-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, bPNhCiqqvA0HbCuCdUFBaJMMcm8jeBj3lQHxs1YYkpgLisb/kW2SWkZEVPUxPwM0 dnMhCzGbgXlBozyxtxjROg== 0000950130-95-001133.txt : 19950619 0000950130-95-001133.hdr.sgml : 19950619 ACCESSION NUMBER: 0000950130-95-001133 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 19950616 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COUNTRYWIDE CREDIT INDUSTRIES INC CENTRAL INDEX KEY: 0000025191 STANDARD INDUSTRIAL CLASSIFICATION: MORTGAGE BANKERS & LOAN CORRESPONDENTS [6162] IRS NUMBER: 954083087 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 033-59559 FILM NUMBER: 95547479 BUSINESS ADDRESS: STREET 1: 155 NORTH LAKE AVE CITY: PASADENA STATE: CA ZIP: 91101-1857 BUSINESS PHONE: 8183048400 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COUNTRYWIDE FUNDING CORP CENTRAL INDEX KEY: 0000814509 STANDARD INDUSTRIAL CLASSIFICATION: ASSET-BACKED SECURITIES [6189] IRS NUMBER: 954083087 STATE OF INCORPORATION: NY FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 033-59559-01 FILM NUMBER: 95547480 BUSINESS ADDRESS: STREET 1: 155 N LAKE AVE CITY: PASADENA STATE: CA ZIP: 91109-7137 BUSINESS PHONE: 8183048400 S-3/A 1 AMENDMENT NO. 2 TO FORM S-3 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 16, 1995 REGISTRATION NO. 33-59559 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- AMENDMENT NO. 2 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------- COUNTRYWIDE CREDIT INDUSTRIES, INC. COUNTRYWIDE FUNDING CORPORATION (EXACT NAMES OF REGISTRANTS AS SPECIFIED IN THEIR CHARTERS) --------------- DELAWARE NEW YORK (STATE OR OTHER JURISDICTION OF (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) INCORPORATION OR ORGANIZATION) 13-2641992 13-2631719 (I.R.S. EMPLOYER IDENTIFICATION NO.) (I.R.S. EMPLOYER IDENTIFICATION NO.) 155 NORTH LAKE AVENUE PASADENA, CA 91101 (818) 304-8400 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES) DAVID S. LOEB PRESIDENT AND CHAIRMAN OF THE BOARD COUNTRYWIDE CREDIT INDUSTRIES, INC. AND DIRECTOR COUNTRYWIDE FUNDING CORPORATION 155 NORTH LAKE AVENUE PASADENA, CA 91101 (818) 304-8400 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) --------------- COPIES TO: KENNETH R. BLACKMAN EDWARD J. FINE FRIED, FRANK, HARRIS, SHRIVER & BROWN & WOOD JACOBSON ONE WORLD TRADE CENTER ONE NEW YORK PLAZA NEW YORK, NEW YORK 10048 NEW YORK, NEW YORK 10004 (212) 839-5300 (212) 859-8000 --------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to time after the effective date of this Registration Statement, as determined by market conditions. --------------- If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [_] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [X] --------------- THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- EXPLANATORY NOTE This Amendment No. 2 to Registration Statement No. 33-59559 contains (1) a preliminary prospectus supplement relating to shares of Common Stock of Countrywide Credit Industries, Inc., (2) a preliminary prospectus supplement relating to Medium-Term Notes, Series D of Countrywide Funding Corporation (the "Medium-Term Notes"), (3) a preliminary base prospectus relating to the securities registered, (4) a form of pricing supplement relating to Medium-Term Notes that are Fixed Rate Notes, and (5) a form of pricing supplement relating to Medium-Term Notes that are Floating Rate Notes. ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS + +SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY + +NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH + +OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR + +QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED JUNE 16, 1995 PROSPECTUS SUPPLEMENT - --------------------- (TO PROSPECTUS DATED , 1995) 10,000,000 SHARES LOGO COUNTRYWIDE (SM) ----------------------- CREDIT INDUSTRIES, INC. COMMON STOCK ----------- The Company's Common Stock (the "Common Stock") is listed on the New York Stock Exchange and the Pacific Stock Exchange under the trading symbol "CCR." On June 15, 1995, the last reported sale price of the Common Stock on the New York Stock Exchange was $21 per share. ----------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ----------- THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO PUBLIC DISCOUNT(1) COMPANY(2) - ------------------------------------------------------------------------------- Per Share............................... $ $ $ - ------------------------------------------------------------------------------- Total(3)................................ $ $ $
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (1) The Company has agreed to indemnify the several Underwriters against certain liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses payable by the Company estimated at $425,000. (3) The Company has granted the several Underwriters an option to purchase up to an additional 1,500,000 shares of Common Stock to cover over-allotments. If all of such shares are purchased, the total Price to Public, Underwriting Discount and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." ----------- The shares of Common Stock are offered by the several Underwriters, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of certain legal matters by counsel for the Underwriters. The Underwriters reserve the right to withdraw, cancel or modify such offer and to reject orders in whole or in part. It is expected that delivery of the shares will be made in New York, New York on or about , 1995. ----------- MERRILL LYNCH & CO. GOLDMAN, SACHS & CO. LEHMAN BROTHERS SALOMON BROTHERS INC ALEX. BROWN & SONS INCORPORATED DEAN WITTER REYNOLDS INC. ----------- The date of this Prospectus Supplement is , 1995. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, THE PACIFIC STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE COMMISSIONER OF INSURANCE FOR THE STATE OF NORTH CAROLINA, NOR HAS THE COMMISSIONER OF INSURANCE RULED UPON THE ACCURACY OR ADEQUACY OF THIS DOCUMENT. ---------------- S-2 SUMMARY INFORMATION The following material, which is presented herein solely to furnish limited introductory information regarding the Company, has been selected from or is based upon the detailed information appearing elsewhere or incorporated by reference in this Prospectus Supplement and the accompanying Prospectus, and is qualified in its entirety by reference thereto, and, therefore, should be read together therewith. THE COMPANY Countrywide Credit Industries, Inc. (the "Company" or "CCI") is a holding company which through its principal subsidiary, Countrywide Funding Corporation ("CFC"), is engaged primarily in the mortgage banking business, and as such originates, purchases, sells and services mortgage loans. The Company's mortgage loans are principally first-lien mortgage loans secured by single-(one to four) family residences. The Company also offers home equity loans both in conjunction with newly produced first-lien mortgages and as a separate product. During the years ended February 28, 1995 and 1994, the Company produced $27.9 billion and $52.5 billion of mortgage loans, respectively. The Company's mortgage loan production during the months of March 1995 and April 1995 was $2.1 billion and $2.1 billion, respectively, compared to $4.0 billion and $3.0 billion, respectively, during the months of March 1994 and April 1994. This decrease in mortgage loan production was attributable principally to a higher mortgage interest rate environment, resulting in a decrease of mortgage loan activity. The Company services substantially all of the mortgage loans that it originates or purchases. In addition, the Company purchases bulk servicing contracts to service certain residential mortgage loans originated by other lenders. The Company receives fee income for servicing mortgage loans. Servicing mortgage loans includes collecting and remitting loan payments, making advances when required, accounting for principal and interest, holding custodial (impound) funds for payment of property taxes and hazard insurance, making any physical inspections of the property, contacting delinquent mortgagors, supervising foreclosures and property dispositions in the event of unremedied defaults and generally administering the loans. At February 28, 1995 and 1994, the Company's servicing portfolio of mortgage loans aggregated approximately $113.1 billion and $84.7 billion, respectively. THE OFFERING Unless otherwise indicated, the information in this Prospectus Supplement assumes that the over-allotment option described in "Underwriting" is not exercised. Shares Offered...................... 10,000,000 shares of Common Stock. Shares to be Outstanding After the Offering (1)(2).................... 101,574,247 shares of Common Stock. Use of Proceeds..................... The net proceeds from the sale of the shares of Common Stock offered hereby will be used for general corporate purposes, which may include retirement of indebtedness of the Company or CFC and investment in servicing rights through the current production of loans and the bulk acquisition of contracts to service loans. See "Use of Proceeds" herein. New York Stock Exchange and Pacific Stock Exchange Symbol.............. CCR - -------- (1)Based on 91,574,247 shares outstanding as of June 14, 1995. (2) Does not include 7,459,321 shares reserved for issuance upon exercise of stock options of which options for 2,972,935 shares were exercisable as of June 1, 1995. S-3 RECENT DEVELOPMENTS UNAUDITED FIRST QUARTER EARNINGS The Company's unaudited net earnings for the quarter ended May 31, 1995 were $36.2 million, or $0.39 per fully diluted share. Net earnings for the quarter ended May 31, 1994 were $33.7 million, or $0.37 per fully diluted share, while net earnings for the quarter ended February 28, 1995 were $19.4 million, or $0.21 per fully diluted share. As noted below, effective with the quarter ended May 31, 1995 the Company has adopted Statement of Financial Accounting Standards ("SFAS") No. 122, Accounting for Mortgage Servicing Rights. Since SFAS No. 122 prohibits retroactive application, historical accounting results have not been restated and, accordingly, the accounting results for the quarter ended May 31, 1995 are not directly comparable to prior periods. Pre-tax earnings from the Company's loan servicing activities amounted to $60.0 million and $32.0 million for the quarters ended May 31, 1995 and 1994, respectively. The increase of $28.0 million was principally due to an increase in the size of the servicing portfolio, but was offset, in part, by a change of $10.0 million in the Company's internal method of allocating overhead between its servicing and production activities. For the quarter ended May 31, 1995, the pre-tax loss from the Company's loan production activities was $1.5 million versus a pre-tax profit of $20.9 million for the quarter ended May 31, 1994. The decrease of $22.4 million was primarily attributed to lower loan production and increased price competition caused by lower demand for mortgage loans, but was offset, in part, by the effect of the adoption of SFAS No. 122 as discussed below and the change in the Company's internal overhead allocation method discussed above. IMPLEMENTATION OF NEW ACCOUNTING STANDARD In May 1995, the Financial Accounting Standards Board issued SFAS No. 122, which the Company adopted in the quarter ended May 31, 1995. SFAS No. 122 amended SFAS No. 65, Accounting for Certain Mortgage Banking Activities. The overall impact on the Company's financial statements of adopting SFAS No. 122 was an increase in net earnings for the quarter ended May 31, 1995 of $8.9 million, or $0.10 per fully diluted share. SFAS No. 122 requires the recognition of originated mortgage servicing rights ("OMSRs"), as well as purchased mortgage servicing rights ("PMSRs"), as assets by allocating total costs incurred between the loan and the servicing rights based on their relative fair values. Under SFAS No. 65, the cost of OMSRs was not recognized as an asset and was charged to earnings when the related loan was sold. The separate impact of recognizing OMSRs as assets in the Company's financial statements in accordance with SFAS No. 122 for the quarter ended May 31, 1995 was an increase in net earnings of $18.6 million, or $0.20 per fully diluted share. With respect to PMSRs, SFAS No. 122 has a different cost allocation methodology than SFAS No. 65. In contrast to a cost allocation based on relative market value as set forth in SFAS No. 122, the prior requirement was to allocate the costs incurred in excess of the market value of the loans without the servicing rights to PMSRs. During the quarter ended May 31, 1995, the separate impact of the application of SFAS No. 122 cost allocation method, along with the effect of changes in market conditions, was to reduce PMSR capitalization by $9.7 million, or $0.10 per fully diluted share. SFAS No. 122 also requires that all capitalized mortgage servicing rights be evaluated for impairment based on the excess of the carrying amount of the mortgage servicing rights over their value. In addition to normal amortization of the servicing assets amounting to $29.1 million, the Company reduced the servicing assets by an additional $116.7 million of impairment during the quarter ended May 31, 1995. The entire amount of such impairment was offset by a net gain of $117.0 million in the Company's servicing hedge which is designed to protect its servicing investment. The net gain includes unrealized gains of $106.9 million and realized gains of $10.1 million from the sale of various financial instruments that comprise the hedge. As a part of the adoption of SFAS No. 122, the Company has revised its servicing hedge accounting policy, effective with the quarter ended May 31, 1995, to adjust the basis of the servicing assets for unrealized gains or losses in the derivative financial instruments comprising the servicing hedge. S-4 OPERATING HIGHLIGHTS The Company's loan servicing portfolio totaled $120.9 billion and $93.6 billion at May 31, 1995 and 1994, respectively. The Company's loan production for the quarter ended May 31, 1995 was $6.8 billion compared to $9.4 billion for the quarter ended May 31, 1994. The pipeline of loan applications in process amounted to $4.3 billion at May 31, 1995 versus $4.4 billion at May 31, 1994. RECENT INTEREST RATE DECLINES Interest rates declined substantially during the month of May 1995. Average daily applications increased 12% in May over the prior month to $172 million. The pipeline of applications in process increased $226 million during the month to $4.3 billion. However, lower interest rates may also contribute to increased future prepayment activity in the Company's servicing portfolio. The decline in interest rates also resulted in servicing hedge gains and higher future prepayment estimates which contributed to the servicing asset impairment charge described above. AMENDMENT OF REVOLVING CREDIT FACILITY In June 1995, the Company's mortgage banking subsidiary entered into an amendment to its revolving credit facility. The borrowing limit under such revolving credit facility was increased by $500 million to $3 billion and the expiration date was extended from September 1997 to May 1998. In addition, under the amendment, the aggregate amount of indebtedness that the subsidiary is permitted to incur was increased from $3 billion to $4 billion. USE OF PROCEEDS The net proceeds to be received from the sale of shares of Common Stock offered hereby are estimated to be approximately $ . The Company intends to use such net proceeds for general corporate purposes, which may include retirement of indebtedness of the Company or CFC and investment in servicing rights through the current production of loans and the bulk acquisition of contracts to service loans. DIVIDENDS AND PRICE RANGE OF COMMON STOCK The Common Stock is listed on the New York Stock Exchange (the "NYSE") and the Pacific Stock Exchange (Symbol: CCR). The following table sets forth on a per share basis the high and low sales prices (as reported by the NYSE) for the Common Stock, as adjusted to reflect stock dividends and stock splits:
COMMON STOCK ------------- HIGH LOW ------ ------ Year Ended February 28, 1994 First Quarter............................................. $23.25 $16.92 Second Quarter............................................ 22.17 17.25 Third Quarter............................................. 23.33 16.25 Fourth Quarter............................................ 19.08 15.25 Year Ended February 28, 1995 First Quarter............................................. $17.50 $13.33 Second Quarter............................................ 18.75 12.88 Third Quarter............................................. 15.38 13.63 Fourth Quarter............................................ 16.25 12.38 Current Fiscal Year Ending February 29, 1996 First Quarter............................................. $20.50 $15.50 Period June 1, 1995 through June 15, 1995................. 21.13 18.38
On June 15, 1995, the last reported sale price of the Common Stock on the NYSE was $21 per share. The Company has declared and paid cash dividends on its Common Stock quarterly since 1979, except that no cash dividend was declared in the fiscal quarter ended February 28, 1982. For the fiscal years ended February 28, 1995 and 1994, the Company declared quarterly cash dividends, as adjusted for stock dividends and stock splits, aggregating $0.32 per share and $0.29 per share, respectively. On March 20, 1995, the Company declared a quarterly cash dividend of $0.08 per share, paid April 17, 1995. On June 9, 1995, the Company declared a quarterly cash dividend of $0.08 per share, payable July 17, 1995 to shareholders of record on June 26, 1995. S-5 The ability of the Company to pay dividends in the future is limited by various restrictive covenants in the debt agreements of the Company, the earnings, cash position and capital needs of the Company, general business conditions and other factors deemed relevant by the Company's Board of Directors. The Company is prohibited under certain of its debt agreements, including its guaranties of CFC's revolving credit facility, from paying dividends on any capital stock (other than dividends payable in capital stock or in stock rights), except that, so long as no event of default under such agreements exists at the time, the Company may pay dividends in an aggregate amount not to exceed the greater of: (i) the after-tax net income of the Company, determined in accordance with generally accepted accounting principles, for the fiscal year to the end of the quarter to which the dividends relate and (ii) the aggregate amount of dividends paid on the Common Stock during the immediately preceding year. The primary source of funds for payments to stockholders by the Company is dividends received from its subsidiaries. Accordingly, such payments by the Company in the future also depend on various restrictive covenants in the debt obligations of its subsidiaries, the earnings, cash position and capital needs of its subsidiaries, as well as laws and regulations applicable to its subsidiaries. Unless the Company and CFC each maintain specified minimum levels of net worth and certain other financial ratios, dividends cannot be paid by the Company and CFC, in compliance with certain of CFC's debt obligations (including CFC's existing revolving credit facility). See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" in the accompanying Prospectus. The Company has paid stock dividends and declared stock splits since 1978 as follows: 50% in October 1978; 50% in July 1979; 15% in November 1979; 15% in May 1980; 30% in November 1980; 30% in May 1981; 3% in February 1982; 2% in May 1982; 0.66% in April 1983; 1% in July 1983; 2% in April 1984; 2% in November 1984; 2% in June 1985; 2% in October 1985; 2% in March 1986; 3-for-2 split in September 1986; 2% in April 1987; 2% in April 1988; 2% in October 1988; 2% in November 1989; 3-for-2 split in July 1992; 5% in April 1993; and 3-for-2 split in May 1994. As of June 14, 1995, there were 2,572 shareholders of record of the Common Stock. CAPITALIZATION The following table sets forth the capitalization of the Company as of May 31, 1995 on an actual basis and as adjusted to give effect to the issuance of the shares of Common Stock offered hereby:
ACTUAL AS ADJUSTED -------------- ----------------- (DOLLAR AMOUNTS IN THOUSANDS) Long-term debt................................ $ 1,450,780 $ 1,450,780 ============== ============== Preferred Stock--authorized, 1,500,000 shares of $.05 par value; issued and outstanding, none......................................... $ -- $ -- Common stockholders' equity Common Stock--authorized, 240,000,000 shares of $.05 par value; issued and outstanding, 91,561,027 and 103,061,027 shares (assuming exercise of the Underwriters' over-allotment option), as adjusted(1)..................... 4,578 5,153 Additional paid-in capital................... 609,971 Retained earnings............................ 358,562 358,562 -------------- -------------- Total common stockholders' equity.......... 973,111 -------------- -------------- Total Preferred Stock and common stockholders' equity....................................... $ 973,111 $ ============== ==============
- -------- (1) Does not include 6,470,129 shares reserved for issuance upon exercise of stock options of which options for 2,934,647 shares were exercisable as of May 31, 1995. S-6 THE COMPANY GENERAL Countrywide Credit Industries, Inc. (the "Company" or "CCI") is a holding company which through its principal subsidiary, Countrywide Funding Corporation ("CFC"), is engaged primarily in the mortgage banking business, and as such originates, purchases, sells and services mortgage loans. The Company's mortgage loans are principally first-lien mortgage loans secured by single-(one to four) family residences. The Company also offers home equity loans both in conjunction with newly produced first-lien mortgages and as a separate product. The Company, through its other wholly owned subsidiaries, offers products and services complementary to its mortgage banking business. A subsidiary of the Company sells mortgage-backed securities, primarily on an odd-lot basis (i.e., in denominations between $25,000 and $1,000,000), to broker-dealers and also sells subordinate interests in mortgage-backed securities evidencing interests in whole mortgage loans to institutional investors. In addition, a subsidiary of the Company receives fee income for managing the operations of CWM Mortgage Holdings, Inc. ("CWM"), a real estate investment trust whose shares are traded on the NYSE. CWM conducts real estate lending activities and has an affiliate engaged in the operation of a jumbo and non-conforming mortgage loan conduit. The Company also has a subsidiary which acts as an agent in the sale of homeowners, fire, flood, earthquake, mortgage life and disability insurance to CFC's mortgagors in connection with CFC's mortgage banking operations. Another subsidiary of the Company earns fee income by brokering servicing contracts owned by other mortgage lenders and loan servicers. The Company has recently begun operating a title agent business through newly formed subsidiaries. Unless the context otherwise requires, references to the "Company" herein shall be deemed to refer to the Company and its consolidated subsidiaries. MORTGAGE BANKING OPERATIONS General The principal sources of revenue from the Company's mortgage banking business are (i) loan origination fees; (ii) gains from the sale of loans, if any; (iii) interest earned on mortgage loans during the period that they are held by the Company pending sale, net of interest paid on funds borrowed to finance such mortgage loans; (iv) loan servicing fees; and (v) interest benefit derived from the custodial balances associated with the Company's servicing portfolio. Loan Production The Company produces mortgage loans through three separate divisions. The Company maintains a staff of central office quality control personnel that performs audits of the loan production of the three divisions on a regular basis. In addition, each division has implemented various procedures to control the quality of loans produced, as described below. The Company believes that its use of technology, benefits derived from economies of scale and a noncommissioned sales force allow it to produce loans at a low cost relative to its competition. The Company's Consumer Markets Division (the "Consumer Markets Division") originates loans through a nationwide network of retail branch offices and direct contact with consumers. As of April 30, 1995, the Company had 196 Consumer Markets Division branch offices, 47 "lite" offices and three processing support centers located in 41 states. The Company's branch offices are each typically staffed by two to four employees and connected to the Company's central office by a computer network. The Company's "lite" offices, which are characterized by low operating costs, are each typically staffed by two employees. Business is also solicited through telemarketing, advertising in various forms of mass media, participation of branch S-7 management in local real estate-related business functions and extensive use of direct mailings to real estate brokers and builders. Consumer Markets Division personnel are not paid a commission on sales; however, they are paid a bonus based on various factors, including branch profitability. The Company believes that this approach allows it to originate loans at a comparatively low cost. The Consumer Markets Division uses continuous quality control audits of loans originated within each branch by branch management and quality control personnel to monitor compliance with the Company's underwriting criteria. During the year ended February 28, 1995, the Consumer Markets Division produced an aggregate of $7.1 billion of mortgage loans. Through its Wholesale Division (the "Wholesale Division"), the Company originates loans through and purchases loans from mortgage loan brokers. As of April 30, 1995, the Wholesale Division operated 56 branch offices and six regional support centers in various parts of the country. Loans produced by the Wholesale Division comply with the Company's general underwriting criteria for loans originated through the Consumer Markets Division, and each such loan is approved by one of the Company's loan underwriters. In addition, quality control personnel review loans for compliance with the Company's underwriting criteria. Approximately 8,700 mortgage brokers qualify to participate in this program. Mortgage loan brokers qualify to participate in the Wholesale Division's program only after a review by the Company's management of their reputation and mortgage lending expertise, including a review of their references and financial statements. During the year ended February 28, 1995, the Wholesale Division produced an aggregate of $8.5 billion of mortgage loans. Through its network of correspondent offices (the "Correspondent Division"), the Company purchases loans primarily from other mortgage bankers, commercial banks, savings and loan associations, credit unions and other financial intermediaries. The Company's correspondent offices are located in Pasadena, California, Plano, Texas and Pittsburgh, Pennsylvania. Over 1,500 financial intermediaries serving all 50 states are eligible to participate in this program. Loans purchased by the Company through the Correspondent Division comply with the Company's general underwriting criteria for loans that it originates through the Consumer Markets Division, and, except as described in the next sentence, each loan is accepted only after review either by one of the Company's loan underwriters or, in the case of Federal Housing Administration ("FHA") or Veterans Administration ("VA") loans, by a government-approved underwriter. The Company accepts loans without such review from an institution that has met the Company's standards for the granting of delegated underwriting authority following a review by the Company of the institution's financial strength, underwriting and quality control procedures, references and prior experience with the Company. In addition, quality control personnel review loans purchased from correspondents for compliance with the Company's underwriting criteria. The purchase agreement used by the Correspondent Division provides the Company with recourse to the seller in the event of such occurrences as fraud or misrepresentation in the origination process or a request by the investor who purchased an underlying mortgage loan that the Company repurchase the loan due to the loan's failure to meet eligibility requirements at the time the Company originally purchased the loan. Financial intermediaries qualify to participate in the Correspondent Division's program after a review by the Company's management of the reputation and mortgage lending expertise of such institutions, including a review of their references and financial statements. During the year ended February 28, 1995, the Correspondent Division purchased an aggregate of $12.3 billion of mortgage loans. The Company originates and purchases conventional mortgage loans, mortgage loans insured by the FHA, mortgage loans partially guaranteed by the VA and, beginning in 1994, home equity loans. A majority of the conventional loans are conforming loans which qualify for inclusion in guarantee programs sponsored by the Federal National Mortgage Association ("Fannie Mae") or the Federal Home Loan Mortgage Corporation ("Freddie Mac"). The remainder of the conventional loans are non-conforming loans (i.e., jumbo loans with an original balance in excess of $203,150 or other loans that do not meet Fannie Mae or Freddie Mac guidelines). As part of its mortgage banking activities, the Company makes conventional loans generally with original balances of up to $1 million. S-8 The following table sets forth the number and dollar amount of the Company's mortgage and home equity loan production for the periods indicated:
YEAR ENDED FEBRUARY 28(29), --------------------------------------------------------------- 1995 1994 1993 1992 1991 ----------- ----------- ----------- ----------- ----------- (DOLLAR AMOUNTS IN MILLIONS, EXCEPT AVERAGE LOAN AMOUNT) Conventional Loans Number of Loans........ 175,823 315,699 192,385 63,919 23,130 Volume of Loans........ $ 20,959 $ 46,473 $ 28,670 $ 9,987 $ 3,141 Percent of Total Vol- ume................... 75.2% 88.6% 88.5% 82.2% 68.6% FHA/VA Loans Number of Loans........ 72,365 67,154 42,022 24,329 17,328 Volume of Loans........ $ 6,808 $ 5,986 $ 3,718 $ 2,170 $ 1,436 Percent of Total Vol- ume................... 24.4% 11.4% 11.5% 17.8% 31.4% Home Equity Loans Number of Loans........ 2,147 -- -- -- -- Volume of Loans........ $ 99.2 -- -- -- -- Percent of Total Vol- ume................... 0.4% -- -- -- -- Total Loans Number of Loans........ 250,335 382,853 234,407 88,248 40,458 Volume of Loans........ $ 27,866 $ 52,459 $ 32,388 $ 12,156 $ 4,577 Average Loan Amount.... $ 111,000 $ 137,000 $ 138,000 $ 138,000 $ 113,000
The decrease in the number and dollar amount of conventional loans in the year ended February 28, 1995 as compared to the year ended February 28, 1994 was attributable principally to the increasing mortgage interest rate environment, resulting in a decrease in mortgage loan activity, particularly refinancings. The increase in the number and dollar amount of FHA and VA loans produced in the year ended February 28, 1995 from that produced in the years ended February 28, 1994 and February 28, 1993 was attributable to the Company's effort to expand its share of that market. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Operations--Fiscal 1995 Compared with Fiscal 1994" in the accompanying Prospectus. For the years ended February 28, 1995, 1994 and 1993, jumbo loans represented 17%, 30% and 27%, respectively, of the Company's total volume of mortgage loans produced. The decrease in the percentage of jumbo loans was primarily the result of diversification of the Company's loan production out of states with relatively higher housing costs (particularly California) and into states with relatively lower housing costs. For the years ended February 28, 1995, 1994 and 1993, adjustable-rate mortgage loans ("ARMs") comprised approximately 34%, 19% and 28%, respectively, of the Company's total volume of mortgage loans produced. The increase in the Company's percentage of ARM production from 1994 to 1995 was primarily caused by consumer preference for adjustable-rate mortgages due to the increasing mortgage interest rate environment that prevailed through most of the year ended February 28, 1995. For the years ended February 28, 1995, 1994 and 1993, refinancing activity represented 30%, 75% and 73%, respectively, of the Company's total volume of mortgage loans produced. The decrease in the percentage of refinance loans was principally due to the general increase in average mortgage interest rates which caused a decline in the demand for refinance loans. California mortgage loan production as a percentage of total mortgage loan production (measured by principal balance) for the fiscal years ended February 28, 1995, 1994 and 1993 was 31%, 46% and 58%, respectively. Loan production within California is geographically dispersed, which minimizes dependence on any individual local economy. The continued decline in the percentage of the Company's mortgage loan production in California is the result of implementing the Company's strategy to expand production capacity and market share outside of California and increased price competition in the California mortgage loan market, particularly with respect to adjustable-rate mortgage products which, as described above, are generally S-9 preferred by consumers in an increasing interest rate environment. In California, the Company competes with savings and loans and other portfolio lenders which offer aggressively-priced ARM products. At February 28, 1995 and 1994, 79% and 77%, respectively, of the Consumer Markets Division branch offices and the Wholesale Division loan centers were located outside of California. Sale of Loans As a mortgage banker, the Company customarily sells all loans that it originates or purchases. The Company packages substantially all of its FHA- insured and VA-guaranteed mortgage loans into pools of loans. It sells these pools in the form of modified pass-through mortgage-backed securities ("MBS") guaranteed by the Government National Mortgage Association ("GNMA") to national or regional broker-dealers. With respect to loans securitized through GNMA programs, the Company is insured against foreclosure loss by the FHA or partially guaranteed against foreclosure loss by the VA (at present, generally 25% to 50% of the loan, up to a maximum amount ranging from $22,500 to $46,000, depending upon the amount of the loan). Conforming conventional loans may be pooled by the Company and exchanged for securities guaranteed by Fannie Mae or Freddie Mac, which securities are then sold to national or regional broker- dealers. Loans securitized through Fannie Mae or Freddie Mac are sold on a non- recourse basis whereby foreclosure losses are generally the responsibility of Fannie Mae and Freddie Mac, and not the Company. Alternatively, the Company may sell FHA-insured and VA-guaranteed mortgage loans and conforming conventional loans, and consistently sells its jumbo loan production, to large buyers in the secondary market (which can include national or regional broker-dealers) on a non-recourse basis. These loans can be sold either on a whole-loan basis or in the form of pools backing securities which are not guaranteed by any governmental instrumentality but which may have the benefit of some form of external credit enhancement, such as insurance, letters of credit, payment guarantees or senior/subordinated structures. Substantially all loans sold by the Company are sold without recourse, subject, in the case of VA loans to the limits of the VA guaranty described above. For the fiscal years ended February 28, 1995, 1994 and 1993, the aggregate loss experience of the Company on VA loans in excess of the VA guaranty was approximately $2.6 million, $2.1 million and $1.0 million, respectively. In the opinion of management, the losses increased from the year ended February 28, 1994 to the year ended February 28, 1995 due to an increase in the size of the VA loan servicing portfolio. CWM, a real estate investment trust managed by a subsidiary of the Company, may purchase at market prices both conforming and non-conforming conventional loans from the Company. During the years ended February 28, 1995, 1994 and 1993, CWM purchased $80.4 million, $300.5 million and $130.3 million, respectively, of conventional non-conforming mortgage loans from the Company. In order to offset the risk that a change in interest rates will result in a decrease in the value of the Company's current mortgage loan inventory or its commitments to purchase or originate mortgage loans ("Committed Pipeline"), the Company enters into hedging transactions. The Company's hedging policies generally require that substantially all of the Company's inventory of conforming and government loans and the maximum portion of its Committed Pipeline that the Company believes may close be hedged with forward contracts for the delivery of MBS or options on MBS. The inventory is then used to form the MBS that will fill the forward delivery contracts and options. The Company hedges its inventory and Committed Pipeline of jumbo mortgage loans by using whole-loan sale commitments to ultimate buyers or by using temporary "cross hedges" with sales of MBS since such loans are ultimately sold based on a market spread to MBS. As such, the Company is not exposed to significant risk nor will it derive any significant benefit from changes in interest rates on the price of the inventory net of gains or losses of associated hedge positions. The correlation between the price performance of the hedge instruments and the inventory being hedged is very high due to the similarity of the asset and the related hedge instrument. The Company is exposed to interest-rate risk to the extent that the portion of loans from the Committed Pipeline that actually closes at the committed price is less than the portion expected to close in the event of a decline in rates and such decline in closings is not covered by forward contracts and options to purchase MBS needed to replace the loans in process that do S-10 not close at their committed price. The Company determines the portion of its Committed Pipeline that it will hedge based on numerous factors, including the composition of the Committed Pipeline, the portion of such Committed Pipeline likely to close, the timing of such closings and anticipated changes in interest rates. See Note F to the Company's Consolidated Financial Statements included in the accompanying Prospectus. Loan Servicing The Company services on a non-recourse basis substantially all of the mortgage loans that it originates or purchases. In addition, the Company purchases bulk servicing contracts, also on a non-recourse basis, to service single-family residential mortgage loans originated by other lenders. Servicing contracts acquired through bulk purchases accounted for 17% of the Company's mortgage servicing portfolio as of February 28, 1995. Servicing mortgage loans includes collecting and remitting loan payments, making advances when required, accounting for principal and interest, holding custodial (impound) funds for payment of property taxes and hazard insurance, making any physical inspections of the property, contacting delinquent mortgagors, supervising foreclosures and property dispositions in the event of unremedied defaults and generally administering the loans. The Company receives a fee for servicing mortgage loans ranging generally from 1/4% to 1/2% per annum on the declining principal balances of the loans. The servicing fee is collected by the Company out of monthly mortgage payments. The Company's servicing portfolio is subject to reduction by scheduled amortization or by prepayment or foreclosure of outstanding loans. In addition, the Company has sold, and may sell in the future, a portion of its portfolio of loan servicing rights to other mortgage servicers. In general, the decision to sell servicing rights or newly originated loans on a servicing-released basis is based upon management's assessment of the Company's cash requirements, the Company's debt-to-equity ratio and other significant financial ratios, the market value of servicing rights and the Company's current and future earnings objectives. It is the Company's strategy to build and retain its servicing portfolio. Loans are serviced from two facilities, one in Simi Valley, California and one in Plano, Texas. The Company has developed systems that enable it to service mortgage loans efficiently and therefore enhance the returns it can earn from its investments in servicing rights. For example, data elements pertaining to loans originated or purchased by the Company are entered into the Company's advanced automated loan system (EDGE) at the time of origination or purchase and are transferred to the loan servicing system without manual re-entry. Customer service representatives in both the California and Texas facilities have access to on-line screens containing all pertinent data about a customer's account, thus eliminating the need to refer to paper files and shortening the average length of a customer call. The Company has a telephone system which enables it to control the flow of calls to both locations. The Company's payment processing equipment can process 10,000 checks per hour, which enables the Company to deposit virtually all cash on the same day it is received. Many tax and insurance remittances on behalf of borrowers are processed electronically, thus eliminating the need for printed documentation and shortening the processing time required. The Company believes that loan production earnings will partially offset the effect of interest rate fluctuations on the earnings from its servicing portfolio. In general, the value of the Company's servicing portfolio and the income generated therefrom improve as interest rates increase and decline when interest rates fall. Generally, in an environment of increasing interest rates, which prevailed through most of the Company's fiscal year ended February 28, 1995, the rate of current and projected future prepayments decreases, resulting in a decreased rate of amortization of capitalized servicing fees receivable and purchased servicing rights, and a decrease in income from servicing portfolio hedging activities. Such amortization, net of servicing hedge gain, is deducted from loan administration revenue. The increase in interest rates also causes loan production (particularly refinancings) to decline. Generally, in an environment of declining interest rates, which prevailed through most of the Company's fiscal year ended February 28, 1994, the rate of current and projected future prepayments increases, resulting in an increased rate of amortization of capitalized servicing fees receivable and purchased servicing rights. At the same time, the decline in interest rates contributes to high levels of loan production (particularly refinancings). S-11 The following table sets forth certain information regarding the Company's servicing portfolio of single-family mortgage loans, including loans held for sale and loans subserviced for others, for the periods indicated.
YEAR ENDED FEBRUARY 28(29), --------------------------------------------- 1995 1994 1993 1992 1991 -------- -------- ------- ------- ------- (DOLLAR AMOUNTS IN MILLIONS) Composition of Servicing Portfolio at Period End: FHA-Insured Mortgage Loans... $ 17,588 $ 9,794 $ 8,234 $ 6,271 $ 4,474 VA-Guaranteed Mortgage Loans. 7,454 3,916 3,307 2,438 1,910 Conventional Mortgage Loans.. 88,029 70,915 42,877 18,834 9,297 -------- -------- ------- ------- ------- Total Servicing Portfolio.. $113,071 $ 84,625 $54,418 $27,543 $15,681 ======== ======== ======= ======= ======= Beginning Servicing Portfolio.. $ 84,625 $ 54,418 $27,543 $15,681 $12,512 Add:Loan Production............ 27,866 52,459 32,388 12,156 4,577 Bulk Servicing and Subservicing Acquired...... 17,888 3,515 3,084 2,932 572 Less:Servicing Transferred(1).. (6,287) (8) (13) (269) (860) Runoff(2)................... (11,021) (25,759) (8,584) (2,957) (1,120) -------- -------- ------- ------- ------- Ending Servicing Portfolio..... $113,071 $ 84,625 $54,418 $27,543 $15,681 ======== ======== ======= ======= ======= Delinquent Mortgage Loans and Pending Foreclosures at Period End(3): 30 days...................... 1.84% 1.89% 2.08% 2.46% 3.09% 60 days...................... 0.30 0.29 0.41 0.59 0.61 90 days or more.............. 0.44 0.40 0.60 0.80 0.76 -------- -------- ------- ------- ------- Total Delinquencies........ 2.58% 2.58% 3.09% 3.85% 4.46% ======== ======== ======= ======= ======= Foreclosures Pending........... 0.30% 0.30% 0.38% 0.46% 0.40% ======== ======== ======= ======= =======
- -------- (1) Servicing rights sold are generally deleted from the servicing portfolio at the time of sale. The Company generally subservices such loans from the sales contract date to the transfer date. (2) Runoff refers to scheduled principal repayments on loans and unscheduled prepayments (partial prepayments or total prepayments due to refinancing, modifications, sale, condemnation or foreclosure). (3) As a percentage of the total number of loans serviced. At February 28, 1995, the Company's servicing portfolio of single-family mortgage loans was stratified by interest rate as follows:
TOTAL PORTFOLIO AT FEBRUARY 28, 1995 ---------------------------------------------- SERVICING PRINCIPAL PERCENT WEIGHTED AVERAGE ASSETS INTEREST RATE BALANCE OF TOTAL MATURITY (YEARS) BALANCE(1) ------------- --------- -------- ---------------- ---------- (DOLLAR AMOUNTS IN MILLIONS) 7.00% and under.................. $ 38,293 33.9% 25.5 $ 603 7.01-8.00%....................... 45,013 39.8 25.7 694 8.01-9.00%....................... 21,313 18.8 26.6 366 9.01-10.00%...................... 7,165 6.3 26.5 115 over 10.00%...................... 1,287 1.2 23.4 19 -------- ----- ---- ------ $113,071 100.0% 25.8 $1,797 ======== ===== ==== ======
- -------- (1) Capitalized servicing fees receivable and purchased servicing rights. S-12 The weighted average interest rate of the single-family mortgage loans in the Company's servicing portfolio at February 28, 1995 was 7.6% as compared with 7.2% at February 28, 1994. At February 28, 1995, 77% of the loans in the servicing portfolio bore interest at fixed rates and 23% bore interest at adjustable rates. The weighted average net servicing fee of the portfolio was 0.356% at February 28, 1995 and the weighted average interest rate of the fixed-rate loans in the servicing portfolio was 7.8%. Financing of Mortgage Banking Operations The Company's principal financing needs are the financing of loan funding activities and the investment in servicing rights. To meet these needs, the Company currently relies on commercial paper backed by CFC's revolving credit facility, medium-term note issuances, pre-sale funding facilities, mortgage- backed securities and whole loan reverse-repurchase agreements, subordinated notes and cash flows from operations. The Company estimates that it has available committed and uncommitted credit facilities aggregating approximately $5.6 billion at February 28, 1995. In addition, in the past the Company has relied on direct borrowings from its revolving credit facility, servicing- secured bank facilities, privately-placed financings and public offerings of Preferred Stock and Common Stock. For further information on the material terms of the borrowings utilized by the Company to finance its inventory of mortgage loans and mortgage-backed securities and its investment in servicing rights, see "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" in the accompanying Prospectus. The Company continues to investigate and pursue alternative and supplementary methods to finance its operations through the public and private capital markets. These may include such methods as mortgage loan sale transactions designed to expand the Company's financial capacity and reduce its cost of capital and the securitization of servicing income cash flows. COUNTRYWIDE ASSET MANAGEMENT CORPORATION Through its subsidiary Countrywide Asset Management Corporation ("CAMC"), the Company manages the investments and oversees the day-to-day operations of CWM and its subsidiaries. For performing these services, CAMC receives a base management fee of 1/8 of 1% per annum of CWM's average-invested mortgage- related assets not pledged to secure collateralized mortgage obligations ("CMOs"). CAMC also receives a management fee equal to 0.2% per annum of the average amounts outstanding under CWM's warehouse lines of credit. In addition, CAMC receives incentive compensation equal to 25% of the amount by which the CWM annualized return on equity exceeds the ten-year U.S. treasury rate plus 2%. In connection with a new business plan implemented by CWM in 1993, CAMC waived all management fees for calendar year 1993 and 25% of the incentive compensation earned in 1994. In addition, in 1993 CAMC absorbed $0.9 million of operating expenses incurred in connection with the new business plan. In June 1993, CWM and its subsidiaries began reimbursing CAMC for all expenses of the new operations. As of December 31, 1994, 1993 and 1992, the consolidated total assets of CWM were $2.0 billion, $1.4 billion and $0.7 billion, respectively. During the fiscal years ended February 28, 1995, 1994 and 1993, CAMC earned $0.3 million, $0.1 million and $0.8 million, respectively, in management fees from CWM and its subsidiaries. In addition, during the fiscal year ended February 28, 1995, CAMC recorded $1.1 million in incentive compensation, net of the amount waived as described above. At February 28, 1995, the Company and CAMC owned 1,120,000 shares or approximately 2.77% of the common stock of CWM. See Note K to the Company's Consolidated Financial Statements included in the accompanying Prospectus. OTHER OPERATIONS Through various other subsidiaries, the Company conducts business in a number of areas related to the mortgage banking business. The following is a brief description of the activities of these subsidiaries. The Company operates a securities broker-dealer, Countrywide Securities Corporation ("CSC"), which is a member of the National Association of Securities Dealers, Inc. and the Securities Investor Protection Corporation. CSC sells mortgage-backed securities on an odd-lot basis, generally at prices higher than those available in the wholesale, round-lot market and subordinate structures of whole loan CMOs. The Company's insurance agency subsidiary, Countrywide Agency, Inc., acts as an agent for the sale of homeowners, fire, flood, earthquake, mortgage life and disability insurance to mortgagors whose loans are serviced by CFC. S-13 Another subsidiary of the Company, CTC Foreclosure Services Corporation, formerly Countrywide Title Corporation, serves as trustee under deeds of trust in connection with the Company's mortgage loan production in California and certain other states. Countrywide Servicing Exchange ("CSE") is a national servicing brokerage and consulting firm. CSE acts as an agent facilitating transactions between buyers and sellers of bulk servicing contracts. LandSafe, Inc. and its subsidiaries act as a provider of various title insurance services in the capacity of an agent rather than an underwriter. The Company offers title insurance commitments and policies, settlement services and property profiles to realtors, builders, consumers, mortgage brokers and other financial institutions. The Company is no longer engaged in the business of originating mobile home installment contracts. During the fiscal year ended February 28, 1995, the Company sold three of its five mobile home parks located in Texas and Florida and the mobile home coaches contained therein. Subsequent to February 28, 1995, the Company sold its remaining two mobile home parks located in Texas and the mobile home coaches contained therein for $7.2 million; at February 28, 1995, the Company's investment in these two mobile home parks and the mobile home coaches contained therein was approximately $9 million. PROPRIETARY DATA PROCESSING SYSTEMS The Company employs technology wherever applicable and continually searches for new and better ways of both providing services to its customers and maximizing the efficiency of its operations. Proprietary systems currently in use by the Company include CLUES(TM), an artificial intelligence system that is designed to expedite the review of applications, credit reports and property appraisals. The Company believes that CLUES increases underwriters' productivity, reduces costs and provides greater consistency to the underwriting process. Another system in use is EDGE, which is an advanced automated loan origination system that is designed to reduce the time and cost associated with the loan application and funding process. This front-end system was internally developed for the Company's exclusive use and is integrated with the Company's loan servicing, sales, accounting and other systems. The Company believes that the EDGE system improves the quality of the loan products and customer service by: (i) reducing risk of deficient loans; (ii) facilitating accurate pricing; (iii) promptly generating loan documents with the use of laser printers; (iv) providing for electronic communication with credit bureaus and other vendors; and (v) generally minimizing manual data input. From pre- qualification to funding, the Company believes EDGE significantly reduces origination and processing costs and speeds funding time. The Company has developed and implemented DirectLine Plus(R), which is designed to provide support to mortgage brokers and enable them to obtain the latest pricing, to review the Company's lending program guidelines, to submit applications, to directly obtain information about specific loans in progress and to send and receive electronic messages to and from the Company's processing center. Recent enhancements to DirectLine Plus integrate that application with CLUES-ON-LINE, an adaptation of CLUES for use with DirectLine Plus, which is designed to allow the mortgage broker to submit loan information and receive a qualified underwriting decision within minutes. In addition, the Company is developing CLASS, which is designed to offer automated loan settlement services by using electronic data interchange to facilitate the preparation of closing documents at the office of the closing agent. The Company plans to deploy CLASS in the offices of a wide range of business partners (such as realtors and other entities that are involved in the closing of a mortgage loan transaction). Currently under development is the LOAN COUNSELOR. The LOAN COUNSELOR is being designed to give business partners direct access to the Company's package of financial services and to permit such business partners to pre-qualify prospective applicants, provide "what if" scenarios to help find the appropriate loan products, take the applications and receive qualified underwriting decisions. The Company plans to integrate the LOAN COUNSELOR with both CLUES and the EDGE system. The Company intends to implement a telemarketing application designed to provide enterprise-wide information on both current and prospective customers. The purpose of the telemarketing system is to enable production divisions to identify prospective customers to solicit for specific products or services, and to obtain the results of any solicitation. Management believes that the database will give the Company a significant S-14 advantage in its ability to protect its servicing portfolio and generate additional revenue by cross-selling other products and services. REGULATION The Company's mortgage banking business is subject to the rules and regulations of the Department of Housing and Urban Development, FHA, VA, Fannie Mae, Freddie Mac and GNMA with respect to originating, processing, selling and servicing mortgage loans. Those rules and regulations, among other things, prohibit discrimination, provide for inspections and appraisals, require credit reports on prospective borrowers and fix maximum loan amounts. Moreover, FHA lenders such as the Company are required annually to submit to the Federal Housing Commissioner audited financial statements, and GNMA requires the maintenance of specified net worth levels (which vary depending on the amount of GNMA securities issued by the Company). The Company's affairs are also subject to examination by the Federal Housing Commissioner at all times to assure compliance with the FHA regulations, policies and procedures. Mortgage origination activities are subject to the Equal Credit Opportunity Act, the Federal Truth-in-Lending Act, the Home Mortgage Disclosure Act and the Real Estate Settlement Procedures Act and the regulations promulgated thereunder which prohibit discrimination, require the disclosure of certain basic information to mortgagors concerning credit and settlement costs, limit payment for settlement services to the reasonable value of the services rendered and require the maintenance and disclosure of information regarding the disposition of mortgage applications based on race, gender, geographical distribution and income level. Additionally, there are various state laws and regulations affecting the Company's mortgage banking operations. The Company is licensed as a mortgage banker or retail installment lender in those states in which such license is required. Conventional mortgage operations may also be subject to state usury statutes. FHA and VA loans are exempt from the effect of such statutes. Securities broker-dealer operations are subject to federal and state securities laws, as well as the rules of both the Securities and Exchange Commission and the National Association of Securities Dealers, Inc. Insurance agency and title insurance operations are subject to insurance laws of each of the states in which the Company conducts such operations. COMPETITION The mortgage banking industry is highly competitive and fragmented. The Company competes with other financial intermediaries (such as mortgage bankers, commercial banks, savings and loan associations, credit unions and insurance companies) and mortgage banking subsidiaries or divisions of diversified companies. During the year ended February 28, 1995, increased mortgage interest rates resulted in a substantial decrease in mortgage originations. This decrease in mortgage originations created excess industry capacity which resulted in increased price competition. Consequently, loan production for the year ended February 28, 1995 was unprofitable. In addition, during periods of increasing interest rates, as existed for most of the year ended February 28, 1995, consumers tend to prefer adjustable-rate mortgage products. Particularly in California, savings and loans and other portfolio lenders competed with the Company by offering aggressively-priced ARM products. The Company competes principally by offering products with competitive features, by emphasizing the quality of its service and by pricing its range of products at competitive rates. In recent years, the aggregate share of the United States market for residential mortgage loans that is served by mortgage bankers has risen, principally due to the decline in the savings and loan industry. According to industry statistics, mortgage bankers' aggregate share of this market increased from approximately 19% during calendar year 1989 to approximately 49% during the third quarter of calendar year 1994. The Company believes that it has benefited from this trend. The Company is a Delaware corporation, and was originally incorporated in New York under the name of OLM Credit Industries, Inc. in 1969. Its principal executive offices are located at 155 North Lake Avenue, P. O. Box 7137, Pasadena, California 91109-7137, and its telephone number is (818) 304-8400. S-15 UNDERWRITING Subject to the terms and conditions set forth in a purchase agreement (the "Purchase Agreement"), the Company has agreed to sell to each of the Underwriters named below (the "Underwriters"), and each of the Underwriters severally has agreed to purchase, the aggregate number of shares of Common Stock set forth opposite its name below. In the Purchase Agreement, the several Underwriters have agreed, subject to the terms and conditions set forth therein, to purchase all the shares of Common Stock offered hereby if any of the shares of Common Stock are purchased. In the event of a default by an Underwriter, the Purchase Agreement provides that, in certain circumstances, the purchase commitments of the nondefaulting Underwriters may be increased or the Purchase Agreement may be terminated.
NUMBER OF UNDERWRITER SHARES ----------- ---------- Merrill Lynch, Pierce, Fenner & Smith Incorporated............................................ Goldman, Sachs & Co. ............................................ Lehman Brothers Inc. ............................................ Salomon Brothers Inc ............................................ Alex. Brown & Sons Incorporated.................................. Dean Witter Reynolds Inc. ....................................... ---------- Total....................................................... 10,000,000 ==========
The Underwriters have advised the Company that they propose initially to offer the shares to the public at the public offering price set forth on the cover page of this Prospectus Supplement, and to certain dealers at such price less a concession not in excess of $ per share. The Underwriters may allow, and such dealers may reallow, a discount not in excess of $ per share on sales to certain other dealers. After the initial public offering, the public offering price, concession and discount may be changed. The Company has granted the Underwriters an option exercisable for 30 days after the date hereof to purchase up to 1,500,000 additional shares of Common Stock to cover over-allotments, if any, at the initial public offering price, less the underwriting discount. If the Underwriters exercise this option, each of the Underwriters have a firm commitment, subject to certain conditions, to purchase approximately the same percentage thereof which the number of shares of Common Stock to be purchased by it shown in the foregoing table is of the 10,000,000 shares of Common Stock initially offered hereby. The Company has agreed that, for a period of 120 days from the date of this Prospectus Supplement, it will not, without the prior written consent of the Underwriters, directly or indirectly, sell, offer to sell, grant any option for the sale of, or otherwise dispose of, any Common Stock or any securities convertible into or exchangeable or exercisable for Common Stock (except for Common Stock issued pursuant to the Purchase Agreement, pursuant to employee benefit plans referred to in this Prospectus Supplement or the Prospectus, or pursuant to the exercise of convertible securities or options referred to in this Prospectus Supplement or the Prospectus), or file any registration statement under the Securities Act of 1933, as amended (the "Securities Act"), with respect to any of the foregoing. Certain officers and directors of the Company have each agreed that, for a period of 90 days from the date of this Prospectus Supplement, they will not, without the prior written consent of the Underwriters, offer, sell or contract to sell, or otherwise dispose of, directly or indirectly, or announce an offering of, any shares of Common Stock beneficially owned by such officer or director, or any securities convertible into, or exchangeable for, shares of Common Stock, other than shares of Common Stock disposed of as bona fide gifts or shares of Common Stock pledged, hypothecated or otherwise encumbered in connection with the incurrence of indebtedness. The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act. S-16 VALIDITY OF SECURITIES The validity of the shares of Common Stock offered hereby will be passed upon for the Company by Fried, Frank, Harris, Shriver & Jacobson, a partnership including professional corporations, New York, New York. Edwin Heller, whose professional corporation is a member of Fried, Frank, Harris, Shriver & Jacobson, is a director of the Company. Brown & Wood, New York, New York will serve as counsel to the Underwriters. Brown & Wood also serves as counsel for CWMBS, Inc., a wholly owned subsidiary of the Company, in connection with offerings of mortgage pass-through certificates, and as counsel for CWM. S-17 ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS + +SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY + +NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH + +OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR + +QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED JUNE 16, 1995 PROSPECTUS SUPPLEMENT - --------------------- (To Prospectus Dated , 1995) U.S. $500,000,000 COUNTRYWIDE FUNDING CORPORATION MEDIUM-TERM NOTES, SERIES D DUE NINE MONTHS OR MORE FROM DATE OF ISSUE PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND INTEREST ON THE NOTES UNCONDITIONALLY GUARANTEED BY LOGO COUNTRYWIDE (SM) ----------------------- CREDIT INDUSTRIES, INC. ---------- Countrywide Funding Corporation ("CFC") may offer from time to time its Medium-Term Notes, Series D (the "Notes"), each of which will be unconditionally guaranteed as to payment of principal, premium, if any, and interest by Countrywide Credit Industries, Inc. (the "Guarantor" or "CCI"). Each Note will mature nine months or more from the date of issue, as selected by the purchaser and agreed to by CFC and may be subject to redemption or repayment prior to maturity. The aggregate initial offering price of the Notes to be offered will not exceed U.S. $500,000,000 or its equivalent in foreign currencies or currency units. The Notes may be denominated in U.S. dollars or in such foreign currencies or currency units (the "Specified Currency") as may be designated by CFC. Unless otherwise specified in the applicable Pricing Supplement, each Note will bear interest at a fixed rate (a "Fixed Rate Note"), which may be zero in the case of certain Notes issued at a price representing a substantial discount from the principal amount payable upon maturity, or at a floating rate (a "Floating Rate Note"). Unless otherwise specified in the applicable Pricing Supplement, the Interest Payment Dates for each Fixed Rate Note will be January 15 and July 15 of each year and at maturity or such date of earlier redemption or repayment. The Interest Payment Dates for each Floating Rate Note will be established on the date of issue of such Note and will be set forth in the applicable Pricing Supplement. Interest rates and interest rate formulas are subject to change by CFC, but no change will affect any Note already issued or as to which an offer to purchase has been accepted by CFC. Each Note will be represented by either a global security registered in the name of a nominee of The Depository Trust Company, as depositary (a "Book-Entry Note"), or a certificate issued in definitive form (a "Certificated Note"), as set forth in the applicable Pricing Supplement. Beneficial interests in Book- Entry Notes will be shown on, and transfers thereof will be effected only through, records maintained by the Depositary (with respect to interests of its participants) and by its participants (with respect to beneficial owners' interests). Book-Entry Notes will not be issuable as Certificated Notes, except under the limited circumstances described herein. The Specified Currency, any applicable interest rate or interest rate formula, the Stated Maturity Date, the Interest Payment Dates, if any, and any redemption or repayment provisions for each Note and whether such Note will be a Book-Entry Note or a Certificated Note will be established at the time of issuance of such Note and set forth therein and in the applicable Pricing Supplement. The indenture pursuant to which the Notes will be issued does not contain any restrictions on the ability of the Company, CFC or any of their respective affiliates to incur additional indebtedness (secured or unsecured). As of May 31, 1995, the Guarantor did not have any secured indebtedness outstanding, and CFC had $872,009,662 aggregate principal amount of secured indebtedness outstanding, all of which was short-term indebtedness. As of such date, CFC had $3,892,272,000 aggregate principal amount of unsecured indebtedness outstanding, which indebtedness ranked pari passu in right of payment with CFC's other unsecured and unsubordinated indebtedness and will rank pari passu in right of payment with the Notes. See "Description of Debt Securities and Guarantees--General" and Note D to CCI's Consolidated Financial Statements included in the accompanying Prospectus. FOR A DESCRIPTION OF CERTAIN RISK FACTORS RELATING TO INVESTMENTS IN THE NOTES, SEE "RISK FACTORS" ON PAGE S-2 OF THIS PROSPECTUS SUPPLEMENT. ---------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT, THE PROSPECTUS, OR ANY SUPPLEMENT HERETO. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Price to Agents' Commission or Proceeds to Public(1)(2) Discount(2)(3) Company(2)(3)(4) - ------------------------------------------------------------------------------------------------ Per Note................ % %- % %- % - ------------------------------------------------------------------------------------------------ Total................... U.S. $500,000,000 U.S. $ -$ U.S. $ -$ - ------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- (1) Unless otherwise specified in the applicable Pricing Supplement, the Price to Public will be 100% of the principal amount of the Notes being issued. (2) Or the equivalent thereof in a Specified Currency other than U.S. dollars. (3) CFC will pay to Lehman Brothers, Lehman Brothers Inc. (including its affiliate, Lehman Government Securities Inc.), Goldman, Sachs & Co., Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Salomon Brothers Inc (each, an "Agent," and collectively, the "Agents") a commission, which may be in the form of a discount, ranging from % to % of the principal amount of any Note (or in the case of any Original Issue Discount Note (as defined herein), the price to public), depending on its maturity, sold through such Agent, except that the commission payable by CFC to the Agents with respect to Notes with maturities of greater than 30 years will be negotiated at the time of the sale thereof. Unless otherwise specified in the applicable Pricing Supplement, any Note sold to an Agent as principal will be purchased by such Agent at a price equal to 100% of the principal amount thereof less a percentage of the principal amount equal to the commission applicable to an agency sale of a Note of identical maturity and may be resold by such Agent to one or more investors or other purchasers at varying prices related to prevailing market prices at the time of such resale, as determined by such Agent, or if so agreed, at a fixed public offering price. CFC has agreed to indemnify the Agents against certain liabilities, including liabilities under the Securities Act of 1933, as amended. (4) Before deducting other expenses payable by CFC estimated at U.S. $675,000. ---------- The Notes are being offered on a continuous basis by CFC through the Agents, each of which has agreed to use its reasonable best efforts to solicit purchases of the Notes. CFC also may sell Notes to any Agent acting as principal for resale to one or more investors or other purchasers or may sell Notes directly to investors on its own behalf. Unless otherwise specified in the applicable Pricing Supplement, the Notes will not be listed on any securities exchange, and there can be no assurance that the Notes offered by this Prospectus Supplement and the accompanying Prospectus will be sold or that there will be a secondary market for the Notes. CFC reserves the right to withdraw, cancel or modify the offer made hereby without notice. CFC and the Agents may reject any offer to purchase Notes in whole or in part. See "Plan of Distribution of Notes." ---------- LEHMAN BROTHERS GOLDMAN, SACHS & CO. MERRILL LYNCH & CO. SALOMON BROTHERS INC , 1995 IN CONNECTION WITH THE DISTRIBUTION OF NOTES UNDERWRITTEN BY AN AGENT ACTING AS PRINCIPAL ON A FIXED PRICE BASIS, SUCH AGENT MAY OVER-ALLOT OR EFFECT TRANSACTIONS IN THE NOTES WITH A VIEW TO STABILIZING OR MAINTAINING THE MARKET PRICE OF THE NOTES AT LEVELS OTHER THAN THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. RISK FACTORS INDEX RISK An investment in the Notes indexed, as to principal, premium, if any, or interest, to one or more currencies or currency units (including exchange rates and swap indices between currencies or currency units), commodities, interest rates or other indices entails significant risks that are not associated with similar investments in a conventional fixed rate or floating rate debt security. Such risks include, without limitation, the possibility that such index or indices may be subject to significant changes, that the resulting interest rate will be less than that payable on a conventional fixed rate or floating rate debt security issued at the same time, that the repayment of principal or premium, if any, can occur at a time other than that expected by the investor, and that the investor could lose all or a substantial portion of principal or premium, if any, payable on the Maturity Date (as defined below). Such risks depend on a number of interrelated factors, including economic, financial and political events, over which CFC and the Guarantor have no control. Additionally, if the formula used to determine the amount of principal, premium, if any, or interest payable with respect to such Notes contains a multiple or leverage factor, the effect of any change in the applicable index or indices will be magnified. In recent years, values of certain indices have been highly volatile and such volatility may be expected to continue in the future. Fluctuations in the value of any particular index that have occurred in the past are not necessarily indicative, however, of fluctuations in such value that may occur in the future. The secondary market for such Notes will be affected by a number of factors independent of the creditworthiness of CFC and the value of the applicable index or indices, including the complexity and volatility of such index or indices, the method of calculating the principal, premium, if any, and interest in respect of such Notes, the time remaining to the maturity of such Notes, the outstanding amount of such Notes and market interest rates generally. The credit ratings assigned to CFC's medium-term note program may not reflect the potential impact of all risks related to structure and other factors on the market value of the Notes. Accordingly, prospective investors should consult their own financial and legal advisors as to the risks entailed by an investment in the Notes and the suitability of such Notes in light of their particular circumstances. FOREIGN CURRENCY RISKS Governing Laws and Judgments. The Notes will be governed by and construed in accordance with the laws of the State of New York. Courts in the United States have not customarily rendered judgments for money damages denominated in any currency or currency unit other than U.S. dollars. The Judiciary Law of the State of New York provides, however, that an action based upon an obligation denominated in a currency or currency unit other than U.S. dollars will be rendered in the foreign currency or currency unit of the underlying obligation and converted into U.S. dollars at a rate of exchange prevailing on the date of the entry of the judgment or decree. Exchange Rates and Exchange Controls. An investment in Notes that are denominated in a foreign currency or currency unit entails significant risks that are not associated with a similar investment in a security denominated in U.S. dollars. Such risks include, without limitation, the possibility of significant changes in rates of exchange between the U.S. dollar and the various foreign currencies or currency units and the possibility of the imposition or modification of exchange controls by either the United States or foreign governments. Such risks generally depend on economic and political events and on the supply of and demand for the relevant currencies, factors over which CFC and the Guarantor have no control. In recent S-2 years, rates of exchange between the U.S. dollar and foreign currencies and currency units have been highly volatile and such volatility may be expected in the future. Fluctuations in any particular exchange rate that have occurred in the past are not necessarily indicative, however, of fluctuations in such rate that may occur during the term of any Note. Depreciation of the applicable foreign currency or currency unit against the U.S. dollar would result in a decrease in the effective yield of such Note, in the value of the principal and premium, if any, payable on the Maturity Date of such Note and, generally, in the market value of such Note. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO NOT DESCRIBE ALL OF THE RISKS OF AN INVESTMENT IN NOTES DENOMINATED AND/OR PAYABLE IN A FOREIGN CURRENCY OR CURRENCY UNIT, AND CFC AND THE GUARANTOR DISCLAIM ANY RESPONSIBILITY TO ADVISE PROSPECTIVE INVESTORS OF SUCH RISKS AS THEY EXIST AT THE DATE OF THIS PROSPECTUS SUPPLEMENT OR AS SUCH RISKS MAY CHANGE FROM TIME TO TIME. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN FINANCIAL AND LEGAL ADVISORS AS TO THE RISKS ENTAILED BY AN INVESTMENT IN NOTES DENOMINATED AND/OR PAYABLE IN CURRENCIES OR CURRENCY UNITS OTHER THAN U.S. DOLLARS. SUCH NOTES ARE NOT AN APPROPRIATE INVESTMENT FOR INVESTORS WHO ARE UNSOPHISTICATED WITH RESPECT TO FOREIGN CURRENCY TRANSACTIONS. Unless otherwise specified in the applicable Pricing Supplement, Notes denominated in a Specified Currency other than U.S. dollars or ECU (as defined below) will not be sold in, or to residents of, the country of the Specified Currency in which particular Notes are denominated. The information set forth in this Prospectus Supplement is directed to prospective investors who are United States residents, and CFC and the Guarantor disclaim any responsibility to advise prospective investors who are residents of countries other than the United States with respect to any matters that may affect the purchase, holding or receipt of payments of principal of, or premium, if any, or interest on, the Notes. Such persons should consult their own advisors with regard to such matters. Governments or monetary authorities have imposed from time to time, and may in the future impose, exchange controls which could affect exchange rates as well as the availability of the Specified Currency on the applicable Interest Payment Date or Maturity Date of a Note. Even if there are no actual exchange controls, it is possible that on such Interest Payment Date or Maturity Date the Specified Currency for such Note would not be available to CFC due to circumstances beyond the control of CFC. In that event, CFC will make the required payments in U.S. dollars on the basis of the Exchange Rate (as defined below) two Business Days (as defined below) prior to the Interest Payment Date or the Maturity Date, as the case may be (or, if no rate is quoted for such Specified Currency on such date, the last date such rate is quoted). See "Description of Notes--Payment Currency." Currency Exchange. Purchasers are required to pay for the Notes in the currency or currency unit in which such Notes are denominated (the "Specified Currency"), unless otherwise provided in the applicable Pricing Supplement. Currently, there are limited facilities in the United States for conversion of U.S. dollars into foreign currencies or currency units and vice versa, and many banks do not offer non-U.S. dollar denominated checking or savings account facilities in the United States. Upon request, the Agents will arrange for the conversion of U.S. dollars into a Specified Currency other than U.S. dollars to enable purchasers to pay for the Notes. Such request must be made on the trade date. Each such conversion will be made by the Agents on such terms and subject to such conditions, limitations and charges as the Agents may from time to time establish in accordance with their regular foreign exchange practice. All costs of exchange will be borne by the investors in the Notes. References herein to "U.S. dollars," "dollar," "U.S.$" or "$" are to the currency of the United States of America. S-3 DESCRIPTION OF NOTES The following description of the particular terms of the Notes offered hereby supplements, and to the extent inconsistent therewith, replaces, the description of the general terms and provisions of the Debt Securities set forth in the accompanying Prospectus, to which description reference is hereby made. Unless otherwise specified in a Pricing Supplement, the terms of the Notes will be as set forth below. GENERAL The Notes are to be issued as a series of Debt Securities limited to U.S. $500,000,000, or its equivalent in one or more foreign currencies or currency units, aggregate initial offering price under an Indenture dated as of January 1, 1992, as amended, supplemented or modified from time to time, including Supplemental Indenture No. l thereto dated as of June 15, 1995 (collectively, the "Indenture"), among CFC, Countrywide Credit Industries, Inc. (the "Guarantor" or "CCI") and The Bank of New York, as trustee (the "Trustee"), which is described more fully under "Description of Debt Securities and Guarantees" in the accompanying Prospectus. The statements herein concerning the Notes and the Indenture do not purport to be complete and are qualified in their entirety by reference to the provisions of the Indenture, including the definitions of certain terms used herein without definition. The Notes will be offered on a continuous basis and will mature on any day nine months or more from their dates of issue, as specified in the applicable Pricing Supplement. Unless otherwise specified in the applicable Pricing Supplement, interest-bearing Notes will be either Fixed Rate Notes or Floating Rate Notes, as specified in the applicable Pricing Supplement. Notes also may be issued that do not bear any interest currently or that bear interest at a below market rate. Each Note will be represented by either a global security registered in the name of a nominee of The Depository Trust Company, New York, New York ("DTC"), as depositary (a "Book-Entry Note"), or a certificate issued in definitive form (a "Certificated Note"), as set forth in the applicable Pricing Supplement. Beneficial interests in Book-Entry Notes will be shown on, and transfers thereof will be effected only through, records maintained by DTC (with respect to interests of its Participants (as defined below)) and by its Participants (with respect to interests of beneficial owners (as defined below)). Book-Entry Notes will not be issuable as Certificated Notes, except under the limited circumstances described herein. Unless otherwise specified in the applicable Pricing Supplement, the minimum denomination of Notes will be $100,000, or the equivalent thereof in the Specified Currency (if other than U.S. dollars), and integral multiples of $1,000 in excess thereof or the equivalent thereof in such Specified Currency. Interest rates offered by the Company with respect to the Notes may differ depending upon, among other things, the aggregate principal amount of the Notes purchased in any single transaction. Unless otherwise specified herein or in the applicable Pricing Supplement, "Exchange Rate" means, with respect to a Specified Currency (other than European Currency Units ("ECU")), the noon Dollar buying rate for such Specified Currency for cable transfers quoted by the Exchange Rate Agent (as specified in the applicable Pricing Supplement) in The City of New York on the Record Date or Special Record Date (each as defined below) or the fifteenth day immediately preceding the Maturity Date or on such other date provided in the applicable Note or in the Indenture, as the case may be, as certified for customs purposes by the Federal Reserve Bank of New York. With respect to ECU, "Exchange Rate" means the exchange rate between U.S. dollars and ECU reported by the Council of the European Communities on the applicable Record Date or Special Record Date with respect to an Interest Payment Date or the fifteenth day immediately preceding the Maturity Date or on such other date as provided in the applicable Note or in the Indenture, as the case may be. S-4 Certificated Notes may be presented for registration of transfer or exchange at the Corporate Trust Office of the Trustee in the Borough of Manhattan, The City of New York. Registration of transfers or exchanges of Book-Entry Notes may be effected only through a participating member of the Depositary (as defined below). The Notes will constitute unsecured and unsubordinated indebtedness of CFC and will rank pari passu in right of payment with CFC's other unsecured and unsubordinated indebtedness. As of May 31, 1995, the Guarantor did not have any secured indebtedness outstanding, and CFC had $872,009,662 aggregate principal amount of secured indebtedness outstanding, all of which was short-term indebtedness. As of such date, CFC had $3,892,272,000 aggregate principal amount of unsecured indebtedness outstanding, which indebtedness ranked pari passu in right of payment with CFC's other unsecured and unsubordinated indebtedness and will rank pari passu in right of payment with the Notes. See "Description of Debt Securities and Guarantees--General" and "--Guarantees" in the accompanying Prospectus. A substantial portion of the assets of CFC may be pledged under various credit agreements among CFC and various lending institutions. See Note D to CCI's Financial Statements included in the accompanying Prospectus. The Indenture does not contain any provisions that would limit the ability of CFC or any of its affiliates to incur indebtedness (secured or unsecured) or that would afford Holders of the Notes protection in the event of a highly leveraged transaction, restructuring, change in control, merger or similar transaction involving CFC that may adversely affect Holders of the Notes. If so specified in the applicable Pricing Supplement, the Notes will be redeemable at the option of CFC or repayable at the option of the Holder prior to maturity. See "--Redemption and Repayment" below. The Notes will not be subject to any sinking fund. "Business Day" means (A) any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions are authorized or required by law, regulation or executive order to close in (i) New York, New York or Los Angeles, California, or (ii) if the Specified Currency specified in the applicable Pricing Supplement is other than U.S. dollars, the Principal Financial Center (as defined below), and (B) with respect to Floating Rate Notes as to which LIBOR is an applicable Base Rate, a London Banking Day (as defined below). "Principal Financial Center" means the capital city of the country issuing the related Specified Currency, except that with respect to Australian dollars, Deutsche marks, Dutch guilders, Italian lire, Swiss francs and ECU, the "Principal Financial Center" shall be Sydney, Frankfurt, Amsterdam, Milan, Zurich and Luxembourg, respectively. "London Banking Day" means any day on which dealings in deposits in U.S. dollars are transacted in the London interbank market. The "Maturity Date" means the earlier of the date on which the principal of a Note is redeemed (the "Redemption Date") or repaid (the "Repayment Date") or the date on which the Note will mature (the "Stated Maturity Date"). Unless otherwise specified in the applicable Pricing Supplement, all percentages resulting from any calculation of the rate of interest on Floating Rate Notes will be rounded, if necessary, to the nearest one hundred-thousandth of a percentage point, with five one-millionths of a percentage point rounded upward (e.g., 9.876545% (or .09876545) being rounded to 9.87655% (or .0987655)), and all dollar amounts used in or resulting from such calculation on Floating Rate Notes will be rounded to the nearest cent (with one-half cent being rounded upward). The Pricing Supplement relating to each Note will describe the following terms: (1) the Specified Currency; (2) whether such Note is a Fixed Rate Note, a Floating Rate Note or such other Note as is specified in such Pricing Supplement; (3) if other than 100%, the price (expressed as a percentage of the aggregate principal amount thereof) at which such Note will be issued to the public (the "Issue Price"); (4) the trade date; (5) the date on which such Note will be issued (the "Issue Date"); (6) the Stated Maturity Date and whether the Stated Maturity Date may be extended by CFC, and if so, the Extension Periods and Final S-5 Maturity Date (each as defined below); (7) if such Note is a Fixed Rate Note, the rate per annum at which such Note will bear interest, if any, and the Interest Payment Dates (as defined below) and whether such rate may be reset by CFC prior to the Stated Maturity Date and, if so, the date(s) and basis or formula therefor; (8) if such Note is a Floating Rate Note, whether it is a "Floating Rate/Fixed Rate Note" and, if so, the Fixed Rate Commencement Date and Fixed Interest Rate (each as defined below), as well as the Base Rate, the Initial Interest Rate, the Interest Determination Dates, the Interest Reset Dates, the Interest Payment Dates, the Index Maturity, the Maximum Interest Rate and/or the Minimum Interest Rate, if any, and the Spread and/or Spread Multiplier, if any (each as defined below), and any other terms relating to the particular method of calculating the interest rate for such Note, and whether the Spread and/or Spread Multiplier may be reset by CFC prior to the Stated Maturity Date and, if so, the date(s) and basis or formula therefor; (9) whether such Note may be redeemed at the option of CFC, or repaid at the option of the Holder, prior to maturity, and if so, the earliest date of redemption (the "Initial Redemption Date") and optional date(s) of repayment (each, an "Optional Repayment Date") and the other provisions relating to such redemption or repayment; (10) whether such Note will be issued initially as a Book-Entry Note or a Certificated Note; and (11) any other terms of such Note not inconsistent with the provisions of the Indenture. PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND INTEREST Principal, premium, if any, and interest will be paid by CFC in the Specified Currency. If and as so specified in the applicable Pricing Supplement, at the request of a Holder of a Note payable in a Specified Currency other than U.S. dollars, payments of principal, premium, if any, and interest in respect of such Note will be paid in U.S. dollars. Under such circumstances, CFC will be required to tender payment in U.S. dollars at the Exchange Rate, and any costs associated with such conversion would be borne by such Holder through deduction from such payments. Such Holder may elect to receive payments in U.S. dollars by delivering a written request to the Trustee not later than the close of business on the Record Date immediately preceding the Interest Payment Date or the fifteenth day immediately preceding the Maturity Date, as the case may be. Such election will remain in effect until revoked by written notice from such Holder to the Trustee, but written notice of any such revocation must be received by the Trustee not later than the close of business on the Record Date immediately preceding the Interest Payment Date or the fifteenth day immediately preceding the Maturity Date, as the case may be. Upon request, the Trustee will mail a copy of a form of request to any Holder. Unless otherwise specified in the applicable Pricing Supplement, interest on the certificated Notes due on any Interest Payment Date other than the Maturity Date will be paid, except as provided below, by mailing a check in the Specified Currency (from an account at a bank located outside of the United States if such check is payable in a Specified Currency other than U.S. dollars) to the Holder at the address of such Holder appearing on the Security Register on the applicable Record Date. Unless otherwise specified in the applicable Pricing Supplement, the first payment of interest on any Note originally issued between a Record Date and an Interest Payment Date will be made on the Interest Payment Date following the next Record Date to the Holder on such next Record Date. Notwithstanding the foregoing, on any Interest Payment Date other than the Maturity Date, a Holder of U.S. $10,000,000 (or the equivalent thereof in a Specified Currency other than U.S. dollars) or more in aggregate principal amount of Notes (whether or not having identical terms and provisions) shall be entitled: (i) if the Specified Currency is U.S. dollars, to receive such payment by wire transfer of immediately available funds to an account maintained by the payee with a bank located in the United States, but only if appropriate wire transfer instructions have been received in writing by the Trustee not later than the Record Date immediately preceding such Interest Payment Date, and (ii) if the Specified Currency is other than U.S. dollars, to receive such payment by wire transfer of immediately available funds to an account maintained by the payee with a bank located in a jurisdiction in which payment in such Specified Currency is then lawful. CFC will pay any administrative costs imposed by banks in connection with making payments by wire transfer, but any tax, assessment or other governmental charge imposed upon payments will be borne by the Holders of the Notes in respect of which payments are made. Beneficial owners of Global Notes (as defined below) will be paid in accordance with the procedures of the Depositary and its Participants in effect from time to time as described under "--Book-Entry Notes" below. S-6 Unless otherwise specified in the applicable Pricing Supplement, payments of principal, premium, if any, and interest on the Maturity Date will be made in immediately available funds in the Specified Currency upon presentation and surrender of Notes at the Corporate Trust Office of the Trustee. In the case of such payments in a Specified Currency other than U.S. dollars, Notes shall be presented and surrendered to the Trustee in time for the Trustee to make such payments in accordance with its normal procedures. If any Interest Payment Date other than the Maturity Date for any Floating Rate Note would otherwise fall on a day that is not a Business Day, such Interest Payment Date shall be postponed to the next Business Day, except that if interest thereon is determined by reference to LIBOR and such next Business Day falls in the next calendar month, such Interest Payment Date shall be the immediately preceding Business Day. If the Maturity Date for any Fixed Rate Note or Floating Rate Note or the Interest Payment Date for any Fixed Rate Note falls on a day which is not a Business Day, payment of principal, premium, if any, and interest with respect to such Note will be made on the next Business Day with the same force and effect as if made on such date, and no interest on such payment will accrue to such next Business Day. Any interest not punctually paid or duly provided for with respect to a Note ("Defaulted Interest") will forthwith cease to be payable to the Holder thereof on the applicable Record Date and may either be paid to the person in whose name such Note is registered at the close of business on a special record date (the "Special Record Date") for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to the Holder of such Note not less than ten days prior to such Special Record Date, or may be paid at any time in any other lawful manner, all as more completely provided in the Indenture. Unless otherwise specified in the applicable Pricing Supplement, the "Record Date" with respect to any Interest Payment Date for Floating Rate Notes shall be the fifteenth day immediately preceding such Interest Payment Date, and for Fixed Rate Notes shall be the December 31 or June 30 immediately preceding such Interest Payment Date, in each case whether or not such date shall be a Business Day. PAYMENT CURRENCY If any payment of principal, premium, if any, or interest in respect of any Note is to be made in a Specified Currency other than U.S. dollars and such Specified Currency is not available to CFC for making such payment due to the imposition of exchange controls or other circumstances beyond the control of CFC, CFC will be entitled to satisfy its obligations to the Holder of such Note by making such payment in U.S. dollars on the basis of the Exchange Rate (as defined below) two Business Days prior to the Interest Payment Date or the Maturity Date, as the case may be (or, if no rate is quoted for such Specified Currency on such date, the last date such Exchange Rate is quoted). Any payment made under such circumstances in U.S. dollars where the required payment is in a Specified Currency other than U.S. dollars will not constitute an Event of Default under the Indenture. For purposes of this section, the "Exchange Rate" for a foreign currency or ECU will be the noon Dollar selling rate for such foreign currency or ECU for cable transfers quoted by the Exchange Rate Agent in The City of New York, as certified for customs purposes by the Federal Reserve Bank of New York. If payment on any Note is required to be made in ECU and ECU is unavailable due to the imposition of exchange controls or other circumstances beyond the control of CFC, or is no longer used in the European Monetary System, all payments due on that Interest Payment Date or Maturity Date with respect to such Note shall be made in U.S. dollars. The amount so payable on any date in ECU shall be converted into U.S. dollars, at a rate determined by the Exchange Rate Agent as of the second Business Day prior to the date on which such payment is due on the following basis. The component currencies of the ECU for this purpose (the "Components") shall be the currency amounts which were components of the ECU as of the last date on which the ECU was used in the European Monetary System. The equivalent of the ECU in U.S. dollars shall be calculated by aggregating the U.S. dollar equivalents of the Components. The U.S. dollar equivalent of each of the Components shall be determined by the Exchange Rate Agent on the basis of the most recently available Exchange Rate. S-7 If the official unit of any component currency is altered by way of combination or subdivision, the number of units of that currency as a Component shall be divided or multiplied in the same proportion. If two or more component currencies are consolidated into a single currency, the amounts of those currencies as Components shall be replaced by an amount in such single currency equal to the sum of the amounts of the consolidated component currencies expressed in such single currency. If any component currency is divided into two or more currencies, the amount of that currency as a Component shall be replaced by amounts of such two or more currencies (in appropriate proportions), the sum of which shall be equal to the amount of the former component currency. All determinations referred to above made by an Exchange Rate Agent shall be at its sole discretion (except to the extent expressly provided that any determination is subject to approval) and, in the absence of manifest error, shall be conclusive for all purposes and binding on the Holder of such Note and such Exchange Rate Agent shall have no liability therefor. FIXED RATE NOTES Each Fixed Rate Note will bear interest from its Issue Date at the rate per annum stated on the face thereof until the principal amount thereof is paid or made available for payment. Unless otherwise specified in the applicable Pricing Supplement, interest on each Fixed Rate Note will be payable semi- annually in arrears on each January 15 and July 15 (each, an "Interest Payment Date") and on the Maturity Date. Each payment of interest shall include interest accrued from and including the Issue Date or the most recent Interest Payment Date to which interest has been paid or duly provided for, as the case may be, to, but excluding, the applicable Interest Payment Date or the Maturity Date, as the case may be (each, an "Interest Period"). Unless otherwise specified in the applicable Pricing Supplement, interest on the Fixed Rate Notes will be computed on the basis of a 360-day year of twelve 30-day months. FLOATING RATE NOTES Each Floating Rate Note will bear interest at a rate determined by reference to an interest rate basis (each, a "Base Rate"), which may be adjusted by a Spread and/or Spread Multiplier. The applicable Pricing Supplement will designate one or more of the following Base Rates as applicable to each Floating Rate Note: (a) the Commercial Paper Rate (as defined below), (b) LIBOR (as defined below), (c) the Treasury Rate (as defined below), (d) the Certificate of Deposit Rate (as defined below), (e) the Federal Funds Rate (as defined below), (f) the Prime Rate (as defined below), (g) the CMT Rate (as defined below), (h) the 11th District Cost of Funds Rate (as defined below) or (i) such other interest rate basis or formula as is set forth in such Pricing Supplement and in such Floating Rate Note. The "Index Maturity" for any Floating Rate Note is the period of maturity of the instrument or obligation from which the Base Rate is calculated. Unless otherwise specified in the applicable Pricing Supplement, the interest rate on each Floating Rate Note will be calculated by reference to the specified Base Rate, or the lowest, highest or average of two or more specified Base Rates, (a) plus or minus the Spread, if any, and/or (b) multiplied by the Spread Multiplier, if any. The "Spread" is the number of basis points (one basis point equals one-hundredth of a percentage point) specified in the applicable Pricing Supplement as being applicable to the interest rate for such Floating Rate Note, and the "Spread Multiplier" is the percentage specified in the applicable Pricing Supplement as being applicable to the interest rate for such Floating Rate Note. If a Floating Rate Note is designated as a "Floating Rate/Fixed Rate Note," unless otherwise specified in the applicable Pricing Supplement, the interest rate will be calculated in the same manner as any other Floating Rate Note until a designated date when the interest rate will become fixed (the "Fixed Rate Commencement Date"). The interest rate in effect for the period commencing on the Fixed Rate Commencement Date and continuing until the Maturity Date will be the rate per annum specified in the applicable Pricing Supplement as the "Fixed Interest Rate" or, if no Fixed Interest Rate is specified, the interest rate in effect on the day immediately preceding the Fixed Rate Commencement Date. Unless S-8 otherwise specified herein or in the applicable Pricing Supplement, the Fixed Rate Commencement Date shall also constitute an Interest Payment Date for purposes of calculating and paying interest. Unless otherwise specified herein or in the applicable Pricing Supplement, the Floating Rate/Fixed Rate Note shall be treated as a Floating Rate Note until the Fixed Rate Commencement Date and as a Fixed Rate Note from the Fixed Rate Commencement Date thereafter. As specified in the applicable Pricing Supplement, a Floating Rate Note may also have either or both of the following: (i) a maximum limitation, or ceiling, on the rate of interest which may accrue during any Interest Period ("Maximum Interest Rate"); and (ii) a minimum limitation, or floor, on the rate of interest which may accrue during any Interest Period ("Minimum Interest Rate"). In addition to any Maximum Interest Rate which may be applicable to any Floating Rate Note pursuant to the above provisions, the interest rate on a Floating Rate Note will in no event be higher than the maximum rate permitted by New York law, as the same may be modified by United States law of general application. Except as provided below, the rate of interest on each Floating Rate Note will be reset daily, weekly, monthly, quarterly, semi-annually or annually, as specified in the applicable Pricing Supplement. Unless otherwise specified in the applicable Pricing Supplement, the "Interest Reset Date" will be, in the case of Floating Rate Notes which reset (a) daily, each Business Day; (b) weekly, the Wednesday of each week (with the exception of weekly reset Floating Rate Notes as to which the Treasury Rate is an applicable Base Rate, which will reset the Tuesday of each week, except as specified below); (c) monthly, the third Wednesday of each month (with the exception of monthly reset Floating Rate Notes as to which the 11th District Cost of Funds Rate is an applicable Base Rate, which will reset on the first calendar day of each month); (d) quarterly, the third Wednesday of March, June, September and December; (e) semi-annually, the third Wednesday of the two months specified in the applicable Pricing Supplement; and (f) annually, the third Wednesday of the month specified in the applicable Pricing Supplement. If an Interest Reset Date for any Floating Rate Note would otherwise be a day that is not a Business Day, such Interest Reset Date shall be postponed to the next Business Day, except that if interest thereon is determined by reference to LIBOR and such next Business Day falls in the next calendar month, such Interest Reset Date shall be the immediately preceding Business Day. The interest rate in effect on each day will be (i) if such day is an Interest Reset Date, the interest rate determined as of the Interest Determination Date (as defined below) immediately preceding such Interest Reset Date or (ii) if such day is not an Interest Reset Date, the interest rate determined as of the Interest Determination Date immediately preceding the most recent Interest Reset Date. The "Interest Determination Date" means the Commercial Paper Rate Determination Date, the LIBOR Determination Date, the CD Rate Determination Date, the Federal Funds Rate Determination Date, the Prime Rate Determination Date, the Treasury Rate Determination Date, the CMT Rate Determination Date or the 11th District Rate Determination Date (each as defined below), as the case may be. If interest on a Floating Rate Note is determined by reference to two or more Base Rates, the "Interest Determination Date" means the most recent Business Day which is at least two Business Days prior to the applicable Interest Reset Date on which each Base Rate shall be determinable. Each Base Rate shall be determined and compared as of such date, and the applicable interest rate shall take effect on the related Interest Reset Date. Interest on Floating Rate Notes will be payable on the Interest Payment Dates specified in the applicable Pricing Supplement (each, an "Interest Payment Date") and on the Maturity Date. Unless otherwise specified in the applicable Pricing Supplement, interest payments shall be the amount of interest accrued from and including the most recent Interest Payment Date to which interest has been paid or duly provided for, or, if no interest has been paid or duly provided for, from and including the Issue Date to but excluding the applicable Interest Payment Date or the Maturity Date, as the case may be (each, an "Interest Period"). With respect to a Floating Rate Note, accrued interest shall be calculated by multiplying the principal amount of such Floating Rate Note by an accrued interest factor. Such accrued interest factor will be computed by adding the interest factor calculated for each day in the Interest Period for which accrued interest is being calculated. The interest factor for each such day is computed by dividing the interest rate S-9 applicable to such day by 360, if an applicable Base Rate is the Commercial Paper Rate, Certificate of Deposit Rate, Federal Funds Rate, Prime Rate, 11th District Cost of Funds Rate or LIBOR, or by the actual number of days in the year, if an applicable Base Rate is the Treasury Rate or CMT Rate. If more than one Base Rate is applicable to a Floating Rate Note, the interest factor will be calculated in the same manner as if only the Base Rate specified for such purpose in the applicable Pricing Supplement applied. Unless otherwise specified in the applicable Pricing Supplement, The Bank of New York will be the calculation agent (the "Calculation Agent") with respect to the Floating Rate Notes. Upon the request of the Holder of any Floating Rate Note, the Calculation Agent will provide the interest rate then in effect and, if determined, the interest rate which will become effective on the next Interest Reset Date with respect to such Floating Rate Note. The "Calculation Date," if applicable, pertaining to a Floating Rate Note will be the earlier of (i) the 10th day after the Interest Determination Date pertaining to a Base Rate or, if such day is not a Business Day, the next Business Day or (ii) the Business Day immediately preceding the applicable Interest Payment Date or the Maturity Date, as the case may be. The interest rate in effect with respect to a Floating Rate Note from the Issue Date to the first Interest Reset Date (the "Initial Interest Rate") will be specified in the applicable Pricing Supplement. The interest rate for each subsequent Interest Reset Date, except in the case of a Floating Rate/Fixed Rate Note for the period subsequent to the Fixed Rate Commencement Date, will be determined by the Calculation Agent as follows. COMMERCIAL PAPER RATE Unless otherwise specified in the applicable Pricing Supplement, the "Commercial Paper Rate" for each applicable Interest Reset Date will be determined by the Calculation Agent as of the second Business Day prior to such Interest Reset Date (a "Commercial Paper Rate Determination Date") and will be the Money Market Yield (as defined below) on such date of the rate for commercial paper having the Index Maturity specified in the applicable Pricing Supplement as published by the Board of Governors of the Federal Reserve System in "Statistical Release H.15(519), Selected Interest Rates," or any successor publication ("H.15(519")), under the heading "Commercial Paper." In the event that such rate is not published prior to 3:00 P.M., New York City time, on the Calculation Date, then the Commercial Paper Rate will be the Money Market Yield on such Commercial Paper Rate Determination Date of the rate for commercial paper of the specified Index Maturity as published by the Federal Reserve Bank of New York in its daily statistical release "Composite 3:30 P.M. Quotations for U.S. Governmental Securities" ("Composite Quotations") under the heading "Commercial Paper." If by 3:00 P.M., New York City time, on such Calculation Date such rate is not yet published in either H.15(519) or Composite Quotations, then the Commercial Paper Rate will be the Money Market Yield of the arithmetic mean of the offered rates as of 11:00 A.M., New York City time, on such Commercial Paper Rate Determination Date of three leading dealers of commercial paper in The City of New York selected by the Calculation Agent for commercial paper of the specified Index Maturity, placed for an industrial issuer whose bond rating is "AA," or the equivalent, from a nationally recognized statistical rating agency; provided, however, that if the dealers selected as aforesaid by the Calculation Agent are not quoting offered rates as mentioned in this sentence, the Commercial Paper Rate for such Interest Reset Date will be the Commercial Paper Rate in effect on such Commercial Paper Rate Determination Date. "Money Market Yield" will be a yield (expressed as a percentage) calculated in accordance with the following formula: D X 360 Money Market Yield = X 100 ------------ 360 - (D X M) where "D" refers to the applicable per annum rate for commercial paper quoted on a bank discount basis and expressed as a decimal and "M" refers to the actual number of days in the Interest Period for which interest is being calculated corresponding to the Index Maturity specified in the applicable Pricing Supplement. S-10 LIBOR Unless otherwise specified in the applicable Pricing Supplement, "LIBOR" for each applicable Interest Reset Date will be determined by the Calculation Agent as follows: (i) If "LIBOR Reuters" is specified in the applicable Pricing Supplement, on the second London Banking Day prior to the applicable Interest Reset Date (a "LIBOR Determination Date"), the Calculation Agent will determine LIBOR as the arithmetic mean of the offered rates for deposits in U.S. dollars for the period of the Index Maturity which appear on the "Reuters Screen LIBO Page" at approximately 11:00 A.M., London time, on such LIBOR Determination Date. "Reuters Screen LIBO Page" means the display designated as page "LIBO" on the Reuter Monitor Money Rates Service (or such other page as may replace the LIBO page on that service for the purpose of displaying London interbank offered rates of major banks). If "LIBOR Telerate" is specified in the applicable Pricing Supplement or if no other method is specified in such Pricing Supplement as the method for determining LIBOR, on the LIBOR Determination Date, the Calculation Agent will determine LIBOR as the rate for deposits in U.S. dollars for the period of the Index Maturity which appears on "Telerate Page 3750" at approximately 11:00 A.M., London time, on such LIBOR Determination Date. "Telerate Page 3750" means the display page so designated on the Dow Jones Telerate Service (or such other page as may replace such page on that service for the purpose of displaying London interbank offered rates of major banks). (ii) If LIBOR Reuters is specified in the applicable Pricing Supplement and fewer than two offered rates for the applicable Index Maturity appear on the Reuters Screen LIBO Page or if LIBOR Telerate is applicable for determining LIBOR and no rate appears on Telerate Page 3750, as applicable, the Calculation Agent will request the principal London offices of each of four major banks in the London interbank market, as selected by the Calculation Agent, to provide the Calculation Agent with its offered quotation for deposits in U.S. dollars for the period of the Index Maturity commencing on the second London Banking Day following such LIBOR Determination Date to prime banks in the London interbank market at approximately 11:00 A.M., London time, on such LIBOR Determination Date and in a principal amount equal to an amount of not less than U.S. $1,000,000 that is representative of a single transaction in such market at such time. If at least two such quotations are provided, LIBOR will be the arithmetic mean of such quotations. If fewer than two quotations are provided, LIBOR in respect of that LIBOR Determination Date will be the arithmetic mean of rates quoted by three major banks in The City of New York selected by the Calculation Agent at approximately 11:00 A.M., New York City time, on such LIBOR Determination Date for loans in U.S. dollars to leading European banks, for the period of the Index Maturity designated in the applicable Pricing Supplement and in the principal amount equal to an amount of not less than U.S. $1,000,000 that is representative for a single transaction in such market at such time; provided, however, that if fewer than three banks selected as aforesaid by the Calculation Agent are quoting rates as mentioned in this sentence, LIBOR in effect for such Interest Reset Date will be LIBOR in effect on such LIBOR Determination Date. CERTIFICATE OF DEPOSIT RATE Unless otherwise specified in the applicable Pricing Supplement, the "Certificate of Deposit Rate" for each applicable Interest Reset Date will be determined by the Calculation Agent as of the second Business Day prior to the Interest Reset Date (a "CD Rate Determination Date") and will be the rate for negotiable certificates of deposit having the Index Maturity designated in the applicable Pricing Supplement as published in H.15(519) under the heading "CDs (Secondary Market)." In the event that such rate is not published prior to 3:00 P.M., New York City time, on the Calculation Date pertaining to such CD Rate Determination Date, then the Certificate of Deposit Rate will be the rate on such CD Rate Determination Date for negotiable certificates of deposit of the Index Maturity designated in the applicable Pricing Supplement as published in Composite Quotations under the heading "Certificates of Deposit." If by 3:00 P.M., New York City time, on such Calculation Date such rate is not yet published in either H.15(519) or Composite Quotations, then the S-11 Certificate of Deposit Rate will be calculated by the Calculation Agent and will be the arithmetic mean of the secondary market offered rates as of 10:00 A.M., New York City time, on such CD Rate Determination Date of three leading non-bank dealers (which may include one or more of the Agents or their affiliates) in negotiable U.S. dollar certificates of deposit in The City of New York selected by the Calculation Agent for negotiable certificates of deposit of major United States money center banks (in the market for negotiable certificates of deposit) with a remaining maturity closest to the Index Maturity designated in the applicable Pricing Supplement in a denomination of U.S. $5,000,000; provided, however, that if the dealers selected as aforesaid by such Calculation Agent are not quoting offered rates as mentioned in this sentence, the Certificate of Deposit Rate for such Interest Reset Date will be the Certificate of Deposit Rate in effect on such CD Rate Determination Date. FEDERAL FUNDS RATE Unless otherwise specified in the applicable Pricing Supplement, the "Federal Funds Rate" for each applicable Interest Reset Date will be determined by the Calculation Agent as of the second Business Day prior to such Interest Reset Date (a "Federal Funds Rate Determination Date") and will be the rate on such Federal Funds Rate Determination Date for Federal Funds as published in H.15(519) under the heading "Federal Funds (Effective)." In the event that such rate is not published prior to 3:00 P.M., New York City time, on the Calculation Date pertaining to such Federal Funds Rate Determination Date, the Federal Funds Rate will be the rate on such Federal Funds Rate Determination Date as published in Composite Quotations under the heading "Federal Funds/Effective Rate." If by 3:00 P.M., New York City time, on such Calculation Date such rate is not yet published in either H.15(519) or Composite Quotations, then the Federal Funds Rate will be calculated by the Calculation Agent and will be the arithmetic mean of the rates for transactions in overnight Federal Funds arranged by three leading brokers of Federal Funds transactions in The City of New York selected by the Calculation Agent as of 9:00 A.M., New York City time, on such Federal Funds Rate Determination Date; provided, however, that if the three brokers selected as aforesaid by the Calculation Agent are not quoting rates as mentioned in this sentence, the Federal Funds Rate for such Interest Reset Date will be the Federal Funds Rate in effect on such Federal Funds Rate Determination Date. PRIME RATE Unless otherwise specified in the applicable Pricing Supplement, the "Prime Rate" for each applicable Interest Reset Date will be determined by the Calculation Agent as of the second Business Day prior to such Interest Reset Date (a "Prime Rate Determination Date") and will be the rate on such date as such rate is published in H.15(519) under the heading "Bank Prime Loan." If such rate is not published prior to 3:00 P.M., New York City time, on the Calculation Date pertaining to the Prime Rate Determination Date, then the Calculation Agent shall determine the Prime Rate as the arithmetic mean of the rates of interest publicly announced by each bank that appears on the "Reuters Screen NYMF Page" as such bank's prime rate or base lending rate as in effect for such Prime Rate Determination Date. "Reuters Screen NYMF Page" means the display designated as page "NYMF" on the Reuter Monitor Money Rates Service (or such other page as may replace the NYMF Page on that service for the purpose of displaying prime rates or base lending rates of major United States banks). If fewer than four such rates but more than one such rate appear on the Reuters Screen NYMF Page for such Prime Rate Determination Date, the Calculation Agent shall determine the Prime Rate as the arithmetic mean of the prime rates quoted on the basis of the actual number of days in the year divided by a 360-day year as of the close of business in The City of New York on such Prime Rate Determination Date by three major money center banks in The City of New York selected by the Calculation Agent. If fewer than two such rates appear on the Reuters Screen NYMF Page, the Calculation Agent shall determine the Prime Rate as the arithmetic mean on the basis of the prime rates quoted as of the close of business in The City of New York on such Prime Rate Determination Date by three substitute banks or trust companies that are organized and doing business under the laws of the United States or any state thereof, have total equity capital of at least U.S. $500,000,000 and are subject to supervision or examination by Federal or state authorities; provided, however, that if fewer than three such substitute banks or trust companies are S-12 quoting prime rates as mentioned in this sentence, the Prime Rate for such Interest Reset Date will be the Prime Rate in effect on such Prime Rate Determination Date. TREASURY RATE Unless otherwise specified in the applicable Pricing Supplement, the "Treasury Rate" means, with respect to any Treasury Rate Determination Date (as defined below), the rate for the auction held on such Treasury Rate Determination Date of direct obligations of the United States ("Treasury bills") having the Index Maturity designated in the applicable Pricing Supplement as published in H.15(519) under the heading "Treasury bills--auction average (investment)" or, if not so published by 9:00 A.M., New York City time, on the Calculation Date pertaining to such Treasury Rate Determination Date, the auction average rate (expressed as a bond equivalent, on the basis of a year of 365 or 366 days, as applicable, and applied on a daily basis) as otherwise announced by the United States Department of the Treasury. In the event that the results of the auction of Treasury bills having the Index Maturity designated in the applicable Pricing Supplement are not published or reported as provided above by 3:00 P.M., New York City time, on such Calculation Date or if no such auction is held on such Treasury Rate Determination Date, then the Treasury Rate will be calculated by the Calculation Agent and shall be a yield to maturity (expressed as a bond equivalent on the basis of a year of 365 or 366 days, as applicable, and applied on a daily basis) of the arithmetic mean of the secondary market bid rates, as of approximately 3:30 P.M., New York City time, on such Treasury Rate Determination Date, of three leading primary United States government securities dealers selected by the Calculation Agent for the issue of Treasury bills with a remaining maturity closest to the Index Maturity designated in the applicable Pricing Supplement; provided, however, that if the dealers selected as aforesaid by the Calculation Agent are not quoting bid rates as mentioned in this sentence, the Treasury Rate for such Interest Reset Date will be the Treasury Rate in effect on such Treasury Rate Determination Date. The "Treasury Rate Determination Date" will be the day of the week in which the applicable Interest Reset Date falls on which Treasury bills would normally be auctioned. Treasury bills are normally sold at auction on Monday of each week, unless that day is a legal holiday, in which case the auction is normally held on the following Tuesday; provided, however, that if such auction is held on the preceding Friday, such Friday will be the Treasury Rate Determination Date pertaining to the Interest Reset Date occurring in the next week; and, provided, further that if an auction falls on an Interest Reset Date, then such Interest Reset Date will be the first Business Day following such auction. Treasury Rate Notes, like other Notes, are not obligations of the United States government and are not guaranteed by the United States government. CMT RATE Unless otherwise specified in the applicable Pricing Supplement, the "CMT Rate" for each applicable Interest Reset Date will be determined by the Calculation Agent as of the second Business Day prior to such Interest Reset Date (the "CMT Rate Determination Date"), and will be the rate displayed on the Designated CMT Telerate Page (as defined below) under the caption ". . . Treasury Constant Maturities . . . Federal Reserve Board Release H.15 . . . Mondays Approximately 3:45 P.M.," under the column for the Designated CMT Maturity Index (as defined below) for (i) if the Designated CMT Telerate Page is 7055, the rate on such CMT Rate Determination Date and (ii) if the Designated CMT Telerate Page is 7052, the week, or the month, as applicable, ended immediately preceding the week in which the applicable CMT Rate Determination Date occurs. If such rate is no longer displayed on the relevant page, or if not displayed by 3:00 P.M., New York City time, on the Calculation Date pertaining to such CMT Rate Determination Date, then the CMT Rate for such CMT Rate Determination Date will be such treasury constant maturity rate for the Designated CMT Maturity Index as published in the relevant H.15(519). If such rate is no longer published in the relevant H.15(519), or if not published by 3:00 P.M., New York City time, on the Calculation Date pertaining to such CMT Rate Determination Date, then the CMT Rate for such CMT Rate Determination Date will be such treasury constant maturity rate for the Designated CMT Maturity Index S-13 (or other United States Treasury rate for the Designated CMT Maturity Index) for the CMT Rate Determination Date with respect to such Interest Reset Date as may then be published by either the Board of Governors of the Federal Reserve System or the United States Department of the Treasury that the Calculation Agent determines to be comparable to the rate formerly displayed on the Designated CMT Telerate Page and published in the relevant H.15(519). If such information is not provided by 3:00 P.M., New York City time, on the Calculation Date pertaining to such CMT Rate Determination Date, then the CMT Rate for the CMT Rate Determination Date will be calculated by the Calculation Agent and will be a yield to maturity, based on the arithmetic mean of the secondary market closing offer side prices as of approximately 3:30 P.M., New York City time, on the CMT Rate Determination Date reported, according to their written records, by three leading primary United States government securities dealers (each, a "Reference Dealer") in The City of New York selected by the Calculation Agent (from five such Reference Dealers selected by the Calculation Agent and eliminating the highest quotation (or, in the event of equality, one of the highest) and the lowest quotation (or, in the event of equality, one of the lowest)), for the most recently issued direct noncallable fixed rate obligations of the United States ("Treasury Notes") with an original maturity of approximately the Designated CMT Maturity Index and a remaining term to maturity of not less than such Designated CMT Maturity Index minus one year. If the Calculation Agent cannot obtain three such Treasury Note quotations, the CMT Rate for such CMT Rate Determination Date will be calculated by the Calculation Agent and will be a yield to maturity based on the arithmetic mean of the secondary market offer side prices as of approximately 3:30 P.M., New York City time, on the CMT Rate Determination Date of three Reference Dealers in The City of New York (from five such Reference Dealers selected by the Calculation Agent and eliminating the highest quotation (or, in the event of equality, one of the highest) and the lowest quotation (or, in the event of equality, one of the lowest)), for Treasury Notes with an original maturity of the number of years that is the next highest to the Designated CMT Maturity Index and a remaining term to maturity closest to the Designated CMT Maturity Index and in an amount of at least U.S. $100,000,000. If three or four (and not five) of such Reference Dealers are quoting as described above, then the CMT Rate will be based on the arithmetic mean of the offer prices obtained and neither the highest nor the lowest of such quotes will be eliminated; provided, however, that if fewer than three Reference Dealers selected by the Calculation Agent are quoting as described herein, the CMT Rate for such Interest Reset Date will be the CMT Rate in effect on such CMT Rate Determination Date. If two Treasury Notes with an original maturity as described in the second preceding sentence have remaining terms to maturity equally close to the Designated CMT Maturity Index, the quotes for the Treasury Note with the shorter remaining term to maturity will be used. "Designated CMT Telerate Page" means the display on the Dow Jones Telerate Service on the page specified in the applicable Pricing Supplement (or any other page as may replace such page on that service for the purpose of displaying Treasury Constant Maturities as published in H.15(519)), for the purpose of displaying Treasury Constant Maturities as published in H.15(519). If no such page is specified in the applicable Pricing Supplement, the Designated CMT Telerate Page shall be 7052, for the most recent week. "Designated CMT Maturity Index" means the original period to maturity of the Treasury Notes (either one, two, three, five, seven, ten, twenty or thirty years) specified in the applicable Pricing Supplement with respect to which the CMT Rate will be calculated. If no such maturity is specified in the applicable Pricing Supplement, the Designated CMT Maturity Index shall be two years. 11TH DISTRICT COST OF FUNDS RATE Unless otherwise specified in the applicable Pricing Supplement, the "11th District Cost of Funds Rate" for each applicable Interest Reset Date will be determined by the Calculation Agent as of the last Business Day of the month prior to such Interest Reset Date (the "11th District Rate Determination Date"), and will be the rate equal to the monthly weighted average cost of funds for the calendar month preceding such 11th District Rate Determination Date as set forth under the caption "11th District" on Telerate Page 7058 as of 11:00 A.M., San Francisco time, on such 11th District Rate Determination Date. If such rate does not appear S-14 on Telerate Page 7058 on any related 11th District Rate Determination Date, the 11th District Cost of Funds Rate for such 11th District Rate Determination Date shall be the monthly weighted average cost of funds paid by member institutions of the Eleventh Federal Home Loan Bank District that was most recently announced by the Federal Home Loan Bank ("FHLB") of San Francisco as such cost of funds for the calendar month preceding the date of such announcement. If the FHLB of San Francisco fails to announce such rate for the calendar month next preceding such 11th District Rate Determination Date, then the 11th District Cost of Funds Rate for such Interest Reset Date will be the 11th District Cost of Funds Rate then in effect on such 11th District Rate Determination Date. RESET NOTES The Pricing Supplement relating to each Note will indicate whether CFC has the option with respect to such Note to reset the interest rate, in the case of a Fixed Rate Note, or to reset the Spread and/or Spread Multiplier, in the case of a Floating Rate Note (in each case, a "Reset Note"), and, if so, (i) the date or dates on which such interest rate or such Spread and/or Spread Multiplier, as the case may be, may be reset (each an "Optional Interest Reset Date") and (ii) the basis or formula, if any, for such resetting. CFC may exercise such option with respect to a Note by notifying the Trustee of such exercise at least 45 but not more than 60 calendar days prior to an Optional Interest Reset Date for such Note. If the Company so notifies the Trustee of such exercise, not later than 40 calendar days prior to such Optional Interest Reset Date the Trustee will send by telegram, telex, facsimile transmission or letter (first class, postage prepaid) to the Holder of such Note a notice (the "Reset Notice") indicating (i) that CFC has elected to reset the interest rate, in the case of a Fixed Rate Note, or the Spread and/or Spread Multiplier, in the case of a Floating Rate Note, (ii) such new interest rate or such new Spread and/or Spread Multiplier, as the case may be, and (iii) the provisions, if any, for redemption by CFC during the period from such Optional Interest Reset Date to the next Optional Interest Reset Date or, if there is no such next Optional Interest Reset Date, to the Stated Maturity Date of such Note (each such period, a "Subsequent Interest Period"), including the date or dates on which, or the period or periods during which, and the price or prices at which such redemption may occur during such Subsequent Interest Period. Notwithstanding the foregoing, not later than 20 calendar days prior to an Optional Interest Reset Date for a Note, CFC may, at its option, revoke the interest rate, in the case of a Fixed Rate Note, or the Spread and/or Spread Multiplier, in the case of a Floating Rate Note, provided for in the Reset Notice and establish a higher interest rate, in the case of a Fixed Rate Note, or a higher Spread and/or Spread Multiplier, in the case of a Floating Rate Note, for the Subsequent Interest Period commencing on such Optional Interest Reset Date by causing the Trustee to send by telegram, telex, facsimile transmission or letter (first class, postage prepaid) notice of such higher interest rate or higher Spread and/or Spread Multiplier, as the case may be, to the Holder of such Note. Such notice shall be irrevocable. All Notes with respect to which the interest rate or Spread and/or Spread Multiplier is reset on an Optional Interest Reset Date, and with respect to which Holders of such Notes have not surrendered such Notes for repayment (or have validly revoked any such surrender) pursuant to the next paragraph, will bear such higher interest rate, in the case of a Fixed Rate Note, or higher Spread and/or Spread Multiplier, in the case of a Floating Rate Note. If CFC elects prior to an Optional Interest Reset Date to reset the interest rate or the Spread and/or Spread Multiplier of a Note, the Holder of such Note will have the option to elect repayment of such Note by CFC on such Optional Interest Reset Date at a price equal to the principal amount thereof plus any accrued interest to such Optional Interest Reset Date. In order to obtain repayment of such Note to be so repaid on such Optional Interest Reset Date, the Holder thereof must follow the procedures set forth below under "Redemption and Repayment" for optional repayment, except that the period for delivery of such Note or notification to the Trustee shall be at least 25 but not more than 35 calendar days prior to such Optional Interest Reset Date. A Holder who has tendered a Note for repayment following receipt of a Reset Notice may revoke such tender for repayment by written notice to the Trustee received prior to 5:00 P.M., New York City time, on the 10th calendar day prior to such Optional Interest Reset Date. S-15 EXTENSION OF MATURITY The Pricing Supplement relating to each Note will indicate whether the Company has the option to extend the Stated Maturity Date of such Note for one or more periods of one to five whole years (each such period, an "Extension Period") up to but not beyond the date (the "Final Stated Maturity Date") set forth in such Pricing Supplement. CFC may exercise such option with respect to a Note by notifying the Trustee of such exercise at least 45 but not more than 60 calendar days prior to the Stated Maturity Date of such Note in effect prior to the exercise of such option (the "Current Stated Maturity Date"). If CFC so notifies the Trustee of such exercise, not later than 40 calendar days prior to the Current Stated Maturity Date the Trustee will send by telegram, telex, facsimile transmission or letter (first class, postage prepaid) to the Holder of such Note a notice (the "Extension Notice") relating to such Extension Period, indicating (i) that CFC has elected to extend the Current Stated Maturity Date of such Note, (ii) the new Stated Maturity Date and the Final Stated Maturity Date, (iii) in the case of a Fixed Rate Note, the interest rate applicable to the Extension Period or, in the case of a Floating Rate Note, the Spread and/or Spread Multiplier applicable to the Extension Period, and (iv) the provisions, if any, for redemption by CFC during the Extension Period, including the date or dates on which, or the period or periods during which, and the price or prices at which such redemption may occur during the Extension Period. Upon the sending by the Trustee of an Extension Notice to the Holder of a Note, the Current Stated Maturity Date of such Note shall be extended automatically, and, except as modified by the Extension Notice and as described in the next two paragraphs, such Note will have the same terms as prior to the sending of such Extension Notice. Notwithstanding the foregoing, not later than 20 calendar days prior to the Current Stated Maturity Date of a Note, CFC may, at its option, revoke the interest rate, in the case of a Fixed Rate Note, or the Spread and/or Spread Multiplier, in the case of a Floating Rate Note, provided for in the Extension Notice and establish a higher interest rate, in the case of a Fixed Rate Note, or a higher Spread and/or Spread Multiplier, in the case of a Floating Rate Note, for the Extension Period by causing the Trustee to send by telegram, telex, facsimile transmission or letter (first class, postage prepaid) notice of such higher interest rate or higher Spread and/or Spread Multiplier, as the case may be, to the Holder of such Note. Such notice shall be irrevocable. All Notes with respect to which the Current Stated Maturity Date is extended, and with respect to which the Holders of such Notes have not surrendered such Notes for repayment (or have validly revoked any such surrender) pursuant to the next paragraph, will bear such higher interest rate, in the case of a Fixed Rate Note, or higher Spread and/or Spread Multiplier, in the case of a Floating Rate Note, for the Extension Period. If CFC elects to extend the Current Stated Maturity Date of a Note, the Holder of such Note will have the option to elect repayment of such Note by CFC on the Current Stated Maturity Date at a price equal to the principal amount thereof plus any accrued interest to the Current Stated Maturity Date. In order for a Note to be so repaid on the Current Stated Maturity Date, the Holder thereof must follow the procedures set forth below under "Redemption and Repayment" for optional repayment, except that the period for delivery of such Note or notification to the Trustee shall be at least 25 but not more than 35 calendar days prior to the Current Stated Maturity Date. A Holder who has tendered a Note for repayment following receipt of an Extension Notice may revoke such tender for repayment by written notice to the Trustee received prior to 5:00 P.M., New York City time on the 10th calendar day prior to the Current Stated Maturity Date. RENEWABLE NOTES If so indicated in the applicable Pricing Supplement, the term of all or any portion of a Note may be renewed beyond the Stated Maturity Date by the Holder in accordance with the procedures described in such Supplement. S-16 COMBINATION OF PROVISIONS If so specified in the applicable Pricing Supplement, any Note may be subject to all of the provisions, or any combination of the provisions, described above under "--Reset Notes," "--Extension of Maturity" and "-- Renewable Notes." BOOK-ENTRY NOTES Upon issuance, all Book-Entry Notes having the same Specified Currency, Issue Date, Stated Maturity Date, redemption and/or repayment provisions, if any, reset and/or extension provisions, if any, Interest Payment Dates, if any, and, in the case of Fixed Rate Notes, interest rate or, in the case of Floating Rate Notes, Base Rate or Rates, Initial Interest Rate, Index Maturity, Interest Reset Dates, Spread and/or Spread Multiplier, if any, Minimum Interest Rate, if any, and/or Maximum Interest Rate, if any, will be represented by one or more global securities (each, "Global Note"). Each Global Note representing Book-Entry Notes will be deposited with, or on behalf of, DTC, or such other depositary as is specified in the Pricing Supplement (the "Depositary"), and registered in the name of a nominee of such Depositary. Global Notes may not be transferred except as a whole by the applicable Depositary to a nominee of such Depositary or by a nominee of such Depositary to such Depositary or another nominee of such Depositary or by such Depositary or any nominee to a successor of such Depositary or a nominee of such successor. Book-Entry Notes will not be exchangeable for Certificated Notes and, except under the limited circumstances described below, will not otherwise be issuable in definitive form. DTC has advised CFC and the Agents as follows: DTC will initially act as securities depository for the Global Notes. The Global Notes will be issued as fully registered securities registered in the name of Cede & Co. (DTC's partnership nominee). One fully registered Global Note will be issued with respect to each $200,000,000 of principal amount of Notes. DTC is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934, as amended. DTC holds securities that its participants ("Participants") deposit with it. DTC also facilitates the settlement among Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in Participants' accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations ("Direct Participants"). DTC is owned by a number of its Direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc., and the National Association of Securities Dealers, Inc. Access to DTC's system is also available to others such as securities brokers and dealers, banks, and trust companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). The Rules applicable to DTC and its Participants are on file with the Securities and Exchange Commission. Purchases of securities under DTC's system must be made by or through Direct Participants, which will receive a credit for the securities on DTC's records. The ownership interest of each actual purchaser of each security (a "beneficial owner") is in turn recorded on the Direct Participant's and Indirect Participant's records. Beneficial owners will not receive written confirmation from DTC of their purchase, but such beneficial owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct Participant or Indirect Participant through which the beneficial owner entered into the transaction. Transfers of ownership interests in the securities are to be accomplished by entries made on the books of Participants acting on behalf of beneficial owners. Beneficial owners will not receive certificates representing their ownership S-17 interests in securities, except in the event that use of the book-entry system for the securities is discontinued. To facilitate subsequent transfers, all securities deposited by Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co. The deposit of securities with DTC and their registration in the name of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of the actual beneficial owners of the securities; DTC's records reflect only the identity of the Direct Participants to whose accounts such securities are credited, which may or may not be the beneficial owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to beneficial owners is governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Redemption notices shall be sent to Cede & Co. If less than all of the securities within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. will consent or vote with respect to securities. Under its usual procedures, DTC mails an Omnibus Proxy to the issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the securities are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal, premium, if any, and interest payments on the securities will be made to DTC. DTC's practice is to credit Direct Participants' accounts on the payable date in accordance with their respective holdings shown on DTC's records unless DTC has reason to believe that it will not receive payment on the payable date. Payments by Participants to beneficial owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, the applicable Paying Agent, or CFC, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to DTC is the responsibility of CFC or the applicable Paying Agent, disbursement of such payments to Direct Participants shall be the responsibility of DTC, and disbursement of such payments to the beneficial owners shall be the responsibility of Direct Participants and Indirect Participants. DTC may discontinue providing its services as securities depository with respect to the Global Notes at any time by giving reasonable notice to CFC, the Trustee or the applicable Paying Agent. Under such circumstances, in the event that a successor securities depository is not obtained, the Global Notes are required to be printed and delivered. CFC may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, the Global Notes will be printed and delivered. The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that CFC believes to be reliable, but CFC takes no responsibility for the accuracy thereof. So long as the Depositary for a Global Note, or its nominee, is the registered owner of such Global Note, such Depositary or such nominee, as the case may be, will be considered the sole owner or Holder of the Book-Entry Notes represented by such Global Note for all purposes under the Indenture governing such Book-Entry Notes. Except as set forth below, owners of beneficial interests in such Global Notes will not be entitled to have Notes represented by such Global Note registered in their names, will not receive or be entitled to receive physical delivery of Certificated Notes and will not be considered the owners or Holders thereof under the Indenture. Accordingly, each person owning a beneficial interest in a Global Note must rely on the procedures of the Depositary and, if such person is not a Participant, those of the Participant S-18 through which such person owns its interests, in order to exercise any rights of a Holder under the Indenture or such Note. The laws of some jurisdictions require that certain purchasers of securities take physical delivery of such securities in definitive form. Such limits and such laws may impair the ability to transfer beneficial interests in a Global Note. Principal, premium, if any, and interest payments on Notes registered in the name of or held by the Depositary or its nominee will be made to the Depositary or its nominee, as the case may be, as the registered owner or the Holder of the Global Note representing such Book-Entry Notes. None of CFC, the Trustee, the Calculation Agent, any Paying Agent or the Security Registrar will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in a Global Note for such Book-Entry Notes or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. If the Depositary is at any time unwilling, unable or ineligible to continue as Depositary and a successor Depositary is not appointed by CFC within 60 days or if an Event of Default under the Indenture has occurred and is continuing, CFC will issue Certificated Notes in exchange for the Global Note or Notes representing such Book-Entry Notes. In addition, CFC may at any time and in its sole discretion determine not to have any Notes in registered form represented by one or more Global Notes and, in such event, will issue Certificated Notes in exchange for all Global Notes representing such Notes. In any such instance, an owner of a beneficial interest in a Global Note will be entitled to physical delivery of Certificated Notes represented by such Global Note equal in principal amount to such beneficial interest and to have such Notes registered in its name. REDEMPTION AND REPAYMENT If so specified in the applicable Pricing Supplement, CFC may at its option on and after the Initial Redemption Date, if any, set forth in a Note redeem such Note in whole or, from time to time, in part in increments of $1,000 (provided that any remaining principal amount thereof shall not be less than $100,000 (or such other amount in a foreign currency or currency unit as is specified in the applicable Pricing Supplement), or, if another minimum denomination is set forth in the applicable Pricing Supplement, then such minimum denomination) at the sum of (i) 100% of the unpaid principal amount thereof or the portion thereof redeemed (or, if such Note is an Original Issue Discount Security (as defined below), the Amortized Face Amount (as defined below) determined as of the Redemption Date as provided below), plus (ii) the Initial Redemption Percentage specified in the applicable Pricing Supplement (as adjusted by the Annual Redemption Percentage Reduction, if applicable) multiplied by the unpaid principal amount or the portion thereof redeemed (or, if such Note is an Original Issue Discount Security, the Issue Price thereof, net of any portion of such Issue Price which has been deemed paid prior to redemption (by reason of any payments, other than a payment of qualified stated interest, in excess of the original issue discount accrued to the date of such payment), or the portion of such Issue Price (or such net amount) proportionate to the portion of the unpaid principal amount of the Note redeemed), plus (iii) accrued interest to the Redemption Date (or, if such Note is an Original Issue Discount Security, any accrued interest to the Redemption Date the payment of which would constitute qualified stated interest payments within the meaning of Treasury Regulation Section 1.1273-1(c) under the Internal Revenue Code of 1986, as amended (the "Code"), as in effect on the date hereof). Such Initial Redemption Percentage shall decline at each anniversary of the Initial Redemption Date by an amount equal to the Annual Redemption Percentage Reduction, if any, specified in the applicable Pricing Supplement, until the Initial Redemption Percentage equals zero percent. CFC may exercise such option by causing the Trustee to mail a notice of such redemption to the Holder of such Note not less than 30 but not more than 60 days prior to the Redemption Date. In the event of redemption of such Note in part only, a new Note or Notes for the unredeemed portion thereof shall be issued in the name of the Holder thereof upon the cancellation thereof. If less than all of the Notes with like tenor and terms to such Note are to be redeemed, the Notes to be redeemed shall be selected by the Trustee by such method as the Trustee shall deem fair and appropriate. S-19 An "Original Issue Discount Security" means any Note that has been issued at an Issue Price lower, by an amount that equals or exceeds a de minimis amount (as determined under United States Federal income tax rules applicable to original issue discount instruments), than the principal amount thereof. The "Amortized Face Amount" of such Note shall be the amount equal to the sum of (a) the Issue Price plus (b) the aggregate of the portions of the original issue discount (the excess of the amounts considered as part of the "stated redemption price at maturity" of such Note within the meaning of Section 1273(a)(2) of the Code, whether denominated as principal or interest, over the Issue Price of such Note) which shall theretofore have accrued pursuant to Section 1272 of the Code (without regard to Section 1272(a)(7) of the Code) from the Issue Date of such Note to the date of determination, minus (c) any amount considered as part of the "stated redemption price at maturity" of such Note which has been paid on such Note from the Issue Date to the date of determination. If a Note is an Original Issue Discount Security, the amount payable in the event of acceleration of the maturity thereof shall be the Amortized Face Amount, plus accrued but unpaid qualified stated interest as defined in clause (iii) of the first sentence of the preceding paragraph. If so specified in the applicable Pricing Supplement, the Notes will be repayable by CFC in whole or in part at the option of Holders thereof on their respective Optional Repayment Dates specified in such Pricing Supplement. If no Optional Repayment Date is specified with respect to a Note, such Note will not be repayable at the option of the Holder thereof prior to the Stated Maturity Date. Any repayment in part will be in increments of $1,000 (provided that any remaining principal amount thereof shall be at least the minimum denomination). Unless otherwise specified in the applicable Pricing Supplement, the repayment price for any Note to be repaid means an amount equal to the sum of (i) 100% of the unpaid principal amount thereof or the portion to be repaid thereof plus (ii) accrued interest to the Repayment Date. For any Note to be repaid, such Note must be received, together with the form thereon entitled "Option to Elect Repayment" duly completed, by the Trustee at its Corporate Trust Office (or such other address of which CFC shall from time to time notify the Holders) not more than 60 nor less than 30 days prior to the Repayment Date. Exercise of such repayment option by the Holder will be irrevocable, except as otherwise provided above under "--Reset Notes" and "--Extension of Maturity." While the Book-Entry Notes are represented by the Global Notes held by or on behalf of the Depositary, and registered in the name of the Depositary or the Depositary's nominee, the option for repayment may be exercised by the Depositary, acting on behalf of each applicable Participant who is, in turn, acting on behalf of the beneficial owners of the Global Note or Notes representing such Book-Entry Notes, by delivering a written notice substantially similar to the above mentioned form to the Trustee at its Corporate Trust Office (or such other address of which CFC shall from time to time notify the Holders), not more than 60 nor less than 30 days prior to the Repayment Date. Notices of elections from the Depositary must be received by the Trustee by 5:00 P.M., New York City time, on the last day for giving such notice. In order to ensure that a notice is received by the Trustee on a particular day, the beneficial owner of the Global Note or Notes representing such Book-Entry Notes must so direct the applicable Participant before such Participant's deadline for accepting instructions for that day. Different firms may have different deadlines for accepting instructions from their customers. Accordingly, beneficial owners of the Global Note or Notes representing Book- Entry Notes should consult the Participants through which they own their interest therein for the respective deadlines for such Participants. All instructions given to Participants from beneficial owners of Global Notes relating to the option to elect repayment shall be irrevocable, except as otherwise provided above under "--Reset Notes" and "--Extension of Maturity." In addition, at the time such instructions are given, such beneficial owners shall cause the applicable Participant to transfer such beneficial owner's interest in the Global Note or Notes representing the related Book-Entry Notes, on the Depositary's records, to the Trustee. See "--Book-Entry Notes" above. CFC or CCI may purchase Notes in the open market by tender or contract. Notes so purchased may be held, resold or surrendered to the Trustee for cancellation. If applicable, CFC will comply with the requirements of Rule 14e-1 under the Securities Exchange Act of 1934, as amended, and any other securities laws or regulations in connection with any such repayment. S-20 GUARANTEES The Notes will be unconditionally guaranteed by CCI as to payment of principal, premium, if any, and interest, when and as the same shall become due and payable, whether at maturity or upon redemption or repayment or otherwise. See "Description of Debt Securities and Guarantees" in the accompanying Prospectus. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS The following is a general summary of certain of the anticipated United States Federal income tax consequences of the purchase, ownership and disposition of Notes. The summary is for general information only and is based on the Code, the Treasury Regulations promulgated or proposed thereunder, and judicial and administrative interpretations thereof, all as in effect on the date hereof and all of which are subject to change, possibly with retroactive effect, or to different interpretations. Holders of Notes should be aware that on December 15, 1994, the Internal Revenue Service released proposed amendments to the Treasury Regulations. If adopted, these amendments would generally be effective for debt instruments issued 60 days or more after the date on which such proposed amendments are finalized. The tax treatment of a holder of the Notes may vary depending upon the particular situation of the holder. The summary is limited to investors who will hold the Notes as "capital assets" within the meaning of Section 1221 of the Code and does not deal with holders in special tax situations (including, but not limited to, insurance companies, tax-exempt organizations, financial institutions, dealers in securities or currencies, holders whose functional currency is not the U.S. dollar, or holders who will hold Notes as a hedge against currency risks or as a position in a "straddle" for tax purposes), who may be subject to special rules not discussed below. The summary does not apply to holders that are not United States Holders (defined below). The summary is applicable to initial purchasers of Notes only and does not address subsequent purchasers. The discussion below also does not address the effect of any United States, state, local or foreign tax law on a holder of Notes. As used herein, the term "United States Holder" means an individual who is a citizen or resident of the United States, a partnership, corporation or other entity organized in or under the laws of the United States or any state thereof, or an estate or trust that is subject to United States Federal income taxation without regard to the source of its income. The summary does not constitute, and should not be considered as, legal or tax advice to prospective holders of Notes. Each prospective holder of Notes should consult a tax advisor as to the particular tax consequences of holding Notes to such holder, including the applicability and effect of any state, local or foreign tax laws. PAYMENTS OF INTEREST Interest on a Note, other than interest on a Discount Note (defined below under "Original Issue Discount") that is not a "qualified stated interest" payment (also as defined under "Original Issue Discount"), will be taxable to a holder as ordinary interest income at the time it is accrued or is received in accordance with the holder's method of accounting for tax purposes. If interest is paid in a Specified Currency other than U.S. dollars ("Foreign Currency"), the amount of interest income realized by a holder will be the U.S. dollar value of (a) in the case of a cash basis holder, the Foreign Currency received (based on the spot rate in effect on the date of receipt), or (b) in the case of an accrual basis holder, the Foreign Currency accrued during an interest accrual period, or partial interest accrual period (based on (i) the average exchange rate in effect during the accrual period, (ii) the spot rate on the last day of the accrual period or (iii) the spot rate on the payment date, if such date is within five business days of the last day of the accrual period), in each case, regardless of whether the payment is in fact converted into U.S. dollars. In the case of an accrual basis holder, S-21 at the time the interest accrued is received, the holder will realize exchange gain or loss, taxable as ordinary income or loss, equal to the difference, if any, between the amount of Foreign Currency received with respect to such accrual period (translated into U.S. dollars at the spot rate in effect on the date the interest is received) and the amount of interest on the Note included in income. The Federal income tax consequences of the disposition of Foreign Currency received as interest are described below under "--Exchange of Amounts in Foreign Currency." ORIGINAL ISSUE DISCOUNT General. A Note will be treated as issued at an original issue discount (a "Discount Note") if the excess of the "stated redemption price at maturity" of the Note over its issue price (defined as the first price at which a substantial amount of Notes of the same issue is sold to the public) equals or exceeds a de minimis amount (generally 1/4 of 1 percent of the Note's stated redemption price at maturity multiplied by the number of complete years from the issue date to maturity). "Stated redemption price at maturity" is the total of all payments provided by the Note that are not payments of "qualified stated interest." A "qualified stated interest" payment is a payment of stated interest that is unconditionally payable in cash or property (other than debt instruments of CFC) at least annually during the entire term of the Note, including short periods, with respect to a Floating Rate Note, at certain specified types of variable rates (as discussed below) or, with respect to a Fixed Rate Note, at a single fixed rate. Interest is payable at a single fixed rate only if the rate appropriately takes into account the length of the intervals between payments. Stated interest that exceeds qualified stated interest is included in the Note's stated redemption price at maturity. Holders of Discount Notes having a maturity of more than one year from their date of issue will be required to include original issue discount in income as it accrues, which can result in recognition of income before the receipt of cash attributable to such income. The amount of original issue discount includable in income by the holder of such a Discount Note is the sum of the daily portions of original issue discount with respect to the Discount Note for each day during the taxable year or portion of the taxable year in which it holds such Discount Note ("accrued original issue discount"). The daily portion is determined by allocating to each day in any "accrual period" a pro rata portion of the original issue discount that accrued in such period (the excess of (a) the product of the Discount Note's adjusted issue price at the beginning of the accrual period and its yield to the maturity, appropriately adjusted for the length of the period, over (b) the sum of the qualified stated interest payments, if any, payable during the accrual period). The "accrual period" for a Discount Note may be of any length and may vary in length over the term of a Note, provided that each accrual period is no longer than one year and each scheduled payment of principal or interest occurs either on the first day or the last day of an accrual period. The "adjusted issue price" of a Discount Note at the start of any accrual period is the sum of the issue price of the Note plus the accrued original issue discount for each prior accrual period minus any prior payments on the Note that were not qualified stated interest payments. Holders of Notes with a de minimis amount of original issue discount must include a proportionate amount of each payment of stated principal received in respect of the Notes in income as capital gain. Floating Rate Notes. If a Floating Rate Note that otherwise qualifies as a "variable rate debt instrument" under the applicable Treasury Regulations provides for stated interest at a single "qualified floating rate" or a single "objective rate" (each as defined in the Treasury Regulations) that is unconditionally payable in cash or property (other than debt instruments of CFC), or that will be constructively received, at least annually, then all payments of stated interest with respect to such Note will be "qualified stated interest." The amount of original issue discount (if any) with which such a Note is issued will be determined under the rules discussed above by assuming that the Floating Rate Note pays stated interest at the appropriate fixed rate substitute (generally, the value, as of the Issue Date, of the floating rate, or in the case of certain Floating Rate Notes, a fixed rate that reflects the yield that is reasonably expected for such Notes). The Treasury Regulations provide additional rules for Floating Rate Notes that qualify as variable rate debt instruments and that provide for stated interest at more than one floating rate or at a fixed rate for a portion of its term. In certain cases, such Floating Rate Notes that are not issued at a discount may be deemed S-22 to bear original issue discount for Federal income tax purposes, with the result that inclusion of original issue discount in gross income for Federal income tax purposes may vary from the cash payments of interest received on such Notes, generally accelerating income for cash method taxpayers. For example, under the Treasury Regulations, a Floating Rate Note may be a Discount Note where (a) it bears interest at a floating rate followed by another floating rate and, as of the Issue Date, the values of the two floating rates differ, or (b) it bears interest at a fixed rate followed by a floating rate (or vice versa) and, as of the Issue Date, the value of the floating rate differs from the fixed rate. The tax treatment of a United States Holder of a Floating Rate Note ultimately will depend upon the precise terms of the Notes offered; consequently, the proper tax treatment of such Notes will be more fully described in the applicable Pricing Supplement. A Floating Rate Note that does not qualify as a variable rate debt instrument under the Treasury Regulations will be treated as a contingent payment obligation. For example, a Floating Rate Note will not qualify as a variable rate debt instrument under the Treasury Regulations if, among other things, it provides for either a minimum rate of interest or a maximum rate of interest that, in either case, is not fixed throughout its term and is reasonably expected, as of the Issue Date, to cause the yield on the Note to be significantly more or less than the yield determined without regard to the minimum or maximum rate of interest. The Treasury Regulations governing the treatment of contingent payment obligations currently are only in proposed form. The tax treatment of a Floating Rate Note that is treated as a contingent payment obligation will be more fully described in the applicable Pricing Supplement. Any determination of the type described above made by CFC when a Note is issued may be subject to subsequent changes and clarifications of applicable law or to challenge by the Internal Revenue Service. Optional Redemption. An unconditional option of CFC or a Holder to redeem a Note prior to the Maturity Date will be presumed to be exercised if, by utilizing any date on which the Note may be redeemed as its maturity date and the amount payable on that date in accordance with the terms of the Note (the "redemption price") as its stated redemption price at maturity, the yield on the Note is lower than its yield to maturity in the case of an option exercisable by CFC (or, in the case of an option exercisable by a Holder, is greater than its yield to maturity). If such an option is not in fact exercised when presumed to be, solely for purposes of accruing original issue discount, the Note will be treated as if it were redeemed, and a new Note issued, on the presumed exercise date for an amount equal to its adjusted issue price on that date. Short-Term Notes. A Note that matures one year or less from the date of its issuance (a "Short-Term Note") will be treated as having been issued at an original issue discount equal to the excess of the total principal and interest payments on the Note over its issue price. In general, an individual or other cash basis holder of a Short-Term Note is not required to currently include in income accrued original issue discount for United States Federal income tax purposes unless it elects to do so. Accrual basis holders and certain other holders are required to include in income accrued original issue discount on Short-Term Notes on a straight-line basis unless an irrevocable election is made to include in income accrued original issue discount under the constant yield method (based on daily compounding). In the case of a holder not required and not electing to include accrued original issue discount in income currently, any gain realized on the sale or retirement of the Short-Term Note will be ordinary income to the extent of the original issue discount accrued on a straight-line basis (or, at the holder's irrevocable election, under a constant yield method, based on daily compounding) through the date of sale or retirement. A holder who is not required and does not elect to include in income accrued original issue discount on a Short-Term Note will be required to defer deduction of a portion of the holder's interest expense with respect to any indebtedness incurred or maintained to purchase or carry the Note. Foreign Currency Denominated Discount Notes. In the case of a Discount Note denominated in a Foreign Currency, for purposes of calculating original issue discount, a holder should: (i) calculate the amount and accrual of original issue discount in respect of the Note in the Foreign Currency; (ii) determine the U.S. dollar amount of original issue discount includable in income for each accrual period by translating the Foreign Currency amounts into U.S. dollars based on the average exchange rate in effect during that accrual period S-23 or based on the spot rate (A) on the last day of the relevant accrual period (or partial accrual period) or (B) on the payment date, if such date is within five business days of the last day of the accrual period; and (iii) recognize any Foreign Currency gain or loss when the original issue discount is received to the extent of the difference between the amount determined pursuant to clause (ii) above and the U.S. dollar value of such payment determined by translating the Foreign Currency at the spot rate in effect on the date of payment. The Federal income tax consequences of the disposition of any Foreign Currency received are described below under "--Exchange of Amounts in Foreign Currency." For these purposes, all receipts with respect to a Note will be treated first as the receipt of periodic interest (determined under Section 1273 of the Code and the Treasury Regulations), second as payments of previously accrued original issue discount (to the extent thereof, with payments treated as made for the earliest accrual periods first), and thereafter as the receipt of principal. NOTES PURCHASED AT A PREMIUM A holder that purchases a Note for an amount in excess of its principal amount may elect to treat that excess as "amortizable bond premium," in which case the amount required to be included in the holder's income each year with respect to interest on the Note will be reduced by the amount of amortizable bond premium allocable (based on the Note's yield to maturity) to that year. Any such election would apply to all bonds (other than bonds the interest on which is excludable from gross income) held by the holder at the beginning of the first taxable year to which the election applies or thereafter acquired by the holder, and is irrevocable without the consent of the Internal Revenue Service. Amortizable bond premium on a Note denominated in a Foreign Currency will, if a holder so elects, reduce the amount of Foreign Currency interest income on the Note. An electing holder will recognize exchange gain or loss at the time it offsets the portion of the premium amortized with respect to any period against the interest income for such period, by treating such portion as a return of principal. ELECTION TO TREAT ALL INTEREST AS ORIGINAL ISSUE DISCOUNT A holder may elect to treat all interest on any Note as original issue discount and calculate the amount includible in gross income under the constant yield method described above. For the purposes of this election, interest includes stated interest, acquisition discount, original issue discount, de minimis original issue discount, market discount, de minimis market discount and unstated interest, as adjusted by any amortizable bond premium or acquisition premium. The election is made for the year in which the holder acquired the Note, and may not be revoked without the consent of the Internal Revenue Service. PURCHASE, SALE AND RETIREMENT OF THE NOTES A holder's tax basis in a Note will be its cost, increased by the amount of any original issue discount included in the holder's income with respect to the Note and reduced by the amount of any cash payments on the Note that are not qualified stated interest payments and by the amount of any amortizable bond premium applied to reduce interest on the Note. In the case of a Note denominated, and purchased, in a Foreign Currency, the holder's initial tax basis will be the U.S. dollar value of the Foreign Currency on the date of purchase of the Note. A holder will recognize gain or loss on the sale or retirement of a Note equal to the difference between the amount realized on the sale or retirement and the holder's tax basis in the Note. The amount realized on a sale or retirement for an amount in a Foreign Currency will be the U.S. dollar value of that currency on the date, determined in accordance with the holder's method of accounting, that such Foreign Currency is deemed received. As a general rule (with the exception of amounts attributable to accrued but unpaid interest, amounts attributable to changes in exchange rates, and amounts received with respect to certain Short-Term Notes), gain or loss recognized on the sale or retirement of a Note will be capital gain or loss and will be long-term S-24 capital gain or loss if the Note was held for more than one year. Gain or loss recognized by a holder on the sale or retirement of a Note denominated in a Foreign Currency will be treated as ordinary income or loss to the extent such gain or loss is attributable to changes in exchange rates. Gain or loss attributable to changes in exchange rates will be calculated by multiplying the holder's tax basis in a Note by the change in exchange rates between the date that the holder acquired the Note and the date on which the amount realized on its sale or retirement is due or received, in accordance with the holder's method of accounting. However, exchange gain or loss is taken into account only to the extent of total gain or loss realized on the transaction. If Treasury Regulations proposed on March 17, 1992 are finalized in their current form, certain United States Holders will be able to elect to apply mark-to-market treatment to all foreign currency denominated financial transactions they enter into, including the Notes, for purposes of determining the amount and timing of foreign currency gain or loss to be recognized on the Notes. Under these proposed regulations, similar non-elective rules will apply with respect to the determination of foreign currency gain or loss on Notes denominated in certain hyperinflationary currencies. EXCHANGE OF AMOUNTS IN FOREIGN CURRENCY Foreign Currency received on the sale or retirement of a Note will have a tax basis equal to the U.S. dollar value of that currency on the date received. An accrual basis holder may realize exchange gain or loss upon receipt of such Foreign Currency, if the date of receipt differs from the date such Foreign Currency is deemed received. Foreign Currency received as interest on a Note will have a tax basis equal to its U.S. dollar value on the date such interest was received. Foreign Currency which is purchased generally will have a tax basis equal to the U.S. dollar cost of acquisition. Any gain or loss recognized on a sale or other disposition of Foreign Currency (including its use to purchase Notes or upon exchange for U.S. dollars) will be ordinary income or loss. Accordingly, a holder that converts U.S. dollars to a Foreign Currency and immediately uses that Foreign Currency to purchase a Note denominated in the same currency normally will not recognize gain or loss in connection with such conversion and purchase. However, a holder that purchases a Note with previously owned Foreign Currency may recognize ordinary income or loss in an amount equal to the difference between the holder's tax basis in the Foreign Currency and the U.S. dollar value of the Note on the date of purchase. BACKUP WITHHOLDING A holder of a Note may be subject to backup withholding at a rate of 31% with respect to payments of principal and any premium or interest (including original issue discount) made on the Note or the proceeds of a sale or exchange of the Note before maturity unless such holder (a) is a corporation or comes within certain other exempt categories and, when required, demonstrates this fact, or (b) provides a taxpayer identification number, certifies that the holder is not subject to backup withholding, and otherwise complies with applicable requirements of the backup withholding rules. A holder of a Note that does not provide CFC, or its agent, with a correct taxpayer identification number or an adequate basis for exemption may be subject to penalties imposed by the Internal Revenue Service. The backup withholding tax is not an additional tax and will be credited against a holder's United States Federal income tax liability provided the required information is furnished to the Internal Revenue Service. PLAN OF DISTRIBUTION OF NOTES Under the terms of a Selling Agency Agreement (the "Agency Agreement"), the Notes are offered on a continuous basis by CFC through Lehman Brothers, Lehman Brothers Inc. (including its affiliate, Lehman Government Securities Inc.), Goldman, Sachs & Co., Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Salomon Brothers Inc (the "Agents"), each of which has agreed to use its reasonable best efforts to solicit purchases of the Notes. CFC will pay to each Agent a commission, in the form of a discount, ranging from % to % of the principal amount of any Note (or in the case of an Original S-25 Issue Discount Note, the price to the public), depending on its maturity, sold through such Agent, except that the commission payable by CFC to the Agents with respect to Notes with maturities of greater than 30 years will be negotiated at the time CFC issues such Notes. Each Agent will have the right, in its discretion reasonably exercised, to reject in whole or in part any offer to purchase Notes received by such Agent. CFC will have the sole right to accept offers to purchase Notes and may reject any such offer in whole or in part. CFC also may sell Notes to an Agent, acting as principal, at a discount to be agreed upon at the time of sale, for resale to one or more investors or other purchasers at varying prices related to prevailing market prices at the time of such resale, as determined by such Agent or, if so specified in the applicable Pricing Supplement, for resale at a fixed public offering price. CFC reserves the right to sell Notes from time to time directly on its own behalf to investors or through other agents, dealers or underwriters; if CFC grants any discount or pays any commission to such persons, such discount or commission will be disclosed in the applicable Pricing Supplement. In addition, the Agents may offer the Notes they have purchased as principal to other dealers. The Agents may sell Notes to any dealer at a discount and such discount allowed to any dealer may be all or part of the discount to be received by such Agent from CFC. Unless otherwise indicated in the applicable Pricing Supplement, any Note sold to an Agent as principal will be purchased by such Agent at a price equal to 100% of the principal amount thereof less a percentage equal to the commission applicable to an agency sale of a Note of identical maturity, and may be resold by the Agent to investors and other purchasers from time to time in one or more transactions, including negotiated transactions, at fixed prices or at varying prices as described above. After the initial public offering of Notes to be resold to investors and other purchasers, the public offering price (in the case of Notes to be resold on a fixed price basis), concession and discount may be changed. Payment of the purchase price of the Notes will be required to be made in immediately available funds in The City of New York. The Agents may be deemed to be "underwriters" within the meaning of the Securities Act of 1933, as amended (the "Securities Act"). CFC has agreed to indemnify each Agent against certain liabilities, including liabilities under the Securities Act, or to contribute to payments an Agent may be required to make in respect thereof. CFC has agreed to reimburse the Agents for certain expenses, including fees and disbursements of counsel to the Agents. CFC has been advised by the Agents that they may from time to time purchase and sell Notes in the secondary market, but that they are not obligated to do so. No assurance can be given that there will be a secondary market for the Notes or liquidity in the secondary market if one develops. VALIDITY OF SECURITIES The validity of the Notes will be passed upon for CFC and CCI by Fried, Frank, Harris, Shriver & Jacobson, a partnership including professional corporations, New York, New York. The statements under "Certain Federal Income Tax Considerations," to the extent they constitute statements of law, are set forth herein in reliance upon the opinion of Fried, Frank, Harris, Shriver & Jacobson. Edwin Heller, whose professional corporation is a member of Fried, Frank, Harris, Shriver & Jacobson, is a director of CCI. Brown & Wood, New York, New York will serve as counsel to the Agents. Brown & Wood also serves as counsel for CWMBS, Inc., a wholly owned subsidiary of CCI, in connection with offerings of mortgage pass-through certificates, and as counsel to CWM Mortgage Holdings, Inc. S-26 ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED JUNE 16, 1995 PROSPECTUS LOGO COUNTRYWIDE (SM) ----------------------- CREDIT INDUSTRIES, INC. COMMON STOCK, PREFERRED STOCK AND DEBT SECURITIES COUNTRYWIDE FUNDING CORPORATION DEBT SECURITIES PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND INTEREST UNCONDITIONALLY GUARANTEED BY COUNTRYWIDE CREDIT INDUSTRIES, INC. ----------- Countrywide Credit Industries, Inc. (the "Company" or "CCI") may offer, from time to time, together or separately, (i) shares of its common stock, $.05 par value per share (the "Common Stock"), (ii) shares of its preferred stock, $.05 par value per share (the "Preferred Stock") and (iii) debt securities (the "Company Debt Securities"), in each case, in amounts, at prices and on the terms to be determined at the time of the offering. In addition, Countrywide Funding Corporation, a wholly owned subsidiary of the Company ("CFC"), may offer, from time to time, its debt securities (the "CFC Debt Securities", and together with the Company Debt Securities, the "Debt Securities"), which will be unconditionally guaranteed (the "Guarantees") as to payment of principal, premium, if any, and interest by the Company (in its capacity as guarantor, the "Guarantor"), in the amounts, at prices and on the terms to be determined at the time of the offering. The Common Stock, Preferred Stock and Debt Securities are collectively called the "Securities." The Securities offered pursuant to this Prospectus may be issued in one or more series or issuances and will have an aggregate public offering price of up to $750,000,000 (or the equivalent thereof, based on the applicable exchange rate at the time of sale, in one or more foreign currencies, currency units or composite currencies as shall be designated by the Company or CFC, as the case may be). Certain specific terms of the particular Securities in respect of which this Prospectus is being delivered are set forth in the accompanying Prospectus Supplement (the "Prospectus Supplement"), including, where applicable, (i) in the case of Common Stock, the aggregate number of shares offered, the public offering price and other terms of the offering and sale thereof, (ii) in the case of Preferred Stock, the specific title, the aggregate number of shares offered, any dividend (including the method of calculating payment of dividends), liquidation, redemption, voting and other rights, any terms for any conversion or exchange into other securities, and the public offering price and other terms of the offering and sale thereof and (iii) in the case of Debt Securities, the specific title, the aggregate principal amount, aggregate offering price, the denomination, the maturity, the premium, if any, the interest rate (which may be fixed, floating or adjustable), if any, the time and method of calculating payment of interest, if any, the place or places where principal of, premium, if any, and interest, if any, on such Debt Securities will be payable, the currency in which principal of, premium, if any, and interest, if any, on such Debt Securities will be payable, any terms of redemption at the option of the Company or CFC, as the case may be, or repayment at the option of the holder, any sinking fund provisions, the terms (in the case of Company Debt Securities) for any conversion or exchange into other securities, any other special terms, and the public offering price and other terms of the offering and sale thereof. If so specified in the applicable Prospectus Supplement, Debt Securities of a series may be issued in whole or in part in the form of one or more temporary or permanent global securities. The Common Stock is listed on the New York Stock Exchange and the Pacific Stock Exchange under the trading symbol "CCR." Any Common Stock sold pursuant to a Prospectus Supplement will be listed on such exchanges, subject to official notice of issuance. Unless otherwise specified in a Prospectus Supplement, the Debt Securities and any Guarantees, when issued, will be unsecured and unsubordinated obligations of the Company or CFC, as the case may be, and will rank pari passu in right of payment with all other unsecured and unsubordinated indebtedness of the Company or CFC, as the case may be. This Prospectus may not be used to consummate sales of Securities unless accompanied by a Prospectus Supplement. ----------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURI- TIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. ----------- The Securities may be sold directly, through agents, underwriters or dealers as designated from time to time, or through a combination of such methods. If agents of the Company or any dealers or underwriters are involved in the sale of the Securities in respect of which this Prospectus is being delivered, the names of such agents, dealers or underwriters and any applicable commissions or discounts will be set forth in or may be calculated from the Prospectus Supplement with respect to such Securities. ----------- The date of this Prospectus is , 1995. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF ANY CLASS OR SERIES OF SECURITIES OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, THE PACIFIC STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. ---------------- AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports and other information with the Securities and Exchange Commission (the "Commission"). Information as of particular dates concerning its directors and officers and any material interest of such persons in transactions with the Company is disclosed in proxy statements distributed to stockholders and filed with the Commission. Such reports, proxy statements and other information can be inspected and copied at the offices of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at its regional offices located at Suite 1400, Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661 and Suite 1300, 7 World Trade Center, New York, New York 10048. Copies of such materials can also be obtained from the Public Reference Section of the Commission at its principal office in Washington, D.C. at prescribed rates. The Common Stock is listed on the New York and Pacific Stock Exchanges. Reports, proxy material and other information concerning securities of the Company can also be inspected at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York; and the Pacific Stock Exchange, Inc., 115 Sansome Street, San Francisco, California. This Prospectus constitutes a part of the Registration Statement on Form S-3 (together with all amendments, schedules and exhibits thereto, the "Registration Statement") filed by the Company and CFC with the Commission under the Securities Act of 1933, as amended (the "Securities Act"). This Prospectus and the accompanying Prospectus Supplement omit certain of the information contained in the Registration Statement in accordance with the rules and regulations of the Commission. For further information with respect to the Company, CFC and the Securities, reference is made to the Registration Statement, including the schedules and exhibits filed therewith. Statements contained in this Prospectus as to the contents of certain documents are not necessarily complete, and, with respect to each such document filed as an exhibit to the Registration Statement or otherwise filed with the Commission, reference is made to the copy of the document so filed. Each such statement is qualified in its entirety by such reference. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE There is incorporated herein by reference the following documents of the Company heretofore filed by it with the Commission: (1) Annual Report on Form 10-K for the year ended February 28, 1995; and (2) Current Report on Form 8-K dated June 12, 1995. All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus or any Prospectus Supplement and prior to the termination of the offering of the Securities are incorporated herein by reference and such documents shall be deemed to be a part hereof from the date of filing of such documents. Any statement contained herein or in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus or any Prospectus Supplement to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus or any Prospectus Supplement. The Company will provide without charge to each person to whom this Prospectus or any Prospectus Supplement is delivered, on the request of any such person, a copy of any or all of the foregoing documents incorporated herein by reference (not including exhibits to the information that is incorporated by reference unless such exhibits are specifically incorporated by reference into the information that this Prospectus or any Prospectus Supplement incorporates). Requests for copies of such documents should be directed to Countrywide Credit Industries, Inc., 155 North Lake Avenue, P. O. Box 7137, Pasadena, California 91109-7137, telephone (818) 304-8400, Attention: Investor Relations. 2 THE COMPANY AND CFC COUNTRYWIDE CREDIT INDUSTRIES, INC. Countrywide Credit Industries, Inc. (the "Company", "CCI" or, in its capacity as guarantor of the CFC Debt Securities (as defined below), the "Guarantor") is a holding company which through its principal subsidiary, Countrywide Funding Corporation ("CFC"), is engaged primarily in the mortgage banking business. CCI, through its other wholly owned subsidiaries, offers products and services complementary to its mortgage banking business. A subsidiary of CCI sells mortgage-backed securities, primarily on an odd-lot basis (i.e., in denominations between $25,000 and $1,000,000), to broker-dealers and also sells subordinate interests in mortgage-backed securities evidencing interests in whole mortgage loans to institutional investors. In addition, a subsidiary of CCI receives fee income for managing the operations of CWM Mortgage Holdings, Inc. ("CWM"), a real estate investment trust whose shares are traded on the New York Stock Exchange. CWM conducts real estate lending activities and has an affiliate engaged in the operation of a jumbo and non-conforming mortgage loan conduit. CCI also has a subsidiary which acts as an agent in the sale of homeowners, fire, flood, earthquake, mortgage life and disability insurance to CFC's mortgagors in connection with CFC's mortgage banking operations. Another subsidiary of CCI earns fee income by brokering servicing contracts owned by other mortgage lenders and loan servicers. CCI has recently begun operating a title agent business through newly formed subsidiaries. Unless the context otherwise requires, references to the "Company" herein shall be deemed to refer to the Company and its consolidated subsidiaries. CCI is a Delaware corporation, and was originally incorporated in New York under the name of OLM Credit Industries, Inc. in 1969. Its principal executive offices are located at 155 North Lake Avenue, P. O. Box 7137, Pasadena, California 91109-7137, and its telephone number is (818) 304-8400. COUNTRYWIDE FUNDING CORPORATION CFC is engaged primarily in the mortgage banking business and as such originates, purchases, sells and services mortgage loans. CFC's mortgage loans are principally first-lien mortgage loans secured by single-(one to four) family residences. CFC also offers home equity loans both in conjunction with newly produced first- lien mortgages and as a separate product. The principal sources of revenue of CFC are (i) loan origination fees; (ii) gains from the sale of loans, if any; (iii) interest earned on mortgage loans during the period that they are held by CFC pending sale, net of interest paid on funds borrowed to finance such mortgage loans; (iv) loan servicing fees; and (v) interest benefit derived from the custodial balances associated with CFC's servicing portfolio. CFC produces mortgage loans through three separate divisions. The Consumer Markets Division originates loans through a nationwide network of retail branch offices and direct contact with consumers. Through the Wholesale Division, CFC originates and purchases loans through mortgage loan brokers. Through the Correspondent Division, CFC purchases loans primarily from other mortgage bankers, savings and loan associations, commercial banks, credit unions and other financial intermediaries. CFC customarily sells all loans that it originates or purchases. Substantially all loans sold by CFC are sold without recourse, subject, in the case of loan guaranties by the Veterans Administration ("VA"), to the limits of such guaranties. CFC services on a non-recourse basis substantially all of the mortgage loans that it originates or purchases. In addition, CFC purchases bulk servicing contracts, also on a non-recourse basis, to service single-family residential mortgage loans originated by other lenders. Servicing mortgage loans includes collecting and remitting loan payments, making advances when required, accounting for principal and interest, holding custodial (impound) funds for payment of property taxes and hazard insurance, making any physical inspections of the property, contacting delinquent mortgagors, supervising foreclosures and property dispositions in the event of unremedied defaults and generally administering the loans. CFC receives fee income for servicing mortgage loans ranging generally from 1/4% to 1/2% per annum on the declining principal balances of the loans. CFC has in the past and may in the future sell to other mortgage servicers a portion of its portfolio of loan servicing rights. 3 CFC's principal financing needs are the financing of loan funding activities and the investment in servicing rights. To meet these needs, CFC currently relies on commercial paper backed by its revolving credit facility, medium-term note issuances, pre-sale funding facilities, mortgage-backed securities, whole loan reverse-repurchase agreements, subordinated notes and cash flows from operations. In addition, in the past, CFC has relied on direct borrowings under its revolving credit facility, servicing-secured bank facilities, privately- placed financings and contributions from CCI of the proceeds of public offerings of Common Stock and Preferred Stock. CFC is a New York corporation, originally incorporated in 1969. Its principal executive offices are located at 155 North Lake Avenue, P. O. Box 7137, Pasadena, California 91109-7137, and its telephone number is (818) 304-8400. USE OF PROCEEDS Except as may be otherwise stated in any Prospectus Supplement, the Company and/or CFC intend to use the net proceeds from the sale of the Securities for general corporate purposes, which may include retirement of indebtedness of the Company or CFC and investment in servicing rights through the current production of loans and the bulk acquisition of contracts to service loans. 4 SELECTED CONSOLIDATED FINANCIAL DATA The consolidated financial data with respect to CCI set forth below for each of the five fiscal years in the period ended February 28, 1995 has been derived from, and should be read in conjunction with, the related audited financial statements and accompanying notes included elsewhere herein.
YEARS ENDED FEBRUARY 28(29), ---------------------------------------------------------- 1995 1994 1993 1992 1991 ---------- ---------- ---------- ---------- ---------- (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT OPERATING DATA) SELECTED STATEMENT OF EARNINGS DATA: Revenues: Loan origination fees.. $ 203,426 $ 379,533 $ 241,584 $ 91,933 $ 38,317 Gain (loss) on sale of loans................. (41,342) 88,212 67,537 38,847 24,236 ---------- ---------- ---------- ---------- ---------- Loan production reve- nue................... 162,084 467,745 309,121 130,780 62,553 Interest earned........ 343,138 376,225 211,542 115,213 83,617 Interest charges....... (267,685) (275,906) (148,765) (81,959) (73,428) ---------- ---------- ---------- ---------- ---------- Net interest income.... 75,453 100,319 62,777 33,254 10,189 Loan servicing income.. 428,994 307,477 177,291 94,830 66,486 Less amortization of servicing assets...... (95,768) (242,177) (151,362) (53,768) (24,871) Add (less) servicing hedge benefit (ex- pense)................ (40,030) 73,400 74,075 17,000 -- Less write-off of ser- vicing hedge.......... (25,600) -- -- -- -- ---------- ---------- ---------- ---------- ---------- Net loan administration income................ 267,596 138,700 100,004 58,062 41,615 Gain on sale of servic- ing................... 56,880 -- -- 4,302 6,258 Commissions, fees and other income.......... 40,650 48,816 33,656 19,714 14,396 ---------- ---------- ---------- ---------- ---------- Total revenues........ 602,663 755,580 505,558 246,112 135,011 ---------- ---------- ---------- ---------- ---------- Expenses: Salaries and related expenses.............. 199,061 227,702 140,063 72,654 48,961 Occupancy and other of- fice expenses......... 102,193 101,691 64,762 36,645 24,577 Guarantee fees......... 85,831 57,576 29,410 13,622 9,529 Marketing expenses..... 23,217 26,030 12,974 5,015 3,117 Branch and administra- tive office consolida- tion costs............ 8,000 -- -- -- -- Other operating expenses.............. 37,016 43,481 24,894 17,849 11,642 ---------- ---------- ---------- ---------- ---------- Total expenses........ 455,318 456,480 272,103 145,785 97,826 ---------- ---------- ---------- ---------- ---------- Earnings before income taxes.................. 147,345 299,100 233,455 100,327 37,185 Provision for income taxes.................. 58,938 119,640 93,382 40,131 14,874 ---------- ---------- ---------- ---------- ---------- Net earnings............ $ 88,407 $ 179,460 $ 140,073 $ 60,196 $ 22,311 ========== ========== ========== ========== ========== SELECTED BALANCE SHEET DATA AT END OF PERIOD: Mortgage loans shipped and held for sale...... $2,898,825 $3,714,261 $2,316,297 $1,585,392 $ 509,008 Total assets............ 5,579,662 5,585,521 3,299,133 2,409,974 1,121,999 Short-term debt......... 2,664,006 3,111,945 1,579,689 1,046,289 459,470 Long-term debt.......... 1,499,306 1,197,096 734,762 383,065 153,811 7% convertible subordi- nated debentures....... -- -- -- -- 20,918 Convertible preferred stock.................. -- -- 25,800 37,531 38,098 Common shareholders' eq- uity................... 942,558 880,137 693,105 558,617 133,460 OPERATING DATA (DOLLAR AMOUNTS IN MILLIONS): Volume of loans origi- nated.................. $ 27,866 $ 52,459 $ 32,388 $ 12,156 $ 4,577 Loan servicing portfolio (at period end)(1)..... 113,111 84,678 54,484 27,546 15,684 Ratio of earnings to fixed charges(2)....... 1.54 2.06 2.52 2.18 1.49
- -------- (1) Includes warehoused loans and loans under subservicing agreements. (2) For purposes of calculating the ratio of earnings to fixed charges, earnings consist of income before Federal income taxes, plus fixed charges. Fixed charges include interest expense on debt and the portion of rental expenses which is considered to be representative of the interest factor (one-third of operating leases). Since the major portion of CCI's interest costs is incurred to finance mortgage loans which generate interest income, and since interest income and interest expense are generated simultaneously, management of CCI believes that a more meaningful measure of its debt service requirements is the ratio of earnings to net fixed charges. Under this alternative formula, net fixed charges are defined as interest expense on debt, other than debt incurred to finance CCI's mortgage loan inventory, plus the interest element (one-third of operating leases). Under such alternative formula, these ratios for each of the five fiscal years in the period ended February 28, 1995, commencing with the fiscal year ended February 28, 1995, were 3.36, 4.26, 5.18, 3.06 and 2.43, respectively. 5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company's strategy is concentrated on three components of its business: loan production, loan servicing and businesses ancillary to mortgage lending. See "The Company and CFC." The Company intends to continue its efforts to increase its market share of, and realize increased income from, its loan production. In addition, the Company is engaged in building its loan servicing portfolio because of the returns it can earn from such investment. A strong loan production capability and a growing servicing portfolio are the primary means used by the Company to reduce the sensitivity of its earnings to changes in interest rates because loan production income characteristics are countercyclical to the effect of interest rate changes on servicing income. Finally, the Company is involved in business activities complementary to its mortgage banking business, such as acting as agent in the sale of homeowners, fire, flood, earthquake, mortgage life and disability insurance to its mortgagors, brokering servicing rights and selling odd-lot and other mortgage- backed securities ("MBS"). The Company's results of operations historically have been primarily influenced by: (i) the level of demand for mortgage credit, which is affected by such external factors as the level of interest rates, the strength of the various segments of the economy and the demographics of the Company's lending markets; (ii) the direction of interest rates; and (iii) the relationship between mortgage interest rates and the cost of funds. The fiscal year ended February 28, 1993 ("Fiscal 1993") was a then-record performance year for the Company. The Company became the nation's leader in single-family mortgage loan originations in calendar year 1992. This performance was due to: (i) the development of a stronger capital base that supported increased production; (ii) the implementation of an expansion strategy for the production divisions designed to penetrate new markets and expand in existing markets, particularly outside California, and to further increase market share in both the purchase and refinance market segments; (iii) the development of state-of-the-art technologies that expanded the Company's production and servicing capabilities and capacity; and (iv) a decline in average mortgage interest rates. In Fiscal 1993, the Company's market share increased to approximately 4% of the single-family mortgage origination market. During the year ended February 28, 1993, the Company' servicing portfolio nearly doubled to $54.5 billion. The Company's performance during the fiscal year ended February 28, 1994 ("Fiscal 1994") set new operating records. In calendar year 1993, the Company became the nation's largest servicer of single-family mortgages and at February 28, 1994 had a servicing portfolio of $84.7 billion, an increase of 55% over the portfolio at the end of Fiscal 1993. This servicing portfolio growth was accomplished through increased loan production volume of low-coupon mortgages. In addition, the Company acquired bulk servicing rights with an aggregate principal balance of $3.4 billion. The Company also maintained its position as the nation's leader in originations of single-family mortgages for the second consecutive year. This performance was due to: (i) continued implementation of the Company's production expansion strategy designed to penetrate new markets and expand in existing markets, particularly outside California, and to further increase market share; (ii) a continued decline in average mortgage interest rates that prevailed during most of 1993; and (iii) the introduction of new technologies that improved productivity. In Fiscal 1994, the Company's market share increased to approximately 5.1% of the estimated $1.0 trillion single- family mortgage origination market, up from approximately 4% of the estimated $825 billion market in Fiscal 1993. The fiscal year ended February 28, 1995 ("Fiscal 1995") was a period of transition from a mortgage market dominated by refinances resulting from historically low interest rates to an extremely competitive and smaller mortgage market in which refinances declined to a relatively small percentage of total fundings and customer preference for adjustable-rate mortgages increased. In this transition, which resulted from the increase in interest rates during the year, intense price competition developed that resulted in the Company 6 experiencing negative production margins in Fiscal 1995. At the same time, the increase in interest rates caused a decline in the prepayment rate in the servicing portfolio which, combined with a decline in the rate of expected future prepayments, caused a reduction in amortization of the capitalized servicing fees receivable and purchased servicing rights ("Servicing Assets"). This decrease in amortization contributed to improved earnings from the Company's servicing activities. The Company addressed the challenges of the year by: (i) expanding its share of the home purchase market; (ii) reducing costs to maintain its production infrastructure in line with reduced production levels; and (iii) accelerating the growth of its servicing portfolio by aggressively acquiring servicing contracts through bulk purchases. These strategies produced the following results: (i) home purchase production increased from $13.3 billion, or 25% of total fundings, in Fiscal 1994 to $19.5 billion, or 70% of total fundings, in Fiscal 1995, helping the Company maintain its position as the nation's leader in originations of single-family mortgages for the third consecutive year; (ii) the number of staff engaged in production activities declined from approximately 3,900 at the end of Fiscal 1994 to approximately 2,400 at the end of Fiscal 1995; (iii) production-related and overhead costs declined from $328 million in Fiscal 1994 to $270 million in Fiscal 1995; and (iv) bulk servicing purchases increased to $17.6 billion in Fiscal 1995 from $3.4 billion in Fiscal 1994. These bulk servicing acquisitions, combined with slower prepayments caused by increased mortgage interest rates, helped the Company maintain its position as the nation's largest servicer of single-family mortgages for the second consecutive year. In Fiscal 1995, the Company's market share decreased to approximately 4% of the estimated $660 billion single-family mortgage origination market. RESULTS OF OPERATIONS Fiscal 1995 Compared with Fiscal 1994 Revenues for Fiscal 1995 decreased 20% to $602.7 million from $755.6 million for Fiscal 1994. Net earnings decreased 51% to $88.4 million in Fiscal 1995 from $179.5 million in Fiscal 1994. The decrease in revenues was due to decreased loan production resulting from increased mortgage interest rates in Fiscal 1995. In addition, intense price competition during Fiscal 1995 resulted in the Company's recording a loss on the sale of loans. The Company had a gain on sale of loans in Fiscal 1994. In Fiscal 1995, the Company did not realize any servicing hedge gains; in addition, amortization of option and interest rate floor premiums related to the servicing hedge amounted to $40.0 million and the write-off of the remaining unamortized costs of the Company's prior servicing hedge amounted to $25.6 million. During Fiscal 1994, the Company realized $73.4 million in net servicing hedge gains. These negative effects experienced in Fiscal 1995 were somewhat offset by the favorable impact of a larger and more slowly prepaying loan servicing portfolio and of a gain recognized on the sale of servicing. The decrease in net earnings for Fiscal 1995 was primarily the result of the decrease in revenues, a smaller decline in expenses than revenues from Fiscal 1994 to Fiscal 1995, higher guarantee fees caused by the larger servicing portfolio and a charge due to the Company's downsizing and office consolidation process. The total volume of loans produced decreased 47% to $27.9 billion for Fiscal 1995 from $52.5 billion for Fiscal 1994. Refinancings totaled $8.4 billion, or 30% of total fundings, for Fiscal 1995, as compared to $39.2 billion, or 75% of total fundings, for Fiscal 1994. Adjustable-rate mortgage loan ("ARM") production totaled $9.5 billion, or 34% of total fundings, for Fiscal 1995, as compared to $10.1 billion, or 19% of total fundings, for Fiscal 1994. Production in the Company's Consumer Markets Division decreased to $7.1 billion for Fiscal 1995 compared to combined production of $11.6 billion for the Retail and Consumer Divisions for Fiscal 1994. Production in the Company's Wholesale Division decreased to $8.5 billion (which included approximately $3.3 billion of originated loans and $5.2 billion of purchased loans) for Fiscal 1995 from $21.5 billion (which included approximately $10.9 billion of originated loans and $10.6 billion of purchased loans) for Fiscal 1994. The Company's Correspondent Division purchased $12.3 billion in mortgage loans for Fiscal 1995 compared to $19.4 billion for Fiscal 1994. The factors which affect the relative volume of production among the Company's three divisions include pricing decisions and the relative competitiveness of such pricing, the level of real estate and mortgage lending activity in each division's markets, and the success of each division's sales and marketing efforts. At February 28, 1995 and 1994, the Company's pipeline of loans in process was $3.6 billion and $7.6 billion, respectively. In addition, at February 28, 1995, the Company had committed to make loans in the 7 amount of $2.7 billion, subject to property identification and approval of the loans ("Lock N' Shop SM Pipeline"). At February 28, 1994, the Lock N' Shop Pipeline was $1.6 billion. Historically, approximately 43% to 75% of the pipeline of loans in process has funded. In Fiscal 1995 and Fiscal 1994, the Company received 315,632 and 515,104 new loan applications, respectively, at an average daily rate of $141 million and $282 million, respectively. The following actions were taken during Fiscal 1995 on the total applications received during that year: 220,715 loans (70% of total applications received) were funded and 66,725 applications (21% of total applications received) were either rejected by the Company or withdrawn by the applicant. The following actions were taken during Fiscal 1994 on the total applications received during that year: 358,257 loans (70% of total applications received) were funded and 98,809 applications (19% of total applications received) were either rejected by the Company or withdrawn by the applicant. The factors that affect the percentage of applications received and funded during a given time period include the movement and direction of interest rates, the average length of loan commitments issued, the creditworthiness of applicants, the production divisions' loan processing efficiency and loan pricing decisions. Loan origination fees decreased in Fiscal 1995 as compared to Fiscal 1994 and a loss was recorded in Fiscal 1995 on the sale of loans due to lower loan production that resulted from the increase in the level of mortgage interest rates. Reduced margins due to increased price competition caused by lower demand for mortgage loans during Fiscal 1995 than Fiscal 1994 also contributed to the loss on the sale of loans. In general, loan origination fees and gain or loss on sale of loans are affected by numerous factors, including loan pricing decisions, volatility of and the general direction of interest rates and the volume of loans produced. Net interest income (interest earned net of interest charges) decreased to $75.5 million for Fiscal 1995 from $100.3 million for Fiscal 1994. Consolidated net interest income is principally a function of: (i) net interest income earned from the Company's mortgage loan warehouse ($35.7 million and $110.1 million for Fiscal 1995 and Fiscal 1994, respectively); (ii) interest expense related to the Company's investment in servicing rights ($20.0 million and $68.0 million for Fiscal 1995 and Fiscal 1994, respectively); and (iii) interest income earned from the custodial balances associated with the Company's servicing portfolio ($59.8 million and $58.2 million for Fiscal 1995 and Fiscal 1994, respectively). The Company earns interest on, and incurs interest expense to carry, mortgage loans held in its warehouse. The decrease in net interest income from the mortgage loan warehouse was attributable to a decrease in the average amount of the mortgage loan warehouse due to the decline in production and to a decrease in the net earnings rate. The decrease in interest expense on the investment in servicing rights resulted primarily from a decline in the payments of interest to certain investors pursuant to customary servicing arrangements with regard to paid-off loans which payments exceeded the interest earned on these loans through their respective payoff dates ("Interest Costs Incurred on Payoffs"). The increase in net interest income earned from the custodial balances was related to an increase in the earnings rate, offset somewhat by a decline in the average custodial balances from Fiscal 1994 to Fiscal 1995. During Fiscal 1995, loan administration income was positively affected by the continued growth of the Company's loan servicing portfolio. At February 28, 1995, the Company serviced $113.1 billion of loans (including $0.7 billion of loans subserviced for others) compared to $84.7 billion (including $0.6 billion of loans subserviced for others) at February 28, 1994, a 34% increase. The growth in the Company's servicing portfolio during Fiscal 1995 was the result of loan production volume and the acquisition of bulk servicing rights, partially offset by prepayments, partial prepayments, scheduled amortization of mortgage loans and a sale of servicing rights of loans with principal balances aggregating $5.9 billion. The weighted average interest rate of the mortgage loans in the Company's servicing portfolio at February 28, 1995 was 7.6% compared to 7.2% at February 28, 1994. It is the Company's strategy to build and retain its servicing portfolio because of the returns the Company can earn from such investment and because the Company believes that servicing income is countercyclical to loan origination income. See "--Prospective Trends--Market Factors." During Fiscal 1995, the prepayment rate of the Company's servicing portfolio was 9%, as compared to 35% for Fiscal 1994. In general, the prepayment rate is affected by the relative level of mortgage interest rates, activity in the home purchase market and the relative level of home prices in a particular market. The decrease in the prepayment rate is primarily attributable to decreased refinance activity caused by increased 8 mortgage interest rates in Fiscal 1995 from Fiscal 1994. The primary means used by the Company to reduce the sensitivity of its earnings to changes in interest rates is through a strong loan production capability and a growing servicing portfolio. To mitigate the effect on earnings of higher amortization (which is deducted from loan servicing income) resulting from increased prepayment activity, the Company acquires financial instruments, including derivative contracts, that increase in value when interest rates decline (the "Servicing Hedge"). These financial instruments include call options on U.S. treasury futures and MBS, interest rate floors and certain tranches of collateralized mortgage obligations ("CMOs"). The CMOs, which consist primarily of principal-only ("P/O") securities, have been purchased at deep discounts to their par values. As interest rates decline, prepayments on the collateral underlying the CMOs should increase. These changes should result in a decline in the average lives of P/O securities and an increase in the present values of their cash flows. The Servicing Hedge instruments utilized by the Company partially protect the value of the investment in servicing rights from the effects of increased prepayment activity that generally results from declining interest rates. To the extent that interest rates increase, as they did in Fiscal 1995, the value of the servicing rights increases while the value of the hedge instruments declines. However, the Company is not exposed to loss beyond its initial outlay to acquire the hedge instruments. At February 28, 1995, the carrying value of interest rate floor contracts and P/O securities included in the Servicing Hedge was approximately $16 million and $42 million, respectively. There can be no assurance the Company's Servicing Hedge will generate gains in the future. See Note F to the Company's Consolidated Financial Statements included elsewhere herein. For Fiscal 1995, total amortization amounted to $95.8 million, representing an annual rate of 7% of average Servicing Assets. During Fiscal 1995, the Company did not realize any Servicing Hedge gains; in addition, amortization of option and interest rate floor premiums related to the Servicing Hedge amounted to $40.0 million. Also during Fiscal 1995, the Company decided to replace its prior Servicing Hedge with a new hedge resulting in a write-down of the remaining unamortized costs of the prior hedge of $25.6 million. For Fiscal 1994, total amortization was $242.2 million, or an annual rate of 28% of the average Servicing Assets. Amortization for Fiscal 1994 was offset by Servicing Hedge gains which aggregated $73.4 million. The decline in the rate of amortization from Fiscal 1994 to Fiscal 1995 resulted primarily from a decline in the current and projected future prepayment rates caused by an increase in mortgage interest rates. The factors affecting the rate of amortization recorded in an accounting period include the level of prepayments during the period, the change in prepayment expectations and the amount of Servicing Hedge gains in excess of amortization due to impairment. During Fiscal 1995, the Company acquired bulk servicing rights for loans with principal balances aggregating $17.6 billion at a price of $261.9 million or 1.49% of the aggregate outstanding principal balances of the servicing portfolios acquired. During Fiscal 1994, the Company acquired bulk servicing rights for loans with principal balances aggregating $3.4 billion at a price of $46.6 million or 1.36% of the aggregate outstanding principal balances of the servicing portfolios acquired. During Fiscal 1995, the Company sold servicing rights for loans with principal balances aggregating $5.9 billion and recognized a gain of $56.9 million. No servicing rights were sold during Fiscal 1994. Salaries and related expenses are summarized below for Fiscal 1995 and Fiscal 1994.
FISCAL 1995 --------------------------------------------- PRODUCTION LOAN OTHER ACTIVITIES ADMINISTRATION ACTIVITIES TOTAL ---------- -------------- ---------- -------- (DOLLAR AMOUNTS IN THOUSANDS) Base Salaries.................... $109,276 $23,929 $ 6,811 $140,016 Incentive Bonus.................. 29,815 463 4,204 34,482 Payroll Taxes and Benefits....... 19,695 4,020 848 24,563 -------- ------- ------- -------- Total Salaries and Related Ex- penses.......................... $158,786 $28,412 $11,863 $199,061 ======== ======= ======= ======== Average Number of Employees...... 2,631 850 246 3,727
9
FISCAL 1994 --------------------------------------------- PRODUCTION LOAN OTHER ACTIVITIES ADMINISTRATION ACTIVITIES TOTAL ---------- -------------- ---------- -------- (DOLLAR AMOUNTS IN THOUSANDS) Base Salaries.................... $123,454 $18,974 $4,730 $147,158 Incentive Bonus.................. 54,460 323 2,663 57,446 Payroll Taxes and Benefits....... 18,896 3,544 658 23,098 -------- ------- ------ -------- Total Salaries and Related Ex- penses.......................... $196,810 $22,841 $8,051 $227,702 ======== ======= ====== ======== Average Number of Employees...... 3,351 680 145 4,176
The amount of salaries decreased during Fiscal 1995 primarily due to the decreased number of employees resulting from reduced loan production, offset somewhat by an increased number of employees due to a larger servicing portfolio. Incentive bonuses earned during Fiscal 1995 decreased primarily due to decreased loan production and decreased loan production personnel. Occupancy and other office expenses for Fiscal 1995 slightly increased to $102.2 million from $101.7 million for Fiscal 1994. This was due to increased office and equipment rental expenses resulting from the opening of 59 Consumer Markets Division branch offices in Fiscal 1995, partially offset by a decline in expenses resulting from the closure of 86 Consumer Markets Division satellite offices and 13 Wholesale Division branch offices. Guarantee fees (fees paid to guarantee timely and full payment of principal and interest on mortgage-backed securities and whole loans sold to permanent investors and to transfer the credit risk of the loans in the servicing portfolio) for Fiscal 1995 increased 49% to $85.8 million from $57.6 million for Fiscal 1994. This increase resulted primarily from an increase in the servicing portfolio. Marketing expenses for Fiscal 1995 decreased 11% to $23.2 million from $26.0 million for Fiscal 1994. The decrease in marketing expenses reflected the Company's strategy to centralize and streamline its marketing functions. In Fiscal 1995, the Company incurred an $8.0 million charge related to the consolidation and relocation of branch and administrative offices that occurred as a result of the reduction in staff caused by declining production. Other operating expenses for Fiscal 1995 decreased from Fiscal 1994 by $6.5 million, or 15%. This decrease was due primarily to decreased loan production. Profitability of Loan Production and Servicing Activities. In Fiscal 1995, the Company's pre-tax loss from its loan production activities (which include loan origination and purchases, warehousing and sales) was $94.8 million. In Fiscal 1994, the Company's comparable pre-tax earnings were $250.1 million. The decrease of $344.9 million is primarily attributed to lower loan production and increased price competition caused by lower demand for mortgage loans. In Fiscal 1995, the Company's pre-tax earnings from its loan servicing activities (which include administering the loans in the servicing portfolio, selling homeowners and other insurance and acting as tax payment agent) was $229.6 million as compared to $46.6 million in Fiscal 1994. This increase was primarily due to an increase in the servicing portfolio, a reduction in amortization due to lower prepayment activity and reduced prepayment expectations and a sale of servicing during Fiscal 1995 which resulted in a gain of $56.9 million. The increase was partially offset by an increase in Servicing Hedge expense and a write-off of the remaining costs of the prior Servicing Hedge. 10 Fiscal 1994 Compared to Fiscal 1993 Revenues for Fiscal 1994 increased 49% to $755.6 million from $505.6 million for Fiscal 1993. Net earnings increased 28% to $179.5 million in Fiscal 1994 from $140.1 million in Fiscal 1993. The increase in revenues and net earnings for Fiscal 1994 reflected increased loan production and continued growth of the loan servicing portfolio. The increase in revenues was partially offset by an increase in expenses. The total volume of loans produced increased 62% to $52.5 billion for Fiscal 1994 from $32.4 billion for Fiscal 1993. Refinancings totaled $39.2 billion, or 75% of total fundings, for Fiscal 1994, as compared to $23.6 billion, or 73% of total fundings, for Fiscal 1993. ARM loan production totaled $10.1 billion, or 19% of total fundings, for Fiscal 1994, as compared to $9.2 billion, or 28% of total fundings, for Fiscal 1993. Production in the Company's Retail Division (which in Fiscal 1995 became part of the Consumer Markets Division) increased to $7.7 billion for Fiscal 1994 compared to $4.6 billion for Fiscal 1993. Production in the Company's Wholesale Division increased to $21.5 billion (which included approximately $10.9 billion of originated loans and $10.6 billion of purchased loans) for Fiscal 1994 compared to $15.5 billion (which included approximately $8.7 billion of originated loans and $6.8 billion of purchased loans) for Fiscal 1993. The Company's Correspondent Division purchased $19.4 billion in mortgage loans for Fiscal 1994 compared to $10.8 billion for Fiscal 1993. Production in the Company's Consumer Division (which in Fiscal 1995 became part of the Consumer Markets Division) increased to $3.9 billion for Fiscal 1994 compared to $1.5 billion for Fiscal 1993. At February 28, 1994 and 1993, the Company's pipeline of loans in process was $7.6 billion and $5.9 billion, respectively. In addition, at February 28, 1994, the Company had committed to make loans in the amount of $1.6 billion, subject to property identification and borrower qualification. At February 28, 1993, the amount of loan commitments subject to property identification and borrower qualification was not material. Historically, approximately 43% to 75% of the pipeline of loans in process has funded. In Fiscal 1994 and Fiscal 1993, the Company received 515,104 and 340,242 new loan applications, respectively, at an average daily rate of $282 million and $191 million, respectively. The following actions were taken during Fiscal 1994 on the total applications received during that year: 358,257 loans (70% of total applications received) were funded and 98,809 applications (19% of total applications received) were either rejected by the Company or withdrawn by the applicant. The following actions were taken during Fiscal 1993 on the total applications received during that year: 212,765 loans (63% of total applications received) were funded and 79,991 applications (24% of total applications received) were either rejected by the Company or withdrawn by the applicant. Loan origination fees and gain on sale of loans benefited from the increase in loan production. The percentage increase in loan origination fees was less than the percentage increase in total production primarily because of an increase in the percentage of production attributable to products that contained lower origination fees in their pricing structure. Net interest income (interest earned net of interest charges) increased to $100.3 million for Fiscal 1994 from $62.8 million for Fiscal 1993. Consolidated net interest income is principally a function of: (i) net interest income earned from the Company's mortgage loan warehouse ($110.1 million and $59.4 million for Fiscal 1994 and Fiscal 1993, respectively); (ii) interest expense related to the Company's investment in servicing rights ($68.0 million and $21.3 million for Fiscal 1994 and Fiscal 1993, respectively); and (iii) interest income earned from the custodial balances associated with the Company's servicing portfolio ($58.2 million and $21.8 million for Fiscal 1994 and Fiscal 1993, respectively). The increase in net interest income from the mortgage loan warehouse was attributable to an increase in loan production. The increase in interest expense on the investment in servicing rights resulted primarily from an increase in Interest Costs Incurred on Payoffs. The increase in net interest income earned from the custodial balances was related to larger custodial account balances (caused by a larger servicing portfolio and an increase in the prepayment rate of the Company's servicing portfolio), offset somewhat by a decline in the earnings rate from Fiscal 1993 to Fiscal 1994. 11 During Fiscal 1994, loan administration income was positively affected by the continued growth of the loan servicing portfolio. At February 28, 1994, the Company serviced $84.7 billion of loans (including $0.6 billion of loans subserviced for others) compared to $54.5 billion (including $0.6 billion of loans subserviced for others) at February 28, 1993, a 55% increase. The growth in the Company's servicing portfolio during Fiscal 1994 was the result of loan production volume and the acquisition of bulk servicing rights, partially offset by prepayments, partial prepayments and scheduled amortization of mortgage loans. The weighted average interest rate of the mortgage loans in the Company's servicing portfolio at February 28, 1994 was 7.2% compared to 8.0% at February 28, 1993. During Fiscal 1994, the prepayment rate of the Company's servicing portfolio was 35%, as compared to 20% for Fiscal 1993. The increase in the prepayment rate was primarily attributable to increased refinance activity caused by generally declining mortgage interest rates. During most of Fiscal 1994, interest rates continued their decline to historically low levels although they began to rise toward the end of the year. For Fiscal 1994, total amortization amounted to $242.2 million, representing an annual rate of 28% of average Servicing Assets. Amortization for Fiscal 1994 was partially offset by net Servicing Hedge gains which aggregated $73.4 million. For Fiscal 1993, total amortization was $151.4 million, or an annual rate of 29% of the average Servicing Assets. This amortization amount was comprised of $101.4 million related to current and projected prepayment rates and $50.0 million resulting from Servicing Hedge gains, in accordance with the Company's accounting policies. Amortization for Fiscal 1993 was offset by Servicing Hedge gains which aggregated $74.1 million. The following summarizes the notional amounts of Servicing Hedge transactions.
LONG LONG CALL OPTIONS CALL OPTIONS ON U.S. TREASURY ON MBS FUTURES ------------ ----------------- (DOLLAR AMOUNTS IN MILLIONS) Balance, March 1, 1991........................... $ -- $ -- Additions...................................... 560 -- ------ ------ Balance, February 29, 1992....................... 560 -- Additions...................................... 2,287 700 Dispositions................................... 2,847 700 ------ ------ Balance, February 28, 1993....................... -- -- Additions...................................... 4,700 2,520 Dispositions................................... 2,700 750 ------ ------ Balance, February 28, 1994....................... $2,000 $1,770 ====== ======
The long call options purchased by the Company partially protect the value of the investment in servicing rights from the effects of increased prepayment activity that generally results from declining interest rates. To the extent that interest rates increase, as they did toward the end of Fiscal 1994, the value of the servicing rights increases while the value of the options declines. The value (i.e., replacement cost) of the options can decline below the remaining unamortized cost of such options, but the options cannot expose the Company to loss beyond its initial outlay to acquire them. Although the replacement cost of the call options tends to decline when interest rates rise, the options continue to provide protection over their remaining term against a decline in interest rates below the level implied at purchase by their exercise price. Accordingly, the Company amortizes option premiums over the lives of the respective options. Any unamortized premium remaining when an option gain is realized (through exercise or sale) is deducted from such gain. At February 28, 1994, the call options on MBS, which expired from March through September 1994, had an unamortized cost of approximately $19 million and a replacement value of approximately $1 million. At February 28, 1994, the call options on U.S. treasury futures, which expired in September 1994, had an unamortized cost of approximately $21 million and a replacement value of approximately $7 million. 12 During Fiscal 1994, the Company acquired bulk servicing rights for loans with principal balances aggregating $3.4 billion at a price of $46.6 million or 1.36% of the aggregate outstanding principal balances of the servicing portfolios acquired. During Fiscal 1993, the Company acquired bulk servicing rights for loans with principal balances aggregating $2.7 billion at a price of $34.3 million or 1.29% of the aggregate outstanding principal balances of the servicing portfolios acquired. Salaries and related expenses are summarized below for Fiscal 1994 and Fiscal 1993.
FISCAL 1994 --------------------------------------------- PRODUCTION LOAN OTHER ACTIVITIES ADMINISTRATION ACTIVITIES TOTAL ---------- -------------- ---------- -------- (DOLLAR AMOUNTS IN THOUSANDS) Base Salaries.................... $123,454 $18,974 $4,730 $147,158 Incentive Bonus.................. 54,460 323 2,663 57,446 Payroll Taxes and Benefits....... 18,896 3,544 658 23,098 -------- ------- ------ -------- Total Salaries and Related Ex- penses.......................... $196,810 $22,841 $8,051 $227,702 ======== ======= ====== ======== Average Number of Employees...... 3,351 680 145 4,176 FISCAL 1993 --------------------------------------------- PRODUCTION LOAN OTHER ACTIVITIES ADMINISTRATION ACTIVITIES TOTAL ---------- -------------- ---------- -------- (DOLLAR AMOUNTS IN THOUSANDS) Base Salaries.................... $ 73,114 $13,801 $4,666 $ 91,581 Incentive Bonus.................. 32,455 145 2,502 35,102 Payroll Taxes and Benefits....... 10,253 2,470 657 13,380 -------- ------- ------ -------- Total Salaries and Related Ex- penses.......................... $115,822 $16,416 $7,825 $140,063 ======== ======= ====== ======== Average Number of Employees...... 2,024 490 118 2,632
The amount of salaries increased during Fiscal 1994 primarily due to the increased number of employees resulting from increased loan production and an increased servicing portfolio. Incentive bonuses earned during Fiscal 1994 increased primarily due to increased loan production and increases in loan production personnel. Occupancy and other office expenses for Fiscal 1994 increased 57% to $101.7 million from $64.8 million for Fiscal 1993. This increase was attributable primarily to the expansion of the Retail and Wholesale Divisions' branch networks. As of February 28, 1994, there were 295 Retail Division branch offices (including 110 satellite offices and nine regional support centers) and 80 Wholesale Division branch offices (including 11 regional support centers). As of February 28, 1993, there were 167 Retail Division branch offices (including 45 satellite offices and two regional support centers) and 55 Wholesale Division branch offices (including nine regional support centers). In addition, the increase in the Company's loan production and loan servicing portfolio resulted in an increase in occupancy and other office expenses related to the Company's central office. Guarantee fees for Fiscal 1994 increased 96% to $57.6 million from $29.4 million for Fiscal 1993. This increase resulted primarily from an increase in the servicing portfolio. Marketing expenses for Fiscal 1994 increased 101% to $26.0 million from $13.0 million for Fiscal 1993. The increase in marketing expenses reflected the Company's strategy to expand its market share, particularly in the home purchase lending market. Other operating expenses for Fiscal 1994 increased over Fiscal 1993 by $18.6 million, or 75%. This increase was due primarily to several factors, including loan production, a larger servicing portfolio and expansion of loan production capabilities. 13 Profitability of Loan Production and Servicing Activities. In Fiscal 1994, the Company's pre-tax earnings from its loan production activities (which include loan origination and purchases, warehousing and sales) was $250.1 million. In Fiscal 1993, the Company's comparable pre-tax earnings were $175.8 million. The increase of $74.3 million was primarily attributed to higher loan production. In Fiscal 1994, the Company's pre-tax earnings from its loan servicing activities was $46.6 million as compared to $53.0 million in Fiscal 1993. The additional loan administration revenues derived from a larger portfolio during Fiscal 1994 were more than offset by an increase in amortization of the Servicing Assets, net of gains from the Servicing Hedge, and an increase in Interest Costs Incurred on Payoffs. INFLATION Inflation affects the Company in the areas of loan production and servicing. Interest rates normally increase during periods of high inflation and decrease during periods of low inflation. Historically, as interest rates increase, loan production, particularly from loan refinancings, decreases, although in an environment of gradual interest rate increases, purchase activity may actually be stimulated by an improving economy or the anticipation of increasing real estate values. In such periods of reduced loan production, production margins may decline due to increased competition resulting from overcapacity in the market. In a higher interest rate environment, servicing-related earnings are enhanced because prepayment rates tend to slow down, thereby extending the average life of the Company's servicing portfolio and reducing amortization of the Servicing Assets and Interest Costs Incurred on Payoffs, and because the rate of interest earned from the custodial balances tends to increase. Conversely, as interest rates decline, loan production, particularly from loan refinancings, increases. However, during such periods, prepayment rates tend to accelerate (principally on the portion of the portfolio having a note rate higher than the then-current interest rates), thereby decreasing the average life of the Company's servicing portfolio and adversely impacting its servicing-related earnings primarily due to increased amortization of the Servicing Assets, a decreased rate of interest earned from the custodial balances, and increased Interest Costs Incurred on Payoffs. SEASONALITY The mortgage banking industry is generally subject to seasonal trends. These trends reflect the general national pattern of sales and resales of homes, although refinancings tend to be less seasonal and more closely related to changes in interest rates. Sales and resales of homes typically peak during the spring and summer seasons and decline to lower levels from mid-November through February. LIQUIDITY AND CAPITAL RESOURCES The Company's principal financing needs are the financing of loan funding activities and the investment in servicing rights. To meet these needs, the Company currently relies on commercial paper supported by its revolving credit facility, medium-term note issuances, pre-sale funding facilities, MBS and whole loan reverse-repurchase agreements, subordinated notes and cash flow from operations. In addition, in the past the Company has relied on direct borrowings from its revolving credit facility, servicing-secured bank facilities, privately-placed financings and public offerings of preferred and common stock. See Note D to the Company's Consolidated Financial Statements included elsewhere herein for more information on the Company's financings. Certain of the debt obligations of the Company and CFC contain various provisions that may affect the ability of the Company and CFC to pay dividends and remain in compliance with such obligations. These provisions include requirements concerning net worth, current ratio and other financial covenants. These provisions have not had, and are not expected to have, an adverse impact on the ability of the Company and CFC to pay dividends. On September 23, 1994, CFC entered into a new three-year revolving credit agreement with a group of forty commercial banks, replacing the existing mortgage warehouse credit facility. The agreement permits 14 CFC to borrow an aggregate maximum amount of $2.5 billion, less commercial paper backed by the agreement. The amount available under the facility is subject to a borrowing base, which consists of mortgage loans held for sale, receivables for mortgage loans shipped and mortgage servicing rights. The agreement expires on September 19, 1997. The Company continues to investigate and pursue alternative and supplementary methods to finance its growing operations through the public and private capital markets. These may include such methods as mortgage loan sale transactions designed to expand the Company's financial capacity and reduce its cost of capital and the securitization of servicing income cash flows. At times, the Company must meet margin requirements to cover changes in the market value of its commitments to sell MBS and of its interest rate swaps. To the extent that aggregate commitment prices are less than the current market prices, the Company must deposit cash or certain government securities or obtain letters of credit. The Company's credit facility provides a means of obtaining such letters of credit to meet these margin requirements. With respect to the interest rate swap agreements, the margin requirements are negotiated with the various counterparties and are generally tied to the credit ratings of CFC and each counterparty. In the course of the Company's mortgage banking operations, the Company sells to investors the mortgage loans it originates and purchases but generally retains the right to service the loans, thereby increasing the Company's investment in loan servicing rights. The Company views the sale of loans on a servicing-retained basis in part as an investment vehicle. Significant unanticipated prepayments in the Company's servicing portfolio could have a material adverse effect on the Company's future operating results and liquidity. Cash Flows Operating Activities. In Fiscal 1995, the Company's operating activities provided cash primarily from the decline in its warehouse of mortgage loans of approximately $815 million, offset by increases in other assets and working capital of $125 million. The Company's operating activities also generated $212 million of positive cash flow. Cash provided by operating activities was principally allocated to the long-term investment in servicing as discussed below under "--Investing Activities." Investing Activities. The primary investing activity for which cash was used in Fiscal 1995 was the investment in servicing. Net cash used by investing activities decreased to $717 million for Fiscal 1995 from $765 million for Fiscal 1994. This decrease was primarily from the cash provided by the sale of servicing rights during Fiscal 1995 and lower cash outlay for purchases of property, equipment and leasehold improvements during Fiscal 1995 than in Fiscal 1994, offset somewhat by an increase in purchased servicing rights and capitalized servicing fees receivable of $97 million during Fiscal 1995. Financing Activities. Net cash used by financing activities amounted to $0.2 billion for Fiscal 1995. Net cash provided by financing activities amounted to $2.0 billion for Fiscal 1994. This change was primarily attributable to the Company's net reduction in borrowings in Fiscal 1995 and net additions to borrowings in Fiscal 1994. PROSPECTIVE TRENDS Applications and Pipeline of Loans in Process. During Fiscal 1995, the Company received new loan applications at an average daily rate of $141 million and at February 28, 1995, the Company's pipeline of loans in process was $3.6 billion. This compares to a daily application rate in Fiscal 1994 of $282 million and a pipeline of loans in process at February 28, 1994 of $7.6 billion. The decline in the pipeline of loans in process from Fiscal 1994 to Fiscal 1995 was primarily due to a decrease in demand for mortgage loans caused by an increase in mortgage interest rates. The size of the pipeline is generally an indication of the level of future fundings, as historically 43% to 75% of the pipeline loans in process has funded. In addition, the 15 Company's Lock N' Shop Pipeline at February 28, 1995 was $2.7 billion and at February 28, 1994 was $1.6 billion. Future application levels and loan fundings are dependent on numerous factors, including the level of demand for mortgage credit, the extent of price competition in the market, the direction of interest rates, seasonal factors and general economic conditions. For the month ended March 31, 1995, the average daily amount of applications received was $153 million, and at March 31, 1995, the pipeline of loans in process was $3.9 billion and the Lock N' Shop Pipeline was $1.9 billion. Market Factors. Since late 1993, mortgage interest rates have increased. An environment of rising interest rates has resulted in lower production (particularly from refinancings) and greater price competition, which has adversely impacted earnings from loan origination activities and may continue to do so in the future. The Company has taken steps to maintain its productivity and efficiency, particularly in the loan production area, by reducing staff and embarking on a program to reduce production-related and overhead costs. However, there was a time lag between the reduction in income caused by declining production and the reduction in expenses. The Company's production staff declined from approximately 3,900 at February 28, 1994 to approximately 2,400 at February 28, 1995. The Company has reduced its total staffing levels from approximately 4,900 at February 28, 1994 to approximately 3,600 at February 28, 1995. However, the rising interest rates enhanced earnings from the Company's loan servicing portfolio as amortization of the Servicing Assets and Interest Costs Incurred on Payoffs decreased from levels experienced during the prior periods of declining interest rates, and the rate of interest earned from the custodial balances associated with the Company's servicing portfolio increased. The Company has further increased the size of its servicing portfolio, thereby increasing its servicing revenue base, by acquiring servicing contracts through bulk purchases. During Fiscal 1995, the Company purchased such servicing contracts with principal balances amounting to $17.6 billion. The Company's primary competitors are commercial banks and savings and loans and mortgage banking subsidiaries of diversified companies, as well as other mortgage bankers. Particularly in California, savings and loans and other portfolio lenders are competing with the Company by offering aggressively priced adjustable-rate mortgage products which have grown in popularity with the rise in interest rates. Generally, the Company has experienced significant price competition among mortgage lenders which has resulted in downward pressure on loan production earnings. Some regions in which the Company operates, particularly some regions of California, have been experiencing slower economic growth, and real estate financing activity in these regions has been negatively impacted. As a result, home lending activity for single-(one to four) family residences in these regions may also have experienced slower growth. There can be no assurance that the Company's operations and results will not continue to be negatively impacted by such adverse economic conditions. The Company's California mortgage loan production (measured by principal balance) constituted 31% of its total production during Fiscal 1995, down from 46% for Fiscal 1994. The decline in the percentage of California loan production was due to the Company's continuing effort to expand its production capacity outside of California and the aggressively priced adjustable-rate mortgage products offered by the Company's competitors in the state. Since California's mortgage loan production constituted a significant portion of the Company's production during Fiscal 1995, there can be no assurance that the Company's operations will not continue to be adversely affected to the extent California continues to experience a slower or negative economic growth resulting in decreased residential real estate lending activity or market factors further impact the Company's competitive position in the state. Because the Company services substantially all conventional loans on a non- recourse basis, foreclosure losses are generally the responsibility of the investor or insurer and not the Company. Accordingly, any increase in foreclosure activity should not result in significant foreclosure losses to the Company. However, the Company's expenses may be increased somewhat as a result of the additional staff efforts required to foreclose on a loan. Similarly, government loans serviced by the Company (22% of the Company's servicing portfolio at February 28, 1995) are insured or partially guaranteed against loss by the Federal Housing 16 Administration or the Veterans Administration. In the Company's view, the limited unreimbursed costs that may be incurred by the Company on government foreclosed loans are not material to the Company's consolidated financial statements. Servicing Hedge. As previously discussed, the Company realized no gains and recorded amortization of Servicing Hedge option premiums amounting to $40.0 million during Fiscal 1995. In addition, the Company decided to replace its prior Servicing Hedge with a new hedge, which the Company believed would be more cost effective. As a result, the Company recorded an additional write-down of $25.6 million during Fiscal 1995, representing the unamortized costs of the prior Servicing Hedge. At February 28, 1995, the carrying value of interest rate floor contracts and P/O securities included in the Servicing Hedge was approximately $16 million and $42 million, respectively. There can be no assurance the Company's Servicing Hedge will generate gains in the future. Federal Legislation. In August 1993, a one percent increase in the corporate federal tax rate was enacted. However, the Company has been diversifying its business activities outside California, a state which has a corporate tax rate that is higher than the average tax rate among the states in which the Company does business. This diversification serves to reduce the Company's average tax rate which offsets the enacted increase in the federal tax rate. Implementation of New Accounting Standards. Statement of Financial Accounting Standards No. 114, Accounting by Creditors for Impairment of a Loan, was issued in May 1993. Implementation of this standard, which is required for the Company's fiscal year beginning March 1, 1995, is not expected to have a material effect on the Company's financial statements. In May 1995, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 122, Accounting for Mortgage Servicing Rights. This Statement, among other provisions, requires the recognition of originated mortgage servicing rights ("OMSRs"), as well as purchased mortgage servicing rights ("PMSRs"), as assets by allocating total costs incurred between the loan and the servicing rights based on their relative fair values. Presently, the cost of OMSRs is included with the cost of the related loans and written off against income when the loans are sold, while the cost of PMSRs is recorded as an asset. Also under the new Statement, all capitalized mortgage servicing rights are evaluated for impairment based on the excess of the carrying amount of the mortgage servicing rights over their fair value. In measuring impairment, the carrying amount must be stratified based on one or more predominant risk characteristics of the underlying loans. Impairment is recognized through a valuation allowance for an individual stratum. Under current accounting requirements, the impairment evaluation may be made using either discounted or undiscounted cash flows. No uniform required level of disaggregation is specified. The Company uses a disaggregated, undiscounted method. The Statement is effective prospectively in fiscal years beginning after December 15, 1995, with earlier application encouraged. The Company adopted the Statement in the quarter ended May 31, 1995. The actual effect of implementing this new Statement on the Company's financial position and results of operations will depend on factors determined as of the end of a reporting period, including the amount and mix of originated and purchased production, the level of interest rates and market estimates of future prepayment rates. Accordingly, the Company will have to determine as of the end of each reporting period the impact on its earnings of applying the new methodologies of recording all mortgage servicing rights as assets, of calculating impairment and of applying the other provisions of the Statement. 17 DESCRIPTION OF CAPITAL STOCK GENERAL The authorized capital stock of the Company consists of 240,000,000 shares of Common Stock, par value $.05 per share, and 1,500,000 shares of Preferred Stock, par value $.05 per share. The following summary description of the capital stock of the Company does not purport to be complete and is qualified in its entirety by reference to the Company's Restated Certificate of Incorporation, as amended (the "Certificate of Incorporation"), a copy of which is filed as an exhibit to the Registration Statement of which this Prospectus is part and the certificate of designations which will be filed with the Commission in connection with any offering of Preferred Stock. COMMON STOCK As of June 14, 1995, 91,574,247 shares of Common Stock were issued and outstanding and there were 2,572 holders of record of the Common Stock. Each holder of record of Common Stock is entitled to one vote per share on all matters submitted to a vote of holders. Dividends may be paid to the record holders of Common Stock when, as and if declared by the Board of Directors of the Company (the "Board of Directors"), out of funds legally available therefor, and each share of Common Stock is entitled to share equally therein and in other distributions to holders of Common Stock, including distributions upon liquidation, dissolution or winding up of the Company. The Common Stock carries no preemptive rights, conversion or subscription rights, redemption provisions, sinking fund provisions or cumulative voting rights. PREFERRED STOCK PURCHASE RIGHTS In February 1988, the Board of Directors declared a dividend distribution of one preferred stock purchase right ("Right") for each outstanding share of the Common Stock. As the result of stock splits and stock dividends, 0.399 of a Right is presently associated with each outstanding share of Common Stock and the same fraction of a Right will be associated with each share of Common Stock issued prior to the Distribution Date (as defined below). Each Right, when exercisable, entitles the holder to purchase from the Company one one-hundredth of a share of Series A Participating Preferred Stock, par value $0.05 per share, of the Company (the "Series A Preferred Stock"), at a price of $145, subject to adjustments in certain cases to prevent dilution. The Rights are evidenced by the Common Stock certificates and are not exercisable or transferable, apart from the Common Stock, until the date (the "Distribution Date") of the earlier of a public announcement that a person or group, without prior consent of the Company, has acquired 20% or more of the Common Stock (an "Acquiring Person"), or ten days (subject to extension by the Board of Directors) after the commencement of a tender offer made without the prior consent of the Company. In the event a person becomes an Acquiring Person, then each Right (other than those owned by the Acquiring Person) will entitle its holder to purchase, at the then current exercise price of the Right, that number of shares of Common Stock, or the equivalent thereof, which, at the time of such transaction, would have a market value of two times the exercise price of the Right. The Board of Directors may delay the exercisability of the Rights during the period in which they are exercisable only for Series A Preferred Stock (and not Common Stock). In the event that, after a person has become an Acquiring Person, the Company is acquired in a merger or other business combination, as defined for the purposes of the Rights, each Right (other than those held by the Acquiring Person) will entitle its holder to purchase, at the then current exercise price of the Right, that number of shares of Common Stock, or the equivalent thereof, of the other party (or publicly traded parent thereof) to such merger or business combination which at the time of such transaction would have a market value of two times the exercise price of the Right. The Rights expire on the earlier of February 28, 2002, the consummation of certain merger transactions or the optional redemption by the Company prior to any person becoming an Acquiring Person. 18 PREFERRED STOCK Certain terms of any series of Preferred Stock offered by any Prospectus Supplement will be described in the Prospectus Supplement relating to such series of Preferred Stock. The Board of Directors is authorized to provide for the issuance of Preferred Stock in one or more series with such distinctive designations as may be stated in the resolution or resolutions providing for the issue of such Preferred Stock. At the time that any series of Preferred Stock is authorized, the Board of Directors will fix the dividend rights, any conversion rights, any voting rights, redemption provisions, liquidation preferences and any other rights, preferences, privileges and restrictions of such series, as well as the number of shares constituting such series and the designation thereof. The only series of Preferred Stock currently authorized by the Board of Directors for issuance is the Series A Preferred Stock in connection with the exercise of Rights. See "--Preferred Stock Purchase Rights." The Board of Directors could, without stockholder approval, cause the Company to issue Preferred Stock which has voting, conversion and other rights which could adversely affect the holders of Common Stock or make it more difficult to effect a change in control of the Company. The Preferred Stock could be used to dilute the stock ownership of persons seeking to obtain control of the Company and thereby hinder a possible takeover attempt which, if stockholders were offered a premium over the market value of their shares, might be viewed as being beneficial to the stockholders of the Company. In addition, the Preferred Stock could be issued with voting, conversion and other rights and preferences which would adversely affect the voting power and other rights of holders of Common Stock. CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS OF THE COMPANY In addition to the Rights described above under "--Preferred Stock Purchase Rights" and the terms of any Preferred Stock that the Company may determine to issue as described above under "--Preferred Stock," certain other provisions of the Certificate of Incorporation and the Company's Bylaws may have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of the Company. The Certificate of Incorporation (i) provides for a three-year staggered Board of Directors, vacancies on which shall be filled by the Board of Directors and whose members may be removed only for cause and only by the vote of the holders of two-thirds of the outstanding shares of Common Stock, (ii) limits the Company's power to purchase shares of voting stock of the Company (capital stock having the right to vote generally on matters relating to the Company and any security which is convertible into such stock) from a five percent holder at a price in excess of its fair market value, unless such purchase is approved by a majority of these shares (unless a greater vote is required by law), excluding the vote of such five percent holder, (iii) prohibits action by written consent of the stockholders and (iv) provides that the Company's Bylaws may be amended by the Board of Directors or, with certain exceptions, a vote of two-thirds of the voting shares and further provides that a two-thirds vote of all voting shares of the Company is required to amend the provisions of the Certificate of Incorporation referred to in this sentence, unless such amendment has been approved by two-thirds of the Board of Directors and a majority of the continuing directors (directors who became members of the Board of Directors prior to the time when any stockholder who beneficially owns ten percent of the outstanding shares first became a ten percent stockholder). The Company's Bylaws provide that special meetings of the stockholders may be called only by the directors and limits the business which may be transacted at such meetings to those matters set forth in the request of the proposed meeting. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Common Stock is The Bank of New York. 19 DESCRIPTION OF DEBT SECURITIES AND GUARANTEES The following description of the terms of the Company Debt Securities and the terms of the CFC Debt Securities sets forth certain general terms and provisions of such Debt Securities. To the extent any terms described below apply specifically to the Company Debt Securities or the CFC Debt Securities, specific references to "Company Debt Securities" or "CFC Debt Securities" will be made; otherwise, references to "Debt Securities" shall be deemed to apply to both the Company Debt Securities and the CFC Debt Securities. The extent, if any, to which such general provisions do not apply to the Debt Securities offered by any Prospectus Supplement will be described in such Prospectus Supplement. The Company Debt Securities are to be issued under an Indenture, as amended, supplemented or modified from time to time (the "Company Indenture"), between the Company and The Bank of New York, as trustee (in such capacity, the "Company Trustee"), the form of which is filed as an exhibit to the Registration Statement of which this Prospectus forms a part. Each series of Company Debt Securities issued pursuant to the Company Indenture will be issued pursuant to an amendment or supplement thereto in the form of a supplemental indenture or pursuant to an Officers' Certificate, in each case delivered pursuant to resolutions of the Board of Directors of the Company and in accordance with the provisions of Section 301 or Article Ten of the Company Indenture, as the case may be. The terms of the Company Debt Securities include those stated in the Company Indenture and those made a part of the Company Indenture by reference to the Trust Indenture Act of 1939, as amended (the "TIA"). The Company Debt Securities are subject to all such terms and the holders of Company Debt Securities are referred to the Company Indenture and the TIA for a statement of such terms. The CFC Debt Securities are to be issued under the Indenture dated as of January 1, 1992, as amended, supplemented or modified from time to time (the "CFC Indenture", and together with the Company Indenture, the "Indentures") among CFC, the Guarantor and The Bank of New York, as Trustee (in such capacity, the "CFC Trustee," and together with the Company Trustee, the "Trustees"), which is incorporated by reference in the Registration Statement of which this Prospectus forms a part. Each series of CFC Debt Securities issued pursuant to the CFC Indenture will be issued pursuant to an amendment or supplement thereto in the form of a supplemental indenture or pursuant to an Officers' Certificate, in each case delivered pursuant to resolutions of the Board of Directors of CFC and in accordance with the provisions of Section 301 or Article Ten of the CFC Indenture, as the case may be. The CFC Indenture is expected to be amended by Supplemental Indenture No. 1 thereto, to be dated as of June 15, 1995, among CFC, the Guarantor and the CFC Trustee, the form of which is filed as an exhibit to the Registration Statement of which this Prospectus forms a part. The terms of the CFC Debt Securities include those stated in the CFC Indenture and those made part of the CFC Indenture by reference to the TIA. The CFC Debt Securities are subject to all such terms and the holders of CFC Debt Securities are referred to the CFC Indenture and the TIA for a statement of such terms. The following summaries of certain provisions of each Indenture and the Debt Securities are not complete and are qualified in their entirety by reference to the provisions of each Indenture, including the definitions of capitalized terms used herein without definition. Numerical references in parentheses are to sections in the applicable Indenture and unless otherwise indicated capitalized terms have the meanings given them in the applicable Indenture. GENERAL Neither Indenture limits the aggregate principal amount of Debt Securities that may be issued from time to time in series. (Section 301) The Company Debt Securities will constitute unsecured and unsubordinated indebtedness of the Company and will rank pari passu in right of payment with the Company's other unsecured and unsubordinated indebtedness. Substantially all the Company's operations are conducted through subsidiaries, and any right of the Company to receive assets of any of its subsidiaries upon the liquidation or recapitalization of any such subsidiary (and the consequent right of holders of the Company Debt Securities, or the holders of the CFC 20 Debt Securities looking to the Guarantees for repayment thereof, to participate in those assets) will be subject to the claims of such subsidiary's creditors, except to the extent that the Company itself is recognized as a creditor of such subsidiary. Even if the Company is recognized as a creditor of a subsidiary, the Company's claims would still be subject to any security interests in the assets of such subsidiary and any indebtedness or other liability of such subsidiary that is senior to the Company's claims. Accordingly, by operation of the foregoing principles, the Company Debt Securities and the Guarantees will effectively be subordinated to all indebtedness and other liabilities, including trade accounts payable, of the Company's subsidiaries. "Holder" means a person in whose name a Debt Security is registered in the related Security Register. The CFC Debt Securities will constitute unsecured and unsubordinated indebtedness of CFC and will rank pari passu in right of payment with CFC's other unsecured and unsubordinated indebtedness. A substantial portion of the assets of CFC may be pledged under various credit agreements among CFC and various lending institutions. See Note D to the Company's Consolidated Financial Statements included elsewhere herein. Reference is made to the Prospectus Supplement and pricing supplement, if any, relating to the particular series of Debt Securities offered thereby for a description of the terms of such Debt Securities in respect of which this Prospectus is being delivered, including, where applicable: (i) the title of such Debt Securities; (ii) any limit on the aggregate principal amount of such Debt Securities; (iii) the date or dates, or the method or methods, if any, by which such date or dates shall be determined or extended, on which the principal of such Debt Securities is payable; (iv) any places other than the issuer's office or agency in The City of New York where such Debt Securities shall be payable or surrendered for registration of transfer or exchange; (v) the denominations in which such Debt Securities shall be issuable; (vi) the currency of denomination of such Debt Securities, which may be in U.S. dollars, any foreign currency or currency unit, including European Currency Units ("ECU"), and, if applicable, certain other information relating to such foreign currency or currency unit; (vii) the designation of the currency or currencies in which payment of the principal of and premium, if any, and interest on such Debt Securities will be made and whether payment of the principal of and premium, if any, or the interest on Debt Securities designated in a foreign currency or currency unit, at the election of a holder thereof, may instead be payable in U.S. dollars and the terms and conditions upon which such election may be made; (viii) the rate or rates (which may be fixed or floating), if any, at which such Debt Securities will bear interest, or the method or methods, if any, by which such rate or rates are to be determined or reset, the date or dates, if any, from which such interest will accrue, or the method or methods, if any, by which such date or dates shall be determined or reset, the dates on which such interest will be payable, the record date for the interest payable on any interest payment date, and the basis upon which interest shall be calculated if other than that of a 360-day year of twelve 30-day months; (ix) the terms and conditions, if any, on which such Debt Securities may be redeemed at the option of the Company or CFC, as the case may be, or repaid at the option of the Holders thereof; (x) the obligation, if any, of the Company or CFC, as the case may be, to redeem, repay or purchase such Debt Securities pursuant to any sinking fund or analogous provisions, and the terms and conditions on which such Debt Securities shall be redeemed, repaid or purchased, in whole or in part, pursuant to such obligation; (xi) if other than the principal amount thereof, the portion of the principal amount of such Debt Securities which will be payable upon declaration of acceleration of the maturity thereof; (xii) provisions, if any, for the defeasance of such Debt Securities; (xiii) the ability, if any, of the Holder of a Debt Security to renew all or any portion of a Debt Security; (xiv) any additional Events of Default or restrictive covenants provided for with respect to such Debt Securities; (xv) the obligation, if any, of the Company to permit the conversion or exchange of any Company Debt Securities into or for other securities and the terms and conditions upon which such conversion or exchange shall be effected (including, without limitation, the initial conversion or exchange price or rate, the conversion or exchange period, any adjustment of the applicable conversion or exchange price and any requirements relative to the reservation of such other securities for purposes of conversion or exchange); (xvi) any other terms not inconsistent with the applicable Indenture, including any terms which may be required by or advisable under United States laws or regulations; (xvii) if such Debt Securities are denominated or payable in a currency or currency unit other than U.S. dollars, the designation of the initial Exchange Rate Agent and, if other than as set forth in the applicable Indenture, the definition of the 21 "Exchange Rate"; and (xviii) the form of such Debt Securities and, if in global form, the name of the depositary with respect thereto and the terms upon which and the circumstances under which such Debt Securities may be exchanged. (Section 301) Unless otherwise indicated in the Prospectus Supplement relating thereto, the Debt Securities will be issued only in fully registered form without coupons. Debt Securities denominated in U.S. dollars will be issued in denominations of $1,000 or any integral multiple thereof unless otherwise provided in the Prospectus Supplement relating thereto. (Section 302) The Prospectus Supplement relating to a series of Debt Securities denominated in a foreign currency or currency unit will specify the denominations thereof. The Indentures do not contain any provisions that would limit the ability of the Company, CFC or any of their respective affiliates to incur indebtedness (secured or unsecured) or that would afford Holders of Debt Securities protection in the event of a highly leveraged transaction, restructuring, change in control, merger or similar transaction involving the Company or CFC that may adversely affect Holders of the Debt Securities. One or more series of Debt Securities may be sold at a substantial discount below their stated principal amount, bearing no interest or interest at a rate which at the time of issuance is below market rates. One or more series of Debt Securities may be floating rate debt securities, and may be exchangeable for fixed rate debt securities. Federal income tax consequences and special considerations applicable to any such series will be described in the Prospectus Supplement relating thereto. Unless otherwise indicated in the Prospectus Supplement relating thereto, the principal of, and any premium or interest on, any series of Company Debt Securities will be payable, and such Company Debt Securities will be exchangeable and transfers thereof will be registerable, at the Corporate Trust Office of the Company Trustee, initially at 101 Barclay Street, New York, New York 10286, provided that, at the option of the Company, payment of interest may be made by check mailed to the address of the Person entitled thereto as it appears in the related Security Register. (Sections 301, 305, 306, 307 and 1102) Unless otherwise indicated in the Prospectus Supplement relating thereto, the principal of, and any premium or interest on, any series of CFC Debt Securities will be payable, and such CFC Debt Securities will be exchangeable and transfers thereof will be registerable, at the Corporate Trust Office of the CFC Trustee, initially at 101 Barclay Street, New York, New York 10286, provided that, at the option of CFC, payment of interest may be made by check mailed to the address of the Person entitled thereto as it appears in the related Security Register. (Sections 301, 305, 306, 307 and 1102) No Debt Security shall be entitled to any benefit under the applicable Indenture or be valid or obligatory for any purpose unless there appears on such Debt Security a certificate of authentication substantially in the form provided for in such Indenture duly executed by the applicable Trustee by manual signature of one of its authorized officers, and such certificate upon any Debt Security shall be conclusive evidence, and the only evidence, that such Debt Security has been duly authenticated and delivered under such Indenture and is entitled to the benefits of such Indenture. (Section 203) EVENTS OF DEFAULT The Company Indenture provides that the following shall constitute "Events of Default" with respect to any series of Company Debt Securities thereunder: (i) default in payment of principal of (or premium, if any, on) any Company Debt Security of such series at Maturity; (ii) default for 30 days in payment of interest on any Company Debt Security of such series when due; (iii) default in the deposit of any sinking fund payment on any Company Debt Security of such series when due; (iv) default in the performance or breach of any other covenant or warranty of the Company in the Company Indenture or the Company Debt Securities, continued for 60 days after written notice thereof by the Company Trustee or the Holders of at least 25% in aggregate principal amount of the Company Debt Securities of such series at the time outstanding; (v) default 22 resulting in acceleration of maturity of any other indebtedness for borrowed money of the Company or any direct or indirect subsidiary of the Company in an amount in excess of $10,000,000 and such acceleration shall not be rescinded or annulled for a period of 10 days after written notice thereof by the Company Trustee or the Holders of at least 25% in aggregate principal amount of the Company Debt Securities of such series at the time outstanding; (vi) certain events of bankruptcy, insolvency or reorganization; and (vii) any other Event of Default provided with respect to such series of Company Debt Securities. (Section 601) No Event of Default with respect to a particular series of Company Debt Securities issued under the Company Indenture necessarily constitutes an Event of Default with respect to any other series of Company Debt Securities issued thereunder. "Maturity," when used with respect to any Debt Security, means the date on which the principal of such Debt Security becomes due and payable as provided in such Debt Security or in the applicable Indenture, whether at the Stated Maturity or by declaration of acceleration, notice of redemption, notice of option to elect repayment or otherwise. "Stated Maturity," when used with respect to any Debt Security or any installment of principal thereof or interest thereon, means the date specified in such Debt Security as the fixed date on which the principal of such Debt Security or such installment of principal or interest is due and payable. The CFC Indenture provides that the following shall constitute "Events of Default" with respect to any series of CFC Debt Securities thereunder: (i) default in payment of principal of (or premium, if any, on) any CFC Debt Security of such series at Maturity; (ii) default for 30 days in payment of interest on any CFC Debt Security of such series when due; (iii) default in the deposit of any sinking fund payment on any CFC Debt Security of such series when due; (iv) default in the performance or breach of any other covenant or warranty of CFC or the Guarantor in the CFC Indenture, the CFC Debt Securities or the related Guarantees, continued for 60 days after written notice thereof by the CFC Trustee or the Holders of at least 25% in aggregate principal amount of the CFC Debt Securities of such series at the time outstanding; (v) default resulting in acceleration of maturity of any other indebtedness for borrowed money of CFC, the Guarantor or any direct or indirect subsidiary of the Guarantor in an amount in excess of $10,000,000 and such acceleration shall not be rescinded or annulled for a period of 10 days after written notice thereof by the CFC Trustee or the Holders of at least 25% in aggregate principal amount of the CFC Debt Securities of such series at the time outstanding; (vi) certain events of bankruptcy, insolvency or reorganization; and (vii) any other Event of Default provided with respect to such series of CFC Debt Securities. (Section 601) No Event of Default with respect to a particular series of CFC Debt Securities issued under the CFC Indenture necessarily constitutes an Event of Default with respect to any other series of CFC Debt Securities issued thereunder. Each Indenture provides that if an Event of Default specified therein shall occur and be continuing, either the applicable Trustee or the Holders of at least 25% in aggregate principal amount of the Debt Securities of such series then outstanding may declare the principal amount of the Debt Securities of such series (or, in the case of Original Issue Discount Securities, such other amount, if any, as provided for in the terms of such Original Issue Discount Securities) to be due and payable immediately upon written notice thereof to the Company, and, in the case of the CFC Indenture, CFC. In certain cases, the Holders of a majority in aggregate principal amount of the outstanding Debt Securities of any such series may, on behalf of the Holders of all such Debt Securities, rescind and annul such declaration of acceleration. (Section 602) "Original Issue Discount Security" means, except as otherwise defined in a Debt Security, any Debt Security which is issued with original issue discount within the meaning of Section 1273(a) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder. The agreements governing certain of the Company's and CFC's outstanding indebtedness, including CFC's Subordinated Notes due July 15, 2002 and CFC's revolving credit agreement described under "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources", contain provisions to the effect that certain Events of Default under the Company Indenture or the CFC Indenture would constitute an event of default under such agreements which, among other things, could cause an acceleration of the indebtedness thereunder. 23 Each Indenture contains a provision entitling the applicable Trustee, subject to the duty of such Trustee during default under any series of Debt Securities to act with the required standard of care, to be indemnified by the Holders of the Debt Securities of such series before proceeding to exercise any right or power under such Indenture with respect to such series at the request of such Holders. (Sections 701, 703) Each Indenture provides that no Holders of Debt Securities of any series issued thereunder may institute any proceedings, judicial or otherwise, to enforce such Indenture except in the case of failure of the applicable Trustee thereunder, for 60 days, to act after it has received a written request to enforce such Indenture by the Holders of at least 25% in aggregate principal amount of the then outstanding Debt Securities of such series, and an offer of reasonable indemnity. (Section 607) This provision will not prevent any Holder of Debt Securities from enforcing payment of the principal thereof, premium, if any, and interest thereon at the respective due dates thereof. (Section 608) The Holders of a majority in aggregate principal amount of the Debt Securities of any series issued under either Indenture then outstanding may direct the time, method and place of conducting any proceeding for any remedy available to the applicable Trustee or exercising any trust or power conferred on it with respect to the Debt Securities of such series. Such Trustee may, however, refuse to follow any direction that it determines may not lawfully be taken or would be illegal or in conflict with such Indenture or involve it in personal liability or which would be unjustly prejudicial to Holders of the Debt Securities of such series not joining therein. (Section 612) Each Indenture provides that the applicable Trustee will, within 90 days after the occurrence of a default with respect to any series of Debt Securities issued thereunder, give to the Holders thereof notice of such default, unless such default has been cured or waived. Except in the case of a default in the payment of principal of, or premium, if any, or interest on any Debt Securities or payment of any sinking fund installment, each Trustee shall be protected in the withholding of such notice if it determines in good faith that the withholding of such notice is in the interest of the Holders of the Debt Securities of such series. (Section 702) The Company and, in the case of the CFC Debt Securities, CFC will be required to file with each Trustee annually an Officers' Certificate as to the absence of certain defaults under the terms of the applicable Indenture. (Section 1105) MODIFICATION AND WAIVER Modifications of and amendments to each Indenture may be made by the Company and, in the case of the CFC Indenture, CFC, and the applicable Trustee with the consent of the Holders of a majority in aggregate principal amount of the outstanding Debt Securities of each series affected by such modification or amendment; provided, however, that no such modification or amendment may, without the consent of the Holder of each outstanding Debt Security affected thereby: (i) except as otherwise permitted in such Indenture in connection with Debt Securities for which the Stated Maturity is extendible, change the Stated Maturity of the principal of, or any installment of interest on, such Debt Security; (ii) reduce the principal amount of, or, except as otherwise permitted in such Indenture in connection with Debt Securities for which the interest rate may be reset, interest on, or any premium payable upon redemption or repayment of, such Debt Security; (iii) reduce the amount of the principal of an Original Issue Discount Security that would be due and payable upon a declaration of acceleration of the Maturity thereof; (iv) adversely affect the right of repayment at the option of a Holder of such Debt Security; (v) reduce the amount of, or postpone the date fixed for, any payment under any sinking fund or analogous provisions of such Debt Security; (vi) change the place or currency or currency unit of payment of the principal of, premium, if any, or interest on such Debt Security; (vii) change or eliminate the rights of a Holder to receive payment in a designated currency; (viii) impair the right to institute suit for the enforcement of any required payment on or with respect to such Debt Security; (ix) reduce the percentage of the aggregate principal amount of the outstanding Debt Securities of any series the consent of whose Holders is required for modification or amendment of such Indenture, for waiver of compliance with certain provisions of such Indenture, or for waiver of certain defaults; (x) modify any of the provisions of Section 613 (described below) except to increase such percentage or to provide that certain other provisions of such Indenture cannot be modified or waived without the consent of the Holder 24 of each outstanding Debt Security affected thereby; or (xi) in the case of the CFC Indenture, modify or affect the terms and conditions of the related Guarantees in a manner adverse to the interests of the Holders of the CFC Debt Securities. Each Indenture also contains provisions permitting the Company and, in the case of the CFC Indenture, CFC, and the applicable Trustee, without the consent of any Holders of Debt Securities under such Indenture, to enter into supplemental indentures, in form satisfactory to such Trustee, for any of the following purposes: (i) to evidence the succession of another corporation to the Company or, in the case of the CFC Indenture, CFC or the Guarantor and the assumption by such successor of the obligations and covenants of the Company or, in the case of the CFC Indenture, CFC or the Guarantor contained in such Indenture and in the Debt Securities and, in the case of the CFC Indenture, the related Guarantees, as the case may be; (ii) to add to the covenants of the Company or, in the case of the CFC Indenture, CFC or the Guarantor, for the benefit of the Holders of all or any series of Debt Securities issued under such Indenture (and if such covenants are to be for the benefit of less than all series of Debt Securities issued under such Indenture, stating that such covenants are expressly being included solely for the benefit of such series), or to surrender any right or power herein conferred upon the Company or, in the case of the CFC Indenture, CFC or the Guarantor; (iii) to add any additional Events of Default (and if such Events of Default are to be applicable to less than all series of Debt Securities issued under such Indenture, stating that such Events of Default are expressly being included solely to be applicable to such series); (iv) to add or change any of the provisions of such Indenture to such extent as shall be necessary to permit or facilitate the issuance of Debt Securities in bearer form, registrable or not registrable as to principal, and with or without interest coupons; (v) to change or eliminate any of the provisions of such Indenture, provided that any such change or elimination shall become effective only when there is no Debt Security outstanding of any series created prior to the execution of such supplemental indenture which is entitled to the benefit of such provision; (vi) to establish the form or terms of Debt Securities of any series as otherwise permitted by such Indenture; (vii) to evidence and provide for the acceptance of appointment under such Indenture by a successor Trustee with respect to the Debt Securities of one or more series issued under such Indenture and to add to or change any of the provisions of such Indenture as shall be necessary to provide for or facilitate the administration of the trusts thereunder by more than one Trustee, pursuant to the requirements of such Indenture; (viii) to secure the Debt Securities issued under such Indenture; (ix) to cure any ambiguity, to correct or supplement any provision in such Indenture which may be defective or inconsistent with any other provision of such Indenture, or to make any other provisions with respect to matters or questions arising under such Indenture which shall not be inconsistent with any provision of such Indenture, provided such other provisions shall not adversely affect the interests of the Holders of Debt Securities of any series issued under such Indenture in any material respect; (x) to modify, eliminate or add to the provisions of such Indenture to such extent as shall be necessary to effect the qualification of such Indenture under the TIA or under any similar federal statute subsequently enacted and to add to such Indenture such other provisions as may be expressly required under the TIA; or (xi) in the case of the CFC Indenture, to effect the assumption, by the Guarantor or a Subsidiary thereof, of the payment obligations with respect to the CFC Debt Securities and of the performance of every covenant of the CFC Indenture on the part of CFC to be performed or observed. (Section 1001) The Holders of a majority in aggregate principal amount of the outstanding Debt Securities of each series may, on behalf of all Holders of Debt Securities of that series, waive any past default under the applicable Indenture with respect to Debt Securities of that series except a default in the payment of the principal of, (or premium, if any) or interest on, any Debt Security of that series and except a default in respect of a covenant or provision the modification or amendment of which would require the consent of the Holder of each outstanding Debt Security of the affected series. (Section 613) CONVERSION AND EXCHANGE RIGHTS The terms and conditions, if any, upon which the Company Debt Securities of any series are convertible into or exchangeable for other securities will be set forth in the applicable Prospectus Supplement relating 25 thereto. Such terms will include whether such Company Debt Securities are convertible into or exchangeable for other securities, the conversion or exchange price (or manner of calculation thereof), the conversion period, provisions as to whether conversion will be at the option of the Holders thereof or the Company, the events requiring an adjustment of the conversion or exchange price and provisions affecting conversion or exchange in the event of the redemption of such Company Debt Securities. GLOBAL SECURITIES The Debt Securities of a series may be issued in whole or in part in the form of one or more global securities ("Global Securities") that will be deposited with, or on behalf of, a depositary (the "Depositary") identified in the Prospectus Supplement relating to such series. Global Securities may be issued in either registered or bearer form and in either temporary or permanent form. Unless and until it is exchanged in whole or in part for individual certificates evidencing Debt Securities in definitive form represented thereby, a Global Security may not be transferred except as a whole by the Depositary for such Global Security to a nominee of such Depositary or by a nominee of such Depositary to such Depositary or another nominee of such Depositary or by such Depositary or any such nominee to a successor of such Depositary or a nominee of such successor. The specific terms of the depositary arrangement with respect to a series of Debt Securities will be described in the Prospectus Supplement relating to such series. CONSOLIDATION, MERGER AND TRANSFER OF ASSETS Under the Company Indenture, the Company may not consolidate with or merge into any corporation, or transfer its assets substantially as an entirety to any Person, unless: (i) the successor corporation or transferee assumes the Company's obligations on the Company Debt Securities and under the Company Indenture; (ii) after giving effect to the transaction, no Event of Default and no event which, after notice or lapse of time or both, would become an Event of Default shall have occurred and be continuing; and (iii) certain other conditions are met. (Section 901) Under the CFC Indenture, neither CFC nor the Guarantor may consolidate with or merge into any corporation, or transfer its assets substantially as an entirety to any Person, unless: (i) the successor corporation or transferee assumes the Company's or the Guarantor's obligations on the Debt Securities or the related Guarantees, as the case may be, and under the CFC Indenture, and in the case of a consolidation or merger of CFC, the Guarantor delivers an affirmation of the continuance of its obligations to the CFC Trustee; (ii) after giving effect to the transaction, no Event of Default and no event which, after notice or lapse of time or both, would become an Event of Default shall have occurred and be continuing; and (iii) certain other conditions are met. (Sections 901 and 903) SATISFACTION, DISCHARGE AND DEFEASANCE Each Indenture, with respect to any series of Debt Securities (except for certain specified surviving obligations, including (A) any rights of registration of transfer and exchange and (B) rights to receive the principal, premium, if any, and interest on the Debt Securities) will be discharged and cancelled upon the satisfaction of certain conditions, including the following: (i) all Debt Securities of such series not theretofore delivered to the applicable Trustee for cancellation have become due or payable, will become due and payable at their Stated Maturity within one year, or are to be called for redemption within one year and (ii) the deposit with such Trustee of an amount in the Specified Currency sufficient to pay the principal, premium, if any, and interest to the Maturity of all Debt Securities of such series. (Section 501) If so specified in the Prospectus Supplement with respect to Debt Securities of any series, the Company or CFC, as the case may be, at its option, (i) will be discharged from any and all obligations in respect of the Debt Securities of such series (except for certain obligations to register the transfer or exchange of Debt Securities of such series, replace stolen, lost or mutilated Debt Securities of such series, maintain certain offices or agencies in each Place of Payment, and hold moneys for payment in trust), or (ii) will not be subject 26 to provisions of the applicable Indenture described above under "-- Consolidation, Merger and Transfer of Assets" with respect to the Debt Securities of such series, in each case if the Company or CFC, as the case may be, irrevocably deposits with the applicable Trustee, in trust, money or U.S. Government Obligations (as defined in the applicable Indenture) which through the payment of interest thereon and principal thereof in accordance with their terms will provide money in an amount sufficient (in the opinion of independent public accountants) to pay all the principal (including any mandatory sinking fund payments) of, and premium, if any, and interest on, the Debt Securities of such series on the dates such payments are due in accordance with the terms of such Debt Securities. To exercise any such option, the Company or CFC, as the case may be, is required to deliver to the applicable Trustee (1) an opinion of counsel to the effect that (a) the deposit and related defeasance would not cause the Holders of the Debt Securities of such series to recognize income, gain or loss for Federal income tax purposes, (b) the Company's exercise of such option will not cause any violation of the Investment Company Act of 1940, as amended, and (c) if the Debt Securities of such series are then listed on the New York Stock Exchange, such Debt Securities would not be delisted as a result of the exercise of such option and (2) in the case of the Debt Securities of such series being discharged, a ruling received from or published by the United States Internal Revenue Service to the effect that the deposit and related defeasance would not cause the Holders of the Debt Securities of such series to recognize income, gain or loss for Federal income tax purposes. (Sections 1401 and 1402) GUARANTEES The CFC Debt Securities will be unconditionally guaranteed (the "Guarantees") by the Guarantor as to payment of principal, premium, if any, and interest when and as the same shall become due and payable, whether at their Stated Maturity or upon redemption or repayment or otherwise. (Section 401) The Guarantees will rank pari passu in right of payment with all other unsecured and unsubordinated obligations of the Guarantor, including the Company Debt Securities. The obligations of the Guarantor under the Guarantees will be unconditional regardless of the enforceability of the CFC Debt Securities or the CFC Indenture and will not be discharged until all obligations contained in such CFC Debt Securities and the CFC Indenture are satisfied. Holders of the CFC Debt Securities may proceed directly against the Guarantor in the event of an Event of Default with respect to such CFC Debt Securities without first proceeding against CFC. (Section 401) Because the Guarantor is a holding company, the rights of its creditors, including the Holders of the CFC Debt Securities in the event the Guarantees are enforced, to share in the distribution of the assets of any subsidiary upon the subsidiary's liquidation or recapitalization will be subject to the prior claims of the subsidiary's creditors, except to the extent the Guarantor may itself be a creditor with recognized claims against the subsidiary. See "-- General" above. CONCERNING THE TRUSTEES The Bank of New York is the Trustee under each of the Company Indenture and the CFC Indenture. The Company and CFC maintain banking relationships in the ordinary course of business with the Trustee. Among other things, The Bank of New York is a lending bank under CFC's revolving credit facility. See Notes to the Company's Consolidated Financial Statements included elsewhere herein. PLAN OF DISTRIBUTION The Company or CFC may sell Securities to or through one or more underwriters or dealers and also may sell Securities directly to institutional investors or other purchasers, or through agents. The distribution of the Securities may be effected from time to time in one or more transactions at a fixed price or prices, which may be changed, or at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. In connection with the sale of Securities, underwriters or agents may receive compensation from the Company or CFC or from purchasers of Securities for whom they may act as agents in the form of discounts, 27 concessions or commissions. Underwriters may sell Securities to or through dealers, and such dealers may receive compensation in the form of discounts, concessions or commissions from the underwriters and/or commissions from the purchasers for whom they may act as agents. Underwriters, dealers and agents that participate in the distribution of Securities may be deemed to be underwriters, and any discounts or commissions received by them from the Company and any profit on the resale of Securities by them may be deemed to be underwriting discounts and commissions, under the Securities Act. Any such underwriter or agent will be identified, and any such compensation received from the Company or CFC will be described, in the related Prospectus Supplement. Under agreements which may be entered into by the Company and/or CFC, underwriters and agents who participate in the distribution of Securities may be entitled to indemnification by the Company and CFC against certain liabilities, including liabilities under the Securities Act. If so indicated in the related Prospectus Supplement, the Company or CFC will authorize underwriters or other persons acting as the Company's or CFC's agents to solicit offers by certain institutions to purchase Securities from the Company or CFC pursuant to contracts providing for payment and delivery on a future date. Institutions with which such contracts may be made include commercial and savings banks, insurance companies, pension funds, investment companies, educational and charitable institutions and others, but in all cases such institutions must be approved by the Company or CFC. The obligations of any purchaser under any such contract will be subject to the condition that the purchase of the Securities shall not at the time of delivery be prohibited under the laws of the jurisdiction to which such purchaser is subject. The underwriters and such other agents will not have any responsibility in respect of the validity or performance of such contracts. Certain of the underwriters or agents and their associates may engage in transactions with and perform services for the Company, CFC or their respective affiliates in the ordinary course of their respective businesses. The Securities may or may not be listed on a national securities exchange (other than the Common Stock, which is listed on the New York Stock Exchange and the Pacific Stock Exchange). Any Common Stock sold pursuant to a Prospectus Supplement will be listed on the New York Stock Exchange and the Pacific Stock Exchange, subject to official notice of issuance. No assurances can be given that there will be an active trading market for the Securities. VALIDITY OF SECURITIES The validity of the Securities will be passed upon for the Company and CFC by Fried, Frank, Harris, Shriver & Jacobson, a partnership including professional corporations, New York, New York. Edwin Heller, whose professional corporation is a member of Fried, Frank, Harris, Shriver & Jacobson, is a director of the Company. Brown & Wood, New York, New York will serve as counsel for any underwriters and agents. Brown & Wood also serves as counsel for CWMBS, Inc., a wholly owned subsidiary of the Company, in connection with offerings of mortgage pass-through certificates, and as counsel to CWM. EXPERTS The consolidated financial statements of the Company included or incorporated by reference in this Registration Statement, of which this Prospectus forms a part, have been audited by Grant Thornton LLP, independent certified public accountants, for the periods and to the extent indicated in their report thereon, and have been included or so incorporated in reliance upon the authority of said firm as experts in accounting and auditing. 28 COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS FEBRUARY 28, 1995
PAGE ---- Report of Independent Certified Public Accountants ........................ F-2 Financial Statements Consolidated Balance Sheets.............................................. F-3 Consolidated Statements of Earnings...................................... F-4 Consolidated Statement of Common Shareholders' Equity.................... F-5 Consolidated Statements of Cash Flows.................................... F-6 Notes to Consolidated Financial Statements............................... F-7
F-1 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Shareholders Countrywide Credit Industries, Inc. We have audited the accompanying consolidated balance sheets of Countrywide Credit Industries, Inc. and Subsidiaries as of February 28, 1995 and 1994, and the related consolidated statements of earnings, common shareholders' equity, and cash flows for each of the three years in the period ended February 28, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Countrywide Credit Industries, Inc. and Subsidiaries as of February 28, 1995 and 1994, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended February 28, 1995, in conformity with generally accepted accounting principles. GRANT THORNTON LLP Los Angeles, California April 18, 1995 F-2 COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS FEBRUARY 28,
1995 1994 ASSETS ---------- ---------- (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) Cash..................................................... $ 17,624 $ 4,034 Receivables for mortgage loans shipped................... 1,174,648 1,970,431 Mortgage loans held for sale............................. 1,724,177 1,743,830 Other receivables........................................ 476,754 349,770 Property, equipment and leasehold improvements, at cost-- net of accumulated depreciation and amortization............... 145,612 145,625 Capitalized servicing fees receivable.................... 464,268 289,541 Purchased servicing rights............................... 1,332,629 836,475 Other assets............................................. 243,950 245,815 ---------- ---------- Total assets........................................... $5,579,662 $5,585,521 ========== ========== Borrower and investor custodial accounts (segregated in special accounts--excluded from corporate assets)............... $1,063,676 $1,366,643 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Notes payable............................................ $3,963,091 $3,859,227 Drafts payable issued in connection with mortgage loan closings................................................ 200,221 449,814 Accounts payable and accrued liabilities................. 105,097 87,818 Deferred income taxes.................................... 368,695 308,525 ---------- ---------- Total liabilities...................................... 4,637,104 4,705,384 Commitments and contingencies............................ -- -- Shareholders' equity Preferred stock--authorized, 1,500,000 shares of $0.05 par value; issued and outstanding, none............................ -- -- Common stock--authorized, 240,000,000 shares of $0.05 par value; issued and outstanding, 91,370,364 shares in 1995 and 91,063,751 shares in 1994............................... 4,568 4,553 Additional paid-in capital............................... 608,289 606,031 Retained earnings........................................ 329,701 269,553 ---------- ---------- Total shareholders' equity............................. 942,558 880,137 ---------- ---------- Total liabilities and shareholders' equity............. $5,579,662 $5,585,521 ========== ========== Borrower and investor custodial accounts................. $1,063,676 $1,366,643 ========== ==========
The accompanying notes are an integral part of these statements. F-3 COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS YEAR ENDED FEBRUARY 28,
1995 1994 1993 -------- -------- -------- (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues Loan origination fees.......................... $203,426 $379,533 $241,584 Gain (loss) on sale of loans, net of commitment fees.......................................... (41,342) 88,212 67,537 -------- -------- -------- Loan production revenue...................... 162,084 467,745 309,121 Interest earned................................ 343,138 376,225 211,542 Interest charges............................... (267,685) (275,906) (148,765) -------- -------- -------- Net interest income.......................... 75,453 100,319 62,777 Loan servicing income.......................... 428,994 307,477 177,291 Less amortization of servicing assets.......... (95,768) (242,177) (151,362) Add (less) servicing hedge benefit (expense)... (40,030) 73,400 74,075 Less write-off of servicing hedge.............. (25,600) -- -- -------- -------- -------- Net loan administration income............... 267,596 138,700 100,004 Gain on sale of servicing...................... 56,880 -- -- Commissions, fees and other income............. 40,650 48,816 33,656 -------- -------- -------- Total revenues............................. 602,663 755,580 505,558 Expenses Salaries and related expenses.................. 199,061 227,702 140,063 Occupancy and other office expenses............ 102,193 101,691 64,762 Guarantee fees................................. 85,831 57,576 29,410 Marketing expenses............................. 23,217 26,030 12,974 Branch and administrative office consolidation costs......................................... 8,000 -- -- Other operating expenses....................... 37,016 43,481 24,894 -------- -------- -------- Total expenses............................. 455,318 456,480 272,103 -------- -------- -------- Earnings before income taxes..................... 147,345 299,100 233,455 Provision for income taxes..................... 58,938 119,640 93,382 -------- -------- -------- NET EARNINGS................................... $ 88,407 $179,460 $140,073 ======== ======== ======== Earnings per share Primary........................................ $0.96 $1.97 $1.65 Fully diluted.................................. $0.96 $1.94 $1.52
The accompanying notes are an integral part of these statements. F-4 COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY THREE YEARS ENDED FEBRUARY 28, 1995
ADDITIONAL NUMBER COMMON PAID-IN RETAINED OF SHARES STOCK CAPITAL EARNINGS TOTAL ---------- ------ ---------- -------- -------- (DOLLAR AMOUNTS IN THOUSANDS) BALANCE AT MARCH 1, 1992...... 50,474,619 $2,523 $462,465 $ 93,629 $558,617 Cash dividends paid-- preferred.................... -- -- -- (3,482) (3,482) Cash dividends paid--common... -- -- -- (20,090) (20,090) Stock options exercised....... 471,288 24 2,252 -- 2,276 Tax benefit of stock options exercised.................... -- -- 2,808 -- 2,808 Conversion of preferred stock for common stock............. 1,964,794 98 11,633 -- 11,731 Dividend reinvestment plan.... 1,571 -- 38 -- 38 401(k) Plan contribution...... 39,716 2 1,141 -- 1,143 Settlement of three-for-two stock split.................. 65,688 4 (13) -- (9) Net earnings for the year..... -- -- -- 140,073 140,073 Effect of 5% stock dividend effective subsequent to year end.......................... 2,650,884 133 93,311 (93,444) -- ---------- ------ -------- -------- -------- BALANCE AT FEBRUARY 28, 1993.. 55,668,560 2,784 573,635 116,686 693,105 Cash dividends paid-- preferred.................... -- -- -- (732) (732) Cash dividends paid--common... -- -- -- (24,389) (24,389) Stock options exercised....... 452,522 22 3,338 -- 3,360 Tax benefit of stock options exercised.................... -- -- 2,495 -- 2,495 Conversion of preferred stock for common stock............. 4,511,283 225 25,575 -- 25,800 Dividend reinvestment plan.... 1,994 -- 55 -- 55 401(k) Plan contribution...... 33,637 2 1,005 -- 1,007 Settlement of 5% stock dividend..................... 41,171 2 1,446 (1,472) (24) Net earnings for the year..... -- -- -- 179,460 179,460 Effect of three-for-two stock split effective subsequent to year end..................... 30,354,584 1,518 (1,518) -- -- ---------- ------ -------- -------- -------- BALANCE AT FEBRUARY 28, 1994.. 91,063,751 4,553 606,031 269,553 880,137 Cash dividends paid--common... -- -- -- (28,259) (28,259) Stock options exercised....... 283,147 14 1,584 -- 1,598 Tax benefit of stock options exercised.................... -- -- 697 -- 697 Dividend reinvestment plan.... -- -- (14) -- (14) Settlement of three-for-two stock split.................. 23,466 1 (9) -- (8) Net earnings for the year..... -- -- -- 88,407 88,407 ---------- ------ -------- -------- -------- BALANCE AT FEBRUARY 28, 1995.. 91,370,364 $4,568 $608,289 $329,701 $942,558 ========== ====== ======== ======== ========
The accompanying notes are an integral part of this statement. F-5 COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS INCREASE (DECREASE) IN CASH YEAR ENDED FEBRUARY 28,
1995 1994 1993 ------------ ------------ ------------ (DOLLAR AMOUNTS IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings........................ $ 88,407 $ 179,460 $ 140,073 Adjustments to reconcile net earnings to net cash provided (used) by operating activities: Amortization of purchased servicing rights............................ 92,897 141,321 119,878 Amortization of capitalized servicing fees receivable......... 2,871 100,856 31,484 Depreciation and other amortization...................... 26,050 15,737 8,746 Deferred income taxes.............. 58,938 119,640 93,382 Gain on bulk sale of servicing rights............................ (56,880) -- -- Origination and purchase of loans held for sale..................... (27,866,170) (52,458,879) (32,387,774) Principal repayments and sale of loans............................. 28,681,606 51,060,915 31,725,953 ------------ ------------ ------------ Decrease (increase) in mortgage loans shipped and held for sale... 815,436 (1,397,964) (661,821) Increase in other receivables and other assets...................... (142,241) (407,080) (28,700) Increase in accounts payable and accrued liabilities............... 17,279 30,221 16,462 ------------ ------------ ------------ Net cash provided (used) by operating activities.............. 902,757 (1,217,809) (280,496) ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Additions to purchased servicing rights............................. (589,051) (521,326) (280,459) Additions to capitalized servicing fees receivable.................... (207,663) (178,611) (148,248) Purchase of property, equipment and leasehold improvements--net........ (21,414) (64,660) (49,401) Proceeds from bulk sale of servicing rights............................. 100,676 -- -- Proceeds from sale of finance receivables........................ -- -- 111,897 Finance receivables originations.... -- -- (425) Principal repayments on finance receivables........................ -- -- 4,254 ------------ ------------ ------------ Net cash used by investing activities........................ (717,452) (764,597) (362,382) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Net (decrease) increase in warehouse debt and other short-term borrowings......................... (451,915) 1,477,593 526,820 Issuance of long-term debt.......... 399,205 576,718 462,000 Repayment of long-term debt......... (93,019) (59,721) (103,723) Issuance of common stock............ 2,273 4,398 3,448 Cash dividends paid................. (28,259) (25,121) (23,572) Net decrease in thrift investment accounts........................... -- -- (224,036) ------------ ------------ ------------ Net cash (used) provided by financing activities.............. (171,715) 1,973,867 640,937 ------------ ------------ ------------ Net increase (decrease) in cash...... 13,590 (8,539) (1,941) Cash at beginning of period.......... 4,034 12,573 14,514 ------------ ------------ ------------ Cash at end of period................ $ 17,624 $ 4,034 $ 12,573 ============ ============ ============ Supplemental cash flow information: Cash used to pay interest........... $262,858 $277,518 $143,106 Cash (refunded from) used to pay income taxes....................... $(841) $(1,823) $4,567 Noncash financing activities-- conversion of preferred stock...... $-- $25,800 $11,731
The accompanying notes are an integral part of these statements. F-6 COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the Company's significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements follows. 1. Principles of Consolidation The consolidated financial statements include the accounts of the parent and all wholly-owned subsidiaries. All material intercompany accounts and transactions have been eliminated. 2. Receivables for Mortgage Loans Shipped Gain or loss on the sale of mortgage loans is recognized at the date the loans are shipped to investors pursuant to existing sales commitments. 3. Mortgage Loans Held for Sale Mortgage loans held for sale are carried at the lower of cost or market, which is computed by the aggregate method (unrealized losses are offset by unrealized gains). The cost of mortgage loans is adjusted by gains and losses generated from corresponding closed hedging transactions entered into to protect the inventory value from increases in interest rates. Hedge positions are also used to protect the pipeline of loan applications in process from changes in interest rates. Gains and losses resulting from changes in the market value of the inventory, pipeline and open hedge positions are netted. Any net gain that results is deferred; any net loss that results is recognized when incurred. Hedging gains and losses realized during the commitment and warehousing period related to the pipeline and mortgage loans held for sale are deferred. Hedging losses are recognized currently if deferring such losses would result in mortgage loans held for sale and the pipeline being valued in excess of their estimated net realizable value. 4. Property, Equipment and Leasehold Improvements Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives using the straight-line method. Leasehold improvements are amortized over the lesser of the life of the lease or service lives of the improvements using the straight- line method. 5. Capitalized Servicing Fees Receivable The Company sells substantially all of the mortgage loans it produces and retains the servicing rights thereto. These servicing rights entitle the Company to a future stream of cash flows based on the outstanding principal balance of the mortgage loans and the related contractual service fee. The sales price of the loans, which is generally at or near par, and the resulting gain or loss on sale are adjusted to provide for the recognition of a normal service fee rate over the estimated lives of the serviced loans. The amount of the adjustment approximates the amount that investors were willing to pay for the excess servicing fees at the time of the loan sale. The adjustment results in a receivable that is expected to be realized through receipt of the excess service fee over time. 6. Purchased Servicing Rights The Company capitalizes the cost of bulk purchases of servicing rights, as well as the net cost of servicing rights acquired through the purchase of loans servicing-released which will be sold servicing-retained. The purchase price of loans acquired servicing-released is allocated between the servicing rights and the value of the loans on a servicing-retained basis. The portion of the purchase price that represents the cost of acquiring the servicing rights in accordance with Statement of Financial Accounting Standards ("SFAS") No. 65, F-7 COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Accounting for Certain Mortgage Banking Activities, is capitalized as purchased servicing. The remainder of the purchase price represents the cost basis of the loan that will be sold. Purchased mortgage loans include closed loans acquired from financial institutions and table funded loans meeting all the criteria set forth in EITF Issue 92-10, "Loan Acquisitions Involving Table Funding Arrangements," acquired from financial institutions and mortgage brokers. The amount capitalized does not exceed the present value of future net servicing income related to the purchased loans. 7. Servicing Portfolio Hedge The Company acquires financial instruments, including derivative contracts, that increase in value when interest rates decline ("Servicing Hedge"). These financial instruments include call options on U.S. treasury futures and mortgage-backed securities ("MBS"), interest rate floors and certain tranches of collateralized mortgage obligations ("CMOs"). The Servicing Hedge partially protects the value of the capitalized servicing fees receivable and purchased servicing rights ("Servicing Assets") from the effects of increased prepayment activity. The value of the interest rate floors and call options is derived from an underlying instrument or index. The notional or contractual amount is not recognized in the balance sheet. The cost of the interest rate floors and call options is charged to expense (and included in net loan administration income) over the contractual life of the contract. Unamortized costs are included in Other Assets in the balance sheet. Realized gains from the Servicing Hedge are recognized first as an offset to the "Incremental Amortization" of the Servicing Assets (i.e., amortization due to impairment caused by increased projected prepayment speeds). To the extent the Servicing Hedge generates gains in excess of Incremental Amortization, the Company reduces the carrying amount of the Servicing Assets by such excess through additional amortization. The Company recognized $65 million in net expense (including a write-off of the Servicing Hedge amounting to $26 million) and $73 million as an offset to incremental amortization for the years ended February 28, 1995 and 1994, respectively. The Company measures the effectiveness of its Servicing Hedge by computing the correlation under a variety of interest rate scenarios between the present value of servicing cash flows and the value of the Servicing Hedge instruments. 8. Amortization of Purchased Servicing Rights and Capitalized Servicing Fees Receivable Amortization of each year's purchased servicing rights is based on the ratio of net servicing income received in the current period to total net servicing income projected to be realized from each year's purchased servicing rights. The Company evaluates the recoverability of each year's purchased servicing rights separately by type of loan and interest rate stratum. This level of disaggregation results in pools of loans which have homogeneous credit and prepayment risk characteristics. The Company records any additional amortization necessary to adjust the carrying value of each such stratum's purchased servicing portfolio to its net realizable value. Amortization of capitalized servicing fees receivable is based on the decline during the period in the present value of the projected excess servicing fees using the same discount rate as that which is implied by the price that investors were willing to pay for the excess servicing fees at the time of the loan sale. Projected net servicing income and excess servicing fees are in turn determined on the basis of the estimated future balance of the underlying mortgage loan portfolio, which declines over time from prepayments and scheduled loan amortization. The Company estimates future prepayment rates based on current interest rate levels, other economic conditions and market forecasts, as well as relevant characteristics of the servicing portfolio, such as loan types, interest rate stratification and recent prepayment experience. 9. Deferred Commitment Fees Deferred commitment fees, included in Other Assets, primarily consist of fees paid to permanent investors to ensure the ultimate sale of loans and put and call option fees paid for the option of selling or F-8 COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) buying MBS. Fees paid to permanent investors are recognized as an adjustment to the sales price when the loans are shipped to permanent investors or charged to expense when it becomes evident the commitment will not be used. Put and call option fees are amortized over the life of the option to reflect the decline in its time value. Any unamortized option fees are charged to income when the related option is exercised. 10. Investment Securities The Company has designated its investments in certain tranches of CMOs as available for sale. Those securities are reported at fair value, with any net material unrealized gains and losses included in equity. Unrealized losses that are other than temporary are recognized in earnings. 11. Loan Origination Fees Loan origination fees and discount points are recorded as an adjustment of the cost of the loan and are included in loan production revenue when the loan is sold. 12. Interest Rate Swap Agreements The differential to be received or paid under the agreements is accrued and is recognized as an adjustment to net interest income. The related amount payable to or receivable from counterparties is included in Accounts Payable and Accrued Liabilities. 13. Sale of Servicing Rights The Company recognizes gain or loss on the sale of servicing rights when title and all risks and rewards have irrevocably passed to the buyer and there are no significant unresolved contingencies. 14. Income Taxes Effective March 1, 1993, the Company adopted SFAS No. 109, Accounting for Income Taxes. The adoption of SFAS 109 changes the Company's method of accounting from the deferred method to an asset and liability approach. Previously, the Company deferred the past tax effects of timing differences between financial reporting and taxable income. The asset and liability approach requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of other assets and liabilities. Adoption of SFAS 109 did not result in a material adjustment to previously recorded deferred income tax liabilities. 15. Earnings Per Share Primary earnings per share is computed on the basis of the weighted average number of common and common equivalent shares outstanding during the respective periods after giving retroactive effect to stock dividends and stock splits. Fully diluted earnings per share is based on the assumption that all dilutive convertible preferred stock and stock options were converted at the beginning of the reporting period. The computations assume that net earnings have been adjusted for the dividends on the convertible preferred stock. The weighted average shares outstanding for computing primary and fully diluted earnings per share were 92,087,000 and 92,216,000, respectively, for the year ended February 28, 1995; 90,501,000 and 92,445,000, respectively, for the year ended February 28, 1994 and 82,514,000 and 92,214,000, respectively, for the year ended February 28, 1993. 16. Financial Statement Reclassifications and Restatement Certain amounts reflected in the Consolidated Financial Statements for the years ended February 28, 1994 and 1993 have been reclassified to conform to the presentation for the year ended February 28, 1995. F-9 COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) On July 17, 1992, a 3-for-2 split of the Company's $0.05 par value common stock was accomplished. On April 23, 1993, a 5% stock dividend was paid. On May 3, 1994, the Company's $0.05 par value common stock was split 3 for 2. All references in the accompanying consolidated balance sheets, consolidated statements of earnings and notes to consolidated financial statements to the number of common shares and share amounts have been restated to reflect the stock splits and the stock dividend. NOTE B--PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS Property, equipment and leasehold improvements consisted of the following:
FEBRUARY 28, ------------------------------ 1995 1994 -------------- -------------- (DOLLAR AMOUNTS IN THOUSANDS) Buildings................................... $ 36,983 $ 35,305 Office equipment............................ 116,661 95,976 Leasehold improvements...................... 25,729 23,656 Mobile homes................................ 3,751 8,829 -------------- -------------- 183,124 163,766 Less: accumulated depreciation and amortization............................... (55,848) (41,823) -------------- -------------- 127,276 121,943 Land........................................ 18,336 23,682 -------------- -------------- $ 145,612 $ 145,625 ============== ==============
NOTE C--CAPITALIZED SERVICING FEES RECEIVABLE AND PURCHASED SERVICING RIGHTS The components of capitalized servicing fees receivable and purchased servicing rights are as follows:
FEBRUARY 28, ------------------------------- 1995 1994 1993 ---------- --------- -------- (DOLLAR AMOUNTS IN THOUSANDS) CAPITALIZED SERVICING FEES RECEIVABLE Balance at beginning of period............ $ 289,541 $ 211,785 $ 95,021 Additions................................. 207,663 178,612 148,248 Sale of servicing......................... (30,065) -- -- Amortization Scheduled............................... (2,871) (32,970) (21,333) Unscheduled............................. -- (67,886) (10,151) ---------- --------- -------- Balance at end of period.................. $ 464,268 $ 289,541 $211,785 ========== ========= ======== PURCHASED SERVICING RIGHTS Balance at beginning of period............ $ 836,475 $ 456,470 $295,889 Additions................................. 589,051 521,326 280,459 Amortization Scheduled............................... (92,897) (108,822) (55,511) Unscheduled............................. -- (32,499) (64,367) ---------- --------- -------- Balance at end of period.................. $1,332,629 $ 836,475 $456,470 ========== ========= ========
F-10 COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE D--NOTES PAYABLE Notes payable consisted of the following:
FEBRUARY 28, ----------------------------- 1995 1994 -------------- -------------- (DOLLAR AMOUNTS IN THOUSANDS) Commercial paper.............................. $ 2,122,348 $ 2,194,543 Medium-term notes, Series A, B and C, net of discounts.................................... 1,393,900 1,088,550 Reverse-repurchase agreements................. 245,212 312,129 Pre-sale funding facilities................... -- 63,210 Subordinated notes............................ 200,000 200,000 Other notes payable (2.40%-2.90%)............. 1,631 795 -------------- -------------- $ 3,963,091 $ 3,859,227 ============== ==============
REVOLVING CREDIT FACILITY AND COMMERCIAL PAPER As of February 28, 1995, Countrywide Funding Corporation ("CFC"), the Company's mortgage banking subsidiary, had an unsecured credit agreement (revolving credit facility) with forty-two commercial banks permitting CFC to borrow an aggregate maximum amount of $2.5 billion, less commercial paper backed by the agreement. The amount available under the facility is subject to a borrowing base, which consists of mortgage loans held for sale, receivables for mortgage loans shipped and mortgage servicing rights. The facility contains various financial covenants and restrictions, certain of which limit the amount of dividends that can be paid by the Company or CFC. The interest rate on direct borrowings is based on a variety of sources, including the prime rate and the London Interbank Offered Rates ("LIBOR") for U.S. dollar deposits. This interest rate varies depending on CFC's credit ratings. The weighted average borrowing rate on direct borrowings and commercial paper borrowings for the year ended February 28, 1995, including the effect of the interest rate swap agreements discussed in Note F, was 4.69%. The weighted average borrowing rate on commercial paper outstanding as of February 28, 1995 was 5.94%. Under certain circumstances, including the failure to maintain specified minimum credit ratings, borrowings under the revolving credit facility and commercial paper may become secured by mortgage loans held for sale, receivables for mortgage loans shipped and mortgage servicing rights. The revolving credit facility expires on September 19, 1997. MEDIUM-TERM NOTES As of February 28, 1995, outstanding medium-term notes issued by the parent and CFC under various shelf registrations filed with the Securities and Exchange Commission were as follows:
OUTSTANDING BALANCE INTEREST RATE MATURITY DATE ------------------------------- -------------- ----------------- FLOATING- RATE FIXED-RATE TOTAL FROM TO FROM TO --------- ---------- ---------- ------- ------ -------- -------- (DOLLAR AMOUNTS IN THOUSANDS) Parent Series A... $ -- $ 10,600 $ 10,600 10.60% 10.60% Jun 1995 Aug 1995 CFC Series A... 5,000 424,800 429,800 6.10% 8.79% Mar 1995 Mar 2002 Series B... 11,000 469,000 480,000 5.11% 6.98% Mar 1996 Aug 2005 Series C... 278,000 195,500 473,500 6.31% 8.43% Dec 1997 Mar 2004 -------- ---------- ---------- Subtotal... $294,000 $1,089,300 $1,383,300 -------- ---------- ---------- Total...... $294,000 $1,099,900 $1,393,900 ======== ========== ==========
F-11 COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE D--NOTES PAYABLE (CONTINUED) As of February 28, 1995, all of the outstanding fixed-rate notes of CFC had been effectively converted by interest rate swap agreements to floating-rate notes. The weighted average borrowing rate on CFC's medium-term note borrowings for the year ended February 28, 1995, including the effect of the interest rate swap agreements, was 5.54%. As of February 28, 1995, $26.5 million was available for future issuance under the Series C shelf registration. REVERSE-REPURCHASE AGREEMENTS As of February 28, 1995, the Company had entered into short-term financing arrangements to sell MBS and whole loans under agreements to repurchase. The weighted average borrowing rate for the year ended February 28, 1995, was 4.63%. The weighted average borrowing rate on reverse-repurchase agreements outstanding as of February 28, 1995 was 6.01%. The reverse-repurchase agreements were collateralized by either MBS or whole loans. All MBS and whole loans underlying reverse-repurchase agreements are held in safekeeping by broker-dealers, and all agreements are to repurchase the same or substantially identical MBS or whole loans. PRE-SALE FUNDING FACILITIES As of February 28, 1995, CFC had a $500 million revolving credit facility ("As Soon as Pooled Agreement") with the Federal National Mortgage Association ("Fannie Mae"). The credit facility is secured by conforming mortgage loans which are in the process of being pooled into Fannie Mae MBS. Interest rates are based on LIBOR and/or federal funds. The weighted average borrowing rate for the year ended February 28, 1995, was 5.03%. This facility is committed through July 20, 1995, subject to CFC's compliance with certain financial and operational covenants. As of February 28, 1995, the Company had no outstanding borrowings under this facility. As of February 28, 1995, CFC had an uncommitted revolving credit facility ("Pre-sale Funding Facility") with an affiliate of an investment banking firm. The credit facility is secured by conforming mortgage loans which are in the process of being pooled into MBS. Interest rates are based on LIBOR. The weighted average borrowing rate for the year ended February 28, 1995, was 6.03%. As of February 28, 1995, the Company had no outstanding borrowings under this facility. As of February 28, 1995, CFC had an uncommitted revolving credit facility ("Early Funding Agreement") with the Federal Home Loan Mortgage Corporation ("Freddie Mac"). The credit facility is secured by conforming mortgage loans which are in the process of being pooled into Freddie Mac participation certificates. Interest rates under the agreement are based on the prevailing rates for MBS reverse-repurchase agreements. The weighted average borrowing rate for the year ended February 28, 1995 was 3.91%. As of February 28, 1995, the Company had no outstanding borrowings under this facility. SUBORDINATED NOTES The 8.25% subordinated notes are due July 15, 2002. Interest is payable semi- annually on each January 15 and July 15. The subordinated notes are not redeemable prior to maturity and are not subject to any sinking fund. F-12 COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE D--NOTES PAYABLE (CONTINUED) Maturities of notes payable are as follows:
YEAR ENDING FEBRUARY 28(29), ---------------------------- (DOLLAR AMOUNTS IN THOUSANDS) 1996....................................... $2,463,785 1997....................................... 114,006 1998....................................... 180,300 1999....................................... 102,000 2000....................................... 228,000 Thereafter................................. 875,000 ---------- $3,963,091 ==========
NOTE E--INCOME TAXES Components of the provision for income taxes consisted of the following:
YEAR ENDED FEBRUARY 28, ------------------------------ 1995 1994 1993 --------- ---------- --------- (DOLLAR AMOUNTS IN THOUSANDS) Federal expense--deferred.................. $ 48,680 $ 99,074 $ 71,152 State expense--deferred.................... 10,258 20,566 22,230 --------- ---------- --------- $ 58,938 $ 119,640 $ 93,382 ========= ========== =========
The following is a reconciliation of the statutory federal income tax rate to the effective income tax rate reflected in the consolidated statements of earnings:
YEAR ENDED FEBRUARY 28, ------------------------- 1995 1994 1993 ------- ------- ------- Statutory federal income tax rate.............. 35.0% 35.0% 34.0% State income and franchise taxes............... 5.0 5.0 6.4 Tax rate differential on reversing timing dif- ferences...................................... -- -- (.4) ------- ------- ------- Effective income tax rate.................... 40.0% 40.0% 40.0% ======= ======= =======
In August 1993, legislation was enacted that implemented a one percent increase in the corporate federal tax rate. As a result, the Company increased its deferred federal tax liability in the amount of approximately $5 million. Also, the Company has diversified its business activities outside California, a state that has a corporate tax rate that is higher than the average tax rate among the states in which the Company does business. This diversification reduced the Company's effective state tax rate by approximately one percent, and therefore its deferred state tax liability was decreased by approximately $5 million. Consequently, the Company's total deferred tax liability and combined tax rate did not change materially as a result of these two events. F-13 COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE E--INCOME TAXES (CONTINUED) The tax effects of temporary differences that gave rise to deferred income tax assets and liabilities are presented below:
YEAR ENDED FEBRUARY 28, ----------------------- 1995 1994 ----------- ----------- (DOLLAR AMOUNTS IN THOUSANDS) Deferred income tax assets: Federal net operating losses...................... $ 111,455 $ 68,240 State net operating losses........................ 10,685 7,342 Alternative minimum tax credits................... 2,664 2,664 State income and franchise taxes.................. 25,183 22,326 Allowance for losses.............................. 4,968 5,965 Other............................................. 3,297 1,650 ----------- ----------- Total deferred income tax assets.................... 158,252 108,187 ----------- ----------- Deferred income tax liabilities: Capitalized servicing fees receivable and pur- chased servicing rights.......................... 521,225 410,773 Accumulated depreciation.......................... 5,722 5,939 ----------- ----------- Total deferred income tax liabilities............... 526,947 416,712 ----------- ----------- Deferred income taxes............................... $ 368,695 $ 308,525 =========== ===========
Deferred income tax expense (benefit) resulted from timing differences in the recognition of revenues and expenses for tax and financial statement purposes. The sources of these differences and the effects of each were as follows:
FEBRUARY 28, 1993 ----------------- (DOLLAR AMOUNTS IN THOUSANDS) Capitalized servicing fees............................... $101,800 State income and franchise taxes......................... (7,729) Accelerated depreciation................................. 1,022 Allowance for credit losses.............................. (1,711) -------- $ 93,382 ========
At February 28, 1995, the Company had net operating loss carryforwards for federal income tax purposes of $13,612,000 expiring in 2003, $16,448,000 expiring in 2004, $4,712,000 expiring in 2006, $8,034,000 expiring in 2008, $124,160,000 expiring in 2009 and $151,477,000 expiring in 2010. NOTE F--FINANCIAL INSTRUMENTS DERIVATIVE FINANCIAL INSTRUMENTS The Company utilizes a variety of derivative financial instruments in the management of interest-rate risk. These instruments include priced short-term commitments to extend credit, MBS mandatory forward delivery and purchase commitments, put and call options to sell or buy mortgage-backed and treasury securities, interest rate floors and interest rate swaps. These instruments involve, to varying degrees, elements of credit and interest-rate risk. All of the Company's derivative financial instruments are held or issued for purposes other than trading. F-14 COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE F--FINANCIAL INSTRUMENTS (CONTINUED) While the Company does not anticipate nonperformance by any counterparty, the Company is exposed to credit loss in the event of nonperformance by the counterparties to the various instruments. The Company manages credit risk with respect to MBS mandatory forward commitments, put or call options to sell or buy mortgage-backed and treasury securities and interest rate swaps and floors by entering into agreements with entities approved by senior management and initially having a long-term credit rating of single A or better. These entities include Wall Street firms having primary dealer status, money center banks and permanent investors. The Company's exposure to credit risk in the event of default by the counterparty is the difference between the contract price and the current market price offset by any available margins retained by the Company or an independent clearing agent. The amounts of credit risk as of February 28, 1995, if the counterparties failed completely and if the margins, if any, retained by the Company or an independent clearing agent were to become unavailable, are approximately $61 million for MBS mandatory forward commitments, approximately $14 million for interest rate swaps and approximately $23 million for interest rate floors. As of February 28, 1995, the Company had priced short-term commitments amounting to approximately $2.2 billion (including $1.5 billion fixed-rate and $0.7 billion adjustable-rate) to fund mortgage loan applications in process subject to approval of the loans and an additional $2.7 billion (including $2.5 billion fixed-rate and $0.2 billion adjustable-rate) subject to property identification and approval of the loans. Substantially all of these commitments are for periods of 90 days or less. After funding and sale of the mortgage loans, the Company's exposure to credit loss in the event of nonperformance by the mortgagor is limited as described in Note G4. The Company uses the same credit policies in the approval of the commitments as are applied to all lending activities. HEDGE OF MORTGAGE LOAN INVENTORY AND COMMITTED PIPELINE In order to offset the risk that a change in interest rates will result in a decrease in the value of the Company's current mortgage loan inventory or its commitments to purchase or originate mortgage loans ("Committed Pipeline"), the Company enters into hedging transactions. The Company's hedging policies generally require that substantially all of its inventory of conforming and government loans and the maximum portion of its Committed Pipeline that may close be hedged with forward contracts for the delivery of MBS or options on MBS. The MBS that are to be delivered under these contracts and options are fixed- or adjustable-rate, corresponding with the composition of the Company's inventory and Committed Pipeline. At February 28, 1995, the Company had open commitments amounting to approximately $8.5 billion to sell MBS with varying settlement dates generally not extending beyond May 1995 and options on MBS through October 1995 with a total notional amount of $4.2 billion. The mortgage loan inventory is used to form the MBS that will fill the forward delivery contracts and options. The Company hedges its inventory and Committed Pipeline of jumbo mortgage loans by using whole-loan sale commitments to ultimate buyers or by using temporary "cross hedges" with sales of MBS since such loans are ultimately sold based on a market spread to MBS. As such, the Company is not exposed to significant risk nor will it derive any significant benefit from changes in interest rates on the price of the mortgage loan inventory net of gains or losses of associated hedge positions. The correlation between the price performance of the hedge instruments and the inventory being hedged is very high due to the similarity of the asset and the related hedge instrument. The Company is exposed to interest-rate risk to the extent that the portion of loans from the Committed Pipeline that actually closes at the committed price is less than the portion expected to close in the event of a decline in rates and such decline in closings is not covered by forward contracts and options to purchase MBS needed to replace the loans in process that do not close at their committed price. At February 28, 1995, the notional amount of forward contracts and options to purchase MBS aggregated $4.1 billion and $2.6 billion, F-15 COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE F--FINANCIAL INSTRUMENTS (CONTINUED) respectively. The forward contracts extend through May 1995 and the options extend through September 1995. The Company determines the portion of its Committed Pipeline that it will hedge based on numerous factors, including the composition of the Company's Committed Pipeline, the portion of such Committed Pipeline likely to close, the timing of such closings and anticipated changes in interest rates. SERVICING HEDGE The primary means used by the Company to reduce the sensitivity of its earnings to changes in interest rates is through a strong production capability and a growing servicing portfolio. To further mitigate the effect on earnings of higher amortization (which is deducted from loan servicing income) resulting from increased prepayment activity, the Company utilizes its Servicing Hedge, consisting of financial instruments, including derivative contracts, that increase in value when interest rates decline. These financial instruments include call options on U.S. treasury futures and MBS, interest rate floors and certain tranches of CMOs. The CMOs, which consist primarily of principal-only ("P/O") securities, have been purchased at deep discounts to their par values. As interest rates decline, prepayments on the collateral underlying the CMOs should increase. These changes should result in a decline in the average lives of the P/O securities and an increase in the present values of their cash flows. The following summarizes the notional amounts of Servicing Hedge derivative contracts:
INTEREST LONG LONG CALL OPTIONS RATE CALL OPTIONS ON U.S. TREASURY FLOORS ON MBS FUTURES -------- ------------ ----------------- (DOLLAR AMOUNTS IN MILLIONS) Balance, March 1, 1992............... $ -- $ 560 $ -- Additions.......................... -- 2,287 700 Dispositions....................... -- 2,847 700 ------ ------ ------ Balance, February 28, 1993........... -- -- -- Additions.......................... -- 4,700 2,520 Dispositions....................... -- 2,700 750 ------ ------ ------ Balance, February 28, 1994........... -- 2,000 1,770 Additions.......................... 4,000 -- 1,300 Dispositions....................... -- 2,000 3,070 ------ ------ ------ Balance, February 28, 1995........... $4,000 $ -- $ -- ====== ====== ======
The terms of the open Servicing Hedge derivative contracts at February 28, 1995 are presented below:
INTEREST RATE FLOORS -------------------- Index............................. 10-Year Constant Maturity Treasury Yield Floor............................. 6.50%--7.25% Term.............................. 3--5 Years
The Servicing Hedge instruments utilized by the Company partially protect the value of the investment in servicing rights from the effects of increased prepayment activity that generally results from declining interest rates. To the extent that interest rates increase, the value of the servicing rights increases while the value of the hedge instruments declines. However, the Company is not exposed to loss beyond its initial outlay to acquire the hedge instruments. At February 28, 1995, the carrying value of interest rate floor contracts and P/O securities included in the Servicing Hedge was approximately $16 million and $42 million, respectively. There can be no assurance the Company's Servicing Hedge will generate gains in the future. F-16 COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE F--FINANCIAL INSTRUMENTS (CONTINUED) INTEREST RATE SWAPS As of February 28, 1995, CFC had interest rate swap agreements with certain financial institutions having notional principal amounts totaling $2.47 billion. The effect of these agreements is to enable CFC to convert a portion of its medium-term note borrowings to LIBOR-based floating-rate cost borrowings (notional amount $1.09 billion), to convert a portion of its commercial paper and medium-term note borrowings from one floating-rate index to another (notional amount $0.13 billion) and to convert the earnings rate on the custodial accounts held by CFC from floating to fixed (notional amount $1.25 billion). Payments are due periodically through the termination date of each agreement. The agreements expire between March 1995 and August 2005. The terms of the open interest rate swap agreements at February 28, 1995 are presented below: Swaps related to debt Average receive rate..................................... 6.367% Average pay rate......................................... 6.329% Index.................................................... 3-month LIBOR Swaps related to custodial accounts Average receive rate..................................... 6.468% Average pay rate......................................... 6.223% Index.................................................... 1-3 month LIBOR
FAIR VALUE OF FINANCIAL INSTRUMENTS The following disclosure of the estimated fair value of financial instruments as of February 28, 1995 and 1994 is made by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is necessarily required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
FEBRUARY 28, 1995 FEBRUARY 28, 1994 --------------------- --------------------- CARRYING ESTIMATED CARRYING ESTIMATED AMOUNT FAIR VALUE AMOUNT FAIR VALUE ---------- ---------- ---------- ---------- (DOLLAR AMOUNTS IN THOUSANDS) Assets: Mortgage loans shipped and held for sale...................... $2,898,825 $2,941,709 $3,714,261 $3,725,913 Capitalized servicing fees re- ceivable...................... 464,268 473,623 289,541 295,403 Items included in other assets: -- -- 238,841 173,829 Principal-only securities.... 91,793 92,726 -- -- Derivatives: Interest rate floors......... 15,820 23,396 -- -- Contracts and options related to mortgage loans shipped and held for sale........... 47,647 (2,926) -- 59,533 Liabilities: Notes payable.................. 3,963,091 3,934,160 3,859,227 3,901,179 Derivatives gain (loss): Interest rate swaps.......... 4,093 (55,570) 2,950 (6,669) Short-term commitments to ex- tend credit................. -- 69,252 -- (59,533)
F-17 COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE F--FINANCIAL INSTRUMENTS (CONTINUED) The fair value estimates as of February 28, 1995 and 1994 are based on pertinent information available to management as of the respective dates. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since those dates and, therefore, current estimates of fair value may differ significantly from the amounts presented herein. The following describes the methods and assumptions used by the Company in estimating fair values. Mortgage Loans Shipped and Held for Sale Fair value is estimated using the quoted market prices for securities backed by similar types of loans and dealer commitments to purchase loans on a servicing-retained basis. Capitalized Servicing Fees Receivable Fair value is estimated by discounting future cash flows from excess servicing fees using discount rates that approximate current market rates and market consensus prepayment rates. Other Financial Instruments Fair value is estimated using quoted market prices and by discounting future cash flows using discount rates that approximate current market rates and market consensus prepayment rates. Derivatives Fair value is estimated as the amounts that the Company would receive or pay to terminate the contracts at the reporting date, taking into account the current unrealized gains or losses on open contracts. Market or dealer quotes are available for many derivatives; otherwise, pricing or valuation models are applied to current market information to estimate fair value. Notes Payable Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate the fair value of existing debt. NOTE G--COMMITMENTS AND CONTINGENCIES 1. Commitments to Sell Mortgage-Backed Securities In connection with its open commitments to buy or sell MBS and with its interest rate swap agreements, the Company may be required to maintain margin deposits. With respect to the MBS commitments, these requirements are generally greatest during periods of rapidly declining interest rates. The interest rate swap margin requirements are generally greatest during periods of increasing interest rates. F-18 COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE G--COMMITMENTS AND CONTINGENCIES (CONTINUED) 2. Lease Commitments The Company leases office facilities under lease agreements extending through September 2011. Future minimum annual rental commitments under these non- cancelable operating leases with initial or remaining terms of one year or more are as follows:
YEAR ENDING FEBRUARY 28(29), ---------------------------- (DOLLAR AMOUNTS IN THOUSANDS) 1996....................................... $ 15,214 1997....................................... 13,151 1998....................................... 10,778 1999....................................... 8,619 2000....................................... 6,078 Thereafter................................. 55,588 -------- $109,428 ========
Rent expense was $22,136,000, $19,115,000 and $13,049,000 for the years ended February 28, 1995, 1994 and 1993, respectively. 3. Restrictions on Transfers of Funds The Company and certain of its subsidiaries are subject to regulatory and/or credit agreement restrictions which limit their ability to transfer funds to the Company through intercompany loans, advances or dividends. Pursuant to the revolving credit facility as of February 28, 1995, the Company is required to maintain $750 million in consolidated net worth and CFC is required to maintain $725 million of net worth, as defined in the credit agreement. 4. Loan Servicing As of February 28, 1995, 1994 and 1993, the Company was servicing loans totaling approximately $113.1 billion, $84.7 billion and $54.5 billion, respectively. Included in the loans serviced as of February 28, 1995, 1994 and 1993 were loans being serviced under subservicing agreements with total principal balances of $679 million, $592 million and $627 million, respectively. Conforming conventional loans serviced by the Company (57% of the servicing portfolio at February 28, 1995) are securitized through Fannie Mae or Freddie Mac programs on a non-recourse basis, whereby foreclosure losses are generally the responsibility of Fannie Mae or Freddie Mac and not of the Company. Similarly, the government loans serviced by the Company are securitized through Government National Mortgage Association programs, whereby the Company is insured against loss by the Federal Housing Administration (16% of the servicing portfolio at February 28, 1995) or partially guaranteed against loss by the Veterans Administration (6% of the servicing portfolio at February 28, 1995). In addition, jumbo mortgage loans (21% of the servicing portfolio at February 28, 1995) are also serviced on a non-recourse basis. Properties securing the mortgage loans in the Company's servicing portfolio are geographically dispersed throughout the United States. As of February 28, 1995, approximately 43% of the mortgage loans (measured by unpaid principal balance) in the Company's servicing portfolio are secured by properties located in California. No other state contains more than 4% of the properties securing mortgage loans. F-19 COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE H--EMPLOYEE BENEFITS 1. Stock Option Plans The Company has stock option plans (the "Plans") that provide for the granting of both qualified and non-qualified options to employees and directors. Options are generally granted at the average market price of the Company's common stock on the date of grant and are exercisable beginning one year from the date of grant and expire up to eleven years from date of grant. Stock option transactions under the Plans were as follows:
YEAR ENDED FEBRUARY 28, ---------------------------------------- 1995 1994 1993 ------------ ------------ ------------ (NUMBER OF SHARES) Shares subject to: Outstanding options at beginning of year.............................. 5,603,325 4,478,703 3,653,193 Options granted.................. 1,948,290 1,955,273 1,749,678 Options exercised................ (307,847) (701,619) (837,621) Options expired or canceled...... (560,354) (129,032) (86,547) ------------ ------------ ------------ Outstanding options at end of year. 6,683,414 5,603,325 4,478,703 ============ ============ ============ Exercise price: Per share for options exercised during the year................... $2.19-$19.50 $2.19-$16.19 $1.98-$12.65 Per share for options outstanding at end of year.................... $2.39-$21.83 $2.19-$21.83 $2.19-$16.19
Of the outstanding options as of February 28, 1995, 2,704,728 shares were immediately exercisable under the Plans. Also as of February 28, 1995, 2,393,441 shares were designated for future grants under the Plans. 2. Pension Plan The Company has a defined benefit pension plan (the "Plan") covering substantially all of its employees. The Company's policy is to contribute the amount actuarially determined to be necessary to pay the benefits under the Plan, and in no event to pay less than the amount necessary to meet the minimum funding standards of ERISA. F-20 COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE H--EMPLOYEE BENEFITS (CONTINUED) The following table sets forth the Plan's funded status and amounts recognized in the Company's financial statements.
YEAR ENDED FEBRUARY 28, ---------------- 1995 1994 ------- ------- (DOLLAR AMOUNTS IN THOUSANDS) Actuarial present value of benefit obligations: Vested.................................................. $ 5,112 $ 5,024 Non-vested.............................................. 1,095 1,540 ------- ------- Total accumulated benefit obligation...................... 6,207 6,564 Additional benefits based on estimated future salary lev- els...................................................... 4,250 4,517 ------- ------- Projected benefit obligations for service rendered to date..................................................... 10,457 11,081 Less Plan assets at fair value, primarily mortgage-backed securities............................................... (9,484) (7,482) ------- ------- Projected benefit obligation in excess of Plan assets..... 973 3,599 Unrecognized net gain (loss) from past experience different from that assumed and effects of changes in assumptions.............................................. 1,862 (780) Prior service cost not yet recognized in net periodic pen- sion cost................................................ (1,422) (1,522) Unrecognized net asset at February 28, 1987 being recog- nized over 15 years...................................... 496 566 ------- ------- Accrued pension cost...................................... $ 1,909 $ 1,863 ======= ======= Net pension cost included the following components: Service cost--benefits earned during the period......... $ 1,648 $ 1,395 Interest cost on projected benefit obligations.......... 789 677 Actual return on Plan assets............................ (318) (413) Net amortization and deferral........................... (327) (28) ------- ------- Net periodic pension cost................................. $ 1,792 $ 1,631 ======= =======
The weighted average discount rate and the rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation were 7.625% and 5.0%, respectively. The weighted average expected long-term rate of return on assets used was 8.125%. Pension expense for 1995, 1994 and 1993 was $1,792,000, $1,631,000 and $992,000, respectively. The Company makes contributions to the Plan in amounts that are deductible in accordance with federal income tax regulations. NOTE I--REDEEMABLE PREFERRED STOCK On July 6, 1993, the Company called all of its outstanding convertible preferred stock, which was represented by depositary convertible shares (each depositary share represented 1/10 of a share of convertible preferred stock). Each depositary share was convertible into 6.3 shares of common stock, and each depositary share not converted was redeemable for $27.375 in cash. All holders converted their shares into common stock. NOTE J--SHAREHOLDERS' EQUITY In February 1988, the Board of Directors of the Company declared a dividend distribution of one preferred stock purchase right ("Right") for each outstanding share of the Company's common stock. As a F-21 COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE J--SHAREHOLDERS' EQUITY (CONTINUED) result of stock splits and stock dividends, 0.399 of a Right is presently associated with each outstanding share of the Company's common stock and the same fraction of a Right will be associated with each share of the Company's common stock issued prior to the Distribution Date (as defined below). Each Right, when exercisable, entitles the holder to purchase from the Company one one-hundredth of a share of Series A Participating Preferred Stock, par value $0.05 per share, of the Company (the "Series A Preferred Stock"), at a price of $145, subject to adjustments in certain cases to prevent dilution. The Rights are evidenced by the common stock certificates and are not exercisable or transferable, apart from the common stock, until the date (the "Distribution Date") of the earlier of a public announcement that a person or group, without prior consent of the Company, has acquired 20% or more of the common stock (an "Acquiring Person"), or ten days (subject to extension by the Board of Directors) after the commencement of a tender offer made without the prior consent of the Company. In the event a person becomes an Acquiring Person, then each Right (other than those owned by the Acquiring Person) will entitle its holder to purchase, at the then current exercise price of the Right, that number of shares of common stock, or the equivalent thereof, of the Company which, at the time of such transaction, would have a market value of two times the exercise price of the Right. The Board of Directors of the Company may delay the exercisability of the Rights during the period in which they are exercisable only for Series A Preferred Stock (and not common stock). In the event that, after a person has become an Acquiring Person, the Company is acquired in a merger or other business combination, as defined for the purposes of the Rights, each Right (other than those held by the Acquiring Person) will entitle its holder to purchase, at the then current exercise price of the Right, that number of shares of common stock, or the equivalent thereof, of the other party (or publicly traded parent thereof) to such merger or business combination which at the time of such transaction would have a market value of two times the exercise price of the Right. The Rights expire on the earlier of February 28, 2002, the consummation of certain merger transactions or optional redemption by the Company prior to any person becoming an Acquiring Person. NOTE K--RELATED PARTY TRANSACTIONS Countrywide Asset Management Corporation ("CAMC"), a wholly-owned subsidiary of the Company, has entered into an agreement (the "Management Agreement") with CWM Mortgage Holdings, Inc. ("CWM"), formerly Countrywide Mortgage Investments, Inc., a real estate investment trust. CAMC has entered into a subcontract with its affiliate, CFC, to perform such services for CWM and its subsidiaries as CAMC deems necessary. In accordance with the Management Agreement, CAMC advises CWM on various facets of its business and manages its operations subject to the supervision of CWM's Board of Directors. For performing these services, CAMC receives certain management fees and incentive compensation. CAMC waived all management fees pursuant to the above for calendar year 1993 and 25% of incentive compensation earned in 1994. In addition, in 1993 CAMC absorbed $0.9 million of operating expenses incurred in connection with its duties under the Management Agreement. CWM and its subsidiaries began paying all expenses of the new operations in June 1993. During the fiscal years ended February 28, 1995, 1994 and 1993, CAMC earned $0.3 million, $0.1 million and $0.8 million, respectively, in base management fees from CWM and its subsidiaries. In addition, during the fiscal year ended February 28, 1995, CAMC recorded $1.1 million in incentive compensation, net of the amount waived as described above. The Management Agreement is renewable annually and expires on May 15, 1995. As of February 28, 1995, the Company and CAMC own 1,120,000 shares or approximately 2.77% of the common stock of CWM. F-22 COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE K--RELATED PARTY TRANSACTIONS (CONTINUED) CAMC incurs many of the expenses related to the operations of CWM and its subsidiaries, including personnel and related expenses, subject to reimbursement by CWM. CWM's conduit operations are primarily conducted in Independent National Mortgage Corporation ("INMC"), formerly Countrywide Mortgage Conduit, and all other operations are conducted in CWM. Accordingly, INMC is charged with the majority of the conduit's cost and CWM is charged with the other operations' costs. During Fiscal 1995, the amount of common expenses incurred by CFC which were allocated to CAMC and reimbursed by CWM totaled $1.2 million. CWM has an option to purchase conventional loans from CFC at the prevailing market price. During the years ended February 28, 1995, 1994 and 1993, CWM purchased $80.4 million, $300.5 million and $130.3 million, respectively, of conventional non-conforming mortgage loans from CFC pursuant to this option. During the year ended February 28, 1995, CFC purchased from INMC bulk servicing rights for loans with principal balances aggregating $3.0 billion at a price of $38.2 million. In 1987 and 1993, subsidiaries of CWM entered into servicing agreements appointing CFC as servicer of mortgage loans collateralizing five series of CMOs with outstanding balances of approximately $94.0 million at February 28, 1995. CFC is entitled under each agreement to an annual fee of up to 0.32% of the aggregate unpaid principal balance of the pledged mortgage loans. Servicing fees received by CFC under such agreements for the years ended February 28, 1995, 1994 and 1993 were approximately $0.3 million, $0.5 million and $0.3 million, respectively. CFC has extended CWM a $10 million line of credit bearing interest at prime and maturing September 30, 1995. At February 28, 1995, there was no outstanding amount under the agreement. NOTE L--SEGMENT INFORMATION The Company and its subsidiaries operate primarily in the mortgage banking industry. Operations in mortgage banking involve CFC's origination and purchase of mortgage loans, sale of mortgage loans in the secondary mortgage market, servicing of mortgage loans and the purchase and sale of rights to service mortgage loans. Segment information for the year ended February 28, 1995 follows:
ADJUSTMENTS MORTGAGE AND BANKING OTHER ELIMINATIONS CONSOLIDATED ---------- ---------- ------------ ------------ (DOLLAR AMOUNTS IN THOUSANDS) Unaffiliated revenue........... $ 563,586 $ 39,077 $ -- $ 602,663 Intersegment revenue........... 744 -- (744) -- ---------- ---------- --------- ---------- Total revenue................ $ 564,330 $ 39,077 $ (744) $ 602,663 ========== ========== ========= ========== Earnings before income taxes... $ 136,220 $ 11,125 $ -- $ 147,345 ========== ========== ========= ========== Identifiable assets as of Feb- ruary 28, 1995................ $5,520,283 $1,014,391 $(955,012) $5,579,662 ========== ========== ========= ==========
F-23 COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE L--SEGMENT INFORMATION (CONTINUED) Segment information for the year ended February 28, 1994 follows:
ADJUSTMENTS MORTGAGE AND BANKING OTHER ELIMINATIONS CONSOLIDATED ---------- -------- ------------ ------------ (DOLLAR AMOUNTS IN THOUSANDS) Unaffiliated revenue.......... $ 719,533 $ 36,047 $ -- $ 755,580 Intersegment revenue.......... 744 -- (744) -- ---------- -------- --------- ---------- Total revenue............... $ 720,277 $ 36,047 $ (744) $ 755,580 ========== ======== ========= ========== Earnings before income taxes.. $ 286,069 $ 13,031 $ -- $ 299,100 ========== ======== ========= ========== Identifiable assets as of Feb- ruary 28, 1994............... $5,523,664 $930,720 $(868,863) $5,585,521 ========== ======== ========= ==========
Segment information for the year ended February 28, 1993 follows.
ADJUSTMENTS MORTGAGE AND BANKING OTHER ELIMINATIONS CONSOLIDATED ---------- -------- ------------ ------------ (DOLLAR AMOUNTS IN THOUSANDS) Unaffiliated revenue.......... $ 463,394 $ 42,164 $ -- $ 505,558 Intersegment revenue.......... 3,021 -- (3,021) -- ---------- -------- --------- ---------- Total revenue............... $ 466,415 $ 42,164 $ (3,021) $ 505,558 ========== ======== ========= ========== Earnings before income taxes.. $ 217,073 $ 16,382 $ -- $ 233,455 ========== ======== ========= ========== Identifiable assets as of Feb- ruary 28, 1993............... $3,229,243 $765,954 $(696,064) $3,299,133 ========== ======== ========= ==========
NOTE M--BRANCH AND ADMINISTRATIVE OFFICE CONSOLIDATION COSTS As a result of the decline in production caused by increasing mortgage interest rates during Fiscal 1995, the Company reduced headcount by approximately 30%, closed underperforming branch offices and consolidated its administrative offices. A charge of $8 million related to these consolidation efforts was recorded during the year ended February 28, 1995. Branch and administrative office consolidation costs incurred during Fiscal 1995 and related reserves at February 28, 1995 are presented below:
RESERVED AT EXPENSE INCURRED FEBRUARY 28, 1995 ---------------- ----------------- (DOLLAR AMOUNTS IN THOUSANDS) Office lease costs....................... $4,348 $ 743 Equipment and improvement relocation, disposal and abandonment costs.......... 1,976 474 Other.................................... 1,676 1,146 ------ ------ $8,000 $2,363 ====== ======
NOTE N--SUBSEQUENT EVENTS On March 20, 1995, the Company declared a cash dividend of $0.08 per common share paid April 17, 1995 to shareholders of record on April 3, 1995. F-24 COUNTRYWIDE CREDIT INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE O--QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly data is as follows:
THREE MONTHS ENDED ----------------------------------------------------------- MAY 31 AUGUST 31 NOVEMBER 30 FEBRUARY 28 ------------- ------------- -------------- -------------- (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) Year ended February 28, 1995 Revenue............... $ 177,118 $ 151,106 $ 133,726 $ 140,713 Expenses.............. 120,903 119,257 106,795 108,363 Provision for income taxes................ 22,486 12,739 10,773 12,940 Net earnings.......... 33,729 19,110 16,158 19,410 Earnings per share(1) Primary............. $ 0.37 $ 0.21 $ 0.18 $ 0.21 Fully diluted....... $ 0.37 $ 0.21 $ 0.18 $ 0.21 Year ended February 28, 1994 Revenue............... $ 166,665 $ 188,272 $ 196,446 $ 204,197 Expenses.............. 94,503 111,507 124,844 125,626 Provision for income taxes................ 28,865 30,706 28,641 31,428 Net earnings.......... 43,297 46,059 42,961 47,143 Earnings per share(1) Primary............. $ 0.49 $ 0.51 $ 0.46 $ 0.51 Fully diluted....... $ 0.47 $ 0.50 $ 0.46 $ 0.51
- -------- (1) Earnings per share is computed independently for each of the quarters presented. Therefore, the sum of the quarterly earnings per share amounts may not equal the annual amount. This is caused by rounding and the averaging effect of the number of share equivalents utilized throughout the year, which changes with the market price of the common stock. NOTE P--SUMMARIZED FINANCIAL INFORMATION OF SUBSIDIARY Summarized financial information for Countrywide Funding Corporation is as follows:
FEBRUARY 28, ----------------------------- 1995 1994 -------------- -------------- (DOLLAR AMOUNTS IN THOUSANDS) Balance Sheets: Mortgage loans shipped and held for sale..... $ 2,898,825 $ 3,714,261 Other assets................................. 2,621,458 1,809,403 -------------- -------------- Total assets............................... $ 5,520,283 $ 5,523,664 ============== ============== Short- and long-term debt.................... $ 4,152,712 $ 4,296,291 Other liabilities............................ 433,025 374,559 Equity....................................... 934,546 852,814 -------------- -------------- Total liabilities and equity............... $ 5,520,283 $ 5,523,664 ============== ============== Statements of Earnings: Revenues..................................... $ 564,330 $ 720,277 Expenses..................................... 428,110 434,208 Provision for income taxes................... 54,488 114,427 -------------- -------------- Net earnings............................... $ 81,732 $ 171,642 ============== ==============
F-25 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE HEREUNDER AND THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. ---------------- TABLE OF CONTENTS
PAGE ---- PROSPECTUS SUPPLEMENT Summary Information....................................................... S-3 Recent Developments....................................................... S-4 Use of Proceeds........................................................... S-5 Dividends and Price Range of Common Stock............................................................. S-5 Capitalization............................................................ S-6 The Company............................................................... S-7 Underwriting.............................................................. S-16 Validity of Securities.................................................... S-17 PROSPECTUS Available Information..................................................... 2 Incorporation of Certain Documents by Reference............................................................. 2 The Company and CFC....................................................... 3 Use of Proceeds........................................................... 4 Selected Consolidated Financial Data...................................... 5 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................... 6 Description of Capital Stock.............................................. 18 Description of Debt Securities and Guarantees............................................................... 20 Plan of Distribution...................................................... 27 Validity of Securities.................................................... 28 Experts................................................................... 28 Index to Financial Statements............................................. F-1
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 10,000,000 SHARES LOGO COUNTRYWIDE (SM) ----------------------- CREDIT INDUSTRIES, INC. COMMON STOCK ----------------------- PROSPECTUS SUPPLEMENT ----------------------- MERRILL LYNCH & CO. GOLDMAN, SACHS & CO. LEHMAN BROTHERS SALOMON BROTHERS INC ALEX. BROWN & SONS INCORPORATED DEAN WITTER REYNOLDS INC. , 1995 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- No dealer, salesperson or other individual has been authorized to give any information or to make any representations other than those contained or in- corporated by reference in this Prospectus Supplement or the Prospectus in connection with the offering covered by this Prospectus Supplement and the Prospectus. If given or made, such information or representations must not be relied upon as having been authorized by the Company, the Guarantor or any Agent. This Prospectus Supplement and the Prospectus do not constitute an of- fer to sell, or a solicitation of an offer to buy, the Notes in any jurisdic- tion where, or to any person whom, it is unlawful to make such offer or solic- itation. Neither the delivery of this Prospectus Supplement and the Prospectus nor any sale made hereunder or thereunder shall, under any circumstances, cre- ate an implication that there has not been any change in the facts set forth in this Prospectus Supplement or the Prospectus or in the affairs of CFC or the Guarantor since the date hereof. --------------- TABLE OF CONTENTS
Page ---- Prospectus Supplement Risk Factors.............................................................. S-2 Description of Notes...................................................... S-4 Certain Federal Income Tax Considerations................................. S-21 Plan of Distribution of Notes............................................. S-25 Validity of Securities.................................................... S-26 Prospectus Available Information..................................................... 2 Incorporation of Certain Documents by Reference............................................................. 2 The Company and CFC....................................................... 3 Use of Proceeds........................................................... 4 Selected Consolidated Financial Data...................................... 5 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................... 6 Description of Capital Stock.............................................. 18 Description of Debt Securities and Guarantees............................. 20 Plan of Distribution...................................................... 27 Validity of Securities.................................................... 28 Experts................................................................... 28 Index to Financial Statements............................................. F-1
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- U. S. $500,000,000 COUNTRYWIDE FUNDING CORPORATION MEDIUM-TERM NOTES, SERIES D DUE NINE MONTHS OR MORE FROM DATE OF ISSUE PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND INTEREST UNCONDITIONALLY GUARANTEED BY LOGO COUNTRYWIDE (SM) ----------------------- CREDIT INDUSTRIES, INC. --------------- PROSPECTUS AND PROSPECTUS SUPPLEMENT , 1995 --------------- LEHMAN BROTHERS GOLDMAN, SACHS & CO. MERRILL LYNCH & CO. SALOMON BROTHERS INC - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Rule 424(b)(3) File No. 33-59559 PRICING SUPPLEMENT NO. DATED 19 (To Prospectus Dated , 1995, as Supplemented , 1995) COUNTRYWIDE FUNDING CORPORATION MEDIUM-TERM NOTES, SERIES D DUE NINE MONTHS OR MORE FROM DATE OF ISSUE PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND INTEREST UNCONDITIONALLY GUARANTEED BY COUNTRYWIDE CREDIT INDUSTRIES, INC. FIXED RATE NOTES ---------------- Trade Date: Issue Price: Original Issue Date: Stated Maturity Date: Interest Payment Dates: Book-Entry: [_] Record Dates: Certificated:[_] Principal Amount: Net Proceeds: Minimum Denomination: Specified Currency: Exchange Rate Agent: Redemption: Check box opposite applicable paragraph. [_] The Notes cannot be redeemed prior to maturity. [_] The Notes may be redeemed prior to maturity. Initial Redemption Date: Initial Redemption Percentage: Annual Redemption Percentage Reduction, if any: Repayment: Check box opposite applicable paragraph. [_] The Notes cannot be repaid prior to maturity. [_] The Notes may be repaid prior to maturity. Optional Repayment Dates: Additional/Other Terms: ---------------- The Notes to which this Pricing Supplement relates will constitute unsecured and unsubordinated indebtedness of CFC and will rank pari passu in right of payment with CFC's other unsecured and unsubordinated indebtedness. As of , 19 , the Guarantor had $ aggregate principal amount of secured indebtedness outstanding, and CFC had $ aggregate principal amount of secured indebtedness outstanding. As of such date, CFC had $ aggregate principal amount of unsecured indebtedness outstanding, which indebtedness ranked pari passu in right of payment with CFC's other unsecured and unsubordinated indebtedness and which indebtedness will rank pari passu in right of payment with the Notes to which this Pricing Supplement relates. Rule 424(b)(3) File No. 33-59559 PRICING SUPPLEMENT NO. DATED 19 (To Prospectus Dated , 1995, as Supplemented , 1995) COUNTRYWIDE FUNDING CORPORATION MEDIUM-TERM NOTES, SERIES D DUE NINE MONTHS OR MORE FROM DATE OF ISSUE PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND INTEREST UNCONDITIONALLY GUARANTEED BY COUNTRYWIDE CREDIT INDUSTRIES, INC. FLOATING RATE NOTES ---------------- Trade Date: Book-Entry: [_] Issue Price: Certificated: [_] Original Issue Date: Principal Amount: Stated Maturity Date: Net Proceeds: Specified Currency: Base Rate(s): [_] Commercial Paper Rate [_] LIBOR (See Additional/ Other Terms) [_] Certificate of Deposit Rate [_] Treasury Rate [_] Federal Funds Rate [_] Prime Rate [_] CMT Rate (See Additional/[_] Eleventh District [_] Other Other Terms) Cost of Funds Rate Exchange Rate Agent: Minimum Denomination: Initial Interest Rate: Fixed Rate Commencement Date: Interest Reset Dates: Fixed Interest Rate: Interest Payment Dates: Index Maturity: Maximum Interest Rate: Minimum Interest Rate: Spread (plus or minus): Interest Factor Convention: Spread Multiplier: Calculation Agent: Redemption: Check box opposite applicable paragraph. [_] The Notes cannot be redeemed prior to maturity. [_] The Notes may be redeemed prior to maturity. Initial Redemption Date: Initial Redemption Percentage: Annual Redemption Percentage Reduction, if any: Additional/Other Terms: Repayment: Check box opposite applicable paragraph. [_] The Notes cannot be repaid prior to maturity. [_] The Notes may be repaid prior to maturity. Optional Repayment Dates: ---------------- The Notes to which this Pricing Supplement relates will constitute unsecured and unsubordinated indebtedness of CFC and will rank pari passu in right of payment with CFC's other unsecured and unsubordinated indebtedness. As of , 19 , the Guarantor had $ aggregate principal amount of secured indebtedness outstanding, and CFC had $ aggregate principal amount of secured indebtedness outstanding. As of such date, CFC had $ aggregate principal amount of unsecured indebtedness outstanding, which indebtedness ranked pari passu in right of payment with CFC's other unsecured and unsubordinated indebtedness and which indebtedness will rank pari passu in right of payment with the Notes to which this Pricing Supplement relates. PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION* SEC registration fee.......................................... $ 258,621 Stock exchange listing fees................................... 47,750 Blue sky fees and expenses.................................... 20,000 Legal fees and expenses....................................... 260,000 Accounting fees and expenses.................................. 60,000 Printing and engraving expenses............................... 200,000 Trustees' fees and expenses................................... 10,000 Rating agency fees............................................ 150,000 Miscellaneous................................................. 93,629 ---------- Total..................................................... $1,100,000 ==========
- -------- *Except for the SEC registration fee, all of the foregoing expenses have been estimated. ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law provides, in substance, that Delaware corporations shall have the power, under specified circumstances, to indemnify their directors, officers, employees and agents in connection with actions, suits or proceedings brought against them by a third party or in the right of the corporation, by reason of the fact that they were or are such directors, officers, employees or agents, against expenses incurred in any such action, suit or proceeding. The Delaware General Corporation Law also provides that Delaware corporations may purchase insurance on behalf of any such director, officer, employee or agent. Sections 722, 723, 725 and 726 of the New York Business Corporation Law are substantively equivalent to Section 145 of the Delaware General Corporation Law. Article SIXTH of the Certificate of Incorporation of the Company provides that the Company may indemnify its directors and officers to the full extent permitted by the laws of the State of Delaware. Article VIII of the Company's Bylaws provides that the Company shall indemnify its directors and officers, and persons serving as directors and officers of CFC at the request of the Company, against any threatened, pending or completed action, suit or proceeding or investigation brought against such directors and officers by reason of the fact that such persons were such directors or officers, provided that such persons acted in good faith and in a manner which they reasonably believed to be in or not opposed to the best interests of the Company; except that in the case of actions brought by or in the right of the Company to procure a judgment in its favor, no indemnification is permitted in respect to any claim, issue or matter as to which any such director or officer shall have been adjudged to be liable to the Company unless the court in which the action was brought determines that such person is entitled to indemnification. The Company's Bylaws further contemplate that the indemnification provisions permitted thereunder are not exclusive of any other rights to which such directors and officers are otherwise entitled by means of Bylaw provisions, agreements, vote of stockholders or disinterested directors or otherwise. The Company has entered into indemnity agreements with certain of its directors and executive officers (including the directors and executive officers of CFC), whereby such individuals are indemnified by the Company up to an aggregate limit of $5,000,000 for any claims made against such individual based on any act, omission or breach of duty committed while acting as a director or officer, except, among other things, cases involving dishonesty or improper personal benefit. The Company also maintains an insurance policy pursuant to which its directors and officers (including the directors and executive officers of CFC) are insured against certain liabilities which might arise out of their relationship with the Company as directors and officers. II-1 Article SEVENTH of the Certificate of Incorporation provides that a director of the Company shall have no personal liability to the Company or its stockholders for monetary damages for breach of his fiduciary duty of care as a director to the full extent permitted by the Delaware General Corporation Law, as it may be amended from time to time. ITEM 16. EXHIBITS
1.1 --Form of Purchase Agreement (for equity securities of the Company)* 1.2 --Form of Purchase Agreement (for debt securities of the Company)* 1.3 --Form of Selling Agency Agreement (for debt securities of CFC)* 4.1 --Specimen Certificate of the Company's Common Stock (in- corporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K dated February 6, 1987) 4.2 --Certificate of Amendment of Restated Certificate of In- corporation of the Company (incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10- Q dated August 31, 1987) 4.3 --Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q dated August 31, 1987) 4.4 --Bylaws of the Company, as amended and restated (incorpo- rated by reference to the Company's Current Report on Form 8-K dated February 10, 1988) 4.5 --Rights Agreement, dated as of February 10, 1988, between the Company and Bank of America NT & SA, as Rights Agent (incorporated by reference to Exhibit 4 to the Company's Form 8-A filed on February 12, 1988) 4.6 --Amendment No. 1 to Rights Agreement, dated as of March 24, 1992, between the Company and Bank of America NT & SA, as Rights Agent (incorporated by reference in Exhibit 1 to the Company's Form 8 filed on March 27, 1992) 4.7 --Form of Indenture between the Company and The Bank of New York, as trustee* 4.8 --Indenture, dated as of January 1, 1992, among CFC, the Guarantor and The Bank of New York, as trustee (incorpo- rated by reference to Exhibit 4.1 to the Registration Statement on Form S-3 of CFC and the Guarantor (File Nos. 33-50661 and 33-50661-01) filed on October 19, 1993) 4.9 --Form of Supplemental Indenture No. 1 dated as of June 15, 1995, to the Indenture dated as of January 1, 1992, among CFC, the Guarantor and The Bank of New York, as trustee* 4.10 --Form of Fixed Rate Medium-Term Note* 4.11 --Form of Floating Rate Medium-Term Note* 5.1 --Opinion of Fried, Frank, Harris, Shriver & Jacobson, counsel to the Company and CFC, as to the legality of the securities being offered** 8.1 --Opinion of Fried, Frank, Harris, Shriver & Jacobson, counsel to the Company and CFC, as to certain tax mat- ters* 12.1 --Statement regarding computation of ratio of earnings to fixed charges (incorporated by reference to Exhibit 12.1 to the Company's Annual Report on Form 10-K dated Febru- ary 28, 1995) 12.2 --Statement regarding computation of ratio of earnings to net fixed charges (incorporated by reference to Exhibit 12.2 to the Company's Annual Report on Form 10-K dated February 28, 1995)
II-2 23.1 --Consent of Grant Thornton LLP* 23.2 --Consent of Fried, Frank, Harris, Shriver & Jacobson (in- cluded in Exhibit 5.1)** 23.3 --Consent of Fried, Frank, Harris, Shriver & Jacobson (in- cluded in Exhibit 8.1)* 24 --Powers of Attorney for the Company and CFC relating to subsequent amendments** 25.1 --Form T-1 Statement of Eligibility Under Trust Indenture Act of 1939 of The Bank of New York relating to debt se- curities of CFC (separately bound)** 25.2 --Form T-1 Statement of Eligibility Under Trust Indenture Act of 1939 of The Bank of New York relating to debt se- curities of the Company (separately bound)**
- -------- *Filed herewith. **Previously filed. ITEM 17. UNDERTAKINGS (a) The undersigned Company and CFC (the "Registrants") hereby undertake: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of this Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in this Registration Statement; notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) under the Securities Act of 1933 if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective Registration Statement; and (iii) To include any material information with respect to the plan of distribution not previously disclosed in this Registration Statement or any material change to such information in this Registration Statement; provided, however, that the undertakings set forth in paragraphs (1) (i) and (ii) above do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the Registrants pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in this Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) Each of the undersigned Registrants hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Company's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in this Registration Statement shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 (c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrants pursuant to the provisions permitted under Item 15 above or otherwise, the Registrants have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrants of expenses incurred or paid by a director, officer or controlling person of the Registrants in the successful defense of any action, suit or proceeding) is asserted against the Registrants by such director, officer or controlling person in connection with the securities being registered hereby, the Registrants will, unless in the opinion of their counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by them is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. (d) Each of the undersigned Registrants hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrants pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, Countrywide Credit Industries, Inc. certifies that it has duly caused this Amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Pasadena, State of California, on the 16th day of June, 1995. COUNTRYWIDE CREDIT INDUSTRIES, INC. /s/ Stanford L. Kurland By: ____________________________________ Stanford L. Kurland Senior Managing Director and Chief Operating Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- * Chairman of the Board of June 16, 1995 ____________________________________ Directors and President DAVID S. LOEB (Principal Executive Officer); Director * Executive Vice President and June 16, 1995 ____________________________________ Vice Chairman of the Board ANGELO R. MOZILO of Directors; Director * Managing Director--Finance, June 16, 1995 ____________________________________ Chief Financial Officer and CARLOS M. GARCIA Chief Accounting Officer (Principal Financial and Accounting Officer) * Director June 16, 1995 ____________________________________ ROBERT J. DONATO * Director June 16, 1995 ____________________________________ BEN M. ENIS * Director June 16, 1995 ____________________________________ EDWIN HELLER * Director June 16, 1995 ____________________________________ HARLEY W. SNYDER
/s/ Stanford L. Kurland *By ___________________________ STANFORD L. KURLAND ATTORNEY-IN-FACT II-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, Countrywide Funding Corporation certifies that it has duly caused this Amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Pasadena, State of California, on the 16th day of June, 1995. COUNTRYWIDE FUNDING CORPORATION By: /s/ Stanford L. Kurland ------------------------------------- Stanford L. Kurland President and Chief Operating Officer Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- * Director June 16, 1995 ____________________________________ DAVID S. LOEB * Chairman of the Board of June 16, 1995 ____________________________________ Directors and Chief ANGELO R. MOZILO Executive Officer (Principal Executive Officer); Director /s/ Stanford L. Kurland President and Chief June 16, 1995 ____________________________________ Operating Officer; Director STANFORD L. KURLAND * Executive Vice President and June 16, 1995 ____________________________________ Chief Financial Officer THOMAS K. MCLAUGHLIN (Principal Financial and Accounting Officer)
/s/ Stanford L. Kurland *By:___________________________ STANFORD L. KURLAND ATTORNEY- IN-FACT II-6 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION ------- ----------- 1.1 --Form of Purchase Agreement (for equity securities of the Com- pany)* 1.2 --Form of Purchase Agreement (for debt securities of the Compa- ny)* 1.3 --Form of Selling Agency Agreement (for debt securities of CFC)* 4.1 --Specimen Certificate of the Company's Common Stock (incorpo- rated by reference to Exhibit 4.2 to the Company's Current Re- port on Form 8-K dated February 6, 1987) 4.2 --Certificate of Amendment of Restated Certificate of Incorpora- tion of the Company (incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q dated August 31, 1987) 4.3 --Restated Certificate of Incorporation of the Company (incorpo- rated by reference to Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q dated August 31, 1987) 4.4 --Bylaws of the Company, as amended and restated (incorporated by reference to the Company's Current Report on Form 8-K dated February 10, 1988) 4.5 --Rights Agreement, dated as of February 10, 1988, between the Company and Bank of America NT & SA, as Rights Agent (incorpo- rated by reference to Exhibit 4 to the Company's Form 8-A filed on February 12, 1988) 4.6 --Amendment No. 1 to Rights Agreement, dated as of March 24, 1992, between the Company and Bank of America NT & SA, as Rights Agent (incorporated by reference to Exhibit 1 in the Company's Form 8 filed on March 27, 1992) 4.7 --Form of Indenture between the Company and The Bank of New York, as trustee* 4.8 --Indenture, dated as of January 1, 1992, among CFC, the Guaran- tor and The Bank of New York, as trustee (incorporated by ref- erence to Exhibit 4.1 to the Registration Statement on Form S-3 of CFC and the Guarantor (File Nos. 33-50661 and 33-50661-01) filed on October 19, 1993) 4.9 --Form of Supplemental Indenture No. 1 dated as of June 15, 1995, to the Indenture dated as of January 1, 1992, among CFC, the Guarantor and The Bank of New York, as trustee* 4.10 --Form of Fixed Rate Medium-Term Note* 4.11 --Form of Floating Rate Medium-Term Note* 5.1 --Opinion of Fried, Frank, Harris, Shriver & Jacobson, counsel to the Company and CFC, as to the legality of the securities being offered** 8.1 --Opinion of Fried, Frank, Harris, Shriver & Jacobson, counsel to the Company and CFC, as to certain tax matters* 12.1 --Statement regarding computation of ratio of earnings to fixed charges (incorporated by reference to Exhibit 12.1 to the Company's Annual Report on Form 10-K dated February 28, 1995) 12.2 --Statement regarding computation of ratio of earnings to net fixed charges (incorporated by reference to Exhibit 12.2 to the Company's Annual Report on Form 10-K dated February 28, 1995) 23.1 --Consent of Grant Thornton LLP* 23.2 --Consent of Fried, Frank, Harris, Shriver & Jacobson (included in Exhibit 5.1)** 23.3 --Consent of Fried, Frank, Harris, Shriver & Jacobson (included in Exhibit 8.1)* 24 --Powers of Attorney for the Company and CFC relating to subse- quent amendments** 25.1 --Form T-1 Statement of Eligibility Under Trust Indenture Act of 1939 of The Bank of New York relating to debt securities of CFC (separately bound)** 25.2 --Form T-1 Statement of Eligibility Under Trust Indenture Act of 1939 of The Bank of New York relating to debt securities of the Company (separately bound)**
- ------- * Filed herewith. ** Previously filed. EX-1.1 2 PURCHASE AGREEMENT EXHIBIT 1.1 10,000,000 Shares COUNTRYWIDE CREDIT INDUSTRIES, INC. (a Delaware corporation) Common Stock (Par Value $.05 Per Share) PURCHASE AGREEMENT ------------------ _____________, 1995 MERRILL LYNCH & CO. Merrill Lynch, Pierce Fenner & Smith Incorporated GOLDMAN, SACHS & CO. LEHMAN BROTHERS INC. SALOMON BROTHERS INC ALEX. BROWN & SONS INCORPORATED DEAN WITTER REYNOLDS INC. as Representatives of the several Underwriters c/o MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated North Tower World Financial Center New York, New York 10281-1209 Dear Sirs: Countrywide Credit Industries, Inc., a Delaware corporation (the "Company"), confirms its agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), and each of the other Underwriters named in Schedule A hereto (collectively, the "Underwriters", which term shall also include any underwriter substituted as hereinafter provided in Section 10 hereof), for whom Merrill Lynch, Goldman, Sachs & Co., Lehman Brothers Inc., Salomon Brothers Inc, Alex. Brown & Sons Incorporated and Dean Witter Reynolds Inc. are acting as representatives (in such capacity, the "Representatives"), with respect to the sale by the Company and the purchase by the Underwriters, acting severally and not jointly, of the respective numbers of shares of Common Stock, par value $.05 per share, of the Company ("Common Stock") set forth in said Schedule A, and with respect to the grant by the Company to the Underwriters, acting severally and not jointly, of the option described in Section 2(b) hereof to purchase all or any part of 1,500,000 additional shares of Common Stock to cover over-allotments, if any. The aforesaid 10,000,000 shares of Common Stock (the "Initial Securities") to be purchased by the Underwriters and all or any part of the 1,500,000 shares of Common Stock subject to the option described in Section 2(b) hereof (the "Option Securities") are collectively hereinafter called the "Securities". Prior to the purchase and public offering of the Securities by the several Underwriters, the Company and the Representatives, acting on behalf of the several Underwriters, shall enter into an agreement substantially in the form of Exhibit A hereto (the "Pricing Agreement"). The Pricing Agreement may take the form of an exchange of any standard form of written telecommunication between the Company and the Representatives and shall specify such applicable information as is indicated in Exhibit A hereto. The offering of the Securities will be governed by this Agreement, as supplemented by the Pricing Agreement. From and after the date of the execution and delivery of the Pricing Agreement, this Agreement shall be deemed to incorporate the Pricing Agreement. The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-3 (No. 33-59559) and a related preliminary prospectus for the registration under the Securities Act of 1933, as amended (the "1933 Act") of certain securities, including the Securities (collectively, the "Registered Securities") and the offering thereof from time to time in accordance with Rule 415 under the rules and regulations of the Commission under the 1933 Act (the "1933 Act Regulations"), which registration statement has been declared effective by the Commission and copies of which have heretofore been delivered to you. Such Registration Statement, in the form in which it was declared effective, as amended through the date hereof, including all documents incorporated or deemed to be incorporated by reference therein and the information, if any, deemed to be part thereof pursuant to Rule 430A(b) or Rule 434 of the 1933 Act Regulations through the date hereof, is hereinafter referred to as the "Registration Statement". The Company proposes to file with the Commission pursuant to Rule 424(b) of the 1933 Act Regulations the Prospectus Supplement (as defined in Section 3(i) hereof) relating to the Securities and the prospectus dated __________, 1995 (the "Base Prospectus") relating to the Registered Securities, and has previously advised you of all further information (financial and other) with respect to the Company set forth therein. The Base Prospectus together with the Prospectus Supplement, in their respective forms on the date of the Pricing Agreement (being the forms in which they are to be filed with the Commission pursuant to Rule 424(b) of the 1933 Act Regulations), including all documents incorporated or deemed to be incorporated by reference therein through the date of the Pricing Agreement, are hereinafter referred to as the "Prospectus", except that if any revised prospectus or prospectus supplement shall be provided 2 to the Underwriters by the Company for use in connection with the offering of the Securities which differs from the Prospectus (whether or not such revised prospectus or prospectus supplement is required to be filed by the Company pursuant to Rule 424(b) of the 1933 Act Regulations), the term "Prospectus" shall refer to such revised prospectus or prospectus supplement, as the case may be, from and after the time it is first provided to the Underwriters for such use. Unless the context otherwise requires, all references in this Agreement to documents, financial statements and schedules and other information which is "contained", "included", "stated", "described" or "referred to" in the Registration Statement or the Prospectus (and all other references of like import) shall be deemed to mean and include all such documents, financial statements and schedules and other information which is or is deemed to be incorporated by reference in the Registration Statement or the Prospectus, as the case may be; and all references in this Agreement to amendments or supplements to the Registration Statement or the Prospectus shall be deemed to mean and include the filing of any document under the Securities Exchange Act of 1934 (the "1934 Act") after the date of this Agreement which is or is deemed to be incorporated by reference in the Registration Statement or the Prospectus, as the case may be. If the Company elects to rely on Rule 434 under the 1933 Act Regulations, all references to the Prospectus shall be deemed to include, without limitation, the form of prospectus and the abbreviated term sheet, taken together, provided to the Underwriters by the Company in reliance on Rule 434 under the 1933 Act Regulations (the "Rule 434 Prospectus"). If the Company files a registration statement to register a portion of the Securities and relies on Rule 462(b) under the 1933 Act Regulations for such registration statement to become effective upon filing with the Commission (the "Rule 462 Registration Statement"), then any reference to "Registration Statement" herein shall be deemed to be to both the registration statement referred to above (No. 33-59559) and the Rule 462 Registration Statement, as each such registration statement may be amended pursuant to the 1933 Act. The Company understands that the Underwriters propose to make a public offering of the Securities as soon as the Representatives deem advisable after the Pricing Agreement has been executed and delivered. Section 1. Representations and Warranties. (a) The Company represents ------------------------------ and warrants to each Underwriter as of the date hereof, as of the date of the Pricing Agreement (such latter date being hereinafter referred to as the "Representation Date") and as of the Closing Time referred to in Section 2(c) hereof, and agrees with each Underwriter, as follows: (i) The Company meets the requirements for use of Form S-3 under the 1933 Act and the 1933 Act Regulations. The Registration Statement and the Base Prospectus, at the time the Registration Statement became effective, complied in all material respects with the requirements of the 3 1933 Act and the 1933 Act Regulations (including Rule 415(a) of the 1933 Act Regulations), and did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. The Prospectus, at the Representation Date (unless the term "Prospectus" refers to a prospectus which has been provided to the Underwriters by the Company for use in connection with the offering of the Securities which differs from the Prospectus filed with the Commission pursuant to Rule 424(b) of the 1933 Act Regulations, in which case at the time it is first provided to the Underwriters for such use) and at the Closing Time, does not and will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, -------- however, that the representations and warranties in this subsection ------- shall not apply to statements in or omissions from the Registration Statement or Prospectus made in reliance upon and in conformity with information furnished to the Company in writing by any Underwriter through the Representatives expressly for use in the Registration Statement or the Prospectus or to those parts of the Registration Statement that constitute the Statements of Eligibility and Qualification of the Trustees under the Trust Indenture Act of 1939, as amended (the "1939 Act"), filed as exhibits to the Registration Statement (the "Forms T-1"). For purposes of this Section 1(a), all references to the Registration Statement, any post- effective amendments thereto and the Prospectus shall be deemed to include, without limitation, any electronically transmitted copies thereof, including, without limitation, any copy filed with the Commission pursuant to its Electronic Data Gathering, Analysis, and Retrieval system ("EDGAR"). (ii) The documents incorporated or deemed to be incorporated by reference in the Prospectus, when they became effective or at the time they were or hereafter are filed with the Commission, complied and will comply in all material respects with the requirements of the 1933 Act or the 1934 Act, as applicable, and the rules and regulations of the Commission thereunder, and, when read together with the other information in the Prospectus, at the time the Registration Statement and any post-effective amendments thereto become effective and at the Closing Time, will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (iii) The Company has complied with, and is and will be in compliance with, the provisions of that certain Florida act relating to disclosure of doing business with Cuba, 4 codified as Section 517.075 of the Florida statutes, and the rules and regulations thereunder, or is exempt therefrom. (b) Any certificate signed by any officer of the Company and delivered to the Representatives or to counsel for the Underwriters shall be deemed a representation and warranty by the Company to each Underwriter as to the matters covered thereby. SECTION 2. Sale and Delivery to Underwriters; Closing. ------------------------------------------ (a) On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company agrees to sell to each Underwriter, severally and not jointly, and each Underwriter, severally and not jointly, agrees to purchase from the Company, at the price per share set forth in the Pricing Agreement, the number of Initial Securities set forth in Schedule A opposite the name of such Underwriter (except as otherwise provided in the Pricing Agreement), plus any additional number of Initial Securities which such Underwriter may become obligated to purchase pursuant to the provisions of Section 10 hereof. (1) If the Company has elected not to rely upon Rule 430A under the 1933 Act Regulations, the initial public offering price and the purchase price per share to be paid by the several Underwriters for the Securities have each been determined and set forth in the Pricing Agreement, and an amendment to the Registration Statement and the Prospectus will be filed before the Registration Statement becomes effective. (2) If the Company has elected to rely upon Rule 430A under the 1933 Act Regulations, the initial public offering price and the purchase price per share to be paid by the several Underwriters for the Securities shall be determined by agreement between the Representatives and the Company and, when so determined, shall be set forth in the Pricing Agreement. In the event that such prices have not been agreed upon and the Pricing Agreement has not been executed and delivered by all parties thereto by the close of business on the fourteenth business day following the date of this Agreement, this Agreement shall terminate forthwith, without liability of any party to any other party, unless otherwise agreed to by the Company and the Representatives, except that Sections 6 and 7 shall remain in effect. (b) In addition, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company hereby grants an option to the Underwriters, severally and not jointly, to purchase up to an additional 1,500,000 shares of Common Stock at the price per share set forth in the Pricing Agreement, less an amount per share equal to any dividends or distributions declared by the Company and payable on the Initial Securities but not payable on the Option Securities. The option hereby granted will expire 5 30 days after (i) the date the Registration Statement becomes effective, if the Company has elected not to rely on Rule 430A under the 1933 Act Regulations, or (ii) the Representation Date, if the Company has elected to rely on Rule 430A under the 1933 Act Regulations, and may be exercised in whole or in part from time to time only for the purpose of covering over-allotments which may be made in connection with the offering and distribution of the Initial Securities upon notice by the Representatives to the Company setting forth the number of Option Securities as to which the several Underwriters are then exercising the option and the time and date of payment and delivery for such Option Securities. Any such time and date of delivery (a "Date of Delivery") shall be determined by the Representatives, but shall not be later than seven full business days after the exercise of said option, nor in any event prior to the Closing Time, as hereinafter defined, unless otherwise agreed by the Representatives and the Company. If the option is exercised as to all or any portion of the Option Securities, each of the Underwriters, acting severally and not jointly, will purchase that proportion of the total number of Option Securities then being purchased which the number of Initial Securities set forth in Schedule A opposite the name of such Underwriter bears to the total number of Initial Securities (except as otherwise provided in the Pricing Agreement), subject in each case to such adjustments as the Representatives in their discretion shall make to eliminate any sales or purchases of fractional shares. (c) Payment of the purchase price for, and delivery of certificates for, the Initial Securities shall be made at the office of Fried, Frank, Harris, Shriver & Jacobson, New York, New York, or at such other place as shall be agreed upon by the Representatives and the Company, at 10:00 A.M. (New York time) on the third business day (unless postponed in accordance with the provisions of Section 10) following the date the Registration Statement becomes effective (or, if the Company has elected to rely upon Rule 430A of the 1933 Act Regulations, the third business day after execution of the Pricing Agreement), or such other time not later than ten business days after such date as shall be agreed upon by the Representatives and the Company (such time and date of payment and delivery being herein called "Closing Time"). In addition, in the event that any or all of the Option Securities are purchased by the Underwriters, payment of the purchase price for, and delivery of certificates for, such Option Securities shall be made at the above-mentioned offices of Fried, Frank, Harris, Shriver & Jacobson, or at such other place as shall be agreed upon by the Representatives and the Company, on each Date of Delivery as specified in the notice from the Representatives to the Company. Payment shall be made to the Company by certified or official bank check or checks drawn in next day funds payable to the order of the Company, against delivery to the Representatives for the respective accounts of the Underwriters of certificates for the Securities to be purchased by them. Certificates for the Initial Securities and the Option Securities, if any, shall be in such denominations and registered in such names as the Representatives may request in 6 writing at least one business day before the Closing Time or the relevant Date of Delivery, as the case may be. It is understood that each Underwriter has authorized the Representatives, for its account, to accept delivery of, receipt for, and make payment of the purchase price for, the Initial Securities and the Option Securities, if any, which it has agreed to purchase. Merrill Lynch, individually and not as representative of the Underwriters, may (but shall not be obligated to) make payment of the purchase price for the Initial Securities or the Option Securities, if any, to be purchased by any Underwriter whose check has not been received by the Closing Time or the relevant Date of Delivery, as the case may be, but such payment shall not relieve such Underwriter from its obligations hereunder. The certificates for the Initial Securities and the Option Securities, if any, will be made available for examination and packaging by the Representatives in The City of New York not later than 3:00 P.M. on the last business day prior to the Closing Time or the relevant Date of Delivery, as the case may be. SECTION 3. Covenants of the Company. The Company covenants with each ------------------------ Underwriter as follows: (a) The Company will use its best efforts to cause the Registration Statement to become effective (as and when requested by the Representatives) and, if the Company elects to rely upon Rule 430A and subject to Section 3(b), will comply with the requirements of Rule 430A and will notify the Representatives immediately, and confirm the notice in writing, (i) when the Registration Statement, or any post-effective amendment to the Registration Statement, shall become effective, or any supplement to the Prospectus or any amended Prospectus shall have been filed, (ii) of the receipt of any comments from the Commission, (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information, and (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of any order preventing or suspending the use of any preliminary prospectus or preliminary prospectus supplement, or of the suspension of the qualification of the Securities for offering or sale in any jurisdiction, or of or the initiation or threatening of any proceedings for any of such purposes. The Company will make every reasonable effort to prevent the issuance of any stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible moment. If the Company elects to rely on Rule 434 under the 1933 Act Regulations, the Company will prepare an "abbreviated term sheet" that complies with the requirements of Rule 434 under the 1933 Act Regulations. If the Company elects not to rely on Rule 434, the Company will provide the Underwriters with copies of the form of Prospectus, in such number as the Underwriters may reasonably request, and file or transmit for filing with the 7 Commission such Prospectus in accordance with Rule 424(b) of the 1933 Act Regulations by the close of business in New York on the business day immediately succeeding the date of the Pricing Agreement. If the Company elects to rely on Rule 434, the Company will provide the Underwriters with copies of the form of Rule 434 Prospectus, in such number as the Underwriters may reasonably request, and file or transmit for filing with the Commission the form of Prospectus complying with Rule 434(c)(2) of the 1933 Act Regulations in accordance with Rule 424(b) of the 1933 Act Regulations by the close of business in New York on the business day immediately succeeding the date of the Pricing Agreement. (b) The Company will give the Representatives notice of its intention to file or prepare any amendment to the Registration Statement (including any post-effective amendment) or any amendment or supplement to the Prospectus, whether pursuant to the 1933 Act, the 1934 Act or otherwise, (including any revised prospectus which the Company proposes for use by the Underwriters in connection with the offering of the Securities which differs from the prospectus on file at the Commission at the time the Registration Statement first becomes effective, whether or not such revised prospectus is required to be filed pursuant to Rule 424(b) of the 1933 Act Regulations or any abbreviated term sheet prepared in reliance on Rule 434 of the 1933 Act Regulations), will furnish the Representatives with copies of any such amendment or supplement a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file any such amendment or supplement or use any such prospectus to which the Representatives or counsel for the Underwriters shall object. (c) The Company has furnished or will deliver to the Representatives and counsel for the Underwriters, without charge, signed copies of the Registration Statement as originally filed and of each amendment thereto (including exhibits filed therewith or incorporated by reference therein and documents incorporated or deemed to be incorporated by reference therein) and signed copies of all consents and certificates of experts, and will also deliver to the Representatives a conformed copy of the Registration Statement as originally filed and of each amendment thereto (without exhibits) for each of the Underwriters. (d) The Company will deliver to each Underwriter, without charge, from time to time until the effective date of the Registration Statement (or, if the Company has elected to rely upon Rule 430A, until such time the Pricing Agreement is executed and delivered), as many copies of each preliminary prospectus and preliminary prospectus supplement as such Underwriter may reasonably request, and the Company hereby consents to the use of such copies for purposes permitted by the 1933 Act. The Company will furnish to each 8 Underwriter, without charge, from time to time during the period when the Prospectus is required to be delivered under the 1933 Act or the 1934 Act, such number of copies of the Prospectus (as amended or supplemented) as such Underwriter may reasonably request for the purposes contemplated by the 1933 Act or the 1934 Act or the respective applicable rules and regulations of the Commission thereunder. (e) If any event shall occur or condition shall exist as a result of which it is necessary, in the opinion of counsel for the Underwriters or for the Company, to amend the Registration Statement or amend or supplement the Prospectus in order that the Prospectus will not include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, or if it shall be necessary, in the opinion of such counsel, at any such time to amend the Registration Statement or amend or supplement the Prospectus in order to comply with the requirements of the 1933 Act or the 1933 Act Regulations, the Company will promptly prepare and file with the Commission, subject to Section 3(b), such amendment or supplement as may be necessary to correct such statement or omission or to make the Registration Statement or the Prospectus comply with such requirements, and the Company will furnish to the Underwriters such number of copies of such amendment or supplement as the Underwriters may reasonably request. (f) If, at the time that the Registration Statement becomes effective, any information shall have been omitted therefrom in reliance upon Rule 430A of the 1933 Act Regulations, then immediately following the execution of the Pricing Agreement, the Company will prepare, and file or transmit for filing with the Commission in accordance with such Rule 430A and Rule 424(b) of the 1933 Act Regulations, copies of an amended Prospectus, or, if required by such Rule 430A, a post-effective amendment to the Registration Statement (including an amended Prospectus), containing all information so omitted and will use its best efforts to cause such post-effective amendment to be declared effective as promptly as practicable. (g) The Company will use its best efforts, in cooperation with the Underwriters, to qualify the Securities for offering and sale under the applicable securities laws of such states and other jurisdictions of the United States as the Representatives may designate and to maintain such qualifications in effect for as long as may be required for the distribution of the Securities; provided, however, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to 9 taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject. In each jurisdiction in which the Securities have been so qualified, the Company will file such statements and reports as may be required by the laws of such jurisdiction to continue such qualification in effect as long as may be required for the distribution of the Securities. (h) As soon as practicable, the Company will make generally available to its security holders and the Underwriters an earnings statement (in form complying with the provisions of Rule 158 of the 1933 Act Regulations) covering a twelve month period beginning not later than the first day of the Company's fiscal quarter next following the "effective date" (as defined in said Rule 158) of the Registration Statement. (i) Immediately following the execution of the Pricing Agreement, the Company will prepare a prospectus supplement, dated the Representation Date (the "Prospectus Supplement"), containing such information as may be required by the 1933 Act or the 1933 Act Regulations and such other information as the Underwriters and the Company deem appropriate, and will file or transmit for filing with the Commission copies of the Prospectus (including such Prospectus Supplement) in accordance with Rule 424(b) of the 1933 Act Regulations by the close of business in New York on the business day immediately succeeding the date hereof. (j) The Company will use the net proceeds received by it from the sale of the Securities in the manner specified in the Prospectus Supplement under "Use of Proceeds". (k) The Company will use its best efforts to effect the listing of the Securities on the New York Stock Exchange. (l) During a period of 120 days from the date of the Pricing Agreement, the Company will not, without the prior written consent of the Representatives, directly or indirectly, sell, offer to sell, grant any option for the sale of, or otherwise dispose of, any Common Stock or any securities convertible into or exchangeable or exercisable for Common Stock (except for Common Stock issued pursuant to this Agreement, pursuant to employee benefit plans referred to in the Prospectus or pursuant to the exercise of convertible securities or options referred to in the Prospectus), or file any registration statement under the 1933 Act with respect to any of the foregoing. (m) The Company, during the period when the Prospectus is required to be delivered under the 1933 Act or the 1934 Act, will file all documents required to be filed with the Commission pursuant to the 1934 Act within the time periods 10 required by the 1934 Act and the rules and regulations of the Commission under the 1934 Act. SECTION 4. Payment of Expenses. The Company will pay all expenses ------------------- incident to the performance of its obligations under this Agreement, including (i) the printing and filing of the Registration Statement as originally filed and of each amendment thereto, (ii) the preparation, printing and delivery to the Underwriters of this Agreement, the Pricing Agreement, any Agreement among Underwriters and such other documents as may be required in connection with the offering, purchase, sale and delivery of the Securities, (iii) the preparation, issuance and delivery of the certificates for the Securities to the Underwriters, including any capital duties, stamp duties and stock or other transfer taxes payable upon the sale of the Securities to the Underwriters, (iv) the fees and disbursements of the Company's counsel, accountants and other advisors, (v) the qualification of the Securities under securities laws in accordance with the provisions of Section 3(g) hereof, including filing fees and the fees and disbursements of counsel for the Underwriters in connection therewith and in connection with the preparation of the Blue Sky Survey and any supplement thereto, (vi) the printing and delivery to the Underwriters of copies of each preliminary prospectus, preliminary prospectus supplement and of the Prospectus and Prospectus Supplement and any amendments or supplements thereto including any abbreviated term sheet delivered by the Company pursuant to Rule 434 of the 1933 Act Regulations, (vii) the preparation, printing and delivery to the Underwriters of copies of the Blue Sky Survey and any supplement thereto, (viii) the fees and expenses of any transfer agent or registrar for the Securities and (ix) the fees and expenses incurred in connection with the listing of the Securities on the New York Stock Exchange. If this Agreement is terminated by the Representatives in accordance with the provisions of Section 5 or Section 9(a)(i) hereof, the Company shall reimburse the Underwriters for all of their out-of-pocket expenses, including the reasonable fees and disbursements of counsel for the Underwriters. SECTION 5. Conditions of Underwriters' Obligations. The obligations of --------------------------------------- the several Underwriters hereunder are subject to the accuracy of the representations and warranties of the Company herein contained, to the performance by the Company of its obligations hereunder, and to the following further conditions: (a) The Registration Statement shall have become effective not later than 5:30 P.M. on the date hereof, or with the consent of the Representatives, at a later time and date, not later, however, than 5:30 P.M. on the first business day following the date hereof, or at such later time and date as may be approved by a majority in interest of the several Underwriters; and at Closing Time no stop order suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act or 11 proceedings therefor initiated or threatened by the Commission, and any request on the part of the Commission for additional information shall have been complied with to the reasonable satisfaction of counsel to the Underwriters. If the Company has elected to rely upon Rule 430A of the 1933 Act Regulations, the price of the Securities and any price-related information previously omitted from the effective Registration Statement pursuant to such Rule 430A shall have been transmitted to the Commission for filing in accordance with Rule 424(b) of the 1933 Act Regulations within the prescribed time period and prior to Closing Time the Company shall have provided evidence satisfactory to the Representatives of such timely filing, or a post-effective amendment providing such information shall have been promptly filed and declared effective in accordance with the requirements of Rule 430A of the 1933 Act Regulations. (b) At Closing Time the Representatives shall have received: (1) The favorable opinion, dated as of Closing Time, of Fried, Frank, Harris, Shriver & Jacobson (a partnership including professional corporations), counsel for the Company, in form and substance satisfactory to counsel for the Underwriters, to the effect that: (i) Each of the Company and each significant subsidiary of the Company, as defined in Rule 405 of Regulation C of the 1933 Act Regulations (individually, a "Subsidiary" and collectively, the "Subsidiaries"), has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction in which it is chartered or organized, with full corporate power and authority to own its properties and conduct its business as described in the Registration Statement (each such Subsidiary being identified on a Schedule attached thereto); (ii) The Company's authorized equity capitalization is as set forth in the Prospectus; the capital stock of the Company and the Securities conform in all material respects to the descriptions thereof contained in the Prospectus; the Securities have been duly authorized by the Company and, when issued and delivered by the Company pursuant to this Agreement against payment of the consideration set forth in the Pricing Agreement, will be fully paid and nonassessable and subject to no preemptive rights, and no holder of the Securities is or will be subject to personal liability by reason of being such a holder; the certificates for the Securities are in 12 valid and sufficient form; and the holders of outstanding shares of capital stock of the Company are not entitled to preemptive or other rights to subscribe for the Securities; (iii) The Securities have been duly authorized for listing, subject to official notice of issuance, on the New York Stock Exchange; (iv) To the knowledge of such counsel: (a) there is no pending or threatened action, suit or proceeding before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its subsidiaries, of a character required to be disclosed in the Registration Statement which is not adequately disclosed in the Prospectus, and (b) there is no contract or other document of a character required to be described in the Registration Statement or Prospectus, or to be filed as an exhibit, which is not described or filed as required; (v) The Registration Statement has become effective under the 1933 Act; any required filing of the Prospectus, and any supplements thereto, pursuant to Rule 424(b) has been made in the manner and within the time period required by Rule 424(b); to the knowledge of such counsel, no stop order suspending the effectiveness of the Registration Statement has been issued, no proceedings for that purpose have been instituted or threatened and the Registration Statement and the Prospectus and each amendment or supplement thereto (exclusive of the documents incorporated by reference therein), as of their respective effective or issue dates (other than the financial statements and other financial and statistical information contained therein and the Forms T-1 as to which such counsel need express no opinion) appear on their face to be responsive as to form in all material respects with the applicable requirements of the 1933 Act and the 1933 Act Regulations; the Rule 434 Prospectus appears on its face to be responsive as to form to the requirements of Rule 434 of the 1933 Act Regulations in all material respects; 13 (vi) This Agreement and the Pricing Agreement have been duly authorized, executed and delivered by the Company; (vii) No consent, approval, authorization or order of any United States federal or New York, California or, with respect to matters arising under the Delaware General Corporation Law, Delaware court or governmental agency or body is required for the consummation of the transactions contemplated by this Agreement and the Pricing Agreement, except such as have been obtained under the 1933 Act and the 1933 Act Regulations and such as may be required under the state securities or blue sky laws, rules or regulations of any jurisdiction in connection with the purchase and distribution of the Securities by the Underwriters and such other approvals as have been obtained; (viii) Neither the issue and sale of the Securities, the compliance by the Company with all the provisions of this Agreement and the Pricing Agreement, the consummation of any other of the transactions herein or therein contemplated nor the fulfillment of the terms hereof or thereof will conflict with, result in a breach of, or constitute a default under the charter or by-laws of the Company or the terms of any indenture or other agreement or instrument filed with the Commission and to which the Company or any of its Subsidiaries is a party or bound, or any decree, order or regulation (other than any federal or state securities or blue sky laws, rules or regulations) known to such counsel to be applicable to the Company or any of its Subsidiaries of any court, regulatory body, administrative agency, governmental body or arbitrator having jurisdiction over the Company or any of its Subsidiaries; (ix) To the knowledge of such counsel, no holders of securities of the Company have rights to the registration of such securities under the Registration Statement or otherwise registered by the Company under the 1933 Act; (x) The information in the Base Prospectus under "Description of Capital Stock -- Common Stock" and "-- Preferred Stock Purchase Rights", to the extent that it constitutes matters of law, summaries of legal matters, documents or proceedings, or legal conclusions, has been reviewed by them and fairly presents the information disclosed therein in all material respects; 14 (xi) The documents incorporated by reference in the Prospectus (other than the financial statements and other financial and statistical data contained therein, as to which no opinion need be rendered), when they were filed with the Commission appeared on their face to be responsive as to form in all material respects with the requirements of the 1934 Act and the rules and regulations of the Commission thereunder; and (xii) The Company is not an "investment company" or an entity "controlled" by an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended. Such counsel shall also state that in the course of the preparation by the Company and its counsel of the Registration Statement and Prospectus, such counsel attended conferences with certain of the officers of, and the independent public accountants for, the Company, at which the Registration Statement and Prospectus were discussed. Given the limitations inherent in the independent verification of factual matters and the character of determinations involved in the registration process, such counsel need not pass upon and need not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement and Prospectus, except as specifically described in the opinion set forth in paragraphs (iv), (v), (x) and (xi) above. Subject to the foregoing and on the basis of the information such counsel gained in the performance of the services referred to above, including information obtained from officers and other representatives of the Company, such counsel shall state that such counsel has no reason to believe that at the time it became effective the Registration Statement contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading, or that the Prospectus, at the Representation Date (unless the term "Prospectus" refers to a prospectus which has been provided to the Underwriters by the Company for use in connection with the offering of the Securities that differs from the Prospectus on file at the Commission at the Representation Date, in which case at the time it is first provided to the Underwriters for such use) or at Closing Time includes any untrue statement of material fact or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that such counsel need not express a view or belief with respect to financial statements, notes or schedules thereto, or other financial and statistical information included or incorporated by reference in the Registration Statement and Prospectus or the Forms T-1. 15 In rendering such opinion, such counsel may rely (A) as to matters involving the application of laws of any jurisdiction other than the State of California, the State of New York, the State of Delaware (but only with respect to the Delaware General Corporation Law) or the United States, to the extent they deem proper and specified in such opinion, upon the opinion of other counsel of good standing whom they believe to be reliable and who are satisfactory to counsel for the Underwriters and (B) as to matters of fact, to the extent they deem proper, on certificates of responsible officers of the Company and public officials. References to the Prospectus in this paragraph (b)(1) include any supplements thereto at the Closing Date. (2) The favorable opinion, dated as of Closing Time, of Sandor E. Samuels, Esq., General Counsel of the Company, in form and substance satisfactory to counsel for the Underwriters, to the effect that: (i) Each of the Company and the Subsidiaries is duly qualified to do business as a foreign corporation and is in good standing under the laws of each jurisdiction which requires such qualification wherein it owns or leases material properties or conducts material business other than jurisdictions in which the failure to so qualify, when considered in the aggregate and not individually, would not have a material adverse effect on the Company and its subsidiaries considered as one enterprise; (ii) All the outstanding shares of capital stock of each Subsidiary have been duly and validly authorized and issued and are fully paid and nonassessable, and, except as otherwise set forth in the Prospectus, all outstanding shares of capital stock of the Subsidiaries are owned by the Company either directly or through wholly owned subsidiaries free and clear of any perfected security interest and, to the knowledge of such counsel, after due inquiry, any other security interests, claims, liens or encumbrances; (iii) The outstanding shares of Common Stock have been duly and validly authorized and issued and are fully paid and nonassessable; (iv) Except as disclosed in or specifically contemplated by the Prospectus, to such counsel's knowledge, there are no outstanding options, warrants or other rights calling for the issuance of, and no commitments, obligations, plans or arrangements to issue, any shares of capital stock of the Company or any security convertible into or exchangeable for capital stock of the Company. 16 The outstanding stock options relating to the Company's Common Stock have been duly authorized and validly issued and conform to the description thereof contained in the Prospectus in all material respects; (v) Neither the issue and sale of the Securities, the compliance by the Company with all the provisions of this Agreement and the Pricing Agreement, the consummation of any other of the transactions herein and therein contemplated nor the fulfillment of the terms hereof or thereof will conflict with, result in a breach of, or constitute a default under the charter or by-laws of the Company or, to the knowledge of such counsel, the terms of any indenture or other agreement or instrument to which the Company or any of its subsidiaries is a party or bound, or any decree, order or regulation (other than any federal or state securities or blue sky laws, rules or regulations) known to such counsel to be applicable to the Company or any of its subsidiaries of any court, regulatory body, administrative agency, governmental body or arbitrator having jurisdiction over the Company or any of its subsidiaries; (vi) No consent, approval, authorization or order of any court or governmental agency or body is required for the consummation of the transactions contemplated by this Agreement and the Pricing Agreement, except such as have been obtained under the 1933 Act, the 1933 Act Regulations and such as may be required under the state securities or blue sky laws, rules or regulations of any jurisdiction in connection with the purchase and distribution of the Securities by the Underwriters and such other approvals as have been obtained; and (vii) To such counsel's knowledge, neither the Company nor any Subsidiary is in violation of its charter or by-laws. (3) The favorable opinion, dated as of Closing Time, of Brown & Wood, counsel for the Underwriters, with respect to the issuance and sale of the Securities, this Agreement, the Pricing Agreement, the 17 Registration Statement, the Prospectus and other related matters as the Representatives may reasonably require. In giving their opinion required by this subsection, Brown & Wood shall additionally state that nothing has come to their attention that caused them to believe that the Registration Statement (except for financial statements and schedules and other financial or statistical data included or incorporated by reference therein and the Forms T-1, as to which such counsel need make no statement), at the time it became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus (except for financial statements and schedules and other financial or statistical data included or incorporated by reference therein and the Forms T-1, as to which such counsel need make no statement), at the Representation Date (unless the term "Prospectus" refers to a prospectus which has been provided to the Underwriters by the Company for use in connection with the offering of the Securities which differs from the Prospectus on file at the Commission at the Representation Date, in which case at the time it is first provided to the Underwriters for such use) or at Closing Time, included an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. In giving their opinion, Brown & Wood may rely, to the extent recited therein, (A) as to matters involving the application of laws of any jurisdiction other than the State of California, the State of New York, the State of Delaware or the United States, to the extent they deem proper and specified in such opinion, upon the opinion of other counsel of good standing whom they believe to be reliable, (B) as to all matters of fact, upon certificates and written statements of officers of the Company, and (C) as to the qualification and good standing of the Company to do business in any state or jurisdiction, upon certificates of appropriate government officials. (c) At Closing Time there shall not have been, since the date hereof or since the respective dates as of which information is given in the Prospectus, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, and the Representatives shall have received a certificate of the President or a Vice President of the Company and the chief financial or chief accounting officer of the Company, 18 dated as of Closing Time, to the effect that (i) there has been no such material adverse change, (ii) the representations and warranties in Section 1 hereof are true and correct with the same force and effect as though expressly made at and as of Closing Time, (iii) the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied at or prior to Closing Time, and (iv) no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been initiated or, to the best knowledge and information of such officer, threatened by the Commission. As used in this Section 5(c), the term "Prospectus" means the Prospectus in the form first used to confirm sales of the Securities. (d) At the time of execution of this Agreement, the Representatives shall have received from Grant Thornton LLP a letter, dated such date, in form and substance satisfactory to the Representatives, and substantially in the same form as the draft letter previously delivered to and approved by the Representatives. (e) At Closing Time the Representatives shall have received from Grant Thornton LLP a letter, dated as of Closing Time, to the effect that they reaffirm the statements made in the letter furnished pursuant to subsection (d) of this Section, except that the specified date referred to shall be a date not more than three days prior to Closing Time and, if the Company has elected to rely on Rule 430A of the 1933 Act Regulations, to the further effect that they have carried out certain specified procedures with respect to certain amounts, percentages and financial information specified by the Representatives and deemed to be a part of the Registration Statement pursuant to Rule 430A(b) and have found such amounts, percentages and financial information to be in agreement with the relevant accounting, financial and other records of the Company and its subsidiaries identified in such letter. (f) At Closing Time the Securities shall have been duly listed, subject to notice of issuance, on the New York Stock Exchange. [(g) At the date of this Agreement, the Representatives shall have received an agreement substantially in the form of Exhibit B hereto signed by David S. Loeb and Angelo R. Mozilo.] (h) At Closing Time and each Date of Delivery, if any, counsel for the Underwriters shall have been furnished with such documents and opinions as they may reasonably require for the purpose of enabling them to pass upon the issuance and sale of the Securities as herein contemplated and related proceedings, or in order to evidence the accuracy and completeness of any of the representations and 19 warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company in connection with the issuance and sale of the Securities as herein contemplated shall be satisfactory in form and substance to the Representatives and counsel for the Underwriters. (i) In the event the Underwriters exercise their option provided in Section 2 hereof to purchase all or any portion of the Option Securities, the representations and warranties of the Company contained herein and the statements in any certificates furnished by the Company hereunder shall be true and correct as of each Date of Delivery, and the Representatives shall have received: (1) The favorable opinion of Fried, Frank, Harris, Shriver & Jacobson, counsel for the Company, in form and substance satisfactory to counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities and otherwise to the same effect as the opinion required by Section 5(b)(1) hereof. (2) The favorable opinion of Sandor E. Samuels, Esq., General Counsel of the Company, in form and substance satisfactory to counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities and otherwise to the same effect as the opinion required by Section 5(b)(2) hereof. (3) The favorable opinion of Brown & Wood, counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities and otherwise to the same effect as the opinion required by Section 5(b)(3) hereof. (4) A certificate of the President or a Vice President of the Company and the chief financial or chief accounting officer of the Company, dated such Date of Delivery, confirming that the certificate delivered at Closing Time pursuant to Section 5(c) hereof remains true and correct as of such Date of Delivery. (5) A letter from Grant Thornton LLP, in form and substance satisfactory to the Representatives, dated such Date of Delivery, substantially the same in scope and substance as the letter furnished to the Representatives pursuant to Section 5(e) hereof except that the "specified date" in the letter furnished pursuant to this subsection shall be a date not more than three days prior to such Date of Delivery. If any condition specified in this Section shall not have been fulfilled when and as required to be fulfilled, this Agreement may be terminated by the Underwriters by notifying the 20 Company at any time at or prior to Closing Time, and such termination shall be without liability of any party to any other party except as provided in Section 4 hereof and except that Sections 6 and 7 shall survive any such termination and remain in full force and effect. Section 6. Indemnification. (a) The Company agrees to indemnify and hold --------------- harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of Section 15 of the 1933 Act, as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), including the information deemed to be part of the Registration Statement pursuant to Rule 430A(b) or Rule 434 of the 1933 Act Regulations, if applicable, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus, any preliminary prospectus supplement or the Prospectus (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, if such settlement is effected with the written consent of the Company; and (iii) against any and all expense whatsoever, as incurred (including, subject to Section 6(c) hereof, the fees and disbursements of counsel chosen by the Representatives), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under (i) or (ii) above; provided, however, that this indemnity agreement shall not apply to any loss, - -------- ------- liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by any 21 Underwriter through the Representatives expressly for use in the Registration Statement (or any amendment thereto) or any preliminary prospectus, preliminary prospectus supplement or the Prospectus (or any amendment or supplement thereto), and provided further, that the foregoing indemnity with respect to any -------- ------- untrue statement or omission or alleged untrue statement contained in or omission from any preliminary prospectus or preliminary prospectus supplement, shall not inure to the benefit of any Underwriter (or any person controlling any Underwriter within the meaning of Section 15 of the 1933 Act) from whom the person asserting any such loss, liability, claim, damage or expense purchased any of the Securities which are the subject thereof if the Company shall sustain the burden of proving that such person was not sent or given, a copy of the Prospectus (or the Prospectus as amended or supplemented), at or prior to the written confirmation of the sale of such Securities to such person, and the untrue statement contained in or omission from such preliminary prospectus or preliminary prospectus supplement was corrected in the Prospectus (or the Prospectus as amended or supplemented). (b) Each Underwriter severally agrees to indemnify and hold harmless the Company, its directors, each of its officers who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto) or any preliminary prospectus, preliminary prospectus supplement or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with information furnished to the Company by such Underwriter through the Representatives expressly for use in the Registration Statement (or any amendment thereto) or such preliminary prospectus, preliminary prospectus supplement or the Prospectus (or any amendment or supplement thereto). (c) Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability which it may have otherwise than on account of this indemnity agreement. An indemnifying party may participate at its own expense in the defense of any such action. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. 22 (d) For purposes of this Section 6, all references to the Registration Statement, any preliminary prospectus, preliminary prospectus supplement or the Prospectus, or any amendment or supplement to any of the foregoing, shall be deemed to include, without limitation, any electronically transmitted copies thereof, including, without limitation, any copies filed with the Commission pursuant to EDGAR. Section 7. Contribution. In order to provide for just and equitable ------------ contribution in circumstances in which the indemnity agreement provided for in Section 6 hereof is for any reason held to be unenforceable by the indemnified parties although applicable in accordance with its terms, the Company and the Underwriters shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by said indemnity agreement incurred by the Company and one or more of the Underwriters, as incurred, in such proportions that the Underwriters are responsible for that portion represented by the percentage that the underwriting discount appearing on the cover page of the Prospectus Supplement bears to the initial public offering price appearing thereon and the Company is responsible for the balance; provided, however, that no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For the purposes of this Section, each person, if any, who controls an Underwriter within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as such Underwriter and each director of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as the Company. Section 8. Representations, Warranties and Agreements to Survive Delivery. -------------------------------------------------------------- All representations, warranties and agreements contained in this Agreement or the Pricing Agreement, or contained in certificates of officers of the Company submitted pursuant hereto or thereto, shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of any Underwriter or any controlling person, or by or on behalf of the Company, and shall survive delivery of the Securities to the Underwriters. Section 9. Termination of Agreement. (a) The Representatives may ------------------------ terminate this Agreement, by notice to the Company, at any time at or prior to Closing Time (i) if there has been, since the date of this Agreement or since the respective dates as of which information is given in the Prospectus (exclusive of any supplement thereto), any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, or (ii) if there shall have occurred any material adverse change in the financial 23 markets in the United States or any outbreak or escalation of hostilities or other national or international calamity or crisis the effect of which is such as to make it, in the judgment of the Representatives, impracticable to market the Securities or enforce contracts for the sale of the Securities, or (iii) if trading in any securities of the Company has been suspended by the Commission or a national securities exchange, or if trading generally on either the American Stock Exchange or the New York Stock Exchange shall have been suspended, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices for securities have been required, by either of said exchanges or by order of the Commission or any other governmental authority, or if a banking moratorium has been declared by either Federal or New York authorities or (iv) if the rating assigned by any nationally recognized securities rating agency to any debt securities of the Company as of the date hereof shall have been lowered since that date or if any such rating agency shall have publicly announced since that date that it has under surveillance or review, with possible negative implications, its rating of any debt securities of the Company, or (v) if there shall have come to your attention any facts that would cause you to believe that the Prospectus, at such time, contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in light of the circumstances existing at the time of such delivery, not misleading. (b) If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party except as provided in Section 4 hereof, and provided further that Sections 6 and 7 shall survive such termination and remain in full force and effect. Section 10. Default by One or More of the Underwriters. If one or more of ------------------------------------------ the Underwriters shall fail at Closing Time or a Date of Delivery to purchase the Securities which it or they are obligated to purchase under this Agreement and the Pricing Agreement (the "Defaulted Securities"), the Representatives shall have the right, within 24 hours thereafter, to make arrangements for one or more of the non-defaulting Underwriters, or any other underwriters, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the terms herein set forth; if, however, the Representatives shall not have completed such arrangements within such 24-hour period, then: (a) if the number of Defaulted Securities does not exceed 10% of the number of Securities to be purchased on such date, each of the non- defaulting Underwriters shall be obligated, severally and not jointly, to purchase the full amount thereof in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all non-defaulting Underwriters, or 24 (b) if the number of Defaulted Securities exceeds 10% of the number of Securities to be purchased on such date, this Agreement shall terminate without liability on the part of any non-defaulting Underwriter. No action taken pursuant to this Section shall relieve any defaulting Underwriter from liability in respect of its default. In the event of any such default which does not result in a termination of this Agreement, either the Representatives or the Company shall have the right to postpone the Closing Time or a Date of Delivery for a period not exceeding seven days in order to effect any required changes in the Registration Statement or Prospectus or in any other documents or arrangements. As used herein, the term "Underwriter" includes any person substituted for an Underwriter under this Section 10. Section 11. Notices. All notices and other communications hereunder shall ------- be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of written telecommunication. Notices to the Underwriters shall be directed to the Representatives at Merrill Lynch World Headquarters, North Tower, World Financial Center, New York, New York 10281- 1201, attention of Steven J. Goulart, and notices to the Company shall be directed to it at 155 N. Lake Avenue, Pasadena, California 91101, attention of the legal department. Section 12. Parties. This Agreement shall inure to the benefit of and be ------- binding upon the Underwriters and the Company and their respective successors. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm or corporation other than the Underwriters and the Company and their respective successors and the controlling persons and the officers and directors referred to in Sections 6 and 7 hereof and their heirs and legal representatives any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. This Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the Underwriters and the Company and their respective successors, and said controlling persons and said officers and directors and their heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of Securities from any Underwriter shall be deemed to be a successor or an assign merely by reason of such purchase. Section 13. GOVERNING LAW AND TIME. THIS AGREEMENT AND THE PRICING ---------------------- AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE. UNLESS STATED OTHERWISE, ALL SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME. 25 If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement between the Underwriters and the Company in accordance with its terms. Very truly yours, COUNTRYWIDE CREDIT INDUSTRIES, INC. By: ______________________________ Title: The foregoing Agreement is hereby confirmed and accepted as of the date first above written. MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated GOLDMAN, SACHS & CO. LEHMAN BROTHERS INC. SALOMON BROTHERS INC ALEX. BROWN & SONS INCORPORATED DEAN WITTER REYNOLDS INC. By: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By: _____________________________________ Authorized Signatory For themselves and as Representatives of the other Underwriters named in Schedule A hereto. 26 SCHEDULE A
Number of Initial Name of Underwriter Securities ------------------- ---------- Merrill Lynch, Pierce, Fenner & Smith Incorporated ......................... Goldman, Sachs & Co. ............................. Lehman Brothers Inc. ............................. Salomon Brothers Inc ............................. Alex. Brown & Sons Incorporated ................. Dean Witter Reynolds Inc. ........................ __________ Total ................................ 10,000,000 ==========
SA-1 EXHIBIT A 10,000,000 Shares Countrywide Credit Industries, Inc. (a Delaware corporation) Common Stock (Par Value $.05 Per Share) PRICING AGREEMENT ----------------- __________, 199_ MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated GOLDMAN, SACHS & CO. LEHMAN BROTHERS INC. SALOMON BROTHERS INC ALEX. BROWN & SONS INCORPORATED DEAN WITTER REYNOLDS INC. as Representatives of the several Underwriters named in the within-mentioned Purchase Agreement c/o MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated North Tower World Financial Center New York, New York 10281-1209 Dear Sirs: Reference is made to the Purchase Agreement dated __________, 199_ (the "Purchase Agreement") relating to the purchase by the several Underwriters named in Schedule A thereto, for whom Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Goldman, Sachs & Co., Lehman Brothers Inc., Salomon Brothers Inc, Alex. Brown & Sons Incorporated and Dean Witter Reynolds Inc. are acting as representatives (the "Representatives"), of the above shares of Common Stock (the "Securities"), of Countrywide Credit Industries, Inc., a Delaware corporation (the "Company"). Pursuant to Section 2 of the Purchase Agreement, the Company agrees with each Underwriter as follows: 1. The initial public offering price per share for the Securities, determined as provided in said Section 2, shall be $__________. A-1 2. The purchase price per share for the Securities to be paid by the several Underwriters shall be $__________, being an amount equal to the initial public offering price set forth above less $__________ per share; provided that the purchase price per share for any Option Securities (as -------- defined in the Purchase Agreement) purchased upon exercise of the over- allotment option described in Section 2(b) of the Purchase Agreement shall be reduced by an amount per share equal to any dividends or distributions declared by the Company and payable on the Initial Securities (as defined in the Purchase Agreement) but not payable on the Option Securities. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE. A-2 If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement between the Underwriters and the Company in accordance with its terms. Very truly yours, COUNTRYWIDE CREDIT INDUSTRIES, INC. By: ______________________________ Title: CONFIRMED AND ACCEPTED, as of the date first above written: MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated GOLDMAN, SACHS & CO. LEHMAN BROTHERS INC. SALOMON BROTHERS INC ALEX. BROWN & SONS INCORPORATED DEAN WITTER REYNOLDS INC. By: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By: _____________________________________ Authorized Signatory For themselves and as Representatives of the other Underwriters named in Schedule A to the Purchase Agreement. A-3 EXHIBIT B Countrywide Credit Industries, Inc. Public Offering of Common Stock ____________, 199_ MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated GOLDMAN, SACHS & CO. LEHMAN BROTHERS INC. SALOMON BROTHERS INC ALEX. BROWN & SONS INCORPORATED DEAN WITTER REYNOLDS INC. as Representatives of the several Underwriters named in the within-mentioned Purchase Agreement c/o MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated North Tower World Financial Center New York, New York 10281-1209 Dear Sirs: This letter is being delivered to you in connection with the Purchase Agreement, dated __________, 1995 (the "Purchase Agreement"), between Countrywide Credit Industries, Inc., a Delaware corporation (the "Company"), and each of the Underwriters named in Schedule A to the Purchase Agreement, relating to an underwritten public offering of common stock, $.05 par value (the "Common Stock") of the Company. In order to induce you to enter into the Purchase Agreement, the undersigned agrees not to offer, sell or contract to sell, or otherwise dispose of, directly or indirectly, or announce an offering of, any shares of Common Stock beneficially owned by the undersigned or any securities convertible into, or exchangeable for, shares of Common Stock for a period of 90 days following the day on which the Pricing Agreement (as defined in the Purchase Agreement) is executed without your prior written consent, other than shares of Common Stock disposed of as bona fide gifts. Notwithstanding anything to the contrary herein, the undersigned may pledge, grant a lien on, or otherwise hypothecate or encumber any of such shares of Common Stock. B-1 If for any reason the Purchase Agreement shall be terminated prior to the Closing Time (as defined in the Purchase Agreement), the agreement set forth above shall likewise be terminated. Very truly yours, [David S. Loeb] [Angelo R. Mozilo] B-2 EX-1.2 3 PURCHASE AGREEMENT EXHIBIT 1.2 $___,000,000 COUNTRYWIDE CREDIT INDUSTRIES, INC. (a Delaware corporation) [Debt Securities, Due ____] PURCHASE AGREEMENT ------------------ _____________, 199_ [Names of Underwriters] c/o [Name and address of Representatives of the Underwriters] Dear Sirs: Countrywide Credit Industries, Inc., a Delaware corporation (the "Company"), confirms its agreement with ___________________ ("____________"), and each of the other Underwriters named in Schedule A hereto (collectively, the "Underwriters", which term shall also include any underwriter substituted as hereinafter provided in Section 10 hereof), for whom ________________ are acting as representatives (in such capacity, the "Representatives"), with respect to the sale by the Company and the purchase by the Underwriters, acting severally and not jointly, of the respective principal amounts set forth in said Schedule A of the Company's [Debt Securities, due ____] (the "Securities"). The Securities are to be issued pursuant to an indenture dated as of ___________, 199_ (the "Indenture"), which term, as used herein, includes the Officer's Certificate (as defined in the Indenture) establishing the form and terms of the Securities pursuant to Sections 202 and 301 of the Indenture, between the Company and The Bank of New York, as Trustee (the "Trustee"). The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-3 (No. 33-59559) and a related preliminary prospectus for the registration under the Securities Act of 1933, as amended (the "1933 Act") of certain securities, including the Securities (collectively, the "Registered Securities") and the offering thereof from time to time in accordance with Rule 415 under the rules and regulations of the Commission under the 1933 Act (the "1933 Act Regulations"), which registration statement has been declared effective by the Commission and copies of which have heretofore been delivered to you. The Indenture has been qualified under the Trust Indenture Act of 1939, as amended (the "1939 Act"). Such Registration Statement, in the form in which it was declared effective, as amended through the date hereof, including all documents incorporated or deemed to be incorporated by reference therein and the information, if any, deemed to be part thereof pursuant to Rule 434 of the 1933 Act Regulations through the date hereof, is hereinafter referred to as the "Registration Statement". The Company proposes to file with the Commission pursuant to Rule 424(b) of the 1933 Act Regulations the Prospectus Supplement (as defined in Section 3(h) hereof) relating to the Securities and the prospectus dated __________, 199_ (the "Base Prospectus") relating to the Registered Securities, and has previously advised you of all further information (financial and other) with respect to the Company set forth therein. The Base Prospectus together with the Prospectus Supplement, in their respective forms on the date hereof (being the forms in which they are to be filed with the Commission pursuant to Rule 424(b) of the 1933 Act Regulations), including all documents incorporated or deemed to be incorporated by reference therein and the information, if any, deemed to be part thereof pursuant to Rule 434 of the 1933 Act Regulations through the date hereof, are hereinafter referred to as the "Prospectus", except that if any revised prospectus or prospectus supplement shall be provided to the Underwriters by the Company for use in connection with the offering of the Securities which differs from the Prospectus (whether or not such revised prospectus or prospectus supplement is required to be filed by the Company pursuant to Rule 424(b) of the 1933 Act Regulations), the term "Prospectus" shall refer to such revised prospectus or prospectus supplement, as the case may be, from and after the time it is first provided to the Underwriters for such use. Unless the context otherwise requires, all references in this Agreement to documents, financial statements and schedules and other information which is "contained", "included", "stated", "described" or "referred to" in the Registration Statement or the Prospectus (and all other references of like import) shall be deemed to mean and include all such documents, financial statements and schedules and other information which is or is deemed to be incorporated by reference in the Registration Statement or the Prospectus, as the case may be; and all references in this Agreement to amendments or supplements to the Registration Statement or the Prospectus shall be deemed to mean and include the filing of any document under the Securities Exchange Act of 1934 (the "1934 Act") after the date of this Agreement which is or is deemed to be incorporated by reference in the Registration Statement or the Prospectus, as the case may be. If the Company elects to rely on Rule 434 under the 1933 Act Regulations, all references to the Prospectus shall be deemed to include, without limitation, the form of prospectus and the abbreviated term sheet, taken together, provided to the Underwriters by the Company in reliance on Rule 434 under the 1933 Act Regulations (the "Rule 434 Prospectus"). If the Company files a registration statement to register a portion of the Securities and relies on Rule 462(b) under the 1933 Act Regulations for such registration statement to become effective 2 upon filing with the Commission (the "Rule 462 Registration Statement"), then any reference to "Registration Statement" herein shall be deemed to be to both the registration statement referred to above (No. 33-59559) and the Rule 462 Registration Statement, as each such registration statement may be amended pursuant to the 1933 Act. The Company understands that the Underwriters propose to make a public offering of the Securities as soon as the Representatives deem advisable after this Agreement has been executed and delivered. Section 1. Representations and Warranties. (a) The Company represents ------------------------------ and warrants to each Underwriter as of the date hereof (such date being hereinafter referred to as the "Representation Date") and as of the Closing Time referred to in Section 2(b) hereof, and agrees with each Underwriter, as follows: (i) The Company meets the requirements for use of Form S-3 under the 1933 Act and the 1933 Act Regulations. The Registration Statement and the Base Prospectus, at the time the Registration Statement became effective, complied in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations (including Rule 415(a) of the 1933 Act Regulations) and the 1939 Act and the rules and regulations of the Commission under the 1939 Act, and did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. The Prospectus, at the Representation Date (unless the term "Prospectus" refers to a prospectus which has been provided to the Underwriters by the Company for use in connection with the offering of the Securities which differs from the Prospectus filed with the Commission pursuant to Rule 424(b) of the 1933 Act Regulations, in which case at the time it is first provided to the Underwriters for such use) and at the Closing Time, does not and will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the representations and warranties in this -------- ------- subsection shall not apply to statements in or omissions from the Registration Statement or Prospectus made in reliance upon and in conformity with information furnished to the Company in writing by any Underwriter through the Representatives expressly for use in the Registration Statement or the Prospectus or to those parts of the Registration Statement that constitute the Statements of Eligibility and Qualification of the Trustees under the 1939 Act filed as exhibits to the Registration Statement (the "Forms T-1"). For purposes of this Section 1(a), all references to the Registration Statement, any post-effective amendments thereto and the Prospectus shall be deemed to include, without limitation, any electronically 3 transmitted copies thereof, including, without limitation, any copy filed with the Commission pursuant to its Electronic Data Gathering, Analysis, and Retrieval system ("EDGAR"). (ii) The documents incorporated or deemed to be incorporated by reference in the Prospectus, when they became effective or at the time they were or hereafter are filed with the Commission, complied and will comply in all material respects with the requirements of the 1933 Act or the 1934 Act, as applicable, and the rules and regulations of the Commission thereunder, and, when read together with the other information in the Prospectus, at the respective times the Registration Statement and any post-effective amendments thereto became effective, at the Representation Date and at Closing Time, did not, do not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (iii) The Indenture has been duly authorized by the Company and, at Closing Time, will have been duly qualified under the 1939 Act and duly executed and delivered by the Company and will constitute a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer, fraudulent conveyance or other similar laws relating to or affecting creditors' rights generally or by general equitable principles. (iv) The Company has complied with, and is and will be in compliance with, the provisions of that certain Florida act relating to disclosure of doing business with Cuba, codified as Section 517.075 of the Florida statutes, and the rules and regulations thereunder, or is exempt therefrom. (b) Any certificate signed by any officer of the Company and delivered to the Representatives or to counsel for the Underwriters shall be deemed a representation and warranty by the Company to each Underwriter as to the matters covered thereby. SECTION 2. Sale and Delivery to Underwriters; Closing. ------------------------------------------ (a) On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company agrees to sell to each Underwriter, severally and not jointly, and each Underwriter, severally and not jointly, agrees to purchase from the Company, at ____% of the principal amount thereof, the principal amount of Securities set forth in Schedule A hereto opposite the name of such Underwriter, plus any additional principal amount of Securities which such 4 Underwriter may become obligated to purchase pursuant to the provisions of Section 10 hereof. (b) Payment of the purchase price for, and delivery of certificates for, the Securities shall be made at the office of Fried, Frank, Harris, Shriver & Jacobson, New York, New York, or at such other place as shall be agreed upon by the Representatives and the Company, at 10:00 A.M. (New York time) on the third business day (unless postponed in accordance with the provisions of Section 10) following the date hereof, or such other time not later than ten business days after such date as shall be agreed upon by the Representatives and the Company (such time and date of payment and delivery being herein called "Closing Time"). Payment shall be made to the Company by certified or official bank check or checks drawn in next day funds payable to the order of the Company, against delivery to the Representatives for the respective accounts of the Underwriters of certificates for the Securities to be purchased by them. Certificates for the Securities shall be in such denominations and registered in such names as the Representatives may request in writing at least one business day before the Closing Time. It is understood that each Underwriter has authorized the Representatives, for its account, to accept delivery of, receipt for, and make payment of the purchase price for, the Securities which it has agreed to purchase. __________, individually and not as representative of the Underwriters, may (but shall not be obligated to) make payment of the purchase price for the Securities to be purchased by any Underwriter whose check has not been received by the Closing Time or the relevant Date of Delivery, as the case may be, but such payment shall not relieve such Underwriter from its obligations hereunder. The certificates for the Securities will be made available for examination and packaging by the Representatives in The City of New York not later than 3:00 P.M. on the last business day prior to Closing Time. SECTION 3. Covenants of the Company. The Company covenants with ------------------------ each Underwriter as follows: (a) The Company will notify the Representatives immediately, and confirm the notice in writing, (i) when any post-effective amendment to the Registration Statement, shall become effective, (ii) of the mailing or the delivery to the Commission for filing of the Prospectus or any amendment to the Registration Statement or amendment or supplement to the Prospectus or any document to be filed pursuant to the 1934 Act during any period when the Prospectus is required to be delivered under the 1933 Act, (iii) of the receipt of any comments or inquiries from the Commission relating to the Registration Statement or Prospectus, (iv) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information, and (v) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement 5 or of any order preventing or suspending the use of any preliminary prospectus or preliminary prospectus supplement, or of the suspension of the qualification of the Securities for offering or sale in any jurisdiction, or of or the initiation or threatening of any proceedings for any of such purposes. The Company will make every reasonable effort to prevent the issuance of any stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible moment. If the Company elects to rely on Rule 434 under the 1933 Act Regulations, the Company will prepare an "abbreviated term sheet" that complies with the requirements of Rule 434 under the 1933 Act Regulations. If the Company elects not to rely on Rule 434, the Company will provide the Underwriters with copies of the form of Prospectus, in such number as the Underwriters may reasonably request, and file or transmit for filing with the Commission such Prospectus in accordance with Rule 424(b) of the 1933 Act Regulations by the close of business in New York on the business day immediately succeeding the date hereof. If the Company elects to rely on Rule 434, the Company will provide the Underwriters with copies of the form of Rule 434 Prospectus, in such number as the Underwriters may reasonably request, and file or transmit for filing with the Commission the form of Prospectus complying with Rule 434(c)(2) of the 1933 Act Regulations in accordance with Rule 424(b) of the 1933 Act Regulations by the close of business in New York on the business day immediately succeeding the date hereof. (b) The Company will give the Representatives notice of its intention to file or prepare any amendment to the Registration Statement (including any post-effective amendment) or any amendment or supplement to the Prospectus, whether pursuant to the 1933 Act, the 1934 Act or otherwise, (including any revised prospectus which the Company proposes for use by the Underwriters in connection with the offering of the Securities which differs from the prospectus filed with the Commission pursuant to Rule 424(b) of the 1933 Act Regulations, whether or not such revised prospectus is required to be filed pursuant to Rule 424(b) of the 1933 Act Regulations, or any abbreviated term sheet prepared in reliance on Rule 434 of the 1933 Act Regulations), will furnish the Representatives with copies of any such amendment or supplement a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file any such amendment or supplement or use any such prospectus to which the Representatives or counsel for the Underwriters shall object. (c) The Company has furnished or will deliver to the Representatives and counsel for the Underwriters, without charge, signed copies of the Registration Statement as originally filed and of each amendment thereto (including exhibits filed therewith or incorporated by reference therein and documents incorporated or deemed to be 6 incorporated by reference therein) and signed copies of all consents and certificates of experts, and will also deliver to the Representatives a conformed copy of the Registration Statement as originally filed and of each amendment thereto (without exhibits) for each of the Underwriters. (d) The Company will deliver to each Underwriter, without charge, as many copies of each preliminary prospectus and preliminary prospectus supplement as such Underwriter may reasonably request, and the Company hereby consents to the use of such copies for purposes permitted by the 1933 Act. The Company will furnish to each Underwriter, without charge, from time to time during the period when the Prospectus is required to be delivered under the 1933 Act or the 1934 Act, such number of copies of the Prospectus (as amended or supplemented) as such Underwriter may reasonably request for the purposes contemplated by the 1933 Act or the 1934 Act or the respective applicable rules and regulations of the Commission thereunder. (e) If any event shall occur or condition shall exist as a result of which it is necessary, in the opinion of counsel for the Underwriters or for the Company, to amend the Registration Statement or amend or supplement the Prospectus in order that the Prospectus will not include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, or if it shall be necessary, in the opinion of such counsel, at any such time to amend the Registration Statement or amend or supplement the Prospectus in order to comply with the requirements of the 1933 Act or the 1933 Act Regulations, the Company will promptly prepare and file with the Commission, subject to Section 3(b), such amendment or supplement as may be necessary to correct such statement or omission or to make the Registration Statement or the Prospectus comply with such requirements, and the Company will furnish to the Underwriters such number of copies of such amendment or supplement as the Underwriters may reasonably request. (f) The Company will use its best efforts, in cooperation with the Underwriters, to qualify the Securities for offering and sale under the applicable securities laws of such states and other jurisdictions of the United States as the Representatives may designate and to maintain such qualifications in effect for as long as may be required for the distribution of the Securities; provided, however, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject. In each jurisdiction 7 in which the Securities have been so qualified, the Company will file such statements and reports as may be required by the laws of such jurisdiction to continue such qualification in effect for as long as may be required for the distribution of the Securities. (g) As soon as practicable, the Company will make generally available to its security holders and the Underwriters an earnings statement (in form complying with the provisions of Rule 158 of the 1933 Act Regulations) covering a twelve month period beginning not later than the first day of the Company's fiscal quarter next following the "effective date" (as defined in said Rule 158) of the Registration Statement. (h) Immediately following the execution hereof, the Company will prepare a prospectus supplement, dated the date hereof (the "Prospectus Supplement"), containing such information as may be required by the 1933 Act or the 1933 Act Regulations and such other information as the Underwriters and the Company deem appropriate, and will file or transmit for filing with the Commission copies of the Prospectus (including such Prospectus Supplement) in accordance with Rule 424(b) of the 1933 Act Regulations by the close of business in New York on the business day immediately succeeding the date hereof. (i) The Company will use the net proceeds received by it from the sale of the Securities in the manner specified in the Prospectus Supplement under "Use of Proceeds". (j) The Company, during the period when the Prospectus is required to be delivered under the 1933 Act or the 1934 Act, will file all documents required to be filed with the Commission pursuant to the 1934 Act within the time periods required by the 1934 Act and the rules and regulations of the Commission under the 1934 Act. SECTION 4. Payment of Expenses. The Company will pay all expenses ------------------- incident to the performance of its obligations under this Agreement, including (i) the printing and filing of the Registration Statement as originally filed and of each amendment thereto, (ii) the preparation, printing and delivery to the Underwriters of this Agreement, any Agreement among Underwriters, 8 the Indenture and such other documents as may be required in connection with the offering, purchase, sale and delivery of the Securities, (iii) the preparation, issuance and delivery of the certificates for the Securities to the Underwriters, (iv) the fees and disbursements of the Company's counsel, accountants and other advisors, (v) the qualification of the Securities under securities laws in accordance with the provisions of Section 3(f) hereof, including filing fees and the fees and disbursements of counsel for the Underwriters in connection therewith and in connection with the preparation of the Blue Sky Survey, any supplement thereto and any Legal Investment Survey, (vi) the printing and delivery to the Underwriters of copies of each preliminary prospectus, preliminary prospectus supplement and of the Prospectus and Prospectus Supplement and any amendments or supplements thereto, including any abbreviated term sheet delivered by the Company pursuant to Rule 434 of the 1933 Act Regulations, (vii) the preparation, printing and delivery to the Underwriters of copies of the Blue Sky Survey, any supplement thereto and any Legal Investment Survey, (viii) the fees and expenses of the Trustee, including the fees and disbursements of counsel for the Trustee, and (ix) any fees payable in connection with the rating of the Securities. If this Agreement is terminated by the Representatives in accordance with the provisions of Section 5 or Section 9(a)(i) hereof, the Company shall reimburse the Underwriters for all of their out-of-pocket expenses, including the reasonable fees and disbursements of counsel for the Underwriters. SECTION 5. Conditions of Underwriters' Obligations. The obligations of --------------------------------------- the several Underwriters hereunder are subject to the accuracy of the representations and warranties of the Company herein contained, to the performance by the Company of its obligations hereunder, and to the following further conditions: (a) At Closing Time no stop order suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act or proceedings therefor initiated or threatened by the Commission, and any request on the part of the Commission for additional information shall have been complied with to the reasonable satisfaction of counsel to the Underwriters. The Prospectus (including the Prospectus Supplement referred to in Section 3(h) hereof) shall have been filed or transmitted for filing with the Commission in accordance with Rule 424(b) of the 1933 Act Regulations within the prescribed time period, and prior to Closing Time the Company shall have provided evidence satisfactory to the Representatives of such timely filing. (b) At Closing Time the Representatives shall have received: 9 (1) The favorable opinion, dated as of Closing Time, of Fried, Frank, Harris, Shriver & Jacobson (a partnership including professional corporations), counsel for the Company, in form and substance satisfactory to counsel for the Underwriters, to the effect that: (i) Each of the Company and each significant subsidiary of the Company, as defined in Rule 405 of Regulation C of the 1933 Act Regulations (individually, a "Subsidiary" and collectively, the "Subsidiaries"), has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction in which it is chartered or organized, with full corporate power and authority to own its properties and conduct its business as described in the Registration Statement (each such Subsidiary being identified on a Schedule attached thereto); (ii) The Company's authorized equity capitalization is as set forth in the Prospectus; the capital stock of the Company conforms in all material respects to the description thereof contained in the Prospectus; (iii) To the knowledge of such counsel: (a) there is no pending or threatened action, suit or proceeding before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its subsidiaries, of a character required to be disclosed in the Registration Statement which is not adequately disclosed in the Prospectus, and (b) there is no contract or other document of a character required to be described in the Registration Statement or Prospectus, or to be filed as an exhibit, which is not described or filed as required; (iv) The Registration Statement has become effective under the 1933 Act; any required filing of the Prospectus, and any supplements thereto, 10 pursuant to Rule 424(b) has been made in the manner and within the time period required by Rule 424(b); to the knowledge of such counsel, no stop order suspending the effectiveness of the Registration Statement has been issued, no proceedings for that purpose have been instituted or threatened and the Registration Statement and the Prospectus and each amendment or supplement thereto (exclusive of the documents incorporated by reference therein), as of their respective effective or issue dates (other than the financial statements and other financial and statistical information contained therein and the Forms T-1, as to which such counsel need express no opinion) appear on their face to be responsive as to form in all material respects with the applicable requirements of the 1933 Act and the 1933 Act Regulations; the Rule 434 Prospectus appears on its face to be responsive as to form conforms to the requirements of Rule 434 of the 1933 Act Regulations in all material respects; (v) This Agreement has been duly authorized, executed and delivered by the Company; (vi) The Indenture has been duly authorized, executed and delivered by the Company and (assuming the due authorization, execution and delivery thereof by the Trustee) constitutes a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer, fraudulent conveyance or other similar laws relating to or affecting creditors' rights generally or by general equitable principles; (vii) The Securities are in the form contemplated by the Indenture, have been duly authorized by the Company and, when executed by the Company and authenticated by the Trustee in the manner provided in the Indenture (assuming the due authorization, execution and delivery of the Indenture by the Trustee) and delivered against payment of the purchase price therefor specified in Schedule A hereto, will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer, fraudulent conveyance or other similar laws relating to or affecting creditors' rights generally or by general equitable principles, and will be entitled to the benefits of the Indenture; 11 (viii) The Indenture has been qualified under the 1939 Act; (ix) The Securities and the Indenture conform in all material respects to the descriptions thereof contained in the Prospectus; (x) No consent, approval, authorization or order of any United States federal or New York, California or, with respect to matters arising under the Delaware General Corporation Law, Delaware court or governmental agency or body is required for the consummation of the transactions contemplated by this Agreement and the Indenture, except such as have been obtained under the 1933 Act and the 1933 Act Regulations and such as may be required under the 1939 Act or under the state securities or blue sky laws, rules or regulations of any jurisdiction in connection with the purchase and distribution of the Securities by the Underwriters and such other approvals as have been obtained; (xi) Neither the issue and sale of the Securities, the compliance by the Company with all the provisions of this Agreement and the Indenture, the consummation of any other of the transactions herein or therein contemplated nor the fulfillment of the terms hereof or thereof will conflict with, result in a breach of, or constitute a default under the charter or by-laws of the Company or the terms of any indenture or other agreement or instrument filed with the Commission and to which the Company or any of its Subsidiaries is a party or bound, or any decree, order or regulation (other than any federal or state securities or blue sky laws, rules or regulations) known to such counsel to be applicable to the Company or any of its Subsidiaries of any court, regulatory body, administrative agency, governmental body or arbitrator having jurisdiction over the Company or any of its Subsidiaries; (xii) The information in the Base Prospectus under "Description of Debt Securities and Guarantees" and in the Prospectus Supplement under ["Description of the Securities"] and ["Certain Federal Income Tax Considerations"], to the extent that it constitutes matters of law, summaries of legal matters, documents or proceedings, or legal conclusions, has been reviewed by them and fairly presents the information disclosed therein in all material respects [and the opinion of such firm set forth in the Prospectus Supplement under "Certain Federal Income Tax Considerations" is confirmed]; (xiii) The documents incorporated by reference in the Prospectus (other than the financial 12 statements and other financial and statistical data contained therein and the Forms T-1, as to which no opinion need be rendered), when they were filed with the Commission appeared on their face to be responsive as to form in all material respects with the requirements of the 1934 Act and the rules and regulations of the Commission thereunder; and (xiv) The Company is not an "investment company" or an entity "controlled" by an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended. Such counsel shall also state that in the course of the preparation by the Company and its counsel of the Registration Statement and Prospectus, such counsel attended conferences with certain of the officers of, and the independent public accountants for, the Company, at which the Registration Statement and Prospectus were discussed. Given the limitations inherent in the independent verification of factual matters and the character of determinations involved in the registration process, such counsel need not pass upon and need not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement and Prospectus, except as specifically described in the opinion set forth in paragraphs (iii), (iv), (ix), (xii) and (xiii) above. Subject to the foregoing and on the basis of the information such counsel gained in the performance of the services referred to above, including information obtained from officers and other representatives of the Company, such counsel shall state that such counsel has no reason to believe that at the time it became effective the Registration Statement contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading, or that the Prospectus, at the Representation Date (unless the term "Prospectus" refers to a prospectus which has been provided to the Underwriters by the Company for use in connection with the offering of the Securities that differs from the Prospectus on file at the Commission at the Representation Date, in which case at the time it is first provided to the Underwriters for such use) or at Closing Time includes any untrue statement of material fact or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that such counsel need not express a view or belief with respect to financial statements, notes or schedules thereto or other financial and statistical information included or incorporated by reference in the Registration Statement and Prospectus or the Forms T-1. 13 In rendering such opinion, such counsel may rely (A) as to matters involving the application of laws of any jurisdiction other than the State of California, the State of New York, the State of Delaware (but only with respect to the Delaware General Corporation Law) or the United States, to the extent they deem proper and specified in such opinion, upon the opinion of other counsel of good standing whom they believe to be reliable and who are satisfactory to counsel for the Underwriters and (B) as to matters of fact, to the extent they deem proper, on certificates of responsible officers of the Company and public officials. References to the Prospectus in this paragraph (b)(1) include any supplements thereto at the Closing Date. (2) The favorable opinion, dated as of Closing Time, of Sandor E. Samuels, Esq., General Counsel of the Company, in form and substance satisfactory to counsel for the Underwriters, to the effect that: (i) Each of the Company and the Subsidiaries is duly qualified to do business as a foreign corporation and is in good standing under the laws of each jurisdiction which requires such qualification wherein it owns or leases material properties or conducts material business other than jurisdictions in which the failure to so qualify, when considered in the aggregate and not individually, would not have a material adverse effect on the Company and its subsidiaries considered as one enterprise; (ii) All the outstanding shares of capital stock of each Subsidiary have been duly and validly authorized and issued and are fully paid and nonassessable, and, except as otherwise set forth in the Prospectus, all outstanding shares of capital stock of the Subsidiaries are owned by the Company either directly or through wholly owned subsidiaries free and clear of any perfected security interest and, to the knowledge of such counsel, after due inquiry, any other security interests, claims, liens or encumbrances; (iii) Neither the issue and sale of the Securities, the compliance by the Company with all the provisions of this Agreement and the Indenture, the consummation of any other of the transactions herein and therein contemplated nor the fulfillment of the terms hereof or thereof will conflict with, result in a breach of, or constitute a default under the charter or by-laws of the Company or, to the knowledge of such counsel, the terms of any indenture or other agreement or instrument to which the Company or any of its subsidiaries is a party or bound, or 14 any decree, order or regulation (other than any federal or state securities or blue sky laws, rules or regulations) known to such counsel to be applicable to the Company or any of its subsidiaries of any court, regulatory body, administrative agency, governmental body or arbitrator having jurisdiction over the Company or any of its subsidiaries; (iv) No consent, approval, authorization or order of any court or governmental agency or body is required for the consummation of the transactions contemplated by this Agreement and the Indenture, except such as have been obtained under the 1933 Act and the 1933 Act Regulations and such as may be required under 1939 Act and the rules and regulations thereunder or under the state securities or blue sky laws, rules or regulations of any jurisdiction in connection with the purchase and distribution of the Securities by the Underwriters and such other approvals as have been obtained; and (v) To such counsel's knowledge, neither the Company nor any Subsidiary is in violation of its charter or by-laws. (3) The favorable opinion, dated as of Closing Time, of Brown & Wood, counsel for the Underwriters, with respect to the issuance and sale of the Securities, the Indenture, this Agreement, the Registration Statement, the Prospectus and other related matters as the Representatives may reasonably require. In giving their opinion required by this subsection, Brown & Wood shall additionally state that nothing has come to their attention that caused them to believe that the Registration Statement (except for financial statements and schedules and other financial or statistical data included or incorporated by reference therein and the Forms T-1, as to which such counsel need make no statement), at the time it became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus (except for financial statements and schedules and other financial or statistical data included or incorporated 15 by reference therein and the Forms T-1, as to which such counsel need make no statement), at the Representation Date (unless the term "Prospectus" refers to a prospectus which has been provided to the Underwriters by the Company for use in connection with the offering of the Securities which differs from the Prospectus on file at the Commission at the Representation Date, in which case at the time it is first provided to the Underwriters for such use) or at Closing Time, included an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. In giving their opinion, Brown & Wood may rely, to the extent recited therein, (A) as to matters involving the application of laws of any jurisdiction other than the State of California, the State of New York, the State of Delaware or the United States, to the extent they deem proper and specified in such opinion, upon the opinion of other counsel of good standing whom they believe to be reliable, (B) as to all matters of fact, upon certificates and written statements of officers of the Company, and (C) as to the qualification and good standing of the Company to do business in any state or jurisdiction, upon certificates of appropriate government officials. (c) At Closing Time there shall not have been, since the date hereof or since the respective dates as of which information is given in the Prospectus, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, and the Representatives shall have received a certificate of the President or a Vice President of the Company and the chief financial or chief accounting officer of the Company, dated as of Closing Time, to the effect that (i) there has been no such material adverse change, (ii) the representations and warranties in Section 1 hereof are true and correct with the same force and effect as though expressly made at and as of Closing Time, (iii) the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied at or prior to Closing Time, and (iv) no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been initiated or, to the best knowledge and information of such officer, threatened by the Commission. As used in this Section 5(c), the term "Prospectus" means the Prospectus in the form first used to confirm sales of the Securities. (d) At the time of execution of this Agreement, the Representatives shall have received from Grant Thornton LLP a letter, dated such date, in form and substance 16 satisfactory to the Representatives, and substantially in the same form as the draft letter previously delivered to and approved by the Representatives. (e) At Closing Time the Representatives shall have received from Grant Thornton LLP a letter, dated as of Closing Time, to the effect that they reaffirm the statements made in the letter furnished pursuant to subsection (d) of this Section, except that the specified date referred to shall be a date not more than three days prior to Closing Time. (f) At Closing Time, counsel for the Underwriters shall have been furnished with such documents and opinions as they may reasonably require for the purpose of enabling them to pass upon the issuance and sale of the Securities as herein contemplated and related proceedings, or in order to evidence the accuracy and completeness of any of the representations and warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company in connection with the issuance and sale of the Securities as herein contemplated shall be satisfactory in form and substance to the Representatives and counsel for the Underwriters. If any condition specified in this Section shall not have been fulfilled when and as required to be fulfilled, this Agreement may be terminated by the Underwriters by notifying the Company at any time at or prior to Closing Time, and such termination shall be without liability of any party to any other party except as provided in Section 4 and except that Sections 6 and 7 shall survive any such termination and remain in full force and effect. 17 Section 6. Indemnification. (a) The Company agrees to indemnify and hold --------------- harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of Section 15 of the 1933 Act, as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), including the information deemed to be part of the Registration Statement pursuant to Rule 434 of the 1933 Act Regulations, if applicable, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus, any preliminary prospectus supplement or the Prospectus (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, if such settlement is effected with the written consent of the Company; and (iii) against any and all expense whatsoever, as incurred (including, subject to Section 6(c) hereof, the fees and disbursements of counsel chosen by the Representatives), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under (i) or (ii) above; provided, however, that this indemnity agreement shall not apply to any loss, - -------- ------- liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by any Underwriter through the Representatives expressly for use in the Registration Statement (or any amendment thereto) or any preliminary prospectus, preliminary prospectus supplement or the Prospectus (or any amendment or supplement thereto), and provided further, that the foregoing indemnity with respect to any -------- ------- untrue statement or omission or alleged untrue statement contained in or 18 omission from any preliminary prospectus or preliminary prospectus supplement, shall not inure to the benefit of any Underwriter (or any person controlling any Underwriter within the meaning of Section 15 of the 1933 Act) from whom the person asserting any such loss, liability, claim, damage or expense purchased any of the Securities which are the subject thereof if the Company shall sustain the burden of proving that such person was not sent or given, a copy of the Prospectus (or the Prospectus as amended or supplemented), at or prior to the written confirmation of the sale of such Securities to such person, and the untrue statement contained in or omission from such preliminary prospectus or preliminary prospectus supplement was corrected in the Prospectus (or the Prospectus as amended or supplemented). (b) Each Underwriter severally agrees to indemnify and hold harmless the Company, its directors, each of its officers who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto) or any preliminary prospectus, preliminary prospectus supplement or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with information furnished to the Company by such Underwriter through the Representatives expressly for use in the Registration Statement (or any amendment thereto) or such preliminary prospectus, preliminary prospectus supplement or the Prospectus (or any amendment or supplement thereto). (c) Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability which it may have otherwise than on account of this indemnity agreement. An indemnifying party may participate at its own expense in the defense of any such action. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. (d) For purposes of this Section 6, all references to the Registration Statement, any preliminary prospectus, preliminary prospectus supplement or the Prospectus, or any amendment or supplement to any of the foregoing, shall be deemed to include, without limitation, any electronically transmitted copies thereof, including, without limitation, any copies filed with the Commission pursuant to EDGAR. 19 Section 7. Contribution. In order to provide for just and equitable ------------ contribution in circumstances in which the indemnity agreement provided for in Section 6 hereof is for any reason held to be unenforceable by the indemnified parties although applicable in accordance with its terms, the Company and the Underwriters shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by said indemnity agreement incurred by the Company and one or more of the Underwriters, as incurred, in such proportions that the Underwriters are responsible for that portion represented by the percentage that the underwriting discount appearing on the cover page of the Prospectus Supplement bears to the initial public offering price appearing thereon and the Company is responsible for the balance; provided, however, that no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For the purposes of this Section, each person, if any, who controls an Underwriter within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as such Underwriter and each director of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as the Company. Section 8. Representations, Warranties and Agreements to Survive Delivery. -------------------------------------------------------------- All representations, warranties and agreements contained in this Agreement, or contained in certificates of officers of the Company submitted pursuant hereto or thereto, shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of any Underwriter or any controlling person, or by or on behalf of the Company, and shall survive delivery of the Securities to the Underwriters. Section 9. Termination of Agreement. (a) The Representatives may ------------------------ terminate this Agreement, by notice to the Company, at any time at or prior to Closing Time (i) if there has been, since the date of this Agreement or since the respective dates as of which information is given in the Prospectus (exclusive of any supplement thereto), any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, or (ii) if there shall have occurred any material adverse change in the financial markets in the United States or any outbreak or escalation of hostilities or other national or international calamity or crisis the effect of which is such as to make it, in the judgment of the Representatives, impracticable to market the Securities or enforce contracts for the sale of the Securities, or (iii) if trading in any securities of the Company has been suspended by the Commission or a national securities exchange, or if trading generally on either the American Stock Exchange or the New York Stock Exchange shall have been suspended, or minimum or maximum 20 prices for trading have been fixed, or maximum ranges for prices for securities have been required, by either of said exchanges or by order of the Commission or any other governmental authority, or if a banking moratorium has been declared by either Federal or New York authorities or (iv) if the rating assigned by any nationally recognized securities rating agency to any debt securities of the Company as of the date hereof shall have been lowered since that date or if any such rating agency shall have publicly announced since that date that it has under surveillance or review, with possible negative implications, its rating of any debt securities of the Company, or (v) if there shall have come to your attention any facts that would cause you to believe that the Prospectus, at such time, contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in light of the circumstances existing at the time of such delivery, not misleading. (b) If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party except as provided in Section 4 hereof, and provided further that Sections 6 and 7 shall survive such termination and remain in full force and effect. Section 10. Default by One or More of the Underwriters. If one or more of ------------------------------------------ the Underwriters shall fail at Closing Time to purchase the Securities which it or they are obligated to purchase under this Agreement (the "Defaulted Securities"), the Representatives shall have the right, within 24 hours thereafter, to make arrangements for one or more of the non-defaulting Underwriters, or any other underwriters, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the terms herein set forth; if, however, the Representatives shall not have completed such arrangements within such 24-hour period, then: (a) if the number of Defaulted Securities does not exceed 10% of the aggregate principal amount of the Securities, each of the non-defaulting Underwriters shall be obligated, severally and not jointly, to purchase the full amount thereof in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all non- defaulting Underwriters, or (b) if the number of Defaulted Securities exceeds 10% of the aggregate principal amount of the Securities, this Agreement shall terminate without liability on the part of any non-defaulting Underwriter. No action taken pursuant to this Section shall relieve any defaulting Underwriter from liability in respect of its default. In the event of any such default which does not result in a termination of this Agreement, either the Representatives or the Company shall have the right to postpone the Closing Time for a 21 period not exceeding seven days in order to effect any required changes in the Registration Statement or Prospectus or in any other documents or arrangements. As used herein, the term "Underwriter" includes any person substituted for an Underwriter under this Section 10. Section 11. Notices. All notices and other communications hereunder shall ------- be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of written telecommunication. Notices to the Underwriters shall be directed to the Representatives at ___________________________, and notices to the Company shall be directed to it at 155 N. Lake Avenue, Pasadena, California 91101, attention of the legal department. Section 12. Parties. This Agreement shall inure to the benefit of and be ------- binding upon the Underwriters and the Company and their respective successors. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm or corporation other than the Underwriters and the Company and their respective successors and the controlling persons and the officers and directors referred to in Sections 6 and 7 hereof and their heirs and legal representatives any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. This Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the Underwriters and the Company and their respective successors, and said controlling persons and said officers and directors and their heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of Securities from any Underwriter shall be deemed to be a successor or an assign merely by reason of such purchase. Section 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY ---------------------- AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE. EXCEPT AS OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME. 22 If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement between the Underwriters and the Company in accordance with its terms. Very truly yours, COUNTRYWIDE CREDIT INDUSTRIES, INC. By: ______________________________ Title: CONFIRMED AND ACCEPTED, as of the date first above written: [Names of Representatives] By: ____________________________________ Authorized Signatory For themselves and as Representatives of the other Underwriters named in Schedule A hereto. 23 SCHEDULE A
Principal Amount Name of Underwriter of Securities ------------------- ------------- __________ Total ................................ $ ==========
SA-1 EX-1.3 4 SELLING AGENCY AGREEMENT EXHIBIT 1.3 FORM OF SELLING AGENCY AGREEMENT for MEDIUM-TERM NOTES ISSUED BY COUNTRYWIDE FUNDING CORPORATION Countrywide Funding Corporation U.S. $___________ Medium-Term Notes, Series __ Due Nine Months or More From Date of Issue Unconditionally Guaranteed as to Payment of Principal, Premium, if any, and Interest by Countrywide Credit Industries, Inc. SELLING AGENCY AGREEMENT ____________, 1995 [Names and Addresses of Agents] ____________________ ____________________ ____________________ ____________________ ____________________ ____________________ ____________________ ____________________ ____________________ ____________________ ____________________ ____________________ Ladies and Gentlemen: Countrywide Funding Corporation, a New York corporation (the "Company"), confirms its agreement with each of you (including, in the case of ____________________, its affiliate _____________ ________________; individually, an "Agent", and collectively, the "Agents") with respect to the issue and sale by the Company of up to U.S. $___________ aggregate principal amount of its Medium-Term Notes, Series __, Due Nine Months or More from Date of Issue (the "Notes"). The Notes will be unconditionally guaranteed as to payment of principal, premium, if any, and interest (the "Guarantees") by Countrywide Credit Industries, Inc. (the "Guarantor"). The Notes and the Guarantees will be issued under an indenture dated as of January 1, 1992, as supplemented by Supplemental Indenture No. 1 thereto dated as of June 15, 1995 (collectively, the "Indenture"), among the Company, the Guarantor and The Bank of New York, as trustee (the "Trustee"). Unless otherwise specified in the Pricing Supplement referred to below, the Notes will be issued in minimum denominations of U.S. $100,000 and in denominations exceeding such amount by integral multiples of U.S. $1,000, and if denominated in a currency or currency unit other than U.S. dollars, the equivalent in such other currency or currency unit (the "Specified Currency") as determined in accordance with the Indenture, of U.S. $100,000 (rounded down to an integral multiple of 1,000 units of such Specified Currency) and any larger amount that is an integral multiple of 1,000 units of such Specified Currency, will be issued only in fully registered certificated or book-entry form, and will be issued in the currency or currency units and will have the maturities, annual interest rates (whether fixed or floating), redemption provisions and other terms set forth in a pricing supplement (the "Pricing Supplement") to the Prospectus referred to below. The Notes will be issued, and the terms thereof established, in accordance with the Indenture and the Medium-Term Note Administrative Procedures attached hereto as Exhibit A (the "Procedures"). The Procedures may only be amended by written agreement of the Company and each Agent after notice to, and in the case of amendments which affect the rights, duties or obligations or the Trustee, with the approval of, the Trustee. 1. Representations and Warranties. The Company and the Guarantor, ------------------------------ jointly and severally, represent and warrant to, and agree with, each Agent that: (a) The Company and the Guarantor meet the requirements for use of Form S-3 under the Securities Act of 1933, as amended (the "Act") and rules and regulations ("Rules and Regulations") of the Securities and Exchange Commission (the "Commission") promulgated thereunder and have filed with the Commission a registration statement on such Form (File No. 33-59559), and a related preliminary prospectus for the registration under the Act of certain securities, including the Notes and the Guarantees (collectively, the "Securities") and the offering thereof from time to time in accordance with Rule 415 under the Rules and Regulations, which registration statement has been declared effective by the Commission and copies of which have heretofore been delivered to you. Such registration statement, as it may be amended or supplemented, meets the requirements set forth in Rule 415(a)(1)(x) and (a)(2) under the Act and complies in all other material respects with said Rule. In connection with the sale of Notes, the Company and the Guarantor propose to file with the Commission pursuant to Rule 424 under the Act a supplement to the form of prospectus included in such registration statement relating to the Notes and the Guarantees and the 2 plan of distribution thereof and have previously advised the Agents of all further information (financial and other) with respect to the Company and the Guarantor to be set forth therein. Such registration statement, in the form in which it was declared effective, as amended through the date hereof, including all documents incorporated or deemed to be incorporated by reference therein and the information, if any, deemed to be a part thereof pursuant to Rule 430A(b) of the Rules and Regulations through the date hereof, is hereinafter referred to as the "Registration Statement". Such prospectus, as supplemented through the date hereof, is hereinafter called the "Prospectus", except that if any revised prospectus or prospectus supplement shall be provided to the Agents by the Company for use in connection with the offering of the Securities which differs from the Prospectus (whether or not such revised prospectus or prospectus supplement is required to be filed by the Company pursuant to Rule 424(b) of the Rules and Regulations), the term "Prospectus" shall refer to such revised prospectus or prospectus supplement, as the case may be, from and after the time it is first provided to the Agents for such use. Any reference herein to the Registration Statement or the Prospectus shall be deemed to refer to and include the documents incorporated by reference therein pursuant to Item 12 of Form S-3 which were filed under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), on or before the date of this Agreement or the date of the Prospectus, as the case may be; and any reference herein to the terms "amend", "amendment" or "supplement" with respect to the Registration Statement or the Prospectus shall be deemed to refer to and include the filing of any document under the Exchange Act after the date of this Agreement or the date of the Prospectus, as the case may be, deemed to be incorporated therein by reference. (b) As of the date hereof, when any amendment to the Registration Statement becomes effective (including the filing of any document incorporated by reference in the Registration Statement), when any supplement to the Prospectus is filed with the Commission, as of the date of any Terms Agreement (as defined by Section 2 hereof) and at the date of delivery by the Company of any Notes sold hereunder (a "Settlement Date"), (i) the Registration Statement, as amended as of any such time, and the Prospectus, as supplemented as of any such time, and the Indenture complies, or will comply, as the case may be, in all material respects with the applicable requirements of the Act, the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), and the Exchange Act and the respective rules and regulations thereunder and (ii) neither the Registration Statement, as amended as of any such time, nor the Prospectus, as supplemented as of any such time, 3 contains, or will contain, as the case may be, any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading; provided, however, that the representations or warranties in -------- ------- this subsection shall not apply to (a) that part of the Registration Statement which shall constitute the Statement of Eligibility on Form T-1 under the Trust Indenture Act of the Trustee or (b) the information contained in or omitted from the Registration Statement or the Prospectus or any amendment thereof or supplement thereto in reliance upon and in conformity with information furnished in writing to the Company or the Guarantor by any of you specifically for use in connection with the preparation of the Registration Statement and the Prospectus or any amendment thereof or supplement thereto. (c) Neither the Company nor the Guarantor nor any of their respective subsidiaries is in violation of its corporate charter or bylaws or in default under any agreement, indenture or instrument to which the Company, the Guarantor or any of their respective subsidiaries is a party, the effect of which violation or default would be material to the Company or the Guarantor and its subsidiaries considered as a whole; the execution, delivery and performance of this Agreement and the Indenture and consummation of the transactions contemplated hereunder and thereunder will not conflict with, result in the creation or imposition of any lien, charge or encumbrance upon any of the assets of the Company, the Guarantor or any of their respective subsidiaries pursuant to the terms of, or constitute a default under, any agreement, indenture or instrument, or result in a violation of the charter or by-laws of the Company or the Guarantor or any order, rule or regulation of any court or governmental agency having jurisdiction over the Company, the Guarantor or any of their respective subsidiaries; and except as required by the Act, the Trust Indenture Act, the Exchange Act and applicable state securities laws, no consent, authorization or order of, or filing or registration with, any court or governmental agency is required for the execution, delivery and performance of this Agreement and the Indenture. (d) Except as described in or contemplated by the Registration Statement and the Prospectus, there has not been any material adverse change in, or any adverse development which materially affects, the business, properties, financial condition or results of operations of the Company or the Guarantor and its subsidiaries considered as a whole since the dates as of which information is given in the Registration Statement and the Prospectus. 4 (e) Grant Thornton LLP, whose reports have been incorporated by reference or included in the Guarantor's most recent Annual Report on Form 10-K, which is incorporated by reference in the Prospectus, are independent public accountants as required by the Act and the Rules and Regulations. (f) (i) The Indenture has been duly authorized, executed and delivered by the Company and the Guarantor and constitutes the legally binding obligation of the Company and the Guarantor, respectively, enforceable in accordance with its terms subject to bankruptcy, insolvency, reorganization, fraudulent transfer, fraudulent conveyance, moratorium or other laws affecting creditors' rights generally and general principles of equity, (ii) on any Settlement Date, the Notes will have been duly authorized and, upon payment therefor as provided in this Agreement, will constitute legally binding obligations of the Company enforceable in accordance with their terms subject to bankruptcy, insolvency, reorganization, fraudulent transfer, fraudulent conveyance, moratorium or other laws affecting creditors' rights generally and general principles of equity and the holders of the Notes will be entitled to the benefits of the Indenture, (iii) on any Settlement Date, the Guarantees will have been duly authorized and, upon delivery of the related Notes, will constitute legally binding obligations of the Guarantor enforceable in accordance with their terms subject to bankruptcy, insolvency, reorganization, fraudulent transfer, fraudulent conveyance, moratorium or other laws affecting creditors' rights generally and general principles of equity and the holders of the Notes upon which the Guarantees are endorsed will be entitled to the benefits of the Indenture, and (iv) the Indenture conforms, and the Notes and related Guarantees will conform, in each case in all material respects to the descriptions thereof contained in the Prospectus. (g) Each of the Company, the Guarantor and any Significant Subsidiary of the Company or the Guarantor, as defined in Rule 405 of Regulation C of the Rules and Regulations (individually, a "Subsidiary" and collectively, the "Subsidiaries"), has been duly incorporated, is validly existing and in good standing under the laws of the jurisdiction in which it is chartered or organized, is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which its ownership of property or the conduct of its business requires such qualification (except where the failure to be so qualified would not have a material adverse effect on the business operations or financial condition of the Company or the Guarantor and its subsidiaries taken as a whole), and has power and authority necessary to own or hold its property and to conduct the business in which it is engaged. (h) All of the outstanding shares of capital stock of each Subsidiary have been duly and validly authorized and 5 issued and are fully paid and nonassessable, and all outstanding shares of capital stock of the Subsidiaries are owned by the Company or the Guarantor, directly or through subsidiaries, free and clear of any perfected security interest, other security interests, claims, liens or encumbrances. (i) Except as described in the Prospectus, there is no material litigation or governmental proceeding pending or, to the knowledge of the Company or the Guarantor, threatened against the Company, the Guarantor or any of their respective subsidiaries which is reasonably likely to result in any material adverse change in the financial condition, results of operations, business or prospects of the Company or the Guarantor and its subsidiaries considered as a whole or which is required to be disclosed in the Registration Statement. (j) The financial statements filed or incorporated as part of the Registration Statement or included or incorporated in the Prospectus present fairly, or (in the case of any amendment or supplement to any such document, or any material incorporated by reference in any such document, filed with the Commission after the date as of which this representation is being made) will present fairly, at all times during the effectiveness of this Agreement, the financial condition and results of operations of the Guarantor, at the dates and for the periods indicated, and have been, and (in the case of any amendment or supplement to any such document, or any material incorporated by reference in any such document, filed with the Commission after the date as of which this representation is being made) will be at all times during the effectiveness of this Agreement, prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods involved, except as otherwise required pursuant to such generally accepted accounting principles; and the summarized financial information of the Company incorporated in the Registration Statement and the Prospectus presents fairly the information required to be stated therein. (k) The documents incorporated by reference into the Prospectus have been, and (in the case of any amendment or supplement to any such document, or any material incorporated by reference in any such document, filed with the Commission after the date as of which this representation is being made) will be at all times during the effectiveness of this Agreement, prepared in all material respects in conformity with the applicable requirements of the Act and the Rules and Regulations and the Exchange Act and the rules and regulations of the Commission thereunder and such documents 6 have been, or (in the case of any amendment or supplement to any such document, or any material incorporated by reference in any such document, filed with the Commission after the date as of which this representation is being made) will be at all times during the effectiveness of this Agreement hereof, timely filed as required thereby. (l) There are no contracts or other documents which are required to be filed as exhibits to the Registration Statement by the Act or by the Rules and Regulations, or which were required to be filed as exhibits to any document incorporated by reference in the Prospectus by the Exchange Act or the rules and regulations of the Commission thereunder, which have not been filed as exhibits to the Registration Statement or to such document or incorporated therein by reference as permitted by the Rules and Regulations or the rules and regulations of the Commission under the Exchange Act as required. 2. Appointment of Agents; Solicitations by the Agents of Offers to --------------------------------------------------------------- Purchase; Sales of Notes to a Purchaser. (a) Subject to the terms and - --------------------------------------- conditions set forth herein, and to the reservation by the Company of the right to sell, solicit, and accept offers to purchase Notes directly on its own behalf, the Company hereby authorizes each Agent to act as its agent to solicit offers for the purchase of all or part of the Notes from the Company. On the basis of the representations and warranties, and subject to the terms and conditions set forth herein, each of the Agents agrees, as agent of the Company, to use its reasonable best efforts to solicit offers to purchase the Notes from the Company upon the terms and conditions set forth herein and in the Prospectus as amended or supplemented and in the Procedures. The Company reserves the right, in its sole discretion, to instruct the Agents or any one or more of the Agents from time to time to suspend at any time, for any period of time or permanently, the solicitation of offers to purchase the Notes. Upon receipt of instructions from the Company, such Agents will forthwith suspend solicitation of offers to purchase Notes from the Company until such time as the Company has advised them that such solicitation may be resumed. Unless otherwise agreed between the Company and such Agent, the Company agrees to pay each Agent a commission in U.S. dollars, at the time of settlement of each sale of Notes by the Company as a result of a solicitation made by such Agent, in an amount equal to that percentage specified in Schedule I hereto (or, with respect to Notes in which the stated maturity is in excess of 30 years, such percentage as shall be agreed upon by the Company and the related Agent at such time) of the aggregate 7 principal amount of the Notes sold by the Company as a result of solicitations by such Agent and such commission shall be payable as specified in the Procedures. Subject to the provisions of this Section and to the Procedures, offers for the purchase of Notes may be solicited by each Agent as agent for the Company at such time and in such amounts as such Agent deems advisable; provided, however, -------- ------- that so long as this Agreement shall be in effect, the Company shall not solicit offers to purchase Notes through any agents other than the Agents. Notwithstanding anything to the contrary contained herein, the Company may authorize any other person, partnership or corporation (an "Additional Agent") to act as its agent to solicit offers for the purchase of all or part of the Notes of the Company and/or accept offers to purchase Notes from any such Additional Agent, provided that the Company shall have delivered written notice -------- to each Agent of its intent to do so at least two business days prior to such appointment and any such Additional Agent shall have entered into an agreement with the Company upon the same terms and conditions as set forth in this Agreement. (b) Subject to the terms and conditions stated herein, the Company agrees that, whenever the Company determines to sell Notes directly to any Agent as principal for resale to others, it will enter into a separate agreement relating to such sale in accordance with the provisions of this Section 2(b). For the purposes of this Agreement, the term "Agent" shall refer to each of you acting solely in the capacity as agent for the Company hereunder and not as principal; the term "Purchaser" shall refer to each of you acting solely as principal hereunder and not as agent, and the term "you" shall refer to each of you acting in both such capacities or in either such capacity. Each sale of Notes to a Purchaser shall be made in accordance with the terms of this Agreement and the Procedures and a supplemental agreement which will provide for the sale of such Notes to, and the purchase and reoffering thereof by, a Purchaser. Each such supplemental agreement (which may be an oral agreement and confirmed in writing between a Purchaser and the Company) is herein referred to as a "Terms Agreement". Each such Terms Agreement, whether oral (and confirmed in writing, which may be by facsimile transmission) or in writing, shall be with respect to such information (as applicable) as is specified in Exhibit B hereto. A Purchaser's commitment to purchase Notes shall be deemed to have been made on the basis of the representations and warranties of the Company and the Guarantor herein contained and shall be subject to the terms and conditions herein set forth. Each Terms Agreement shall describe the Notes to be purchased by the Purchaser pursuant thereto, specify the principal amount of such Notes, the price to be paid to the Company for such Notes, the currency or currency unit in which such Notes shall be denominated and be payable, whether the Notes will be 8 issued in certificated or book-entry form, whether interest shall be payable at a fixed or floating rate, the date and time of delivery of payment for such Notes (the "Purchase Date"), the place of delivery of the Notes and payment therefor, the method of payment and any requirements for the delivery of the opinions of counsel, the certificates from the Company, the Guarantor or their officers, or the letter from Grant Thornton LLP pursuant to Section 6(b). Such Terms Agreement shall also specify the period of time, if applicable, referred to in Section 4(l). In connection with the resale of any Notes purchased by a Purchaser, such Purchaser may engage the services of any other broker or dealer in connection with such resale and may allow all or any portion of the discount received to such brokers and dealers. Delivery of the certificates for Notes sold to a Purchaser pursuant to any Terms Agreement shall be made as agreed to between the Company and the Purchaser as set forth in the respective Terms Agreement, not later than the Purchase Date set forth in such Terms Agreement, against payment of funds to the Company in the net amount due to the Company for such Notes by the method and in the form set forth in the respective Terms Agreement. 3. Offering Procedure. (a) Unless otherwise agreed between the ------------------ Company and each Agent, each Agent shall communicate to the Company, orally or in writing, each offer to purchase Notes received by such Agent (unless such offer is rejected by such Agent in accordance herewith) on terms previously communicated by the Company to such Agent, and unless otherwise agreed between the Company and each Agent, the Company shall have the sole right to accept such offers to purchase Notes and may refuse any proposed purchase of Notes in whole or in part for any reason. (b) Unless otherwise agreed between the Company and each Agent, each Agent shall have the right, in its discretion reasonably exercised, to reject any proposed purchase of Notes, as a whole or in part, and any such rejection shall not be deemed a breach of its agreement contained herein. Each Agent and the Company agree to perform the respective duties and obligations specifically provided to be performed by them in the Procedures. 4. Agreements. The Company and the Guarantor, jointly and severally, ---------- agree with each Agent that: (a) Prior to the termination of the offering of the Notes, the Company and the Guarantor will not file any amendment of the Registration Statement or supplement to the Prospectus (except for a supplement relating to an offering of securities other than the Notes and related Guarantees) unless the Company or the Guarantor has furnished to such Agent a copy for its review prior to filing and will not 9 file any such proposed amendment or supplement to which such Agent may reasonably object. Subject to the foregoing sentence, the Company and the Guarantor will cause each supplement to the Prospectus to be filed (or mailed for filing) with the Commission as required pursuant to Rule 424. The Company and the Guarantor will promptly advise such Agent (i) when each supplement to the Prospectus shall have been filed (or mailed for filing) with the Commission pursuant to Rule 424, (ii) when any amendment of the Registration Statement shall have become effective, (iii) of any request by the Commission for any amendment of the Registration Statement or amendment of or supplement to the Prospectus or for any additional information, (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the institution or threatening of any proceeding for that purpose and (v) of the receipt by the Company or the Guarantor of any notification with respect to the suspension of the qualification of the Notes and related Guarantees for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose. The Company and the Guarantor will use their best efforts to prevent the issuance of any such stop order and, if issued, to obtain as soon as possible the withdrawal thereof. (b) If, at any time when a prospectus relating to the Notes and related Guarantees is required to be delivered under the Act, any event occurs as a result of which the Registration Statement, as then amended, or the Prospectus, as then supplemented, would include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, any facts or events arise which, individually or in the aggregate, would represent a fundamental change in the information set forth or in the Registration Statement or the Prospectus, or if it shall be necessary to amend the Registration Statement or to supplement the Prospectus to comply with the Act or the Exchange Act or the respective rules thereunder, the Company and the Guarantor promptly will (i) notify such Agent to suspend the solicitation of offers to purchase Notes (and, if so notified, such Agent shall forthwith suspend such solicitation and cease using the Prospectus as then amended or supplemented), (ii) prepare and file with the Commission, subject to the first sentence of paragraph (a) of this Section 4, an amendment or supplement which will correct such statement or omission or an amendment or supplement which will effect such compliance and (iii) will supply any such amended or supplemented Prospectus to such Agent in such quantities as such Agent may reasonably request. If such amendment or supplement, and any documents, certificates and opinions furnished to 10 such Agent pursuant to paragraph (f) of this Section 4 in connection with the preparation or filing of such amendment or supplement are reasonably satisfactory in all respects to such Agent, such Agent will, upon the filing of such amendment or supplement with the Commission and upon the effectiveness of an amendment to the Registration Statement if such an amendment is required, resume such Agent's obligation to solicit offers to purchase Notes hereunder. (c) As soon as practicable, the Guarantor will make generally available to the security holders of the Guarantor and to such Agent an earnings statement which will satisfy the provisions of Section 11(a) of the Act and Rule 158 under the Act. (d) The Company and the Guarantor will furnish to such Agent and to its counsel, without charge, copies of the Registration Statement (including exhibits thereto) and each amendment thereto which shall become effective and, so long as delivery of a prospectus may be required by the Act, as many copies of any preliminary prospectus and the Prospectus and any amendments thereof and supplements thereto as such Agent may reasonably request. (e) The Company and the Guarantor will arrange for the qualification of the Notes and related Guarantees for sale under the laws of such jurisdictions as such Agent may designate, will maintain such qualifications in effect so long as required for the distribution of the Notes and related Guarantees, and will arrange for the determination of the legality of the Notes and related Guarantees for purchase by institutional investors. (f) The Company and the Guarantor shall furnish to such Agent and counsel for such Agent, such documents, certificates of officers and opinions of counsel relating to their respective businesses, operations and affairs, the Registration Statement, any preliminary prospectus, the Prospectus, and any amendments or supplements thereto, the Indenture, the Notes, the Guarantees, this Agreement, the Procedures and the performance by the Company, the Guarantor and such Agent of their respective obligations hereunder and thereunder as such Agent may from time to time and at any time prior to the termination of this Agreement reasonably request. (g) The Company and the Guarantor shall, whether or not any sale of the Notes is consummated, (i) pay all expenses incident to the performance of their obligations under this Agreement, including the fees and disbursements of its accountants and counsel, the cost of printing (or otherwise producing) and delivery of the Registration 11 Statement, the Prospectus, all amendments thereof and supplements thereto, the Indenture, this Agreement and all other documents relating to the offering, the cost of preparing, printing, packaging and delivering the Notes and related Guarantees, the fees and disbursements, including fees of counsel, incurred in connection with the qualification of the Notes and related Guarantees for sale and determination of eligibility for investment of the Notes and related Guarantees under the securities or blue sky laws of each such jurisdiction as such Agent may reasonably designate, the fees and disbursements of the Trustee, the Calculation Agent (as such term is used in the Prospectus, as supplemented, relating to the Notes and related Guarantees) and the fees of any agency that rates the Notes, and (ii) reimburse such Agent on a monthly basis for all out-of-pocket expenses (including without limitation advertising expenses) incurred by such Agent and approved by the Company or the Guarantor in advance, in connection with the offering and the sale of the Notes and related Guarantees, and (iii) be responsible for the reasonable fees and disbursements of such Agent's counsel incurred heretofore or hereafter in connection with the offering and sale of the Notes and related Guarantees. (h) Each acceptance by the Company of an offer to purchase Notes will be deemed to be a reconfirmation to you of the representations and warranties of the Company and the Guarantor in Section 1(b). (i) Each time that the Registration Statement or the Prospectus is amended or supplemented (other than by an amendment or supplement (i) relating to an offering of securities other than the Notes and related Guarantees or (ii) providing solely for the specification of the terms of the Notes (excluding (a) any change in the formula by which interest rates on the Notes may be determined and (b) any information relating to Specified Currencies other than U.S. dollars)) or there is filed with the Commission any document incorporated by reference into the Prospectus, the Company and the Guarantor will each deliver or cause to be delivered forthwith to such Agent a certificate of its President or any Vice President and its principal financial or accounting officer or the Treasurer, dated the date of the effectiveness of such amendment or the date of filing of such supplement, in form reasonably satisfactory to such Agent, to the effect that the statements contained in the certificate that was last furnished to such Agent pursuant to either Section 5(e) or this Section 4(i) are true and correct at the time of the effectiveness of such amendment or the filing of such supplement as though made at and as of such time (except that (i) the last day of the fiscal quarter for which financial statements of the Guarantor were last filed with 12 the Commission shall be substituted for the corresponding date in such certificate and (ii) such statements shall be deemed to relate to the Registration Statement and the Prospectus as amended and supplemented to the time of the effectiveness of such amendment or the filing of such supplement) or, in lieu of such certificate, a certificate of the same tenor as the certificate referred to in Section 5(e), but modified to relate to the last day of the fiscal quarter for which financial statements of the Guarantor were last filed with the Commission and to the Registration Statement and the Prospectus as amended and supplemented to the time of the effectiveness of such amendment or the filing of such supplement. (j) Each time that the Registration Statement or the Prospectus is amended or supplemented (other than by an amendment or supplement (i) relating to an offering of securities other than the Notes and related Guarantees, (ii) providing solely for the specification of the terms of the Notes (excluding (a) any change in the formula by which interest rates on the Notes may be determined and (b) any information relating to Specified Currencies other than U.S. dollars) or (iii) setting forth or incorporating by reference financial statements or other financial information as of and for a fiscal quarter, unless, in the case of clause (iii) above, in such Agent's reasonable judgment, such financial statements or other financial information are of such a nature that an opinion of counsel should be furnished) or there is filed with the Commission any document incorporated by reference into the Prospectus, the Company and the Guarantor shall furnish or cause to be furnished forthwith to such Agent the written opinion of the General Counsel of the Company and the Guarantor, or such other counsel satisfactory to such Agent, dated the date of the effectiveness of such amendment or the date of filing of such supplement, in form satisfactory to such Agent, covering all of the matters referred to in the opinions set forth in Sections 5(b) and 5(c) but modified to relate to the Registration Statement and the Prospectus as amended and supplemented to the time of the effectiveness of such amendment or the filing of such supplement or, in lieu of such opinion, counsel last furnishing such an opinion to such Agent may furnish a letter to the effect that such Agent may rely on such last opinion to the same extent as though it were dated the date of such letter authorizing reliance (except that statements in such last opinion will be deemed to relate to the Registration Statement and the Prospectus as amended and supplemented to the time of the effectiveness of such amendment or the filing of such supplement); provided, however, that, upon a reasonable request from such -------- ------- Agent, the Company and the Guarantor shall cause to be furnished forthwith to such Agent the written 13 opinion of Fried, Frank, Harris, Shriver & Jacobson, counsel to the Company and the Guarantor, dated the date of the effectiveness of such amendment or the date of filing of such supplement, in form satisfactory to such Agent, of the same tenor as the opinions referred to in Section 5(b) but modified to relate to the Registration Statement and the Prospectus as amended and supplemented to the time of the effectiveness of such amendment or the filing of such supplement. (k) Each time that the Registration Statement or the Prospectus is amended or supplemented to set forth amended or supplemental financial information or such amended or supplemental information is incorporated by reference in the Registration Statement or the Prospectus, the Company and the Guarantor shall cause Grant Thornton LLP, their independent public accountants, forthwith to furnish to such Agent a letter, dated the date of the effectiveness of such amendment or the date of filing of such supplement, in form satisfactory to such Agent, of the same tenor as the letter referred to in Section 5(f) with such changes as may be necessary to reflect the amended and supplemental financial information included or incorporated by reference in the Registration Statement and the Prospectus, as amended or supplemented to the date of such letter, provided that if the -------- Registration Statement or the Prospectus is amended or supplemented solely to include or incorporate by reference financial information as of and for a fiscal quarter, Grant Thornton LLP may limit the scope of such letter, which shall be satisfactory in form to such Agent, to the unaudited financial statements included in such amendment or supplement, unless any other information included or incorporated by reference therein of an accounting, financial or statistical nature is of such a nature that, in such Agent's reasonable judgment, such letter should cover such other information. (l) During the period, if any, specified in any Terms Agreement, the Company and the Guarantor shall not, without the prior consent of the Purchaser, issue or announce the proposed issuance of any debt securities of the Company or the Guarantor in a public offering or register any debt securities of the Company or the Guarantor under the Act in connection with any secondary distribution of such debt securities. 5. Conditions to the Obligations of the Agents. The obligations of any ------------------------------------------- Agent to solicit offers to purchase the Notes shall be subject to the accuracy of the representations and warranties on the part of the Company and the Guarantor contained herein as of the date hereof, as of the date of the effectiveness of any amendment to the Registration Statement (including the filing of any document incorporated by reference therein), as of 14 the date any supplement to the Prospectus is filed with the Commission and as of each Settlement Date, to the accuracy of the statements of the Company and the Guarantor made in any certificates pursuant to the provisions hereof, to the performance by the Company and the Guarantor of their respective obligations hereunder and to the following additional conditions: (a) No stop order suspending the effectiveness of the Registration Statement, as amended from time to time, shall have been issued, and no proceedings for that purpose shall have been instituted or threatened. (b) The Company and the Guarantor shall have furnished to the Agents the opinion or opinions of Fried, Frank, Harris, Shriver & Jacobson, counsel to the Company and the Guarantor, dated the date hereof, substantially as set forth below, with such additional qualifications and exceptions as shall be acceptable to the Agents and their counsel: (i) Each of the Company and the Guarantor is a corporation duly incorporated, validly existing and in good standing under the laws of the state of its incorporation and has the corporate power and authority to own its properties and to conduct its business as described in the Prospectus. (ii) The Company and the Guarantor have the corporate power and authority to enter into this Agreement and the Terms Agreement (if applicable), and this Agreement and the Terms Agreement (if applicable) have been duly and validly authorized, executed and delivered by the Company and the Guarantor, respectively. (iii) The form and general terms of the Notes have been duly and validly authorized and established in conformity with the provisions of the Indenture by all necessary corporate action by the Company, and when the particular terms of the Notes have been duly established in accordance with the provisions of the Indenture, the Procedures and the resolutions of the Board of Directors of the Company and such Notes have been duly executed, authenticated and delivered against payment therefor in accordance with the provisions of the Indenture, the Procedures and this Agreement, will constitute the legal, valid and binding obligations of 15 the Company, enforceable against the Company in accordance with their terms and the terms of the Indenture, and the holder of the Notes will be entitled to the benefits of the Indenture; and the Indenture has been duly authorized, executed and delivered by each of the Company and Guarantor, has been qualified under the Trust Indenture Act, and constitutes a legal, valid and binding obligation enforceable against each of the Company and the Guarantor in accordance with its terms. (iv) The Guarantees, in the forms certified to by an authorized officer of the Guarantor, have been duly and validly authorized by all necessary corporate action by the Guarantor and, upon due issuance, authentication and delivery of the related Notes and due endorsement of the Guarantees, the Guarantees will have been duly executed, issued and delivered and will constitute the legal, valid and binding obligations of the Guarantor enforceable against the Guarantor in accordance with their terms and the terms of the Indenture, and the holders of the Notes upon which the Guarantees are endorsed will be entitled to the benefits of the Indenture. (v) The Registration Statement has become effective under the Act; any required filing of the Prospectus, and any supplements thereto, pursuant to Rule 424(b) has been made in the manner and within the time period required by Rule 424(b); to the knowledge of such counsel, no stop order suspending the effectiveness of the Registration Statement has been issued, no proceedings for that purpose have been instituted or threatened and the Registration Statement and the Prospectus (other than (i) the financial statements and other financial and statistical information contained therein, (ii) the Statement of Eligibility on Form T-1 filed as an exhibit thereto and (iii) the "Incorporated Documents", as defined in paragraph (c)(vi) below, as to which such counsel need express no opinion) appear on their face to be responsive as to form in all material respects with the applicable requirements of the Act and the Rules and Regulations and the Trust Indenture Act and the rules and regulations of the Commission thereunder. (vi) No consent, approval, authorization or order of any United States federal or New York, California or, with respect to matters arising under the Delaware General Corporation Law, Delaware court or governmental agency or body is required for the consummation of the transactions contemplated by this Agreement or the Indenture, except such as have been obtained under the Act and such as may be required under the securities and blue sky laws, rules and regulations of any jurisdiction in connection with the purchase and distribu- 16 tion of the Notes and related Guarantees by the Agents and such other approvals (specified in such opinion) as have been obtained. (vii) Neither the issue and sale of the Notes (in the forms certified to by an authorized officer of the Company), the compliance by the Company and the Guarantor with all the provisions of this Agreement, the Indenture, the Notes or the Guarantees (in the form certified to by an authorized officer of the Guarantor), the consummation of the transactions herein or therein contemplated nor the fulfillment of the terms hereof or thereof will conflict with, result in a breach of, or constitute a default under the charter or bylaws of the Company or the Guarantor or the terms of any indenture or other agreement or instrument filed with the Commission and to which the Company or the Guarantor or any of the Guarantor's subsidiaries is a party or bound, or any order, decree, order, or regulation (other than any Federal or state securities or blue sky laws, rules or regulations) known to such counsel to be applicable to the Company or the Guarantor or any of the Guarantor's subsidiaries of any court, regulatory body, administrative agency, governmental body or arbitrator having jurisdiction over the Company or the Guarantor or any of the Guarantor's subsidiaries. (viii) To the best knowledge of such counsel, no holders of securities of the Company or the Guarantor have rights to the registration of such securities under the Registration Statement. (ix) Such counsel confirms (i) that the statements in the Prospectus under the caption "Certain Federal Income Tax Considerations", insofar as such statements constitute a summary of the legal matters referred to therein, fairly present the information disclosed therein in all material respects (ii) the conformity in all material respects of the Notes (in the forms certified to by an authorized officer of the Company) to the statements relating thereto in the Prospectus, and (iii) the accuracy in all material respects of the statements in the Prospectus under the captions "Description of Notes" and "Description of Debt Securities and Guarantees", insofar as such statements purport to describe the Indenture and the Guarantees. Such counsel shall also state that, in the course of their engagement to represent or advise the Company and the Guarantor professionally, they have not become aware of any pending legal proceeding before any court or administrative agency or authority or any arbitration tribunal, nor have they devoted substantive attention in the form of legal representation as to any current 17 overtly threatened litigation against or directly affecting the Company or its subsidiaries or the Guarantor or its subsidiaries, in each case that is required to be described in the Registration Statement or the Prospectus and is not so described. In making the foregoing statement, they shall endeavor, to the extent they believe necessary, to determine from lawyers currently in their firm who have performed substantive legal services for the Company or the Guarantor, whether such services involved substantive attention in the form of legal representation concerning pending legal proceedings or overtly threatened litigation of the nature referred to above. Beyond that, they need not make any review, search or investigation of public files or records or files or records of the Company or the Guarantor, or of their respective transactions, or any other investigation or inquiry with respect to the foregoing statement. Such counsel shall also state that in the course of the preparation by the Company, the Guarantor and their counsel of the Registration Statement and Prospectus (other than the Incorporated Documents), such counsel attended conferences with certain of the officers of, and the independent public accountants for, the Company and the Guarantor, at which the Registration Statement and Prospectus were discussed. Given the limitations inherent in the independent verification of factual matters and the character of determinations involved in the registration process, such counsel need not pass upon and need not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement and Prospectus including the Incorporated Documents, except as specifically described in the opinion set forth in paragraph (ix) above. Subject to the foregoing and on the basis of the information such counsel gained in the performance of the services referred to above, including information obtained from officers and other representatives of the Company and Guarantor, such counsel shall state that no facts have come to such counsel's attention that has caused it to believe that the Registration Statement, at the time it became effective or at the time an Annual Report on Form 10-K was filed (whichever is later), contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading, or that the Prospectus, at its date or at the date hereof, included or includes, as the case may be, any untrue statement of material fact or omitted or omits, as the case may be, to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that such counsel need not express a view or belief with respect to (i) the financial statements or other financial and statistical information included or incorporated by reference in the Registration Statement and Prospectus or (ii) that part of the Registration Statement which shall constitute the Statement of Eligibility on Form T-1 under the Trust Indenture Act. 18 References to the Prospectus in this Section 5(b) include any amendments or supplements thereto at the date hereof. In rendering such opinion, such counsel may rely (A) as to matters involving the application of laws of any jurisdiction other than the State of California, the State of New York, the State of Delaware (but only with respect to the Delaware General Corporation Law) or the United States, to the extent they deem proper and specified in such opinion, upon the opinion of other counsel of good standing whom they believe to be reliable and who are satisfactory to counsel for the Agents and (B) as to matters of fact, to the extent they deem proper, on certificates of responsible officers of the Company, the Guarantor and public officials. In rendering the opinions set forth in paragraphs (iii) and (iv), such counsel may state that such opinions are subject to the following: (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other laws now or hereafter in effect affecting creditors' rights generally; and (ii) general principles of equity (including, without limitation, standards of materiality, good faith, fair dealing and reasonableness) whether such principles are considered in a proceeding in equity or at law. In rendering the opinions set forth in paragraphs (iii) and (iv), such counsel may state that enforceability of Section 311 of the Indenture is subject to the qualification that an action under New York law based upon an obligation payable in a currency or currency unit other than U.S. dollars will be rendered in the foreign currency or currency unit of the underlying obligation and converted into U.S. dollars at a rate of exchange prevailing on the date of the entry of the judgment or decree. (c) The Company and the Guarantor shall have furnished to the Agents the opinion or opinions of Sandor E. Samuels, General Counsel of the Company and the Guarantor, dated the date hereof, substantially as set forth below, with such additional qualifications and exceptions as shall be acceptable to the Agents and their counsel: (i) Each Subsidiary, if any, is a corporation, duly incorporated, validly existing and in good standing under the laws of the state of its incorporation, with the corporate power and authority to own its properties and to conduct its business as described in the Prospectus. (ii) Each of the Company, the Guarantor and the Subsidiaries is duly qualified to do business as a foreign corporation and is in good standing under the laws of each jurisdiction which requires such qualification wherein it owns or leases material properties or conducts material business other than jurisdictions in which the failure to so qualify, when considered in the aggregate and not individually, would not have a material adverse effect on the Company or the Guarantor and its Subsidiaries considered as one enterprise. (iii) All the outstanding shares of capital stock of the Company and each Subsidiary have been duly and 19 validly authorized and issued and are fully paid and nonassessable, and, except as otherwise set forth in the Prospectus, all outstanding shares of capital stock of the Company and the Subsidiaries are owned by the Guarantor either directly or through wholly owned subsidiaries free and clear of any perfected security interest and, to the knowledge of such counsel, after due inquiry, any other security interests, claims, liens or encumbrances. (iii) The outstanding shares of common stock of the Guarantor have been duly and validly authorized and issued and are fully paid and nonassessable. (iv) Neither the issue and sale of the Notes, the compliance by the Company and the Guarantor with all the provisions of this Agreement, the Indenture, the Notes or the Guarantees, the consummation of any other of the transactions herein or therein contemplated nor the fulfillment of the terms hereof or thereof will conflict with, result in a breach of, or constitute a default under the charter or by-laws of the Company or the Guarantor or, to the knowledge of such counsel, the terms of any indenture or other agreement or instrument to which the Company or the Guarantor or any of the Guarantor's subsidiaries is a party or bound, or any order, decree, law, judgment, rule or regulation known to such counsel to be applicable to the Company or the Guarantor or any of the Guarantor's subsidiaries of any court, regulatory body, administrative agency, governmental body or arbitrator having jurisdiction over the Company or the Guarantor or any of the Guarantor's subsidiaries. (v) The documents (the "Incorporated Documents") incorporated by reference in the Registration Statement and Prospectus (except for the financial statements and other financial or statistical data, as to which no opinion need be expressed), as of the dates they were filed with the Commission, complied as to form in all material respects to the requirements of the Act and the Rules and Regulations and the Exchange Act and the rules and regulations of the Commission thereunder. (vi) No consent, approval, authorization or order of any court or governmental agency or body is required for the consummation of the transactions contemplated by this Agreement or the Indenture, except such as have been obtained under the Act and such as may be required under the securities and blue sky laws of any jurisdiction in connection with the purchase and distribution of the Notes and related Guarantees by the Agents and such other 20 approvals (specified in such opinion) as have been obtained. (d) Such Agent shall have received from Brown & Wood, counsel for the Agents, such opinion or opinions, dated the date hereof, with respect to the issuance and sale of the Notes and related Guarantees, this Agreement, the Indenture, the Registration Statement, the Prospectus and other related matters as such Agent may reasonably require, and the Company and the Guarantor shall have furnished to such counsel such documents as they request for the purpose of enabling them to pass upon such matters. (e) The Company and the Guarantor shall have each furnished to such Agent a certificate of its President, a Managing Director or a Vice President and its Treasurer or an Assistant Treasurer, dated the date hereof, to the effect that the signers of such certificate have carefully examined the Registration Statement, the Prospectus and this Agreement and that: (i) the representations and warranties of the Company or the Guarantor, as the case may be, in this Agreement are true and correct in all material respects on and as of the date hereof with the same effect as if made on the date hereof, and the Company or the Guarantor, as the case may be, has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied as a condition to the obligation of such Agent to solicit offers to purchase the Notes; (ii) no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or, to the knowledge of the Company or the Guarantor, as the case may be, threatened; and (iii) since the date of the most recent financial statements included or incorporated in the Prospectus, there has been no material adverse change in the condition (financial or otherwise), earnings, business or properties of the Company or the Guarantor and its subsidiaries considered as a whole, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Prospectus. (f) On the date hereof, Grant Thornton LLP shall have furnished to such Agent a letter or letters (which may refer to letters previously delivered to such Agent), dated as of the date hereof, in form and substance satisfactory to such 21 Agent, confirming that they are independent accountants within the meaning of the Act and the Exchange Act and the respective applicable published rules and regulations thereunder and stating in effect that: (i) in their opinion the audited consolidated financial statements and financial statement schedules included or incorporated in the Registration Statement and the Prospectus and reported on by them comply as to form in all material respects with the applicable accounting requirements of the Act and the Exchange Act and the related published rules and regulations; (ii) on the basis of a reading of the latest unaudited consolidated financial statements made available to them; carrying out certain specified procedures (but not an examination in accordance with generally accepted auditing standards) which would not necessarily reveal matters of significance with respect to the comments set forth in such letter; a reading of the minutes of the meetings of the stockholders, directors and standing committees thereof; and inquiries of certain officials who have responsibility for financial and accounting matters as to transactions and events subsequent to the date of the most recent audited financial statements included or incorporated in the Prospectus, nothing came to their attention which caused them to believe that: (1) any unaudited financial statements included or incorporated in the Registration Statement and the Prospectus do not comply as to form in all material respects with applicable accounting requirements of the Exchange Act as they apply to quarterly reports on Form 10-Q or that any material modifications should be made to said unaudited financial statements for them to be in conformity with generally accepted accounting principles; (2) with respect to the period subsequent to the date of the most recent financial statements (other than any capsule information), audited or unaudited, in or incorporated in the Registration Statement and the Prospectus, there was any change, at a specified date not more than five business days prior to the date of the letter, in the capital stock or long and intermediate term debt of the Company or the Guarantor and its subsidiaries taken as a whole or any decreases in the shareholders' equity or consolidated net assets as compared with the amounts shown on the 22 most recent consolidated balance sheet included or incorporated in the Registration Statement and the Prospectus, or for the period from the date of the most recent financial statements included or incorporated in the Registration Statement and the Prospectus to such specified date there were any decreases, as compared with the corresponding period in the preceding year in consolidated revenues (net of interest charges), earnings before income taxes or net earnings of the Company or the Guarantor and its subsidiaries, except in all instances for changes or decreases set forth in such letter; or (3) the amounts included in any unaudited "capsule" information included or incorporated in the Registration Statement and the Prospectus do not agree with the amounts set forth in the unaudited financial statements for the same periods or were not determined on a basis substantially consistent with that of the corresponding amounts in the audited financial statements included or incorporated in the Registration Statement and the Prospectus; (iii) they have performed certain other specified procedures as a result of which they determined that certain information of an accounting, financial or statistical nature set forth in the Registration Statement and the Prospectus and in Exhibit 12 to the Registration Statement, the information included or incorporated in Items 1, 2, 6, 7 and 11 of the Guarantor's Annual Report on Form 10-K (and, if filed, the Company's Annual Report on Form 10-K), incorporated in the Registration Statement and the Prospectus and the information included in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" included or incorporated in the Company's or the Guarantor's Quarterly Reports on Form 10-Q incorporated in the Registration Statement and the Prospectus, agrees with the accounting records of the Company, the Guarantor and their respective subsidiaries, excluding any questions of legal interpretation; and (iv) if pro forma financial statements are included or incorporated in the Registration Statement and the Prospectus, on the basis of a reading of the unaudited pro forma financial statements, carrying out certain specified procedures, inquiries of certain officials of the Company or the Guarantor, as the case may be, who have responsibility for financial and 23 accounting matters, and proving the arithmetic accuracy of the application of the pro forma adjustments to the historical amounts in the pro forma financial statements, nothing came to their attention which caused them to believe that the pro forma financial statements do not comply in form in all material respects with the applicable accounting requirements of Rule 11-02 of Regulation S-X or that the pro forma adjustments have not been properly applied to the historical amounts in the compilation of such statements. References to the Registration Statement and the Prospectus in this paragraph (f) are to such documents as amended and supplemented at the date of the letter. (g) Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus (as amended or supplemented, in the case of a Terms Agreement) there shall not have been (i) any change or decrease specified in the letter or letters referred to in paragraph (f) of this Section 5 or (ii) any change, or any development involving a prospective change, in or affecting the business or properties of the Company, the Guarantor and their respective subsidiaries the effect of which, in any case referred to in clause (i) or (ii) above, is, in the judgment of such Agent, so material and adverse as to make it impractical or inadvisable to proceed with the soliciting of offers to purchase the Notes as contemplated by the Registration Statement and the Prospectus (or, in the case of a Terms Agreement, to proceed with the offering or the delivery of the Notes to be purchased as contemplated by the Terms Agreement). (h) Prior to the date hereof, the Company and the Guarantor shall have furnished to such Agent such further information, certificates and documents as such Agent may reasonably request. (i) Prior to the date hereof, the Notes shall have been rated, and on the date hereof the Notes shall be rated, at least [BBB+] by Standard & Poor's Corporation ("S&P") and [Baa3] by Moody's Investors Service, Inc. ("Moody's"). (j) Subsequent to the execution of this Agreement (i) the Company and the Guarantor have not received notice that S&P or Moody's intends to reduce, or is considering a reduction in, the ratings of any of their debt securities unless such intention to so reduce or consideration of such a reduction is then publicly known and (ii) the debt securities of the Company and the Guarantor shall be rated as investment grade debt by S&P and Moody's. 24 If any of the conditions specified in this Section 5 shall not have been fulfilled in all material respects when and as provided in this Agreement, or if any of the opinions and certificates mentioned above or elsewhere in this Agreement shall not be in all material respects reasonably satisfactory in form and substance to such Agent and its counsel, this Agreement and all obligations of such Agent hereunder may be canceled at any time by such Agent. Notice of such cancellation shall be given to the Company and the Guarantor in writing or by telephone or telegraph confirmed in writing. The documents required to be delivered by this Section 5 shall be delivered to the office of Fried, Frank, Harris, Shriver & Jacobson, One New York Plaza, New York, New York 10004, or such other location as shall be mutually agreed upon, on the date hereof. 6. Conditions to the Obligations of a Purchaser. The obligations of a -------------------------------------------- Purchaser to purchase Notes pursuant to any Terms Agreement will be subject to the accuracy of the representations and warranties on the part of the Company and the Guarantor herein as of the date of the respective Terms Agreement and as of the Purchase Date thereunder, to the performance and observance by the Company and the Guarantor of all covenants and agreements herein contained on its part to be performed and observed and to the following additional conditions precedent: (a) No stop order suspending the effectiveness of the Registration Statement, as amended from time to time, shall have been issued and no proceedings for that purpose shall have been instituted or threatened. (b) Except to the extent modified by the respective Terms Agreement, the Purchaser shall have received, appropriately updated in a manner consistent with Section 5 hereof, (i) certificates of the Company and the Guarantor, dated as of the Purchase Date, to the effect set forth in Section 5(e), (ii) the opinion or opinions of Fried, Frank, Harris, Shriver & Jacobson, counsel to the Company and the Guarantor, dated as of the Purchase Date, to the effect set forth in Section 5(b), (iii) the opinion or opinions of Sandor E. Samuels, General Counsel to the Company and the Guarantor, dated as of the Purchase Date, to the effect set forth in Section 5(c), (iv) the opinion or opinions of Brown & Wood, counsel for the Purchaser, dated as of the Purchase Date, to the effect set forth in Section 5(d) and (v) letter of Grant Thornton LLP, dated as of the Purchase Date, to the effect set forth in Section 5(f). (c) The conditions set forth in Section 5(g) shall have been satisfied. 25 (d) Prior to the Purchase Date, the Company and the Guarantor shall have furnished to the Purchaser such further information, certificates and documents as the Purchaser may reasonably request. (e) Prior to and at the Purchase Date, the Notes shall have been rated at least [BBB+] by S&P and [Baa3] by Moody's. (f) Subsequent to the execution of any Terms Agreement, (i) the Company and the Guarantor have not received notice that S&P or Moody's intends to reduce, or is considering a reduction in the ratings of any of the debt securities of the Company or the Guarantor unless S&P's or Moody's intention to so reduce or consideration of such a reduction is then publicly known and (ii) the debt securities of the Company and the Guarantor shall be rated as investment grade debt by S&P and Moody's. If any of the conditions specified in this Section 6 shall not have been fulfilled in all material respects when and as provided in this Agreement, or if any of the opinions and certificates mentioned above or elsewhere in this Agreement shall not be in all material respects reasonably satisfactory in form and substance to the Purchaser and its counsel, this Agreement and all obligations of the Purchaser hereunder may be canceled at, or at any time prior to, the respective Purchase Date by the Purchaser. Notice of such cancellation shall be given to the Company or the Guarantor in writing or by telephone or telegraph confirmed in writing. 7. Reimbursement of the Agent's Expenses. If any condition to the ------------------------------------- obligations of any Agent set forth in Section 5 hereof is not satisfied, if any condition to the obligations of a Purchaser set forth in Section 6 hereof is not satisfied, if any termination pursuant to Section 9 hereof shall occur or in the case of any refusal, inability or failure on the part of the Company or the Guarantor to perform any agreement herein or comply with any provision hereof other than by reason of a default by an Agent, the Company and the Guarantor will reimburse such Agent upon demand for all expenses that shall have been incurred by such Agent pursuant to Section 4(g) hereof in connection with this Agreement. 8. Indemnification and Contribution. (a) The Company and the Guarantor, -------------------------------- jointly and severally, agree to indemnify and hold harmless each Agent and each person who controls such Agent within the meaning of either the Act or the Exchange Act against any and all losses, claims, damages or liabilities, joint or several, to which such Agent or any of them may become subject under the Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise, insofar 26 as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement for the registration of the Notes as originally filed or in any amendment thereof, or in the Prospectus or any preliminary Prospectus, or in any amendment thereof or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and agrees to reimburse each such indemnified party, as incurred, for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that (i) the -------- ------- Company and the Guarantor will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Company or the Guarantor by or on behalf of such Agent specifically for use in connection with the preparation thereof, and (ii) such indemnity with respect to any preliminary Prospectus or any Prospectus as supplemented or amended shall not inure to the benefit of any Agent (or any person controlling such Agent) from whom the person asserting any such loss, claim, damage or liability purchased the Notes which are the subject thereof if such Agent (or any person controlling such Agent) received a copy of such Prospectus (or such Prospectus as so amended or supplemented) and if such person did not receive a copy of the Prospectus (or the Prospectus as amended or supplemented) excluding documents incorporated therein by reference at or prior to the confirmation of the sale of such Notes to such person in any case where such delivery is required by the Act and the untrue statement or omission or the alleged untrue statement or omission was corrected in the Prospectus (or the Prospectus as amended or supplemented). This indemnity agreement will be in addition to any liability which the Company or the Guarantor may otherwise have. (b) Each Agent agrees to indemnify and hold harmless the Company and the Guarantor, their respective directors, each of their officers who sign the Registration Statement, and each person who controls the Company or the Guarantor within the meaning of either the Act or the Exchange Act, to the same extent as the foregoing indemnity from the Company and the Guarantor to such Agent, but only with reference to written information relating to such Agent furnished to the Company or the Guarantor by or on behalf of such Agent specifically for use in the preparation of the documents referred to in the foregoing indemnity. This indemnity agreement will be in addition to any liability which such Agent may otherwise have. The Company and the Guarantor acknowledge that the statements set forth in the last paragraph of the cover page and under the heading "Plan of Distribution" in any preliminary Prospectus and the Prospectus constitute the only information furnished in writing by or on 27 behalf of such Agent for inclusion in the documents referred to in the foregoing indemnity, and you confirm that such statements are correct. (c) Promptly after receipt by an indemnified party under this Section 8 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 8, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under this Section 8. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein, and to the extent that it may elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof, with counsel satisfactory to such indemnified party; provided, -------- however, that if the defendants in any such action include both the indemnified - ------- party and the indemnifying party, and the indemnified party shall have reasonably concluded that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, the indemnified party or parties shall have the right to select separate counsel to assert such legal defenses and to otherwise participate in the defense of such action on behalf of such indemnified party or parties. Upon receipt of notice from the indemnifying party to such indemnified party of its election so to assume the defense of such action and approval by the indemnified party of counsel, the indemnifying party will not be liable to such indemnified party under this Section 8 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof, unless (i) the indemnified party shall have employed separate counsel in connection with the assertion of legal defenses in accordance with the proviso to the next preceding sentence (it being understood, however, that the indemnifying party shall not be liable for the expenses of more than one separate counsel, approved by the Agents in the case of paragraph (a) of this Section 8, representing the indemnified parties under such paragraph (a) who are parties to such action), (ii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of commencement of the action or (iii) the indemnifying party has authorized the employment of counsel for the indemnified party at the expense of the indemnifying party; and except that, if clause (i) or (iii) is applicable, such liability shall be only in respect of the counsel referred to in such clause (i) or (iii). 28 (d) If the indemnification provided for in this Section 8 is unavailable to or insufficient to hold harmless an indemnified party under subsection (a) or (b) above in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable to such indemnified party as a result of such losses, claims, damages, or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Guarantor on the one hand and each Agent on the other from the offering of the Notes to which such loss, claim, damage or liability (or action in respect thereof) relates. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law or if the indemnified party failed to give the notice required under subsection (c) above, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company and the Guarantor on the one hand and each Agent on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company and the Guarantor on the one hand and each Agent on the other shall be deemed to be in the same proportion as the total net proceeds from such offering (before deducting expenses) received by the Company bear to the total commissions received by each Agent. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Guarantor on the one hand or any Agent on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, the Guarantor and each Agent agree that it would not be just and equitable if contribution pursuant to this subsection (d) were determined by pro rata allocation (even if the Agents were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this subsection (d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages, or liabilities (or actions in respect thereof) referred to above in this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (d), no Agent shall be required to contribute any amount in excess of the amount by which the total price at which Notes sold by it exceeds the amount of any damages which such Agent has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No 29 person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The obligations of the Agents in this subsection (d) to contribute are several in proportion to their respective underwriting obligations with respect to such Notes and not joint. 9. Termination. This Agreement will continue in effect until terminated ----------- as provided in this Section 9. (a) This Agreement may be terminated by either the Company or any Agent giving written notice of such termination to the other party hereto. This Agreement shall so terminate at the close of business on the first business day following the receipt of such notice by the party to whom such notice is given. This Agreement may be terminated as to one or more of the Agents, and to the extent not terminated with respect to any Agent, this Agreement shall remain in full force and effect as between the Company and any such Agent. In the event of such termination, no party shall have any liability to the other party hereto, except as provided in the fourth paragraph of Section 2(a), Section 4(g), Section 7, Section 8 and Section 10. (b) Each Terms Agreement shall be subject to termination in the absolute discretion of the Purchaser, by notice given to the Company and the Guarantor prior to delivery of and payment for Notes to be purchased thereunder, if prior to such time (i) trading in securities generally, or in the securities of the Guarantor, on the New York Stock Exchange shall have been suspended or limited or minimum prices shall have been established on such exchange, (ii) a banking moratorium shall have been declared by either federal or New York State authorities or, in the case of Notes denominated in other than U.S. dollars, by the authorities of the country of the currency in which such Notes are so denominated or (iii) there shall have occurred any outbreak or material escalation of hostilities or other calamity or crisis the effect of which on the financial markets of the United States or in the country or countries of origin of any foreign currency or currency unit in which the Notes are denominated, indexed or payable is such as to make it, in the judgment of the Purchaser, impracticable to market such Notes. 10. Representations and Indemnities to Survive. The respective ------------------------------------------ agreements, representations, warranties, indemnities and other statements of the Company, the Guarantor or any of their officers and of each Agent set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of such Agent or the 30 Company, the Guarantor or any of their officers, directors or controlling persons referred to in Section 8 hereof, and will survive delivery of and payment for the Notes. The provisions of Sections 7 and 8 hereof shall survive the termination or cancellation of this Agreement. 11. Right of Person Who Agreed to Purchase to Refuse to Purchase. The ------------------------------------------------------------ Company and the Guarantor agree that any person who has agreed to purchase and pay for any Note, including a Purchaser and any person who purchases pursuant to a solicitation by any of the Agents, shall have the right to refuse to purchase such Note if, at the Settlement Date therefor, either (a) any condition set forth in Section 5 or 6, as applicable, shall not be satisfied or (b) subsequent to the agreement to purchase such Note, any change, or any development involving a prospective change, in or affecting the business or properties of the Company or the Guarantor and its subsidiaries shall have occurred the effect of which is, in the reasonable judgment of the Purchaser or the Agent which presented the offer to purchase such Note, as applicable, so material and adverse as to make it impractical or inadvisable to proceed with the delivery of such Note. 12. Notices. All communications hereunder will be in writing and ------- effective only on receipt, and, if sent to an Agent, will be mailed, delivered or telegraphed and confirmed to such Agent, at the address specified in Schedule 1 hereto; or, if sent to the Company, will be mailed, delivered or telegraphed and confirmed to it at 155 North Lake Avenue, Pasadena, California 91101, Attention: Chairman of the Board of Directors. 13. Successors. This Agreement will inure to the benefit of and be ---------- binding upon the parties hereto and their respective successors and the officers and directors and controlling persons referred to in Section 8 hereof, and no other person will have any right or obligation hereunder. 14. Applicable Law. This Agreement will be governed by and construed in -------------- accordance with the laws of the State of New York applicable to agreements made and to be performed in said State. 31 If the foregoing is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicate hereof, whereupon this letter and the acceptance by each of you shall represent a binding agreement among the Company, the Guarantor and each of you. Very truly yours, COUNTRYWIDE FUNDING CORPORATION By:____________________________________ Title: COUNTRYWIDE CREDIT INDUSTRIES, INC. By:____________________________________ Title: The foregoing Agreement is hereby confirmed and accepted as of the date hereof. ____________________ By:_________________ Title: ____________________ By:_________________ Title: ____________________ By:_________________ Title: 32 SCHEDULE 1 Selling Agency Agreement dated ___________, 1995 Unless otherwise agreed between the Company and such Agent, the Company agrees to pay any Agent a commission equal to the following percentage of the principal amount of each Note sold by such Agent:
Term Commission Rate (a) ---- --------------- From 9 months to less than 1 year ...................... --% From 1 year to less than 18 months...................... --% From 18 months to less than 2 years..................... --% From 2 years to less than 3 years....................... --% From 3 years to less than 4 years....................... --% From 4 years to less than 5 years....................... --% From 5 years to less than 6 years....................... --% From 6 years to less than 7 years....................... --% From 7 years to less than 10 years...................... --% From 10 years to less than 15 years..................... --% From 15 years to less than 20 years..................... --% From 20 years up to and including 30 years (b).......... --%
(a) With respect to each Note that is an Original Issue Discount Note (as defined in the Indenture), the commission payable to each Agent with respect to each such Note sold as a result of a solicitation made by such Agent shall be based on the purchase price of such Note, rather than on the principal amount of such Note. (b) Commissions for Notes with terms in excess of 30 years will be agreed upon by the Company and the related Agent at the time of sale. Addresses for Notices to Agents: 33 EXHIBIT A COUNTRYWIDE FUNDING CORPORATION MEDIUM-TERM NOTE ADMINISTRATIVE PROCEDURES ___________, 1995 Medium-Term Notes, Series __, Due Nine Months or More From Date of Issue (the "Notes") are to be offered on a continuing basis by Countrywide Funding Corporation (the "Company"). _______________ (including its affiliate ______________), _______________, _______________, and _______________ (individually, an "Agent", and collectively, the "Agents"), have agreed to solicit purchases of the Notes. The Agents will not be obligated to purchase Notes as principal. The Notes are being sold pursuant to a Selling Agency Agreement among the Company, Countrywide Credit Industries, Inc. (the "Guarantor") and the Agents dated __________, 1995 (the "Agency Agreement"). The Notes will be unconditionally guaranteed as to payment of principal, premium, if any, and interest by the Guarantor (the "Guarantees"). The Notes will rank equally with all other unsecured and unsubordinated debt of the Company and have been registered with the Securities and Exchange Commission (the "Commission"). Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Indenture referred to below. Each Note and related Guarantee will be issued under an Indenture dated as of January 1, 1992, as supplemented by Supplemental Indenture No. 1 thereto dated as of June 15, 1995 (collectively, the "Indenture"), among the Company, the Guarantor and The Bank of New York, as trustee (the "Trustee"). The Notes will bear interest at either fixed rates ("Fixed Rate Notes") or floating rates ("Floating Rate Notes"). Each Note will be represented by either a certificate delivered to the Holder thereof or a Person designated by such Holder (a "Certificated Note") or a Global Security (as defined hereinafter) delivered to the Trustee, as agent for The Depository Trust Company ("DTC"), and recorded in the book-entry system maintained by DTC (a "Book-Entry Note"). An owner of a Book-Entry Note will not be entitled to receive a certificate representing such Note except in the limited circumstances described in the Prospectus (as defined in the Agency Agreement). The procedures to be followed during, and the specific terms of, the solicitation of offers by the Agents and the sale as a result thereof by the Company are explained below. Certificated Notes will be issued in accordance with the administrative procedures set forth in Part I hereof and Book-Entry Notes will A-1 be issued in accordance with the administrative procedures set forth in Part II hereof. The Company will advise each Agent and the Trustee in writing of those persons handling administrative responsibilities with whom the Agents and the Trustee are to communicate regarding offers to purchase Notes and the details of their delivery. Administrative procedures and specific terms of the offering are explained below. To the extent the procedures set forth below conflict with the provisions of the Notes, the Indenture or the Agency Agreement, the relevant provisions of the Notes, the Indenture and the Agency Agreement shall control. PART I: ADMINISTRATIVE PROCEDURES FOR CERTIFICATED NOTES Maturities: Each Certificated Note will mature on a date (the - ---------- "Stated Maturity Date") nine months or more after the date of delivery by the Company of such Certificated Note (the "Settlement Date"), subject to any applicable provisions relating to redemption or repayment or the extension of maturity. Price to Public: Each Certificated Note will be issued at the percentage - --------------- of principal amount specified in the Prospectus. Currencies: The Certificated Notes will be denominated in U.S. - ---------- dollars or in such other currency or currency unit as is specified in the Prospectus (the "Specified Currency"). Denominations: Except as set forth in the Certificated Note, the - ------------- denomination of any Certificated Note will be a minimum U.S.$100,000 or any amount in excess thereof which is an integral multiple of U.S.$1,000 or the equivalent, as determined pursuant to the provisions of the Indenture, of U.S.$100,000 and any amount in excess thereof which is an integral multiple of U.S.$1,000 in a Specified Currency other than U.S. dollars. Registration: Certificated Notes will be issued only in fully - ------------ registered form. Interest Payments: Except as set forth in the Certificated Note, each - ----------------- Certificated Note which is a A-2 Fixed Rate Note will bear interest from the Settlement Date of such Certificated Note at the annual rate stated on the face thereof, payable semiannually on January 15 and July 15 of each year (each, an "Interest Payment Date") and on the Stated Maturity Date or date of earlier redemption or repayment (such date is herein referred to as the "Maturity Date" with respect to the principal repayable on such date), and each Certificated Note which is a Floating Rate Note will bear interest as determined in the manner set forth on the face thereof, payable on the dates set forth on the face thereof. Unless otherwise specified on the face thereof, interest (including payments for partial periods) on Fixed Rate Notes will be calculated on the basis of a 360-day year of twelve 30-day months. Interest on Floating Rate Notes will be determined in the manner agreed upon by the Company and the purchaser thereof in accordance with the provisions of the Prospectus. Except as set forth in the Certificated Note, the "Record Date" with respect to any Interest Payment Date for Floating Rate Notes shall be the date 15 calendar days immediately preceding such Interest Payment Date, and for Fixed Rate Notes shall be the December 31 or June 30 next preceding such Interest Payment Date, whether or not such date shall be a Business Day, as defined in the Prospectus. The first payment of interest on any Certificated Note originally issued between a Record Date and an Interest Payment Date will be made on the Interest Payment Date following the next Record Date to the Holder on such next succeeding Record Date. Notwithstanding the record date provisions above, interest payable on the Maturity Date will be payable to the person to whom principal shall be payable. Interest on the Certificated Notes will be paid in the Specified Currency by mailing a check (from an account at a bank located outside of the United States if such check is payable in a Specified Currency other than U.S. A-3 dollars) to the Holder at the address of such Holder appearing on the Security Register on the applicable Record Date; provided, however, that a Holder of -------- ------- U.S.$10,000,000 (or the equivalent thereof in a Specified Currency other than U.S. dollars) or more in aggregate principal amount of Notes (whether or not having identical terms and provisions) shall be entitled: (i) if the Specified Currency is U.S. dollars, to receive U.S. dollar payments by wire transfer of immediately available funds to an account maintained by the payee with a bank located in the United States, but only if appropriate wire transfer instructions have been received in writing by the Trustee not later than the Record Date immediately preceding the applicable Interest Payment Date, and (ii) if the Specified Currency is other than U.S. dollars, to receive by wire transfer of immediately available funds to an account maintained by the payee with a bank located in a jurisdiction in which payment in such Specified Currency is then lawful. Within ten days following each Record Date, the Trustee will inform the Company of the total amount of the interest payments to be made by the Company on the next succeeding Interest Payment Date and the currencies or currency units in which such interest payments are to be made. The Trustee will provide monthly to the Company a list of the principal and interest to be paid on Certificated Notes maturing in the next succeeding month. Procedure for The Company and the Agents will discuss from time to - ------------- Rate Setting time the aggregate principal amount of, the issuance - ------------ and Posting: price of, and the interest rates to be borne by, - ----------- Certificated Notes that may be sold as a result of the solicitation or offers by the Agents. If the Company decides to establish prices of (including the currency of issuance), and rates borne by, any Certificated Notes to be sold (the establishment of such prices and rates to be referred to herein as "posting") A-4 or if the Company decides to change prices or rates previously posted by it, it will promptly advise the Agents of the prices and rates to be posted. Acceptance Unless otherwise agreed between the Company and such - ---------- Agent, any Agent which receives an offer to purchase of Offers: Certificated Notes will promptly advise the Company of - --------- each such offer other than offers rejected by such Agent as provided below. The Company will have the sole right to accept any such offer to purchase Certificated Notes. The Company may reject any such offer in whole or in part. Unless otherwise agreed between the Company and any Agent, each Agent may, in its discretion reasonably exercised, reject any offer to purchase Certificated Notes received by it in whole or in part. Preparation If any offer to purchase a Certificated Note is - ----------- accepted by or on behalf of the Company, the of Pricing Company and the Guarantor, with the approval of the - ---------- Agents, will prepare a Pricing Supplement reflecting Supplement: the terms of such Certificated Note and will arrange to - ---------- have requisite copies of such Pricing Supplement filed with the Commission, in each case no later than the fifth business day after the date it is first used and will supply at least ten copies thereof (or additional copies if requested) to the Agents and one copy to the Trustee no later than 11:00 A.M., New York City time, on the Business Day following the date of acceptance at the following applicable address (unless otherwise specified in the applicable trading confirmation):_____ _______________________________________________________ _______________________________________________________ _______________________________________________________ _______________________________________________________ ________________________________________ ; and if to the Trustee, to The Bank of New York, 101 Barclay Street, New York, New York 10286, attention of Corporate Trust Office. Such Agent will cause a A-5 Pricing Supplement to be delivered to the purchaser of the Certificated Note. In all respects, the Company and the Guarantor will prepare and file each such Pricing Supplement in accordance with Rule 424 under the Act. In each instance that a Pricing Supplement is prepared, each Agent will affix the Pricing Supplement to Prospectus Supplements prior to their use. Outdated Pricing Supplements, and the Prospectus Supplements to which they are attached (other than those retained for files), will be destroyed. Suspension of The Company reserves the right, in its sole discretion, - ------------- to instruct the Agents to suspend at any time, for any Solicitation; period of time or permanently, the solicitation of - ------------- offers to purchase Certificated Notes. As soon as Amendment or practicable, but in no event later than one Business - ------------ Day after receipt of instructions from the Company, Supplement: the Agents will suspend solicitation of offers to - ---------- purchase Certificated Notes from the Company until such time as the Company has advised them that such solicitation may be resumed. If the Company or the Guarantor decides to amend or supplement the Registration Statement or the Prospectus relating to the Notes (except in the case of a Pricing Supplement to the Prospectus), the Company or the Guarantor, as the case may be, will promptly advise the Agents and the Trustee and will furnish the Agents and the Trustee with the proposed amendment or supplement in accordance with the terms of the Agency Agreement. The Company or the Guarantor will mail or transmit to the Commission for filing therewith any supplement to the Prospectus relating to the Notes, provide the Agents with copies of any supplement, and confirm to the Agents that such supplement has been filed with the Commission. In the event that at the time the Company suspends solicitation of offers A-6 to purchase Certificated Notes there shall be any outstanding offers to purchase Certificated Notes that have been accepted by the Company but for which settlement has not yet occurred, the Company will promptly advise the Agents and the Trustee whether such sales may be settled and whether copies of the Prospectus as supplemented to the time of the suspension may be delivered in connection with the settlement of such sales. The Company will have the sole responsibility for such decision and for any arrangements which may be made in the event that the Company determines that such sales may not be settled or that copies of such Prospectus may not be so delivered. Delivery of Each Agent shall, for each offer to purchase a - ----------- Certificated Note that is solicited by such Agent and Prospectus: accepted by the Company, deliver a copy of the - ---------- Prospectus as most recently amended or supplemented with the earlier of the delivery of the confirmation of sale of the Certificated Note to the purchaser thereof or such purchaser's agent. Confirmation: For each offer to purchase a Certificated Note - ------------ solicited by any Agent and accepted by the Company, such Agent will issue a confirmation to the purchaser, with a copy to the Company, setting forth the details set forth above and delivery and payment instructions. Settlement: The Settlement Date with respect to any offer to - ---------- purchase Certificated Notes accepted by or on behalf of the Company will be a date on or before the fifth Business Day next succeeding the date of acceptance unless otherwise agreed by the purchaser and the Company and shall be specified upon acceptance of such offer. The Company will instruct the Trustee to effect delivery of each Certificated Note no later than 1:00 p.m., New York City time, on the Settlement Date to such Agent for delivery to the purchaser. A-7 Details for For each offer to purchase a Certificated Note - ----------- Settlement: received by any Agent and accepted pursuant to the - ---------- terms of the Agency Agreement, such Agent will provide (unless provided by the purchaser directly to the Company) by telephone the following information (to the extent applicable) to the Company: 1. Exact name of Holder. 2. Exact address of Holder and address for payment of principal, premium, if any, and interest. 3. Taxpayer identification number of Holder (if available). 4. Principal amount of the Note. 5. Specified Currency. 6. Interest rate or interest rate basis. 7. Base Rate(s), Index Maturity, Initial Interest Rate, Maximum Interest Rate, Minimum Interest Rate, Interest Reset Dates, Interest Payment Dates, Calculation Dates, Interest Reset Dates and Spread and/or Spread Multiplier (as each such term is defined in the Prospectus). 8. Issue price of Note and proceeds to Company. 9. Settlement Date. 10. Stated Maturity Date. 11. Redemption and/or repayment provisions, if any. 12. Agent's commission to be paid in the form of a discount upon settlement. 13. Other relevant terms, including any interest reset and/or extension provisions. Such Agent will advise the Company of the foregoing information (unless provided by the purchaser directly to the Company) for each offer to purchase a Certificated Note solicited by such Agent and accepted by the Company in time for the Trustee to prepare and authenticate the required Certificated Note. Before accepting any offer to purchase a Certificated Note to be settled in less than three Business Days, the Company shall verify that the A-8 Trustee will have adequate time to prepare and authenticate such Certificated Note. After receiving from such Agent the details for each offer to purchase a Certificated Note, the Company will, after recording the details and any necessary calculations, provide appropriate documentation to the Trustee, including the information provided by such Agent necessary for the preparation and authentication of such Certificated Note. Prior to preparing the Certificated Note for delivery (but in any case no later than 11:00 a.m., New York City time, on the Business Day next preceding the Settlement Date therefor), the Trustee will confirm the details of such issue with such Agent by telephone. Note Deliveries Upon receipt of appropriate documentation and - --------------- instructions, the Company will cause the Trustee to and Cash Payment: prepare and authenticate the pre-printed 4-ply - ---------------- Certificated Note packet containing the following documents in forms approved by the Company, the Agents and the Trustee: 1. Certificated Note with customer confirmation. 2. Stub 1--For the applicable Agent. 3. Stub 2--For the Company. 4. Stub 3--For the Trustee. Each Certificated Note shall be authenticated on or before the Settlement Date therefor. The Trustee will authenticate each Certificated Note and deliver it to such Agent (and deliver the stubs as indicated above), all in accordance with written instructions (which may be in the form of facsimile transmission) from the Company. Delivery by the Trustee of each Certificated Note will be made against receipt by the Company by 1:00 p.m., New York City time, on the Settlement Date in immediately available funds of an amount equal to the issue price of such Certificated Note or the U.S. dollar equivalent of the issue A-9 price of such Note as agreed between the Company and such Agent, unless otherwise agreed between the Company and such Agent, less such Agent's commission. Upon verification by such Agent that a Note has been prepared and properly authenticated by the Trustee and registered in the name of the purchaser in the proper principal amount and that the related Guarantee has been duly endorsed thereon, payment will be made to the Company by such Agent the same day in immediately available funds in the Specified Currency. Such payment shall be made only upon prior receipt by such Agent of immediately available funds from or on behalf of the purchaser in the Specified Currency unless such Agent decides, at its option, to advance its own funds for such payment against subsequent receipt of funds from the purchaser. Upon delivery of a Certificated Note to such Agent, such Agent shall promptly deliver such Certificated Note to the purchaser. In the event any Certificated Note is incorrectly prepared, the Trustee shall promptly issue a replacement Certificated Note in exchange for the incorrectly prepared Certificated Note. Failure to Settle: If any Agent, at its own option, has advanced its own - ----------------- funds for payment against subsequent receipt of funds from the purchaser, and if the purchaser shall fail to make payment for the Certificated Note on the Settlement Date therefor, such Agent will promptly notify the Trustee and the Company by telephone, promptly confirmed in writing (but no later than the next Business Day). In such event, the Company shall promptly provide the Trustee with appropriate documentation and instructions consistent with these procedures for the return of the Certificated Note to the Trustee and such Agent will promptly return the Certificated Note to the A-10 Trustee. Upon confirmation (i) from the Trustee in writing (which may be given by telex or telecopy) that the Trustee has received the Certificated Note and (ii) from such Agent in writing (which may be given by telex or telecopy) that such Agent has not received payment from the purchaser (the matters referred to in clauses (i) and (ii) are referred to hereinafter as the "Confirmations"), the Company will promptly pay to such Agent an amount in immediately available funds equal to the amount previously paid by such Agent in respect of such Certificated Note. Assuming receipt of the Certificated Note by the Trustee and of the Confirmations by the Company, such payment will be made on the Settlement Date, if reasonably practicable, and in any event not later than the Business Day following the date of receipt of the Certificated Note and Confirmations. If a purchaser shall fail to make payment for the Certificated Note for any reason other than the failure of such Agent to provide the necessary information to the Company as described above for settlement or to provide a confirmation to the purchaser within a reasonable period of time as described above or otherwise to satisfy its obligation hereunder or in the Agency Agreement, and if such Agent shall have otherwise complied with its obligations hereunder and in the Agency Agreement, the Company will reimburse such Agent on an equitable basis for its loss of the use of funds during the period when they were credited to the account of the Company. Immediately upon receipt of the Certificated Note in respect of which the failure occurred, the Trustee will void said Certificated Note, make appropriate entries in its records and destroy the Certificated Note; and upon such action, the Certificated Note will be deemed not to have been issued, authenticated and delivered. Trustee Not to Nothing herein shall be deemed to - -------------- A-11 Risk Funds: require the Trustee to risk or expend its own funds in - ---------- connection with any payment to the Company, or any Agent or the purchaser, it being understood by all parties that payments made by the Trustee to either the Company or any Agent shall be made only to the extent that funds are provided to the Trustee for such purpose. Authenticity of The Company will cause the Trustee and the Guarantor to - --------------- furnish each Agent from time to time with the specimen Signatures: signatures of the officers, employees or agents who - ---------- have been authorized to authenticate Certificated Notes or execute the related Guarantee, as the case may be, but each Agent will have no obligation or liability to the Company, the Guarantor or the Trustee in respect of the authenticity of the signature of any officer, employee or agent of the Company, the Guarantor or the Trustee on any Certificated Note. Payment of Each Agent shall forward to the Company and the - ---------- Guarantor, from time to time (but not more often than Expenses: monthly), a statement of the out-of-pocket expenses - -------- incurred by such Agent during the related period which are reimbursable to it pursuant to the terms of the Agency Agreement. The Company and the Guarantor will promptly remit payment to such Agent. Advertising The Company will determine with each Agent the amount - ----------- of advertising that may be appropriate in soliciting Costs: offers to purchase the Notes. Advertising expenses will - ----- be paid by the Company and the Guarantor. A-12 PART II: ADMINISTRATIVE PROCEDURES FOR BOOK-ENTRY NOTES In connection with the qualification of Book-Entry Notes for eligibility in the book-entry system maintained by DTC, the Trustee will perform the custodial, document control and administrative functions described below, in accordance with its respective obligations under a Letter of Representations from the Company, the Guarantor and the Trustee to DTC of even date herewith and a Medium-Term Note Certificate Agreement between the Trustee and DTC, dated April 14, 1989 and its obligations as a participant in DTC, including DTC's Same-Day Funds Settlement System ("SDFS"). Issuance: On any date of settlement (as defined under - -------- "Settlement" below) for one or more Fixed Rate Book- Entry Notes, the Company will issue a single global security in fully registered form without coupons (a "Global Security") representing up to U.S.$200,000,000 principal amount of all of such Notes that have the same Issue Date, Specified Currency, Interest Rate, Stated Maturity Date, redemption and/or repayment provisions and Interest Payment Dates. Similarly, on any settlement date for one or more Floating Rate Book- Entry Notes, the Company will issue a single Global Security representing up to U.S.$200,000,000 principal amount of all of such Notes that have the same Issue Date, Specified Currency, Base Rate(s), Index Maturity, Interest Reset Dates, Spread and/or Spread Multiplier (if any), Initial Interest Rate, Interest Payment Dates, Minimum Interest Rate (if any), Maximum Interest Rate (if any), Stated Maturity Date and redemption and/or repayment provisions (if any). Each Global Security will be dated and issued as of the date of its authentication by the Trustee. Each Global Security will bear an "Interest Accrual Date", which will be (i) with respect to an original Global Security (or any portion thereof), its original issuance date and (ii) with respect to any Global Security (or portion thereof) issued subsequently upon exchange of a Global Security or in lieu of a destroyed, lost or stolen Global Security, the most recent Interest Payment Date to which interest has been A-13 paid or duly provided for on the predecessor Global Security or Securities (or if no such payment or provision has been made, the original issuance date of the predecessor Global Security), regardless of the date of authentication of such subsequently issued Global Security. No Global Security will represent any Certificated Note. Price to Public: Each Book-Entry Note will be issued at the percentage - --------------- of principal amount specified in the Prospectus. Identification The Company will arrange, on or prior to - -------------- commencement of a program for the offering of Book- Numbers: Entry Notes, with the CUSIP Service Bureau of Standard - ------- & Poor's Corporation (the "CUSIP Service Bureau") for the reservation of a series of CUSIP numbers (including tranche numbers), consisting of approximately 900 CUSIP numbers and relating to Global Securities representing the Book-Entry Notes. The Trustee has or will obtain from the CUSIP Service Bureau a written list of such series of reserved CUSIP numbers and will deliver to the Company and DTC such written list of 900 CUSIP numbers of such series. The Company will assign CUSIP numbers to Global Securities as described below under Settlement Procedure "B". DTC will notify the CUSIP Service Bureau periodically of the CUSIP numbers that the Company has assigned to Global Securities. The Trustee will notify the Company at any time when fewer than 100 of the reserved CUSIP numbers remain unassigned to Global Securities, and if it deems necessary, the Company will reserve additional CUSIP numbers for assignment to Global Securities representing Book-Entry Notes. Upon obtaining such additional CUSIP numbers, the Trustee shall deliver such additional CUSIP numbers to the Company and DTC. Registration: Each Global Security will be registered in the name of - ------------ CEDE & CO., as nominee for DTC, on the Securities Register maintained under the Indenture governing A-14 such Global Security. The beneficial owner of a Book- Entry Note (or one or more indirect participants in DTC designated by such owner) will designate one or more participants in DTC (with respect to such Note, the "Participants") to act as agent or agents for such owner in connection with the book-entry system maintained by DTC, and DTC will record in book-entry form, in accordance with instructions provided by such Participants, a credit balance with respect to such Note in the account of such Participants. The ownership interest of such beneficial owner in such Note will be recorded through the records of such Participants or through the separate records of such Participants and one or more indirect participants in DTC. Transfers: Transfer of a Book-Entry Note will be accomplished by - --------- book entries made by DTC and, in turn, by Participants (and in certain cases, one or more indirect par- ticipants in DTC) acting on behalf of beneficial transferors and transferees of such Note. Consolidation and The Trustee may deliver to DTC and the CUSIP Service - ----------------- Bureau at any time a written notice of consolidation Exchange: specifying (i) the CUSIP numbers of two or more - -------- outstanding Global Securities that represent (A) Fixed Rate Book-Entry Notes having the same Issue Date, Specified Currency, Interest Rate, Stated Maturity Date, redemption and/or repayment provisions (if any) and Interest Payment Dates and with respect to which interest has been paid to the same date or (B) Floating Rate Book-Entry Notes having the same Issue Date, Specified Currency, Base Rate(s), Index Maturity, Interest Reset Dates, Spread and/or Spread Multiplier (if any), Initial Interest Rate, Interest Payment Dates, Minimum Interest Rate (if any), Maximum Interest Rate (if any), redemption and/or repayment provisions (if any) and Stated Maturity Date and with respect to which interest has been paid to the same date, (ii) a date, A-15 occurring at least thirty days after such written notice is delivered and at least thirty days before the next Interest Payment Date for such Book-Entry Notes, on which such Global Securities shall be exchanged for a single replacement Global Security and (iii) a new CUSIP number, obtained from the Company, to be assigned to such replacement Global Security. Upon receipt of such a notice, DTC will send to its Participants (including the Trustee) a written reorganization notice to the effect that such exchange will occur on such date. Prior to the specified exchange date, the Trustee will deliver to the CUSIP Service Bureau a written notice setting forth such exchange date and the new CUSIP number and stating that, as of such exchange date, the CUSIP numbers of the Global Securities to be exchanged will no longer be valid. On the specified exchange date, the Trustee will exchange such Global Securities for a single Global Security bearing the new CUSIP number and a new Interest Accrual Date, and the CUSIP numbers of the exchanged Global Securities will, in accordance with CUSIP Service Bureau procedures, be cancelled and not immediately reassigned. Notwithstanding the foregoing, if the Global Securities to be exchanged exceed U.S.$200,000,000 in aggregate principal amount, one Global Security will be authenticated and issued to represent each U.S.$200,000,000 of principal amount of the exchanged Global Securities and an additional Global Security will be authenticated and issued to represent any remaining principal amount of such Global Securities (see "Denominations" below). Maturities: Each Book-Entry Note will mature on a date nine months - ---------- or more after the settlement date for such Note. Notice of Redemption The Trustee will notify DTC not more than 60 but not - -------------------- less than 30 days prior to each redemption date, if Dates: any, with - ----- A-16 respect to a Book-Entry Note, of the CUSIP number of such Note, the redemption date, the redemption price and the principal amount of such Book-Entry Note to be redeemed. Denominations: Book-Entry Notes will be issued in principal amounts - ------------- of U.S.$100,000 or any amount in excess thereof that is an integral multiple of U.S.$1,000. Global Securities will be denominated in principal amounts not in excess of U.S.$200,000,000. If one or more Book-Entry Notes having an aggregate principal amount in excess of U.S.$200,000,000 would, but for the preceding sentence, be represented by a single Global Security, then one Global Security will be issued to represent each U.S.$200,000,000 principal amount of such Book-Entry Note or Notes and an additional Global Security will be issued to represent any remaining principal amount of such Book-Entry Note or Notes. In such a case, each of the Global Securities representing such Book-Entry Note or Notes shall be assigned the same CUSIP number. Interest: General. Interest on each Book-Entry Note will accrue - -------- ------- from the Interest Accrual Date of the Global Security representing such Note. Except as set forth in the underlying Global Security, each Book Entry Note which is a Fixed Rate Note will bear interest at the annual rate stated in such Global Security, payable semiannually on January 15 and July 15 of each year (each, an "Interest Payment Date") and on the Maturity Date, and each Book-Entry Note which is a Floating Rate Note will bear interest as determined in the manner set forth in such Global Security, payable on the dates set forth on such Global Security. Except as set forth in the underlying Global Security, interest (including payments for partial periods) on Fixed Rate Notes will be calculated on the basis of a 360-day year of twelve 30-day months. Except as set forth in the underlying Global A-17 Security, interest on Book-Entry Notes which are Floating Rate Notes will be determined in the manner agreed upon by the Company and the purchaser thereof in accordance with the provisions of the Prospectus. Except as set forth in the underlying Global Security, the "Record Date" with respect to any Interest Payment Date for Book-Entry Notes which are Floating Rate Notes shall be the date 15 calendar days immediately preceding such Interest Payment Date, and for Fixed Rate Notes shall be the December 31 or June 30 next preceding such Interest Payment Date, whether or not such date shall be a Business Day. The first payment of interest on any Book-Entry Note originally issued between a Record Date and an Interest Payment Date will be made on the Interest Payment Date following the next succeeding Record Date to the Holder on such next succeeding Record Date. Notwithstanding the record date provisions above, interest payable on the Maturity Date will be payable to the person to whom principal shall be payable. Standard & Poor's Corporation will use the information received in the pending deposit message described under Settlement Procedure "C" below in order to include the amount of any interest payable and certain other information regarding the related Global Security in the appropriate weekly bond report published by Standard & Poor's Corporation. On the first Business Day of January, April, July and October of each year, the Trustee will deliver to the Company and DTC a written list of Record Dates and Interest Payment Dates that will occur with respect to Floating Rate Book-Entry Notes during the six-month period beginning on such first Business Day. Promptly after each Determination Date (as defined in the Prospectus) for Floating Rate Notes, the Company will notify the Trustee, and the Trustee in turn will notify Standard & Poor's A-18 Corporation, of the interest rates determined on such Interest Determination Date. Payments of Payments of Interest Only. Promptly after each Record - ----------- Date, the Trustee will deliver to the Company and Principal DTC a written notice specifying by CUSIP number the - --------- the amount of interest to be paid on each Global and Interest: Security on the following Interest Payment Date (other - ------------ than an Interest Payment Date coinciding with a Maturity Date) and the total of such amounts. DTC will confirm the amount payable on each Global Security on such Interest Payment Date by reference to the daily bond reports published by Standard & Poor's Corporation. The Company will pay to the Trustee, as paying agent, the total amount of interest due on such Interest Payment Date (other than on the Maturity Date), and the Trustee will pay such amount to DTC at the times and in the manner set forth below under "Manner of Payment". Payments at Maturity. On or about the first Business -------------------- Day of each month, the Trustee will deliver to the Company and DTC a written list of principal and interest to be paid on each Global Security with a Maturity Date in the following month. The Company, the Trustee and DTC will confirm the amounts of such principal and interest payments with respect to each such Global Security on or about the fifth Business Day preceding the Maturity Date of such Global Security. The Company will pay to the Trustee, as the paying agent, the principal amount of such Global Security, together with interest due on such Maturity Date. The Trustee will pay such amount to DTC at the time and in the manner set forth below under "Manner of Payment". Promptly after payment to DTC of the principal and interest due on the Maturity Date of such Global Security, the Trustee will cancel such Global Security and deliver it to the Company A-19 with an appropriate debit advice. On the first Business Day of each month, the Trustee will prepare a written statement indicating the total principal amount of outstanding Global Securities for which it serves as trustee as of the immediately preceding Business Day. Manner of Payment. The total amount of any principal and interest due - ----------------- on Global Securities on any Interest Payment Date or on the Maturity Date shall be paid by the Company to the Trustee in funds available for use by the Trustee as of 9:30 A.M. (New York City time) on such date. The Company will make such payment on such Global Securities by instructing the Trustee to withdraw funds from an account maintained by the Company at the Trustee. For maturity, redemption, repayment or any other principal payments: prior to 10:00 A.M. (New York City time) on such date or as soon as possible thereafter, the Trustee will make such payments to DTC in same day funds in accordance with DTC's Same Day Funds Settlement Paying Agent Operating Procedures. For interest payments: the Trustee will make such payments to DTC in accordance with existing arrangements between DTC and the Trustee. DTC will allocate such payments to its participants in accordance with its existing operating procedures. Neither the Company (either as Issuer or as Paying Agent), the Trustee or any Agent shall have any direct responsibility or liability for the payment by DTC to such Participants of the principal of and interest on the Book-Entry Notes. Withholding Taxes. The amount of any taxes required under applicable law - ----------------- to be withheld from any interest payment on a Book- Entry Note will be determined and withheld by the Participant, indirect participant in DTC or other Person responsible for forwarding payments and materials directly to the beneficial owner of such Note. A-20 Procedure for The Company and the Agents will discuss from time to - ------------- time the aggregate principal amount of, the issuance Rate Setting price of, and the interest rates to be borne by, - ------------ Book-Entry Notes that may be sold as a result of the and Posting: solicitation or offers by the Agents. If the Company - ----------- decides to establish prices of (including the currency of issuance), and rates borne by, any Book-Entry Notes to be sold (the establishment of such prices and rates to be referred to herein as "posting") or if the Company decides to change prices or rates previously posted by it, it will promptly advise the Agents of the prices and rates to be posted. Acceptance Unless otherwise agreed between the Company and such - ---------- Agent, any Agent which receives an offer to purchase of Offers: Book-Entry Notes will promptly advise the Company of - --------- each such offer other than offers rejected by such Agent as provided below. The Company will have the sole right to accept any such offer to purchase Book-Entry Notes. The Company may reject any such offer in whole or in part. Unless otherwise agreed between the Company and any Agent, each Agent may, in its discretion reasonably exercised, reject any offer to purchase Book-Entry Notes received by it in whole or in part. Preparation of If any offer to purchase a Book-Entry Note is accepted - -------------- by or on behalf of the Company, the Company and the Pricing Guarantor, with the approval of the Agents, will - ------- prepare a Pricing Supplement reflecting the terms of Supplement: such Book-Entry Note and will arrange to have requisite - ---------- copies of such Pricing Supplement filed with the Commission, in each case no later than the fifth business day after the date it is first used and will supply at least ten copies thereof (or additional copies if requested) to the Agents and one copy to the Trustee no later than 11:00 A.M., New York City time, on the Business Day A-21 following the date of acceptance at the following applicable address (unless otherwise specified in the applicable trading confirmation): _____________________ _______________________________________________________ _______________________________________________________ _______________________________________________________ _______________________________________________________ _______________________________________________________ ________________________________________ ; and if to the Trustee, to The Bank of New York, 101 Barclay Street, New York, New York 10286, attention of Corporate Trust Office. Such Agent will cause a Pricing Supplement to be delivered to the purchaser of the Book-Entry Note. In all respects, the Company and the Guarantor will prepare and file each such Pricing Supplement in accordance with Rule 424 under the Act. In each instance that a Pricing Supplement is prepared, each Agent will affix the Pricing Supplement to Prospectus Supplements prior to their use. Outdated Pricing Supplements, and the Prospectus Supplements to which they are attached (other than those retained for files), will be destroyed. Suspension of The Company reserves the right, in its sole discretion, - ------------- to instruct the Agents to suspend at any time, for any Solicitation; period of time or permanently, the solicitation of - ------------- offers to purchase Book-Entry Notes. As soon as Amendment or practicable, but in no event later than one business - ------------ day after receipt of instructions from the Company, the Supplement: Agents will suspend solicitation of offers to purchase - ---------- Book-Entry Notes from the Company until such time as the Company has advised them that such solicitation may be resumed. If the Company or the Guarantor decides to amend or supplement the Registration Statement or the Prospectus relating to the Notes (except in the case of a Pricing Supplement to the Prospectus), the Company or the Guarantor, as the case may be, will promptly advise the A-22 Agents and the Trustee and will furnish the Agents and the Trustee with the proposed amendment or supplement in accordance with the terms of the Agency Agreement. The Company or the Guarantor will mail or transmit to the Commission for filing therewith any supplement to the Prospectus relating to the Notes, provide the Agents with copies of any supplement, and confirm to the Agents that such supplement has been filed with the Commission. In the event that at the time the Company suspends solicitation of offers to purchase Book-Entry Notes there shall be any outstanding offers to purchase Book- Entry Notes that have been accepted by the Company but for which settlement has not yet occurred, the Company will promptly advise the Agents and the Trustee whether such sales may be settled and whether copies of the Prospectus as supplemented to the time of the suspension may be delivered in connection with the settlement of such sales. The Company will have the sole responsibility for such decision and for any arrangements which may be made in the event that the Company determines that such sales may not be settled or that copies of such Prospectus may not be so delivered. Delivery of Each Agent shall, for each offer to purchase a Book- - ----------- Entry Note that is solicited by such Agent and Prospectus: accepted by the Company, deliver a copy of the - ---------- Prospectus as most recently amended or supplemented with the earlier of the delivery of the confirmation of sale or the Book-Entry Note to the purchaser thereof or such purchaser's agent. Confirmation: Such Agent will confirm the purchase of such Note to - ------------ the purchaser either by transmitting to the Participants with respect to such Note a confirmation order or orders through DTC's institutional delivery system or by mailing a written confirmation to such purchaser. A-23 Settlement: The receipt by the Company of immediately available - ---------- funds in payment for a Book-Entry Note and the authentication and issuance of the Global Security representing such Note shall constitute "settlement" with respect to such Note. All orders accepted by the Company will be settled on the next Business Day pursuant to the timetable for settlement set forth below unless the Company and the purchaser agree to settlement on a later date. Settlement Settlement Procedures with regard to each Book-Entry - ---------- Note sold by the Company through an Agent, as agent, Procedures: shall be as follows: - ---------- A. Such Agent will advise the Company by telephone of the following settlement information: 1. Principal amount. 2. Specified Currency. 3. Stated Maturity Date. 4. In the case of a Fixed Rate Book-Entry Note, the interest rate, or, in the case of a Floating Rate Book-Entry Note, Base Rate, Index Maturity, Initial Interest Rate, Maximum Interest Rate, Minimum Interest Rate, Interest Reset Dates, Interest Payment Dates, Calculation Dates, Interest Reset Dates and Spread and/or Spread Multiplier. 5. Settlement date. 6. Redemption and/or repayment provisions, if any. 7. Agent's commission, determined as provided in the Agency Agreement between the Company and such Agent. 8. The DTC Participant account number of such Agent. 9. Taxpayer identification number of beneficial owner (if available). 10. Issue price of Book-Entry Note and proceeds to the Company. A-24 B. The Trustee will assign a CUSIP number to the Global Security representing such Book-Entry Note and will then advise the Company of such CUSIP number. The Company will then advise the Trustee by electronic transmission (confirmed by telephone) of the information set forth in Settlement Procedure "A" above and the name of such Agent. Each such communication by the Company shall constitute a representation and warranty by the Company to the Trustee and each Agent that (i) such Note is then, and at the time of issuance and sale thereof will be, duly authorized for issuance and sale by the Company, (ii) such Note, and the Global Security representing such Note, will conform with the terms of the Indenture pursuant to which such Note and Global Security are issued and (iii) upon authentication and delivery of such Global Security, the aggregate initial offering price of all Notes issued under the Indenture will not exceed $___________ (except for Book-Entry Notes represented by Global Securities authenticated and delivered in exchange for or in lieu of Global Securities pursuant to the Indenture and except for Certificated Notes authenticated and delivered upon registration of transfer of, in exchange for, or in lieu of Certificated Notes pursuant to the Indenture). C. The Trustee will enter a pending deposit message through DTC's Participant Terminal System, providing the following settlement information to DTC, such Agent, Standard & Poor's Corporation and, upon request, the Trustee under the Indenture pursuant to which such Note is to be issued: 1. The information set forth in Settlement Procedure "A". A-25 2. Identification as a Fixed Rate Book-Entry Note or a Floating Rate Book-Entry Note. 3. Initial Interest Payment Date for such Note and amount of interest payable on such Interest Payment Date. 4. Frequency of interest payments (monthly, semiannually, quarterly, etc.). 5. CUSIP number of Global Security representing such Note. 6. Whether such Global Security will represent any other Book-Entry Note (to the extent known at such time). D. The Trustee will complete the Global Security, the form of which was previously approved by the Company, the Agents and the Trustee. E. The Trustee, as Trustee, will authenticate the Global Security representing such Note. F. DTC will credit such Note to the Trustee's participant account at DTC. G. The Trustee will enter an SDFS deliver order through DTC's Participant Terminal System instructing DTC to (i) debit such Note to the Trustee's participant account and credit such Note to such Agent's participant account and (ii) debit such Agent's settlement account and credit the Trustee's settlement account for an amount equal to the price of such Note less such Agent's commission. The entry of such a deliver order shall constitute a representation and warranty by the Trustee to DTC that (i) the Global Security representing such Book-Entry Note has been issued and authenticated and (ii) the Trustee is holding A-26 such Global Security pursuant to the Certificate Agreement. H. Such Agent will enter an SDFS deliver order through DTC's Participant Terminal System instructing DTC (i) to debit such Note to such Agent's participant account and credit such Note to the participant accounts of the Participants with respect to such Note and (ii) to debit the settlement accounts of such Participants and credit the settlement account of such Agent for an amount equal to the price of such Note. I. Transfers of funds in accordance with SDFS deliver orders described in Settlement Procedures "G" and "H" will be settled in accordance with SDFS operating procedures in effect on the settlement date. J. The Trustee will credit to an account of the Company maintained at the Trustee funds available for immediate use in the amount transferred to the Trustee in accordance with Settlement Procedure "G". K. The Trustee will hold the Global Security pursuant to the Certificate Agreement and will send a photocopy of such Global Security to the Company by first-class mail. Upon written request the Trustee will deliver a photocopy of such Global Security to such Agent. Periodically, the Trustee will send to the Company a statement setting forth the principal amount of Notes Outstanding as of that date and setting forth a brief description of any sales of which the Company has advised the Trustee but which have not yet been settled. L. As set forth in "Delivery of Prospectus" above, such Agent will A-27 deliver to the purchaser a copy of the most recent Prospectus applicable to the Book-Entry Note with or prior to any written offer of Book-Entry Notes and the confirmation and payment by the purchaser of such Note. Such Agent will confirm the purchase of such Note to the purchaser either by transmitting to the Participants with respect to such Note a confirmation order or orders through DTC's institutional delivery system or by mailing a written confirmation to such purchaser. Settlement For offers to purchase Book-Entry Notes solicited by - ---------- Procedures an Agent, as agent, and accepted by the Company - ---------- Timetable: for settlement on the first Business Day after the - --------- sale date, Settlement Procedures "A" through "L" set forth above shall be completed as soon as possible but not later than the respective times (New York City time) set forth below:
Settlement Procedure Time --------- ---- A-B 11:00 A.M. on the sale date C 2:00 P.M. on the sale date D 3:00 P.M. on day before settlement date E 9:00 A.M. on settlement date F 10:00 A.M. on settlement date G-H 2:00 P.M. on settlement date I 4:45 P.M. on settlement date J-L 5:00 P.M. on settlement date
If a sale is to be settled more than one Business Day after the sale date, Settlement Procedures "A", "B" and "C" shall be completed as soon as A-28 practicable but no later than 11:00 A.M. and 2:00 P.M., as the case may be, on the first Business Day after the sale date. If the initial interest rate for a Floating Rate Book-Entry Note has not been determined at the time that Settlement Procedure "A" is completed, Settlement Procedures "B" and "C" shall be completed as soon as such rate has been determined but no later than 11:00 A.M. and 12:00 Noon, respectively, on the second Business Day before the settlement date. Settlement Procedure "I" is subject to extension in accordance with any extension of Fedwire closing deadlines and in the other events specified in the SDFS operating procedures in effect on the settlement date. Failure to Settle: If the Trustee fails to enter an SDFS deliver order - ----------------- with respect to a Book-Entry Note pursuant to Settlement Procedure "G", the Trustee may deliver to DTC, through DTC's Participant Terminal System, as soon as practicable a withdrawal message instructing DTC to debit such Note to the Trustee's participant account. DTC will process the withdrawal message, provided that the Trustee's participant account contains a principal amount of the Global Security representing such Note that is at least equal to the principal amount to be debited. If a withdrawal message is processed with respect to all the Book-Entry Notes represented by a Global Security, the Trustee will mark such Global Security "canceled", make appropriate entries in the Trustee's records and send such canceled Global Security to the Company. The CUSIP number assigned to such Global Security shall, in accordance with CUSIP Service Bureau procedures, be canceled and not immediately reassigned. If a withdrawal message is processed with respect to one or more, but not all, of the Book-Entry Notes represented by a Global Security, the Trustee will exchange such Global Security for two Global Securities, one of which shall represent such Book-Entry A-29 Note or Notes and shall be canceled immediately after issuance and other Book-Entry Notes previously represented by the surrendered Global Security and shall bear the CUSIP number of the surrendered Global Security. If the purchase price for any Book-Entry Note is not timely paid to the Participants with respect to such Note by the beneficial purchaser thereof (or a Person, including an indirect participant in DTC, acting on behalf of such purchaser), such Participants and, in turn, the Agent for such Note may enter SDFS deliver orders through DTC's Participant Terminal System reversing the orders entered pursuant to Settlement Procedures "H" and "G", respectively. Thereafter, the Trustee will deliver the withdrawal message and take the related actions described in the preceding paragraph. Notwithstanding the foregoing, upon any failure to settle with respect to a Book-Entry Note, DTC may take any actions in accordance with its SDFS operating procedures then in effect. In the event of a failure to settle with respect to one or more, but not all, of the Book-Entry Notes to have been represented by a Global Security, the Trustee will provide, in accordance with Settlement Procedures "D" and "E", for the authentication and issuance of a Global Security representing the other Book-Entry Notes to have been represented by such Global Security and will make appropriate entries in its records. Trustee Not to Nothing herein shall be deemed to require the Trustee - -------------- Risk Funds: to risk or expend its own funds in connection with - ---------- any payment to the Company, or any Agent or the purchaser, it being understood by all parties that payments made by the Trustee to either the Company or any Agent shall be made only to the extent that funds are provided to the Trustee for such purpose. A-30 Authenticity of The Company will cause the Trustee and the Guarantor to - --------------- Signatures: furnish each Agent from time to time with the specimen - ---------- signatures of the officers, employees or agents who have been authorized to authenticate Notes or execute the related Guarantee, but each Agent will have no obligation or liability to the Company, the Guarantor or the Trustee in respect of the authenticity of the signature of any officer, employee or agent of the Company, the Guarantor or the Trustee on any Note. Payment of Each Agent shall forward to the Company and the - ---------- Expenses: Guarantor, from time to time (but not more often than - -------- monthly), a statement of the out-of-pocket expenses incurred by such Agent during the related period which are reimbursable to it pursuant to the terms of the Agency Agreement. The Company and the Guarantor will promptly remit payment to such Agent. Advertising The Company will determine with each Agent the amount - ----------- Costs: of advertising that maybe appropriate in soliciting - ----- offers to purchase the Notes. Advertising expenses will be paid by the Company and the Guarantor. A-31 EXHIBIT B Countrywide Funding Corporation Medium-Term Notes, Series __ Due Nine Months or More From Date of Issue TERMS AGREEMENT _________________, 19__ Countrywide Funding Corporation 155 North Lake Avenue Pasadena, California 91101 Attention: Corporate Counsel Subject in all respects to the terms and conditions of the Selling Agency Agreement dated _________, 1995 among ______________ (including its affiliate ________________), ______________, ______________, and ____________________, and you (the "Agreement"), the undersigned agrees to purchase the following Medium- Term Notes, Series __ (the "Notes"), of Countrywide Funding Corporation: Aggregate Principal Amount: Currency or Currency Unit: Interest Rate or Base Rate(s): Spread: Spread Multiplier: Stated Maturity Date: Interest Payment Dates: Record Dates: Purchase Price: % of Principal Amount [plus accrued interest, if any, from _______________, 19 __] Purchase Date and Time: B-1 Certificated or Book-Entry Form: Place for Delivery of Notes and Payment Therefor: Method of Payment: Modification, if any, in the requirements to deliver the documents specified in Section 6(b) of the Agreement: Period during which additional Notes may not be sold pursuant to Section 4(l) of the Agreement: Default provisions, if any: Other terms: ____________________________________ By:________________________________] ____________________________________ By:________________________________] ____________________________________ By:________________________________] Accepted: COUNTRYWIDE FUNDING CORPORATION By:______________________________ Title: B-2 EX-4.7 5 FORM OF INDENTURE EXHIBIT 4.7 _________________________________________________________________ COUNTRYWIDE CREDIT INDUSTRIES, INC. Issuer TO THE BANK OF NEW YORK Trustee __________________ INDENTURE Dated as of June 15, 1995 __________________ Debt Securities _________________________________________________________________ TABLE OF CONTENTS PARTIES ................................................................. 1 RECITALS ................................................................ 1 ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 101. Definitions......................................... 2 Act........................................................... 2 Affiliate..................................................... 2 Board of Directors............................................ 2 Board Resolution.............................................. 3 Business Day.................................................. 3 Commission.................................................... 3 Company....................................................... 3 Company Request............................................... 3 Components.................................................... 3 Conversion Date............................................... 4 Corporate Trust Office........................................ 4 corporation................................................... 4 Debt Securities............................................... 4 Defaulted Interest............................................ 4 Discharged.................................................... 4 Dollar........................................................ 4 ECU........................................................... 4 European Communities.......................................... 4 Event of Default.............................................. 4 Exchange Rate................................................. 4 Exchange Rate Agent........................................... 5 Exchange Rate Officers' Certificate........................... 5 Foreign Currency.............................................. 6 Holder........................................................ 6 Indenture..................................................... 6 Interest Payment Date......................................... 6 Maturity...................................................... 6 Officers' Certificate......................................... 6 Opinion of Counsel............................................ 6 Original Issue Discount Security.............................. 6 Outstanding................................................... 7 Paying Agent.................................................. 8 Person........................................................ 8 Place of Payment.............................................. 8 Predecessor Security.......................................... 8 Redemption Date............................................... 8 Redemption Price.............................................. 8 Regular Record Date........................................... 8 Repayment Date................................................ 8 Repayment Price............................................... 8 Required Currency............................................. 8 Responsible Officer........................................... 9
(i) Security Register" and "Security Registrar.................. 9 Special Record Date......................................... 9 Stated Maturity............................................. 9 Stated Principal Maturity................................... 9 Subsidiary.................................................. 9 Trustee..................................................... 9 Trust Indenture Act......................................... 10 U.S. Government Obligations................................. 10 Voting Stock 10 SECTION 102. Compliance Certificates and Opinions.............. 10 SECTION 103. Form of Documents Delivered to Trustee............ 11 SECTION 104. Acts of Holders................................... 11 SECTION 105. Notices, etc., to Trustee and the Company........................................... 12 SECTION 106. Notice to Holders; Waiver......................... 13 SECTION 107. Conflict with Trust Indenture Act................. 13 SECTION 108. Effect of Headings and Table of Contents.......................................... 13 SECTION 109. Successors and Assigns............................ 14 SECTION 110. Separability Clause............................... 14 SECTION 111. Benefits of Indenture............................. 14 SECTION 112. Governing Law..................................... 14 SECTION 113. Legal Holidays.................................... 14 SECTION 114. Moneys of Different Currencies to be Segregated........................................ 14 SECTION 115. Payment to Be in Proper Currency.................. 15 ARTICLE TWO FORMS OF DEBT SECURITIES SECTION 201. Forms Generally................................... 16 SECTION 202. Forms of Debt Securities.......................... 16 SECTION 203. Form of Trustee's Certificate of Authentication.................................... 16 ARTICLE THREE THE DEBT SECURITIES SECTION 301. Amount Unlimited; Issuable in Series.............. 18 SECTION 302. Denominations..................................... 20 SECTION 303. Execution, Authentication, Delivery and Dating............................................ 21 SECTION 304. Temporary Debt Securities......................... 23 SECTION 305. Registration, Registration of Transfer and Exchange...................................... 24 SECTION 306. Mutilated, Destroyed, Lost and Stolen Debt Securities................................... 26 SECTION 307. Payment of Interest; Interest Rights Preserved......................................... 27 SECTION 308. Persons Deemed Owners............................. 30 SECTION 309. Cancellation...................................... 30 SECTION 310. Computation of Interest........................... 31 SECTION 311. Payment in Currencies............................. 31
(ii) SECTION 312. Optional Extension of Stated Principal Maturity.......................................... 34 ARTICLE FOUR [RESERVED] ARTICLE FIVE SATISFACTION AND DISCHARGE SECTION 501. Satisfaction and Discharge of Indenture........... 37 SECTION 502. Application of Trust Money........................ 38 ARTICLE SIX REMEDIES SECTION 601. Events of Default................................. 39 SECTION 602. Acceleration of Maturity; Rescission and Annulment......................................... 40 SECTION 603. Collection of Indebtedness and Suits for Enforcement by Trustee............................ 41 SECTION 604. Trustee May File Proofs of Claim.................. 42 SECTION 605. Trustee May Enforce Claims without Possession of Debt Securities..................... 43 SECTION 606. Application of Money Collected.................... 43 SECTION 607. Limitation on Suits............................... 44 SECTION 608. Unconditional Right of Holders to Receive Principal, Premium (if any) and Interest.......................................... 45 SECTION 609. Restoration of Rights and Remedies................ 45 SECTION 610. Rights and Remedies Cumulative.................... 45 SECTION 611. Delay or Omission Not Waiver...................... 45 SECTION 612. Control by Holders................................ 46 SECTION 613. Waiver of Past Defaults........................... 46 SECTION 615. Waiver of Stay or Extension Laws.................. 47 ARTICLE SEVEN THE TRUSTEE SECTION 701. Certain Duties and Responsibilities............... 48 SECTION 702. Notice of Defaults................................ 49 SECTION 703. Certain Rights of Trustee......................... 49 SECTION 704. Not Responsible for Recitals or Issuance of Debt Securities.................... 51 SECTION 705. May Hold Debt Securities.......................... 51 SECTION 706. Money Held in Trust............................... 51 SECTION 707. Compensation and Reimbursement.................... 51 SECTION 708. Corporate Trustee Required; Eligibility........... 52 SECTION 709. Resignation and Removal; Appointment of Successor......................................... 52 SECTION 710. Acceptance of Appointment by Successor............ 55
(iii) SECTION 711. Merger, Conversion, Consolidation or Succession to Business............................ 56 ARTICLE EIGHT HOLDERS' LISTS AND REPORTS BY TRUSTEE AND THE COMPANY SECTION 801. Company and Guarantor to Furnish Trustee Names and Addresses of Holders............ 57 SECTION 802. Preservation of Information; Communications to Holders......................... 57 SECTION 803. Reports by Trustee................................ 57 SECTION 804. Reports by Company................................ 58 ARTICLE NINE CONSOLIDATION, MERGER, CONVEYANCE OR TRANSFER SECTION 901. Company May Consolidate, etc., Only on Certain Terms..................................... 60 SECTION 902. Successor Corporation Substituted................. 60 SECTION 903. [RESERVED]........................................ 60 SECTION 904. [RESERVED]........................................ 61 SECTION 905. [RESERVED]........................................ 61 ARTICLE TEN SUPPLEMENTAL INDENTURES SECTION 1001. Supplemental Indentures without Consent of Holders........................................ 62 SECTION 1002. Supplemental Indentures with Consent of Holders........................................... 63 SECTION 1003. Execution of Supplemental Indentures.............. 64 SECTION 1004. Effect of Supplemental Indentures................. 64 SECTION 1005. Notice to Holders................................. 65 SECTION 1006. Conformity with Trust Indenture Act............... 65 SECTION 1007. Reference in Debt Securities to Supplemental Indentures........................... 65 ARTICLE ELEVEN COVENANTS SECTION 1101. Payment of Principal, Premium and Interest.......................................... 66 SECTION 1102. Maintenance of Office or Agency................... 66 SECTION 1103. Money for Debt Securities Payments to Be Held in Trust..................................... 67 SECTION 1104. Investment Company Act............................ 68 SECTION 1105. Officers' Certificate as to Default............... 68 ARTICLE TWELVE REDEMPTION OF DEBT SECURITIES
(iv) SECTION 1201. Applicability of Article.......................... 69 SECTION 1202. Election to Redeem, Notice to Trustee............. 69 SECTION 1203. Selection by Trustee of Debt Securities to Be Redeemed.................................... 69 SECTION 1206. Debt Securities Payable on Redemption Date.............................................. 71 SECTION 1207. Debt Securities Redeemed in Part.................. 71 ARTICLE THIRTEEN SINKING FUNDS SECTION 1301. Applicability of Article.......................... 73 Section 1302. Satisfaction of Sinking Fund Payments with Debt Securities.............................. 73 SECTION 1303. Redemption of Debt Securities for Sinking Fund...................................... 73 ARTICLE FOURTEEN DEFEASANCE SECTION 1401. Applicability of Article.......................... 75 SECTION 1402. Defeasance Upon Deposit of Moneys or U.S. Government Obligations....................... 75 SECTION 1403. Deposited Moneys and U.S. Government Obligations to be Held in Trust................... 77 SECTION 1404. Repayment to Company.............................. 77 ARTICLE FIFTEEN REPAYMENT AT THE OPTION OF HOLDERS SECTION 1501. Applicability of Article.......................... 78 SECTION 1502. Repayment of Debt Securities...................... 78 SECTION 1503. Exercise of Option................................ 78 SECTION 1504. When Debt Securities Surrendered for Repayment Become Due and Payable.................. 79 SECTION 1505. Debt Securities Repaid in Part.................... 79 EXHIBIT A
(v) INDENTURE dated as of __________, 1995, between COUNTRYWIDE CREDIT INDUSTRIES, INC., a Delaware corporation (hereinafter called the "Company"), having its principal office at 155 North Lake Avenue, Pasadena, California 91101 and THE BANK OF NEW YORK, a New York corporation (hereinafter called the "Trustee"), having its Corporate Trust Office at 101 Barclay Street, New York, New York 10286. RECITALS OF THE COMPANY The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of its debentures, notes, bonds or other evidences of indebtedness (herein called the "Debt Securities"), to be issued in one or more series as in this Indenture provided. All things necessary have been done to make this Indenture a valid agreement of the Company, in accordance with its terms. This Indenture is subject to the provisions of the Trust Indenture Act of 1939, as amended, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder that are required to be part of this Indenture and, to the extent applicable, shall be governed by such provisions. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Debt Securities by the Holders thereof, it is covenanted and agreed, for the equal and proportionate benefit of all Holders of the Debt Securities or of series thereof, as follows: ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 101. Definitions. ----------- For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) the terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular; (2) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (3) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles, and, except as otherwise herein expressly provided, the term "generally accepted accounting principles" with respect to any computation required or permitted hereunder shall mean such principles as are generally accepted at the date of such computation; and (4) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. Certain terms, used principally in Article Seven, are defined in that Article. "Act" when used with respect to any Holder has the meaning specified in Section 104. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Board of Directors" means the board of directors of the Company, or the executive or any other committee of such board duly authorized to act in respect hereof. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the 2 Company, to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day", when with respect to any Place of Payment, unless otherwise specified in a Board Resolution, and an Officers' Certificate, or in a supplemental indenture, means each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which banking institutions in an applicable Place of Payment or the city in which the Trustee's Corporate Trust Office is located or in New York, New York or Los Angeles, California are authorized or obligated by law, executive order or regulation to remain closed. For purposes of Section 311(b)(4) of the Trust Indenture Act, the term "cash transaction" means any transaction in which full payment for goods or securities sold is made within seven days after delivery of the goods or securities in currency or in checks or other orders drawn upon the banks or bankers and payable upon demand. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Securities Exchange Act of 1934, or if at any time after the execution of this instrument such commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties on such date. "Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor corporation shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor corporation. "Company Request" and "Company Order" mean, respectively, a written request or order signed in the name of the Company by the Chairman of the Board, the President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Controller, an Assistant Controller, the Secretary or an Assistant Secretary of the Company and delivered to the Trustee. "Components", with respect to a composite currency (including but not limited to the ECU), means the currency amounts that are components of such composite currency on the Conversion Date with respect to such composite currency. If the official unit of any component currency is altered by way of combination or subdivision, the amount of such currency in the Component shall be proportionately divided or multiplied. If two or more component currencies are consolidated into a single currency, the amounts of those currencies as Components shall be replaced by an amount in such single currency equal to the sum of the amounts of such consolidated component currencies expressed in such single currency, and such amount shall thereafter be a Component. If after such Conversion Date any component currency shall be divided into two or more currencies, the amount of such 3 currency as a Component shall be replaced by amounts of such two or more currencies, each of which shall be equal to the amount of such former component currency divided by the number of currencies into which such component currency was divided, and such amounts shall thereafter be Components. "Conversion Date", with respect to a composite currency (including but not limited to the ECU), has the meaning specified in Section 311. "Corporate Trust Office" means the corporate trust office of the Trustee at which at any particular time its corporate trust business shall be principally administered, which office at the date of execution of this instrument is located at 101 Barclay Street, New York, New York 10286. The term "corporation" includes corporations, associations, companies and business trusts. "Debt Securities" has the meaning stated in the first recital of this Indenture and more particularly means any Debt Securities authenticated and delivered under this Indenture. "Defaulted Interest" has the meaning specified in Section 307. "Discharged" has the meaning specified in Section 1402. "Dollar" or "$" means the coin or currency of the United States of America as at the time of payment is legal tender for the payment of public and private debts. "ECU" means the European Currency Unit as defined and revised from time to time by the Council of the European Communities. "European Communities" means the European Economic Community, the European Coal and Steel Community and the European Atomic Energy Community. "Event of Default" has the meaning specified in Section 601. "Exchange Rate" means, unless otherwise specified in accordance with Section 301, (a) with respect to Dollars in which payment is to be made on a series of Debt Securities denominated in a composite currency, the exchange rate between Dollars and such composite currency reported by the agency or organization, if any, designated pursuant to Section 301(11) or by the Council of the European Communities (in the case of ECU, whose reports are currently based on the rates in effect at 2:30 P.M., Brussels time, on the relevant exchange markets), as appropriate, on the applicable Regular or Special Record Date with respect to an Interest Payment Date or the fifteenth day immediately preceding the Maturity of an installment of principal, or on such other 4 date provided herein, as the case may be; (b) with respect to Dollars in which payment is to be made on a series of Debt Securities denominated in a Foreign Currency, the noon Dollar buying rate for that currency for cable transfers quoted by the Exchange Rate Agent in The City of New York on the Regular or Special Record Date with respect to an Interest Payment Date or the fifteenth day immediately preceding the Maturity of an installment of principal, or on such other date provided herein, as the case may be, as certified for customs purposes by the Federal Reserve Bank of New York and (c) with respect to Foreign Currency in which payment is to be made on a series of Debt Securities converted into Dollars pursuant to Section 311(d), the noon Dollar selling rate for that currency for cable transfers quoted by the Exchange Rate Agent in The City of New York on the second Business Day preceding an Interest Payment Date or the second Business Day preceding the Maturity of an installment of principal, or on such other date provided herein, as the case may be, as certified for customs purposes by the Federal Reserve Bank of New York. If for any reason such rates are not available with respect to one or more currencies for which an Exchange Rate is required, the Company shall use such quotation of the Federal Reserve Bank of New York as of the most recent available date, or quotations from one or more commercial banks in The City of New York or in the country of issue of the currency in question, or such other quotations as the Company, in each case, shall deem appropriate. If there is more than one market for dealing in any currency by reason of foreign exchange regulations or otherwise, the market to be used in respect of such currency shall be the largest market upon which a nonresident issuer of securities designated in such currency would purchase such currency in order to make payments in respect of such securities. "Exchange Rate Agent" means the New York clearing house bank designated pursuant to Section 301, or any successor thereto. "Exchange Rate Officer's Certificate", with respect to any date for the payment of principal of (and premium, if any) and interest on any series of Debt Securities, means a certificate setting forth the applicable Exchange Rate as of the Regular or Special Record Date with respect to an Interest Payment Date or the fifteenth day immediately preceding the maturity of an installment of principal, as the case may be, and the amounts payable in Dollars in respect of the principal of (and premium, if any) and interest on Debt Securities denominated in ECU or any other Foreign Currency, and signed by the Chairman of the Board, the President, any Vice President, any Assistant Vice President, the Treasurer, any Assistant Treasurer, the Controller or any Assistant Controller of the Company and delivered to the Trustee. "Foreign Currency" means any currency, currency unit or composite currency, including, without limitation, the ECU and any other composite currency, issued by the government of one or 5 more countries other than the United States of America or by any recognized confederation or association of such governments. "Holder" means a Person in whose name a Debt Security is registered in the Security Register. "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof and, unless the context otherwise requires, shall include the terms of a particular series of Debt Securities established as contemplated by Section 301. The term "interest", when used with respect to an Original Issue Discount Security which by its terms bears interest only after Maturity, means interest payable after Maturity. "Interest Payment Date", with respect to any Debt Security, means the Stated Maturity of an installment of interest on such Debt Security. "Maturity", when used with respect to any Debt Security, means the date on which the principal of such Debt Security becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, notice of redemption, notice of option to elect repayment or otherwise. "Officers' Certificate" means a certificate signed by the Chairman of the Board, the President, any Managing Director, any Vice President, the Treasurer, an Assistant Treasurer, the Controller, an Assistant Controller, the Secretary or an Assistant Secretary of the Company that complies with the requirements of Section 314(e) of the Trust Indenture Act and is delivered to the Trustee. "Opinion of Counsel" means a written opinion of counsel, who may be an employee of, or counsel to, the Company and who shall be reasonably satisfactory to the Trustee, which is delivered to the Trustee. "Original Issue Discount Security" means, except as otherwise defined in a Debt Security, any Debt Security which is issued with original issue discount within the meaning of Section 1273(a) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder. "Outstanding", when used with respect to Debt Securities, means, as of the date of determination, all Debt Securities theretofore authenticated and delivered under this Indenture, except: 6 (i) Debt Securities theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (ii) Debt Securities for whose payment, redemption or repayment money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Debt Securities; provided, however, that if such Debt Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture and such Debt Securities or provision therefor satisfactory to the Trustee has been made; and (iii) Debt Securities which have been paid pursuant to Section 306 or in exchange for or in lieu of which other Debt Securities have been authenticated and delivered pursuant to this Indenture, other than any such Debt Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Debt Securities are held by a bona fide purchaser in whose hands such Debt Securities are valid obligations of the Company; provided, however, that in determining whether the Holders of the requisite - -------- ------- principal amount of Debt Securities Outstanding have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Debt Securities owned by the Company or any other obligor upon the Debt Securities or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon such request, demand, authorization, direction, notice, consent or waiver, only Debt Securities which the Trustee knows to be so owned shall be so disregarded. Debt Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Debt Securities and that the pledgee is not the Company or any other obligor upon the Debt Securities or any Affiliate of the Company or of such other obligor. The Trustee shall not be deemed to know that any Debt Securities are so owned unless it has received written notice of such fact at its Corporate Trust Office or unless one of its Responsible Officers has actual knowledge thereof. "Paying Agent" means any Person authorized by the Company to pay the principal of (and premium, if any) or interest on any Debt Securities on behalf of the Company. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. 7 "Place of Payment", when used with respect to the Debt Securities of any series, unless otherwise specified in a Board Resolution, and an Officers' Certificate, or in a supplemental indenture, means the office or agency of the Company in the Borough of Manhattan, The City and State of New York, and such other place or places, if any, where the principal of (and premium, if any) and interest on the Debt Securities of that series are payable as specified as contemplated by Section 301. "Predecessor Security" of any particular Debt Security means every previous Debt Security evidencing all or a portion of the same debt as that evidenced by such particular Debt Security; and, for the purposes of this definition, any Debt Security authenticated and delivered under Section 306 in lieu of a lost, destroyed or stolen Debt Security shall be deemed to evidence the same debt as the lost, destroyed or stolen Debt Security. "Redemption Date", when used with respect to any Debt Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price", when used with respect to any Debt Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. "Regular Record Date" for the interest payable on any Interest Payment Date on the Debt Securities of any series means the date specified for that purpose as contemplated by Section 301. "Repayment Date" means, when used with respect to any Debt Security to be repaid at the option of the Holder, the date fixed for such repayment by or pursuant to this Indenture. "Repayment Price" means, when used with respect to any Debt Security to be repaid at the option of the Holder, the price at which it is to be repaid by or pursuant to this Indenture. "Required Currency" means the currency in which the Debt Securities of any series are payable, in accordance with their terms or pursuant to an election made by one or more Holders pursuant to Section 301 hereof. If, however, the Required Currency is unavailable for the reasons stated in Section 311(d)(i) or (ii), the Required Currency shall mean U.S. Dollars. "Responsible Officer", when used with respect to the Trustee, means any officer of the Trustee assigned to its corporate trust department or similar group and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Security Register" and "Security Registrar" have the respective meanings specified in Section 305. 8 For purposes of Section 311(b)(6) of the Trust Indenture Act, the term "self-liquidating paper" means any draft, bill of exchanges, acceptance or obligation which is made, drawn, negotiated or incurred by the Company or any other obligor upon the Debt Securities for the purpose of financing the purchase, processing, manufacture, shipment, storage or sale of goods, wares or merchandise and which is secured by documents evidencing title to, possession of or a lien upon, the goods, wares or merchandise or the receivables or proceeds arising from the sale of the goods, wares or merchandise previously constituting the security, provided the security is received by the Trustee simultaneously with the creation of the creditor relationship with such Person arising from the making, drawing, negotiation or incurring of the draft, bill of exchange, acceptance or obligation. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 307. "Stated Maturity", when used with respect to any Debt Security or any installment of principal thereof or interest thereon, means the date specified in such Debt Security as the fixed date on which the principal of such Debt Security or such installment of principal or interest is due and payable. "Stated Principal Maturity" means the Stated Maturity for the payment of principal, or any installment of principal, of any Debt Security. "Subsidiary" means any corporation at least a majority of the outstanding Voting Stock of which shall at the time directly or indirectly be owned or controlled by the Company or one or more Subsidiaries. "Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean or include each Person who is then a Trustee hereunder, and if at any time there is more than one such Person, "Trustee" as used with respect to the Debt Securities of any series shall mean the Trustee with respect to Debt Securities of that series. "Trust Indenture Act" means the Trust Indenture Act of 1939 and any reference herein to such Act or a particular provision thereof shall mean such Act or provision, as the case may be, as amended or replaced from time to time or as supplemented from time to time by rules or regulations adopted by the Commission under or in furtherance of the purposes of such Act or provision, as the case may be. "U.S. Government Obligations" has the meaning specified in Section 1402. 9 "Voting Stock", as applied to the stock of any corporation, means stock of any class or classes, however designated, having ordinary voting power for the election of a majority of the directors of such corporation, other than stock having such power only by reason of the happening of a contingency. SECTION 102. Compliance Certificates and Opinions. ------------------------------------ Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 103. Form of Documents Delivered to Trustee. -------------------------------------- In any case where several matters are required to be certified by or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such 10 Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based is erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 104. Acts of Holders. --------------- (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 315 of the Trust Indenture Act) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved in any manner which the Trustee deems sufficient. (c) The ownership, principal amount and serial numbers of Debt Securities held by any Person, and the date of the commencement and the date of the termination of holding the same, shall be proved by the Security Register. (d) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Debt Security shall bind every future holder of the same Debt Security 11 and the Holder of any Debt Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, suffered or omitted by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Debt Security. (e) For purposes of determining the aggregate principal amount of Outstanding Debt Securities of any series the Holders of which are required, requested or permitted to give any request, demand, authorization, direction, notice, consent, waiver or take any other Act under this Indenture, each Debt Security denominated in a Foreign Currency shall be deemed to have a principal amount determined by an Exchange Rate Agent (as evidenced by a certificate of such Exchange Rate Agent) by converting the principal amount of such Debt Security in the Foreign Currency in which such Debt Security is denominated into Dollars at the Exchange Rate as of 9:00 A.M., New York time, on the date such Act is delivered to the Trustee and, where it is hereby expressly required, to the Company (or, if there is no such rate on such date for the reasons specified in Section 311(d)(i) of the Indenture, such rate on the date specified in such Section). SECTION 105. Notices, etc., to Trustee and the Company. ----------------------------------------- Except as provided in Sections 601(4) and (5), any request, demand, authorization, direction, notice, consent, waiver or other Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (1) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, or (2) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this instrument or at any other address previously furnished in writing to the Trustee by the Company, Attention: Chairman of the Board of Directors, 155 North Lake Avenue, Pasadena, California 91101. SECTION 106. Notice to Holders; Waiver. ------------------------- Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first class postage prepaid, to each Holder affected by such event, at his address as it appears in the Security Register, not later than the latest date and not earlier than the earliest 12 date, prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In the event of suspension of regular mail service or for any other reason it shall be impracticable to give such notice by mail, then such a notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder. SECTION 107. Conflict with Trust Indenture Act. --------------------------------- If any provision hereof limits, qualifies or conflicts with any duties under any required provision of the Trust Indenture Act imposed hereon by Section 318(c) thereof, such required provision shall control. SECTION 108. Effect of Headings and Table of Contents. ---------------------------------------- The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 109. Successors and Assigns. ---------------------- All covenants and agreements in this Indenture by the Company shall bind their respective successors and assigns, whether or not so expressed. SECTION 110. Separability Clause. ------------------- In case any provision in this Indenture or in the Debt Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 111. Benefits of Indenture. --------------------- Nothing in this Indenture or in the Debt Securities, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, any Paying Agent and the Holders, any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 112. Governing Law. ------------- 13 This Indenture and the Debt Securities shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed in said state. SECTION 113. Legal Holidays. -------------- Unless otherwise specifically provided for in the applicable Debt Securities, in any case where any Interest Payment Date, Redemption Date, Repayment Date, sinking fund payment date, Stated Maturity, Stated Principal Maturity or Maturity of any Debt Security shall not be a Business Day at any Place of Payment, then the required payment of principal, premium, if any, and/or interest need not be made at such Place of Payment on such date, but may be made on the next succeeding Business Day at such Place of Payment with the same force and effect as if made on the Interest Payment Date, Redemption Date, Repayment Date, sinking fund payment date, Stated Maturity, Stated Principal Maturity or Maturity, and no interest shall accrue on such payment for the period from and after such Interest Payment Date, Repayment Date, Redemption Date, sinking fund payment date, Stated Maturity, Stated Principal Maturity or Maturity, as the case may be, to the next succeeding Business Day. SECTION 114. Moneys of Different Currencies to be Segregated. ----------------------------------------------- The Trustee shall segregate all moneys, funds and accounts held by the Trustee hereunder in one currency from any moneys, funds or accounts in any other currencies, notwithstanding any provision herein which would otherwise permit the Trustee to commingle such amounts. SECTION 115. Payment to Be in Proper Currency. -------------------------------- Each reference in any Debt Security, or in the Board Resolution relating thereto, to any currency shall be of the essence. The obligation of the Company to make any payment of principal of (and premium, if any) and interest on any Debt Security shall not be discharged or satisfied by any tender by the Company or recovery by the Trustee, in any currency other than the Required Currency, except to the extent that such tender or recovery shall result in the Trustee timely holding the full amount of the Required Currency then due and payable. If any such tender or recovery is in a currency other than the Required Currency, the Trustee may take such actions as it considers appropriate to exchange such currency for the Required Currency. The costs and risks of any such exchange, including without limitation the risks of delay and exchange rate fluctuation, shall be borne by the Company and the Company shall remain fully liable for any shortfall or delinquency in the full amount of Required Currency then due and payable, and in no circumstances shall the Trustee be liable therefor. The Company hereby waives any defense of payment based upon any such tender or recovery 14 which is not in the Required Currency, or which, when exchanged for the Required Currency by the Trustee, is less than the full amount of Required Currency then due and payable. Any costs incurred by or on behalf of the Company (other than costs incurred by the Trustee that are passed on to the Company as provided above) in connection with the conversion of any Foreign Currency to Dollars pursuant to an election made by a Holder in accordance with Section 301 shall be borne by the Holder making such an election through deduction from payments required to be made to such Holder pursuant to the terms of this Indenture. 15 ARTICLE TWO FORMS OF DEBT SECURITIES SECTION 201. Forms Generally. --------------- The Debt Securities shall have such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification or designation and such legends or endorsements placed thereon, as the Company may deem appropriate and as are not inconsistent with the provisions of this Indenture, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any securities exchange on which any of the Debt Securities may be listed, or to conform to usage, all as determined by the officers executing such Debt Securities, as conclusively evidenced by their execution of such Debt Securities. The Trustee's certificate of authentication shall be in substantially the form set forth in Section 203. SECTION 202. Forms of Debt Securities. ------------------------ Each Debt Security shall be in one of the forms approved from time to time by or pursuant to a Board Resolution and an Officers' Certificate or one or more indentures supplemental hereto which shall set forth the information required by Section 301. If the form for a series of Debt Securities is established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company, as the case may be, and delivered to the Trustee at or prior to the delivery of the Officers' Certificate setting forth the form for such series. SECTION 203. Form of Trustee's Certificate of Authentication. ----------------------------------------------- The form of the Trustee's certificate of authentication to be borne by the Debt Securities shall be substantially as follows: TRUSTEE'S CERTIFICATE OF AUTHENTICATION 16 This is one of the Debt Securities of the series designated therein referred to in the within-mentioned Indenture. THE BANK OF NEW YORK, as Trustee By: _____________________ Authorized Signatory 17 ARTICLE THREE THE DEBT SECURITIES SECTION 301. Amount Unlimited; Issuable in Series. ------------------------------------ The aggregate principal amount of Debt Securities which may be authenticated and delivered under this Indenture is unlimited. The Debt Securities may be issued in one or more series. There shall be established in or pursuant to a Board Resolution, and set forth in an Officers' Certificate, or established in one or more indentures supplemental hereto, with such notification to the Trustee in advance of the issuance of the Debt Securities of any Series as may be agreed upon by the parties hereto: (1) the title of the Debt Securities of the series (which shall distinguish the Debt Securities of the series from all other Debt Securities); (2) the limit, if any, upon the aggregate principal amount of the Debt Securities of the series which may be authenticated and delivered under this Indenture (except for Debt Securities authenticated and delivered upon registration or, transfer of, or in exchange for, or in lieu of, other Debt Securities of the series pursuant to Section 304, 305, 306, 1007 or 1207); (3) the date or dates, or the method or methods, if any, by which such date or dates shall be determined or extended, on which the principal of the Debt Securities of the series is payable; (4) the rate or rates, if any, at which the Debt Securities of the series shall bear interest, if any, or the method or methods, if any, by which such rate or rates are to be determined or reset, the date or dates, if any, from which such interest shall accrue, or the method or methods, if any, by which such date or dates shall be determined or reset, the Interest Payment Dates, if any, on which such interest shall be payable and the Regular Record Dates, if any, for the interest payable on such Interest Payment Dates, and the basis upon which interest shall be calculated if other than that of a 360-day year of twelve 30-day months; (5) the place or places, if any, in addition to or other than the office or agency of the Company in the Borough of Manhattan, The City of New York and State of New York, where the principal of (and premium, if any) and interest on Debt Securities of the series shall be payable, any Debt Securities may be surrendered for registration of transfer or exchange and notices or demands to or upon the 18 Company in respect of such Debt Securities and this Indenture may be served; (6) the period or periods within which or the date or dates on which, if any, the price or prices at which and the terms and conditions upon which Debt Securities of the series may be redeemed, in whole or in part, at the option of the Company; (7) the obligation, if any, of the Company to redeem, repay or purchase Debt Securities of the series pursuant to any sinking fund or analogous provisions or at the option of the Holders thereof, and the period or periods within which, the price or prices at which and the other terms and conditions upon which Debt Securities of the series shall be redeemed, repaid or purchased, in whole or in part, pursuant to such obligation; (8) if other than denominations of $1,000 and any integral multiple thereof, the denominations in which Debt Securities of the series shall be issuable; (9) if other than the principal amount thereof, the portion of the principal amount of Debt Securities of the series which shall be payable upon declaration of acceleration of the Maturity thereof pursuant to Section 602; (10) provisions, if any, for the defeasance of Debt Securities of the series; (11) (A) the currency of denomination of the Debt Securities of any series, which may be in Dollars or any Foreign Currency, including but not limited to the ECU, (B) if such Debt Securities are denominated in a Foreign Currency which is a composite currency other than the ECU, the agency or organization, if any, responsible for overseeing such composite currency and (C) if such Debt Securities are denominated in a Foreign Currency other than a composite currency, the capital city of the country of such Foreign Currency; (12) the designation of the currency or currencies in which payment of the principal of (and premium, if any) and interest on the Debt Securities of the series will be made, and, if such currency or currencies is a Foreign Currency, whether payment of the principal (and premium, if any) or the interest on such Debt Securities, at the election of a Holder thereof, may instead be payable in Dollars and the terms and conditions upon which such election may be made; 19 (13) any additional Events of Default or restrictive covenants provided for with respect to Debt Securities of the series; (14) any other terms of the series (which terms shall not be inconsistent with the provisions of this Indenture), including any terms which may be required or advisable under United States laws or regulations or advisable in connection with the marketing of Debt Securities of the series; (15) if the Debt Securities of such series are to be denominated or payable in a Foreign Currency, the designation of the initial Exchange Rate Agent and, if other than as set forth herein, the definition of the Exchange Rate; (16) the form of Debt Securities of such series and, if issuable in global form, the name of the depository with respect thereto and the terms upon which and the circumstances under which such Notes may be exchanged; (17) the ability, if any, of the Holder of a Debt Security to renew all or any portion of a Debt Security; and (18) the obligation, if any, of the Company to permit the conversion or exchange of such Debt Securities into or for shares of other securities and the terms and conditions upon which any such conversion or exchange shall be effected, including, without limitation, the initial conversion or exchange price or rate, the conversion or exchange period, any adjustment of the applicable conversion or exchange price and any requirements relative to the reservation of such other securities for purposes of conversion or exchange. All Debt Securities of any one series shall be substantially identical except as to the currency of payments due thereunder, denomination, the rate or rates of interest, if any, and Maturity and except as may otherwise be provided in or pursuant to such Board Resolution and set forth in such Officers' Certificate or in any such indenture supplemental hereto. In addition, all Debt Securities of any one series need not be issued at the same time and, unless otherwise so provided by the Company, a series may be reopened for issuance of additional Debt Securities of such series or to establish additional terms of such series of Debt Securities. If any of the terms of a series of Debt Securities is established by an action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Officers' Certificate setting forth the terms of such series. SECTION 302. Denominations. ------------- Unless otherwise specified in a supplemental indenture, the Debt Securities of each series shall be issuable in registered form without coupons in such denominations as shall be specified in accordance with the requirements of Section 301. In the absence of any such provisions with respect to the Debt Securities of any series, the Debt Securities of such series shall be issuable in denominations of $1,000 or any integral multiple thereto. Debt Securities denominated in a Foreign Currency shall be issuable in such denominations as are established with respect to such Debt Securities in or pursuant to this Indenture. 20 SECTION 303. Execution, Authentication, Delivery and Dating. ---------------------------------------------- (a) The Debt Securities shall be executed on behalf of the Company by its Chairman of the Board, its President or one of its Vice Presidents, under its corporate seal reproduced thereon attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Debt Securities may be manual or facsimile. Debt Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Debt Securities or did not hold such offices at the date of such Debt Securities. (b) At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Debt Securities of any series executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of each such series of such Debt Securities, and the Trustee in accordance with the Company Order shall authenticate and deliver such Debt Securities. The Trustee shall be entitled to receive, prior to the authentication and delivery of such Debt Securities, the supplemental indenture or the Board Resolution by or pursuant to which the form and terms of such Debt Securities have been approved (and, if such form or terms are approved pursuant to a Board Resolution, an Officers' Certificate approving such terms and form), an Officers' Certificate as to the absence of any event which is, or after notice or lapse of time or both would become, an Event of Default, and an Opinion of Counsel stating that: (1) all instruments furnished by the Company to the Trustee in connection with the authentication and delivery of such Debt Securities conform to the requirements of this Indenture and constitute sufficient authority hereunder for the Trustee to authenticate and deliver such Debt Securities; (2) the form and terms of such Debt Securities have been established in conformity with the provisions of this Indenture; (3) in the event that the form or terms of such Debt Securities have been established in a supplemental indenture the execution and delivery of such supplemental indenture have been duly authorized by all necessary corporate action of the Company, such supplemental indenture has been duly executed and delivered by the Company and, assuming due authorization, execution and delivery by the Trustee, will constitute a legal, valid and binding obligation enforceable against the Company in accordance with its terms, subject to 21 applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law); (4) the execution and delivery of such Debt Securities have been duly authorized by all necessary corporate action of the Company and such Debt Securities have been duly executed by the Company, and, assuming due authentication by the Trustee and delivery by the Company, will constitute the legal, valid and binding obligations of the Company enforceable against the Company in accordance with their terms, entitled to the benefit of the Indenture, subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law); (5) that all laws and requirements hereunder in respect of the execution and delivery by the Company of such Debt Securities have been complied with; and (6) such other matters as the Trustee may reasonably request. (c) If all the Debt Securities of any series are not to be issued at one time, it shall not be necessary to deliver an Opinion of Counsel and Officers' Certificates at the time of issuance of each Debt Security, but such opinion and certificate, with appropriate modifications, shall be delivered at or before the time of issuance of the first Debt Security of such series. Any request by the Company that the Trustee authenticate Debt Securities of such series will be deemed to be a certification by the Company that (i) all conditions precedent provided for in this Indenture relating to the authentication and delivery of such Debt Securities have been complied with and (ii) there has not occurred an event which is, or after notice or lapse of time or both, would become an Event of Default. Notwithstanding the above, if the terms of Debt Securities are to be established pursuant to a supplemental indenture, the Company shall deliver to the Trustee, together with such supplemental indenture, the Opinion of Counsel referred to in subsection (b), above, and the Officers' Certificate, referred to in subsection (b), above, regarding the absence of an Event of Default. (d) The Trustee shall not be required to authenticate such Debt Securities if the issuance of such Debt Securities pursuant to this Indenture will affect the Trustee's own rights, duties or immunities under the Debt Securities and this Indenture or otherwise in a manner which is not reasonably acceptable to the Trustee or if the Trustee determines that such authentication 22 may not lawfully be made or if the Trustee reasonably determines that such authentication would be prejudicial to the Holders of Outstanding Debt Securities. (e) Each Debt Security shall be dated the date of its authentication. (f) No Debt Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Debt Security a certificate of authentication substantially in the form provided for herein duly executed by the Trustee by manual signature of one of its authorized officers, and such certificate upon any Debt Security shall be conclusive evidence, and the only evidence, that such Debt Security has been duly authenticated and delivered hereunder and is entitled to the benefits of this Indenture. SECTION 304. Temporary Debt Securities. ------------------------- Pending the preparation of definitive Debt Securities of any series, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Debt Securities which are printed, lithographed, or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Debt Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Debt Securities may determine, as conclusively evidenced by their execution of such Debt Securities. Except in the case of temporary Debt Securities in global form, which shall be exchanged in accordance with the provisions thereof, if temporary Debt Securities of any series are issued, the Company will cause definitive Debt Securities of such series to be prepared without unreasonable delay. After the preparation of definitive Debt Securities of such series, the temporary Debt Securities of such series shall be exchangeable for definitive Debt Securities of such series upon surrender of the temporary Debt Securities of such series at the office or agency of the Company in a Place of Payment for such series, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Debt Securities of any series, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Debt Securities of the same series of authorized denominations and of the same Stated Maturity. Unless otherwise specified as contemplated by Section 301 with respect to temporary Debt Securities in global form until so exchanged, the temporary Debt Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Debt Securities of such series. SECTION 305. Registration, Registration of Transfer and Exchange. --------------------------------------------------- 23 The Company shall cause to be kept at one of its offices or agencies maintained pursuant to Section 1102 a register (the register maintained in such office being herein sometimes referred to as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Debt Securities and of transfers of Debt Securities. Said office or agency is hereby appointed "Security Registrar" for the purpose of registering Debt Securities and transfers of Debt Securities as herein provided. Upon surrender for registration of transfer of any Debt Security of any series at the office or agency of the Company maintained for such purpose, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Debt Securities of the same series of any authorized denomination or denominations, of like tenor and aggregate principal amount. Unless otherwise specified as contemplated by Section 301 with respect to Debt Securities in global form at the option of the Holder, Debt Securities of any series may be exchanged for other Debt Securities of the same series containing identical terms and provisions of any authorized denomination or denominations, of like aggregate principal amount, upon surrender of the Debt Securities to be exchanged at such office or agency. Whenever any Debt Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Debt Securities which the Holder making the exchange is entitled to receive. Notwithstanding the foregoing, unless otherwise specified as contemplated in Section 301, any global Debt Security shall be exchangeable for definitive Debt Securities only if (i) the depository is at any time unwilling, unable or ineligible to continue as Depository and a successor depository is not appointed by the Company within 60 days of the date the Company is so informed in writing, (ii) the Company executes and delivers to the Trustee a Company Order to the effect that such global Debt Security shall be so exchangeable, or (iii) an Event of Default has occurred and is continuing with respect to the Debt Securities. If the beneficial owners of interests in a global Debt Security are entitled to exchange such interests for definitive Debt Securities, then without unnecessary delay but in any event not later than the earliest date on which such interests may be so exchanged, the Company shall deliver to the Trustee definitive Debt Securities in such form and denominations as are required by or pursuant to this Indenture, and of the same series, containing identical terms and in aggregate principal amount equal to the principal amount of, such global Debt Security, executed by the Company. On or after the earliest date on which such interests may be so exchanged, such global Debt Security shall be surrendered from time to time by the depository specified in the Company Order with respect thereto, and in accordance with instructions given to the Trustee and such 24 depository, as the case may be (which instructions shall be in writing but need be contained in or accompanied by an Officers' Certificate or be accompanied by an Opinion of Counsel), as shall be specified in the Company Order with respect thereto to the Trustee, as the Company's agent for such purpose, to be exchanged, in whole or in part, for definitive Debt Securities as described above without charge. The Trustee shall authenticate and make available for delivery, in exchange for each portion of such surrendered global Debt Security, a like aggregate principal amount of definitive Debt Securities of the same series of authorized denominations and of like tenor as the portion of such global Debt Security to be exchanged; provided, however, that no such exchanges may occur during a period beginning at the opening of business 15 days before any selection of Debt Securities of the same series and containing identical terms to be redeemed and ending on the relevant Redemption Date. Promptly following any such exchange in part, such global Debt Security shall be returned by the Trustee to such Depository. If a Debt Security is issued in exchange for any portion of a global Debt Security after the close of business at the office or agency of the Company for such Debt Security where such exchange occurs on or after (i) any Regular Record Date for such Debt Security and before the opening of business at such office or agency on the next Interest Payment Date, or (ii) any Special Record Date for such Debt Security and before the opening of business at such office or agency on the related proposed date for payment of interest or Defaulted Interest, as the case may be, interest shall not be payable on such Interest Payment Date or proposed date for payment, as the case may be, in respect of such Debt Security, but shall be payable on such Interest Payment Date or proposed date for payment, as the case may be, only to the Person to whom interest in respect of such portion of such global Debt Security shall be payable in accordance with the provisions of this Indenture. All Debt Securities issued upon any registration of transfer or exchange of Debt Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Debt Securities surrendered upon such registration of transfer or exchange. Every Debt Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company, the Security Registrar or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company, the Security Registrar and the Trustee duly executed, by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange of Debt Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer, registration of transfer or exchange of Debt 25 Securities, other than exchanges pursuant to Section 304, 1007 or 1207 not involving any transfer. Except as otherwise provided in or pursuant to this Indenture the Company shall not be required (i) to issue, register the transfer of or exchange Debt Securities of any particular series during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Debt Securities of such series selected for redemption under Section 1203 and ending at the close of business on the day of such mailing, (ii) to register the transfer of or exchange any Debt Security called for redemption in whole or in part, except the unredeemed portion of any Debt Security being redeemed in part or (iii) to issue, register the transfer of or exchange any Debt Security which has been surrendered for repayment at the option of the Holder thereof, except the portion, if any, of such Debt Security not to be so repaid. SECTION 306. Mutilated, Destroyed, Lost and Stolen Debt Securities. ----------------------------------------------------- If (i) any mutilated Debt Security is surrendered to the Trustee, or (ii) the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Debt Security, and there is delivered to the Company and the Trustee such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Company or the Trustee that such Debt Security has been acquired by a bona fide purchaser, the Company shall execute and upon its written request the Trustee shall authenticate and deliver, in exchange for any such mutilated Debt Security or in lieu of any such destroyed, lost or stolen Debt Security, a new Debt Security containing identical provisions and of like principal amount, bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Debt Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Debt Security, pay such Debt Security. Upon the issuance of any new Debt Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Debt Security of any series issued pursuant to this Section in lieu of any destroyed, lost or stolen Debt Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Debt Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Debt Securities of that series duly issued hereunder. 26 The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Debt Securities. SECTION 307. Payment of Interest; Interest Rights Preserved. ---------------------------------------------- (a) Unless otherwise specified as contemplated by Section 301, interest on any Debt Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Debt Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, except that in the case of a Debt Security issued between a Regular Record Date and the initial Interest Payment Date relating to such Regular Record Date, interest for the period beginning on the date of issue and ending on such initial Interest Payment Date shall be paid to the person to whom such Debt Security shall have been originally issued. Unless otherwise specified as contemplated by Section 301, at the option of the Company, payment of interest on any Debt Security may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. Unless otherwise specified as contemplated by Section 301, any interest on any Debt Security of any series which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the registered Holder on the relevant Regular Record Date by virtue of his having been such Holder, and such Defaulted Interest may be paid by the Company, at its election, as provided in Clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Debt Securities of such series (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Debt Security of such series and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the 27 proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder of Debt Securities of such series at his address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the Persons in whose names the Debt Securities of such series (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause (2). (2) The Company may make payment of any Defaulted Interest on the Debt Securities of any series in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Debt Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustee. (b) The provisions of this Section 307(b) may be made applicable to any series of Debt Securities pursuant to Section 301 (with such modifications, additions or substitutions as may be specified pursuant to such Section 301). The interest rate (or the spread and/or spread multiplier used to calculate such interest rate, if applicable) on any Debt Security of such series may be reset by the Company at its option on the date or dates specified in such Debt Security (each, an "Optional Reset Date"). The Company may exercise such option with respect to any such Debt Security by notifying the Trustee of such exercise at least 45 but not more than 60 calendar days prior to an Optional Reset Date for such Debt Security. If the Company so notifies the Trustee of such exercise, not later than 40 calendar days prior to such Optional Reset Date the Trustee shall transmit, in the manner provided for in Section 106, to the Holder of such Debt Security a notice (the "Reset Notice") indicating (i) that the Company has elected to reset the interest rate (or the spread and/or spread multiplier used to calculate such interest rate, if applicable), (ii) such new interest rate (or such new spread and/or spread multiplier, if applicable) and (iii) the provisions, if any, for redemption by the Company during the period from such Optional Reset Date to the next Optional Reset Date or, if there is no such next Optional Reset Date, to the Stated Principal Maturity of such Debt Security (each such period, a "Subsequent Interest Period"), including the date or dates on which, or the period or periods during which, and the price or prices at which such redemption may occur during such Subsequent Interest Period. 28 Notwithstanding the foregoing, not later than 20 calendar days prior to the applicable Optional Reset Date for a Debt Security, the Company may, at its option, revoke the interest rate (or the spread and/or spread multiplier used to calculate such interest rate, if applicable) provided for in the Reset Notice and establish an interest rate (or a spread and/or spread multiplier used to calculate such interest rate, if applicable) that is higher than the interest rate (or the spread and/or spread multiplier, if applicable) provided for in the Reset Notice, for the Subsequent Interest Period by causing the Trustee to transmit, in the manner provided for in Section 106, notice of such higher interest rate (or such higher spread and/or spread multiplier, if applicable) to the Holder of such Debt Security. Such notice shall be irrevocable. All Debt Securities with respect to which the interest rate (or the spread and/or spread multiplier used to calculate such interest rate, if applicable) is reset on an Optional Reset Date, and with respect to which the Holders of such Debt Securities have not surrendered such Debt Securities for repayment (or have validly revoked any such surrender) pursuant to the next succeeding paragraph, will bear such higher interest rate (or such higher spread and/or spread multiplier, if applicable). If the provisions of Section 307(b) are made applicable to any Debt Security and the Company notifies the Trustee of the exercise of its option to reset the interest rate (or the spread and/or spread multiplier used to calculate such interest rate, if applicable) on such Debt Security on an Optional Reset Date, the Holder of such Debt Security will have the option to elect repayment by the Company of such Debt Security on such Optional Reset Date at a price equal to the principal amount thereof plus any accrued interest to such Optional Reset Date. In order to obtain repayment of such Debt Security on such Optional Reset Date, the Holder must follow the procedures set forth in Section 1503 for repayment at the option of Holders, except that (i) the period for delivery of such Debt Security or notification to the Trustee shall be at least 25 but not more than 35 calendar days prior to such Optional Reset Date and (ii) if the Holder has surrendered such Debt Security for repayment following receipt of the Reset Notice, the Holder may revoke such surrender for repayment by written notice to the Trustee received prior to 5:00 P.M., New York City time, on the tenth calendar day prior to such Optional Reset Date. Subject to the foregoing provisions of this Section and Section 305, each Debt Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Debt Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Debt Security. SECTION 308. Persons Deemed Owners. --------------------- Prior to due presentment of a Debt Security for registration of transfer, the Company, the Trustee and any agent 29 of the Company or the Trustee may treat the Person in whose name such Debt Security is registered as the owner of such Debt Security for the purpose of receiving payment of principal of (and premium, if any) and (subject to Sections 305 and 307) interest on such Debt Security and for all other purposes whatsoever, whether or not such Debt Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. No holder of any beneficial interest in any global Debt Security held on its behalf by a depository shall have any rights under this Indenture with respect to such global Debt Security, and such depository may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the owner of such global Debt Security for all purposes whatsoever. None of the Company, the Trustee nor any agent of the Company or the Trustee will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of a global Debt Security or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. SECTION 309. Cancellation. ------------ Unless otherwise provided with respect to a series of Debt Securities, all Debt Securities surrendered for payment, redemption, repayment, registration of transfer or exchange or for credit against any sinking fund payment shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly cancelled by it. The Company may at any time deliver to the Trustee for cancellation any Debt Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Debt Securities so delivered shall be promptly cancelled by the Trustee. No Debt Securities shall be authenticated in lieu of or in exchange for any Debt Securities cancelled as provided in this Section, except as expressly permitted by this Indenture. All cancelled Debt Securities held by the Trustee shall be retained by the Trustee for such period as it may, in its sole discretion, determine unless by a Company Order or the Company shall direct that the cancelled Debt Securities be returned to it. SECTION 310. Computation of Interest. ----------------------- Except as otherwise specified as contemplated by Section 301 for Debt Securities of any series, interest on the Debt Securities of each series shall be computed on the basis of a year of twelve 30-day months. SECTION 311. Payment in Currencies. --------------------- (a) Payment of the principal of (and premium, if any) and interest on the Debt Securities of any series shall be made in the currency or currencies specified pursuant to Section 301; provided that in the case of Debt Securities of a series 30 denominated in one or more Foreign Currencies the Holder of a Debt Security of such series may elect to receive such payment in Dollars if authorized pursuant to Section 301(12). A Holder may make such election by delivering to the Trustee a written notice thereof, substantially in the form attached hereto as Exhibit A or in such other form as may be acceptable to the Trustee, not later than the close of business on the Regular or Special Record Date immediately preceding the applicable Interest Payment Date or the fifteenth day immediately preceding the Maturity of an installment of principal, as the case may be. Such election shall remain in effect with respect to such Holder until such Holder delivers to the Trustee a written notice rescinding such election, provided that any such notice must be delivered to the Trustee not later than the close of business on the Regular or Special Record Date immediately preceding the next Interest Payment Date or the fifteenth day immediately preceding the Maturity of an installment of principal, as the case may be, in order to be effective for the payment to be made thereon; and provided, further, that no such rescission may be made with respect to payments to be made on any Debt Security with respect to which notice of redemption has been given by the Company pursuant to Article Twelve or a notice of option to elect repayment has been sent by a Holder or transferee pursuant to Article Fifteen. Upon request, the Trustee will mail a copy of Exhibit A to any Holder requesting a copy thereof to the address of such Holder set forth in such request. (b) If at least one Holder has made the election referred to in subsection (a) above to receive payments in Dollars on a series of Debt Securities denominated in one or more Foreign Currencies, then the Trustee shall deliver to the Company, not later than the fourth Business Day after the Regular or Special Record Date with respect to an Interest Payment Date or the tenth day immediately preceding the Maturity of an installment of principal, as the case may be, a written notice specifying the amount of principal of (and premium, if any) and interest on such series of Debt Securities to be paid in Dollars on such payment date. (c) Except as otherwise specified as contemplated by Section 301 hereof, if at least one Holder has made the election referred to in subsection (a) above to receive payments in Dollars on a series of Debt Securities denominated in one or more Foreign Currencies, then the amount receivable by Holders of a series of Debt Securities who have elected payment in Dollars shall be determined by the Company on the basis of the applicable Exchange Rate set forth in the applicable Exchange Rate Officer's Certificate. The Company shall deliver, not later than the eighth day following each Regular or Special Record Date or the sixth day immediately preceding the Maturity of an installment of principal, as the case may be, to the Trustee an Exchange Rate Officer's Certificate in respect of the payments to be made to such Holders on such payment date. 31 (d) (i) If the Foreign Currency (other than the ECU or other composite currency) in which a series of Debt Securities is denominated is not available to the Company for making payment thereof due to the imposition of exchange controls or other circumstances beyond the control of the Company, then with respect to each date for the payment of principal of (and premium, if any) and interest on such series of Debt Securities occurring after the final date on which the Foreign Currency was so used, all payments with respect to the Debt Securities of any such series shall be made in Dollars. If payment is to be made in Dollars to the Holders of any such series of Debt Securities pursuant to the provisions of the preceding sentence, then the amount to be paid in Dollars on a payment date by the Company to the Trustee and by the Trustee or any Paying Agent to Holders shall be determined by an Exchange Rate Agent and shall be equal to the sum obtained by converting the specified Foreign Currency into Dollars at the applicable Exchange Rate, or if no rate is quoted for such Foreign Currency, the last date such rate is quoted. (ii) If the ECU ceases to be used both within the European Monetary System and for the settlement of transactions by public institutions of or within the European Communities or is not available due to circumstances beyond the control of the Company, or if any other composite currency in which a Debt Security is denominated or payable ceases to be used for the purposes for which it was established or is not available due to circumstances beyond the control of the Company, then with respect to each date for the payment of principal of (and premium, if any) and interest on a series of Debt Securities denominated in ECU or such other composite currency, as appropriate (the "Conversion Date"), occurring after the last date on which the ECU or such other composite currency was so used, all payments with respect to the Debt Securities of any such series shall be made in Dollars. If payment with respect to Debt Securities of a series denominated in ECU or any other composite currency is to be made in Dollars pursuant to the provisions of the preceding sentence, then the amount to be paid in Dollars on a payment date by the Company to the Trustee and by the Trustee or any Paying Agent to Holders shall be determined by an Exchange Rate Agent and shall be equal to the sum of the amounts obtained by converting each Component of such composite currency into Dollars at its respective Exchange Rate, multiplied by the number of ECU or units of such other composite currency, as appropriate, that would have been so paid had the ECU or such other composite currency, as appropriate, not ceased to be so used. (e) All decisions and determinations of an Exchange Rate Agent regarding the Exchange Rate or conversion of Foreign Currency (other than the ECU or other composite currency) into Dollars pursuant to subsection (d)(i) above or the conversion of ECU or other composite currency into Dollars pursuant to subsection (d)(ii) shall, in the absence of manifest error, be conclusive for all purposes and irrevocably binding upon the 32 Company, the Trustee, any Paying Agent and all Holders of the Debt Securities. If a Foreign Currency (other than the ECU or other composite currency) in which payment of a series of Debt Securities may be made, pursuant to subsection (a) above is not available to the Company for making payments thereof due to the imposition of exchange controls or other circumstances beyond the control of the Company, the Company, after learning thereof, will give notice thereof to the Trustee immediately (and the Trustee promptly thereafter will give notice to the Holders in the manner provided in Section 106) specifying the last date on which the Foreign Currency was used for the payment of principal of (and premium, if any) or interest on such series of Debt Securities. In the event the ECU ceases to be used both within the European Monetary System and for the settlement of transactions by public institutions of or within the European Communities or is not available due to circumstances beyond the control of the Company, or if any other composite currency in which a Debt Security is denominated or payable ceases to be used for the purposes for which it was established or is not available due to circumstances beyond the control of the Company, the Company, after learning thereof, will give notice thereof to the Trustee immediately (and the Trustee promptly thereafter will give notice to the Holders in the manner provided in Section 106). In the event of any subsequent change in any Component, the Company, after learning thereof, will give notice to the Trustee similarly (and the Trustee promptly thereafter will give notice to the Holders in the manner provided in Section 106). The Trustee shall be fully justified and protected in relying and acting upon the information so received by it from the Company and shall not otherwise have any duty or obligation to determine such information independently. SECTION 312. Optional Extension of Stated Principal Maturity. ----------------------------------------------- The provisions of this Section 312 may be made applicable to any series of Debt Securities pursuant to Section 301 (with such modifications, additions or substitutions as may be specified pursuant to such Section 301). The Stated Principal Maturity of any Debt Security of such series may be extended by the Company at its option for the period or periods specified in such Debt Security (each such period, an "Extension Period") up to but not beyond the date (the "Final Maturity") specified in such Debt Security. The Company may exercise such option with respect to any such Debt Security by notifying the Trustee of such exercise at least 45 but not more than 60 calendar days prior to the Stated Principal Maturity of such Debt Security then in effect (the "Current Stated Principal Maturity"). If the Company so notifies the Trustee of such exercise, not later than 40 calendar days prior to the Current Stated Principal Maturity the Trustee shall transmit, in the manner provided for in Section 106, to the Holder of such Debt Security a notice (the "Extension Notice") indicating (i) that the Company has elected to extend the Current Stated Principal Maturity, (ii) the new Stated Principal Maturity and the Final Maturity, (iii) the interest 33 rate (or the spread and/or spread multiplier used to calculate such interest rate, if applicable) applicable to the Extension Period and (iv) the provisions, if any, for redemption by the Company during such Extension Period, including the date or dates on which, or the period or periods during which, and the price or prices at which such redemption may occur during such Extension Period. Upon the Trustee's transmittal of the Extension Notice to the Holder of such Debt Security, the Current Stated Principal Maturity of such Debt Security shall be extended automatically and, except as modified by the Extension Notice and as described in the next two paragraphs, such Debt Security will have the same terms as prior to the transmittal of such Extension Notice. Notwithstanding the foregoing, not later than 20 calendar days prior to the Current Stated Principal Maturity of such Debt Security, the Company may, at its option, revoke the interest rate (or the spread and/or spread multiplier used to calculate such interest rate, if applicable) provided for in the Extension Notice and establish an interest rate (or a spread and/or spread multiplier used to calculate such interest rate, if applicable) that is higher than the interest rate (or the spread and/or spread multiplier, if applicable) provided for in the Extension Notice for the Extension Period by causing the Trustee to transmit, in the manner provided for in Section 106, notice of such higher interest rate (or such higher spread and/or spread multiplier, if applicable) to the Holder of such Debt Security. Such notice shall be irrevocable. All Debt Securities with respect to which the Current Stated Principal Maturity is extended, and with respect to which the Holders of such Debt Securities have not surrendered such Debt Securities for repayment (or have validly revoked any such surrender), will bear such higher interest rate (or such higher spread and/or spread multiplier, if applicable). If the provisions of this Section 312 are made applicable to any Debt Security and the Company notifies the Trustee of the exercise of its option to extend the Current Stated Principal Maturity of such Debt Security, the Holder of such Debt Security will have the option to elect repayment of such Debt Security by the Company on the Current Stated Principal Maturity at a price equal to the principal amount thereof plus any accrued interest to the Current Stated Principal Maturity. In order to obtain repayment of such Debt Security on the Current Stated Principal Maturity, the Holder must follow the procedures set forth in Section 1503 for repayment at the option of Holders, except that (i) the period for delivery of such Debt Security or notification to the Trustee shall be at least 25 but not more than 35 calendar days prior to the Current Stated Principal Maturity and (ii) if the Holder has surrendered such Debt Security for repayment following receipt of the Extension Notice, the Holder may revoke such surrender for repayment prior to 5:00 P.M., New York City time, on the tenth calendar day prior to the Current Stated Principal Maturity. 34 ARTICLE FOUR [RESERVED] 35 ARTICLE FIVE SATISFACTION AND DISCHARGE SECTION 501. Satisfaction and Discharge of Indenture. --------------------------------------- This Indenture shall upon a Company Request cease to be of further effect with respect to any series of Debt Securities specified therein (except as to any surviving rights of registration of transfer or exchange of Debt Securities of such series herein expressly provided for and rights to receive payments of principal, premium and interest thereon) and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when (1) either (A) all Debt Securities of such series theretofore authenticated and delivered (other than (i) Debt Securities of such series which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 306 and (ii) Debt Securities of such series for whose payment money in the Required Currency has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 1103) have been delivered to the Trustee for cancellation; or (B) all Debt Securities of such series not theretofore delivered to the Trustee for cancellation (i) have become due and payable, or (ii) will become due and payable at their Stated Maturity within one year, or (iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice by the Trustee in the name, and at the expense, of the Company, and the Company has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount in the Required Currency sufficient to pay and discharge the entire indebtedness on such Debt Securities for principal (and premium, if any) and interest to the date of such deposit (in the case of Debt Securities which become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; 36 (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company with respect to the Outstanding Debt Securities of such series; and (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture as to such series have been complied with. In the event that there are Debt Securities of two or more series hereunder, the Trustee shall be required to execute an instrument acknowledging satisfaction and discharge of the Indenture only if requested to do so with respect to the Debt Securities of such series as to which it is Trustee and if the other conditions thereto are met. Notwithstanding the satisfaction and discharge of this Indenture with respect to any series of Debt Securities, the obligations of the Company pursuant to Section 115, the obligations of the Company to the Trustee under Section 707 and, if money shall have been deposited with the Trustee pursuant to Subclause (B) of Clause (1) of this Section, the obligations of the Trustee under Section 502 and the last paragraph of Section 1103 shall survive. SECTION 502. Application of Trust Money. -------------------------- Subject to the provisions of the last paragraph of Section 1103, all money deposited with the Trustee pursuant to Section 501 shall be held in trust and applied by it, in accordance with the provisions of the Debt Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for whose payment such money has been deposited with the Trustee. 37 ARTICLE SIX REMEDIES SECTION 601. Events of Default. ----------------- "Event of Default", wherever used herein with respect to Debt Securities of any series, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law, pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) default in the payment of any interest upon any Debt Security of such series when it becomes due and payable, and continuance of such default for a period of 30 days; or (2) default in the payment of the principal of (or premium, if any, on) any Debt Security of such series at its Maturity; or (3) default in the deposit of any sinking fund payment when and as due by the terms of a Debt Security of such series; or (4) default in the performance, or breach, of any covenant or warranty of the Company in this Indenture or the Debt Securities (other than a covenant or warranty a default in whose performance or whose breach is elsewhere in this Section specifically dealt with or which has expressly been included in this Indenture solely for the benefit of Debt Securities of a series other than such series), and continuance of such default or breach for a period of 60 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in aggregate principal amount of the Outstanding Debt Securities of such series, a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or (5) if an event of default as defined in any mortgage, indenture or instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money of the Company or any Subsidiary (including this Indenture), whether such indebtedness now exists or shall hereafter be created, shall happen and shall result in such indebtedness in an amount in excess of $10,000,000 becoming or being declared due and payable prior to the date on which it would otherwise become due and payable; and such acceleration shall not be rescinded or annulled for a period of 10 days after there has been given, by registered or certified mail, to the Company by the 38 Trustee or to the Company and the Trustee by the Holders of at least 25% in aggregate principal amount of the Outstanding Debt Securities of such series, a written notice specifying such event of default and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or (6) the entry of a decree or order for relief in respect of the Company by a court having jurisdiction in the premises in an involuntary case under the Federal bankruptcy laws, as now or hereafter constituted, or any other Federal or State bankruptcy, insolvency or other similar law, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of the Company or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 90 consecutive days; or (7) the commencement by the Company of a voluntary case under the Federal bankruptcy laws, as now or hereafter constituted, or any other applicable Federal or State bankruptcy, insolvency or other similar law, or the consent by it to the entry of an order for relief in an involuntary case under any such law or to the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of the Company or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of any corporate action in furtherance of any of the foregoing; or (8) any other Event of Default provided with respect to the Debt Securities of such series. SECTION 602. Acceleration of Maturity; Rescission and Annulment. -------------------------------------------------- If an Event of Default with respect to Debt Securities of any series at the time Outstanding occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in aggregate principal amount of Outstanding Debt Securities of such series may declare the principal amount (or, if the Debt Securities of such series are Original Issue Discount Securities, such portion of the principal amount as may be specified in the terms of such series) of all the Debt Securities of such series to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), and upon any such declaration such principal amount (or specified amount) shall become immediately due and payable. At any time after such a declaration of acceleration with respect to Debt Securities of any series has been made and before a judgment or decree for payment of the money due has been 39 obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in aggregate principal amount of the Outstanding Debt Securities of such series, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if (1) the Company has paid or deposited with the Trustee a sum sufficient to pay (A) all overdue installments of interest on all Debt Securities of such series, (B) the principal of (and premium, if any, on) any Debt Securities of such series which have become due otherwise than by such declaration of acceleration and interest thereon at the rate or rates prescribed therefor in such Debt Securities, (C) to the extent that payment of such interest is lawful, interest upon overdue installments of interest on each Debt Security at the rate or rates prescribed therefor in such Debt Securities, and (D) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and (2) all Events of Default with respect to Debt Securities of such series, other than the non-payment of the principal of Debt Securities of such series which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 613. No such rescission shall affect any subsequent default or impair any right consequent thereon. SECTION 603. Collection of Indebtedness and Suits for Enforcement by ------------------------------------------------------- Trustee. ------- The Company covenants that if: (1) default is made in the payment of any installment of interest on any Debt Security when such interest becomes due and payable and such default continues for a period of 30 days, or (2) default is made in the payment of the principal of (or premium, if any, on) any Debt Security at the Maturity thereof or otherwise, the Company will, upon demand of the Trustee, pay to the Trustee, for the benefit of the Holders of such Debt Securities, the amount then due and payable on such Debt Securities for principal (and premium, if any) and interest and, to the extent that 40 payment of such interest shall be legally enforceable, interest upon the overdue principal (and premium, if any) and upon overdue installments of interest, at the rate or rates prescribed therefor in such Debt Securities; and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, and may prosecute such proceeding to judgment or final decree, and may enforce the same against the Company or any other obligor upon such Debt Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon such Debt Securities, wherever situated. If an Event of Default with respect to Debt Securities of any series occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Debt Securities of such series by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION 604. Trustee May File Proofs of Claim. -------------------------------- In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceedings, or any voluntary or involuntary case under the Federal bankruptcy laws as now or hereafter constituted, relative to the Company or any other obligor upon the Debt Securities of a particular series or the property of the Company or such other obligor or their creditors, the Trustee (irrespective of whether the principal of such Debt Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise, (i) to file and prove a claim for the whole amount of principal (and premium, if any) and interest owing and unpaid in respect of the Debt Securities of such series and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding, and 41 (ii) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any receiver, assignee, trustee, custodian, liquidator, sequestrator (or other similar official) in any such proceeding is hereby authorized by each Holder (i) to make such payments to the Trustee, and (ii) in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 707. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Debt Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 605. Trustee May Enforce Claims without Possession of Debt ----------------------------------------------------- Securities. ---------- All rights of action and claims under this Indenture or the Debt Securities may be prosecuted and enforced by the Trustee without the possession of any of the Debt Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name, as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Debt Securities in respect of which such judgment has been recovered. SECTION 606. Application of Money Collected. ------------------------------ Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal (and premium, if any) or interest, upon presentation of the Debt Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 707; and SECOND: To the payment of the amounts then due and unpaid for principal of (and premium, if any) and interest on the Debt Securities, in respect of which or for the benefit of which such money has been collected ratably, without preference or priority of any kind, according to the amounts due and payable on such Debt Securities for 42 principal (and premium, if any) and interest, respectively. The Holders of each series of Debt Securities denominated in a Foreign Currency shall be entitled to receive a ratable portion of the amount determined by an Exchange Rate Agent by converting the principal amount Outstanding of such series of Debt Securities in the currency in which such series of Debt Securities is denominated into Dollars at the Exchange Rate as of the date of declaration of acceleration of the Maturity of the Debt Securities (or, if there is no such rate on such date for the reasons specified in Section 311(d) of the Indenture, such rate on the date specified in such Section). THIRD: The balance, if any, to the Person or Persons entitled thereto. SECTION 607. Limitation on Suits. ------------------- No Holder of any Debt Security of any series shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to the Debt Securities of such series; (2) the Holders of not less than 25% in aggregate principal amount of the Outstanding Debt Securities of such series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount at maturity of the Outstanding Debt Securities of such series; it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other such Holders, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all of such Holders. 43 SECTION 608. Unconditional Right of Holders to Receive Principal, ---------------------------------------------------- Premium (if any) and Interest. ----------------------------- Notwithstanding any other provision in this Indenture, the Holder of any Debt Security shall have the right, which is absolute and unconditional, to receive payment of the principal of (and premium, if any) and (subject to Section 307) interest on such Debt Security on the respective Stated Maturity or Maturities expressed in such Debt Security (or, in the case of redemption, on the Redemption Date or, in the case of repayment, on the Repayment Date) and to institute suit for the enforcement of any such payment, and such right shall not be impaired without the consent of such Holder. SECTION 609. Restoration of Rights and Remedies. ---------------------------------- If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case the Company, the Trustee and the Holders shall, subject to any determination in such proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 610. Rights and Remedies Cumulative. ------------------------------ Except as otherwise provided in Section 306, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 611. Delay or Omission Not Waiver. ---------------------------- No delay or omission of the Trustee or of any Holder of any Debt Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. SECTION 612. Control by Holders. ------------------ The Holders of a majority in aggregate principal amount of the Outstanding Debt Securities of any series shall have the 44 right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee with respect to the Debt Securities of such series, provided, that the Trustee shall have the right to decline to follow any such direction (1) if the Trustee being advised by counsel shall determine that the action so directed may not lawfully be taken, or if the Trustee in good faith shall, by a Responsible Officer or Officers of the Trustee, determine that the proceedings would be illegal or in conflict with this Indenture or involve it in personal liability; and (2) subject to the provisions of Section 701, if the Trustee in good faith shall, by a Responsible Officer or Responsible Officers of the Trustee, determine that the proceeding so directed would be unjustly prejudicial to the Holders of Debt Securities of such series not joining in any such direction, and the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. SECTION 613. Waiver of Past Defaults. ----------------------- The Holders of not less than a majority in aggregate principal amount of the Outstanding Debt Securities of any series may on behalf of the Holders of all the Debt Securities of any such series waive any past default hereunder with respect to such series and its consequences, except a default (1) in the payment of the principal of (or premium, if any) or interest on any Debt Security of such series, or (2) in respect of a covenant or provision hereof which under Article Ten cannot be modified or amended without the consent of the Holder of each Outstanding Debt Security of such series affected. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. SECTION 614. Undertaking for Costs. --------------------- All parties to this Indenture agree, and each Holder of any Debt Security by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against 45 any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding more than 10% in aggregate principal amount of the Outstanding Debt Securities of any series, or to any suit instituted by any Holder for the enforcement of the payment of the principal of (or premium, if any) or interest on any Debt Security on or after the respective Stated Maturity or Maturities expressed in such Debt Security (or, in the case of redemption or repayment, on or after the Redemption Date or the Repayment Date, as the case may be). SECTION 615. Waiver of Stay or Extension Laws. -------------------------------- The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. 46 ARTICLE SEVEN THE TRUSTEE SECTION 701. Certain Duties and Responsibilities. ----------------------------------- (a) With respect to Debt Securities of any series, except during the continuance of an Event of Default with respect to the Debt Securities of such series, (1) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provisions hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture. (b) In case an Event of Default with respect to Debt Securities of any series has occurred and is continuing, the Trustee shall, with respect to the Debt Securities of such series, exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (c) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that (1) this Subsection shall not be construed to limit the effect of Subsection (a) of this Section; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; and (3) the Trustee shall not be liable with respect to any action taken, suffered or omitted to be taken by it with respect to Debt Securities of any series in good faith in accordance with the direction of the Holders of a majority in aggregate principal amount of the Outstanding Debt Securities of such series relating to the time, method and place of conducting any proceeding for any remedy available 47 to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture. (d) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (e) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section. SECTION 702. Notice of Defaults. ------------------ Within 90 days after the occurrence of any default hereunder with respect to Debt Securities of any series, the Trustee shall transmit by mail to all Holders of Debt Securities of such series, as their names and addresses appear in the Security Register, notice of such default hereunder known to the Trustee, unless such default shall have been cured or waived; provided, however, that, except in the case of a default in the payment of the principal of (or premium, if any) or interest on any Debt Security of such series or in the payment of any sinking fund instalment with respect to Debt Securities of such series, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the interest of the Holders of Debt Securities of such series; and provided, further, that in the case of any default of the character specified in Section 601(4) with respect to Debt Securities of such series no such notice to Holders shall be given until at least 30 days after the occurrence thereof. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default with respect to Debt Securities of such series. SECTION 703. Certain Rights of Trustee. ------------------------- Subject to Sections 315(a) through (d) of the Trust Indenture Act: (a) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; 48 (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order, and any resolution of the Board of Directors shall be sufficiently evidenced by a Board Resolution; (c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate; (d) the Trustee may consult with counsel and the written advice of such counsel or any opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders of Debt Securities pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company relevant to the facts or matters that are the subject of its inquiry, personally or by agent or attorney; (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (h) the Trustee shall not be charged with knowledge of any Event of Default with respect to the Debt Securities of any series for which it is acting as Trustee unless either (1) a Responsible Officer of the Trustee shall have actual knowledge of the Event of Default or (2) written notice of such Event of Default shall have been given to the Trustee 49 by the Company or any other obligor on such Debt Securities or by any Holder of such Debt Securities; and (i) the Trustee shall not be liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture. SECTION 704. Not Responsible for Recitals or Issuance of Debt ------------------------------------------------ Securities. ---------- The recitals contained herein and in the Debt Securities, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Debt Securities of any series. The Trustee shall not be accountable for the use or application by the Company of any Debt Securities or the proceeds thereof. SECTION 705. May Hold Debt Securities. ------------------------ The Trustee, any Paying Agent, the Security Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Debt Securities, and, subject to Sections 310(b) and 311 of the Trust Indenture Act, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Paying Agent, Security Registrar or such other agent. SECTION 706. Money Held in Trust. ------------------- Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Company. SECTION 707. Compensation and Reimbursement. ------------------------------ The Company agrees (1) to pay to the Trustee from time to time reasonable compensation for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including those incurred in connection with any application to the Commission for a stay pursuant to Section 310(b) of the Trust Indenture Act (whether or not granted) and the reasonable compensation and the reasonable expenses 50 and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (3) to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this trust or performance of its duties hereunder, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. As security for the performance of the obligations of the Company under this Section the Trustee shall have a claim prior to the Debt Securities upon all property and funds held or collected by the Trustee as such, except funds held in trust for the payment of principal of (and premium, if any) or interest on Debt Securities. SECTION 708. Corporate Trustee Required; Eligibility. --------------------------------------- There shall at all times be a Trustee hereunder that is a corporation eligible to act as such pursuant to the terms of the Trust Indenture Act and that has a combined capital and surplus of at least $50,000,000, subject to supervision or examination by Federal or State authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. SECTION 709. Resignation and Removal; Appointment of Successor. ------------------------------------------------- (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee under Section 710. (b) The Trustee may resign at any time with respect to the Debt Securities of one or more series by giving written notice thereof to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Debt Securities of such series. 51 (c) The Trustee may be removed at any time with respect to the Debt Securities of any series by Act of the Holders of a majority in principal amount of the Outstanding Debt Securities of such series, delivered to the Trustee and to the Company. (d) If at any time: (1) the Trustee shall fail to comply with the obligations imposed upon it under Section 310(b) of the Trust Indenture Act with respect to the Debt Securities of any series after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Debt Security of such series for at least six months, or (2) the Trustee shall cease to be eligible under Section 708 and shall fail to resign after written request therefor by the Company or by any such Holder, or (3) the Trustee shall become incapable of acting or a decree or order for relief by a court having jurisdiction in the premises shall have been entered in respect of the Trustee in an involuntary case under the Federal bankruptcy laws, as now or hereafter constituted, or any other applicable Federal or State bankruptcy, insolvency or similar law; or a decree or order by a court having jurisdiction in the premises shall have been entered for the appointment of a receiver, custodian, liquidator, assignee, trustee, sequestrator (or other similar official) of the Trustee or of its property or affairs, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation, winding up or liquidation, or (4) the Trustee shall commence a voluntary case under the Federal bankruptcy laws, as now or hereafter constituted, or any other applicable Federal or State bankruptcy, insolvency or similar law or shall consent to the appointment of or taking possession by a receiver, custodian, liquidator, assignee, trustee, sequestrator (or other similar official) of the Trustee or its property or affairs, or shall make an assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts generally as they become due, or shall take corporate action in furtherance of any such action, then, in any such case, (i) the Company, by a Board Resolution, may remove the Trustee with respect to all Debt Securities or the Debt Securities of such series, or (ii) subject to Section 315(e) of the Trust Indenture Act, any Holder who has been a bona fide Holder of a Debt Security of any series for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee for the Debt Securities of such series and the appointment of a successor Trustee. 52 (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, with respect to the Debt Securities of one or more series, the Company, by or pursuant to a Board Resolution, shall promptly appoint a successor Trustee or Trustees with respect to the Debt Securities of that or those series (it being understood that any such successor Trustee may be appointed with respect to the Debt Securities of one or more or all of such series and that at any time there shall be only one Trustee with respect to the Debt Securities of any particular series) and shall comply with the applicable requirements of Section 710. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee with respect to the Debt Securities of any series shall be appointed by Act of the Holders of a majority in aggregate principal amount of the Outstanding Debt Securities of such series delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee with respect to the Debt Securities of such series and to that extent supersede the successor Trustee appointed by the Company. If no successor Trustee with respect to the Debt Securities of any series shall have been so appointed by the Company or the Holders and accepted appointment in the manner hereinafter provided, any Holder who has been a bona fide Holder of a Debt Security of such series for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Debt Securities of such series. (f) The Company shall give notice of each resignation and each removal of the Trustee with respect to the Debt Securities of any series and each appointment of a successor Trustee with respect to the Debt Securities of any series by mailing written notice of such event by first-class mail, postage prepaid, to the Holders of Debt Securities of such series as their names and addresses appear in the Security Register. Each notice shall include the name of the successor Trustee with respect to the Debt Securities of such series and the address of its Corporate Trust Office. SECTION 710. Acceptance of Appointment by Successor. -------------------------------------- (a) In the case of an appointment hereunder of a successor Trustee with respect to all Debt Securities, every such successor Trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the 53 retiring Trustee, and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder, subject to its lien, if any, provided for in Section 707. (b) In case of the appointment hereunder of a successor Trustee with respect to the Debt Securities of one or more (but not all) series, the Company, the retiring Trustee and each successor Trustee with respect to the Debt Securities of one or more series shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment and which (1) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Debt Securities of that or those series to which the appointment of such successor Trustee relates, (2) if the retiring Trustee is not retiring with respect to all Debt Securities, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Debt Securities of that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (3) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee; and upon the execution and delivery of such supplemental indenture the resignation or removal of the retiring Trustee shall become effective to the extent provided therein and each such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee with respect to the Debt Securities of that or those series to which the appointment of such successor Trustee relates; but, on request of the Company or any successor Trustee, such retiring Trustee shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder with respect to the Debt Securities of that or those series to which the appointment of such successor Trustee relates. (c) Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts referred to in paragraph (a) or (b) of this Section, as the case may be. (d) No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. 54 SECTION 711. Merger, Conversion, Consolidation or Succession to -------------------------------------------------- Business. -------- Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Debt Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Debt Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Debt Securities. In case any Debt Securities shall not have been authenticated by such predecessor Trustee, any such successor Trustee, by merger, conversion or consolidation, may authenticate and deliver such Debt Securities, in either its own name or that of its predecessor Trustee, with the full force and effect which this Indenture provides for the certificate of authentication of the Trustee. 55 ARTICLE EIGHT HOLDERS' LISTS AND REPORTS BY TRUSTEE AND THE COMPANY SECTION 801. Company to Furnish Trustee Names and Addresses of ------------------------------------------------- Holders. ------- In accordance with Section 312(a) of the Trust Indenture Act, the Company will furnish or cause to be furnished to the Trustee with respect to Debt Securities of each series for which it acts as Trustee: (a) semiannually, not more than 15 days after the Regular Record Date in respect of the Debt Securities of such series or on June 30 and December 31 of each year with respect to each series of Debt Securities for which there are no Regular Record Dates, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of such Regular Record Date or June 15 or December 15, as the case may be, and (b) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; provided, however, that if and so long as the Trustee shall be the Security - -------- ------- Registrar for Debt Securities of a series, no such list need be furnished with respect to such series of Debt Securities. SECTION 802. Preservation of Information; Communications to Holders. ------------------------------------------------------ (a) The Trustee shall comply with the obligations imposed upon it pursuant to Section 312 of the Trust Indenture Act. (b) Every Holder of Debt Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders in accordance with Section 312 of the Trust Indenture Act, regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under Section 312(b) of the Trust Indenture Act. SECTION 803. Reports by Trustee. ------------------ (a) Within 120 days after February 28, of each year commencing with the first February 28 after the first issuance of Securities pursuant to this Indenture the Trustee shall transmit to the Holders of Securities, in the manner and to the extent 56 provided in Section 313(c) of the Trust Indenture Act, a brief report dated as of such February 28, if required by Section 313(a) of the Trust Indenture Act. The Trustee also shall comply with Section 313(b) of the Trust Indenture Act and shall transmit to Holders such other reports, if any, as may be required pursuant to the Trust Indenture Act. (b) Reports pursuant to this Section shall be transmitted in the manner and to the Persons required by Sections 313(c) and 313(d) of the Trust Indenture Act. (c) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which any Debt Securities of such series are listed, with the Commission and also with the Company. The Company will notify the Trustee when any series of Debt Securities are listed on any stock exchange. SECTION 804. Reports by Company. ------------------ Pursuant to Section 314(a) of the Trust Indenture Act, the Company will: (1) file with the Trustee, within 15 days after the Company is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Company may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934; or, if the Company is not required to file information, documents or reports pursuant to either of said Sections, then it will file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of the Securities Exchange Act of 1934 in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations; (2) file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Company with the conditions and covenants of this Indenture as may be required from time to time by such rules and regulations; and (3) transmit by mail to all Holders, as their names and addresses appear in the Security Register, within 30 days after the filing thereof with the Trustee, in the manner and to the extent provided in Section 313(c) of the Trust Indenture Act, such summaries of any information, 57 documents and reports required to be filed by the Company pursuant to paragraphs (1) and (2) of this Section as may be required by rules and regulations prescribed from time to time by the Commission. 58 ARTICLE NINE CONSOLIDATION, MERGER, CONVEYANCE OR TRANSFER SECTION 901. Company May Consolidate, etc., Only on Certain Terms. ---------------------------------------------------- The Company shall not consolidate with or merge into any other corporation or convey or transfer its properties and assets substantially as an entirety to any Person, unless: (1) the corporation formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer the properties and assets of the Company substantially as an entirety shall be a corporation organized and existing under the laws of the United States of America, any political subdivision thereof or any State thereof and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the due and punctual payment of the principal of (and premium, if any) and interest on all the Debt Securities and the performance of every covenant of this Indenture on the part of the Company to be performed or observed; (2) immediately after giving effect to such transaction, no Event of Default, and no event which, after notice or lapse of time, or both, would become an Event of Default, shall have happened and be continuing; and (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel each stating that such consolidation, merger, conveyance or transfer and such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with. SECTION 902. Successor Corporation Substituted. --------------------------------- Upon any consolidation with or merger into any other corporation, or any conveyance or transfer of the properties and assets of the Company substantially as an entirety in accordance with Section 901, the successor corporation formed by such consolidation or into which the Company is merged or the successor Person to which such conveyance or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor had been named as the Company herein, and thereafter the predecessor corporation shall be relieved of all obligations and covenants under this Indenture and the Debt Securities. 59 SECTION 905. [RESERVED] 60 ARTICLE TEN SUPPLEMENTAL INDENTURES SECTION 1001. Supplemental Indentures without Consent of Holders. -------------------------------------------------- Without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (1) to evidence the succession of another corporation to the Company and the assumption by such successor of the obligations and covenants of the Company herein and in the Debt Securities; or (2) to add to the covenants of the Company for the benefit of the Holders of all or any series of Debt Securities (and if such covenants are to be for the benefit of less than all series of Debt Securities, stating that such covenants are expressly being included solely for the benefit of such series), or to surrender any right or power herein conferred upon the Company; or (3) to add any additional Events of Default (and if such Events of Default are to be applicable to less than all series of Debt Securities, stating that such Events of Default are expressly being included solely to be applicable to such series); or (4) to add or change any of the provisions of this Indenture to such extent as shall be necessary to permit or facilitate the issuance of Debt Securities in bearer form, registrable or not registrable as to principal, and with or without interest coupons; or (5) to change or eliminate any of the provisions of this Indenture, provided that any such change or elimination shall become effective only when there is no Debt Security Outstanding of any series created prior to the execution of such supplemental indenture which is entitled to the benefit of such provision; or (6) to establish the form or terms of Debt Securities of any series as permitted by Sections 202 and 301; or (7) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Debt Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, pursuant to the requirements of Section 710; or 61 (8) to secure the Debt Securities; or (9) to cure any ambiguity, to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture which shall not be inconsistent with any provision of this Indenture, provided such other provisions shall not adversely affect the interests of the Holders of Debt Securities of any series in any material respect; or (10) to modify, eliminate or add to the provisions of this Indenture to such extent as shall be necessary to effect the qualification of this Indenture under the Trust Indenture Act or under any similar federal statute hereafter enacted and to add to this Indenture such other provisions as may be expressly required under the Trust Indenture Act. SECTION 1002. Supplemental Indentures with Consent of Holders. ----------------------------------------------- With the consent of the Holders of not less than a majority in aggregate principal amount of the Outstanding Debt Securities of each series affected by such supplemental indenture, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders under this Indenture of such Debt Securities; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Debt Security affected thereby, (1) change the Stated Principal Maturity (except as permitted pursuant to Section 312 hereof) of the principal of, or change the Stated Maturity of any installment of interest on, any Debt Security, or reduce the principal amount thereof or, except as permitted pursuant to Section 307(b) hereof, the interest thereon or any premium payable upon redemption or repayment thereof, or reduce the amount of the principal of an Original Issue Discount Security that would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 602, or adversely affect any right of repayment at the option of a Holder of any Debt Security, or reduce the amount of, or postpone the date fixed for, any payment under any sinking fund or analogous provisions of any Debt Security, or change any Place of Payment, or the coin or currency or currency unit in which any Debt Security or the interest thereon is payable, or change or eliminate the rights of a Holder under Section 311, or impair the right to institute suit for the enforcement of any such payment on or after the Stated 62 Maturity thereof (or, in the case of redemption or repayment, on or after the Redemption Date or the Repayment Date, as the case may be), or (2) reduce the percentage in aggregate principal amount of the Outstanding Debt Securities of any series, the consent of whose Holder is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or (3) modify any of the provisions of this Section or Section 613, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Debt Security affected thereby. It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. A supplemental indenture which changes or eliminates any covenant or other provision of this Indenture which has expressly been included solely for the benefit of one or more particular series of Debt Securities, or which modifies the rights of the Holders of Debt Securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Debt Securities of any other series. SECTION 1003. Execution of Supplemental Indentures. ------------------------------------ In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 315 of the Trust Indenture Act) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 1004. Effect of Supplemental Indentures. --------------------------------- Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Debt Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. 63 SECTION 1005. Notice to Holders. ----------------- Promptly after the execution by the Company and the Trustee of any supplemental indenture under Section 1002 of this Article, the Company shall transmit by mail a notice, setting forth in general terms the substance of such supplemental indenture, to all Holders of Debt Securities, as the names and addresses of such Holders appear on the Security Register for each series of Debt Securities. SECTION 1006. Conformity with Trust Indenture Act. ----------------------------------- Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act. SECTION 1007. Reference in Debt Securities to Supplemental -------------------------------------------- Indentures. ---------- Debt Securities of any series authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company or the Trustee shall so determine, new Debt Securities of any series so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Debt Securities of such series. 64 ARTICLE ELEVEN COVENANTS SECTION 1101. Payment of Principal, Premium and Interest. ------------------------------------------ The Company covenants and agrees for the benefit of each series of Debt Securities that it will duly and punctually pay the principal of (and premium, if any) and interest on the Debt Securities in accordance with the terms of the Debt Securities and this Indenture. SECTION 1102. Maintenance of Office or Agency. ------------------------------- The Company will maintain in each Place of Payment for any series of Debt Securities an office or agency where Debt Securities may be presented or surrendered for payment, where Debt Securities may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Debt Securities and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as the agent to receive all presentations, surrenders, notices and demands. The Company may also from time to time designate one or more other offices or agencies (in or outside of such Place of Payment) where the Debt Securities of one or more series may be presented or surrendered for any or all of such purposes, and may from time to time rescind such designations; provided however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in each Place of Payment for any series of Debt Securities, for such purposes. The Company will give prompt written notice to the Trustee of any such designation and any change in the location of any such other office or agency. Unless otherwise set forth in, or pursuant to, a Board Resolution or indenture supplemental hereto with respect to a series of Debt Securities, the Company hereby initially designates as the Place of Payment for each series of Debt Securities, the Borough of Manhattan, The City and State of New York, and initially appoints the Trustee at its Corporate Trust Office as the Company's office or agency for each such purpose in such city. 65 SECTION 1103. Money for Debt Securities Payments to Be Held in Trust. ------------------------------------------------------ If the Company shall at any time act as its own Paying Agent with respect to any series of Debt Securities, it will, on or before each due date of the principal of (and premium, if any) or interest on any of the Debt Securities of such series, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal (and premium, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided, and will promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents with respect to any series of Debt Securities, it will, prior to or on each due date of the principal (and premium, if any) or interest on any Debt Securities of such series, deposit with a Paying Agent a sum sufficient to pay the principal (and premium, if any) or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act. The Company will cause each Paying Agent with respect to any series of Debt Securities other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will: (1) hold all sums held by it for the payment of the principal of (and premium, if any) or interest on Debt Securities of such series in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (2) give the Trustee notice of any default by the Company (or any other obligor upon the Debt Securities of such series) in the making of any payment of principal of (and premium, if any) or interest on the Debt Securities of such series; and (3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any 66 Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Unless otherwise specified as contemplated by Section 301, any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (and premium, if any) or interest on any Debt Security of any series and remaining unclaimed for two years after such principal (and premium, if any) or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Debt Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in the Borough of Manhattan, The City and State of New York, and each Place of Payment with respect to Debt Securities of the series with respect to which such moneys are so held or cause to be mailed to each such Holder, or both, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication or mailing, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 1104. Investment Company Act. ---------------------- The Company will not take any action if as a result thereof it would be required to register as an investment company under the Investment Company Act of 1940, as amended. SECTION 1105. Officers' Certificate as to Default. ----------------------------------- The Company will deliver to the Trustee, on or before a date not more than four months after the end of its fiscal year ending after the date hereof, an Officers' Certificate from its principal executive officer, principal financial officer or principal accounting officer, stating whether or not to the best knowledge of the signers thereof the Company is in default in the performance and observance of any of the terms, provisions and conditions of this Indenture (without regard to any period of grace or requirement of notice provided hereunder), and, if the Company shall be in default, specifying all such defaults and the nature thereof of which they may have knowledge. The Company will deliver written notice to the Trustee five days after any officer thereof has knowledge of the occurrence of any event which with the giving of notice or the lapse of time or both would become an Event of Default under Subsection (5) of Section 601. 67 ARTICLE TWELVE REDEMPTION OF DEBT SECURITIES SECTION 1201. Applicability of Article. ------------------------ Debt Securities of any series which are redeemable before their Stated Maturity shall be redeemable in accordance with their terms and (except as otherwise specified as contemplated by Section 301 for Debt Securities of any series) in accordance with this Article. SECTION 1202. Election to Redeem, Notice to Trustee. ------------------------------------- The election of the Company to redeem any Debt Securities shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company of less than all of the Debt Securities of any series, the Company shall, at least 60 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Debt Securities of such series to be redeemed. In the case of any redemption of Debt Securities prior to the expiration of any restriction on such redemption provided in the terms of such Debt Securities or elsewhere in this Indenture, the Company shall furnish the Trustee with an Officers' Certificate evidencing compliance with such restriction. SECTION 1203. Selection by Trustee of Debt Securities to be Redeemed. ------------------------------------------------------ If less than all the Debt Securities of any series are to be redeemed, the particular Debt Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Debt Securities of such series not previously called for redemption, by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions (equal to the minimum authorized denomination for Debt Securities of such series or any integral multiple thereof) of the principal amount of Debt Securities of such series of a denomination larger than the minimum authorized denomination for Debt Securities of such series. The Trustee shall promptly notify the Company in writing of the Debt Securities selected for redemption and, in the case of any Debt Securities selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Debt Securities shall relate, in the case of any Debt Security redeemed or to be redeemed only in part, to the portion of the principal amount of such Debt Security which has been or is to be redeemed. 68 SECTION 1204. Notice of Redemption. -------------------- Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Debt Securities to be redeemed, at his address appearing in the Security Register. All notices of redemption shall state: (1) the Redemption Date, (2) the Redemption Price, (3) if less than all Outstanding Debt Securities of any series are to be redeemed, the identification (and, in the case of partial redemption, the principal amount) of the particular Debt Securities to be redeemed, (4) that on the Redemption Date the Redemption Price will become due and payable upon each such Debt Security to be redeemed, and, if applicable, that interest thereon shall cease to accrue on and after said date, (5) the Place or Places of Payment where such Debt Securities are to be surrendered for payment of the Redemption Price, (6) that the redemption is in connection with a sinking fund, if such is the case, and (7) if applicable, the CUSIP number for such Debt Security. Notice of redemption of Debt Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. SECTION 1205. Deposit of Redemption Price. --------------------------- On or prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1103) an amount of money in the currency in which the Debt Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Debt Securities of such series and except, if applicable, as provided in Section 311) sufficient to pay the Redemption Price of, and (unless otherwise specified pursuant to Section 301 for the Debt Securities of such series and the Redemption Date is an Interest Payment Date) accrued interest on, all the Debt Securities or portion thereof, as the case may be, which are to be redeemed on that date. 69 SECTION 1206. Debt Securities Payable on Redemption Date. ------------------------------------------ Notice of redemption having been given as aforesaid, the Debt Securities so to be redeemed shall become due and payable and shall be paid by the Company on the Redemption Date and at the Redemption Price therein specified and on and after such Redemption Date (unless the Company shall default in the payment of the Redemption Price and any accrued interest in respect of such Debt Securities on such Redemption Date) such Debt Securities shall, if the same were interest bearing, cease to bear interest. Upon surrender of any such Debt Security for redemption in accordance with said notice, the Redemption Price of such Debt Security so to be repaid shall be paid by the Company, together with accrued interest, if any, to the Redemption Date; provided, however, that -------- ------- installments of interest, if any, on an Interest Payment Date that is prior to the Redemption Date (or, if specified pursuant to Section 301, that is on the Redemption Date) shall be payable (but without interest thereon, unless the Company shall default in payment thereof) to the Holder of such Debt Security, or one or more Predecessor Securities, registered as such at 5:00 P.M., New York City time, on the relevant Record Date according to its or their terms and the provisions of Section 307. If any Debt Security called for redemption shall not be so paid upon surrender thereof, the Redemption Price shall, until paid, bear interest from the Redemption Date at the rate of interest (or the manner of calculating the rate of interest) applicable to such Debt Security on the day prior to the Redemption Date or, in the case of an Original Issue Discount Security, at the yield to maturity of such Original Issue Discount Security. SECTION 1207. Debt Securities Redeemed in Part. -------------------------------- Any Debt Security which is to be redeemed only in part shall be surrendered at a Place of Payment therefor (with, if the Company, the Security Registrar or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company, the Security Registrar and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Debt Security without service charge, a new Debt Security or Debt Securities of the same series and Stated Maturity of any authorized denomination as requested by such Holder in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Debt Security so surrendered. If a Debt Security in global form is so surrendered, the Company shall execute, and the Trustee shall authenticate and deliver to the depository for such global Debt Security, without service charge, a new Debt Security in global form in a denomination equal to and in exchange for the unredeemed portion of the principal of the global Debt Security so surrendered. 70 ARTICLE THIRTEEN SINKING FUNDS SECTION 1301. Applicability of Article. ------------------------ The provisions of this Article shall be applicable to any sinking fund for the retirement of Debt Securities of a series except as otherwise specified as contemplated by Section 301 for Debt Securities of such series. The minimum amount of any sinking fund payment provided for by the terms of Debt Securities of any series is herein referred to as a "mandatory sinking fund payment", and any payment in excess of such minimum amount provided for by the terms of Debt Securities of any series is herein referred to as an "optional sinking fund payment". If provided for by the terms of Debt Securities of any series, the amount of any cash sinking fund payment may be subject to reduction as provided in Section 1302. Each sinking fund payment shall be applied to the redemption of Debt Securities of any series as provided for by the terms of Debt Securities of such series. Section 1302. Satisfaction of Sinking Fund Payments with Debt ----------------------------------------------- Securities. ---------- The Company (1) may deliver Outstanding Debt Securities of a series (other than any previously called for redemption) and (2) may apply as a credit Debt Securities of a series which have been redeemed either at the election of the Company pursuant to the terms of such Debt Securities or through the application of permitted optional sinking fund payments pursuant to the terms of such Debt Securities, in each case in satisfaction of all or any part of any sinking fund payment with respect to the Debt Securities of such series required to be made pursuant to the terms of such Debt Securities as provided for by the terms of such series; provided that such Debt Securities have not been previously so credited. Such Debt Securities shall be received and credited for such purpose by the Trustee at the Redemption Price specified in such Debt Securities for redemption through operation of the sinking fund and the amount of such sinking fund payment shall be reduced accordingly. SECTION 1303. Redemption of Debt Securities for Sinking Fund. ---------------------------------------------- Not less than 60 days prior to each sinking fund payment date for any series of Debt Securities (unless a shorter period shall be satisfactory to the Trustee), the Company will deliver to the Trustee an Officers' Certificate specifying the amount of the next ensuing sinking fund payment for that series pursuant to the terms of that series, the portion thereof, if any, which is to be satisfied by payment of cash, the portion thereof, if any, which is to be satisfied by crediting Debt Securities of that series pursuant to Section 1302 and, prior to or concurrently with the delivery of such Officers' Certificate, 71 will also deliver to the Trustee any Debt Securities to be so credited and not theretofore delivered to the Trustee. Not less than 45 days (unless a shorter period shall be satisfactory to the Trustee) before each such sinking fund payment date the Trustee shall select the Debt Securities to be redeemed upon such sinking fund payment date in the manner specified in Section 1203 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 1204. Such notice having been duly given, the redemption of such Debt Securities shall be made upon the terms and in the manner stated in Sections 1205, 1206 and 1207. 72 ARTICLE FOURTEEN DEFEASANCE SECTION 1401. Applicability of Article. ------------------------ If, pursuant to Section 301, provision is made for the defeasance of Debt Securities of a series, then the provisions of this Article shall be applicable except as otherwise specified as contemplated by Section 301 for Debt Securities of such series. SECTION 1402. Defeasance Upon Deposit of Moneys or U.S. Government ---------------------------------------------------- Obligations. ----------- At the Company's option, either (a) the Company shall be deemed to have been Discharged (as defined below) from its obligations with respect to Debt Securities of any series on the 91st day after the applicable conditions set forth below have been satisfied or (b) the Company shall cease to be under any obligation to comply with any term, provision or condition set forth in Section 901, with respect to Debt Securities of any series at any time after the applicable conditions set forth below have been satisfied: (1) the Company shall have deposited or caused to be deposited irrevocably with the Trustee as trust funds in trust, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of the Debt Securities of such series (i) money in the Required Currency in an amount, or (ii) in the case of Debt Securities denominated in Dollars, U.S. Government Obligations (as defined below), which through the payment of interest and principal in respect thereof in accordance with their terms will provide (without any reinvestment of such interest or principal), not later than one day before the due date of any payment, money in an amount, or (iii) a combination of (i) and (ii) sufficient, in the opinion (with respect to (ii) and (iii) of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee at or prior to the time of such deposit, to pay and discharge each installment of principal (including any mandatory sinking fund payments) of, and premium, if any, and interest on, the Outstanding Debt Securities of such series on the dates such installments of interest, premium or principal are due; (2) the Company shall have delivered to the Trustee an Officers' Certificate certifying as to whether the Debt Securities of such series are then listed on the New York Stock Exchange; (3) if the Debt Securities of such series are then listed on the New York Stock Exchange, the Company shall be delivered to the Trustee an Opinion of Counsel to the effect 73 that the Company's exercise of its option under this Section would not cause such Debt Securities to be delisted; (4) no Event of Default or event (including such deposit) which, with notice or lapse of time, or both, would become an Event of Default with respect to the Debt Securities of such series shall have occurred and be continuing on the date of such deposit as evidenced to the Trustee in an Officers' Certificate delivered to the Trustee concurrently with such deposit; (5) the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that (and containing no assumption or qualification) (i) Holders of the Debt Securities of such series will not recognize income, gain or loss for Federal income tax purposes as a result of the Company's exercise of its option under this Section and will be subject to Federal income tax on the same amount and in the same manner and at the same time as would have been the case if such option had not been exercised, and, in the case of the Debt Securities of such series being Discharged, accompanied by a ruling to that effect received from or published by the Internal Revenue Service (it being understood that (A) such Opinion shall also state that such ruling is consistent with the conclusions reached in such Opinion and (B) the Trustee shall be under no obligation to investigate the basis or correctness of such ruling) and (ii) all conditions precedent to the Discharge pursuant to this Section have been complied with; (6) the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Company's exercise of its option under this provision will not cause any violation of the Investment Company Act of 1940, as amended, on the part of the Company, the trust, the trust funds representing the Company's deposit or the Trustee; and (7) the Company shall have paid or duly provided for payment of all amounts then due to the Trustee pursuant to Section 707. "Discharged" means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by, and obligations under, the Debt Securities of such series and to have satisfied all the obligations under this Indenture relating to the Debt Securities of such series (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), except (A) the rights of Holders of Debt Securities of such series to receive, from the trust fund described in clause (1) above, payment of the principal of, and premium, if any, and the interest on such Debt Securities when such payments are due, (B) the Company's obligations with respect to the Debt Securities of such series under Sections 305, 306, 1102 and 1403 and (C) the rights, powers, trusts, duties and 74 immunities of the Trustee hereunder, including without limitation, the provisions of Section 707. "U.S. Government Obligations" means securities that are (i) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case under clauses (i) or (ii) are not callable or redeemable at the option of the issuer thereof. SECTION 1403. Deposited Moneys and U.S. Government Obligations to be ------------------------------------------------------ Held in Trust. ------------- All moneys and U.S. Government Obligations deposited with the Trustee pursuant to Section 1402 in respect of Debt Securities of a series shall be held in trust and applied by it, in accordance with the provisions of such Debt Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Debt Securities, of all sums due and to become due thereon for principal, premium, if any, and interest, if any, but such money need not be segregated from other funds except to the extent required by law. SECTION 1404. Repayment to Company. -------------------- The Trustee and any Paying Agent shall promptly pay or return to the Company upon Company Request any money and U.S. Government Obligations held by them at any time that are not required for the payment of the principal of, and premium, if any, and interest on, the Debt Securities of any series for which money or U.S. Government Obligations have been deposited pursuant to Section 1402. The provisions of the last paragraph of Section 1103 shall apply to any money held by the Trustee or any Paying Agent under this Article that remains unclaimed for two years after the Maturity of any series of Debt Securities for which money or U.S. Government Obligations have been deposited pursuant to Section 1402. 75 ARTICLE FIFTEEN REPAYMENT AT THE OPTION OF HOLDERS SECTION 1501. Applicability of Article. ------------------------ Repayment of Debt Securities of any series before their Stated Maturity at the option of Holders thereof shall be made in accordance with the terms of such Debt Securities and (except as otherwise specified by the terms of such series established pursuant to Section 301) in accordance with this Article Fifteen. SECTION 1502. Repayment of Debt Securities. ---------------------------- Debt Securities of any series subject to repayment in whole or in part at the option of the Holders thereof will, unless otherwise provided in the terms of such Debt Securities, be repaid at the Repayment Price thereof, together with interest, if any, thereon accrued to the Repayment Date specified in or pursuant to the terms of such Debt Securities. On or prior to the Repayment Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1103) an amount of money in the currency in which the Debt Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Debt Securities of such series and except, if applicable, as provided in Section 311) sufficient to pay the Repayment Price of and (unless otherwise specified pursuant to Section 301 for the Debt Securities of such series and the Repayment Date is an Interest Payment Date) accrued interest on, all the Debt Securities or portions thereof, as the case may be, to be repaid on such date. SECTION 1503. Exercise of Option. ------------------ Debt Securities of any series subject to repayment at the option of the Holders thereof will contain an "Option to Elect Repayment" form. In order to be repaid at the option of the Holder, any Debt Security so providing for such repayment, together with the "Option to Elect Repayment" form duly completed by the Holder (or by the Holder's attorney duly authorized in writing), must be received by or on behalf of the Company at the Place of Payment therefor specified in the terms of such Debt Security (or at such other place or places of which the Company shall from time to time notify the Holders of such Debt Securities) not more than 60 nor less than 30 calendar days prior to the Repayment Date. If less than the entire principal amount of such Debt Security is to be repaid in accordance with the terms of such Debt Security, the portion of such Debt Security to be repaid, in increments of the minimum denomination for Debt Securities of such series, and the denomination or denominations of the Debt Security or Debt Securities to be issued to the Holder for the portion of such Debt Security surrendered that is not to be repaid, must be specified. Any Debt Security providing 76 for repayment at the option of the Holder thereof may not be repaid in part if, following such repayment, the unpaid principal amount of such Debt Security would be less than the minimum denomination of Debt Securities of the series of which such Debt Security to be repaid is a part. Except as may be otherwise provided in any Debt Security providing for repayment at the option of the Holder thereof, exercise of the repayment option by the Holder shall be irrevocable unless waived by the Company. SECTION 1504. When Debt Securities Surrendered for Repayment Become ----------------------------------------------------- Due and Payable. --------------- If Debt Securities of any series providing for repayment at the option of the Holders thereof shall have been surrendered as provided in this Article Fifteen and as provided by or pursuant to the terms of such Debt Securities, such Debt Securities or the portions thereof, as the case may be, to be repaid shall become due and payable and shall be paid by the Company on the Repayment Date therein specified, and on and after such Repayment Date (unless the Company shall default in the payment of the Repayment Price and any accrued interest in respect of such Debt Securities on such Repayment Date) such Debt Securities shall, if the same were interest bearing, cease to bear interest. Upon surrender of any such Debt Security for repayment in accordance with such provisions, the Repayment Price of such Debt Security so to be repaid shall be paid by the Company, together with accrued interest, if any, to the Repayment Date; provided, however, that installments of interest, if any, on an Interest Payment Date that is prior to the Repayment Date (or, if specified pursuant to Section 301, that is on the Repayment Date) shall be payable (but without interest thereon, unless the Company shall default in the payment thereof) to the Holder of such Debt Security, or one or more Predecessor Securities, registered as such at 5:00 P.M., New York City time, on the relevant Regular Record Date according to its or their terms and the provisions of Section 307. If any Debt Security surrendered for repayment shall not be so repaid upon surrender thereof, the Repayment Price shall, until paid, bear interest from the Repayment Date at the rate of interest (or manner of calculating the rate of interest) applicable to such Debt Security on the day prior to the Repayment Date or, in the case of an Original Issue Discount Security, at the yield to maturity of such Original Issue Discount Security. SECTION 1505. Debt Securities Repaid in Part. ------------------------------ Upon surrender of any Debt Security which is to be repaid in part only, the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Debt Security, without service charge and at the expense of the Company, a new Debt Security or Debt Securities of the same series, of any authorized denomination specified by the Holder, in an aggregate principal amount equal to and in exchange for the 77 portion of the principal of such Debt Security so surrendered which is not to be repaid. * * * * * 78 This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seal to be hereunto affixed and attested, all as of the day and year first above written. Attest: COUNTRYWIDE CREDIT INDUSTRIES, INC. _______________________________ By: ____________________________ Title: Title: Attest: THE BANK OF NEW YORK _______________________________ By: ____________________________ Title: Title: 79 State of California ) County of Los Angeles) SS.: On the ____ day of _______, 1995, before me personally came _______________________, to me known, who, being by me duly sworn, did depose and say that he is ________________________, of Countrywide Credit Industries, Inc., one of the corporations described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation, and that he signed his name thereto by like authority. _____________________ Notary Public Seal State of California ) County of Los Angeles) SS.: On the ____ day of _______, 1995 before me personally came ______________________ to me known, who, being by me duly sworn, did depose and say that he is __________________ of The Bank of New York, one of the corporations described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation, and that he signed his name thereto by like authority. _________________________ Notary Public [Seal] 80 Exhibit A Form of election to receive payments in U.S. Dollars or to rescind such election The undersigned, registered owner of certificate number ____-_____ (the "Certificate"), representing [name of series of Debt Securities] (the "Debt Securities") in an aggregate principal amount of ________________, hereby [_] elects to receive all payments in respect of the Debt Securities in U.S. Dollars. Subject to the terms and conditions set forth in the indenture under which the Debt Securities were issued (the "Indenture"), this election shall take effect on the next Record Date (as defined in the Indenture) after this election form is received by the Trustee and shall remain in effect until it is rescinded by the undersigned or until the Certificate is transferred or paid in full at Maturity. [_] rescinds the election previously submitted by the undersigned to receive all payments in respect of the Debt Securities in U.S. Dollars represented by the Certificate. Subject to the terms and conditions set forth in the Indenture, this rescission shall take effect on the next Record Date (as defined in such Indenture) after this election form is received by the Trustee, or, in the case of Maturity of an installment of principal, the fifteenth day immediately preceding such Maturity. The undersigned acknowledges that, except as provided in the Indenture, any costs incurred by or on behalf of the Company in connection with the conversion of foreign currency into U.S. Dollars shall be borne by the undersigned through deduction from payments required to be made to the undersigned pursuant to the terms of the Indenture. All capitalized terms used herein, unless otherwise defined herein, shall have the meanings assigned to them in the Indenture. _____________________________ (Name of Owner) (Signature of Owner) 81 EX-4.9 6 SUPPLEMENTAL INDENTURE EXHIBIT 4.9 SUPPLEMENTAL INDENTURE NO. 1 DATED AS OF June 15, 1995 This SUPPLEMENTAL INDENTURE NO. 1, dated as of June 15, 1995, is among COUNTRYWIDE FUNDING CORPORATION, a New York corporation (hereinafter called the "Company"), COUNTRYWIDE CREDIT INDUSTRIES, INC., a Delaware corporation (hereinafter called the "Guarantor"), each having its principal office at 155 North Lake Avenue, Pasadena, California 91101, and THE BANK OF NEW YORK, a New York corporation (the "Trustee"), having its Corporate Trust Office at 101 Barclay Street, New York, New York 10286. RECITALS: A. The Company, the Guarantor and the Trustee have executed and delivered an Indenture, dated as of January 1, 1992 (the "Indenture"). B. The Company and the Guarantor have, by appropriate corporate action, duly authorized the execution of this Supplemental Indenture No. 1 for the purpose, in part, of providing for the issuance of Debt Securities with: (i) Stated Principal Maturities which may be extended by the Company at its option, (ii) interest rates or formulas which may be reset by the Company at its option prior to the related Stated Principal Maturities or (iii) provisions pursuant to which such Debt Securities may be repaid at the option of the Holders thereof. C. Section 1001 of the Indenture provides that the Company and the Guarantor, when authorized by a Board Resolution, and the Trustee may enter into one or more indentures supplemental thereto, in form satisfactory to the Trustee, without the consent of any Holder of Debt Securities for certain specified purposes, including to change or eliminate any of the provisions of the Indenture, provided that any such change or elimination shall become -------- effective only when there is no Debt Security Outstanding of any series created prior to the execution of such supplemental indenture which is entitled to the benefit of any such provision. D. The Company, the Guarantor and the Trustee, pursuant to the foregoing authority, propose in and by this Supplemental Indenture No. 1 to amend and supplement the Indenture in certain respects with respect to the Debt Securities of any series created on or after the date hereof. E. Simultaneously with the delivery of this Supplemental Indenture No. 1, the Company is furnishing to the Trustee an Opinion of Counsel to the effect that all conditions precedent to the execution of this Supplemental Indenture No. 1 have been complied with. NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE NO. 1 WITNESSETH: For and in consideration of the premises, it is covenanted and agreed, for the equal and proportionate benefit of all Holders of Debt Securities of any series created on or after the date hereof, as follows: ARTICLE ONE RELATION TO INDENTURE; GENERAL PROVISIONS Section 101. Relation to Indenture. This Supplemental Indenture No. 1 --------------------- constitutes an integral part of the Indenture, but is effective only with respect to Debt Securities issued under Indenture after June 15, 1995. Section 102. General Provisions. For all purposes of this Supplemental ------------------ Indenture No. 1: (1) Capitalized terms used herein without definition shall have the meanings specified in the Indenture. (2) All references herein to Articles and Sections, unless otherwise specified, refer to the corresponding Articles and Sections of the Indenture as amended by this Supplemental Indenture No. 1. (3) The terms "hereof," "herein," "hereby," "hereto," "hereunder," and "herewith" refer to this Supplemental Indenture No. 1. ARTICLE TWO AMENDMENTS TO THE INDENTURE Section 201. Definitions. Section 101 of the Indenture is amended so that ----------- the following definitions are amended (in the case of clause (ii) of "Outstanding" below), restated or added in alphabetical order: "Maturity", when used with respect to any Debt Security, means the -------- date on which the principal of such Debt Security becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, notice of redemption, notice of option to elect repayment or otherwise. "Outstanding", when used with respect to Debt Securities, means, as of ----------- the date of determination, all Debt Securities theretofore authenticated and delivered under this Indenture, except: ------ (ii) Debt Securities for whose payment, redemption or repayment money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company or the Guarantor) in trust or set aside and segregated in trust by the Company (if 2 the Company shall act as its own, or authorize the Guarantor to act as, Paying Agent) for the Holders of such Debt Securities; provided, -------- however, that if such Debt Securities are to be redeemed, notice of ------- such redemption has been duly given pursuant to this Indenture and such Debt Securities or provision therefor satisfactory to the Trustee has been made; and "Repayment Date" means, when used with respect to any Debt Security to -------------- be repaid at the option of the Holder, the date fixed for such repayment by or pursuant to this Indenture. "Repayment Price" means, when used with respect to any Debt Security --------------- to be repaid at the option of the Holder, the price at which it is to be repaid by or pursuant to this Indenture. "Stated Principal Maturity" means the Stated Maturity for the payment ------------------------- of principal, or any installment of principal, of any Debt Security. Section 202. Legal Holidays. Section 113 of the Indenture is replaced by -------------- the following: Unless otherwise specifically provided for in the applicable Debt Securities, in any case where any Interest Payment Date, Redemption Date, Repayment Date, sinking fund payment date, Stated Maturity, Stated Principal Maturity or Maturity of any Debt Security shall not be a Business Day at any Place of Payment, then the required payment of principal, premium, if any, and/or interest need not be made at such Place of Payment on such date, but may be made on the next succeeding Business Day at such Place of Payment with the same force and effect as if made on the Interest Payment Date, Redemption Date, Repayment Date, sinking fund payment date, Stated Maturity, Stated Principal Maturity or Maturity, and no interest shall accrue on such payment for the period from and after such Interest Payment Date, Repayment Date, Redemption Date, sinking fund payment date, Stated Maturity, Stated Principal Maturity or Maturity, as the case may be, to the next succeeding Business Day. Section 203. Forms Generally. The third paragraph of Section 201 is --------------- hereby deleted in its entirety. Section 204. Amount Unlimited; Issuable in Series. Subsections (3), (4) ------------------------------------ and (7) of Section 301 of the Indenture are replaced by the following, respectively: (3) the date or dates, or the method or methods, if any, by which such date or dates shall be determined or extended, on which the principal of the Debt Securities of the series is payable; 3 (4) the rate or rates, if any, at which the Debt Securities of the series shall bear interest, if any, or the method or methods, if any, by which such rate or rates are to be determined or reset, the date or dates, if any, from which such interest shall accrue, or the method or methods, if any, by which such date or dates shall be determined or reset, the Interest Payment Dates, if any, on which such interest shall be payable and the Regular Record Dates, if any, for the interest payable on such Interest Payment Dates, and the basis upon which interest shall be calculated if other than that of a 360-day year of twelve 30-day months; (7) the obligation, if any, of the Company to redeem, repay or purchase Debt Securities of the series pursuant to any sinking fund or analogous provisions or at the option of the Holders thereof, and the period or periods within which, the price or prices at which and the other terms and conditions upon which Debt Securities of the series shall be redeemed, repaid or purchased, in whole or in part, pursuant to such obligation; Subsection (15) is amended by deleting the "and" following the semi-colon in the last line thereof. Subsection (16) is amended by replacing the period at the end of the last line thereof with "; and ". A new subsection (17) is added as follows: (17) the ability, if any, of the Holder of a Debt Security to renew all or any portion of a Debt Security. Section 205. Registration, Registration of Transfer and Exchange. Section --------------------------------------------------- 305 of the Indenture is amended by replacing the word "or" before clause (ii) of the last paragraph thereof with a comma and adding the following after clause (ii): or (iii) to issue, register the transfer of or exchange any Debt Security which has been surrendered for repayment at the option of the Holder thereof, except the portion, if any, of such Debt Security not to be so repaid. Section 206. Optional Interest Reset. Section 307 of the Indenture is ----------------------- amended by inserting the subheading "(a)" before the first paragraph thereof and adding the following before the last paragraph thereof: (b) The provisions of this Section 307(b) may be made applicable to any series of Debt Securities pursuant to Section 301 (with such modifications, additions or substitutions as may be specified pursuant to such Section 301). The interest rate (or the spread and/or spread multiplier used to calculate such interest rate, if applicable) on any Debt Security of such series may be reset by the Company at its option on the date or dates specified in such Debt Security (each, an "Optional Reset Date"). The 4 Company may exercise such option with respect to any such Debt Security by notifying the Trustee of such exercise at least 45 but not more than 60 calendar days prior to an Optional Reset Date for such Debt Security. If the Company so notifies the Trustee of such exercise, not later than 40 calendar days prior to such Optional Reset Date the Trustee shall transmit, in the manner provided for in Section 106, to the Holder of such Debt Security a notice (the "Reset Notice") indicating (i) that the Company has elected to reset the interest rate (or the spread and/or spread multiplier used to calculate such interest rate, if applicable), (ii) such new interest rate (or such new spread and/or spread multiplier, if applicable) and (iii) the provisions, if any, for redemption by the Company during the period from such Optional Reset Date to the next Optional Reset Date or, if there is no such next Optional Reset Date, to the Stated Principal Maturity of such Debt Security (each such period, a "Subsequent Interest Period"), including the date or dates on which, or the period or periods during which, and the price or prices at which such redemption may occur during such Subsequent Interest Period. Notwithstanding the foregoing, not later than 20 calendar days prior to the applicable Optional Reset Date for a Debt Security, the Company may, at its option, revoke the interest rate (or the spread and/or spread multiplier used to calculate such interest rate, if applicable) provided for in the Reset Notice and establish an interest rate (or a spread and/or spread multiplier used to calculate such interest rate, if applicable) that is higher than the interest rate (or the spread and/or spread multiplier, if applicable) provided for in the Reset Notice, for the Subsequent Interest Period by causing the Trustee to transmit, in the manner provided for in Section 106, notice of such higher interest rate (or such higher spread and/or spread multiplier, if applicable) to the Holder of such Debt Security. Such notice shall be irrevocable. All Debt Securities with respect to which the interest rate (or the spread and/or spread multiplier used to calculate such interest rate, if applicable) is reset on an Optional Reset Date, and with respect to which the Holders of such Debt Securities have not surrendered such Debt Securities for repayment (or have validly revoked any such surrender) pursuant to the next succeeding paragraph, will bear such higher interest rate (or such higher spread and/or spread multiplier, if applicable). If the provisions of Section 307(b) are made applicable to any Debt Security and the Company notifies the Trustee of the exercise of its option to reset the interest rate (or the spread and/or spread multiplier used to calculate such interest rate, if applicable) on such Debt Security on an Optional Reset Date, the Holder of such Debt Security will have the option to elect repayment by the Company of such Debt Security on such Optional Reset Date at a price equal to the principal amount thereof plus any accrued interest to such Optional Reset Date. In order to obtain repayment of such Debt 5 Security on such Optional Reset Date, the Holder must follow the procedures set forth in Section 1503 for repayment at the option of Holders, except that (i) the period for delivery of such Debt Security or notification to the Trustee shall be at least 25 but not more than 35 calendar days prior to such Optional Reset Date and (ii) if the Holder has surrendered such Debt Security for repayment following receipt of the Reset Notice, the Holder may revoke such surrender for repayment by written notice to the Trustee received prior to 5:00 P.M., New York City time, on the tenth calendar day prior to such Optional Reset Date. Section 207. Cancellation. The first sentence of Section 309 of the ------------ Indenture is replaced by the following: Unless otherwise provided with respect to a series of Debt Securities, all Debt Securities surrendered for payment, redemption, repayment, registration of transfer or exchange or for credit against any sinking fund payment shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly cancelled by it. Section 208. Payment in Currencies. The second proviso of the second --------------------- paragraph of Section 311(a) of the Indenture is replaced by the following: ; and provided, further, that no such rescission may be made with respect -------- ------- to payments to be made on any Debt Security with respect to which notice of redemption has been given by the Company pursuant to Article Twelve or a notice of option to elect repayment has been sent by a Holder or transferee pursuant to Article Fifteen. Section 209. Optional Extension of Stated Principal Maturity. The ----------------------------------------------- following is added as Section 312 of the Indenture after Section 311 thereof: SECTION 312. Optional Extension of Stated Principal Maturity. ----------------------------------------------- The provisions of this Section 312 may be made applicable to any series of Debt Securities pursuant to Section 301 (with such modifications, additions or substitutions as may be specified pursuant to such Section 301). The Stated Principal Maturity of any Debt Security of such series may be extended by the Company at its option for the period or periods specified in such Debt Security (each such period, an "Extension Period") up to but not beyond the date (the "Final Maturity") specified in such Debt Security. The Company may 6 exercise such option with respect to any such Debt Security by notifying the Trustee of such exercise at least 45 but not more than 60 calendar days prior to the Stated Principal Maturity of such Debt Security then in effect (the "Current Stated Principal Maturity"). If the Company so notifies the Trustee of such exercise, not later than 40 calendar days prior to the Current Stated Principal Maturity the Trustee shall transmit, in the manner provided for in Section 106, to the Holder of such Debt Security a notice (the "Extension Notice") indicating (i) that the Company has elected to extend the Current Stated Principal Maturity, (ii) the new Stated Principal Maturity and the Final Maturity, (iii) the interest rate (or the spread and/or spread multiplier used to calculate such interest rate, if applicable) applicable to the Extension Period and (iv) the provisions, if any, for redemption by the Company during such Extension Period, including the date or dates on which, or the period or periods during which, and the price or prices at which such redemption may occur during such Extension Period. Upon the Trustee's transmittal of the Extension Notice to the Holder of such Debt Security, the Current Stated Principal Maturity of such Debt Security shall be extended automatically and, except as modified by the Extension Notice and as described in the next two paragraphs, such Debt Security will have the same terms as prior to the transmittal of such Extension Notice. Notwithstanding the foregoing, not later than 20 calendar days prior to the Current Stated Principal Maturity of such Debt Security, the Company may, at its option, revoke the interest rate (or the spread and/or spread multiplier used to calculate such interest rate, if applicable) provided for in the Extension Notice and establish an interest rate (or a spread and/or spread multiplier used to calculate such interest rate, if applicable) that is higher than the interest rate (or the spread and/or spread multiplier, if applicable) provided for in the Extension Notice for the Extension Period by causing the Trustee to transmit, in the manner provided for in Section 106, notice of such higher interest rate (or such higher spread and/or spread multiplier, if applicable) to the Holder of such Debt Security. Such notice shall be irrevocable. All Debt Securities with respect to which the Current Stated Principal Maturity is extended, and with respect to which the Holders of such Debt Securities have not surrendered such Debt Securities for repayment (or have validly revoked any such surrender), will bear such higher interest rate (or such higher spread and/or spread multiplier, if applicable). If the provisions of this Section 312 are made applicable to any Debt Security and the Company notifies the Trustee of the exercise of its option to extend the Current Stated Principal Maturity of such Debt Security, the Holder of such 7 Debt Security will have the option to elect repayment of such Debt Security by the Company on the Current Stated Principal Maturity at a price equal to the principal amount thereof plus any accrued interest to the Current Stated Principal Maturity. In order to obtain repayment of such Debt Security on the Current Stated Principal Maturity, the Holder must follow the procedures set forth in Section 1503 for repayment at the option of Holders, except that (i) the period for delivery of such Debt Security or notification to the Trustee shall be at least 25 but not more than 35 calendar days prior to the Current Stated Principal Maturity and (ii) if the Holder has surrendered such Debt Security for repayment following receipt of the Extension Notice, the Holder may revoke such surrender for repayment prior to 5:00 P.M., New York City time, on the tenth calendar day prior to the Current Stated Principal Maturity. Section 210. Unconditional Right of Holders to Receive Principal, Premium ------------------------------------------------------------ (if any) and Interest. Section 608 of the Indenture is replaced by the - --------------------- following: Notwithstanding any other provision in this Indenture, the Holder of any Debt Security shall have the right, which is absolute and unconditional, to receive payment of the principal of (and premium, if any) and (subject to Section 307) interest on such Debt Security on the respective Stated Maturity or Maturities expressed in such Debt Security (or, in the case of redemption, on the Redemption Date or, in the case of repayment, on the Repayment Date) and to institute suit for the enforcement of any such payment, and such right shall not be impaired without the consent of such Holder. Section 211. Undertaking for Costs. Section 614 of the Indenture is --------------------- amended by the replacement of the parenthetical at the end of the last sentence of Section 614 by the following: (or, in the case of redemption or repayment, on or after the related Redemption Date or Repayment Date, as the case may be) Section 212. Supplemental Indentures with Consent of Holders. Subsection ----------------------------------------------- (1) of Section 1002 of the Indenture is replaced by the following: (1) change the Stated Principal Maturity (except as permitted pursuant to Section 312 hereof) of the principal of, or change the Stated Maturity of any installment of interest on, any Debt Security, or reduce the principal amount thereof or, except as permitted pursuant to Section 307(b) hereof, the interest thereon or any premium payable upon redemption or repayment thereof, or reduce the amount of the principal of an Original Issue Discount Security that would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 602, or adversely affect any right of repayment at the option of a Holder of any Debt Security, or reduce the amount of, or postpone the date fixed for, any payment under any sinking fund or analogous provisions of any Debt Security, or change any Place of Payment, or the coin or currency or currency unit in which any Debt Security or the interest thereon is payable, or change or eliminate the rights 8 of a Holder under Section 311, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption or repayment, on or after the Redemption Date or the Repayment Date, as the case may be), or Section 213. Deposit of Redemption Price. Section 1205 of the Indenture --------------------------- is replaced by the following: On or prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1103) an amount of money in the currency in which the Debt Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Debt Securities of such series and except, if applicable, as provided in Section 311) sufficient to pay the Redemption Price of, and (unless otherwise specified pursuant to Section 301 for the Debt Securities of such series and the Redemption Date is an Interest Payment Date) accrued interest on, all the Debt Securities or portion thereof, as the case may be, which are to be redeemed on that date. Section 214. Debt Securities Payable on Redemption Date. Section 1206 of ------------------------------------------ the Indenture is replaced by the following: Notice of redemption having been given as aforesaid, the Debt Securities so to be redeemed shall become due and payable and shall be paid by the Company on the Redemption Date and at the Redemption Price therein specified and on and after such Redemption Date (unless the Company shall default in the payment of the Redemption Price and any accrued interest in respect of such Debt Securities on such Redemption Date) such Debt Securities shall, if the same were interest bearing, cease to bear interest. Upon surrender of any such Debt Security for redemption in accordance with said notice, the Redemption Price of such Debt Security so to be repaid shall be paid by the Company, together with accrued interest, if any, to the Redemption Date; provided, however, that installments of -------- ------- interest, if any, on an Interest Payment Date that is prior to the Redemption Date (or, if specified pursuant to Section 301, that is on the Redemption Date) shall be payable (but without interest thereon, unless the Company shall default in payment thereof) to the Holder of such Debt Security, or one or more Predecessor Securities, registered as such at 5:00 P.M., New York City time, on the relevant Record Date according to its or their terms and the provisions of Section 307. If any Debt Security called for redemption shall not be so paid upon surrender thereof, the Redemption Price shall, until paid, bear interest from the Redemption Date at the rate 9 of interest (or the manner of calculating the rate of interest) applicable to such Debt Security on the day prior to the Redemption Date or, in the case of an Original Issue Discount Security, at the yield to maturity of such Original Issue Discount Security. Section 215. Repayment at the Option of the Holders. The following is -------------------------------------- added as Article Fifteen of the Indenture after Article Fourteen: ARTICLE FIFTEEN REPAYMENT AT THE OPTION OF HOLDERS SECTION 1501. Applicability of Article. ------------------------ Repayment of Debt Securities of any series before their Stated Maturity at the option of Holders thereof shall be made in accordance with the terms of such Debt Securities and (except as otherwise specified by the terms of such series established pursuant to Section 301) in accordance with this Article Fifteen. SECTION 1502. Repayment of Debt Securities. ---------------------------- Debt Securities of any series subject to repayment in whole or in part at the option of the Holders thereof will, unless otherwise provided in the terms of such Debt Securities, be repaid at the Repayment Price thereof, together with interest, if any, thereon accrued to the Repayment Date specified in or pursuant to the terms of such Debt Securities. On or prior to the Repayment Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1103) an amount of money in the currency in which the Debt Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Debt Securities of such series and except, if applicable, as provided in Section 311) sufficient to pay the Repayment Price of and (unless otherwise specified pursuant to Section 301 for the Debt Securities of such series and the Repayment Date is an Interest Payment Date) accrued interest on, all the Debt Securities or portions thereof, as the case may be, to be repaid on such date. SECTION 1503. Exercise of Option. ------------------ Debt Securities of any series subject to repayment at the option of the Holders thereof will contain an "Option to Elect Repayment" form. In order to be repaid at the option of the Holder, any Debt Security so providing for such repayment, together with the "Option to Elect Repayment" form duly 10 completed by the Holder (or by the Holder's attorney duly authorized in writing), must be received by or on behalf of the Company at the Place of Payment therefor specified in the terms of such Debt Security (or at such other place or places of which the Company shall from time to time notify the Holders of such Debt Securities) not more than 60 nor less than 30 calendar days prior to the Repayment Date. If less than the entire principal amount of such Debt Security is to be repaid in accordance with the terms of such Debt Security, the portion of such Debt Security to be repaid, in increments of the minimum denomination for Debt Securities of such series, and the denomination or denominations of the Debt Security or Debt Securities to be issued to the Holder for the portion of such Debt Security surrendered that is not to be repaid, must be specified. Any Debt Security providing for repayment at the option of the Holder thereof may not be repaid in part if, following such repayment, the unpaid principal amount of such Debt Security would be less than the minimum denomination of Debt Securities of the series of which such Debt Security to be repaid is a part. Except as may be otherwise provided in any Debt Security providing for repayment at the option of the Holder thereof, exercise of the repayment option by the Holder shall be irrevocable unless waived by the Company. SECTION 1504. When Debt Securities Surrendered for Repayment Become ----------------------------------------------------- Due and Payable. --------------- If Debt Securities of any series providing for repayment at the option of the Holders thereof shall have been surrendered as provided in this Article Fifteen and as provided by or pursuant to the terms of such Debt Securities, such Debt Securities or the portions thereof, as the case may be, to be repaid shall become due and payable and shall be paid by the Company on the Repayment Date therein specified, and on and after such Repayment Date (unless the Company shall default in the payment of the Repayment Price and any accrued interest in respect of such Debt Securities on such Repayment Date) such Debt Securities shall, if the same were interest bearing, cease to bear interest. Upon surrender of any such Debt Security for repayment in accordance with such provisions, the Repayment Price of such Debt Security so to be repaid shall be paid by the Company, together with accrued interest, if any, to the Repayment Date; provided, -------- however, that installments of interest, if any, on an Interest Payment Date ------- that is prior to the Repayment Date (or, if specified pursuant to Section 301, that is on the Repayment Date) shall be payable (but without interest thereon, unless the Company shall default in the payment thereof) to the Holder of such Debt Security, or one or more Predecessor Securities, registered as such at 5:00 P.M., New York City time, on the 11 relevant Regular Record Date according to its or their terms and the provisions of Section 307. If any Debt Security surrendered for repayment shall not be so repaid upon surrender thereof, the Repayment Price shall, until paid, bear interest from the Repayment Date at the rate of interest (or manner of calculating the rate of interest) applicable to such Debt Security on the day prior to the Repayment Date or, in the case of an Original Issue Discount Security, at the yield to maturity of such Original Issue Discount Security. SECTION 1505. Debt Securities Repaid in Part. ------------------------------ Upon surrender of any Debt Security which is to be repaid in part only, the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Debt Security, without service charge and at the expense of the Company, a new Debt Security or Debt Securities of the same series, of any authorized denomination specified by the Holder, in an aggregate principal amount equal to and in exchange for the portion of the principal of such Debt Security so surrendered which is not to be repaid. ARTICLE THREE MISCELLANEOUS Section 301. Continued Effectiveness of Indenture. Except as amended ------------------------------------ hereby, the Indenture shall continue in full force and effect. Section 302. Purpose. The purpose of this Supplemental Indenture No. 1 ------- is to effect the amendments set forth herein. The Company and the Guarantor represent and warrant that all the conditions and requirements necessary to make this Supplemental Indenture No. 1, when duly executed and delivered, a valid and binding agreement in accordance with its terms and for the purposes herein expressed, have been performed and fulfilled. Section 303. Rights of Trustee. The Trustee executes this Supplemental ----------------- Indenture No. 1 only on the condition that it shall have and enjoy with respect thereto all of the rights, duties, and immunities as set forth in the Indenture. Section 304. Successors and Assigns. All covenants and agreements in ---------------------- this Supplemental Indenture No. 1 by the Company and the Guarantor shall bind their respective successors and assigns, whether or not so expressed. Section 305. Separability Clause. In case any provision in this ------------------- Supplemental Indenture No. 1 shall be invalid, illegal or 12 unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 306. Benefits of Supplemental Indenture No. 1. Nothing in this ---------------------------------------- Supplemental Indenture No. 1 or in the related Debt Securities, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, any Paying Agent and the Holders of Debt Securities of any series created on or after the date hereof, any benefit or any legal or equitable right, remedy or claim under this Supplemental Indenture No. 1. Section 307. Governing Law. This Supplemental Indenture No. 1 shall be ------------- governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed in said state. Section 308. Counterparts. This Supplemental Indenture No. 1 may be ------------ executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. Section 309. Effect of Headings and Table of Contents. The Article and ---------------------------------------- Section headings herein are for convenience only and shall not affect the construction hereof. 13 IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture No. 1 to be duly executed and delivered, all as of the day and year first above written. COUNTRYWIDE FUNDING CORPORATION Attest: By:_____________________________ Title: __________________________ Title: COUNTRYWIDE CREDIT INDUSTRIES, INC. Attest: By:_____________________________ Title: __________________________ Title: THE BANK OF NEW YORK Attest: By:_____________________________ Title: __________________________ Title: 14 EX-4.10 7 FIXED RATE MEDIUM-TERM EXHIBIT 4.10 COUNTRYWIDE FUNDING CORPORATION CUSIP REGISTERED PRINCIPAL AMOUNT NO. FX- $ MEDIUM-TERM NOTE, SERIES D (Fixed Rate) Due Nine Months or More From Date of Issue Payment of the Principal, Premium, if any, and Interest on this Note is Unconditionally Guaranteed by Countrywide Credit Industries, Inc. IF THE HOLDER OF THIS NOTE IS THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) (THE "DEPOSITARY") OR A NOMINEE OF THE DEPOSITARY, THIS NOTE IS A GLOBAL NOTE AND THE FOLLOWING LEGEND APPLIES: UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN CERTIFICATED FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND SUCH NOTE IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY AND ANY PAYMENT IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. ISSUE PRICE: ORIGINAL ISSUE DATE: PRINCIPAL AMOUNT: SPECIFIED CURRENCY: MINIMUM DENOMINATION EXCHANGE RATE AGENT: OPTION TO RECEIVE PAYMENT IN U.S. DOLLARS: /_/ NO /_/ YES OPTIONAL REDEMPTION: /_/ NO /_/ YES INITIAL REDEMPTION DATE: INITIAL REDEMPTION PERCENTAGE: ANNUAL REDEMPTION PERCENTAGE REDUCTION: OPTIONAL REPAYMENT: /_/ NO /_/ YES OPTIONAL REPAYMENT DATE(S): OTHER/ADDITIONAL TERMS: INTEREST RATE: STATED MATURITY DATE: INTEREST PAYMENT DATES (IF OTHER THAN JANUARY 15 AND JULY 15): RECORD DATES (IF OTHER THAN DECEMBER 30 AND JUNE 30): 2 COUNTRYWIDE FUNDING CORPORATION, a New York corporation (the "Company"), for value received, hereby promises to pay to ________________, or registered assignees, the principal sum of _____________________________________ (________) on the Stated Maturity Date specified above (except to the extent redeemed or repaid prior to the Stated Maturity Date) at the office or agency of the Company in the Borough of Manhattan, The City of New York, State of New York, and such other place or places as may be provided for pursuant to the Indenture referred to below, and to pay interest semi-annually in arrears on January 15 and July 15 of each year or such other Interest Payment Dates specified above (each, an "Interest Payment Date"), commencing on the Interest Payment Date next succeeding the Original Issue Date specified above and on the Stated Maturity Date or, if applicable, any date of earlier redemption (the "Redemption Date") or repayment (the "Repayment Date") (the earliest of the Stated Maturity Date, the Redemption Date and the Repayment Date is hereinafter referred to as the "Maturity Date" with respect to the principal repayable on such date) on said principal sum at the Interest Rate specified above from and including the most recent Interest Payment Date to which interest has been paid or duly provided for, or, if no interest has been paid or duly provided for, from and including the Original Issue Date, until the principal hereof becomes due and payable; provided, however, that any payment of principal, premium, if any, and/or interest to be made on an Interest Payment Date or on the Maturity Date which is not a Business Day shall be made on the next Business Day with the same force and effect as if made on such Interest Payment Date or the Maturity Date, as the case may be, and no interest on such payment shall accrue to the next Business Day. For purposes of this Note, "Business Day" means any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions are authorized or required by law, regulation or executive order to close in (i) New York, New York or Los Angeles, California or (ii) if the Specified Currency specified above is other than U.S. dollars, the Principal Financial Center (as defined below) of the country issuing the Specified Currency. "Principal Financial Center" means the capital city of the country issuing such Specified Currency, except that with respect to Australian dollars, Deutsche marks, Dutch guilders, Italian lire, Swiss francs and European Currency Units ("ECU"), the "Principal Financial Center" shall be Sydney, Frankfurt, Amsterdam, Milan, Zurich and Luxembourg, respectively. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will be to the person (the "Holder") in whose name this Note (or one or more predecessor Notes) is registered at the close of business on the December 31 or June 30 or such other Record Dates specified above (whether or not a Business Day) (each, a "Record Date") immediately preceding such Interest Payment Date; provided, however, that interest payable on the Maturity Date will be payable to the person to whom principal is payable. Unless otherwise specified above, if this Note is originally issued between a Record Date and an Interest Payment Date, the first payment of interest 3 on this Note will be made on the Interest Payment Date following the next Record Date to the Holder hereof on such next Record Date. Unless otherwise specified above, payment of the principal of, and premium, if any, and interest on, this Note due on the Maturity Date will be made in immediately available funds in the Specified Currency, upon presentation and surrender of this Note at the Corporate Trust Office of the Trustee. If the Specified Currency is other than U.S. dollars, this Note must be presented and surrendered to the Trustee referred to below in time for the Trustee to make such payment in accordance with its normal procedures. Unless otherwise specified above, payment of interest on this Note due on any Interest Payment Date other than the Maturity Date will be made by mailing a check in the Specified Currency (from an account at a bank located outside the United States if such check is payable in a Specified Currency other than U.S. dollars) to the address of the Holder hereof as such address shall appear in the Security Register (as defined in the Indenture) on the applicable Record Date. Notwithstanding the foregoing, on any Interest Payment Date other than the Maturity Date, each Holder of U.S. $10,000,000 (or the equivalent thereof in a Specified Currency other than U.S. dollars) or more in aggregate principal amount of Notes (whether or not having identical terms and provisions) shall be entitled: (i) if the Specified Currency is U.S. dollars, to receive such payment by wire transfer of immediately available funds to an account maintained by the payee with a bank located in the United States, but only if appropriate wire transfer instructions have been received in writing by the Trustee not later than the Record Date immediately preceding such Interest Payment Date and (ii) if the Specified Currency is other than U.S. dollars, to receive such payment by wire transfer of immediately available funds to an account maintained by the payee with a bank located in a jurisdiction in which payment in such Specified Currency is then lawful. The Company shall pay any administrative costs imposed by banks in connection with making payments by wire transfer; provided, however, that any tax, assessment or other governmental charge imposed upon payments shall be borne by the Holder hereof in respect of which payments are made. All payments of principal, premium, if any, and interest in respect of this Note will be made by the Company in the Specified Currency; provided, however, that if the Specified Currency specified above is other than U.S. dollars, the Holder hereof may, if indicated above under "Option to Receive Payment in U.S. Dollars," elect to receive all payments of principal, premium if any, and/or interest in respect of this Note in U.S. dollars by delivering a written request to the Trustee not later than the close of business on the Record Date immediately preceding the Interest Payment Date or the fifteenth day immediately preceding the Maturity Date, as the case may be. Upon such election by the Holder hereof, the Company shall tender payment in U.S. dollars at the Exchange Rate (as defined below), and any costs associated with the conversion of the Specified 4 Currency into U.S. dollars shall be borne by the Holder hereof through deductions from such payments. The Holder's election to receive payments in U.S. dollars will remain in effect until revoked by written notice from the Holder to the Trustee, provided that any such revocation must be received by the Trustee not later than the close of business on the Record Date immediately preceding the Interest Payment Date or the fifteenth day immediately preceding the Maturity Date, as the case may be. Unless otherwise specified above or elsewhere herein, "Exchange Rate" means, with respect to a Specified Currency other than ECU, the noon Dollar buying rate for such Specified Currency for cable transfers quoted by the Exchange Rate Agent specified above in The City of New York on the Record Date or Special Record Date (as defined below) or the fifteenth day immediately preceding the Maturity Date or such other date provided herein or in the Indenture, as the case may be, as certified for customs purposes by the Federal Reserve Bank of New York. With respect to ECU, "Exchange Rate" means the exchange rate between dollars and ECU reported by the Council of the European Communities on the applicable Record Date or Special Record Date with respect to an Interest Payment Date or the fifteenth day immediately preceding the Maturity Date or such other date provided herein or in the Indenture, as the case may be. If any payment of principal, premium, if any, or interest on this Note is to be made in a Specified Currency other than U.S. dollars and such Specified Currency is not available to the Company for making such payment due to the imposition of exchange controls or other circumstances beyond the control of the Company, the Company will be entitled to satisfy its obligations to the Holder hereof by making such payment in U.S. dollars on the basis of the Exchange Rate referred to below two Business Days prior to the Interest Payment Date or the Maturity Date, as the case may be (or, if no rate is quoted for such Specified Currency on such date, the last date such Exchange Rate is quoted). Any payment made under such circumstances in U.S. dollars where the required payment is in a Specified Currency other than U.S. dollars will not constitute an Event of Default under the Indenture. For purposes of this paragraph and the immediately succeeding paragraph, the "Exchange Rate" for a foreign currency or ECU will be the noon Dollar selling rate for that currency or ECU for cable transfers quoted by the Exchange Rate Agent in The City of New York, as certified for customs purposes by the Federal Reserve Bank of New York. If payment on this Note is required to be made in ECU and ECU is unavailable due to the imposition of exchange controls or other circumstances beyond the control of the Company, or is no longer used in the European Monetary System, all payments due on that Interest Payment Date or Maturity Date with respect to this Note shall be made in U.S. dollars. The amount so payable on any date in ECU shall be converted into U.S. dollars, at a rate determined by the Exchange Rate Agent as of the second Business Day prior to the date on which such payment is due on the following basis. The component currencies of the 5 ECU for this purpose (the "Components") shall be the currency amounts which were components of the ECU as of the last date on which the ECU was used in the European Monetary System. The equivalent of the ECU in U.S. dollars shall be calculated by aggregating the U.S. dollar equivalents of the Components. The U.S dollar equivalent of each of the Components shall be determined by the Exchange Rate Agent on the basis of the most recently available Exchange Rate. If the official unit of any component currency is altered by way of combination or subdivision, the number of units of that currency as a Component shall be divided or multiplied in the same proportion. If two or more component currencies are consolidated into a single currency, the amounts of those currencies as Components shall be replaced by an amount in such single currency equal to the sum of the amounts of the consolidated component currencies expressed in such single currency. If any component currency is divided into two or more currencies, the amount of that currency as a Component shall be replaced by amounts of such two or more currencies (in appropriate proportions) the sum of which shall be equal to the amount of the former component currency. All determinations referred to above made by the Exchange Rate Agent shall be at its sole discretion (except to the extent expressly provided that any determination is subject to approval) and, in the absence of manifest error, shall be conclusive for all purposes and binding on the Holder of this Note and the Exchange Rate Agent shall have no liability therefor. Any interest not punctually paid or duly provided for with respect to this Note ("Defaulted Interest") will forthwith cease to be payable to the Holder of this Note on the applicable Record Date and may either be paid to the person in whose name this Note is registered at the close of business on a special record date (the "Special Record Date") for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to the Holder of this Note not less than ten days prior to such Special Record Date, or may be paid at any time in any other lawful manner, all as more completely described in the Indenture. Unless otherwise specified above, interest will be computed on the basis of a 360-day year of twelve 30-day months. This Note is one of a duly authorized issue of debentures, notes, bonds or other evidences of indebtedness of the Company (collectively, the "Debt Securities"), of the series hereinafter specified, all issued or to be issued under and pursuant to an indenture, dated as of January 1, 1992, as amended, supplemented or modified from time to time, including Supplemental Indenture No. 1 thereto dated as of June 15, 1995 (collectively, the "Indenture"), among the Company, the Guarantor (as defined below), 6 and The Bank of New York, as trustee (the "Trustee," which term includes any successor trustee under the Indenture), to which Indenture reference is hereby made for a description of the respective rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company, the Guarantor and the Holders of the Notes. The Debt Securities may be issued in one or more series, which different series (and which Debt Securities issued within each series) may be issued in various aggregate principal amounts, may mature at different times, may bear interest, if any, at different rates or formulas, may be subject to different redemption or repayment provisions, if any, may be subject to different sinking, purchase or analogous funds, if any, and may otherwise vary as provided in the Indenture. This Note is one of a series designated as "Medium-Term Notes, Series D, Due Nine Months or More From Date of Issue" of the Company (collectively, the "Notes"), limited in aggregate offering price to U.S. $500,000,000, or the equivalent thereof in one or more Specified Currencies other than U.S. dollars. If an Event of Default, as defined in the Indenture, with respect to the Notes shall have occurred and be continuing, the principal hereof (or, if this Note is an Original Issue Discount Security (as defined below), the Amortized Face Amount (as defined below)) and accrued interest (or, if this Note is an Original Issue Discount Security, any accrued interest the payment of which would constitute qualified stated interest within the meaning of Treasury Regulation Section 1.1273-1(c) under the Internal Revenue Code of 1986, as amended (the "Code"), as in effect on _______, 1995) hereon, may be declared, and upon such declaration shall become, due and payable in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture contains provisions permitting the Company, the Guarantor and the Trustee, with the consent of the Holders of a majority in aggregate principal amount of the Debt Securities at the time outstanding of each series to be affected, evidenced as in the Indenture provided, to execute supplemental indentures adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or modifying in any manner the rights of the Holders of the Debt Securities; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each outstanding Debt Security affected thereby: (i) except as otherwise permitted in the Indenture in connection with Debt Securities for which the Stated Maturity is extendible, change the Maturity of the principal of, or any installment of interest on, any such Debt Security; (ii) reduce the principal amount of any such Debt Security or, except as otherwise permitted in the Indenture in connection with Debt Securities for which the interest rate may be reset, the interest thereon or any premium payable upon the redemption or repayment thereof; (iii) reduce the amount of the principal of an Original Issue Discount Security that would be due and payable upon a declaration of acceleration of the Maturity thereof; (iv) adversely affect any right of payment at the option of the Holder of any such Debt Security; (v) reduce the amount of, or postpone the date fixed for, any 7 payment under any sinking fund or analogous provisions for any Debt Security; (vi) change any Place of Payment, or the currency or currency unit of the payment of the principal of premium, if any, or interest on any Debt Security; (vii) change or eliminate certain rights of Holders to receive payment in a designated currency; (viii) impair the right to institute suit for the enforcement of any required payment on or with respect to any Debt Security; (ix) reduce the percentage in aggregate principal amount of the Outstanding Debt Securities of any series, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of the Indenture or certain defaults thereunder and their consequences) provided for in the Indenture; (x) modify certain other provisions of the Indenture; or (xi) modify or affect in any manner adverse to the Holders the terms and conditions of the obligations of the Guarantor in respect of the due and punctual payment of principal of, or premium, if any, or interest on, the Debt Securities. It is also provided in the Indenture that, with respect to certain defaults or Events of Default regarding the Debt Securities of any series, the Holders of a majority in aggregate principal amount of the Debt Securities of such series at the time outstanding may on behalf of the Holders of all of the Debt Securities of such series waive any past default or Event of Default and its consequences, except a default in the payment of the principal of, or premium, if any, or interest on, any Debt Security of such series or in respect of certain other covenants or provisions of the Indenture. Any such consent or waiver by the Holder of this Note shall be conclusive and binding upon such Holder and upon all future Holders of this Note and of any Note issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not any notation of such consent or waiver is made upon this Note or such other Notes. The Guarantor, or a Subsidiary thereof, may directly assume, by a supplemental indenture, the due and punctual payment of the principal of, and premium, if any, and interest on, all the Debt Securities, in which case the Company shall be released from its liability as obligor on the Debt Securities. No reference herein to the Indenture and no reference to any provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, and premium, if any, and interest on, this Note at the places, at the respective times, at the rate and in the currency herein prescribed. The Notes are issuable in registered form without coupons in the minimum denomination of U.S. $100,000, or the equivalent thereof in the Specified Currency (if other than U.S. dollars), and in integral multiples of U.S. $1,000 in excess thereof, or the equivalent thereof in such Specified Currency, or such other minimum denomination as specified on the face hereof. Notes may be exchanged by the Holder hereof, without charge except for any tax, assessment or other governmental charge imposed in connection therewith, for a like aggregate principal amount of Notes of other authorized 8 denominations in the manner and subject to the limitations provided in the Indenture at the Corporate Trust Office of the Trustee. If this Note is subject to Optional Redemption as specified above, the Company may at its option redeem this Note in whole or, from time to time, in part in increments of U.S. $1,000 (provided that any remaining principal amount hereof shall be not less than the minimum denomination, as described above) on or after the Initial Redemption Date at the sum of (i) 100% of the unpaid principal amount hereof or the portion thereof redeemed (or, if this Note is an Original Issue Discount Security, the Amortized Face Amount determined as of the Redemption Date as provided below), plus (ii) the Initial Redemption Percentage specified above (as adjusted for the Annual Redemption Percentage Reduction, if applicable) multiplied by the unpaid principal amount or the portion thereof redeemed (or, if this Note is an Original Issue Discount Security, the Issue Price specified above, net of any portion of such Issue Price which has been deemed paid prior to redemption (by reason of any payments, other than a payment of qualified stated interest, in excess of original issue discount accrued to the date of such payment), or the portion of such Issue Price (or such net amount) proportionate to the portion of the unpaid principal amount of the Note redeemed), plus (iii) accrued interest to the Redemption Date (or, if this Note is an Original Issue Discount Security, any accrued interest to the Redemption Date the payment of which would constitute qualified stated interest payments within the meaning of Treasury Regulation Section 1.1273-1(c) under the Code). Such Initial Redemption Percentage shall decline at each anniversary of the Initial Redemption Date by an amount equal to the Annual Redemption Percentage Reduction, if any, specified above, until the Initial Redemption Percentage equals zero percent. The Company may exercise such option by causing the Trustee to mail a notice of such redemption to the Holder hereof not less than 30 but not more than 60 days prior to the Redemption Date. In the event of redemption of this Note in part only, a new Note or Notes for the unredeemed portion hereof shall be issued in the name of the Holder hereof upon the cancellation hereof. If less than all of the Notes with like tenor and terms to this Note are to be redeemed, the Notes to be redeemed shall be selected by the Trustee by such method as the Trustee shall deem fair and appropriate. An "Original Issue Discount Security" means any Note that has been issued at an Issue Price lower, by an amount that equals or exceeds a de minimis amount (as determined under United States Federal income tax rules applicable to original issue discount instruments), than the principal amount thereof. If this Note is an Original Issue Discount Note, the "Amortized Face Amount" of this Note shall be the amount equal to the sum of (a) the Issue Price plus (b) the aggregate of the portions of the original issue discount (the excess of the amounts considered as part of the "stated redemption price at maturity" of this Note within the meaning of Section 1273(a)(2) of the Code, whether denominated as principal or interest, over the Issue Price of this Note) which shall theretofore have accrued pursuant to Section 1272 of the Code (without regard to 9 Section 1272(a)(7) of the Code) from the Original Issue Date of this Note to the date of determination, minus (c) any amount considered as part of the "stated redemption price at maturity" of such Note which has been paid on this Note from the Original Issue Date to the date of determination. If this Note is subject to Optional Repayment as specified above, the Holder hereof may at its option require the Company to repay this Note in whole or from time to time in part in increments of U.S. $1,000 or the minimum denomination specified above (provided that any remaining principal amount hereof shall not be less than the minimum denomination, as described above) on any Optional Repayment Date specified above at the sum of (i) 100% of the unpaid principal amount hereof or the portion to be repaid thereof, plus (ii) accrued interest to the Repayment Date. In order for this Note to be repaid, this Note must be received, together with the form entitled "Option to Elect Repayment" duly completed, by the Trustee at its Corporate Trust Office (or such other address of which the Company shall from time to time notify the Holders of the Notes) not more than 60 nor less than 30 days prior to the Repayment Date. Exercise of such repayment option by the Holder hereof shall be irrevocable, except as otherwise provided above. Prior to due presentment of this Note for registration of transfer, the Company, the Guarantor, the Trustee and any agent of the Company, the Guarantor, or the Trustee may treat the Holder hereof as the owner of this Note for the purpose of receiving payment of the principal hereof and premium, if any, and interest hereon and for all other purposes whatsoever, whether or not such Note be overdue, and neither the Company, the Guarantor, the Trustee nor any such agent of the Company, the Guarantor or the Trustee shall be affected by any notice to the contrary. No recourse shall be had for the payment of the principal of, or premium, if any, or interest on, this Note, or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture against any incorporator, stockholder, officer, director or employee, as such, past, present or future, of the Company or the Guarantor or any successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. All terms used but not defined in this Note shall have the meanings assigned to them in the Indenture. The Indenture and the Notes shall be governed by and construed in accordance with the laws of the State of New York. 10 This Note shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been manually signed by or on behalf of the Trustee under the Indenture. IN WITNESS WHEREOF, Countrywide Funding Corporation has caused this instrument to be signed in its name by the facsimile signatures of its duly authorized officers, and has caused a facsimile of its corporate seal to be affixed hereunto or imprinted hereon. Date: COUNTRYWIDE FUNDING CORPORATION [SEAL] By:____________________________________ President Attest:__________________________________ Secretary 11 GUARANTEE OF COUNTRYWIDE CREDIT INDUSTRIES, INC. For value received, Countrywide Credit Industries, Inc., a corporation duly organized and existing under the laws of Delaware (the "Guarantor"), hereby unconditionally guarantees to the Holder of the Note upon which this Guarantee is endorsed the due and punctual payment of the principal of, and premium, if any, and interest on, and sinking fund payments, if any, required with respect to said Note, when and as the same shall become due and payable, whether on the Stated Maturity Date, by acceleration, redemption or repayment or otherwise, according to the terms thereof and of the Indenture referred to therein. In case of the failure of Countrywide Funding Corporation (the "Company") punctually to pay any such principal, premium, interest, or sinking fund payment, the Guarantor hereby agrees to cause any such payment to be made punctually when and as the same shall become due and payable, whether on the Stated Maturity Date, by acceleration, redemption or repayment or otherwise, and as if such payment were made by the Company. The Guarantor hereby agrees that its obligations hereunder shall be as principal and not merely as surety, and shall be absolute, irrevocable and unconditional, irrespective of, and shall be unaffected by, any invalidity, irregularity or unenforceability of said Note or said Indenture, any failure to enforce the provisions of said Note or said Indenture, or any waiver, modification, consent or indulgence granted to the Company with respect thereto, by the Holder of said Note or the Trustee under said Indenture, the recovery of any judgment against the Company or any action to enforce the same, or any other circumstances which may otherwise constitute a legal or equitable discharge of a surety or guarantor. The Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of merger, insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest or notice with respect to said Note or the indebtedness evidenced thereby and all demands whatsoever, and covenants that this Guarantee will not be discharged except by payment in full of the principal of, and premium, if any, and interest on, or any sinking fund payment required with respect to, said Note and the complete performance of all other obligations contained in said Note. The Guarantor shall be subrogated to all rights of the Holder of said Note against the Company in respect of any amounts paid to such Holder by the Guarantor pursuant to the provisions of this Guarantee; provided, however, that the Guarantor shall not be entitled to enforce, or to receive any payments arising out of or based upon, such right of subrogation until the principal of, and premium, if any, and interest on, and any 12 sinking fund payments required with respect to, all Notes of this series issued under said Indenture shall have been paid in full and its other obligations under said Indenture completed. The Guarantor hereby certifies and warrants that all acts, conditions and things required to be done and performed and to have happened precedent to the creation and issuance of this Guarantee and to constitute the same the valid obligation of the Guarantor have been done and performed and have happened in due compliance with all applicable laws. This Guarantee as endorsed on said Note shall not be entitled to any benefit under said Indenture or become valid or obligatory for any purpose until the certificate of authentication on said Note shall have been signed manually by or on behalf of the Trustee under said Indenture. 13 This Guarantee shall be governed by and construed in accordance with the laws of the State of New York. IN WITNESS WHEREOF, the Guarantor has caused this Guarantee to be duly executed in facsimile by its duly authorized officer under its corporate seal. COUNTRYWIDE CREDIT INDUSTRIES, INC. By:_______________________________ Vice Chairman and Executive Vice President Attest:_____________________________ Secretary CERTIFICATE OF AUTHENTICATION This is one of the Debt Securities of the series designated therein referred to in the within-mentioned Indenture. THE BANK OF NEW YORK, as Trustee Date: By:____________________________ Authorized Signatory 14 OPTION TO ELECT REPAYMENT The undersigned hereby irrevocably requests and instructs the Company to repay this Note (or portion hereof specified below) in accordance with the terms of this Note at a price equal to the principal amount hereof (or portion hereof to be repaid), together with interest to the Repayment Date, by payment to the undersigned at ________________________________________________________________________________ ________________________________________________________________________________ (Please print or typewrite name and address, including zip code, of the undersigned). In order for this Note to be repaid, the Trustee must receive at its Corporate Trust Office at 101 Barclay Street, New York, New York 10286, or at such other place or places of which the Company shall from time to time notify the Holders of the Notes, not more than 60 nor less than 30 days prior to the Repayment Date, this Note with this Option to Elect Repayment form duly completed. If less than the entire principal amount of this Note is to be repaid, specify the portion hereof (which shall be in increments of U.S. $1,000 or other increments specified above) to be repaid: ______________. If less than the entire principal amount of this Note is to be repaid, specify the denomination(s) of the Note(s) to be issued for the unpaid amount (which shall be U.S. $100,000 or increments of U.S. $1,000 in excess thereof, or such other minimum denomination specified above):______________. Date: _________________________________________________ Note: The signature on this Option to Elect Repayment must correspond with the name as written upon the face of the within instrument in every particular, without alteration or enlargement, or any change whatsoever. 15 ASSIGNMENT FOR VALUE RECEIVED the undersigned hereby sell(s), assign(s) and transfer(s) unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE _______________________________________________________________________________ _______________________________________________________________________________ Please Print or Typewrite Name and Address Including Zip Code of Assignee _______________________________________________________________________________ the within Note and all rights thereunder, hereby irrevocably constituting and appointing _______________________________________________________________________________ to transfer said Note on the books of the Company, with full power of substitution in the premises. Dated:_______________________ Signature:____________________________ NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within instrument in every particular, without alteration or enlargement, or any change whatsoever. 16 EX-4.11 8 FLOATING RATE MEDIUM-TERM EXHIBIT 4.11 COUNTRYWIDE FUNDING CORPORATION CUSIP REGISTERED PRINCIPAL AMOUNT NO. FL- MEDIUM-TERM NOTE, SERIES D $ (Floating Rate) Due Nine Months or More From Date of Issue Payment of the Principal, Premium, if any, and Interest on This Note is Unconditionally Guaranteed by Countrywide Credit Industries, Inc. IF THE HOLDER OF THIS NOTE IS THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) (THE "DEPOSITARY") OR A NOMINEE OF THE DEPOSITARY, THIS NOTE IS A GLOBAL NOTE AND THE FOLLOWING LEGEND APPLIES: UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN CERTIFICATED FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND SUCH NOTE IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY AND ANY PAYMENT IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. ISSUE PRICE: ORIGINAL ISSUE DATE: PRINCIPAL AMOUNT: SPECIFIED CURRENCY: MINIMUM DENOMINATION: EXCHANGE RATE AGENT: BASE RATE(S): IF CMT RATE, DESIGNATED CMT TELERATE PAGE: DESIGNATED CMT MATURITY INDEX: INDEX MATURITY: INTEREST FACTOR CONVENTION: SPREAD (plus or minus): SPREAD MULTIPLIER: MAXIMUM INTEREST RATE: MINIMUM INTEREST RATE: OPTION TO RECEIVE PAYMENT IN U.S. DOLLARS: / / NO / / YES REDEMPTION: / / NO / / YES INITIAL REDEMPTION DATE: INITIAL REDEMPTION PERCENTAGE: ANNUAL REDEMPTION PERCENTAGE REDUCTION: REPAYMENT: / / NO / / YES OPTIONAL REPAYMENT DATE(S): STATED MATURITY DATE: INITIAL INTEREST RATE: INTEREST RESET DATES: INTEREST PAYMENT DATES: FIXED RATE COMMENCEMENT DATE: FIXED INTEREST RATE: CALCULATION AGENT: OTHER/ADDITIONAL TERMS: 2 COUNTRYWIDE FUNDING CORPORATION, a New York corporation (the "Company"), for value received, hereby promises to pay to ____________, or registered assignees, the principal sum of ____________________ (_____________) on the Stated Maturity Date specified above (except to the extent redeemed or repaid prior to the Stated Maturity Date) at the office or agency of the Company in the Borough of Manhattan, The City of New York, State of New York, and such other place or places as may be provided for pursuant to the Indenture referred to below, and to pay interest in arrears at a rate per annum equal to the Initial Interest Rate specified above from the Original Issue Date specified above until the first Interest Reset Date specified above following the Original Issue Date and thereafter, except as specified herein, at a rate determined in accordance with the provisions below under the heading "Determination of Commercial Paper Rate," "Determination of LIBOR," "Determination of Certificate of Deposit Rate," "Determination of Federal Funds Rate," "Determination of Prime Rate," "Determination of Treasury Rate," "Determination of CMT Rate" or "Determination of 11th District Cost of Funds Rate" depending upon whether an applicable Base Rate specified above is the Commercial Paper Rate, LIBOR, the Certificate of Deposit Rate, the Federal Funds Rate, the Prime Rate, the Treasury Rate, the CMT Rate or the 11th District Cost of Funds Rate, respectively, until the principal hereof becomes due and payable. The Company will pay interest on the Interest Payment Dates specified above (each, an "Interest Payment Date"), commencing with the Interest Payment Date next succeeding the Original Issue Date, and on the Stated Maturity Date or, if applicable, any date of earlier redemption (the "Redemption Date") or repayment (the "Repayment Date") (the earliest of the Stated Maturity Date, the Redemption Date and the Repayment Date is hereinafter referred to as the "Maturity Date" with respect to the principal repayable on such date); provided, however, that if an Interest Payment Date other than the Maturity Date would fall on a day that is not a Business Day (as defined below), such Interest Payment Date shall be postponed to the next Business Day, except that if interest hereon is determined by reference to LIBOR and such next Business Day falls in the next calendar month, such Interest Payment Date shall be the immediately preceding Business Day; provided, further, that if the Maturity Date falls on a day that is not a Business Day, payment of principal, premium, if any, and/or interest to be made on the Maturity Date shall be made on the next Business Day with the same force and effect as if made on the Maturity Date, and no interest on such payment shall accrue to the next Business Day. "Business Day" means any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions are authorized or required by law, regulation or executive order to close in (i) New York, New York or Los Angeles, California or (ii) if the Specified Currency specified above is other than U.S. dollars, the Principal Financial Center (as defined below) of the country issuing such Specified Currency, and if interest hereon is determined by reference to LIBOR, such day is also a London Banking Day (as defined below). "Principal Financial Center" means the capital city of the country issuing the related Specified Currency, except that with respect to 3 Australian dollars, Deutsche marks, Dutch guilders, Italian lire, Swiss francs, and European Currency Units ("ECU"), the "Principal Financial Center" shall be Sydney, Frankfurt, Amsterdam, Milan, Zurich and Luxembourg, respectively. "London Banking Day" means any day on which dealings in deposits in U.S. dollars are transacted in the London interbank market. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will be paid to the person (the "Holder") in whose name this Note (or one or more predecessor Notes) is registered at the close of business on the fifteenth day (whether or not a Business Day) immediately preceding such Interest Payment Date (each, a "Record Date"); provided, however, that interest payable on the Maturity Date will be payable to the person to whom principal is payable. Unless otherwise specified above, if this Note is originally issued between a Record Date and an Interest Payment Date the first payment of interest on this Note will be made on the Interest Payment Date following the next Record Date to the Holder hereof on such next Record Date. Unless otherwise specified above, payment of the principal of, premium, if any, and interest on, this Note due on the Maturity Date will be made in immediately available funds in the Specified Currency, upon presentation and surrender of this Note at the Corporate Trust Office of the Trustee. If the Specified Currency is other than U.S. dollars, this Note must be presented and surrendered to the Trustee referred to below in time for the Trustee to make such payment in accordance with its normal procedures. Unless otherwise specified above, payment of interest on this Note due on any Interest Payment Date other than the Maturity Date will be made by mailing a check in the Specified Currency (from an account at a bank located outside the United States if such check is payable in a Specified Currency other than U.S. dollars) to the address of the Holder hereof as such address shall appear in the Security Register (as defined in the Indenture) on the applicable Record Date. Notwithstanding the foregoing, on any Interest Payment Date other than the Maturity Date, each Holder of U.S.$10,000,000 (or the equivalent thereof in a Specified Currency other than U.S. dollars) or more in aggregate principal amount of Notes (whether or not having identical terms and provisions) shall be entitled: (i) if the Specified Currency is U.S. dollars, to receive such payment by wire transfer of immediately available funds to an account maintained by the payee with a bank located in the United States, but only if appropriate wire transfer instructions have been received in writing by the Trustee not later than the Record Date immediately preceding such Interest Payment Date and (ii) if the Specified Currency is other than U.S. dollars, to receive such payment by wire transfer of immediately available funds to an account maintained by the payee with a bank located in a jurisdiction in which payment in such Specified Currency is then lawful. The Company shall pay any administrative costs imposed by banks in connection with making payments by wire transfer; provided, 4 however, that any tax, assessment or other governmental charge imposed upon payments shall be borne by the Holder hereby in respect of which payments are made. All payments of principal, premium, if any, and interest, in respect of this Note will be made by the Company in the Specified Currency; provided, however, that if the Specified Currency specified above is other than U.S. dollars, the Holder hereof may, if indicated above under "Option to Receive Payment in U.S. Dollars," elect to receive all payments of principal, premium, if any, and/or interest in respect of this Note in U.S. dollars by delivering a written request to the Trustee not later than the close of business on the Record Date immediately preceding the Interest Payment Date or the fifteenth day immediately preceding the Maturity Date, as the case may be. Upon such election by the Holder hereof, the Company shall tender payment in U.S. dollars at the Exchange Rate (as defined below), and any costs associated with the conversion of the Specified Currency into U.S. dollars shall be borne by the Holder hereof through deductions from such payments. The Holder's election to receive payments in U.S. dollars will remain in effect until revoked by written notice from the Holder to the Trustee, provided that any such revocation must be received by the Trustee not later than the close of business on the Record Date immediately preceding the Interest Payment Date or the fifteenth day immediately preceding the Maturity Date, as the case may be. Unless otherwise specified above or elsewhere herein, "Exchange Rate" means, with respect to a Specified Currency other than ECU, the noon Dollar buying rate for such Specified Currency for cable transfers quoted by the Exchange Rate Agent specified above in The City of New York on the Record Date or Special Record Date (as defined below) or the fifteenth day immediately preceding the Maturity Date or such other date provided herein or in the Indenture, as the case may be, as certified for customs purposes by the Federal Reserve Bank of New York. With respect to ECU, "Exchange Rate" means the exchange rate between U.S. dollars and ECU reported by the Council of the European Communities on the applicable Record Date or Special Record Date with respect to an Interest Payment Date or the fifteenth day immediately preceding the Maturity Date or such other date as provided herein or in the Indenture, as the case may be. If any payment of principal, premium, if any, or interest on this Note is to be made in a Specified Currency other than U.S. dollars and such Specified Currency is not available to the Company for making such payment due to the imposition of exchange controls or other circumstances beyond the control of the Company, the Company will be entitled to satisfy its obligations to the Holder hereof by making such payment in U.S. dollars on the basis of the Exchange Rate referred to below two Business Days prior to the Interest Payment Date or the Maturity Date, as the case may be (or, if no rate is quoted for such Specified Currency on such date, the last date such Exchange Rate is quoted). Any payment made under such circumstances in U.S. dollars where the required 5 payment is in a Specified Currency other than U.S. dollars will not constitute an Event of Default under the Indenture. For purposes of this paragraph and the immediately succeeding paragraph, the "Exchange Rate" for a foreign currency or ECU will be the noon Dollar selling rate for that foreign currency or ECU for cable transfers quoted by the Exchange Rate Agent in The City of New York, as certified for customs purposes by the Federal Reserve Bank of New York. If payment on this Note is required to be made in ECU and ECU is unavailable due to the imposition of exchange controls or other circumstances beyond the control of the Company, or is no longer used in the European Monetary System, all payments due on that due date with respect to this Note shall be made in U.S. dollars. The amount so payable on any date in ECU shall be converted into U.S. dollars, at a rate determined by the Exchange Rate Agent as of the second Business Day prior to the date on which such payment is due on the following basis. The component currencies of the ECU for this purpose (the "Components") shall be the currency amounts which were components of the ECU as of the last date on which the ECU was used in the European Monetary System. The equivalent of the ECU in U.S. dollars shall be calculated by aggregating the U.S. dollar equivalents of the Components. The U.S dollar equivalent of each of the Components shall be determined by the Exchange Rate Agent on the basis of the most recently available Exchange Rate. If the official unit of any component currency is altered by way of combination or subdivision, the number of units of that currency as a Component shall be divided or multiplied in the same proportion. If two or more component currencies are consolidated into a single currency, the amounts of those currencies as Components shall be replaced by an amount in such single currency equal to the sum of the amounts of the consolidated component currencies expressed in such single currency. If any component currency is divided into two or more currencies, the amount of that currency as a Component shall be replaced by amounts of such two or more currencies (in appropriate proportions) the sum of which shall be equal to the amount of the former component currency. All determinations referred to above made by the Exchange Rate Agent shall be at its sole discretion (except to the extent expressly provided that any determination is subject to approval) and, in the absence of manifest error, shall be conclusive for all purposes and binding on the Holder of this Note and the Exchange Rate Agent shall have no liability therefor. Any interest not punctually paid or duly provided for with respect to this Note ("Defaulted Interest") will forthwith cease to be payable to the Holder of this Note on the applicable Record Date and may either be paid to the person in whose name this Note is registered at the close of business on a special record date (the "Special Record 6 Date") for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to the Holder of this Note not less than ten days prior to such Special Record Date, or may be paid at any time in any other lawful manner, all as more completely provided in the Indenture. This Note is one of a duly authorized issue of debentures, notes, bonds or other evidences of indebtedness of the Company (collectively, the "Debt Securities"), of the series hereinafter specified, all issued or to be issued under and pursuant to an indenture, dated as of January 1, 1992, as amended, supplemented or modified from time to time, including Supplemental Indenture No. 1 thereto, dated as of June 15, 1995 (collectively, the "Indenture"), among the Company, the Guarantor (as defined below), and The Bank of New York, as trustee (the "Trustee," which term includes any successor trustee under the Indenture), to which Indenture reference is hereby made for a description of the respective rights, limitation of rights, obligations, duties and immunities thereunder of the Trustee, the Company, the Guarantor and the Holders of the Notes. The Debt Securities may be issued in one or more series, which different series (and which Debt Securities issued within each series) may be issued in various aggregate principal amounts, may mature at different times, may bear interest, if any, at different rates or formulas, may be subject to different redemption or repayment provisions, if any, may be subject to different sinking, purchase or analogous funds, if any, and may otherwise vary as provided in the Indenture. This Note is one of a series designated as "Medium-Term Notes, Series D, Due Nine Months or More From Date of Issue" of the Company (collectively, the "Notes"), limited in aggregate issue amount to U.S.$500,000,000 or the equivalent thereof in one or more Specified Currencies other than U.S. dollars. The interest payable hereon on each Interest Payment Date will include interest accrued from and including the most recent Interest Payment Date to which interest has been paid or duly provided for, or, if no interest has been paid or duly provided for, from and including the Original Issue Date, as the case may be, to, but excluding, the applicable Interest Payment Date or the Maturity Date, as the case may be (each, an "Interest Period"). Accrued interest will be calculated by multiplying the principal amount hereof by an accrued interest factor. Such accrued interest factor shall be computed by adding the interest factor calculated for each day in the Interest Period for which accrued interest is being calculated. The interest factor for each such day shall be computed by dividing the interest rate applicable to such day by 360 if an applicable Base Rate is the Commercial Paper Rate, LIBOR, Certificate of Deposit Rate, Federal Funds Rate, Prime Rate or 11th District Cost of Funds Rate or by the actual number of days in the year if an applicable Base Rate is the Treasury Rate or CMT Rate. If more than one Base Rate is applicable to this Note, the interest factor will be calculated in the same manner as if only the Base Rate specified above under "Interest Factor Convention" applied. 7 This Note will bear interest at the rate determined in accordance with the provisions set forth below by reference to the applicable Base Rate, or the lowest, highest or average of two or more Base Rates, as specified above, based on the Index Maturity, if any, specified above (i) plus or minus the Spread, if any, and/or (ii) multiplied by the Spread Multiplier, if any, in each case specified above. Commencing with the first Interest Reset Date specified above, the rate at which interest on this Note is payable shall be reset as of each Interest Reset Date; provided, however, that (i) the interest rate in effect for the period, if any, from the Original Issue Date to the first Interest Reset Date will be the Initial Interest Rate and (ii) if a Fixed Rate Commencement Date is specified above, the interest rate in effect for the period commencing on the Fixed Rate Commencement Date to the Maturity Date shall be the Fixed Interest Rate specified above or, if no Fixed Interest Rate is specified above, the interest rate in effect on the day immediately preceding the Fixed Rate Commencement Date. Except as set forth in the immediately preceding paragraph, the interest rate in effect on each day shall be (i) if such day is an Interest Reset Date, the interest rate determined as of the Interest Determination Date (as defined below) immediately preceding such Interest Reset Date or (ii) if such day is not an Interest Reset Date, the interest rate determined as of the Interest Determination Date immediately preceding the most recent Interest Reset Date. If any Interest Reset Date would otherwise be a day that is not a Business Day, such Interest Reset Date shall be postponed to the next Business Day, except that if interest hereon is determined by reference to LIBOR and such next Business Day falls in the next calendar month, such Interest Reset Date shall be the immediately preceding Business Day. Notwithstanding the foregoing, the interest rate hereon shall not be greater than the Maximum Interest Rate, if any, or less than the Minimum Interest Rate, if any, specified above. In addition, the interest rate hereon shall in no event be higher than the maximum rate permitted by New York law as the same may be modified by United States law of general application. Subject to applicable provisions of law and except as specified herein, on each applicable Interest Reset Date the rate of interest will be calculated by the Calculation Agent specified below in accordance with the provisions of the applicable heading below. Determination of Commercial Paper Rate. If an applicable Base Rate is the Commercial Paper Rate, the "Commercial Paper Rate" for each applicable Interest Reset Date will be determined by the Calculation Agent as of the second Business Day prior to such Interest Reset Date (a "Commercial Paper Rate Determination Date") and shall be the Money Market Yield (as defined below) on such date of the rate for commercial paper having the Index Maturity specified above as published by the Board of Governors of the 8 Federal Reserve System in "Statistical Release H.15(519), Selected Interest Rates," or any successor publication ("H.15(519)"), under the heading "Commercial Paper." In the event that such rate is not published prior to 3:00 P.M., New York City time, on the relevant Calculation Date (as defined below), then the Commercial Paper Rate shall be the Money Market Yield on such Commercial Paper Rate Determination Date of the rate for commercial paper of the specified Index Maturity as published by the Federal Reserve Bank of New York in its daily statistical release "Composite 3:30 P.M. Quotations for U.S. Government Securities" ("Composite Quotations") under the heading "Commercial Paper." If by 3:00 P.M., New York City time, on such Calculation Date such rate is not yet published in either H.15(519) or Composite Quotations, then the Commercial Paper Rate shall be the Money Market Yield of the arithmetic mean of the offered rates as of 11:00 A.M., New York City time, on such Commercial Paper Rate Determination Date of three leading dealers of commercial paper in The City of New York selected by the Calculation Agent for commercial paper of the specified Index Maturity, placed for an industrial issuer whose bond rating is "AA," or the equivalent, from a nationally recognized rating agency; provided, however, that if the dealers selected as aforesaid by the Calculation Agent are not quoting offered rates as mentioned in this sentence, the Commercial Paper Rate for such Interest Reset Date will be the Commercial Paper Rate in effect on such Commercial Paper Rate Determination Date. "Money Market Yield" shall be a yield (expressed as a percentage) calculated in accordance with the following formula: Money Market Yield = D x 360 x 100 --------------- 360 - (D x M) where "D" refers to the applicable per annum rate for commercial paper quoted on a bank discount basis and expressed as a decimal and "M" refers to the actual number of days in the Interest Period for which interest is being calculated corresponding to the Index Maturity specified above. Determination of LIBOR. If an applicable Base Rate is LIBOR, "LIBOR" for each applicable Interest Reset Date will be determined by the Calculation Agent as follows: (i) If "LIBOR Reuters" is specified above, on the second London Banking Day prior to the applicable Interest Reset Date (a "LIBOR Determination Date"), the Calculation Agent will determine LIBOR as the arithmetic mean of the offered rates for deposits in U.S. dollars for the period of the Index Maturity specified above which appear on the "Reuters Screen LIBO Page" at approximately 11:00 A.M., London time, on such LIBOR Determination Date. "Reuters Screen LIBO Page" means the display designated as page "LIBO" on the Reuter Monitor Money Rates Service (or such other page as may 9 replace the LIBO Page on that service for the purpose of displaying London interbank offered rates of major banks). If "LIBOR Telerate" is specified above or if no other method for determining LIBOR is provided for, on the LIBOR Determination Date, the Calculation Agent will determine LIBOR as the rate for deposits in U.S. dollars for the period of the Index Maturity specified above which appears on "Telerate Page 3750" at approximately 11:00 A.M., London time, on such LIBOR Determination Date. "Telerate Page 3750" means the display page so designated on the Dow Jones Telerate Service (or such other page as may replace such page on that service for the purpose of displaying London interbank offered rates of major banks). (ii) If LIBOR Reuters is specified on the face hereof and if fewer than two offered rates for the applicable Index Maturity appear on the Reuters Screen LIBO Page or if LIBOR Telerate is applicable for determining LIBOR and no rate appears on Telerate Page 3750, the Calculation Agent will request the principal London offices of each of four major banks in the London interbank market, as selected by the Calculation Agent, to provide the Calculation Agent with its offered quotation for deposits in U.S. dollars for the period of the Index Maturity specified above commencing on the second London Banking Day following such LIBOR Determination Date to prime banks in the London interbank market at approximately 11:00 A.M., London time, on such LIBOR Determination Date and in a principal amount equal to an amount of not less than U.S.$1,000,000 that is representative of a single transaction in such market at such time. If at least two such quotations are provided, LIBOR will be the arithmetic mean of such quotations. If fewer than two quotations are provided, LIBOR in respect of that LIBOR Determination Date will be the arithmetic mean of rates quoted by three major banks in The City of New York selected by the Calculation Agent (after consultation with the Company) at approximately 11:00 A.M., New York City time, on such LIBOR Determination Date for loans in U.S. dollars to leading European banks, for the period of the Index Maturity specified above, and in the principal amount equal to an amount of not less than U.S.$1,000,000 that is representative for a single transaction in such market at such time; provided, however, that if fewer than three banks selected as aforesaid by the Calculation Agent are quoting rates as mentioned in this sentence, LIBOR in effect for such Interest Reset Date will be LIBOR in effect on such LIBOR Determination Date. Determination of Certificate of Deposit Rate. If an applicable Base Rate is the Certificate of Deposit Rate, the "Certificate of Deposit Rate" for each applicable Interest Reset Date shall be determined by the Calculation Agent as of the second Business Day prior to such Interest Reset Date (a "CD Rate Determination Date") and will be the rate for negotiable certificates of deposit having the Index Maturity specified above, as published in H.15(519) under the heading "CDs (Secondary Market)." In the event that such rate is not published prior to 3:00 P.M., New York City time, on the 10 Calculation Date pertaining to such CD Rate Determination Date, then the Certificate of Deposit Rate will be the rate on such CD Rate Determination Date for negotiable certificates of deposit of the Index Maturity specified above as published in Composite Quotations under the heading "Certificates of Deposit." If by 3:00 P.M., New York City time, on such Calculation Date such rate is not yet published in either H.15(519) or Composite Quotations, then the Certificate of Deposit Rate will be calculated by the Calculation Agent and will be the arithmetic mean of the secondary market offered rates as of 10:00 A.M., New York City time, on such CD Rate Determination Date of three leading non-bank dealers in negotiable U.S. dollar certificates of deposit in The City of New York selected by the Calculation Agent for negotiable certificates of deposit of major United States money center banks (in the market for negotiable certificates of deposit) with a remaining maturity closest to the Index Maturity specified above in a denomination of U.S.$5,000,000; provided, however, that if the dealers selected as aforesaid by such Calculation Agent are not quoting offered rates as mentioned in this sentence, the Certificate of Deposit Rate for such Interest Reset Date will be the Certificate of Deposit Rate in effect on such CD Rate Determination Date. Determination of Federal Funds Rate. If an applicable Base Rate is the Federal Funds Rate, the "Federal Funds Rate" for each applicable Interest Reset Date will be determined by the Calculation Agent as of the second Business Day prior to such Interest Reset Date (a "Federal Funds Rate Determination Date") and shall be the rate on such Federal Funds Rate Determination Date for Federal Funds as published in H.15(519) under the heading "Federal Funds (Effective)." In the event that such rate is not published prior to 3:00 P.M., New York City time, on the Calculation Date pertaining to such Federal Funds Rate Determination Date, the Federal Funds Rate shall be the rate on such Federal Funds Rate Determination Date as published in Composite Quotations under the heading "Federal Funds/Effective Rate." If by 3:00 P.M., New York City time, on such Calculation Date such rate is not yet published in either H.15(519) or Composite Quotations, then the Federal Funds Rate will be calculated by the Calculation Agent and will be the arithmetic mean of the rates for transactions in overnight Federal Funds arranged by three leading brokers of Federal Funds transactions in The City of New York selected by the Calculation Agent as of 9:00 A.M., New York City time, on such Federal Funds Rate Determination Date; provided, however, that if the three brokers selected as aforesaid by the Calculation Agent are not quoting rates as mentioned in this sentence, the Federal Funds Rate for such Interest Reset Date will be the Federal Funds Rate in effect on such Federal Funds Rate Determination Date. Determination of Prime Rate. If an applicable Base Rate is the Prime Rate, the "Prime Rate" for each applicable Interest Reset Date will be determined by the Calculation Agent as of the second Business Day prior to such Interest Reset Date (a "Prime Rate Determination Date") and shall be the rate on such date as such rate is published in H.15(519) under the heading "Bank Prime Loan." If such rate is not 11 published prior to 3:00 P.M., New York City time, on the Calculation Date pertaining to the Prime Rate Determination Date, then the Calculation Agent shall determine the Prime Rate as the arithmetic mean of the rates of interest publicly announced by each bank that appears on the "Reuters Screen NYMF Page" as such bank's prime rate or base lending rate as in effect for such Prime Rate Determination Date. "Reuters Screen NYMF Page" means the display designated as page "NYMF" on the Reuter Monitor Money Rates Service (or such other page as may replace the NYMF Page on that service for the purpose of displaying prime rates or base lending rates of major United States banks). If fewer than four such rates but more than one such rate appear on the Reuters Screen NYMF Page for such Prime Rate Determination Date, the Calculation Agent shall determine the Prime Rate as the arithmetic mean of the prime rates quoted on the basis of the actual number of days in the year divided by a 360-day year as of the close of business in The City of New York on such Prime Rate Determination Date by three major money center banks in The City of New York selected by the Calculation Agent. If fewer than two such rates appear on the Reuters Screen NYMF Page, the Calculation Agent will determine the Prime Rate as the arithmetic mean on the basis of the prime rates quoted as of the close of business in The City of New York on such Prime Rate Determination Date by three substitute banks or trust companies that are organized and doing business under the laws of the United States or any state thereof, have total equity capital of at least U.S.$500,000,000 and are subject to supervision or examination by Federal or state authorities; provided, however, that if fewer than three such substitute banks or trust companies are quoting prime rates as mentioned in this sentence, the Prime Rate for such Interest Reset Date will be the Prime Rate in effect on such Prime Rate Determination Date. Determination of Treasury Rate. If an applicable Base Rate is the Treasury Rate, the "Treasury Rate" with respect to any Treasury Rate Determination Date (as defined below) will be the rate for the auction held on such Treasury Rate Determination Date of direct obligations of the United States ("Treasury bills") having the Index Maturity specified above as published in H.15(519) under the heading "Treasury bills--auction average (investment)" or, if not so published by 9:00 A.M., New York City time, on the Calculation Date pertaining to such Treasury Rate Determination Date, the auction average rate (expressed as a bond equivalent, on the basis of a year of 365 or 366 days, as applicable and applied on a daily basis) as otherwise announced by the United States Department of the Treasury. In the event that the results of the auction of Treasury bills having the Index Maturity specified above are not published or reported as provided above by 3:00 P.M., New York City time, on such Calculation Date or if no such auction is held on the Treasury Rate Determination Date, then the Treasury Rate shall be calculated by the Calculation Agent and shall be a yield to maturity (expressed as a bond equivalent, on the basis of a year of 365 or 366 days, as applicable and applied on a daily basis) of the arithmetic mean of the secondary market bid rates as of approximately 3:30 12 P.M., New York City time, on such Treasury Rate Determination Date, of three leading primary United States government securities dealers selected by the Calculation Agent for the issue of Treasury bills with a remaining maturity closest to the Index Maturity specified above; provided, however, that if the dealers selected as aforesaid by the Calculation Agent are not quoting bid rates as mentioned in this sentence, the Treasury Rate for such Interest Reset Date will be the Treasury Rate in effect on such Treasury Rate Determination Date. The "Treasury Rate Determination Date" shall be the day of the week in which the applicable Interest Reset Date falls on which Treasury bills would normally be auctioned. Treasury bills are normally sold at auction on Monday of each week, unless that day is a legal holiday, in which case the auction is normally held on the following Tuesday; provided, however, that if such auction is held on the preceding Friday, such Friday will be the Treasury Rate Determination Date pertaining to the Interest Reset Date occurring in the next week; and, provided further, that if an auction falls on an Interest Reset Date, then such Interest Reset Date will be the first Business Day following such auction. Determination of CMT Rate. If an applicable Base Rate is the CMT Rate, the "CMT Rate" for each applicable Interest Reset Date will be determined by the Calculation Agent as of the second Business Day prior to such Interest Reset Date (the "CMT Rate Determination Date") and will be the rate displayed on the Designated CMT Telerate Page (as defined below) under the caption "...Treasury Constant Maturities ... Federal Reserve Board Release H.15 ... Mondays Approximately 3:45 P.M.," under the column for the Designated CMT Maturity Index (as defined below) for (i) if the Designated CMT Telerate Page is 7055, the rate on such CMT Rate Determination Date and (ii) if the Designated CMT Telerate Page is 7052, the week, or the month, as applicable, ended immediately preceding the week in which the applicable CMT Rate Determination Date occurs. If such rate is no longer displayed on the relevant page, or if not displayed by 3:00 P.M., New York City time, on the Calculation Date pertaining to such CMT Rate Determination Date, then the CMT Rate for such CMT Rate Determination Date will be such treasury constant maturity rate for the Designated CMT Maturity Index as published in the relevant H.15(519). If such rate is no longer published in the relevant H.15(519), or if not published by 3:00 P.M., New York City time, on the Calculation Date pertaining to such CMT Rate Determination Date, then the CMT Rate for such CMT Rate Determination Date will be such treasury constant maturity rate for the Designated CMT Maturity Index (or other United States Treasury rate for the Designated CMT Maturity Index) for the CMT Rate Determination Date with respect to such Interest Reset Date as may then be published by either the Board of Governors of the Federal Reserve System or the United States Department of the Treasury that the Calculation Agent determines to be comparable to the rate formerly displayed on the Designated CMT Telerate Page and published in the relevant H.15(519). If such 13 information is not provided by 3:00 P.M., New York City time, on the Calculation Date pertaining to such CMT Rate Determination Date, then the CMT Rate for the CMT Rate Determination Date will be calculated by the Calculation Agent and will be a yield to maturity, based on the arithmetic mean of the secondary market closing offer side prices as of approximately 3:30 P.M., New York City time, on the CMT Rate Determination Date reported, according to their written records, by three leading primary United States government securities dealers (each, a "Reference Dealer") in The City of New York selected by the Calculation Agent (from five such Reference Dealers selected by the Calculation Agent and eliminating the highest quotation (or, in the event of equality, one of the highest) and the lowest quotation (or, in the event of equality, one of the lowest)), for the most recently issued direct noncallable fixed rate obligations of the United States ("Treasury Notes") with an original maturity of approximately the Designated CMT Maturity Index and a remaining term to maturity of not less than such Designated CMT Maturity Index minus one year. If the Calculation Agent cannot obtain three such Treasury Note quotations, the CMT Rate for such CMT Rate Determination Date will be calculated by the Calculation Agent and will be a yield to maturity based on the arithmetic mean of the secondary market offer side prices as of approximately 3:30 P.M., New York City time, on the CMT Rate Determination Date of three Reference Dealers in The City of New York (from five such Reference Dealers selected by the Calculation Agent and eliminating the highest quotation (or, in the event of equality, one of the highest) and the lowest quotation (or, in the event of equality, one of the lowest)), for Treasury Notes with an original maturity of the number of years that is the next highest to the Designated CMT Maturity Index and a remaining term to maturity closest to the Designated CMT Maturity Index and in an amount of at least U.S.$100,000,000. If three or four (and not five) of such Reference Dealers are quoting as described above, then the CMT Rate will be based on the arithmetic mean of the offer prices obtained and neither the highest nor the lowest of such quotes will be eliminated; provided, however, that if fewer than three Reference Dealers selected by the Calculation Agent are quoting as described herein, the CMT Rate for such Interest Reset Date will be the CMT Rate in effect on such CMT Rate Determination Date. If two Treasury Notes with an original maturity as described in the second preceding sentence have remaining terms to maturity equally close to the Designated CMT Maturity Index, the quotes for the Treasury Note with the shorter remaining term to maturity will be used. "Designated CMT Telerate Page" means the display on the Dow Jones Telerate Service on the page specified above (or any other page as may replace such page on that service for the purpose of displaying Treasury Constant Maturities as published in H.15(519)), for the purpose of displaying Treasury Constant Maturities as published in H.15(519). If no such page is specified above, the Designated CMT Telerate Page shall be 7052, for the most recent week. 14 "Designated CMT Maturity Index" means the original period to maturity of the Treasury Notes (either one, two, three, five, seven, ten, twenty or thirty years) specified above with respect to which the CMT Rate will be calculated. If no such maturity is specified above, the Designated CMT Maturity Index shall be two years. Determination of 11th District Cost of Funds Rate. If an applicable Base Rate is the 11th District Cost of Funds Rate, the "11th District Cost of Funds Rate" for each applicable Interest Reset Date will be determined by the Calculation Agent as of the last Business Day of the month prior to such Interest Reset Date (the "11th District Rate Determination Date") and will be the rate equal to the monthly weighted average cost of funds for the calendar month preceding such 11th District Rate Determination Date as set forth under the caption "11th District" on Telerate Page 7058 as of 11:00 A.M., San Francisco time, on such 11th District Rate Determination Date. If such rate does not appear on Telerate Page 7058 on any related 11th District Rate Determination Date, the 11th District Cost of Funds Rate for such 11th District Rate Determination Date shall be the monthly weighted average cost of funds paid by member institutions of the Eleventh Federal Home Loan Bank District that was most recently announced by the Federal Home Loan Bank ("FHLB") of San Francisco as such cost of funds for the calendar month preceding the date of such announcement. If the FHLB of San Francisco fails to announce such rate for the calendar month immediately preceding such 11th District Rate Determination Date, then the 11th District Cost of Funds Rate for such Interest Reset Date will be the 11th District Cost of Funds Rate then in effect on such 11th District Rate Determination Date. The "Interest Determination Date" means the Commercial Paper Rate Determination Date, the LIBOR Determination Date, the CD Rate Determination Date, the Federal Funds Rate Determination Date, the Prime Rate Determination Date, the Treasury Rate Determination Date, the CMT Rate Determination Date or the 11th District Rate Determination Date, as the case may be. If interest hereon is determined by reference to two or more Base Rates, the "Interest Determination Date" means the most recent Business Day which is at least two Business Days prior to the applicable Interest Reset Date on which each Base Rate shall be determinable. Each Base Rate shall be determined and compared as of such date, and the applicable interest rate shall take effect on the related Interest Reset Date. The Bank of New York shall be the Calculation Agent, unless a different Calculation Agent is specified above. At the request of the Holder hereof, the Calculation Agent will provide the interest rate then in effect and, if determined, the interest rate which will become effective on the next Interest Reset Date. The "Calculation Date," if applicable, pertaining to any Interest Determination Date will be earlier of (i) the 10th calendar day after such Interest 15 Determination Date or, if such day is not a Business Day, the next Business Day or (ii) the Business Day immediately preceding the applicable Interest Payment Date or the Maturity Date, as the case may be. If an Event of Default, as defined in the Indenture, with respect to the Notes shall have occurred and be continuing, the principal hereof (or, if this Note is an Original Issue Discount Security (as defined below), the Amortized Face Amount (as defined below)) and accrued interest (or, if this Note is an Original Issue Discount Security, any accrued interest the payment of which would constitute qualified stated interest payments within the meaning of Treasury Regulation Section 1.1273-1(c) under the Internal Revenue Code of 1986, as amended (the "Code"), as in effect on _____ __, 1995), may be declared, and upon such declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture contains provisions permitting the Company, the Guarantor and the Trustee, with the consent of the Holders of a majority in aggregate principal amount of the Debt Securities at the time outstanding of each series to be affected, evidenced as in the Indenture provided, to execute supplemental indentures adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or modifying in any manner the rights of the Holders of the Debt Securities; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each outstanding Debt Security affected thereby: (i) except as otherwise permitted in the Indenture in connection with Debt Securities for which the Stated Maturity is extendible, change the Stated Maturity of the principal of, or any installment of interest on, any such Debt Security; (ii) reduce the principal amount of any such Debt Security or, except as otherwise permitted in the Indenture in connection with Debt Securities for which the interest rate may be reset, the interest thereon or any premium payable upon the redemption or repayment thereof; (iii) reduce the amount of the principal of an Original Issue Discount Security that would be due and payable upon a declaration of acceleration of the Maturity thereof; (iv) adversely affect any right of repayment at the option of the Holder of any such Debt Security; (v) reduce the amount of, or postpone the date fixed for, any payment under any sinking fund or analogous provisions for any Debt Security; (vi) change any Place of Payment, or the currency or currency unit of the payment of the principal of, premium, if any, or interest on any Debt Security; (vii) change or eliminate certain rights of Holders to receive payment in a designated currency; (viii) impair the right to institute suit for the enforcement of any required payment on or with respect to any Debt Security; (ix) reduce the percentage in aggregate principal amount of the Outstanding Debt Securities of any series, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of the Indenture or certain defaults thereunder and their consequences) provided for in the Indenture; (x) modify certain other provisions of the Indenture; or (xi) modify or affect in any manner adverse to the Holders 16 the terms and the conditions of the obligations of the Guarantor in respect of the due and punctual payment of principal, or premium, if any, or interest on, the Debt Securities. It is also provided in the Indenture that, with respect to certain defaults or Events of Default regarding the Debt Securities of any series, the Holders of a majority in aggregate principal amount of the Debt Securities of such series at the time outstanding may on behalf of the Holders of all of the Debt Securities of such series waive any past default or Event of Default and its consequences, except a default in the payment of the principal of, or premium, if any, or interest on, any Debt Security of such series or in respect of certain other covenants or provisions of the Indenture. Any such consent or waiver by the Holder of this Note shall be conclusive and binding upon such Holder and upon all future Holders of this Note and of any Note issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not any notation of such consent or waiver is made upon this Note or such other Notes. The Guarantor, or a Subsidiary thereof, may directly assume, by a supplemental indenture, the due and punctual payment of the principal of, and premium, if any, and interest on, all the Debt Securities, in which case the Company shall be released from its liability as obligor on the Debt Securities. No reference herein to the Indenture and no reference to any provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, and premium, if any, and interest on, this Note at the places, at the respective times, at the rate and in the currency herein prescribed. The Notes are issuable in registered form without coupons in the minimum denomination of U.S.$100,000, or the equivalent thereof in the Specified Currency (if other than U.S. dollars), and in integral multiples of U.S.$1,000 in excess thereof, or the equivalent thereof in such Specified Currency, or such other Minimum Denomination as specified on the face hereof. Notes may be exchanged by the Holder hereof, without charge except for any tax, assessment or other governmental charge imposed in connection therewith, for a like aggregate principal amount of Notes of other authorized denominations in the manner and subject to the limitations provided in the Indenture at the Corporate Trust Office of the Trustee. If this Note is subject to Optional Redemption as specified above, the Company may at its option, redeem this Note in whole or, from time to time, in part in increments of U.S.$1,000 (provided that any remaining principal amount hereof shall be not less than the minimum denomination, as described above) on or after the Initial Redemption Date specified above at the sum of (i) 100% of the unpaid principal amount hereof or the portion thereof redeemed (or, if this Note is an Original Issue Discount Security, the Amortized Face Amount determined as of the Redemption Date as provided below), plus (ii) the Initial Redemption Percentage specified above (as adjusted for the 17 Annual Redemption Percentage Reduction, if applicable) multiplied by the unpaid principal amount or the portion thereof redeemed (or, if this Note is an Original Issue Discount Security, the Issue Price specified above, net of any portion of such Issue Price which has been deemed paid prior to redemption (by reason of any payments, other than a payment of qualified stated interest, in excess of the original issue discount accrued to the date of such payment), or the portion of such Issue Price (or such net amount) proportionate to the portion of the unpaid principal amount of the Note redeemed), plus (iii) accrued interest to the Redemption Date (or, if this Note is an Original Issue Discount Security, any accrued interest to the Redemption Date the payment of which would constitute qualified stated interest payments within the meaning of Treasury Regulation Section 1.1273-1(c) under the Code). Such Initial Redemption Percentage shall decline at each anniversary of the Initial Redemption Date by an amount equal to the Annual Redemption Percentage Reduction, if any, specified above, until the Initial Redemption Percentage equals zero percent. The Company may exercise such option by causing the Trustee to mail a notice of such redemption to the Holder hereof not less than 30 but not more than 60 days prior to the Redemption Date. In the event of redemption of this Note in part only, a new Note or Notes for the unredeemed portion hereof shall be issued in the name of the Holder hereof upon the cancellation hereof. If less than all of the Notes with like tenor and terms to this Note are to be redeemed, the Notes to be redeemed shall be selected by the Trustee by such method as the Trustee shall deem fair and appropriate. An "Original Issue Discount Security" means any Note that has been issued at an Issue Price lower, by an amount that equals or exceeds a de minimis amount (as determined under United States Federal income tax rules applicable to original issue discount instruments), than the principal amount thereof. If this Note is an Original Issue Discount Note, the "Amortized Face Amount" of this Note shall be the amount equal to the sum of (a) the Issue Price plus (b) the aggregate of the portions of the original issue discount (the excess of the amounts considered as part of the "stated redemption price at maturity" of this Note within the meaning of Section 1273(a)(2) of the Code, whether denominated as principal or interest, over the Issue Price of this Note) which shall theretofore have accrued pursuant to Section 1272 of the Code (without regard to Section 1272(a)(7) of the Code) from the Original Issue Date of this Note to the date of determination, minus (c) any amount considered as part of the "stated redemption price at maturity" of this Note which has been paid on this Note from the Original Issue Date to the date of determination. If this Note is subject to Optional Repayment as specified above, the Holder hereof may at its option require the Company to repay this Note in whole or from time to time in part in increments of U.S.$1,000 or the minimum denomination specified above (provided that any remaining principal amount hereof shall not be less than the minimum denomination, as described above) on any Optional Repayment Date specified above at the sum of (i) 100% of the unpaid principal amount hereof or the portion to be repaid 18 thereof, plus (ii) accrued interest to the Repayment Date. In order for this Note to be repaid, this Note must be received, together with the form entitled "Option to Elect Repayment" duly completed, by the Trustee at its Corporate Trust Office (or such other address of which the Company shall from time to time notify the Holders of the Notes) not more than 60 nor less than 30 days prior to the Repayment Date. Exercise of such repayment option by the Holder hereof shall be irrevocable, except as otherwise provided above. Prior to due presentment of this Note for registration of transfer, the Company, the Guarantor, the Trustee and any agent of the Company, the Guarantor, or the Trustee may treat the Holder hereof as the owner of this Note, for the purpose of receiving payment of the principal hereof and premium, if any, and interest hereon and for all other purposes whatsoever, whether or not such Note be overdue, and neither the Company, the Guarantor, the Trustee nor any such agent of the Company, the Guarantor, or the Trustee shall be affected by any notice to the contrary. No recourse shall be had for the payment of the principal of, or premium, if any, or interest on, this Note, or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture, against any incorporator, stockholder, officer, director or employee, as such, past, present, or future, of the Company or the Guarantor or any successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. All terms used but not defined in this Note shall have the meanings assigned to them in the Indenture. The Indenture and the Notes shall be governed by and construed in accordance with the laws of the State of New York. This Note shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been manually signed by or on behalf of the Trustee under the Indenture. 19 IN WITNESS WHEREOF, Countrywide Funding Corporation has caused this instrument to be signed in its name by the facsimile signatures of its duly authorized officers, and has caused a facsimile of its corporate seal to be affixed hereunto or imprinted hereon. Date: COUNTRYWIDE FUNDING CORPORATION [SEAL] By: ---------------------------- President Attest: -------------------------------- Secretary 20 GUARANTEE OF COUNTRYWIDE CREDIT INDUSTRIES, INC. For value received, Countrywide Credit Industries, Inc., a corporation duly organized and existing under the laws of Delaware (the "Guarantor"), hereby unconditionally guarantees to the Holder of the Note upon which this Guarantee is endorsed the due and punctual payment of the principal of, and premium, if any, and interest on, and sinking fund payments, if any, required with respect to said Note, when and as the same shall become due and payable, whether on the Stated Maturity Date, by acceleration, redemption or repayment or otherwise, according to the terms thereof and of the Indenture referred to therein. In case of the failure of Countrywide Funding Corporation (the "Company") punctually to pay any such principal, premium, interest, or sinking fund payment, the Guarantor hereby agrees to cause any such payment to be made punctually when and as the same shall become due and payable, whether on the Stated Maturity Date, by acceleration, redemption or repayment, or otherwise, and as if such payment were made by the Company. The Guarantor hereby agrees that its obligations hereunder shall be as principal and not merely as surety, and shall be absolute, irrevocable and unconditional, irrespective of, and shall be unaffected by, any invalidity, irregularity or unenforceability of said Note or said Indenture, any failure to enforce the provisions of said Note or said Indenture, or any waiver, modification, consent or indulgence granted to the Company with respect thereto, by the Holder of said Note or the Trustee under said Indenture, the recovery of any judgment against the Company or any action to enforce the same, or any other circumstances which may otherwise constitute a legal or equitable discharge of a surety or guarantor. The Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of merger, insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest or notice with respect to said Note or the indebtedness evidenced thereby and all demands whatsoever, and covenants that this Guarantee will not be discharged except by payment in full of the principal of, and premium, if any, and interest on, or any sinking fund payment required with respect to, said Note and the complete performance of all other obligations contained in said Note. The Guarantor shall be subrogated to all rights of the Holder of said Note against the Company in respect of any amounts paid to such Holder by the Guarantor pursuant to the provisions of this Guarantee; provided, however, that the Guarantor shall not be entitled to enforce, or to receive any payments arising out of or based upon, such 21 right of subrogation until the principal of, and premium, if any, and interest on, and any sinking fund payments required with respect to, all Notes of this series issued under said Indenture shall have been paid in full and its other obligations under said Indenture completed. The Guarantor hereby certifies and warrants that all acts, conditions and things required to be done and performed and to have happened precedent to the creation and issuance of this Guarantee and to constitute the same the valid obligation of the Guarantor have been done and performed and have happened in due compliance with all applicable laws. This Guarantee as endorsed on said Note shall not be entitled to any benefit under said Indenture or become valid or obligatory for any purpose until the certificate of authentication on said Note shall have been signed manually by or on behalf of the Trustee under said Indenture. This Guarantee shall be governed by and construed in accordance with the laws of the State of New York. 22 IN WITNESS WHEREOF, the Guarantor has caused this Guarantee to be duly executed in facsimile by its duly authorized officer under its corporate seal. COUNTRYWIDE CREDIT INDUSTRIES, INC. By: ------------------------------- Vice Chairman and Executive Vice President Attest: ----------------------------- Secretary CERTIFICATE OF AUTHENTICATION This is one of the Debt Securities of the series designated therein referred to in the within-mentioned Indenture. THE BANK OF NEW YORK, as Trustee Date: By: --------------------------------- Authorized Signatory 23 OPTION TO ELECT REPAYMENT The undersigned hereby irrevocably requests and instructs the Company to repay this Note (or portion hereof specified below) in accordance with the terms of this Note at a price equal to the principal amount hereof (or portion hereof to be repaid), together with interest to the Repayment Date, by payment to the undersigned at ________________________________________________________________________________ ________________________________________________________________ (Please print or typewrite name and address, including zip code, of the undersigned). In order for this Note to be repaid, the Trustee must receive at its Corporate Trust Office at 101 Barclay Street, New York, New York 10286, or at such other place or places of which the Company shall from time to time notify the Holders of the Notes, not more than 60 nor less than 30 days prior to the Repayment Date, this Note with this Option to Elect Repayment form duly completed. If less than the entire principal amount of this Note is to be repaid, specify the portion hereof (which shall be in increments of U.S.$1,000 or other increments specified above) to be repaid: ______________. If less than the entire principal amount of this Note is to be repaid, specify the denomination(s) of the Note(s) to be issued for the unpaid amount (which shall be U.S.$100,000 or increments of U.S.$1,000 in excess thereof, or such other minimum denomination specified above):______________. Date: ______________________________________________________ Note: The signature on this Option to Elect Repayment must correspond with the name as written upon the face of the within instrument in every particular, without alteration or enlargement, or any change whatsoever. 24 ASSIGNMENT FOR VALUE RECEIVED the undersigned hereby sell(s), assign(s) and transfer(s) unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - --------------------------------- ______________________________________________________________________________ Please Print or Typewrite Name and Address Including Zip Code of Assignee ______________________________________________________________________________ the within Note and all rights thereunder, hereby irrevocably constituting and ________________________________________________________________________________ appointing to transfer said Note on the books of the Company, with full power of ____________________________ substitution in the premises. Dated: Signature: ----------------------- -------------------------------------- NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within instrument in every particular, without alteration or enlargement, or any change whatsoever. 25 EX-8.1 9 OPINION OF FRIED, FRANK, HARRIS, SHRIVER, JACOBSON EXHIBIT 8.1 FRIED, FRANK, HARRIS, SHRIVER & JACOBSON A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS ONE NEW YORK PLAZA NEW YORK, NEW YORK 10004-1980 212-859-8000 FAX 212-859-4000 WRITER'S DIRECT LINE June 16, 1995 212-859-8171 (FAX: 212-859-8588) Countrywide Funding Corporation Countrywide Credit Industries, Inc. 155 North Lake Avenue Pasadena, California 91101 Ladies and Gentlemen: We have acted as your special counsel in connection with the Prospectus and Prospectus Supplement dated , 1995 (the "Prospectus Supplement") pertaining to your registration statement on Form S-3 (the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), filed with the Securities and Exchange Commission, with respect to the public offering of Medium Term Notes, Series D, of Countrywide Funding Corporation (the "Notes"). We hereby confirm, based on the assumptions and subject to the qualifications and limitations set forth therein, that the statements in the section of the Prospectus Supplement captioned "Certain Federal Income Tax Considerations," to the extent that such statements constitute statements of law, reflect our opinion regarding the material federal income tax consequences of the purchase, ownership, and disposition of the Notes. No opinion is expressed on matters other than those specifically referred to herein. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement. In giving this consent, we do not hereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act. The opinion expressed herein is solely for your benefit and may not be relied upon in any manner or for any purpose by any other person and may not be quoted in whole or in part without our prior written consent. Very truly yours, FRIED, FRANK, HARRIS, SHRIVER & JACOBSON By: /s/ Lee S. Parker ------------------------------------- Lee S. Parker EX-23.1 10 CONSENT OF GRANT EXHIBIT 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS --------------------------------------------------- We have issued our report dated April 18, 1995, accompanying the consolidated financial statements and schedules of Countrywide Credit Industries, Inc. and Subsidiaries appearing in the Annual Report on Form 10-K for the year ended February 28, 1995, which is incorporated by reference in this Amendment No.2 to the Registration Statement (File No. 33-59559) and included in the Prospectus. We consent to the incorporation by reference in this Amendment No. 2 to the Registration Statement and inclusion in the Prospectus of the aforementioned report and to the use of our name as it appears under the caption "Experts." GRANT THORNTON LLP /s/ GRANT THORNTON LLP Los Angeles, California June 16, 1995 -----END PRIVACY-ENHANCED MESSAGE-----