Countrywide Financial Corporation Form 10-K

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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

Based on the closing price for shares of Common Stock as of June 30, 2003, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of Common Stock held by non-affiliates was $9,321,988,986. For the purposes of the foregoing calculation only, all directors and executive officers of the registrant have been deemed affiliates.

As of March 8, 2004, there were 185,698,819 shares of Countrywide Financial Corporation Common Stock, $0.05 par value, outstanding.

Countrywide Financial Corporation is a diversified financial services holding company engaged primarily in residential mortgage banking and related businesses.

We manage our business through five operating segments — Mortgage Banking, Capital Markets, Insurance, Banking and Global Operations. We primarily conduct the following operations in these segments:


	•	Mortgage Banking — We originate, purchase, securitize and service mortgage loans nationwide.

	•	Capital Markets — We operate an institutional broker-dealer that primarily specializes in trading and underwriting mortgage-backed securities.

	•	Banking — We operate a federally-chartered bank that primarily invests in mortgage loans and home equity lines of credit sourced through our mortgage banking operation. We also provide short-term secured financing to mortgage lenders through a non-depository lending company.

	•	Insurance — We offer property, casualty, life and credit insurance as an underwriter and as an independent agent. We also provide reinsurance coverage to primary mortgage insurers.

	•	Global Operations — We provide mortgage loan application processing and servicing on behalf of a financial institution in the United Kingdom. Currently, we provide these services through a majority-owned joint venture with Barclays plc.

Mortgage banking continues to be our core business, generating 77% of our pre-tax earnings in 2003. The other segments generated the following percentages of our pre-tax earnings: Capital Markets — 11%; Banking — 7%; Insurance — 4%; and Global Operations — 1%. In recent years, however, we have expanded our operations beyond Mortgage Banking. We have pursued this diversification to capitalize on meaningful opportunities to leverage our core Mortgage Banking business and to provide sources of earnings that are less cyclical than the mortgage banking business. For financial information about our segments, see the “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Operating Segment Results” section of this report.

As used in this report, references to “we,” “our,” “the Company” or “Countrywide” refer to Countrywide Financial Corporation and its consolidated subsidiaries unless otherwise indicated.

We have a website located at www.countrywide.com and make our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all exhibits and amendments to these reports available, free of charge, on that website, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission. Our Corporate Governance Guidelines, our Code of Business Ethics, and the charters of the committees of our Board of Directors are also available on our website and available in print upon request.

The following table summarizes our loan production by business segment and by loan type:

For additional information about our loan production statistics, see the section in this Report entitled “Business — Loan Production Tables.”

Our Mortgage Banking Segment produces mortgage loans through a variety of channels on a national scale. Nearly all of the mortgage loans we produce in this segment are sold into the secondary mortgage market, primarily in the form of mortgage-backed securities. We generally perform the ongoing servicing functions related to the mortgage loans that we produce. We also provide various loan closing services such as title, escrow and appraisal. These activities are grouped into three business sectors — Loan Production, Loan Servicing and Loan Closing Services.

We originate and purchase mortgage loans that generally fall into one of the following three categories:


	•	Prime Mortgage Loans — These are prime credit quality first-lien mortgage loans secured by single- (one-to-four) family residences.

	•	Prime Home Equity Loans — These are prime credit quality second-lien mortgage loans secured by single-(one-to-four) family residences, including home equity lines of credit.

	•	Subprime Mortgage Loans — These are first-and second-lien mortgage loans secured by single- (one-to-four) family residences, made to individuals with credit profiles that do not qualify for a prime loan.

The majority of our loan production consists of Prime Mortgage Loans. Prime Mortgage Loans include conventional mortgage loans, Federal Housing Administration-insured mortgage loans and Veterans Administration-guaranteed mortgage loans. The majority of the conventional loans qualify for inclusion in guaranteed mortgage securities backed by Fannie Mae or Freddie Mac. Some of the conventional loans we produce either have an original loan amount in excess of the current $333,700 Fannie Mae and Freddie Mac loan limit or otherwise do not meet Fannie Mae or Freddie Mac guidelines.

We produce mortgage loans through three divisions of Countrywide Home Loans — Consumer Markets, Wholesale Lending and Correspondent Lending — and through our retail subprime lending subsidiary, Full Spectrum Lending, Inc.

The following table summarizes our Mortgage Banking loan production by division:

For additional production statistics, see the section in this Report entitled “Business — Loan Production Tables.”

Our Consumer Markets Division originates mortgage loans through three major business channels: the Branch Network channel, the Business-to-Consumer channel, and the Business-to-Business channel.

The Branch Network channel originates mortgage loans primarily through relationships with realtors and builders. As of December 31, 2003, this network consisted of 466 branch offices in 48 states and the District of Columbia.

The Business-to-Consumer channel originates mortgage loans through the Internet and through direct telemarketing. This channel focuses on customer retention by providing our mortgage customers with an efficient means to refinance their existing mortgage or obtain a mortgage on a new home. The Business-to-Consumer channel also markets Prime Home Equity loans to our existing mortgage customers. As of December 31, 2003, the Business-to-Consumer channel consisted of four call centers and five centralized processing centers.

The Business-to-Business channel originates mortgage loans through three primary marketing channels: Relocation, Affinity, and Fulfillment Services. The Relocation channel targets corporate relocation departments and relocation companies. The Affinity channel targets other corporate entities to provide loan products and services to their customers and employees. The Fulfillment Services channel provides loan sales, processing and closing services to banks, thrifts and financial planners, among others.

For 2003, our Consumer Markets Division was ranked by Inside Mortgage Finance as the third largest retail lender, in terms of volume, among residential retail mortgage lenders nationwide.

Our Wholesale Lending Division originates mortgage loans through independent mortgage loan brokers and other financial intermediaries.

As of December 31, 2003, our Wholesale Lending Division operated 51 branch offices and five fulfillment centers in various parts of the United States. Through this division we service approximately 31,000 independent mortgage loan brokers nationwide.

For 2003, our Wholesale Lending Division was ranked by Inside Mortgage Finance as the largest wholesale originator, in terms of volume, among residential wholesale mortgage lenders nationwide.

Our Correspondent Lending Division purchases mortgage loans from other lenders, which include mortgage bankers, commercial banks, savings and loan associations, home builders and credit unions. As of December 31, 2003, this division served approximately 1,800 approved lenders operating in all 50 states and the District of Columbia.

For 2003, our Correspondent Lending Division was ranked by Inside Mortgage Finance as the largest correspondent lender, in terms of volume, among residential correspondent mortgage lenders nationwide.

Full Spectrum Lending originates primarily Subprime Mortgage Loans through a nationwide network of 97 retail branch offices located in 36 states. Full Spectrum’s mortgage production is generated primarily through referrals from our other loan production divisions, direct mailings to prospective borrowers, outbound telemarketing and affinity relationships.

Our Credit Policy establishes standards for the determination of acceptable credit risks. The standards encompass borrower and collateral quality, underwriting guidelines, and loan origination standards and procedures. The standards are designed to produce high quality loans that have been underwritten to facilitate the securitization and sale of our mortgage loans in the secondary mortgage market. For a further discussion of our loan quality standards, see the section in this Report entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Credit Risk Management.”

For more than a decade, we have pursued a variety of affordable home loan initiatives designed to increase home ownership opportunities for low- and moderate-income borrowers. Our latest initiative, known as We House America®, supports affordable housing programs undertaken by Fannie Mae and promoted by various government agencies, including the U.S. Department of Housing and Urban Development.

We have specifically designed We House America loan programs to meet the needs of low- and moderate-income borrowers. These loan programs enable more such borrowers to qualify for a home loan by allowing, for example, lower down payments, lower cash reserves, alternative income sources and more flexible underwriting criteria than on a typical loan. The mortgage loans we produce through We House America are sold and serviced on a non-recourse basis, generally through guarantee programs sponsored by Fannie Mae.

In addition, we are approved to participate in more than 900 programs offered by state, county and city agencies, municipalities and non-profit organizations that assist with down payments and closing costs.

We have made other significant commitments to affordable lending and emerging markets initiatives designed to increase homeownership opportunities among minority and immigrant communities. In early 2003, we extended our five-year “We House America” Campaign, with a goal of originating $600 billion in loans to targeted homebuyers by the end of 2010. As of December 31, 2003, we had funded $242 billion toward this new goal.

As a mortgage banker, we have historically sold substantially all the mortgage loans that we produce, generally through securitizations. We may hold as investments a small amount of the Prime Home Equity Loans produced. When we securitize our mortgage loans we retain a certain amount of credit risk. This credit risk arises through representations and warranties that we make in conjunction with all of our securitization activities, as well as through retention of limited recourse for credit losses in the case of certain securitizations. For a further discussion of our exposure to credit risk and how we manage this risk, see the section in this

In addition, we typically have interest rate risk from the time a loan application is taken until the related mortgage loan is sold. For a further discussion of our interest rate risk and how this risk is managed, see the section in this Report entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Quantitative and Qualitative Disclosures About Market Risk.”

Although we sell substantially all of the mortgage loans that we produce, we generally retain the rights to service these loans. We refer to these rights as mortgage servicing rights, or MSRs. We may also retain other financial interests when we securitize mortgage loans. We include the value of these retained interests on our balance sheet, and the results of the Loan Servicing Sector include the performance of these interests as well as the operational and other financial activities related to servicing mortgage loans.

In servicing mortgage loans, we collect and remit loan payments, respond to borrower inquiries, account for principal and interest, hold custodial (impound) funds for payment of property taxes and insurance premiums, counsel delinquent mortgagors, supervise foreclosures and property dispositions and generally administer the loans. In return for performing these functions we receive servicing fees and other remuneration.

Our MSRs arise from contractual agreements between us and investors (or their agents) in mortgage-backed securities and mortgage loans. Although MSRs generally arise from the securitization of mortgage loans that we originate, we also occasionally purchase MSRs from other servicers. For a more complete description of MSRs, see “Note 9 — Securitizations” in the financial statement section of this Report.

MSRs and other retained interests, specifically interest-only securities and residual securities, are generally subject to a loss in value when mortgage rates decline. To moderate the effect on earnings of declines in value of MSRs and other retained interests, we maintain a portfolio of financial instruments, including derivative contracts, which increase in aggregate value when interest rates decline. This portfolio of financial instruments is collectively referred to herein as the “Servicing Hedge.” See “Note 10 — Financial Instruments — Risk Management Activities Related to Mortgage Servicing Rights (MSRs) and Other Retained Interests” in the financial statement section of this Report for a further discussion of our Servicing Hedge.

The various functions within our loan servicing operations are briefly described in the following paragraphs. These operations are performed in three primary locations in California and Texas.

Our Customer Service Call Centers managed over 33 million contacts with customers in 2003. These contacts were primarily handled through our Customer Service Representatives, Automated Phone System and website (www.customers.countrywide.com).

Our Remittance Processing division processes all payments and loan payoffs. This division also provides payoff demand statements, prints monthly statements and oversees outbound customer correspondence. Approximately 31% of our customers make their monthly payments electronically using various automated payment methods. Approximately 23% of our customers have chosen to receive electronic statements, which reduces the cost and improves the timeliness of providing loan information to them.

Our Collection and Loss Mitigation units work with delinquent borrowers to bring their mortgages back to current status and to avoid foreclosure if possible. Workout efforts are tailored to the specific borrower circumstances, as dictated by the requirements of the underlying mortgage investor.

Foreclosure and bankruptcy are complex processes that are subject to federal and state laws and regulations, as well as various guidelines imposed by mortgage investors and insurers. Our workflow-based systems facilitate consistent processing of defaulted mortgage loans as well as an efficient flow of data between internal and external business partners. To minimize related costs and to increase efficiency, we utilize our own companies, such as LandSafe Title, LandSafe Appraisal, CTC Real Estate Services and Countrywide Field Services, to process foreclosures and bankruptcies.

Our Investor Accounting department reconciles custodial accounts, processes investor remittances and maintains the accounting records on behalf of our mortgage investors, including Fannie Mae, Ginnie Mae, Freddie Mac, as well as over 500 private investors.

We perform several loan-servicing functions internally that other loan servicers commonly outsource to third parties. We believe the integration of these functions gives us a competitive advantage by lowering overall servicing costs and enabling us to provide a high level of service to our mortgage customers and mortgage investors. Our integrated services include property tax payment processing, foreclosure trustee, property inspections, and insurance tracking and premium payment processing.

The following table sets forth certain information regarding the Company’s loan servicing portfolio, including mortgage loans and securities held for sale and residential mortgage loans subserviced for others, for the periods indicated:


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

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

We provide loan closing products and services such as credit reports, appraisals, title reports and flood determinations through our LandSafe, Inc. group of companies. We provide these services primarily to our loan production divisions.

In recent years, the level of complexity in the mortgage lending business has increased significantly due to several factors:


	•	The continuing evolution of the secondary mortgage market has resulted in a proliferation of mortgage products.

	•	Greater regulation imposed on the industry has resulted in increased costs and the need for higher levels of specialization.


	•	Increasing interest rate volatility compounded by homeowners’ increasing tendency to refinance their mortgages as the refinance process has become more efficient and cost-effective, has resulted in large swings in the volume of mortgage loans originated from year to year. These swings in mortgage origination volume have placed significant operational and financial pressures on mortgage lenders.

To compete effectively in this environment, mortgage lenders must have a very high level of operational, technological and managerial expertise. In addition, the residential mortgage business has become more capital-intensive and therefore access to capital at a competitive cost is critical. Primarily as a result of these factors, the industry has undergone rapid consolidation.

Today, large, sophisticated financial institutions dominate the residential mortgage industry. These industry leaders are primarily commercial banks operating through their mortgage banking subsidiaries. Today, the top 30 mortgage lenders combined have a 79% share of the mortgage origination market, up from 58% five years ago.

This consolidation trend has carried over to the loan servicing side of the mortgage business. Today, the top 30 mortgage servicers combined have a 64% share of the total mortgages outstanding, up from 53% five years ago.

Compared with Countrywide, the other industry leaders are less reliant on the secondary mortgage market as an outlet for adjustable-rate mortgages because they have a greater capacity to hold such mortgages in their loan portfolio. This could place us at a competitive disadvantage if the demand for adjustable-rate mortgages increases significantly, the secondary mortgage market does not provide a competitive outlet for these loans and we are unable to develop a portfolio lending capacity similar to the competition’s.

Generally, we compete by offering a wide selection of mortgage loans through a variety of marketing channels on a national scale, by providing high-quality service and by pricing our mortgage loans at competitive rates.

Our Capital Market Segment consists of Countrywide Securities Corporation and Countrywide Asset Management Corporation.

Countrywide Securities Corporation is a broker-dealer that specializes in the mortgage securities market. The activities of Countrywide Securities Corporation consist of the following:


	•	Trading and underwriting mortgage-related fixed-income securities, including mortgage-backed securities, collateralized mortgage obligations and asset-backed securities issued by Fannie Mae, Freddie Mac, Ginnie Mae and other financial institutions, including Countrywide Home Loans

	•	Trading and underwriting callable debt issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Bank, as well as bank certificates of deposit and corporate debt issued by Countrywide Home Loans

	•	Trading of securities issued by the United States Department of the Treasury

	•	Arranging short-term financing of fixed-income securities by institutional investors

	•	Acting as broker of residential mortgage loans, including subprime loans, on behalf of Countrywide Home Loans

	•	Managing mortgage loan securitization conduits on behalf of Countrywide Home Loans

Most of our underwriting is for Countrywide Home Loans. We trade for our own accounts and act as a broker for institutional investors, such as investment managers, pension fund companies, insurance companies, depositories and mortgage bankers, as well as regional and global broker-dealers. Countrywide Securities

On behalf of Countrywide Home Loans, we manage the acquisition and disposition of loans from third parties. These are typically delinquent or otherwise illiquid residential mortgage loans which have primarily been originated under FHA and VA programs. We also manage the disposition of similar loans originated by Countrywide Home Loans. We attempt to rehabilitate the loans using the servicing operations of Countrywide Home Loans with the intent to securitize those loans that become eligible for securitization. The remaining loans are serviced through foreclosure and liquidation, which includes the collection of government insurance and guarantee proceeds due from the default and liquidation of FHA and VA program loans.

The securities industry is both highly competitive and fragmented. In the mortgage securities market, we compete with global investment banks as well as regional broker-dealers. We believe by leveraging the strengths of Countrywide Home Loans and by specializing in this market, we can offer information, products and services tailored to the unique needs of participants in the mortgage securities market. In contrast, many of our competitors offer a broad range of products and services, which may place us at a competitive disadvantage.

For 2003, according to Inside MBS & ABS, we ranked fourth in Non-Agency MBS Underwriters.


	•	Treasury Bank, N.A., an FDIC-insured, federally-chartered bank

	•	Countrywide Warehouse Lending, a non-depository lending company that provides short-term secured financing to mortgage lenders

Treasury Bank primarily originates and invests in mortgage loans and home equity lines of credit, substantially all of which are sourced through our mortgage banking subsidiary, Countrywide Home Loans. Collateralized mortgage obligations and other securities are used to supplement Treasury Bank’s loan portfolio for liquidity and asset-liability management purposes.

Through Countrywide Bank, a division of Treasury Bank, we offer deposit accounts, primarily certificates of deposit, to the retail market. We sell these products through our two-person financial centers, which are located in 31 of Countrywide Home Loan’s retail branch offices as of December 31, 2003. We also sell these deposit products on-line and through call centers. In addition, a portion of Treasury Bank’s deposit liabilities are comprised of custodial funds that relate to the loan servicing portfolio of Countrywide Home Loans. Treasury Bank borrows funds on a secured basis from the Federal Home Loan Bank of Atlanta and executes repurchase agreements to supplement its deposit liabilities.

Treasury Bank also acts as a mortgage document custodian, primarily for our mortgage banking operations. As a document custodian, we verify, maintain and release collateral for issuers, servicers, sellers and purchasers of debt securitizations. We also provide other services including safekeeping, review/certification, release requests and customer reporting.

At December 31, 2003, Treasury Bank had total assets of $19.4 billion, including $3.6 billion of investment securities and $14.7 billion of loans receivable. At December 31, 2003, Treasury Bank had deposits of $9.3 billion, including $5.9 billion of custodial balances controlled by Countrywide Home Loans.

We provide committed and uncommitted warehouse lines of credit to mortgage bankers to finance their mortgage loan inventories. Most of these mortgage bankers sell loans to our Correspondent Lending Division. All of these mortgage bankers are subject to the same initial and ongoing credit evaluation and monitoring applied to our correspondent lenders. We attempt to limit our credit risk under our warehouse lines of credit by securing the advances with mortgage loans that have a market value in excess of the balance of our advances.

At December 31, 2003, we had total line of credit commitments of $5.0 billion, against which we had advances outstanding of $1.9 billion.

The retail banking industry is dominated by large commercial banks with substantially more assets, significantly higher brand-name recognition and larger physical distribution networks than Treasury Bank.

We compete with other insured depository institutions, which include approximately 7,800 commercial banks and approximately 1,400 savings institutions, in the retail deposit market. The number of commercial banks and savings institutions has decreased over the past decade due to consolidation in the banking industry. As the banking industry continues to consolidate, we expect the intensity of the competition to increase, especially as we further expand our size and geographic scope.

We compete in the retail deposit market on the basis of price (i.e., interest rates offered on deposit accounts). Because of our low-cost structure, we are able to offer CD rates that are among the most competitive in the industry.

Our Banking Segment’s competitive position is significantly enhanced by its synergistic relationship with our core mortgage banking operations. For example, our mortgage banking operation is the primary source of mortgage loan and home equity line of credit customers for Treasury Bank. Treasury Bank sells retail deposit products through financial centers placed within certain of Countrywide Home Loan’s retail branch offices. This economical use of space reduces the Bank’s acquisition costs. In addition, a significant portion of Treasury Bank’s deposit liabilities consists of custodial funds controlled by Countrywide Home Loans. Treasury Bank also provides mortgage document custodial services for our mortgage banking operations.


	•	Offering property, casualty, life and credit insurance as an underwriter and as an independent agent

	•	Providing reinsurance coverage to primary mortgage insurers

We manage these activities through two business units — Balboa Life and Casualty Operations and Balboa Reinsurance Company.

Life and Casualty operations include the operations of Balboa Life and Casualty Group and Countrywide Insurance Services Group, an independent insurance agency.

We underwrite property, casualty, life and credit insurance in all 50 states through our Balboa Life and Casualty Group. This group operates under the following names: Balboa Insurance Company, Balboa Life Insurance Company, Balboa Life Insurance Company of New York, Balboa Lloyds Insurance Company, Meritplan Insurance Company and Newport Insurance Company.


	•	Lender-Placed Property and Auto — We offer lender-placed auto insurance, and lender-placed real-property hazard insurance. Such insurance is provided on behalf of auto and mortgage lenders when borrowers fail to have agreed-upon insurance coverage in place to protect the lender’s security interest. We also provide insurance tracking services, which alerts lenders when there is a lapse in a borrower’s insurance, for more than 11.8 million loans, including almost 4.6 million loans serviced within our mortgage banking operations.

	•	Homeowners — We underwrite retail homeowners’ insurance and home warranty plans for consumers.

	•	Life and Credit — We underwrite term life, credit life and credit disability insurance products.

Our retail insurance products are offered by select general insurance agents serving the consumer market, including our Countrywide Insurance Services Group.

The Balboa Life and Casualty Group has received an “A” rating from A.M. Best Company, an insurance company rating agency. The “A” rating is defined by the A.M. Best Company as having “an excellent ability to meet ongoing obligations to policyholders.”

Our Countrywide Insurance Services Group operates an independent insurance agency that provides consumers, in particular our mortgage customers, with homeowners’ insurance, life insurance, disability insurance, automobile insurance and various other insurance products.

Our Countrywide Insurance Services Group operates under the following names: Countrywide Insurance Services, Inc. (California); Countrywide Insurance Services, Inc. (Arizona); Countrywide Insurance Services of Alabama, Inc.; Countrywide Insurance Agency of Massachusetts; Countrywide Insurance Services of Texas, Inc. and Countrywide General Agency of Texas, Inc.

We provide a mezzanine layer of non-catastrophic reinsurance coverage to the insurance companies that provide primary mortgage insurance (“PMI”) on loans in our servicing portfolio. We provide this coverage with respect to substantially all of the loans in our portfolio that are covered by PMI, which generally includes all conventional loans with an original loan amount in excess of 80 percent of the property’s appraised value. In return for providing this coverage, we earn a portion of the PMI premiums.

The lender-placed insurance market is dominated by a small number of providers, competing on policy terms and conditions, service, technological innovation, compliance capability, loan tracking ability and commissions.

The homeowners’ and credit-life and credit-disability marketplace is dominated by large, consumer brand name providers. Competition is driven by price, service, commissions and the efficiency and effectiveness of marketing and underwriting operations.

The primary mortgage reinsurance market is dominated by large mortgage originators that have extensive business relationships with the PMI industry. We compete in this market primarily through our position in the residential mortgage loan market.

We compete generally by providing high-quality service and pricing our products at competitive rates, as well as by leveraging our residential mortgage loan customer base.


	•	Loan Processing and Sub-servicing — We provide mortgage loan application processing and servicing in the UK through a majority-owned joint venture with Barclays plc. In 2003, we processed over $28.7 billion in loans, all of which are subserviced for Barclays plc, our joint venture partner. At December 31, 2003, our subservicing portfolio was $106 billion.

	•	Valuation Services — We provide electronic residential property valuation services to third parties in the UK through a majority-owned joint venture.

We also develop proprietary technology for these activities. For example, we developed proprietary automated valuation technology that we believe is the first artificial intelligence property valuation system to be introduced in the UK. We manage these activities through three companies — Global Home Loans Limited, UKValuation Limited and Countrywide International Technology Holdings Limited.

Our competitors in this segment include commercial banks, multinational corporations and other financial institutions, which are entering global mortgage markets, particularly in Europe, in recognition of the opportunities presented by less mature mortgage markets outside of the United States. We compete by leveraging our experience and proprietary technology.

We have significant short-term and long-term financing needs. Our short-term financing needs arise primarily from the following:


	•	Warehousing of mortgage loans pending sale

	•	Trading activities of our broker-dealer

	•	Mortgage warehouse lending


	•	Investments in mortgage loans

	•	Investments in MSRs and other interests that we retain when we securitize mortgage loans

	•	Hedging instruments associated with our investments in MSRs and other retained interests

We meet our short- and long-term financing needs primarily through the following means:


	•	Unsecured commercial paper and medium-term notes

	•	Short-term repurchase agreements

	•	Asset-backed commercial paper

	•	Deposit-gathering and other financing activities of Treasury Bank

	•	Retained earnings

We typically access the unsecured public corporate debt market by issuing commercial paper and medium-term notes. At times, we also issue subordinated debt, convertible debt and trust-preferred securities. Our ongoing access to the public debt markets is dependent on a high credit rating. For the last twelve years, we have consistently maintained solid investment-grade ratings. Countrywide Home Loans, our primary issuer

of public corporate debt, presently has long-term ratings of A/ A3/ A as rated by Standard & Poor’s, Moody’s Investors Service and Fitch, Inc., respectively. In order to maintain investment-grade ratings we must, among other considerations, maintain a high level of liquidity, including access to alternative sources of funding such as committed bank stand-by lines of credit, and a conservative debt-to-equity ratio.

We use short-term secured financing such as repurchase agreements and asset-backed commercial paper conduits to finance a substantial portion of our mortgage loan inventory and securities trading portfolio. Treasury Bank finances its investments in mortgage loans primarily with a combination of deposit liabilities and Federal Home Loan Bank secured advances.

Our primary source of equity capital is retained earnings. In addition, we have outstanding $1 billion in trust-preferred securities that receive varying degrees of “equity treatment” from rating agencies, bank lenders and regulators. From time to time, we issue common stock as a means of supplementing our capital base and supporting our growth.

As a registered bank holding company and a financial holding company under the Bank Holding Company Act (the “BHC Act”) and the Gramm-Leach-Bliley Act (the “GLB Act”), Countrywide Financial Corporation (“CFC”) is subject to the supervision and examination by the Federal Reserve Board (the “FRB”). The FRB has authority to issue cease and desist orders against bank holding companies if it determines that their actions represent unsafe and unsound practices or violations of law. In addition, the FRB is empowered to impose civil money penalties for violations of banking statutes and regulations. Regulation by the FRB is intended to protect depositors of the Bank, not the shareholders of CFC.

The activities of bank holding companies are generally limited to the business of banking, managing or controlling banks, and other activities that the FRB has determined to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. In addition, under the GLB Act, a bank holding company, all of whose controlled depository institutions are “well capitalized” and “well managed” (as defined in federal banking regulations) and which obtains “satisfactory” Community Reinvestment Act ratings, may declare itself to be a “financial holding company” and engage in a broader range of activities.

A financial holding company that desires to engage in activities that are financial in nature or incidental to a financial activity but not previously authorized by the FRB must obtain approval from the FRB before engaging in such activity. In addition, the BHC Act requires a bank holding company to obtain prior approval of the FRB before making certain acquisitions.

If any subsidiary bank of a financial holding company ceases to be “well-capitalized” or “well-managed,” the financial holding company will not be in compliance with the requirements of the BHC Act regarding financial holding companies. If a financial holding company is notified by the FRB of such a change in the ratings of any of its subsidiary banks, it must take certain corrective actions within specified time frames.

If any subsidiary bank of a financial holding company receives a rating under the Community Reinvestment Act of less than “satisfactory”, then the financial holding company is prohibited from engaging in new activities or acquiring companies other than bank holding companies, banks or savings associations until the rating is raised to “satisfactory” or better.

The FRB has promulgated capital adequacy guidelines for use in its examination and supervision of bank holding companies. If a bank holding company’s capital falls below minimum required levels, then the bank

The FRB’s capital adequacy guidelines require that a bank holding company maintain a Tier 1 Leverage ratio equal to at least 4.0% of its average total consolidated assets, a Tier 1 Risk-Based Capital ratio equal to 4.0% of its risk-weighted assets and a Total Risk-Based Capital ratio equal to 8.0% of its risk-weighted assets to be classified as “adequately capitalized.” To be classified as “well capitalized,” a bank holding company is required to maintain a Tier 1 Leverage ratio of 5.0% or greater, a Tier 1 Risk-Based Capital ratio of 6.0% or greater, and a Total Risk-Based Capital ratio of 10.0% or greater. On December 31, 2003, the Company was in compliance with all of the FRB’s capital adequacy guidelines. For further information regarding CFC’s capital ratios, see “Note 22 — Regulatory and Agency Capital Requirements” in the financial statement section of this Report .

Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the “Riegle-Neal Act”), a bank holding company is permitted to acquire the stock or substantially all of the assets of banks located in any state regardless of whether such transaction is prohibited under the laws of any state. The FRB will not approve an interstate acquisition if as a result of the acquisition the bank holding company would control more than 10% of the total amount of insured deposits in the United States or would control more than 30% of the insured deposits in the home state of the acquired bank. The 30% of insured deposits state limit does not apply if the acquisition is the initial entry into a state by a bank holding company or if the home state waives such limit. The Riegle-Neal Act also authorizes banks to merge across state lines, thereby creating interstate branches. Banks are also permitted to acquire and to establish de novo branches in other states where authorized under the laws of those states.

Under the Riegle-Neal Act, individual states may restrict interstate acquisitions in two ways. A state may prohibit an out-of-state bank holding company from acquiring a bank located in the state unless the target bank has been in existence for a specified minimum period of time (not to exceed five years). A state may also establish limits on the total amount of insured deposits within the state which are controlled by a single bank holding company, provided that such deposit limit does not discriminate against out-of-state bank holding companies.

FRB policy requires a bank holding company to serve as a source of financial and managerial strength to its subsidiary banks. Under this “source of strength doctrine,” a bank holding company is expected to stand ready to use its available resources to provide adequate capital funds to its subsidiary banks during periods of financial stress or adversity, and to maintain resources and the capacity to raise capital that it can commit to its subsidiary banks. Furthermore, the FRB has the right to order a bank holding company to terminate any activity that the FRB believes is a serious risk to the financial safety, soundness or stability of any subsidiary bank.

Under cross-guaranty provisions of the Federal Deposit Insurance Act (the “FDIA”), bank subsidiaries of a bank holding company are liable for any loss incurred by the Bank Insurance Fund (the “BIF”), the federal deposit insurance fund for banks, in connection with the failure of any other bank subsidiary of the bank holding company.

Treasury Bank, N.A. (the “Bank”), as a national banking association, is subject to regulation and examination by the Office of the Comptroller of the Currency (the “OCC”). The Bank is also regulated by

the Federal Deposit Insurance Corporation (the “FDIC”). The OCC is empowered to issue cease and desist orders against the Bank if it determines that activities of the Bank represent unsafe and unsound banking practices or violations of law. In addition, the OCC has the power to impose civil money penalties for violations of banking statutes and regulations. Regulation by this agency is designed to protect the depositors of the Bank, not shareholders of CFC.

The OCC has adopted minimum capital requirements applicable to national banks, which are similar to the capital adequacy guidelines established by the FRB for bank holding companies. Federal banking laws classify an insured financial institution in one of the following five categories, depending upon the amount of its regulatory capital: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. On December 31, 2003, the Bank was in compliance with the OCC’s minimum capital requirements and satisfied the requirements to be treated as well-capitalized.

The OCC conditioned its approval of CFC’s acquisition of the Bank in May 2001 on, among other things, the (i) the Bank’s Tier 1 capital being no less than $114.5 million on December 31, 2003 and (ii) the Bank maintaining a Tier 1 leverage ratio of no less than 8% until May 17, 2004. On December 31, 2003, the Bank’s leverage ratio was 8.6%, the Tier-1 risked based capital ratio was 12.8% and total-risk based capital ratio was 12.9%.

The Bank must be well-capitalized and well-managed for CFC to remain a financial holding company.

The deposits of the Bank are insured by the Bank Insurance Fund administered by the FDIC, in general up to a maximum of $100,000 per insured depositor. Under federal banking regulations, insured banks are required to pay semi-annual assessments to the FDIC for deposit insurance. The FDIC’s risk-based assessment system requires BIF members to pay varying assessment rates depending upon the level of the institution’s capital and the degree of supervisory concern over the institution. The FDIC’s assessment rates range from zero cents to 27 cents per $100 of insured deposits. The FDIC has authority to increase the annual assessment rate and there is no cap on the annual assessment rate which the FDIC may impose.

The rate of interest a bank may charge on certain classes of loans is limited by state and federal law. At certain times in the past, these limitations have resulted in reductions of net interest margins on certain classes of loans. Federal and state laws impose additional restrictions on the lending activities of banks. The maximum amount that a national bank may loan to one borrower generally is limited to 15% of the bank’s capital, plus an additional 10% for loans fully secured by readily marketable collateral.

The Bank is subject to federal and state laws limiting the payment of dividends. Under the Federal Deposit Insurance Act (“FDIA”), an FDIC-insured institution may not pay dividends while it is undercapitalized or if payment would cause it to become undercapitalized. The OCC also generally prohibits the declaration of a dividend out of the capital and surplus of a bank.

The Bank is subject to the Community Reinvestment Act (the “CRA”) and implementing regulations. CRA regulations establish the framework and criteria by which the bank regulatory agencies assess an institution’s record of helping to meet the credit needs of its community, including low and moderate income neighborhoods. CRA ratings are taken into account by regulators in reviewing certain applications made by the Company and its banking subsidiaries.

CFC and its non-bank subsidiaries are “affiliates” within the meaning of the Federal Reserve Act. The amount of loans or extensions of credit which the Bank may make to non-bank affiliates, or to third parties secured by securities or obligations of the non-bank affiliates, are substantially limited by the Federal Reserve Act and the FDIA. Such acts further restrict the range of permissible transactions between a bank and an affiliated company. A bank and subsidiaries of a bank may engage in certain transactions, including loans and purchases of assets, with an affiliated company only if the terms and conditions of the transaction, including credit standards, are substantially the same as, or at least as favorable to the bank as, those prevailing at the time for comparable transactions with non-affiliated companies or, in the absence of comparable transactions, on terms and conditions that would be offered to non-affiliated companies.

The investments and activities of the Bank are also subject to regulation by federal banking agencies, regarding investments in subsidiaries, investments for their own account (including limitations on investments in junk bonds and equity securities), loans to officers, directors and their affiliates, security requirements, anti-tying limitations, anti-money laundering, financial privacy and customer identity verification requirements, truth-in-lending, the types of interest bearing deposit accounts which it can offer, trust department operations, brokered deposits, audit requirements, issuance of securities, branching and mergers and acquisitions.

The OCC conditioned its approval of the Company’s acquisition of the Bank in May 2001 on, among other things, the Bank obtaining the prior approval of the OCC before significantly deviating from the operating plan that the Bank had submitted to the OCC. This restriction will end on May 17, 2004.

As discussed below, the non-bank subsidiaries of CFC are subject to the supervision of the FRB and may be subject to the supervision of other state and federal regulatory agencies. In addition, there are a number of proposed and enacted federal, state and local laws aimed at protecting a consumer’s privacy. Generally, privacy laws cover a wide range of issues including limiting a company’s ability to share information with third parties or even affiliates, providing stronger identity theft protection and victim’s assistance programs, providing the ability to avoid telemarketing solicitations through “do-not-call” lists and limiting e-mail and fax advertising. These laws also impose penalties for non-compliance.

Our mortgage banking business is subject to the rules, regulations or guidelines of, and/or examination by, the following entities with respect to the processing, originating, selling and servicing of mortgage loans:


	•	The Department of Housing and Urban Development (“HUD”);

	•	The Federal Housing Administration (the “FHA”);

	•	The Department of Veteran Affairs;

	•	Fannie Mae, Freddie Mac, Ginnie Mae;

	•	The Federal Home Loan Bank (“FHLB”); and

	•	State regulatory authorities.

The rules and regulations of these entities, among other things, impose licensing obligations on CFC, establish standards for processing, underwriting and servicing mortgage loans, prohibit discrimination, restrict certain loan features in some cases and fix maximum interest rates and fees.

As an FHA lender, we are required to submit to the FHA Commissioner, on an annual basis, audited financial statements. Ginnie Mae, HUD, Fannie Mae and Freddie Mac require the maintenance of specified

Mortgage origination activities are subject to the Equal Credit Opportunity Act, Truth-in-Lending Act, Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act and the Home Ownership Equity Protection Act and the regulations promulgated thereunder, as well as to other federal laws. These laws prohibit discrimination, require the disclosure of certain basic information to mortgagors concerning credit and settlement costs, limit payment for settlement services to the reasonable value of the services rendered and require the maintenance and disclosure of information regarding the disposition of mortgage applications based on race, gender, geographical distribution and income level.

Currently, there are a number of proposed and recently enacted federal, state and local laws and regulations addressing responsible banking practices with respect to borrowers with blemished credit. In general, these laws and regulations will impose new loan disclosure requirements, restrict or prohibit certain loan terms, fees and charges such as prepayment penalties and will increase penalties for non-compliance. Due to our lending practices, we do not believe that the existence of, or compliance with, these laws and regulations will have a material adverse impact on our business.

However, there can be no assurance that more restrictive laws, rules and regulations will not be adopted in the future or that the existing laws, rules and regulations will not be applied in a manner that may adversely impact our business or make compliance more difficult or expensive.

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. State and federal securities laws govern many aspects of the broker-dealer’s business, including the maintenance of required levels of net capital, the establishment of segregated cash accounts for the benefit of customers, the monthly and annual reporting of operating and financial data to regulators, the approval and documentation of trading activity, the retention of records and the governance of the manner in which business may be conducted with customers.

CFC, by virtue of its affiliation with insurance companies, is a member of an insurance holding company group pursuant to the provisions of the insurance holding company acts (collectively the “Holding Company Acts”). The insurance company entities are subject to the various state insurance departments’ broad regulatory, supervisory and administrative powers. These powers relate primarily to the standards of capital and solvency which must be met and maintained, the licensing of insurers and their agents, the nature and limitation of insurer’s investments, the approval of rates, rules and form; the issuance of securities by insurers, periodic examinations of the affairs of insurers and the establishment of reserves required to be maintained for unearned premiums, losses and other purposes.

Pursuant to the Holding Company Acts, CFC must provide state insurance departments with certain financial information. In addition, certain transactions specified by the Holding Company Acts may not be effected without the prior notice and/or approval of the applicable insurance department. Examples of transactions that may require prior approval include, but are not limited to, sales, purchases, exchanges, loans and extensions of credit, dividends and investments between the insurance company entity and other entities within the holding company group.

Various legislation, including proposals to change substantially the financial institution regulatory system, is from time to time introduced in Congress. This legislation may change banking statutes and the operating environment of the Company in substantial and unpredictable ways. If enacted, this legislation could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance

among banks, savings associations, credit unions and other financial institutions. The Company cannot predict whether any of this potential legislation will be enacted and, if enacted, the effect that it, or any implementing regulations, could have on the Company’s business, results of operations or financial condition.

The references in the foregoing discussion to various aspects of statutes and regulations are summaries which do not purport to be complete and which are qualified in their entirety by reference to the actual statutes and regulations.

At December 31, 2003, we had a workforce of 34,298, including regular employees and temporary staff, engaged in the following activities:

Other than certain Global Home Loans employees who are represented by an independent trade union in the United Kingdom, none of our employees are represented by a collective bargaining agent.

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


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

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

	•	Forecasts of our future economic performance

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

generally intended to identify forward-looking statements. There are a number of factors, many of which are beyond our control that could cause actual results to differ significantly from management’s expectations.

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

For a further discussion of factors that may affect future results, see the section in this report entitled “Management’s Discussion and Analysis of Financial Conditions and Results of Operations — Factors That May Affect Future Results.”

Countrywide Financial Corporation was incorporated in New York on March 14, 1969 and on February 6, 1987 was reincorporated in Delaware. The Company was originally named OLM Credit Industries, Inc. and has also been known as Countrywide Credit Industries, Inc.

The following table summarizes our consolidated loan production by loan type for the periods indicated:

The following table summarizes our Mortgage Banking loan production by loan type:

The following table summarizes our Consumer Markets Division mortgage loan production by loan type:

The following table summarizes Wholesale Lending Division mortgage loan production by loan type:

The following table summarizes Correspondent Lending Division mortgage loan production by loan type:

The following table sets forth the number and dollar amount of Capital Markets mortgage loan production by loan type for the periods indicated:

The following table sets forth the number and dollar amount of Treasury Bank mortgage loan production by loan type for the periods indicated:

The primary executive and administrative offices of Countrywide are located in and around Calabasas, California. The headquarters facility consists of approximately 245,000 square feet and is situated on 20.1 acres of land. Our marketing and legal departments are located in an 86,000 square foot office building in Calabasas, California, which we have leased with an option to purchase. Our executive and administrative operations of Treasury Bank are located in a 158,000 square foot office building in Thousand Oaks, California. We sublease, with an option to purchase a 215,000 square foot facility in Rosemead, California, which houses loan production and certain subsidiary operations. We lease and sublease approximately 239,000 square feet in West Hills, California, where our Correspondent Lending and Wholesale Divisions are located. In Simi Valley, California, we own four office buildings totaling approximately 796,000 square feet which currently house loan servicing operations, as well as Treasury Bank’s document custodian operations and our collateral documents and document management operations. We own a fifth building in Simi Valley that will be renovated to house loan servicing operations and other business units. We also lease 304,000 square feet in Simi Valley that house the Balboa Life & Casualty insurance tracking operations and a variety of operating subsidiaries. In Irvine, California, we lease a 136,000 square foot office building which houses the executive and administrative operations of Balboa Life & Casualty. We also own four office buildings totaling

In 2003, we purchased a 79,000 square foot facility in Chandler, Arizona, which currently houses certain FSLI and loan production technology operations. In 2003, we completed tenant improvements and occupied two buildings totaling 162,000 square feet in Agoura Hills, California, housing loan production technology operations. In December 2003, we moved into a second 101,000 square foot office building in Lancaster, California, bringing our total square feet in Lancaster to 202,000, which we have an option to purchase. The Lancaster facilities currently house loan servicing operations. In September 2003, we purchased a 387,000 square foot facility in Fort Worth, Texas, which will house loan servicing operations. Additional space located in Plano, Texas as well as Woodland Hills, Calabasas Hills and Pasadena, California, is currently under lease for certain operations including: loan servicing, loan production, accounting and data processing. These leases provide an additional 235,000 square feet on varying terms. In addition, we lease space for our branch offices throughout the United States.

We are defendants in, or parties to, a number of pending and threatened legal actions and proceedings involving matters that are generally incidental to our business. These matters include actions and proceedings involving alleged breaches of contract, violations of consumer protection and other laws and regulations, and other disputes arising out of our operations. Certain of these matters involve claims for substantial monetary damages, and others purport to be class actions.

Based on our current knowledge, we do not believe that liabilities, if any, arising from any single pending action or proceeding will have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company and its subsidiaries. We are not, however, able to predict with certainty the outcome or timing of the resolution of any of these actions or proceedings or the ultimate impact on us or our results of operations in a particular future period.

The Company’s common stock is listed on the New York Stock Exchange, the NASDAQ National Market and the Pacific Stock Exchange (Symbol: CFC). The following table sets forth the high and low sales prices (as reported by the New York Stock Exchange) for the Company’s common stock and the amount of cash dividends declared during the last two periods:

The Company has declared and paid cash dividends on its common stock quarterly since 1982. The Board of Directors of the Company declares dividends based on its review of the most recent quarter’s profitability along with the Company’s earnings prospects and capital requirements. Effective January 1, 2001, the Company changed its fiscal year. As a result, no dividend was declared in the quarter ended March 31, 2002 as the previous period (the month of December 31, 2001) was the short period in the transition year. In recognition of this change, the Board of Directors supplemented the dividend declared during the quarter ended June 30, 2002, to provide shareholders a return for the one-month period. During the years ended December 31, 2003 and 2002, the Company declared quarterly cash dividends totaling $0.45 and $0.27 per share, respectively.

The ability of the Company to pay dividends in the future is limited by the earnings, cash position and capital needs of the Company, general business conditions and other factors deemed relevant by the Company’s Board of Directors. The Company is prohibited under certain of its debt agreements, including its guarantee of Countrywide Home Loan’s revolving credit facility, from paying dividends on any capital stock (other than dividends payable in capital stock or stock rights) if in default, otherwise 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, or (ii) the aggregate amount of dividends paid on common stock during the immediately preceding year. The ability of the Company to pay dividends may also be limited by the Federal Reserve Board if it determines that the payment of dividends by the Company would hinder its ability to serve as a source of strength for Treasury Bank or would otherwise be detrimental to the continued viability of Treasury Bank or the Company.

The primary source of funds for payments to stockholders by the Company is dividends received from its subsidiaries. Accordingly, such payments by the Company in the future also depend on various restrictive covenants in the debt obligations of its subsidiaries, the earnings, the cash position and the capital needs of its subsidiaries, as well as laws and regulations applicable to its subsidiaries. Unless the Company and Countrywide Home Loans each maintains specified minimum levels of net worth and certain other financial ratios, dividends cannot be paid by the Company and Countrywide Home Loans to remain in compliance with

certain of Countrywide Home Loans’ debt obligations (including its revolving credit facility). See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources.”

As of December 31, 2003 there were 1,966 shareholders of record of the Company’s common stock, with 184,490,593 common shares outstanding.


(1)	Certain amounts in the Consolidated Financial Statements have been reclassified to conform to current year presentation.

(2)	Adjusted to reflect subsequent stock dividends and splits.

(3)	Includes warehoused loans and loans under subservicing agreements.

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

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

In 2003, total U.S. residential mortgage production reached a record level of $3.8 trillion, attributable in large part to historically low interest rates. Driven by this mortgage market, our mortgage banking operations achieved record earnings, as increased profits from loan production, enhanced by a significant increase in market share, more than offset losses attributable to the decline in value of our mortgage servicing rights. Our related businesses also benefited from low interest rates and the record level of mortgage production in 2003. As a result, our net earnings reached $2.4 billion in 2003, an increase of $1.5 billion, or 182%, from 2002.

For 2004, forecasters predict a 40% to 50% reduction in total U.S. mortgage production, due to an expected decline in mortgage refinance activity. We believe that a market within the forecasted range would still be favorable for our loan production business, although we would expect increased competitive pressures to have some impact on the profitability of that business. A reduction in mortgage refinance activity should result, however, in an increase in profitability from our investment in mortgage servicing rights. A decline in mortgage production would likely result in a reduction in mortgage securities trading and underwriting volume, which may negatively impact the profitability of our Capital Markets Segment. However, we expect earnings in our Banking Segment to increase, primarily as a result of growth in its mortgage loan portfolio.

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

We also face credit risk, primarily related to our residential mortgage production activities. Credit risk is the potential for financial loss resulting from the failure of a borrower or an institution to honor its contractual obligations to us. We manage mortgage credit risk principally by securitizing substantially all mortgage loans that we produce, and by only retaining high credit quality mortgages in our loan portfolio.

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

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

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

The accounting policies with the greatest impact on our financial condition and results of operations, and which require the most judgment, pertain to our mortgage securitization activities, our investments in MSRs and other retained interests, and to our use of derivatives to manage interest rate risk. Our critical accounting policies involve the following four areas: 1) accounting for gains on sales of loans and securities; 2) accounting for MSRs and other retained interests; 3) valuation of MSRs and other retained interests, and; 4) accounting for derivatives and our related interest rate risk management activities.

Substantially all of the mortgage loans we produce are sold in the secondary mortgage market, primarily in the form of securities. When we sell loans in the secondary mortgage market we generally retain the MSRs. Depending on the type of securitization, there may be other interests we retain including interest-only securities, principal-only securities and residual securities, which we generally hold as available-for sale securities.

We determine the gain on sale of a security, or loans, by allocating the carrying value of the underlying mortgage loans between securities, or loans, sold and the interests retained, based on their relative estimated fair values. The gain on sale we report is the difference between the cash proceeds from the sale and the cost allocated to the securities, or loans, sold.


(1)	The carrying value of mortgage loans includes the outstanding principal balance of the loans net of deferred origination costs and fees and any premiums or discounts.

Once MSRs and other retained interests have been recorded, they must be periodically evaluated for impairment. Impairment occurs when the current fair value of the MSRs or other retained interests falls below its carrying value.

recovery in value is recognized in current-period earnings and the carrying value of the MSRs is adjusted through a reduction in the valuation allowance. (As of December 31, 2003, the MSR impairment valuation allowance was $1.2 billion.) If impairment is deemed to be other than temporary, the valuation allowance is applied to reduce the cost-basis of the MSRs. MSRs cannot be carried above their amortized cost-basis.

For other retained interests, which we account for as available-for-sale securities, impairment is recognized as a reduction to shareholders’ equity (net of tax). If the impairment is deemed to be other than temporary, it is recognized in current-period earnings. Once we record this impairment, we recognize subsequent increases in the value of other retained interests in earnings over the estimated remaining life of the investment through a higher effective yield.

In addition to periodic evaluation for impairment, MSRs are also subject to periodic amortization. We compute MSR amortization by applying the ratio of the net MSR cash flows projected for the current period to the estimated total remaining net MSR cash flows. The estimated total net MSR cash flows are determined at the beginning of each reporting period, using prepayment assumptions applicable at that time.

Considerable judgment is required to determine the fair values of our retained interests. Unlike government securities and other highly liquid investments, the precise market value of retained interests cannot be readily determined, because these assets are not actively traded in stand-alone markets.

Our MSR valuation process combines the use of a sophisticated discounted cash flow model, extensive analysis of current market data, and senior financial management oversight to arrive at an estimate of fair value at each balance sheet date. The cash flow assumptions and prepayment assumptions used in our discounted cash flow model are based on our own empirical data drawn from the historical performance of our MSRs, which we believe are consistent with assumptions used by market participants valuing MSRs. The most critical assumptions used in the valuation of MSRs include mortgage prepayment speeds and the discount rate (projected LIBOR plus option-adjusted spread). These variables can and generally will change from quarter to quarter as market conditions and projected interest rates change. We determine the fairness of our MSR valuation quarterly by comparison to the following market data (as available): MSR trades; MSR broker valuations; prices of interest-only securities, and; peer group MSR valuation surveys.

For the other retained interests, we also estimate fair value through the use of discounted cash flow models. The key assumptions used in the valuation of our other retained interests include mortgage prepayment speeds, discount rates, and for residual interests containing credit risk, the net lifetime credit losses. (See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Credit Risk Management” section of this document for further discussion of credit risk). We have incorporated cash flow and prepayment assumptions based on our own empirical data drawn from the historical performance of the loans underlying our other residual interests, which we believe are consistent with assumptions other major market participants would use in determining the assets’ fair value.


(1)	Excludes subservicing and mortgage loans held for sale or investment.

(2)	The weighted average mortgage rate.

The following table shows the value sensitivity of our MSRs to the key assumptions we used to determine their fair values at December 31, 2003:

The following table shows the value sensitivity of our other retained interests to the key assumptions we used to determine their fair values at December 31, 2003:

These sensitivities are hypothetical and should be used with caution. This information is furnished to provide the reader with a basis for assessing the sensitivity of the values presented to changes in key assumptions. As the figures indicate, changes in fair value based on a 10% variation in individual assumptions generally cannot be extrapolated. In addition, in the above table, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another, which could magnify or counteract the sensitivities.

We use derivatives extensively in connection with our interest rate risk management activities. We record all derivative instruments at fair value.

We may qualify some of our interest rate risk management activities for hedge accounting. To qualify for hedge accounting we must demonstrate, on an ongoing basis, that our interest rate risk management activity is highly effective. We use standard statistical measures to determine the effectiveness of our hedging activity. If we are unable to qualify certain interest rate risk management activities for hedge accounting, then the change in fair value of the associated derivative financial instruments would be reflected in current period earnings, while the change in fair value of the related asset or liability might not, thus creating a possible earnings mismatch. This issue is potentially most significant regarding MSRs, which absent the application of hedge accounting, are required to be carried at the lower of amortized cost or market.

In connection with our mortgage loan origination activities, we issue interest rate lock commitments (“IRLCs”) to loan applicants and financial intermediaries. The IRLCs guarantee a loan’s terms, subject to credit approval, for a period of time while the loan application is in process, typically between 7 and 60 days. IRLCs are derivative instruments and, therefore, are required to be recorded at fair value, with changes in fair value reflected in current period earnings. However, unlike most other derivative instruments, there is no active market for IRLCs that can be used to determine an IRLC’s fair value. Consequently, we have developed a method for estimating the fair value of our IRLCs.

We estimate the fair value of an IRLC based on the change in estimated fair value of the underlying mortgage loan, given the probability that the loan will fund within the terms of the IRLC. The change in fair value of the underlying mortgage loan is based on quoted MBS prices. The change in fair value of the underlying mortgage loan is measured from the lock date. Therefore, at the time of issuance the estimated fair value of an IRLC is zero. (Subsequent to issuance, the value of an IRLC can be either positive or negative,

depending on the change in value of the underlying mortgage loan.) The probability that the loan will fund within the terms of the IRLC is driven by a number of factors — in particular, the change, if any, in mortgage rates subsequent to the lock date. In general, the probability of funding increases if mortgage rates rise and decreases if mortgage rates fall. This is due primarily to the relative attractiveness of current mortgage rates compared to the applicant’s committed rate. The probability that a loan will fund within the terms of the IRLC also is influenced by the source of the applications, age of the applications, purpose for the loans (purchase or refinance) and the application approval rate. We have developed closing ratio estimates using historical empirical data that take into account all of these variables, as well as renegotiations of rate and point commitments that tend to occur when mortgage rates fall. These closing ratio estimates are used to estimate the number of loans that we expect to fund within the terms of the IRLCs.

In March 2003, the SEC issued Staff Accounting Bulletin No. 105 — “Application of Accounting Principles to Loan Commitments” (“SAB No. 105”), which summarizes the views of the SEC staff regarding the application of generally accepted accounting principles to loan commitments accounted for as derivative instruments. Our current method used to estimate the fair value of IRLCs is consistent with SAB No. 105; therefore, SAB No. 105 will have no impact on the Company’s financial condition or results of operations.

Effective January 1, 2001, we changed our year end from February 28 to December 31. For purposes of this Annual Report on Form 10-K, our consolidated statements of earnings, consolidated statement of common shareholders’ equity, consolidated statements of cash flows and consolidated statements of comprehensive income consist of the years ended December 31, 2003, 2002 and the ten months ended December 31, 2001. We changed our year end to conform our reporting periods to those required by the Board of Governors of the Federal Reserve for regulatory reporting purposes.

On November 7, 2002, we changed our corporate name from Countrywide Credit Industries, Inc. to Countrywide Financial Corporation.

We believe our new name more accurately reflects the full array of products and services we offer to consumers and financial companies.

In the fourth quarter of 2003, we consummated a 4-for-3 stock split effected as a stock dividend. All references in the accompanying Management’s Discussion and Analysis of Financial Condition and Results of Operations to the number of common shares and earnings per share amounts have been restated accordingly.

Comparison of Results of Operations for the Year Ended December 31, 2003 (“2003”) to the Year Ended December 31, 2002 (“2002”)

Our diluted earnings per share for 2003 totaled $12.47, a 156% increase over diluted earnings per share for 2002. Net earnings were $2,373.0 million, a 182% increase from 2002. This earnings performance was driven by an increase in our mortgage loan production from $251.9 billion in 2002 to $434.9 billion in 2003. In addition, our non-mortgage banking businesses achieved a substantial overall increase in earnings in 2003.

Industry-wide, mortgage loan production reached a new record level of $3.8 trillion in 2003, up from $2.7 trillion during 2002 (Source: Inside Mortgage Finance). Approximately two-thirds of the mortgages produced in 2003 were refinances of existing mortgages that were triggered by historically low mortgage rates. These same low rates contributed to increased activity in the U.S. housing market, which also reached record levels in 2003.

The continued high demand for mortgages drove not only high production volumes for Countrywide, but also high production margins. The combination of high volumes and margins yielded Loan Production Sector pre-tax earnings of $4,087.9 million for 2003, an increase of $1,692.9 million from 2002.

The high levels of mortgage refinances and home purchases resulted in significant prepayments within our mortgage loan servicing portfolio during the period. This, along with the expectation of continued higher-than-normal prepayments in the future due to low mortgage rates, resulted in significant amortization and impairment of our MSRs and other retained interests in 2003. The combined amount of amortization and impairment of MSRs and other retained interests, net of Servicing Hedge gains, was $3,267.4 million, resulting in a pre-tax loss of $1,233.5 million in the Loan Servicing Sector for 2003, compared to a pre-tax loss of $1,489.8 million in 2002.

These factors combined to produce pre-tax earnings of $2,952.2 million in the Mortgage Banking Segment for 2003, an increase of $1,977.1 million, or 203%, from 2002.

Our non-mortgage banking businesses had combined pre-tax earnings of $893.6 million in 2003, an increase of 143% over 2002. Benefiting again from a favorable market environment, our Capital Markets Segment achieved pre-tax earnings of $442.3 million, up from $199.9 million in 2002. In addition, our Banking Segment increased its pre-tax earnings by $203.2 million over the prior year, driven primarily by growth in its portfolio of mortgage loans.

Our Mortgage Banking Segment includes the Loan Production, Loan Servicing and Loan Closing Sectors. The Loan Production and Loan Closing Services Sectors generally perform at their best when mortgage rates are relatively low and loan origination volume is high. Conversely, the Loan Servicing Sector generally performs well when mortgage rates are relatively high and loan prepayments are low. The natural counterbalance of these sectors reduces the impact of changes in mortgage rates on our earnings. During 2003, historically low mortgage rates drove record levels of mortgage originations and prepayments industry-wide, which contributed to record profits in the Loan Production and Loan Closing Services Sectors and near record losses in the Loan Servicing Sector.

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

Strong demand for residential mortgages enabled the Loan Production Sector to achieve significant growth in revenues and earnings in 2003 compared to 2002. This performance was enhanced by a significant increase in our market share during the year. Our mortgage origination market share was 11.6% in 2003, up from 9.4% in 2002 (Source: Inside Mortgage Finance). Ongoing favorable market conditions contributed to

the continued high revenues earned, while high productivity levels helped keep unit costs low. These factors combined to produce continued high profit margins (pre-tax earnings as a percentage of loan volume) for the Loan Production Sector.

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

Mortgage Banking loan production for 2003 increased 64% in comparison to 2002. All divisions, in particular Correspondent Lending, contributed to the increase in origination volume. The increase was due primarily to a rise in non-purchase loan production of 78%. An increase in purchase production of 39% also contributed to the higher origination volume. The increase in purchase loans is significant because this is the relatively stable growth component of the mortgage market, with average annual growth of 8% over the last 10 years. (The non-purchase, or refinance, component of the mortgage market is highly volatile because it is driven almost exclusively by prevailing mortgage rates.)

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

In 2003, 82% of our loan production was fixed rate, which reflects homeowner preferences for fixed rate mortgages in a low mortgage-rate environment. Management expects that a higher percentage of homeowners would potentially choose adjustable rate mortgages in a higher interest rate environment. Such a shift in homeowner preferences may favor portfolio lenders, which have a natural preference for adjustable rate mortgages, over mortgage bankers that rely more heavily on securitization.

As shown in the following table, the volume of Mortgage Banking Prime Home Equity and Subprime Mortgage Loans produced (which is included in the total volume of loans produced) increased 59% during the current period from the prior period:

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

A major source of intrinsic value derived from our MSRs is Countrywide’s ability to retain its customers when they either refinance their loans or purchase new homes. We successfully retained a significant percentage of the customers who prepaid their mortgages during 2003. Our overall retention rate for 2003 was 40% as compared to 37% for 2002. Our retention rate increased for purchase customers and remained constant for refinance customers. Our retention rate for purchase customers was 27% for 2003 as compared to 21% for 2002. Our retention rate for refinance customers was 42% for 2003 and 2002.

During 2003, the Loan Production Sector operated at approximately 110% of planned operational capacity. The primary capacity constraint in our loan origination activities is the number of loan operations personnel we have on staff. Therefore, we measure planned capacity with reference to the number of loan operations personnel we have multiplied by the number of loans we expect each available loan operations staff person to process under normal conditions. As volume decreased toward the end of 2003, we began to make reductions in operations staff. From its peak, the total number of operations personnel has been reduced by approximately 3,000. As loan production volume continues to moderate, the operations staff will be further reduced accordingly. At the same time, a reduction in productivity to more sustainable levels will likely result in higher overall unit costs. We plan to continue building our sales staff despite any potential drop in loan origination volume as a primary way to increase market share.

The Consumer Markets Division continued to grow its commissioned sales force during the period. At December 31, 2003, its commissioned sales force numbered 3,484, an increase of 1,000 during the year. The primary focus of the commissioned sales force is to increase overall purchase market share. The commissioned

sales force contributed $25.8 billion in purchase originations in 2003, a 91% increase over 2002. The purchase production generated by the commissioned sales force represented 71% of the Consumer Markets Division’s purchase production for 2003.

Like the Consumer Markets Division, the Wholesale Lending Division and FSLI continued to grow their sales forces as a core strategy to increase market share. At December 31, 2003, the sales force in the Wholesale Lending Division numbered 886, an increase of 27% during the year. FSLI expanded its sales force by 981, or 96%, during 2003.

The Loan Servicing Sector reflects the performance of the Company’s investments in MSRs and other retained interests and associated risk management activities, as well as profits from subservicing activities in the United States. The Loan Servicing Sector includes a significant processing operation, consisting of approximately six thousand employees who service the Company’s 5.1 million mortgage customers. How effectively this servicing operation manages costs and generates ancillary income from the portfolio has a significant impact on the long-term performance of this sector.

The Loan Servicing Sector experienced continued losses during the recent period, driven by high amortization and impairment of the Company’s retained interests. The amortization and impairment charges reflect the loss in value of the Company’s retained interests, which was primarily due to the high level of actual and projected prepayments in the Company’s mortgage servicing portfolio. In general, the value of the retained interests is closely linked to the estimated life of the underlying loans. As prepayments increase, the estimated life of the underlying loans decreases. The combined impairment and amortization charge was $3,502.2 million and $4,682.6 million during 2003 and 2002, respectively.

During 2003, the Servicing Hedge generated a gain of $234.8 million. This gain resulted from a decline in long-term Treasury and swap rates during the first part of 2003; these indices underlie the derivatives and securities that constitute the primary component of the Servicing Hedge. The Servicing Hedge gains generated in the early part of 2003 were partly offset by Servicing Hedge losses toward the end of the year as long-term Treasury and swap rates rose. Amortization and impairment, net of the Servicing Hedge, was $3,267.4 million for 2003, an increase of $372.7 million over 2002. In a stable interest rate environment, Management would expect no significant impairment and would expect to incur expenses related to the Servicing Hedge driven primarily by the composition of the hedge, the shape of the yield curve and the level of interest rate volatility.

During 2003, we securitized a portion of our net servicing fees (“excess servicing”). Proceeds from the sale of such securities amounted to $1,043.4 million. Securities not sold were classified as trading securities and included in “Investments in other financial instruments” at December 31, 2003. We believe such securitizations enable us to more efficiently manage our capital.

Despite the high level of prepayments, we increased our servicing portfolio to $644.9 billion at December 31, 2003, a 43% increase from December 31, 2002. At the same time, the overall weighted-average note rate of loans serviced for others declined from 6.9% to 6.1%.

This sector is comprised of the LandSafe companies, which provide credit reports, flood determinations, appraisals, property valuation services and title reports primarily to the Loan Production Sector but increasingly to third parties as well. Our integration of these previously outsourced services has provided not only incremental profits but also higher overall levels of service and quality control.

The LandSafe companies produced $97.8 million in pre-tax earnings, representing an increase of 40% from the year-ago period. The increase in LandSafe’s pre-tax earnings was primarily due to the increase in our loan origination activity.

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

Our Capital Markets Segment achieved pre-tax earnings of $442.3 million for 2003, an increase of $242.4 million, or 121%, from 2002. Total revenues were $676.0 million, an increase of $301.6 million, or 81% compared to 2002. Capital Markets took advantage of the highly favorable operating environment prevalent during 2003, consisting of a robust mortgage securities market, high mortgage securities price volatility, and low short-term financing costs.

During 2003, the Capital Markets Segment generated revenues totaling $269.6 million from its conduit activities, which includes brokering and managing the acquisition, sale or securitization of whole loans on behalf of CHL. Conduit revenues for 2003 increased 142% in comparison to 2002 as a result of an increase in the amount of mortgage loans sold that were acquired by the conduits. During 2003, the mortgage loans sold that were acquired by the conduits totaled $38.1 billion, an 81% increase in comparison to $21.1 billion in conduit loans sold in 2002.

Revenues from securities trading increased 43% to $199.1 million for 2003 due to a 43% increase in securities trading volume. The following table shows the composition of Countrywide Securities Corporation’s (“CSC”) securities trading volume, which includes intersegment trades with our mortgage banking operations, by instrument:


(1)	Approximately 12% and 13% of the segment’s total securities trading volume was with CHL during 2003 and 2002, respectively.

In 2003, underwriting revenues totaled $172.0 million, an increase of 83% compared to 2002. This increase was attributable to a 74% increase in underwriting volume in 2003.

Effective January 15, 2004, CSC became a primary dealer. As a primary dealer, CSC is an authorized counterparty with the Federal Reserve Bank of New York in its open market operations. Management believes that CSC’s status as a primary dealer will enhance our ability to compete in its core mortgage securities business by expanding its client base.

The Banking Segment achieved pre-tax earnings of $287.2 million in 2003, as compared to $84.0 million for 2002. Following is the composition of pre-tax earnings by company:

The Bank produced pre-tax earnings of $223.0 million for 2003, an increase of $171.3 million over 2002. The overall increase was due to an increase in net interest income arising from growth in average earning assets combined with a $30.5 million increase in intersegment profits related to the Bank’s document custodian services provided to our mortgage banking operations. Average earning assets increased to $12.4 billion during 2003, an increase of $9.0 billion in comparison to 2002. Asset growth was funded primarily by the transfer of custodial balances controlled by CHL from third-party banks to the Bank, three capital contributions from CFC, Federal Home Loan Bank advances, and growth in the Bank’s retail deposit base. As of December 31, 2003, $5.9 billion of custodial balances controlled by CHL were placed as deposits in the

Our banking strategy entails holding loans in portfolio that historically would have been immediately securitized and sold in the secondary mortgage market. Management believes this strategy will increase earnings, as well as provide more stable earnings, over the long term; in the short term, reported profits will be impacted by the reduction in gains otherwise recognizable at time of sale.

CWL’s pre-tax earnings increased $45.5 million in 2003. This was primarily due to growth in average outstanding mortgage warehouse advances partially offset by a decline in the average net spread from 2.1% during 2002 to 2.0% during 2003. For 2003, average mortgage warehouse advances outstanding were $4.0 billion, an increase of $2.3 billion in comparison to 2002. The increase in warehouse advances was largely attributable to growth in the overall mortgage originations market.

The Insurance Segment pre-tax earnings increased 86% over 2002, to $138.8 million for 2003. The following table shows pre-tax earnings by business line:


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

Our mortgage reinsurance business produced $102.1 million in pre-tax earnings, due primarily to a 55% increase in net earned premiums that was driven by growth in the Company’s loan servicing portfolio, offset by

Our Life and Casualty insurance business produced pre-tax earnings of $52.0 million, an increase of $50.9 million from 2002. The growth in earnings was driven by a $125.4 million, or 26%, increase in net earned premiums during 2003 in comparison to 2002. The growth in net earned premiums was primarily attributable to growth in lender-placed insurance.

Our Life and Casualty insurance operations manage its insurance risk by reinsuring portions of its insured risk. Balboa seeks to earn profits by capitalizing on Countrywide’s customer base and institutional relationships, as well as through operating efficiencies and sound underwriting.

Pre-tax earnings from the agency operations increased in 2003 due to a restructuring of the agency in 2002 to reduce costs and focus on profitable business lines.

For 2003, our Global Operations Segment’s pre-tax earnings totaled $25.6 million, representing an increase of $20.3 million in comparison to 2002. Results in the current period were positively impacted by growth in the portfolio of mortgage loans subserviced and the number of new mortgage loans processed on behalf of GHL’s minority joint venture partner, Barclays plc.

Gain on sale of loans and securities increased in 2003 as compared to 2002 primarily due to higher prime mortgage loan production and sales volume combined with higher margins on prime mortgage loans. Margins on prime mortgage loans were high in both periods on a relative historical basis, due largely to the very favorable mortgage market environment that prevailed during those periods.

During 2003, we sold a small portion of Prime Home Equity Loans produced. We plan to hold the remaining prime home equity loans as investments in the form of available-for-sale securities or loans.

Re-performing loans are reinstated loans that had previously defaulted, and were consequently re-purchased from mortgage securities we issued. The increase in gain on sale of re-performing loans is due to an increase in the volume of loans sold. The note rate on these loans is typically higher than the current mortgage rate, and therefore, the margin on these loans is typically higher than margins on Prime Mortgage Loans.

Capital Markets’ revenues from its trading activities consist of gains on the sale of securities and net interest income. In a very steep yield curve environment, which existed during both periods, trading revenues will derive largely or entirely from net interest income earned during the securities’ holding period. As the yield curve flattens, the mix of revenues will shift toward gain on sale of securities. The increase in Capital Markets’ gain on sale of loans related to its conduit activities was due to increased acquisitions and sales during 2003 in comparison to 2002.

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

The increase in net interest income from mortgage loans and securities held for sale reflects an increase in the average inventory resulting from increased production during 2003 as compared to 2002.

The increase in net interest income from the Capital Markets securities trading portfolio is attributable to an increase of 61% in the average inventory of securities held, which in turn was driven by an increase in trading activity. This increase was partially offset by a decrease in the average net spread earned from 4.1% in 2002 to 3.3% in 2003. The decrease in the average net spread is the result of a flatter yield curve.

The increase in net interest income from the Banking Segment was primarily attributable to year-over-year earning asset growth in both the Bank and CWL. Average assets in the Banking Segment increased to $16.4 billion during 2003, an increase of $11.2 billion over 2002. The average net spread earned increased slightly to 2.1% in 2003 from 1.9% in 2002.

Re-performing loans are reinstated loans that had previously defaulted and were consequently re-purchased from mortgage securities issued by Countrywide or others. Such loans are subsequently securitized and re-sold.

Net interest expense from custodial balances increased in 2003 due to the substantial increase in loan payoffs over 2002. We are obligated to pass through monthly interest to security holders on paid-off loans at

the underlying security rates, which were substantially higher than the short-term rates earned by us on payoff float. The amount of such interest passed through to the security holders was $406.8 million and $218.8 million in 2003 and 2002, respectively. In addition, the earnings rate on the custodial balances, which is tied to short-term rates, declined from 1.6% during 2002 to 1.0% during 2003. Average custodial balances increased by $7.6 billion, or 68%, over 2002 due largely to the increase in loan payoffs.

Interest expense allocated to the Loan Servicing Sector decreased due primarily to a decline in short-term rates (a portion of our long-term debt is variable-rate), which was combined with a decrease in total Sector assets.

The increase in net interest income from home equity AAA asset-backed securities is due to an increase in the average inventory of securities held.

Loan servicing fees and other income from retained interests are summarized below for 2003 and 2002:

The increase in servicing fees, net of guarantee fees, was principally due to a 45% increase in the average servicing portfolio, partially offset by a reduction in the overall net service fee earned from 0.38% of the average portfolio balance during 2002 to 0.35% during 2003. The reduction in the overall net service fee was largely due to the securitization of excess service fees.

The increase in income from other retained interests was due primarily to a 33% increase in investment balances during 2003, combined with an increase in the average effective yield of these investments from 20% in 2002 to 25% in 2003. These investments include interest-only and principal-only securities as well as residual interests that arise from the securitization of nonconforming mortgage loans, particularly subprime home loans.

Higher prepayment penalty income in 2003 corresponded to the increase in subprime home loan payoffs during the year.

The increase in subservicing fees earned in the Global Operations Segment was due to growth in the portfolio subserviced and to an increase in fees earned per loan. The Global Operations subservicing portfolio was $106 billion and $92 billion at December 31, 2003 and 2002, respectively.

We recorded amortization of MSRs of $2,069.2 million during 2003 as compared to $1,267.2 million during 2002. The increase in amortization of MSRs was primarily due to a reduction in future estimated net MSR cash flows primarily due to forecasted higher mortgage prepayments in 2003 when compared to 2002, coupled with an increase in the cost basis of the MSRs related to the larger servicing portfolio.

Impairment of retained interests and Servicing Hedge gains are detailed below for 2003 and 2002:

During 2003 and 2002, impairment of MSRs and other retained interests resulted from a reduction in the estimated fair value of those investments, which was primarily driven by the decline in mortgage rates during these periods.

Rising mortgage rates in the future should result in an increase in the estimated fair value of the MSRs and recovery of all or a portion of the impairment reserve. The MSR amortization rate, which is tied to the expected net cash flows from the MSRs, likewise should reduce as mortgage rates rise.

During the first part of 2003, long-term Treasury and swap rates declined, resulting in a Servicing Hedge gain of $234.8 million for 2003. During 2002, the Servicing Hedge generated a gain of $1,787.9 million.

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

The increase in net insurance premiums earned is primarily due to a 30% increase in policies-in-force.

The increase in processing fees earned in the Global Operations Segment was due to growth in the number of loans processed.

The increase in credit report, appraisal and title service fees is primarily due to the increase in our loan origination volume.

The decrease in insurance agency commissions is due to discontinuation of the agency’s home warranty and auto lines.

Compensation expenses increased $812.5 million, or 46%, during 2003 as compared to 2002.

Compensation expenses in the Mortgage Banking Segment increased primarily due to growth in the level of loan production activity. In the Loan Production Sector, compensation expenses increased $595.2 million, or 65%, reflecting a 64% increase in loan production coupled with a 55% increase in average staff. Salaries rose 55% and incentive bonus and commissions rose 79%. The relative increase in incentive bonuses and commissions reflects a shift toward a more incentive-based compensation structure within our loan production operations. In the Loan Servicing Sector, compensation expense rose $49.0 million, or 25%, as a result of an increase in average staff of 21% to support a 28% increase in the number of loans serviced and an 81% increase in the number of loan payoffs. Compensation expenses in the Loan Closing Services increased $19.7 million, or 36% as a result of an increase in average staff of 18% to support increased activity in this sector.

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

Compensation expenses increased in all other business segments, reflecting their growth.

In our Insurance Segment, compensation expenses increased by $4.1 million, or 4%, as a result of an increase of 11% in average staff to support growth of 30% in net earned premiums and growth in the Insurance Segment’s third-party insurance tracking operation.

In the Capital Markets Segment, incentive bonuses increased $35.1 million, or 34%, reflecting growth in revenues of 81%.

Banking Segment compensation expenses increased by $31.9 million, or 110%, to accommodate the growth of the Bank’s operations, primarily in its labor-intensive mortgage document custodian business.

Compensation expenses in our Global Operations Segment increased $26.5 million, or 47%, as a result of an increase in average staff of 31% resulting from the addition of a facility to process the additional volume of loans serviced in GHL.

Compensation expenses for Corporate Administration increased $42.6 million, or 15%, in 2003 as compared to 2002 due to an increase in average staff of 21% to support the Company’s overall growth.

Occupancy and other office expenses for the year ended December 31, 2003 increased primarily to accommodate personnel growth in our loan production operations, which accounted for 67% of the increase, as well as growth in our corporate operations, which accounted for 26% of the increase in this expense.

Insurance claim expenses were $360.0 million, or 49%, of net insurance premiums earned for 2003, as compared to $277.6 million, or 49%, of net insurance premiums earned for 2002. The increase in insurance claim expenses was attributable to higher net premiums earned and an increase in insurance claims expenses of Balboa Reinsurance, of $31.5 million over 2002. Reinsurance claims expenses are a function of expected remaining losses and premiums. These increases were partially offset by improvement in the loss ratio at Balboa Life and Casualty. The loss ratio (including allocated loss adjustment expenses) of Balboa Life and Casualty was 55% and 58% for 2003 and 2002, respectively.

Insurance commission expense as a percentage of insurance premiums earned declined from 21% in 2002 to 19% in 2003 primarily due to reduced contingent commissions accruing to insurance agents as a result of higher than anticipated insured losses on certain lender-placed auto policies. Contingent commissions are paid only on certain lender-placed auto policies sourced through agents.

Professional fees increased from the prior period due primarily to increased legal costs and consulting services.

Bad debt expense consists primarily of losses during the period arising from unreimbursed servicing advances on defaulted loans, credit losses arising from repurchased or indemnified loans and defaulted VA-guaranteed loans. (See the “Credit Risk Management” section of this Report for a further discussion of credit risk.)

Comparison of Results of Operations for the Year Ended December 31, 2002 to the Ten Months Ended December 31, 2001

Our diluted earnings per share for the year ended December 31, 2002 totaled $4.87, a 67% increase over diluted earnings per share for the ten months ended December 31, 2001. Net earnings increased 73% from the ten months ended December 31, 2001. This earnings performance was driven mainly by the increased level of residential mortgage loans we produced — $251.9 billion during the year ended December 31, 2002 in comparison to $124.0 billion for the ten months ended December 31, 2001. In addition, the year ended December 31, 2002 is compared to a transition period consisting of ten months.

Industry-wide, residential mortgage originations were approximately $2.7 trillion during calendar 2002, up from approximately $2.0 trillion in calendar 2001 (Source: Inside Mortgage Finance). Approximately 62% of the residential mortgages produced in calendar 2002 were refinances of existing mortgages triggered by historically low mortgage rates. The balance of mortgages produced related to home purchases.

The record demand for residential mortgages not only drove record loan production volumes for Countrywide, but also high loan production margins. The combination of record volumes and high margins increased our Loan Production Sector pre-tax earnings to $2.4 billion for the year ended December 31, 2002, an increase of 162%, or $1.5 billion from the ten months ended December 31, 2001.

The high levels of mortgage refinances and home purchases in the year ended December 31, 2002 resulted in significant prepayments within our mortgage loan servicing portfolio during the year. This, along with the expectation of continued higher-than-normal prepayments due to historically low mortgage rates, resulted in significant amortization and impairment of the Company’s MSRs and other retained interests in the year ended December 31, 2002. The combined amount of amortization and impairment of MSRs and other retained interests, net of Servicing Hedge gains, was $2.9 billion. This resulted in a pre-tax loss of $1.5 billion in the Loan Servicing Sector in the year ended December 31, 2002, $1.1 billion more than the pre-tax loss in the ten months ended December 31, 2001.

Overall, the Mortgage Banking Segment generated pre-tax earnings of $975.1 million for the year ended December 31, 2002, an increase of 58% over the ten months ended December 31, 2001.

Our non-mortgage banking businesses also were significant contributors to Countrywide’s record earnings performance in the year ended December 31, 2002. In particular, our Capital Markets Segment had pre-tax earnings of $199.9 million for the year ended December 31, 2002, as compared to $81.2 million for the ten months ended December 31, 2001. Capital Markets has grown its core franchise significantly over the last five years and is now among the leading investment banking firms in its niche, the mortgage securities market. This segment continued to benefit from robust activity in the mortgage securities market, as well as from a highly favorable interest rate environment. In total, our non-mortgage banking businesses contributed $367.9 million in pre-tax earnings for the year ended December 31, 2002, an increase of 117% from $169.6 million for the ten months ended December 31, 2001.

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

Our Loan Production Sector produces mortgage loans through CHL’s three production divisions — Consumer Markets, Wholesale Lending and Correspondent Lending and through Full Spectrum Lending, Inc.

Strong demand for mortgages enabled the Loan Production Sector to achieve significant growth in revenues and earnings in the year ended December 31, 2002 in comparison to the ten months ended December 31, 2001. This performance was enhanced by a significant increase in market share during the year. Our mortgage origination market share was 9.4% in calendar 2002, up from 6.6% in calendar 2001 (Source: Inside Mortgage Finance). Favorable market conditions allowed us to increase revenues earned on prime home loans, while high productivity levels during the year ended December 31, 2002 helped keep unit costs low. These factors combined to produce record profit margins (pre-tax earnings as a percentage of loan volume) for the Loan Production Sector.

Our mortgage banking loan production for the year ended December 31, 2002 increased 100% in comparison to the ten months ended December 31, 2001. The increase was due to a rise in both purchase and non–purchase loan production of 86% and 109%, respectively. The increase in purchase-money loans is significant because this is the relatively stable growth component of the mortgage market, with average annual growth of 8% over the last 10 years. (The non-purchase, or refinance, component of the mortgage market is highly volatile because it is driven almost exclusively by prevailing mortgage rates.) All divisions, in particular Correspondent Lending, contributed to the increase in origination volume. The Correspondent Lending Division has benefited most from the consolidation trend in our industry. In calendar 2002, the top five correspondent lenders combined had a 58% share of the correspondent origination market, up from 37% in 1998.

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

As shown in the following table, the volume of Prime Home Equity and Subprime Mortgage Loans produced (which is included in the total volume of loans we produced) increased 94% during the year ended December 31, 2002 as compared to the ten months ended December 31, 2001:

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

During the year ended December 31, 2002, the Loan Production Sector operated at approximately 114% of planned operational capacity. The primary capacity constraint in our loan origination activities is the number of loan operations personnel we have on staff. Therefore, we measure planned capacity by multiplying the number of loan operations personnel we have by the number of loans we expect each available loan operations staff person to process under normal conditions. In the year ended December 31, 2002, we continued to increase the number of sales and operations staff in our loan production divisions to capitalize on the current market environment.

In recent years, our Consumer Markets Division has commenced a fundamental restructuring of its business model primarily by building a “best-in-class” sales organization. This organization consists of a dedicated commissioned sales force and the attendant management, systems and operations support. In addition, the Consumer Markets Division has begun to centralize some of its processing operations to create more flexible processing capacity to support its expanded sales organization, as well as its growing portfolio retention effort. At December 31, 2002 the commissioned sales force (external home loan consultants) numbered 2,484, an increase of 1,090 during the year. The primary focus of the external home loan consultants is to increase overall purchase market share. External home loan consultants contributed $13.5 billion in purchase originations in the year ended December 31, 2002, a 119% increase over the ten months ended December 31, 2001. The purchase production generated by the external home loan consultants represented 63% of the Consumer Market Division’s purchase production for the year ended December 31,

2002. At December 31, 2002, the Consumer Markets Division had 424 branches and 19 regional processing centers nationwide. During the year ended December 31, 2002, the regional processing centers handled 9.3% of the division’s total loan volume.

Like the Consumer Markets Division, the Wholesale Lending Division has focused on improving its sales efforts. The division has created specialized sales units that cater to individual segments of the wholesale market (e.g., large regional and national brokers). In addition, the Wholesale Lending Division continued to make improvements in its business partner website (“CWBC.com”), which was used by its business partners in 93% of the loans produced by the division in the year ended December 31, 2002. To improve efficiency and quality control, the division centralized processing of its subprime loans in the year ended December 31, 2002.

During the year ended December 31, 2002, the Correspondent Lending Division added significant capacity by adding temporary staff, moving to multiple shifts, implementing accelerated training classes and increasing the use of electronic data interfaces with customers. This strategy allowed the division to quickly adjust to changes in the origination market.

Our Loan Servicing Sector reflects the performance of the Company’s investments in MSRs and other retained interests and associated risk management activities, as well as profits from subservicing activities in the United States. The Loan Servicing Sector incorporates a significant processing operation, consisting of approximately five thousand employees who service the Company’s 4.0 million mortgage customers. How effectively this servicing operation manages costs and generates ancillary income from the portfolio has a significant impact on the long-term performance of this sector.

The Loan Servicing Sector experienced significant losses during the year ended December 31, 2002. This was expected, given the increasing level of refinance activity driven by mortgage rates that reached 40-year lows. The Company’s MSRs and other retained interests represent the present value of cash flow streams that are closely linked to the expected life of the underlying servicing portfolio. The continued high level of actual and forecasted prepayment activity reduced the life of the servicing portfolio and thus the value of our MSRs and other retained interests, as reflected by the combined impairment and amortization charge of $4.7 billion incurred in the year ended December 31, 2002.

The Servicing Hedge generated a gain of $1.8 billion during the year ended December 31, 2002, which partially offset the combined impairment and amortization charge. Amortization and impairment, net of the

Servicing Hedge, was $2.9 billion for the year ended December 31, 2002, an increase of $1.5 billion over the ten months ended December 31, 2001. In a stable interest rate environment, Management would expect no significant impairment and would expect to incur expenses related to the Servicing Hedge driven primarily by the composition of the hedge, the shape of the yield curve and the level of interest rate volatility.

During the year ended December 31, 2002, we securitized a portion of our net servicing fees (“excess servicing”). Proceeds from the sale of these securities amounted to $566.6 million. Management believes such securitizations enable us to more efficiently manage our capital.

Despite the level of prepayments, we increased our servicing portfolio to $452.4 billion at December 31, 2002, representing a 34% increase compared to December 31, 2001.

Our LandSafe companies produced $70.0 million in pre-tax earnings in the year ended December 31, 2002, representing a 28% increase over the ten months ended December 31, 2001. The increase in LandSafe’s contribution to pre-tax earnings was primarily due to our increased loan production.

The Company’s other business segments include Capital Markets, Banking, Insurance and Global Operations. Pre-tax earnings from these businesses increased $198.3 million, or 117%, to $367.9 million in the year ended December 31, 2002 compared to the ten months ended December 31, 2001.

Our Capital Markets Segment achieved pre-tax earnings of $199.9 million for the year ended December 31, 2002, an increase of $118.7 million, or 146% compared to the ten months ended December 31, 2001. Total revenues were $374.4 million, an increase of $188.2 million, or 101% compared to the ten months ended December 31, 2001. Total securities trading volume increased 70% to $2.0 trillion. This performance was largely driven by a highly favorable operating environment consisting of a robust mortgage securities market, high mortgage securities price volatility and low short-term financing costs.

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

CSC has successfully increased its share of the mortgage securities market as evidenced by its league table rankings in industry publications. Most notably, CSC was ranked fourth in underwriting non-agency MBS in calendar 2002, up from seventh in calendar 2001 (Source: Inside MBS and ABS). The increase in market share is the result of increased sales penetration achieved through an expansion of the sales force, an increase in trading personnel, the effective use of market and product research to attract institutional customers and an increase in mortgage conduit activities during the year ended December 31, 2002. Approximately 13% of the segment’s total trading volume was with CHL in the year ended December 31, 2002.

Our Banking Segment commenced operations in calendar 2001. The segment achieved pre-tax earnings of $84.0 million for the year ended December 31, 2002. The following table shows the composition of pre-tax earnings by company.

The Bank produced pre-tax earnings of $51.7 million for the year ended December 31, 2002. The overall increase in pre-tax earnings from the ten months ended December 31, 2001 was primarily due to an increase in net interest income arising from growth in average earning assets and approximately $18.0 million in intersegment profits resulting from document custodian services provided to our mortgage banking operation. Average earning assets increased to $3.4 billion for the year ended December 31, 2002, an increase of $2.8 billion in comparison to the ten months ended December 31, 2001. Asset growth was funded primarily by the transfer of mortgagor and investor impound accounts controlled by CHL from third-party banks to the Bank, a capital contribution from Countrywide Financial Corporation, Federal Home Loan Bank advances

CWL’s pre-tax earnings increased by $20.0 million during the year ended December 31, 2002 in comparison to the ten months ended December 31, 2001. This was primarily due to the growth in average outstanding mortgage warehouse advances partially offset by a decline in the average net spread from 2.3% during the ten months ended December 31, 2001 to 2.1% during the year ended December 31, 2002. For the year ended December 31, 2002, average mortgage warehouse advances outstanding were $1.8 billion, an increase of $1.0 billion in comparison to the ten months ended December 31, 2001. The growth in average advances was primarily attributable to the overall increased level of mortgage originations.

Our Insurance Segment pre-tax earnings decreased 2% from the ten months ended December 31, 2001, to $74.6 million during the year ended December 31, 2002. The decline in pre-tax earnings was attributable to a significant reduction in pre-tax earnings in the Balboa Life and Casualty Operations. Following are the pre-tax earnings by business line:

Our mortgage reinsurance business produced $84.5 million in pre-tax earnings, a 71% increase in comparison to the ten months ended December 31, 2001, driven by a 69% increase in net earned premiums. The increase in net earned premiums resulted from a 25% increase in the number of policies in force driven by growth in our loan servicing portfolio, coupled with an overall increase in the ceded premium percentage.

Our Life and Casualty insurance operations produced a pre-tax earnings of $1.1 million, a decrease in earnings of $29.5 million, or 96%, compared to the ten months ended December 31, 2001. Although the prior period included only ten months, the additional two months of earnings in the year ended December 31, 2002 was more than offset by lower investment portfolio income and higher than expected claims costs related to

certain homeowners’ reinsurance contracts that were later terminated. Additional insurance claim expenses also were recorded related to certain other lender-placed insurance contracts due to observed losses higher than expectations. These lender-placed insurance contracts were later favorably renegotiated. These amounts were partially offset by a $211.3 million, or 79%, increase in premiums earned during the year ended December 31, 2002 compared to the ten months ended December 31, 2001. Balboa Life and Casualty’s overall loss ratio was 58% and 51% in the year ended December 31, 2002 and in the ten months ended December 31, 2001, respectively.

Balboa manages its insurance risk by reinsuring portions of its insured risk. Balboa seeks to earn profits by capitalizing on Countrywide’s customer base and institutional relationships, as well as through operating efficiencies and sound underwriting.

Balboa Reinsurance historically has not realized insurance losses, owing to a generally strong economy, an even stronger housing market and the age of the underlying insured loans. During the year, we revised our reinsurance contracts, to provide additional coverage in exchange for additional ceded premiums. Management expects Balboa Reinsurance to incur insurance losses in the future as the underlying insured loans continue to age.

For the year ended December 31, 2002, our Global Operations Segment’s pre-tax earnings totaled $5.3 million, representing an increase of $3.3 million in comparison to the ten months ended December 31, 2001. Results in the current period were positively affected by the recognition of higher technology licensing fees related to GHL’s increased processing volumes for both originations and servicing.

In the fourth quarter of 2002, Global Home Loans Limited (“GHL”) finalized an agreement with Barclays, plc, its joint venture partner, to provide origination processing, subservicing and delinquent servicing. GHL expanded its total volume of loans subserviced in the UK to over $91.8 billion, or over 1.2 million mortgage loans. In the future, GHL plans to provide its services to other financial institutions in the UK.

Gain on sale of loans and securities is summarized below for the year ended December 31, 2002 and the ten months ended December 31, 2001:

Gain on sale of loans and securities increased in the year ended December 31, 2002 primarily due to higher production and sales volume and higher margins on Prime Mortgage Loans. Margins on Subprime Mortgage Loans and Prime Home Equity Loans declined primarily due to a change in production channel mix. WLD and CLD produced a larger percentage of these mortgages; these two divisions traditionally have lower margins than our retail channels. Margins on Prime Mortgage Loans were high in both periods on a relative historical basis, due largely to the very favorable mortgage market environment that prevailed during those periods. The market was characterized by record consumer demand for mortgages and modest price competition by historical industry standards. Management expects margins, particularly on prime home loans, to decline in the future as the level of mortgage originations subsides.

The reduction in Capital Markets’ gain on sale of securities was largely due to the impact of the steepening yield curve on the mix of its revenues. Capital Markets’ revenues from its trading activities consist of gains on the sale of securities and net interest income. In a very steep yield curve environment, trading revenues will derive largely or entirely from net interest income earned during the securities’ holding period. As the yield curve flattens, the mix of revenues will shift toward gain on sale of securities.

In general, gain on sale of loans and securities is affected by numerous factors including the volume and mix of loans sold, production channel mix, the level of price competition and the slope of the yield curve.

Net interest income is summarized below for the year ended December 31, 2002 and for the ten months ended December 31, 2001.

The increase in net interest income from mortgage loans and securities held for sale reflects the growth in mortgage production combined with a higher overall net earnings rate that was attributable to a relative decline in financing rates during the year ended December 31, 2002. We finance the major portion of our mortgage loans and securities held for sale at prevailing short-term borrowing rates, which declined relative to the rate earned on the loans and securities held for sale when compared to the ten months ended December 31, 2001.

The increase in net interest income from the Capital Markets securities trading portfolio is attributable to an increase in the average net spread earned, partially offset by a decrease in the average inventory of securities held. The increase in the average net spread was also attributable to the relative decline in short-term financing rates.

The increase in interest expense in the Loan Servicing Sector is due primarily to a full year of interest expense in the current period compared to ten months of interest expense in the prior period.

Re-performing FHA and VA loans are reinstated loans that had previously defaulted and were consequently re-purchased from mortgage securities issued by Countrywide or others. Such loans are subsequently securitized and re-sold. The increase in interest income related to this activity results from an increase in the volume of such loans purchased during the year ended December 31, 2002.

The increase in net interest income from the Banking Segment was largely attributable to year-over-year asset growth both in Treasury Bank and in our warehouse lending activities and in an increase in the average net spread from 1.80% in the ten months ended December 31, 2001 to 1.94% in the year ended December 31, 2002. Average assets in the Banking Segment increased to $5.2 billion in the year ended December 31, 2002, an increase of $3.8 billion in comparison to the ten months ended December 31, 2001.

Net interest income from custodial balances decreased due to a decline in the earnings rate, which is tied to short-term rates, from 3.2% in the ten months ended December 31, 2001 to 1.6% in the year ended December 31, 2002. The decrease in the earnings rate was partially offset by a $2.5 billion, or 28%, increase in the average custodial balances during the year ended December 31, 2002 compared to the ten months ended December 31, 2001, resulting from a larger portfolio and higher loan payoffs. (Custodial balances rise as loan payoffs increase because we hold the payoff funds for periods ranging from 2 to 45 calendar days, depending on the payoff date and the investor servicing agreement.) Net interest income from custodial balances decreased also as a result of the general requirement of loan servicers to pass through interest on paid-off loans at the underlying security rates, which were significantly higher than the short-term rates we earned. This reduced net interest income from custodial balances by $218.8 million and $133.5 million in the year ended December 31, 2002 and the ten months ended December 31, 2001, respectively.

The increase in net interest income from Prime Home Equity AAA asset-backed securities is due to an increase in the average balance of securities held.

Loan servicing fees and other income from retained interests is summarized below for the year ended December 31, 2002 and the ten months ended December 31, 2001:

The increase in servicing fees, net of guarantee fees, was due to a full year of earnings in the current period compared to ten months of earnings in the prior period, combined with a 23% increase in the average servicing portfolio. This increase was partially offset by a small reduction in the overall annualized net service fee earned from 0.39% of the average portfolio balance during for the ten months ended December 31, 2001 to 0.38% during the year ended December 31, 2002. The reduction in the overall net service fee was largely due to the securitization of excess service fees during the year ended December 31, 2002.

The increase in income from other retained interests was due to a full year of earnings in the year ended December 31, 2002 compared to ten months of earnings in 2001, combined with a 20% increase in investment balances during the year ended December 31, 2002 and an increase in the yield of these investments from 16.2% in the ten months ended December 31, 2001 to 19.9% in the year ended December 31, 2002. These investments include interest-only and principal-only securities as well as residual interests that arise from the

Higher prepayment penalty income in the year ended December 31, 2002 corresponded to the increase in Subprime loan payoffs during the year ended December 31, 2002.

The increase in subservicing fees earned in the Global Segment was primarily due to growth in the portfolio subserviced in the year ended December 31, 2002 combined with a change in accounting for GHL from the equity method to consolidation with CFC, resulting from an increase in our ownership interest in GHL in July 2001.

We recorded amortization of MSRs of $1,267.2 million during the year ended December 31, 2002 as compared to $805.5 million during the ten months ended December 31, 2001. The increase in amortization of MSRs was primarily due to a reduction in future estimated net MSR cash flows, primarily because of forecasted higher mortgage prepayments when compared to the year-ago period, coupled with an increase in the cost basis of the MSRs related to the larger servicing portfolio. In addition, the current period includes one year of amortization while the prior period includes only ten months. The MSR amortization rate should decline as mortgage rates rise.

Impairment of retained interests and Servicing Hedge gains are detailed below for the year ended December 31, 2002 and the ten months ended December 31, 2001:

Impairment of MSRs and other retained interests resulted from a reduction in the estimated fair value of those investments driven primarily by declining mortgage rates during the year ended December 31, 2002 and the ten months ended December 31, 2001. Rising mortgage rates in the future should result in an increase in the estimated fair value of the MSRs and recovery of all or a portion of the temporary impairment.

Servicing Hedge gains were driven by declining interest rates during the year ended December 31, 2002 and the ten months ended December 31, 2001. The Servicing Hedge is intended to moderate the effect on earnings caused by changes in the fair value of MSRs and other retained interests that generally result from changes in mortgage rates. Rising interest rates in the future will result in Servicing Hedge losses.

The increase in net insurance premiums earned is primarily due to an increase in policies in force and an overall rise in reinsurance premium rates. In addition, a full year of earnings is included in the current period compared to ten months of earnings in the prior period.

Commissions and other revenue consisted of the following in the year ended December 31, 2002 and the ten months ended December 31, 2001:

The increase in credit report, appraisal and title services fees is primarily due to an increase in our loan production.

The increase in insurance agency commission was primarily due to the increase in the policies in force combined with a full year of earnings in the current period compared to ten months of earnings in the prior period.

The increase in processing fees earned in the Global Segment was primarily due to growth in the number of loans processed combined with a change in accounting for GHL from the equity method to consolidation with CFC, resulting from an increase in our ownership interest in GHL in July 2001.

Compensation expenses are summarized below for the year ended December 31, 2002 and the ten months ended December 31, 2001:

Compensation expense increased $803.1 million, or 83%, during the year ended December 31, 2002 in comparison to the ten months ended December 31, 2001. The increase is due to a full year of expense in the current period compared to ten months of expense in the prior period combined with growth in all areas of Countrywide, which is discussed below.

Compensation expense in the Mortgage Banking Segment increased due to growth both in the level of loan production activity and in the size of the loan servicing portfolio. In the Production Sector, compensation expense increased 95% (salaries rose by 72% and incentive bonuses rose by 100%) as a result of a 50% increase in average staff to support 100% higher loan production. The relative increase in incentive bonuses reflects a shift toward a more incentive-based compensation structure within the Production Sector. In the Loan Servicing Sector, compensation expense rose 50% as a result of an increase in average staff of 20% to support a 34% increase in the loan servicing portfolio and a 66% increase in loan payoff activity combined with a full year of expense in the current period compared to ten months in the prior period.

Compensation expense increased in all of the other business segments, reflecting their growth.

In the Insurance Segment, compensation expense increased by a combined $44.3 million, or 86%, as a result of a 41% increase in average staff to support 80% growth in written premiums and growth in the Insurance Segment’s third-party insurance tracking operation, combined with a full year of expense in the current period compared to the ten months in the prior period.

Banking Segment compensation expense increased by $23.6 million from the prior period’s start-up level of operations to accommodate the growth of the Bank’s operations, primarily in its labor-intensive mortgage document custodian business.

In the Capital Markets Segment, incentive bonuses increased $45.4 million, or 79%, reflecting growth in revenues of 101%.

The increase in compensation expense in the Global Segment of $31.6 million reflects a change in accounting for GHL from the equity method to consolidation with CFC, resulting from an increase in our ownership interest in GHL in July 2001.

Compensation expense for Corporate Administration increased $110.6 million, or 67%, due to an increase in average staff of 28% (of which approximately one-third were related to corporate technology) to support the overall growth of Countrywide and higher incentive bonuses earned based on our increased profitability.

Occupancy and other office expenses for the year ended December 31, 2002 increased primarily to accommodate personnel growth in our loan production operations, which accounted for 56% of the increase, as well as in the non-mortgage banking businesses, which accounted for 30% of the increase in this expense.

Insurance claims expenses were $277.6 million, or 49% of net insurance premiums earned for the year ended December 31, 2002, as compared to $134.8 million, or 43% of net insurance premiums earned for the ten months ended December 31, 2001. The increased loss ratio was attributable to Balboa Life and Casualty, whose loss ratio (including allocated loss adjustment expenses) increased from 51% for the ten months ended December 31, 2001 to 58% for the year ended December 31, 2002, due to higher claims experience in both voluntary homeowners’ and lender-placed insurance lines. The level of losses recognized in a period depends on many factors, one being the occurrence of natural disasters.

Other operating expenses for the year ended December 31, 2002 and the ten months ended December 31, 2001 are summarized below:

Insurance commission expense as a percentage of insurance premiums earned declined from 27% to 21% between the ten months ended December 31, 2001 and the year ended December 31, 2002. This decline was due to reduced contingent commissions accruing to insurance brokers as a result of higher-than anticipated insured losses from policies subject to the contingent commission arrangements.

Bad debt expense consists primarily of losses during the period arising from un-reimbursed servicing advances on defaulted loans, credit losses on repurchased or indemnified loans and defaulted VA-guaranteed loans. (See the “Credit Risk” section of this Report for a further discussion.)

The primary market risk we face is interest rate risk. The most predominate type of interest rate risk at Countrywide is price risk, which is the risk that the value of our assets or liabilities will change due to changes in interest rates. To a lesser extent, interest rate risk also includes the risk that the net interest income from our mortgage loan and investment portfolios will change in response to changes in interest rates. From an enterprise perspective, we manage this risk through the natural counterbalance of our loan production and servicing businesses. We also use various financial instruments, including derivatives, to manage the interest rate risk related specifically to our committed pipeline, mortgage loan inventory and MBS held for sale, MSRs, trading securities and other retained interests as well as a portion of our debt. The overall objective of our interest rate risk management activities is to reduce the variability of earnings caused by changes in interest rates. Our Corporate Asset/ Liability Management Committee (“ALCO”), which is comprised of several of the Company’s senior financial executives, maintains oversight of this risk.

We are exposed to price risk such from the time an interest rate lock commitment (“IRLC”) is made to a mortgage applicant (or financial intermediary) to the time the related mortgage loan is sold. During this period, we are exposed to losses if mortgage rates rise, because the value of the IRLC or mortgage declines. To manage this price risk, we use derivatives, primarily forward sales of MBS and options to buy and sell MBS, as well as options on Treasury futures contracts.

The committed pipeline consists of loan applications in process where we have issued IRLCs to the applicants (or financial intermediaries). IRLCs guarantee the rate and points on the underlying mortgage for a specified period, generally from seven to sixty days. Managing the price risk related to the Committed Pipeline is complicated by the fact that the ultimate percentage of applications that close within the terms of the IRLC is variable. The primary factor that drives the variability of the closing percentage is changes in mortgage rates. In general, the percentage of applications in the Committed Pipeline that ultimately close within the terms of the IRLC increases if mortgage rates rise and decreases if mortgage rates fall. This is due primarily to the relative attractiveness of current mortgage rates compared to the applicants’ committed rates. The closing percentage is also influenced by the source of the applications, age of the applications, purpose for the loans (purchase or refinance) and the application approval rate. We have developed closing ratio estimates for the Committed Pipeline using empirical data taking into account all of these variables. Our closing ratio estimates also take into account renegotiations of rate and point commitments that tend to occur when mortgage rates fall. Our closing ratio estimates are revised periodically using the most current empirical data.

To manage the price risk associated with the Committed Pipeline, we use a combination of net forward sales of MBS and “put” and “call” options on MBS or Treasury Futures. As a general rule, we enter into forward sales of MBS in an amount equal to the portion of the Committed Pipeline expected to close, assuming no change in mortgage rates. We acquire put and call options to protect against the variability of loan closings caused by changes in mortgage rates, using our current closing ratio estimates to determine the amount of optional coverage required.

We manage the price risk related to our Mortgage Loan Inventory primarily by entering into forward sales of MBS. The value of these forward sales moves in opposite direction to the value of the Mortgage Loan Inventory. We review our Committed Pipeline and Mortgage Inventory risk profiles on a daily basis.

We use the following derivative instruments in our risk management activities related to the Committed Pipeline and Mortgage Loan Inventory:


	•	Forward Sales of MBS: represents an obligation to sell a MBS at a specific price in the future; therefore, its value increases as mortgage rates rise.

	•	Forward Purchases of MBS: represents an obligation to buy a MBS at a specific price in the future; therefore, its value increases as mortgage rates fall.

	•	Long Call Options on MBS: represents a right to buy a MBS at a specific price in the future; therefore, its value increases as mortgage rates fall.

	•	Long Put Options on MBS: represents a right to sell a MBS at a specific price in the future; therefore, its value increases as mortgage rates rise.

	•	Long Call Options on Treasury Futures: represents a right to acquire a Treasury futures contract at a specific price in the future; therefore, its value increases as the benchmark Treasury rate falls.

	•	Long Put Options on Treasury Futures: represents a right to sell a Treasury futures contract at a specific price in the future; therefore, its value increases as the benchmark Treasury rate rises.

	•	Short Eurodollar Futures Contracts: represents a standardized exchange-traded contract, the value of which is tied to spot Eurodollar rates at specified future dates; therefore, its value increases when Eurodollar rates rise.

Our MSRs and other retained interests, specifically interest-only securities and residual securities, are generally subject to loss in value when mortgage rates decline. Declining mortgage rates generally precipitate increased consumer refinancing activity. Increased refinancing activity reduces the life of the loans underlying the MSRs and other retained interests, thereby reducing their value. Reductions in the value of these assets impact earnings through impairment charges. To moderate the effect on earnings of impairment, we maintain a portfolio of financial instruments, including derivatives, which increase in aggregate value when interest rates decline (the “Servicing Hedge”).


	•	Interest Rate Floors: represents a right to receive cash if a reference interest rate falls below a contractual strike rate; therefore, its value increases as reference interest rates fall. The reference interest rates used in the Company’s interest rate floors include mortgage rates, Treasury rates and U.S. dollar (“USD”) LIBOR.

	•	U.S. Treasury Securities: consists of notes and bonds with maturities ranging generally from ten to thirty years. As interest rates decrease, the values of these securities generally increase.

	•	Long Treasury Futures: represent the agreement to purchase a treasury security at a specific price in the future; therefore, its value increases as the benchmark Treasury rate falls.

	•	Long Call Options on Treasury and Eurodollar futures: represents a right to acquire a Treasury or Eurodollar futures contract at a specific price in the future; therefore, its value increases as the benchmark Treasury or Eurodollar deposit rate falls.

	•	Long Put Options on Treasury and Eurodollar futures: represents a right to sell a Treasury or Eurodollar futures contract at a specific price in the future; therefore, its value increases as the benchmark Treasury or Eurodollar deposit rate rises.

	•	Long Call Options on MBS: represents a right to buy an MBS at a specific price in the future; therefore, its value increases as mortgage rates fall.

	•	Forward Purchases of MBS: represents an obligation to buy a MBS at a specific price in the future; therefore, its value increases as mortgage rates fall.

	•	Interest Rate Swaps: represents a mutual agreement to exchange interest rate payments; one party paying a fixed-rate and another paying a floating rate tied to a reference interest rate (e.g., USD LIBOR). For use in the Servicing Hedge, we receive the fixed rate and pay the floating rate; therefore, the contract increases in value as rates fall.

	•	Receiver Swaptions: represents a right to enter into a predetermined Interest Rate Swap at a future date in which, upon exercise of its right, we receive the fixed rate and pay the floating rate; therefore, the contract increases in value as rates fall.

	•	Payor Swaptions: represents a right to enter into a predetermined Interest Rate Swap at a future date in which, upon exercise of its right, we pay the fixed rate and receive the floating rate; therefore, the contract increases in value as rates rise.

	•	Principal-Only Securities: consist of mortgage trust principal-only securities and Treasury principal-only securities (“Strips”). These securities have been purchased at discounts to their par value. As interest rates decrease, the values of these securities generally increase.

These instruments are used in tandem to manage the overall risk profile of the MSRs and other retained interests. We review our retained interests risk profile on a daily basis.

In connection with our Capital Markets activities, we maintain a trading portfolio of fixed-income securities, primarily MBS. We are exposed to price changes in our trading portfolio arising from interest rate changes during the period we hold the securities. To manage this risk, we use the following derivative instruments:


	•	Forward Sales of To-Be-Announced (“TBA”) MBS: represents an obligation to sell agency pass-through MBS that have not yet been issued at a specific price and at a specific date in the future; therefore, its value increases as mortgage rates rise.

	•	Forward Purchases of TBA MBS: represents an obligation to purchase agency pass-through MBS that have not yet been issued at a specific price at a specific date in the future; therefore, its value increases as mortgage rates fall.

	•	Forward Sale of U.S. Treasury Securities: represents a standardized exchange-traded agreement to sell a specific quantity of U.S. Treasury securities for a specific price at a specific date in the future; therefore, its value increases when interest rates rise.

	•	Short Fed Funds and Eurodollar Futures Contracts: represents a standardized exchange-traded contract, the value of which is tied to spot Fed Funds or Eurodollar rates at specified future dates. The value of these contracts increases when Fed Funds or Eurodollar rates rise.

	•	Interest Rate Swaps: represents a mutual agreement to exchange interest rate payments with one party paying a fixed-rate and another paying a floating rate tied to a reference interest rate (e.g. USD LIBOR). For use in our trading portfolio risk management activities, we generally receive the floating rate and pay the fixed rate; therefore, its value generally increases in value as rates rise.

The primary component of Treasury Bank’s earnings is net interest income derived from its mortgage loan and investment portfolios. At Treasury Bank, we invest primarily in adjustable rate and short duration residential mortgages. Our securities portfolio is comprised mostly of short-duration sequential collateralized mortgage obligations. We manage our interest rate risk primarily by investing in relatively simple, short duration assets, and matching the duration and re-pricing characteristics of our liabilities with those of our assets. Deposits are priced to encourage consumers to choose maturity terms consistent with our assets. In addition, the structure and terms of our borrowings are chosen to manage our interest rate risk.

We determine the mix of fixed-rate and variable-rate debt as part of our overall interest rate risk management activities. We use Interest Rate Swaps to efficiently and cost-effectively achieve our desired mix of debt. Typically, terms of the Interest Rate Swaps match the terms of the underlying debt, resulting in an effective conversion of the debt rate.

Impact of Changes in Interest Rates on the Net Value of the Company’s Interest Rate- Sensitive Financial Instruments

We perform various sensitivity analyses that quantify the net financial impact of changes in interest rates on our interest rate-sensitive assets, liabilities and commitments. These analyses incorporate assumed changes in the interest rate environment including selected hypothetical (instantaneous) parallel shifts in the yield curve.

Various modeling techniques are employed to value the financial instruments in connection with these sensitivity analyses. For mortgage loans, MBS, MBS forward contracts, collateralized mortgage obligations and MSRs, an option-adjusted spread (“OAS”) model is used. The primary assumptions used in this model for purpose of these sensitivity analyses are the implied market volatility of interest rates and prepayment speeds. For options and interest rate floors, an option-pricing model is used. The primary assumption used in

this model is implied market volatility of interest rates. Other retained interests are valued using zero volatility discounted cash flow models incorporating all relevant cash flows associated with these instruments. The primary assumptions used in these models are prepayment rates, discount rates and credit losses.

Utilizing these modeling techniques, the following table summarizes the estimated change in fair value of our interest rate-sensitive assets, liabilities and commitments as of December 31, 2003, given several hypothetical (instantaneous) parallel shifts in the yield curve:

The following table summarizes the estimated change in fair value of the Company’s interest rate-sensitive assets, liabilities and commitments as of December 31, 2002, given several hypothetical (instantaneous) parallel shifts in the yield curve:

During 2003, we reduced our reliance on derivatives to manage the interest rate risk related to our MSRs. We took this action in light of the incremental profits we expected to generate from our loan production operations if mortgage rates continued to decline. This strategy had the benefit of reducing our potential derivative losses in the event mortgage rates increased, which did occur in the last half of 2003.

These sensitivity analyses are limited in that they were performed at a particular point in time, are subject to the accuracy of various assumptions used, including prepayment forecasts and discount rates, and do not incorporate other factors that would impact the Company’s overall financial performance in such scenarios, most significantly the impact of changes in loan production earnings that occur over time. In addition, not all of the changes in fair value would impact current period earnings. For example, MSRs are carried at the lower of cost or market; therefore, absent hedge accounting, the increase in the value of the MSRs that is recorded in current period earnings would be limited to recovery of the impairment reserve ($1.2 billion at December 31, 2003). Debt is carried at cost; therefore, absent hedge accounting, changes in the value of debt are not recorded in current period earnings. For these reasons, the preceding estimates should not be viewed as an earnings forecast.

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

Credit risk is the potential for financial loss resulting from the failure of a borrower or an institution to honor its contractual obligations to us. Credit risk arises in many of our business activities including lending activities, trading activities and interest rate risk management activities. We actively manage credit risk to maintain credit losses within levels that achieve our profitability and return on capital objectives while meeting our expectations for consistent financial performance.

Our Credit Committee, which is comprised of our Chief Credit Officer and other senior executives, has primary responsibility for setting strategies to achieve the credit risk goals and objectives set by our Board of Directors. Those goals and objectives are documented in our Credit Policy.

In our mortgage lending activities, we manage our credit risk by producing high quality loans, employing proactive collection and loss mitigation efforts and selling the majority of the loans we produce on a non-recourse basis.

Our Credit Policy establishes standards for the determination of acceptable credit risks. Those standards encompass borrower and collateral quality, underwriting guidelines, and loan origination standards and procedures.

Borrower quality includes consideration of the borrower’s credit and capacity to pay. We assess credit and capacity to pay through the use of credit scores, application of a mortgage scorecard, and manual or automated underwriting of additional credit characteristics.

Collateral quality includes consideration of property value, condition, and marketability and is determined through physical inspections and the use of manual and automated valuation models.

Underwriting guidelines facilitate the uniform application of underwriting standards to all borrowers regardless of race, religion, or ethnic background. Uniformity in underwriting also provides a means for measuring and managing credit risk. This allows us, as well as government sponsored entities (“GSEs”), private investors, and the secondary markets in general, to assess risk, which provides us with more flexibility in the sale of loans.

Our conventional conforming and government underwriting guidelines comply with the guidelines established by Fannie Mae or Freddie Mac. Our underwriting guidelines for FHA-insured and VA-guaranteed mortgage loans comply with guidelines established by the U.S. Department of Housing and Urban Development and the Veterans Administration. Our underwriting guidelines for non-conforming mortgage loans, prime home equity loans, and subprime mortgage loans have been designed so that these loans are salable in the secondary mortgage market. We developed these guidelines to meet the requirements of private investors, rating agencies and third-party credit enhancement providers.

Our loan origination standards and procedures are designed to produce high quality loans. These standards and procedures encompass underwriter qualifications and authority levels, appraisal review requirements, fraud prevention, funds disbursement controls, training of our employees and on-going review of their work. We help to ensure that our origination standards are met by employing accomplished and seasoned management, underwriters, and processors and through the extensive use of technology. We also have a comprehensive training program for the continuing development of both our existing staff and new hires. In addition, we employ proprietary underwriting systems in our loan origination process that improve the consistency of underwriting standards, assess collateral adequacy, and help to prevent fraud, while at the same time increasing productivity.

In addition to our pre-funding controls and procedures, we employ an extensive post funding quality control process. Our quality control department, under the direction of the Chief Credit Officer, is responsible for completing comprehensive loan audits that consist of a re-verification of loan documentation, an in depth underwriting and appraisal review, and if necessary, a fraud investigation. We also employ a post-funding proprietary loan performance evaluation system. This system identifies fraud and poor performance of individuals and business entities associated with the origination of our loans. The combination of this system and our audit results allows us to evaluate and measure adherence to prescribed underwriting guidelines and compliance to laws and regulations to ensure that current loan production represents acceptable credit risk, as defined by the Board of Directors.

Nearly all of the mortgage loans that we originate are sold into the secondary mortgage market primarily in the form of securities, and to a lesser extent as whole loans. While we generally sell our prime mortgage loans on a non-recourse basis, either in the form of securities or whole loans, we do have potential liability under the representations and warranties we make to purchasers and insurers of the loans. In the event of a breach of such representations and warranties, we may be required to either repurchase the subject mortgage loans or indemnify the investor or insurer. In such cases, any subsequent credit loss on the mortgage loans is borne by Countrywide.

As described below, the degree to which credit risk on the underlying loans is transferred through the securitization process depends on the structure of the securitization. Our prime first mortgage loans generally are securitized on a non-recourse basis, while prime home equity and subprime mortgage loans generally are securitized with limited recourse for credit losses.

Conforming conventional loans are generally pooled into mortgage-backed securities guaranteed by Fannie Mae. A small portion of these loans also have been sold to Freddie Mac or the Federal Home Loan Bank, through its Mortgage Partnership Finance Program. Subject to certain representations and warranties on the part of Countrywide, nearly all conventional loans securitized through Fannie Mae or Freddie Mac are sold on a non-recourse basis. Accordingly, credit losses are generally absorbed by Fannie Mae and Freddie Mac, not Countrywide. We pay guarantee fees to Fannie Mae and Freddie Mac on loans we securitize through these agencies. These fees include compensation to the respective agencies for their assumption of credit risk.

FHA-insured and VA-guaranteed mortgage loans are generally pooled into mortgage-backed securities guaranteed by the Government National Mortgage Association (“Ginnie Mae”). A small portion of these loans have been sold to the Federal Home Loan Bank, through its Mortgage Partnership Finance Program. We are insured against foreclosure loss by the FHA or partially guaranteed against foreclosure loss by the VA. Fees charged by the FHA and VA for assuming such risks are paid directly by the mortgagors. We are exposed to credit losses on defaulted VA loans to the extent that the partial guarantee provided by the VA is inadequate to cover the total credit losses incurred. We pay guarantee fees to Ginnie Mae for Ginnie Mae’s guarantee on its securities of timely payment of principal and interest. Ginnie Mae does not assume mortgage credit risk associated with the loans securitized under its program.

Non-conforming conventional prime mortgage loans are generally pooled into “private-label” (non-agency) mortgage-backed securities. Such securitizations involve some form of credit enhancement, such as senior/subordinated structures or mortgage pool insurance. Securitizations that involve senior/subordinated structures contain securities that assume varying levels of credit risk. Holders of subordinated securities are compensated for the credit risk assumed through a higher yield. We generally sell the subordinated securities created in connection with these securitizations and thereby transfer the related credit loss exposure, other than as described above with respect to representations and warranties made when loans are securitized.

Prime Home Equity loans are generally pooled into private-label asset-backed securities. These securities generally are credit-enhanced through over-collateralization and guarantees provided by a third-party surety. In such securitizations, Countrywide is subject to limited recourse for credit losses through retention of a residual interest.

Subprime Mortgage Loans generally are pooled into private-label mortgage backed securities. We generally securitize these loans with limited recourse for credit losses. Such limited recourse securitizations generally have contained mortgage pool insurance as the primary form of credit enhancement, coupled with a limited corporate guarantee provided by Countrywide and/or a retained residual interest. When mortgage pool insurance is used, the associated premiums are paid directly by Countrywide. We also have pooled a portion of our subprime loans into securities guaranteed by Fannie Mae. In such cases, we have paid Fannie Mae a guarantee fee in exchange for Fannie Mae assuming the credit risk of the underlying loans. In addition, we

Our exposure to credit losses related to our limited recourse securitization activities is limited to the carrying value of our subordinated interests and to the contractual limit of reimbursable losses under our corporate guarantees less the recorded liability for such guarantees. These amounts at December 31, 2003 are as follows:

The carrying value of the residual securities is net of expected future credit losses. Related to our non-recourse and limited recourse securitization activities, the total credit losses incurred for 2003 and 2002 are summarized as follows:

We provide mortgage reinsurance through contracts with several primary mortgage insurance companies on mortgage loans included in our servicing portfolio. Under these contracts, we absorb mortgage insurance losses in excess of a specified percentage of the principal balance of a given pool of loans, subject to a cap, in exchange for a portion of the pools’ mortgage insurance premium. Approximately $67.4 billion of mortgage loans in our servicing portfolio are covered by such mortgage reinsurance contracts. The reinsurance contracts place limits on our maximum exposure to losses. At December 31, 2003, the maximum aggregate losses under the reinsurance contracts were $366.3 million. We are required to pledge securities to cover this potential liability. We recorded provisions for losses related to this activity of $38.6 million in 2003.

At December 31, 2003, mortgage loans held for sale amounted to $24.1 billion. While the loans are in inventory, we bear credit risk after taking into consideration primary mortgage insurance (which is generally required for conventional loans with a loan-to-value ratio greater than 80%), FHA insurance or VA guarantees. Historically, credit losses related to loans held for sale have not been significant.

We have a growing portfolio of Prime Mortgage and Prime Home Equity Loans held for investment, primarily in our bank, which amounted to $22.0 billion at December 31, 2003. A portion of the prime home equity loans held in the bank are covered by a pool insurance policy that provides partial protection against credit losses. Otherwise, we generally retain full credit exposure on these loans. Our allowance for credit losses related to all mortgage loans held for investment amounted to $78.5 million at December 31, 2003.

We also provide short-term secured mortgage loan warehouse advances to various lending institutions, which totaled $1.9 billion at December 31, 2003. We incurred no credit losses related to this activity in 2003.

We have exposure to credit loss in the event of non-performance by our trading counterparties and counterparties to our various over-the-counter derivative financial instruments. We manage this credit risk by selecting only well-established, financially strong counterparties, spreading the credit risk among many such counterparties and by placing contractual limits on the amount of unsecured credit risk from any single counterparty. The aggregate amount of counterparty credit exposure at December 31, 2003, before and after collateral held by Countrywide, was as follows:

For the year ended December 31, 2003, the Company incurred no credit losses due to non-performance of any of its counterparties.

The following table sets forth certain information regarding our servicing portfolio of single-family mortgage loans, including loans and securities held for sale or investment and loans subserviced for others, for the periods indicated.


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

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

We attribute the overall decline in delinquencies in our servicing portfolio primarily to the relative overall increase in the conventional and prime home equity portfolios, which carry lower delinquency rates than the government and subprime portfolios. Management believes the delinquency rates in our servicing portfolio are consistent with industry experience for similar mortgage loan portfolios.

An increase in inflation would have the most significant impact on our mortgage banking and capital markets operations. Interest rates normally increase during periods of rising inflation. Historically, as interest rates increase, mortgage loan production decreases, particularly from loan refinancing. An environment of gradual interest rate increases may, however, signify an improving economy or increasing real estate values, which in turn may stimulate increased home buying activity. Generally, in such periods of reduced mortgage loan production the associated profit margins also decline due to increased competition among mortgage loan originators and to higher unit costs, thus further reducing our loan production earnings. Conversely, in a rising interest rate environment, our loan servicing earnings generally increase because mortgage prepayment rates tend to slow down, thereby extending the average life of our servicing portfolio and thus reducing the

amortization and impairment of our MSRs. Within our broker-dealer operations, rising interest rates generally lead to a reduction in trading and underwriting activities in its primary niche, the mortgage securities market.

The mortgage banking industry is generally subject to seasonal trends. These seasonal trends reflect the pattern in the national housing market. Home sales typically rise during the spring and summer seasons and decline during the fall and winter seasons. Seasonality has less of an effect on mortgage refinancing activity, which is primarily driven by prevailing mortgage rates. In addition, mortgage delinquency rates typically rise temporarily in the winter months, driven by mortgagor payment patterns.

We have significant short-term and long-term financing needs. Our short-term financing needs arise primarily from the warehousing of mortgage loans pending sale and the trading activities of our broker-dealer. Our long-term financing needs arise primarily from our investments in MSRs and other retained interests, along with the financial instruments acquired to manage the interest rate risk associated with those investments, as well as from the continued growth of our mortgage loan investment portfolio. As discussed in the following paragraphs, we meet our financing needs in a variety of ways, through the public corporate debt and equity markets, as well as the mortgage and asset-backed securities markets, and increasingly in the future through the deposit-gathering and other financing activities of our bank.

The objective of our liquidity management is to ensure that adequate reliable sources of cash are available to meet our potential near-term funding needs, including in times of stress within the financial markets. We manage our liquidity by financing our assets in a manner consistent with their liquidity profile. Assets that are considered illiquid are financed with long-term capital (equity and debt with a final maturity greater than six months). We stagger our long-term debt maturities and credit facility expirations to reduce refinancing risk. We also manage the timing of our short-term debt maturities to limit the amount maturing in any five day period. We diversify our financing programs, credit providers and debt investors and dealers to reduce reliance upon any one source of liquidity. Finally, we assess all sources of financing based upon its reliability, recognizing that certain financing programs are sensitive to temporary market disruptions.

We regularly forecast our potential funding needs over a three month horizon, taking into account debt maturities and potential peak balance sheet levels. Available reliable sources of liquidity are appropriately sized to meet potential future funding requirements. We currently have $52.5 billion in reliable sources of short-term liquidity, including secured and unsecured committed bank lines of credit and reusable mortgage purchase commitments totaling $28.2 billion. Our long-term debt typically consists of unsecured debt issued in the public corporate debt markets. At December 31, 2003, we had $18.2 billion in unsecured long-term debt outstanding. See “Note 14 — Notes Payable” in the financial statement section of this Report for additional descriptions of our committed financing programs.

The public corporate debt markets are a key source of financing for us, due to their efficiency and low cost. Typically, we access these markets by issuing unsecured commercial paper and medium-term notes. We also have issued unsecured subordinated debt, convertible debt and trust-preferred securities. At December 31, 2003, we had a total of $22.9 billion in public corporate debt outstanding.

To maintain our desired level of access to the public corporate debt markets, it is critical for us to maintain investment grade credit ratings. We have consistently maintained solid investment-grade credit ratings over the past twelve years. Given our current ratings, we generally have deep access to the public

Among other things, maintenance of our current investment grade ratings requires that we have high levels of liquidity, including access to alternative sources of funding such as committed bank stand-by lines of credit, as well as a conservative capital structure. Our policy is to maintain our regulatory capital ratios at levels that are above the “well-capitalized” standards defined by the Federal Reserve Board.

At December 31, 2003 and at December 31, 2002, CFC’s regulatory capital ratios were as follows:

Our primary source of equity capital is retained earnings. We also have $1.0 billion outstanding in trust-preferred securities that receive varying degrees of “equity treatment” from rating agencies, bank lenders and regulators. In addition, we currently have a $2.2 billion deferred tax liability related to our MSRs that would offset a portion of any potential loss in the value of our MSRs and which, to that extent, can be viewed as a supplement to our equity capital. From time to time, we engage in stock offerings as a means of increasing our capital base and supporting our growth.

Issues of concern to one or more credit rating agency in the past have included our significant investment in MSRs and other retained interests, our involvement in subprime lending, as well as our liquidity and capital structure. We maintain an active dialogue with all three rating agencies, meeting throughout the year to review operational and financial performance and to address specific areas of focus.

In the unlikely event our credit ratings were to drop below “investment grade”, our access to the public corporate debt markets would be severely limited. (The cutoff for investment grade is generally considered to be a long-term rating of “BBB-”, or three gradations below our lowest current rating.) In the event of a ratings downgrade below investment grade, we would be required to rely upon alternative sources of financing, such as bank lines and private debt placements (secured and unsecured). Furthermore, we would likely be unable to retain all of our existing bank credit commitments beyond the then existing maturity dates. As a consequence, our cost of financing would rise significantly and we may have to curtail some of our capital-intensive activities, such as our ongoing investment in MSRs and other retained interests. On the other hand, given the highly liquid nature of our mortgage inventory and broker-dealer trading portfolio, we would likely be able to arrange secured financing for such assets. Over the long-term, however, it would be difficult for us to compete effectively without investment grade ratings. Management believes the likelihood of a reduction in our credit ratings to below investment grade in the foreseeable future is remote.

A growing source of funding for us is the asset-backed financing market. This form of financing generally involves the temporary transfer of legal ownership of assets to a separate legal entity (conduit) in exchange for short-term financing. Such financing programs generally have commercial bank sponsors that provide some

form of credit enhancement to the program, for example, back-up lines of credit. Investors that purchase debt, typically commercial paper, issued by these conduits look primarily to the assets to ensure repayment, rather than to the credit standing of the companies that utilize the conduit for financing. We have used this market primarily to finance a significant portion of our mortgage loan inventory. Due to its liquid nature and short holding period, our mortgage loan inventory is a natural fit for this type of financing program. We utilize such programs as a cost-effective means to expand and diversify our sources of liquidity. At December 31, 2003, we had a borrowed a total of $9.7 billion through such asset-backed financing programs.

We rely substantially on the secondary mortgage market. Nearly all mortgage loans that we produce are sold in the secondary mortgage market, primarily in the form of Mortgage-Backed Securities (“MBS”) and asset-backed securities. The majority of the MBS we sell are guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae (collectively, “Agency MBS”). We also issue non-Agency or “private-label” MBS and asset-backed securities. Private-label MBS and asset-backed securities are registered with the SEC and have separate credit ratings. Generally, private-label MBS and asset-backed securities require some form of credit enhancement, such as over-collateralization, senior-sub structures, primary mortgage insurance, Countrywide guarantees and/or private surety guarantees.

The Agency MBS market is extremely liquid. The private-label MBS market, particularly the subprime MBS market, is significantly less liquid, although we have enjoyed essentially uninterrupted access to these markets, albeit at varying costs.

We ensure our ongoing access to the secondary mortgage market by consistently producing quality mortgages and servicing those mortgages at levels that meet or exceed secondary mortgage market standards. As described elsewhere in this document, we have a major focus on ensuring the quality of our mortgage loan production and we make significant investments in personnel and technology in this regard.

We also utilize short-term repurchase agreements as a means of financing primarily securities as well as mortgage loans pending sale. Although this method of financing is uncommitted and short-term in nature, it has proven to be reliable and cost effective for us.

Our goal is to increase the total assets of our bank from $19.4 billion as of December 31, 2003 to $120 billion in five years. We intend to accomplish this goal by using our loan origination operations to source loans for the bank to originate and place in its portfolio. Funding for this growth will come from a variety of sources, including transfers of custodial accounts controlled by CHL, secured advances from the Federal Home Loan Bank and retail deposits, primarily CDs, generated by the bank.

Cash flow used by operating activities was $1.6 billion for 2003, compared to net cash used by operating activities of $3.5 billion for 2002. The reduction in cash flow used by operations for 2003 compared to 2002 was due primarily to a $4.6 billion net increase in mortgage loans held for sale offset by a decrease in other financial instruments.

Net cash used in investing activities was $34.5 billion for 2003, compared to $14.4 billion for 2002. The increase in net cash used in investing activities was primarily attributable to a $17.7 billion net increase in loans held for investment and a $1.7 billion net increase in additions to MSRs.

Net cash provided by financing activities during 2003 totaled $36.1 billion, compared to $18.0 billion during 2002. The increase in cash provided by financing activities during 2003 was comprised of a $3.8 billion net increase in bank deposit liabilities and a $13.5 billion net increase in the growth of short-term (primarily secured) borrowings.

In the ordinary course of our business we engage in financial transactions that are not recorded on our balance sheet. (See Note 2 — “Summary of Significant Accounting Policies” in the financial statement section of this Report for a description of our consolidation policy.) Such transactions are structured to manage our interest rate credit or liquidity risks, diversify funding sources or to optimize our capital.

Substantially all of our off-balance sheet arrangements relate to the securitization of mortgage loans. Our mortgage loan securitizations are normally structured as sales, in accordance with SFAS 140, which involves the transfer of the mortgage loans to “qualifying special-purpose entities” that are not subject to consolidation. In a securitization, an entity transferring the assets is able to convert those assets into cash. Special-purpose entities used in such securitizations obtain cash to acquire the assets by issuing securities to investors. In a securitization, we customarily provide representations and warranties with respect to the mortgage loans transferred. In addition, we generally retain the right to service the transferred mortgage loans. We also, generally have the right to repurchase mortgage loans from the special-purpose entity if the remaining outstanding balance of the mortgage loans falls to a level where the cost of servicing the loans exceeds the revenues we earn.

Our prime mortgage loans generally are securitized on a non-recourse basis, while prime home equity and subprime mortgage loans generally are securitized with limited recourse for credit losses. During 2003, we securitized $11.2 billion subprime and home equity loans with limited recourse for credit losses. Our exposure to credit losses related to our limited recourse securitization activities is limited to the carrying value of our subordinated interests and to the contractual limit of reimbursable losses under our corporate guarantees less the recorded liability for such guarantees. For a further discussion of our exposure to credit risk, see the section in this Report entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Credit Risk.”

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

The sales proceeds and cash flows from our securitizations for 2003 and additional information with respect to securitization activities are included in the financial statements section of this report (Note 9 — Securitizations).

The following table summarizes our significant contractual obligations at December 31, 2003, with the exception of short-term borrowing arrangements and pension and post-retirement benefit plans.

Over the last decade, total mortgage indebtedness in the United States has grown at an average annual rate of eight percent. We believe that continued population growth, ongoing developments in the mortgage market and the prospect of relatively low interest rates support similar growth in the market for the foreseeable future. Some of the ongoing developments in the mortgage market that should fuel its growth include government-sponsored programs targeted to increase homeownership in low-income and minority communities, the growth of prime home equity lending as a major form of consumer finance, and the increasing efficiency of the secondary mortgage market that lowers the overall cost of homeownership.

In recent years, the level of complexity in the mortgage lending business has increased significantly due to several factors:


	•	The continuing evolution of the secondary mortgage market has resulted in a proliferation of mortgage products;

	•	Greater regulation imposed on the industry has resulted in increased costs and the need for higher levels of specialization; and

	•	Interest rate volatility has risen over the last decade. At the same time, homeowners’ propensity to refinance their mortgages has increased as the refinance process has become more efficient and cost effective. The combined result has been large swings in the volume of mortgage loans originated from year to year. These volume swings have placed significant operational and financial pressures on mortgage lenders.

To compete effectively in this environment mortgage lenders must have a very high level of operational, technological and managerial expertise. In addition, the residential mortgage business has become more capital-intensive and therefore access to capital at a competitive cost is critical. Primarily as a result of these factors, the industry has undergone rapid consolidation.

Today, large, sophisticated financial institutions dominate the residential mortgage industry. These industry leaders are primarily commercial banks operating through their mortgage banking subsidiaries. Today, the top thirty mortgage lenders combined have a 79% share of the mortgage origination market, up from 58% five years ago.

Following is a year-over-year comparison of market share for the top five originators, according to Inside Mortgage Finance:


(1)	Comparative data not included for year in which the institution was not in the top five originators.

This consolidation trend has naturally carried over to the loan servicing side of the mortgage business. Today, the top thirty mortgage servicers combined have a 64% share of the total mortgages outstanding, up

We believe this consolidation trend will continue, as the aforementioned market forces will continue to drive out weak competitors. We believe Countrywide will benefit from this trend through increased market share. In addition, we believe that irrational price competition — which from time to time has plagued the industry — should lessen in the future.

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

Housing values affect us in several positive ways: rising housing values point to healthy demand for purchase-money mortgage financing; increased average loan balances; and a reduction in the risk of loss on sale of foreclosed real estate in the event a loan defaults. However, as housing values appreciate, prepayments of existing mortgages tend to increase as mortgagors look to tap the additional equity in their homes. Over the last several years, the housing price index has significantly outpaced the consumer price index and growth in personal income. Consequently, we expect housing values to increase at a slower rate in the coming years than in the past several years. Over the long term, we expect that housing appreciation will be positively correlated with both consumer price inflation and growth in personal income.

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

Following is the estimated total United States mortgage originations market for each of the last five years:

Forecasters currently put the market for 2004 at between $1.8 trillion and $2.2 trillion. The forecasted reduction from 2003’s historic level is attributable to an expected decline in mortgage refinance activity. We believe that a market within the forecasted range would still be favorable for our loan production business, although we would expect increased competitive pressures to have some impact on its profitability. This forecast would imply lessening pressure on our loan servicing business due to a reduction in mortgage loan prepayment activity. In our capital markets business, such a drop in mortgage originations would likely result in a reduction in mortgage securities trading and underwriting volume, which would have a negative impact on its profitability.

On March 1, 2001, we adopted Statement of Financial Accounting Standards (SFAS) No. 133, “Accounting For Derivative Instruments And Hedging Activities,” and SFAS Statement No. 138, “Accounting For Certain Derivative Instruments And Certain Hedging Activities — An Amendment of SFAS No. 133” (collectively, “SFAS 133”). Under SFAS 133, all derivative instruments are recognized on the balance sheet at fair value.

At the date of adoption, we recorded certain transition adjustments as required by SFAS 133. There was no impact on net earnings because of the transition adjustments. However, the transition adjustments had the following impact on our balance sheet (in millions):

In November 1999, the Emerging Issues Task Force (“EITF”) released Issue No. 99-20, titled “Recognition of Interest Income and Impairment on Purchased and Retained Interests in Securitized Financial Assets” (“EITF 99-20”). EITF 99-20 is effective for quarters beginning after March 15, 2001. Under the guidelines of EITF 99-20, the accounting treatment of interest income and impairment of beneficial interests in securitization transactions is modified such that beneficial interests which are determined to have an other-than-temporary impairment are required to be written down to fair value with a corresponding impairment charge to earnings. We adopted EITF 99-20 for the fiscal quarter ended August 31, 2001 and there was no material impact at adoption on our financial statements.

In September 2000, SFAS No. 140 “Accounting for the Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” (“SFAS 140”) was issued, which replaced SFAS No. 125 (of the same title). SFAS 140 revises certain standards in the accounting for securitizations and other transfers of financial assets and collateral and requires some additional disclosures relating to securitization transactions and collateral, but it carries over most of SFAS 125’s provisions. We included the collateral and disclosure

provisions of SFAS 140 in our February 28, 2001 financial statements. All other provisions of this Statement were adopted on April 1, 2001, as required by the statement. The adoption of this statement had no material impact on our financial statements.

During June 2001, SFAS No. 141, “Business Combinations” (“SFAS 141”) and SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”) were issued.

SFAS 141 requires use of the purchase method of accounting for all business combinations initiated after June 30, 2001, provides specific guidance on how to identify the accounting acquirer in a business combination, provides specific criteria for recognizing intangible assets apart from goodwill, and requires additional financial statement disclosures regarding business combinations. SFAS 141 will impact our accounting for any business combinations that we may enter into in the future. However, SFAS 141’s adoption had no impact on our present financial condition or results of operations.

SFAS 142 addresses the accounting for goodwill and other intangible assets after their initial recognition. SFAS 142 changes the accounting for goodwill and other intangible assets by replacing periodic amortization of the asset with an annual test of impairment of goodwill at either the reporting segment level or one level below, providing for similar accounting treatment for intangible assets deemed to have an indefinite life. Assets with finite lives will be amortized over their useful lives. SFAS 142 also provides for additional financial statement disclosures about goodwill and intangible assets. The provisions of SFAS 142 were applicable to us beginning in the year ending December 31, 2002. We have insignificant levels of goodwill and purchased-related intangible assets and the adoption of SFAS 142 had no material impact on our financial condition or results of operations.

In August 2001, SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”) was issued. SFAS 144 retains the existing requirements to recognize and measure the impairment of long-lived assets to be held and used or to be disposed of by sale. However, SFAS 144 changes the scope and certain measurement requirements of existing accounting guidance. SFAS 144 also changes the requirements relating to reporting the effects of a disposal or discontinuation of a segment of a business. The adoption of SFAS 144 had no material impact on our financial condition or results of operations.

In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”), which is an interpretation of SFAS No. 5; “Accounting for Contingencies,” SFAS No. 57; “Related Party Disclosures,” and SFAS No. 107; “Disclosures About Fair Value of Financial Instruments.” FIN 45 clarifies the disclosure and liability recognition requirements relating to guarantees issued by an entity. Specifically, FIN 45 clarifies that entities are required to record guarantees at their fair values, including the value of the obligation to stand ready to perform over the term of the guarantee in the event the specified triggering events or conditions occur, regardless of whether the occurrence of the triggering events or conditions is deemed probable of occurring.

FIN 45 is effective for new guarantees issued or modification of guarantees made after December 31, 2002. FIN 45’s disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. The adoption of FIN 45’s measurement requirements did not have a significant impact on our financial position or results of operations.

In January 2003, the FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”), which is an interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements.” FIN 46 was amended in December 2003. FIN 46 requires business enterprises to consolidate variable interest entities which have one or more of the following characteristics:


	1. The equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties.


	2. The equity investors lack one or more of the following essential characteristics of a controlling financial interest:


	a. The direct or indirect ability to make decisions about the entity’s activities through voting rights or similar rights

	b. The obligation to absorb the expected losses of the entity if they occur

	c. The right to receive expected residual returns of the entity if they occur.

As discussed in Note 18 — Company-Obligated Capital Securities of Subsidiary Trusts, the Company has issued trust-preferred securities. Based on guidance related to FIN 46, the Company will cease consolidating the subsidiaries which have issued the trust-preferred securities during the quarter ending March 31, 2004. The primary effect of this de-consolidation will be for the Company to re-classify the trust-preferred securities from mezzanine equity to debt. Interest payments relating to the trust-preferred securities are presently charged to interest expense. Therefore, this change will have no effect on the Company’s results of operations.

FIN 46 excludes qualifying special purpose entities subject to the reporting requirements of SFAS 140. FIN 46 applies upon formation to variable interest entities created after January 31, 2003, and to all variable interest entities in the first fiscal year or interim period beginning after June 15, 2003. At December 31, 2003, Countrywide’s corporate structure included either companies whose accounts were consolidated into the Company’s financial statements or which were classified as qualifying special purpose entities under SFAS 140. Therefore, the adoption of FIN 46 did not have an impact on the Company’s financial statements at December 31, 2003.

In April 2003, the FASB issued Statement No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities,” which is generally effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. SFAS 149 clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative as discussed in SFAS No. 133, clarifies when a derivative contains a financing component, amends the definition of an “underlying” to conform it to the language used in FIN 45. The adoption of SFAS 149 did not have a material effect on our financial condition or results of operations.

In May 2003, the FASB issued Statement No. 150 (“SFAS 150”), “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity in its statement of financial position. On November 7, 2003, the FASB issued FASB Staff Position 150-3 (“FSP 150-3”) deferring the effective date of SFAS 150 for certain mandatorily redeemable non-controlling interests. SFAS 150 would have required the reclassification of our trust-preferred securities from mezzanine financing to liabilities. However, the issuance of FSP 150-3 delayed this reclassification pending reconsideration of the issue by the FASB. The adoption of the remainder of SFAS 150 did not have a material effect on our financial condition or results of operation.

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


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

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


	•	Forecasts of our future economic performance

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

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

General business, economic and political conditions may significantly affect our earnings

Our business and earnings are sensitive to general business and economic conditions in the United States. These conditions include short-term and long-term interest rates, inflation, fluctuations in both debt and equity capital markets, and the strength of the U.S. economy, and the local economies in which we conduct business. If any of these conditions worsen, our business and earnings could be adversely affected. For example, business and economic conditions that negatively impact household incomes could decrease the demand for our home loans and increase the number of customers who become delinquent or default on their loans; or, a rising interest rate environment could decrease the demand for loans.

In addition, our business and earnings are significantly affected by the fiscal and monetary policies of the federal government and its agencies. We are particularly affected by the policies of the Federal Reserve Board, which regulates the supply of money and credit in the United States. The Federal Reserve Board’s policies influence the size of the mortgage origination market, which significantly impacts the earnings of our Loan Production Sector and the value of our investment in MSRs and other retained interests. The Federal Reserve Board’s policies also influence the yield on our interest-earning assets and the cost of our interest-bearing liabilities. Changes in those policies are beyond our control and difficult to predict and can have a material effect on the Company’s business, results of operations and financial condition.

Political conditions can also impact our earnings. Acts or threats of war or terrorism, as well as actions taken by the U.S. or other governments in response to such acts or threats, could impact business and economic conditions in the United States.

If we cannot effectively manage the volatility of our mortgage banking business, our earnings could be affected

The level and volatility of interest rates significantly affect the mortgage banking industry. For example, a decline in mortgage rates generally increases the demand for home loans as borrowers refinance, but also generally leads to accelerated payoffs in our mortgage servicing portfolio, which negatively impacts the value of our MSRs.

We attempt to manage interest rate risk in our mortgage banking business primarily through the natural counterbalance of our loan production and servicing operations. In addition, we also use derivatives extensively in order to manage the interest rate, or price risk, inherent in our assets, liabilities, and loan commitments. Our main objective in managing interest rate risk is to moderate the impact of changes in interest rates on our earnings over time. Our interest rate risk management strategies may result in significant earnings volatility in the short term. The success of our interest rate risk management strategy is largely dependent on our ability to predict the earnings sensitivity of our loan servicing and loan production operations in various interest rate environments. The success of this strategy impacts our net income. This impact, which can be either positive or negative, can be material.

Our accounting policies and methods are fundamental to how we report our financial condition and results of operations, and they may require management to make estimates about matters that are inherently uncertain

Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations.

We have identified several accounting policies as being “critical” to the presentation of our financial condition and results of operations because they require management to make particularly subjective or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be recorded under different conditions or using different assumptions. These critical accounting policies relate to our gain from sale of loans and securities, valuation of retained interests and interest rate management activities. Because of the inherent uncertainty of the estimates associated with these critical accounting policies, we cannot provide any assurance that we will not make significant adjustments to the related amounts recorded at December 31, 2003. For more information, please refer to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies” section in this report.

We operate in a highly competitive industry that could become even more competitive as a result of economic, legislative, regulatory and technological changes. Competition for mortgage loans comes primarily from large commercial banks and savings institutions. Many of our competitors have fewer regulatory constraints. For example, national banks and federal savings and loan institutions are not subject to certain state laws and regulations targeted at predatory lending practices and we could be at a competitive disadvantage with respect to fulfilling legitimate subprime credit opportunities. Another competitive consideration is that other companies have lower cost structures and others are less reliant on the secondary mortgage market for funding due to their greater portfolio lending capacity.

We face competition in such areas as mortgage product offerings, rates and fees, and customer service, both at the retail and institutional level. In addition, technological advances and heightened e-commerce activities have increased consumers’ accessibility to products and services generally. This has intensified competition among banking as well as nonbanking companies in offering financial products and services, with or without the need for a physical presence.

We are heavily regulated by banking, mortgage lending and insurance laws at the federal, state and local levels, and proposals for further regulation of the financial services industry are continually being introduced. We are subject to many other Federal, State and local laws and regulations that affect our business, including those regarding taxation and privacy. Congress and state legislatures, as well as federal and state regulatory agencies, review such laws, regulations and policies and periodically propose changes that could affect us in substantial and unpredictable ways. Such changes could, for example, limit the types of financial services and products we offer, or increase our cost to offer such services and products. It is possible that one or more legislative proposals may be adopted or regulatory changes may be implemented that would have an adverse effect on our business. Our failure to comply with such laws or regulations, whether actual or alleged, could expose us to fines, penalties or potential litigation liabilities, including costs, settlements and judgments, any of which could adversely affect our earnings.

We depend on the accuracy and completeness of information about customers and counterparties

In deciding whether to extend credit or enter into other transactions with customers and counterparties, we may rely on information furnished to us by or on behalf of customers and counterparties, including financial statements and other financial information. We also may rely on representations of customers and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. For example, in deciding whether to extend credit to

institutional customers, we may assume that a customer’s audited financial statements conform with GAAP and present fairly, in all material respects, the financial condition, results of operations and cash flows of the customer. Our financial condition and results of operations could be negatively impacted to the extent we rely on financial statements that do not comply with GAAP or are materially misleading.

The above description of risk factors is not exhaustive. Other factors that could cause actual results to differ materially from historical results or those anticipated include, but are not limited to:


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

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

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

	•	A reduction in government support of homeownership

	•	A change in our relationship with the housing-related government agencies and sponsored entities

	•	Ineffectiveness of our hedging activities

	•	The level of competition in each of our business segments

	•	The occurrence of natural disasters or other events or circumstances that could impact the level of claims in the Insurance segment

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

In response to this Item, the information set forth on pages 66 to 71 and Note 10 of this Form 10-K is incorporated herein by reference.

The information called for by this Item 8 is hereby incorporated by reference from Countrywide’s Financial Statements and Auditors’ Report beginning at page F-1 of this Form 10-K.

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

There has been no change in our internal control over financial reporting during the quarter ended December 31, 2003 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

The information required by this Item 10 is hereby incorporated by reference from our definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the end of the fiscal year.

The information required by this Item 11 is hereby incorporated by reference from our definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the end of the fiscal year.

The following table shows aggregate information, as of December 31, 2003, with respect to compensation plans under which equity securities of Countrywide are authorized for issuance.


(1)	Countrywide’s 2000 Equity Incentive Plan also provides for awards of Restricted Stock. Of the securities available for issuance under this plan, 1,082,956 shares of our Common Stock are available for issuance in the form of Restricted Stock.

The information required by this Item 13 is hereby incorporated by reference from our definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the end of the fiscal year.

The information required by this Item 14 is hereby incorporated by reference from our definitive proxy statement, to be filed pursuant to Regulation 14A within 120 days after the end of the fiscal year.


	The information called for by this section of Item 15 is set forth in the Financial Statements and Auditors’ Report beginning at page F-1 of this Form 10-K. The index to Financial Statements and Schedules is set forth at page F-2 of this Form 10-K.


	On October 10, 2003, the Company furnished a report on Form 8-K announcing revised earnings guidance for 2003.

	On October 14, 2003, the Company furnished a report on Form 8-K announcing information regarding its operational statistics for the month ended September 30, 2003.

	On October 23, 2003, the Company furnished a report on Form 8-K announcing information regarding its operations and financial condition for the quarter ended September 30, 2003.

	On November 10, 2003, the Company furnished a report on Form 8-K announcing information regarding its operational statistics for the month ended October 31, 2003.

	On December 8, 2003, the Company furnished a report on Form 8-K announcing information regarding its operational statistics for the month ended November 30, 2003.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	By:	/s/ ANGELO R. MOZILO



	Angelo R. Mozilo,
	Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedules, or because the information required is included in the consolidated financial statements or notes thereto.

We have audited the accompanying consolidated balance sheets of Countrywide Financial Corporation and Subsidiaries as of December 31, 2003 and 2002 and the related consolidated statements of earnings, common shareholders’ equity, cash flows and comprehensive income for the years ended December 31, 2003 and 2002, and the ten month period ended December 31, 2001. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 Financial Corporation and Subsidiaries as of December 31, 2003 and 2002 and the consolidated results of their operations and their consolidated cash flows for the years ended December 31, 2003 and 2002, and the ten month period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America.

We have also audited Schedules I and II for the years ended December 31, 2003 and 2002, and the ten month period ended December 31, 2001. In our opinion, such schedules, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information therein.

Countrywide Financial Corporation (the “Company”), previously Countrywide Credit Industries, Inc., is a holding company which, through its principal subsidiary, Countrywide Home Loans, Inc. (“CHL”) and other subsidiaries, is engaged primarily in the U.S. residential mortgage banking business, as well as other businesses that are generally tied to the U.S. residential mortgage market. In addition to residential mortgage banking, the Company’s business activities fall into the following general categories: securities dealer, retail banking and mortgage warehouse lending, insurance underwriting and agency, and international mortgage loan processing and sub-servicing.

A summary of the Company’s significant accounting policies applied in the preparation of the accompanying consolidated financial statements follows.

Effective January 1, 2001, the Company changed its fiscal year end from February 28 to December 31. As a result of the change, the Company’s Consolidated Statement of Earnings, Consolidated Statement of Common Shareholders’ Equity, Consolidated Statement of Cash Flows and Consolidated Statement of Comprehensive Income for the period ended December 31, 2001 consist of the ten-month period March 1, 2001 through December 31, 2001. Summary comparative data for the ten-month period ended December 31, 2000 is presented in Note 4.

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that materially affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates.

The Company includes both operating and special purpose entities. Inclusion of these entities in the consolidated financial statements of the Company is based on its voting interests for operating entities, and on whether its special purpose entities are “qualifying special purpose entities” (“QSPEs”) as specified by Statement of Financial Accounting Standards No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” (“SFAS 140”).

For operating entities, the consolidated financial statements include the accounts of Countrywide Financial Corporation and all majority-owned subsidiaries. All material intercompany accounts and transactions have been eliminated. Minority interests in the Company’s majority-owned subsidiaries are included in “accounts payable and accrued liabilities” on the Company’s balance sheets and the minority interest in the Company’s earnings are charged to “other operating expenses,” net of applicable income taxes. The Company has whole or majority ownership of all of its subsidiaries, and therefore has no equity method or cost-basis investees.

Countrywide has formed special purpose entities for the purpose of facilitating the sale of its loans. The beneficial interests in these entities are held by third-parties. The structure of these entities limits their activities to holding the transferred assets and transferring cash collected to the entities’ beneficial interest holders. These special purpose entities meet the definition of QSPEs as detailed in SFAS 140 and the accounts of these QSPEs are not included in the consolidated financial statements.

The Company has also formed special purpose entities to facilitate the financing of loans and securities, primarily loans and securities held for sale, or to hold interests retained in securitization. The accounts of these entities are included in the consolidated financial statements as the structure of the entities is such that the Company retains control, as defined by SFAS 140, of the assets transferred to these entities.

Certain amounts reflected in the Consolidated Financial Statements for the year ended December 31, 2002 and the ten-month period ended December 31, 2001 have been reclassified to conform to the presentation for the year ended December 31, 2003.

Statement of Financial Accounting Standards No. 91, “Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases” requires that certain nonrefundable fees and the related incremental direct costs associated with originating loans be deferred when incurred. How these deferred amounts are recognized in income is based on whether the loans are held for investment or are held for sale.

Net deferred amounts relating to loans held for investment generally are recognized over the life of the loan using the interest method of amortization. In the case of mortgage loans held for sale, the deferred costs are recognized when the loan is sold. These deferred amounts have been classified as a component of the gain on the sale of the loans in this period and previously reported amounts have been reclassified to agree with the current presentation. This reclassification had no impact on reported earnings in the current period or in any prior period. The deferral of origination expenses had the following effect on operating expenses for the periods presented:

In the fourth quarter of 2003, the Company consummated a 4-for-3 stock split effected as a stock dividend. All references in the accompanying consolidated balance sheet, consolidated statements of earnings and notes to consolidated financial statements to the number of common shares and earnings per share amounts have been restated accordingly.

The Company utilizes derivative financial instruments extensively in connection with its interest rate risk management activities. In addition, the Company uses derivatives to manage the foreign currency risk related to its foreign currency denominated indebtedness. (See Note 10 for further discussion.)

On March 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, “Accounting For Derivative Instruments And Hedging Activities,” and Statement of Financial Accounting Standards No. 138, “Accounting For Certain Derivative Instruments And Certain Hedging Activities — An Amendment of FASB Statement No. 133” (collectively, “SFAS 133”). Under SFAS 133, all derivative financial instruments are recognized on the balance sheet at fair value.

At the date of adoption, the Company recorded certain transition adjustments as required by SFAS 133. There was no impact on net earnings because of the transition adjustments. However, the transition adjustments had the following impact on the Company’s balance sheet (in millions):

The Company designates every derivative instrument as either a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (“fair value” hedge), a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow” hedge) or a free-standing derivative instrument. For a fair value hedge, changes in the fair value of the derivative instrument and changes in the fair value of the hedged asset or liability attributable to the hedged risk are recorded in current period earnings. For a cash flow hedge, to the extent that it is an effective hedge, changes in the fair value of the derivative are recorded in other comprehensive income within shareholders’ equity and subsequently reclassified to earnings in the same period(s) that the hedged transaction impacts net earnings; to the extent a cash flow hedge is ineffective, the ineffective portion of the hedge is reported in current period earnings. For free-standing derivative instruments, changes in the fair values are reported in current period earnings.

The Company formally documents the relationship between hedging instruments and hedged items, as well as the risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivative instruments that are designated as fair value or cash flow hedges to specific assets and liabilities on the balance sheet. The Company also formally assesses, both at the inception of the hedge and on an ongoing basis, whether the derivative instruments used are highly effective in offsetting changes in fair values or cash flows of hedged items. If it is determined that the derivative instrument is not highly effective as a hedge, hedge accounting is discontinued.

The Company discontinues hedge accounting when (1) it determines that a derivative instrument is no longer effective in offsetting changes in the fair value or cash flows of a hedged item; (2) a derivative instrument expires or is sold, terminated, or exercised; or (3) a derivative instrument is de-designated as a hedge instrument. When hedge accounting is discontinued, the derivative instrument continues to be carried on the balance sheet at its fair value. However, the carrying value of the previously hedged asset or liability is no longer adjusted for changes in fair value. When hedge accounting is discontinued because it is probable that a forecasted transaction will not occur, the derivative instrument continues to be carried on the balance sheet at its fair value, and gains and losses that were accumulated in other comprehensive income are recognized in current period earnings. When hedge accounting is discontinued because the hedging instrument is sold or terminated, the amount reported in other comprehensive income to the date of sale or termination is reported in other comprehensive income until the forecasted transaction impacts earnings. In all situations in which hedge accounting is discontinued, the derivative instrument is carried at its fair value on the balance sheet, with changes in its fair value recognized in current period earnings.

The Company occasionally purchases or originates financial instruments that contain an embedded derivative instrument. At inception, the Company assesses whether the economic characteristics of the embedded derivative instrument are clearly and closely related to the economic characteristics of the financial instrument (host contract), whether the financial instrument that embodies both the embedded derivative instrument and the host contract is currently measured at fair value with changes in fair value reported in

earnings, and whether a separate instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument.

If the embedded derivative instrument is determined not to be clearly and closely related to the host contract, is not currently measured at fair value with changes in fair value reported in earnings, and the embedded derivative instrument would qualify as a derivative instrument, the embedded derivative instrument is recorded apart from the host contract and carried at fair value with changes recorded in current period earnings.

The Company securitizes substantially all of the mortgage loans it produces, and sells those securities on a regular basis in the secondary mortgage market. By-products of those securitizations are certain retained interests, including mortgage servicing rights (“MSRs”), interest-only securities, principal-only securities, and residual securities, which the Company generally holds as long-term investments. (See Note 9 for a description of MSRs.)

When the Company securitizes mortgage loans, it allocates the acquisition cost of the mortgage loans between the security sold and the retained interests, based on their relative fair values. The reported gain is the difference between the cash proceeds from the sale of the security or loan and its allocated cost. The cost allocated to the retained interests is classified accordingly on the balance sheet.

Once recorded, retained interests are periodically evaluated for impairment. Impairment occurs when the current fair value of the retained interest is less than its carrying value.

If MSRs are impaired, the impairment is recognized in current-period earnings and the carrying value of the MSRs is adjusted through a valuation allowance. If the value of the MSRs subsequently increases, the recovery in value is recognized in current-period earnings and the carrying value of the MSRs is adjusted through a reduction in the valuation allowance. For purposes of performing its MSR impairment evaluation, the Company stratifies its servicing portfolio on the basis of certain risk characteristics including loan type (fixed-rate or adjustable-rate) and note rate. Fixed-rate loans are stratified into note rate pools of fifty basis points for note rates between 6% and 10% and single pools for note rates above 10% and below 6%. Management periodically reviews the various impairment strata to determine whether the value of the impaired MSRs in a given stratum is likely to recover. When management deems recovery of the value to be unlikely in the foreseeable future, a permanent impairment write-down of the underlying MSRs to its estimated recoverable value is charged to the valuation allowance. MSRs cannot be carried above their amortized cost.

Impairment of other retained interests is recognized as a reduction to shareholders’ equity (net of tax). If the impairment is deemed to be other than temporary, it is recognized in current-period earnings. Once permanently impaired, subsequent increases in the value of other retained interests are recognized in earnings over the estimated remaining life of the investment through a higher effective yield.

Other retained interests are classified as available-for-sale securities and are carried at estimated fair value in the consolidated balance sheets.

See Note 9 for further discussion concerning the valuation of MSRs and other retained interests.

Mortgage Loans Held for Sale are recorded at the principal amount outstanding net of deferred origination costs and fees and any premiums or discounts. Loan origination fees, as well as discount points and

incremental direct origination costs, are initially recorded as an adjustment of the cost of the loan and are reflected in earnings when the loan is sold.

The cost-basis of Mortgage Loans Held for Sale is adjusted to reflect changes in the loans’ fair value as applicable through fair value hedge accounting. Mortgage Loans Held for Sale are carried at the lower of adjusted cost or market, which is computed by the aggregate method (unrealized losses are offset by unrealized gains). The market value of Mortgage Loans Held for Sale is generally based on quoted market prices for MBS.

Loans held for investment are carried at amortized cost reduced by a valuation allowance for credit losses inherent in the portfolio as of the balance sheet date. A loan’s cost includes its unpaid principal balance along with unearned income comprised of fees charged to borrowers offset by incremental direct origination costs for loans originated by the Company or any premiums or discounts paid for loans purchased. Unearned income is amortized over the loan’s contractual life. For revolving lines of credit, unearned income is amortized using the straight-line method. For other loans, unearned income is amortized using the interest method of accounting.

The allowance for loan losses is a valuation allowance established to provide for probable credit losses inherent in the portfolio of loans held for investment as of the balance sheet date. The Company estimates the level of its allowance for loan losses based on observed delinquency, default and loss experience, current portfolio delinquency and the results of the Company’s ongoing quality control and compliance monitoring activities.

Interest income is accrued as earned. Loans are placed on nonaccrual status when any portion of principal or interest is ninety days past due, or earlier when concern exists as to the ultimate collectibility of principal or interest. When a loan is placed on nonaccrual status the accrued and unpaid interest is reversed and the loan is accounted for on the cash basis. Loans return to accrual status when principal and interest become current and are anticipated to be fully collectible.

Trading securities consist of mortgage securities purchased by the Company’s broker-dealer subsidiary. These securities, along with associated derivative instruments used to manage price risk, are recorded at fair value on a trade date basis, and gains and losses, both realized and unrealized, are included in Gain on Sale of Loans and Securities in the statement of earnings.

Investments in Other Financial Instruments include mortgage-backed and government agency securities, securitized excess servicing fees, derivative hedging instruments, and certain interests retained in securitization. The Company carries all of these assets at their estimated fair values. How the changes in fair value of the securities are recognized is dependent on how the Company has classified the respective assets:


	•	Securitized excess service fees have been classified as trading securities; therefore, changes in the fair value of securitized excess servicing fees are recognized in current period earnings;

	•	All other securities have been classified as available-for-sale securities; therefore, unrealized gains or losses, net of deferred income taxes, are excluded from earnings and reported as accumulated other comprehensive income, which is a separate component of shareholders’ equity. Realized gains and losses on sales of these assets are computed by the specific identification method at the time of


		disposition and are recorded in earnings. Unrealized losses that are other than temporary are recognized in earnings in the period that the other-than temporary impairment is identified.

Transactions involving purchases of securities under agreements to resell or sales of securities under agreements to repurchase are recorded at their contractual amounts plus accrued interest and accounted for as collateralized financings, except where the Company does not have an agreement to sell (or purchase) the same or substantially the same securities before maturity at a fixed or determinable price.

Certain of the Company’s securities lending arrangements include master netting agreements whereby the counterparties are entitled and intend to settle their positions “net.” Where such arrangements are in place, the Company includes the net asset or liability in its balance sheet. At December 31, 2003, $12.6 billion of borrowings were offset against securities purchased under agreements to resell under master netting arrangements.

The Company’s insurance carrier subsidiary, Balboa Life and Casualty (“Balboa”), incurs acquisition costs which vary with and are directly related to acquisition of new insurance policies, consisting primarily of commissions, premium taxes, and certain other underwriting costs. These costs are deferred and amortized as the related premiums are earned. Deferred acquisition costs are limited to amounts estimated to be recoverable from the related premiums and anticipated investment income less anticipated losses, loss adjustment expenses, and policy maintenance expenses. Deferred acquisition costs totaling $82.2 million and $100.2 million were included in other assets at December 31, 2003 and 2002, respectively. Amortization of policy acquisition costs totaling $184.2 million, $98.8 million and $42.0 million were included in other operating expenses for the years ended December 31, 2003 and 2002 and the ten months ended December 31, 2001, respectively.

For Balboa’s property and casualty policies, the liability for losses and loss adjustment expenses consists of a liability for the unpaid portion of estimated ultimate losses and loss adjustment expenses on claims reported through the end of the accounting period and a liability for the estimated losses and loss adjustment expenses relating to incidents incurred but not reported as of the balance sheet date.

For credit life and disability policies, the liability for losses provides for future claims, estimated based upon statutory standards, on all policies in-force at the end of the period, as well as the present value of amounts not yet due on disability claims. The liability for policy and contract claims represents the estimated ultimate net cost of all reported and unreported claims incurred through the end of the period, except for the present value of amounts not yet due on disability claims, which are included in the liability for life and disability policies.

The liability for insurance losses is established using statistical analyses and is subject to the effects of trends in claim severity and frequency and other factors. The estimate is continually reviewed and as adjustments to the liability become necessary, such adjustments are reflected in current earnings.

For mortgage reinsurance, the liability for insured losses is accrued in proportion to the amount of revenue recognized based on management’s assessment of the ultimate liability to be paid over the current and expected renewal period of the contracts. The remaining liability to be paid, along with reinsurance revenues to be earned are estimated based on the Company’s historical experience of defaults, losses and prepayments.

The Company reports assets it has pledged as collateral in secured borrowing and other arrangements when the secured party cannot sell or repledge the assets or the Company can substitute collateral or otherwise redeem it on short notice. The Company generally does not report assets received as collateral in secured lending and other arrangements since the debtor typically has the right to redeem the collateral on short notice.

Property, equipment and leasehold improvements are stated at cost, less accumulated depreciation and amortization. Depreciation is provided in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives using the straight-line method. Leasehold improvements are amortized over the lesser of the life of the lease or service lives of the improvements using the straight-line method. Renovations and improvements that add utility or significantly extend the useful life of assets are capitalized. Repair and maintenance costs are expensed as incurred.

Internal software development costs are capitalized to the extent of external direct costs of materials and services consumed in developing or obtaining internal-use computer software and, salary costs relating to employees’ time spent on the software project during the application development stage. Internally-developed software is amortized over six to ten years using the straight-line method.

Loan Servicing Fees and other remuneration are received by the Company for servicing residential mortgage loans. Loan Servicing Fees are recorded net of guarantee fees paid by the Company in connection with its securitization activities. Loan Servicing Fees are recognized as earned over the life of the servicing portfolio.

Income from Other Retained Interests represents the yield on interest-only securities, principal-only securities and residual interests retained in securitization. Income on these investments is recognized using the interest method.

Property and casualty and credit life and disability premiums are earned over the term of the policies on a pro-rata basis for all policies except for lender-placed insurance and Guaranteed Auto Protection (“GAP”), which provides coverage for leased automobiles’ residual value. For lender-placed insurance, earnings are “slowed,” or earned later in the life of the policy, due to high cancellation rates experienced early in the life of the policy. For GAP insurance, revenue recognition is correlated to the exposure and accelerated over the life of the contract. Premiums applicable to the unexpired term of policies in-force are recorded as unearned premiums. Mortgage reinsurance premiums are recognized as earned over the life of the policy.

The Company generally grants stock options to employees for a fixed number of shares with an exercise price equal to the fair value of the shares at the date of grant. The Company recognizes compensation expense related to its stock option plans only to the extent that the fair value of the shares at the grant date exceeds the exercise price.

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

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

The Company utilizes an asset and liability approach in its accounting for income taxes. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement and tax basis carrying amounts of assets and liabilities.

The Company holds, as custodian, funds collected from borrowers whose loans it services. These funds include loan payments pending remittance to investors and funds collected from borrowers to ensure timely payment of hazard and primary mortgage insurance and property taxes related to the properties securing the loans. These funds are not owned by the Company. These funds are held in trust and are shown on the Statement of Financial Condition for disclosure purposes only. As of December 31, 2003, $5.9 billion of the borrower and investor custodial accounts were placed as deposits in Treasury Bank and are included in bank deposit liabilities.

As more fully disclosed in the preceding caption, “Derivative Financial Instruments,” the Company adopted SFAS 133 in March 2001.

In November 1999, the Emerging Issues Task Force (“EITF”) released Issue No. 99-20, titled “Recognition of Interest Income and Impairment on Purchased and Retained Interests in Securitized Financial Assets” (“EITF 99-20”). EITF 99-20 is effective for quarters beginning after March 15, 2001. Under the guidelines of EITF 99-20, the accounting treatment of interest income and impairment of beneficial interests in securitization transactions is modified such that beneficial interests which are determined to have an other-than-temporary impairment are required to be written down to fair value with a corresponding impairment charge to earnings. The Company adopted EITF 99-20 for the fiscal quarter ended August 31, 2001 and there was no material impact at adoption on the Company’s financial statements.

In September 2000, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 140 (“SFAS 140”), “Accounting for the Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” which replaces SFAS No. 125 (of the same title). SFAS 140 revises certain standards in the accounting for securitizations and other transfers of financial assets and collateral, and requires some additional disclosures relating to securitization transactions and collateral, but it carries over most of SFAS 125’s provisions. The collateral and disclosure provisions of SFAS 140 were included in the February 28, 2001 financial statements. All other provisions of this Statement were adopted on April 1, 2001, as required by the statement. The adoption of this statement did not have a material impact on the Company’s financial statements.

In June 2001, the FASB issued SFAS No. 141, “Business Combinations” (“SFAS 141”) and SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”).

SFAS 141 requires use of the purchase method of accounting for all business combinations initiated after June 30, 2001, provides specific guidance on how to identify the accounting acquirer in a business combination, provides specific criteria for recognizing intangible assets apart from goodwill and requires additional financial statement disclosures regarding business combinations. SFAS 141 will impact the Company’s accounting for any business combinations it may enter into in the future. However, SFAS 141’s adoption did not have an impact on the Company’s present financial condition or results of operations.

SFAS 142 addresses the accounting for goodwill and other intangible assets after their initial recognition. SFAS 142 changes the accounting for goodwill and other intangible assets by replacing periodic amortization of the asset with an annual test of impairment of goodwill at either the reporting segment level or one level below, providing for similar accounting treatment for intangible assets deemed to have an indefinite life. Assets with finite lives will be amortized over their useful lives. SFAS 142 also provides for additional financial statement disclosures about goodwill and intangible assets. The provisions of SFAS 142 are applicable to the Company for the year ended December 31, 2002. The Company has insignificant levels of goodwill and intangible assets and the adoption of SFAS 142 did not have a material impact on the Company’s financial condition or results of operations.

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”). SFAS 144 retains the existing requirements to recognize and measure the impairment of long-lived assets to be held and used or to be disposed of by sale. However, SFAS 144 changes the scope and certain measurement requirements of existing accounting guidance and also changes the requirements relating to reporting the effects of a disposal or discontinuation of a segment of a business. The provisions of SFAS 144 are applicable to the Company for the year ended December 31, 2002. The adoption of SFAS 144 did not have a material impact on the Company’s financial condition or results of operations.


	1. The equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties.

	2. The equity investors lack one or more of the following essential characteristics of a controlling financial interest:


	a. The direct or indirect ability to make decisions about the entity’s activities through voting rights or similar rights

	b. The obligation to absorb the expected losses of the entity if they occur

	c. The right to receive expected residual returns of the entity if they occur.

“underlying” to conform it to the language used in FIN 45. The adoption of SFAS 149 did not have a material effect on the Company’s financial condition or results of operations.

In May 2003, the FASB issued Statement No. 150 (“SFAS 150”), “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity in its statement of financial position. On November 7, 2003, the FASB issued FASB Staff Position 150-3 (“FSP 150-3”) deferring the effective date of SFAS 150 for certain mandatorily redeemable non-controlling interests. SFAS 150 would have required the reclassification of the Company’s trust-preferred securities from mezzanine financing to liabilities. However, the issuance of FSP 150-3 delayed this reclassification pending reconsideration of the issue by the FASB. The adoption of the remainder of SFAS 150 did not have a material effect on the Company’s financial condition or results of operations.

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

The following table summarizes the basic and diluted calculations for the years ended December 31, 2003 and 2002 and the ten months ended December 31, 2001:

During the years ended December 31, 2003 and 2002 and the ten months ended December 31, 2001, options to purchase 1.4 million shares, 1.2 million shares and 1.7 million shares, respectively, were outstanding but not included in the computation of earnings per share because they were anti-dilutive.

As more fully discussed in Note 14, the Company has outstanding debentures convertible into common stock of the Company upon the stock reaching certain specified levels, or if the credit ratings of the debentures drops below investment grade. At December 31, 2003, the conditions providing the holders of the debentures the right to convert their securities to shares of common stock during the quarter ending March 31, 2004 had been met; therefore, the effect of conversion of the debentures was included in the Company’s calculation of diluted earnings per share.

Effective January 1, 2001, the Company changed its fiscal year from February 28 to December 31. Information for the transition period is representative of the ten months beginning March 1, 2001 through December 31, 2001.

The following table presents certain financial information for the ten-months ended December 31, 2001 and December 31, 2000, respectively:

Trading securities, which consist of trading securities owned and trading securities pledged as collateral, at December 31, 2003 and 2002 include the following:

As of December 31, 2003, $10.0 billion of the Company’s trading securities had been pledged as collateral for financing purposes, of which the counterparty has the contractual right to sell or re-pledge $4.1 billion. For

the year ended December 31, 2003, the Company recorded $26.2 million in gains on trading securities that related to trading securities still held at the reporting date.

It is the policy of the Company to obtain possession of collateral with a market value equal to or in excess of the principal amount loaned under resale agreements. Collateral is valued daily, and the Company may require counterparties to deposit additional collateral or may return collateral pledged when appropriate.

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

As of December 31, 2002, the Company had accepted collateral with a fair value of $5.9 billion for which it had the contractual ability to sell or re-pledge. As of December 31, 2002, the Company had re-pledged $5.7 billion of such collateral for financing purposes.

The activity in Mortgage Servicing Rights (“MSRs”) for the years ended December 31, 2003 and 2002 and the ten months ended December 31, 2001 is as follows:

The estimated fair value of mortgage servicing rights was $6.9 billion, $5.4 billion and $6.1 billion as of December 31, 2003, 2002 and 2001, respectively. (See Note 9 — “Securitizations” for discussion of the valuation of MSRs.)

The following table summarizes the Company’s estimate of amortization of its existing MSRs for the five-year period ending December 31, 2008. This projection was developed using the assumptions made by management in its December 31, 2003 valuation of MSRs. The assumptions underlying the following estimate will change as market conditions and portfolio composition and behavior change, causing both actual and projected amortization levels to change over time. Therefore, the following estimates will change in a manner and amount not presently determinable by management.

Investments in other financial instruments as of December 31, 2003 and 2002 include the following:

All of the securities listed above are classified as available-for-sale, with the exception of the securitized excess servicing fees.

At December 31, 2003, the Company had pledged $4.4 billion of home equity-backed securities to secure repurchase agreements, and $546.9 million of mortgage-backed securities to secure Federal Home Loan Bank advances. Amortized cost and fair value of available-for-sale securities as of December 31, 2003 and December 31, 2002 are as follows:

At December 31, 2003, the Company did not hold any securities classified as available-for-sale that had been in a continuous unrealized loss position for more than twelve months.

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

The Company routinely originates, securitizes and sells mortgage loans into the secondary mortgage market. In general, prime mortgage loan securitizations are structured without recourse to the Company.

However, the Company generally has limited recourse on the prime home equity and subprime mortgage loans it securitizes through retention of a subordinated interest or through a corporate guarantee of losses up to a negotiated maximum amount. While the Company generally does not retain credit risk on the prime mortgage loans it securitizes, it does have potential liability under representations and warranties it makes to purchasers and insurers of the loans. At December 31, 2003, the Company had a liability for losses relating to representations and warranties included in other liabilities totaling $90.7 million. The Company recognized gains of $5.5 billion from sales of mortgage loans in securitizations in the year ended December 31, 2003.

When the Company securitizes mortgage loans it generally retains the MSRs and, depending on the nature of the securitization, may also retain interest-only securities, principal-only securities and subordinated and residual interests.

MSRs arise from contractual agreements between the Company and investors (or their agents) in MBS and mortgage loans. The value of MSRs is derived from the net positive cash flows associated with the servicing contract. Under these contracts, the Company performs loan servicing functions in exchange for fees and other remuneration. The servicing functions typically performed include: collecting and remitting loan payments, responding to borrower inquiries, accounting for principal and interest, holding custodial (impound) funds for payment of property taxes and insurance premiums, counseling delinquent mortgagors, supervising foreclosures and property dispositions, and generally administering the loans. For performing these functions, the Company receives a servicing fee ranging generally from 0.25% to 0.50% annually on the remaining outstanding principal balances of the loans. The servicing fees are collected from the monthly payments made by the mortgagors. In addition, the Company generally receives other remuneration consisting of float benefits derived from collecting and remitting mortgage payments, as well as rights to various mortgagor-contracted fees such as late charges, reconveyance charges, and prepayment penalties. In addition, the Company generally has the right to solicit the mortgagors for other products and services, such as second mortgages and insurance, as well as a new first mortgage for those considering refinancing or purchasing a new home.

The Company’s MSR valuation process combines the use of a sophisticated discounted cash flow model, extensive analysis of current market data, and senior financial management oversight to arrive at an estimate of fair value at each balance sheet date. The cash flow assumptions and prepayment assumptions used in the discounted cash flow model are based on the Company’s own empirical data drawn from the historical performance of its MSRs, which management believes are consistent with assumptions used by market participants valuing MSRs. The most critical assumptions used in the valuation of MSRs include mortgage prepayment speeds and the discount rate (projected LIBOR plus option-adjusted spread). These variables can and generally will change from quarter to quarter as market conditions and projected interest rates change. The Company determines the fairness of its MSR valuation quarterly by comparison to the following market data (as available): MSR trades; MSR broker valuations; prices of interest-only securities, and; peer group MSR valuation surveys.

For the other retained interests, the Company also estimates fair value through the use of discounted cash flow models. The key assumptions used in the valuation of its other retained interests include mortgage prepayment speeds, discount rates, and for residual interests containing credit risk, the net lifetime credit losses. (See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Credit Risk Management” section of this document for further discussion of credit risk). The Company has incorporated cash flow and prepayment assumptions based on its own empirical data drawn from the historical

performance of the loans underlying its other residual interests, which management believes are consistent with assumptions other major market participants would use in determining the assets’ fair value.

Key economic assumptions used in determining the fair value of MSRs at the time of securitization are as follows:

Key economic assumptions used in determining the fair value of other retained interests at the time of securitization are as follows:

The following table summarizes cash flows between the Company and securitization special purpose entities:


(a)	Represents cash flows received on retained interests other than servicing fees.

Key economic assumptions used in subsequently measuring the fair value of the Company’s MSRs at December 31, 2003, 2002 and 2001, and the effect on the fair value of those MSRs from adverse changes in those assumptions, are as follows:

Key economic assumptions used in subsequently measuring the fair value of the Company’s other retained interests at December 31, 2003, 2002 and 2001, and the effect on the fair value of those other retained interests from adverse changes in those assumptions are as follows:

These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on a 10% variation in individual assumptions generally cannot be extrapolated. Also, in the above tables, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated independently without changing any other assumption. In reality, changes in one factor may result in changes in another which might magnify or counteract the sensitivities.

The following table presents information about delinquencies and components of prime home equity and subprime loans for which the Company has retained some level of credit risk:

The Company incurred credit losses of $95.5 million and $90.1 million related to the mortgage loans above during the years ended December 31, 2003 and 2002, respectively.

The primary market risk facing the Company is interest rate risk. The most predominate type of interest rate risk at Countrywide is price risk, which is the risk that the value of our assets or liabilities will change due to changes in interest rates. To a lesser extent, interest rate risk also includes the risk that the net interest income from our mortgage loan and investment portfolios will change in response to changes in interest rates. From an enterprise perspective, the Company manages this risk through the natural counterbalance of its loan production and servicing businesses along with various financial instruments, including derivatives, which are used to manage the interest rate risk related specifically to its committed pipeline, mortgage loan inventory and MBS held for sale, MSRs, trading securities and other retained interests, as well as a portion of its debt. The overall objective of the Company’s interest rate risk management activities is to reduce the variability of earnings caused by changes in interest rates.

The Company is exposed to price risk relative to its Mortgage Loan Inventory and its Committed Pipeline. The Mortgage Loan Inventory is comprised of mortgage loans and MBS held by the Company pending sale. The Mortgage Loan Inventory is presently held on average 30 days. The Committed Pipeline is comprised of loan applications in process where the Company has provided an interest rate lock commitment (“IRLC”). IRLCs guarantee the rate and points on the underlying mortgage for a specified period, generally from seven to sixty days.

The Company is exposed to price risk from the time an IRLC is made to a mortgage applicant (or financial intermediary) to the time the related mortgage loan is sold. During this period, the Company is exposed to losses if mortgage rates rise, because the value of the IRLC or mortgage loan declines. To manage this price risk the Company utilizes derivatives, primarily forward sales of MBS and options to buy and sell MBS, as well as options on Treasury futures contracts. Certain of these transactions qualify as “fair value” hedges under SFAS 133. (See the following section titled “Accounting for Risk Management Activities” for further discussion.)

The price risk management of the Committed Pipeline is complicated by the fact that the ultimate percentage of applications that close within the terms of the IRLC is variable. The probability that the loan will fund within the terms of the IRLC is driven by a number of factors, in particular the change, if any, in mortgage rates subsequent to the lock date. In general, the probability increases if mortgage rates rise, and decreases if mortgage rates fall. This is due primarily to the relative attractiveness of current mortgage rates compared to the applicant’s committed rate. The probability that a loan will fund within the terms of the IRLC is also influenced by the source of the application, age of the application, purpose for the loan (purchase or refinance), and the application approval rate. The Company has developed closing ratio estimates using its historical data that take into account all of these variables, as well as renegotiations of rate and point commitments that tend to occur when mortgage rates fall. The closing ratio estimates are utilized to estimate the quantity of loans that will fund within the terms of IRLCs.

To manage the price risk associated with the Committed Pipeline, the Company uses a combination of net forward sales of MBS and put and call options on MBS or Treasury futures. As a general rule, the Company enters into forward sales of MBS in an amount equal to the portion of the Committed Pipeline expected to close, assuming no change in mortgage rates. The Company acquires put and call options to protect against the variability of loan closings caused by changes in mortgage rates, by using the current closing ratio estimates to determine the amount of optional coverage required.

The Company manages the price risk related to the Mortgage Loan Inventory primarily by entering into forward sales of MBS. The value of these forward sales moves in opposite direction to the value of the Mortgage Loan Inventory. The Company reviews its Committed Pipeline and Mortgage Inventory risk profiles on a daily basis.

The Company uses the following derivative instruments in its risk management activities related to the Committed Pipeline and Mortgage Loan Inventory:


	•	Forward Sales of MBS: represents an obligation to sell a MBS at a specific price in the future; therefore, its value increases as mortgage rates rise.

	•	Forward Purchases of MBS: represents an obligation to buy a MBS at a specific price in the future; therefore, its value increases as mortgage rates fall.

	•	Long Call Options on MBS: represents a right to buy a MBS at a specific price in the future; therefore, its value increases as mortgage rates fall.

	•	Long Put Options on MBS: represents a right to sell a MBS at a specific price in the future; therefore, its value increases as mortgage rates rise.

	•	Long Call Options on Treasury Futures: represents a right to acquire a Treasury futures contract at a specific price in the future; therefore, its value increases as the benchmark Treasury rate falls.

	•	Long Put Options on Treasury Futures: represents a right to sell a Treasury futures contract at a specific price in the future; therefore, its value increases as the benchmark Treasury rate rises.

	•	Short Eurodollar Futures Contracts: represents standardized exchange-traded contracts, the value of which is tied to spot Eurodollar rates at specified future dates. The value of these futures contracts increases when Eurodollar rates rise.

The following table summarizes the balance or notional amounts, as applicable, of Mortgage Loan Inventory, Committed Pipeline and the related derivatives instruments at December 31, 2003.

In general, the risk management activities connected with 80% or more of the fixed rate Mortgage Inventory has qualified as a “fair value” hedge under SFAS 133. The Company recognized pre-tax losses of $72.8 million and $2.4 million, representing the ineffective portion of such fair value hedges of Mortgage Inventory, for the years ended December 31, 2003 and 2002, respectively. This amount along with the change in the fair value of the derivative instruments that were not designated as hedge instruments under SFAS 133 are included in gain on sale of loans in the consolidated statements of earnings. The derivative instruments that did not qualify as hedges under SFAS 133 were primarily those used to manage the price risk related to a portion of the Company’s adjustable rate and non-conforming mortgage inventory.

IRLCs are derivative instruments as defined by SFAS 133. As such, IRLCs are recorded at fair value with changes in fair value recognized in current period earnings (as a component of gain on sale of loans). The Company estimates the fair value of an IRLC based on the change in estimated fair value of the underlying mortgage loan and the probability that the mortgage loan will fund within the terms of the IRLC. The change in fair value of the underlying mortgage loan is based upon quoted MBS prices. The change in fair value of the

underlying mortgage loan is measured from the lock date. Therefore, at the time of issuance the estimated fair value of an IRLC is zero. (Subsequent to issuance, the value of an IRLC can be either positive or negative, depending on the change in value of the underlying mortgage loan.) Closing ratios derived from the Company’s recent historical empirical data are utilized to estimate the quantity of mortgage loans that will fund within the terms of the IRLCs. Because IRLCs are derivatives under SFAS 133, the associated risk management activities of the Committed Pipeline do not qualify for hedge accounting under SFAS 133. The “freestanding” derivative instruments that are used to manage the price risk in the Committed Pipeline are marked to fair value and recorded as a component of gain on sale of loans in the statement of earnings.

MSRs and other retained interests, specifically interest-only securities and residual securities, are generally subject to a loss in value when mortgage interest rates decline. MSRs and other retained interests represent the present value of cash flow streams that are closely linked to the expected life of the underlying loan servicing portfolio. Declining mortgage interest rates generally precipitate increased mortgage refinancing activity, which decreases the expected life of the loans in the servicing portfolio, thereby decreasing the value of the MSRs and other retained interests. Reductions in the value of these assets impacts earnings through impairment charges. To moderate the effect on earnings of impairment, the Company maintains a portfolio of financial instruments, including derivatives, which increase in aggregate value when interest rates decline. This portfolio of financial instruments is collectively referred to herein as the “Servicing Hedge”. A portion of the Servicing Hedge has in the past qualified as a “fair value” hedge under SFAS 133 (see the following section titled “Accounting for Risk Management Activities” for further discussion).

The Company currently uses the following financial instruments in its Servicing Hedge:


	•	Interest Rate Floors: represents a right to receive cash if a reference interest rate falls below a contractual strike rate; therefore, its value increases as the reference interest rate falls. The reference interest rates used in the Company’s interest rate floors include mortgage rates, Treasury rates, and U.S. dollar (“USD”) LIBOR.

	•	U.S. Treasury Securities: consists of notes and bonds with maturities ranging generally from ten to thirty years. As interest rates decrease, the values of these securities generally increase.

	•	Long Treasury Futures: represent the agreement to purchase a treasury security at a specific price in the future; therefore, its value increases as the benchmark Treasury rate falls.

	•	Long Call Options on Treasury and Eurodollar Futures: represents a right to acquire a Treasury or Eurodollar futures contract at a specific price in the future; therefore, its value increases as the benchmark Treasury or Eurodollar deposit rate falls.

	•	Long Put Options on Treasury and Eurodollar Futures: represents a right to sell a Treasury or Eurodollar futures contract at a specific price in the future; therefore, its value increases as the benchmark Treasury or Eurodollar deposit rate rises.

	•	Long Call Options on MBS: represents a right to buy an MBS at a specific price in the future; therefore, its value increases as mortgage rates decline.

	•	Forward Purchases of MBS: represents an obligation to buy a MBS at a specific price in the future; therefore, its value increases as mortgage rates fall.


	•	Interest Rate Swaps: represents a mutual agreement to exchange interest rate payments; one party paying a fixed rate and another paying a floating rate tied to a reference interest rate (e.g., USD LIBOR). For use in the Servicing Hedge, the Company generally receives the fixed rate and pays the floating rate; therefore, the contract increases in value as interest rates decline.

	•	Receiver Swaptions: represents a right to enter into a predetermined Interest Rate Swap at a future date in which, upon exercise of its right, the Company receives the fixed rate and pays the floating rate; therefore, the contract increases in value as interest rates decline.

	•	Payor Swaptions: represents a right to enter into a predetermined Interest Rate Swap at a future date in which, upon exercise of its right, the Company pays the fixed rate and receives the floating rate; therefore, the contract generally increases in value as interest rates rise.

	•	Principal-Only Securities: consist of mortgage trust principal-only securities and Treasury principal-only securities (“Strips”). These securities have been purchased at discounts to their par value. As interest rates decrease, the values of these securities generally increase.

These instruments are used in tandem to manage the overall risk portfolio of the MSRs and other retained interests. The Company reviews its retained interests risk profile on a daily basis.

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

The Servicing Hedge is intended to reduce the impact on reported earnings of MSRs and other retained interest impairment that generally results from a decline in mortgage rates. Should mortgage rates increase the value of the MSRs and other retained interests are expected to increase while the value of the Servicing Hedge is expected to decrease. With respect to the various options and floors included in the Servicing Hedge, the Company is not exposed to loss beyond its initial outlay to acquire these derivative instruments, plus any unrealized gains recognized to date. With respect to the interest rate swap contracts and interest rate futures contracts included in the Servicing Hedge as of December 31, 2003, the Company estimates that its maximum exposure to loss over the contractual terms is $1.1 billion and $452 million, respectively.

The changes in fair value of derivative contracts included in the Servicing Hedge are recorded as a component of the gain or loss from the Servicing Hedge in the statement of earnings. Principal-only and U.S. Treasury securities included in the Servicing Hedge are held as available-for-sale securities. The changes in fair value of such securities included in the Servicing Hedge are recorded in accumulated other comprehensive income. Realized gains or losses on sales of these securities are recorded as a component of the gain or loss from the Servicing Hedge in the statement of earnings.

During the nine months ended November 30, 2001, a portion of the Servicing Hedge qualified as a “fair value” hedge under SFAS 133. At no other time has any portion of the Servicing Hedge qualified as a hedge under SFAS 133.

In a “fair value” hedge under SFAS 133, the cost basis of the MSRs is adjusted for the change in fair value of the MSRs attributable to the hedged risk, with a corresponding amount included as a component of impairment or recovery of retained interests in the statement of earnings.

The following table summarizes the change in fair value of the MSRs and the related derivative instruments that qualified for hedge accounting under SFAS 133 for the nine months ended November 30, 2001.

The Company recognized in earnings for the ten months ended December 31, 2001 a gain of $14.3 million, which represents the amount of hedge ineffectiveness for the portion of the Servicing Hedge that qualified as a “fair value” hedge under SFAS 133. There was no portion of the related hedge instruments’ gain or loss that was excluded from the assessment of hedge effectiveness.

The Company enters into interest rate swap contracts which enable it to convert a portion of its fixed-rate, long-term debt to U.S. dollar LIBOR-based floating-rate debt (notional amount of $1.2 billion) and to enable the Company to convert a portion of its foreign currency-denominated fixed-rate, long-term debt to U.S. dollar LIBOR-based floating-rate debt (notional amount of $96.4 million). These transactions are designed as fair value hedges under SFAS 133. For the years ended December 31, 2003 and 2002, the Company recognized a pre-tax gain of $0.02 million and $3.1 million, representing the ineffective portion of such fair value hedges of debt. This amount is included in interest charges in the statement of earnings.

The Company also enters into interest rate swap contracts which enable it to convert a portion of its floating-rate, long-term debt to fixed-rate, long-term debt (notional amount of $779.9 million) and to convert a portion of its foreign currency-denominated, fixed-rate, long-term debt to U.S. dollar fixed-rate debt (notional amount of $1.2 billion). These transactions are designed as cash flow hedges under SFAS 133. For the years ended December 31, 2003 and 2002, the Company recognized a pre-tax loss of $0.05 million and $0.5 million, representing the ineffective portion of such cash flow hedges. As of December 31, 2003, deferred net gains or losses on derivative instruments included in other comprehensive income that are expected to be reclassified as earnings during the next 12 months are not considered to be material.

Payments on interest rate swaps are based on a specified notional amount. In connection with the debt fair value hedges, the Company has entered into swaps in which the rate received is fixed and the rate paid is adjustable and is indexed to LIBOR (“Receiver Swap”). In connection with the debt cash flow hedges, the Company has entered into swaps in which the rate paid is fixed and the rate received is adjustable and is indexed to LIBOR (“Payer Swap”).

The following summarizes the notional amounts of and the average interest rates on the swaps as of December 31, 2003:

Payments are due periodically through the termination date of each contract. The contracts expire between March, 2004 and June, 2027.

Risk Management Activities Related to the Broker-Dealer Securities Trading Portfolio

In connection with its broker-dealer activities, the Company maintains a trading portfolio of fixed income securities, primarily MBS. The Company is exposed to price changes in its trading portfolio arising from interest rate changes during the period it holds the securities. To manage this risk, the Company utilizes the following derivative instruments:


	•	Forward Sales of To-Be Announced (“TBA”) MBS: represents an obligation to sell agency pass-through MBS that has not yet been issued at a specific price and at a specific date in the future; therefore, its value increases as mortgage rates rise.

	•	Forward Purchases of TBA MBS: represents an obligation to purchase agency pass-through MBS that have not yet been issued at a specific price at a specific date in the future; therefore, its value increases as mortgage rates fall.

	•	Forward Sale of U.S. Treasury Securities: represents a standardized exchange-traded agreement to sell a specific quantity of U.S. Treasury securities for a specific price at a specific date in the future; therefore, its value increases when interest rates rise.

	•	Short Fed Funds and Eurodollar Futures Contracts: represents a standardized exchange-traded contract, the value of which is tied to spot Fed Funds or Eurodollar rates at specified future dates. The value of these contracts increases when Fed Funds or Eurodollar rates rise.

	•	Interest Rate Swaps: represents a mutual agreement to exchange interest rate payments; one party paying a fixed rate and another paying a floating rate tied to a reference interest rate (e.g. USD LIBOR). For use in its trading portfolio risk management activities, the Company receives the floating rate and pays the fixed rate; therefore, its value increases as rates rise.

The following summarizes the notional amounts of the derivative contracts included in broker-dealer’s trading portfolio, at December 31, 2003:

The following disclosure of the estimated fair value of financial instruments as of December 31, 2003 and 2002 is made by the Company using available market information and appropriate valuation methods. In some cases considerable judgment is required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methods may have a material effect on the estimated fair value amounts.

The fair value estimates as of December 31, 2003 and 2002 were based on pertinent information that was available to management as of the respective dates. Although management is not aware of any factors that

would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since those dates and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

The following describes the methods used by the Company in estimating fair values:

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.

These financial instruments are recorded at accreted cost, which approximates fair value.

Fair value is estimated through the use of discounted cash flow models. Re-warehoused FHA-insured and VA-guaranteed loans and warehouse lending advances are recorded at realizable value, which approximates fair value.

Fair value is estimated through the use of a proprietary, “static” (single rate path) discounted cash flow model. The Company has incorporated mortgage prepayment assumptions in its valuation model that it believes other major market participants would consider in deriving the fair value of principal-only securities.

Fair value is estimated through the use of proprietary, “static” (single rate path) discounted cash flow models. The Company has incorporated mortgage prepayment and credit loss assumptions in its valuation models that it believes other major market participants would consider in deriving the fair value of its retained interests.

Other financial instruments are primarily composed of tax-exempt municipal bonds, asset-backed securities, and foreign government bonds. Fair value is estimated using quoted market prices.

Fair value is estimated by discounting remaining payments using applicable current market rates.

These financial instruments are recorded at their accreted balances which approximate fair value.

The fair value for the checking account liability is equal to the amount payable on demand at the reporting date. (This value is also the carrying amount.) The fair value of money market accounts and certificates of deposit is estimated using a discounted cash flow calculation that applies interest rates currently being offered on similar accounts.

Fair value is estimated through the use of a proprietary two part loss model: a loan-level frequency model estimated with survival analysis, and a loan-level severity model estimated with multiple least square regressions. The modeling process incorporates the use of relevant risk factors.

Fair value is estimated as the present value of future contracted cash flows based upon current market prices for U.S. Treasury notes of similar characteristics adjusted for the estimated credit premium or discount for the Company.

Fair value is defined as the amount that the Company would receive or pay to terminate the contracts at the reporting date. Market or dealer quotes are available for many derivatives; otherwise, pricing or valuation models are applied using current market information to estimate fair value. The Company estimates the fair value of an IRLC based on the change in estimated fair value of the underlying mortgage loan and the probability that the mortgage loan will fund within the terms of the IRLC. The change in fair value of the underlying mortgage loan is based upon quoted MBS prices. The change in fair value of the underlying mortgage loan is measured from the lock date. Therefore, at the time of issuance the estimated fair value of an IRLC is zero (Subsequent to issuance, the value of an IRLC can be either positive or negative depending on the change in value of the underlying mortgage loan.) Closing ratios derived using the Company’s recent historical empirical data are utilized to estimate the quantity of mortgage loans that will fund within the terms of the IRLCs.

The Company is exposed to credit loss in the event of non-performance by its trading counterparties and counterparties to its various over-the-counter (non-exchange-traded) financial instruments. The Company manages this credit risk by selecting only well-established, financially strong counterparties, spreading the credit risk among many such counterparties, and by placing contractual limits on the amount of unsecured credit risk from any single counterparty. The Company’s exposure to credit risk in the event of default by a counterparty is the current cost of replacing the contracts, net of any available collateral retained by the Company.

The total amount of counterparty credit exposure as of December 31, 2003, before and after applicable collateral held, is as follows:

Depreciation and amortization expense amounted to $82.1 million, $41.2 million and $45.7 million for the years ended December 31, 2003, 2002 and the ten months ended December 31, 2001, respectively.

Loans held for investment as of December 31, 2003 and 2002 include the following:

At December 31, 2003, mortgage loans held for investment totaling $5.5 billion and $9.8 billion were pledged to secure securities sold under agreements to repurchase and Federal Home Loan Bank advances, respectively.

At December 31, 2003, the Company had accepted collateral with a fair value of $2.0 billion securing warehouse lending advances for which it had the contractual ability to sell or re-pledge. As of December 31, 2003, no such mortgage loan collateral had been re-pledged.

Total allowance for loan losses as of December 31, 2003 and December 31, 2002 are $78.4 million and $42.0 million, respectively.

At December 31, 2003, the Company had pledged $609.7 million of other assets to secure repurchase agreements, of which the counterparty has the right to sell or re-pledge the entire amount.

As of December 31, 2003, outstanding medium-term notes issued by Countrywide Home Loans (“CHL”) under various shelf registrations filed with the Securities and Exchange Commission or issued by CHL under its Euro medium-term note program were as follows:

As of December 31, 2003, $1.3 billion of foreign currency-denominated medium-term notes were outstanding. Such notes are denominated in Yen, Deutsche Marks, French Francs, Portuguese Escudos and Euros. These notes have been effectively converted to U.S. dollars through currency swaps.

In April 2003, the Company formed a wholly-owned special purpose entity for the purpose of issuing commercial paper in the form of short-term secured liquidity notes (“SLNs”) to finance certain of its Mortgage Loan Inventory. The entity issues short-term notes with maturities of up to 180 days, extendable to 300 days. The SLNs bear interest at prevailing money market rates approximating LIBOR. The SLN program’s capacity, based on aggregate commitments from underlying credit enhancers, was $18.2 billion at December 31, 2003. The Company has pledged $10.0 billion in mortgage loans to secure the asset-backed commercial paper. For the year ended December 31, 2003, the average borrowings under this facility totaled $7.9 billion, and the weighted average interest rate borne by the commercial paper was 1.18%. At December 31, 2003, the weighted average interest rate borne by the commercial paper was 1.16%.

As of December 31, 2003, outstanding advances from the Federal Home Loan Bank were as follows:

All of the advances have fixed interest rates. The advances are secured by $10.3 billion of mortgage loans.

The Company has issued zero-coupon Liquid Yield Option Notes (“LYONs”), with an aggregate face value of $675 million, or $1,000 per note, due upon maturity on February 8, 2031. The LYONs were issued at a discount to yield 1.0% to maturity, or 8.25% to the first call date. The LYONs are senior indebtedness of the Company.

Holders of LYONs may require the Company to repurchase all or a portion of their LYONs at the original issue price plus accrued original issue discount on the following dates.

The Company may pay the purchase price in cash, common stock or a combination thereof.

Beginning on February 8, 2006 and on any date thereafter, the Company may redeem the LYONs at the original issue price plus accrued original issue discount.

Holders of LYONs may surrender LYONs for conversion into 15.43 shares of the Company’s common stock per LYON in any calendar quarter, if, as of the last day of the preceding calendar quarter, the closing sale price of the Company’s common stock, for at least 20 trading days in a period of 30 consecutive trading days ending on the last trading day of such preceding calendar quarter, is more than a specified percentage, beginning at 135% and declining 0.21% per quarter thereafter, of the accreted conversion price per share of common stock on the last day of trading of such preceding calendar quarter (the “Contingent Conversion Stock Price”.) The accreted conversion price per share is equal to the original issue price of a LYON plus the accrued original issue discount, with that sum divided by the number of shares to be issued upon a conversion of a LYON. The Contingent Conversion Stock Price at December 31, 2003 was $87.44 per share. At December 31, 2003, the LYONs conversion contingency had been met, making the notes convertible during

the first quarter of 2004. Convertibility of the LYONs in subsequent quarters will depend on the Company’s future stock price performance.

Holders may also surrender a LYON for conversion during any period in which the credit rating assigned to the LYONs by either Moody’s or Standard & Poor’s falls below investment grade level.

As of December 31, 2003, CHL had unsecured credit agreements (revolving credit facilities) with a group of commercial banks permitting CHL to borrow an aggregate maximum amount of $5.5 billion. The composition of the facilities was as follows:

As consideration for these facilities, CHL pays annual commitment fees of $4.9 million. The purpose of these credit facilities is to provide liquidity backup for CHL’s commercial paper program. No amount was outstanding under these revolving credit facilities at December 31, 2003. All of the facilities contain various financial covenants and restrictions, certain of which require the Company and CHL to maintain specified net worth amounts and that limit the amount of dividends that can be paid by the Company or CHL. Management believes the Company is in compliance with those covenants and restrictions. For the year ended December 31, 2003, the average commercial paper outstanding was $2.1 billion and the weighted average borrowing rate was 1.22%.

As of December 31, 2003, CHL had uncommitted revolving credit facilities that are secured by conforming mortgage loans held for sale. As of December 31, 2003, the Company had no outstanding borrowings under any of these facilities.

The total of time certificates of deposit and other time deposits issued and outstanding were $3.3 billion and $793 million at December 31, 2003 and 2002, respectively. Substantially all of those deposits were interest bearing. The contractual maturities of those deposits are shown in the following table.

The amount of time deposits with a denomination of $100,000 or more was approximately $1.7 billion and $295 million at December 31, 2003 and 2002, respectively.

The contractual maturities of time deposits with denominations of $100,000 or more are shown in the following table.

As of December 31, 2003, the Company had in place a reusable $4.0 billion commitment from a multi-seller asset-backed commercial paper conduit to purchase conventional, conforming loans held for sale from the Company. As consideration for the facility, CHL pays annual commitment fees of $5.0 million.

This multi-seller commercial paper conduit was established and is owned by several major, third-party financial institutions. Using funds raised through with the issuance of commercial paper, these conduits purchase residential mortgage loans from the Company, either directly or through a trust or other vehicle. The Company has no obligation to repurchase loans from this conduit other than for breach of representations and warranties made by the Company in connection with the sale of the loans. The Company has no direct or indirect financial ownership or other interest in the conduit. Accordingly, transfers of loans to this facility are accounted for as sales.

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

The weighted-average borrowing rate for these arrangements for the year ended December 31, 2003 was 1.15%. The weighted average borrowing rate on repurchase agreements outstanding as of December 31, 2003 was 1.24%. The repurchase agreements had a weighted-average maturity of two days at December 31, 2003. At December 31, 2003, repurchase agreements were secured by $2.5 billion of loans held for sale and MBS held for sale, $10.0 billion of trading securities, $11.2 billion of securities purchased under agreements to resell, $4.4 billion in investments in other financial instruments, and $5.5 billion of loans held for investment.

Countrywide Capital I (the “Subsidiary Trust I”), a subsidiary trust of the Company, has outstanding $300 million of 8% Capital Trust Pass-through Securities (the “8% Capital Securities”). In connection with the Subsidiary Trust I issuance of the 8% Capital Securities, CHL issued to the Subsidiary Trust I, $309 million of its 8% Junior Subordinated Deferrable Interest Debentures (the “Subordinated Debt Securities I”). The Subordinated Debt Securities I are due on December 15, 2026, with interest payable semi-annually on June 15 and December 15 of each year. The Company has the right to redeem at par, plus accrued interest, the 8% Capital Securities at any time on or after December 15, 2006. The sole assets of the Subsidiary Trust I are, and will be, the Subordinated Debt Securities I.

Countrywide Capital III (the “Subsidiary Trust III”), a subsidiary trust of the Company, has outstanding $200 million of 8.05% Subordinated Capital Income Securities, Series A (the “8.05% Capital Securities”). In connection with the Subsidiary Trust III issuance of 8.05% Capital Securities, CHL issued to the Subsidiary Trust III, $206 million of its 8.05% Junior Subordinated Deferrable Interest Debentures (the “Subordinated Debt Securities III”). The Subordinated Debt Securities III are due on June 15, 2027 with interest payable semi-annually on June 15 and December 15 of each year. The sole assets of the Subsidiary Trust III are, and will be, the Subordinated Debt Securities III.

In April 2003, Countrywide Capital IV (the “Subsidiary Trust IV”), a subsidiary trust of the Company, issued $500 million of 6.75% preferred securities, which are fully and unconditionally guaranteed by the Company and CHL (the “6.75% Securities”). In connection with the issuance by Countrywide Capital IV of

the 6.75% Securities, the Company issued to Countrywide Capital IV $500 million of its 6.75% Junior Subordinated Debentures, which are fully and unconditionally guaranteed by CHL (the “Subordinated Debentures”). Countrywide Capital IV exists for the sole purpose of issuing the 6.75% Securities and investing the proceeds in the Subordinated Debentures. The Subordinated Debentures are due on April 1, 2033, with interest payable quarterly on January 1, April 1, July 1 and October 1 of each year. The Company has the right to redeem, at 100% of their principal amount plus accrued and unpaid interest to the date of redemption, the 6.75% Securities at any time on or after April 11, 2008.

In relation to Subsidiary Trusts I and III, the Company has the right to defer payment of interest by extending the interest payment period, from time to time, for up to 10 consecutive semi-annual periods. If interest payments on the debentures are so deferred, the Company may not declare or pay dividends on, or make a distribution with respect to, or redeem, purchase or acquire, or make a liquidation payment with respect to, any of its capital stock.

In relation to Subsidiary Trust IV, the Company has the right to defer payment of interest on the Subordinated Debentures for up to 20 consecutive quarterly periods by extending the payment period. If interest payments on the Subordinated Debentures are so deferred, the company may not, among other things, declare or pay dividends on, or make a distribution with the respect to, or redeem, purchase or acquire, or make a liquidation payment with respect to, any of its capital stock.

In January 2000, the Company entered a three-year equity put option agreement with National Indemnity Company (“National Indemnity”), a property and casualty insurance company, which is a subsidiary of Berkshire Hathaway, Inc. The Company terminated the put option agreement on January 2, 2002, and paid a termination fee of $0.2 million.

In February 1988, the Board of Directors of the Company declared a dividend distribution of one preferred stock purchase right (“Right”) for each outstanding share of the Company’s common stock. As a result of stock splits and stock dividends, 0.399 of a Right is presently associated with each outstanding share of the Company’s common stock issued before 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 $.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 (“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 exercise 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. In November 2001, the Company extended the life of the Rights to February 10, 2012.

On October 23, 2003, the Company also declared a 4-for-3 split of the Company’s $0.05 par value common stock, effected as a stock dividend payable on December 18, 2003 to shareholders of record on December 2, 2003. As a result of the split, approximately 46.1 million additional shares were issued. 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 earnings per share amounts have been restated to reflect the stock split.

The Company has stock option plans (the “Plans”) that provide for the granting of both qualified and non-qualified options and shares of restricted stock to employees and directors. Options are generally granted at the average market price of the Company’s common stock on the date of grant and are exercisable beginning one year from the date of grant and expire up to ten years from the date of grant. Options vest over a period of three to four years.

Status of the outstanding stock options under the Plans as of December 31, 2003 was as follows:

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. In the year ended December 31, 2003, the Company made the maximum tax-deductible contribution to the Plan.

In the year ended December 31, 2003, the Company changed certain of its actuarial assumptions. Specifically, the discount rate was lowered from 6.5% to 6.0%. This change resulted in an increase of $11.0 million to the accumulated benefit obligation at December 31, 2003. In the ten-month period ended December 31, 2001, the Company amended the Plan to include employee sales commissions in the calculation of benefit obligations, resulting in an additional plan obligation of $4.2 million at December 31, 2001. The following plan information was measured as of December 31, 2003.

The following table sets forth the Plan’s funded status and amounts recognized in the Company’s financial statements.

The accumulated benefit obligation for all defined benefit pension plans was $108 million and $68 million at December 31, 2003 and 2002.

The following table sets forth the components of net periodic benefit cost for the years ended December 31, 2003 and 2002 and the ten-month period ended December 31, 2001.

The weighted-average assumptions used in calculating the amounts above for the years ended December 31, 2003 and 2002 were as follows:

Pension expense for the years ended December 31, 2003 and 2002 and the ten-month period ended December 31, 2001 was $41.9 million, $20.0 million and $11.0 million, respectively. The Company makes contributions to the Plan in amounts that are deductible in accordance with federal income tax regulations.

The Company reviews historical rates of return for equity and fixed income securities, as well as current economic conditions, to determine the expected long term rate of return on plan assets. The plan’s total portfolio is currently estimated to return 6.0% above the rate of inflation over the long term. The assumed rate

of return is based on 70% of the portfolio being invested in equities yielding a 7% real return, and the remaining 30% of assets being invested in fixed income securities yielding a 3.8% real return. Consideration is given to diversification and periodic rebalancing of the portfolio based on prevailing market conditions.

The Company’s pension plan weighted-average asset allocations at December 31, 2003 and 2002, by asset category are as follows:

The Company’s pension trust assets are invested with a long term focus to achieve a return on investment that is based on levels of liquidity and investment risk that management believes are prudent and reasonable. The investment portfolio contains a diversified blend of equity and fixed income investments. The equity investments are diversified across U.S. and non-U.S. equities, as well as value, growth, and medium and large capitalizations. The portfolio’s asset mix is reviewed regularly, and the portfolio is rebalanced based on existing market conditions. Investment risk is measured and monitored on a regular basis through quarterly portfolio reviews, annual liability measurements and periodic asset/liability analyses.

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:

The Company has a defined contribution plan (“401(k) Plan”) covering all full-time employees of the Company who have at least one year of service and are age 21 or older. Participants may contribute up to 16 percent of pre-tax annual compensation, as defined in the plan agreement. Participants may also contribute, at the discretion of the plan administrator, amounts representing distributions from other qualified defined benefit or contribution plans. The Company makes a discretionary matching contribution equal to 50 percent of the participant contributions up to a maximum contribution of 6 percent of the participants’ base compensation, as defined in the plan agreement. The 401(k) Plan is subject to the provisions of ERISA. The Company recorded $21.0 million, $14.6 million, and $8.7 million in expense for matching contributions for the years ended December 31, 2003 and 2002 and the ten months ended December 31, 2001, respectively.

The following is a reconciliation of the statutory federal income tax rate to the effective income tax rate as reflected in the consolidated statements of earnings:

The tax effects of temporary differences that gave rise to deferred income tax assets and liabilities are presented below:

In connection with the acquisition of Treasury Bank, CFC became a bank holding company. As a result, the Company is subject to regulatory capital requirements imposed by the Board of Governors of the Federal Reserve. The Company is also subject to U.S. Department of Housing and Urban Development, Fannie Mae, and Freddie Mac and Government National Mortgage Association (“Ginnie Mae”) net worth requirements.

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

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

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

The following table presents the actual capital ratios and amounts, and minimum required capital ratios for the Company to maintain a “well-capitalized” status by the Board of Governors of the Federal Reserve at December 31, 2003 and at December 31, 2002:

The Company and CHL are required to maintain specified levels of shareholders’ equity to remain a seller/servicer in good standing by Fannie Mae, Freddie Mac, the U.S. Department of Housing and Urban Development, and Ginnie Mae. Such equity requirements generally are tied to the size of CHL’s servicing portfolio. At December 31, 2003, the Company and CHL’s equity requirements for these agencies ranged up to $750 million. The Company had agency capital of $7.9 billion and CHL had agency capital ranging from $2.5 billion to $3.3 billion at December 31, 2003.

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

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

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

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

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

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

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

In general, intercompany transactions are recorded on an arms-length basis. However, the rate at which the Bank reimburses CHL for origination costs incurred on mortgage loans funded by the Bank is determined on an incremental cost basis, which is less than the rate that the Bank would pay to a third party.

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

The following tables reflect summarized, unaudited quarterly data for each quarter in the years ended December 31, 2003 and 2002.


(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.

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

In May 2001, the Company acquired all of the outstanding common stock of Treasury Bank for a cash price of $3.2 million. The acquisition of Treasury Bank was accounted for using the purchase method of accounting. Accordingly, a portion of the purchase price was allocated to assets acquired and liabilities assumed based on their estimated fair market value at the date of acquisition. The fair value of identifiable assets acquired and liabilities assumed was $75.3 million and $72.6 million, respectively. The acquisition did not have a material impact on the Company’s earnings per share.

The following table sets forth certain information regarding the Company’s servicing portfolio of single-family mortgage loans, including loans and securities held-for-sale and loans subserviced for others, for the periods indicated:


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

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

Properties securing the mortgage loans in the Company’s servicing portfolio are geographically disbursed. The following is a summary of the geographical distribution of loans included in the Company’s servicing portfolio for states with more than five percent of the servicing portfolio (as measured by unpaid principal balance) at December 31, 2003:

As compensation for performance of servicing functions under its various loan servicing contracts, the Company is paid a monthly service fee that is generally expressed as a percentage of the current unpaid principal balance of the underlying loans. The loan servicing contracts generally specify a base service fee of between 0.25% and 0.50% per annum. With regard to its servicing contracts with Fannie Mae, Freddie Mac and Ginnie Mae, the Company can effectively retain a larger net service fee principally through its methods of securitization. In general, the larger the net servicing fee retained, the smaller the net cash proceeds received upon securitization. Therefore, the decision to retain net service fees above the contractual minimum amounts is based on the Company’s assessment of the underlying economics. As of December 31, 2003, the weighted average service fee, net of applicable guarantee fees, of the Company’s portfolio of loans serviced for others was 0.327% per annum.

In addition to service fees, the Company is generally entitled to float benefits related to its collection of mortgagor principal, interest, tax and insurance payments. The amount of float varies depending on the terms of the servicing contract and timing of receipt of payments from the mortgagors. The Company also is generally entitled to various fees that it collects associated with the mortgages such as late charges, prepayment penalties and re-conveyance fees, among others. The Company also generally has the right to solicit the mortgagors for other products and services that it offers, such as insurance and second mortgage loans. The value of the net service fees and other related income in excess of the cost to service the loans,

including the costs of advances on behalf of delinquent mortgagors, underlies the Company’s investment in MSRs.

As part of its loan servicing responsibilities, the Company is required to advance funds to cover delinquent scheduled principal and interest payments to security holders, as well as to cover delinquent tax and insurance payments to maintain the status of the loans. The Company had $1.0 billion of such advances outstanding at December 31, 2003 included in other assets. Generally, servicing advances are recoverable from either the mortgagor, the insurer of the loan, or the investor through the non-recourse provision of the loan servicing contract. These advances are recorded on the balance sheet at realizable value.

Nearly all of the mortgage loans produced by the Company are securitized and sold into the secondary mortgage market. While the Company generally securitizes prime mortgage loans on a non-recourse basis, it does have potential liability under the representations and warranties made to purchasers and insurers of the securities. In the event of a breach of such representations and warranties, the Company may be required to either repurchase the subject mortgage loans or indemnify the investor or insurer. In such cases, any subsequent credit loss on the mortgage loans is borne by Countrywide.

As described below, the degree to which credit risk on the underlying loans is transferred through the securitization process depends on the structure of the securitization. Prime first mortgage loans generally are securitized on a non-recourse basis, while prime home equity and subprime mortgage loans generally are securitized with limited recourse for credit losses.

Conforming conventional loans are generally pooled into mortgage-backed securities guaranteed by Fannie Mae. A small portion of these loans also have been sold to Freddie Mac or the Federal Home Loan Bank, through its Mortgage Partnership Finance Program. Subject to certain representations and warranties on the part of the Company, substantially all conventional loans securitized through Fannie Mae or Freddie Mac are sold on a non-recourse basis. Accordingly, credit losses are generally absorbed by Fannie Mae and Freddie Mac and not the Company. The Company pays guarantee fees to Fannie Mae and Freddie Mac on loans it securitizes through these agencies, which include compensation to the respective agencies for their assumption of credit risk.

FHA-insured and VA-guaranteed mortgage loans are generally pooled into mortgage-backed securities guaranteed by Ginnie Mae. A small portion of these loans have been sold to the Federal Home Loan Bank, through its Mortgage Partnership Finance Program. The company is insured against foreclosure loss by the FHA or partially guaranteed against foreclosure loss by the VA. Fees charged by the FHA and VA for assuming such risks are paid by the mortgagors. The Company is exposed to credit losses on defaulted VA loans to the extent that the partial guarantee provided by the VA is inadequate to cover the total credit losses incurred. The Company pays guarantee fees to Ginnie Mae for Ginnie Mae’s guarantee on its securities of timely payment of principal and interest. Ginnie Mae does not assume mortgage credit risk associated with the loans securitized under its program.

Non-conforming conventional prime mortgage loans are generally pooled into “private-label” (non-agency) mortgage-backed securities. Such securitizations involve some form of credit enhancement, such as senior/subordinated structures or mortgage pool insurance. Securitizations that involve senior/subordinated structures contain securities that assume varying levels of credit risk. Holders of subordinated securities are compensated for the credit risk assumed through a higher yield. The Company generally sells the subordinated securities created in connection with these securitizations and thereby transfers the related credit loss exposure, other than as described above with respect to representations and warranties made when loans are securitized.

Prime home equity loans are generally pooled into private-label asset-backed securities. These securities generally are credit-enhanced through over-collateralization and guarantees provided by a third-party surety. In such securitizations, the Company is subject to limited recourse for credit losses through retention of a residual interest.

Subprime loans generally are pooled into private-label mortgage backed securities. The Company generally securitizes these loans with limited recourse for credit losses. Such limited recourse securitizations generally have contained mortgage pool insurance as the primary form of credit enhancement, coupled with a limited corporate guarantee provided by Countrywide and/or a retained residual interest. When mortgage pool insurance is used, the associated premiums are paid directly by the Company. We also have pooled a portion of our subprime loans into securities guaranteed by Fannie Mae. In such cases, the Company has paid Fannie Mae a guarantee fee in exchange for Fannie Mae assuming the credit risk of the underlying loans. In addition, the Company has securitized a portion of our subprime loans on a limited recourse basis through the retention of a residual interest without the use of mortgage pool insurance.

The Company’s exposure to credit losses related to its limited recourse securitization activities is limited to the carrying value of its subordinated interests and to the contractual limit of reimbursable losses under its corporate guarantees less the recorded liability for such guarantees. These amounts at December 31, 2003 are as follows:

The carrying value of the residual securities is net of expected future credit losses. Related to the Company’s non-recourse and limited recourse securitization activities, the total credit losses incurred for the years ended December 31, 2003 and 2002 are summarized as follows:

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

In connection with its open commitments to buy or sell MBS and other derivative contracts, the Company may be required to maintain margin deposits. With respect to the MBS commitments, these requirements are generally greatest during periods of rapidly declining interest rates. With respect to other derivative contracts, margin requirements are generally greatest during periods of increasing interest rates. The total such margin deposits placed by the Company at December 31, 2003 was $293.9 million.

The Company leases office facilities under lease agreements extending through July 31, 2013. Future minimum annual rental commitments under these non-cancelable operating leases with initial or remaining terms of one year or more are as follows:

Rent expense was $109.7 million, $80.0 million and $48.6 million for the years ended December 31, 2003 and 2002 and the ten-month period ended December 31, 2001, respectively.

The Company and certain of its subsidiaries are subject to regulatory and credit agreement restrictions which limit their ability to transfer funds to the Company through intercompany loans, advances or dividends. Pursuant to revolving credit facilities existing at December 31, 2003, the Company and CHL are required to maintain minimum consolidated net worth of $2.5 billion and $1.5 billion, respectively.

Countrywide has entered mortgage reinsurance agreements with several primary mortgage insurance companies. Under these agreements, the Company is obligated to absorb mortgage insurance losses in excess of a specified percentage of the principal balance of a given pool of loans, subject to a cap, in exchange for a portion of the pools’ mortgage insurance premiums. Approximately $67.4 billion of the servicing portfolio is covered by such mortgage reinsurance agreements. Management believes it has adequate valuation allowances in place to cover anticipated losses.

On January 26, 2004, the Company’s Board of Directors declared a dividend of $0.22 per share payable March 1, 2004 to shareholders of record on February 11, 2004.

On January 9, 2004, Countrywide’s stockholders approved an amendment to the Company’s Restated Certificate of Incorporation increasing the number of shares of common stock the Company has the authority to issue to 500,000,000.

SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF REGISTRANT — (Continued)


(1)	Actual losses charged against the valuation allowance, net of recoveries and reclassification.


†	Constitutes a management contract or compensatory plan or arrangement.

EX-3.5 3 v96832exv3w5.txt EXHIBIT 3.5 EXHIBIT 3.5 CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF COUNTRYWIDE FINANCIAL CORPORATION COUNTRYWIDE FINANCIAL CORPORATION, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation" or the "Company"), hereby certifies as follows: 1. That at a meeting of the Board of Directors of the Corporation resolutions were duly adopted setting forth a proposed amendment of the Restated Certificate of Incorporation of the Corporation, declaring said amendment to be advisable and calling for the proposal to be presented to the stockholders of the Corporation at a Special Meeting of the Stockholders. The resolution setting forth the proposed amendment is as follows: RESOLVED, That the Restated Certificate of Incorporation of the Company be amended to increase the authorized Common Stock and for this purpose Article Third thereof shall be struck out in its entirety and shall be replaced with the following new Article Third: "THIRD: The aggregate number of shares which the Corporation shall have authority to issue is five hundred million (500,000,000) shares of Common Stock, of the par value five cents ($.05) per share, and one million five hundred thousand (1,500,000) shares of Preferred Stock, of the par value of five cents ($.05) per share. The Preferred Stock may be issued in one or more series at such time or times and for such consideration or considerations as the Board of Directors may determine. With respect to the Preferred Stock, the Board of Directors of this Corporation is authorized to determine or alter the voting rights, dividend privileges, liquidation preferences, and all other rights, privileges and restrictions, including without limitation, conversion rights into Common Stock granted to or imposed upon any wholly unissued series of Preferred Stock and, within the limitations or restrictions stated in any resolution of the Board of Directors originally fixing the number of shares of Preferred Stock constituting any series, to increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any such series subsequent to the issue of shares of that series, to determine the designation of any series and to fix the number of shares of any series." 2. That thereafter, a Special Meeting of the Stockholders of the Corporation was duly called and held, upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware on January 9, 2004, at which special meeting the necessary number of shares as required by statute were voted in favor of the amendment of the Restated Certificate of Incorporation herein certified. 3. That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, said Corporation has caused this certificate to be executed by an authorized officer on this 9th day of January, 2004. By: /s/ Angelo R. Mozilo ------------------------------ Angelo R. Mozilo Chairman of the Board and CEO EX-4.25 4 v96832exv4w25.txt EXHIBIT 4.25 EXHIBIT 4.25 COUNTRYWIDE HOME LOANS, INC. Issuer COUNTRYWIDE CREDIT INDUSTRIES, INC. Guarantor TO THE BANK OF NEW YORK Trustee INDENTURE Dated as of December 1, 2001 Debt Securities COUNTRYWIDE HOME LOANS, INC. RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT OF 1939 AND INDENTURE, DATED AS OF DECEMBER 1, 2001

- ------------------------- THIS RECONCILIATION AND TIE SHALL NOT, FOR ANY PURPOSE, BE DEEMED TO BE PART OF THE INDENTURE. TABLE OF CONTENTS

-i- TABLE OF CONTENTS (CONTINUED)

-ii- TABLE OF CONTENTS (CONTINUED)

-iii- TABLE OF CONTENTS (CONTINUED)

-iv INDENTURE dated as of December 1, 2001, among COUNTRYWIDE HOME LOANS, INC., 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 4500 Park Granada, Calabasas, CA 91302 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. RECITALS OF THE GUARANTOR The Guarantor has duly authorized the execution and delivery of this Indenture to provide for the issuance of the Guarantees provided herein and the endorsement of such Guarantees on the Debt Securities. All things necessary to make this Indenture a valid agreement of the Guarantor, in accordance with its terms, have been done. 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 either the board of directors of the Company or the Guarantor, as the case may be, or the executive or any other committee of that 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 Company or the Guarantor, as the case may be, 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, 2 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", "Company Order", "Guarantor Request" and "Guarantor Order" mean, respectively, a written request or order signed in the name of the Company or the Guarantor, as the case may be, 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 or the Guarantor, as the case may be, and delivered to the Trustee. "Components", with respect to a composite currency, 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 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, 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. 3 The term "corporation" includes corporations, associations, companies and business trusts. "Current Stated Principal Maturity" has the meaning specified in Section 312. "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. "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) 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 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 maybe, 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. 4 "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 any 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. "Extension Notice" has the meaning specified in Section 312. "Extension Period" has the meaning specified in Section 312. "Final Maturity" has the meaning specified in Section 312. "Foreign Currency" means any currency, currency unit or composite currency issued by the government of one or more countries other than the United States of America or by any recognized confederation or association of such governments. "Guarantee" means an unconditional guarantee of the payment of the Debt Securities by the Guarantor, as more fully described in Article Four. "Guarantor" means the Person named as the "Guarantor" 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 "Guarantor" shall mean such successor corporation. "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. 5 "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 or the Guarantor, as the case may be, 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 or the Guarantor, as the case may be, and who shall be reasonably satisfactory to the Trustee, which is delivered to the Trustee. "Optional Reset Date" has the meaning specified in Section 307(b). "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: (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 or the Guarantor) in trust or set aside and segregated in trust by the Company (if 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 (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 and related Guarantees are valid obligations of the Company and the Guarantor, respectively; 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, the Guarantor or any other obligor upon the Debt Securities or any Affiliate of the Company, the Guarantor 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 6 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, the Guarantor or any other obligor upon the Debt Securities or any Affiliate of the Company, the Guarantor 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. "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 7 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. "Reset Notice" has the meaning specified in Section 307(b). "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. 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 the Guarantor 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 Guarantor, or by one or more Subsidiaries, or 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 8 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. "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 or the Guarantor to the Trustee to take any action under any provision of this Indenture, the Company or the Guarantor, as the case may be, 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 wish, 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 respect to compliance with 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 conclusion 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 Person may certify or give an opinion as to such matters in one or several documents. 9 Any certificate or opinion of an officer of the Company or the Guarantor 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 or the Guarantor, as the case may be, stating that the information with respect to such factual matters is in the possession of the Company or the Guarantor, as the case may be, 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 and the Guarantor. 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, the Company and the Guarantor, 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 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 or the Guarantor 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 10 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 rate specified in such Section). SECTION 105. Notices, etc., to Trustee, Company and Guarantor. 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 or the Guarantor 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 or the Guarantor 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 or the Guarantor, as the case may be, 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 or the Guarantor, as the case may be, Attention: Chairman of the Board of Directors, 4500 Park Granada, Calabasas, California 91302. 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 data and not earlier than the earliest 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 matter, 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. 11 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 and the Guarantor 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 or the Guarantees 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 or the Guarantees, 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. This Indenture, the Debt Securities and the Guarantees shall be governed by and construed in accordance with the laws of the State of New York applicable no 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. 12 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 or the Guarantor, as the case may be, 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 the Guarantor, as the case may be, or recovery by the Trustee, in any currency other than the Required Currency, except to the extent than 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 or the Guarantor, as the case may be, and the Company or the Guarantor, as the case may be, 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 and the Guarantor each hereby waives any defense of payment based upon any such tender or recovery 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 or the Guarantor, as the case may be (other than costs incurred by the Trustee that are passed on to the Company as provided above) in correction 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. 13 ARTICLE TWO FORMS OF DEBT SECURITIES AND GUARANTEES SECTION 201. Forms Generally. The Debt Securities and the Guarantees relating thereto 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 or the Guarantor, as the case may be, 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 and Guarantees. Each Debt Security and the related Guarantee 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 or the related Guarantees 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 or the Guarantor, 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: 14 TRUSTEE'S 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 By:_____________________________ Authorized Signatory SECTION 204. CUSIP Numbers. The Company in issuing the Securities may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the "CUSIP" numbers. 15 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 Company or the Guarantor in respect of such Debt Securities and related Guarantees 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; 16 (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, (B) if such Debt Securities are denominated in a Foreign Currency which is a composite currency, 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; (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 wish 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; and (17) the ability, if any, of the Holder of a Debt Security to renew all or any portion of a Debt Security. 17 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. 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, with the related Guarantees endorsed thereon by the Guarantor, 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 18 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 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 19 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 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 or the Guarantor 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 (having the Guarantees duly endorsed thereon) 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. 20 SECTION 305. Registration, Registration of Transfer and Exchange. 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 (having the Guarantees duly endorsed thereon) 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 (having the Guarantees duly endorsed thereon) 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 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 21 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 continuing 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 and Guarantees endorsed thereon issued upon any registration of transfer or exchange of Debt Securities shall be the valid obligations of the Company and the Guarantor, respectively, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Debt Securities and Guarantees endorsed thereon 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 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. 22 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, the Guarantor 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 (having a Guarantee duly endorsed thereon) 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 and related Guarantees duly issued hereunder. 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. 23 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 or the Guarantor, at its election in each case, as provided in Clause (1) or (2) below: (1) The Company or the Guarantor 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 or the Guarantor 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 or the Guarantor, as the case may be, 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 proposed payment. The Trustee shall promptly notify the Company or the Guarantor, as the case may be, of such Special Record Date and, in the name and at the expense of the Company or the Guarantor, as the case may be, 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 or the Guarantor 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 issued 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 24 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 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 25 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 Guarantor, the Trustee and any agent of the Company, the Guarantor 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 Guarantor, the Trustee nor any agent of the Company, the Guarantor 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 Guarantor, the Trustee, and any agent of the Company, the Guarantor or the Trustee as the owner of such global Debt Security for all purposes whatsoever. None of the Company, the Guarantor, the Trustee nor any agent of the Company, the Guarantor 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 or the Guarantor may at any time deliver to the Trustee for cancellation any Debt Securities previously authenticated and delivered hereunder which the Company or the Guarantor 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 a Guarantor Order the Company or the Guarantor, as the case may be, 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. 26 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 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. (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. (d) (i) If the Foreign 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 27 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 any 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 such composite currency (the "Conversion Date") occurring after the last date on which the 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 a 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 units of the composite currency that would have been so paid had the composite currency 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 a composite currency) into Dollars pursuant to subsection (d) (i) above or the conversion of a 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 Company, the Trustee, any Paying Agent and all Holders of the Debt Securities. If a Foreign Currency (other than a 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 any 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. 28 The provisions of this Section 312 may be made applicable to any series of Debt Securities issued 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 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 29 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. 30 ARTICLE FOUR GUARANTEES OF DEBT SECURITIES SECTION 401. Unconditional Guarantee. The Guarantor hereby unconditionally guarantees to each Holder of a Debt Security authenticated and delivered by the Trustee the due and punctual payment of the principal of and premium, if any, and any interest on such Debt Security and the due and punctual payment of the sinking fund payments, if any, provided for pursuant to the terms of such Debt Security, when and as the same shall become due and payable, whether at maturity, by acceleration, redemption or otherwise, in accordance with the terms of such Debt Security and of this Indenture. In case of the failure of 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 at maturity, upon acceleration, redemption 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 such Debt Security or this Indenture, any failure to enforce the provisions of any such Debt Security or this Indenture, or any waiver, modification, consent or indulgence granted to the Company with respect thereto by the Holder of such Debt Security or the Trustee, 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 any such Debt Security or the indebtedness evidenced thereby and all demands whatsoever, and covenants that the Guarantees will not be discharged except by payment in full of the principal of and premium, if any, and interest on, and any sinking fund payments required with respect to, the Debt Securities and the complete performance of all other obligations contained in the Debt Securities. The Guarantor shall be subrogated to all rights of the Holder of any Debt Security against the Company in respect of any amounts paid to such Holder by the Guarantor pursuant to the provisions of the Guarantees; 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 sinking fund payments required with respect to, all Debt Securities of the same series shall have been paid in full. SECTION 402. Execution, Authentication and Delivery. To evidence the Guarantees to the Holders specified in Section 401, the Guarantor hereby agrees to execute a Guarantee on each Debt Security authenticated and delivered by the Trustee. The Guarantees shall be executed on behalf of the Guarantor by its Chairman of the Board, one of its Vice Chairmen, its President or one of its Vice Presidents, under its corporate 31 seal reproduced thereon, and attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Guarantees may be manual or facsimile. Guarantees bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Guarantor shall bind the Guarantor notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Guarantees or did not hold such offices au the date of such Guarantees. The delivery by the Trustee of a Debt Security with such a Guarantee endorsed thereon shall, after the authentication of such Debt Security hereunder, constitute due delivery of such Guarantee on behalf of the Guarantor. No Guarantee endorsed on any Debt Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on the Debt Security on which such Guarantee is endorsed a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature. 32 ARTICLE FIVE SATISFACTION AND DISCHARGE SECTION 501. Satisfaction and Discharge of Indenture. This Indenture shall upon a Company Request or a Guarantor 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 and the Guarantor, 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 or the Guarantor, in the case of (i), (ii) or (iii) above, 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; (2) the Company or the Guarantor has paid or caused to be paid all other sums payable hereunder by the Company and the Guarantor with respect to the Outstanding Debt Securities of such series; and 33 (3) the Company and the Guarantor have each 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 and the Guarantor pursuant to Section 115, the obligations of the Company and the Guarantor 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. 34 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 or the Guarantor in this Indenture, the Debt Securities or the related Guarantees (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 and the Guarantor by the Trustee or to the Company, the Guarantor 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, the Guarantor 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 $100,000,000 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 and the Guarantor by the Trustee or to the Company, the Guarantor 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 35 (6) the entry of a decree or order for relief in respect of the Company or the Guarantor 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 the Guarantor 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 or the Guarantor 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 the Guarantor 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 the Guarantor (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 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, the Guarantor and the Trustee, may rescind and annul such declaration and its consequences if (1) the Company or the Guarantor 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, 36 (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 and the Guarantor covenant 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 or the Guarantor 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 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 or the Guarantor 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 the Guarantor 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 the Guarantor or any other obligor upon such Debt Securities, wherever situated. 37 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, the Guarantor 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 or the Guarantor 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 (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 or the related Guarantees 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 38 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; 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 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); and 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; 39 (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. 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 Guarantor, 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 40 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 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 (a) in the payment of the principal of (or premium, if any) or interest on any Debt Security of such series, or (b) 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 41 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 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 related Redemption Date or Repayment Date, as the case may be). SECTION 615. Waiver of Stay or Extension Laws. The Company and the Guarantor covenant (to the extent that they may lawfully do so) that they 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 and the Guarantor (to the extent that they may lawfully do so) hereby expressly waive all benefit or advantage of any such law, and covenant 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. 42 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 than 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 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 43 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 installment 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 exclusively rely and shall be fully 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; (b) any request or direction of the Company or the Guarantor mentioned herein shall be sufficiently evidenced by a Company Request, Company Order, Guarantor Request or Guarantor 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 of its selection and the 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; 44 (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 security or indemnity reasonably satisfactory to it 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 or the Guarantor relevant to the facts or matters that are the subject of its inquiry, personally or by agent or attorney at the sole cost of the Company and shall incur no liability or additional liability of any kind by reason of such inquiry or investigation; (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 by the Company or the Guarantor or any other obligor on such Debt Securities or by any Holder of such Debt Securities; (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; and (j) the rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and to each agent, custodian and other Person employed by it to act hereunder. 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 or the Guarantor, as the case may be, 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 or the related Guarantees. The Trustee shall not be accountable for the use or application by the Company or the Guarantor of any Debt Securities or the proceeds thereof. 45 SECTION 705. May Hold Debt Securities. The Trustee, any Paying Agent, the Security Registrar or any other agent of the Company or the Guarantor, 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 and the Guarantor 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 or the Guarantor. SECTION 707. Compensation and Reimbursement. The Company and the Guarantor agree (1) to pay to the Trustee from time to time such compensation as agreed in writing by the Company and the Trustee 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 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 (including attorneys' fees and expenses) 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 (whether asserted by the Company, or any Holder or any other Person) 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 and the Guarantor 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. 46 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 and the Guarantor. 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 (or notice of removal pursuant to the following paragraph (c)), the resigning Trustee may, at the cost of the Company, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Debt Securities of such series. (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 and the Guarantor. (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 the Guarantor 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 47 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 or the Guarantor, 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. (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 or the Guarantor, 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, the Guarantor 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 Guarantor 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. 48 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, the Guarantor 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, the Guarantor 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 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 Guarantor, 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, the Guarantor 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 and the Guarantor 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. 49 (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. 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. 50 ARTICLE EIGHT HOLDERS' LISTS AND REPORTS BY TRUSTEE, COMPANY AND GUARANTOR SECTION 801. Company and Guarantor to Furnish Trustee Names and Addresses of Holders. In accordance with Section 312(a) of the Trust Indenture Act, the Company and the Guarantor 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 or the Guarantor 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, the Guarantor and the Trustee that neither the Company, the Guarantor 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 December 31 of each year commencing with the first December 31 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 provided in Section 313(c) of the Trust Indenture Act, a brief report based as of such December 31, 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. 51 (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 and the Guarantor. The Company or the Guarantor will notify the Trustee when any series of Debt Securities are listed on any stock exchange. SECTION 804. Reports by Company and Guarantor. The Company and the Guarantor, pursuant to Section 314(a) of the Trust Indenture Act, will: (1) file with the Trustee, within 15 days after the Company or the Guarantor, as the case may be, 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 or the Guarantor 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 or the Guarantor 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 and the Guarantor, as the case may be, 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 addressees 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, documents and reports required to be filed by the Company or the Guarantor 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. 52 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; (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; and (4) the Guarantor has delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that the Guarantor's obligations hereunder shall remain in full force and effect thereafter. 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. SECTION 903. Guarantor May Consolidate, etc., Only on Certain Terms. The Guarantor 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: 53 (1) the corporation formed by such consolidation or into which the Guarantor is merged or the Person which acquires by conveyance or transfer the properties and assets of the Guarantor 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 Guarantees endorsed on the Debt Securities and the performance of every covenant of this Indenture on the part of the Guarantor 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; (3) the Guarantor 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 904. 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 Guarantor substantially as an entirety in accordance with Section 903, the successor corporation formed by such consolidation or into which the Guarantor 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 Guarantor under this Indenture with the same effect as if such successor had been named as the Guarantor herein, and thereafter the predecessor corporation shall be relieved of all obligations and covenants under this Indenture and the Guarantees. SECTION 905. Assumption by Guarantor. The Guarantor, or a Subsidiary thereof, may directly 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. Upon any such assumption, the Guarantor or such Subsidiary 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 the Guarantor or such Subsidiary had been named as the Company herein and the Company shall be released from its liability as obligor on the Debt Securities. No such assumption shall be permitted unless the Guarantor has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such assumption and supplemental indenture comply with this Article, and that all conditions precedent herein provided for relating to such transaction have been complied with and that, in the event of assumption by a Subsidiary, the Guarantees remain in full force and effect. 54 ARTICLE TEN SUPPLEMENTAL INDENTURES SECTION 1001. Supplemental Indentures without Consent of Holders. Without the consent of any Holders, the Company and the Guarantor, 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 or the Guarantor and the assumption by such successor of the obligations and covenants of the Company or the Guarantor herein and in the Debt Securities or the related Guarantees, as the case may be; or (2) to add to the covenants of the Company or the Guarantor, 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 the Guarantor; 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 either (i) 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 (ii) shall neither (A) apply to any Debt Security of any series created prior to the execution of such supplemental indenture and entitled to the benefit of such provision nor (B) modify the rights of the Holder of any such Debt Security with respect to 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 (8) to secure the Debt Securities; or 55 (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; or (11) to effect the assumption by the Guarantor or a Subsidiary thereof pursuant to Section 905. 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, the Guarantor and the Trustee, the Company and the Guarantor, 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 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 Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver (of 56 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, or (4) modify or effect in any manner adverse to the Holders the terms and conditions of the obligations of the Guarantor in respect of the due and punctual payments of principal of, or premium, if any, or interest on, or sinking fund requirements, if any, with respect to, the Debt Securities. 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. 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. 57 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. 58 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 or the Guarantor 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 or the Guarantor in respect of the Debt Securities and this Indenture may be served. The Company or the Guarantor 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 or the Guarantor 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 and the Guarantor hereby appoint the Trustee as the agent to receive all presentations, surrenders, notices and demands. The Company or the Guarantor 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 or the Guarantor of their obligation to maintain an office or agency in each Place of Payment for any series of Debt Securities, for such purposes. The Company or the Guarantor 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 and the Guarantor hereby initially designate as the Place of Payment for each series of Debt Securities, the Borough of Manhattan, The City and State of New York, and initially appoint the Trustee at its Corporate Trust Office as the Company's office or agency for each such purpose in such city. 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. 59 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 the Guarantor (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 or the Guarantor 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 or Guarantor 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 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 deposited by the Guarantor, paid to the Guarantor or Guarantor 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 and the Guarantor 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 60 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 or the Guarantor, as the case may be. 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 and the Guarantor will each deliver to the Trustee, on or before a date not more than four months after the end of their fiscal year ending after the date hereof, an Officers' Certificate from their principal executive officer, principal financial officer or principal accounting officer, stating whether or not to the best knowledge of the signers thereof the Company or the Guarantor, as the case may be, 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 or the Guarantor, as the case may be, shall be in default, specifying all such defaults and the nature thereof of which they may have knowledge. The Company and the Guarantor 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. 61 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. 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. 62 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. 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 63 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 (having a Guarantee duly endorsed thereon) 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. 64 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 than series pursuant to Section 1302 and, prior to or concurrently with the delivery of such Officers' Certificate, 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 65 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. 66 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 have delivered to the Trustee an Opinion of Counsel to the effect 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 67 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 (b) 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 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. 68 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 it 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. 69 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 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. 70 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 portion of the principal of such Debt Security so surrendered which is not to be repaid. * * * * * 71 This instrument maybe 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 as of the day and year first above written. COUNTRYWIDE HOME LOANS, INC. By: /s/ Stanford L. Kurland --------------------------------------- Title: President and Chief Executive Officer COUNTRYWIDE CREDIT INDUSTRIES, INC. By: /s/ Stanford L. Kurland ---------------------------------------- Title: Executive Managing Director and Chief Operating Officer THE BANK OF NEW YORK, as Trustee By: /s/ Michael Pitfick --------------------------------------- Title: Michael Pitfick Assistant Treasurer 72 State of California ) County of Los Angeles ) SS.: On the 11th day of December, 2001, before me personally came Stanford L. Kurland, to me known, who, being by me duly sworn, did depose and say that he is Exec. MD & COO 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. /s/ Joan Dehaeseleer --------------------------------------- Notary Public Seal 73 State of California ) County of Los Angeles ) SS.: On the 11th day of December, 2001, before me personally came Stanford L. Kurland, to me known, who, being by me duly sworn, did depose and say that he is President & CEO of Countrywide Home Loans, 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. /s/ Joan Dehaeseleer --------------------------------------- Notary Public Seal 74 ) ) SS.: On the 3rd day of December, 2001, before me personally came Michael Pitfick to me known, who, being by me duly sworn, did depose and say that he is Assistant Treasurer 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. /s/ William Cassels --------------------------------------- Notary Public, State of New York No. 01CA5027729 Qualified in Bronx County Commission Expires May 16, 2002 [Seal] 75 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) 76 EX-4.34 5 v96832exv4w34.txt EXHIBIT 4.34 EXHIBIT 4.34 EXECUTION COPY COUNTRYWIDE HOME LOANS, INC. as Issuer and COUNTRYWIDE CREDIT INDUSTRIES, INC. as Guarantor -------------------- -------------------- INDENTURE Dated as of December 16, 1996 -------------------- THE BANK OF NEW YORK as Trustee -------------------- SUBORDINATED DEBT SECURITIES TIE-SHEET of provisions of Trust Indenture Act of 1939 with Indenture dated as of December 16, 1996 among Countrywide Home Loans, Inc., as Issuer, Countrywide Credit Industries, Inc., as Guarantor and The Bank of New York, Trustee:

- ---------------------- THIS TIE-SHEET IS NOT PART OF THE INDENTURE AS EXECUTED. 2 TABLE OF CONTENTS*

Testimonium Signatures Acknowledgements - --------------------- * THIS TABLE OF CONTENTS SHALL NOT, FOR ANY PURPOSE, BE DEEMED TO BE A PART OF THE INDENTURE. 4 THIS INDENTURE, dated as of December 16, 1996, among Countrywide Home Loans, Inc., a New York corporation (hereinafter sometimes called the "Company"), Countrywide Credit Industries, Inc., a Delaware corporation (hereinafter sometimes called the "Guarantor"), and The Bank of New York, a New York banking corporation, as trustee (hereinafter sometimes called the "Trustee"), WITNESSETH: WHEREAS, for its lawful corporate purposes, the Company has duly authorized the issue from time to time of its subordinated unsecured debentures, notes or other evidence of indebtedness to be issued in one or more series (the "Debt Securities") up to such principal amount or amounts as may from time to time be authorized in accordance with the terms of this Indenture and, to provide the terms and conditions upon which the Debt Securities are to be authenticated, issued and delivered, the Company has duly authorized the execution of this Indenture; and WHEREAS, for its lawful corporate purposes, the Guarantor has duly authorized the execution and delivery of this Indenture and deems it appropriate from time to time to issue its guarantee of the Debt Securities on the terms herein provided (the "Guarantees" and, together with the Debt Securities, the "Securities"); and WHEREAS, all acts and things necessary to make this Indenture a valid agreement according to its terms, have been done and performed. NOW, THEREFORE, This Indenture Witnesseth: In consideration of the premises, and the purchase of the Securities by the holders thereof, the Company and the Guarantor covenant and agree with the Trustee for the equal and proportionate benefit of the respective holders from time to time of the Securities or of a series thereof, as follows: ARTICLE I DEFINITIONS Section 1.01. Definitions. The terms defined in this Section 1.01 (except as herein otherwise expressly provided or unless the context otherwise requires) for all purposes of this Indenture and of any indenture supplemental hereto shall have the respective meanings specified in this Section 1.01. All other terms used in this Indenture which are defined in the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), or which are by reference therein defined in the Securities Act of 1933, as amended (the "Securities Act"), shall (except as herein otherwise expressly provided or unless the context otherwise requires) have the meanings assigned to such terms in said Trust Indenture Act and in said Securities Act as in force at the date of this Indenture as originally executed. All accounting terms used herein and not expressly defined shall have the 10 meanings assigned to such terms in accordance with generally accepted accounting principles and the term "generally accepted accounting principles" means such accounting principles as are generally accepted at the time of any computation. 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. Section 1.02. "Affiliate" means, with respect to a specified Person, (a) any Person directly or indirectly owning, controlling or holding with power to vote 10% or more of the outstanding voting securities or other ownership interests of the specified Person, (b) any Person 10% or more of whose outstanding voting securities or other ownership interests are directly or indirectly owned, controlled or held with power to vote by the specified Person, (c) any Person directly or indirectly controlling, controlled by, or under common control with the specified Person, (d) a partnership in which the specified Person is a general partner, (e) any officer or director of the specified Person, and (f) if the specified Person is an individual, any entity of which the specified Person is an officer, director or general partner. (a) "Authenticating Agent" shall mean any agent or agents of the Trustee which at the time shall be appointed and acting pursuant to Section 6.14. Section 1.03. "Bankruptcy Law" shall mean Title 11, U.S. Code, or any similar federal or state law for the relief of debtors. (a) "Board of Directors" shall mean the board of directors or the executive committee or any other duly authorized designated officers of the Company or the Guarantor, as the case may be. (b) "Board Resolution" shall mean a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company or the Guarantor, as the case may be, to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification. (c) "Business Day" shall mean, with respect to any series of Securities, any day other than a day on which federal or state banking institutions in the Borough of Manhattan, The City of New York, are authorized or obligated by law, executive order or regulation to close. (d) "Capital Securities" shall mean undivided beneficial interests in the assets of a Countrywide Trust which rank pari passu with Common Securities issued by such Countrywide Trust; provided, however, that upon the occurrence of an Event of Default, the rights of holders of Common Securities to payment in respect of distributions and payments upon liquidation, redemption and otherwise are subordinated to the rights of holders of Capital Securities. (e) "Capital Securities Guarantee" shall mean, in respect of any Countrywide Trust, any guarantee that the Guarantor may enter into with The Bank of New York 11 or other Persons that operates directly or indirectly for the benefit of holders of Capital Securities of such Countrywide Trust. (f) "Certificate" shall mean a certificate signed by the principal executive officer, the principal financial officer or the principal accounting officer of the Company or the Guarantor, as the case may be. (g) "Common Securities" shall mean undivided beneficial interests in the assets of a Countrywide Trust which rank pari passu with Capital Securities issued by such Countrywide Trust; provided, however, that upon the occurrence of an Event of Default, the rights of holders of Common Securities to payment in respect of distributions and payments upon liquidation, redemption and otherwise are subordinated to the rights of holders of Capital Securities. (h) "Common Securities Guarantee" shall mean, in respect of any Countrywide Trust, any guarantee that the Guarantor may enter into with any Person or Persons and that operates directly or indirectly for the benefit of holders of Common Securities of such Countrywide Trust. (i) "Company" shall mean Countrywide Home Loans, Inc., a New York corporation, and, subject to the provisions of Article Ten, shall include its successors and assigns. (j) "Countrywide Trust" shall mean Countrywide Capital I, a Delaware business trust, or any other similar trust created for the purpose of issuing Capital Securities in connection with the issuance of Securities under this Indenture. (k) "Custodian" shall mean any receiver, trustee, assignee, liquidator, or similar official under any Bankruptcy Law. (l) "Debt Security" or "Debt Securities" shall have the meaning stated in the first recital of this Indenture and more particularly means any debt security or debt securities, as the case may be, authenticated and delivered under this Indenture. (m) "Declaration", with respect to a Countrywide Trust, shall mean the Amended and Restated Declaration of Trust of such Countrywide Trust. (n) "Default" means any event, act or condition that with notice or lapse of time, or both, would constitute an Event of Default. (o) "Depositary" shall mean, with respect to Securities of any series, for which the Company shall determine that such Securities will be issued as a Global Security, The Depository Trust Company, New York, New York, another clearing agency, or any successor registered as a clearing agency under the Exchange Act, or other applicable statute or regulation, which, in each case, shall be designated by the Company pursuant to either Section 2.03 or 2.11. 12 "Dissolution Tax Opinion" shall have the meaning set forth in Annex I to the Declaration. (p) "Event of Default" shall mean any event specified in Section 5.01, continued for the period of time, if any, and after the giving of the notice, if any, therein designated. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (q) "Global Security" shall mean, with respect to any series of Securities, a Security executed by the Company and delivered by the Trustee to the Depositary or pursuant to the Depositary's instruction, all in accordance with the Indenture, which shall be registered in the name of the Depositary or its nominee. "Guarantee" means the agreement of the Guarantor, in the form set forth in Section 2.13 hereof, to be endorsed on the Debt Securities authenticated and delivered under this Indenture. "Guarantor" means Countrywide Credit Industries, Inc., a corporation duly organized and existing under the laws of the State of Delaware. (r) "Indenture" shall mean this instrument as originally executed or, if amended or supplemented as herein provided, as so amended or supplemented, or both, and shall include the form and terms of particular series of Securities established as contemplated hereunder. (s) "Institutional Trustee" has the meaning set forth in the Declaration of the applicable Countrywide Trust. (t) "Interest" shall mean, when used with respect to noninterest bearing Securities, interest payable after maturity. (u) "Interest Payment Date", when used with respect to any installment of interest on a Debt Security of a particular series, shall mean the date specified in such Debt Security or in a Board Resolution or in an indenture supplemental hereto with respect to such series as the fixed date on which an installment of interest with respect to Debt Securities of that series is due and payable. (v) "Mortgage" shall mean and include any mortgage, pledge, lien, security interest, conditional sale or other title retention agreement or other similar encumbrance. (w) "Officers' Certificate" shall mean a certificate signed by the Chairman of the Board, the President, any Managing Director or any Vice President, and by the Treasurer, an Assistant Treasurer, the Comptroller, an Assistant Comptroller, the Secretary or an Assistant Secretary of the Company or the Guarantor, as the case may be, and delivered to the 13 Trustee. Each such certificate shall include the statements provided for in Section 13.06 if and to the extent provided by the provisions of such Section. (x) "Opinion of Counsel" shall mean an opinion in writing signed by legal counsel, who may be an employee of or counsel to the Company, or may be other counsel satisfactory to the Trustee. Each such opinion shall include the statements provided for in Section 13.06 if and to the extent required by the provisions of such Section. (y) "Original Issue Date" of any Security (or any portion thereof) shall mean the earlier of (a) the date of such Security or (b) the date of any Security (or portion thereof) for which such Security was issued (directly or indirectly) on registration of transfer, exchange or substitution. (b) "Original Issue Discount Security" shall mean any Debt Security which provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the maturity thereof pursuant to Section 5.01. The term "outstanding", when used with reference to Debt Securities, shall, subject to the provisions of Section 7.04, mean, as of any particular time, all Debt Securities authenticated and delivered by the Trustee or the Authenticating Agent under this Indenture, except (c) Debt Securities theretofore cancelled by the Trustee or the Authenticating Agent or delivered to the Trustee for cancellation; (d) Debt Securities, or portions thereof, for the payment or redemption of which moneys in the necessary amount shall have been deposited in trust with the Trustee or with any paying agent (other than the Company) or shall have been set aside and segregated in trust by the Company (if the Company shall act as its own paying agent); provided that, if such Debt Securities, or portions thereof, are to be redeemed prior to maturity thereof, notice of such redemption shall have been given as provided in Article Fourteen or provision satisfactory to the Trustee shall have been made for giving such notice; and (e) Debt Securities paid pursuant to Section 2.08 or in lieu of or in substitution for which other Debt Securities shall have been authenticated and delivered pursuant to the terms of Section 2.08 unless proof satisfactory to the Company and the Trustee is presented that any such Debt Securities are held by bona fide holders in due course. In determining whether the holders of the requisite principal amount of outstanding Debt Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, the principal amount of an Original Issue Discount Security that shall be deemed to be outstanding for such purposes shall be the amount of the principal thereof that would be due and payable as of the date of such determination upon a declaration of acceleration of the maturity thereof pursuant to Section 5.01. 14 (f) "Person" shall mean any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. (g) "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt and guarantee and as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 2.08 in lieu of a lost, destroyed or stolen Security shall be deemed to evidence the same debt and guarantee as the lost, destroyed or stolen Security. (h) "Principal Office of the Trustee", or other similar term, shall mean the principal office of the Trustee, at which at any particular time its corporate trust business shall be administered. "Redemption Tax Event" shall have the meaning set forth in Annex I to the Declaration. (i) "Responsible Officer", when used with respect to the Trustee, shall mean the chairman and vice chairman of the board of directors, the chairman or vice chairman of the executive committee of the board of directors, the president, any vice president, any assistant vice president, the cashier, any assistant cashier, the secretary, any assistant secretary, the treasurer, any assistant treasurer, any senior trust officer, any trust officer, the controller, any assistant controller or any other officer or assistant officer of the Trustee customarily performing functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of his knowledge of and familiarity with the particular subject. "Security" or "Securities" means any Debt Security or Debt Securities with a Guarantee endorsed thereon. (j) "Securityholder", "holder of Securities", or other similar terms, shall mean any Person in whose name at the time a particular Security is registered on the register kept by the Company or the Trustee for that purpose in accordance with the terms hereof. (k) "Security Register" shall have the meaning specified in Section 2.07. (l) "Senior Indebtedness" means, with respect to the Company or the Guarantor, as the case may be, (i) the principal, premium, if any, and interest in respect of (A) indebtedness of such obligor for money borrowed and (B) indebtedness evidenced by securities, debentures, bonds or other similar instruments issued by such obligor; (ii) all capital lease obligations of such obligor; (iii) all obligations of such obligor issued or assumed as the deferred purchase price of property, all conditional sale obligations of such obligor and all obligations of such obligor under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business); (iv) all obligations of such obligor for the reimbursement on 15 any letter of credit, any banker's acceptance, any security purchase facility or any repurchase agreement or similar arrangement, any interest rate swap, any other hedging arrangement, any obligation under options or any similar credit or other transaction; (v) all obligations of the type referred to in clauses (i) through (iv) of other Persons for the payment of which such obligor is responsible or liable as obligor, guarantor or otherwise; and (vi) all obligations of the type referred to in clauses (i) through (v) of other Persons secured by any lien on any property or asset of such obligor (whether or not such obligation is assumed by such obligor), except (1) any such indebtedness that contains express terms, or is issued under a deed, indenture or other instrument that contains express terms, providing that it is subordinate to or ranks pari passu with the Debt Securities or the Guarantee, (2) any indebtedness between or among the Company or the Guarantor and any of their Affiliates, and (3) all other debt securities and guarantees in respect of those debt securities, in any case issued by the Company or the Guarantor to (x) any Countrywide Trust or a trustee of such Trust or (y) any other trust, or a trustee of such trust, partnership or other entity affiliated with the Company or the Guarantor, as the case may be, which is a financing vehicle of the Company or the Guarantor, as the case may be (a "Financing Entity"), in connection with the issuance by such Financing Entity of preferred securities of a similar nature to the Capital Securities or of other securities that rank pari passu with, or junior to, the Capital Securities. Such Senior Indebtedness shall continue to be Senior Indebtedness and be entitled to the benefits of the subordination provisions irrespective of any amendment, modification or waiver of any term of such senior Indebtedness. (m) "Subsidiary" shall mean with respect to any Person, (i) any corporation at least a majority of the outstanding voting stock of which is owned, directly or indirectly, by such Person or by one or more of its Subsidiaries, or by such Person and one or more of its Subsidiaries, (ii) any general partnership, joint venture or similar entity, at least a majority of the outstanding partnership or similar interests of which shall at the time be owned by such Person, or by one or more of its Subsidiaries, or by such Person and one or more of its Subsidiaries and (iii) any limited partnership of which such Person or any of its Subsidiaries is a general partner. For the purposes of this definition, "voting stock" means shares, interests, participations or other equivalents in the equity interest (however designated) in such Person having ordinary voting power for the election of a majority of the directors (or the equivalent) of such Person, other than shares, interests, participations or other equivalents having such power by reason of the occurrence of a contingency. (n) "Trustee" shall mean the Person identified as "Trustee" in the first paragraph hereof, and, subject to the provisions of Article Six hereof, shall also include its successors and assigns as Trustee hereunder. The term "Trustee" as used with respect to a particular series of Securities shall mean the trustee with respect to that series. (o) "Trust Indenture Act" shall mean the Trust Indenture Act of 1939 as in force at the date of execution of this Indenture, except as provided in Section 9.03. (p) "Trust Securities" shall mean Common Securities and Capital Securities of a Countrywide Trust. 16 (q) "U.S. Government Obligations" shall mean 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, and shall also include a depository receipt issued by a bank or trust company as custodian with respect to any such U.S. Government Obligation or a specific payment of interest on or principal of any such U.S. Government Obligation held by such custodian for the account of the holder of a depository receipt, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of interest on or principal of the U.S. Government Obligation evidenced by such depository receipt. (r) "Yield to Maturity" shall mean the yield to maturity on a series of Debt Securities, calculated at the time of issuance of such series of Debt Securities, or if applicable, at the most recent redetermination of interest on such series and calculated in accordance with accepted financial practice. ARTICLE II. SECURITIES Section 2.01. Forms Generally. The Securities of each series shall be in substantially the form as shall be established by or pursuant to a Board Resolution and as set forth in an Officers' Certificate of the Company and the Guarantor or in one or more indentures supplemental hereto, in each case with 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 and such legends or endorsements placed thereon as may be required to comply with any law or with any rules made pursuant thereto or with any rules of any securities exchange or as may, consistently herewith, be determined by the officers executing such Securities, as evidenced by their execution of the Securities. In the event the Securities are issued in definitive form pursuant to this Indenture, such Securities shall be printed, lithographed or engraved on steel engraved borders or may be produced in any other manner, all as determined by the officers executing such Securities, as evidenced by their execution of such Securities. Section 2.02. Form of Trustee's Certificate of Authentication. The Trustee's certificate of authentication on all Debt Securities shall be in substantially the following form: 17 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 Section 2.03. Amount Unlimited; Issuable in Series. (a) 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 up to the aggregate principal amount of Debt Securities of that series from time to time authorized by or pursuant to a Board Resolution of the Company or pursuant to one or more indentures supplemental hereto. Prior to the initial issuance of Debt Securities of any series, there shall be established in or pursuant to a Board Resolution of the Company and set forth in an Officers' Certificate of the Company or established in one or more indentures supplemental: (1) the title of the Debt Securities of the series (which shall distinguish Debt Securities of the series from all other Debt Securities); (2) any limit 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 of transfer of, or in exchange for, or in lieu of, other Debt Securities of the series pursuant to Section 2.07, 2.08, 2.09, 9.04 or 14.03); (3) the date or dates on which the principal of and premium, if any, on the Debt Securities of the series is payable; (4) the rate or rates at which the Debt Securities of the series shall bear interest, if any, or the method by which such interest may be determined, the date or dates from which such interest shall accrue, the Interest Payment Dates on which such interest shall be payable or the manner of determination of such Interest Payment Dates and the record dates for the determination of holders to whom interest is payable on any such Interest Payment Dates; (5) the place or places where the principal of, and premium, if any, and any interest on Debt Securities of the series shall be payable; (6) the right, if any, to extend the interest payment periods and the duration of such extension; 18 (7) the price or prices at which, the period or periods within 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, pursuant to any sinking fund or otherwise; (8) the obligation, if any, of the Company to redeem, purchase or repay Debt Securities of the series pursuant to any sinking fund or analogous provisions or at the option of a Securityholder thereof and the price or prices at which and the period or periods within which the price or prices at which, and the terms and conditions upon which Debt Securities of the series shall be redeemed, purchased or repaid, in whole or in part, pursuant to such obligation; (9) if other than denominations of $1,000 and any integral multiple thereof, the denominations in which Debt Securities of the series shall be issuable; (10) 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 5.01 or provable in bankruptcy pursuant to Section 5.02; (11) any Events of Default with respect to the Debt Securities of a particular series, if not set forth herein; (12) the form of the Securities of the series including the form of the certificate of authentication of such series; (13) any trustee, authenticating or paying agents, warrant agents, transfer agents or registrars with respect to the Debt Securities of such series; (14) whether the Debt Securities of the series shall be issued in whole or in part in the form of one or more Global Securities and, in such case, the Depositary for such Global Security or Securities, and whether beneficial owners of interests in any such Global Securities may exchange such interests for other Debt Securities of such series in the manner provided in Section 2.07, and the manner and the circumstances under which and the place or places where any such exchanges may occur if other than in the manner provided in Section 2.07, and any other terms of the series relating to the global nature of the Global Securities of such series and the exchange, registration or transfer thereof and the payment of any principal thereof, or interest or premium, if any, thereon; and (15) any other terms of the series (which terms shall not be inconsistent with the provisions of this Indenture). All Debt Securities of any one series shall be substantially identical except as to denomination and except as may otherwise be provided in or pursuant to such resolution of the Board of Directors or in any such indenture supplemental hereto. 19 If any of the terms of the series are established by action taken pursuant to a Board Resolution of the Company, 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 of the Company setting forth the terms of the series. (b) Prior to the issuance of any of the Guarantees, the exact form and terms of such Guarantees, which shall comply with the terms of Section 2.13 hereof and contain such additional terms as are permitted by this Indenture, shall be established by an Officers' Certificate of the Guarantor or in an indenture supplemental hereto. Section 2.04. Authentication and Dating. 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, together with the Guarantees endorsed thereon executed by the Guarantor, to the Trustee for authentication, and the Trustee shall thereupon authenticate and make available for delivery said Securities to or upon the written order of the Company, signed by its Chairman of the Board of Directors, President, one of its Managing Directors or one of its Vice Presidents and by its Treasurer or any Assistant Treasurer, without any further action by the Company hereunder. In authenticating such Securities, and accepting the additional responsibilities under this Indenture in relation to such Securities, the Trustee shall be entitled to receive, and (subject to Section 6.01) shall be fully protected in relying upon: (1) a copy of any Board Resolution or Resolutions relating thereto and, if applicable, an appropriate record of any action taken pursuant to such resolution, in each case certified by the Secretary or an Assistant Secretary of the Company or the Guarantor as the case may be; (2) an executed supplemental indenture, if any; (3) an Officers' Certificate setting forth the form and terms of the Securities as required pursuant to Sections 2.01 and 2.03, respectively; and (4) an Opinion of Counsel prepared in accordance with Section 13.06 which shall also state: (a) that the form of such Securities has been established by or pursuant to a resolution of the Board of Directors or by a supplemental indenture as permitted by Section 2.01 in conformity with the provisions of this Indenture; (b) that the terms of such Securities have been established by or pursuant to a resolution of the Board of Directors or by a supplemental indenture as permitted by Section 2.03 in conformity with the provisions of this Indenture; 20 (c) that (i) such Debt Securities, when authenticated and delivered by the Trustee and issued by the Company and (ii) such Guarantees, when issued by the Guarantor, in each case in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute valid and legally binding obligations of the Company and the Guarantor, respectively; (d) that all laws and requirements in respect of the execution and delivery by the Company and the Guarantor of the Debt Securities and the Guarantees, respectively, have been complied with and that authentication and delivery of the Securities by the Trustee will not violate the terms of the Indenture; and (e) such other matters as the Trustee may reasonably request. The Trustee shall have the right to decline to authenticate any Securities under this Section if the Trustee, being advised by counsel, determines that such action may not lawfully be taken or if the Trustee in good faith by its board of directors or trustees, executive committee, or a trust committee of directors or trustees and/or vice presidents shall determine that such action would expose the Trustee to personal liability to existing holders. Section 2.05. Date and Denomination of Securities. The Securities shall be issuable as registered Securities without coupons and in such denominations as shall be specified as contemplated by Section 2.03. In the absence of any such specification with respect to the Securities of any series, the Securities of such series shall be issuable in the denominations of $1,000 and any multiple thereof. The Securities shall be numbered, lettered, or otherwise distinguished in such manner or in accordance with such plans as the officers executing the same may determine with the approval of the Trustee as evidenced by the execution and authentication thereof. Every Security shall be dated the date of its authentication, shall bear interest, if any, from such date and shall be payable on such dates, in each case, as contemplated by Section 2.03. The interest installment on any Security that is payable, and is punctually paid or duly provided for, on any Interest Payment Date for Securities of that series shall be paid to the Person in whose name said Security (or one or more Predecessor Securities) is registered at the close of business on the regular record date for such interest installment. In the event that any Security of a particular series or portion thereof is called for redemption and the redemption date is subsequent to a regular record date with respect to any Interest Payment Date and prior to such Interest Payment Date, interest on such Security will be paid upon presentation and surrender of such Security as provided in Section 14.03. Any interest on any Security that is payable, but is not punctually paid or duly provided for, on any Interest Payment Date for a Security of the same series (herein called "Defaulted Interest") shall forthwith cease to be payable to the registered holder on the relevant regular record date by virtue of having been such holder; and such Defaulted Interest shall be paid by the Company, at its election, as provided in clause (1) or clause (2) below: 21 (1) The Company may make payment of any Defaulted Interest on Securities to the Persons in whose names such Securities (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 such Security 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 not be more than 15 nor less than ten days prior to the date of the proposed payment and not less than ten days after the receipt by the Trustee of the notice of the 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 Securityholder at his or her address as it appears in the Security Register (as hereinafter defined), not less than ten 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 such Securities (or their respective Predecessor Securities) are registered on such special record date and shall be no longer payable pursuant to the following clause (2). (2) The Company may make payment of any Defaulted Interest on any Securities in any other lawful manner not inconsistent with the requirements of any securities exchange on which such 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. Unless otherwise set forth in a Board Resolution of the Company or one or more indentures supplemental hereto establishing the terms of any series of Securities pursuant to Section 2.01 hereof, the term "regular record date" as used in this Section with respect to a series of Securities with respect to any Interest Payment Date for such series shall mean either the fifteenth day of the month immediately preceding the month in which an Interest Payment Date established for such series pursuant to Section 2.01 hereof shall occur, if such Interest Payment Date is the first day of a month, or the last day of the month immediately preceding the month in which an Interest Payment Date established for such series pursuant to Section 2.01 hereof shall occur, if such Interest Payment Date is the fifteenth day of a month, whether or not such date is a Business Day. 22 Subject to the foregoing provisions of this Section, each Security of a series delivered under this Indenture upon transfer of or in exchange for or in lieu of any other Security of such series shall carry the rights to interest accrued and unpaid, and to accrue, that were carried by such other Security. Section 2.06. Execution of Securities. The Securities shall be signed in the name and on behalf of the Company by, and the Guarantees endorsed thereon shall be signed on behalf of the Guarantor by, the facsimile signature of its Chairman of the Board of Directors, President, one of its Managing Directors or one of its Vice-Presidents and by the facsimile signature of its Treasurer or one of its Assistant Treasurers, under its corporate seal which may be affixed thereto or printed, engraved or otherwise reproduced thereon, by facsimile or otherwise, and which need not be attested. Only such Securities as shall bear thereon a certificate of authentication substantially in the form hereinbefore recited, executed by the Trustee or the Authenticating Agent, shall be entitled to the benefits of this Indenture or be valid or obligatory for any purpose. Such certificate by the Trustee or the Authenticating Agent upon any Security executed by the Company and the Guarantor shall be conclusive evidence that the Security so authenticated has been duly authenticated and delivered hereunder and that the holder is entitled to the benefits of this Indenture. In case any officer of the Company or the Guarantor who shall have signed any of the Securities shall cease to be such officer before the Securities so signed shall have been authenticated by the Trustee or the Authenticating Agent, or disposed of by the Company, such Securities nevertheless may be authenticated or disposed of as though the Person who signed such Securities had not ceased to be such officer of the Company or the Guarantor, as the case may be; and any Security may be signed on behalf of the Company or the Guarantor by such Persons as, at the actual date of the execution of such Security, shall be the proper officers of the Company or the Guarantor, as the case may be, although at the date of the execution of this Indenture any such person was not such an officer. Section 2.07. Exchange and Registration of Transfer of Securities. Subject to Section 2.03(14), Securities of any series may be exchanged for a like aggregate principal amount of Securities of the same series of other authorized denominations. Securities to be exchanged may be surrendered at the principal corporate trust office of the Trustee or at any office or agency to be maintained by the Company for such purpose as provided in Section 3.02, and the Company and the Guarantor shall execute, the Company or the Trustee shall register and the Trustee or the Authenticating Agent shall authenticate and make available for delivery in exchange therefor the Security or Securities which the Securityholder making the exchange shall be entitled to receive. Upon due presentment for registration of transfer of any Security of any series at the principal corporate trust office of the Trustee or at any office or agency of the Company maintained for such purpose as provided in Section 3.02, the Company and the Guarantor shall execute, the Company or the Trustee shall register and the Trustee or the Authenticating Agent shall authenticate and make available for delivery in the 23 name of the transferee or transferees a new Security or Securities of the same series for a like aggregate principal amount. Registration or registration of transfer of any Security by the Trustee or by any agent of the Company appointed pursuant to Section 3.02, and delivery of such Security, shall be deemed to complete the registration or registration of transfer of such Security. The Company or the Trustee shall keep, at the principal corporate trust office of the Trustee, a register (the "Security Register") for each series of Securities issued hereunder in which, subject to such reasonable regulations as it may prescribe, the Company or the Trustee shall register all Securities and shall register the transfer of all Securities as in this Article Two provided. Such register shall be in written form or in any other form capable of being converted into written form within a reasonable time. All Securities presented for registration of transfer or for exchange or payment shall (if so required by the Company or the Trustee or the Authenticating Agent) be duly endorsed by, or be accompanied by a written instrument or instruments of transfer in form satisfactory to the Company and the Trustee or the Authenticating Agent duly executed by, the holder or his attorney duly authorized in writing. No service charge shall be made for any exchange or registration of transfer of Securities, but the Company or the Trustee may require payment of a sum sufficient to cover any tax, fee or other governmental charge that may be imposed in connection therewith. The Company or the Trustee shall not be required to exchange or register a transfer of (a) any Security for a period of 15 days next preceding the date of selection of Securities of such series for redemption, or (b) any Securities of any series selected, called or being called for redemption in whole or in part, except in the case of any Securities of any series to be redeemed in part, the portion thereof not so to be redeemed. Section 2.08. Mutilated, Destroyed, Lost or Stolen Securities. In case any temporary or definitive Security shall become mutilated or be destroyed, lost or stolen, the Company and the Guarantor shall execute, and upon its request the Trustee shall authenticate and deliver, a new Security of the same series bearing a number not contemporaneously outstanding, in exchange and substitution for the mutilated Security, or in lieu of and in substitution for the Security so destroyed, lost or stolen. In every case the applicant for a substituted Security shall furnish to the Company, the Guarantor and the Trustee such security or indemnity as may be required by them to save each of them harmless, and, in every case of destruction, loss or theft, the applicant shall also furnish to the Company, the Guarantor and the Trustee evidence to their satisfaction of the destruction, loss or theft of such Security and of the ownership thereof. The Trustee may authenticate any such substituted Security and make available for delivery the same upon the written request or authorization of any officer of the Company. Upon the issuance of any substituted Security, 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 24 and any other expenses connected therewith. In case any Security which has matured or is about to mature or has been called for redemption in full shall become mutilated or be destroyed, lost or stolen, the Company may, instead of issuing a substitute Security, pay or authorize the payment of the same (without surrender thereof except in the case of a mutilated Security) if the applicant for such payment shall furnish to the Company, the Guarantor and the Trustee such security or indemnity as may be required by them to save each of them harmless and, in case of destruction, loss or theft, evidence satisfactory to the Company and to the Trustee of the destruction, loss or theft of such Security and of the ownership thereof. Every substituted Security of any series issued pursuant to the provisions of this Section 2.08 by virtue of the fact that any such Security is destroyed, lost or stolen shall constitute an additional contractual obligation of the Company or the Guarantor, as the case may be, whether or not the destroyed, lost or stolen Security shall be found at any time, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of the same series duly issued hereunder. All Securities shall be held and owned upon the express condition that, to the extent permitted by applicable law, the foregoing provisions are exclusive with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities and shall preclude any and all other rights or remedies notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement or payment of negotiable instruments or other securities without their surrender. Section 2.09. Temporary Securities. Pending the preparation of definitive Securities of any series, the Company and the Guarantor may execute and the Trustee shall authenticate and make available for delivery temporary Securities (printed or lithographed). Temporary Securities shall be issuable in any authorized denomination, and substantially in the form of the definitive Securities but with such omissions, insertions and variations as may be appropriate for temporary Securities, all as may be determined by the Company. Every such temporary Security shall be executed by the Company and the Guarantor and be authenticated by the Trustee upon the same conditions and in substantially the same manner, and with the same effect, as the definitive Securities. Without unreasonable delay the Company and the Guarantor will execute and deliver to the Trustee or the Authenticating Agent definitive Securities and thereupon any or all temporary Securities of such series may be surrendered in exchange therefor, at the principal corporate trust office of the Trustee or at any office or agency maintained by the Company for such purpose as provided in Section 3.02, and the Trustee or the Authenticating Agent shall authenticate and make available for delivery in exchange for such temporary Securities a like aggregate principal amount of such definitive Securities. Such exchange shall be made by the Company at its own expense and without any charge therefor except that in case of any such exchange involving a registration of transfer the Company may require payment of a sum sufficient to cover any tax, fee or other governmental charge that may be imposed in relation thereto. Until so exchanged, the temporary Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of the same series authenticated and delivered hereunder. Section 2.10. Cancellation of Securities Paid, etc. 25 All Securities surrendered for the purpose of payment, redemption, exchange or registration of transfer, shall, if surrendered to the Company, the Guarantor or any paying agent, be surrendered to the Trustee and promptly cancelled by it, or, if surrendered to the Trustee or any Authenticating Agent, shall be promptly cancelled by it, and no Securities shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Indenture. All Securities cancelled by any Authenticating Agent shall be delivered to the Trustee. The Trustee shall deliver all cancelled Securities to the Company. If the Company shall acquire any of the Securities, however, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Securities unless and until the same are surrendered to the Trustee for cancellation. Section 2.11. Global Securities. (a) If the Company shall establish pursuant to Section 2.03 that the Securities of a particular series are to be issued as a Global Security, then the Company and the Guarantor shall execute and the Trustee shall, in accordance with Section 2.04, authenticate and deliver, a Global Security that (i) shall represent, and shall be denominated in an amount equal to the aggregate principal amount of, all of the outstanding Securities of such series, (ii) shall be registered in the name of the Depositary or its nominee, (iii) shall be delivered by the Trustee to the Depositary or pursuant to the Depositary's instruction and (iv) shall bear a legend substantially to the following effect: "Except as otherwise provided in Section 2.11 of the Indenture, this Security may be transferred, in whole but not in part, only by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary, another nominee of the Depositary or to a successor Depositary or its nominee." (b) Notwithstanding the provisions of Section 2.07, the Global Security of a series may be transferred, in whole but not in part and in the manner provided in Section 2.07, only by the Depositary to a nominee of the Depositary for such series, or by a nominee of the Depositary to the Depositary for such series, another nominee of the Depositary for such series, or a successor Depositary for such series selected or approved by the Company, or a nominee of such successor Depositary for such series. (c) If at any time the Depositary for a series of the Securities notifies the Company that it is unwilling or unable to continue as Depositary for such series or if at any time the Depositary for such series shall no longer be registered or in good standing under the Exchange Act, or other applicable statute or regulation, and a successor Depositary for such series is not appointed by the Company within 90 days after the Company receives such notice or becomes aware of such condition, as the case may be, this Section 2.11 shall no longer be applicable to the Securities of such series and the Company and the Guarantor will execute, and subject to Section 2.07, the Trustee will authenticate and make available for delivery the Securities of such series in definitive registered form without coupons, in authorized denominations, and in an aggregate principal amount equal to the principal amount of the Global Security of such series in exchange for such Global Security. In addition, the Company may at any time determine that the Securities of any series shall no longer be represented by a Global Security and that the provisions of this Section 2.11 shall no longer apply to the Securities of 26 such series. In such event the Company and the Guarantor will execute and subject to Section 2.07, the Trustee, upon receipt of an Officers' Certificate evidencing such determination by the Company, will authenticate and make available for delivery the Securities of such series in definitive registered form without coupons, in authorized denominations, and in an aggregate principal amount equal to the principal amount of the Global Security of such series in exchange for such Global Security. Upon the exchange of the Global Security for such Securities in definitive registered form without coupons, in authorized denominations, the Global Security shall be cancelled by the Trustee. Such Securities in definitive registered form issued in exchange for the Global Security pursuant to this Section 2.11(c) shall be registered in such names and in such authorized denominations as the Depositary, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. The Trustee shall deliver such Securities to the Depositary for delivery to the Persons in whose names such Securities are so registered. Section 2.12. CUSIP Numbers. The Company in issuing the Securities may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Securityholders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the CUSIP numbers. Section 2.13. Unconditional Guarantees. (FORM OF GUARANTEE) FOR VALUE RECEIVED, the Guarantor hereby fully and unconditionally guarantees to the holder of the Security upon which this Guarantee is endorsed the due and punctual payment of the principal of, sinking fund payment, if any, premium, if any, or interest on said Security, when and as the same shall become due and payable, whether at maturity, upon redemption or otherwise, according to the terms thereof and of the Indenture referred to therein. The Guarantor agrees to determine, at least one Business Day prior to the date upon which a payment of principal of, sinking fund payment, if any, premium, if any, or interest on said Security is due and payable, whether the Company has available the funds to make such payment as the same shall become due and payable. In case of the failure of the Company punctually to pay any such principal, sinking fund payment, if any, premium, if any, or interest, the Guarantor hereby agrees to cause any such payment to be made punctually when and as the same shall become due and payable, whether at maturity, upon redemption, or otherwise, and as if such payment were made by the Company. 27 The Guarantor hereby agrees that its obligations hereunder shall be unconditional, irrevocable, and absolute, irrespective of the validity, regularity, or enforceability of said Security or said Indenture, the absence of any action to enforce the same, any waiver or consent by the holder of said Security with respect to any provisions thereof, the recovery of any judgment against the Company or any action to enforce the same, or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. The Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of merger or bankruptcy of the Company, any right to require a proceeding first against the Company, protest or notice with respect to said Security or indebtedness evidenced thereby, and all demands whatsoever and covenants that this Guarantee will not be discharged except by complete performance of the obligations contained in said Security and in this Guarantee. The Guarantor shall be subrogated to all rights of the holder of said Security against the Company in respect of any amounts paid by the Guarantor pursuant to the provisions of this Guarantee; provided, however, that the Guarantor shall not, without the consent of the holders of all of the Securities then outstanding, 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 all Securities shall have been paid in full or payment thereof shall have been provided for in accordance with said Indenture. Notwithstanding anything to the contrary contained herein, if following any payment of principal or interest by the Company on the Securities to the holders of the Securities it is determined by a final decision of a court of competent jurisdiction that such payment shall be avoided by a trustee in bankruptcy (including any debtor-in-possession) as a preference under 11 U.S.C. Section 547 and such payment is paid by such holder to such trustee in bankruptcy, then and to the extent of such repayment, the obligations of the Guarantor hereunder shall remain in full force and effect. The obligations of the Guarantor under this Guarantee are, to the extent provided in the Indenture, subordinate and junior in right of payment to the prior payment in full of all Senior Indebtedness, and this Guarantee is issued subject to the provisions of the Indenture with respect thereto. Each holder of the Security upon which this Guarantee is endorsed, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his or her behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination so provided and (c) appoints the Trustee his or her attorney-in-fact for any and all such purposes. Each holder of the Security upon which this Guarantee is endorsed, by his or her acceptance thereof, hereby waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior Indebtedness, whether now outstanding or hereafter incurred, and waives reliance by each holder upon said provisions. 28 This Guarantee shall not be valid or become obligatory for any purpose with respect to a Security until the certificate of authentication on such Security shall have been signed by the Trustee (or the Authentication Agent). This Guarantee shall be governed by the laws of the State of New York. IN WITNESS WHEREOF, Countrywide Credit Industries, Inc. has caused this Guarantee to be signed in its corporate name by the facsimile signature of two of its officers thereunto duly authorized and has caused a facsimile of its corporate seal to be affixed hereunto or imprinted or otherwise reproduced hereon. Section 2.14. Execution of Guarantee To evidence the Guarantee to the Securityholders specified in Section 2.13, the Guarantor hereby agrees to execute the Guarantees, in substantially the form above recited, to be endorsed on each Security authenticated and delivered by the Trustee (or the Authenticating Agent). Each such Guarantee shall be signed on behalf of the Guarantor as set forth in Section 2.06 prior to the authentication of the Security on which it is endorsed and the delivery of such Security by the Trustee (or the Authenticating Agent), after the authentication thereof hereunder, shall constitute due delivery of such Guarantee on behalf of the Guarantor. Section 2.15. Assumption by Guarantor (a) The Guarantor may, without the consent of the Securityholders, assume all of the rights and obligations of the Company hereunder with respect to a series of Securities and under the Securities of such series if, after giving effect to such assumption, no Default or Event of Default shall have occurred and be continuing. Upon such an assumption, the Guarantor shall execute a supplemental indenture evidencing its assumption of all such rights and obligations of the Company and the Company shall be released from its liabilities hereunder and under such Securities as obligor on the Securities of such series. (b) The Guarantor shall assume all of the rights and obligations of the Company hereunder with respect to a series of Securities and under the Securities of such series if, upon a default by the Company in the due and punctual payment of the principal, sinking fund payment, if any, premium, if any, or interest on such Securities, the Guarantor is prevented by any court order or judicial proceeding from fulfilling its obligations under Section 2.13 with respect to such series of Securities. Such assumption shall result in the Securities of such series becoming the direct obligations of the Guarantor and shall be effected without the consent of the holders of the Securities of any series. Upon such an assumption, the Guarantor shall execute a supplemental indenture evidencing its assumption of all such rights and obligations of the Company, and the Company shall be released from its liabilities hereunder and under such Securities as obligor on the Securities of such series. 29 ARTICLE III. PARTICULAR COVENANTS OF THE COMPANY Section 3.01. Payment of Principal, Premium and Interest. The Company covenants and agrees for the benefit of each series of Securities that it will duly and punctually pay or cause to be paid the principal of and premium, if any, and interest on each of the Debt Securities of that series at the place, at the respective times and in the manner provided in such Debt Securities. At the option of the Company, each installment of interest on the Debt Securities of any series may be paid (i) by mailing checks for such interest payable to the order of the holders of Debt Securities entitled thereto as they appear on the registry books of the Company or (ii) by wire transfer to any account designated by such Person. Section 3.02. Offices for Notices and Payments, etc. So long as any of the Securities remain outstanding, the Company will maintain in the Borough of Manhattan, The City of New York, an office or agency where the Securities of each series may be presented for payment, an office or agency where the Securities of that series may be presented for registration or transfer and for exchange as in this Indenture provided and an office or agency where notices and demands to or upon the Company in respect of the Securities of that series or of this Indenture may be served. The Company will give to the Trustee written notice of the location of any such office or agency and of any change of location thereof. Until otherwise designated from time to time by the Company in a notice to the Trustee, or specified as contemplated by Section 2.03, such office or agency for all of the above purposes shall be the office or agency of the Trustee. In case the Company shall fail to maintain any such office or agency in the Borough of Manhattan, The City of New York, or shall fail to give such notice of the location or of any change in the location thereof, presentations and demands may be made and notices may be served at the principal corporate trust office of the Trustee. In addition to any such office or agency, the Company may from time to time designate one or more offices or agencies outside the Borough of Manhattan, The City of New York, where the Securities may be presented for registration of transfer and for exchange in the manner provided in this Indenture, and the Company may from time to time rescind such designation, as the Company may deem desirable or expedient; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain any such office or agency in the Borough of Manhattan, The City of New York, for the purposes above mentioned. The Company will give to the Trustee prompt written notice of any such designation or rescission thereof. Section 3.03. Appointments to Fill Vacancies in Trustee's Office. The Company, whenever necessary to avoid or fill a vacancy in the office of Trustee, will appoint, in the manner provided in Section 6.10, a Trustee, so that there shall at all times be a Trustee hereunder. 30 Section 3.04. Provision as to Paying Agent. (a) If the Company shall appoint a paying agent other than the Trustee with respect to the Securities of any series, it will cause such paying agent to execute and deliver to the Trustee an instrument in which such agent shall agree with the Trustee, subject to the provision of this Section 3.04, (1) that it will hold all sums held by it as such agent for the payment of the principal of and premium, if any, or interest, if any, on the Securities of such series (whether such sums have been paid to it by the Company or by any other obligor on the Securities of such series) in trust for the benefit of the holders of the Securities of such series; and (2) that it will give the Trustee notice of any failure by the Company (or by any other obligor on the Securities of such series) to make any payment of the principal of and premium, if any, or interest, if any, on the Securities of such series when the same shall be due and payable. (b) If the Company shall act as its own paying agent, it will, on or before each due date of the principal of and premium, if any, or interest, if any, on the Securities of any series, set aside, segregate and hold in trust for the benefit of the holders of the Securities of such series a sum sufficient to pay such principal, premium or interest so becoming due and will notify the Trustee of any failure to take such action and of any failure by the Company (or by any other obligor under the Securities of such series) to make any payment of the principal of and premium, if any, or interest, if any, on the Securities of such series when the same shall become due and payable. (c) Anything in this Section 3.04 to the contrary notwithstanding, the Company may, at any time, for the purpose of obtaining a satisfaction and discharge with respect to one or more or all series of Securities hereunder, or for any other reason, pay, or direct any paying agent to pay to the Trustee all sums held in trust for any such series by the Company or any such paying agent, such sums to be held by the Trustee upon the trusts herein contained. (d) Anything in this Section 3.04 to the contrary notwithstanding, the agreement to hold sums in trust as provided in this Section 3.04 is subject to Sections 11.03 and 11.04. Section 3.05. Certificate to Trustee. The Company will deliver to the Trustee on or before 120 days after the end of each fiscal year in each year commencing on February 28, 1997, so long as Securities of any series are outstanding hereunder, a Certificate signed by its principal executive officer, principal financial officer or principal accounting officer, stating that in the course of the performance by the signers of their duties as officers of the Company they would normally have knowledge of any default by the Company in the performance of any covenants contained herein, stating 31 whether or not they have knowledge of any such default and, if so, specifying each such default of which the signers have knowledge and the nature thereof. Section 3.06. Compliance with Consolidation Provisions. Neither the Company nor the Guarantor will, while any of the Securities remain outstanding, consolidate with, or merge into, or merge into itself, or sell or convey all or substantially all of its property to any other company unless the provisions of Article Ten hereof are complied with. Section 3.07. Limitation on Dividends. If Securities are issued to a Countrywide Trust or a trustee of such trust in connection with the issuance of Trust Securities by such Countrywide Trust and (i) there shall have occurred and be continuing any event that would constitute an Event of Default, (ii) the Guarantor shall be in default with respect to its payment of any obligations under the Capital Securities Guarantee or Common Securities Guarantee relating to such Countrywide Trust, or (iii) the Company shall have given notice of its election to defer payments of interest on such Securities by extending the interest payment period as provided in the Indenture and such period, or any extension thereof, shall be continuing, then (a) the Guarantor and the Company shall not declare or pay any dividend on, make any distributions with respect to, or redeem, purchase or make a liquidation payment with respect to, any of its capital stock or rights to acquire such capital stock (other than (i) purchases or acquisitions of shares of the Company's or the Guarantor's capital stock or rights to acquire such capital stock in connection with the satisfaction by the Company or the Guarantor, respectively, of their obligations under any employee benefit plans, (ii) as a result of a reclassification of the Company's or the Guarantor's capital stock or rights to acquire such capital stock or the exchange or conversion of one class or series of the Company's or the Guarantor's capital stock or rights to acquire such capital stock for another class or series of the Company's or the Guarantor's capital stock or rights to acquire such capital stock, (iii) the purchase of fractional interests in shares of the Company's or the Guarantor's capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged, or (iv) dividends or distributions made on the Company's or the Guarantor's capital stock or rights to acquire such stock with the Company's or the Guarantor's capital stock or rights to acquire such capital stock) or make any guarantee payments with respect to any of the foregoing and (b) the Guarantor and the Company shall not make any payment of interest, principal or premium, if any, on or repay, repurchase or redeem any debt securities (including guarantees) issued by the Guarantor or the Company which rank pari passu with or junior to such Securities. Section 3.08. Covenants as to Countrywide Trusts. In the event Securities are issued to a Countrywide Trust or a trustee of such trust in connection with the issuance of Trust Securities by such Countrywide Trust, for so long as such Trust Securities remain outstanding, the Guarantor will (i) maintain 100% direct ownership of the Common Securities of such Countrywide Trust, (ii) use its reasonable efforts to cause such 32 Countrywide Trust (a) to remain a business trust, except in connection with a distribution of Securities to the holders of Trust Securities in liquidation of such Countrywide Trust, the redemption of all of the Trust Securities of such Countrywide Trust or certain mergers, consolidations or amalgamations, each as permitted by the Declaration of such Countrywide Trust, and (b) to otherwise continue to be treated as a grantor trust for United States federal income tax purposes and (iii) use its reasonable efforts to cause each holder of Trust Securities to be treated as owning an undivided beneficial interest in the Securities. Section 3.09. Calculation of Original Issue Discount. The Company shall file with the Trustee promptly at the end of each calendar year a written notice specifying the amount of original issue discount (including daily rates and accrual periods) accrued on outstanding Debt Securities as of the end of such year. ARTICLE IV. SECURITYHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE Section 4.01. Securityholders' Lists. The Company covenants and agrees that it will furnish or caused to be furnished to the Trustee: (a) on each regular record date for each series of Securities, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Securityholders of such series of Securities as of such record date (and on dates to be determined pursuant to Section 2.03 for non-interest bearing securities in each year); 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; except that no such lists need be furnished under this Section 4.01 so long as the Trustee is in possession thereof by reason of its acting as Security registrar for such series. Section 4.02. Preservation and Disclosure of Lists. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, all information as to the names and addresses of the holders of each series of Securities (1) contained in the most recent list furnished to it as provided in Section 4.01 or (2) received by it in the capacity of Securities registrar (if so acting) hereunder. The Trustee may destroy any list furnished to it as provided in Section 4.01 upon receipt of a new list so furnished. (b) In case three or more holders of Securities of any series (hereinafter referred to as "applicants") apply in writing to the Trustee and furnish to the Trustee reasonable proof that 33 each such applicant has owned a Security of such series for a period of at least six months preceding the date of such application, and such application states that the applicants desire to communicate with other holders of Securities of such series or with holders of all Securities with respect to their rights under this Indenture or under such Securities and is accompanied by a copy of the form of proxy or other communication which such applicants propose to transmit, then the Trustee shall within five Business Days after the receipt of such application, at its election, either: (1) afford such applicants access to the information preserved at the time by the Trustee in accordance with the provisions of subsection (a) of this Section 4.02, or (2) inform such applicants as to the approximate number of holders of such series or all Securities, as the case may be, whose names and addresses appear in the information preserved at the time by the Trustee in accordance with the provisions of subsection (a) of this Section 4.02, and as to the approximate cost of mailing to such Securityholders the form of proxy or other communication, if any, specified in such application. If the Trustee shall elect not to afford such applicants access to such information, the Trustee shall, upon the written request of such applicants, mail to each Securityholder of such series or all Securities, as the case may be, whose name and address appear in the information preserved at the time by the Trustee in accordance with the provisions of subsection (a) of this Section 4.02 a copy of the form of proxy or other communication which is specified in such request with reasonable promptness after a tender to the Trustee of the material to be mailed and of payment, or provision for the payment, of the reasonable expenses of mailing, unless within five days after such tender, the Trustee shall mail to such applicants and file with the Securities and Exchange Commission, together with a copy of the material to be mailed, a written statement to the effect that, in the opinion of the Trustee, such mailing would be contrary to the best interests of the holders of Securities of such series or all Securities, as the case may be, or would be in violation of applicable law. Such written statement shall specify the basis of such opinion. If said Commission, after opportunity for a hearing upon the objections specified in the written statement so filed, shall enter an order refusing to sustain any of such objections or if, after the entry of an order sustaining 1 or more of such objections, said Commission shall find, after notice and opportunity for hearing, that all the objections so sustained have been met and shall enter an order so declaring, the 34 Trustee shall mail copies of such material to all such Securityholders with reasonable promptness after the entry of such order and the renewal of such tender; otherwise the Trustee shall be relieved of any obligation or duty to such applicants respecting their application. (c) Each and every holder of Securities, by receiving and holding the same, agrees with Company, the Guarantor and the Trustee that neither the Company, the Guarantor nor the Trustee nor any paying agent shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the holders of Securities in accordance with the provisions of subsection (b) of this Section 4.02, 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 said subsection (b). Section 4.03. Reports by Guarantor. (a) The Guarantor covenants and agrees to file with the Trustee, within 15 days after the Guarantor is required to file the same with the Securities and Exchange 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 said Commission may from time to time by rules and regulations prescribe) which the Guarantor may be required to file with said Commission pursuant to Section 13 or Section 15(d) of the Exchange Act; or, if the Guarantor is not required to file information, documents or reports pursuant to either of such sections, then to file with the Trustee and said Commission, in accordance with rules and regulations prescribed from time to time by said Commission, such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of the Exchange Act 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. (b) The Guarantor covenants and agrees to file with the Trustee and the Securities and Exchange Commission, in accordance with the rules and regulations prescribed from time to time by said Commission, such additional information, documents and reports with respect to compliance by the Guarantor with the conditions and covenants provided for in this Indenture as may be required from time to time by such rules and regulations. (c) The Guarantor covenants and agrees to transmit by mail to all holders of Securities, as the names and addresses of such holders appear upon the Security register, within 30 days after the filing thereof with the Trustee, such summaries of any information, documents and reports required to be filed by the Guarantor pursuant to subsections (a) and (b) of this Section 4.03 as may be required by rules and regulations prescribed from time to time by the Securities and Exchange Commission. (d) Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, 35 including the Guarantor's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Certificates and Officers' Certificates). Section 4.04. Reports by the Trustee. (a) The Trustee shall transmit to Securityholders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. If required by Section 313(a) of the Trust Indenture Act, the Trustee shall, within 60 days after each May 15 following the date of this Indenture deliver to Securityholders a brief report, dated as of such May 15, which complies with the provisions of such Section 313(a). (b) A copy of each such report shall, at the time of such transmission to Securityholders, be filed by the Trustee with each stock exchange, if any, upon which the Securities are listed, with the Securities and Exchange Commission and with the Company. The Company will promptly notify the Trustee when the Securities are listed on any stock exchange. ARTICLE V. REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS-- EVENTS OF DEFAULT Section 5.01. Events of Default. The following Events of Default with respect to Securities of any series or such other events as may be established with respect to the Securities of that series as contemplated by Section 2.03 hereof shall be "Events of Default" with respect to Securities of that series: (a) the Company or the Guarantor defaults in the payment of any interest upon any Securities of that series when it becomes due and payable, and continuance of such default for a period of 30 days; provided, however, that a valid extension of an interest payment period by the Company in accordance with the terms of any indenture supplemental hereto shall not constitute a default in the payment of interest for this purpose; or (b) the Company or the Guarantor defaults in the payment of all or any part of the principal of (or premium, if any, on) any Securities of that series as and when the same shall become due and payable either at maturity, upon redemption (including redemption for any sinking fund), by declaration or otherwise; provided, however, that a valid extension of the maturity of such Securities in accordance with the terms of any indenture supplemental hereto shall not constitute a default in the payment of principal or premium, if any; or (c) the Company or the Guarantor defaults in the performance, or breaches, of any of its covenants or warranties in this Indenture (other than a covenant or warranty a default in whose performance or whose breach is elsewhere in this Section specifically dealt with and other than those set forth exclusively in terms of any particular series of Securities established as 36 contemplated in this Indenture), and continuance of such default or breach for a period of 90 days after there has been given, by registered or certified mail, to the Company and the Guarantor by the Trustee or to the Company, the Guarantor and the Trustee by the holders of at least 25% in principal amount of the outstanding Securities, without regard to 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 (d) a court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Company or the Guarantor in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Company or the Guarantor or for any substantial part of its property, or ordering the winding-up or liquidation of its affairs and such decree or order shall remain unstayed and in effect for a period of 90 consecutive days; or (e) the Company or the Guarantor shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, shall consent to the entry of an order for relief in an involuntary case under any such law, or shall consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) of the Company or the Guarantor or of any substantial part of its property, or shall make any general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due; or (f) in the event the Securities of that series are issued to a Countrywide Trust or a trustee of such trust in connection with the issuance of Trust Securities by such Countrywide Trust, such Countrywide Trust shall have voluntarily or involuntarily dissolved, wound-up its business or otherwise terminated its existence except in connection with (i) the distribution of the Securities to holders of such Trust Securities in liquidation of their interests in such Countrywide Trust, (ii) the redemption of all of the outstanding Trust Securities of such Countrywide Trust or (iii) certain mergers, consolidations or amalgamations, each as permitted by the Declaration of such Countrywide Trust. If an Event of Default occurs and is continuing with respect to any series of Securities, then, and in each and every such case, unless the principal of all of the Securities of that series shall have already become due and payable, either the Trustee or the holders of not less than 25% in aggregate principal amount of the Securities of that series then outstanding hereunder, by notice in writing to the Company and the Guarantor (and to the Trustee if given by Securityholders), may declare the entire principal (or, if the Securities of that series are Original Issue Discount Securities, such portion of the principal amount as may be specified in the terms of that series) of all Securities of that series and the interest accrued thereon, if any, and any other amounts payable under this Indenture to be due and payable immediately, and upon any such declaration the same shall become immediately due and payable. The foregoing provisions, however, are subject to the condition that if, at any time after the principal (or, if the Securities are Original Issue Discount Securities, such portion of the 37 principal as may be specified in the terms thereof) of the Securities of any series (or of all the Securities, as the case may be) shall have been so declared due and payable, and before any judgment or decree for the payment of the moneys due shall have been obtained or entered as hereinafter provided, the Company or the Guarantor shall pay or shall deposit with the Trustee a sum sufficient to pay all matured installments of interest upon all the Securities of such series (or of all the Securities, as the case may be) and the principal of and premium, if any, on any and all Securities of such series (or of all the Securities, as the case may be) which shall have become due otherwise than by acceleration (with interest upon such principal and premium, if any, and, to the extent that payment of such interest is enforceable under applicable law, on overdue installments of interest, at the same rate as the rate of interest or Yield to Maturity (in the case of Original Issue Discount Securities) specified in the Securities of such series, (or at the respective rates of interest or Yields to Maturity of all the Securities, as the case may be) to the date of such payment or deposit) and such amount as shall be sufficient to cover reasonable compensation to the Trustee and each predecessor Trustee, their respective agents, attorneys and counsel, and all other expenses and liabilities incurred, and all advances made, by the Trustee and each predecessor Trustee except as a result of negligence or bad faith, and if any and all Events of Default under the Indenture, other than the non-payment of the principal of or premium, if any, on Securities which shall have become due by acceleration, shall have been cured, waived or otherwise remedied as provided herein -- then and in every such case the holders of a majority in aggregate principal amount of the Securities of such series (or of all the Securities, as the case may be) then outstanding, by written notice to the Company and to the Trustee, may waive all defaults with respect to that series (or with respect to all Securities, as the case may be, in such case, treated as a single class) and rescind and annul such declaration and its consequences, but no such waiver or rescission and annulment shall extend to or shall affect any subsequent default or shall impair any right consequent thereon. In case the Trustee shall have proceeded to enforce any right under this Indenture and such proceedings shall have been discontinued or abandoned because of such rescission or annulment or for any other reason or shall have been determined adversely to the Trustee, then and in every such case the Company, the Guarantor, the Trustee and the holders of the Securities shall be restored respectively to their several positions and rights hereunder, and all rights, remedies and powers of the Company, the Guarantor, the Trustee and the holders of the Securities shall continue as though no such proceeding had been taken. Section 5.02. Payment of Securities on Default; Suit Therefor. The Company and the Guarantor covenant that (a) in case default shall be made in the payment of any installment of interest upon any of the Securities of any series as and when the same shall become due and payable, and such default shall have continued for a period of 30 days, or (b) in case default shall be made in the payment of the principal of or premium, if any, on any of the Securities of any series as and when the same shall have become due and payable, whether at maturity of the Securities of that series or upon redemption or by declaration or otherwise -- then, upon demand of the Trustee, the Company or the Guarantor will pay to the Trustee, for the benefit of the holders of the Securities of that series the whole amount that then shall have become due and payable on all such Securities of that series for principal and 38 premium, if any, or interest, or both, as the case may be, with interest upon the overdue principal and premium, if any, and (to the extent that payment of such interest is enforceable under applicable law and, if the Securities are held by a Countrywide Trust or a trustee of such trust, without duplication of any other amounts paid by the Guarantor or such Countrywide Trust or trustee in respect thereof) upon the overdue installments of interest at the rate or Yield to Maturity (in the case of Original Issue Discount Securities) borne by the Securities of that series; and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including a reasonable compensation to the Trustee, its agents, attorneys and counsel, and any expenses or liabilities incurred by the Trustee hereunder other than through its negligence or bad faith. In case the Company or the Guarantor shall fail forthwith to pay such amounts upon such demand, the Trustee, in its own name and as trustee of an express trust, shall be entitled and empowered to institute any actions or proceedings at law or in equity for the collection of the sums so due and unpaid, and may prosecute any such action or proceeding to judgment or final decree, and may enforce any such judgment or final decree against the Company or the Guarantor or any other obligor on such Securities and collect in the manner provided by law out of the property of the Company or the Guarantor or any other obligor on such Securities wherever situated the moneys adjudged or decreed to be payable. In case there shall be pending proceedings for the bankruptcy or for the reorganization of the Company or the Guarantor or any other obligor on the Securities of any series under Title 11, United States Code, or any other applicable law, or in case a receiver or trustee shall have been appointed for the property of the Company or the Guarantor or such other obligor, or in the case of any other similar judicial proceedings relative to the Company or the Guarantor or other obligor upon the Securities of any series, or to the creditors or property of the Company or the Guarantor or such other obligor, the Trustee, irrespective of whether the principal of the Securities of any series 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 pursuant to the provisions of this Section 5.02, shall be entitled and empowered, by intervention in such proceedings or otherwise, to file and prove a claim or claims for the whole amount of principal and interest (or, if the Securities of that series are Original Issue Discount Securities such portion of the principal amount as may be specified in the terms of that series) owing and unpaid in respect of the Securities of such series and, in case of any judicial proceedings, to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for reasonable compensation to the Trustee and each predecessor Trustee, and their respective agents, attorneys and counsel, and for reimbursement of all expenses and liabilities incurred, and all advances made, by the Trustee and each predecessor Trustee, except as a result of negligence or bad faith) and of the Securityholders allowed in such judicial proceedings relative to the Company or the Guarantor or any other obligor on the Securities of any series, or to the creditors or property of the Company or the Guarantor or such other obligor, unless prohibited by applicable law and regulations, to vote on behalf of the holders of the Securities or any series in any election of a trustee or a standby trustee in arrangement, reorganization, liquidation or other bankruptcy or insolvency proceedings or person performing similar functions in comparable proceedings, and to collect 39 and receive any moneys or other property payable or deliverable on any such claims, and to distribute the same after the deduction of its charges and expenses; and any receiver, assignee or trustee in bankruptcy or reorganization is hereby authorized by each of the Securityholders to make such payments to the Trustee, and, in the event that the Trustee shall consent to the making of such payments directly to the Securityholders, to pay to the Trustee such amounts as shall be sufficient to cover reasonable compensation to the Trustee, each predecessor Trustee and their respective agents, attorneys and counsel, and all other expenses and liabilities incurred, and all advances made, by the Trustee and each predecessor Trustee except as a result of negligence or bad faith. Nothing herein contained shall be construed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Securityholder any plan of reorganization, arrangement, adjustment or composition affecting the Securities of any series or the rights of any holder thereof or to authorize the Trustee to vote in respect of the claim of any Securityholder in any such proceeding. All rights of action and of asserting claims under this Indenture, or under any of the Securities, may be enforced by the Trustee without the possession of any of the Securities, or the production thereof on any trial or other proceeding relative thereto, and any such suit or proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall be for the ratable benefit of the holders of the Securities. In any proceedings brought by the Trustee (and also any proceedings involving the interpretation of any provision of this Indenture to which the Trustee shall be a party) the Trustee shall be held to represent all the holders of the Securities, and it shall not be necessary to make any holders of the Securities parties to any such proceedings. Section 5.03. Application of Moneys Collected by Trustee. Any moneys collected by the Trustee shall be applied in the following order, at the date or dates fixed by the Trustee for the distribution of such moneys, upon presentation of the several Securities in respect of which moneys have been collected, and stamping thereon the payment, if only partially paid, and upon surrender thereof if fully paid: First: To the payment of costs and expenses of collection applicable to such series and reasonable compensation to the Trustee, its agents, attorneys and counsel, and of all other expenses and liabilities incurred, and all advances made, by the Trustee except as a result of its negligence or bad faith; Second: To the payment of all Senior Indebtedness of the Company if and to the extent required by Article Fifteen; Third: In case the principal of the outstanding Securities in respect of which moneys have been collected shall not have become due and be unpaid, to the payment of the amounts then due and unpaid upon Securities of such series for principal (and premium, if any), 40 and interest on the Securities of such series, in respect of which or for the benefit of which money has been collected, ratably, without preference or priority of any kind, according to the amounts due on such Securities for principal (and premium, if any) and interest, respectively; and Fourth: The balance, if any, to the Company. Section 5.04. Proceedings by Securityholders. No holder of any Security of any series shall have any right by virtue of or by availing of any provision of this Indenture to institute any suit, action or proceeding in equity or at law upon or under or with respect to this Indenture or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless such holder previously shall have given to the Trustee written notice of an Event of Default and of the continuance thereof with respect to the Securities of such series specifying such Event of Default, as hereinbefore provided, and unless also the holders of not less than 25% in aggregate principal amount of the Securities of that series then outstanding shall have made written request upon the Trustee to institute such action, suit or proceeding in its own name as Trustee hereunder and shall have offered to the Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee for 60 days after its receipt of such notice, request and offer of indemnity shall have failed to institute any such action, suit or proceeding, it being understood and intended, and being expressly covenanted by the taker and holder of every Security with every other taker and holder and the Trustee, that no one or more holders of Securities of any series 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 holder of Securities, or to obtain or seek to obtain priority over or preference to any other such holder, or to enforce any right under this Indenture, except in the manner herein provided and for the equal, ratable and common benefit of all holders of Securities of the applicable series. Notwithstanding any other provisions in this Indenture, however, the right of any holder of any Security to receive payment of the principal of (premium, if any) and interest, if any, on such Security, on or after the same shall have become due and payable, or to institute suit for the enforcement of any such payment, shall not be impaired or affected without the consent of such holder and by accepting a Security hereunder it is expressly understood, intended and covenanted by the taker and holder of every Security of such series with every other such taker and holder and the Trustee, that no one or more holders of Securities of such series shall have any right in any manner whatsoever by virtue or by availing of any provision of this Indenture to affect, disturb or prejudice the rights of the holders of any other such Securities, or to obtain or seek to obtain priority over or preference to any other such holder, or to enforce any right under this Indenture, except in the manner herein provided and for the equal, ratable and common benefit of all holders of Securities of series. For the protection and enforcement of the provisions of this Section, each and every Securityholder and the Trustee shall be entitled to such relief as can be given either at law or in equity. Section 5.05. Proceedings by Trustee. 41 In case of an Event of Default hereunder the Trustee may in its discretion proceed to protect and enforce the rights vested in it by this Indenture by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any of such rights, either by suit in equity or by action at law or by proceeding in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement contained in this Indenture or in aid of the exercise of any power granted in this Indenture, or to enforce any other legal or equitable right vested in the Trustee by this Indenture or by law. Section 5.06. Remedies Cumulative and Continuing. Except as otherwise provided in Section 2.08, all powers and remedies given by this Article Five to the Trustee or to the Securityholders shall, to the extent permitted by law, be deemed cumulative and not exclusive of any other powers and remedies available to the Trustee or the holders of the Securities, by judicial proceedings or otherwise, to enforce the performance or observance of the covenants and agreements contained in this Indenture or otherwise established with respect to such series, and no delay or omission of the Trustee or of any holder of any of the Securities to exercise any right or power accruing upon any Event of Default occurring and continuing as aforesaid shall impair any such right or power, or shall be construed to be a waiver of any such default or an acquiescence therein; and, subject to the provisions of Section 5.04, every power and remedy given by this Article Five or by law to the Trustee or to the Securityholders may be exercised from time to time, and as often as shall be deemed expedient, by the Trustee or by the Securityholders. Section 5.07. Direction of Proceedings and Waiver of Defaults by Majority of Securityholders. The holders of a majority in aggregate principal amount of the Securities of any or all series affected (voting as one class) at the time outstanding shall have the 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; provided, however, that (subject to the provisions of Section 6.01) the Trustee shall have the right to decline to follow any such direction if the Trustee shall determine that the action so directed would be unjustly prejudicial to the holders not taking part in such direction or if the Trustee being advised by counsel determines that the action or proceeding so directed may not lawfully be taken or if the Trustee in good faith by its board of directors or trustees, executive committee, or a trust committee of directors or trustees and/or Responsible Officers shall determine that the action or proceedings so directed would involve the Trustee in personal liability. Prior to any declaration accelerating the maturity of any series of the Securities, or of all the Securities, as the case may be, the holders of a majority in aggregate principal amount of the Securities of that series at the time outstanding may on behalf of the holders of all of the Securities of such series waive any past default or Event of Default, including any default or Event of Default the conditions for the occurrence of which are established pursuant to Section 2.03, and its consequences, except a default (a) in the payment of principal of, premium, if any, or interest on any of the Securities, (b) in respect of covenants or provisions hereof which cannot be modified or amended without the consent of the holder of each Security affected, or (c) a default of the covenants contained in Section 3.08; 42 provided, however, that if the Securities of such series are held by a Countrywide Trust or a trustee of such trust, such waiver or modification to such waiver shall not be effective until the holders of a majority in liquidation preference of Trust Securities of the applicable Countrywide Trust shall have consented to such waiver or modification to such waiver; provided, further, that if the consent of the holder of each outstanding Security is required, such waiver shall not be effective until each holder of the Trust Securities of the applicable Countrywide Trust shall have consented to such waiver. Upon any such waiver, the default covered thereby shall be deemed to be cured for all purposes of this Indenture and the Company, the Guarantor, the Trustee and the holders of the Securities of such series shall be restored to their former positions and rights hereunder, respectively; but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. Whenever any default or Event of Default hereunder shall have been waived as permitted by this Section 5.07, said default or Event of Default shall for all purposes of the Securities of that series (or of all Securities, as the case may be) and this Indenture be deemed to have been cured and to be not continuing. Section 5.08. Notice of Defaults. The Trustee shall, within 90 days after the occurrence of a default with respect to the Securities of any series, mail to all Securityholders of that series, as the names and addresses of such holders appear upon the Security register, notice of all defaults with respect to that series known to the Trustee, unless such defaults shall have been cured before the giving of such notice (the term "defaults" for the purpose of this Section 5.08 being hereby defined to be the events specified in clauses (a), (b), (c), (d), (e) and (f) of Section 5.01, not including periods of grace, if any, provided for therein, and irrespective of the giving of written notice specified in clause (c) of Section 5.01); and provided that, except in the case of default in the payment of the principal of, premium, if any, or interest on any of the 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 determines that the withholding of such notice is in the interests of the Securityholders of such series; and provided further, that in the case of any default of the character specified in Section 5.01(c) no such notice to Securityholders of such series shall be given until at least 60 days after the occurrence thereof but shall be given within 90 days after such occurrence. Section 5.09. Undertaking to Pay Costs. All parties to this Indenture agree, and each holder of any 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 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 and expenses, against 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 5.09 shall not apply to any suit instituted by the Trustee, to any suit instituted by any Securityholder, or group of Securityholders of any series, holding in the aggregate more than 10% in principal amount of the Securities of 43 that series outstanding, or to any suit instituted by any Securityholder for the enforcement of the payment of the principal of (or premium, if any) or interest on any Security against the Company on or after the same shall have become due and payable. ARTICLE VI. CONCERNING THE TRUSTEE Section 6.01. Duties and Responsibilities of Trustee. With respect to the holders of any series of Securities issued hereunder, the Trustee, prior to the occurrence of an Event of Default with respect to Securities of that series and after the curing or waiving of all Events of Default which may have occurred, with respect to Securities of that series, undertakes to perform such duties and only such duties as are specifically set forth in this Indenture. In case an Event of Default with respect to the Securities of a series has occurred (which has not been cured or waived) the Trustee shall 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. 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 (a) prior to the occurrence of an Event of Default with respect to Securities of a series and after the curing or waiving of all Events of Default with respect to that series which may have occurred (1) the duties and obligations of the Trustee with respect to Securities of a series shall be determined solely by the express provisions of this Indenture, and the Trustee shall not be liable except for the performance of such duties and obligations with respect to such series 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 the part of the Trustee, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any 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 provision 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; 44 (b) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer or Officers of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; and (c) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith, in accordance with the direction of the Securityholders pursuant to Section 5.07, relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture. None of the provisions contained in this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if there is reasonable ground for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Indenture or adequate indemnity against such risk is not reasonably assured to it. Section 6.02. Reliance on Documents, Opinions, etc. Except as otherwise provided in Section 6.01: (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, consent, order, bond, note, debenture or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request, direction, order or demand of the Company or the Guarantor mentioned herein shall be sufficiently evidenced by an Officers' Certificate (unless other evidence in respect thereof be herein specifically prescribed); and any Board Resolution may be evidenced to the Trustee by a copy thereof certified by the Secretary or an Assistant Secretary of the Company or the Guarantor, as the case may be; (c) the Trustee may consult with counsel of its selection and any advice or Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken or suffered omitted by it hereunder in good faith and in accordance with such advice or Opinion of Counsel; (d) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Securityholders, pursuant to the provisions of this Indenture, unless such Securityholders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby; (e) the Trustee shall not be liable for any action taken 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; nothing contained herein shall, however, relieve the Trustee of the obligation, upon the occurrence of an Event of Default with respect to a series of the Securities 45 (that has not been cured or waived) to exercise with respect to Securities of that series such of the rights and powers vested in it by this Indenture, and to 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; (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, consent, order, approval, bond, debenture, coupon or other paper or document, unless requested in writing to do so by the holders of not less than a majority in principal amount of the outstanding Securities of the series affected thereby; provided, however, that if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Indenture, the Trustee may require reasonable indemnity against such expense or liability as a condition to so proceeding; and (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents (including any Authenticating Agent) or attorneys, and the Trustee shall not be responsible for any misconduct or negligence on the part of any such agent or attorney appointed by it with due care. Section 6.03. No Responsibility for Recitals, etc. The recitals contained herein and in the Securities (except in the certificate of authentication of the Trustee or the Authenticating Agent) shall be taken as the statements of the Company and the Guarantor, and the Trustee and the Authenticating Agent assume no responsibility for the correctness of the same. The Trustee and the Authenticating Agent make no representations as to the validity or sufficiency of this Indenture or of the Securities. The Trustee and the Authenticating Agent shall not be accountable for the use or application by the Company or the Guarantor of any Securities or the proceeds of any Securities authenticated and delivered by the Trustee or the Authenticating Agent in conformity with the provisions of this Indenture. Section 6.04. Trustee, Authenticating Agent, Paying Agents, Transfer Agents or Registrar May Own Securities. The Trustee or any Authenticating Agent or any paying agent or any transfer agent or any Security registrar, in its individual or any other capacity, may become the owner or pledgee of Securities with the same rights it would have if it were not Trustee, Authenticating Agent, paying agent, transfer agent or Security registrar. Section 6.05. Moneys to be Held in Trust. Subject to the provisions of Section 11.04, all moneys received by the Trustee or any paying agent shall, until used or applied as herein provided, be held in trust for the purpose for which they were received, but need not be segregated from other funds except to the extent 46 required by law. The Trustee and any paying agent shall be under no liability for interest on any money received by it hereunder except as otherwise agreed in writing with the Company and the Guarantor. So long as no Event of Default shall have occurred and be continuing, all interest allowed on any such moneys shall be paid from time to time upon the written order of the Company, signed by the Chairman of the Board of Directors, the President, a Managing Director, a Vice President, the Treasurer or an Assistant Treasurer of the Company. Section 6.06. Compensation and Expenses of Trustee. The Company and the Guarantor covenant and agree to pay to the Trustee from time to time, and the Trustee shall be entitled to, such compensation as shall be agreed to in writing among the Company, the Guarantor and the Trustee (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust), and the Company and the Guarantor will pay or reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any of the provisions of this Indenture (including the reasonable compensation and the expenses and disbursements of its counsel and of all persons not regularly in its employ) except any such expense, disbursement or advance as may arise from its negligence or bad faith. The Company and the Guarantor also covenant to indemnify each of the Trustee or any predecessor Trustee (and its officers, agents, directors and employees) for, and to hold it harmless against, any and all loss, damage, claim, liability or expense including taxes (other than taxes based on the income of the Trustee) incurred without negligence or bad faith on the part of the Trustee and arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim of liability in the premises. The obligations of the Company and the Guarantor under this Section 6.06 to compensate and indemnify the Trustee and to pay or reimburse the Trustee for expenses, disbursements and advances shall constitute additional indebtedness hereunder. Such additional indebtedness shall be secured by a lien prior to that of the Securities upon all property and funds held or collected by the Trustee as such, except funds held in trust for the benefit of the holders of particular Securities. When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 5.01(d), Section 5.01(e) or Section 5.01(f), the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any applicable federal or state bankruptcy, insolvency or other similar law. The provisions of this Section shall survive the termination of this Indenture. Section 6.07. Officers' Certificate as Evidence. Except as otherwise provided in Sections 6.01 and 6.02, whenever in the administration of the provisions of this Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or omitting any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of negligence or bad faith on the part of the Trustee, be deemed to be conclusively 47 proved and established by an Officers' Certificate delivered to the Trustee, and such certificate, in the absence of negligence or bad faith on the part of the Trustee, shall be full warrant to the Trustee for any action taken or omitted by it under the provisions of this Indenture upon the faith thereof. Section 6.08. Conflicting Interest of Trustee. If the Trustee has or shall acquire any "conflicting interest" within the meaning of Section 310(b) of the Trust Indenture Act, the Trustee and the Company shall in all respects comply with the provisions of Section 310(b) of the Trust Indenture Act. Section 6.09. Eligibility of Trustee. The Trustee hereunder shall at all times be a corporation organized and doing business under the laws of the United States of America or any state or territory thereof or of the District of Columbia or a corporation or other Person permitted to act as trustee by the Securities and Exchange Commission authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least 50 million U.S. dollars ($50,000,000) and subject to supervision or examination by federal, state, territorial, or District of Columbia 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 6.09 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 records of condition so published. The Company and the Guarantor may not, nor may any person directly or indirectly controlling, controlled by, or under common control with the Company or the Guarantor, serve as Trustee. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 6.09, the Trustee shall resign immediately in the manner and with the effect specified in Section 6.10. Section 6.10. Resignation or Removal of Trustee. (a) The Trustee, or any trustee or trustees hereafter appointed, may at any time resign with respect to one or more or all series of Securities by giving written notice of such resignation to the Company and the Guarantor and by mailing notice thereof to the holders of the applicable series of Securities at their addresses as they shall appear on the Security Register. Upon receiving such notice of resignation, the Company and the Guarantor shall promptly appoint a successor trustee or trustees with respect to the applicable series by written instrument, in duplicate, executed by order of its Board of Directors, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor Trustee. If no successor Trustee shall have been so appointed with respect to any series of Securities and have accepted appointment within 30 days after the mailing of such notice of resignation to the affected Securityholders, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee, or any Securityholder who has been a bona fide holder of a 48 Security or Securities of the applicable series for at least six months may, subject to the provisions of Section 5.09, on behalf of himself and all others similarly situated, petition any such court for the appointment of a successor Trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, appoint a successor Trustee. (b) In case at any time any of the following shall occur - -- (1) the Trustee shall fail to comply with the provisions of Section 6.08 after written request therefor by the Company or the Guarantor or by any Securityholder who has been a bona fide holder of a Security or Securities for at least six months, or (2) the Trustee shall cease to be eligible in accordance with the provisions of Section 6.09 and shall fail to resign after written request therefor by the Company or the Guarantor or by any such Securityholder, or (3) the Trustee shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, the Company or the Guarantor may remove the Trustee and appoint a successor Trustee by written instrument, in duplicate, executed by order of the Board of Directors, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor Trustee, or, subject to the provisions of Section 5.09, any Securityholder who has been a bona fide holder of a Security or Securities of the applicable 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 and the appointment of a successor Trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, remove the Trustee and appoint a successor Trustee. (c) Upon prior written notice to the Company, the Guarantor and the Trustee, the holders of a majority in aggregate principal amount of the Securities of any series at the time outstanding may at any time remove the Trustee with respect to such series and nominate a successor Trustee with respect to the applicable series of Securities or all series, as the case may be, which shall be deemed appointed as successor Trustee with respect to the applicable series unless within ten Business Days after such nomination the Company or the Guarantor objects thereto, in which case the Trustee so removed or any Securityholder of the applicable series, upon the terms and conditions and otherwise as in subsection (a) of this Section 6.10 provided, 49 may petition any court of competent jurisdiction for an appointment of a successor Trustee with respect to such series. (d) Any resignation or removal of the Trustee and appointment of a successor Trustee pursuant to any of the provisions of this Section 6.10 shall become effective upon acceptance of appointment by the successor Trustee as provided in Section 6.11. Section 6.11. Acceptance by Successor Trustee. Any successor Trustee appointed as provided in Section 6.10 shall execute, acknowledge and deliver to the Company and the Guarantor and to its predecessor Trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the retiring Trustee with respect to all or any applicable series shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, duties and obligations with respect to such series of its predecessor hereunder, with like effect as if originally named as Trustee herein; but, nevertheless, on the written request of the Company or the Guarantor or of the successor Trustee, the Trustee ceasing to act shall, upon payment of any amounts then due it pursuant to the provisions of Section 6.06, execute and deliver an instrument transferring to such successor Trustee all the rights and powers of the Trustee so ceasing to act and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee thereunder. Upon request of any such successor Trustee, the Company and the Guarantor shall execute any and all instruments in writing for more fully and certainly vesting in and confirming to such successor Trustee all such rights and powers. Any Trustee ceasing to act shall, nevertheless, retain a lien upon all property or funds held or collected by such Trustee to secure any amounts then due it pursuant to the provisions of Section 6.06. If a successor Trustee is appointed with respect to the Securities of one or more (but not all) series, the Company, the Guarantor, the retiring Trustee and each successor Trustee with respect to the Securities of any applicable series shall execute and deliver an indenture supplemental hereto which 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 Securities of any series as to which the predecessor Trustee is not retiring shall continue to be vested in the predecessor Trustee, and 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 Trust 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. No successor Trustee shall accept appointment as provided in this Section 6.11 unless at the time of such acceptance such successor Trustee shall be qualified under the provisions of Section 6.08 and eligible under the provisions of Section 6.09. 50 Upon acceptance of appointment by a successor Trustee as provided in this Section 6.11, the Company and the Guarantor shall mail notice of the succession of such Trustee hereunder to the holders of Securities of any applicable series at their addresses as they shall appear on the Security register. If the Company and the Guarantor fail to mail such notice within ten Business Days after the acceptance of appointment by the successor Trustee, the successor Trustee shall cause such notice to be mailed at the expense of the Company and the Guarantor. Section 6.12. Succession by Merger, etc. 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 without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case at the time such successor to the Trustee shall succeed to the trusts created by this Indenture any of the Securities of any series shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor Trustee, and deliver such Securities so authenticated; and in case at that time any of the Securities of any series shall not have been authenticated, any successor to the Trustee may authenticate such Securities either in the name of any predecessor hereunder or in the name of the successor Trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Securities of such series or in this Indenture provided that the certificate of the Trustee shall have; provided, however, that the right to adopt the certificate of authentication of any predecessor Trustee or authenticate Securities of any series in the name of any predecessor Trustee shall apply only to its successor or successors by merger, conversion or consolidation. Section 6.13. Limitation on Rights of Trustee as a Creditor. The Trustee shall comply with Section 311(a) of the Trust Indenture Act, excluding any creditor relationship described in Section 311(b) of the Trust Indenture Act. A Trustee who has resigned or been removed shall be subject to Section 311(a) of the Trust Indenture Act to the extent included therein. Section 6.14. Authenticating Agents. There may be one or more Authenticating Agents appointed by the Trustee upon the request of the Company and the Guarantor with power to act on its behalf and subject to its direction in the authentication and delivery of Securities of any series issued upon exchange or transfer thereof as fully to all intents and purposes as though any such Authenticating Agent had been expressly authorized to authenticate and deliver Securities of such series; provided that the Trustee shall have no liability to the Company or the Guarantor for any acts or omissions of the Authenticating Agent with respect to the authentication and delivery of Securities of any series. Any such Authenticating Agent shall at all times be a corporation organized and doing business 51 under the laws of the United States or of any state or territory thereof or of the District of Columbia authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of at least $5,000,000 and being subject to supervision or examination by federal, state, territorial or District of Columbia authority. If such corporation publishes reports of condition at least annually pursuant to law or the requirements of such authority, then for the purposes of this Section 6.14 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 an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect herein specified in this Section. Any corporation into which any Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, consolidation or conversion to which any Authenticating Agent shall be a party, or any corporation succeeding to the corporate trust business of any Authenticating Agent, shall be the successor of such Authenticating Agent hereunder, if such successor corporation is otherwise eligible under this Section 6.14 without the execution or filing of any paper or any further act on the part of the parties hereto or such Authenticating Agent. Any Authenticating Agent may at any time resign with respect to one or more or all series of Securities by giving written notice of resignation to the Trustee and to the Company and the Guarantor. The Trustee may at any time terminate the agency of any Authenticating Agent with respect to one or more or all series of Securities by giving written notice of termination to such Authenticating Agent and to the Company and the Guarantor. Upon receiving such a notice of resignation or upon such a termination, or in case at any time any Authenticating Agent shall cease to be eligible under this Section 6.14, the Trustee may, and upon the request of the Company and the Guarantor shall, promptly appoint a successor Authenticating Agent with respect to the applicable series eligible under this Section 6.14, shall give written notice of such appointment to the Company and the Guarantor and shall mail notice of such appointment to all holders of the applicable series of Securities as the names and addresses of such holders appear on the Security Register. Any successor Authenticating Agent with respect to all or any series upon acceptance of its appointment hereunder shall become vested with all rights, powers, duties and responsibilities with respect to such series of its predecessor hereunder, with like effect as if originally named as Authenticating Agent herein. The Company and the Guarantor agree to pay to any Authenticating Agent from time to time reasonable compensation for its services. Any Authenticating Agent shall have no responsibility or liability for any action taken by it as such in accordance with the directions of the Trustee. ARTICLE VII. CONCERNING THE SECURITYHOLDERS Section 7.01. Action by Securityholders. 52 Whenever in this Indenture it is provided that the holders of a specified percentage in aggregate principal amount of the Securities of any or all series may take any action (including the making of any demand or request, the giving of any notice, consent or waiver or the taking of any other action) the fact that at the time of taking any such action the holders of such specified percentage have joined therein may be evidenced (a) by any instrument or any number of instruments of similar tenor executed by such Securityholders in person or by agent or proxy appointed in writing, or (b) by the record of such holders of Securities voting in favor thereof at any meeting of such Securityholders duly called and held in accordance with the provisions of Article Eight, or (c) by a combination of such instrument or instruments and any such record of such a meeting of such Securityholders or (d) by any other method the Trustee deems satisfactory. If the Company or the Guarantor shall solicit from the Securityholders of any series any request, demand, authorization, direction, notice, consent, waiver or other action, the Company or the Guarantor may, at its option, as evidenced by an Officers' Certificate, fix in advance a record date for such series for the determination of Securityholders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other action, but the Company or the Guarantor shall have no obligation to do so. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other action may be given before or after the record date, but only the Securityholders of record at the close of business on the record date shall be deemed to be Securityholders for the purposes of determining whether Securityholders of the requisite proportion of outstanding Securities of that series have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other action, and for that purpose the outstanding Securities of that series shall be computed as of the record date; provided, however, that no such authorization, agreement or consent by such Securityholders on the record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than six months after the record date. Section 7.02. Proof of Execution by Securityholders. Subject to the provisions of Section 6.01, 6.02 and 8.05, proof of the execution of any instrument by a Securityholder or his agent or proxy shall be sufficient if made in accordance with such reasonable rules and regulations as may be prescribed by the Trustee or in such manner as shall be satisfactory to the Trustee. The ownership of Securities shall be proved by the Security Register or by a certificate of the Security registrar. The Trustee may require such additional proof of any matter referred to in this Section as it shall deem necessary. The record of any Securityholders' meeting shall be proved in the manner provided in Section 8.06. Section 7.03. Who Are Deemed Absolute Owners. Prior to due presentment for registration of transfer of any Security, the Company, the Guarantor, the Trustee, any Authenticating Agent, any paying agent, any transfer agent and 53 any Security registrar may deem the person in whose name such Security shall be registered upon the Security Register to be, and may treat him as, the absolute owner of such Security (whether or not such Security shall be overdue) for the purpose of receiving payment of or on account of the principal of, premium, if any, and interest on such Security and for all other purposes; and neither the Company nor the Guarantor nor the Trustee nor any Authenticating Agent nor any paying agent nor any transfer agent nor any Security registrar shall be affected by any notice to the contrary. All such payments so made to any holder for the time being or upon his order shall be valid, and, to the extent of the sum or sums so paid, effectual to satisfy and discharge the liability for moneys payable upon any such Security. Section 7.04. Securities Owned by Company or the Guarantor Deemed Not Outstanding. In determining whether the holders of the requisite aggregate principal amount of Securities have concurred in any direction, consent or waiver under this Indenture, Securities which are owned by the Company or the Guarantor or any other obligor on the Securities or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or the Guarantor or any other obligor on the Securities shall be disregarded and deemed not to be outstanding for the purpose of any such determination; provided that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, consent or waiver, only Securities which the Trustee actually knows are so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as outstanding for the purposes of this Section 7.04 if the pledgee shall establish to the satisfaction of the Trustee the pledgee's right to vote such Securities and that the pledgee is not the Company or the Guarantor or any such other obligor or Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or the Guarantor or any such other obligor. In the case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. Section 7.05. Revocation of Consents; Future Holders Bound. At any time prior to (but not after) the evidencing to the Trustee, as provided in Section 7.01, of the taking of any action by the holders of the percentage in aggregate principal amount of the Securities specified in this Indenture in connection with such action, any holder of a Security (or any Security issued in whole or in part in exchange or substitution therefor) the serial number of which is shown by the evidence to be included in the Securities the holders of which have consented to such action may, by filing written notice with the Trustee at its principal office and upon proof of holding as provided in Section 7.02, revoke such action so far as concerns such Security (or so far as concerns the principal amount represented by any exchanged or substituted Security). Except as aforesaid any such action taken by the holder of any Security shall be conclusive and binding upon such holder and upon all future holders and owners of such Security, and of any Security issued in exchange or substitution therefor, irrespective of whether or not any notation in regard thereto is made upon such Security or any Security issued in exchange or substitution therefor. 54 ARTICLE VIII. SECURITYHOLDERS' MEETINGS Section 8.01. Purposes of Meetings. A meeting of Securityholders of any or all series may be called at any time and from time to time pursuant to the provisions of this Article Eight for any of the following purposes: (a) to give any notice to the Company or to the Guarantor or to the Trustee, or to give any directions to the Trustee, or to consent to the waiving of any default hereunder and its consequences, or to take any other action authorized to be taken by Securityholders pursuant to any of the provisions of Article Five; (b) to remove the Trustee and nominate a successor trustee pursuant to the provisions of Article Six; (c) to consent to the execution of an indenture or indentures supplemental hereto pursuant to the provisions of Section 9.02; or (d) to take any other action authorized to be taken by or on behalf of the holders of any specified aggregate principal amount of such Securities under any other provision of this Indenture or under applicable law. Section 8.02. Call of Meetings by Trustee. The Trustee may at any time call a meeting of Securityholders of any or all series to take any action specified in Section 8.01, to be held at such time and at such place in the Borough of Manhattan, The City of New York, as the Trustee shall determine. Notice of every meeting of the Securityholders of any or all series, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting, shall be mailed to holders of Securities of each series affected at their addresses as they shall appear on the Securities Register for each series affected. Such notice shall be mailed not less than 20 nor more than 180 days prior to the date fixed for the meeting. Section 8.03. Call of Meetings by Company, Guarantor or Securityholders. In case at any time the Company or the Guarantor pursuant to a resolution of the Board of Directors, or the holders of at least 10% in aggregate principal amount of the Securities of any or all series, as the case may be, then outstanding, shall have requested the Trustee to call a meeting of Securityholders of any or all series, as the case may be, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have mailed the notice of such meeting within 20 days after receipt of such request, then the Company, the Guarantor or such Securityholders may determine the time and the place in said 55 Borough of Manhattan for such meeting and may call such meeting to take any action authorized in Section 8.01, by mailing notice thereof as provided in Section 8.02. Section 8.04. Qualifications for Voting. To be entitled to vote at any meeting of Securityholders a Person shall (a) be a holder of one or more Securities with respect to which the meeting is being held or (b) a Person appointed by an instrument in writing as proxy by a holder of one or more such Securities. The only Persons who shall be entitled to be present or to speak at any meeting of Securityholders shall be the Persons entitled to vote at such meeting and their counsel and any representatives of the Trustee and its counsel and any representatives of the Company and its counsel and any representatives of the Guarantor and its counsel. Section 8.05. Regulations. Notwithstanding any other provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Securityholders, in regard to proof of the holding of Securities and of the appointment of proxies, and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall think fit. The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Company, by the Guarantor or by Securityholders as provided in Section 8.03, in which case the Company, the Guarantor or the Securityholders calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by majority vote of the meeting. Subject to the provisions of Section 7.04, at any meeting each holder of Securities with respect to which such meeting is being held or proxy therefor shall be entitled to one vote for each $1,000 principal amount (in the case of Original Issue Discount Securities, such principal amount to be determined as provided in the definition "outstanding") of Securities held or represented by him; provided, however, that no vote shall be cast or counted at any meeting in respect of any Security challenged as not outstanding and ruled by the chairman of the meeting to be not outstanding. The chairman of the meeting shall have no right to vote other than by virtue of Securities held by him or instruments in writing as aforesaid duly designating him as the Person to vote on behalf of other Securityholders. Any meeting of Securityholders duly called pursuant to the provisions of Section 8.02 or 8.03 may be adjourned from time to time by a majority of those present, whether or not constituting a quorum, and the meeting may be held as so adjourned without further notice. Section 8.06. Voting. The vote upon any resolution submitted to any meeting of holders of Securities with respect to which such meeting is being held shall be by written ballots on which shall be 56 subscribed the signatures of such holders or of their representatives by proxy and the serial number or numbers of the Securities held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in triplicate of all votes cast at the meeting. A record in duplicate of the proceedings of each meeting of Securityholders shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more Persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was mailed as provided in Section 8.02. The record shall show the serial numbers of the Securities voting in favor of or against any resolution. The record shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one of the duplicates shall be delivered to the Company and the other to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated. ARTICLE IX. SUPPLEMENTAL INDENTURES Section 9.01. Supplemental Indentures without Consent of Securityholders. The Company and the Guarantor, when authorized by resolutions of their respective Boards of Directors, and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto (which shall conform to the provisions of the Trust Indenture Act as then in effect), without the consent of the Securityholders, for one or more of the following purposes: (a) to evidence the succession of another corporation to the Company or the Guarantor, or successive successions, and the assumption by the successor corporation of the covenants, agreements and obligations of the Company or the Guarantor, as the case may be, pursuant to Article Ten hereof; (b) to add to the covenants of the Company or the Guarantor such further covenants, restrictions or conditions for the protection of the holders of all or any series of Securities (and if such covenants are to be for the benefit of less than all series of Securities stating that such covenants are expressly being included for the benefit of such series) as such Boards of Directors and the Trustee shall consider to be for the protection of the holders of such Securities, and to make the occurrence, or the occurrence and continuance, of a default in any of such additional covenants, restrictions or conditions a default or an Event of Default permitting the enforcement of all or any of the several remedies provided in this Indenture as herein set forth; provided, however, that in respect of any such additional covenant, restriction or condition such supplemental indenture may provide for a particular period of grace after default (which 57 period may be shorter or longer than that allowed in the case of other defaults) or may provide for an immediate enforcement upon such default or may limit the remedies available to the Trustee upon such default; (c) to provide for the issuance under this Indenture of Securities in coupon form (including Securities registrable as to principal only) and to provide for exchangeability of such Securities with the Securities issued hereunder in fully registered form and to make all appropriate changes for such purpose; (d) to cure any ambiguity or to correct or supplement any provision contained herein or in any supplemental indenture which may be defective or inconsistent with any other provision contained herein or in any supplemental indenture, or to make such other provisions in regard to matters or questions arising under this Indenture; provided that any such action shall not adversely affect the interests of the holders of the Securities; (e) to add to, delete from, or revise the terms of Securities of any series as permitted by Section 2.01 and 2.03, including, without limitation, any terms relating to the issuance, exchange, registration or transfer of Securities issued in whole or in part in the form of one or more Global Securities and the payment of any principal thereof, or interest or premium, if any, thereon; (f) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the 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 6.11; (g) to make any change that does not adversely affect the rights of any Securityholder in any material respect; or (h) to provide for the issuance of and establish the form and terms and conditions of the Debt Securities and the Guarantees of any series, to establish the form of any certifications required to be furnished pursuant to the terms of this Indenture or any series of Securities, or to add to the rights of the holders of any series of Securities. The Trustee is hereby authorized to join with the Company and the Guarantor in the execution of any such supplemental indenture, to make any further appropriate agreements and stipulations which may be therein contained and to accept the conveyance, transfer and assignment of any property thereunder, but the Trustee shall not be obligated to, but may in its discretion, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. Any supplemental indenture authorized by the provisions of this Section 9.01 may be executed by the Company, the Guarantor and the Trustee without the consent of the holders of any of the Securities at the time outstanding, notwithstanding any of the provisions of Section 9.02. 58 Section 9.02. Supplemental Indentures with Consent of Securityholders. With the consent (evidenced as provided in Section 7.01) of the holders of not less than a majority in aggregate principal amount of the Securities at the time outstanding of all series affected by such supplemental indenture (voting as a class), the Company and the Guarantor, when authorized by Board Resolutions, and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto (which shall conform to the provisions of the Trust Indenture Act then in effect) for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of any supplemental indenture or of modifying in any manner the rights of the holders of the Securities of each series so affected; provided, however, that no such supplemental indenture shall without the consent of the holders of each Security then outstanding and affected thereby (i) extend the fixed maturity of any Security of any series, or reduce the rate or extend the time of payment of interest thereon, or reduce the principal amount thereof or any premium thereon, or reduce any amount payable on redemption thereof or make the principal thereof or any interest or premium thereon payable in any coin or currency other than that provided in the Securities, or reduce the amount of the principal of an Original Issue Discount Security that would be due and payable upon an acceleration of the maturity thereof pursuant to Section 5.01 or the amount thereof provable in bankruptcy pursuant to Section 5.02, or impair or affect the right of any Securityholder to institute suit for payment thereof or the right of repayment, if any, at the option of the holder, without the consent of the holder of each Security so affected, or (ii) reduce the aforesaid percentage of Securities the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of each Security then affected; provided, further, that if the Securities of such series are held by a Countrywide Trust or a trustee of such trust, such supplemental indenture shall not be effective until the holders of a majority in liquidation preference of Trust Securities of the applicable Trust shall have consented to such supplemental indenture; provided, further, that if the consent of the Holder of each outstanding Security is required, such supplemental indenture shall not be effective until each holder of the Trust Securities of the applicable Countrywide Trust shall have consented to such supplemental indenture. 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 Securities, or which modifies the rights of Securityholders of such series with respect to such covenant or provision, shall be deemed not to affect the rights under this Indenture or the Securityholders of any other series. Upon the request of the Company and the Guarantor accompanied by a copy of resolutions of their respective Boards of Directors certified by their respective Secretaries or Assistant Secretaries authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of evidence of the consent of Securityholders as aforesaid, the Trustee shall join with the Company and the Guarantor in the execution of such supplemental indenture unless such supplemental indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such supplemental indenture. The Trustee may receive an Opinion of 59 Counsel as conclusive evidence that any supplemental indenture executed pursuant to this Article is authorized or permitted by, and conforms to, the terms of this Article Nine and that it is proper for the Trustee under the provisions of this Article Nine to join in the execution hereof. Promptly after the execution by the Company, the Guarantor and the Trustee of any supplemental indenture pursuant to the provisions of this Section, the Trustee shall transmit by mail, first class postage prepaid, a notice, prepared by the Company and the Guarantor, setting forth in general terms the substance of such supplemental indenture, to the Securityholders of all series affected thereby as their names and addresses appear upon the Security Register. Any failure of the Trustee to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. It shall not be necessary for the consent of the Securityholders under this Section 9.02 to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such consent shall approve the substance thereof. Section 9.03. Compliance with Trust Indenture Act; Effect of Supplemental Indentures. Any supplemental indenture executed pursuant to the provisions of this Article Nine shall comply with the Trust Indenture Act, as then in effect. Upon the execution of any supplemental indenture pursuant to the provisions of this Article Nine, this Indenture shall be and be deemed to be modified and amended in accordance therewith and the respective rights, limitations of rights, obligations, duties and immunities under this Indenture of the Trustee, the Company, the Guarantor and the holders of Securities of each series affected thereby shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments and all the terms and conditions of any such supplemental indenture shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes. Section 9.04. Notation on Securities. Securities of any series authenticated and delivered after the execution of any supplemental indenture affecting such series pursuant to the provisions of this Article Nine may bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company and the Guarantor or the Trustee shall so determine, new Securities of any series so modified as to conform, in the opinion of the Trustee and the respective Boards of Directors of the Company and the Guarantor, to any modification of this Indenture contained in any such supplemental indenture may be prepared and executed by the Company and the Guarantor, authenticated by the Trustee or the Authenticating Agent and delivered in exchange for the Securities of any series then outstanding. Section 9.05. Evidence of Compliance of Supplemental Indenture to be Furnished Trustee. 60 The Trustee, subject to the provisions of Sections 6.01 and 6.02, may receive Officers' Certificates and an Opinion of Counsel as conclusive evidence that any supplemental indenture executed pursuant hereto complies with the requirements of this Article Nine. ARTICLE X. CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE Section 10.01. Company or Guarantor May Consolidate, etc., on Certain Terms. Nothing contained in this Indenture or in any of the Securities shall prevent any consolidation or merger of the Company or the Guarantor with or into any other corporation or corporations (whether or not affiliated with the Company or the Guarantor, as the case may be), or successive consolidations or mergers in which the Company or the Guarantor, as the case may be, or its successor or successors shall be a party or parties, or shall prevent any sale, conveyance, transfer or other disposition of the property of the Company or the Guarantor, as the case may be, or its successor or successors as an entirety, or substantially as an entirety, to any other corporation (whether or not affiliated with the Company and the Guarantor, as the case may be, or its successor or successors) authorized to acquire and operate the same; provided, however, the Company and the Guarantor hereby covenant and agree that, upon any such consolidation, merger, sale, conveyance, transfer or other disposition, the due and punctual payment, in the case of the Company, of the principal of (premium, if any) and interest on all of the Debt Securities of all series in accordance with the terms of each series, according to their tenor or, in the case of the Guarantor, the performance of all obligations under the Guarantees, and the due and punctual performance and observance of all the covenants and conditions of this Indenture with respect to each series or established with respect to such series to be kept or performed by the Company or the Guarantor, as the case may be, shall be expressly assumed, by supplemental indenture (which shall conform to the provisions of the Trust Indenture Act, as then in effect) satisfactory in form to the Trustee executed and delivered to the Trustee by the entity formed by such consolidation, or into which the Company or the Guarantor, as the case may be, shall have been merged, or by the entity which shall have acquired such property. Section 10.02. Successor Corporation to be Substituted. In case of any such consolidation, merger, sale, conveyance, transfer or other disposition and upon the assumption by the successor corporation, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of, in the case of the Company, the due and punctual payment of the principal of and premium, if any, and interest on all of the Debt Securities or, in the case of the Guarantor, the performance of all obligations under the Guarantees, and the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed or observed by the Company or the Guarantor, as the case may be, such successor corporation shall succeed to and be substituted for the Company or the Guarantor, as the case may be, with the same effect as if it had been named herein as the Company or the Guarantor, as the case may be, and thereupon the predecessor corporation shall be relieved of any further liability or obligation hereunder or upon the 61 Securities. Such successor corporation thereupon may cause to be signed, and may issue either in its own name or in the name of Countrywide Home Loans, Inc. or Countrywide Credit Industries, Inc., any or all of the Debt Securities or Guaranties, respectively, issuable hereunder which theretofore shall not have been signed by the Company or the Guarantor and delivered to the Trustee or the Authenticating Agent; and, upon the order of such successor corporation instead of the Company or the Guarantor, as the case may be, and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee or the Authenticating Agent shall authenticate and deliver any Securities which previously shall have been signed and delivered by the officers of the Company or the Guarantor, as the case may be, to the Trustee or the Authenticating Agent for authentication, and any Securities which such successor corporation thereafter shall cause to be signed and delivered to the Trustee or the Authenticating Agent for that purpose. All the Securities so issued shall in all respects have the same legal rank and benefit under this Indenture as the Securities theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Securities had been issued at the date of the execution hereof. Section 10.03. SECTION 10.03. Opinion of Counsel to be Given Trustee. The Trustee, subject to the provisions of Sections 6.01 and 6.02, may receive an Opinion of Counsel as conclusive evidence that any consolidation, merger, sale, conveyance, transfer or other disposition, and any assumption, permitted or required by the terms of this Article Ten complies with the provisions of this Article Ten. ARTICLE XI. SATISFACTION AND DISCHARGE OF INDENTURE Section 11.01. SECTION 11.01. Discharge of Indenture. When (a) the Company and the Guarantor shall deliver to the Trustee for cancellation all Securities theretofore authenticated (other than any Securities which shall have been destroyed, lost or stolen and which shall have been replaced or paid as provided in Section 2.08) and not theretofore cancelled, or (b) all the Securities not theretofore cancelled or delivered to the Trustee for cancellation shall have become due and payable, or are by their terms to become due and payable within one year or are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption, and the Company or the Guarantor shall deposit with the Trustee, in trust, funds sufficient to pay at maturity or upon redemption all of the Securities (other than any Securities which shall have been destroyed, lost or stolen and which shall have been replaced or paid as provided in Section 2.08) not theretofore cancelled or delivered to the Trustee for cancellation, including principal and premium, if any, and interest due or to become due to such date of maturity or redemption date, as the case may be, but excluding, however, the amount of any moneys for the payment of principal of, and premium, if any, or interest on the Securities (1) theretofore repaid to the Company or the Guarantor in accordance with the provisions of Section 11.04, or (2) paid to any 62 state or to the District of Columbia pursuant to its unclaimed property or similar laws, and if in either case the Company or the Guarantor shall also pay or cause to be paid all other sums payable hereunder by the Company or the Guarantor, then this Indenture shall cease to be of further effect except for the provisions of Sections 2.05, 2.07, 2.08, 3.01, 3.02, 3.04, 6.06, 6.10 and 11.04 hereof shall survive until such Securities shall mature and be paid. Thereafter, Sections 6.10 and 11.04 shall survive, and the Trustee, on demand of the Company and the Guarantor accompanied by an Officers' Certificate and an Opinion of Counsel and at the cost and expense of the Company and the Guarantor, shall execute proper instruments acknowledging satisfaction of and discharging this Indenture, the Company and the Guarantor, however, hereby agreeing to reimburse the Trustee for any costs or expenses thereafter reasonably and properly incurred by the Trustee in connection with this Indenture or the Securities. Section 11.02. Deposited Moneys and U.S. Government Obligations to be Held in Trust by Trustee. Subject to the provisions of Section 11.04, all moneys and U.S. Government Obligations deposited with the Trustee pursuant to Sections 11.01 or 11.05 shall be held in trust and applied by it to the payment, either directly or through any paying agent (including the Company if acting as its own paying agent), to the holders of the particular Securities for the payment of which such moneys or U.S. Government Obligations have been deposited with the Trustee, of all sums due and to become due thereon for principal, premium, if any, and interest. The Company and the Guarantor shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited pursuant to Section 11.05 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the holders of outstanding Securities. Section 11.03. SECTION 11.03. Paying Agent to Repay Moneys Held. Upon the satisfaction and discharge of this Indenture all moneys then held by any paying agent of the Securities (other than the Trustee) shall, upon demand of the Company or the Guarantor, be repaid to it or paid to the Trustee, and thereupon such paying agent shall be released from all further liability with respect to such moneys. Section 11.04. SECTION 11.04. Return of Unclaimed Moneys. Any moneys deposited with or paid to the Trustee or any paying agent for payment of the principal of, and premium, if any, or interest on Securities and not applied but remaining unclaimed by the holders of Securities for three years after the date upon which the principal of, and premium, if any, or interest on such Securities, as the case may be, shall have become due and payable, shall be repaid to the Company or the Guarantor by the Trustee or such paying agent on written demand; and the holder of any of the Securities shall thereafter look only to the Company or the Guarantor for any payment which such holder may be entitled to collect 63 and all liability of the Trustee or such paying agent with respect to such moneys shall thereupon cease. Section 11.05. Defeasance Upon Deposit of Moneys or U.S. Government Obligations. The Company and the Guarantor shall be deemed to have been Discharged (as defined below) from its respective obligations with respect to any series of Securities on the 91st day after the applicable conditions set forth below have been satisfied with respect to such series of Securities: (1) The Company or the Guarantor shall have deposited or caused to be deposited irrevocably with the Trustee or the Defeasance Agent (as defined below) as trust funds in trust, specifically pledged as security for, and dedicated solely to, the benefit of the holders of the Securities of such series (i) money in an amount, or (ii) U.S. Government Obligations which through the payment of interest and principal in respect thereof in accordance with their terms will provide, 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 of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee and the Defeasance Agent, if any, to pay and discharge each installment of principal (including any mandatory sinking fund payments) of, and interest and premium, if any, on, the outstanding Securities of such series on the dates such installments of principal, interest or premium are due; (2) if the Securities of such series are then listed on any national securities exchange, the Company or the Guarantor, as the case may be, shall have delivered to the Trustee and the Defeasance Agent, if any, an Opinion of Counsel to the effect that the exercise of the option under this Section 11.05 would not cause such Securities to be delisted from such exchange; (3) no Event of Default or event which with notice or lapse of time would become an Event of Default with respect to the Securities of such series shall have occurred and be continuing on the date of such deposit; and (4) the Company or the Guarantor, as the case may be, shall have delivered to the Trustee and the Defeasance Agent, if any, an Opinion of Counsel to the effect that holders of the Securities of such series will not recognize income, gain or loss for United States federal income tax purposes as a result of the exercise of the option under this Section 11.05 and will be subject to United States federal income tax on the same amount and in the same manner and at the same times as would have been the case if such option had not been exercised, and, in the case of the Securities of such series being Discharged, such opinion shall be accompanied by a private letter ruling to that effect received from the United 64 States Internal Revenue Service or a revenue ruling pertaining to a comparable form of transaction to that effect published by the United States Internal Revenue Service. "Discharged" means that the Company and the Guarantor shall be deemed to have paid and discharged the entire indebtedness represented by, and obligations under, the Securities of such series and to have satisfied all the obligations under this Indenture relating to the Securities of such series (and the Trustee, at the expense of the Company and the Guarantor, shall execute proper instruments acknowledging the same), except (A) the rights of holders of Securities of such series to receive, from the trust fund described in clause (1) above, payment of the principal of and the interest and premium, if any, on such Securities when such payments are due; (B) the Company's and the Guarantor's obligations with respect to such Securities under Sections 2.05, 2.07, 2.08, 3.01, 3.02, 3.04, 6.06, 6.10 and 11.04; and (C) the rights, powers, trusts, duties and immunities of the Trustee hereunder. "Defeasance Agent" means another financial institution which is eligible to act as Trustee hereunder and which assumes all of the obligations of the Trustee necessary to enable the Trustee to act under this Section 11.05. In the event such a Defeasance Agent is appointed pursuant to this Section 11.05, the following conditions shall apply: 1. The Trustee shall have approval rights over the document appointing such Defeasance Agent and the document setting forth such Defeasance Agent's rights and responsibilities; 2. The Defeasance Agent shall provide verification to the Trustee acknowledging receipt of sufficient money and/or U.S. Government Obligations to meet the applicable conditions set forth in this Section 11.05; 3. The Trustee shall determine whether the Company and the Guarantor shall be deemed to have been Discharged from its respective obligations with respect to any series of Securities. ARTICLE XII. MMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTOR Section 12.01. Indenture and Securities Solely Corporate Obligations. No recourse for the payment of the principal of or premium, if any, or interest on any Debt Security or any Guarantee, or for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any obligation, covenant or agreement of the Company or the Guarantor in this Indenture or in any supplemental indenture, or in any such Security, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, officer or director, as such, past, present or future, of the Company or 65 the Guarantor or of any successor corporation of the Company or the Guarantor, either directly or through the Company or the Guarantor or any successor corporation of the Company or the Guarantor, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that all such liability is hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issue of the Securities. ARTICLE XIII. MISCELLANEOUS PROVISIONS Section 13.01. SECTION 13.01. Successors. All the covenants, stipulations, promises and agreements in this Indenture contained by the Company or the Guarantor shall bind to successors and assigns whether so expressed or not. Section 13.02. SECTION 13.02. Official Acts by Successor Corporation. Any act or proceeding by any provision of this Indenture authorized or required to be done or performed by any board, committee or officer of the Company or the Guarantor shall and may be done and performed with like force and effect by the like board, committee or officer of any corporation that shall at the time be the lawful sole successor of the Company or the Guarantor, as the case may be. Section 13.03. SECTION 13.03. Surrender of Company Powers. The Company or the Guarantor by instrument in writing executed by authority of 2/3 (two-thirds) of its Board of Directors and delivered to the Trustee may surrender any of the powers reserved to the Company or the Guarantor as the case may be, and thereupon such power so surrendered shall terminate both as to the Company or the Guarantor, as the case may be, and as to any successor corporation. Section 13.04. SECTION 13.04. Addresses for Notices, etc. Any notice or demand which by any provision of this Indenture is required or permitted to be given or served by the Trustee or by the holders of Securities on the Company or the Guarantor may be given or served by being deposited postage prepaid by registered or certified mail in a post office letter box addressed (until another address is filed by the Company or the Guarantor, as the case may be, with the Trustee for the purpose) to the Company, or the Guarantor, as the case may be, 155 North Lake Avenue, Pasadena, California 91101, Attention: Corporate Secretary. Any notice, direction, request or demand by any Securityholder to or upon the Trustee shall be deemed to have been sufficiently given or made, for all purposes, if given or made in writing at the office of the Trustee, addressed to the Trustee, 101 Barclay Street, 21 West, New York, New York 10286, Attention: Corporate Trust Trustee Administration. 66 Section 13.05. SECTION 13.05. Governing Law. This Indenture and each Security shall be deemed to be a contract made under the laws of the State of New York, and for all purposes shall be governed by and construed in accordance with the laws of said State, without regard to conflict of laws principles thereof. Section 13.06. Evidence of Compliance with Conditions Precedent. Upon any application or demand by the Company or the Guarantor to the Trustee to take any action under any of the provisions of this Indenture, the Company or the Guarantor, as the case may be, shall furnish to the Trustee an Officers' Certificate stating that in the opinion of the signers 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 have been complied with. Each certificate or opinion provided for in this Indenture and delivered to the Trustee with respect to compliance with a condition or covenant provided for in this Indenture shall include (1) a statement that the person making such certificate or opinion has read such covenant or condition; (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 such person, 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 or not, in the opinion of such person, such condition or covenant has been complied with. Section 13.07. SECTION 13.07. Legal Holidays. Subject to Section 2.03, in any case where the date of payment of interest on or principal of the Securities will be in The City of New York, New York a legal holiday or a day on which banking institutions are authorized by law to close, the payment of such interest on or principal of the Securities need not be made on such date but may be made on the next succeeding day not in the City a legal holiday or a day on which banking institutions are authorized by law to close, with the same force and effect as if made on the date of payment and no interest shall accrue for the period from and after such date. Section 13.08. SECTION 13.08. Trust Indenture Act to Control. If and to the extent that any provision of this Indenture limits, qualifies or conflicts with another provision included in this Indenture which is required to be included in this Indenture by any of Sections 310 to 317, inclusive, of the Trust Indenture Act, such required provision shall control. Section 13.09. SECTION 13.09. Table of Contents, Headings, etc. 67 The table of contents and the titles and headings of the articles and sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof. Section 13.10. SECTION 13.10. Execution in Counterparts. This Indenture may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. Section 13.11. SECTION 13.11. Separability. In case any one or more of the provisions contained in this Indenture or in the Securities of any series shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Indenture or of such Securities, but this Indenture and such Securities shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein or therein. Section 13.12. SECTION 13.12. Assignment. The Company and the Guarantor will have the right at all times to assign any of their respective rights or obligations under this Indenture to a direct or indirect wholly-owned Subsidiary of the Company or the Guarantor, provided that, in the event of any such assignment, the Company or the Guarantor, as the case may be, will remain liable for all such obligations. Subject to the foregoing, the Indenture is binding upon and inures to the benefit of the parties thereto and their respective successors and assigns. This Indenture may not otherwise be assigned by the parties thereto. Section 13.13. SECTION 13.13. Acknowledgement of Rights. The Company acknowledges that, with respect to any Securities held by any Countrywide Trust or a trustee of such trust, if the Institutional Trustee of such trust fails to enforce its rights under this Indenture as the holder of the series of Securities held as the assets of such Countrywide Trust after the holders of a majority in liquidation amount of the Capital Securities have so directed the Institutional Trustee, any holder of Capital Securities may institute legal proceedings directly against the Company to enforce such Institutional Trustee's rights under this Indenture without first instituting any legal proceedings against such Institutional Trustee or any other person or entity. Notwithstanding the foregoing, if an Event of Default has occurred and is continuing and such event is attributable to the failure of the Company to pay interest or principal on the applicable series of Securities on the date such interest or principal is otherwise payable (or in the case of redemption, on the redemption date), the Company acknowledges that a holder of Capital Securities may directly institute a proceeding for enforcement of payment to such holder of the principal of or interest on the applicable series of Securities having a principal amount equal to the aggregate liquidation amount of the Capital Securities of such holder on or after the respective due date specified in the applicable series of Securities. 68 The Guarantor acknowledges that, with respect to any Securities held by any Countrywide Trust or a trustee of such trust, if the Institutional Trustee of such Trust fails to enforce its rights as holder of Securities held as assets of such Countrywide Trust, after the holders of a majority in liquidation amount of the Capital Securities have so directed the Institutional Trustee, any holder of Capital Securities may institute legal proceedings directly against the Guarantor to enforce the Institutional Trustee's rights against the Guarantor under this Indenture without first instituting any legal proceedings against such Institutional Trustee or any other person or entity. Notwithstanding the foregoing, if an Event of Default has occurred and is continuing and such event is attributable to the failure of the Guarantor to pay interest or principal on the applicable series of Securities on the date such interest or principal is otherwise payable (or in the case of redemption, on the redemption date), the Guarantor acknowledges that a holder of Capital Securities may also directly institute a proceeding for enforcement of payment to such holder of the principal of or interest on the applicable series of Securities having a principal amount equal to the aggregate liquidation amount of the Capital Securities of such holder on or after the respective due date specified in the applicable series of Securities. ARTICLE XIV. REDEMPTION OF SECURITIES -- MANDATORY AND OPTIONAL SINKING FUND Section 14.01. SECTION 14.01. Applicability of Article. The provisions of this Article shall be applicable to the Debt Securities of any series which are redeemable before their maturity or to any sinking fund for the retirement of Debt Securities of a series except as otherwise specified as contemplated by Section 2.03 for Debt Securities of such series. Section 14.02. Notice of Redemption; Selection of Debt Securities. In case the Company shall desire to exercise the right to redeem all, or, as the case may be, any part of the Debt Securities of any series in accordance with their terms, it shall fix a date for redemption and shall mail a notice of such redemption at least 30 and not more than 60 days prior to the date fixed for redemption to the holders of Debt Securities of such series so to be redeemed as a whole or in part at their last addresses as the same appear on the Security Register. Such mailing shall be by first class mail. The notice if mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the holder receives such notice. In any case, failure to give such notice by mail or any defect in the notice to the holder of any Debt Security of a series designated for redemption as a whole or in part shall not affect the validity of the proceedings for the redemption of any other Debt Security of such series. Each such notice of redemption shall specify the CUSIP number of the Debt Securities to be redeemed, the date fixed for redemption, the redemption price at which Debt 69 Securities of such series are to be redeemed, the place or places of payment, that payment will be made upon presentation and surrender of such Debt Securities, that interest accrued to the date fixed for redemption will be paid as specified in said notice, and that on and after said date interest thereon or on the portions thereof to be redeemed will cease to accrue. If less than all the Debt Securities of such series are to be redeemed the notice of redemption shall specify the numbers of the Debt Securities of that series to be redeemed. In case any Debt Security of a series is to be redeemed in part only, the notice of redemption shall state the portion of the principal amount thereof to be redeemed and shall state that on and after the date fixed for redemption, upon surrender of such Debt Security, a new Debt Security or Debt Securities of that series in principal amount equal to the unredeemed portion thereof and having endorsed thereon a duly executed Guarantee will be issued. Prior to the redemption date specified in the notice of redemption given as provided in this Section, the Company will deposit with the Trustee or with one or more paying agents an amount of money sufficient to redeem on the redemption date all the Debt Securities so called for redemption at the appropriate redemption price, together with accrued interest to the date fixed for redemption. If all, or less than all, the Debt Securities of a series are to be redeemed, the Company will give the Trustee notice not less than 45 or 60 days, respectively, prior to the redemption date as to the aggregate principal amount of Debt Securities of that series to be redeemed and the Trustee shall select, in such manner as in its sole discretion it shall deem appropriate and fair, the Debt Securities of that series or portions thereof (in integral multiples of $1,000, except as otherwise set forth in the applicable form of Debt Security) to be redeemed. Section 14.03. Payment of Securities Called for Redemption. If notice of redemption has been given as provided in Section 14.02 or Section 14.04, the Debt Securities or portions of Debt Securities of the series with respect to which such notice has been given shall become due and payable on the date and at the place or places stated in such notice at the applicable redemption price, together with interest accrued to the date fixed for redemption, and on and after said date (unless the Company shall default in the payment of such Debt Securities at the redemption price, together with interest accrued to said date) interest on the Debt Securities or portions of Debt Securities of any series so called for redemption shall cease to accrue. On presentation and surrender of such Debt Securities at a place of payment specified in said notice, the said Debt Securities or the specified portions thereof shall be paid and redeemed by the Company at the applicable redemption price, together with interest accrued thereon to the date fixed for redemption. Upon presentation of any Debt Security of any series redeemed in part only, the Company shall execute and the Trustee shall authenticate and make available for delivery to the holder thereof, at the expense of the Company, a new Debt Security or Debt Securities of such series of authorized denominations, in principal amount equal to the unredeemed portion of the Debt Security so presented and having endorsed thereon a duly executed Guarantee. 70 Section 14.04. SECTION 14.04. Mandatory and Optional Sinking Fund. 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". The last date on which any such payment may be made is herein referred to as a "sinking fund payment date". In lieu of making all or any part of any mandatory sinking fund payment with respect to any Debt Securities of a series in cash, the Company may at its option (a) deliver to the Trustee Debt Securities of that series theretofore purchased by the Company and (b) may apply as a credit Debt Securities of that 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 optional sinking fund payments pursuant to the next succeeding paragraph, in each case in satisfaction of all or any part of any mandatory sinking fund payment, provided that such Debt Securities have not been previously so credited. Each such Debt Security so delivered or applied as a credit shall be credited at the sinking fund redemption price for such Debt Securities and the amount of any mandatory sinking fund shall be reduced accordingly. If the Company intends so to deliver or credit such Debt Securities with respect to any mandatory sinking fund payment it shall deliver to the Trustee at least 60 days prior to the next succeeding sinking fund payment date for such series (a) a certificate signed by the Treasurer or an Assistant Treasurer of the Company specifying the portion of such sinking fund payment, if any, to be satisfied by payment of cash and the portion of such sinking fund payment, if any, which is to be satisfied by delivering and crediting such Debt Securities and (b) any Debt Securities to be so delivered. All Debt Securities so delivered to the Trustee shall be cancelled by the Trustee and no Debt Securities shall be authenticated in lieu thereof. If the Company fails to deliver such certificate and Debt Securities at or before the time provided above, the Company shall not be permitted to satisfy any portion of such mandatory sinking fund payment by delivery or credit of Debt Securities. At its option the Company may pay into the sinking fund for the retirement of Debt Securities of any particular series, on or before each sinking fund payment date for such series, any additional sum in cash as specified by the terms of such series of Debt Securities. If the Company intends to exercise its right to make any such optional sinking fund payment, it shall deliver to the Trustee at least 60 days prior to the next succeeding sinking fund payment date for such series a certificate signed by the Treasurer or an Assistant Treasurer of the Company stating that the Company intends to exercise such optional right and specifying the amount which the Company intends to pay on such sinking fund payment date. If the Company fails to deliver such certificate at or before the time provided above, the Company shall not be permitted to make any optional sinking fund payment with respect to such sinking fund payment date. To the extent that such right is not exercised in any year it shall not be cumulative or carried forward to any subsequent year. If the sinking fund payment or payments (mandatory or optional) made in cash plus any unused balance of any preceding sinking fund payments made in cash shall exceed $50,000 (or a lesser sum if the Company shall so request) with respect to the Debt Securities of 71 any particular series, it shall be applied by the Trustee or one or more paying agents on the next succeeding sinking fund payment date to the redemption of Debt Securities of such series at the sinking fund redemption price together with accrued interest to the date fixed for redemption. The Trustee shall select, in the manner provided in Section 14.02, for redemption on such sinking fund payment date a sufficient principal amount of Debt Securities of such series to absorb said cash, as nearly as may be, and the Trustee shall, at the expense and in the name of the Company, thereupon cause notice of redemption of Debt Securities of such series to be given in substantially the manner and with the effect provided in Sections 14.02 and 14.03 for the redemption of Debt Securities of that series in part at the option of the Company, except that the notice of redemption shall also state that the Debt Securities of such series are being redeemed for the sinking fund. Any sinking fund moneys not so applied or allocated by the Trustee or any paying agent to the redemption of Debt Securities of that series shall be added to the next cash sinking fund payment received by the Trustee or such paying agent and, together with such payment, shall be applied in accordance with the provisions of this Section 14.04. Any and all sinking fund moneys held by the Trustee or any paying agent on the maturity date of the Debt Securities of any particular series, and not held for the payment or redemption of particular Debt Securities of such series, shall be applied by the Trustee or such paying agent, together with other moneys, if necessary, to be deposited sufficient for the purpose, to the payment of the principal of the Debt Securities of that series at maturity. On or before each sinking fund payment date, the Company shall pay to the Trustee or to one or more paying agents in cash a sum equal to all interest accrued to the date fixed for redemption on Debt Securities to be redeemed on the next following sinking fund payment date pursuant to this Section. Neither the Trustee nor any paying agent shall redeem any Debt Securities of a series with sinking fund moneys, and the Trustee shall not mail any notice of redemption of Debt Securities for such series by operation of the sinking fund, during the continuance of a default in payment of interest on such Debt Securities or of any Event of Default (other than an Event of Default occurring as a consequence of this paragraph), except that if the notice of redemption of any Securities shall theretofore have been mailed in accordance with the provisions hereof, the Trustee or any paying agent shall redeem such Debt Securities if cash sufficient for that purpose shall be deposited with the Trustee or such paying agent for that purpose in accordance with the terms of this Article Fourteen. Except as aforesaid, any moneys in the sinking fund for such series at the time when any such default or Event of Default shall occur and any moneys thereafter paid into the sinking fund shall, during the continuance of such default or Event of Default, be held as security for the payment of all such Debt Securities; provided, however, that in case such Event of Default or default, shall have been cured or waived as provided herein, such moneys shall thereafter be applied on the next succeeding sinking fund payment date on which such moneys may be applied pursuant to the provisions of this Section 14.04. 72 ARTICLE XV. SUBORDINATION OF SECURITIES Section 15.01. SECTION 15.01. Agreement to Subordinate. The Company and the Guarantor covenant and agree, and each holder of Securities issued hereunder and under any supplemental indenture or by any resolutions by the Boards of Directors of the Company and the Guarantor ("Additional Provisions") by such Securityholder's acceptance thereof likewise covenants and agrees, that all Securities shall be issued subject to the provisions of this Article Fifteen; and each holder of a Security, whether upon original issue or upon transfer or assignment thereof, accepts and agrees to be bound by such provisions. The payment by the Company of the principal of, premium, if any, and interest on all Debt Securities and the payment by the Guarantor of any obligation due under any Guarantees issued hereunder and under any Additional Provisions shall, to the extent and in the manner hereinafter set forth, be subordinated and junior in right of payment to the prior payment in full of all Senior Indebtedness of the Company or the Guarantor, as the case may be, whether outstanding at the date of this Indenture or thereafter incurred. No provision of this Article Fifteen shall prevent the occurrence of any default or Event of Default hereunder. Section 15.02. SECTION 15.02. Default on Senior Indebtedness. In the event and during the continuation of any default by the Company or the Guarantor in the payment of principal, premium, interest or any other payment due on any Senior Indebtedness of the Company or the Guarantor, as the case may be (after any applicable grace period with respect to such payment default has elapsed with such default not having been cured or waived or ceasing to exist), or in the event that the maturity of any Senior Indebtedness of the Company or the Guarantor, as the case may be, has been accelerated because of a default, then, in either case, no payment shall be made by the Company or the Guarantor, as the case may be, with respect to the principal (including redemption and sinking fund payments, if any) of, or premium, if any, or interest on the Securities, including payment with respect to any obligation due under the Guarantees. In the event that, notwithstanding the foregoing, any payment shall be received by the Trustee when such payment is prohibited by the preceding paragraph of this Section 15.02, such payment shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Senior Indebtedness or their respective representatives, or to the trustee or trustees under any indenture pursuant to which any of such Senior Indebtedness may have been issued, as their respective interests may appear, but only to the extent that the holders of the Senior Indebtedness (or their representative or representatives or a trustee) notify the Trustee in writing within 90 days of such payment of the amounts then due and owing on the Senior Indebtedness 73 and only the amounts specified in such notice to the Trustee shall be paid to the holders of Senior Indebtedness. Section 15.03. SECTION 15.03. Liquidation; Dissolution; Bankruptcy. Upon any payment by the Company or the Guarantor or distribution of assets of the Company or the Guarantor of any kind or character, whether in cash, property or securities, to creditors upon any dissolution or winding-up or liquidation or reorganization of the Company or the Guarantor, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other proceedings, all amounts due or to become due upon all Senior Indebtedness of the Company or the Guarantor, as the case may be, shall first be paid in full, or payment thereof provided for in money in accordance with its terms, before any payment is made by the Company or the Guarantor, as the case may be, on account of the principal (and premium, if any) or interest on the Securities; and upon any such dissolution or winding-up or liquidation or reorganization, any payment by the Company or the Guarantor, or distribution of assets of the Company or the Guarantor of any kind or character, whether in cash, property or securities, to which the Securityholders or the Trustee would be entitled to receive from the Company or the Guarantor, as the case may be, except for the provisions of this Article Fifteen, shall be paid by the Company or the Guarantor, as the case may be, or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, or by the Securityholders or by the Trustee under the Indenture if received by them or it, directly to the holders of Senior Indebtedness of the Company or the Guarantor, as the case may be (pro rata to such holders on the basis of the respective amounts of Senior Indebtedness held by such holders, as calculated by the Company or the Guarantor, as the case may be) or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing such Senior Indebtedness may have been issued, as their respective interests may appear, to the extent necessary to pay such Senior Indebtedness in full, in money or money's worth, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Indebtedness, before any payment or distribution is made to the Securityholders or to the Trustee. In the event that, notwithstanding the foregoing, any payment or distribution of assets of the Company or the Guarantor of any kind or character, whether in cash, property or securities, prohibited by the foregoing, shall be received by the Trustee before all Senior Indebtedness of the Company or the Guarantor is paid in full, or provision is made for such payment in money in accordance with its terms, such payment or distribution shall be held in trust for the benefit of and shall be paid over or delivered to the holders of such Senior Indebtedness or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing such Senior Indebtedness may have been issued, and their respective interests may appear, as calculated by the Company or the Guarantor, for application to the payment of all Senior Indebtedness of the Company or the Guarantor, as the case may be, remaining unpaid to the extent necessary to pay such Senior Indebtedness in full in money in accordance with its terms, after giving effect to any concurrent payment or distribution to or for the benefit of the holders of such Senior Indebtedness. 74 For purposes of this Article Fifteen, the words "cash, property or securities" shall not be deemed to include shares of stock of the Company or the Guarantor as reorganized or readjusted, or securities of the Company or the Guarantor or any other corporation provided for by a plan of reorganization or readjustment, the payment of which is subordinated at least to the extent provided in this Article Fifteen with respect to the Securities to the payment of all Senior Indebtedness of the Company or the Guarantor, as the case may be, that may at the time be outstanding, provided that (i) such Senior Indebtedness is assumed by the new corporation, if any, resulting from any such reorganization or readjustment, and (ii) the rights of the holders of such Senior Indebtedness are not, without the consent of such holders, altered by such reorganization or readjustment. The consolidation of the Company or the Guarantor with, or the merger of the Company or the Guarantor into, another corporation or the liquidation or dissolution of the Company or the Guarantor following the conveyance or transfer of its property as an entirety, or substantially as an entirety, to another corporation upon the terms and conditions provided for in Article Ten of this Indenture shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section 15.03 if such other corporation shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions stated in Article Ten of this Indenture. Nothing in Section 15.02 or in this Section 15.03 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 6.06 of this Indenture. Section 15.04. SECTION 15.04. Subrogation. Subject to the payment in full of all Senior Indebtedness of the Company or the Guarantor then outstanding, the Securityholders shall be subrogated to the rights of the holders of such Senior Indebtedness to receive payments or distributions of cash, property or securities of the Company or the Guarantor, as the case may be, applicable to such Senior Indebtedness until all amounts owing on the Securities shall be paid in full; and, for the purposes of such subrogation, no payments or distributions to the holders of such Senior Indebtedness of any cash, property or securities to which the Securityholders or the Trustee would be entitled except for the provisions of this Article Fifteen, and no payment over pursuant to the provisions of this Article Fifteen to or for the benefit of the holders of such Senior Indebtedness by Securityholders or the Trustee, shall, as between (i) the Company, its creditors other than holders of Senior Indebtedness of the Company, and the holders of the Securities, or (ii) the Guarantor, its creditors other than the holders of Senior Indebtedness of the Guarantor, and the holders of the Securities, be deemed to be a payment by the Company or the Guarantor, as the case may be, to or on account of such Senior Indebtedness. It is understood that the provisions of this Article Fifteen are and are intended solely for the purposes of defining the relative rights of the holders of the Securities, on the one hand, and the holders of such Senior Indebtedness, on the other hand. Nothing contained in this Article Fifteen or elsewhere in this Indenture, any Additional Provisions or in the Securities is intended to or shall impair, as between (i) the Company, its creditors other than the holders of Senior Indebtedness of the Company, and the holders of the Securities, or (ii) the Guarantor, its creditors other than the holders of Senior Indebtedness of the Guarantor, and the holders of the Securities, the obligation of the Company 75 or the Guarantor, as the case may be, which is absolute and unconditional, to pay to the holders of the Securities the principal of (and premium, if any) and interest on the Securities as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the holders of the Securities and creditors of the Company or the Guarantor, as the case may be, other than the holders of Senior Indebtedness of the Company or the Guarantor, as the case may be, nor shall anything herein or therein prevent the Trustee or the holder of any Security from exercising all remedies otherwise permitted by applicable law upon default under the Indenture, subject to the rights, if any, under this Article Fifteen of the holders of such Senior Indebtedness in respect of cash, property or securities of the Company or the Guarantor, as the case may be, received upon the exercise of any such remedy. Upon any payment or distribution of assets of the Company or the Guarantor referred to in this Article Fifteen, the Trustee, subject to the provisions of Article Six of this Indenture, and the Securityholders shall be entitled to conclusively rely upon any order or decree made by any court of competent jurisdiction in which such dissolution, winding-up, liquidation or reorganization proceedings are pending, or a certificate of the receiver, trustee in bankruptcy, liquidation trustee, agent or other Person making such payment or distribution, delivered to the Trustee or to the Securityholders, for the purposes of ascertaining the Persons entitled to participate in such distribution, the holders of Senior Indebtedness and other indebtedness of the Company or the Guarantor, as the case may be, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article Fifteen. Section 15.05. SECTION 15.05. Trustee to Effectuate Subordination. Each Securityholder by such Securityholder's acceptance thereof authorizes and directs the Trustee on such Securityholder's behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article Fifteen and appoints the Trustee such Securityholder's attorney-in-fact for any and all such purposes. Section 15.06. Notice by the Company and the Guarantor. The Company or the Guarantor shall give written notice to a Responsible Officer of the Trustee within five days of becoming aware of any Default, Event of Default or any fact known to the Company or the Guarantor that would prohibit the making of any payment of monies to or by the Trustee in respect of the Securities pursuant to the provisions of this Article Fifteen. Notwithstanding the provisions of this Article Fifteen or any other provision of this Indenture or any Additional Provisions, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment of monies to or by the Trustee in respect of the Securities pursuant to the provisions of this Article Fifteen, unless and until a Responsible Officer of the Trustee shall have received written notice thereof from the Company or the Guarantor or a holder or holders of Senior Indebtedness or from any trustee therefor; and before the receipt of any such written notice, the Trustee, subject to the provisions of Article Six of this Indenture, shall be entitled in all respects to assume that no such facts exist; provided, however, that if the Trustee shall not have received the notice provided for in this 76 Section 15.06 at least two Business Days prior to the date upon which by the terms hereof any money may become payable for any purpose (including, without limitation, the payment of the principal of (or premium, if any) or interest on any Security), then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such money and to apply the same to the purposes for which they were received, and shall not be affected by any notice to the contrary that may be received by it within two Business Days prior to such date. The Trustee, subject to the provisions of Article Six of this Indenture, shall be entitled to conclusively rely on the delivery to it of a written notice by a Person representing himself to be a holder of Senior Indebtedness of the Company or the Guarantor, as the case may be (or a trustee on behalf of such holder), to establish that such notice has been given by a holder of such Senior Indebtedness or a trustee on behalf of any such holder or holders. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of such Senior Indebtedness to participate in any payment or distribution pursuant to this Article Fifteen, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of such Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article Fifteen, and, if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. Section 15.07. Rights of the Trustee; Holders of Senior Indebtedness. The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article Fifteen in respect of any Senior Indebtedness at any time held by it, to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture or any Additional Provisions shall deprive the Trustee of any of its rights as such holder. With respect to the holders of Senior Indebtedness of the Company or the Guarantor, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article Fifteen, and no implied covenants or obligations with respect to the holders of such Senior Indebtedness shall be read into this Indenture or any Additional Provisions against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of such Senior Indebtedness and, subject to the provisions of Article Six of this Indenture, the Trustee shall not be liable to any holder of such Senior Indebtedness if it shall pay over or deliver to Securityholders, the Company, the Guarantor or any other Person money or assets to which any holder of such Senior Indebtedness shall be entitled by virtue of this Article Fifteen or otherwise. Nothing in this Article Fifteen shall apply to claims of, or payments to, the Trustee under or pursuant to Section 6.06. Section 15.08. SECTION 15.08. Subordination May Not Be Impaired. 77 No right of any present or future holder of any Senior Indebtedness of the Company or the Guarantor to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or the Guarantor, as the case may be, or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company or the Guarantor, as the case may be, with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof that any such holder may have or otherwise be charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Indebtedness of the Company or the Guarantor may, at any time and from time to time, without the consent of or notice to the Trustee or the Securityholders, without incurring responsibility to the Securityholders and without impairing or releasing the subordination provided in this Article Fifteen or the obligations hereunder of the holders of the Securities to the holders of such Senior Indebtedness, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, such Senior Indebtedness, or otherwise amend or supplement in any manner such Senior Indebtedness or any instrument evidencing the same or any agreement under which such Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing such Senior Indebtedness; (iii) release any Person liable in any manner for the collection of such Senior Indebtedness; and (iv) exercise or refrain from exercising any rights against the Company or the Guarantor, as the case may be, and any other Person. 78 The Bank of New York hereby accepts the trusts in this Indenture declared and provided, upon the terms and conditions hereinabove set forth. IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed by their respective officers thereunto duly authorized, as of the day and year first above written. COUNTRYWIDE HOME LOANS, INC. /s/ Stanford L. Kurland Name: Stanford L. Kurland Title: President COUNTRYWIDE CREDIT INDUSTRIES, INC. /s/ Eric P. Sieracki Name: Eric P. Sieracki Title: Managing Director THE BANK OF NEW YORK, as Trustee /s/ Vivian Georges Name: Vivian Georges Title: Assistant Vice President 79 EX-4.35 6 v96832exv4w35.txt EXHIBIT 4.35 EXHIBIT 4.35 EXECUTION COPY FIRST SUPPLEMENTAL INDENTURE among COUNTRYWIDE HOME LOANS, INC., as Issuer, COUNTRYWIDE CREDIT INDUSTRIES, INC., as Guarantor, and THE BANK OF NEW YORK Dated as of December 16, 1996 4 FIRST SUPPLEMENTAL INDENTURE, dated as of December 16, 1996 (the "First Supplemental Indenture"), among Countrywide Home Loans, Inc., a New York corporation (the "Company"), Countrywide Credit Industries, Inc., a Delaware corporation (the "Guarantor"), and The Bank of New York as trustee (the "Trustee"), under the Indenture dated as of December 16, 1996 among the Company, the Guarantor and the Trustee (the "Indenture"). WHEREAS, the Company and the Guarantor executed and delivered the Indenture to the Trustee to provide for the future issuance of the Company's unsecured junior subordinated debt securities guaranteed by the Guarantor, to be issued from time to time in one or more series as might be determined by the Company under the Indenture, in an unlimited aggregate principal amount which may be authenticated and delivered as provided in the Indenture; WHEREAS, pursuant to the terms of the Indenture, the Company desires to provide for the establishment of a new series of its Debt Securities to be known as its 8% Junior Subordinated Deferrable Interest Debentures due December 15, 2026 (the "Debentures"), and the Guarantor desires to provide for the issuance of a Guarantee of such Debt Securities (the "Debenture Guarantee"), the form and substance of such Debentures and Debenture Guarantee and the terms, provisions and conditions thereof to be set forth as provided in the Indenture and this First Supplemental Indenture; WHEREAS, Countrywide Capital I, a Delaware statutory business trust (the "Trust"), has offered to the public $300,000,000 aggregate liquidation amount of its 8% Capital Trust Pass-through Securities (the "Capital Securities"), representing undivided beneficial interests in the assets of the Trust and proposes to invest the proceeds from such offering, together with the proceeds of the issuance and sale by the Trust to the Guarantor of $9,279,000 aggregate liquidation amount of its 8% Common Securities, in $309,279,000 aggregate principal amount of the Debentures; and WHEREAS, the Company and the Guarantor have requested that the Trustee execute and deliver this First Supplemental Indenture; all requirements necessary to make this First Supplemental Indenture a valid instrument in accordance with its terms, and to make the Debentures, when executed by the Company and authenticated and delivered by the Trustee, the valid obligations of the Company, and to make the Debenture Guarantee endorsed thereon when executed by the Guarantor a valid obligation of the Guarantor, have been performed; and the execution and delivery of this First Supplemental Indenture has been duly authorized in all respects. NOW THEREFORE, in consideration of the purchase and acceptance of the Debentures by the holders thereof, and for the purpose of setting forth, as provided in the Indenture, the form and substance of the Debentures and the terms, provisions and conditions thereof, the Company and the Guarantor covenant and agree with the Trustee as follows: 5 ARTICLE I. DEFINITIONS Section 1.01. Definition of Terms. Unless the context otherwise requires: (a) a term defined in the Indenture has the same meaning when used in this First Supplemental Indenture; (b) a term defined anywhere in this First Supplemental Indenture has the same meaning throughout; (c) the singular includes the plural and vice versa; (d) a reference to a Section or Article is to a Section or Article of this First Supplemental Indenture; (e) headings are for convenience of reference only and do not affect interpretation; (f) the following terms have the meanings given to them in the Declaration: (i) Business Day; (ii) Clearing Agency; (iii) Delaware Trustee; (iv) Depositary; (v) Dissolution Tax Opinion; (vi) Distribution; (vii) Capital Security Certificate; (viii) Pricing Agreement; (ix) Institutional Trustee; (x) Regular Trustees; (xi) Tax Event; (xii) Redemption Tax Opinion, and (xiii) Underwriting Agreement; (g) the following terms have the meanings given to them in this Section 1.1(g): "Additional Interest" shall have the meaning set forth in Section 2.5(c). "Compounded Interest" shall have the meaning set forth in Section 4.1. "Debentures" shall have the meaning set forth in Section 2.1. "Declaration" means the Amended and Restated Declaration of Trust of Countrywide Capital I, a Delaware statutory business trust, dated as of December 16, 1996. "Deferred Interest" shall have the meaning set forth in Section 4.1. "Dissolution Event" means that, as a result of the occurrence and continuation of a Tax Event, the Trust is to be dissolved in accordance with the Declaration, and the Debentures held by the Institutional Trustee are to be distributed to the holders of the Trust Securities issued by the Trust pro rata in accordance with the Declaration. "Extended Interest Payment Period" shall have the meaning set forth in Section 4.1. 6 "Global Debenture" shall have the meaning set forth in Section 2.4(a)(i). "Maturity Date" means the date on which the Debentures mature and on which the entire principal amount shall become due and payable together with any accrued and unpaid interest thereon including Compounded Interest and Additional Interest, if any. "Non Book-Entry Capital Securities" shall have the meaning set forth in Section 2.4(a)(ii). "Optional Redemption Price" shall have the meaning set forth in Section 3.2(a). ARTICLE II. GENERAL TERMS AND CONDITIONS OF THE DEBENTURES Section 2.01. Designation and Principal Amount. There is hereby authorized (a) a series of Debt Securities designated the "8% Junior Subordinated Deferrable Interest Debentures due December 15, 2026", limited in aggregate principal amount to $309,279,000 (the "Debentures"), which amount shall be as set forth in any written order of the Company for the authentication and delivery of Debentures pursuant to Section 2.04 of the Indenture and (b) a Guarantee of such Debt Securities. Section 2.02. Maturity. The Maturity Date is December 15, 2026. Section 2.03. Form and Payment. Except as provided in Section 2.4, the Debentures shall be issued in fully registered certificated form without interest coupons. Principal and interest on the Debentures issued in certificated form will be payable, the transfer of such Debentures will be registrable and such Debentures will be exchangeable for Debentures bearing identical terms and provisions at the office or agency of the Trustee; provided, however, that payment of interest may be made at the option of the Company by check mailed to the holder of any Debenture at such address as shall appear in the Security Register. Notwithstanding the foregoing, so long as the holder of any Debentures is the Institutional Trustee, the payment of the principal of and interest (including Compounded Interest and Additional Interest, if any) on such Debentures held by the Institutional Trustee will be made at such place and to such account as may be designated by the Institutional Trustee. Section 2.04. Global Debenture. (a) In connection with a Dissolution Event, (i) the Debentures in certificated form may be presented to the Trustee by the Institutional Trustee in exchange for a global Debenture in an aggregate 7 principal amount equal to the aggregate principal amount of all outstanding Debentures (a "Global Debenture"), to be registered in the name of the Depositary, or its nominee, and delivered by the Trustee to the Depositary for crediting to the accounts of its participants pursuant to the instructions of the Regular Trustees which instructions shall be provided in accordance with the terms of the Declaration. The Company upon any such presentation shall execute a Global Debenture in such aggregate principal amount and deliver the same to the Trustee for authentication and delivery in accordance with the Indenture and this First Supplemental Indenture. Payments on the Debentures issued as a Global Debenture will be made to the Depositary; and (i) if any Capital Securities are held in non book-entry certificated form, the Debentures in certificated form may be presented to the Trustee by the Institutional Trustee and any Capital Security Certificate which represents Capital Securities other than Capital Securities held by the Clearing Agency or its nominee ("Non Book-Entry Capital Securities") will be deemed to represent beneficial interests in Debentures presented to the Trustee by the Institutional Trustee having an aggregate principal amount equal to the aggregate liquidation amount of the Non Book-Entry Capital Securities until such Capital Security Certificates are presented to the Security Registrar for transfer or reissuance at which time such Capital Security Certificates will be cancelled and a Debenture, registered in the name of the holder of the Capital Security Certificate or the transferee of the holder of such Capital Security Certificate, as the case may be, with an aggregate principal amount equal to the aggregate liquidation amount of the Capital Security Certificate cancelled, will be executed by the Company and delivered to the Trustee for authentication and delivery in accordance with the Indenture and this First Supplemental Indenture. On issue of such Debentures, Debentures with an equivalent aggregate principal amount that were presented by the Institutional Trustee to the Trustee will be deemed to have been cancelled. (b) A Global Debenture may be transferred, in whole but not in part, only by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary, another nominee of the Depositary, or a successor Depositary selected or approved by the Company, or a nominee of such successor Depositary. (c) If at any time the Depositary notifies the Company that it is unwilling or unable to continue as Depositary or if at any time the Depositary shall no longer be registered or in good standing under the Securities Exchange Act of 1934, as amended, or other applicable statute or regulation, and a successor Depositary is not appointed by the Company within 90 days after the Company receives such notice or becomes aware of such condition, as the case may be, the Company will execute, and, subject to Article II of the Indenture, the Trustee, upon written notice from the Company, will authenticate and make available for delivery Debentures in definitive registered form without coupons, in authorized denominations, and in an aggregate principal amount equal to the principal amount of the Global Debenture in exchange for such Global Debenture. In addition, the Company may at any time determine that the Debentures shall no longer be represented by a Global Debenture. In such event the Company will execute, and subject to Section 2.07 of the Indenture, the Trustee, upon receipt of an Officers' Certificate evidencing such determination by the Company, will authenticate and deliver Debentures in 8 definitive registered form without coupons, in authorized denominations, and in an aggregate principal amount equal to the principal amount of the Global Debenture in exchange for such Global Debenture. Upon the exchange of the Global Debenture for such Debentures in definitive registered form without coupons, in authorized denominations, the Global Debenture shall be cancelled by the Trustee. Such Debentures in definitive registered form issued in exchange for the Global Debenture shall be registered in such names and in such authorized denominations as the Depositary, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. The Trustee shall deliver such Debentures to the Depositary for delivery to the Persons in whose names such Debentures are so registered. Section 2.05. Interest. (a) Each Debenture will bear interest at the rate of 8% per annum (the "Coupon Rate") from the original date of issuance until the principal thereof becomes due and payable, and on any overdue principal and (to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the Coupon Rate, compounded semiannually, payable (subject to the provisions of Article Four) semiannually in arrears on June 15 and December 15 of each year (each, an "Interest Payment Date," commencing on June 15, 1997), to the Person in whose name such Debenture or any predecessor Debenture is registered, at the close of business on the regular record date for such interest installment, which, in respect of any Debentures of which the Institutional Trustee is the holder of a Global Debenture, shall be the close of business on the Business Day next preceding that Interest Payment Date. Notwithstanding the foregoing sentence, if (i) the Capital Securities are no longer in book-entry only form, (ii) after a Dissolution Event the Debentures are not in book-entry only form or (iii) pursuant to the provisions of Section 2.11(c) of the Indenture the Debentures are not represented by a Global Debenture, the Company shall select a regular record date for such interest installment which shall be any date more than one Business Day before an Interest Payment Date. (b) The amount of interest payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. Except as provided in the following sentence, the amount of interest payable for any period shorter than a full semiannual period for which interest is computed, will be computed on the basis of the actual number of days elapsed in such a period (assuming each full month elapsed in such period consists of 30 days). In the event that any date on which interest is payable on the Debentures is not a Business Day, then payment of interest payable on such date will be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. (c) If, at any time while the Institutional Trustee is the holder of any Debentures, the Trust or the Institutional Trustee is required to pay any taxes, duties, assessments or governmental charges of whatever nature (other than withholding taxes) imposed by the United States, or any other taxing authority, then, in any such case, the Company will pay as additional interest ("Additional Interest") on the Debentures held by the Institutional Trustee, such additional amounts as shall be required so that the net amounts received and retained by the Trust 9 and the Institutional Trustee after paying any such taxes, duties, assessments or other such governmental charges will be equal to the amounts the Trust and the Institutional Trustee would have received had no such taxes, duties, assessments or other government charges been imposed. ARTICLE III. REDEMPTION OF THE DEBENTURES Section 3.01. Special Event Redemption. If a Tax Event has occurred and is continuing and the Company has received a Redemption Tax Opinion, then, notwithstanding Section 3.2(a) but subject to Section 3.2(b), the Company shall have the right upon not less than 30 days nor more than 60 days notice to the holders of the Debentures to redeem the Debentures, in whole or in part, for cash within 90 days following the occurrence of such Tax Event (the "90 Day Period") at a redemption price equal to 100% of the principal amount to be redeemed plus any accrued and unpaid interest thereon to the date of such redemption (the "Redemption Price"), provided that if at the time there is available to the Company the opportunity to eliminate, within the 90 Day Period and before any notice has been given to the holders of the Debentures, the adverse effects of such Tax Event by taking some ministerial action ("Ministerial Action"), such as filing a form or making an election, or pursuing some other similar reasonable measure which has no adverse effect on the Company, the Trust, the Guarantor or the holders of the Trust Securities issued by the Trust, the Company shall pursue such Ministerial Action in lieu of redemption, and, provided, further, that the Company shall have no right to redeem the Debentures while the Trust is pursuing any Ministerial Action pursuant to its obligations under the Declaration. The Redemption Price shall be paid prior to 12:00 noon, New York time, on the date of such redemption or such earlier time as the Company determines, provided that the Company shall deposit with the Trustee an amount sufficient to pay the Redemption Price by 10:00 a.m., New York time, on the date such Redemption Price is to be paid. Section 3.02. Optional Redemption by Company. (a) Subject to the provisions of Section 3.2(b) and to the provisions of Article Fourteen of the Indenture, except as otherwise may be specified in this First Supplemental Indenture, the Company shall have the right to redeem the Debentures without premium or penalty, in whole or in part, at any time and from time to time, on or after December 15, 2006, at a redemption price equal to 100% of the principal amount to be redeemed plus any accrued and unpaid interest thereon to the date of such redemption (the "Optional Redemption Price"). Any redemption pursuant to this paragraph will be made upon not less than 30 days nor more than 60 days notice to the holder of the Debentures, at the Optional Redemption Price. If the Debentures are only partially redeemed pursuant to this Section 3.2(a), the Debentures will be redeemed pro rata or by lot or by any other method utilized by the Trustee; provided, that if at the time of redemption the Debentures are registered as a Global Debenture, the Depositary shall determine, in accordance with its procedures, the principal amount of such Debentures held by each holder of Debentures to be redeemed. The Optional Redemption Price shall be paid prior to 12:00 noon, New York time, on the date of such redemption or at such earlier time as the Company 10 determines, provided that the Company shall deposit with the Trustee an amount sufficient to pay the Optional Redemption Price by 10:00 a.m., New York time, on the date such Optional Redemption Price is to be paid. (b) If a partial redemption of the Debentures would result in the delisting of the Capital Securities issued by the Trust from any national securities exchange or other organization on which the Capital Securities are then listed, the Company shall not be permitted to effect such partial redemption and may only redeem the Debentures in whole. Section 3.03. No Sinking Fund. The Debentures are not entitled to the benefit of any sinking fund. ARTICLE IV. EXTENSION OF INTEREST PAYMENT PERIOD Section 4.01. Extension of Interest Payment Period. The Company shall have the right, at any time and from time to time during the term of the Debentures, to defer payments of interest on the Debentures by extending the interest payment period of such Debentures for a period not exceeding 10 consecutive semiannual periods (the "Extended Interest Payment Period"), during which Extended Interest Payment Period no interest shall (except on the date on which such Extended Interest Payment Period terminates) be due and payable; provided that no Extended Interest Payment Period shall be initiated while accrued interest with respect to prior, completed Extended Interest Payment Periods is unpaid or while the Company is in default in the payment of interest that has become due and payable on the Debentures, and provided further that no Extended Interest Payment Period may extend beyond the Maturity Date. To the extent permitted by applicable law, interest, the payment of which has been deferred because of the extension of the interest payment period pursuant to this Section 4.1, will bear interest thereon at the Coupon Rate compounded semiannually for each semiannual period of the Extended Interest Payment Period ("Compounded Interest"). On the date on which any Extended Interest Payment Period ends, the Company shall pay all interest then accrued and unpaid on the Debentures, including any Additional Interest and Compounded Interest (together, "Deferred Interest"), that shall be payable to the holders of the Debentures in whose names the Debentures are registered in the Security Register on the record date for the payment of interest immediately preceding such date. Before the termination of any Extended Interest Payment Period, the Company may further extend such period, provided that each such Extended Interest Payment Period, together with all such previous and further extensions thereof, shall not exceed 10 consecutive semiannual periods, or extend beyond the Maturity Date. Upon the termination of any Extended Interest Payment Period and upon the payment of all Deferred Interest then due, the Company may commence a new Extended Interest Payment Period, subject to the foregoing requirements. The Company may prepay at any time all or any portion of the interest accrued during an Extended Interest Payment Period. 11 Section 4.02. Notice of Extension. (a) If the Institutional Trustee is the only registered holder of the Debentures at the time the Company opts to initiate an Extended Interest Payment Period, the Company shall give written notice to the Regular Trustees, the Institutional Trustee and the Trustee of its initiation of such Extended Interest Payment Period one Business Day before the earlier of (i) the next succeeding date on which distributions on the Trust Securities issued by the Trust are payable, or (ii) the date the Trust is required to give notice of the record date, or the date such distributions are payable, to any national securities exchange or other organization on which the Capital Securities are then listed or other applicable self-regulatory organization or to holders of the Capital Securities issued by the Trust, in each case with respect to distributions on the Trust Securities the payment of which is being deferred. (b) If the Institutional Trustee is not the only holder of the Debentures at the time the Company opts to initiate an Extended Interest Payment Period, the Company shall give the holders of the Debentures and the Trustee written notice of its initiation of such Extended Interest Payment Period at least ten Business Days before the earlier of (i) the next succeeding Interest Payment Date, or (ii) the date the Company is required to give notice of the record date or payment date of such interest payment to any national securities exchange or other organization on which the Capital Securities are then listed or other applicable self-regulatory organization or to holders of the Debentures, in each case with respect to interest payments the payment of which is being deferred. (c) The semiannual period in which any notice is given pursuant to paragraphs (a) or (b) of this Section 4.2 shall be counted as one of the 10 semiannual periods permitted in the maximum Extended Interest Payment Period permitted under Section 4.1. ARTICLE V. EXPENSES AND GUARANTEE Section 5.01. Payment of Expenses. In connection with the offering, sale and issuance of the Debentures to the Institutional Trustee and in connection with the sale of the Trust Securities by the Trust, the Company, in its capacity as borrower with respect to the Debentures, shall: (a) pay all costs and expenses relating to the offering, sale and issuance of the Debentures and Debt Guarantee, including commissions to the underwriter payable pursuant to the Underwriting Agreement and the Pricing Agreement and compensation of the Trustee under the Indenture in accordance with the provisions of Section 6.06 of the Indenture; (b) pay all costs and expenses of the Trust (including, but not limited to, costs and expenses relating to the organization, maintenance and dissolution of the Trust, the offering, sale and issuance of the Trust Securities (including commissions to the underwriter in connection therewith), the fees and expenses of the Institutional Trustee (including all costs and expenses relating to the enforcement by the Institutional Trustee of the rights of the holders of the Capital 12 Securities), Delaware Trustee and the Regular Trustees, the costs and expenses relating to the operation of the Trust, including without limitation, costs and expenses of accountants, attorneys, statistical or bookkeeping services, expenses for printing and engraving and computing or accounting equipment, paying agent(s), registrar(s), transfer agent(s), duplicating, travel and telephone and other telecommunications expenses and costs and expenses incurred in connection with the acquisition, financing, and disposition of Trust assets); (c) be primarily and fully liable for any indemnification obligations arising with respect to the Declaration; and (d) pay any and all taxes (other than United States withholding taxes attributable to the Trust or its assets) and all liabilities, costs and expenses with respect to such taxes of the Trust. Section 5.02. Payment Upon Resignation or Removal. Upon termination of this First Supplemental Indenture or the Indenture or the removal or resignation of the Trustee, unless otherwise stated, the Company shall pay to the Trustee all amounts accrued to the date of such termination, removal or resignation. Upon termination of the Declaration or the removal or resignation of the Delaware Trustee or the Institutional Trustee, as the case may be, pursuant to Section 5.7 of the Declaration, the Company shall pay to the Delaware Trustee or the Institutional Trustee, as the case may be, all amounts accrued to the date of such termination, removal or resignation. Section 5.03. Guarantee of Payment of Expenses. The Guarantor hereby fully and unconditionally guarantees the due and punctual payment of all amounts that become due and payable by the Company to any Person pursuant to Section 5.1 or Section 5.2. ARTICLE VI. [RESERVED] ARTICLE VII. FORM OF DEBENTURE Section 7.01. Form of Debenture. The Debentures and the Trustee's certificate of authentication to be endorsed thereon are to be substantially in the following forms: (FACE OF DEBENTURE) [IF THE DEBENTURE IS TO BE A GLOBAL DEBENTURE; INSERT-This Debenture is a Global Debenture within the meaning of the Indenture hereinafter referred to and 13 is registered in the name of a Depositary or a nominee of a Depositary. This Debenture is exchangeable for Debentures registered in the name of a person other than the Depositary or its nominee only in the limited circumstances described in the Indenture, and no transfer of this Debenture (other than a transfer of this Debenture 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) may be registered except in limited circumstances. Unless this Debenture is presented by an authorized representative of The Depository Trust Company (55 Water Street, New York, New York) to the issuer or its agent for registration of transfer, exchange or payment, and any Debenture issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of The Depository Trust Company and any payment hereon is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest herein.] No. _________________ CUSIP No. _______________ COUNTRYWIDE HOME LOANS, INC. 8% JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURE DUE DECEMBER 15, 2026 COUNTRYWIDE HOME LOANS, INC., a New York corporation (the "Company", which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to ____________ or registered assigns, the principal sum of ________________ Dollars ($_________ ) on December 15 , 2026, and to pay interest on said principal sum from December 16, 1996, or from the most recent interest payment date (each such date, an "Interest Payment Date") to which interest has been paid or duly provided for, semiannually (subject to deferral as set forth herein) in arrears on June 15 and December 15 of each year commencing June 15, 1997, at the rate of 8% per annum until the principal hereof shall have become due and payable, and on any overdue principal and premium, if any, and (without duplication and to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the same rate per annum compounded semiannually. The amount of interest payable on any Interest Payment Date shall be computed on the basis of a 360-day year of twelve 30-day months. In the event that any date on which interest is payable on this Debenture is not a Business Day, then payment of interest payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), with the same force and effect as if made on such date. The interest installment so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Debenture (or one or more Predecessor Securities, as defined in said Indenture) is registered at the close of business on the regular record date for such interest installment, which shall be the close of business on the Business Day next preceding such Interest Payment Date. [IF PURSUANT TO THE PROVISIONS OF THE INDENTURE THE DEBENTURES ARE NO LONGER REPRESENTED BY A GLOBAL Debenture -- which shall be the close of business on the____ Business Day next preceding such Interest Payment 14 Date.] Any such interest installment not punctually paid or duly provided for shall forthwith cease to be payable to the registered holders on such regular record date and may be paid to the Person in whose name this Debenture (or one or more Predecessor Securities) is registered at the close of business on a special record date to be fixed by the Trustee for the payment of such defaulted interest, notice whereof shall be given to the registered holders of this series of Debentures not less than 10 days prior to such special record date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Debentures may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. The principal of (and premium, if any) and the interest on this Debenture shall be payable at the office or agency of the Trustee (or other paying agent appointed by the Company) maintained for that purpose in any coin or currency of the United States of America that at the time of payment is legal tender for payment of public and private debts; provided, however, that payment of interest may be made at the option of the Company by check mailed to the registered holder at such address as shall appear in the Security Register. Notwithstanding the foregoing, so long as the holder of this Debenture is the Institutional Trustee, the payment of the principal of (and premium, if any) and interest on this Debenture will be made at such place and to such account as may be designated by the Institutional Trustee. The indebtedness evidenced by this Debenture is, to the extent provided in the Indenture, subordinate and junior in right of payment to the prior payment in full of all Senior Indebtedness, and this Debenture is issued subject to the provisions of the Indenture with respect thereto. Each holder of this Debenture, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his or her behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination so provided and (c) appoints the Trustee his or her attorney-in-fact for any and all such purposes. Each holder hereof, by his or her acceptance hereof, hereby waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior Indebtedness, whether now outstanding or hereafter incurred, and waives reliance by each such holder upon said provisions. This Debenture shall not be entitled to any benefit under the Indenture hereinafter referred to, be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been signed by or on behalf of the Trustee. The provisions of this Debenture are continued on the reverse side hereof and such continued provisions shall for all purposes have the same effect as though fully set forth at this place. IN WITNESS WHEREOF, the Company has caused this instrument to be executed. COUNTRYWIDE HOME LOANS, INC. By: ________________________ Name: 15 Title: Attest: By: _________________ Name: Title: 16 CERTIFICATE OF AUTHENTICATION This is one of the Securities of the series designated herein referred to in the within-mentioned Indenture. Dated ________________ The Bank of New York, as Trustee By____________________ Authorized Signatory [FORM OF GUARANTEE] FOR VALUE RECEIVED, COUNTRYWIDE CREDIT INDUSTRIES, INC., a Delaware corporation (the "Guarantor"), hereby fully and unconditionally guarantees to the holder of the Security upon which this Guarantee is endorsed the due and punctual payment of the principal of, sinking fund payment, if any, premium, if any, or interest on said Security, when and as the same shall become due and payable, whether at maturity, upon redemption or otherwise, according to the terms thereof and of the Indenture referred to therein. The Guarantor agrees to determine, at least one Business Day prior to the date upon which a payment of principal of, sinking fund payment, if any, premium, if any, or interest on said Security is due and payable, whether the Company has available the funds to make such payment as the same shall become due and payable. In case of the failure of the Company punctually to pay any such principal, sinking fund payment, if any, premium, if any, or interest, the Guarantor hereby agrees to cause any such payment to be made punctually when and as the same shall become due and payable, whether at maturity, upon redemption, or otherwise, and as if such payment were made by the Company. The Guarantor hereby agrees that its obligations hereunder shall be unconditional, irrevocable, and absolute, irrespective of the validity, regularity, or enforceability of said Security or said Indenture, the absence of any action to enforce the same, any waiver or consent by the holder of said Security with respect to any provisions thereof, the recovery of any judgment against the Company or any action to enforce the same, or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. The Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of merger or bankruptcy of the Company, any right to require a proceeding first against the Company, protest or notice with respect to said Security or indebtedness evidenced thereby, and all demands whatsoever and covenants that this Guarantee will not be discharged except by complete performance of the obligations contained in said Security and in this Guarantee. 17 The Guarantor shall be subrogated to all rights of the holder of said Security against the Company in respect of any amounts paid by the Guarantor pursuant to the provisions of this Guarantee; provided, however, that the Guarantor shall not, without the consent of the holders of all of the Securities then outstanding, 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 all Securities shall have been paid in full or payment thereof shall have been provided for in accordance with said Indenture. Notwithstanding anything to the contrary contained herein, if following any payment of principal or interest by the Company on the Securities to the holders of the Securities it is determined by a final decision of a court of competent jurisdiction that such payment shall be avoided by a trustee in bankruptcy (including any debtor-in-possession) as a preference under 11 U.S.C. Section 547 and such payment is paid by such holder to such trustee in bankruptcy, then and to the extent of such repayment, the obligations of the Guarantor hereunder shall remain in full force and effect. The obligations of the Guarantor under this Guarantee are, to the extent provided in the Indenture, subordinate and junior in right of payment to the prior payment in full of all Senior Indebtedness, and this Guarantee is issued subject to the provisions of the Indenture with respect thereto. Each holder of the Security upon which this Guarantee is endorsed, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his or her behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination so provided and (c) appoints the Trustee his or her attorney-in-fact for any and all such purposes. Each holder of the Security upon which this Guarantee is endorsed, by his or her acceptance thereof, hereby waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior Indebtedness, whether now outstanding or hereafter incurred, and waives reliance by each holder upon said provisions. This Guarantee shall not be valid or become obligatory for any purpose with respect to a Security until the certificate of authentication on such Security shall have been signed by the Trustee (or the Authentication Agent). This Guarantee shall be governed by the laws of the State of New York. 18 IN WITNESS WHEREOF, COUNTRYWIDE CREDIT INDUSTRIES, INC. has caused this Guarantee to be signed in its corporate name by the facsimile signature of two of its officers thereunto duly authorized and has caused a facsimile of its corporate seal to be affixed hereunto or imprinted or otherwise reproduced hereon. COUNTRYWIDE CREDIT INDUSTRIES, INC. ______________________________{Seal} _______________________ {Title} {Title} 19 (REVERSE OF DEBENTURE) This Debenture is one of a duly authorized series of Debt Securities of the Company specified in the Indenture, all issued or to be issued in one or more series under and pursuant to an Indenture dated as of December 16, 1996, duly executed and delivered between the Company and The Bank of New York as Trustee (the "Trustee"), as supplemented by the First Supplemented Indenture dated as of December 16, 1996, between the Company and the Trustee (the Indenture as so supplemented, the "Indenture"), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the holders of the series of Debt Securities (referred to herein as the "Debentures") of which this Debenture is a part. By the terms of the Indenture, the Debt Securities are issuable in series that may vary as to amount, date of maturity, rate of interest and in other respects as provided in the Indenture. This series of Debentures is limited in aggregate principal amount as specified in said First Supplemental Indenture. The Company shall have the right to redeem this Debenture at the option of the Company, without premium or penalty, in whole or in part at any time and from time to time on or after December 15, 2006 (an "Optional Redemption"), or at any time in certain circumstances upon the occurrence of a Tax Event, at a redemption price equal to 100% of the principal amount to be redeemed plus any accrued but unpaid interest, to the date of such redemption (the "Optional Redemption Price"). Any redemption pursuant to this paragraph will be made upon not less than 30 days nor more than 60 days notice, at the Optional Redemption Price. If the Debentures are only partially redeemed by the Company pursuant to an Optional Redemption, the Debentures will be redeemed pro rata or by lot or by any other method utilized by the Trustee; provided that if, at the time of redemption, the Debentures are registered as a Global Debenture, the Depositary shall determine the principal amount of such Debentures held by each Debentureholder to be redeemed in accordance with its procedures. In the event of redemption of this Debenture in part only, a new Debenture or Debentures of this series for the unredeemed portion hereof will be issued in the name of the holder hereof upon the cancellation hereof. In case an Event of Default, as defined in the Indenture, shall have occurred and be continuing, the principal of all of the Debentures 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 and the Trustee, with the consent of the holders of not less than a majority in aggregate principal amount of the Debt Securities of each series affected at the time outstanding, as specified in the Indenture, to execute supplemental indentures for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or of modifying in any manner the rights of the holders of the Debt Securities; provided, however, that no such supplemental indenture shall (i) among other things, extend the fixed maturity of any 20 Debt Securities of any series, or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon, or reduce any premium payable upon the redemption thereof, without the consent of the holder of each Debt Security so affected, or (ii) reduce the aforesaid percentage of Debt Securities, the holders of which are required to consent to any such supplemental indenture, without the consent of the holder of each Debt Security then outstanding and affected thereby. The Indenture also contains provisions permitting the holders of a majority in aggregate principal amount of the Debt Securities of any series at the time outstanding affected thereby, on behalf of all of the holders of the Debt Securities of such series, to waive any past default in the performance of any of the covenants contained in the Indenture, or established pursuant to the Indenture with respect to such series, and its consequences, except a default in the payment of the principal of or premium, if any, or interest on any of the Debt Securities of such series. Any such consent or waiver by the registered holder of this Debenture (unless revoked as provided in the Indenture) shall be conclusive and binding upon such holder and upon all future holders and owners of this Debenture and of any Debenture issued in exchange herefor or in place hereof (whether by registration of transfer or otherwise), irrespective of whether or not any notation of such consent or waiver is made upon this Debenture. No reference herein to the Indenture and no provision of this Debenture or of the Indenture 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 Debenture at the time and place and at the rate and in the money herein prescribed. The Company shall have the right at any time during the term of the Debentures and from time to time to defer payments of interest on the Debentures by extending the interest payment period of the Debentures for up to 10 consecutive semiannual periods (each, an "Extended Interest Payment Period"), and on the date on which each such Extended Interest Payment Period ends the Company shall pay all interest then accrued and unpaid, together with interest thereon, compounded semiannually at the rate specified for the Debentures to the extent that payment of such interest is enforceable under applicable law; provided that no Extended Interest Payment Period may be initiated while accrued interest with respect to prior completed Extended Interest Payment Periods is unpaid or while the Company is in default in the payment of interest that has become due and payable on the Debentures, and provided further that no Extended Interest Payment Period may last beyond the Maturity Date. Before the termination of any such Extended Interest Payment Period, the Company may further extend such Extended Interest Payment Period, provided that each such Extended Interest Payment Period together with all such previous and further extensions thereof shall not exceed 10 consecutive semiannual periods or extend beyond the Maturity Date. At the termination of any such Extended Interest Payment Period and upon the payment of all accrued and unpaid interest and any additional amounts then due, the Company may commence a new Extended Interest Payment Period, subject to the above requirements. As provided in the Indenture and subject to certain limitations therein set forth, this Debenture is transferable by the registered holder hereof on the Security Register of the Company, upon surrender of this Debenture for registration of transfer at the office or agency of the Trustee in the City and State of New York accompanied by a written instrument or 21 instruments of transfer in form satisfactory to the Company and the Trustee duly executed by the registered holder hereof or his attorney duly authorized in writing, and thereupon one or more new Debentures of authorized denominations and for the same aggregate principal amount and series will be issued to the designated transferee or transferees. No service charge will be made for any such transfer, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in relation thereto. Prior to due presentment for registration of transfer of this Debenture, the Company, the Trustee, any paying agent and the Security registrar may deem and treat the registered holder hereof as the absolute owner hereof (whether or not this Debenture shall be overdue and notwithstanding any notice of ownership or writing hereon made by anyone other than the Security registrar) for the purpose of receiving payment of or on account of the principal hereof and premium, if any, and interest due hereon and for all other purposes, and neither the Company nor the Trustee nor any paying agent nor any Security registrar shall be affected by any notice to the contrary. No recourse shall be had for the payment of the principal of or the interest on this Debenture, 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 or director, past, present or future, as such, of the Company or of any predecessor or 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 issuance hereof, expressly waived and released. [The Debentures of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof.] [This Global Debenture is exchangeable for Debentures in definitive form only under certain limited circumstances set forth in the Indenture. Debentures of this series so issued are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof.] As provided in the Indenture and subject to certain limitations [herein and] therein set forth, Debentures of this series [so issued] are exchangeable for a like aggregate principal amount of Debentures of this series of a different authorized denomination, as requested by the holder surrendering the same. All terms used in this Debenture that are defined in the Indenture shall have the meanings assigned to them in the Indenture. THE INTERNAL LAWS OF THE STATE OF NEW YORK SHALL GOVERN THE INDENTURE AND THE DEBENTURES WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES THEREOF. 22 ARTICLE VIII. ORIGINAL ISSUE OF DEBENTURES Section 8.01. Original Issue of Debentures. Debentures in the aggregate principal amount of $309,279,000 may, upon execution of this First Supplemental Indenture, be executed by the Company and delivered to the Trustee for authentication, and the Trustee shall thereupon authenticate and deliver said Debentures to or upon the written order of the Company, signed by its Chairman, its President, any Managing Director or any Vice President and its Treasurer or an Assistant Treasurer, without any further action by the Company. ARTICLE IX. MISCELLANEOUS Section 9.01. Ratification of Indenture. The Indenture, as supplemented by this First Supplemental Indenture, is in all respects ratified and confirmed, and this First Supplemental Indenture shall be deemed part of the Indenture in the manner and to the extent herein and therein provided. Section 9.02. Trustee Not Responsible for Recitals. The recitals herein contained are made by the Company and the Guarantor and not by the Trustee, and the Trustee assumes no responsibility for the correctness thereof. The Trustee makes no representation as to the validity or sufficiency of this First Supplemental Indenture. Section 9.03. Governing Law. This First Supplemental Indenture and each Debenture shall be deemed to be a contract made under the internal laws of the State of New York, and for all purposes shall be construed in accordance with the laws of said State without regard to conflict of laws principles thereof. Section 9.04. Separability. In case any one or more of the provisions contained in this First Supplemental Indenture or in the Debentures shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this First Supplemental Indenture or of the Debentures, but this First Supplemental Indenture and the Debentures shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein or therein. Section 9.05. Counterparts. 23 This First Supplemental Indenture may be executed in any number of counterparts each of which shall be an original; but such counterparts shall together constitute but one and the same instrument. 24 IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, on the date or dates indicated in the acknowledgements and as of the day and year first above written. COUNTRYWIDE HOME LOANS, INC. By: /s/ Stanford L. Kurland ------------------------------ Name: Stanford L. Kurland Title: President [Seal] Attest:/s/ Sandor E. Samuels -------------------------- Title: Sandor E. Samuels Secretary COUNTRYWIDE CREDIT INDUSTRIES, INC. By: /s/ Carlos M. Garcia --------------------------------- Name: Carlos M. Garcia Title: Managing Director Attest:/s/ Sandor E. Samuels ---------------------------- Title: Sandor E. Samuels Secretary THE BANK OF NEW YORK as Trustee By: /s/ Vivian Georges ----------------------------------- Name: Vivian Georges Title: Assistant Vice President Attest:___________________________ Title: Assistant Treasurer 25 EX-4.36 7 v96832exv4w36.txt EXHIBIT 4.36 EXHIBIT 4.36 EXECUTION COPY AMENDED AND RESTATED DECLARATION OF TRUST COUNTRYWIDE CAPITAL I Dated as of December 16, 1996 CROSS-REFERENCE TABLE*

- --------------------- * This Cross-Reference Table does not constitute part of the Declaration and shall not affect the interpretation of any of its terms or provisions. 2 AMENDED AND RESTATED DECLARATION OF TRUST OF COUNTRYWIDE CAPITAL I December 16, 1996 AMENDED AND RESTATED DECLARATION OF TRUST ("Declaration") dated and effective as of December 16, 1996, by the Original Trustees (as defined herein), the Sponsor (as defined herein) and by the holders, from time to time, of undivided beneficial interests in the Trust to be issued pursuant to this Declaration; WHEREAS, the Original Trustees and the Sponsor established Countrywide Capital I, a trust under the Business Trust Act (as defined herein) (the "Trust"), pursuant to a Declaration of Trust, dated as of October 14, 1996 (the "Original Declaration"), and a Certificate of Trust filed with the Secretary of State of the State of Delaware on October 15, 1996, for the sole purpose of issuing and selling certain securities representing undivided beneficial interests in the assets of the Trust and investing the proceeds thereof in the Debentures (as defined herein) of the Debenture Issuer (as defined herein) and the Debenture Guarantee (as defined herein) of the Sponsor endorsed thereon; WHEREAS, as of the date hereof, no interests in the Trust have been issued; WHEREAS, all of the Trustees and the Sponsor, by this Declaration, amend and restate each and every term and provision of the Original Declaration; and NOW, THEREFORE, it being the intention of the parties hereto to continue the Trust as a business trust under the Business Trust Act and that this Declaration constitute the governing instrument of such business trust, the Trustees declare that all assets contributed to the Trust will be held in trust for the benefit of the holders, from time to time, of the securities representing undivided beneficial interests in the assets of the Trust issued hereunder, subject to the provisions of this Declaration. 3 ARTICLE I. NTERPRETATION AND DEFINITIONS Section 1.01. Definitions. Unless the context otherwise requires: (a) capitalized terms used in this Declaration but not defined herein have the respective meanings assigned to them in this Section 1.1; (b) a term defined anywhere in this Declaration has the same meaning throughout; (c) all references to "the Declaration" or "this Declaration" are to this Declaration as modified, supplemented or amended from time to time; (d) all references in this Declaration to Articles and Sections and Annexes and Exhibits are to Articles and Sections of and Annexes and Exhibits to this Declaration unless otherwise specified; (e) a term defined in the Trust Indenture Act has the same meaning when used in this Declaration unless otherwise defined in this Declaration or unless the context otherwise requires; and (f) a reference to the singular includes the plural and vice versa. "Affiliate" has the same meaning as given to that term in Rule 405 of the Securities Act or any successor rule thereunder. "Agent" means any Paying Agent. "Authorized Officer" of a Person means any Person that is authorized to bind such Person. "Book-Entry Interest" means a beneficial interest in a Global Certificate, ownership and transfers of which shall be maintained and made through book entries by a Clearing Agency as described in Section 9.4. "Business Day" means, with respect to any series of Securities, any day other than Saturday, Sunday or any other day on which federal or state banking institutions in the Borough of Manhattan, the City of New York or Los Angeles, California, are authorized or obligated by any applicable law, executive order or regulation to close. "Business Trust Act" means Chapter 38 of Title 12 of the Delaware Code, 12 Del. Code Section 3801 et seq., as it may be amended from time to time, or any successor legislation. 4 "Capital Securities Guarantee" means the guarantee agreement to be dated as of December 16, 1996, of the Sponsor in respect of the Capital Securities. "Capital Security" or "Capital Securities" has the meaning specified in Section 7.1(a). "Capital Security Beneficial Owner" means, with respect to a Book-Entry Interest, a Person who is the beneficial owner of such Book-Entry Interest, as reflected on the books of the Clearing Agency, or on the books of a Person maintaining an account with such Clearing Agency (directly as a Clearing Agency Participant or as an indirect participant, in each case in accordance with the rules and regulations of such Clearing Agency). "Capital Security Certificate" means a certificate representing a Capital Security substantially in the form of Exhibit A-1. "Certificate" means a Common Security Certificate or a Capital Security Certificate. "Clearing Agency" means an organization registered as a "Clearing Agency" pursuant to Section 17A of the Exchange Act that is acting as depositary for the Capital Securities and in whose name or in the name of a nominee of that organization shall be registered a Global Certificate and which shall undertake to effect book-entry transfers of the Capital Securities. "Clearing Agency Participant" means a broker, dealer, bank, other financial institution or other Person for whom from time to time the Clearing Agency effects book-entry transfers securities deposited with the Clearing Agency. "Closing Date" means the "Closing Time" under the Underwriting Agreement. "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor legislation. "Commission" means the Securities and Exchange Commission or a successor federal agency performing comparable functions. "Common Securities Guarantee" means the guarantee agreement to be dated as of December 16, 1996 of the Sponsor in respect of the Common Securities. "Common Security" or "Common Securities" has the meaning specified in Section 7.1(a). "Common Security Certificate" means a definitive certificate in fully registered form representing one or more Common Securities substantially in the form of Exhibit A-2. 5 "Company Indemnified Person" means (a) any Regular Trustee; (b) any Affiliate of any Regular Trustee; (c) any officers, directors, shareholders, members, partners, employees, representatives or agents of any Regular Trustee; or (d) any officer, employee or agent of the Trust or its Affiliates. "Corporate Trust Office" means the office of the Institutional Trustee at which the corporate trust business of the Institutional Trustee shall, at any particular time, be principally administered, which office at the date of execution of this Agreement is located at 101 Barclay Street, Floor 21 West, New York, New York 10286. "Covered Person" means: (a) any officer, director, shareholder, partner, member, representative, employee or agent of (i) the Trust or (ii) the Trust's Affiliates; and (b) any Holder of Securities. "Debenture Guarantee" means the guarantee by the Sponsor of the Debentures endorsed thereon. "Debenture Issuer" means Countrywide Home Loans, Inc., a New York corporation, in its capacity as issuer of the Debentures under the Indenture. "Debenture Trustee" means The Bank of New York, a New York banking corporation, as trustee under the Indenture until a successor is appointed thereunder, and thereafter means such successor trustee. "Debentures" means the series of Debentures to be issued by the Debenture Issuer under the Indenture to the Trust which Debentures will be registered in the name of and held by the Institutional Trustee or, upon the dissolution, winding-up or termination of the Trust, the Depositary or the Holder, as the case may be, a specimen certificate for such series of Debentures being substantially in the form of Exhibit B. "Delaware Trustee" has the meaning set forth in Section 5.2. "Definitive Capital Security Certificates" has the meaning set forth in Section 9.4. (g) "Depositary" means, with respect to the Capital Securities, DTC, or another Clearing Agency. "Distribution" means a distribution payable to Holders of Securities in accordance with Section 6.1. "DTC" means The Depository Trust Company, New York, New York, the initial Clearing Agency. "Event of Default" in respect of the Securities means an Indenture Event of Default has occurred and is continuing in respect of the Debentures. 6 "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, or any successor legislation. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "ERISA Plan" means an employee benefit plan subject to ERISA or an individual retirement account or plan subject to Section 4975 of the Code. "Fiduciary Indemnified Person" has the meaning set forth in Section 10.4(b). "Global Certificate" has the meaning set forth in Section 9.4. "Guarantor" has the meaning set forth in the Indenture. "Holder" means a Person in whose name a Certificate representing a Security is registered. "Indemnified Person" means a Company Indemnified Person or a Fiduciary Indemnified Person. "Indenture" means the Indenture dated as of December 16, 1996, among the Debenture Issuer and the Debenture Trustee, and any indenture supplemental thereto pursuant to which the Debentures and the Debenture Guarantees are to be issued. "Indenture Event of Default" means an Event of Default as defined in the Indenture. "Institutional Trustee" means the Trustee meeting the eligibility requirements set forth in Section 5.3 and shall initially mean The Bank of New York, a New York banking corporation. "Institutional Trustee Account" has the meaning set forth in Section 3.8(c). "Investment Company" means an investment company as defined in the Investment Company Act. "Investment Company Act" means the Investment Company Act of 1940, as amended from time to time, or any successor legislation. "Legal Action" has the meaning set forth in Section 3.6(g). "Majority in liquidation amount of the Securities" means, except as provided in the terms of the Capital Securities or by the Trust Indenture Act, Holder(s) of outstanding Securities voting together as a single class or, as the context may require, Holders of outstanding Capital Securities or Holders of outstanding Common Securities voting separately as a class, 7 who are the record owners of more than 50% of the aggregate liquidation amount of all outstanding Securities of the relevant class. "Ministerial Action" has the meaning set forth in the terms of the Securities as set forth in Annex I. "Officers' Certificate" means, with respect to any Person, a certificate signed by two Authorized Officers of such Person. Any Officers' Certificate delivered in connection with compliance with a condition or covenant provided for it in this Declaration shall include: (h) a statement that each officer signing the Certificate has read the condition or covenant and the definitions relating thereto; (i) a brief statement of the nature and scope of the examination or investigation undertaken by each such officer in rendering the Certificate; (j) a statement that each such officer has made such examination or investigation as, in such officer's opinion, is necessary to enable such officer to express an informed opinion as to whether or not such condition or covenant has been complied with; and (k) a statement as to whether, in the opinion of each such officer, such condition or covenant has been complied with. "Original Trustees" means, Eric P. Sieracki and Carlos Garcia, each in his capacity as a Regular Trustee of the Trust and The Bank of New York (Delaware) in its capacity as Delaware Trustee of the Trust, in each case appointed pursuant to the Original Declaration. "Paying Agent" has the meaning specified in Section 7.2. "Person" means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association, or government or any agency or political subdivision thereof, or any other entity of whatever nature. "Pricing Agreement" means the pricing agreement between the Trust, the Debenture Issuer, and the underwriter party to the Underwriting Agreement with respect to the offer and sale of the Capital Securities. "Quorum" means a majority of the Regular Trustees or, if there are only two Regular Trustees, both of them. "Regular Trustee" has the meaning set forth in Section 5.1. "Related Party" means, with respect to the Sponsor, any direct or indirect wholly owned subsidiary of the Sponsor or any other Person that owns, directly or indirectly, 100% of the outstanding voting securities of the Sponsor. 8 "Responsible Officer" means, with respect to the Institutional Trustee, any officer within the Corporate Trust Office of the Institutional Trustee, including any vice-president, any assistant vice-president, the treasurer, any assistant treasurer or other officer of the Corporate Trust Office of the Institutional Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of that officer's knowledge of and familiarity with the particular subject. "Rule 3a-5" means Rule 3a-5 under the Investment Company Act. "Securities" means the Common Securities and the Capital Securities. "Securities Act" means the Securities Act of 1933, as amended from time to time or any successor legislation. "Securities Guarantees" means the Common Securities Guarantee and the Capital Securities Guarantee. "Sponsor" means Countrywide Credit Industries, Inc., a Delaware corporation, or any successor entity in a merger, consolidation or amalgamation, in its capacity as sponsor of the Trust. "Successor Delaware Trustee" has the meaning set forth in Section 5.7(b). "Successor Entity" has the meaning set forth in Section 3.15(b). "Successor Institutional Trustee" has the meaning set forth in Section 5.7(b). "Successor Securities" has the meaning set forth in Section 3.15(b). "Super Majority" has the meaning set forth in Section 2.6(a)(ii). "Tax Event" has the meaning set forth in Annex I hereto. "10% in liquidation amount of the Securities" means, except as provided in the terms of the Capital Securities or by the Trust Indenture Act, Holder(s) of outstanding Securities voting together as a single class or, as the context may require, holders of outstanding Capital Securities or Holders of outstanding Common Securities voting separately as a class, who are the record owners of 10% or more of the aggregate liquidation amount of all outstanding Securities of the relevant class. "Treasury Regulations" means the income tax regulations, including temporary and proposed regulations, promulgated under the Code by the United States Treasury Department, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations). 9 "Trustee" or "Trustees" means each Person who has signed this Declaration as a trustee, so long as such Person shall continue in office in accordance with the terms hereof, and all other Persons who may from time to time be duly appointed, qualified and serving as Trustees in accordance with the provisions hereof, and references herein to a Trustee or the Trustees shall refer to such Person or Persons solely in their capacity as trustees hereunder. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended from time to time, or any successor legislation. "Underwriting Agreement" means the Underwriting Agreement for the offering and sale of Capital Securities substantially in the form of Exhibit C. ARTICLE II. TRUST INDENTURE ACT Section 2.01. Trust Indenture Act; Application. (a) This Declaration is subject to the provisions of the Trust Indenture Act that are required to be part of this Declaration and shall, to the extent applicable, be governed by such provisions. (b) The Institutional Trustee shall be the only Trustee which is a Trustee for the purposes of the Trust Indenture Act. (c) If and to the extent that any provision of this Declaration limits, qualifies or conflicts with the duties imposed by Sections 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control. (d) The application of the Trust Indenture Act to this Declaration shall not affect the nature of the Securities as equity securities representing undivided beneficial interests in the assets of the Trust. Section 2.02. Lists of Holders of Securities. (a) Each of the Sponsor and the Regular Trustees on behalf of the Trust shall provide the Institutional Trustee (i) within 14 days after each record date for payment of Distributions, a list, in such form as the Institutional Trustee may reasonably require, of the names and addresses of the Holders ("List of Holders") as of such record date, provided that neither the Sponsor nor the Regular Trustees on behalf of the Trust shall be obligated to provide such List of Holders at any time the List of Holders does not differ from the most recent List of Holders given to the Institutional Trustee by the Sponsor and the Regular Trustees on behalf of the Trust, and (ii) at any other time, within 30 days of receipt by the Trust of a written request therefor, a List of Holders as of a date no more than 14 days before such List of Holders is given to the Institutional Trustee. The Institutional Trustee shall preserve, in as current a form as is reasonably practicable, all information contained in Lists of Holders given to it or which it 10 receives in the capacity as Paying Agent (if acting in such capacity) provided that the Institutional Trustee may destroy any List of Holders previously given to it on receipt of a new List of Holders. (b) The Institutional Trustee shall comply with its obligations under Sections 311(a), 311(b) and 312(b) of the Trust Indenture Act. Section 2.03. Reports by the Institutional Trustee. Within 60 days after May 15 of each year, the Institutional Trustee shall provide to the Holders of the Capital Securities such reports as are required by Section 313 of the Trust Indenture Act, if any, in the form and in the manner provided by Section 313 of the Trust Indenture Act. The Institutional Trustee shall also comply with the requirements of Section 313(d) of the Trust Indenture Act. Section 2.04. Periodic Reports to Institutional Trustee. Each of the Sponsor and the Regular Trustees on behalf of the Trust shall provide to the Institutional Trustee such documents, reports information (if any) and compliance certificates required by ss. 314 of the Trust Indenture Act in the form, in the manner and at the times required by ss. 314 of the Trust Indenture Act. Section 2.05. Evidence of Compliance with Conditions Precedent. Each of the Sponsor and the Regular Trustees on behalf of the Trust shall provide to the Institutional Trustee such evidence of compliance with all covenants and conditions precedent, if any, provided for in this Declaration that relate to any of the matters set forth in ss. 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to Section 314(c)(1) may be given in the form of an Officers' Certificate. Section 2.06. Events of Default; Waiver. (a) The Holders of a Majority in liquidation amount of Capital Securities may, by vote or consent, on behalf of the Holders of all of the Capital Securities, waive any past Event of Default in respect of the Capital Securities and its consequences, provided that, if the underlying Indenture Event of Default: (i) is not waivable under the Indenture, the Event of Default under this Declaration shall also not be waivable; or (i) requires the consent or vote of greater than a majority in principal amount of the holders of the Debentures (a "Super Majority") to be waived under the Indenture, such Event of Default under this Declaration may only be waived by the vote or consent of the Holders of at least the proportion in liquidation amount of the Capital Securities that the relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding. 11 The foregoing provisions of this Section 2.6(a) shall be in lieu of Section 316(a)(1)(B) of the Trust Indenture Act and such Section 316(a) (1)(B) of the Trust Indenture Act is hereby expressly excluded from this Declaration and the Securities, as permitted by the Trust Indenture Act. Upon such waiver, any such Indenture Event of Default shall cease to exist, and any Event of Default with respect to the Capital Securities arising therefrom shall be deemed to have been cured, for every purpose of this Declaration, but no such waiver shall extend to any subsequent or other default or Event of Default with respect to the Capital Securities or impair any right consequent thereon. Any waiver by the Holders of the Capital Securities of an Event of Default with respect to the Capital Securities shall also be deemed to constitute a waiver by the Holders of the Common Securities of any such Event of Default with respect to the Common Securities for all purposes of this Declaration without any further act, vote, or consent of the Holders of the Common Securities. (b) The Holders of a Majority in liquidation amount of the Common Securities may, by vote or consent, on behalf of the Holders of all of the Common Securities, waive any past Event of Default with respect to the Common Securities and its consequences, provided that, if the underlying Indenture Event of Default: (i) is not waivable under the Indenture, the Event of Default under this Declaration shall also not be waivable; or (i) requires the consent or vote of a Super Majority to be waived under the Indenture, such Event of Default under this Declaration may only be waived by the vote or consent of the Holders of at least the proportion in liquidation amount of the Common Securities that the relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding; provided, further, that, notwithstanding (i) or (ii) above, each Holder of Common Securities will be deemed to have waived any such Indenture Event of Default and all Events of Default with respect to the Common Securities and their consequences until all Events of Default with respect to the Capital Securities have been cured, waived or otherwise eliminated, and until such Events of Default with respect to the Capital Securities have been so cured, waived or otherwise eliminated, the Institutional Trustee will be deemed to be acting solely on behalf of the Holders of the Capital Securities and only the Holders of the Capital Securities will have the right to direct the Institutional Trustee in accordance with the terms of the Securities. The foregoing provisions of this Section 2.6(b) shall be in lieu of Sections 316(a)(1)(A) and 316(a)(1)(B) of the Trust Indenture Act and Sections 316(a)(1)(A) and 316(a)(1)(B) of the Trust Indenture Act are hereby expressly excluded from this Declaration and the Securities, as permitted in the Trust Indenture Act. Subject to the foregoing provisions in this Section 2.6(b), upon such waiver, any such Indenture Event of Default shall cease to exist, and any Event of Default with respect to the Common Securities arising therefrom shall be deemed to have been cured, for every purpose of this Declaration, but no such waiver shall extend to any subsequent or other default or Event of Default with respect to the Common Securities or impair any right consequent thereon. 12 (c) A waiver of an Indenture Event of Default by the Institutional Trustee at the direction of the Holders of the Capital Securities constitutes a waiver of the corresponding Event of Default under this Declaration. The foregoing provisions of this Section 2.6(c) shall be in lieu of Section 316(a)(1)(B) of the Trust Indenture Act and Section 316(a)(1)(B) of the Trust Indenture Act is hereby expressly excluded from this Declaration and the Securities, as permitted by the Trust Indenture Act. Section 2.07. Events of Default; Notice. (a) The Institutional Trustee shall, within 90 days after the occurrence of an Event of Default, transmit by mail, first class postage prepaid, to the Holders, notices of all defaults with respect to the Securities actually known to a Responsible Officer of the Institutional Trustee, unless such defaults have been cured before the giving of such notice (the term "defaults" for the purposes of this Section 2.7(a) being hereby defined to be an Indenture Event of Default, not including any periods of grace provided for therein and irrespective of the giving of any notice provided therein); provided, however, that, except for a default in the payment of principal of (or premium, if any) or interest on any of the Debentures or in the payment of any sinking fund installment established for the Debentures, the Institutional Trustee shall be protected in withholding such notice if and so long as a Responsible Officer of the Institutional Trustee in good faith determines that the withholding of such notice is in the interests of the Holders of the Securities. (b) The Institutional Trustee shall not be deemed to have knowledge of any default except: (i) a default under Sections 5.01(a) and 5.01(b) of the Indenture; or (i) any default as to which the Institutional Trustee shall have received written notice or of which a Responsible Officer of the Institutional Trustee charged with the administration of the Declaration shall have actual knowledge. ARTICLE III. ORGANIZATION Section 3.01. Name. The Trust is named "Countrywide Capital I," as such name may be modified from time to time by the Regular Trustees following written notice to the Holders. The Trust's activities may be conducted under the name of the Trust or any other name deemed advisable by the Regular Trustees. 13 Section 3.02. Office. The address of the principal office of the Trust is c/o Countrywide Credit Industries, Inc., 155 North Lake Avenue, Pasadena, California 91101. On ten Business Days' written notice to the Holders, the Regular Trustees may designate another principal office. The address of the Trust's registered office in the State of Delaware is c/o The Bank of New York (Delaware), 400 White Clay Center, Route 273, Newark, Delaware 19711, Attn: Corporate Trust Administrator. Section 3.03. Purpose. The exclusive purposes and functions of the Trust are (a) to issue and sell Securities and use the gross proceeds from such sale to acquire the Debentures and the Debenture Guarantee, and (b) except as otherwise limited herein, to engage in only those other activities necessary or incidental thereto. The Trust shall not issue any securities other than the Securities, borrow money, issue debt or reinvest proceeds derived from investments, pledge any of its assets, or otherwise undertake (or permit to be undertaken) any activity that would cause the Trust not to be classified for United States federal income tax purposes as a grantor trust. Section 3.04. Authority. Subject to the limitations provided in this Declaration and to the specific duties of the Institutional Trustee, the Regular Trustees shall have exclusive and complete authority to carry out the purposes of the Trust. An action taken by the Regular Trustees in accordance with their powers shall constitute the act of and serve to bind the Trust and an action taken by the Institutional Trustee on behalf of the Trust in accordance with its powers shall constitute the act of and serve to bind the Trust. In dealing with the Trustees acting on behalf of the Trust, no person shall be required to inquire into the authority of the Trustees to bind the Trust. Persons dealing with the Trust are entitled to rely conclusively on the power and authority of the Trustees as set forth in this Declaration. Section 3.05. Title to Property of the Trust. Except as provided in Section 3.8 with respect to the Debentures, the Debenture Guarantee and the Institutional Trustee Account or as otherwise provided in this Declaration, legal title to all assets of the Trust shall be vested in the Trust. The Holders shall not have legal title to any part of the assets of the Trust, but shall have an undivided beneficial interest in the assets of the Trust. Section 3.06. Powers and Duties of the Regular Trustees. The Regular Trustees shall have the exclusive power, duty and authority to cause the Trust to engage in the following activities: 14 (a) to issue and sell the Capital Securities and the Common Securities (in each case at such price (whether such price represents a discount or premium or otherwise) as shall be determined by the Regular Trustees) in accordance with this Declaration; provided, however, that the Trust may issue no more than one series of Capital Securities and no more than one series of Common Securities, and, provided, further, that there shall be no interests in the Trust other than the Securities, and the issuance of Securities shall be limited to a simultaneous issuance of both Capital Securities and Common Securities on the Closing Date; (b) in connection with the issue and sale of the Capital Securities, at the direction of the Sponsor and to the extent applicable, to: (i) execute and file with the Commission the registration statement on Form S-3 prepared by the Sponsor and the Debenture Issuer, including any amendments thereto, pertaining to the Capital Securities; (i) execute and file any documents prepared by the Sponsor, or take any acts as determined by the Sponsor to be necessary in order to qualify or register all or part of the Capital Securities in any State in which the Sponsor has determined to qualify or register such Capital Securities for sale; (ii) execute and file an application, prepared by the Sponsor, to The New York Stock Exchange, Inc. or any other national securities exchange or the Nasdaq Stock Market's National Market for listing upon notice of issuance of any Capital Securities; (iii) execute and file with the Commission a registration statement on Form 8-A, including any amendments thereto, prepared by the Sponsor, relating to the registration of the Capital Securities under Section 12(b) of the Exchange Act; and (v) execute and enter into the Underwriting Agreement and Pricing Agreement providing for the sale of the Capital Securities; (c) to acquire the Debentures and the Debenture Guarantee with the proceeds of the sale of the Capital Securities and the Common Securities; provided, however, that the Regular Trustees shall cause legal title to the Debentures and the Debenture Guarantee to be held of record in the name of the Institutional Trustee for the benefit of the Holders of the Capital Securities and the Holders of Common Securities; (d) to give the Sponsor and the Institutional Trustee prompt written notice of the occurrence of a Tax Event; provided that the Regular Trustees shall consult with the Sponsor and the Institutional Trustee before taking or refraining from taking any Ministerial Action in relation to a Tax Event; (e) to establish a record date with respect to all actions to be taken hereunder that require a record date be established, including and with respect to, for the purposes of 15 Section 316(c) of the Trust Indenture Act, Distributions, voting rights, redemptions, exchanges and other distributions upon dissolution, winding-up or termination, and to issue relevant notices to the Holders of Capital Securities and Holders of Common Securities as to such actions and applicable record dates; (f) to take all actions and perform such duties as may be required of the Regular Trustees pursuant to the terms of the Securities; (g) to bring or defend, pay, collect, compromise, arbitrate, resort to legal action, or otherwise adjust claims or demands of or against the Trust ("Legal Action"), unless pursuant to Section 3.8(e), the Institutional Trustee has the exclusive power to bring such Legal Action; (h) to employ or otherwise engage employees and agents (who may be designated as officers with titles) and managers, contractors, advisors, and consultants and pay reasonable compensation for such services; (i) to cause the Trust to comply with the Trust's obligations under the Trust Indenture Act; (i) to give the certificate required by Section 314(a)(4) of the Trust Indenture Act to the Institutional Trustee, which certificate may be executed by any Regular Trustee; (j) to incur expenses that are necessary or incidental to carry out any of the purposes of the Trust; (k) to act as, or appoint another Person to act as, registrar and transfer agent for the Securities; (l) to give prompt written notice to the Holders of any notice received from the Debenture Issuer of its election to defer payments of interest on the Debentures by extending the interest payment period under the Indenture; (m) to take all action that may be necessary or appropriate for the preservation and the continuation of the Trust's valid existence, rights, franchises and privileges as a statutory business trust under the laws of the State of Delaware and of each other jurisdiction in which such existence is necessary to protect the limited liability of the Holders of Securities or to enable the Trust to effect the purposes for which the Trust was created; (n) to take any action, not inconsistent with this Declaration or with applicable law, that the Regular Trustees determine in their discretion to be necessary or desirable in carrying out the activities of the Trust as set out in this Section 3.6, including, but not limited to: (i) causing the Trust not to be deemed to be an Investment Company required to be registered under the Investment Company Act; 16 (i) causing the Trust to be classified for United States federal income tax purposes as a grantor trust; and (ii) cooperating with the Debenture Issuer to ensure that the Debentures will be treated as indebtedness of the Debenture Issuer for United States federal income tax purposes, provided that such action does not adversely affect the interests of Holders; (o) to take all action necessary to cause all applicable tax returns and tax information reports that are required to be filed with respect to the Trust to be duly prepared and filed by the Regular Trustees, on behalf of the Trust. (p) to call a meeting of the Holders of the Capital Securities if directed to do so by Holders of at least 10% in aggregate liquidation amount thereof; and (q) to execute all documents or instruments, perform all duties and powers, and do all things for and on behalf of the Trust in all matters necessary or incidental to the foregoing. The Regular Trustees are authorized and directed to operate the Trust in such a way so that the Trust will not be required to register as an Investment Company nor be characterized as other than a grantor trust for United Stated federal income tax purposes. The Regular Trustees are authorized to take any action, not inconsistent with applicable law, this Declaration or the certificates of incorporation of the Debenture Issuer and the Guarantor, that the Regular Trustees determine in their discretion to be necessary or desirable to cause the Debentures to be treated as indebtedness of the Debenture Issuer for United States federal income tax purposes. The Regular Trustees must exercise the powers set forth in this Section 3.6 in a manner that is consistent with the purposes and functions of the Trust set out in Section 3.3, and the Regular Trustees shall not cause or permit the Trust to take any action that is inconsistent with the purposes and functions of the Trust set forth in Section 3.3. Subject to this Section 3.6, the Regular Trustees shall have none of the powers or the authority of the Institutional Trustee set forth in Section 3.8. Any expenses incurred by the Regular Trustees pursuant to this Section 3.6 shall be reimbursed by the Debenture Issuer. Section 3.07. Prohibition of Actions by the Trust and the Trustees. (a) The Trust shall not, and the Trustees (including the Institutional Trustee) shall not, engage in any activity other than as required or authorized by this Declaration. In particular, 17 the Trust shall not and the Trustees (including the Institutional Trustee) shall cause the Trust not to: (i) invest any proceeds received by the Trust from holding the Debentures, but shall distribute all such proceeds to Holders pursuant to the terms of this Declaration and of the Securities; (i) acquire any assets other than as expressly provided herein; (ii) possess Trust property for other than a Trust purpose; (iii) make any loans or incur any indebtedness other than loans represented by the Debentures; (v) possess any power or otherwise act in such a way as to vary the Trust assets or the terms of the Securities in any way whatsoever; (iv) issue any securities or other evidences of beneficial ownership of, or beneficial interest in, the Trust other than the Securities; or (v) other than as provided in this Declaration (including Annex I), (A) direct the time, method and place of exercising any trust or power conferred upon the Debenture Trustee with respect to the Debentures, (B) waive any past default that is waivable under the Indenture, (C) exercise any right to rescind or annul any declaration that the principal of all the Debentures shall be due and payable or (D) consent to any amendment, modification or termination of the Indenture or the Debentures where such consent shall be required unless the Trust shall have received any required consent of Holders and an opinion of counsel to the effect that such modification will not cause more than an insubstantial risk that for United States federal income tax purposes the Trust will not be classified as a grantor trust. Section 3.08. Powers and Duties of the Institutional Trustee. (a) The legal title to the Debentures and the Debenture Guarantee shall be owned by and held of record in the name of the Institutional Trustee in trust for the benefit of the Holders of the Securities. The right, title and interest of the Institutional Trustee to the Debentures and the Debenture Guarantee shall vest automatically in each Person who may hereafter be appointed as Institutional Trustee in accordance with Section 5.7. Such vesting and cessation of title shall be effective whether or not conveyancing documents with regard to the Debentures and the Debenture Guarantee have been executed and delivered. (b) The Institutional Trustee shall not transfer its right, title and interest in the Debentures and the Debenture Guarantee to the Regular Trustees or to the Delaware Trustee (if the Institutional Trustee does not also act as Delaware Trustee). 18 (c) The Institutional Trustee shall: (i) establish and maintain a segregated non-interest bearing bank account (the "Institutional Trustee Account") in the name of and under the exclusive control of the Institutional Trustee on behalf of the Holders and, upon the receipt of payments of funds made in respect of the Debentures and the Debenture Guarantee held by the Institutional Trustee, deposit such funds into the Institutional Trustee Account and make payments to the Holders of the Capital Securities and Holders of the Common Securities from the Institutional Trustee Account in accordance with Section 6.1 and on liquidation, redemption and otherwise. Funds in the Institutional Trustee Account shall be held uninvested and without liability for interest thereon until disbursed in accordance with this Declaration. The Institutional Trustee Account shall be an account that is maintained with a banking institution the rating on whose long-term unsecured indebtedness is at least equal to the rating assigned to the Capital Securities by a "nationally recognized statistical rating organization", as that term is defined for purposes of Rule 436(g)(2) under the Securities Act; (i) engage in such ministerial activities as shall be necessary or appropriate to effect the redemption of the Capital Securities and the Common Securities to the extent the Debentures are redeemed or mature; and (ii) upon written notice of Distribution issued by the Regular Trustees in accordance with the terms of the Securities, engage in such ministerial activities as shall be necessary or appropriate to effect the distribution of the Debentures and the Debenture Guarantees to Holders upon the occurrence of certain special events (as may be defined in the terms of the Securities) arising from a Tax Event or other specified circumstances pursuant to the terms of the Securities. (d) The Institutional Trustee shall take all actions and perform such duties as may be specifically required of the Institutional Trustee pursuant to the terms of the Securities. (e) The Institutional Trustee shall take any Legal Action which arises out of or in connection with an Event of Default of which a Responsible Officer of the Institutional Trustee has actual knowledge or the Institutional Trustee's duties and obligations under this Declaration or the Trust Indenture Act; provided, however, that if an Event of Default has occurred and is continuing and such event is attributable to the failure of the Debenture Issuer to pay interest or principal on the Debentures on the date such interest or principal is otherwise payable (or in the case of redemption, on the redemption date) following any applicable grace period, then a Holder of Capital Securities may directly institute a proceeding for enforcement of payment to such Holder of the principal of or interest on the Debentures having a principal amount equal to the aggregate liquidation amount of the Capital Securities of such Holder (a "Direct Action") on or after the respective due dates specified in the Debentures. In connection with such Direct Action, the rights of the Holders of the Common Securities will be subrogated to the rights of such Holder of Capital Securities to the extent of any payment made by the Debenture Issuer or 19 the Guarantor to such Holder of Capital Securities in such Direct Action; provided that no Holder of the Common Securities may exercise any such right of subrogation so long as an Event of Default with respect to the Capital Securities has occurred and is continuing. Except as provided in the preceding sentences, the Holders of Capital Securities will not be able to exercise directly any other remedy available to the holders of the Debentures. (f) The Institutional Trustee shall not resign as a Trustee unless either: (i) the Trust has been completely liquidated and the proceeds of the liquidation have been distributed to the Holders of Securities pursuant to the terms of the Securities; or (i) a Successor Institutional Trustee has been appointed and has accepted that appointment in accordance with Section 5.7. (g) The Institutional Trustee shall have the legal power to exercise all of the rights, powers and privileges as the holder of Debentures and the Debenture Guarantee under the Indenture and, if an Event of Default actually known to a Responsible Officer of the Institutional Trustee occurs and is continuing, the Institutional Trustee shall, for the benefit of Holders, enforce its rights as holder of the Debentures and the Debenture Guarantee subject to the rights of the Holders pursuant to the terms of such Securities. (h) The Institutional Trustee may authorize one or more Persons (each, a "Paying Agent") to pay Distributions, redemption payments or liquidation payments on behalf of the Trust with respect to all Securities and any such Paying Agent shall comply with Section 317(b) of the Trust Indenture Act. Any Paying Agent may be removed by the Institutional Trustee at any time and a successor Paying Agent or additional Paying Agents may be appointed at any time by the Institutional Trustee. (i) Subject to this Section 3.8, the Institutional Trustee shall have none of the duties, liabilities, powers or the authority of the Regular Trustees set forth in Section 3.6. The Institutional Trustee must exercise the powers set forth in this Section 3.8 in a manner that is consistent with the purposes and functions of the Trust set out in Section 3.3, and the Institutional Trustee shall not take any action that is inconsistent with the purposes and functions of the Trust set out in Section 3.3. Section 3.09. Certain Duties and Responsibilities of the Institutional Trustee. (a) The Institutional Trustee, before the occurrence of any Event of Default and after the curing of all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Declaration and no implied covenants shall be read into this Declaration against the Institutional Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 2.6) of which a Responsible Officer of the 20 Institutional Trustee has actual knowledge, the Institutional Trustee shall exercise such of the rights and powers vested in it by this Declaration, and use the same degree of care and skill in their exercise, as a prudent individual would exercise or use under the circumstances in the conduct of his or her own affairs. (b) No provision of this Declaration shall be construed to relieve the Institutional Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) prior to the occurrence of an Event of Default and after the curing or waiving of all such Events of Default that may have occurred: (A) the duties and obligations of the Institutional Trustee shall be determined solely by the express provisions of this Declaration and the Institutional Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Declaration, and no implied covenants or obligations shall be read into this Declaration against the Institutional Trustee; and (B) in the absence of bad faith on the part of the Institutional Trustee, the Institutional Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Institutional Trustee and conforming to the requirements of this Declaration; but in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Institutional Trustee, the Institutional Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Declaration; (i) the Institutional Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Institutional Trustee, unless it shall be proved that the Institutional Trustee was negligent in ascertaining the pertinent facts; (ii) the Institutional Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a Majority in liquidation amount of the Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Institutional Trustee, or exercising any trust or power conferred upon the Institutional Trustee under this Declaration; (iii) no provision of this Declaration shall require the Institutional Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Declaration or indemnity reasonably satisfactory to the Institutional Trustee against such risk or liability is not reasonably assured to it; 21 (v) the Institutional Trustee's sole duty with respect to the custody, safe keeping and physical preservation of the Debentures and the Institutional Trustee Account shall be to deal with such property in a similar manner as the Institutional Trustee deals with similar property for its own account, subject to the protections and limitations on liability afforded to the Institutional Trustee under this Declaration and the Trust Indenture Act; (iv) the Institutional Trustee shall have no duty or liability for or with respect to the value, genuineness, existence or sufficiency of the Debentures or the Guarantee or the payment of any taxes or assessments levied thereon or in connection therewith; (v) the Institutional Trustee shall not be liable for any interest on any money received by it except as it may otherwise agree in writing with the Sponsor. Money held by the Institutional Trustee need not be segregated from other funds held by it except in relation to the Institutional Trustee Account maintained by the Institutional Trustee pursuant to Section 3.8(c)(i) and except to the extent otherwise required by law; and (vi) the Institutional Trustee shall not be responsible for monitoring the compliance by the Regular Trustees or the Sponsor with their respective duties under this Declaration, nor shall the Institutional Trustee be liable for any default or misconduct of the Regular Trustees or the Sponsor. Section 3.10. Certain Rights of Institutional Trustee. (a) Subject to the provisions of Section 3.9: (i) the Institutional Trustee may conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed, sent or presented by the proper party or parties; (i) any direction or act of the Sponsor or the Regular Trustees contemplated by this Declaration shall be sufficiently evidenced by an Officers' Certificate; (ii) whenever in the administration of this Declaration, the Institutional Trustee shall deem it desirable that a matter be proved or established before taking, suffering or omitting any action hereunder, the Institutional Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and conclusively rely upon an Officers' Certificate which, upon receipt of such request, shall be promptly delivered by the Sponsor or the Regular Trustees; (iii) the Institutional Trustee shall have no duty to see to any recording, filing or registration of any instrument (including any financing or continuation statement or any filing under tax or securities laws) or any rerecording, refiling or registration thereof; 22 (v) the Institutional Trustee may consult with counsel or other experts of its selection and the advice or opinion of such counsel and experts with respect to legal matters or advice within the scope of such experts' area of expertise 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 accordance with such advice or opinion, such counsel may be counsel to the Sponsor or any of its Affiliates, and may include any of its employees. The Institutional Trustee shall have the right at any time to seek instructions concerning the administration of this Declaration from any court of competent jurisdiction; (iv) subject to Section 3.9(a), the Institutional Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Declaration at the request or direction of any Holder, unless such Holder shall have offered to the Institutional Trustee security and indemnity reasonably satisfactory to the Institutional Trustee, against the costs, expenses (including attorneys' fees and expenses and the expenses of the Institutional Trustee's agents, nominees or custodians) and liabilities that might be incurred by it in complying with such request or direction, including such reasonable advances as may be requested by the Institutional Trustee; provided, however, that nothing contained in this Section 3.10(a)(vi) shall be taken to relieve the Institutional Trustee, upon the occurrence of an Event of Default, of its obligation to exercise the rights and powers vested in it by this Declaration; (v) the Institutional 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 Institutional Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit; (vi) the Institutional Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, custodians, nominees or attorneys and the Institutional 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; (vii) any action taken by the Institutional Trustee or its agents hereunder shall bind the Trust and the Holders of the Securities, and the signature of the Institutional Trustee or its agents alone shall be sufficient and effective to perform any such action and no third party shall be required to inquire as to the authority of the Institutional Trustee to so act or as to its compliance with any of the terms and provisions of this Declaration, both of which shall be conclusively evidenced by the Institutional Trustee's or its agents' taking such action; (x) whenever in the administration of this Declaration the Institutional Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder, the Institutional Trustee (A) may request instructions from the Holders which instructions from the Holders may only be given by the Holders of the same proportion in liquidation amount of the Securities as would be entitled to direct the Institutional Trustee under the 23 terms of the Securities in respect of such remedy, right or action, (B) may refrain from enforcing such remedy or right or taking such other action until such instructions are received and (C) shall be protected in conclusively relying on or acting in accordance with such instructions; (viii) except as otherwise expressly provided by this Declaration, the Institutional Trustee shall not be under any obligation to take any action that is discretionary under the provisions of this Declaration; and (ix) except as otherwise expressly provided by this Declaration, the Institutional Trustee shall not be liable for any action taken, suffered, or omitted to be taken by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Declaration. (b) No provision of this Declaration shall be deemed to impose any duty or obligation on the Institutional Trustee to perform any act or acts or exercise any right, power, duty or obligation conferred or imposed on it, in any jurisdiction in which it shall be illegal or in which the Institutional Trustee shall be unqualified or incompetent in accordance with applicable law to perform any such act or acts or to exercise any such right, power, duty or obligation. No permissive power or authority available to the Institutional Trustee shall be construed to be a duty. Section 3.11. Delaware Trustee. Notwithstanding any other provision of this Declaration other than Sections 5.2 and 5.6, the Delaware Trustee shall not be entitled to exercise any powers, nor shall the Delaware Trustee have any of the duties and responsibilities of the Regular Trustees or the Institutional Trustee described in this Declaration. Except as set forth in Sections 5.2 and 5.6, the Delaware Trustee shall be a Trustee for the sole and limited purpose of fulfilling the requirements of Section 3807 of the Business Trust Act. Section 3.12. [INTENTIONALLY OMITTED] Section 3.13. Not Responsible for Recitals or Issuance of Securities. The recitals contained in this Declaration and the Securities shall be taken as the statements of the Sponsor, and the Trustees do not assume any responsibility for their correctness. The Trustees make no representations as to the value or condition of the property of the Trust or any part thereof. The Trustees make no representations as to the validity or sufficiency of this Declaration or the Securities. Section 3.14. Duration of Trust. The Trust, unless terminated pursuant to the provisions of Article VIII hereof, shall have existence for fifty-four (54) years from December 31, 1996. 24 Section 3.15. Mergers. (a) The Trust may not consolidate, amalgamate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any Person, except as described in Section 3.15(b) and (c). (b) The Trust may, with the consent of the Regular Trustees or, if there are more than two, a majority of the Regular Trustees and without the consent of the Holders, the Delaware Trustee or the Institutional Trustee, consolidate, amalgamate, merge with or into, or be replaced by a trust organized as such under the laws of any State of the United States; provided that: (i) if the Trust is not the survivor, such successor entity (the "Successor Entity") either: (A) expressly assumes all of the obligations of the Trust under the Securities; or (B) substitutes for the Securities other securities having substantially the same terms as the Securities (the "Successor Securities") so long as the Successor Securities rank the same as the Securities rank with respect to Distributions and payments upon liquidation, redemption and otherwise; (i) the Debenture Issuer expressly acknowledges a trustee for the Successor Entity that possesses the same powers and duties as the Institutional Trustee as the holder of the Debentures and the Guarantor expressly acknowledges such trustee of the Successor Entity as the holder of the Debenture Guarantee; (ii) the Capital Securities remain listed, if they are listed immediately prior to the effective date of the consolidation, amalgamation or merger or any Successor Securities are listed if the Capital Securities were listed immediately prior to the effective date of the consolidation, amalgamation or merger, or any Successor Securities will be listed upon notification of issuance, on any national securities exchange or with another organization on which the Capital Securities were then so listed or quoted; (iii) such merger, consolidation, amalgamation or replacement does not cause the Capital Securities (including any Successor Securities) to be downgraded by any nationally recognized statistical rating organization; (v) such merger, consolidation, amalgamation or replacement does not adversely affect the rights, preferences and privileges of the Holders (or the holders of any Successor Securities) in any material respect (other than with respect to any dilution of such Holders' interests in the Successor Entity as a result of such merger, consolidation, amalgamation or replacement); (iv) such Successor Entity has a purpose identical to that of the Trust; 25 (v) prior to such merger, consolidation, amalgamation or replacement, the Regular Trustees have received an opinion of a nationally recognized independent counsel to the Trust experienced in such matters to the effect that: (A) such merger, consolidation, amalgamation or replacement does not adversely affect the rights, preferences and privileges of the Holders (or the holders of any Successor Securities) in any material respect (other than with respect to any dilution of the Holders' interest in the Successor Entity); (B) following such merger, consolidation, amalgamation or replacement, neither the Trust nor the Successor Entity will be required to register as an Investment Company; and (C) following such merger, consolidation, amalgamation or replacement, the Trust (or the Successor Entity) will continue to be classified as a grantor trust for United States federal income tax purposes; and (vi) the Sponsor guarantees the obligations of such Successor Entity under the Successor Securities at least to the extent provided by the Capital Securities Guarantee and the Common Securities Guarantee. (c) Notwithstanding Section 3.15(b), the Trust shall not, except with the consent of Holders of 100% in liquidation amount of the Securities, consolidate, amalgamate, merge with or into, or to be replaced by any other entity or permit any other entity to consolidate, amalgamate, merge with or into, or replace it if such consolidation, amalgamation, merger or replacement would cause the Trust or Successor Entity to be classified as other than a grantor trust for United States federal income tax purposes. ARTICLE IV. SPONSOR Section 4.01. Sponsor's Purchase of Common Securities. The Sponsor will purchase all of the Common Securities issued by the Trust, in an amount at least equal to 3% of the total capital of the Trust, at the same time as the Capital Securities are sold. Section 4.02. Responsibilities of the Sponsor. In connection with the issue and sale of the Capital Securities, the Sponsor shall have the exclusive right and responsibility to engage in the following activities: (a) to prepare for filing by the Trust with the Commission a registration statement on Form S-3 in relation to the Capital Securities, including any amendments thereto; 26 (b) to determine the States in which to take appropriate action to qualify or register for sale all or part of the Capital Securities and to do any and all such acts, other than actions which must be taken by the Trust, and advise the Trust of actions it must take, and prepare for execution and filing any documents to be executed and filed by the Trust, as the Sponsor deems necessary or advisable in order to comply with the applicable laws of any such States; (c) if deemed desirable by the Sponsor, to prepare for filing by the Trust of an application to the New York Stock Exchange or any other national securities exchange or the Nasdaq Stock Market's National Market for listing upon notice of issuance of any Capital Securities; (d) if necessary or deemed desirable by the Sponsor, to prepare for filing by the Trust with the Commission a registration statement on Form 8-A relating to the registration of the Capital Securities under Section 12(b) or 12(g) of the Exchange Act, including any amendments thereto; and (e) to negotiate the terms of the Underwriting Agreement and Pricing Agreement providing for the sale of the Capital Securities. ARTICLE V. TRUSTEES Section 5.01. Number of Trustees. The number of Trustees initially shall be five (5), and: (a) at any time before the issuance of any Securities, the Sponsor may, by written instrument, increase or decrease the number of Trustees; and (b) after the issuance of any Securities, the number of Trustees may be increased or decreased by vote of the Holders of a majority in liquidation amount of the Common Securities voting as a class at a meeting of the Holders of the Common Securities; provided, however, that, the number of Trustees shall in no event be less than two (2); provided further that (1) there shall be a Delaware Trustee if required by Section 5.2; (2) there shall be at least one Trustee who is an employee or officer of, or is affiliated with the Sponsor (a "Regular Trustee"); and (3) one Trustee shall be the Institutional Trustee for so long as this Declaration is required to qualify as an indenture under the Trust Indenture Act, and such Trustee may also serve as Delaware Trustee if it meets the applicable requirements, in which case Section 3.11 shall have no application to such entity in its capacity as Institutional Trustee. Section 5.02. Delaware Trustee. 27 If required by the Business Trust Act, one Trustee (the "Delaware Trustee") shall be: (a) a natural person who is a resident of the State of Delaware; or (b) if not a natural person, an entity which maintains its principal place of business in the State of Delaware, and otherwise meets the requirements of applicable law. ARTICLE VI. Institutional Trustee; Eligibility. (a) There shall at all times be one Trustee which shall act as Institutional Trustee which shall: (i) not be an Affiliate of the Sponsor; and (i) be a corporation organized and doing business under the laws of the United States of America or any State or Territory thereof or of the District of Columbia, or a corporation or Person permitted by the Commission to act as an institutional trustee under the Trust Indenture Act, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least 50 million U.S. dollars ($50,000,000), and subject to supervision or examination by Federal, State, Territorial or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority referred to above, then for the purposes of this Section 5.3(a)(ii), 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. (b) If at any time the Institutional Trustee shall cease to be eligible to so act under Section 5.3(a), the Institutional Trustee shall immediately resign in the manner and with the effect set forth in Section 5.7(c). (c) If the Institutional Trustee has or shall acquire any "conflicting interest" within the meaning of ss. 310(b) of the Trust Indenture Act, the Institutional Trustee and the Holder of the Common Securities (as if it were the obligor referred to in ss. 310(b) of the Trust Indenture Act) shall in all respects comply with the provisions of ss. 310(b) of the Trust Indenture Act. (d) The Indenture, the Debt Securities (as defined therein) issued or to be issued thereunder, the Declaration, the Trust Securities issued or to be issued thereunder and the Capital Securities Guarantees and Common Securities Guarantees in connection therewith (including the Capital Securities Guarantee in connection herewith) shall be deemed to be specifically described in this Declaration for purposes of clause (i) of the proviso contained in Section 310(b)(1) of the Trust Indenture Act. (e) The initial Institutional Trustee shall be: 28 The Bank of New York. Section 6.02. Certain Qualifications of Regular Trustees and Delaware Trustee Generally. Each Regular Trustee and the Delaware Trustee shall be either a natural person who is at least 21 years of age or a legal entity that shall act through one or more Authorized Officers. Section 6.03. Regular Trustees. The initial Regular Trustees shall be: Eric P. Sieracki Sandor E. Samuels Carlos Garcia (a) Except where a requirement for action by a specific number of Regular Trustees is expressly set forth in this Declaration and except with respect to any action the taking of which is the subject of a meeting of the Regular Trustees any action required or permitted to be taken by the Regular Trustees may be taken by, and any power of the Regular Trustees may be exercised by, or with the consent of, any one such Regular Trustee. (b) Unless otherwise determined by the Regular Trustees, and except as otherwise required by the Business Trust Act or applicable law, any Regular Trustee is authorized to execute on behalf of the Trust any documents which the Regular Trustees have the power and authority to cause the Trust to execute pursuant to Section 3.6. Section 6.04. Initial Delaware Trustee. The initial Delaware Trustee shall be: The Bank of New York (Delaware). ARTICLE VII. Appointment, Removal and Resignation of Trustees. (a) Subject to Section 5.7(b), Trustees may be appointed, removed or replaced without cause at any time except during an Event of Default: (i) until the issuance of any Securities, by written instrument executed by the Sponsor; and (i) after the issuance of any Securities, by vote of the Holders of a Majority in liquidation amount of the Common Securities voting as a class at a meeting of the Holders of the Common Securities. 29 (b) (i) The Trustee that acts as Institutional Trustee shall not be removed in accordance with Section 5.7(a) until a Successor Institutional Trustee has been appointed and has accepted such appointment by written instrument executed by such Successor Institutional Trustee and delivered to the Regular Trustees and the Sponsor; and (ii) the Trustee that acts as Delaware Trustee shall not be removed in accordance with Section 5.7(a) until a successor Trustee possessing the qualifications to act as Delaware Trustee under Sections 5.2 and 5.4 (a "Successor Delaware Trustee") has been appointed and has accepted such appointment by written instrument executed by such Successor Delaware Trustee and delivered to the Regular Trustees and the Sponsor. (c) A Trustee appointed to office shall hold office until his successor shall have been appointed or until his death, removal or resignation. Any Trustee may resign from office (without need for prior or subsequent accounting) by an instrument in writing signed by the Trustee and delivered to the Sponsor and the Trust, which resignation shall take effect upon such delivery or upon such later date as is specified therein; provided, however, that: (i) no such resignation of the Trustee that acts as the Institutional Trustee shall be effective: (A) until a Successor Institutional Trustee has been appointed and has accepted such appointment by instrument executed by such Successor Institutional Trustee and delivered to the Trust, the Sponsor and the resigning Institutional Trustee; or (B) until the assets of the Trust have been completely liquidated and the proceeds thereof distributed to the Holders of the Securities; and (i) no such resignation of the Trustee that acts as the Delaware Trustee shall be effective until a Successor Delaware Trustee has been appointed and has accepted such appointment by instrument executed by such Successor Delaware Trustee and delivered to the Trust, the Sponsor and the resigning Delaware Trustee. (d) The Holders of the Common Securities shall use their best efforts to promptly appoint a Successor Delaware Trustee or Successor Institutional Trustee as the case may be if the Institutional Trustee or the Delaware Trustee delivers an instrument of resignation in accordance with this Section 5.7. (e) If no Successor Institutional Trustee or Successor Delaware Trustee shall have been appointed and accepted appointment as provided in this Section 5.7 within 60 days after delivery of an instrument of resignation or removal, the Institutional Trustee or Delaware Trustee resigning or being removed, as applicable, may petition any court of competent jurisdiction for appointment of a Successor Institutional Trustee or Successor Delaware Trustee. Such court may thereupon, after prescribing such notice, if any, as it may deem proper, appoint a Successor Institutional Trustee or Successor Delaware Trustee, as the case may be. 30 (f) No Institutional Trustee or Delaware Trustee shall be liable for the acts or omissions to act of any Successor Institutional Trustee or Successor Delaware Trustee, as the case may be. Section 7.02. Vacancies Among Trustees. If a Trustee ceases to hold office for any reason and the number of Trustees is not reduced pursuant to Section 5.1, or if the number of Trustees is increased pursuant to Section 5.1, a vacancy shall occur. A resolution certifying the existence of such vacancy by the Regular Trustees or, if there are more than two, a majority of the Regular Trustees shall be conclusive evidence of the existence of such vacancy. The vacancy shall be filled with a Trustee appointed in accordance with Section 5.7. Section 7.03. Effect of Vacancies. The death, resignation, retirement, removal, bankruptcy, dissolution, liquidation, incompetence or incapacity to perform the duties of a Trustee shall not operate to annul the Trust. Whenever a vacancy in the number of Regular Trustees shall occur, until such vacancy is filled by the appointment of a Regular Trustee in accordance with Section 5.7, the Regular Trustees in office, regardless of their number, shall have all the powers granted to the Regular Trustees and shall discharge all the duties imposed upon the Regular Trustees by this Declaration. Section 7.04. Meetings. If there is more than one Regular Trustee, meetings of the Regular Trustees shall be held from time to time upon the call of any Regular Trustee. Regular meetings of the Regular Trustees may be held at a time and place fixed by resolution of the Regular Trustees. Notice of any in-person meetings of the Regular Trustees shall be hand delivered or otherwise delivered in writing (including by facsimile, with a hard copy by overnight courier) not less than 48 hours before such meeting. Notice of any telephonic meetings of the Regular Trustees or any committee thereof shall be hand delivered or otherwise delivered in writing (including by facsimile, with a hard copy by overnight courier) not less than 24 hours before a meeting. Notices shall contain a brief statement of the time, place and anticipated purposes of the meeting. The presence (whether in person or by telephone) of a Regular Trustee at a meeting shall constitute a waiver of notice of such meeting except where a Regular Trustee attends a meeting for the express purpose of objecting to the transaction of any activity on the ground that the meeting has not been lawfully called or convened. Unless provided otherwise in this Declaration, any action of the Regular Trustees may be taken at a meeting by vote of a majority of the Regular Trustees present (whether in person or by telephone) and eligible to vote with respect to such matter, provided that a Quorum is present, or without a meeting by the unanimous written consent of the Regular Trustees. In the event there is only one Regular Trustee, any and all action of such Regular Trustee shall be evidenced by a written consent of such Regular Trustee. 31 Section 7.05. Delegation of Power. (a) Any Regular Trustee may, by power of attorney consistent with applicable law, delegate to any other natural person over the age of 21 his or her power for the purpose of executing any documents contemplated in Section 3.6, including any registration statement or amendment thereto filed with the Commission, or making any other governmental filing; and (b) the Regular Trustees shall have power to delegate from time to time to such of their number or to officers of the Trust the doing of such things and the execution of such instruments either in the name of the Trust or the names of the Regular Trustees or otherwise as the Regular Trustees may deem expedient, to the extent such delegation is not prohibited by applicable law or contrary to the provisions of the Trust, as set forth herein. Section 7.06. Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Institutional Trustee or the Delaware Trustee, as the case may be, may be merged or converted or with which either may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Institutional Trustee or the Delaware Trustee, as the case may be, shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Institutional Trustee or the Delaware Trustee, as the case may be, shall be the successor of the Institutional Trustee or the Delaware Trustee, as the case may be, 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. ARTICLE VIII. DISTRIBUTIONS Section 8.01. Distributions. Holders shall receive Distributions (as defined herein) in accordance with the applicable terms of the relevant Holder's Securities. Distributions shall be made on the Capital Securities and the Common Securities in accordance with the preferences set forth in their respective terms. If and to the extent that the Debenture Issuer makes a payment of interest (including Compounded Interest (as defined in the Indenture) and Additional Interest (as defined in the Indenture)), premium and/or principal on the Debentures (or the Sponsor makes a payment in respect of the Debenture Guarantee) held by the Institutional Trustee (the amount of any such payment being a "Payment Amount"), the Institutional Trustee shall and is directed, to the extent funds are available for that purpose, to make a distribution (a "Distribution") of the Payment Amount to Holders. 32 ARTICLE IX. SSUANCE OF SECURITIES Section 9.01. General Provisions Regarding Securities. (a) The Regular Trustees shall on behalf of the Trust issue one class of preferred securities representing undivided beneficial interests in the assets of the Trust having such terms as are set forth in Annex I (the "Capital Securities") and one class of common securities representing undivided beneficial interests in the assets of the Trust having such terms as are set forth in Annex I (the "Common Securities"). The Trust shall issue no securities or other interests in the assets of the Trust other than the Capital Securities and the Common Securities. (b) The Certificates shall be signed on behalf of the Trust by a Regular Trustee. Such signature shall be the manual signature of any present or any future Regular Trustee. In case any Regular Trustee of the Trust who shall have signed any of the Securities shall cease to be such Regular Trustee before the Certificates so signed shall be delivered by the Trust, such Certificates nevertheless may be delivered as though the person who signed such Certificates had not ceased to be such Regular Trustee; and any Certificate may be signed on behalf of the Trust by such persons who, at the actual date of execution of such Security, shall be the Regular Trustees of the Trust, although at the date of the execution and delivery of the Declaration any such person was not such a Regular Trustee. Certificates shall be printed, lithographed or engraved or may be produced in any other manner as is reasonably acceptable to the Regular Trustees, as evidenced by their execution thereof, and may have such letters, numbers or other marks of identification or designation and such legends or endorsements as the Regular Trustees may deem appropriate, or as may be required to comply with any law or with any rule or regulation of any stock exchange on which Securities may be listed, or to conform to usage. (c) The consideration received by the Trust for the issuance of the Securities shall constitute a contribution to the capital of the Trust and shall not constitute a loan to the Trust. (d) Upon issuance of the Securities as provided in this Declaration, the Securities so issued shall be deemed to be validly issued, fully paid and non-assessable. (e) Every Person, by virtue of having become a Holder or a Capital Security Beneficial Owner in accordance with the terms of this Declaration, shall be deemed to have expressly assented and agreed to the terms of, and shall be bound by, this Declaration. Section 9.02. Paying Agent. In the event that the Capital Securities are not in book-entry only form, the Trust shall maintain in the Borough of Manhattan, City of New York, State of New York, an office or agency where, in addition to payment methods provided for in the terms of the Securities, the Capital Securities may be presented for payment ("Paying Agent"). The Trust may appoint the Paying Agent and may appoint one or more additional paying agents in such other locations as it shall determine. The term "Paying Agent" includes any additional paying agent. The Trust may 33 change any Paying Agent without prior notice to any Holder. The Trust shall notify the Institutional Trustee of the name and address of any Paying Agent not a party to this Declaration. If the Trust fails to appoint or maintain another entity as Paying Agent, the Institutional Trustee shall act as such. The Bank of New York or any of its Affiliates may act as Paying Agent. The Trust shall initially act as Paying Agent for the Capital Securities and the Common Securities. The Paying Agent shall be permitted to resign as Paying Agent upon 30 days' written notice to the Institutional Trustee. In the event that The Bank of New York shall no longer be the Paying Agent, the Institutional Trustee shall appoint a successor to act as Paying Agent (which shall be a bank or trust company). ARTICLE X. DISSOLUTION AND TERMINATION OF TRUST Section 10.01. Dissolution and Termination of Trust. (a) The Trust shall dissolve: (i) on December 31, 2050, the expiration of the term of the Trust; (i) upon the bankruptcy of the Sponsor or the Debenture Issuer; (ii) (other than in connection with a merger, consolidation or similar transaction not prohibited by the Indenture, the Declaration, the Debt Guarantee or the Capital Securities Guarantee, as the case may be) upon the filing of a certificate of dissolution or its equivalent with respect to the Sponsor or the Debenture Issuer upon the consent of the Holders of at least a Majority in liquidation amount of the Securities voting together as a single class to file a certificate of cancellation with respect to the Trust or upon the revocation of the charter of the Sponsor or the Debenture Issuer and the expiration of 90 days after the date of revocation without a reinstatement thereof; (iii) upon the entry of a decree of judicial dissolution of the Holder of the Common Securities, the Sponsor, the Trust or the Debenture Issuer; (v) when all of the Securities shall have been called for redemption and the amounts necessary for redemption thereof shall have been paid to the Holders in accordance with the terms of the Securities; (iv) upon the occurrence and continuation of a Tax Event pursuant to which the Trust shall be dissolved in accordance with the terms of the Securities and the Debentures and Debenture Guarantees endorsed thereon shall, subject to the terms of the Securities, be distributed to the Holders of Securities in exchange for the Securities; or (v) before the issuance of any Securities, with the consent of all of the Regular Trustees and the Sponsor. 34 (b) As soon as is practicable after the occurrence of an event referred to in Section 8.1(a) and upon completion of the winding up of the Trust, the Trustees shall terminate the Trust by filing a certificate of cancellation with the Secretary of State of the State of Delaware. (c) The provisions of Section 3.9 and Article X shall survive the termination of the Trust. (d) If the Trust is dissolved and at the time of dissolution the Capital Securities are rated by at least one "nationally recognized statistical rating organization", as that term is defined for purposes of Rule 436(g)(2) under the Securities Act, the Debenture Issuer shall use its best efforts to obtain from at least one such or another rating organization a rating for the Debentures. ARTICLE XI. TRANSFER OF INTERESTS Section 11.01. Transfer of Securities; Capital Securities Acquired by ERISA Plans. (a) Securities may only be transferred, in whole or in part, in accordance with the terms and conditions set forth in this Declaration and in the terms of the Securities. Any transfer or purported transfer of any Security not made in accordance with this Declaration shall be null and void. (b) Subject to this Article IX, Capital Securities shall be freely transferable. Notwithstanding the foregoing, Capital Securities may not be acquired by any Person who is, or who in acquiring such Capital Securities is using the assets of, an ERISA Plan unless one of the following class exemptions is applicable: (i) Prohibited Transaction Class Exemption 90-1 ("PTE 90-1"), regarding investments by insurance company pooled separate accounts, (ii) Prohibited Transaction Class Exemption 91-38 ("PTE 91-38") regarding investments by bank collective investment funds, (iii) Prohibited Transaction Class Exemption 84-14 ("PTE 84-14"), regarding transactions effected by qualified professional asset managers, (iv) Prohibited Transaction Class Exemption 96-23 ("PTE 96-23"), regarding transactions effected by in-house asset managers, or (v) Prohibited Transaction Class Exemption 95-60 ("PTE 95-60"), regarding investments by insurance company general accounts. The acquisition of Capital Securities by any Person who is, or who in acquiring such Capital Securities is using the assets of, an ERISA Plan shall be deemed to constitute a representation by such Person to the Trust that (i) such Person is eligible for exemptive relief available pursuant to one of PTE 90-1, PTE 91-38, PTE 84-14, PTE 96-23 or PTE 95-60 with respect to the acquisition and holding of such Capital Securities, and (ii) neither Countrywide Home Loans, Inc. nor Countrywide Credit Industries, Inc. is a "fiduciary", within the meaning of Section 3(21) of ERISA and the regulations thereunder, with respect to such Person's interest in the Capital Securities or the Debentures. (c) The Sponsor may not transfer the Common Securities. 35 Section 11.02. Transfer of Certificates. The Regular Trustees shall provide for the registration of Certificates and of transfers and exchanges of Certificates, which will be effected without charge but only upon payment (with such indemnity as the Regular Trustees, Institutional Trustee, or Debenture Issuer may require) in respect of any tax or other government charges that may be imposed in relation to it. Upon surrender for registration of transfer of any Certificate, the Institutional Trustee shall cause one or more new Certificates to be issued in the name of the designated transferee or transferees. Every Certificate surrendered for registration of transfer shall be accompanied by a written instrument of transfer in form satisfactory to the Institutional Trustee duly executed by the Holder or such Holder's attorney duly authorized in writing. Every Certificate surrendered for registration of transfer shall be canceled by the Regular Trustees. A transferee of a Certificate shall be entitled to the rights and subject to the obligations of a Holder hereunder upon the receipt by such transferee of a Certificate. By acceptance of a Certificate, each transferee shall be deemed to have agreed to be bound by this Declaration. The Trust will not be required to register or cause to be registered the transfer or exchange of Capital Securities after such Capital Securities have been called for redemption. Section 11.03. Deemed Security Holders. The Trustees may treat the Person in whose name any Certificate shall be registered on the books and records of the Trust as the sole holder of such Certificate and of the Securities represented by such Certificate for purposes of receiving Distributions and for all other purposes whatsoever and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such Certificate or in the Securities represented by such Certificate on the part of any Person, whether or not the Trust shall have actual or other notice thereof. Section 11.04. Book Entry Interests. Unless otherwise specified in the terms of the Capital Securities, the Capital Securities Certificates, on original issuance, will be issued in the form of one or more, fully registered, global Capital Security Certificates (each a "Global Certificate"), to be delivered to and deposited with DTC, the initial Clearing Agency, by, or on behalf of, the Trust. Such Global Certificates shall initially be registered on the books and records of the Trust in the name of Cede & Co., the nominee of DTC, and no Capital Security Beneficial Owner will receive a definitive Capital Security Certificate representing such Capital Security Beneficial Owner's interests in such Global Certificates, except as provided in Section 9.7. Unless and until definitive, fully registered Capital Security Certificates (the "Definitive Capital Security Certificates") have been issued to the Capital Security Beneficial Owners pursuant to Section 9.7: (a) the provisions of this Section 9.4 shall be in full force and effect; (b) the Trust and the Trustees shall be entitled to deal with the Clearing Agency for all purposes of this Declaration (including the payment of Distributions on the Global Certificates and receiving approvals, votes or consents hereunder) as the Holder of the Capital 36 Securities and the sole holder of the Global Certificates and shall have no obligation to the Capital Security Beneficial Owners; (c) to the extent that the provisions of this Section 9.4 conflict with any other provisions of this Declaration, the provisions of this Section 9.4 shall control; and (d) the rights of the Capital Security Beneficial Owners shall be exercised only through the Clearing Agency and shall be limited to those established by law and agreements between such Capital Security Beneficial Owners and the Clearing Agency and/or the Clearing Agency Participants and DTC will make book entry transfers among the Clearing Agency Participants and receive and transmit payments of Distributions on the Global Certificates to such Clearing Agency Participants. Section 11.05. Notices to Clearing Agency. Whenever a notice or other communication to the Capital Security Holders is required under this Declaration, unless and until Definitive Capital Security Certificates shall have been issued to the Capital Security Beneficial Owners pursuant to Section 9.7, the Regular Trustees shall give all such notices and communications specified herein to be given to the Capital Security Holders to the Clearing Agency, and shall have no notice obligations to the Capital Security Beneficial Owners. Section 11.06. Appointment of Successor Clearing Agency. If any Clearing Agency elects to discontinue its services as securities depositary with respect to the Capital Securities, the Regular Trustees may, in their sole discretion, appoint a successor Clearing Agency with respect to such Capital Securities. Section 11.07. Definitive Capital Security Certificates. If: (a) a Clearing Agency elects to discontinue its services as securities depositary with respect to the Capital Securities and a successor Clearing Agency is not appointed within 90 days after such discontinuance pursuant to Section 9.6; or (b) the Regular Trustees elect after consultation with the Sponsor to terminate the book entry system through the Clearing Agency with respect to the Capital Securities, then: (c) Definitive Capital Security Certificates shall be prepared by the Regular Trustees on behalf of the Trust with respect to such Capital Securities; and (d) upon surrender of the Global Certificates by the Clearing Agency, accompanied by registration instructions, the Regular Trustees shall cause Definitive Capital 37 Security Certificates to be delivered to Capital Security Beneficial Owners in accordance with the instructions of the Clearing Agency. Neither the Trustees nor the Trust shall be liable for any delay in delivery of such instructions and each of them may conclusively rely on and shall be protected in relying on, said instructions of the Clearing Agency. The Definitive Capital Security Certificates shall be printed, lithographed or engraved or may be produced in any other manner as is reasonably acceptable to the Regular Trustees, as evidenced by their execution thereof, and may have such letters, numbers or other marks of identification or designation and such legends or endorsements as the Regular Trustees may deem appropriate, 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 stock exchange on which Capital Securities may be listed, or to conform to usage. Section 11.08. Mutilated, Destroyed, Lost or Stolen Certificates. If: (a) any mutilated Certificates should be surrendered to the Regular Trustees, or if the Regular Trustees shall receive evidence to their satisfaction of the destruction, loss or theft of any Certificate; and (b) there shall be delivered to the Regular Trustees such security or indemnity as may be required by them to keep each of them harmless; then, in the absence of notice that such Certificate shall have been acquired by a bona fide purchaser, any Regular Trustee on behalf of the Trust shall execute and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of like denomination. In connection with the issuance of any new Certificate under this Section 9.8, the Regular Trustees may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. Any duplicate Certificate issued pursuant to this Section shall constitute conclusive evidence of an ownership interest in the relevant Securities, as if originally issued, whether or not the lost, stolen or destroyed Certificate shall be found at any time. ARTICLE XII. LIMITATION OF LIABILITY OF HOLDERS OF SECURITIES, TRUSTEES OR OTHERS Section 12.01. Liability. (a) Except as expressly set forth in this Declaration, the Debenture Guarantee, the Securities Guarantees and the terms of the Securities, the Sponsor shall not be: 38 (i) personally liable for the return of any portion of the capital contributions (or any return thereon) of the Holders of the Securities which shall be made solely from assets of the Trust; and (i) required to pay to the Trust or to any Holder of Securities any deficit upon dissolution of the Trust or otherwise. (b) The Holder of the Common Securities shall be liable for all of the debts and obligations of the Trust (other than with respect to the Securities) to the extent not satisfied out of the Trust's assets. (c) Pursuant to Section 3803(a) of the Business Trust Act, the Holders of the Capital Securities shall be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware. Section 12.02. Exculpation. (a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Trust or any Covered Person for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Indemnified Person in good faith on behalf of the Trust and in a manner such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Declaration or by law, except that an Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Person's negligence or willful misconduct with respect to such acts or omissions. (b) An Indemnified Person shall be fully protected in relying in good faith upon the records of the Trust and upon such information, opinions, reports or statements presented to the Trust by any Person as to matters the Indemnified Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Trust, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses, or any other facts pertinent to the existence and amount of assets from which Distributions to Holders of Securities might properly be paid. Section 12.03. Fiduciary Duty. (a) To the extent that, at law or in equity, an Indemnified Person has duties (including fiduciary duties) and liabilities relating thereto to the Trust or to any other Covered Person, an Indemnified Person acting under this Declaration shall not be liable to the Trust or to any other Covered Person for its good faith reliance on the provisions of this Declaration. The provisions of this Declaration, to the extent that they restrict the duties and liabilities of an Indemnified Person otherwise existing at law or in equity (other than the duties imposed on the Institutional Trustee under the Trust Indenture Act), are agreed by the parties hereto to replace such other duties and liabilities of the Indemnified Person. 39 (b) Unless otherwise expressly provided herein: (i) whenever a conflict of interest exists or arises between any Covered Persons; or (i) whenever this Declaration or any other agreement contemplated herein or therein provides that an Indemnified Person shall act in a manner that is, or provides terms that are, fair and reasonable to the Trust or any Holder of Securities, the Indemnified Person shall resolve such conflict of interest, take such action or provide such terms, considering in each case the relative interest of each party (including its own interest) to such conflict, agreement, transaction or situation and the benefits and burdens relating to such interests, any customary or accepted industry practices, and any applicable generally accepted accounting practices or principles. In the absence of bad faith by the Indemnified Person, the resolution, action or term so made, taken or provided by the Indemnified Person shall not constitute a breach of this Declaration or any other agreement contemplated herein or of any duty or obligation of the Indemnified Person at law or in equity or otherwise. (c) Whenever in this Declaration an Indemnified Person is permitted or required to make a decision: (i) in its "discretion" or under a grant of similar authority, the Indemnified Person shall be entitled to consider such interests and factors as it desires, including its own interests, and shall have no duty or obligation to give any consideration to any interest of or factors affecting the Trust or any other Person; or (i) in its "good faith" or under another express standard, the Indemnified Person shall act under such express standard and shall not be subject to any other or different standard imposed by this Declaration or by applicable law. Section 12.04. Indemnification. (a) (i) The Debenture Issuer shall indemnify, to the full extent permitted by law, any Company Indemnified Person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Trust) by reason of the fact that he is or was a Company Indemnified Person against expenses (including attorneys' fees and expenses), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Trust, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the Company Indemnified Person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Trust, and, with 40 respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. (ii) The Debenture Issuer shall indemnify, to the full extent permitted by law, any Company Indemnified Person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Trust to procure a judgment in its favor by reason of the fact that he is or was a Company Indemnified Person against expenses (including attorneys' fees and expenses) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Trust and except that no such indemnification shall be made in respect of any claim, issue or matter as to which such Company Indemnified Person shall have been adjudged to be liable to the Trust unless and only to the extent that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such Court of Chancery or such other court shall deem proper. (iii) To the extent that a Company Indemnified Person shall be successful on the merits or otherwise (including dismissal of an action without prejudice or the settlement of an action without admission of liability) in defense of any action, suit or proceeding referred to in paragraphs (i) and (ii) of this Section 10.4(a), or in defense of any claim, issue or matter therein, he shall be indemnified, to the full extent permitted by law, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. (iv) Any indemnification under paragraphs (i) and (ii) of this Section 10.4(a) (unless ordered by a court) shall be made by the Debenture Issuer only as authorized in the specific case upon a determination that indemnification of the Company Indemnified Person is proper in the circumstances because he has met the applicable standard of conduct set forth in paragraphs (i) and (ii). Such determination shall be made (1) by the Regular Trustees by a majority vote of a quorum consisting of such Regular Trustees who were not parties to such action, suit or proceeding, (2) if such a quorum is not obtainable, or, even if obtainable, if a quorum of disinterested Regular Trustees so directs, by independent legal counsel in a written opinion, or (3) by the Common Security Holder of the Trust. (v) Expenses (including attorneys' fees and expenses) incurred by a Company Indemnified Person in defending a civil, criminal, administrative or investigative action, suit or proceeding referred to in paragraphs (i) and (ii) of this Section 10.4(a) shall be paid by the Debenture Issuer in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such Company Indemnified Person to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Debenture Issuer as authorized in this Section 10.4(a). Notwithstanding the foregoing, no advance shall be made by the Debenture Issuer if a determination is reasonably and promptly made (i) by the Regular Trustees by a majority vote of a quorum of 41 disinterested Regular Trustees, (ii) if such a quorum is not obtainable, or, even if obtainable, if a quorum of disinterested Regular Trustees so directs, by independent legal counsel in a written opinion or (iii) the Common Security Holder of the Trust, that, based upon the facts known to the Regular Trustees, counsel or the Common Security Holder at the time such determination is made, such Company Indemnified Person acted in bad faith or in a manner that such Person did not believe to be in or not opposed to the best interests of the Trust, or, with respect to any criminal proceeding, that such Company Indemnified Person believed or had reasonable cause to believe his conduct was unlawful. In no event shall any advance be made in instances where the Regular Trustees, independent legal counsel or the Common Security Holder reasonably determine that such person deliberately breached his duty to the Trust or its Common or Capital Security Holders. (v) The indemnification and advancement of expenses provided by, or granted pursuant to, the other paragraphs of this Section 10.4(a) shall not be deemed exclusive of any other rights to which those seeking indemnification and advancement of expenses may be entitled under any agreement, vote of stockholders or disinterested directors of the Debenture Issuer or Capital Security Holders of the Trust or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. All rights to indemnification under this Section 10.4(a) shall be deemed to be provided by a contract between the Debenture Issuer and each Company Indemnified Person who serves in such capacity at any time while this Section 10.4(a) is in effect. Any repeal or modification of this Section 10.4(a) shall not affect any rights or obligations then existing. (vi) The Debenture Issuer or the Trust may purchase and maintain insurance on behalf of any Person who is or was a Company Indemnified Person against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Debenture Issuer would have the power to indemnify him against such liability under the provisions of this Section 10.4(a). (vii) For purposes of this Section 10.4(a), references to "the Trust" shall include, in addition to the resulting or surviving entity, any constituent entity (including any constituent of a constituent) absorbed in a consolidation or merger, so that any Person who is or was a director, trustee, officer or employee of such constituent entity, or is or was serving at the request of such constituent entity as a director, trustee, officer, employee or agent of another entity, shall stand in the same position under the provisions of this Section 10.4(a) with respect to the resulting or surviving entity as he would have with respect to such constituent entity if its separate existence had continued. (viii) The indemnification and advancement of expenses provided by, or granted pursuant to, this Section 10.4(a) shall, unless otherwise provided when authorized or ratified, continue as to a Person who has ceased to be a Company Indemnified Person and shall inure to the benefit of the heirs, executors and administrators of such a Person. 42 (b) The Debenture Issuer agrees to indemnify the (i) Institutional Trustee, (ii) the Delaware Trustee, (iii) any Affiliate of the Institutional Trustee and the Delaware Trustee, and (iv) any officers, directors, shareholders, members, partners, employees, representatives, custodians, nominees or agents of the Institutional Trustee and the Delaware Trustee (each of the Persons in (i) through (iv) being referred to as a "Fiduciary Indemnified Person") for, and to hold each Fiduciary Indemnified Person harmless against, any and all loss, liability, damage, claim or expense including taxes (other than taxes based on the income of such Fiduciary Indemnified Person) incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration or the trust or trusts hereunder, including the costs and expenses (including reasonable legal fees and expenses) of defending itself against or investigating any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The obligation to indemnify as set forth in this Section 10.4(b) shall survive the satisfaction and discharge of this Declaration. Section 12.05. Outside Businesses. Any Covered Person, the Sponsor, the Delaware Trustee and the Institutional Trustee may engage in or possess an interest in other business ventures of any nature or description, independently or with others, similar or dissimilar to the business of the Trust, and the Trust and the Holders of Securities shall have no rights by virtue of this Declaration in and to such independent ventures or the income or profits derived therefrom, and the pursuit of any such venture, even if competitive with the business of the Trust, shall not be deemed wrongful or improper. No Covered Person, the Sponsor, the Delaware Trustee, or the Institutional Trustee shall be obligated to present any particular investment or other opportunity to the Trust even if such opportunity is of a character that, if presented to the Trust, could be taken by the Trust, and any Covered Person, the Sponsor, the Delaware Trustee and the Institutional Trustee shall have the right to take for its own account (individually or as a partner or fiduciary) or to recommend to others any such particular investment or other opportunity. Any Covered Person, the Delaware Trustee and the Institutional Trustee may engage or be interested in any financial or other transaction with the Sponsor or any Affiliate of the Sponsor, or may act as depositary for, trustee or agent for, or act on any committee or body of holders of, securities or other obligations of the Sponsor or its Affiliates. ARTICLE XIII. ACCOUNTING Section 13.01. Fiscal Year. The fiscal year ("Fiscal Year") of the Trust shall be the calendar year, or such other year as is required by the Code. Section 13.02. Certain Accounting Matters. 43 (a) At all times during the existence of the Trust, the Regular Trustees shall keep, or cause to be kept, full books of account, records and supporting documents, which shall reflect in reasonable detail each transaction of the Trust. The books of account shall be maintained on the accrual method of accounting, in accordance with generally accepted accounting principles, consistently applied. The books of account and the records of the Trust shall be examined by and reported upon as of the end of each Fiscal Year of the Trust by a firm of independent certified public accountants selected by the Regular Trustees. (b) The Regular Trustees shall cause to be prepared and delivered to each of the Holders of Securities, within 90 days after the end of each Fiscal Year of the Trust, annual financial statements of the Trust, including a balance sheet of the Trust as of the end of such Fiscal Year, and the related statements of income or loss. (c) The Regular Trustees shall cause to be duly prepared and delivered to each of the Holders of Securities any annual United States federal income tax information statement required by the Code, containing such information with regard to the Securities held by each Holder as is required by the Code and the Treasury Regulations. Notwithstanding any right under the Code to deliver any such statement at a later date, the Regular Trustees shall endeavor to deliver all such statements within 30 days after the end of each Fiscal Year of the Trust. (d) The Regular Trustees shall cause to be duly prepared and filed an annual United States federal income tax return on a Form 1041 or such other form required by United States federal income tax law, and any other annual income tax returns required to be filed by the Regular Trustees on behalf of the Trust with any state or local taxing authority. Section 13.03. Banking. The Trust shall maintain one or more bank accounts in the name and for the sole benefit of the Trust; provided, however, that all payments of funds in respect of the Debentures and the Debenture Guarantee held by the Institutional Trustee shall be made directly to the Institutional Trustee Account and no other funds of the Trust shall be deposited in the Institutional Trustee Account. The sole signatories for such accounts shall be designated by the Regular Trustees; provided, however, that the Institutional Trustee shall designate the signatories for the Institutional Trustee Account. Section 13.04. Withholding. The Trust and the Regular Trustees shall comply with all withholding requirements under United States federal, state and local law. The Trust shall request, and the Holders shall provide to the Trust, such forms or certificates as are necessary to establish an exemption from withholding with respect to each Holder, and any representations and forms as shall reasonably be requested by the Trust to assist it in determining the extent of, and in fulfilling, its withholding obligations. The Regular Trustees shall file required forms with applicable jurisdictions and, unless an exemption from withholding is properly established by a Holder, shall remit amounts withheld with respect to the Holder to applicable jurisdictions. To 44 the extent that the Trust is required to withhold and pay over any amounts to any authority with respect to distributions or allocations to any Holder, the amount withheld shall be deemed to be a Distribution in the amount of the withholding to the Holder. In the event of any claimed overwithholding, Holders shall be limited to an action against the applicable jurisdiction. If the amount required to be withheld was not withheld from actual Distributions made, the Trust may reduce subsequent Distributions by the amount of such withholding. ARTICLE XIV. AMENDMENTS AND MEETINGS Section 14.01. Amendments. (a) Except as otherwise provided in this Declaration or by any applicable terms of the Securities, this Declaration may only be amended by a written instrument approved and executed by (i) the Regular Trustees (or, if there are more than two Regular Trustees, a majority of the Regular Trustees); (i) if the amendment affects the rights, powers, duties, obligations or immunities of the Institutional Trustee, the Institutional Trustee; and (ii) if the amendment affects the rights, powers, duties, obligations or immunities of the Delaware Trustee, the Delaware Trustee. (b) Notwithstanding any other provision of this Article XII, no amendment shall be made, and any such purported amendment shall be void and ineffective: (i) unless, in the case of any proposed amendment, the Institutional Trustee shall have first received an Officers' Certificate from each of the Trust and the Sponsor that such amendment is permitted by, and conforms to, the terms of this Declaration (including the terms of the Securities); (i) unless, in the case of any proposed amendment which affects the rights, powers, duties, obligations or immunities of the Institutional Trustee, the Institutional Trustee shall have first received; (A) an Officers' Certificate from each of the Trust and the Sponsor that such amendment is permitted by, and conforms to, the terms of this Declaration (including the terms of the Securities); and (B) an opinion of counsel (who may be counsel to the Sponsor or the Trust) that such amendment is permitted by, and conforms to, the terms of this Declaration (including the terms of the Securities); and 45 (ii) to the extent the result of such amendment would be to: (A) cause the trust to fail to continue to be classified for purposes of United States federal income taxation as a grantor trust; (B) reduce or otherwise adversely affect the powers of the Institutional Trustee in contravention of the Trust Indenture Act; or (C) cause the Trust to be deemed to be an Investment Company required to be registered under the Investment Company Act. (c) At such time after the Trust has issued any Securities that remain outstanding, any amendment that would adversely affect the rights, privileges or preferences of any Holder of Securities may be effected only with such additional requirements as may be set forth in the terms of such Securities. (d) (c) and this Section 12.1 shall not be amended without the consent of all of the Holders of the Securities. (e) Article IV shall not be amended without the consent of the Holders of a Majority in liquidation amount of the Common Securities. (f) the rights of the holders of the Common Securities under Article V to increase or decrease the number of, and appoint and remove, Trustees shall not be amended without the consent of the Holders of a Majority in liquidation amount of the Common Securities. (g) Notwithstanding Section 12.1(c), this Declaration may be amended without the consent of the Holders of the Securities to: (i) cure any ambiguity; (i) correct or supplement any provision in this Declaration that may be defective or inconsistent with any other provision of this Declaration; (ii) add to the covenants, restrictions or obligations of the Sponsor; (iii) conform to any change in Rule 3a-5 or written change in interpretation or application of Rule 3a-5 by any legislative body, court, government agency or regulatory authority which amendment does not have a material adverse effect on the rights, preferences or privileges of the Holders; and (v) modify, eliminate and add to any provision of this Declaration to such extent as may be necessary; provided, however, that no such amendment shall adversely affect the powers, preferences or special rights of Holders of Securities. Section 14.02. Meetings of the Holders of Securities; Action by Written Consent. 46 (a) Meetings of the Holders of any class of Securities may be called at any time by the Regular Trustees (or as provided in the terms of the Securities) to consider and act on any matter on which Holders of such class of Securities are entitled to act under the terms of this Declaration, the terms of the Securities or the rules of any stock exchange on which the Capital Securities are listed or admitted for trading. The Regular Trustees shall call a meeting of the Holders of such class if directed to do so by the Holders of at least 10% in liquidation amount of such class of Securities. Such direction shall be given by delivering to the Regular Trustees one or more calls in a writing stating that the signing Holders of Securities wish to call a meeting and indicating the general or specific purpose for which the meeting is to be called. Any Holders of Securities calling a meeting shall specify in writing the Certificates held by the Holders of Securities exercising the right to call a meeting and only those Securities represented by such Certificates shall be counted for purposes of determining whether the required percentage set forth in the second sentence of this paragraph has been met. (b) Except to the extent otherwise provided in the terms of the Securities, the following provisions shall apply to meetings of Holders of Securities: (i) notice of any such meeting shall be given to all the Holders of Securities having a right to vote thereat at least 7 days and not more than 60 days before the date of such meeting. Whenever a vote, consent or approval of the Holders of Securities is permitted or required under this Declaration or the rules of any stock exchange on which the Capital Securities are listed or admitted for trading, such vote, consent or approval may be given at a meeting of the Holders of Securities. Any action that may be taken at a meeting of the Holders of Securities may be taken without a meeting if a consent in writing setting forth the action so taken is signed by the Holders of Securities owning not less than the minimum amount of Securities in liquidation amount that would be necessary to authorize or take such action at a meeting at which all Holders of Securities having a right to vote thereon were present and voting. Prompt notice of the taking of action without a meeting shall be given to the Holders of Securities entitled to vote who have not consented in writing. The Regular Trustees may specify that any written ballot submitted to the Security Holder for the purpose of taking any action without a meeting shall be returned to the Trust within the time specified by the Regular Trustees; (i) each Holder of a Security may authorize any Person to act for it by proxy on all matters in which a Holder of Securities is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the Holder of Securities executing it. Except as otherwise provided herein, all matters relating to the giving, voting or validity of proxies shall be governed by the General Corporation Law of the State of Delaware relating to proxies, and judicial interpretations thereunder, as if the Trust were a Delaware corporation and the Holders of the Securities were stockholders of a Delaware corporation; 47 (ii) each meeting of the Holders of the Securities shall be conducted by the Regular Trustees or by such other Person that the Regular Trustees may designate; and (iii) unless the Business Trust Act, this Declaration, the terms of the Securities, the Trust Indenture Act or the listing rules of any stock exchange on which the Capital Securities are then listed or trading otherwise provides, the Regular Trustees, in their sole discretion, shall establish all other provisions relating to meetings of Holders of Securities, including notice of the time, place or purpose of any meeting at which any matter is to be voted on by any Holders of Securities, waiver of any such notice, action by consent without a meeting, the establishment of a record date, quorum requirements, voting in person or by proxy or any other matter with respect to the exercise of any such right to vote. ARTICLE XV. REPRESENTATIONS OF INSTITUTIONAL TRUSTEE AND DELAWARE TRUSTEE Section 15.01. Representations and Warranties of Institutional Trustee. The Trustee that acts as initial Institutional Trustee represents and warrants to the Trust and to the Sponsor at the date of this Declaration, and each Successor Institutional Trustee represents and warrants to the Trust and the Sponsor at the time of the Successor Institutional Trustee's acceptance of its appointment as Institutional Trustee, that: (a) the Institutional Trustee is a New York banking corporation with trust powers and authority to execute and deliver, and to carry out and perform its obligations under the terms of, this Declaration; (b) the execution, delivery and performance by the Institutional Trustee of the Declaration has been duly authorized by all necessary corporate action on the part of the Institutional Trustee. This Declaration has been duly executed and delivered by the Institutional Trustee, and it constitutes a legal, valid and binding obligation of the Institutional Trustee, enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, moratorium, insolvency, and other similar laws affecting creditors' rights generally and to general principles of equity (regardless of whether considered in a proceeding in equity or at law); (c) the execution, delivery and performance of this Declaration by the Institutional Trustee does not conflict with or constitute a breach of the charter or by-laws of the Institutional Trustee; and (d) no consent, approval or authorization of, or registration with or notice to, any New York State or federal banking authority is required for the execution, delivery or performance by the Institutional Trustee of this Declaration. 48 Section 15.02. Representations and Warranties of Delaware Trustee. The Trustee that acts as initial Delaware Trustee represents and warrants to the Trust and to the Sponsor at the date of this Declaration, and each Successor Delaware Trustee represents and warrants to the Trust and the Sponsor at the time of the Successor Delaware Trustee's acceptance of its appointment as Delaware Trustee, that: (a) The Delaware Trustee is duly organized, validly existing and in good standing under the laws of the State of Delaware, with trust power and authority to execute and deliver, and to carry out and perform its obligations under the terms of, this Declaration. (b) The Delaware Trustee has been authorized to perform its obligations under the Certificate of Trust and this Declaration. This Declaration under Delaware law constitutes a legal, valid and binding obligation of the Delaware Trustee, enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, moratorium, insolvency, and other similar laws affecting creditors' rights generally and to general principles of equity (regardless of whether considered in a proceeding in equity or at law). (c) No consent, approval or authorization of, or registration with or notice to, any federal banking authority is required for the execution, delivery or performance by the Delaware Trustee of this Declaration. (d) The Delaware Trustee is a natural person who is a resident of the State of Delaware or, if not a natural person, an entity which has its principal place of business in the State of Delaware. ARTICLE XVI. MISCELLANEOUS Section 16.01. Notices. All notices provided for in this Declaration shall be in writing, duly signed by the party giving such notice, and shall be delivered, telecopied or mailed by first class mail, as follows: (a) if given to the Trust, in care of the Regular Trustees at the Trust's mailing address set forth below (or such other address as the Trust may give notice of to the Holders of the Securities: Countrywide Capital I Countrywide Credit Industries, Inc. 155 North Lake Avenue Pasadena, CA 91101 49 Attention: Sandor E. Samuels Telecopy: (818) 584-2397 (b) if given to the Delaware Trustee, at the mailing address set forth below (or such other address as Delaware Trustee may give notice of to the Holders of the Securities): The Bank of New York (Delaware) White Clay Center, Route 273 Newark, Delaware 19711 Attention: Corporate Trust Department (c) if given to the Institutional Trustee, at the Institutional Trustee's mailing address set forth below (or such other address as the Institutional Trustee may give notice of to the Holders of the Securities): The Bank of New York 101 Barclay Street, 21 West New York, New York 10286 Attention: Corporate Trust Trustee Administration (d) if given to the Holder of the Common Securities, at the mailing address of the Sponsor set forth below (or such other address as the Holder of the Common Securities may give notice of to the Trust): Countrywide Credit Industries, Inc. 155 North Lake Avenue Pasadena, CA 91101 Attention: Corporate Secretary (e) if given to any other Holder, at the address set forth on the books and records of the Trust. All such notices shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. Section 16.02. Governing Law. This Declaration, the rights of the parties hereunder, and the Securities shall be governed by and interpreted in accordance with the laws of the State of Delaware and all rights and remedies shall be governed by such laws without regard to the principles of conflict of laws of the State of Delaware or any other jurisdiction that would call for the application of the law of 50 any jurisdiction other than the State of Delaware; provided, however, that there shall not be applicable to the Trust, the Trustees or this Declaration any provision of the laws (statutory or common) of the State of Delaware pertaining to trusts that relate to or regulate, in a manner inconsistent with the terms hereof (a) the filing with any court or governmental body or agency of trustee accounts or schedules of trustee fees and charges, (b) affirmative requirements to post bonds for trustees, officers, agents or employees of a trust, (c) the necessity for obtaining court or other governmental approval concerning the acquisition, holding or disposition of real or personal property, (d) fees or other sums payable to trustees, officers, agents or employees of a trust, (e) the allocation of receipts and expenditures to income or principal, (f) restrictions or limitations on the permissible nature, amount or concentration of trust investments or requirements relating to the titling, storage or other manner of holding or investing trust assets or (g) the establishment of fiduciary or other standards of responsibility or limitations on the acts or powers of trustees that are inconsistent with the limitations or liabilities or authorities and powers of the Trustees as set forth or referenced in this Declaration. Section 3540 of Title 12 of the Delaware Code shall not apply to the Trust. Section 16.03. Intention of the Parties. It is the intention of the parties hereto that the Trust be classified for United States federal income tax purposes as a grantor trust. The provisions of this Declaration shall be interpreted to further this intention of the parties. Section 16.04. Headings. Headings contained in this Declaration are inserted for convenience of reference only and do not affect the interpretation of this Declaration or any provision hereof. Section 16.05. Successors and Assigns. Whenever in this Declaration any of the parties hereto is named or referred to, the successors and assigns of such party shall be deemed to be included, and all covenants and agreements in this Declaration by the Sponsor and the Trustees shall bind and inure to the benefit of their respective successors and assigns, whether or not so expressed. Section 16.06. Partial Enforceability. If any provision of this Declaration, or the application of such provision to any Person or circumstance, shall be held invalid, the remainder of this Declaration, or the application of such provision to persons or circumstances other than those to which it is held invalid, shall not be affected thereby. Section 16.07. Counterparts. This Declaration may contain more than one counterpart of the signature page and this Declaration may be executed by the affixing of the signature of each of the Trustees to any of such counterpart signature pages. All of such counterpart signature pages shall be read as 51 though one, and they shall have the same force and effect as though all of the signers had signed a single signature page. 52 IN WITNESS WHEREOF, the undersigned have caused these presents to be executed as of the day and year first above written. /s/ Eric P. Sieracki ---------------------- Eric P. Sieracki, as Regular Trustee /s/ Sandor E. Samuels ---------------------- Sandor E. Samuels, as Regular Trustee /s/ Carlos Garcia ----------------------------------- Carlos Garcia, as Regular Trustee THE BANK OF NEW YORK (DELAWARE), as Delaware Trustee By: /s/ Joseph G. Ernst ----------------------------------- Name: Joseph G. Ernst Title: Assistant Vice President THE BANK OF NEW YORK, as Institutional Trustee By: /s/ Vivian Georges ----------------------------------- Name: Vivian Georges Title: Assistant Vice President COUNTRYWIDE CREDIT INDUSTRIES, INC., as Sponsor By: /s/ Stanford L. Kurland ----------------------------------- Name: Stanford L. Kurland Title: Senior Managing Director 53 ANNEX-I 54 ANNEX I TERMS OF 8% CAPITAL TRUST PASS-THROUGH SECURITIES 8% COMMON SECURITIES Pursuant to Section 7.1 of the Amended and Restated Declaration of Trust, dated as of December 16, 1996 (as amended from time to time, the "Declaration"), the designation, rights, privileges, restrictions, preferences and other terms and provisions of the Capital Securities and the Common Securities are set out below (each capitalized term used but not defined herein has the meaning set forth in the Declaration or, if not defined in the Declaration or, if not defined in the Declaration, as defined in the Prospectus referred to below): 1. Designation and Number. (a) Capital Securities. 300,000 Capital Securities of the Trust, with an aggregate stated liquidation amount with respect to the assets of the Trust of three hundred million dollars ($300,000,000) and a stated liquidation amount with respect to the assets of the Trust of $1,000 per Capital Security, are hereby designated for the purposes of identification only as "8% Capital Trust Pass-through Securities4 (`TRUPS'4)"* (the "Capital Securities"). The Capital Security Certificates evidencing the Capital Securities shall be substantially in the form of Exhibit A-1 to the Declaration, with such changes and additions thereto or deletions therefrom as may be required by ordinary usage, custom or practice or to conform to the rules of any stock exchange on which the Capital Securities are listed. (b) Common Securities. 9,279 Common Securities of the Trust, with an aggregate stated liquidation amount with respect to the assets of the Trust of nine million two hundred and seventy nine thousand dollars ($9,279,000) and a stated liquidation amount with respect to the assets of the Trust of $1,000 per Common Security, are hereby designated for the purposes of identification only as "8% Common Securities" (the "Common Securities"). The Common Security Certificates evidencing the Common Securities shall be substantially in the form of Exhibit A-2 to the Declaration, with such changes and additions thereto or deletions therefrom as may be required by ordinary usage, custom or practice. 2. Distributions. (c) Distributions payable on each Security will be fixed at a rate per annum of 8% (the "Coupon Rate") of the stated liquidation amount of $1,000 per Security, such rate being the rate of interest payable on the Debentures to be held by the Institutional Trustee. Except as set forth below in respect of an Extension Period, Distributions in arrears for more than one semiannual period will bear interest thereon compounded semiannually at the Coupon Rate (to - ---------------------- * Salomon Brothers Inc has filed applications with the United States Patent and Trademark Office for the registration of the Capital Trust Pass-through Securities and TRUPS service marks. 55 the extent permitted by applicable law). The term "Distributions" as used herein includes any such compounded distributions payable unless otherwise stated. A Distribution is payable only to the extent that payments are made in respect of the Debentures and the Debenture Guarantee held by the Institutional Trustee and to the extent the Institutional Trustee has funds available therefor. The amount of Distributions payable for any period will be computed for any full semiannual Distribution period on the basis of a 360-day year of twelve 30-day months, and, for any period shorter than a full semiannual Distribution period for which Distributions are computed, Distributions will be computed on the basis of the actual number of days elapsed per 30-day month. (d) Distributions on the Securities will be cumulative, will accrue from December 16, 1996, and will be payable semiannually in arrears on June 15 and December 15 of each year, commencing on June 15, 1997, except as otherwise described below. The Debenture Issuer has the right under the Indenture to defer payments of interest by extending the interest payment period at any time and from time to time on the Debentures for a period not exceeding 10 consecutive semiannual periods (each an "Extension Period"), during which Extension Period no interest shall be due and payable on the Debentures, provided that no Extension Period shall be initiated while accrued interest with respect to prior, completed Extension Periods is unpaid or while the Company is in default in the payment of interest that has become due and payable on the Debentures; and, provided further, that no Extension Period shall extend beyond the date of maturity of the Debentures. As a consequence of such deferral, Distributions will also be deferred. Despite such deferral, semiannual Distributions will continue to accrue with interest thereon (to the extent permitted by applicable law) at the Coupon Rate compounded semiannually during any such Extension Period. Prior to the termination of any such Extension Period, the Debenture Issuer may further extend such Extension Period; provided that such Extension Period together with all such previous and further extensions thereof may not exceed 10 consecutive semiannual periods or extend beyond the maturity of the Debentures. Distributions accrued during any Extension Period will be paid on the date that the related Extension Period terminates to Holders as they appear on the books and records of the Trust on the record date immediately preceding such date. Upon the termination of any Extension Period and the payment of all amounts then due, the Debenture Issuer may commence a new Extension Period, subject to the above requirements. (e) Distributions on the Securities will be payable to the Holders thereof as they appear on the books and records of the Trust on the relevant record dates. While the Capital Securities remain in book-entry only form, the relevant record dates shall be one Business Day prior to the relevant payment dates which payment dates correspond to the interest payment dates on the Debentures. Subject to any applicable laws and regulations and the provisions of the Declaration, each such payment in respect of the Capital Securities will be made as described under the heading "Description of the Capital Securities -- Book-Entry Only Issuance -- The Depository Trust Company" in the Prospectus Supplement dated December 11, 1996, to the Prospectus dated December 10, 1996 (together, the "Prospectus"), of the Trust included in the Registration Statement on Form S-3 of the Sponsor, the Trust and certain other business trusts. The relevant record dates for the Common Securities shall be the same record dates as for the Capital Securities. If the Capital Securities shall not continue to remain in book-entry only form, 56 the relevant record dates for the Capital Securities shall conform to the rules of any securities exchange on which the Capital Securities are listed and, if none, shall be selected by the Regular Trustees, which dates shall be more than one Business Day but less than 60 Business Days before the relevant payment dates, which payment dates correspond to the interest payment dates on the Debentures. If the Capital Securities shall not continue to remain in book-entry only form, payments of Distributions on the Capital Securities shall, subject to the Declaration, be made by check mailed to the address of the Holder entitled thereto as such address shall appear on the books and records of the Trust. Distributions payable on any Securities that are not punctually paid on any Distribution payment date, as a result of the Debenture Issuer or the Guarantor having failed to make a payment under the Debentures or the Debenture Guarantee, as the case may be, when due (taking into account any Extension Period), will cease to be payable to the Person in whose name such Securities are registered on the relevant record date, and such defaulted Distribution will instead be payable to the Person in whose name such Securities are registered on the special record date or other specified date determined in accordance with the Indenture. If any date on which Distributions are payable on the Securities is not a Business Day, then payment of the Distributions payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), with the same force and effect as if made on such payment date. (f) In the event that there is any money or other property held by or for the Trust that is not accounted for hereunder, such property shall be distributed Pro Rata (as defined herein) among the Holders of the Securities. 3. Liquidation Distribution Upon Dissolution. In the event of any voluntary or involuntary liquidation, dissolution, winding-up or termination of the Trust, the Holders of the Securities on the date of the liquidation, dissolution, winding-up or termination, as the case may be, will be entitled to receive out of the assets of the Trust available for distribution to Holders of Securities after paying or making reasonable provision to pay all claims and obligations of the Trust in accordance with Section 3808(e) of the Business Trust Act (to the extent not paid by the Debenture Issuer or Guarantor) an amount equal to the aggregate of the stated liquidation amount of $1,000 per Security plus accrued and unpaid Distributions thereon to the date of payment (such amount being the "Liquidation Distribution"), unless such liquidation, dissolution, winding-up or termination occurs in connection with a Tax Event in which, in accordance with Section 4(c), Debentures in an aggregate stated principal amount equal to the aggregate stated liquidation amount of such Securities, with an interest rate equal to the Coupon Rate of, and bearing accrued and unpaid interest in an amount equal to the accrued and unpaid Distributions on, such Securities, shall be distributed on a Pro Rata basis to the Holders of the Securities in exchange for such Securities. If, upon any such liquidation, dissolution, winding up or termination the Liquidation Distribution can be paid only in part because the Trust has insufficient assets available to pay in full the aggregate Liquidation Distribution, then the amounts payable directly by the Trust on the Securities shall be paid on a Pro Rata basis, except that if an Event of Default has 57 occurred and is continuing, the Capital Securities shall have a preference over the Common Securities with regard to such amounts. 4. Redemption and Distribution. (g) Upon the repayment of the Debentures in whole or in part, whether at maturity or upon redemption (either at the option of the Debenture Issuer or pursuant to a Tax Event as described below), the proceeds from such repayment or payment shall be simultaneously applied to redeem Securities having an aggregate liquidation amount equal to the aggregate principal amount of the Debentures so repaid or redeemed at a redemption price of per Security of $1,000 plus an amount equal to accrued and unpaid Distributions thereon at the date of the redemption, payable in cash (the "Redemption Price"). Holders will be given not less than 30 nor more than 60 days' notice of such redemption. (h) If fewer than all the outstanding Securities are to be so redeemed, the Common Securities and the Capital Securities will be redeemed Pro Rata and the Capital Securities to be redeemed will be redeemed as described in Section 4(f)(ii) below. (i) If, at any time, a Tax Event (as defined below) shall occur and be continuing the Regular Trustees shall, except in certain limited circumstances described in this Section 4(c), dissolve the Trust and, after paying or making reasonable provision to pay all claims and obligations of the Trust in accordance with Section 3808(e) of the Business Trust Act, cause Debentures held by the Institutional Trustee, having an aggregate principal amount equal to the aggregate stated liquidation amount of, with an interest rate identical to the Coupon Rate of, and accrued and unpaid interest equal to accrued and unpaid Distributions on, and having the same record date for payment, as the Securities, to be distributed to the Holders of the Securities together with the Debenture Guarantee in liquidation of such Holders' interests in the Trust on a Pro Rata basis, within 90 days following the occurrence of such Tax Event (the "90 Day Period"); provided, however, that, if at the time there is available to the Trust the opportunity to eliminate, within the 90 Day Period, the adverse effects of the Tax Event by taking some ministerial action, such as filing a form or making an election, or pursuing some other similar reasonable measure that has no adverse effect on the Trust, the Debenture Issuer, the Sponsor or the Holders of the Securities ("Ministerial Action"), the Trust will pursue such Ministerial Action in lieu of dissolution. If, after a Tax Event has occurred, the Debenture Issuer receives an opinion (a "Redemption Tax Opinion") of a nationally recognized independent tax counsel experienced in such matters that, as a result of a Tax Event, there is more than an insubstantial risk that the Debenture Issuer would be precluded from deducting the interest on the Debentures for United States federal income tax purposes, even if the Debentures were distributed to the Holders of Securities in liquidation of such Holders' interests in the Trust as described in this Section 4(c), the Debenture Issuer shall have the right at any time within 90 days following the occurrence of such Tax Event, upon not less than 30 nor more than 60 days' notice, to redeem the Debentures in whole or in part for cash so long as such Tax Event is continuing, and, following such redemption, Securities with an aggregate liquidation amount equal to the aggregate principal 58 amount of the Debentures so redeemed shall be redeemed by the Trust at the Redemption Price on a Pro Rata basis; provided, however, that, if at the time there is available to the Debenture Issuer or the Trust the opportunity to eliminate, within the 90 Day Period and before any notice has been given, the adverse effects of the Tax Event by taking some Ministerial Action, the Trust or the Debenture Issuer will pursue such Ministerial Action in lieu of redemption. "Tax Event" means that the Regular Trustees shall have received an opinion of a nationally recognized independent tax counsel experienced in such matters (a "Dissolution Tax Opinion") to the effect that on or after the date of the Prospectus Supplement, as a result of (a) any amendment to, clarification of or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, (b) any judicial decision or official administrative pronouncement, ruling, regulatory procedure, notice or announcement, including any notice or announcement of intent to adopt such procedures or regulations (an "Administrative Action"), or (c) any amendment to, clarification of, or change in the official position or interpretation of such Administrative Action or judicial decision that differs from the theretofore generally accepted position, in each case, by any legislative body, court, governmental agency or regulatory body, irrespective of the manner in which such amendment, clarification or change is made known, which amendment, clarification, or change is effective or such Administrative Action or decision is announced, in each case, on or after the first date of issuance of the Securities, there is more than an insubstantial risk that (i) the Trust is, or will be within 90 days of the date thereof, subject to United States federal income tax with respect to interest accrued or received on the Debentures, or subject to more than a de minimis amount of other taxes, duties or other governmental charges, (ii) any portion of interest payable by the Debenture Issuer to the Trust on the Debentures is not, or within 90 days of the date thereof will not be, deductible by the Debenture Issuer for United States federal income tax purposes, or (iii) the Debenture Issuer could become liable to pay, on the next date on which any amount would be payable with respect to the Debentures, any Additional Interest (as defined in the Indenture). On and from the date fixed by the Regular Trustees for any distribution of Debentures, together with the Debenture Guarantee, upon dissolution of the Trust: (i) the Securities will be deemed to be no longer outstanding, (ii) The Depository Trust Company or its nominee (or any successor Clearing Agency or its nominee), as the Holder of the Capital Securities, will receive a registered global certificate or certificates representing the Debentures and the Debenture Guarantee to be delivered upon such distribution and (iii) any Certificates representing Securities, except for Certificates representing Capital Securities held by the Depositary or its nominee (or any successor Clearing Agency or its nominee), will be deemed to represent individual beneficial interests in such of the Debentures having an aggregate principal amount equal to the aggregate stated liquidation amount of, with an interest rate identical to the Coupon Rate of, and bearing accrued and unpaid interest equal to accrued and unpaid Distributions on, such Securities until such Certificates are presented to the Debenture Issuer or its agent for transfer or reissue. 59 (j) The Trust may not redeem fewer than all the outstanding Securities unless all accrued and unpaid Distributions have been paid on all Securities for all semiannual Distribution periods terminating on or before the date of redemption. (k) If the Trust is dissolved and at the time of dissolution the Capital Securities are rated by at least one "nationally recognized statistical rating organization", as that term is defined for purposes of Rule 436(g)(2) under the Securities Act, the Debenture Issuer shall use its best efforts to obtain from at least one such or other rating organization a rating for the Debentures. (l) Redemption or Distribution Procedures. (i) Notice of any redemption of, or notice of distribution of Debentures in exchange for, the Securities (a "Redemption/Distribution Notice") will be given by the Trust by mail to each Holder of Securities to be redeemed or exchanged not fewer than 30 nor more than 60 days before the date fixed for redemption or exchange thereof which, in the case of a redemption, will be the date fixed for redemption of the Debentures. For purposes of the calculation of the date of redemption or exchange and the dates on which notices are given pursuant to this Section 4(f)(i), a Redemption/Distribution Notice shall be deemed to be given on the day such notice is first mailed by first-class mail, postage prepaid, to Holders of such Securities. Each Redemption/Distribution Notice shall be addressed to the Holders of such Securities at the address of each such Holder appearing on the books and records of the Trust. No defect in the Redemption/Distribution Notice or in the mailing thereof with respect to any Holder shall affect the validity of the redemption or exchange proceedings with respect to any other Holder. (i) In the event that fewer than all the outstanding Securities are to be redeemed, the Securities to be redeemed shall be redeemed Pro Rata from each Holder of Capital Securities; provided, however, that, in respect of Capital Securities registered in the name of and held of record by the Depositary or its nominee (or any successor Clearing Agency or its nominee), the Capital Securities shall be redeemed in accordance with the procedures of the Depositary (which may include redemption by lot), and the distribution of the proceeds of such redemption will be made to each Clearing Agency Participant (or Person on whose behalf such nominee holds such Securities) in accordance with the procedures applied by such Clearing Agency or nominee. (ii) If Securities are to be redeemed and the Trust gives a Redemption/Distribution Notice, which notice may only be issued if the Debentures are redeemed as set out in this Section 4 (which notice will be irrevocable), then (A) with respect to the Capital Securities, while the Capital Securities are in book-entry only form, provided that the Debenture Issuer or the Guarantor has paid the Institutional Trustee a sufficient amount of cash in connection with the related redemption or maturity of the Debentures, the Institutional Trustee will deposit irrevocably with the Depositary or its nominee (or successor Clearing Agency or its nominee), by 12:00 noon, New York City time, on the redemption date, funds sufficient to pay 60 the applicable Redemption Price with respect to the Capital Securities and will give the Depositary irrevocable instructions and authority to pay the applicable Redemption Price to the Holders of the Capital Securities, and (B) with respect to Capital Securities issued in definitive form and Common Securities, provided that the Debenture Issuer has paid the Institutional Trustee a sufficient amount of cash in connection with the related redemption or maturity of the Debentures, the Institutional Trustee will pay the relevant Redemption Price to the Holders of such Securities by check mailed to the address of each such Holder appearing on the books and records of the Trust on the redemption date. If a Redemption/Distribution Notice shall have been given and funds deposited as required, if applicable, then immediately prior to the close of business on the date of such deposit, or on the redemption date, as applicable, Distributions will cease to accrue on the Securities so called for redemption and all rights of Holders of such Securities so called for redemption will cease, except the right of the Holders of such Securities to receive the Redemption Price, but without interest on such Redemption Price. Neither the Regular Trustees nor the Trust shall be required to register or cause to be registered the transfer or exchange of any Securities that have been so called for redemption. If any date fixed for redemption of Securities is not a Business Day, then payment of the Redemption Price payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day falls in the next calendar year, such payment will be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date fixed for redemption. If payment of the Redemption Price in respect of any Securities is improperly withheld or refused and not paid either by the Institutional Trustee or by the Sponsor as guarantor pursuant to the relevant Securities Guarantee, Distributions on such Securities will continue to accrue at the then applicable rate from the original redemption date to the actual date of payment, in which case the actual payment date will be considered the date fixed for redemption for purposes of calculating the Redemption Price. (iii) Redemption/Distribution Notices shall be sent by the Regular Trustees on behalf of the Trust to (A) in respect of the Capital Securities, the Depositary or its nominee (or any successor Clearing Agency or its nominee) if the Global Certificates have been issued or, if Definitive Capital Security Certificates have been issued, to the Holders thereof, and (B) in respect of the Common Securities, to the Holder thereof. (v) Subject to the foregoing and applicable law (including, without limitation, United States federal securities laws), provided the acquiror is not the Holder of the Common Securities or the obligor under the Indenture, the Sponsor or any of its subsidiaries may at any time and from time to time purchase outstanding Capital Securities by tender, in the open market or by private agreement. 5. Voting Rights - Capital Securities. (m) Except as provided under Sections 5(b) and 7 of this Annex to the Declaration and as otherwise required by law and the Declaration, the Holders of the Capital Securities will have no voting rights. 61 (n) Subject to the requirements set forth in this paragraph, the Holders of a majority in aggregate liquidation amount of the Capital Securities, voting separately as a class, will have the right to direct the time, method, and place of conducting any proceeding for any remedy available to the Institutional Trustee, or exercising any trust or power conferred upon the Institutional Trustee under the Declaration, including the right to direct the Institutional Trustee, as holder of the Debentures and the Debenture Guarantee, to (i) exercise the remedies available to it under the Indenture as a holder of the Debentures and the Debenture Guarantee for conducting any proceeding for any remedy available to the Debenture Trustee, or exercising any trust or power conferred on the Debenture Trustee with respect to the Debentures, (ii) waive any past default and its consequences that is waivable under the Indenture, (iii) exercise any right to rescind or annul a declaration that the principal of all the Debentures shall be due and payable or (iv) consent on behalf of all the Holders of the Capital Securities to any amendment, modification or termination of the Indenture, the Debentures or the Debenture Guarantee where such consent shall be required, provided, however, that, where a consent or action under the Indenture would require the consent or act of the holders of greater than a majority in principal amount of Debentures affected thereby (a "Super Majority"), the Institutional Trustee may only give such consent or take such action at the written direction of the Holders of at least the proportion in aggregate liquidation amount of the Capital Securities outstanding which the relevant Super-Majority represents of the aggregate principal amount of the Debentures outstanding. The Institutional Trustee shall not revoke any action previously authorized or approved by a vote or consent of the Holders of the Capital Securities. Other than with respect to directing the time, method and place of conducting any proceeding for any remedy available to the Institutional Trustee as set forth above, the Institutional Trustee shall not take any action described in (i) , (ii), or (iii) above, unless the Institutional Trustee has obtained an opinion of tax counsel to the effect that for the purposes of United States federal income tax the Trust will not be classified as other than a grantor trust on account of such action. If the Institutional Trustee fails to enforce its rights under the Debentures after the Holders of a majority of liquidation amount of the Capital Securities have so directed the Institutional Trustee, a Holder of Capital Securities may institute a legal proceeding directly against the Debenture Issuer to enforce the Institutional Trustee's rights under the Debentures, without first instituting any legal proceeding against the Institutional Trustee or any other person or entity. Notwithstanding the foregoing, if a Declaration Event of Default has occurred and is continuing and such event is attributable to (a) the failure of the Debenture Issuer to pay interest or principal on the Debentures on the respective dates such interest or principal is otherwise payable (or in the case of redemption, on the redemption date) or (b) the failure of the Guarantor to pay any obligation in respect thereof under the Debenture Guarantee, then a Holder of Capital Securities may directly institute a proceeding against the Debenture Issuer ("Direct Action") for enforcement of payment, on or after the respective due dates specified in the Debentures, to such Holder directly of the principal of or interest on the Debentures having an aggregate principal amount equal to the aggregate liquidation amount of the Capital Securities of such Holder. In connection with such Direct Action, the Debenture Issuer shall remain obligated to pay the principal of or interest on the Debentures held by the Trust or the Institutional Trustee, and the Debenture Issuer will be subrogated to the rights of such Holder of Capital Securities under the Declaration to the extent of any payment made by the Debenture Issuer to such Holder of Capital Securities in such Direct 62 Action, provided that no Holder of the Common Securities may exercise any such right of subrogation so long as an Event of Default with respect to the Capital Securities has occurred and is continuing. Except as provided in the preceding sentences, the Holders of Capital Securities will not be able to exercise directly any other remedy available to the holders of the Debentures and the Debenture Guarantee. Any approval or direction of Holders of Capital Securities may be given at a separate meeting of Holders of Capital Securities convened for such purpose, at a meeting of all of the Holders of Securities in the Trust or pursuant to written consent. The Regular Trustees will cause a notice of any meeting at which Holders of Capital Securities are entitled to vote, or of any matter upon which action by written consent of such Holders is to be taken, to be mailed to each Holder of Capital Securities. Each such notice will include a statement setting forth (i) the date of such meeting or the date by which such action is to be taken, (ii) a description of any resolution proposed for adoption at such meeting on which such Holders are entitled to vote or of such matter upon which written consent is sought and (iii) instructions for the delivery of proxies or consents. The Regular Trustees will be required to call a meeting of the Holders of the Capital Securities if directed to do so by Holders of at least 10% in aggregate liquidation amount thereof. No vote or consent of the Holders of the Capital Securities will be required for the Trust to redeem and cancel Capital Securities or to distribute the Debentures in accordance with the Declaration and the terms of the Securities. Notwithstanding that Holders of Capital Securities are entitled to vote or consent under any of the circumstances described above, any of the Capital Securities that are owned at such time by the Sponsor or any Affiliate of the Sponsor shall not entitle the Holders thereof to vote or consent and shall, for purposes of such vote or consent, be treated as if such Capital Securities were not outstanding. 6. Voting Rights - Common Securities. (o) Except as provided under Sections 6(b), 6(c) and 7 and as otherwise required by law and the Declaration, the Holders of the Common Securities will have no voting rights. (p) The Holders of the Common Securities are entitled, in accordance with Article V of the Declaration, to vote to appoint, remove or replace any Trustee or to increase or decrease the number of Trustees. (q) Subject to Section 2.6 of the Declaration and only after each Event of Default (if any) with respect to the Capital Securities has been cured, waived, or otherwise eliminated and subject to the requirements of the second to last sentence of this paragraph, the Holders of a Majority in liquidation amount of the Common Securities, voting separately as a class, may direct the time, method, and place of conducting any proceeding for any remedy available to the Institutional Trustee, or exercising any trust or power conferred upon the Institutional Trustee 63 under the Declaration, including the right to direct the Institutional Trustee, as holder of the Debentures to (i) exercise the remedies available under the Indenture, (ii) waive any past default and its consequences that is waivable under the Indenture, or (iii) exercise any right to rescind or annul a declaration that the principal of all the Debentures shall be due and payable, provided, however, that, where a consent or action under the Indenture would require a Super Majority, the Institutional Trustee may only give such consent or take such action at the written direction of the Holders of at least the proportion in liquidation amount of the Common Securities which the relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding. Notwithstanding this Section 6(c), the Institutional Trustee shall not revoke any action previously authorized or approved by a vote or consent of the Holders of the Capital Securities. Other than with respect to directing the time, method and place of conducting any proceeding for any remedy available to the Institutional Trustee or the Debenture Trustee as set forth above, the Institutional Trustee shall not take any action described in (i) , (ii) or (iii) above, unless the Institutional Trustee has obtained an opinion of tax counsel to the effect that for the purposes of United States federal income tax the Trust will not be classified as other than a grantor trust on account of such action. If the Institutional Trustee fails to enforce its rights under the Declaration, any Holder of Common Securities may institute a legal proceeding directly against any Person to enforce the Institutional Trustee's rights under the Declaration, without first instituting a legal proceeding against the Institutional Trustee or any other Person. Any approval or direction of Holders of Common Securities may be given at a separate meeting of Holders of Common Securities convened for such purpose, at a meeting of all of the Holders of Securities in the Trust or pursuant to written consent. The Regular Trustees will cause a notice of any meeting at which Holders of Common Securities are entitled to vote, or of any matter upon which action by written consent of such Holders is to be taken, to be mailed to each Holder of Common Securities. Each such notice will include a statement setting forth (i) the date of such meeting or the date by which such action is to be taken, (ii) a description of any resolution proposed for adoption at such meeting on which such Holders are entitled to vote or of such matter upon which written consent is sought and (iii) instructions for the delivery of proxies or consents. No vote or consent of the Holders of the Common Securities will be required for the Trust to redeem and cancel Common Securities or to distribute the Debentures in accordance with the Declaration and the terms of the Securities. 7. Amendments to Declaration and Indenture. (r) In addition to any requirements under Section 12.1 of the Declaration, if any proposed amendment to the Declaration provides for, or the Regular Trustees otherwise propose to effect, (i) any action that would adversely affect the powers, preferences or special rights of the Securities, whether by way of amendment to the Declaration or otherwise, or (ii) the dissolution, winding-up or termination of the Trust, other than as described in Section 8.1 of the Declaration, then the Holders of outstanding Securities, voting together as a single class, will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of the Holders of at least a Majority in liquidation amount of 64 the Securities affected thereby; provided, however, that if any amendment or proposal referred to in clause (i) above would adversely affect only the Capital Securities or only the Common Securities, then only the affected class will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of a Majority in liquidation amount of such class of Securities. (s) In the event the consent of the Institutional Trustee as the holder of the Debentures and the Debenture Guarantee is required under the Indenture with respect to any amendment, modification or termination of the Indenture, the Debentures or the Debenture Guarantee, the Institutional Trustee shall request the written direction of the Holders of the Securities with respect to such amendment, modification or termination and shall vote with respect to such amendment, modification, or termination as directed by a Majority in liquidation amount of the Securities voting together as a single class; provided, however, that where a consent under the Indenture would require the consent of a Super-Majority, the Institutional Trustee may only give such consent at the direction of the Holders of at least the proportion in liquidation amount of the Securities outstanding which the relevant Super-Majority represents of the aggregate principal amount of the Debentures outstanding; provided, further, that the Institutional Trustee shall not take any such action in accordance with the directions of the Holders of the Securities under this Section 7(b) unless the Institutional Trustee has obtained an opinion of tax counsel to the effect that for the purposes of United States federal income tax the Trust will not be classified as other than a grantor trust on account of such action. 8. Pro Rata. A reference in these terms of the Securities to any payment, distribution or treatment as being "Pro Rata" shall mean pro rata to each Holder of Securities according to the aggregate liquidation amount of the Securities held by the relevant Holder in relation to the aggregate liquidation amount of all Securities outstanding unless, in relation to a payment, an Event of Default has occurred and is continuing, in which case any funds available to make such payment shall be paid first to each Holder of the Capital Securities pro rata according to the aggregate liquidation amount of Capital Securities held by the relevant Holder relative to the aggregate liquidation amount of all Capital Securities outstanding, and only after satisfaction of all amounts owed to the Holders of the Capital Securities, to each Holder of Common Securities pro rata according to the aggregate liquidation amount of Common Securities held by the relevant Holder relative to the aggregate liquidation amount of all Common Securities outstanding. 9. Ranking. The Capital Securities rank pari passu and payment thereon shall be made Pro Rata with the Common Securities except that, where an Event of Default has occurred and is continuing, the rights of Holders of the Common Securities to payment in respect of Distributions and payments upon liquidation, redemption and otherwise are subordinated to the rights to payment of the Holders of the Capital Securities. 65 10. Acceptance of Securities Guarantee and Indenture. Each Holder of Capital Securities and Common Securities, by the acceptance of such Securities, agrees to the provisions of the Capital Securities Guarantee and the Common Securities Guarantee, respectively, including the subordination provisions therein and to the provisions of the Indenture. 11. No Preemptive Rights. The Holders of the Securities shall have no preemptive rights to subscribe for any additional securities. 12. Miscellaneous. These terms constitute a part of the Declaration. The Sponsor will provide a copy of the Declaration, the Capital Securities Guarantee or the Common Securities Guarantee (as may be appropriate), and the Indenture to a Holder without charge on written request to the Sponsor at its principal place of business. 66 EXHIBIT A-1 67 EXHIBIT A-1 FORM OF CAPITAL SECURITY CERTIFICATE This Capital Security is a Global Certificate within the meaning of the Declaration hereinafter referred to and is registered in the name of The Depository Trust Company (the "Depositary") or a nominee of the Depositary. This Capital Security is exchangeable for Capital Securities registered in the name of a person other than the Depositary or its nominee only in the limited circumstances described in the Declaration and no transfer of this Capital Security (other than a transfer of this Capital Security 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) may be registered except in limited circumstances. Unless this Capital Security is presented by an authorized representative of The Depository Trust Company (55 Water Street, New York, New York) to the Trust or its agent for registration of transfer, exchange or payment, and any Capital Security issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of The Depository Trust Company and any payment hereon is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest herein. Certificate Number Number of Capital Securities CUSIP NO 222371AA4 Certificate Evidencing Capital Securities of COUNTRYWIDE CAPITAL I 8% Capital Trust Pass-through Securities (liquidation amount $1,000 per Capital Security) COUNTRYWIDE CAPITAL I, a statutory business trust formed under the laws of the State of Delaware (the "Trust"), hereby certifies that Cede & Co. (the "Holder") is the registered owner of preferred securities of the Trust representing undivided beneficial interests in the assets of the Trust, designated the 8% Capital Trust Pass-through Securities (liquidation amount $1,000 per Capital Security) (the "Capital Securities"). The Capital Securities are transferable on the books and records of the Trust, in person or by a duly authorized attorney, upon surrender of this Certificate duly endorsed and in proper form for transfer. The designation, rights, privileges, restrictions, preferences and other terms and provisions of the Capital Securities represented hereby are issued pursuant to, and shall in all respects be subject to, the provisions of the Amended and Restated Declaration of Trust of the Trust dated as of December 16, 1996, including the designation of the terms of the Capital Securities as set forth in Annex I to the Declaration, as the same may be amended from time to time (the 68 "Declaration"). Capitalized terms used herein but not defined shall have the meaning given them in the Declaration. The Holder is entitled to the benefits of the Capital Securities Guarantee to the extent provided therein. The Sponsor will provide a copy of the Declaration, the Capital Securities Guarantee and the Indenture to the Holder without charge upon written request to the Trust at its principal place of business. Upon receipt of this Certificate, the Holder is bound by the Declaration and is entitled to the benefits thereunder. By acceptance of this Certificate, the Holder agrees to treat, for United States federal income tax purposes, the Debentures as indebtedness and the Capital Securities as evidence of beneficial ownership in the Debentures. IN WITNESS WHEREOF, the Trust has executed this certificate this 16th day of December, 1996. COUNTRYWIDE CAPITAL I By:_____________________________________ Name: Title: Regular Trustee 69 [FORM OF REVERSE OF SECURITY] Distributions payable on each Capital Security will be fixed at a rate per annum of 8% (the "Coupon Rate") of the stated liquidation amount of $1,000 per Capital Security, such rate being the rate of interest payable on the Debentures to be held by the Institutional Trustee. Except as set forth below in respect of an Extension Period, Distributions in arrears for more than one semiannual period will bear interest thereon compounded semiannually at the Coupon Rate (to the extent permitted by applicable law). The term "Distributions" as used herein includes cash distributions and any such interest payable unless otherwise stated. A Distribution is payable only to the extent that payments are made in respect of the Debentures and the Debenture Guarantee held by the Institutional Trustee and to the extent the Institutional Trustee has funds available therefor. The amount of Distributions payable for any period will be computed for any full semiannual Distribution period on the basis of a 360-day year of twelve 30-day months, and, for any period shorter than a full semiannual Distribution period for which Distributions are computed, Distributions will be computed on the basis of the actual number of days elapsed per 30-day month. Except as otherwise described below, Distributions on the Capital Securities will be cumulative, will accrue from the date of original issuance and will be payable semiannually in arrears on June 15 and December 15 of each year, commencing on June 15, 1997. The Debenture Issuer has the right under the Indenture to defer payments of interest by extending the interest payment period at any time and from time to time on the Debentures for a period not exceeding 10 consecutive semiannual periods (each an "Extension Period"), during which Extension Period no interest will be due and payable on the Debentures, provided that no Extension Period shall be initiated while accrued interest with respect to prior, completed Extension Periods is unpaid or while the Company is in default in the payment of interest that has become due and payable on the Debentures, and provided further, that no Extension Period may extend beyond the date of the maturity of the Debentures. As a consequence of such deferral, Distributions will also be deferred. Despite such deferral, semiannual Distributions will continue to accrue with interest thereon (to the extent permitted by applicable law) at the Coupon Rate compounded semiannually during any such Extension Period. Prior to the termination of any such Extension Period, the Debenture Issuer may further extend such Extension Period; provided that such Extension Period together with all such previous and further extensions thereof may not exceed 10 consecutive semiannual periods or extend beyond the maturity of the Debentures. Distributions accrued during any Extension Period will be paid on the date that the related Extension Period terminates to Holders as they appear on the books and records of the Trust on the record date immediately preceding such date. Upon the termination of any Extension Period and the payment of all amounts then due, the Debenture Issuer may commence a new Extension Period, subject to the above requirements. Capital Securities may not be acquired by any Person who is, or who in acquiring such Capital Securities is using the asset of, an ERISA Plan unless one of the following class exemptions is applicable: (i) Prohibited Transaction Class Exemption 90-1 ("PTE 90-1), regarding investments by insurance company pooled separate accounts, (ii) Prohibited Transaction Class Exemption 91-38 ("PTE 91-38"), regarding investments by bank collective 70 investment funds, (iii) Prohibited Transaction Class Exemption 84-14 ("PTE 84-14"), regarding transactions effected by qualified professional asset managers, (iv) Prohibited Transaction Class Exemption 96-23 ("PTE 96-23"), regarding transactions effected by in-house asset managers, or (v) Prohibited Transaction Class Exemption 95-60 ("PTE 95-60"), regarding investments by insurance company general accounts. The acceptance of this Certificate by any Person who is, or who in acquiring this Certificate is using the assets of, an ERISA Plan shall be deemed to constitute a representation by such Person to the Trust that (i) such Person is eligible for exemptive relief available pursuant to one of PTE 90-1, PTE 91-38, PTE 84-14, PTE 96-23 or PTE 95-60 with respect to the acquisition and holding of the Capital Securities represented by this Certificate, and (ii) neither Countrywide Home Loans Inc. nor Countrywide Credit Industries, Inc. is a "fiduciary", within the meaning of Section 3(21) of ERISA and the regulations thereunder, with respect to such Person's interest in the Capital Securities or the Debentures. The Capital Securities shall be redeemable as provided in the Declaration. 71 _________________________ ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers this Capital Security Certificate to: (Insert assignee's social security or tax identification number) (Insert address and zip code of assignee) and irrevocably appoints agent to transfer this Capital Security Certificate on the books of the Trust. The agent may substitute another to act for him or her. Date: __________________________ Signature: _____________________ (Sign exactly as your name appears on the other side of this Capital Security Certificate) Signature Guarantee*: _____________________________ - ---------------------- * Signature must be guaranteed by an "eligible guarantor institution" that is a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Security registrar, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Security registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. 72 EXHIBIT A-2 73 EXHIBIT A-2 FORM OF COMMON SECURITY CERTIFICATE Certificate Number Number of Common Securities Certificate Evidencing Common Securities of COUNTRYWIDE CAPITAL I 8% Common Securities (liquidation amount $1,000 per Common Security) COUNTRYWIDE CAPITAL I, a statutory business trust formed under the laws of the State of Delaware (the "Trust"), hereby certifies that Countrywide Credit Industries, Inc. (the "Holder") is the registered owner of common securities of the Trust representing undivided beneficial interests in the assets of the Trust, designated the 8% Common Securities (liquidation amount $1,000 per Common Security) (the "Common Securities"). The Common Securities are transferable on the books and records of the trust, in person or by a duly authorized attorney, upon surrender of this Certificate duly endorsed and in proper form for transfer. The designation, rights, privileges, restrictions, preferences and other terms and provisions of the Common Securities represented hereby are issued pursuant to, and shall in all respects be subject to, the provisions of the Amended and Restated Declaration of Trust of the Trust dated as of December 16, 1996, including the designation of the terms of the Common Securities as set forth in Annex I to the Declaration, as the same may be amended from time to time (the "Declaration"). Capitalized terms used herein but not defined shall have the meaning given them in the Declaration. The Holder is entitled to the benefits of the Common Securities Guarantee to the extent provided therein. The Sponsor will provide a copy of the Declaration, the Common Securities Guarantee and the Indenture to the Holder without charge upon written request to the Sponsor at its principal place of business. Upon receipt of this Certificate, the Holder is bound by the Declaration and is entitled to the benefits thereunder. By acceptance of this Certificate, the Holder agrees to treat, for United States federal income tax purposes, the Debentures as indebtedness and the Common Securities as evidence of undivided beneficial ownership in the Debentures. 74 IN WITNESS WHEREOF, the Trust has executed this certificate this 16th day of December, 1996. COUNTRYWIDE CAPITAL I By:________________________________ Name: Title: Regular Trustee 75 [FORM OF REVERSE OF SECURITY] Distributions payable on each Common Security will be fixed at a rate per annum of 8% (the "Coupon Rate") of the stated liquidation amount of $1,000 per Common Security, such rate being the rate of interest payable on the Debentures to be held by the Institutional Trustee. Except as set forth below in respect of an Extension Period, Distributions in arrears for more than one semiannual period will bear interest thereon compounded semiannually at the Coupon Rate (to the extent permitted by applicable law). The term "Distributions" as used herein includes cash distributions and any such interest payable unless otherwise stated. A Distribution is payable only to the extent that payments are made in respect of the Debentures and the Debenture Guarantee held by the Institutional Trustee and to the extent the Institutional Trustee has funds available therefor. The amount of Distributions payable for any period will be computed for any full semiannual Distribution period on the basis of a 360-day year of twelve 30-day months, and, for any period shorter than a full semiannual Distribution period for which Distributions are computed, Distributions will be computed on the basis of the actual number of days elapsed per 30-day month. Except as otherwise described below, Distributions on the Common Securities will be cumulative, will accrue from the date of original issuance and will be payable semiannually in arrears on June 15 and December 15 of each year, commencing on June 15, 1997, to Holders of record fifteen (15) days prior to such payment dates, which payment dates shall correspond to the interest payment dates on the Debentures. The Debenture Issuer has the right under the Indenture to defer payments of interest by extending the interest payment period at any time and from time to time on the Debentures for a period not exceeding 10 consecutive semiannual periods (each an "Extension Period"), provided that no Extension Period shall be initiated while accrued interest with respect to prior completed Extension Period is unpaid or while the Company is in default in the payment of interest that has become due and payable on the Debentures, and provided further that no Extension Period may extend beyond the date of the maturity of the Debentures. As a consequence of such deferral, Distributions will also be deferred. Despite such deferral, semiannual Distributions will continue to accrue with interest thereon (to the extent permitted by applicable law) at the Coupon Rate compounded semiannually during any such Extension Period. Prior to the termination of any such Extension Period, the Debenture Issuer may further extend such Extension Period; provided that such Extension Period together with all such previous and further extensions thereof may not exceed 10 consecutive semiannual periods or extend beyond the maturity date of the Debentures. Distributions accruing during any Extension Period will be paid on the date that the related Extension period terminates to Holders as they appear on the books and records of the Trust on the record date immediately preceding such date. Upon the termination of any Extension Period and the payment of all amounts then due, the Debenture Issuer may commence a new Extension Period, subject to the above requirements. The Common Securities shall be redeemable as provided in the Declaration. 76 ______________________ ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers this Common Security Certificate to: (Insert assignee's social security or tax identification number) ________________________________________________________________________________ (Insert address and zip code of assignee) and irrevocably appoints_______________________________________________________ agent to transfer this Common Security Certificate on the books of the Trust. The agent may substitute another to act for him or her. Date: __________________________ Signature: _____________________ (Sign exactly as your name appears on the other side of this Common Security Certificate) Signature Guarantee*: ______________________________________ - ---------------------- * Signature must be guaranteed by an "eligible guarantor institution" that is a bank, stockbroker, savings and loan association or credit union, meeting the requirements of the Security registrar, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Security registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. 77 EXHIBIT B 78 EXHIBIT B SPECIMEN OF DEBENTURE 79 (FACE OF DEBENTURE) [IF THE DEBENTURE IS TO BE A GLOBAL DEBENTURE, INSERT - This Debenture is a Global Debenture within the meaning of the Indenture hereinafter referred to and is registered in the name of a Depositary or a nominee of a Depositary. This Debenture is exchangeable for Debentures registered in the name of a person other than the Depositary or its nominee only in the limited circumstances described in the Indenture, and no transfer of this Debenture (other than a transfer of this Debenture 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) may be registered except in limited circumstances. Unless this Debenture is presented by an authorized representative of The Depository Trust Company (55 Water Street, New York, New York) to the issuer or its agent for registration of transfer, exchange or payment, and any Debenture issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of The Depository Trust Company and any payment hereon is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest herein.] No. _________________ CUSIP No. _______________ COUNTRYWIDE HOME LOANS, INC. 8% JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURE DUE DECEMBER 15, 2026 COUNTRYWIDE HOME LOANS, INC., a New York corporation (the "Company", which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to ____________ or registered assigns, the principal sum of ________________ Dollars ($_________ ) on December 15, 2026, and to pay interest on said principal sum from December 16, 1996, or from the most recent interest payment date (each such date, an "Interest Payment Date") to which interest has been paid or duly provided for, semiannually (subject to deferral as set forth herein) in arrears on June 15 and December 15 of each year commencing June 15, 1997, at the rate of 8% per annum until the principal hereof shall have become due and payable, and on any overdue principal and premium, if any, and (without duplication and to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the same rate per annum compounded semiannually. The amount of interest payable on any Interest Payment Date shall be computed on the basis of a 360-day year of twelve 30-day months. In the event that any date on which interest is payable on this Debenture is not a Business Day, then payment of interest payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), with the same force and effect as if made on such date. The interest installment so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the 80 Person in whose name this Debenture (or one or more Predecessor Securities, as defined in said Indenture) is registered at the close of business on the regular record date for such interest installment, which shall be the close of business on the Business Day next preceding such Interest Payment Date. [IF PURSUANT TO THE PROVISIONS OF THE INDENTURE THE DEBENTURES ARE NO LONGER REPRESENTED BY A GLOBAL Debenture -- which shall be the close of business on the Business Day next preceding such Interest Payment Date.] Any such interest installment not punctually paid or duly provided for shall forthwith cease to be payable to the registered holders on such regular record date and may be paid to the Person in whose name this Debenture (or one or more Predecessor Securities) is registered at the close of business on a special record date to be fixed by the Trustee for the payment of such defaulted interest, notice whereof shall be given to the registered holders of this series of Debentures not less than 10 days prior to such special record date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Debentures may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. The principal of (and premium, if any) and the interest on this Debenture shall be payable at the office or agency of the Trustee (or other paying agent appointed by the Company) maintained for that purpose in any coin or currency of the United States of America that at the time of payment is legal tender for payment of public and private debts; provided, however, that payment of interest may be made at the option of the Company by check mailed to the registered holder at such address as shall appear in the Security Register. Notwithstanding the foregoing, so long as the holder of this Debenture is the Institutional Trustee, the payment of the principal of (and premium, if any) and interest on this Debenture will be made at such place and to such account as may be designated by the Institutional Trustee. The indebtedness evidenced by this Debenture is, to the extent provided in the Indenture, subordinate and junior in right of payment to the prior payment in full of all Senior Indebtedness, and this Debenture is issued subject to the provisions of the Indenture with respect thereto. Each holder of this Debenture, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his or her behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination so provided and (c) appoints the Trustee his or her attorney-in-fact for any and all such purposes. Each holder hereof, by his or her acceptance hereof, hereby waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior Indebtedness, whether now outstanding or hereafter incurred, and waives reliance by each such holder upon said provisions. This Debenture shall not be entitled to any benefit under the Indenture hereinafter referred to, be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been signed by or on behalf of the Trustee. The provisions of this Debenture are continued on the reverse side hereof and such continued provisions shall for all purposes have the same effect as though fully set forth at this place. 81 IN WITNESS WHEREOF, the Company has caused this instrument to be executed. COUNTRYWIDE HOME LOANS, INC. By: ______________________________ Name: Title: Attest: By: ___________________ Name: Title: 82 CERTIFICATE OF AUTHENTICATION This is one of the Securities of the series designated herein referred to in the within-mentioned Indenture. Dated ________________ The Bank of New York, as Trustee By____________________ Authorized Signatory [FORM OF GUARANTEE] FOR VALUE RECEIVED, COUNTRYWIDE CREDIT INDUSTRIES, INC., a Delaware corporation (the "Guarantor"), hereby fully and unconditionally guarantees to the holder of the Security upon which this Guarantee is endorsed the due and punctual payment of the principal of, sinking fund payment, if any, premium, if any, or interest on said Security, when and as the same shall become due and payable, whether at maturity, upon redemption or otherwise, according to the terms thereof and of the Indenture referred to therein. The Guarantor agrees to determine, at least one Business Day prior to the date upon which a payment of principal of, sinking fund payment, if any, premium, if any, or interest on said Security is due and payable, whether the Company has available the funds to make such payment as the same shall become due and payable. In case of the failure of the Company punctually to pay any such principal, sinking fund payment, if any, premium, if any, or interest, the Guarantor hereby agrees to cause any such payment to be made punctually when and as the same shall become due and payable, whether at maturity, upon redemption, or otherwise, and as if such payment were made by the Company. The Guarantor hereby agrees that its obligations hereunder shall be unconditional, irrevocable, and absolute, irrespective of the validity, regularity, or enforceability of said Security or said Indenture, the absence of any action to enforce the same, any waiver or consent by the holder of said Security with respect to any provisions thereof, the recovery of any judgment against the Company or any action to enforce the same, or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. The Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of merger or bankruptcy of the Company, any right to require a proceeding first against the Company, protest or notice with respect to said Security or indebtedness evidenced thereby, and all demands whatsoever and covenants that this Guarantee will not be discharged except by complete performance of the obligations contained in said Security and in this Guarantee. 83 The Guarantor shall be subrogated to all rights of the holder of said Security against the Company in respect of any amounts paid by the Guarantor pursuant to the provisions of this Guarantee; provided, however, that the Guarantor shall not, without the consent of the holders of all of the Securities then outstanding, 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 all Securities shall have been paid in full or payment thereof shall have been provided for in accordance with said Indenture. Notwithstanding anything to the contrary contained herein, if following any payment of principal or interest by the Company on the Securities to the holders of the Securities it is determined by a final decision of a court of competent jurisdiction that such payment shall be avoided by a trustee in bankruptcy (including any debtor-in-possession) as a preference under 11 U.S.C. Section 547 and such payment is paid by such holder to such trustee in bankruptcy, then and to the extent of such repayment, the obligations of the Guarantor hereunder shall remain in full force and effect. The obligations of the Guarantor under this Guarantee are, to the extent provided in the Indenture, subordinate and junior in right of payment to the prior payment in full of all Senior Indebtedness, and this Guarantee is issued subject to the provisions of the Indenture with respect thereto. Each holder of the Security upon which this Guarantee is endorsed, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his or her behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination so provided and (c) appoints the Trustee his or her attorney-in-fact for any and all such purposes. Each holder of the Security upon which this Guarantee is endorsed, by his or her acceptance thereof, hereby waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior Indebtedness, whether now outstanding or hereafter incurred, and waives reliance by each holder upon said provisions. This Guarantee shall not be valid or become obligatory for any purpose with respect to a Security until the certificate of authentication on such Security shall have been signed by the Trustee (or the Authentication Agent). This Guarantee shall be governed by the laws of the State of New York. IN WITNESS WHEREOF, COUNTRYWIDE CREDIT INDUSTRIES, INC. has caused this Guarantee to be signed in its corporate name by the facsimile signature of two of its officers thereunto duly authorized and has caused a facsimile of its corporate seal to be affixed hereunto or imprinted or otherwise reproduced hereon. COUNTRYWIDE CREDIT INDUSTRIES, INC. ______________________________{Seal} _______________________ 84 {Title} {Title} 85 (REVERSE OF DEBENTURE) This Debenture is one of a duly authorized series of Debt Securities of the Company, specified in the Indenture, all issued or to be issued in one or more series under and pursuant to an Indenture dated as of December 16, 1996, duly executed and delivered between the Company and The Bank of New York as Trustee (the "Trustee"), as supplemented by the First Supplemental Indenture dated as of December 16, 1996, between the Company and the Trustee (the Indenture as so supplemented, the "Indenture"), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the holders of the series of Debt Securities (referred to herein as the "Debentures") of which this Debenture is a part. By the terms of the Indenture, the Debt Securities are issuable in series that may vary as to amount, date of maturity, rate of interest and in other respects as provided in the Indenture. This series of Debentures is limited in aggregate principal amount as specified in said First Supplemental Indenture. The Company shall have the right to redeem this Debenture at the option of the Company, without premium or penalty, in whole or in part at any time and from time to time on or after December 15, 2006 (an "Optional Redemption"), or at any time in certain circumstances upon the occurrence of a Tax Event, at a redemption price equal to 100% of the principal amount to be redeemed plus any accrued but unpaid interest, to the date of such redemption (the "Optional Redemption Price"). Any redemption pursuant to this paragraph will be made upon not less than 30 days nor more than 60 days notice, at the Optional Redemption Price. If the Debentures are only partially redeemed by the Company pursuant to an Optional Redemption, the Debentures will be redeemed pro rata or by lot or by any other method utilized by the Trustee; provided that if, at the time of redemption, the Debentures are registered as a Global Debenture, the Depositary shall determine the principal amount of such Debentures held by each Debentureholder to be redeemed in accordance with its procedures. In the event of redemption of this Debenture in part only, a new Debenture or Debentures of this series for the unredeemed portion hereof will be issued in the name of the holder hereof upon the cancellation hereof. In case an Event of Default, as defined in the Indenture, shall have occurred and be continuing, the principal of all of the Debentures 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 and the Trustee, with the consent of the Holders of not less than a majority in aggregate principal amount of the Debt Securities of each series affected at the time outstanding, as specified in the Indenture, to execute supplemental indentures for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or of modifying in any manner the rights of the holders of the Debt Securities; provided, however, that 86 no such supplemental indenture shall (i), among other things, extend the fixed maturity of any Debt Securities of any series, or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon, or reduce any premium payable upon the redemption thereof, without the consent of the holder of each Debt Security so affected, or (ii) reduce the aforesaid percentage of Debt Securities, the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of each Debt Securities then outstanding and affected thereby. The Indenture also contains provisions permitting the holders of a majority in aggregate principal amount of the Debt Securities of any series at the time outstanding affected thereby, on behalf of all of the holders of the Debt Securities of such series, to waive any past default in the performance of any of the covenants contained in the Indenture, or established pursuant to the Indenture with respect to such series, and its consequences, except a default in the payment of the principal of or premium, if any, or interest on any of the Debt Securities of such series. Any such consent or waiver by the registered holder of this Debenture (unless revoked as provided in the Indenture) shall be conclusive and binding upon such holder and upon all future holders and owners of this Debenture and of any Debenture issued in exchange herefor or in place hereof (whether by registration of transfer or otherwise), irrespective of whether or not any notation of such consent or waiver is made upon this Debenture. No reference herein to the Indenture and no provision of this Debenture or of the Indenture 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 Debenture at the time and place and at the rate and in the money herein prescribed. The Company shall have the right at any time during the term of the Debentures and from time to time to defer payments of interest on the Debentures by extending the interest payment period of the Debentures for up to 10 consecutive semiannual periods (each, an "Extended Interest Payment Period"), and on the date on which such Extended Interest Payment Period ends the Company shall pay all interest then accrued and unpaid (including any Additional Interest), together with interest thereon, compounded semiannually at the rate specified for the Debentures to the extent that payment of such interest is enforceable under applicable law; provided that no Extended Interest Payment Period may be initiated while accrued interest with respect to prior, completed Extended Interest Payment Periods is unpaid or while the Company is in default in the payment of interest that has become due and payable on the Debentures, and provided further that no Extended Interest Payment Period may last beyond the Maturity Date. Before the termination of any such Extended Interest Payment Period, the Company may further extend such Extended Interest Payment Period, provided that each such Extended Interest Payment Period together with all such previous and further extensions thereof shall not exceed 10 consecutive semiannual periods or extend beyond the Maturity Date. At the termination of any such Extended Interest Payment Period and upon the payment of all accrued and unpaid interest and any additional amounts then due, the Company may commence a new Extended Interest Payment Period, subject to the above requirements. As provided in the Indenture and subject to certain limitations therein set forth, this Debenture is transferable by the registered holder hereof on the Security Register of the 87 Company, upon surrender of this Debenture for registration of transfer at the office or agency of the Trustee in the City and State of New York accompanied by a written instrument or instruments of transfer in form satisfactory to the Company and the Trustee duly executed by the registered holder hereof or his attorney duly authorized in writing, and thereupon one or more new Debentures of authorized denominations and for the same aggregate principal amount and series will be issued to the designated transferee or transferees. No service charge will be made for any such transfer, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in relation thereto. Prior to due presentment for registration of transfer of this Debenture, the Company, the Trustee, any paying agent and the Security registrar may deem and treat the registered holder hereof as the absolute owner hereof (whether or not this Debenture shall be overdue and notwithstanding any notice of ownership or writing hereon made by anyone other than the Security registrar) for the purpose of receiving payment of or on account of the principal hereof and premium, if any, and interest due hereon and for all other purposes, and neither the Company nor the Trustee nor any paying agent nor any Security registrar shall be affected by any notice to the contrary. No recourse shall be had for the payment of the principal of or the interest on this Debenture, 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 or director, past, present or future, as such, of the Company or of any predecessor or 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 issuance hereof, expressly waived and released. [The Debentures of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof.] [This Global Debenture is exchangeable for Debentures in definitive form only under certain limited circumstances set forth in the Indenture. Debentures of this series so issued are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof.] As provided in the Indenture and subject to certain limitations [herein and] therein set forth, Debentures of this series [so issued] are exchangeable for a like aggregate principal amount of Debentures of this series of a different authorized denomination, as requested by the holder surrendering the same. All terms used in this Debenture that are defined in the Indenture shall have the meanings assigned to them in the Indenture. THE INTERNAL LAWS OF THE STATE OF NEW YORK SHALL GOVERN THE INDENTURE AND THE DEBENTURES WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES THEREOF. 88 EXHIBIT C 89 EX-10.41 8 v96832exv10w41.txt EXHIBIT 10.41 EXHIBIT 10.41 AMENDMENT SIX COUNTRYWIDE CREDIT INDUSTRIES, INC. 1993 STOCK OPTION PLAN (AMENDED AND RESTATED AS OF MARCH 27, 1996) WHEREAS, Countrywide Credit Industries, Inc. (the "Company") desires to amend the Countrywide Credit Industries 1993 Stock Option Plan (As Amended and Restated as of March 27, 1996) (the "Plan") to provide options to nonemployee directors of affiliated companies of the Company. NOW, THEREFORE, the Plan shall be amended as follows: 1. Section 2(m) of the Plan shall be amended by adding the following sentence at its end: "Solely for purposes of options granted under this Plan, "Eligible Employee" shall include a Nonemployee Affiliate Director." 2. Sections 2(r) through 2(bb) shall be renumbered as 2(s) through 2(cc) and new Section 2(r) shall be added as follows: "Nonemployee Affiliate Director" means any nonemployee director of an affiliated company of the Company." IN WITNESS WHEREOF, the Company has caused this Amendment Six to be executed by its duly authorized officer this 19 day of June, 2001. Countrywide Credit Industries, Inc. By: /s/ Anne McCallion ------------------------------------ Anne McCallion Managing Director, Chief Administrative Officer Attest: /s/ Jordan Dorchuck - ------------------------------- EX-10.43 9 v96832exv10w43.txt EXHIBIT 10.43 EXHIBIT 10.43 2000 EQUITY INCENTIVE PLAN OF COUNTRYWIDE FINANCIAL CORPORATION (AMENDED AND RESTATED NOVEMBER 12, 2003) SECTION 1. PURPOSE OF PLAN The purpose of this 2000 Equity Incentive Plan (this "Plan") of Countrywide Financial Corporation (formerly known as Countrywide Credit Industries, Inc.), a Delaware corporation (the "Company"), is to strengthen the Company by providing an incentive to its employees and directors and thereby encourage them to devote their abilities and industry to the success of the Company's business enterprise. It is intended that this purpose be achieved by extending to employees and directors of the Company and the Subsidiaries (as defined below) an added long-term incentive for high levels of performance and unusual efforts through the grant of Awards (as such term is herein defined). SECTION 2. ADMINISTRATION OF PLAN 2.1 COMPOSITION OF COMMITTEE. This Plan shall be administered by a committee consisting of at least two (2) directors appointed by the Board of Directors of the Company (the "Board") to administer the Plan and to perform functions set forth herein (the "Committee"). Notwithstanding the foregoing, with respect to any action, determination, interpretation, or modification with respect to a specific Award to any director of the Company who is not an employee (a "Nonemployee Director"), the "Committee" shall be comprised of the entire Board. The Committee shall hold meetings at such times as may be necessary for the proper administration of the Plan. The Committee shall keep minutes of its meetings. A quorum shall consist of not less than two (2) members of the Committee and a majority of a quorum may authorize any action. Any decision or determination reduced to writing and signed by a majority of all of the members shall be fully effective as if made by a majority vote at a meeting duly called and held. Each member of the Committee shall be a Disinterested Director and an Outside Director. No member of the Committee shall be liable for any action, failure to act, determination or interpretation made in good faith with respect to this Plan or any transaction hereunder, except for liability arising from his or her own willful misfeasance, gross negligence or reckless disregard of his or her duties. The Company hereby agrees to indemnify each member of the Committee for all costs and expenses and, to the extent permitted by applicable law, any liability incurred in connection with defending against, responding to, negotiation for the settlement of or otherwise dealing with any claim, cause of action or dispute of any kind arising in connection with any actions in administering this Plan or in authorizing or denying authorization to any transaction hereunder. For purposes of this Plan, the term "Disinterested Director" means a director of the Company who is "disinterested" within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the term "Outside Director" means a director of the Company who is an "outside director" within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder (the "Code"). 2.2 POWERS OF THE COMMITTEE. The Committee shall be authorized and empowered to do all things necessary or desirable, in its sole discretion, in connection with the administration of this Plan, including, without limitation, the following: (a) to prescribe, amend and rescind rules and regulations relating to this Plan (including but not limited to, correcting any defect or supplying any omission, or reconciling any inconsistency in the Plan or any Award Document (as defined below)) in the manner and to the extent it shall be deemed necessary or advisable so that the Plan complies with applicable law including Rule 16b-3 under the Exchange Act and the Code to the extent applicable and otherwise to make the Plan fully effective, and to define terms not otherwise defined herein; provided that, unless the Committee shall specify otherwise, for purposes of this Plan (i) the term "Fair Market Value" shall, on any date mean the average of the high and low sales prices of the Shares on such date on the principal national securities exchange on which such Shares are listed or admitted to trading, or if such Shares are not so listed or admitted to trading, the arithmetic mean of the per Share closing bid price and per Share closing asked price on such date as quoted on the National Association of Securities Dealers Automated Quotation System or such other market in which such prices are regularly quoted, or, if there have been no published bid or asked quotations with respect to Shares on such date, the Fair Market Value shall be the value established by the Board in good faith and in accordance with Code Section 422; and (ii) the term "Company" shall mean the Company and its Subsidiaries (as such term is defined in Code Section 424(f)) and affiliates, unless the context otherwise requires; (b) to determine which persons are Eligible Persons (as defined below), to which of such Eligible Persons, if any, Awards shall be granted hereunder, the number of Awards granted, the timing of any such grants, and to make such grants; (c) to determine the number of Shares subject to Options (as defined below) and the exercise or purchase price of such Shares; (d) to establish and verify the extent of satisfaction of any performance goals applicable to Awards; (e) to prescribe and amend the terms of the agreements or other documents evidencing Awards made under this Plan (which need not be identical); (f) to determine whether, and the extent to which, adjustments are required pursuant to Section 8; (g) to establish and maintain programs pursuant to which Awards granted under this Plan may be deferred; (h) to interpret and construe this Plan, any rules and regulations under this Plan and the terms and conditions of any Award granted hereunder, and to make exceptions to any such provisions in good faith and for the benefit of the Company; and (i) to make all other determinations deemed necessary or advisable for the administration of this Plan. 2.3 DETERMINATIONS OF THE COMMITTEE. All decisions, determinations and interpretations by the Committee regarding this Plan shall be final and binding on the Company and its Subsidiaries and all Eligible Persons and Participants (as defined below). The Committee shall consider such factors as it deems relevant to making such decisions, determinations and interpretations including, without limitation, the recommendations or advice of any director, officer or employee of the Company and such attorneys, consultants and accountants as it may select. SECTION 3. STOCK SUBJECT TO PLAN 3.1 AGGREGATE LIMITS. The aggregate number of shares of the Company's common stock, par value $.05 per share ("Shares"), that may be made the subject of Awards granted under this Plan is 16,750,000, of which a maximum of 1,000,000 Shares may be issued in the form of Restricted Stock (as defined below). The maximum number of shares subject to the Plan shall be adjusted as provided in Section 8 of the Plan upon a change in the capital structure of the Company. The maximum number of Shares that may be made the subject of Awards to Nonemployee Directors under this Plan in any one calendar year is 50,000 with respect to Options and 30,000 shares with respect to Restricted Stock. The Company shall reserve for the purpose of this Plan, out of its authorized but unissued Shares or out of Shares held in the Company's treasury, or partly out of each, such number of Shares as shall be determined by the Board. 3.2 TAX-CODE LIMITS. The aggregate number of Shares, subject to Options granted under this Plan during any calendar year to any one Eligible Person, shall not exceed 3,000,000. Notwithstanding anything to the contrary in this Plan, the foregoing limitations shall be subject to adjustment under Section 8 only to the extent that such adjustment will not affect the status of any Option intended to qualify as "performance based compensation" under Code Section 162(m). The foregoing limitations shall not apply to the extent that they are no longer required in order for compensation in connection with grants under this Plan to be treated as "performance-based compensation" under Code Section 162(m). 3.3 ISSUANCE OF SHARES. Whenever an outstanding Award or a portion thereof expires, is canceled or is otherwise terminated for any reason (other than the surrender of the Award pursuant to Section 9 hereof), the Shares allocable to the expired, canceled or otherwise terminated Award or portion thereof may again be the subject of an Award granted hereunder. SECTION 4. PERSONS ELIGIBLE UNDER PLAN Any employee of the Company or a Subsidiary, any Nonemployee Director or any nonemployee director of an affiliated company ("Nonemployee Affiliate Director") designated by the Committee as eligible to receive Awards subject to the conditions set forth herein, shall be eligible to receive a grant of an Award under this Plan (an "Eligible Person"). A "Ten-Percent Stockholder" is an Eligible Person, who, at the time an Option intended to qualify as an incentive stock option under Section 422 of the Code ("ISO") is granted to him or her, owns (within the meaning of Section 422(b)(6) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, or of a parent or a subsidiary. An "Optionee" is any current or former Eligible Person to whom an Option has been granted, and a "Participant" is any person to whom an Award has been granted or to whom an Option has been assigned or transferred pursuant to Section 7.1 (including any estate). SECTION 5. PLAN AWARDS The Committee, on behalf of the Company, is authorized under this Plan to enter into certain types of arrangements with Eligible Persons and to confer certain benefits on them. Restricted Stock and Options are authorized under this Plan if their terms and conditions are not inconsistent with the provisions of this Plan. For purposes of this Plan an "Option" is a right granted under Section 6 of this Plan to purchase a number of Shares at such exercise price, at such times, and on such other terms and conditions as are specified in the agreement or other document evidencing the Award (the "Option Document "). Options intended to qualify as ISOs and Options not intended to qualify as ISOs ("Nonqualified Options") may be granted under Section 6. For purposes of this Plan, "Restricted Stock" means Shares issued or transferred pursuant to Section 7A on such terms and conditions as are specified in the agreement or other document evidencing the Award. For purposes of this Plan a "Stock Unit" or a "Restricted Stock Unit" means the right to receive Shares at a future date pursuant to Section 7A on such terms and conditions as are specified in the agreement or other document evidencing the Award. Any agreement evidencing an "Award" hereunder is an "Award Document." For purposes of this Plan, an "Award" is a grant of Restricted Stock, Stock Units, Restricted Stock Units, ISOs or Nonqualified Options. SECTION 6. OPTIONS The Committee may grant an Option or provide for the grant of an Option, either from time to time in the discretion of the Committee or automatically upon the occurrence of specified events, including, without limitation, the achievement of performance goals, the satisfaction of an event or condition within the control of the recipient of the grant or within the control of others. 6.1 OPTION DOCUMENT. Each Option Document shall contain provisions regarding (a) the number of Shares that may be issued upon exercise of the Option, (b) the purchase price of the Shares and the means of payment for the Shares, (c) the term of the Option, (d) such terms and conditions of exercisability as may be determined from time to time by the Committee, (e) restrictions on the transfer of the Option and forfeiture provisions and (f) such further terms and conditions, in each case not inconsistent with this Plan as may be determined from time to time by the Committee. The Option Document may be amended at any time by the parties thereto so long as the amended terms are not inconsistent with the Plan. Option Documents evidencing ISOs shall contain such terms and conditions as may be necessary to qualify, to the extent determined desirable by the Committee, with the applicable provisions of Code Section 422. 6.2 OPTION PRICE. The purchase price per share of the Shares subject to each Option granted under this Plan shall equal or exceed one hundred percent (100%) of the Fair Market Value of such Stock on the date the Option is granted (one hundred ten percent (110%) in the case of an ISO granted to a Ten-Percent Stockholder), except that (a) the exercise price of an Option may be higher or lower in the case of Options granted to an employee of a company acquired by the Company in assumption and substitution of Options held by such employee at the time such company is acquired, and (b) in the event an Eligible Person is required to pay or forego the receipt of any cash amount in consideration of receipt of an Option, the exercise price plus such cash amount shall equal or exceed one hundred percent (100%) of the fair market value of such Stock on the date the Option is granted. 6.3 OPTION TERM. The "Term" of each Option granted under this Plan, including any ISOs, shall be for a period of years from the date of its grant set forth in the Option Document, but in no event shall the Term of an Option extend beyond ten (10) years from the date of grant (five (5) years in the case of an ISO granted to a Ten-Percent Stockholder). 6.4 OPTION VESTING. Subject to Section 9 hereof, Options granted under this Plan shall be exercisable at such time and in such installments during the period prior to the expiration of the Option's Term as determined by the Committee. The Committee shall have the right to make the timing of the ability to exercise any Option granted under this Plan subject to such performance requirements as deemed appropriate by the Committee. At any time after the grant of an Option the Committee may reduce or eliminate any restrictions surrounding any Participant's right to exercise all or part of the Option. 6.5 TERMINATION OF EMPLOYMENT OR SERVICE. Unless otherwise provided in an Option Document, an Option shall terminate upon or following an Optionee's termination of employment with the Company and its Subsidiaries, service as a Nonemployee Affiliate Director, and service as a Nonemployee Director of the Company and its Subsidiaries as follows: (a) In the event an Optionee's employment as an employee, if any, and service as a Nonemployee Director or Nonemployee Affiliate Director, if any, terminate for any reason other than death, Disability, Cause or Retirement (as such terms are hereinafter defined), then the Optionee may at any time within three (3) months after his or her termination of employment exercise an Option to the extent, and only to the extent, the Option or portion thereof was exercisable at the date of such termination. (b) In the event the Optionee's employment as an employee, if any, and service as a Nonemployee Director or Nonemployee Affiliate Director, if any, terminate as a result of Disability, then the Optionee may at any time within one (1) year after such termination exercise such Option to the extent, and only to the extent, the Option or portion thereof was exercisable on the date of termination. (c) In the event an Optionee's employment as an employee, if any, and service as a Nonemployee Director or Nonemployee Affiliate Director, if any, terminate for Cause, the Option shall terminate immediately and no rights thereunder may be exercised. (d) In the event an Optionee dies while a Nonemployee Director or Nonemployee Affiliate Director or an employee of the Company or any Subsidiary or within three (3) months after termination as described in clause (a) above of this Section 6.5 or within one (1) year after termination as a result of Disability as described in clause (b) above of this Section 6.5 or Retirement as described in clause (e) below of this Section 6.5, then the Option may be exercised at any time within one (1) year after the Optionee's death by the person or persons to whom the Optionee's rights pass by transfer or designation, as the case may be, pursuant to Section 7 of the Plan, or, absent such a transfer or designation, as the case may be, by the person or persons to whom such rights under the Option shall pass by will or the laws of descent and distribution; provided however, that an Option may be exercised to the extent, and only to the extent, that the Option or portion thereof was exercisable on the date of death or earlier termination. (e) In the event an Optionee's employment terminates as a result of Retirement, and he or she does not thereafter serve as a Nonemployee Director or Nonemployee Affiliate Director, then the Optionee may at any time within one (1) year after termination of service by reason of Retirement, exercise such Options to the extent, and only to the extent, the Options or portion thereof was exercisable at the date of such termination. For purposes of this Section 6.5, the terms Cause, Disability, and Retirement shall have the following meanings: "Cause" means (1) any act of (A) fraud or intentional misrepresentation, or (B) embezzlement, misappropriation or conversion of assets or opportunities of the Company or any direct or indirect Subsidiary or affiliate of the Company, or (2) willful violation of any law, rule or regulation in connection with the performance of an Optionee's duties (other than traffic violations or similar offenses), or (3) with respect to any officer of the Company or any direct or indirect Subsidiary or affiliate of the Company, commission of any act of moral turpitude or conviction of a felony. "Disability" means a physical or mental infirmity which impairs the Optionee's ability to perform substantially his or her duties for a period of one hundred eighty (180) consecutive days. "Retirement" shall mean the attainment of "Early Retirement Age" or "Normal Retirement Age" as these terms are defined in the Countrywide Credit Industries, Inc. Defined Benefit Pension Plan. Notwithstanding the foregoing, (1) in no event may any Option be exercised by anyone after the expiration of the term of the Option and (2) a termination of service as a Nonemployee Director shall not be deemed to occur so long as the director continues to serve the Company as a director emeritus. In the event of the death of any Optionee under this Plan, the term "Optionee" shall thereafter be deemed to refer to the transferees under Section 7.1 hereof or the beneficiary or beneficiaries designated pursuant to Section 7.2 hereof, or, if no such transfer or designation is in effect, the person to whom the Optionee's rights pass by will or applicable law, or, if no such person has such right, then the executor or administrator of the estate of such Optionee. 6.6 PAYMENT OF EXERCISE PRICE. The exercise price of an Option shall be paid in the form of one or more of the following, as the Committee shall specify, either through the terms of the Option Document or at the time of exercise of an Option: (a) personal, certified or cashiers' check, (b) shares of capital stock of the Company that have been held by the Participant for such period of time as the Committee may specify, (c) other property deemed acceptable by the Committee, or (d) any combination of (a) through (c). Any Shares transferred to the Company as payment of the purchase price under an Option shall be valued at their Fair Market Value on the day preceding the date of exercise of such Option. If requested by the Committee, the Optionee shall deliver the Option Document to the Secretary of the Company who shall endorse thereon a notation of such exercise and return such Option Document to the Optionee. No fractional Shares (or cash in lieu thereof) shall be issued upon exercise of an Option and the number of Shares that may be purchased upon exercise shall be rounded to the nearest number of whole Shares. 6.7 REPRICING. Without the approval of stockholders, the Company shall not reprice any Options. For purposes of this Plan, the term "reprice" shall mean lowering the exercise price of previously awarded Options within the meaning of Item 402(i) under Securities and Exchange Commission Regulation S-K (including canceling previously awarded Options and regranting them with a lower exercise price). 6.8 RIGHTS OF OPTIONEE. No Optionee shall be deemed for any purpose to be the owner of any Shares subject to any Option unless and until (1) the Option shall have been exercised pursuant to the terms thereof, (2) the Company shall have issued and delivered the Shares to the Optionee and (3) the Optionee's name shall have been entered as a stockholder of record on the books of the Company. Thereupon, the Optionee shall have full voting, dividend and other ownership rights with respect to such Shares. SECTION 7. OTHER PROVISIONS APPLICABLE TO OPTIONS 7.1 TRANSFERABILITY. Unless the Option Document (or an amendment thereto authorized by the Committee) expressly states that the Option is transferable as provided hereunder, no Option granted under this Plan, nor any interest in such Option, may be sold, assigned, conveyed, gifted, pledged, hypothecated or otherwise transferred in any manner prior to the vesting or lapse of any and all restrictions applicable thereto, other than pursuant to the beneficiary designation form described in Section 7.2 hereof or by will or the laws of descent and distribution or pursuant to a qualified domestic relations order, as defined in the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended. With respect to an Option that is not intended to qualify as an ISO, the Committee may grant such Option or amend such an outstanding Option to provide that the Option is transferable or assignable (i) to a member or members of the Participant's "immediate family," as such term is defined in Rule 16a-1(e) under the Exchange Act, (ii) to a trust for the benefit solely of a member or members of the Participant's immediate family, (iii) to a partnership or other entity whose only owners are members of the Participant's immediate family, provided the instrument of transfer is approved by the Company's Administrative Committee of Employee Benefits, Options so transferred are not again transferable other than by will or by the laws of descent and distribution, and that following any such transfer or assignment the Option will remain subject to substantially the same terms applicable to the Option while held by the Participant, as modified as the Committee shall determine appropriate, and the transferee shall execute an agreement agreeing to be bound by such terms. 7.2 DESIGNATION OF BENEFICIARIES. An Optionee hereunder may file with the Company a written designation of a beneficiary or beneficiaries under this Plan and may from time to time revoke or amend any such designation ("Beneficiary Designation"). Any designation of beneficiary under this Plan shall be controlling over any other disposition, testamentary or otherwise; provided, however that if the Committee is in doubt as to the entitlement of any such beneficiary to any Option, the Committee may determine to recognize only the legal representative of the Optionee in which case the Company, the Committee and the members thereof shall not be under any further liability to anyone. 7.3 DIVIDENDS. Unless otherwise provided by the Committee, no adjustment shall be made in Shares issuable under Options on account of cash dividends that may be paid or other rights that may be issued to the holders of Shares prior to their issuance under any Option. No dividends or dividend equivalent amounts shall be paid to any Participant with respect to the Shares subject to any Option under the Plan. 7.4 DOCUMENTS EVIDENCING OPTIONS. The Committee shall, subject to applicable law, determine the date an Option is deemed to be granted, which for purposes of this Plan shall not be affected by the fact that an Option is contingent on subsequent stockholder approval of this Plan. The Committee or, except to the extent prohibited under applicable law, its delegate(s) may establish the terms of agreements or other documents evidencing Options under this Plan and may, but need not, require as a condition to any such agreement's or document's effectiveness that such agreement or document be executed by the Participant and that such Participant agree to such further terms and conditions as specified in such agreement or document. The grant of an Option under this Plan shall not confer any rights upon the Participant holding such Option other than such terms, and subject to such conditions, as are specified in this Plan as being applicable to such type of Option (or to all Options) or as are expressly set forth in the agreement or other document evidencing such Option. 7.5 FINANCING. The Committee may in its discretion, and to the extent permitted by applicable law, provide financing to a Participant in a principal amount sufficient to pay the purchase price of any Option and/or to pay the amount of taxes required by law to be withheld with respect to any Option. Any such loan shall be subject to all applicable legal requirements and restrictions pertinent thereto, including Regulation G promulgated by the Federal Reserve Board. The grant of an Option shall in no way obligate the Company or the Committee to provide any financing whatsoever in connection therewith. 7.6 ISO LIMITS. The aggregate Fair Market Value (determined as of the date of grant) of Shares underlying an Option intended to qualify as an ISO, with respect to which the ISO is exercisable for the first time by the Optionee during any calendar year (under this Plan and all other stock option plans of the Company and its parent and subsidiary corporations) shall not exceed $100,000. SECTION 7A. RESTRICTED STOCK 7A.1 GRANT. The Committee may grant Restricted Stock to Eligible Persons which shall be evidenced by an Award Document between the Company and the person to whom Restricted Stock has been granted (the "Award Holder"). Each Award Document shall contain such restrictions, terms and conditions as the Committee may, in its discretion, determine and (without limiting the generality of the foregoing) such Award Documents may provide for the deferred delivery of the Shares beyond the date on which such Awards are no longer subject to a risk of forfeiture and may require that an appropriate legend be placed on Share certificates. Unless otherwise provided in an Award Document, Awards whose restrictions have not lapsed shall be forfeited upon the Award Holder's termination of employment with the Company and its Subsidiaries, service as a Nonemployee Affiliate Director, and service as a Nonemployee director of the Company and its Subsidiaries. Awards granted under this Section 7A.1 shall be subject to the terms and provisions set forth below in this Section 7A. 7A.2 RIGHTS OF AWARD HOLDER. Subject to the applicability of any effective deferral election, shares of Restricted Stock granted hereunder shall be issued in the name of the Award Holder as soon as reasonably practicable after the grant is made provided that the Award Holder has executed an Award Document evidencing the grant and, in the discretion of the Committee, any other documents which the Committee may require as a condition to the issuance of such Shares. If an Award Holder shall fail to execute the Award Document evidencing an Award, or any documents which the Committee may require within the time period prescribed by the Committee at the time the Award is granted, the Award shall be null and void. At the discretion of the Committee, Shares issued in connection with an Award shall be deposited with an escrow agent (which may be the Company) designated by the Committee. Unless the Committee determines otherwise and as set forth in the Award Document, upon delivery of the Shares to the escrow agent, the Award Holder shall have all of the rights of a stockholder with respect to such Shares, including the right to vote the Shares and to receive all dividends or other distributions paid or made with respect to the Shares. 7A.3 NON-TRANSFERABILITY. Until all restrictions (including without limitation any applicable deferral elections) upon the Shares of Restricted Stock awarded to an Award Holder shall have lapsed in the manner set forth in Section 7A.4, such Shares shall not be sold, transferred or otherwise disposed of and shall not be pledged or otherwise hypothecated. 7A.4 LAPSE OF RESTRICTIONS. Subject to Section 9 hereof, restrictions upon Shares of Restricted Stock awarded hereunder shall lapse over a period of at least three years or at such other time or times and on such other terms and conditions as the Committee may determine. The Award Document evidencing the Award shall set forth any such restrictions. 7A.5 TREATMENT OF DIVIDENDS. At the time an Award of Shares of Restricted Stock is granted, the Committee may, in its discretion, determine that the payment to the Award Holder of dividends, or dividend equivalents with respect to Unit Awards (defined below), or a specified portion thereof, declared or paid on such Shares by the Company shall be (a) deferred until the lapsing of the restrictions imposed upon such Shares and (b) held by the Company for the account of the Award Holder until such time. In the event that dividends, or dividend equivalents, are to be deferred, the Committee shall determine whether such dividends are to be reinvested in Shares (which shall be held as additional Shares of Restricted Stock, Restricted Stock Units or Stock Units) or held in cash. If deferred dividends are to be held in cash, there may be credited at the end of each year (or portion thereof) interest on the account at the beginning of the year at a rate per annum as the Committee, in its discretion, may determine. Subject to the applicability of any effective deferral election, payment of deferred dividends in respect of Shares of Restricted Stock (whether held in cash or as additional Shares of Restricted Stock), together with interest accrued thereon, if any, shall be made upon the lapsing of restrictions imposed on the Shares in respect of which the deferred dividends were paid, and any dividends deferred (together with any interest accrued thereon) in respect of any Shares of Restricted Stock shall be forfeited upon the forfeiture of such Shares. 7A.6 DELIVERY OF SHARES. Subject to the applicability of any effective deferral election, upon the lapse of the restrictions on Shares of Restricted Stock, the Committee shall cause a stock certificate to be delivered to the Award Holder with respect to such Shares, free of all restrictions hereunder. 7A.7 RESTRICTED STOCK UNITS AND STOCK UNITS. A Restricted Stock Unit Award means the grant of a right to receive Shares in the future, with such right to future delivery of such Shares subject to a risk of forfeiture or other restrictions that will lapse upon the achievement of goals relating to the completion of service or other objectives, as determined by the Committee. A Stock Unit is the right to receive Shares in the future which are no longer subject to the risk of forfeiture, but are not yet deliverable to the Participant With the prior approval of the Committee, a Participant may elect to receive Restricted Stock Units in lieu of receiving Restricted Stock Awards or Stock Units in lieu of certain approved cash remunerations (generally "Unit Awards"). SECTION 8. CHANGES IN CAPITAL STRUCTURE 8.1 CORPORATE ACTIONS UNIMPAIRED. The existence of outstanding Awards shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations, other changes in the Company's capital structure or its business, or any merger or consolidation of the Company, or any issuance of common stock or other securities or subscription rights thereto, or any issuance of bonds, debentures, preferred or prior preference stock ahead of or affecting the common stock or the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. Further, except as herein expressly provided, (i) the issuance by the Company of shares of stock of any class of securities convertible into shares of stock of any class, for cash, property, labor or services, upon direct sale, upon the exercise of rights or warrants to subscribe therefore, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, (ii) the payment of a dividend in property other than common stock, or (iii) the occurrence of any similar transaction, and in any case whether or not for fair value, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number of shares of Restricted Stock, or common stock subject to Options theretofore granted or the purchase price per share, unless the Committee shall determine in its sole discretion that an adjustment is necessary to provide equitable treatment to Participant. 8.2 ADJUSTMENTS UPON CERTAIN EVENTS. If the outstanding shares of common stock or other securities of the Company, or both, for which the restrictions upon Restricted Stock have lapsed or for which an Option is then exercisable or as to which an Option is to be settled shall at any time be changed or exchanged by declaration of a stock dividend, stock split or reverse stock split, combination of shares, recapitalization, or reorganization, the Committee shall appropriately and equitably adjust the number and kind of shares of common stock or other securities which are subject to the Plan or subject to any Awards theretofore granted, including the exercise or settlement prices of Options, so as to maintain the proportionate number of shares or other securities without changing the aggregate exercise or settlement price; provided, however, that such adjustment shall be made only to the extent that such adjustment will not affect the status of an Option intended to qualify as an ISO or as "performance based compensation" under Code Section 162(m). If the Company recapitalizes or otherwise changes its capital structure, or merges, consolidates, sells all of its assets or dissolves (each of the foregoing a "Fundamental Change"), then thereafter upon the lapse of any restrictions upon Restricted Stock or any exercise of Options theretofore granted, the Participant shall be entitled, in the case of Restricted Stock, to the number of shares or, in the case of Options, to purchase under such Options, in lieu of the number of shares of common stock as to which such Options shall then be exercisable, the number and class of shares of stock, securities, cash, property or other consideration to which the Participant would have been entitled pursuant to the terms of the Fundamental Change if, immediately prior to such Fundamental Change, the Participant had been the holder of record of the number of shares of Restricted Stock or, as applicable, common stock as to which Options is then exercisable. SECTION 9. CHANGE OF CONTROL 9.1 CREATED BY CRYSTAL E. WRIGHT DEFINITIONS. The term "Corporate Change" shall mean the occurrence of any one of the following events: (a) An acquisition (other than directly from the Company) of any common stock or other "Voting Securities" (as hereinafter defined) of the Company by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Exchange Act), immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty five percent (25%) or more of the then outstanding shares of the Company's common stock or the combined voting power of the Company's then outstanding Voting Securities; provided, however, in determining whether a Corporate Change has occurred, Voting Securities which are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not constitute an acquisition which would cause a Corporate Change. For purposes of this Plan, (A) "Voting Securities" shall mean the Company's outstanding voting securities entitled to vote generally in the election of directors and (B) a "Non-Control Acquisition" shall mean an acquisition by (i) an employee benefit plan (or a trust forming a part thereof) maintained by (x) the Company or (y) any corporation or other Person of which a majority of its voting power or its voting equity securities or equity interest is owned, directly or indirectly, by the Company (for purposes of this definition, a "Subsidiary"), (ii) the Company or any of its Subsidiaries, or (iii) any Person in connection with a "Non-Control Transaction" (as hereinafter defined); (b) During any period of twenty four (24) consecutive months, individuals who at the beginning of such period constitute the Board (the "Incumbent Board") cease for any reason to constitute at least two-thirds of the members of the Board; provided, however, that if the election, or nomination for election by the Company's common stockholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Agreement, be considered as a member of the Incumbent Board; provided, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or (c) The consummation of: (i) A merger, consolidation or reorganization involving the Company, unless such merger, consolidation or reorganization is a "Non-Control Transaction." A "Non-Control Transaction" shall mean a merger, consolidation or reorganization of the Company where: (A) the stockholders of the Company, immediately before such merger, consolidation or reorganization, own directly or indirectly immediately following such merger, consolidation or reorganization, at least seventy percent (70%) of the combined voting power of the outstanding Voting Securities of the corporation resulting from such merger, consolidation or reorganization (the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation or reorganization; (B) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute at least two-thirds of the members of the board of directors of the Surviving Corporation, or in the event that, immediately following the consummation of such transaction, a corporation beneficially owns, directly or indirectly, a majority of the Voting Securities of the Surviving Corporation, the board of directors of such corporation; and (C) no Person other than (w) the Company, (x) any Subsidiary, (y) any employee benefit plan (or any trust forming a part thereof) maintained by the Company, the Surviving Corporation, or any Subsidiary, or (z) any Person who, immediately prior to such merger, consolidation or reorganization had Beneficial Ownership of twenty five percent (25%) or more of the then outstanding Voting Securities or common stock of the Company, has Beneficial Ownership of twenty five percent (25%) or more of the combined voting power of the Surviving Corporation's then outstanding Voting Securities or its common stock; (ii) A complete liquidation or dissolution of the Company; or (iii) The sale or other disposition of all or substantially all of the assets of the Company to any Person (other than a transfer to a Subsidiary). Notwithstanding the foregoing, a Corporate Change shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the then outstanding common stock or Voting Securities as a result of the acquisition of common stock or Voting Securities by the Company which, by reducing the number of shares of common stock or Voting Securities then outstanding, increases the proportional number of shares Beneficially Owned by the Subject Persons; provided, however, that if a Corporate Change would occur (but for the operation of this sentence) as a result of the acquisition of common stock or Voting Securities by the Company, and after such share acquisition by the Company, the Subject Person becomes the Beneficial Owner of any additional common stock or Voting Securities which increases the percentage of the then outstanding common stock or Voting Securities Beneficially Owned by the Subject Person, then a Corporate Change shall occur. 9.2 EFFECT OF CORPORATE CHANGE. Notwithstanding anything contained in the Plan or an Option Document to the contrary, in the event of a Corporate Change: (d) (1) all Options outstanding on the date of such Corporate Change shall become immediately and fully exercisable and (2) an Optionee shall be permitted to surrender for cancellation within sixty (60) days after such Corporate Change, any Option or portion of an Option to the extent not yet exercised and the Optionee will be entitled to receive a cash payment in an amount equal to the excess, if any of (x) (A) in the case of an Option not intended to qualify as an ISO, the greater of (i) the Fair Market Value, on the date preceding the date of surrender of the Shares subject to the Option or portion thereof surrendered, or (ii) the Adjusted Fair Market Value of the Shares subject to the Option or portion thereof surrendered or (B) in the case of an ISO, the Fair Market Value, on the date preceding the date of surrender, of the Shares subject to the Option or portion thereof surrendered, over (y) the aggregate purchase price for such Shares under the Option or portion thereof surrendered; provided however, that in the case of an Option granted within six (6) months prior to the Corporate Change to any Optionee who may be subject to liability under Section 16(b) of the Exchange Act, such Optionee shall be entitled to surrender for cancellation his or her Option during the sixty (60) day period commencing upon the expiration of six (6) months from the date of grant of any such Option. For purposes of this Section 9.2, the "Adjusted Fair Market Value" means the greater of (1) the highest price per Share paid to holders of the Shares in any transaction (or series of transactions) constituting or resulting in a Corporate Change or (2) the highest Fair Market Value of a Share during the ninety (90) day period ending on the date of the Corporate Change. (e) Unless the Committee shall determine otherwise at the time of the grant of an Award, the restrictions upon Shares of Restricted Stock shall lapse upon a Corporate Change. The Award Document evidencing the Award shall set forth any such provision. SECTION 10. TAXES 10.1 WITHHOLDING TAXES. The Company shall have the right to deduct from any distribution of cash to any Optionee, an amount equal to the federal, state and local income taxes and other amounts as my be required by law to be withheld (the "Withholding Taxes") with respect to any Option. If an Optionee is entitled to receive Shares upon exercise of an Option, the Optionee shall pay the Withholding Taxes to the Company prior to the issuance, or release from escrow, of such Shares. If an Optionee makes a disposition, within the meaning of Code Section 424(c), of any Share or Shares issued pursuant to the exercise of an incentive stock option within the two-year period commencing on the day after the date of the grant or within a one-year period commencing on the day after the date of transfer of such Share or Shares to the Optionee pursuant to such exercise, the Optionee shall within ten (10) days of such disposition, notify the Company thereof, by delivery of written notice to the Company at its principal executive office, and immediately deliver to the Company the amount of Withholding Taxes. At such time as an Award Holder who is an employee recognizes taxable income in connection with the receipt of Shares hereunder (a "Taxable Event"), the Award Holder shall pay to the Company an amount equal to the federal, state and local income taxes and other amounts as may be required by law to be withheld by the Company in connection with the Taxable Event prior to the issuance, or release from escrow, of such Shares. 10.2 PAYMENT OF WITHHOLDING TAXES. Notwithstanding the terms of Section 10.1, the Committee may provide in an Award Document or otherwise that all or any portion of the taxes required to be withheld by the Company or, if permitted by the Committee, desired to be paid by the Participant, in connection with the exercise of a Nonqualified Option or lapse of restrictions on Restricted Stock, but in no event to exceed the supplemental tax rate for withholding tax purposes, at the election of the Participant, may be paid by the Company by withholding shares of the Company's capital stock otherwise issuable or subject to an Option, or by the Participant delivering previously owned shares of the Company's capital stock, in each case having a Fair Market Value equal to the amount required or elected to be withheld or paid. Any such election is subject to such conditions or procedures as may be established by the Committee and may be subject to disapproval by the Committee. It is the Company's intent that this provision shall in any event be administered in a manner that does not result in variable accounting treatment of Option grants. SECTION 11. AMENDMENTS OR TERMINATION The Board may amend, alter or discontinue this Plan or an Award Document made under this Plan at any time, but except as provided pursuant to the anti-dilution adjustment provisions of Section 8 hereof, no such amendment shall, without the approval of the stockholders of the Company: (a) increase the maximum number of shares of common stock for which Awards may be granted under this Plan; (b) reduce the price at which Options may be granted below the price provided for in Section 6.2; (c) reduce the exercise price of outstanding Options; (d) extend the term of this Plan; (e) change the class of persons eligible to be Participants; or (f) increase the number of shares subject to Nonemployee Director Options granted to a Nonemployee Director above the number approved by stockholders pursuant to Section 6.8. Notwithstanding the foregoing provisions of this Section 11, except as provided in Sections 8 and 9 hereof, rights and obligations under any Award granted before any amendment or termination of the Plan shall not be adversely altered or impaired by such amendment or termination, except with the consent of the Award Holder, nor shall any amendment or termination deprive any Award Holder of any Shares which he or she may have acquired through or as a result the Plan. SECTION 12. COMPLIANCE WITH OTHER LAWS AND REGULATIONS This Plan, the grant and, as applicable, exercise of Awards thereunder, and the obligation of the Company to sell, issue or deliver Shares under such Awards, shall be subject to all applicable federal, state and foreign laws, rules and regulations and to such approvals by any governmental or regulatory agency as may be required. The Company shall not be required to register in a Participant's name or deliver any Shares prior to the completion of any registration or qualification of such Shares under any federal, state or foreign law or any ruling or regulation of any government body which the Committee shall determine to be necessary or advisable. No restrictions upon Restricted Stock shall lapse, and no Option shall be exercisable, unless a registration statement with respect to the Award is effective or the Company has determined that such registration is unnecessary. Unless the Awards and Shares covered by this Plan have been registered under the Securities Act of 1933, as amended, or the Company has determined that such registration is unnecessary, each person receiving an Award and/or Shares pursuant to any Award may be required by the Company to give a representation in writing that such person is acquiring such Shares for his or her own account for investment and not with a view to, or for sale in connection with, the distribution of any part thereof. The Plan and Nonemployee Director Options are intended to comply with Rule 16b-3 promulgated under the Exchange Act and the Committee shall interpret and administer the provisions of the Plan or Option Document in a manner consistent therewith. Any provisions of the Plan inconsistent therewith shall be inoperative and shall not affect the validity of the Plan. Unless otherwise expressly stated in the relevant Option Document, each Option granted under the Plan is intended to qualify as performance-based compensation within the meaning of Code Section 162(m)(4)(C). SECTION 13. OPTION GRANTS BY SUBSIDIARIES In the case of a grant of an Award to any eligible Employee employed by a Subsidiary, such grant may, if the Committee so directs, be implemented by the Company issuing any subject shares to the Subsidiary, for such lawful consideration as the Committee may determine, upon the condition or understanding that the Subsidiary will transfer the shares to the Award Holder in accordance with the terms of the Award specified by the Committee pursuant to the provisions of the Plan. Notwithstanding any other provision hereof, such Award may be issued by and in the name of the Subsidiary and shall be deemed granted on such date as the Committee shall determine. SECTION 14. NO RIGHT TO COMPANY EMPLOYMENT Nothing in this Plan or as a result of any Award granted pursuant to this Plan shall confer on any individual any right to continue in the employ of the Company or interfere in any way with the right of the Company to terminate an individual's employment at any time. The Award Documents may contain such provisions as the Committee may, in its discretion, approve with reference to the effect of approved leaves of absence. SECTION 15. LIABILITY OF COMPANY The Company and any affiliate which is in existence or hereafter comes into existence shall not be liable to a Participant, an Eligible Person or other persons as to: (a) The Non-Issuance of Shares. The non-issuance or sale of Shares as to which the Company has been unable to obtain from any regulatory body having jurisdiction the authority deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder; and (b) Tax Consequences. Any tax consequence expected, but not realized, by any Participant, Eligible Person or other person due to the receipt, exercise or settlement of any Awards granted hereunder. SECTION 16. EFFECTIVENESS AND EXPIRATION OF PLAN This Plan shall be effective on the date the Company's stockholders adopt this Plan. All Awards granted under this Plan are subject to, and Options may not be exercised before, the approval of this Plan by the stockholders prior to the first anniversary date of the effective date of this Plan, by the affirmative vote of the holders of a majority of the outstanding shares of the Company present, or represented by proxy, and entitled to vote, at a meeting of the Company's stockholders or by written consent in accordance with the laws of the State of Delaware; provided that if such approval by the stockholders of the Company is not forthcoming, all Awards previously granted under this Plan shall be void. No Awards shall be granted pursuant to this Plan more than ten (10) years after the effective date of this Plan. SECTION 17. NON-EXCLUSIVITY OF PLAN Neither the adoption of this Plan by the Board nor the submission of this Plan to the stockholders of the Company for approval shall be construed as creating any limitations on the power of the Board or the Committee to adopt such other incentive arrangements as either may deem desirable, including without limitation, the granting of Awards otherwise than under this Plan, and such arrangements may be either generally applicable or applicable only in specific cases. SECTION 18. GOVERNING LAW This Plan and any agreements or other documents hereunder shall be interpreted and construed in accordance with the laws of the State of Delaware and applicable federal law. The Committee may provide that any dispute as to any Award shall be presented and determined in such forum as the Committee may specify, including through binding arbitration. Any reference in this Plan or an Award Document to a provision of law or to a rule or regulation shall be deemed to include any successor law, rule or regulation of similar effect. IN WITNESS WHEREOF, the Company has caused this 2000 Equity Incentive Plan to be executed by its duly authorized officer this 1st day of January, 2004. Countrywide Financial Corporation By: /s/ Thomas H. Boone ------------------------------ Thomas H. Boone Senior Managing Director, Chief Administrative Officer EX-10.44 10 v96832exv10w44.txt EXHIBIT 10.44 EXHIBIT 10.44 APPENDIX I This Appendix constitutes the UK Part of the Countrywide Credit Industries, Inc 2000 Equity Incentive Plan. The Terms of the UK Part are as follows: SECTION A 1. INTERPRETATION (1) The following words and expressions have the following meanings except where the context otherwise requires:- "Acquisition Price" the price, as determined by the Committee, at which each Share subject to an Option may be acquired on the exercise of that Option which must not be less than the Fair Market Value of a Share at the Date of Grant and, if the Option relates to unissued Shares, its nominal value, if greater. The Acquisition Price may be varied under Section 10 (if there is a variation in share capital of the Company) and, if Section 12 has been applied (if there is an exchange of options following a change of control of the Company or the compulsory purchase of a minority interest), the "Acquisition Price" shall be the price for the acquisition of a share in the company whose shares are subject to Options pursuant to Section 12; "Approval" approval of Section A as a share option scheme under Schedule 4 of ITEPA; "Date of Grant" the date on which an Option is granted under Section 3; "Employment" employment as (a) an employee of the Company or a Subsidiary; or (b) a director of the Company or a Subsidiary who is required to devote substantially the whole of his working time, not being less than 25 hours per week, excluding meal breaks to the performance of his duties; "Fair Market Value" (a) where the Shares are not listed on the New York Stock Exchange an amount equal to the market value of a Share determined in accordance with Part VIII of the Taxation of Chargeable Gains Act 1992 agreed in advance of the Date of Grant for the purposes of the UK Part with the Share Valuation Division of the Inland Revenue; or (b) where the Shares are listed on the New York Stock Exchange, the average of the high and the low quotations of a Share as at the Date of Grant as derived from the official list of the New York Stock Exchange; "Group" the Company and its Subsidiaries; "ICTA 1988" Income and Corporation Taxes Act 1988; "Issue or Reorganisation" any variation in the capital of the Company arising from or in connection with a capitalisation issue (whether made pursuant to an enhanced scrip dividend arrangement or otherwise) or an offer to the holders of Shares or a subdivision, consolidation, reduction or other variation of share capital; "ITEPA" Income Tax (Earnings and Pensions) Act 2003; "Participant" any individual who has been granted an Option including, if relevant, his legal personal representatives; "Revenue Limit" Pound Sterling 30,000 or such other amount as may from time to time be the appropriate limit of the purpose of paragraph 6 of Schedule 4; "Schedule 4" Schedule 4 to ITEPA; "Share" an ordinary share in the capital of the Company which satisfies the conditions of paragraphs 16 to 20 of Schedule 4; "Subsidiary" a company which is a subsidiary of the Company within the meaning of Section 736 of the Companies Act 1985; "Vesting Date" Such date or dates specified by the Committee at the Date of Grant on which an Option (or part of an option) can first be exercised. (2) Other words or expressions, so far as not inconsistent with the context, shall have the same meaning as in Schedule 4. (3) In the event of any conflict between this Appendix and the rules of the Plan, in respect of options granted under the UK Part this Appendix shall prevail. (4) Words importing the singular shall include the plural and vice versa and words importing the masculine shall include the feminine. (5) Any reference, express or implied, to an enactment includes references to: (a) that enactment as amended, extended or applied by or under any other enactment; and (b) any enactment which that enactment re-enacts (with or without modification). 2. ELIGIBILITY (1) No person is entitled as of right to participate in the UK Part of the Plan. The Committee may extend participation from time to time to any person holding Employment and shall decide the extent of the participation. (2) No person shall be granted an Option if he is precluded from participating in the UK Part of the Plan by paragraph 9 of Schedule 4. 3. GRANT OF OPTIONS (1) The Committee may adopt any procedure for granting or procuring the grant of Options. The form for the time being of any Option certificate or other document shall be determined by the Committee subject to the approval of the Inland Revenue. (2) Options may be granted by deed at the Acquisition Price. A single deed of grant may be executed in favour of any number of persons. (3) The Date of Grant of an Option shall be the day on which the deed granting the Option is executed, or such later date as may be specified in the deed. (4) An Optionee may, with the consent of the Committee, renounce the Option, in whole or in part, within 30 days of the Date of Grant and, to the extent renounced, the Option shall be treated as if it had never been granted. (5) No Option may be granted under Section A until Approval has been obtained. (6) As soon as practicable after an Option has been granted an Option certificate shall be sent to the Participant. The deed of grant shall be retained and may be inspected by any Participant entitled under it. (7) An Option shall constitute a contract between the Company and the Participant incorporating the provisions of the Plan so far as relevant. 4. PROHIBITION ON ASSIGNMENT No Option granted under the Plan may be transferred, assigned, charged or otherwise alienated (without prejudice to any right of a person's legal personal representatives to exercise the Option following death). 5. LIMIT ON ISSUE OF NEW SHARES The total number of Shares that may be issued under the Plan, including the UK Part, shall not exceed the number set forth in the Plan. In the event of an Issue or Reorganisation, this number of Shares may be adjusted in such manner as the Committee decides. 6. LIMIT ON PARTICIPATION (1) The aggregate market value of Shares which an Optionee may acquire in pursuance of rights obtained under the Scheme or under any other share option scheme approved under Schedule 4 established by the Company or by any associated company (within the meaning of paragraph 35 of Schedule 4) of the Company (and not exercised), such aggregate market value being determined at the time the rights are obtained, shall not exceed the Revenue Limit. (2) For the avoidance of doubt, the number of Shares in any Option shall, where necessary, be limited and take effect as that number which ensures that the Revenue Limit is not exceeded. 7. EXERCISE OF OPTION (1) Subject to Section 7(3) and (4), an Option shall be capable of being exercised, unless the Option has lapsed, at any time following the earliest of: (a) the third anniversary of the Date of Grant or such other Vesting Dates as specified by Committee; (b) the Optionee ceasing to be in Employment by reason of disability, redundancy (within the meaning of the Employment Rights Act 1996) or retirement at any other age at which the Optionee is bound to retire in accordance with the terms of his contract of employment; (c) the Optionee ceasing to be in Employment by reason of the Subsidiary by which he is employed ceasing to be within the Group or by reason of the transfer or sale of the undertaking or part of the undertaking in which he is employed to a person who is not within the Group; (d) the occurrence of the circumstances permitting the exercise of Options specified in Section 12. (2) An Option shall, unless the Option has lapsed, be capable of being exercised following the Optionee's death. (3) An Option may not be exercised by an Optionee at any time when he is ineligible to participate in the Scheme by virtue of paragraph 9 of Schedule 4. (4) An Optionee shall not be treated for the purposes of Sections 7, 8, or 9 as ceasing to be in Employment until such time as he is no longer a director or employee of any company within the Group and a female Participant who ceases Employment by reason of pregnancy or confinement and who is entitled to exercise and subsequently exercises her statutory right (or any corresponding contractual right) to return to work before exercising an Option shall be treated for those purposes as not ceasing to be in Employment. 8. LAPSE OF OPTION Unless provided otherwise elsewhere in the Sections, an Option shall lapse to the extent that it has not been exercised (whether or not it became exercisable) by the earliest of: (a) the tenth anniversary of the Date of Grant; (b) the expiry of twelve months from the date on which the Optionee ceases to he in Employment by reason of death, disability, redundancy (within the meaning of the Employment Rights Act 1996) or retirement at any other age of which the Optionee is bound to retire in accordance with the terms of his contract of employment; (c) the expiry of six months from the date on which the Optionee ceases to be in Employment by reason of the Subsidiary by which he is employed ceasing to be within the Group or the transfer or sale of the undertaking or part of the undertaking in which he is employed to a person who is not within the Group; (d) the date on which the Optionee ceases to be in Employment by reason of Cause; (e) the expiry of three months from the date on which the Optionee ceases to be in Employment in any circumstances other than those referred to in sub-paragraphs (b), (c) and (d) of this paragraph; (f) the date on which an Optionee enters into a composition with his creditors in satisfaction of his debts or a bankruptcy order is made against him. 9. CESSATION OF EMPLOYMENT - SPECIAL CIRCUMSTANCES If an Option would lapse at the end of any period specified in Section 8 following the cessation of the Participant's Employment the Committee may, at least three months prior to the end of that period, defer the lapse of his Option until the end of such longer period as it may determine, provided that Options shall not be exercisable after the tenth anniversary of the Date of Grant. 10. MANNER OF EXERCISE AND ISSUE OR TRANSFER OF SHARES (1) An Option may be exercised by the Participant giving notice of exercise in a form approved by the Committee to the Company accompanied by the relevant option certificate and payment of the total Acquisition Price of the Shares in respect of which the Option is exercised (or an agreement to provide such monies pursuant to arrangements acceptable to the Company). (2) An Option may be exercised in whole or in part and, in the event of an Option being exercised in part the Committee may call in or cancel any outstanding option certificate and furnish the Participant with details of the date on which the Option was last exercised and the number of Shares outstanding under the Option. The Committee may determine at the Date of Grant that the Option may only be exercised in respect of a reasonable minimum number of Shares and/or in respect of a multiple of any round number of Shares, or in respect of the balance of Shares outstanding in the Option. (3) Shares in respect of which the Option has been exercised shall be allotted or transferred within 30 days of the date of exercise. (4) Shares issued under the Plan will rank pari passu in all respects with issued Shares of the same class. However, they will not be entitled to any rights attaching to Shares by reference to a record date prior to the date of allotment of Shares pursuant to the exercise of the Option prior to the date of exercise of the Option. (5) Each Option granted under this Appendix is subject to the condition that an exercise of the Option shall not be valid unless the Participant has, in addition to complying with the other requirements of this Appendix, paid to the member of the Group which is (or, in the case of an Optionee no longer employed by the Group, was) his employer, or otherwise provided for (in a manner satisfactory to that member of the Group), an amount equal to the income tax and/or primary Class 1 National Insurance Contributions, if appropriate (or local equivalent in jurisdictions other than the United Kingdom) which any member of the Group may be required to pay by reason of that exercise and any secondary Class 1 National Insurance Contributions that the Participant has agreed to pay. (6) Without limitation to (1) above, the Company or any member of the Group which is an Optionee's employer may withhold any amount and make such arrangements as it considers necessary to meet any liability of the Optionee to taxation or social security contributions in respect of the grant, exercise or cancellation of options (or otherwise from benefits delivered under this Scheme). These arrangements may include the sale of any shares on behalf of an Optionee, unless the Optionee discharges the liability himself. 11. ISSUE OR REORGANISATION (1) In the event of any Issue or Reorganisation: (a) the number of Shares comprised in an Option; and/or (b) the Acquisition Price under an Option may be adjusted in such manner as the Committee decides, with the prior approval of the Inland Revenue. (2) If an Option relates to unissued Shares an adjustment under paragraph (1) above may reduce or further reduce the Acquisition Price below the nominal value of a Share if: (a) a part of the reserves of the Company equal to the difference between the adjusted Acquisition Price and the nominal value of the Shares concerned ("Relevant Amount") is capitalised when the Option is exercised so as to pay up the Relevant Amount; and (b) the Company has sufficient reserves available. (3) The Committee may notify Participants of any adjustments made under this Section 11 and may call in, cancel, endorse, issue or reissue any option certificate or deed of grant following an adjustment. 12. TAKEOVER, RECONSTRUCTION AND VOLUNTARY WINDING-UP OF THE COMPANY (1) Upon the occurrence of a Corporate Change an Optionee may, subject to the provisions of Section 8, be entitled to exercise his Option. (2) For the purposes of Options granted under this Part, the word "merger" in the Plan shall mean a transaction whereby any company: (a) obtains Control (as defined for the purposes of this Section 12 in Section 840 of ICTA) of the Company as a result of making: (i) a general offer to acquire the whole of the issued share capital of the Company which is made on a condition such that if it is satisfied the person making the offer will have Control of the Company; or (ii) a general offer to acquire all the shares in the Company which are of the same class as the Plan shares; or (b) obtains Control of the Company in pursuance of a compromise or arrangement under local law similar to Section 425 of the Companies Act 1985 (schemes of arrangement); or (c) becomes bound or entitled to acquire Shares under local law similar to Sections 428 to 430F of the Companies Act 1985 (compulsory purchase of minority interests). but, for the avoidance of doubt, any merger that is a "Non-Control Transaction" in the terms of the Plan does not give rise to a right to exercise an Option. 13. AMENDMENT TO PLAN SECTIONS AND ADDITIONAL SECTIONS (1) Subject to paragraph (3) and (4) below the Committee may by resolution at any time amend this Part in any respect except that any amendment made when the Scheme is approved under Schedule 4 shall not have effect until approved by the Inland Revenue. (2) No amendment shall be made under paragraph (1) which would abrogate or materially affect adversely the subsisting rights of an Optionee unless it is made with his written consent or by a resolution passed as if the Options constituted a separate class of share capital and the provisions of the By-laws of the Company. (3) No amendment to the advantage of Optionees (except for an amendment which could be included in an additional section adopted under paragraph (2) above) may be made to: (a) the persons to whom Options may be granted under the Plan; (b) the limitations on the number of Shares which may be issued under the Plan; (c) the determination of the Acquisition Price; (d) the rights of Optionees in the event of an Issue or Reorganisation; (e) the terms of this paragraph 13(3); without the prior approval by ordinary resolution of the Company in general meeting except in the case of a minor amendment to benefit the administration of this Plan, to take account of a change in legislation or to obtain or maintain favourable tax, exchange control or regulatory treatment for participants in the Plan, the Company, or any subsidiary. 14. DISAPPLICATION OF PLAN RULES The following sections of the Plan shall not apply to the UK Part: (a) section 6.4; (b) section 6.6; (c) section 6.7; (d) section 8.2; and (e) section 9.2. SECTION B 1. Subject as specified below, this Section shall incorporate all the provisions of Section A set out above. 2. This Section shall not be approved by the Inland Revenue under Schedule 4 to ITEPA 2003. Accordingly, the definitions of "Approval", "Revenue Limit" and "Schedule 4" shall not apply and references in Section A to these definitions and, in particular, Rule 7(1) shall have no effect, and any provision which would otherwise require Inland Revenue approval to be obtained or which is otherwise referable solely to Inland Revenue requirements shall not apply. 3. Notwithstanding any provision of Section A, an Option granted under Section B shall lapse to the extent that it has not been exercised (whether or not it became exercisable) or cancelled on the expiry of ten years following the Date of Grant. 4. The Committee shall designate whether an Option is granted under Section A or B. 5. The Committee may determine that any Option granted under Section B shall be subject to additional and/or modified terms and conditions, having regard to any securities, exchange control or taxation laws, regulations or practice which may have application to the Optionee, Company or any Subsidiary. In particular the Committee may: (1) require an Optionee to make such declarations and take such other action (if any) as may be required under, or as may be expedient or desirable for any purpose of, securities, tax or other law; and (2) adopt supplemental rules governing the granting of Options to, and the exercise of Options by, an Optionee as may be required under, or as may be expedient or desirable for any purpose of, local securities, tax or other law, but any modification and/or the adoption of supplemental rules shall be subject to Rule (13(2)) of Section A. 6. (1) Each Option granted under this Section B is subject to the condition that an exercise of the Option shall not be valid unless the Participant has, in addition to complying with the other requirements of this Section B, paid to the member of the Group which is (or, in the case of an Optionee no longer employed by the Group, was) his employer, or otherwise provided for (in a manner satisfactory to that member of the Group), an amount equal to the income tax and/or primary Class 1 National Insurance Contributions, if appropriate (or local equivalent in jurisdictions other than the United Kingdom) which any member of the Group may be required to pay by reason of that exercise. (2) Without limitation to (1) above, the Company, any member of the Group which is an Optionee's employer may withhold any amount and make such arrangements as it considers necessary to meet any liability of the Optionee to taxation or social security contributions in respect of the grant, exercise or cancellation of options (or otherwise from benefits delivered under this Scheme). These arrangements may include the sale of any shares on behalf of an Optionee, unless the Optionee discharges the liability himself. (3) The grant of the option constitutes the agreement of the Optionee: (i) to allow the employer to recover (whether by deduction or otherwise) the whole of any secondary class I national insurance contributions payable in respect of a gain that is treated as remuneration derived from the Participant's employment by virtue of section 4(4)(a) of the Social Security and Benefits Act 1992, such agreement being an agreement for the purpose of paragraph 3A(2) of Schedule 1 to that Act; and (ii) to make and join in the making at any time if the Company so requests, of an election under paragraph 3B(1) of Schedule 1 to that Act, and the grant of the option irrevocably constitutes the Company as the attorney of the Participant, by way of security, for its purposes of the Powers of Attorney Act 1971 for the purpose of making and joining in any such election. EX-10.55 11 v96832exv10w55.txt EXHIBIT 10.55 EXHIBIT 10.55 SECOND AMENDMENT TO THE COUNTRYWIDE FINANCIAL CORPORATION ANNUAL INCENTIVE PLAN WHEREAS, Countrywide Financial Corporation (the "Company") desires to amend the Countrywide Financial Corporation Annual Incentive Plan (the "Plan") to modify the amount of maximum Award that a Participant can receive for any Plan Year; NOW, THEREFORE, the Plan is amended to read as follows February 11, 2003 1. Section 4.3, MAXIMUM AWARDS, is hereby amended by deleting Section 4.3 in its entirety and inserting in its place new Section 4.3 as follows: "4.3 MAXIMUM AWARDS. The maximum Award payable to a Participant for any plan year is eight million dollars ($8,000,000). IN WITNESS WHEREOF, the Company has caused this Second Amendment to be executed by its duly authorized officer as of this 24th day of June, 2003. Countrywide Financial Corporation By: /s/ Thomas H. Boone ------------------------------ Thomas H. Boone Attest: Managing Director, Chief Administrative Officer /s/ Gerard A. Healy - ------------------------------ Gerard A. Healy Assistant Secretary EX-10.58 12 v96832exv10w58.txt EXHIBIT 10.58 EXHIBIT 10.58 AMENDMENT ONE TO COUNTRYWIDE FINANCIAL CORPORATION CHANGE IN CONTROL SEVERANCE PLAN (AS AMENDED AND RESTATED SEPTEMBER 11, 2000) WHEREAS, Countrywide Financial Corporation (the "Company") desires to amend the Countrywide Financial Corporation Change in Control Severance Plan (as amended and restated September 11, 2000) (the "Plan") to add the title of Senior Managing Director as an Eligible Employee Classification under the Plan. NOW THEREFORE, APPENDIX A of the Plan is hereby deleted in its entirety and a new APPENDIX A is inserted in its place. IN WITNESS WHEREOF, the Company has caused this Amendment One to be executed this 3rd day of December, 2003. Countrywide Financial Corporation By: /s/ Tom Boone ------------------------------ Tom Boone Senior Managing Director, Chief Administrative Officer Attest: /s/ Gerard A. Healy ------------------------------ Gerard A. Healy Assistant Secretary - 1 - APPENDIX A Eligible Employee Classifications Members A Senior Managing Directors and Managing Directors B Executive Vice Presidents, Senior Vice Presidents, Presidents C First Vice Presidents, Vice Presidents, Regional Vice Presidents D Branch Managers and all other Exempt Employees E All Non-Exempt Employees Salary Separation Payment The Salary Separation Payment to which a Participant is entitled shall be based on the Participant's employee classification as of the date immediately preceding the date of the Participant's Qualifying Termination or, if greater, as of the date on which the Change in Control occurs, and shall equal the amount described in the table below; provided, however, that the Salary Separation Payment for each Participant shall not exceed twenty-four months Base Pay plus Bonus for Employee Classification B and twelve (12) months Base Pay plus Bonus for Employee Classification C, D and E. The Salary Separation Payment (without regard to any payments described in Section 7.2) for Employee Classification A shall not exceed the sum of (I) thirty (30) months Base Pay and (II) 200% Bonus. Employee Classification Salary Separation Payment A Two (2) years Base Pay (as defined in Section 6.1(a)) plus 200% Bonus (as defined in Section 6.1(a)) plus two (2) weeks Base Pay for each full year of service from first hire date. B One (1) year Base Pay plus 100% Bonus plus two (2) weeks Base Pay for each full year of service from first hire date. - 2 - C Six (6) months Base Pay plus 75% Bonus plus one and one-half (1.5) weeks Base Pay for each full year of service from first hire date. D Four (4) months Base Pay plus 33% Bonus plus one (1) week Base Pay for each full year of service from first hire date. E Two (2) months Base Pay plus 15% Bonus plus one (1) week Base Pay for each full year of service from first hire date. - 3 - EX-10.67 13 v96832exv10w67.txt EXHIBIT 10.67 EXHIBIT 10.67 COUNTRYWIDE CREDIT INDUSTRIES, INC. 1999 EMPLOYEE STOCK PURCHASE PLAN ARTICLE I INTRODUCTION 1.01 Purpose. The Countrywide Credit Industries, Inc. 1999 Employee Stock Purchase Plan (the "Plan") is intended to provide a method whereby Eligible Employees (as defined below) of Countrywide Credit Industries, Inc. (the "Company") and its Participating Subsidiary Corporations (as defined below) will have an opportunity to acquire a proprietary interest in the Company through the purchase of shares of the Common Stock (as defined below). 1.02 Rules of Interpretation. It is the intention of the Company to have the Plan qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"). The provisions of the Plan shall be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code. ARTICLE II DEFINITIONS 2.01 "Board" means the Board of Directors of the Company. 2.02 "Code" shall have the meaning set forth in Section 1.02 hereof. 2.03 "Change in Capitalization" means any increase or reduction in the number of shares of Common Stock, or exchange of shares of Common Stock for a different number or kind of shares or other securities of the Company, by reason of a reclassification, recapitalization, merger, consolidation, reorganization, stock dividend, stock split or reverse stock split, combination or exchange of shares, or other similar event. 2.04 "Change in Control" means the occurrence of any one of the following events: (a) An acquisition (other than directly from the Company) of any common stock or other "Voting Securities" (as hereinafter defined) of the Company by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty five percent (25%) or more of the then outstanding shares of the Company's common stock or the combined voting power of the Company's then outstanding Voting Securities; provided, however, in determining whether a Change in Control has occurred, Voting Securities which are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. For purposes of the Plan, (i) "Voting Securities" shall mean the Company's outstanding voting securities entitled to vote generally in the election of directors and (ii) a "Non-Control Acquisition" shall mean an acquisition by (A) an employee benefit plan (or a trust forming a part thereof) maintained by (1) the Company or (2) any corporation or other Person of which a majority of its voting power or its voting equity securities or equity interest is owned, directly or indirectly, by the Company (for purposes of this definition, a "Subsidiary"), (B) the Company or any of its Subsidiaries, or (C) any Person in connection with a "Non-Control Transaction" (as hereinafter defined); (b) The individuals who as of March 27, 1996 were members of the Board (the "Incumbent Board") cease for any reason to constitute at least two-thirds of the members of the Board; provided, however, that if the election, or nomination for election by the Company's common stockholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Agreement, be considered as a member of the Incumbent Board; provided further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or - 2 - (c) The consummation of: (i) A merger, consolidation or reorganization involving the Company, unless such merger, consolidation or reorganization is a "Non-Control Transaction." A "Non-Control Transaction" shall mean a merger, consolidation or reorganization of the Company where: (A) the stockholders of the Company, immediately before such merger, consolidation or reorganization, own directly or indirectly immediately following such merger, consolidation or reorganization, at least seventy percent (70%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger, consolidation or reorganization (the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation or reorganization; (B) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute at least two-thirds of the members of the board of directors of the Surviving Corporation, or in the event that, immediately following the consummation of such transaction, a corporation beneficially owns, directly or indirectly, a majority of the voting securities of the Surviving Corporation, the board of directors of such corporation; and (C) no Person other than (w) the Company, (x) any Subsidiary, (y) any employee benefit plan (or any trust forming a part thereof) maintained by the Company, the Surviving Corporation, or any Subsidiary, or (z) any Person who, immediately prior - 3 - to such merger, consolidation or reorganization had Beneficial Ownership of twenty five percent (25%) or more of the then outstanding Voting Securities or common stock of the Company, has Beneficial Ownership of twenty five percent (25%) or more of the combined voting power of the Surviving Corporation's then outstanding Voting Securities or its common stock; (ii) A complete liquidation or dissolution of the Company; or (iii) The sale or other disposition of all or substantially all of the assets of the Company to any Person (other than a transfer to a Subsidiary). Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the then outstanding common stock or Voting Securities as a result of the acquisition of common stock or Voting Securities by the Company which, by reducing the number of shares of common stock or Voting Securities then outstanding, increases the proportional number of shares Beneficially Owned by the Subject Person; provided, however, that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of common stock or Voting Securities by the Company, and after such share acquisition by the Company, the Subject Person becomes the Beneficial Owner of any additional common stock or Voting Securities which increases the percentage of the then outstanding common stock or Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. 2.05 "Company" shall have the meaning set forth in Section 1.01 hereof. 2.06 "Compensation" shall mean the gross cash compensation (including wage, salary and overtime earnings, production bonus payments, commissions and compensation paid in a form other than cash) paid by the Company or any Participating Subsidiary Corporation to an Eligible Employee in accordance with the terms of employment, but excluding all discretionary bonus payments and reimbursements for out-of-pocket expenses. - 4 - 2.07 "Committee" shall have the meaning set forth in Section 11.01 hereof. 2.08 "Common Stock" shall mean the common stock, par value $.05 per share, of the Company. 2.09 "Eligible Employee" means any Employee of the Company or a Participating Subsidiary Corporation; provided, however, that with respect to any Offering, the Committee may, in its sole discretion, determine that any Employee or group of Employees that may be excluded from participation in the Plan pursuant to the provisions of Section 423 of the Code and the regulations promulgated and proposed thereunder shall be deemed not to be Eligible Employees for purposes of that Offering. 2.10 "Employee" means any individual who is a common law employee of the Company or a Participating Subsidiary Corporation. 2.11 "Fair Market Value" on any date means the average of the high and low sales prices of the shares of Common Stock on such date on the principal national securities exchange or other stock market on which such shares are listed or admitted to trading, or if no such sales shall have occurred on such date, the arithmetic mean of the per share closing bid price and per share closing asked price on such date as quoted on the Nasdaq Stock Market or such other market in which such prices are regularly quoted, or, if there have been no published bid or asked quotations with respect to shares on such date, the Fair Market Value shall be the value established by the Board in good faith and in accordance with Section 423 of the Code. 2.12 "Offering Commencement Date" shall have the meaning set forth in Section 4.02 hereof. 2.13 "Offering Price" shall have the meaning set forth in Section 6.02 hereof. 2.14 "Offering Termination Date" shall have the meaning set forth in Section 4.02 hereof. 2.15 "Offerings" shall have the meaning set forth in Section 4.02 hereof. 2.16 "Participant" means any Eligible Employee who elects to participate in the Plan in accordance with the provisions of Section 3.03 hereof. - 5 - 2.17 "Participating Subsidiary Corporation" shall mean each corporation which is a "subsidiary corporation" (as that term is defined in Section 424 of the Code) of the Company, unless the Board or the Committee shall, in its discretion, determine otherwise. 2.18 "Plan" shall have the meaning set forth in Section 1.01 hereof. 2.19 "Plan Representative" shall mean the person designated from time to time by the Committee to receive certain notices and take certain other administrative actions relating to participation in the Plan. 2.20 "Securities Act" shall have the meaning set forth in Section 12.07(f) hereof. ARTICLE III ELIGIBILITY AND PARTICIPATION 3.01 Initial Eligibility. Each Employee who is an Eligible Employee as of an Offering Commencement Date shall be eligible to participate in the Offering commencing on such Offering Commencement Date. Persons who are not Eligible Employees shall not be eligible to participate in the Plan with respect to that Offering. 3.02 Restrictions on Participation. Notwithstanding any provision of the Plan to the contrary, no Eligible Employee shall be granted an option to purchase shares of Common Stock under the Plan: (a) if, immediately after the grant, such Eligible Employee would own stock and/or hold outstanding options to purchase stock possessing 5% or more of the total combined voting power or value of all classes of stock of the Company (for purposes of this paragraph, the rules of Section 423(b)(3) and Section 424(d) of the Code shall apply in determining stock ownership of any Eligible Employee); or (b) which permits such Eligible Employee's rights to purchase stock under all employee stock purchase plans of the Company and all Participating Subsidiary Corporations to accrue at a rate which exceeds $25,000 of Fair Market Value of the Common Stock (determined at the time such option is granted) for each calendar year in which such option is outstanding at any time. - 6 - 3.03 Commencement of Participation. An Eligible Employee may become a Participant by completing an authorization for payroll deductions on the form provided by the Company and filing the completed form with the Plan Representative on or before the filing date set therefor by the Committee, which date shall be prior to the Offering Commencement Date for the next following Offering. Payroll deductions for a Participant shall commence on the next following Offering Commencement Date after the Employee's authorization for payroll deductions becomes effective and shall continue until termination of the Plan or the participant's earlier termination of participation in the Plan. Each Eligible Employee shall be deemed to continue participation in the Plan until the earlier of: (a) the termination of the Plan and (b) such Eligible Employee's termination of participation in the Plan pursuant to Article VIII hereof. ARTICLE IV STOCK SUBJECT TO THE PLAN AND OFFERINGS 4.01 Stock Subject to the Plan. Subject to the provisions of Sections 12.03 and 12.04 hereof, the Board shall reserve initially for issuance under the Plan an aggregate of five hundred thousand (500,000) shares of Common Stock, which shares shall be authorized but unissued. 4.02 Offerings. The Plan will be implemented by offerings ("Offerings") of the Common Stock during periods of no less than three months and no more than one year, as determined from time to time by the Committee. Notwithstanding the foregoing, in the event of a Change in Control, the last day of the Offering in which the Change in Control would otherwise occur shall be accelerated to the last payday immediately preceding the Change in Control. The first day of an Offering shall be deemed the "Offering Commencement Date" and the last day the "Offering Termination Date" for such Offering. The Offering Commencement Date and the Offering Termination Date shall in all cases occur on a business day. ARTICLE V PAYROLL DEDUCTIONS 5.01 Amount of Deduction. The form described in Section 3.03 will permit a Participant to elect payroll deductions in an amount not exceeding ten percent (10%), or such other percent or fixed dollar amount which the Board or Committee may from time to time otherwise determine, of such Participant's Compensation for each pay period - 7 - ending during an Offering. Notwithstanding the foregoing, a Participant's payroll deductions may be reduced by the Board or the Committee, in its discretion, at any time during an Offering which is scheduled to end during the then current calendar year to the extent necessary in order to comply with the provisions of Section 423(b)(8) of the Code and Section 3.02(b) hereof. 5.02 Participant's Account. All payroll deductions made for a Participant shall be credited to an account established for such Participant under the Plan. A Participant may not make any separate cash payment into such account. 5.03 Changes in Payroll Deductions. A Participant may reduce or increase future payroll deductions (within the limits described in Section 5.01 hereof) by filing with the Plan Representative a form provided by the Company for such purpose. The effective date of any increase or reduction in future payroll deductions will be the first day of the next Offering following the Company's receipt of the change form, if the Company shall have timely received such change form prior to the Offering Commencement Date of such Offering or as of such earlier date as the Committee may in its discretion determine or as shall be applicable in connection with the cessation of the Participant's participation in the Plan pursuant to Section 8.01 hereof. ARTICLE VI GRANTING OF OPTION 6.01 Number of Option Shares. On the Offering Commencement Date (for each Offering), each Participant shall be deemed to have been granted an option to purchase a maximum number of shares of Common Stock the Fair Market Value of which is equal to (i) that percentage of the Participant's Compensation which the Participant has elected to have withheld (but not in any case in excess of ten percent (10%), or such other percent or fixed dollar amount which the Board or Committee may from time to time otherwise determine pursuant to Section 5.01 hereof) multiplied by (ii) the Participant's Compensation paid during the Offering then divided by (iii) the applicable Offering Price determined as provided in Section 6.02 hereof. Notwithstanding the foregoing, the maximum number of shares of Common Stock that a Participant may purchase pursuant to an Offering is three thousand (3,000). - 8 - 6.02 Option Price. The per share option price of shares of Common Stock purchased with payroll deductions made during any Offering (the "Offering Price") by a Participant shall be not less than the lower of: (a) 85% of the Fair Market Value of the stock on the Offering Commencement Date for such Offering; or (b) 85% of the Fair Market Value of the stock on the Offering Termination Date of such Offering. ARTICLE VII EXERCISE AND OTHER TERMS OF OPTIONS 7.01 Automatic Exercise. Subject to Section 6.01 hereof, each Participant's option for the purchase of shares of Common Stock with payroll deductions made during any Offering will be deemed to have been exercised automatically on the applicable Offering Termination Date for the purchase of the number of full shares of Common Stock which the accumulated payroll deductions in the Participant's account at that time will purchase at the applicable Offering Price. 7.02 Withdrawal of Account. No Participant in the Plan shall be entitled to withdraw any amount from the accumulated payroll deductions in his or her account; provided, however, that a Participant's accumulated payroll deductions shall be refunded to the Participant as and to the extent specified in Section 8.01 hereof upon termination of such Participant's participation in the Plan. 7.03 Fractional Shares. Fractional shares of Common Stock will not be issued under the Plan. Any accumulated payroll deductions which would have been used to purchase fractional shares, unless refunded pursuant to Section 7.02 hereof, will be held for the purchase of Common Stock in the next following Offering, without interest. 7.04 Non-Transferability of Options. Neither payroll deductions credited to any Participant's account nor any option or rights with regard to the exercise of an option or the receipt of Common Stock under the Plan may be assigned, transferred, pledged, or otherwise disposed of in any way by the Participant other than by will or the laws of descent and distribution. Any such attempted assignment, transfer, pledge or other disposition shall be without effect, except that the Company may, in its discretion, treat - 9 - such act as an election to withdraw from participation in the Plan in accordance with Section 8.01 hereof. During a Participant's lifetime, options held by such Participant shall be exercisable only by such Participant. 7.05 Delivery of Stock. As promptly as practicable after the Offering Termination Date of each Offering, the Company will deliver to each Participant in such Offering, as appropriate, the shares of Common Stock purchased therein upon exercise of such Participant's option. The Company may deliver such shares in certificated or book entry form, at the Company's sole election. The Company may require a Participant to dispose of the shares of Common Stock acquired pursuant to the Plan through one or more brokers designated by the Company. 7.06 Stock Transfer Restrictions. The Plan is intended to satisfy the requirements of Section 423 of the Code. Shares of Common Stock acquired upon exercise of options granted under the Plan may contain such restrictions, terms and conditions as the Board or Committee may, in its discretion, determine and the Board or Committee may, in its discretion, require that an appropriate legend be placed on the certificates evidencing such shares of Common Stock. ARTICLE VIII WITHDRAWAL 8.01 In General. A Participant may stop participating in the Plan at any time by giving written notice to the Plan Representative. Upon processing of any such written notice, no further payroll deductions will be made from the Participant's Compensation during such Offering or thereafter, unless and until such Participant elects to resume participation. Such Participant's payroll deductions accumulated prior to processing of such notice to stop participation, if any, shall be refunded (without interest) to such Participant as soon as reasonably practicable. A Participant may elect to resume participation in the Plan by providing written notice to the Plan Representative pursuant to Section 3.03 hereof. 8.02 Effect on Subsequent Participation. A Participant's withdrawal from any Offering will not have any effect upon such Participant's eligibility to participate in any succeeding Offering or in any similar plan which may hereafter be adopted by the Company and for which such Participant is otherwise eligible. - 10 - 8.03 Termination of Eligible Employee Status. Upon a Participant's ceasing to be an Eligible Employee for any reason, including as a result of a termination of the Participant's employment with the Company or any Participating Subsidiary Corporation (as the case may be) for any reason (including retirement or death), the Participant's payroll deductions accumulated prior to such termination, if any, shall be refunded (without interest) to him or her, or, in the case of his or her death, to the person or persons entitled thereto under Section 12.01 hereof, and his or her participation in the Plan shall be deemed to be terminated. ARTICLE IX INTEREST 9.01 Payment of Interest. No interest will be paid or allowed on any money paid into the Plan or credited to the account of or distributed to any Participant. ARTICLE X STOCK 10.01 Participant's Interest in Option Stock. No Participant will have any interest in shares of Common Stock covered by any option held by such Participant unless and until (a) such option has been exercised as provided in Section 7.01 hereof, (b) the Company shall have issued and delivered the shares of Common Stock to the Participant and (c) the Participant's name shall have been entered as a stockholder of record on the books of the Company. Thereupon, the Participant shall have full voting, dividend and other ownership rights with respect to such shares of Common Stock. 10.02 Registration of Stock. Shares of Common Stock purchased by a Participant under the Plan will be recorded in the books and records of the Company in the name of the Participant. ARTICLE XI ADMINISTRATION 11.01 Committee. The Plan shall be administered by the Compensation Committee of the Board (the "Committee"). A majority of the Committee shall constitute a quorum, and the action of a majority of the members of the Committee present at any meeting at which a quorum is present, or acts unanimously approved in writing, shall be - 11 - the acts of the Committee. The interpretation and construction by the Committee of any provision of the Plan or any option granted hereunder shall be final. No member of the Committee shall be liable for any action or determination made in good faith with respect hereto or any option granted hereunder. 11.02 Authority of Committee. The Committee may establish any policies or procedures that in its discretion are relevant to the operation and administration of the Plan and may adopt rules for the administration of the Plan. The Committee may also engage the services of a professional plan administrator on such terms and conditions as the Committee deems appropriate for the purposes of establishing custodial accounts and holding shares of Common Stock acquired by Participants upon the exercise of options granted under the Plan and otherwise operating the Plan. ARTICLE XII MISCELLANEOUS 12.01 Designation of Beneficiary. A Participant may file with the Plan Representative a written designation of a beneficiary who is to receive any shares of Common Stock and/or cash under the Plan upon the Participant's death. Such designation of beneficiary may be changed by the Participant at any time by written notice to the Plan Representative. Upon the death of a Participant and receipt by the Company of proof of identity and existence at the Participant's death of a beneficiary validly designated by the Participant under the Plan, and subject to Article VIII hereof concerning withdrawal from the Plan, the Company shall deliver such shares of Common Stock and/or cash to such beneficiary. In the event of the death of a Participant lacking a beneficiary validly designated under the Plan who is living at the time of such Participant's death, the Company shall deliver such shares of Common Stock and/or cash to the executor or administrator of the estate of the Participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares of Common Stock and/or cash to the spouse or to any one or more dependents of the Participant, in each case without any further liability of the Company whatsoever under or relating to the Plan. No beneficiary shall, prior to the death of the Participant by whom he or she has been designated, acquire any interest in the shares of Common Stock and/or cash credited to the Participant under the Plan. - 12 - 12.02 Use of Funds. All payroll deductions received or held by the Company under the Plan may be used by the Company for any corporate purpose. The Company shall not be obligated to segregate such payroll deductions. 12.03 Adjustment Upon Changes in Capitalization. In the event of a Change in Capitalization, the maximum number and class of shares of Common Stock or other stock or securities reserved for issuance under the Plan in the aggregate and that a Participant may purchase pursuant to an Offering, the class of shares of Common Stock or other stock or securities which the accumulated payroll deductions in a Participant's account will purchase, and the Offering Price therefor, shall be appropriately and equitably adjusted by the Committee. 12.04 Amendment and Termination. The Board shall have complete power and authority to terminate or amend the Plan; provided, however, that the Board shall not, without the approval of the stockholders of the Company, alter (i) the aggregate number of shares of Common Stock which may be issued under the Plan (except pursuant to Section 12.03 hereof), or (ii) the class of employees eligible to receive options under the Plan; and provided, further, however, that no termination, modification, or amendment of the Plan may, without the consent of a Participant then having an option under the Plan to purchase shares of Common Stock, adversely affect the rights of such Participant under such option, except that the foregoing shall not prohibit the Company from terminating the Plan at any time (including during an Offering) and applying the amounts theretofore withheld from Participants to the purchase of shares of Common Stock as if the termination date of the Plan were an Offering Termination Date. Any cash balance remaining after the purchase of shares of Common Stock in such Offering shall be refunded (without interest) to such Participant as soon as reasonably practicable. 12.05 Non-Exclusivity of the Plan. The adoption of the Plan by the Board shall not be construed as amending, modifying or rescinding any previously approved incentive arrangement or as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options otherwise than under the Plan, and such arrangements may be either applicable generally or only in specific cases. 12.06 Limitation of Liability. As illustrative of the limitations of liability of the Company, but not intended to be exhaustive thereof, nothing in the Plan shall be construed to: - 13 - (a) give any person any right to be granted an option except as specifically provided in the Plan; (b) give any person any rights whatsoever with respect to shares of Common Stock except as specifically provided in the Plan; (c) limit in any way the right of the Company to terminate the employment of any person at any time; or (d) be evidence of any agreement or understanding, expressed or implied, that the Company will employ any person at any particular rate of compensation or for any particular period of time. 12.07 Regulations and Other Approvals; Governing Law. (a) The Plan and the rights of all persons claiming hereunder shall be construed and determined in accordance with the laws of the State of Delaware. (b) The obligation of the Company to sell or deliver s hares of Common Stock with respect to options granted under the Plan shall be subject to all applicable laws, rules and regulations, including all applicable federal and state securities laws, and the obtaining of all such approvals by governmental agencies as may be deemed necessary or appropriate by the Committee. (c) The Plan is intended to comply with Rule 16b-3 promulgated under the Exchange Act and the Committee shall interpret and administer the provisions of the Plan in a manner consistent therewith. Any provisions inconsistent with such Rule shall be inoperative and shall not affect the validity of the Plan. (d) The Board may make such changes as may be necessary or appropriate to comply with the rules and regulations of any government authority. (e) Each option is subject to the requirement that, if at any time the Committee determines, in its discretion, that the listing, registration or qualification of shares of Common Stock issuable pursuant to the Plan is required by any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the grant of an option or the issuance of shares of Common Stock, no options shall be granted or payment made or shares of Common Stock issued, in whole or in part, -14- unless listing, registration, qualification, consent or approval has been effected or obtained free of any conditions not acceptable to the Committee. (f) Notwithstanding anything contained in the Plan to the contrary, in the event that the disposition of shares of Common Stock acquired pursuant to the Plan is not covered by a then current registration statement under the Securities Act of 1933, as amended (the "Securities Act"), and is not otherwise exempt from such registration, such shares shall be restricted against transfer to the extent required by the Securities Act and Rule 144 or other regulations thereunder. The Committee may require any individual receiving shares of Common Stock pursuant to the Plan, as a condition precedent to receipt of such shares upon exercise of an Option, to represent and warrant to the Company in writing that the shares of Common Stock acquired by such individual are acquired without a view to any distribution thereof and will not be sold or transferred other than pursuant to an effective registration thereof under said Act or pursuant to an exemption applicable under the Securities Act or the rules and regulations promulgated thereunder. The certificates evidencing any of such shares shall be appropriately amended to reflect their status as restricted securities as aforesaid. (g) If a Participant makes a disposition, within the meaning of Section 423(a) of the Code and regulations promulgated thereunder, of any share or shares of Common Stock issued to such Participant pursuant to the exercise of an option within the two-year period commencing on the day after the date of the grant or within the one-year period commencing on the day after the date of transfer of such share or shares of Common Stock to the Participant pursuant to such exercise, the Participant shall, within ten (10) days of such disposition, notify the Company thereof, by delivery of written notice to the Company at its principal executive office. 12.08 Effective Date. The Plan shall become effective as of October 1, 1999, subject to approval by the holders of a majority of the shares of Common Stock present and represented at any special or annual meeting of the shareholders of the Company duly held within twelve (12) months after adoption of the Plan. If the Plan is not so approved, the Plan shall not become effective. 12.09 Effect of Plan. The provisions of the Plan shall, in accordance with its terms, be binding upon, and inure to the benefit of, all successors of each Participant, including, without limitation, such Participant's estate and the executors, administrators -15- or trustees thereof, heirs and legatees, and any receiver, trustee in bankruptcy or representative of creditors of such Participant. 244262 -16- EX-10.70 14 v96832exv10w70.txt EXHIBIT 10.70 EXHIBIT 10.70 APPENDIX I COUNTRYWIDE FINANCIAL CORPORATION GLOBAL STOCK PLAN (UK SHARESAVE SCHEME) ADOPTED BY BOARD: 12 NOVEMBER 2002 AMENDED BY BOARD: 20 NOVEMBER 2002 CONTENT RULE

1 DEFINITIONS AND INTERPRETATION 1.1 In this Plan, unless the context otherwise requires: "3-YEAR OPTION", "5-YEAR OPTION" and "7-YEAR OPTION" have the meanings given in Rule 3.2; "ASSOCIATED COMPANY" means an associated company within the meaning given to that expression by section 187(2) of the Taxes Act 1988 for the purposes of paragraph 23 of Schedule 9; "THE BOARD" means the board of directors of the Company or a committee appointed by them; "BONUS DATE", in relation to an option, means: 1.1.1 in the case of a 3-Year Option, the earliest date on which the bonus is payable, 1.1.2 in the case of a 5-Year Option, the earliest date on which a bonus is payable, and 1.1.3 in the case of a 7-Year Option, the earliest date on which the maximum bonus is payable; and for this purpose "payable" means payable under the Savings Contract made in connection with the option; "THE COMPANY" means Countrywide Financial Corporation (a corporation registered in Delaware); "THE GRANT DAY" shall be construed in accordance with Rule 2.1; "PARTICIPANT" means a person who holds an option granted under this Plan; "PARTICIPATING COMPANY" means the Company or any Subsidiary to which the Board has resolved that this Plan shall for the time being extend and any Related Company to which the Board has with the prior approval of the Inland Revenue resolved that this Plan shall for the time being extend; "RELATED COMPANY" means (in accordance with ESC B27) a company which is not under the control of any single person, but is under the control of two persons, one of them being the Company; "SAVINGS BODY" means any building society, institution authorised under the Banking Act 1987 or relevant European institution (within the meaning of Schedule 15A to the Taxes Act 1988) with which a Savings Contract can be made; "SAVINGS CONTRACT" means an agreement to pay monthly contributions under the terms of a certified contractual savings scheme, within the meaning of section 326 of the Taxes Act 1988, which has been approved by the Inland Revenue for the purposes of Schedule 9; "SCHEDULE 9" means Schedule 9 to the Taxes Act 1988; "SUBSIDIARY" means a body corporate which is a subsidiary of the Company (within the meaning of section 736 of the Companies Act 1985) and of which the Company has control (within the meaning of section 840 of the Taxes Act 1988); "THE TAXES ACT 1988" means the Income and Corporation Taxes Act 1988; and expressions not otherwise defined in this Plan have the same meanings as they have in Schedule 9. 1.2 Any reference in this Plan to any enactment includes a reference to that enactment as from time to time modified, extended or re-enacted. 1.3 Expressions in italics are for guidance only and do not form part of this Plan. 2. ELIGIBILITY 2.1 Subject to Rule 2.5, an individual is eligible to be granted an option on any day ("THE GRANT DAY") if (and only if): 2.1.1 he is on the Grant Day an employee or director of a company which is a Participating Company; and 2.1.2 he either satisfies the conditions specified in Rule 2.2 or is nominated by the Board for this purpose. 2.2 The conditions referred to in Rule 2.1.2 are that the individual: 2.2.1 shall at all times during the qualifying period have been an employee (but not a director) or a full-time director of the Company or a company which was for the time being a Subsidiary or a Related Company; and 2.2.2 was at the relevant time chargeable to tax in respect of his employment or office under Case I of Schedule E. 2.3 For the purposes of Rule 2.2: 2.3.1 THE RELEVANT TIME is the end of the last financial year of the Company ending prior to the Grant Day or such other time during the period of 5 years ending with the Grant Day as the Board may determine (provided that no such determination may be made if it would have the effect that the qualifying period would not fall within that 5-year period); 2.3.2 THE QUALIFYING PERIOD is the period of 1 year ending at the relevant time or such other period ending at the relevant time but falling within the 5-year period mentioned in paragraph 2.3.1 as the Board may determine; 2.3.3 an individual shall be treated as a FULL-TIME DIRECTOR of a company if he is obliged to devote to the performance of the duties of his office or employment with the company not less than 25 hours a week; 2.3.4 Chapter I of Part XIV of the Employment Rights Act 1996 shall have effect, with any necessary changes, for ascertaining the length of the period during which an individual shall have been an employee or a full-time director and whether he shall have been an employee or a full-time director at all times during that period. 2.4 Any determination of the Board under paragraph 2.3.1 or 2.3.2 shall have effect in relation to every individual for the purpose of ascertaining whether he is eligible to be granted an option on the Grant Day. 2.5 An individual is not eligible to be granted an option at any time if he is at that time ineligible to participate in this Plan by virtue of paragraph 8 of Schedule 9 (material interest in a close company). 3. GRANT OF OPTIONS 3.1 Subject to Rule 4, the Board may grant an option to acquire shares in the Company which satisfy the requirements of paragraphs 10 to 14 of Schedule 9 (fully paid up, unrestricted, ordinary share capital), upon the terms set out in this Scheme, to any individual who: 3.1.1 is eligible to be granted an option in accordance with Rule 2, and 3.1.2 has applied for an option and proposed to make a Savings Contract in connection with it (with a Savings Body approved by the Board) in the form and manner prescribed by the Board, and for this purpose an option to acquire includes an option to purchase and an option to subscribe. 3.2 The type of option to be granted to an individual, that is to say a 3-Year Option, a 5-Year Option or a 7-Year Option, shall be determined by the Board or, if the Board so permits, by the individual; and for this purpose: 3.2.1 a 3-YEAR OPTION is an option in connection with which a three year Savings Contract is to be made and in respect of which, subject to Rule 4.4, the repayment is to be taken as including the bonus; 3.2.2 a 5-YEAR OPTION is an option in connection with which a five year Savings Contract is to be made and in respect of which, subject to Rule 4.4, the repayment is to be taken as including a bonus other than the maximum bonus; and 3.2.3 a 7-YEAR OPTION is an option in connection with which a five year Savings Contract is to be made and in respect of which the repayment is to be taken as including the maximum bonus. 3.3 The amount of the monthly contribution under the Savings Contract to be made in connection with an option granted to an individual shall, subject to Rule 4.4, be the amount which the individual shall have specified in his application for the option that he is willing to pay or, if lower, the maximum permitted amount, that is to say, the maximum amount which: 3.3.1 when aggregated with the amount of his monthly contributions under any other Savings Contract linked to this Scheme or to any other savings-related share option scheme approved under Schedule 9, does not exceed (pound)250 (but exceeds a minimum of (pound)5) or such other maximum or minimum amounts as may for the time being be permitted by paragraph 24(2)(a) of Schedule 9; 3.3.2 does not exceed the maximum amount for the time being permitted under the terms of the Savings Contract; and 3.3.3 when aggregated with the amount of his monthly contributions under any other Savings Contract linked to this Plan, does not exceed any maximum amount determined by the Board. 3.4 The number of shares in respect of which an option may be granted to any individual shall be the maximum number which can be paid for, at the price determined under Rule 3.5, with monies equal to the amount of the repayment due on the Bonus Date under the Savings Contract to be made in connection with the option. 3.5 The price (which shall be denominated in pounds sterling) at which shares may be acquired by the exercise of options of a particular type granted on any day shall be determined by the Board and stated on that day, provided that: 3.5.1 if shares of the same class as those shares are traded on the New York Stock Exchange, the price shall not be less than the Specified Percentage of- (a) the average of the high and low sales prices of shares of that class (as taken from www.nyse.com) for the dealing day preceding the date on which invitations to apply for the options were given pursuant to Rule 3.7 converted to pounds sterling at the closing exchange rate for pounds sterling to US dollars as published in the Financial Times for the dealing day preceding the date on which invitations are to be so given, or (b) if that dealing day does not fall within the period of 30 days (or, where Rule 4.3 applies, 42 days) ending with the day on which the options are granted, the average of the high and low sales prices of shares of that class (as taken from www.nyse.com) converted to pounds sterling as aforesaid on the dealing day last preceding the day on which the options are granted or such other dealing day as may be agreed in advance with the Inland Revenue; 3.5.2 if paragraphs (a) and (b) above do not apply, the price shall not be less than the Specified Percentage of the market value (within the meaning of Part VIII of the Taxation of Chargeable Gains Act 1992) of shares of that class, as agreed in advance for the purposes of this Scheme with the Shares Valuation Division of the Inland Revenue, on - (a) the date on which invitations to apply for the options were given pursuant to Rule 3.6, or (b) if that date does not fall within the period of 30 days (or, where Rule 4.5 applies, 42 days) ending with the day on which the options are granted, on the day on which the options are granted or such other day as may be agreed in advance with the Inland Revenue; and 3.5.3 in the case of an option to acquire shares only by subscription, the price shall not be less than the nominal value of those shares; and for this purpose "THE SPECIFIED PERCENTAGE" is 80 per cent. or such other percentage as may be specified in paragraph 25 of Schedule 9. 3.6 The Board shall ensure that, in relation to the grant of options on any day: 3.6.1 every individual who is eligible to be granted an option on that day has been given an invitation; 3.6.2 the invitation specifies a period of not less than 14 days in which an application for an option may be made; and 3.6.3 every eligible individual who has applied for an option as mentioned in Rule 3.1 is in fact granted an option on that day. 3.7 An invitation to apply for an option may only be given once the Plan has been approved by the Inland Revenue under Schedule 9. 3.8 An option granted to any person: 3.8.1 shall not, except as provided in Rule 5.3, be capable of being transferred by him; and 3.8.2 shall lapse forthwith if he is adjudged bankrupt. 4. LIMITS 4.1 No options shall be granted in any year which would, at the time they are granted, cause the number of shares in the Company allocated under this Plan to exceed 500,000 or any other number so specified by the Board from time-to-time. 4.2 No options shall be granted to acquire a number of shares which exceeds any number determined by the Board for this purpose. 4.3 If the grant of options on any day would but for this Rule 4.3 cause the limits of Rule 4 to be exceeded, the provisions set out in Rule 4.4 shall be successively applied (in the order in which they are set out) so far as is necessary to ensure that that limit is not exceeded. 4.4 Those provisions are: 4.4.1 the repayment under the Savings Contract shall be taken as not including a bonus; 4.4.2 unless paragraph 4.4.4 applies, the amount of the monthly contribution determined under Rule 3.3 shall be taken as successively reduced by 0.5 per cent. thereof, 1 per cent. thereof, 1.5 per cent. thereof and so on and then rounded up to the nearest pound, but shall not be reduced to less than the minimum amount permitted under the terms of the Savings Contract; 4.4.3 if the Board shall have decided that this paragraph is to apply, for the purpose of determining the amount of the monthly contribution, the maximum permitted amount referred to in Rule 3.3 shall be taken as successively reduced by (pound)1, (pound)2, (pound)3 and so on, but shall not be reduced to less than the minimum amount permitted under the terms of the Savings Contract; 4.4.4 any option which would otherwise be a 5-Year Option shall be a 3-Year Option; 4.4.5 the Board shall not grant any options on the day in question. 4.5 References in this Rule 4 to "allocation" shall mean, in relation to any share option, placing unissued shares under option and, in relation to other types of employee share scheme, the allotment and issue of shares and references to "allocated" shall be construed accordingly. 4.6 Where any option relating to unissued shares is released or lapses without being exercised (or the Board makes arrangements for it to be satisfied by the transfer of existing shares), the shares concerned will be ignored when calculating the limits in this Rule 4. 5. EXERCISE OF OPTIONS 5.1 The exercise of any option granted under this Plan shall be effected in the form and manner prescribed by the Board, provided that the monies paid for shares on such exercise shall not exceed the amount of the repayment made and any interest paid under the Savings Contract made in connection with the option. 5.2 Subject to Rules 5.3, 5.4, 5.6 and 6, an option granted under this Plan shall not be capable of being exercised before the Bonus Date. 5.3 Subject to Rule 5.8: 5.3.1 if any Participant dies before the Bonus Date, any option granted to him may (and must, if at all) be exercised by his personal representatives within 12 months after the date of his death, and 5.3.2 if he dies on or within 6 months after the Bonus Date, any option granted to him may (and must, if at all) be exercised by his personal representatives within 12 months after the Bonus Date, provided in either case that his death occurs at a time when he either holds the office or employment by virtue of which he is eligible to participate in this Plan or is entitled to exercise the option by virtue of Rule 5.4. 5.4 Subject to Rule 5.8, if any Participant ceases to hold the office or employment by virtue of which he is eligible to participate in this Plan (otherwise than by reason of his death), the following provisions apply in relation to any option granted to him: 5.4.1 if he so ceases at any time by reason of injury, disability, redundancy within the meaning of the Employment Rights Act 1996, or retirement on reaching the age of 60 or any other age at which he is bound to retire in accordance with the terms of his contract of employment, the option may (and subject to Rule 5.3 must, if at all) be exercised within 6 months of his so ceasing; 5.4.2 if he so ceases by reason only that the office or employment is in a company of which the Company ceases to have control or which ceases to be a Related Company, or relates to a business or part of a business which is transferred to a person who is neither an Associated Company of the Company nor a company of which the Company has control, the option may (and subject to Rule 5.3 must, if at all) be exercised within 6 months of his so ceasing; 5.4.3 if he so ceases for any other reason within 3 years of the grant of the option, the option may not be exercised at all; 5.4.4 if he so ceases for any other reason (except for dismissal for misconduct) more than 3 years after the grant of the option, the option may (and subject to Rule 5.3 must, if at all) be exercised within 6 months of his so ceasing. 5.5 Subject to Rule 5.8, if, at the Bonus Date, a Participant holds an office or employment with a company which is not a Participating Company but which is an Associated Company or a company of which the Company has control, any option granted to him may (and subject to Rule 5.3 must, if at all) be exercised within 6 months of the Bonus Date. 5.6 Subject to Rule 5.8, where any Participant continues to hold the office or employment by virtue of which he is eligible to participate in this Scheme after the date on which he reaches the age of 60, he may exercise any option within 6 months of that date. 5.7 Subject to Rule 5.3, an option shall not be capable of being exercised later than 6 months after the Bonus Date. 5.8 Where, before an option has become capable of being exercised, the Participant gives notice that he intends to stop paying monthly contributions under the Savings Contract made in connection with the option, or is deemed under its terms to have given such notice, or makes an application for repayment of the monthly contributions paid under it, the option may not be exercised at all. 5.9 A Participant shall not be treated for the purposes of Rules 5.3 and 5.4 as ceasing to hold the office or employment by virtue of which he is eligible to participate in this Scheme until he ceases to hold an office or employment in the Company or any Associated Company or company of which the Company has control or any Related Company which is a Participating Company. 5.10 A Participant shall not be eligible to exercise an option at any time: 5.10.1 unless, subject to Rules 5.4 and 5.5, he is at that time a director or employee of a Participating Company; 5.10.2 if he is not at that time eligible to participate in this Plan by virtue of paragraph 8 of Schedule 9 (material interest in a close company). 5.11 An option shall not be capable of being exercised more than once. 5.12 Within 30 days after an option has been exercised by any person, the Board shall allot to him (or a nominee for him) or, as appropriate, procure the transfer to him (or a nominee for him) of the number of shares in respect of which the option has been exercised, provided that the Board considers that the issue or transfer of those shares would be lawful in all relevant jurisdictions. 5.13 All shares allotted under this Plan shall rank equally in all respects with shares of the same class then in issue except for any rights attaching to such shares by reference to a record date before the date of the allotment. 6. TAKEOVER, RECONSTRUCTION AND WINDING UP 6.1 If any person obtains control of the Company (within the meaning of section 840 of the Taxes Act 1988) or such equivalent legislation as approved by the Inland Revenue as a result of making a general offer to acquire shares in the Company, or having obtained control makes such an offer, the Board shall within 21 days of becoming aware thereof notify every Participant thereof and, subject to Rules 5.3, 5.4, 5.7 and 5.8, any option may be exercised within one month (or such longer period as the Board may permit) of the notification, but not later than 6 months after that person has obtained control. 6.2 For the purposes of Rule 6.1, a person shall be deemed to have obtained control of the Company if he and others acting in concert with him have together obtained control of it. 6.3 If a scheme of arrangement or compromise under section 425 of the Companies Act 1985 or such equivalent legislation as approved by the Inland Revenue is proposed, or if any person becomes bound or entitled to acquire shares in the Company under sections 428 to 430F of the Companies Act 1985 or such equivalent legislation as approved by the Inland Revenue, or if the Company passes a resolution for voluntary winding up, the Board shall forthwith notify every Participant thereof and, subject to Rules 5.3, 5.4, 5.7 and 5.8, any option may be exercised within one month of the notification (or such longer period as the Board may permit), but to the extent that it is not exercised within that period shall (notwithstanding any other provision of this Plan) lapse on the expiration of that period. 6.3.1 6.4 If any company ("the acquiring company"): 6.4.1 obtains control of the Company as a result of making- (a) a general offer to acquire the whole of the issued ordinary share capital of the Company which is made on a condition such that if it is satisfied the acquiring company will have control of the Company, or (b) a general offer to acquire all the shares in the Company which are of the same class as the shares which may be acquired by the exercise of options granted under this Plan, or 6.4.2 obtains control of the Company in pursuance of a compromise or arrangement sanctioned by the court under section 425 of the Companies Act 1985 or Article 418 of the Companies (Northern Ireland) Order 1986 or such equivalent legislation as approved by the Inland Revenue, or 6.4.3 becomes bound or entitled to acquire shares in the Company under sections 428 to 430F of that Act or Articles 421 to 423 of that Order or such equivalent legislation as approved by the Inland Revenue, any Participant may at any time within the appropriate period (which expression shall be construed in accordance with paragraph 15(2) of Schedule 9), by agreement with the acquiring company, release any option which has not lapsed ("the old option") in consideration of the grant to him of an option ("the new option") which (for the purposes of that paragraph) is equivalent to the old option but relates to shares in a different company (whether the acquiring company itself or some other company falling within paragraph 10(b) or (c) of Schedule 9). 6.5 The new option shall not be regarded for the purposes of Rule 6.5 as equivalent to the old option unless the conditions set out in paragraph 15(3) of Schedule 9 are satisfied, but so that the provisions of this Plan shall for this purpose be construed as if: 6.5.1 the new option were an option granted under this Scheme at the same time as the old option; 6.5.2 except for the purposes of the definitions of "Participating Company" and "Subsidiary" in Rules 1.1, 5.5 and 5.9, the expression "the Company" were defined as "a company whose shares may be acquired by the exercise of options granted under this Scheme"; 6.5.3 the Savings Contract made in connection with the old option had been made in connection with the new option; and 6.5.4 the Bonus Date in relation to the new option were the same as that in relation to the old option. 6.6 If: (a) the events referred to in this Rule 6 are part of an arrangement ("a Reorganisation") which will mean that the Company will be under the control of an other company (within the meaning of section 840 of the Taxes Act 1988 or such other legislation as approved by the Inland Revenue) or the business of the Company is carried on by another company; (b) the persons who owned the shares in Company immediately before the change of control will immediately afterwards own more than 50% of the shares in that company; and (c) an equivalent option is offered to the Participant pursuant to Rule 6.4, then an option shall not become exercisable as a result of the Reorganisation, but, and subject to earlier lapse under Rules 5.3, 5.4, 5.5, 5.7 and 5.8, shall lapse one month (or such longer period as the Board may permit) following the notification of the Reorganisation to every Participant. Notwithstanding that an option does not become exercisable, nothing in this Rule 6.6 shall prevent the provisions of Rule 6.4 from applying. Where Rule 6.4 is applied in these circumstances, the provisions of Rule 6.5 will also apply. 7. ADJUSTMENT OF OPTIONS 7.1 Subject to Rule 7.3, in the event of any variation of the share capital of the Company, the Board may make such adjustments as it considers appropriate under Rule 7.2. 7.2 An adjustment made under this Rule shall be to: 7.2.1 the number of shares in respect of which any option may be exercised; 7.2.2 the price at which shares may be acquired by the exercise of any option; 7.2.3 where any option has been exercised but no shares have been allotted or transferred pursuant to the exercise and amendments have been made to options under 7.2.1 and/or 7.2.2 above, then the same amendments will be made to the number of shares which may be so allotted or transferred and the price at which they may be acquired. 7.3 At a time when this Plan is approved by the Inland Revenue under Schedule 9, no adjustment under Rule 7.2 shall be made without the prior approval of the Inland Revenue. 7.4 An adjustment under Rule 7.2 may have the effect of reducing the price at which shares may be subscribed for on the exercise of an option to less than their nominal value, but only if and to the extent that the Board shall be authorised to capitalise from the reserves of the Company a sum equal to the amount by which the nominal value of the shares in respect of which the option is exercised exceeds the price at which the shares may be subscribed for and to apply that sum in paying up that amount on the shares; and so that on the exercise of any option in respect of which such a reduction shall have been made the Board shall capitalise that sum (if any) and apply it in paying up that amount. 7.5 If the shares subject to any option cease to satisfy the requirements of paragraphs 10 to 14 of Schedule 9 at any time after the Grant Day then:- 7.5.1 the Board shall as soon as practicable notify the Inland Revenue of this; 7.5.2 the Company will not be required to allot, transfer or procure the allotment or transfer of shares which satisfy those requirements upon the exercise of any option; 7.5.3 for the avoidance of doubt, all unexercised options shall continue to exist; and 7.5.4 the Plan shall continue to exist but if the Inland Revenue withdraw their approval of the Plan under Schedule 9, it shall continue to exist as an unapproved share option plan. 8. ALTERATIONS 8.1 Subject to Rule 8.2 the Board may at any time alter this Plan, provided that no alteration shall be made at a time when this Plan is approved by the Inland Revenue under Schedule 9 shall be effective until the alteration has been approved by the Inland Revenue. 8.2 The Board shall have complete power and authority to terminate the Plan, provided however that the Board shall not, without the approval of the stockholders of the Company, alter (i) the aggregate number of shares which may be issued under the Plan, or (ii) the class of employees eligible to receive options under the Plan. 8.3 If any alteration or adjustment is made which means that the Plan is outside the provisions of Schedule 9 and can no longer be approved by the Inland Revenue, the Company will notify the Inland Revenue of this as soon as is practicable. 9. MISCELLANEOUS 9.1 The rights and obligations of any individual under the terms of his office or employment with the Company or a Subsidiary or a Related Company shall not be affected by his participation in this Plan or any right which he may have to participate in it, and an individual who participates in it shall waive all and any rights to compensation or damages in consequence of the termination of his office or employment for any reason whatsoever insofar as those rights arise or may arise from his ceasing to have rights under or be entitled to exercise any option as a result of such termination. 9.2 In the event of any dispute or disagreement as to the interpretation of this Plan, or as to any question or right arising from or related to this Plan, the decision of the Board shall be final and binding upon all persons. 9.3 Any notice or other communication under or in connection with this Plan may be given: 9.3.1 by personal delivery or by sending it by post, in the case of a company to its registered office, and in the case of an individual to his last known address, or, where he is a director or employee of the Company or a Subsidiary or a Related Company, either to his last known address or to the address of the place of business at which he performs the whole or substantially the whole of the duties of his office or employment; or 9.3.2 in an electronic communication to an address for the time being notified for that purpose to the person giving the notice. 9.4 Unless the Board determines otherwise, any notice of exercise shall take effect only when received by the Company. 9.5 This Plan and all the options granted under it shall be governed by and construed in accordance with the law of England and Wales. EX-10.71 15 v96832exv10w71.txt EXHIBIT 10.71 EXHIBIT 10.71 COUNTRYWIDE FINANCIAL CORPORATION Selected Employee Deferred Compensation Plan Master Plan Document EFFECTIVE JANUARY 1, 2004 COPYRIGHT (C) 2003 BY CLARK CONSULTING, INC. EXECUTIVE BENEFITS PRACTICE ALL RIGHTS RESERVED COUNTRYWIDE FINANCIAL CORPORATION Selected Employee Deferred Compensation Plan Master Plan Document TABLE OF CONTENTS

-i- COUNTRYWIDE FINANCIAL CORPORATION Selected Employee Deferred Compensation Plan Master Plan Document ARTICLE 8 TERMINATION BENEFIT......................................... 17 8.1 TERMINATION BENEFIT......................................... 17 8.2 PAYMENT OF TERMINATION BENEFIT.............................. 17 ARTICLE 9 DISABILITY WAIVER AND BENEFIT............................... 17 9.1 DISABILITY WAIVER........................................... 17 9.2 CONTINUED ELIGIBILITY; DISABILITY BENEFIT................... 17 ARTICLE 10 SURVIVOR BENEFIT............................................ 18 10.1 SURVIVOR BENEFIT............................................ 18 10.2 PAYMENT OF SURVIVOR BENEFIT................................. 18 ARTICLE 11 BENEFICIARY DESIGNATION..................................... 18 11.1 BENEFICIARY................................................. 18 11.2 BENEFICIARY DESIGNATION; CHANGE OF BENEFICIARY DESIGNATION.. 19 11.3 ACKNOWLEDGEMENT............................................. 19 11.4 NO BENEFICIARY DESIGNATION.................................. 19 11.5 DOUBT AS TO BENEFICIARY..................................... 19 11.6 DISCHARGE OF OBLIGATIONS.................................... 19 ARTICLE 12 LEAVE OF ABSENCE............................................ 19 12.1 PAID LEAVE OF ABSENCE....................................... 19 12.2 UNPAID LEAVE OF ABSENCE..................................... 19 ARTICLE 13 TERMINATION, AMENDMENT OR MODIFICATION...................... 20 13.1 TERMINATION................................................. 20 13.2 AMENDMENT................................................... 20 13.3 PLAN AGREEMENT.............................................. 21 13.4 EFFECT OF PAYMENT........................................... 21 ARTICLE 14 ADMINISTRATION.............................................. 21 14.1 COMMITTEE DUTIES............................................ 21 14.2 ADMINISTRATION UPON CHANGE IN CONTROL....................... 21 14.3 AGENTS...................................................... 22 14.4 BINDING EFFECT OF DECISIONS................................. 22 14.5 INDEMNITY OF COMMITTEE...................................... 22 14.6 COMPANY INFORMATION......................................... 22 ARTICLE 15 OTHER BENEFITS AND AGREEMENTS............................... 22

-ii- COUNTRYWIDE FINANCIAL CORPORATION Selected Employee Deferred Compensation Plan Master Plan Document 15.1 COORDINATION WITH OTHER BENEFITS............................ 22 ARTICLE 16 CLAIMS PROCEDURES........................................... 23 16.1 PRESENTATION OF CLAIM....................................... 23 16.2 NOTIFICATION OF DECISION.................................... 23 16.3 REVIEW OF A DENIED CLAIM.................................... 23 16.4 DECISION ON REVIEW.......................................... 24 16.5 LEGAL ACTION................................................ 24 ARTICLE 17 TRUST....................................................... 24 17.1 ESTABLISHMENT OF THE TRUST.................................. 24 17.2 INTERRELATIONSHIP OF THE PLAN AND THE TRUST................. 24 17.3 DISTRIBUTIONS FROM THE TRUST................................ 25 ARTICLE 18 MISCELLANEOUS............................................... 25 18.1 STATUS OF PLAN.............................................. 25 18.2 UNSECURED GENERAL CREDITOR.................................. 25 18.3 COMPANY'S LIABILITY......................................... 25 18.4 NONASSIGNABILITY............................................ 25 18.5 NOT A CONTRACT OF EMPLOYMENT................................ 25 18.6 FURNISHING INFORMATION...................................... 26 18.7 TERMS....................................................... 26 18.8 CAPTIONS.................................................... 26 18.9 GOVERNING LAW............................................... 26 18.10 NOTICE...................................................... 27 18.11 SUCCESSORS.................................................. 27 18.12 SPOUSE'S INTEREST........................................... 27 18.13 VALIDITY.................................................... 27 18.14 INCOMPETENT................................................. 27 18.15 COURT ORDER................................................. 27 18.16 DISTRIBUTION IN THE EVENT OF TAXATION....................... 28 18.17 INSURANCE................................................... 28 18.18 LEGAL FEES TO ENFORCE RIGHTS AFTER CHANGE IN CONTROL........ 28

-iii- COUNTRYWIDE FINANCIAL CORPORATION Selected Employee Deferred Compensation Plan Master Plan Document COUNTRYWIDE FINANCIAL CORPORATION SELECTED EMPLOYEE DEFERRED COMPENSATION PLAN Effective January 1, 2004 PURPOSE The purpose of this Plan is to provide specified benefits to a select group of management or highly compensated Employees who contribute materially to the continued growth, development and future business success of Countrywide Financial Corporation, a Delaware corporation, and its subsidiaries, if any, that sponsor this Plan. This Plan shall be unfunded for tax purposes and for purposes of Title I of ERISA. ARTICLE 1 DEFINITIONS For the purposes of this Plan, unless otherwise clearly apparent from the context, the following phrases or terms shall have the following indicated meanings: 1.1 "Account Balance" shall mean, with respect to a Participant, a credit on the records of the Company equal to the sum of (i) the Deferral Account balance, (ii) the Company Contribution Account balance, and (iii) the Company Discretionary Match Account balance. The Account Balance, and each other specified account balance, shall be a bookkeeping entry only and shall be utilized solely as a device for the measurement and determination of the amounts to be paid to a Participant, or his or her designated Beneficiary, pursuant to this Plan. 1.2 "Annual Deferral Amount" shall mean that portion of a Participant's Base Salary and Compensation that a Participant defers in accordance with Article 3 for any one Plan Year. In the event of a Participant's Retirement, Covered Termination, Disability (if deferrals cease in accordance with Section 9.1), death or a Termination of Employment prior to the end of a Plan Year, such year's Annual Deferral Amount shall be the actual amount withheld prior to such event. 1.3 "Base Salary" shall mean the annual cash compensation relating to services performed during any calendar year, excluding distributions from nonqualified deferred compensation plans, bonuses, commissions, overtime, fringe benefits, stock options, relocation expenses, incentive payments, non-monetary awards, director fees and other fees, and automobile and other allowances paid to a Participant for employment services rendered (whether or not such allowances are included in the Employee's gross income). Base Salary shall be calculated before reduction for compensation voluntarily deferred or contributed by the Participant pursuant to all qualified or non-qualified plans of the Company and shall be calculated to include amounts not otherwise included in the Participant's gross income under Code Sections 125, 402(e)(3), 402(h), or 403(b) pursuant to plans established by the Company; provided, however, that all such amounts will be included in compensation only to the extent that had there been no such plan, the amount would have been payable in cash to the Employee. -1- COUNTRYWIDE FINANCIAL CORPORATION Selected Employee Deferred Compensation Plan Master Plan Document 1.4 "Beneficiary" shall mean one or more persons, trusts, estates or other entities, designated in accordance with Article 11, that are entitled to receive benefits under this Plan upon the death of a Participant. 1.5 "Beneficiary Designation Form" shall mean the form established from time to time by the Committee that a Participant completes, signs and returns to the Committee to designate one or more Beneficiaries. 1.6 "Board" shall mean the board of directors of the Company. 1.7 "Change in Control" shall mean the occurrence of any of the following events: (a) An acquisition (other than directly from Company) of any common stock or other "Voting Securities" (as hereinafter defined) of Company by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty-five percent (25%) or more of the then outstanding shares of Company's common stock or the combined voting power of the Company's then outstanding Voting Securities; provided, however, in determining whether a "Change in Control" has occurred, Voting Securities which are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. For purposes of this Plan, (1) "Voting Securities" shall mean Company's outstanding voting securities entitled to vote generally in the election of directors and (2) a "Non-Control Acquisition" shall mean an acquisition by (i) an employee benefit plan (or a trust forming a part thereof) maintained by (A) Company or (B) any corporation or other person of which a majority of its voting power or its voting equity securities or equity interests are owned directly, or indirectly, by Company (for purposes of this definition a "Subsidiary"), (ii) Company or any of its Subsidiaries, or (iii) any Person in connection with a "Non-Control Transaction" (as hereinafter defined); (b) The individuals who, as of May 6, 1996, are members of the Board (the "Incumbent Board"), cease for any reason to constitute at least two-thirds of the members of the Board; provided, however, that if the election, or nomination for election by Company's common stockholders of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Plan, be considered as a member of the Incumbent Board; provided, further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or -2- COUNTRYWIDE FINANCIAL CORPORATION Selected Employee Deferred Compensation Plan Master Plan Document (c) The consummation of: (i) A merger, consolidation or reorganization, involving Company, unless such merger, consolidation or reorganization is a "Non-Control Transaction." A "Non-Control Transaction" shall mean a merger, consolidation or reorganization of Company where: (a) the stockholders of Company, immediately before such merger, consolidation or reorganization, own directly or indirectly immediately following such merger, consolidation or reorganization, at least seventy percent (70%) of the combined voting power of the outstanding Voting Securities of the corporation resulting from such merger, consolidation or reorganization (the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation or reorganization; (b) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute at least two-thirds of the members of the Board of Directors of the Surviving Corporation, in the event that, immediately following the consummation of such transaction, a corporation beneficially owns, directly or indirectly, a majority of the Voting Securities of the Surviving Corporation, the Board of Directors of such Corporation; and (c) no Person other than (i) Company, (ii) any Subsidiary, (iii) any employee benefit plan (or any trust forming a part thereof) maintained by Company, the Surviving Corporation, or any Subsidiary, or (iv) any Person who, immediately prior to such merger, consolidation or reorganization had Beneficial Ownership of twenty-five (25%) or more of the then outstanding Voting Securities or common stock of Company, has Beneficial Ownership of twenty-five (25%) or more of the combined voting power of the Surviving Corporation's then outstanding Voting Securities or its common stock; (ii) A complete liquidation or dissolution of Company; or (iii) The sale or other disposition of all or substantially all of the assets of Company to any Person (other than a transfer to a Subsidiary). Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the then outstanding common stock or Voting Securities as a result of the acquisition of common stock or Voting Securities by Company, which by reducing the number of shares of common stock or Voting Securities then outstanding, increases the proportional number of shares Beneficially Owned by the Subject Persons; provided, however, that if a Change in Control -3- COUNTRYWIDE FINANCIAL CORPORATION Selected Employee Deferred Compensation Plan Master Plan Document would occur (but for the operation of this sentence) as a result of the acquisition of common stock or Voting Securities by Company, and after such share acquisition by Company, the Subject Person becomes the Beneficial Owner of any additional common stock or Voting Securities which increases the percentage of the then outstanding common stock or Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. Notwithstanding anything to the contrary contained herein, if the employment of a Participant is terminated (i) at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control and who effectuates a Change in Control, or (ii) otherwise in connection with, or in anticipation of, a Change in Control which actually occurs, then for purposes of this Plan the date of a Change in Control with respect to that Participant shall be deemed to be the date immediately prior to the date of the Participant's termination. 1.8 "Change in Control Benefit" shall have the meaning set forth in Article 6. 1.9 "Claimant" shall have the meaning set forth in Section 16.1. 1.10 "Code" shall mean the Internal Revenue Code of 1986, as it may be amended from time to time. 1.11 "Committee" shall mean the committee described in Article 14. 1.12 "Company" shall mean Countrywide Financial Corporation, a Delaware corporation, and any successor to all or substantially all of the Company's assets or business. 1.13 "Company Contribution Account" shall mean (i) the sum of the Participant's Company Contribution Amounts, plus (ii) amounts credited or debited to the Participant's Company Contribution Account in accordance with this Plan, less (iii) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to the Participant's Company Contribution Account. 1.14 "Company Contribution Amount" shall mean, for any one Plan Year, the amount determined in accordance with Section 3.4. 1.15 "Company Discretionary Match Account" shall mean (i) the sum of all of a Participant's Company Discretionary Match Amounts, plus (ii) amounts credited or debited to the Participant's Company Discretionary Match Account in accordance with this Plan, less (iii) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to the Participant's Company Discretionary Match Account. 1.16 "Company Discretionary Match Amount" for any one Plan Year shall be the amount determined in accordance with Section 3.5. 1.17 "Compensation" shall mean the amount of "Bonus" and/or "Commissions" relating to a Plan Year. For purposes of this Plan, Bonus and Commissions shall be defined as follows: (a) "Bonus" shall mean any earnings, in addition to Base Salary and Commissions, attributable to a Plan Year as further specified on an Election Form, approved by the Committee in its sole discretion, under any annual bonus and cash incentive plans, excluding stock options. -4- COUNTRYWIDE FINANCIAL CORPORATION Selected Employee Deferred Compensation Plan Master Plan Document (b) "Commissions" shall mean the cash commissions attributable to a Plan Year as further specified on an Election Form, approved by the Committee in its sole discretion, excluding Bonus or other additional incentives or awards payable to the Participant. 1.18 "Covered Termination" shall mean the termination of a Participant's employment with the Company which causes such Participant to be eligible for a benefit under the Company's Change in Control Severance Plan. 1.19 "Deduction Limitation" shall mean the limitation on a benefit that may otherwise be distributable pursuant to the provisions of this Plan, as set forth in Article 4. 1.20 "Deferral Account" shall mean (i) the sum of all of a Participant's Annual Deferral Amounts, plus (ii) amounts credited or debited to the Participant's Deferral Account in accordance with this Plan, less (iii) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to his or her Deferral Account. 1.21 "Disability" or "Disabled" shall mean a determination that a Participant is disabled made by either (i) the carrier of any individual or group disability insurance policy, sponsored by the Company, or (ii) the Social Security Administration. Upon request by the Company, the Participant must submit proof of the carrier's or Social Security Administration's determination. 1.22 "Disability Benefit" shall mean the benefit set forth in Article 9. 1.23 "Election Form" shall mean the form established from time to time by the Committee that a Participant completes, signs and returns to the Committee to make an election under the Plan. 1.24 "Employee" shall mean a person who is an employee of the Company, as determined by the Committee. 1.25 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as it may be amended from time to time. 1.26 "In-Service Distribution" shall mean the distribution set forth in Section 5.1. 1.27 "Monthly Installment Method" shall be a monthly installment payment over the number of months selected by the Participant in accordance with this Plan, calculated as follows: (i) for the first monthly installment, the vested portion of the Account Balance of the Participant shall be calculated as of the close of business on or around the date on which the Participant Retires, is deemed to have Retired in accordance with Section 9.2(c) or experiences a Covered Termination, as determined by the Committee in its sole discretion, and (ii) for remaining monthly installments, the vested portion of the Account Balance of the Participant shall be calculated on or around the last business day of the preceding month. Each monthly installment shall be calculated by multiplying this balance by a fraction, the numerator of which is one and the denominator of which is the remaining number of monthly payments due the Participant. By way of example, if the Participant elects to receive his or her Account Balance pursuant to a Monthly Installment Method of 120 months, the first payment shall be 1/120 of the vested Account Balance, calculated as described in this definition. The following month, the payment shall be 1/119 of the vested Account Balance, calculated as described in this definition. -5- COUNTRYWIDE FINANCIAL CORPORATION Selected Employee Deferred Compensation Plan Master Plan Document 1.28 "Participant" shall mean any Employee (i) who is selected to participate in the Plan, (ii) who elects to participate in the Plan, (iii) who signs a Plan Agreement, an Election Form and a Beneficiary Designation Form, (iv) whose signed Plan Agreement, Election Form and Beneficiary Designation Form are accepted by the Committee, (v) who commences participation in the Plan, and (vi) whose Plan Agreement has not terminated. A spouse or former spouse of a Participant shall not be treated as a Participant in the Plan or have an account balance under the Plan, even if he or she has an interest in the Participant's benefits under the Plan as a result of applicable law or property settlements resulting from legal separation or divorce. 1.29 "Plan" shall mean the Countrywide Financial Corporation Selected Employee Deferred Compensation Plan, which shall be evidenced by this instrument and by each Plan Agreement, as they may be amended from time to time. 1.30 "Plan Agreement" shall mean a written agreement, as may be amended from time to time, which is entered into by and between the Company and a Participant. Each Plan Agreement executed by a Participant and the Company shall provide for the entire benefit to which such Participant is entitled under the Plan; should there be more than one Plan Agreement, the Plan Agreement bearing the latest date of acceptance by the Company shall supersede all previous Plan Agreements in their entirety and shall govern such entitlement. The terms of any Plan Agreement may be different for any Participant, and any Plan Agreement may provide additional benefits not set forth in the Plan or limit the benefits otherwise provided under the Plan; provided, however, that any such additional benefits or benefit limitations must be agreed to by both the Company and the Participant. 1.31 "Plan Year" shall mean a period beginning on January 1 of each calendar year and continuing through December 31 of such calendar year. 1.32 "Retirement", "Retire(s)" or "Retired" shall mean termination of employment from the Company for any reason other than a leave of absence, death or Disability on or after the earlier of the attainment of (a) age sixty-five (65) or (b) age fifty-five (55) with eleven (11) Years of Service. 1.33 "Retirement Benefit" shall mean the benefit set forth in Article 7. 1.34 "Survivor Benefit" shall mean the benefit set forth in Article 10. 1.35 "Termination Benefit" shall mean the benefit set forth in Article 8. 1.36 "Termination of Employment" shall mean the severing of employment with the Company, voluntarily or involuntarily, for any reason other than a Covered Termination, Retirement, Disability, death or an authorized leave of absence. 1.37 "Trust" shall mean one or more trusts established by the Company in accordance with Article 17. 1.38 "Unforeseeable Financial Emergency" shall mean an unanticipated emergency that is caused by an event beyond the control of the Participant that would result in severe financial hardship to the Participant resulting from (i) a sudden and unexpected illness or accident of the Participant or a dependent of the Participant, (ii) a loss of the Participant's property due to casualty, or (iii) such other extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, all as determined in the sole discretion of the Committee. -6- COUNTRYWIDE FINANCIAL CORPORATION Selected Employee Deferred Compensation Plan Master Plan Document 1.39 "Years of Service" shall mean the total number of full years in which a Participant has been employed by the Company. For purposes of this definition, a year of employment shall be a 365 day period (or 366 day period in the case of a leap year) that, for the first year of employment, commences on the Employee's date of hiring and that, for any subsequent year, commences on an anniversary of that hiring date. The Committee in its discretion may adjust the hire date of a Participant solely for purposes of this Plan to reflect prior Years of Service in the event a Participant is re-hired by the Company. The Committee shall make a determination as to whether any partial year of employment shall be counted as a Year of Service. ARTICLE 2 SELECTION, ENROLLMENT, ELIGIBILITY 2.1 SELECTION BY COMMITTEE. Participation in the Plan shall be limited to a select group of management and highly compensated Employees, as determined by the Committee in its sole discretion. From that group, the Committee shall select, in its sole discretion, Employees to participate in the Plan. 2.2 ENROLLMENT REQUIREMENTS. As a condition to participation, each selected Employee shall complete, execute and return to the Committee a Plan Agreement, an Election Form and a Beneficiary Designation Form, all within thirty (30) days after he or she is selected to participate in the Plan. In addition, the Committee shall establish from time to time such other enrollment requirements as it determines in its sole discretion are necessary. 2.3 ELIGIBILITY; COMMENCEMENT OF PARTICIPATION. Provided an Employee selected to participate in the Plan has met all enrollment requirements set forth in this Plan and required by the Committee, including returning all required documents to the Committee within the specified time period, that Employee shall commence participation in the Plan on the first day of the month following the month in which the Employee completes all enrollment requirements. If an Employee fails to meet all such requirements within the period required, in accordance with Section 2.2, that Employee shall not be eligible to participate in the Plan until the first day of the Plan Year following the delivery to and acceptance by the Committee of the required documents. 2.4 TERMINATION OF PARTICIPATION AND/OR DEFERRALS. If the Committee determines in good faith that a Participant no longer qualifies as a member of a select group of management or highly compensated employees, as membership in such group is determined in accordance with Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA, the Committee shall have the right, in its sole discretion, to (i) terminate any deferral election the Participant has made for the remainder of the Plan Year in which the Participant's membership status changes, (ii) prevent the Participant from making future deferral elections and/or (iii) immediately distribute the Participant's then vested Account Balance as a Termination Benefit and terminate the Participant's participation in the Plan. 2.5 RE-COMMENCEMENT OF PARTICIPATION. If a Participant leaves the employment of the Company and is subsequently re-hired as an Employee, the Committee shall have the right, in its sole discretion, to (i) cease benefit payments under the Plan, if any, and/or (ii) allow the Participant to -7- COUNTRYWIDE FINANCIAL CORPORATION Selected Employee Deferred Compensation Plan Master Plan Document re-commence participation in the Plan as soon as administratively practicable following the date on which the Participant completes all enrollment requirements. ARTICLE 3 DEFERRAL COMMITMENTS/COMPANY CONTRIBUTION AMOUNTS/COMPANY DISCRETIONARY MATCH/ VESTING/CREDITING/TAXES 3.1 MAXIMUM DEFERRAL. (a) ANNUAL DEFERRAL AMOUNT. For each Plan Year, a Participant may elect to defer, as his or her Annual Deferral Amount, Base Salary and Compensation up to the following maximum percentages for each deferral elected:
DEFERRAL MAXIMUM AMOUNT - -------------------------------- ~~Base Salary 75% Compensation: Commissions 75% Bonus 75%~~
(b) SHORT PLAN YEAR. Notwithstanding the foregoing, if a Participant first becomes a Participant after the first day of a Plan Year, the maximum Annual Deferral Amount (i) with respect to Base Salary shall be limited to the amount of compensation not yet earned by the Participant as of the date the Participant submits a Plan Agreement and Election Form to the Committee for acceptance, and (ii) with respect to Compensation shall be limited to those amounts deemed eligible for deferral, in the sole discretion of the Committee. 3.2 ELECTION TO DEFER; EFFECT OF ELECTION FORM. (a) FIRST PLAN YEAR. In connection with a Participant's commencement of participation in the Plan, the Participant shall make an irrevocable deferral election for the Plan Year in which the Participant commences participation in the Plan, along with such other elections as the Committee deems necessary or desirable under the Plan. For these elections to be valid, the Election Form must be completed and signed by the Participant, timely delivered to the Committee (in accordance with Section 2.2 above) and accepted by the Committee. (b) SUBSEQUENT PLAN YEARS. For each succeeding Plan Year, an irrevocable deferral election for that Plan Year, and such other elections as the Committee deems necessary or desirable under the Plan, shall be made by timely delivering a new Election Form to the Committee, in accordance with its rules and procedures, before the end of the Plan Year preceding the Plan Year for which the election is made. If no such Election Form is timely delivered for a Plan Year, the Annual Deferral Amount shall be zero for that Plan Year. -8- COUNTRYWIDE FINANCIAL CORPORATION Selected Employee Deferred Compensation Plan Master Plan Document 3.3 WITHHOLDING AND CREDITING OF ANNUAL DEFERRAL AMOUNTS. For each Plan Year, the Base Salary portion of the Annual Deferral Amount shall be withheld from each regularly scheduled Base Salary payroll in equal amounts, as adjusted from time to time for increases and decreases in Base Salary. The Compensation portion of the Annual Deferral Amount shall be withheld at the time the Compensation is paid to the Participant, whether or not this occurs during the Plan Year itself. Annual Deferral Amounts shall be credited to a Participant's Deferral Account at the time such amounts would otherwise have been paid to the Participant. 3.4 COMPANY CONTRIBUTION AMOUNT. For each Plan Year, the Company, in its sole discretion, may, but is not required to, credit any amount it desires to any Participant's Company Contribution Account under this Plan, which amount shall be for that Participant the Company Contribution Amount for that Plan Year. The amount so credited to a Participant may be smaller or larger than the amount credited to any other Participant, and the amount credited to any Participant for a Plan Year may be zero, even though one or more other Participants receive a Company Contribution Amount for that Plan Year. The Company Contribution Amount described in this Section, if any, shall be credited on a date or dates to be determined by the Committee, in its sole discretion. 3.5 COMPANY DISCRETIONARY MATCH. A Participant's Company Discretionary Match for any Plan Year shall be equal to a percentage of his or her Annual Deferral Amount for such Plan Year, up to an amount that does not exceed 10% of such Participant's Annual Deferral Amount, which percentage shall be calculated by multiplying (i) one-percent (1%), by (ii) the Participant's Years of Service, as determined by the Committee in its sole discretion. The Committee may adjust this formula at any time. The amount so credited to a Participant under this Plan shall be for that Participant the Company Discretionary Match Amount for that Plan Year and shall be credited to the Participant's Company Discretionary Match Account on a date or dates to be determined by the Committee, in its sole discretion. 3.6 VESTING. (a) A Participant shall at all times be 100% vested in his or her Deferral Account. (b) A Participant shall vest in the Company Contribution Amount described in Section 3.4 plus amounts credited or debited on such amounts (pursuant to Section 3.7), in accordance with the vesting schedule(s) set forth in his or her Plan Agreement, employment agreement or any other agreement entered into between the Participant and the Company. If not addressed in such agreements, a Participant shall vest in each Company Contribution Amount described in Section 3.4, plus amounts credited or debited on such amounts (pursuant to Section 3.7), based on the number of years that have elapsed after the date on which the Company Contribution Amount is contributed to the Participant's Company Contribution Account, in accordance with the schedule set forth below; provided, however, the Participant must remain in the continuous service as an Employee through each applicable anniversary in order to receive vesting credit for such Plan Year. A new vesting schedule shall apply to each Company Contribution Amount that is credited to the Participant's Company Contribution Account. -9- COUNTRYWIDE FINANCIAL CORPORATION Selected Employee Deferred Compensation Plan Master Plan Document
TIME ELAPSED AFTER THE DATE ON WHICH THE COMPANY CONTRIBUTION AMOUNT IS CONTRIBUTED TO THE PARTICIPANT'S COMPANY CONTRIBUTION ACCOUNT VESTED PERCENTAGE - ------------------------------------------------ ----------------- Less than 2 years 0% 2 years or more, but less than 3 34% 3 years or more, but less than 4 67% 4 years or more 100%
(c) A Participant shall vest in each Company Discretionary Match Amount described in Section 3.5 credited to his or her Company Discretionary Match Account, plus amounts credited or debited on such amounts (pursuant to Section 3.7), based on the number of years that have elapsed after the date on which the Company Discretionary Match Amount is contributed to the Participant's Company Discretionary Match Account, in accordance with the schedule set forth below; provided, however, the Participant must remain in the continuous service as an Employee through each applicable anniversary in order to receive vesting credit for such Plan Year. A new vesting schedule shall apply to each Company Discretionary Match Amount credited to his or her Company Discretionary Match Account.
TIME ELAPSED AFTER THE DATE ON WHICH THE COMPANY DISCRETIONARY MATCH AMOUNT IS CONTRIBUTED TO THE PARTICIPANT'S COMPANY DISCRETIONARY MATCH ACCOUNT VESTED PERCENTAGE - ------------------------------------------------ ----------------- Less than 2 years 0% 2 years or more, but less than 3 34% 3 years or more, but less than 4 67% 4 years or more, 100%
(d) Notwithstanding anything to the contrary contained in this Section 3.6, in the event of a Participant's Covered Termination, or upon a Participant's Retirement, death while employed by the Company, or Disability, a Participant's Company Contribution Account and Company Discretionary Match Account shall immediately become 100% vested (if it is not already vested in accordance with the above vesting schedules). (e) Notwithstanding subsection 3.6(d) above, the vesting schedule for a Participant's Company Contribution Account and Company Discretionary Match Account shall not be accelerated upon a Covered Termination to the extent that the Committee determines that 10.71 Selected Deferred Comp Plan -10- COUNTRYWIDE FINANCIAL CORPORATION Selected Employee Deferred Compensation Plan Master Plan Document such acceleration would cause the deduction limitations of section 280G of the Code to become effective. In the event that all of a Participant's Company Contribution Account and/or Company Discretionary Match Account is not vested pursuant to such a determination, the Participant may request independent verification of the Committee's calculations with respect to the application of section 280G. In such case, the Committee must provide to the Participant within ninety (90) days of such a request an opinion from a nationally recognized accounting firm selected by the Participant (the "Accounting Firm"). The opinion shall state the Accounting Firm's opinion that any limitation in the vested percentage hereunder is necessary to avoid the limits of section 280G and contain supporting calculations. The cost of such opinion shall be paid for by the Company. (f) Section 3.6(e) shall not prevent the acceleration of the vesting schedule applicable to a Participant's Company Contribution Account and/or Company Discretionary Match Account if such Participant is entitled to a "gross-up" payment, to eliminate the effect of the Code section 4999 excise tax, pursuant to his or her employment agreement or other agreement entered into between such Participant and the Company. 3.7 CREDITING/DEBITING OF ACCOUNT BALANCES. In accordance with, and subject to, the rules and procedures that are established from time to time by the Committee, in its sole discretion, amounts shall be credited or debited to a Participant's Account Balance in accordance with the following rules: (a) MEASUREMENT FUNDS. Subject to the restrictions found in Section 3.7(c) below, the Participant may elect one or more of the measurement funds selected by the Countrywide Financial Corporation Investment Committee of Employee Benefit Plans, in its sole discretion, which are based on certain mutual funds (the "Measurement Funds"), for the purpose of crediting or debiting additional amounts to his or her Account Balance. As necessary, the Countrywide Financial Corporation Investment Committee of Employee Benefit Plans may, in its sole discretion, discontinue, substitute or add a Measurement Fund. Each such action will take effect as of the first day of the first calendar quarter that begins at least thirty (30) days after the day on which the Countrywide Financial Corporation Investment Committee of Employee Benefit Plans gives Participants advance written notice of such change. (b) ELECTION OF MEASUREMENT FUNDS. Subject to the restrictions found in Section 3.7(c) below, a Participant, in connection with his or her initial deferral election in accordance with Section 3.2(a) above, shall elect, on the Election Form, one or more Measurement Fund(s) (as described in Section 3.7(a) above) to be used to determine the amounts to be credited or debited to his or her Account Balance. If a Participant does not elect any of the Measurement Funds as described in the previous sentence, the Participant's Account Balance shall automatically be allocated into the lowest-risk Measurement Fund, as determined by the Committee, in its sole discretion. Subject to the restrictions found in Section 3.7(c) below, the Participant may (but is not required to) elect, by submitting an Election Form to the Committee that is accepted by the Committee, to add or delete one or more Measurement Fund(s) to be used to determine the amounts to be credited or debited to his or her Account Balance, or to change the portion of his or her Account 10.71 Selected Deferred Comp Plan -11- COUNTRYWIDE FINANCIAL CORPORATION Selected Employee Deferred Compensation Plan Master Plan Document Balance allocated to each previously or newly elected Measurement Fund. If an election is made in accordance with the previous sentence, it shall apply as of the first business day deemed reasonably practicable by the Committee, in its sole discretion, and shall continue thereafter for each subsequent day in which the Participant participates in the Plan, unless changed in accordance with the previous sentence. (c) FIXED RATE FUND OR OTHER SPECIAL MEASUREMENT FUND. If the Countrywide Financial Corporation Investment Committee of Employee Benefit Plans, in its sole discretion, adds a Fixed Rate Fund Measurement Fund or other special Measurement Fund to this Plan, the provisions this Section 3.7(c) shall apply. Prior to each Plan Year, the Committee shall, in its sole discretion, determine whether it (i) will allow allocations to and/or from the Fixed Rate Fund Measurement Fund or other special Measurement Fund, (ii) will require allocations to and/or from the Fixed Rate Fund Measurement Fund or other special Measurement Fund only upon advance written notification of a Participant's intended allocation, and (iii) will impose limits on the portion of a Participant's Account Balance that may be invested in the Fixed Rate Fund Measurement Fund or other special Measurement Fund, at any given time. In the event that the Committee imposes a limit on the portion of a Participant's Account Balance that may be invested in the Fixed Rate Fund Measurement Fund or other special Measurement Fund, the Committee may request that a Participant re-allocate his or her Account Balance among the other Measurement Funds; provided, however, if a Participant fails or refuses to re-allocate his or her Account Balance in accordance with the Committee's request, the Committee may re-allocate that portion of the Participant's Account Balance which is in excess of the limits imposed on the Fixed Rate Fund Measurement Fund or other special Measurement Fund, on a pro-rata basis, among the Measurement Funds to which the Participant's Account Balance is allocated. (d) PROPORTIONATE ALLOCATION. In making any election described in Section 3.7(b) above, the Participant shall specify on the Election Form, in increments of one percent (1%), the percentage of his or her Account Balance to be allocated to a Measurement Fund (as if the Participant was making an investment in that Measurement Fund with that portion of his or her Account Balance). (e) CREDITING OR DEBITING METHOD. The performance of each Measurement Fund (either positive or negative) will be determined by the Committee, in its sole discretion on a daily basis based on the manner in which such Participant's Account Balance has been hypothetically allocated among the Measurement Funds by the Participant. (f) NO ACTUAL INVESTMENT. Notwithstanding any other provision of this Plan that may be interpreted to the contrary, the Measurement Funds are to be used for measurement purposes only, and a Participant's election of any such Measurement Fund, the allocation of his or her Account Balance thereto, the calculation of additional amounts and the crediting or debiting of such amounts to a Participant's Account Balance shall not be considered or construed in any manner ----- --- as an actual investment of his or her Account Balance in any such Measurement Fund. In the event that the Company or the Trustee (as that term is defined in the Trust), in its own discretion, decides to invest funds in any or 10.71 Selected Deferred Comp Plan -12- COUNTRYWIDE FINANCIAL CORPORATION Selected Employee Deferred Compensation Plan Master Plan Document all of the investments on which the Measurement Funds are based, no Participant shall have any rights in or to such investments themselves. Without limiting the foregoing, a Participant's Account Balance shall at all times be a bookkeeping entry only and shall not represent any investment made on his or her behalf by the Company or the Trust; the Participant shall at all times remain an unsecured creditor of the Company. 3.8 FICA AND OTHER TAXES. (a) ANNUAL DEFERRAL AMOUNTS. For each Plan Year in which an Annual Deferral Amount is being withheld from a Participant, the Company shall withhold from that portion of the Participant's Base Salary and Compensation that is not being deferred, in a manner determined by the Company, the Participant's share of FICA and other employment taxes on such Annual Deferral Amount. If necessary, the Committee may reduce the Annual Deferral Amount in order to comply with this Section 3.8. (b) COMPANY DISCRETIONARY MATCH ACCOUNT AND COMPANY CONTRIBUTION ACCOUNT. When a Participant becomes vested in a portion of his or her Company Discretionary Match Account or Company Contribution Account, the Company shall withhold from the Participant's Base Salary and Compensation that is not deferred, in a manner determined by the Company, the Participant's share of FICA and other employment taxes. If necessary, the Committee may reduce the vested portion of the Participant's Company Discretionary Match Account or Company Contribution Account, as applicable, in order to comply with this Section 3.8. (c) DISTRIBUTIONS. The Company, or the trustee of the Trust, shall withhold from any payments made to a Participant under this Plan all federal, state and local income, employment and other taxes required to be withheld by the Company, or the trustee of the Trust, in connection with such payments, in amounts and in a manner to be determined in the sole discretion of the Company and the trustee of the Trust. ARTICLE 4 DEDUCTION LIMITATION 4.1 DEDUCTION LIMITATION ON BENEFIT PAYMENTS. If the Company determines in good faith prior to a Change in Control that there is a reasonable likelihood that any compensation paid to a Participant for a taxable year of the Company would not be deductible by the Company solely by reason of the limitation under Code Section 162(m), then to the extent deemed necessary by the Company to ensure that the entire amount of any distribution to the Participant pursuant to this Plan prior to the Change in Control is deductible, the Company may defer all or any portion of a distribution under this Plan. Any amounts deferred pursuant to this limitation shall continue to be credited/debited with additional amounts in accordance with Section 3.7 above, even if such amount is being paid out in installments. The amounts so deferred and amounts credited thereon shall be distributed to the Participant or his or her Beneficiary (in the event of the Participant's death) at the earliest possible date, as determined by the Company in good faith, on which the deductibility of compensation paid or payable to the Participant for the taxable year of the Company during which the distribution is made will not be limited by Section 162(m), or if 10.71 Selected Deferred Comp Plan -13- COUNTRYWIDE FINANCIAL CORPORATION Selected Employee Deferred Compensation Plan Master Plan Document earlier, the effective date of a Change in Control. Notwithstanding anything to the contrary in this Plan, the Deduction Limitation shall not apply to any distributions made after a Change in Control. ARTICLE 5 IN-SERVICE DISTRIBUTION; UNFORESEEABLE FINANCIAL EMERGENCIES; WITHDRAWAL ELECTION 5.1 IN-SERVICE DISTRIBUTION. In connection with each election to defer an Annual Deferral Amount, a Participant may irrevocably elect to receive an In-Service Distribution from the Plan with respect to all or a portion of the Annual Deferral Amount. The In-Service Distribution shall be a lump sum payment in an amount that is equal to the portion of the Annual Deferral Amount that the Participant elected to have distributed as an In-Service Distribution, plus amounts credited or debited in the manner provided in Section 3.7 above on that amount, calculated as of the close of business on or around the date on which the In-Service Distribution becomes payable, as determined by the Committee in its sole discretion. Subject to the other terms and conditions of this Plan, each In-Service Distribution elected shall be paid out during a sixty (60) day period commencing immediately after the first day of any Plan Year designated by the Participant. The Plan Year designated by the Participant must be at least three Plan Years after the end of the Plan Year in which the Annual Deferral Amount is actually deferred. By way of example, if an In-Service Distribution is elected for Annual Deferral Amounts that are deferred in the Plan Year commencing January 1, 2004, the In-Service Distribution would become payable during a sixty (60) day period commencing January 1, 2008. 5.2 OTHER BENEFITS TAKE PRECEDENCE OVER IN-SERVICE DISTRIBUTIONS. Should an event occur that triggers a benefit under Article 6, 7, 8, 9 or 10, any Annual Deferral Amount, plus amounts credited or debited thereon, that is subject to an In-Service Distribution election under Section 5.1 shall not be paid in accordance with Section 5.1 but shall be paid in accordance with the other applicable Article. 5.3 WITHDRAWAL PAYOUT/SUSPENSIONS FOR UNFORESEEABLE FINANCIAL EMERGENCIES. (a) If the Participant experiences an Unforeseeable Financial Emergency, the Participant may petition the Committee to suspend deferrals of Base Salary and Compensation required to be made by such Participant, to the extent deemed necessary by the Committee to satisfy the Unforeseeable Financial Emergency. If suspension of deferrals is not sufficient to satisfy the Participant's Unforeseeable Financial Emergency, the Participant may further petition the Committee to receive a partial or full payout from the Plan. The Participant shall only receive a payout from the Plan to the extent such payout is deemed necessary by the Committee to satisfy the Participant's Unforeseeable Financial Emergency. (b) The payout shall not exceed the lesser of (i) the portion of the Participant's vested Account Balance which is attributable to his or her Deferral Account, calculated as of the close of business on or around the date on which the amount becomes payable, as determined by the Committee in its sole discretion, or (ii) the amount reasonably needed to satisfy the Unforeseeable Financial Emergency. Notwithstanding the foregoing, a 10.71 Selected Deferred Comp Plan -14- COUNTRYWIDE FINANCIAL CORPORATION Selected Employee Deferred Compensation Plan Master Plan Document Participant may not receive a payout from the Plan to the extent that the Unforeseeable Financial Emergency is or may be relieved (A) through reimbursement or compensation by insurance or otherwise, (B) by liquidation of the Participant's assets, to the extent the liquidation of such assets would not itself cause severe financial hardship or (C) by suspension of deferrals under this Plan. (c) If the Committee, in its sole discretion, approves a Participant's petition for suspension, the Participant's deferrals under this Plan shall be suspended as of the date of such approval. If the Committee, in its sole discretion, approves a Participant's petition for suspension and payout, the Participant's deferrals under this Plan shall be suspended as of the date of such approval and the Participant shall receive a payout from the Plan within sixty (60) days of the date of such approval. 5.4 WITHDRAWAL ELECTION. (a) At any time prior to Retirement, death, Disability, Covered Termination, or Termination of Employment, a Participant may elect to withdraw all or a portion of his or her Deferral Account. For purposes of this Section 5.4(a), the value of a Participant's Deferral Account shall be calculated as of the close of business on the date on which receipt of the Participant's election is acknowledged by the Committee, as determined by the Committee in its sole discretion, less a withdrawal penalty equal to ten percent (10%) of the amount withdrawn (the net amount shall be referred to as the "Withdrawal Amount"). (b) At any time after Retirement, Disability or a Covered Termination, a Participant may elect, at any time, to withdraw all or a portion of his or her entire vested Account Balance. For purposes of this Section 5.4(b), the value of a Participant's vested Account Balance shall be calculated as of the close of business on the date on which receipt of the Participant's election is acknowledged by the Committee, as determined by the Committee in its sole discretion, less a withdrawal penalty equal to ten percent (10%) of the amount withdrawn (the net amount shall be referred to as the "Withdrawal Amount"). The Participant shall make this election by giving the Committee advance written notice of the election in a form determined from time to time by the Committee. The Participant shall be paid the Withdrawal Amount in a lump sum within sixty (60) days of his or her election. Once the Withdrawal Amount is paid, the Participant's participation in the Plan shall be suspended for the remainder of the Plan Year in which the withdrawal is elected and for one (1) full Plan Year thereafter (the "Suspension Period"). During the Suspension Period, the Participant will continue to be eligible for the benefits provided in Articles 5, 6, 7, 8, 9 or 10 in accordance with the provisions of those Articles. However, the Participant's Annual Deferral Amount shall not be withheld during the Suspension Period, and the Participant shall not be allowed to make any deferral elections during the Suspension Period. 10.71 Selected Deferred Comp Plan -15- COUNTRYWIDE FINANCIAL CORPORATION Selected Employee Deferred Compensation Plan Master Plan Document ARTICLE 6 CHANGE IN CONTROL BENEFIT 6.1 CHANGE IN CONTROL BENEFIT. A Participant will receive a Change in Control Benefit if he or she experiences a Covered Termination prior to becoming eligible for the benefits provided in Articles 5, 6, 7, 8, 9 or 10 in accordance with the provisions of those Articles. The Change in Control Benefit shall be equal to the Participant's vested Account Balance, calculated as of the close of business on or around the date on which the Participant experiences the Covered Termination, as determined by the Committee in its sole discretion. 6.2 PAYMENT OF CHANGE IN CONTROL BENEFIT. A Participant, in connection with his or her commencement of participation in the Plan, shall irrevocably elect on an Election Form to receive the Change in Control Benefit in a lump sum or pursuant to a Monthly Installment Method over thirty-six (36) months. If a Participant does not make any election with respect to the payment of the Change in Control Benefit, then such benefit shall be payable in a lump sum. The lump sum payment shall be made, or installment payments shall commence, no later than sixty (60) days after the date on which the Participant experiences a Covered Termination, as determined by the Committee in its sole discretion. Remaining installments, if any, shall be paid no later than fifteen (15) days after the last business day of the preceding month. ARTICLE 7 RETIREMENT BENEFIT 7.1 RETIREMENT BENEFIT. A Participant who Retires shall receive, as a Retirement Benefit, his or her vested Account Balance, calculated as of the close of business on or around the date on which the Participant Retires, as determined by the Committee in its sole discretion. 7.2 PAYMENT OF RETIREMENT BENEFIT. A Participant, in connection with his or her commencement of participation in the Plan, shall elect on an Election Form to receive the Retirement Benefit in a lump sum or pursuant to a Monthly Installment Method of 60, 120 or 180 months. The Participant may change his or her election to an allowable alternative payout period by submitting a new Election Form to the Committee or its designee, provided that any such Election Form is submitted to and accepted by the Committee or its designee in its sole discretion at least thirteen (13) months prior to the Participant's Retirement. The Election Form most recently accepted by the Committee shall govern the payout of the Retirement Benefit. If a Participant does not make any election with respect to the payment of the Retirement Benefit, then such benefit shall be payable in a lump sum. The lump sum payment shall be made, or installment payments shall commence, no later than sixty (60) days after the date on which the Participant Retires. Remaining installments, if any, shall be paid no later than fifteen (15) days after the last business day of the preceding month. 10.71 Selected Deferred Comp Plan -16- COUNTRYWIDE FINANCIAL CORPORATION Selected Employee Deferred Compensation Plan Master Plan Document ARTICLE 8 TERMINATION BENEFIT 8.1 TERMINATION BENEFIT. A Participant who experiences a Termination of Employment shall receive a Termination Benefit, which shall be equal to the Participant's vested Account Balance, calculated as of the close of business on or around the date on which the Participant experiences a Termination of Employment, as determined by the Committee in its sole discretion. 8.2 PAYMENT OF TERMINATION BENEFIT. The Termination Benefit shall be paid to the Participant in a lump sum payment no later than sixty (60) days after the date on which the Participant experiences the Termination of Employment. ARTICLE 9 DISABILITY WAIVER AND BENEFIT 9.1 DISABILITY WAIVER. (a) WAIVER OF DEFERRAL. A Participant who is determined to be Disabled shall continue to be eligible for the benefits provided in Articles 5, 6, 7, 8, 9 or 10 in accordance with the provisions of those Articles. However, such Disabled Participant shall be excused from fulfilling his or her Annual Deferral Amount commitment that would otherwise have been withheld during the remainder of the Plan Year in which the Participant first suffers the Disability. During the period of Disability, the Participant shall not be allowed to make any additional deferral elections. (b) DEFERRAL FOLLOWING DISABILITY. If a Participant returns to employment with the Company after a Disability ceases, the Participant may elect to defer an Annual Deferral Amount for the Plan Year following his or her return to employment or service and for every Plan Year thereafter while a Participant in the Plan; provided such deferral elections are otherwise allowed and an Election Form is delivered to and accepted by the Committee for each such election in accordance with Section 3.2 above. 9.2 CONTINUED ELIGIBILITY; DISABILITY BENEFIT. (a) CONTINUED ELIGIBILITY. A Participant who is Disabled shall, for benefit purposes under this Plan, continue to be considered to be employed and shall be eligible for the benefits provided for in Articles 5, 6, 7, 8 or 10 in accordance with the provisions of those Articles. Notwithstanding the above, the Committee shall have the right to, in its sole and absolute discretion and for purposes of this Plan only, deem the Participant's employment to have terminated at any time after such Participant is determined to be Disabled. (b) DEEMED TERMINATION OF EMPLOYMENT. If, in the Committee's discretion, the Disabled Participant's employment has terminated, and such Participant is not otherwise eligible to Retire, the Participant shall be deemed to have experienced a Termination of Employment for purposes of this Plan and will receive a Disability Benefit. The Disability Benefit shall be equal to his or her vested Account Balance, calculated as of the close of business 10.71 Selected Deferred Comp Plan -17- COUNTRYWIDE FINANCIAL CORPORATION Selected Employee Deferred Compensation Plan Master Plan Document on or around the date on which the Disabled Participant is deemed to have experienced a Termination of Employment, as determined by the Committee in its sole discretion. The Participant shall receive his or her Disability Benefit in a lump sum payment no later than sixty (60) days after the date on which the Committee deems the Disabled Participant to have experienced a Termination of Employment. (c) DEEMED RETIREMENT. If, in the Committee's discretion, the Disabled Participant's employment has terminated, and such Participant is otherwise eligible to Retire, the Participant shall be deemed to have Retired for purposes of this Plan and will receive a Disability Benefit. The Disability Benefit shall be equal to his or her vested Account Balance, calculated as of the close of business on or around the date on which the Participant is deemed to have Retired, as determined by the Committee in its sole discretion. The Participant shall receive his or her Disability Benefit in the same form in which such Participant elected to receive his or her Retirement Benefit. The lump sum payment shall be made, or installment payments shall commence, no later than sixty (60) days after the date on which the Disabled Participant is deemed to have Retired. Remaining installments, if any, shall be paid no later than fifteen (15) days after the last business day of the preceding month. ARTICLE 10 SURVIVOR BENEFIT 10.1 SURVIVOR BENEFIT. If a Participant dies prior to the complete distribution of his or her vested Account Balance, the Participant's Beneficiary(ies) shall receive a Survivor Benefit which will be equal to the Participant's vested Account Balance, calculated as of the close of business on the first business day following the date of the Participant's death, as selected by the Committee in its sole discretion. 10.2 PAYMENT OF SURVIVOR BENEFIT. The Survivor Benefit shall be paid to the Participant's Beneficiary(ies) in a lump sum payment no later than sixty (60) days after the date on which the Committee is provided a death certificate. ARTICLE 11 BENEFICIARY DESIGNATION 11.1 BENEFICIARY. Each Participant shall have the right, at any time, to designate his or her Beneficiary(ies) (both primary as well as contingent) to receive any benefits payable under the Plan to a beneficiary upon the death of a Participant. The Beneficiary designated under this Plan may be the same as or different from the Beneficiary designation under any other plan of the Company in which the Participant participates. 10.71 Selected Deferred Comp Plan -18- COUNTRYWIDE FINANCIAL CORPORATION Selected Employee Deferred Compensation Plan Master Plan Document 11.2 BENEFICIARY DESIGNATION; CHANGE OF BENEFICIARY DESIGNATION. A Participant shall designate his or her Beneficiary by completing and signing the Beneficiary Designation Form, and returning it to the Committee or its designated agent. A Participant shall have the right to change a Beneficiary by completing, signing and otherwise complying with the terms of the Beneficiary Designation Form and the Committee's rules and procedures, as in effect from time to time. The Committee shall be entitled to rely on the last Beneficiary Designation Form filed by the Participant and accepted by the Committee prior to his or her death. 11.3 ACKNOWLEDGMENT. No designation or change in designation of a Beneficiary shall be effective until received and acknowledged in writing by the Committee or its designated agent. 11.4 NO BENEFICIARY DESIGNATION. If a Participant fails to designate a Beneficiary as provided in Sections 11.1, 11.2 and 11.3 above or, if all designated Beneficiaries predecease the Participant or die prior to complete distribution of the Participant's benefits, then the Participant's designated Beneficiary shall be deemed to be his or her surviving spouse. If the Participant has no surviving spouse, the benefits remaining under the Plan to be paid to a Beneficiary shall be payable to the executor or personal representative of the Participant's estate. 11.5 DOUBT AS TO BENEFICIARY. If the Committee has any doubt as to the proper Beneficiary to receive payments pursuant to this Plan, the Committee shall have the right, exercisable in its discretion, to cause the Company to withhold such payments until this matter is resolved to the Committee's satisfaction. 11.6 DISCHARGE OF OBLIGATIONS. The payment of benefits under the Plan to a Beneficiary shall fully and completely discharge the Company and the Committee from all further obligations under this Plan with respect to the Participant, and that Participant's Plan Agreement shall terminate upon such full payment of benefits. ARTICLE 12 LEAVE OF ABSENCE 12.1 PAID LEAVE OF ABSENCE. If a Participant is authorized by the Company to take a paid leave of absence from the employment of the Company, (i) the Participant shall continue to be considered eligible for the benefits provided in Articles 5, 6, 7, 8, 9 or 10 in accordance with the provisions of those Articles, and (ii) the Annual Deferral Amount shall continue to be withheld during such paid leave of absence in accordance with Section 3.2. 12.2 UNPAID LEAVE OF ABSENCE. If a Participant is authorized by the Company to take an unpaid leave of absence from the employment of the Company for any reason, such Participant shall continue to be eligible for the benefits provided in Articles 5, 6, 7, 8, 9 or 10 in accordance with the provisions of those Articles. However, the Participant shall be excused from fulfilling his or her Annual Deferral Amount commitment that would otherwise have been withheld during the remainder of the Plan Year in which the unpaid leave of absence is taken. During the unpaid leave of absence, the Participant shall not be allowed to make any additional deferral elections. However, if the Participant returns to employment, the Participant may elect to defer an Annual Deferral Amount for the Plan Year following his or her return to employment and for every Plan Year thereafter while a Participant in the Plan; provided such deferral elections are otherwise 10.71 Selected Deferred Comp Plan -19- COUNTRYWIDE FINANCIAL CORPORATION Selected Employee Deferred Compensation Plan Master Plan Document allowed and an Election Form is delivered to and accepted by the Committee or its designee for each such election in accordance with Section 3.2 above. ARTICLE 13 TERMINATION, AMENDMENT OR MODIFICATION 13.1 TERMINATION. Although the Company anticipates that it will continue the Plan for an indefinite period of time, there is no guarantee that the Company will continue the Plan or will not terminate the Plan at any time in the future. Accordingly, the Company reserves the right to discontinue its sponsorship of the Plan and/or to terminate the Plan at any time with respect to any or all of its participating Employees, by action of its board of directors. Upon the termination of the Plan with respect to the Company, the Plan Agreements of the affected Participants who are employed by the Company, shall terminate and their vested Account Balances shall be determined (i) as if they had experienced a Termination of Employment on the date of Plan termination; or (ii) if Plan termination occurs after the date upon which a Participant was eligible to Retire, then with respect to that Participant as if he or she had Retired on the date of Plan termination. Such benefits shall be paid to the Participants as follows: (i) prior to a Change in Control, if the Plan is terminated with respect to all of its Participants, the Company shall have the right, in its sole discretion, and notwithstanding any elections made by the Participant, to pay such benefits in a lump sum or pursuant to a Monthly Installment Method of up to 180 months, with amounts credited and debited during the installment period as provided herein; or (ii) prior to a Change in Control, if the Plan is terminated with respect to less than all of its Participants, the Company shall be required to pay such benefits in a lump sum; or (iii) after a Change in Control, if the Plan is terminated with respect to some or all of its Participants, the Company shall be required to pay such benefits in a lump sum. The termination of the Plan shall not adversely affect any Participant or Beneficiary who has become entitled to the payment of any benefits under the Plan as of the date of termination; provided however, that the Company shall have the right to accelerate installment payments without a premium or prepayment penalty by paying the vested Account Balance in a lump sum or pursuant to a Monthly Installment Method using fewer months (provided that the present value of all payments that will have been received by a Participant at any given point of time under the different payment schedule shall equal or exceed the present value of all payments that would have been received at that point in time under the original payment schedule). 13.2 AMENDMENT. The Company may, at any time, amend or modify the Plan in whole or in part with respect to that Company by the action of its board of directors; provided, however, that: (i) no amendment or modification shall be effective to decrease or restrict the value of a Participant's vested Account Balance in existence at the time the amendment or modification is made, calculated as if the Participant had experienced a Termination of Employment as of the effective date of the amendment or modification or, if the amendment or modification occurs after the date upon which the Participant was eligible to Retire, the Participant had Retired as of the effective date of the amendment or modification, and (ii) no amendment or modification of this Section 13.2 or Section 14.2 of the Plan shall be effective. The amendment or modification of the Plan shall not affect any Participant or Beneficiary who has become entitled to the payment of benefits 10.71 Selected Deferred Comp Plan -20- COUNTRYWIDE FINANCIAL CORPORATION Selected Employee Deferred Compensation Plan Master Plan Document under the Plan as of the date of the amendment or modification; provided, however, that the Company shall have the right to accelerate installment payments by paying the vested Account Balance in a lump sum or pursuant to a Monthly Installment Method using fewer months (provided that the present value of all payments that will have been received by a Participant at any given point of time under the different payment schedule shall equal or exceed the present value of all payments that would have been received at that point in time under the original payment schedule). 13.3 PLAN AGREEMENT. Despite the provisions of Sections 13.1 and 13.2 above, if a Participant's Plan Agreement contains benefits or limitations that are not in this Plan document, the Company may only amend or terminate such provisions with the written consent of the Participant. 13.4 EFFECT OF PAYMENT. The full payment of the Participant's vested Account Balance under Articles 5, 6, 7, 8, 9 or 10 of the Plan shall completely discharge all obligations to a Participant and his or her designated Beneficiaries under this Plan and the Participant's Plan Agreement shall terminate. ARTICLE 14 ADMINISTRATION 14.1 COMMITTEE DUTIES. Except as otherwise provided in this Article 14, this Plan shall be administered by the Chief Administrative Officer of the Company, or such committee as the Board shall appoint. Members of the Committee may be Participants under this Plan. The Committee shall also have the discretion and authority to (i) make, amend, interpret, and enforce all appropriate rules and regulations for the administration of this Plan and (ii) decide or resolve any and all questions including interpretations of this Plan, as may arise in connection with the Plan. Any individual serving on the Committee who is a Participant shall not vote or act on any matter relating solely to himself or herself. When making a determination or calculation, the Committee shall be entitled to rely on information furnished by a Participant or the Company. 14.2 ADMINISTRATION UPON CHANGE IN CONTROL. For purposes of this Plan, the Committee shall be the "Administrator" at all times prior to the occurrence of a Change in Control. Within one-hundred and twenty (120) days following a Change in Control, an independent third party "Administrator" may be selected by the individual who, immediately prior to the Change in Control, was the Company's Chief Executive Officer or, if not so identified, the Company's highest ranking officer (the "Ex-CEO"), and approved by the Trustee. The Committee, as constituted prior to the Change in Control, shall continue to be the Administrator until the earlier of (i) the date on which such independent third party is selected and approved, or (ii) the expiration of the one-hundred and twenty (120) day period following the Change in Control. If an independent third party is not selected within one-hundred and twenty (120) days of such Change in Control, the Committee, as described in Section 14.1 above, shall be the Administrator. The Administrator shall have the discretionary power to determine all questions arising in connection with the administration of the Plan and the interpretation of the Plan and Trust including, but not limited to benefit entitlement determinations; provided, however, upon and after the occurrence of a Change in Control, the Administrator shall have no power to direct 10.71 Selected Deferred Comp Plan -21- COUNTRYWIDE FINANCIAL CORPORATION Selected Employee Deferred Compensation Plan Master Plan Document the investment of Plan or Trust assets or select any investment manager or custodial firm for the Plan or Trust. Upon and after the occurrence of a Change in Control, the Company must: (1) pay all reasonable administrative expenses and fees of the Administrator; (2) indemnify the Administrator against any costs, expenses and liabilities including, without limitation, attorney's fees and expenses arising in connection with the performance of the Administrator hereunder, except with respect to matters resulting from the gross negligence or willful misconduct of the Administrator or its employees or agents; and (3) supply full and timely information to the Administrator on all matters relating to the Plan, the Trust, the Participants and their Beneficiaries, the Account Balances of the Participants, the date and circumstances of the Retirement, Covered Termination, Disability, death or Termination of Employment of the Participants, and such other pertinent information as the Administrator may reasonably require. Upon and after a Change in Control, the Administrator may be terminated (and a replacement appointed) by the Trustee only with the approval of the Ex-CEO. Upon and after a Change in Control, the Administrator may not be terminated by the Company. 14.3 AGENTS. In the administration of this Plan, the Committee may, from time to time, employ agents and delegate to them such administrative duties as it sees fit (including acting through a duly appointed representative) and may from time to time consult with counsel who may be counsel to the Company. 14.4 BINDING EFFECT OF DECISIONS. The decision or action of the Administrator with respect to any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all persons having any interest in the Plan. 14.5 INDEMNITY OF COMMITTEE. The Company shall indemnify and hold harmless the members of the Committee, any Employee to whom the duties of the Committee may be delegated, and the Administrator against any and all claims, losses, damages, expenses or liabilities arising from any action or failure to act with respect to this Plan, except in the case of willful misconduct by the Committee, any of its members, any such Employee or the Administrator. 14.6 COMPANY INFORMATION. To enable the Committee and/or Administrator to perform its functions, the Company shall supply full and timely information to the Committee and/or Administrator, as the case may be, on all matters relating to the compensation of its Participants, the date and circumstances of the Retirement, Covered Termination, Disability, death or Termination of Employment of its Participants, and such other pertinent information as the Committee or Administrator may reasonably require. ARTICLE 15 OTHER BENEFITS AND AGREEMENTS 15.1 COORDINATION WITH OTHER BENEFITS. The benefits provided for a Participant and Participant's Beneficiary under the Plan are in addition to any other benefits available to such Participant under any other plan or program for employees of the Company. The Plan shall supplement and shall not supersede, modify or amend any other such plan or program except as may otherwise be expressly provided. 10.71 Selected Deferred Comp Plan -22- COUNTRYWIDE FINANCIAL CORPORATION Selected Employee Deferred Compensation Plan Master Plan Document ARTICLE 16 CLAIMS PROCEDURES 16.1 PRESENTATION OF CLAIM. Any Participant or Beneficiary of a deceased Participant (such Participant or Beneficiary being referred to below as a "Claimant") may deliver to the Committee a written claim for a determination with respect to the amounts distributable to such Claimant from the Plan. If such a claim relates to the contents of a notice received by the Claimant, the claim must be made within sixty (60) days after such notice was received by the Claimant. All other claims must be made within 180 days of the date on which the event that caused the claim to arise occurred. The claim must state with particularity the determination desired by the Claimant. 16.2 NOTIFICATION OF DECISION. The Committee shall consider a Claimant's claim within a reasonable time, but no later than ninety (90) days after receiving the claim. If the Committee determines that special circumstances require an extension of time for processing the claim, written notice of the extension shall be furnished to the Claimant prior to the termination of the initial ninety (90) day period. In no event shall such extension exceed a period of ninety (90) days from the end of the initial period. The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Committee expects to render the benefit determination. The Committee shall notify the Claimant in writing: (a) that the Claimant's requested determination has been made, and that the claim has been allowed in full; or (b) that the Committee has reached a conclusion contrary, in whole or in part, to the Claimant's requested determination, and such notice must set forth in a manner calculated to be understood by the Claimant: (i) the specific reason(s) for the denial of the claim, or any part of it; (ii) specific reference(s) to pertinent provisions of the Plan upon which such denial was based; (iii) a description of any additional material or information necessary for the Claimant to perfect the claim, and an explanation of why such material or information is necessary; (iv) an explanation of the claim review procedure set forth in Section 16.3 below; and (v) a statement of the Claimant's right to bring a civil action under ERISA Section 502(a) following an adverse benefit determination on review. 16.3 REVIEW OF A DENIED CLAIM. On or before sixty (60) days after receiving a notice from the Committee that a claim has been denied, in whole or in part, a Claimant (or the Claimant's duly authorized representative) may file with the Committee a written request for a review of the denial of the claim. The Claimant (or the Claimant's duly authorized representative): (a) may, upon request and free of charge, have reasonable access to, and copies of, all documents, records and other information relevant to the claim for benefits; 10.71 Selected Deferred Comp Plan -23- COUNTRYWIDE FINANCIAL CORPORATION Selected Employee Deferred Compensation Plan Master Plan Document (b) may submit written comments or other documents; and/or (c) may request a hearing, which the Committee, in its sole discretion, may grant. 16.4 DECISION ON REVIEW. The Committee shall render its decision on review promptly, and no later than sixty (60) days after the Committee receives the Claimant's written request for a review of the denial of the claim. If the Committee determines that special circumstances require an extension of time for processing the claim, written notice of the extension shall be furnished to the Claimant prior to the termination of the initial sixty (60) day period. In no event shall such extension exceed a period of sixty (60) days from the end of the initial period. The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Committee expects to render the benefit determination. In rendering its decision, the Committee shall take into account all comments, documents, records and other information submitted by the Claimant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination. The decision must be written in a manner calculated to be understood by the Claimant, and it must contain: (a) specific reasons for the decision; (b) specific reference(s) to the pertinent Plan provisions upon which the decision was based; (c) a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the Claimant's claim for benefits; and (d) a statement of the Claimant's right to bring a civil action under ERISA Section 502(a). 16.5 LEGAL ACTION. A Claimant's compliance with the foregoing provisions of this Article 16 is a mandatory prerequisite to a Claimant's right to commence any legal action with respect to any claim for benefits under this Plan. ARTICLE 17 TRUST 17.1 ESTABLISHMENT OF THE TRUST. The Company shall establish a trust by a trust agreement with a third party, the trustee, (the "Trust"), and the Company shall at least annually transfer over to the Trust such assets as the Company determines, in its sole discretion, are necessary to provide, on a present value basis, for its respective future liabilities created with respect to the Annual Deferral Amounts, Company Contribution Amounts, and Company Discretionary Match Amounts for such Company's Participants for all periods prior to the transfer, as well as any debits and credits to the Participants' Account Balances for all periods prior to the transfer, taking into consideration the value of the assets in the trust at the time of the transfer. 17.2 INTERRELATIONSHIP OF THE PLAN AND THE TRUST. The provisions of the Plan and the Plan Agreement shall govern the rights of a Participant to receive distributions pursuant to the Plan. The provisions of the Trust shall govern the rights of the Company, Participants and the creditors of the Company to the assets transferred to the Trust. The Company shall at all times remain liable to carry out its obligations under the Plan. 10.71 Selected Deferred Comp Plan -24- COUNTRYWIDE FINANCIAL CORPORATION Selected Employee Deferred Compensation Plan Master Plan Document 17.3 DISTRIBUTIONS FROM THE TRUST. The Company's obligations under the Plan may be satisfied with Trust assets distributed pursuant to the terms of the Trust, and any such distribution shall reduce the Company's obligations under this Plan. ARTICLE 18 MISCELLANEOUS 18.1 STATUS OF PLAN. The Plan is intended to be a plan that is not qualified within the meaning of Code Section 401(a) and that "is unfunded and is maintained by the Company primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees" within the meaning of ERISA Sections 201(2), 301(a)(3) and 401(a)(1). The Plan shall be administered and interpreted to the extent possible in a manner consistent with that intent. 18.2 UNSECURED GENERAL CREDITOR. Participants and their Beneficiaries, heirs, successors and assigns shall have no legal or equitable rights, interests or claims in any property or assets of the Company. For purposes of the payment of benefits under this Plan, any and all of the Company's assets shall be, and remain, the general, unpledged unrestricted assets of the Company. The Company's obligation under the Plan shall be merely that of an unfunded and unsecured promise to pay money in the future. 18.3 COMPANY'S LIABILITY. The Company's liability for the payment of benefits shall be defined only by the Plan and the Plan Agreement, as entered into between the Company and a Participant. The Company shall have no obligation to a Participant under the Plan except as expressly provided in the Plan and his or her Plan Agreement. 18.4 NONASSIGNABILITY. Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate, alienate or convey in advance of actual receipt, the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are expressly declared to be, unassignable and non-transferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure, attachment, garnishment or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, be transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency or be transferable to a spouse as a result of a property settlement or otherwise. 18.5 NOT A CONTRACT OF EMPLOYMENT. The terms and conditions of this Plan shall not be deemed to constitute a contract of employment between the Company and the Participant. Such employment is hereby acknowledged to be an "at will" employment relationship that can be terminated at any time for any reason, or no reason, with or without cause, and with or without notice, unless expressly provided in a written employment agreement. Nothing in this Plan shall be deemed to give a Participant the right to be retained in the service of the Company as an Employee or to interfere with the right of the Company to discipline or discharge the Participant at any time. 10.71 Selected Deferred Comp Plan -25- COUNTRYWIDE FINANCIAL CORPORATION Selected Employee Deferred Compensation Plan Master Plan Document 18.6 FURNISHING INFORMATION. A Participant or his or her Beneficiary will cooperate with the Committee by furnishing any and all information requested by the Committee and take such other actions as may be requested in order to facilitate the administration of the Plan and the payments of benefits hereunder, including but not limited to taking such physical examinations as the Committee may deem necessary. 18.7 TERMS. Whenever any words are used herein in the masculine, they shall be construed as though they were in the feminine in all cases where they would so apply; and whenever any words are used herein in the singular or in the plural, they shall be construed as though they were used in the plural or the singular, as the case may be, in all cases where they would so apply. 18.8 CAPTIONS. The captions of the articles, sections and paragraphs of this Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions. 18.9 GOVERNING LAW. Subject to ERISA, the provisions of this Plan shall be construed and interpreted according to the internal laws of the State of California without regard to its conflicts of laws principles. 10.71 Selected Deferred Comp Plan -26- COUNTRYWIDE FINANCIAL CORPORATION Selected Employee Deferred Compensation Plan Master Plan Document 18.10 NOTICE. Any notice or filing required or permitted to be given to the Committee under this Plan shall be sufficient if in writing and hand-delivered, or sent by registered or certified mail, to the address below: Countrywide Financial Corporation Attn: Chief Administrative Officer 4500 Park Granada Calabasas, California 91302 Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. Any notice or filing required or permitted to be given to a Participant under this Plan shall be sufficient if in writing and hand-delivered, or sent by mail, to the last known address of the Participant. 18.11 SUCCESSORS. The provisions of this Plan shall bind and inure to the benefit of the Company and its successors and assigns and the Participant and the Participant's designated Beneficiaries. 18.12 SPOUSE'S INTEREST. The interest in the benefits hereunder of a spouse of a Participant who has predeceased the Participant shall automatically pass to the Participant and shall not be transferable by such spouse in any manner, including but not limited to such spouse's will, nor shall such interest pass under the laws of intestate succession. 18.13 VALIDITY. In case any provision of this Plan shall be illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Plan shall be construed and enforced as if such illegal or invalid provision had never been inserted herein. 18.14 INCOMPETENT. If the Committee determines in its discretion that a benefit under this Plan is to be paid to a minor, a person declared incompetent or to a person incapable of handling the disposition of that person's property, the Committee may direct payment of such benefit to the guardian, legal representative or person having the care and custody of such minor, incompetent or incapable person. The Committee may require proof of minority, incompetence, incapacity or guardianship, as it may deem appropriate prior to distribution of the benefit. Any payment of a benefit shall be a payment for the account of the Participant and the Participant's Beneficiary, as the case may be, and shall be a complete discharge of any liability under the Plan for such payment amount. 18.15 COURT ORDER. The Committee is authorized to make any payments directed by court order in any action in which the Plan or the Committee has been named as a party. In addition, if a court determines that a spouse or former spouse of a Participant has an interest in the Participant's benefits under the Plan in connection with a property settlement or otherwise, the Committee, in its sole discretion, shall have the right, notwithstanding any election 10.71 Selected Deferred Comp Plan -27- COUNTRYWIDE FINANCIAL CORPORATION Selected Employee Deferred Compensation Plan Master Plan Document made by a Participant, to immediately distribute the spouse's or former spouse's interest in the Participant's benefits under the Plan to that spouse or former spouse. 18.16 DISTRIBUTION IN THE EVENT OF TAXATION. (a) IN GENERAL. If, for any reason, all or any portion of a Participant's benefits under this Plan becomes taxable to the Participant prior to receipt, a Participant may petition the Committee before a Change in Control, or the trustee of the Trust after a Change in Control, for a distribution of that portion of his or her benefit that has become taxable. Upon the grant of such a petition, which grant shall not be unreasonably withheld (and, after a Change in Control, shall be granted), a Participant's Company shall distribute to the Participant immediately available funds in an amount equal to the taxable portion of his or her benefit (which amount shall not exceed a Participant's unpaid vested Account Balance under the Plan). If the petition is granted, the tax liability distribution shall be made within 90 days of the date when the Participant's petition is granted. Such a distribution shall affect and reduce the benefits to be paid under this Plan. (b) TRUST. If the Trust terminates in accordance with its terms and benefits are distributed from the Trust to a Participant in accordance therewith, the Participant's benefits under this Plan shall be reduced to the extent of such distributions. 18.17 INSURANCE. The Company on its own behalf or on behalf of the trustee of the Trust, and, in their sole discretion, may apply for and procure insurance on the life of the Participant, in such amounts and in such forms as the Trust may choose. The Company or the trustee of the Trust, as the case may be, shall be the sole owner and beneficiary of any such insurance. The Participant shall have no interest whatsoever in any such policy or policies, and at the request of the Company shall submit to medical examinations and supply such information and execute such documents as may be required by the insurance company or companies to whom the Company have applied for insurance. 18.18 LEGAL FEES TO ENFORCE RIGHTS AFTER CHANGE IN CONTROL. The Company is aware that upon the occurrence of a Change in Control, the Board or the board of directors of the Company (which might then be composed of new members) or a shareholder of the Company, or of any successor corporation might then cause or attempt to cause the Company or such successor to refuse to comply with its obligations under the Plan and might cause or attempt to cause the Company to institute, or may institute, litigation seeking to deny Participants the benefits intended under the Plan. In these circumstances, the purpose of the Plan could be frustrated. Accordingly, if, following a Change in Control, it should appear to any Participant that the Company or any successor corporation has failed to comply with any of its obligations under the Plan or any agreement thereunder or, if the Company or any other person takes any action to declare the Plan void or unenforceable or institutes any litigation or other legal action designed to deny, diminish or to recover from any Participant the benefits intended to be provided, then the Company irrevocably authorizes such Participant to retain counsel of his or her choice at the expense of the Company to represent such Participant in connection with the initiation or defense of any litigation or other legal action, whether by or against the Company or any 10.71 Selected Deferred Comp Plan -28- COUNTRYWIDE FINANCIAL CORPORATION Selected Employee Deferred Compensation Plan Master Plan Document director, officer, shareholder or other person affiliated with the Company or any successor thereto in any jurisdiction. IN WITNESS WHEREOF, the Company has signed this Plan document as of December 23, 2003. "Company" Countrywide Financial Corporation, a Delaware corporation By: /s/ Thomas H. Boone ---------------------------------------------- Title: Senior Managing Director, Chief Administrative Officer 10.71 Selected Deferred Comp Plan -29- EX-10.72 16 v96832exv10w72.txt EXHIBIT 10.72 EXHIBIT 10.72 COUNTRYWIDE FINANCIAL CORPORATION ERISA Nonqualified Pension Plan Master Plan Document EFFECTIVE JANUARY 1, 2003 . . . TABLE OF CONTENTS
Page ARTICLE 1 DEFINITIONS............................................................................. 1 ARTICLE 2 SELECTION, ENROLLMENT, ELIGIBILITY...................................................... 6 2.1 Selection by Committee...................................................................... 6 2.2 Enrollment Requirements..................................................................... 6 2.3 Eligibility; Commencement of Participation.................................................. 6 2.4 Termination of Participation................................................................ 6 ARTICLE 3 LONG-TERM INCENTIVE CONTRIBUTION AMOUNTS/COMPANY CONTRIBUTION AMOUNTS/VESTING/CONTINGENT AMOUNTS/CREDITING/TAXES................................................................. 6 3.1 Long-Term Incentive Contribution Amounts.................................................... 7 3.2 Annual Company Contribution Amount.......................................................... 7 3.3 Vesting..................................................................................... 7 3.4 Effect of a Participant's Covered Termination, Retirement, Death while Employed by an Employer or Disability................................................................ 8 3.5 Crediting/Debiting of Account Balances...................................................... 9 3.6 FICA and Other Taxes........................................................................ 10 ARTICLE 4 UNFORESEEABLE FINANCIAL EMERGENCIES; WITHDRAWAL ELECTION................................ 11 4.1 Withdrawal for Unforeseeable Financial Emergencies.......................................... 11 4.2 Withdrawal Election......................................................................... 11 ARTICLE 5 COVERED TERMINATION BENEFIT............................................................. 12 5.1 Covered Termination Benefit................................................................. 12 5.2 Payment of Change in Control Benefit........................................................ 12 ARTICLE 6 RETIREMENT BENEFIT...................................................................... 12 6.1 Retirement Benefit.......................................................................... 12 6.2 Payment of Retirement Benefit............................................................... 12 ARTICLE 7 TERMINATION BENEFIT..................................................................... 13 7.1 Termination Benefit......................................................................... 13 7.2 Payment of Termination Benefit.............................................................. 13 ARTICLE 8 CONTINUED ELIGIBILITY; DISABILITY BENEFIT............................................... 13 8.1 Continued Eligibility....................................................................... 13 8.2 Deemed Termination of Employment............................................................ 13 8.3 Deemed Retirement........................................................................... 14
-i- TABLE OF CONTENTS (continued)
Page ---- ARTICLE 9 SURVIVOR BENEFIT........................................................................ 14 9.1 Survivor Benefit............................................................................ 14 9.2 Payment of Survivor Benefit................................................................. 14 ARTICLE 10 BENEFICIARY DESIGNATION................................................................. 14 10.1 Beneficiary................................................................................. 15 10.2 Beneficiary Designation; Change of Beneficiary Designation.................................. 15 10.3 Acknowledgment.............................................................................. 15 10.4 No Beneficiary Designation.................................................................. 15 10.5 Doubt as to Beneficiary..................................................................... 16 10.6 Discharge of Obligations.................................................................... 16 ARTICLE 11 LEAVE OF ABSENCE........................................................................ 16 11.1 Leave of Absence............................................................................ 16 ARTICLE 12 TERMINATION, AMENDMENT OR MODIFICATION.................................................. 16 12.1 Termination................................................................................. 16 12.2 Amendment................................................................................... 17 12.3 Participation Agreement..................................................................... 18 12.4 Effect of Payment........................................................................... 18 ARTICLE 13 ADMINISTRATION.......................................................................... 18 13.1 Committee Duties............................................................................ 18 13.2 Administration Upon Change In Control....................................................... 18 13.3 Agents...................................................................................... 19 13.4 Binding Effect of Decisions................................................................. 19 13.5 Indemnity of Committee...................................................................... 19 13.6 Employer Information........................................................................ 19 ARTICLE 14 OTHER BENEFITS AND AGREEMENTS........................................................... 20 14.1 Coordination with Other Benefits............................................................ 20 ARTICLE 15 CLAIMS PROCEDURES....................................................................... 20 15.1 Presentation of Claim....................................................................... 20 15.2 Notification of Decision.................................................................... 20 15.3 Review of a Denied Claim.................................................................... 21
-ii- TABLE OF CONTENTS (continued)
Page ---- 15.4 Decision on Review.......................................................................... 21 15.5 Legal Action................................................................................ 22 ARTICLE 16 TRUST................................................................................... 22 16.1 Establishment of the Trust.................................................................. 22 16.2 Interrelationship of the Plan and the Trust................................................. 22 16.3 Distributions From the Trust................................................................ 23 ARTICLE 17 MISCELLANEOUS........................................................................... 23 17.1 Status of Plan.............................................................................. 23 17.2 Unsecured General Creditor.................................................................. 23 17.3 Employer's Liability........................................................................ 23 17.4 Nonassignability............................................................................ 23 17.5 Not a Contract of Employment................................................................ 23 17.6 Furnishing Information...................................................................... 24 17.7 Terms....................................................................................... 24 17.8 Captions.................................................................................... 24 17.9 Governing Law............................................................................... 24 17.10 Notice...................................................................................... 24 17.11 Successors.................................................................................. 24 17.12 Spouse's Interest........................................................................... 25 17.13 Validity.................................................................................... 25 17.14 Incompetent................................................................................. 25 17.15 Court Order................................................................................. 25 17.16 Distribution in the Event of Taxation....................................................... 25 17.17 Insurance................................................................................... 26 17.18 Legal Fees To Enforce Rights After Change in Control........................................ 26
-iii- COUNTRYWIDE FINANCIAL CORPORATION ERISA Nonqualified Pension Plan Master Plan Document COUNTRYWIDE FINANCIAL CORPORATION ERISA NONQUALIFIED PENSION PLAN Effective January 1, 2003 PURPOSE The purpose of this Plan is to provide retirement and post-termination benefits to a select group of management or highly compensated Employees who contribute materially to the continued growth, development and future business success of Countrywide Financial Corporation, a Delaware corporation, and its subsidiaries, if any, that sponsor this Plan. This Plan shall be unfunded for tax purposes and for purposes of Title I of ERISA. ARTICLE 1 DEFINITIONS For the purposes of this Plan, unless otherwise clearly apparent from the context, the following phrases or terms shall have the following indicated meanings: 1.1. "Account Balance" shall mean, with respect to a Participant, a credit on the records of the Employer equal to the sum of the Long-Term Incentive Account balance and the Company Contribution Account balance. The Account Balance, and each other specified account balance, shall be a bookkeeping entry only and shall be utilized solely as a device for the measurement and determination of the amounts to be paid to a Participant, or his or her designated Beneficiary, pursuant to this Plan. 1.2. "Annual Company Contribution Amount" shall mean, for any one Plan Year, the amount determined in accordance with Section 3.2. 1.3. "Beneficiary" shall mean one or more persons, trusts, estates or other entities, designated in accordance with Article 10, that are entitled to receive benefits under this Plan upon the death of a Participant. 1.4. "Beneficiary Designation Form" shall mean the form established from time to time by the Committee that a Participant completes, signs and returns to the Committee to designate one or more Beneficiaries. 1.5. "Board" shall mean the board of directors of the Company. 1.6. "Change in Control" shall mean a "change in control" as defined under the Countrywide Financial Corporation Change in Control Severance Plan as that definition may be amended at any time and from time to time in accordance with that plan. 1.7. "Claimant" shall have the meaning set forth in Section 15.1. -1- COUNTRYWIDE FINANCIAL CORPORATION ERISA Nonqualified Pension Plan Master Plan Document 1.8. "Code" shall mean the Internal Revenue Code of 1986, as it may be amended from time to time. 1.9. "Committee" shall mean the committee described in Article 13. 1.10. "Covered Termination" shall mean any termination of a Participant's employment in connection with a Change in Control that entitles the Participant to receive severance benefits under the Countrywide Financial Corporation Change in Control Severance Plan. 1.11. "Covered Termination Benefit" shall have the meaning set forth in Article 5. 1.12. "Company" shall mean Countrywide Financial Corporation, a Delaware corporation, and any successor to all or substantially all of the Company's assets or business. 1.13. "Company Contribution Account" shall mean (i) the sum of the Participant's Annual Company Contribution Amounts, plus (ii) amounts credited or debited to the Participant's Company Contribution Account in accordance with this Plan, less (iii) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to the Participant's Company Contribution Account. 1.14. "Disability" or "Disabled" shall mean a determination that a Participant is disabled made by either (i) the carrier of any individual or group disability insurance policy, sponsored by the Participant's Employer, or (ii) the Social Security Administration. Upon request by the Employer, the Participant must submit proof of the carrier's or Social Security Administration's determination. 1.15. "Disability Benefit" shall mean the benefit set forth in Article 8. 1.16. "Distribution Election Form" shall mean the form established from time to time by the Committee that a Participant completes, signs and returns to the Committee to make a distribution election under the Plan. 1.17. "Employee" shall mean a person whom any Employer treats as an employee for purposes of federal income tax withholding, regardless of whether or not the person would be treated as an employee under applicable common law. 1.18. "Employer(s)" shall mean the Company, Countrywide Home Loans, Inc., Countrywide Capital Markets, Inc., Countrywide Securities Corporation and any other subsidiary of the Company that elects to participate in the Plan. 1.19. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as it may be amended from time to time. -2- COUNTRYWIDE FINANCIAL CORPORATION ERISA Nonqualified Pension Plan Master Plan Document 1.20. "First Plan Year" shall mean the period beginning January 1, 2003 and ending December 31, 2003. 1.21. "Investment Election Form" shall mean the form established from time to time by the Committee that a Participant completes, signs and returns to the Committee to make an investment election under the Plan. 1.22. "Long-Term Incentive Account" shall mean (i) the sum of all of a Participant's Long-Term Incentive Contribution Amounts, plus (ii) amounts credited or debited to the Participant's Long-Term Incentive Account in accordance with this Plan, less (iii) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to his or her Long-Term Incentive Account. 1.23. "Long-Term Incentive Contribution Amounts" shall mean the amounts determined and contributed in accordance with Section 3.1. 1.24. "Participant" shall mean any Employee who commences participation in the Plan pursuant to Article 2, and whose Participation Agreement has not terminated. A spouse, former spouse or domestic partner of a Participant shall not be treated as a Participant in the Plan or have an Account Balance under the Plan, even if he or she has an interest in the Participant's benefits under the Plan as a result of applicable law or property settlements resulting from legal separation or divorce. 1.25. "Participation Agreement" shall mean a written agreement, as may be amended from time to time, which is entered into by and between an Employer and a Participant. Each Participation Agreement executed by a Participant and the Participant's Employer shall provide for the entire benefit to which such Participant is entitled under the Plan; should there be more than one Participation Agreement, the Participation Agreement bearing the latest date of acceptance by the Employer shall supersede all previous Participation Agreements in their entirety and shall govern such entitlement. The terms of any Participation Agreement may be different for any Participant, and any Participation Agreement may provide additional benefits not set forth in the Plan or limit the benefits otherwise provided under the Plan. 1.26. "Plan" shall mean the Countrywide Financial Corporation ERISA Nonqualified Pension Plan, which shall be evidenced by this instrument and by each Participation Agreement, as they may be amended from time to time. 1.27. "Plan Year" shall mean a period beginning on January 1 of each calendar year and continuing through December 31 of such calendar year. 1.28. "Retirement", "Retire(s)" or "Retired" shall mean, with respect to an Employee, severance from employment from all Employers for any reason other than a leave of -3- COUNTRYWIDE FINANCIAL CORPORATION ERISA Nonqualified Pension Plan Master Plan Document absence, death or Disability on or after the date on which (i) a Participant attains age 45 (ii) such Participant's age plus Years of Service equals at least 65, and (iii) the Participant has completed at least five (5) Years of Plan Participation. 1.29. "Retirement Compensation" shall mean any compensation (i) the Participant becomes eligible to receive in exchange for satisfying performance criteria set forth in the Participant's Participation Agreement and (ii) remains contingent upon the Participant's performance of future services. As soon as reasonably practicable after the beginning of each Plan Year, the Committee shall in its sole discretion establish the criteria that will be used to determine the Participant's Retirement Compensation for that Plan Year and shall notify the Participant in writing of the criteria via an addendum to the Participant's Participation Agreement. 1.30. "Retirement Benefit" shall mean the benefit set forth in Article 6. 1.31. "Semi-Monthly Installment Method" shall be a semi-monthly installment payment over the number of months selected by the Participant in accordance with this Plan, calculated as follows: (i) for the first semi-monthly installment, the vested and nonforfeitable portion of the Account Balance of the Participant shall be calculated as of the close of business on or around the date on which the Participant Retires, is deemed to have Retired in accordance with Section 8.3 or experiences a Covered Termination, as determined by the Committee in its sole discretion, and (ii) for remaining semi-monthly installments, the vested and nonforfeitable portion of the Account Balance of the Participant shall be calculated on or around the last business day of the preceding semi-monthly payment. Each semi-monthly installment shall be calculated by multiplying this balance by a fraction, the numerator of which is one and the denominator of which is the remaining number of semi-monthly payments due the Participant. By way of example, if the Participant elects to receive his or her Account Balance pursuant to a Semi-Monthly Installment Method of 120 months, the first payment shall be 1/240 of the vested and nonforfeitable portion of the Account Balance, calculated as described in this definition. The following semi-monthly payment shall be 1/239 of the vested and nonforfeitable portion of the Account Balance, calculated as described in this definition. 1.32. "Service Period" shall mean (i) with respect to Long-Term Incentive Contribution Amounts, the applicable period of Participant's service during which such amounts were measured and credited, as provided in the Countrywide Securities Corporation long-term incentive plan or any other long-term incentive arrangement, designated by the Committee, in effect for the applicable period, and (ii) with respect to Annual Company Contribution Amounts, the calendar year during which such Annual Company Contribution Amounts shall be deemed measured and earned, as described more fully in Section 3.2. -4- COUNTRYWIDE FINANCIAL CORPORATION ERISA Nonqualified Pension Plan Master Plan Document 1.33. "Survivor Benefit" shall mean the benefit set forth in Article 9. 1.34. "Termination Benefit" shall mean the benefit set forth in Article 7. 1.35. "Termination of Employment" shall mean severing the status of an Employee with all Employers, voluntarily or involuntarily, for any reason other than a Covered Termination, Retirement, Disability, death or an authorized leave of absence. 1.36. "Threshold" shall mean the Retirement Compensation threshold set forth in the Participant's Participation Agreement. As soon a reasonably practicable after the beginning of each Plan Year, the Employer shall, in its sole discretion, establish the Participant's Threshold for that Plan Year and shall notify the Participant in writing of the Threshold via an addendum to the Participant's Participation Agreement. 1.37. "Trust" shall mean one or more trusts established by the Company in accordance with Article 16. 1.38. "Unforeseeable Financial Emergency" shall mean an unanticipated emergency that is caused by an event beyond the control of the Participant that would result in severe financial hardship to the Participant resulting from (i) a sudden and unexpected illness or accident of the Participant or a dependent of the Participant, (ii) a loss of the Participant's property due to casualty, or (iii) such other extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, all as determined in the sole discretion of the Committee. 1.39. "Years of Plan Participation" shall mean the total number of full Plan Years a Participant has been a Participant in the Plan prior to his or her severance from employment from all Employers for any reason other than a leave of absence, death or Disability (determined without regard to whether deferral elections have been made by the Participant for any Plan Year). Any partial year shall not be counted. Notwithstanding the previous sentence, a Participant's first Plan Year of participation shall be treated as a full Plan Year for purposes of this definition, even if it is only a partial Plan Year of participation or relates to the First Plan Year. 1.40. "Years of Service" shall mean the total number of full years in which a Participant has been employed by one or more Employers. For purposes of this definition, a year of employment shall be a 365 day period (or 366 day period in the case of a leap year) that, for the first year of employment, commences on the Employee's date of hiring and that, for any subsequent year, commences on an anniversary of that hiring date. The Committee shall make a determination as to whether any partial year of employment shall be counted as a Year of Service. If a Participant terminates employment and is subsequently reemployed by any Employer, the Participant's service before -5- COUNTRYWIDE FINANCIAL CORPORATION ERISA Nonqualified Pension Plan Master Plan Document reemployment shall be disregarded unless the Committee determines otherwise in a Participation Agreement or other written document. ARTICLE 2 SELECTION, ENROLLMENT, ELIGIBILITY 2.1 SELECTION BY COMMITTEE. Participation in the Plan shall be limited to a select group of management and highly compensated Employees of the Employer, as determined by the Committee in its sole discretion. From that group, the Committee shall select, in its sole discretion, Employees to participate in the Plan. 2.2 ENROLLMENT REQUIREMENTS. As a condition to participation, each selected Employee shall complete, execute and return to the Committee a Participation Agreement, a Distribution Election Form, an Investment Election Form, and a Beneficiary Designation Form, all within thirty (30) days after he or she is selected to participate in the Plan. In addition, the Committee shall establish from time to time such other enrollment requirements as it determines in its sole discretion are necessary. 2.3 ELIGIBILITY; COMMENCEMENT OF PARTICIPATION. Provided an Employee selected to participate in the Plan has met all enrollment requirements set forth in this Plan and required by the Committee, including returning all required documents to the Committee in a form accepted by the Committee within the specified time period, that Employee shall commence participation in the Plan on the first day of the month following the month in which the Employee has satisfied all enrollment requirements. 2.4 TERMINATION OF PARTICIPATION. If the Committee determines in good faith that a Participant no longer qualifies as a member of a select group of management or highly compensated employees, as membership in such group is determined in accordance with Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA, the Committee shall have the right, in its sole discretion, to (i) cease contributing Annual Company Contribution Amounts to the Participant's Company Contribution Account; and/or (ii) immediately distribute the Participant's then vested and nonforfeitable portion of the Account Balance as a Termination Benefit and terminate the Participant's participation in the Plan. ARTICLE 3 LONG-TERM INCENTIVE CONTRIBUTION AMOUNTS/COMPANY CONTRIBUTION AMOUNTS/VESTING/CONTINGENT AMOUNTS/CREDITING/TAXES 3.1 LONG-TERM INCENTIVE CONTRIBUTION AMOUNTS. In connection with a Participant's commencement of participation in the Plan during the First Plan Year, the Employer shall credit to the Participant's Long-Term Incentive Account an amount equal to 110-percent of any compensation that (i) would have become payable to a Participant under the -6- COUNTRYWIDE FINANCIAL CORPORATION ERISA Nonqualified Pension Plan Master Plan Document Countrywide Securities Corporation Long-Term Incentive Plan or any other long-term incentive arrangement, as determined by the Committee, had such arrangements been continued by the Employer, (ii) is attributable to Service Periods beginning after February 28, 2001, excluding amounts that are payable in 2004, and (iii) remains contingent upon the Participant's performance of future services. Long-Term Incentive Contribution Amounts shall be credited to a Participant's Long-Term Incentive Account within 30 days after the later of September 1, 2003 or the date the Participant enrolls in the Plan pursuant to Section 2.2. 3.2 ANNUAL COMPANY CONTRIBUTION AMOUNT. (a) For each Plan Year, an Employer may be required to credit amounts to a Participant's Company Contribution Account in accordance with employment or other agreements entered into between the Participant and the Employer. Such amounts shall be credited on the date or dates prescribed by such agreements, or if not provided in such agreements, such amounts shall be credited on a date or dates to be determined by the Committee in its sole discretion. (b) For each Plan Year, the Employer shall credit to a Participant's Company Contribution Account an amount equal to the Participant's Retirement Compensation in excess of the Threshold. The Annual Company Contribution Amount described in this Section 3.2(b) if any, shall be credited on the last day of the first calendar month following the Service Period to which such amount relates, as determined by the Committee in its sole discretion. 3.3 VESTING. (a) A Participant shall vest in the Annual Company Contribution Amount described in Section 3.2(a) plus amounts credited or debited on such amounts (pursuant to Section 3.5), in accordance with the vesting schedule(s) set forth in his or her Participation Agreement, employment agreement or any other agreement entered into between the Participant and his or her Employer. If not addressed in such agreements, a Participant shall vest in such amounts in accordance with the schedule declared by the Committee in its sole discretion. (b) A Participant shall vest in his or her Long-Term Incentive Contribution Amounts and Annual Company Contributions described in Section 3.2(b), plus amounts credited or debited on such amounts (pursuant to Section 3.6), on the last day of the calendar month following the first (1st), second (2nd) or third (3rd) anniversary of the Service Period to which such amounts relate, in accordance with the schedule set forth below; provided, however, the Participant must remain in continuous service as an Employee through the last day of the calendar month following the anniversary of the Service Period to which such amounts relate, in order to receive vesting credit for such Service Period. A new vesting schedule shall -7- COUNTRYWIDE FINANCIAL CORPORATION ERISA Nonqualified Pension Plan Master Plan Document apply to each Long-Term Incentive Contribution Amount credited to the Participant's Long-Term Incentive Account and to each Annual Company Contribution described in Section 3.2(b) credited to the Participant's Company Contribution Account.
TIME ELAPSED AFTER THE END OF THE SERVICE PERIOD TO WHICH AMOUNTS RELATE VESTED PERCENTAGE Less than 1 year None 1 year or more, but less than 2 15% 2 years or more, but less than 3 40% 3 years or more 100%
3.4 EFFECT OF A PARTICIPANT'S COVERED TERMINATION, RETIREMENT, DEATH WHILE EMPLOYED BY AN EMPLOYER OR DISABILITY (a) Notwithstanding anything to the contrary contained in Section 3.3, in the event of a Participant's Covered Termination, or upon a Participant's death while employed by an Employer or Disability, any amounts which are not vested in accordance with Section 3.3, shall immediately become vested and nonforfeitable. Upon a Participant's Retirement, the Committee in its sole discretion may provide that any amounts that are not vested in accordance with Section 3.3 shall immediately become vested and nonforfeitable. (b) Notwithstanding subsection 3.4(a) above, upon a Participant's Covered Termination, the applicable vesting schedule for amounts described in Section 3.3 shall not be accelerated to the extent that the Committee determines that such release and/or acceleration would cause a loss of an Employer's tax deductions associated with such amounts under section 280G of the Code. Pursuant to such a determination, the Participant may request independent verification of the Committee's calculations with respect to the application of section 280G. In such case, the Committee must provide to the Participant within ninety (90) days of such a request an opinion from a nationally recognized accounting firm selected by the Participant (the "Accounting Firm"). The opinion shall state the Accounting Firm's opinion that any limitation in the vested percentage and/or released percentage hereunder is necessary to avoid the limits of section 280G and contain supporting calculations. The cost of such opinion shall be paid for by the Company. (c) Section 3.4(b) shall not prevent the acceleration of the applicable vesting schedule for amounts described in Section 3.3, if such Participant is entitled to a "gross-up" payment, to eliminate the effect of the Code section 4999 excise tax, pursuant to his or her employment agreement or other agreement entered into between such Participant and the Employer. -8- COUNTRYWIDE FINANCIAL CORPORATION ERISA Nonqualified Pension Plan Master Plan Document 3.5 CREDITING/DEBITING OF ACCOUNT BALANCES. Effective September 1, 2003, in accordance with, and subject to, the rules and procedures that are established from time to time by the Committee, in its sole discretion, amounts shall be credited or debited to a Participant's Account Balance in accordance with the following rules: (a) MEASUREMENT FUNDS. Subject to the restrictions found in Section 3.5(c) below, the Participant may elect one or more of the measurement funds selected by the Committee, in its sole discretion, which are based on certain mutual funds (the "Measurement Funds"), for the purpose of crediting or debiting additional amounts to his or her Account Balance. As necessary or desired within the Committee's discretion, the Committee may, in its sole discretion, discontinue, substitute or add a Measurement Fund. Each such action will take effect as of the first day of the first calendar quarter that begins at least thirty (30) days after the day on which the Committee gives Participants advance written notice of such change. (b) ELECTION OF MEASUREMENT FUNDS. Subject to the restrictions found in Section 3.5(c) below, a Participant, in connection with his or her initial enrollment in accordance with Section 2.2 above, shall elect, on the Investment Election Form, one or more Measurement Fund(s) (as described in Section 3.5(a) above) to be used to determine the amounts to be credited or debited to his or her Account Balance. If a Participant does not elect any of the Measurement Funds as described in the previous sentence, the Participant's Account Balance shall automatically be allocated into the lowest-risk Measurement Fund, as determined by the Committee, in its sole discretion. Subject to the restrictions found in Section 3.5(c) below, the Participant may (but is not required to) elect, by submitting an Investment Election Form to the Committee that is accepted by the Committee, to add or delete one or more Measurement Fund(s) to be used to determine the amounts to be credited or debited to his or her Account Balance, or to change the portion of his or her Account Balance allocated to each previously or newly elected Measurement Fund. If an election is made in accordance with the previous sentence, it shall apply as of the first business day of the month immediately following the date of the election, and shall continue thereafter for each subsequent day in which the Participant participates in the Plan, unless changed in accordance with the previous sentence. (c) FIXED RATE FUND OR OTHER SPECIAL MEASUREMENT FUND. If the Committee, in its sole discretion, adds a Fixed Rate Fund Measurement Fund or other special Measurement Fund to this Plan, the provisions this Section 3.5(c) shall apply. Prior to each Plan Year, the Committee shall, in its sole discretion, determine whether it (i) will allow allocations to and/or from the Fixed Rate Fund Measurement Fund or other special Measurement Fund, (ii) will require allocations to and/or from the Fixed Rate Fund Measurement Fund or other special Measurement Fund only upon advance written notification of a Participant's intended allocation, and (iii) will impose limits on the portion of a Participant's Account Balance that may be invested in the Fixed Rate Fund Measurement Fund or other -9- COUNTRYWIDE FINANCIAL CORPORATION ERISA Nonqualified Pension Plan Master Plan Document special Measurement Fund, at any given time. In the event that the Committee imposes a limit on the portion of a Participant's Account Balance that may be invested in the Fixed Rate Fund Measurement Fund or other special Measurement Fund, the Committee may request that a Participant re-allocate his or her Account Balance among the other Measurement Funds; provided, however, if a Participant fails or refuses to re-allocate his or her Account Balance in accordance with the Committee's request, the Committee may re-allocate that portion of the Participant's Account Balance which is in excess of the limits imposed on the Fixed Rate Fund Measurement Fund or other special Measurement Fund, on a pro-rata basis, among the Measurement Funds to which the Participant's Account Balance is allocated. (d) PROPORTIONATE ALLOCATION. In making any election described in Section 3.5(b) above, the Participant shall specify on the Investment Election Form, in increments of one percent (1%), the percentage of his or her Account Balance to be allocated to a Measurement Fund (as if the Participant was making an investment in that Measurement Fund with that portion of his or her Account Balance). (e) CREDITING OR DEBITING METHOD. The performance of each Measurement Fund (either positive or negative) will be determined by the Committee, in its sole discretion on a daily basis based on the manner in which such Participant's Account Balance has been hypothetically allocated among the Measurement Funds by the Participant. (f) NO ACTUAL INVESTMENT. Notwithstanding any other provision of this Plan that may be interpreted to the contrary, the Measurement Funds are to be used for measurement purposes only, and a Participant's election of any such Measurement Fund, the allocation of his or her Account Balance thereto, the calculation of additional amounts and the crediting or debiting of such amounts to a Participant's Account Balance shall not be considered or construed in any manner as an actual investment of his or her Account Balance in any such Measurement Fund. In the event that the Company or the Trustee (as that term is defined in the Trust), in its own discretion, decides to invest funds in any or all of the investments on which the Measurement Funds are based, no Participant shall have any rights in or to such investments themselves. Without limiting the foregoing, a Participant's Account Balance shall at all times be a bookkeeping entry only and shall not represent any investment made on his or her behalf by the Company or the Trust; the Participant shall at all times remain an unsecured creditor of the Company. 3.6 FICA AND OTHER TAXES. (a) NONFORFEITABLE CONTRIBUTIONS. When any portion of a Participant's Account Balance becomes vested and nonforfeitable, the Participant's Employer(s) shall withhold from the Participant's cash compensation, in a manner determined by the Employer(s), the Participant's share of FICA and other employment taxes. If necessary, the Committee may reduce the vested and nonforfeitable portion of the Participant's Account Balance Account, as applicable, in order to comply with this Section 3.6. -10- COUNTRYWIDE FINANCIAL CORPORATION ERISA Nonqualified Pension Plan Master Plan Document (b) DISTRIBUTIONS. The Participant's Employer(s), or the trustee of the Trust, shall withhold from any payments made to a Participant under this Plan all federal, state and local income, employment and other taxes required to be withheld by the Employer(s), or the trustee of the Trust, in connection with such payments, in amounts and in a manner to be determined in the sole discretion of the Employer(s) and the trustee of the Trust. ARTICLE 4 UNFORESEEABLE FINANCIAL EMERGENCIES; WITHDRAWAL ELECTION 4.1 WITHDRAWAL FOR UNFORESEEABLE FINANCIAL EMERGENCIES. (a) If the Participant experiences an Unforeseeable Financial Emergency during employment or after termination due to Disability or Retirement, the Participant may petition the Committee to receive a partial or full payout from the Plan. The Participant shall only receive a payout from the Plan to the extent such payout is deemed necessary by the Committee to satisfy the Participant's Unforeseeable Financial Emergency. (b) The payout shall not exceed the lesser of (i) the vested and nonforfeitable portion of the Participant's Account Balance, calculated as of the close of business on or around the date on which the amount becomes payable, as determined by the Committee in its sole discretion, or (ii) the amount reasonably needed to satisfy the Unforeseeable Financial Emergency. Notwithstanding the foregoing, a Participant may not receive a payout from the Plan to the extent that the Unforeseeable Financial Emergency is or may be relieved (A) through reimbursement or compensation by insurance or otherwise, or (B) by liquidation of the Participant's assets, to the extent the liquidation of such assets would not itself cause severe financial hardship. (c) If the Committee, in its sole discretion, approves a Participant's petition for payout, the Participant shall receive a payout from the Plan within sixty (60) days of the date of such approval. 4.2 WITHDRAWAL ELECTION. A Participant (or, after a Participant's death, his or her Beneficiary) may elect, subject to Committee approval, to withdraw up to his or her vested and nonforfeitable Account Balance, less a withdrawal penalty equal to 10% of such amount (the net amount shall be referred to as the "Withdrawal Amount"). This election can be made at any time, before or after Retirement, Disability, death Covered Termination or Termination of Employment, and whether or not the Participant (or Beneficiary) is in the process of being paid pursuant to an installment payment schedule. If made before Retirement, Disability Covered Termination, or death, a Participant's Withdrawal Amount shall be his or her Account Balance calculated as if there had occurred a Termination of Employment as of the day of the election. The Participant (or his or her Beneficiary) shall make this election by giving the Committee advance written -11- COUNTRYWIDE FINANCIAL CORPORATION ERISA Nonqualified Pension Plan Master Plan Document notice of the election in a form determined from time to time by the Committee. The Participant (or his or her Beneficiary) shall be paid the Withdrawal Amount in a lump sum within 60 days of Committee approval. ARTICLE 5 COVERED TERMINATION BENEFIT 5.1 COVERED TERMINATION BENEFIT. A Participant will receive a Covered Termination Benefit if he or she experiences a Covered Termination prior to becoming eligible for the benefits provided in Articles 6, 7, 8 or 9 in accordance with the provisions of those Articles. The Covered Termination Benefit shall be equal to the Participant's vested and nonforfeitable portion of the Account Balance, calculated as of the close of business on or around the date on which the Participant experiences the Covered Termination, as determined by the Committee in its sole discretion. 5.2 PAYMENT OF CHANGE IN CONTROL BENEFIT. A Participant, in connection with his or her commencement of participation in the Plan, may elect on a Distribution Election Form to receive the Covered Termination Benefit in a lump sum or pursuant to a Semi-Monthly Installment Method over thirty-six (36) months. The Participant may change his or her election to an allowable alternative payout period by submitting a new Distribution Election Form to the Committee, provided that any such Distribution Election Form is submitted to and accepted by the Committee in its sole discretion at least ninety (90) days prior to a Covered Termination. If a Participant does not make any election with respect to the payment of the Covered Termination Benefit, then such benefit shall be payable in a lump sum. The lump sum payment shall be made, or installment payments shall commence, no later than sixty (60) days after the date on which the Participant experiences a Covered Termination, as determined by the Committee in its sole discretion. Remaining installments, if any, shall be paid no later than fifteen (15) days after the preceding installment payment. ARTICLE 6 RETIREMENT BENEFIT 6.1 RETIREMENT BENEFIT. A Participant who Retires shall receive, as a Retirement Benefit, his or her vested and nonforfeitable portion of the Account Balance, calculated as of the close of business on or as soon as administratively feasible following the date on which the Participant Retires, as determined by the Committee in its sole discretion. 6.2 PAYMENT OF RETIREMENT BENEFIT. A Participant, in connection with his or her commencement of participation in the Plan, shall elect on a Distribution Election Form to receive the Retirement Benefit in a lump sum or pursuant to a Semi-Monthly Installment Method of 60, 120 or 180 months. The Participant may change his or her election to an -12- COUNTRYWIDE FINANCIAL CORPORATION ERISA Nonqualified Pension Plan Master Plan Document allowable alternative payout period by submitting a new Distribution Election Form to the Committee, provided that any such Distribution Election Form is submitted to and accepted by the Committee in its sole discretion at least thirteen (13) months prior to the Participant's Retirement. The Distribution Election Form most recently accepted by the Committee shall govern the payout of the Retirement Benefit. If a Participant does not make any election with respect to the payment of the Retirement Benefit, then such benefit shall be payable in a lump sum. The lump sum payment shall be made, or installment payments shall commence, no later than sixty (60) days after the date on which the Participant Retires, as determined by the Committee in its sole discretion. Remaining installments, if any, shall be paid no later than fifteen (15) days after the preceding installment payment. ARTICLE 7 TERMINATION BENEFIT 7.1 TERMINATION BENEFIT. A Participant who experiences a Termination of Employment, as determined by the Committee in its sole discretion, shall receive a Termination Benefit, which shall be equal to the Participant's vested and nonforfeitable portion of the Account Balance, calculated as of the close of business on or as soon as administratively feasible following the date on which the Participant experiences a Termination of Employment. 7.2 PAYMENT OF TERMINATION BENEFIT. The Termination Benefit shall be paid to the Participant in a lump sum payment no later than sixty (60) days after the date on which the Participant experiences the Termination of Employment. ARTICLE 8 CONTINUED ELIGIBILITY; DISABILITY BENEFIT 8.1 CONTINUED ELIGIBILITY. A Participant suffering a Disability shall, for benefit purposes under this Plan, continue to be considered to be employed and shall be eligible for the benefits provided for in Articles 4, 5, 6, 7, 8 or 9 in accordance with the provisions of those Articles. Notwithstanding the above, the Committee shall have the right to, in its sole and absolute discretion and for purposes of this Plan only, deem the Participant's employment to have terminated at any time after such Participant is determined to be suffering a Disability. 8.2 DEEMED TERMINATION OF EMPLOYMENT. If, in the Committee's discretion, the Disabled Participant's employment has terminated, and such Participant is not otherwise eligible to Retire, the Participant shall be deemed to have experienced a Termination of Employment for purposes of this Plan and will receive a Disability Benefit. The Disability Benefit shall be equal to his or her vested and unvested Account Balance, calculated as of the close of business on or as soon as administratively feasible following -13- COUNTRYWIDE FINANCIAL CORPORATION ERISA Nonqualified Pension Plan Master Plan Document the date on which the Disabled Participant is deemed to have experienced a Termination of Employment as determined by the Committee in its sole discretion. The Participant shall receive his or her Disability Benefit in a lump sum payment no later than sixty (60) days after the date on which the Committee deems the Disabled Participant to have experienced a Termination of Employment. 8.3 DEEMED RETIREMENT. If, in the Committee's discretion, the Disabled Participant's employment has terminated, and such Participant is otherwise eligible to Retire, the Participant shall be deemed to have Retired for purposes of this Plan and will receive a Disability Benefit. The Disability Benefit shall be equal to his or her vested and unvested Account Balance, calculated as of the close of business on or as soon as administratively feasible following the date on which the Participant is deemed to have Retired, as determined by the Committee in its sole discretion. The Participant shall receive his or her Disability Benefit in the same form in which such Participant elected to receive his or her Retirement Benefit. The lump sum payment shall be made, or installment payments shall commence, no later than sixty (60) days after the date on which the Disabled Participant is deemed to have Retired. Remaining installments, if any, shall be paid no later than fifteen (15) days after the preceding installment payment. ARTICLE 9 SURVIVOR BENEFIT 9.1 SURVIVOR BENEFIT. The Participant's Beneficiary(ies) shall receive a Survivor Benefit upon the Participant's death which will be equal to the Participant's vested and unvested Account Balance, calculated as of the close of business on or around the date of the Participant's death, as selected by the Committee in its sole discretion, if the Participant dies prior to (i) his or her Retirement, Covered Termination, Termination of Employment or Disability, or (ii) the complete distribution of Participant's Retirement Benefit, Change in Control Benefit or Disability Benefit, calculated as of the close of business on or around the date of the Participant's death, as selected by the Committee in its sole discretion. 9.2 PAYMENT OF SURVIVOR BENEFIT. The Survivor Benefit shall be paid to the Participant's Beneficiary(ies) in a lump sum payment no later than sixty (60) days after the date on which the Committee is provided with proof that is satisfactory to the Committee of the Participant's death. ARTICLE 10 BENEFICIARY DESIGNATION 10.1 BENEFICIARY. Each Participant shall have the right, at any time, to designate his or her Beneficiary(ies) (both primary as well as contingent) to receive any benefits payable -14- COUNTRYWIDE FINANCIAL CORPORATION ERISA Nonqualified Pension Plan Master Plan Document under the Plan to a beneficiary upon the death of a Participant. The Beneficiary designated under this Plan may be the same as or different from the Beneficiary designation under any other plan of an Employer in which the Participant participates. In the event any amount is payable under the Plan to a minor, payment shall not be made to the minor, but instead be paid (a) to that person's living parent(s) to act as custodian, (b) if that person's parents are then divorced, and one parent is the sole custodial parent, to such custodial parent, or (c) if no parent of that person is then living, to a custodian selected by the Committee to hold the funds for the minor under the Uniform Transfers of Gifts to Minors Act in effect in the jurisdiction in which the minor resides. If no parent is living and the Committee decides not to select another custodian to hold the funds for the minor, then payment shall be made to the duly appointed and currently acting guardian of the estate for the minor or, if no guardian of the estate for the minor is duly appointed and currently acting within 60 days after the date the amount becomes payable, payment shall be deposited with the court having jurisdiction over the estate of the minor. 10.2 BENEFICIARY DESIGNATION; CHANGE OF BENEFICIARY DESIGNATION. A Participant shall designate his or her Beneficiary by completing and signing the Beneficiary Designation Form, and returning it to the Committee or its designated agent. A Participant shall have the right to change a Beneficiary by completing, signing and otherwise complying with the terms of the Beneficiary Designation Form and the Committee's rules and procedures, as in effect from time to time. Upon the acceptance by the Committee of a new Beneficiary Designation Form, all Beneficiary designations previously filed shall be canceled. The Committee shall be entitled to rely on the last Beneficiary Designation Form filed by the Participant and accepted by the Committee prior to his or her death. 10.3 ACKNOWLEDGMENT. No designation or change in designation of a Beneficiary shall be effective until received and acknowledged in writing by the Committee or its designated agent. 10.4 NO BENEFICIARY DESIGNATION. If a Participant fails to designate a Beneficiary as provided in Sections 10.1 and 10.2 above or, if all designated Beneficiaries predecease the Participant or die prior to complete distribution of the Participant's benefits, then the Participant's designated Beneficiary shall be deemed to be his or her surviving spouse. If the Participant has no surviving spouse, the benefits remaining under the Plan to be paid to a Beneficiary shall be payable to the executor or personal representative of the Participant's estate. 10.5 DOUBT AS TO BENEFICIARY. If the Committee has any doubt as to the proper Beneficiary to receive payments pursuant to this Plan, the Committee shall have the right, exercisable in its discretion, to cause the Participant's Employer to withhold such payments until this matter is resolved to the Committee's satisfaction. -15- COUNTRYWIDE FINANCIAL CORPORATION ERISA Nonqualified Pension Plan Master Plan Document 10.6 DISCHARGE OF OBLIGATIONS. The payment of benefits under the Plan to a Beneficiary shall fully and completely discharge all Employers and the Committee from all further obligations under this Plan with respect to the Participant, and that Participant's Participation Agreement shall terminate upon such full payment of benefits. ARTICLE 11 LEAVE OF ABSENCE 11.1 LEAVE OF ABSENCE. If a Participant is authorized by the Participant's Employer to take a paid or unpaid leave of absence from the employment of the Employer, the Participant (i) shall continue to be considered eligible for the benefits provided in Articles 4, 5, 6, 7, 8 or 9 in accordance with the provisions of those Articles, including vesting of Long-Term Incentive Contribution Amounts and Annual Company Contributions unless otherwise determined by the Employer in granting the leave of absence, and (ii) shall not be eligible to receive future Annual Company Contributions described in Section 3.2(b). ARTICLE 12 TERMINATION, AMENDMENT OR MODIFICATION 12.1 TERMINATION. Although each Employer anticipates that it will continue the Plan for an indefinite period of time, there is no guarantee that any Employer will continue the Plan or will not terminate the Plan at any time in the future. Accordingly, each Employer reserves the right to discontinue its sponsorship of the Plan and/or to terminate the Plan at any time with respect to any or all of its participating Employees, by action of its board of directors. Upon the termination of the Plan with respect to any Employer, the Participation Agreements of the affected Participants who are employed by that Employer shall terminate, and their vested and nonforfeitable portion of their Account Balances shall be determined (i) as if they had experienced a Termination of Employment on the date of Plan termination if that date is before a Change in Control; (ii) as if they had experienced a Covered Termination on the date of Plan termination if that date is on or after a Change in control; or (iii) if Plan termination occurs after the date upon which a Participant was eligible to Retire, then with respect to that Participant as if he or she had Retired on the date of Plan termination. Such benefits shall be paid to the Participants as follows: (i) prior to a Change in Control, if the Plan is terminated with respect to all of its Participants, an Employer shall have the right, in its sole discretion, and notwithstanding any elections made by the Participant, to pay such benefits in a lump sum or pursuant to a Semi-Monthly Installment Method determined by the Committee of up to 180 months, with amounts credited and debited during the installment period as provided herein; or (ii) prior to a Change in Control, if the Plan is terminated with respect to less than all of its Participants, an Employer shall be required to pay such benefits in accordance with Articles 6, 7, 8 and 9; or (iii) after a Change in Control, if the Plan is terminated with respect to some or all of its Participants, the Employer shall be required to pay such -16- COUNTRYWIDE FINANCIAL CORPORATION ERISA Nonqualified Pension Plan Master Plan Document benefits in accordance with Section 5.2. The termination of the Plan shall not adversely affect any Participant or Beneficiary who has become entitled to the payment of any vested and nonforfeitable benefits under the Plan as of the date of termination; provided however, that the Employer shall have the right to accelerate installment payments without a premium or prepayment penalty by paying the vested and nonforfeitable portion of the Account Balance in a lump sum or pursuant to a Semi-Monthly Installment Method using fewer months (provided that the present value of all payments that will have been received by a Participant at any given point of time under the different payment schedule shall equal or exceed the present value of all payments that would have been received at that point in time under the original payment schedule). If the Plan is terminated and a Participant would not otherwise be entitled to his or her entire Long-Term Incentive Account balance, the unvested portion(s) of the Participant's Long-Term Incentive Account balance shall become vested and be distributed to the Participant within sixty (60) days after the date on which such portion(s) would otherwise have become vested pursuant to Section 3.3(b) of the Plan had it not terminated; provided, however, the Participant must remain in continuous service as an Employee through such vesting date in order to receive a distribution of that portion. 12.2 AMENDMENT. Any Employer may, at any time, amend or modify the Plan in whole or in part with respect to that Employer by the action of its board of directors; provided, however, that: (i) no amendment or modification shall be effective to decrease or restrict the value of a Participant's vested and nonforfeitable portion of the Account Balance in existence at the time the amendment or modification is made, calculated as if the Participant had experienced a Termination of Employment as of the effective date of the amendment or modification or, if the amendment or modification occurs after the date upon which the Participant was eligible to Retire, the Participant had Retired as of the effective date of the amendment or modification, and (ii) no amendment or modification of this Section 12.2 of the Plan shall be effective. The amendment or modification of the Plan shall not affect any Participant or Beneficiary who has become entitled to the payment of vested and nonforfeitable under the Plan as of the date of the amendment or modification; provided, however, that the Employer shall have the right to accelerate installment payments by paying the vested and nonforfeitable portion of the Account Balance in a lump sum or pursuant to an Semi-Monthly Installment Method using fewer months (provided that the present value of all payments that will have been received by a Participant at any given point of time under the different payment schedule shall equal or exceed the present value of all payments that would have been received at that point in time under the original payment schedule). Nothing in this Section 12.2 shall prevent the Employer from amending or modifying the Plan at any time to preserve its intended tax consequences. 12.3 PARTICIPATION AGREEMENT. Despite the provisions of Sections 12.1 and 12.1 above, if a Participant's Participation Agreement contains benefits or limitations that are not -17- COUNTRYWIDE FINANCIAL CORPORATION ERISA Nonqualified Pension Plan Master Plan Document addressed in this Plan document, the Employer may only amend or terminate such provisions with the written consent of the Participant. Notwithstanding the preceding sentence, an Employer may modify, amend or discontinue Annual Company Contributions described in Section 3.2(b) at any time for any reason. 12.4 EFFECT OF PAYMENT. The full payment of the Participant's vested and nonforfeitable portion of the Account Balance under Articles 4, 5, 6, 7, 8 or 9 of the Plan shall completely discharge all obligations to a Participant and his or her designated Beneficiaries under this Plan and the Participant's Participation Agreement shall terminate. ARTICLE 13 ADMINISTRATION 13.1 COMMITTEE DUTIES. Except as otherwise provided in this Article 13, this Plan shall be administered by a Committee, which shall consist of the Chief Administrative Officer, Managing Director of Human Resources and Managing Director, President and Chief Executive Officer of Countrywide Securities Corporation. Members of the Committee may be Participants under this Plan. The Committee shall also have the discretion and authority to (i) make, amend, interpret, and enforce all appropriate rules and regulations for the administration of this Plan and (ii) decide or resolve any and all questions including interpretations of this Plan, as may arise in connection with the Plan. Any individual serving on the Committee who is a Participant shall not vote or act on any matter relating solely to himself or herself. When making a determination or calculation, the Committee shall be entitled to rely on information furnished by a Participant or the Company. 13.2 ADMINISTRATION UPON CHANGE IN CONTROL. For purposes of this Plan, the Committee shall be the "Administrator" at all times prior to the occurrence of a Change in Control. Within one-hundred and twenty (120) days following a Change in Control, an independent third party "Administrator" may be selected by the individual who, immediately prior to the Change in Control, was the Company's Chief Executive Officer or, if not so identified, the Company's highest ranking officer (the "Ex-CEO"), and approved by the Trustee. The Committee, as constituted prior to the Change in Control, shall continue to be the Administrator until the earlier of (i) the date on which such independent third party is selected and approved, or (ii) the expiration of the one-hundred and twenty (120) day period following the Change in Control. If an independent third party is not selected within one-hundred and twenty (120) days of such Change in Control, the Committee, as described in Section 13.1 above, shall be the Administrator. The Administrator shall have the discretionary power to determine all questions arising in connection with the administration of the Plan and the interpretation of the Plan and Trust including, but not limited to benefit entitlement determinations; provided, however, upon -18- COUNTRYWIDE FINANCIAL CORPORATION ERISA Nonqualified Pension Plan Master Plan Document and after the occurrence of a Change in Control, the Administrator shall have no power to direct the investment of Plan or Trust assets or select any investment manager or custodial firm for the Plan or Trust. Upon and after the occurrence of a Change in Control, the Company must: (1) pay all reasonable administrative expenses and fees of the Administrator; (2) indemnify the Administrator against any costs, expenses and liabilities including, without limitation, attorney's fees and expenses arising in connection with the performance of the Administrator hereunder, except with respect to matters resulting from the gross negligence or willful misconduct of the Administrator or its employees or agents; and (3) supply full and timely information to the Administrator on all matters relating to the Plan, the Trust, the Participants and their Beneficiaries, the Account Balances of the Participants, the date and circumstances of the Retirement, Disability, Covered Termination, death or Termination of Employment of the Participants, and such other pertinent information as the Administrator may reasonably require. Upon and after a Change in Control, the Administrator may be terminated (and a replacement appointed) by the Trustee only with the approval of the Ex-CEO. Upon and after a Change in Control, the Administrator may not be terminated by the Company. 13.3 AGENTS. In the administration of this Plan, the Committee may, from time to time, employ agents and delegate to them such administrative duties as it sees fit (including acting through a duly appointed representative) and may from time to time consult with counsel who may be counsel to any Employer. 13.4 BINDING EFFECT OF DECISIONS. The decision or action of the Administrator with respect to any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all persons having any interest in the Plan. 13.5 INDEMNITY OF COMMITTEE. All Employers shall indemnify and hold harmless the members of the Committee, any Employee to whom the duties of the Committee may be delegated, and the Administrator against any and all claims, losses, damages, expenses or liabilities arising from any action or failure to act with respect to this Plan, except in the case of willful misconduct by the Committee, any of its members, any such Employee or the Administrator. 13.6 EMPLOYER INFORMATION. To enable the Committee and/or Administrator to perform its functions, the Company and each Employer shall supply full and timely information to the Committee and/or Administrator, as the case may be, on all matters relating to the compensation of its Participants, the date and circumstances of the Retirement, Disability, Covered Termination, death or Termination of Employment of its Participants, and such other pertinent information as the Committee or Administrator may reasonably require. -19- COUNTRYWIDE FINANCIAL CORPORATION ERISA Nonqualified Pension Plan Master Plan Document ARTICLE 14 OTHER BENEFITS AND AGREEMENTS 14.1 COORDINATION WITH OTHER BENEFITS. The benefits provided for a Participant and Participant's Beneficiary under the Plan are in addition to any other benefits available to such Participant under any other plan or program for employees of the Participant's Employer. The Plan shall supplement and shall not supersede, modify or amend any other such plan or program except as may otherwise be expressly provided. For purpose of calculating "Bonus" under the Countrywide Financial Corporation Change in Control Severance Plan, any Long-Term Incentive Contribution Amount or Annual Company Contribution that is calculated based on services rendered in a specific calendar year shall be deemed to be a bonus paid or payable for such calendar year, even though such amounts may be contributed to the Plan and become vested and nonforfeitable in a later year. ARTICLE 15 CLAIMS PROCEDURES 15.1 PRESENTATION OF CLAIM. Any Participant, Beneficiary of a deceased Participant, or authorized representative of either of them (such person being referred to below as a "Claimant") may deliver to the Committee a written claim for a determination with respect to the amounts distributable to such Claimant from the Plan. If such a claim relates to the contents of a notice received by the Claimant, the claim must be made within sixty (60) days after such notice was received by the Claimant. All other claims must be made within 180 days of the date on which the event that caused the claim to arise occurred. The claim must state with particularity the determination desired by the Claimant. 15.2 NOTIFICATION OF DECISION. The Committee shall consider a Claimant's claim within a reasonable time, but no later than ninety (90) days after receiving the claim. If the Committee determines that special circumstances require an extension of time for processing the claim, written notice of the extension shall be furnished to the Claimant prior to the termination of the initial ninety (90) day period. In no event shall such extension exceed a period of ninety (90) days from the end of the initial period. The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Committee expects to render the benefit determination. The Committee shall notify the Claimant in writing: (a) that the Claimant's requested determination has been made, and that the claim has been allowed in full; or -20- COUNTRYWIDE FINANCIAL CORPORATION ERISA Nonqualified Pension Plan Master Plan Document (b) that the Committee has reached a conclusion contrary, in whole or in part, to the Claimant's requested determination, and such notice must set forth in a manner calculated to be understood by the Claimant: (i) the specific reason(s) for the denial of the claim, or any part of it; (ii) specific reference(s) to pertinent provisions of the Plan upon which such denial was based; (iii) a description of any additional material or information necessary for the Claimant to perfect the claim, and an explanation of why such material or information is necessary; (iv) an explanation of the claim review procedure set forth in Section 15.3 below; and (v) a statement of the Claimant's right to bring a civil action under ERISA Section 502(a) following an adverse benefit determination on review. 15.3 REVIEW OF A DENIED CLAIM. On or before sixty (60) days after receiving a notice from the Committee that a claim has been denied, in whole or in part, a Claimant (or the Claimant's duly authorized representative) may file with the Committee a written request for a review of the denial of the claim. The Claimant (or the Claimant's duly authorized representative): (a) may, upon request and free of charge, have reasonable access to, and copies of, all documents, records and other information relevant to the claim for benefits; (b) may submit written comments or other documents; and/or (c) may request a hearing, which the Committee, in its sole discretion, may grant. 15.4 DECISION ON REVIEW. The Committee shall render its decision on review promptly, and no later than sixty (60) days after the Committee receives the Claimant's written request for a review of the denial of the claim. If the Committee determines that special circumstances require an extension of time for processing the claim, written notice of the extension shall be furnished to the Claimant prior to the termination of the initial sixty (60) day period. In no event shall such extension exceed a period of sixty (60) days from the end of the initial period. The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Committee expects to render the benefit determination. In rendering its decision, the Committee shall take into account all comments, documents, records and other information submitted by the Claimant relating -21- COUNTRYWIDE FINANCIAL CORPORATION ERISA Nonqualified Pension Plan Master Plan Document to the claim, without regard to whether such information was submitted or considered in the initial benefit determination. The decision must be written in a manner calculated to be understood by the Claimant, and it must contain: (a) specific reasons for the decision; (b) specific reference(s) to the pertinent Plan provisions upon which the decision was based; (c) a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the Claimant's claim for benefits; and (d) a statement of the Claimant's right to bring a civil action under ERISA Section 502(a). 15.5 LEGAL ACTION. A Claimant's compliance with the foregoing provisions of this Article 15 is a mandatory prerequisite to a Claimant's right to commence any legal action with respect to any claim for benefits under this Plan. ARTICLE 16 TRUST 16.1 ESTABLISHMENT OF THE TRUST. The Company shall establish a trust by a trust agreement with a third party, the trustee, (the "Trust"), and each Employer shall at least annually transfer over to the Trust such assets as the Employer determines, in its sole discretion, are necessary to provide, on a present value basis, for its respective future liabilities created with respect to the Annual Company Contribution Amounts and Long-Term Incentive Contribution Amounts, for such Employer's Participants for all periods prior to the transfer, as well as any debits and credits to the Participants' Account Balances for all periods prior to the transfer, taking into consideration the value of the assets in the trust at the time of the transfer. 16.2 INTERRELATIONSHIP OF THE PLAN AND THE TRUST. The provisions of the Plan and the Participation Agreement shall govern the rights of a Participant to receive distributions pursuant to the Plan. The provisions of the Trust shall govern the rights of the Employers, Participants and the creditors of the Employers to the assets transferred to the Trust. Each Employer shall at all times remain liable to carry out its obligations under the Plan. -22- COUNTRYWIDE FINANCIAL CORPORATION ERISA Nonqualified Pension Plan Master Plan Document 16.3 DISTRIBUTIONS FROM THE TRUST. Each Employer's obligations under the Plan may be satisfied with Trust assets distributed pursuant to the terms of the Trust, and any such distribution shall reduce the Employer's obligations under this Plan. ARTICLE 17 MISCELLANEOUS 17.1 STATUS OF PLAN. The Plan is intended to be a plan that is not qualified within the meaning of Code Section 401(a) and that "is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees" within the meaning of ERISA Sections 201(2), 301(a)(3) and 401(a)(1). The Plan shall be administered and interpreted to the extent possible in a manner consistent with that intent. 17.2 UNSECURED GENERAL CREDITOR. Participants and their Beneficiaries, heirs, successors and assigns shall have no legal or equitable rights, interests or claims in any property or assets of an Employer. For purposes of the payment of benefits under this Plan, any and all of an Employer's assets shall be, and remain, the general, unpledged unrestricted assets of the Employer. An Employer's obligation under the Plan shall be merely that of an unfunded and unsecured promise to pay money in the future. 17.3 EMPLOYER'S LIABILITY. An Employer's liability for the payment of benefits shall be defined only by the Plan and the Participation Agreement, as entered into between the Employer and a Participant. An Employer shall have no obligation to a Participant under the Plan except as expressly provided in the Plan and his or her Participation Agreement. 17.4 NONASSIGNABILITY. Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate, alienate or convey in advance of actual receipt, the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are expressly declared to be, unassignable and non-transferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure, attachment, garnishment or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, be transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency or be transferable to a spouse as a result of a property settlement or otherwise. 17.5 NOT A CONTRACT OF EMPLOYMENT. The terms and conditions of this Plan shall not be deemed to constitute a contract of employment between any Employer and the Participant. Such employment is hereby acknowledged to be an "at will" employment relationship that can be terminated at any time for any reason, or no reason, with or without cause, and with or without notice, unless expressly provided in a written -23- COUNTRYWIDE FINANCIAL CORPORATION ERISA Nonqualified Pension Plan Master Plan Document employment agreement. Nothing in this Plan shall be deemed to give a Participant the right to be retained in the service of any Employer as an Employee, or to interfere with the right of any Employer to discipline or discharge the Participant at any time. 17.6 FURNISHING INFORMATION. A Participant or his or her Beneficiary will cooperate with the Committee by furnishing any and all information requested by the Committee and take such other actions as may be requested in order to facilitate the administration of the Plan and the payments of benefits hereunder, including but not limited to taking such physical examinations as the Committee may deem necessary. 17.7 TERMS. Whenever any words are used herein in the masculine, they shall be construed as though they were in the feminine in all cases where they would so apply; and whenever any words are used herein in the singular or in the plural, they shall be construed as though they were used in the plural or the singular, as the case may be, in all cases where they would so apply. 17.8 CAPTIONS. The captions of the articles, sections and paragraphs of this Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions. 17.9 GOVERNING LAW. The Plan is subject to and shall be construed and interpreted in accordance with ERISA. To the extent state laws are not preempted by ERISA or other federal laws, this Plan shall be subject to and construed and interpreted in accordance with the laws of the State of California without regard to its conflicts of laws principles. 17.10 NOTICE. Any notice or filing required or permitted to be given to the Committee under this Plan shall be sufficient if in writing and hand-delivered, or sent by registered or certified mail, to the address below: Countrywide Financial Corporation Attn: Chief Administrative Officer 4500 Park Granada Calabasas, CA 91302 Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. Any notice or filing required or permitted to be given to a Participant under this Plan shall be sufficient if in writing and hand-delivered, or sent by mail, to the last known address of the Participant. 17.11 SUCCESSORS. The provisions of this Plan shall bind and inure to the benefit of the Participant's Employer and its successors and assigns and the Participant and the Participant's designated Beneficiaries. -24- COUNTRYWIDE FINANCIAL CORPORATION ERISA Nonqualified Pension Plan Master Plan Document 17.12 SPOUSE'S INTEREST. The interest in the benefits hereunder of a spouse of a Participant who has predeceased the Participant shall automatically pass to the Participant and shall not be transferable by such spouse in any manner, including but not limited to such spouse's will, nor shall such interest pass under the laws of interstate succession. 17.13 VALIDITY. In case any provision of this Plan shall be illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Plan shall be construed and enforced as if such illegal or invalid provision had never been inserted herein. 17.14 INCOMPETENT. If the Committee determines in its discretion that a benefit under this Plan is to be paid to a minor, a person declared incompetent or to a person incapable of handling the disposition of that person's property, the Committee may direct payment of such benefit to the guardian, legal representative or person having the care and custody of such minor, incompetent or incapable person. The Committee may require proof of minority, incompetence, incapacity or guardianship, as it may deem appropriate prior to distribution of the benefit. Any payment of a benefit shall be a payment for the account of the Participant and the Participant's Beneficiary, as the case may be, and shall be a complete discharge of any liability under the Plan for such payment amount. 17.15 COURT ORDER. The Committee is authorized to make any payments directed by court order in any action in which the Plan or the Committee has been named as a party. In addition, if a court determines that a spouse or former spouse of a Participant has an interest in the Participant's benefits under the Plan in connection with a property settlement or otherwise, the Committee, in its sole discretion, shall have the right, notwithstanding any election made by a Participant, to immediately distribute the spouse's or former spouse's interest in the Participant's benefits under the Plan to that spouse or former spouse. 17.16 DISTRIBUTION IN THE EVENT OF TAXATION. (a) IN GENERAL. If, for any reason, all or any portion of a Participant's benefits under this Plan becomes taxable to the Participant prior to receipt, a Participant may petition the Committee before a Change in Control, or the trustee of the Trust after a Change in Control, for a distribution of that portion of his or her benefit that has become taxable. Upon the grant of such a petition, which grant shall not be unreasonably withheld (and, after a Change in Control, shall be granted), a Participant's Employer shall distribute to the Participant immediately available funds in an amount equal to the taxable portion of his or her benefit (which amount shall not exceed a Participant's unpaid vested and nonforfeitable portion of the Account Balance under the Plan). If the petition is granted, the tax liability distribution shall be made within 90 days of the date when the Participant's petition is granted. Such a distribution shall affect and reduce the benefits to be paid under this Plan. -25- COUNTRYWIDE FINANCIAL CORPORATION ERISA Nonqualified Pension Plan Master Plan Document (b) TRUST. If the Trust terminates in accordance with its terms and benefits are distributed from the Trust to a Participant in accordance therewith, the Participant's benefits under this Plan shall be reduced to the extent of such distributions. 17.17 INSURANCE. The Employers, on their own behalf or on behalf of the trustee of the Trust, and, in their sole discretion, may apply for and procure insurance on the life of the Participant, in such amounts and in such forms as the Trust may choose. The Employers or the trustee of the Trust, as the case may be, shall be the sole owner and beneficiary of any such insurance. The Participant shall have no interest whatsoever in any such policy or policies, and at the request of the Employers shall submit to medical examinations and supply such information and execute such documents as may be required by the insurance company or companies to whom the Employers have applied for insurance. 17.18 LEGAL FEES TO ENFORCE RIGHTS AFTER CHANGE IN CONTROL. The Company and each Employer is aware that upon the occurrence of a Change in Control, the Board or the board of directors of a Participant's Employer (which might then be composed of new members) or a shareholder of the Company or the Participant's Employer, or of any successor corporation might then cause or attempt to cause the Company, the Participant's Employer or such successor to refuse to comply with its obligations under the Plan and might cause or attempt to cause the Company or the Participant's Employer to institute, or may institute, litigation seeking to deny Participants the benefits intended under the Plan. In these circumstances, the purpose of the Plan could be frustrated. Accordingly, if, following a Change in Control, it should appear to any Participant that the Company, the Participant's Employer or any successor corporation has failed to comply with any of its obligations under the Plan or any agreement thereunder or, if the Company, such Employer or any other person takes any action to declare the Plan void or unenforceable or institutes any litigation or other legal action designed to deny, diminish or to recover from any Participant the benefits intended to be provided, then the Company and the Participant's Employer irrevocably authorize such Participant to retain counsel of his or her choice at the expense of the Company and the Participant's Employer (who shall be jointly and severally liable) to represent such Participant in connection with the initiation or defense of any litigation or other legal action, whether by or against the Company, the Participant's Employer or any director, officer, shareholder or other person affiliated with the Company, the Participant's Employer or any successor thereto in any jurisdiction. In consideration of this right, each Participant shall hold the Company harmless from any loss or expense (including attorney's fees) that may arise if with respect to any litigation relating to this Plan (whether or not involving a Change in Control), the Participant unsuccessfully contests the applicability of ERISA to this Plan or commences an action relating to this Plan in state court. -26- COUNTRYWIDE FINANCIAL CORPORATION ERISA Nonqualified Pension Plan Master Plan Document IN WITNESS WHEREOF, the Company has signed this Plan document as of August, 12, 2003. "Company" Countrywide Financial Corporation, a Delaware corporation By: /s/ Thomas H. Boone ------------------------------- Title: Senior Managing Director, Chief Administrative Officer -27- EX-10.73 17 v96832exv10w73.txt EXHIBIT 10.73 EXHIBIT 10.73 COUNTRYWIDE FINANCIAL CORPORATION 2003 NON-EMPLOYEE DIRECTORS' FEE PLAN SECTION 1 PURPOSE The Countrywide Financial Corporation 2003 Non-Employee Directors' Fee Plan (the "Plan") has been established by Countrywide Financial Corporation (the "Company"), effective as of January 1, 2004 (the "Effective Date") to attract and retain as members of its Board of Directors persons who are not employees of the Company or any of its subsidiaries but whose business experience and judgment are a valuable asset to the Company and its subsidiaries. The Plan provides for the payment to Directors of fees in the form of some or all of the following: Annual Retainer Fee, Chairman Retainer Fee, Meeting Fees, and Restricted Stock Awards (generally, the "Director Fees"). SECTION 2 DIRECTORS COVERED As used in the Plan, the term "Director" means any person who is elected to the Board of Directors of the Company as of the Effective Date or at any time thereafter, and is not an employee of the Company or any of its subsidiaries. SECTION 3 FEES PAYABLE TO DIRECTORS 3.1 Annual Retainer Fee. Each Director shall be entitled to an annual retainer fee (the "Retainer Fee") to be paid quarterly, on the last business day of the quarter for which the Director served in the capacity as a Director (excluding, on a pro rata basis, the month in which he or she is first elected a Director and any whole months in which he or she did not serve in such capacity). The amount of the Annual Retainer Fee shall be as determined in the sole discretion of the Board of Directors of the Company (the "Board"), with such amount initially set at Seventy Thousand ($70,000.00) per year until such time as the Board adjusts such amount. 3.2 Chairman Retainer Fee. A Director who serves as Chairman of the Board or any committee created by the Board shall be entitled to an additional annual retainer fee (the "Chairman Retainer Fee") to be paid quarterly, on the last business day of the quarter for which the Director served in the capacity as a chairman (excluding, on a pro rata basis, the month in which he or she is first selected to be the chairman and any whole months in which he or she did not serve in such capacity). The amount of the Chairman Retainer Fee shall be as determined in the sole discretion of the Board, with such amount initially set at Seven Thousand Five Hundred ($7,500.00) per year until such time as the Board adjusts such amount. 3.3 Meeting Fees. A Director who attends a meeting of the full Board shall be entitled to an additional fee (the "Meeting Fee") to be paid on the last business day of the quarter in which the meeting was held. The amount of the Meeting Fee shall be as determined in the sole discretion of the Board, with such amount initially set at One Thousand Five Hundred Dollars ($1,500.00) for each Board attended in person and Seven Hundred and Fifty Dollars ($750.00) for each meeting attended other than in person, in a manner acceptable to the Board, until such time as the Board adjusts such amounts. SECTION 4 RESTRICTED STOCK. 4.1 Annual Restricted Stock Award. Annually, on the first business day of April, each Director (other than a Director Emeritus - as may be defined by the Committee from time to time), shall be granted shares of Company's Common Stock, par value $0.05 per share (the "Stock"), subject to certain restrictions set forth below (the "Restricted Stock"). The number of shares covered by the Restricted Stock Award shall be equal to that number of shares whose aggregate value (based on the Fair Market Value of a share of Stock on the date of grant) equals Two Hundred Twenty Thousand Dollars ($220,000.000), until such time as the Board adjusts such amounts, rounded down to the next whole share. The term "Fair Market Value" shall be as defined in the 2000 Plan (as defined in Section 6.6 below). 4.2 Issuance of Certificates. Subject to the deferral provisions of Section 9, as soon as practicable following the date of grant of a Restricted Stock Award, the Company shall issue certificates (the "Certificates") to the Director receiving the Restricted Stock Award, representing the number of shares of Stock covered by the Award. Each Certificate shall bear a legend describing the restrictions on such shares imposed by this Section 4 and may be retained by the Company during the Restricted Period. 4.3 Rights. Upon issuance of the Certificates, the Directors in whose names they are registered shall, subject to the restrictions of this Section 4, have all of the rights of a shareholder with respect to the shares represented by the Certificate, including the right to vote such shares and to receive cash dividends and other distributions thereon. 4.4 Restricted Period. The shares covered by Awards granted under this Section 4 may not be sold or otherwise disposed of within six (6) months following their grant date (unless such sale would not affect the exemption under Rule 16b-3 of the Securities and Exchange Commission) and in addition shall be subject to the restrictions of this paragraph 4 during the "Restricted Period." The Restricted Period shall be the period commencing as of the date of grant and shall lapse with respect to all of the Restricted Stock as of the business day immediately preceding the anniversary date of the grant. Notwithstanding the foregoing, the Restricted Period shall lapse and the Director shall become fully vested in the Restricted Stock upon the earliest of the following to occur: (i) The date of the Director's death or disability (as defined by the Board); (ii) The date of a Corporate Change (as defined in Section 9 of the 2000 Plan); or (iii) The date on which the Director becomes a Director Emeritus. 4.5 Restrictions. All shares covered by Awards granted under this Section 4 shall be subject to the following restrictions during the Restricted Period: 2 (i) Except as may otherwise be provided by the Board, the shares may not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of. (ii) Any additional common shares of the Company or other securities or property issued with respect to shares covered by Awards granted under this Section 4 as a result of any stock dividend, stock split or reorganization, shall be subject to the restrictions and other provisions of this Section 4. (iii) A Director shall not be entitled to receive any shares prior to completion of all actions deemed appropriate by the Company to comply with federal or state securities laws and stock exchange requirements. 4.6 Forfeiture. Except as otherwise provided in Section 4.4(i), (ii) and (iii), in the event that the Director's Date of Termination occurs prior to the business day immediately preceding the first anniversary of the date of grant, the Director shall forfeit any and all rights and interests with respect to such unvested Restricted Stock (or Restricted Stock Units, if a Deferral Election is applicable) and the Company shall have the right to cancel any such Certificates evidencing such Restricted Stock. 4.7 Date of Termination. A Director's "Date of Termination" shall be the date on which the Director is no longer providing services to the Company as a Director. SECTION 5 CHANGE IN CONTROL In the event of a Corporate Change, the Restricted Period with respect to all unvested Restricted Stock (or corresponding Restricted Stock Units) shall immediately lapse and the Director shall become fully vested in such shares of Stock (or Stock Units, as the case may be). SECTION 6 OPERATION AND ADMINISTRATION 6.1 Administration. (i) The Plan and all benefits pursuant thereto shall be administered by the full Board. (ii) The Board shall have the authority and discretion to interpret and administer the Plan, to establish, amend and rescind any rules and regulations relating to the Plan and to determine the terms and provisions of any Award Agreement made pursuant to the Plan. All questions of interpretation with respect to the Plan, the benefits established herein, the number of shares of Stock, or other security, or rights granted and the terms of any agreements evidencing any of the Director Fees (the "Award Agreements"), including the timing, pricing, and amounts of Awards, shall be determined by the Board, and its determination shall be final and conclusive upon all parties in interest. In the event of any conflict between an Award Agreement and this Plan, the terms of this Plan shall govern. 3 (iii) Except to the extent prohibited by applicable law or the applicable rules of a stock exchange, the Board may delegate to the officers or employees of the Company and its Subsidiaries the authority to execute and deliver such instruments and documents, to do all such acts and things, and to take all such other steps deemed necessary, advisable or convenient for the effective administration of the Plan in accordance with its terms and purpose, except that the Board may not delegate any discretionary authority with respect to substantive decisions or functions regarding the Plan or benefits and Awards thereunder, including, but not limited to, decisions regarding the timing, eligibility, pricing, amount or other material terms of such benefits or Awards. Any such delegation may be revoked by the Board at any time. (iv) To the extent that the Board determines that the restrictions imposed by the Plan preclude the achievement of the material purposes of the benefit provided herein in jurisdictions outside the United States, if applicable, the Board will have the authority and discretion to modify those restrictions as the Board determines to be necessary or appropriate to conform to applicable requirements or practices of jurisdictions outside of the United States. 6.2 Limits of Liability. (i) Any liability of the Company to any Director with respect to an Award shall be based solely upon contractual obligations created by the Plan and the applicable Award Agreement. (ii) Neither the Company, nor any member of the Board, nor any other person participating in any determination of any question under the Plan, or in the interpretation, administration or application of the Plan, shall have any liability to any party for any action taken or not taken in good faith under the Plan except as may be expressly provided by statute. 6.3 Rights of Directors. Nothing contained in this Plan or in any Award Agreement (or in any other documents related to this Plan or to any Award or Award Agreement) shall confer upon any Director any right to continue in the service of the Company or a Subsidiary, constitute any contract or limit in any way the right of the Company or a Subsidiary to change such person's compensation or other benefits or to terminate the service of such person with or without cause or confer any right on the part of such person to be nominated for reelection to the Board, to be reelected to the Board or to be appointed to any committee of the Board. 6.4 Form and Time of Elections. Any election required or permitted under the Plan shall be in writing, and shall be deemed to be filed when timely delivered to the Company. Any election to defer Director Fees, as provided in Section 9, shall be irrevocable after the commencement of the year for which it is filed, and such election shall remain in effect with respect to any subsequent years unless a new election with respect to such subsequent years is filed in accordance with rules established by the Board, in which case such new election shall be applicable with respect to such subsequent years. 4 6.5 Action by Company. Any action required or permitted to be taken by the Company shall be by resolution of the Board, or by action of one or more members of the Board (including a committee of the Board) who are duly authorized to act for the Board or (except to the extent prohibited by the provisions of Rule 16b-3, applicable local law, the applicable rules of any stock exchange, or any other applicable rules) by a duly authorized officer of the Company. 6.6 2000 Equity Incentive Plan. Any shares of Stock awarded to, or subject to Awards granted to Directors under this Plan as Director Fees shall be issued pursuant to the 2000 Equity Incentive Plan of Countrywide Financial Corporation (the "2000 Plan") or any successor plan, subject to all of the terms and conditions herein. Except in the event of conflict, all provisions of the 2000 Plan shall apply to this Plan. In the event of any conflict between the provisions of the 2000 Plan and this Plan, this Plan shall control, provided that the Director Fees granted herein may not exceed the share limitations set forth in the 2000 Plan. SECTION 7 MISCELLANEOUS 7.1 Beneficiaries. Each Director or former Director entitled to payment of Director Fees hereunder, from time to time may name any person or persons (who may be named contingently or successively) to whom any Director Fees earned by him and payable to him are to be paid in case of his death before he or she receives any or all of such Director Fees. Each designation will revoke all prior designations by the same Director or former Director, shall be in form prescribed by the Company, and will be effective only when filed by the Director or former Director in writing with the Secretary of the Company during his lifetime. If a deceased Director or former Director shall have failed to name a beneficiary in the manner provided above, or if the beneficiary named by a deceased Director or former Director dies before him or before payment of all the Director's or former Director's Director Fees, the Company, in its discretion, may direct payment in a single sum of any remaining Director Fees to either: (i) any one or more or all of the next of kin (including the surviving spouse) of the Director or former Director, and in such proportions as the Company determines; or (ii) the legal representative or representatives of the estate of the last to die of the Director or former Director and his last surviving beneficiary. The person or persons to whom any deceased Director's or former Director's Director Fees are payable under this paragraph will be referred to as his "beneficiary." 7.2 Alienation of Rights. Payment of Director Fees will be made only to the person entitled thereto in accordance with the terms of the Plan, and Director Fees are not in any way subject to the debts or other obligations of persons entitled thereto, and may not be voluntarily or involuntarily sold, transferred or assigned. When a person entitled to a payment under the Plan, in the Company's opinion, is in any way incapacitated so as to be unable to manage his financial affairs, the Company may direct that payment be made to such person's legal representative, or to a relative or friend of such person for his benefit. Any payment made in accordance with the 5 preceding sentence shall be in complete discharge of the Company's obligation to make such payment under the Plan. 7.3 Unfunded Plan. The Plan shall be unfunded. Neither the Company nor the Board shall be required to segregate any assets that may at any time be represented by benefits or Awards made pursuant to the Plan. Neither the Company nor the Board shall be deemed to be a trustee of any amounts to be paid under the Plan. Neither the Director nor any other person shall, by reason of participation in the Plan, the deferral of shares of Stock or the deferral of a cash payment, acquire any right in or title to any assets, funds or property of the Company whatsoever prior to the date such shares of Stock or cash are distributed. A Director shall have only a contractual right to the shares of Stock and cash, if any, distributable under the Plan, unsecured by any assets of the Company. Nothing contained in the Plan shall constitute a guarantee by the Company that the assets of the Company shall be sufficient to provide any benefits to any person. The Company may, but shall not be obligated to, establish a trust to hold assets for the purpose of satisfying obligations under this Plan. 7.4 Adjustment Provisions. In the event of a corporate transaction involving the Company (including, without limitation, any stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination or exchange of shares), in addition to any adjustments made pursuant to Section 8 of the 2000 Plan, the Board may make equitable adjustments to the Director Fees (including Deferred Fees) to preserve the benefits or potential benefits of participation in the Plan. 7.5 Gender and Number. Where the context admits, words in any gender shall include any other gender, words in the singular shall include the plural and the plural shall include the singular. SECTION 8 AMENDMENT AND DISCONTINUANCE The Board may, at any time, amend or terminate the Plan, and may amend any Award Agreement, provided that no amendment or termination may, in the absence of written consent to the change by the affected Director (or, if the Director is not then living, the affected beneficiary), adversely affect the rights of any Director or beneficiary under any Award granted under the Plan prior to the date such amendment is adopted by the Board; and further provided, that adjustments pursuant to paragraph 7.4 shall not be subject to the foregoing limitations of this Section 8. Any amendment or discontinuance of the Plan shall be prospective in operation only, and shall not affect the payment of any Director Fees theretofore earned by any Director, or the conditions under which any such fees are to be paid or forfeited under the Plan, unless the Director affected shall expressly consent thereto. SECTION 9 ELECTIVE DEFERRALS 9.1 DEFERRAL ELECTION (i) General. A Director who is otherwise entitled to receive Director Fees in the form of shares of Stock or a cash payment under the terms of the Plan may elect 6 to defer delivery of all or a portion of such fees, subject to the following terms of this Section 9 (once deferred, the "Deferred Fees"). (ii) Deferral Election. An election to defer the Director Fees into a Cash Account and Stock Unit Account shall be filed prior to the first day of the calendar year in which the cash would otherwise have been delivered to the Director. The election to defer the Director Fees shall be made on an election form as provided by the Board (the "Deferral Election"). The Deferral Election form shall provide for the types and amounts of the Director Fees to be deferred and shall provide for the timing and method of distribution at the end of the applicable deferral period. (iii) Conversion of Cash or Stock to Stock Units. Deferred Fees credited to a Stock Unit Account, as defined below, under this Section 9 shall be converted to Stock Units by dividing the cash-based Director Fees so credited by the Fair Market Value of the Stock as of the date such Director Fees would otherwise have been paid or granted had the Director not made a Deferral Election. The Stock Unit Account will be credited with Stock Units equal to the number of shares of Restricted Stock as to which the Director has elected deferred receipt, with such Stock Units to be credited as of the date on which the shares of Stock would otherwise have been delivered to him in the absence of the deferral. To the extent that Stock Units are credited to the Director's Stock Unit Account with respect to the deferral of a Restricted Stock Award, such Stock Units shall have the same restrictions and vesting provisions as were applicable to the Restricted Stock Award. 9.2 ACCOUNTS (i) Stock Unit Accounts. A "Stock Unit Account" shall be maintained on behalf of each Director who elects to defer all or a portion of his Director Fees under this Section 9, for the period during which delivery of such fees is deferred. A separate Stock Unit Account shall be established for each calendar year in which the Director elects to have all or a portion of the Director Fees deferred. A Director's Stock Unit Account(s) shall be subject to the following adjustments: (a) The Stock Unit Account will be credited with Stock Units, with such Stock Units to be credited as of the date on which the Director Fees would otherwise have been delivered to him in the absence of the deferral. (b) As of each dividend payment date for the Stock following the date any Stock Units are credited to the Director's Stock Unit Account, and prior to the date of distribution with respect to those Stock Units, the Director's Stock Unit Account shall be credited with additional Stock Units (including fractional Stock Units) equal to (i) the amount of the dividend that would be payable with respect to the number of shares of Stock equal to the number of Stock Units credited to the Director's Stock Unit 7 Account on the dividend record date, divided by (ii) the Fair Market Value of a share of Stock on the date of payment of the dividend. (c) As of the date of any distribution with respect to a Director's Stock Unit Account under Section 9.3, the Stock Units credited to a Director's Stock Unit Account shall be reduced by the amounts distributed to the Director. (ii) Cash Account. A Cash Account shall be maintained on behalf of each Director who elects to defer the distribution of cash-based Director Fees provided herein, for the period during which delivery of cash is deferred. A Director's Cash Account shall be credited with a notional rate of return based upon investment(s) selected by the Board in its sole discretion, and reflected on the Deferral Election Form. As of the date of any distribution with respect to a Director's Cash Account under Section 9.3, the balance credited to a Director's Cash Account shall be reduced by the amount of the distribution to the Director. (iii) Statement of Accounts. As soon as practicable after the end of each Year, the Company shall provide each Director having a Stock Unit Account or Cash Account under the Plan with a statement of the transactions in such Accounts during that year and the Account balances as of the end of the year. 9.3 DISTRIBUTIONS (i) General. Subject to the terms of this Section 9.3, a Director shall specify, as part of his Deferral Election with respect to Deferred Fees, the time and manner of the distribution of the amounts deferred pursuant to such election; provided that the distribution date for the Director's Stock Unit Account and Cash Account may differ. In the event that no election is made with respect to the timing or method of distribution as of the date of the Director's termination, the Director's entire Stock Unit Account and Cash Account shall be distributed in a single lump sum as of the first anniversary the Director's date of termination. (ii) At the time of distribution of the Stock Unit Account, shares in accordance with the Director's Deferral Election, the Director shall receive a distribution of shares of Stock equal to the number of Stock Units in his Stock Unit Account subject to distribution. If the scheduled distribution date would otherwise occur after a dividend record date but before the payment of the dividend, distribution may, in the Board's discretion, be deferred (not more than 30 days) until the dividend is paid. (iii) At the time of distribution of the Cash Account in accordance with the Director's Deferral Election, the Director shall receive a cash payment equal to the amount in his Cash Account then subject to distribution. (iv) In determining a Director's right to distributions under this Section 9.3, the vesting provisions of section 4 or 5 of the Plan shall apply to the Stock Units credited to the Director's Stock Unit Account as though each unit represented one 8 share of Stock, and with all units attributable to payment of dividends being fully vested as of the date they are credited to the Director's Stock Unit Account. (v) Termination of Deferral by Company. The Board shall retain the right to terminate, at any time, for any reason, or no reason, the deferral provisions under this Section 9 (which may, but need not, be in conjunction with a termination of the Plan), and shall immediately distribute all, but not less than all, of the Stock Unit Accounts and Cash Accounts as of the date of such termination. In the event that the Board terminates the Plan pursuant to the foregoing, the Restricted Period with respect to all unvested Restricted Stock Units shall immediately lapse and the Director shall become fully vested in such Stock Units. IN WITNESS WHEREOF, the Company has caused this Director Fee Plan to be executed by its duly authorized officer this 1st day of January, 2004 Countrywide Financial Corporation By: /s/ Thomas H. Boone ------------------- Thomas H. Boone Senior Managing Director, Chief Administrative Officer 9 EX-10.74 18 v96832exv10w74.txt EXHIBIT 10.74 EXHIBIT 10.74 COUNTRYWIDE FINANCIAL CORPORATION 2004 EXECUTIVE EQUITY DEFERRAL PROGRAM SECTION 1 GENERAL 1.1 Purpose. The Countrywide Financial Corporation 2004 Executive Equity Deferral Program (the "Program") has been established by Countrywide Financial Corporation (the "Company"), so that it, and each of its Related Companies, may provide its eligible key management employees with an additional opportunity to build financial security, thereby aiding such companies in attracting and retaining employees of exceptional ability. 1.2 Effective Date. The "Effective Date" of the Program is January 1, 2004. 1.3 Related Company. The term "Related Company" means any company during any period in which at least fifty percent of the voting power of all classes entitled to vote is owned, directly or indirectly, by the Company or by any other company that is a Related Company by reason of its ownership of stock of the Company. The Company and each Related Company are referred to below collectively as the "Employers" and individually as an "Employer." 1.4 Program Year. The term "Program Year" means the calendar year. 1.5 Administration. The authority to control and manage the operation and administration of the Program shall be vested in the Committee. The Committee shall have the rights, powers and duties set forth in Section 6. SECTION 2 PARTICIPATION 2.1 Participant. Any individual who is an Eligible Employee for any Program Year shall be eligible to participate in the Program for the Program Year, subject to the terms of the Program. For purposes of the Program, the term "Eligible Employee" for any Program Year shall mean any employee of the Company, or a Related Company, who is part of a select group of management or highly compensated employees and who is specifically selected by the Committee. 2.2 Deferral Election. An Eligible Employee shall participate in the Program by electing to defer payment of a portion of his or her Eligible Compensation pursuant to the terms of a "Deferral Election" (once deferred, the "Deferred Amounts"). An individual's Deferral Election shall be subject to the following: (a) An individual who, prior to the beginning of any Program Year, satisfies the requirements of an Eligible Employee for the Program Year shall be eligible to file a Deferral Election with respect to his or her Eligible Compensation for that Program Year. Such Deferral Election shall be filed during such period before the first day of that year as may be established by the Committee. (b) An individual who, prior to the beginning of any Program Year, has not satisfied the requirements of an Eligible Employee for the Program Year, but who becomes an Eligible Employee during the Program Year, shall be eligible to file a Deferral Election with respect to his or her Eligible Compensation for that Program Year, subject to the limits of paragraph 2.2(d). Such Deferral Election shall be filed within thirty days (or such shorter period as may be specified by the Committee) after he or she first becomes an Eligible Employee for the year. (c) If the Program first becomes effective with respect to the employees of any Employer during any Program Year, and an employee of that Employer becomes an Eligible Employee on the date the Program becomes effective, such employee shall be eligible to file a Deferral Election with respect to Eligible Compensation for that Program Year, subject to the limits of paragraph 2.2(d). Such Deferral Election shall be filed within thirty days (or such shorter period as may be specified by the Committee) after the date the Program becomes effective. (d) To the extent elected by a Participant, and subject to the terms of the Program, a Participant's Deferral Election for any Program Year shall apply to his or her Compensation for that Program Year. The terms of a Deferral Election shall be subject to any conditions and limitations that may be imposed by the Committee. Except as otherwise provided in this subsection 2.2, a Deferral Election shall be irrevocable for the Program Year to which it applies. (e) The Committee may revoke an individual's Deferral Election as of the date on which the individual ceases to be an Eligible Employee. (f) Subject to the terms of the Program, the Participant shall specify, as part of his or her Deferral Election, and in accordance with subsection 4, the time and manner of distribution of the amounts deferred pursuant to such election. 2.3 Compensation. For purposes of the Program, a Participant's "Eligible Compensation" from any Employer for any Program Year means any elements of the Participant's cash or equity based compensation which are approved for deferral by the Committee. SECTION 3 PROGRAM ACCOUNTING 3.1 Stock Unit Account. A "Stock Unit Account" shall be maintained on behalf of each Participant who elects to defer all or a portion of his or her Eligible Compensation under this Program, for the period during which delivery is deferred. A Participant's Stock Unit Account shall be subject to the following adjustments: (a) The Stock Unit Account will be credited with Stock Units, with such Stock Units to be credited as of the date on which the Eligible Compensation would otherwise have been delivered to the Participant in the absence of the deferral. 2 (b) As of each dividend payment date for the Stock following the date any Stock Units are credited to the Participant's Stock Unit Account, and prior to the date of distribution with respect to those Stock Units, the Participant's Stock Unit Account shall be credited with additional Stock Units (including fractional Stock Units) equal to (i) the value of the dividend that would be payable with respect to the number of shares of Stock equal to the number of Stock Units credited to the Participant's Stock Unit Account on the dividend record date, divided by (ii) the Fair Market Value (as defined in the 2000 Plan) of a share of Stock on the date of payment of the dividend. (c) As of the date of any distribution with respect to a Participant's Stock Unit Account, the Stock Units credited to a Participant's Stock Unit Account shall be reduced by the amounts distributed to the Participant. 3.2 Statement of Accounts. As soon as practicable after the end of each Year, the Company shall provide Participants having Stock Unit Accounts under the Program with a statement of the transactions in such Accounts during that year and the Account balances as of the end of the year. SECTION 4 DISTRIBUTIONS 4.1 General. Subject to the terms of this Section 4, a Participant shall specify, as part of his or her Deferral Election with respect to Deferred Amount, the time and manner of the distribution of the amounts deferred pursuant to such election. In the event that no election is made with respect to the timing or method of distribution as of the date of the Participant's termination of employment (the "Termination Date"), the Participant's entire Stock Unit Account shall be distributed in a single lump sum as of the first anniversary the Participant's Termination Date. At the time of distribution of the Stock Unit Account shares in accordance with the Participant's Deferral Election, the Participant shall receive a distribution of shares of Stock based upon the number of Stock Units in his or her Stock Unit Account subject to distribution. If the scheduled distribution date would otherwise occur after a dividend record date but before the payment of the dividend, distribution may, in the Committee's discretion, be deferred (not more than 30 days) until the dividend is paid. 4.2 Termination of Deferral by Company. The Committee shall retain the right to terminate, at any time, for any reason, or no reason, the deferral provisions under this Section 4 (which may, but need not, be in conjunction with a termination of the Program), and may immediately distribute all, but not less than all, of the Stock Unit Accounts as of the date of such termination if it is determined by the Committee to be in the best interest of the Company. In the event that the Board terminates the Program pursuant to Section 8, the Restricted Period with respect to all unvested Restricted Stock Units shall immediately lapse and the Participant shall become fully vested in such Stock Units. 4.3 Offset. Notwithstanding the provisions of subsection 7.2, if, at the time payments are to be made under the Program, the Participant or beneficiary or both are indebted or obligated to any Employer or Related Company, then the payments remaining to be made to the 3 Participant or the beneficiary or both may, at the discretion of the Committee, be reduced by the amount of such indebtedness, or obligation, provided, however, that an election by the Committee not to reduce any such payment shall not constitute a waiver of the claim for such indebtedness or obligation. 4.4 Unforeseeable Emergency. Prior to the date otherwise scheduled for distribution of his or her benefits under the Program, upon a showing of an unforeseeable emergency, a Participant may elect to accelerate payment of an amount not exceeding the lesser of (a) the amount necessary to meet the emergency or (b) the sum of his or her Account balance(s) under the Program (the "Unforeseeable Emergency Amount"). For purposes of the Program, the term "unforeseeable emergency" shall mean an unanticipated emergency that is caused by an event beyond the control of the Participant (or the control of the beneficiary, if the amount is payable to a beneficiary) and that would result in severe financial hardship to the individual if early withdrawal were not permitted. The determination of "unforeseeable emergency" shall be made by the Committee, based on such information as the Committee shall deem to be necessary. Once the Unforeseeable Emergency Amount is paid, the Participant shall not be eligible to make any further Deferral Elections under the Program until the next Program Year commencing at least twelve months after the date on which the Unforeseeable Emergency Amount is paid. 4.5 Cash-Out Election. A Participant may make a one-time election (a "Cash-Out Election") to have his or her entire Stock Unit Account balance(s) distributed, in a single lump sum payment, in stock, within 30 days following the date that such election is filed with the Employer, subject to the following: (a) The amount actually distributed to an electing Participant under this subsection 4.5 shall be equal to the Participant's entire balance in his or her Stock Unit Account, reduced by an amount equal to 10 percent of each of such balances. The portion of the Participant's Account balance that is not distributed to the Participant's pursuant to this paragraph (a) shall be forfeited as a penalty. (b) Notwithstanding the provisions of Section 2, for the remainder of the Program Year in which the Cash-out Election is effective and for the next following Program Year, no Deferral Election by the Participant under subsection 2 shall be given effect. Notwithstanding the foregoing provisions of this subsection 4.5, and without limiting the amending authority reserved to the Board by the provisions of Section 8 of the Program, the Committee may amend this subsection 4.5 at any time and in any respect, including as to amounts previously credited to a Participant's Account, to the extent that the Committee determines that such amendment is necessary or desirable by reason of any change in tax laws or regulations or interpretations thereof; provided, however, that no such amendment shall apply with respect to amounts actually distributed under this subsection 4.5 before the later of the date on which the amendment is adopted or effective. SECTION 5 CHANGE IN CONTROL 4 In the event of a Corporate Change, the restricted period with respect to all unvested Restricted Stock Units shall immediately lapse and the Participant shall become fully vested in such Stock Units. SECTION 6 ADMINISTRATION 6.1 Committee. The Program and all benefits pursuant thereto shall be administered by the Compensation Committee of the Board (as used herein, the "Committee"). If the Committee does not exist, or for any other reason determined by the Board, the Board may take any action under the Program that would otherwise be the responsibility of the Committee. 6.2 Powers of Committee. The Committee shall have the authority and discretion to interpret and administer the Program, to establish, amend and rescind any rules and regulations relating to the Program. All questions of interpretation with respect to the Program, the benefits established herein, the number of shares of Stock, or other security, or rights granted and the terms of any agreements evidencing any of the Eligible Compensation, including the timing, pricing, and amounts of awards, shall be determined by the Committee, and its determination shall be final and conclusive upon all parties in interest. 6.3 Delegation. Except to the extent prohibited by applicable law or the applicable rules of a stock exchange, the Committee may delegate to the officers or employees of the Company and its Related Companies the authority to execute and deliver such instruments and documents, to do all such acts and things, and to take all such other steps deemed necessary, advisable or convenient for the effective administration of the Program in accordance with its terms and purpose, except that the Committee may not delegate any discretionary authority with respect to substantive decisions or functions regarding the Program or benefits thereunder, including, but not limited to, decisions regarding the timing, eligibility, pricing, amount or other material terms of such benefits. Any such delegation may be revoked by the Committee at any time. 6.4 Foreign Jurisdictions. To the extent that the Committee determines that the restrictions imposed by the Program preclude the achievement of the material purposes of the benefit provided herein in jurisdictions outside the United States, if applicable, the Committee will have the authority and discretion to modify those restrictions as the Committee determines to be necessary or appropriate to conform to applicable requirements or practices of jurisdictions outside of the United States. SECTION 7 MISCELLANEOUS 7.1 Beneficiaries. Each Participant or former Participant entitled to payment of Eligible Compensation hereunder, from time to time may name any person or persons (who may be named contingently or successively) to whom any Eligible Compensation earned by him or her and payable to him or her are to be paid in case of his or her death before he or she receives any or all of such Eligible Compensation. Each designation will revoke all prior designations by the same Participant or former Participant, shall be in form prescribed by the Company, and will 5 be effective only when filed by the Participant or former Participant in writing with the Secretary of the Company during the Participant's lifetime. If a deceased Participant or former Participant shall have failed to name a Beneficiary in the manner provided above, or if the Beneficiary named by a deceased Participant or former Participant dies before him or her or before payment of all the Participant's or former Participant's Eligible Compensation, the Company, in its discretion, may direct payment in a single sum of any remaining Eligible Compensation to either: (a) any one or more or all of the next of kin (including the surviving spouse) of the Participant or former Participant, and in such proportions as the Company determines; or (b) the legal representative or representatives of the estate of the last to die of the Participant or former Participant and his or her last surviving beneficiary. The person or persons to whom any deceased Participant's or former Participant's Eligible Compensation are payable under this paragraph will be referred to as a "Beneficiary." 7.2 Benefits May Not be Assigned. Neither the Participant nor any other person shall have any voluntary or involuntary right to commute, sell, assign, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt of the amounts, if any, payable hereunder, or any part hereof, which are expressly declared to be unassignable and non-transferable. No part of the amounts payable shall be, prior to actual payment, subject to seizure or sequestration for payment of any debts, judgments, alimony or separate maintenance owed by the Participant or any other person, or be transferred by operation of law in the event of the Participant's or any other person's bankruptcy or insolvency. 7.3 Unfunded Program. The Program shall be unfunded. Neither the Company, a Related Company, the Board nor the Committee shall be required to segregate any assets that may at any time be represented by benefit obligations under the Program. Neither the Company, a Related Company, the Committee, nor the Board shall be deemed to be a trustee of any amounts to be paid under the Program. Neither the Participant nor any other person shall, by reason of participation in the Program, the deferral of shares of Stock or the deferral of a cash payment, acquire any right in or title to any assets, funds or property of the Company whatsoever prior to the date such shares of Stock or cash are distributed. A Participant shall have only a contractual right to shares of Stock, if any, distributable under the Program, unsecured by any assets of the Company. Nothing contained in the Program shall constitute a guarantee by the Company that the assets of the Company shall be sufficient to provide any benefits to any person. The Company may, but shall not be obligated to, establish a trust to hold assets for the purpose of satisfying obligations under this Program. 7.4 Adjustment Provisions. In the event of a corporate transaction involving the Company (including, without limitation, any stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination or exchange of shares), in addition to any adjustments made pursuant to Section 8 of the 2000 Plan, the Committee may make equitable adjustments to the Deferred Amounts to preserve the benefits or potential benefits of participation in the Program. 6 7.5 Notices. Any notice or document required to be filed with the Committee under the Program will be properly filed if delivered or mailed by registered mail, postage prepaid, to the Committee, in care of the Secretary of the Company, at its principal executive offices. The Committee may, by advance written notice to affected persons, revise such notice procedure from time to time. Any notice required under the Program may be waived by the person entitled to notice. 7.6 Limits of Liability. (a) Any liability of the Company or a Related Company to any Participant with respect to participation in the Program shall be based solely upon contractual obligations created by the Program. (b) Neither the Company nor a Related Company, nor any member of the Board or of the Committee, nor any other person participating in any determination of any question under the Program, or in the interpretation, administration or application of the Program, shall have any liability to any party for any action taken or not taken in good faith under the Program except as may be expressly provided by statute. 7.7 Rights of Employees. Nothing contained in this Program (or in any other documents related to this Program) shall confer upon any Employee any right to continue in the employment of the Company or a Related Company, constitute any contract or limit in any way the right of the Company or a Related Company to change such person's compensation or other benefits or to terminate the service of such person with or without cause. 7.8 Form and Time of Elections. Any election required or permitted under the Program shall be in writing, and shall be deemed to be filed when timely delivered to the Secretary of the Company or other person as determined by the Committee. Any election to defer Eligible Compensation, shall be irrevocable after the commencement of the year for which it is filed, and such election shall remain in effect with respect to any subsequent years unless a new election with respect to such subsequent years is filed in accordance with rules established by the Committee, in which case such new election shall be applicable with respect to such subsequent years. 7.9 Action by Company. Any action required or permitted to be taken by the Company shall be by resolution of the Board, or by action of one or more members of the Board (including a committee of the Board) who are duly authorized to act for the Board or (except to the extent prohibited by the provisions of Rule 16b-3, applicable local law, the applicable rules of any stock exchange, or any other applicable rules) by a duly authorized officer of the Company. 7.10 2000 Equity Incentive Program. Any shares of Stock distributed to a Participant under this Program shall be issued pursuant to the 2000 Equity Incentive Plan of Countrywide financial Corporation (the "2000 Plan"), subject to all of the terms and conditions herein. Except in the event of conflict, all provisions of the 2000 Plan shall apply to this Program. In the event of any conflict between the provisions of the 2000 Plan and this Program, this Program shall 7 control, provided that the Stock Units credited herein may not exceed the share limitations set forth in the 2000 Plan. 7.11 Gender and Number. Where the context admits, words in any gender shall include any other gender, words in the singular shall include the plural and the plural shall include the singular. 7.12 Defined Terms. Capitalized terms are as defined herein, or as defined in the 2000 Plan. SECTION 8 AMENDMENT AND DISCONTINUANCE The Board may, at any time, amend or terminate the Program, provided that no amendment or termination may, in the absence of written consent to the change by the affected Participant (or, if the Participant is not then living, the affected beneficiary), adversely affect the rights of any Participant or Beneficiary prior to the date such amendment is adopted by the Board; and further provided, that adjustments pursuant to paragraph 7.4 shall not be subject to the foregoing limitations of this Section 8. Any amendment or discontinuance of the Program shall be prospective in operation only, and shall not adversely affect the Participant's existing rights, unless the Participant affected shall expressly consent thereto. SECTION 9 CLAIMS PROCEDURES 9.1 Filing a Claim. Any Participant or Beneficiary of a deceased Participant (such Participant or Beneficiary being referred to below as a "Claimant") may deliver to the Committee a written claim for a determination with respect to the amounts distributable to such Claimant from the Program. If such a claim relates to the contents of a notice received by the Claimant, the claim must be made within 60 days after such notice was received by the Claimant. All other claims must be made within 180 days of the date on which the event that caused the claim to arise occurred. The claim must state with particularity the determination desired by the Claimant. 9.2 Committee's Decision. Within 90 days after the receipt of the claim, the Committee will provide the Claimant with written notice of its decision on the claim. If, because of special circumstances, the Committee cannot render a decision on the claim within the 90-day period, the Committee may extend the period in which to render the decision up to 180 days after receipt of the written claim. The Committee will provide the Claimant with a written notice of the extension, before the end of the initial 90-day period, which indicates the special circumstances requiring the extension and the expected decision date. If the claim is denied in whole or in part, the written notice of the decision will inform the Claimant of: (a) the specific reasons for the denial; (b) the specific provisions of the Program upon which the denial is based; 8 (c) any additional material or information necessary to perfect the claim and reasons why such material or information is necessary; (d) the right to request review of the denial and how to request such review; and (e) a statement of Claimant's right to bring a civil action under section 502(a) of the Employee Retirement Income Security Act of 1974 (ERISA) following an adverse benefit determination on review. 9.3 Request for Review of Denied Claim. Within 60 days after the receipt of written notice of a denial of all or a portion of a claim, the Claimant may request a review of the denial in a writing filed with the Committee. Written comments, documents, records and other information may be submitted to the Committee along with the review request. During the 60-day period following notice of the denial, the Claimant will be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim for benefits. 9.4 Review of Denied Claim. Upon receipt of a request for review of a claim denial, the Committee will undertake a full and fair review of the claim denial and provide the Claimant with written notice of its decision within 60 days after receipt of the review request. If, because of special circumstances, the Committee cannot make a decision within the 60-day period, the Committee may extend the period in which to make the decision up to 120 days after receipt of the review request. The Committee will provide the Claimant with a written notice of the extension, before the end of the 60-day period, which indicates the special circumstances requiring the extension and the expected decision date. The written notice of the Committee's decision will inform the Claimant of: (a) the specific reasons for the decision; (b) the specific provisions of the Program upon which the decision is based; (c) a statement that Claimant will be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim for benefits; (d) a statement of the Claimant's right to bring a civil action under section 502(a) of ERISA. 9.5 Legal Action. Except as may be otherwise required by law, the decision of the Committee on review of the claim denial will be binding on all parties. A Claimant's compliance with the foregoing provisions of this Section 9 is a mandatory prerequisite to a Claimant's right to commence any legal action with respect to any claim for benefits under this Program. [THE NEXT PAGE IS THE SIGNATURE PAGE] 9 IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its duly authorized officer this 1st day of January, 2004. Countrywide Financial Corporation By: /s/ Thomas H. Boone ------------------------------------ Thomas H. Boone, Senior Managing Director, Chief Administrative Officer 10 EX-10.79 19 v96832exv10w79.txt EXHIBIT 10.79 EXHIBIT 10.79 EXECUTION COPY FOURTH AMENDMENT TO REVOLVING CREDIT AGREEMENT THIS FOURTH AMENDMENT TO REVOLVING CREDIT AGREEMENT (the "Amendment") is made and dated as of December 15, 2003 by and among COUNTRYWIDE HOME LOANS, INC., a New York corporation (the "Company"), the Lenders signing below, and BANK OF AMERICA, N.A., as the Managing Administrative Agent for the Lenders (in such capacity, the "Managing Administrative Agent"). RECITALS A. Pursuant to that certain Revolving Credit Agreement dated as of December 17, 2001 by and among the Company, the Lenders from time to time party thereto, the Managing Administrative Agent, the Administrative Agents, the Co-Syndication Agents, the Documentation Agent, and the Other Facility Agents (as amended, extended and replaced from time to time, the "Credit Agreement," and with capitalized terms used herein and not otherwise defined used with the meanings given such terms in the Credit Agreement), the Short Term Lenders currently party to the Credit Agreement (the "Existing Short Term Lenders") agreed to extend credit on a short-term basis to the Company on the terms and subject to the conditions set forth therein. B. The Short Term Lenders signing below have agreed to extend the Short Term Facility Maturity Date on the terms and conditions set forth below. NOW, THEREFORE, in consideration of the foregoing Recitals and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows: AGREEMENT 1. Extension of Short Term Facility Maturity Date. To reflect the agreement of the Company and those Short Term Lenders signing this Amendment to extend the Short Term Facility Maturity Date, effective as of the Effective Date (as defined in Paragraph 6 below), the definition of the term "Short Term Facility Maturity Date" set forth in the Glossary to the Credit Agreement is hereby amended by deleting the date "December 15, 2003" set forth therein and replacing the same with the date "December 13, 2004." 2. Addition of New Lenders. To reflect the fact that certain financial institutions which are not currently Short Term Lenders may desire to become Short Term Lenders under the Credit Agreement, any such financial institution signing below as an "Applicant Financial Institution" (and defined herein as such) shall become a "Short Term Lender" under the Credit Agreement as of the Effective Date, and shall be deemed approved by each of the Company and the Managing Administrative Agent pursuant to Paragraph 14(a) of the Credit Agreement, on the following terms and conditions: (a) Each such Applicant Financial Institution hereby acknowledges and agrees that from and after the Effective Date it will be a "Short Term Lender" under the Credit 2 Agreement and the other Credit Documents with all the rights and benefits and with all the obligations of the Short Term Lenders thereunder. (b) On and after the Effective Date, the Maximum Short Term Facility Commitment and Short Term Swing Line Commitment of each such Applicant Financial Institution shall be consistent with the Commitment Schedule attached hereto as Annex 1 (the "Replacement Commitment Schedule") and, if necessary, each such Applicant Financial Institution hereby agrees to purchase on the Effective Date and to accept the assignment and transfer of a portion of the Maximum Short Term Facility Commitments and, as applicable, the Short Term Swingline Commitments held by the Existing Short Term Lenders consistent with the Replacement Commitment Schedule. (c) The Managing Administrative Agent hereby waives: (1) receipt of any Additional Lender Agreement or Assignment Agreement that would otherwise be required to be executed and delivered by such Applicant Financial Institution pursuant to Paragraph 14(a)(2)(iii) of the Credit Agreement, and (2) the registration fee of $3,500.00 required to be delivered by each Applicant Financial Institution pursuant to Paragraph 14(a)(2)(iv) of the Credit Agreement. 3. Reallocation of Commitments. Notwithstanding whether any Applicant Financial Institution becomes a "Short Term Lender" under the Credit Agreement on the Effective Date pursuant to Paragraph 2 above, no later than 12:30 p.m. (Los Angeles time) on the Effective Date, each Short Term Lender signing this Amendment (including each Applicant Financial Institution, if any) will pay to the Managing Administrative Agent any amount necessary to cause such Short Term Lender's Short Term Facility Percentage Share of Short Term Loans outstanding and, as applicable, such Short Term Lender's Short Term Swing Line Percentage Share of Short Term Swing Loans outstanding to be consistent with the Replacement Commitment Schedule, and the Managing Administrative Agent shall thereupon remit to the Existing Short Term Lenders, as applicable, their shares of such funds. Fees and interest accrued with respect to Short Term Loans and Short Term Swing Loans to but not including the Effective Date shall be payable to the Existing Short Term Lenders in accordance with their respective Short Term Facility Percentage Shares and Short Term Swing Line Percentage Shares, as appropriate, in effect prior to the Effective Date. 4. Agents. Effective as of the Effective Date, the Agents under the Credit Documents shall be as set forth below: - -------------------------------------- ----------------------------------------- Bank of America, N.A. Managing Administrative Agent; Administrative Agent - -------------------------------------- ----------------------------------------- JPMorgan Chase Bank Administrative Agent - -------------------------------------- ----------------------------------------- Bank One, NA Co-Syndication Agents Deutsche Bank AG - -------------------------------------- ----------------------------------------- The Bank of New York Documentation Agent - -------------------------------------- -----------------------------------------

3 5. Reaffirmation of Credit Documents. Each of the Company, the Parent and each Subsidiary Guarantor hereby affirms and agrees that: (a) other than as expressly set forth herein, the execution and delivery by the Company, the Parent and each Subsidiary Guarantor of and the performance of its obligations under this Amendment shall not in any way amend, impair, invalidate or otherwise affect any of the obligations of the Company, the Parent or any Subsidiary Guarantor, or the rights of the Lenders, under the Credit Agreement and each other Credit Document or any other document or instrument made or given by the Company, the Parent or any Subsidiary Guarantor in connection therewith, (b) the term "Obligations" as used in the Credit Documents includes, without limitation, the Obligations of the Company under the Credit Agreement as amended hereby, and (c) except as expressly amended hereby, the Credit Documents remain in full force and effect as written. 6. Effective Date. This Amendment shall be effective on and as of the day and year first above written (the "Effective Date") subject to the delivery to the Managing Administrative Agent of the following: (a) A copy of this Amendment, duly executed by the parties hereto. (b) A copy of the Short Term Facility Fee Letter, duly executed by the Company and each of the Short Term Lenders. (c) If any of the Applicant Financial Institutions has requested a promissory note or promissory notes in favor of such Applicant Financial Institution as evidence of the Obligations held by such Applicant Financial Institution, a duly executed copy of such promissory note or promissory notes. (d) Such corporate resolutions, incumbency certificates and other authorizations from the Company, the Parent and each Subsidiary Guarantor as the Managing Administrative Agent may reasonably request. (e) A legal opinion of counsel to the Company, the Parent and each Subsidiary Guarantor in form and substance reasonably satisfactory to the Agents. (f) Evidence satisfactory to the Agents that all fees and expenses payable to the Agents and the Lenders prior to or on the Effective Date have been paid in full. 7. Counterparts. This Amendment may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. 8. Representations and Warranties. Each of the Company, the Parent and each Subsidiary Guarantor hereby represents and warrants to the Lenders and the Managing Administrative Agent as follows: (a) Each of the Company, the Parent and each Subsidiary Guarantor has the corporate power and authority and the legal right to execute, deliver and perform this Amendment and has taken all necessary corporate action to authorize the execution, delivery and performance of this Amendment. This Amendment has been duly executed and delivered on 4 behalf of the Company, the Parent and each Subsidiary Guarantor and constitutes the legal, valid and binding obligation of the Company, the Parent and each Subsidiary Guarantor enforceable against each such Person in accordance with its terms. (b) At and as of the date of execution hereof and both prior to and after giving effect to this Amendment: (1) the representations and warranties of the Company, the Parent and each Subsidiary Guarantor contained in the Credit Agreement and each of the other Credit Documents are accurate and complete in all respects, (2) there has not occurred an Event of Default or Potential Default, (3) there has not occurred any material adverse change in the business, operations, assets or financial or other condition of the Company or of the Parent and its consolidated Subsidiaries taken as a whole since September 30, 2003 and (4) no action, suit, investigation or proceeding is pending or threatened in or before any court, arbitrator or Governmental Authority that would, if decided adversely, have a material adverse effect on the Company or on the Parent and its consolidated Subsidiaries taken as a whole or on any transaction contemplated hereby or could have a material adverse effect on the Company, the Parent or their respective Subsidiaries or any transaction contemplated hereby or on the ability of the Company, the Parent or any Subsidiary Guarantor to perform its obligations under any of the Credit Documents to which it is party. (c) The financial statements, respectively dated December 31, 2002 and September 30, 2003, copies of which have heretofore been furnished to the Managing Administrative Agent and each Lender, are complete and correct and present fairly in accordance with GAAP the consolidated and consolidating financial condition of the Parent and its consolidated Subsidiaries at such dates and the consolidated and consolidating results of their operations and changes in financial position for the fiscal periods then ended. [Signature pages following] IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the day and year first above written. COUNTRYWIDE HOME LOANS, INC., a New York corporation By /s/ Jennifer Sandefur -------------------------------------- Name Jennifer Sandefur ----------------------------------- Title Managing Director and Treasurer ---------------------------------- ACKNOWLEDGED AND AGREED TO: COUNTRYWIDE FINANCIAL CORPORATION (formerly known as Countrywide Credit Industries, Inc.), a Delaware corporation By /s/ Jennifer Sandefur ---------------------------------- Name Jennifer Sandefur -------------------------------- Title Managing Director and Treasurer ------------------------------- COUNTRYWIDE HOME LOAN SERVICING LP, a Texas limited partnership By: COUNTRYWIDE GP, INC., its general partner By /s/ Jennifer Sandefur ---------------------------------- Name Jennifer Sandefur -------------------------------- Title Executive Vice President and Treasurer -------------------------------------- BANK OF AMERICA, N.A., as Managing Administrative Agent, Administrative Agent and a Short Term Lender By /s/ Elizabeth Kurilecz -------------------------------------- Name Elizabeth Kurilecz -------------------------------------- Title Managing Director ------------------------------------- JPMORGAN CHASE BANK, as Administrative Agent and a Short Term Lender By /s/ Elisabeth H. Schwabe -------------------------------------- Name Elisabeth H. Schwabe ------------------------------------ Title Managing Director ----------------------------------- SIGNATURE PAGE TO THE FOURTH AMENDMENT, DATED AS OF DECEMBER 15, 2003, TO THE REVOLVING CREDIT AGREEMENT, DATED AS OF DECEMBER 17, 2001, AMONG COUNTRYWIDE HOME LOANS, INC., BANK OF AMERICA, N.A., AS MANAGING ADMINISTRATIVE AGENT, BANK OF AMERICA, N.A. AND JPMORGAN CHASE BANK, AS ADMINISTRATIVE AGENTS, THE BANK OF NEW YORK, AS DOCUMENTATION AGENT, BANK ONE, NA AND DEUTSCHE BANK AG, AS CO-SYNDICATION AGENTS, THE OTHER FACILITY AGENTS AND THE LENDERS PARTY THERETO NAME OF INSTITUTION: ABN Amro Bank N.V., as a Short Term Lender By:/s/ Neil R. Stein /s/ Michael DeMarco ----------------------------------------- Name: Neil R. Stein Michael DeMarco Title: Group Vice Assistant Vice President President SIGNATURE PAGE TO THE FOURTH AMENDMENT, DATED AS OF DECEMBER 15, 2003, TO THE REVOLVING CREDIT AGREEMENT, DATED AS OF DECEMBER 17, 2001, AMONG COUNTRYWIDE HOME LOANS, INC., BANK OF AMERICA, N.A., AS MANAGING ADMINISTRATIVE AGENT, BANK OF AMERICA, N.A. AND JPMORGAN CHASE BANK, AS ADMINISTRATIVE AGENTS, THE BANK OF NEW YORK, AS DOCUMENTATION AGENT, BANK ONE, NA AND DEUTSCHE BANK AG, AS CO-SYNDICATION AGENTS, THE OTHER FACILITY AGENTS AND THE LENDERS PARTY THERETO NAME OF INSTITUTION: Bank One, NA, as a Short Term Lender By: /s/ Mark Wasden ---------------------------------------- Name: Mark Wasden Title: Director SIGNATURE PAGE TO THE FOURTH AMENDMENT, DATED AS OF DECEMBER 15, 2003, TO THE REVOLVING CREDIT AGREEMENT, DATED AS OF DECEMBER 17, 2001, AMONG COUNTRYWIDE HOME LOANS, INC., BANK OF AMERICA, N.A., AS MANAGING ADMINISTRATIVE AGENT, BANK OF AMERICA, N.A. AND JPMORGAN CHASE BANK, AS ADMINISTRATIVE AGENTS, THE BANK OF NEW YORK, AS DOCUMENTATION AGENT, BANK ONE, NA AND DEUTSCHE BANK AG, AS CO-SYNDICATION AGENTS, THE OTHER FACILITY AGENTS AND THE LENDERS PARTY THERETO NAME OF INSTITUTION: Barclays Bank PLC, as a Short Term Lender By: /s/ Alison McGuigan ---------------------------------------- Name: Alison McGuigan Title: Associate Director SIGNATURE PAGE TO THE FOURTH AMENDMENT, DATED AS OF DECEMBER 15, 2003, TO THE REVOLVING CREDIT AGREEMENT, DATED AS OF DECEMBER 17, 2001, AMONG COUNTRYWIDE HOME LOANS, INC., BANK OF AMERICA, N.A., AS MANAGING ADMINISTRATIVE AGENT, BANK OF AMERICA, N.A. AND JPMORGAN CHASE BANK, AS ADMINISTRATIVE AGENTS, THE BANK OF NEW YORK, AS DOCUMENTATION AGENT, BANK ONE, NA AND DEUTSCHE BANK AG, AS CO-SYNDICATION AGENTS, THE OTHER FACILITY AGENTS AND THE LENDERS PARTY THERETO NAME OF INSTITUTION: BNP Paribas, as a Short Term Lender By: /s/ Pierre Nicholas Rogers ---------------------------------------- Name: Pierre Nicholas Rogers Title: Managing Director /s/ Sandra F. Bertram Vice President SIGNATURE PAGE TO THE FOURTH AMENDMENT, DATED AS OF DECEMBER 15, 2003, TO THE REVOLVING CREDIT AGREEMENT, DATED AS OF DECEMBER 17, 2001, AMONG COUNTRYWIDE HOME LOANS, INC., BANK OF AMERICA, N.A., AS MANAGING ADMINISTRATIVE AGENT, BANK OF AMERICA, N.A. AND JPMORGAN CHASE BANK, AS ADMINISTRATIVE AGENTS, THE BANK OF NEW YORK, AS DOCUMENTATION AGENT, BANK ONE, NA AND DEUTSCHE BANK AG, AS CO-SYNDICATION AGENTS, THE OTHER FACILITY AGENTS AND THE LENDERS PARTY THERETO NAME OF INSTITUTION: CIBC, Inc., as a Short Term Lender By: /s/ Gerald Girardi ---------------------------------------- Name: Gerald Girardi Title: Executive Director CIBC World Markets Corp., as Agent SIGNATURE PAGE TO THE FOURTH AMENDMENT, DATED AS OF DECEMBER 15, 2003, TO THE REVOLVING CREDIT AGREEMENT, DATED AS OF DECEMBER 17, 2001, AMONG COUNTRYWIDE HOME LOANS, INC., BANK OF AMERICA, N.A., AS MANAGING ADMINISTRATIVE AGENT, BANK OF AMERICA, N.A. AND JPMORGAN CHASE BANK, AS ADMINISTRATIVE AGENTS, THE BANK OF NEW YORK, AS DOCUMENTATION AGENT, BANK ONE, NA AND DEUTSCHE BANK AG, AS CO-SYNDICATION AGENTS, THE OTHER FACILITY AGENTS AND THE LENDERS PARTY THERETO NAME OF INSTITUTION: Citicorp USA, Inc., as a Short Term Lender By: /s/ Yoko Otani ---------------------------------------- Name: Yoko Otani Title: Managing Director SIGNATURE PAGE TO THE FOURTH AMENDMENT, DATED AS OF DECEMBER 15, 2003, TO THE REVOLVING CREDIT AGREEMENT, DATED AS OF DECEMBER 17, 2001, AMONG COUNTRYWIDE HOME LOANS, INC., BANK OF AMERICA, N.A., AS MANAGING ADMINISTRATIVE AGENT, BANK OF AMERICA, N.A. AND JPMORGAN CHASE BANK, AS ADMINISTRATIVE AGENTS, THE BANK OF NEW YORK, AS DOCUMENTATION AGENT, BANK ONE, NA AND DEUTSCHE BANK AG, AS CO-SYNDICATION AGENTS, THE OTHER FACILITY AGENTS AND THE LENDERS PARTY THERETO NAME OF INSTITUTION: COMMERZBANK AG, NEW YORK AND GRAND CAYMAN BRANCEHS, as a Short Term Lender By: /s/ Yangling J. Si ---------------------------------------- Name: Yangling J. Si Title: Assistant Vice President By: /s/ Karla Wirth ---------------------------------------- Name: Karla Wirth Title: Assistant Vice President SIGNATURE PAGE TO THE FOURTH AMENDMENT, DATED AS OF DECEMBER 15, 2003, TO THE REVOLVING CREDIT AGREEMENT, DATED AS OF DECEMBER 17, 2001, AMONG COUNTRYWIDE HOME LOANS, INC., BANK OF AMERICA, N.A., AS MANAGING ADMINISTRATIVE AGENT, BANK OF AMERICA, N.A. AND JPMORGAN CHASE BANK, AS ADMINISTRATIVE AGENTS, THE BANK OF NEW YORK, AS DOCUMENTATION AGENT, BANK ONE, NA AND DEUTSCHE BANK AG, AS CO-SYNDICATION AGENTS, THE OTHER FACILITY AGENTS AND THE LENDERS PARTY THERETO NAME OF INSTITUTION: CREDIT LYONNAIS NEW YORK BRANCH, as a Short Term Lender By: /s/ Kenneth Ricciardi ---------------------------------------- Kenneth Ricciardi Vice President SIGNATURE PAGE TO THE FOURTH AMENDMENT, DATED AS OF DECEMBER 15, 2003, TO THE REVOLVING CREDIT AGREEMENT, DATED AS OF DECEMBER 17, 2001, AMONG COUNTRYWIDE HOME LOANS, INC., BANK OF AMERICA, N.A., AS MANAGING ADMINISTRATIVE AGENT, BANK OF AMERICA, N.A. AND JPMORGAN CHASE BANK, AS ADMINISTRATIVE AGENTS, THE BANK OF NEW YORK, AS DOCUMENTATION AGENT, BANK ONE, NA AND DEUTSCHE BANK AG, AS CO-SYNDICATION AGENTS, THE OTHER FACILITY AGENTS AND THE LENDERS PARTY THERETO NAME OF INSTITUTION: Deutsche Bank AG, New York Branch, as a Short Term Lender By: /s/ Kevin M. McCann ---------------------------------------- Name: Kevin M. McCann Title: Managing Director SIGNATURE PAGE TO THE FOURTH AMENDMENT, DATED AS OF DECEMBER 15, 2003, TO THE REVOLVING CREDIT AGREEMENT, DATED AS OF DECEMBER 17, 2001, AMONG COUNTRYWIDE HOME LOANS, INC., BANK OF AMERICA, N.A., AS MANAGING ADMINISTRATIVE AGENT, BANK OF AMERICA, N.A. AND JPMORGAN CHASE BANK, AS ADMINISTRATIVE AGENTS, THE BANK OF NEW YORK, AS DOCUMENTATION AGENT, BANK ONE, NA AND DEUTSCHE BANK AG, AS CO-SYNDICATION AGENTS, THE OTHER FACILITY AGENTS AND THE LENDERS PARTY THERETO NAME OF INSTITUTION: Fifth Third Bank, Cincinnati, OH, as a Short Term Lender By: /s/ Gary S. Losey ---------------------------------------- Name: Gary S. Losey Title: AVP- Relationship Manager SIGNATURE PAGE TO THE FOURTH AMENDMENT, DATED AS OF DECEMBER 15, 2003, TO THE REVOLVING CREDIT AGREEMENT, DATED AS OF DECEMBER 17, 2001, AMONG COUNTRYWIDE HOME LOANS, INC., BANK OF AMERICA, N.A., AS MANAGING ADMINISTRATIVE AGENT, BANK OF AMERICA, N.A. AND JPMORGAN CHASE BANK, AS ADMINISTRATIVE AGENTS, THE BANK OF NEW YORK, AS DOCUMENTATION AGENT, BANK ONE, NA AND DEUTSCHE BANK AG, AS CO-SYNDICATION AGENTS, THE OTHER FACILITY AGENTS AND THE LENDERS PARTY THERETO NAME OF INSTITUTION: HSBC Bank USA, as a Short Term Lender By: /s/ Paul M. Lopez ---------------------------------------- Name: Paul M. Lopez Title: FVP SIGNATURE PAGE TO THE FOURTH AMENDMENT, DATED AS OF DECEMBER 15, 2003, TO THE REVOLVING CREDIT AGREEMENT, DATED AS OF DECEMBER 17, 2001, AMONG COUNTRYWIDE HOME LOANS, INC., BANK OF AMERICA, N.A., AS MANAGING ADMINISTRATIVE AGENT, BANK OF AMERICA, N.A. AND JPMORGAN CHASE BANK, AS ADMINISTRATIVE AGENTS, THE BANK OF NEW YORK, AS DOCUMENTATION AGENT, BANK ONE, NA AND DEUTSCHE BANK AG, AS CO-SYNDICATION AGENTS, THE OTHER FACILITY AGENTS AND THE LENDERS PARTY THERETO NAME OF INSTITUTION: NORDDEUTSCHE LANDESBANK GIROZENTRALE NEW YORK AND/OR CAYMAN ISLANDS BRANCH, as a Short Term Lender By: /s/ Georg L. Peters ---------------------------------------- Name: Georg L. Peters Title: Vice President By: /s/ Kathleen Alvarez ---------------------------------------- Name: Kathleen Alverez Title: Assistant Vice President SIGNATURE PAGE TO THE FOURTH AMENDMENT, DATED AS OF DECEMBER 15, 2003, TO THE REVOLVING CREDIT AGREEMENT, DATED AS OF DECEMBER 17, 2001, AMONG COUNTRYWIDE HOME LOANS, INC., BANK OF AMERICA, N.A., AS MANAGING ADMINISTRATIVE AGENT, BANK OF AMERICA, N.A. AND JPMORGAN CHASE BANK, AS ADMINISTRATIVE AGENTS, THE BANK OF NEW YORK, AS DOCUMENTATION AGENT, BANK ONE, NA AND DEUTSCHE BANK AG, AS CO-SYNDICATION AGENTS, THE OTHER FACILITY AGENTS AND THE LENDERS PARTY THERETO NAME OF INSTITUTION: Royal Bank of Canada, as a Short Term Lender By: /s/ Scott Umbs ---------------------------------------- Name: Scott Umbs Title: Authorized Signatory SIGNATURE PAGE TO THE FOURTH AMENDMENT, DATED AS OF DECEMBER 15, 2003, TO THE REVOLVING CREDIT AGREEMENT, DATED AS OF DECEMBER 17, 2001, AMONG COUNTRYWIDE HOME LOANS, INC., BANK OF AMERICA, N.A., AS MANAGING ADMINISTRATIVE AGENT, BANK OF AMERICA, N.A. AND JPMORGAN CHASE BANK, AS ADMINISTRATIVE AGENTS, THE BANK OF NEW YORK, AS DOCUMENTATION AGENT, BANK ONE, NA AND DEUTSCHE BANK AG, AS CO-SYNDICATION AGENTS, THE OTHER FACILITY AGENTS AND THE LENDERS PARTY THERETO NAME OF INSTITUTION: Societe Generale, as a Short Term Lender By: /s/ Charles D. Fischer, Jr. ---------------------------------------- Name: Charles D. Fischer, Jr. Title: Director SIGNATURE PAGE TO THE FOURTH AMENDMENT, DATED AS OF DECEMBER 15, 2003, TO THE REVOLVING CREDIT AGREEMENT, DATED AS OF DECEMBER 17, 2001, AMONG COUNTRYWIDE HOME LOANS, INC., BANK OF AMERICA, N.A., AS MANAGING ADMINISTRATIVE AGENT, BANK OF AMERICA, N.A. AND JPMORGAN CHASE BANK, AS ADMINISTRATIVE AGENTS, THE BANK OF NEW YORK, AS DOCUMENTATION AGENT, BANK ONE, NA AND DEUTSCHE BANK AG, AS CO-SYNDICATION AGENTS, THE OTHER FACILITY AGENTS AND THE LENDERS PARTY THERETO NAME OF INSTITUTION: The Bank of New York, as a Short Term Lender By: /s/ Paul Connolly ---------------------------------------- Name: Paul Connolly Title: Vice President SIGNATURE PAGE TO THE FOURTH AMENDMENT, DATED AS OF DECEMBER 15, 2003, TO THE REVOLVING CREDIT AGREEMENT, DATED AS OF DECEMBER 17, 2001, AMONG COUNTRYWIDE HOME LOANS, INC., BANK OF AMERICA, N.A., AS MANAGING ADMINISTRATIVE AGENT, BANK OF AMERICA, N.A. AND JPMORGAN CHASE BANK, AS ADMINISTRATIVE AGENTS, THE BANK OF NEW YORK, AS DOCUMENTATION AGENT, BANK ONE, NA AND DEUTSCHE BANK AG, AS CO-SYNDICATION AGENTS, THE OTHER FACILITY AGENTS AND THE LENDERS PARTY THERETO NAME OF INSTITUTION: UNION BANK OF CALIFORNIA, N.A., as a Short Term Lender By: /s/ Albert W. Kelley ---------------------------------------- Name: Albert W. Kelley Title: Vice President SIGNATURE PAGE TO THE FOURTH AMENDMENT, DATED AS OF DECEMBER 15, 2003, TO THE REVOLVING CREDIT AGREEMENT, DATED AS OF DECEMBER 17, 2001, AMONG COUNTRYWIDE HOME LOANS, INC., BANK OF AMERICA, N.A., AS MANAGING ADMINISTRATIVE AGENT, BANK OF AMERICA, N.A. AND JPMORGAN CHASE BANK, AS ADMINISTRATIVE AGENTS, THE BANK OF NEW YORK, AS DOCUMENTATION AGENT, BANK ONE, NA AND DEUTSCHE BANK AG, AS CO-SYNDICATION AGENTS, THE OTHER FACILITY AGENTS AND THE LENDERS PARTY THERETO NAME OF INSTITUTION: Wachovia Bank, National Association, as a Short Term Lender By: /s/ Thomas Stitchberry ---------------------------------------- Name: Thomas Stitchberry Title: Managing Director SIGNATURE PAGE TO THE FOURTH AMENDMENT, DATED AS OF DECEMBER 15, 2003, TO THE REVOLVING CREDIT AGREEMENT, DATED AS OF DECEMBER 17, 2001, AMONG COUNTRYWIDE HOME LOANS, INC., BANK OF AMERICA, N.A., AS MANAGING ADMINISTRATIVE AGENT, BANK OF AMERICA, N.A. AND JPMORGAN CHASE BANK, AS ADMINISTRATIVE AGENTS, THE BANK OF NEW YORK, AS DOCUMENTATION AGENT, BANK ONE, NA AND DEUTSCHE BANK AG, AS CO-SYNDICATION AGENTS, THE OTHER FACILITY AGENTS AND THE LENDERS PARTY THERETO NAME OF INSTITUTION: WestLB AG, New York Branch, as a Short Term Lender By: /s/ Salvatore Battinelli ---------------------------------------- Name: Salvatore Battinelli Title: Managing Director By: /s/ Lillian Tung Lum ---------------------------------------- Name: Lillian Tung Lum Title: Executive Director EX-12.1 20 v96832exv12w1.txt EXHIBIT 12.1 COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES EXHIBIT 12.1 - COMPUTATION OF THE RATIO OF EARNINGS TO FIXED CHARGES (DOLLAR AMOUNTS IN THOUSANDS) The following table sets forth the ratio of earnings to fixed charges of the Company for the year ended December 31, 2003, 2002, ten-month period ended December 31, 2001, and the previous two fiscal years ended February 28 (29) computed by dividing net fixed charges (interest expense on all debt plus the interest element (one-third) of operating leases) into earnings (earnings before income taxes and fixed charges).
TEN MONTHS FISCAL YEARS ENDED YEAR ENDED DECEMBER 31, ENDED FEBRUARY 28(29), (Dollars are in -------------------------- DECEMBER 31, --------------------------- thousands) 2003 2002 2001 2001 2000 - ------------------ ---------- ---------- ---------- ---------- ---------- Net earnings $2,372,950 $ 841,779 $ 486,006 $ 374,153 $ 410,243 Income tax expense 1,472,822 501,244 302,613 211,882 220,955 Interest expense 1,940,207 1,461,066 1,474,719 1,330,724 904,713 Interest portion of rental expense 36,565 26,671 16,201 17,745 19,080 ---------- ---------- ---------- ---------- ---------- Earnings available to cover fixed charges $5,822,544 $2,830,760 $2,279,539 $1,934,504 $1,554,991 ========== ========== ========== ========== ========== Fixed charges Interest expense $1,940,207 $1,461,066 $1,474,719 $1,330,724 $ 904,713 Interest portion of rental expense 36,565 26,671 16,201 17,745 19,080 ---------- ---------- ---------- ---------- ---------- Total fixed charges $1,976,772 $1,487,737 $1,490,920 $1,348,469 $ 923,793 ========== ========== ========== ========== ========== Ratio of earnings to fixed charges 2.95 1.90 1.53 1.43 1.68 ========== ========== ========== ========== ==========
EX-23 21 v96832exv23.htm EXHIBIT 23 exv23

We have issued our report dated February 27, 2004, accompanying the consolidated financial statements and schedules included in the Annual Report of Countrywide Financial Corporation on Form 10-K for the fiscal year ended December 31, 2003. We hereby consent to the incorporation by reference of said report in the Registration Statements of Countrywide Financial Corporation on Form S-3 (File No. 333-06473, effective June 21, 1996; File Nos. 33-59559 and 33-59559-01, effective June 26, 1995 and as amended on March 26, 1997; File Nos. 333-3835 and 333-3835-01, effective August 2, 1996 and as amended on March 26, 1997; File Nos. 333-14111, 333-14111-01, 333-14111-02, and 333-14111-03, effective December 10, 1996; File Nos. 333-31529 and 333-31529-01, effective August 12, 1997; File Nos. 333-58125 and 333-58125-01, effective July 16, 1998; File Nos. 333-66467 and 333-66467-01, effective November 10, 1998; File Nos. 333-82583 and 333-82583-01, effective June 8, 2000; File Nos. 333-55536 and 333-55536-01, effective March 13, 2001; File Nos. 333-59614 and 333-59614-01, effective August 16, 2001; File No. 333-72484, effective November 15, 2001; File Nos. 333-74042, 333-74042-01, 333-74042-02 and 333-74042-03, effective December 4, 2001; and File Nos. 333-103623, 333-103623-01, 333-103623-02 and 333-103623-03, as amended March 18, 2003, effective March 20, 2003) and on Form S-8 (File No. 33-9231, effective October 20, 1986, as amended on February 19, 1987, and as amended on December 20, 1988; File No. 33-17271, effective December 20, 1987; File No. 33-42625, effective September 6, 1991; File No. 33-56168, effective December 22, 1992; File No. 33-69498, effective September 28, 1993; and as supplemented on September 28, 1996; File No. 333-66095, effective October 23, 1998; File No. 333-73089, effective March 1, 1999 and as amended on April 19, 2002; File No. 333-87417, effective September 20, 1999; File No. 333-47096, effective October 2, 2000; File No. 333-47128, effective October 2, 2000; File No. 333-75990, effective December 27, 2001; File No. 333-106560, effective June 27, 2003; File No. 333-107649, effective August 5, 2003; and File No. 333-112994, effective February 20, 2004) and on Form S-4 (File No. 333-37047, effective November 19, 1997).


(Mark One)
þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the fiscal year ended December 31, 2003

or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Delaware		13-2641992
(State of other jurisdiction of incorporation)		(I.R.S. Employer Identification No.)

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


Title of Each Class		Name of Each Exchange on Which Registered

Common Stock, $.05 Par Value		New York Stock Exchange Pacific Stock Exchange
Preferred Stock Purchase Rights		New York Stock Exchange Pacific Stock Exchange


PART I
	Item 1. Business
	Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 7A. Quantitative and Qualitative Disclosures About Market Risk
	Item 8. Financial Statements and Supplementary Data
	Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
	Item 9A. Controls and Procedures
PART III
	Item 10. Directors and Executive Officers of the Registrant
	Item 11. Executive Compensation
	Item 12. Security Ownership of Certain Beneficial Owners and Management
	Item 13. Certain Relationships and Related Transactions
	Item 14. Principal Accountant Fees and Services
PART IV
	Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
SIGNATURES
EXHIBIT 3.5
EXHIBIT 4.25
EXHIBIT 4.34
EXHIBIT 4.35
EXHIBIT 4.36
EXHIBIT 10.41
EXHIBIT 10.43
EXHIBIT 10.44
EXHIBIT 10.55
EXHIBIT 10.58
EXHIBIT 10.67
EXHIBIT 10.70
EXHIBIT 10.71
EXHIBIT 10.72
EXHIBIT 10.73
EXHIBIT 10.74
EXHIBIT 10.79
EXHIBIT 12.1
EXHIBIT 23
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2



		Mortgage Loan Production


		Years Ended				Ten Months		Years Ended February
		December 31,				Ended		28(29),
						December 31,
		2003		2002		2001		2001		2000


		(Dollar amounts in millions)
By Segment:
Mortgage Banking		$	398,310	$	242,437	$	121,002	$	67,071	$	65,562
Capital Markets			22,200		8,659		2,967		1,852		1,178
Treasury Bank			14,354		805		—		—		—

	Total Mortgage Loans	$	434,864	$	251,901	$	123,969	$	68,923	$	66,740

By Loan Type:
Prime Mortgage Loans
	First Mortgage	$	396,934	$	230,830	$	112,750	$	58,903	$	58,939
	Home Equity		18,103		11,650		5,639		4,660		3,643
Subprime Mortgage Loans			19,827		9,421		5,580		5,360		4,158

	Total Mortgage Loans	$	434,864	$	251,901	$	123,969	$	68,923	$	66,740


							Ten Months
							Ended			Year Ended
	Year Ended December						December 31,			February 28(29),

	2003			2002			2001			2001			2000


	(Dollar amounts in millions)
Beginning owned servicing portfolio	$	441,267		$	327,541		$	284,961		$	244,702		$	211,714
Add: Loan production		434,864			251,901			123,968			68,923			66,739
Purchased MSRs		6,944			4,228			3,771			8,712			2,003
Less: Servicing transferred		—			—			—			(139	)		(255	)
Servicing sold		—			(1,958	)		—			—			—
Runoff(1)		(252,624	)		(140,445	)		(85,159	)		(37,237	)		(35,499	)

Ending owned servicing portfolio		630,451			441,267			327,541			284,961			244,702
Subservicing portfolio		14,404			11,138			9,086			8,639			5,490

Total servicing portfolio	$	644,855		$	452,405		$	336,627		$	293,600		$	250,192



			As of December 31,									As of February 28(29),

			2003			2002			2001			2001			2000

Composition of owned servicing
Portfolio at period end:
	Conventional mortgage loans		$	512,889		$	343,420		$	235,804		$	194,697		$	173,761
	FHA-insured mortgage loans			43,281			45,252			46,190			47,305			43,054
	VA-Guaranteed mortgage loans			13,775			14,952			15,854			16,370			15,979
	Subprime Mortgage Loans			36,332			21,976			18,495			15,853			6,679
	Prime Home Equity Loans			24,174			15,667			11,198			10,736			5,229

		Total owned servicing portfolio	$	630,451		$	441,267		$	327,541		$	284,961		$	244,702

Delinquent mortgage loans(2):
	30 days			2.35	%		2.73	%		3.11	%		2.99	%		2.56	%
	60 days			0.72	%		0.87	%		0.98	%		0.89	%		0.68	%
	90 days or more			0.84	%		1.02	%		1.17	%		1.02	%		0.77	%

		Total delinquent mortgage loans		3.91	%		4.62	%		5.26	%		4.90	%		4.01	%

Loans pending foreclosures(2)				0.43	%		0.55	%		0.69	%		0.64	%		0.58	%

Delinquent mortgage loans(2):
	Conventional			2.21	%		2.43	%		2.45	%		2.34	%		2.06	%
	Government			13.29	%		12.61	%		12.14	%		11.16	%		8.38	%
	Subprime			12.46	%		14.41	%		14.42	%		11.79	%		11.30	%
	Prime Home Equity			0.73	%		0.80	%		1.48	%		1.36	%		0.90	%
		Total delinquent mortgage loans		3.91	%		4.62	%		5.26	%		4.90	%		4.01	%
Loans pending foreclosure(2):
	Conventional			0.21	%		0.23	%		0.30	%		0.28	%		0.22	%
	Government			1.20	%		1.32	%		1.23	%		1.20	%		1.36	%
	Subprime			2.30	%		2.93	%		3.39	%		2.22	%		2.31	%
	Prime Home Equity			0.02	%		0.05	%		0.02	%		0.01	%		0.02	%
		Total loans pending foreclosure		0.43	%		0.55	%		0.69	%		0.64	%		0.58	%


	*Regulations Applicable to Bank Holding Companies and Financial Holding Companies*


				Workforce

Mortgage Banking:
	Loan Production:
		Consumer Markets Division			10,107
		Wholesale Lending Division			3,209
		Correspondent Lending Division			1,500
		Full Spectrum Lending, Inc.			3,333
		Production Technology			748

			Total Loan Production		18,897
	Loan Servicing				6,069
	Loan Closing Services				931
Capital Markets					477
Insurance					1,823
Banking					813
Global Operations					1,981
Corporate Administration and Other					3,307

	Total				34,298



			Consolidated Mortgage Loan Production

									Ten Months
			Years Ended						Ended			Years Ended
			December 31,						December 31,			February 28(29),

			2003			2002			2001			2001			2000


			(Dollar amounts in millions, except average loan amount)
Conventional Conforming Loans
	Number of Loans			1,517,743			999,448			504,975			240,608			295,071
	Volume of Loans		$	235,868		$	150,110		$	76,432		$	34,434		$	35,155
		Percent of Total Dollar Volume		54.2	%		59.6	%		61.7	%		50.0	%		52.6	%
Conventional Non-conforming Loans
	Number of Loans			554,571			277,626			137,593			86,600			52,024
	Volume of Loans		$	136,664		$	61,627		$	22,209		$	11,394		$	10,186
		Percent of Total Dollar Volume		31.4	%		24.5	%		17.9	%		16.5	%		15.3	%
FHA/ VA Loans
	Number of Loans			196,063			157,626			118,734			118,673			131,684
	Volume of Loans		$	24,402		$	19,093		$	14,109		$	13,075		$	13,598
		Percent of Total Dollar Volume		5.6	%		7.6	%		11.4	%		18.9	%		20.4	%
Prime Home Equity Loans
	Number of Loans			453,817			316,049			164,503			119,045			106,075
	Volume of Loans		$	18,103		$	11,650		$	5,639		$	4,660		$	3,643
		Percent of Total Dollar Volume		4.2	%		4.6	%		4.5	%		6.8	%		5.5	%
Subprime Mortgage Loans
	Number of Loans			124,205			63,195			43,359			51,706			43,389
	Volume of Loans		$	19,827		$	9,421		$	5,580		$	5,360		$	4,158
		Percent of Total Dollar Volume		4.6	%		3.7	%		4.5	%		7.8	%		6.2	%
Total Loans
	Number of Loans			2,846,399			1,813,944			969,164			616,632			628,243
	Volume of Loans		$	434,864		$	251,901		$	123,969		$	68,923		$	66,740
	Average Loan Amount		$	153,000		$	139,000		$	128,000		$	112,000		$	106,000
	Non-Purchase Transactions(1)			72	%		66	%		63	%		33	%		35	%
	Adjustable-Rate Loans(1)			21	%		14	%		12	%		14	%		14	%


(1)	Percentage of total loan production based on dollar volume.



			Mortgage Banking Loan Production

									Ten Months
			Years Ended						Ended			Years Ended
			December 31,						December 31,			February 28(29),

			2003			2002			2001			2001			2000


			(Dollar amounts in millions, except average loan amount)
Conventional Conforming Loans
	Number of Loans			1,509,721			993,243			504,435			239,232			293,639
	Volume of Loans		$	234,455		$	148,941		$	76,356		$	34,029		$	34,913
		Percent of Total Dollar Volume		58.9	%		61.5	%		63.1	%		50.7	%		53.2	%
Conventional Non-conforming Loans
	Number of Loans			492,512			265,972			136,898			85,332			51,233
	Volume of Loans		$	111,661		$	57,041		$	21,935		$	11,023		$	10,081
		Percent of Total Dollar Volume		28.0	%		23.5	%		18.1	%		16.4	%		15.4	%
FHA/ VA Loans
	Number of Loans			196,058			157,359			117,590			118,673			130,996
	Volume of Loans		$	24,401		$	19,017		$	13,654		$	13,075		$	13,536
		Percent of Total Dollar Volume		6.1	%		7.8	%		11.3	%		19.6	%		20.6	%
Prime Home Equity Loans
	Number of Loans			292,171			290,285			164,495			116,829			93,936
	Volume of Loans		$	12,268		$	10,848		$	5,639		$	4,562		$	3,192
		Percent of Total Dollar Volume		3.1	%		4.5	%		4.7	%		6.8	%		4.9	%
Subprime Mortgage Loans
	Number of Loans			95,062			43,938			26,347			41,377			40,030
	Volume of Loans		$	15,525		$	6,590		$	3,418		$	4,382		$	3,840
		Percent of Total Dollar Volume		3.9	%		2.7	%		2.8	%		6.5	%		5.9	%
Total Loans
	Number of Loans			2,585,524			1,750,797			949,765			601,443			609,834
	Volume of Loans		$	398,310		$	242,437		$	121,002		$	67,071		$	65,562
	Average Loan Amount		$	154,000		$	138,000		$	127,000		$	112,000		$	108,000



			Summary of Consumer Markets Division’s Mortgage Loan Production

									Ten Months
			Years Ended						Ended			Years Ended
			December 31,						December 31,			February 28(29),

			2003			2002			2001			2001			2000


			(Dollar amounts in millions, except average loan amount)
Conventional Conforming Loans
	Number of Loans			355,790			259,738			172,797			72,762			91,137
	Volume of Loans		$	48,864		$	35,167		$	23,761		$	9,788		$	10,734
		Percent of Total Dollar Volume		46.9	%		56.5	%		63.6	%		51.7	%		53.6	%
Conventional Non-conforming Loans
	Number of Loans			183,711			74,447			32,136			23,649			11,685
	Volume of Loans		$	39,515		$	15,451		$	5,338		$	2,870		$	2,455
		Percent of Total Dollar Volume		37.9	%		24.9	%		14.3	%		15.2	%		12.3	%
FHA/ VA Loans
	Number of Loans			69,422			56,905			50,348			36,691			49,247
	Volume of Loans		$	7,662		$	6,158		$	5,416		$	3,805		$	4,998
		Percent of Total Dollar Volume		7.4	%		9.9	%		14.5	%		20.1	%		25.1	%
Prime Home Equity Loans
	Number of Loans			213,732			159,792			92,134			70,064			61,285
	Volume of Loans		$	8,167		$	5,408		$	2,841		$	2,460		$	1,794
		Percent of Total Dollar Volume		7.8	%		8.7	%		7.6	%		13.0	%		9.0	%
Subprime Mortgage Loans
	Number of Loans			217			138			6			11			2
	Volume of Loans		$	8		$	5		$	1		$	2		$	1
		Percent of Total Dollar Volume		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%
Total Loans
	Number of Loans			822,872			551,020			347,421			203,177			213,356
	Volume of Loans		$	104,216		$	62,189		$	37,357		$	18,925		$	19,982
	Average Loan Amount		$	127,000		$	113,000		$	108,000		$	93,000		$	94,000



			Summary of Wholesale Lending Division’s Mortgage Loan Production

									Ten Months
			Years Ended						Ended			Years Ended
			December 31,						December 31,			February 28(29),

			2003			2002			2001			2001			2000


			(Dollar amounts in millions, except average loan amount)
Conventional Conforming Loans
	Number of Loans			301,260			248,089			171,658			78,834			83,124
	Volume of Loans		$	45,415		$	36,190		$	24,224		$	10,393		$	9,328
		Percent of Total Dollar Volume		49.8	%		53.9	%		61.6	%		52.1	%		48.8	%
Conventional Non-conforming Loans
	Number of Loans			153,781			116,146			56,161			34,221			28,559
	Volume of Loans		$	37,041		$	25,214		$	11,185		$	5,246		$	5,182
		Percent of Total Dollar Volume		40.6	%		37.5	%		28.5	%		26.3	%		27.1	%
FHA/ VA Loans
	Number of Loans			11,454			6,522			13,604			14,242			21,029
	Volume of Loans		$	1,537		$	818		$	1,572		$	1,555		$	2,207
		Percent of Total Dollar Volume		1.7	%		1.2	%		4.0	%		7.8	%		11.5	%
Prime Home Equity Loans
	Number of Loans			41,874			82,465			37,370			21,671			17,825
	Volume of Loans		$	2,214		$	3,327		$	1,490		$	1,056		$	807
		Percent of Total Dollar Volume		2.4	%		5.0	%		3.8	%		5.3	%		4.2	%
Subprime Mortgage Loans
	Number of Loans			29,094			9,627			6,971			16,061			16,820
	Volume of Loans		$	5,004		$	1,639		$	841		$	1,691		$	1,608
		Percent of Total Dollar Volume		5.5	%		2.4	%		2.1	%		8.5	%		8.4	%
Total Loans
	Number of Loans			537,463			462,849			285,764			165,029			167,357
	Volume of Loans		$	91,211		$	67,188		$	39,312		$	19,941		$	19,132
	Average Loan Amount		$	170,000		$	145,000		$	138,000		$	121,000		$	114,000



			Summary of Correspondent Lending Division’s Mortgage Loan Production

									Ten Months
			Years Ended						Ended			Years Ended
			December 31,						December 31,			February 28(29),

			2003			2002			2001			2001			2000


			(Dollar amounts in millions, except average loan amount)
Conventional Conforming Loans
	Number of Loans			847,914			484,795			159,752			87,444			119,296
	Volume of Loans		$	139,569		$	77,503		$	28,344		$	13,832		$	14,848
		Percent of Total Dollar Volume		71.6	%		70.8	%		66.7	%		52.1	%		59.4	%
Conventional Non-conforming Loans
	Number of Loans			151,248			74,051			48,453			27,451			10,989
	Volume of Loans		$	34,525		$	16,188		$	5,390		$	2,901		$	2,444
		Percent of Total Dollar Volume		17.7	%		14.8	%		12.7	%		10.9	%		9.8	%
FHA/ VA Loans
	Number of Loans			115,182			93,932			53,638			67,740			60,720
	Volume of Loans		$	15,202		$	12,041		$	6,666		$	7,715		$	6,331
		Percent of Total Dollar Volume		7.8	%		11.0	%		15.7	%		29.1	%		25.3	%
Prime Home Equity Loans
	Number of Loans			31,279			44,709			33,489			24,371			14,709
	Volume of Loans		$	1,542		$	1,873		$	1,235		$	1,019		$	586
		Percent of Total Dollar Volume		0.8	%		1.7	%		2.9	%		3.8	%		2.3	%
Subprime Mortgage Loans
	Number of Loans			26,836			13,590			7,117			9,358			8,059
	Volume of Loans		$	4,110		$	1,869		$	867		$	1,082		$	803
		Percent of Total Dollar Volume		2.1	%		1.7	%		2.0	%		4.1	%		3.2	%
Total Loans
	Number of Loans			1,172,459			711,077			302,449			216,364			213,773
	Volume of Loans		$	194,948		$	109,474		$	42,502		$	26,549		$	25,012
	Average Loan Amount		$	166,000		$	154,000		$	141,000		$	123,000		$	117,000


Item 1.	*Business*


	*Types of Loans*


	*Loan Production Sector*


	Consumer Markets Division



			Summary of Full Spectrum Lending, Inc.’s Mortgage Loan Production

									Ten Months
			Years Ended						Ended			Years Ended
			December 31,						December 31,			February 28(29),

			2003			2002			2001			2001			2000


			(Dollar amounts in millions, except average loan amount)
Conventional Conforming Loans
	Number of Loans			4,757			621			228			192			82
	Volume of Loans		$	607		$	81		$	27		$	16		$	3
		Percent of Total Dollar Volume		7.7	%		2.3	%		1.5	%		0.9	%		0.2	%
Conventional Non-conforming Loans
	Number of Loans			3,772			1,328			148			11			—
	Volume of Loans		$	580		$	188		$	22		$	6			—
		Percent of Total Dollar Volume		7.3	%		5.2	%		1.2	%		0.4	%		0.0	%
FHA/ VA Loans
	Number of Loans			—			—			—			—			—
	Volume of Loans			—			—			—			—			—
		Percent of Total Dollar Volume		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%
Prime Home Equity Loans
	Number of Loans			5,286			3,319			1,502			723			117
	Volume of Loans		$	345		$	240		$	73		$	27		$	5
		Percent of Total Dollar Volume		4.3	%		6.7	%		4.0	%		1.6	%		0.3	%
Subprime Mortgage Loans
	Number of Loans			38,915			20,583			12,253			15,947			15,149
	Volume of Loans		$	6,403		$	3,077		$	1,709		$	1,607		$	1,428
		Percent of Total Dollar Volume		80.7	%		85.8	%		93.3	%		97.1	%		99.5	%
Total Loans
	Number of Loans			52,730			25,851			14,131			16,873			15,348
	Volume of Loans		$	7,935		$	3,586		$	1,831		$	1,656		$	1,436
	Average Loan Amount		$	150,000		$	139,000		$	130,000		$	98,000		$	94,000



			Summary of Capital Markets Mortgage Loan Production

									Ten Months
			Years Ended						Ended			Years Ended
			December 31,						December 31,			February 28(29),

			2003			2002			2001			2001			2000


			(Dollar amounts in millions, except average loan amount)
Conventional Conforming Loans
	Number of Loans			7,818			5,910			540			1,376			1,432
	Volume of Loans		$	1,342		$	1,038		$	76		$	405		$	242
		Percent of Total Dollar Volume		6.0	%		12.0	%		2.6	%		21.9	%		20.5	%
Conventional Non-conforming Loans
	Number of Loans			37,466			11,654			695			1,268			791
	Volume of Loans		$	16,267		$	4,586		$	274		$	371		$	105
		Percent of Total Dollar Volume		73.3	%		53.0	%		9.2	%		20.0	%		8.9	%
FHA/ VA Loans
	Number of Loans			5			267			1,144			—			688
	Volume of Loans		$	1		$	76		$	455			—		$	62
		Percent of Total Dollar Volume		0.0	%		0.9	%		15.3	%		0.0	%		5.3	%
Prime Home Equity Loans
	Number of Loans			6,228			3,037			8			2,216			12,139
	Volume of Loans		$	288		$	128			—		$	98		$	451
		Percent of Total Dollar Volume		1.3	%		1.5	%		0.0	%		5.3	%		38.3	%
Subprime Mortgage Loans
	Number of Loans			29,143			19,257			17,012			10,329			3,359
	Volume of Loans		$	4,302		$	2,831		$	2,162		$	978		$	318
		Percent of Total Dollar Volume		19.4	%		32.6	%		72.9	%		52.8	%		27.0	%
Total Loans
	Number of Loans			80,660			40,125			19,399			15,189			18,409
	Volume of Loans		$	22,200		$	8,659		$	2,967		$	1,852		$	1,178
	Average Loan Amount		$	275,000		$	216,000		$	153,000		$	122,000		$	64,000



			Summary of Treasury Bank Mortgage Loan Production

									Ten Months
			Years Ended						Ended		Years Ended
			December 31,						December 31,		February 28(29),

			2003			2002			2001		2001		2000


			(Dollar amounts in millions, except average loan amount)
Conventional Conforming Loans
	Number of Loans			204			295			—		—		—
	Volume of Loans		$	71			131			—		—		—
		Percent of Total Dollar Volume		0.5	%		16.3	%		—		—		—
Conventional Non-conforming Loans
	Number of Loans			24,593			—			—		—		—
	Volume of Loans		$	8,736			—			—		—		—
		Percent of Total Dollar Volume		60.9	%		0.0	%		—		—		—
FHA/ VA Loans
	Number of Loans			—			—			—		—		—
	Volume of Loans			—			—			—		—		—
		Percent of Total Dollar Volume		0.0	%		0.0	%		—		—		—
Prime Home Equity Loans
	Number of Loans			155,418			22,727			—		—		—
	Volume of Loans		$	5,547		$	674			—		—		—
		Percent of Total Dollar Volume		38.6	%		83.7	%		—		—		—
Subprime Mortgage Loans
	Number of Loans			—			—			—		—		—
	Volume of Loans			—			—			—		—		—
		Percent of Total Dollar Volume		0.0	%		0.0	%		—		—		—
Total Loans
	Number of Loans			180,215			23,022			—		—		—
	Volume of Loans		$	14,354		$	805			—		—		—
	Average Loan Amount		$	80,000		$	35,000			—		—		—


Item 4.	*Submission of Matters to a Vote of Security Holders*


Item 5.	*Market for the Company’s Common Stock and Related Stockholder Matters*



For the Year Ended December 31, 2002


	Stock Price
					Cash Dividends
Period Ended	High		Low		Declared

March 31, 2002	$	34.09	$	28.21	$	0.00
June 30, 2002	$	37.74	$	33.08	$	0.10
September 30, 2002	$	41.25	$	29.63	$	0.08
December 31, 2002	$	39.75	$	31.76	$	0.09



For the Year Ended December 31, 2003


	Stock Price
					Cash Dividends
Period Ended	High		Low		Declared

March 31, 2003	$	44.03	$	37.87	$	0.09
June 30, 2003	$	59.05	$	43.28	$	0.10
September 30, 2003	$	59.48	$	47.63	$	0.11
December 31, 2003	$	81.81	$	58.15	$	0.15


									Ten Months
			Years Ended December 31,						Ended			Years Ended February 28(29),
									December 31,
			2003			2002			2001			2001			2000


			(Dollar amounts in thousands, except per share data)
Statement of Earnings Data(1):
Revenues:
	Gain on sale of loans and securities		$	5,890,325		$	3,471,218		$	1,601,990		$	907,973		$	859,688
	Interest income			3,342,200			2,253,296			1,806,596			1,324,066			978,656
	Interest expenses			(1,940,207	)		(1,461,066	)		(1,474,719	)		(1,330,724	)		(904,713	)

	Net interest income (expense)			1,401,993			792,230			331,877			(6,658	)		73,943
	Loan servicing fees and other income from retained interests			2,804,338			2,028,922			1,367,381			1,227,474			1,043,838
	Amortization of MSRs			(2,069,246	)		(1,267,249	)		(805,533	)		(518,199	)		(459,308	)
	Impairment/recovery of retained interests			(1,432,965	)		(3,415,311	)		(1,472,987	)		(915,589	)		262,939
	Servicing hedge gains (losses)			234,823			1,787,886			908,993			797,148			(264,094	)

		Net loan servicing fees and other income from retained interests		(463,050	)		(865,752	)		(2,146	)		590,834			583,375
	Net insurance premiums earned			732,816			561,681			316,432			274,039			75,786
	Commissions and other revenue			464,762			358,855			248,506			167,386			148,744

		Total revenues		8,026,846			4,318,232			2,496,659			1,933,574			1,741,536

Expenses:
	Compensation expenses			2,583,763			1,771,287			968,232			702,626			621,205
	Occupancy and other office expenses			586,648			447,723			291,571			262,370			261,303
	Insurance claims expenses			360,046			277,614			134,819			106,827			23,420
	Other operating expenses			650,617			478,585			313,418			275,716			204,410

		Total expenses		4,181,074			2,975,209			1,708,040			1,347,539			1,110,338

Earnings before income taxes				3,845,772			1,343,023			788,619			586,035			631,198
Provision for income taxes				1,472,822			501,244			302,613			211,882			220,955

Net earnings			$	2,372,950		$	841,779		$	486,006		$	374,153		$	410,243

Per Share Data(2):
Basic			$	13.33		$	5.06		$	3.03		$	2.44		$	2.72
Diluted			$	12.47		$	4.87		$	2.92		$	2.36		$	2.64
Cash dividends declared per share			$	0.45		$	0.27		$	0.32		$	0.30		$	0.30
Weighted average shares outstanding:
	Basic			177,973,000			166,320,000			160,452,000			153,243,000			150,777,000
	Diluted			190,375,000			172,965,000			166,391,000			158,713,000			155,584,000


Item 7.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations*


Carrying value of mortgage loans underlying a security(1)			$	1,000,000

Fair Values:
	Security		$	990,000
	Retained Interests			15,000

		Total fair value	$	1,005,000

Computation of gain on sale of security:
	Sales proceeds		$	990,000
	Less: allocated cost ($1,000,000 x $990,000/$1,005,000)			985,075

		Gain on sale	$	4,925

Initial recorded value of retained interests ($1,000,000 – $985,075)			$	14,925



	Total Portfolio(1)

	Principal		Percent			MSR
Mortgage Rate	Balance		of Total			Balance


	(Dollar amounts in millions)
6% and under	$	301,276		51.6	%	$	3,924
6.01-7%		208,584		35.7	%		2,303
7.01-8%		52,261		8.9	%		437
8.01-9%		14,409		2.5	%		124
9.01-10%		4,065		0.7	%		39
over 10%		3,752		0.6	%		37

6.1%(2)	$	584,347		100	%	$	6,864


		MSRs

		(Dollar amounts
		in thousands)
Fair value of MSRs		$	6,909,167
Carrying value of MSRs		$	6,863,625
Carrying value as a percentage of loans serviced for others			1.2	%
Weighted-average life (in years)			6.0
WEIGHTED-AVERAGE ANNUAL PREPAYMENT SPEED			20.8	%
	Impact of 10% adverse change	$	395,797
	Impact of 20% adverse change	$	750,842
WEIGHTED-AVERAGE OAS(1)			4.3	%
	Impact of 10% adverse change	$	112,781
	Impact of 20% adverse change	$	222,318


		Other
		Retained
		Interests

		(Dollar amounts
		in thousands)
Fair value of retained interests		$	1,355,535
Weighted-average life (in years)			2.0
WEIGHTED-AVERAGE ANNUAL PREPAYMENT SPEED			30.6	%
	Impact of 10% adverse change	$	82,729
	Impact of 20% adverse change	$	152,158
WEIGHTED-AVERAGE ANNUAL DISCOUNT RATE			20.4	%
	Impact of 10% adverse change	$	22,585
	Impact of 20% adverse change	$	43,919
WEIGHTED-AVERAGE NET LIFETIME CREDIT LOSSES			1.9	%
	Impact of 10% adverse change	$	30,426
	Impact of 20% adverse change	$	60,839


	*Derivatives and Interest Rate Risk Management Activities*



		Workforce At

		December 31,		December 31,
		2003		2002

Sales			8,681		6,090
Operations:
	Regular employees		7,116		5,621
	Temporary staff		504		2,090

			7,620		7,711
Production technology			748		554
Administration and support			1,848		1,152

			18,897		15,507


	*Loan Servicing Fees and Other Income from Retained Interests*


	*Impairment or Recovery of Retained Interests and Servicing Hedge Gains*



	Year Ended December 31, 2003

	Mortgage			Other		Corporate
	Banking			Businesses		Administration		Total


	(Dollar amounts in thousands)
Base salaries	$	906,982		$	232,910	$	204,416	$	1,344,308
Incentive bonus and commissions		1,063,431			156,453		66,080		1,285,964
Payroll taxes and benefits		266,590			44,333		48,297		359,220
Deferral of loan origination costs		(405,729	)		—		—		(405,729	)

Total compensation expenses	$	1,831,274		$	433,696	$	318,793	$	2,583,763

Average workforce, including temporary staff		25,415			5,003		3,142		33,560



	Year Ended December 31, 2002

	Mortgage			Other		Corporate
	Banking			Businesses		Administration		Total


	(Dollar amounts in thousands)
Base salaries	$	630,209		$	180,030	$	166,123	$	976,362
Incentive bonus and commissions		595,272			114,324		60,745		770,341
Payroll taxes and benefits		139,298			33,415		49,338		222,051
Deferral of loan origination costs		(197,467	)		—		—		(197,467	)

Total compensation expenses	$	1,167,312		$	327,769	$	276,206	$	1,771,287

Average workforce, including temporary staff		17,619			3,845		2,600		24,064


			Year Ended			Ten Months Ended
			December 31, 2002			December 31, 2001


			(Dollar amounts in thousands)
Mortgage Banking:
	Production		$	2,394,963		$	915,130
	Servicing			(1,489,796	)		(350,810	)
	Closing Services			69,953			54,653

		Total Mortgage Banking		975,120			618,973

Other Businesses:
	Capital Markets			199,876			81,160
	Banking			83,971			12,431
	Insurance			74,625			76,342
	Global Operations			5,282			1,942
	Other			4,149			(2,229	)

		Total Other Businesses		367,903			169,646

Pre-tax earnings			$	1,343,023		$	788,619