-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AjTf4jfb2CHPa9dWRBxCB4XtMF1Jl00OnS2+2M19+6mQQZjbnYjzUPi/KOlWQN1J 7N8LrpyYQHk3O8mHjF6LrA== 0000025191-96-000011.txt : 19961016 0000025191-96-000011.hdr.sgml : 19961016 ACCESSION NUMBER: 0000025191-96-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19960831 FILED AS OF DATE: 19961015 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COUNTRYWIDE CREDIT INDUSTRIES INC CENTRAL INDEX KEY: 0000025191 STANDARD INDUSTRIAL CLASSIFICATION: MORTGAGE BANKERS & LOAN CORRESPONDENTS [6162] IRS NUMBER: 132641992 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08422 FILM NUMBER: 96643105 BUSINESS ADDRESS: STREET 1: 155 NORTH LAKE AVE CITY: PASADENA STATE: CA ZIP: 91101-1857 BUSINESS PHONE: 8183048400 10-Q 1 2ND QTR 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the period ended August 31, 1996 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 or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 155 N. Lake Avenue, Pasadena, California 91101 - ------------------------------------------- --------------------------------- (Address of principal executive offices) (Zip Code) (818) 304-8400 ----------------------------------------------------------------------- (Registrant's telephone number, including area code) 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at October 14, 1996 ----- ------------------------------- Common Stock $.05 par value 103,008,927
PART I FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) August 31, February 29, 1996 1996 ---------------- ----------------- (Dollar amounts in thousands, except per share data) ASSETS Cash $ 9,490 $ 16,444 Receivables for mortgage loans shipped 1,369,833 2,299,979 Mortgage loans held for sale 2,280,778 2,440,108 Other receivables 1,518,001 912,613 Property, equipment and leasehold improvements, at cost - net of accumulated depreciation and amortization 150,606 140,963 Capitalized servicing fees receivable 750,014 631,784 Mortgage servicing rights 2,044,448 1,691,881 Other assets 624,099 523,881 ---------------- ----------------- Total assets $8,747,269 $8,657,653 ================ ================= Borrower and investor custodial accounts (segregated in special accounts - excluded from corporate assets) $1,948,189 $2,548,549 ================ ================= LIABILITIES AND SHAREHOLDERS' EQUITY Notes payable $5,454,539 $6,097,518 Drafts payable issued in connection with mortgage loan closings 285,756 238,020 Accounts payable and accrued liabilities 996,744 505,148 Deferred income taxes 575,929 497,212 ---------------- ----------------- Total liabilities 7,312,968 7,337,898 Commitments and contingencies - - Shareholders' equity Preferred stock - authorized, 1,500,000 shares of $.05 par value; issued and outstanding, none - - Common stock - authorized, 240,000,000 shares of $.05 par value; issued and outstanding, 102,699,926 shares at August 31, 1996 and 102,242,329 shares at February 29, 1996 5,135 5,112 Additional paid-in capital 827,969 820,183 Retained earnings 601,197 494,460 ---------------- ----------------- Total shareholders' equity 1,434,301 1,319,755 ---------------- ----------------- Total liabilities and shareholders' equity $8,747,269 $8,657,653 ================ ================= Borrower and investor custodial accounts $1,948,189 $2,548,549 ================ ================= The accompanying notes are an integral part of these statements.
COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) Three Months Six Months Ended August 31, Ended August 31, 1996 1995 1996 1995 ------------------------------ ------------------------------ (Dollar amounts in thousands, except per share data) Revenues Loan origination fees $ 45,597 $ 53,385 $ 101,546 $ 94,906 Gain on sale of loans 58,411 19,283 105,491 32,014 ------------------------------ ------------------------------ Loan production revenue 104,008 72,668 207,037 126,920 Interest earned 99,714 92,022 200,426 165,614 Interest charges (76,243) (73,444) (153,309) (135,417) ------------------------------ ------------------------------ Net interest income 23,471 18,578 47,117 30,197 Loan servicing income 175,464 139,131 342,874 268,513 Add (less) amortization and impairment/ recovery of servicing assets (34,623) (53,678) 13,662 (199,421) Servicing hedge (expense) benefit (17,725) 18,105 (118,151) 135,080 ------------------------------ ------------------------------ Net loan administration income 123,116 103,558 238,385 204,172 Commissions, fees and other income 20,220 14,506 41,558 26,984 ------------------------------ ------------------------------ Total revenues 270,815 209,310 534,097 388,273 ------------------------------ ------------------------------ Expenses Salaries and related expenses 67,991 55,969 136,989 106,608 Occupancy and other office expenses 31,415 24,538 61,313 51,083 Guarantee fees 39,363 28,259 76,864 54,281 Marketing expenses 9,098 6,589 17,922 12,540 Other operating expenses 20,494 12,369 39,171 21,881 ------------------------------ ------------------------------ Total expenses 168,361 127,724 332,259 246,393 ------------------------------ ------------------------------ Earnings before income taxes 102,454 81,586 201,838 141,880 Provision for income taxes 39,957 32,634 78,717 56,752 ------------------------------ ------------------------------ NET EARNINGS $ 62,497 $ 48,952 $ 123,121 $ 85,128 ============================== ============================== Earnings per share Primary $0.60 $0.49 $1.18 $0.88 Fully diluted $0.60 $0.49 $1.17 $0.88 The accompanying notes are an integral part of these statements.
COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Six Months Ended August 31, 1996 1995 ---------------- ----------------- (Dollar amounts in thousands) Cash flows from operating activities: Net earnings $ 123,121 $ 85,128 Adjustments to reconcile net earnings to net cash provided (used) by operating activities: Amortization and impairment/recovery of mortgage servicing rights (20,998) 162,821 Amortization and impairment of capitalized servicing fees receivable 7,336 36,600 Depreciation and other amortization 18,742 14,175 Deferred income taxes 78,717 56,752 Servicing hedge unrealized expense (benefit) 88,300 (92,477) Origination and purchase of loans held for sale (20,172,169) (15,634,664) Principal repayments and sale of loans 21,261,645 14,212,571 ---------------- ----------------- Decrease (increase) in mortgage loans shipped and held for sale 1,089,476 (1,422,093) Increase in other receivables and other assets (798,943) (161,586) Increase in accounts payable and accrued liabilities 491,596 92,346 ---------------- ----------------- Net cash provided (used) by operating activities 1,077,347 (1,228,334) ---------------- ----------------- Cash flows from investing activities: Additions to mortgage servicing rights (331,569) (301,289) Additions to capitalized servicing fees receivable (125,566) (127,927) Purchase of property, equipment and leasehold improvements - net (23,348) (3,901) ---------------- ----------------- Net cash used by investing activities (480,483) (433,117) ---------------- ----------------- Cash flows from financing activities: Net (decrease) increase in warehouse debt and other short-term borrowings (691,895) 1,414,229 Issuance of long-term debt 210,000 140,000 Repayment of long-term debt (113,348) (96,081) Issuance of common stock 7,809 205,780 Cash dividends paid (16,384) (14,646) ---------------- ----------------- Net cash (used) provided by financing activities (603,818) 1,649,282 ---------------- ----------------- Net decrease in cash (6,954) (12,169) Cash at beginning of period 16,444 17,624 ================ ================= Cash at end of period $ 9,490 $ 5,455 ================ ================= Supplemental cash flow information: Cash used to pay interest $ 152,983 $ 169,642 Cash used to pay income taxes $ 10 - The accompanying notes are an integral part of these statements.
NOTE A - BASIS OF PRESENTATION The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the six-month period ended August 31, 1996 are not necessarily indicative of the results that may be expected for the fiscal year ending February 28, 1997. For further information, refer to the consolidated financial statements and footnotes thereto included in the annual report on Form 10-K for the fiscal year ended February 29, 1996 of Countrywide Credit Industries, Inc. (the "Company"). Certain amounts reflected in the consolidated financial statements for the six-month period ended August 31, 1995 have been reclassified to conform to the presentation for the six-month period ended August 31, 1996.
NOTE B - NOTES PAYABLE Notes payable consisted of the following. ------------------------------------------------------------------ ---- --------------- --- -------------- -- (Dollar amounts in thousands) August 31, February 29, 1996 1996 ------------------------------------------------------------------ ---- --------------- --- -------------- -- Commercial paper $3,050,501 $2,847,442 Medium-term notes 1,921,800 1,824,800 Repurchase agreements 281,918 808,353 Subordinated notes 200,000 200,000 Unsecured notes payable - 235,000 Pre-sale funding facilities - 181,255 Note payable 320 668 =============== ============== $5,454,539 $6,097,518 =============== ============== ------------------------------------------------------------------ ---- --------------- --- -------------- --
Revolving Credit Facility and Commercial Paper As of August 31, 1996, Countrywide Home Loans, Inc. ("CHL"), the Company's mortgage banking subsidiary, had an unsecured credit agreement (revolving credit facility) with fifty commercial banks permitting CHL to borrow an aggregate maximum amount of $3.5 billion, less commercial paper backed by the agreement. The amount available under the facility is subject to a borrowing base, which consists of mortgage loans held for sale, receivables for mortgage loans shipped and mortgage servicing rights. The facility contains various financial covenants and restrictions, certain of which limit the amount of dividends that can be paid by the Company or CHL. The interest rate on direct borrowings is based on a variety of sources, including the prime rate and the London Interbank Offered Rates ("LIBOR") for U.S. dollar deposits. This interest rate varies, depending on CHL's credit ratings. No amount was outstanding on the revolving credit facility at August 31, 1996. The weighted average borrowing rate on commercial paper borrowings for the six months ended August 31, 1996 was 5.38%. The weighted average borrowing rate on commercial paper outstanding as of August 31, 1996 was 5.38%. Under certain circumstances, including the failure to maintain specified minimum credit ratings, borrowings under the revolving credit facility and commercial paper may become secured by mortgage loans held for sale, receivables for mortgage loans shipped and mortgage servicing rights. The facility expires on May 14, 2000.
Medium-Term Notes As of August 31, 1996, outstanding medium-term notes issued by CHL under various shelf registrations filed with the Securities and Exchange Commission were as follows. - ----------------------------------------------------------------------------------------------------------------- (Dollar amounts in thousands) Outstanding Balance Interest Rate Maturity Date ------------------------------------------- ----------- ---------- ------------- ------------- Floating-Rate Fixed-Rate Total From To From To ------------------------------------------- ----------- ---------- ------------- ------------- Series A $ - $ 304,800 $ 304,800 6.10% 8.79% Mar 1997 Mar 2002 Series B 11,000 396,000 407,000 5.83% 6.98% Aug 1997 Aug 2005 Series C 303,000 197,000 500,000 5.88% 8.43% Dec 1997 Mar 2004 Series D 115,000 385,000 500,000 5.68% 6.88% Aug 1998 Sep 2005 Series E 210,000 - 210,000 5.72% 5.72% Aug 2000 Aug 2000 =========================================== Total $639,000 $1,282,800 $1,921,800 =========================================== ---------------------------------------------------------------------------------------------------------------
As of August 31, 1996, all of the outstanding fixed-rate notes had been effectively converted by interest rate swap agreements to floating-rate notes. The weighted average borrowing rate on medium-term note borrowings for the six months ended August 31, 1996, including the effect of the interest rate swap agreements, was 6.12%. As of August 31, 1996, $790 million was available for future issuances under the Series E shelf registration. Repurchase Agreements As of August 31, 1996, the Company had entered into short-term financing arrangements to sell mortgage-backed securities ("MBS") under agreements to repurchase. The weighted average borrowing rate for the six months ended August 31, 1996 was 5.39%. The weighted average borrowing rate on repurchase agreements outstanding as of August 31, 1996 was 5.42%. The repurchase agreements were collateralized by MBS. All MBS underlying repurchase agreements are held in safekeeping by broker-dealers, and all agreements are to repurchase the same or substantially identical MBS. Subordinated Notes The 8.25% subordinated notes are due July 15, 2002. Interest 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 requirements. Pre-Sale Funding Facilities As of August 31, 1996, CHL had uncommitted revolving credit facilities with two government-sponsored entities and an affiliate of an investment banking firm. The credit facilities are secured by conforming mortgage loans which are in the process of being pooled into MBS. Interest rates are based on LIBOR, federal funds and/or the prevailing rates for MBS repurchase agreements. The weighted average borrowing rate for all three facilities for the six months ended August 31, 1996 was 5.58%. As of August 31, 1996, the Company had no outstanding borrowings under any of these facilities.
NOTE C - SUMMARIZED FINANCIAL INFORMATION OF SUBSIDIARY The following tables present summarized financial information for Countrywide Home Loans, Inc. -- ----------------------------------------- ---- --------------------------------------------------- ------- (Dollar amounts in thousands) August 31, February 29, 1996 1996 -- ---------------------------------------------- -------- -------------- ---------- -------------- --------- Balance Sheets: Mortgage loans shipped and held for sale $3,650,611 $4,740,087 Other assets 4,113,094 3,441,678 ============== ============== Total assets $7,763,705 $8,181,765 ============== ============== Short- and long-term debt $5,740,295 $6,335,538 Other liabilities 657,404 588,446 Equity 1,366,006 1,257,781 ============== ============== Total liabilities and equity $7,763,705 $8,181,765 ============== ============== -- ---------------------------------------------- -------- -------------- ---------- -------------- ---------
--- ----------------------------------------- --- -------------------------------------------------- -------- (Dollar amounts in thousands) Six Months Ended August 31, --------------- ---------- --------------- 1996 1995 --- --------------------------------------------- ------- --------------- ---------- --------------- -------- Statements of Earnings: Revenues $485,763 $ 363,793 Expenses 308,346 229,667 Provision for income taxes 69,193 53,650 =============== =============== Net earnings $108,224 $ 80,476 =============== =============== --- --------------------------------------------- ------- --------------- ---------- --------------- --------
NOTE D - SERVICING HEDGE The following summarizes the notional amounts of servicing hedge derivative contracts. - -------------------------------- ----------- ------------ --------------- --------- ------------ ---------- ------------ (Dollar amounts in millions) Long Call Options on Interest Long Call Interest Rate Principal Interest Rate Floors Options Futures Swap - Only Rate on MBS Caps Swaps Cap Swaptions - -------------------------------- ----------- ------------ --------------- --------- ------------ ---------- ------------ Balance, February 29, 1996 $15,750 $ 1,500 $ 3,550 $1,000 $268 $ - $ - Additions 7,000 - 4,910 - - 500 1,500 Dispositions/Expirations - (1,500) (4,350) - - - - =========== ============ =============== ========= ============ ========== ------------ Balance, August 31, 1996 $22,750 $ - $ 4,110 $1,000 $268 $500 $1,500 =========== ============ =============== ========= ============ ========== ------------ - -------------------------------- ----------- ------------ --------------- --------- ------------ ---------- ------------
During the six months ended August 31, 1996, the Company entered into an interest rate cap agreement ("Cap") and purchased options on interest rate swaps ("Swaptions") as additional components of its Servicing Hedge. The Cap entitles the Company to receive payments if the selected market interest rate exceeds the stated rate. The Cap outstanding will expire on April 26, 2001. Under the terms of the Swaptions, the Company has the option to enter into a receive-fixed, pay-floating interest rate swap at a future date or to settle the transaction for cash. The Swaptions outstanding expire from March 11, 1999 to April 15, 2007. NOTE E - VALUATION ALLOWANCE FOR CAPITALIZED MORTGAGE SERVICING RIGHTS The following summarizes the aggregate activity in the valuation allowances for capitalized mortgage servicing rights. - -------------------------------------------------------- ---------------------- (Dollar amounts in thousands) Aggregate Balances ---------------------- Balances, February 29, 1996 ($61,634) Recovery 40,526 ---------------------- Balances, August 31, 1996 ($21,108) ---------------------- - -------------------------------------------------------- ---------------------- NOTE F - LEGAL PROCEEDINGS On June 22, 1995, a lawsuit was filed by Jeff and Kathy Briggs, as a purported class action, against CHL and a mortgage broker in the Northern Division of the United States District Court for the Middle District of Alabama. The suit claims, among other things, that in connection with residential mortgage loan closings, CHL made certain payments to mortgage brokers in violation of the Real Estate Settlement Procedures Act and induced mortgage brokers to breach their alleged fiduciary duties to their customers. The plaintiffs seek unspecified compensatory and punitive damages plus, as to certain claims, treble damages. CHL's management believes that its compensation programs to mortgage brokers comply with applicable laws and with long-standing industry practice, and that it has meritorious defenses to the action. CHL intends to defend vigorously against the action and believes that the ultimate resolution of such claims will not have a material adverse effect on the Company's results of operations or financial position. The Company and certain subsidiaries are defendants in various lawsuits involving matters generally incidental to their business. Although it is difficult to predict the ultimate outcome of these cases, 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. NOTE G - SUBSEQUENT EVENTS On September 13, 1996, the Company declared a cash dividend of $0.08 per common share payable October 31, 1996 to shareholders of record on October 15, 1996. On September 5, 1996, the Company purchased a new corporate headquarters facility from Lockheed Martin Corporation for $33 million. The headquarters facility consists of approximately 225,000 square feet and is located on 20 acres in Calabasas, California. FORWARD-LOOKING STATEMENTS The Private Securities Litigation Reform Act of 1995 provides a new "safe harbor" for certain forward-looking statements. This Quarterly Report on Form 10-Q contains forward-looking statements which reflect the Company's current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties, including those identified below, which could cause actual results to differ materially from historical results or those anticipated. The words "believe," "expect," "anticipate," "intend," "estimate" and other expressions which indicate future events and trends identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The following factors could cause actual results to differ materially from historical results or those anticipated: (1) the level of demand for mortgage credit, which is affected by such external factors as the level of interest rates, the strength of the various segments of the economy and demographics of the Company's lending markets; (2) the direction of interest rates; (3) the relationship between mortgage interest rates and the cost of funds; (4) federal and state regulation of the Company's mortgage banking operations and (5) competition within the mortgage banking industry. RESULTS OF OPERATIONS Quarter Ended August 31, 1996 Compared to Quarter Ended August 31, 1995 Revenues for the quarter ended August 31, 1996 increased 29% to $270.8 million from $209.3 million for the quarter ended August 31, 1995. Net earnings increased 28% to $62.5 million for the quarter ended August 31, 1996 from $49.0 million for the quarter ended August 31, 1995. The increase in revenues and net earnings for the quarter ended August 31, 1996 compared to the quarter ended August 31, 1995 was attributable to a larger gain on sale of loans resulting from additional types of loans being sold in the quarter ended August 31, 1996, improved pricing margins on prime credit quality first mortgages, an increase in the size of the Company's servicing portfolio and higher loan production volume. These positive factors during the quarter ended August 31, 1996 were partially offset by increased expenses in the quarter ended August 31, 1996 over the quarter ended August 31, 1995. The total volume of loans produced increased 3% to $9.2 billion for the quarter ended August 31, 1996 from $8.9 billion for the quarter ended August 31, 1995. Refinancings totaled $2.1 billion, or 22% of total fundings, for the quarter ended August 31, 1996, as compared to $2.6 billion, or 28% of total fundings, for the quarter ended August 31, 1995. Fixed-rate loan production totaled $6.4 billion, or 70% of total fundings, for the quarter ended August 31, 1996, as compared to $6.7 billion, or 75% of total fundings, for the quarter ended August 31, 1995. Production in the Company's Consumer Markets Division decreased to $1.9 billion for the quarter ended August 31, 1996 from $2.0 for the quarter ended August 31, 1995. Production in the Company's Wholesale Division decreased to $1.8 billion for the quarter ended August 31, 1996 from $2.1 billion for the quarter ended August 31, 1995. The Company's Correspondent Division purchased $5.5 billion in mortgage loans for the quarter ended August 31, 1996 compared to $4.8 billion for the quarter ended August 31, 1995. The factors which affect the relative volume of production among the Company's three divisions include the competitiveness of each Division's product offerings, the level of mortgage lending activity in each Division's markets, and the success of each Division's sales and marketing efforts. Included in the Company's total volume of loans produced are $127 million of home equity loans funded in the quarter ended August 31, 1996 and $58 million funded in the quarter ended August 31, 1995. Sub-prime credit quality ("B&C") loan activity, which is also included in the Company's total production volume, was $191 million for the quarter ended August 31, 1996 and $1 million for the quarter ended August 31, 1995. At August 31, 1996 and 1995, the Company's pipeline of loans in process was $4.3 billion and $5.2 billion, respectively. In addition, at August 31, 1996, the Company had committed to make loans in the amount of $1.7 billion, subject to property identification and borrower qualification ("LOCK 'N SHOP(R) Pipeline"). At August 31, 1995, the LOCK 'N SHOP (R) Pipeline was $1.2 billion. Historically, approximately 43% to 77% of the pipeline of loans in process has funded. For the quarters ended August 31, 1996 and 1995, the Company received 116,101 and 115,782 new loan applications, respectively, at an average daily rate of $185 million and $196 million, respectively. The following actions were taken during the quarter ended August 31, 1996 on the total applications received during that quarter: 63,166 loans (54% of total applications received) were funded and 17,610 applications (15% of total applications received) were either rejected by the Company or withdrawn by the applicant. The following actions were taken during the quarter ended August 31, 1995 on the total applications received during that quarter: 59,502 loans (51% of total applications received) were funded and 15,764 applications (14% of total applications received) were either rejected by the Company or withdrawn by the applicant. The factors that affect the percentage of applications received and funded during a given time period include the movement and direction of interest rates, the average length of loan commitments issued, the creditworthiness of applicants, the production divisions' loan processing efficiency and loan pricing decisions. Loan origination fees decreased during the quarter ended August 31, 1996 as compared to the quarter ended August 31, 1995 due primarily to higher loan production in the Company's Correspondent Division which, due to its lower cost structure, charges lower origination fees per dollar loaned. Gain on sale of loans improved during the quarter ended August 31, 1996 as compared to the quarter ended August 31, 1995 primarily due to the sale during the quarter ended August 31, 1996 of higher margin B&C loans and improved pricing margins on prime credit quality first mortgages. There were no B&C loan sales in the quarter ended August 31, 1995. In general, loan origination fees and gain (loss) on sale of loans are affected by numerous factors including loan pricing decisions, interest rate volatility, the general direction of interest rates and the volume and mix of loans produced and sold. Net interest income (interest earned net of interest charges) increased to $23.5 million for the quarter ended August 31, 1996 from $18.6 million for the quarter ended August 31, 1995. Consolidated net interest income is principally a function of: (i) net interest income earned from the Company's mortgage loan warehouse ($15.6 million and $9.4 million for the quarters ended August 31, 1996 and 1995, respectively); (ii) interest expense related to the Company's investment in servicing rights ($19.9 million and $15.5 million for the quarters ended August 31, 1996 and 1995, respectively) and (iii) interest income earned from the custodial balances associated with the Company's servicing portfolio ($27.8 million and $24.7 million for the quarters ended August 31, 1996 and 1995, respectively). The Company earns interest on, and incurs interest expense to carry, mortgage loans held in its warehouse. The increase in net interest income from the mortgage loan warehouse was attributable to an increase in the average mortgage loan warehouse due to increased production and a longer warehousing period and a higher net earnings rate. The increase in interest expense on the investment in servicing rights resulted primarily from a larger servicing portfolio, partially offset by a decrease in the payments of interest to certain investors pursuant to customary servicing arrangements with regard to paid-off loans in excess of the interest earned on these loans through their respective payoff dates ("Interest Costs Incurred on Payoffs"). The increase in net interest income earned from the custodial balances was related to an increase in the average custodial balances (caused by growth of the servicing portfolio and partially offset by a decrease in prepayments), offset somewhat by a decrease in the earnings rate, from the quarter ended August 31, 1995 to the quarter ended August 31, 1996. During the quarter ended August 31, 1996, loan administration income was positively affected by the continued growth of the loan servicing portfolio. At August 31, 1996, the Company serviced $148.6 billion of loans (including $2.5 billion of loans subserviced for others) compared to $126.4 billion (including $1.7 billion of loans subserviced for others) at August 31, 1995, an 18% increase. The growth in the Company's servicing portfolio during the quarter ended August 31, 1996 was the result of loan production, partially offset by prepayments, partial prepayments, and scheduled amortization of mortgage loans. The weighted average interest rate of the mortgage loans in the Company's servicing portfolio at both August 31, 1996 and 1995 was 7.8%. It is the Company's strategy to build and retain its servicing portfolio because of the returns the Company can earn from such investment and because the Company believes that servicing income is countercyclical to loan production income. During the quarter ended August 31, 1996, the prepayment rate of the Company's servicing portfolio was 9%, as compared to 13% for the quarter ended August 31, 1995. In general, the prepayment rate is affected by the level of refinance activity, which in turn is driven by the relative level of mortgage interest rates, and activity in the home purchase market. The decrease in the prepayment rate from the quarter ended August 31, 1995 to the quarter ended August 31, 1996 was primarily attributable to decreased refinance activity caused by higher interest rates during the quarter ended August 31, 1996 than during the quarter ended August 31, 1995. The primary means used by the Company to reduce the sensitivity of its earnings to changes in interest rates is through a strong production capability and a growing servicing portfolio. In addition, to mitigate the effect on earnings of higher amortization and impairment (which are deducted from loan servicing income) that may result from increased current and projected future prepayment activity, the Company acquires financial instruments, including derivative contracts, that increase in value when interest rates decline (the "Servicing Hedge"). These financial instruments include call options on interest rate futures and MBS, interest rate floors, interest rate swaps (with the Company's maximum payment capped) ("Swap Caps"), principal-only ("P/O") swaps, options on interest rate swaps ("Swaptions") and certain tranches of collateralized mortgage obligations ("CMOs"). With the Swap Caps, the Company receives and pays interest on a specified notional amount. The rate received is fixed; the rate paid is adjustable, is indexed to the London Interbank Offered Rates for U.S. dollar deposits ("LIBOR") and has a specified maximum or "cap." The P/O swaps are derivative contracts, the value of which is determined by changes in the value of the referenced P/O security. The payments received by the Company under the P/O swaps relate to the cash flows of the referenced P/O security. The payments made by the Company are based upon a notional amount tied to the remaining balance of the referenced P/O security multiplied by a floating rate indexed to LIBOR. With the Swaptions, the Company has the option to enter into a receive-fixed, pay-floating interest rate swap at a future date or to settle the transaction for cash. The CMOs, which consist primarily of P/O securities, have been purchased at deep discounts to their par values. As interest rates decrease, prepayments on the collateral underlying the CMOs should increase. This should result in a decline in the average lives of the P/O securities and a corresponding increase in the present values of their cash flows. Conversely, as interest rates increase, prepayments on the collateral underlying the CMOs should decrease. These changes should result in an increase in the average lives of the P/O securities and a decrease in the present values of their cash flows. The Servicing Hedge instruments utilized by the Company are designed to protect the value of the investment in servicing rights 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 servicing rights increases while the value of the hedge instruments declines. With respect to the options, cap, swaptions, floors and CMOs, the Company is not exposed to loss beyond its initial outlay to acquire the hedge instruments. With respect to the Swap Caps contracts entered into by the Company as of August 31, 1996, the Company estimates that its maximum exposure to loss over the contractual term is $28 million. The Company's exposure to loss in the P/O swaps is related to changes in the market value of the referenced P/O security over the life of the contract. In the quarter ended August 31, 1996, the Company recognized a net loss of $17.7 million from its Servicing Hedge. The net loss included unrealized losses of $0.8 million and realized losses of $16.9 million from the amortization and sale of various financial instruments that comprise the Servicing Hedge. In the quarter ended August 31, 1995, the Company recognized a net gain of $18.1 million from its Servicing Hedge. The net gain included unrealized gains of $2.4 million and net realized gains of $15.7 million from the amortization and sale of various financial instruments that comprise the Servicing Hedge. The Company recorded amortization and a net recovery of its Servicing Assets in the quarter ended August 31, 1996 totaling $34.6 million (consisting of normal amortization amounting to $51.3 million and a net recovery of $16.7 million), compared to $53.7 million of amortization and impairment of its Servicing Assets in the quarter ended August 31, 1995 (consisting of normal amortization amounting to $41.2 million and impairment of $12.5 million). The factors affecting the amount of amortization and impairment or recovery of the Servicing Assets recorded in an accounting period include the level of prepayments during the period, the change in estimated future prepayments and the amount of Servicing Hedge gains or losses. During the quarter ended August 31, 1996, the Company acquired bulk servicing rights for loans with principal balances aggregating $44.9 million at a price of 0.87% of the aggregate outstanding principal balance of the servicing portfolios acquired. During the quarter ended August 31, 1995, the Company acquired bulk servicing rights for loans with principal balances aggregating $0.5 billion at a price of 1.10% of the aggregate outstanding principal balance of the servicing portfolios acquired.
Salaries and related expenses are summarized below for the quarters ended August 31, 1996 and 1995. -- --------------------------- -- -- --------- ------------------------------------------------- -- --- --- ----- (Dollar amounts in Quarter Ended August 31, 1996 thousands) -- --------------------------- -- -- --------- ------------------------------------------------- -- --- --- ----- Production Loan Corporate Other Activities Administration Administration Activities Total -- --------------------------- -- ------------ -- ------------- - ------------- -- ------------- -- ------------- Base Salaries $22,319 $10,269 $13,315 $3,117 $49,020 Incentive Bonus 6,306 191 3,852 1,599 11,948 Payroll Taxes and Benefits 3,337 1,752 1,574 360 7,023 ------------ ------------- ------------- ------------- ------------- Total Salaries and Related Expenses $31,962 $12,212 $18,741 $5,076 $67,991 ============ ============= ============= ============= ------------- Average Number of 2,246 1,519 1,090 240 5,095 Employees -- --------------------------- -- ------------ -- ------------- - ------------- -- ------------- -- -------------
-- --------------------------- -- --- -------- ------------------------------------------------- ---- --- -- ---- (Dollar amounts in Quarter Ended August 31, 1995 thousands) -- --------------------------- -- --- -------- ------------------------------------------------- ---- --- -- ---- Production Loan Corporate Other Activities Administration Administration Activities Total -- --------------------------- -- ------------ - -------------- - ------------- -- ------------- -- ------------- Base Salaries $16,506 $7,337 $11,387 $2,389 $37,619 Incentive Bonus 9,355 114 2,356 813 12,638 Payroll Taxes and Benefits 2,680 1,171 1,586 275 5,712 ------------ -------------- ------------- ------------- ------------- Total Salaries and Related Expenses $28,541 $8,622 $15,329 $3,477 $55,969 ============ ============== ============= ============= ------------- Average Number of 1,652 1,036 857 189 3,734 Employees -- --------------------------- -- ------------ - -------------- - ------------- -- ------------- -- -------------
The amount of salaries increased during the quarter ended August 31, 1996 from the quarter ended August 31, 1995 primarily due to an increased number of employees resulting from higher loan production and new loan products, a larger servicing portfolio and growth in the Company's non-mortgage banking activities. Incentive bonuses decreased during the quarter ended August 31, 1996 despite increased production primarily due to revised bonus payment plans for loan production personnel. Occupancy and other office expenses for the quarter ended August 31, 1996 increased to $31.4 million from $24.5 million for the quarter ended August 31, 1995, reflecting the Company's goal of expanding its retail branch network. In addition, higher loan production, a larger servicing portfolio and growth in the Company's non-mortgage banking activities also contributed to the increase. Guarantee fees represent fees paid to guarantee timely and full payment of principal and interest on MBS and whole loans sold to permanent investors and to transfer the credit risk of the loans in the servicing portfolio. For the quarter ended August 31, 1996, guarantee fees increased 39% to $39.4 million from $28.3 million for the quarter ended August 31, 1995. The factors which affect the amount of guarantee fees in a period include the size of the servicing portfolio, the mix of permanent investors and the terms negotiated at the time of loan sales. Marketing expenses for the quarter ended August 31, 1996 increased 38% to $9.1 million from $6.6 million for the quarter ended August 31, 1995, reflecting the Company's continued implementation of a marketing plan to increase brand awareness of the Company in the residential mortgage market. Other operating expenses for the quarter ended August 31, 1996 increased from the quarter ended August 31, 1995 by $8.1 million, or 66%. This increase was due primarily to higher loan production, a larger servicing portfolio, increased reserves for bad debts and increased systems development and operation costs in the quarter ended August 31, 1996 over the quarter ended August 31, 1995. Profitability of Loan Production and Servicing Activities In the quarter ended August 31, 1996, the Company's pre-tax income from its loan production activities (which include loan origination and purchases, warehousing and sales) was $33.8 million. In the quarter ended August 31, 1995, the Company's comparable pre-tax income was $17.9 million. The increase of $15.9 million was primarily attributable to a larger gain on sale of loans resulting from the sale of higher margin B&C loans and improved pricing margins on prime credit quality first mortgages. There were no B&C loan sales in the quarter ended August 31, 1995. These positive results were partially offset by higher production costs and a change in the internal method of allocating overhead between the Company's production and servicing activities. In the quarter ended August 31, 1996, the Company's pre-tax income from its loan servicing activities (which include administering the loans in the servicing portfolio, selling homeowners and other insurance, acting as tax payment agent and marketing foreclosed properties) was $63.7 million as compared to $60.9 million in the quarter ended August 31, 1995. The increase of $2.8 million was principally due to an increase in the size of the servicing portfolio and the change in the internal method of allocating overhead, partially offset by an increase in other servicing expenses. Additionally, in the quarter ended August 31, 1996, the total of Servicing Hedge expense and amortization and impairment of Servicing Assets exceeded the comparable total expense for the quarter ended August 31, 1995 by $16.8 million. Profitability of Other Activities In addition to loan production and loan servicing, the Company offers ancillary products and services related to the mortgage banking business. These include title insurance and escrow services, home appraisals, credit cards, management of a publicly traded real estate investment trust ("REIT"), securities brokerage, servicing rights brokerage and reinsurance. For the quarter ended August 31, 1996, these activities contributed $4.9 million to the Company's pre-tax income compared to $2.7 million for the quarter ended August 31, 1995. This increase to pre-tax income primarily results from improved performance of the title insurance and escrow services and reinsurance. RESULTS OF OPERATIONS Six Months Ended August 31, 1996 Compared to Six Months Ended August 31, 1995 Revenues for the six months ended August 31, 1996 increased 38% to $534.1 million from $388.3 million for the six months ended August 31, 1995. Net earnings increased 45% to $123.1 million for the six months ended August 31, 1996 from $85.1 million for the six months ended August 31, 1995. The increase in revenues and net earnings for the six months ended August 31, 1996 compared to the six months ended August 31, 1995 was attributable to a larger gain on sale of loans resulting from the sale of higher margin B&C loans in the six months ended August 31, 1996, improved pricing margins on prime credit quality first mortgages, an increase in the size of the Company's servicing portfolio and higher loan production volume. These positive factors were partially offset by increased expenses in the six months ended August 31, 1996, from the six months ended August 31, 1995. The total volume of loans produced increased 29% to $20.2 billion for the six months ended August 31, 1996 from $15.6 billion for the six months ended August 31, 1995. Refinancings totaled $6.7 billion, or 33% of total fundings, for the six months ended August 31, 1996, as compared to $3.6 billion, or 23% of total fundings, for the six months ended August 31, 1995. Fixed-rate loan production totaled $15.5 billion, or 77% of total fundings, for the six months ended August 31, 1996, as compared to $11.2 billion, or 72% of total fundings, for the six months ended August 31, 1995. Production in the Company's Consumer Markets Division increased to $4.3 billion for the six months ended August 31, 1996 compared to production of $3.3 billion for the six months ended August 31, 1995. Production in the Company's Wholesale Division totaled $3.9 billion for the six months ended both August 31, 1996 and 1995. The Company's Correspondent Division purchased $12.0 billion in mortgage loans in the six months ended August 31, 1996 compared to $8.4 billion in the six months ended August 31, 1995. Included in the Company's total volume of loans produced are $233 million of home equity loans funded in the six months ended August 31, 1996 and $105 million funded in the six months ended August 31, 1995. Sub-prime credit quality loan activity, which is also included in the Company's total production volume, was $379 million for the six months ended August 31, 1996 and $1 million during the six months ended August 31, 1995. For the six months ended August 31, 1996 and 1995, the Company received 259,563 and 216,987 new loan applications, respectively, at an average daily rate of $208 million and $178 million, respectively. The following actions were taken during the six months ended August 31, 1996 on the total applications received during that six months: 167,042 loans (64% of total applications received) were funded and 53,560 applications (21% of total applications received) were either rejected by the Company or withdrawn by the applicant. The following actions were taken during the six months ended August 31, 1995 on the total applications received during that six months: 131,694 loans (61% of total applications received) were funded and 40,674 applications (19% of total applications received) were either rejected by the Company or withdrawn by the applicant. Loan origination fees increased during the six months ended August 31, 1996 as compared to the six months ended August 31, 1995 due to higher loan production that resulted from a decrease in the level of mortgage interest rates. The percentage increase in loan origination fees was less than the percentage increase in total production. This was primarily because production by the Correspondent Division comprised a greater percentage of total production in the six months ended August 31, 1996 than in the six months ended August 31, 1995. Gain on sale of loans improved during the six months ended August 31, 1996 as compared to the six months ended August 31, 1995 primarily due to the sale during the six months ended August 31, 1996 of higher margin B&C loans and improved pricing margins on prime credit quality first mortgages. Net interest income (interest earned net of interest charges) increased to $47.1 million for the six months ended August 31, 1996 from $30.2 million for the six months ended August 31, 1995. Consolidated net interest income is principally a function of: (i) net interest income earned from the Company's mortgage loan warehouse ($31.6 million and $11.6 million for the six months ended August 31, 1996 and 1995, respectively); (ii) interest expense related to the Company's investment in servicing rights ($43.8 million and $24.2 million for the six months ended August 31, 1996 and 1995, respectively) and (iii) interest income earned from the custodial balances associated with the Company's servicing portfolio ($59.3 million and $42.8 million for the six months ended August 31, 1996 and 1995, respectively). The Company earns interest on, and incurs interest expense to carry, mortgage loans held in its warehouse. The increase in net interest income from the mortgage loan warehouse was attributable to an increase in the average amount of the mortgage loan warehouse due to increased production, offset somewhat by a lower net earnings rate. The increase in interest expense on the investment in servicing rights resulted primarily from a larger servicing portfolio and an increase in Interest Costs Incurred on Payoffs. The increase in net interest income earned from the custodial balances was related to an increase in the average custodial balances (caused by growth of the servicing portfolio and an increase in prepayments), offset somewhat by a decrease in the earnings rate, from the six months ended August 31, 1995 to the six months ended August 31, 1996. During the six months ended August 31, 1996, loan administration income was positively affected by the continued growth of the loan servicing portfolio. The growth in the Company's servicing portfolio during the six months ended August 31, 1996 was the result of loan production volume and the acquisition of bulk servicing rights, partially offset by prepayments, partial prepayments, and scheduled amortization of mortgage loans. During the six months ended August 31, 1996, the prepayment rate of the Company's servicing portfolio was 12%, as compared to 9% for the six months ended August 31, 1995. The increase in the prepayment rate was due to increased refinance activity caused by lower interest rates during the six months ended August 31, 1996 than during the six months ended August 31, 1995. During the six months ended August 31, 1996, the Company recognized a net loss of $118.2 million from its Servicing Hedge. The net loss included unrealized losses of $88.3 million and realized losses of $29.9 million from the amortization and sale of various financial instruments that comprise the Servicing Hedge. During the six months ended August 31, 1995, the Company recognized a net gain of $135.1 million from its Servicing Hedge. The net gain included unrealized gains of $92.5 million and net realized gains of $42.6 million from the amortization and sale of various financial instruments that comprise the Servicing Hedge. The Company recorded amortization and net recovery of its Servicing Assets in the six months ended August 31, 1996 totaling $13.7 million (consisting of normal amortization amounting to $103.8 million and net recovery of $117.5 million), compared to $199.4 million of amortization and impairment (consisting of normal amortization amounting to $70.3 million and impairment of $129.1 million) in the six months ended August 31, 1995. During the six months ended August 31, 1996, the Company acquired bulk servicing rights for loans with principal balances aggregating $1.1 billion at a price of approximately 1.76% of the aggregate outstanding principal balance of the servicing portfolios acquired. During the six months ended August 31, 1995, the Company acquired bulk servicing rights for loans with principal balances aggregating $3.5 billion at a price of approximately $44.3 million or 1.28% of the aggregate outstanding principal balance of the servicing portfolios acquired.
Salaries and related expenses are summarized below for the six months ended August 31, 1996 and 1995. -- --------------------------- -- -- --------- ------------------------------------------------- -- --- --- ----- (Dollar amounts in Six Months Ended August 31, 1996 thousands) -- --------------------------- -- -- --------- ------------------------------------------------- -- --- --- ----- Production Loan Corporate Other Activities Administration Administration Activities Total -- --------------------------- -- ------------ -- ------------- - ------------- -- ------------- -- ------------- Base Salaries $43,151 $19,902 $25,442 $6,156 $ 94,651 Incentive Bonus 17,015 343 7,260 2,788 27,406 Payroll Taxes and Benefits 7,216 3,621 3,300 795 14,932 ------------ ------------- ------------- ------------- ------------- Total Salaries and Related Expenses $67,382 $23,866 $36,002 $9,739 $136,989 ============ ============= ============= ============= ------------- Average Number of 2,175 1,490 1,047 246 4,958 Employees -- --------------------------- -- ------------ -- ------------- - ------------- -- ------------- -- -------------
-- --------------------------- -- --- -------- ------------------------------------------------- ---- --- -- ---- (Dollar amounts in Six Months Ended August 31, 1995 thousands) -- --------------------------- -- --- -------- ------------------------------------------------- ---- --- -- ---- Production Loan Corporate Other Activities Administration Administration Activities Total -- --------------------------- -- ------------ - -------------- - ------------- -- ------------- -- ------------- Base Salaries $31,815 $13,990 $21,613 $4,453 $ 71,871 Incentive Bonus 14,925 249 4,786 2,567 22,527 Payroll Taxes and Benefits 5,247 2,373 4,017 573 12,210 ------------ -------------- ------------- ------------- ------------- Total Salaries and Related Expenses $51,987 $16,612 $30,416 $7,593 $106,608 ============ ============== ============= ============= ------------- Average Number of 1,603 998 835 167 3,603 Employees -- --------------------------- -- ------------ - -------------- - ------------- -- ------------- -- -------------
The amount of salaries increased during the six months ended August 31, 1996 from the six months ended August 31, 1995 primarily due to an increased number of employees resulting from higher loan production, a larger servicing portfolio and growth in the Company's non-mortgage banking activities. Occupancy and other office expenses for the six months ended August 31, 1996 increased to $61.3 million from $51.1 million for the six months ended August 31, 1995, reflecting the Company's goal of expanding its retail branch network. In addition, higher loan production, a larger servicing portfolio and growth in the Company's non-mortgage banking activities also contributed to the increase. Guarantee fees for the six months ended August 31, 1996 increased 42% to $76.9 million from $54.3 million for the six months ended August 31, 1995. This increase resulted from an increase in the servicing portfolio, changes in the mix of permanent investors and terms negotiated at the time of loan sales. Marketing expenses for the six months ended August 31, 1996 increased 43% to $17.9 million from $12.5 million for the six months ended August 31, 1995, reflecting the Company's continued implementation of a marketing plan to increase brand awareness of the Company in the residential mortgage market. Other operating expenses for the six months ended August 31, 1996 increased from the six months ended August 31, 1995 by $17.3 million, or 79%. This increase was due primarily to higher loan production, a larger servicing portfolio, increased reserves for bad debts and increased systems development and operation costs in the six months ended August 31, 1996 than in the six months ended August 31, 1995. Profitability of Loan Production and Servicing Activities In the six months ended August 31, 1996, the Company's pre-tax income from its loan production activities (which include loan origination and purchases, warehousing and sales) was $64.7 million. In the six months ended August 31, 1995, the Company's comparable pre-tax earnings were $16.5 million. The increase of $48.2 million was primarily attributable to a larger gain on sale of loans resulting from the sale of higher margin B&C loans and improved pricing margins on prime credit quality first mortgages. There were no B&C loan sales in the six months ended August 31, 1995. These positive results were partially offset by higher production costs and a change in the internal method of allocating overhead between the Company's production and servicing activities. In the six months ended August 31, 1996, the Company's pre-tax income from its loan servicing activities (which include administering the loans in the servicing portfolio, selling homeowners and other insurance, acting as tax payment agent and marketing foreclosed properties) was $126.4 million as compared to $120.9 million in the six months ended August 31, 1995. The increase of $5.5 million was principally due to an increase in the size of the servicing portfolio and in the rate of servicing and miscellaneous fees earned. This was partially offset by the total of Servicing Hedge expense and amortization and impairment of Servicing Assets in the six months ended August 31, 1996 exceeding the comparable total expense for the six months ended August 31, 1995 by $40.1 million. Profitability of Other Activities Other ancillary products and services contributed $10.7 million to the Company's pre-tax income in the six months ended August 31, 1996, compared to $4.5 million during the six months ended August 31, 1995. This increase to pre-tax income primarily results from improved performance of the title insurance, escrow and REIT management services. INFLATION Inflation affects the Company in the areas of loan production and servicing. Interest rates normally increase during periods of high inflation and decrease during periods of low inflation. Historically, as interest rates increase, loan production, particularly from loan refinancings, decreases, 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 from overcapacity in the market. In a higher interest rate environment, servicing-related earnings are enhanced because prepayment rates tend to slow down thereby extending the average life of the Company's servicing portfolio and reducing both amortization and impairment of the Servicing Assets and Interest Costs Incurred on Payoffs, 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 then-current interest rates), thereby decreasing the average life of the Company's servicing portfolio and adversely impacting its servicing-related earnings primarily due to increased amortization and impairment of the Servicing Assets, a decreased rate of interest earned from the custodial balances and increased Interest Costs Incurred on Payoffs. The impacts of changing interest rates on servicing-related earnings are reduced by performance of the Servicing Hedge, which is designed to mitigate the impact on earnings of higher amortization and impairment that may result from declining interest rates. 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, delinquency rates typically rise in the winter months, which results in higher servicing costs. However, late charge income has historically been sufficient to offset such incremental expenses. LIQUIDITY AND CAPITAL RESOURCES The Company's principal financing needs are the financing of loan funding activities and the investment in servicing rights. To meet these needs, the Company currently utilizes commercial paper supported by CHL's revolving credit facility, medium-term notes, MBS repurchase agreements, subordinated notes, and cash flow from operations. In addition, in the past the Company has utilized whole loan repurchase agreements, servicing-secured bank facilities, direct borrowings from CHL's revolving credit facility, privately-placed financings, unsecured notes, pre-sale funding facilities and public offerings of preferred stock. Certain of the debt obligations of the Company and CHL contain various provisions that may affect the ability of the Company and CHL to pay dividends and remain in compliance with such obligations. These provisions include requirements concerning net worth, current ratio and other financial covenants. These provisions have not had, and are not expected to have, an adverse impact on the ability of the Company and CHL to pay dividends. The Company continues to investigate and pursue alternative and supplementary methods to finance its growing 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 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 to investors the mortgage loans it originates and purchases but generally retains the right to service the loans, thereby increasing the Company's investment in loan servicing rights. The Company views the sale of loans on a servicing-retained basis in part as an 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 the six months ended August 31, 1996, the Company's operating activities provided cash of approximately $1.1 billion on a short-term basis primarily from the decrease in its warehouse of mortgage loans. Mortgage loans shipped and held for sale are generally financed with short-term borrowings; therefore, the operating cash so provided was used to repay short-term debt as discussed under "Financing Activities." Investing Activities The primary investing activity for which cash was used during the six months ended August 31, 1996 was the investment in servicing. Net cash used by investing activities increased to $0.5 billion for the six months ended August 31, 1996 from $0.4 billion for the six months ended August 31, 1995. Financing Activities Net cash used by financing activities amounted to $0.6 billion for the six months ended August 31, 1996. Net cash provided by financing activities amounted to $1.6 billion for the six months ended August 31, 1995. The decrease in cash provided by financing activities was primarily the result of net short-term debt repayments by the Company in the six months ended August 31, 1996 and net short-term borrowings during the six months ended August 31, 1995. PROSPECTIVE TRENDS Applications and Pipeline of Loans in Process During the six months ended August 31, 1996, the Company received new loan applications at an average daily rate of $208 million and at August 31, 1996, the Company's pipeline of loans in process was $4.3 billion. This compares to a daily application rate during the six months ended August 31, 1995 of $178 million and a pipeline of loans in process at August 31, 1995 of $5.2 billion. The size of the pipeline is generally an indication of the level of future fundings, as historically 43% to 77% of the pipeline of loans in process has funded. In addition, the Company's LOCK 'N SHOP (R) Pipeline at August 31, 1996 was $1.7 billion and at August 31, 1995 was $1.2 billion. For the month ended September 30, 1996, the average daily amount of applications received was $195 million, and at September 30, 1996, the pipeline of loans in process was $4.2 billion and the LOCK 'N SHOP (R) pipeline was $1.8 billion. Interest rates declined slightly during September 1996. Future application levels and loan fundings are dependent on numerous factors, including the level of demand for mortgage credit, the extent of price competition in the market, the direction of interest rates, seasonal factors and general economic conditions. Market Factors During the quarter ended August 31, 1996, interest rates moved upward slightly. Loan production declined from the quarter ended May 31, 1996 to the quarter ended August 31, 1996. However, strong home purchase market activity during the quarter ended August 31, 1996, as evidenced by a steady real estate market and the seasonal nature of household relocations benefited the Company. The Company's purchase loan production comprised 78 percent of total fundings for the quarter ended August 31, 1996 compared to 58 percent of total fundings in the quarter ended May 31, 1996. In addition, B&C and home-equity loan fundings, which are generally less sensitive to interest rate fluctuations than prime credit quality first mortgages, increased during the quarter ended August 31, 1996 versus the quarter ended May 31, 1996. As discussed in "Seasonality," sales and resale of homes typically peak in the spring and summer months, which correspond to the Company's first and second quarters. Interest rates were slightly higher at the end of the quarter ended August 31, 1996 than at the beginning of that fiscal quarter. The prepayment rate in the servicing portfolio declined during the quarter; previously recorded impairment of the Servicing Assets was recovered and the Servicing Hedge resulted in an expense. The Company's primary competitors are commercial banks, savings and loans and mortgage banking subsidiaries of diversified companies, as well as other mortgage bankers. Certain commercial banks have expanded their mortgage banking operations through acquisition of formerly independent mortgage banking companies, the integration of which has not been completed, or through internal growth. The Company believes that these transactions and activities have not had a material impact on the Company or on the degree of competitive pricing in the market. Some regions in which the Company operates, particularly some regions of California, have been experiencing slower economic growth, and real estate financing activity in these regions has been negatively impacted. As a result, home lending activity for single- (one-to-four) family residences in these regions may also have experienced slower growth. The Company's California mortgage loan production (measured by principal balance) constituted 25% of its total production during the six months ended August 31, 1996, down from 30% for the six months ended August 31, 1995. The Company is continuing its efforts to expand its production capacity outside of California. To the extent that California's mortgage loan production constitutes a significant portion of the Company's production, there can be no assurance that the Company's operations will not continue to be adversely affected to the extent California continues to experience slow or negative economic growth resulting in decreased residential real estate lending activity or market factors further impact the Company's competitive position in the state. The delinquency rate in the Company-owned servicing portfolio increased to 3.10% at August 31, 1996 from 2.75% at August 31, 1995. The Company believes that this increase was primarily the result of portfolio mix changes and aging. The proportion of government and high loan-to-value conventional loans, which tend to experience higher delinquency rates than low loan-to-value conventional loans, has increased from 43% of the portfolio at August 31, 1995 to 47% at August 31, 1996. In addition, the weighted average age of the portfolio was 27 months at August 31, 1996, up from 23 months at August 31, 1995. Delinquency rates tend to increase as loans age, reaching a peak at three to five years of age. However, because the loans in the portfolio are generally serviced on a non-recourse basis, the Company's exposure to credit loss resulting from increased delinquency rates is substantially limited. Further, related late charge income has historically been sufficient to offset incremental servicing expenses resulting from an increased delinquency rate. The percentage of loans in the Company's owned servicing portfolio that are in foreclosure increased to 0.53% at August 31, 1996 from 0.29% at August 31, 1995. Because the Company services substantially all conventional loans on a non-recourse basis, foreclosure losses are generally the responsibility of the investor or insurer and not the Company. Accordingly, any increase in foreclosure activity should not result in significant foreclosure losses to the Company. However, the Company's expenses may be increased somewhat as a result of the additional staff efforts required to foreclose on a loan. Similarly, government loans serviced by the Company (27% of the Company's servicing portfolio at August 31, 1996) are insured or partially guaranteed against loss by the Federal Housing Administration or the Veterans Administration. In the Company's view, the limited unreimbursed costs that may be incurred by the Company on government foreclosed loans are not material to the Company's consolidated financial statements. Servicing Hedge As previously discussed, the Company's Servicing Hedge is designed to protect the value of its investment in servicing rights 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 the servicing rights generally increases. There can be no assurance that, in periods of increasing interest rates, the increase in value of the Servicing Assets will offset the amount of Servicing Hedge expense; or in periods of declining interest rates, that the Company's Servicing Hedge will generate gains or if gains are generated, that they will fully offset impairment of the Servicing Assets. Implementation of New Accounting Standards In June 1996, the Financial Accounting Standard Board issued Statement No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities ("SFAS No. 125"). Among other provisions, this Statement uses a "financial components" approach that focuses on control to determine the proper accounting for financial asset transfers, addresses the accounting for servicing rights on financial assets in addition to mortgage loans and extends the disaggregated lower of cost or market approach for measuring servicing rights (including excess servicing) on all financial assets. The financial asset transfers provisions of SFAS No. 125 are not expected to have a material impact on the Company's financial position or results of operations. The impact of the new Statement's servicing rights provisions will not be known until the implementation date because such impact is dependent on the fair value of the Company's capitalized servicing fees receivable (excess servicing) on December 31, 1996. Pursuant to the requirements 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. (Registrant) DATE: October 14, 1996 /s/ Stanford L. Kurland ------------------------------------- Senior Managing Director and Chief Operating Officer DATE: October 14, 1996 /s/ Carlos M. Garcia ------------------------------------- Managing Director; Chief Financial Officer and Chief Accounting Officer (Principal Financial Officer and Principal Accounting Officer)
PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders (a) The Company's Annual Meeting of Stockholders was held July 10, 1996. (b) At the Annual Meeting, the stockholders voted on the following matters: (1) Election of Directors Voted For Votes Withheld David S. Loeb 86,723,810 810,615 Angelo R. Mozilo 86,758,512 775,913 (2) Approval of annual cash bonus provision of the employment agreements of David S. Loeb and Angelo R. Mozilo Votes For: 77,774,350 Votes Against: 8,961,730 Votes Abstain: 798,344 (3) Approval of the Countrywide Credit Industries, Inc. Annual Incentive Plan Votes For: 82,334,535 Votes Against: 4,456,270 Votes Abstain: 743,620 (4) Approval of the Countrywide Credit Industries, Inc. Amended and Restated 1993 Stock Option Plan Votes For: 53,343,925 Votes Against: 15,927,121 Votes Abstain: 917,635 Broker Non-vote 17,345,744 (5) Approval of selection of Grant Thornton LLP as the independent accountants for the fiscal year ending February 28, 1997 Votes For: 86,916,521 Votes Against: 145,340 Votes Abstain: 472,564
PART II. OTHER INFORMATION (Continued) Item 6. Exhibits and Reports on Form 8-K (a) Exhibits \pnf4 10.1 Restated Employment Agreement for David S. Loeb dated March 26, 1996. 10.2 Restated Employment Agreement for Angelo R. Mozilo dated March 26, 1996. 10.3 Employment Agreement for Stanford L. Kurland dated May 7, 1996. 10.4 Countrywide Credit Industries, Inc. Annual Incentive Plan. 10.5 Countrywide Credit Industries, Inc. Amended and Restated 1993 Stock Option Plan. 10.5.1 Amendment No. 1 to the Amended and Restated 1993 Stock Option Plan. 11.1 Statement Regarding Computation of Per Share Earnings. 12.1 Computation of the Ratio of Earnings to Fixed Charges. 27 Financial Data Schedules (included only with the electronic filing with the SEC). (b) Reports on Form 8-K. None EX-10 2 SECOND RESTATED EMPLOYMENT AGREEMENT - D. LOEB Exhibit 10.1 SECOND RESTATED EMPLOYMENT AGREEMENT THIS RESTATED EMPLOYMENT AGREEMENT (the "Agreement") has been executed as of March 26, 1996 by and between Countrywide Credit Industries, Inc., a Delaware corporation ("Employer"), and David S. Loeb ("Officer"). W I T N E S S E T H: WHEREAS, Officer currently holds the offices of Chairman of the Board of Directors of Employer (the "Board") and President of Employer; and WHEREAS, Employer desires to obtain the benefit of continued services of Officer and Officer desires to continue to render services to Employer; and WHEREAS, the Board has determined that it is in Employer's best interest and that of its stockholders to recognize the substantial contribution that Officer has made and is expected to continue to make to the Company's business and to retain his services in the future; and WHEREAS, Employer and Officer set forth the terms and conditions of Officer's employment with Employer under an employment agreement entered into as of March 1, 1991 (the "Original Agreement"); and WHEREAS, Employer and Officer entered into Amendment No. 1 to Employment Agreement as of November 5, 1992 ("Amendment No. 1"), entered into Amendment No. 2 to Employment Agreement as of November 10, 1992 ("Amendment No. 2") and entered into a Restated Employment Agreement as of February 2, 1993 (the "First Restated Agreement"); and WHEREAS, Employer and Officer desire to set forth the continued terms and conditions of Officer's employment with Employer under this Agreement; WHEREAS, the effectiveness of this Agreement is subject to the approval of Employer's stockholders of the provisions of Section 4(b) hereof and the amendments to the 1993 Plan (as defined herein) as submitted to stockholders for approval. NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained, the parties hereto agree as follows: 1. Term. Employer agrees to employ Officer and Officer agrees to serve Employer, in accordance with the terms hereof, for a term beginning on the Effective Date (as defined in Section 8(c) hereof) and ending on February 28, 2001, unless earlier terminated in accordance with the provisions hereof. 2. Specific Position; Duties and Responsibilities. Employer and Officer hereby agree that, subject to the provisions of this Agreement, Employer will employ Officer and Officer will serve Employer and its subsidiaries as Chairman of the Board and President of Employer. Employer agrees that Officer's duties hereunder shall be the usual and customary duties of the offices of Chairman of the Board and President and such further duties consistent therewith as may be designated from time to time by the Board, and shall not be inconsistent with the provisions of the charter documents of Employer or applicable law. Officer shall have such executive power and authority as shall reasonably be required to enable him to discharge his duties in the offices which he may hold. All compensation paid to Officer by Employer or any of its subsidiaries shall be aggregated in determining whether Officer has received the benefits provided for herein. 3. Scope of this Agreement and Outside Affiliations. During the term of this Agreement, Officer shall devote his full business time and energy, except as expressly provided below, to the business, affairs and interests of Employer and its subsidiaries, and matters related thereto, and shall use his best efforts and abilities to promote its interests. Officer agrees that he will diligently endeavor to promote the business, affairs and interests of Employer and its subsidiaries and perform services contemplated hereby, in accordance with the policies established by the Board, which policies shall be consistent with this Agreement. Officer agrees to serve without additional remuneration in such senior executive capacity not below the rank of President for one or more (direct or indirect) subsidiaries of Employer as the Board may from time to time request, subject to appropriate authorization by the subsidiary or subsidiaries involved and any limitation under applicable law. Officer's failure to discharge an order or perform a function because Officer reasonably and in good faith believes such would violate a law or regulation or be dishonest shall not be deemed a breach by him of his obligations or duties pursuant to any of the provisions of this Agreement, including without limitation pursuant to Section 5(c) hereof. During the course of Officer's employment as a full-time officer hereunder, Officer shall not, without the consent of the Board, compete, directly or indirectly, with Employer in the businesses then conducted by Employer. Officer may serve as a director or in any other capacity of any business enterprise, including an enterprise whose activities may involve or relate to the business of Employer, provided that such service is expressly approved by the Board. Officer may make and manage personal business investments of his choice and serve in any capacity with any civic, educational or charitable organization, or any governmental entity or trade association, without seeking or obtaining approval by the Board, provided such activities and services do not materially interfere or conflict with the performance of his duties hereunder. 4. Compensation and Benefits. (a) Base Salary. Employer shall pay to Officer a base salary in each fiscal year of Employer (a "Fiscal Year") or portion thereof covered by this Agreement at the annual rate of $1,300,000: (b) Incentive Compensation. Employer shall pay to Officer for each of the Fiscal Years ending in 1997 through 2001 an incentive compensation award in the amount of the incentive compensation award paid to Officer in the previous Fiscal Year, multiplied by a fraction (the "Performance Ratio") the numerator of which is the earnings per share on a fully diluted basis of Employer during such current Fiscal Year as reported in the audited Financial Statements included in Employer's Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "EPS") and the denominator of which is the EPS for the previous Fiscal Year (adjusted proportionately in the event Employer (A) declares a stock dividend on its common stock, (B) subdivides its outstanding common stock, (C) combines the outstanding shares of its capital stock into a smaller number of common stocks or (D) issues any shares of its capital stock in a reclassification of the common stock (including any such reclassification in connection with a consolidation or merger in which Employer is the continuing or surviving corporation)); provided, however, that the Compensation Committee of the Board (the "Compensation Committee") may reduce the amount of any incentive compensation award in the event there is a substantial distortion in EPS for the Fiscal Year in respect of which the award is being paid resulting from an acquisition, a divestiture, or a change in accounting standards. (c) Stock Options. Employer shall grant to Officer a stock option in respect of 1,000,000 shares of the Employer's common stock on the first business day following the Effective Date, such option to become exercisable as to 333,333, 333,333 and 333,334 shares on each of the first three (3) anniversaries of the date of grant. Employer may also grant to Officer stock options in respect of each of the Fiscal Years ending in 2000 and 2001 for such number of shares of Employer's common stock as the Compensation Committee in its sole discretion determines, taking into account Officer's and Employer's performance in each of such Fiscal Years and the competitive practices then prevailing regarding the granting of stock options. All stock options granted in accordance with this Section 4(c) shall be granted pursuant to the Countrywide Credit Industries, Inc. 1993 Stock Option Plan, as amended (the "1993 Plan"), or such other stock option plan or plans as may be or come into effect during the term of this Agreement and shall have a per share exercise price equal to the fair market value (as defined in the 1993 Plan or such other plan or plans) of the common stock at the time of grant. The stock options granted pursuant to this Section shall consist of incentive stock options to the extent permitted by law or regulation. (d) Additional Benefits. Officer shall also be entitled to all rights and benefits for which he is otherwise eligible under any bonus plan, stock purchase plan, participation or extra compensation plan, executive compensation plan, pension plan, profit-sharing plan, life and medical insurance policy, or other plans or benefits, which Employer or its subsidiaries may provide for him, or provided he is eligible to participate therein, for senior officers generally or for employees generally, during the term of this Agreement (collectively, "Additional Benefits"). This Agreement shall not affect the provision of any other compensation, retirement or other benefit program or plan of Employer. (e) Continuation of Benefits. If Officer's employment is terminated hereunder, pursuant to Section 5(a), 5(b) or 5(d) hereof, Employer shall continue for the period specified in Section 5(a) or 5(b) hereof or three years in the case of a termination pursuant to Section 5(d) hereof, as the case may be, to provide benefits substantially equivalent to Additional Benefits (other than qualified pension or profit sharing plan benefits and option, equity or stock appreciation or other incentive plan benefits as distinguished from health, disability and welfare type benefits) on behalf of Officer and his dependents and beneficiaries which were being provided to them immediately prior to Officer's Termination Date, but only to the extent that Officer is not entitled to comparable benefits from other employment. (f) Deferral of Amounts Payable Hereunder. In the event Officer should desire to defer receipt of any cash payments to which he would otherwise be entitled hereunder, he may present such a written request to the Compensation Committee which, in its sole discretion, may enter into a separate deferred compensation agreement with Officer. (g) Notwithstanding anything to the contrary contained in this Agreement, in no event shall the Performance Ratio be less than zero. Employer shall pay the incentive compensation award described in Section 4(b) hereof for each Fiscal Year as early after the end of such Fiscal Year as practicable but in no event more than 90 days after the end of such Fiscal Year; provided, however, that the incentive compensation award described in Section 4(b) hereof may be paid, in whole or in part, prior to the end of the Fiscal Year to which such incentive compensation award relates, on such terms and conditions and at such times as may otherwise be mutually agreed upon by Employer and Officer. If the Compensation Committee shall determine to grant to Officer the stock options described in Section 4(c) hereof in respect of either of the Fiscal Years ending in 2000 or 2001, such options shall be granted at the same time as Employer grants stock options to its other senior executives in respect of such Fiscal Year (but in no event later than June 30 following the end of such Fiscal Year). 5. Termination. The compensation and benefits provided for herein and the employment of Officer by Employer shall be terminated only as provided for below in this Section 5: (a) Disability. In the event that Officer shall fail, because of illness, injury or similar incapacity ("Disability"), to render for four (4) consecutive calendar months, or for shorter periods aggregating eighty (80) or more business days in any twelve (12) month period, services contemplated by this Agreement, Officer's full-time employment hereunder may be terminated, by written Notice of Termination from Employer to Officer; and thereafter, Employer shall continue, from the Termination Date until Officer's death or the fifth anniversary of such notice, whichever first occurs (the "Disability Payment Period"), (i) to pay compensation to Officer, in the same manner as in effect immediately prior to the Termination Date, in an amount equal to (1) fifty percent (50%) of the then existing base salary payable immediately prior to the termination, minus (2) the amount of any cash payments to him under the terms of Employer's disability insurance or other disability benefit plans or Employer's tax-qualified Defined Benefit Pension Plan, and any compensation he may receive pursuant to any other employment, and (ii) to provide during the Disability Payment Period the benefits specified in Section 4(e) hereof. The determination of Disability shall be made only after 30 days notice to Officer and only if Officer has not returned to performance of his duties during such 30-day period. In order to determine Disability, both Employer and Officer shall have the right to provide medical evidence to support their respective positions, with the ultimate decision regarding Disability to be made by a majority of Employer's disinterested directors. (b) Death. In the event that Officer shall die during the term of this Agreement, Employer shall pay Officer's base salary for a period of twelve (12) months following the date of Officer's death and in the manner otherwise payable hereunder, to such person or persons as Officer shall have directed in writing or, in the absence of a designation, to his estate (the "Beneficiary"). Employer shall also provide during the twelve-month period following the date of the Officer's death the benefits specified in Section 4(e) hereof. If Officer's death occurs while he is receiving payments for Disability under Section 5(a)(i) above, such payments shall cease and the Beneficiary shall be entitled to the payments and benefits under this Subsection (b), which shall continue for a period of twelve months thereafter at the full rate of compensation in effect immediately prior to the Disability. This Agreement in all other respects will terminate upon the death of Officer; provided, however, that the termination of the Agreement shall not affect Officer's entitlement to all other benefits in which he has become vested or which are otherwise payable in respect of periods ending prior to its termination. (c) Cause. Employer may terminate Officer's employment under this Agreement for "Cause." A termination for Cause is a termination by reason of (i) a material breach of this Agreement by Officer (other than as a result of incapacity due to physical or mental illness) which is committed in bad faith or without reasonable belief that such breach is in the best interests of Employer and which is not remedied within a reasonable period of time after receipt of written notice from Employer specifying such breach, or (ii) Officer's conviction by a court of competent jurisdiction of a felony, or (iii) entry of an order duly issued by any federal or state regulatory agency having jurisdiction in the matter removing Officer from office of Employer or its subsidiaries or permanently prohibiting him from participating in the conduct of the affairs of Employer or any of its subsidiaries. If Officer shall be convicted of a felony or shall be removed from office and/or temporarily prohibited from participating in the conduct of Employer's or any of its subsidiaries' affairs by any federal or state regulatory authority having jurisdiction in the matter, Employer's obligations under Sections 4(a), 4(b) and 4(c) hereof shall be automatically suspended; provided, however, that if the charges resulting in such removal or prohibition are finally dismissed or if a final judgment on the merits of such charges is issued in favor of Officer, or if the conviction is overturned on appeal, then Officer shall be reinstated in full with back pay for the removal period plus accrued interest at the rate then payable on judgments. During the period that Employer's obligations under Sections 4(a), 4(b) and 4(c) hereof are suspended, Officer shall continue to be entitled to receive Additional Benefits under Section 4(d) until the conviction of the felony or removal from office has become final and non-appealable. When the conviction of the felony or removal from office has become final and non-appealable, all of Employer's obligations hereunder shall terminate; provided, however, that the termination of Officer's employment pursuant to this Section 5(c) shall not affect Officer's entitlement to all benefits in which he has become vested or which are otherwise payable in respect of periods ending prior to his termination of employment. (d) Good Reason. Officer may terminate his employment for Good Reason. For purposes of this Agreement, "Good Reason" shall be deemed to occur if Employer notifies Officer of a termination of his employment other than for Cause or if Employer breaches this Agreement in any material respect or if the Board (i) elects a person other than Officer as Employer's President or Chairman of the Board without Officer's consent, (ii) reorganizes management so as to require him to report to a person or persons other than the Board, or (iii) takes any other action which, in Officer's sole judgment, results in the diminution in Officer's status, title, position and responsibilities other than an insubstantial action not taken in bad faith and which is remedied by Employer promptly after receipt of notice by Officer. Notwithstanding the foregoing, Officer may terminate his employment for any or no reason within one year following a "Change in Control" (as defined in Appendix A to this Agreement) and such termination shall be considered a termination for Good Reason hereunder. If Officer's employment shall be terminated by Employer other than for Cause or by Officer for Good Reason, then Employer shall pay Officer in a single payment, as severance pay and in lieu of any further salary and incentive compensation for periods subsequent to the Termination Date, an amount in cash equal to three times the sum of (A) Officer's annual base salary at the Termination Date and (B) the aggregate bonus and/or incentive compensation paid or payable to Officer in respect of the Fiscal Year preceding the fiscal year in which Officer's Termination Date occurs. Notwithstanding anything in this Agreement to the contrary, in the event it shall be determined that any payment or distribution by Employer or any other person or entity to or for the benefit of Officer (within the meaning of Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code")), whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise in connection with, or arising out of, his employment with Employer or a change in ownership or effective control of Employer or a substantial portion of its assets (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), the Payments shall be reduced (but not below zero) if and to the extent that such reduction would result in Officer retaining a larger amount, on an after-tax basis (taking into account federal, state and local income taxes and the imposition of the Excise Tax), than if Officer received all of the Payments. If the application of the preceding sentence should require a reduction in Payments or other "parachute payments" (within the meaning of Section 280G of the Code), unless Officer shall have designated otherwise, such reduction shall be implemented, first, by reducing any non-cash benefits to the extent necessary and, second, by reducing any cash benefits to the extent necessary. In each case, the reductions shall be made starting with the payment or benefit to be made on the latest date following the Termination Date and reducing payments or benefits in reverse chronological order therefrom. All determinations concerning the application of this paragraph shall be made by a nationally recognized firm of independent accountants, selected by Officer and satisfactory to Employer, whose determination shall be conclusive and binding on all parties. The fees and expenses of such accountants shall be borne by Employer. (e) Resignation. Except as provided in Section 5(d) hereof, if during the term of this Agreement, Officer shall resign voluntarily, all of his rights to payment or benefits hereunder shall immediately terminate; provided, however, that the termination of Officer's employment pursuant to this Section 5(e) shall not affect Officer's entitlement to all benefits in which he has become vested or which are otherwise payable in respect of periods ending prior to his termination of employment. (f) Notice of Termination. Any purported termination by Employer or by Officer shall be communicated by a written Notice of Termination to the other party hereto which indicates the specific termination provision in this Agreement, if any, relied upon and which sets forth in reasonable detail the facts and circumstances, if any, claimed to provide a basis for termination of Officer's employment under the provision so indicated. For purposes of this Agreement, no such purported termination shall be effective without such Notice of Termination. The "Termination Date" shall mean the date specified in the Notice of Termination, which shall be no less than 30 or more than 60 days from the date of the Notice of Termination. Notwithstanding any other provision of this Agreement, in the event of any termination of Officer's employment hereunder for any reason, Employer shall pay Officer his full base salary through the Termination Date, plus any Additional Benefits which have been earned or become payable, but which have not yet been paid as of such Termination Date plus (unless Officer has resigned voluntarily pursuant to Section 5(e) or been terminated for Cause in accordance with Section 5(c) hereof) the Pro Rata Bonus (as defined below). The "Pro Rata Bonus" shall mean the amount equal to the product of (x) the bonus or incentive award referred to in Section 4(b) hereof paid or payable to Officer for the last full Fiscal Year of Employer prior to Officer's Termination Date and (y) the fraction obtained by dividing (A) the number of days elapsed since the end of such Fiscal Year through the Termination Date and (B) 365. (g) Payments. All payments required under this Agreement (other than the Additional Benefits payable pursuant to Section 4(e) hereof) as a result of the termination of Officer's employment hereunder shall be made within 15 days of the Termination Date or, if any portion is not then reasonably determinable, within five (5) days after such portion is so determinable. In the event of a dispute concerning the validity of a purported termination which is maintained in good faith, the Termination Date shall mean the date the dispute is finally resolved and Employer will continue to provide Officer with the compensation and benefits provided for under this Agreement, until the dispute is finally resolved without any obligation by Officer to repay any of such amounts to Employer, notwithstanding the final outcome of the dispute. Payments required to be made by this Section 5(g) are in addition to all other amounts due under Section 5 of this Agreement and shall not be offset against or reduce any other amounts due under Section 5 of this Agreement. Officer shall be required to render services to Employer during the period following his Termination Date but before the dispute concerning the termination is finally determined unless Employer fails to provide Officer with a reasonable opportunity to perform his duties under this Agreement during such period. 6. Reimbursement of Business Expenses. During the term of this Agreement, Employer shall reimburse Officer promptly for all expenditures (including travel, entertainment, parking, business meetings, and the monthly costs (including dues) of maintaining memberships at appropriate clubs) to the extent that such expenditures meet the requirements of the Code for deductibility by Employer for federal income tax purposes or are otherwise in compliance with the rules and policies of Employer and are substantiated by Officer as required by the Internal Revenue Service and rules and policies of Employer. 7. Indemnity. To the extent permitted by applicable law, the Certificate of Incorporation and the By-Laws of Employer (as from time to time in effect) and any indemnity agreements entered into from time to time between Employer and Officer, Employer shall indemnify Officer and hold him harmless for any acts or decisions made by him in good faith while performing services for Employer, and shall use reasonable efforts to obtain coverage for him under liability insurance policies now in force or hereafter obtained during the term of this Agreement covering the other officers or directors of Employer. 8. Miscellaneous. (a) Succession. This Agreement shall inure to the benefit of and shall be binding upon Employer, its successors and assigns, but without the prior written consent of Officer, this Agreement may not be assigned other than in connection with a merger or sale of substantially all the assets of the Employer or similar transaction. Employer shall not agree to any such transaction unless the successor to or assignee of the Company's business and/or assets in such transaction expressly assumes all obligations of the Employer hereunder. The obligations and duties of Officer hereby shall be personal and not assignable. (b) Notices. Any notices provided for in this Agreement shall be sent to Employer at 155 North Lake Avenue, Pasadena, California 91101, Attention: Corporate Counsel/Secretary, with a copy to the Chairman of the Compensation Committee at the same address, or to such other address as Employer may from time to time in writing designate, and to Officer at such address as he may from time to time in writing designate (or his business address of record in the absence of such designation). All notices shall be deemed to have been given two (2) business days after they have been deposited as certified mail, return receipt requested, postage paid and properly addressed to the designated address of the party to receive the notices. (c) Effective Date. This Agreement shall become effective on the date of the annual meeting of Employer's stockholders in 1996 (the "Effective Date") provided Employer's stockholders vote to approve the provisions of Section 4(b) hereof and the amendments to the 1993 Plan as submitted to the stockholders for approval. If either of such matters is not approved by Employer's stockholders, this Agreement shall be null and void and the First Restated Agreement shall continue in full force and effect. (d) Entire Agreement. This instrument contains the entire agreement of the parties relating to the subject matter hereof, and it replaces and supersedes any prior agreements between the parties relating to said subject matter, including, but not limited to, the First Restated Agreement; provided, however, that until this Agreement shall become effective, the First Restated Agreement shall continue in full force and effect. No modifications or amendments of this Agreement (including, but not limited to the provisions of Section 4 hereof) shall be valid unless made in writing and signed by the parties hereto. (e) Waiver. The waiver of the breach of any term or of any condition of this Agreement shall not be deemed to constitute the waiver of any other breach of the same or any other term or condition. (f) California Law. This Agreement shall be construed and interpreted in accordance with the laws of California. (g) Attorneys' Fees in Action on Contract. If any litigation shall occur between the Officer and Employer, which litigation arises out of or as a result of this Agreement or the acts of the parties hereto pursuant to this Agreement, or which seeks an interpretation of this Agreement, the prevailing party in such litigation, in addition to any other judgment or award, shall be entitled to receive such sums as the court hearing the matter shall find to be reasonable as and for the attorneys' fees of the prevailing party. (h) Confidentiality. Officer agrees that he will not divulge or otherwise disclose, directly or indirectly, any trade secret or other confidential information concerning the business or policies of Employer or any of its subsidiaries which he may have learned as a result of his employment during the term of this Agreement or prior thereto as an employee, officer or director of or consultant to Employer or any of its subsidiaries, except to the extent such use or disclosure is (i) necessary or appropriate to the performance of this Agreement and in furtherance of Employer's best interests, (ii) required by applicable law, (iii) lawfully obtainable from other sources, or (iv) authorized by Employer. The provisions of this subsection shall survive the expiration, suspension or termination, for any reason, of this Agreement. (i) Remedies of Employer. Officer acknowledges that the services he is obligated to render under the provisions of this Agreement are of a special, unique, unusual, extraordinary and intellectual character, which gives this Agreement peculiar value to Employer. The loss of these services cannot be reasonably or adequately compensated in damages in an action at law and it would be difficult (if not impossible) to replace these services. By reason thereof, Officer agrees and consents that if he violates any of the material provisions of this Agreement, Employer, in addition to any other rights and remedies available under this Agreement or under applicable law, shall be entitled during the remainder of the term to seek injunctive relief, from a tribunal of competent jurisdiction, restraining Officer from committing or continuing any violation of this Agreement, or from the performance of services to any other business entity, or both. (j) Severability. If any provision of this Agreement is held invalid or unenforceable, the remainder of this Agreement shall nevertheless remain in full force and effect, and if any provision is held invalid or unenforceable with respect to particular circumstances, it shall nevertheless remain in full force and effect in all other circumstances. (k) No Obligation to Mitigate. Officer shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise and, except as provided in Section 5(a)(i)(2) hereof, no payment hereunder shall be offset or reduced by the amount of any compensation or benefits provided to Officer in any subsequent employment. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. COUNTRYWIDE CREDIT INDUSTRIES, INC. ATTEST: By: Secretary Title: OFFICER: David S. Loeb, in his individual capacity 116685.07 - ------------------------------------------------------------------------------ 15 - ------------------------------------------------------------------------------ APPENDIX A To David Loeb Employment Agreement A "Change in Control" shall mean the occurrence during the term of the Agreement, of any one of the following events: (a) An acquisition (other than directly from Employer) of any common stock or other "Voting Securities" (as hereinafter defined) of Employer 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 Employer's common stock or the combined voting power of Employer'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 Agreement, (1) "Voting Securities" shall mean Employer's outstanding voting securities entitled to vote generally in the election of directors and (2) a "Non-Control Acquisition" shall mean an acquisition by (i) an employee benefit plan (or a trust forming a part thereof) maintained by (A) Employer or (B) 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 Employer (for purposes of this definition, a "Subsidiary"), (ii) Employer or any of its Subsidiaries, or (iii) any Person in connection with a "Non-Control Transaction" (as hereinafter defined); (b) The individuals who, as of the date of the Agreement 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 Employer'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 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 (c) The consummation of: (i) A merger, consolidation or reorganization involving Employer, unless such merger, consolidation or reorganization is a "Non-Control Transaction." A "Non-Control Transaction" shall mean a merger, consolidation or reorganization of Employer where: (A) the stockholders of Employer, 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 (i) Employer, (ii) any Subsidiary, (iii) any employee benefit plan (or any trust forming a part thereof) maintained by Employer, 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 Employer, 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 Employer; or (iii) The sale or other disposition of all or substantially all of the assets of Employer 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 Employer which, 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 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 Employer, and after such share acquisition by Employer, 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. EX-10 3 2ND RESTATED EMPLOYMENT AGREEMENT - MOZILO Exhibit 10.2 SECOND RESTATED EMPLOYMENT AGREEMENT THIS RESTATED EMPLOYMENT AGREEMENT (the "Agreement") has been executed as of March 26, 1996 by and between Countrywide Credit Industries, Inc., a Delaware corporation ("Employer"), and Angelo R. Mozilo ("Officer"). W I T N E S S E T H: WHEREAS, Officer currently holds the offices of Vice Chairman of the Board of Directors of Employer (the "Board") and Executive Vice President of Employer; and WHEREAS, Employer desires to obtain the benefit of continued services of Officer and Officer desires to continue to render services to Employer; and WHEREAS, the Board has determined that it is in Employer's best interest and that of its stockholders to recognize the substantial contribution that Officer has made and is expected to continue to make to the Company's business and to retain his services in the future; and WHEREAS, Employer and Officer set forth the terms and conditions of Officer's employment with Employer under an employment agreement entered into as of March 1, 1991 (the "Original Agreement"); and WHEREAS, Employer and Officer entered into Amendment No. 1 to Employment Agreement as of November 5, 1992 ("Amendment No. 1"), entered into Amendment No. 2 to Employment Agreement as of November 10, 1992 ("Amendment No. 2") and entered into a Restated Employment Agreement as of February 2, 1993 (the "First Restated Agreement"); and WHEREAS, Employer and Officer desire to set forth the continued terms and conditions of Officer's employment with Employer under this Agreement; WHEREAS, the effectiveness of this Agreement is subject to the approval of Employer's stockholders of the provisions of Section 4(b) hereof and the amendments to the 1993 Plan (as defined herein) as submitted to stockholders for approval. NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained, the parties hereto agree as follows: 1. Term. Employer agrees to employ Officer and Officer agrees to serve Employer, in accordance with the terms hereof, for a term beginning on the Effective Date (as defined in Section 8(c) hereof) and ending on February 28, 2001, unless earlier terminated in accordance with the provisions hereof. 2. Specific Position; Duties and Responsibilities. Employer and Officer hereby agree that, subject to the provisions of this Agreement, Employer will employ Officer and Officer will serve Employer and its subsidiaries as Vice Chairman of the Board and Executive Vice President of Employer. Employer agrees that Officer's duties hereunder shall be the usual and customary duties of the offices of Chairman of the Board and President and such further duties consistent therewith as may be designated from time to time by the Board, and shall not be inconsistent with the provisions of the charter documents of Employer or applicable law. Officer shall have such executive power and authority as shall reasonably be required to enable him to discharge his duties in the offices which he may hold. All compensation paid to Officer by Employer or any of its subsidiaries shall be aggregated in determining whether Officer has received the benefits provided for herein. 3. Scope of this Agreement and Outside Affiliations. During the term of this Agreement, Officer shall devote his full business time and energy, except as expressly provided below, to the business, affairs and interests of Employer and its subsidiaries, and matters related thereto, and shall use his best efforts and abilities to promote its interests. Officer agrees that he will diligently endeavor to promote the business, affairs and interests of Employer and its subsidiaries and perform services contemplated hereby, in accordance with the policies established by the Board, which policies shall be consistent with this Agreement. Officer agrees to serve without additional remuneration in such senior executive capacity not below the rank of Vice President for one or more (direct or indirect) subsidiaries of Employer as the Board may from time to time request, subject to appropriate authorization by the subsidiary or subsidiaries involved and any limitation under applicable law. Officer's failure to discharge an order or perform a function because Officer reasonably and in good faith believes such would violate a law or regulation or be dishonest shall not be deemed a breach by him of his obligations or duties pursuant to any of the provisions of this Agreement, including without limitation pursuant to Section 5(c) hereof. During the course of Officer's employment as a full-time officer hereunder, Officer shall not, without the consent of the Board, compete, directly or indirectly, with Employer in the businesses then conducted by Employer. Officer may serve as a director or in any other capacity of any business enterprise, including an enterprise whose activities may involve or relate to the business of Employer, provided that such service is expressly approved by the Board. Officer may make and manage personal business investments of his choice and serve in any capacity with any civic, educational or charitable organization, or any governmental entity or trade association, without seeking or obtaining approval by the Board, provided such activities and services do not materially interfere or conflict with the performance of his duties hereunder. 4. Compensation and Benefits. (a) Base Salary. Employer shall pay to Officer a base salary in each fiscal year of Employer (a "Fiscal Year") or portion thereof covered by this Agreement at the annual rate of $1,300,000: (b) Incentive Compensation. Employer shall pay to Officer for each of the Fiscal Years ending in 1997 through 2001 an incentive compensation award in the amount of the incentive compensation award paid to Officer in the previous Fiscal Year, multiplied by a fraction (the "Performance Ratio") the numerator of which is the earnings per share on a fully diluted basis of Employer during such current Fiscal Year as reported in the audited Financial Statements included in Employer's Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "EPS") and the denominator of which is the EPS for the previous Fiscal Year (adjusted proportionately in the event Employer (A) declares a stock dividend on its common stock, (B) subdivides its outstanding common stock, (C) combines the outstanding shares of its capital stock into a smaller number of common stocks or (D) issues any shares of its capital stock in a reclassification of the common stock (including any such reclassification in connection with a consolidation or merger in which Employer is the continuing or surviving corporation)); provided, however, that the Compensation Committee of the Board (the "Compensation Committee") may reduce the amount of any incentive compensation award in the event there is a substantial distortion in EPS for the Fiscal Year in respect of which the award is being paid resulting from an acquisition, a divestiture, or a change in accounting standards. (c) Stock Options. Employer shall grant to Officer a stock option in respect of 1,000,000 shares of the Employer's common stock on the first business day following the Effective Date, such option to become exercisable as to 333,333, 333,333 and 333,334 shares on each of the first three (3) anniversaries of the date of grant. Employer may also grant to Officer stock options in respect of each of the Fiscal Years ending in 2000 and 2001 for such number of shares of Employer's common stock as the Compensation Committee in its sole discretion determines, taking into account Officer's and Employer's performance in each of such Fiscal Years and the competitive practices then prevailing regarding the granting of stock options. All stock options granted in accordance with this Section 4(c) shall be granted pursuant to the Countrywide Credit Industries, Inc. 1993 Stock Option Plan, as amended (the "1993 Plan"), or such other stock option plan or plans as may be or come into effect during the term of this Agreement and shall have a per share exercise price equal to the fair market value (as defined in the 1993 Plan or such other plan or plans) of the common stock at the time of grant. The stock options granted pursuant to this Section shall consist of incentive stock options to the extent permitted by law or regulation. (d) Additional Benefits. Officer shall also be entitled to all rights and benefits for which he is otherwise eligible under any bonus plan, stock purchase plan, participation or extra compensation plan, executive compensation plan, pension plan, profit-sharing plan, life and medical insurance policy, or other plans or benefits, which Employer or its subsidiaries may provide for him, or provided he is eligible to participate therein, for senior officers generally or for employees generally, during the term of this Agreement (collectively, "Additional Benefits"). This Agreement shall not affect the provision of any other compensation, retirement or other benefit program or plan of Employer. (e) Continuation of Benefits. If Officer's employment is terminated hereunder, pursuant to Section 5(a), 5(b) or 5(d) hereof, Employer shall continue for the period specified in Section 5(a) or 5(b) hereof or three years in the case of a termination pursuant to Section 5(d) hereof, as the case may be, to provide benefits substantially equivalent to Additional Benefits (other than qualified pension or profit sharing plan benefits and option, equity or stock appreciation or other incentive plan benefits as distinguished from health, disability and welfare type benefits) on behalf of Officer and his dependents and beneficiaries which were being provided to them immediately prior to Officer's Termination Date, but only to the extent that Officer is not entitled to comparable benefits from other employment. (f) Deferral of Amounts Payable Hereunder. In the event Officer should desire to defer receipt of any cash payments to which he would otherwise be entitled hereunder, he may present such a written request to the Compensation Committee which, in its sole discretion, may enter into a separate deferred compensation agreement with Officer. (g) Notwithstanding anything to the contrary contained in this Agreement, in no event shall the Performance Ratio be less than zero. Employer shall pay the incentive compensation award described in Section 4(b) hereof for each Fiscal Year as early after the end of such Fiscal Year as practicable but in no event more than 90 days after the end of such Fiscal Year; provided, however, that the incentive compensation award described in Section 4(b) hereof may be paid, in whole or in part, prior to the end of the Fiscal Year to which such incentive compensation award relates, on such terms and conditions and at such times as may otherwise be mutually agreed upon by Employer and Officer. If the Compensation Committee shall determine to grant to Officer the stock options described in Section 4(c) hereof in respect of either of the Fiscal Years ending in 2000 or 2001, such options shall be granted at the same time as Employer grants stock options to its other senior executives in respect of such Fiscal Year (but in no event later than June 30 following the end of such Fiscal Year). 5. Termination. The compensation and benefits provided for herein and the employment of Officer by Employer shall be terminated only as provided for below in this Section 5: (a) Disability. In the event that Officer shall fail, because of illness, injury or similar incapacity ("Disability"), to render for four (4) consecutive calendar months, or for shorter periods aggregating eighty (80) or more business days in any twelve (12) month period, services contemplated by this Agreement, Officer's full-time employment hereunder may be terminated, by written Notice of Termination from Employer to Officer; and thereafter, Employer shall continue, from the Termination Date until Officer's death or the fifth anniversary of such notice, whichever first occurs (the "Disability Payment Period"), (i) to pay compensation to Officer, in the same manner as in effect immediately prior to the Termination Date, in an amount equal to (1) fifty percent (50%) of the then existing base salary payable immediately prior to the termination, minus (2) the amount of any cash payments to him under the terms of Employer's disability insurance or other disability benefit plans or Employer's tax-qualified Defined Benefit Pension Plan, and any compensation he may receive pursuant to any other employment, and (ii) to provide during the Disability Payment Period the benefits specified in Section 4(e) hereof. The determination of Disability shall be made only after 30 days notice to Officer and only if Officer has not returned to performance of his duties during such 30-day period. In order to determine Disability, both Employer and Officer shall have the right to provide medical evidence to support their respective positions, with the ultimate decision regarding Disability to be made by a majority of Employer's disinterested directors. (b) Death. In the event that Officer shall die during the term of this Agreement, Employer shall pay Officer's base salary for a period of twelve (12) months following the date of Officer's death and in the manner otherwise payable hereunder, to such person or persons as Officer shall have directed in writing or, in the absence of a designation, to his estate (the "Beneficiary"). Employer shall also provide during the twelve-month period following the date of the Officer's death the benefits specified in Section 4(e) hereof. If Officer's death occurs while he is receiving payments for Disability under Section 5(a)(i) above, such payments shall cease and the Beneficiary shall be entitled to the payments and benefits under this Subsection (b), which shall continue for a period of twelve months thereafter at the full rate of compensation in effect immediately prior to the Disability. This Agreement in all other respects will terminate upon the death of Officer; provided, however, that the termination of the Agreement shall not affect Officer's entitlement to all other benefits in which he has become vested or which are otherwise payable in respect of periods ending prior to its termination. (c) Cause. Employer may terminate Officer's employment under this Agreement for "Cause." A termination for Cause is a termination by reason of (i) a material breach of this Agreement by Officer (other than as a result of incapacity due to physical or mental illness) which is committed in bad faith or without reasonable belief that such breach is in the best interests of Employer and which is not remedied within a reasonable period of time after receipt of written notice from Employer specifying such breach, or (ii) Officer's conviction by a court of competent jurisdiction of a felony, or (iii) entry of an order duly issued by any federal or state regulatory agency having jurisdiction in the matter removing Officer from office of Employer or its subsidiaries or permanently prohibiting him from participating in the conduct of the affairs of Employer or any of its subsidiaries. If Officer shall be convicted of a felony or shall be removed from office and/or temporarily prohibited from participating in the conduct of Employer's or any of its subsidiaries' affairs by any federal or state regulatory authority having jurisdiction in the matter, Employer's obligations under Sections 4(a), 4(b) and 4(c) hereof shall be automatically suspended; provided, however, that if the charges resulting in such removal or prohibition are finally dismissed or if a final judgment on the merits of such charges is issued in favor of Officer, or if the conviction is overturned on appeal, then Officer shall be reinstated in full with back pay for the removal period plus accrued interest at the rate then payable on judgments. During the period that Employer's obligations under Sections 4(a), 4(b) and 4(c) hereof are suspended, Officer shall continue to be entitled to receive Additional Benefits under Section 4(d) until the conviction of the felony or removal from office has become final and non-appealable. When the conviction of the felony or removal from office has become final and non-appealable, all of Employer's obligations hereunder shall terminate; provided, however, that the termination of Officer's employment pursuant to this Section 5(c) shall not affect Officer's entitlement to all benefits in which he has become vested or which are otherwise payable in respect of periods ending prior to his termination of employment. (d) Good Reason. Officer may terminate his employment for Good Reason. For purposes of this Agreement, "Good Reason" shall be deemed to occur if Employer notifies Officer of a termination of his employment other than for Cause or if Employer breaches this Agreement in any material respect or if the Board (i) elects a person other than Officer as Employer's President or Chairman of the Board without Officer's consent, (ii) reorganizes management so as to require him to report to a person or persons other than the Board, or (iii) takes any other action which, in Officer's sole judgment, results in the diminution in Officer's status, title, position and responsibilities other than an insubstantial action not taken in bad faith and which is remedied by Employer promptly after receipt of notice by Officer. Notwithstanding the foregoing, Officer may terminate his employment for any or no reason within one year following a "Change in Control" (as defined in Appendix A to this Agreement) and such termination shall be considered a termination for Good Reason hereunder. If Officer's employment shall be terminated by Employer other than for Cause or by Officer for Good Reason, then Employer shall pay Officer in a single payment, as severance pay and in lieu of any further salary and incentive compensation for periods subsequent to the Termination Date, an amount in cash equal to three times the sum of (A) Officer's annual base salary at the Termination Date and (B) the aggregate bonus and/or incentive compensation paid or payable to Officer in respect of the Fiscal Year preceding the fiscal year in which Officer's Termination Date occurs. Notwithstanding anything in this Agreement to the contrary, in the event it shall be determined that any payment or distribution by Employer or any other person or entity to or for the benefit of Officer (within the meaning of Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code")), whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise in connection with, or arising out of, his employment with Employer or a change in ownership or effective control of Employer or a substantial portion of its assets (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), the Payments shall be reduced (but not below zero) if and to the extent that such reduction would result in Officer retaining a larger amount, on an after-tax basis (taking into account federal, state and local income taxes and the imposition of the Excise Tax), than if Officer received all of the Payments. If the application of the preceding sentence should require a reduction in Payments or other "parachute payments" (within the meaning of Section 280G of the Code), unless Officer shall have designated otherwise, such reduction shall be implemented, first, by reducing any non-cash benefits to the extent necessary and, second, by reducing any cash benefits to the extent necessary. In each case, the reductions shall be made starting with the payment or benefit to be made on the latest date following the Termination Date and reducing payments or benefits in reverse chronological order therefrom. All determinations concerning the application of this paragraph shall be made by a nationally recognized firm of independent accountants, selected by Officer and satisfactory to Employer, whose determination shall be conclusive and binding on all parties. The fees and expenses of such accountants shall be borne by Employer. (e) Resignation. Except as provided in Section 5(d) hereof, if during the term of this Agreement, Officer shall resign voluntarily, all of his rights to payment or benefits hereunder shall immediately terminate; provided, however, that the termination of Officer's employment pursuant to this Section 5(e) shall not affect Officer's entitlement to all benefits in which he has become vested or which are otherwise payable in respect of periods ending prior to his termination of employment. (f) Notice of Termination. Any purported termination by Employer or by Officer shall be communicated by a written Notice of Termination to the other party hereto which indicates the specific termination provision in this Agreement, if any, relied upon and which sets forth in reasonable detail the facts and circumstances, if any, claimed to provide a basis for termination of Officer's employment under the provision so indicated. For purposes of this Agreement, no such purported termination shall be effective without such Notice of Termination. The "Termination Date" shall mean the date specified in the Notice of Termination, which shall be no less than 30 or more than 60 days from the date of the Notice of Termination. Notwithstanding any other provision of this Agreement, in the event of any termination of Officer's employment hereunder for any reason, Employer shall pay Officer his full base salary through the Termination Date, plus any Additional Benefits which have been earned or become payable, but which have not yet been paid as of such Termination Date plus (unless Officer has resigned voluntarily pursuant to Section 5(e) or been terminated for Cause in accordance with Section 5(c) hereof) the Pro Rata Bonus (as defined below). The "Pro Rata Bonus" shall mean the amount equal to the product of (x) the bonus or incentive award referred to in Section 4(b) hereof paid or payable to Officer for the last full Fiscal Year of Employer prior to Officer's Termination Date and (y) the fraction obtained by dividing (A) the number of days elapsed since the end of such Fiscal Year through the Termination Date and (B) 365. (g) Payments. All payments required under this Agreement (other than the Additional Benefits payable pursuant to Section 4(e) hereof) as a result of the termination of Officer's employment hereunder shall be made within 15 days of the Termination Date or, if any portion is not then reasonably determinable, within five (5) days after such portion is so determinable. In the event of a dispute concerning the validity of a purported termination which is maintained in good faith, the Termination Date shall mean the date the dispute is finally resolved and Employer will continue to provide Officer with the compensation and benefits provided for under this Agreement, until the dispute is finally resolved without any obligation by Officer to repay any of such amounts to Employer, notwithstanding the final outcome of the dispute. Payments required to be made by this Section 5(g) are in addition to all other amounts due under Section 5 of this Agreement and shall not be offset against or reduce any other amounts due under Section 5 of this Agreement. Officer shall be required to render services to Employer during the period following his Termination Date but before the dispute concerning the termination is finally determined unless Employer fails to provide Officer with a reasonable opportunity to perform his duties under this Agreement during such period. 6. Reimbursement of Business Expenses. During the term of this Agreement, Employer shall reimburse Officer promptly for all expenditures (including travel, entertainment, parking, business meetings, and the monthly costs (including dues) of maintaining memberships at appropriate clubs) to the extent that such expenditures meet the requirements of the Code for deductibility by Employer for federal income tax purposes or are otherwise in compliance with the rules and policies of Employer and are substantiated by Officer as required by the Internal Revenue Service and rules and policies of Employer. 7. Indemnity. To the extent permitted by applicable law, the Certificate of Incorporation and the By-Laws of Employer (as from time to time in effect) and any indemnity agreements entered into from time to time between Employer and Officer, Employer shall indemnify Officer and hold him harmless for any acts or decisions made by him in good faith while performing services for Employer, and shall use reasonable efforts to obtain coverage for him under liability insurance policies now in force or hereafter obtained during the term of this Agreement covering the other officers or directors of Employer. 8. Miscellaneous. (a) Succession. This Agreement shall inure to the benefit of and shall be binding upon Employer, its successors and assigns, but without the prior written consent of Officer, this Agreement may not be assigned other than in connection with a merger or sale of substantially all the assets of the Employer or similar transaction. Employer shall not agree to any such transaction unless the successor to or assignee of the Company's business and/or assets in such transaction expressly assumes all obligations of the Employer hereunder. The obligations and duties of Officer hereby shall be personal and not assignable. (b) Notices. Any notices provided for in this Agreement shall be sent to Employer at 155 North Lake Avenue, Pasadena, California 91101, Attention: Corporate Counsel/Secretary, with a copy to the Chairman of the Compensation Committee at the same address, or to such other address as Employer may from time to time in writing designate, and to Officer at such address as he may from time to time in writing designate (or his business address of record in the absence of such designation). All notices shall be deemed to have been given two (2) business days after they have been deposited as certified mail, return receipt requested, postage paid and properly addressed to the designated address of the party to receive the notices. (c) Effective Date. This Agreement shall become effective on the date of the annual meeting of Employer's stockholders in 1996 (the "Effective Date") provided Employer's stockholders vote to approve the provisions of Section 4(b) hereof and the amendments to the 1993 Plan as submitted to the stockholders for approval. If either of such matters is not approved by Employer's stockholders, this Agreement shall be null and void and the First Restated Agreement shall continue in full force and effect. (d) Entire Agreement. This instrument contains the entire agreement of the parties relating to the subject matter hereof, and it replaces and supersedes any prior agreements between the parties relating to said subject matter, including, but not limited to, the First Restated Agreement; provided, however, that until this Agreement shall become effective, the First Restated Agreement shall continue in full force and effect. No modifications or amendments of this Agreement (including, but not limited to the provisions of Section 4 hereof) shall be valid unless made in writing and signed by the parties hereto. (e) Waiver. The waiver of the breach of any term or of any condition of this Agreement shall not be deemed to constitute the waiver of any other breach of the same or any other term or condition. (f) California Law. This Agreement shall be construed and interpreted in accordance with the laws of California. (g) Attorneys' Fees in Action on Contract. If any litigation shall occur between the Officer and Employer, which litigation arises out of or as a result of this Agreement or the acts of the parties hereto pursuant to this Agreement, or which seeks an interpretation of this Agreement, the prevailing party in such litigation, in addition to any other judgment or award, shall be entitled to receive such sums as the court hearing the matter shall find to be reasonable as and for the attorneys' fees of the prevailing party. (h) Confidentiality. Officer agrees that he will not divulge or otherwise disclose, directly or indirectly, any trade secret or other confidential information concerning the business or policies of Employer or any of its subsidiaries which he may have learned as a result of his employment during the term of this Agreement or prior thereto as an employee, officer or director of or consultant to Employer or any of its subsidiaries, except to the extent such use or disclosure is (i) necessary or appropriate to the performance of this Agreement and in furtherance of Employer's best interests, (ii) required by applicable law, (iii) lawfully obtainable from other sources, or (iv) authorized by Employer. The provisions of this subsection shall survive the expiration, suspension or termination, for any reason, of this Agreement. (i) Remedies of Employer. Officer acknowledges that the services he is obligated to render under the provisions of this Agreement are of a special, unique, unusual, extraordinary and intellectual character, which gives this Agreement peculiar value to Employer. The loss of these services cannot be reasonably or adequately compensated in damages in an action at law and it would be difficult (if not impossible) to replace these services. By reason thereof, Officer agrees and consents that if he violates any of the material provisions of this Agreement, Employer, in addition to any other rights and remedies available under this Agreement or under applicable law, shall be entitled during the remainder of the term to seek injunctive relief, from a tribunal of competent jurisdiction, restraining Officer from committing or continuing any violation of this Agreement, or from the performance of services to any other business entity, or both. (j) Severability. If any provision of this Agreement is held invalid or unenforceable, the remainder of this Agreement shall nevertheless remain in full force and effect, and if any provision is held invalid or unenforceable with respect to particular circumstances, it shall nevertheless remain in full force and effect in all other circumstances. (k) No Obligation to Mitigate. Officer shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise and, except as provided in Section 5(a)(i)(2) hereof, no payment hereunder shall be offset or reduced by the amount of any compensation or benefits provided to Officer in any subsequent employment. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. COUNTRYWIDE CREDIT INDUSTRIES, INC. ATTEST: By: Secretary Title: OFFICER: Angelo R. Mozilo, in his individual capacity - ------------------------------------------------------------------------------- 14 - ------------------------------------------------------------------------------- APPENDIX A To Angelo R. Mozilo Employment Agreement A "Change in Control" shall mean the occurrence during the term of the Agreement, of any one of the following events: (a) An acquisition (other than directly from Employer) of any common stock or other "Voting Securities" (as hereinafter defined) of Employer 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 Employer's common stock or the combined voting power of Employer'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 Agreement, (1) "Voting Securities" shall mean Employer's outstanding voting securities entitled to vote generally in the election of directors and (2) a "Non-Control Acquisition" shall mean an acquisition by (i) an employee benefit plan (or a trust forming a part thereof) maintained by (A) Employer or (B) 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 Employer (for purposes of this definition, a "Subsidiary"), (ii) Employer or any of its Subsidiaries, or (iii) any Person in connection with a "Non-Control Transaction" (as hereinafter defined); (b) The individuals who, as of the date of the Agreement 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 Employer'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 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 (c) The consummation of: (i) A merger, consolidation or reorganization involving Employer, unless such merger, consolidation or reorganization is a "Non-Control Transaction." A "Non-Control Transaction" shall mean a merger, consolidation or reorganization of Employer where: (A) the stockholders of Employer, 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 (i) Employer, (ii) any Subsidiary, (iii) any employee benefit plan (or any trust forming a part thereof) maintained by Employer, 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 Employer, 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 Employer; or (iii) The sale or other disposition of all or substantially all of the assets of Employer 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 Employer which, 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 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 Employer, and after such share acquisition by Employer, 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. EX-10 4 EMPLOYMENT AGREEMENT - STAN KURLAND Exhibit 10.3 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") has been executed as of ________________ by and between Countrywide Credit Industries, Inc., a Delaware corporation ("Employer"), and Stanford L. Kurland ("Officer"). W I T N E S S E T H: WHEREAS, Officer currently holds the offices of Senior Managing Director and Chief Operating Officer of Employer and President of Countrywide Home Loans, Inc. ("Home Loans"), a wholly-owned subsidiary of Employer; and WHEREAS, Employer desires to obtain the benefit of continued services of Officer and Officer desires to continue to render services to Employer and its subsidiaries, including Home Loans; and WHEREAS, the Board of Directors of Employer (the "Board") has determined that it is in Employer's best interest and that of its stockholders to recognize the substantial contribution that Officer has made and is expected to continue to make to the Employer's business and to retain his services in the future; and WHEREAS, Employer and Officer desire to set forth the terms and conditions of Officer's employment with Employer under this Agreement; and WHEREAS, the effectiveness of this Agreement is subject to the approval by Employer's stockholders of the Countrywide Credit Industries, Inc. Annual Incentive Plan (the "Annual Incentive Plan") and the amendments to the 1993 Plan (as defined in Section 4(c) herein) each as submitted to Employer's stockholders for approval at its 1996 Annual Meeting. NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained, the parties hereto agree as follows: 1. Term. Employer agrees to employ Officer and Officer agrees to serve Employer, in accordance with the terms hereof, for a term beginning on the Effective Date (as defined in Section 8(c) hereof) and ending on February 28, 1999, unless earlier terminated in accordance with the provisions hereof. 2. Specific Position; Duties and Responsibilities. Employer and Officer hereby agree that, subject to the provisions of this Agreement, Employer will employ Officer and Officer will serve Employer as Senior Managing Director and Chief Operating Officer of Employer and as President of Home Loans. Employer agrees that Officer's duties hereunder shall be the usual and customary duties of such offices or such other duties as may be designated from time to time by the Board consistent with his status as an executive officer of Employer; any such duties shall be consistent with the provisions of the charter documents of Employer or applicable law. Officer shall have such executive power and authority as shall reasonably be required to enable him to discharge his duties in the offices which he may hold. All compensation paid to Officer by Employer or any of its subsidiaries shall be aggregated in determining whether Officer has received the benefits provided for herein. 3. Scope of this Agreement and Outside Affiliations. During the term of this Agreement, Officer shall devote his full business time and energy, except as expressly provided below, to the business, affairs and interests of Employer and its subsidiaries, and matters related thereto, and shall use his best efforts and abilities to promote its interests. Officer agrees that he will diligently endeavor to promote the business, affairs and interests of Employer and its subsidiaries and perform services contemplated hereby, in accordance with the policies established by the Board, which policies shall be consistent with this Agreement. Officer agrees to serve without additional remuneration as an officer of one or more (direct or indirect) subsidiaries of Employer as the Board may from time to time request, subject to appropriate authorization by the subsidiary or subsidiaries involved and any limitation under applicable law. Officer's failure to discharge an order or perform a function because Officer reasonably and in good faith believes such would violate a law or regulation or be dishonest shall not be deemed a breach by him of his obligations or duties pursuant to any of the provisions of this Agreement, including without limitation pursuant to Section 5(c) hereof. During the course of Officer's employment as a full-time officer hereunder, Officer shall not, without the consent of the Board, compete, directly or indirectly, with Employer in the businesses then conducted by Employer or any of its subsidiaries. Officer may serve as a director or in any other capacity of any business enterprise, including an enterprise whose activities may involve or relate to the business of Employer, provided that such service is expressly approved by the Board. Officer may make and manage personal business investments of his choice and serve in any capacity with any civic, educational or charitable organization, or any governmental entity or trade association, without seeking or obtaining approval by the Board, provided such activities and services do not materially interfere or conflict with the performance of his duties hereunder. 4. Compensation and Benefits. (a) Base Salary. Employer shall pay to Officer a base salary in respect of the portion of the fiscal year of Employer (a "Fiscal Year") ending in 1997 after the Effective Date at the annual rate of $675,000 (the "Annual Rate"). In respect of the portion of the Fiscal Year ending in 1997 before the Effective Date, Employer shall, within five (5) days after the Effective Date, pay to Officer in a lump sum an amount equal to $675,000, pro-rated for the period between March 1, 1996 and the Effective Date, less the base salary Officer has received through the Effective Date in respect of that period. In respect of the Fiscal Years ending in 1998 and 1999, the Compensation Committee of the Board (the "Compensation Committee") may, based upon the recommendation of Angelo R. Mozilo (or, if he is no longer an officer of Employer, the Chairman of Employer), increase the Annual Rate by no less than 5% and no greater than 10% each year. (b) Incentive Compensation. Employer shall pay to Officer for each of the Fiscal Years ending during the term of this Agreement an incentive compensation award in an amount determined pursuant to the terms and conditions of the Annual Incentive Plan and set out in the Incentive Matrix attached hereto as Appendix B. (c) Stock Options. Employer shall grant to Officer stock options in respect of each of the Fiscal Years ending during the term of this Agreement for such number of shares of Employer's common stock as the Compensation Committee in its sole discretion determines, taking into account Officer's and Employer's performance in each of such Fiscal Years and the competitive practices then prevailing regarding the granting of stock options; provided, however, that the number of shares in respect of each annual stock option grant shall be no less than 75,000 and no greater than 175,000. The numbers 75,000 and 175,000 in the preceding sentence shall be adjusted proportionately in the event Employer (A) declares a stock dividend on its common stock, (B) subdivides its outstanding common stock, (C) combines the outstanding shares of its capital stock into a smaller number of common stocks or (D) issues any shares of its capital stock in a reclassification of the common stock (including any such reclassification in connection with a consolidation or merger in which Employer is the continuing or surviving corporation). The stock options described in this Section 4(c) in respect of a Fiscal Year shall be granted at the same time as Employer grants stock options to its other senior executives in respect of such Fiscal Year (but in no event later than June 30 following the end of such Fiscal Year). All stock options granted in accordance with this Section 4(c): (i) shall be granted pursuant to the Countrywide Credit Industries, Inc. 1993 Stock Option Plan, as amended (the "1993 Plan"), or such other stock option plan or plans as may be or come into effect during the term of this Agreement, (ii) shall have a per share exercise price equal to the fair market value (as defined in the 1993 Plan or such other plan or plans) of the common stock at the time of grant, (iii) shall become exercisable in three equal installments on each of the first three anniversaries of the date of grant and (iv) shall be subject to such other terms and conditions as may be determined by the Compensation Committee and set forth in the agreement evidencing the award. The stock options granted pursuant to this Section shall consist of incentive stock options to the extent permitted by law or regulation. (d) Additional Benefits. Officer shall also be entitled to all rights and benefits for which he is otherwise eligible under any bonus plan, stock purchase plan, participation or extra compensation plan, executive compensation plan, pension plan, profit-sharing plan, life and medical insurance policy, or other plans or benefits, which Employer or its subsidiaries may provide for him, or provided he is eligible to participate therein, for senior officers generally or for employees generally, during the term of this Agreement (collectively, "Additional Benefits"). This Agreement shall not affect the provision of any other compensation, retirement or other benefit program or plan of Employer. (e) Continuation of Benefits. If Officer's employment is terminated hereunder pursuant to Section 5(a), 5(b) or 5(d), Employer shall continue for the period specified in Section 5(a), 5(b) or 5(d) hereof to provide benefits substantially equivalent to Additional Benefits (other than qualified pension or profit sharing plan benefits and option, equity or stock appreciation or other incentive plan benefits as distinguished from health, disability and welfare type benefits) to Officer and his dependents and beneficiaries which were being provided to them immediately prior to Officer's Termination Date, but only to the extent that Officer is not entitled to comparable benefits from other employment. (f) Deferral of Amounts Payable Hereunder. In the event Officer should desire to defer receipt of any cash payments to which he would otherwise be entitled hereunder, he may present such a written request to the Compensation Committee which, in its sole discretion, may enter into a separate deferred compensation agreement with Officer. 5. Termination. The compensation and benefits provided for herein and the employment of Officer by Employer shall be terminated only as provided for below in this Section 5: (a) Disability. In the event that Officer shall fail, because of illness, injury or similar incapacity ("Disability"), to render for four (4) consecutive calendar months, or for shorter periods aggregating eighty (80) or more business days in any twelve (12) month period, services contemplated by this Agreement, Officer's full-time employment hereunder may be terminated, by written Notice of Termination from Employer to Officer; and thereafter, Employer shall continue, from the Termination Date until Officer's death or the fifth anniversary of such notice, whichever first occurs (the "Disability Payment Period"), (i) to pay compensation to Officer, in the same manner as in effect immediately prior to the Termination Date, in an amount equal to (1) fifty percent (50%) of the then existing base salary payable immediately prior to the termination, minus (2) the amount of any cash payments to him under the terms of Employer's disability insurance or other disability benefit plans or Employer's tax-qualified Defined Benefit Pension Plan, and any compensation he may receive pursuant to any other employment, and (ii) to provide during the Disability Payment Period the benefits specified in Section 4(e) hereof. The determination of Disability shall be made only after 30 days notice to Officer and only if Officer has not returned to performance of his duties during such 30-day period. In order to determine Disability, both Employer and Officer shall have the right to provide medical evidence to support their respective positions, with the ultimate decision regarding Disability to be made by a majority of Employer's disinterested directors. (b) Death. In the event that Officer shall die during the term of this Agreement, Employer shall pay Officer's base salary for a period of twelve (12) months following the date of Officer's death and in the manner otherwise payable hereunder, to such person or persons as Officer shall have directed in writing or, in the absence of a designation, to his estate (the "Beneficiary"). Employer shall also provide during the twelve-month period following the date of the Officer's death the benefits specified in Section 4(e) hereof. If Officer's death occurs while he is receiving payments for Disability under Section 5(a)(i) above, such payments shall cease and the Beneficiary shall be entitled to the payments and benefits under this Subsection (b), which shall continue for a period of twelve months thereafter at the full rate of compensation in effect immediately prior to the Disability. This Agreement in all other respects will terminate upon the death of Officer; provided, however, that the termination of the Agreement shall not affect Officer's entitlement to all other benefits in which he has become vested or which are otherwise payable in respect of periods ending prior to its termination. (c) Cause. Employer may terminate Officer's employment under this Agreement for "Cause." A termination for Cause is a termination by reason of (i) a material breach of this Agreement by Officer (other than as a result of incapacity due to physical or mental illness) which is committed in bad faith or without reasonable belief that such breach is in the best interests of Employer and which is not remedied within a reasonable period of time after receipt of written notice from Employer specifying such breach, or (ii) Officer's conviction by a court of competent jurisdiction of a felony, or (iii) entry of an order duly issued by any federal or state regulatory agency having jurisdiction in the matter removing Officer from office of Employer or its subsidiaries or permanently prohibiting him from participating in the conduct of the affairs of Employer or any of its subsidiaries. If Officer shall be convicted of a felony or shall be removed from office and/or temporarily prohibited from participating in the conduct of Employer's or any of its subsidiaries' affairs by any federal or state regulatory authority having jurisdiction in the matter, Employer's obligations under Sections 4(a), 4(b) and 4(c) hereof shall be automatically suspended; provided, however, that if the charges resulting in such removal or prohibition are finally dismissed or if a final judgment on the merits of such charges is issued in favor of Officer, or if the conviction is overturned on appeal, then Officer shall be reinstated in full with back pay for the removal period plus accrued interest at the rate then payable on judgments. During the period that Employer's obligations under Sections 4(a), 4(b) and 4(c) hereof are suspended, Officer shall continue to be entitled to receive Additional Benefits under Section 4(d) until the conviction of the felony or removal from office has become final and non-appealable. When the conviction of the felony or removal from office has become final and non-appealable, all of Employer's obligations hereunder shall terminate; provided, however, that the termination of Officer's employment pursuant to this Section 5(c) shall not affect Officer's entitlement to all benefits in which he has become vested or which are otherwise payable in respect of periods ending prior to his termination of employment. (d) Severance. (i) Except as provided in Section 5(d)(ii), if during the term of this Agreement Officer's employment shall be terminated by Employer other than for Cause, then (A) until February 28, 1999 or the second anniversary of the Termination Date, whichever is later (the "Severance Period"), Employer shall (1) continue to pay Officer his annual base salary, at the rate in effect on the Termination Date, and (2) provide the benefits specified in Section 4(e) hereof, (B) Employer shall pay Officer, within ten (10) days after the end of each Fiscal Year ending during the Severance Period, an amount equal to the incentive compensation paid or payable to Officer pursuant to Section 4(b) in respect of the Fiscal Year immediately preceding the Fiscal Year in which Officer's Termination Date occurs (the "Bonus Rate") (such amount to be pro-rated for any Fiscal Year ending during the Severance Period that is less than 12 months); provided, however, that in the event the Severance Period ends on a date prior to the end of a Fiscal Year, Employer shall also pay Officer an amount equal to the product of (1) the Bonus Rate and (2) the fraction obtained by dividing (x) the number of days elapsed since the end of the immediately preceding Fiscal Year through the end of the Severance Period by (y) 365, and (C) all stock options held by Officer on the Termination Date shall become immediately and fully exercisable. (ii) If after a "Change in Control" (as defined in Appendix A to this Agreement) and during the term of this Agreement Officer's employment shall be terminated by Employer other than for Cause or by Officer for Good Reason, then (A) Employer shall pay Officer in a single payment as soon as practicable after the Termination Date, as severance pay and in lieu of any further salary and incentive compensation for periods subsequent to the Termination Date, an amount in cash equal to three times the sum of (1) Officer's annual base salary at the Termination Date and (2) the incentive compensation paid or payable to Officer pursuant to Section 4(b) in respect of the Fiscal Year immediately preceding the Fiscal Year in which Officer's Termination Date occurs, (B) Employer shall continue to provide for three years from the Termination Date the benefits specified in Section 4(e) hereof and (C) all stock options held by Officer on the Termination Date shall become immediately and fully exercisable. For purposes of this Agreement, "Good Reason" shall be deemed to occur if Employer (x) breaches this Agreement in any material respect or (y) takes any other action which results in the diminution in Officer's status, title, position and responsibilities other than an insubstantial action not taken in bad faith and which is remedied by Employer promptly after receipt of notice by Officer. Notwithstanding anything in this Agreement to the contrary, in the event it shall be determined that any payment or distribution by Employer or any other person or entity to or for the benefit of Officer (within the meaning of Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code")), whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise in connection with, or arising out of, his employment with Employer or a change in ownership or effective control of Employer or a substantial portion of its assets (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), the Payments shall be reduced (but not below zero) if and to the extent that such reduction would result in Officer retaining a larger amount, on an after-tax basis (taking into account federal, state and local income taxes and the imposition of the Excise Tax), than if Officer received all of the Payments. If the application of the preceding sentence should require a reduction in Payments or other "parachute payments" (within the meaning of Section 280G of the Code), unless Officer shall have designated otherwise, such reduction shall be implemented, first, by reducing any non-cash benefits to the extent necessary and, second, by reducing any cash benefits to the extent necessary. In each case, the reductions shall be made starting with the payment or benefit to be made on the latest date following the Termination Date and reducing payments or benefits in reverse chronological order therefrom. All determinations concerning the application of this paragraph shall be made by a nationally recognized firm of independent accountants, selected by Officer and satisfactory to Employer, whose determination shall be conclusive and binding on all parties. The fees and expenses of such accountants shall be borne by Employer. (e) Resignation. Except as provided in Section 5(d)(ii) hereof, if during the term of this Agreement, Officer shall resign voluntarily, all of his rights to payment or benefits hereunder shall immediately terminate; provided, however, that the termination of Officer's employment pursuant to this Section 5(e) shall not affect Officer's entitlement to all benefits in which he has become vested or which are otherwise payable in respect of periods ending prior to his termination of employment. (f) Notice of Termination. Any purported termination by Employer or by Officer shall be communicated by a written Notice of Termination to the other party hereto which indicates the specific termination provision in this Agreement, if any, relied upon and which sets forth in reasonable detail the facts and circumstances, if any, claimed to provide a basis for termination of Officer's employment under the provision so indicated. For purposes of this Agreement, no such purported termination shall be effective without such Notice of Termination. The "Termination Date" shall mean the date specified in the Notice of Termination, which shall be no less than 30 or more than 60 days from the date of the Notice of Termination. Notwithstanding any other provision of this Agreement, in the event of any termination of Officer's employment hereunder for any reason, Employer shall pay Officer his full base salary through the Termination Date, plus any Additional Benefits which have been earned or become payable, but which have not yet been paid as of such Termination Date. (g) Disputes. In the event of a dispute concerning the validity of a purported termination which is maintained in good faith, the Termination Date shall mean the date the dispute is finally resolved and Employer will continue to provide Officer with the compensation and benefits provided for under this Agreement, until the dispute is finally resolved without any obligation by Officer to repay any of such amounts to Employer, notwithstanding the final outcome of the dispute. Payments required to be made by this Section 5(g) are in addition to all other amounts due under Section 5 of this Agreement and shall not be offset against or reduce any other amounts due under Section 5 of this Agreement. Officer shall be required to render services to Employer during the period following his Termination Date but before the dispute concerning the termination is finally determined unless Employer fails to provide Officer with a reasonable opportunity to perform his duties under this Agreement during such period. 6. Reimbursement of Business Expenses. During the term of this Agreement, Employer shall reimburse Officer promptly for all expenditures (including travel, entertainment, parking, business meetings, and the monthly costs (including dues) of maintaining memberships at appropriate clubs) to the extent that such expenditures meet the requirements of the Code for deductibility by Employer for federal income tax purposes or are otherwise in compliance with the rules and policies of Employer and are substantiated by Officer as required by the Internal Revenue Service and rules and policies of Employer. 7. Indemnity. To the extent permitted by applicable law, the Certificate of Incorporation and the By-Laws of Employer (as from time to time in effect) and any indemnity agreements entered into from time to time between Employer and Officer, Employer shall indemnify Officer and hold him harmless for any acts or decisions made by him in good faith while performing services for Employer, and shall use reasonable efforts to obtain coverage for him under liability insurance policies now in force or hereafter obtained during the term of this Agreement covering the other officers or directors of Employer. 8. Miscellaneous. (a) Succession. This Agreement shall inure to the benefit of and shall be binding upon Employer, its successors and assigns, but without the prior written consent of Officer, this Agreement may not be assigned other than in connection with a merger or sale of substantially all the assets of the Employer or similar transaction. Employer shall not agree to any such transaction unless the successor to or assignee of the Company's business and/or assets in such transaction expressly assumes all obligations of the Employer hereunder. The obligations and duties of Officer hereby shall be personal and not assignable. (b) Notices. Any notices provided for in this Agreement shall be sent to Employer at 155 North Lake Avenue, Pasadena, California 91101, Attention: Corporate Counsel/Secretary, with a copy to the Chairman of the Compensation Committee at the same address, or to such other address as Employer may from time to time in writing designate, and to Officer at such address as he may from time to time in writing designate (or his business address of record in the absence of such designation). All notices shall be deemed to have been given two (2) business days after they have been deposited as certified mail, return receipt requested, postage paid and properly addressed to the designated address of the party to receive the notices. (c) Effective Date. This Agreement shall become effective on the date of the annual meeting of Employer's stockholders in 1996 (the "Effective Date"), provided Employer's stockholders vote to approve the Annual Incentive Plan and the amendments to the 1993 Plan as submitted to the stockholders for approval. If either of such matters is not approved by Employer's stockholders, this Agreement shall be null and void. (d) Entire Agreement. This instrument contains the entire agreement of the parties relating to the subject matter hereof, and it replaces and supersedes any prior agreements between the parties relating to said subject matter. No modifications or amendments of this Agreement shall be valid unless made in writing and signed by the parties hereto. (e) Waiver. The waiver of the breach of any term or of any condition of this Agreement shall not be deemed to constitute the waiver of any other breach of the same or any other term or condition. (f) California Law. This Agreement shall be construed and interpreted in accordance with the laws of California. (g) Attorneys' Fees in Action on Contract. If any litigation shall occur between the Officer and Employer, which litigation arises out of or as a result of this Agreement or the acts of the parties hereto pursuant to this Agreement, or which seeks an interpretation of this Agreement, the prevailing party in such litigation, in addition to any other judgment or award, shall be entitled to receive such sums as the court hearing the matter shall find to be reasonable as and for the attorneys' fees of the prevailing party. (h) Confidentiality. Officer agrees that he will not divulge or otherwise disclose, directly or indirectly, any trade secret or other confidential information concerning the business or policies of Employer or any of its subsidiaries which he may have learned as a result of his employment during the term of this Agreement or prior thereto as an employee, officer or director of or consultant to Employer or any of its subsidiaries, except to the extent such use or disclosure is (i) necessary or appropriate to the performance of this Agreement and in furtherance of Employer's best interests, (ii) required by applicable law, (iii) lawfully obtainable from other sources, or (iv) authorized by Employer. The provisions of this subsection shall survive the expiration, suspension or termination, for any reason, of this Agreement. (i) Remedies of Employer. Officer acknowledges that the services he is obligated to render under the provisions of this Agreement are of a special, unique, unusual, extraordinary and intellectual character, which gives this Agreement peculiar value to Employer. The loss of these services cannot be reasonably or adequately compensated in damages in an action at law and it would be difficult (if not impossible) to replace these services. By reason thereof, Officer agrees and consents that if he violates any of the material provisions of this Agreement, Employer, in addition to any other rights and remedies available under this Agreement or under applicable law, shall be entitled during the remainder of the term to seek injunctive relief, from a tribunal of competent jurisdiction, restraining Officer from committing or continuing any violation of this Agreement, or from the performance of services to any other business entity, or both. (j) Severability. If any provision of this Agreement is held invalid or unenforceable, the remainder of this Agreement shall nevertheless remain in full force and effect, and if any provision is held invalid or unenforceable with respect to particular circumstances, it shall nevertheless remain in full force and effect in all other circumstances. (k) No Obligation to Mitigate. Officer shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise and, except as provided in Section 5(a)(i)(2) hereof, no payment hereunder shall be offset or reduced by the amount of any compensation or benefits provided to Officer in any subsequent employment. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. COUNTRYWIDE CREDIT INDUSTRIES, INC. ATTEST: By: Secretary Title: OFFICER: Stanford L. Kurland, in his individual capacity - ------------------------------------------------------------------------------ A-3 - ------------------------------------------------------------------------------ APPENDIX A To Stanford L. Kurland Employment Agreement A "Change in Control" shall mean the occurrence during the term of the Agreement, of any one of the following events: (a) An acquisition (other than directly from Employer) of any common stock or other "Voting Securities" (as hereinafter defined) of Employer 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 Employer's common stock or the combined voting power of Employer'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 Agreement, (1) "Voting Securities" shall mean Employer's outstanding voting securities entitled to vote generally in the election of directors and (2) a "Non-Control Acquisition" shall mean an acquisition by (i) an employee benefit plan (or a trust forming a part thereof) maintained by (A) Employer or (B) 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 Employer (for purposes of this definition, a "Subsidiary"), (ii) Employer or any of its Subsidiaries, or (iii) any Person in connection with a "Non-Control Transaction" (as hereinafter defined); (b) The individuals who, as of the date of the Agreement 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 Employer'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 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 (c) The consummation of: (i) A merger, consolidation or reorganization involving Employer, unless such merger, consolidation or reorganization is a "Non-Control Transaction." A "Non-Control Transaction" shall mean a merger, consolidation or reorganization of Employer where: (A) the stockholders of Employer, 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 (i) Employer, (ii) any Subsidiary, (iii) any employee benefit plan (or any trust forming a part thereof) maintained by Employer, 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 Employer, 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 Employer; or (iii) The sale or other disposition of all or substantially all of the assets of Employer 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 Employer which, 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 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 Employer, and after such share acquisition by Employer, 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.
DRAFT [3/20/96] APPENDIX B INCENTIVE MATRIX To Determine Fiscal 1997, 1998 and 1999 Awards % of Target Bonus Paid (Target Bonus = $650,000) Less than EPS** ROE .80 .80 1.20 1.60 $2.00 2.40 2.80 3.20 3.60 4.00 4.40 or more ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- 20% or more 25 50 75 100 125 150 175 200 225 250 275 - --------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- 15% 20 40 60 80 100% 120 140 165 190 215 240 - --------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- 10% 15 30 45 60 75 90 105 120 120 120 120 5% 10 20 30 40 50 50 50 50 50 50 50 Less than 5% 0 0 0 0 0 0 0 0 0 0 0 - --------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- * Payouts interpolated between points. * ROE calculated on quarterly average equity. * For new equity infusions, first year return target at 10% rather than 15%.
EX-10 5 ANNUAL INCENTIVE PLAN Exhibit 10.4 COUNTRYWIDE CREDIT INDUSTRIES, INC. ANNUAL INCENTIVE PLAN Section 1: Purposes The purposes of the Plan are to promote the success and growth of the Company, thereby enhancing shareholder value; to provide certain Executive Officers with an opportunity to receive incentive compensation dependent upon that success and growth; and to attract, retain and motivate such individuals. Section 2: Definitions 2.1 "Award" means an incentive award made pursuant to the Plan. 2.2 "Beneficiary" mean the person(s) designated by the Participant, in writing on a form provided by the Committee, to receive payments under the Plan in the event of his death while a Participant or, in the absence of such designation, the Participant's estate. 2.3 "Board of Directors" means the Board of Directors of the Company. 2.4 "Cause" means (i) a felony conviction of the Participant; (ii) the commission by the Participant of an act of fraud or embezzlement against the Company; (iii) the Participant's willful misconduct or gross negligence materially detrimental to the Company; (iv) the Participant's wrongful dissemination or use of confidential or proprietary information; or (vi) the intentional and habitual neglect by the Participant of his duties to the Company. 2.5 "Code" means the Internal Revenue Code of 1986, as amended. 2.6 "Committee" means the Compensation Committee of the Board of Directors, which shall consist of two or more persons, each of whom is an "outside director" within the meaning of Section 162(m) of the Code. 2.7 "Company" means Countrywide Credit Industries, Inc. and its successors and shall include any subsidiaries of the Company, except where the context indicates otherwise. 2.8 "Disability" means (i) total disability within the meaning of the Company's long-term disability plan as in effect from time to time or (ii) if there is no such plan at the applicable time, physical or mental incapacity as determined solely by the Committee. 2.9 "Employee" means an employee of the Company. 2.10 "Executive Officer" means the Chief Executive Officer of the Company and any other Employee who is an officer of the Company. 2.11 "Participant" means an Executive Officer designated from time to time by the Committee pursuant to Section 3 to participate in the Plan. 2.12 "Performance Criteria" means one or more of the criteria set forth below selected by the Committee to measure performance for a Plan Year: (i) Net Income: The net after-tax income of the Company or a business unit from continuing operations after adjustment to omit the effects of any extraordinary items and the cumulative effects of changes in accounting principles. (ii) Return on Equity: Net Income of the company or of a business unit divided by the average of the Company's consolidated shareholder equity as of the beginning and end of the Plan Year. (iii) Return on Assets: Net Income divided by the average of the Company's or a business unit's total or net assets as of the beginning and end of the Plan Year. (iv) Earnings Per Share (either primary or fully diluted, or the equivalent thereof) as reported in the Company's annual report to shareholders, adjusted to omit the effects of any discontinued operations, extraordinary items and the cumulative effects of changes in accounting principles. (v) EBIT: Net Income before any charges, expenses or accruals for interest or taxes. (vi) Total Shareholder Return: The total return to the Company's shareholders, measured by stock price appreciation and dividends paid. Performance Criteria shall be determined in accordance with generally accepted accounting principles as consistently applied by the Company. 2.13 "Performance Goal" means the level of performance, either in absolute terms or as compared to one or more other companies or indices, established as the Performance Goal with respect to a Performance Criteria or indices. 2.14 "Plan" means the Countrywide Credit Industries, Inc. Annual Incentive Plan. 2.15 "Plan Year" means the fiscal year of the Company. 2.16 "Target Award" means an amount established by the Committee as a Participant's Target Award upon attainment of a Performance Goal. Section 3: Participation 3.1 Participants for any Plan Year shall be selected by the Committee from among the Executive Officers within ninety days of the commencement of a Plan Year; provided, however that if due to hiring, promotion, or demotion, the Committee determines thereafter that an Employee should be eligible to participate in the Plan for a Plan Year, or that a Participant should cease to be so eligible, in either case, after the commencement of the Plan Year, then the Committee shall have the discretion to provide that such individual shall be eligible for a prorated Award, as and to the extent it may determine. The selection of an Executive Officer as a Participant for a Plan Year shall not entitle such individual to be selected as a Participant with respect to any other Plan Year. Section 4: Awards 4.1. Target Awards and Performance Goals. Within ninety days of the commencement of a Plan Year, the Committee shall establish for each Participant for such year Target Awards and Performance Goals and weightings with respect to one or more Performance Criteria. Once established for a Plan Year, a Participant's Target Award, Performance Goals and weightings may not be amended or otherwise modified after such ninetieth day in a manner which could increase the amount of an Award. Notwithstanding the foregoing, Target Awards, Performance Criteria, Performance Goals and weightings may vary from Plan Year to Plan Year and Participant to Participant. 4.2 Determination and Payment of Awards. The actual Award payable to a Participant will be determined by the Committee based on (i) the Participant's Target Award (ii) the extent to which the Performance Goals have been achieved, as certified in writing by the Committee (iii) and the weighting established with respect to the applicable Performance Criteria. Notwithstanding the foregoing, the Committee will have the discretion to reduce the amount of the Award that would otherwise be payable to a Participant. Awards will be paid in a lump sum cash payment as soon as practicable after the close of the Plan Year for which they are made. Except as otherwise provided in Section 5, no Award will be payable to any Participant who is not an Employee on the last day of such Plan Year. The Committee may, subject to such terms and conditions and within such limits as it may from time to time establish, permit one or more Participants to defer the receipt of amounts payable under the Plan. 4.3. Maximum Awards. The maximum Award payable to a Participant for any Plan Year is two million dollars ($2,000,000). Section 5: Termination of Employment 5.1 Death or Disability. If a Participant's employment with the Company terminates due to death or Disability during a Plan Year, the Participant or his Beneficiary, as the case may be, will be paid a prorated Award in cash for such year as soon as practicable after such Plan Year. 5.2 Cause. If a Participant's employment with the Company is terminated for Cause following the end of a Plan year, his right to the payment of an Award in respect of that Plan year and all other rights under this Plan will be forfeited, and no amount will be paid or payable hereunder to or in respect of such Participant after the date of his termination of employment. Section 6: Administration 6.1. In General. Except as otherwise provided in the Plan, the Committee will have full and complete authority, in its sole and absolute discretion, (i) to exercise all of the powers granted to it under the Plan, (ii) to construe, interpret and implement the Plan and any related document, (iii) to prescribe, amend and rescind rules relating to the Plan, (iv) to make all determinations necessary or advisable in administering the Plan, and (v) to correct any defect, supply any omission and reconcile any inconsistency in the Plan. 6.2 Determinations. The actions and determinations of the Committee or its designee on all matters relating to the Plan and any Awards will be final and conclusive. Such determinations need not be uniform and may be made by it selectively among persons who receive, or are eligible to receive, Awards under the Plan, whether or not such persons are similarly situated. 6.3 Appointment of Experts. The Committee may appoint such accountants, counsel, and other experts as it deems necessary or desirable in connection with the administration of the Plan. 6.4 Books and Records. The Committee shall keep a record of all their proceedings and actions and shall maintain all such books of account, records and other data as shall be necessary for the proper administration of the Plan. 6.5 Payment of Expenses. The Company shall pay all expenses of administering the Plan, including, but not limited to, the payment of professional and expert fees. 6.6 Code Section 162(m). It is the intent of the Company that this Plan and Awards hereunder satisfy, and be interpreted in a manner that satisfies, the applicable requirements of Code Section 162(m) so that the Company's tax deduction for remuneration in respect of such Awards is not disallowed in whole or in part by the operation of such Code Section. If any provision of this Plan or of any Award would otherwise frustrate or conflict with this intent, that provision to the extent possible shall be interpreted and deemed amended so as to avoid such conflict. To the extent of any remaining irreconcilable conflict with such intent, such provision shall be deemed void. Section 7: Miscellaneous 7.1. Nonassignability. No Award will be assignable or transferable (including pursuant to a pledge or security interest) other than by will or by laws of descent and distribution. 7.2 Withholding Taxes. Whenever payments under the Plan are to be made or deferred, the Company will withhold therefrom, or from any other amounts payable to or in respect of the Participant, an amount sufficient to satisfy any applicable governmental withholding tax requirements related thereto. 7.3 Amendment or Termination of the Plan. The Plan may be amended or terminated by the Committee in any respect except that no amendment or termination may be made after the date on which an Executive Officer is selected as a Participant for a Plan Year which would adversely affect the rights of such Participant with respect to such Plan Year. 7.4 Other Payments or Awards. Nothing contained in the Plan will be deemed in any way to limit, restrict or require the Company from making or to make any award or payment to any person under any other plan, arrangement or understanding, whether now existing or hereafter in effect. 7.5 Payments to Other Persons. If payments are legally required to be made to any person other than the person to whom any amount is payable under the Plan, such payments will be made accordingly. Any such payment will be a complete discharge of the liability of the Company under the Plan. 7.6 Unfunded Plan. Nothing in this Plan will require the Company to purchase assets or place assets in a trust or other entity to which contributions are made or otherwise to segregate any assets for the purpose of satisfying any obligations under the Plan. Participants will have no rights under the Plan other than as unsecured general creditors of the Company. 7.7 Limits of Liability. Neither the Company, the Committee nor any other person participating in any determination of any question under the Plan, or in the interpretation, administration or application of the Plan, will have any liability to any party for any action taken or not taken in good faith under the Plan. 7.8 No Right of Employment. Nothing in this Plan will be construed as creating any contract of employment or conferring upon any Employee or Participant any right to continue in the employ or other service of the Company or limit in any way the right of the Company to change such person's compensation or other benefits or to terminate the employment or other service of such person with or without Cause. 7.9 Section Headings. The section headings contained herein are for convenience only, and in the event of any conflict, the text of the Plan, rather than the section headings, will control. 7.10 Invalidity. If any term or provision contained herein is to any extent invalid or unenforceable, such term or provision will be reformed so that it is valid, and such invalidity or unenforceability will not affect any other provision or part hereof. 7.11 Applicable Law. The Plan will be governed by the laws of the state of California as determined without regard to the conflict of law principles thereof. 7.12 Effective Date. Subject to the approval of the Company's shareholders, the Plan shall be effective as of March 1, 1996. EX-10 6 1993 STOCK OPTION PLAN Exhibit 10.5 COUNTRYWIDE CREDIT INDUSTRIES, INC. 1993 STOCK OPTION PLAN (Amended and Restated as of March 27, 1996)
- ------------------------------------------------------------------------------------------------------------------- i FFNY01\YAWMADA\NORMAL\Plan - ------------------------------------------------------------------------------------------------------------------- COUNTRYWIDE CREDIT INDUSTRIES, INC. 1993 STOCK OPTION PLAN (Amended and Restated as of March 27, 1996) 1. Purpose................................................................................................1 2. Definitions............................................................................................1 3. Administration.........................................................................................6 4. Stock Subject to Program...............................................................................7 5. Option Grants for Nonemployee Directors................................................................8 6. Option Grants for Eligible Employees...................................................................9 7. Terms and Conditions Applicable to All Options.........................................................10 8. Adjustment Upon Changes in Capitalization..............................................................12 9. Effect of Certain Transactions.........................................................................12 10. Termination and Amendment of the Plan..................................................................13 11. Non-Exclusivity of the Plan............................................................................13 12. Limitation of Liability................................................................................13 13. Regulations and Other Approvals; Governing Law.........................................................14 14. Miscellaneous..........................................................................................15 15. Effective Date.........................................................................................16
Page 38 COUNTRYWIDE CREDIT INDUSTRIES, INC. 1993 STOCK OPTION PLAN (Amended and Restated as of March 27, 1996) 1. Purpose. The purpose of this Plan is to strengthen Countrywide Credit Industries, Inc. by providing an incentive to its key 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 key employees and directors of the Company and the Subsidiaries 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 the amended and restated Countrywide Credit Industries, Inc. 1993 Stock Option Plan. 2. Definitions. For purposes of the Plan: (a) "Adjusted Fair Market Value" means, in the event of a Change in Control, 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 Change in Control or (2) the highest Fair Market Value of a Share during the ninety (90) day period ending on the date of a Change in Control. (b) "Agreement" means the written agreement between the Company and an Optionee evidencing the grant of an Option and setting forth the terms and conditions thereof. (c) "Board" means the Board of Directors of the Company. (d) "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). (e) "Change in Capitalization" means any increase or reduction in the number of Shares, or exchange of Shares 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 other similar event. (f) "Change in Control" means the occurrence of any one of the following events: (1) An acquisition (other than directly from Employer) of any common stock or other "Voting Securities" (as hereinafter defined) of Employer 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 Employer's common stock or the combined voting power of Employer'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 Agreement, (A) "Voting Securities" shall mean Employer'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) Employer 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 Employer (for purposes of this definition, a "Subsidiary"), (ii) Employer or any of its Subsidiaries, or (iii) any Person in connection with a "Non-Control Transaction" (as hereinafter defined); (2) The individuals who as of March 27, 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 -------- ------- Employer'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 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 (3) The consummation of: (A) A merger, consolidation or reorganization involving Employer, unless such merger, consolidation or reorganization is a "Non-Control Transaction." A "Non-Control Transaction" shall mean a merger, consolidation or reorganization of Employer where: (i) the stockholders of Employer, 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; (ii) 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 (iii) no Person other than (w) Employer, (x) any Subsidiary, (y) any employee benefit plan (or any trust forming a part thereof) maintained by Employer, 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 Employer, 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 Employer; or (C) The sale or other disposition of all or substantially all of the assets of Employer 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 Employer which, 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 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 Employer, and after such share acquisition by Employer, 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. (g) "Code" means the Internal Revenue Code of 1986, as amended. (h) "Committee" means a committee consisting of at least two (2) directors appointed by the Board to administer the Plan and to perform the functions set forth herein. (i) "Company" means Countrywide Credit Industries, Inc. (j) "Director Option" means an Option granted to a Nonemployee Director pursuant to Section 5. (k) "Disability" means a physical or mental infirmity which impairs the Optionee's ability to perform substantially his or her duties for a period of one hundred eighty (180) consecutive days. (l) "Disinterested Director" means a director of the Company who is "disinterested" within the meaning of Rule 16b-3 under the Exchange Act. (m) "Eligible Employee" means any officer or other key employee of the Company or a Subsidiary designated by the Committee as eligible to receive Options subject to the conditions set forth herein. (n) "Employee Option" means an Option granted to an Eligible Employee pursuant to Section 6. (o) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (p) "Fair Market Value" on any date means 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 Section 422 of the Code. (q) "Incentive Stock Option" means an Option satisfying the requirements of Section 422 of the Code and designated by the Committee as an Incentive Stock Option. (r) "Nonemployee Director" means a director of the Company who is not an employee of the Company or any Subsidiary. (s) "Nonqualified Stock Option" means an Option which is not an Incentive Stock Option. (t) "Option" means an Employee Option, a Director Option, or either or both of them. (u) "Optionee" means a person to whom an Option has been granted under the Plan. (v) "Outside Director" means a director of the Company who is an "outside director" within the meaning of Section 162(m) of the Code and the regulations promulgated thereunder. (w) "Parent" means any corporation which is a parent corporation (within the meaning of Section 424(e) of the Code) with respect to the Company. (x) "Plan" means the Countrywide Credit Industries, Inc. 1993 Stock Option Plan, as amended and restated effective March 27, 1996. (y) "Shares" means the common stock, par value $.05 per share, of the Company. (z) "Subsidiary" means any corporation which is a subsidiary corporation (within the meaning of Section 424(f) of the Code) with respect to the Company. (aa) "Successor Corporation" means a corporation, or a parent or subsidiary thereof within the meaning of Section 424(a) of the Code, which issues or assumes a stock option in a transaction to which Section 424(a) of the Code applies. (bb) "Ten-Percent Stockholder" means an Eligible Employee, who, at the time an Incentive Stock Option is to be 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. 3. Administration. (a) The Plan shall be administered by the Committee, which 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 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 as 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. (b) Subject to the express terms and conditions set forth herein, the Committee shall have the power from time to time to: (1) determine those Eligible Employees to whom Employee Options shall be granted under the Plan and the number of Incentive Stock Options and/or Nonqualified Stock Options to be granted to each Eligible Employee and to prescribe the terms and conditions (which need not be identical) of each such Employee Option, including the purchase price per Share subject to each Employee Option, and make any amendment or modification to any Agreement consistent with the terms of the Plan; (2) to construe and interpret the Plan and the Options granted hereunder and to establish, amend and revoke rules and regulations for the administration of the Plan, including, but not limited to, correcting any defect or supplying any omission, or reconciling any inconsistency in the Plan or in any Agreement, in the manner and to the extent it shall deem 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. All decisions and determinations by the Committee in the exercise of this power shall be final, binding and conclusive upon the Company, its Subsidiaries, the Optionees and all other persons having any interest therein; (3) to determine the duration and purposes for leaves of absence which may be granted to an Optionee on an individual basis without constituting a termination of employment or service for purposes of the Plan; (4) to exercise its discretion with respect to the powers and rights granted to it as set forth in the Plan; and (5) generally, to exercise such powers and to perform such acts as are deemed necessary or advisable to promote the best interests of the Company with respect to the Plan. 4. Stock Subject to Program. (a) The maximum number of Shares that may be made the subject of Options granted under the Plan is ten million five hundred thousand (10,500,000); provided, however, that the maximum number of Shares that may be the subject of Options granted to any Eligible Employee from and after March 27, 1996 and during the term of the Plan may not exceed three million (3,000,000). Upon a Change in Capitalization the maximum number of Shares shall be adjusted in number and kind pursuant to Section 8. The Company shall reserve for the purposes of the 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. (b) Whenever any outstanding Option or portion thereof expires, is canceled or is otherwise terminated for any reason (other than upon the surrender of the Option pursuant to Section 7(e) hereof), the Shares allocable to the expired, canceled or otherwise terminated Option or portion thereof may again be the subject of Options granted hereunder. 5. Option Grants for Nonemployee Directors. (a) Grant. Director Options shall be granted to each Nonemployee Director on the first business day of June of each year that the Plan is in effect. The number of Shares and the purchase price therefor of each Director Option shall be as provided in this Section 5 and such Options shall be evidenced by an Agreement containing such other terms and conditions not inconsistent with the provisions of this Plan as determined by the Board. Notwithstanding the foregoing provisions of this Subsection (a), no Option shall be granted in any year to a Nonemployee Director who makes a written election not to receive such Option under the Plan, provided 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 an Option will not receive anything from the Company in lieu thereof. (b) Number of Shares. Each Director Option granted shall be in respect of a number of Shares equal to the lesser of (1) 7,500 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 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 $.68, or (2) 7,500 multiplied by a fraction, the numerator of which is 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 as reported in the Company's Annual Report on Form 10-K filed with the SEC. The number 7,500 and the $.68 amount referred to in the previous sentence shall be equitably adjusted in the event of a Change in Capitalization. (c) Purchase Price. The purchase price for Shares under each Director Option shall be equal to 100% of the Fair Market Value of a Share on the date the Director Option is granted. (d) Duration. Director Options shall be for a term of ten (10) years. (e) Vesting. Subject to Section 7(e) hereof, Director Options shall be exercisable in whole or in part at any time after one year from the date of grant of the Director Option. (f) The provisions in this Section 5 shall not be amended more than once every six months, other than to comport with changes in the Code or the rules and regulations thereunder. (g) Notwithstanding the foregoing, no Director Option will be granted to any Nonemployee Director pursuant to this Section 5 on any day if such Nonemployee Director is granted an option pursuant to Section 5 of the Company's 1991 Stock Option Plan on such day. 6. Option Grants for Eligible Employees. (a) Subject to the provisions of the Plan and to Section 4(a) above, the Committee shall have full and final authority to select those Eligible Employees who will receive Employee Options, the terms and conditions of which shall be set forth in an Agreement; provided, however, that no Eligible Employee shall receive any Incentive Stock Options unless he or she is an employee of the Company, a Parent or a Subsidiary at the time the Incentive Stock Option is granted. (b) Purchase Price. The purchase price or the manner in which the purchase price is to be determined for Shares under each Employee Option shall be determined by the Committee and set forth in the Agreement; provided, however, that the purchase price per Share under each Employee Option shall not be less than 100% of the Fair Market Value of a Share on the date the Employee Option is granted (110% in the case of an Incentive Stock Option granted to a Ten-Percent Stockholder). (c) Duration. Employee Options granted hereunder shall be for such term as the Committee shall determine, provided that no Employee Option shall be exercisable after the expiration of ten (10) years from the date it is granted (five (5) years in the case of an Incentive Stock Option granted to a Ten-Percent Stockholder). The Committee may, subsequent to the granting of any Employee 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. (d) Vesting. Subject to Section 7(e) hereof, each Employee Option shall, commencing not earlier than the first anniversary of the date of its grant, become exercisable in such installments (which need not be equal) and at such times as may be designated by the Committee and set forth in the Agreement. To the extent not exercised, installments shall accumulate and be exercisable, in whole or in part, at any time after becoming exercisable, but not later than the date the Employee Option expires. The Committee may accelerate the exercisability of any Employee Option or portion thereof at any time. (e) Modification or Substitution. The Committee may, in its discretion, modify outstanding Employee Options or accept the surrender of outstanding Employee Options (to the extent not exercised) and grant new Options in substitution for them. Notwithstanding the foregoing, no modification of an Employee Option shall adversely alter or impair any rights or obligations under the Employee Option without the Optionee's consent. 7. Terms and Conditions Applicable to All Options. (a) Non-transferability. Unless provided for to the contrary in the Agreement, no Option granted hereunder shall be transferable by the Optionee to whom granted otherwise than by will or the laws of descent and distribution, and an Option may be exercised during the lifetime of such Optionee only by the Optionee or his or her guardian or legal representative. The terms of such Option shall be final, binding and conclusive upon the beneficiaries, executors, administrators, heirs and successors of the Optionee. (b) Method of Exercise. The exercise of an Option shall be made only by a written notice delivered in person or by mail to the Secretary of the Company at the Company's principal executive office, specifying the number of Shares to be purchased and accompanied by payment therefor and otherwise in accordance with the Agreement pursuant to which the Option was granted. The purchase price for any Shares purchased pursuant to the exercise of an Option shall be paid in full upon such exercise, by any one or a combination of the following: (1) cash, (2) pursuant to the Company's Stock Option Financing Plan (approved by the Company's shareholders at the Company's 1987 Annual Meeting) as amended from time to time or any successor or additional financing plan approved by the Board, through the execution of a promissory note and pledge agreement or (3) transferring Shares to the Company. In addition, Options may be exercised through a registered broker-dealer pursuant to such cashless exercise procedures (other than Share withholding) which are, from time to time, deemed acceptable by the Committee. 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 Agreement evidencing the Option to the Secretary of the Company who shall endorse thereon a notation of such exercise and return such Agreement 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. (c) Rights of Optionees. 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. (d) Termination of Employment. Unless otherwise provided in the Agreement evidencing the Option, an Option shall terminate upon or following an Optionee's termination of employment with the Company and its Subsidiaries or service as a director of the Company and its Subsidiaries as follows: (1) if an Optionee's employment or service as a director terminates for any reason other than death, Disability or Cause, the Optionee may at any time within three (3) months after his or her termination of employment or service as a director, exercise an Option to the extent, and only to the extent, that the Option or portion thereof was exercisable on the date of termination; (2) in the event the Optionee's employment or service as a director terminates 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 at the date of such termination; (3) if an Optionee's employment or service as a director terminates for Cause, the Option shall terminate immediately and no rights thereunder may be exercised; (4) if an Optionee dies while a director or an employee of the Company or any Subsidiary or within three months after termination as described in clause (1) of this Section 7(d) or within one (1) year after termination as a result of Disability as described in clause (2) of this Section 7(d), the Option may be exercised at any time within one (1) year after the Optionee's death by the person or persons to whom such rights under the Option shall pass by will or by 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. 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 director shall not be deemed to occur so long as the director continues to serve the Company as either a director or director emeritus. (e) Effect of Change in Control. Notwithstanding anything contained in the Plan or an Agreement to the contrary, in the event of a Change in Control, (1) all Options outstanding on the date of such Change in Control shall become immediately and fully exercisable and (2) an Optionee shall be permitted to surrender for cancellation within sixty (60) days after such Change in Control, 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 a Nonqualified Stock Option, 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 Incentive Stock Option, 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 Change in Control 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. 8. Adjustment Upon Changes in Capitalization. (a) Subject to Section 9, in the event of a Change in Capitalization, the maximum number and class of Shares or other stock or securities with respect to which Options may be granted under the Plan in the aggregate and to any Optionee, the number and class of Shares or other stock or securities which are subject to outstanding Options granted under the Plan, and the purchase price therefor, if applicable, shall be appropriately and equitably adjusted by the Committee. (b) Any such adjustment in the Shares or other stock or securities subject to outstanding Incentive Stock Options (including any adjustments in the purchase price) shall be made in such manner as not to constitute a modification as defined by Section 424(h)(3) of the Code and only to the extent otherwise permitted by Sections 422 and 424 of the Code. (c) If, by reason of a Change in Capitalization, an Optionee shall be entitled to exercise an Option with respect to new, additional or different shares of stock or securities, such new, additional or different shares shall thereupon be subject to all of the conditions which were applicable to the Shares subject to the Option, as the case may be, prior to such Change in Capitalization. 9. Effect of Certain Transactions. Subject to Section 7(e), in the event of (1) the liquidation or dissolution of the Company or (2) a merger or consolidation of the Company (a "Transaction"), the Plan and the Options issued hereunder shall continue in effect in accordance with their respective terms and each Optionee shall be entitled to receive in respect of each Share subject to any outstanding Options, as the case may be, upon exercise of any Option, the same number and kind of stock, securities, cash, property, or other consideration that each holder of a Share was entitled to receive in the Transaction in respect of a Share. In the event that, after a Transaction, there occurs any change of a type described in Section 2(e) hereof with respect to the shares of the surviving or resulting corporation, then adjustments similar to, and subject to the same conditions as, those in Section 8 hereof shall be made. 10. Termination and Amendment of the Plan. (a) The Plan shall terminate on April 7, 2003, and no Option may be granted thereafter. The Board may sooner terminate or amend the Plan at any time and from time to time; provided, however, that to the extent necessary under Section 16(b) of the Exchange Act and the rules and regulations promulgated thereunder or other applicable law, no amendment shall be effective unless approved by the stockholders of the Company in accordance with applicable law and regulations at an annual or special meeting held within twelve (12) months after the date of adoption of such amendment. (b) 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 which he may have acquired through or as a result of the Plan. 11. Non-Exclusivity of the Plan. The adoption of the Plan by the Board shall not be construed as amending, modifying or rescinding any previously approved incentive arrangement or as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options otherwise than under the Plan, and such arrangements may be either applicable generally or only in specific cases. 12. Limitation of Liability. As illustrative of the limitations of liability of the Company, but not intended to be exhaustive thereof, nothing in the Plan shall be construed to: (a) give any person any right to be granted an Option other than at the sole discretion of the Committee; (b) give any person any rights whatsoever with respect to Shares except as specifically provided in the Plan; (c) limit in any way the right of the Company to terminate the employment of any person at any time; or (d) be evidence of any agreement or understanding, expressed or implied, that the Company will employ any person at any particular rate of compensation or for any particular period of time. 13. Regulations and Other Approvals; Governing Law. (a) This Plan and the rights of all persons claiming hereunder shall be construed and determined in accordance with the laws of the State of Delaware. (b) The obligation of the Company to sell or deliver Shares with respect to Options granted under the Plan shall be subject to all applicable laws, rules and regulations, including all applicable federal and state securities laws, and the obtaining of all such approvals by governmental agencies as may be deemed necessary or appropriate by the Committee. (c) (1) The Plan is 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 any Agreement in a manner consistent therewith. Any provisions inconsistent with such Rule shall be inoperative and shall not affect the validity of the Plan. (2) The Director Options described in Section 5 are intended to qualify as formula awards under Rule 16b-3 promulgated under the Exchange Act (thereby preserving the disinterested status of Nonemployee Directors receiving such awards) and the Committee shall interpret and administer the provisions of the Plan or any Agreement in a manner consistent therewith. Any provisions inconsistent with the foregoing intent shall be inoperative and shall not affect the validity of the Plan. (3) Unless otherwise expressly stated in the relevant Agreement, each Employee Option granted under the Plan is intended to be performance-based compensation within the meaning of Section 162(m)(4)(C) of the Code. (d) The Board may make such changes as may be necessary or appropriate to comply with the rules and regulations of any government authority, or to obtain for Eligible Employees granted Incentive Stock Options the tax benefits under the applicable provisions of the Code and regulations promulgated thereunder. (e) Each Option is subject to the requirement that, if at any time the Committee determines, in its discretion, that the listing, registration or qualification of Shares issuable pursuant to the Plan is required by any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the grant of an Option or the issuance of Shares, no Options shall be granted or payment made or Shares issued, in whole or in part, unless listing, registration, qualification, consent or approval has been effected or obtained free of any conditions as acceptable to the Committee. (f) Notwithstanding anything contained in the Plan to the contrary, in the event that the disposition of Shares acquired pursuant to the Plan is not covered by a then current registration statement under the Securities Act of 1933, as amended (the "Securities Act"), and is not otherwise exempt from such registration, such Shares shall be restricted against transfer to the extent required by the Securities Act and Rule 144 or other regulations thereunder. The Committee may require any individual receiving Shares pursuant to the Plan, as a condition precedent to receipt of such Shares upon exercise of an Option, to represent and warrant to the Company in writing that the Shares acquired by such individual are acquired without a view to any distribution thereof and will not be sold or transferred other than pursuant to an effective registration thereof under said Act or pursuant to an exemption applicable under the Securities Act or the rules and regulations promulgated thereunder. The certificates evidencing any of such Shares shall be appropriately amended to reflect their status as restricted securities as aforesaid. 14. Miscellaneous. (a) Multiple Agreements. The terms of each Option may differ from other Options granted under the Plan at the same time, or at some other time. The Committee may also grant more than one Option to a given Eligible Employee during the term of the Plan, either in addition to, or in substitution for, one or more Options previously granted to that Eligible Employee. (b) Withholding of Taxes. (1) 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. In satisfaction of the Withholding Taxes to the Company, the Optionee may make a written election (the "Tax Election"), which may be accepted or rejected in the discretion of the Committee, to have withheld a portion of the Shares issuable to him or her upon exercise of the Option having an aggregate Fair Market Value equal to the Withholding Taxes, provided that in respect of an Optionee who may be subject to liability under Section 16(b) of the Exchange Act either (A) (i) the Optionee makes the Tax Election at least six (6) months after the date the Option was granted, (ii) the Option is exercised during the ten day period beginning on the third business day and ending on the twelfth business day following the release for publication of the Company's quarterly or annual statements of earnings (a "Window Period") and (iii) the Tax Election is made during the Window Period in which the Option is exercised or prior to such Window Period and subsequent to the immediately preceding Window Period or (B) (i) the Tax Election is made at least six (6) months prior to the date the Option is exercised and (ii) the Tax Election is irrevocable with respect to the exercise of all Options which are exercised prior to the expiration of six (6) months following an election to revoke the Tax Election. Notwithstanding the foregoing, the Committee may, by the adoption of rules or otherwise, (x) modify the provisions in the preceding sentence or impose such other restrictions or limitations on Tax Elections as may be necessary to ensure that the Tax Elections will be exempt transactions under Section 16(b) of the Exchange Act, and (y) permit Tax Elections to be made at such other times and subject to such other conditions as the Committee determines will constitute exempt transactions under Section 16(b) of the Exchange Act. (2) If an Optionee makes a disposition, within the meaning of Section 424(c) of the Code and regulations promulgated thereunder, of any Share or Shares issued to such Optionee pursuant to the exercise of an Incentive Stock Option within the two-year period commencing on the day after the date of the grant or within the 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. 15. Effective Date. The effective date of the Amended and Restated Plan shall be the date of its adoption by the Board, subject only to the approval by the affirmative votes of the holders of a majority of the securities of the Company present, or represented, and entitled to vote at a meeting of stockholders duly held in accordance with the applicable laws of the State of Delaware within twelve (12) months of such adoption. Notwithstanding any provision contained herein to the contrary, any Option outstanding on the date the Board adopts the Amended and Restated Plan will be governed by the terms of the Plan as in effect immediately prior to such adoption. EX-10 7 1993 STOCK OPTION PLAN - AMENDMENT Exhibit 10.5.1 COUNTRYWIDE CREDIT INDUSTRIES, INC. 1993 STOCK OPTION PLAN (Amended and Restated as of March 27, 1996) 1. Purpose. The purpose of this Plan is to strengthen Countrywide Credit Industries, Inc. by providing an incentive to its key 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 key employees and directors of the Company and the Subsidiaries 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 the amended and restated Countrywide Credit Industries, Inc. 1993 Stock Option Plan. 2. Definitions. For purposes of the Plan: (a) "Adjusted Fair Market Value" means, in the event of a Change in Control, 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 Change in Control or (2) the highest Fair Market Value of a Share during the ninety (90) day period ending on the date of a Change in Control. (b) "Agreement" means the written agreement between the Company and an Optionee evidencing the grant of an Option and setting forth the terms and conditions thereof. (c) "Board" means the Board of Directors of the Company. (d) "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). (e) "Change in Capitalization" means any increase or reduction in the number of Shares, or exchange of Shares 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 other similar event. (f) "Change in Control" means the occurrence of any one of the following events: (1) An acquisition (other than directly from Employer) of any common stock or other "Voting Securities" (as hereinafter defined) of Employer 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 Employer's common stock or the combined voting power of Employer'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 Agreement, (A) "Voting Securities" shall mean Employer'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) Employer 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 Employer (for purposes of this definition, a "Subsidiary"), (ii) Employer or any of its Subsidiaries, or (iii) any Person in connection with a "Non-Control Transaction" (as hereinafter defined); (2) The individuals who as of March 27, 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 -------- ------- Employer'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 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 (3) The consummation of: (A) A merger, consolidation or reorganization involving Employer, unless such merger, consolidation or reorganization is a "Non-Control Transaction." A "Non-Control Transaction" shall mean a merger, consolidation or reorganization of Employer where: (i) the stockholders of Employer, 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; (ii) 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 (iii) no Person other than (w) Employer, (x) any Subsidiary, (y) any employee benefit plan (or any trust forming a part thereof) maintained by Employer, 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 Employer, 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 Employer; or (C) The sale or other disposition of all or substantially all of the assets of Employer 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 Employer which, 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 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 Employer, and after such share acquisition by Employer, 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. (g) "Code" means the Internal Revenue Code of 1986, as amended. (h) "Committee" means a committee consisting of at least two (2) directors appointed by the Board to administer the Plan and to perform the functions set forth herein. (i) "Company" means Countrywide Credit Industries, Inc. (j) "Director Option" means an Option granted to a Nonemployee Director pursuant to Section 5. (k) "Disability" means a physical or mental infirmity which impairs the Optionee's ability to perform substantially his or her duties for a period of one hundred eighty (180) consecutive days. (l) "Disinterested Director" means a director of the Company who is "disinterested" within the meaning of Rule 16b-3 under the Exchange Act. (m) "Eligible Employee" means any officer or other key employee of the Company or a Subsidiary designated by the Committee as eligible to receive Options subject to the conditions set forth herein. (n) "Employee Option" means an Option granted to an Eligible Employee pursuant to Section 6. (o) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (p) "Fair Market Value" on any date means 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 Section 422 of the Code. (q) "Incentive Stock Option" means an Option satisfying the requirements of Section 422 of the Code and designated by the Committee as an Incentive Stock Option. (r) "Nonemployee Director" means a director of the Company who is not an employee of the Company or any Subsidiary. (s) "Nonqualified Stock Option" means an Option which is not an Incentive Stock Option. (t) "Option" means an Employee Option, a Director Option, or either or both of them. (u) "Optionee" means a person to whom an Option has been granted under the Plan. (v) "Outside Director" means a director of the Company who is an "outside director" within the meaning of Section 162(m) of the Code and the regulations promulgated thereunder. (w) "Parent" means any corporation which is a parent corporation (within the meaning of Section 424(e) of the Code) with respect to the Company. (x) "Plan" means the Countrywide Credit Industries, Inc. 1993 Stock Option Plan, as amended and restated effective March 27, 1996. (y) "Shares" means the common stock, par value $.05 per share, of the Company. (z) "Subsidiary" means any corporation which is a subsidiary corporation (within the meaning of Section 424(f) of the Code) with respect to the Company. (aa) "Successor Corporation" means a corporation, or a parent or subsidiary thereof within the meaning of Section 424(a) of the Code, which issues or assumes a stock option in a transaction to which Section 424(a) of the Code applies. (bb) "Ten-Percent Stockholder" means an Eligible Employee, who, at the time an Incentive Stock Option is to be 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. 3. Administration. (a) The Plan shall be administered by the Committee, which 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 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 as 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. (b) Subject to the express terms and conditions set forth herein, the Committee shall have the power from time to time to: (1) determine those Eligible Employees to whom Employee Options shall be granted under the Plan and the number of Incentive Stock Options and/or Nonqualified Stock Options to be granted to each Eligible Employee and to prescribe the terms and conditions (which need not be identical) of each such Employee Option, including the purchase price per Share subject to each Employee Option, and make any amendment or modification to any Agreement consistent with the terms of the Plan; (2) to construe and interpret the Plan and the Options granted hereunder and to establish, amend and revoke rules and regulations for the administration of the Plan, including, but not limited to, correcting any defect or supplying any omission, or reconciling any inconsistency in the Plan or in any Agreement, in the manner and to the extent it shall deem 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. All decisions and determinations by the Committee in the exercise of this power shall be final, binding and conclusive upon the Company, its Subsidiaries, the Optionees and all other persons having any interest therein; (3) to determine the duration and purposes for leaves of absence which may be granted to an Optionee on an individual basis without constituting a termination of employment or service for purposes of the Plan; (4) to exercise its discretion with respect to the powers and rights granted to it as set forth in the Plan; and (5) generally, to exercise such powers and to perform such acts as are deemed necessary or advisable to promote the best interests of the Company with respect to the Plan. 4. Stock Subject to Program. (a) The maximum number of Shares that may be made the subject of Options granted under the Plan is ten million five hundred thousand (10,500,000); provided, however, that the maximum number of Shares that may be the subject of Options granted to any Eligible Employee from and after March 27, 1996 and during the term of the Plan may not exceed three million (3,000,000). Upon a Change in Capitalization the maximum number of Shares shall be adjusted in number and kind pursuant to Section 8. The Company shall reserve for the purposes of the 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. (b) Whenever any outstanding Option or portion thereof expires, is canceled or is otherwise terminated for any reason (other than upon the surrender of the Option pursuant to Section 7(e) hereof), the Shares allocable to the expired, canceled or otherwise terminated Option or portion thereof may again be the subject of Options granted hereunder. 5. Option Grants for Nonemployee Directors. (a) Grant. Director Options shall be granted to each Nonemployee Director on the first business day of June of each year that the Plan is in effect. The number of Shares and the purchase price therefor of each Director Option shall be as provided in this Section 5 and such Options shall be evidenced by an Agreement containing such other terms and conditions not inconsistent with the provisions of this Plan as determined by the Board. Notwithstanding the foregoing provisions of this Subsection (a), no Option shall be granted in any year to a Nonemployee Director who makes a written election not to receive such Option under the Plan, provided 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 an Option will not receive anything from the Company in lieu thereof. (b) Number of Shares. Each Director Option granted shall be in respect of a number of Shares equal to the lesser of (1) 7,500 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 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 $.68, or (2) 7,500 multiplied by a fraction, the numerator of which is 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 as reported in the Company's Annual Report on Form 10-K filed with the SEC. The number 7,500 and the $.68 amount referred to in the previous sentence shall be equitably adjusted in the event of a Change in Capitalization. (c) Purchase Price. The purchase price for Shares under each Director Option shall be equal to 100% of the Fair Market Value of a Share on the date the Director Option is granted. (d) Duration. Director Options shall be for a term of ten (10) years. (e) Vesting. Subject to Section 7(e) hereof, Director Options shall be exercisable in whole or in part at any time after one year from the date of grant of the Director Option. (f) The provisions in this Section 5 shall not be amended more than once every six months, other than to comport with changes in the Code or the rules and regulations thereunder. (g) Notwithstanding the foregoing, no Director Option will be granted to any Nonemployee Director pursuant to this Section 5 on any day if such Nonemployee Director is granted an option pursuant to Section 5 of the Company's 1991 Stock Option Plan on such day. 6. Option Grants for Eligible Employees. (a) Subject to the provisions of the Plan and to Section 4(a) above, the Committee shall have full and final authority to select those Eligible Employees who will receive Employee Options, the terms and conditions of which shall be set forth in an Agreement; provided, however, that no Eligible Employee shall receive any Incentive Stock Options unless he or she is an employee of the Company, a Parent or a Subsidiary at the time the Incentive Stock Option is granted. (b) Purchase Price. The purchase price or the manner in which the purchase price is to be determined for Shares under each Employee Option shall be determined by the Committee and set forth in the Agreement; provided, however, that the purchase price per Share under each Employee Option shall not be less than 100% of the Fair Market Value of a Share on the date the Employee Option is granted (110% in the case of an Incentive Stock Option granted to a Ten-Percent Stockholder). (c) Duration. Employee Options granted hereunder shall be for such term as the Committee shall determine, provided that no Employee Option shall be exercisable after the expiration of ten (10) years from the date it is granted (five (5) years in the case of an Incentive Stock Option granted to a Ten-Percent Stockholder). The Committee may, subsequent to the granting of any Employee 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. (d) Vesting. Subject to Section 7(e) hereof, each Employee Option shall, commencing not earlier than the first anniversary of the date of its grant, become exercisable in such installments (which need not be equal) and at such times as may be designated by the Committee and set forth in the Agreement. To the extent not exercised, installments shall accumulate and be exercisable, in whole or in part, at any time after becoming exercisable, but not later than the date the Employee Option expires. The Committee may accelerate the exercisability of any Employee Option or portion thereof at any time. (e) Modification or Substitution. The Committee may, in its discretion, modify outstanding Employee Options or accept the surrender of outstanding Employee Options (to the extent not exercised) and grant new Options in substitution for them. Notwithstanding the foregoing, no modification of an Employee Option shall adversely alter or impair any rights or obligations under the Employee Option without the Optionee's consent. 7. Terms and Conditions Applicable to All Options. (a) Non-transferability. Unless provided for to the contrary in the Agreement, no Option granted hereunder shall be transferable by the Optionee to whom granted otherwise than by will or the laws of descent and distribution, and an Option may be exercised during the lifetime of such Optionee only by the Optionee or his or her guardian or legal representative. The terms of such Option shall be final, binding and conclusive upon the beneficiaries, executors, administrators, heirs and successors of the Optionee. (b) Method of Exercise. The exercise of an Option shall be made only by a written notice delivered in person or by mail to the Secretary of the Company at the Company's principal executive office, specifying the number of Shares to be purchased and accompanied by payment therefor and otherwise in accordance with the Agreement pursuant to which the Option was granted. The purchase price for any Shares purchased pursuant to the exercise of an Option shall be paid in full upon such exercise, by any one or a combination of the following: (1) cash, (2) pursuant to the Company's Stock Option Financing Plan (approved by the Company's shareholders at the Company's 1987 Annual Meeting) as amended from time to time or any successor or additional financing plan approved by the Board, through the execution of a promissory note and pledge agreement or (3) transferring Shares to the Company. In addition, Options may be exercised through a registered broker-dealer pursuant to such cashless exercise procedures (other than Share withholding) which are, from time to time, deemed acceptable by the Committee. 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 Agreement evidencing the Option to the Secretary of the Company who shall endorse thereon a notation of such exercise and return such Agreement 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. (c) Rights of Optionees. 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. (d) Termination of Employment. Unless, in the case of an Employee Option, otherwise provided in the Agreement evidencing the Employee Option, an Option shall terminate upon or following an Optionee's termination of employment with the Company and its Subsidiaries or service as a director of the Company and its Subsidiaries as follows: (1) if an Optionee's employment or service as a director terminates for any reason other than death, Disability or Cause, the Optionee may at any time within three (3) months after his or her termination of employment or service as a director, exercise an Option to the extent, and only to the extent, that the Option or portion thereof was exercisable on the date of termination; (2) in the event the Optionee's employment or service as a director terminates 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 at the date of such termination; (3) if an Optionee's employment or service as a director terminates for Cause, the Option shall terminate immediately and no rights thereunder may be exercised; (4) if an Optionee dies while a director or an employee of the Company or any Subsidiary or within three months after termination as described in clause (1) of this Section 7(d) or within one (1) year after termination as a result of Disability as described in clause (2) of this Section 7(d), the Option may be exercised at any time within one (1) year after the Optionee's death by the person or persons to whom such rights under the Option shall pass by will or by 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. 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 director shall not be deemed to occur so long as the director continues to serve the Company as either a director or director emeritus. (e) Effect of Change in Control. Notwithstanding anything contained in the Plan or an Agreement to the contrary, in the event of a Change in Control, (1) all Options outstanding on the date of such Change in Control shall become immediately and fully exercisable and (2) an Optionee shall be permitted to surrender for cancellation within sixty (60) days after such Change in Control, 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 a Nonqualified Stock Option, 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 Incentive Stock Option, 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 Change in Control 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. 8. Adjustment Upon Changes in Capitalization. (a) Subject to Section 9, in the event of a Change in Capitalization, the maximum number and class of Shares or other stock or securities with respect to which Options may be granted under the Plan in the aggregate and to any Optionee, the number and class of Shares or other stock or securities which are subject to outstanding Options granted under the Plan, and the purchase price therefor, if applicable, shall be appropriately and equitably adjusted by the Committee. (b) Any such adjustment in the Shares or other stock or securities subject to outstanding Incentive Stock Options (including any adjustments in the purchase price) shall be made in such manner as not to constitute a modification as defined by Section 424(h)(3) of the Code and only to the extent otherwise permitted by Sections 422 and 424 of the Code. (c) If, by reason of a Change in Capitalization, an Optionee shall be entitled to exercise an Option with respect to new, additional or different shares of stock or securities, such new, additional or different shares shall thereupon be subject to all of the conditions which were applicable to the Shares subject to the Option, as the case may be, prior to such Change in Capitalization. 9. Effect of Certain Transactions. Subject to Section 7(e), in the event of (1) the liquidation or dissolution of the Company or (2) a merger or consolidation of the Company (a "Transaction"), the Plan and the Options issued hereunder shall continue in effect in accordance with their respective terms and each Optionee shall be entitled to receive in respect of each Share subject to any outstanding Options, as the case may be, upon exercise of any Option, the same number and kind of stock, securities, cash, property, or other consideration that each holder of a Share was entitled to receive in the Transaction in respect of a Share. In the event that, after a Transaction, there occurs any change of a type described in Section 2(e) hereof with respect to the shares of the surviving or resulting corporation, then adjustments similar to, and subject to the same conditions as, those in Section 8 hereof shall be made. 10. Termination and Amendment of the Plan. (a) The Plan shall terminate on April 7, 2003, and no Option may be granted thereafter. The Board may sooner terminate or amend the Plan at any time and from time to time; provided, however, that to the extent necessary under Section 16(b) of the Exchange Act and the rules and regulations promulgated thereunder or other applicable law, no amendment shall be effective unless approved by the stockholders of the Company in accordance with applicable law and regulations at an annual or special meeting held within twelve (12) months after the date of adoption of such amendment. (b) 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 which he may have acquired through or as a result of the Plan. 11. Non-Exclusivity of the Plan. The adoption of the Plan by the Board shall not be construed as amending, modifying or rescinding any previously approved incentive arrangement or as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options otherwise than under the Plan, and such arrangements may be either applicable generally or only in specific cases. 12. Limitation of Liability. As illustrative of the limitations of liability of the Company, but not intended to be exhaustive thereof, nothing in the Plan shall be construed to: (a) give any person any right to be granted an Option other than at the sole discretion of the Committee; (b) give any person any rights whatsoever with respect to Shares except as specifically provided in the Plan; (c) limit in any way the right of the Company to terminate the employment of any person at any time; or (d) be evidence of any agreement or understanding, expressed or implied, that the Company will employ any person at any particular rate of compensation or for any particular period of time. 13. Regulations and Other Approvals; Governing Law. (a) This Plan and the rights of all persons claiming hereunder shall be construed and determined in accordance with the laws of the State of Delaware. (b) The obligation of the Company to sell or deliver Shares with respect to Options granted under the Plan shall be subject to all applicable laws, rules and regulations, including all applicable federal and state securities laws, and the obtaining of all such approvals by governmental agencies as may be deemed necessary or appropriate by the Committee. (c) (1) The Plan is 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 any Agreement in a manner consistent therewith. Any provisions inconsistent with such Rule shall be inoperative and shall not affect the validity of the Plan. (2) The Director Options described in Section 5 are intended to qualify as formula awards under Rule 16b-3 promulgated under the Exchange Act (thereby preserving the disinterested status of Nonemployee Directors receiving such awards) and the Committee shall interpret and administer the provisions of the Plan or any Agreement in a manner consistent therewith. Any provisions inconsistent with the foregoing intent shall be inoperative and shall not affect the validity of the Plan. (3) Unless otherwise expressly stated in the relevant Agreement, each Employee Option granted under the Plan is intended to be performance-based compensation within the meaning of Section 162(m)(4)(C) of the Code. (d) The Board may make such changes as may be necessary or appropriate to comply with the rules and regulations of any government authority, or to obtain for Eligible Employees granted Incentive Stock Options the tax benefits under the applicable provisions of the Code and regulations promulgated thereunder. (e) Each Option is subject to the requirement that, if at any time the Committee determines, in its discretion, that the listing, registration or qualification of Shares issuable pursuant to the Plan is required by any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the grant of an Option or the issuance of Shares, no Options shall be granted or payment made or Shares issued, in whole or in part, unless listing, registration, qualification, consent or approval has been effected or obtained free of any conditions as acceptable to the Committee. (f) Notwithstanding anything contained in the Plan to the contrary, in the event that the disposition of Shares acquired pursuant to the Plan is not covered by a then current registration statement under the Securities Act of 1933, as amended (the "Securities Act"), and is not otherwise exempt from such registration, such Shares shall be restricted against transfer to the extent required by the Securities Act and Rule 144 or other regulations thereunder. The Committee may require any individual receiving Shares pursuant to the Plan, as a condition precedent to receipt of such Shares upon exercise of an Option, to represent and warrant to the Company in writing that the Shares acquired by such individual are acquired without a view to any distribution thereof and will not be sold or transferred other than pursuant to an effective registration thereof under said Act or pursuant to an exemption applicable under the Securities Act or the rules and regulations promulgated thereunder. The certificates evidencing any of such Shares shall be appropriately amended to reflect their status as restricted securities as aforesaid. 14. Miscellaneous. (a) Multiple Agreements. The terms of each Option may differ from other Options granted under the Plan at the same time, or at some other time. The Committee may also grant more than one Option to a given Eligible Employee during the term of the Plan, either in addition to, or in substitution for, one or more Options previously granted to that Eligible Employee. (b) Withholding of Taxes. (1) 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. In satisfaction of the Withholding Taxes to the Company, the Optionee may make a written election (the "Tax Election"), which may be accepted or rejected in the discretion of the Committee, to have withheld a portion of the Shares issuable to him or her upon exercise of the Option having an aggregate Fair Market Value equal to the Withholding Taxes, provided that in respect of an Optionee who may be subject to liability under Section 16(b) of the Exchange Act either (A) (i) the Optionee makes the Tax Election at least six (6) months after the date the Option was granted, (ii) the Option is exercised during the ten day period beginning on the third business day and ending on the twelfth business day following the release for publication of the Company's quarterly or annual statements of earnings (a "Window Period") and (iii) the Tax Election is made during the Window Period in which the Option is exercised or prior to such Window Period and subsequent to the immediately preceding Window Period or (B) (i) the Tax Election is made at least six (6) months prior to the date the Option is exercised and (ii) the Tax Election is irrevocable with respect to the exercise of all Options which are exercised prior to the expiration of six (6) months following an election to revoke the Tax Election. Notwithstanding the foregoing, the Committee may, by the adoption of rules or otherwise, (x) modify the provisions in the preceding sentence or impose such other restrictions or limitations on Tax Elections as may be necessary to ensure that the Tax Elections will be exempt transactions under Section 16(b) of the Exchange Act, and (y) permit Tax Elections to be made at such other times and subject to such other conditions as the Committee determines will constitute exempt transactions under Section 16(b) of the Exchange Act. (2) If an Optionee makes a disposition, within the meaning of Section 424(c) of the Code and regulations promulgated thereunder, of any Share or Shares issued to such Optionee pursuant to the exercise of an Incentive Stock Option within the two-year period commencing on the day after the date of the grant or within the 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. 15. Effective Date. The effective date of the Amended and Restated Plan shall be the date of its adoption by the Board, subject only to the approval by the affirmative votes of the holders of a majority of the securities of the Company present, or represented, and entitled to vote at a meeting of stockholders duly held in accordance with the applicable laws of the State of Delaware within twelve (12) months of such adoption. Notwithstanding any provision contained herein to the contrary, any Option outstanding on the date the Board adopts the Amended and Restated Plan will be governed by the terms of the Plan as in effect immediately prior to such adoption. EX-11 8 COMPUTATION OF PER SHARE EARNINGS
Exhibit 11.1 Exhibit 11.1 COUNTRYWIDE CREDIT INDUSTRIES, INC. STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS Six Months Ended August 31, 1996 1995 ---------------- ----------------- (Dollar amounts in thousands, except per share data) Primary Net earnings applicable to common stock $123,121 $85,128 ================ ================= Average shares outstanding 102,433 94,875 Net effect of dilutive stock options -- based on the treasury stock method using average market price 2,028 1,607 ---------------- ----------------- Total average shares 104,461 96,482 ================ ================= Per share amount $1.18 $0.88 ================ ================= Fully diluted Net earnings applicable to common stock $123,121 $85,128 ================ ================= Average shares outstanding 102,433 94,875 Net effect of dilutive stock options -- based on the treasury stock method using the closing market price, if higher than average market price. 2,362 2,096 ---------------- ----------------- Total average shares 104,795 96,971 ================ ================= Per share amount $1.17 $0.88 ================ =================
EX-12 9 RATIO OF EARNINGS TO FIXED CHARGES
Exhibit 12.1 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 six months ended August 31, 1996 and 1995 and for the five fiscal years ended February 29(28), 1996 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). Six Months Ended August 31, Fiscal Years Ended February 29(28), ------------------------- ------------------------------------------------------------------ 1996 1995 1996 1995 1994 1993 1992 ------------ ------------ ------------- ------------ ------------- ------------ ------------ Net earnings $123,121 $ 85,128 $195,720 $ 88,407 $179,460 $140,073 $ 60,196 Income tax expense 78,717 56,752 130,480 58,938 119,640 93,382 40,131 Interest charges 153,309 135,417 281,573 205,464 219,898 128,612 69,760 Interest portion of rental expense 3,675 3,342 6,803 7,379 6,372 4,350 2,814 ------------ ------------ ------------- ------------ ------------- ------------ ------------ Earnings available to cover fixed charges $358,822 $280,639 $614,576 $360,188 $525,370 $366,417 $172,901 ============ ============ ============= ============ ============= ============ ============ Fixed charges Interest charges $153,309 $135,417 $281,573 $205,464 $219,898 $128,612 $ 69,760 Interest portion of rental expense 3,675 3,342 6,803 7,379 6,372 4,350 2,814 ------------ ------------ ------------- ------------ ------------- ------------ ------------ Total fixed charges $156,984 $138,759 $288,376 $212,843 $226,270 $132,962 $ 72,574 ============ ============ ============= ============ ============= ============ ============ Ratio of earnings to fixed charges 2.29 2.02 2.13 1.69 2.32 2.76 2.38 ============ ============ ============= ============ ============= ============ ============
EX-27 10 ART.5 FDS FOR 2ND QUARTER 10-Q
5 1,000 6-MOS FEB-28-1997 AUG-31-1996 9,490 0 1,518,001 0 0 0 236,888 86,282 8,747,269 0 2,122,120 0 0 5,135 1,429,166 8,747,269 0 534,097 0 332,259 0 0 0 201,838 78,717 123,121 0 0 0 123,121 1.18 1.17 Includes $153,309 of interest expense related to mortgage loan activities.
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