to
subparagraph (4) above within five Business Days thereafter. Interest payable with respect to Buy-Down Loans prior to the occurrence
of an Event of Default and acceleration of the Obligations shall be billed to the Company directly by each Buy-Down Lender in
accordance with the timeframes set forth in subparagraph (1) above, and the Company shall pay the full amount of interest due on
Buy-Down Loans directly to such Buy-Down Lender on the fifth day of each month. Following the occurrence of an Event of Default and
acceleration of the Obligations, interest payable on all Loans shall be billed through the Lead Administrative Agent.
5(e) Nature and Place of Payments. Except as otherwise expressly provided in the Credit Documents, all
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payments made on account of the Obligations shall be made to the Lead Administrative Agent at the Contact Office for distribution to
the Lenders, as the Company shall, subject to Paragraph 5(h) below, direct pursuant to a Loan Request, Interest Rate Election and
Payoff Notice, without set-off or counterclaim in lawful money of the United States of America in immediately available same day
funds, and must be received by the Lead Administrative Agent accompanied by a Loan Request, Interest Rate Election and Payoff Notice
at the Contact Office by 11:30 a.m. (Los Angeles time) on the day of payment, it being expressly agreed and understood that if a
payment is received after 11:30 a.m. (Los Angeles time) by the Lead Administrative Agent or the Lead Administrative Agent does not
receive a Loan Request, Interest Rate Election and Payoff Notice therefor, such payment will be considered to have been made on the
next succeeding Business Day or such later date as the Lead Administrative Agent receives the Loan Request, Interest Rate Election
and Payoff Notice therefor and interest thereon shall be payable by the Company at the then applicable rate during such extension.
If any payment required to be made by the Company hereunder becomes due and payable on a day other than a Business Day, the due date
thereof shall be extended to the next succeeding Business Day and interest thereon shall be payable at the then applicable rate
during such extension. The Lead Administrative Agent is hereby authorized to debit accounts of the Company maintained with the Lead
Administrative Agent for amounts payable by the Company under this Agreement through the Lead Administrative Agent and the Lead
Administrative Agent will promptly notify the Company of any such debit.
5(f) Post-Default Interest. Following the occurrence of an Event of Default and until such Event of
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Default is cured or waived as provided herein, Obligations shall bear interest at a per annum rate equal to the Alternate Base Rate
plus three percent (3%).
5(g) Computations. All computations of interest and fees payable hereunder shall be based upon a year of
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360 days for the actual number of days elapsed. The determination by the Lead Administrative Agent of any interest rate hereunder
shall be conclusive and binding on the Company and the Lenders absent manifest error.
5(h) Disbursement of Payments Received.
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(1) All amounts received by the Lead Administrative Agent on account of the Obligations shall
be disbursed by the Lead Administrative Agent to the Lenders by wire transfer prior to the cut-off deadline of the Federal
Reserve Wire System on the date of receipt if received by the Lead Administrative Agent before 11:30 a.m. (Los Angeles time)
and accompanied by a Loan Request, Interest Rate Election and Payoff Notice (or disbursed on the day of receipt although
received later than 11:30 a.m. (Los Angeles time) with the agreement of the Lead Administrative Agent and any Lender) or if
received later or if the Lead Administrative Agent has not received a Loan Request, Interest Rate Election and Payoff Notice
therefor, on the next succeeding Business Day or such later date as the Lead Administrative Agent receives the Loan Request,
Interest Rate Election and Payoff Notice relating thereto, without interest payable by the Lead Administrative Agent.
(2) Prior to the occurrence of an Event of Default and acceleration of the Obligations,
amounts received by the Lead Administrative Agent on account of the Obligations shall be disbursed in accordance with the
written direction of the Company, subject only to the requirements that amounts disbursed to the Lenders on account of
Primary Loans or the Term Loan be disbursed pro rata in accordance with the Lenders' respective Primary Percentage Shares
and that amounts disbursed to the Swing Line Lenders on account of Swing Loans be disbursed pro rata in accordance with the
Swing Line Lenders' respective Swing Line Percentage Shares.
(3) Following the occurrence of an Event of Default and acceleration of the Obligations,
amounts received by the Lead Administrative Agent on account of the Obligations shall be disbursed as follows: (i) first
among the Lenders, pro rata in accordance with their respective Primary Percentage Shares, on account of the Obligations
until the Obligations have been paid in full, and (ii) then, to the Lead Administrative Agent with respect to the remaining
Obligations held by it in its capacity as Lead Administrative Agent until such Obligations have been paid in full.
5(i) Fees. The Company shall pay:
----
(1) To the Lead Administrative Agent, such fees as may from time to time be agreed upon in
writing by the Lead Administrative Agent and the Company; and
(2) To each of the Lenders, a facility fee, said fee to be payable quarterly in arrears on
the fifth day of the first month of each calendar quarter for the period from and including the first day of the first month
of the immediately preceding calendar quarter to and including the last day of such calendar quarter and on the Revolving
Facility Maturity Date or, following the Conversion Date, the Final Maturity Date, in an amount equal to such Lender's daily
average Primary Percentage Share during the applicable calculation period multiplied by: (i) (y) to and including the
Revolving Facility Maturity Date, the average daily Aggregate Credit Limit during such calculation period and (z) following
the Conversion Date, the average daily outstanding principal balance of the Term Loan, multiplied by (ii) the product of
a. 0.08% and b. a fraction the numerator of which is the number of days in the applicable calculation period and the
--
denominator of which is 360.
5(j) Wire Transfers of Funds. Notwithstanding anything to the contrary contained herein and in the other
-----------------------
Credit Documents, funds which the Lead Administrative Agent and the Lenders are transmitting by wire transfer shall be deemed to have
been sent and received upon release by the transmitting party of such funds into the Federal Reserve Wire System.
5(k) Reduction in Aggregate Credit Limit. From the Effective Date to but not including the Revolving
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Facility Maturity Date, upon not less than thirty (30) days' prior written notice to the Lead Administrative Agent, which shall
promptly transmit such notice to each of the Lenders, the Company may permanently reduce the Aggregate Credit Limit in full or in
increments of $5,000,000.00 (with such reduction allocated pro rata against the Lenders' respective Maximum Commitments); provided,
however, that any such reduction shall be in a minimum amount of $25,000,000.00; and, provided, further, that upon the effective date
of any such reduction, the aggregate amount of Loans outstanding shall not exceed the Aggregate Credit Limit as so reduced.
5(l) Capital Requirements. The Company shall pay from time to time upon demand such amounts as any Lender
--------------------
may determine to be necessary to compensate such Lender for all reasonable costs which such Lender determines are attributable to its
making, agreeing to make, purchasing or maintaining its Primary Percentage Share of any Primary Loan or, following the Conversion
Date, of the Term Loan, or its Swing Line Percentage Share of any Swing Loan under this Agreement, including, without limitation,
reserve requirements attributed to the unused portion of the Aggregate Credit Limit, in respect of any amount of capital required to
be maintained by such Lender pursuant to any law or regulation of any jurisdiction or any interpretation, directive or request
affecting banks, savings and loan institutions and/or financial institutions generally notwithstanding the creditworthiness of any
particular bank, savings and loan institution or other financial institution (whether or not having the force of law) of any court or
governmental or monetary authority, whether in effect on the date of this Agreement or thereafter. A certificate as to any amounts
payable pursuant hereto submitted by a Lender to the Company shall be conclusive in the absence of manifest error. The obligations
of the Company under this Paragraph 5(l) shall survive the termination of this Agreement and the payment of all Loans and all other
Obligations.
5(m) Extension of Revolving Facility Maturity Date.
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(1) The Company may, by written notice to the Lead Administrative Agent (such notice being an
"Extension Notice") given no earlier than ninety (90) days and no later than forty-five (45) days prior to the then current
Revolving Facility Maturity Date, request the Lenders to consider an extension of the then current Revolving Facility
Maturity Date to a date 364 days after the then current Revolving Facility Maturity Date. The Lead Administrative Agent
shall promptly transmit any Extension Notice to each Lender. Each Lender shall notify the Lead Administrative Agent in
writing whether it agrees to so extend the then current Revolving Facility Maturity Date no later than twenty (20) days
prior to the then current Revolving Facility Maturity Date, and any such notice given by a Lender to the Lead Administrative
Agent, once given, shall be irrevocable as to such Lender. Any Lender which does not expressly and timely notify the Lead
Administrative Agent that it agrees to so extend the then current Revolving Facility Maturity Date shall be deemed to have
rejected the Company's request for extension thereof. Lenders agreeing to extend the then current Revolving Facility
Maturity Date are hereinafter referred to as "Continuing Lenders," and Lenders declining to consent to the extension thereof
(or Lenders deemed to have so declined) are hereinafter referred to as "Non-Extending Lenders". If the Majority Lenders
elect to so extend the then current Revolving Facility Maturity Date, the Lead Administrative Agent shall notify the Company
of such election no later than fifteen (15) days prior to the then current Revolving Facility Maturity Date, and effective
on the then current Revolving Facility Maturity Date and subject to the conditions precedent to such extension set forth in
Paragraph 7(c) below, the Revolving Facility Maturity Date shall be automatically deemed so extended and the Aggregate
Credit Limit shall be automatically deemed to be the aggregate Maximum Commitments of the Continuing Lenders (including, if
applicable, any new Lenders who become Continuing Lenders pursuant to subparagraph (4) below). Upon the delivery of an
Extension Notice the Company shall be deemed to have represented and warranted that on and as of the date of such Extension
Notice no Potential Default or Event of Default has occurred and is continuing. It is expressly acknowledged and agreed by
the Company that no Lender shall have any obligation to extend any Revolving Facility Maturity Date, or, having agreed to
such an extension on any one or more occasions, to agree to any future extension and that any such decision by a Lender is
in such Lender's sole and absolute discretion.
(2) If a Revolving Facility Maturity Date shall have been extended in accordance with subparagraph (1)
above, then upon the effectiveness of such extension, all references herein to the "Revolving Facility Maturity Date" shall
refer to the Revolving Facility Maturity Date as so extended.
(3) If any Lender shall elect not to extend the then current Revolving Facility Maturity Date as
requested by any Extension Notice given by the Company pursuant to subparagraph (1) above but the Majority Lenders have
agreed to do so, then concurrently with the effectiveness of such extension, the Maximum Commitment of such Lender shall
terminate and the Company shall on such date pay to the Lead Administrative Agent, for the account of such Lender, the
principal amount of, and accrued interest on, such Lender's Loans, together with any amounts payable to such Lender pursuant
to Paragraph 4(e) above and any fees or other amounts owing to such Lender under this Agreement and the other Credit
Documents. Following such termination, the Non-Extending Lender shall retain the benefits of Paragraphs 4(g) and 4(h) above
and Paragraph 9(g) below as the same relate to the period prior to the effective date of such termination.
(4) A Non-Extending Lender shall be obligated, at the request of the Company and subject to payment by
the Company to the Lead Administrative Agent for the account of such Non-Extending Lender of the principal amount of, and
accrued interest on, such Lender's Loans, together with any amounts payable to such Lender pursuant to Paragraph 4(e) above
and any fees or other amounts owing to such Lender under this Agreement and the other Credit Documents, to transfer its
Maximum Commitment or portions thereof to an Applicant Financial Institution and/or to one or more Continuing Lenders on the
terms and subject to the conditions set forth in Paragraphs 14(a), 14(b) and 14(c) below, any such transfer to be without
recourse, representation, warranty (other than good title to its Loans) or expense to such Non-Extending Lender, at any time
prior to the then current Revolving Facility Maturity Date. Each such transferee, if not already a Continuing Lender
hereunder, shall become a Continuing Lender hereunder in replacement of the Non-Extending Lender to the extent of the
Maximum Commitment transferred to it shall enjoy all rights and assume all obligations on the part of the Lenders set forth
in this Agreement and the other Credit Documents. Following such transfer, the Non-Extending Lender shall retain the
benefits of Paragraphs 4(g) and 4(h) above and Paragraph 9(g) below as the same relate to the period prior to the effective
date of such transfer.
(5) No Loan Request, Interest Rate Election and Payoff Notice delivered prior to the then current
Revolving Facility Maturity Date and requesting the funding of a Loan following such then current Revolving Facility
Maturity Date shall be applicable to a Non-Extending Lender; provided, however, that nothing contained herein shall in any
manner or to any extent relieve a Non-Extending Lender from its funding obligations hereunder prior to such current
Revolving Facility Maturity Date.
6. Guaranty; Subordination; Additional Documents.
---------------------------------------------
6(a) Guaranty and Subordination Agreement. As support for the Obligations, the Company shall execute and
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deliver and shall cause to be executed and delivered to the Lead Administrative Agent on behalf of the Lenders: (1) the Guaranty and
(2) the Subordination Agreement.
6(b) Further Documents. The Company agrees to execute and deliver and to cause to be executed and
-----------------
delivered to the Lead Administrative Agent or such Persons as the Lead Administrative Agent may direct from time to time such
documents, instruments and agreements as the Lead Administrative Agent on behalf of the Lenders may reasonably request, which are in
any of the Lenders' judgment necessary or desirable to obtain for the Lead Administrative Agent, the Co-Administrative Agent, the
Documentation Agent, the Syndication Agent, the Arranger, the Co-Arrangers, the Co-Agents and the Lenders the benefit of the Credit
Documents.
7. Conditions Precedent.
--------------------
7(a) First Loan. As conditions precedent to the Effective Date and the funding of the first Loan hereunder:
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(1) There shall have been delivered to the Lead Administrative Agent, in form and substance
and in quantities reasonably satisfactory to the Lenders and their counsel, the following:
(i) A duly executed copy of this Agreement;
(ii) A duly executed copy of the Guaranty;
(iii) A duly executed copy of the Subordination Agreement;
(iv) Such credit applications, financial statements, pro forma financial statements,
authorizations and information concerning the Company and its business, operations and condition (financial and
otherwise) as the Lead Administrative Agent or any Lender may reasonably request;
(v) Certified copies of resolutions of the Boards of Directors of the Company and
the Parent approving the execution and delivery of all documents required to be delivered by the Company and the
Parent hereunder;
(vi) Certificates of the Secretary or an Assistant Secretary of each of the Company
and the Parent certifying the names, incumbency and true signatures of the officers of the Company and the Parent
authorized to sign the documents required to be executed and delivered by the Company and the Parent hereunder;
(vii) An opinion of counsel for the Company and the Parent (which counsel may be
in-house counsel) in form and substance satisfactory to the Lenders and covering such matters as the Lenders may
reasonably request;
(viii) A certificate of an executive officer of each of the Company and the Parent in
the form of that attached hereto as Exhibit A dated as of the date of this Agreement; and
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(ix) A Covenant Compliance Certificate, dated as of February 28, 2001, for each of
the Company and the Parent demonstrating in detail satisfactory to the Lenders the Company's compliance with the
covenants set forth in Paragraphs 10(g), 10(i) and 10(j) below, and the Parent's compliance with the financial
covenants set forth in Paragraphs 11(d) and 11(e) of the Guaranty.
(2) All acts and conditions (including, without limitation, the obtaining of all necessary
regulatory approvals and the making of all required filings, recordings and registrations) required to be done and
performed and to have happened precedent to the execution, delivery and performance of the Credit Documents and to
constitute the same legal, valid and binding obligations, enforceable in accordance with their respective terms, shall have
been done and performed and shall have happened in due and strict compliance with all applicable laws.
(3) All documentation, including, without limitation, documentation for corporate and legal
proceedings in connection with the transactions contemplated by the Credit Documents, shall be satisfactory in form and
substance to the Lenders and their counsel.
(4) The Company shall have delivered to the Arranger a letter acceptable to the Arranger
regarding the payment by the Company to the Arranger of fees, and the Company shall have paid all fees required under such
letter to have been paid prior to the funding of the first Loan hereunder.
(5) No material adverse change in the business, operations, assets or financial or other
condition of the Company or the Company and its consolidated Subsidiaries taken as a whole shall have occurred since the
Statement Date and the Company by presenting the initial Loan Request, Interest Rate Election and Payoff Notice shall be
deemed to have so represented and warranted hereunder.
(6) There shall be no "Loans" or other "Obligations" outstanding under (and as those terms
are defined in) the Existing Credit Agreement.
7(b) All Primary Loans and Swing Loans. As conditions precedent to the funding of each Primary Loan and
---------------------------------
Swing Loan hereunder, including the first such Loan, at and as of the date of, and after giving effect to, the funding of such Loan:
(1) The representations and warranties of the Company and the Parent contained in the Credit
Documents shall be accurate and complete in all respects as of such date;
(2) If there has occurred a Potential Default or an Event of Default (other than under
Paragraph 11(a) below or under Paragraph 11(e) below resulting from a breach or potential breach of Paragraph 10(i) or 10(j)
below), the Majority Lenders have not elected in writing to cease funding Loans hereunder;
(3) If there has occurred an Event of Default under Paragraph 11(a) below, one hundred
percent (100%) of the Lenders have elected in writing to waive such Event of Default;
(4) If there has occurred an Event of Default or Potential Default under Paragraph 11(e)
below resulting from a breach or potential breach of Paragraph 10(i) or 10(j) below, the Majority Lenders have elected in
writing to waive such Event of Default or Potential Default;
(5) Following the making of such Loan, the aggregate principal amount of Primary Loans and
Swing Loans outstanding shall not exceed the applicable limitations of Paragraphs 1(a) and 1(b) above nor shall the
aggregate principal amount of Primary Loans held by any Lender plus such Lender's Percentage Share of Swing Loans
outstanding or exceed such Lender's Maximum Commitment; and
(6) The Company shall have delivered to the Lead Administrative Agent a duly executed Loan
Request, Interest Rate Election and Payoff Notice requesting such Loan.
By delivering a Loan Request, Interest Rate Election and Payoff Notice to the Lead Administrative Agent, the Company shall be deemed
to have represented and warranted the accuracy and completeness of the statements set forth in subparagraphs (b)(1) through (b)(6)
above and all information set forth in such Loan Request, Interest Rate Election and Payoff Notice.
7(c) Extension of Revolving Facility Maturity Date; Term Loan. As conditions precedent to the
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effectiveness of any extension of the Revolving Facility Maturity Date pursuant to Paragraph 5(m) above or the conversion of Loans
outstanding to the Term Loan, on and as of the proposed effective date of such extension or the Conversion Date, as applicable:
(1) The representations and warranties of the Company and the Parent contained in the Credit
Documents shall be accurate and complete in all respects as of such date;
(2) There shall not have occurred a Potential Default or an Event of Default; and
(3) In the case of the Conversion Date, after giving effect to the conversion of Loans
outstanding into the Term Loan, no Lender's Primary Percentage Share of the Term Loan shall exceed such Lender's Maximum
Commitment.
By delivering an Extension Notice or a Loan Request, Interest Rate Election and Payoff Notice for the Term Loan to the Lead
Administrative Agent, the Company shall be deemed to have represented and warranted the accuracy and completeness of the statements
set forth in subparagraphs (c)(1) through (c)(3) above.
8. Representations and Warranties of the Company. As an inducement to the Lead Administrative Agent, the
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Co-Administrative Agent, the Documentation Agent, the Syndication Agent, the Arranger, the Co-Arrangers, the Co-Agents and each
Lender to enter into this Agreement, the Company represents and warrants to the Lead Administrative Agent, the Co-Administrative
Agent, the Documentation Agent, the Syndication Agent, the Arranger, the Co-Arrangers, the Co-Agents and each Lender that:
8(a) Financial Condition. The financial statements dated the Statement Date, copies of which have
-------------------
heretofore been furnished to each Lender, are complete and correct and present fairly in accordance with GAAP the consolidated and
consolidating financial condition of the Company and its consolidated Subsidiaries at such date and the consolidated and
consolidating results of their operations and changes in financial position for the fiscal period then ended.
8(b) Corporate Existence; Compliance with Law. Each of the Company and its Subsidiaries: (1) is duly
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organized, validly existing and in good standing as a corporation under the laws of the state of its incorporation, and is in good
standing as a foreign corporation in each jurisdiction where its ownership of property or conduct of business requires such
qualification and where failure to be in good standing could have a material adverse effect on the Company, any of its Subsidiaries,
or their respective property and/or business or on the ability of the Company or the Parent to pay or perform the Credit Documents;
(2) has the corporate power and authority and the legal right to own and operate its property and to conduct business in the manner
in which it does and proposes so to do; and (3) is in compliance with all Requirements of Law and Contractual Obligations except to
the extent that failure to comply could not have a material adverse effect on the Company, any of its Subsidiaries, or their
respective property and/or business or on the ability of the Company or the Parent to pay or perform the Credit Documents.
8(c) Corporate Power; Authorization; Enforceable Obligations. Each of the Company and the Parent has the
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corporate power and authority and the legal right to execute, deliver and perform the Credit Documents to which it is a party and, in
the case of the Company, to borrow hereunder, and has taken all necessary corporate action to authorize the execution, delivery and
performance of the Credit Documents. The Credit Documents have been duly executed and delivered on behalf of each of the Company and
the Parent and constitute legal, valid and binding obligations of such party enforceable against such party in accordance with their
respective terms.
8(d) No Legal Bar. The execution, delivery and performance of the Credit Documents, the borrowings
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thereunder and the use of the proceeds thereof, will not violate any Requirement of Law or any Contractual Obligation of the Company
or the Parent to the extent that failure to comply therewith could have a material adverse effect on the Company or its property
and/or business or on the ability of the Company or the Parent to pay or perform the Credit Documents.
8(e) No Material Litigation. Except as disclosed on Exhibit B attached hereto, no litigation,
---------------------- ---------
investigation or proceeding of or before any court, arbitrator or Governmental Authority is pending or, to the knowledge of the
Company, threatened by or against the Company or any of its Subsidiaries or against any of such parties' properties or revenues
involving amounts, in the case of any such individual litigation, investigation or proceeding, in excess of $10,000,000.00 or which,
regardless of the amount in controversy, is likely to be adversely determined and which, if adversely determined, could have a
material adverse effect on the business, operations, property or financial or other condition of the Company or any of its
Subsidiaries.
8(f) Taxes. The Company and each of its Subsidiaries have filed or caused to be filed all tax returns that
-----
are required to be filed and have paid all taxes (other than incidental local business and other municipal taxes which are not
material to the operation of the Company and its Subsidiaries) shown to be due and payable on said returns or on any assessments made
against them or any of their property other than taxes which are being contested in good faith by appropriate proceedings and as to
which the Company or the applicable Subsidiary has established adequate reserves in conformity with GAAP.
8(g) Investment Company Act. The Company is not an "investment company" or a company "controlled" by an
----------------------
"investment company" within the meaning of the Investment Company Act of 1940, as amended.
8(h) Subsidiaries. Exhibit C attached hereto sets forth an accurate and complete list of all presently
------------ ---------
existing Subsidiaries of the Company, their respective jurisdictions of incorporation and the percentage of their capital stock owned
by the Company or other Subsidiaries of the Company. All of the issued and outstanding shares of capital stock of the Subsidiaries
of the Company have been duly authorized and issued and are fully paid and non-assessable.
8(i) Federal Reserve Board Regulations. Neither the Company nor any of its Subsidiaries is engaged or will
---------------------------------
engage, principally or as one of its important activities, in the business of extending credit for the purpose of "purchasing" or
"carrying" any "margin stock" within the respective meanings of such terms under Regulation U. No part of the proceeds of any Loan
made hereunder will be used for "purchasing" or "carrying" "margin stock" as so defined or for any purpose which violates, or which
would be inconsistent with, the provisions of the Regulations of the Board of Governors of the Federal Reserve System.
8(j) ERISA. The Company and each of its Subsidiaries are in compliance in all material respects with the
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requirements of ERISA and no Reportable Event has occurred under any Plan maintained by the Parent, the Company or any of its or
their Subsidiaries which is likely to result in the termination of such Plan for purposes of Title IV of ERISA.
8(k) Assets. The Company and each of its Subsidiaries have good and marketable title to all property and
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assets reflected in the financial statements referred to in Paragraph 8(a) above, except property and assets sold or otherwise
disposed of in the ordinary course of business subsequent to that date. Neither the Company nor any of its Subsidiaries has
outstanding Liens on any of its properties or assets nor are there any security agreements to which the Company or any of its
Subsidiaries is a party, or title retention agreements, whether in the form of leases or otherwise, of any personal property except
as reflected in said financial statements referred to in Paragraph 8(a) above or as permitted under Paragraph 10(a) below.
9. Affirmative Covenants. The Company hereby covenants and agrees with the Lead Administrative Agent and each
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Lender that, as long as any Obligations remain unpaid or any Lender has any obligation to make all or any portion of any Loans, the
Company shall:
9(a) Financial Statements. Furnish or cause to be furnished directly to the Lead Administrative Agent and
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each Lender:
(1) Within ninety (90) days after the last day of each fiscal year of the Parent,
consolidated statements of income and statements of changes in cash flow of the Parent and its Subsidiaries for such year
and a balance sheet as of the end of such year (including therein as supplemental information, consolidating statements of
income and statements of changes in cash flow and balance sheets as of the end of such year) in each case presented fairly
in accordance with GAAP and, in the case of the Company, the requirements of HUD Handbook IG 4000.3 REV and accompanied, in
all cases, by an unqualified report of a firm of independent certified public accountants acceptable to the Majority
Lenders;
(2) Within forty-five (45) days after the last day of each fiscal quarter, consolidated and
consolidating statements of income and statements of changes in cash flow of the Parent and its Subsidiaries for such fiscal
quarter and balance sheets of the Parent and its Subsidiaries as of the last day of such fiscal quarter, presented fairly in
accordance with GAAP, in each case certified in writing as to fairness of presentation by the chief financial officer or
treasurer of the Company and the Parent;
(3) Within forty-five (45) days following each Applicable Financial Test Date, a Covenant
Compliance Certificate from the chief financial officer or treasurer of each of the Company and the Parent, certifying that
there does not exist an Event of Default or Potential Default and, in addition, demonstrating in detail satisfactory to the
Majority Lenders the Company's compliance with the covenants set forth in Paragraphs 10(g), 10(i) and 10(j) below as of and
at such Applicable Financial Test Date, and the Parent's compliance with the covenants set forth in Paragraphs 11(d)
and 11(e) of the Guaranty, as of and at such Applicable Financial Test Date;
(4) As soon as is available any written report pertaining to material items in respect of the
internal control matters of the Parent or the Company submitted to any of such Persons by their respective independent
accountants in connection with each annual or interim special audit of the financial condition of such Persons made by such
independent public accountants; and
(5) Copies of all proxy statements, financial statements, and reports which the Parent sends
to its stockholders, and copies of all regular, periodic and special reports, and all registration statements under the
Securities Act of 1933, as amended (the "Act"), which the Parent or the Company files with the Securities and Exchange
Commission or any governmental authority which may be substituted therefor, or with any national securities exchange;
provided, however, that there shall not be required to be delivered hereunder to the Lead Administrative Agent such copies
for any Lender of prospectuses relating to future series of offerings under registration statements filed under Rule 415 of
the Act or other items which such Lender has indicated in writing to the Parent or the Company from time to time need not be
delivered to such Lender.
9(b) Certificates; Reports; Other Information. Furnish or cause to be furnished directly to the Lead
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Administrative Agent and each Lender:
(1) Within forty-five (45) days following each Applicable Financial Test Date, prepared as of
such Applicable Financial Test Date and certified by an appropriate officer of the Company, a report covering the servicing
portfolio of the Company covering such matters as the Majority Lenders, through the Lead Administrative Agent, may reasonably
request (but which shall in any event list the aggregate principal amount of mortgage notes serviced and the number and types
of loans evidenced by such notes, and show all loans in the servicing portfolio more than thirty (30) days past due the due
dates set forth in such notes).
(2) Promptly, such additional financial and other information, including, without limitation,
financial statements of the Company, the Parent or any Affiliate of the Company or the Parent, as any Lender, through the
Lead Administrative Agent, may from time to time reasonably request, including, without limitation, such information as is
necessary for any Lender to participate out any of its interests in Loans hereunder or to enable another financial
institution to become a signatory hereto.
(3) Promptly upon receipt thereof by the Company, copies of all audit reports prepared by or
on behalf of FNMA, FHLMC and GNMA.
9(c) Payment of Indebtedness. Pay, discharge or otherwise satisfy at or before maturity or before it
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becomes delinquent, defaulted or accelerated, as the case may be, all its Indebtedness, except: (1) Indebtedness (other than
Indebtedness with respect to CPNs) being contested in good faith and for which provision is made to the satisfaction of the Majority
Lenders for the payment thereof in the event the Company is found to be obligated to pay such Indebtedness and which Indebtedness is
thereupon promptly paid by the Company, and (2) additional Indebtedness (other than Indebtedness with respect to CPNs) in the
aggregate not to exceed $100,000.00.
9(d) Maintenance of Existence and Properties. Maintain all rights, privileges, licenses, approvals,
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franchises, properties and assets necessary in the normal conduct of its business, and comply with all Contractual Obligations and
Requirements of Law. The Company will at all times be a FNMA, FHLMC and GNMA-approved Seller/ Servicer and a wholly-owned Subsidiary
of the Parent.
9(e) Inspection of Property; Books and Records; Discussions. Keep proper books of record and account in
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which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and
transactions in relation to its business and activities, and permit representatives of each Lender (at no cost or expense to the
Company unless there shall have occurred and be continuing an Event of Default) to visit and inspect those of its properties and
examine and make abstracts from those of its books and records as are reasonably necessary to enable such Lender to conduct
appropriate credit due diligence in connection with customary credit approval practices for credit facilities of this type, at any
reasonable time and as often as may reasonably be desired by any of the Lenders, and to discuss the business, operations, properties
and financial and other condition of the Company and any of its Subsidiaries with officers and employees of such parties, and with
their independent certified public accountants.
9(f) Notices. Promptly give written notice to the Lead Administrative Agent (who shall promptly notify
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each of the Lenders thereof) of:
(1) The occurrence of any Potential Default or Event of Default;
(2) Any litigation or proceeding affecting the Company or any of its Subsidiaries involving
amounts, in the case of any such individual litigation, investigation or proceeding, in excess of $10,000,000.00 or which,
regardless of the amount in controversy, is likely to be adversely determined and which, if adversely determined, could have
a material adverse effect on the business, operations, property, or financial or other condition of the Company or the
ability of the Company to pay and perform the Obligations;
(3) Receipt by the Company or the Parent of notice from any rating agency concerning a
potential change in any credit rating previously accorded the Company or the Parent by such rating agency; and
(4) A material adverse change in the business, operations, property or financial or other
condition of the Parent, the Company or any of their Subsidiaries.
9(g) Expenses. Pay all reasonable out-of-pocket expenses (including fees and disbursements of counsel) of
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the Lead Administrative Agent, the Arranger and the Co-Arrangers incident to the preparation, negotiation, administration and
amendment of the Credit Documents and, following the occurrence of an Event of Default, of the Lead Administrative Agent and each of
the Lenders incident to the protection of the rights of the Lenders, the Arranger, the Co-Arrangers and the Lead Administrative Agent
under the Credit Documents, and incident to the enforcement of payment of the Obligations, whether by judicial proceedings or
otherwise, including, without limitation, in connection with bankruptcy, insolvency, liquidation, reorganization, moratorium or other
similar proceedings involving the Parent or the Company or a "workout" of the Obligations. The obligations of the Company under this
Paragraph 9(g) shall be effective and enforceable whether or not any Loan is advanced by any Lender hereunder and shall survive
payment of all other Obligations.
9(h) Credit Documents. Comply with and observe all terms and conditions of the Credit Documents.
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9(i) Insurance. Obtain and maintain insurance with responsible companies in such amounts and against such
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risks as are usually carried by corporations engaged in similar businesses similarly situated, including, without limitation, errors
and omissions coverage and fidelity coverage in form and substance acceptable under FNMA or FHLMC guidelines, and furnish the Lenders
on request full information as to all such insurance.
9(j) CPN Program. Obtain the written approval of the Majority Lenders to any modification of the
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documentation relating to the issuance of CPNs of the Company as in effect on the date of this Agreement.
9(k) Hedging Program. Maintain at all times a Hedging Program consistent with the Hedging Program in
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effect at and as of the Effective Date.
10. Negative Covenants. The Company hereby agrees that, as long as any Obligations remain unpaid or any Lender has
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any obligation to make all or any portion of any Loans, the Company shall not, directly or indirectly:
10(a)Liens. Create, incur, assume or suffer to exist any Lien upon any of its property and assets
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(including servicing rights) other than:
(1) Liens or charges for current taxes, assessments or other governmental charges which are
not delinquent or which remain payable without penalty, or the validity of which are contested in good faith by appropriate
proceedings upon stay of execution of the enforcement thereof, provided the Company shall have set aside on its books and
shall maintain adequate reserves for the payment of same in conformity with GAAP;
(2) Liens, deposits or pledges made to secure statutory obligations, surety or appeal bonds,
or bonds for the release of attachments or for stay of execution, or to secure the performance of bids, tenders, contracts
(other than for the payment of borrowed money), leases or margin call requirements or for purposes of like general nature in
the ordinary course of the Company's business;
(3) Liens on Mortgage Loans and Mortgage-Backed Securities which are the subject of
repurchase agreements;
(4) Liens on real property (including fixtures and improvements thereon) securing
Indebtedness in an amount not to exceed $50,000,000.00 in the aggregate at any time outstanding;
(5) Liens on property and assets of the Company securing short term Indebtedness of the
Company (Indebtedness with a maturity of one year or less and not automatically renewable by the Company at its sole option)
in an amount not to exceed at any date twenty five percent (25%) of Mortgage Loans and MBS Held for Sale; and
(6) Liens on servicing rights of the Company securing Indebtedness in an amount not to exceed
at any date ten percent (10%) of Mortgage Servicing Rights.
10(b)Indebtedness. Create, incur, assume or suffer to exist, or otherwise become or be liable in respect
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of any Indebtedness if upon such creation, incurrence or assumption there would exist an Event of Default or the Company would fail
to be in compliance with the requirements of Paragraphs 10(i) or 10(j) below (assuming such compliance were tested at such date
immediately following such creation, incurrence or assumption).
10(c)Consolidation and Merger. Liquidate or dissolve or enter into any consolidation, merger, partnership,
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joint venture, syndicate or other combination, except that the Company may be consolidated with or merged with any corporation
provided that (1) in any such merger or consolidation the Company shall be the surviving or resulting corporation and (2) at the time
of and immediately after the effectiveness of such merger or consolidation there shall not have occurred and be continuing an Event
of Default or Potential Default.
10(d)Acquisitions. Purchase or acquire or incur liability for the purchase or acquisition of any or all of
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the assets or business of any Person other than in the normal course of a mortgage banking-related business (it being expressly
agreed and understood that the acquisition of servicing is a normal course of business activity); provided, however, that the Company
may acquire all or a portion of the stock or assets of another mortgage company or companies so long as no Event of Default or
Potential Default shall exist immediately following the consummation of such acquisition, and, provided, further, that the Company
shall be in compliance with the financial covenants set forth in Paragraphs 10(i) and 10(j) below, assuming for purposes of this
Paragraph 10(d) that the "Applicable Financial Test Date" referenced in such covenants is the day immediately following the
consummation of such acquisition.
10(e)Payment of Dividends. Declare or pay any dividends upon any shares of the Company's stock now or
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hereafter outstanding, except dividends payable in the capital stock of the Company, or make any distribution of assets to its
stockholders as such, whether in cash, property or securities, if at the date of payment or distribution (either before or after
giving effect thereto) there should exist an Event of Default or Potential Default.
10(f)Purchase or Retirement of Stock. Acquire, purchase, redeem or retire any shares of its capital stock
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now or hereafter outstanding for value.
10(g)Investments; Advances; Receivables. Make or commit to make any advance, loan or extension of credit
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("Advances") to, or hold any receivable ("Receivable") of, or make or commit to make any capital contribution to, or purchase any
stock, bonds, notes, debentures or other securities ("Investments") of, or make any other investment in, any Person, except:
(1) Advances constituting Mortgage Loans made in the ordinary course of the Company's
business;
(2) Advances to and Receivables of any Person which are fully secured on a first
priority perfected basis by Mortgage Loans;
(3) Investments in, Advances to and Receivables of any Affiliate which are fully
secured on a first priority perfected basis by Mortgage Loans or Mortgage-Backed Securities;
(4) Investment in, Advances to and Receivables of any Affiliate or any Servicing
Pass-Through Venture which is not otherwise an Affiliate, which are unsecured or which are secured on a first
priority perfected basis by collateral other than Mortgage Loans or Mortgage-Backed Securities, in an
aggregate amount not to exceed fifteen percent (15%) of the net worth of the Company determined in accordance
with GAAP; and
(5) Investments in, Advances to and Receivables of Countrywide Capital Markets, Inc. or any
of its Subsidiaries, which are fully secured on a first priority perfected basis by: (i) debt instruments issued
by FNMA or FHLMC or (ii) time deposit accounts issued by a financial institution the deposits of which are
insured by the Bank Insurance Fund and which financial institution has a deposit rating issued by a recognized
rating agency not less than the rating assigned to the Company's long term indebtedness.
10(h)Sale of Assets. Sell, lease, assign, transfer or otherwise dispose of any of its assets (other than
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obsolete or worn out property), whether now owned or hereafter acquired, other than in the ordinary course of business as presently
conducted and at fair market value (it being expressly agreed and understood that the sale or other disposition of Mortgage Loans
with or without servicing released and the sale or other disposition of servicing rights are in the ordinary course of business);
provided, however, that in no event shall the Company enter into any sale and leaseback transaction involving any of its assets
without the prior written consent of the Majority Lenders; and, provided further, that the Company may sell, lease, assign, transfer
or otherwise dispose of any of its assets to a Subsidiary of the Company (which, for the purpose of this proviso shall include any
limited partnership the general and limited partners of which are Subsidiaries of the Company) so long as: (1) all classes of stock
of, or partnership interests in, such Subsidiary are owned, directly or indirectly, by the Company, (2) such Subsidiary incurs no
obligations for third party indebtedness except such obligations to employees and vendors as are necessary or desirable in the normal
conduct of the business of servicing 1-4 unit single family mortgage loans and in managing an office building owned by such
Subsidiary, and (3) any such unpaid obligations as are described in subsection (2) above (other than payroll and benefits obligations
to employees) shall not exceed at any time $50,000,000.00 in the aggregate.
10(i)Minimum Net Worth. Permit its net worth determined in accordance with GAAP on and as of each
-----------------
Applicable Financial Test Date to be less than $1,200,000,000.00.
10(j)Maximum Total Debt. Permit Total Debt on and as of each Applicable Financial Test Date to exceed the
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sum of:
(1) One hundred percent (100%) of Cash, plus
(2) Ninety percent (90%) of Margins, plus
(3) Ninety-seven percent (97%) of the amount of Mortgage Loans and MBS Held for Sale
(including Mortgage Loans and Mortgage-Backed Securities subject to a Lien under a repurchase agreement but excluding all
other Mortgage Loans and Mortgage-Backed Securities which are excluded from "Eligible Mortgage Assets" pursuant to
subparagraphs (a), (b) and (c) of the definition of such term), plus
(4) Ninety percent (90%) of Pool Loan Purchases and Mortgage Claims Receivable to the extent
such assets represent VA and FHA Mortgage Loans repurchased by the Company from pools supporting GNMA Mortgage-Backed
Securities, plus
(5) Fifty percent (50%) of Deferred Commitment Fees, plus
(6) Fifty percent (50%) of Property and Equipment, plus
(7) Seventy-five percent (75%) of Mortgage Servicing Rights, plus
(8) Fifty percent (50%) of Other Assets, excluding any unsecured Advances made to Affiliates
permitted under Paragraph 10(g)(2) above.
11. Events of Default. Upon the occurrence of any of the following events (an "Event of Default"):
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11(a)The Company shall fail to make any payment on account of that portion of the Obligations consisting of
principal or interest on Loans on the date when due; or
11(b)Any representation or warranty made or deemed made by the Company or the Parent in any Credit Document
or in connection with any Credit Document shall be materially inaccurate or incomplete in any respect on or as of the date made or
deemed made; or
11(c)The Company shall default in the observance or performance of any covenant or agreement contained in
Paragraph 10 above (other than those contained in Paragraphs 10(i) and 10(j) above); or
11(d)The Parent shall fail to observe or comply with any term or provision contained in the Guaranty (other
than those contained in Paragraph 11(d) thereof); or
11(e)The Company or the Parent shall fail to observe or perform any other term or provision contained in
the Credit Documents and such failure shall continue for thirty (30) days; or
11(f)The Company, any of its Subsidiaries or the Parent shall default in any payment of any Indebtedness
(other than the Obligations or as permitted under Paragraph 9(c) above) in an aggregate amount of more than $10,000,000.00 or any
other event shall occur and, as a result, the holder or holders thereof, or any trustee or agent for such holders, either: (1) cause
such Indebtedness to become due and payable prior to its stated maturity, or (2) elect not to cause such Indebtedness to become so
due and payable, but such event continues for a period of thirty (30) days and is not cured or waived; or
11(g)(1) The Parent, the Company or any of its Subsidiaries shall commence any case, proceeding or other
action (i) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other
relief with respect to it or its debts, or (ii) seeking appointment of a receiver, trustee, custodian or other similar official for
it or for all or any substantial part of its assets, or the Parent, the Company or any of its Subsidiaries shall make a general
assignment for the benefit of its creditors; or (2) there shall be commenced against the Parent, the Company or any of its
Subsidiaries any case, proceeding or other action of a nature referred to in clause (1) above which (i) results in the entry of an
order for relief or any such adjudication or appointment, or (ii) remains undismissed, undischarged or unbonded for a period of sixty
(60) days; or (3) there shall be commenced against the Parent, the Company or any of its Subsidiaries any case, proceeding or other
action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of
its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or
bonded pending appeal within sixty (60) days from the entry thereof; or (4) the Parent, the Company or any of its Subsidiaries shall
take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in
clause (1), (2) or (3) above; or (5) the Parent, the Company or any of its Subsidiaries shall generally not, or shall be unable to, or
shall admit in writing its inability to, pay its debts as they become due; or
11(h)(1) Any Person shall engage in any "prohibited transaction" (as defined in Section 406 of ERISA or
Section 4975 of the Code) involving any Plan, (2) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether
or nor waived, shall exist with respect to any Plan, (3) a Reportable Event shall occur with respect to, or proceedings shall
commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which
Reportable Event or institution of proceedings is, in the reasonable opinion of the Lead Administrative Agent, likely to result in
the termination of such Plan for purposes of Title IV of ERISA, and, in the case of a Reportable Event, the continuance of such
Reportable Event unremedied for ten days after notice of such Reportable Event pursuant to Section 4043(a), (c) or (d) of ERISA is
given or the continuance of such proceedings for ten days after commencement thereof, as the case may be, (4) any Single Employer
Plan shall terminate for purposes of Title IV of ERISA, (5) any withdrawal liability to a Multiemployer Plan shall be incurred by the
Company or the Parent or any Commonly Controlled Entity, or (6) any other event or condition shall occur or exist; and in each case
in clauses (1) through (6) above, such event or condition, together with all other such events or conditions, if any, could subject
the Parent, the Company or any of its Subsidiaries to any tax, penalty or other liabilities in the aggregate material in relation to
the business, operations, property or financial or other condition of the Parent, the Company or any of its Subsidiaries; or
11(i)One or more judgments or decrees in amounts aggregating $1,000,000.00 or more not fully covered by
insurance (exclusive of self-insurance (not to exceed $5,000,000.00) and deductibles) during any consecutive twelve (12) month period
shall be entered against the Company or any of its Subsidiaries and all such judgments or decrees shall not have been vacated,
discharged or satisfied, or stayed or bonded pending appeal, within sixty (60) days from the entry thereof unless counsel to the
Company reasonably acceptable to the Majority Lenders has delivered to the Lenders within such sixty (60) day period an opinion that
the Company has the legal right to have such judgment or decree vacated without the expenditure of funds (other than for costs of
proceedings) and the Company is diligently proceeding to accomplish such vacation; or
11(j)The Parent shall notify the Lead Administrative Agent or any Lender of its intention to rescind or
revoke the Guaranty or the Subordination Agreement, in whole or in part, with respect to future transactions or otherwise; or
11(k)The Parent shall cease to own one hundred percent (100%) of the outstanding capital stock of the
Company;
THEN:
(1) Automatically upon the occurrence of an Event of Default under Paragraph 11(g) above,
(2) At the option of any Lender upon the occurrence of an Event of Default under
Paragraph 11(a) above unless such Event of Default is expressly waived in writing by one hundred percent (100%) of the
Lenders, and
(3) In all other cases, at the option of the Majority Lenders,
each Lender's obligation to make Loans shall terminate and the principal balance of outstanding Loans and interest accrued but unpaid
thereon and all other Obligations shall become immediately due and payable, without demand upon or notice or presentment to the
Company, all of which are hereby waived.
12. Agency Provisions.
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12(a)Appointment. Each Lender hereby irrevocably designates and appoints each Agent as the agent of such
-----------
Lender under the Credit Documents and each Lender hereby irrevocably authorizes each Agent, as the agent for such Lender, to take
such action on its behalf under the provisions of the Credit Documents and to exercise such powers and perform such duties as are
expressly delegated to such Agent by the terms of the Credit Documents, together with such other powers as are reasonably incidental
thereto. Notwithstanding any provision to the contrary elsewhere in the Credit Documents, no Agent shall have any duties or
responsibilities, except those expressly set forth therein, or any fiduciary relationship with any Lender, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read into the Credit Documents or otherwise exist against
any Agent.
12(b)Delegation of Duties. The Lead Administrative Agent may execute any of its duties under the Credit
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Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to
such duties. The Lead Administrative Agent shall not be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care.
12(c)Exculpatory Provisions. No Agent nor any of its respective officers, directors, employees, agents,
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counsel, attorneys-in-fact or Affiliates shall be (1) liable to any Lender, any other Agent, the holder of any CPN or the Company for
any action taken or omitted to be taken by it or such Person under or in connection with the Credit Documents (except for its or such
Person's own gross negligence or willful misconduct), or (2) responsible in any manner to any of the Lenders, any other Agent, the
holder of any CPN or the Company for: (i) any recitals, statements, representations or warranties made by the Company or any officer
thereof contained in the Credit Documents or in any certificate, report, statement or other document referred to or provided for in,
or received by such Agent under or in connection with, the Credit Documents (except such as are prepared by such Agent and, then,
only to the extent such Agent is responsible for verification of the accuracy and completeness of the information contained therein
or the facts upon which such information is based as expressly provided herein) or for the value, validity, effectiveness,
genuineness, enforceability, collectability or sufficiency of the Credit Documents or for any failure of the Company to perform its
obligations thereunder or (ii) assuring compliance of the Credit Documents and/or the transactions contemplated by the Credit
Documents with any law or regulation binding upon such Person, it being expressly acknowledged, agreed and understood that each such
Person has obtained independent advice satisfactory to it in all such regards. No Agent shall be under any obligation to any Lender
to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, the Credit
Documents (other than agreements required to be complied with by such Agent thereunder and subject to the standards of care set forth
herein with respect thereto) or to inspect the properties, books or records of the Company. Each Agent shall be entitled to refrain
from exercising any discretionary powers or actions under this Agreement or any other Credit Document until it shall have received
the prior written consent of one hundred percent (100%) of the Lenders to such action.
12(d)Reliance by Agent. Each Agent shall be entitled to rely, and shall be fully protected in relying,
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upon any note, writing, resolution, notice, consent, certification, affidavit, letter, cablegram, telegram, telecopy, telex or
teletype message, statement, order or other document or conversation reasonably believed by it to be genuine and correct and to have
been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without
limitation, counsel to the Company), independent accountants and other experts selected by such Agent. The Lead Administrative Agent
may deem and treat each Lender designated on the current Commitment Schedule as a Lender hereunder for all purposes of the Credit
Documents unless a written notice of assignment, negotiation or transfer of such Lender's interests hereunder and thereunder as
permitted pursuant to Paragraph 14 below shall have been filed with the Lead Administrative Agent. Each Agent shall be fully
justified in failing or refusing to take any action under the Credit Documents unless it shall first receive such advice or
concurrence of the Majority Lenders (or all Lenders, as required under the Credit Documents) or it shall first be indemnified to its
satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing
to take any action (other than liability and/or expense arising out of such Agent's gross negligence or willful misconduct). Each
Agent shall in all cases be fully protected in acting, or in refraining from acting, under the Credit Documents in accordance with a
request of the Majority Lenders (or all Lenders, if applicable) absent gross negligence and willful misconduct on the part of such
Agent in the method in which it acts or refrains from acting in accordance therewith, and such request and any action taken or
failure to act pursuant thereto shall be binding upon all the Lenders.
12(e)Notice of Default; Agreement to Advance. No Agent shall be deemed to have knowledge or notice of the
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occurrence of any Event of Default or Potential Default unless such Agent has received notice from a Lender or the Company referring
to the Credit Documents, describing such Event of Default or Potential Default and stating that such notice is a "notice of
default". In the event that any Agent receives such a notice, such Agent shall give notice thereof to the Lenders and the other
Agents.
12(f)Non-Reliance on Agent and Other Lenders. Each Lender expressly acknowledges that no Agent nor any of
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its respective officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to
it and that no act by such Agent hereafter taken, including any review of the affairs of the Company, shall be deemed to constitute
any representation or warranty by such Agent to any Lender. Each Lender represents to each Agent that it has, independently and
without reliance upon such Agent or any other Lender or their respective counsel, and based on such documents and information as it
has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other
condition and creditworthiness of the Company and made its own decision to extend credit hereunder and enter into this Agreement.
Each Lender also represents that it will, independently and without reliance upon any Agent or any other Lender or their respective
counsel, and based on such documents, information and legal advice (including, without limitation, advice of regulatory counsel to
it) as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in entering into the
Credit Documents and taking or not taking action thereunder, and to make such investigation as it deems necessary to inform itself as
to the business, operations, property, financial and other condition and creditworthiness of the Company. Except for notices,
reports and other documents expressly required to be furnished to the Lenders by an Agent hereunder, such Agent shall not have any
duty or responsibility to provide any Lender with any legal advice or credit or other information concerning the business,
operations, property, financial and other condition or creditworthiness of the Company which may come into the possession of such
Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates.
12(g)Indemnification. The Company agrees to indemnify, defend and hold harmless each Agent in its capacity
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as such from and against any and all claims, obligations, penalties, actions, suits, judgments, costs, disbursements, losses,
liabilities and/or damages (including, without limitation, attorneys' fees) of any kind whatsoever which may at any time be imposed
on, assessed against or incurred by such Agent in any way (1) relating to or arising out of the Credit Documents or any documents
contemplated by or referred to therein or the transactions contemplated thereby or any action taken or omitted to be taken by such
Agent in connection with the foregoing; provided, the Company shall not be liable for any portion of any such claims, obligations,
etc., arising out of or resulting from the gross negligence or willful misconduct of such Agent or (2) resulting from any action
taken or omitted to be taken by such Agent in accordance with written instructions given as provided in the Credit Documents or
(3) relating to any one or more of the matters covered by Paragraph 12(c) above. The Lenders agree to indemnify and hold harmless
each Agent in its capacity as such ratably in accordance with their Primary Percentage Shares to the extent required by the Company
hereunder if any Agent is not reimbursed by the Company hereunder and without limiting the obligation of the Company to do so. To
the extent indemnification payments made by the Lenders pursuant to this Paragraph 12(g) are subsequently recovered by any Agent
from, or for the account of, the Company, such Agent will promptly refund such previously paid indemnity payments to the Lenders.
The indemnification obligations of the Company and Lenders under this Paragraph 12(g) shall survive termination of this Agreement and
payment in full of the Obligations.
12(h)Agent in Its Individual Capacity. Any Agent and its Affiliates may make loans to, accept deposits
--------------------------------
from and generally engage in any kind of business with the Company as though such Agent were not an Agent hereunder. With respect to
such loans made or renewed by them and any note issued to them hereunder, each Agent shall have the same rights and powers under the
Credit Documents as any Lender thereunder and may exercise the same as though it were not an Agent, and the terms "Lender" and
"Lenders" shall include Agents in their individual capacities.
12(i)Successor Agents. Any Agent may resign as such under the Credit Documents upon ninety (90) days'
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prior written notice to the Lenders and the Company and the Lead Administrative Agent shall resign in the event its Maximum
Commitment shall be less than $25,000,000.00. In addition, in the event any Agent fails to perform its obligations under the Credit
Documents in any material manner and fails to correct its performance within thirty (30) days of written notice of such failure of
performance given by not less than the Majority Lenders, then such Agent may be removed upon thirty (30) days notice given by not
less than the Majority Lenders. If an Agent shall resign or be so removed, then, on or before the effective date of such resignation
or removal, the Majority Lenders shall appoint a successor agent reasonably acceptable to the Company or, if the Majority Lenders are
unable to agree on the appointment of a successor agent, such Agent shall appoint a successor agent for the Lenders, which successor
agent shall be reasonably acceptable to the Company, whereupon such successor agent shall succeed to the rights, powers and duties of
such Agent, and the term "Documentation Agent," "Syndication Agent," "Lead Administrative Agent," "Co-Administrative Agent,"
"Arranger", "Co-Arranger" or "Co-Agents," as applicable, shall mean such successor agent effective upon its appointment, and the
former Agent's rights, powers and duties shall be terminated without any other or further act or deed on the part of such former
Agent or any of the parties to this Agreement or any of the other Credit Documents or successors thereto. After any Agent's
resignation or removal hereunder, the provisions of this Paragraph 12 shall inure to its benefit as to any actions taken or omitted
to be taken by it while it was Agent under the Credit Documents.
12(j)Sharing of Set-Offs. If following the occurrence and during the continuance of an Event of Default
-------------------
any Lender (a "benefitted Lender") shall at any time receive any payment of all or part of the Obligations held by it or receive any
collateral in respect thereof (whether voluntarily or involuntarily, by set-off or otherwise) in a greater proportion than any such
payment to and collateral received by any other Lender, if any, in respect of such other Lender's portion of the Obligations, or
interest thereon, such benefitted Lender shall purchase for cash from the other Lenders such portion of each such other Lender's
Obligations, or shall provide such other Lenders with the benefits of such collateral, or the proceeds thereof, as shall be necessary
to cause such benefitted Lender to share the excess payment or benefits of such collateral or proceeds ratably with each of the
Lenders; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such
benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery but
without interest. The Company agrees that each Lender so purchasing a portion of another Lender's Obligations may exercise all
rights of payment (including, without limitation, rights of set-off) with respect to such portion as fully as if such Lender were the
direct holder of such portion.
13. Miscellaneous Provisions.
------------------------
13(a)No Assignment. The Company may not assign its rights or obligations under the Credit Documents
-------------
without the prior written consent of one hundred percent (100%) of the Lenders. Subject to the foregoing, all provisions contained
in this Agreement or any document or agreement referred to herein or relating hereto shall inure to the benefit of each Lender, its
successors and assigns, and shall be binding upon the Company, its successors and assigns.
13(b)Amendment. The Credit Documents may not be amended or terms or provisions hereof waived unless such
---------
amendment or waiver is in writing and signed by the Majority Lenders and the Company; provided, however, that without the prior
written consent of one hundred percent (100%) of the Lenders, no amendment or waiver shall:
(1) Waive or amend any term or provision of Paragraph 4(e), 4(f) or 4(g) above, or this
Paragraph 13(b);
(2) Reduce the principal of, or interest on, the Obligations or any amount of fees payable
under this Agreement or extend the required payment date of principal or interest on the Obligations or any fees;
(3) Increase the Aggregate Credit Limit above $2,000,000,000.00;
(4) Modify any Lender's Primary Percentage Share or Swing Line Percentage Share except
modifications resulting from an increase, permanent or temporary, in a Lender's Maximum Commitment or Swing Line Commitment
made as permitted under this Agreement;
(5) Modify the definition of "Majority Lenders";
(6) Include any Person other than the Lenders signatory hereto as a "Lender" hereunder except
as expressly permitted pursuant to Paragraph 14(a) below;
(7) Cancel or terminate the Guaranty or permit the revocation of the Subordination Agreement;
or
(8) Extend the Revolving Facility Maturity Date or the Final Maturity Date;
provided, however, that nothing contained herein shall in any manner or to any extent be deemed to supersede any provision of the
Credit Documents which expressly designates which Lenders are empowered to modify such provision, including, without limitation, any
provision of the Credit Documents which expressly requires the consent of one hundred percent (100%) of the Lenders to any
modification thereof. No amendment or waiver shall, unless agreed to in writing by the affected Agent, modify the rights or duties
of such Agent. The Lead Administrative Agent shall provide notice and a copy of all amendments to the Credit Documents to all
parties to the Credit Documents.
13(c)Cumulative Rights; No Waiver. The rights, powers and remedies of the Lenders hereunder are cumulative
----------------------------
and in addition to all rights, powers and remedies provided under any and all agreements between the Company and the Lenders relating
hereto, at law, in equity or otherwise. Any delay or failure by the Lenders to exercise any right, power or remedy shall not
constitute a waiver thereof by the Lenders, and no single or partial exercise by the Lenders of any right, power or remedy shall
preclude any other or further exercise thereof or any exercise of any other rights, powers or remedies.
13(d)Entire Agreement; Severability. This Agreement and the documents and agreements referred to herein
------------------------------
embody the entire agreement and understanding between the parties hereto and supersede all prior agreements and understandings
relating to the subject matter hereof and thereof. All waivers by the Company provided for in the Credit Documents have been
specifically negotiated by the parties with full cognizance and understanding of their rights. If any of the provisions of the
Credit Documents shall be held invalid or unenforceable, the Credit Documents shall be construed as if not containing such
provisions, and the rights and obligations of the parties hereto shall be construed and enforced accordingly.
13(e)Survival. All representations, warranties, covenants and agreements herein contained on the part of
--------
the Company shall survive the termination of this Agreement and shall be effective until the Obligations are paid and performed in
full or longer as expressly provided herein.
13(f)Notices. All notices given by any party to any of the others shall be in writing (which may be by
-------
facsimile transmission), delivered personally, by commercial courier service or by depositing the same in the United States mail,
registered, with postage prepaid, addressed to such party at the address set forth on Annex II attached hereto. Any party may change
--------
the address to which notices are to be sent by notice of such change to the other party or parties given as provided herein.
13(g)Governing Law. This Agreement shall be deemed to be a contract made under the laws of the State of
-------------
California, and for all purposes shall be construed in accordance with the laws of said State, without regard to principles of
conflicts of law.
13(h)Counterparts. This Agreement may be executed in counterparts each of which when so executed shall be
------------
deemed to be an original and all of which when taken together shall constitute one and the same agreement.
13(i)Waiver of Jury Trial. EACH OF THE PARTIES HERETO WAIVES ITS RESPECTIVE RIGHTS TO A TRIAL BY JURY OF
--------------------
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER CREDIT DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES
AGAINST ANY OTHER PARTY, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. EACH OF THE PARTIES HERETO AGREES THAT
ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES
FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS PARAGRAPH 13(i) AS TO ANY ACTION,
COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR
ANY OTHER CREDIT DOCUMENT OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS,
SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS.
14. Additional Lenders; Assignments and Participations; Increases in Availability.
-----------------------------------------------------------------------------
14(a)Addition of New Lender.
----------------------
(1) Subject to the limitation on the Aggregate Credit Limit set forth in the definition of
such term, the Company or any Lender may at any time propose that one or more Eligible Assignees (each, an "Applicant
Financial Institution") become an additional Lender hereunder. At such time, the Company or such Lender, as applicable,
shall notify the other parties hereto, including the Lead Administrative Agent, of the identity of such Applicant Financial
Institution and such Applicant Financial Institution's proposed Maximum Commitment and, as applicable, Swing Line
Commitment. The addition of any Applicant Financial Institution shall be subject to:
(i) If such Applicant Financial Institution is proposed for inclusion as a Lender
hereunder by a Lender, the prior written consent of the Company and the Lead Administrative Agent, and if such
Applicant Financial Institution is proposed for inclusion as a Lender hereunder by the Company, the prior written
consent of the Lead Administrative Agent, none of which consents shall be unreasonably withheld and which, if given,
shall be given in writing to the other parties hereto no later than the tenth day following receipt by the Company
of a written request for the inclusion of such Applicant Financial Institution as a Lender hereunder; and
(ii) Delivery of each of the items and the occurrence of each of the events described
in subparagraph (2) below.
(2) Assuming delivery of the consent of the Company and/or Lead Administrative Agent as
required pursuant to subparagraph (1)(i) above, the Lead Administrative Agent, the Company and, if such Applicant Financial
Institution will be acquiring a portion of an existing Lender's Maximum Commitment by way of assignment from such existing
Lender, such existing Lender, shall mutually agree on the Adjustment Date on which such Applicant Financial Institution
shall become a party hereto and a Lender hereunder. On such Adjustment Date:
(i) The Lead Administrative Agent shall deliver to the Company and each of the
Lenders a Commitment Schedule to be effective as of such Adjustment Date, reflecting the inclusion of such
Applicant Financial Institution as a party hereto and a Lender hereunder.
(ii) No later than 12:30 p.m. (Los Angeles time) on such Adjustment Date, such
Applicant Financial Institution shall pay to the Lead Administrative Agent an amount equal to such Applicant
Financial Institution's Primary Percentage Share of Primary Loans outstanding and, as applicable, Swing Line
Percentage Share of Swing Loans outstanding. If such Applicant Financial Institution is becoming a Lender
hereunder as a result of an increase in the Aggregate Credit Limit, the Lead Administrative Agent shall thereupon
remit to the Lenders, as applicable, their shares of such funds. If such Applicant Financial Institution is
acquiring a portion of an existing Lender's outstanding Primary Loans, the Lead Administrative Agent shall
thereupon remit such funds to the assigning Lender. Following such Adjustment Date, fees and interest accrued on
the Obligations to but not including such Adjustment Date shall be payable to the Lenders in accordance with their
respective Primary Percentage Shares and Swing Line Percentage Shares prior to such Adjustment Date before giving
effect to the readjustment thereof pursuant to the Commitment Schedule provided by the Company on such Adjustment
Date.
(iii) If such Applicant Financial Institution is acquiring a portion of an existing
Lender's Maximum Commitment by way of assignment from such existing Lender, the Lead Administrative Agent, the
Company, the assigning Lender and the Applicant Financial Institution shall execute and deliver an Assignment
Agreement, or if such Applicant Financial Institution is becoming a Lender hereunder as a result of an increase in
the Aggregate Credit Limit, the Lead Administrative Agent, the Company and the Applicant Financial Institution
shall execute and deliver an Additional Lender Agreement, either of which Assignment Agreement or Additional
Lender Agreement shall constitute an amendment to this Agreement to the extent necessary to reflect the inclusion
of the Applicant Financial Institution as a Lender hereunder.
(iv) The Applicant Financial Institution shall pay to the Lead Administrative Agent a
registration fee of $3,500.00.
Subject to the requirements described above, the Applicant Financial Institution shall become a party hereto and a Lender hereunder
and shall be entitled to all rights, benefits and privileges accorded a Lender under the Credit Documents and shall be subject to all
obligations of a Lender under the Credit Documents.
14(b)Assignments Among Existing Lenders. Any Lender may at any time agree to assign a portion of such
----------------------------------
Lender's Maximum Commitment to a Transferee Lender. In such event the Lender and the Transferee Lender shall so notify the Lead
Administrative Agent and the Company of the Adjustment Date on which such assignment is to be effective. On such Adjustment Date:
(1) The Company shall deliver to the Lead Administrative Agent and each of the Lenders a
Commitment Schedule to be effective as of such Adjustment Date reflecting the assignment.
(2) The Lead Administrative Agent, the Company, the assigning Lender and the Transferee
Lender shall execute and deliver an Assignment Agreement, which shall constitute an amendment to this Agreement to the
extent necessary to reflect such transfer.
(3) No later than 12:30 p.m. (Los Angeles time) on such Adjustment Date, the Transferee
Lender shall pay to the Lead Administrative Agent an amount equal to, as applicable, such Transferee Lender's Primary
Percentage Share of Primary Loans and Swing Line Percentage Share of Swing Loans outstanding in excess of such Transferee
Lender's previous Primary Percentage Share and, as applicable, Swing Line Percentage Share thereof. The Lead Administrative
Agent shall thereupon remit to the transferring Lender the amount thereof.
14(c)Minimum Loan Commitment. Notwithstanding anything to the contrary contained herein, the inclusion of
-----------------------
any Applicant Financial Institution as a Lender hereunder pursuant to Paragraph 14(a) above and the assignment by a Lender of a
portion of such Lender's Maximum Commitment to a Transferee Lender pursuant to Paragraph 14(b) above shall be subject to the
following restrictions:
(1) If an Applicant Financial Institution is acquiring a portion of an existing Lender's
Maximum Commitment by way of an assignment from such existing Lender, then: (i) such assignment of Maximum Commitment must
be in the minimum amount of $5,000,000.00 (or if in a higher amount, in integral multiples of $5,000,000.00 in excess
thereof), and (ii) following the consummation of the contemplated assignment and after giving effect to any other
assignments occurring on the related Adjustment Date, such existing Lender must continue to hold a Maximum Commitment of not
less than $25,000,000.00 and such Applicant Financial Institution must hold a Maximum Commitment of not less than
$25,000,000.00;
(2) If an existing Lender is assigning a portion of its Maximum Commitment to a Transferee
Lender, such assignment of Maximum Commitment is in the minimum amount of $5,000,000.00 (or if in a higher amount, in
integral multiples of $5,000,000.00 in excess thereof) and such existing Lender shall continue to hold a Maximum Commitment
of not less than $25,000,000.00 following the consummation of the contemplated assignment.
There shall be no minimum hold requirement in the event that an existing Lender is assigning one hundred percent (100%) of its
Maximum Commitment.
14(d)Sub-Participations by Lenders. Any Lender may at any time sell participating interests in any of the
-----------------------------
Obligations held by such Lender and its commitments hereunder; provided, however, that:
(1) No participation contemplated by this Paragraph 14(d) shall relieve such Lender from its
obligations hereunder or under any other Credit Document;
(2) Such Lender shall remain solely responsible for the performance of such obligations;
(3) The Company, the Lead Administrative Agent and the other Lenders shall continue to deal
solely and directly with such Lender in connection with such Lender's rights and obligations under the Credit Documents;
(4) The participation agreement between such Lender and the Person purchasing such
participation interest (a "Participant") shall provide that: (i) the participation interest of the Participant is an
undivided interest in such Lender's Maximum Commitment, and (ii) the sole voting rights of the Participant are with respect
to those items on which such Lender is entitled to vote pursuant to Paragraphs 13(b)(2) and 13(b)(7) above; and
(5) Such Lender shall not enter into participation agreements with more than two Participants
for each $25,000,000.00 of Maximum Commitment held by such Lender.
The Company acknowledges and agrees that each Participant shall be considered a Lender for purposes of Paragraphs 4(e), 4(f), 4(g)
and 5(l) above; provided, however, that in no event shall any Participant be entitled to receive any payment or compensation in
excess of that to which such Participant's selling Lender would be entitled with respect to the participation interest held by such
Participant if such Lender had not sold any participation interest to such Participant.
14(e)Federal Reserve Bank. Notwithstanding the provisions of Paragraphs 14(a) and 14(b) above, any Lender
--------------------
may at any time pledge or assign all or any portion of such Lender's rights under this Agreement and the other Credit Documents to a
Federal Reserve Bank.
14(f)Increases in Availability. From time to time the Company and any Lender (an "Increasing Lender") may
-------------------------
agree, with the prior written consent of the Lead Administrative Agent, to permanently or temporarily increase such Lender's Maximum
Commitment and Primary Percentage Share, the dollar amount of any such increase to be, subject to the Aggregate Credit Limit
limitation, in the minimum dollar amount of $5,000,000.00 and integral multiples of $5,000,000.00 in excess thereof. The Company and
the Increasing Lender shall agree on the Adjustment Date for said increase and, if the increase is a temporary rather than permanent
increase, the date on which said increase shall terminate (the "Temporary Increase Termination Date"). The Lead Administrative Agent
shall deliver to the Company and each of the Lenders a Commitment Schedule to be effective as of such Adjustment Date. On the
Temporary Increase Termination Date the aggregate amount of such Increasing Lender's Primary Percentage Share of outstanding Primary
Loans in excess of its Maximum Commitment after giving effect to the termination of the subject increase shall, if but only if at
such Temporary Increase Termination Date there does not exist an Event of Default, be payable in full. If at the Temporary Increase
Termination Date there exists an Event of Default, the temporary increase of the Increasing Lender shall continue in effect and,
unless otherwise agreed by one hundred percent (100%) of the Lenders, shall be treated thereafter as a permanent increase in said
Increasing Lender's Maximum Commitment.
14(g)Provision of Information; Confidentiality. The Company hereby acknowledges and agrees that in
-----------------------------------------
connection with the proposed assignment or subparticipation by
a Lender of its interest in the Obligations, such Lender may disclose to prospective assignees and Participants any and all
information provided to such Lender hereunder; provided, however, that such information shall be furnished to such prospective
assignees and Participants on a
confidential basis.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above
written.
COUNTRYWIDE HOME LOANS, INC.,
a New York corporation
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
COUNTRYWIDE HOME LOANS, INC.,
a New York corporation
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
ROYAL BANK OF CANADA, as Lead Administrative Agent, Arranger, a Swing Line Lender and a
Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
ABN AMRO BANK, N.V., as Co-Administrative Agent, a Co-Arranger, a Co-Agent, a Swing Line
Lender and a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
CREDIT LYONNAIS NEW YORK BRANCH, as Syndication Agent, a Co-Arranger, a Co-Agent, a Swing
Line Lender and a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
COMMERZBANK AG, NEW YORK BRANCH, as Documentation Agent, a Co-Arranger, a Co-Agent, a
Swing Line Lender and a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
CREDIT SUISSE FIRST BOSTON, as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
BARCLAYS BANK PLC., as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
BANK NATIONALE DE PARIS, as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
CHASE MANHATTAN BANK, as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
BANK OF NEW YORK, as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH/CAYMAN ISLANDS BRANCH, as a Lender
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
By
----------------------------------------------------------
Name
--------------------------------------------------------
Title
-------------------------------------------------------
ACKNOWLEDGED AND AGREED TO
as of the day and year first above written:
COUNTRYWIDE CREDIT INDUSTRIES, INC.
By ___________________________________
Name ________________________________
Title _________________________________
SCHEDULE OF EXHIBITS TO CREDIT AGREEMENT
----------------------------------------
EXHIBIT DOCUMENT
- ------- --------
A Form of Officer's Certificate
B Litigation Schedule
C Schedule of Existing Subsidiaries
Annex I: Glossary
____ Attachments to Glossary:
-----------------------
Schedule I: Commitment Schedule as of the Effective Date
Exhibit A: Form of Additional Lender Agreement
Exhibit B: Form of Assignment Agreement
Exhibit C-1: Form of Covenant Compliance Certificate (Company)
Exhibit C-2: Form of Covenant Compliance Certificate (Parent)
Exhibit D: Form of Parent Guaranty
Exhibit E: Form of Parent Subordination Agreement
Annex II: Schedule of Notice Addresses
la-469666
CREDIT AGREEMENT
By and Among
COUNTRYWIDE HOME LOANS, INC.
and
ROYAL BANK OF CANADA
as Lead Administrative Agent and Arranger
ABN AMRO BANK, N.V. ("ABN")
as Co-Administrative Agent
CREDIT LYONNAIS NEW YORK BRANCH ("CL")
as Syndication Agent
COMMERZBANK AG, NEW YORK BRANCH ("CA")
as Documentation Agent
ABN, CL and CA
as Co-Arrangers
and
THE LENDERS PARTY THERETO
April 11, 2001
la-469673
TABLE OF CONTENTS
-----------------
Page
----
RECITALS.........................................................................................................92
- --------
AGREEMENT........................................................................................................92
- ---------
1. Credit Facilities..............................................................................93
1(a) Primary Facility...............................................................................93
----------------
1(b) Swing Loan Facility............................................................................93
-------------------
1(c) Term Loan Facility.............................................................................94
------------------
2. Requests for Loans; Funding....................................................................94
2(a) Requests for Loans.............................................................................94
------------------
2(b) Funding of Primary Loans and Swing Loans.......................................................95
----------------------------------------
2(c) Funding Method.................................................................................95
3. Payment of Principal; Prepayments..............................................................95
3(a) Required Principal Payments....................................................................95
---------------------------
3(b) Prepayments....................................................................................95
-----------
4. Calculation and Payment of Interest; Related Provisions........................................96
4(a) Interest on Primary Loans and the Term Loan....................................................96
4(b) Interest on Swing Loans........................................................................97
-----------------------
4(c) Payment of Interest............................................................................97
-------------------
4(d) Inability to Determine Rate....................................................................97
---------------------------
4(e) Funding Indemnification........................................................................98
-----------------------
4(f) Illegality; Impracticality.....................................................................98
--------------------------
4(g) Requirements of Law; Increased Costs...........................................................99
------------------------------------
4(h) Taxes..........................................................................................99
-----
4(i) Buy-Down Provisions...........................................................................102
4(j) Obligation of Lenders to Mitigate; Replacement of Lenders.....................................102
5. Miscellaneous Lending Provisions..............................................................103
5(a) Use of Proceeds...............................................................................103
---------------
5(b) Assumption of Funding/Purchase................................................................103
------------------------------
5(c) Evidence of Indebtedness......................................................................104
5(d) Interest and Fee Billing and Payment..........................................................104
------------------------------------
5(e) Nature and Place of Payments..................................................................105
----------------------------
5(f) Post-Default Interest.........................................................................105
---------------------
5(g) Computations..................................................................................105
------------
5(h) Disbursement of Payments Received.............................................................105
---------------------------------
5(i) Fees..........................................................................................106
----
5(j) Wire Transfers of Funds.......................................................................107
-----------------------
5(k) Reduction in Aggregate Credit Limit...........................................................107
-----------------------------------
5(l) Capital Requirements..........................................................................107
--------------------
5(m) Extension of Revolving Facility Maturity Date.................................................107
---------------------------------------------
6. Guaranty; Subordination; Additional Documents.................................................109
6(a) Guaranty and Subordination Agreement..........................................................109
------------------------------------
6(b) Further Documents.............................................................................109
-----------------
7. Conditions Precedent..........................................................................109
7(a) First Loan....................................................................................109
----------
7(b) All Primary Loans and Swing Loans.............................................................111
---------------------------------
7(c) Extension of Revolving Facility Maturity Date; Term Loan......................................112
8. Representations and Warranties of the Company.................................................112
---------------------------------------------
8(a) Financial Condition...........................................................................112
-------------------
8(b) Corporate Existence; Compliance with Law......................................................113
----------------------------------------
8(c) Corporate Power; Authorization; Enforceable...................................................113
-------------------------------------------
8(d) No Legal Bar..................................................................................113
------------
8(e) No Material Litigation........................................................................113
----------------------
8(f) Taxes.........................................................................................113
-----
8(g) Investment Company Act........................................................................114
----------------------
8(h) Subsidiaries..................................................................................114
------------
8(i) Federal Reserve Board Regulations.............................................................114
---------------------------------
8(j) ERISA.........................................................................................114
-----
8(k) Assets........................................................................................114
------
9. Affirmative Covenants.........................................................................114
---------------------
9(a) Financial Statements..........................................................................114
--------------------
9(b) Certificates; Reports; Other Information......................................................115
----------------------------------------
9(c) Payment of Indebtedness.......................................................................116
-----------------------
9(d) Maintenance of Existence and Properties.......................................................116
---------------------------------------
9(e) Inspection of Property; Books and Records; Discussions........................................116
------------------------------------------------------
9(f) Notices.......................................................................................116
-------
9(g) Expenses......................................................................................117
--------
9(h) Credit Documents..............................................................................117
----------------
9(i) Insurance.....................................................................................117
---------
9(j) CPN Program...................................................................................117
-----------
9(k) Hedging Program...............................................................................117
---------------
10. Negative Covenants............................................................................118
------------------
10(a) Liens.........................................................................................118
-----
10(b) Indebtedness..................................................................................118
------------
10(c) Consolidation and Merger......................................................................118
------------------------
10(d) Acquisitions..................................................................................119
------------
10(e) Payment of Dividends..........................................................................119
--------------------
10(f) Purchase or Retirement of Stock...............................................................119
-------------------------------
10(g) Investments; Advances; Receivables............................................................119
----------------------------------
10(h) Sale of Assets................................................................................120
--------------
10(i) Minimum Net Worth.............................................................................120
-----------------
10(j) Maximum Total Debt............................................................................120
------------------
11. Events of Default.............................................................................121
-----------------
12. Agency Provisions.............................................................................123
-----------------
12(a) Appointment...................................................................................123
-----------
12(b) Delegation of Duties..........................................................................123
--------------------
12(c) Exculpatory Provisions........................................................................123
----------------------
12(d) Reliance by Agent.............................................................................124
-----------------
12(e) Notice of Default; Agreement to Advance.......................................................124
---------------------------------------
12(f) Non-Reliance on Agent and Other Lenders.......................................................125
---------------------------------------
12(g) Indemnification...............................................................................125
---------------
12(h) Agent in Its Individual Capacity..............................................................126
--------------------------------
12(i) Successor Agents..............................................................................126
----------------
12(j) Sharing of Set-Offs...........................................................................126
-------------------
13. Miscellaneous Provisions......................................................................127
13(a) No Assignment.................................................................................127
-------------
13(b) Amendment.....................................................................................127
---------
13(c) Cumulative Rights; No Waiver..................................................................128
----------------------------
13(d) Entire Agreement; Severability................................................................128
------------------------------
13(e) Survival......................................................................................128
--------
13(f) Notices.......................................................................................128
-------
13(g) Governing Law.................................................................................128
-------------
13(h) Counterparts..................................................................................128
------------
13(i) Waiver of Jury Trial..........................................................................128
14. Additional Lenders; Assignments and Participations; Increases in Availability;................129
14(a) Addition of New Lender........................................................................129
14(b) Assignments Among Existing Lenders............................................................131
----------------------------------
14(c) Minimum Loan Commitment.......................................................................131
-----------------------
14(d) Sub-Participations by Lenders.................................................................132
-----------------------------
14(e) Federal Reserve Bank..........................................................................132
--------------------
14(f) Increases in Availability.....................................................................132
-------------------------
14(g) Provision of Information; Confidentiality.....................................................133
ANNEX I: GLOSSARY
For purposes of the Credit Documents (as defined herein), the terms set forth below shall have the following
meanings:
"Additional Lender Agreement" shall mean an agreement in the form of that attached hereto as Exhibit A.
--------------------------- ---------
"Adjustment Date" shall mean that date as of which an Applicant Financial Institution becomes a "Lender" or an
---------------
existing Lender takes all of or a portion of another existing Lender's Maximum Commitment under the Credit Documents, or otherwise
increases its Maximum Commitment, as provided therein.
"Advance" shall have the meaning given such term in Paragraph 10(g) of the Agreement.
-------
"Affiliate" shall mean any Person directly or indirectly controlling, controlled by or under direct or indirect
---------
common control with any other Person; provided, however, that in no event shall the term "Affiliate" be deemed to include Independent
National Mortgage Corporation. "Control" as used herein means the power to direct the management and policies of a Person.
"Agents" shall mean, collectively and severally, the Lead Administrative Agent, the Co-Administrative Agent, the
------
Syndication Agent, the Documentation Agent, the Arranger, the Co-Arrangers and the Co-Agents.
"Aggregate Credit Limit" shall mean at any date: (a) to and including the Revolving Facility Maturity Date, the sum
----------------------
(not to exceed $2,000,000,000.00) of the Maximum Commitments of the Lenders, and (b) from and after the Conversion Date, the
outstanding principal balance of the Term Loan, with the "Aggregate Credit Limit" at the Effective Date set forth on the initial
Commitment Schedule attached hereto as Schedule I.
----------
"Aggregate Swing Line Commitment" shall mean at any date the sum (not to exceed $200,000,000.00) of the Swing Line
-------------------------------
Commitments of the Swing Line Lenders, with the "Aggregate Swing Line Commitment" at the Effective Date set forth on the initial
Commitment Schedule attached hereto as Schedule I.
----------
"Agreement" shall mean that certain Credit Agreement dated as of April 11, 2001 by and among the Lead Administrative
---------
Agent, the Co-Administrative Agent, the Documentation Agent, the Syndication Agent, the Arranger, the Co-Arrangers, the Co-Agents,
the Lenders and the Company, as the same may be amended, extended or replaced from time to time.
"Alternate Base Rate" shall mean on any date the greater of: (a) the Federal Funds Effective Rate plus one half of
-------------------
one percent (0.50%), and (b) the Corporate Base Rate; provided, however that the "Alternate Base Rate" in effect on each day on which
the aggregate dollar amount of Loans outstanding exceeds twenty five percent (25%) of the Aggregate Credit Limit on such date shall
be increased by one eighth of one percent (0.125%).
"Alternate Base Rate Loans" shall have the meaning given such term in Paragraph 4(a) of the Agreement.
-------------------------
"Applicable Eurodollar Rate" shall mean with respect to any Eurodollar Interest Period, the rate per annum (rounded
--------------------------
upward, if necessary, to the next higher one one hundredth of one percent (.01%)) calculated in accordance with the following formula:
Applicable Eurodollar Rate = ER + ES
--------
1-RR
where
ER = Eurodollar Rate
RR = Reserve Requirement
ES = Eurodollar Spread"
"Applicable Fed Funds Rate" shall mean on any date a rate per annum equal to the Federal Funds Effective Rate plus
-------------------------
one half of one percent (0.50%).
"Applicable Financial Test Date" shall mean for each of the Company and the Parent, the last day of each fiscal
------------------------------
quarter of such Person.
"Applicant Financial Institution" shall mean a financial institution proposed for inclusion as a "Lender" under the
-------------------------------
Credit Documents by the Company or by an existing Lender thereunder.
"Approved Securities Offering" shall mean a proposed offering of securities by the Company or an Affiliate of the
----------------------------
Company secured or otherwise supported in whole or part by Mortgage Loans and/or Mortgage-Backed Securities, for which the following
statements are true, unless otherwise waived in writing by the Majority Lenders:
(a) The Company or such Affiliate, as applicable, has filed and made effective a registration statement
with the Securities and Exchange Commission covering the offering of the proposed securities;
(b) The Company or such Affiliate, as applicable, has obtained all permits, exemptions, and licenses
necessary to effect such offering;
(c) Such offering has been priced and is the subject of a firm underwriting commitment;
(d) Such securities qualify as "mortgage-related securities" under Section 3(a)(41) of the Securities
Exchange Act of 1934, as amended; and
(e) In the reasonably anticipated course of events, the Company or such Affiliate, as applicable, is
expected to obtain a rating in one of the two highest categories available for securities of a like nature from the rating agency
rating such securities.
"Assignment Agreement" shall mean an agreement in the form of Exhibit B attached hereto.
-------------------- ---------
"Business Day" shall mean any day other than a Saturday, a Sunday or a day on which banks in Los Angeles,
------------
California, New York, New York or Chicago, Illinois are authorized or required to close.
"Buy-Down Agreement" shall mean a written agreement between the Company and a Lender setting forth the terms and
------------------
conditions under which such Lender has agreed to credit against interest otherwise payable to such Lender on account of Loans
outstanding hereunder certain amounts calculated based upon Buy-Down Deposits maintained by the Company with such Lender.
"Buy-Down Deposits" shall mean those free collected balances maintained in non-interest bearing accounts in the name
-----------------
of the Company (or held by the Company in trust for third parties) with a Lender (after deducting float and balances required by such
Lender under its normal practices to compensate such Lender for the maintenance of such accounts and taking into consideration
reserve requirements (including but not limited to any FDIC premium) applicable to such accounts) and which balances are not included
in determining "Buy-Down Deposits" or other similar classification under any other credit arrangements between such Lender and the
Company.
"Buy-Down Lender" shall have the meaning given such term in Paragraph 4(i) of the Agreement.
---------------
"Buy-Down Rate" shall mean such interest rate as a Buy-Down Lender and the Company may agree in writing from time to
-------------
time.
"Buy-Down Rate Loan" shall have the meaning given such term in Paragraph 4(i) of the Agreement.
------------------
"Cash" shall mean at any date the dollar amount of "Cash" of the Company set forth in the balance sheet of the
----
Company as of the most recent Applicable Financial Test Date delivered by the Company pursuant to Paragraph 9(a)(2) of the
Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
----
"Commitment Schedule" shall mean a schedule setting forth: (a) the current Aggregate Credit Limit and, prior to the
-------------------
Conversion Date, the Aggregate Swing Line Commitment, and (b) for each Lender, such Lender's Maximum Commitment, Primary Percentage
Share and, prior to the Conversion Date and if applicable, Swing Line Commitment and Swing Line Percentage Share, as such schedule
may be modified from time to time consistent with the Credit Documents, with the Commitment Schedule in effect at the Effective Date
being attached hereto as Schedule I.
----------
"Commonly Controlled Entity" of a Person shall mean another Person, whether or not incorporated, which is under
--------------------------
common control with such Person within the meaning of Section 414(c) of the Code.
"Contact Office" shall mean the office of the Lead Administrative Agent as announced by the Lead Administrative
--------------
Agent from time to time.
"Continuing Lender" shall have the meaning given such term in Paragraph 5(m)(1) of the Agreement.
-----------------
"Contractual Obligation" as to any Person shall mean any provision of any security issued by such Person or of any
----------------------
agreement, instrument or undertaking to which such Person is a party or by which it or any of its property is bound.
"Conversion Date" shall have the meaning given such term in Paragraph 1(c) of the Agreement.
---------------
"Corporate Base Rate" shall mean a rate per annum equal to the corporate base rate of interest publicly announced by
-------------------
RBC from time to time, changing when and as of the date said corporate base rate changes.
"Covenant Compliance Certificate" shall mean: (a) with respect to the Company, a certificate in the form of
-------------------------------
Exhibit C-1 attached hereto, and (b) with respect to the Parent, a certificate in the form of Exhibit C-2 attached hereto.
- ----------- -----------
"CPN" shall mean a commercial paper note issued by the Company in the ordinary course of business.
---
"Credit Documents" shall mean the Agreement, the Guaranty, the Subordination Agreement and each other document,
----------------
instrument or agreement executed by the Company or the Parent in connection herewith or therewith, as any of the same may be amended,
extended or replaced from time to time, and with reference to any individual "Credit Document" being deemed automatically to be a
reference to such Credit Document as so amended, extended or replaced.
"Deferred Commitment Fees" shall mean the dollar amount shown as "Deferred Commitment Fees" on the balance sheet of
------------------------
the Company as of the Applicable Financial Test Date delivered by the Company pursuant to Paragraph 9(a)(2) of the Agreement.
"Double Level Subordinated Parent Debt" shall mean Indebtedness of the Company to the Parent which is subject to the
-------------------------------------
Subordination Agreement and which constituted an advance from the Parent to the Company or investment by the Parent in the Company
from funds of the Parent obtained through Subordinated Parent Borrowings.
"Effective Date" shall mean the date each of the conditions set forth in Paragraph 7(a) of the Agreement is
--------------
satisfied.
"Eligible Assignee" shall mean a finance company, insurance company or other financial institution or fund (whether
-----------------
a corporation, partnership, trust or other entity) that is engaged in making, purchasing or investing in commercial loans in the
ordinary course of its business.
"Eligible Mortgage Assets" shall mean the dollar amount of Mortgage Loans and MBS Held for Sale on the balance sheet
------------------------
of the Company, but excluding, in any event: (a) Mortgage Loans and Mortgage-Backed Securities which are subject to a Lien, (b)
Mortgage Loans secured by properties which are not 1-4 unit residential properties, and (c) Mortgage Loans deemed to be unsaleable by
the Company.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as the same may from time to time be
-----
supplemented or amended.
"Eurodollar Business Day" shall mean a Business Day upon which commercial banks in London, England are open for
-----------------------
domestic and international business.
"Eurodollar Interest Period" shall mean the period of time commencing on the date as of which the Company has
--------------------------
elected certain Primary Loans to be Eurodollar Loans and ending 1, 2 or 3 months thereafter (as designated by the Company in the
related Loan Request, Interest Rate Election and Payoff Notice); provided, however, that (a) any Eurodollar Interest Period which
would otherwise end on a day which is not a Eurodollar Business Day shall be extended to the next succeeding Eurodollar Business Day
unless by such extension it would fall in another calendar month, in which case such Eurodollar Interest Period shall end on the
immediately preceding Eurodollar Business Day; (b) any Eurodollar Interest Period which begins on a day for which there is no
numerically corresponding day in the calendar month during which such Eurodollar Interest Period is to end shall, subject to the
provisions of clause (a) hereof, end on the last day of such calendar month; (c) no Eurodollar Interest Period for a Primary Loan
which is a Eurodollar Loan shall extend beyond the Revolving Facility Maturity Date, and (d) no Eurodollar Interest Period for any
portion of the Term Loan being maintained as a Eurodollar Loan shall extend beyond the Final Maturity Date.
"Eurodollar Loans" shall mean Primary Loans at such time as they are made and/or being maintained at a rate of
----------------
interest based upon the Eurodollar Rate.
"Eurodollar Rate" shall mean with respect to any Eurodollar Interest Period, the rate per annum equal to the rate
---------------
set forth at Telerate Page 3750 at approximately 11:00 a.m. London time two Eurodollar Business Days prior to the first day of such
Eurodollar Interest Period for deposits in dollars in an amount equal to the aggregate amount of Loans proposed to be subject to such
rate during such Eurodollar Interest Period and for a period of time equal to such Eurodollar Interest Period; provided, however,
that if such information is not available on Telerate the "Eurodollar Rate" shall be determined from information supplied to the Lead
Administrative Agent by a nationally recognized reporting service for similar information acceptable to the Lead Administrative
Agent.
"Eurodollar Spread" shall mean: (a) on each day on which the aggregate dollar amount of Loans outstanding does not
-----------------
exceed twenty five percent (25%) of the Aggregate Credit Limit on such day, 0.295%, and (b) on each day on which the aggregate dollar
amount of Loans outstanding exceeds twenty five percent (25%) of the Aggregate Credit Limit on such date, 0.42%.
"Event of Default" shall have the meaning given such term in Paragraph 11 of the Agreement.
----------------
"Existing Credit Agreement" shall have the meaning given such term in Recital A of the Agreement.
-------------------------
"Extension Notice" shall have the meaning given such term in Paragraph 5(m)(1) of the Agreement.
----------------
"Federal Funds Effective Rate" shall mean for any day an interest rate per annum equal to the weighted average of
----------------------------
the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on
such day, as published for such day (or, if such day is not a Business Day, for the immediately preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the
quotations at approximately 8:00 a.m. (Los Angeles time) on such day on such transactions received by the Lead Administrative Agent
from three Federal funds brokers of recognized standing selected by the Lead Administrative Agent in its sole discretion.
"FHA" shall mean the Federal Housing Administration and any successor agency.
---
"FHLMC" shall mean the Federal Home Loan Mortgage Corporation and any successor agency.
-----
"Final Maturity Date" shall mean the first anniversary date of the Conversion Date.
-------------------
"FNMA" shall mean the Federal National Mortgage Association and any successor agency.
----
"Funding Account" shall mean an account maintained in the Company's name alone with the Lead Administrative Agent,
---------------
as announced to the Lenders by the Lead Administrative Agent from time to time.
"GAAP" shall mean generally accepted accounting principles in the United States of America in effect from time to
----
time.
"GNMA" shall mean the Government National Mortgage Association and any successor agency.
----
"Governmental Authority" shall mean any nation or government, any state or other political subdivision thereof, and
----------------------
any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.
"Guaranty" shall mean a guaranty duly executed by the Parent in the form of that attached hereto as Exhibit D.
-------- ---------
"Hedge Contract" shall mean a contract to buy or sell an instrument on the futures market or the futures options
--------------
market or an option or financial future purchased over the counter for future delivery of such instrument, each of the above issued
in accordance with the requirements of the Company's Hedging Program.
"Hedging Program" shall mean a program for hedging interest rate risks by the Company, which program shall provide,
---------------
without limitation, that all Hedge Contracts will be placed with registered broker-dealers, futures commission merchants or clearing
houses, if applicable, with whom the Company has written, assignable agreements.
"Indebtedness" of any Person shall mean all items of indebtedness which, in accordance with GAAP, would be included
------------
in determining liabilities as shown on the liability side of a statement of condition of such Person as of the date as of which
indebtedness is to be determined, including, without limitation, all obligations for money borrowed and capitalized lease
obligations, and shall also include all indebtedness and liabilities of others assumed or guaranteed by such Person or in respect of
which such Person is secondarily or contingently liable (other than by endorsement of instruments in the course of collection)
whether by reason of any agreement to acquire such indebtedness or to supply or advance sums or otherwise.
"Investments" shall have the meaning given such term in Paragraph 10(g) of the Agreement.
-----------
"Lead Administrative Agent" shall mean RBC and any successors assuming the position of "Lead Administrative Agent"
-------------------------
under the Credit Documents.
"Lenders" shall mean, collectively and severally, the "Lenders" under (and as defined in the introductory paragraph
-------
of) the Agreement and such additional lenders who may become "Lenders" pursuant to Paragraph 14(a) of the Agreement.
"Lien" shall mean any security interest, mortgage, pledge, lien, claim, charge or encumbrance (including any
----
conditional sale or other title retention agreement), any lease in the nature thereof, and the filing of or agreement to give any
financing statement under the Uniform Commercial Code of any jurisdiction.
"Loan" shall mean, prior to the Conversion Date, a Primary Loan or a Swing Loan, as applicable, and, from and after
----
the Conversion Date, the Term Loan, and shall include any Buy-Down Rate Loan, and "Loans" shall mean all such loans, collectively and
-----
severally.
"Loan Request, Interest Rate Election and Payoff Notice" shall mean a written request, election and notice in form
------------------------------------------------------
satisfactory to the Lead Administrative Agent.
"Majority Lenders" shall mean at any date those Lenders holding not less than sixty-two percent (62%) of the Primary
----------------
Percentage Shares.
"Margins" shall mean the dollar amount shown as "Margins" on the most recent Covenant Compliance Certificate
-------
delivered by the Company pursuant to Paragraph 9(a)(3) of the Agreement and shall equal that dollar portion of "Other Receivables"
shown on the balance sheet of the Company as of the Applicable Financial Test Date delivered by the Company pursuant to Paragraph
9(a)(2) of the Agreement constituting margins (relating to cash and government securities with a maturity of less than one year).
"Maximum Commitment" shall mean for any Lender at any date: (a) to and including the Revolving Facility Maturity
------------------
Date, the maximum dollar portion of Primary Loans that such Lender has agreed to advance, and (b) from and after the Conversion Date,
the dollar amount of the Term Loan held by such Lender, in each case as set forth on the current Commitment Schedule, as such amount
may be increased, decreased or terminated as provided in the Credit Documents.
"Moody's" shall mean Moody's Investors Service, Inc.
-------
"Mortgage-Backed Security" shall mean a security (including, without limitation, a participation certificate)
------------------------
secured by or representing an undivided interest in a pool of Mortgage Loans each of which Mortgage Loans is secured by a completed
single family dwelling (one-to-four family units), which security is:
(a). Guaranteed by GNMA;
(b).Issued by FNMA or FHLMC; or
(c).Issued by any other Person provided that such security: (1) was subject to an effective registration statement
filed with the Securities and Exchange Commission at the time of initial issuance or was included in a senior tranche of
privately-placed securities, and (2) is rated by a recognized rating agency in a category that is not less than the rating assigned
to the Company's long term indebtedness.
"Mortgage Claims Receivable" shall mean that dollar amount shown as such on the balance sheet of the Company as of
--------------------------
the end of the calendar month immediately preceding the month in which "Mortgage Claims Receivable" is calculated.
"Mortgage Loan" shall mean a residential real estate secured loan, including, without limitation: (a) a promissory
-------------
note and related deed of trust (or mortgage) and/or security agreements; (b) all guaranties and insurance policies, including,
without limitation, all mortgage and title insurance policies and all fire and extended coverage insurance policies and rights of the
owner of such loan to return premiums or payments with respect thereto; and (c) all right, title and interest of the owner of such
loan in the property covered by said deed of trust (or mortgage).
"Mortgage Loans and MBS Held For Sale" shall mean that dollar amount shown as such on the balance sheet of the
------------------------------------
Company as of the end of the calendar month immediately preceding the month in which "Mortgage Loans and MBS Held For Sale" is
calculated.
"Mortgage Servicing Rights" shall mean the dollar amount shown as "Mortgage Servicing Rights" on the balance sheet
-------------------------
of the Company as of the Applicable Financial Test Date delivered by the Company pursuant to Paragraph 9(a)(2) of the Agreement.
"Multiemployer Plan" as to any Person shall mean a Plan of such Person which is a multiemployer plan as defined in
------------------
Section 4001(a)(3) of ERISA.
"Non-Extending Lender" shall have the meaning given such term in Paragraph 5(m)(1) of the Agreement.
--------------------
"Non-U.S. Lender" shall have the meaning given such term in Paragraph 4(h)(2) of the Agreement.
---------------
"Obligations" shall mean any and all debts, obligations and liabilities of the Company to the Lenders and the Agents
-----------
(whether now existing or hereafter arising, voluntary or involuntary, whether or not jointly owed with others, direct or indirect,
absolute or contingent, liquidated or unliquidated, and whether or not from time to time decreased or extinguished and later
increased, created or incurred), arising out of or related to the Credit Documents, and shall include in any event any and all
"Obligations" outstanding under (and as defined in) the Existing Credit Agreement on the Effective Date.
"Other Assets" shall mean the dollar amount shown as "Other Assets" on the most recent Covenant Compliance
------------
Certificate delivered by the Company pursuant to Paragraph 9(a)(3) of the Agreement and shall consist of all assets of the Company
shown on the balance sheet of the Company (including servicing hedge investments) as of the most recent Applicable Financial Test
Date delivered by the Company pursuant to Paragraph 9(a)(2) of the Agreement other than assets included in the calculation of
subparagraphs (1) through (7) of Paragraph 10(j) of the Agreement; provided, however, that in no event shall Other Assets include
intangible assets.
"Outstanding CPN" shall mean each CPN issued by the Company which has not been presented for payment and for which
---------------
payment has not been made in full.
"Parent" shall mean Countrywide Credit Industries, Inc., a Delaware corporation.
------
"Parent Notes" shall mean all promissory notes or other Indebtedness issued by the Parent pursuant to either of
------------
those certain Form S-3 Registration Statements filed on behalf of the Parent with the Securities and Exchange Commission on
January 20, 1988, and July 25, 1989, respectively, as the same may be amended, extended or supplemented from time to time.
"Participant" shall mean a Person to whom has been sold an undivided participation interest in the Obligations as
-----------
permitted under the Credit Documents.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA
----
and any successor agency.
"Person" shall mean any corporation, limited liability company, natural person, firm, joint venture, partnership,
------
trust, unincorporated organization, government or any department or agency of any government.
"Plan" shall mean as to any Person, any pension plan that is covered by Title IV of ERISA and in respect of which
----
such Person or a Commonly Controlled Entity of such Person is an "employer" as defined in Section 3(5) of ERISA.
"Pool Loan Purchases" shall mean that dollar amount shown as such on the balance sheet of the Company as of the end
-------------------
of the calendar month immediately preceding the month in which "Pool Loan Purchases" is calculated.
"Potential Default" shall mean an event which but for the lapse of time or the giving of notice, or both, would
-----------------
constitute an Event of Default.
"Primary Loan" shall have the meaning given such term in Paragraph 1(a) of the Agreement.
------------
"Primary Percentage Share" shall mean for each Lender at any date that percentage which the dollar amount of such
------------------------
Lender's Maximum Commitment bears to the Aggregate Credit Limit.
"Property and Equipment" shall mean the dollar amount shown as "Property, Equipment and Leasehold Improvements" on
----------------------
the balance sheet of the Company as of the Applicable Financial Test Date delivered by the Company pursuant to Paragraph 9(a)(2) of
the Agreement.
"Receivables" shall have the meaning given such term in Paragraph 10(g) of the Agreement.
-----------
"Regulation D" shall mean Regulation D of the Board of Governors of the Federal Reserve System from time to time in
------------
effect and shall include any successor or other regulation of said Board of Governors relating to reserve requirements applicable to
member banks of the Federal Reserve System.
"Regulation U" shall mean Regulation U of the Board of Governors of the Federal Reserve System (12 C.F.R.ss. 221), as
------------
the same may from time to time be amended, supplemented or superseded.
"Reportable Event" shall mean any of the events set forth in Section 4043(b) of ERISA.
----------------
"Requirements of Law" shall mean as to any Person the Certificate of Incorporation and By-Laws or other
-------------------
organizational or governing documents of such Person, and any law, treaty, rule or regulation, or a final and binding determination
of an arbitrator or a determination of a court or other Governmental Authority, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its property is subject.
"Reserve Requirement" shall mean, with respect to a Eurodollar Interest Period for a Eurodollar Loan, the maximum
-------------------
aggregate reserve requirement (including all basic, supplemental, marginal and other reserves and taking into account any
transitional adjustments) which is imposed under Regulation D on eurocurrency liabilities.
"Revolving Facility Maturity Date" shall mean April 10, 2002, as such date may be extended from time to time as
--------------------------------
provided in Paragraph 5(m) of the Agreement.
"S&P" shall mean Standard&Poor's Ratings Services.
---
"Servicing Pass-Through Venture" shall mean any corporation, partnership, joint venture, trust or other entity
------------------------------
legally separate from the Company and formed for the purpose of acquiring (either from the Company or from unaffiliated parties) the
right to service mortgage loans for a fee and selling or pledging all or any portion of the related servicing fee income to finance
all or part of the acquisition of such servicing rights.
"Single Employer Plan" shall mean as to any Person any Plan of such Person which is not a Multiemployer Plan.
--------------------
"Single Level Subordinated Parent Debt" shall mean Indebtedness of the Company to the Parent which although subject
-------------------------------------
to the Subordination Agreement (and therefore constituting Subordinated Debt) is not Double Level Subordinated Parent Debt.
"Statement Date" shall mean February 28, 2001.
--------------
"Subordinated Debt" shall mean Indebtedness of the Company subordinated to the Obligations in the manner and to the
-----------------
extent required by the Majority Lenders pursuant to written subordination agreements satisfactory in form and substance to the
Majority Lenders.
"Subordinated Parent Borrowings" shall mean Indebtedness of the Parent subordinated to other Indebtedness of the
------------------------------
Parent to the extent satisfactory to the Majority Lenders, it being expressly agreed and understood that Indebtedness of the Parent
under the Parent Notes does not constitute Subordinated Parent Borrowings.
"Subordination Agreement" shall mean a subordination agreement in the form of Exhibit E attached hereto, as the same
----------------------- ---------
may be amended, extended or replaced from time to time.
"Subsidiary" shall mean any corporation more than fifty percent (50%) of the stock of which having by the terms
----------
thereof ordinary voting power to vote for the election of directors, managers or trustees of such corporation (irrespective of
whether or not at the time stock of any other class or classes of such corporation shall have or might have voting power by reason of
the happening of any contingency) shall, at the time as of which any determination is being made, be owned, either directly and/or
through Subsidiaries.
"Swing Line Commitment" shall mean for any Swing Line Lender at any date the maximum dollar portion of Swing Loans
---------------------
that such Swing Line Lender has agreed to make, as set forth on the current Commitment Schedule, as such amount may be increased or
decreased as provided in the Credit Documents.
"Swing Line Lenders" shall mean at any date those Lenders holding a Swing Line Percentage Share as set forth on the
------------------
current Commitment Schedule.
"Swing Line Percentage Share" shall mean for each Swing Line Lender at any date that percentage which the dollar
---------------------------
amount of such Swing Line Lender's Swing Line Commitment bears to the Aggregate Swing Line Commitment.
"Swing Loans" shall have the meaning given such term in Paragraph 1(b) of the Agreement.
-----------
"Taxes" shall have the meaning given such term in Paragraph 4(k) of the Agreement.
-----
"Term Loan" shall have the meaning given such term in Paragraph 1(c) of the Agreement.
---------
"Total Debt" shall mean all Indebtedness of the Company and its Subsidiaries excluding Subordinated Debt (other than
----------
Single Level Subordinated Parent Debt) and deferred taxes of the Company attributable to capitalization of purchased servicing rights
and excess servicing fees.
"Transferee Lender" shall mean an existing Lender to which another existing Lender transfers a portion of its
-----------------
Aggregate Maximum Commitment.
"VA" shall mean the Veterans Administration and any successor agency.
--
la-469674
SCHEDULE OF EXHIBITS
TO GLOSSARY
EXHIBIT DESCRIPTION
------- -----------
A ....Form of Additional Lender Agreement
B ....Form of Assignment Agreement
C-1 .... Form of Covenant Compliance Certificate (Company)
C-2 .... Form of Covenant Compliance Certificate (Parent)
D ....Form of Parent Guaranty
E ....Form of Parent Subordination Agreement
SCHEDULE I: ....Commitment Schedule as of the Effective Date
----------
EXHIBIT A
---------
TO GLOSSARY
-----------
FORM OF
ADDITIONAL LENDER AGREEMENT
THIS ADDITIONAL LENDER AGREEMENT (the "AL Agreement") is made and dated as of ___________ __, 200_ by
______________________________ __________________________________________ (the "Applicant Financial Institution"), ROYAL BANK OF
CANADA, as "Lead Administrative Agent" under the Credit Agreement referred to in Recital A below (in such capacity, the "Lead
Administrative Agent"), and COUNTRYWIDE HOME LOANS, INC. (the "Company").
RECITALS
A...The Applicant Financial Institution desires to become a "Lender" under that certain Credit Agreement dated as of
April 11, 2001 (as amended, extended and restated from time to time, the "Credit Agreement" and with capitalized terms not otherwise
defined herein used with the same meaning as in the Credit Agreement), by and among the Lead Administrative Agent, the
Co-Administrative Agent, the Syndication Agent, the Documentation Agent, the Arranger, the Co-Arrangers, the Co-Agents, the Lenders
currently participating therein (the "Existing Lenders") and the Company.
B...The Applicant Financial Institution has been approved for inclusion as a Lender under the terms of the Credit
Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the
parties agree as follows:
AGREEMENT
---------
1...The Applicant Financial Institution hereby acknowledges and agrees that from and after the Adjustment Date it
will be a "Lender" under the Credit Agreement and the other Credit Documents with all the rights and benefits and with all the
obligations of the Existing Lenders thereunder.
2...The Applicant Financial Institution hereby agrees to purchase on the Adjustment Date and to accept the
assignment and transfer of a portion of the Obligations held by the Existing Lenders consistent with the Commitment Schedule
delivered by the Company effective as of the Adjustment Date, a copy of which is attached hereto.
3...The address of the Applicant Financial Institution for purposes of the Credit Agreement shall initially be as
set forth beneath its signature below and shall upon the Adjustment Date be deemed added to Annex II to the Credit Agreement.
4...This AL Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of
California.
5...This AL Agreement may be executed in counterparts and such counterparts together shall constitute one and the
same agreement.
6...This AL Agreement, when executed by each of the parties hereto shall constitute an amendment of the Credit
Agreement consistent with the Commitment Schedule referred to in Paragraph 2 above.
7...As provided in Paragraph 14(a) of the Credit Agreement, on or before the Adjustment Date the Applicant Financial
Institution shall pay to the Lead Administrative Agent a registration fee of $3,500.00.
EXECUTED as of the day and year first above written.
APPLICANT FINANCIAL
INSTITUTION: [ Name ]
---------------------------------------------------------
By: __________________________________________________________
Title: _______________________________________________________
Address: _____________________________________________________
===================================================================================================================
Attn: ________________________________________________________
LEAD ADMINISTRATIVE AGENT: ROYAL BANK OF CANADA
By: __________________________________________________________
Title: _______________________________________________________
COMPANY: COUNTRYWIDE HOME LOANS, INC.,
a New York corporation
By: __________________________________________________________
Title: _______________________________________________________
la-469674
EXHIBIT B
---------
TO GLOSSARY
-----------
FORM OF
ASSIGNMENT AGREEMENT
THIS ASSIGNMENT AGREEMENT (the "Assignment Agreement") is made and dated as of _____________, 200_ between ____________________ (the
"Assignor") and ______________________ (the "Assignee"). The parties hereto agree as follows:
1. The Assignor is a Lender under that certain Credit Agreement dated as of April 11, 2001 (as amended, extended and restated from
time to time, the "Credit Agreement," and with capitalized terms used herein and not otherwise defined herein used with the same
meanings attributed to them in the Credit Agreement).
2. The Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, a portion
of the Obligations held by the Assignor consistent with the Commitment Schedule delivered by the Company effective as of the
Adjustment Date, a copy of which is attached hereto as Schedule I.
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3. By executing this Assignment Agreement in the space provided below, the Company and the Lead Administrative Agent approve the
inclusion of the Assignee as a Lender under the Credit Agreement and agree with the Assignor and the Assignee that the Adjustment
Date therefor shall be _______________, 200_.
4. On and after the Adjustment Date: (a) the Assignee shall have the rights and obligations of a Lender under the Credit Agreement
and the other Credit Documents with respect to the rights and obligations assigned to the Assignee hereunder arising on and after
such Adjustment Date, and (b) the Assignor shall relinquish its rights (other than under Paragraphs 4(g), 4(h) and 9(g) of the Credit
Agreement) and be released from its corresponding obligations under the Credit Agreement and the other Credit Documents with respect
to the rights and obligations assigned to Assignee hereunder arising prior to such Adjustment Date.
5. The Assignee shall be entitled to receive from the Lead Administrative Agent all payments of principal, interest and fees with
respect to the interest assigned hereby accruing on and after the Adjustment Date. In the event that either the Assignee or the
Assignor receives any payment to which the other party hereto is entitled under this Assignment Agreement, then the party receiving
such amount shall promptly remit it to the other party hereto.
6. The Assignor represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and
that such interest is free and clear of any adverse claim. It is understood and agreed that the assignment and assumption hereunder
are made without recourse to the Assignor and that the Assignor makes no other representation or warranty of any kind to the
Assignee. Neither the Assignor nor any of its officers, directors, employees, agents or attorneys shall be responsible for: (a) the
due execution, legality, validity, enforceability, genuineness, sufficiency or collectability of any Credit Documents, (b) any
representation, warranty or statement made in or in connection with any of the Credit Documents, (c) the financial condition or
creditworthiness of the Company or the Parent, (d) the performance of or compliance with any of the terms or provisions of any of the
Credit Documents, (e) inspecting any of the property, books or records of the Company or the Parent, (f) the validity,
enforceability, perfection, priority, condition, value or sufficiency of any collateral securing or purporting to secure the
Obligations or (g) any mistake, error of judgment, or action taken or omitted to be taken in connection with the Credit Documents.
7. The Assignee: (a) confirms that it has received a copy of the Credit Documents, together with copies of any financial statements
requested by the Assignee and such other documents and information as it has deemed appropriate to make its own credit analysis and
decision to enter into this Assignment Agreement, (b) agrees that it will, independently and without reliance upon the Lead
Administrative Agent, any other Agent, the Assignor or any other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Documents, (c)
appoints and authorizes each Agent to take such actions as agent on its behalf and to exercise such powers under the Credit Documents
as are delegated to such Agent by the terms thereof on the terms set forth therein, including, without limitation, the terms set
forth in Paragraph 12 of the Credit Agreement entitled "Agency Provisions," (d) agrees that on and after the Adjustment Date it will
perform in accordance with their terms all of the obligations which by the terms of the Credit Documents are required to be performed
by it as a Lender, and (e) agrees that its payment instructions and notice instructions are as set forth in Schedule II attached
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hereto.
8. The Assignee agrees to indemnify and hold harmless the Assignor against any and all losses, costs and expenses (including, without
limitation, reasonable attorneys' fees) and liabilities incurred by the Assignor in connection with or arising in any manner from the
Assignee's non-performance of the obligations assumed under this Assignment Agreement.
9. This Assignment Agreement embodies the entire agreement and understanding between the parties hereto and supersedes all prior
agreements and understandings between the parties hereto relating to the subject matter hereof.
10. This Assignment Agreement shall be deemed to be a contract made under the laws of the State of California and for all purposes
shall be construed in accordance with the laws of said State, without regard to principles of conflicts of law.
11. Notices shall be given under this Assignment Agreement in the manner set forth in the Credit Agreement. For the purpose hereof
and of the Credit Documents, the address of the Assignee (until notice of a change is delivered pursuant to the provisions of the
Credit Agreement) shall be the address set forth beneath the Assignee's signature below.
12. As provided in Paragraph 14(a) of the Credit Agreement, on or before the Adjustment Date the Assignee shall pay to the Lead
Administrative Agent a registration fee of $3,500.00.
IN WITNESS WHEREOF, the parties hereto have executed this Assignment Agreement by their duly authorized officers as of the
date first above written.
[NAME OF ASSIGNOR]
By: _________________________________________________
Title: ______________________________________________
[NAME OF ASSIGNEE]
By: _________________________________________________
Title: ______________________________________________
Address:_____________________________________________
==========================================================================================================
Attn:____________________________________
ACKNOWLEDGED AND AGREED TO
this __ day of _____________, 200_:
ROYAL BANK OF CANADA, as Lead Administrative Agent
By:__________________________________________________
Title:_______________________________________________
COUNTRYWIDE HOME LOANS, INC., a New York corporation
By:__________________________________________________
Title:_______________________________________________
la-469674
EXHIBIT D
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TO GLOSSARY
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FORM OF
GUARANTY
____THIS GUARANTY (the "Guaranty") is made and dated as of the 11th day of April, 2001 by COUNTRYWIDE CREDIT INDUSTRIES, INC., a
Delaware corporation ("Guarantor").
RECITALS
____A. Pursuant to that certain Credit Agreement dated as of April 12, 2000 among COUNTRYWIDE HOME LOANS, INC., a New York
corporation ("Borrower"), the lenders named therein, Royal Bank of Canada, as Lead Administrative Agent, and others (as amended and
extended to date, the "Existing Credit Agreement") the lenders party thereto agreed to extend credit to Borrower, on the terms and
subject to the conditions set forth therein, including, without limitation, that the Guarantor execute and deliver that certain
Guaranty dated concurrently with the Existing Credit Agreement (the "Existing Guaranty").
____B. The Existing Credit Agreement is being amended and replaced and superseded in its entirety pursuant to that certain Credit
Agreement dated concurrently herewith (as amended, extended and replaced in the future, the "Credit Agreement"), by and among the
Borrower, Royal Bank of Canada, as Lead Administrative Agent, the Co-Administrative Agent, the Syndication Agent, the Documentation
Agent, the Arranger, the Co-Arrangers, the Co-Agents and the Lenders participating therein (with capitalized terms not otherwise
defined herein used as defined in the Glossary attached to the Credit Agreement as Annex I).
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____C. As a condition precedent to the effectiveness of the Credit Agreement and the other Credit Documents, the Guarantor is
required to execute and deliver to the Lead Administrative Agent for the benefit of the Lenders this Guaranty in replacement of and
substitution for the Existing Guaranty.
____NOW, THEREFORE, in consideration of the above Recitals and for other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, Guarantor hereby agrees as follows:
AGREEMENT
____1. Guarantor hereby irrevocably and unconditionally guarantees the payment when due, upon maturity, acceleration or otherwise,
of the Obligations, whether heretofore, now, or hereafter made, incurred or created, whether voluntary or involuntary and however
arising, absolute or contingent, liquidated or unliquidated, determined or undetermined, whether or not such Obligations are from
time to time reduced, or extinguished and thereafter increased or incurred, whether Borrower may be liable individually or jointly
with others, whether or not recovery upon such Obligations may be or hereafter become barred by any statute of limitations, and
whether or not such Obligations may be or hereafter become otherwise invalid or unenforceable.
____2. Guarantor irrevocably and unconditionally guarantees the payment of the Obligations whether or not due or payable by
Borrower upon: (a) the dissolution, insolvency or business failure of, or any assignment for the benefit of creditors by, or
commencement of any bankruptcy, reorganization, arrangement, moratorium or other debtor relief proceedings by or against, Borrower or
Guarantor, or (b) the appointment of a receiver for, or the attachment, restraint of or making or levying of any order of court or
legal process affecting, the property of Borrower or Guarantor, and unconditionally promises to pay such Obligations to the Lead
Administrative Agent for the benefit of Lenders, or order, on demand, in lawful money of the United States.
____3. The liability of Guarantor hereunder is exclusive and independent of any security for or other guaranty of the Obligations,
whether executed by Guarantor or by any other party, and the liability of Guarantor hereunder is not affected or impaired by (a) any
direction of application of payment by Borrower or by any other party, or (b) any other guaranty, undertaking or maximum liability of
Guarantor or of any other party as to the Obligations, or (c) any payment on or in reduction of any such other guaranty or
undertaking, or (d) any revocation or release of any obligations of any other guarantor of the Obligations, or (e) any dissolution,
termination or increase, decrease or change in personnel of Guarantor, or (f) any payment made to Lenders or the Lead Administrative
Agent on the Obligations which any of such Persons repay to Borrower pursuant to court order in any bankruptcy, reorganization,
arrangement, moratorium or other debtor relief proceeding, and Guarantor waives any right to the deferral or modification of
Guarantor's obligations hereunder by reason of any such proceeding.
____4. (a) The obligations of Guarantor hereunder are independent of the Obligations of Borrower, and a separate action or actions
may be brought and prosecuted against Guarantor whether or not action is brought against Borrower and whether or not Borrower is
joined in any such action or actions. Guarantor waives, to the fullest extent permitted by law, the benefit of any statute of
limitations affecting its liability hereunder or the enforcement thereof. Any payment by Borrower or other circumstance which
operates to toll any statute of limitations as to Borrower shall operate to toll the statute of limitations as to Guarantor.
____ (b) All payments made by Guarantor under this Guaranty shall be made without set-off or counterclaim and free and clear of
and without deductions for any present or future taxes, fees, withholdings or conditions of any nature ("Taxes"). Guarantor shall
pay any such Taxes, including Taxes on any amounts so paid, and will promptly furnish each Lender with copies of any tax receipts or
such other evidence of payment as Lenders or the Lead Administrative Agent may require.
____5. Guarantor authorizes Lenders and the Lead Administrative Agent (whether or not after termination of this Guaranty), without
notice or demand (except as shall be required by applicable statute and cannot be waived), and without affecting or impairing its
liability hereunder, from time to time to (a) renew, compromise, extend, increase, accelerate or otherwise change the time for
payment of, or otherwise change the terms of, Obligations or any part thereof, including increase or decrease of the rate of interest
thereon; (b) take and hold security for the payment of this Guaranty or the Obligations and exchange, enforce, waive and release any
such security; (c) apply such security and direct the order or manner of sale thereof as Lenders and the Lead Administrative Agent in
their discretion may determine; and (d) release or substitute any one or more endorsers, guarantors, Borrower or other obligors.
Lenders and the Lead Administrative Agent may without notice to or the further consent of Borrower or Guarantor assign this Guaranty
in whole or in part to any person acquiring an interest in the Obligations.
____6. It is not necessary for Lenders or the Lead Administrative Agent to inquire into the capacity or power of Borrower or the
officers acting or purporting to act on its behalf, and Obligations made or created in reliance upon the professed exercise of such
powers shall be guaranteed hereunder.
____7. Guarantor waives any right to require Lenders or the Lead Administrative Agent to (a) proceed against Borrower or any other
party; (b) proceed against or exhaust any security held from Borrower; or (c) pursue any other remedy in Lenders' power whatsoever.
Guarantor waives any personal defense based on or arising out of any personal defense of Borrower other than payment in full of the
Obligations, including, without limitation, any defense based on or arising out of the disability of Borrower, or the invalidity or
unenforceability of the Obligations or any part thereof from any cause, or the cessation from any cause of the liability of Borrower
other than payment in full of the Obligations. Lenders and the Lead Administrative Agent may, at their election, exercise any right
or remedy Lenders or the Lead Administrative Agent may have against Borrower, or any security, without affecting or impairing in any
way the liability of Guarantor hereunder except to the extent the Obligations have been paid. Guarantor waives any defense arising
out of any such election, even though such election operates to impair or extinguish any right of reimbursement or subrogation or
other right or remedy of Guarantor against Borrower or any security. Guarantor hereby waives any claim or other rights which
Guarantor may now have or may hereafter acquire against the Borrower or any other guarantor of all or any of the Obligations that
arise from the existence or performance of the Guarantor's obligations under this Guaranty or any other of the Credit Documents (all
such claims and rights being referred to as the "Guarantor's Conditional Rights"), including, without limitation, any right of
subrogation, reimbursement, exoneration, contribution, or indemnification, or any right to participate in any claim or remedy which
the Lenders or the Lead Administrative Agent have against the Borrower or any collateral which the Lenders or the Lead Administrative
Agent have or thereafter acquire for the Obligations, whether or not such claim, remedy or right arises in equity or under contract,
statute or common law, by any payment made hereunder or otherwise, including, without limitation, the right to take or receive from
the Borrower, directly or indirectly, in cash or other property or setoff or in any other manner, payment or security on account of
such claim or other rights. If, notwithstanding the foregoing provisions, any amount shall be paid to the Guarantor on account of
the Guarantor's Conditional Rights and either (a) such amount is paid to the Guarantor at any time when the Obligations shall not
have been paid or performed in full, or (b) regardless of when such amount is paid to the Guarantor any payment made by Borrower to
the Lenders or the Lead Administrative Agent is at any time determined to be a preferential payment, then such amount paid to the
Guarantor shall be deemed to be held in trust for the benefit of the Lenders or the Lead Administrative Agent and shall forthwith be
paid to the Lenders or the Lead Administrative Agent to be credited and applied upon the Obligations, whether matured or unmatured,
in such order and manner as the Lenders or the Lead Administrative Agent shall determine. To the extent that any of the provisions
of this Paragraph shall not be enforceable, the Guarantor agrees that until such time as the Obligations have been paid and performed
in full and the period of time has expired during which any payment made by the Borrower or the Guarantor to the Lenders or the Lead
Administrative Agent may be determined to be a preferential payment, the Guarantor's Conditional Rights to the extent not validly
waived shall be subordinate to the Lenders' or the Lead Administrative Agent's right to full payment and performance of the
Obligations and the Guarantor shall not seek to enforce the Guarantor's Conditional Rights during such period. Guarantor waives all
presentments, demands for performance, protests and notices, including, without limitation, notices of nonperformance, notices of
protest, notices of dishonor, notices of acceptance of this Guaranty, and notices of the existence, creation or incurring of new or
additional Obligations. Guarantor assumes all responsibility for being and keeping itself informed of Borrower's financial condition
and assets, and of all other circumstances bearing upon the risk of nonpayment of the Obligations and the nature, scope and extent of
the risks which Guarantor assumes and incurs hereunder, and agrees that neither Lenders nor the Lead Administrative Agent shall have
any duty to advise Guarantor of information known to any of them regarding such circumstances or risks.
____8. In addition to the Obligations, Guarantor agrees to pay reasonable attorneys' fees and all other costs and expenses
incurred by Lenders and the Lead Administrative Agent in enforcing this Guaranty in any action or proceeding arising out of, or
relating to, this Guaranty. This Guaranty and the liability and obligations of Guarantor hereunder are binding upon Guarantor and
its successors and assigns, and this Guaranty inures to the benefit of and is enforceable by Lenders and the Lead Administrative
Agent and their successors, transferees, and assigns.
____9. No right or power of Lenders or the Lead Administrative Agent hereunder shall be deemed to have been waived by any act or
conduct on the part of such Persons, or by any neglect to exercise such right or power, or by any delay in so doing; and every right
or power shall continue in full force and effect until specifically waived or released by an instrument in writing executed by
Lenders and the Lead Administrative Agent.
____10.Guarantor agrees to execute any and all further documents, instruments and agreements as the Lead Administrative Agent from
time to time reasonably requests to evidence Guarantor's obligations hereunder.
____11.Guarantor hereby represents and warrants and agrees that:
____ (a) Guarantor: (1) is duly organized, validly existing and in good standing as a corporation under the laws of the state
of its incorporation and is in good standing as a foreign corporation in each jurisdiction where its ownership of property or conduct
of business requires such qualification and where failure to so be in good standing could have a material adverse effect on Borrower
or its property and/or business or on Guarantor's ability to pay or perform the Obligations or its obligations hereunder, (2) has the
corporate power and authority and the legal right to own and operate its property and to conduct business in the manner in which it
does and proposes so to do, (3) is in compliance with all Requirements of Law and Contractual Obligations to the extent that failure
to comply could have a material adverse effect on Guarantor or its property and/or business or on the ability to pay or perform the
Obligations or its obligations hereunder, and (4) has reviewed and approved the Credit Documents.
____ (b) Guarantor has the corporate power and authority and the legal right to execute, deliver and perform the Credit
Documents to which it is a party and has taken all necessary corporate action to authorize the execution, delivery and performance of
such Credit Documents. The Credit Documents to which Guarantor is a party have been duly executed and delivered on behalf of
Guarantor and constitute legal, valid and binding obligations of Guarantor enforceable against Guarantor in accordance with their
respective terms.
____ (c) The execution, delivery and performance by Guarantor of the Credit Documents to which Guarantor is a party will not
violate any Requirement of Law or any Contractual Obligation of Guarantor to the extent that failure to comply could have a material
adverse effect on Guarantor or its property and/or business or on the ability to pay or perform the Obligations or its obligations
hereunder.
____ (d) Guarantor shall not permit its consolidated net worth determined in accordance with GAAP on and as of each Applicable
Financial Test Date to be less than $1,300,000,000.00; and
____ (e) Guarantor will not declare or pay any dividends upon any shares of Guarantor's stock now or hereafter outstanding,
except dividends payable in the capital stock or stock rights of Guarantor, or make any distribution of assets to its stockholders
including, without limitation, pursuant to any stock repurchase, whether in cash, property or securities; provided, however, that if
at the date of such payment or distribution (both before and after giving effect thereto) there shall not exist an Event of Default
or Potential Default, Guarantor may pay dividends and make other distributions not later than 120 days after the end of any fiscal
quarter or year, as applicable, in an aggregate amount which does not exceed, when combined with all prior dividends and other
distributions, if any, applicable to such fiscal year to date, the greater of: (i) the after tax net income of Guarantor determined
in accordance with GAAP for such fiscal year to the date of the most recently ended fiscal quarter of such fiscal year, and (ii) the
aggregate dollar amount of dividends and other distributions paid during the immediately preceding year.
____12.This Guaranty shall be deemed to be made under and shall be governed by the laws of the State of California.
____13.If any of the provisions of this Guaranty shall contravene or be held invalid under the laws of any jurisdiction, this
Guaranty shall be construed as if not containing those provisions and the rights and obligations of the parties hereto shall be
construed and enforced accordingly.
14..GUARANTOR HEREBY WAIVES ITS RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF OR RELATED TO THIS GUARANTY, THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY IN ANY ACTION,
PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST GUARANTOR OR ANY OTHER PARTY, WHETHER WITH RESPECT
TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. GUARANTOR HEREBY AGREES THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A
COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, GUARANTOR FURTHER AGREES THAT ITS RIGHT TO A TRIAL BY JURY IS WAIVED BY
OPERATION OF THIS PARAGRAPH 14 AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE
VALIDITY OR ENFORCEABILITY OF THIS GUARANTY OR ANY OTHER CREDIT DOCUMENT OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY
TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY AND THE OTHER CREDIT DOCUMENTS.
____Executed as of the day and year first above written.
COUNTRYWIDE CREDIT INDUSTRIES, INC.,
a Delaware corporation
By: _______________________________________________________
Title:_________________________________________________
Address: 4500 Park Granada
Calabasas, California 91302
Attn: Stanford L. Kurland
la-469674
EXHIBIT E
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TO GLOSSARY
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FORM OF
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT is made and dated as of the 11th day of April, 2001 by and among ROYAL BANK OF CANADA,
as lead administrative agent for the "Lenders" from time to time party to the Credit Agreement referred to below (in such capacity,
the "Lead Administrative Agent"), COUNTRYWIDE HOME LOANS, INC., a New York corporation ("Borrower"), and COUNTRYWIDE CREDIT
INDUSTRIES, INC., a Delaware corporation ("Creditor").
RECITALS
Pursuant to that certain Credit Agreement dated as of April 11, 2001 (as amended, extended or replaced from time to
time, the "Credit Agreement"), Lenders have agreed to extend credit to Borrower on the terms and subject to the conditions set forth
therein, including, without limitation, the condition that Creditor execute and deliver to the Lead Administrative Agent for the
benefit of the Lenders: (a) a continuing guaranty of the Obligations of Borrower to Lenders under (and as the term "Obligations" and
capitalized terms not otherwise defined herein are defined in) the Glossary attached to the Credit Agreement as Annex I, and (b) this
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Subordination Agreement.
NOW, THEREFORE, in consideration of the above Recitals and for other good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows:
AGREEMENT
1...Creditor has extended and will in the future extend credit to Borrower from time to time. The principal of all
now existing and hereafter arising Indebtedness of Borrower to Creditor together with accrued but unpaid interest thereon is
hereinafter referred to as the "Claim".
2...Creditor is the sole and absolute owner of the Claim and has not sold, assigned, transferred or otherwise
disposed of any right it may have to repayment of the Claim or any security therefor.
3...The Claim and all rights and remedies of Creditor with respect thereto and any lien securing payment thereof are
and shall continue to be subject, subordinate and rendered junior in right of payment to the Obligations, as the same may be
extended, amended or replaced from time to time; provided, however, that unless and until there shall occur an Event of Default or
Potential Default under the Credit Agreement, Borrower may make and Creditor may receive payments on account of the Claim as
follows: (a) interest accruing on Double Level Subordinated Parent Debt at a per annum rate not to exceed ten percent (10%),
(b) interest accruing on the principal of all other Indebtedness at a per annum rate not to exceed the pre-default rate of interest
payable on account of Indebtedness of the Parent the proceeds of which were lent by the Parent to Borrower and constitute the
"Indebtedness" of Borrower to the Parent as to which such interest is being paid, and (c) principal outstanding on such
Indebtedness.
4...Unless and until the Obligations shall have been fully and indefeasibly paid and discharged in cash or cash
equivalents and any agreement by Lenders to make further Loans to Borrower or otherwise extend credit to Borrower pursuant to the
Credit Agreement shall have terminated, except as expressly permitted pursuant to Paragraph 3 above:
......................(a)Borrower will not make or give, and Creditor will not receive, directly or indirectly, any payment, advance,
credit or further security of any kind whatsoever on account of the Claim, or any new or further evidence thereof;
......................(b)Creditor will not sell, assign, transfer, dispose of or endorse the Claim or any part or evidence thereof;
......................(c)Creditor will pay to the Lead Administrative Agent for the pro rata benefit of Lenders in accordance with
their respective Primary Percentage Shares promptly upon receipt, for application against the Obligations, any and all amounts which
may be received by Creditor on account of the Claim in excess of amounts permitted under Paragraph 3 above and until such amounts are
paid to the Lead Administrative Agent the same shall be held in trust for the benefit of Lenders, segregated from other funds and
property held by Creditor; and
......................(d)Creditor will not take, or permit any action to be taken, to assert, collect or enforce the Claim or any part
thereof.
5...Each of Borrower and Creditor waives notice of acceptance of this Subordination Agreement by Lenders and the
Lead Administrative Agent, and Creditor waives notice of and consents to the making, amount and terms of any loan or loans which any
of Lenders or the Lead Administrative Agent may from time to time make to Borrower and any renewal or extension thereof and any
action which any of Lenders or the Lead Administrative Agent in their sole and absolute discretion may take or omit to take with
respect thereto.
6...This Subordination Agreement shall constitute a continuing agreement of subordination and Lenders and the Lead
Administrative Agent may, from time to time and without notice to Creditor, lend money to or make other financial arrangements with
Borrower in reliance hereon until written notice of termination shall be delivered by Creditor to the Lead Administrative Agent, by
certified mail, return receipt requested. The receipt by the Lead Administrative Agent of such notice shall not affect this
Subordination Agreement as it relates to any Obligations then existing, to any Obligations incurred thereafter pursuant to a previous
commitment by Lenders or the Lead Administrative Agent or to any amendments to, or extensions or renewals of, any such Obligations.
7...Each of Creditor and Borrower acknowledges that the failure of Creditor or Borrower to observe or perform the
terms and provisions hereof or the attempt by Creditor to rescind or revoke this Subordination Agreement shall constitute an Event of
Default under the Credit Agreement and may result in acceleration of the Obligations.
8...Creditor agrees as follows:
......................(a)Upon any distribution of the assets of Borrower to creditors of Borrower upon the dissolution, winding up,
liquidation, arrangement, or reorganization of Borrower, whether in any bankruptcy, insolvency, arrangement, reorganization or
receivership proceeding or upon an assignment for the benefit of creditors or any other marshalling of the assets and liabilities of
Borrower or otherwise, any payment or distribution of any kind (whether in cash, property or securities) which otherwise would be
payable or deliverable upon or with respect to the Claim shall be paid or delivered directly to the Lead Administrative Agent for the
benefit of Lenders for application (in the case of cash) to, or as collateral (in the case of non-cash property or securities) for,
the payment or prepayment of the Obligations until the Obligations shall have been paid in full.
......................(b)If any proceeding referred to in subsection (a) above is commenced by or against Borrower:
(1) Lenders and the Lead Administrative Agent are hereby irrevocably authorized and empowered
(in their own names or in the name of Creditor or otherwise), but shall have no obligation, to demand, sue for, collect and receive
every payment or distribution referred to in subsection (a) above and give acquittance therefor and to file claims and proofs of
claim and take such other action (including, without limitation, voting the Claim or enforcing any security interest or other lien
securing payment of the Claim) as they may deem necessary or advisable for the exercise or enforcement of any of the rights or
interests of Lenders hereunder; and
(2) Creditor shall duly and promptly take such action as Lenders and the Lead Administrative
Agent may request (i) to collect the Claim for account of Lenders and to file appropriate claims or proofs of claim in respect of the
Claim, (ii) to execute and deliver to Lenders and the Lead Administrative Agent such powers of attorney, assignments, and other
instruments as they may request in order to enable them to enforce any and all claims with respect to, and any security interests and
other liens securing payment of, the Claim, and (iii) to collect and receive any and all payments or distributions which may be
payable or deliverable upon or with respect to the Claim.
......................(c)All payments or distributions upon or with respect to the Claim which are received by Creditor contrary to
the provisions of this Subordination Agreement shall be received in trust for the benefit of Lenders, shall be segregated from other
funds and property held by Creditor and shall be forthwith paid over to Lenders, through the Lead Administrative Agent, in the same
form as so received (with any necessary indorsement) to be applied (in the case of cash) to, or held as collateral (in the case of
non-cash property or securities) for, the payment or prepayment of the Obligations.
......................(d)Lenders and the Lead Administrative Agent are hereby authorized to demand specific performance of this
Subordination Agreement, whether or not Borrower shall have complied with any or all of the provisions hereof applicable to it, at
any time when the Creditor shall have failed to comply with any of the provisions of this Subordination Agreement applicable to it.
9...It is the intent of Creditor to create by this Subordination Agreement a security interest in favor of the Lead
Administrative Agent for the benefit of Lenders in the Claim and in Creditor's rights to receive money or other property from
Borrower on account thereof, whether such rights shall constitute accounts, contract rights, chattel paper, instruments, general
intangibles or otherwise. Creditor hereby grants to the Lead Administrative Agent and Lenders a security interest in the Claim and
such rights of receipt in order to secure the payment and performance of the Creditor's obligations pursuant to this Subordination
Agreement.
10..Creditor authorizes Lenders and the Lead Administrative Agent (whether or not after revocation of this
Subordination Agreement), without notice or demand (except as shall be required by applicable statute and cannot be waived), and
without affecting or impairing Creditor's obligations hereunder, from time to time to (a) renew, compromise, extend, increase,
accelerate or otherwise change the time for payment of, or otherwise change the terms of, the Obligations or any part thereof,
including without limitation to increase or decrease the rate of interest thereon; (b) take and hold security for the payment of the
Obligations and exchange, enforce, waive and release any such security; (c) apply such security and direct the order or manner of
sale thereof as Lenders and the Lead Administrative Agent in their sole discretion may determine; and (d) release and substitute any
one or more endorsers, warrantors, Borrower or other obligors. Lenders and the Lead Administrative Agent may without notice to or
the further consent of Borrower or Creditor assign this Subordination Agreement in whole or in part to any Person acquiring an
interest in the Obligations.
11..This Subordination Agreement shall extend to and be binding upon the successors and assigns of each of the
parties hereto.
12..This Subordination Agreement may be executed in any number of counterparts all of which taken together shall
constitute one agreement and any party hereto may execute this Subordination Agreement by signing any such counterpart.
13..This Subordination Agreement shall be governed by and construed in accordance with the laws of the State of
California without giving effect to its choice of law rules.
14..EACH OF THE PARTIES HERETO WAIVES ITS RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF OR RELATED TO THIS SUBORDINATION AGREEMENT, THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY
OR THEREBY IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY, WHETHER
WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. EACH OF THE PARTIES HERETO AGREES THAT ANY SUCH CLAIM OR CAUSE OF ACTION
SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE
RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS PARAGRAPH 14 AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS,
IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS SUBORDINATION AGREEMENT OR ANY OTHER CREDIT DOCUMENT OR ANY
PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
SUBORDINATION AGREEMENT AND THE OTHER CREDIT DOCUMENTS.
Executed as of the day and year first above written.
COUNTRYWIDE CREDIT INDUSTRIES, INC., a Delaware corporation
By:
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Name:
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Title:
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COUNTRYWIDE HOME LOANS, INC.,
a New York corporation
By:
-------------------------------------------------
Name:
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Title:
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ROYAL BANK OF CANADA, as Lead Administrative Agent
By:
--------------------------------------------------
Name:
------------------------------------------------
Title:
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SCHEDULE I: COMMITMENT SCHEDULE
(As of April 11, 2001)
Aggregate Credit Limit: $1,000,000,000
Aggregate Swing Line Commitment: $200,000,000
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Institution Maximum Primary Percentage Swing Line Commitment Swing Line
--------------------- Share Percentate Share
Commitment
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Royal Bank $150,000,000 15.00% $50,000,000 25%
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
ABN AMRO $125,000,000 12.50% $50,000,000 25%
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Credit Lyonnais $100,000,000 10.00% $50,000,000 25%
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Commerzbank $100,000,000 10.00% $50,000,000 25%
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
BNP $100,000,000 10.00%
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Barclays $100,000,000 10.00%
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
West LB $100,000,000 10.00%
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Credit Suisse $100,000,000 10.00%
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Chase Manhattan $ 50,000,000 5.00%
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
JP Morgan $ 50,000,000 5.00%
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
BONY $ 25,000,000 2.50%
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Total: $1,000,000,000 100.00% $200,000,000 100.00%
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
2000 STOCK OPTION PLAN
OF
COUNTRYWIDE CREDIT INDUSTRIES, INC.
SECTION 1. PURPOSE OF PLAN
The purpose of this 2000 Stock Option Plan (this "Plan") of Countrywide Credit Industries, Inc., a Delaware corporation (the
"Company"), is to strengthen the Company by providing an incentive to its employees and directors and thereby encouraging them to
devote their abilities and industry to the success of the Company's business enterprise. It is intended that this purpose be achieved
by extending to employees and directors of the Company and the Subsidiaries (as defined below) an added long-term incentive for high
levels of performance and unusual efforts through the grant of Options to purchase shares of the Company's common stock under this
Plan.
SECTION 2. ADMINISTRATION OF PLAN
2.1 Composition of Committee. Subject to the formula grant provisions for Nonemployee Directors (as defined below) pursuant
to Section 6.8 of this Plan, this Plan shall be administered by a committee consisting of at least two (2) directors appointed by the
Board of Directors of the Company (the "Board") to administer the Plan and to perform functions set forth herein (the "Committee").
The Committee shall hold meetings at such times as may be necessary for the proper administration of the Plan. The Committee shall
keep minutes of its meetings. A quorum shall consist of not less than two (2) members of the Committee and a majority of a quorum may
authorize any action. Any decision or determination reduced to writing and signed by a majority of all of the members shall be fully
effective as if made by a majority vote at a meeting duly called and held. Each member of the Committee shall be a Disinterested
Director and an Outside Director. No member of the Committee shall be liable for any action, failure to act, determination or
interpretation made in good faith with respect to this Plan or any transaction hereunder, except for liability arising from his or
her own willful misfeasance, gross negligence or reckless disregard of his or her duties. The Company hereby agrees to indemnify each
member of the Committee for all costs and expenses and, to the extent permitted by applicable law, any liability incurred in
connection with defending against, responding to, negotiation for the settlement of or otherwise dealing with any claim, cause of
action or dispute of any kind arising in connection with any actions in administering this Plan or in authorizing or denying
authorization to any transaction hereunder. For purposes of this Plan, the term "Disinterested Director" means a director of the
Company who is "disinterested" within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the term "Outside Director" means a director of the Company who is an "outside director" within the meaning of Section
162(m) of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder (the "Code").
2.2 Powers of the Committee. Subject to the express provisions of this Plan and the formula grant provisions for Nonemployee
Directors under Section 6.8 of the Plan, the Committee shall be authorized and empowered to do all things necessary or desirable, in
its sole discretion, in connection with the administration of this Plan, including, without limitation, the following:
(a) to prescribe, amend and rescind rules and regulations relating to this Plan (including, but not limited to, correcting
any defect or supplying any omission or reconciling any inconsistency in the Plan or any Option Document (as defined below)) in
the manner and to the extent it shall be deemed necessary or advisable so that the Plan complies with applicable law including
Rule 16b-3 under the Exchange Act and the Code to the extent applicable and otherwise to make the Plan fully effective, and to
define terms not otherwise defined herein; provided that, unless the Committee shall specify otherwise, for purposes of this
Plan (i) the term "Fair Market Value" shall, on any date mean the average of the high and low sales prices of the Shares on such
date on the principal national securities exchange on which such Shares are listed or admitted to trading, or if such Shares are
not so listed or admitted to trading, the arithmetic mean of the per Share closing bid price and per Share closing asked price
on such date as quoted on the National Association of Securities Dealers Automated Quotation System or such other market in
which such prices are regularly quoted, or, if there have been no published bid or asked quotations with respect to Shares on
such date, the Fair Market Value shall be the value established by the Board in good faith and in accordance with Code Section
422; and (ii) the term "Company" shall mean the Company and its Subsidiaries (as such term is defined in Code Section 424(f))
and affiliates, unless the context otherwise requires;
(b) to determine which persons are Eligible Persons (as defined below), to which of such Eligible Persons, if any, Options
(as defined below) shall be granted hereunder, the number of Options granted, the timing of any such grants, and to make such
grants;
(c) to determine the number of Shares subject to Options and the exercise or purchase price of such Shares;
(d) to establish and verify the extent of satisfaction of any performance goals applicable to Options;
(e) to prescribe and amend the terms of the agreements or other documents evidencing Options made under this Plan (which
need not be identical);
(f) to determine whether, and the extent to which, adjustments are required pursuant to Section 8;
(g) to interpret and construe this Plan, any rules and regulations under this Plan and the terms and conditions of any
Option granted hereunder, and to make exceptions to any such provisions in good faith and for the benefit of the Company; and
(h) to make all other determinations deemed necessary or advisable for the administration of this Plan.
2.3 Determinations of the Committee. All decisions, determinations and interpretations by the Committee regarding this Plan
shall be final and binding on the Company and its Subsidiaries and all Eligible Persons and Participants (as defined below). The
Committee shall consider such factors as it deems relevant to making such decisions, determinations and interpretations including,
without limitation, the recommendations or advice of any director, officer or employee of the Company and such attorneys, consultants
and accountants as it may select.
SECTION 3. STOCK SUBJECT TO PLAN
3.1 Aggregate Limits. The aggregate number of shares of the Company's common stock, par value $.05 per share ("Shares"),
that may be made the subject of Options granted under this Plan is 5,500,000. The maximum number of shares subject to the Plan shall
be adjusted as provided in Section 8 of the Plan upon a change in the capital structure of the Company. The Company shall reserve for
the purpose of this Plan, out of its authorized but unissued Shares or out of Shares held in the Company's treasury, or partly out of
each, such number of Shares as shall be determined by the Board.
3.2 Tax-Code Limits. The aggregate number of Shares, subject to Options granted under this Plan during any calendar year to
any one Eligible Person shall not exceed 3,000,000. Notwithstanding anything to the contrary in this Plan, the foregoing limitations
shall be subject to adjustment under Section 8 only to the extent that such adjustment will not affect the status of any Option
intended to qualify as "performance-based compensation" under Code Section 162(m). The foregoing limitations shall not apply to the
extent that they are no longer required in order for compensation in connection with grants under this Plan to be treated as
"performance-based compensation" under Code Section 162(m).
3.3 Issuance of Shares. Whenever an outstanding Option or a portion thereof expires, is canceled or is otherwise terminated
for any reason (other than the surrender of the Option pursuant to Section 9 hereof), the Shares allocable to the expired, canceled
or otherwise terminated Option or portion thereof may again be the subject of an Option granted hereunder.
SECTION 4. PERSONS ELIGIBLE UNDER PLAN
Any employee of the Company or a Subsidiary designated by the Committee as eligible to receive Options subject to the conditions
set forth therein shall be eligible to receive a grant of an Option under this Plan (an "Eligible Person"). A "Ten-Percent
Stockholder" is an Eligible Person, who, at the time an Option intended to qualify as an incentive stock option under Section 422 of
the Code ("ISO") is granted to him or her, owns (within the meaning of Section 422(b)(6) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the Company, or of a parent or a subsidiary. For purposes
of the formula grant provisions under Section 6.8, an "Eligible Person" shall also include a director of the Company who is not an
employee (a "Nonemployee Director"). An "Optionee" is any current or former Eligible Person to whom an Option has been granted, and a
"Participant" is any Optionee and any person (including any estate) to whom an Option has been assigned or transferred pursuant to
Section 7.1.
SECTION 5. PLAN AWARDS
The Committee, on behalf of the Company, is authorized under this Plan to enter into certain types of arrangements with Eligible
Persons and to confer certain benefits on them. Options are authorized under this Plan if their terms and conditions are not
inconsistent with the provisions of this Plan. For purposes of this Plan an "Option" is a right granted under Section 6 of this Plan
to purchase a number of Shares at such exercise price, at such times, and on such other terms and conditions as are specified in the
agreement or other document evidencing the award (the "Option Document"). Options intended to qualify as ISOs and Options not
intended to qualify as ISOs ("Nonqualified Options") may be granted under Section 6. Options may be granted to Nonemployee Directors
only pursuant to Section 6.8.
SECTION 6. OPTIONS
The Committee may grant an Option or provide for the grant of an Option, either from time to time in the discretion of the
Committee or automatically upon the occurrence of specified events, including, without limitation, the achievement of performance
goals, the satisfaction of an event or condition within the control of the recipient of the grant or within the control of others.
6.1 Option Document. Each Option Document shall contain provisions regarding (a) the number of Shares that may be issued
upon exercise of the Option, (b) the purchase price of the Shares and the means of payment for the Shares, (c) the term of the
Option, (d) such terms and conditions of exercisability as may be determined from time to time by the Committee, (e) restrictions on
the transfer of the Option and forfeiture provisions and (f) such further terms and conditions, in each case not inconsistent with
this Plan as may be determined from time to time by the Committee. The Option Document may be amended at any time by the parties
thereto so long as the amended terms are not inconsistent with the Plan. Option Documents evidencing ISOs shall contain such terms
and conditions as may be necessary to qualify, to the extent determined desirable by the Committee, with the applicable provisions of
Code Section 422.
6.2 Option Price. The purchase price per share of the Shares subject to each Option granted under this Plan shall equal or
exceed one hundred percent (100%) of the Fair Market Value of such Stock on the date the Option is granted (one hundred ten percent
(110%) in the case of an ISO granted to a Ten-Percent Stockholder), except that (a) the exercise price of an Option may be higher or
lower in the case of Options granted to an employee of a company acquired by the Company in assumption and substitution of Options
held by such employee at the time such company is acquired, and (b) in the event an Eligible Person is required to pay or forego the
receipt of any cash amount in consideration of receipt of an Option, the exercise price plus such cash amount shall equal or exceed
one hundred percent (100%) of the fair market value of such Stock on the date the Option is granted.
6.3 Option Term. The "Term" of each Option granted under this Plan, including any ISOs, shall be for a period of years from
the date of its grant set forth in the Option Document, but in no event shall the Term of an Option extend beyond ten (10) years from
the date of grant (five (5) years in the case of an ISO granted to a Ten-Percent Stockholder). The Committee may, subsequent to the
granting of any Option, extend the term thereof but in no event shall the term as so extended exceed the maximum term provided for in
the preceding sentence.
6.4 Option Vesting. Subject to Section 9 hereof, Options granted under this Plan shall be exercisable at such time and in
such installments during the period prior to the expiration of the Option's Term as determined by the Committee. The Committee shall
have the right to make the timing of the ability to exercise any Option granted under this Plan subject to such performance
requirements as deemed appropriate by the Committee. At any time after the grant of an Option the Committee may reduce or eliminate
any restrictions surrounding any Participant's right to exercise all or part of the Option.
6.5 Termination of Employment or Service. Unless otherwise provided in an Option Document, an Option shall terminate upon or
following an Optionee's termination of employment with the Company and its Subsidiaries and service as a Nonemployee Director of the
Company and its Subsidiaries as follows:
(a) In the event an Optionee's employment as an employee, if any, and service as a Nonemployee Director, if any, terminate
for any reason other than death, Disability, Cause or Retirement (as such terms are hereinafter defined), the Optionee may at
any time within three (3) months after his or her termination of employment exercise an Option to the extent, and only to the
extent, the Option or portion thereof was exercisable at the date of such termination.
(b) In the event the Optionee's employment as an employee, if any, and service as a Nonemployee Director, if any, terminate
as a result of Disability, the Optionee may at any time within one (1) year after such termination exercise such Option to the
extent, and only to the extent, the Option or portion thereof was exercisable on the date of termination.
(c) In the event an Optionee's employment as an employee, if any, and service as a Nonemployee Director, if any, terminate
for Cause, the Option shall terminate immediately and no rights thereunder may be exercised.
(d) In the event an Optionee dies while a Nonemployee Director or an employee of the Company or any Subsidiary or within
three (3) months after termination as described in clause (a) above of this Section 6.5 or within one (1) year after termination
as a result of Disability as described in clause (b) above of this Section 6.5 or Retirement as described in clause (e) below of
this Section 6.5, the Option may be exercised at any time within one (1) year after the Optionee's death by the person or
persons to whom the Optionee's rights pass by transfer or designation, as the case may be, pursuant to Section 7 of the Plan,
or, absent such a transfer or designation, as the case may be, by the person or persons to whom such rights under the Option
shall pass by will or the laws of descent and distribution; provided however, that an Option may be exercised to the extent, and
only to the extent, that the Option or portion thereof was exercisable on the date of death or earlier termination.
(e) In the event an Optionee's employment terminates as a result of Retirement, and he or she does not thereafter serve as
a Nonemployee Director, then the Optionee may at any time within one (1) year after termination of service by reason of
Retirement, exercise such Options to the extent, and only to the extent, the Options or portion thereof were exercisable at the
date of such termination.
For purposes of this Section 6.5, the terms Cause, Disability, and Retirement shall have the following meanings: "Cause" means
(1) any act of (A) fraud or intentional misrepresentation, or (B) embezzlement, misappropriation or conversion of assets or
opportunities of the Company or any direct or indirect majority-owned subsidiary of the Company, or (2) willful violation of any law,
rule or regulation in connection with the performance of an Optionee's duties (other than traffic violations or similar offenses).
"Disability" means a physical or mental infirmity that impairs the Optionee's ability to perform substantially his or her duties for a
period of one hundred eighty (180) consecutive days. "Retirement" shall mean the attainment of "Early Retirement Age" or "Normal
Retirement Age" as these terms are defined in the Countrywide Credit Industries, Inc. Defined Benefit Pension Plan.
Notwithstanding the foregoing, (1) in no event may any Option be exercised by anyone after the expiration of the term of the
Option and (2) a termination of service as a Nonemployee Director shall not be deemed to occur so long as the director continues to
serve the Company as a director emeritus.
In the event of the death of any Optionee under this Plan, the term "Optionee" shall thereafter be deemed to refer to the
transferees under Section 7.1 hereof or the beneficiary or beneficiaries designated pursuant to Section 7.2 hereof, or, if no such
transfer or designation is in effect, the person to whom the Optionee's rights pass by will or applicable law, or, if no such person
has such right, then the executor or administrator of the estate of such Optionee.
6.6 Payment of Exercise Price. The exercise price of an Option shall be paid in the form of one or more of the following, as
the Committee shall specify, either through the terms of the Option Document or at the time of exercise of an Option: (a) personal,
certified or cashier's check, (b) shares of capital stock of the Company that have been held by the Participant for such period of
time as the Committee may specify, (c) other property deemed acceptable by the Committee, or (d) any combination of (a) through (c).
Any Shares transferred to the Company as payment of the purchase price under an Option shall be valued at their Fair Market Value on
the day preceding the date of exercise of such Option. If requested by the Committee, the Optionee shall deliver the Option Document
to the Secretary of the Company who shall endorse thereon a notation of such exercise and return such Option Document to the
Optionee. No fractional Shares (or cash in lieu thereof) shall be issued upon exercise of an Option and the number of Shares that may
be purchased upon exercise shall be rounded to the nearest number of whole Shares.
6.7 Repricing. Without the approval of stockholders, the Company shall not reprice any Options. For purposes of this Plan,
the term "reprice" shall mean lowering the exercise price of previously awarded Options within the meaning of Item 402(i) under
Securities and Exchange Commission Regulation S-K (including canceling previously awarded Options and regranting them with a lower
exercise price).
6.8 Nonemployee Director Options.
(a) Grant. On the first business day of June of each year that the Plan is in effect, each Nonemployee Director shall
automatically be granted a Nonqualified Option (a "Nonemployee Director Option") to purchase Shares under the Plan. The number
of Shares and the purchase price shall be as provided in Section 6.8(b) below. The Term of a Nonemployee Director Option granted
under this Plan shall be ten (10) years from the date of its grant. Subject to Section 9.2 hereof, Nonemployee Director Options
shall be fully exercisable in whole or in part at any time after one (1) year from the date of grant of the Nonemployee Director
Option; provided, however, that all Nonemployee Director Options shall be immediately exercisable in whole or part in the case
of such Nonemployee Director's death. If, on any date upon which Nonemployee Director Options are to be granted pursuant to this
Section 6.8, the number of Shares remaining available for Options under this Plan is insufficient for the grant to each
Nonemployee Director of a Nonemployee Director Option to purchase the entire number of Shares specified in this Section 6.8,
then a Nonemployee Director Option to purchase a proportionate amount of such available number of Shares (rounded to the nearest
whole share) shall be granted to each Nonemployee Director on such date. Notwithstanding the foregoing provisions of this
Section 6.8, no Nonemployee Director Option shall be granted in any year to a Nonemployee Director who makes a written election
not to receive such Nonemployee Director Option under the Plan; provided that such election is filed with the Secretary of the
Company at least one business day prior to the date such grant would otherwise be made under the Plan; provided further that an
election made pursuant to this sentence shall remain effective until the next business day following the date a written notice
revoking such election is made and filed with the Secretary of the Company. A Nonemployee Director who makes an election not to
receive a Nonemployee Director Option will not receive anything from the Company in lieu thereof.
(b) Number of Shares. Each Nonemployee Director Option granted shall be in respect of a number of Shares equal to 15,000
multiplied by a fraction, the numerator of which is the earnings per Share on a fully diluted basis of the Company for the
fiscal year of the Company ended immediately before the date of grant of the Nonemployee Director Option (as reported in the
audited Financial Statements included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission ("SEC"), but in no event less than zero) (the "EPS Numerator Amount") and the denominator of which is the earnings
per Share on a fully diluted basis of the Company for the fiscal year immediately preceding the fiscal year in respect of which
the EPS Numerator Amount is determined; provided, however, that each Nonemployee Director Option granted shall be in respect of
a number of Shares not less than 15,000. The number 15,000 referred to in the previous sentence shall be equitably adjusted in
the event of a change in capital structure of the Company.
6.9 Rights of Optionee. No Optionee shall be deemed for any purpose to be the owner of any Shares subject to any Option
unless and until (1) the Option shall have been exercised pursuant to the terms thereof, (2) the Company shall have issued and
delivered the Shares to the Optionee and (3) the Optionee's name shall have been entered as a stockholder of record on the books of
the Company. Thereupon, the Optionee shall have full voting, dividend and other ownership rights with respect to such Shares.
SECTION 7. OTHER PROVISIONS APPLICABLE TO OPTIONS
7.1 Transferability. Unless the Option Document (or an amendment thereto authorized by the Committee) expressly states that
the Option is transferable as provided hereunder, no Option granted under this Plan, nor any interest in such Option, may be sold,
assigned, conveyed, gifted, pledged, hypothecated or otherwise transferred in any manner prior to the vesting or lapse of any and all
restrictions applicable thereto, other than pursuant to the beneficiary designation form described in Section 7.2 hereof or by will
or the laws of descent and distribution. With respect to an Option that is not intended to qualify as an ISO, the Committee may grant
such Option or amend such an outstanding Option to provide that the Option is transferable or assignable to a member or members of
the Participant's "immediate family," as such term is defined in Rule 16a-1(e) under the Exchange Act, or to a trust for the benefit
solely of a member or members of the Participant's immediate family, or to a partnership or other entity whose only owners are
members of the Participant's immediate family, provided the instrument of transfer is approved by the Company's Administrative
Committee of Employee Benefits, Options so transferred are not again transferable other than by will or by the laws of descent and
distribution, and that following any such transfer or assignment, the Option will remain subject to substantially the same terms
applicable to the Option while held by the Participant, as modified as the Committee shall determine appropriate, and the transferee
shall execute an agreement agreeing to be bound by such terms.
7.2 Designation of Beneficiaries. An Optionee hereunder may file with the Company a written designation of a beneficiary or
beneficiaries under this Plan and may from time to time revoke or amend any such designation ("Beneficiary Designation"). Any
designation of beneficiary under this Plan shall be controlling over any other disposition, testamentary or otherwise; provided,
however, that if the Committee is in doubt as to the entitlement of any such beneficiary to any Option, the Committee may determine
to recognize only the legal representative of the Optionee in which case the Company, the Committee and the members thereof shall not
be under any further liability to anyone.
7.3 Dividends. Unless otherwise provided by the Committee, no adjustment shall be made in Shares issuable under Options on
account of cash dividends that may be paid or other rights that may be issued to the holders of Shares prior to their issuance under
any Option. No dividends or dividend equivalent amounts shall be paid to any Participant with respect to the Shares subject to any
Option under the Plan.
7.4 Documents Evidencing Options. The Committee shall, subject to applicable law, determine the date an Option is deemed to
be granted, which for purposes of this Plan shall not be affected by the fact that an Option is contingent on subsequent stockholder
approval of this Plan. The Committee or, except to the extent prohibited under applicable law, its delegate(s) may establish the
terms of agreements or other documents evidencing Options under this Plan and may, but need not, require as a condition to any such
agreement's or document's effectiveness that such agreement or document be executed by the Participant and that such Participant
agree to such further terms and conditions as specified in such agreement or document. The grant of an Option under this Plan shall
not confer any rights upon the Participant holding such Option other than such terms, and subject to such conditions, as are
specified in this Plan as being applicable to such type of Option (or to all Options) or as are expressly set forth in the agreement
or other document evidencing such Option.
7.5 Financing. The Committee may in its discretion provide financing to a Participant in a principal amount sufficient to
pay the purchase price of any Option and/or to pay the amount of taxes required by law to be withheld with respect to any Option. Any
such loan shall be subject to all applicable legal requirements and restrictions pertinent thereto, including Regulation G
promulgated by the Federal Reserve Board. The grant of an Option shall in no way obligate the Company or the Committee to provide any
financing whatsoever in connection therewith.
7.6 ISO Limits. The aggregate Fair Market Value (determined as of the date of grant) of Shares underlying an Option intended
to qualify as an ISO, with respect to which the ISO is exercisable for the first time by the Optionee during any calendar year (under
this Plan and all other stock option plans of the Company and its parent and subsidiary corporations), shall not exceed $100,000.
SECTION 8. CHANGES IN CAPITAL STRUCTURE
8.1 Corporate Actions Unimpaired. The existence of outstanding Options shall not affect in any way the right or power of the
Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations, other changes in the
Company's capital structure or its business, or any merger or consolidation of the Company, or any issuance of common stock or other
securities or subscription rights thereto, or any issuance of bonds, debentures, preferred or prior preference stock ahead of or
affecting the common stock or the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or
any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. Further,
except as herein expressly provided, (i) the issuance by the Company of shares of stock of any class of securities convertible into
shares of stock of any class, for cash, property, labor or services, upon direct sale, upon the exercise of rights or warrants to
subscribe therefore, or upon conversion of shares or obligations of the Company convertible into such shares or other securities,
(ii) the payment of a dividend in property other than common stock, or (iii) the occurrence of any similar transaction, and in any
case whether or not for fair value, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number
of shares of common stock subject to Options theretofore granted or the purchase price per share, unless the Committee shall
determine in its sole discretion that an adjustment is necessary to provide equitable treatment to Participant.
8.2 Adjustments Upon Certain Events. If the outstanding shares of common stock or other securities of the Company, or both,
for which an Option is then exercisable or as to which an Option is to be settled shall at any time be changed or exchanged by
declaration of a stock dividend, stock split or reverse stock split, combination of shares, recapitalization, or reorganization, the
Committee shall appropriately and equitably adjust the number and kind of shares of common stock or other securities that are subject
to the Plan or subject to any Options theretofore granted, and the exercise or settlement prices of such Options, so as to maintain
the proportionate number of shares or other securities without changing the aggregate exercise or settlement price; provided,
however, that such adjustment shall be made only to the extent that such adjustment will not affect the status of an Option intended
to qualify as an ISO or as "performance-based compensation" under Code Section 162(m). If the Company recapitalizes or otherwise
changes its capital structure, or merges, consolidates, sells all of its assets or dissolves (each of the foregoing a "Fundamental
Change"), then thereafter upon any exercise of Options theretofore granted, the Participant shall be entitled to purchase under such
Options, in lieu of the number of shares of common stock as to which such Options shall then be exercisable, the number and class of
shares of stock, securities, cash, property or other consideration to which the Participant would have been entitled pursuant to the
terms of the Fundamental Change if, immediately prior to such Fundamental Change, the Participant had been the holder of record of
the number of shares of common stock as to which such Options were then exercisable.
SECTION 9. CHANGE OF CONTROL
9.1 Definitions. The term "Corporate Change" shall mean the occurrence of any one of the following events:
(a) An acquisition (other than directly from the Company) of any common stock or other "Voting Securities" (as hereinafter
defined) of the Company by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Exchange Act),
immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange
Act) of twenty five percent (25%) or more of the then outstanding shares of the Company's common stock or the combined voting
power of the Company's then outstanding Voting Securities; provided, however, in determining whether a Corporate Change has
occurred, Voting Securities that are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not constitute an
acquisition that would cause a Corporate Change. For purposes of this Plan, (A) "Voting Securities" shall mean the Company's
outstanding voting securities entitled to vote generally in the election of directors and (B) a "Non-Control Acquisition" shall
mean an acquisition by (i) an employee benefit plan (or a trust forming a part thereof) maintained by (x) the Company or (y) any
corporation or other Person of which a majority of its voting power or its voting equity securities or equity interest is owned,
directly or indirectly, by the Company (for purposes of this definition, a "Subsidiary"), (ii) the Company or any of its
Subsidiaries, or (iii) any Person in connection with a "Non-Control Transaction" (as hereinafter defined);
(b) During any period of twenty four (24) consecutive months, individuals who at the beginning of such period constitute
the Board (the "Incumbent Board") cease for any reason to constitute at least two-thirds of the members of the Board; provided,
however, that if the election, or nomination for election by the Company's common stockholders, of any new director was approved
by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Agreement, be considered
as a member of the Incumbent Board; provided, however, that no individual shall be considered a member of the Incumbent Board if
such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule
14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of
a Person other than the Board (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election
Contest or Proxy Contest; or
(c) The consummation of:
(i) A merger, consolidation or reorganization involving the Company, unless such merger, consolidation or
reorganization is a "Non-Control Transaction." A "Non-Control Transaction" shall mean a merger, consolidation or
reorganization of the Company where:
(A) the stockholders of the Company, immediately before such merger, consolidation or reorganization, own directly
or indirectly immediately following such merger, consolidation or reorganization, at least seventy percent (70%) of the
combined voting power of the outstanding Voting Securities of the corporation resulting from such merger, consolidation
or reorganization (the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting
Securities immediately before such merger, consolidation or reorganization;
(B) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement
providing for such merger, consolidation or reorganization constitute at least two-thirds of the members of the board
of directors of the Surviving Corporation, or in the event that, immediately following the consummation of such
transaction, a corporation beneficially owns, directly or indirectly, a majority of the Voting Securities of the
Surviving Corporation, the board of directors of such corporation; and
(C) no Person other than (w) the Company, (x) any Subsidiary, (y) any employee benefit plan (or any trust forming
a part thereof) maintained by the Company, the Surviving Corporation, or any Subsidiary, or (z) any Person who,
immediately prior to such merger, consolidation or reorganization had Beneficial Ownership of twenty five percent (25%)
or more of the then outstanding Voting Securities or common stock of the Company, has Beneficial Ownership of twenty
five percent (25%) or more of the combined voting power of the Surviving Corporation's then outstanding Voting
Securities or its common stock;
(ii) A complete liquidation or dissolution of the Company; or
(iii) The sale or other disposition of all or substantially all of the assets of the Company to any Person (other than
a transfer to a Subsidiary).
Notwithstanding the foregoing, a Corporate Change shall not be deemed to occur solely because any Person (the "Subject Person")
acquired Beneficial Ownership of more than the permitted amount of the then outstanding common stock or Voting Securities as a result
of the acquisition of common stock or Voting Securities by the Company that, by reducing the number of shares of common stock or
Voting Securities then outstanding, increases the proportional number of shares Beneficially Owned by the Subject Persons; provided,
however, that if a Corporate Change would occur (but for the operation of this sentence) as a result of the acquisition of common
stock or Voting Securities by the Company, and after such share acquisition by the Company, the Subject Person becomes the Beneficial
Owner of any additional common stock or Voting Securities that increases the percentage of the then outstanding common stock or
Voting Securities Beneficially Owned by the Subject Person, then a Corporate Change shall occur.
9.2 Effect of Corporate Change. Notwithstanding anything contained in the Plan or an Option Document to the contrary, in the
event of a Corporate Change, (1) all Options outstanding on the date of such Corporate Change shall become immediately and fully
exercisable and (2) an Optionee shall be permitted to surrender for cancellation within sixty (60) days after such Corporate Change,
any Option or portion of an Option to the extent not yet exercised and the Optionee will be entitled to receive a cash payment in an
amount equal to the excess, if any of (x) (A) in the case of an Option not intended to qualify as an ISO, the greater of (i) the Fair
Market Value, on the date preceding the date of surrender of the Shares subject to the Option or portion thereof surrendered, or (ii)
the Adjusted Fair Market Value of the Shares subject to the Option or portion thereof surrendered, or (B) in the case of an ISO, the
Fair Market Value, on the date preceding the date of surrender, of the Shares subject to the Option or portion thereof surrendered,
over (y) the aggregate purchase price for such Shares under the Option or portion thereof surrendered; provided however, that in the
case of an Option granted within six (6) months prior to the Corporate Change to any Optionee who may be subject to liability under
Section 16(b) of the Exchange Act, such Optionee shall be entitled to surrender for cancellation his or her Option during the sixty
(60) day period commencing upon the expiration of six (6) months from the date of grant of any such Option. For purposes of this
Section 9.2, the "Adjusted Fair Market Value" means the greater of (1) the highest price per Share paid to holders of the Shares in
any transaction (or series of transactions) constituting or resulting in a Corporate Change or (2) the highest Fair Market Value of a
Share during the ninety (90) day period ending on the date of the Corporate Change.
SECTION 10. TAXES
10.1 Withholding Taxes. The Company shall have the right to deduct from any distribution of cash to any Optionee, an amount
equal to the federal, state and local income taxes and other amounts as may be required by law to be withheld (the "Withholding
Taxes") with respect to any Option. If an Optionee is entitled to receive Shares upon exercise of an Option, the Optionee shall pay
the Withholding Taxes to the Company prior to the issuance, or release from escrow, of such Shares. If an Optionee makes a
disposition, within the meaning of Code Section 424(c), of any Share or Shares issued pursuant to the exercise of an ISO within the
two-year period commencing on the day after the date of the grant or within a one-year period commencing on the day after the date of
transfer of such Share or Shares to the Optionee pursuant to such exercise, the Optionee shall within ten (10) days of such
disposition, notify the Company thereof, by delivery of written notice to the Company at its principal executive office, and
immediately deliver to the Company the amount of Withholding Taxes.
10.2 Payment of Withholding Taxes. Notwithstanding the terms of Section 10.1, the Committee may provide in the Option
Document or otherwise that all or any portion of the taxes required to be withheld by the Company or, if permitted by the Committee,
desired to be paid by the Participant, in connection with the exercise of a Nonqualified Option, but in no event to exceed the
supplemental tax rate for withholding tax purposes, at the election of the Participant, may be paid by the Company by withholding
shares of the Company's capital stock otherwise issuable or subject to an Option, or by the Participant delivering previously owned
shares of the Company's capital stock, in each case having a Fair Market Value equal to the amount required or elected to be withheld
or paid. Any such election is subject to such conditions or procedures as may be established by the Committee and may be subject to
disapproval by the Committee. It is the Company's intent that this provision shall in any event be administered in a manner that does
not result in variable accounting treatment of Option grants.
SECTION 11. AMENDMENTS OR TERMINATION
The Board may amend, alter or discontinue this Plan or any Option Document made under this Plan at any time, but except as
provided pursuant to the anti-dilution adjustment provisions of Section 8 hereof, no such amendment shall, without the approval of
the stockholders of the Company:
(a) increase the maximum number of shares of common stock for which Options may be granted under this Plan;
(b) reduce the price at which Options may be granted below the price provided for in Section 6.2;
(c) reduce the exercise price of outstanding Options; or
(d) extend the term of this Plan.
Notwithstanding the foregoing provisions of this Section 11, except as provided in Sections 8 and 9 hereof, rights and obligations
under any Option granted before any amendment or termination of the Plan shall not be adversely altered or impaired by such amendment
or termination, except with the consent of the Optionee, nor shall any amendment or termination deprive any Optionee of any Shares
that he or she may have acquired through or as a result of the Plan.
SECTION 12. COMPLIANCE WITH OTHER LAWS AND REGULATIONS
This Plan, the grant and exercise of Options under, and the obligation of the Company to sell, issue or deliver Shares under
such Options, shall be subject to all applicable federal, state and foreign laws, rules and regulations and to such approvals by any
governmental or regulatory agency as may be required. The Company shall not be required to register in a Participant's name or
deliver any Shares prior to the completion of any registration or qualification of such Shares under any federal, state or foreign
law or any ruling or regulation of any government body that the Committee shall determine to be necessary or advisable.
No Option shall be exercisable unless a registration statement with respect to the Option is effective or the Company has
determined that such registration is unnecessary. Unless the Options and Shares covered by this Plan have been registered under the
Securities Act of 1933, as amended, or the Company has determined that such registration is unnecessary, each person receiving an
award and/or Shares pursuant to any award may be required by the Company to give a representation in writing that such person is
acquiring such Shares for his or her own account for investment and not with a view to, or for sale in connection with, the
distribution of any part thereof.
The Plan and Nonemployee Director Options are intended to comply with Rule 16b-3 promulgated under the Exchange Act, and the
Committee shall interpret and administer the provisions of the Plan or Option Document in a manner consistent therewith. Any
provisions of the Plan inconsistent therewith shall be inoperative and shall not affect the validity of the Plan. Unless otherwise
expressly stated in the relevant Option Document, each Option granted under the Plan is intended to qualify as performance-based
compensation within the meaning of Code Section 162(m)(4)(C).
SECTION 13. OPTION GRANTS BY SUBSIDIARIES
In the case of a grant of Options to any eligible Employee employed by a Subsidiary, such grant may, if the Committee so
directs, be implemented by the Company issuing any subject shares to the Subsidiary, for such lawful consideration as the Committee
may determine, upon the condition or understanding that the Subsidiary will transfer the shares to the Options holder in accordance
with the terms of the Options specified by the Committee pursuant to the provisions of the Plan. Notwithstanding any other provision
hereof, such Options may be issued by and in the name of the Subsidiary and shall be deemed granted on such date as the Committee
shall determine.
SECTION 14. NO RIGHT TO COMPANY EMPLOYMENT
Nothing in this Plan or as a result of any Option granted pursuant to this Plan shall confer on any individual any right to
continue in the employ of the Company or interfere in any way with the right of the Company to terminate an individual's employment
at any time. The Option Documents may contain such provisions as the Committee may, in its discretion, approve with reference to the
effect of approved leaves of absence.
SECTION 15. LIABILITY OF COMPANY
The Company and any affiliate that is in existence or hereafter comes into existence shall not be liable to a Participant, an
Eligible Person or other persons as to:
(a) the non-issuance or sale of Shares as to which the Company has been unable to obtain from any regulatory body having
jurisdiction the authority deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares
hereunder; and
(b) any tax consequence expected, but not realized, by any Participant, Eligible Person or other person due to the receipt,
exercise or settlement of any Options granted hereunder.
SECTION 16. EFFECTIVENESS AND EXPIRATION OF PLAN
This Plan shall be effective on the date the Company's stockholders adopt this Plan. All Options granted under this Plan are
subject to, and may not be exercised before, the approval of this Plan by the stockholders prior to the first anniversary date of the
effective date of this Plan. Approval of this Plan by the stockholders must be by the affirmative vote of the holders of a majority
of the outstanding shares of the Company present, or represented by proxy, and entitled to vote, at a meeting of the Company's
stockholders or by written consent in accordance with the laws of the State of Delaware; provided that if such approval by the
stockholders of the Company is not forthcoming, all Options previously granted under this Plan shall be void. No Options shall be
granted pursuant to this Plan more than ten (10) years after the effective date of this Plan.
SECTION 17. NON-EXCLUSIVITY OF PLAN
Neither the adoption of this Plan by the Board nor the submission of this Plan to the stockholders of the Company for approval
shall be construed as creating any limitations on the power of the Board or the Committee to adopt such other incentive arrangements
as either may deem desirable, including without limitation, the granting of Options otherwise than under this Plan, and such
arrangements may be either generally applicable or applicable only in specific cases.
SECTION 18. GOVERNING LAW
This Plan and any agreements or other documents hereunder shall be interpreted and construed in accordance with the laws of the
State of Delaware and applicable federal law. The Committee may provide that any dispute as to any Option shall be presented and
determined in such forum as the Committee may specify, including through binding arbitration. Any reference in this Plan or an Option
Document to a provision of law or to a rule or regulation shall be deemed to include any successor law, rule or regulation of similar
effect or applicability.
COUNTRYWIDE CREDIT INDUSTRIES, INC.
RESTRICTED STOCK AGREEMENT
This Restricted Stock Agreement ("Agreement") is made as of June 1, 1999, between COUNTRYWIDE CREDIT INDUSTRIES, INC., a
Delaware corporation (the "Company"), and _______________ (the "Director").
WHEREAS, the Director is a member of the Board of Directors of the Company and is not an employee of the Company;
WHEREAS, the Company believes it is in its best interest to provide incentives to the Director and encourage him to devote
his abilities and industry to the success of the Company's business enterprise; and
WHEREAS, the Company believes that this objective can be achieved by extending to the Director an added long-term incentive for
high levels of performance through the grant of shares of common stock of the Company, $.05 par value (the "Common Stock"), which
shares are subject to the restrictions contained herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants made herein and the mutual benefits to be derived
herefrom, the parties agree as follows:
1. Grant of Restricted Shares of Common Stock. This Agreement evidences the Company's grant to the Director, on June 1, 1999, of one
- ----------------------------------------------
thousand (1,000) shares of Common Stock (the "Restricted Shares"), subject to the provisions of this Agreement. The number
of Restricted Shares shall be subject to adjustment as provided in Section 6 hereof. The Restricted Shares, together with
a stock power endorsed in blank by the Director, have been deposited with the Company.
2. Release or Forfeiture of the Restricted Shares.
- --------------------------------------------------
(A) If the Director remains a director of the Company as of the dates set forth below, then as of the close of business on such dates,
the Company shall release to the Director that number of Restricted Shares set forth opposite such dates:
Dates Number of Restricted Shares
--------- ---------------------------
June 1, 2000 333
June 1, 2001 333
June 1, 2002 334
(B) Except as provided in the immediately succeeding sentence, if the Director does not remain a director of the Company for any
reason through June 1, 2002, the Director shall forfeit all right, title and interest in and to that number of
Restricted Shares which have not been released to him as of the date he no longer serves as a director of the
Company. Notwithstanding the foregoing, the Restricted Shares which have not previously become non-forfeitable and
been released to the Director shall become non-forfeitable and be released to the Director in the event of a Change
in Control (as hereinafter defined) or upon the termination of the Director's service as a director of the Company
due to death or Disability (as hereinafter defined) of the Director.
(C) For purposes hereof, "Change in Control" shall mean the occurrence during the term of this Plan, of any one of the following
events:
(i) An acquisition (other than directly from the Company) of any Common Stock or other "Voting Securities" (as hereinafter defined) of
the Company by any Person (as the term "person" is used for purposes of Section 13(d) or 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), immediately after which such Person has
"Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty five
percent (25%) or more of the then outstanding shares of the Company's Common Stock or the combined voting
power of the Company's then outstanding Voting Securities; provided, however, in determining whether a
Change in Control has occurred, Voting Securities which are acquired in a "Non-Control Acquisition" (as
hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. For
purposes of this Plan, (a) "Voting Securities" shall mean the Company's outstanding voting securities
entitled to vote generally in the election of directors and (2) a "Non-Control Acquisition" shall mean an
acquisition by (1) an employee benefit plan (or a trust forming a part thereof) maintained by (x) the
Company or (y) any corporation or other Person of which a majority of its voting power or its voting equity
securities or equity interest is owned, directly or indirectly, by the Company (for purposes of this
definition, a "Subsidiary"), (2) the Company or any of its Subsidiaries, or (3) any Person in connection
with a "Non-Control Transaction" (as hereinafter defined);
(ii) The individuals who, as of May 6, 1996 are members of the Board (the "Incumbent Board"), cease for any reason to constitute at
least two-thirds of the members of the Board; provided, however, that if the election, or nomination for
election by the Company's common stockholders, of any new director was approved by a vote of at least
two-thirds of the Incumbent Board, such new director shall, for purposes of this Plan, be considered as a
member of the Incumbent Board; provided, further, however, that no individual shall be considered a member
of the Incumbent Board if such individual initially assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board
(a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest
or Proxy Contest; or
(iii) The consummation of:
(a) A merger, consolidation or reorganization involving the Company, unless such merger, consolidation or reorganization is a
"Non-Control Transaction." A "Non-Control Transaction" shall mean a merger, consolidation or
reorganization of the Company where:
(1) the Company's stockholders, immediately before such merger, consolidation or reorganization, own directly or indirectly
immediately following such merger, consolidation or reorganization, at least seventy percent (70%)
of the combined voting power of the outstanding Voting Securities of the corporation resulting
from such merger, consolidation or reorganization (the "Surviving Corporation") in substantially
the same proportion as their ownership of the Voting Securities immediately before such merger,
consolidation or reorganization;
(2) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such
merger, consolidation or reorganization constitute at least two-thirds of the members of the board
of directors of the Surviving Corporation, or in the event that, immediately following the
consummation of such transaction, a corporation beneficially owns, directly or indirectly, a
majority of the Voting Securities of the Surviving Corporation, the board of directors of such
corporation; and
(3) no Person other than (i) the Company, (ii) any Subsidiary, (iii) any employee benefit plan (or any trust forming a part thereof)
maintained by the Company, the Surviving Corporation, or any Subsidiary, or (iv) any Person who,
immediately prior to such merger, consolidation or reorganization had Beneficial Ownership of
twenty five percent (25%) or more of the then outstanding Voting Securities or Common Stock of the
Company, has Beneficial Ownership of twenty five percent (25%) or more of the combined voting
power of the Surviving Corporation's then outstanding Voting Securities or its Common Stock;
(b) A complete liquidation or dissolution of the Company; or
(c) The sale or other disposition of all or substantially all of the assets of the Company to any Person (other than a transfer to a
Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the
"Subject Person") acquired Beneficial Ownership of more than the permitted amount of the then outstanding Common
Stock or Voting Securities as a result of the acquisition of Common Stock or Voting Securities by the Company which,
by reducing the number of Restricted Shares of Common Stock or Voting Securities then outstanding, increases the
proportional number of Restricted Shares Beneficially Owned by the Subject Person; provided, however, that if a
Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of Common
Stock or Voting Securities by the Company, and after such share acquisition by the Company, the Subject Person
becomes the Beneficial Owner of any additional Common Stock or Voting Securities which increases the percentage of
the then outstanding Common Stock or Voting Securities Beneficially Owned by the Subject Person, then a Change in
Control shall occur.
(C) For purposes hereof, "Disability" shall mean a physical or mental infirmity which impairs the Director's ability to substantially
perform his duties as a director of the Company for a period of one hundred eighty (180) consecutive days.
3. Non-Transferability of Restricted Shares. The Director shall not sell, assign, transfer, pledge, hypothecate, mortgage, encumber
----------------------------------------
or dispose of all or any of his Restricted Shares except the Director may transfer all or any of his Restricted Shares (i)
by way of gift to any member of his family or to any trust for the benefit of any such family member or the Director,
provided that any such transferee shall agree in writing with the Company as a condition to such transfer, to be bound by
all of the provisions of this Agreement to the same extent as if such transferee were the Director, (ii) by will or the laws
of decent and distribution, (iii) by way of gift to a charity, provided, however, any such transfer shall be made subject to
the terms and conditions of this Agreement. As used herein, "family " shall include any spouse, lineal ancestor or
descendant, brother or sister.
4. Securities Laws. The Director acknowledges that certain restrictions under state or federal securities laws may apply with
---------------
respect to the Restricted Shares granted to him pursuant to the Award. Specifically, Employee acknowledges that, to the extent he is an
"affiliate" of the Company (as that term is defined by the Securities Act of 1933), the Restricted Shares granted to him as a result of
the Award are subject to certain trading restrictions under applicable securities laws (including particularly the Securities and
Exchange Commission's Rule 144). Employee hereby agrees to execute such documents and take such actions as the Company may reasonably
require with respect to state and federal securities laws and any restrictions on the resale of such shares which may pertain under
such laws.
5. Legend. Each certificate evidencing any of the Restricted Shares shall bear a legend substantially as follows:
------
"The shares represented by this certificate have not been registered under the Securities Act of 1933 or
applicable state securities laws. The shares represented by this certificate are subject to restrictions on transfer
and may not be sold, exchanged, transferred, pledged, hypothecated or otherwise disposed of (i) without an effective
registration statement for such shares under the Securities Act of 1933 and any applicable state securities laws, or
an pinion of counsel satisfactory to the Company that registration is not required under the Securities Act of 1933
or under applicable state securities laws; and (ii) except in accordance with and subject to all of the terms and
conditions of a certain Stock Restriction Agreement dated as of June 1, 1999, a copy of which the Company will
furnish to the holder of this certificate upon request and without charge."
6. Adjustment. In the event of a Change in Capitalization (as hereinafter defined), the number of shares of Restricted Stock granted
----------
hereunder shall be appropriately and equitable adjusted. For purposes hereof, "Change in Capitalization" shall mean any
increase or reduction in the number of shares of Common Stock outstanding, or any exchange of Common Stock for a different
number or kind of shares or other securities of the Company by reason of a reclassification, recapitalization, merger,
consolidation, reorganization, stock dividend, stock split or reverse stock split, combination or exchange of shares or
similar event. If by reason of a Change in Capitalization, the Director shall be entitled to new, additional or different
shares of Common Stock or securities, such new, additional or different shares shall thereupon be subject to all of the
conditions which were applicable to the Restricted Shares prior to such Change in Capitalization.
7. Designation of Beneficiary. The Director may file with the Company a written designation of a beneficiary or beneficiaries under
--------------------------
this Agreement and may from time to time revoke or amend any such designation. Any designation of a beneficiary under this
Agreement shall be controlling over any other disposition, testamentary or otherwise, provided, however, that if the Company
is in doubt as to the entitlement of any such beneficiary to any Restricted Shares, the Company may determine to recognize
only the legal representative of the Director in which case the Company shall not be under any further liability to anyone.
8. Stockholder Rights. During the period that any shares of Restricted Stock remain subject to forfeiture under Section 2 hereof,
-------------------
the Director shall retain all rights of a stockholder of the Company with respect to such shares, including the right to
vote such shares and the right to receive dividends paid in respect of such shares.
9. Withholding. The Company shall have the right to require the Director (or if applicable, his permitted assign, heir or
------------
Beneficiary) to remit to the Company an amount sufficient to satisfy any tax requirements prior to the delivery of any
certificate or certificates for Restricted Shares under this Agreement.
10. Notices. Any notice to be given under the terms of this Agreement shall be in writing and addressed to the Company at its
---------
principal office in Calabasas, California, and to the Director at the address the Director may hereafter designate in
writing.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on its behalf by a duly authorized officer and
Director has executed this Agreement.
DIRECTOR:.... COUNTRYWIDE CREDIT INDUSTRIES, INC.
_____________ By:________________________
(Printed Name) Anne D. McCallion
.... Managing Director, Human Resources
------------------------
(Signature)
----------------------------
(Address)
----------------------------
(City, State, Zip Code)
Date: _____________________
s:\seb\cci\restricted stock agreement.(name).9906
AMENDMENT NUMBER ONE TO
COUNTRYWIDE CREDIT INDUSTRIES, INC.
RESTRICTED STOCK AGREEMENT
This Amendment Number One to Restricted Stock Agreement ("Amendment") is made as of September 20, 2000, and amends that
certain Restricted Stock Agreement entered into between COUNTRYWIDE CREDIT INDUSTRIES, INC., a Delaware corporation (the "Company"),
and _________________ (the "Director") as of June 1, 1999 (the "Agreement").
WHEREAS, the Director entered into the Agreement pursuant to which the Director received shares of Common Stock of the
Company;
WHEREAS, the Agreement provides that there are certain restrictions on the ability of the Director to transfer such shares;
and
WHEREAS, this Amendment is necessary to clarify that under the terms of the Agreement, such restrictions terminate at such
time as the shares are no longer subject to forfeiture as provided therein.
NOW, THEREFORE, in consideration of the mutual promises and covenants made herein and the mutual benefits to be derived
herefrom, the parties agree as follows:
3. Paragraph 3 of the Agreement. Paragraph 3 of the Agreement is hereby amended to read in its entirety as follows:
- --------------------------------
"3. Non-Transferability of Restricted Shares. Until such time as a Restricted Share is no longer subject to forfeiture as
----------------------------------------
provided in paragraph 2 hereof, the Director shall not sell, assign, transfer, pledge, hypothecate, mortgage, encumber or
dispose of any such Restricted Share except that the Director may transfer all or any of the Restricted Shares which are
still subject to forfeiture (i) by way of gift to any member of his family or to any trust for the benefit of any such
family member or the Director, provided that any such transferee shall agree in writing with the Company as a condition to
such transfer, to be bound by all of the provisions of this Agreement to the same extent as if such transferee were the
Director, (ii) by will or the laws of decent and distribution, (iii) by way of gift to a charity, provided, however, any
such transfer shall be made subject to the terms and conditions of this Agreement. As used herein, "family " shall include
any spouse, lineal ancestor or descendant, brother or sister."
2. No Other Change. Except as modified herein, the terms and conditions of the Agreement shall remain in full force and
---------------
effect.
IN WITNESS WHEREOF, the Company has caused this Amendment to be executed on its behalf by a duly authorized officer and
Director has executed this Amendment.
DIRECTOR:.... COUNTRYWIDE CREDIT INDUSTRIES, INC.
____________________ __ By:________________________
-----------------------
Anne McCallion
.... Managing Director and
Chief Administrative Officer
------------------------
(Signature)
COUNTRYWIDE CREDIT INDUSTRIES, INC.
RESTRICTED STOCK AGREEMENT
This Restricted Stock Agreement ("Agreement") is made as of March 1, 2000, between COUNTRYWIDE CREDIT INDUSTRIES, INC., a
Delaware corporation (the "Company"), and _______________ (the "Director").
WHEREAS, the Director is a member of the Board of Directors of the Company and is not an employee of the Company;
WHEREAS, the Company believes it is in its best interest to provide incentives to the Director and encourage him to devote
his abilities and industry to the success of the Company's business enterprise; and
WHEREAS, the Company believes that this objective can be achieved by extending to the Director an added long-term incentive for
high levels of performance through the grant of shares of common stock of the Company, $.05 par value (the "Common Stock"), which
shares are subject to the restrictions contained herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants made herein and the mutual benefits to be derived
herefrom, the parties agree as follows:
4. Grant of Restricted Shares of Common Stock. This Agreement evidences the Company's grant to the Director, on March 1, 2000, of
- ----------------------------------------------
one thousand (1,000) shares of Common Stock (the "Restricted Shares"), subject to the provisions of this Agreement. The
number of Restricted Shares shall be subject to adjustment as provided in Section 6 hereof. The Restricted Shares,
together with a stock power endorsed in blank by the Director, have been deposited with the Company.
5. Release or Forfeiture of the Restricted Shares.
- --------------------------------------------------
(D) If the Director remains a director of the Company as of the dates set forth below, then as of the close of business on such dates,
the Company shall release to the Director that number of Restricted Shares set forth opposite such dates:
Dates Number of Restricted Shares
--------- ---------------------------
March 1, 2001 333
March 1, 2002 333
March 1, 2003 334
(E) Except as provided in the immediately succeeding sentence, if the Director does not remain a director of the Company for any
reason through March 1, 2003, the Director shall forfeit all right, title and interest in and to that number of
Restricted Shares which have not been released to him as of the date he no longer serves as a director of the
Company. Notwithstanding the foregoing, the Restricted Shares which have not previously become non-forfeitable and
been released to the Director shall become non-forfeitable and be released to the Director in the event of a Change
in Control (as hereinafter defined) or upon the termination of the Director's service as a director of the Company
due to death or Disability (as hereinafter defined) of the Director.
(F) For purposes hereof, "Change in Control" shall mean the occurrence during the term of this Plan, of any one of the following
events:
(iv) An acquisition (other than directly from the Company) of any Common Stock or other "Voting Securities" (as hereinafter
defined) of the Company by any Person (as the term "person" is used for purposes of Section 13(d) or 14(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), immediately after which such
Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
twenty five percent (25%) or more of the then outstanding shares of the Company's Common Stock or the
combined voting power of the Company's then outstanding Voting Securities; provided, however, in
determining whether a Change in Control has occurred, Voting Securities which are acquired in a
"Non-Control Acquisition" (as hereinafter defined) shall not constitute an acquisition which would cause a
Change in Control. For purposes of this Plan, (a) "Voting Securities" shall mean the Company's outstanding
voting securities entitled to vote generally in the election of directors and (2) a "Non-Control
Acquisition" shall mean an acquisition by (1) an employee benefit plan (or a trust forming a part thereof)
maintained by (x) the Company or (y) any corporation or other Person of which a majority of its voting
power or its voting equity securities or equity interest is owned, directly or indirectly, by the Company
(for purposes of this definition, a "Subsidiary"), (2) the Company or any of its Subsidiaries, or (3) any
Person in connection with a "Non-Control Transaction" (as hereinafter defined);
(v) The individuals who, as of May 6, 1996 are members of the Board (the "Incumbent Board"), cease for any reason to constitute at
least two-thirds of the members of the Board; provided, however, that if the election, or nomination for
election by the Company's common stockholders, of any new director was approved by a vote of at least
two-thirds of the Incumbent Board, such new director shall, for purposes of this Plan, be considered as a
member of the Incumbent Board; provided, further, however, that no individual shall be considered a member
of the Incumbent Board if such individual initially assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board
(a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest
or Proxy Contest; or
(vi) The consummation of:
(b) A merger, consolidation or reorganization involving the Company, unless such merger, consolidation or reorganization is a
"Non-Control Transaction." A "Non-Control Transaction" shall mean a merger, consolidation or
reorganization of the Company where:
(4) the Company's stockholders, immediately before such merger, consolidation or reorganization, own directly or indirectly
immediately following such merger, consolidation or reorganization, at least seventy percent (70%)
of the combined voting power of the outstanding Voting Securities of the corporation resulting
from such merger, consolidation or reorganization (the "Surviving Corporation") in substantially
the same proportion as their ownership of the Voting Securities immediately before such merger,
consolidation or reorganization;
(5) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such
merger, consolidation or reorganization constitute at least two-thirds of the members of the board
of directors of the Surviving Corporation, or in the event that, immediately following the
consummation of such transaction, a corporation beneficially owns, directly or indirectly, a
majority of the Voting Securities of the Surviving Corporation, the board of directors of such
corporation; and
(6) no Person other than (i) the Company, (ii) any Subsidiary, (iii) any employee benefit plan (or any trust forming a part thereof)
maintained by the Company, the Surviving Corporation, or any Subsidiary, or (iv) any Person who,
immediately prior to such merger, consolidation or reorganization had Beneficial Ownership of
twenty five percent (25%) or more of the then outstanding Voting Securities or Common Stock of the
Company, has Beneficial Ownership of twenty five percent (25%) or more of the combined voting
power of the Surviving Corporation's then outstanding Voting Securities or its Common Stock;
(d) A complete liquidation or dissolution of the Company; or
(e) The sale or other disposition of all or substantially all of the assets of the Company to any Person (other than a transfer to a
Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the
"Subject Person") acquired Beneficial Ownership of more than the permitted amount of the then outstanding Common
Stock or Voting Securities as a result of the acquisition of Common Stock or Voting Securities by the Company which,
by reducing the number of Restricted Shares of Common Stock or Voting Securities then outstanding, increases the
proportional number of Restricted Shares Beneficially Owned by the Subject Person; provided, however, that if a
Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of Common
Stock or Voting Securities by the Company, and after such share acquisition by the Company, the Subject Person
becomes the Beneficial Owner of any additional Common Stock or Voting Securities which increases the percentage of
the then outstanding Common Stock or Voting Securities Beneficially Owned by the Subject Person, then a Change in
Control shall occur.
(D) For purposes hereof, "Disability" shall mean a physical or mental infirmity which impairs the Director's ability to substantially
perform his duties as a director of the Company for a period of one hundred eighty (180) consecutive days.
11. Non-Transferability of Restricted Shares. The Director shall not sell, assign, transfer, pledge, hypothecate, mortgage, encumber
----------------------------------------
or dispose of all or any of his Restricted Shares except the Director may transfer all or any of his Restricted Shares (i)
by way of gift to any member of his family or to any trust for the benefit of any such family member or the Director,
provided that any such transferee shall agree in writing with the Company as a condition to such transfer, to be bound by
all of the provisions of this Agreement to the same extent as if such transferee were the Director, (ii) by will or the laws
of decent and distribution, (iii) by way of gift to a charity, provided, however, any such transfer shall be made subject to
the terms and conditions of this Agreement. As used herein, "family " shall include any spouse, lineal ancestor or
descendant, brother or sister.
12. Securities Laws. The Director acknowledges that certain restrictions under state or federal securities laws may apply with
---------------
respect to the Restricted Shares granted to him pursuant to the Award. Specifically, Employee acknowledges that, to the extent he is an
"affiliate" of the Company (as that term is defined by the Securities Act of 1933), the Restricted Shares granted to him as a result of
the Award are subject to certain trading restrictions under applicable securities laws (including particularly the Securities and
Exchange Commission's Rule 144). Employee hereby agrees to execute such documents and take such actions as the Company may reasonably
require with respect to state and federal securities laws and any restrictions on the resale of such shares which may pertain under
such laws.
13. Legend. Each certificate evidencing any of the Restricted Shares shall bear a legend substantially as follows:
------
"The shares represented by this certificate have not been registered under the Securities Act of 1933 or
applicable state securities laws. The shares represented by this certificate are subject to restrictions on transfer
and may not be sold, exchanged, transferred, pledged, hypothecated or otherwise disposed of (i) without an effective
registration statement for such shares under the Securities Act of 1933 and any applicable state securities laws, or
an Opinion of counsel satisfactory to the Company that registration is not required under the Securities Act of 1933
or under applicable state securities laws; and (ii) except in accordance with and subject to all of the terms and
conditions of a certain Stock Restriction Agreement dated as of March 1, 2000, a copy of which the Company will
furnish to the holder of this certificate upon request and without charge."
14. Adjustment. In the event of a Change in Capitalization (as hereinafter defined), the number of shares of Restricted Stock granted
----------
hereunder shall be appropriately and equitable adjusted. For purposes hereof, "Change in Capitalization" shall mean any
increase or reduction in the number of shares of Common Stock outstanding, or any exchange of Common Stock for a different
number or kind of shares or other securities of the Company by reason of a reclassification, recapitalization, merger,
consolidation, reorganization, stock dividend, stock split or reverse stock split, combination or exchange of shares or
similar event. If by reason of a Change in Capitalization, the Director shall be entitled to new, additional or different
shares of Common Stock or securities, such new, additional or different shares shall thereupon be subject to all of the
conditions which were applicable to the Restricted Shares prior to such Change in Capitalization.
15. Designation of Beneficiary. The Director may file with the Company a written designation of a beneficiary or beneficiaries under
--------------------------
this Agreement and may from time to time revoke or amend any such designation. Any designation of a beneficiary under this
Agreement shall be controlling over any other disposition, testamentary or otherwise, provided, however, that if the Company
is in doubt as to the entitlement of any such beneficiary to any Restricted Shares, the Company may determine to recognize
only the legal representative of the Director in which case the Company shall not be under any further liability to anyone.
16. Stockholder Rights. During the period that any shares of Restricted Stock remain subject to forfeiture under Section 2 hereof,
-------------------
the Director shall retain all rights of a stockholder of the Company with respect to such shares, including the right to
vote such shares and the right to receive dividends paid in respect of such shares.
17. Withholding. The Company shall have the right to require the Director (or if applicable, his permitted assign, heir or
------------
Beneficiary) to remit to the Company an amount sufficient to satisfy any tax requirements prior to the delivery of any
certificate or certificates for Restricted Shares under this Agreement.
18. Notices. Any notice to be given under the terms of this Agreement shall be in writing and addressed to the Company at its
--------
principal office in Calabasas, California, and to the Director at the address the Director may hereafter designate in
writing.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on its behalf by a duly authorized officer and
Director has executed this Agreement.
DIRECTOR:.... COUNTRYWIDE CREDIT INDUSTRIES, INC.
_____________ By:________________________
(Printed Name) Angelo R. Mozilo
.... Chairman and Chief Executive Officer
------------------------
(Signature)
----------------------------
(Address)
----------------------------
(City, State, Zip Code)
Date: _____________________
s:\abanducci\EDGAR DOCS\rsa. mar. 00
AMENDMENT NUMBER ONE TO
COUNTRYWIDE CREDIT INDUSTRIES, INC.
RESTRICTED STOCK AGREEMENT
This Amendment Number One to Restricted Stock Agreement ("Amendment") is made as of September 20, 2000, and amends that
certain Restricted Stock Agreement entered into between COUNTRYWIDE CREDIT INDUSTRIES, INC., a Delaware corporation (the "Company"),
and _____________ (the "Director") as of March 1, 2000 (the "Agreement").
WHEREAS, the Director entered into the Agreement pursuant to which the Director received shares of Common Stock of the
Company;
WHEREAS, the Agreement provides that there are certain restrictions on the ability of the Director to transfer such shares;
and
WHEREAS, this Amendment is necessary to clarify that under the terms of the Agreement, such restrictions terminate at such
time as the shares are no longer subject to forfeiture as provided therein.
NOW, THEREFORE, in consideration of the mutual promises and covenants made herein and the mutual benefits to be derived
herefrom, the parties agree as follows:
6. Paragraph 3 of the Agreement. Paragraph 3 of the Agreement is hereby amended to read in its entirety as follows:
- --------------------------------
"3. Non-Transferability of Restricted Shares. Until such time as a Restricted Share is no longer subject to forfeiture as
----------------------------------------
provided in paragraph 2 hereof, the Director shall not sell, assign, transfer, pledge, hypothecate, mortgage, encumber or
dispose of any such Restricted Share except that the Director may transfer all or any of the Restricted Shares which are
still subject to forfeiture (i) by way of gift to any member of his family or to any trust for the benefit of any such
family member or the Director, provided that any such transferee shall agree in writing with the Company as a condition to
such transfer, to be bound by all of the provisions of this Agreement to the same extent as if such transferee were the
Director, (ii) by will or the laws of decent and distribution, (iii) by way of gift to a charity, provided, however, any
such transfer shall be made subject to the terms and conditions of this Agreement. As used herein, "family " shall include
any spouse, lineal ancestor or descendant, brother or sister."
2. No Other Change. Except as modified herein, the terms and conditions of the Agreement shall remain in full force and
---------------
effect.
IN WITNESS WHEREOF, the Company has caused this Amendment to be executed on its behalf by a duly authorized officer and
Director has executed this Amendment.
DIRECTOR:.... COUNTRYWIDE CREDIT INDUSTRIES, INC.
__________________ By: ________________________
--------------------
Anne McCallion
.... Managing Director and
Chief Administrative Officer
------------------------
(Signature)
COUNTRYWIDE CREDIT INDUSTRIES, INC.
RESTRICTED STOCK AGREEMENT
This Restricted Stock Agreement ("Agreement") is made as of March 1, 2001, between COUNTRYWIDE CREDIT INDUSTRIES, INC., a
Delaware corporation (the "Company"), and _______________ (the "Director").
WHEREAS, the Director is a member of the Board of Directors of the Company and is not an employee of the Company;
WHEREAS, the Company believes it is in its best interests to provide incentives to the Director and encourage him to devote
his abilities and industry to the success of the Company's business enterprise; and
WHEREAS, the Company believes that this objective can be achieved by extending to the Director an added long-term incentive for
high levels of performance through the grant of shares of common stock of the Company, $.05 par value (the "Common Stock"), which
shares are subject to the restrictions contained herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants made herein and the mutual benefits to be derived
herefrom, the parties agree as follows:
7. Grant of Restricted Shares of Common Stock. This Agreement evidences the Company's grant to the Director, on March 1, 2001, of
- ----------------------------------------------
one thousand (1,000) shares of Common Stock (the "Restricted Shares"), subject to the provisions of this Agreement. The
number of Restricted Shares shall be subject to adjustment as provided in Section 6 hereof. The Restricted Shares,
together with a stock power endorsed in blank by the Director, have been deposited with the Company.
8. Release or Forfeiture of the Restricted Shares.
- --------------------------------------------------
(G) If the Director remains a director of the Company as of the dates set forth below, then as of the close of business on such dates,
the Company shall release to the Director that number of Restricted Shares set forth opposite such dates:
Dates Number of Restricted Shares
--------- ---------------------------
March 1, 2002 333
March 1, 2003 333
March 1, 2004 334
(H) Except as provided in the immediately succeeding sentence, if the Director does not remain a director of the Company for any
reason through March 1, 2004, the Director shall forfeit all right, title and interest in and to that number of
Restricted Shares which have not been released to him as of the date he no longer serves as a director of the
Company. Notwithstanding the foregoing, the Restricted Shares which have not previously become non-forfeitable and
been released to the Director shall become non-forfeitable and be released to the Director in the event of a Change
in Control (as hereinafter defined) or upon the termination of the Director's service as a director of the Company
due to death or Disability (as hereinafter defined) of the Director.
(I) For purposes hereof, "Change in Control" shall mean the occurrence during the term of this Plan, of any one of the following
events:
(vii) An acquisition (other than directly from the Company) of any Common Stock or other "Voting Securities" (as hereinafter
defined) of the Company by any Person (as the term "person" is used for purposes of Section 13(d) or 14(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), immediately after which such
Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
twenty five percent (25%) or more of the then outstanding shares of the Company's Common Stock or the
combined voting power of the Company's then outstanding Voting Securities; provided, however, in
determining whether a Change in Control has occurred, Voting Securities which are acquired in a
"Non-Control Acquisition" (as hereinafter defined) shall not constitute an acquisition which would cause a
Change in Control. For purposes of this Plan, (1) "Voting Securities" shall mean the Company's outstanding
voting securities entitled to vote generally in the election of directors and (2) a "Non-Control
Acquisition" shall mean an acquisition by (A) an employee benefit plan (or a trust forming a part thereof)
maintained by (x) the Company or (y) any corporation or other Person of which a majority of its voting
power or its voting equity securities or equity interest is owned, directly or indirectly, by the Company
(for purposes of this definition, a "Subsidiary"), (B) the Company or any of its Subsidiaries, or (C) any
Person in connection with a "Non-Control Transaction" (as hereinafter defined);
(viii) During any period of twenty-four (24) consecutive months, individuals who at the beginning of such period constitute the Board
("Incumbent Board"), cease for any reason to constitute at least two-thirds of the members of the Board;
provided, however, that if the election, or nomination for election by the Company's common stockholders,
of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director
shall, for purposes of this Plan, be considered as a member of the Incumbent Board; provided, further,
however, that no individual shall be considered a member of the Incumbent Board if such individual
initially assumed office as a result of either an actual or threatened "Election Contest" (as described in
Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board (a "Proxy Contest") including by reason of any
agreement intended to avoid or settle any Election Contest or Proxy Contest; or
(ix) The consummation of:
(c) A merger, consolidation or reorganization involving the Company, unless such merger, consolidation or reorganization is a
"Non-Control Transaction." A "Non-Control Transaction" shall mean a merger, consolidation or
reorganization of the Company where:
(7) the Company's stockholders, immediately before such merger, consolidation or reorganization, own directly or indirectly
immediately following such merger, consolidation or reorganization, at least seventy percent (70%)
of the combined voting power of the outstanding Voting Securities of the corporation resulting
from such merger, consolidation or reorganization (the "Surviving Corporation") in substantially
the same proportion as their ownership of the Voting Securities immediately before such merger,
consolidation or reorganization;
(8) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such
merger, consolidation or reorganization constitute at least two-thirds of the members of the board
of directors of the Surviving Corporation, or in the event that, immediately following the
consummation of such transaction, a corporation beneficially owns, directly or indirectly, a
majority of the Voting Securities of the Surviving Corporation, the board of directors of such
corporation; and
(9) no Person other than (i) the Company, (ii) any Subsidiary, (iii) any employee benefit plan (or any trust forming a part thereof)
maintained by the Company, the Surviving Corporation, or any Subsidiary, or (iv) any Person who,
immediately prior to such merger, consolidation or reorganization had Beneficial Ownership of
twenty five percent (25%) or more of the then outstanding Voting Securities or Common Stock of the
Company, has Beneficial Ownership of twenty five percent (25%) or more of the combined voting
power of the Surviving Corporation's then outstanding Voting Securities or its Common Stock;
(f) A complete liquidation or dissolution of the Company; or
(g) The sale or other disposition of all or substantially all of the assets of the Company to any Person (other than a transfer to a
Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the
"Subject Person") acquired Beneficial Ownership of more than the permitted amount of the then outstanding Common
Stock or Voting Securities as a result of the acquisition of Common Stock or Voting Securities by the Company which,
by reducing the number of Restricted Shares of Common Stock or Voting Securities then outstanding, increases the
proportional number of Restricted Shares Beneficially Owned by the Subject Person; provided, however, that if a
Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of Common
Stock or Voting Securities by the Company, and after such share acquisition by the Company, the Subject Person
becomes the Beneficial Owner of any additional Common Stock or Voting Securities which increases the percentage of
the then outstanding Common Stock or Voting Securities Beneficially Owned by the Subject Person, then a Change in
Control shall occur.
(D) For purposes hereof, "Disability" shall mean a physical or mental infirmity which impairs the Director's ability to
substantially perform his duties as a director of the Company for a period of one hundred eighty (180) consecutive
days.
19. Non-Transferability of Restricted Shares. Until such time as a Restricted Share is no longer subject to forfeiture as provided in
----------------------------------------
paragraph 2 hereof, the Director shall not sell, assign, transfer, pledge, hypothecate, mortgage, encumber or dispose of any
such Restricted Share except that the Director may transfer all or any of the Restricted Shares which are still subject to
forfeiture (i) by way of gift to any member of his family or to any trust for the benefit of any such family member of the
Director, provided that any such transferee shall agree in writing with the Company as a condition to such transfer, to be
bound by all of the provisions of this Agreement to the same extent as if such transferee were the Director, (ii) by will or
the laws of descent and distribution, (iii) by way of gift to a charity, provided, however, any such transfer shall be made
subject to the terms and conditions of this Agreement. As used herein, "family " shall include any spouse, lineal ancestor
or descendant, brother or sister.
20. Securities Laws. The Director acknowledges that certain restrictions under state or federal securities laws may apply with
---------------
respect to the Restricted Shares granted to him pursuant to the Award. Specifically, Director acknowledges that, to the
extent he is an "affiliate" of the Company (as that term is defined by the Securities Act of 1933), the Restricted Shares
granted to him as a result of the Award are subject to certain trading restrictions under applicable securities laws
(including particularly the Securities and Exchange Commission's Rule 144). Director hereby agrees to execute such documents
and take such actions as the Company may reasonably require with respect to state and federal securities laws and any
restrictions on the resale of such shares which may pertain under such laws.
21. Legend. Each certificate evidencing any of the Restricted Shares shall bear a legend substantially as follows:
------
"The shares represented by this certificate have not been registered under the Securities Act of 1933 or
applicable state securities laws. The shares represented by this certificate are subject to restrictions on transfer
and may not be sold, exchanged, transferred, pledged, hypothecated or otherwise disposed of (i) without an effective
registration statement for such shares under the Securities Act of 1933 and any applicable state securities laws, or
an opinion of counsel satisfactory to the Company that registration is not required under the Securities Act of 1933
or under applicable state securities laws; and (ii) except in accordance with and subject to all of the terms and
conditions of a certain Restricted Stock Agreement dated as of March 1, 2001, a copy of which the Company will
furnish to the holder of this certificate upon request and without charge."
22. Adjustment. In the event of a Change in Capitalization (as hereinafter defined), the number of shares of Restricted Stock granted
----------
hereunder shall be appropriately and equitable adjusted. For purposes hereof, "Change in Capitalization" shall mean any
increase or reduction in the number of shares of Common Stock outstanding, or any exchange of Common Stock for a different
number or kind of shares or other securities of the Company by reason of a reclassification, recapitalization, merger,
consolidation, reorganization, stock dividend, stock split or reverse stock split, combination or exchange of shares or
similar event. If by reason of a Change in Capitalization, the Director shall be entitled to new, additional or different
shares of Common Stock or securities, such new, additional or different shares shall thereupon be subject to all of the
conditions which were applicable to the Restricted Shares prior to such Change in Capitalization.
23. Designation of Beneficiary. The Director may file with the Company a written designation of a beneficiary or beneficiaries under
--------------------------
this Agreement and may from time to time revoke or amend any such designation. Any designation of a beneficiary under this
Agreement shall be controlling over any other disposition, testamentary or otherwise, provided, however, that if the Company
is in doubt as to the entitlement of any such beneficiary to any Restricted Shares, the Company may determine to recognize
only the legal representative of the Director in which case the Company shall not be under any further liability to anyone.
24. Stockholder Rights. During the period that any shares of Restricted Stock remain subject to forfeiture under Section 2 hereof,
-------------------
the Director shall retain all rights of a stockholder of the Company with respect to such shares, including the right to
vote such shares and the right to receive dividends paid in respect of such shares.
25. Withholding. The Company shall have the right to require the Director (or if applicable, his permitted assign, heir or
------------
Beneficiary) to remit to the Company an amount sufficient to satisfy any tax requirements prior to the delivery of any
certificate or certificates for Restricted Shares under this Agreement.
26. Notices. Any notice to be given under the terms of this Agreement shall be in writing and addressed to the Company at its
---------
principal office in Calabasas, California, and to the Director at the address the Director may hereafter designate in
writing.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on its behalf by a duly authorized officer and
Director has executed this Agreement.
DIRECTOR:.... COUNTRYWIDE CREDIT INDUSTRIES, INC.
_______________________ By:________________________
(Printed Name) Angelo Mozilo
.... Chairman, Chief Executive Officer
and President
------------------------
(Signature)
----------------------------
(Address)
----------------------------
(City, State, Zip Code)
Date: _____________________
S:\jad\cci\restricted stock agreement
COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT 12.1 - COMPUTATION OF THE RATIO OF EARNINGS TO FIXED CHARGES
(Dollar amounts in thousands)
The following table sets forth the ratio of earnings to fixed charges of the Company for the five fiscal years ended February 28,
2001 computed by dividing net fixed charges (interest expense on all debt plus the interest element (one-third) of operating leases)
into earnings (income before income taxes and fixed charges).
For Fiscal Years Ended February 28(29),
-------------- - -------------- -- -------------- - ------------- -- -------------
2001 2000 1999 1998 1997
-------------- -------------- -------------- ------------- -------------
Net earnings $374,153 $410,243 $385,401 $344,983 $257,358
Income tax expense 211,882 220,955 246,404 220,563 164,540
Interest charges 1,348,242 922,225 977,326 564,640 418,682
Interest portion of rental expense 17,745 19,080 14,898 10,055 7,420
-------------- -------------- -------------- ------------- -------------
Earnings available to cover
fixed charges $1,952,022 $1,572,503 $1,624,029 $1,140,241 $848,000
============== ============== ============== ============= =============
Fixed charges
Interest charges 1,348,242 922,225 977,326 564,640 418,682
Interest portion of rental expense 17,745 19,080 14,898 10,055 7,420
-------------- -------------- -------------- ------------- -------------
Total fixed charges $1,365,987 $941,305 $992,224 $574,695 $426,102
============== ============== ============== ============= =============
Ratio of earnings to fixed charges 1.43 1.67 1.64 1.98 1.99
============== ============== ============== ============= =============
Countrywide Credit Industries Subsidiary List
AWL of Massachusetts, Inc. - a Delaware Corporation
Balboa Insurance Company - a California Corporation
Balboa Life &Casualty, LLC - a Delaware Limited Liability Company
Balboa Life Insurance Company - a California Corporation
Balboa Life Insurance Company of New York - a New York Corporation
CCM International Limited - a United Kingdom Limited Company
CHL Transfer Corp. - a Delaware Corporation
Continental Mobile Home Brokerage Corporation - a California Corporation
Countrywide Agency of Ohio, Inc. - an Ohio Corporation
Countrywide Agency of New York, Inc. - a New York Corporation
Countrywide Aircraft Corporation - an Oregon Corporation
Countrywide Asset Management Corp. - a California Corporation
Countrywide Capital I - a Delaware Corporation
Countrywide Capital II - a Delaware Corporation
Countrywide Capital III - a Delaware Corporation
Countrywide Capital Markets, Inc. - a California Corporation
Countrywide Document Services, Inc. - a Delaware Corporation
Countrywide Field Services Corporation - a California Corporation
Countrywide Financial Holding Company, Inc. - a Delaware Corporation
Countrywide General Agency of Texas, Inc. - a Texas Corporation
Countrywide GP, Inc. - a Nevada Corporation
Countrywide Home Loans, Inc. - a New York Corporation
Countrywide Home Loans of Minnesota, Inc. - a Minnesota Corporation
Countrywide Home Loans of New Mexico, Inc. - a New Mexico Corporation
Countrywide Home Loans of Tennessee, Inc. - a Tennessee Corporation
Countrywide Home Loans of Texas, Inc. - a Texas Corporation
Countrywide Home Loans Servicing LP - a Texas Limited Partnership
Countrywide Insurance Agency of Massachusetts, Inc. - a Massachusetts Corp.
Countrywide Insurance Agency of Ohio, Inc. - an Ohio Corporation
Countrywide Insurance Group, Inc. - a California Corporation
Countrywide Insurance Services, Inc - an Arizona Corporation
Countrywide Insurance Services, Inc. - a California Corporation
Countrywide Insurance Services of Alabama, Inc. - an Alabama Corporation
Countrywide Insurance Services of Texas, Inc. - a Texas Corporation
Countrywide International Consulting Services, LLC - a Delaware LLC
Countrywide International GP Holdings, LLC - a Delaware LLC
Countrywide International Holdings, Inc. - a Delaware Corporation
Countrywide International Technology Holdings Limited - a Guernsey Limited Co.
Countrywide JV Technology Holdings Limited - a Guernsey Limited Company
Countrywide Investment Services, Inc. - a California Corporation
Countrywide Lending Corporation - a California Corporation
Countrywide LP, Inc. - a Nevada Corporation
Countrywide Mortgage Pass-Thru Corporation - a Delaware Corporation
Countrywide Parks I, Inc. (Pecan Plantation) - a California Corporation
Countrywide Parks V, Inc. (Paradise Village) - a California Corporation
Countrywide Parks VI, Inc. (Quail Run) - a California Corporation
Countrywide Parks VII, Inc. (Allison Acres) - a California Corporation
Countrywide Parks VIII, Inc. (Northwest Pines) - a California Corporation
Countrywide Partnership Investments, Inc. a California Corporation
Countrywide Realty Partners Incorporated - a Delaware Corporation
Countrywide Securities Corporation - a California Corporation
Countrywide Servicing Exchange - a California Corporation
Countrywide Tax Services Corporation - a California Corporation
Countrywide Warehouse Lending - a California Corporation
CTC Real Estate Services - a California Corporation
CWABS, Inc. - a Delaware Corporation
CWHL Funding Corp. - a Delaware Corporation
CWMBS, Inc. - a Delaware Corporation
CWRBS, Inc. - a Delaware Corporation
CW Securities Holdings, Inc. - a Delaware Corporation
CWTechSolutions Limited - a United Kingdom Limited Company
Directnet Insurance Agency, Inc. - a New York Corporation
Directnet Insurance Agency of Alabama, Inc. - an Alabama Corporation
Directnet Insurance Agency of Arizona, Inc. - an Arizona Corporation
Directnet Insurance Agency of Massachusetts, Inc. - a Massachusetts Corporation
Directnet Insurance Agency of Ohio, Inc. - an Ohio Corporation
DynamicDox.Com, Inc. - a California Corporation
Effinity Financial Corporation - a Delaware Corporation
Full Spectrum Lending, Inc. - a California Corporation
GHL (One) Limited - an United Kingdom Limited Company
GHL (Two) Limited - an United Kingdom Limited Company
GHL Technology Limited Partnership - an English Limited Partnership
Global Home Loans Limited - a United Kingdom Limited Company
GlobaLoans International Technology Limited Partnership - an English Limited Part.
GlobaLoans JV Limited Partnership - an English Limited Partnership
HomeSafe Termite Inspection, Inc. - a California Corporation
Insurance Automation Corporation - a California Corporation
LandSafe Appraisal Services, Inc. - a California Corporation
LandSafe Credit, Inc. - a California Corporation
LandSafe Flood Determination, Inc. - a California Corporation
LandSafe Home Inspection Services, Inc - a California Corporation
LandSafe, Inc. - a Delaware Corporation
LandSafe Real Estate Partnership Services, Inc. - a California Corporation
LandSafe Services, Inc. - a Pennsylvania Corporation
LandSafe Servicing, Inc. - a California Corporation
LandSafe Title Agency, Inc. - a California Corporation
LandSafe Title Agency of New York, Inc. - a New York Corporation
LandSafe Title Agency of Ohio, Inc. - an Ohio Corporation
LandSafe Title of California, Inc. - a California Corporation
LandSafe Title of Florida, Inc. -a Florida Corporation
LandSafe Title of Illinois, Inc. - an Illinois Corporation
LandSafe Title of Indiana, Inc. - an Indiana Corporation
LandSafe Title of Maryland, Inc. - a Maryland Corporation
LandSafe Title of Michigan, Inc. - a Michigan Corporation
LandSafe Title of Nevada, Inc. - a Nevada Corporation
LandSafe Title of Texas, Inc. - a Texas Corporation
LandSafe Title of Washington, Inc. - a Washington Corporation
Meritplan Insurance Company - a California Corporation
Newport Insurance Company - an Arizona Corporation
Newport Management Corporation - a California Corporation
Second Charter Reinsurance Company - a Vermont Corporation
Suedore Limited - an Ireland Company
The Countrywide Foundation - a California Non Profit Corporation
Third Charter Reinsurance Company - an Illinois Corporation
Trusite Real Estate Services, Inc. - a California Corporation
UKValuation plc - an United Kingdom Limited Company
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------
We have issued our report dated April 25, 2001, accompanying the consolidated financial statements and schedules included in the
Annual Report of Countrywide Credit Industries, Inc. on Form 10-K for the year ended February 28, 2001. We hereby consent to the
incorporation by reference of said report in the Registration Statements of Countrywide Credit Industries, Inc. on Form S-3 (File No.
333-06473, effective June 21, 1996; File No. 33-59559 and 33-59559-01, effective June 26, 1995 and as amended on March 26, 1997; File
No. 333-3835 and 333-3835-01, effective August 2, 1996 and amended on March 26, 1997; File No. 333-14111, 333-14111-01, 333-14111-02,
and 333-14111-03, effective December 10, 1996; File No. 333-31529, 333-31529-01, effective August 12, 1997; File No. 333-58125 and
333-58125-01, effective July 16, 1998; File No. 333-66467 and 333-66467-01, effective November 10, 1998; File No. 333-82583 and
333-82583-01, effective June 8, 2000; File No. 333-55536 and 333-55536-01, effective March 13, 2001; and File No. 333-59614 and
333-59614-01, filed April 26, 2001) and on Form S-8 (File No. 33-9231, effective October 20, 1986, as amended on February 19, 1987,
and as amended on December 20, 1988; File No. 33-17271, effective December 20, 1987; File No. 33-42625, effective September 6, 1991;
File No. 33-56168, effective December 22, 1992; and File No. 33-69498, effective September 28, 1993; as supplemented on September 28,
1996; File No. 333-66095, effective October 23, 1998; File No. 333-73089, effective March 1, 1999; File No. 333-87417, effective
September 20, 1999; File No. 333-47096, effective October 2, 2000; and File No. 333-47128, effective October 2, 2000) and on Form S-4
(File No. 333-37047, effective November 19, 1997).
Los Angeles, California
May 17, 2001
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4 Unless otherwise permitted, text to be included for all Notes (including Notes denominated in Sterling) in respect of which the
issue proceeds are accepted by the Issuer in the United Kingdom
1 To appear on Notes with a maturity of more than 183 days.
2 To appear on Notes with a maturity of 183 days or less.
3 Include "commercial paper" if Notes must be redeemed before their first anniversary. Include "shorter" if Notes may not be
redeemed before their first anniversary but must be redeemed before their third anniversary. Include "longer" if Notes may
not be redeemed before their third anniversary.
4 Unless otherwise permitted, text to be included for all Notes (including Notes denominated in Sterling) in respect of which the
issue proceeds are accepted by the Issuer in the United Kingdom