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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 þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

The accompanying notes are an integral part of these consolidated financial statements.

The accompanying consolidated financial statements have been prepared in conformity 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 notes 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 nine months ended September 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. For further information, refer to the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2003 (the “2003 Annual Report”) for Countrywide Financial Corporation (“Countrywide”) and its subsidiaries, collectively referred to as the “Company.”

As more fully discussed in Note 2 — Summary of Significant Accounting Policies, “Implementation of New Accounting Standards,” included in the consolidated financial statements of the 2003 Annual Report, the Company implemented an amendment to Financial Accounting Standards Board (“FASB”) Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46R”) during the nine months ended September 30, 2004. FIN 46R requires that Countrywide no longer include certain subsidiary trusts in its consolidated reporting group. The effects of this pronouncement on the Company’s financial statements are that the consolidated balance sheets:


	•	Exclude the trust preferred securities issued by the subsidiary trusts, formerly reflected in a separate mezzanine category on the consolidated balance sheets,

	•	Include the junior subordinated debentures issued by Countrywide Home Loans, Inc. (“CHL”) and the Company to the subsidiary trusts, currently reflected in Notes Payable, and

	•	Include CHL’s and the Company’s investments in the subsidiary trusts, currently reflected in Other Assets.

On April 12, 2004, the Company completed a 3-for-2 stock split effected as a stock dividend. On August 30, 2004, the Company completed a 2-for-1 stock split effected as a stock dividend. All references in the accompanying consolidated financial statements to the number of common shares and earnings per share amounts have been adjusted accordingly.

Certain amounts reflected in the prior year consolidated financial statements have been reclassified to conform to the current year presentation.

Basic earnings per share is determined using net earnings divided by the weighted-average shares outstanding during the period. Diluted earnings per share is computed by dividing net earnings available to common shareholders by the weighted-average shares outstanding, assuming all potentially dilutive common shares were issued.

As more fully discussed in Note 11 — Notes Payable, the Company has outstanding debentures convertible into common stock of the Company upon the stock reaching certain specified levels, or if the credit ratings of the debentures drop below investment grade. At September 30, 2004, the conditions providing the holders of the debentures the right to convert their securities to shares of common stock during the quarter ending December 31, 2004, had been met as a result of the Company’s stock price attaining a specified level. These conditions had also been met as of March 31, 2004 and June 30, 2004. Therefore, the effect of conversion of the debentures was included in the Company’s calculation of diluted earnings per share for the three and nine months ended September 30, 2004. For the three and nine months ended September 30, 2003,

the conditions providing the holders of the debentures the right to convert their securities had not been met and the effect of conversion of the securities was not included in the computation of diluted earnings per share for those periods.

The following table summarizes the basic and diluted earnings per share calculations for the periods indicated:

The Company grants stock options and restricted stock to eligible employees. The Company’s stock option awards are generally for a fixed number of shares with an exercise price equal to the fair value of the shares at the date of grant. The Company recognizes compensation expense related to its stock option plans only to the extent that the fair value of the shares at the grant date exceeds the exercise price. The Company recognizes compensation expense related to its restricted stock grants based on the fair value of the shares awarded on the date that the shares are awarded. The fair value of the grants are amortized over the vesting period.

Had the estimated fair value of the options granted been recognized as compensation cost, the Company’s net earnings and earnings per share would have been as follows:

The fair value of each stock option grant is estimated on the date of grant using a Black-Scholes option-pricing model that has been modified to consider cash dividends to be paid. To determine periodic compensation expense for purposes of this pro forma disclosure, the fair value of each stock option grant is amortized over the vesting period. The weighted-average assumptions used to value the stock options granted during the following periods and the resulting average estimated values are as follows:

During the three and nine months ended September 30, 2004, options to purchase 13,500 and 141,856 shares, respectively, of stock were not included in the computation of earnings per share because they were anti-dilutive. During the three and nine months ended September 30, 2003, respectively, options totaling 4,343,752 and 4,355,752 shares were anti-dilutive.

The following table presents supplemental cash flow information for the periods indicated.

The activity in Mortgage Servicing Rights (“MSRs”) for the periods indicated are as follows:

The estimated fair values of mortgage servicing rights were $8.2 billion and $6.9 billion as of September 30, 2004 and December 31, 2003, respectively.

For purposes of performing its MSR impairment evaluation, the Company stratifies its servicing portfolio on the basis of certain risk characteristics, including loan type (fixed-rate or adjustable-rate) and note rate. Reflecting a shift in the Company’s portfolio towards lower note rates, the impairment strata have been revised such that fixed-rate loans are stratified into note rate pools of fifty basis points for note rates between 5% and 8%, and single pools for note rates above 8% and below 5%. This revision did not have a significant impact on the MSR valuation allowance.

The following table summarizes the Company’s estimate of amortization of the existing MSRs for the five-year period ending September 30, 2009. This projection was developed using the assumptions made by management in its September 30, 2004 valuation of MSRs. The assumptions underlying the following estimate will be affected as market conditions and portfolio composition and behavior change, causing both actual and projected amortization levels to change over time. Therefore, the following estimates will change in a manner and amount not presently determinable by management.

Trading securities, which consist of trading securities owned and trading securities pledged as collateral, include the following as of the dates indicated:

As of September 30, 2004, $10.0 billion of the Company’s trading securities had been pledged as collateral for financing purposes, of which the counterparty has the contractual right to sell or re-pledge $2.8 billion.

As of September 30, 2004, the Company had accepted collateral with a fair value of $15.4 billion that it had the contractual ability to sell or re-pledge. As of September 30, 2004, the Company had re-pledged $14.4 billion of such collateral for financing purposes, of which $3.7 billion related to amounts offset against securities purchased under agreements to resell under master netting arrangements.

As of December 31, 2003, the Company had accepted collateral with a fair value of $11.8 billion that it had the contractual ability to sell or re-pledge. As of December 31, 2003, the Company had re-pledged $10.8 billion of such collateral for financing purposes, of which $1.2 billion related to amounts offset against securities purchased under agreements to resell under master netting arrangements.

At September 30, 2004, mortgage loans held for investment totaling $23.8 billion were pledged to secure Federal Home Loan Bank advances.

At September 30, 2004, the Company had accepted collateral securing warehouse lending advances that it had the contractual ability to sell or re-pledge with a fair value of $3.4 billion. As of September 30, 2004, no such collateral had been re-pledged.

Changes in the allowance for loan losses were as follows for the periods indicated:

Investments in other financial instruments as of the dates indicated include the following:

At September 30, 2004, the Company had pledged $1.9 billion of investments in other financial instruments to secure securities sold under agreements to repurchase, of which $0.6 billion related to amounts offset against securities sold under agreements to repurchase pursuant to master netting agreements.

Amortized cost and fair value of available-for-sale securities as of the dates indicated are as follows:

At September 30, 2004 and December 31, 2003, the Company’s available-for-sale securities in an unrealized loss position are as follows:

The temporary impairment reflected in mortgage-backed securities is a result of the change in market interest rates and is not indicative of the underlying issuers’ ability to repay. Accordingly, we have not recognized other-than-temporary impairment related to these securities as of September 30, 2004 and December 31, 2003.

Gross gains and losses realized on the sales of available-for-sale securities are as follows for the periods indicated:

At September 30, 2004, the Company had pledged $1.5 billion of securities broker-dealer receivables to secure securities sold under repurchase agreements.

The Company routinely enters into short-term financing arrangements to sell securities under agreements to repurchase (“repurchase agreements”). The repurchase agreements are collateralized by mortgage loans and securities. All securities underlying repurchase agreements are held in safekeeping by broker-dealers or banks. All agreements are to repurchase the same, or substantially identical, securities.

At September 30, 2004, repurchase agreements were secured by $11.9 billion of securities purchased under agreements to resell; $10.0 billion of trading securities; $1.9 billion of investments in other financial instruments; $1.5 billion of other assets and $1.2 billion of mortgage loans held for sale. As of September 30, 2004, $3.7 billion of the pledged securities purchased under agreements to resell and $0.6 billion of the pledged investments in other financial instruments related to amounts offset against securities sold under agreements to repurchase pursuant to master netting agreements.

During the nine months ended September 30, 2004, CHL, the Company’s principal mortgage banking subsidiary, issued medium-term notes under shelf registration statements or pursuant to its Euro and Australian medium-term note programs as follows:

Of the $8.9 billion of floating-rate medium-term notes issued by the Company during the nine months ended September 30, 2004, $1.7 billion were effectively converted to fixed-rate debt using interest rate swap contracts, and $1.4 billion of foreign currency denominated floating-rate medium-term notes were effectively converted to U.S. dollar floating-rate debt. Of the $3.2 billion of fixed-rate medium-term notes issued by the Company during the nine months ended September 30, 2004, $2.1 billion were converted to floating-rate debt using interest rate swap contracts.

During the nine months ended September 30, 2004, CHL redeemed $5.0 billion of maturing medium-term notes.

As of September 30, 2004, $3.5 billion of foreign currency-denominated medium-term notes were outstanding. Such notes are denominated in Japanese Yen, Deutsche Marks, French Francs, Portuguese

Escudos, Pounds Sterling, Canadian Dollars, Australian Dollars, and Euros. These notes have been effectively converted to U.S. dollars through currency swaps.

In April 2003, the Company formed a wholly-owned special purpose entity (“Park Granada”) for the purpose of issuing commercial paper in the form of short-term Secured Liquidity Notes (“SLNs”) to finance certain of its Mortgage Loan Inventory. Park Granada issues SLNs with maturities of up to 180 days, extendable to 300 days. The SLNs bear interest at prevailing money market rates approximating LIBOR. Park Granada’s funding capacity, based on aggregate commitments from underlying credit enhancers, was $18.2 billion at September 30, 2004. The Company has pledged $6.2 billion in Mortgage Loan Inventory to secure the SLNs issued at September 30, 2004. For the nine months ended September 30, 2004, the average borrowings of Park Granada totaled $12.9 billion, and the weighted average interest rate of the SLNs was 1.3%. At September 30, 2004, the average interest rate of the SLNs outstanding was 1.7%.

During the nine months ended September 30, 2004, the Company obtained $5.2 billion of advances from the Federal Home Loan Bank (“FHLB”). Of this total, $3.4 billion bear variable interest rates and $1.8 billion bear fixed interest rates. The average interest rate and maturity schedule of these new advances follows:

As more fully discussed in Note 2 — Summary of Significant Accounting Policies, “Implementation of New Accounting Standards,” included in the Company’s consolidated financial statements of the 2003 Annual Report, the FASB issued FIN 46R in December 2003. As a result of the adoption of FIN 46R, the company-obligated capital securities of subsidiary trusts are no longer reflected on the Company’s consolidated balance sheets, but have been replaced on the Company’s balance sheet by the junior subordinated debentures issued to the subsidiary trusts by CHL and the Company.

The Company guarantees CHL’s indebtedness to two of the subsidiary trusts, Countrywide Capital I and Countrywide Capital III, which are excluded from the Company’s consolidated financial statements. Following is summarized information for those trusts:

In February 2001, the Company issued zero-coupon Liquid Yield Option Notes (“LYONs”) with an aggregate face value of $675 million, or $1,000 per note, due February 8, 2031. The LYONs were issued at a discount to yield 1.0% to maturity, or 8.25% to the first call date. Under certain conditions, the LYONs are convertible into the Company’s common stock at the rate of 46.3 shares per $1,000 note.

In September 2004, the Company completed an exchange offer, through which LYONs were exchanged for convertible securities with terms similar to the LYONs, except for a provision to allow settlement in cash and stock upon the debentures’ conversion. $637.2 million or 94.7% of the outstanding LYONs were tendered in the exchange. During the period from September 30, 2004 through November 4, 2004, $563.5 million of the convertible securities were surrendered for conversion by the security holders.

The following table shows comparative deposit balances as of the dates indicated:

The primary market risk facing the Company is interest rate risk. From an enterprise perspective, the Company manages interest rate risk through the natural counterbalance of its loan production and servicing businesses. The Company also uses derivatives and other financial instruments to manage the interest rate risk related specifically to its committed pipeline, mortgage loan inventory and MBS held for sale, MSRs and other retained interests, trading securities, and its long-term debt. The overall objective of the Company’s interest rate risk management activities is to reduce the variability of earnings caused by changes in interest rates.

The Company uses a variety of derivative financial instruments to manage interest rate risk. These instruments include MBS mandatory forward sale and purchase commitments, options to sell or buy MBS, Treasury and Eurodollar rate futures and options thereon, interest rate floors, interest rate caps, capped swaps,

swaptions, and interest rate swaps. These instruments involve, to varying degrees, elements of interest rate and credit risk.

The Company manages foreign currency exchange rate risk, which arises from the issuance of foreign currency-denominated debt, with foreign currency swaps.

The Company is exposed to price risk from the time an interest rate lock commitment (“IRLC”) is made to a mortgage applicant (or financial intermediary) to the time the related mortgage loan is sold. During this period, the Company is exposed to losses if mortgage rates rise, because the value of the IRLC or mortgage loan declines. To manage this price risk, the Company utilizes derivatives, primarily forward sales of MBS and options to buy and sell MBS, as well as options on Treasury futures contracts. Certain of these instruments qualify as “fair value” hedges of mortgage loans under SFAS 133.

During the nine months ended September 30, 2004, the risk management activities connected with 77% of the fixed-rate mortgage inventory and 22% of the adjustable-rate mortgage inventory were accounted for as “fair value” hedges. The Company recognized pre-tax losses of $121.0 million and $30.8 million, representing the ineffective portion of such fair value hedges of its mortgage inventory, for the nine months ended September 30, 2004 and 2003, respectively. These amounts, along with the change in the fair value of the derivative instruments that were not designated as hedge instruments, are included in gain on sale of loans and securities in the statement of earnings.

IRLCs are derivative instruments and are recorded at fair value with changes in fair value recognized in current period earnings (as a component of gain on sale of loans and securities). Because IRLCs are derivatives under SFAS 133, the risk management activities related to the IRLCs do not qualify for hedge accounting under SFAS 133. The “freestanding” derivative instruments that are used to manage the interest rate risk associated with the IRLCs are marked to fair value and recorded as a component of gain on sale of loans in the consolidated statements of earnings.

MSRs and other retained interests, specifically interest-only securities and residual securities, are generally subject to a loss in value, or impairment, when mortgage interest rates decline. To moderate the effect of impairment on earnings, the Company maintains a portfolio of financial instruments, including derivatives, which increase in aggregate value when interest rates decline. This portfolio of financial instruments is collectively referred to as the “Servicing Hedge.” During the nine months ended September 30, 2004 and 2003, none of the derivative instruments included in the Servicing Hedge were designated as hedges under SFAS 133. The change in fair value of these derivative instruments was recorded in current period earnings as a component of Servicing Hedge gains and losses.

The financial instruments that comprise the Servicing Hedge include options on interest rate futures, interest rate swaps, interest rate caps, interest rate swaptions, interest rate futures and Treasury securities. With respect to the options on interest rate swaps and interest rate caps, the Company is not exposed to loss beyond its initial outlay to acquire the hedge instruments plus any unrealized gains recognized to date. With respect to the interest rate futures contracts outstanding as of September 30, 2004, the Company estimates that its maximum exposure to loss over the various contractual terms is $223 million. Although this estimate could be exceeded, the Company derives its estimates of loss exposure based upon observed volatilities in the interest rate options market. Using the currently observed volatilities, management estimates, to a 95% confidence level, the maximum potential rate changes over a one-year time horizon. Management then

estimates the Company’s exposure to loss based on the estimated maximum adverse rate change as of the measurement date.

The following table summarizes the notional amounts of derivative contracts included in the Servicing Hedge.

The Company enters into interest rate swap contracts which enable it to convert a portion of its fixed-rate, long-term debt to U.S. dollar LIBOR-based floating-rate debt and to enable the Company to convert a portion of its foreign currency-denominated fixed and floating-rate, long-term debt to U.S. dollar LIBOR-based floating-rate debt. These transactions are designated as “fair value” hedges under SFAS 133. For the nine months ended September 30, 2004, the Company recognized a pre-tax gain of $2.0 million, representing the ineffective portion of such fair value hedges of debt. For the nine months ended September 30, 2003, the Company recognized a pre-tax loss of $0.1 million, representing the ineffective portion of such fair value hedges of debt. These amounts are included in interest expense in the consolidated statements of earnings.

In addition, the Company enters into interest rate swap contracts which enable it to convert a portion of its floating-rate, long-term debt to fixed-rate, long-term debt and to convert a portion of its foreign currency-denominated fixed-rate, long-term debt to U.S. dollar fixed-rate debt. These transactions are designed as “cash flow” hedges. For the nine months ended September 30, 2004 and 2003, the Company recognized a pre-tax gain of $0.1 million and a pre-tax loss of $0.1 million, respectively, representing the ineffective portion of such cash flow hedges. As of September 30, 2004, deferred net gains or losses on derivative instruments included in other comprehensive income that are expected to be reclassified to earnings during the next 12 months are not material.

In connection with its broker-dealer activities, the Company maintains a trading portfolio of fixed income securities, primarily MBS. The Company is exposed to price changes in its trading portfolio arising from interest rate changes during the period it holds the securities. To manage this risk, the Company utilizes derivative financial instruments. These instruments include MBS mandatory forward sale and purchase commitments as well as short sales of cash market U.S. Treasury securities, futures contracts, interest rate swap contracts, and swaptions. All such derivatives are accounted for as “free-standing” and as such are carried at fair value with changes in fair value recorded in current period earnings as a component of gain on sale of loans and securities.

The Company has five business segments — Mortgage Banking, Capital Markets, Banking, Insurance, and Global Operations.

The Mortgage Banking Segment is comprised of three distinct sectors: Loan Production, Loan Servicing, and Loan Closing Services.

The Loan Production Sector of the Mortgage Banking Segment originates prime and subprime mortgage loans through a variety of channels on a national scale. Through the Company’s retail branch network, which consists of the Consumer Markets Division and Full Spectrum Lending, Inc., the Company sources mortgage loans directly from consumers, as well as through real estate agents and home builders. The Wholesale Lending Division sources mortgage loans primarily from mortgage brokers. The Correspondent Lending Division acquires mortgage loans from other financial institutions. The Loan Servicing Sector of the Mortgage Banking Segment includes investments in MSRs and other retained interests, as well as the Company’s loan servicing operations and subservicing for other domestic financial institutions. The Loan Closing Services Sector of the Mortgage Banking Segment is comprised of the LandSafe companies, which provide credit reports, appraisals, title reports and flood determinations to the Company’s Loan Production Sector, as well as to third parties.

The Capital Markets Segment primarily includes the operations of Countrywide Securities Corporation, a registered broker-dealer specializing in the mortgage securities market. In addition, it includes the operations of Countrywide Asset Management Corporation, Countrywide Servicing Exchange and CCM International Ltd.

The Banking Segment’s operations are primarily comprised of Treasury Bank, National Association (“Treasury Bank” or the “Bank”), and Countrywide Warehouse Lending. Treasury Bank invests primarily in mortgage loans sourced from the Loan Production Sector. Countrywide Warehouse Lending provides temporary financing secured by mortgage loans to third-party mortgage bankers.

The Insurance Segment activities include Balboa Life and Casualty Group, a national provider of property, life, and liability insurance; Balboa Reinsurance Company, a primary mortgage reinsurance company; and Countrywide Insurance Services, Inc., a national insurance agency offering a specialized menu of insurance products directly to consumers.

The Global Operations Segment includes Global Home Loans Limited, a provider of loan origination processing and loan sub-servicing in the United Kingdom; UK Valuation Limited, a provider of property valuation services in the UK; and Countrywide International Technology Holdings Limited, a licensor of loan origination processing, servicing, and residential real estate value assessment technology.

In general, intercompany transactions are recorded on an arm’s-length basis. However, the fulfillment fees paid by the Bank to the Production Sector for origination costs incurred on mortgage loans funded by the Bank is determined on an incremental cost basis, which is less than the fees that the Bank would pay to third parties.

Included in the tables below labeled “Other” are the holding company activities, elimination entries and certain reclassifications to conform management reporting to the consolidated financial statements:

In connection with the acquisition of Treasury Bank, the Company became a bank holding company. As a result, the Company is subject to regulatory capital requirements imposed by the Board of Governors of the Federal Reserve System. The Company is also subject to U.S. Department of Housing and Urban Development, Fannie Mae, Freddie Mac and Ginnie Mae net worth requirements, which are lower than those of the Federal Reserve system.

Regulatory capital is assessed for adequacy by three measures: Tier 1 Leverage Capital, Tier 1 Risk-Based Capital and Total Risk-Based Capital. Tier 1 Leverage Capital includes common shareholders’ equity, preferred stock and capital securities that meet certain guidelines detailed in the capital regulations, less goodwill, the portion of MSRs not includable in regulatory capital and other adjustments. Tier 1 Leverage Capital is measured with respect to average assets during the quarter. The Company is required to have a Tier 1 Leverage Capital ratio of 4.0% to be considered adequately capitalized and 5.0% to be considered well capitalized.

The Tier 1 Risk-Based Capital ratio is calculated as a percent of risk-weighted assets at the end of the quarter. The Company is required to have a Tier 1 Risk-Based Capital ratio of 4.0% to be considered adequately capitalized and 6.0% to be considered well capitalized.

Total Risk-Based Capital includes preferred stock and capital securities excluded from Tier 1 Capital, mandatory convertible debt, and subordinated debt that meets certain regulatory criteria. The Total Risk-Based Capital ratio is calculated as a percent of risk-weighted assets at the end of the quarter. The Company is required to have a Total Risk-Based Capital ratio of 8.0% to be considered adequately capitalized and 10.0% to be considered well capitalized.

The following table presents the actual capital ratios and amounts, and minimum required capital ratios for the Company to maintain a “well-capitalized” status by the Board of Governors of the Federal Reserve System as of the dates indicated:

Countrywide and certain subsidiaries are defendants in various legal proceedings involving matters generally incidental to their businesses. Although it is difficult to predict the ultimate outcome of these proceedings, management believes, based on discussions with counsel, that any ultimate liability will not materially affect the consolidated financial position or results of operations of the Company.

On October 20, 2004, the Company announced that its Board of Directors declared a dividend of $0.12 per common share, payable November 30, 2004 to shareholders of record on November 10, 2004.

During the period from September 30, 2004 through November 4, 2004, convertible securities with a recorded value of $563.5 million were surrendered for conversion by security holders.

Summarized financial information for Countrywide Financial Corporation and subsidiaries is as follows:

As of September 30, 2004 and December 31, 2003, the Company managed $18.0 billion and $14.4 billion, respectively, of off-balance sheet borrower and investor custodial cash accounts as well as related liabilities to those borrowers and investors. Of these amounts, $9.1 billion and $5.9 billion, respectively, were

included in the Company’s deposit liabilities, with the remaining balances held by other depository institutions. These custodial accounts arise in connection with the Company’s mortgage servicing activities.

As of September 30, 2004 and December 31, 2003, the Company had undisbursed home equity lines of credit commitments of $5.1 billion and $4.8 billion, respectively, as well as undisbursed construction loan commitments of $559.3 million and $509.0 million, respectively. As of September 30, 2004, outstanding interest rate lock commitments related to mortgage loan applications in process totaled $33.6 billion.

The Company has a defined benefit pension plan (the “Plan”) covering substantially all of its employees. The Company’s policy is to contribute the amount actuarially determined to be necessary to pay the benefits under the Plan, and in no event to pay less than the amount necessary to meet the minimum funding standards of ERISA.

On September 13, 2004, the Company made the maximum tax deductible pension plan contribution of $46.9 million for the plan year 2003.

In March 2004, the Emerging Issues Task Force of the FASB reached consensus opinions regarding the determination of whether an investment is considered impaired, whether the identified impairment is considered other-than-temporary, how to measure other-than-temporary impairment, and how to disclose unrealized losses on investments that are not other-than-temporarily impaired. The consensus opinions, detailed in Emerging Issues Task Force Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments,” add to the Company’s impairment assessment requirements detailed in Emerging Issues Task Force Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased and Retained Interests in Securitized Financial Assets.” The Company has included the new disclosure requirements in its 2003 Annual Report and in this Quarterly Report. Adoption of the new measurement requirements has been delayed by the FASB pending reconsideration of implementation guidance relating to debt securities that are impaired solely due to interest rates and/or sector spreads. The implementation of these consensuses is not expected to have a significant impact on the Company’s financial condition or earnings.

This Quarterly Report on Form 10-Q represents an update to the more detailed and comprehensive disclosures included in our 2003 Annual Report. As such, you should read our 2003 Annual Report to obtain an informed understanding of the following discussions.

In April 2004 and August 2004, respectively, we completed a 3-for-2 and 2-for-1 stock split affected as stock dividends. All references in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to the number of common shares and earnings per share amounts have been adjusted accordingly.

Countrywide’s core business is residential mortgage banking. In recent years, we have expanded into related businesses to capitalize on meaningful opportunities to leverage our core business and to provide sources of earnings that are less cyclical than mortgage banking. We classify our businesses into five business segments — Mortgage Banking, Capital Markets, Banking, Insurance and Global Operations.

The mortgage banking business continues to be the primary source of our revenues and earnings. As a result, the primary influence on our operating results is the demand for mortgage loans in the U.S., which is affected by such external factors as prevailing mortgage rates and the strength of the U.S. housing market.

To date in 2004, the interest rate environment has been somewhat volatile and generally rates are higher than those prevailing in 2003. In 2004, U.S. mortgage production has been substantially reduced from 2003 due to a decline in mortgage refinance activity resulting from higher interest rates. Forecasters currently estimate 2004 U.S. mortgage production to be approximately $2.6 trillion, down from an estimated $3.8 trillion in 2003.

The level of U.S. mortgage production in 2004 has been profitable for our loan production business, although increased competitive pressures have impacted the profitability of that business. We expect the increased competition to continue into the fourth quarter of 2004. The decline in mortgage refinance activity during the nine months ended September 30, 2004, positively impacted our investment in mortgage servicing rights, causing a significant improvement in the results of our loan servicing business.

A decline in mortgage production generally results in a reduction in mortgage securities trading and underwriting volume. A reduction in mortgage trading volumes and margins during the nine months ended September 30, 2004 had a negative impact on the profitability of our Capital Markets Segment.

Total U.S. residential mortgage loan originations were approximately $655 billion in the quarter ended September 30, 2004, a decrease of approximately $515 billion, or 44%, from the year-ago period (Source: Inside Mortgage Finance). During this same time period our production volume decreased 27%. This decline in production volume, coupled with a significant decrease in loan margins from the unusually high levels realized in the third quarter of last year, resulted in a 58% decrease in earnings from our Mortgage Banking Segment. Overall, our net earnings were $582.2 million in the quarter ended September 30, 2004, a decrease of $517.8 million, or 47%, from the year-ago period. The high refinance volume and level and movement of interest rates during the year-ago quarter resulted in profit levels that are not easily repeatable.

The principal market risk we face is interest rate risk — the risk that the value of our assets or liabilities or our net interest income will change due to changes in interest rates. We manage this risk primarily through the natural counterbalance of our loan production operations and our investment in mortgage servicing rights, as well as through the use of various financial instruments including derivatives. The overall objective of our interest rate risk management activities is to reduce the variability of earnings caused by changes in interest rates.

We also face credit risk, primarily related to our residential mortgage production activities. Credit risk is the potential for financial loss resulting from the failure of a mortgagor or an institution to honor its

contractual obligations to us. We manage mortgage credit risk principally by securitizing substantially all mortgage loans that we produce, and by only retaining high credit quality mortgages in our loan portfolio.

Our liquidity and financing requirements are significant. We meet these requirements in a variety of ways including use of the public corporate debt and equity markets, mortgage and asset-backed securities markets, and through the financing activities of our bank. The objective of our liquidity management is to ensure that sufficient diverse and reliable sources of cash are available to meet our funding needs on a cost-effective basis. Our ability to raise financing at the level and cost required to compete effectively is dependent on maintaining our high credit standing, which is evidenced primarily by our credit ratings.

The mortgage industry has undergone rapid consolidation in recent years and we expect this trend to continue in the future. Today the industry is dominated by large, sophisticated financial institutions. To compete effectively in the future, we will be required to maintain a high level of operational, technological and managerial expertise, as well as an ability to attract capital at a competitive cost. We believe that we will benefit from industry consolidation through increased market share and more rational price competition.

Countrywide is a diversified financial services company, with mortgage banking at its core. Our goal is to be the leader in the mortgage banking business in the future. We plan to leverage our position in mortgage banking to grow our related businesses.

The accounting policies that have the greatest impact on our financial condition and results of operations and that require the most judgment are those relating to our mortgage securitization activities, the ongoing valuation of retained interests, particularly Mortgage Servicing Rights (“MSRs”), that arise from those activities, and interest rate risk management activities. Our critical accounting policies involve accounting for gains on sales of loans and securities, the valuation of MSRs and other retained interests, and accounting for our derivatives and interest rate risk management activities. These policies are described in further detail in our Annual Report on Form 10-K for the year ended December 31, 2003.

Net earnings were $582.2 million, a 47% decrease from the quarter ended September 30, 2003. Our diluted earnings per share for the quarter ended September 30, 2004 were $0.94, a 51% decrease from diluted earnings per share for the quarter ended September 30, 2003. The decline in our earnings was driven by a decrease in the profitability of our Loan Production Sector. This decrease resulted from lower Prime Mortgage Loan production and sales combined with a compression in margins, which were caused by higher mortgage interest rates, increased price competition, increased demand for lower-margin adjustable-rate mortgages and higher loan origination costs.

Increased sales of higher-margin Subprime Mortgage and Home Equity Loans positively impacted Loan Production Sector pre-tax earnings, which were $632.7 million for the quarter ended September 30, 2004, a decrease of $782.2 million from the year-ago period.

The pre-tax loss in the Loan Servicing Sector, which incorporates the performance of our MSRs and other retained interests, was $22.7 million for the quarter ended September 30, 2004, a decline of $96.3 million from the year-ago period. This decline in profitability was primarily attributable to the change in the direction of interest rates during the respective periods. Interest rates declined during the current quarter, resulting in MSR impairment and amortization, net of Servicing Hedge gains, of $598.7 million. Rising interest rates in the third quarter of last year resulted in MSR impairment recovery, which when combined with the Servicing Hedge loss and amortization for the quarter amounted to $435.8 million.

The Mortgage Banking Segment produced pre-tax earnings of $632.5 million for the quarter ended September 30, 2004, a decrease of 58% from the quarter ended September 30, 2003.

Our Diversified Businesses also were significant contributors to the earnings performance in the quarter ended September 30, 2004. In particular, our Banking Segment recorded pre-tax earnings of $163.2 million, an increase in earnings of $78.7 million over the year-ago quarter, driven primarily by growth in mortgage loans held by Treasury Bank. The increase in the Banking Segment’s pre-tax earnings was partially offset by a decline in the Capital Markets Segment’s earnings, which declined $44.9 million. The decrease was due primarily to a decrease in the size of the overall mortgage market, which resulted in a decline in securities trading margins and reduced conduit activities. In total, Diversified Businesses contributed $290.7 million in pre-tax earnings for the quarter ended September 30, 2004, an increase of 13% from the year-ago period.

The Mortgage Banking Segment includes the Loan Production, Loan Servicing and Loan Closing Services Sectors.

The Loan Production Sector produces mortgage loans through the three production divisions of Countrywide Home Loans (“CHL”) — Consumer Markets, Wholesale Lending and Correspondent Lending, as well as through Full Spectrum Lending, Inc. (“FSLI”).

Decreased demand for residential mortgages from the historic levels experienced in the third quarter of 2003 resulted in lower production volume in the quarter ended September 30, 2004. The resulting decline in our production was partially offset by an increase in our market share from the year-ago period. Our mortgage loan production market share was 14% in the quarter ended September 30, 2004, up from 11% in the quarter ended September 30, 2003 (Source: Inside Mortgage Finance).

Revenues declined over the year-ago period due primarily to a reduction in production and sales volume and margins of Prime Mortgage Loans. Sales of Prime Mortgage Loans were $66.4 billion in the current quarter compared to $109.5 billion in the year-ago quarter. Prime Mortgage Loan margins declined significantly from the unusually high levels realized in the third quarter of 2003. We attribute the decline in margins to increased price competition caused by the significant reduction in refinance activity, as well as to the shift in consumer preference towards adjustable rate mortgages, which generally carry lower margins than 30 year fixed rate mortgages. The decline in prime revenues was partially offset by increased production and sales of higher margin Subprime Mortgage and Prime Home Equity Loans. Sales of Subprime Mortgage and Prime Home Equity Loans were $19.0 billion in the current quarter compared to $1.2 billion in the year-ago quarter.

Operating expenses increased, both in dollars and in proportion to loan volume, compared to the year-ago period due to a planned reduction in productivity to sustainable levels. In addition, expenses increased as we pursued our strategy to increase our market share of home purchase loans. Such expenses included compensation incentives tied to increased purchase and Prime Home Equity volumes and sales staff expansion, along with increased marketing campaigns.

The following table shows total Mortgage Banking loan production volume by division:

Mortgage Banking loan production for the quarter ended September 30, 2004 decreased 32% in comparison to the year-ago period. Non-purchase loan production declined by 59%, while purchase production increased by 32%. The increase in purchase loans is significant because this component of the mortgage market offers relatively stable growth, averaging 10% per year over the last 10 years. The non-purchase, or refinance, component of the mortgage market is highly volatile because it is driven almost exclusively by prevailing mortgage rates.

The following table summarizes Mortgage Banking loan production by purpose and by interest rate type:

The volume of Mortgage Banking Prime Home Equity and Subprime Mortgage Loans produced (which is included in our total volume of loans produced) increased 105% during the current period from the prior period. Details are shown in the following table.

Prime Home Equity and Subprime Mortgage Loans generally provide higher profit margins, and the demand for such loans is believed to be less interest-rate sensitive than the demand for Prime Mortgage Loans. Consequently, Management believes these loans will be a significant component of the sector’s future growth, in particular if mortgage rates continue to rise.

During the quarter ended September 30, 2004, the Loan Production Sector operated at approximately 111% of planned operational capacity, compared to 125% during the year-ago period. The primary capacity constraint in our loan origination activities is the number of loan operations personnel we have on staff. Therefore, we measure planned capacity with reference to the number of our loan operations personnel multiplied by the number of loans we expect each loan operations staff person to process under normal conditions. As loan production volume has declined, there has been a reduction in productivity to more sustainable levels that will result in higher overall unit costs. We plan to continue building our sales staff despite any potential further drop in loan origination volume as a primary means to increase our market share, particularly for purchase loans.

The following table summarizes the number of people included in the Loan Production Sector workforce as of the dates indicated:

The Consumer Markets Division continued to grow its commissioned sales force during the period. At September 30, 2004, the commissioned sales force numbered 4,831, an increase of 1,579 compared to September 30, 2003. The primary focus of the commissioned sales force is to increase overall purchase market share. The commissioned sales force contributed $10.5 billion in purchase originations during the quarter ended September 30, 2004, a 26% increase over the year-ago period. The purchase production generated by the commissioned sales force represented 75% of the Consumer Markets Division’s purchase production for the quarter ended September 30, 2004. In addition, the Consumer Markets Division has expanded its branch network to 556 branch offices at September 30, 2004, an increase of 106 over the year-ago period.

The Wholesale Lending Division and FSLI also continued to grow their sales forces as a core strategy to increase market share. At September 30, 2004, the sales force in the Wholesale Lending Division numbered 1,018, an increase of 21% compared to September 30, 2003. FSLI expanded its sales force by 1,377, or 74% compared to September 30, 2003. In addition, FSLI has expanded its branch network to 145 branch offices at September 30, 2004, an increase of 55 over the year-ago period.

Included in Loan Servicing Sector’s results is the performance of our investments in MSRs and other retained interests and associated risk management activities, as well as profits from sub-servicing activities in the United States. The Loan Servicing Sector also includes a significant processing operation, consisting of approximately 6,000 employees who service our 5.9 million mortgage loans. The long-term performance of this sector is impacted primarily by the level of interest rates and the corresponding impact on the level of prepayments in our servicing portfolio.

The Loan Servicing Sector experienced a pre-tax loss of $22.7 million during the recent period, driven by impairment of our MSRs and other retained interests. Such impairment reflects the decrease in value of our retained interests, primarily caused by the decline in interest rates during the quarter and corresponding increase in the level of projected prepayments in our mortgage servicing portfolio. The combined amortization and impairment charge was $1,189.7 million during the quarter ended September 30, 2004 compared to an amortization charge, net of recovery of previous impairment of retained interests, of $320.9 million during the quarter ended September 30, 2003.

During the quarter ended September 30, 2004, the Servicing Hedge generated a gain of $591.0 million. This gain resulted from a decline in long-term Treasury and swap rates, which indices underlie the derivatives that constituted the primary component of the Servicing Hedge. In a stable interest rate environment, we would expect to incur no significant impairment charges; however, we would expect to incur losses related to the Servicing Hedge driven primarily by time decay on options used in the hedge. The level of such Servicing Hedge losses depends on various factors such as the size and composition of the hedge, the shape of the yield curve and the level of implied interest rate volatility.

We increased our servicing portfolio to $786.0 billion at September 30, 2004, a 30% increase from September 30, 2003. At the same time, the overall weighted-average note rate of loans in our servicing portfolio declined from 6.1% to 5.9%.

The LandSafe companies produced $22.5 million in pre-tax earnings, representing a decrease of 17% from the year-ago period. The decrease in LandSafe’s pre-tax earnings was primarily due to the decrease in our loan origination activity.

To leverage our mortgage banking platform, as well as to reduce the variability of earnings due to changes in mortgage interest rates, we have expanded into other financial services. These other businesses are grouped into the following segments: Banking, Capital Markets, Insurance, and Global Operations.

The Banking Segment achieved pre-tax earnings of $163.2 million during the quarter ended September 30, 2004, as compared to $84.5 million for the year-ago period. Following is the composition of pre-tax earnings by company:


(1)	Non-interest expense divided by the sum of net interest income plus non-interest income.

The increase in net interest income is primarily due to a $15.0 billion increase in average interest-earning assets, primarily mortgage loans, combined with an increase in net interest margin (net interest income

divided by average earning assets) of 42 basis points. The increase in net interest margin is due largely to a shift in the mix of the Bank’s earning assets toward mortgage loans held for investment.

The Banking Segment also includes the operation of CWL. CWL’s pre-tax earnings decreased by $6.3 million during the quarter ended September 30, 2004 in comparison to the year-ago period, primarily due to a 21% decline in average mortgage warehouse advances. The decline in average mortgage warehouse advances was attributable to a decline in the overall mortgage originations market.

Our Capital Markets Segment achieved pre-tax earnings of $90.1 million for the quarter, a decrease of $44.9 million, or 33%, from the year-ago period. Total revenues were $166.9 million, a decrease of $30.3 million, or 15%, compared to the year-ago period. This segment’s performance was impacted by a less favorable mortgage-related fixed income securities market. These factors led to reduced mortgage-backed securities trading volumes and margins and a decline in conduit activities. This segment has expanded its staffing and infrastructure to invest in the development of new lines of business, which largely contributed to an increase in expenses of $14.6 million, or 23%, compared to the year-ago period.

Underwriting revenues increased $51.7 million over the year-ago period primarily as a result of increased sales of our subprime and home equity securities.

During the quarter ended September 30, 2004, the Capital Markets Segment generated revenues totaling $49.0 million from its conduit activities, which include brokering and managing the acquisition, sale or securitization of whole loans on behalf of CHL. Conduit revenues for the quarter ended September 30, 2004 decreased 46% in comparison to the year-ago period primarily as a result of a decline in volume and increased competition, which reduced margins.

Trading revenues declined 73% due to a decrease in the size of the overall mortgage market which resulted in a decline in mortgage securities trading volume and margins. Trading volumes declined 40% from the year-ago quarter, before giving effect to introduction by the Company of trading of U.S. Treasury securities. Including U.S. Treasury securities, the total securities volume traded decreased 3% over the year-ago period. Effective January 15, 2004, Countrywide Securities Corporation (“CSC”) became a “Primary Dealer” and as such is an authorized counterparty with the Federal Reserve Bank of New York in its open market operations.

The following table shows the composition of CSC securities trading volume, which includes intersegment trades with the mortgage banking operations, by instrument:


(1)	Approximately 10% of the segment’s total securities trading volume was with CHL during the quarters ended September 30, 2004 and 2003.

The Insurance Segment’s pre-tax earnings decreased 3% over the year-ago period, to $29.6 million. The following table shows pre-tax earnings by business line:


(1)	Includes the Balboa Life and Casualty Group and the Countrywide Insurance Services Group.

The following table shows net insurance premiums earned for the carrier operations:

Our mortgage reinsurance business produced $32.8 million in pre-tax earnings, an increase of 77% over the year-ago period, driven primarily by growth of 10% in the mortgage loans included in our loan servicing portfolio that are covered by reinsurance contracts combined with an overall increase in the ceded premium percentage and a reduction in provision for insurance claim losses. Within Balboa Reinsurance, reserves for insurance claims losses are a function of expected remaining losses and premiums.

Our Life and Casualty insurance business produced pre-tax earnings of $2.3 million, a decrease of $13.5 million from the comparable quarter in 2003. The decline in earnings was driven by $23.2 million in estimated losses relating to hurricane damage sustained in Florida during the current quarter in comparison to $4.1 million in the year-ago quarter.

Global Operations pre-tax earnings totaled $9.8 million, an increase of $1.7 million in comparison to the year-ago period. The increase in earnings was due to growth in the portfolio of mortgage loans subserviced on behalf of Global Home Loans’ minority joint venture partner, Barclays Bank PLC.

Gain on sale of loans and securities is summarized below for the periods indicated:

Gain on sale of Prime Mortgage Loans decreased in the quarter ended September 30, 2004 as compared to the quarter ended September 30, 2003 due primarily to lower Prime Mortgage Loan production and sales combined with lower margins. The decline in margins from the unusually high levels realized in the third quarter of 2003 was due to increased price competition as a result of lower demand for refinance mortgage loans combined with a shift in consumer preference towards adjustable rate mortgages, which generally carry lower margins than thirty year fixed-rate mortgages. Gain on sale of Prime Home Equity and Subprime Mortgage Loans increased in the quarter ended September 30, 2004 compared to the quarter ended September 30, 2003 due primarily to increased sales of these loans offset somewhat by lower margins on the Subprime mortgage loan sales. Inventory of these products had been accumulated during recent periods of high origination volume.

Reperforming loans are reinstated loans that had previously defaulted and were repurchased from mortgage securities we issued. The note rate on these loans is typically higher than the current mortgage rate, and therefore, their margin is typically higher than margins on Prime Mortgage Loans. A change in Ginnie Mae rules related to the repurchase of defaulted loans from Ginnie Mae securities has resulted in fewer loans available for repurchase, which has contributed to a lower margin on sale related to these loans.

The increase in Capital Markets’ underwriting revenues was due to increased sales of our subprime and home equity securities combined with an increase in third party underwriting business. The decrease in Capital Markets’ gain on sale related to its conduit activities was due to decreased mortgage sales and margins during the quarter. Capital Markets’ revenues from its trading activities consist of gain on sale and interest income. In a steep yield curve environment, which existed during both periods, trading revenues will derive

largely or entirely from net interest income earned during the securities’ holding period. As the yield curve flattens, the mix of revenues will shift toward gain on sale of securities. The decrease in the loss on sale of the trading activities was due to a flattening of the yield curve in the quarter ended September 30, 2004.

In general, gain on sale of loans and securities is affected by numerous factors, including the volume and mix of loans sold, production channel mix, the level of price competition, the slope of the yield curve, and the effectiveness of our associated interest rate risk management activities.

The increase in net interest income from Mortgage Banking loans and securities reflects an increase in the average inventory of mortgage loans during the quarter ended September 30, 2004 as compared to the quarter ended September 30, 2003. Prime Home Equity Loans had been accumulated in prior periods resulting in a higher average inventory balance of such loans in the current quarter as compared to the year-ago period. The higher balance of Prime Home Equity Loans was partially offset by a decline in the average balance of Prime Mortgage Loans resulting from the decline in production volume in the current period as compared to the year-ago period.

The increase in net interest income from the Banking Segment was primarily attributable to growth in mortgage loans held by the Bank. Average assets in the Banking Segment increased to $33.8 billion during the quarter, an increase of $13.9 billion over the year-ago quarter. The average net spread earned increased to 2.40% during the quarter ended September 30, 2004 from 2.04% during the quarter ended September 30, 2003 primarily as the result of a rotation out of securities and into mortgage loans.

Net interest expense from custodial balances decreased in the current period due to a decline in loan payoffs from the year-ago period. We are obligated to pass through monthly interest to security holders on paid-off loans at the underlying security rates, which were substantially higher than the short-term rates earned by us on the payoff float. The amount of such interest passed through to the security holders was $66.2 million and $131.9 million in the quarters ended September 30, 2004 and 2003, respectively.

Interest expense allocated to the Loan Servicing Sector increased due to an increase in total sector assets.

The decrease in net interest income from the Capital Markets securities portfolio is attributable to a decrease in the average net spread earned from 1.43% in the quarter ended September 30, 2003 to 0.86% during the quarter ended September 30, 2004, partially offset by an increase of 4% in the average inventory of

securities held in the quarter ended September 30, 2004. The decrease in net spread earned on the securities portfolio is primarily due to an increase in short-term financing rates.

Reperforming loans are reinstated loans that had previously defaulted and were repurchased from mortgage securities we issued. Such loans are subsequently securitized and resold. The decrease in interest income related to this activity is primarily a result of a decrease in the average balance of such loans held.

Loan servicing fees and other income from retained interests are summarized below for the periods indicated:

The increase in servicing fees, net of guarantee fees, was principally due to a 30% increase in the average servicing portfolio, partially offset by a reduction in the overall annualized net service fee earned from 0.34% of the average portfolio balance during the quarter ended September 30, 2003 to 0.32% during the quarter ended September 30, 2004. The reduction in the overall net service fee was largely due to the Company entering agreements with certain of its loan investors whereby it agreed to reduce its contractual servicing fee rate. The resulting excess yield has been securitized and sold or is recorded on the balance sheet as trading securities.

The decrease in income from other retained interests was due primarily to a decrease in the average effective yield of these investments from 31% in the quarter ended September 30, 2003 to 22% in the quarter ended September 30, 2004. These investments include interest-only and principal-only securities as well as residual interests that arise from the securitization of nonconforming mortgage loans, particularly Subprime Mortgage and Prime Home Equity Loans.

We recorded amortization of MSRs of $394.1 million, or an annual rate of 17.5%, during the quarter ended September 30, 2004 as compared to $666.4 million, or an annual rate of 34.5%, during the quarter ended September 30, 2003. The amortization rate of MSRs is dependent on the forecasted prepayment speeds at the beginning of the period. Mortgage rates at the beginning of the current quarter were higher than the year-ago period, and as a result, the forecasted prepayment speeds were lower in the current quarter. This resulted in a lower amortization rate in the quarter ended September 30, 2004 than in the quarter ended September 30, 2003. Partially offsetting the lower amortization rate was the higher MSR asset balance.

Recovery (impairment) of retained interests and Servicing Hedge (losses) gains are detailed below for the periods indicated:

The impairment of MSRs during the quarter ended September 30, 2004 resulted from a decrease in the estimated fair value of MSRs driven by a decrease in mortgage rates during the quarter. An increase in mortgage interest rates during the quarter ended September 30, 2003, resulted in recovery of previous MSR impairment of $331.6 million.

During the quarter ended September 30, 2004, long-term Treasury and swap rates decreased, resulting in a Servicing Hedge gain of $591.0 million. During the quarter ended September 30, 2003, the Servicing Hedge generated a loss of $114.9 million as long-term Treasury and swap rates increased.

The Servicing Hedge is intended to moderate the effect on earnings caused by changes in the estimated fair value of MSRs and other retained interests that generally result from changes in mortgage rates. Rising interest rates in the future will result in Servicing Hedge losses.

The increase in net insurance premiums earned is primarily due to an increase in the ceded premium percentage in our mortgage reinsurance business, offset by a decrease in premiums earned on lender-placed casualty lines of businesses.

Commissions and other income consisted of the following for the periods indicated:

Compensation expenses increased $127.3 million, or 18%, during the quarter ended September 30, 2004 as compared to the quarter ended September 30, 2003.

Compensation expenses in the Mortgage Banking Segment increased primarily due to growth in the loan production sales force. In the Loan Production Sector, compensation expenses increased $88.0 million, or 20%, as a result of a 17% increase in average staff, primarily the sales force, combined with incentive compensation tied to increased purchases and Home Equity volumes.

Incremental direct costs associated with the origination of loans are deferred when incurred. When the related loan is sold, the costs deferred are included as a component of gain on sale. See “Note 2 — Summary of Significant Accounting Policies — Financial Statement Reclassifications” in our 2003 Annual Report for a further discussion of deferred origination costs.

Compensation expenses increased in all other business segments and corporate areas, reflecting their growth and growth in the Company.

Occupancy and other office expenses for the quarter ended September 30, 2004 increased by $17.1 million, or 11%, primarily to accommodate personnel growth in the loan production operations.

Insurance claim expenses were $106.7 million, or 55%, of net insurance premiums earned for the quarter ended September 30, 2004, as compared to $103.2 million, or 54%, of net insurance premiums earned for the quarter ended September 30, 2003. Balboa Life and Casualty’s loss ratio (including allocated loss adjustment expenses) increased from 56% for the quarter ended September 30, 2003 to 64% for the quarter ended September 30, 2004, due to higher hurricane-related losses. The provision for reinsurance claims expenses

decreased $6.1 million from the quarter ended September 30, 2003. Reinsurance claims expenses are a function of expected remaining losses and premiums.

The increase in marketing expense is due to increased advertising during the current quarter.

Net earnings were $1,972.8 million during the nine months ended September 30, 2004, a 9% increase from the nine months ended September 30, 2003. The increase in our earnings was driven primarily by an increase in the profitability of our Banking Segment. In the Mortgage Banking Segment, improved financial performance of our MSRs was for the most part offset by a decline in the profitability of our Loan Production Sector. Although net earnings increased 9% from the year-ago period, earnings per share for the nine months ended September 30, 2004 decreased 2% to $3.19 as a result of an increase in the number of diluted shares.

The decrease in the profitability of the Loan Production Sector resulted from lower Prime Mortgage Loan production and sales combined with a compression in margins, which were caused by generally higher mortgage interest rates, increased demand for lower-margin adjustable-rate mortgages, greater pricing competition and higher loan origination costs. Increased sales of higher-margin Subprime Mortgage and Home Equity Loans positively impacted Loan Production Sector pre-tax earnings, which were $2,402.7 million for the nine months ended September 30, 2004, a decrease of $1,104.2 million from the year-ago period.

The pre-tax loss in the Loan Servicing Sector, which incorporates the performance of our MSRs and other retained interests, was $155.7 million, an improvement of $1,160.9 million from the year-ago period. This decline in pre-tax loss was primarily attributable to a decrease in the combined amount of amortization and impairment, net of Servicing Hedge gains, which totaled $1,875.5 million in the nine months ended September 30, 2004, compared to $2,815.4 million in the year-ago period.

The Mortgage Banking Segment produced pre-tax earnings of $2,311.2 million for the nine months ended September 30, 2004, an increase of 2% from the nine months ended September 30, 2003.

Our Diversified Businesses were significant contributors to the earnings performance in the nine months ended September 30, 2004. In particular, our Banking Segment increased its pre-tax earnings by $192.7 million from the year-ago period, driven primarily by growth in mortgage loans held by Treasury Bank. In total, Diversified Businesses contributed $878.9 million in pre-tax earnings for the nine months ended September 30, 2004, an increase of 36% from the year-ago period.

The Mortgage Banking Segment includes the Loan Production, Loan Servicing and Loan Closing Services Sectors.

Decreased demand for residential mortgages from the historic levels experienced in the nine months ended September 30, 2003 resulted in lower production volume in the nine months ended September 30, 2004. The resulting decline in our production was partially offset by an increase in our market share from the year-ago period. Our mortgage loan production market share was 13% in the nine months ended September 30, 2004, up from 12% in the nine months ended September 30, 2003 (Source: Inside Mortgage Finance).

Revenues declined over the year-ago period due primarily to a reduction in production and sales volume and margins of Prime Mortgage Loans. Sales of Prime Mortgage Loans were $200.5 billion in the current period compared to $297.7 billion in the year-ago period. Prime Mortgage Loan margins declined from the high levels realized in the nine months ended September 30, 2003. We attribute the decline in margins to increased price competition caused by the significant reduction in refinance activity, as well as to the shift in consumer preference towards adjustable rate mortgages, which generally carry lower margins than 30 year fixed rate mortgages. The decline in prime revenues was partially offset by increased production and sales of higher margin Subprime Mortgage and Prime Home Equity Loans. Combined sales of Subprime Mortgage and Prime Home Equity Loan products were $46.5 billion in the current nine month period compared to $5.3 billion in the year-ago period.

The following table shows total Mortgage Banking loan production volume by division:

Mortgage Banking loan production for the nine months ended September 30, 2004 decreased 30% in comparison to the year-ago period. Non-purchase loan production declined by 51%, while purchase production increased by 33%.

The following table summarizes Mortgage Banking loan production by purpose and by interest rate type:

The volume of Mortgage Banking Prime Home Equity and Subprime Mortgage Loans produced (which is included in our total volume of loans produced) increased 107% during the current period from the prior period. Details are shown in the following table.

Prime Home Equity and Subprime Mortgage Loans generally provide higher profit margins, and the demand for such loans is believed to be less interest-rate-sensitive than the demand for Prime Home Mortgage loans. Consequently, Management believes these loans will be a significant component of the sector’s future growth, in particular if mortgage rates continue to rise.

During the nine months ended September 30, 2004, the Loan Production Sector operated at approximately 111% of planned operational capacity, compared to 124% during the year-ago period.

The pre-tax loss in the Loan Servicing Sector was $155.7 million during the recent period, an improvement of $1,160.9 million from the year-ago period. During the current period, mortgage rates were generally higher than in the year-ago period, which resulted in lower actual and projected prepayments. Such lower prepayments resulted in lower amortization and impairment. The combined amounts of amortization and impairment, net of the Servicing Hedge were $1,875.5 million and $2,815.4 million during the nine months ended September 30, 2004 and 2003, respectively.

The LandSafe companies produced $64.1 million in pre-tax earnings, representing a decrease of 22% from the year-ago period. The decrease in LandSafe’s pre-tax earnings was primarily due to the decrease in our loan origination activity.

To leverage our mortgage banking platform, as well as to reduce the variability of earnings due to changes in mortgage interest rates, we have engaged in other financial services. These other businesses are grouped into the following segments: Banking, Capital Markets, Insurance, and Global Operations.

The Banking Segment achieved pre-tax earnings of $387.9 million during the nine months ended September 30, 2004, as compared to $195.1 million for the year-ago period. Following is the composition of pre-tax earnings by company:


(1)	Non-interest expense divided by the sum of net interest income plus non-interest income.

The increase in net interest income is primarily due to a $14.5 billion increase in average interest-earning assets, primarily mortgage loans, combined with an increase in net interest margin of 26 basis points. The margin increase was the result of a more favorable asset mix and lower loan and securities prepayments.

The Banking Segment also includes the operation of CWL. CWL’s pre-tax earnings decreased by $12.0 million during the nine months ended September 30, 2004 in comparison to the year-ago period, primarily due to a 19% decline in average mortgage warehouse advances, which in turn resulted from a decline in the overall mortgage originations market.

Our Capital Markets Segment achieved pre-tax earnings of $332.9 million for the nine months, a decrease of $13.3 million, or 4%, from the year-ago period. Total revenues were $551.9 million, an increase of $23.5 million, or 4% compared to the year-ago period.

The following table shows revenues, expenses and pre-tax earnings of the Capital Markets Segment:

During the nine months ended September 30, 2004, the Capital Markets Segment generated revenues totaling $225.9 million from its conduit activities, which include brokering and managing the acquisition, sale or securitization of whole loans on behalf of CHL.

Underwriting revenues increased $98.8 million over the year-ago period primarily as a result of increased sales of our subprime and home equity securities.

Trading revenues declined 42% due to a decrease in the size of the overall mortgage market which resulted in a decline in mortgage securities trading volume and margins. Trading volumes declined 27% from the year-ago period, before giving effect to trading of U.S. Treasury securities. Including U.S. Treasury securities, the total securities volume traded increased 4% over the year-ago period. Effective January 15, 2004, CSC became a “Primary Dealer” and as such is an authorized counterparty with the Federal Reserve Bank of New York in its open market operations. The Treasury securities trading operation is still in its development stages and has not yet produced significant net revenues.

The following table shows the composition of CSC securities trading volume, which includes intersegment trades with the mortgage banking operations, by instrument:


(1)	Approximately 10% and 12% of the segment’s total securities trading volume was with CHL during the nine months ended September 30, 2004 and 2003, respectively.

The Insurance Segment’s pre-tax earnings increased 41% over the year-ago period, to $130.2 million. The following table shows pre-tax earnings by business line:


(1)	Includes the Balboa Life and Casualty Group and the Countrywide Insurance Services Group.

The following table shows net insurance premiums earned for the carrier operations:

Our mortgage reinsurance business produced $96.6 million in pre-tax earnings, an increase of 56% over the year-ago period, driven primarily by growth of 10% in the mortgage loans included in our loan servicing portfolio that are covered by reinsurance contracts combined with an overall increase in the ceded premium percentage and a reduction in provision for insurance claim losses.

Our Life and Casualty insurance business produced pre-tax earnings of $49.2 million, an increase of $8.0 million from the year-ago period. The growth in earnings was driven by a $22.3 million, or 5%, increase in net earned premiums during the nine months ended September 30, 2004 in comparison to the year-ago period. The growth in net earned premiums was primarily attributable to growth in voluntary homeowners insurance.

Global Operations pre-tax earnings totaled $31.2 million, an increase of $17.5 million in comparison to the year-ago period. The increase in earnings was due to growth in the portfolio of mortgage loans subserviced on behalf of Global Home Loans’ minority joint venture partner, Barclays Bank PLC, along with a $6.5 million software impairment in the nine months ended September 30, 2003, which did not recur in the current period.

Gain on sale of loans and securities is summarized below for the periods indicated:

Gain on sale of Prime Mortgage Loans decreased in the nine months ended September 30, 2004 as compared to the nine months ended September 30, 2003, due primarily to lower Prime Mortgage Loan production and sales combined with lower margins. This reduction in gain on sale revenues was partially offset by increased net interest income associated with Prime Mortgage Loans as a result of the increase in the average holding period of the inventory, which shifts revenue from gain on sale to interest income. The decline in margins from the high levels realized in the nine months ended September 30, 2003 was due to increased price competition as a result of lower demand for refinance mortgage loans, combined with a shift in consumer preference towards adjustable rate mortgages, which generally carry lower margins than thirty-year fixed-rate mortgages. Gain on sale of Prime Home Equity and Subprime Mortgage Loans increased in the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003, due primarily to increased sales of these loans, offset somewhat by lower margins on the Subprime Mortgage Loan sales. Inventory of these products had been accumulated during recent periods of high origination volume.

in Ginnie Mae rules related to the repurchase of defaulted loans from Ginnie Mae securities has resulted in fewer loans available for repurchase, which has contributed to a lower gain on sale related to these items.

The increase in Capital Markets’ underwriting revenues was due to increased sales of our subprime and home equity securities combined with an increase in third-party underwriting business. Capital Markets’ revenues from its trading activities consist of gain on sale and interest income. The increase in the loss related to trading securities is due to a less robust market environment in the current period.

The increase in net interest income from Mortgage Banking loans and securities reflects an increase in the average inventory of mortgage loans during the nine months ended September 30, 2004 as compared to the nine months ended September 30, 2003. Prime Home Equity Loans had been accumulated in prior periods resulting in a higher average inventory balance of such loans in the current period as compared to the year-ago period. In addition, the average holding period for loans increased during the nine months ended September 30, 2004 as compared to the nine months ended September 30, 2003. Also contributing to the increase in net interest income is a decline in the overall borrowing rate as a result in a shift in the mix of debt to less expensive short-term debt.

The increase in net interest income from the Banking Segment was primarily attributable to growth in mortgage loans in the Bank. Average assets in the Banking Segment increased to $28.8 billion during the nine months, an increase of $13.6 billion over the year-ago period. The average net spread earned increased to 2.24% during the nine months ended September 30, 2004 from 2.00% during the nine months ended September 30, 2003.

Net interest expense from custodial balances decreased in the current period due to the decrease in loan payoffs from the year-ago period. We are obligated to pass through monthly interest to security holders on paid-off loans at the underlying security rates, which were substantially higher than the short-term rates earned by us on the payoff float. The amount of such interest passed through to the security holders was $220.2 million and $342.7 million in the nine months ended September 30, 2004 and 2003, respectively.

Interest expense allocated to the Loan Servicing Sector increased due to an increase in total Servicing Sector assets.

The decrease in net interest income from the Capital Markets securities portfolio is attributable to a decrease in the average net spread earned from 1.44% in the nine months ended September 30, 2003 to 1.00% in the nine months ended September 30, 2004, partially offset by an increase of 30% in the average inventory of securities held.

Reperforming loans are reinstated loans that had previously defaulted and were repurchased from mortgage securities we issued. Such loans are subsequently securitized and resold. The decrease in interest income related to this activity is a result of a decrease in the average balance of such loans held.

Loan servicing fees and other income from retained interests are summarized below for the periods indicated:

The increase in servicing fees, net of guarantee fees, was principally due to a 34% increase in the average servicing portfolio, partially offset by a reduction in the overall annualized net service fee earned from 0.35% of the average portfolio balance during the nine months ended September 30, 2003 to 0.33% during the nine months ended September 30, 2004. The reduction in the overall net service fee was largely due to the Company entering agreements with certain of its loan investors whereby it agreed to reduce its contractual servicing fee rate. The resulting excess yield has been securitized and sold or is recorded on the balance sheet as trading securities.

The decrease in income from other retained interests was due primarily to a decrease in the average effective yield of these investments from 26% in the nine months ended September 30, 2003 to 24% in the nine months ended September 30, 2004. These investments include interest-only and principal-only securities as well as residual interests that arise from the securitization of nonconforming mortgage loans, particularly Subprime and Home Equity Loans.

The increase in subservicing fees earned in the Global Operations Segment was primarily due to growth in the portfolio subserviced. The Global Operations subservicing portfolio was $110 billion and $98 billion at September 30, 2004 and 2003, respectively.

We recorded amortization of MSRs of $1,377.7 million, or an annual rate of 21.4%, during the nine months ended September 30, 2004 as compared to $1,586.2 million, or an annual rate of 27.4%, during the nine months ended September 30, 2003. The reduction in the amortization rate reflects the increase in the estimated life of the servicing portfolio, which is attributable to comparatively higher interest rates during the current period.

Impairment of retained interests and Servicing Hedge gains are detailed below for the periods indicated:

The impairment of MSRs during the nine months ended September 30, 2004 resulted from a decrease in the estimated fair value of MSRs driven by a slight decrease in mortgage rates during the period. In the nine months ended September 30, 2004, we recognized impairment of other retained interests, primarily as a result of a decline in the value of subprime securities. The collateral underlying certain of these residuals is fixed-rate while the pass-through rate is floating. An increase in projected short-term interest rates during the current period resulted in a compression of the spread on such residuals, which resulted in a decline in their value. Impairment of MSRs during the nine months ended September 30, 2003 resulted from a reduction in the estimated fair value of MSRs, primarily driven by the decline in mortgage rates during much of the period.

During the nine months ended September 30, 2004, long-term Treasury and swap rates decreased, resulting in a Servicing Hedge gain of $114.3 million. During the nine months ended September 30, 2003, the Servicing Hedge generated a gain of $639.6 million, as long-term Treasury and swap rates generally decreased.

The increase in net insurance premiums earned is primarily due to an increase in premiums earned on lender-placed and voluntary lines of businesses combined with an increase in reinsurance premiums.

Commissions and other income consisted of the following for the periods indicated:

Compensation expenses increased $345.4 million, or 18%, during the nine months ended September 30, 2004 as compared to the nine months ended September 30, 2003.

Compensation expenses in the Mortgage Banking Segment increased primarily due to growth in the loan production sales force. In the Loan Production Sector, compensation expenses increased $206.5 million, or 18%, as a result of an 18% increase in average staff, primarily the sales force. In the Loan Servicing Sector, compensation expense rose $24.5 million, or 14%, increase in the number of loans serviced.

Compensation expenses increased in all other business segments and corporate areas, reflecting their growth and growth in the Company.

Occupancy and other office expenses for the nine months ended September 30, 2004 increased by $78.7 million, or 18%, primarily to accommodate personnel growth in the loan production operations, which accounted for 98% of the increase.

Insurance claim expenses were $275.1 million, or 48% of net insurance premiums earned, for the nine months ended September 30, 2004, as compared to $277.1 million, or 52% of net insurance premiums earned, for the nine months ended September 30, 2003. Balboa Life and Casualty’s loss ratio (including allocated loss adjustment expenses) was 56% for the nine months ended September 30, 2003 and 2004, due to lower claims experience in both voluntary homeowners’ and lender-placed insurance lines offset by increased losses related to hurricanes. The provision for reinsurance claims expenses decreased $9.1 million from the nine months

The increase in marketing expenses is due to increased advertising during the current period.

Insurance expense increased due to an increase in mortgage insurance related to the growth in the Bank’s loan portfolio.

The primary market risk we face is interest rate risk. From an enterprise perspective, we manage this risk through the natural counterbalance of our loan production and servicing businesses. We also use various financial instruments, including derivatives, to manage the interest rate risk related specifically to our Committed Pipeline, Mortgage Loan Inventory and Mortgage-Backed Securities held for sale, MSRs and other retained interests, and trading securities, as well as a portion of our debt. The overall objective of our interest rate risk management activities is to reduce the variability of earnings caused by changes in interest rates.

We perform various sensitivity analyses that quantify the net financial impact of changes in interest rates on our interest rate-sensitive assets, liabilities and commitments. These analyses incorporate assumed changes in the interest rate environment, including selected hypothetical (instantaneous) parallel shifts in the yield curve. Utilizing these analyses, the following table summarizes the estimated change in fair value of our interest rate-sensitive assets, liabilities and commitments as of September 30, 2004, given several hypothetical (instantaneous) parallel shifts in the yield curve:

The following table summarizes the estimated change in fair value of the Company’s interest rate-sensitive assets, liabilities and commitments as of December 31, 2003, given several hypothetical (instantaneous) parallel shifts in the yield curve:

These sensitivity analyses are limited in that they were performed at a particular point in time; are subject to the accuracy of various assumptions used, including prepayment forecasts and discount rates; and do not incorporate other factors that would impact the Company’s overall financial performance in such scenarios, most significantly the impact of changes in loan production earnings that result from changes in interest rates. In addition, not all of the changes in fair value would impact current period earnings. For example, MSRs are carried at the lower of cost or market, which is determined by interest rate stratum. Therefore, absent hedge accounting, changes in the value of the MSRs above the cost basis of each stratum would not impact current period earnings. The total impairment reserve was $1.2 billion at September 30, 2004. For the above reasons, the preceding estimates should not be viewed as an earnings forecast.

From time to time, we issue medium-term notes denominated in a foreign currency. We manage the foreign currency risk associated with these medium-term notes through currency swap transactions. The terms of the currency swaps effectively translate the foreign currency-denominated medium-term notes into U.S. dollar obligations, thereby eliminating the associated foreign currency risk. As a result, potential changes in the exchange rates of foreign currencies denominating such medium-term notes would not have a net financial impact on future earnings, fair values or cash flows.

Substantially all mortgage loans we produce are securitized and sold into the secondary mortgage market. As described in our 2003 Annual Report, the degree to which credit risk on the underlying loans is transferred through the securitization process depends on the structure of the securitization. Our Prime Mortgage Loans generally are securitized on a non-recourse basis, while Prime Home Equity Loans and Subprime Mortgage Loans generally are securitized with limited recourse for credit losses.

Our exposure to credit losses related to our limited recourse securitization activities is limited to the carrying value of our subordinated interests and to the contractual limit of reimbursable losses under our corporate guarantees less the recorded liability for such guarantees. These amounts at September 30, 2004 are as follows:

The carrying value of the residual securities is net of expected future credit losses.

Related to all of our outstanding securities, total credit losses we incurred during the periods indicated are summarized as follows:

We provide mortgage reinsurance on mortgage loans included in our servicing portfolio through contracts with several primary mortgage insurance companies. Under these contracts, we absorb mortgage insurance

losses in excess of a specified percentage of the principal balance of a given pool of loans, subject to a cap, in exchange for a portion of the pool’s mortgage insurance premium. As of September 30, 2004, approximately $70.8 billion of mortgage loans in our servicing portfolio are covered by such mortgage reinsurance contracts. The reinsurance contracts place limits on our maximum exposure to losses. At September 30, 2004, the maximum aggregate losses under the reinsurance contracts were $369 million. We are required to pledge securities to cover this potential liability. For the nine months ended September 30, 2004, we did not experience any losses under our reinsurance contracts.

At September 30, 2004, mortgage loans held for sale amounted to $20.8 billion. While the loans are in inventory, we bear credit risk after taking into consideration primary mortgage insurance (which is generally required for conventional loans with a loan-to-value ratio greater than 80%), FHA insurance or VA guarantees. Historically, credit losses related to loans held for sale have not been significant.

We have a growing portfolio of mortgage loans held for investment, consisting primarily of Prime Mortgage and Prime Home Equity Loans, which amounted to $30.4 billion at September 30, 2004. This portfolio is held primarily at the bank. A portion of the Prime Home Equity Loans held in the bank is covered by a pool insurance policy that provides partial protection against credit losses. Otherwise, we generally retain full credit exposure on these loans.

We also provide short-term, secured mortgage loan warehouse advances to various lending institutions, which totaled $3.2 billion at September 30, 2004. We incurred no credit losses related to this activity in the nine months ended September 30, 2004.

Our allowance for credit losses related to loans held for investment amounted to $107.8 million at September 30, 2004.

We have exposure to credit loss in the event of nonperformance by our trading counterparties and counterparties to our various over-the-counter derivative financial instruments. We manage this credit risk by selecting only well-established, financially strong counterparties, spreading the credit risk among many such counterparties, and by placing contractual limits on the amount of unsecured credit risk from any single counterparty.

The aggregate amount of counterparty credit exposure at September 30, 2004, before and after collateral held by us, was as follows:

For the nine months ended September 30, 2004, the Company incurred no credit losses due to the non-performance of any of its counterparties.

The following table sets forth certain information regarding our servicing portfolio of single-family mortgage loans, including loans and securities held for sale, loans held for investment and loans serviced under subservicing agreements, for the periods indicated:


(1)	Runoff refers to scheduled principal repayments on loans and unscheduled prepayments (partial prepayments or total prepayments due to refinancing, modification, sale, condemnation or foreclosure).

(2)	Excludes subserviced loans and loans purchased at a discount due to their non-performing status and is expressed as a percentage of total number of loans serviced.

We attribute the overall decline in delinquencies in our servicing portfolio primarily to the relative overall increase in the number of loans in the conventional and Prime Home Equity portfolios, which carry lower delinquency rates than the government and subprime portfolios. Also contributing to the decline in the overall delinquency rate is a reduction in the delinquency rate of our subprime portfolio. We believe the delinquency rates in our servicing portfolio are consistent with industry experience for similar mortgage loan portfolios.

We regularly forecast our potential funding needs over short and long-term horizons, taking into account debt maturities and potential peak balance sheet levels. Available reliable sources of liquidity are appropriately sized to meet potential future financing requirements. We currently have $65.9 billion in reliable sources of short-term liquidity, which represents an increase of $13.4 billion from December 31, 2003. We believe we have adequate financing capability to meet our current needs.

Cash flow provided by operating activities was $4.2 billion for the nine months ended September 30, 2004 compared to net cash used in operating activities of $8.5 billion for the nine months ended September 30, 2003. The increase in cash flow from operations for the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003 was primarily due to a $17.8 billion net decrease in cash used to fund Mortgage Loan Inventory.

Net cash used by investing activities was $5.9 billion for the nine months ended September 30, 2004, compared to $22.5 billion for the nine months ended September 30, 2003. The decrease in net cash used in investing activities was primarily attributable to a $9.9 billion decrease in cash used to fund available-for-sale securities, combined with a $4.1 billion decrease in cash used to fund loans held for investment.

Net cash provided by financing activities for the nine months ended September 30, 2004 totaled $1.7 billion, compared to $30.9 billion for the nine months ended September 30, 2003. The decrease in cash provided by financing activities was comprised of a $33.6 billion net decrease in short-term (primarily secured) borrowings, offset by a $3.4 billion increase in deposit liabilities and a $1.4 billion net increase in long-term debt.

In the ordinary course of our business we engage in financial transactions that are not recorded on our balance sheet. (See Note 2 — “Summary of Significant Accounting Policies” in the 2003 Annual Report for a

description of our consolidation policy.) Such transactions are structured to manage our interest rate, credit or liquidity risks, diversify funding sources or to optimize our capital.

Substantially all of our off-balance sheet arrangements relate to the securitization of mortgage loans. In accordance with Statement of Financial Accounting Standards No. 140, “Accounting for the Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” our mortgage loan securitizations are normally structured as sales, and involve the transfer of the mortgage loans to “qualifying special-purpose entities” that are not subject to consolidation. In a securitization, an entity transferring the assets is able to convert those assets into cash. Special-purpose entities used in such securitizations obtain cash to acquire the assets by issuing securities to investors. In a securitization, we customarily provide representations and warranties with respect to the mortgage loans transferred. In addition, we generally retain the right to service the transferred mortgage loans. In some cases, we retain limited exposure to credit risk.

We also generally have the right to repurchase mortgage loans from the special-purpose entity if the remaining outstanding balance of the mortgage loans falls to a level where the cost of servicing the loans exceeds the revenues we earn.

Our Prime Mortgage Loans generally are securitized on a non-recourse basis, while Prime Home Equity and Subprime Mortgage Loans generally are securitized with limited recourse for credit losses. During the nine months ended September 30, 2004, we securitized $44.3 billion in Subprime Mortgages and Prime Home Equity Loans with limited recourse for credit losses. Our exposure to credit losses related to our limited recourse securitization activities is limited to the carrying value of our subordinated interests and to the contractual limit of reimbursable losses under our corporate guarantees, less the recorded liability for such guarantees. For a further discussion of our exposure to credit risk, see the section in this Report entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Credit Risk.”

We do not believe that any of our off-balance sheet arrangements have had or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

The following table summarizes our significant contractual obligations at September 30, 2004, with the exception of short-term borrowing arrangements and pension and post-retirement benefit plans:

As of September 30, 2004, the Company had undisbursed home equity lines of credit and construction loan commitments of $5.1 billion and $559.3 million, respectively. As of September 30, 2004, outstanding interest rate lock commitments related to mortgage loan applications in process totaled $33.6 billion.

Total United States mortgage originations were estimated at approximately $3.8 trillion for 2003. Forecasters estimate the market for 2004 will be between $2.6 and $2.7 trillion; a significant reduction from 2003’s record level but still very high by historical standards. These markets have been driven largely by historically low interest rates, which have triggered an unprecedented wave of refinancing activity, in addition to supporting a strong housing market. This market environment has been very favorable for us overall. During this period, we have generated record earnings, significantly increased our market share, and grown our

servicing portfolio to almost $800 billion as of September 30, 2004. This market environment also has been very beneficial for our nonmortgage banking businesses, in particular Capital Markets.

Looking forward, absent a significant further drop in interest rates, we expect the level of mortgage originations to decline, driven largely by a reduction in refinances. Forecasters estimate the market in 2005 will be between $2.0 and $2.5 trillion. This will likely result in a reduction in near-term profits from our loan production activities, although we would expect increased profitability from our investment in MSRs, which has generated significant losses during this period of low interest rates as a result of high levels of prepayments. Our Capital Markets business will be negatively impacted by a significant drop in mortgage market activity. Our Bank should be able to continue its growth, although its net interest margins may be impacted over time due to increased pricing competition in the mortgage market.

According to the trade publication Inside Mortgage Finance, the top five originators produced 47.1% of all loans originated during the first nine months of calendar year 2004, as compared to 46.4% for the nine months ended December 31, 2003. Following is a comparison of market share for the top five originators, according to Inside Mortgage Finance:

We believe the consolidation trend that has been underway in the mortgage industry for several years will continue, as market forces will continue to drive out weak competitors. We believe Countrywide will benefit from this trend through increased market share and more rational pricing competition.

Compared to Countrywide, the other industry leaders are less reliant on the secondary mortgage market as an outlet for adjustable rate mortgages, due to their greater portfolio lending capacity. This could place us at a competitive disadvantage in the future if the current higher demand for adjustable rate mortgages continues, the secondary mortgage market does not continue to provide a competitive outlet for these loans, and we are unable to develop an adequate portfolio lending capacity.

The regulatory environments in which we operate have an impact on the activities in which we may engage, how the activities may be carried out and the profitability of those activities. Therefore, changes to laws, regulations or regulatory policies can affect whether and to what extent we are able to operate profitably. For example, proposed state and federal legislation targeted at predatory lending could have the unintended consequence of raising the cost or otherwise reducing the availability of mortgage credit for those potential borrowers with less than prime-quality credit histories. This could result in a reduction of otherwise legitimate subprime lending opportunities. Similarly, certain proposed state and federal privacy legislation, if passed, could have an adverse impact on our ability to cross-sell the non-mortgage products our various divisions offer to customers in a cost effective manner.

ment and its Application to Certain Investments,” add to the Company’s impairment assessment requirements detailed in Emerging Issues Task Force Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased and Retained Interests in Securitized Financial Assets.” The Company has included the new disclosure requirements in its 2003 Annual Report and in this Quarterly Report. Adoption of the new measurement requirements has been delayed by the FASB pending reconsideration of implementation guidance relating to debt securities that are impaired solely due to interest rates and/or sector spreads. The implementation of these consensuses is not expected to have a significant impact on the Company’s financial condition or earnings.

We make forward-looking statements in this report and in other reports we file with the SEC. In addition, we make forward-looking statements in press releases and our management may make forward-looking statements orally to analysts, investors, the media and others.


	•	Projections of our revenues, income, earnings per share, capital expenditures, dividends or capital structure or other financial items

	•	Descriptions of our plans or objectives for future operations, products or services

	•	Forecasts of our future financial performance

	•	Descriptions of assumptions underlying or relating to any of the foregoing

Forward-looking statements give management’s expectation about the future and are not guarantees. Words like “believe,” “expect,” “anticipate,” “promise,” “plan” and other expressions or words of similar meanings, as well as future or conditional verbs such as “will,” “would,” “should,” “could,” or “may” are generally intended to identify forward-looking statements. There are a number of factors, many of which are beyond our control that could cause actual results to differ significantly from management’s expectations. Some of these factors are discussed below.

Readers are cautioned not to place undue reliance on forward-looking statements. Forward-looking statements speak only as of the date they are made. We do not undertake to update them to reflect changes that occur after the date they are made.

Factors that could cause actual results to differ materially from historical results or those anticipated include, but are not limited to:


	•	Changes in general business, economic, and political conditions

	•	Ineffective management of the volatility inherent in the mortgage banking business

	•	Competition within the financial services industry

	•	Significant changes in regulation governing our business

	•	Incomplete or inaccurate information provided by customers and counterparties

	•	A decline in U.S. housing prices or the level of activity in the U.S. housing market

	•	The loss of investment-grade credit ratings, which may result in an increased cost of debt or loss of access to corporate debt markets

	•	A reduction in the availability of secondary markets for mortgage loan products

	•	A reduction in government support of homeownership

	•	A change in our relationship with housing-related government agencies and Government-Sponsored Entities (GSEs)

	•	Changes in regulations or other events that impact the business, operation or prospects of GSEs


	•	Ineffective hedging activities

	•	Competition within each business segment

	•	Natural disasters, events, or circumstances that affect the level of claims in the insurance segment

Other risk factors are described elsewhere in this document as well as in other reports and documents that we file with or furnish to the SEC including the Company’s Annual Report on Form 10-K. Other factors that may not be described in any such report or document could also cause results to differ from our expectations. Each of these factors could by itself, or together with one or more other factors, adversely affect our business, results of operations and/or financial condition.

In response to this Item, the information set forth on pages 59 to 61 of this Form 10-Q is incorporated herein by reference.

We have conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this quarterly report as required by paragraph (b) of Rules 13a-15 and 15d-15 under the Exchange Act. Based on their evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective in ensuring that material information relating to the Company, including our consolidated subsidiaries, is made known to the Chief Executive Officer and Chief Financial Officer by others within those entities during the period in which this quarterly report on Form 10-Q was being prepared.

There has been no change in our internal control over financial reporting during the quarter ended September 30, 2004 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

The following table shows Company repurchases of its common stock for each calendar month during the nine months ended September 30, 2004.


(1)	The Company has no publicly announced plans or programs to repurchase its stock. The shares indicated in this table represent only the withholding of a portion of restricted shares to cover taxes on vested restricted shares.

(2)	The shares purchased and the price paid per share have not been adjusted for stock splits.

On August 17, 2004, a Special Meeting of Stockholders of the Company was held. The agenda item for that meeting was approval of an amendment to the Company’s Restated Certificate of Incorporation increasing the number of authorized shares of the Company’s Common Stock from 500,000,000 to 1,000,000,000. The vote of the Company’s Common Stock with respect to that agenda item was:

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.

71 EX-3.12 2 v02681exv3w12.txt EXHIBIT 3.12 EXHIBIT 3.12 RESTATED CERTIFICATE OF INCORPORATION OF COUNTRYWIDE CREDIT INDUSTRIES, INC. (Pursuant to Section 245) Countrywide Credit Industries, Inc. a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: 1. The name of the corporation is Countrywide Credit Industries, Inc. The date of filing its original Certificate of Incorporation with the Secretary of State was December 2, 1986. 2. This Restated Certificate of Incorporation only restates and integrates and does not further amend the provisions of the Certificate of Incorporation of this corporation as heretofore amended or supplemented and there is no discrepancy between those provisions and the provisions of this Restated Certificate of Incorporation. 3. The text of the Certificate of Incorporation as amended or supplemented heretofore is hereby restated without further amendments or changes to read as herein set forth in full: FIRST: The name of the Corporation is Countrywide Credit Industries, Inc. SECOND: The purposes for which the Corporation is formed are: To purchase, own, and hold the stock of other corporations, and to do every act and thing covered generally by the denomination "holding corporation", and especially to direct the operations of other corporations through the ownership of -2- stock therein; to purchase, subscribe for, acquire, own, hold, sell, exchange, assign, transfer, mortgage pledge, or otherwise dispose of shares or voting trust certificates for shares of the capital stock of, or any bonds, notes, securities, or evidences of indebtedness created by, any other corporation or corporations organized under the laws of this state or any other state or district or country, nation, or government and also bonds or evidences of indebtedness of the United States or of any state, district, territory, dependency, or country or subdivision or municipality thereof; to issue in exchange therefor shares of the capital stock, bonds, notes, or other obligations of this Corporation and while the owner thereof to exercise all the rights, powers, and privileges of ownership including the right to vote any shares of stock or voting trust certificates so owned; to promote, lend money to, and guarantee the dividends, stocks, bonds, notes, evidences of indebtedness, contracts, or other obligations of and otherwise aid, in any manner which shall be lawful, any corporation or association of which any bonds, stocks, voting trust certificates, or other securities or evidences of indebtedness shall be held by or for this Corporation, or in which, or in the welfare of which, this Corporation shall have any interest, and to do any acts and things permitted by law and designed to protect, preserve, improve, or enhance the value of any such bonds, stocks, or other securities or evidences of indebtedness or the property of this Corporation. To acquire, and pay for in cash, stock or bonds of this Corporation or otherwise, the goodwill, rights, assets and property, and to undertake or assume the whole or any part of the obligations or liabilities of any person, firm, association or corporation. To manufacture, purchase, or otherwise acquire, invest in, own, mortgage, pledge, sell, assign, and transfer or otherwise dispose of, trade, deal in and deal with goods, wares and merchandise and personal property of every class and description. To purchase, hold, lease, mortgage, pledge and otherwise acquire, dispose of, and encumber real and personal property of any and every kind and description in all of the states, territories, colonies, dependencies and districts of the United States of America and in any and all foreign countries. To borrow money and contract debts, when necessary for the transaction of the business of the Corporation or for the exercise of its corporate rights, privileges or franchises, or for any other lawful purpose of its incorporation and to issue and dispose of obligations for any amount so borrowed and to mortgage or pledge its property and franchises to secure the payment of such obligations, or of any debt contracted for such purposes, in the manner authorized by law. -3- To purchase or otherwise acquire, hold, exchange, pledge, hypothecate, sell, deal in, and dispose of mortgages covering any kind of property, tax liens, and transfers of tax liens on real estate. To exercise all or any of the corporate powers and to carry out all or any of the purposes, enumerated herein or otherwise granted or permitted by law, while acting as agent, nominee, or attorney in fact for any persons or corporations, and to perform any service under the contract or otherwise for any corporation, joint stock company, association, partnership, firm, syndicate, individual, to other entity, and in such capacity or under such arrangement, to develop, improve, stabilize, strengthen, or extend the property and commercial interest thereof, and to aid, assist, or participate in any lawful enterprises in connection therewith or incidental to such or assistance insofar as it lawfully may under the General Corporation Law of the State of Delaware. To engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. The foregoing clauses shall be construed both as objects and powers, and it is hereby expressly provided that the foregoing enumeration of specific powers shall not be held to limit or restrict in any manner the powers of this Corporation. THIRD: The aggregate number of shares which the Corporation shall have authority to issue is forty million (40,000,000) shares of Common Stock, of the par values of Five Cents ($.05) per share, and One Million, Five Hundred Thousand (1,500,000) shares of Preferred Stock, of the par value of Five Cents ($.05) per share. The Preferred Stock may be issued in one or more series at such time or times and for such consideration or considerations as the Board of Directors may determine. With respect to the Preferred Stock, the Board of Directors of this Corporation is authorized to determine or alter the voting rights, dividend privileges, liquidation preferences, and all other rights, preferences, privileges and restrictions, including without limitation, conversion rights into Common Stock, granted to or imposed upon any wholly unissued series of Preferred Stock and, within the limitations of restrictions stated in any resolution of the Board of Directors originally fixing the number of shares of Preferred Stock constituting any series, to increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of such series subsequent to the issue of shares of that series, to determine the designation of any series and to fix the number of shares of any series. FOURTH: The address of the Corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, County of New Castle, Wilmington, Delaware 19801. The name of the registered agent of the Corporation at -4- such address is The Corporation Trust Company. FIFTH: No holder of any shares of any class of the Corporation shall be entitled, as such, as a matter of right, to subscribe for or purchase or receive any part of any unissued shares of any class of the Corporation, or of any shares of any class issued and thereafter acquired by the Corporation, whether now authorized or hereafter created, or of any securities of any kind convertible into or evidencing the right to subscribe for or purchase or receive any shares of any class of the Corporation, whether not authorized or hereafter created, and in each case whether issued for cash, property, services or any other consideration, but such shares or other securities may be issued or disposed of by the board of directors to such persons and on such terms as in its discretion it shall deem advisable. SIXTH: The Corporation may indemnify its directors and officers to the full extent permitted by the laws of the State of Delaware. SEVENTH: A director of the Corporation shall have no personal liability to the Corporation or its stockholders for monetary damages for breach of his fiduciary duty as a director to the full extent permitted by the Delaware General Corporation Law as it may be amended from time to time. EIGHTH: The Board of Directors of the Corporation is expressly authorized to make, alter or repeal bylaws of the Corporation. In addition to any requirements of the Delaware General Corporation Law (and notwithstanding the fact that a lesser percentage may be specified by the Delaware General Corporation Law), the affirmative vote of the holders of at least two-thirds (66 2/3%) of the voting power of all of the shares of capital stock of the Corporation then entitled to vote generally in the election of directors, voting together as a single class, shall be required for stockholders of the Corporation to amend, alter, change, adopt or repeal any bylaws of the Corporation unless such amendment, alteration, change adoption or repeal of the bylaws is determined to be advisable by the Board of Directors by the affirmative vote of (a) two thirds of the entire Board of Directors and (b) a majority of those directors who became members of the Board of Directors prior to the time when any stockholder who then is the "beneficial owner" (as such terms defined in rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended) of 10% or more of the then outstanding shares of capital stock of the Corporation then entitled to vote generally in the election of directors, first became the beneficial owner of 10% or more of such outstanding shares of such capital stock (the "Continuing Directors"), even if such directors do not constitute a quorum of the entire Board of Directors. -5- NINTH: Elections of directors need not be by written ballot except and to the extent provided in the bylaws of the Corporation. TENTH: (a) The number of directors shall be as provided in the bylaws. The Board of Directors shall be divided into three classes, designated Class I, Class II, and Class III, such classes to be as nearly equal in number as possible. At the annual meeting of stockholders in 1987, directors of Class I shall be elected to hold office for a term expiring at the next succeeding annual meeting, directors of Class II shall be elected to hold office for a term expiring at the second succeeding annual meeting and directors of Class III shall be elected to hold office for a term expiring at the third succeeding annual meeting. Thereafter at each annual meeting of stockholders, directors shall be chosen for a term of three years to succeed those whose terms then expire and shall hold office subject to their earlier death, resignation or removal, until the third following annual meeting of stockholders and until the election of their respective successors. (b) any director may be removed from office only for cause and only by the affirmative vote of the holders of two-thirds (66 2/3%) of the voting power of the outstanding shares of Common Stock. (c) any vacancy on the Board of Directors, whether arising through death, resignation or removal of a director or through the increase in the number of directors of any class, shall be filled by a majority vote of all the remaining directors, though less than a quorum. The term of office of any director elected to fill such a vacancy shall expire at the expiration of the term of office of directors of the class to which such director was elected. (d) Notwithstanding any other provisions in this Article, and except as otherwise required by law, whenever the holders of any one or more series of Preferred Stock or other securities of the corporation shall have the right, voting separately as a class, to elect one or more directors of the Corporation, the term of office, the filling of vacancies and other features of such directorships shall be governed by the terms of this Certificate of Incorporation applicable thereto, and unless the terms of this Certificate of Incorporation expressly provide otherwise, such directorships shall be in addition to the number of directors provided in the bylaws, and such directors shall not be classified pursuant to this Article. ELEVENTH: Any action required or permitted to be taken by the stockholders of this Corporation shall be taken at an annual or special meeting of the stockholders. No action may be taken by stockholders by written consent. -6- TWELFTH: (a) Any direct or indirect purchase by the Corporation, or any subsidiary of the Corporation of any Voting Stock (as herein defined) from a person or persons known by the Board of Directors of the Corporation to be an Interested stockholder (as herein defined) who has beneficially owned such Voting Stock for less than two years prior to the date of such purchase or any agreement in respect thereof, at a price in excess of the fair market value (as herein defined), shall require the affirmative vote of no less than a majority of the votes cast by the holders, voting together as a single class, of all then outstanding shares of capital stock of the Corporation entitled to vote generally on matters relating to the Corporation, excluding for this purpose the votes by the Interested Stockholder, unless a greater vote shall be required by law. (b) Such affirmative vote shall not be required for a purchase or other acquisition of securities of the same class made on substantially the same terms to all holders of such securities and complying with the applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations). Furthermore, such affirmative vote shall not be required for any purchase effected on the open market and not the result of a privately-negotiated transaction. (c) For the purposes of this Article: (i) A "person" shall mean any individual, firm, corporation or other entity. (ii) "Voting Stock" shall mean any class or series of the capital stock of the Corporation having the right to vote generally on matters relating to the Corporation and any security which is convertible into such stock. (iii) "Interested Stockholder" shall mean any person (other than the Corporation or any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the Corporation or profit sharing, employee stock ownership or other employee benefit plan of the Corporation or any subsidiary thereof, or any trustee or other fiduciary with respect to any such plan when acting in such capacity) who or which: A. is the beneficial owner, directly or indirectly, of 5% or more of the outstanding Voting Stock; or B. is an Affiliate of the Corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of 5% or more of the outstanding Voting Stock; or -7- C. is an assignee or has otherwise succeeded to any shares of Voting Stock which were at any time within the two-year period immediately prior to the date in question beneficially owned by an Interested Shareholder, if such assignment or succession shall have occurred in the course of a transaction or transactions not involving a public offering within the meaning of the Securities Act of 1933, as amended. (iv) A person shall be a "beneficial owner" of any Voting Stock of the Corporation: A. which such person or any of its Affiliates or Associates beneficially owns, directly or indirectly, or B. which such person or any of its Affiliates or Associates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (ii) any right to vote pursuant to any agreement, arrangement or understanding; or C. which are beneficially owned, directly or indirectly, by any other person with which such person or any of its affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing any Voting Stock of the Corporation. (v) For the purposes of determining whether a person is an Interested Stockholder pursuant to subparagraph (ii) hereof, Voting Stock outstanding shall be deemed to comprise all Voting Stock deemed owned through application of subparagraph (iii) hereof, but shall not include other Voting Stock which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. (vi) "Affiliate" or "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended. (vii) "Fair Market Value" shall mean as to each class of stock or other security which constitutes Voting Stock, the highest closing sale price during the thirty-day period immediately preceding the date in question of a share of such stock on the composite tape for New York Stock Exchange-listed stocks, or, if such stock is not quoted on such composite tape or if such stock is not listed on such exchange, on the -8- principal United States securities exchange registered under the Exchange Act on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock during the thirty-day period preceding the date in question on the National Association of Securities Dealers, Inc., Automated Quotations System or any system then in use. Or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by the Board of Directors of the Corporation in good faith. (d) The Board of Directors shall have the power and duty to determine, for purposes of this Article, on the basis of information known to the Board: (i) the amount of Voting Stock beneficially owned by any person; (ii) when such person acquired a beneficial interest in such Voting Stock; (iii) whether such person owns 5% or more of the Voting Stock; (iv) the aggregate number of shares of stock and the aggregate amount any other security outstanding at any time; (v) whether a person is an Affiliate or Associate of another; and (vi) whether paragraphs (a) or (b) above are or have become applicable in respect of a proposed purchase of Voting Stock by the Corporation. and any such determination made in good faith shall be conclusive and binding for all purposes of this Article. THIRTEENTH: The Corporation hereby reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation in the manner now or hereafter prescribed by the Delaware General Corporation Law and all rights conferred on stockholders therein granted are subject to this reservation; provided, however, that, notwithstanding the fact that a lesser percentage may be specified by the Delaware General Corporation Law, the affirmative vote of the holders of at least two-thirds (66 2/3%) of the voting power of all of the shares of capital stock of the Corporation then entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend, alter, change or repeal, or adopt any provision or provisions inconsistent with, any provision of Article Eighth, Tenth, Eleventh, Twelfth, or Thirteenth hereof, unless such amendment, alteration, change, repeal or -9- adoption of any inconsistent provision or provisions is declared advisable by the Board of Directors by the affirmative vote of (a) two-thirds of the entire Board of Directors and (b) a majority of the Continuing Directors ( as defined in Article Eighth). 4. This Restated Certificate of Incorporation was duly adopted by the Board of Directors in accordance with Section 245 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, said Countrywide Credit Industries, Inc. has caused this certificate to be signed by David S. Loeb, its President, and attested by Paul H. Moeller, it s Secretary, this 14th day of July, 1987. By /s/David S. Loeb ----------------------------- David S. Loeb President ATTEST: By /s/Paul H. Moeller ------------------------- Paul H. Moeller Secretary CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF SERIES A PARTICIPATING PREFERRED STOCK of COUNTRYWIDE CREDIT INDUSTRIES, INC. Pursuant to Section 151 of the General Corporation Law of the State of Delaware We, David Loeb, Chairman of the Board and President and Dennis Slattery, Secretary, of Countrywide Credit Industries, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware, in accordance with the provisions of Section 3 thereof, DO HEREBY CERTIFY: That pursuant to the authority conferred upon the Board of Directors by the Certificate of Incorporation of the said Corporation, the said Board of Directors on February 10, 1988, adopted the following resolution creating a series of 250,000 shares of Preferred Stock designated as Series A Participating Preferred Stock: RESOLVED, that pursuant to the authority vested in the Board of Directors of this Company in accordance with the provisions of its Certificate of Incorporation, a series of Preferred Stock of the Company be and it hereby is created, and that the designation and amount thereof and the powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof are as follows: Section 1. Designation and Amount. The shares of such series shall be designated as "Series A Participating Preferred Stock" $0.05 par value per share, and the number of shares constituting such series shall be 250,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series A Participating Preferred Stock to a number less than that of the shares then outstanding plus the number of shares issuable upon exercise of outstanding rights, options or warrants or upon conversion of outstanding securities issued by the Corporation. Section 2. Dividends and Distribution. (A) Subject to the prior and superior rights of the holders of any shares of any series of Preferred Stock ranking prior and superior to the shares of Series A Participating Preferred Stock with respect to the dividends, the holders of shares of Series A Participating Preferred Stock in preference to the holders of shares of Common Stock, par value $.05 per share (the "Common Stock"), of the Corporation and any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the first day of March, June, September and December in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Participating Preferred Stock in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1.00, or (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of common stock (by reclassification or otherwise), declared on the Common Stock, since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Participating Preferred Stock. In the event the Corporation shall at any time after February 26, 1988 (the "Rights Declaration Date") (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount to which holders of shares of Series A Participating Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Corporation shall declare a dividend or distribution on the Series A Participating Preferred Stock as provided in paragraph (A) above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall 2 have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share on the Series A Participating Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Participating Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Participating Preferred Stock unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Participating Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Participating Preferred Stock in the an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Participating Preferred stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 30 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Series A Participating Preferred Stock shall have the following voting rights: (A) Subject to the provision for adjustment hereinafter set forth, each share of Series A Participating Preferred Stock shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the shareholders of the Corporation. (B) Except as otherwise provided herein or by law, the holders of shares of Series A Participating Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of shareholders of the Corporation. 3 (C) (i) If at any time dividends on any Series A Participating Preferred Stock shall be in arrears in an amount equal t six (6) quarterly dividends thereon, the occurrence of such contingency shall mark the beginning of a period (herein called a "default period") which shall extend until such time when all accrued and unpaid dividends for all previous quarterly dividend periods and for the current quarterly period on all shared of Series A Participating Preferred Stock then outstanding shall have been declared and paid or set apart for payment. During each default period, all holders of Preferred Stock (including holders of the Series A Participating Preferred Stock) with dividends in arrears in an amount equal to six (6) quarterly dividends thereon, voting as a class, irrespective of series, shall have the right to elect (2) Directors. (ii) During any default period, such voting right of the holders of Series A Participating Preferred Stock may be exercised initially at a special meeting called pursuant to subparagraph (iii) of this Section 3(C) or at any annual meeting of shareholders, and thereafter at annual meeting of shareholders provided that neither such voting right nor the right of the holders of any other series of Preferred Stock, if any, to increase, in certain cases, the authorized number of Directors shall be exercised unless the holders of ten percent (10%) in number of shares of Preferred Stock outstanding shall be present in person or by proxy. The absence of a quorum of the holders of Common Stock should not affect the exercise by the holders of Preferred Stock of such voting right. At any meeting at which the holders of Preferred Stock shall exercise such voting right initially during an existing default period, they shall have the right, voting as a class, to elect Directors to fill such vacancies, if any, in the Board of Directors as may then exist up to two (2) Directors or, if such right is exercised at an annual meeting, to elect two (2) Directors. If the number which may be so elected at any special meeting does not amount to the required number, the holders of the Preferred Stock shall have the right to make such increase in the number of Directors as shall be necessary to permit the election by them of the required number. After the holders of the Preferred Stock shall have exercised their right to elect Directors in any default period and during the continuance of such period, the number of Directors shall not be increased of decreased except by vote of the holders of the Preferred Stock as herein provided or pursuant to the rights of any equity securities ranking senior to or pari passu with the Series A Participating Preferred Stock. (iii) Unless the holders of Preferred Stock shall, during an existing default 4 period, have previously exercised their right to elect Directors, the Board of Directors may order, or any shareholder or shareholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstanding, irrespective if series, may request, the calling of a special meeting of the holders of Preferred Stock, which meeting shall thereupon be called by the President, a Vice-President or the Corporate Secretary of the Corporation. Notice of such meeting and of any annual meeting at which holders of Preferred Stock are entitled to vote pursuant to this paragraph (C)(iii) shall be given to each holder of record of Preferred Stock by mailing a copy of such notice to him at his last address as the same appears on the books of the Corporation. Such meeting shall be called for a time not earlier than 10 days and not later than 60 days after such order or request or in default of the calling of such meeting within 60 days of such order or request, such meeting may be called on similar notice by any shareholder or shareholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstanding. Notwithstanding the provisions of this paragraph (C)(iii), no such special meeting shall be called during the period within 60 days immediately preceding the date fixed for the next annual meeting of the shareholders. (iv) In any default period, the holders of Common Stock, and other classes of stock of the Corporation if applicable, shall continue to be entitled to elect the whole number of Directors until the holders of Preferred Stock shall have exercised their right to elect two (2) Directors voting as a class, after the exercise of which right (x) the Directors so elected by the holders of Preferred Stock shall continue in office until their successors shall have been elected by such holders or until the expiration of the default period, and (y) any vacancy in the Board of Directors may (except as provided in paragraph (C)(ii) of this Section 3) be filled by vote of a majority of the remaining Directors theretofore elected by the holders of the class of stock which elected the director whose office shall have become vacant. References in this paragraph (C) to Directors elected by the holders of a particular class of stock shall include Directors elected by such Directors to fill vacancies as provided in clause (y) of the foregoing sentence. (v) Immediately upon the expiration of a default period, (x) the right of the holders of Preferred Stock as a class to elect Directors shall cease, (y) the term of any Directors elected by the holders of Preferred Stock as a class shall terminate, and (z) the number of Directors shall be such number as may be provided for in, or pursuant to, the Restated Certificate of Incorporation or By-Laws irrespective of any increase made 5 pursuant to the provisions of paragraph (C)(ii) of this Section 3 (such number being subject, however to change thereafter in any manner provided by law or in the Restated Certificate of Incorporation of By-Laws). Any vacancies in the Board of Directors effected by the provisions of clauses (y) and (z) in the preceding sentence may be filled by a majority of the remaining Directors, even though less than a quorum. (D) Except as set forth herein, holders of Series A Participating Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. Section 4. Certain Restrications. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Participating Preferred Stock as provided in Section 2 are in arrears thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Participating Preferred Stock outstanding shall have been paid in full, the Corporation shall not (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up)to the Series A Participating Preferred Stock; (ii) declare any pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Participating Preferred Stock except dividends paid ratably on the Series A Participating Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution, or winding up) with the Series A Participating Preferred Stock provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon 6 dissolution, liquidation or winding up) to the Series A Participating Preferred Stock; or (iv) purchase or otherwise acquire for consideration any shares of Series A Participating Preferred Stock or any shares of stock ranking on a parity with the Series A Participating Preferred Stock except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4 purchase or otherwise acquire such shares at such time and in such manner. Section 5. Reacquired Shares. Any shares of Series A Participating Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein. Section 6. Liquidation, Dissolution or Winding Up. (A) Upon any liquidation (voluntary or otherwise), dissolution or winding up of the Corporation, no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Participating Preferred Stock unless, prior thereto, the holders of shares of Series A Participating Preferred Stock shall have received per share, the greater of 100 times $35 or 100 times the payment made per share of Common Stock, plus and amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment (the "Series A Liquidation Preference"). Following the payment of the full amount of the Series A Liquidation Preference, no additional distributions shall be made to the holders of shares of Series A Participating Preferred Stock unless, prior thereto, the holders of shares of 7 Common Stock shall have received an amount per share (the "Common Adjustment" equal to the quotient obtained by dividing (i) the Series A Liquidation Preference by (ii) 100 (as appropriately adjusted as set forth in subparagraph C below to reflect such events as stock splits, stock dividends and recapitalizations with respect to the Common Stock) (such number in clause (ii), the "Adjustment Number"). Following the payment of the full amount of the Series A Liquidation Preference and the Common Adjustment in respect of all outstanding shares of Series A Participating Preferred Stock and Common Stock, respectively, holders of Series A Participating Preferred Stock and holders of shares of Common Stock shall receive their retable and proportionate share of the remaining assets to be distributed in the ratio of the Adjustment Number to 1 with respect to such Preferred Stock and Common Stock, on a per share basis, respectively. (B) In the event there are not sufficient assets available to permit payment in full of the Series A Liquidation Preference and liquidation preferences of all other series of Preferred Stock, if any, which rank on a parity with the Series A Participating Preferred Stock then such remaining assets shall be distributed ratably to the holders of such parity shares in proportion to their respective liquidation preferences. In the event there are not sufficient assets available to permit payment in full of the Common Adjustment, then such remaining assets shall be distributed ratably to the holders of Common Stock. (C) In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction the numerator of which is the number of shares of Common Stock that were outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 7. Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Series A Participating Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share 8 (subject to the provision for adjustment hereinafter set forth) equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is change or exchanged. In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Participating Preferred Stock shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that are outstanding immediately prior to such event. Section 8. Redemption. The shares of Series A Participating Preferred Stock shall not be redeemable. Section 9. Ranking. The Series A Participating Preferred Stock shall rank junior to all other series of the Corporation's Preferred Stock as to the payment of dividends and the distribution of assets, unless the terms of any such series shall provide otherwise. Section 10. Amendment. The Restated Certificate of Incorporation of the Corporation shall not be further amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Participating Preferred Stock so as to affect them adversely without the affirmative vote of the holders of a majority or more of the outstanding shares of Series A Participating Preferred Stock voting separately as a class. Section 11. Fractional Shares. Series A Participating Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holders fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Participating Preferred Stock. RESOLVED FURTHER, that the proper officers of the Corporation be, and each of them hereby is, authorized to execute a Certificate of Designation with respect to the Series A Participating Preferred Stock pursuant to Section 151 of the General Corporation Law of the State of Delaware and to take all appropriate action to cause such Certificate to become effective, including, but not limited to, the filing and recording of such Certificate with and/or by the Secretary of State of the State of Delaware. 9 IN WITNESS WHEREOF, we have executed and subscribed this Certificate and do affirm the foregoing as true under the penalties of perjury this 11th day of February, 1988. /s/David Loeb ------------------------------- Chairman of the Board and President Attest: /s/Dennis Slattery - ------------------------------ Secretary 10 CERTIFICATE OF DESIGNATION OF $23.75 CONVERTIBLE PREFERRED STOCK OF COUNTRYWIDE CREDIT INDUSTRIES, INC. Pursuant to Section 151 of the General Corporation Law of the State of Delaware COUNTRYWIDE CREDIT INDUSTRIES, INC., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), does hereby certify that, pursuant to the authority conferred on the Board of Directors of the Corporation by the Restated Certificate of Incorporation, as amended, of the Corporation and in accordance with Section 151 of the General Corporation Law of the State of Delaware, the Board of Directors of the Corporation (and, as to certain matters allowed by law, a duly authorized committee thereof) adopted the following resolution establishing a series of 184,000 shares of Preferred Stock of the Corporation designated as $23.75 Convertible Preferred Stock": RESOLVED, that pursuant to the authority conferred on the Board of Directors of this Corporation by the Certificate of Incorporation, a series of Preferred Stock, par value $.05 per share, of the Corporation be and hereby is established and created, and that the designation and numb40er of shares thereof and the voting and other powers, preferences and relative, participating, optional or other rights of the shares of such series and the qualifications, limitations and restrictions thereof are as follows: $23.75 Convertible Preferred Stock 1. Designation and Amount: There shall be a series of Preferred Stock designated as "$23.75 Convertible Preferred Stock" and the number of shares constituting such series shall be 184,000. Such series is referred to herein as the "Preferred Stock". 2. Stated Capital. The amount to be represented in stated capital at all times for each share of Preferred Stock shall be $.05. 3. Rank. All shares of Preferred Stock shall rank prior to all of the Corporation's Common Stock, par value $.05 per share (the "Common Stock"), now or hereafter issued and all of the Corporation's Series A Participating Preferred Stock (the "Series A Preferred Stock"), both as to payment of dividends and as to distributions of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary. 4. Dividends. The holders of the shares of Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors of the Corporation or a duly authorized committee thereof, out of funds legally available therefor, cumulative cash dividends at the rate of $23.75 per share per annum on March 31, June 30, September 30, and December 31 of each year, commencing September 30, 1990; provided that, if on any such day banks in The City of New York are authorized or required to close, dividends otherwise payable on such day shall be payable on the next day that banks in The City of New York are not authorized or required to close. Each dividend on the Preferred Stock shall be payable to holders of record as they appear on the stock register of the Corporation on such record date, which shall be no more than forty days prior to the payment date therefor, as shall be fixed by the Board of Directors of the Corporation or a duly authorized committee thereof. The dividends on the shares of Preferred Stock shall be cumulative from the date of first issuance and shall be deemed to accrue from day to day regardless of whether or not the Corporation shall have funds or assets available for the payment of such dividends. The amount of dividends payable on each share of Preferred Stock for each quarterly dividend period shall be computed by dividing the annual dividend rate by four. The amount of dividends payable for the initial dividend period and for any period shorter than a full quarterly dividend period shall be computed on the basis of a 360-day year of twelve 30-day months. Holders of shares of Preferred Stock shall not be entitled to any dividend, whether payable in cash, property or stock, in excess of full dividends (including accrued dividends, if any) on shares of Preferred Stock. No interest or sum of money in lieu of interest shall be payable in respect of any dividend or payments which may be in arrears. Dividends in arrears payable, if declared, but not paid on any quarterly dividend payment date may be declared by the Board of Directors of the Corporation or a duly authorized committee thereof and paid on any date fixed by the Board of Directors of the Corporation or a duly authorized committee thereof, whether or not a quarterly dividend payment date, to the holders of record of the shares of Preferred Stock, as they appear on the stock register of the Corporation on such record date, which shall be no more than forty days prior to the payment date therefor, as shall be fixed by the Board of Directors of the Corporation or a duly authorized committee thereof. The Corporation may not declare or pay any dividend or make any distribution of assets (other than dividends paid or other distributions made in stock of the Corporation ranking junior to the Preferred Stock as to the payment of dividends and the distribution of assets upon liquation, dissolution or winding up) on, or redeem, purchase or otherwise acquire (except upon conversion or exchange for stock of the Corporation ranking junior to the Preferred Stock as to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up), shares of Common Stock, of Series A Preferred Stock or of any other Stock of the Corporation ranking junior to the Preferred Stock as to the payment of dividends or the distribution of assets upon liquidation, dissolution or winding up, unless all accrued and unpaid dividends on the Preferred Stock for all prior dividend periods have been or contemporaneously are declared and paid and the full quarterly dividend on the Preferred Stock for the current dividend period has been or contemporaneously is declared and set apart for payment. Whenever all accrued dividends on the Preferred Stock are not pad in full, the Corporation may not declare or pay dividends or make any distribution of assets (other than dividends paid or other distributions made in stock of the Corporation ranking junior to the Preferred Stock as to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up) on any other stock of the Corporation ranking on a parity with the Preferred Stock as to the payment of dividends unless (i) all accrued and unpaid dividends on the Preferred Stock for all prior dividend periods are contemporaneously declared and paid or (ii) all dividends declared and paid or set aside for payment or other distributions made on Preferred Stock and any other stock of the Corporation ranking on a parity with the Preferred Stock as to the payment of dividends are declared and paid or set apart for payment or made pro rata so that the amount of dividends declared and paid or set apart for payment or other distributions made per share on the Preferred Stock and such other stock of the Corporation will bear the same ratio that accrued and unpaid dividends per share on the Preferred Stock and such other stock of the Corporation bear to each other. Whenever all accrued dividends on the Preferred Stock are not paid in full, the Corporation may not redeem, purchase or otherwise acquire (except upon conversion or exchange for stock of the Corporation ranking junior to the Preferred Stock as to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up) other stock of the Corporation ranking on a parity with the Preferred Stock as to the payment of dividends or the distribution of assets upon liquidation, dissolution or winding up unless (i) all outstanding shares of the Preferred Stock are contemporaneously redeemed or (ii) a pro rata redemption is made of shares of Preferred Stock and such other stock of the Corporation, with the amount allocable to each series of such stock determined on the basis of the aggregate liquidation preference of the outstanding shares of each series and the shares of each series being redeemed only on a pro rata basis. 5. Liquidation of Preference. Upon the dissolution, liquidation or winding up of the Corporation, whether voluntary or involuntary, the holders of the shares of Preferred Stock shall be entitled to receive and to be paid out of the assets of the Corporation available for distribution to its stockholders (after any payment or distribution on any stock of the Corporation ranking senior to the Preferred Stock as to the distribution of assets upon liquidation, dissolution or winding up and before any payment or distribution on the Common Stock, the Series A Preferred Stock or any other stock of the Corporation ranking junior to the Preferred Stock as to the distribution of assets upon liquidation, dissolution or winding up) a liquidation distribution in the amount of $250.00 per share plus an amount equal to all dividends on such shares accumulated (whether or not earned or declared) and unpaid thereon to the date of final distribution. Neither the sale of all or substantially all the property or business of the Corporation, nor the merger or consolidation of the Corporation into or with any other corporation, nor the merger or consolidation of any other Corporation into or with the Corporation shall constitute a liquidation, dissolution or winding up, voluntary or involuntary, for the purposes of the foregoing paragraph. After the payment to the holders of the shares of Preferred Stock of the full preferential amounts provided for above, the holders of the shares of Preferred Stock as much shall have no right or claim to any of the remaining assets of the Corporation. In the event the assets of the Corporation available for distribution to the holders of the shares of Preferred Stock upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, shall be insufficient to pay in full all amounts to which such holders are entitled as provided above, no such distribution shall be made on account of any other stock of the Corporation ranking on a parity with the Preferred Stock as to the distribution of assets upon such liquidation, dissolution or winding up unless a pro rata distribution is made on the Preferred Stock and such other stock of the Corporation, with the amount allocable to each series of such stock determined on the basis of the aggregate liquidation preference of the outstanding shares of each series and distributions to the shares of each series being made on a pro rata basis. 6. Voting Rights. (a) General. The holders of the Preferred Stock shall have no voting rights except as described below or as required by law. In exercising any such vote, each outstanding share of Preferred Stock shall be entitled to one vote. (b) Default Voting Rights. Whenever dividends on the shares of Preferred Stock or on the shares of any other outstanding stock of the Corporation ranking on a parity with the Preferred Stock as to the payment of dividends have not been paid in an aggregate amount equal to at least six quarterly dividends on such shares (whether or not consecutive), the number of directors of the Corporation shall be increased by two and the holders of the shares of Preferred Stock, voting separately as a class with the holders of the shares of such other parity stock of the Corporation on which like voting rights have been conferred and are exercisable, shall have the exclusive right to vote for and elect such two additional directors to the Board of Directors of the Corporation at any meeting of stockholders of the Corporation at which directors are to be elected held during the period such dividends remain in arrears. Each class or series of stock entitled to vote for the additional directors shall have a number of votes proportionate to the aggregate liquidation preference of its outstanding shares. Such voting right will terminate when all such dividends accrued and in default have been paid in full or set apart for payment. The term of office of all directors so elected shall terminate immediately upon such payment or setting apart for payment. Whenever such right shall vest, it may be exercised initially either at a special meeting of holders of Preferred Stock or at any annual stockholders' meeting, but thereafter it shall be exercised only at annual stockholders' meetings. Any director who shall have been elected by the holders of Preferred Stock as a class pursuant to this subparagraph (b) shall hold office for a term expiring (subject to the earlier termination of the default in dividends) at the next annual meeting of stockholders, and during such term may be removed at any time, either for or without cause, by, and only by, the affirmative votes of the holders of record of a majority of the outstanding shares of Preferred Stock given at a special meeting of such stockholders called for such purpose, and any vacancy created by such removal may also be filled at such meeting. Any vacancy caused by the death or resignation of a director who shall have been elected by the holders of Preferred Stock as a class pursuant to this subparagraph (b) may be filled only by the holders of all outstanding Preferred Stock at a meeting called for such purpose. Whenever a meeting of the holders of Preferred Stock is permitted or required to be held pursuant to this subparagraph (b), such meeting shall be held at the earliest practicable date and the Secretary of the Corporation shall call such meeting, providing written notice to all holders of record of Preferred Stock in accordance with law, upon the earlier of the following: (a) as soon as reasonably practicable following the occurrence of the event or events permitting or requiring such meeting hereunder; or (b) within twenty (20) days following receipt by said Secretary of a written request for such a meeting, signed by the holders of record of at least twenty percent (20%) of the shares of Preferred Stock then outstanding. In the event that such meeting shall not be called by the proper corporate officers within twenty (20) days after the receipt of such request by the Secretary of the Corporation, or within twenty-five (25) after the mailing of same within the United States of America by registered mail addressed to the Secretary of the Corporation at its principal office, then the holders of record of at least twenty percent (20%) of the shares of Preferred Stock then outstanding may designate of their number to call such a meeting at the expense of the Corporation, and such meeting may be called by such person in the manner and at the place provided in this Section 6. Any holder of Preferred Stock so designated to call such meeting shall have access to the stock books of the Corporation for the purpose of causing a meeting of such stockholders to be so called. Any provision of this subparagraph (b) to the contrary notwithstanding, no Special meeting of the holders of shares of Preferred Stock: (i) shall be held during the ninety (90) day period next preceding the date fixed for the annual meeting of stockholders of the Corporation; or (ii) shall be required to be called or held in violation of any law, rule or regulation. Any meeting of the holders of all outstanding Preferred Stock entitled to vote as a class for the election or removal of directors shall be held at the place at which the last annual meeting of stockholders was held. At such meeting, the presence in person or by proxy of the holders of a majority of the outstanding shares of all outstanding Preferred Stock shall be required to constitute a quorum; in the absence of a quorum, a majority of the holders present in person or by proxy shall have the power to adjourn the meeting from time to time without notice, other than announcement at the meeting, until a quorum shall be present. (c) Class Voting Rights. In addition, so long as any Preferred Stock is outstanding, the Corporation shall not, without the affirmative vote or consent of the holders of at least 66-2/3 percent of all the outstanding shares of Preferred Stock voting separately as a class, (i) amend, alter or repeal any provision of the Restated Certificate of Incorporation or the By-Laws of the Corporation so as adversely to affect the relative rights, preferences, qualifications, limitations or restrictions of the Preferred Stock, (ii) authorize, issue or increase the authorized amount of any class or series of stock, or any security convertible into stock of such class or series, ranking senior to the Preferred Stock as to the payment of dividends or the distribution of assets upon liquidation, dissolution or winding up of the Corporation or (iii) effect any reclassification of the Preferred Stock. The affirmative vote or consent of the holders of a majority of all the outstanding shares of Preferred Stock, voting or consenting separately as a class, shall be required to (A) authorize any sale, lease or conveyance of all or substantially all of the assets of the Corporation, or (B) approve any merger, consolidation or compulsory share exchange to which the Corporation is a party, unless (i) the terms of such merger, consolidation or compulsory share exchange do not provide for a change in the terms of the Preferred Stock and (ii) the Preferred Stock is on a parity with or prior to (in respect of the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up) any other class or series of capital stock authorized by the surviving corporation, other than any class or series of stock of the Corporation ranking senior as to the Preferred Stock either as to the payment of dividends or the distribution of assets upon liquidation, dissolution or winding up of the Corporation and previously authorized with the consent of holders of Preferred Stock as described herein (or other than any capital stock into which such prior stock is converted as a result of such merger, consolidation or compulsory share exchange). 7. Redemption at Option of the Corporation. The shares of Preferred Stock shall not be redeemable prior to July 1, 1993. Commencing July 1, 1993, the shares of Preferred Stock will be redeemable for cash, in whole or in part, at any time at the option of the Corporation, if redeemed during the 12-month period beginning July 1 of the year specified below, at the following redemption prices;

and thereafter at $250.00 per share, plus in each case accrued and unpaid dividends to the redemption date (the "Redemption Price") If less than all the outstanding shares of Preferred Stock are to be redeemed, the Corporation shall select those to be redeemed pro rata or by lot or in such other manner as the Board of Directors of the Corporation or a duly authorized committee thereof may determine. There shall be no mandatory redemption or sinking fund obligation with respect to the Preferred Stock. Not more than 60 nor less than 30 days prior to the redemption date, notice by first class mail, postage prepaid, shall be given to the holders of record of the Preferred Stock to be redeemed, addressed to such stockholders at their last addresses as shown on the books of the Corporation. Each such notice of redemption shall specify the date fixed for redemption, the Redemption Price, the place or places of payment, that payment will be made upon presentation and surrender of the shares of Preferred Stock, that on and after the redemption date, dividends will cease to accumulate on such shares, the then-effective conversion rate pursuant to Section 9 and that the right of holders to convert shall terminate at the close of business on the redemption date. Any notice which is mailed as herein provided shall be conclusively presumed to have been duly given, whether or not the holder of the Preferred Stock receives such notice; and failure to give such notice by mail, or any defect in such notice, to the holders of any shares designated for redemption shall not affect the validity of the proceedings for the redemption of any other shares of Preferred Stock. On or after the date fixed for redemption as stated in such notice, each holder of the shares called for redemption shall surrender the certificate evidencing such shares to the Corporation at the place designated in such notice and shall thereupon be entitled to receive payment of the Redemption Price. If less than all the shares represented by any such surrendered certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. If, on the date fixed for redemption, funds necessary for the redemption shall be available therefor and shall have irrevocably deposited or set aside, then, notwithstanding that the certificates evidencing any shares so called for redemption shall not have been surrendered, the dividends with respect to the shares so called shall cease to accumulate after the date fixed for redemption, the shares shall no longer be deemed outstanding, the holders thereof shall cease to be stockholders with respect to the shares so called for redemption (except the right of the holders to receive the Redemption Price without interest upon surrender of their certificates therefor) shall terminate. 8. Contingent Redemption at Option of Holder. In the event that there occurs a Designated Event (as hereinafter defined) with respect to the Corporation, each holder of shares of Preferred Stock shall have the right, at the holder's option, to require the Corporation to redeem all or any part of such holder's shares of Preferred Stock on the date (the "Contingent Redemption Date") that is 100 days after the rating Decline, at $250.00 per share plus accrued and unpaid dividends to the Contingent Redemption Date. On or before the twenty-eighth day after the Designated Event, the Corporation is obligated to notify the transfer agent for the Preferred Stock of such event, and promptly thereafter to mail, or cause to be mailed, to each holder of record of the shares of Preferred Stock notice regarding the Designated Event and the redemption right. The Corporation shall use its best efforts to cause such notice to be disseminated to beneficial owners of the Preferred Stock in accordance with Rule 13e-4(e) (1) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The notice shall state the Contingent Redemption Date, the date by which the redemption right must be exercised, the applicable price for such shares of Preferred Stock and the procedure which the holder must follow to exercise this right. The Corporation will cause a copy of such notice to be published in an English language newspaper of general circulation in the Borough of Manhattan, The City of New York. To exercise this right, the holder of shares of Preferred Stock must deliver at least ten days prior to the Contingent Redemption Date (the "Contingent Redemption Record Date") written notice to the Corporation (or an agent designated by the Corporation for such purpose) of the holder's exercise of such right, together with the certificate for the shares with respect to which the right is being exercised, duly endorsed for transfer. Such written notice may be withdrawn at any time prior to the Contingent Redemption Record Date. As used herein, a "Designated Event" shall be deemed to have occurred at such times as (i) a "person" or "group" (within the meaning of Sections 13(d) and 14 (d) (2) of the Exchange Act), other than a holding company created as permitted by clause (ii)(a) of this paragraph, becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of more than 30% of the total voting power of all classes of stock then outstanding of the Corporation normally entitled to vote in elections of directors ("Voting Stock"), (ii) the Corporation consolidates with or merges into another corporation or conveys, transfers or leases all or substantially all of its assets to any person, or any corporation consolidates with or merges into the Corporation, in either event pursuant to a transaction in which Voting Stock, of the Corporation is changed into or exchanged for cash, securities or other property, provided that such transactions (A) involving solely the creation of a public holding company or the reincorporation of the Corporation in another state or (B) involving the exchange of the Corporation's Voting Stock as consideration in the acquisition of another business or businesses, without change or exchange of the Corporation's outstanding Voting Stock, shall be excluded from the operation of this clause (ii); or (iii) the Corporation, any subsidiary of the Corporation or any employee benefit plan maintained by the Corporation or any subsidiary of the Corporation purchases or otherwise acquires, directly or indirectly, beneficial ownership of Voting Stock of the Corporation if, after giving affect to such purchase or acquisition, the Corporation (together with its subsidiaries and an such plans) shall have acquired, within any 12-month period, a number of shares of the Corporation's Voting Stock equal to 30% or more of the number of shares of the Corporation's Voting Stock outstanding on the date immediately prior to the first such purchase or acquisition during such 12-month period (as adjusted in such manner as the Corporation reasonably deems appropriate to reflect any stock dividends or stock splits during such period); or (iv) on any date (a "Calculation Date") the Corporation makes any distribution or distributions of cash, property or securities (other than regular dividends and distributions of capital stock, or rights to acquire capital stock, of the Corporation) to holders of Voting Stock of the Corporation or the Corporation, any subsidiary or any employee benefit plan maintained by the Corporation or any subsidiary purchases or otherwise acquires, directly or indirectly, beneficial ownership of Voting Stock of the Corporation and the sum of the fair market value (as determined in good faith by the Corporation's Board of Directors, which determination shall be conclusive) of such distribution or purchase, plus the fair market value of all other such distributions by the Corporation and purchases by the Corporation together with its subsidiaries and any such plans which have occurred during the preceding 12-month period, is at least 30% of the fair market value of the outstanding Voting Stock of the Corporation (based on the closing sale price of the Voting Stock of the Corporation (based on the closing sale price of the Voting Stock as reported in The Wall Street Journal). This percentage is calculated on each Calculation Date by determining the percentage of the fair market value of the Corporation's outstanding Voting Stock as of such Calculation Date which is represented by the fair market value of the distributions and purchases which have occurred on such date and adding to that percentage all of the percentages which have been similarly calculated on the Calculation Dates of all such distributions and purchases during the preceding 12-month period. As used in the preceding paragraph, "Company" shall mean the Corporation or any holding company permitted under clause (ii) (a) thereof which may be created. 9. Conversion Rights. (a) Right to Covert. Subject to and upon compliance with the provisions of this Section, the holder of any Shares of Preferred Stock shall have the right, at his option, at any time (except that, with respect to any Shares of Preferred Stock which shall be called for redemption, such right shall terminate, except as provided in the third paragraph of Section 9(b) hereof, at the close of business on the date fixed for redemption of such shares of Preferred Stock unless the Corporation shall default in payment due upon redemption thereof) to convert any number of shares of Preferred Stock that is an integral multiple of 1/10th of one share into fully paid and nonassessable shares of Common Stock (as such shares shall be constituted) initially at the conversion price of $9.375 per share of Common Stock, subject to adjustment as described below (such price or adjusted price being referred to herein as the "Conversion Price"), by surrender of the Preferred Stock so to be converted in whole or in part in the manner provided in Section 9(b) below. For purposes of conversion, each share of Preferred Stock shall be valued at $250, which shall be divided by the then current Conversion Price in effect to determine the number of full shares issuable upon conversion thereof. For the purpose of this Section 9, the term "Common Stock" shall initially mean the class designated as Common Stock, par value $.05 per share, of the Corporation as of the date hereof, subject to adjustment as hereinafter provided. (b) Exercise of Conversion Privilege; Issuance of Common Stock on Conversion; No Adjustment for Interest or Dividends. In order to exercise the conversion privilege, the holder of any shares of Preferred Stock to be converted in whole or in part shall surrender the certificate representing such shares of Preferred Stock (the "Preferred Stock Certificate") at the office of the transfer agent for the Preferred Stock, and shall give written notice of conversion in the form provided on the Preferred Stock Certificates (or such other notice which is acceptable to the Corporation) to the Corporation at such office or agency that the holder elects to convert such shares of Preferred Stock represented by the Preferred Stock Certificates so surrendered or the portion thereof specified in said notice. Such notice shall also state the name or names (with address) in which the certificate or certificates for shares of Common Stock which shall be issuable on such conversion shall be issued, and shall be accompanied by transfer taxes, if required pursuant to Section 9(f) hereof. Each Preferred Stock Certificate surrendered for conversion shall, unless the shares issuable on conversion are to be issued in the same name as the registration of such Preferred Stock Certificate, by duly endorsed by, or be accompanied by instruments of transfer in form satisfactory to the Corporation duly executed by, the holder or his duly authorized attorney. As promptly as practicable after the surrender of such Preferred Stock Certificate and the receipt of such notice and funds, if any, as aforesaid, the Corporation shall issue and shall deliver at such office or agency to such holder, or on his written order, a certificate or certificates for the number of full shares issuable upon the conversion of such shares Preferred Stock represented by the Preferred Stock Certificates so surrendered or portion thereof in accordance with the provisions of this Section and a check or cash in respect of any fractional interest in respect of a share of Common Stock arising upon such conversion as provided in Section 9(c) hereof. In case less than all of the shares of Preferred Stock represented by a Preferred Stock Certificate surrendered for conversion are to be converted, the Corporation shall deliver to or upon the written order of the holder of such Preferred Stock Certificate a new Preferred Stock Certificate representing the shares of Preferred Stock not converted. If a holder fails to notify the Corporation of the number of shares which such holder wishes to convert, such holder shall be deemed to have elected to covert all shares represented by the certificate or certificates surrendered for conversion. Each conversion shall be deemed to have been effected on the date on which such Preferred Stock Certificate shall have been surrendered and such notice shall have been received by the Corporation, as aforesaid, and the person in whose name any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become on said date the holder of record of the shares represented thereby; provided, however, that any such surrender on any date when the stock transfer books of the Corporation shall be closed shall constitute the person in whose name the certificates are to be issued as the record holder thereof for all purposes on the next succeeding day on which such stock transfer books are open, but such conversion shall be at the conversion price in effect on the date upon which such Preferred Stock Certificate shall have been surrendered. The dividends due on any Preferred Stock surrendered for conversion during the period from the close of business on the record date for any dividend payment date to the opening of business on such dividend payment date shall be paid to the record holder of such Preferred Stock, notwithstanding such conversion. (c) Cash Payments in Lieu of Fractional Shares. No fractional shares of Common Stock or scrip representing fractional shares shall be issued upon conversion of Preferred Stock. The number of full shares of Common Stock which shall be issuable to a holder of Preferred Stock upon conversion shall be computed on the basis of the whole number of shares of Preferred Stock (or specified portions thereof to the extent permitted hereby) surrendered by such holder for conversion. If any fractional share of Common Stock would be issuable upon the conversion of any shares of Preferred Stock, the Corporation shall make an adjustment therefor in cash at the current market value thereof. The current market value of a share of Common Stock shall be the last reported price on the first day (which is not a legal holiday as defined below) immediately preceding the day on which the shares of Preferred Stock are deemed to have been converted and such last reported price shall be determined as provided in the last sentence of subsection (D) of Section 9(d). The term "Legal Holiday" shall mean a legal holiday or a day on which banking institutions in Los Angeles or any national securities exchanges are authorized by law or by executive order to close. (d) Adjustment of Conversion Price. The conversion price shall be adjusted from time to time as follows: (A) In case the Corporation shall (i) pay a dividend or make a distribution in shares of its capital stock (whether shares of Common Stock or of capital stock of any other class), (ii) subdivide its outstanding Common Stock or (iii) combine its outstanding Common Stock into a smaller number of shares, the conversion price in effect immediately prior thereto shall be adjusted so that the holder of any share of Preferred Stock thereafter surrendered for conversion shall be entitled to receive the number of shares of capital stock of the Corporation which he would have owned or have been entitled to receive after the happening of any of the events described above had such share of Preferred Stock been converted immediately prior to the happening of such event. An adjustment made pursuant to this subsection (A) shall become effective immediately after the record date in the case of a dividend and shall become effective immediately after the effective date in the case of subdivision or combination. If, as a result of an adjustment made pursuant to this subsection (A), the holder of any share of Preferred Stock thereafter surrendered for conversion shall become entitled to receive shares of two or more classes of capital stock of the Corporation, the Board of Directors (whose determination shall be conclusive and shall be described in a written statement filed with the transfer agent for the Preferred Stock) shall determine the allocation of the adjusted conversion price between or among shares of such classes of capital stock. (B) In case the Corporation shall issue rights or warrants (other than rights pursuant to the Rights Agreement, dated as of February 10, 1988, between the company and Bank of America NT&SA, as such agreement may be amended from time to time (the "Rights")) to all holders of its Common Stock entitling them (for a period expiring within 90 days after the record date mentioned below) to subscribe for or purchase Common Stock at a price per share less than the current market price per share of Common Stock (as defined in subsection (D) below) at the record date of the determination of stockholders entitled to receive such rights or warrants, the conversion price in effect immediately prior thereto shall be adjusted so that the same shall equal the price determined by multiplying the conversion price in effect immediately prior to the date of issuance of such rights or warrants by a fraction of which the numerator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants plus the number of shares which the aggregate offering price of the total number of shares so offered would purchase at such current market price, and of which the denominator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase. Such adjustment shall be made successively whenever any such rights or warrants are issued, and shall become effective immediately after such record date. In determining whether any rights or warrants entitle the holders to subscribe for or purchase shares of Common Stock at less than such current market price, and in determining the aggregate offering price of such shares, there shall taken into account any consideration received by the Corporation for such rights or warrants, the value of such consideration, if other than cash, to be determined by the Board of Directors. (C) In case the Corporation shall distribute to all holders of its Common Stock evidences of its indebtedness or assets (excluding cash dividends or distributions paid from retained earnings of the Corporation) or rights or warrants (other than the Rights) to subscribe for or purchase Common Stock (excluding those referred to in subsection (B) above), then in each such case the conversion price shall be adjusted so that the same shall equal the price determined by multiplying the conversion price in effect immediately prior to the date of such distribution by a fraction of which the numerator shall be the current market price per share (as defined in subsection (D) below) of the Common Stock on the record date mentioned below less the then fair market value (as determined by the Board of Directors of the Corporation, whose determination shall be conclusive), of the portion of the assets or evidences of indebtedness so distributed or of such rights or warrants applicable to one share of Common Stock, and the denominator shall be the current market price per share (as defined in subsection (D) below) of the Common Stock. Such adjustment shall become effective immediately after the record date for the determination of shareholders entitled to receive such distribution. (D) For the purpose of any computation under subsections (B) and (C) above, the current market price per share of Common Stock at any date shall be deemed to be the average of the last reported prices for the ten consecutive days (which are not Legal Holidays as defined in Section 9(b)) next preceding the day in question. The last reported price for each day shall be the last reported sale price of Common Stock on the New York Stock Exchange (or, if not listed on the New York Stock Exchange, then on such other exchange on which the Common Stock is listed as the Corporation may designate) on such day (which is not a Legal Holiday as defined in Section 9(b)), or it there shall not have been a sale on such day, on the basis of the average of the bid and asked quotations therefor on such exchange on such day, or if the Common Stock shall not then be listed on any exchange, at the highest bid quotation in the over-the-counter market on such as reported by National Quotation Bureau, Incorporated or similar quotation service. (E) No adjustment in the conversion price shall be required unless such adjustment would require an increase or decrease of at least 1% in such price; provided, however, that any adjustments which by reason of this subsection (E) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 9 shall be made to the nearest cent or to the nearest one-thousandth of a share, as the case may be. Anything in this Section 9(d), to the contrary notwithstanding, the Corporation shall be entitled to make such reductions in the conversion price, in additional to those required by this Section 9(d), as it in its discretion shall determine to be advisable in order that any stock dividends, subdivision of shares, distribution of rights to purchase stock or securities, or a distribution of securities convertible into or exchangeable for stock hereafter made by the Corporation to its stockholders shall not be taxable. The Board of Directors shall have the power to resolve any ambiguity or correct any error in this Section 9(d) and to authorize the filing of a Certificate of Correction with respect to any such ambiguity or error. (F) Whenever the conversion price is adjusted, as herein provided, the Corporation shall promptly file with the transfer agent of the Preferred Stock an Officers' Certificate setting forth the conversion price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. Promptly after delivery of such certificate, the Corporation shall prepare a notice of such adjustment of the conversion price setting forth the adjusted conversion price and the date on which such adjustment becomes effective and shall mail such notice of such adjustment of the conversion price to the holders of Preferred Stock at their address as appearing in the stock transfer books of the Corporation. (G) In any case in which this Section 9(d) provides that an adjustment shall become effective immediately after a record date for an event, the Corporation may defer until the occurrence of such event (i) issuing to the holder of any shares of Preferred Stock converted after such record date and before the occurrence of such event the additional shares of Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above the Common Stock issuable upon such conversion before giving effect to such adjustment and (ii) paying to such holder any amount in cash in lieu of any fraction pursuant to Section 9(c). (H) The Corporation at any time may reduce the Conversion Price, temporarily or otherwise, by any amount but in no event shall such Conversion Price be less than the par value of the Common Stock at the time of such reduction is made. Whenever the Conversion Price is reduced pursuant to this paragraph (H), the Corporation shall mail to the holders of shares of Preferred Stock a notice of the reduction. The Corporation shall mail the notice at least 15 days before the date the reduced Conversion Price takes effect. The notice shall state the reduced Conversion Price and the period in which it will be in effect. A reduction in the Conversion Price pursuant to this paragraph (H) shall not change or affect the Conversion Price otherwise in effect for purposes of paragraphs A, B and C of this Section 9 (d). (e) Reclassification, Consolidation, Merger or Sale of Assets. In case of any reclassification of the Common Stock, any consolidation of the Corporation with, or merger of the Corporation into, any other person, any merger of another person into the Corporation (other than a merger which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock of the Corporation), any sale or transfer of all or substantially all of the assets of the Corporation or any compulsory share exchange pursuant to which share exchange the Common Stock is converted into other securities, cash or other property, then lawful provision shall be made as part of the terms of such transaction whereby the holder of each share of Preferred Stock then outstanding shall have the right thereafter, during the period such share shall be convertible, to convert such share only into the kind and amount of securities, cash and other property receivable upon such reclassification, consolidation, merger, sale, transfer or share exchange by a holder of the number of shares of Common Stock of the Corporation into which such share of Preferred Stock might have been converted immediately prior to such reclassification, consolidation, merger, sale, transfer or share exchange assuming such holder of Common Stock of the Corporation (i) is not a person with which the Corporation consolidated or into which the Corporation merged or which merged into the Corporation, to which such sale or transfer was made or a party to such share exchange, as the case may be ("constituent person"), or an affiliate of a constituent person and (ii) failed to exercise his rights of election, if any, as to the kind or amount of securities, cash and other property receivable upon such reclassification, consolidation, merger, sale, transfer or share exchange (provided that if the kind or amount of securities, cash and other property receivable upon such reclassification, consolidation, merger, sale, transfer or share exchange is not the same for each share of Common Stock of the Corporation held immediately prior to such consolidation, merger, sale or transfer by others than a constituent person or an affiliate thereof and in respect of which such rights of election shall not have been exercised (" non-electing share"), then the kind and amount of securities, cash and other property receivable upon such reclassification, consolidation, merger, sale, transfer or share exchange by each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares). The Corporation, the person formed by such consolidation or resulting from such merger or which acquires such assets or which acquires the Corporation's shares, as the case may be, shall make provisions in its certificate or articles of incorporation or other constituent document to establish such right. Such certificate or articles of incorporation or other constituent document shall provide for adjustments which, for events subsequent to the effective date of such certificate or articles of incorporation or other constituent document, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 9. The above provisions shall similarly apply to successive reclassifications, consolidations, mergers, sales, transfers or share exchanges. (f) Taxes on Shares Issued. The issue of stock certificates on conversions of Preferred Stock shall be made without charge to the converting holder of Preferred Stock for any tax in respect of the issue thereof. The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of stock in any name other than that of the holder of any Preferred Stock converted, and the Corporation shall not be required to issue or deliver any such stock certificate unless and until the person or persons requesting the issue thereof shall have paid to the Corporation the amount of such tax or shall have established to the satisfaction of the Corporation that such tax has been paid. (g) Reservation of Shares; Shares to Be Fully Paid; Compliance with Governmental Requirements; Listing of Common Stock. The Corporation shall at all times reserve and keep available out of its authorized Common Stock the full number of shares of Common Stock deliverable upon the conversion of all outstanding shares of Preferred Stock and shall take all such corporate action as may be required from time to time in order that it may validly and legally issue fully paid and non-assessable shares of Common Stock upon conversion of the Preferred Stock. Before taking any action which would cause an adjustment reducing the conversion price below the then par value, if any, of the shares of Common Stock issuable upon conversion of the Preferred Stock, the Corporation will take all corporate action which may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue shares of such Common Stock at such adjusted conversion price. All share of Common Stock which may be issued upon conversion of Preferred Stock will upon issue be fully paid and nonassessable by the Corporation and free from all taxes, liens and charges with respect to the issue thereof. If any share of Common Stock to be provided for the purpose of conversion of Preferred Stock hereunder require registration with or approval of any governmental authority under any Federal or state law before such shares may be validly issued upon conversion, the Corporation will in good faith and as expeditiously as possibly endeavor to secure such registration or approval, as the case may be. So long as the Common Stock shall be listed on the New York Stock Exchange or any other national securities exchange the Corporation will, if permitted by the rules of such exchange, list and keep listed and for sale so long as the Stock issuable upon conversion of the Preferred Stock. (h) Notice to Holder Prior to Certain Actions. In case: (A) the Corporation shall declare a dividend (or any other distribution) of its Common Stock (other than in cash out of retained earnings); or (B) the Corporation shall authorize the granting to the holders of its Common Stock of rights or warrants to subscribe for or purchase any share of any class or any other rights or warrants; or (C) of any reclassification of the Common Stock of the Corporation (other than a subdivision or combination of its outstanding Common Stock, or a change in par value, or from par value to no par value, or from no par value to par value) or, of any consolidation or merger to which the Corporation is a party and for which approval of any shareholders of the Corporation is required, or of the sale or transfer of all or substantially all of the assets of the Corporation; or (D) of the voluntary or involuntary dissolution, liquidation or winding up of the Corporation; the Corporation shall cause to be filed with the transfer agent for the Preferred stock and to be mailed to each holder of Preferred Stock at their address appearing on the stock transfer books of the Corporation, as promptly as possible but in any event at least fifteen days prior to the applicable date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution or rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution or rights are to be determined, or (y) the date on which such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up. Failure to give such notice, or any defect therein, shall not affect the legality or validity of such dividend, distribution, reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up. 10. Outstanding Shares. For purposes of this Certificate of Designation, all shares of Preferred Stock shall be deemed outstanding except (i) from the date fixed for redemption pursuant to Section 7 or 8 hereof, all shares of Preferred Stock that have been so called for redemption under Section 7 or have been required to be redeemed by the holder thereof under Section 8 if funds necessary for the redemption of such shares are available and shall have been irrevocably deposited or set aside and, in the case of a redemption under Section 8, have been deposited in trust with a bank having a combined capital and surplus in excess of $10,000,000, as trustee, for the benefit of the holders of such shares to be redeemed for payment of the relevant redemption price; (ii) from the date of surrender of certificates representing shares of Preferred stock, all shares of Preferred Stock converted into Common Stock; and (iii) from the date of registration of transfer, all shares of Preferred Stock held of record by the Corporation or any subsidiary of the Corporation. 11. Partial Payments. If at any time the Corporation does not pay amounts sufficient to redeem all Preferred Stock required to be redeemed by the Corporation at such time pursuant to Section 8 hereof, then such funds which are paid shall be applied to redeem such Preferred Stock as the Corporation may designate by lot. 12. Status of Acquired Shares. Shares of Preferred Stock redeemed by the Corporation, received upon conversion pursuant to Section 9 or otherwise acquired by the Corporation will be restored to the status of authorized but unissued shares of Preferred Stock, without designation as to class, and may thereafter be issued, but not as shares of Preferred Stock. 13. Preemptive Rights. The Preferred Stock is not entitled to any preemptive or subscription rights in respect of any securities of the Corporation. 14. Severability of Provisions. Whenever possible, each provision hereof shall be interpreted in a manner as to be effective and valid under applicable law, but if any provision hereof is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating or otherwise adversely affecting the remaining provisions hereof. If a court of competent jurisdiction should determine that a provision hereof would be valid or enforceable if a period of time were extended or shortened or a particular percentage were increased or decreased, then such court may make such change as shall be necessary to render the provision in question effective and valid under applicable law. 15. Fractional Shares. The Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Preferred Stock. 16. Reversion to Corporation. Subject to applicable escheat laws, any monies set aside by the Corporation in respect of any payment with respect to shares of the Preferred Stock, or dividends thereon, and unclaimed at the end of two years from the date upon which such payment is due and payable shall revert to the general funds of the Corporation, after which reversion the holders of such shares shall look only to the general funds of the Company for the payment thereof. Any interest accrued on funds so deposited shall be paid to the Corporation from time to time. IN WITNESS WHEROF, Countrywide Credit Industries, Inc. has caused this certificate to be signed by Angelo R. Mozilo, its Executive Vice President, and its corporate seal to be hereunto affixed and attested by Sandor E. Samuels, its Secretary, this 11th day of July, 1990 COUNTRYWIDE CREDIT INDUSTRIES, INC. By: /s/Angelo R. Mozilo ----------------------------------- Name: Angelo R. Mozilo Title: Vice Chairman and Executive Vice President Attest: /s/Sandor E. Samuels - ---------------------------------- Name: Sandor E. Samuels Title: Secretary CERTIFICATE OF CORRECTION FILED TO CORRECT CERTAIN ERRORS IN THE CERTIFICATE OF DESIGNATION OF $23.75 CONVERTIBLE PREFERRED STOCK OF COUNTRYWIDE CREDIT INDUSTRIES, INC. FILED IN THE OFFICE OF THE SECRETARY OF STATE OF DELAWARE ON JULY 12, 1990 COUNTRYWIDE CREDIT INDUSTRIES, INC., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY: 1. The name of the Corporation is Countrywide Credit Industries, Inc. 2. A Certificate of Designation of $23.75 Convertible Preferred Stock (the "Certificate") was filed with the Secretary of State of Delaware on July 12, 1990 and said Certificate requires correction as permitted by subsection (f) of Section 103 of the General Corporation Law of the State of Delaware. 3. The inaccuracies or defects of said Certificate to be corrected are as follows: A. The words, ", as amended (including this Certificate of Designation)" should be inserted following the words "Restated Certificate of Incorporation" in the first sentence of Section 6(c) of the Certificate, so that the first sentence of Section 6(c) of the Certificate is corrected to read in its entirety as follows: (c) Class Voting Rights. In addition so long as any Preferred Stock is outstanding the Corporation shall not, without the affirmative vote or consent of the holders of at least 66-2/3 percent of all the outstanding shares of Preferred Stock voting separately as a class, (i) amend, alter or repeal any provision of the Restated certificate of Incorporation, as amended (including this Certificate of Designation) or the By-Laws of the Corporation so as adversely to affect the relative rights, preferences, qualifications, limitations or restrictions of the Preferred Stock, (ii) authorize, issue or increase the authorized amount of any class or series of stock, or any security convertible into stock of such class or series, ranking senior to the Preferred Stock as to the payment of dividends or the distribution of assets upon liquidation, dissolution or winding up of the Corporation or (iii) effect any reclassification of the Preferred Stock. B. The words "Rating Decline" contained in the first sentence of Section 8 of the Certificate should be deleted and replaced with the words "Designated Event," so that the first sentence of Section 8 of the Certificate is corrected to read in its entirety as follows: 8. Contingent Redemption at Option of Holder. In the event that there occurs a Designated Event (as hereinafter defined) with respect to the Corporation, each holder of shares of Preferred Stock shall have the right, at the holder's option, to require the Corporation to redeem all or any part of such holder's shares of Preferred Stock on the date (the "Contingent Redemption Date" that is 100 days after the Designation Event, at $250.00 per share plus accrued and unpaid dividends to the Contingent Redemption Date. C. The word "Company" in the last sentence of Section 8 of the Certificate should be deleted and replaced with the word "Corporation" so that the last sentence of Section 8 of the Certificate is corrected to read in its entirety as follows: As used in the preceding paragraph, "Corporation" shall mean the Corporation or any holding company permitted under clause (ii) (a) thereof which may be created. D. The word "or" should be inserted in the second sentence of Section 9(e) of the Certificate so that the second sentence of Section 9(e) of the Certificate is corrected to read in its entirety as follows: The Corporation, or the person formed by such consolidation or resulting from such merger or which acquires such assets or which acquires the Corporation's shares, as the case may be, shall make provisions in its certificate or articles of incorporation or other constituent document to establish such right. E. The words "Preferred Stock" in the second-to-last line of Section 12 of the Certificate should be deleted and replaced with the words "preferred stock of the Corporation" so that Section 12 of the Certificate is corrected to read in its entirety as follows: 12. Status of Acquired Shares. Shares of Preferred Stock redeemed by the Corporation, received upon conversion pursuant to Section 9 or otherwise acquired by the Corporation will be restored to the status of authorized but unissued shares of preferred stock of the Corporation, without designation as to class, and may thereafter be issued, but not as shares of Preferred Stock. 4. As of the date hereof, no shares of $23.75 Convertible Preferred Stock have been issued by the Corporation. IN WITNESS WHEREOF, Countrywide Credit Industries, Inc. has caused this certificate to be signed by Angelo R. Mozilo, its Executive Vice President, and its corporate seal to be hereunto affixed and attested by Sandor E. Samuels, its Secretary, this 16th day of July, 1990. COUNTRYWIDE CREDIT INDUSTRIES, INC. By: _______________________________ Name: Angelo R. Mozilo Title: Vice Chairman and Executive Vice President Attest: ______________________________ Name: Sandor E. Samuels Title: Secretary CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF COUNTRYWIDE CREDIT INDUSTRIES, INC. Countrywide Credit Industries, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, hereby certifies as follows: 1. That at a meeting of the Board of Directors of Countrywide Credit Industries, Inc., (the "Corporation" or "company") resolutions were duly adopted setting forth a proposed amendment of the Certificate of Incorporation of said corporation, declaring said amendment to be advisable and calling for the proposal to be presented to the shareholders of the Corporation at the next Annual Meeting of the Shareholders. The resolution setting forth the proposed amendment is as follows: RESOLVED, That the Company's Certificate of Incorporation be amended to Increase the authorized Common Stock, and for this purpose the Third article be amended to read as follows: THIRD: The aggregate number of shares which the Corporation shall have authority to issue is two hundred forty million (240,000,000) shares of Common Stock, of the par value of five cents ($.05) per share, and one million, five hundred thousand (1,500,000) shares of Preferred Stock, of the par value of five cents ($.05) per share. The Preferred Stock may be issued in one or more series at such time or times and for such consideration or considerations as the Board of directors may determine. With respect to the Preferred Stock, the Board of Directors of this Corporation is authorized to determine or alter the voting rights, dividend privileges, liquidation preferences, and all other rights, preferences, privileges, liquidation preferences, and all other rights, preferences, privileges and restrictions, including without limitation, conversion rights into Common Stock, granted to or imposed upon any wholly unissued series of Preferred Stock and, within the limitations or restrictions stated in any resolution of the Board of Directors originally fixing the number of shares of Preferred Stock constituting any series, to increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any such series subsequent to the issue of shares of that series, to determine the designation of any series and to fix the number of shares of any series. 2. That thereafter, the Annual Meeting of the Stockholders, of said corporation was duly called and held, upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware on June 24, 1992, at which meeting the necessary number of shares as required by statue were voted in favor of the amendment. 3. That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, said Countrywide Credit Industries, Inc. has cause this certificate to be signed by David S. Loeb, its President, and Sandor E. Samuels, its Secretary, this 25th day of June, 1992. BY: _______________________________ David S. Loeb President ATTEST: ______________________________ Sandor E. Samuels Secretary CERTIFICATE OF CHANGE OF LOCATION OF REGISTERED OFFICE AND OF REGISTERED AGENT It is hereby certified that: 1. The name of the corporation (hereinafter called the "corporation") is COUNTRYWIDE CREDIT INDUSTRIES, INC. 2. The registered office of the corporation within the State of Delaware is hereby changed to 32 Loockerman Square, Suite L-100, City of Dover 19901, County of Kent. 3. The registered agent of the corporation within the State of Delaware is hereby changed to The Prentice-Hall Corporation System, Inc., the business office of which is identical with the registered office of the corporation as hereby changed. 4. The corporation has authorized the changes hereinbefore set forth by resolution of its Board of Directors. Signed on 1/19, 1993. ___________________________________ Gwen J. Eells, Vice President Attest: ______________________________ Patricia I. Poe Secretary COUNTRYWIDE CREDIT INDUSTRIES, INC CERTIFICATE OF DESIGNATIONS PURSUANT TO SECTION 151 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK I, Stanford L. Kurland, Senior Managing Director and Chief Operating Officer, of Countrywide Credit Industries, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), in accordance with the provisions of Section 103 thereof, DO HEREBY CERTIFY: That pursuant to the authority conferred upon the Board of Directors by the Restated Certificate of Incorporation, as amended, of the said Corporation, the said Board of Directors on January 26, 2000, adopted the following resolutions creating a series of 1,000,000 shares of Preferred Stock designated as Series B Cumulative Convertible Preferred Stock: RESOLVED, that, pursuant to the authority vested in the Board of Directors of the Corporation in accordance with the provisions of its Restated Certificate of Incorporation, as amended, a series of Preferred Stock of the Corporation be, and hereby is, created and that the designation and amount thereof and the voting powers, preferences and relative, participating, optional or other special rights of the shares of such series, and the qualifications, limitations or restrictions thereon, are as follows: SECTION 1. DESIGNATION. The series of Preferred Stock established hereby shall be designated the "Series B Cumulative Convertible Preferred Stock" (the "Series B Convertible Preferred Shares") and the authorized number of Series B Convertible Preferred Shares shall be 1,000,000 shares. SECTION 2. DIVIDENDS. (a) Holders of outstanding Series B Convertible Preferred Shares will be entitled to received, when and as declared by the Board of Directors out of funds legally available therefore, cash dividend payments in the amount of the Dividend Yield on each Series B Convertible Preferred Share, payable quarterly for each of the quarters ending February, May, August and November of each year, payable on the last business day of each such quarter (each such date being hereinafter referred to as "Preferred Dividend Payment Date"). The first dividend shall be payable on the Preferred Dividend Payment Date during the quarter in which the Issuance Date falls. Each such dividend will be payable to holders of record as they appear on the stock books of the Corporation on such record dates, not less than 10 nor more than 50 days preceding the related Preferred Dividend Payment Date, as shall be fixed by the Board of Directors. Dividends on each Series B Convertible Preferred Share shall accrue on a daily basis and compound quarterly commencing on the Issuance Date for such share and continuing to, but not including, the Redemption Date, Change of Control Redemption Date or Conversion Date for such share (or other date on which such Series B Convertible Preferred Share is no longer outstanding) and accrued dividends for each quarterly dividend period shall accumulate as Unpaid Dividend Yield, to the extent not paid, on the Preferred Dividend Payment Date for the quarter in which they accrued. Dividend payments under this paragraph (a) shall accrue whether or not the Corporation shall have earnings, whether or not there shall be funds legally available for the payment of such dividends and whether or not such dividends are declared. The Unpaid Dividend Yield will earn interest until paid at the Interest Rate, compounded quarterly from the date payable until the date actually paid. (b) So long as any Series B Convertible Preferred Shares shall remain outstanding, no dividend (other than a dividend payable in shares of Common Stock or rights to obtain Common Stock or any class of capital stock of the Corporation which is junior to the Series B Convertible Preferred Shares) shall be declared, nor shall the Corporation make any other distribution or payment or set aside anything of value for distribution or payment on, or redeem, repurchase or otherwise acquire any shares of, the Common Stock of the Corporation or any other class of stock or series thereof ranking junior to the Series B Convertible Preferred Shares in the payment of dividends (other than a redemption or purchase of shares of Common Stock of the Corporation made for purposes of an employee incentive or benefit plan of the Corporation or any of its subsidiaries) unless the full amount of Unpaid Dividend Yield, if any, accumulated on all outstanding Series B Convertible Preferred Shares through all past Preferred Dividend Payment Dates plus accrued interest thereon shall have been paid in full and not refunded. No dividend shall be declared on any share or shares on any class of stock of the Corporation or series thereof ranking on a parity with the Series B Convertible Preferred Shares in respect of payment of dividends for any prior dividend payment period of said parity stock unless there shall have been declared on all shares then outstanding of the Series B Convertible Preferred Shares terminating with or before such prior dividend payment period of such parity stock, like proportional dividends determined ratably in proportion to the respective Unpaid Dividend Yield accumulated to date for all previous quarterly dividend periods on all outstanding Series B Convertible Preferred Shares and the dividends accumulated on all outstanding shares of said parity stock. (c) CHANGE IN TAX LAWS. (i) If because of an increase or decrease (up to and including full elimination), effective on or after January 1, 2000, of the dividends received deduction ("DRD") with respect to dividend payments on the Series B Convertible Preferred Shares presently permitted by any Tax Law (a "change in the DRD Tax Law"), corporate holders of Series B Convertible Preferred Shares ("Corporate Holders") would realize a greater or lesser after-tax yield from dividend payments on a Series B Convertible Preferred Shares than would have been the case had such change in the DRD Tax Law not occurred (a positive or negative "Tax Effect," respectively), then a dividend adjustment shall be calculated on the Series B Convertible Preferred Shares (whether or not held by Corporate Holders) so that a Corporate Holder's net after-tax yield would be the same as if there has been no change in the DRD Tax Law. Calculation of the dividend adjustment pursuant to this paragraph (c) of Section 2 shall be made (1) without regard to any other changes in Tax laws except those affecting the deductibility of dividends received by Corporate Holders (including changes in the characterization of Series B Convertible Preferred Shares dividends which impact their deductibility under any DRD related Tax Law); and (2) assuming that Corporate Holders pay federal income tax at the highest marginal corporate income tax rate effective at January 1, 2000. (ii) For purposes of calculating the Preferred Dividend Yield Rate as set forth in Section 8 herein, any adjustment in dividends required pursuant to paragraph (c) (1) of this Section 2 shall be expressed as (1) the dividend payment required, after considering the change in DRD Tax law, to equalize a Corporate Holder's net after tax yield, expressed as a percentage (in decimals) of (2) dividends which would have accrued to such Corporate Holder had the change in DRD Tax law not occurred (such percentage to be referred to as the "Preferred Dividend Tax Adjustment Factor"). Therefore, if in equalization of any negative Tax Effect, the Corporation were required to pay $15.25 in extra dividends for each $100.00 of dividends that would have accrued and been payable without regard to any changes in the DRD Tax Law, the Preferred Dividend Tax Adjustment Factor would be 1.1525 ($115.25/$100.00). Conversely, if in equalization of any positive Tax Effect, the Corporation were entitled to pay $8.25 less in dividends for each $100.00 of dividends that would have accrued and been payable without regard to any changes in the DRD Tax Law, the Preferred Dividend Tax adjustment Factor would be 0.9175 ($91.75/$100.00). (iii) Upon the occurrence of any change in the DRD Tax Law resulting in a positive or negative Tax Effect, dividends accruing on each Series B Convertible Preferred Share shall be calculated using the Preferred Dividend Tax Adjustment Factor, effective as of the first day of the quarterly dividend period in which such change in the DRD Tax Laws become effective, or from the Issuance Date, if such Issuance Date occurred for such Series B Convertible Preferred Share from the date of adoption of this Certificate until the end of the quarterly dividend period in which the change in the DRD Tax Law occurred. Dividends calculated using the adjusted Preferred Dividend Yield Rate shall continue to be payable on the Preferred Dividend Payment Date immediately following the end of such quarterly dividend period. To the extent not paid on any Series B Convertible Preferred Share outstanding on the record date corresponding to the Preferred Dividend Payment Date for such quarterly dividend period, any additional dividend shall accumulate as Unpaid Dividend Yield of such share and shall remain a part thereof until (but only until) such additional dividend is paid. The Preferred Dividend Tax Adjustment Factor shall be calculated for each change in the DRD Tax Law resulting in a positive or negative Tax Effect. SECTION 3. CASH REDEMPTION BY THE CORPORATION. (a) REDEMPTION AT OPTION OF CORPORATION. At any time, the Corporation may, at its option, with proper notice as set forth in paragraph (b) of this Section 3, redeem all of the outstanding Series B Convertible Preferred Shares, as of a Proposed Redemption Date Specified in the notice to holders, for cash in an amount equal to the Redemption Price per share. (b) NOTICE OF REDEMPTION. In order to properly effect the redemption of Series B Convertible Preferred Shares, the Corporation will provide notice to holders of record of the Series B Convertible Preferred Shares not less than forty-five (45) days prior to the Proposed Redemption Date. Such notice may be provided by registered mail, first class postage prepaid, to the holders of record of the Series B Convertible Preferred Shares at their respective addresses as the same shall appear on the books of the Corporation or any transfer agent for the Series B Convertible Preferred Shares, or by facsimile or telecopy, as set forth in paragraph (a) of Section 9 herein. Each such notice shall state, as appropriate: (1) the Proposed Redemption Date; (2) the total number of Series B Convertible Preferred Shares to be redeemed; (3) the Redemption Price; (4) the place or places where certificates for such shares are to be surrendered for redemption; and (5) that dividends on the Series B Convertible Preferred Shares to be redeemed will cease to accrue on the Proposed Redemption Date. Each holder of Series B Convertible Preferred Shares shall surrender the certificates evidencing such shares to the Corporation at the place designated in such notice and shall thereupon be entitled to receive the cash payable upon such redemption. If proper notice of redemption shall have been duly provided to holders of the Series B Convertible Preferred Shares in accordance with this paragraph (b), and payment therefor has been made or duly provided for, then, notwithstanding that the certificates evidencing any of such shares so called for redemption shall not have been surrendered, as of the close of business on the Redemption Date the shares represented thereby shall be deemed no longer outstanding, dividends with respect to such redeemed Series B Convertible Preferred Shares shall cease to accrue and all rights of the holder with respect to such Series B Convertible Preferred Shares shall forthwith cease and terminate, except for the right of the holders to receive the cash payable upon such redemption, without interest, upon surrender of the certificates therefor. (c) REVOCATION OF NOTICE TO REDEEM. The Corporation's election to redeem the Series B Convertible Preferred Shares pursuant to paragraph (a) of this Section 3 shall be revocable, and any notice to holders of Series B Convertible Preferred Shares provided in accordance with paragraph (b) of this Section 3 shall be subject to revocation or amendment by the Corporation. In order to properly effect the revocation or amendment of such notice, the Corporation will provide notice of its revocation or amendment, not less than one business day prior to the Proposed Redemption Date, to holders of record of the Series B Convertible Preferred Shares previously notified of the proposed redemption. Such notice may be provided in any of the manners permissible for providing notice of redemption under paragraph (b) of this Section 3. Such notice of revocation or amendment shall clearly state that: (1) on the Proposed Redemption Date, the Corporation will not redeem any of the Series B Convertible Preferred Shares; and (2) dividends on the Series B Convertible Preferred Shares will continue to accrue on and after the Proposed Redemption Date without interruption. Notwithstanding the foregoing, in the event that a notice of conversion has been delivered in accordance with paragraph (e) of Section 4 below (which notice of conversion then remains unrevoked), the Corporation shall not issue a notice of redemption under paragraph (b) of this Section 3, or revoke a previously issued notice of redemption, within thirty (30 days prior to the Proposed Conversion Date set forth in such notice of conversion. (d) CHANGE OF CONTROL. Notwithstanding anything to the contrary in this Section 3, for a period of ninety (90) days after the occurrence of a Change of Control, any holder of Series B Convertible Preferred Shares shall be entitled, at the option of such holder, to cause all of the Series B Convertible Preferred Shares held by such holder to be redeemed by the Corporation for cash in the amount of the Redemption Price per share as of a Change of Control Redemption Date. To properly effect the redemption of any Series B Convertible Preferred Shares pursuant to this paragraph (d) of Section 3, the holder of Series B Convertible Preferred Shares shall provide notice to the Corporation not less than ten (10) business days prior to the proposed Change of Control Redemption Date. Such notice must be provided by first class, registered mail, postage prepaid, to the Corporation at its principal executive offices, or by facsimile or telecopy, at the address or number set forth in paragraph (a) of Section 9 herein. Each such notice shall state, as appropriate: (1) the proposed Change of Control Redemption Date; and (2) a statement setting forth the facts and circumstances under which the holder believes a Change of Control has occurred. The Corporation shall give notice of the occurrence of a Change of control to all holders of Series B Convertible Preferred Shares promptly upon the occurrence of such Change of Control. (e) CANCELLATION OF SHARES. All Series B Convertible Preferred shares redeemed by the Corporation as provided in this Section 3 (or otherwise acquired by the Corporation) shall be retired and thereupon restored to the status of authorized but unissued but unissued Series B Conertible Preferred Shares. SECTION 4. CONVERSION BY HOLDERS INTO COMMON STOCK. (a) RIGHT OF CONVERSION. At any time, on the terms and subject to the conditions set forth in this Section 4, any holder of Series B Convertible Preferred Shares shall be entitled, at the option of such holder, to cause any or all of such shares to be converted into shares of Common Stock of the Corporation at the conversion rate set forth in paragraph (c) of this Section 4, as of the Proposed Conversion Date specified in such holder's notice to the Corporation delivered pursuant to paragraph (d) of this Section 4. The minimum number of Series B Convertible Preferred Shares for which conversion may be elected by such holder shall be 100,000 or such lesser number which constitutes all of the outstanding Series B Convertible Preferred Shares held by such holder. (b) PRIORITY OF CORPORATION'S RIGHT OF REDEMPTION. Notwithstanding paragraph (a) of this Section 4, no Series B Convertible Preferred Shares shall be converted on or after the close of business on any Redemption Date for which notice has been properly delivered in accordance with Section 3 hereof. The Corporation's right to redeem all shares of Series B Convertible Preferred Stock on or prior to any Proposed Conversion Date shall supersede any holder's right of conversion under this Section 4, whether or not such holder's notice of conversion was properly delivered prior to the Corporation's notice to redeem, so long as the Corporation's notice to redeem was properly delivered in accordance with Section 3 hereof at least forty-five (45) days prior to the Proposed Conversion Date and the Proposed Conversion Date is on or after the Proposed Redemption Date. (c) CONVERSION RATE. For purposes of conversion of Series B Convertible Preferred Shares to shares of Common Stock pursuant to this Section 4, each Series B Convertible Preferred Share shall be converted into the number of Common Stock shares resulting from dividing (i) the Original Value of such Series B Convertible Preferred Share plus Unpaid Dividend Yield to and including the Conversion Date, by (ii) the Conversion Price. The Conversion Price is subject to adjustment from time to time pursuant to paragraph (m) of this Section 4. (d) NOTICE OF CONVERSION. In order to properly effect the conversion of Series B Convertible Preferred Shares, the holder of such shares will provide notice to the Corporation not less than thirty (30) days prior to the Proposed Conversion Date. Such notice must be provided by first class, registered mail, postage prepaid, to the Corporation at its principal executive offices, or by facsimile or telecopy, at the address or number set forth in paragraph (a) of Section 9 herein. Each such notice shall state, as appropriate; (1) the Proposed Conversion Date; (2) the number of Series B Convertible Preferred Shares (which must be a whole number of shares) to be converted; and (3) the name or names in which such holder wishes the certificate or certificates for Common Stock and for any Series B Convertible Preferred Shares not to be so converted to be issued and the address to which such holder wishes delivery to be made of the new certificates to be issued upon conversion. A Notice of Conversion with a Proposed Conversion Date on or after a Proposed Redemption Date or provided less than thirty (30) days prior to the Proposed Conversion Date shall be of no force and effect. (e) REVOCATION OF NOTICE TO CONVERT. The right of any holder of Series B Convertible Preferred Shares electing to convert the Series B Convertible Preferred Shares pursuant to paragraph (a) of this Section 4 shall be fully or partially revocable, and any notice to the Corporation provided in accordance with paragraph (d) of this Section 4 shall be subject to revocation or amendment by the holder of the shares to which such notice relates. In order to properly effect the revocation or amendment of such notice, the holder shall provide notice to the Corporation of its revocation or amendment not less than three (3) business days prior to the Proposed Conversion Date. Such notice shall be provided in the same manner specified as permissible for providing notice of conversion under paragraph (d) of this Section 4, and shall clearly state that the holder of such Series B Convertible Preferred Shares will not convert any of such shares, or if notice of partial revocation, the amended number of Series B Convertible Preferred Shares held by such holder that are to be converted. (f) SURRENDER OF SERIES B CONVERTIBLE PREFERRED SHARES. Any holder of Series B Convertible Preferred Shares desiring to convert any such shares into shares of Common Stock shall surrender the certificate or certificates representing the Series B Convertible Preferred Shares being converted, duly assigned or endorsed for transfer to the Corporation (or accompanied by duly executed stock powers relating thereto), at the principal executive office of the Corporation or the offices of the transfer agent for the Series B Convertible Preferred Shares or such office or offices in the continental United States of an agent for conversion as may from time to time be designated by notice to the holders of the Series B Convertible Preferred Shares by the Corporation or the transfer agent for the Series B Convertible Preferred Shares, accompanied by a copy of the written notice of conversion previously provided to the Corporation in accordance with paragraph (d) of this Section 4. (g) DELIVERY OF COMMON STOCK. Upon the effectiveness of a conversion of Series B Convertible Preferred Shares on the Conversion date for such shares, the Corporation, subject to the provisions of paragraph (i) of this Section 4 regarding fractional shares and paragraph (k) of this Section 4 regarding payment of taxes, shall issue and send by first-class mail, postage prepaid, to the holder thereof, or to such holder's designee, at the address designated by such holder a certificate or certificates for the number of whole shares of Common Stock to which such holder shall be entitled upon conversion. In case there shall have been surrendered a certificate or certificates representing Series B Convertible Preferred Shares only part of which are to be converted, the Corporation, subject to the provisions of paragraph (k) of this Section 4 regarding payment of taxes, shall issue and deliver to such holder or such holder's designee a new certificate or certificates for the number of Series B Convertible Preferred Shares which shall not have been converted. (h) EFFECTIVENESS OF CONVERSION. Any conversion of Series B Convertible Preferred Shares into shares of Common Stock made at the option of the holder thereof shall be effective immediately following the close of business on the Conversion Date. At and after the effective time on the Conversion Date, the person or persons entitled to receive the Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock. (i) FRACTIONAL SHARES. No fractional shares of Common Stock shall be issued upon conversion of any series B Convertible Preferred Shares but, in lieu of any fraction of a share of Common Stock which would otherwise be issuable in respect of the aggregate number of Series B Convertible Preferred Shares surrendered for conversion at one time by the same holder, the Corporation shall pay an amount in cash equal to the same fraction of the Conversion Price (based on the Market Price at Conversion). (j) RESERVATION OF SHARES. The Corporation shall at all times reserve and keep available out of the authorized but unissued shares of Common Stock the maximum number of shares of Common Stock into which all Series B Convertible Preferred Shares from time to time outstanding are convertible, but shares of Common Stock held in the treasury of the Corporation may in its discretion be delivered upon any conversion of Series B Convertible Preferred Shares. (k) TAXES. The Corporation shall pay any and all stock transfer and documentary stamp taxes that may be payable in respect of any issuance or delivery of shares of Common Stock or any other securities issued upon conversion of the Series B Convertible Preferred Shares pursuant hereto. The Corporation shall not, however, be required to pay any additional tax which may be payable in respect of any transfer involved in the issuance and delivery of shares of Common Stock or other securities in a name other than that in which the Series B Convertible Preferred Shares with respect to which such shares are issued were registered, or any payment to any person other than the registered holder thereof, and shall not be required to make any such issuance or delivery unless and until the person otherwise entitled to such issuance or payment has paid to the Corporation the amount of any such additional tax or has established, to the satisfaction of the Corporation, that such additional tax has been paid or is not payable. (l) CANCELLATION OF SHARES. All Series B Convertible Preferred Shares converted into shares of Common Stock, other capital stock or other securities of the Corporation as provided in this Section 4 (or otherwise acquired by the Corporation) shall be retired and thereupon restored to the status of authorized but unissued shares of preferred stock, par value $0.05 per share, undesignated as to series. (m) ADJUSTMENTS TO THE CONVERSION PRICE. The conversion Price shall be adjusted from time to time as follows: (i) In case the Corporation shall (x) subdivide its outstanding Common Stock, (y) combine its outstanding Common Stock into a smaller number of shares or (z) reclassify or reorganize its capital stock, the Conversion Price in effect immediately prior thereto shall be adjusted so that the holder of any Series B Convertible Preferred Shares thereafter surrendered for conversion shall be entitled to receive the number of shares of capital stock of the Corporation which he would have owned or have been entitled to receive after the happening of any of the events described above had such Series B Convertible Preferred Shares been converted immediately prior to the happening of such event. An adjustment made pursuant to this subsection (i) shall become effective immediately after the effective date in the case of subdivision, combination, reclassification or reorganization. (ii) No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least 1% in such price; provided, however, that any adjustment which by reason of this subsection (ii) is not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 4 shall be made to the nearest cent or to the nearest one-thousandth of a share, as the case may be. Anything in this Section 4(m) to the contrary notwithstanding, the Corporation shall be entitled to make (but shall not be required to make) such reductions in the Conversion Price, in addition to those required by this Section 4(m), as it in its discretion shall determine to be advisable in order that any of the actions referred to in subsection (i) above shall not be taxable. Notwithstanding any provision to the contrary in this Section 4(m), in no event shall the Conversion Price be adjusted so that, after giving effect to such adjustment, the Conversion Price would be less than the par value, if any, of the common Stock. (iii) Whenever the Conversion Price is adjusted, the Corporation shall prepare a notice of such adjustment of the Conversion Price setting forth the adjusted Conversion Price and the date on which such adjustment becomes effective and shall mail such notice of such adjustment of the Conversion Price to the holders of Series B Convertible Preferred Shares at their address as appearing in the stock transfer books of the Corporation. (iv) In any case in which this Section 4(m) provides that an adjustment shall become effective immediately after a record date for an event, the Corporation may defer until the occurrence of such event (a) issuing to the holder of any Series B Convertible Preferred Shares converted after such record date and before the occurrence of such event the additional shares of Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above the Common Stock issuable upon such conversion before giving effect to such adjustment and (b) paying to such holder any amount in cash in lieu of any fraction pursuant to Section 4(i). SECTION 5. LIQUIDATION RIGHTS. (a) In the event of any Liquidation, after payment or provision for payment has been made for the debts and other liabilities of the Corporation, the holders of Series B Convertible Preferred Shares shall be entitled to receive, out of the net assets of the Corporation, for each Series B Convertible Preferred Share its Original Value plus an amount equal to the sum of Unpaid Dividend yield (whether or not declared) accrued and unpaid plus accrued interest thereon for all previous periods and the current period, whether or not accumulated, and no more. After such amount is paid in full, no further distributions or payments shall be made in respect of Series B Convertible Preferred Shares, such series B Convertible Preferred Shares shall no longer be deemed to be outstanding or be entitled to any other powers, preferences, rights or privileges, including voting rights, and such Series B Convertible Preferred Shares shall be surrendered for cancellation to the Corporation. (b) The full amount payable to the holders of Series B Convertible Preferred Shares shall be paid before any distribution shall be made to the holders of any class of common stock of the Corporation or any other class of stock or series thereof ranking junior to the series B Convertible Preferred Shares with respect to the distribution of assets upon a Liquidation. No payment on account of any Liquidation shall be made to the holders of any class or series of stock ranking on a parity with the Series B Convertible Preferred Shares in respect of the distribution of assets upon Liquidation unless there shall likewise be paid at the same time to the holders of the Series B Convertible Preferred Shares like proportionate amounts determined ratably in proportion to the full amounts to which the holders of all outstanding Series B Convertible Preferred Shares and the holders of all outstanding shares of such parity stock are respectively entitled with respect to such distribution. (c) If the assets distributed to the holders of Series B Convertible Preferred Shares upon any Liquidation shall be insufficient to permit the payment to such holders of the full amount to which they are entitled in such circumstances, then such assets or the proceeds thereof shall be distributed among such holders ratably in proportion to the sums which would be payable to such holders if all sums were paid in full. (d) Once any payment required upon any Liquidation is made to any holder of Series B Convertible Preferred Shares, there shall not be any conversion rights in respect of such shares pursuant to Section 4 hereof unless the full amount of all such distributions and payments made in respect of such shares being converted is remitted to the Corporation prior to or concurrently with the conversion of such shares. (e) Neither the merger nor consolidation of the Corporation into or with any other corporation, nor the merger or consolidation of any other corporation into or with the Corporation, nor a sale, transfer or lease of all or any part of the assets of the Corporation, shall be deemed to be a Liquidation for purposes of this Section 5. (f) Written notice of any Liquidation, stating the payment date or dates when and the place or places where the amounts distributable in such circumstances shall be payable, shall be given by first class mail, postage prepaid, not less than thirty (30) days prior to any payment date stated therein, to the holders of record of the series B Convertible Preferred Shares at their respective addresses as the same shall appear on the books of the Corporation or any transfer agent for the Series B Convertible Preferred Shares. SECTION 6. VOTING RIGHTS. (a) General. The holders of the Series B Convertible Preferred Shares shall have no voting rights except as described below or as required by law. In exercising any such vote, each outstanding share of Series B Convertible Preferred Shares shall be entitled to one vote. (b) Class Voting Rights. So long as any Series B Convertible Preferred Share is outstanding, the Corporation shall not, without the affirmative vote or consent of the holders of at least 50 percent of all the outstanding Series B Convertible Preferred Shares voting separately as a class, (i) amend, alter or repeal any provision of the Restated Certificate of Incorporation, as amended, or the By-Laws of the Corporation so as adversely to affect the relative rights, preferences, qualifications, limitations or restrictions of the Series B Convertible Preferred Shares, (ii) authorize, issue or increase the authorized amount of any class or series of stock, or any security convertible into stock of such class or series, ranking senior to the Series B Convertible Preferred Shares as to the payment of dividends or the distribution of assets upon liquidation, dissolution or winding up of the Corporation or (iii) effect any reclassification of the Series B Convertible Preferred Shares. SECTION 7. SINKING FUND. No sinking fund or other mechanism for the segregation of funds shall be established for the purpose of redemption or repurchase of the Series B Convertible Preferred Shares or payment of dividends thereon. SECTION 8. CERTAIN DEFINITIONS. For purposes of this Certificate of Designations, the following terms shall have the meanings set forth below. "AVERAGE MARKET PRICE" means, with respect to a share of Common Stock on any date of determination, the average of the daily Closing Prices for the thirty (30) consecutive calendar days ending on the date of determination without considering the Closing Price on non-Trading Days; provided, however, that in averaging the daily Closing Prices, all adjustments shall be made as are necessary to reflect any subdivision, reclassification, recapitalization or combination of, or dividend paid or distribution made on, shares of Common Stock during such period. "CHANGE OF CONTROL" means, with respect to the Corporation, (i) the acquisition of ownership (by any Person or "group" within the meaning of Sections 13(d) and 13(g) of the Securities Exchange Act of 1934, as amended) of greater than 50% of the voting power of the capital stock of the Corporation (whether by sale or other transfer of capital stock, merger, consolidation or other reorganization or means, including a reorganization under bankruptcy or insolvency laws); or (ii) the consummation of a sale, transfer or other disposition of greater than 50% of the assets of the Corporation (determined on a combined and consolidated fair market value basis) in one or a series of related transactions to any Person or "group" that is not an affiliate of the Corporation. "CHANGE OF CONTROL REDEMPTION DATE" shall be the day designated by any holder of Series B Convertible Preferred Shares for redemption by the Corporation of all Series B Convertible Preferred Shares held by such holder, as set forth in the notice of such election, properly delivered in accordance with paragraph (e) of Section 3, following a Change of Control. "CLOSING PRICE" on any day shall mean the closing sales price regular way on such day for one share of Common Stock or, in case no such sale takes place on such day, the average of the reported closing bid and asked prices regular way, in each case on the New York Stock Exchange, as reported in The Wall Street Journal. "COMMON STOCK" means common stock of the Corporation, par value $0.05 per share. "CONVERSION DATE" shall be the same day as the Proposed Conversion Date, provided that (i) the holder of Series B Convertible Preferred Shares requesting such conversion has not delivered a notice of revocation in accordance with paragraph (e) of Section 4; and (ii) the Corporation has not properly delivered a notice of redemption pursuant to paragraph (b) of Section 3 naming any date on or prior to the Proposed Conversion Date as the Proposed Redemption Date and such notice to redeem has not been revoked prior to such date. Notwithstanding the foregoing, in the event that the holders of more than fifty percent (50%) of the outstanding Series B Convertible Preferred Shares hold registration rights with respect to Common Stock into which such Series B Convertible Preferred Shares can be converted, and such holders have delivered to the Corporation, concurrently with any notice of conversion under paragraph (d) of Section 4, a notice requesting registration of such Common Stock upon conversion in an underwritten securities offering, then the Conversion Date shall be delayed so that it occurs (i) on or after the effective date of such registration, and (ii) immediately prior to the purchase of such Common Stock by the underwriter(s) undertaking such offering. "CONVERSION PRICE" means, with respect to any Series B Convertible Preferred Share, the product of (i) 1.2 and (ii) the Average Market Price of the Common Stock at the time of the original purchase of such Series B Convertible Preferred Share. The Conversion Price is subject to adjustment from time to time pursuant to Section 4(m). "DEALER QUOTATION" means a quotation, expressed as an annual percentage rate, by a Reference Dealer as to the annual dividend rate that would be required to be paid on a series of perpetual convertible preferred stock issued for its stated value by the Corporation as of a date of determination. In determining such annual dividend rate, the Reference Dealer shall consider, without limitation, the annual dividend rate that other issuers, with similar credit ratings on outstanding debt to that of the Corporation and its principal subsidiary, would be required to pay on a series of perpetual convertible preferred stock issued for its stated value. "DIVIDEND YIELD" means, with respect to each Series B Convertible Preferred Share for each quarter, or such lesser period as may arise in connection with the issuance, redemption or conversion of such share, or with any Liquidation, the amount accruing on such share during the quarter, or such lesser period, at an annual rate equal to the Preferred Dividend Yield Rate, applied to such share's Original Value. Dividend Yield for any period shorter than a full quarterly dividend period shall be computed on the basis of a 360-day year of twelve 30-day months. Dividend Yield will begin accruing on each Series B Convertible Preferred Share on the Issuance Date of such share and shall accrue to, but not including, the Preferred Dividend Payment Date, the Redemption Date, Change of Control Redemption Date or Conversion Date for such share (or other date on which such Series B Convertible Preferred Share is no longer outstanding). "GAAP" means United States generally accepted accounting principles, consistently applied. "INTEREST RATE" means the prime rate of interest publicly announced from time to time by Citibank, N.A. plus 400 basis points. "ISSUANCE DATE" means, for each Series B Convertible Preferred Share, the date on which such share was originally issued by the Corporation. "LIQUIDATION" means any dissolution, liquidation or winding up of the affairs of the Corporation, whether voluntary or involuntary. "MARKET PRICE AT CONVERSION" means the Average Market Price of one share of Common Stock determined as of the Proposed Conversion Date. "ORIGINAL ISSUANCE DATE" means the date on which a Series B Convertible Preferred Share was originally issued by the Corporation. "ORIGINAL VALUE" of each Series B Convertible Preferred Share shall be equal to $100, as proportionally adjusted for all stock splits, stock dividends, and any other subdivisions, combinations, reclassifications, or recapitalization affecting the Series B Convertible Preferred Shares. "PERSON" means any individual, partnership, joint venture, corporation, limited liability company, association, joint stock company, trust, or unincorporated organization or association, or a government or any department or agency or political subdivision thereof. "PREFERRED DIVIDEND PAYMENT DATE" has the meaning set forth in paragraph (a) of Section 2. "PREFERRED DIVIDEND TAX ADJUSTMENT FACTOR" has the meaning set forth in paragraph (c) of Section 2. "PREFERRED DIVIDEND YIELD RATE" means an annual dividend rate equal to the sum of: (i) the average of the Dealer Quotations obtained by the Corporation from three Reference Dealers, plus (ii) 100 basis points. Such Preferred Dividend Yield Rate will be calculated by the Corporation as of the Original Issuance Date and each anniversary thereof and be provided by the Corporation to holders of Series B Convertible Preferred Shares in a written notice. Commencing on the first day of the thirty-seventh (37th) month after the Original Issuance Date, and on the first day following each twelve-month period thereafter, the Preferred Dividend Yield Rate shall be automatically increased by 50 basic points from that which would otherwise be applicable, provided that under no circumstances hereunder shall the Preferred Dividend Yield Rate be increased by this automatic mechanism by more than 200 basis points cumulatively. "PROPOSED CONVERSION DATE" shall mean the date on which a holder of Series B Convertible Preferred Shares proposes to convert any or all of such holder's Series B Convertible Preferred Shares, as set forth in its notice to the Corporation properly delivered in accordance with paragraph (d) of Section 4. "PROPOSED REDEMPTION DATE" shall mean the date on which the Corporation proposes to redeem all of the Series B Convertible Preferred Shares, as set forth in its notice to holders of Series B Convertible Preferred Shares properly delivered in accordance with paragraph (b) of Section 3. "REDEMPTION DATE" shall be the same day as the Proposed Redemption Date, provided that (i) the Corporation has not withdrawn its intention to redeem the Series B Convertible Preferred Shares pursuant to paragraph (c) of Section 3; and (ii) proper provision for the payment of the Redemption Price to holders of Series B Convertible Preferred Shares being redeemed has been made in accordance with paragraph (b) of Section 3 by the close of business on the Proposed Redemption Date. "REDEMPTION PRICE" for each Series B Convertible Preferred Share shall be equal to the sum of (A) the Original Value, plus (B) Unpaid Dividend Yield plus accrued interest thereon to and including the Redemption Date or Change of Control Redemption Date on such share. "REFERENCE DEALER" means a dealer, selected from Goldman, Sachs & Co., Lehman Brothers, Merrill Lynch & Co. or Morgan Stanley Dean Witter, or any other nationally recognized dealer in convertible preferred stock and other similar securities, as designated by the Corporation. "TAX LAWS" means the Internal Revenue Code of 1986, as amended, or any other revenue statute of the United States or in any United States regulation, ruling, administrative interpretation or judicial or other official interpretation (including a change in the characterization of dividends on the Series B Convertible Preferred Shares) applicable to the Corporation and/or Corporate Holders. For purposes of paragraph (c) of Section 2, "Tax Laws" does not include the tax laws of any state, municipality or foreign jurisdiction, or any tax law relating to the computation of taxes or treatment of income, expenses or deductions, or characterization of the dividends on the Series B Convertible Preferred Shares under the Alternative Minimum Tax rules. "TRADING DAY" shall mean a date on which the New York Stock Exchange (or if the New York Stock Exchange is not the principal stock exchange on which the Common Stock is listed or admitted to trading, the principal national securities exchange on which the Common Stock is listed or admitted to trading) is open for the transaction of business. "UNPAID DIVIDEND YIELD" of any Series B Convertible Preferred Share means, for any particular quarterly period (or lesser period, as may arise in connection with the issuance, redemption or conversion of such shares, or payments on such shares in connection with any Liquidation), an amount equal to the excess, if any, of (A) the aggregate Dividend Yield accrued on such share in such period, over (B) the aggregate amount of cash dividends or distributions paid by the Corporation in satisfaction of Dividend Yield on such share for such period. SECTION 9. MISCELLANEOUS. (a) Any notice or other communication required or permitted hereunder shall be in writing and shall be deemed to have been given on the earlier of (a) the receipt thereof, or (b) five (5) days after mailing if sent by first class, registered mail, postage prepaid, if properly addressed or directed to such party at the appropriate address set forth below, or such address such party may designate by written notice to the other parties: (i) if to the Corporation to: Countrywide Credit Industries, Inc. 4500 Park Granada, MS: CH-11 Calabasas, California 91302-1613 Attn: Managing Director and Chief Financial Officer (818) 225-4028 - Fax with a copy to: Countrywide Credit Industries, Inc. 4500 Park Granada, MS: CH-11 Calabasas, California 91302-1613 Attn: Managing Director and General Counsel (818) 225-4055 - Fax with an additional copy to: LeBoeuf, Lamb, Greene & MacRae, L.L.P. 125 West 55th Street New York, New York 10019 Attn: Stephen Rooney (212) 424-8500 - Fax (ii) if to a holder of the series B Convertible Preferred Shares: to such holder at the address for such holder as listed in the stock record books of the Corporation (which may include the records of any transfer agent for the Series B Convertible Preferred Shares if appropriate). (b) In the event a holder of Series B Convertible Preferred Shares shall not by written notice designate the name to whom payment upon redemption of Series B Convertible Preferred Shares should be made or the address to which the certificate or certificates representing such shares, or such payment, should be sent, the Corporation shall be entitled to register such shares, and make such payment, in the name of the holder of such Series B Convertible Preferred Shares as shown on the records of the Corporation and send the certificate or certificates representing such shares, or such payment, to the address of such holder shown on the records of the Corporation. (c) All payments in the form of dividends and distribution upon any Liquidation or otherwise made upon the Series B Convertible Preferred Shares and any other shares of stock ranking on parity with the Series B Convertible Preferred Shares with respect to such dividend or distribution shall be made pro rata, so that amounts paid per share on the Series B Convertible Preferred Shares and such other shares of stock shall in all cases bear to each other the same ratio that the required dividends, distributions or payments, as the case may be, payable per share on the Series B Convertible Preferred Shares and such other shares of stock bear to each other. (d) The Corporation may appoint, and from time to time discharge and change, a transfer agent for the Series B convertible Preferred Shares. RESOLVED FURTHER, that the proper officers of the Corporation be, and each of them hereby is, authorized to execute a Certificate of Designations with respect to the Series B Convertible Preferred Stock pursuant to Section 151 of the General Corporation Law of the State of Delaware and to take all appropriate action to cause such Certificate to become effective, including, but not limited to, the filing and recording of such Certificate with and/or by the Secretary of the State of Delaware. IN WITNESS WHEREOF, we have executed and subscribed this Certificate and do affirm the foregoing as true under the penalties of perjury this 26th day of January, 2000. /s/Stanford L. Kurland ----------------------------------- Stanford L. Kurland Senior Managing Director and Chief Operating Officer Attest: /s/Sandor E. Samuels - ------------------------------ Sandor E. Samuels Managing Director, Legal, General Counsel and Secretary AMENDED AND RESTATED CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF SERIES A PARTICIPATING PREFERRED STOCK Of COUNRYWIDE CREDIT INDUSTRIES, INC. Pursuant to Section 151 of the General Corporation Law of the State of Delaware We, Sandor E. Samuels, Senior Managing Director, Legal, General Counsel and Secretary, and Susan E. Bow, Assistant Secretary, of Countrywide Credit Industries, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware, in accordance with the provisions of Section 103 thereof, DO HEREBY CERTIFY: That (i) pursuant to the authority conferred upon the Board of Directors by the Certificate of Incorporation of the said Corporation, the said Board of Directors on February 10, 1988, adopted a resolution creating a series of 250,000 shares of Preferred Stock designated as Series A Participating Preferred Stock have been issued. WE DO FURTHER HEREBY CERTIFY: That pursuant to the authority conferred upon by the Board of Directors by the Certificate of Incorporation of the said Corporation and Section 151(g) of the General Corporation Law of the State of Delaware, the said Board of Directors on November 15, 2001 adopted the following resolution amending the voting powers, preferences and relative participating, optional or other special rights of the shares of the Series A Participating Preferred Stock, and the qualification, limitations or restrictions thereof while keeping the designation of such series unchanged: RESOLVED, that pursuant to the authority vested in the Board of Directors of this Corporation in accordance with the provisions of its Restated Certificate of Incorporation, that the series of Preferred Stock of the Corporation previously designated "Series A Participating Preferred Stock" remain so designated and that the terms thereof be amended so that the amount thereof and the voting powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof are as follows: Section 1. Designation and Amount. The shares of such series shall be designated as "Series A Participating Preferred Stock", par value $0.05 per share, and the number of shares constituting such series shall be 250,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series A Participating Preferred Stock to a number less than that of the shares then outstanding plus the number of shares issuable upon exercise of outstanding rights, options or warrants or upon conversion of outstanding securities issued by the Corporation. Section 2. Dividends and Distributions. (A) Subject to the prior and superior rights of the holders of any shares of any series of Preferred Stock ranking prior and superior to the shares of Series A Participating Preferred Stock with respect to dividends, the holders of shares of Series A Participating Preferred Stock, in preference to the holders of shares of Common Stock, par value $0.05 per share (the "Common Stock"), of the Corporation and any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the first day of March, June, September and December in each year (or, in each case, if not a date on which the Corporation is open for business, the next succeeding business day) or such earlier date in any such month on which dividends on the Common Stock are payable (each such date being referred to herein as a "Quarterly Dividend Payment Date") commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Participating Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $20.00 or (b) subject to the provision for adjustment hereinafter set forth, 2,000 times the aggregate per share amount of all cash dividends, and 2,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock, since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Participating Preferred Stock. In the event the Corporation shall at any time after November 15, 2001 (the "Rights Declaration Date") (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount to which holders of shares of Series A Participating Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Corporation shall declare a dividend or distribution on the Series A Participating Preferred Stock as provided in paragraph (A) above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution, shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $20.00 per share on the Series A Participating Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Participating Preferred stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Participating Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Participating Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Participating Preferred Stock in an amount less than the total amounts of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Participating Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 30 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Series A Participating Preferred Stock shall have the following voting rights: (A) Subject to the provision for adjustment hereinafter set forth, each share of Series A Participating Preferred Stock shall entitle the holder thereof to 2,000 votes on all matters submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the number of votes per share to which holders of shares of Series A Participating Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein or by law, the holders of shares of Series A Participating Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (C) (i) If at any time dividends on any Series A Participating Preferred Stock shall be in arrears in an amount equal to six (6) quarterly dividends thereon, the occurrence of such contingency shall mark the beginning of a period (herein called a "default period") which shall extend until such time when all accrued and unpaid dividends for all previous quarterly dividend periods and for the current quarterly dividend period on all shares of Series A Participating Preferred Stock then outstanding shall have been declared and paid or set apart for payment. During each default period, all holders of Preferred Stock (including holders of the Series A Participating Preferred Stock) with dividends in arrears in an amount equal to six (6) quarterly dividends thereon, voting as a class, irrespective of series, shall have the right to elect two (2) Directors. (ii) During any default period, such voting right of the holders of Series A Participating Preferred Stock may be exercised initially at a special meeting called pursuant to subparagraph (iii) of this Section 3(C) or at any annual meeting of stockholders, and thereafter at annual meetings of stockholders, provided that neither such voting right nor the right of the holders of any other series of Preferred Stock, if any, to increase, in certain cases, the authorized number of Directors shall be exercised unless the holders of ten percent (10%) in number of shares of Preferred Stock outstanding shall be present in person or by proxy. The absence of a quorum of the holders of Common Stock shall not affect the exercise by the holders of Preferred Stock of such voting right. At any meeting at which the holders of Preferred Stock shall exercise such voting right initially during an existing default period, they shall have the right, voting as a class, to elect Directors to fill such vacancies, if any, in the Board of Directors as may then exist up to two (2) Directors or, if such right is exercised at an annual meeting, to elect two (2) Directors. If the number which may be so elected at any special meeting does not amount to the required number, the holders of the Preferred Stock shall have the right to make such increase in the number of Directors as shall be necessary to permit the election by them of the required number. After the holders of the Preferred Stock shall have exercised their right to elect Directors in any default period and during the continuance of such period, the number of Directors shall not be increased or decreased except by vote of the holders of Preferred Stock as herein provided or pursuant to the rights of any equity securities ranking senior to or pari passu with the Series A Participating Preferred Stock. (iii) Unless the holders of Preferred Stock shall, during an existing default period, have previously exercised their right to elect Directors, the Board of Directors may order, or any stockholder or stockholders owning in the aggregate not less than ten percent (10) of the total number of shares of Preferred Stock outstanding, irrespective of series, may request, the calling of special meeting of the holders of Preferred Stock, which meeting shall thereupon be called by the President, a Vice-President or the Secretary of the Corporation. Notice of such meeting and of any annual meeting at which holders of Preferred Stock are entitled to vote pursuant to this paragraph (C)(iii) shall be given to each holder of record of Preferred Stock by mailing a copy of such notice to him at his last address as the same appears on the books of the Corporation. Such meeting shall be called for a time not earlier than 20 days and not later than 60 days after such order or request or in default of the calling of such meeting within 60 days after such order or request, such meeting may be called on similar notice by any stockholder or stockholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstanding. Notwithstanding the provisions of this paragraph (C)(iii), no such special meeting shall be called during the period within 60 days immediately preceding the date fixed for the next annual meeting of the stockholders. (iv) In any default period, the holders of Common Stock, and other classes of stock of the Corporation if applicable, shall continue to be entitled to elect the whole number of Directors until the holders of Preferred Stock shall have exercised their right to elect two (2) Directors voting as a class, after the exercise of which right (x) the Directors so elected by the holders of Preferred Stock shall continue in office until their successors shall have been elected by such holders or until the expiration of the default period, and (y) any vacancy in the Board of Directors may (except as provided in paragraph (C)(ii) of this Section 3) be filled by vote of a majority of the remaining Directors theretofore elected by the holders of the class of stock which elected the Director whose office shall have become vacant. References in this paragraph (C) to Directors elected by the holders of a particular class of stock shall include Directors elected by such Directors to fill vacancies as provided in clause (y) of the foregoing sentence. (v) Immediately upon the expiration of a default period, (x) the right of the holders of Preferred Stock as a class to elect Directors shall cease, (y) the term of any Directors elected by the holders of Preferred Stock as a class shall terminate, and (z) the number of Directors elected by the holders of Preferred Stock as a class shall terminate, and (z) the number of Directors shall be such number as may be provided for in the Certificate of Incorporation or By-laws irrespective of any increase made pursuant to the provisions of paragraph (C)(ii) of this Section 3 (such number being subject, however to change thereafter in any manner provided by law or in the Certificate of Incorporation or By-laws). Any vacancies in the Board of Directors effected by the provisions of clauses (y) and (z) in the preceding sentence may be filled by a majority of the remaining Directors. (D) Except as set forth herein, holders of Series A Participating Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. Section 4. Certain Restrictions. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Participating Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distribution, whether or not declared, on shares of Series A Participating Preferred Stock outstanding shall have been paid in full, the Corporation shall not (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Participating Preferred Stock; (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Participating Preferred Stock, except dividends paid ratably on the Series A Participating Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking on parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Participating Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Participating Preferred Stock; (iv) purchase or otherwise acquire for consideration any shares of Series A Participating Preferred Stock, or any shares of stock ranking on a parity with the Series A Participating Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. Reacquired Shares. Any shares of Series A Participating Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein. Section 6. Liquidation, Dissolution or Winding Up. (A) Upon any liquidation (voluntary or otherwise), dissolution or winding up of the Corporation, no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution, or winding up) to the Series A Participating Preferred Stock unless, prior thereto, the holder of shares of Series A Participating Preferred Stock shall have received $70,000 per share, plus an amount equal to accrued and unpaid dividends and distribution thereon, whether or not declared, to the date of such payment (the "Series A Liquidation Preference"). Following the payment of the full amount of the Series A Liquidation Preference, no additional distributions shall be made to the holders of shares of Common Stock shall have received an amount per share (the "Common Adjustment") equal to the quotient obtained by dividing (i) the Series A Liquidation Preference by (ii) 2,000 (as appropriately adjusted as set forth in subparagraph C below to reflect such events as stock splits, stock dividends and recapitalizations with respect to the Common Stock)(such number in clause (ii), the "Adjustment Number"). Following the payment of the full amount of Series A Participating Preferred Stock and Common Stock, respectively, holders of Series A Participating Preferred Stock and holders of shares of Common Stock shall receive their ratable and proportionate share of the remaining assets to be distributed in the ration of the Adjustment Number to 1 with respect to such Preferred Stock and Common Stock, on a per share basis, respectively. (B) In the event there are not sufficient assets available to permit payment in full of the Series A Liquidation Preference and the liquidation preferences of all other series of preferred stock, if any, which rank on a parity with the Series A Participating Preferred Stock, then such remaining assets shall be distributed ratably to the holders of such parity shares in proportion to their respective liquidation preferences. In the event there are not sufficient assets available to permit payment in full of the Common Adjustment, then such remaining assets shall be distributed ratably to the holders of Common Stock. (C) In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 7. Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Series A Participating Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 2,000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Participating Preferred Stock shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that are outstanding immediately prior to such event. Section 8. No Redemption. The shares of Series A Participating Preferred Stock shall not be redeemable. Section 9. Ranking. The Series A Participating Preferred Stock shall rank junior to all other series of the Corporation's Preferred Stock as to the payment of dividends and the distribution of assets, unless the terms of any such series shall provide otherwise. Section 10. Amendment. The Certificate of Incorporation of the Corporation shall not be further amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Participating Preferred Stock so as to affect them adversely without the affirmative vote of the holders of a majority or more of the outstanding shares of Series A Participating Preferred Stock, voting separately as a class. Section 11. Fractional Shares. Series A Participating Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holders fractional shares, to exercise voting rights, receive dividends, participate in distribution and to have the benefit of all other rights of holders of Series A Participating Preferred Stock. IN WITNESS WHEREOF, we have executed and subscribed this Certificate and do affirm the foregoing as true under the penalties of perjury this 5th day of December, 2001. /s/Sandor E. Samuels ----------------------------------- Sandor E. Samuels Senior Managing Director, Legal, General Counsel and Secretary Attest: /s/Susan E. Bow - ------------------------------ Susan E. Bow Assistant Secretary CERTIFICATE OF OWNERSHIP AND MERGER OF CW MERGER CORP. A DELAWARE CORPORATION INTO COUNTRYWIDE CREDIT INDUSTRIES, INC. A DELAWARE CORPORATION (Pursuant to Section 253 of the Delaware General Corporation Law) Countrywide Credit Industries, Inc., a Delaware corporation organized and existing under the laws of the State of Delaware (the "Corporation"), does hereby certify that: FIRST: The Corporation was incorporated on December 2, 1986 pursuant to the General Corporation Law of the State of Delaware. SECOND: The Corporation is the owner of all of the issued and outstanding common shares of CW Merger Corp., a Delaware corporation incorporated on October 16, 2002, pursuant to the General Corporation Law of the State of Delaware. THIRD: The Corporation hereby merges CW Merger Corp. into the Corporation FOURTH: In a Telephonic Meeting of the Board of Directors of the Corporation on October 23, 2002, the Board of Directors adopted the following recitals and resolutions to merge CW Merger Corp. into the Corporation: WHEREAS, this Board of Directors has previously deemed it advisable and in the best interest of the Corporation to change its corporate name; and WHEREAS, it is proposed that CW Merger Corp., a Delaware corporation and wholly owned subsidiary of the Corporation be merged into the Corporation, with the Corporation being the surviving entity for the purpose of effectuating the name change; NOW THEREFORE, BE IT RESOLVED, That CW Merger Corp., a Delaware corporation ("CMC") merge and it hereby does merge into the Corporation pursuant to the provisions of Section 253 of the Delaware General Corporation Law and Sections 332 and 337 of the Internal Revenue Code of 1986, as amended (the "IRC"), with the Corporation being the surviving entity (the "Merger"); RESOLVED FURTHER, That the Merger be and it hereby is, approved and authorized; RESOLVED FURHER, That the Merger shall become effective upon the filing of a Certificate of Ownership and Merger with the Secretary of State of the State of Delaware in accordance with the Delaware General Corporation Law (the "Effective Date"); RESOLVED FURTHER, That upon the Effective Date (i) the separate existence and corporate organization of CMC shall cease and the Corporation shall thereupon become the surviving corporation and shall continue its existence under Delaware Law, (ii) the Corporation shall assume all of the obligations and liabilities of CMC, and (iii) the issued and outstanding shares of stock of CMC shall not be converted in any manner, but each said share of stock which is issued as of the Effective Date shall be surrendered and cancelled; RESOLVED FURTHER, That upon the Effective Date, the name of the Corporation shall be changed to "Countrywide Financial Corporation" and ARTICLE FIRST of the Restated Certificate of Incorporation of the Corporation shall be amended to read as follows: "FIRST': The name of the corporation is Countrywide Financial Corporation". REOLVED FURTHER, That, except for the foregoing amendment to ARTICLE FIRST, the Restated Certificate of Incorporation shall remain unchanged by the Merger and in full force and effect until further amended in accordance with the Delaware General Corporation Law; RESOLVED FURTHER, That the distribution of the assets of CMC pursuant to the Merger shall constitute a plan of complete liquidation of CMC and shall in all particulars conform to the requirements of Sections 332 and 337 of the IRC; RESOLVED FURTHER, That the officers of the Corporation be, and they hereby are, authorized, empowered and directed for and on behalf of the Corporation and in its name (i) to execute and file or cause to be filed with the Delaware Secretary of State a Certificate of Ownership and Merger evidencing the Merger pursuant to which the Corporation will change its name as described above, (ii) to cause to be filed certificates evidencing the Merger and change of name with such other states where the Corporation is qualified to do business as may require a filing evidencing the Merger or change of name, and (iii) to execute and file or cause to be filed any such other documents as may require a filing evidencing the Merger or change of name, RESOLVED FURTHER, That all actions taken and documents executed by the officers or other authorized representative of the Corporation, or any person or persons designated and authorized to act by any of them, prior to the adoption of these resolutions in connection with the transaction described above, are hereby ratified, confirmed, approved and adopted in all respects; and RESOLVED FURTHER, That the officers of the Corporation, and any of them, be, and each of them hereby is, authorized, empowered and directed to do or cause to be done all such acts or things and to sign and deliver, or cause to be signed and delivered all such further agreements, documents, instruments and certificates, required or permitted to be given or made in connection with the Merger and the change of name, in the name and on behalf of the Corporation or otherwise (including without limitation any written consents as the sole stockholder of CMC), as such officer or officers of the Corporation executing the same shall deem necessary, advisable or appropriate to carry out the purposes and intent of the foregoing resolutions with such changes, additions and modifications thereto and any supplements or amendments thereof, as such officers executing and/or delivering the same have approved, such approval to be conclusively evidenced by such officer's execution and delivery thereof and to perform the obligations of the Corporation. IN WITNESS WHEREOF, the Corporation has caused this certificate to be executed by its duly authorized officer this 7th day of November, 2002. COUNTRYWIDE CREDIT INDUSTRIES, INC. a Delaware corporation By: /s/Sandor E. Samuels ------------------------------- Sandor E. Samuels, Senior Managing Director, Legal, General Counsel & Secretary CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF COUNTRYWIDE FINANCIAL CORPORATION COUNTRYWIDE FINANCIAL CORPORATION, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation" or the "Company"), hereby certifies as follows: 1. That at a meeting of the Board of Directors of the Corporation resolutions were duly adopted setting forth a proposed amendment of the Restated Certificate of Incorporation, declaring said amendment to be advisable and calling for the proposal to be presented to the stockholders of the Corporation at a Special meeting of the Stockholders. The resolution setting forth the proposed amendment is as follows: RESOLVED, That the Restated Certificate of Incorporation of the Company be amended to increase the authorized Common Stock and for this purpose Article Third thereof shall be struck out in its entirety and shall be replaced with the following new Article Third: "THIRD: The aggregate number of shares which the Corporation shall have authority to issue is five hundred million (5,000,000) shares of Common Stock, of the par value five cents ($0.05) per share, and one million five hundred thousand (1,500,000) shares of Preferred Stock, of the par value of five cents ($0.05) per share. The Preferred Stock may be issued in one or more series at such time or times and for such consideration or considerations as the Board of Directors may determine. With respect to the Preferred Stock, the Board of Directors of this Corporation is authorized to determine or alter the voting rights, dividend privileges, liquidation preferences, and all other rights, privileges and restrictions, including without limitation, conversion rights into Common Stock granted to or imposed upon any wholly unissued series of Preferred Stock and, within the limitations or restrictions stated in any resolution of the Board of Directors originally fixing the number of shares of Preferred Stock constituting any series, to increase or decrease (but not below the number of shares of such series the outstanding) the number of shares of any such series subsequent to the issue of shares of that series, to determine the designation of any series and to fix the number of shares of any series." 2. That thereafter, a Special Meeting of the Stockholders of the Corporation was duly called and held, upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware of January 9, 2004, at which special meeting the necessary number of shares as required by statute were voted in favor of the amendment of the Restated Certificate of Incorporation herein certified. 3. That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, said Corporation has caused this certificate to be executed by an authorized officer on this 9th day of January, 2004. By: /s/Angelo R. Mozilo ------------------------------- Angelo R. Mozilo Chairman of the Board and CEO CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF COUNTRYWIDE FINANCIAL CORPORATION COUNTRYWIDE FINANCIAL CORPORATION, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation" or the "Company"), hereby certifies as follows: 1. That at a meeting of the Board of Directors of the Corporation resolutions were duly adopted setting forth a proposed amendment of the Restated Certificate of Incorporation of the Corporation, declaring said amendment to be advisable and calling for the proposal to be presented to the stockholders of the Corporation at a Special Meeting of the Stockholders. The resolution setting forth the proposed amendment is as follows: RESOLVED, that the Restated Certificate of Incorporation of the Company be amended to increase the authorized Common Stock and for this purpose Article Third thereof shall be struck out in its entirety and shall be replaced with the following new Article Third: "THIRD: The aggregate number of shares which the Corporation shall have authority to issue is one billion (1,000,000,000) shares of Common Stock, of the par value five cents ($.05) per share, and one million five hundred thousand (1,500,000) shares of Preferred Stock, of the par value of five cents ($.05) per share. The Preferred Stock may be issued in one or more series at such time or times and for such consideration or considerations as the Board of Directors may determine. With respect to the Preferred Stock, the Board of Directors of this Corporation is authorized to determine or alter the voting rights, dividend privileges, liquidation preferences, and all other rights, privileges and restrictions, including without limitation, conversion rights into Common Stock granted to or imposed upon any wholly unissued series of Preferred Stock and, within the limitations or restrictions stated in any resolution of the Board of Directors originally fixing the number of shares of Preferred Stock constituting any series, to increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any such series subsequent to the issue of shares of that series, to determine the designation of any series and to fix the number of shares of any series." 2. That thereafter, a Special Meeting of the Stockholders of the Corporation was duly called and held, upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware on August 17, 2004, at which Special Meeting the necessary number of shares as required by statute were voted in favor of the amendment of the Restated Certificate of Incorporation herein certified. 3. That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, said Corporation has caused this certificate to be executed by an authorized officer on this 17th day of August, 2004. By: /s/ Angelo R. Mozilo ------------------------------- Angelo R. Mozilo Chairman of the Board and CEO EX-4.49 3 v02681exv4w49.txt EXHIBIT 4.49 . . . EXHIBIT 4.49 SUPPLEMENTAL NOTE DEED POLL Details INTERPRETATION - definitions are at the end of the General terms

SUPPLEMENTAL NOTE DEED POLL General terms 1 EFFECTIVE DATE The amendments specified in this agreement become effective on the date ("EFFECTIVE DATE") upon which this agreement is signed by the parties to it. 2 AMENDMENT OF NOTE DEED POLL With effect from and including the Effective Date, the Note Deed Poll is amended as set out below and applies to each of the parties to this deed as though they were original signatories to it: GENERAL (a) All references to "Corporations Law" are deleted and replaced with a reference to "Corporations Act." (b) All references to the number "A$2,000,000,000" are deleted and replaced with the number "A$3,500,000,000." SCHEDULE 1 (a) In the definition of Agency Services Agreement in condition 1.1, delete the words "Agency Services Agreement" and replace with "Agency and Registry Agreement", delete the words "11 October 2001" and replace with the words "22 November 2001" and insert the words "the Guarantor," after the words "the Issuer,". (b) The definition of Corporations Law in condition 1.1 is deleted and replaced with "Corporations Act means the Corporations Act 2001 of Australia." (c) In the definition of Guarantor in condition 1.1, delete the words "Countrywide Credit Industries, Inc." and replace with the words "Countrywide Financial Corporation (formerly known as Countrywide Credit Industries, Inc.)." (d) In the definition of Note Deed Poll in condition 1.1, insert the words "(as amended on or about 23 April 2004)" immediately following the words "11 October 2001." (e) In the definition of Paying Agent in condition 1.1, delete the words "Computershare Investor Services Pty Limited (ABN 48 078 279 277)" and replace with the words " JPMorgan Chase Bank, Sydney Branch (ABN 43 074 112 011)" and insert the words "issuing, certificate collection, bearer note conversion or" immediately following the words "replacement or additional." (f) In the definition of Registrar in condition 1.1, delete the words "Computershare Investor Services Pty Limited (ABN 48 078 279 277)" and replace with the words " JPMorgan Chase Bank, Sydney Branch (ABN 43 074 112 011)." (g) On line 2 of condition 7.1(b), delete the word "on" and replace with the word "or". (h) On line 14 of condition 7.1(c), delete the number "U.S.$10,000,000" and replace with the amount "U.S.$100,000,000". (i) In condition 9.1, delete all text from "(a) any tax or duty which would not have been so imposed but for..." to "beneficiary, settlor, member or beneficial owner been the Noteholder of such Note" and replace with: "(a) any tax, assessment or other governmental charge that is imposed or withheld solely by reason of the holder of a Note or Coupon (a "HOLDER"), or a fiduciary, settler, beneficiary, member or shareholder of such holder being considered as: (i) being or having been present or engaged in a trade or business in the United States or having had a permanent establishment in the United States of America; (ii) having a current or former relationship with the United States of America, including a relationship as a citizen or resident thereof; (iii) being or having been a foreign or domestic personal holding company, a passive foreign investment company or a controlled foreign corporation with respect to the United States of America or a corporation that has accumulated earnings to avoid United States federal income tax; (iv) being or having been a "10-percent shareholder" of all classes of stock of the Issuer or, as the case may be, the Guarantor as defined in section 871(h)(3) of the United States Internal Revenue Code of 1986, as amended (the "Code") or any successor provision; or (v) being a bank receiving payments on an extension of credit made pursuant to a loan agreement entered into the ordinary course of its trade or business; (b) any Holder that is not the sole beneficial owner of a Note or Coupon or that is a fiduciary or partnership, but only to the extent that a beneficiary or settler with respect to the fiduciary, a beneficial owner or a member of the partnership would not have been entitled to the payment of an additional amount had such beneficiary, settler, beneficial owner or member received directly its beneficial or distributive share of the payment; (c) any tax, assessment or other governmental charge that is imposed otherwise or withheld solely by reason of a failure of the Holder or any other person to comply with certification, identification or information reporting requirements concerning the nationality, residence, identity or connection with the United States of America of the Holder or beneficial owner of such Note or Coupon, if compliance is required by statute, by regulation or the United States Treasury Department or by an applicable income tax treaty to which the United States of America is a party as a precondition to exemption from such tax, assessment or other governmental charge; (d) any tax, assessment or other governmental charge that is imposed other than by withholding from a Note or Coupon; (e) any tax, assessment or other governmental charge that would not have been so imposed but for the presentation or surrender by the Holder for payment on a date more than 30 days after the Relevant Date except to the extent that the Holder would have been entitled to an additional amount on presenting the same for payment on such thirtieth day; (f) any estate, inheritance, gift, sales, excise, transfer, wealth or personal property tax or similar tax assessment or other governmental charge; (g) any tax, assessment or other governmental charge required to be withheld by any paying agent from any payment of principal of or interest on any Note or Coupon if such payment can be made without such withholding by any other paying agent; (h) any tax, duty, assessment or other governmental charge required to be made pursuant to any European Union Directive on the taxation of savings implementing the conclusions of the ECOFIN Council meeting of January 21, 2003 or any law implementing or complying with, or introduced in order to conform to, such Directive; or (i) in the case of any combination of items (a), (b), (c), (d), (e), (f), (g) and (h)" (j) In the last paragraph of condition 9.1, insert the word "income" immediately following the word "Federal" on line 2 and line 5. SCHEDULE 3 (FORM OF BEARER NOTE) (a) In the heading of the form of the Bearer Note, delete the words "Countrywide Credit Industries, Inc." and replace with the words "Countrywide Financial Corporation (formerly known as Countrywide Credit Industries, Inc.)." (b) In line 3 of the third paragraph, delete the words "Countrywide Credit Industries, Inc." and replace with the words "Countrywide Financial Corporation (formerly known as Countrywide Credit Industries, Inc.)." (c) In the execution clause, delete "COMPUTERSHARE INVESTOR SERVICES PTY LIMITED" and replace with "JPMORGAN CHASE BANK, SYDNEY BRANCH." (d) On the third page, delete "COMPUTERSHARE INVESTOR SERVICES PTY LIMITED, Level 3, 60 Carrington Street, Sydney NSW 2000, Australia" and replace with "JPMORGAN CHASE BANK, SYDNEY BRANCH, Level 35, AAP Centre, 259 George Street, Sydney NSW 2000." SCHEDULE 4 (FORM OF COUPON) (a) On the second page, delete "COMPUTERSHARE INVESTOR SERVICES PTY LIMITED, Level 3, 60 Carrington Street, Sydney NSW 2000, Australia" and replace with "JPMORGAN CHASE BANK, SYDNEY BRANCH, Level 35, AAP Centre, 259 George Street, Sydney NSW 2000." SCHEDULE 5 (FORM OF TALON) (a) On the second page, delete "COMPUTERSHARE INVESTOR SERVICES PTY LIMITED, Level 3, 60 Carrington Street, Sydney NSW 2000, Australia" and replace with "JPMORGAN CHASE BANK, SYDNEY BRANCH, Level 35, AAP Centre, 259 George Street, Sydney NSW 2000." 3 EXPENSES AND FEES The Issuer is responsible for its respective legal costs and other costs and expenses in connection with the preparation, execution and completion of this deed. 4 INCORPORATION OF OTHER PROVISIONS Clause 1 (Interpretation), clause 3 (Rights and obligations of Noteholders) and clause 4 (Governing law, jurisdiction and service of process) of the Note Deed Poll apply to this deed as if set out in full in this deed. EXECUTED as a deed Signing page EXECUTED AS A DEED by ) COUNTRYWIDE HOME LOANS, ) INC. by ) ) acting under the authority of that ) company in the presence of: ) ) /s/ Derek W. Stark ) - ---------------------------------------) /s/ Jennifer Sandefur Signature of witness ) ------------------------------------- ) By executing this deed the signatory Derek W. Stark ) warrants that the signatory is duly - ---------------------------------------) authorised to execute this deed on Name of witness (block letters) ) behalf of COUNTRYWIDE HOME LOANS, INC. MALLESONS STEPHEN JAQUES Supplemental Note Deed Poll Dated 23 April 2004 Countywide Home Loans, Inc. ("ISSUER") MALLESONS STEPHEN JAQUES Rialto 525 Collins Street Melbourne Vic 3000 T +61 3 9643 4000 F +61 3 9643 5999 Ref: JKA:DCO SUPPLEMENTAL NOTE DEED POLL Contents DETAILS 1 GENERAL TERMS 2 1 EFFECTIVE DATE 2 2 AMENDMENT OF NOTE DEED POLL 2 3 EXPENSES AND FEES 5 4 INCORPORATION OF OTHER PROVISIONS 5 SIGNING PAGE 6

EX-10.105 4 v02681exv10w105.txt EXHIBIT 10.105 EXHIBIT 10.105 COUNTRYWIDE FINANCIAL CORPORATION PERFORMANCE BASED RESTRICTED STOCK AGREEMENT This Restricted Stock Agreement ("Agreement"), made as of [Insert Date] (the "Grant Date"), between COUNTRYWIDE FINANCIAL CORPORATION, a Delaware corporation (the "Company"), and you (the "Award Holder"). In accordance with the Countrywide Financial Corporation 2000 Equity Incentive Plan (the "EIP"), the Company has awarded the Award Holder the number of shares of common stock as described in the Restricted Stock Statement linked electronically hereto (the "Restricted Stock") upon the terms and conditions described in this Agreement and the EIP (the "Award"). Capitalized terms not defined herein shall have the meaning ascribed to them in the EIP. GRANT OF RESTRICTED STOCK. This Agreement evidences the Company's grant to the Award Holder, on the Grant Date, of Restricted Stock, subject to the provisions of this Agreement and the EIP. The number of shares of Restricted Stock shall be subject to adjustment as provided in Section 5 hereof. The Restricted Stock will be maintained on deposit with the Company or its agent. 1. RELEASE OR FORFEITURE OF THE RESTRICTED STOCK. (a) Subject to paragraph (b) below, if (i) the Award Holder remains employed by the Company as of the dates set forth below (the "Release Dates") and (ii) the Earnings Per Share ("EPS") goals of the Company have been attained pursuant to the following schedule, then, as of the close of business on such dates, the Company shall release to the Award Holder the percentage of the Restricted Stock set forth opposite such dates:
RELEASE CUMULATIVE PERCENTAGE OF DATES* RESTRICTED SHARES RELEASED CUMULATIVE EPS GOALS - -------------- ---------------------------- ------------------------------- April 10, 2005 33% $6.00 (EPS for 2004 only) April 10, 2006 66% $13.00 (EPS for 2004 plus 2005) April 10, 2007 100% $20.00 (EPS for 2004, 2005 plus 2006) April 10, 2008 Remaining Shares Not Released $27.00 (EPS for 2004, 2005, 2006 plus 2007)
*provided Cumulative EPS Goals are achieved The Release Date shall be October 10, 2008 whether or not the Cumulative EPS Goals have been achieved. (b) If the Award Holder does not remain employed by the Company, for any reason, through the applicable Release Date, whether or not the Cumulative EPS Goal has been achieved, the Award Holder shall forfeit all right, title and interest in and to that portion of Restricted Stock which have not been released as of the date of termination of employment with the Company. In the event the Award Holder's employment terminates, other than as a result of death or Cause, and the Award Holder returns to employment with the Company within three (3) months after the termination, the termination will have no effect on the Award and the Award Holder shall have the same number of shares and the same Release Dates as set forth in this Agreement; (c) In the event of a Change in Control, the Restricted Stock which have not previously been released to the Award Holder shall be released to the Award Holder, and no longer be subject to forfeiture, as of the date of such event or such termination. 2. NON-TRANSFERABILITY OF RESTRICTED STOCK. Until such time as a share of Restricted Stock is released, as provided in paragraph 2 hereof, the Award Holder shall not sell, assign, transfer, pledge, hypothecate, mortgage, encumber or dispose of any such Restricted Stock except that all or any of the Restricted Stock may be transferred by will or the laws of decent and distribution, by Beneficiary Designation or pursuant to a qualified domestic relations order. 3. SECURITIES LAWS. The Award Holder acknowledges that certain restrictions under state or federal securities laws may apply with respect to the Restricted Stock granted pursuant to this Award, even after they have been released to the Award Holder. Specifically, the Award Holder acknowledges that, to the extent he or she is an "affiliate" of the Company (as that term is defined by the Securities Act of 1933), the Restricted Stock granted pursuant to this Award are subject to certain trading restrictions under applicable securities laws (including particularly the Securities and Exchange Commission's Rule 144). Award Holder hereby agrees to execute such documents and take such actions as the Company may reasonably require with respect to state and federal securities laws and any restrictions on the resale of such shares which may pertain under such laws. 4. LEGEND. Each certificate evidencing any of the shares of Restricted Stock shall bear a legend substantially as follows: "The shares represented by this certificate are subject to restrictions on transfer and may not be sold, exchanged, transferred, pledged, hypothecated or otherwise disposed of except in accordance with and subject to all of the terms and conditions of a certain Restricted Stock Agreement dated as of April 1, 2004, and the Countrywide Financial Corporation 2000 Equity Incentive Plan copies of which the Company will furnish to the holder of this certificate upon request without charge." 5. ADJUSTMENT. In the event of a Change in Capitalization (as hereinafter defined), the number of shares of Restricted Stock granted hereunder shall be appropriately and equitably adjusted. For purposes hereof, "Change in Capitalization" shall mean any increase or reduction in the number of shares of Common Stock outstanding, or any exchange of Common Stock for a different number or kind of shares or other securities of the Company by reason of a reclassification, recapitalization, merger, consolidation, reorganization, stock dividend, stock split or reverse stock split, combination or exchange of shares or similar event. If by reason of a Change in Capitalization, the Award Holder shall be entitled to new, additional or different shares of 2 Common Stock or securities, such new, additional or different shares shall thereupon be subject to all of the conditions which were applicable to the Restricted Shares prior to such Change in Capitalization. 6. DESIGNATION OF BENEFICIARY. The Award Holder may file with the Company a written designation of a beneficiary or beneficiaries under this Agreement and may from time to time revoke or amend any such designation. Any designation of a beneficiary under this Agreement shall be controlling over any other disposition, testamentary or otherwise, provided, however, that if the Company is in doubt as to the entitlement of any such beneficiary to any shares of Restricted Stock, the Company may determine to recognize only the legal representative of the Award Holder in which case the Company shall not be under any further liability to anyone. 7. STOCKHOLDER RIGHTS. During the period that any shares of Restricted Stock remain subject to forfeiture under Section 1 hereof, the Award Holder shall retain all rights of a stockholder of the Company with respect to such shares, including the right to vote such shares and the right to receive dividends paid in respect of such shares. 8. WITHHOLDING. The Company shall have the right to require the Award Holder (or if applicable, permitted assigns, heirs or Beneficiaries) to remit to the Company an amount sufficient to satisfy any tax requirements prior to the delivery of any certificate or certificates for Restricted Shares under this Agreement. All or a portion of the taxes required to be withheld in connection with the lapse of restrictions on an Award may be paid by withholding shares to be delivered to the Award Holder pursuant to an Award. 9. NO RIGHT TO 83(b) ELECTION. The Award Holder shall have no right to file an Internal Revenue Code section 83(b) election in connection with this Award. In the event the Award Holder files such election, this Restricted Stock Agreement shall become null and void and the Award shall be immediately forfeited. 10. NOTICES. Any notice to be given under the terms of this Agreement shall be in writing and addressed to the Company at its principal office in Calabasas, California, and to the Award Holder at the address of the Award Holder on file with the Company, or which the Award Holder may hereafter designate in writing. IN WITNESS WHEREOF, by clicking the Accept Button below, the Award Holder acknowledges acceptance of the terms and conditions of this Agreement. Yes, I do accept (Click here to view grant information. Use your "Time and Attendance" password to log in). No, I do not accept If you do not accept, your grant will be voided. 3 EX-10.106 5 v02681exv10w106.txt EXHIBIT 10.106 EXHIBIT 10.106 COUNTRYWIDE FINANCIAL CORPORATION PERFORMANCE VESTED NON-QUALIFIED STOCK OPTION AGREEMENT This "Agreement" is made as of [insert date] between Countrywide Financial Corporation (the "Company") and you (the "Optionee"). The Option granted pursuant to this Agreement is not intended to be treated as an incentive stock option under section 422 of the Internal Revenue Code (the "Code"). In accordance with the Countrywide Financial Corporation 2000 Equity Incentive Plan (the "Plan"), the Company has granted to the Optionee an Option to purchase all or any part of the number of shares common stock, par value $.05 per share ("Option Shares"), of the Company, as set forth on the Option Statement (the "Statement") linked electronically hereto upon the terms and conditions described in this Agreement, the Statement and the Plan. Capitalized terms not defined herein shall have the meaning ascribed to them in the Plan. 1. (a) GRANT AND VESTING OF OPTION. This Agreement along with the Statement evidences the Company's grant to the Optionee on the date stated above (the "Grant Date"), the right and Option to purchase, on the terms and conditions described in this Agreement and in the Plan, all or any part of the number of Option Shares of common stock, at the price per share described in the Statement (the "Option") subject to the provisions of this Agreement and the Plan. The Option shall become exercisable if, and only if, both (i) the employee is employed by the Company on the vesting date and (ii) the Earnings Per Share ("EPS") goals of the Company have been attained pursuant to the following schedule:
Cumulative Percentage of Shares Exercisable Vesting Date* Cumulative EPS Goals - ------------------------ ------------- ---------------------------------------- 33% April 1, 2005 $6.00 (EPS for 2004 only) 66% April 1, 2006 $13.00 (EPS for 2004 plus 2005) 100% April 1, 2007 $20.00 (EPS for 2004,'05 plus '06) Remaining unvested shares April 1, 2008 $27.00 (EPS for 2004, '05, '06 plus 2007
* provided Cumulative EPS Goals are achieved The Option shall become fully exercisable on October 1, 2008 whether or not the Cumulative EPS Goals have been achieved. The Option shall expire at 5:00 p.m., central time, on the tenth anniversary of the Grant Date (the "Expiration Date"). 2. METHOD OF EXERCISE. The exercise price of an Option shall be paid in the form of one or more of the following, as the Committee may specify, either through the terms of this Agreement or at the time of exercise of an Option: (a) cash or certified or cashiers' check, (b) shares of capital stock of the Company that have been held by the Optionee for at least six (6) months, (c) other property deemed acceptable by the Committee, or (d) any combination of (a) through (c). 3. TERMINATION OF OPTION AND ACCELERATION OF VESTING. (a) EFFECT OF TERMINATION OF EMPLOYMENT OR SERVICE. An Option shall terminate upon or following an Optionee's termination of employment with the Company and its Subsidiaries as follows: (i) In the event an Optionee's employment terminates for any reason other than death, Disability, Cause or Retirement, then the Optionee may at any time within three (3) months after his or her termination of employment and service as Nonemployee Director, exercise an Option to the extent, and only to the extent, the Option or portion thereof was exercisable at the date of such termination. (ii) in the event the Optionee's employment terminates, other than as a result of death or Cause, and the Optionee returns to employment with the Company within three (3) months after the termination, the termination will have no effect on the Option and the Optionee shall have the same number of shares and the same vesting schedule set forth in this Agreement; (iii) In the event the Optionee's employment terminates as a result of Disability, then the Optionee may at any time within one (1) year after such termination exercise such Option to the extent, and only to the extent, the Option or portion thereof was exercisable on the date of termination. (iv) In the event an Optionee's employment terminates for Cause, the Option shall terminate immediately and no rights thereunder may be exercised. (v) In the event an Optionee dies while an employee of the Company or any Subsidiary or within three (3) months after termination as described in clause (i) above or within one (1) year after termination as a result of Disability as described in clause (iii) above or Retirement under clause (vi) below, then the Option may be exercised at any time within one (1) year after the Optionee's death by the person or persons to whom the Optionee's rights pass by transfer or Beneficiary Designation, as the case may be, or, absent such a transfer or Beneficiary Designation, as the case may be, by the person or persons to whom such rights under the Option shall pass by will or the laws of descent and distribution; provided however, that an Option may be exercised to the extent, and only to the extent, that the Option or portion thereof was exercisable on the date of death or earlier termination. (vi) In the event an Optionee's employment terminates as a result of Retirement, the Optionee may at any time within one (1) year after termination of service by reason of 2 Retirement, exercise such Options to the extent, and only to the extent, the Options or portion thereof was exercisable at the date of such termination. (b) EFFECT OF A CORPORATE CHANGE. In the event of a Corporate Change, (1) all Options outstanding on the date of such Corporate Change shall become immediately and fully exercisable and (2) an Optionee shall be permitted to surrender for cancellation within sixty (60) days after such Corporate Change, any Option or portion of an Option to the extent not yet exercised and the Optionee will be entitled to receive a cash payment in an amount equal to the excess, if any, of (x) the greater of (i) the Fair Market Value, on the date preceding the date of surrender of the Option Shares subject to the Option or portion thereof surrendered, or (ii) the Adjusted Fair Market Value of the Option Shares subject to the Option or portion thereof surrendered over (y) the aggregate purchase price for such Option Shares under the Option or portion thereof surrendered; provided however, that in the case of an Option granted within six (6) months prior to the Corporate Change to any Optionee who may be subject to liability under Section 16(b) of the Exchange Act, such Optionee shall be entitled to surrender for cancellation his or her Option during the sixty (60) day period commencing upon the expiration of six (6) months from the date of grant of any such Option. 4. NON-TRANSFERABILITY OF OPTION. The Option or portion thereof may be transferable or assignable to a member or members of the Optionee's "immediate family," as such term is defined in Rule 16a-1(e) under the Exchange Act, or to a trust for the benefit solely of a member or members of the Optionee's immediate family, or to a partnership or other entity whose only owners are members of the Optionee's immediate family (such transferee being a "Participant"), subject to the terms and conditions of the Plan. No Option granted under the Plan, nor any interest in such Option, may be sold, assigned, conveyed, gifted, pledged, hypothecated or otherwise transferred in any manner , other than pursuant to the Beneficiary Designation, by will or the laws of descent and distribution or pursuant to a qualified domestic relations order. 5. RIGHTS OF THE OPTIONEE. No Optionee shall be deemed for any purpose to be the owner of any Option Shares subject to any Option unless and until (a) the Option shall have been exercised pursuant to the terms thereof, (b) the Company shall have issued and delivered the Option Shares to the Optionee and (c) 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 Option Shares 6. ADJUSTMENT. If the outstanding shares of common stock or other securities of the Company, or both, for which an Option is then exercisable or as to which an Option is to be settled shall at any time be changed or exchanged by declaration of a stock dividend, stock split or reverse stock split, combination of shares, recapitalization, or reorganization, the Committee or the Board shall appropriately and equitably adjust the number and kind of shares of common stock or other securities which are subject to the Plan or subject to any Options theretofore granted, and the exercise or settlement prices of such Options, so as to maintain the proportionate number of shares or other securities without changing the aggregate exercise or settlement price; provided, however, that such adjustment shall be made only to the extent that such adjustment will not affect the status of an Option intended to qualify as "performance based compensation" 3 under Code section 162(m). If the Company recapitalizes or otherwise changes its capital structure, or merges, consolidates, sells all of its assets or dissolves (each of the foregoing a "Fundamental Change"), then thereafter upon any exercise of Options theretofore granted, the Optionee or Participant shall be entitled to purchase under such Options, in lieu of the number of shares of common stock as to which such Options shall then be exercisable, the number and class of shares of stock, securities, cash, property or other consideration to which the Optionee or Participant would have been entitled pursuant to the terms of the Fundamental Change if, immediately prior to such Fundamental Change, the Optionee or Participant had been the holder of record of the number of shares of common stock as to which such Option is then exercisable. 7. WITHHOLDING. Subject to limitations set forth in the Plan, 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 my be required by law to be withheld (the "Withholding for Taxes") with respect to any Option. If an Optionee is entitled to receive Option Shares upon exercise of an Option, the Optionee shall pay the Withholding for Taxes to the Company prior to the issuance of such Option Shares. Notwithstanding the preceding sentence, all or any portion of the taxes required to be withheld by the Company or, if permitted by the Committee, desired to be paid by the Optionee, in connection with the exercise of a Nonqualified Option, at the election of the Optionee or Participant, may be paid by the Company by withholding shares of the Company's capital stock otherwise issuable or subject to an Option, or by the Optionee or Participant delivering previously owned shares of the Company's capital stock, in each case having a Fair Market Value equal to the amount required or elected to be withheld or paid. Any such election is subject to such conditions or procedures as may be established by the Committee and may be subject to disapproval by the Committee 8. AMENDMENTS AND TERMINATION. The Board (or a duly authorized committee of the Board) may amend, alter or discontinue the Plan at any time but, except as provided pursuant to the anti-dilution adjustment of the Plan, no such amendment shall, without the approval of the stockholders of the Company: (a) increase the maximum number of shares of common stock for which Options may be granted under the Plan; (b) reduce the price at which Options may be granted below the price provided for in Section 6.2 of the Plan; (c) reduce the exercise price of outstanding Options; (d) extend the term of this Plan; (e) change the class of persons eligible to be Participants; (f) impair the rights of any Optionee without such holder's consent. 9. BENEFICIARY DESIGNATION. The Optionee may file with the Company a written designation of a beneficiary or beneficiaries under the Plan on the form found in the Benefits Bookstore on HR Cafe and may from time to time revoke or amend any such designation. Any designation of beneficiary shall be controlling over any other disposition, testamentary or otherwise. Designating a beneficiary to exercise the Option at death may in some jurisdictions (e.g., California) enable the Optionee to avoid the inclusion of Options in the Optionee's probate estate at death. Such Options will, however, still be included in the Optionee's estate for estate tax purposes. If the Optionee does not make any designation, then the Optionee's Options will pass by will or by applicable laws of descent and distribution. 10. OPTIONEE STATEMENT AND MODIFICATIONS. The Option granted to the Optionee under this Agreement, the Grant Date, and its exercise price and vesting schedule with respect thereto, shall be set forth on the Statement. The Optionee hereby acknowledges and agrees that the Statement 4 may be revised from time to time by the Company to reflect additional grants of Options, exercises of Options and any permitted modifications to the Plan and Options granted thereunder. Unless the Optionee provides written notice to the Company's Stock Option Administrator within thirty (30) days of receipt of the Statement at the principal office of the Company in Calabasas, California, or such other addresses as may be communicated to the Optionee, the Statement (including any revisions incorporated therein) shall be binding on the Optionee, without further notice to or acknowledgment by the Optionee. If no notice is received from the Optionee within the thirty (30) day period, then the Optionee shall be deemed to have acknowledged that the Statement is binding with respect to the information contained therein. IN WITNESS WHEREOF, by clicking the Accept Button below, the Optionee acknowledges acceptance of the terms and conditions of this Agreement. Yes, I do accept (Click here to view grant information. Use your HR Cafe password to log in). No, I do not accept If you do not accept, your grant will be voided. 5 EX-10.107 6 v02681exv10w107.txt EXHIBIT 10.107 EXHIBIT 10.107 COUNTRYWIDE FINANCIAL CORPORATION PERFORMANCE VESTED INCENTIVE STOCK OPTION AGREEMENT This "Agreement" is made as of [insert date] between Countrywide Financial Corporation (the "Company") and you (the "Optionee"). The Option granted pursuant to this Agreement is intended to be treated as an incentive stock option under section 422 of the Internal Revenue Code (the "Code"). In accordance with the Countrywide Financial Corporation 2000 Equity Incentive Plan (the "Plan"), the Company has granted to the Optionee an Option to purchase all or any part of the number of shares common stock, par value $.05 per share ("Option Shares"), of the Company, as set forth on the Option Statement (the "Statement") linked electronically hereto upon the terms and conditions described in this Agreement, the Statement and the Plan. Capitalized terms not defined herein shall have the meaning ascribed to them in the Plan. 1. (a) GRANT AND VESTING OF OPTION. This Agreement along with the Statement evidences the Company's grant to the Optionee on the date stated above (the "Grant Date"), the right and option to purchase, on the terms and conditions described in this Agreement and in the Plan, all or any part of the number of Option Shares of common stock, at the price per share described in the Statement (the "Option") subject to the provisions of this Agreement and the Plan. The Option shall become exercisable if, and only if, both (i) the employee is employed by the Company on the vesting date and (ii) the Earnings Per Share ("EPS") goals of the Company have been attained pursuant to the following schedule:
Cumulative Percentage of Shares Exercisable Vesting Date* Cumulative EPS Goals - ------------------------- ------------- ---------------------------------------- 33% April 1, 2005 $6.00 (EPS for 2004 only) 66% April 1, 2006 $13.00 (EPS for 2004 plus 2005) 100% April 1, 2007 $20.00 (EPS for 2004,'05 plus '06) Remaining unvested shares April 1, 2008 $27.00 (EPS for 2004, '05, '06 plus 2007
* provided Cumulative EPS Goals are achieved The Option shall become fully exercisable on October 1, 2008 whether or not the Cumulative EPS Goals have been achieved. The Option shall expire at 5:00 p.m., central time, on the fifth anniversary of the Grant Date (the "Expiration Date"). 2. METHOD OF EXERCISE. The exercise price of an Option shall be paid in the form of one or more of the following, as the Committee may specify, either through the terms of this Agreement or at the time of exercise of an Option: (a) cash or certified or cashiers' check, (b) shares of capital stock of the Company that have been held by the Optionee for at least six (6) months, (c) other property deemed acceptable by the Committee, or (d) any combination of (a) through (c). 3. TERMINATION OF OPTION AND ACCELERATION OF VESTING. (a) EFFECT OF TERMINATION OF EMPLOYMENT OR SERVICE. An Option shall terminate upon or following an Optionee's termination of employment with the Company and its Subsidiaries as follows: (i) In the event an Optionee's employment terminates for any reason other than death, Disability, Cause or Retirement, then the Optionee may at any time within three (3) months after his or her termination of employment, exercise an Option to the extent, and only to the extent, the Option or portion thereof was exercisable at the date of such termination. (ii) in the event the Optionee's employment terminates, other than as a result of death or Cause, and the Optionee returns to employment with the Company within three (3) months after the termination, the termination will have no effect on the Option and the Optionee shall have the same number of shares, to the extent not exercised, and the same vesting schedule set forth in this Agreement; (iii) In the event the Optionee's employment terminates as a result of Disability, then the Optionee may at any time within one (1) year after such termination exercise such Option to the extent, and only to the extent, the Option or portion thereof was exercisable on the date of termination. (iv) In the event an Optionee's employment terminates for Cause, the Option shall terminate immediately and no rights thereunder may be exercised. (v) In the event an Optionee dies while an employee of the Company or any Subsidiary or within three (3) months after termination as described in clause (i) above or within one (1) year after termination as a result of Disability as described in clause (iii) above or Retirement under clause (vi) below, then the Option may be exercised at any time within one (1) year after the Optionee's death by the person or persons to whom the Optionee's rights pass by transfer or Beneficiary Designation, as the case may be, or, absent such a transfer or Beneficiary Designation, as the case may be, by the person or persons to whom such rights under the Option shall pass by will or the laws of descent and distribution; provided however, that an Option may be exercised to the extent, and only to the extent, that the Option or portion thereof was exercisable on the date of death or earlier termination. 2 (vi) In the event an Optionee's employment terminates as a result of Retirement, the Optionee may at any time within one (1) year after termination of service by reason of Retirement, exercise such Options to the extent, and only to the extent, the Options or portion thereof was exercisable at the date of such termination. (b) EFFECT OF A CORPORATE CHANGE. In the event of a Corporate Change, (1) all Options outstanding on the date of such Corporate Change shall become immediately and fully exercisable and (2) an Optionee shall be permitted to surrender for cancellation within sixty (60) days after such Corporate Change, any Option or portion of an Option to the extent not yet exercised and the Optionee will be entitled to receive a cash payment in an amount equal to the excess, if any of (x) the Fair Market Value, on the date preceding the date of surrender of the Option Shares subject to the Option or portion thereof surrendered, over (y) the aggregate purchase price for such Option Shares under the Option or portion thereof surrendered; provided however, that in the case of an Option granted within six (6) months prior to the Corporate Change to any Optionee who may be subject to liability under Section 16(b) of the Exchange Act, such Optionee shall be entitled to surrender for cancellation his or her Option during the sixty (60) day period commencing upon the expiration of six (6) months from the date of grant of any such Option. 4. NON-TRANSFERABILITY OF OPTION. No Option granted under the Plan, nor any interest in such Option, may be sold, assigned, conveyed, gifted, pledged, hypothecated or otherwise transferred in any manner, other than pursuant to the Beneficiary Designation, by will or the laws of descent and distribution or by a qualified domestic relations order. 5. RIGHTS OF THE OPTIONEE. No Optionee shall be deemed for any purpose to be the owner of any Option Shares subject to any Option unless and until (a) the Option shall have been exercised pursuant to the terms thereof, (b) the Company shall have issued and delivered the Option Shares to the Optionee and (c) 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 Option Shares. 6. ADJUSTMENT. If the outstanding shares of common stock or other securities of the Company, or both, for which an Option is then exercisable or as to which an Option is to be settled shall at any time be changed or exchanged by declaration of a stock dividend, stock split or reverse stock split, combination of shares, recapitalization, or reorganization, the Board of Directors or the Committee shall appropriately and equitably adjust the number and kind of shares of common stock or other securities which are subject to the Plan or subject to any Options theretofore granted, and the exercise or settlement prices of such Options, so as to maintain the proportionate number of shares or other securities without changing the aggregate exercise or settlement price; provided, however, that such adjustment shall be made only to the extent that such adjustment will not affect the status of an Option intended to qualify as an incentive stock option or as "performance based compensation" under Code section 162(m). If the Company recapitalizes or otherwise changes its capital structure, or merges, consolidates, sells all 3 of its assets or dissolves (each of the foregoing a "Fundamental Change"), then thereafter upon any exercise of Options theretofore granted, the Participant shall be entitled to purchase under such Options, in lieu of the number of shares of common stock as to which such Options shall then be exercisable, the number and class of shares of stock, securities, cash, property or other consideration to which the Participant would have been entitled pursuant to the terms of the Fundamental Change if, immediately prior to such Fundamental Change, the Participant had been the holder of record of the number of shares of common stock as to which such Option is then exercisable. 7. WITHHOLDING. Subject to limitations set forth in the Plan, 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 my be required by law to be withheld (the "Withholding for Taxes") with respect to any Option. If an Optionee is entitled to receive Option Shares upon exercise of an Option, the Optionee shall pay the Withholding for Taxes to the Company prior to the issuance of such Option Shares. If an Optionee makes a disposition, within the meaning of Code section 424(c), of any Share or Option Shares issued 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 a one-year period commencing on the day after the date of transfer of such Share or Option 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 for Taxes. 8. AMENDMENTS AND TERMINATION. The Board (or a duly authorized committee of the Board) may amend, alter or discontinue the Plan at any time but, except as provided pursuant to the anti-dilution adjustment of the Plan, no such amendment shall, without the approval of the stockholders of the Company: (a) increase the maximum number of shares of common stock for which Options may be granted under the Plan; (b) reduce the price at which Options may be granted below the price provided for in Section 6.2 of the Plan; (c) reduce the exercise price of outstanding Options; (d) extend the term of this Plan; (e) change the class of persons eligible to be Participants; (f)impair the rights of any Optionee without such holder's consent. 9. BENEFICIARY DESIGNATION. The Optionee may file with the Company a written designation of a beneficiary or beneficiaries under the Plan on the form found in the Benefits Bookstore on HR Cafe and may from time to time revoke or amend any such designation. Any designation of beneficiary shall be controlling over any other disposition, testamentary or otherwise. Designating a beneficiary to exercise the Option at death may in some jurisdictions (e.g., California) enable the Optionee to avoid the inclusion of Options in the Optionee's probate estate at death. Such Options will, however, still be included in the Optionee's estate for estate tax purposes. If the Optionee does not make any designation, then the Optionee's Options will pass by will or by applicable laws of descent and distribution. 10. OPTIONEE STATEMENT AND MODIFICATIONS. The Option granted to the Optionee under this Agreement, the Grant Date, and its exercise price and vesting schedule with 4 respect thereto, shall be set forth on the Statement. The Optionee hereby acknowledges and agrees that the Statement may be revised from time to time by the Company to reflect additional grants of Options, exercises of Options and any permitted modifications to the Plan and Options granted thereunder. Unless the Optionee provides written notice to the Company's Stock Option Administrator within thirty (30) days of receipt of the Statement at the principal office of the Company in Calabasas, California, or such other addresses as may be communicated to the Optionee, the Statement (including any revisions incorporated therein) shall be binding on the Optionee, without further notice to or acknowledgment by the Optionee. If no notice is received from the Optionee within the thirty (30) day period, then the Optionee shall be deemed to have acknowledged that the Statement is binding with respect to the information contained therein. IN WITNESS WHEREOF, by clicking the Accept Button below, the Optionee acknowledges acceptance of the terms and conditions of this Agreement. Yes, I do accept (Click here to view grant information. Use your HR Cafe password to log in). No, I do not accept If you do not accept, your grant will be voided 5 EX-12.1 7 v02681exv12w1.txt EXHIBIT 12.1 COUNTRYWIDE FINANCIAL CORPORATION 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 nine months ended September 30, 2004 and 2003, the year ended December 31, 2003 and 2002, ten-month period ended December 31, 2001, and the previous two fiscal years ended February 28(29) computed by dividing net fixed charges (interest expense on all debt plus the interest element (one-third) of operating leases) into earnings (earnings before income taxes and fixed charges).
NINE MONTHS ENDED YEAR ENDED TEN MONTHS FISCAL YEARS ENDED SEPTEMBER 30, DECEMBER 31, ENDED FEBRUARY 28(29), ------------------------- ------------------------- DECEMBER 31, ------------------------- (Dollars are in 2004 2003 2003 2002 2001 2001 2000 thousands) ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net earnings $1,972,836 $1,809,219 $2,372,950 $ 841,779 $ 486,006 $ 374,153 $ 410,243 Income tax expense 1,217,239 1,110,563 1,472,822 501,244 302,613 211,882 220,955 Interest expense 1,748,140 1,470,492 1,940,207 1,461,066 1,474,719 1,330,724 904,713 Interest portion of rental expense 36,071 26,349 36,565 26,671 16,201 17,745 19,080 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Earnings available to cover fixed charges $4,974,286 $4,416,623 $5,822,544 $2,830,760 $2,279,539 $1,934,504 $1,554,991 ========== ========== ========== ========== ========== ========== ========== Fixed charges Interest expense $1,748,140 $1,470,492 $1,940,207 $1,461,066 $1,474,719 $1,330,724 $ 904,713 Interest portion of rental expense 36,071 26,349 36,565 26,671 16,201 17,745 19,080 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total fixed charges $1,784,211 $1,496,841 $1,976,772 $1,487,737 $1,490,920 $1,348,469 $ 923,793 ========== ========== ========== ========== ========== ========== ========== Ratio of earnings to fixed charges 2.79 2.95 2.95 1.90 1.53 1.43 1.68 ========== ========== ========== ========== ========== ========== ==========
EX-31.1 8 v02681exv31w1.txt EXHIBIT 31.1 EXHIBIT 31.1 CERTIFICATION I, Angelo R. Mozilo, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Countrywide Financial Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 5, 2004 /s/ Angelo R. Mozilo - -------------------- Angelo R. Mozilo Chief Executive Officer EX-31.2 9 v02681exv31w2.txt EXHIBIT 31.2 EXHIBIT 31.2 CERTIFICATION I, Thomas Keith McLaughlin, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Countrywide Financial Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 5, 2004 /s/ Thomas Keith McLaughlin - --------------------------- Thomas Keith McLaughlin Chief Financial Officer EX-32.1 10 v02681exv32w1.txt EXHIBIT 32.1 EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report on Form 10-Q of Countrywide Financial Corporation (the "Company") for the period ended September 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Angelo R. Mozilo, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Angelo R. Mozilo - ----------------------- Angelo R. Mozilo Chief Executive Officer November 5, 2004 A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Countrywide Financial Corporation and will be retained by Countrywide Financial Corporation and furnished to the Securities and Exchange Commission or its staff upon request. EX-32.2 11 v02681exv32w2.txt EXHIBIT 32.2 EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report on Form 10-Q of Countrywide Financial Corporation (the "Company") for the period ended September 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Thomas K. McLaughlin, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Thomas Keith McLaughlin - --------------------------- Thomas Keith McLaughlin Chief Financial Officer November 5, 2004 A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Countrywide Financial Corporation and will be retained by Countrywide Financial Corporation and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----


(Mark One)
þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended September 30, 2004

or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to


Delaware		13-2641992
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

4500 Park Granada, Calabasas, California (Address of principal executive offices)		91302 (Zip Code)


Class		Outstanding at November 2, 2004

Common Stock $.05 par value		580,418,358


		September 30,		December 31,
		2004		2003

		(Unaudited)

		(In thousands, except share data)
ASSETS
Cash		$	595,261	$	633,467
Mortgage loans and mortgage-backed securities held for sale			20,787,735		24,103,625
Trading securities owned, at market value			9,390,977		6,996,699
Trading securities pledged as collateral, at market value			2,828,990		4,118,012
Securities purchased under agreements to resell			11,453,350		10,348,102
Loans held for investment, net			34,928,215		26,368,055
Investments in other financial instruments			8,480,827		12,761,764
Mortgage servicing rights, net			8,153,203		6,863,625
Premises and equipment, net			917,180		755,276
Other assets			6,852,714		5,029,048

	Total assets	$	104,388,452	$	97,977,673


LIABILITIES
Notes payable		$	43,155,390	$	39,948,461
Securities sold under agreements to repurchase			21,124,329		32,013,412
Deposit liabilities			18,732,698		9,327,671
Accounts payable and accrued liabilities			8,476,662		6,248,624
Income taxes payable			2,877,510		2,354,789

	Total liabilities		94,366,589		89,892,957

Commitments and contingencies			—		—
SHAREHOLDERS’ EQUITY
Preferred stock — authorized, 1,500,000 shares of $0.05 par value; none issued and outstanding			—		—
Common stock — authorized, 1,000,000,000 shares of $0.05 par value; issued, 565,269,737 shares and 553,471,780 shares at September 30, 2004 and December 31, 2003, respectively; outstanding, 565,236,558 and 553,449,278 shares at September 30, 2004 and December 31, 2003, respectively			28,263		27,674
Additional paid-in capital			2,495,841		2,289,082
Accumulated other comprehensive income			61,179		164,526
Retained earnings			7,436,580		5,603,434

	Total shareholders’ equity		10,021,863		8,084,716

	Total liabilities and shareholders’ equity	$	104,388,452	$	97,977,673



					Three Months Ended						Nine Months Ended
					September 30,						September 30,

					2004			2003			2004			2003


					(In thousands, except per share data)
Revenues:
	Gain on sale of loans and securities				$	1,188,812		$	1,873,850		$	3,824,810		$	4,937,347
	Interest income					1,173,033			968,065			3,297,109			2,415,354
	Interest expense					(654,807	)		(547,236	)		(1,748,140	)		(1,470,492	)

			Net interest income			518,226			420,829			1,548,969			944,862
	Provision for loan losses					(8,360	)		(11,066	)		(48,888	)		(25,891	)

			Net interest income after provision for loan losses			509,866			409,763			1,500,081			918,971

	Loan servicing fees and other income from retained interests					812,940			764,245			2,372,353			2,060,414
	Amortization of mortgage servicing rights					(394,069	)		(666,384	)		(1,377,728	)		(1,586,158	)
	(Impairment) recovery of retained interests					(795,614	)		345,477			(612,132	)		(1,868,783	)
	Servicing hedge gains (losses)					590,967			(114,854	)		114,312			639,588

			Net loan servicing fees and other income (loss) from retained interests			214,224			328,484			496,805			(754,939	)

	Net insurance premiums earned					194,778			192,135			577,413			531,454
	Commissions and other income					137,927			119,138			386,097			361,873

				Total revenues		2,245,607			2,923,370			6,785,206			5,994,706

Expenses:
	Compensation expenses					850,384			723,130			2,301,138			1,955,759
	Occupancy and other office expenses					175,484			158,404			507,466			428,739
	Insurance claim expenses					106,721			103,165			275,148			277,114
	Other operating expenses					189,737			164,779			511,379			413,312

				Total expenses		1,322,326			1,149,478			3,595,131			3,074,924

	Earnings before income taxes					923,281			1,773,892			3,190,075			2,919,782
	Provision for income taxes					341,040			673,825			1,217,239			1,110,563

				NET EARNINGS	$	582,241		$	1,100,067		$	1,972,836		$	1,809,219

	Earnings per share:
		Basic			$	1.03		$	2.02		$	3.52		$	3.43
		Diluted			$	0.94		$	1.93		$	3.19		$	3.26


	Number of							Accumulated
	Shares of				Additional			Other
	Common		Common		Paid-in			Comprehensive			Retained
	Stock		Stock		Capital			Income			Earnings			Total


	(In thousands, except share data)
Balance at December 31, 2003		184,483,093	$	9,225	$	2,307,531		$	164,526		$	5,603,434		$	8,084,716
Net earnings for the period		—		—		—			—			1,972,836			1,972,836
Other comprehensive loss, net of tax		—		—		—			(103,347	)		—			(103,347	)
3-for-2 stock split, effected April 12, 2004		92,915,124		4,646		(4,646	)		—			—			—
2-for-1 stock split, effected August 30, 2004		282,010,434		14,101		(14,101	)		—			—			—
Stock options exercised		4,813,877		239		90,062			—			—			90,301
Tax benefit of stock options exercised		—		—		76,248			—			—			76,248
Issuance of common stock, net of treasury stock		374,450		20		13,417			—			—			13,437
Issuance of common stock for conversion of LYONs convertible debentures		334,626		17		6,410			—			—			6,427
Contribution of common stock to 401(k) Plan		304,954		15		20,920			—			—			20,935
Cash dividends paid — $0.25 per common share		—		—		—			—			(139,690	)		(139,690	)

Balance at September 30, 2004		565,236,558	$	28,263	$	2,495,841		$	61,179		$	7,436,580		$	10,021,863



		Three Months Ended September 30,


		2004						2003

		Net				Per-Share		Net				Per-Share
		Earnings		Shares		Amount		Earnings		Shares		Amount


		(In thousands, except per share data)
Net earnings and basic earnings per share		$	582,241		563,460	$	1.03	$	1,100,067		543,972	$	2.02
Effect of dilutive securities:
	Effect of convertible debentures		796		28,900				—		—
	Effect of dilutive stock options		—		28,484				—		27,180

Diluted earnings and earnings per share		$	583,037		620,844	$	0.94	$	1,100,067		571,152	$	1.93



		Nine Months Ended September 30,


		2004						2003

		Net				Per-Share		Net				Per-Share
		Earnings		Shares		Amount		Earnings		Shares		Amount


				(In thousands, except per share data)
Net earnings and basic earnings per share		$	1,972,836		559,749	$	3.52	$	1,809,219		527,908	$	3.43
Effect of dilutive securities:
	Effect of convertible debentures		2,387		30,386				—		—
	Effect of dilutive stock options		—		28,384				—		26,456

Diluted earnings and earnings per share		$	1,975,223		618,519	$	3.19	$	1,809,219		554,364	$	3.26


	Estimated MSR
Year Ended September 30,	Amortization

	(In thousands)
2005	$	2,029,723
2006		1,536,569
2007		1,159,490
2008		895,547
2009		699,730

Five-year total	$	6,321,059


Note 6 —	Securities Purchased Under Agreements to Resell


Note 7 —	Loans Held for Investment and Allowance for Loan Losses


Note 8 —	Investments in Other Financial Instruments



	September 30, 2004

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value


	(In thousands)
Mortgage-backed securities	$	3,283,743	$	13,879	$	(20,334	)	$	3,277,288
U.S. Treasury securities and obligations of U.S. Government-sponsored enterprises		225,538		3,370		(146	)		228,762
Municipal bonds		164,984		2,739		(75	)		167,648
Other interests retained in securitization		1,159,679		79,042		(35,201	)		1,203,520
Other		4,083		97		—			4,180

	$	4,838,027	$	99,127	$	(55,756	)	$	4,881,398



	December 31, 2003

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value


	(In thousands)
Mortgage-backed securities	$	4,476,600	$	38,869	$	(74,793	)	$	4,440,676
U.S. Treasury securities and obligations of U.S. Government-sponsored enterprises		1,433,436		41,542		(42,603	)		1,432,375
Other interests retained in securitization		1,356,420		102,798		(1,313	)		1,457,905
Home equity AAA asset-backed senior securities		4,445,574		177,236		—			4,622,810
Other		86		2		—			88

	$	11,712,116	$	360,447	$	(118,709	)	$	11,953,854



	September 30, 2004


	Less Than 12 Months					12 Months or More					Total

			Unrealized					Unrealized					Unrealized
	Fair Value		Loss			Fair Value		Loss			Fair Value		Loss


	(In thousands)
Mortgage-backed securities	$	935,495	$	(9,141	)	$	672,834	$	(11,193	)	$	1,608,329	$	(20,334	)
U.S. Treasury securities and obligations of U.S. Government-sponsored enterprises		70,746		(146	)		—		—			70,746		(146	)
Municipal bonds		32,247		(75	)		—		—			32,247		(75	)
Other interests retained in securitization		146,679		(35,201	)		—		—			146,679		(35,201	)

Total temporarily impaired securities	$	1,185,167	$	(44,563	)	$	672,834	$	(11,193	)	$	1,858,001	$	(55,756	)


Item 1.	*Financial Statements*


Note 1 —	Basis of Presentation


	*Stock-Based Compensation*



		Three Months Ended						Nine Months Ended
		September 30,						September 30,

		2004			2003			2004			2003

Weighted Average Assumptions:
	Dividend yield		0.75	%		0.81	%		0.85	%		0.80	%
	Expected volatility		35.43	%		33.00	%		36.02	%		33.00	%
	Risk-free interest rate		3.55	%		2.47	%		2.90	%		2.28	%
	Expected life (in years)		5.00			4.47			5.00			4.35
Weighted Average Exercise Price		$	34.94		$	18.46		$	31.85		$	15.67
Per-share Fair Value of Options		$	12.03		$	4.77		$	10.66		$	4.45


Note 10 —	Securities Sold Under Agreements to Repurchase



	Outstanding Balance
							Interest Rate						Maturity Date
	Floating
	Rate		Fixed Rate		Total		From			To			From		To


	(Dollar amounts in thousands)
Series L	$	4,066,000	$	1,850,000	$	5,916,000		1.2	%		4.0	%		Jan 18, 2005		Mar 22, 2011
Series M		2,593,000		1,300,500		3,893,500		1.3	%		6.2	%		May 20, 2005		Jul 23, 2029
Euro Notes		2,110,167		—		2,110,167		1.2	%		2.0	%		Mar 1, 2005		Dec 15, 2008
Aus Notes		105,975		—		105,975		2.2	%		2.2	%		Sep 7, 2007		Sep 7, 2007

	$	8,875,142	$	3,150,500	$	12,025,642



			September 30, 2004

			Countrywide		Countrywide
			Capital I		Capital III


			(In thousands)
Balance Sheet:
	Junior subordinated debentures receivable		$	307,301	$	205,215
	Other assets			7,216		4,841

		Total assets	$	314,517	$	210,056

	Notes payable		$	9,220	$	6,170
	Other liabilities			7,216		4,841
	Company-obligated mandatorily redeemable capital trust pass-through securities			298,081		199,045
	Shareholder’s equity			—		—

		Total liabilities and equity	$	314,517	$	210,056



			Nine Months Ended
			September 30, 2003

			Countrywide			Countrywide
			Capital I			Capital III


			(In thousands)
Statement of Earnings:
	Revenues		$	18,624		$	12,482
	Expenses			(18,624	)		(12,482	)
	Provision for income taxes			—			—

		Net earnings	$	—		$	—


	*LYONs Convertible Debentures and Convertible Securities*


Note 13 —	Derivative Instruments and Risk Management Activities


	*Risk Management Activities Related to Mortgage Loan Inventory and Interest Rate Lock Commitments*


	Balance,							Balance,
	December 31,				Dispositions/			September 30,
	2003		Additions		Expirations			2004


	(In millions)
Long Call Options on Interest Rate Futures	$	70,750	$	92,450	$	(137,475	)	$	25,725
Long Put Options on Interest Rate Futures	$	92,675	$	12,000	$	(104,675	)	$	—
Interest Rate Swaps	$	10,600	$	1,500	$	(12,100	)	$	—
Interest Rate Caps	$	800	$	10,284	$	(9,099	)	$	1,985
Interest Rate Swaptions	$	23,000	$	47,000	$	(37,000	)	$	33,000
Interest Rate Futures	$	2,200	$	11,950	$	(11,700	)	$	2,450



		Three Months Ended September 30, 2004


		Mortgage Banking											Diversified Businesses

		Loan			Loan			Closing					Capital							Global							Grand
		Production			Servicing			Services		Total			Markets		Banking			Insurance		Operations		Other			Total		Total


		(In thousands)
Revenues External		$	1,501,616		$	98,191		$	58,347	$	1,658,154		$	104,089	$	233,746		$	220,882	$	57,038	$	(28,302	)	$	587,453	$	2,245,607
Intersegment			(52,882	)		37,037			—		(15,845	)		62,770		(15,675	)		—		—		(31,250	)		15,845		—

	Total Revenues	$	1,448,734		$	135,228		$	58,347	$	1,642,309		$	166,859	$	218,071		$	220,882	$	57,038	$	(59,552	)	$	603,298	$	2,245,607

Segment Earnings (pre-tax)		$	632,655		$	(22,667	)	$	22,545	$	632,533		$	90,135	$	163,171		$	29,620	$	9,811	$	(1,989	)	$	290,748	$	923,281

Segment Assets		$	16,538,050		$	14,794,758		$	72,646	$	31,405,454		$	33,789,608	$	37,007,119		$	1,652,628	$	246,133	$	287,510		$	72,982,998	$	104,388,452



		Three Months Ended September 30, 2003


		Mortgage Banking										Diversified Businesses

		Loan			Loan		Closing					Capital						Global							Grand
		Production			Servicing		Services		Total			Markets		Banking		Insurance		Operations		Other			Total		Total


		(In thousands)
Revenues External		$	2,137,403		$	196,291	$	57,562	$	2,391,256		$	172,697	$	115,734	$	216,304	$	47,806	$	(20,427	)	$	532,114	$	2,923,370
Intersegment			(36,088	)		20,320		—		(15,768	)		24,509		531		—		—		(9,272	)		15,768		—

	Total Revenues	$	2,101,315		$	216,611	$	57,562	$	2,375,488		$	197,206	$	116,265	$	216,304	$	47,806	$	(29,699	)	$	547,882	$	2,923,370

Segment Earnings (pre-tax)		$	1,414,850		$	73,650	$	27,017	$	1,515,517		$	135,064	$	84,516	$	30,600	$	8,123	$	72		$	258,375	$	1,773,892

Segment Assets		$	37,890,970		$	11,426,475	$	76,527	$	49,393,972		$	22,340,878	$	18,898,718	$	1,499,954	$	168,444	$	153,021		$	43,061,015	$	92,454,987



		Nine Months Ended September 30, 2004


		Mortgage Banking											Diversified Businesses

		Loan			Loan			Closing					Capital							Global							Grand
		Production			Servicing			Services		Total			Markets		Banking			Insurance		Operations		Other			Total		Total


		(In thousands)
Revenues External		$	4,698,547		$	199,460		$	162,813	$	5,060,820		$	404,356	$	552,695		$	656,922	$	168,453	$	(58,040	)	$	1,724,386	$	6,785,206
Intersegment			(135,352	)		87,826			—		(47,526	)		147,584		(25,003	)		—		—		(75,055	)		47,526		—

	Total Revenues	$	4,563,195		$	287,286		$	162,813	$	5,013,294		$	551,940	$	527,692		$	656,922	$	168,453	$	(133,095	)	$	1,771,912	$	6,785,206

Segment Earnings (pre-tax)		$	2,402,725		$	(155,693	)	$	64,146	$	2,311,178		$	332,917	$	387,862		$	130,152	$	31,225	$	(3,259	)	$	878,897	$	3,190,075

Segment Assets		$	16,538,050		$	14,794,758		$	72,646	$	31,405,454		$	33,789,608	$	37,007,119		$	1,652,628	$	246,133	$	287,510		$	72,982,998	$	104,388,452



		Nine Months Ended September 30, 2003


		Mortgage Banking											Diversified Businesses

		Loan			Loan			Closing					Capital						Global							Grand
		Production			Servicing			Services		Total			Markets		Banking		Insurance		Operations		Other			Total		Total


		(In thousands)
Revenues External		$	5,410,695		$	(984,807	)	$	171,588	$	4,597,476		$	438,643	$	270,428	$	604,933	$	141,879	$	(58,653	)	$	1,397,230	$	5,994,706
Intersegment			(116,698	)		48,745			—		(67,953	)		89,763		6,796		—		—		(28,606	)		67,953		—

	Total Revenues	$	5,293,997		$	(936,062	)	$	171,588	$	4,529,523		$	528,406	$	277,224	$	604,933	$	141,879	$	(87,259	)	$	1,465,183	$	5,994,706

Segment Earnings (pre-tax)		$	3,506,943		$	(1,316,629	)	$	81,872	$	2,272,186		$	346,227	$	195,127	$	92,373	$	13,694	$	175		$	647,596	$	2,919,782

Segment Assets		$	37,890,970		$	11,426,475		$	76,527	$	49,393,972		$	22,340,878	$	18,898,718	$	1,499,954	$	168,444	$	153,021		$	43,061,015	$	92,454,987


Note 15 —	Regulatory and Agency Capital Requirements



					September 30, 2004					December 31, 2003
		Minimum
		Required(1)			Ratio			Amount		Ratio			Amount


		(Dollar amounts in thousands)
Tier 1 Leverage Capital			5.0	%		8.1	%	$	10,041,971		8.3	%	$	8,082,963
Risk-Based Capital
	Tier 1		6.0	%		13.5	%	$	10,041,971		12.8	%	$	8,082,963
	Total		10.0	%		14.3	%	$	10,632,104		13.7	%	$	8,609,996


Item 2.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations*


	*Results of Operations Comparison — Quarters Ended September 30, 2004 and 2003*



			Quarter Ended
			September 30,

			2004			2003


			(In thousands)
Mortgage Banking:
	Loan Production		$	632,655		$	1,414,850
	Loan Servicing			(22,667	)		73,650
	Loan Closing Services			22,545			27,017

		Total Mortgage Banking		632,533			1,515,517

Diversified Businesses:
	Banking			163,171			84,516
	Capital Markets			90,135			135,064
	Insurance			29,620			30,600
	Global Operations			9,811			8,123
	Other			(1,989	)		72

		Total Diversified Businesses		290,748			258,375

Pre-tax earnings			$	923,281		$	1,773,892



			Quarter Ended September 30,


			2004					2003

					Percentage of Loan					Percentage of Loan
			Amount		Production Volume			Amount		Production Volume


					(Dollar amounts in thousands)
Revenues:
	Prime Mortgage		$	717,591				$	1,965,746
	Prime Home Equity			404,530					57,524
	Subprime Mortgage			326,613					78,045

		Total revenues		1,448,734		1.88	%		2,101,315		1.85	%

Expenses:
	Compensation expenses			531,667		0.69	%		443,633		0.39	%
	Other operating expenses			185,169		0.24	%		131,225		0.11	%
	Allocated corporate expenses			99,243		0.13	%		111,607		0.10	%

		Total expenses		816,079		1.06	%		686,465		0.60	%

Pre-tax earnings			$	632,655		0.82	%	$	1,414,850		1.25	%



			Workforce at
			September 30,

			2004		2003

Sales				12,316		8,316
Operations:
	Regular employees			7,813		7,379
	Temporary staff			953		981

				8,766		8,360
Production technology				1,022		941
Administration and support				2,230		1,760

		Total workforce		24,334		19,377



			September 30, 2004						December 31, 2003

						Yield/						Yield/
			Dollar			Cost			Dollar			Cost


			(Dollar amounts in millions)
Assets
	Cash		$	93			1.50	%	$	143			0.97	%
	Short-term investments			390			1.59	%		350			1.00	%
	Mortgage loans held for investment, net			30,065			4.91	%		14,686			4.72	%
	Available-for-sale securities			2,393			4.06	%		3,564			4.30	%
	FHLB & FRB stock			651			3.71	%		394			4.87	%
	Other assets			267			—			239			—

			$	33,859			4.79	%	$	19,376			4.57	%


Liabilities
	Deposits:
		Company-controlled escrow deposit accounts	$	9,069			1.48	%	$	5,901			0.94	%
		Customer		9,664			2.95	%		3,435			3.18	%
	FHLB advances			11,950			2.73	%		6,875			3.18	%
	Other borrowings			400			1.60	%		1,508			1.11	%
	Other liabilities			299			—			162			—

				31,382			2.42	%		17,881			2.28	%
	Shareholder’s equity			2,477						1,495

			$	33,859					$	19,376

Non-accrual loans			$	16.1					$	3.7
Capital ratios:
	Tier 1 Leverage			8.3	%					8.6	%
	Tier 1 Risk-based capital			11.4	%					12.8	%
	Total Risk-based capital			11.6	%					13.0	%