10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2006

Or

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to              

Commission file number: 1-8422

Countrywide Financial Corporation

(Exact name of registrant as specified in its charter)

Delaware	13-2641992
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
4500 Park Granada, Calabasas, California	91302
(Address of principal executive offices)	(Zip Code)

(Registrant’s telephone number, including area code)

(818) 225-3000

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (check one):

Large accelerated filer  x Accelerated filer  o Non-accelerated filer  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

Yes o           No x

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

Class	Outstanding at May 4, 2006
Common Stock $.05 par value	607,615,238

COUNTRYWIDE FINANCIAL CORPORATION

FORM 10-Q
March 31, 2006

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION		1
Item 1.	Financial Statements:
	Consolidated Balance Sheets—March 31, 2006 and December 31, 2005	1
	Consolidated Statements of Earnings—Quarters Ended March 31, 2006 and 2005	2
	Consolidated Statement of Changes in Shareholders’ Equity—Quarters Ended March 31, 2006 and 2005	3
	Consolidated Statements of Cash Flows—Quarters Ended March 31, 2006 and 2005	4
	Notes to Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
	Overview	34
	Results of Operations Comparison—Quarters Ended March 31, 2006 and 2005	37
	Quantitative and Qualitative Disclosures About Market Risk	58
	Credit Risk Management	60
	Loan Servicing	62
	Liquidity and Capital Resources	63
	Off-Balance Sheet Arrangements and Aggregate Contractual Obligations	65
	Prospective Trends	66
	Regulatory Trends	67
	Implementation of New Accounting Standards	67
	Factors That May Affect Our Future Results	68
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	70
Item 4.	Controls and Procedures	70
PART II. OTHER INFORMATION		71
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	71
Item 6.	Exhibits	71

PART I. FINANCIAL INFORMATION

Item 1.   Financial Statements

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

	March 31, 2006			December 31, 2005
	(Unaudited)
	(in thousands, except share data)
ASSETS
Cash	$	2,644,621		$	1,031,108
Mortgage loans held for sale	32,067,881			36,808,185
Trading securities owned, at fair value	11,050,549			10,314,384
Trading securities pledged as collateral, at fair value	1,022,396			668,189
Securities purchased under agreements to resell, securities borrowed and federal funds sold	21,516,259			23,317,361
Loans held for investment, net of allowance for loan losses of $172,271 and $189,201, respectively	74,107,611			69,865,447
Investments in other financial instruments, at fair value	11,111,631			11,260,725
Mortgage servicing rights, at fair value	14,171,804			—
Mortgage servicing rights, net	—			12,610,839
Premises and equipment, net	1,338,293			1,279,659
Other assets	8,561,011			7,929,473
Total assets	$	177,592,056		$	175,085,370
LIABILITIES
Notes payable	$	72,554,228		$	76,187,886
Securities sold under agreements to repurchase and federal funds purchased	32,599,845			34,153,205
Deposit liabilities	45,377,942			39,438,916
Accounts payable and accrued liabilities	5,920,045			6,358,158
Trading securities sold, not yet purchased, at fair value	3,393,128			2,285,171
Income taxes payable	4,240,615			3,846,174
Total liabilities	164,085,803			162,269,510
Commitments and contingencies	—			—
SHAREHOLDERS’ EQUITY
Preferred stock—authorized, 1,500,000 shares of $0.05 par value; none issued and outstanding	—			—
Common stock—authorized, 1,000,000,000 shares of $0.05 par value; issued, 605,011,658 shares and 600,169,268 shares at March 31, 2006 and December 31, 2005, respectively; outstanding, 604,786,813 shares and 600,030,686 shares at March 31, 2006 and December 31, 2005, respectively	30,251			30,008
Additional paid-in capital	3,071,443			2,954,019
Accumulated other comprehensive (loss) income	(26,403		)	61,114
Retained earnings	10,430,962			9,770,719
Total shareholders’ equity	13,506,253			12,815,860
Total liabilities and shareholders’ equity	$	177,592,056		$	175,085,370

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

1

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS

	Quarters Ended March 31,
	2006				2005
	(Unaudited)
	(in thousands, except per share data)
Revenues
Gain on sale of loans and securities		$	1,361,178			$	1,361,751
Interest income		2,593,758				1,486,930
Interest expense		(1,899,323		)		(995,937		)
Net interest income		694,435				490,993
Provision for loan losses		(63,138		)		(19,622		)
Net interest income after provision for loan losses		631,297				471,371
Loan servicing fees and other income from mortgage servicing rights and retained interests		1,199,887				972,358
Realization of expected cash flows from mortgage servicing rights		(738,567		)		—
Amortization of mortgage servicing rights		—				(472,187		)
Change in fair value of mortgage servicing rights		978,281				—
Recovery of mortgage servicing rights		—				452,434
Impairment of retained interests		(120,654		)		(137,070		)
Servicing hedge losses		(885,870		)		(552,292		)
Net loan servicing fees and other income from mortgage servicing rights and retained interests		433,077				263,243
Net insurance premiums earned		279,793				199,518
Other		130,603				109,002
Total revenues		2,835,948				2,404,885
Expenses
Compensation		1,074,818				786,479
Occupancy and other office		245,331				188,656
Insurance claims		124,042				75,935
Advertising and promotion		60,230				55,179
Other		212,164				149,639
Total expenses		1,716,585				1,255,888
Earnings before income taxes		1,119,363				1,148,997
Provision for income taxes		435,852				460,145
NET EARNINGS		$	683,511			$	688,852
Basic		$	1.14			$	1.18
Diluted		$	1.10			$	1.13

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

2

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

	Number of Shares of Common Stock		Common Stock			Additional Paid-in- Capital			Accumulated Other Comprehensive Income (Loss)				Retained Earnings			Total
	(Unaudited)
	(in thousands, except share data)
Balance at December 31, 2004		581,648,881		$	29,085		$	2,570,402		$	118,943		$	7,591,646		$	10,310,076
Comprehensive income:
Net earnings for the period		—		—			—			—			688,852			688,852
Other comprehensive income (loss), net of tax:
Net unrealized losses from available-for-sale securities		—		—			—			(48,544		)	—			(48,544		)
Net unrealized gains from cash flow hedging instruments		—		—			—			7,331			—			7,331
Net change in foreign currency translation adjustment		—		—			—			(5,058		)	—			(5,058		)
Total comprehensive income																642,581
Issuance of stock pursuant to stock-based compensation plans		3,599,585		181			45,958			—			—			46,139
Tax benefit of stock options exercised		—		—			24,796			—			—			24,796
Issuance of common stock, net of treasury stock		193,077		10			6,637			—			—			6,647
Issuance of common stock for conversion of convertible debt		770,268		39			1,566			—			—			1,605
Tax benefit of interest on conversion of convertible debt		—		—			1,938			—			—			1,938
Cash dividends paid—$0.14 per common share		—		—			—			—			(81,735		)	(81,735		)
Balance at March 31, 2005		586,211,811		$	29,315		$	2,651,297		$	72,672		$	8,198,763		$	10,952,047
Balance at December 31, 2005		600,030,686		$	30,008		$	2,954,019		$	61,114		$	9,770,719		$	12,815,860
Remeasurement of mortgage servicing rights to fair value upon adoption of SFAS 156		—		—			—			—			67,065			67,065
Balance as adjusted, January 1, 2006		600,030,686		30,008			2,954,019			61,114			9,837,784			12,882,925
Comprehensive income:
Net earnings for the period		—		—			—			—			683,511			683,511
Other comprehensive income (loss), net of tax:
Net unrealized losses from available-for-sale securities		—		—			—			(80,984		)	—			(80,984		)
Net unrealized losses from cash flow hedging instruments		—		—			—			(7,647		)	—			(7,647		)
Net change in foreign currency translation adjustment		—		—			—			1,114			—			1,114
Total comprehensive income																595,994
Issuance of stock pursuant to stock-based compensation plans		4,147,375		212			87,441			—			—			87,653
Tax benefit of stock options exercised		—		—			22,000			—			—			22,000
Issuance of common stock, net of treasury stock		193,884		10			6,539			—			—			6,549
Issuance of common stock for conversion of convertible debt		414,868		21			1,444			—			—			1,465
Cash dividends paid—$0.15 per common share		—		—			—			—			(90,333		)	(90,333		)
Balance at March 31, 2006		604,786,813		$	30,251		$	3,071,443		$	(26,403	)	$	10,430,962		$	13,506,253

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

3

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Quarters Ended March 31,
	2006			2005
	(Unaudited)
	(in thousands)
Cash flows from operating activities:
Net earnings	$	683,511		$	688,852
Adjustments to reconcile net earnings to net cash provided by operating activities:
Gain on sale of loans and securities	(1,361,178		)	(1,361,751		)
Accretion of discount on securities	(16,127		)	(104,806		)
Interest capitalized on loans held for investment	(109,433		)	(4,323		)
Accretion of fair value adjustments and discount on notes payable	(40,558		)	(6,843		)
Net change in fair value of hedged notes payable and related interest-rate and foreign-currency swaps	(2,543		)	1,242
Amortization of deferred fees on time deposits	4,319			2,623
Amortization of deferred premiums, discounts and fees, net	69,465			31,719
Provision for loan losses	63,138			19,622
Amortization of mortgage servicing rights	—			472,187
Recovery of mortgage servicing rights	—			(452,434		)
Changes in fair value of mortgage servicing rights	(978,281		)	—
Change in MSR value due to realization of expected cash flows from mortgage servicing rights	738,567			—
Impairment of retained interests	123,982			121,208
Depreciation and other amortization	62,189			46,783
Stock-based compensation expense	26,640			8,681
Provision for deferred income taxes	357,931			333,342
Origination and purchase of loans and mortgage-backed securities held for sale	(98,372,317		)	(83,502,615		)
Proceeds from sale and principal repayments of loans and mortgage-backed securities	102,874,507			80,374,847
(Increase) decrease in trading securities	(1,035,108		)	2,326,608
Decrease in investments in other financial instruments	127,769			322,166
(Increase) decrease in other assets	(645,956		)	422,057
(Decrease) increase in accounts payable and accrued liabilities	(458,274		)	58,748
Increase in trading securities sold, not yet purchased, at fair value	1,107,957			319,779
Increase in income taxes payable	50,062			76,442
Net cash provided by operating activities	3,270,262			194,134
Cash flows from investing activities:
Decrease (increase) in securities purchased under agreements to resell, federal funds sold and securities borrowed	1,801,102			(7,917,186		)
Additions to loans held for investment, net	(4,248,656		)	(8,053,874		)
Sales of loans held for investment	52,787			—
Additions to investments in other financial instruments	(1,176,641		)	(3,001,758		)
Proceeds from sale and repayment of investments in other financial instruments	1,221,123			1,110,347
Purchases of mortgage servicing rights	(1,911		)	(95,417		)
Purchase of premises and equipment, net	(106,405		)	(141,439		)
Net cash used by investing activities	(2,458,601		)	(18,099,327		)
Cash flows from financing activities:
Net (decrease) increase in short-term borrowings	(2,187,767		)	967,395
Issuance of long-term debt	5,558,307			3,785,000
Repayment of long-term debt	(6,949,264		)	(2,879,147		)
Net (decrease) increase in securities sold under agreements to repurchase and federal funds purchased	(1,553,360		)	10,382,889
Net increase in deposit liabilities	5,934,707			5,663,908
Tax benefit of stock options exercised	22,000			24,796
Issuance of common stock	67,562			44,105
Payment of dividends	(90,333		)	(81,735		)
Net cash provided by financing activities	801,852			17,907,211
Net increase in cash	1,613,513			2,018
Cash at beginning of period	1,031,108			751,237
Cash at end of period	$	2,644,621		$	753,255

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

4

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1—Basis of Presentation

Countrywide Financial Corporation (“Countrywide”) is a holding company which, through its principal subsidiary, Countrywide Home Loans, Inc. (“CHL”) and other subsidiaries (collectively, the “Company”), is engaged in mortgage lending and other finance-related businesses, including mortgage banking, retail banking and mortgage warehouse lending, dealing in securities, insurance underwriting and operating an insurance agency.

The accompanying consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles for interim financial information and with the Securities and Exchange Commission’s instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. generally accepted accounting principles for complete financial statements.

In preparing financial statements in conformity with U.S. generally accepted accounting principles, 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.

In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the quarter ended March 31, 2006 are not necessarily indicative of the results that may be expected for the year ending December 31, 2006. For further information, including a description of the Company’s significant accounting policies, refer to the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2005 for the Company (the “2005 Annual Report”).

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

Note 2—Adoption of Statement of Financial Accounting Standards No.156, “Accounting for Servicing of Financial Assets” (“SFAS 156”)

In March 2006, the Financial Accounting Standards Board issued SFAS 156, which amends Statement of Financial Accounting Standards No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” (“SFAS 140”). SFAS 156 changes SFAS 140 by requiring that Mortgage Servicing Rights (“MSRs”) be initially recognized at their fair value and by providing the option to either: (1) carry MSRs at fair value with changes in fair value recognized in earnings; or (2) continue recognizing periodic amortization expense and assess the MSRs for impairment as originally required by SFAS 140. This option may be applied by class of servicing asset or liability.

SFAS 156 is effective for all separately recognized servicing assets and liabilities acquired or issued after the beginning of an entity’s fiscal year that begins after September 15, 2006, with early adoption permitted. The Company has chosen to adopt SFAS 156 effective January 1, 2006. The Company has identified MSRs relating to residential mortgage loans as a class of servicing rights and has elected to apply fair value accounting to these MSRs. Presently this class represents all of the Company’s MSRs. SFAS 156 requires that any adjustment necessary to record MSRs at fair value at adoption be recognized in

5

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

beginning shareholders’ equity. Accordingly, the following adjustment was made to the opening balances of MSRs, income taxes payable and retained earnings:

	MSRs		Income Tax Payable		Retained Earnings
	(in thousands)
Balance at December 31, 2005	$	12,610,839	$	3,846,174	$	9,770,719
Remeasurement of MSRs to fair value upon adoption of SFAS 156	109,916		42,851		67,065
Balance at January 1, 2006	$	12,720,755	$	3,889,025	$	9,837,784

As a result of adopting SFAS 156 and applying fair value accounting to MSRs, the hedge accounting provisions of Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities,” (“SFAS 133”) no longer apply to the risk management activities of the Company’s MSRs. Therefore, concurrent with the election to carry MSRs at fair value, the Company discontinued fair value hedge accounting under SFAS 133 related to its MSRs.

Note 3—Earnings Per Share

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

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

	Quarters Ended March 31,
	2006						2005
	Net Earnings		Shares	Per-Share Amount			Net Earnings		Shares	Per-Share Amount
	(in thousands, except per share data)
Net earnings and basic earnings per share	$	683,511	601,585		$	1.14	$	688,852	583,201		$	1.18
Effect of dilutive securities:
Convertible debentures	15		219				109		2,531
Dilutive stock options	—		18,528				—		24,944
Diluted earnings and earnings per share	$	683,526	620,332		$	1.10	$	688,961	610,676		$	1.13

During the quarters ended March 31, 2006 and 2005, stock options to purchase 187,209 shares and 31,500 shares, respectively, were outstanding but not included in the computation of diluted earnings per share because they were anti-dilutive.

Stock-Based Compensation

During the current period, the Company adopted Statement of Financial Accounting Standards No. 123R, “Share-Based Payment,” (“SFAS 123R”), an amendment of FASB Statement No. 123,

6

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

“Accounting for Stock-Based Compensation,” using the modified prospective application approach. In accordance with SFAS 123R, the Company began charging the unamortized value of previously granted employee stock options to compensation expense during the current period. For awards after January 1, 2006 made to retirement eligible employees that vest upon retirement, the Company is required under SFAS 123R to immediately charge the associated value to expense. The value of grants after January 1, 2006 to other employees must be amortized over the lesser of (a) the nominal vesting period or (b) for options that vest upon retirement, the period until the grantee becomes retirement-eligible.

As of March 31, 2006, the Company has issued stock options and shares of restricted stock that, depending on the year granted and other factors, have different vesting requirements. Generally, stock options issued before 2004 vest over a period of three to four years and expire five or ten years after the grant date. Stock options awarded in 2004 become vested upon attainment of specific earnings performance targets and, in any event, four and a half years after the grant date regardless of attainment of the earnings targets and expire five years after the date of grant. Generally, stock options granted in 2005 were fully vested. Off-cycle awards and awards to new hires have various vesting schedules. Generally, restricted stock vests over a period of three years although some restricted stock awards granted in 2004 had a performance based component similar to the stock options granted that year.

The impact of adopting SFAS 123R for the three months ended March 31, 2006, was a charge of approximately $13.1 million ($10.0 million, net of tax, or $0.02 per diluted share) to compensation expense. The remaining unrecognized compensation cost related to unvested awards as of March 31, 2006, was $41.3 million and the weighted average period of time over which this cost will be recognized is 1.3 years.

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

	Quarter Ended March 31, 2005
	(In thousands, except per share data)
Net Earnings:
As reported		$	688,852
Add: Stock-based compensation included in net earnings, net of taxes		1,903
Deduct: Stock-based employee compensation under SFAS 123, net of taxes		(12,884		)
Pro forma		$	677,871
Basic Earnings Per Share:
As reported		$	1.18
Pro forma		$	1.16
Diluted Earnings Per Share:
As reported		$	1.13
Pro forma		$	1.11

Beginning in the second quarter of 2005, the Company began using a variant of the Black-Scholes-Merton option-pricing model that takes into account enhanced estimates of employee tenure and exercise

7

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

experience to estimate the fair value of the options. For purposes of this pro-forma disclosure, the fair value of each option grant is amortized to periodic compensation expense over the options’ vesting period.

The weighted-average assumptions used to value the option grants and the resulting average estimated values were as follows:

	Quarters Ended March 31,
	2006			2005
Weighted Average Assumptions:
Dividend yield	1.70		%	1.10		%
Expected volatility	32.50		%	34.62		%
Risk-free interest rate	4.56		%	3.80		%
Expected life (in years)(1)	2.81			5.00
Weighted-average exercise price	$	35.34		$	36.08
Per-share fair value of options	$	6.70		$	11.93

(1)Beginning in the second quarter of 2005, expected employee tenure and exercise experience are determined by option pricing model.

The table below summarizes stock option activity and related information for the quarter ended March 31, 2006:

	Number of Shares		Weighted- Average Exercise Price			Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
						(in years)		(in thousands)
Outstanding options at beginning of period	58,424,402			$	20.06
Options granted	94,141			35.34
Options exercised	(2,697,834	)		12.77
Options expired or cancelled	(172,025	)		22.34
Outstanding options at end of period	55,648,684			$	20.43		5.08		$	888,923
Options exercisable	39,470,372			$	19.34		4.97		$	673,411

Stock option exercise activity for the quarter ended March 31, 2006 and 2005 is summarized below:

	Quarters Ended March 31,
	2006		2005
	(in thousands)
Cash proceeds	$	34,449	$	19,804
Intrinsic value	$	60,086	$	70,662

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COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

The table below summarizes restricted stock activity and related information for the quarter ended March 31, 2006:

	Number of Shares			Weighted- Average Grant Date Fair Value
Outstanding restricted stock at beginning of period		838,443			$	26.37
Restricted stock granted		194,095			30.03
Restricted stock vested		(301,792	)		23.48
Restricted stock cancelled		(3,016	)		18.86
Outstanding restricted stock at end of period		727,730			$	28.57

Note 4—Derivative Financial Instruments

Derivative Financial Instruments

The primary market risk facing the Company is interest rate risk, which includes the risk that changes in interest rates will result in changes in the value of our assets or liabilities (“price risk”) and the risk that net interest income from our mortgage loan and investment portfolios will change in response to changes in interest rates. 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.

From an enterprise perspective, the Company manages interest rate risk through the natural counterbalance of its mortgage banking loan production and servicing businesses. The Company also uses various financial instruments, including derivatives, to manage the interest rate risk related specifically to the values of its interest rate lock commitments, Mortgage Loan Inventory, MSRs and retained interests and trading securities, as well as a portion of its debt. Interest rate risk relating to the Company’s portfolio of loans held for investment is managed by funding these assets with liabilities of similar duration or using derivative instruments whose valuation changes, when combined with the characteristics of the managed liability, create repricing characteristics that more closely reflect the repricing behaviors of those assets.

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

Description of Risk Management Activities

The Company is exposed to price risk relative to its Mortgage Loan Inventory and its interest rate lock commitments (“IRLC”). The Mortgage Loan Inventory is comprised of mortgage loans and Mortgage-Backed Securities (“MBS”) held by the Company pending sale. IRLCs guarantee the rate and points on the underlying mortgage or group of mortgages for a specified period. IRLCs are derivative instruments and are recorded at fair value with changes in fair value recognized in current period earnings (as a component of gain on sale of loans and securities). To manage this risk the Company uses derivative instruments in its risk management activities related to the IRLCs and Mortgage Loan Inventory including: forward sales/purchases of MBS, long call/put options on MBS, long call/put options on Treasury Futures, short Eurodollar futures contracts, total rate of return swaps and credit default swaps. Certain of these instruments qualify as fair value hedges of mortgage loans under SFAS 133.

9

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

During the quarter ended March 31, 2006, the interest rate risk management activities associated with 68% of the fixed-rate mortgage loan inventory and 44% of the adjustable-rate mortgage loan inventory were accounted for as fair value hedges. The Company recognized pre-tax losses of $17.1 million and a pre-tax gain of $5.1 million, representing the ineffective portion of such fair value hedges of its mortgage inventory, for the quarters ended March 31, 2006 and 2005, respectively. These amounts, along with the change in the fair value of the derivative instruments that were not designated as hedge instruments, are included in gain on sale of loans and securities in the consolidated statements of earnings.

Risk Management Activities Related to Mortgage Servicing Rights (MSRs) and Retained Interests

Description of Risk Management Activities

MSRs and retained interests, specifically interest-only securities and residual securities, are generally subject to a loss in value, or impairment, when mortgage interest rates decline. The fair value of MSRs and retained interests reflect 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 retained interests. Reductions in the value of these assets affects earnings through recognition of reduction of these assets’ fair values for MSRs and for retained interest accounted for as trading securities and through impairment charges for retained interests accounted for as available-for-sale securities. To moderate the effect of changes in value of MSRs and retained interests on earnings, the Company maintains a portfolio of financial instruments, including derivatives, which generally increase in aggregate value when interest rates decline. This portfolio of financial instruments is collectively referred to herein as the “Servicing Hedge.”

The Company currently uses financial instruments in its Servicing Hedge including: interest rate swaps, receiver/payor swaptions, mortgage forward rate agreements, long call/put options on Treasury and Eurodollar futures, long Treasury futures, interest rate caps and interest rate floors.

These instruments are combined to mitigate the overall risk portfolio of the MSRs and retained interests, which is actively managed by the Company on a daily basis.

The derivatives included in the Servicing Hedge are free standing under SFAS 133 and the change in value of such derivatives is recorded in current period earnings as Servicing Hedge gains or losses.The following table summarizes the notional amounts of derivative contracts included in the Servicing Hedge:

	Balance, December 31, 2005			Additions			Dispositions/ Expirations				Balance, March 31, 2006
	(in millions)
Interest Rate Swaps		$	53,850		$	13,085		$	(9,200	)		$	57,735
Interest Rate Swaptions		50,425			24,500			(23,625		)		51,300
Mortgage Forward Rate Agreements		31,125			24,250			(26,625		)		28,750
Long Call Options on Interest Rate Futures		17,500			8,500			(17,500		)		8,500
Long Treasury Futures		1,160			1,000			(2,160		)		—
Interest Rate Caps		300			—			—				300

10

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

The Servicing Hedge is intended to reduce the impact on reported earnings of changes in the fair value of MSRs and retained interests that generally results from changes in mortgage rates. Should mortgage rates increase, the value of the MSRs and retained interests is expected to increase while the value of the Servicing Hedge is expected to decrease.

Risk Management Activities Related to Issuance of Long-Term Debt

The Company acquires 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 $2.4 billion as of March 31, 2006) and to enable the Company to convert a portion of its foreign currency-denominated fixed and floating-rate, long-term debt to U.S. dollar LIBOR-based floating-rate debt (notional amount of $4.4 billion as of March 31, 2006). These transactions are generally designated as fair value hedges under SFAS 133. For the quarters ended March 31, 2006 and 2005, the Company recognized a pre-tax gain of $4.5 million and pre-tax gain of $0.8 million, respectively, representing the ineffective portion of such fair value hedges of debt. The change in fair value of the interest rate swap contracts together with the change in debt designated as fair value hedges are included in interest expense in the consolidated statements of earnings.

The Company acquires 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 $1.0 billion as of March 31, 2006) 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 $0.6 billion as of March 31, 2006). These transactions are designated as cash flow hedges under SFAS 133. For the quarters ended March 31, 2006 and 2005, the Company recognized no pre-tax gain or loss on the ineffective portion of cash flow hedges. As of March 31, 2006, deferred net gains or losses on derivative instruments included in accumulated 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 swap agreements 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 swap agreements in which the rate paid is fixed and the rate received is adjustable and is indexed to LIBOR (“Payor Swap”).

Risk Management Activities Related to Deposit Liabilities

The Company acquires interest rate swap contracts that have the effect of converting a portion of its fixed-rate deposit liabilities to LIBOR-based variable-rate deposit liabilities. These transactions are designated as fair value hedges. For the quarter ended March 31, 2006, the Company recognized a pre-tax gain of $0.1 million, representing the ineffectiveness relating to these swaps. For the quarter ended March 31, 2005, the Company recognized no pre-tax gain or loss on the ineffective portion of such fair value hedges of deposit liabilities.

11

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

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

Description of Risk Management Activities

In connection with its broker-dealer activities, the Company maintains a trading portfolio of fixed-income securities, primarily MBS. The Company is exposed to price changes in its trading portfolio arising from interest rate changes during the period it holds the securities. To manage this risk, the Company utilizes derivative instruments including: forward sales/purchases of To-Be Announced (“TBA”) MBS, short/long futures contracts, total rate of return swaps, interest rate swaps, and long put/call options on futures contracts.

Note 5—Mortgage Loans Held for Sale

Mortgage loans held for sale include the following:

	March 31, 2006		December 31, 2005
	(in thousands)
Prime mortgage	$	20,711,681	$	27,085,467
Nonprime mortgage	5,275,381		6,736,946
Prime home equity	5,027,027		1,948,874
Commercial real estate loans	1,051,605		1,089,262
Deferred premiums, discounts and fees, net	2,187		(52,364		)
	$	32,067,881	$	36,808,185

At March 31, 2006, the Company had pledged $10.6 billion and $0.7 billion in mortgage loans held for sale to secure asset-backed commercial paper and a secured revolving line of credit, respectively.

At December 31, 2005, the Company had pledged $13.0 billion and $3.0 billion in mortgage loans held for sale to secure asset-backed commercial paper and a secured revolving line of credit, respectively.

12

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

Note 6—Trading Securities

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

	March 31, 2006		December 31, 2005
	(in thousands)
Mortgage pass-through securities:
Fixed-rate	$	5,774,887	$	5,638,161
Adjustable-rate	843,448		915,302
Total mortgage pass-through securities	6,618,335		6,553,463
Collateralized mortgage obligations	2,525,694		2,377,764
U.S. Treasury securities	1,418,363		1,037,749
Obligations of U.S. Government-sponsored enterprises	687,430		429,726
Interest-only stripped securities	328,574		255,127
Asset-backed securities	284,694		234,818
Mark-to-market on TBA securities	204,234		77,094
Negotiable certificates of deposit	3,718		296
Other	1,903		16,536
	$	12,072,945	$	10,982,573

As of March 31, 2006, $9.9 billion of the Company’s trading securities had been pledged as collateral for financing purposes, of which the counterparty had the contractual right to sell or re-pledge $1.0 billion.

As of December 31, 2005, $9.0 billion of the Company’s trading securities had been pledged as collateral for financing purposes, of which the counterparty had the contractual right to sell or re-pledge $0.7 billion.

Note 7—Securities Purchased Under Agreements to Resell, Securities Borrowed and Federal Funds Sold

The following table summarizes securities purchased under agreements to resell, securities borrowed and federal funds sold:

	March 31, 2006		December 31, 2005
	(in thousands)
Securities purchased under agreements to resell	$	14,859,451	$	18,536,475
Securities borrowed	6,506,808		4,740,886
Federal funds sold	150,000		40,000
	$	21,516,259	$	23,317,361

As of March 31, 2006, the Company had accepted collateral with a fair value of $40.0 billion that it had the contractual ability to sell or re-pledge, including $18.5 billion related to amounts offset by securities sold under agreements to repurchase under master netting arrangements. As of March 31, 2006, the Company had re-pledged $35.9 billion of such collateral for financing purposes.

13

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

As of December 31, 2005, the Company had accepted collateral with a fair value of $33.7 billion that it had the contractual ability to sell or re-pledge, including $12.1 billion related to amounts offset by securities sold under agreements to repurchase under master netting arrangements. As of December 31, 2005, the Company had re-pledged $28.3 billion of such collateral for financing purposes.

Note 8—Loans Held for Investment, Net

Loans held for investment include the following:

	March 31, 2006			December 31, 2005
	(in thousands)
Mortgage loans:
Prime	$	53,463,593		$	48,617,139
Prime home equity	14,963,131			14,990,615
Nonprime	324,040			157,528
Total mortgage loans	68,750,764			63,765,282
Warehouse lending advances secured by mortgage loans	3,054,762			3,943,046
Defaulted mortgage loans repurchased from securitizations	1,440,236			1,370,169
	73,245,762			69,078,497
Purchase premium and deferred loan origination costs, net	1,034,120			938,224
Allowance for loan losses	(172,271		)	(151,274		)
Loans held for investment, net	$	74,107,611		$	69,865,447

Mortgage loans held for investment totaling $54.7 billion and $52.2 billion were pledged to secure Federal Home Loan Bank (“FHLB”) advances at March 31, 2006 and December 31, 2005, respectively.

Mortgage loans held for investment totaling $2.7 billion and $2.0 billion were pledged to secure an unused borrowing facility with the Federal Reserve Bank (“FRB”) at March 31, 2006 and December 31, 2005, respectively.

The Company had accepted collateral of $3.2 billion and $4.1 billion securing warehouse-lending advances that it had the contractual ability to re-pledge as of March 31, 2006 and December 31, 2005, respectively. No such mortgage loan collateral had been re-pledged as of March 31, 2006 and December 31, 2005.

14

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

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

	Quarters Ended March 31,
	2006			2005
	(in thousands)
Balance, beginning of period	$	189,201		$	125,046
Portion of beginning allowance allocated to other assets(1)	(37,927		)	—
	151,274			125,046
Provision for loan losses	63,138			19,622
Net charge-offs	(28,494		)	(9,752		)
Reclassification of allowance for unfunded commitments to accounts payable and accrued liabilities	(2,810		)	—
Other adjustments	(10,837		)	—
Balance, end of period	$	172,271		$	134,916

(1)   Loans held for investment at December 31, 2005, included loans that had been liquidated through foreclosure or deed-in lieu of foreclosure as of that date. Accordingly, the allowance for loan losses totaling $37.9 million related to $54.2 million in loans has been charged off in connection with the transfer of such loans to real estate acquired in settlement of loans.

15

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

Note 9—Investments in Other Financial Instruments, at Fair Value

Investments in other financial instruments include the following:

	March 31, 2006		December 31, 2005
	(in thousands)
Available-for-sale securities:
Mortgage-backed securities	$	6,581,362	$	6,866,520
Obligations of U.S. Government-sponsored enterprises	562,121		547,715
Municipal bonds	379,238		369,748
U.S. Treasury securities	144,115		144,951
Other	2,859		3,109
Subtotal	7,669,695		7,932,043
Interests retained in securitization accounted for as available-for-sale securities:
Prime interest-only and principal-only securities	319,461		323,368
Nonprime residual securities	172,698		206,033
Prime home equity line of credit transferor’s interest	157,997		158,416
Prime home equity residual securities	97,908		124,377
Prepayment penalty bonds	85,425		112,492
Prime residual securities	14,890		21,383
Prime home equity interest-only securities	12,872		15,136
Nonprime interest-only securities	7,786		9,455
Subordinated mortgage-backed pass-through securities	1,941		2,059
Total interests retained in securitization accounted for as available-for-sale securities	870,978		972,719
Total available-for-sale securities	8,540,673		8,904,762
Interests retained in securitization accounted for as trading securities:
Prime home equity residual securities	693,057		757,762
Prime interest-only and principal-only securities	318,571		180,216
Prime home equity line of credit transferor’s interest	262,300		95,514
Nonprime residual securities	243,796		341,106
Prime residual securities	39,497		43,244
Prepayment penalty bonds	24,407		—
Prime home equity interest-only securities	19,209		—
Interest rate swaps	8,833		782
Total interests retained in securitization accounted for as trading securities	1,609,670		1,418,624
Hedging instruments and mortgage pipeline derivatives:
Mortgage servicing	679,280		741,156
Mortgage loans held for sale	180,826		89,098
Notes payable	101,182		107,085
Total investments in other financial instruments	$	11,111,631	$	11,260,725

16

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

At March 31, 2006, the Company had pledged $1.0 billion of MBS to secure securities sold under agreements to repurchase, which the counterparty had the contractual right to re-pledge and $0.3 billion of MBS to secure an unused borrowing facility with the FRB.

At December 31, 2005, the Company had pledged $2.1 billion of MBS to secure securities sold under agreements to repurchase, which the counterparty had the contractual right to re-pledge and $0.3 billion of MBS to secure an unused borrowing facility with the FRB.

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

	March 31, 2006
	Amortized Cost		Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
	(in thousands)
Mortgage-backed securities	$	6,748,172		$	2,897	$	(169,707	)	$	6,581,362
Obligations of U.S. Government-sponsored enterprises	571,947			11		(9,837		)	562,121
Municipal bonds	384,873			342		(5,977		)	379,238
U.S. Treasury securities	144,889			948		(1,722		)	144,115
Interests retained in securitization	750,922			141,619		(21,563		)	870,978
Other	2,859			—		—			2,859
	$	8,603,662		$	145,817	$	(208,806	)	$	8,540,673

	December 31, 2005
	Amortized Cost		Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
	(in thousands)
Mortgage-backed securities	$	6,985,851		$	329	$	(119,660	)	$	6,866,520
Obligations of U.S. Government-sponsored enterprises	555,482			18		(7,785		)	547,715
Municipal bonds	371,785			1,115		(3,152		)	369,748
U.S. Treasury securities	144,840			1,326		(1,215		)	144,951
Interests retained in securitization	774,563			206,999		(8,843		)	972,719
Other	3,109			—		—			3,109
	$	8,835,630		$	209,787	$	(140,655	)	$	8,904,762

17

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

The Company’s available-for-sale securities in an unrealized loss position are as follows:

	March 31, 2006
	Less Than 12 Months						12 Months or More					Total
	Fair Value		Gross Unrealized Loss				Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss
	(in thousands)
Mortgage-backed securities	$	2,668,950		$	(49,942	)	$	3,804,340	$	(119,765	)	$	6,473,290	$	(169,707	)
Obligations of U.S. Government-sponsored enterprises	316,403			(3,112		)	215,692		(6,725		)	532,095		(9,837		)
Municipal bonds	225,803			(2,969		)	118,826		(3,008		)	344,629		(5,977		)
U.S. Treasury securities	95,257			(971		)	35,670		(751		)	130,927		(1,722		)
Interests retained in securitization	100,078			(15,285		)	72,610		(6,278		)	172,688		(21,563		)
Other	48			—			—		—			48		—
Total impaired securities	$	3,406,539		$	(72,279	)	$	4,247,138	$	(136,527	)	$	7,653,677	$	(208,806	)

	December 31, 2005
	Less Than 12 Months						12 Months or More						Total
	Fair Value		Gross Unrealized Loss				Fair Value		Gross Unrealized Loss				Fair Value		Gross Unrealized Loss
	(in thousands)
Mortgage-backed securities	$	4,468,055		$	(62,031	)	$	2,299,667		$	(57,629	)	$	6,767,722	$	(119,660	)
Obligations of U.S. Government-sponsored enterprises	328,679			(2,371		)	185,000			(5,414		)	513,679		(7,785		)
Municipal bonds	197,748			(1,655		)	71,620			(1,497		)	269,368		(3,152		)
U.S. Treasury securities	92,933			(772		)	22,055			(443		)	114,988		(1,215		)
Interests retained in securitization	29,148			(1,510		)	79,099			(7,333		)	108,247		(8,843		)
Other	50			—			—			—			50		—
Total impaired securities	$	5,116,613		$	(68,339	)	$	2,657,441		$	(72,316	)	$	7,774,054	$	(140,655	)

The Company’s Asset & Liability Committee assesses securities classified as available-for sale for other-than temporary impairment on a quarterly basis. This assessment evaluates whether the Company intends and is able to recover the amortized cost of the securities when taking into account the Company’s present investment objectives and liquidity requirements. The impairment reflected in these securities is a result of a change in market interest rates. Management has the intent and ability to hold these securities until they recover their amortized cost. Accordingly, other-than-temporary impairment related to these securities has not been recognized as of March 31, 2006 and December 31, 2005.

18

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

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

	Quarters Ended March 31,
	2006			2005
	(in thousands)
Mortgage-backed securities:
Gross realized gains	$	—		$	16
Gross realized losses	—			(51		)
Net	—			(35		)
Obligations of U.S. Government-sponsored enterprises:
Gross realized gains	—			13
Gross realized losses	(50		)	—
Net	(50		)	13
Municipal bonds:
Gross realized gains	33			—
Gross realized losses	(30		)	(100		)
Net	3			(100		)
Interests retained in securitization:
Gross realized gains	—			4,147
Gross realized losses	—			—
Net	—			4,147
Other:
Gross realized gains	—			1,253
Gross realized losses	—			—
Net	—			1,253
Total gains and losses on available-for-sale securities:
Gross realized gains	33			5,429
Gross realized losses	(80		)	(151		)
Net	$	(47	)	$	5,278

Note 10—Mortgage Servicing Rights

As noted in “Note 2—Adoption of Statement of Financial Accounting Standards No.156, Accounting For Servicing of Financial Assets,” the Company adopted SFAS 156 effective January 1, 2006. As a result of adopting SFAS 156 all separately recognized MSRs created in the securitization of, or in the sale of loans after December 31, 2005 are recognized initially at fair value. All MSRs are subsequently carried at fair value with changes in fair value recognized in current period earnings.

19

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

The activity in MSRs carried at fair value is as follows:

	Quarter Ended March 31, 2006
	(in thousands)
Mortgage Servicing Rights
Balance at beginning of period		$	12,610,839
Remeasurement to fair value upon adoption of SFAS 156		109,916
Fair value at beginning of period		12,720,755
Purchases of servicing assets		1,911
Servicing resulting from transfers of financial assets		1,209,424
Change in fair value:
Due to changes in valuation inputs or assumptions in valuation model(1)		978,281
Other changes in fair value(2)		(738,567		)
Balance at end of period		$	14,171,804

(1)Principally reflects changes in discount rates and prepayment speed assumptions, primarily due to changes in interest rates.

(2)Represents changes due to realization of expected cash flows.

The activity in MSRs carried at lower of cost or fair value is as follows:

	Quarter Ended March 31, 2005
	(in thousands)
Mortgage Servicing Rights
Balance at beginning of period		$	9,820,511
Additions		1,036,781
Amortization		(472,187		)
Balance before valuation allowance at end of period		10,385,105
Valuation Allowance for Impairment of Mortgage Servicing Rights
Balance at beginning of period		(1,090,582		)
Additions		452,434
Balance at end of period		(638,148		)
Mortgage Servicing Rights, net		$	9,746,957

The value of MSRs is derived from the net positive cash flows associated with the servicing contracts. The Company receives a servicing fee ranging generally from 0.125% to 0.50% annually on the remaining outstanding principal balances of the loans (“contractually specified servicing fee”). The Company generally receives other remuneration consisting of the ability to earn interest on collected funds during the period the funds are held pending remittance to investors, as well as rights to various mortgagor-contracted fees such as late charges, reconveyance charges and prepayment penalties. Contractually specified servicing fees, late charges, prepayment penalties and other ancillary fees are recorded as a

20

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

component of servicing fees and other income from MSRs and retained interests in the consolidated statements of earnings.

Our MSR valuation process combines the use of a sophisticated discounted cash flow model and extensive analysis of current market data 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 empirical data drawn from the historical performance of our MSRs, which we believe are consistent with assumptions used by market participants valuing similar MSRs, and from data obtained on the performance of similar MSRs. The key 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 current market data utilized in the MSR valuation process and in the assessment of the reasonableness of our valuation is obtained from MSR trades, MSR broker valuations, prices of interest-only securities, and peer group MSR valuation surveys.

The cash flow model and underlying prepayment and interest rate models used to value the MSRs are subjected to validation in accordance with the Company’s model validation policies. This process includes review of the theoretical soundness of the models and the related development process, back testing of actual results to model predictions, benchmarking to commercially available models and ongoing performance monitoring.

Note 11—Other Assets

Other assets include the following:

	March 31, 2006		December 31, 2005
	(in thousands)
Reimbursable servicing advances, net	$	1,674,041		$	1,947,046
Securities broker-dealer receivables	1,415,753			392,847
Investments in FRB and FHLB stock	1,364,083			1,334,100
Interest receivable	862,783			777,966
Receivables from custodial accounts	612,594			629,075
Restricted cash	439,426			429,556
Capitalized software, net	314,014			331,454
Cash surrender value of assets held in trust for deferred compensation plan	230,922			224,884
Prepaid expenses	223,734			187,377
Real estate acquired in settlement of loans	152,745			110,499
Receivables from sale of securities	144,609			325,327
Derivative margin accounts	68,995			296,005
Other assets	1,057,312			943,337
	$	8,561,011		$	7,929,473

The Company had pledged $1.4 billion and $0.1 billion of securities broker-dealer receivables to secure securities sold under agreements to repurchase at March 31, 2006 and December 31, 2005, respectively.

21

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

Note 12—Notes Payable

Notes payable consists of the following:

	March 31, 2006		December 31, 2005
	(in thousands)
FHLB advances	$	27,000,000	$	26,350,000
Medium-term notes:
Floating rate	14,452,828		14,466,765
Fixed-rate	11,609,212		11,503,592
	26,062,040		25,970,357
Asset-backed commercial paper	10,049,162		12,367,496
Unsecured commercial paper	3,434,125		6,248,508
Secured revolving line of credit	723,569		2,865,152
Asset-backed secured financings	3,246,294		22,998
Unsecured bank loans	450,000		730,000
Junior subordinated debentures	1,051,782		1,085,191
Subordinated debt	500,000		500,000
Convertible securities	—		10,544
LYONs convertible debentures	—		2,037
Other	37,256		35,603
	$	72,554,228	$	76,187,886

Federal Home Loan Bank Advances

During the quarter ended March 31, 2006, the Company obtained $2.9 billion of advances from the FHLB, which were all fixed-rate. At March 31, 2006, the Company had pledged $54.7 billion of mortgage loans to secure its outstanding FHLB advances and provide the ability to obtain future advances.

At December 31, 2005, the Company had pledged $52.2 billion of mortgage loans to secure its outstanding FHLB advances and provide the ability to obtain future advances.

Medium-Term Notes

During the quarter ended March 31, 2006, the Company issued the following medium-term notes:

	Outstanding Balance								Interest Rate					Maturity Date
	Floating-Rate			Fixed-Rate			Total		From			To		From	To
	(dollar amounts in thousands)
CFC Series A		$	—		$	76,366	$	76,366		5.75	%	6.00	%	January, 2031	February, 2036
CFC Series B		1,600,000			54,425		1,654,425			4.96	%	6.00	%	February, 2008	March, 2026
CHL Euro		927,516			—		927,516			4.85	%	5.28	%	March, 2007	February, 2011
Total		$	2,527,516		$	130,791	$	2,658,307

The $0.1 billion of fixed-rate medium-term notes issued by the Company during the quarter ended March 31, 2006 were effectively converted to floating-rate debt using interest rate swaps.

During the quarter ended March 31, 2006, the Company redeemed $2.5 billion of maturing medium-term notes.

22

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

As of March 31, 2006, $5.0 billion of foreign currency-denominated medium-term notes were outstanding. Such notes are denominated in Pounds Sterling, Canadian Dollars, Australian Dollars, Euros, Swiss Francs and Singapore Dollars. These notes have been effectively converted to U.S. dollars through currency swaps.

Asset-Backed Commercial Paper

The Company has formed two special purpose entities to finance certain of its mortgage loans held for sale using commercial paper. These entities issue commercial paper in the form of short-term secured liquidity notes (“SLNs”) with initial maturities of up to 180 days. The SLNs bear interest at prevailing money market rates approximating LIBOR. The SLN programs’ capacities, based on aggregate commitments from underlying credit enhancers, totaled $30.7 billion at March 31, 2006.

For the quarter ended March 31, 2006, the average borrowings under these facilities totaled $14.5 billion and the weighted-average interest rate of the SLNs was 4.60%. At March 31, 2006, the weighted-average interest rate of the SLNs was 4.76% and the Company had pledged $10.6 billion in mortgage loan inventory to secure the SLNs.

Unsecured Commercial Paper

The Company issues unsecured commercial paper using revolving credit facilities with a group of banks. The agreement allows the Company to borrow a maximum amount of $9.2 billion. For the quarter ended March 31, 2006 the average borrowings under this facility totaled $6.7 billion and the weighted average interest rate was 4.61%. At March 31, 2006 the weighted-average interest rate was 4.85%.

Asset-Backed Secured Financings

The Company has recorded certain securitization transactions as secured borrowings as of March 31, 2006 and December 31, 2005 because they did not qualify for sales treatment under SFAS 140 at these dates. The amounts accounted for as secured borrowings totaled $3.2 billion and $23.0 million at March 31, 2006 and December 31, 2005, respectively.

Secured Revolving Line of Credit

During 2004, the Company formed a special purpose entity for the purpose of financing inventory with funding provided by a group of bank-sponsored conduits that are financed through the issuance of asset-backed commercial paper. The entity incurs interest based on prevailing money market rates approximating the cost of asset-backed commercial paper. At March 31, 2006, the entity had aggregate commitments from the bank-sponsored conduits totaling $10.1 billion and had $0.7 billion of outstanding borrowings, secured by $0.7 billion of mortgage loans held for sale. For the quarter ended March 31, 2006, the average borrowings under this facility totaled $2.2 billion and the weighted-average interest rate was 4.46%. At March 31, 2006, the weighted-average interest rate was 4.65%.

Junior Subordinated Debentures

As more fully discussed in “Note 13—Notes Payable,” included in the consolidated financial statements of the 2005 Annual Report, the Company has issued junior subordinated debentures to non-

23

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

consolidated subsidiary trusts. The trusts finance their holdings of the junior subordinated debentures by issuing Company-guaranteed capital securities.

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

	March 31, 2006
	Countrywide Capital I			Countrywide Capital III
	(in thousands)
Balance Sheet:
Junior subordinated debentures receivable		$	307,435		$	205,280
Other assets		7,216			4,841
Total assets		$	314,651		$	210,121
Notes payable		$	9,224		$	6,172
Other liabilities		7,216			4,841
Company-obligated guaranteed redeemable capital trust pass-through securities		298,211			199,108
Shareholder’s equity		—			—
Total liabilities and shareholder’s equity		$	314,651		$	210,121

	Quarter Ended March 31, 2006
	Countrywide Capital I				Countrywide Capital III
	(in thousands)
Statement of Earnings:
Revenues		$	6,208			$	4,161
Expenses		(6,208		)		(4,161		)
Provision for income taxes		—				—
Net earnings		$	—			$	—

	December 31, 2005
	Countrywide Capital I			Countrywide Capital III
	(in thousands)
Balance Sheet:
Junior subordinated debentures receivable		$	307,412		$	205,269
Other assets		1,031			692
Total assets		$	308,443		$	205,961
Notes payable		$	9,223		$	6,172
Other liabilities		1,031			692
Company-obligated guaranteed redeemable capital trust pass-through securities		298,189			199,097
Shareholder’s equity		—			—
Total liabilities and shareholder’s equity		$	308,443		$	205,961

24

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

	Quarter Ended March 31, 2005
	Countrywide Capital I				Countrywide Capital III
	(in thousands)
Statement of Earnings:
Revenues		$	6,208			$	4,160
Expenses		(6,208		)		(4,160		)
Provision for income taxes		—				—
Net earnings		$	—			$	—

Subordinated Debt

During the year ended December 31, 2005, the Company issued $0.5 billion of unsecured subordinated notes maturing April 1, 2011. The notes pay interest quarterly at a floating rate and are callable on or after April 1, 2006. The notes are unsecured obligations of the Company and rank subordinated and junior to all of Countrywide’s senior indebtedness. None of these notes were converted to fixed-rate debt using interest rate swaps. At March 31, 2006, the weighted-average interest rate was 5.26%.

Convertible Securities and LYONs Convertible Debentures

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

In September 2004, the Company completed an exchange offer, through which LYONs were exchanged for convertible securities with terms similar to the LYONs, except for a provision to allow settlement in cash and stock upon the debentures’ conversion. As a result of the exchange offer, $637.2 million or 94.7% of the outstanding LYONs were exchanged for convertible securities during the year ended December 31, 2004. Since inception and during the year ended December 31, 2005, LYONs and convertible securities with a face value totaling $658.8 million and $84.8 million, respectively were surrendered for conversion by the security holders.

During the quarter ended March 31, 2006, the Company converted the remaining debt outstanding through the payment of cash and issuance of common stock.

Note 13—Securities Sold Under Agreements to Repurchase and Federal Funds Purchased

The following table summarizes securities sold under agreements to repurchase and federal funds purchased:

	March 31, 2006		December 31, 2005
	(in thousands)
Securities sold under agreements to repurchase	$	31,724,845	$	33,284,205
Federal funds purchased	875,000		869,000
	$	32,599,845	$	34,153,205

25

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

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

At March 31, 2006, repurchase agreements were secured by $9.9 billion of trading securities, $35.9 billion of securities purchased under agreements to resell and securities borrowed, $1.0 billion in investments in other financial instruments, and $1.4 billion of other assets. At March 31, 2006, $18.5 billion of the pledged securities purchased under agreements to resell and securities borrowed related to amounts offset against securities sold under agreements to repurchase pursuant to master netting agreements.

At December 31, 2005, repurchase agreements were secured by $9.0 billion of trading securities, $28.3 billion of securities purchased under agreements to resell and securities borrowed, $2.1 billion in investments in other financial instruments, and $0.1 billion of other assets. At December 31, 2005, $12.1 billion of the pledged securities purchased under agreements to resell and securities borrowed related to amounts offset against securities sold under agreements to repurchase pursuant to master netting agreements.

Note 14—Deposit Liabilities

The following table summarizes deposit balances:

	March 31, 2006			December 31, 2005
	(in thousands)
Time deposits:
Retail	$	15,404,450		$	13,434,338
Brokered	9,442,152			7,442,073
Company-controlled custodial deposit accounts	14,434,653			13,200,801
Money market accounts	4,907,895			4,466,195
Non-interest-bearing checking accounts	1,243,159			926,645
Savings accounts	1,145			823
	45,433,454			39,470,875
Basis adjustment through application of hedge accounting	(55,512		)	(31,959		)
	$	45,377,942		$	39,438,916

Note 15—Regulatory and Agency Capital Requirements

The Company is a bank holding company as a result of its acquisition of Countrywide Bank (the “Bank”) (formerly Treasury Bank). Both the Company and the Bank are subject to regulatory capital requirements imposed by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). The Company is also subject to U.S. Department of Housing and Urban Development, Fannie Mae, Freddie Mac and Government National Mortgage Association (“Ginnie Mae”) net worth requirements, which are lower than those of the Federal Reserve.

26

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

At March 31, 2006 and December 31, 2005, the Company and the Bank’s regulatory capital ratios and amounts and minimum required capital ratios for the Company and the Bank to maintain a “well capitalized” status were as follows:

	March 31, 2006
	Minimum			Countrywide Financial Corporation					Countrywide Bank
	Required(1)			Ratio			Amount		Ratio			Amount
	(dollar amounts in thousands)
Tier 1 Leverage Capital		5.0	%		6.8	%	$	13,187,557		7.2	%	$	5,597,873
Risk-Based Capital:
Tier 1		6.0	%		11.6	%	$	13,187,557		12.0	%	$	5,597,873
Total		10.0	%		12.7	%	$	14,477,045		12.3	%	$	5,732,138

(1)Minimum required to qualify as “well capitalized.”

	December 31, 2005
	Minimum			Countrywide Financial Corporation					Countrywide Bank
	Required(1)			Ratio			Amount		Ratio			Amount
	(dollar amounts in thousands)
Tier 1 Leverage Capital		5.0	%		6.3	%	$	12,564,162		7.3	%	$	5,343,675
Risk-Based Capital:
Tier 1		6.0	%		10.7	%	$	12,564,162		12.2	%	$	5,343,675
Total		10.0	%		11.7	%	$	13,760,176		12.5	%	$	5,457,019

(1)Minimum required to qualify as “well capitalized.”

27

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

Note 16—Supplemental Cash Flow Information

The following table presents supplemental cash flow information:

	Quarters Ended March 31,
	2006			2005
	(in thousands)
Cash used to pay interest	$	1,861,937		$	944,704
Cash used to pay income taxes	6,269			21,267
Non-cash investing activities:
Unrealized loss on available-for-sale securities, foreign currency translation adjustments and cash flow hedges, net of tax	(87,517		)	(46,271		)
Servicing resulting from transfer of financial assets	1,209,424			941,364
Retention of other financial instruments in securitization transactions	285,253			469,524
Non-cash financing activities:
Decrease in Mortgage Loans Held in SPEs and asset-backed secured financings	—			(10,563,299		)
Issuance of common stock for conversion of convertible debt	1,465			1,605
Tax effect of interest on conversion of convertible debt	—			1,938
Remeasurement of fair value upon adoption of SFAS 156, net of tax	67,065			—

Note 17—Segments and Related Information

The Company has five business segments: Mortgage Banking, Banking, Capital Markets, 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 originates prime and nonprime loans through a variety of channels on a national scale. The Loan Production Sector is comprised of four lending divisions of Countrywide Home Loans and also includes the mortgage banking activities of Countrywide Bank. The four production divisions are: the Consumer Markets Lending Division, the Full Spectrum Lending Division, the Wholesale Lending Division and the Correspondent Lending Division. The Consumer Markets and Full Spectrum Lending Divisions source mortgage loans directly from consumers through the Company’s retail branch network and call centers, as well as through real estate agents and homebuilders. The Wholesale Lending Division sources mortgage loans primarily from mortgage brokers. The Correspondent Lending Division acquires mortgage loans from other mortgage lenders, including financial institutions.

The Loan Servicing Sector includes investments in MSRs and retained interests, as well as the Company’s loan servicing operations and subservicing for other domestic financial institutions. The Loan Closing Services Sector 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.

28

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

The Banking Segment’s operations include the investment and fee-based activities of Countrywide Bank together with the activities of Countrywide Warehouse Lending. Countrywide Bank invests primarily in mortgage loans sourced from the Loan Production Sector. Countrywide Warehouse Lending provides third-party mortgage lenders with temporary financing secured by mortgage loans.

The Capital Markets Segment primarily includes the operations of Countrywide Securities Corporation, a registered broker-dealer specializing in the mortgage securities market. It also includes the operations of Countrywide Asset Management Corporation, Countrywide Commercial Real Estate Finance Inc., Countrywide Servicing Exchange, CCM International Ltd, CCM Asia Ltd, Countrywide Alternative Investments and CSC Futures, Inc.

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

The Global Operations Segment includes Global Home Loans Limited, a provider of loan origination processing and loan subservicing in the United Kingdom; UKValuation Limited, a provider of property valuation services in the UK; Countrywide International Technology Holdings Limited, a licensor of loan origination processing, servicing and residential real estate value assessment technology; and CFC India Private Limited, a provider of call center, data processing and information technology related services.

Intercompany transactions are generally recorded on an arms-length basis. However, the fulfillment fees paid by Countrywide Bank to the Production Sector for origination costs incurred on mortgage loans funded by Countrywide Bank are determined on an incremental cost basis, which may be less than the fees that Countrywide Bank would pay to a third party.

29

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

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

	Quarter Ended March 31, 2006
	Mortgage Banking
	Loan Production			Loan Servicing		Closing Services		Total		Banking			Capital Markets		Insurance		Global Operations			Other			Total Consolidated
	(in thousands)
Revenues:
External	$	1,347,106		$	294,705	$	71,628	$	1,713,439	$	585,607		$	203,752	$	303,147		$	35,078	$	(5,075	)	$	2,835,948
Intersegment	(5,507		)	175,131		—		169,624		(133,975		)	59,371		—			—		(95,020		)	—
Total Revenues	$	1,341,599		$	469,836	$	71,628	$	1,883,063	$	451,632		$	263,123	$	303,147		$	35,078	$	(100,095	)	$	2,835,948
Pre-tax Earnings (Loss)	$	284,149		$	248,718	$	22,207	$	555,074	$	341,086		$	155,573	$	64,943		$	10,168	$	(7,481	)	$	1,119,363
Total Assets	$	30,995,635		$	22,676,131	$	78,042	$	53,749,808	$	79,879,555		$	41,628,089	$	2,304,310		$	148,927	$	(118,633	)	$	177,592,056

	Quarter Ended March 31, 2005
	Mortgage Banking
	Loan Production			Loan Servicing		Closing Services		Total		Banking			Capital Markets		Insurance		Global Operations			Other			Total Consolidated
	(in thousands)
Revenues:
External	$	1,467,960		$	129,248	$	60,592	$	1,657,800	$	333,654		$	169,426	$	223,469		$	55,114	$	(34,578	)	$	2,404,885
Intersegment	(16,414		)	60,237		—		43,823		(37,356		)	34,483		—			—		(40,950		)	—
Total Revenues	$	1,451,546		$	189,485	$	60,592	$	1,701,623	$	296,298		$	203,909	$	223,469		$	55,114	$	(75,528	)	$	2,404,885
Pre-tax Earnings (Loss)	$	734,657		$	17,189	$	19,785	$	771,631	$	215,940		$	122,047	$	54,577		$	4,039	$	(19,237	)	$	1,148,997
Total Assets	$	25,190,922		$	15,965,261	$	59,297	$	41,215,480	$	54,560,495		$	38,908,055	$	1,865,056		$	282,260	$	201,695		$	137,033,041

30

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

Note 18—Summarized Financial Information

Summarized financial information for Countrywide Financial Corporation (parent only) and subsidiaries is as follows:

	March 31, 2006
	Countrywide Financial Corporation (Parent Only)		Countrywide Home Loans, Inc. (Consolidated)			Other Subsidiaries		Eliminations			Consolidated
	(in thousands)
Balance Sheets:
Mortgage loans held for sale	$	—		$	28,683,481	$	3,454,372	$	(69,972	)	$	32,067,881
Trading securities	—			328,574		11,770,735		(26,364		)	12,072,945
Securities purchased under agreements to resell, securities borrowed and federal funds sold	—			—		22,329,558		(813,299		)	21,516,259
Loans held for investment, net	—			5,056,614		69,056,199		(5,202		)	74,107,611
Investments in other financial instruments	10,065			2,153,574		9,015,622		(67,630		)	11,111,631
Mortgage servicing rights, at fair value	—			14,165,587		6,217		—			14,171,804
Other assets	29,478,612			10,223,696		12,623,605		(39,781,988		)	12,543,925
Total assets	$	29,488,677		$	60,611,526	$	128,256,308	$	(40,764,455	)	$	177,592,056
Notes payable	$	15,582,086		$	31,737,788	$	34,692,964	$	(9,458,610	)	$	72,554,228
Securities sold under agreements to repurchase and federal funds purchased	—			1,043,191		32,369,732		(813,078		)	32,599,845
Deposit liabilities	—			—		45,464,710		(86,768		)	45,377,942
Other liabilities	400,338			23,719,998		6,372,022		(16,938,570		)	13,553,788
Equity	13,506,253			4,110,549		9,356,880		(13,467,429		)	13,506,253
Total liabilities and equity	$	29,488,677		$	60,611,526	$	128,256,308	$	(40,764,455	)	$	177,592,056

	Quarter Ended March 31, 2006
	Countrywide Financial Corporation (Parent Only)				Countrywide Home Loans, Inc. (Consolidated)			Other Subsidiaries		Eliminations				Consolidated
	(in thousands)
Statements of Earnings:
Revenues		$	(10,060	)		$	1,703,605	$	1,340,357		$	(197,954	)		$	2,835,948
Expenses		4,103				1,234,457		611,887			(133,862		)		1,716,585
(Benefit) provision for income taxes		(5,573		)		176,662		290,034			(25,271		)		435,852
Equity in net earnings of subsidiaries		692,101				—		—			(692,101		)		—
Net earnings		$	683,511			$	292,486	$	438,436		$	(730,922	)		$	683,511

31

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

	December                31, 2005
	Countrywide Financial Corporation (Parent Only)		Countrywide Home Loans, Inc. (Consolidated)			Other Subsidiaries		Eliminations			Consolidated
	(in thousands)
Balance Sheets:
Mortgage loans held for sale	$	—		$	35,349,126	$	1,445,383	$	13,676		$	36,808,185
Trading securities	—			255,127		10,729,483		(2,037		)	10,982,573
Securities purchased under agreements to resell, securities borrowed and federal funds sold	—			710,000		24,171,178		(1,563,817		)	23,317,361
Loans held for investment, net	—			5,588,767		64,279,238		(2,558		)	69,865,447
Investments in other financial instruments	7,324			1,969,097		9,284,304		—			11,260,725
Mortgage servicing rights, net	—			12,604,453		6,386		—			12,610,839
Other assets	29,460,533			8,748,527		13,305,967		(41,274,787		)	10,240,240
Total assets	$	29,467,857		$	65,225,097	$	123,221,939	$	(42,829,523	)	$	175,085,370
Notes payable	$	16,347,891		$	36,181,800	$	35,152,400	$	(11,494,205	)	$	76,187,886
Securities sold under agreements to repurchase and federal funds purchased	—			1,844,789		33,871,846		(1,563,430		)	34,153,205
Deposit liabilities	—			—		39,559,051		(120,135		)	39,438,916
Other liabilities	304,106			23,439,496		5,723,435		(16,977,534		)	12,489,503
Equity	12,815,860			3,759,012		8,915,207		(12,674,219		)	12,815,860
Total liabilities and equity	$	29,467,857		$	65,225,097	$	123,221,939	$	(42,829,523	)	$	175,085,370

	Quarter Ended March 31, 2005
	Countrywide Financial Corporation (Parent Only)				Countrywide Home Loans, Inc. (Consolidated)			Other Subsidiaries			Eliminations				Consolidated
	(in thousands)
Statements of Earnings:
Revenues		$	(2,515	)		$	1,670,689		$	832,839		$	(96,128	)		$	2,404,885
Expenses		6,771				885,460			448,221			(84,564		)		1,255,888
(Benefit) provision for income taxes		(3,714		)		318,144			150,318			(4,603		)		460,145
Equity in net earnings of subsidiaries		694,424				—			—			(694,424		)		—
Net earnings		$	688,852			$	467,085		$	234,300		$	(701,385	)		$	688,852

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COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

Note 19—Borrower and Investor Custodial Accounts

As of March 31, 2006 and December 31, 2005, the Company managed $23.4 billion and $22.0 billion, respectively, of off-balance sheet borrower and investor custodial cash accounts. Of these amounts, $14.4 billion and $13.2 billion, respectively, were deposited at the Bank and were included in the Company’s deposit liabilities, with the remaining balances deposited with other depository institutions. These custodial accounts arise in connection with the Company’s mortgage servicing activities.

Note 20—Legal Proceedings

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

Note 21—Loan Commitments

As of March 31, 2006 and December 31, 2005, the Company had undisbursed home equity lines of credit commitments of $7.5 billion and $7.2 billion, respectively, as well as undisbursed construction loan commitments of $1.4 billion and $1.5 billion, respectively. As of March 31, 2006, outstanding commitments to fund mortgage loans totaled $42.3 billion.

Note 22—Subsequent Events

On April 27, 2006, the Company announced that its Board of Directors declared a dividend of $0.15 per common share payable May 31, 2006 to shareholders of record on May 12, 2006.

Note 23—Recently Issued Accounting Pronouncements

In February 2006, the FASB issued Statement of Financial Accounting Standards No. 155, “Accounting for Certain Hybrid Financial Instruments” (“SFAS 155”), an amendment of SFAS 133 and SFAS 140.  This statement:

·  permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation;

·  clarifies which interest-only strips and principal-only strips are not subject to SFAS 133;

·  establishes a requirement to evaluate interests in securitized financial instruments that contain an embedded derivative requiring bifurcation;

·  clarifies that concentration of credit risks in the form of subordination are not embedded derivatives; and

·  amends SFAS 140 to eliminate the prohibition on a QSPE from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. 

SFAS 155 is effective for all financial instruments acquired or issued after the beginning of an entity's first fiscal year that begins after September 15, 2006.  The Company has not determined the financial impact of the adoption of SFAS 155.

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

Overview

Countrywide is a diversified financial services company engaged in mortgage-finance related businesses. We presently organize our businesses into five business segments—Mortgage Banking, Banking, Capital Markets, Insurance and Global Operations. Our goal is to continue as a leader in the mortgage banking business and to use this leadership position to take advantage of meaningful opportunities that build upon this business and provide sources of earnings that tend to be sustainable in various interest rate environments.

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.

First Quarter Results

The first quarter of 2006 was characterized by both rising interest rates and a relatively flat yield curve. This interest rate environment caused a decline in the amount of mortgage originations nationally when compared to both the first quarter of 2005 and the immediately preceding quarter; however, due to market share increases, our mortgage loan production in the first quarter of 2006 increased from the first quarter of 2005. The interest rate environment that prevailed in the quarter ended March 31, 2006 also had a negative effect on mortgage loan production profitability when compared to the quarter ended March 31, 2005 as a result of increased price competition. However, the profitability of our loan production activities improved when compared to the fourth quarter of 2005 because of improvements in market conditions. Our consolidated net earnings for the first quarter of 2006 were $683.5 million, a decrease of 1% from 2005’s first quarter net earnings of $688.9 million. The decrease in our earnings resulted primarily from a 28% decrease in the profitability of our Mortgage Banking Segment, partially offset by a 58% increase in profitability of our Banking Segment.

The decline in our Mortgage Banking Segment’s profitability was primarily due to a decline in the profitability of our Loan Production Sector, partially offset by improved profitability in our Loan Servicing Sector. Our Loan Production Sector was affected by lower margins combined with increased operating expenses as the Company continued to build its mortgage loan production capacity. Our Loan Servicing Sector benefited from growth in our servicing portfolio, an increase in escrow balance earnings and an increase in the value of our MSRs and other retained interests, net of the Servicing Hedge. The decline in our Mortgage Banking Segment’s profitability was partially offset by an increase in profitability of our Banking Segment due primarily to a 68% increase in average interest-earning assets in our Banking Operations from the year-ago period.

Mortgage Market

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

For the quarter ended March 31, 2006, total U.S. residential mortgage production was estimated at $610 billion, compared to $669 billion for the quarter ended March 31, 2005. Based on internal mortgage market estimates, we increased our market share to 17.0% for the current quarter from 13.7% in the year-ago period. We believe that we increased our share of the mortgage market due to operational effectiveness resulting from larger sales operations rather than aggressive pricing.

Third party forecasters predict total U.S. mortgage production for 2006 to be between $2.2 trillion and $2.4 trillion, compared to $2.8 trillion in 2005. Due to differences in products represented and estimation

34

methods, mortgage market estimates vary. We estimate the mortgage market for 2006 to be $2.6 trillion compared to $3.3 trillion in 2005.

Loan Production

Our total loan production volume increased during the first quarter because we increased our share of a smaller mortgage market. Our adjustable rate loan production has decreased from 53% of the total to 50%, reflecting the decreased relative attractiveness of these loans compared to fixed-rate loans as the yield curve flattens. While adjustable rate production has decreased as a percentage of total production, pay option loans have continued to increase their representation in adjustable-rate production, from approximately 17% of our loan production during the quarter ended March 31, 2005, to approximately 19% of our production during the quarter ended March 31, 2006.

Pay-option loans differ from “traditional” monthly-amortizing loans by providing borrowers with the option to make fully amortizing, interest-only, or “negative-amortizing” payments. We view these loans as a profitable product that does not create disproportionate credit risk. Our pay-option loan portfolio has very high initial loan quality, with original average FICO scores (a measure of credit rating) of 721 and original loan-to-value and combined loan-to-values of 75% and 78%, respectively. We only originate pay-option loans to borrowers who can qualify at the loan’s fully indexed interest rates. This high credit quality notwithstanding, lower initial payment requirements of pay-option loans may increase the credit risk inherent in our loans held for investment. This is because when the required monthly payments for pay-option loans eventually increase (in a period not to exceed 10 years), borrowers may be less able to pay the increased amounts and, therefore, more likely to default on the loan, than a borrower using a more traditional monthly-amortizing loan.

Interest Rate Risk and Credit Risk

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. Market risk is most directly reflected in the value of our interest rate lock commitments, inventory of loans held for sale, trading securities, investment in other financial instruments and mortgage servicing rights (“MSRs”). We manage market risk primarily through the natural counterbalance of our loan production operations and our investment in MSRs, as well as with various financial instruments including derivatives. The primary 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 lending activities in both the Mortgage Banking and Banking Segments. 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 has historically most directly affected our investment in other financial instruments that are credit subordinated to other securities. As our investment in mortgage loans held for investment increases, credit risk related to these loans is becoming a more prominent component of our credit risk profile. We manage mortgage credit risk by underwriting our mortgage loan production to secondary market standards and by limiting credit recourse to Countrywide in our loan sales and securitization transactions.

Liquidity and Capital

Our liquidity and financing requirements are significant. We meet these requirements in a variety of ways, including use of the public corporate debt and equity markets, mortgage- and asset-backed securities markets, and through the financing activities of our Bank. The objective of our liquidity management is to ensure that adequate, diverse and reliable sources of cash are available to meet our funding needs on a

35

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.

How we grow our businesses and meet our financing needs is influenced by regulatory agency and public debt rating agency capital requirements. These requirements influence the nature of the financing we are able to obtain and the rate at which we are able to grow. At March 31, 2006, we exceeded the regulatory capital requirements to be classified as “well capitalized,” with a tier 1 leverage capital ratio of 6.8% and total risk based ratio of 12.7%. Our public ratings were classified “investment grade,” with long-term ratings of A, A3 and A by Standard & Poors, Moody’s Investors Service and Fitch, respectively.

Competition

The mortgage industry continues to undergo consolidation and we expect this trend to continue. The mortgage-lending industry is dominated by large, sophisticated financial institutions. To compete effectively in the future, we will be required to maintain a high level of operational, technological, and managerial expertise, as well as an ability to attract capital at a competitive cost. We believe that we will benefit from industry consolidation through increased market share and enhanced ability to recruit talented personnel.

Critical Accounting Policies

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 retained interests, and our use of derivatives to manage interest rate risk. Our critical accounting policies involve the following three areas: 1) accounting for gains on sales of loans and securities; 2) accounting for MSRs and retained interests, including valuation of these retained interests; and 3) accounting for derivatives and our related interest rate risk management activities.

During the current period, we adopted Statement of Financial Accounting Standards No. 156—Accounting for Servicing of Financial Assets (“SFAS 156”), which amends Statement of Financial Accounting Standards No. 140 - Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (“SFAS 140”). SFAS 156 changes the accounting for, and reporting of, the recognition and measurement of separately recognized servicing assets and liabilities. Accordingly, the adoption of SFAS 156 has changed the Company’s accounting policies relating to gain on sale of loans and securities and the accounting for MSRs subsequent to their initial recognition effective January 1, 2006. A discussion of the critical accounting policies applied through December 31, 2005, are included in our 2005 Annual Report.

Gain on Sale of Loans and Securities

Most of the mortgage loans we produce are sold in the secondary mortgage market, primarily in the form of securities and to a lesser extent as whole loans. When we sell loans in the secondary mortgage market, we generally do not sell the MSRs that are created. Depending on the type of securitization, we may retain interests, including interest-only securities, principal-only securities and residual 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 proceeds we receive from the sale, which includes cash and other assets obtained (MSRs) and the cost allocated to the securities or loans sold. The timing of such gain recognition is dependent on meeting very specific accounting criteria and, as a result, the gain on sale may be recorded in a different accounting period from when the transfer is completed.

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Here is an example of how this accounting works:

Carrying value of mortgage loans underlying a security(1)	$	1,000,000
Fair values:
Security	$	998,000
MSRs	10,000
Retained interests	4,000
Sales proceeds:
Cash	$	998,000
MSRs	10,000
	$	1,008,000
Fair value used to allocate basis:
Loans sold	$	1,008,000
Retained interests	4,000
	$	1,012,000
Computation of gain on sale of security:
Sales proceeds	$	1,008,000
Less: Cost allocated to loans sold ($1,000,000 ´ ($1,008,000÷$1,012,000))	996,047
Gain on sale	$	11,953
Initial recorded value of retained interests ($1,000,000 - $996,047)	$	3,953

(1)The carrying value of mortgage loans includes the outstanding principal balance of the loans, net of deferred origination costs and fees, any premiums or discounts and any basis adjustment resulting from hedge accounting.

Accounting for MSRs and Retained Interests

Effective January 1, 2006, we adopted SFAS 156 and we have elected to account for MSRs relating to residential mortgages at fair value with changes in fair value recorded in current period earnings. Therefore, we no longer record periodic amortization or evaluate MSRs for impairment.

Retained interests are carried at estimated fair value. Retained interests are designated as trading or available-for-sale securities at the time of securitization. Changes in fair value of retained interests accounted for as trading securities are recognized in current-period earnings. Changes in fair value of retained interests classified as available-for-sale securities are recognized as a component of shareholders’ equity (net of tax). If a security classified as available-for-sale is impaired and the impairment is deemed to be other than temporary, the impairment is recognized in current-period earnings. Once we record this impairment, we recognize subsequent increases in the value of these retained interests in earnings over the estimated remaining life of the investment through a higher effective yield.

Results of Operations Comparison—Quarters Ended March 31, 2006 and 2005

Consolidated Earnings Performance

Net earnings for the quarter ended March 31, 2006 were $683.5 million, a 1% decrease from the year-ago period. Our diluted earnings per share were $1.10, a 3% decrease from the year-ago period.

The decrease in our earnings resulted primarily from a decrease in the profitability of our Mortgage Banking Segment which produced pre-tax earnings of $555.1 million for the quarter ended March 31, 2006, a decrease of 28% from the same period last year. The decrease in the profitability of our Mortgage

37

Banking Segment was primarily due to a decline in the profitability of our Loan Production Sector, which was the result of lower margins combined with increased operating expenses as the Company continued to build its production infrastructure. This decline in the Production Sector pre-tax earnings was partially offset by improved profitability in our Loan Servicing Sector resulting from a 30% increase in our average servicing portfolio, a $129.5 million increase in escrow balance income and an increase in the value of our MSRs and other retained interest, net of the Servicing Hedge.

The Banking Segment produced pre-tax earnings of $341.1 million, an increase of 58% from the year-ago period. The increase in profitability of our Banking Segment was primarily due to a 68% increase in average interest-earning assets at Countrywide Bank from the year-ago period.

Operating Segment Results

Pre-tax earnings (loss) by segment are summarized below:

	Quarters Ended March 31,
	2006			2005
	(in thousands)
Mortgage Banking:
Loan Production	$	284,149		$	734,657
Loan Servicing	248,718			17,189
Loan Closing Services	22,207			19,785
Total Mortgage Banking	555,074			771,631
Banking	341,086			215,940
Capital Markets	155,573			122,047
Insurance	64,943			54,577
Global Operations	10,168			4,039
Other	(7,481		)	(19,237		)
Total	$	1,119,363		$	1,148,997

The pre-tax earnings (loss) of each segment include intercompany transactions, which are eliminated in the “other” category above.

Mortgage loan production by segment and product, net of intercompany sales, is summarized below:

	Quarters Ended March 31,
	2006		2005
	(in millions)
Segment:
Mortgage Banking	$	93,452	$	78,749
Banking	5,959		8,521
Capital Markets:
Conduit acquisitions(1)	4,007		4,190
Commercial real estate	966		564
	$	104,384	$	92,024
Product:
Prime Mortgage	$	83,150	$	72,877
Prime Home Equity	11,063		8,763
Nonprime Mortgage	9,205		9,820
Commercial real estate	966		564
	$	104,384	$	92,024

(1)Acquisitions from third parties

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

	Quarters Ended March 31,
	2006		2005
	(in millions)
Purpose:
Non-purchase	$	57,424	$	50,477
Purchase	46,960		41,547
	$	104,384	$	92,024
Interest Rate Type:
Fixed Rate	$	52,583	$	43,322
Adjustable Rate	51,801		48,702
	$	104,384	$	92,024

Mortgage Banking Segment

The Mortgage Banking Segment includes the Loan Production, Loan Servicing and Loan Closing Services Sectors. The Loan Production and Loan Closing Services Sectors generally perform most profitably when mortgage interest rates are relatively low and the demand for mortgage loans is high. Conversely, the Loan Servicing Sector generally performs well when mortgage interest rates are relatively high and loan prepayments are low. We expect the natural counterbalance of these sectors to continue to reduce the impact of changes in mortgage interest rates on our earnings.

Loan Production Sector

The Loan Production Sector produces mortgage loans through the four production divisions of Countrywide Home Loans (“CHL”)—Consumer Markets, Wholesale Lending, Correspondent Lending and Full Spectrum Lending, and, beginning in the third quarter of 2005, through Countrywide Bank.

Mortgage Banking loan production volume for the quarter ended March 31, 2006 increased 19% from the year-ago period. Purchase and non-purchase loan production grew 18% and 19%, respectively, resulting from an increase in market share. The increase in purchase loans is significant because this component of the mortgage market has historically offered relatively stable growth, averaging 12% per year over the last 10 years. The non-purchase, or refinance, component of the mortgage market is highly volatile because it is driven almost exclusively by prevailing mortgage interest rates.

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

	Quarters Ended March 31,
	2006		2005
	(in millions)
Purpose:
Non-purchase	$	51,520	$	43,335
Purchase	41,932		35,414
	$	93,452	$	78,749
Interest Rate Type:
Fixed Rate	$	52,472	$	40,198
Adjustable Rate	40,980		38,551
	$	93,452	$	78,749

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In the quarter ended March 31, 2006, 44% of our loan production was adjustable-rate in comparison to 49% in the year-ago period. The decrease in adjustable-rate production reflects the increase in short-term interest rates during the current period and the relatively flat yield curve, increasing the relative attractiveness of fixed-rate financing.

The volume of Nonprime Mortgage and Prime Home Equity Loans produced (which is included in our total volume of loans produced) increased 19% during the quarter ended March 31, 2006 compared to the year-ago period. Details are shown in the following table:

	Quarters Ended March 31,
	2006		2005
	(dollar amounts in millions)
Prime Home Equity Loans	$	9,528	$	6,619
Nonprime Mortgage Loans	8,099		8,187
	$	17,627	$	14,806

The pre-tax earnings of the Loan Production Sector are summarized below:

	Quarters Ended March 31,
	2006					2005
	Amount		Percentage of Loan Production Volume			Amount		Percentage of Loan Production Volume
	(dollar amounts in thousands)
Revenues:
Prime Mortgage	$	1,003,369				$	873,230
Nonprime Mortgage	183,933					395,006
Prime Home Equity	154,297					183,310
Total revenues	1,341,599			1.44	%	1,451,546			1.84	%
Expenses:
Compensation	597,232			0.64	%	420,592			0.53	%
Other operating	317,669			0.34	%	209,924			0.27	%
Allocated corporate	142,549			0.16	%	86,373			0.11	%
Total expenses	1,057,450			1.14	%	716,889			0.91	%
Pre-tax earnings	$	284,149		0.30	%	$	734,657		0.93	%
Total Mortgage Banking loan production	$	93,452,000				$	78,749,000

Despite an increase in loan production, revenues (in dollars and expressed as a percentage of mortgage loans produced) decreased from the year-ago period. Production Sector revenues were affected by market price pressure and by the effect of flattening of the yield curve on the net interest income earned while we hold loans for sale. Normally, a decline in net interest income caused by a flatter yield curve would be mitigated by an increase in gain on sale, but in the current quarter this was hindered by pricing pressure. In the quarter ended March 31, 2006, $89.7 billion of mortgage loans, or 96% of Mortgage Banking loan production, was sold compared to $75.4 billion of mortgage loans, or 96% of Mortgage Banking loan production, in the quarter ended March 31, 2005.

Expenses increased from the year-ago period, primarily due to increased compensation and occupancy costs incurred to accommodate growth in loan production and to expand our loan production operations to support the achievement of our long-term objective of market share growth.

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During the quarter ended March 31, 2006, the Loan Production Sector operated at approximately 88% of planned operational capacity, compared to 102% during the year-ago period. This decline reflects the seasonal slowdown in loan production, which we expect to reverse later in the year. The seasonal slowdown in the quarter ended March 31, 2005 was muted by higher nonpurchase production due primarily to lower interest rates. 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 our loan operations personnel by the number of loans we expect each loan operations staff person to process under normal conditions. Management adjusts staffing levels to account for changes in the current and projected near-term mortgage market. We plan to continue building our sales staff as a primary means to increase our market share, particularly for purchase loans.

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

	Workforce at March 31,
	2006	2005
Sales	17,041	13,110
Operations:
Regular employees	9,254	7,999
Temporary staff	1,643	1,023
	10,897	9,022
Production technology	1,330	1,060
Administration and support	3,272	2,278
Total Loan Production Sector workforce	32,540	25,470

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

	Quarters Ended March 31,
	2006		2005
	(in millions)
Correspondent Lending	$	37,187	$	33,307
Consumer Markets	23,476		23,697
Wholesale Lending	18,876		17,357
Full Spectrum Lending	7,313		4,388
Countrywide Bank	6,600		—
	$	93,452	$	78,749

The Correspondent Lending division increased its overall loan production volume because consumer preference shifted towards agency conforming and pay-option loans, both of which are products in which the division dominates the market.

The Consumer Markets Division’s commissioned sales force contributed $9.9 billion in purchase originations during the quarter ended March 31, 2006, a 9% increase over the year-ago period. Such purchase production generated by the commissioned sales force represented 78% of the Consumer Markets Division’s total purchase production for the quarter ended March 31, 2006. The Consumer Markets Division continues to expand its commissioned sales force, which emphasizes purchase loan production, to 6,081 at March 31, 2006, an increase of 1,203, or 25%, over the year-ago period. This Division’s branch network has grown to 691 branch offices at March 31, 2006, an increase of 99 offices from March 31, 2005.

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The Wholesale Lending and Full Spectrum Lending Divisions also continue to increase their sales forces as a means to increase market share. At March 31, 2006, the sales force in the Wholesale Lending Division numbered 1,412, an increase of 22% compared to March 31, 2005. The Full Spectrum Lending Division expanded its commissioned sales force to 4,537, an increase of 52%, compared to March 31, 2005 and has expanded its branch network to 204 branch offices at March 31, 2006, an increase of 36 offices over the year-ago period.

Loan Servicing Sector

The Loan Servicing Sector includes approximately 8,300 employees who service the 7.6 million mortgage loans in our servicing portfolio. The Loan Servicing Sector’s results include fees and other income earned and expenses incurred for servicing loans for others; the financial performance of our investments in MSRs and retained interests and associated risk management activities; and profits from subservicing activities in the United States. The long-term performance of this sector is affected primarily by the level of interest rates, the corresponding effect on the level of projected and actual prepayments in our servicing portfolio, our operational effectiveness and our ability to manage interest rate risk.

Our servicing portfolio grew to $1,152.7 billion at March 31, 2006, a 29% increase from March 31, 2005. At the same time, the overall weighted-average note rate of loans in our servicing portfolio increased to 6.2% from 5.9% at March 31, 2005.

The following table summarizes the results for the Loan Servicing Sector:

	Quarters Ended March 31,
	2006						2005
	Amount			Percentage of Average Servicing Portfolio(1)			Amount			Percentage of Average Servicing Portfolio(1)
	(dollar amounts in thousands)
Servicing fees, net of guarantee fees	$	913,462			0.326	%	$	720,317			0.335	%
Miscellaneous fees	144,383				0.052	%	114,644				0.054	%
Income from retained interests	133,973				0.048	%	116,975				0.054	%
Escrow balance income	160,027				0.057	%	30,529				0.014	%
Realization of expected cash flows from mortgage servicing rights	(738,567		)		(0.264	)%	—				—
Amortization of mortgage servicing rights	—				—		(472,187		)		(0.220	)%
	613,278				0.219	%	510,278				0.237	%
Change in fair value of mortgage servicing rights	978,450				0.349	%	—				—
Recovery of mortgage servicing rights	—				—		452,434				0.210	%
Impairment of retained interests	(120,114		)		(0.043	)%	(138,613		)		(0.064	)%
Servicing hedge losses	(885,870		)		(0.316	)%	(552,292		)		(0.257	)%
Change in value, net of servicing hedge	(27,534		)		(0.010	)%	(238,471		)		(0.111	)%
Total servicing revenues	585,744				0.209	%	271,807				0.126	%
Operating expenses	185,479				0.066	%	148,172				0.069	%
Allocated corporate expenses	23,178				0.008	%	14,209				0.006	%
Total servicing expenses	208,657				0.074	%	162,381				0.075	%
Interest expense	128,369				0.046	%	92,237				0.043	%
Pre-tax earnings	$	248,718			0.089	%	$	17,189			0.008	%
Average servicing portfolio	$	1,120,409,000					$	859,902,000

(1)Annualized

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Pre-tax earnings in the Loan Servicing Sector were $248.7 million during the quarter ended March 31, 2006, an improvement of $231.5 million from the year-ago period. The increase in pre-tax earnings is due to an increase in the average servicing portfolio of 30% resulting in an increase in servicing and miscellaneous fees; an improvement in escrow balance benefit resulting primarily from an increase in short-term interest rates and an improvement in the value of our MSRs and retained interests, net of the Servicing Hedge.

As a result of the adoption of SFAS 156, MSRs are carried at fair value with the change in value recorded in current period earnings. The primary factors causing a change in fair value of MSRs are changes in interest rates and other market factors (shown as “change in fair value of mortgage servicing rights” in the preceding table) and realization of expected cash flows from mortgage servicing rights.

Loan Closing Services Sector

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 to third parties as well.

The LandSafe companies produced $22.2 million in pre-tax earnings in the quarter ended March 31, 2006, representing an increase of 12% from the year-ago period. The increase in LandSafe’s pre-tax earnings was primarily due to the increase in our loan origination activity.

Banking Segment

The Banking Segment includes the investment and fee-based activities of Countrywide Bank, along with the activities of Countrywide Warehouse Lending, a provider of mortgage inventory financing to other mortgage bankers. Part of our banking strategy is to hold loans in portfolio rather than immediately selling them into the secondary mortgage market. Management believes this strategy will provide a stream of earnings over the life of such loans, create a greater base of future earnings and enhance the stability of earnings growth. In the short term, reported consolidated profits will be affected by the reduction in gains that would have been recognizable had the loans been sold.

The Bank also produces loans for sale through our Mortgage Banking Segment. As this activity is a Mortgage Banking activity, the mortgage loan production and the income relating to the sale of these loans is included in the Mortgage Banking Segment.

The Banking Segment achieved pre-tax earnings of $341.1 million during the quarter ended March 31, 2006, compared to $215.9 million for the year-ago period. Following is the composition of pre-tax earnings by component:

	Quarters Ended March 31,
	2006			2005
	(in thousands)
Countrywide Bank investment and fee-based activities (“Banking Operations”)	$	330,731		$	205,873
Countrywide Warehouse Lending (“CWL”)	18,126			17,292
Allocated corporate expenses	(7,771		)	(7,225		)
Total Banking Segment pre-tax earnings	$	341,086		$	215,940

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The revenues and expenses of Banking Operations are summarized in the following table:

	Quarters Ended March 31,
	2006			2005
	(dollar amounts in  thousands)
Interest income	$	1,122,464		$	550,269
Interest expense	(704,164		)	(300,271		)
Net interest income	418,300			249,998
Provision for loan losses	(27,626		)	(6,406		)
Net interest income after provision for loan losses	390,674			243,592
Non-interest income	35,813			30,241
Non-interest expense	(95,756		)	(67,960		)
Pre-tax earnings	$	330,731		$	205,873
Efficiency ratio(1)	19		%	22		%
After-tax return on average assets	1.09		%	1.09		%

(1)Non-interest expense reduced by mortgage insurance divided by the sum of net interest income plus non-interest income. The Bank’s efficiency ratio reflects the benefit Countrywide Bank realizes from CHL’s operations in originating mortgage loans and corporate support functions and the pricing of such services.

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The change in net interest income is summarized below:

	Quarters Ended March 31,
	2006								2005
	Average Balance			Interest Income/ Expense		Annualized Yield/ Rate			Average Balance			Interest Income/ Expense		Annualized Yield/ Rate
	(dollar amounts in thousands)
Interest-earning assets:
Mortgage loans(1)	$	66,050,178		$	1,021,000		6.20	%	$	37,252,763		$	477,047		5.15	%
Securities available-for-sale(2)	6,249,461			80,469			5.15	%	5,325,987			60,727			4.56	%
Short-term investments	388,318			4,324			4.45	%	515,524			3,181			2.47	%
FHLB securities and FRB stock	1,353,981			16,671			4.99	%	857,181			9,314			4.40	%
Total earning assets	74,041,938			1,122,464			6.08	%	43,951,455			550,269			5.03	%
Allowance for loan losses	(107,162		)						(50,597		)
Other assets	930,857								1,008,554
Total non interest-earning assets	823,695								957,957
Total assets	$	74,865,633							$	44,909,412
Interest-bearing liabilities:
Money market deposits	$	4,830,150		51,409			4.32	%	$	1,810,628		13,315			2.98	%
Savings	1,120			2			0.82	%	1,634			7			1.62	%
Escrow deposits	13,468,530			145,852			4.39	%	8,201,395			48,338			2.39	%
Time deposits	22,769,200			236,566			4.21	%	11,702,797			92,529			3.21	%
Total interest-bearing deposits	41,069,000			433,829			4.28	%	21,716,454			154,189			2.88	%
FHLB advances	24,663,071			245,221			3.98	%	16,789,533			131,668			3.14	%
Other borrowed funds	2,216,502			25,114			4.53	%	2,257,481			14,414			2.55	%
Total borrowed funds	26,879,573			270,335			4.02	%	19,047,014			146,082			3.07	%
Total interest-bearing liabilities	67,948,573			704,164			4.18	%	40,763,468			300,271			2.97	%
Non interest-bearing liabilities and equity:
Non interest-bearing checking	959,407								97,508
Other liabilities	709,481								1,047,362
Shareholder’s equity	5,248,172								3,001,074
Total non interest-bearing liabilities and equity	6,917,060								4,145,944
Total liabilities and shareholder’s equity	$	74,865,633							$	44,909,412
Net interest income				$	418,300							$	249,998
Net interest spread(3)							1.90	%							2.06	%
Net interest margin(4)							2.29	%							2.31	%

(1)Average balances include nonaccrual loans.

(2)Average balances and yields for securities available-for-sale are based on average amortized cost computed on the settlement date basis.

45

(3)   Calculated as yield on total average interest-earning assets less rate on total average interest-bearing liabilities.

(4)   Calculated as net interest income divided by total average interest-earning assets.

The dollar amounts of interest income and interest expense fluctuate depending upon changes in interest rates and in the relative volumes of our interest-earning assets and interest-bearing liabilities. Changes attributable to (i) changes in volume (changes in average outstanding balances multiplied by the prior period’s rate), (ii) changes in rate (changes in average interest rate multiplied by the prior period’s volume), and (iii) changes in rate/volume (changes in rate times the change in volume)—which were allocated proportionately to the changes in volume and the changes in rate and included in the relevant column below—were as follows:

	March 31, 2006 vs March 31, 2005
	Increase (Decrease) Due to
	Volume			Rate			Total Changes
	(in thousands)
Interest-earning assets:
Mortgage loans	$	408,273		$	135,680			$	543,953
Securities available-for-sale	11,309			8,433				19,742
Short-term investments	(933		)	2,076				1,143
Other investments	6,038			1,319				7,357
Total interest income	$	424,687		$	147,508			$	572,195
Interest-bearing liabilities:
Money market deposits	$	(30,037	)	$	(8,057	)		$	(38,094	)
Savings	2			3				5
Escrow deposits	(42,327		)	(55,187		)		(97,514		)
Time deposits	(108,126		)	(35,911		)		(144,037		)
Total interest expense	(180,488		)	(99,152		)		(279,640		)
FHLB advances	(72,273		)	(41,280		)		(113,553		)
Other borrowed funds	266			(10,966		)		(10,700		)
Total borrowed funds	(72,007		)	(52,246		)		(124,253		)
Total interest-bearing liabilities	(252,495		)	(151,398		)		(403,893		)
Net interest income	$	172,192		$	(3,890	)		$	168,302

The increase in net interest income is primarily due to a $30.1 billion or 68% increase in average interest-earning assets, partially offset by a 2 basis point reduction in net interest margin. Net interest margin experienced slight compression during the quarter ended March 31, 2006 from the year-ago period mainly as a result of a lag in the timing of repricing of the Bank’s mortgage loan portfolio compared to the timing of repricing of its interest-bearing liabilities and to the large volume of loans held by the Bank that are earning interest at their reduced introductory interest rates. These factors were partially offset by an increase in net interest margin resulting from a change in the mix of the loan portfolio.

Countrywide Bank increased its investment in pay-option loans during the quarter ended March 31, 2006. These loans have interest rates that adjust monthly and contain features that allow the borrower to defer making the full interest payment for at least the first year of the loan. Thereafter, minimum monthly payments increase by no more than 7½% per year unless the unpaid balance increases to a specified limit, which is no more than 115% of the original loan amount, at which time a new monthly payment amount adequate to repay the loan over its remaining contractual life is established. To ensure that contractual loan payments are adequate to repay a loan, the fully amortizing loan payment amount is re-established after either five or ten years. Our underwriting standards conform to those required to make the pay-option loans salable into the secondary market at the date of funding, including a requirement that the

46

borrower meet secondary market debt-service ratio tests based on the borrower making the fully amortizing loan payment assuming the loan’s interest rate is fully indexed. (A fully indexed note rate equals the sum of the current index rate plus the margin applicable to the loan.)

Following is a summary of pay-option loans held for investment by Countrywide Bank:

	March 31, 2006			December 31, 2005
	(in thousands)
Total pay-option loan portfolio	$	30,965,164		$	26,101,306
Pay-option loans with accumulated negative amortization:
Principal	$	20,756,425		$	13,963,721
Accumulated negative amortization (from original loan balance)	$	168,712		$	74,748
Average original loan-to-value ratio(1)	75		%	75		%
Average combined loan-to-value ratio(2)	78		%	78		%
Average original FICO score	721			720
Loans delinquent 90 days or more	0.13		%	0.10		%

(1)The ratio of the lower of the appraised value or purchase price of the property to the amount of the loan that is secured by the property.

(2)The ratio of the lower of the appraised value or purchase price of the property to the amount of all loans secured by the property.

The Banking Operation’s provision for loan losses increased by $21.2 million during the quarter ended March 31, 2006 compared to the quarter ended March 31, 2005. This increase reflects current portfolio growth, along with providing for seasoning of loans acquired during the past years of rapid portfolio growth. We expect our provision for loan losses and the related allowance for loan losses to increase as a percentage of our portfolio of loans held for investment as our portfolio continues to season. The impact of the increase in the allowance for loan losses as a percentage of loans receivable is moderated by the addition of new loans to our portfolio.

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The composition of the Banking Operation’s balance sheets was as follows:

	March 31, 2006				December 31, 2005
	Amount		Rate		Amount			Rate
	(dollar amounts in millions)
Assets
Short-term investments	$	200	4.79	%		$	245	4.08	%
Mortgage loans	69,055		6.48	%		64,279		6.11	%
Securities available-for-sale	5,920		5.25	%		6,251		5.02	%
FHLB securities and FRB stock	1,363		5.00	%		1,333		4.73	%
Total interest-earning assets	76,538		6.35	%		72,108		5.98	%
Other assets	1,240					919
Total assets	$	77,778				$	73,027
Liabilities and Equity
Deposits:(1)
Customer	$	29,688	4.31	%		$	25,300	4.09	%
Company-controlled escrow deposit accounts	14,624		4.84	%		13,333		4.18	%
FHLB advances	25,091		4.17	%		26,267		3.88	%
Other borrowings	978		4.82	%		1,280		4.23	%
Total interest-bearing liabilities	70,381		4.38	%		66,180		4.03	%
Other liabilities	2,037					1,574
Shareholder’s equity	5,360					5,273
Total liabilities and equity	$	77,778				$	73,027
Primary spread(2)			1.97	%				1.95	%
Nonaccrual loans	$	187.8				$	151.3

(1)Includes inter-company deposits.

(2)Calculated as rate on total interest-earning assets less rate on total interest-bearing liabilities.

The Banking Segment also includes the operations of CWL. CWL’s pre-tax earnings increased by $0.8 million during the quarter ended March 31, 2006 in comparison to the year-ago period, primarily due to a 6% increase in average mortgage warehouse advances, partially offset by a decrease in the net interest margin due to increasing competition in the warehouse lending market. Such average advances increased to $4.6 billion in the quarter ended March 31, 2006 from $4.3 billion in the year-ago period, primarily due to an overall increase in activity with Mortgage Banking Segment customers. At March 31, 2006, warehouse lending advances were $3.1 billion.

Capital Markets Segment

Our Capital Markets Segment achieved pre-tax earnings of $155.6 million for the quarter ended March 31, 2006, an increase of $33.5 million, or 27%, from the year-ago period driven by a 29% increase in revenues mainly due to an increase in conduit, underwriting and securities trading revenues offset by a decline in revenues from sales of commercial loans.

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

	Quarters Ended March 31,
	2006		2005
	(in thousands)
Revenues:
Conduit	$	122,601	$	95,988
Underwriting	71,212		51,557
Securities trading	34,664		19,414
Commercial real estate	16,263		29,007
Brokering	6,657		6,209
Other	11,726		1,734
Total revenues	263,123		203,909
Expenses:
Operating expenses	103,471		77,736
Allocated corporate expenses	4,079		4,126
Total expenses	107,550		81,862
Pre-tax earnings	$	155,573	$	122,047

During the quarter ended March 31, 2006, the Capital Markets Segment generated revenues totaling $122.6 million from its conduit activities, which is primarily from managing the acquisition and sale or securitization of whole loans on behalf of CHL. Conduit revenues for the reporting period increased 28% in comparison to the year-ago period because of an increase in volume associated primarily with adjustable-rate products partially offset by a decrease in margins.

Underwriting revenues increased $19.7 million over the year-ago period because of increased underwriting of CHL securitizations by Capital Markets, partially offset by a decrease in margins.

Total securities trading volume increased 18% over the year-ago period. Securities trading revenue increased 79% due to an increase in trading margins and a shift in trading mix to higher-margin securities.

During the current reporting period, the commercial real estate finance activities of the Capital Markets Segment generated revenues totaling $16.3 million primarily from sales of commercial real estate loans compared to $29.0 million in the year-ago period. The decrease in revenue was due to a decrease in margins resulting from price competition and a change in the mix of products sold partially offset by an increase in the volume of loans sold and the realization of an advisory fee in the current quarter.

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

	Quarters Ended March 31,
	2006		2005
	(in millions)
Mortgage-backed securities	$	528,350	$	420,361
U.S. Treasury securities	357,112		354,503
Asset-backed securities	32,676		34,365
Other	60,217		19,392
Total securities trading volume(1)	$	978,355	$	828,621

(1)Approximately 13% and 16% of the segment’s non-U.S. Treasury securities trading volume was with CHL during each of the quarters ended March 31, 2006 and 2005, respectively.

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Insurance Segment

The Insurance Segment’s pre-tax earnings increased by $10.4 million over the year-ago period, to $64.9 million. The following table shows pre-tax earnings by business line:

	Quarters Ended March 31,
	2006			2005
	(in thousands)
Balboa Reinsurance Company	$	46,497		$	43,120
Balboa Life and Casualty Operations(1)	22,779			17,317
Allocated corporate expenses	(4,333		)	(5,860		)
Total Insurance Segment pre-tax earnings	$	64,943		$	54,577

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

The following table shows net insurance premiums earned:

	Quarters Ended March 31,
	2006		2005
	(in thousands)
Balboa Reinsurance Company	$	51,795	$	43,695
Balboa Life and Casualty Operations	227,998		155,823
Total net insurance premiums earned	$	279,793	$	199,518

The following table shows insurance claim expenses:

	Quarters Ended March 31,
	2006					2005
	Amount		As Percentage of Net Earned Premiums			Amount		As Percentage of Net Earned Premiums
	(dollar amounts in thousands)
Balboa Reinsurance Company	$	11,075		21	%	$	6,922		16	%
Balboa Life and Casualty Operations	112,967			50	%	69,013			44	%
Total insurance claim expenses	$	124,042				$	75,935

Our mortgage reinsurance business produced $46.5 million in pre-tax earnings, an increase of 8% over the year-ago period, driven primarily by growth of 12% in the mortgage loans included in our loan servicing portfolio that are covered by reinsurance contracts.

Our Life and Casualty insurance business produced pre-tax earnings of $22.8 million, an increase of $5.5 million, or 32%, from the year-ago period. The increase in earnings was driven by a 46% increase in net earned premiums during the quarter ended March 31, 2006 in comparison to the year-ago period, partially offset by an increase in insurance claim expense expressed as a percentage of net earned premiums. The increase in net earned premiums was primarily attributable to an increase in voluntary homeowners and auto insurance. Insurance claim expenses increased as a percentage of net earned premiums, due to an increase in the mix of voluntary insurance, which has a higher loss ratio than lender-placed lines of business.

Our Life and Casualty insurance operations manage insurance risk by reinsuring portions of such 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.

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Global Operations Segment

Global Operations pre-tax earnings totaled $10.2 million, an increase of $6.1 million from the year-ago period. The increase in earnings was primarily due to a settlement payment received upon the termination of the joint venture with Barclays Bank, PLC.

Detailed Line Item Discussion of Consolidated Revenue and Expense Items

Gain on Sale of Loans and Securities

Gain on sale of loans and securities is summarized below:

	Quarters Ended March 31,
	2006							2005
			Gain on Sale							Gain on Sale
	Loans Sold		Amount		As Percentage of Loans Sold			Loans Sold		Amount			As Percentage of Loans Sold
	(dollar amounts in thousands)
Mortgage Banking:
Prime Mortgage Loans	$	76,176,576	$	897,734		1.18	%	$	58,920,588	$	729,345			1.24	%
Prime Home Equity Loans:
Initial Sales	4,442,526		77,919			1.75	%	4,025,409		125,857				3.13	%
Subsequent draws	N/A		35,687			N/A		N/A		30,536				N/A
	4,442,526		113,606			2.56	%	4,025,409		156,393				3.89	%
Nonprime Mortgage Loans	9,090,272		149,437			1.64	%	12,486,366		351,492				2.82	%
Production Sector	89,709,374		1,160,777			1.29	%	75,432,363		1,237,230				1.64	%
Reperforming Loans	143,647		1,979			1.38	%	459,248		15,566				3.39	%
	$	89,853,021	1,162,756					$	75,891,611	1,252,796
Capital Markets:
Conduit activities(1)	$	17,943,454	112,894			0.63	%	$	9,009,011	81,070				0.90	%
Underwriting	N/A		63,101			N/A		N/A		39,448				N/A
Commercial real estate	$	942,185	7,563			0.80	%	$	646,351	27,695				4.28	%
Securities trading and other	N/A		3,742			N/A		N/A		(30,365		)		N/A
			187,300							117,848
Other	N/A		11,122			N/A		N/A		(8,893		)		N/A
			$	1,361,178						$	1,361,751

(1)Includes loans purchased from the Mortgage Banking Segment.

The increase in Capital Markets’ gain on sale related to its conduit activities was due to increased sales of mortgage loans partially offset by a decline in margins. The decrease in Capital Markets’ gain on sale related to its commercial real estate activities was due to a decrease in margins on such loans partially offset by an increase in sales of such loans. Capital Markets’ revenues from its securities trading activities consist of gain on sale and interest income. In a steep yield curve environment, net interest income will comprise a larger percentage of total securities trading revenue. As the yield curve flattens, the mix of revenues will naturally shift toward gain on sale of securities. During the quarter ended March 31, 2006 the yield curve was flatter than in the year-ago period, which resulted in a shift in trading revenues from interest income to gain on sale.

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For the Mortgage Banking Segment, the effects of changes in the volume of loan sales and the rate of gain on sale (as a percentage of loans sold) on the amount of gain on sale is summarized in the following table:

	Quarters Ended March 31, 2006 vs. March 31, 2005
	Increase (Decrease) Due to
	Loans Sold				Gain on Sale Rate				Total
	(in thousands)
Mortgage Banking:
Prime Mortgage Loans		$	204,802			$	(36,413	)	$	168,389
Prime Home Equity Loans:
Initial Sales		11,948				(59,886		)	(47,938		)
Subsequent draws		5,151				—			5,151
		17,099				(59,886		)	(42,787		)
Nonprime Mortgage Loans		(79,878		)		(122,177		)	(202,055		)
Total Production Sector		142,023				(218,476		)	(76,453		)
Reperforming loans		(7,290		)		(6,297		)	(13,587		)
Total Mortgage Banking		$	134,733			$	(224,773	)	$	(90,040	)

Gain on sale of Prime Mortgage Loans increased in the quarter ended March 31, 2006 as compared to the quarter ended March 31, 2005 due primarily to increased sales of such loans. These positive results were partially offset by lower margins resulting from increased pricing competition.

Gain on sale of Prime Home Equity Loans decreased in the quarter ended March 31, 2006 as compared to the year-ago period due primarily to reduced margins on such loans.

Gain on sale of Nonprime Mortgage Loans decreased in the quarter ended March 31, 2006 as compared to 2005 due primarily to lower margins resulting from increased pricing competition.

Reperforming loans are reinstated loans that had previously defaulted and were repurchased from mortgage securities we issued. The note rate on these loans is typically higher than currently-offered mortgage interest rates and therefore, the margin on these loans is typically higher than margins on Prime Mortgage Loans.

Net Interest Income and Provision for Loan Losses

Net interest income is summarized below:

	Quarters Ended March 31,
	2006			2005
	(in thousands)
Net interest income (expense):
Banking Segment loans and securities	$	437,908		$	267,360
Mortgage Banking Segment loans and securities	113,326			176,331
Loan Servicing Sector:
Interest income on custodial balances	160,027			30,529
Interest expense	(110,370		)	(95,867		)
Capital Markets Segment securities inventory	32,363			50,910
Other	61,181			61,730
Net interest income	694,435			490,993
Provision for loan losses related to loans held for investment	(63,138		)	(19,622		)
Net interest income after provision for loan losses	$	631,297		$	471,371

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The increase in net interest income from the Banking Segment was primarily attributable to growth in the average investment in mortgage loans. Average assets in the Banking Segment increased to $78.6 billion during the quarter ended March 31, 2006, an increase of $30.4 billion, or 63% over the year-ago period. Net interest margin remained relatively constant at 2.23% and 2.22% during the quarters ended March 31, 2006 and 2005, respectively.

The decrease in net interest income from Mortgage Banking Segment loans and securities reflects a decrease in net interest margin from the year-ago period. The Mortgage Banking Segment loan and securities inventory is primarily financed with borrowings tied to short-term indices. Short-term interest rates rose more than long-term mortgage interest rates between the year-ago period and the quarter ended March 31, 2006, reducing the net interest margin.

Net interest income from custodial balances increased in the current period due to an increase in the earnings rate from 2.37% during the quarter ended March 31, 2005 to 4.73% during the quarter ended March 31, 2006, and due to an increase of $1.9 billion in average custodial balances over the year-ago period. We are required to pass through monthly interest to security holders on paid-off loans at the underlying security rates, which were substantially higher than the short-term rates earned by us on the payoff float. The amount of such interest passed through to the security holders was $70.0 million and $73.7 million in the quarters ended March 31, 2006 and 2005, respectively.

Interest expense allocated to the Loan Servicing Sector increased primarily due to the effect of rising interest rates, combined with an increase in total Servicing Sector assets.

The decrease in net interest income from the Capital Markets securities portfolio is attributable to a decrease in the net interest margin from 0.51% in the quarter ended March 31, 2005 to 0.40% in the quarter ended March 31, 2006, partially offset by an increase of 6% in the average inventory of securities held. The decrease in the net interest margin earned on the securities portfolio is primarily due to a larger increase in short-term financing rates versus the increase in rates in the longer-term securities held by the Capital Markets Segment. The decline in net interest income was more than offset by an increase in gain on sale.

The increase in the provision for loan losses is due to the continuing growth and seasoning of the Banking Segment’s loan portfolio, along with deteriorating credit performance of loans held for investment in our Mortgage Banking Segment.

The increase in the allowance for loan losses is due mainly to continuing growth and seasoning of the Bank’s loan portfolio. As the Bank’s portfolio of loans held for investment continues to season, we expect our allowance for loan losses and the related provision for loan losses to increase as a percentage of our portfolio of loans held for investment. As the Bank’s portfolio continues to grow, the impact of seasoning on the allowance as a percentage of loans held for investment will be partially offset by new loans.

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Nonaccrual loans, foreclosed assets and the allowance for loan losses at period end are summarized as follows:

	March 31, 2006			December 31, 2005
	(in thousands)
Nonaccrual loans(1):
Mortgage loans:
Nonprime	$	347,822			$	325,257
Prime	227,441				347,476
Prime home equity	119,780				110,040
Subtotal	695,043				782,773
Warehouse lending advances	—				—
Defaulted FHA-insured and VA-guaranteed mortgage loans repurchased from securities	428,711				465,599
Total nonaccrual loans	1,123,754				1,248,372
Real estate acquired in settlement of loans	152,745				110,499
Total nonaccrual loans and foreclosed assets	$	1,276,499			$	1,358,871
Nonaccrual loans as a percentage of loans held for investment:
Total	1.5		%		1.8		%
Excluding loans FHA-insured and VA-guaranteed loans	0.9		%		1.1		%
Allowance for loan losses	$	172,271			$	151,274
Allowance for loan losses as a percentage of nonaccrual loans:
Total	15.3		%		12.1		%
Excluding loans FHA-insured and VA-guaranteed loans	24.8		%		19.3		%
Allowance for loan losses as a percentage of loans held for investment	0.2		%		0.2		%

(1)This amount excludes $414.3 million of government-insured loans eligible for repurchase from Ginnie Mae securities issued by us. Our servicing agreement with Ginnie Mae allows us to repurchase loans that are delinquent more than 90 days instead of continuing to advance the delinquent interest to the security holders. This amount is included in loans held for investment as Countrywide has the option of repurchasing the loans from the securities and is required to include such loans on its balance sheets. However, we do not include these loans in our nonaccrual balances because we have not exercised the option to repurchase the loans.

Loan Servicing Fees and Other Income from MSRs and Retained Interests

Loan servicing fees and other income from MSRs and retained interests are summarized below:

	Quarters Ended March 31,
	2006		2005
	(in thousands)
Servicing fees, net of guarantee fees(1)	$	913,462	$	720,317
Income from retained interests	133,973		116,975
Late charges	67,341		56,868
Prepayment penalties	53,786		32,903
Global Operations Segment subservicing fees	11,322		28,527
Ancillary fees	20,003		16,768
Total loan servicing fees and income from MSRs and retained interests	$	1,199,887	$	972,358

(1)   Includes contractually specified servicing fees

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The increase in servicing fees, net of guarantee fees, was principally due to a 30% increase in the average servicing portfolio, partially offset by a decrease in the overall annualized net service fee earned from 0.335% of the average portfolio balance during the quarter ended March 31, 2005 to 0.326% during the quarter ended March 31, 2006.

The increase in income from retained interests was due primarily to a 25% increase in the average investment in these assets from the quarter ended March 31, 2005 to the quarter ended March 31, 2006. The yield excludes any impairment charges or recoveries, which are included in recoveries and impairment of retained interests in the consolidated statement of earnings. These investments include interest-only and principal-only securities as well as residual interests that arise from the securitization of mortgage loans, particularly Nonprime Mortgage and Prime Home Equity Loans.

Realization of Expected Cash Flows from Mortgage Servicing Rights

Effective January 1, 2006, we adopted SFAS 156 and elected to carry our MSRs at fair value with changes in fair value recorded in earnings. The change in fair value of the MSRs that is included in earnings for the quarter ended March 31, 2006 consists of two primary components—a reduction in fair value due to the realization of expected cash flows from the MSRs and a change in value resulting from changes in interest rates and other market factors. The realization of expected cash flow from MSRs during the quarter resulted in a value reduction of $738.6 million during the quarter ended March 31, 2006.

Change in Value of Mortgage Servicing Rights

We recorded an increase in the fair value of the MSRs in the quarter ended March 31, 2006 of $978.3 million primarily as a result of the increase in mortgage rates during the quarter.

Amortization of Mortgage Servicing Rights

We recorded amortization of MSRs of $472.2 million, or an annual rate of 22%, during the quarter ended March 31, 2005. The amortization rate of the MSRs is dependent on the forecasted prepayment speeds at the beginning of the quarter.

Recovery/ Impairment of Mortgage Servicing Rights

During the quarter ended March 31, 2005, we recorded recovery of previous impairment of MSRs of $452.4 million, primarily driven by the increase in mortgage interest rates during the period.

Impairment of Retained Interests

In the quarters ended March 31, 2006 and 2005, we recognized impairment of retained interests of $120.7 million and $137.1 million, respectively. This impairment was a result of a decline in the value of such securities due to compression of the interest rate spread on the residuals we hold because the interest on the collateral is fixed-rate while the pass-through rate is floating. In the quarter ended March 31, 2006 an increase in market yield requirements for certain of our retained interests also contributed to the decline in value of such securities.

Servicing Hedge Losses

The Servicing Hedge is designed so that the income or loss it generates mitigates the change in value of MSRs and retained interests that is recorded in current period earnings. The values of the derivatives that constitute the primary components of the Servicing Hedge are tied to long-term Treasury, mortgage and swap rate indices. These rates increased during the quarters ended March 31, 2006 and 2005. As a result the Servicing Hedge incurred a loss of $885.9 million, including $133 million of time value decay on

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the options included in the Servicing Hedge during the quarter ended March 31, 2006 and a loss of $552.3 million, including $119 million of time value decay during the quarter ended March 31, 2005.

In a stable interest rate environment, we expect to incur no significant declines in value other than the realization of cash flows from the MSRs; however, we expect to incur expenses related to the Servicing Hedge caused primarily by time value decay on options used in the hedge. The level of Servicing Hedge gains or losses in any period depends on various factors such as the size and composition of the hedge, the shape of the yield curve and the level of implied interest rate volatility.

Net Insurance Premiums Earned

An increase in premiums earned on the voluntary homeowners and auto lines of business along with an increase in reinsurance premiums earned contributed to the $80.3 million increase in net insurance premiums earned.

Other Revenue

Other revenue consisted of the following:

	Quarters Ended March 31,
	2006		2005
	(in thousands)
Appraisal fees, net	$	31,262	$	21,565
Credit report fees, net	19,346		18,521
Global Operations Segment processing fees	10,247		12,984
Title services	9,934		11,558
Insurance agency commissions	7,340		4,870
Increase (decrease) in cash surrender value of life insurance	6,589		(648		)
Other	45,885		40,152
Total other revenue	$	130,603	$	109,002

Compensation Expenses

Compensation expenses increased $288.3 million, or 37%, during the quarter ended March 31, 2006 as compared to the year-ago period as summarized below:

	Quarters Ended March 31,
	2006			2005
	(in thousands)
Base salaries	$	543,032		$	449,367
Incentive bonus and commissions	456,299			379,580
Payroll taxes and benefits	233,656			149,538
Deferral of loan origination costs	(158,169		)	(192,006		)
Total compensation expenses	$	1,074,818		$	786,479

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Average workforce by segment is summarized below:

	Quarters Ended March 31,
	2006	2005
Mortgage Banking	41,980	32,783
Banking	2,220	1,552
Capital Markets	712	579
Insurance	2,144	1,909
Global Operations	2,411	2,345
Corporate Administration	5,126	4,068
Average workforce, including temporary staff	54,593	43,236

In the Loan Production Sector, compensation expenses increased $135.4 million, or 23%, prior to the deferral of loan origination costs, because of a 26% increase in average staff to accommodate growth in loan production and to expand our operations to support our long-term objective of market share growth.

In the Loan Servicing Sector, compensation expense rose $25.4 million, or 32%, to accommodate a 17% increase in the number of loans serviced. Compensation expenses increased in most other business segments and corporate areas, reflecting growth in the Company.

Incremental direct costs associated with the origination of loans are deferred when incurred. Subsequent treatment of these costs is based on whether the loans are held for sale or held for investment. If the loan is sold, the costs deferred are included as a component of gain on sale; if the loan is held for investment, the costs are amortized to interest income over the life of the loan.

Occupancy and Other Office Expenses

Occupancy and other office expenses are summarized below:

	Quarters Ended March 31,
	2006		2005
	(in thousands)
Office and equipment rentals	$	53,142	$	42,591
Utilities	44,835		34,658
Depreciation expense	47,771		33,524
Postage and courier service	25,217		23,537
Office supplies	18,746		16,021
Dues and subscriptions	15,695		12,252
Repairs and maintenance	13,152		11,738
Other	26,773		14,335
Total occupancy and other office expenses	$	245,331	$	188,656

Occupancy and other office expenses for the quarter ended March 31, 2006 increased by 30%, or $56.7 million, primarily to accommodate a 26% increase in the average workforce.

Insurance Claim Expenses

Insurance claim expenses were $124.0 million for the quarter ended March 31, 2006 as compared to $75.9 million for the year-ago period. The increase in insurance claim expenses was due mainly to growth in our insurance book of business and an increase in our voluntary insurance which has a higher loss ratio than lender-placed lines of business.

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Advertising and Promotion Expenses

Advertising and promotion expenses increased 9% from the quarter ended March 31, 2005, as a result of a shift in the mortgage loan production market towards purchase activity, which generally requires more advertising and promotion than refinance activity, which is customarily driven by increased consumer demand for mortgages resulting from low interest rates.

Other Operating Expenses

Other operating expenses are summarized below:

	Quarters Ended March 31,
	2006			2005
	(in thousands)
Legal, consulting, accounting and auditing expenses	$	50,362		$	27,461
Insurance commission expense	45,382			31,570
Travel and entertainment	36,357			23,758
Taxes and licenses	15,365			10,540
Losses on servicing-related advances	15,240			21,455
Insurance	14,732			11,649
Software amortization and impairment	14,418			13,108
Other	45,976			39,675
Deferral of loan origination costs	(25,668		)	(29,577		)
Total other operating expenses	$	212,164		$	149,639

Quantitative and Qualitative Disclosures About Market Risk

The primary market risk we face is interest rate risk. The predominant type of interest rate risk at Countrywide is price risk, which is the risk that the value of our assets and liabilities will change due to changes in interest rates. 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 interest rate 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 the values of our interest rate lock commitments, Mortgage Loan Inventory and MBS held for sale, MSRs and retained interests and trading securities, as well as a portion of our debt. The overall objective of our interest rate risk management activities is to reduce the variability of earnings caused by changes in interest rates. Our Corporate Asset/Liability Management Committee, which is comprised of several of the Company’s senior financial executives, is responsible for management of this risk.

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.

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

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pricing model is used. The primary assumption used in this model is implied market volatility of interest rates. Retained interests are valued using a zero volatility discounted cash flow model. The primary assumptions used in these models are prepayment rates, discount rates and credit losses.

The following table summarizes the estimated change in fair value of our interest-rate-sensitive assets, liabilities and commitments as of March 31, 2006, given several hypothetical, (instantaneous) parallel shifts in the yield curve:

	Change in Fair Value
Change in Interest Rate (basis points)	-100			-50			+50			+100
	(in millions)
MSRs and other financial instruments:
MSRs and retained interests	$	(2,624	)	$	(1,155	)	$	828		$	1,373
Impact of Servicing Hedge:
Mortgage-based	244			122			(122		)	(243		)
Swap-based	2,187			832			(472		)	(751		)
Treasury-based	282			61			(4		)	(4		)
MSRs and retained interests, net	89			(140		)	230			375
Interest rate lock commitments	296			200			(307		)	(674		)
Mortgage Loan Inventory	1,020			595			(731		)	(1,556		)
Impact of associated derivative instruments:
Mortgage-based	(1,381		)	(820		)	1,049			2,230
Treasury-based	89			26			15			37
Eurodollar-based	(92		)	(48		)	59			124
Interest rate lock commitments and Mortgage Loan Inventory, net	(68		)	(47		)	85			161
Countrywide Bank:
Securities portfolio	178			103			(124		)	(263		)
Mortgage loans	616			329			(359		)	(747		)
Deposit liabilities	(283		)	(146		)	151			303
Federal Home Loan Bank advances	(200		)	(97		)	90			173
Countrywide Bank, net	311			189			(242		)	(534		)
Notes payable and capital securities	(677		)	(340		)	325			638
Impact of associated derivative instruments:
Swap-based	100			51			(51		)	(101		)
Notes payable and capital securities, net	(577		)	(289		)	274			537
Insurance company investment portfolios	57			29			(29		)	(59		)
Net change in fair value related to MSRs and other financial instruments	$	(188	)	$	(258	)	$	318		$	480
Net change in fair value related to broker-dealer trading securities	$	(20	)	$	(6	)	$	(4	)	$	(15	)

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, 2005, given several hypothetical (instantaneous) parallel shifts in the yield curve:

	Change in Fair Value
Change in Interest Rate (basis points)	-100			-50			+50			+100
	(in millions)
Net change in fair value related to MSRs and other financial Instruments	$	(429	)	$	(419	)	$	695		$	1,333
Net change in fair value related to broker-dealer trading securities	$	(18	)	$	(3	)	$	(11	)	$	(33	)

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These sensitivity analyses are limited in that they were performed at a particular point in time; are based on the hedge position in place at that particular point in time; only contemplate certain movements in interest rates; do not incorporate changes in interest rate volatility or changes in the relationship of one interest rate index to another; are subject to the accuracy of various assumptions used, including prepayment forecasts and discount rates; and do not incorporate other factors that would impact the Company’s overall financial performance in such scenarios, most significantly the impact of changes in loan production earnings that result from changes in interest rates. Not all of the changes in fair value would affect current period earnings. For example, changes in fair value of securities accounted for as available-for-sale are recognized as a component of shareholders’ equity, net of income taxes, and our debt is carried at its unpaid principal balance net of issuance discount or premium. Absent hedge accounting, changes in the market value of our debt are not recorded in current-period earnings. For these reasons, the preceding estimates should not be viewed as an earnings forecast.

Market Risk—Foreign Currency Risk

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

Credit Risk Management

Sale of Loans—Representations and Warranties

Nearly all of the mortgage loans that we originate in our Mortgage Banking Segment are sold into the secondary mortgage market in the form of securities, and to a lesser extent in the form of loans. In the case of both securitizations and loan sales, we assume 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 mortgage loans with the identified defects or indemnify the investor or insurer. In either case, we bear the risk of any subsequent credit loss on the mortgage loans. The liability associated with this risk totaled $271.9 million at March 31, 2006 and $169.8 million at December 31, 2005. The increase in this representation and warranty reserve is due mainly to securitizations in the current quarter together with an increase in loan sales, which had more extensive representations and warranties than securitizations. The expense associated with the reserve for representations and warranties is recorded as a component of gain on sale of loans in the consolidated income statement.

Securitization Credit Recourse

When we securitize our mortgage loans, we may retain limited credit risk. As described in our 2005 Annual Report, the degree to which credit risk on the underlying loans is transferred through the securitization process depends on the structure of the securitization. Our Prime Mortgage Loans generally are securitized on a non-recourse basis, while Prime Home Equity Loans and Nonprime Mortgage Loans generally are securitized with limited recourse for credit losses.

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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 March 31, 2006 are as follows:

	March 31, 2006
	(in thousands)
Subordinated Interests:
Prime home equity residual securities		$	790,965
Prime home equity line of credit transferor’s interest		420,297
Nonprime residual securities		416,494
Prime residual securities		54,387
Subordinated mortgage-backed pass-through securities		1,941
		$	1,684,084
Corporate guarantees in excess of recorded liability		$	386,222

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

The total credit losses incurred for the quarters ended March 31, 2006 and 2005 related to all of our mortgage loan sales activities are summarized as follows:

	Quarters Ended March 31,
	2006		2005
	(in thousands)
Nonprime securitizations with retained residual interest	$	24,005	$	19,792
Repurchased or indemnified loans	12,616		8,305
Prime home equity securitizations with retained residual interest	11,915		4,497
Prime home equity securitizations with corporate guarantee	2,542		436
Nonprime securitizations with corporate guarantee	2,429		4,518
VA losses in excess of VA guarantee	488		526
	$	53,995	$	38,074

Portfolio Lending Activities

As discussed in the preceding section, “Detailed Line Item Discussion of Consolidated Revenue and Expense Items—Net Interest Income and Provision for Loan Losses,” we have a portfolio of mortgage loans held for investment, consisting primarily of Prime Mortgage and Prime Home Equity Loans, with unpaid principal balances that amounted to $68.8 billion at March 31, 2006. This portfolio is held primarily in our Bank. Of the amount held in the Bank, $3.8 billion of Prime Home Equity Loans with combined loan-to-value ratios equal to or above 90% are covered by pool insurance policies that provides partial protection against credit losses. Otherwise, after taking into consideration primary mortgage insurance (which is generally required for conventional loans with loan-to-value ratios greater than 80%), we generally retain full credit exposure on these loans.

We also provide short-term secured mortgage-loan warehouse advances to various lending institutions, which totaled $3.1 billion at March 31, 2006. We incurred no credit losses related to this activity during the quarter ended March 31, 2006.

Mortgage Reinsurance

We provide mortgage reinsurance on certain mortgage loans included in our servicing portfolio through contracts with several primary mortgage insurance companies. Under these contracts, we absorb mortgage insurance losses in excess of a specified percentage of the principal balance of a given pool of loans, subject to a contractual limit, in exchange for a portion of the pools’ mortgage insurance premium.

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As of March 31, 2006, approximately $81.4 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 March 31, 2006, the maximum aggregate losses under the reinsurance contracts was limited to $724.4 million. We are required to pledge securities to cover this potential liability. For the three months ended March 31, 2006, we did not experience any losses under our reinsurance contracts.

Mortgage Loans Held for Sale

At March 31, 2006, mortgage loans held for sale amounted to $32.1 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 loan-to-value ratios greater than 80%), FHA insurance or VA guarantees. Historically, credit losses related to loans held for sale have not been significant.

Counterparty Credit Risk

We have exposure to credit loss in the event of contractual 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 counterparties we believe to be financially strong, spreading the credit risk among many such counterparties and by placing contractual limits on the amount of unsecured credit extended to any single counterparty.

The aggregate amount of counterparty credit exposure after consideration of relevant netting agreements at March 31, 2006, before and after collateral held by us, was as follows:

	March 31, 2006
	(in millions)
Aggregate credit exposure before collateral held		$	701
Less: collateral held		(362		)
Net aggregate unsecured credit exposure		$	339

For the quarter ended March 31, 2006, we incurred no credit losses due to non-performance of any of our counterparties.

Loan Servicing

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

	Quarters Ended March 31,
	2006			2005
	(in millions)
Beginning owned servicing portfolio	$	1,081,189		$	821,475
Add: Loan production	103,418			91,460
Purchased MSRs (bulk acquisitions)	101			17,931
Less: Runoff(1)	(58,229		)	(58,639		)
Ending owned servicing portfolio	1,126,479			872,227
Subservicing portfolio	26,172			21,178
Total servicing portfolio	$	1,152,651		$	893,405
MSR portfolio	$	1,024,220		$	798,518
Mortgage loans owned	102,259			73,709
Subservicing portfolio	26,172			21,178
Total servicing portfolio	$	1,152,651		$	893,405

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	March 31,
	2006			2005
	(in millions)
Composition of owned servicing portfolio at period end:
Conventional mortgage	$	910,349		$	677,251
Nonprime Mortgage	114,378			93,607
Prime Home Equity	51,486			49,014
FHA-insured mortgage	37,112			39,228
VA-guaranteed mortgage	13,154			13,127
Total owned portfolio	$	1,126,479		$	872,227
Delinquent mortgage loans(2):
30 days	2.02		%	2.03		%
60 days	0.64		%	0.57		%
90 days or more	1.02		%	0.71		%
Total delinquent mortgage loans	3.68		%	3.31		%
Loans pending foreclosure(2)	0.47		%	0.43		%
Delinquent mortgage loans(2):
Conventional	2.06		%	1.99		%
Nonprime Mortgage	12.51		%	9.59		%
Prime Home Equity	1.43		%	0.97		%
Government	11.61		%	10.50		%
Total delinquent mortgage loans	3.68		%	3.31		%
Loans pending foreclosure(2):
Conventional	0.21		%	0.22		%
Nonprime Mortgage	2.35		%	1.84		%
Prime Home Equity	0.06		%	0.05		%
Government	1.08		%	1.14		%
Total loans pending foreclosure	0.47		%	0.43		%

(1)Runoff refers to principal repayments on loans.

(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 increase in delinquencies in our servicing portfolio primarily to increases in the loans in hurricane-affected areas, which contributed 27 basis points to the increase, and to a lesser extent to the seasoning of the servicing portfolio. We believe the delinquency rates in our servicing portfolio are consistent with rates for similar mortgage loan portfolios in the industry.

Liquidity and Capital Resources

We regularly forecast our potential funding needs over three-month and longer horizons, taking into account debt maturities and potential peak balance sheet levels. We establish reliable sources of liquidity sized to meet a range of potential future funding requirements. We currently have $89.8 billion in available sources of short-term liquidity, which represents an increase of $0.1 billion from December 31, 2005. We believe we have adequate financing capacity to meet our currently foreseeable needs.

As part of our strategic capital management and as a cost effective means for financing growth, the Company issued $500 million in callable floating-rate subordinated notes during the third quarter of 2005. These subordinated notes are eligible for Tier 2 regulatory capital treatment and represent an efficient and non-dilutive means for supporting the Company’s capital management efforts. Other capital raising

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alternatives under consideration to address future needs include various non-dilutive securities that receive a high degree of equity treatment by regulators, credit rating agencies or both.

At March 31, 2006 and December 31, 2005, the Company’s and the Bank’s regulatory capital ratios and amounts and minimum required capital ratios for each entity to maintain a “well capitalized” status were as follows:

	March 31, 2006
	Minimum			Countrywide Financial Corporation					Countrywide Bank
	Required(1)			Ratio			Amount		Ratio			Amount
	(dollar amounts in thousands)
Tier 1 Leverage Capital		5.0	%		6.8	%	$	13,187,557		7.2	%	$	5,597,873
Risk-Based Capital:
Tier 1		6.0	%		11.6	%	$	13,187,557		12.0	%	$	5,597,873
Total		10.0	%		12.7	%	$	14,477,045		12.3	%	$	5,732,138

(1)Minimum required to qualify as “well capitalized.”

	December 31, 2005
	Minimum			Countrywide Financial Corporation					Countrywide Bank
	Required(1)			Ratio			Amount		Ratio			Amount
	(dollar amounts in thousands)
Tier 1 Leverage Capital		5.0	%		6.3	%	$	12,564,162		7.3	%	$	5,343,675
Risk-Based Capital:
Tier 1		6.0	%		10.7	%	$	12,564,162		12.2	%	$	5,343,675
Total		10.0	%		11.7	%	$	13,760,176		12.5	%	$	5,457,019

(1)Minimum required to qualify as “well capitalized.”

Cash Flows

Cash flows provided by operating activities was $3.3 billion for the three months ended March 31, 2006, compared to $0.2 billion for the three months ended March 31, 2005. The increase in net cash flow provided by operations for the three months ended March 31, 2006 compared to the three months ended March 31, 2005 was primarily due to a $7.6 billion net increase in cash provided related to mortgage loans. In the quarter ended March 31, 2006 proceeds from the sales of mortgage loans exceeded funds used to originate and purchase mortgage loans by $4.5 billion. In the quarter ended March 31, 2005 funds used to originate and purchase mortgage loans exceeded proceeds from the sales of mortgage loans by $3.1 billion. This increase in cash provided by operations was partially offset by a $3.4 billion increase in cash used to settle trading securities.

Net cash used by investing activities was $2.5 billion for the three months ended March 31, 2006, compared to $18.1 billion for the three months ended March 31, 2005. The decrease in net cash used in investing activities was attributable to a $3.8 billion decrease in cash used to fund loans held for investment, combined with a $1.9 billion decrease in cash used to fund investments in other financial instruments and a $9.7 billion decrease in securities purchased under agreements to resell, securities borrowed and federal funds sold.

Net cash provided by financing activities for the three months ended March 31, 2006 totaled $0.8 billion, compared to $17.9 billion for the three months ended March 31, 2005. The decrease in cash provided by financing activities was comprised of a $15.1 billion net decrease in short-term borrowings, including securities sold under agreements to repurchase and a $2.3 billion decrease in long-term debt.

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Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

Off-Balance Sheet Arrangements and Guarantees

In the ordinary course of our business we engage in financial transactions that are not reflected on our balance sheet. (See Note 2—“Summary of Significant Accounting Policies” in the 2005 Annual Report for a description of our consolidation policy.) Such transactions are structured to manage our interest rate, credit or liquidity risks, to 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 as specified by Statement of Financial Accounting Standards No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” (“SFAS 140”), and as such involve the transfer of the mortgage loans to qualifying special-purpose entities that are not subject to consolidation. In a securitization, an entity transferring the assets is able to convert those assets into cash. Special-purpose entities used in such securitizations obtain cash to acquire the assets by issuing securities to investors. In a securitization, we customarily provide representations and warranties with respect to the mortgage loans transferred. In addition, we generally retain the right to service the transferred mortgage loans.

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 becomes burdensome in relation to the benefits of servicing.

Our Prime Mortgage Loans generally are securitized on a non-recourse basis, while Prime Home Equity and Nonprime Loans generally are securitized with limited recourse for credit losses. During the quarter ended March 31, 2006, we securitized $8.5 billion in Nonprime Mortgage and Prime Home Equity Loans with limited recourse for credit losses. Our exposure to credit losses related to our limited recourse securitization activities is limited to the carrying value of our subordinated interests and to the contractual limit of reimbursable losses under our corporate guarantees less the recorded liability for such guarantees. For a further discussion of our exposure to credit risk, see the section in this Report entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Credit Risk Management.”

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

Contractual Obligations

The following table summarizes our significant contractual obligations at March 31, 2006, with the exception of short-term borrowing arrangements and pension and post-retirement benefit plans.

	Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years		Total
	(in thousands)
Obligations:
Notes payable	$	18,087,669	$	27,544,857	$	11,446,886	$	1,991,529	$	59,070,941
Time deposits	$	17,681,879	$	4,144,440	$	1,564,443	$	1,455,840	$	24,846,602
Operating leases	$	169,233	$	249,931	$	111,418	$	31,900	$	562,482
Purchase obligations	$	151,124	$	12,931	$	5,242	$	668	$	169,965

As of March 31, 2006, the Company had undisbursed home equity lines of credit and construction loan commitments of $7.5 billion and $1.4 billion, respectively. As of March 31, 2006, outstanding commitments to fund mortgage loans totaled $42.3 billion, outstanding commitments to sell mortgage loans totaled $31.2 billion and outstanding commitments to buy mortgage loans totaled $18.5 billion.

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In connection with the Company’s underwriting activities, the Company had commitments to purchase and sell new issues of securities aggregating $130.2 million and $62.4 million at March 31, 2006, respectively.

Prospective Trends

United States Mortgage Market

Over the last decade, total mortgage indebtedness in the United States has grown at an average annual rate of 9%. We believe that continued population growth, ongoing developments in the mortgage market and the prospect of relatively low interest rates support 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 in nonprime lending, 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 and demand by borrowers 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 because of these factors, the industry has undergone consolidation in recent years.

Today, large and sophisticated financial institutions dominate the residential mortgage industry. According to the trade publication Inside Mortgage Finance, the top 30 originators produced 91% of all loans originated during the quarter ended March 31, 2006, as compared to 90% for during the quarter ended December 31, 2005.

The loan volume for the top five originators, according to Inside Mortgage Finance, is as follows:

Institution	Three Months Ended March 31, 2006			Three Months Ended December 31, 2005
	(in billions)
Countrywide		$	103		$	133
Wells Fargo Home Mortgage		91			117
Washington Mutual		52			60
Chase Home Finance		41			45
CitiMortgage(1)		36			—
Bank of America Mortgage(1)		—			40
Total for Top Five		$	323		$	395

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

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We believe the 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 and enhanced ability to recruit talented personnel.

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 continues, and either the secondary mortgage market does not continue to provide a competitive outlet for these loans, or we are unable to sustain an adequate portfolio lending capacity.

Housing Appreciation

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 monetize 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. Although there may be some markets that experience housing price depreciation, we believe that price depreciation will not occur nationwide. Over the long term, we expect that housing appreciation will be positively correlated with both consumer price inflation and growth in personal income.

Regulatory Trends

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 local, 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 nonprime lending opportunities. In addition, there may be future local, state and federal legislation that restricts our ability to communicate with and solicit business from current and prospective customers in such a way that we are not able to originate new loans or sell other products in as profitable a manner.

Implementation of New Accounting Standards

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 123R, “Share-Based Payment” (“SFAS 123R”), an amendment of FASB Statement No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”). This Statement requires companies to measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. SFAS 123R requires measurement of fair value of employee stock options using an option pricing model that takes into account the awarded options’ unique characteristics.

SFAS 123R requires charging the recognized cost to expense over the period the employee provides services to earn the award, generally its vesting period.

67

SFAS 123R’s measurement requirements for employee stock options are similar to those under the fair value method of SFAS 123, which is the basis for the pro forma stock-based compensation disclosure in “Note 3—Earnings Per Share” in the financial statement section of this Report. However, SFAS 123R requires:

·initial and ongoing estimates of the amount of shares that will vest while SFAS 123 provided entities the option of assuming that all shares would vest and then “truing up” compensation cost and expense as shares were forfeited

·  different measurements of awards that contain performance or market conditions

·  distinguishment of awards between equity and liabilities based on guidance in Statement of Financial Accounting Standards No. 150 “Accounting for Certain Financial Instruments with Characteristics of both Liability and Equity”.

SFAS 123R also provides for the use of alternative models to determine compensation cost related to stock option grants. The model the Company will use to value its employee stock based compensation is a variant of the Black-Scholes-Merton option pricing model. Adoption of SFAS 123R is expected to have an effect of approximately $40 million net of tax related to the expensing of prior periods’ unamortized grants in 2006. The Company adopted SFAS 123R on January 1, 2006.

In March 2006, the FASB issued Statement of Financial Accounting Standards No. 156, “Accounting for Servicing of Financial Assets” (“SFAS 156”), which amends SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” (“SFAS 140”) SFAS 156 changes SFAS 140 by requiring that Mortgage Servicing Rights (“MSRs”) be initially recognized at their fair value and by providing the option to either: (1) carry MSRs at fair value with changes in fair value recognized in earnings; or (2) continue recognizing periodic amortization expense and assess the MSRs for impairment as was originally required by SFAS 140. This option may be applied by class of servicing asset or liability. The subsequent measurement of MSRs at fair value eliminates the need for entities that manage risks inherent in MSRs with derivatives to qualify for hedge accounting treatment under SFAS 133. SFAS 156 is effective for all separately recognized servicing assets and liabilities acquired or issued after the beginning of an entity’s fiscal year that begins after September 15, 2006, with early adoption permitted. This statement also requires servicing rights to be measured initially at fair value and considered part of the proceeds received in exchange for the sale of assets. We have chosen to early adopt this standard in the current quarter and elected fair value accounting for our existing types of residential mortgage servicing rights. The carrying amount of mortgage servicing rights (“MSRs”) at December 31, 2005 was adjusted on January 1, 2006 to reflect the change in measurement to fair value and is included as a cumulative-effect adjustment to retained earnings as of January 1, 2006 in the amount of $67.1 million.

Factors That May Affect Our Future Results

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

·Projections of our revenues, income, earnings per share, capital structure or other financial items

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

·Forecasts of future economic performance, interest rates, profit margins and our share of future markets

·Descriptions of assumptions underlying or relating to any of the foregoing.

68

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

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

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

·Changes in general business, economic, market and political conditions from those expected

·Our inability to effectively implement our business strategies or manage the volatility inherent in the mortgage banking business

·The fact that 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

·The level of competition in each of our business segments

·Negative public opinion that could damage our reputation

·Changes in generally accepted accounting principles or in the legal, regulatory and legislative environments in the markets in which the Company operates

·Incomplete or inaccurate information provided by customers and counterparties, or adverse changes in the financial condition of our customers and counterparties

·Operational risk

·A general decline in U.S. housing prices or in 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 government sponsored enterprises (“GSEs”)

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

·Ineffectiveness of our hedging activities

·The level and volatility of interest rates

·The occurrence of natural disasters or other events or circumstances that could impact our operations or 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 including the Company’s Annual Report on Form 10-K. Other factors that could also cause results to differ from our expectations may not be described in any such report or

69

document. 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.

Item 3.Quantitative and Qualitative Disclosures About Market Risk

In response to this Item, the information set forth on pages 58 to 60 of this Form 10-Q is incorporated herein by reference.

Item 4.Controls and Procedures

Disclosure Controls and Procedures

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

Internal Control over Financial Reporting

Changes to Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting during the quarter ended March 31, 2006 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

70

PART II. OTHER INFORMATION

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds

The following table shows Company repurchases of its common stock for each calendar month during the three months ended March 31, 2006.

Calendar Month	Total Number of Shares Purchased(1)		Average Price Paid per Share			Total Number of Shares Purchased as Part of Publicly Announced Plan or Program(1)		Maximum Number of Shares That May Yet be Purchased Under the Plan or Program(1)
January		17,108		$	35.44		n/a		n/a
February		36,600		$	35.19		n/a		n/a
March		32,555		$	35.66		n/a		n/a
Total		86,263		$	35.42		n/a		n/a

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

Item 6.   Exhibits

(a)   Exhibits

See Index of Exhibits on page 73.

71

SIGNATURES

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

	COUNTRYWIDE FINANCIAL CORPORATION
	(Registrant)
Dated: May 9, 2006	By:	/s/ STANFORD L. KURLAND
		Stanford L. Kurland
		President and Chief Operating Officer
Dated: May 9, 2006	By:	/s/ ERIC P. SIERACKI
		Eric P. Sieracki
		Executive Managing Director and Chief Financial Officer

72

COUNTRYWIDE FINANCIAL CORPORATION

FORM 10-Q
March 31, 2006

INDEX OF EXHIBITS

Exhibit No.	Description
4.58	Indenture, dated February 1, 2005, among the Company, CHL and The Bank of New York, as Trustee.
4.59*	Form of Medium-Term Notes, Series B (fixed-rate) of CFC (incorporated by reference to Exhibit 4.11 to the registration statement on Form S-3 of the Company and CHL (File Nos. 333-131707, 333-131707-01, 333-131707-02 and 333-131707-03), filed with the SEC on February 9, 2006).
4.60*	Form of Medium-Term Notes, Series B (floating-rate) of CFC (incorporated by reference to Exhibit 4.12 to the registration statement on Form S-3 of the Company and CHL (File Nos. 333-131707, 333-131707-01, 333-131707-02 and 333-131707-03), filed with the SEC on February 9, 2006).
+10.127*	Amended and Restated Annual Incentive Plan, dated as of June 16, 2005 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on June 21, 2005).
+10.128*	Supplemental Savings and Investment Deferred Compensation Plan, dated as of December 30, 2005, effective as of February 1, 2006 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on January 6, 2006).
+10.129	Executive Contribution Account Plan.
12.1	Computation of the Ratio of Earnings to Fixed Charges.
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.

*       Incorporated by reference

+     Constitutes a management contract or compensatory plan or arrangement

73

EX-4.58

Exhibit 4.58

COUNTRYWIDE FINANCIAL CORPORATION
Issuer

COUNTRYWIDE HOME LOANS, INC.
Guarantor

TO

THE BANK OF NEW YORK

Trustee

INDENTURE

Dated as of February 1, 2005

Debt Securities

COUNTRYWIDE FINANCIAL CORPORATION

RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT OF 1939

AND INDENTURE, DATED AS OF FEBRUARY 1, 2005

ACT SECTION	INDENTURE SECTION
310(a)(1)	708
(a)(2)	708
310(a)(3)	N.A.
(a)(4)	N.A.
310(b)	709
310(c)	N.A.
311(a) and (b)	705
311(c)	N.A.
312(a)	801, 802(a)
312(b) and (c)	802
313(a)	803
313(b)	803
313(c)	803
313(d)	803
314(a)	804
314(b)	N.A.
314(c)(1) and (2)	102
314(c)(3)	N.A.
314(d)	N.A.
314(e)	102
314(f)	N.A.
315(a), (c) and (d)	701
315(b)	604
315(e)	614
316(a)(1)	612
316(a)(2)	Omitted
316(a) last sentence	101
316(b)	612
317(a)	602
317(b)	1103
318(a)	107

THIS RECONCILIATION AND TIE SHALL NOT, FOR ANY PURPOSE, BE DEEMED TO BE PART OF THE INDENTURE.

TABLE OF CONTENTS

		Page
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101.	Definitions	2
SECTION 102.	Compliance Certificates and Opinions	9
SECTION 103.	Form of Documents Delivered to Trustee	9
SECTION 104.	Acts of Holders	10
SECTION 105.	Notices, etc., to Trustee, Company and Guarantor	11
SECTION 106.	Notice to Holders; Waiver	11
SECTION 107.	Conflict with Trust Indenture Act	12
SECTION 108.	Effect of Headings and Table of Contents	12
SECTION 109.	Successors and Assigns	12
SECTION 110.	Separability Clause	12
SECTION 111.	Benefits of Indenture	12
SECTION 112.	Governing Law	12
SECTION 113.	Legal Holidays	12
SECTION 114.	Moneys of Different Currencies to be Segregated	13
SECTION 115.	Payment to Be in Proper Currency	13
ARTICLE TWO
FORMS OF DEBT SECURITIES AND GUARANTEES
SECTION 201.	Forms Generally	14
SECTION 202.	Forms of Debt Securities and Guarantees	14
SECTION 203.	Form of Trustee’s Certificate of Authentication	14
SECTION 204.	CUSIP Numbers	15
ARTICLE THREE
THE DEBT SECURITIES
SECTION 301.	Amount Unlimited; Issuable in Series	16
SECTION 302.	Denominations	18
SECTION 303.	Execution, Authentication, Delivery and Dating	18
SECTION 304.	Temporary Debt Securities	20
SECTION 305.	Registration, Registration of Transfer and Exchange	21
SECTION 306.	Mutilated, Destroyed, Lost and Stolen Debt Securities	23
SECTION 307.	Payment of Interest; Interest Rights Preserved	23
SECTION 308.	Persons Deemed Owners	26
SECTION 309.	Cancellation	26
SECTION 310.	Computation of Interest	26
SECTION 311.	Payment in Currencies	27
ARTICLE FOUR
GUARANTEES OF DEBT SECURITIES
SECTION 401.	Unconditional Guarantee	31
SECTION 402.	Execution, Authentication and Delivery	31

i

		Page
ARTICLE FIVE
SATISFACTION AND DISCHARGE
SECTION 501.	Satisfaction and Discharge of Indenture	33
SECTION 502.	Application of Trust Money	34
ARTICLE SIX
REMEDIES
SECTION 601.	Events of Default	35
SECTION 602.	Acceleration of Maturity; Rescission and Annulment	36
SECTION 603.	Collection of Indebtedness and Suits for Enforcement by Trustee	37
SECTION 604.	Trustee May File Proofs of Claim	38
SECTION 605.	Trustee May Enforce Claims without Possession of Debt Securities	38
SECTION 606.	Application of Money Collected	39
SECTION 607.	Limitation on Suits	39
SECTION 608.	Unconditional Right of Holders to Receive Principal, Premium (if any) and Interest	40
SECTION 609.	Restoration of Rights and Remedies	40
SECTION 610.	Rights and Remedies Cumulative	40
SECTION 611.	Delay or Omission Not Waiver	40
SECTION 612.	Control by Holders	41
SECTION 613.	Waiver of Past Defaults	41
SECTION 614.	Undertaking for Costs	41
SECTION 615.	Waiver of Stay or Extension Laws	42
ARTICLE SEVEN
THE TRUSTEE
SECTION 701.	Certain Duties and Responsibilities	43
SECTION 702.	Notice of Defaults	44
SECTION 703.	Certain Rights of Trustee	44
SECTION 704.	Not Responsible for Recitals or Issuance of Debt Securities	45
SECTION 705.	May Hold Debt Securities	46
SECTION 706.	Money Held in Trust	46
SECTION 707.	Compensation and Reimbursement	46
SECTION 708.	Corporate Trustee Required; Eligibility	47
SECTION 709.	Resignation and Removal; Appointment of Successor	47
SECTION 710.	Acceptance of Appointment by Successor	49
SECTION 711.	Merger, Conversion, Consolidation or Succession to Business	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	51
SECTION 802.	Preservation of Information; Communications to Holders	51
SECTION 803.	Reports by Trustee	51

ii

		Page
SECTION 804.	Reports by Company and Guarantor	52
ARTICLE NINE
CONSOLIDATION, MERGER, CONVEYANCE OR TRANSFER
SECTION 901.	Company May Consolidate, etc., Only on Certain Terms	53
SECTION 902.	Successor Corporation Substituted	53
SECTION 903.	Guarantor May Consolidate, etc., Only on Certain Terms	53
SECTION 904.	Successor Corporation Substituted	54
SECTION 905.	Assumption by Guarantor	54
ARTICLE TEN
SUPPLEMENTAL INDENTURES
SECTION 1001.	Supplemental Indentures without Consent of Holders	55
SECTION 1002.	Supplemental Indentures with Consent of Holders	56
SECTION 1003.	Execution of Supplemental Indentures	57
SECTION 1004.	Effect of Supplemental Indentures	57
SECTION 1005.	Notice to Holders	57
SECTION 1006.	Conformity with Trust Indenture Act	58
SECTION 1007.	Reference in Debt Securities to Supplemental Indentures	58
ARTICLE ELEVEN
COVENANTS
SECTION 1101.	Payment of Principal, Premium and Interest	59
SECTION 1102.	Maintenance of Office or Agency	59
SECTION 1103.	Money for Debt Securities Payments to Be Held in Trust	59
SECTION 1104.	Investment Company Act	61
SECTION 1105.	Officers’ Certificate as to Default	61
ARTICLE TWELVE
REDEMPTION OF DEBT SECURITIES
SECTION 1201.	Applicability of Article	62
SECTION 1202.	Election to Redeem, Notice to Trustee	62
SECTION 1203.	Selection by Trustee of Debt Securities to Be Redeemed	62
SECTION 1204.	Notice of Redemption	62
SECTION 1205.	Deposit of Redemption Price	63
SECTION 1206.	Debt Securities Payable on Redemption Date	63
SECTION 1207.	Debt Securities Redeemed in Part	64
ARTICLE THIRTEEN
SINKING FUNDS
SECTION 1301.	Applicability of Article	65
SECTION 1302.	Satisfaction of Sinking Fund Payments with Debt Securities	65
SECTION 1303.	Redemption of Debt Securities for Sinking Fund	65

iii

		Page
ARTICLE FOURTEEN
DEFEASANCE
SECTION 1401.	Applicability of Article	67
SECTION 1402.	Defeasance Upon Deposit of Moneys or U.S. Government Obligations	67
SECTION 1403.	Deposited Moneys and U.S. Government Obligations To Be Held in Trust	69
SECTION 1404.	Repayment to Company	69
ARTICLE FIFTEEN
REPAYMENT AT THE OPTION OF HOLDERS
SECTION 1501.	Applicability of Article	70
SECTION 1502.	Repayment of Debt Securities	70
SECTION 1503.	Exercise of Option	70
SECTION 1504.	When Debt Securities Surrendered for Repayment Become Due and Payable	71
SECTION 1505.	Debt Securities Repaid in Part	71

iv

INDENTURE dated as of February 1, 2005, among COUNTRYWIDE FINANCIAL CORPORATION, a Delaware corporation (hereinafter called the “Company”), COUNTRYWIDE HOME LOANS, INC., a New York 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.

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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.

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“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.

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“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

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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

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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 Company, or by one or more Subsidiaries, or by the Guarantor 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

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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.

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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

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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.

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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.

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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.

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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:

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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.

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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;

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(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.

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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

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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

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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.

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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

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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.

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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.

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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

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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

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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.

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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

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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.

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SECTION 312. Optional Extension of Stated Principal Maturity.

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

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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.

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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

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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.

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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

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(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.

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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

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(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,

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(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.

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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

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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;

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(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

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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

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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.

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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

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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;

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(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.

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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.

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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, seques-trator (or other similar official) of the Trustee or of its property or affairs, or any public

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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.

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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.

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(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.

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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.

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(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.

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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:

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(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.

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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

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(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

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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.

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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.

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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.

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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

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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.

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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.

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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

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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.

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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 1204.

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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.

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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

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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.

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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.

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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.

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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.

*  *  *  *  *

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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 FINANCIAL
CORPORATION
By:	/s/ Thomas Keith McLaughlin
	Thomas Keith McLaughlin
	Executive Managing Director and
	Chief Financial Officer
COUNTRYWIDE HOME LOANS, INC.
By:	/s/ Thomas Keith McLaughlin
	Thomas Keith McLaughlin
	Executive Managing Director and
	Chief Financial Officer
THE BANK OF NEW YORK, as Trustee
By:	/s/ Joseph A. Lloret
	Joseph A. Lloret
	Assistant Treasurer

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State of California	)
County of Los Angeles	)	SS.:

On the 4th day of February, 2005, before me personally came Thomas Keith McLaughlin, to me known, who, being by me duly sworn, did depose and say that he is Executive Managing Director and Chief Financial Officer of Countrywide Financial Corporation, 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/ Carla Jo Mason
	Notary Public
Seal

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State of California	)
County of Los Angeles	)	SS.:

On the 4th day of February, 2005, before me personally came Thomas Keith McLaughlin, to me known, who, being by me duly sworn, did depose and say that he is Executive Managing Director and Chief Financial Officer 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/ Carla Jo Mason
	Notary Public
Seal

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State of New York	)
County of New York	)	SS.:

On the 7 day of February, 2005, before me personally came Joseph A. Lloret 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/ Lucille Mercurio
	Notary Public, State of New York
	No. 03-4654994
	Qualified in Bronx County
	Certificate filed in New York County
	Commission Expires 12/31/2005
[Seal]

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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

oelects 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.

orescinds 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)

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EX-10.129

Exhibit 10.129

Countrywide Financial Corporation
Executive Contribution Account Plan

TABLE OF CONTENTS

		Page
ARTICLE 1. Definitions		1
1.1	“Account”	1
1.2	“Beneficiary”	1
1.3	“Beneficiary Designation Form”	1
1.4	“Benefit Distribution Date”	1
1.5	“Board”	1
1.6	“Change in Control”	1
1.7	“Code”	3
1.8	“Committee”	3
1.9	“Company”	3
1.10	“Compensation”	4
1.11	“Disability” or “Disabled”	4
1.12	“ERISA”	4
1.13	“Initial Account Balance”	4
1.14	“Key Employee”	4
1.15	“Participant”	4
1.16	“Plan”	4
1.17	“Plan Year”	4
1.18	“Retirement”, “Retire(s)” or “Retired”	4
1.19	“SERP”	4
1.20	“Termination of Employment”	4
1.21	“Unforeseeable Financial Emergency”	4
1.22	“Years of Plan Participation”	5
1.23	“Years of Service”	5
ARTICLE 2. Participation		5
2.1	Participation	5
ARTICLE 3. Accounts		5
3.1	Initial Account Balance	5
3.2	Company Contributions	5
3.3	Paid Leave of Absence	6
3.4	Vesting	6
3.5	Investment of Accounts	6
ARTICLE 4. Distributions		6
4.1	Payment of Benefit	6
4.2	In-Service Distributions	7
ARTICLE 5. Beneficiary Designation		7
5.1	Beneficiary	7
5.2	Acknowledgment	7
5.3	No Beneficiary Designation	7
ARTICLE 6. Termination and Amendment		8
6.1	Termination of Plan	8

ARTICLE 7. Administration		8
7.1	Committee Duties	8
7.2	Agents	8
7.3	Binding Effect of Decisions	9
7.4	Indemnity of Committee	9
ARTICLE 8. Other Benefits and Agreements		9
8.1	Coordination with Other Benefits and Agreements	9
ARTICLE 9. Claims Procedures		9
9.1	Presentation of Claim	9
9.2	Notification of Decision	9
9.3	Review of a Denied Claim	10
9.4	Decision on Review	10
ARTICLE 10. Miscellaneous		11
10.1	Status of Plan	11
10.2	Unsecured General Creditor	11
10.3	Company’s Liability	11
10.4	Nonassignability	11
10.5	Not a Contract of Employment	12
10.6	Furnishing Information	12
10.7	Terms	12
10.8	Captions	12
10.9	Governing Law	12
10.10	Notice	12
10.11	Withholding	13
10.12	Successors	13
10.13	Spouse’s Interest	13
10.14	Validity	13
10.15	Incompetent	13
10.16	Insurance	13

COUNTRYWIDE FINANCIAL CORPORATION

EXECUTIVE CONTRIBUTION ACCOUNT PLAN

Purpose

The purpose of this Plan is to provide specified benefits to certain key employees of Countrywide Financial Corporation (the “Company”) (and participating subsidiaries) who are expected to contribute materially to the continued growth, development and future business success of the Company. This Plan shall be unfunded for tax purposes and for purposes of Title I of ERISA.

ARTICLE 1.
Definitions

Unless otherwise clearly apparent from the context, the following phrases or terms shall have the following meanings:

1.1“Account” shall mean, on any date, the sum of (i) the Initial Account Balance, (ii) the Company’s annual contributions hereunder, and (iii) earnings credited or debited to the Account, less (iv) any distributions made to the Participant or his Beneficiary hereunder. The Account shall be a bookkeeping entry only and shall be utilized solely as a device for the measurement and determination of the amounts payable hereunder.

1.2“Beneficiary” shall mean one or more persons, trusts, estates or other entities, designated in accordance with Article 5, to receive benefits under this Plan upon a Participant’s death.

1.3“Beneficiary Designation Form” shall mean the form established from time to time by the Committee to designate one or more Beneficiaries.

1.4“Benefit Distribution Date” shall mean the date upon which a Participant becomes entitled to a distribution of his vested Account balance. Except with respect to Key Employees, a Participant’s Benefit Distribution Date shall be the date which is sixty (60) days following the date on which he has a Termination of Employment (including by reason of Retirement, death or Disability). A Key Employee’s Benefit Distribution Date shall be the last day of the six-month period immediately following the date on which the Participant has such a Termination of Employment.

1.5“Board” shall mean the board of directors of the Company.

1.6“Change in Control” shall mean the first to occur of any 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 this Agreement, (1) ”Voting Securities” shall mean the Company’s outstanding voting securities entitled to vote generally in the election of directors and (2) a “Non-Control Acquisition” shall mean an acquisition by (i) an employee benefit plan (or a trust forming a part thereof) maintained by (A) the Company or (B) any corporation or other Person of which a majority of its voting power or its voting equity securities or equity interest is owned, directly or indirectly, by 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)The individuals who, as of  September 13, 1996 are members of the Board (the “Incumbent Board”), cease for any reason to constitute at least two thirds of the members of the Board; provided, however, that if the election, or nomination for election by the Company’s common stockholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Agreement, be considered as a member of the Incumbent Board; provided further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened “Election Contest” (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a “Proxy Contest”) including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or

(c)The consummation of:

(i)A merger, consolidation or reorganization involving 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;

2

(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; and

(C)no Person other than (i) the Company, (ii) any Subsidiary, (iii) any employee benefit plan (or any trust forming a part thereof) maintained by the Company, the Surviving Corporation, or any Subsidiary, or (iv) any Person who, immediately prior to such merger, consolidation or reorganization had Beneficial Ownership of twenty five percent (25%) or more of the then outstanding Voting Securities or common stock of the Company, has Beneficial Ownership of twenty five percent (25%) or more of the combined voting power of the Surviving Corporation’s then outstanding Voting Securities or its common stock;

(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 Persons; provided, however, that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of common stock or Voting Securities by 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.

1.7“Code” shall mean the Internal Revenue Code of 1986, as it may be amended from time to time and any related regulations or other guidance issued thereunder.

1.8“Committee” shall mean the committee described in Article 10.

1.9“Company” shall mean Countrywide Financial Corporation, a Delaware corporation, and any successor thereto.

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1.10“Compensation” shall mean the sum of a Participant’s base salary and any bonus paid to the Participant during any Plan Year, in each case, before reduction for compensation deferred pursuant to all qualified, non-qualified and Code Section 125 plans, up to a maximum aggregate amount of three million dollars ($3,000,000).

1.11“Disability” or “Disabled” shall mean a “disability”, as such term is defined in Code Section 409A.

1.12“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as it may be amended from time to time, and any related regulations or other guidance issued thereunder.

1.13“Initial Account Balance” of a Participant shall mean the amount set forth on the schedule attached hereto.

1.14“Key Employee” shall mean any Participant who is a “key employee” within the meaning of Code Section 409A.

1.15“Participant” shall mean any employee of the Company (or any participating subsidiary) who becomes a Participant in accordance with Section 2.1 hereof.

1.16“Plan” shall mean the Countrywide Financial Corporation Executive Contribution Account Plan.

1.17“Plan Year” shall mean the calendar year.

1.18“Retirement”, “Retire(s)” or “Retired” shall mean a Participant’s separation from service with the Company on or after the earlier of the attainment of (a) age sixty-five (65) or (b) age fifty-five (55) with ten (10) Years of Service.

1.19“SERP” shall mean the Countrywide Financial Corporation Supplemental Executive Retirement Plan.

1.20“Termination of Employment” shall mean a Participant’s separation from service with the Company for any reason other than Retirement, Disability, death or an authorized leave of absence (as determined in accordance with Code Section 409A).

1.21“Unforeseeable Financial Emergency” shall mean an unforeseeable 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, the Participant’s spouse, or a dependent (as defined in Code Section 152(a)) of the Participant, (ii) a loss of the Participant’s property due to casualty, or (iii) such other similar 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, which shall interpret such term consistent with Code Section 409A.

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1.22“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 Termination of Employment, including any years of participation in the SERP prior to the commencement of participation hereunder.

1.23“Years of Service” shall mean the total number of full years in which a Participant has been employed by the Company. The Committee shall make a determination, in its sole discretion, as to whether any partial year of employment shall be counted as a Year of Service.

ARTICLE 2.
Participation

2.1Participation.  Any employee of the Company (or any participating subsidiary) who, on January 1, 2006, is (a) a Managing Director (or is employed in a more senior position) or (b) an Executive Vice President who has completed at least five (5) Years of Service as of December 31, 2005, automatically shall become a Participant on January 1, 2006. On or after January 1, 2006, anyone who becomes a Managing Director (or is employed in a more senior position) or who completes five (5) Years of Service as an Executive Vice President automatically shall become a Participant on the first day of the  calendar year next following the date on which the individual attains such status. Any employee who is a Participant in the SERP shall not be eligible to participate herein.

ARTICLE 3.
Accounts

3.1Initial Account Balance. As of January 1, 2006, each Participant shall be credited with his or her Initial Account Balance, if any.

3.2Company Contributions.

(a)For each Plan Year, the Company shall make the following contribution to a Participant’s Account: 

Position	Percentage of Compensation
Senior Managing Director	5	%
Managing Director	2	%
Executive Vice President	1	%

Such contribution shall be made by March 15^th of the year following the year in which it is earned.

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(b)Notwithstanding the foregoing, the Company shall make no contribution for any Participant who (i) Retires, dies, suffers a Disability or incurs a Termination of Employment prior to December 31^st of the year with respect to which the contribution is being made, or (ii) incurs a Termination of Employment following December 31^st but before the date on which the contribution is actually made, unless such Participant is fully vested in his Account as of the date of such Termination of Employment.

(c)The Company shall have the right, but not the obligation, in its sole discretion, to make an additional contribution in any year, based upon its attainment of certain performance goals or targets set by the Committee for that year and communicated to the affected Participants. Any such targets and the amount of the discretionary contribution, if any, shall be established by the Committee within ninety (90) days of (i) the beginning of the applicable Plan Year or (ii) the date on which an individual first becomes a Participant.

3.3Paid Leave of Absence.  If a Participant is authorized by the Company to take a paid leave of absence or takes an unpaid leave of absence with the Company’s consenthe or she shall continue to be entitled to a Company contribution while on such leave.

3.4Vesting.  A Participant shall vest in the balance in her Account upon (a) attaining age 65, or his death, or Disability while employed or (b) the completion of ten (10) Years of Service with the Company, plus the attainment of the earlier of age 55 or five Years of Plan Participation.

3.5Investment of Accounts.  Each Participant shall be entitled to direct the investment of the amount in his Account in the manner and time, and among the investment media permitted under, the Company’s Executive Deferred Compensation Plan, and/or any other investment vehicle selected by the Company’s Investment Committee for Employee Benefit Plans (or any successor thereto). Notwithstanding the foregoing, such investments are for measurement purposes only, and a Participant’s election of any such investment fund, the allocation of her Account balance thereto, and the crediting or debiting of earnings thereon, shall not be considered or construed in any manner as an actual investment of her Account balance in any such investment media but shall at all times be a bookkeeping entry only. The Participant shall at all times remain an unsecured creditor of the Company.

ARTICLE 4.
Distributions

4.1Payment of Benefit.

(a)Upon a Participant’s death or Disability, she (or her estate or legal representative, as applicable) shall receive her vested Account balance in a single lump sum beginning on, and determined as of, her Benefit Distribution Date.

(b)A Participant shall have the right to elect to receive her vested Account balance upon Retirement or Termination of Employment in either (i) a single lump sum or

6

(b) an annuity payable in equal monthly installments over a period of five (5), ten (10) or fifteen (15) years, in each case, beginning on her Benefit Distribution Date. Such election shall be made in accordance with procedures established by the Committee, including any form the Committee deems appropriate. If a Participant does not make an election with respect to the payment of her benefit, she shall be deemed to have elected to receive a lump sum payment.

4.2In-Service Distributions.  Notwithstanding the foregoing, a Participant shall be entitled to an immediate distribution of all or a portion of his vested Account balance upon the occurrence of an Unforeseeable Financial Emergency, provided that the amount that may be distributed shall be limited to the lesser of the amount needed to relieve such Unforeseeable Financial Emergency or the maximum amount permitted by Code Section 409A (as determined by the Committee, in its sole discretion). No other in-service distributions are permissible, except to the extent such distribution is permitted by Code Section 409A.

ARTICLE 5.
Beneficiary Designation

5.1Beneficiary.  At the time an Employee becomes a Participant, he shall have the right to designate and/or change primary and/or contingent beneficiaries to receive any benefits payable under the Plan upon his death by completing and submitting a Beneficiary Designation Form to the Committee, together with any other form or information required by the Committee. The Beneficiary Designation hereunder may be the same as or different from such designation under any other plan of the Company. Upon the acceptance by the Committee of a new Beneficiary Designation Form, all Beneficiary designations previously filed shall be canceled.

5.2Acknowledgment.  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.

5.3No Beneficiary Designation.  If a Participant fails to designate a Beneficiary or, if all designated Beneficiaries predecease the Participant or die prior to complete distribution of the Participant’s benefits, the Participant’s designated Beneficiary shall be deemed to be her surviving spouse, or, if none, the executor or personal representative of the Participant’s estate.

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ARTICLE 6.
Termination and Amendment

6.1Termination and Amendment.

(a)The Company reserves the right at any time, or from time to time, to amend or terminate the Plan by action of the Compensation Committee of the Board. Following a termination of the Plan, the balances in each Participant’s Account shall remain in the Plan until the Participant becomes eligible for a distribution in accordance with the terms of the Plan. Notwithstanding the foregoing, to the extent permissible under Code Section 409A and other applicable law, following a Change in Control, the Company shall be permitted to (i) terminate the Plan by action of the Board, and (ii) distribute the vested Account balances to Participants in a lump sum no later than twelve (12) months after a Change in Control, within the meaning of Section 409A of the Code.

(b)Notwithstanding anything herein to the contrary, no amendment or modification shall decrease the value of a Participant’s vested Account balance at the time the amendment or modification is made.

(c)Notwithstanding any provision of the Plan to the contrary, in the event that the Company, in its sole discretion, determines that any provision of the Plan may cause amounts deferred under the Plan to become immediately taxable to any Participant under Code Section 409A, the Company may (i) adopt such amendments to the Plan and appropriate policies and procedures, including amendments and policies with retroactive effect, that the Company determines necessary or appropriate to preserve the intended tax treatment of the Plan benefits provided by the Plan, and/or (ii) take such other actions as the Company determines necessary or appropriate to comply with the requirements of Code Section 409A.

ARTICLE 7.
Administration

7.1Committee Duties.  Except as otherwise provided herein, the Plan shall be administered by the Company’s Administrative Committee for Employee Benefit Plans. 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 the Plan, and (ii) decide or resolve any and all questions, including benefit entitlement determinations and interpretations of the Plan, as may arise in connection with the Plan. Committee members may be Participants hereunder, but 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 (including the Board or the Compensation Committee).

7.2Agents.  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.

8

7.3Binding Effect of Decisions.  The decision or action of the Committee 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.

7.4Indemnity 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, 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, or any such employee.

ARTICLE 8.
Other Benefits and Agreements

8.1Coordination with Other Benefits and Agreements.  The benefits provided for a Participant (or Beneficiary, as applicable) under the Plan are in addition to any other benefits available to such Participant (or Beneficiary) under any other plan, program or agreement maintained by the Company. The Plan shall supplement and shall not supersede, modify or amend any other such plan, program or agreement, except as may otherwise be expressly provided.

ARTICLE 9.
Claims Procedures

9.1Presentation of Claim.  No claim for benefits under the Plan is necessary for payment to be made. Any Participant or Beneficiary of a deceased Participant who believes that he has not received timely all benefits to which he is entitled under the Plan (a “Claimant”) may deliver to the Committee a written claim for a determination with respect to such claim. 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 one hundred and eighty (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.

9.2Notification 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

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(b)that the Committee has reached a conclusion contrary, in whole or in part, to the Claimant’s requested determination, in which case 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 9.3 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.

9.3Review 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 (as defined in applicable ERISA regulations) 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.

9.4Decision 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;

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(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).

ARTICLE 10.
Miscellaneous

10.1Status 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 (i) in a manner consistent with that intent, and (ii) in accordance with Code Section 409A.

10.2Unsecured 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 (or any subsidiary). For purposes of the payment of benefits under this Plan, any and all of the assets of the Company (and its subsidiaries) shall be, and remain, general, unpledged and unrestricted assets. The Company’s obligation under the Plan shall be merely that of an unfunded and unsecured promise to pay money in the future.

10.3Company’s Liability.  The Company’s liability for the payment of benefits shall be defined only by the Plan, and it shall have no obligation to a Participant or Beneficiary under the Plan except as expressly provided in the Plan.

10.4Nonassignability.  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.

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10.5Not a Contract of Employment.  The terms and conditions of the Plan shall not be deemed to constitute a contract of employment between the Company (or any subsidiary) and any Participant. Such employment is hereby acknowledged to be an “at will” employment relationship that can, subject to applicable law, 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 the Plan shall be deemed to give a Participant the right to be retained in the service of the Company (or any subsidiary), in any capacity or to interfere with the right of the Company (or any subsidiary) to discipline or discharge the Participant at any time.

10.6Furnishing 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, the Participant taking such physical examinations as the Committee may deem necessary.

10.7Terms.  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.

10.8Captions.  The captions of the articles, sections and paragraphs of the Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions.

10.9Governing Law.  Subject to ERISA, the provisions of the Plan shall be construed and interpreted according to the internal laws of the State of California without regard to its conflicts of laws principles.

10.10Notice.  Any notice or filing required or permitted to be given to the Committee under the Plan shall be sufficient if in writing and hand-delivered, or sent by registered or certified mail, to the address below:

Countrywide Financial Corporation

4500 Park Granada

Calabasas, CA  91302

Attn: Chief Administrative Officer

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 the Plan shall be sufficient if in writing and hand-delivered, or sent by mail, to the last known address of the Participant, as reflected in the Company’s records.

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10.11Withholding.  The Company shall withhold from any payments to be made to a Participant (or Beneficiary) under this Plan all federal, state and local income, employment and other taxes required to be withheld in connection with such payments, in amounts and in a manner to be determined in the Company’s sole discretion.

10.12Successors.  The provisions of the 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.

10.13Spouse’s Interest.  The interest, if any, 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.

10.14Validity.  In case any provision of the 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.

10.15Incompetent.  If the Committee determines, in its sole discretion, that a benefit under the 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.

10.16Insurance.  The Company, on its own behalf or on behalf of the trustee of the Trust, and, in its sole discretion, may apply for and procure insurance on the life of any 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 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 Company has applied for insurance.

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IN WITNESS WHEREOF, the Company has signed this Plan document as of April 13, 2006.

Countrywide Financial Corporation

/s/ Marshall Gates

Marshall Gates,

Senior Managing Director,

Chief Administrative Officer

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EX-12.1

Exhibit 12.1

COUNTRYWIDE FINANCIAL CORPORATION AND SUBSIDIARIES

EXHIBIT 12.1—COMPUTATION OF THE RATIO OF EARNINGS TO FIXED CHARGES

The following table sets forth the ratio of earnings to fixed charges of the Company for the quarters ended March 31, 2006 and 2005, the years ended December 31, 2005, 2004, 2003, 2002, and the ten-month period ended December 31, 2001, 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).

	Quarters Ended March 31,				Years Ended December 31,								Ten Months Ended December 31,
	2006		2005		2005		2004		2003		2002		2001
	(dollar amounts in thousands)
Net earnings	$	683,511	$	688,852	$	2,528,090	$	2,197,574	$	2,372,950	$	841,779		$	486,006
Income tax expense	435,852		460,145		1,619,676		1,398,299		1,472,822		501,244			302,613
Interest expense	1,899,323		995,937		5,616,425		2,608,338		1,940,207		1,461,066			1,474,719
Interest portion of rental expense	17,749		14,197		62,104		53,562		36,565		26,671			16,201
Earnings available to cover fixed charges	$	3,036,435	$	2,159,131	$	9,826,295	$	6,257,773	$	5,822,544	$	2,830,760		$	2,279,539
Fixed charges:
Interest expense	$	1,899,323	$	995,937	$	5,616,425	$	2,608,338	$	1,940,207	$	1,461,066		$	1,474,719
Interest portion of rental expense	17,749		14,197		62,104		53,562		36,565		26,671			16,201
Total fixed charges	$	1,917,072	$	1,010,134	$	5,678,529	$	2,661,900	$	1,976,772	$	1,487,737		$	1,490,920
Ratio of earnings to fixed charges	1.58		2.14		1.73		2.35		2.95		1.90			1.53

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Angelo R. Mozilo, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Countrywide Financial Corporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 8, 2006

/s/ ANGELO R. MOZILO

Angelo R. Mozilo

Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Eric P. Sieracki, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Countrywide Financial Corporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 8, 2006

/s/ ERIC P. SIERACKI

Eric P. Sieracki

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Countrywide Financial Corporation (the “Company”) for the quarter ended March 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Angelo R. Mozilo, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ ANGELO R. MOZILO

Angelo R. Mozilo

Chief Executive Officer

May 8, 2006

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Countrywide Financial Corporation and will be retained by Countrywide Financial Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Countrywide Financial Corporation (the “Company”) for the quarter ended March 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Eric P. Sieracki, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ ERIC P. SIERACKI

Eric P. Sieracki

Chief Financial Officer

May 8, 2006

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Countrywide Financial Corporation and will be retained by Countrywide Financial Corporation and furnished to the Securities and Exchange Commission or its staff upon request.